athenahealth, Inc. Reports Fourth Quarter and Full Year 2010 Results

athenahealth, Inc. (Nasdaq: ATHN), (the "Company”), a leading provider of Internet-based business services for physician practices, today announced financial and operational results for the fourth quarter and full year of 2010. The Company will conduct a conference call tomorrow, Friday, February 18, 2011, at 8:00 a.m. Eastern Time to discuss these results and management’s outlook for future financial and operational performance.

Total revenue for the three months ended December 31, 2010, was $69.4 million, compared to $54.4 million in the same period last year, an increase of 27%. Full year 2010 revenue was $245.5 million, compared to full year 2009 revenue of $188.5 million, an increase of 30%.

"We delivered strong top and bottom line performance during 2010, but I am most proud of the heavy lifting we did at the same time,” said Jonathan Bush, the Company’s Chairman, President, and Chief Executive Officer. "We launched a new service offering, expanded our sales, marketing and implementation capacity, achieved Meaningful Use certification, and piloted a new business model for electronic health information exchange, all while delivering more value to our clients.”

For the three months ended December 31, 2010, non-GAAP Adjusted EBITDA grew to $20.2 million, or 29% of revenue, from non-GAAP Adjusted EBITDA of $13.0 million, or 24% of revenue, in the same period last year. GAAP net income for the fourth quarter of 2010 was $7.3 million, or $0.21 per diluted share, and non-GAAP Adjusted Net Income was $9.8 million, or $0.28 per diluted share.

"Our investments in growth and innovation during 2010 are a sign of our confidence in athenahealth’s potential to become a multi-billion dollar company” said Tim Adams, the Company’s Chief Financial Officer. "We achieved annual revenue growth in excess of 30% for the 11^th year in a row and our efforts to enhance operational efficiency yielded record profitability levels.”

For the year ended December 31, 2010, non-GAAP Adjusted EBITDA grew to $51.0 million, or 21% of revenue, from non-GAAP Adjusted EBITDA for 2009 of $34.7 million, or 18% of revenue. For 2010, GAAP net income was $12.7 million, or $0.36 per diluted share. Non-GAAP Adjusted Net Income for the year was $22.6 million, or $0.64 per diluted share.

Key metrics and milestones in the fourth quarter and full year of 2010 included the following:

• $1.6 billion in collections posted to client accounts in the fourth quarter of 2010, compared to $1.4 billion in the same quarter of 2009
• $5.9 billion in collections posted to client accounts in all of 2010, compared to $4.9 billion in all of 2009
• 38.8 average Client Days in Accounts Receivable (DAR) in the fourth quarter of 2010, compared to 38.5 average Client DAR in the same quarter of 2009
• 27,114 active medical providers using athenaCollector® at December 31, 2010, 19,197 of which were physicians, compared to 23,366 providers and 15,719 physicians at December 31, 2009
• 3,348 active medical providers using athenaClinicals® at December 31, 2010, 2,383 of which were physicians, compared to 1,471 providers and 920 physicians at December 31, 2009
• 1,213 active medical providers using athenaCommunicator® at December 31, 2010, 736 of which were physicians

As of December 31, 2010, the Company had cash, cash equivalents, short- and long-term investments of $121.8 million and short- and long-term debt and capital lease obligations of $9.2 million.

Use of Non-GAAP Financial Measures

In the Company’s earnings releases, conference calls, slide presentations, or webcasts, the Company may use or discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the condensed consolidated financial statements. The Company’s earnings press releases containing such non-GAAP reconciliations can be found on the Investors section of the Company’s web site at http://www.athenahealth.com.

Conference Call Information

To participate in the Company’s live conference call and webcast, please dial 800-435-1261 (617-614-4076 for international calls) using conference code No. 15398557 or visit the Investors section of the Company’s web site: www.athenahealth.com. A replay will be available for one week following the conference call at 888-286-8010 (617-801-6888 for international calls) using conference code No. 52965842. A webcast replay will also be archived on the Company’s website.

About athenahealth

athenahealth, Inc. is a leading provider of web-based business services for medical groups. athenahealth’s service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, and automated and live patient communication services. For more information, please visit www.athenahealth.com or call (888) 652-8200.

Forward-Looking Statements

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting management’s expectations for future financial and operational performance and operating expenditures, expected growth, including anticipated annual growth rates, profitability and business outlook, the benefits of the Company's current service offerings, and statements found under the Company’s Reconciliation of Non-GAAP Financial Measures section of this release. The forward-looking statements in this release do not constitute guarantees of future performance. These statements are neither promises nor guarantees, and are subject to a variety of risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: the Company’s fluctuating operating results; the Company’s variable sales and implementation cycles, which may result in fluctuations in its quarterly results; risks associated with its expectations regarding its ability to maintain profitability; the impact of increased sales and marketing expenditures, including whether increased expansion in revenues is attained and whether impact on margins and profitability is longer term than expected; changes in tax rates or exposure to additional tax liabilities; the highly competitive industry in which the Company operates and the relative immaturity of the market for its service offerings; and the evolving and complex governmental and regulatory compliance environment in which the Company and its clients operate. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances, or otherwise. For additional disclosure regarding these and other risks faced by the Company, see the disclosures contained in its public filings with the Securities and Exchange Commission, available on the Investors section of the Company’s website at http://www.athenahealth.com and on the SEC's website at http://www.sec.gov.

athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)

The following is a reconciliation of the non-GAAP financial measures used by the Company to describe the Company’s financial results determined in accordance with United States generally accepted accounting principles (GAAP). An explanation of these measures is also included below under the heading "Explanation of Non-GAAP Financial Measures”.

While management believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of the Company’s business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and management may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.

Non-GAAP Adjusted Gross Margin

Non-GAAP Adjusted EBITDA Margin

Non-GAAP Adjusted Operating Income

Non-GAAP Adjusted Net Income

Explanation of Non-GAAP Financial Measures

The Company reports its financial results in accordance with United States generally accepted accounting principles, or GAAP. However, management believes that in order to properly understand the Company's short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and/or impact on continuing operations. Management also uses results of operations before such items to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in the Company’s ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of the Company’s ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. In addition, management understands that some investors and financial analysts find this information helpful in analyzing the Company’s financial and operational performance and comparing this performance to its peers and competitors.

Management defines "Non-GAAP Adjusted Gross Profit” as total revenue, less direct operating expense, plus stock-based compensation expense allocated to direct operating expense and amortization of purchased intangibles, and "Non-GAAP Adjusted Gross Margin” as Non-GAAP Adjusted Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends. Moreover, management believes that these measures enable investors and financial analysts to closely monitor and understand changes in the Company’s ability to generate income from ongoing business operations.

Management defines "Non-GAAP Adjusted EBITDA” as the sum of GAAP net income before provision for income taxes, acquisition-related expenses, total other (income) expense, stock-based compensation expense, depreciation and amortization, and amortization of purchased intangibles and "Non-GAAP Adjusted EBITDA Margin” as Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management defines "Non-GAAP Adjusted Operating Income” as the sum of GAAP net income before provision for income taxes, amortization of purchased intangibles, acquisition-related expenses, total other (income) expense, stock-based compensation expense, and "Non-GAAP Adjusted Operating Income Margin” as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines "Non-GAAP Adjusted Net Income” as the sum of GAAP net income before (gain) loss on interest rate derivative contract, stock-based compensation expense, amortization of purchased intangibles, acquisition-related expenses, , and any tax impact related to these items, and "Non-GAAP Adjusted Net Income per Diluted Share” as Non-GAAP Adjusted Net Income divided by weighted average diluted shares outstanding. Management considers these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends, in particular the extent to which ongoing operations impact the Company’s overall financial performance.

Management excludes each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to that excluded item:

• Stock-based compensation expense — excluded because these are non-cash expenses that management does not consider part of ongoing operating results when assessing the performance of the Company’s business, and also because the total amount of expense is partially outside of the Company’s control because it is based on factors such as stock price volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred.
• Acquisition-related expenses and amortization of purchased intangibles — acquisition-related expenses are reported at the time acquisition costs are incurred, and purchased intangibles are amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, these items are not considered by management in making operating decisions, and management believes that such expenses do not have a direct correlation to future business operations. Thus, including such charges does not accurately reflect the performance of the Company’s ongoing operations for the period in which such charges are incurred.
• Gains and losses on interest rate derivative contract — excluded because until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period.