Delaware | 001-33689 | 04-3387530 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
311 Arsenal Street, Watertown, MA | 02472 | |||
(Address of principal executive offices) | (Zip Code) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Description | |
2.1 | Purchase and Sale Agreement, dated as of December 5, 2012, by and among, athenahealth, Inc. and President and Fellows of Harvard College (incorporated by reference to Exhibit 10.29 of athenahealth, Inc.'s Annual Report on Form 10-K, filed with the Commission on February 11, 2013). | |
10.1 | First Amendment to Purchase and Sale Agreement by and between athenahealth, Inc. and President and Fellows of Harvard College, dated March 12, 2013 (incorporated by reference to Exhibit 10.1 of athenahealth, Inc.'s Current report on Form 8-K, filed with the Commission on March 18, 2013). | |
23.1 | Consent of PricewaterhouseCoopers LLP. | |
99.1 | Audited Statement of Revenue and Certain Expenses of the Property for the year ended December 31, 2012, and notes thereto. | |
99.2 | Unaudited Statement of Revenue and Certain Expenses of the Property for the three months ended March 31, 2013, and notes thereto. | |
99.3 | Unaudited Pro Forma Condensed Combined Financial Information for the year ended December 31, 2012, and the three months ended March 31, 2013, and notes thereto. |
athenahealth, Inc. | ||
(Registrant) | ||
July 26, 2013 | /s/ DANIEL H. ORENSTEIN | |
Daniel H. Orenstein | ||
SVP, General Counsel, and Secretary |
Exhibit No. | Description | |
2.1 | Purchase and Sale Agreement, dated as of December 5, 2012, by and among, athenahealth, Inc. and President and Fellows of Harvard College (incorporated by reference to Exhibit 10.29 of athenahealth, Inc.'s Annual Report on Form 10-K, filed with the Commission on February 11, 2013). | |
10.1 | First Amendment to Purchase and Sale Agreement by and between athenahealth, Inc. and President and Fellows of Harvard College, dated March 12, 2013 (incorporated by reference to Exhibit 10.1 of athenahealth, Inc.'s Current report on Form 8-K, filed with the Commission on March 18, 2013). | |
23.1 | Consent of PricewaterhouseCoopers LLP. | |
99.1 | Audited Statement of Revenue and Certain Expenses of the Property for the year ended December 31, 2012, and notes thereto. | |
99.2 | Unaudited Statement of Revenue and Certain Expenses of the Property for the three months ended March 31, 2013, and notes thereto. | |
99.3 | Unaudited Pro Forma Condensed Combined Financial Information for the year ended December 31, 2012, and the three months ended March 31, 2013, and notes thereto. |
2012 | |||||
Revenue | |||||
Rental income | $ | 18,594,054 | |||
Tenant recoveries | 1,877,421 | ||||
Total revenue | $ | 20,471,475 | |||
Certain Expenses | |||||
Cost of rental operations | $ | 6,489,415 | |||
Real estate taxes and payment in lieu of taxes (Note 7) | 5,183,487 | ||||
Total certain expenses | $ | 11,672,902 | |||
Revenue in excess of certain expenses | $ | 8,798,573 | |||
For the three months ended March 31, 2013 (unaudited) | |||||
Revenue | |||||
Rental income | $ | 4,737,938 | |||
Tenant recoveries | 541,883 | ||||
Total revenue | $ | 5,279,821 | |||
Certain Expenses | |||||
Cost of rental operations | $ | 1,570,574 | |||
Real estate taxes and payment in lieu of taxes (Note 7) | 1,315,022 | ||||
Total certain expenses | $ | 2,885,596 | |||
Revenue in excess of certain expenses | $ | 2,394,225 | |||
1. | Organization |
2. | Summary of Significant Accounting Policies Basis of Presentation |
• | Depreciation and amortization |
• | Interest income and expense |
• | Asset management fee paid to University |
3. | Description of Leasing Arrangements |
2013 | $ | 13,487,419 | |
2014 | 18,364,124 | ||
2015 | 15,101,089 | ||
2016 | 10,442,401 | ||
2017 | 9,495,578 | ||
2018 and thereafter | 22,715,892 |
4. | Transactions with athenahealth, Inc. |
5. | Concentration of Risk |
6. | Commitments and Contingencies |
2013 | $ | 81,750 | |
2014 | 111,000 | ||
2015 | 114,000 | ||
2016 | 117,000 | ||
2017 | 120,000 | ||
2018 and thereafter | 2,567,000 |
7. | Real Estate Taxes and Payments in Lieu of Taxes |
8. | Related Party Transactions |
9. | Subsequent Events |
Historical | |||||||||||||||||||||||||
Year Ended December 31, 2012 | |||||||||||||||||||||||||
athenahealth | Arsenal on the Charles | Epocrates | Adjustments Arsenal | Adjustments Epocrates | Pro Forma combined | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||
Business services | $ | 408,496 | $ | — | $ | 111,129 | $ | — | $ | (11,494 | ) | (F) | $ | 508,131 | |||||||||||
Implementation and other | 13,775 | 20,471 | — | (4,833 | ) | (A) | — | 29,413 | |||||||||||||||||
Total revenue | 422,271 | 20,471 | 111,129 | (4,833 | ) | (11,494 | ) | 537,544 | |||||||||||||||||
Expense: | |||||||||||||||||||||||||
Direct operating | 166,886 | 6,489 | 43,689 | 6,133 | (B) | 5,822 | (G) (H) (I) | 229,019 | |||||||||||||||||
Selling and marketing | 104,300 | — | 27,895 | — | 642 | (G) (H) | 132,837 | ||||||||||||||||||
Research and development | 33,792 | — | 20,698 | — | 10 | (G) (H) | 54,500 | ||||||||||||||||||
General and administrative | 57,025 | 5,183 | 18,949 | (5,554 | ) | (A) (M) | 2,624 | (G) (H) (L) | 78,227 | ||||||||||||||||
Depreciation and amortization | 25,641 | — | — | 3,234 | (C) | 1,813 | (H) | 30,688 | |||||||||||||||||
Total expense | 387,644 | 11,672 | 111,231 | 3,813 | 10,911 | 525,271 | |||||||||||||||||||
Operating income (loss) | 34,627 | 8,799 | (102 | ) | (8,646 | ) | (22,405 | ) | 12,273 | ||||||||||||||||
Other income (expense) | 251 | — | 48 | (3,945 | ) | (D) | (1,247 | ) | (J) | (4,893 | ) | ||||||||||||||
Income (loss) before income tax (provision) benefit | 34,878 | 8,799 | (54 | ) | (12,591 | ) | (23,652 | ) | 7,380 | ||||||||||||||||
Income tax (provision) benefit | (16,146 | ) | — | (1,699 | ) | 1,611 | (E) | 9,772 | (K) | (6,462 | ) | ||||||||||||||
Net income (loss) | $ | 18,732 | $ | 8,799 | $ | (1,753 | ) | $ | (10,980 | ) | $ | (13,880 | ) | $ | 918 | ||||||||||
Net income (loss) per share - Basic | $ | 0.52 | $ | 0.03 | |||||||||||||||||||||
Net income (loss) per share - Diluted | $ | 0.50 | $ | 0.02 | |||||||||||||||||||||
Weighted average shares used in computing net income (loss) per share: | |||||||||||||||||||||||||
Basic | 35,956 | 35,956 | |||||||||||||||||||||||
Diluted | 37,133 | 37,133 |
Historical (unaudited) | |||||||||||||||||||||||||
Three months ended March 31, 2013 | January 1 through March 11, 2013 | ||||||||||||||||||||||||
athenahealth, Inc. | Arsenal on the Charles | Epocrates, Inc. | Adjustments Arsenal | Adjustments Epocrates | Pro Forma combined | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||||
Business services | $ | 121,463 | $ | — | $ | 17,044 | $ | — | $ | (1,715 | ) | (F) | $ | 136,792 | |||||||||||
Implementation and other | 4,133 | 5,280 | (1,622 | ) | (A) | — | 7,791 | ||||||||||||||||||
Total revenue | 125,596 | 5,280 | 17,044 | (1,622 | ) | (1,715 | ) | 144,583 | |||||||||||||||||
Expense: | |||||||||||||||||||||||||
Direct operating | 53,185 | 1,571 | 8,750 | 1,533 | (B) | 2,937 | (G) (H) (I) | 67,976 | |||||||||||||||||
Selling and marketing | 32,922 | — | 4,952 | — | (124 | ) | (G) (H) | 37,750 | |||||||||||||||||
Research and development | 11,944 | — | 4,041 | — | (43 | ) | (G) (H) | 15,942 | |||||||||||||||||
General and administrative | 31,077 | 1,315 | 10,691 | (2,614 | ) | (A) (M) | (7,248 | ) | (G) (H) (L) | 33,221 | |||||||||||||||
Depreciation and amortization | 8,341 | — | — | 809 | (C) | 355 | (H) | 9,505 | |||||||||||||||||
Total expense | 137,469 | 2,886 | 28,434 | (272 | ) | (4,123 | ) | 164,394 | |||||||||||||||||
Operating income (loss) | (11,873 | ) | 2,394 | (11,390 | ) | (1,350 | ) | 2,408 | (19,811 | ) | |||||||||||||||
Other income (expense) | (110 | ) | — | 9 | (973 | ) | (D) | (254 | ) | (J) | (1,328 | ) | |||||||||||||
Income (loss) before income tax (provision) benefit | (11,983 | ) | 2,394 | (11,381 | ) | (2,323 | ) | 2,154 | (21,139 | ) | |||||||||||||||
Income tax (provision) benefit | 12,683 | — | 4,002 | 368 | (E) | 2,318 | (K) | 19,371 | |||||||||||||||||
Net income (loss) | $ | 700 | $ | 2,394 | $ | (7,379 | ) | $ | (1,955 | ) | $ | 4,472 | $ | (1,768 | ) | ||||||||||
Net income (loss) per share - Basic | $ | 0.02 | $ | (0.05 | ) | ||||||||||||||||||||
Net income (loss) per share - Diluted | $ | 0.02 | $ | (0.05 | ) | ||||||||||||||||||||
Weighted average shares used in computing net income (loss) per share: | |||||||||||||||||||||||||
Basic | 36,409 | 36,409 | |||||||||||||||||||||||
Diluted | 37,744 | 36,409 |
Prepaid expenses and other current assets | $ | 685 | |
Property, equipment and buildings | 144,071 | ||
Purchased intangible assets | 25,545 | ||
Accrued expenses | (271 | ) | |
Deferred revenue | (789 | ) | |
Other long-term liabilities | (1,916 | ) | |
Total identifiable net assets | $ | 167,325 |
Fair value | Useful Life | ||||
Above market leases | $ | 3,298 | 5.2 years | ||
Leases in place | 22,247 | 5.5 years | |||
Total intangible assets subject to amortization | $ | 25,545 | 5.5 years |
Year ending December 31, | Amount | ||||
Remaining 2013 | $ | 3,940 | |||
2014 | 5,718 | ||||
2015 | 3,672 | ||||
2016 | 2,510 | ||||
2017 | 2,277 | ||||
Thereafter | 7,428 | ||||
Total | $ | 25,545 |
Fair value of consideration transferred | |||
Cash payments | $ | 294,632 | |
Fair value of vested stock options and restricted stock units assumed | 13,028 | ||
Fair value of total consideration | 307,660 | ||
Less cash acquired | (51,796 | ) | |
Less short-term investments acquired | (18,250 | ) | |
Total | $ | 237,614 |
Accounts receivable | $ | 23,144 | |
Other current and long-term assets | 3,833 | ||
Property, equipment and capitalized software costs | 4,168 | ||
Purchased intangible assets | 139,900 | ||
Current liabilities | (11,054 | ) | |
Deferred tax liabilities, net | (39,811 | ) | |
Deferred revenue | (29,400 | ) | |
Other long-term liabilities | (1,259 | ) | |
Total identifiable net assets | $ | 89,521 | |
Goodwill | 148,093 | ||
$ | 237,614 |
Fair Value | Useful Life | ||||
Doctor network | $ | 104,500 | 14 years | ||
Drug information content | 10,000 | 5 years | |||
Trade name | 11,500 | 10 years | |||
Customer backlog | 2,900 | 1.5 years | |||
Non-compete agreement | 4,500 | 1.5 years | |||
Developed technology | 6,500 | 3 years | |||
Total intangible assets subject to amortization | $ | 139,900 |
Year ending December 31, | Amount | ||||
Remaining 2013 | $ | 8,923 | |||
2014 | 17,908 | ||||
2015 | 15,413 | ||||
2016 | 13,674 | ||||
2017 | 13,191 | ||||
Thereafter | 70,791 | ||||
Total | $ | 139,900 |
(A) | To reverse rental income to the Property from athenahealth of $4.8 million and $1.6 million for the year ended December 31, 2012, and the three months ended March 31, 2013, respectively. Additionally to reverse rent expense incurred to athenahealth of $4.8 million and $1.6 million for the year ended December 31, 2012, and the three months ended March 31, 2013, respectively. | |
(B) | To reflect the estimated amortization of acquired intangible assets of $6.1 million and $1.5 million for the year ended December 31, 2012, and the three months ended March 31, 2013. |
(C) | To reflect the estimated depreciation of acquired tangible assets of $3.2 million and $0.8 million for the year ended December 31, 2012, and the three months ended March 31, 2013. | |
(D) | To record the increase in interest expense directly related to the borrowings made under the Company's senior credit facility to finance the Acquisition. The Company entered into the senior credit facility on May 10, 2013, which replaced the Company's previous revolving credit facility. The Company borrowed $125.0 million under its senior credit facility to finance the acquisition. The pro forma interest expense adjustment assumes an interest rate of 2%, which was the interest rate applicable on the senior credit facility upon the Company borrowing against this facility. The pro forma interest expense adjustment also includes an increase in interest expense for the amortization of the financing fee of $1.3 million incurred during the second quarter of 2013. This commitment fee is being amortized to interest expense over the remaining revolving credit facility term of 5 years at acquisition date. A variance of one-eighth of one percent (or 12.5 basis points) in the interest rate on the $125.0 million Acquisition financing would increase or decrease interest expense by approximately $0.3 million for the year ended December 31, 2012. | |
(E) | To record the income tax impact of the pro forma adjustment at the combined federal and state statutory tax rate. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had the Company filed consolidated income tax returns during the periods presented. The pro forma income tax adjustment also includes $3.7 million and $1.0 million of the year ended December 31, 2012, and March 31, 2013, respectively, on the historical Arsenal net income. Historically Arsenal was not required to pay income tax on its operations. |
(F) | To recognize the pro forma impact of the preliminary estimated deferred revenue fair value adjustment as if the fair value adjustment of $14.5 million was recorded on January 1, 2012 and services contributing to $11.5 million and $1.7 million of the adjustment were delivered in the year ended Decemebr 31, 2012, and the three months ended March 31, 2013, respectively. | |
(G) | To reflect the incremental amortization of stock-based compensation expense associated with Epocrates unvested equity awards that were exchanged for athenahealth unvested equity awards as part of the Epocrates acquisition. Upon the closing of the acquisition, each outstanding option to purchase Epocrates common stock was exchanged for an option to purchase athenahealth common stock, and each Epocrates restricted stock unit was exchanged for an athenahealth restricted stock unit using the terms commensurate with such equity awards at the acquisition date. |
Increase in Stock-Based Compensation Expense | ||||||||
Year ended December 31, 2012 | Three Months ended March 31, 2013 | |||||||
Expense: | ||||||||
Direct operating | $ | 290 | $ | 12 | ||||
Selling and marketing | 1,037 | 43 | ||||||
Research and development | 870 | 35 | ||||||
General and administrative | 3,574 | 139 | ||||||
$ | 5,771 | $ | 229 | |||||
A.A. The following awards and assumptions were used in determining the pro forma adjustment: (i) In exchange for Epocrates’ restricted stock units outstanding at the acquisition date, the Company issued 48,997 unvested restricted stock units with a weighted-average fair value of $44.94 per unit and a weighted-average vesting period of 2.4 years. The fair value per unit of these awards was determined based on a valuation methodology which uses a Black-Scholes option pricing model. (ii) In exchange for Epocrates’ stock options outstanding at the acquisition date, the Company issued 421,407 unvested stock options with a weighted-average exercise price of $80.45 per share, a weighted-average vesting period of 1.5 years, and weighted-average fair value per option of $42.46. The fair value per option was determined based on a valuation methodology which uses a Black-Scholes option pricing model. | ||
The weighted-average assumptions used in the Black-Scholes pricing model for the equity awards issued by the Company in the exchange were as follows: | ||
Risk-free interest rate 0.76% | ||
Expected volatility 45% | ||
Expected dividend yield - | ||
Expected term (in years) 4.4 | ||
(H) | To allocate historical depreciation, which Epocrates had allocated to direct operating, selling and marketing, research and development, and general and administrative expense, to depreciation and amortization expense as presented in the Company's statement of income. |
Epocrates Historical Depreciation | ||||||||
Year ended December 31, 2012 | Three Months ended March 31, 2013 | |||||||
Expense: | ||||||||
Direct operating | $ | 387 | $ | 75 | ||||
Selling and marketing | 395 | 167 | ||||||
Research and development | 860 | 78 | ||||||
General and administrative | 171 | 35 | ||||||
Depreciation and amortization | $ | 1,813 | $ | 355 |
(I) | To reflect the estimated amortization of acquired intangible assets of $12.1 million and $4.8 million for the year ended December 31, 2012, and the three months ended March 31, 2013, respectively. To reverse Epocrates’ previously recorded intangible asset amortization of $6.2 million and $1.8 million for the year ended December 31, 2012, and the three months ended March 31, 2013, respectively. | |
(J) | To record the increase in interest expense directly related to the borrowings made under the Company's revolving credit facility to finance the Acquisition. The Company borrowed $155.0 million under its revolving credit facility to finance the Acquisition but immediately repaid $30.0 million using cash acquired from Epocrates in the Acquisition. As such, the pro forma adjustment reflects net borrowings of $125.0 million to finance the Acquisition. The pro forma interest expense adjustment assumes an interest rate of 1%, which was the interest rate applicable to the revolving credit facility upon the Company borrowing against this facility. The pro forma interest expense adjustment also includes an increase in interest expense for the amortization of the commitment fee of $0.3 million incurred to increase the revolving credit facility to $155.0 million for the Acquisition financing. This commitment fee is being amortized to interest expense over the remaining revolving credit facility term of 4.8 years at acquisition date. A variance of one-eighth of one percent (or 12.5 basis points) in the interest rate on the $125.0 million Acquisition financing would increase or decrease interest expense by less than $0.1 million for the year ended December 31, 2012. | |
(K) | To record the pro forma income tax impact at the combined federal and state statutory tax rate. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had the Company and Epocrates filed consolidated income tax returns during the periods presented | |
(L) | To eliminate transaction costs incurred in direct association with the Epocrates Acquisition from the historical statements of operations of athenahealth and Epocrates of $0.8 million and $7.4 million for the year ended December 31, 2012, and three months ended March 31, 2013, respectively. These costs include fees for legal and accounting professional services and investment banker fees. | |
(M) | To eliminate transaction costs incurred in direct association with the Arsenal Acquisition from the historical statements of operations of athenahealth of $0.7 million and $1.0 million for the year ended December 31, 2012, and three months ended March 31, 2013, respectively. These costs include fees for legal and accounting professional services and consulting fees. |