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Athenahealth, Inc. Earnings Soar Again Thanks to Big Cost-Cutting Moves

By Keith Speights - Jul 31, 2018 at 6:30AM

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The cloud-based healthcare applications provider's second-quarter revenue growth was so-so, but the bottom line improved significantly.

It's been an up-and-down kind of year for athenahealth, Inc. (ATHN) so far in 2018. The cloud-based healthcare applications provider posted solid first-quarter results in April. However, controversies ultimately led to the company's founder and former CEO, Jonathan Bush, resigning in June.

Athenahealth provided an update on its second-quarter performance after the market closed on Monday. This time around, the company's numbers looked pretty good, especially on the bottom line. Here are the highlights from Athenahealth's second-quarter results. 

Doctor with tablet with healthcare icons displayed in foreground

Image source: Getty Images.

Athenahealth results: The raw numbers

Metric  Q2 2018 Q2 2017 Year-Over-Year Change

Sales

$331.9 million (old revenue recognition standard)

$323.3 million (new revenue recognition standard)

$301.1 million

10.2%

Net income from continuing operations

$36.1 million (old revenue recognition standard)

$36.4 million (new revenue recognition standard)

$9.9 million

264.6%

Adjusted earnings per share (EPS)

$1.08 (old revenue recognition standard)

$1.09 (new revenue recognition standard)

$0.51

111.8%

Data source: Athenahealth.

What happened with Athenahealth this quarter?

First, let's address why there are two sets of numbers provided in the table above for Athenahealth's second-quarter results. The company adopted a new revenue recognition standard as of Jan. 1, 2018. Comparisons to the prior-year period aren't meaningful using the new standard, so Athenahealth also provided figures using the old revenue recognition standard.

Year-over-year sales growth of a little over 10% pales in comparison to what Athenahealth used to deliver. The company also saw slower growth in the second quarter than it did in the first quarter of 2018.

Still, though, Athenahealth's network growth metrics for its products were solid. The company reported 15% year-over-year growth in athenaOne Collector providers, 17% growth in Clinical module providers, and 18% in Communicator providers. Athenahealth also saw 20% year-over-year growth in covered lives for its population health product. The strongest growth of all was with its hospital software, with a 136% increase in discharge bed days from the prior-year period.

The company's marked improvement in GAAP and non-GAAP adjusted earnings stemmed from Athenahealth's cost-cutting efforts. Selling and marketing expenses dropped 24.8% below the prior-year period. General and administrative costs fell 18% year over year. The only area with increased spending was research and development, with second-quarter costs rising 14.2% higher than the same quarter of 2017.

What management had to say

Athenahealth CFO Marc Levine stated:

We are pleased to deliver strong financial results during the second quarter. We achieved double digit top-line growth on a comparable basis and significantly improved profitability and operating cash flow year-over-year. As a result, we are raising our fiscal 2018 earnings guidance. We remain focused on executing against our product and technology initiatives, improving the customer experience, and delivering on our financial commitments.

Looking forward

Athenahealth bumped up its full-year 2018 guidance based on its second-quarter performance. It now expects 2018 revenue between $1.335 billion and $1.365 billion. It previously projected full-year revenue between $1.31 billion and $1.38 billion.

Full-year 2018 GAAP operating income is now also forecast to land between $153 million and $187 million, compared to the company's previous guidance of between $108 million and $152 million. Non-GAAP operating income for the year is expected to be between $244 million and $270 million, compared to the previous outlook of $210 million to $235 million. 

The big question for investors, however, is how quickly Athenahealth might find a buyer and what price it could fetch. Elliott Management offered $160 per share for the company in May. At that time, though, some thought that Jonathan Bush's vision for the company could prevent a deal from going through. With Bush now gone, Athenahealth's board is actively looking at a potential sale or merger. 

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