Athenahealth’s Clinicals Offering To Come At Significantly Lower Margin

Analyst Gene Mannheimer of Auriga downgraded athenahealth ATHN from “buy” to “hold,” while revising his estimates for the company. The 12-month target price for ATHN has been reduced from $32 to $30. ATHN has posted its quarterly EPS ahead of and revenues short of the estimates and the consensus. “We think stock-based compensation will stay elevated in line with the company’s increased headcount and a Black-Scholes option markup… We believe that the company could dramatically expand its market opportunity with a stand-alone EMR offering, but due to the design issues and interfaces with practice management systems, a rollout could be at least one year away,” Auriga mentions. “Our model is predicated on percent of collections improving from 3.7% in 2009, to 4.2% this year, and to 4.7% in 2011. The “attach” rate of Clinicals of 58% (% of sales including both Collector and Clinicals) was a record, edging out last quarter’s 53%. Layering on the company’s consumer-based web portal Communicator (which is not build into our projections at this time given its nascent stage), the company has the potential to increase revenue per customer by 50%-60%. The flip side of the equation is that Clinicals sales come at substantially lower gross margin (10% by our estimation vs. 60%+ for Collector,” the analyst says. Auriga has raised its EPS estimate for 2010 from $0.48 to $0.51, which reducing its EPS estimate for 2011 from $0.90 to $0.80 “based on our expectation for slightly lower subscriber growth which is partially offset by higher revenue per customer. Moreover, we are tempering our expectations for gross margin expansion (by 120bps) as the company ramps its sales of its Clinicals offering.” More Analyst Ratings here.