ATHENAHEALTH INC (Form: 10-Q, Received: 07/30/2018 16:24:35)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33689

athenahealth, Inc.

(Exact name of registrant as specified in its charter)



Delaware		04-3387530
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

311 Arsenal Street Watertown, Massachusetts		02472
(Address of principal executive offices)		(Zip Code)

617-402-1000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

At July 26, 2018 , the registrant had 40,501,995 shares of common stock, par value $0.01 per share, outstanding.

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INDEX



	PART I – FINANCIAL INFORMATION	Page
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2018 and 2017	1
	Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017	2
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	18

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	20

SIGNATURES		21

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PART I – FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements (unaudited)

athenahealth, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited, amounts in millions, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017 ⁽¹⁾			2018			2017 ⁽¹⁾
Revenue	$	323.3		$	301.1		$	652.7		$	586.5
Cost of revenue ⁽²⁾	152.0			143.8			306.0			288.2
Gross profit	171.3			157.3			346.7			298.3
Other operating expenses:
Selling and marketing	48.9			65.0			98.6			130.7
Research and development ⁽²⁾	48.4			42.4			96.6			85.2
General and administrative	30.9			37.7			66.3			69.1
Total other operating expenses	128.2			145.1			261.5			285.0
Operating income	43.1			12.2			85.2			13.3
Other expense	(2.4		)	(1.7		)	(5.0		)	(2.9		)
Income before income tax provision	40.7			10.5			80.2			10.4
Income tax provision	4.3			0.6			12.7			1.9
Net income	$	36.4		$	9.9		$	67.5		$	8.5
Foreign currency translation adjustment	(0.5		)	—			(0.8		)	0.4
Comprehensive income	$	35.9		$	9.9		$	66.7		$	8.9

Net income per share – Basic	$	0.90		$	0.25		$	1.67		$	0.21
Net income per share – Diluted	$	0.89		$	0.24		$	1.64		$	0.21
Weighted average shares used in computing net income per share:
Basic	40.5			39.9			40.3			39.7
Diluted	41.1			40.5			41.1			40.4

⁽¹⁾ Amounts are not restated and represent the amounts recognized under generally accepted accounting principles in place during that period. Refer to Note 1 – Basis of Presentation for discussion on recently adopted accounting pronouncements and a reconciliation to previous presentation.

⁽²⁾ Refer to Note 1 – Basis of Presentation for disclosure of related party amounts.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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athenahealth, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in millions, except per share amounts)



	June 30, 2018			December 31, 2017 ⁽¹⁾
Assets
Current assets:
Cash and cash equivalents	$	222.1		$	165.1
Accounts receivable, net	183.7			169.5
Contract assets	80.2			—
Prepaid expenses and other current assets	62.3			46.8
Total current assets	548.3			381.4
Property and equipment, net	346.9			355.1
Capitalized software costs, net	150.5			139.7
Purchased intangible assets, net	101.4			108.6
Goodwill	281.3			274.4
Deferred tax assets, net	0.8			41.8
Other assets ⁽²⁾	97.2			31.3
Total assets	$	1,526.4		$	1,332.3
Liabilities & Stockholders’ Equity
Current liabilities:
Accounts payable ⁽³⁾	$	15.1		$	10.6
Accrued compensation	89.7			94.7
Accrued expenses ⁽³⁾	46.0			51.5
Current portion of long-term debt	24.0			20.2
Deferred revenue	34.2			30.7
Total current liabilities	209.0			207.7
Deferred rent, net of current portion	30.7			29.3
Long-term debt, net of current portion	239.7			252.6
Deferred tax liability, net	17.8			—
Deferred revenue, net of current portion	1.0			46.5
Other long-term liabilities	4.3			4.7
Total liabilities	502.5			540.8
Commitments and contingencies (Note 1)
Stockholders’ equity:
Preferred stock, $0.01 par value: 5.0 shares authorized; no shares issued and outstanding at June 30, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value: 125.0 shares authorized; 40.5 shares issued and outstanding at June 30, 2018; 40.1 shares issued and outstanding at December 31, 2017	0.4			0.4
Additional paid-in capital	668.9			646.7
Accumulated other comprehensive loss	(1.2		)	(0.4		)
Retained earnings	355.8			144.8
Total stockholders’ equity	1,023.9			791.5
Total liabilities and stockholders’ equity	$	1,526.4		$	1,332.3

⁽²⁾ Includes deferred commissions and contract fulfillment costs.

⁽³⁾ Refer to Note 1 – Basis of Presentation for disclosure of related party amounts.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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athenahealth, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in millions)



	Six Months Ended June 30,
	2018			2017 ⁽¹⁾
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	67.5		$	8.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment, capitalized software, and purchased intangible assets	73.5			72.8
Amortization of deferred commissions and contract fulfillment costs	3.9			—
Deferred income tax	10.3			1.4
Stock-based compensation expense	24.4			30.0
Other reconciling adjustments	5.1			—
Changes in operating assets and liabilities:
Accounts receivable, net	(13.8		)	(8.7		)
Contract assets	(2.7		)	—
Prepaid expenses and other current assets	(15.4		)	(12.2		)
Deferred commissions and contract fulfillment costs and other long-term assets	(14.8		)	(8.8		)
Accounts payable	3.9			(1.1		)
Accrued expenses, deferred rent, and other long-term liabilities	—			6.3
Accrued compensation	(4.7		)	(20.7		)
Deferred revenue	10.8			6.3
Net cash provided by operating activities	148.0			73.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software costs	(45.9		)	(41.5		)
Purchases of property and equipment	(24.8		)	(51.0		)
Payments on acquisitions, net of cash acquired	(10.1		)	(40.8		)
Other investing activities	3.7			—
Net cash used in investing activities	(77.1		)	(133.3		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock plans	10.6			9.4
Taxes paid related to net share settlement of stock awards	(14.2		)	(15.2		)
Payments on long-term debt	(9.4		)	(11.2		)
Net cash used in financing activities	(13.0		)	(17.0		)
Effect of exchange rate changes on cash and cash equivalents	(0.9		)	0.3
Net increase (decrease) in cash and cash equivalents	57.0			(76.2		)
Cash and cash equivalents at beginning of period	165.1			147.4
Cash and cash equivalents at end of period	$	222.1		$	71.2
Non-cash transaction
Property, equipment, and purchased and internally-developed software recorded in accounts payable, accrued expenses, and accrued compensation	$	12.8		$	12.0
Additional disclosures
Cash paid for interest, net	$	3.3		$	3.0
Cash paid for taxes	$	7.3		$	0.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

1. BASIS OF PRESENTATION

General – The accompanying unaudited condensed consolidated financial statements have been prepared by athenahealth, Inc. (which we refer to as the Company, we, us, or our) in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial reporting and as required by Regulation S-X, Rule 10-01, and include the results of operations of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the Company's financial position as of June 30, 2018 and December 31, 2017 , as indicated above, the results of operations for the three and six months ended June 30, 2018 and 2017 , and cash flows for the six months ended June 30, 2018 and 2017 . The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

We have revised the condensed consolidated statements of cash flows for the six months ended June 30, 2017 to correct $5.8 million previously reported in the accrued compensation line in operating activities by reclassifying it to the capitalized software costs line in investing activities. This revision had the effect of increasing previously reported net cash provided by operating activities and increasing net cash used in investing activities by $5.8 million each.

In June 2018, we announced that our Board initiated a process to explore strategic alternatives and had begun working with financial advisors. As part of this process, the Board will consider a sale, merger or other transaction involving the Company, as well as continuing as an independent company.

Segment Reporting - In June 2018, our Chief Executive Officer (CEO), who was also our Chief Operating Decision Maker (CODM), separated from the Company. Until we appoint a new CEO, our Chairman has been appointed Executive Chairman and our Chief Financial Officer (CFO) has assumed greater day-to-day operational responsibilities. We have determined that in the interim, our CFO has become our CODM and, as he continues to use consolidated financial information in determining how to allocate resources and assess performance, we continue to operate as a single segment.

Recently Adopted Pronouncements

Revenue from Contracts with Customers

We adopted the new revenue recognition standard on January 1, 2018 using a modified retrospective adoption methodology, whereby the cumulative impact of all prior periods is recorded in retained earnings or other impacted balance sheet line items upon adoption. Under the modified retrospective adoption method, we elected to retroactively adjust, inclusive of all previous modifications, only those contracts that were considered open at the date of initial application. Refer to Note 2 – Revenue and Contract Costs for further information along with our new accounting policies.

The aggregation of the adjustments resulted in an adjustment to opening retained earnings as follows:

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)



	Cumulative Effect of Adoption Impact of New Revenue Standard January 1, 2018
Contract assets	$	77.4
Deferred tax assets, net	(40.9		)
Other assets ⁽¹⁾	61.5
Total assets	$	98.0
Deferred revenue, current	(8.1		)
Deferred revenue, net of current portion	(44.8		)
Deferred tax liability, net	7.4
Retained earnings	143.5
Total liabilities and stockholders’ equity	$	98.0

⁽¹⁾ Adjustment to this line item represents the effect of the new revenue recognition standard adoption on deferred commissions and contract fulfillment costs of $37.7 million and $23.8 million , respectively.

The following tables reconcile the balances as presented for the three and six months ended June 30, 2018 to the balances prior to the adjustments made to implement the new revenue recognition standard for the same periods:



	Three Months Ended June 30, 2018
	As Presented			Impact of New Revenue Standard		Previous Revenue Standard
Revenue	$	323.3		$	8.6	$	331.9
Cost of revenue	152.0			4.0		156.0
Gross profit	171.3			4.6		175.9
Other operating expenses:
Selling and marketing	48.9			5.0		53.9
Research and development	48.4			—		48.4
General and administrative	30.9			—		30.9
Total other operating expenses	128.2			5.0		133.2
Operating income	43.1			0.4		42.7
Other expense	(2.4		)	—		(2.4		)
Income before income tax provision	40.7			0.4		40.3
Income tax provision	4.3			0.1		4.2
Net income	$	36.4		$	0.3	$	36.1
Foreign currency translation adjustment	(0.5		)	—		(0.5		)
Comprehensive income	$	35.9		$	0.3	$	35.6

Net income per share – Basic	$	0.90		$	0.01	$	0.89
Net income per share – Diluted	$	0.89		$	0.01	$	0.88

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)



	Six Months Ended June 30, 2018
	As Presented			Impact of New Revenue Standard		Previous Revenue Standard
Revenue	$	652.7		$	0.5	$	652.2
Cost of revenue	306.0			8.1		314.1
Gross profit	346.7			8.6		338.1
Other operating expenses:
Selling and marketing	98.6			7.8		106.4
Research and development	96.6			—		96.6
General and administrative	66.3			—		66.3
Total other operating expenses	261.5			7.8		269.3
Operating income	85.2			16.4		68.8
Other expense	(5.0		)	—		(5.0		)
Income before income tax provision	80.2			16.4		63.8
Income tax provision	12.7			4.1		8.6
Net income	$	67.5		$	12.3	$	55.2
Foreign currency translation adjustment	(0.8		)	—		(0.8		)
Comprehensive income	$	66.7		$	12.3	$	54.4

Net income per share – Basic	$	1.67		$	0.30	$	1.37
Net income per share – Diluted	$	1.64		$	0.30	$	1.34

As we ceased amortizing implementation fees under the new revenue recognition standard, we condensed our implementation and other line item into a single revenue line item. The following table disaggregates total revenue into the format previously presented:



	Previous Revenue Standard
	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Business services	$	323.6	$	293.0	$	636.9	$	571.3
Implementation and other	8.3		8.1		15.3		15.2
Total revenue	$	331.9	$	301.1	$	652.2	$	586.5

Financial Instruments

In January 2016, a new accounting standard was issued to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The most significant impact to our consolidated financial statements relates to the recognition and measurement of equity instruments without readily determinable fair values which were previously carried at cost less any impairment determined to be other than temporary. Under the new standard, we measure all equity investments without readily determinable fair values at cost, less impairment, adjusted by observable price changes, such as equity financings, for the same or similar investment from the same issuer. Gains and losses will be recorded in our condensed consolidated statements of income and comprehensive income on a prospective basis. We adopted this accounting standard on January 1, 2018 and there was no impact to our condensed consolidated statements of income and comprehensive income for the three and six months ended June 30, 2018 ; however, the impact could be material in future periods.

Related Party Transactions – We have a long-term investment in Access Healthcare Services Private Limited, or Access, a vendor that primarily provides the Company with business process outsourcing services. Our contractual obligations with Access include a purchase obligation that limits our ability to decrease our purchased services from the vendor by more than 33% from the previous calendar year's volume.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

The tables below present the amounts included within each of the applicable financial statement line items resulting from transactions with our related party:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of revenue	$	19.3	$	15.5	$	36.9	$	29.8
Research and development	0.2		0.1		0.4		0.1



	June 30, 2018		December 31, 2017
Accounts payable	$	6.7	$	5.6
Accrued expenses	6.9		5.7

Exit Costs, Including Restructuring Costs – We previously announced a cost reduction plan in 2017 of which the associated actions were substantially completed as of June 30, 2018 . During the three months ended June 30, 2018 , we recorded a credit of $0.6 million associated with the plan of which $0.5 million was recorded in cost of revenue. During the six months ended June 30, 2018 , we recorded a charge of $4.6 million associated with the plan, of which $0.8 million was recorded in cost of revenue and $3.8 million was recorded in general and administrative expense, respectively. The activity related to the exit cost accrual related to workforce reductions during the six months ended June 30, 2018 consists of the following:



	Workforce Reductions
Accrual at December 31, 2017	$	3.4
Additions	0.9
Cash payments	(4.1		)
Accrual at June 30, 2018	$	0.2

Commitments and Contingencies – We are engaged from time to time in certain legal disputes arising in the ordinary course of business, including employment discrimination claims and challenges to our intellectual property. We believe that we have adequate legal defenses and that the likelihood of a loss contingency relating to the ultimate disposition of any of these disputes is remote. When the likelihood of a loss contingency becomes at least reasonably possible with respect to any of these disputes, or, as applicable in the future, if there is at least a reasonable possibility that a loss exceeding amounts already recognized may have been incurred, we will revise our disclosures in accordance with the relevant authoritative guidance.

Additionally, we will accrue a liability for loss contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We will review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained, and our views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. We expense legal costs, including those incurred in connection with loss contingencies, as incurred.

New Accounting Pronouncement Not Yet Adopted

Leases

In February 2016, a new accounting standard was issued for leases. The new standard most significantly impacts lessee accounting and disclosures, but also requires enhanced disclosures for lessors. The new standard requires lessees to record most leases on their balance sheets but recognize the expenses on their statements of income in a manner similar to current accounting guidance. As a lessee, for lease arrangements exceeding a 12-month term, we will recognize a lease liability for the obligation to make lease payments as well as a right-to-use asset for the right to use the underlying asset for the lease term. Leases with a term of 12 months or less will be accounted for similar to the existing standard for operating leases. The new standard is effective for interim and annual periods beginning after December 15, 2018 and will be adopted on a modified retrospective basis. We anticipate that this standard will have a material impact on our consolidated financial statements, as all long-term leases will be capitalized on the condensed consolidated balance sheet. We are in the process of implementing

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

changes to our processes and controls in conjunction with the review of existing lease agreements in connection with the adoption of the new standard on January 1, 2019. We expect that our leases designated as operating leases in Note 8 – Operating Leases included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 , filed with the Securities and Exchange Commission, or SEC, on February 1, 2018 will be reported on the consolidated balance sheets upon adoption.

2. REVENUE AND CONTRACT COSTS

New Revenue Recognition Accounting Policy

We derive the majority of our revenue from business services associated with our integrated, network-enabled services. Our integrated athenaOne services for healthcare practices and medical groups and for hospitals and health systems, as well as related standalone services, consist of medical billing and practice management; electronic health records, or EHR; patient engagement; and order transmission and care coordination, which are supported by our network, athenaNet; we refer to such offerings collectively as athenaOne. We consider the series of services provided under athenaOne to be one performance obligation. Examples of other performance obligations that we have include other athenahealth-branded services such as our population health offering, and those related to supporting athenaOne, including professional services and consulting work, and various services under the Epocrates® brand name. Revenue associated with each of these performance obligations is satisfied and recognized over time, which is typically one month or less.

Our clients typically purchase service contracts for our integrated, network-enabled services that renew automatically. In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary from client to client. For athenaOne service arrangements, the majority of our fees are variable consideration contingent upon the collections of our clients. We provide value to our clients over the term of the contract, and we recognize revenue ratably over the term, which is consistent with the measure of progress. In the event that we are entitled to variable consideration for services provided during a specified time period, fees for these services are allocated to and recognized over the specified time period.

We estimate the variable consideration which we expect to be entitled to over the contractual period associated with our athenaOne contracts, which begins no earlier than go-live, and recognize the fees over the term. The estimate of variable consideration included in the transaction price typically involves estimating the amounts our clients will ultimately collect associated with the services they provide with the assistance of athenaNet and the relative fee we charge associated with those collections. Inputs to these estimates include, but are not limited to, historical service fees, historical collection amounts, the timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers, macro trends, and trends amongst certain types of similar clients. When reviewing our estimates, in order to ensure that our estimates do not pose a risk of significantly overstating our revenue in any reporting period, we will apply constraints, when appropriate, to certain estimates around our variable consideration. Management will perform analyses periodically to verify the accuracy of our estimates of variable consideration.

Disaggregation of Revenue from Contracts with Customers

The following table provides information about our revenue by service offering:



	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Service offerings:
athenaOne	$	300.6	$	606.5
Other athenahealth-branded services	7.3		17.0
Epocrates	10.1		19.7
Other	5.3		9.5
Total revenue	$	323.3	$	652.7

New Contract Assets and Deferred Revenue Accounting Policy

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

Due to our go-to-market strategy wherein we do not have a contractual right to bill clients until their collections from various payers are posted to athenaNet, we recognize revenue in advance of our right to payment from our clients. Our clients are billed monthly, in arrears, typically based upon a percentage of collections posted to athenaNet. Amounts recognized as revenue prior to our right to payment are recorded in our contract asset balance. Amounts that we are entitled to collect under the contract are recorded as accounts receivable. Our contract asset balance at June 30, 2018 was $80.2 million . Changes in the contract asset balance primarily consist of increases as a result of providing services that result in additional consideration and are offset by our right to payment for services becoming unconditional. Our deferred revenue balances mainly consist of fees paid by our clients for which the associated services have not been performed. Deferred revenue, which was $35.2 million as of June 30, 2018 , primarily relates to our Epocrates services.

New Deferred Commissions and Contract Fulfillment Costs Accounting Policies

Our sales incentive plans include commissions payable to employees and third parties at the time of initial contract execution that are capitalized as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred including consideration of expected client renewals. As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life, which we have estimated to be 12 years . Deferred commissions were $45.5 million at June 30, 2018 and are included in the other assets line on our condensed consolidated balance sheet.

During implementation and prior to go-live, we incur certain contract fulfillment costs primarily related to the configuration of athenaNet for our clients. These costs are capitalized to the extent they are directly related to a contract, are recoverable, and create a resource used to deliver our athenaOne and other athenahealth-branded business services. These costs are amortized over the period the related services are transferred including consideration of expected client renewals, which is based upon our estimate of the client life. Contract fulfillment costs were $32.1 million at June 30, 2018 and are included in the other assets line on our condensed consolidated balance sheet.

3. BUSINESS COMBINATIONS

On May 2, 2018, we acquired a business to enhance our billing and revenue cycle management toolkit by adding powerful contract management and analytics features. The purchase price was $10.1 million , net of cash acquired, that has been allocated primarily to goodwill that is deductible for U.S. income tax purposes. We incurred transaction costs of $0.7 million associated with this acquisition.

On June 23, 2017, we acquired Praxify Technologies, Inc., or Praxify, a Palo Alto-based company focused on reinventing how doctors work with health data to help drive productivity, portability, and improved decision support. We acquired Praxify with the goal of advancing our platform strategy and mobile capabilities to drive streamlined workflows and intelligence at and around the moments of care. We anticipate that this acquisition will accelerate our research and development initiatives by adding significant expertise in mobile and user experience design. Additionally, the underlying technology on which Praxify is built is being integrated into our platform, and we anticipate it will create new opportunities for both internal and third-party developers to rapidly build and launch applications.

The purchase price of Praxify was $41.1 million , net of cash acquired. The purchase price excludes $16.5 million expected to be earned by key employees of Praxify based upon continued employment, which is accounted for as compensation expense and is being recognized in the condensed consolidated statements of income and comprehensive income over the requisite service period. As of both June 30, 2018 and December 31, 2017 , there was $5.5 million , respectively, of prepaid compensation expense related to retention bonuses made at the time of acquisition included in the prepaid expenses and other current assets line on our condensed consolidated balance sheets; as of June 30, 2018 and December 31, 2017 , there was $5.3 million and $8.0 million , respectively, of prepaid compensation expense in the other assets line on our condensed consolidated balance sheets. The fair value of net assets acquired primarily consisted of purchased intangible assets of $15.7 million related to technology. The $33.8 million excess of purchase consideration over the fair value of the net assets acquired was allocated to goodwill, which is not deductible for U.S. income tax purposes. We incurred transaction costs of $1.4 million associated with this acquisition.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

4. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options, restricted stock units, and shares to be purchased under the employee stock purchase plan. Under the treasury stock method, dilutive securities are assumed to be exercised at the beginning of the periods and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Securities are excluded from the computation of diluted net income per share if their effect would be anti-dilutive to earnings per share; therefore, in periods of net loss, shares used to calculate basic and diluted net loss per share are equivalent.

The following table reconciles the weighted average shares outstanding for basic and diluted net income per share for the periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income	$	36.4	$	9.9	$	67.5	$	8.5
Weighted average shares used in computing basic net income per share	40.5		39.9		40.3		39.7
Net income per share – Basic	$	0.90	$	0.25	$	1.67	$	0.21

Net income	$	36.4	$	9.9	$	67.5	$	8.5
Weighted average shares used in computing basic net income per share	40.5		39.9		40.3		39.7
Effect of dilutive securities	0.6		0.6		0.8		0.7
Weighted average shares used in computing diluted net income per share	41.1		40.5		41.1		40.4
Net income per share – Diluted	$	0.89	$	0.24	$	1.64	$	0.21

The computation of diluted net income per share does not include 0.2 million shares for both the three and six months ended June 30, 2018 and 0.4 million and 0.3 million shares, respectively, for the three and six months ended June 30, 2017 because their inclusion would have an anti-dilutive effect on net income per share.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of June 30, 2018 and December 31, 2017 , the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximated their estimated fair values because of the short-term nature of these financial instruments. Money market funds are valued using a market approach based upon the quoted market prices of identical instruments when available or other observable inputs such as trading prices of identical instruments in inactive markets or similar securities.

Our MDP Accelerator program is designed to cultivate health care information technology start-ups and expand services offered to our provider network. MDP Accelerator portfolio investments and our other direct investments are typically made in the form of convertible notes receivable or equity investments, which are included in other assets on our condensed consolidated balance sheets. During the three months ended June 30, 2018 , we determined the notes receivable were fully impaired, and recorded a $0.5 million charge to other expense.

As of June 30, 2018 and December 31, 2017 , we had $264.4 million and $273.8 million , respectively, outstanding on our term loan facility and we had not drawn on the revolving credit facility under our senior credit facility. The credit facility carries a variable interest rate set at current market rates, which is the primary driver in our conclusion that the carrying value approximates fair value.

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices in active markets

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in millions, except per share amounts)

for identical assets or liabilities, and fair values determined by Level 2 inputs utilize quoted prices in inactive markets for identical assets or liabilities obtained from readily available pricing sources for similar instruments. The fair values determined by Level 3 inputs are unobservable values which are supported by little or no market activity. It is our policy to recognize transfers between levels of the fair value hierarchy, if any, at the end of the reporting period; however, there have been no such transfers during any of the periods presented.



	Fair Value Measurements as of June 30, 2018, Using
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market	$	0.1	$	—	$	—	$	0.1
Debt securities:
MDP Accelerator portfolio	—		—		—		—
Total assets	$	0.1	$	—	$	—	$	0.1

	Fair Value Measurements as of December 31, 2017, Using
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market	$	0.1	$	—	$	—	$	0.1
Debt securities:
MDP Accelerator portfolio	—		—		0.5		0.5
Total assets	$	0.1	$	—	$	0.5	$	0.6

The following table presents our financial instruments measured at fair value using unobservable inputs (Level 3) as of the three and six months ended June 30, 2018 and 2017 :



	Fair Value Measurements Using Unobservable Inputs (Level 3)
	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017		Six Months Ended June 30, 2018			Six Months Ended June 30, 2017
Balance, beginning of period	$	0.5		$	0.5	$	0.5		$	0.5
Conversion	—			—		—			—
Settlement	—			—		—			—
Impairment	(0.5		)	—		(0.5		)	—
Balance, end of period	$	—		$	0.5	$	—		$	0.5


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements regarding management’s expectations for future financial and operational performance and operating expenditures, expected growth, and business outlook; statements regarding the cost reduction plan announced in 2017; statements regarding our process to explore strategic alternatives; the benefits of and demand for our service offerings; the impact of new accounting pronouncements; increased automation; changes in expenses related to operations, selling and marketing, research and development, general and administrative matters, depreciation and amortization, interest and income taxes; statements regarding competition; statements regarding the impact of new legislation, including new tax legislation; the impact of litigation; the impact of foreign currency fluctuations; the impact of acquisitions and associated measurements of fair value; and capital allocation and liquidity matters. Forward-looking statements may be identified with words such as “will,” “may,” “expect,” “plan,” “anticipate,” “upcoming,” “believe,” “goal,” “estimates,” or similar terminology, and the negative of these terms.

Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, and which could cause actual results to differ materially from those contemplated in these forward-looking statements. These factors include those set forth in our Annual Report on Form 10-K for

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the fiscal year ended December 31, 2017, under the heading Part I, Item 1A, “Risk Factors” and this Quarterly Report on Form 10-Q, under the heading Part II, Item 1A “Risk Factors” below.

Forward-looking statements speak only as of the date hereof and, except as required by law, we undertake no obligation to update or revise these forward-looking statements.

Executive Summary

athenahealth, Inc. (which we refer to as athenahealth, the Company, we, or our) partners with hospital and ambulatory customers to drive clinical and financial results. We offer medical record, revenue cycle, patient engagement, care coordination, and population health services. We combine insights from our network of nearly 116,000 providers and approximately 114 million patients with deep industry knowledge and perform administrative work at scale .

Highlights from the three and six months ended June 30, 2018 include:

•

Total revenue as presented of $323.3 million for the three months ended June 30, 2018 . Total revenue under the previous revenue recognition standard of $331.9 million compared to $301.1 million in the same period last year, an increase of 10% . Total revenue as presented of $652.7 million for the six months ended June 30, 2018 . Total revenue under the previous revenue recognition standard of $652.2 million compared to $586.5 million in the same period last year, an increase of 11% . Increased revenue in both the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 were the result of strong growth in collections processed driven by continued growth in providers.


•	Gross margin as presented of 53.0% for the three months ended June 30, 2018 . Gross margin under the previous revenue recognition standard of 53.0% , compared to 52.2% in the same period last year. Gross margin as presented of 53.1% for the six months ended June 30, 2018 . Gross margin under the previous revenue recognition standard of 51.8% , compared to 50.9% in the same period last year.

•

Operating income as presented of $43.1 million for the three months ended June 30, 2018 . Operating income under the previous revenue recognition standard of $42.7 million , or 12.9% of total revenue, compared to $12.2 million , or 4.1% of total revenue, in the same period last year. Operating income as presented of $85.2 million for the six months ended June 30, 2018 . Operating income under the previous revenue recognition standard of $68.8 million , or 10.5% of total revenue, compared to $13.3 million , or 2.3% of total revenue, in the same period last year.

•

Net income as presented of $36.4 million , or $0.89 per diluted share for the three months ended June 30, 2018 . Net income under the previous revenue recognition standard of $36.1 million , or $0.88 per diluted share, compared to net income of $9.9 million , or $0.24 per diluted share, in the same period last year. Net income as presented of $67.5 million , or $1.64 per diluted share for the six months ended June 30, 2018 . Net income under the previous revenue recognition standard of $55.2 million , or $1.34 per diluted share, compared to net income of $8.5 million , or $0.21 per diluted share, in the same period last year. Our financial results reflect strong revenue growth and continued execution on our plans to reduce expenses and operate more efficiently.

•

Our balance sheet at June 30, 2018 includes cash and cash equivalents of approximately $222.1 million . Additionally, we have a $500.0 million senior credit facility comprised of a $300.0 million unsecured term loan facility and a $200.0 million unsecured revolving credit facility. As of June 30, 2018 , we had $264.4 million outstanding on the unsecured term loan facility and $200.0 million available on the unsecured revolving credit facility. We will continue our disciplined approach to capital allocation decisions, including assessing reinvestments into the business and potential acquisitions, among other potential uses of our assets and available credit.


•	Net cash provided by operating activities increased $74.2 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 .


•	In June 2018, we announced that our Board initiated a process to explore strategic alternatives and had begun working with financial advisors. As part of this process, the Board will consider a sale, merger or other transaction involving the Company as well as continuing as an independent company.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. In connection with the preparation of our condensed consolidated financial statements, we are required to

make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors we believe to be relevant at the time we prepare our condensed consolidated financial statements. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, as additional information is obtained, and as our operating environment changes. On a regular basis, we review the accounting policies and assumptions and update our assumptions, estimates, and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with GAAP. Additionally, we may employ outside experts to assist in our evaluations. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Critical accounting policies are those policies used in the preparation of our condensed consolidated financial statements that require management to make difficult, subjective, or complex judgments, and to make estimates about the effect of matters that are inherently uncertain. As a result of our adoption of the new revenue recognition standard on January 1, 2018, we re-assessed the estimates, assumptions, and judgments that are most critical in our recognition of revenue and have revised our revenue recognition critical accounting policy disclosure as follows:

Description – We derive the majority of our revenue from business services associated with our integrated, network-enabled services. Our integrated athenaOne services for healthcare practices and medical groups and for hospitals and health systems, as well as related standalone services, consist of medical billing and practice management; electronic health records, or EHR; patient engagement; and order transmission and care coordination, which are supported by our network, athenaNet; we refer to such offerings collectively as athenaOne. We consider the series of services provided under athenaOne to be one performance obligation. Examples of other performance obligations that we have include other athenahealth-branded services such as our population health offering, and those related to supporting athenaOne, including professional services and consulting work, and various services under the Epocrates® brand name. Revenue associated with each of these performance obligations is satisfied and recognized over time, which is typically one month or less.

Judgments and Uncertainties – We estimate the variable consideration which we expect to be entitled to over the contractual period associated with our athenaOne contracts, which begins no earlier than go-live, and recognize the fees over the term. The estimate of variable consideration included in the transaction price typically involves estimating the amounts our clients will ultimately collect associated with the services they provide with the assistance of athenaNet and the relative fee we charge associated with those collections. Inputs to these estimates include, but are not limited to, historical service fees, historical collection amounts, the timing of historical collections relative to the timing of when claims are submitted by our clients to their respective payers, macro trends, and trends amongst certain types of similar clients. When reviewing our estimates, in order to ensure that our estimates do not pose a risk of significantly overstating our revenue in any reporting period, we will apply constraints, when appropriate, to certain estimates around our variable consideration. Management will perform analyses periodically to verify the accuracy of our estimates of variable consideration.

Effect if Actual Results Differ from Assumptions – Although we believe that our approach to estimates and judgments is reasonable, actual results could differ, and we may be exposed to increases or decreases in revenue that could be material. Our estimates of variable consideration may prove to be inaccurate, in which case we may have understated or overstated the revenue recognized in an accounting period. The amount of variable consideration recognized to date that remains subject to estimation is included within our contract assets line item on the condensed consolidated balance sheets.

For a more detailed discussion of our other critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 , filed with the Securities and Exchange Commission, or SEC, on February 1, 2018.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2018 and 2017

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	Three Months Ended June 30,
	2018						2017
	As Presented		Impact of New Revenue Standard		Previous Revenue Standard		Previous Revenue Standard
	(in millions)
Revenue	$	323.3	$	8.6	$	331.9	$	301.1
Cost of revenue	152.0		4.0		156.0		143.8
Selling and marketing	48.9		5.0		53.9		65.0
Income tax provision	4.3		0.1		4.2		0.6



	Six Months Ended June 30,
	2018						2017
	As Presented		Impact of New Revenue Standard		Previous Revenue Standard		Previous Revenue Standard
	(in millions)
Revenue	$	652.7	$	0.5	$	652.2	$	586.5
Cost of revenue	306.0		8.1		314.1		288.2
Selling and marketing	98.6		7.8		106.4		130.7
Income tax provision	12.7		4.1		8.6		1.9

The preceding tables provide a bridge between the results presented under the new revenue recognition standard in place for the three and six months ended June 30, 2018 to the results presented under the previous revenue recognition standard in place for the three and six months ended June 30, 2017 . Total revenue as presented for the three and six months ended June 30, 2018 varies from revenue that would have been reported under the previous revenue recognition standard for the same period, as the new standard changes the timing and recognition pattern related to our athenaOne contracts. The seasonality associated with when claims are submitted by our clients, which in part drives the timing of revenue under the new revenue standard, and when our clients receive payment on these claims, which drove the timing of revenue under the previous revenue standard, results in different patterns in our reported results of operations. As these periods are not comparable due to the different guidance utilized in each period, for fiscal year 2018 only, we will discuss our comparison of results between current and prior periods under the previous basis of accounting; refer to tables below.

As we ceased amortizing deferred implementation fees recorded under the previous revenue recognition standard, we have condensed our implementation and other line item into a single revenue line item. The following table disaggregates total revenue into the format previously presented:



	Previous Revenue Standard
	Three Months Ended June 30,				Change			Six Months Ended June 30,				Change
	2018		2017		Amount	Percent		2018		2017		Amount	Percent
	(in millions)							(in millions)
Business services	$	323.6	$	293.0	30.6	10	%	$	636.9	$	571.3	65.6	11	%
Implementation and other	8.3		8.1		0.2	2	%	15.3		15.2		0.1	1	%
Total revenue	$	331.9	$	301.1	30.8	10	%	$	652.2	$	586.5	65.7	11	%

Business services revenue growth under the previous standard for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017 was primarily driven by the growth in collections processed. The amount of collections processed was as follows:



	Three Months Ended June 30,				Change				Six Months Ended June 30,		Change
	2018		2017		Amount		Percent		2018	2017	Amount	Percent
	(in millions)								(in millions)
Collections processed	$	7,300.0	$	6,418.8	$	881.2	14	%	$14,247.6	$12,444.1	$1,803.5	14	%

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	Previous Revenue Standard
	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2018		2017		Amount		Percent		2018		2017		Amount		Percent
	(in millions)								(in millions)
Cost of revenue	$	156.0	$	143.8	$	12.2	8	%	$	314.1	$	288.2	$	25.9	9	%

Cost of Revenue. Cost of revenue increased in the three and six months ended June 30, 2018 primarily due to a $5.6 million and $9.7 million increase, respectively, associated with our business partner outsourcing and clearing house activities, as collections processed on behalf of our clients were higher compared to the three and six months ended June 30, 2017 . In addition, total compensation expense increased $2.9 million and $7.6 million in the three and six months ended June 30, 2018 , respectively, due to investments in our customer success initiatives and higher benefits, partially offset by savings achieved from a 9% and 7% average headcount decrease in employees in the three and six months ended June 30, 2018, respectively, as a result of our cost reduction initiatives.



	Previous Revenue Standard
	Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
	2018		2017		Amount			Percent		2018		2017		Amount			Percent
	(in millions)									(in millions)
Selling and marketing	$	53.9	$	65.0	$	(11.1	)	(17	)%	$	106.4	$	130.7	$	(24.3	)	(19	)%
Research and development	48.4		42.4		6.0			14	%	96.6		85.2		11.4			13	%
General and administrative	30.9		37.7		(6.8		)	(18	)%	66.3		69.1		(2.8		)	(4	)%
Total	$	133.2	$	145.1	$	(11.9	)	(8	)%	$	269.3	$	285.0	$	(15.7	)	(6	)%

Selling and Marketing Expense. Selling and marketing expense decreased for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 due to decreases of $5.6 million and $13.4 million , respectively, as a result of optimization of our spending and $4.6 million and $8.2 million , respectively, in employee compensation due to our cost reduction activities. In addition, commissions expense decreased by $1.7 million and $5.0 million , respectively, due to lower bookings in the current periods.

Research and Development Expense. Research and development expense increased for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 primarily due to continued investment in our core services, platform development, and network services.

General and Administrative Expense. General and administrative expense decreased for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017 primarily due to lower consulting and other external resource expenses of $4.7 million, respectively. The decrease in the six months ended June 30, 2018 was offset by $3.8 million in charges related to our cost reduction plan.



	Previous Revenue Standard
	Three Months Ended June 30,						Change			Six Months Ended June 30,						Change
	2018			2017			Amount		Percent	2018			2017			Amount		Percent
	(in millions)									(in millions)
Income tax provision	$	4.2		$	0.6		$	3.6	*	$	8.6		$	1.9		$	6.7	*
Effective tax rate	10.4		%	5.7		%				13.5		%	18.3		%

* Percentage not meaningful

Income Tax Provision. The difference in our income tax provision for the three and six months ended June 30, 2018 , compared to the three and six months ended June 30, 2017 , is primarily due to an increase in pre-tax net income.

Liquidity and Capital Resources

Sources of Liquidity

As of June 30, 2018 , our principal source of liquidity consisted of cash and cash equivalents of $222.1 million compared to cash and cash equivalents of $165.1 million as of December 31, 2017 . In addition, we have a credit agreement, which we refer to as the Credit Agreement, that provides for a $500.0 million senior credit facility comprised of a $300.0 million unsecured

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term loan facility and a $200.0 million unsecured revolving credit facility, which we refer to as the 2015 Senior Credit Facility. As of June 30, 2018 and December 31, 2017 , we had $264.4 million and $273.8 million outstanding on the unsecured term loan facility, respectively. As of both June 30, 2018 and December 31, 2017 , we had $200.0 million available on the unsecured revolving credit facility.

The 2015 Senior Credit Facility may be used to refinance existing indebtedness, for working capital and other general corporate purposes. We may increase the revolving credit facility up to an additional $100.0 million and may increase the term loan facility to the extent that such amount will not cause us to be in breach of our financial covenants (such as compliance with consolidated fixed charge coverage, consolidated leverage, and consolidated senior leverage ratios), subject to certain conditions, including obtaining lender commitments. The 2015 Senior Credit Facility matures on May 5, 2020, although we may prepay the 2015 Senior Credit Facility in whole or in part at any time without premium or penalty. During the three months ended March 31, 2018, we amended our 2015 Senior Credit Facility to give effect to certain accounting changes we adopted as of January 1, 2018 and will adopt as of January 1, 2019. As of June 30, 2018 , we were in compliance with our covenants under the 2015 Credit Agreement.

Our cash balance increased in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to our cost savings program associated with the implementation of our cost reduction plan announced in late 2017. We believe our current sources of liquidity will be sufficient to sustain operations, to make payments on our contractual obligations, and to purchase property and equipment in the foreseeable future. Our 2015 Senior Credit Facility, including our currently unutilized $200.0 million line of credit, provides us additional flexibility to pursue strategic initiatives in the future, if needed. Our analysis is supported by the growth in our new client base and a high rate of renewal with our existing clients, as well as the corresponding increase in billings and collections. However, there can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under these credit facilities or obtain additional financing.

Commitments

We enter into various purchase commitments with vendors in the normal course of business. We believe that our existing sources of liquidity will be adequate to fund these purchases during the 2018 fiscal year. In the normal course of business, we make representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees.

Operating Cash Flow Activities



	Six Months Ended June 30,
	2018			2017			Change
	(in millions)
Net income	$	67.5		$	8.5		$	59.0
Non-cash adjustments	117.2			104.2			13.0
Net income after non-cash adjustments are added back	184.7			112.7			72.0
Cash used in changes in operating assets and liabilities	(36.7		)	(38.9		)	2.2
Net cash provided by operating activities	$	148.0		$	73.8		$	74.2

Net cash provided by operating activities increased $74.2 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to an increase in net income excluding the effect of non-cash items. The increase in net income is a result of continued revenue growth and the continued execution on our plans to reduce expenses and operate more efficiently in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 .

Investing Cash Flow Activities

Net cash used in investing activities decreased $56.2 million during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to a $30.7 million decrease in payments on acquisitions. Additional decreases during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 were due to a $26.2 million decrease in purchases of property and equipment, primarily related to a decrease in spend associated with our corporate headquarters. We expect to continue to invest in capitalized software costs and property and equipment as we continue to develop new and enhance existing services.

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Financing Cash Flow Activities

Net cash used in financing activities decreased $4.0 million for the six months ended June 30, 2018 , compared to the six months ended June 30, 2017 , primarily due to an additional $1.8 million in principal payments on our 2015 Senior Credit Facility during the six months ended June 30, 2017 .

For the foreseeable future, we anticipate that income taxes paid for the net settlement of restricted stock unit awards will be greater than the cash received for stock option exercises primarily due to the increase in the issuance of restricted stock units compared to stock options.

Contractual Obligations

In connection with the review of strategic alternatives, as described in Note 1 to the condensed consolidated financial statements, the Company is working with certain advisors. The expected arrangements with those advisors will include provisions that could result in the Company owing amounts to the extent a transaction is or is not completed and the amounts are not currently known or estimable.

Off-Balance Sheet Arrangements

As of June 30, 2018 and December 31, 2017 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases, which are primarily for office space and data centers, we do not engage in off-balance sheet financing arrangements. Upon adoption of the new lease accounting standard on January 1, 2019, we anticipate that the requirement to capitalize all long-term leases will result in a material impact to our condensed consolidated balance sheet.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk. Our results of operations and cash flows are subject to fluctuations due to changes in the Indian rupee. An insignificant amount of our consolidated revenues is generated outside of the United States. Some of our contracts with offshore vendors are denominated in currencies other than the U.S. dollar, namely Indian rupees. For the three and six months ended June 30, 2018 , approximately 3% of our expenses occurred in our direct subsidiary in India. For the three and six months ended June 30, 2017 , approximately 2% of our expenses occurred in our direct subsidiary in India. We therefore do not believe that the risk of a significant impact on our operating income from foreign currency fluctuations is likely.

Interest Rate Risk. We had $264.4 million and $273.8 million of outstanding borrowings under our 2015 Senior Credit Facility as of June 30, 2018 and December 31, 2017 , respectively. The 2015 Senior Credit Facility bears interest at the British Bankers Association London Interbank Offered Rate, or LIBOR, plus an interest margin based on (i) our consolidated leverage ratio, or (ii) the base rate (which is the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% , and (c) one month LIBOR plus 1.00% ) plus an interest margin based on our consolidated leverage ratio. Accordingly, we are exposed to fluctuations in interest rates on borrowings under the 2015 Senior Credit Facility. A one hundred basis point change in the interest rate on our borrowings outstanding as of June 30, 2018 and June 30, 2017 would result in an annual change in interest expense of $2.6 million and $2.8 million , respectively.

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Item 4.	Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of June 30, 2018 (the “Evaluation Date”), our management, with the participation of our Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our Principal Executive Officer and Chief Financial Officer has concluded based upon the evaluation described above that, as of the Evaluation Date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control

There have been no changes in our internal controls over financial reporting for the three months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION



Item 1.	Legal Proceedings

From time to time we may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. We do not, however, currently expect that the ultimate costs to resolve any pending matter will have a material effect on our consolidated financial position, results of operations, or cash flows.



Item 1A.	Risk Factors

For information regarding factors that could impact our business, results of operations and financial condition, see the risk factors that were disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017 . The following risk factor updates the risk factors disclosed in the Company's 2017 Annual Report on Form 10-K.

We are exploring strategic alternatives, but there can be no assurance that we will be successful in identifying or consummating any strategic alternatives, that strategic alternatives will yield additional value for stockholders, or that exploration of strategic alternatives will not adversely impact the Company.

On June 6, 2018, we announced that our Board of Directors had initiated a process to explore strategic alternatives which could result in, among other things, a sale, merger or other transaction involving the Company as well as continuing as an independent company. There can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction or any other particular outcome. Speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

The exploration of strategic alternatives could result in the diversion of management’s attention from our existing business; failure to achieve financial or operating objectives; incurrence of significant transaction expenses; failure to retain, attract or strengthen our relationships with key personnel, vendors or customers; and exposure to potential litigation in connection with this process and effecting any transaction or strategic alternative. If we are unable to mitigate these or other potential risks related to the uncertainty caused by our exploration of strategic alternatives, it may disrupt our business or could have a material adverse effect on our business, financial condition or results of operations.

There can be no assurance that any potential transaction or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in the current stock price. Further, our Board of Directors may determine to suspend or terminate the exploration of strategic alternatives at any time due to various factors. Any potential transaction or other outcome of this process is also dependent upon a number of factors that may be beyond our control, including among other factors, market conditions, industry trends, regulatory limitations and the interest of third parties in our business.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

None.



Item 3.	Defaults Upon Senior Securities

None.



Item 4.	Mine Safety Disclosures

Not applicable.



Item 5.	Other Information

None.

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Item 6.	Exhibits



Exhibit No.		Exhibit Description

10.1 *		2007 Employee Stock Purchase Plan, as amended and restated

10.2 *		Form of Retention Bonus Award Agreement

31.1*		Rule 13a-14(a) or 15d-14 Certification of Principal Executive Officer and Chief Financial Officer

32.1*^		Certifications of Principal Executive Officer and Chief Financial Officer pursuant to Exchange Act rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350

101*		XBRL (eXtensible Business Reporting Language). The following materials from athenahealth, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL:
		(i) the Condensed Consolidated Statements of Income and Comprehensive Income
		(ii) the Condensed Consolidated Balance Sheets
		(iii) the Condensed Consolidated Statements of Cash Flows
		(iv) the Notes to Condensed Consolidated Financial Statements



*	Filed or furnished herewith.
^	This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




ATHENAHEALTH, INC.

By:		/s/ Marc A. Levine
		Marc A. Levine
		Principal Executive Officer & Chief Financial Officer

Date: July 30, 2018

Exhibit 10.1

ATHENAHEALTH, INC.

2007 EMPLOYEE STOCK PURCHASE PLAN AS AMENDED & RESTATED

The purpose of the 2007 Employee Stock Purchase Plan (“the Plan”) is to provide eligible employees of athenahealth, Inc. (the “Company”) and each Designated Subsidiary (as defined in Section 11) with opportunities to purchase shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). 500,000 shares of Common Stock in the aggregate have been approved and reserved for this purpose, subject to adjustment as set forth in Section 17 below. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted in accordance with that intent.

1. Administration . The Plan will be administered by the person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose. The Administrator has authority at any time to: (i) adopt, alter and repeal such rules, guidelines and practices for the administration of the Plan and for its own acts and proceedings as it shall deem advisable; (ii) interpret the terms and provisions of the Plan; (iii) make all determinations it deems advisable for the administration of the Plan; (iv) decide all disputes arising in connection with the Plan; and (v) otherwise supervise the administration of the Plan. All interpretations and decisions of the Administrator shall be binding on all persons, including the Company and the Participants. No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.

2. Offerings . The Company will make one or more offerings to eligible employees to purchase Common Stock under the Plan (“Offerings”). Unless otherwise determined by the Administrator, the initial Offering will begin on March 1, 2008 and will end on the following August 31, 2008 (the “Initial Offering”). Thereafter, unless otherwise determined by the Administrator, an Offering will begin on the first business day occurring on or after each April 1 and October 1 and will end on the

last business day occurring on or before the following September 30 and March 31, respectively. The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed six months in duration or overlap any other Offering.

3. Eligibility . All individuals classified as employees on the payroll records of the Company and each Designated Subsidiary are eligible to participate in any one or more of the Offerings under the Plan, provided that as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Subsidiary for more than 20 hours a week. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary for purposes of the Company’s or applicable Designated Subsidiary’s payroll system are not considered to be eligible employees of the Company or any Designated Subsidiary and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as employees of the Company or a Designated Subsidiary for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation. Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary on the Company’s or Designated Subsidiary’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.

4. Participation .

(a) An eligible employee who is not a Participant on any Offering Date may participate in such Offering by enrolling electronically through the Company’s equity administration system within the specified deadline as established by the Company’s management before the Offering Date (or by such other deadline as shall be established by the Administrator for the Offering).

(b) The enrollment form will (a) state a whole percentage to be deducted from an eligible employee’s Compensation (as defined in Section 11) per pay period, (b) authorize the purchase of Common Stock in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which shares of Common Stock purchased for such individual are to be issued pursuant to Section 10. An employee who does not enroll in accordance with these procedures will be deemed to have waived the right to participate. Unless a Participant files a new enrollment form or withdraws from the Plan, such Participant’s deductions and purchases will continue at the same percentage of Compensation for future Offerings, provided he or she remains eligible.

(c) Notwithstanding the foregoing, participation in the Plan will neither be permitted nor be denied contrary to the requirements of the Code.

5. Employee Contributions . Each eligible employee may authorize payroll deductions at a minimum of 1 percent up to a maximum of 10 percent of such employee’s Compensation for each pay period. The Company will maintain book accounts showing the amount of payroll deductions made by each Participant for each Offering. No interest will accrue or be paid on payroll deductions.

6. Deduction Changes . Except as may be determined by the Administrator in advance of an Offering, a Participant may not increase or decrease his or her payroll deduction during any Offering, but may increase or decrease his or her payroll deduction with respect to the next Offering (subject to the limitations of Section 5) by filing a new enrollment form at least 15 business days before the next Offering Date (or by such other deadline as shall be established by the Administrator for the Offering). The Administrator may, in advance of any Offering, establish rules permitting a Participant to increase, decrease or terminate his or her payroll deduction during an Offering.

7. Withdrawal . A Participant may withdraw from participation in the Plan, up to 30 days before the end of the Offering, by withdrawing electronically through the Company’s equity administration system. The Participant’s withdrawal will be effective as of the next business day. Following a Participant’s withdrawal, the Company will promptly refund such individual’s entire account

balance under the Plan to him or her at the next regularly scheduled Company pay period (after payment for any Common Stock purchased before the effective date of withdrawal). Partial withdrawals are not permitted. Such an employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4.

8. Grant of Options . On each Offering Date, the Company will grant to each eligible employee who is then a Participant in the Plan an option (“Option”) to purchase on the last day of such Offering (the “Exercise Date”), at the Option Price hereinafter provided for, (a) a number of shares of Common Stock determined by dividing such Participant’s accumulated payroll deductions on such Exercise Date by the lesser of 85 percent of the Fair Market Value of the Common Stock on (i) the first day of the Offering or (ii) the Exercise Date, or (b) such other lesser maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth below. Each Participant’s Option shall be exercisable only to the extent of such Participant’s accumulated payroll deductions on the Exercise Date. The purchase price for each share purchased under each Option (the “Option Price”) will be the lesser of 85 percent of the Fair Market Value of the Common Stock on the first day of the Offering or on the Exercise Date.

Notwithstanding the foregoing, no Participant may be granted an option hereunder if such Participant, immediately after the option was granted, would be treated as owning stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary (as defined in Section 11). For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of a Participant, and all stock which the Participant has a contractual right to purchase shall be treated as stock owned by the Participant. In addition, no Participant may be granted an Option which permits his or her rights to purchase stock under the Plan, and any other employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such

stock (determined on the option grant date or dates) for each calendar year in which the Option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted. The maximum number of shares that may be purchased by any Participant is 12,500 shares in any Offering, and no Participant may make a payroll deduction of more than $12,500 in any Offering.

9. Exercise of Option and Purchase of Shares . Each employee who continues to be a Participant in the Plan on the Exercise Date shall be deemed to have exercised his or her Option on such date and shall acquire from the Company such number of whole shares of Common Stock reserved for the purpose of the Plan as his or her accumulated payroll deductions on such date will purchase at the Option Price, subject to any other limitations contained in the Plan. Any amount remaining in a Participant’s account at the end of an Offering solely by reason of the inability to purchase a fractional share will be carried forward to the next Offering; any other balance remaining in a Participant’s account at the end of an Offering will be refunded to the Participant promptly.

10. Issuance of Certificates; Limitation on Sale . Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, her or their, nominee for such purpose. Unless the Administrator provides otherwise, a Participant may not sell, exchange, assign, encumber, alienate, transfer, pledge or otherwise dispose of any shares of Common Stock acquired on the Exercise Date at the end of an Offering until the one-year anniversary of such Exercise Date, and the Certificates representing shares of Common Stock purchased under the Plan may bear a legend to that effect.

11. Definitions .

The term “Compensation” means the amount of base pay, prior to salary reduction pursuant to Sections 125, 132(f) or 401(k) of the Code, including overtime, commissions, incentive or bonus awards,

but excluding allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains on the exercise of Company stock options, and similar items.

The term “Designated Subsidiary” means any present or future Subsidiary (as defined below) that has been designated by the Board to participate in the Plan. The Board may so designate any Subsidiary, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders.

The term “Fair Market Value of the Common Stock” on any given date means the fair market value of the Common Stock determined in good faith by the Administrator; provided , however , that if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Select Market or another national securities exchange, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations.

The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.

The term “Participant” means an individual who is eligible as determined in Section 3 and who has complied with the provisions of Section 4.

The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.

12. Rights on Termination of Employment . If a Participant’s employment terminates for any reason before the Exercise Date for any Offering, no payroll deduction will be taken from any pay due and owing to the Participant and the balance in the Participant’s account will be paid to such Participant or, in the case of such Participant’s death, to his or her designated beneficiary as if such Participant had withdrawn from the Plan under Section 7. An employee will be deemed to have terminated employment, for this purpose, if the corporation that employs him or her, having been a Designated Subsidiary, ceases

to be a Subsidiary, or if the employee is transferred to any corporation other than the Company or a Designated Subsidiary. An employee will not be deemed to have terminated employment for this purpose, if the employee is on an approved leave of absence for military service or sickness or for any other approved leave or any other purpose approved by the Company, if the employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise provides in writing.

13. Special Rules . Notwithstanding anything herein to the contrary, the Administrator may adopt special rules applicable to the employees of a particular Designated Subsidiary, whenever the Administrator determines that such rules are necessary or appropriate for the implementation of the Plan in a jurisdiction where such Designated Subsidiary has employees; provided that such rules are consistent with the requirements of Section 423(b) of the Code. Such special rules may include (by way of example, but not by way of limitation) the establishment of a method for employees of a given Designated Subsidiary to fund the purchase of shares other than by payroll deduction, if the payroll deduction method is prohibited by local law or is otherwise impracticable. Any special rules established pursuant to this Section 13 shall, to the extent possible, result in the employees subject to such rules having substantially the same rights as other Participants in the Plan.

14. Optionees Not Stockholders . Neither the granting of an Option to a Participant nor the deductions from his or her pay shall constitute such Participant a holder of the shares of Common Stock covered by an Option under the Plan until such shares have been purchased by and issued to him or her.

15. Rights Not Transferable . Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during the Participant’s lifetime only by the Participant.

16. Application of Funds . All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose.

17. Adjustment in Case of Changes Affecting Common Stock . In the event of a subdivision of outstanding shares of Common Stock, the payment of a dividend in Common Stock or any other change affecting the Common Stock, the number of shares approved for the Plan and the share limitation set forth in Section 8 shall be equitably or proportionately adjusted to give proper effect to such event.

18. Amendment of the Plan . The Board may at any time and from time to time amend the Plan in any respect, except that without the approval within 12 months of such Board action by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.

19. Insufficient Shares . If the total number of shares of Common Stock that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Common Stock on such Exercise Date.

20. Termination of the Plan . The Plan may be terminated at any time by the Board. Upon termination of the Plan, all amounts in the accounts of Participants shall be promptly refunded.

21. Governmental Regulations . The Company’s obligation to sell and deliver Common Stock under the Plan is subject to obtaining all governmental approvals required in connection with the authorization, issuance, or sale of such stock.

22. Governing Law . This Plan and all Options and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of

law principles that would result in the application of any law other than the law of the State of the Commonwealth of Massachusetts.

23. Issuance of Shares . Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.

24. Tax Withholding . Participation in the Plan is subject to any minimum required tax withholding on income of the Participant in connection with the Plan. Each Participant agrees, by entering the Plan, that the Company and its Subsidiaries shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant, including shares issuable under the Plan.

25. Notification Upon Sale of Shares . Each Participant agrees, by entering the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased.

26. Effective Date and Approval of Shareholders . The Plan shall take effect on the later of the date it is adopted by the Board and the date it is approved by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present or by written consent of the stockholders.

Exhibit 10.2

Retention Bonus Agreement

This Retention Bonus Agreement (this “ Agreement ”) is entered into and effective as of DATE ( the “ Effective Date ”), by and between athenahealth, Inc. (together with its affiliates, the “ Company ”), and NAME (“ you ”).

In consideration of the mutual promises and consideration set forth herein, the parties agree as follows:

1. At-Will Employment . This Agreement is not intended to and does not alter the at-will nature of your employment with the Company or create a contract of employment for any particular term. You acknowledge and agree that the employment relationship that exists between you and the Company remains at-will. Nothing contained in this Agreement affects any right of the Company or you to terminate your employment at any time, nor creates any rights to continued employment on your part.

2. Retention Bonus . If you remain in continuous employment in good standing and meeting all performance expectations in your current role on the Company’s DIVISION team through December 31, 2018 (the “ Retention Date ”), then the Company will pay you a retention bonus in the amount of AMOUNT CURRENCY (less payroll taxes and other applicable withholdings and deductions) (the “ Retention Bonus ”). If your employment with the Company ends prior to the Retention Date due to your voluntary resignation or due to your termination by the Company for Cause (as defined below), then you will not be eligible to receive the Retention Bonus.

3. Payment of Retention Bonus . The Company will pay the Retention Bonus to you in a single lump within 30 days following the Retention Date, provided you become eligible to receive it as described in Section 2 of this Agreement.

4. Effect on Other Benefits . The payment of the Retention Bonus will not alter the amount of any regular wage payments or benefits you are entitled to receive in connection with your employment with the Company. For purpose of clarification, and without limiting the preceding sentence, the Retention Bonus shall not be considered in the computation of your “base salary” for any purposes or for any benefits to which you may otherwise be entitled. For the avoidance of doubt, the Retention Bonus shall not be considered “eligible earnings” for purposes of calculating any annual bonus payment for which you may be eligible.

5. Definition . For purposes of this Agreement, “ Cause ” is defined as any of the following conduct by you, as determined by the Company in its reasonable discretion: (i) misconduct; (ii) failure to perform your assigned duties or responsibilities or negligence in the performance of those duties or responsibilities; (iii) failure to meet performance expectations; (iv) behavior that you know or should know could materially harm the business or reputation of the Company; (v) breach of your most recent employment agreement with the Company (the “ Employment Agreement ”), this Agreement, or any other agreement between you and the Company; (vi) violation of any statutory, contractual, or common law duty or obligation owed by you to the Company (including, without limitation, the duty of loyalty); or (vii) conviction of, or plea of guilty or nolo contendere to, any felony, or of any misdemeanor involving moral turpitude or fraud, theft, or misrepresentation.

6. Confidentiality . You agree that this Agreement is confidential and that you will not discuss the fact that it exists or its terms with anyone else except your immediate family members, legal or tax advisors, or as required by law, and provided that the individuals to whom disclosure is made under this paragraph agree to maintain the confidential nature of this Agreement. You recognize that any breach of this confidentiality provision would be a material breach of this Agreement of a sort that would cause the Company

Exhibit 10.2

irreparable injury in an amount not readily quantifiable as damages, and the Company retains the right to seek legal or equitable relief as a result of the breach.

7. Entire Agreement . This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter hereof. This Agreement may not be modified or amended or any terms or provisions waived or discharged except in a written addendum signed by you and the Company. This Agreement supersedes and replaces any prior agreement between the Company and you relating to the subject matter hereof. For the avoidance of doubt, this Agreement does not supersede or replace the Employment Agreement.

8. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

9. Governing Law . This document is governed in accordance with the laws of the Commonwealth of Massachusetts, and the parties agree to the exclusive jurisdiction of the state and federal courts of the Commonwealth of Massachusetts in connection with any dispute arising under or relating to this Agreement. Any dispute arising under this Agreement shall be handled in accordance with the dispute resolution procedures in the Employment Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date stated above.



NAME Date:	athenahealth, Inc. By: Name: Title:

EXHIBIT 31.1

Certification

I, Marc A. Levine, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of athenahealth, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date:	July 30, 2018	/s/ Marc A. Levine
		Principal Executive Officer & Chief Financial Officer

EXHIBIT 32.1

The following certification is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). This certification is not to be deemed a part of the Report, nor is it deemed to be “filed” for any purpose whatsoever.

In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby certifies, to our knowledge, that:

(i) this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 , which this statement accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(ii) the information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 , fairly presents, in all material respects, the financial condition and results of operations of athenahealth, Inc.

Dated as of this 30th day of July 2018

/s/ Marc A. Levine

Marc A. Levine

Principal Executive Officer & Chief Financial Officer