Athenahealth Cutting Workforce by 9% After Posting a Decline in Profits
Mass Athenahealth layoffs were announced in a major workforce reduction initiative the same day as the IT healthcare company disappointed Wall Street with its third-quarter earnings report.
The Watertown, Massachusetts-based healthcare company, which provides technology-based administrative solutions to hospitals, reported its third-quarter earnings on Thursday, followed by an announcement that it was reducing its workforce by nine percent.
According to the company’s website, Athenahealth employs a total workforce of about 5,528 employees. A nine-percent workforce reduction implies that about 500 jobs are being affected in the cost-cutting move.
The restructuring initiative was revealed after the company reported dismal earnings, which left its investors disgruntled. The company’s stock nosedived after the earnings release and continued to plummet in after-hours trading on Thursday.
Athenahealth reported a five-percent drop in operating income and a 6.5% drop in net income in the third quarter. The company said that the job cuts will help the company save between $100.0 million and $115.0 million in costs, which will ultimately be served to improve its slipping bottom line.
Athenahealth CEO Jonathan Bush justified the move saying, “We are changing the way we work to become a more nimble and efficient organization.”
The drastic cuts have been announced after the activist hedge fund, Elliott Management Corporation—which holds a significant stake in the company—pushed management to undertake serious cost-saving measures.
Mounting Revenue Pressures Cause Athenahealth Layoffs
Athenahealth not only posted a dip in earnings in the third quarter, it also warned of further drops in the upcoming quarters. The company put part of the blame of worse-than-expected earnings on the two recent Hurricanes—Harvey and Irma—which caused a loss of about $4.0 million in revenue in the current year.
Athenahealth is a unique company in that it is not directly engaged in providing healthcare but instead provides IT-based services to other healthcare providers. So its revenue generation relies on the revenue of its clients—that is, the hospitals. But with hospitals facing shrinking revenues due to federal funding cutbacks, Athenahealth is likewise feeling pressured. Demand for its software products is dwindling as hospitals cut back their spending.
We saw another healthcare IT company Outcome Health, which resembles Athenahealth in its nature of business, cutting jobs earlier this month.
Athenahealth management, however, remains hopeful of a turnaround, despite cutting their guidance for the next quarter. The latest Athenahealth layoffs will cause the company to bear about $15.0 million to $25.0 million in employee exit costs, mostly in the fourth quarter.
“Athenahealth Reports Third Quarter Fiscal Year 2017 Results,” Athenahealth, October 19, 2017.
“Healthcare software provider Athenahealth to cut 9 pct of workforce,” Yahoo! Finance, October 19, 2017.