e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33689
athenahealth, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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04-3387530 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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311 Arsenal Street, Watertown, Massachusetts
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02472 |
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(Address of principal executive offices)
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(Zip Code) |
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of
April 26, 2011, the registrant had 34,871,353 shares of common stock, par value $0.01 per
share, outstanding.
athenahealth, Inc.
FORM 10-Q
INDEX
i
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited).
athenahealth, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per-share amounts)
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March 31, |
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December 31, |
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2011 |
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2010 |
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Assets |
Current assets: |
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Cash and cash equivalents |
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$ |
45,582 |
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$ |
35,944 |
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Short-term investments |
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57,152 |
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80,231 |
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Accounts receivable net |
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42,714 |
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36,870 |
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Deferred tax assets |
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4,347 |
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3,856 |
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Prepaid expenses and other current
assets |
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8,327 |
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6,749 |
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Total current assets |
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158,122 |
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163,650 |
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Property and equipment net |
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31,423 |
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31,899 |
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Restricted cash |
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5,804 |
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8,691 |
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Software development costs net |
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4,225 |
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3,642 |
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Purchased intangibles net |
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12,191 |
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12,651 |
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Goodwill |
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22,450 |
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22,450 |
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Deferred tax assets |
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10,332 |
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10,959 |
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Investments and other assets |
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24,510 |
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7,228 |
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Total assets |
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$ |
269,057 |
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$ |
261,170 |
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Liabilities & Stockholders Equity |
Current liabilities: |
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Current portion of long-term debt and capital lease obligations |
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$ |
2,666 |
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$ |
2,909 |
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Accounts payable |
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2,648 |
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559 |
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Accrued compensation |
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12,585 |
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19,178 |
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Accrued expenses |
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10,404 |
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10,981 |
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Current portion of deferred revenue |
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5,364 |
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4,978 |
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Interest rate derivative liability |
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425 |
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490 |
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Current portion of deferred rent |
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1,522 |
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1,497 |
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Total current liabilities |
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35,614 |
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40,592 |
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Deferred rent, net of current portion |
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5,583 |
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5,960 |
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Deferred revenue, net of current portion |
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38,006 |
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35,661 |
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Other long-term liabilities |
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1,821 |
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1,897 |
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Debt and capital lease obligations, net of current portion |
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5,757 |
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6,307 |
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Total liabilities |
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86,781 |
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90,417 |
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Commitments and contingencies (note 9) |
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Stockholders equity: |
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Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued
and outstanding at March 31, 2011 and December 31, 2010, respectively |
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Common stock; $0.01 par value: 125,000 shares authorized; 36,106 shares issued,
and 34,828 shares outstanding at March 31, 2011; 35,808 shares issued and
34,530 shares outstanding at
December 31, 2010 |
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361 |
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358 |
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Additional paid-in capital |
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208,586 |
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200,339 |
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Treasury stock, at cost, 1,278 shares |
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(1,200 |
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(1,200 |
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Accumulated other comprehensive income |
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50 |
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28 |
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Accumulated deficit |
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(25,521 |
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(28,772 |
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Total stockholders equity |
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182,276 |
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170,753 |
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Total liabilities and stockholders equity |
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$ |
269,057 |
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$ |
261,170 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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Revenue: |
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Business services |
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$ |
67,486 |
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$ |
52,565 |
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Implementation and other |
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2,444 |
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1,912 |
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Total revenue |
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69,930 |
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54,477 |
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Expense: |
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Direct operating |
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27,270 |
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23,519 |
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Selling and marketing |
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16,941 |
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12,060 |
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Research and development |
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5,079 |
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4,074 |
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General and administrative |
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11,719 |
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11,677 |
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Depreciation and amortization |
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3,398 |
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2,420 |
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Total expense |
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64,407 |
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53,750 |
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Operating income |
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5,523 |
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727 |
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Other income (expense): |
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Interest income |
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107 |
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78 |
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Interest expense |
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(177 |
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(217 |
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Gain (loss) on interest rate derivative contract |
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65 |
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(60 |
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Other income |
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38 |
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30 |
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Total other income (expense) |
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33 |
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(169 |
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Income before income taxes |
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5,556 |
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558 |
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Income tax provision |
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(2,305 |
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(281 |
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Net income |
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$ |
3,251 |
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$ |
277 |
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Net income per share Basic |
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$ |
0.09 |
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$ |
0.01 |
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Net income per share Diluted |
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$ |
0.09 |
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$ |
0.01 |
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Weighted average shares used in computing net income per share |
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Basic |
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34,678 |
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34,014 |
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Diluted |
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35,657 |
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35,201 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
3,251 |
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$ |
277 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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3,858 |
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2,880 |
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Amortization of premiums on investments |
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381 |
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381 |
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Provision for uncollectible accounts |
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259 |
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213 |
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Excess tax benefit from stock-based awards |
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(2,175 |
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Deferred income tax |
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136 |
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152 |
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Increase in fair value of contingent consideration |
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114 |
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304 |
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Stock-based compensation expense |
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4,005 |
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2,784 |
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(Gain) loss on interest rate derivative contract |
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(65 |
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60 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(6,103 |
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(1,122 |
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Prepaid expenses and other current assets |
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542 |
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(1,808 |
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Other long-term assets |
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79 |
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(153 |
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Accounts payable |
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2,124 |
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(392 |
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Accrued expenses |
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(4,802 |
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(4,121 |
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Deferred revenue |
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2,731 |
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1,964 |
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Deferred rent |
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(352 |
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(300 |
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Net cash provided by operating activities |
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3,983 |
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1,119 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capitalized software development costs |
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(1,469 |
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(703 |
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Purchases of property and equipment |
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(2,067 |
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(6,836 |
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Proceeds from sales or disposals of property and equipment |
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362 |
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Proceeds from sales and maturities of investments |
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54,054 |
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20,750 |
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Purchases of short-term and long-term investments |
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(48,766 |
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(27,691 |
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Decrease in restricted cash |
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2,887 |
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332 |
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Net cash provided by (used in) investing activities |
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4,639 |
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(13,786 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock under stock plans |
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2,125 |
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3,269 |
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Excess tax benefit from stock-based awards |
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2,175 |
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Payment of contingent consideration accrued at acquisition date |
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(2,558 |
) |
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Payments on long-term debt and capital lease obligations |
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(793 |
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(887 |
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Net cash provided by financing activities |
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949 |
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2,382 |
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Effects of exchange rate changes on cash and cash equivalents |
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67 |
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13 |
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Net increase (decrease) in cash and cash equivalents |
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9,638 |
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(10,272 |
) |
Cash and cash equivalents at beginning of period |
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35,944 |
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30,526 |
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Cash and cash equivalents at end of period |
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$ |
45,582 |
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$ |
20,254 |
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Supplemental disclosures of non-cash items Property and equipment
recorded in accounts payable and accrued expenses |
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$ |
179 |
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$ |
229 |
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Supplemental disclosures Cash paid for interest |
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$ |
177 |
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$ |
117 |
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Supplemental disclosures Cash paid for taxes |
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$ |
241 |
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$ |
983 |
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Property and equipment acquired under capital leases |
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$ |
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$ |
362 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (GAAP) for interim
financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of the Companys management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of items of a normal and recurring nature) necessary
to present fairly the financial position as of March 31, 2011, and the results of operations for
the three month period ended March 31, 2011 and 2010 and cash flows for the three month period
ended March 31, 2011 and 2010. The results of operations for the three month period ended March 31,
2011 are not necessarily indicative of the results to be expected for the full year. When preparing
financial statements in conformity with GAAP, we must make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses, and related disclosures at the date
of the financial statements. Actual results could differ from those estimates.
The Company considers events or transactions that occur after the balance sheet date but
before the financial statements are issued to provide additional evidence relative to certain
estimates or to identify matters that require additional disclosure. Subsequent events have been
evaluated through the date of issuance of these financial statements. The accompanying unaudited
condensed consolidated financial statements and notes thereto should be read in conjunction with
the audited consolidated financial statements for the year ended December 31, 2010, included in our
Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on
February 18, 2011.
2. RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by FASB and are adopted by us as
of the specified effective date. Unless otherwise discussed, we believe that the impact of other
recently issued accounting pronouncements will not have a material impact on consolidated financial
position, results of operations, and cash flows, or do not apply to our operations.
3. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted net income per share is computed by
dividing net income by the weighted average number of common shares outstanding and potentially
dilutive securities outstanding during the period under the treasury stock method. Potentially
dilutive securities include stock options, warrants, shares to be purchased under the employee
stock purchase plan, and restricted stock units. Under the treasury stock method, dilutive
securities are assumed to be exercised at the beginning of the periods and as if funds obtained
thereby were used to purchase common stock at the average market price during the period.
Securities are excluded from the computations of diluted net income per share if their effect would
be antidilutive to earnings per share.
The following table reconciles the weighted average shares outstanding for basic and diluted
net income per share for the periods indicated.
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Three Months Ended |
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Three Months Ended |
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March 31, 2011 |
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March 31, 2010 |
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Net income |
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$ |
3,251 |
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$ |
277 |
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Weighted average shares used in computing basic net income per share |
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34,678 |
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34,014 |
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Net income per share basic |
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$ |
0.09 |
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$ |
0.01 |
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Net income |
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$ |
3,251 |
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$ |
277 |
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Weighted average shares used in computing basic net income per share |
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34,678 |
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34,014 |
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Effect of dilutive securities |
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|
979 |
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1,187 |
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Weighted average shares used in computing diluted net income per share |
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35,657 |
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35,201 |
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Net income per share diluted |
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$ |
0.09 |
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$ |
0.01 |
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The computation of diluted net income per share does not include 909 and 963 stock
options for the three months ended March 31, 2011, and March 31, 2010, respectively, because their
inclusion would have an antidilutive effect on net income per share.
4
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
4. COMPREHENSIVE INCOME
Comprehensive income was as follows for the periods indicated:
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Three Months Ended |
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Three Months Ended |
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|
March 31, 2011 |
|
|
March 31, 2010 |
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|
|
Net income |
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$ |
3,251 |
|
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$ |
277 |
|
Unrealized holding loss on available-for-sale investments |
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(10 |
) |
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|
(55 |
) |
Foreign currency translation adjustment |
|
|
32 |
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|
17 |
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Total comprehensive income |
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$ |
3,273 |
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$ |
239 |
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|
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 31, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents,
restricted cash, receivables, accounts payable, and accrued expenses approximated their estimated
fair values because of the short-term nature of these financial instruments. All highly liquid debt
instruments purchased with a maturity of three months or less at the date of acquisition are
included in cash and cash equivalents. Included in cash and cash equivalents as of March 31, 2011
and December 31, 2010, are money market fund investments of $26,215 and $10,799, respectively,
which are reported at fair value.
The carrying amounts of the Companys debt obligations approximate fair value based upon our
best estimate of interest rates that would be available to the Company for similar debt
obligations. The estimated fair value of our long-term debt was determined using quoted market
prices and other inputs that were derived from available market information and may not be
representative of actual values that could have been or will be realized in the future.
The following table presents information about the Companys financial assets and liabilities
that are measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010,
and indicates the fair value hierarchy of the valuation techniques the Company utilized to
determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted
prices (unadjusted) in active markets for identical assets or liabilities and fair values
determined by Level 2 inputs utilize quoted prices (unadjusted) in inactive markets for identical
assets or liabilities obtained from readily available pricing sources for similar instruments. The
fair values determined by Level 3 inputs are unobservable values which are supported by little or
no market activity. Investments include $22,985 of long-term U.S. government backed securities
that have been classified in investments and other assets on the condensed consolidated balance
sheet at March 31, 2011. Investments include $3,500 of long-term U.S. government backed securities
and $2,081 of long-term corporate bonds that have been classified in investments and other assets
on the condensed consolidated balance sheet at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2011, Using |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
$ |
26,215 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,215 |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
|
|
|
|
|
|
8,247 |
|
|
|
|
|
|
|
8,247 |
|
Corporate bonds |
|
|
|
|
|
|
45,904 |
|
|
|
|
|
|
|
45,904 |
|
U.S. government backed securities |
|
|
|
|
|
|
25,986 |
|
|
|
|
|
|
|
25,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
26,215 |
|
|
$ |
80,137 |
|
|
$ |
|
|
|
$ |
106,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued contingent consideration |
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,211 |
) |
|
$ |
(2,211 |
) |
Interest rate derivative contract |
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
(425 |
) |
|
$ |
(2,211 |
) |
|
$ |
(2,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
5
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2010, Using |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
$ |
10,799 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,799 |
|
Corporate bonds |
|
|
|
|
|
|
577 |
|
|
|
|
|
|
|
577 |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper |
|
|
|
|
|
|
29,642 |
|
|
|
|
|
|
|
29,642 |
|
Corporate bonds |
|
|
|
|
|
|
40,676 |
|
|
|
|
|
|
|
40,676 |
|
U.S. government backed securities |
|
|
|
|
|
|
15,494 |
|
|
|
|
|
|
|
15,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
10,799 |
|
|
$ |
86,389 |
|
|
$ |
|
|
|
$ |
97,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued contingent consideration |
|
$ |
|
|
|
$ |
|
|
|
$ |
(4,655 |
) |
|
$ |
(4,655 |
) |
Interest rate derivative contract |
|
|
|
|
|
|
(490 |
) |
|
|
|
|
|
|
(490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
(490 |
) |
|
$ |
(4,655 |
) |
|
$ |
(5,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government backed securities, corporate bonds and commercial paper are valued using
a market approach based upon the quoted market prices of identical instruments when available or
other observable inputs such as trading prices of identical instruments in inactive markets or
similar securities. The interest rate derivative is valued using an interest rate swap model and
observable inputs at the reporting date.
There were no transfers into and out of Levels 1, 2 and 3 of the fair value hierarchy during
the three months ended March 31, 2011 and 2010, respectively. It is the Companys policy to
recognize transfers between levels of the fair value hierarchy, if any, at the end of the reporting
period however there have been no such transfers during the three months March 31, 2011, or the
year ended December 31, 2010, respectively.
Contingent consideration is recorded at fair value as an element of purchase price with
subsequent adjustments recognized in the consolidated statement of operations. At the acquisition
date and reporting date, the fair value of the accrued contingent consideration was determined
using a probability-weighted income approach based on upside, downside and base case scenarios.
This approach is based on significant inputs that are not observable in the market, which are
referred to as Level 3 inputs. As of March 31, 2011 and December 31, 2010, the Company has accrued
a liability of $2,211 and $4,655, respectively, for the estimated fair value of contingent
considerations estimated to be payable upon the acquired company reaching specific performance
metrics over the initial three years of operation after acquisition. There are two separate
elements that make up the contingent consideration.
The first potential contingent consideration ranges from zero to $4,800 and is payable in one
installment based upon operational performance for the year ended December 31, 2010. Based on the
actual operational performance for the year ended December 31, 2010, the Company had accrued $2,400
relating to the first potential contingent consideration which was paid in March of 2011.
The second potential contingent consideration ranges from zero to $2,900 and is payable in
quarterly installments based upon the cross selling of the Companys services into the acquired
companys customer base for the years ended December 31, 2010 and 2011, and the six-month period
ending June 30, 2012. Any amounts not earned in the first potential contingent consideration can be
earned under the second potential contingent consideration in excess of the initial $2,900 bringing
the total potential contingent consideration to $5,300. At March 31, 2011, key assumptions relating
to the second potential contingent consideration include a discount rate of 20% and a probability
adjusted level of 50% for the base case scenario and 25% for the upside and downside scenarios. At
December 31, 2010, key assumptions relating to the second potential contingent consideration
include a discount rate of 21% and a probability adjusted level of 50% for the base case scenario
and 25% for the upside and downside scenarios. The change in these assumptions were caused by the
expected results from 2011 and 2012 operations and resulted in an increase of $114 in the fair
value of the total contingent consideration during the three months ended March 31, 2011. The
Company paid $158 during the three months ended March 31, 2011, under the terms of the second
potential contingent consideration. No amounts were paid under either contingent consideration in
the three months ended March 31, 2010.
|
|
|
|
|
Accrued contingent consideration balance as of January 1, 2010 |
|
$ |
5,100 |
|
Increase in fair value of contingent consideration |
|
|
304 |
|
|
|
|
|
Accrued contingent consideration balance as of March 31, 2010 |
|
$ |
5,404 |
|
|
|
|
|
|
|
|
|
|
Accrued contingent consideration balance as of January 1, 2011 |
|
$ |
4,655 |
|
Payments of contingent consideration |
|
|
(2,558 |
) |
Increase in fair value of contingent consideration |
|
|
114 |
|
|
|
|
|
Accrued contingent consideration balance as of March 31, 2011 |
|
$ |
2,211 |
|
|
|
|
|
6
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
6. INVESTMENTS
The summary of available-for-sale securities as of March 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains (Loss) |
|
|
Fair Value |
|
Commercial paper |
|
$ |
8,238 |
|
|
$ |
9 |
|
|
$ |
8,247 |
|
Corporate bonds |
|
|
45,915 |
|
|
|
(11 |
) |
|
|
45,904 |
|
U.S. government backed securities |
|
|
26,006 |
|
|
|
(20 |
) |
|
|
25,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
80,159 |
|
|
$ |
(22 |
) |
|
$ |
80,137 |
|
|
|
|
|
|
|
|
|
|
|
Investments include $22,985 of long-term U.S. government backed securities that have been
classified in investments and other assets on the condensed consolidated balance sheet at March 31,
2011.
The summary of available-for-sale securities as of December 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains (Loss) |
|
|
Fair Value |
|
Commercial paper |
|
$ |
29,635 |
|
|
$ |
7 |
|
|
$ |
29,642 |
|
Corporate bonds |
|
|
40,694 |
|
|
|
(18 |
) |
|
|
40,676 |
|
U.S. government backed securities |
|
|
15,500 |
|
|
|
(6 |
) |
|
|
15,494 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
85,829 |
|
|
$ |
(17 |
) |
|
$ |
85,812 |
|
|
|
|
|
|
|
|
|
|
|
Investments include $3,500 of long-term U.S. government backed securities and $2,081 of
long-term corporate bonds that have been classified in investments and other assets on the
condensed consolidated balance sheet at December 31, 2010.
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The summary of outstanding debt and capital lease obligations is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
As of December 31, 2010 |
|
Term loan |
|
$ |
5,250 |
|
|
$ |
5,325 |
|
Capital lease obligation |
|
|
3,173 |
|
|
|
3,891 |
|
|
|
|
|
|
|
|
|
|
|
8,423 |
|
|
|
9,216 |
|
Less current portion of long-term debt and capital lease obligations |
|
|
(2,666 |
) |
|
|
(2,909 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current portion |
|
$ |
5,757 |
|
|
$ |
6,307 |
|
|
|
|
|
|
|
|
2008 Term and Revolving Loans On September 30, 2008, the Company entered into a Credit
Agreement (the Credit Agreement) with a financial institution. The Credit Agreement consists of a
revolving credit facility in the amount of $15,000 and a term loan facility in the amount of $6,000
(collectively, the Credit Facility). The revolving credit facility may be extended by an
additional $15,000 on the satisfaction of certain conditions and includes a $10,000 sublimit for
the issuance of standby letters of credit. The revolving credit facility matures on September 30,
2011, and the term loan facility matures on September 30, 2013, although either facility may be
voluntarily prepaid in whole or in part at any time without premium or penalty. As of March 31,
2011, there were no amounts outstanding under the revolving credit facility. On September 30,
2008, the Company borrowed a total of $6,000 under the term loan facility for general working
capital purposes. The term loan has a 5 year term which is payable quarterly starting March 31,
2009, for $75 each quarter. The Company has the option to extend the loan, subject to agreement of
the lender, at the end of the 5 year term.
The revolving credit loan facility and term loan facility bear interest, at the Companys
option, at either (i) the financial institutions London Interbank Offered Rate (LIBOR), or (ii)
the higher of (a) the Federal Funds Rate plus 0.50% or (b) the financial institutions prime rate
(the higher of the two being the Base Rate). For term loans, these rates are adjusted down 100
basis points
7
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
for Base
Rate loans and up 100 basis points for LIBOR loans. For revolving credit
loans, a margin is added to the chosen interest rate that is based on the Companys consolidated
leverage ratio, as defined in the Credit Agreement, which margin can range from 100 to 275 basis
points for LIBOR loans and from 0 to 50 basis points for Base Rate loans. A default rate shall
apply on all obligations in the event of a default under the Credit Agreement at a rate per annum
equal to 2% above the applicable interest rate. The Company was also required to pay commitment
fees and upfront fees for this Credit Facility. The interest rate as of March 31, 2011, and
December 31, 2010, for the term loan was 4.5%.
The obligations of the Company and its subsidiaries under the Credit Agreement are
collateralized by substantially all assets.
The Credit Agreement also contains certain financial and nonfinancial covenants, including
limitations on our consolidated leverage ratio and capital expenditures, defaults relating to
non-payment, breach of covenants, inaccuracy of representations and warranties, default under other
indebtedness (including a cross-default with our interest rate swap), bankruptcy and insolvency,
inability to pay debtors, attachment of assets, adverse judgments, ERISA violations, invalidity of
loan and collateral documents, payments of dividends, and change of control. Upon an event of
default, the lenders may terminate the commitment to make loans and the obligation to extend
letters of credit, declare the unpaid principal amount of all outstanding loans and interest
accrued under the Credit Agreement to be immediately due and payable, require us to provide cash
and deposit account collateral for our letter of credit obligations, and exercise their security
interests and other rights under the Credit Agreement.
Capital Lease Obligations In June 2007, the Company entered into a master lease and
security agreement (the Equipment Line) with a financing company. The Equipment Line allows for
the Company to lease from the financing company eligible equipment purchases, submitted within 90
days of the applicable equipments invoice date. Each lease has a 36 month term which is payable in
equal monthly installments, commencing on the first day of the fourth month after the date of the
disbursements of such loan and continuing on the first day of each month thereafter until paid in
full. The Company has accounted for these as capital leases. At March 31, 2011 and December 31,
2010, the Company had $3,173 and $3,891, respectively, of outstanding capital leases. As of March
31, 2011, the weighted average interest rate implicit in the leases was 4.1%.
8. INTEREST RATE SWAP
The Company entered into a derivative instrument which has a decreasing notional value over
the term to offset the cash flow exposure associated with its interest payments on certain
outstanding debt. In October 2008, we entered into an interest rate swap to mitigate the cash flow
exposure associated with our interest payments on certain outstanding debt. Our interest rate swap
is not designated as a hedging instrument. The derivative is accounted for at fair value with gains
or losses reported in earnings.
The swap had a notional amount of $5,850 to hedge changes in cash flows attributable to
changes in the LIBOR rate associated with the September 30, 2008, issuance of the Term Loan due
September 30, 2028. We pay a fixed rate of 4.5% and receive a variable
rate based on one month LIBOR. The fair value of derivatives as of March 31, 2011, and
December 31, 2010, is summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of |
|
|
|
Liability Derivatives |
|
|
March 31, |
|
|
December 31, |
|
|
|
Balance Sheet Location |
|
|
2011 |
|
|
2010 |
|
Interest rate derivative contract |
|
Interest rate derivative liability |
|
$ |
425 |
|
|
$ |
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative |
|
|
|
|
|
$ |
425 |
|
|
$ |
490 |
|
|
|
|
|
|
|
|
|
|
|
The effect of derivative instruments on the consolidated statement of operations is
summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain Recognized in |
|
(Loss) Recognized in |
|
|
Location of Gain (Loss) |
|
Earnings for Three Months |
|
Earnings for Three Months |
|
|
Recognized in Earnings |
|
Ended March 31, 2011 |
|
Ended March 31, 2010 |
Interest rate contracts |
|
Gain (loss) on interest rate derivative contract |
|
$ |
65 |
|
|
$ |
(60 |
) |
8
athenahealth, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited amounts in thousands, except per-share amounts)
Derivatives are carried at fair value, as determined using standard valuation models, and
are adjusted, when necessary, for credit risk and are separately presented on the balance sheet.
The following is a description/summary of the derivative financial instrument we have entered into
to manage the interest rate exposure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
|
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
(Fiscal |
|
Fair Value at |
Description |
|
Underlying |
|
Amount |
|
Receive |
|
Pay |
|
Entered Into |
|
Year) |
|
March 31, 2011 |
Interest rate swap variable to fixed |
|
Interest on Term Loan |
|
$ |
5,250 |
|
|
LIBOR |
|
4.55% fixed |
|
|
2008 |
|
|
|
2028 |
|
|
$ |
(425 |
) |
9. COMMITMENTS AND CONTINGENCIES
On March 2, 2010, a complaint was filed by Prompt Medical Systems, L.P. naming the Company and
several other defendants in a patent infringement case (Prompt Medical Systems, L.P. v.
AllscriptsMisys Healthcare Solutions, Inc. et al., Civil Action No. 6:2010cv00071, United States
District Court for the Eastern District of Texas). The complaint alleges that the Company has
infringed on U.S. Patent No. 5,483,443 with a listed issue date of January 9, 1996 entitled Method
for Computing Current Procedural Terminology Codes from Physician Generated Documentation. The
complaint seeks an injunction enjoining infringement, damages, and pre- and post-judgment costs and
interest. The Company and other several defendants filed motions to dismiss the complaint. On
February 11, 2011, the Court issued an Order granting-in-part and denying-in-part the motions
to dismiss. The Court ordered the plaintiff to replead certain claims within fourteen days of the
Order, and the plaintiff filed its amended complaint on
February 23, 2011. The Company filed its answer to the amended
complaint and declaratory judgment counterclaims of non-infringement,
invalidity, and unenforceability on March 9, 2011.
On November 24, 2010, several defendants filed (i) a motion for summary judgment of invalidity
against the patent-in-suit on the basis that it claims only non-patentable subject matter; and (ii)
a motion to stay all proceedings pending the resolution of the motion for summary judgment. The
Company filed a motion to join in the motion to stay the proceedings. The motions are fully briefed
and awaiting a decision by the Court.
The case is currently in the discovery phase. A claim construction hearing is scheduled for
November 11, 2011. Trial is scheduled for June 11, 2012.
The Company is being indemnified in this lawsuit from and against any liability and reasonable
costs, including attorneys fees, incurred by the Company in its defense, pursuant to a license
agreement with its vendor.
The Company believes that it has meritorious defenses to the lawsuit and continues to contest
it vigorously.
On March 19, 2010, a putative shareholder class action complaint was filed in the United
States District Court for the District of Massachusetts against the Company and certain of its
current and former officers entitled Casula v. athenahealth, Inc. et al, Civil Action No.
1:10-cv-10477. On June 3, 2010, the court appointed Waterford Township General Employees Retirement
System as the lead plaintiff. On August 2, 2010, the lead plaintiff filed an amended complaint. The
amended complaint alleges that the defendants violated the federal securities laws by disseminating
false and misleading statements through press releases, statements by senior management, and SEC
filings. The alleged false and misleading statements concern, among other things, the amortization
period for deferred implementation revenues. The amended complaint seeks unspecified damages,
costs, and expenses. The defendants filed a motion to dismiss the amended complaint on October 1,
2010, and a reply brief in further support of the motion to dismiss the amended complaint on
December 30, 2010. The Company believes that it has meritorious defenses to the amended complaint
and will contest the claims vigorously.
On March 17, 2011, a complaint was filed by PPS Data, LLC naming the Company and several other
defendants in a patent infringement case (PPS Data, LLC v. Allscripts Healthcare Solutions, Inc. et
al, Civil Action No. 3:11-CU-273-J-99MMH-TEM, United States District Court for the Middle District
of Florida). The complaint alleges that the Company has infringed on U.S. Patent No. 6,343,271 with
a listed issue date of January 29, 2002 entitled Electronic Creation, Submission, Adjudication,
and Payment of Health Insurance Claims. The complaint seeks an injunction enjoining infringement,
damages, pre- and post-judgment costs and interest, and attorneys fees. On April 14, 2011, the
Company filed a motion to dismiss, or, in the alternative a motion for summary judgment. The
Company believes that it has meritorious defenses to the complaint and will contest the claims
vigorously.
In addition, from time to time the Company may be subject to other legal proceedings, claims,
and litigation arising in the ordinary course of business. The Company does not, however, currently
expect that the ultimate costs to resolve any pending matter will have a material adverse effect on
the Companys consolidated financial position, results of operations, or cash flows. There are no
accruals for such claims recorded at March 31, 2011.
9
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other
than statements of historical fact contained in this Quarterly Report on Form 10-Q are
forward-looking statements, including those regarding expanded sales and marketing efforts; changes
in expenses related to operations, selling, marketing, research and development, general and
administrative matters, and depreciation and amortization; liquidity issues; additional
fundraising; and the expected performance period and estimated term of our client relationships, as
well as more general statements regarding our expectations for future financial and operational
performance, product and service offerings, regulatory environment, and market trends. In some
cases, you can identify forward-looking statements by terminology such as may, will, should,
expects, plans, anticipates, believes, estimates, predicts, potential, or continue;
the negative of these terms; or other comparable terminology. Forward-looking statements in this
Item 2 include, without limitation, statements reflecting managements expectations for future
financial performance and operating expenditures, expected growth, profitability and business
outlook, increased sales and marketing expenses, increased cross-selling efforts among the
Companys service offerings, expected client implementations, expected certification and regulatory
approvals and the benefits of the Companys current service offerings and research and development
for new service offerings and the benefits of current and expected strategic and sales and
marketing relationships.
Forward-looking statements are only current predictions and are subject to known and unknown
risks, uncertainties, and other factors that may cause our actual results, levels of activity,
performance, or achievements to be materially different from those anticipated by such statements.
These factors include, among other things, those set forth in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2010, under the heading Part I, Item 1A Risk Factors and any
set forth below under Part II, Item 1A, Risk Factors.
Although we believe that the expectations reflected in the forward-looking statements
contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Except as required by law, we are under no duty
to update or revise any of such forward-looking statements, whether as a result of new information,
future events, or otherwise, after the date of this Quarterly Report on Form 10-Q.
Overview
athenahealth provides business services that help medical practices achieve and sustain
financial health by collecting more money and exercising more control over their administrative
tasks. These services are designed to reduce the administrative burden of complex billing rules,
quality measurement and reporting, clinical documentation and data exchange, patient communication,
and many of the related tasks that distract medical providers and staff from the practice of
medicine. Our services are delivered and consumed through a single instance of our cloud-based
platform, athenaNet. We differentiate our services by regularly deploying updates and improvements
through athenaNet to clients without any action on the part of the client. athenaNet enables us to
quickly implement our solution at a low up-front cost and to seamlessly work in tandem with our
clients in real time.
The services provided through our single-instance cloud are currently packaged as three
integrated components: athenaCollector for revenue cycle management, athenaClinicals for clinical
cycle management, and athenaCommunicator for patient cycle management. The use of our
single-instance platform allows all clients to benefit from the collective knowledge of all of our
other clients through our patented billing Rules Engine and our clinical Quality Management Engine.
Our clients use these rules engines to monitor and benchmark their performance with peer practices
across the network. Our business intelligence application, Anodyne Analytics, also supports our
clients in their pursuit of financial health by equipping users with data visualization tools and
insight into their practices performance.
Each service we provide is supported by a model comprised of three distinct components:
Software, Knowledge, and Work. The cloud-based software is provided at no extra charge to users but
is the primary conduit through which we exchange information between clients, payers, and our staff
of experts. Knowledge is infused into each of our services via our Rules Engine as we work with
clients, payers, and other partners to codify rules associated with reimbursement, clinical quality
measures, and other factors related to our clients performance. The third component to each of our
services is the Work that we perform on behalf of our clients. Wherever possible, we replace manual
processes with automation, but where automation is not possible, we provide that manual labor
rather than returning it to clients to be completed. This unique service model of Software,
Knowledge, and Work has allowed us to align our success with our clients performance, creating a
continual cycle of improvement and efficiency. We charge clients a percentage of collections in
most cases, so our financial results are a direct reflection of our ability to drive revenue to
medical practices.
For the three months ended March 31, 2011, we generated revenue of $69.9 million from the sale
of our services compared to $54.5 million for the three months ended March 31, 2010. In 2010, we
generated revenue of $245.5 million from the sale of our services compared to $188.5 million in
2009. Given the scope of our market opportunity, we have increased our spending each year on
growth, innovation, and infrastructure. Despite increased spending in these areas, higher revenue
and lower operating expenses as a percentage of revenue typically lead to greater operating income.
10
Our revenues are predominately derived from business services that we provide on an ongoing
basis. This revenue is generally determined as a percentage of our clients collections, so the key
drivers of our revenue include growth in the number of physicians working within our client
accounts and the collections of these physicians. To provide these services, we incur expenses in
several categories, including direct operating, selling and marketing, research and development,
general and administrative, and depreciation and amortization expense. In general, our direct
operating expense increases as our volume of work increases, whereas our selling and marketing
expense increases in proportion to our rate of adding new accounts to our network of physician
clients. Our other expense categories are less directly related to growth of revenues and relate
more to our planning for the future, our overall business management activities, and our
infrastructure. As our revenues have grown, the difference between our revenue and our direct
operating expense also has grown, which has afforded us the ability to spend more in other
categories of expense and to experience increases in operating income. We manage our cash and our
use of credit facilities to ensure adequate liquidity, in adherence to related financial covenants.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with GAAP requires us
to make estimates and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosures of contingent assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses during the reporting
periods. Significant estimates and assumptions are used for, but are not limited to: (1) revenue
recognition; including our estimated expected customer life; (2) allowance for doubtful accounts;
(3) asset impairments; (4) depreciable lives of assets; (5) economic lives and fair value of leased
assets; (6) income tax reserves; (7) fair value of stock options; (8) allocation of direct and
indirect cost of sales; (9) fair value of contingent consideration; and (10) litigation reserves.
Future events and their effects cannot be predicted with certainty, and accordingly, our accounting
estimates require the exercise of judgment. The accounting estimates used in the preparation of our
consolidated financial statements will change as new events occur, as more experience is acquired,
as additional information is obtained and as our operating environment changes. We evaluate and
update our assumptions and estimates on an ongoing basis and may employ outside experts to assist
in our evaluations. Actual results could differ from the estimates we have used.
Critical accounting policies are those policies that affect our more significant judgments and
estimates used in the preparation of our condensed consolidated financial statements. We believe
our critical accounting policies include our policies regarding revenue recognition, software
development costs, share-based compensation, and income taxes. For a more detailed discussion of
our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2010, as filed with the SEC on February 18, 2011. For recent accounting
pronouncements, please refer to Note 2.
Financial Operations Overview
Revenue. We derive our revenue from two sources: from business services associated with our
revenue cycle, clinical cycle, patient cycle and Anodyne Analytics offerings and from
implementation and other services. Implementation and other revenue consists primarily of
professional services fees related to assisting clients with the initial implementation of our
services and for ongoing training and related support services. Business services accounted for
approximately 97% and 96% of our total revenues for the three months ended March 31, 2011 and 2010,
respectively. Business services revenue are typically 2% to 8% of a practices total collections
depending upon the services purchased, the size, complexity, and other characteristics of the
practice, plus a per-statement charge for billing statements that are generated for patients.
Accordingly, business services revenue is largely driven by the number of physician practices and
other service providers we serve, the number of physicians and other medical providers working in
those physician practices, the volume of activity and related collections of those physicians and
other medical providers, the services used by the practice, and other medical providers, and our
contracted rates. We expect to increase the number of physician practices we serve through
increased sales and marketing expense, and we expect our existing clients to use more of our
services through cross-selling efforts and growth in the number of combined services sales. There
is moderate seasonality in the activity level of physician practices. Typically, discretionary use
of physician services declines in the late summer and during the holiday season, which leads to a
decline in collections by our physician clients about 30 to 50 days later. Additionally, the volume
of activity and related collections vary from year to year based in large part on the severity,
length and timing of the onset of the flu season. While we believe that the severity, length and
timing of the onset of the cold and flu season will continue to impact collections by our physician
clients, there can be no assurance that our future sales of these products will necessarily follow
historical patterns. Implementation and other revenue is largely driven by the increase in the
volume of our new business. As a result, we expect implementation and other revenue to increase in
absolute terms for the foreseeable future but to remain relatively consistent as a percentage of
total revenue. None of our clients accounted for more than 10% of our total revenues for the three
months ended March 31, 2011, and March 31, 2010.
Direct Operating Expense. Direct operating expense consists primarily of salaries, benefits,
claim processing costs, other direct expenses, and stock-based compensation related to personnel
who provide services to clients, including staff who implements new clients. We expense
implementation costs as incurred. We include in direct operating expense all service costs
associated with athenaCollector, athenaClinicals, athenaCommunicator and Anodyne Analytics. In
addition, over the longer term, we expect to
11
increase our overall level of automation and to reduce our direct operating expense as a
percentage of revenues as we become a larger operation, with higher volumes of work in particular
functions, geographies, and medical specialties. We include in direct operating expense the service
costs associated with our athenaClinicals offering, which includes transaction handling related to
lab requisitions, lab results entry, fax classification, and other services. Although we expect
that direct operating expense will increase in absolute terms for the foreseeable future, the
direct operating expense is expected to decline as a percentage of revenues as we further increase
the percentage of transactions that are resolved on the first attempt and as we decrease the cost
of implementation for new clients. This decrease will also be driven by increased levels of
automation and economies of scale. Direct operating expense does not include allocated amounts for
rent, occupancy and other indirect costs (including building maintenance and utilities),
depreciation, and amortization, except for amortization related to purchased intangible assets.
Selling and Marketing Expense. Selling and marketing expense consists primarily of marketing
programs (including trade shows, brand messaging, and on-line initiatives) and personnel-related
expense for sales and marketing employees (including salaries, benefits, commissions, stock-based
compensation, non-billable travel, lodging, and other out-of-pocket employee-related expense).
Although we recognize substantially all of our revenue when services have been delivered, we
recognize a large portion of our sales commission expense at the time of contract signature and at
the time our services commence. Accordingly, we incur a portion of our sales and marketing expense
prior to the recognition of the corresponding revenue. We have increased our sales and marketing
expenses from year to year and we expect to continue to increase our investment in sales and
marketing by hiring additional direct sales and support personnel to add new clients and increase
sales to our existing clients and expanding awareness through paid search and other similar
initiatives. We also plan to expand our marketing activities, such as attending trade shows,
expanding user groups, and creating new printed materials. As a result, we expect that, sales and
marketing expense will increase in absolute terms and will increase as a percentage of total
revenue in the near-term.
Research and Development Expense. Research and development expense consists primarily of
personnel-related expenses for research and development employees (including salaries, benefits,
stock-based compensation, non-billable travel, lodging, and other out-of-pocket employee-related
expense) and consulting fees for third-party developers. We expect that in the future, research and
development expense will increase in absolute terms but not as a percentage of total revenue as new
services and more mature products require incrementally less new research and development
investment.
General and Administrative Expense. General and administrative expense consists primarily of
personnel-related expense for administrative employees (including salaries, benefits, stock-based
compensation, non-billable travel, lodging, and other out-of-pocket employee-related expense),
occupancy and other indirect costs (including building maintenance and utilities), and insurance
premiums; software license fees; outside professional fees for accountants, lawyers, and
consultants; and compensation for temporary employees. We expect that general and administrative
expense will increase in absolute terms as we invest in infrastructure to support our growth and
incur additional expense related to being a publicly traded company. Though expenses are expected
to continue to rise in absolute terms, we expect general and administrative expense to decline as a
percentage of total revenue over time.
Depreciation and Amortization Expense. Depreciation and amortization expense consists
primarily of depreciation of fixed assets and amortization of capitalized software development
costs, which we amortize over a two-year period from the time of release of related software code.
As we grow, we will continue to make capital investments in the infrastructure of the business and
we will continue to develop software that we capitalize. At the same time, because we are spreading
fixed costs over a larger client base, we expect related depreciation and amortization expense to
decline as a percentage of total revenues over time.
Other Income (Expense). Interest expense consists primarily of interest costs related to our
equipment-related term leases and our term loan and revolving loans under our credit facility,
offset by interest income on investments. Interest income represents earnings from our cash, cash
equivalents, and investments. The gain (loss) on the interest rate derivative contract represents
the change in the fair market value of a derivative instrument that is not designated as a hedge.
Although this derivative has not been designated for hedge accounting, we believe that such
instrument is correlated with the underlying cash flow exposure related to variability in interest
rate movements on our term loan.
12
Results of Operations
Comparison of the Three Months Ended March 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
Amount |
|
|
Amount |
|
|
Change |
|
|
|
2011 |
|
|
2010 |
|
|
Amount |
|
|
Percent |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Business services |
|
$ |
67,486 |
|
|
$ |
52,565 |
|
|
$ |
14,921 |
|
|
|
28 |
% |
Implementation and other |
|
|
2,444 |
|
|
|
1,912 |
|
|
|
532 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
69,930 |
|
|
$ |
54,477 |
|
|
$ |
15,453 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue for the three months ended March 31, 2011, was $69.9 million, an
increase of 28% over revenue of $54.5 million for the three months ended March 31, 2010. This
increase was due almost entirely to an increase in business services revenue.
Business Services Revenue. Revenue from business services for the three months ended March
31, 2011, was $67.5 million, an increase of $14.9 million, or 28%, over revenue of $52.6 million
for the three months ended March 31, 2010. This increase was primarily due to the growth in the
number of physicians and other medical providers using our services. The summary of changes in the
physicians and active medical providers using our revenue cycle management service,
athenaCollector, clinical cycle management service, athenaClinicals, and patient cycle management
service, athenaCommunicator are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
2010 |
|
Change |
|
|
Amount |
|
Amount |
|
Amount |
|
Percent |
Physicians revenue cycle management service |
|
|
19,778 |
|
|
|
16,369 |
|
|
|
3,409 |
|
|
|
21 |
% |
Active medical providers revenue cycle management service |
|
|
27,944 |
|
|
|
23,978 |
|
|
|
3,966 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physicians clinicals cycle management service |
|
|
2,910 |
|
|
|
1,275 |
|
|
|
1,635 |
|
|
|
128 |
% |
Active medical providers clinicals cycle management service |
|
|
4,161 |
|
|
|
1,867 |
|
|
|
2,294 |
|
|
|
123 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physicians patient cycle management service |
|
|
934 |
|
|
|
348 |
|
|
|
586 |
|
|
|
168 |
% |
Active medical providers patient cycle management service |
|
|
1564 |
|
|
|
513 |
|
|
|
1,051 |
|
|
|
205 |
% |
Also contributing to this increase was the growth in related collections on behalf of these
physicians and medical providers. Total collections generated by these physicians and other medical
providers that were posted for the three months ended March 31, 2011, was $1.6 billion, an increase
of $0.3 billion over posted collections of $1.3 billion for the three months ended March 31, 2010.
Implementation and Other Revenue. Revenue from implementations and other sources was $2.4
million for the three months ended March 31, 2011, an increase of $0.5 million, or 28%, over
revenue of $1.9 million for the three months ended March 31, 2010. This increase was driven by new
client implementations and increased professional services for our larger client base as described
above. The increase in implementation and other revenue is the result of the increase in the volume
of our business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2011 |
|
2010 |
|
Change |
|
|
Amount |
|
Amount |
|
Amount |
|
Percent |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
Direct operating costs |
|
$ |
27,270 |
|
|
$ |
23,519 |
|
|
$ |
3,751 |
|
|
|
16 |
% |
Direct Operating Costs. Direct operating expense for the three months ended March 31,
2011, was $27.3 million, an increase of $3.8 million, or 16%, over costs of $23.5 million for the
three months ended March 31, 2010. This increase was primarily due to an increase in the number of
claims that we processed on behalf of our clients and the related expense of providing services,
including transactions expense and salary and benefits expense. The amount of collections
processed for the three months ended March 31, 2011, was $1.6 billion, an increase of $0.3 billion
over posted collections of $1.3 billion for the three months ended March 31, 2010. Direct operating
employee-related costs increased $1.7 million from the three months ended March 31, 2010 to the
three months
13
ended March 31, 2011. This increase is primarily due to the 14% increase in headcount since
March 31, 2010. We increased the professional services headcount in order to meet the current and
anticipated demand for our services as our customer base and service offering has expanded to
include larger medical groups.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Percent |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
$ |
16,941 |
|
|
$ |
12,060 |
|
|
$ |
4,881 |
|
|
|
40 |
% |
Research and development |
|
|
5,079 |
|
|
|
4,074 |
|
|
|
1,005 |
|
|
|
25 |
% |
General and administrative |
|
|
11,719 |
|
|
|
11,677 |
|
|
|
42 |
|
|
|
0 |
% |
Depreciation and amortization |
|
|
3,398 |
|
|
|
2,420 |
|
|
|
978 |
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
37,137 |
|
|
$ |
30,231 |
|
|
$ |
6,906 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expense. Selling and marketing expense for the three months ended
March 31, 2011, was $16.9 million, an increase of $4.9 million, or 40%, over costs of $12.1 million
for the three months ended March 31, 2010. This increase was primarily due to an increase in
employee-related costs, stock-based compensation expense, internal sales commissions and external
partner channel commission of $3.0 million due to an increase in headcount and external channel
partners. Our sales and marketing headcount increased by 39% since March 31, 2010, as we hired
additional sales personnel to focus on adding new customers and increasing penetration within our
existing markets. The increase was also due to a $1.9 million increase in travel-related expenses,
consulting and other software licenses, online marketing, offline marketing and other marketing
events.
Research and Development Expense. Research and development expense for the three months ended
March 31, 2011, was $5.1 million, an increase of $1.0 million, or 25%, over research and
development expense of $4.1 million for the three months ended March 31, 2010. This increase was
primarily due to a $1.0 million increase in employee-related costs and stock-based compensation
expense due to an increase in headcount. Our research and development headcount increased 26% since
March 31, 2010, as we hired additional research and development personnel in order to upgrade and
extend our service offerings and develop new technologies.
General and Administrative Expense. General and administrative expense for the three months
ended March 31, 2011, remained relatively flat over general and administrative expenses of $11.7
million for the three months ended March 31, 2010. General and administrative expense for the three
months ended March 31, 2011, included an increase of $1.0 million due to increase in
employee-related costs due to an increase in headcount and an increase in stock-based compensation
expense. Our general and administrative headcount increased by 11% since March 31, 2010, as we
added personnel to support our growth. The three months ended March 31, 2010, included $1.0
million of non-recurring additional costs relating to our restatement.
Depreciation and Amortization. Depreciation and amortization expense for the three months
ended March 31, 2011, was $3.4 million, an increase of $1.0 million, or 40%, over depreciation and
amortization expense of $2.4 million for the three months ended March 31, 2010. This was primarily
due to higher depreciation from fixed asset expenditures in 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
107 |
|
|
$ |
78 |
|
|
$ |
29 |
|
|
|
(37 |
)% |
Interest expense |
|
|
(177 |
) |
|
|
(217 |
) |
|
|
40 |
|
|
|
(18 |
) |
Gain (loss) on interest rate derivative contract |
|
|
65 |
|
|
|
(60 |
) |
|
|
125 |
|
|
|
* |
|
Other income |
|
|
38 |
|
|
|
30 |
|
|
|
8 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
$ |
33 |
|
|
$ |
(169 |
) |
|
$ |
202 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Other Income (Expense). Interest income for the three months ended March 31, 2011, and 2010
was $0.1 million for each period. The interest income was related to the low interest rates during
2011 and 2010. Interest expense for the three months ended March 31, 2011, and 2010 was $0.2
million for each period. The loss on interest rate derivative for the three months ended March 31,
2010, was less than $0.1 million, compared to a gain on interest rate derivative for the three
months ended March 31, 2011, of $0.1 million. The gain or loss on the interest rate derivative was
the result of the change in the fair market value of a derivative instrument that was not
designated a hedge. Although this derivative does not qualify for hedge accounting, we believe that
the instrument is closely correlated with the underlying exposure, thus managing the associated
risk. The gains or losses from changes in the fair value of derivative instruments that are not
accounted for as hedges are recognized in earnings.
Income Tax Provision. We recorded a provision for income taxes for the three months ended
March 31, 2011, of approximately $2.3 million compared to $0.3 million for the three months ended
March 31, 2010. The decrease in our effective tax rate was due to a decrease in our state tax rate
and a decrease in the effect of our permanent differences as percent of the overall rate.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our growth primarily through the private sale of equity
securities, totaling approximately $50.6 million, as well as through long-term debt, working
capital, equipment-financing loans, and, in September 2007, we completed our initial public
offering which provided net proceeds of approximately $81.3 million.
As of March 31, 2011 our principal sources of liquidity consisted of cash, cash equivalents
and short-term investments of $102.7 million and long-term investments of $23.0 million. Our cash
investments consist of corporate debt securities, U.S. Treasury and government agency securities,
and commercial paper. As specified in our investment policy, we place our investments in
instruments that meet high credit quality standards, the policy limits the amount of our credit
exposure to any one issue or issuer and seeks to manage these assets to achieve our goals of
preserving principal, maintaining adequate liquidity at all times, and maximizing returns.
Our total indebtedness was $8.4 million at March 31, 2011. We have an unused revolving credit
facility in the amount of $15.0 million. The credit facility may be extended by up to an additional
$15.0 million on the satisfaction of certain conditions. There was no balance outstanding on the
revolving credit facility during the three months ended March 31, 2011, and 2010. The credit
facility expires on September 30, 2011. In addition, we have a term loan facility used for general
working capital needs. At March 31, 2011 we had $5.3 million outstanding on the term facility. The
term facility matures on September 30, 2013. At March 31, 2011, there was a net present value of
$3.2 million in aggregate principal amount outstanding under a series of capital leases with one
finance company. Each of the leases are payable on a monthly basis through December 2012.
The credit facility and term loan facility contains certain financial and nonfinancial
covenants, including limitations on our consolidated leverage ratio and capital expenditures,
defaults relating to non-payment, breach of covenants, inaccuracy of representations and
warranties, default under other indebtedness (including a cross-default with our interest rate
swap), bankruptcy and insolvency, inability to pay debts, attachment of assets, adverse judgments,
ERISA violations, invalidity of loan and collateral documents, and change of control. Upon an event
of default, the lenders may terminate the commitment to make loans and the obligation to extend
letters of credit, declare the unpaid principal amount of all outstanding loans and interest
accrued under the Credit Agreement to be immediately due and payable, require us to provide cash
and deposit account collateral for our letter of credit obligations, and exercise their security
interests and other rights under the Credit Agreement. As of March 31, 2011, we were in compliance
with all financial and non financial covenants under this agreement.
We believe our sources of liquidity will be sufficient to sustain operations, to finance our
strategic initiatives, make payments on our contractual obligations, and our purchases of property
and equipment for at least the next twelve months. Our analysis is supported by the growth in our
new customer base and a high rate of renewal rates with our existing customers and the
corresponding increase in billings and collections. We may pursue acquisitions or investments in
complementary businesses or technologies, in which case we may need to raise additional funds
sooner than expected. There can be no assurance that we will continue to generate cash flows at or
above current levels or that we will be able to maintain our ability to borrow under our existing
credit facility or obtain additional financing.
Commitments
We enter into various purchase commitments with vendors in the normal course of business. We
had no material purchase commitments of capital assets at March 31, 2011. We believe that our existing sources of liquidity will be adequate to fund these
purchases during next twelve months. In the normal course of business, we make representations and
warranties that guarantee the performance of services under service arrangements with clients.
Historically, there has been no material losses related to such guarantees.
15
Operating Cash Flow Activities
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|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Net Income |
|
$ |
3,251 |
|
|
$ |
277 |
|
Non-cash adjusments to net income |
|
|
6,513 |
|
|
|
6,774 |
|
Cash provided in changes in operating assets and liabilities |
|
|
(5,781 |
) |
|
|
(5,932 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
3,983 |
|
|
$ |
1,119 |
|
|
|
|
|
|
|
|
Cash flow from operations increased by $2.9 million to $4.0 million for the three months
ended March 31, 2011, as compared to $1.1 million for the three months ended March 31, 2010. The
increase is mainly attributable to increases in net income, add-backs of non-cash expense items,
and decreases in cash used in changes in operating assets and liabilities. The increase in net
income is primarily due to the growth in our customer base, stability in renewal rates with our
existing customer base and increased adoption of our services, the associated increase in billings
and collections, and selling additional services into our existing customer base. These increases
are partially offset by an increase in operating expenses that require cash outlays such as
salaries, higher commissions, direct operating expenses, and marketing expenses. These expenses
increased in absolute terms but remain relatively consistent as a percentage of revenue. The
increase in add-backs of non-cash expenses during the three months ended March 31, 2011 and 2010
are primarily due to increases in depreciation and amortization, stock-based compensation expense,
and our provision for uncollectible accounts. This is off-set by an increase in excess tax benefits
from stock-based awards. The increase in depreciation and amortization was primarily attributed to
capital expenditures of $2.1 million during the three months ended March 31, 2011, and capital
expenditures of $15.9 million during the year ended December 31, 2010. The increase in stock-based
compensation expense is primarily due to the increase in the volume and the value of stock-based
awards granted during 2011 over grants in 2010. The decrease to cash used in changes in operating
assets and liabilities during the three months ended March 31, 2011, were due primarily to an
increase in accounts receivable and a decrease in accrued expenses. Accounts receivable increased
approximately $6.1 million to $42.7 million at
March 31, 2011 as compared to $36.9 million as of
December 31, 2010. The increase can be attributed to the timing of current billings and subsequent
payment of those billings as of March 31, 2011 as compared to the same period and timing as of
December 31, 2010. The decrease in accrued expenses relates to the timing of the payment of our
annual bonuses.
Investing Cash Flow Activities
The cash provided by investing activities increased by $18.4 million to $4.6 million from cash
used by investing activities of $13.8 million for the three months ended March 31, 2011, and 2010,
respectively. Cash flows from investing activities consist primarily of purchases of property and
equipment, capitalized software development costs and our investment activities. We make
investments in property and equipment and in software development on an ongoing basis. Our
investment in equipment consists primarily of purchases of technology infrastructure to provide
service stability and additional capacity to support our expanding client base. We purchased $2.1
million of property and equipment during the three months ended March 31, 2011.
Our investment in software development consist of company managed-design,
development, and testing of new application functionality with our less mature service offerings,
which primarily include our athenaClinicals and athenaCommunicator service offerings. Our
capitalized software development amounted to $1.5 million for the three months ended March 31,
2011. Restricted cash decreased $2.9 million due to payments made for
contingent consideration relating to acquisitions completed in 2008 and 2009.
Financing Cash Flow Activities
The cash provided by financing activities decreased by $1.4 million to $1.0 million from $2.4
million for the three months ended March 31, 2011, and 2010, respectively. The decrease is
attributable to payments of contingent consideration accrued at acquisition date relating to the
Anodyne acquisition. This is offset by the proceeds from the exercise of stock options and the
increase in the excess tax benefit from stock-based awards. We recorded a reduction in income tax
liability of $2.2 million related to excess tax deductions received from employee stock option
exercises. The benefit was recorded as additional paid in capital.
Contractual Obligations
We have contractual obligations under our equipment line of credit, revolving and term loans
and we also maintain operating leases for property and certain office equipment. The following
table summarizes our long-term contractual obligations and commitments as of March 31, 2011:
16
|
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|
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|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
After 5 |
|
|
|
|
|
|
Total |
|
|
Year |
|
|
1 - 3 Years |
|
|
4 -5 Years |
|
|
years |
|
|
Other |
|
Long-term debt obligations |
|
$ |
5,250 |
|
|
$ |
300 |
|
|
$ |
4,950 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital lease obligations |
|
|
3,173 |
|
|
|
2,366 |
|
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
24,437 |
|
|
|
5,683 |
|
|
|
10,721 |
|
|
|
7,208 |
|
|
|
825 |
|
|
|
|
|
Other |
|
|
1,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,470 |
|
|
$ |
8,349 |
|
|
$ |
16,478 |
|
|
$ |
7,208 |
|
|
$ |
825 |
|
|
$ |
1,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These amounts exclude interest payments of $0.3 million that are due in the next three
years on the capital lease obligations and $1.0 million that are due in the next four years on our
long-term debt obligations.
The commitments under our operating leases shown above consist primarily of lease payments for
our Watertown, Massachusetts, headquarters; our Rome, Georgia, offices; our Alpharetta, Georgia,
offices; and our Chennai, India, offices.
Other amount consists of uncertain tax benefits. We have not utilized these uncertain tax
benefits, nor do we have an expectation of when these uncertain tax benefits would be challenged.
As of March 31, 2011, we cannot reasonably estimate when any future cash outlays would occur
related to these uncertain tax positions.
Off-Balance Sheet Arrangements
As of March 31, 2011 and 2010, and December 31, 2010, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. Other than our operating leases for office space and computer equipment, we do not engage
in off-balance sheet financing arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Risk. Our results of operations and cash flows are subject to
fluctuations due to changes in the Indian rupee. None of our consolidated revenues are generated
outside the United States. None of our vendor relationships, including our contracts with our
offshore service providers International Business Machines Corporation and Vision Business Process
Solutions, Inc., a subsidiary of Dell, Inc. (formerly Perot Systems Corporation), for work
performed in India and the Philippines, is denominated in any currency other than the U.S. dollar.
For the three months ended March 31, 2011, less than 1% of our expenses occurred in our subsidiary
in Chennai, India, and was incurred in Indian rupees. We therefore believe that the risk of a
significant impact on our operating income from foreign currency fluctuations is not substantial.
Interest Rate Sensitivity. We had unrestricted cash, cash equivalents and short-term
investments totaling $102.7 million and long-term investments totaling $23.0 million at March 31,
2011. These amounts are held for working capital purposes and were invested primarily in deposits,
money market funds, and short-term, interest-bearing, investment-grade securities. Due to the
short-term nature of these investments, we believe that we do not have any material exposure to
changes in the fair value of our investment portfolio as a result of changes in interest rates. The
value of these securities, however, will be subject to interest rate risk and could fall in value
if interest rates rise.
Interest Rate Risk. As of March 31, 2011, we had long-term debt and capital lease obligations
totaling $8.4 million, which have both variable and fixed interest rate components. We have entered
into an interest rate swap intended to mitigate variability in interest rate movements on our term
loan. The swap has an amortizing notional amount over the swap agreement. For floating rate debt,
interest rate changes generally do not affect the fair market value, but do impact future earnings
and cash flows, assuming other factors are held constant.
17
The table below summarizes the principal terms of our interest rate swap transaction,
including the notional amount of the swap, the interest rate payment we receive from and pay to our
swap counterparty, the term of the transaction, and its fair market value at March 31, 2011.
|
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Remaining |
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|
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|
|
Maturity |
|
|
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|
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|
|
Notional |
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
(Fiscal |
|
Fair Value at |
Description |
|
Underlying |
|
Amount |
|
Receive |
|
Pay |
|
Entered Into |
|
Year) |
|
March 31, 2011 |
Interest rate swap - variable to fixed |
|
Interest on Term Loan |
|
$ |
5,250 |
|
|
LIBOR |
|
4.55% fixed |
|
|
2008 |
|
|
|
2028 |
|
|
$ |
(425 |
) |
At March 31, 2011, there were no amounts outstanding under the revolving credit facility;
however, we can draw up to $15.0 million under this line of credit at any time. At March 31, 2011,
there was $5.3 million outstanding on the term loan. If we had drawn the total available amount,
and if the prime rate thereon had fluctuated by 10%, the interest expense would have fluctuated by
approximately $0.1 million.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Securities and Exchange
Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified
in the SECs rules and forms and (2) accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure. As of March 31, 2011 (the Evaluation Date), our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives, and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our Chief Executive Officer and Chief Financial
Officer have concluded based upon the evaluation described above that, as of the Evaluation Date,
our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control
There were no changes in our internal control over financial reporting for the quarter ended
March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On March 2, 2010, a complaint was filed by Prompt Medical Systems, L.P. naming the Company and
several other defendants in a patent infringement case (Prompt Medical Systems, L.P. v.
AllscriptsMisys Healthcare Solutions, Inc. et al., Civil Action No. 6:2010cv00071, United States
District Court for the Eastern District of Texas). The complaint alleges that the Company has
infringed on U.S. Patent No. 5,483,443 with a listed issue date of January 9, 1996 entitled Method
for Computing Current Procedural Terminology Codes from Physician Generated Documentation. The
complaint seeks an injunction enjoining infringement, damages, and pre- and post-judgment costs and
interest. The Company and other several defendants filed motions to dismiss the complaint. On
February 11, 2011, the Court issued an Order granting-in-part and denying-in-part the motions to
dismiss. The Court ordered the plaintiff to replead certain claims within fourteen days of the
Order, and the plaintiff filed its amended complaint on
February 23, 2011. The Company filed its answer to the amended
complaint and declaratory judgment counterclaims of non-infringement,
invalidity, and unenforceability on March 9, 2011.
On November 24, 2010, several defendants filed (i) a motion for summary judgment of invalidity
against the patent-in-suit on the basis that it claims only non-patentable subject matter; and (ii)
a motion to stay all proceedings pending the resolution of the motion for summary judgment. The
Company filed a motion to join in the motion to stay the proceedings. The motions are fully briefed
and awaiting a decision by the Court.
The case is currently in the discovery phase. A claim construction hearing is scheduled for
November 11, 2011. Trial is scheduled for June 11, 2012.
The Company is being indemnified in this lawsuit from and against any liability and reasonable
costs, including attorneys fees, incurred by the Company in its defense, pursuant to a license
agreement with its vendor.
The Company believes that it has meritorious defenses to the lawsuit and continues to contest
it vigorously.
On March 19, 2010, a putative shareholder class action complaint was filed in the United
States District Court for the District of Massachusetts against the Company and certain of its
current and former officers entitled Casula v. athenahealth, Inc. et al, Civil Action No.
1:10-cv-10477. On June 3, 2010, the court appointed Waterford Township General Employees Retirement
System as the lead plaintiff. On August 2, 2010, the lead plaintiff filed an amended complaint. The
amended complaint alleges that the defendants violated the federal securities laws by disseminating
false and misleading statements through press releases, statements by senior management, and SEC
filings. The alleged false and misleading statements concern, among other things, the amortization
period for deferred implementation revenues. The amended complaint seeks unspecified damages,
costs, and expenses. The defendants filed a motion to dismiss the amended complaint on October 1,
2010, and a reply brief in further support of the motion to dismiss the amended complaint on
December 30, 2010. The Company believes that it has meritorious defenses to the amended complaint
and will contest the claims vigorously.
On March 17, 2011, a complaint was filed by PPS Data, LLC naming the Company and several other
defendants in a patent infringement case (PPS Data, LLC v. Allscripts Healthcare Solutions, Inc. et
al, Civil Action No. 3:11-CU-273-J-99MMH-TEM, United States District Court for the Middle District
of Florida). The complaint alleges that the Company has infringed on U.S. Patent No. 6,343,271 with
a listed issue date of January 29, 2002 entitled Electronic Creation, Submission, Adjudication,
and Payment of Health Insurance Claims. The complaint seeks an injunction enjoining infringement,
damages, pre- and post-judgment costs and interest, and attorneys fees. On April 14, 2011, the
Company filed a motion to dismiss, or, in the alternative a motion for summary judgment. The
Company believes that it has meritorious defenses to the complaint and will contest the claims
vigorously.
In addition, from time to time the Company may be subject to other legal proceedings, claims,
and litigation arising in the ordinary course of business. The Company does not, however, currently
expect that the ultimate costs to resolve any pending matter will have a material adverse effect on
the Companys consolidated financial position, results of operations, or cash flows.
Item 1A. Risk Factors.
During the three months ended March 31, 2011, there were no material changes to the risk
factors that were disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
19
Item 4. (Removed and Reserved).
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
(a) Exhibits.
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Index |
10.1*
|
|
Employment Agreement by and between the Registrant and Stephen Kahane, dated February 18, 2011. |
|
|
|
10.2(i)
|
|
The athenahealth Executive Plan. |
|
|
|
#10.3*
|
|
Amendment No. 1 to Professional Services Agreement by and between the Registrant and
International Business Machines Corporation, dated March 11, 2011. |
|
|
|
31.1*
|
|
Rule 13a-14(a) or 15d-14 Certification of Chief Executive Officer |
|
|
|
31.2*
|
|
Rule 13a-14(a) or 15d-14 Certification of Chief Financial Officer |
|
|
|
32.1*
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act
rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350 |
|
|
|
101.INS**
|
|
XBRL Instance Document. |
|
|
|
101.SCH**
|
|
XBRL Schema Document. |
|
|
|
101.CAL**
|
|
XBRL Calculation Linkbase Document. |
|
|
|
101.LAB**
|
|
XBRL Labels Linkbase Document. |
|
|
|
101.PRE**
|
|
XBRL Presentation Linkbase Document. |
|
|
|
|
|
Indicates a management contract or any compensatory plan, contract, or arrangement. |
|
# |
|
Application has been made to the Securities and Exchange Commission
for confidential treatment of certain provisions. Omitted material for
which confidential treatment has been requested has been filed
separately with the Securities and Exchange Commission. |
|
(i) |
|
Incorporated by reference to the Registrants current report on Form 8-K, filed February 22, 2011. |
|
* |
|
Filed herewith. |
|
** |
|
Extensible Business Reporting Language (XBRL) information is furnished
and deemed not filed or a part of a registration statement or
prospectus for purposes of sections 11 or 12 of the Securities Act of
1933, is deemed not filed for purposes of section 18 of the Securities
Exchange Act of 1934, and otherwise is not subject to liability under
these sections. |
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
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|
|
ATHENAHEALTH, INC.
|
|
|
By: |
/s/ Jonathan Bush
|
|
|
|
Jonathan Bush |
|
|
|
Chief Executive Officer, President, and Chairman |
|
|
|
|
|
|
By: |
/s/ Timothy M. Adams
|
|
|
|
Timothy M. Adams |
|
|
|
Chief Financial Officer,
Senior Vice President |
|
|
Date: April 29, 2011
21