Not exactly what athenahealth was looking for

This is not a fun day for athenahealth, and frankly with HIMSS coming up, not a fun time to have such a day. None of this has anything to do with their products or their client services, but late last night the company announced that it’s going to be restating its earnings. You can see a longer discussion on The Street.com but essentially it appears that athenahealth has been amortizing its installation costs over one year whereas they ought to have been doing it over more years. The net result is that they’ll have to restate some earnings and are going to miss the next earnings reporting deadline. The stock is off roughly 12% today.


What’s been happening is that the new CFO (Timothy Adams) has come in and cleaned house, and not liked what some of the old CFO (Carl Byers who moved to Chile!) had been doing. Long term this clean up is probably good news. The company is still operationally profitable (we assume!), and its business of running the back office and increasingly front offices of doctors using a combination of technology and forklifts/sweat remains a great way of both routinizing their businesses and aggregating data for overall process improvement.

So better to get any financial “irregularities” cleared out now and be more conservative. But while other than the shareholders (and the coming lawsuits) it probably doesn’t matter much, this may per chance slow down Jonathan Bush a touch next week. Or maybe not. We’ll see….

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6 replies »

  1. The company’s RCM product, athenaCollector, is highly regarded among those physicians that are using it. This could help the company maintain or increase top line growth which would allow the company to continue to grow earnings at a rapid rate which could keep the valuation at high levels.

  2. ‘Accounting irregularities’ driving earnings restatement are rarely a good thing. At least this is a relatively new company that is not capital intensive per se, so maybe it’s a one pass version of house cleaning. Best of luck to Jonanthan.

  3. Regarding the accounting, I missed the reference in the text of the posting. Reading the referred-to article I can see why those who follow the company might be concerned about the accuracy of the published financials. Even with the adjustment to the share price based on accounting uncertainty, that price seems much too high relative to the cash or profit generation potential of the company in any reasonably foreseeable time frame.
    Although my knowledge of the company and of its operations is limited, it appears to be primarily in the debt collection/billing business more than any other business. I am unfamiliar with its EMR product which is an add-on to that business.

  4. I just took at look at athenahealth, Inc.’s financials. Book value is less than $4 a share, so even after the dip in the market value to $40, the stock still trades at 10 times book value.
    Market value of equity is $1.4 billion – for a company with 2008 pre-tax earnings of about $13 million. Market value is therefore about 100 times pre-tax earnings.
    That valuation seems highly speculative, i.e. bubblish, already. Also not clear what problems there might be with the accounting.

  5. Look at the $40 calls for June 10 and Sept 10 apparetnly every expects them to be back above $40 sooner then later.$1.15 for 9/10 $50 call????