Athena CEO: I Dont Know What We’re Worth; I Am A Strange Guy

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In an interview with Bloomberg’s Stephanie Ruhle and Erik Schatzker athenahealth, Inc (NASDAQ:ATHN) CEO Jonathan Bush said this morning on “Market Makers,” he “messed up” when he promised net income growth and that he feels the reason Einhorn called out Athenahealth was because he is the ” quintessential value guy. He likes Apple Inc. (NASDAQ:AAPL) now that Jobs is dead.” Bush said he wants investors who “dream of a health-care cloud.”

Bush also said: “I don’t know what we’re worth. I know we’re worth $1,000 a share at some point in the future.”

Anchor Stephanie Ruhle concluded the interview saying “And here we thought David Einhorn was quirky” to which Bush replied “I am a strange guy, but I’ve found a great thing to do with my life so I’m just happy.”


On promising net income was going to grow:

“I messed up.  If I said net income is going to grow infinitely and then you see this opportunity basically, the big arbitrage for us is suddenly we’ve got – so we’ve lots of doctors.  Half of our doctors work for hospital companies.  Those hospital companies are saying you must push this network in through our hospitals.  We don’t want the cloud to be something that happens outside the hospital and then we’re stuck on Enterprise software inside the hospital.  So we said, look, this is a chance.  They’re asking us to serve them.  Let’s double down on R&D.  We finally got a good enough reputation that we can hire as many developers as we want with our standards not wavering.  Let’s do it.”

On growth targets:

“We believe we need to grow 30 percent a year – or that we can and we should.  To grow more than that, you’ll have a hard time building out the infrastructure and if you grow less than that, you might not be able to build the national network that you’re trying to build, you want to be relevant.  We’ve always said you have to grow the margins of all products to make them scalable and reliable.  It is the natural way of things in a software enabled service, in a network company, which we are.  So our margins have improved in every product, every year.  But when we add new products, those start at low margins and then, as we grow them and remove the work, the scut work that is sort of rotting the walls of health care, the margins go back up again.”

“You have been to the doctor’s office.  I mean, the clipboard is still there and the phones and faxes.  It’s like that movie, “Brazil,” sort of this weird future where the Internet never shows up.  And finally Athena’s got a business model that allows us to bring health care onto a secure sector of the Internet, we call it the health care cloud, in order to eliminate that kind of scut work.”

On David Einhorn saying he like Athenahealth and Bush as CEO:

“In the South, that’s when they like bless your heart.”

On how he defends his valuation:

“I don’t know what we’re worth.  What I do – I know we’re worth $1,000 a share, no problem, at some point in the future.  And it’s up to David and others to decide when by discounting back what they think… I pulled [the valuation] out of my ear.  I mean, the point is — what I know, what David – the only David missed that I can see is that he doesn’t see what a software enabled service is.  So that’s — we are not a BPO company by any stretch.  We are not an Enterprise software company.  We are not even a SAS company.  We’re a company that’s a software enabled service.  We give out our software, Internet native software, to all of our customers for free.  Then we use that software to deliver a series of complicated services that they hate and stink at.  And then, once we’re doing that, we start to realize this extraordinary network effect where the margins go up and up and up as we eliminate paper.”

On why growth rate didn’t increase when he cared less about margins:

“I  can have high gross margins, I just want to put that money into R&D for new products and sales and marketing. That income, what’re you going to do, pay 40 percent taxes to Barack and then stop growing?  We’ve got 3 percent of the doctors; we need them all.  We need at least half of them.  I’m shooting for half of the doctors, not 3.5 percent of doctors. ”

On the Athenahealth network effect:

“So there are today there are 52,000 caregivers — nurse practitioners, doctors, et cetera — who in their office look at a little iPad or a whatever, a laptop, a browser, with Athenanet on it.  They do all the work.  In the background, all of them are connected to one instance of one software, one database.  Every time any of them get a single claim denied, any one guy in North Dakota, the Athena analysts in a room not as sexy but close as this, get to the root cause, build code that night into the network, and then no doctor ever gets that claim denied again.  So the margin associated with following up and appealing and dealing with the insurance company turns into a new level of profit.  Similarly, a doctor wants to send a patient to a laboratory.  Athena will build a connection into that laboratory and then any doctor in the country that ever wants to send a patient who that laboratory is automatically lit up and connected like you’ve added a new cable channel.  That creates a huge revenue — margin arbitrage.  Because what used to be a Athena sending a fax and receiving a fax and typing it in becomes an instantaneous, real-time, all-margin.”

On whether he thinks Einhorn feels he was made promises that shareholders are not getting:

“If you ask me, the guy’s a quintessential value guy.  He likes Apple Inc. (NASDAQ:AAPL) now that Jobs is dead, right, because all they’re going to do is drive up, drive up, drive up.  He’s not going to be – Steve’s not going to be running around demanding some crazy new space age product with all of their money, right?  He doesn’t even like, Inc. (NASDAQ:AMZN).  Look at how Jeff’s pushing more and more and more into not sure we need drones, but maybe I’m wrong.  Maybe the drones are key to the grocery business. So, I’m more in that sort of line of thinking, which is not his.  And those who buy our stocks should not be sort of bottom watching value investors.  They should be people who dream of a health care cloud.”

On wanting value investors to understand the company:

” I’m looking forward to the cage match between Einhorn and Morgan Stanley (NYSE:MS), because they’re the ones who are doing the bottom up stock pricing.  David seems to be doing well financially, so maybe there’s reasons.  All I am saying is I know that this health care cloud is a really good idea.”

On Einhorn’s concern about getting inside hospitals:

“So lucky for us, a lot of hospitals, 550 hospitals, are already clients.  We just do the doctors they employ, and they’re saying, hey, finish the job.  Move on through.  We just announced Steward Healthcare, which is a service-backed hospital chain, that’s allowing us to start performing services toward the in-patient side and we’re going to roll out a new service called Enterprise Coordinator that moves through. It’s also worth noting that hospital chains, like Ascension, which is the largest nonprofit Catholic hospital chain in the country, has already chosen us for billing and then said to doctors, hey, you guys — if you want to keep the Enterprise software that you already have for your medical records, you can, we won’t make you leave.  And six out of seven of the ministries have switched to Athena Clinicals even though they just have these new Enterprise software based EMRs.  Enterprise software is not a competitor to Athena; it’s a sort of previous era substitute.  And as the cloud rises up, you throw out your software.”

On whether he sees Athena partnering with Epic:

“Totally.  Run by a great lady and a great guy.  You know, they have to protect business model, which I think is obsolete, but they do a very good job within the context of that business model.  We’ll work with them all over.”

On hospitals having a harder time bringing doctors into the fold unless they are willing to connect with Athena’s software:

“The average hospital today in this buying spree since Obama was elected is up to $180,000 per doc per year loss, subsidizing doctors to use the hospital operations and the hospital systems.  That can’t last forever.  And even if it does last  for the ones they’ve bought, they’re not going to be able to go and buy the other half of the doctors, but they’re going to want patients.  So they’re going to need to connect.”


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