athenahealth Inc.: A smooth operator

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athenahealth Inc. (Nasdaq:ATHN) is freeing physicians to focus on patients, smoothing operations by taking over back-office chores. The company’s business software and services are selling so fast that surgical precision will be needed to meet high expectations.

athenahealth’s software puts insurance rules and clinical processes into its practice management platform, taking over the administrative burdens of billing, reimbursement and handling of data. Its services have three parts: proprietary Internet-based software, a continually updated database of payer reimbursement process rules, and back-office billing and clinical data management.

The Watertown, Mass.-based company emphasizes the service aspect of its business, and this model has allowed it to grow sales organically. Sales reached $100.8 million in fiscal 2007 ending in December, from $75.8 million in 2006. That 33% gain is expected to be matched in 2008, when analysts expect sales of $134.4 million, and again in 2009, when projections average $180.5 million.

Although the company does not give specific guidance, it has targeted long-term annual sales growth at 30% or better. It has a 97% physician retention rate, which gives insight into future sales. athenahealth projects long-term gross margins at 57% to 59%, adjusted EBITDA margin of 27% to 32%, and operating margins at 23% to 27%.

Revenue expectations are heady as athenahealth readies to release its second-quarter results Tuesday. Analysts see demand for its services remaining strong as the company continues to sell into a wide range of practices and providers, both big and small. Just last week, the company announced it had signed up RediClinics, which runs in-store health-care facilities — including at 15 Wal-Mart stores — for its on-demand business services.

athenahealth has grown sales organically, developing in the past five years its Internet-based software services to extend its client base. In 2005, . . .

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