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8-K - FORM 8-K - ATHENAHEALTH INC | b85064e8vk.htm |
EX-99.1 - EX-99.1 - ATHENAHEALTH INC | b85064exv99w1.htm |
Exhibit 99.2
Fourth Quarter & Fiscal Year 2010 |
Prepared Remarks
Jonathan Bush, President, Chairman & Chief Executive Officer
Tim Adams, Senior Vice President, Chief Financial Officer
Jonathan Bush, President, Chairman & Chief Executive Officer
Tim Adams, Senior Vice President, Chief Financial Officer
About These Remarks
The following commentary is provided by management in conjunction with athenahealths fourth
quarter and full year 2010 earnings press release. These remarks represent managements current
views on the Companys financial and operational performance and are provided to give investors and
analysts more time to analyze and understand our performance in advance of the earnings conference
call. These prepared remarks will not be read on the conference call. A complete reconciliation
between GAAP and non-GAAP results as well as a summary of supplemental metrics and definitions is
provided in the tables following these prepared remarks.
Earnings Conference Call Information
As previously announced, the Companys fourth quarter and full year 2010 earnings conference call
will be held on Friday, February 18th at 8:00 a.m. ET and will include only brief
comments followed by questions and answers. To participate in the Companys live conference call
and webcast, please dial 800-435-1261 (617-614-4076 for international calls) using conference code
No. 15398557 or visit the Investors section of the Companys web site at
www.athenahealth.com. A replay will be available for one week following the conference call
at 888-286-8010 (617-801-6888 for international calls) using conference code No. 52965842. A
webcast replay will also be archived on the Companys website.
Safe Harbor and Forward-Looking Statements
These remarks contain forward-looking statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting
managements expectations for future financial and operational performance and operating
expenditures, expected growth, including anticipated annual growth rates, profitability and
business outlook, increased sales and marketing expenses, increased cross-selling efforts among the
Companys service offerings, expected client implementations, expected certification and regulatory
approvals, the benefits of the Companys current service offerings and research and development for
new service offerings, the benefits of current and expected strategic sales and marketing
relationships, and statements found under the Companys Reconciliation of Non-GAAP Financial
Measures section of these remarks. The forward-looking statements in these remarks do not
constitute guarantees of future performance. These statements are neither promises nor guarantees,
and are subject to a variety of risks and uncertainties, many of which are beyond the Companys
control, which could cause actual results to differ materially from those contemplated in these
forward-looking statements. In particular, the risks and uncertainties include, among other things:
the Companys fluctuating operating results; the Companys variable sales and implementation
cycles, which may result in fluctuations in its quarterly results; risks associated with its
expectations regarding its ability to maintain profitability; impact of increased sales and
marketing expenditures, including whether increased expansion in revenues is attained and whether
impact on margins and profitability is longer term than expected; changes in tax rates or exposure
to additional tax liabilities; the highly competitive industry in which the Company operates and
the relative immaturity of the market for its service offerings; and the evolving and complex
governmental and regulatory compliance environment in which the Company and its clients operate.
Existing and prospective investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company undertakes no
obligation to update or revise the information contained in these remarks, whether as a result of
new information, future events or circumstances, or otherwise. For additional disclosure regarding
these and other risks faced by the Company, see the disclosures contained in its public filings
with the Securities and Exchange Commission, available on the Investors section of the Companys
website at http://www.athenahealth.com and on the SECs website at
http://www.sec.gov.
Use of Non-GAAP Financial Measures
These remarks contain non-GAAP financial measures as defined by SEC Regulation G. The GAAP
financial measure most directly comparable to each non-GAAP financial measure used or discussed,
and a reconciliation of the differences between each non-GAAP financial measure and the comparable
GAAP financial measure, are included following these prepared remarks or can be found within the
Companys fourth quarter and full year 2010 earnings press release on the Investors section of the
Companys web site at http://www.athenahealth.com.
Opening Remarks
2010 was athenahealths 11th year of consecutive quarterly revenue growth and our
11th year of annual revenue growth in excess of 30%. During 2010, we expanded our
quota-carrying sales force by 54% and launched new marketing initiatives in order to increase
awareness. We expanded the on-ramp to our network by building out a remote implementation
capability for small physicians practices adopting athenaClinicals®. We launched our third core
service offering, athenaCommunicator®, and piloted our new athenaCommunitySM initiative.
We forged new partnerships including the Humana-athenahealth Medical Home EHR Rewards Program. And
most recently, we created a two-pronged sales approach designed to address the small/group practice
and enterprise markets more aggressively.
Taken together, these efforts represent a tremendous step forward in athenahealths mission to be
medical groups most trusted business service. And, importantly, they are consistent with our
stated investment philosophy as an organization focused on building long-term shareholder value.
Jonathan Bushs commentary from our very first earnings call in 2007 remains true today:
As a network, were closing the massive process integrity gap, that frustrating difference
between say and do, that costs us so much money and pride in health care...we hope to transform the
way physician practices operate in the United States...Given the scope of this opportunity, we
believe that the most important thing investors need to understand about athenahealth is that we
are going long. We plan to make this transformation happen whether it is an easy one or a hard one
to accomplish.
Source: athenahealth Q3 2007 earnings call, November 1, 2007
As presented at our recent Investor Summit, there are several new forces impacting our ability
to achieve our strategic goal for annual revenue growth of at least 30% going forward:
| Hospitals becoming channel partners |
| Consolidation of the physician market |
| Industry rush to EHRs |
| Increased presence of private equity in health care |
| New focus on electronic care coordination up and down the health care referral chain |
In order to exploit these forces and ensure that they work to our advantage, we will employ a
balanced strategy:
| Maintain high service quality |
| Invest in research and development |
| Invest in sales and marketing |
Our pursuit of this strategy is structured around the following key themes:
| Jedi |
o | Build deep product, client and market expertise in all employees |
o | The objective: All athenistas will know and improve their personal first pass resolution rate on questions from clients and employees and on issues identified proactively |
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| War Rooms |
o | Integrate use of market data and resources into client service and vice versa |
o | The objective: In addition to our service offerings, our network itself and the access it gives providers to their peers will become a greater driver of value to clients |
| athenaClinicals Excellence |
o | Expand the financial and clinical effectiveness of athenaClinicals, especially around patient throughput and payer-specific quality metrics |
o | The objective: We will solidify our positioning as the only EHR that is as good for cash flow as it is for patient care |
| athenaCommunity |
o | We will shape our business model into one with a two sided revenue model |
o | The objective: While the traditional athenahealth prospect (one side of the market) pays less, athenahealths revenue remains unchanged because receivers of referrals (the other side) become a new source of revenue |
The last theme, around athenaCommunity, is one that has the potential to drive viral growth for
athenahealth. With this initiative, we aim to form a business-to-business direct connection, a
social network of sorts across physician practices that offers financial and operational
advantages. We began to pilot athenaCommunity in 2010 and will expand our pilot program to new
markets in 2011. The concept of athenaCommunity, when fully realized, would represent tremendous
progress toward our vision of building a national information infrastructure that helps make health
care work as it should.
Results Overview
athenahealths top line results for the fourth quarter and fiscal year (FY) 2010 reflect strong
annual revenue growth.
| Total revenue: |
o | $69.4 million in Q4 2010, representing 27% growth over $54.4 million in Q4 2009 | ||
o | $245.5 million in FY 2010, representing 30% growth over $188.5 million in FY 2009 |
Our bottom line results for Q4 and FY 2010, consistent with our growth strategy, demonstrate strong
sales and marketing investments and a focus on operating leverage:
| Non-GAAP Adjusted Gross Profit: |
o | $46.0 million or 66.3% of total revenue in Q4 2010, an increase of 35% over $34.1 million or 62.7% of total revenue in Q4 2009 |
o | $153.1 million or 62.4% of total revenue in FY 2010, an increase of 37% over $111.7 million or 59.3% of total revenue in FY 2009 |
| GAAP selling and marketing expense: |
o | $14.7 million or 21.2% of total revenue in Q4 2010, an increase of 59% over $9.2 million or 16.9% of total revenue in Q4 2009 |
o | $52.7 million or 21.5% of total revenue in FY 2010, increase of 55% over $34.1 million or 18.1% of revenue in FY 2010 |
| GAAP general and administrative expense: |
o | $9.6 million or 13.9% of total revenue in Q4 2010, an decline of just over 1% from $9.8 million or 18.0% of total revenue in Q4 2009 |
o | $43.1 million or 17.6% of total revenue in FY 2010, an increase of 19.4% over $36.1 million or 19.2% of total revenue in FY 2009 |
| Non-GAAP Adjusted EBITDA: |
o | $20.2 million or 29.1% of total revenue in Q4 2010, an increase of 55% over $13.0 million or 23.9% of total revenue in Q4 2009 |
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o | $51.0 million or 20.8% of total revenue in FY 2010, an increase of 47% over $34.7 million or 18.4% of total revenue in FY 2009 |
| Non-GAAP Adjusted Net Income: |
o | $9.8 million or $0.28 per diluted share in Q4 2010, an increase of 68% over $5.9 million or $0.17 per diluted share in Q4 2009 |
o | $22.6 million or $0.64 per diluted share in FY 2010, an increase of 50% over $15.0 million or $0.43 per diluted share in FY 2009 |
We believe that the Companys underlying drivers of long-term success remain strong:
| Employee engagement at 4.0 out of 5.0 in Q4 2010, flat with 4.0 in Q4 2009 |
| Client satisfaction at 87.6% in Q4 2010, down slightly from 88.7% in Q4 2009 |
| Average Client Days in Accounts Receivable (DAR) of 38.8 days in Q4 2010, relatively flat with 38.5 days in Q4 2009 |
athenahealths client base continues to expand while the adoption of new services grows rapidly.
During Q4 2010:
| 58% of all new athenaCollector deals included athenaClinicals, up from 39% in Q4 2009 |
| 17% of all new athenaCollector deals included athenaClinicals and athenaCommunicator |
| 125 net new athenaCollector client accounts for a total of 2,002, up 26% from 1,592 in Q4 2009 |
| 624 net new active physicians using athenaCollector for a total of 19,197, up 22% from 15,719 in Q4 2009 |
| 797 net new active providers using athenaCollector for a total of 27,114, up 16% from 23,366 in Q4 2009 |
| 391 net new active physicians using athenaClinicals for a total of 2,383, up 159% from 920 in Q4 2009 |
| 530 net new active providers using athenaClinicals for a total of 3,348, up 128% from 1,471 in Q4 2009 |
| 111 net new active physicians using athenaCommunicator for a total of 736 |
| 267 net new active providers using athenaCommunicator for a total of 1,213 |
athenaCollector network performance metrics were as follows for Q4 2010:
| $1,613,043,890 posted in total client collections, up 19% from Q4 2009 |
| 13,075,933 claims submitted, up 13% from Q4 2009 |
| 75.8% electronic remittance advice (ERA) rate, an improvement of approximately eight points from Q4 2009 and an all-time high for the Company |
| 94.4% first pass resolution (FPR) rate, an improvement of nearly one point over Q4 2009 and an all-time high for the Company |
Product Development Discussion
Product development at athenahealth is organized around the mission of being the best in the world
at getting doctors paid for doing the right thing. In order to fulfill this mission, we deliver
services backed by cloud-based software, proprietary knowledge and hard work.
During 2010, we made tremendous progress in expanding the breadth and depth of our service
offerings. We continued to improve the value proposition of our core service offering,
athenaCollector, by rolling out automatic reconciliation of client bank statements to balances
posted in athenaNet. We also launched Credit Card Plus (CCP), which offers practices the ability to
collect credit card information at the point of care for payment of estimated balances due at a
later date. We emphasize these new capabilities because
providing more value to clients, at no additional cost, is a key element of our ongoing service
commitment to clients.
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While we continued to roll out new client-facing capabilities during 2010, we also began preparing
our network for the conversion to the American National Standards Institute (ANSI) 5010 transaction
format. We achieved Level 1 compliance ahead of the December 31, 2010 deadline and are actively
testing this new format with various trading partners. In addition, we are beginning to prepare for
the transition to the International Classification of Diseases (ICD)-10 codes sets, which must be
adopted by October 1, 2013. While we are managing these transitions on behalf of our clients at no
additional cost as part of our athenaCollector service offering, we expect that many physicians
using traditional software will face costly upgrades, consulting expenses and additional work for
practice staff.
2010 was a tremendous year for athenaClinicals. We achieved Stage 1 Meaningful Use ONC-ATCB
2011/2012 Certification through the Certification Commission for Health Information Technology
(CCHIT®). Of the billing physicians now live on athenaClinicals, over 70% are eligible for
Meaningful Use dollars in 2011. Since we are guiding these physicians participation in the 2011
program each step of the way, from registration, through reporting and finally, payment, our
clients can rest assured that they will receive the maximum incentive payment possible without
paying for costly upgrades, new modules, or consulting expenses. In fact, during January, Dr.
Catherine F. Vanderloos of Shreveport, Louisiana became the first athenahealth physician to receive
a payment under the HITECH Act. Due to the OB-GYN practices high Medicaid population, Dr.
Vanderloos participated in the Medicaid incentive program and received the maximum 2011
reimbursement amount of $21,250. This is just the first of what we believe will be very successful
experiences for athenaClinicals clients participating in the HITECH Act.
athenahealth clients can also expect the same level of service in regard to all pay-for-performance
(P4P) programs. Aside from the HITECH Act, over 50% of our athenaClinicals physicians are
currently enrolled in a P4P program. Whether the HITECH Act, the Physician Quality Reporting
Initiative (PQRI), Bridges to Excellence, or any other P4P program, it is athenahealths job to
identify which programs a client is eligible for, enroll them, ensure that clients capture and
report the data electronically, and track their adherence to program requirements through our P4P
Dashboard. As reimbursement requirements shift away from fee-for-service and towards payment for
outcomes via initiatives such as P4P programs and Accountable Care Organizations (ACOs), we believe
that the quality management and clinical reporting capabilities of our athenaClinicals service
offering differentiate us and position our clients to succeed.
Our third service offering, athenaCommunicator for patient cycle management, was launched in March
2010. We believe that this low cost, high value offering remains differentiated in that it offloads
significant phone call and transaction-related volume from the practice staff, improves schedule
density, and drives compliance with new P4P programs. Furthermore, athenaComunicators tight
integration with athenaCollector and athenaClinicals increases the value offered by these services
by ensuring that physicians make more efficient use of their time, that they maximize the revenue
opportunity associated with each patient visit, and that important medical information is made
available to patients online. During 2011, we will continue to expand athenaCommunicators scope of
service, enabling patients to schedule appointments online via the patient portal, without the
assistance of the medical practice staff or our live operators.
Finally, during 2010 we began piloting our athenaCommunity initiative, the Companys foray into the
world of electronic health information exchange. We believe that athenaCommunity is first
cloud-based platform that drives economic benefits for all network partners in that it facilitates
the customized exchange of relevant data and lowers the cost of managing, sending and receiving
this data for each party
in the transaction. It also supplies enterprise health systems with the ability to better track and
manage order flow within their community, ensuring that both employed and affiliated providers
process orders
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and referrals for patients more efficiently. We conducted our first facilitated
transaction with athenaCommunity during Q3 2010 and we will continue to pilot athenaCommunity at a
number of new sites during 2011.
Revenue Discussion
Our total revenue of $69.4 million in Q4 2010 grew by 27% or $14.9 million over Q4 2009. Our total
revenue of $245.5 million for FY 2010 grew by 30% or $57.0 million over FY 2009. Our revenue growth
is primarily driven by athenaCollector client base expansion and growth in the use of our
athenaClinicals and athenaCommunicator services.
In terms of trends in our recurring revenue base, same store analysis of claims created, a proxy
for physician office utilization, indicates that physician office activity in Q4 2010 declined
slightly from Q4 2009. This decline is primarily related to lower flu inoculation activity during
2010.
Client Base Discussion
Annual growth in total revenue continues to outpace growth in our physician base. We believe this
trend will continue as athenaClinicals and athenaCommunicator are included in a growing portion of
new deals and as adoption of these services spreads across our existing client base.
During Q4 2010, total active physicians on athenaCollector grew by 22% year-over-year to 19,197. On
a sequential basis, we added 624 net new active physicians to the network verses 884 added in Q4
2009. Our quarterly net new physician additions may vary widely due to the number and size of
clients that go live in a particular quarter.
Turning to athenaClinicals, we continue to experience rapid growth in client adoption of this
service. Total active physicians live on athenaClinicals grew by 159% year-over-year to 2,383. On a
sequential basis, we added 391 net new active physicians on athenaClinicals, up from 140 added in
Q4 2009. This equates to an overall adoption rate of over 12% of total athenaCollector physicians,
up from approximately 6% in Q4 2009. In terms of new sales, during Q4 2010 58% of all new
athenaCollector deals included athenaClinicals, up from 39% in Q4 2009. We expect the
athenaClinicals client base to increase significantly over time due to cross-selling within our
existing base and growth in the volume of combined deals.
Our athenaCommunicator client base is growing rapidly as well. Total active physicians live on
athenaCommunicator rose to 736 during the quarter. On a sequential basis, we added 111 net new
active
physicians on athenaCommunicator. This equates to an overall adoption rate of nearly 4% of total
athenaCollector physicians. athenaCommunicator is also being adopted by new clients at a growing
rate.
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During Q4 2010, 17% of new athenaCollector deals included athenaCommunicator as well as
athenaClinicals.
In terms of our publically disclosed implementation pipeline, West Penn Allegheny Health System
(900 providers), St. Vincents HealthCare (120 providers) and Summit Medical Group (230 providers),
will be going live on athenaCollector during the coming months. We have completed the majority of
athenaClinicals implementations at Vanguard Health Systems (250 providers) while athenaClinicals
implementations continue at Steward Health Care System LLC (f/k/a Caritas Christi 500 providers)
and Capella Healthcare (130 providers). Finally, implementations of all three services are in
progress for CHRISTUS Health (150 providers) and Southwest Kidney Institute (50 providers).
Non-GAAP Adjusted Gross Margin Discussion
Our non-GAAP Adjusted Gross Margin was 66.3% for Q4 2010, up from 62.7% in Q4 2009. Our Non-GAAP
Adjusted Gross Margin was 62.4% for FY 2010, up from 59.3% in FY 2009. This year-over-year
expansion was supported primarily by continued efforts to automate operational processes related to
our athenaCollector service offering and to transition standardized, manual work to more
cost-effective offshore partners. Our Q4 2010 non-GAAP Adjusted Gross Margin result was also
benefited as we temporarily fell behind in our hiring plans and made an adjustment to our annual
bonus accrual calculation.
Selling and Marketing Discussion
2010 was a significant year in the evolution of our sales and marketing organization. GAAP selling
and marketing expense increased by 59% to $14.7 million or 21.2% of total revenue in Q4 2010, up
from $9.2 million or 16.9% of total revenue in Q4 2009. For FY 2010, GAAP selling and marketing
expense increased by 55% to $52.7 million or 21.5% of total revenue, up from $34.1 million or 18.1%
of total revenue in FY 2009.
As a result of these investments, we are pleased to report that we successfully executed on the
following stated objectives:
ü | Hire and train approximately 30 new quota-carrying sales reps | ||
ü | Intensify efforts to expand the enterprise sales pipeline | ||
ü | Expand marketing programs to drive awareness and lead generation | ||
ü | Enhance sales and marketing tools and CRM infrastructure |
As part of this evolution, we also announced the development of a more deliberate, two-pronged
sales approach. Beginning in 2011, this approach creates one team focused on results selling to
small and group practices while the other team focuses on consultative selling to enterprise
organizations. We promoted Bill Conway to SVP of Sales overseeing our small and group practice
sales efforts and announced the creation of a new senior leadership role overseeing our enterprise
business, including sales, account management and solutions design.
On the channels front, we continued to succeed in building relationships with Regional Extensions
Centers (RECs) during Q4 2010. To date, we have secured preferred status with 24% of the nations
RECs and are also working with the portion of RECs that are vendor neutral. Taken together,
athenahealth currently has access to 50% of the nations RECs who are working to support EHR
adoption for over 50,000 primary care physicians.
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ATHN Regional Extension Center (REC) Activity
In addition to enhancing our sales and marketing prowess, we expanded the on ramp to our network
by making the implementation process more efficient and scalable. At this time, the athenahealth
Professional Services team is responsible for completing all implementations of our service
offerings. Thus, creating scalability within this organization is vital to our successful growth.
In 2006, we introduced a virtual or remote implementation model for small practice clients going
live on athenaCollector, replacing in-person visits with training and interaction over the Web and
telephone, which is now patented. During 2010, we developed the capability to implement all small
practices remotely on athenaClinicals as well. We will continue to expand our implementation
capacity in 2011, using more self-service training over the Web and by enabling the remote
implementation of athenaCollector and athenaClinicals simultaneously.
With increased investments in-market, our new two-pronged sales organization solidified, and a
growing network of channel partners in place, we are poised to capture new growth opportunities
during 2011 and beyond.
Non-GAAP Adjusted EBITDA Margin Discussion
Our non-GAAP Adjusted EBITDA Margin was 29.1% in Q4 2010, up from 23.9% in Q4 2009. Our non-GAAP
Adjusted EBITDA Margin was 20.8% for FY 2010, up from 18.4% in 2009. Our indirect expense levels
were slightly lower than anticipated during Q4 2010 as the Company temporarily fell behind in our
hiring plans and made an adjustment to our annual bonus accrual calculation. In addition, the
Company made an adjustment to the Anodyne Health contingent consideration that benefited G&A.
Balance Sheet and Cash Flow Highlights
Our cash, cash equivalents, short- and long-term investments totaled $121.8 million at December 31,
2010 and our short- and long-term debt and capital lease obligations totaled $9.2 million.
Operating cash flow was $19.4 million in Q4 2010, up 80% from $10.8 million in Q4 2009. Operating
cash flow was $44.7 million in FY 2010, up 38% from $32.3 million in FY 2009. Our capital
expenditures, including capitalized software development, were $3.3 million or 4.7% of total
revenue in the Q4 2010 and $19.8 million or 8.1% of total revenue in FY 2010.
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Fiscal Year 2011 Outlook
athenahealth is not making any changes to the outlook presented during the Companys 3rd
Annual Investor Summit on December 16, 2010. While athenahealth does not provide quarterly
guidance, it is important to note that each first quarter (ending March 31st) is
characterized by higher expense levels and weaker collections activity following the holiday
season. More specifically, the reset of FICA payroll taxes, bonus and vacation accruals, and sales
and marketing events such as the Healthcare Information and Management Systems Society (HIMSS)
Annual Conference and our Annual Sales Meeting contribute to higher expense levels. In addition,
discretionary use of physician services declines during the holiday season, which leads to a
decline in collections by our physician clients about 30 to 50 days later. Finally, because the
Company fell behind in its hiring plans during Q4 2010, most of these hires will shift to Q1 2011
and impact our direct costs, research and development and sales and marketing expenses.
Closing Remarks
We thank our shareholders for their support during 2010, a year of evolution for athenahealth and a
year of significant change within the U.S. health care industry. As a disruptive innovator with
just 3% share of the U.S. ambulatory physician market, it is vital that we identify and exploit new
growth opportunities. We have more hard work ahead of us in 2011, particularly around the
maturation of our sales and marketing organization, but remain ever confident that athenahealth is
positioned to maintain rapid growth for years to come.
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Stock-Based Compensation Expense and Reconciliation of Non-GAAP Financial Measures
athenahealth, Inc.
STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands)
STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands)
Set forth below is a breakout of stock-based compensation expense for the three month and year
ended December 31, 2010 and 2009:
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Stock-based compensation charged to: |
||||||||||||||||
Direct operating |
$ | 577 | $ | 414 | $ | 2,298 | $ | 1,589 | ||||||||
Selling and marketing |
969 | 548 | 3,509 | 2,126 | ||||||||||||
Research and development |
542 | 266 | 2,014 | 1,015 | ||||||||||||
General and administrative |
1,934 | 971 | 6,656 | 3,584 | ||||||||||||
Total |
$ | 4,022 | $ | 2,199 | $ | 14,477 | $ | 8,314 | ||||||||
athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
The following is a reconciliation of the non-GAAP financial measures used by the Company to
describe the Companys financial results determined in accordance with United States generally
accepted accounting principles (GAAP). An explanation of these measures is also included below
under the heading Explanation of Non-GAAP Financial Measures.
While management believes that these non-GAAP financial measures provide useful supplemental
information to investors regarding the underlying performance of the Companys business operations,
investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute
for, financial performance measures prepared in accordance with GAAP. In addition, it should be
noted that these non-GAAP financial measures may be different from non-GAAP measures used by other
companies, and management may utilize other measures to illustrate performance in the future.
Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with
the Companys results of operations as determined in accordance with GAAP.
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Non-GAAP Adjusted Gross Margin
Set forth below is a presentation of the Companys Non-GAAP Adjusted Gross Profit and Non-GAAP
Adjusted Gross Margin, which represents Non-GAAP Adjusted Gross Profit as a percentage of total
revenue.
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Total revenue |
$ | 69,366 | $ | 54,446 | $ | 245,538 | $ | 188,527 | ||||||||
Direct operating expense |
24,419 | 21,117 | 96,582 | 79,017 | ||||||||||||
Total revenue less direct
operating expense |
44,947 | 33,329 | 148,956 | 109,510 | ||||||||||||
Add: Stock-based compensation expense
allocated to direct operating
expense |
577 | 414 | 2,298 | 1,589 | ||||||||||||
Add: Amortization of purchased
intangibles |
460 | 396 | 1,839 | 635 | ||||||||||||
Non-GAAP Adjusted Gross Profit |
$ | 45,984 | $ | 34,139 | $ | 153,093 | $ | 111,734 | ||||||||
Non-GAAP Adjusted Gross Margin |
66.3 | % | 62.7 | % | 62.4 | % | 59.3 | % |
Non-GAAP Adjusted EBITDA Margin
Set forth below is a reconciliation of the Companys Non-GAAP Adjusted EBITDA and Non-GAAP
Adjusted EBITDA Margin, which represents Non-GAAP Adjusted EBITDA as a percentage of total
revenue.
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Total revenue |
$ | 69,366 | $ | 54,446 | $ | 245,538 | $ | 188,527 | ||||||||
GAAP net income |
7,303 | 4,328 | 12,704 | 9,276 | ||||||||||||
Add: Provision for income taxes |
5,330 | 3,879 | 10,396 | 8,829 | ||||||||||||
Add: Acquisition-related expenses |
| 100 | | 751 | ||||||||||||
Add (less): Total other (income) expense |
(100 | ) | (96 | ) | 497 | (893 | ) | |||||||||
Add: Stock-based compensation expense |
4,022 | 2,199 | 14,477 | 8,314 | ||||||||||||
Add: Depreciation and amortization |
3,171 | 2,232 | 11,117 | 7,767 | ||||||||||||
Add: Amortization of purchased intangibles |
460 | 396 | 1,839 | 635 | ||||||||||||
Non-GAAP Adjusted EBITDA |
$ | 20,186 | $ | 13,038 | $ | 51,030 | $ | 34,679 | ||||||||
Non-GAAP Adjusted EBITDA Margin |
29.1 | % | 23.9 | % | 20.8 | % | 18.4 | % |
11
Non-GAAP Adjusted Operating Income
Set forth below is a reconciliation of the Companys Non-GAAP Adjusted Operating Income and
Non-GAAP Adjusted Operating Income Margin, which represents Non-GAAP Adjusted Operating Income as
a percentage of total revenue.
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Total revenue |
$ | 69,366 | $ | 54,446 | $ | 245,538 | $ | 188,527 | ||||||||
GAAP net income |
7,303 | 4,328 | 12,704 | 9,276 | ||||||||||||
Add: Provision for income taxes |
5,330 | 3,879 | 10,396 | 8,829 | ||||||||||||
Add: Acquisition-related expenses |
| 100 | | 751 | ||||||||||||
Add (less): Total other (income) expense |
(100 | ) | (96 | ) | 497 | (893 | ) | |||||||||
Add: Stock-based compensation expense |
4,022 | 2,199 | 14,477 | 8,314 | ||||||||||||
Add: Amortization of purchased intangibles |
460 | 396 | 1,839 | 635 | ||||||||||||
Non-GAAP Adjusted Operating Income |
$ | 17,015 | $ | 10,806 | $ | 39,913 | $ | 26,912 | ||||||||
Non-GAAP Adjusted Operating Income Margin |
24.5 | % | 19.8 | % | 16.3 | % | 14.3 | % |
Non-GAAP Adjusted Net Income
Set forth below is a reconciliation of the Companys Non-GAAP Adjusted Net Income and Non-GAAP
Adjusted Net Income per Diluted Share.
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
GAAP net income |
$ | 7,303 | $ | 4,328 | $ | 12,704 | $ | 9,276 | ||||||||
(Less) Add: (Gain) loss on interest rate
derivative contract |
(276 | ) | (215 | ) | 199 | (590 | ) | |||||||||
Add: Stock-based compensation expense |
4,022 | 2,199 | 14,477 | 8,314 | ||||||||||||
Add: Amortization of purchased intangibles |
460 | 396 | 1,839 | 635 | ||||||||||||
Sub-total of tax deductible items |
4,206 | 2,380 | 16,515 | 8,359 | ||||||||||||
(Less): Tax impact of tax deductible items (1) |
(1,682 | ) | (952 | ) | (6,606 | ) | (3,344 | ) | ||||||||
Add: Acquisition-related expenses |
| 100 | | 751 | ||||||||||||
Non-GAAP Adjusted Net Income |
$ | 9,827 | $ | 5,856 | $ | 22,613 | $ | 15,042 | ||||||||
Weighted average shares diluted |
35,278 | 35,133 | 35,204 | 34,917 | ||||||||||||
Non-GAAP Adjusted Net Income per Diluted Share |
$ | 0.28 | $ | 0.17 | $ | 0.64 | $ | 0.43 |
(1) - Tax impact calculated using federal statutory tax rate of 34% and a
blended state tax rate of 6%
12
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(unaudited, in thousands except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
GAAP net income per share diluted |
$ | 0.21 | $ | 0.12 | $ | 0.36 | $ | 0.27 | ||||||||
(Less) Add: (Gain) loss on interest rate derivative contract |
(0.01 | ) | (0.01 | ) | 0.01 | (0.02 | ) | |||||||||
Add: Stock-based compensation expense |
0.12 | 0.06 | 0.41 | 0.24 | ||||||||||||
Add: Amortization of purchased intangibles |
0.01 | 0.01 | 0.05 | 0.02 | ||||||||||||
Sub-total of tax deductible items |
0.12 | 0.06 | 0.47 | 0.24 | ||||||||||||
(Less): Tax impact of tax deductible items (1) |
(0.05 | ) | (0.02 | ) | (0.19 | ) | (0.10 | ) | ||||||||
Add: Acquisition-related expenses |
| 0.01 | | 0.02 | ||||||||||||
Non-GAAP Adjusted Net Income per Diluted Share |
$ | 0.28 | $ | 0.17 | $ | 0.64 | $ | 0.43 | ||||||||
Weighted average shares diluted |
35,278 | 35,133 | 35,204 | 34,917 |
(1) - | Tax impact calculated using federal statutory tax rate of 34% and a blended state tax rate of 6% |
Explanation of Non-GAAP Financial Measures
The Company reports its financial results in accordance with United States generally accepted
accounting principles, or GAAP. However, management believes that in order to properly understand
the Companys short-term and long-term financial and operational trends, investors may wish to
consider the impact of certain non-cash or non-recurring items, when used as a supplement to
financial performance measures in accordance with GAAP. These items result from facts and
circumstances that vary in frequency and/or impact on continuing operations. Management also uses
results of operations before such items to evaluate the operating performance of the Company and
compare it against past periods, make operating decisions, and serve as a basis for strategic
planning. These non-GAAP financial measures provide management with additional means to understand
and evaluate the operating results and trends in the Companys ongoing business by eliminating
certain non-cash expenses and other items that management
believes might otherwise make comparisons of the Companys ongoing business with prior periods more
difficult, obscure trends in ongoing operations, or reduce managements ability to make useful
forecasts. Management believes that these non-GAAP financial measures provide additional means of
evaluating period-over-period operating performance. In addition, management understands that some
investors and financial analysts find this information helpful in analyzing the Companys financial
and operational performance and comparing this performance to its peers and competitors.
Management defines Non-GAAP Adjusted Gross Profit as total revenue, less direct operating
expense, plus stock-based compensation expense allocated to direct operating expense and
amortization of purchased intangibles, and Non-GAAP Adjusted Gross Margin as non-GAAP Adjusted
Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial
measures to be important indicators of the Companys operational strength and performance of its
business and a good measure of its historical operating trends. Moreover, management believes that
these measures enable investors and financial analysts to closely monitor and understand changes in
the Companys ability to generate income from ongoing business operations.
13
Management defines Non-GAAP Adjusted EBITDA as the sum of GAAP net income before provision for
income taxes, acquisition-related expenses, total other (income) expense, stock-based compensation
expense, depreciation and amortization, and amortization of purchased intangibles and Non-GAAP
Adjusted EBITDA Margin as Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management
defines Non-GAAP Adjusted Operating Income as the sum of GAAP net income before provision for
income taxes, amortization of purchased intangibles, acquisition-related expenses, total other
(income) expense, stock-based compensation expense, and Non-GAAP Adjusted Operating Income Margin
as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines
Non-GAAP Adjusted Net Income as the sum of GAAP net income before (gain) loss on interest rate
derivative contract, stock-based compensation expense, amortization of purchased intangibles,
acquisition-related expenses, , and any tax impact related to these items, and Non-GAAP Adjusted
Net Income per Diluted Share as Non-GAAP Adjusted Net Income divided by weighted average diluted
shares outstanding. Management considers these non-GAAP financial measures to be important
indicators of the Companys operational strength and performance of its business and a good measure
of its historical operating trends, in particular the extent to which ongoing operations impact the
Companys overall financial performance.
Management excludes each of the items identified below from the applicable non-GAAP financial
measure referenced above for the reasons set forth with respect to that excluded item:
| Stock-based compensation expense excluded because these are non-cash expenses that management does not consider part of ongoing operating results when assessing the performance of the Companys business, and also because the total amount of expense is partially outside of the Companys control because it is based on factors such as stock price volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred. | ||
| Acquisition-related expenses and amortization of purchased intangibles acquisition-related expenses are reported at the time acquisition costs are incurred, and purchased intangibles are amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, these items are not considered by management in making operating decisions, and management believes that such expenses do not have a direct correlation to future business operations. Thus, including such charges does not accurately reflect the performance of the Companys ongoing operations for the period in which such charges are incurred. | ||
| Gains and losses on interest rate derivative contract excluded because until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period. |
14
Supplemental Metrics and Definitions
Supplemental Metrics (unaudited)
Last Updated: December 31, 2010
Supplemental Metrics (unaudited)
Last Updated: December 31, 2010
Fiscal Year 2009 | Fiscal Year 2010 | |||||||||||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |||||||||||||||||||||||||
Client Base |
||||||||||||||||||||||||||||||||
Total Accounts |
1,333 | 1,406 | 1.507 | 1,592 | l,684 | 1,753 | 1,877 | 2,002 | ||||||||||||||||||||||||
Total Physicians on athenaCollector |
13,196 | 13,591 | 14,835 | 15,719 | 16,369 | 17,136 | 18,573 | 19,197 | ||||||||||||||||||||||||
Total Providers on athenaCollector |
19,739 | 20,323 | 22,100 | 23,366 | 23,978 | 24,782 | 26,317 | 27,114 | ||||||||||||||||||||||||
Total
Physicians on athenaClinicals |
574 | 624 | 780 | 920 | 1,275 | 1,548 | 1,992 | 2,383 | ||||||||||||||||||||||||
Total
Providers on athenaClinicals |
949 | 1,043 | 1,270 | 1,471 | 1,867 | 2,256 | 2,818 | 3,348 | ||||||||||||||||||||||||
Total Physicians on athenaCommunicator |
n/a | n/a | n/a | n/a | n/a | 442 | 625 | 736 | ||||||||||||||||||||||||
Total Providers on athenaCommunicator |
n/a | n/a | n/a | n/a | n/a | 689 | 946 | 1,213 | ||||||||||||||||||||||||
Client Performance |
||||||||||||||||||||||||||||||||
Client satisfaction |
82.4 | % | 86.7 | % | 86.4 | % | 88.7 | % | 86.6 | % | 86.1 | % | 85.7 | % | 87.6 | % | ||||||||||||||||
Client Days
in Accounts Receivable (DAR) |
44.3 | 40.2 | 39.3 | 38.5 | 40.0 | 38.8 | 38.8 | 38.8 | ||||||||||||||||||||||||
First Pass Resolution (FPR) Rate |
91.4 | % | 92.3 | % | 92.5 | % | 93.5 | % | 93.1 | % | 93.4 | % | 94.2 | % | 94.4 | % | ||||||||||||||||
Electronic Remittance Advice (ERA) Rate |
55.5 | % | 58.5 | % | 64.2 | % | 68.0 | % | 68.9 | % | 68.8 | % | 72.1 | % | 75.8 | % | ||||||||||||||||
Total Claims Submitted |
9,073,155 | 9,414,482 | 9,970,800 | 11,582,674 | 11,175,099 | 11,312,806 | 11,837,095 | 13,075,933 | ||||||||||||||||||||||||
Total Client Collections |
$ | 1,085,652,593 | $ | 1,208,859,985 | $ | 1,223,100,008 | $ | 1,355,616,378 | $ | 1,312,820,931 | $ | 1,421,347,731 | $ | 1,517,064,118 | $ | 1,613,043,890 | ||||||||||||||||
Total Working Days |
61 | 64 | 64 | 62 | 61 | 64 | 64 | 61 | ||||||||||||||||||||||||
Employees |
||||||||||||||||||||||||||||||||
Direct |
547 | 565 | 570 | 582 | 630 | 675 | 690 | 691 | ||||||||||||||||||||||||
Sales & Marketing |
99 | 101 | 110 | 123 | 157 | 168 | 186 | 199 | ||||||||||||||||||||||||
Research & Development |
128 | 150 | 162 | 177 | 172 | 187 | 197 | 211 | ||||||||||||||||||||||||
General & Administrative |
112 | 126 | 129 | 133 | 130 | 136 | 140 | 141 | ||||||||||||||||||||||||
Total Employees* |
886 | 942 | 970 | 1,014 | 1,087 | 1,166 | 1,213 | 1,242 | ||||||||||||||||||||||||
Quota Carrying Sales Force |
||||||||||||||||||||||||||||||||
Small Practice |
18 | 17 | 20 | 22 | 25 | 27 | 34 | 38 | ||||||||||||||||||||||||
Group Practice |
16 | 17 | 18 | 18 | 20 | 23 | 22 | 25 | ||||||||||||||||||||||||
Enterprise Segment |
5 | 5 | 5 | 5 | 5 | 6 | 7 | 7 | ||||||||||||||||||||||||
Cross-Sell |
4 | 4 | 5 | 5 | 5 | 6 | 7 | 7 | ||||||||||||||||||||||||
Total Quota Carrying Sales Representatives |
43 | 43 | 48 | 50 | 55 | 62 | 70 | 77 |
*Headcount for Q409 has been adjusted to reflect full-time equivalent (FTE) methodology versus individual headcount methodology as reported in the Companys 2009 Annual Report on Form 10-K |
15
Supplemental Metrics Definitions
Last Updated: December 31, 2010
Last Updated: December 31, 2010
Client Base |
||
Total Accounts
|
The number of discrete clients that are activity invoiced by athenahealth during the last 91 days. | |
Total Physicians on athenaCollector
|
The number of physicians that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of physicians include Medical Doctors (MD) and Doctor of Osteopathic Medicine (DO). | |
Total Providers on athenaCollector
|
The number of providers, including physicians, that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of non-physician providers are Nurse Practitioners (NP) and Registered Nurses (RN) | |
Total Physicians on athenaClinicals
|
The number of physicians that have rendered a service through the athenaClinicals platform which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of physicians included Medical Doctors (MD) and Doctor of Osteopathic Medicine (DO). | |
Total Providers on athenaClinicals
|
The number of providers, including physicians, that have rendered a service through the athenaClinicals platform which generated a medical claim that was billed during the last 91 days on the athenaCollector platform. Examples of non-physicians are Nurse Practitioners (NP) and Registered Nurses (RN). | |
Total Physicians on athenaCommunicator
|
The number of physicians that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform and whose practice is actively using athenaCommunicator. | |
Total Providers on athenaCommunicator
|
The number of providers, including physicians, that have rendered a service which generated a medical claim that was billed during the last 91 days on the athenaCollector platform and whose practice is actively using athenaCommunicator. | |
Client Performance |
||
Client Satisfaction
|
The percentage of athenaCollector clients who chose 4 or 5 on a scale of 1 to 5 when asked if they would recommend athenahealth to a trusted friend or colleague. These responses are generated from a client listening survey that the company conducts for two segments of its client base twice per year. | |
Client Days in Accounts Receivable (DAR)
|
The average number of days that it takes outstanding balances on claims to be resolved, e.g. paid, for clients on athenaCollector. Clients that have been live less than 90 days are excluded, as well as clients who are terminating services. | |
First Pass Resolution (FPR) Rate
|
Approximates the percentage of primary claims that are favorably adjudicated and closed after a single submission during the period. Currently, the FPR rate is calculated on a monthly basis, and certain practices are excluded (e.g. those that have been live for less then 90 days). | |
Electronic Remittance Advice (ERA) Rate
|
Remittance refers to the information a about payments (a/k/a explanations of benefits) received from insurance companies during the period. The ERA rate reflects the percentage of total charges that were posted using electronic remittance. | |
Total Claims Submitted
|
The number of claims billed through athenaNet during the period. | |
Total Client Collections
|
The dollar value of collections posted on behalf of clients during the period. | |
Total Working Days
|
The total number of days during the quarter minus weekends and U.S. Post Office holidays. | |
Employees |
||
Direct
|
The total number of full time equivalent individuals (FTEs) employed by the Company to support its service operations as of quarter end. This team includes production systems, enrollment services, paper claim submission, claim resolution, clinical operations, professional services, account management, and client services. | |
Sales & Marketing
|
The total number of FTEs employed by the Company to support its sales and marketing efforts as of quarter end. This team includes sales representatives, business development staff and the marketing team. | |
Research & Development
|
The total number of FTEs employed by the Company to support its research and development efforts as of quarter end. This team includes product development and product management. | |
Genera & Administrative
|
The total number of FTEs employed by the Company to support its general and administrative functions as of quarter end. This team includes finance, human resources, compliance, learning and development, internal audit, corporate technology, recruiting, facilities, and legal. | |
Total Employees
|
The total number of FTEs employed by the Company as of quarter end. This number excludes interns and seasonal employees. | |
Quota-Carrying Sales Force |
||
Small Practice
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the small practice segment (organizations with 1-3 physicians) as of quarter end. | |
Group Practice
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the group practice segment (organizations with 4-150 physicians) as of quarter end. | |
Enterprise Segment
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the enterprise market segment (organizations with 150+ physicians) as of quarter end. | |
Cross-Sell
|
Quota-carrying sales representatives assigned to bring in net new annual recurring revenue from the sale of additional services to existing athenaCollector clients as of quarter end. | |
Total
Quota Carrying Sales Representatives
|
The total number of Sales representatives who carry quota for net new annual recurring revenue as of quarter end. |
16