February 26, 2009
athenahealth, Inc. Reports Fourth Quarter and Full Year 2008 Results

• 47% Revenue Growth Over Fourth Quarter of 2007
• 60% Adjusted Gross Margin and 19% Adjusted EBITDA Margin
• Adjusted Net Income of $23.4 Million or $0.68 Per Diluted Share

WATERTOWN, Mass., Feb 26, 2009 (BUSINESS WIRE) -- athenahealth, Inc. (Nasdaq: ATHN), 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 2008. The Company will conduct a conference call on Friday, February 27, 2009, at 8:30 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, 2008 was $41.4 million, compared to $28.2 million in the same period last year, an increase of 47%. Full year 2008 revenue was $139.6 million compared to full year 2007 revenue of $100.8 million, an increase of 38%.

"We are pleased with our strong performance during 2008," said Jonathan Bush, the Company's Chairman, President and Chief Executive Officer. "During our first full year as a public company, we implemented a record number of new providers while continuing to execute on operational and strategic initiatives in support of continued growth."

For the three months ended December 31, 2008, non-GAAP Adjusted EBITDA grew to $8.0 million or 19% of revenue, from non-GAAP Adjusted EBITDA of $3.7 million or 13% of revenue in the same period last year. After concluding that its U.S. operations have achieved sustainable profitability, in the fourth quarter of 2008, the Company reversed its valuation allowance against U.S deferred tax assets, which resulted in a non-cash $16.7 million GAAP tax benefit.

As a result, GAAP net income for the fourth quarter of 2008 was $20.6 million or $0.60 per diluted share, compared to GAAP net income of $2.1 million in the same period last year. Non-GAAP Adjusted Net Income for the fourth quarter of 2008 was $23.4 million or $0.68 per diluted share, compared to Non-GAAP Adjusted Net Income of $2.4 million in the same period last year. Excluding the GAAP tax benefit, GAAP net income for the fourth quarter of 2008 would have been $3.8 million or $0.11 per diluted share, and non-GAAP Adjusted Net Income would have been $6.6 million or $0.19 per diluted share.

"The Company is tracking well toward our long-term targets," said Carl Byers, the Company's Chief Financial Officer. "We made significant progress during 2008 as we enhanced our operational scalability, grew our client base and improved profitability."

For the year ended December 31, 2008, non-GAAP Adjusted EBITDA grew to $23.7 million or 17% of revenue, from non-GAAP Adjusted EBITDA for 2007 of $11.3 million or 11% of revenue. For 2008, GAAP net income was $28.9 million compared to a GAAP net loss of $3.5 million in 2007. Non-GAAP Adjusted Net Income for the year ended December 31, 2008, was $35.1 million, compared to non-GAAP Adjusted Net Income of $3.5 million in 2007. Excluding the GAAP tax benefit, GAAP net income for 2008 would have been $12.1 million or $0.35 per diluted share and non-GAAP Adjusted Net Income would have been $18.4 million or $0.53 per diluted share.

Since the valuation allowance release is a non-cash adjustment, there has been no change to the Company's cash tax rate due to the utilization of net operating loss carryforwards. However, the Company's reported non-GAAP Adjusted Net Income will reflect a full GAAP tax rate in all future periods. A reconciliation of our GAAP and Non-GAAP net income excluding the reversal of the valuation allowance has been provided in the financial statement tables included in this press release.

Key metrics and milestones in the fourth quarter and full year of 2008 included the following:

• $1.1 billion in collections posted to client accounts in the fourth quarter of 2008, compared to $0.8 billion in the same quarter of 2007
• $3.7 billion in collections posted to client accounts in all of 2008, compared to $2.7 billion in all of 2007
• 12,589 active physicians live in the fourth quarter of 2008, compared to 9,423 in the same quarter of 2007
• 18,785 active medical providers live in the fourth quarter of 2008, compared to 12,118 in the same quarter of 2007
• 798 active medical providers using athenaClinicals^SM in the fourth quarter of 2008, 485 of which were physicians
• Completed the acquisition of Crest Line Technologies, LLC d/b/a MedicalMessaging.net assets on September 5, 2008, and launched ReminderCall^SM service

As of December 31, 2008, the Company had cash, cash equivalents, and short-term investments of $87.0 million and short- and long-term debt and capital lease obligations of $10.4 million.

A reconciliation of the Company's financial results determined in accordance with United States Generally Accepted Accounting Principles (GAAP) to certain non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Explanation of Non-GAAP Financial Measures."

Conference Call Information

To participate in athenahealth's live conference call and webcast, dial 877-856-1968 (719-325-4790 for international calls) or visit the Investors section of the Company's web site: at http://www.athenahealth.com. A replay of the conference call will be available via the website or by calling 888-203-1112 (719-457-0820 for international calls) and using Passcode Number: 4988866.

About athenahealth

athenahealth is a leading provider of Internet-based business services for physician practices. The Company's service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base and integrated back-office service operations. For more information visit http://www.athenahealth.com or call 888-652-8200.

Explanation of Non-GAAP Financial Measures

athenahealth management believes that in order to properly understand the Company's short-term and long-term financial 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. In addition, management uses results of operations before such items to evaluate the operational performance of the company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP. In addition to the description provided below, reconciliations of GAAP to non-GAAP results are provided in the financial statement tables included in this press release.

In this press release, the Company defines "Adjusted Net Income" as GAAP net income (loss) before other (income) expense, unrealized gain/loss on interest rate derivatives, and stock-based compensation expense. The Company defines "Adjusted Gross Margin" as total revenue less direct operating expense plus stock-based compensation expense allocated to direct operating expense divided by total revenue.

The Company defines "Adjusted EBITDA," as GAAP net income (loss) before (benefit from) provision for income taxes, net interest (income) expense, other (income) expense, unrealized gain/loss on interest rate derivatives, depreciation and amortization, amortization of purchased intangibles, and stock-based compensation expense. The Company defines "Adjusted EBITDA Margin" as Adjusted EBITDA as a percentage of total revenue.

These non-GAAP financial measures, as the Company defines them, may not be similar to non-GAAP measures used by other companies.

Management believes that "Adjusted Net Income", "Adjusted Gross Margin", "Adjusted EBITDA" and "Adjusted EBITDA Margin" provide useful information to investors about the Company's performance because they eliminate the effects of period-to-period changes in costs associated with capital investments, net income from interest on the Company's cash, cash equivalents and short-term investments, stock-based compensation expense, and similar expenses which are not directly attributable to the underlying performance of the Company's business operations. Management uses "Adjusted Net Income", "Adjusted Gross Margin", "Adjusted EBITDA" and "Adjusted EBITDA Margin" in evaluating the overall performance of the Company's business operations and believes these performance measures provide useful information to investors.

With respect to stock-based compensation expense, the Company advises investors that it adopted FASB Statement No. 123R, Share-Based Payments ("FAS 123R"), effective January 1, 2006, which requires that share-based payments, including employee stock options, be measured at their fair value and recorded as compensation expense in the Company's financial statements. Prior to the adoption of FAS 123R, the Company was required to record stock-based compensation expense using the awards' intrinsic values which generally resulted in no compensation expense being recorded in the financial statements. In accordance with the modified prospective method the Company used to adopt FAS 123R, the Company's financial statements for prior periods have not been restated to reflect, and do not include, changes in the method to expense share-based payments, including employee stock options, at their fair values.

Though management finds "Adjusted Net Income", "Adjusted Gross Margin", "Adjusted EBITDA" and "Adjusted EBITDA Margin" useful for evaluating aspects of the Company's business, its reliance on these measures is limited because excluded items can have a material effect on the Company's earnings (or losses) calculated in accordance with GAAP. Therefore, management uses "Adjusted Net Income", "Adjusted Gross Margin", "Adjusted EBITDA" and "Adjusted EBITDA Margin" in conjunction with GAAP net income (loss) in evaluating the overall performance of the Company's business operations. The Company believes that "Adjusted Net Income", "Adjusted Gross Margin", "Adjusted EBITDA" and "Adjusted EBITDA Margin" provide investors with additional tools for evaluating the Company's core performance, which management uses in its own evaluation of overall performance, and a baseline for assessing the future earnings potential of the Company. While GAAP results are more complete, the Company offers investors these supplemental metrics since, with reconciliations to GAAP, they may provide greater insight into the Company's financial results. Management does not intend the presentation of these non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP financial measures should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements which are made pursuant to the safe harbor provisions of Private Securities Litigation Reform Act of 1995, including statements regarding expectations for future financial performance, expected growth and business outlook, and the benefits of the Company's current service offerings. 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 our 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: our history of operating losses and fluctuating operating results; our variable sales and implementation sales cycles, which may result in fluctuations in our quarterly results; risks associated with our expectations regarding our ability to maintain profitability; the highly competitive industry in which we operate and the relative immaturity of the market for our service offerings; the risk that our service offerings will not operate in the manner that we expect, including interruptions in service or errors or omissions that may occur in our rules engine and databases; and the evolving and complex governmental and regulatory compliance environment in which we and our 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 disclosure contained in our public filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended December 31, 2008, under the heading Part I, Item IA "Risk Factors," available on the investors section of our website at http://www.athenahealth.com and on the SEC's website at http://www.sec.gov.

SOURCE: athenahealth, Inc.

athenahealth, Inc.
John Hallock (Media), 617-402-1428
Director, Corporate Communications
media@athenahealth.com
or
Jennifer Heizer (Investors), 617-402-1322
Senior Manager, Investor Relations
investorrelations@athenahealth.com

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