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Athenahealth CEO: Metamorphosis is hard and good for us

  • Athenahealth CEO Jonathan Bush sounded an upbeat tone about the company's efforts to address activist shareholder demands for more financial discipline.
  • Bush said he has "been doing a lot of thinking about metamorphosis" and said the company is now focused on an "intense crisis level of reconstruction."
Jonathan Bush, co-founder, Chief Executive Officer, and President of Athenahealth.
Kate Rooney | CNBC
Jonathan Bush, co-founder, Chief Executive Officer, and President of Athenahealth.

Athenahealth CEO Jonathan Bush sounded an upbeat tone about the company's efforts to address activist shareholder demands for more financial discipline from the medical records and billing software company, thanking them for "constructive feedback" during the company's second-quarter earnings conference call Friday.

"Metamorphosis is hard and I have been doing a lot of thinking about metamorphosis," Bush told analysts on the call, adding that the company is now focused on an "intense crisis level of reconstruction."

"We also have a new orientation towards the assets and financial performance of the company learning to think about cash flow as well as growth. This stuff is good for us. It is hard and it is exciting," he said.

Athenahealth executives have been under pressure since activist investor Paul Singer's Elliott Management revealed it had a 9.2 percent stake in the company in May, saying in an SEC filing that it felt there were "numerous operational and strategic opportunities to maximize shareholder value" at the company.

Bush said the board would publicly address the issues raised by the filing at a future date, but analysts say the second-quarter results show Athenahealth is listening to its critics.

"Athena has responded to investor concerns with a renewed focus on profitability and a remarkable change in tone," said Ross Muken of Evercore ISI, who rates Athena shares outperform. "While we applaud these changes, it is still early days in the transition."

Athenahealth reported adjusted second-quarter net income of $20.5 million or 51 cents per share, on revenue of $301.1 million. It was the first time in four quarters that the company's sales expectations topped analysts' estimates.

The company's administration costs rose during the quarter due to higher consulting fees, but its gross profit margin improved by nearly 2 full percentage points, as it cut back on marketing costs.

"Given that the fish were not biting ... we decided not to throw dynamite in the pond to make them bite," Bush explained. "And (we) pulled back on some of the sort of bleeding edge expenses that we were incurring on the marketing side."

Athena shares surged as much as 8 percent early in the session, hitting an 18-month high. The stock is up nearly 40 percent since Elliott Management disclosed its stake in the company.