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athenahealth (ATHN) Beats on Q2 Earnings, Raises '19 View

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Maintaining its streak of positive earnings surprises, athenahealth Inc. (ATHN - Free Report) reported adjusted earnings of $1.09 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate by 18.5%. Notably, adjusted earnings reported in the year-ago quarter were 51 cents.

The Watertown, MA-based maker of billing and medical practice management software posted revenues of $323.3 million, missing the Zacks Consensus Estimate of $334 million. Revenues increased 7.4% year over year.

The company adopted a new revenue recognition standard on Jan 1, 2018. Total revenues prior to the impact of the new revenue recognition standard were $331.9 million, up 10% year over year.

athenahealth carries a Zacks Rank #4 (Sell).

athenahealth, Inc. Price, Consensus and EPS Surprise

 

Q2 Details

Segment Details

Excluding the impact of the new revenue recognition standard, revenues in the Business and Services unit were $323.6 million, up 10.4% from the year-ago quarter.

However, revenues in the Implementation and other segment were $8.3 million, down 2.5% year over year.

Network Expansion

Per management, the company expanded its network across ambulatory, hospital and population health platforms. Recently, athenahealth surpassed the 100-million patient threshold and currently serves more than 100,000 healthcare providers. During the second quarter of 2018, athenahealth added eight new hospitals.

The company’s network has 115,724 Collector Providers, 64,317 Clinical Providers and 74,333 Communicator Providers, up 15%, 17% and 18%, respectively, on a year-over-year basis.

In the athenaOne (Hospital) platform, number of discharged beds surged 136% year over year.

In the Population Health platform, number of covered lives increased 20% year over year.

Buoyed by stellar network expansion, the company is expected to fortify its foothold in the Revenue Cycle Management (RCM) space and drive revenues and earnings over the long haul.

Bookings

During the second quarter, athenahealth recognized $75 million of bookings, $67 million of which was recurring business and $8 million nonrecurring. The figure was down 5.1% year over year.

athenahealth saw relative strength in core ambulatory services. However, independent medical group bookings were down slightly from the prior-year quarter’s level. Hospital bookings were down year over year.

Margin Analysis

A strong client base has been a major growth driver for the company.

Considering the new revenue recognition standard, gross profit in the quarter was $171.3 million, up 8.9% year over year. As a percentage of revenues, gross margin in the second quarter was 53% compared with 52.2% in the year-ago quarter. The figire was up 80 basis points (bps).

Adjusted gross margin was 54.5% during the second quarter compared with 54.2% in the year-ago quarter.

Considering the new revenue recognition standard, athenahealth’s operating income increased 253.2% year over year to $43.1 million, driven by top-line growth and cost-saving initiatives. Adjusted operating income increased 70% year over year to $61 million.

Guidance

Under the new revenue recognition standard, athenahealth expects revenues in the range of $1.34-$1.37 billion, up from the previous guidance of $1.31-$1.38 billion. Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $1.35 billion, which lies within the range.

The company expects adjusted operating income in the range of $244-$270 million, up from previous guidance of $210-$235 million.

Adjusted operating margin is expected in the band of 18.3-19.8% of net revenues for 2018, up from the previous guidance of 16-17%.

In Conclusion

athenahealth exited the second quarter of 2018 on a solid note, with earnings outpacing the Zacks Consensus Estimate. An upbeat fiscal 2018 guidance instills investor’s optimism.

Lackluster performance in the Implementation and other segment has been a persistent headwind for athenahealth. Among other concerns, athenahealth’s EHR solution faces significant competition from Allscripts Healthcare Solutions and more. Further, athenahealth fell short of its bookings goals in the quarter.

Despite these headwinds, we believe unique applications like athenaClinicals, athenaClinicals-Streamlined, athenaInsight, athenaCommunicator, athenaOne, athenaCollector for Hospital and Health Systems and the brand promise of ‘Unbreak Healthcare’ are fortifying its market position in terms of exclusiveness of services. Strength in core ambulatory services is a positive. A strong client base has been a key catalyst. Business and Services revenues have consistently witnessed growth.

Q2 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season are, Stryker Corporation (SYK - Free Report) , Intuitive Surgical, Inc (ISRG - Free Report) and Illumina, Inc (ILMN - Free Report) .

While Intuitive Surgical and Illumina sport Zacks Rank #1 (Strong Buy), Stryker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical  reported adjusted earnings of $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted Earnings improved 38% year over year.

Stryker reported second-quarter 2018 adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate by 1.7%. Earnings improved 15% year over year and also exceeded the high end of the company’s guidance.

Illumina reported adjusted earnings of $1.43 per share beating the Zacks Consensus Estimate of $1.11.

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