Why Athenahealth Is Soaring Today
Shares of Athenahealth (NASDAQ: ATHN), a provider of software used in the healthcare industry, rose 10% in early-morning trading on Friday in response to the release of third-quarter earnings.
Here are the key takeaways from the third quarter:
- Revenue grew 10% to $304.6 million. That was shy of the $311.1 million that Wall Street had projected.
- GAAP net income was $13 million, or $0.32 per share. Adjusted net income was $22.9 million, or $0.56 per share. That surpassed the $0.50 in adjusted earnings that market watchers were looking for.
- Athenahealth's board approved a comprehensive strategic plan to generate $100 million to $115 million of gross pretax expense savings by the end of 2018. To achieve these results, the company is laying off 9% of its workforce and is closing offices in San Francisco and Princeton.
CEO Jonathan Bush offered investors the following commentary on the cost-cutting decision:
Traders are feeling bullish about the board's measures to improve profitability, which is why shares are rising today.
The weak third-quarter revenue caused the company to revise its full-year 2017 outlook. It now projects revenue to land between $1.2 billion and $1.22 billion, down from its prior range of $1.21 billion to $1.25 billion. GAAP operating income is expected to come in between $29 million and $53 million, which is a much wider range than its previous guidance of $36 million to $46 million. On a non-GAAP basis, adjusted operating income range was increased to $135 million and $150 million, up from its prior outlook of $120 million to $140 million.
Interim CFO Jack Kane stated:
Its glory days of huge revenue growth appear to be over, so it makes sense that the company is focusing on cost-cutting measures in order to drive profit growth. However, it isn't clear at this point whether Athenahealth will be able to innovate and grow with a more streamlined workforce. The best move for shareholders might be to just sit tight and watch this situation continue to play out.
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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends Athenahealth. The Motley Fool has a disclosure policy.