With its future up in the air, Athenahealth presses forward with R&D investments

Athenahealth building 2
Athenahealth is plowing forward with a plan to cut operational costs and ramp up R&D spending. (athenahealth)

After what executives called “quite an eventful quarter,” Athenahealth posted solid second-quarter earnings less than a year after implementing a strategic plan that cut operational spending to the bone.

Part of that plan, unveiled last October, included a 9% cut to Athenahealth’s workforce. In the first half of his year, the company has cut $32.1 million in sales and marketing expenses and $2.8 million in general and administrative costs compared to the first half of 2017.

One area it hasn’t touched: research and development. Athenahealth sunk $96.6 million into R&D, up from $85.2 million in the first half of last year.

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“We think that's the right way to grow the business going forward, and we continue to do that,” Chief Financial Officer Marc Levine told investors on Monday. “We've ramped up the R&D. You can see that in the results. It's the one area in the P&L that is showing some growth. We're going to continue to see that increase as we continue to make those investments that we think are necessary for the platform, rearchitecture work that's going on as well as just rolling out new products that the sales team can bring to market.”

RELATED: Elliott Management proposes Athenahealth takeover worth almost $7B

In June, the company also acquired Praxify Technologies for $41.1 million. The Silicon Valley company focuses on streamlining physician workflows.

“We anticipate that this acquisition will accelerate our research and development initiatives by adding significant expertise in mobile and user experience design,” the company wrote in a financial filing.

The company’s net income soared to 36.4 million in the second quarter, up from $9.9 million during the same quarter last year.

Amid mounting anticipation over the company’s future, executives stuck to their script on Monday’s earnings call. Executive Chairman Jeff Immelt said the company is “moving with purpose” in considering a sale, merger or other transaction, prompted by activist investor Elliott Management throughout the second quarter.

RELATED: Athenahealth CEO Jonathan Bush steps down as board considers a sale

Not everyone is bullish on a sale. In a letter to investors this week, Greenlight Capital's David Einhorn—who once labeled Athenahealth among the overvalued “cool kid stocks”—said Elliott Management has “little interest in actually buying the company, but hopes someone else does,” adding that the activist firm “forced out” CEO Jonathan Bush.

Einhorn added that other buyers might realize that Athenahealth is not a software-as-a-service company “but rather a business process outsourcer in a mature market that already cut costs to the bone last year.”

“The prospective buyers might waver should they conclude that many of the best employees were personally loyal to the now deposed CEO,” he wrote.

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