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athenahealth (ATHN) Up 2.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for athenahealth (ATHN - Free Report) . Shares have added about 2.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is athenahealth due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

athenahealth 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 in the year-ago quarter were 51 cents.

The company posted revenues of $323.3 million, missing the Zacks Consensus Estimate of $334 million. Revenues increased 7.4% year over year.

Notably, athenahealth 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.

Q2 Details

Segment Details

Without the impact of the new revenue recognition standard, revenues in the Business and Services totaled $323.6 million, up 10.4% from the year-ago quarter.

However, revenues at 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 increased a whopping 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 came from recurring business and $8 million from nonrecurring. The bookings figure showed a decline of 5.1% year over year.

athenahealth saw relative strength in core ambulatory services. However, independent medical group bookings were down slightly versus the prior year. 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, reflecting a rise of 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. This is up by 80 basis points (bps).

Adjusted gross margin was 54.5% during the second quarter as 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 in the second quarter.

Guidance

Under the new revenue recognition standard, athenahealth expects revenues in the range of $1.34-$1.37 billion, up from the previously issued guidance of $1.31-$1.38 billion in 2018.

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% to 19.8% of net revenues for 2018, up from the previous guidance of 16% to 17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.55% due to these changes.

VGM Scores

Currently, athenahealth has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise athenahealth has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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