Facing shareholder pressure, athenahealth plans big cutbacks
Athenahealth Inc., one of the state’s leading health care technology companies, will reduce expenses by $100 million and restructure its leadership in the face of pressure from an activist shareholder pushing to lift the firm’s stock price, it said Tuesday.
The Watertown company released few details of the cost-saving plan and did not say whether it would affect job levels. Athenahealth currently has more than 5,500 employees.
Nor would the company discuss how the cuts might affect plans to rebuild its headquarters as part of a massive project at the Arsenal on the Charles office complex, but a spokeswoman said the project continues to move forward.
“We are today announcing changes intended to achieve greater levels of profitable growth and unlock value,” chief executive Jonathan Bush said in a statement. “I am fully supportive of these initiatives and believe they are critical to driving value creation at athenahealth.”
Bush will remain CEO but give up his roles as chairman and president of the electronic medical records company. Athenahealth said it was seeking an independent board chairman and would recruit someone to fill the new office of corporate president.
The company had previously been looking for a chief financial officer, and it said it would continue that search.
In May, Elliott Management Corp ., a New York hedge fund controlled by billionaire Paul Singer, said it had acquired a 9.2 percent stake in athenahealth, citing “numerous operational and strategic opportunities to maximize shareholder value.”
Despite a broad bull market, the company’s stock had been in steady decline by the time Elliot Management began its campaign. It has since recovered strongly in anticipation of changes wrought by the activist shareholder, gaining more than 5.5 percent on Tuesday alone.
Elliott did not respond to a request for comment.
The company emphasized on Tuesday that management and the board had made the recent moves with the help of an external consulting company.
Athenahealth said it would look broadly for the $100 million in savings from areas that include sales and marketing, research and development, and general and administrative costs. Those three categories made up $522.8 million in expenses in 2016. Other areas of focus will include “service operations, product portfolio and organizational structure.” Athenahealth said it would provide further details in October.
The company reported $1.1 billion in revenue in 2016 and a net profit of $21 million.
Sean Wieland, senior research analyst at the investment bank Piper Jaffray, said the company should be able to squeeze savings from its sales and marketing operations. Athenahealth had long marketed itself broadly to medical groups, even those not shopping for its services, in the name of building brand awareness. Now that athenahealth is more established, Wieland said, it can begin to scale back on that spending.
He said he expects the company to keep growing, so it is likely to continue hiring — though maybe at a slower pace than in previous years.
Analysts who follow the company said they do not see the changes as a harbinger of trouble for Bush. A cousin of former president George W. Bush, Jonathan Bush cofounded the company in 1997 and is considered a thought leader in the field.
“Jonathan Bush wants to leave a legacy behind, and his legacy, I think, is making a meaningful impact in fixing the health care system,” Wieland said. “The vehicle in which he can do that is athenahealth.”
The company said Bush was not available to comment Tuesday.
A research note from UBS said separating Bush’s roles will allow him “to continue to drive his strategic vision while also giving further expertise to the company.”
“All-in, we think these moves represent a positive outcome for both the stock as well as the long-term health of the company,” UBS said.