Athenahealth narrows loss in second quarter, sees growth ahead

Cloud-based EHR firm Athenahealth's second quarter was a strong rebound from a disappointing first, with a net loss of $2.2 million compared with a loss of $8.1 million in the first quarter.

Second-quarter earnings also were up compared to the same period last year when the company's net loss hit $12.4 million.

The Watertown, Mass.-based company is taking on a new chief financial officer, Kristi Matus, previously of Aetna, next week. A third large enterprise customer, Arise Austin (Texas) Medical Center has signed up for Athenahealth's Coordinator service. And, despite a decline in revenue, the firm's Epocrates subsidiary, which creates mobile apps, will be rolling out a secure text messaging product by year-end.

CEO Jonathan Bush said that more than 2,500 providers joined Athenahealth this quarter, pushing the firm to more than 55,000 providers overall, covering roughly 56.7 million patient records.

Revenue grew 27% year-over-year to $185.9 million. That fed into the firm's non-adjusted gross margin of 63% for the quarter, up from 62.4% in the same period last year. (The non-adjusted gross margin was not calculated by generally accepted accounting principles.)

The company's financial results are relatively solid, said Ryan Daniels, an analyst from William Blair & Co. Sales were modestly above expectations and Athenahealth's gross margin “well ahead of the 61.4% consensus target,” he said.

However the drop in customer satisfaction over the last several months is worrying, Daniels said. On the company's earnings call, Bush attributed the decline to problems in the firm's features rollout system. The problems have been fixed, he said.

Athenahealth's Epocrates subsidiary, whose revenue declined 23% year-over-year, was another key worry for analysts on the call. Bush acknowledged that the firm had been “hammered hard” by a lack of bookings, but said he thought that the rollout of secure messaging for patients would remedy that problem. Overall, Bush said, messaging can “help doctors build market share among less-engaged patients,” he said.

Research and development spending was 0.8% below expectations. Athenahealth executives attributed that to a strong labor market, causing more turnover than expected among staff.

Athenahealth had been a short-seller's target earlier this year. Noted short-seller David Einhorn, the founder of hedge fund Greenlight Capital, shorted the stock in May. In an investment conference, he branded the stock as a “cool kid stock” that was overvalued due in part to overly rosy projections in the number of providers who would be using the company's products.

One Morgan Stanley projection cited by Einhorn had roughly 80,000 providers by 2030.

The stock sank after Einhorn's presentation, dropping nearly 7%. It's rebounded strongly since then. On May 5, a day before the presentation, the stock was trading at nearly $126. At the close of trading July 17, the stock touched just under $128 and was trading at $123.88 near midday Friday.

Follow Darius Tahir on Twitter: @dariustahir