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athenahealth (ATHN): Beats on Q3 Earnings, Inks Partnership

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athenahealth reported adjusted earnings of 35 cents per share, much better than 11 cents recorded in the year-ago quarter. Earnings also crushed the Zacks Consensus Estimate by a notable 14 cents, courtesy of a year-over-year rise in revenues.

Meanwhile, athenahealth announced a strategic partnership with Tandigm Health. Notably, Tandigm has selected athenhealth’s Population Health platform for its primary care physician base of 440.

The Watertown-Massachusetts based maker of billing and medical practice management software posted revenues of $276.6 million, which missed the Zacks Consensus Estimate of $280 million but increased 16.6% on a year-over-year basis.

Notably, shares dropped approximately 2% to $119.45 following the earnings release. A glimpse at the share price trend reveals lackluster market sentiments as athenhealth represents a negative one-year return of almost 6.8% which compares unfavorably with the S&P 500’s 4.3% over the same time frame.
 

Quarter Highlights

The launch of AthenaInsight was of main attraction in the third quarter. Notably, athenalnsight is a daily news hub which keeps track of the activities of healthcare providers and ‘de-identified patients’ of the nation. The platform exclusively offers comprehensive information pertaining to the healthcare industry.

Segment Details

athenahealth reported Business and Services revenues of $267.1 million, up 18.7% from the year-ago quarter. However, implementation and other segment posted revenues of $9.5 million were down 13.8% from the same quarter last year.

A strong client base has been a major growth driver for the company. Applications like athenaClinicals, athenaClinicals-Streamlined, athenaInsight, athenaCommunicator, athenaOne, athenaCollector for Hospital and Health Systems and the brand promise of ‘Unbreak Healthcare’ are fortifying the company’s market position in terms of exclusiveness of services provided in the respective markets.

ATHENAHEALTH IN Price, Consensus and EPS Surprise

 

Physician Details

athenahealth’s huge client base and solid network expansion are major positives. Notably, the company registered 3,829 new active physicians in athenaCollector, 2,090 physicians in athenaClinicals and 3,416 physicians in athenaCommunicator in the quarter, compared with 3,953 physicians in athenaCollector, 2,818 physicians in athenaClinicals and 3,422 physicians in athenaCommunicator in the same quarter last year.

Margin Details

Adjusted gross margin was 65.0%, compared with 62.9% in the year-earlier quarter.

Operating expenses, as a percentage of revenues, surged a notable 410 basis points (bps). The increase is primarily attributable to the 40 bps and 120 bps respective increases in general and administrative costs and expenses on depreciation and amortization (as percentage of revenues). Operating margin also increased 410 bps on a year-over-year basis to 5.5%.

However, selling & marketing and research and development (R&D) expenses, as a percentage of revenues, decreased 230 bps and 60 bps respectively on a year-over-year basis.

Guidance

For 2016, athenahealth maintains total revenue projection at the range of $1.085–$1.115 billion. Adjusted earnings are estimated in the $1.65–$1.85 per share band.

The adjusted operating income is expected between $120 million and $135 million while adjusted gross margin is projected in the band of 63.5%--64.5%. The adjusted tax rate is expected to be around 40%.

Key Picks

Currently athenahealth carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader medical sector are ABIOMED Inc. , AngioDynamics Inc. (ANGO - Free Report) and Glaukos Corporation (GKOS - Free Report) . Notably, all the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ABIOMED has a long-term expected earnings growth rate of approximately 26.7%. Notably, the stock represents an impressive one-year return of 42.7%.

AngioDynamics has a long-term expected earnings growth rate of 15.00%. The company posted a solid one-year return of almost 45%.

Glaukos Corporation recorded a stellar one-year return of almost 63%. Notably, the company posted positive surprises in the past four quarters, the average being 110.9%.

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