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 December 31, 2013, Non-GAAP Adjusted Gross Margin was 63.0%, up from 62.6% for the year ended December 31, 2012.
• For the year ended December 31, 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 December 31, 2012.
• For the year ended December 31, 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 December 31, 2012.
• For the year ended December 31, 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 December 31, 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 December 31, 2013, by approximately $0.08.
• As of December 31, 2013, we had cash and cash equivalents of $65.0 million and outstanding indebtedness of $223.8 million.

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.

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