athenahealth, Inc. Reports Fourth Quarter and Full Year 2013 Results

athenahealth, Inc. Reports Fourth Quarter and Full Year 2013 Results

Q4 2013 Financial Results

  *48% Revenue Growth Over Fourth Quarter of 2012
  *Non-GAAP Adjusted Operating Income of $34.1 million
  *GAAP Net Income of $13.1 million, or $0.34 Per Diluted Share
  *Non-GAAP Adjusted Net Income of $22.1 million, or $0.57 Per Diluted Share

Full Year 2013 Financial Results

  *41% Revenue Growth Over Full Year 2012
  *Non-GAAP Adjusted Operating Income of $74.0 million
  *GAAP Net Income of $2.6 million, or $0.07 Per Diluted Share
  *Non-GAAP Adjusted Net Income of $44.3 million, or $1.16 Per Diluted Share

WATERTOWN, Mass., Feb. 6, 2014 (GLOBE NEWSWIRE) -- athenahealth, Inc.
(Nasdaq:ATHN) ("athenahealth" or "we"), a leading provider of cloud-based
services for electronic health record (EHR), practice management, and care
coordination, today announced financial and operational results for the fourth
quarter and full year 2013. We will conduct a conference call tomorrow,
Friday, February 7, 2014, at 8:00 a.m. Eastern Time to discuss these results
and management's outlook for future financial and operational performance.

  *Total revenue for the three months ended December 31, 2013, was $171.6
    million, compared to $116.3 million in the same period last year, an
    increase of 48%.
    ◦ Excluding revenue from Epocrates-branded services of $18.9 million and
    other revenue consisting of third-party tenant revenue of $3.7 million,
    core athenahealth revenue was $149.0 million, an increase of 28% over for
    the three months ended December 31, 2012.
  *Total revenue for full year 2013 was $595.0 million, compared to full year
    2012 revenue of $422.3 million, an increase of 41%.
    ◦ Excluding revenue from Epocrates-branded services of $52.4 million and
    other revenue consisting of third-party tenant revenue of $9.7 million,
    core athenahealth revenue was $532.9 million, an increase of 26% over full
    year 2012.

"2013 was a pivotal year for athenahealth. We made marked progress on the
evolution of the caregiver user experience, demonstrated resounding success in
the enterprise segment, and have begun to revolutionize client on-boarding and
performance management with the launch of our nerve centers," said Jonathan
Bush, athenahealth's Chairman and Chief Executive Officer. "While information
exchange in health care remains mostly an abstract concept, we have made
considerable advancements towards our vision of becoming the nation's health
information cloud. Following a vertical learning curve, we are innovating and
disrupting the status quo, helping our clients be the best at knowing their
patients, knowing their problems and for the first time, turning care
coordination from a noun into a verb."

  *For the three months ended December 31, 2013, Non-GAAP Adjusted Gross
    Margin was 66.2%, up from 63.4% in the same period last year.
  *For the three months ended December 31, 2013, Non-GAAP Adjusted Operating
    Income was $34.1 million, or 19.9% of total revenue, compared to Non-GAAP
    Adjusted Operating Income of $19.7 million, or 16.9% of total revenue, in
    the same period last year.
    ◦ Non-GAAP Adjusted Operating Income excludes $0.4 million of integration
    costs relating to the acquisition of Epocrates which closed on March 12,
    2013.
  *For the three months ended December 31, 2013, GAAP Net Income was $13.1
    million, or $0.34 per diluted share, compared to $5.9 million, or $0.16
    per diluted share, in the same period last year.
  *For the three months ended December 31, 2013, Non-GAAP Adjusted Net Income
    was $22.1 million, or $0.57 per diluted share, compared to $10.8 million,
    or $0.29 per diluted share, in the same period last year.

"The athenahealth team delivered another great year. We grew our physician
network by 28%, achieved our 30% bookings growth goal for our core business
and made significant investments in innovation to stay ahead of the
ever-changing health care marketplace," said Tim Adams, athenahealth's Chief
Financial Officer. "Each day we are expanding our capabilities in the delivery
of health care information technology services into our multi-billion dollar
market opportunity. We are thrilled with the progress we have made in 2013 and
are well-positioned to continue our success in 2014 and over the long-term."

  *For the year ended December31, 2013, Non-GAAP Adjusted Gross Margin was
    63.0%, up from 62.6% for the year ended December31, 2012.
  *For the year ended December31, 2013, Non-GAAP Adjusted Operating Income
    was $74.0 million, or 12.4% of total revenue, compared to Non-GAAP
    Adjusted Operating Income of $65.5 million, or 15.5% of total revenue, for
    the year ended December31, 2012.
  *For the year ended December31, 2013, GAAP Net Income was $2.6 million, or
    $0.07 per diluted share, compared to $18.7 million, or $0.50 per diluted
    share, for the year ended December31, 2012.
  *For the year ended December31, 2013, Non-GAAP Adjusted Net Income was
    $44.3 million, or $1.16 per diluted share, compared to $37.2 million, or
    $1.00 per diluted share, for the year ended December31, 2012.
  *Our full year non-GAAP effective tax rate of 37% was lower than we
    anticipated primarily due to better than expected research and development
    tax credits. This lower non-GAAP effective tax rate increased our Non-GAAP
    Adjusted Net Income per Diluted Share for the year ended December31,
    2013, by approximately $0.08.
  *As of December31, 2013, we had cash and cash equivalents of $65.0 million
    and outstanding indebtedness of $223.8million.

Use of Non-GAAP Financial Measures

In our earnings releases, prepared remarks, conference calls, slide
presentations, and webcasts, we may use or discuss 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 in this press release
after the consolidated financial statements. Our earnings press releases
containing such non-GAAP reconciliations can be found in the Investors section
of our web site at www.athenahealth.com.

Conference Call Information

To participate in athenahealth's live conference call and webcast, please dial
877-853-5645 (or 408-940-3868 for international calls) using conference code
No. 30311330, or visit the Investors section of our web site at
www.athenahealth.com. A replay will be available for one week following the
conference call at 855-859-2056 (and 404-537-3406 for international calls)
using conference code No. 30311330. A webcast replay will also be archived on
our website.

About athenahealth

athenahealth is a leading provider of cloud-based services for electronic
health record (EHR), practice management, and care coordination.
athenahealth's mission is to be caregivers' most trusted service, helping them
do well doing the right thing. For more information, please visit
www.athenahealth.com.

Forward-Looking Statements

This press release contains forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including statements reflecting management's expectations
for future financial and operational performance and operating expenditures,
expected growth, and business outlook; statements regarding the benefits of
our service offerings and demands for our service offerings; statements
regarding the potential expansion of our network; statements regarding our
market opportunity; statements regarding changes in the health care industry,
including an increased emphasis on cloud-based services for medical providers,
and our positioning in regard to those changes; statements regarding our
progress with client on-boarding and performance management; and statements
found under our "Reconciliation of Non-GAAP Financial Measures to Comparable
GAAP Measures" section of this release. The forward-looking statements in this
release 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 our 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: our fluctuating operating results; our variable sales and
implementation cycles, which may result in fluctuations in our quarterly
results; risks associated with the acquisition and integration of companies
and new technologies to achieve expected synergies, including those related to
our ability to successfully integrate the services and offerings of Epocrates
and realize the expected benefits; risks associated with our ability to
realize the expected benefits from the purchase of the Arsenal on the Charles
campus in Watertown, Massachusetts; risks associated with our expectations
regarding our ability to maintain profitability; the 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 we operate and the relative
immaturity of the market for our service offerings; and the evolving and
complex governmental and regulatory compliance environment in which we and our
clients operate. Forward-looking statements may often be identified with words
such as "we expect", "we anticipate", "upcoming" or similar indications of
future expectations. These statements are neither promises nor guarantees, and
are subject to a variety of risks and uncertainties, many of which are beyond
our control, which could cause actual results to differ materially from those
contemplated in these forward-looking statements. Existing and prospective
investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation
to update or revise the information contained in this press release, whether
as a result of new information, future events or circumstances, or otherwise.
For additional disclosure regarding these and other risks faced by us, please
see the disclosures contained in our public filings with the Securities and
Exchange Commission, available on the Investors section of our website at
www.athenahealth.com and on the SEC's website at www.sec.gov.

                                                             
athenahealth, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)
                                                             
                                                December31,  December31,
                                                2013          2012
Assets                                                        
Current assets:                                               
Cash and cash                                    $65,002     $154,988
equivalents
Short-term investments                           —             38,092
Current portion of                               3,000         1,357
restricted cash
Accounts receivable -                            87,343        61,916
net
Deferred tax assets                              6,118         6,907
Prepaid expenses and                             17,194        10,924
other current assets
Total current assets                             178,657       274,184
                                                             
Property and equipment                           213,018       54,035
- net
Capitalized software                             29,987        16,050
costs - net
Purchased intangible                             168,364       21,561
assets - net
Goodwill                                         198,049       48,090
Deferred tax assets                              —             11,759
Investments and other                            8,321         2,773
assets
Total assets                                     $796,396    $428,452
                                                             
Liabilities&                                                 
Stockholders' Equity
Current liabilities:                                          
Line of credit                                   $35,000     $ —
Current portion of                               15,000        —
long-term debt
Accounts payable                                 3,930         1,733
Accrued compensation                             44,444        36,393
Accrued expenses                                 24,297        19,683
Current portion of                               27,002        8,209
deferred revenue
Current portion of                               83            799
deferred rent
Total current                                    149,756       66,817
liabilities
Deferred rent, net of                            1,478         2,854
current portion
Long-term debt, net of                           173,750       —
current portion
Deferred revenue, net                            53,172        45,515
of current portion
Long-term deferred tax                           21,421        —
liability - net
Other long-term                                  5,511         1,618
liabilities
Total liabilities                                405,088       116,804
                                                             
Stockholders' equity:                                         
Preferred stock, $0.01
par value: 5,000 shares
authorized; no shares
issued and outstanding                           —             —
at December 31, 2013
and December 31, 2012,
respectively
Common stock, $0.01
par value: 125,000
shares authorized;
38,600 shares issued
and 37,322 shares                                387           376
outstanding at December
31, 2013; 37,572 shares
issued and 36,294
shares outstanding at
December 31, 2012
Additional paid-in                               380,967       303,547
capital
Treasury stock, at                               (1,200)       (1,200)
cost, 1,278 shares
Accumulated other                                (446)         (81)
comprehensive loss
Retained earnings                                11,600        9,006
Total stockholders'                              391,308       311,648
equity
Total liabilities and                            $796,396    $428,452
stockholders' equity
                                                             
                                                             
athenahealth, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)
                                                             
                       Three Months Ended         Twelve Months Ended
                       December31,               December31,
                       2013          2012         2013          2012
Revenue:                                                      
Business services       $162,529    $112,581   $563,237    $408,496
Implementation and      9,050         3,723        31,766        13,775
other
Total revenue           171,579       116,304      595,003       422,271
Expense:                                                      
Direct operating        62,852        45,208       238,672       166,886
Selling and marketing   37,947        27,580       149,488       104,300
Research and            16,322        9,263        57,639        33,792
development
General and             22,339        14,952       99,776        57,025
administrative
Depreciation and        12,864        7,677        43,575        25,641
amortization
Total expense           152,324       104,680      589,150       387,644
Operating income        19,255        11,624       5,853         34,627
Other (expense) income:                                       
Interest expense        (1,319)       (143)        (3,905)       (407)
Other income            136           160          283           658
Total other (expense)   (1,183)       17           (3,622)       251
income
Income before income    18,072        11,641       2,231         34,878
tax benefit (provision)
Income tax benefit      (4,927)       (5,701)      363           (16,146)
(provision)
Net income              $13,145     $5,940     $2,594      $18,732
Net income per share –  $0.35       $0.16      $0.07       $0.52
Basic
Net income per share –  $0.34       $0.16      $0.07       $0.50
Diluted
Weighted average shares
used in computing net                                         
income per share:
Basic                   37,262        36,264       36,856        35,956
Diluted                 38,645        37,420       38,257        37,133
                                                             
                                                             
athenahealth, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                                                             
                                                Year Ended December31,
                                                2013          2012
CASH FLOWS FROM                                               
OPERATING ACTIVITIES:
Net income                                       $2,594      $18,732
Adjustments to
reconcile net income to
net cash (used in)                                            
provided by operating
activities:
Depreciation and                                 61,853        29,144
amortization
Amortization of premium                          84            1,270
on investments
Provision for                                    791           153
uncollectible accounts
Excess tax benefit from                          (6,910)       (14,179)
stock-based awards
Deferred income tax                              (7,044)       (890)
Change in fair value of
contingent                                       76            (5,118)
considerations
Stock-based                                      42,648        27,236
compensation expense
Other reconciling                                (151)         (178)
adjustments
Changes in operating                                          
assets and liabilities:
Accounts receivable                              (4,190)       (12,764)
Prepaid expenses and                             3,283         12,096
other current assets
Other long-term assets                           (66)          111
Accounts payable                                 (233)         13
Accrued expenses                                 (21)          3,898
Accrued compensation                             5,775         7,959
Deferred revenue                                 (3,090)       2,969
Deferred rent                                    (2,091)       (239)
Net cash provided by                             93,308        70,213
operating activities
CASH FLOWS FROM                                               
INVESTING ACTIVITIES:
Capitalized software                             (29,123)      (15,657)
development costs
Purchases of property                            (38,260)      (23,904)
and equipment
Proceeds from sales and
disposals of property                            —             172
and equipment
Proceeds from sales and
maturities of                                    56,245        160,340
investments
Purchases of                                     (2,000)       (118,919)
investments
Payments on
acquisitions, net of                             (410,161)     (5,798)
cash acquired
Change in restricted                             (1,643)       3,650
cash
Net cash used in                                 (424,942)     (116)
investing activities
CASH FLOWS FROM                                               
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock under                            31,133        18,699
stock plans and
warrants
Taxes paid related to
net share settlement of                          (12,075)      (4,248)
restricted stock awards
Excess tax benefit from                          6,910         14,179
stock-based awards
Proceeds from long-term                          200,000       —
debt
Proceeds from line of                            155,000       —
credit
Payments on line of                              (120,000)     —
credit
Payments on long-term
debt and capital lease                           (11,250)      —
obligations
Net settlement of
acquired company's                               (5,806)       —
board of directors
equity shares
Debt issuance costs                              (1,699)       —
Payment of contingent
consideration accrued                            (525)         (1,550)
at acquisition date
Net cash provided by                             241,688       27,080
financing activities
Effects of exchange
rate changes on cash                             (40)          30
and cash equivalents
Net (decrease) increase
in cash and cash                                 (89,986)      97,207
equivalents
Cash and cash
equivalents at                                   154,988       57,781
beginning of period
Cash and cash
equivalents at end of                            $65,002     $154,988
period
                                                             
                                                             
athenahealth, Inc.
STOCK-BASED COMPENSATION
(Unaudited, in thousands)
                                                             
Set forth below is a breakout of stock-based compensation impacting the
Consolidated Statements of Income for the three and twelve months ended
December31, 2013, and 2012:
                                                             
                       Three Months Ended         Twelve Months Ended
                       December 31,              December 31,
                       2013          2012         2013          2012
Stock-based
compensation charged to                                       
Consolidated Statements
of Income:
Direct operating        $2,160      $1,547     $7,778      $5,619
Selling and marketing   2,848         2,312        12,057        7,717
Research and            991           306          4,238         3,213
development
General and             2,925         2,553        18,575        10,687
administrative
Total stock-based      8,924         6,718        42,648        27,236
compensation expense
Amortization of
capitalized stock-based
compensation related to 347           257          1,027         257
software development
(1)
Total                  $9,271      $6,975     $43,675     $27,493
                                                             
(1) In addition, for the three and twelve months ended December31, 2013, $0.5
million and $2.2 million, respectively, of stock-based compensation was
capitalized in the line item Capitalized Software Costs in the Consolidated
Balance Sheet for which $0.3 million and $1.0 million, respectively, of
amortization was included in the line item Depreciation and Amortization
Expense in the Consolidated Statements of Income. The amount of stock-based
compensation related to capitalized software development costs in prior
periods was not significant.
                                                             
                                                             
athenahealth, Inc.
CASH, CASH EQUIVALENTS, AND AVAILABLE-FOR-SALE INVESTMENTS
(Unaudited, in thousands)
                                                             
Set forth below is a breakout of total cash, cash equivalents, and
available-for-sale investments as of December31, 2013, and December31, 2012:
                                                             
                                                December31,  December31,
                                                   2013          2012
                                                             
Cash, cash equivalents                           $65,002     $154,988
Short-term investments                           —             38,092
Total                                           $65,002     $193,080
                                                             
                                                             
athenahealth, Inc.
REVENUE AND NON-GAAP ADJUSTED OPERATING INCOME BY BUSINESS
(Unaudited, in thousands)
                                                             
Set forth below is a breakout of revenue and "Non-GAAP Adjusted Operating
Income" by business for the three and twelve months ended December31, 2013,
and 2012:
                                                             
                       Three months ended         Twelve months ended
                       December 31,               December 31,
                       2013          2012         2013          2012
Revenue:                                                      
Business services:                                            
athenahealth           $143,624    $112,581   $510,857    $408,496
Epocrates              18,905        —            52,380        —
Implementation and                                            
other:
athenahealth           5,406         3,723        22,029        13,775
Other                  3,644         —            9,737         —
Total revenue           $171,579    $116,304   $595,003    $422,271
                                                             
                       Three months ended         Twelve months ended
                       December 31,               December 31,
                       2013          2012         2013          2012
Non-GAAP Adjusted                                             
Operating Income:
athenahealth           $29,636     $19,699    $69,441     $65,479
Epocrates              2,773         —            82            —
Other                   1,710         —            4,439         —
Total Non-GAAP Adjusted 34,119        19,699       73,962        65,479
Operating Income
Stock-based             8,924         6,718        42,648        27,236
compensation expense
Integration and         397           —            9,024         —
transaction costs
Amortization of
capitalized stock-based 347           257          1,027         257
compensation related to
software development
Gain on early           —             —            (2,468)       —
termination of lease
Amortization of
purchased intangible    5,196         1,100        17,878        3,359
assets
Total operating income  19,255        11,624       5,853         34,627
Other (expense) income  (1,183)       17           (3,622)       251
Income before income    18,072        11,641       2,231         34,878
tax (provision) benefit
Income tax (provision)  (4,927)       (5,701)      363           (16,146)
benefit
Net income              $13,145     $5,940     $2,594      $18,732
                                                             
                                                             
athenahealth, Inc.
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
us to describe our financial results determined in accordance with accounting
principles generally accepted in the United States of America ("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 our 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 our results of
operations as determined in accordance with GAAP.

Please note that these figures may not sum exactly due to rounding.

Non-GAAP Adjusted Gross Margin
Set forth below is a presentation of our "Non-GAAP Adjusted Gross Profit" and
"Non-GAAP Adjusted Gross Margin," which represents Non-GAAP Adjusted Gross
Profit as a percentage of total revenue.
                                                             
(unaudited, in          Three Months Ended         Twelve Months Ended
thousands)
                       December 31,               December 31,
                       2013          2012         2013          2012
                                                             
Total revenue           $171,579    $116,304   $595,003    $422,271
Direct operating        62,852        45,208       238,672       166,886
expense
                                                             
Total revenue less
direct operating        108,727       71,096       356,331       255,385
expense
Add: Stock-based
compensation allocated  2,160         1,547        7,778         5,619
to direct operating
expense
Add: Amortization of
purchased intangible
assets allocated to     2,777         1,100        10,617        3,359
direct operating
expense
                                                             
Non-GAAP Adjusted Gross $113,664    $73,743    $374,726    $264,363
Profit
                                                             
Non-GAAP Adjusted Gross 66.2%         63.4%        63.0%         62.6%
Margin
                                                             
Non-GAAP Adjusted EBITDA
Set forth below is a reconciliation of our "Non-GAAP Adjusted EBITDA" and
"Non-GAAP Adjusted EBITDA Margin," which represents Non-GAAP Adjusted EBITDA
as a percentage of total revenue.
                                                             
(unaudited, in          Three Months Ended         Twelve Months Ended
thousands)
                       December 31,               December 31,
                       2013          2012         2013          2012
                                                             
Total Revenue           $171,579    $116,304   $595,003    $422,271
                                                             
GAAP net income         13,145        5,940        2,594         18,732
Add: Provision for
(benefit) from income   4,927         5,701        (363)         16,146
taxes
Add: Total other       1,183         (17)         3,622         (251)
expense (income)
Add: Stock-based       8,924         6,718        42,648        27,236
compensation expense
Add: Depreciation and  12,864        7,677        43,575        25,641
amortization
Add: Amortization of
purchased intangible    5,196         1,100        17,878        3,359
assets
Add: Integration and   397           —            6,865         —
transaction costs
Add: Non-tax
deductible transaction  —             —            2,159         —
costs
Less: Gain on early    —             —            (2,468)       —
termination of lease
                                                             
Non-GAAP Adjusted       $46,636     $27,119    $116,510    $90,863
EBITDA
                                                             
Non-GAAP Adjusted       27.2%         23.3%        19.6%         21.5%
EBITDA Margin

Non-GAAP Adjusted Operating Income
Set forth below is a reconciliation of our "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.
                                                             
(unaudited, in          Three Months Ended         Twelve Months Ended
thousands)
                       December 31,               December 31,
                       2013          2012         2013          2012
                                                             
Total revenue           $171,579    $116,304   $595,003    $422,271
                                                             
GAAP net income         13,145        5,940        2,594         18,732
Add: Provision for
(benefit) from income   4,927         5,701        (363)         16,146
taxes
Add: Total other       1,183         (17)         3,622         (251)
expense (income)
Add: Stock-based       8,924         6,718        42,648        27,236
compensation expense
Add: Amortization of
capitalized stock-based 347           257          1,027         257
compensation related to
software development
Add: Amortization of
purchased intangible    5,196         1,100        17,878        3,359
assets
Add: Integration and   397           —            6,865         —
transaction costs
Add: Non-tax
deductible transaction  —             —            2,159         —
costs
Less: Gain on early    —             —            (2,468)       —
termination of lease
                                                             
Non-GAAP Adjusted       $34,119     $19,699    $73,962     $65,479
Operating Income
                                                             
Non-GAAP Adjusted       19.9%         16.9%        12.4%         15.5%
Operating Income Margin
                                                             
Non-GAAP Adjusted Net Income
Set forth below is a reconciliation of our "Non-GAAP Adjusted Net Income" and
"Non-GAAP Adjusted Net Income per Diluted Share."
                                                             
(unaudited, in          Three Months Ended         Twelve Months Ended
thousands)
                       December 31,               December 31,
                       2013          2012         2013          2012
                                                             
GAAP net income         $13,145     $5,940     $2,594      $18,732
Add: Stock-based       8,924         6,718        42,648        27,236
compensation expense
Add: Amortization of
capitalized stock-based 347           257          1,027         257
compensation related to
software development
Add: Amortization of
purchased intangible    5,196         1,100        17,878        3,359
assets
Add: Integration and   397           —            6,865         —
transaction costs
Less: Gain on early    —             —            (2,468)       —
termination of lease
                                                             
Sub-total of tax       14,864        8,075        65,950        30,852
deductible items
                                                             
Less: Tax impact of
tax deductible items    (5,946)       (3,230)      (26,380)      (12,341)
(1)
Add: Non-tax
deductible transaction  —             —            2,159         —
costs
                                                             
Non-GAAP Adjusted Net   $22,063     $10,785    $44,323     $37,243
Income
                                                             
Weighted average shares 38,645        37,420       38,257        37,133
- diluted
                                                             
Non-GAAP Adjusted Net
Income per Diluted      $0.57       $0.29      $1.16       $1.00
Share
(1) Tax impact calculated using a statutory tax rate of 40%.
                                                             
(unaudited, in          Three Months Ended         Twelve Months Ended
thousands)
                       December 31,               December 31,
                       2013          2012         2013          2012
                                                             
GAAP net income per     $0.34       $0.16      $0.07       $0.50
share - diluted
Add: Stock-based       0.23          0.18         1.11          0.73
compensation expense
Add: Amortization of
capitalized stock-based 0.01          0.01         0.03          0.01
compensation related to
software development
Add: Amortization of
purchased intangible    0.13          0.03         0.47          0.09
assets
Add: Integration and   0.01          —            0.18          —
transaction costs
Less: Gain on early    —             —            (0.06)        —
termination of lease
                                                             
Sub-total of tax       0.38          0.22         1.72          0.83
deductible items
                                                             
Less: Tax impact of
tax deductible items    (0.15)        (0.09)       (0.69)        (0.33)
(1)
Add: Non-tax
deductible transaction  —             —            0.06          —
costs
                                                             
Non-GAAP Adjusted Net
Income per Diluted      $0.57       $0.29      $1.16       $1.00
Share
                                                             
Weighted average shares 38,645        37,420       38,257        37,133
- diluted
(1) Tax impact calculated using a statutory tax rate of 40%.
                                                             

Explanation of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles
generally accepted in the United States of America, or GAAP. However,
management believes that, in order to properly understand our 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 impact on continuing
operations. Management also uses results of operations before such items to
evaluate the operating performance of athenahealth 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 our
ongoing business by eliminating certain non-cash expenses and other items that
management believes might otherwise make comparisons of our ongoing business
with prior periods more difficult, obscure trends in ongoing operations, or
reduce management's 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 our financial and operational performance and comparing this
performance to our peers and competitors.

Management defines "Non-GAAP Adjusted Gross Profit" as total revenue, less
direct operating expense, plus (1)stock-based compensation expense allocated
to direct operating expense and (2)amortization of purchased intangible
assets allocated to direct operating expense, 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 our operational strength and performance of our business and a
good measure of our historical operating trends. Moreover, management believes
that these measures enable investors and financial analysts to closely monitor
and understand changes in our ability to generate income from ongoing business
operations.

Management defines "Non-GAAP Adjusted EBITDA" as the sum of GAAP net income
before provision for (benefit) from income taxes, total other (income)
expense, stock-based compensation expense, depreciation and amortization,
amortization of purchased intangible assets, integration costs, transaction
costs, and gain on early termination of lease 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 (benefit) from income taxes, total other (income)
expense, stock-based compensation expense, amortization of capitalized
stock-based compensation related to software development, amortization of
purchased intangible assets, integration costs, transaction costs, and gain on
early termination of lease 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 stock-based compensation expense, amortization of capitalized
stock-based compensation related to software development, amortization of
purchased intangible assets, integration costs, transaction costs, gain on
early termination of lease 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 all of these non-GAAP financial measures to be important indicators
of our operational strength and performance of our business and a good measure
of our historical operating trends, in particular the extent to which ongoing
operations impact our 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 and amortization of capitalized
    stock-based compensation related to software development — excluded
    because these are non-cash expenditures that management does not consider
    part of ongoing operating results when assessing the performance of our
    business, and also because the total amount of the expenditure is
    partially outside of our 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 expenses are incurred.
  *Amortization of purchased intangible assets — purchased intangible assets
    are amortized over their estimated useful lives and generally cannot be
    changed or influenced by management after the acquisition. Accordingly,
    this item is not considered by management in making operating decisions.
    Management does not believe such charges accurately reflect the
    performance of our ongoing operations for the period in which such charges
    are incurred.
  *Integration costs —integration costs are the severance and retention
    bonuses for certain employees relating to the Epocrates acquisition.
    Accordingly, management believes that such expenses do not have a direct
    correlation to future business operations, and therefore, these costs are
    not considered by management in making operating decisions. Management
    does not believe such charges accurately reflect the performance of our
    ongoing operations for the period in which such charge is incurred.
  *Transaction costs — transaction costs are non-recurring costs related to
    specific transactions. Accordingly, management believes that such expenses
    do not have a direct correlation to future business operations, and
    therefore, these costs are not considered by management in making
    operating decisions. Management does not believe such charges accurately
    reflect the performance of our ongoing operations for the period in which
    such charges are incurred.
  *Gain on early termination of lease — gain on early termination of lease is
    a non-recurring gain related to the early termination of the Arsenal on
    the Charles lease. Accordingly, management believes that this gain does
    not have a direct correlation to future business operations, and
    therefore, this gain is not considered by management in making operating
    decisions. Management does not believe such gain accurately reflects the
    performance of our ongoing operations for the period in which such gain is
    recorded.

CONTACT: Dana Quattrochi
         athenahealth, Inc. (Investors)
         investorrelations@athenahealth.com
         (617) 402-1329
        
         Holly Spring
         athenahealth, Inc. (Media)
         media@athenahealth.com
         (617) 402-1631

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