The stock price of revenue cycle management vendor athenahealth Inc. fell nearly 18 percent at the opening of heavy trading on April 30 after the company badly missed investment analysts' expectations for the first quarter of fiscal 2010.

Watertown, Mass.-based athenahealth had net income of $277,000 during the quarter, compared with $1.538 million profit during the same period last year. Adjusted earnings per share that excluded special items totaled six cents while investors expected 13 cents. Quarterly revenue rose 33 percent to $54.5 million, but still below expectations of $55.8 million.

Significant increases in expenses and an increased payroll tax rate were factors in the profit decline. The company also had about $1.1 million in expenses related to recent, modest restatements of past financial reports. Sales and marketing expenses during the quarter were 72 percent more than the first quarter of fiscal 2009; general and administrative expenses rose 42 percent while research and development increased 28 percent.

Demand for athenahealth's outsourced billing services bundled with physician practice management and electronic health records software is increasing, and the company is investing to take advantage of the opportunities, says CEO Jonathan Bush.

But a statement from athenahealth CFO Tim Adams in the company's press release got the attention of investors. "We continue to believe that year-over-year expansion in Non-GAAP adjusted gross margins as well as general and administrative expense leverage will drive year-over-year expansion in bottom line profitability during the back half of the year," Adams said. "At the same time, we expect to maintain our investments in sales and marketing and believe that this expense, on a GAAP basis, should approximate at least 20 percent of total revenue for the full year 2010."

As TheStreet news service noted: "The key words are 'back half of the year.' This leaves open the question as to whether the second quarter will also be a disappointment for athenahealth."

More information is available at

--Joseph Goedert


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