ATHN-2014.09.30-10Q

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 September 30, 2014



¨	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 and posted on its corporate Web site, if any, 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 and post such files). Yes þ No ¨

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



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

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

At October 15, 2014, the registrant had 38,094,225 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 Balance Sheets at September 30, 2014 and December 31, 2013	1
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013	2
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
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	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
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 BALANCE SHEETS

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



	September 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	59,530		$	65,002
Marketable securities	45,290			—
Accounts receivable, net	101,507			87,343
Restricted cash	45			3,000
Deferred tax assets, net	120			6,118
Prepaid expenses and other current assets	23,057			17,194
Total current assets	229,549			178,657
Property and equipment, net	259,660			213,018
Capitalized software costs, net	51,243			29,987
Purchased intangible assets, net	145,543			168,364
Goodwill	198,049			198,049
Investments and other assets	7,547			8,321
Total assets	$	891,591		$	796,396
Liabilities & Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,404		$	3,930
Accrued compensation	54,982			44,444
Accrued expenses	45,154			24,380
Line of credit	35,000			35,000
Long-term debt	15,000			15,000
Deferred revenue	27,680			27,002
Deferred tax liability, net	8,737			—
Total current liabilities	196,957			149,756
Deferred rent, net of current portion	13,237			1,478
Long-term debt, net of current portion	162,500			173,750
Deferred revenue, net of current portion	54,323			53,172
Long-term deferred tax liability, net	18,728			21,421
Other long-term liabilities	6,497			5,511
Total liabilities	452,242			405,088
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued and outstanding at September 30, 2014 and December 31, 2013	—			—
Common stock, $0.01 par value: 125,000 shares authorized; 39,350 shares issued and 38,072 shares outstanding at September 30, 2014; 38,600 shares issued and 37,322 shares outstanding at December 31, 2013	394			387
Additional paid-in capital	413,125			380,967
Treasury stock, at cost, 1,278 shares	(1,200		)	(1,200		)
Accumulated other comprehensive income (loss)	27,278			(446		)
Retained (deficit) earnings	(248		)	11,600
Total stockholders’ equity	439,349			391,308
Total liabilities and stockholders’ equity	$	891,591		$	796,396

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

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athenahealth, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenue:
Business services	$	179,711		$	141,326		$	510,162		$	400,708
Implementation and other	10,717			10,201			29,223			22,716
Total revenue	190,428			151,527			539,385			423,424
Expense:
Direct operating	79,343			63,245			226,265			175,820
Selling and marketing	45,206			37,584			139,155			111,541
Research and development	18,087			15,104			49,659			41,317
General and administrative	31,800			21,690			91,600			77,437
Depreciation and amortization	17,258			11,263			46,693			30,711
Total expense	191,694			148,886			553,372			436,826
Operating (loss) income	(1,266		)	2,641			(13,987		)	(13,402		)
Other (expense) income:
Interest expense	(1,244		)	(1,421		)	(3,784		)	(2,586		)
Other income (expense)	26			30			(151		)	147
Total other expense	(1,218		)	(1,391		)	(3,935		)	(2,439		)
(Loss) income before income tax benefit (provision)	(2,484		)	1,250			(17,922		)	(15,841		)
Income tax benefit (provision)	853			(80		)	6,074			5,290
Net (loss) income	$	(1,631	)	$	1,170		$	(11,848	)	$	(10,551	)
Net (loss) income per share – Basic	$	(0.04	)	$	0.03		$	(0.31	)	$	(0.29	)
Net (loss) income per share – Diluted	$	(0.04	)	$	0.03		$	(0.31	)	$	(0.29	)
Weighted average shares used in computing net (loss) income per share:
Basic	37,999			36,970			37,783			36,722
Diluted	37,999			38,343			37,783			36,722

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

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athenahealth, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, amounts in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net (loss) income	$	(1,631	)	$	1,170		$	(11,848	)	$	(10,551	)
Other comprehensive (loss) income
Unrealized (loss) gain on securities, net of tax of $2,976 and $16,629 for the three and nine months ended September 30, 2014, respectively, and $0 and $0 for the three and nine months ended September 30, 2013, respectively	(4,934		)	—			27,561			20
Unrealized gain (loss) on change in fair value of interest rate swap, net of tax of $142 and $73 for the three and nine months ended September 30, 2014, respectively, and $156 for both the three and nine months ended September 30, 2013	237			(234		)	122			(234		)
Foreign currency translation adjustment	(227		)	292			41			147
Total other comprehensive (loss) income	(4,924		)	58			27,724			(67		)
Comprehensive (loss) income	$	(6,555	)	$	1,228		$	15,876		$	(10,618	)

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 thousands)



	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,848	)	$	(10,551	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	69,416			43,674
Deferred income tax	(6,494		)	(5,395		)
Stock-based compensation expense	38,986			33,725
Other reconciling adjustments	121			392
Changes in operating assets and liabilities:
Accounts receivable, net	(14,164		)	(12,357		)
Prepaid expenses and other current assets	(6,352		)	(4,322		)
Other long-term assets	18			600
Accounts payable	5,070			7,401
Accrued expenses and other long-term liabilities	8,387			1,004
Accrued compensation	10,379			1,949
Deferred revenue	1,830			2,342
Deferred rent	8,792			(2,259		)
Net cash provided by operating activities	104,141			56,203
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs	(41,232		)	(21,320		)
Purchases of property and equipment	(51,131		)	(21,405		)
Proceeds from sales and maturities of investments	—			56,245
Purchases of investments	—			(2,000		)
Payments on acquisitions, net of cash acquired	—			(410,161		)
Change in restricted cash	2,955			1,357
Other investing activities	(250		)	—
Net cash used in investing activities	(89,658		)	(397,284		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock plans and warrants	19,723			25,139
Taxes paid related to net share settlement of stock awards	(28,302		)	(11,093		)
Proceeds from line of credit	—			155,000
Proceeds from long-term debt	—			200,000
Payments for long-term debt	(11,250		)	(7,500		)
Payments for line of credit	—			(105,000		)
Payment of contingent consideration accrued at acquisition date	—			(525		)
Net settlement of acquired company’s board of directors equity shares	—			(5,806		)
Debt issuance costs	—			(1,699		)
Net cash (used in) provided by financing activities	(19,829		)	248,516
Effects of exchange rate changes on cash and cash equivalents	(126		)	(149		)
Net decrease in cash and cash equivalents	(5,472		)	(92,714		)
Cash and cash equivalents at beginning of period	65,002			154,988
Cash and cash equivalents at end of period	$	59,530		$	62,274
Non-cash transactions
Property, equipment and purchased software recorded in accounts payable and accrued expenses	$	18,571		$	1,196
Non-cash leasehold improvements	$	3,047		$	—
Fair value of equity awards assumed	$	—		$	13,028
Additional disclosures
Cash paid for interest, net	$	3,514		$	1,539
Cash (refunded) paid for taxes	$	(812	)	$	1,273

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 thousands, except per share amounts)

1. BASIS OF PRESENTATION

General – The accompanying unaudited condensed consolidated financial statements have been prepared by athenahealth, Inc. (the “Company” or “we”) in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes 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 present fairly the financial position as of September 30, 2014, the results of operations for the three and nine months ended September 30, 2014, and 2013, and cash flows for the nine months ended September 30, 2014, and 2013. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three and nine month periods ended September 30, 2014, 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 and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

We consider events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements.

Interim Tax Estimate – Because a relatively small change in our projected pre-tax net (loss) income could result in a volatile effective tax rate, we used a discrete tax approach in calculating the tax benefit (provision) for the three and nine months ended September 30, 2014, and 2013. Under the discrete method, we determine our tax benefit (expense) based upon actual results as if the interim period was an annual period.

Related Party Transactions – During the year ended December 31, 2013, we made a long-term investment in a vendor. The total expense related to this vendor for the three and nine months ended September 30, 2014 was $3.5 million and $7.6 million, respectively, and the total amount payable related to this vendor at September 30, 2014 and December 31, 2013 was $1.2 million and $0.4 million, respectively.

Recent Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the ASU provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. ASU 2014-09 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). We are currently in the process of evaluating this new guidance. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.

2. NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is computed by dividing net (loss) 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, 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 computations of diluted net (loss) income per share if their effect would be anti-dilutive to earnings per share.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
Net (loss) income	$	(1,631	)	$	1,170	$	(11,848	)	$	(10,551	)
Weighted average shares used in computing basic net (loss) income per share	37,999			36,970		37,783			36,722
Net (loss) income per share – basic	$	(0.04	)	$	0.03	$	(0.31	)	$	(0.29	)
Net (loss) income	$	(1,631	)	$	1,170	$	(11,848	)	$	(10,551	)
Weighted average shares used in computing basic net (loss) income per share	37,999			36,970		37,783			36,722
Effect of dilutive securities	—			1,373		—			—
Weighted average shares used in computing diluted net (loss) income per share	37,999			38,343		37,783			36,722
Net (loss) income per share – diluted	$	(0.04	)	$	0.03	$	(0.31	)	$	(0.29	)

The computation of diluted net income per share does not include 0.3 million of stock options and restricted stock units for the three months ended September 30, 2013, because their inclusion would have an anti-dilutive effect on net income per share.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of September 30, 2014 and December 31, 2013, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable, and accrued expenses approximated their estimated fair values because of the short-term nature of these financial instruments. Included in cash and cash equivalents as of December 31, 2013, are money market fund investments of less than $0.1 million, which are reported at fair value. As of September 30, 2014, we had $177.5 million outstanding on our term loan facility and $35.0 million outstanding on our revolving credit facility. As of December 31, 2013, we had $188.8 million outstanding on our term loan facility and $35.0 million outstanding on our revolving credit facility. The carrying amounts for these facilities approximate their fair values due to the nature of variable rate instruments which use current market rates.

During the three months ended June 30, 2014, we made our first investment in our More Disruption Please Accelerator portfolio, a program designed to cultivate heath care information technology start-ups and expand services offered to our physician network. The investment is in the form of a $0.3 million short-term convertible note receivable, and is included in prepaid expenses and other current assets on our Condensed Consolidated Balance Sheet. At September 30, 2014, as there is no indication of performance risk and no conversion is currently contemplated, we estimate that the fair value of this note receivable approximates cost.

We previously invested a total of $1.1 million in Castlight Health, Inc. (“Castlight”), a leading provider of cloud-based software that enables enterprises to control health care costs. This investment was initially recorded and subsequently carried at cost through December 31, 2013. On March 14, 2014, an initial public offering (“IPO”) of shares of Castlight’s Class B common stock was made available for sale on the New York Stock Exchange under the symbol “CSLT.” As a result of the IPO, we classified this investment as “available-for-sale” and marked the shares we hold to market based on quoted market prices. As of September 30, 2014, the aggregate fair value of the investment was $45.3 million and is recorded in the Marketable securities line on the Condensed Consolidated Balance Sheet. The unrealized (loss) gain on investment of $(4.9) million and $27.6 million for the three and nine months ended September 30, 2014, respectively, is included in other comprehensive (loss) income, net of a $3.0 million short-term deferred tax asset and $16.6 million short-term deferred tax liability for those same periods, respectively.

Our interest rate swap agreement was designed to manage exposure to interest rates on our variable rate indebtedness. We have designated the interest rate swap agreement as a cash flow hedge. For the three and nine months ended September 30, 2014, no amount was recognized in earnings for our interest rate swap. We do not expect that any of the approximately 0.2 million of pre-tax unrealized losses included in accumulated other comprehensive income (loss) at September 30, 2014, will be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in interest rates. There was no ineffectiveness associated with the interest rate swap during the three and nine months ended September 30, 2014, nor was any amount excluded from ineffectiveness testing. We are exposed to credit loss in the event of non-performance by the swap counter party.

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, 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 (unadjusted) in active markets for identical assets or liabilities, and fair values determined by Level 2 inputs utilize quoted prices (unadjusted) 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.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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



	Fair Value Measurements as of September 30, 2014, Using
	Level 1		Level 2			Level 3		Total
Available-for-sale investments:
Marketable equity securities	$	45,290	$	—		$	—	$	45,290
Total assets	$	45,290	$	—		$	—	$	45,290
Interest rate swap liability ^(a)	$	—	$	(159	)	$	—	$	(159	)
Total liabilities	$	—	$	(159	)	$	—	$	(159	)

	Fair Value Measurements as of December 31, 2013, Using
	Level 1		Level 2			Level 3		Total
Cash and cash equivalents:
Money market funds	$	26	$	—		$	—	$	26
Total assets	$	26	$	—		$	—	$	26
Interest rate swap liability ^(a)	$	—	$	(354	)	$	—	$	(354	)
Total liabilities	$	—	$	(354	)	$	—	$	(354	)


^(a)	Recorded in other long-term liabilities on the Condensed Consolidated Balance Sheets.

Money market funds and marketable equity securities 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. 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 periods presented.

The estimated fair value of our interest rate swap agreement with a certain financial institution at September 30, 2014 was a liability of $0.2 million based on inputs other than quoted prices that are observable for the interest rate swap (Level 2). Inputs include present value of fixed and projected floating rate cash flows over the term of the swap contract.

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athenahealth, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

4. INVESTMENTS

We had the following available-for-sale securities at September 30, 2014:



	Cost		Gross Unrealized Gain		Fair Value
Marketable equity securities	$	1,100	$	44,190	$	45,290

As of December 31, 2013, we had no available-for-sale securities.

5. OPERATING LEASES

Future minimum lease payments under non-cancelable operating leases as of September 30, 2014 are as follows:



Year ending December 31,	Future Rent Payments
Remaining 2014	$	1,801
2015	8,067
2016	12,556
2017	12,276
2018	12,254
Thereafter	99,255
	$	146,209

6. 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 dispositions 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.

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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. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including those regarding the increased levels of automation and volume of our services; implementation services provided by external service providers; expanded sales and marketing efforts; increased cross-selling efforts among our service offerings; market trends; investments to support continued growth, new service offerings, and infrastructure expansion; activity of option exercises and withholding of shares to cover taxes; integration of Epocrates; changes in expenses related to operations, selling, marketing, research and development, general and administrative matters, and depreciation and amortization; liquidity matters; and the expected performance period and estimated term of our client relationships, as well as more general statements regarding our management’s expectations for future financial and operational performance and expenditure, profitability and business outlook. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue;” the negative of these terms; or other comparable terminology.

Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, among other things, those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, under the heading Part I, Item 1A, “Risk Factors” and any set forth below in this Quarterly Report on Form 10-Q under Part II, Item 1A, “Risk Factors.”

Although we believe that the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this Quarterly Report on Form 10-Q.

Overview

athenahealth provides cloud-based business services that help health care providers achieve and sustain financial health by collecting more revenue and greatly reducing their administrative work burden. These services are designed to minimize the hassles that health care providers and their staff face from complex billing rules, quality measurement and reporting, clinical documentation and data exchange, patient communication and referrals, and many related tasks that can take attention away from delivering care. Our services are delivered and consumed through a single instance of our cloud-based platform, athenaNet, through which we continuously update and improve our services. Regular updates to athenaNet are free and automatic for everyone on the network. As a web-based platform, athenaNet can be quickly implemented by our staff, with low upfront costs to clients.

The services provided through our single-instance cloud are offered as a suite of four seamlessly integrated services: athenaCollector for revenue cycle and practice management, athenaClinicals for electronic health record management, athenaCommunicator for patient communication management, and athenaCoordinator for care coordination and financial and quality management.

Each service is supported by a model comprised of three distinct but interconnected components: cloud-based software (“Software”), networked knowledge (“Knowledge”), and back-office work (“Work”). The Software is provided at no extra charge to users but is the primary conduit through which we exchange information among clients, insurance payers, and our staff of experts. Knowledge is infused into each service via our rules engine as we work with clients, insurance payers, and other partners to codify rules associated with reimbursement, clinical quality measures, and other factors related to our clients’ performance, making the network “smarter” and more powerful for all clients. The network’s shared knowledge and transparency also allows clients to monitor and benchmark their performance against those of other practices across the network. The third component to each service is the Work that we perform on behalf of our clients. Wherever possible, we replace manual processes with automation, but where automation is not possible, we perform the work on our clients’ behalf. These services range from receiving, scanning, and delivering incoming faxes to tracking claims with insurance payers. This unique service model of Software, Knowledge, and Work is the core of our aligned success model.

We also provide clients in the health care industry (e.g., pharmaceutical companies, managed care companies, and market research firms) the opportunity to sponsor clinical information and decision support services in order to engage with Epocrates’ member network, and offer the sale of subscriptions to Epocrates’ premium drug and clinical reference tools to health care professionals.

For the three and nine months ended September 30, 2014, we generated revenue of $190.4 million and $539.4 million compared to $151.5 million and $423.4 million for the three and nine months ended September 30, 2013. Given the scope of our market opportunity, we have increased our spending each year on growth, innovation, and infrastructure.

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Our revenue is predominately derived from athenahealth-branded business services, which excludes revenue from Epocrates-branded services, third-party tenant revenue, and other non-core revenue. In most cases, we charge clients a percentage of payments collected by us on behalf of our clients connecting our financial results directly to that of our clients and our ability to drive revenue to medical practices. Therefore, the key drivers of our revenue include growth in the number of physicians and other medical providers working within our client accounts, the collections of these physicians, and the number of services purchased. To provide these services, we incur expenses in several categories, including direct operating, selling and marketing, research and development, general and administrative, and depreciation and amortization expense. In general, our direct operating expense increases as our volume of work increases, whereas our selling and marketing expense increases in proportion to our intended growth rate of adding new accounts to our network of physician clients. Our other expense categories are less directly related to growth of revenues and relate more to our planning for the future, our overall business management activities, and our infrastructure. We manage our cash and our use of credit facilities to ensure adequate liquidity and to ensure adherence to related financial covenants.

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 (“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 periods. 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 will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. On a regular basis, we review the accounting policies and assumptions, and evaluate and update our assumptions, estimates, and judgments to ensure that our condensed consolidated financial statements are presented fairly and in accordance with GAAP. 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 that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. For a more detailed discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 7, 2014.

Financial Operations Overview

Revenue. We derive our revenue from two sources: business services, and implementation and other services. Business services includes revenue from our revenue cycle and practice management service (athenaCollector); electronic health record management service (athenaClinicals); patient communication management service (athenaCommunicator); care coordination and financial and quality management service (athenaCoordinator); and subscriptions, sponsored clinical information, and decision support services for our point of care clinical application (Epocrates). None of our clients accounted for more than 10% of our total revenues for the three and nine months ended September 30, 2014 and 2013.

Business services accounted for approximately 94% and 93% of our total revenues for the three months ended September 30, 2014 and 2013, respectively. Business services accounted for approximately 95% of our total revenues for both the nine months ended September 30, 2014 and 2013. Business services revenue for athenahealth-branded services is typically 2% to 8% of a practice’s total collections depending upon the services purchased, the size, complexity, and other characteristics of the practice, plus a per statement charge for certain billing statements that are generated for patients. Accordingly, business services revenue is largely driven by: the number of physician practices and other service providers we serve, the number of physicians and other medical providers working in those physician practices, the volume of activity and related collections of those physicians, the mix of our services used by those physician practices and other medical providers, and our contracted rates. There is moderate seasonality in the activity level of physician practices. Typically, discretionary use of physician services declines in the late summer and during the holiday season, which leads to a decline in collections by our physician clients about 30 to 50 days later. Additionally, the volume of activity and related collections vary from year to year based in large part on the severity, length and timing of the onset of the flu season. While we believe that the severity, length and timing of the onset of the cold and flu season will continue to impact collections by our physician clients, there can be no assurance that our future sales of these services will necessarily follow historical patterns.

Implementation and other services revenue consists primarily of the amortization of deferred revenue on implementation services, as well as third-party tenant and other non-core revenue. We expect the amortization of deferred implementation fees to decline, as we have begun to include implementation fees into our ongoing monthly rate in 2014. Additionally, we expect

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third-party tenant and other non-core revenue to decline in the foreseeable future as tenants vacate and we occupy the previously rented space.

Direct Operating Expense. Direct operating expense consists primarily of compensation expense (including stock-based compensation) related to personnel who provide services, including implementation of clients, and claim processing costs. We expense implementation costs as incurred. We include in direct operating expense all service costs incurred to fulfill our customer contracts. We expect to increase our overall level of automation as we become a larger operation, with higher volumes of work in particular functions, geographies, and medical specialties. Although we expect that direct operating expense will increase in absolute terms for the foreseeable future, direct operating expense is expected to decline as a percentage of revenue as we increase automation. Direct operating expense also includes costs associated with third-party tenant and other non-core revenue. Direct operating expense does not include allocated amounts for rent expense, occupancy costs, depreciation, and amortization, except for amortization related to certain purchased intangible assets.

Selling and Marketing Expense. Selling and marketing expense consists primarily of compensation expense for sales and marketing employees (including stock-based compensation) and marketing programs (including trade shows, brand messaging, and online initiatives). Although we recognize substantially all of our revenue when services have been delivered, we recognize a large portion of our sales commission expense at the time of contract signature and at the time our services commence. Accordingly, we incur a portion of our sales and marketing expense prior to the recognition of the corresponding revenue. We have increased our sales and marketing expenses from year to year and we expect to continue to increase our investment in sales and marketing by hiring additional direct sales personnel and support personnel to add new clients and increase sales to our existing clients and to expand awareness through paid search and other similar initiatives. We also plan to expand our marketing activities, such as attending trade shows, expanding user groups, and creating new printed materials. As a result, we expect that, in the near-term, sales and marketing expense will increase in line with revenue growth. As we begin to leverage lower cost sales channels, we expect sales and marketing expense to decline as a percentage of revenue over time. Sales and marketing expense does not include allocated amounts for rent, occupancy costs, depreciation, and amortization, except for amortization related to certain purchased intangible assets.

Research and Development Expense. Research and development expense consists primarily of compensation expense for research and development employees (including stock-based compensation) and consulting fees for third-party developers. We expect that, in the near-term, research and development expenditures will increase in absolute terms and will likely increase as a percentage of revenue as we develop and enhance new and existing services; however, the amount of expenditures that should be capitalized as software development costs versus expensed as research and development could vary based on the specific projects we undertake. Research and development expense does not include allocated amounts for rent, occupancy costs, depreciation, and amortization.

General and Administrative Expense. General and administrative expense consists primarily of compensation expense for administrative employees (including stock-based compensation), occupancy and other indirect costs (including building maintenance and utilities), and outside professional fees for accountants, lawyers, and consultants. We expect that general and administrative expense will increase in absolute terms as we invest in infrastructure to support our growth. Though expenses are expected to continue to rise in absolute terms, we expect general and administrative expense to decline as a percentage of revenue over time.

Depreciation and Amortization Expense. Depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of capitalized software development, which we amortize over a two to three-year period from the time it is ready for its intended use. As we grow, we will continue to make capital investments in the infrastructure of the business and we will continue to develop software that we capitalize. We expect depreciation and amortization expense to increase as we make investments to support our continued growth, new service offerings, and infrastructure expansion.

Other (Expense) Income. Other (expense) income is primarily comprised of interest expense. Interest expense consists primarily of interest costs related to our term and revolving loans under our credit facility and the amortization of deferred financing fees.

Income Tax Benefit (Provision). Income tax benefit (provision) relates to federal and state jurisdictions in the United States and India. The difference between our effective tax rate and our statutory rate is mainly related to transaction costs associated with stock acquisitions, the treatment of Incentive Stock Options (“ISOs”) and the Employee Stock Purchase Plan, and the impact of certain tax deduction limits related to certain of our highly compensated officers. Transaction costs related to stock acquisitions are primarily non-tax deductible. The treatment of disqualifying dispositions related to ISOs are also treated as discrete items, which means that they are recorded in the quarter in which they occur and could cause significant differences between the quarterly and annual effective tax rate. We substantially ceased issuing ISOs in 2009, but we expect continued volatility related to these options since we cannot anticipate when disqualifying dispositions related to these stock options will occur.

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Recent Developments

During 2014, we began to sell go-live and training support services separate from the required implementation services. Fees associated with required implementation services are included in our ongoing monthly rate; therefore, they are being recognized ratably over the customer life. Go-live and training support services can be purchased by the customer from us or third-party vendors, and therefore, are recognized upon delivery of service. Previously deferred revenue balances related to implementation services, including go-live and training support services, will continue to be amortized over those remaining customer lives.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the ASU provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. ASU 2014-09 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). We are currently in the process of evaluating this new guidance. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.

We previously invested a total of $1.1 million in Castlight Health, Inc. (“Castlight”), a leading provider of cloud-based software that enables enterprises to control health care costs. This investment was initially recorded at cost. On March 14, 2014, an initial public offering (“IPO”) of shares of Castlight’s Class B common stock was made available for sale on the New York Stock Exchange under the symbol “CSLT.” As a result of the IPO, we classified this investment as “available-for-sale” and marked the shares we hold to market based on quoted market prices as of September 30, 2014. As of September 30, 2014, the aggregate fair value of the investment was $45.3 million and is recorded in the Marketable securities line on the Condensed Consolidated Balance Sheet. The unrealized (loss) gain on investment of $(4.9) million and $27.6 million for the three and nine months ended September 30, 2014, respectively, is included in other comprehensive (loss) income, net of a $3.0 million short-term deferred tax asset and $16.6 million short-term deferred tax liability for those same periods, respectively.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2014 and 2013



	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2014		2013		Amount		Percent		2014		2013		Amount		Percent
	(in thousands)
Business services	$	179,711	$	141,326	$	38,385	27	%	$	510,162	$	400,708	$	109,454	27	%
Implementation and other	10,717		10,201		516		5	%	29,223		22,716		$	6,507	29	%
Total	$	190,428	$	151,527	$	38,901	26	%	$	539,385	$	423,424	$	115,961	27	%

Total revenue for the three and nine months ended September 30, 2014 increased primarily due to an increase in business services revenue.

Business Services Revenue. The increase in business services revenue in both periods is primarily driven by the growth in the number of physicians and providers using our services. The increases in the number of physicians and providers using our revenue cycle and practice management service, athenaCollector; electronic health record management service, athenaClinicals; and patient communication management service, athenaCommunicator; are as follows:



		As of September 30,
		2014	2013	Change
		Amount	Amount	Amount	Percent
athenaCollector	Physicians	43,106	33,764	9,342	28	%
athenaCollector	Providers	59,415	47,195	12,220	26	%
athenaClinicals	Physicians	17,458	11,401	6,057	53	%
athenaClinicals	Providers	23,053	15,483	7,570	49	%
athenaCommunicator	Physicians	29,683	17,330	12,353	71	%
athenaCommunicator	Providers	38,699	23,024	15,675	68	%

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Also contributing to this increase was the growth in related collections on behalf of these physicians and providers. The amount of collections processed is as follows:



	Three Months Ended September 30,		Change				Nine Months Ended September 30,		Change
	2014	2013	Amount		Percent		2014	2013	Amount		Percent
	(in millions)						(in millions)
Collections processed	$3,843.4	$2,974.7	$	868.7	29	%	$10,694.9	$8,378.5	$	2,316.4	28	%

Business services revenue also includes revenue from sponsored clinical information and decision support services and subscriptions, or our Epocrates-branded services. The three and nine months ended September 30, 2014 includes $9.8 million and $31.7 million of total revenue attributable to these services, respectively, versus $13.4 million and $33.5 million for the three and nine months ended September 30, 2013, respectively.

Implementation and Other Revenue. Implementation and other revenue increased primarily due to third-party tenant revenue, which increased $7.5 million for the nine months ended September 30, 2014.



	Three Months Ended September 30,		Change				Nine Months Ended September 30,		Change
	2014	2013	Amount		Percent		2014	2013	Amount	Percent
	(in thousands)						(in thousands)
Direct operating	$79,343	$63,245	$	16,098	25	%	$226,265	$175,820	$50,445	29	%

Direct Operating Expense. Direct operating expense increased primarily due to employee-related costs, including stock-based compensation, which increased $7.0 million and $21.0 million in the three and nine months ended September 30, 2014, respectively, compared to the three and nine months ended September 30, 2013, primarily due to a 16% increase in headcount from September 30, 2013 and an increase in the fair value of our most recently issued stock-based compensation awards. External consulting services increased $4.1 million and $7.1 million in the three and nine months ended September 30, 2014, respectively, compared to the three and nine months ended September 30, 2013. We increased headcount and the use of consultants to meet the current and anticipated demand for our services as our client base continues to expand and includes larger medical groups and health system clients.

The number of claims that we processed on behalf of our clients increased during the three and nine months ended September 30, 2014. The increase in direct operating expense is partially due to the expense of providing these services, including transactions expense and employee-related costs. The total claims submitted on behalf of clients are as follows:



	Three Months Ended September 30,		Change			Nine Months Ended September 30,		Change
	2014	2013	Amount	Percent		2014	2013	Amount	Percent
	(in millions)					(in millions)
Total claims submitted	29.2	22.9	6.3	28	%	83.1	65.3	17.8	27	%

Direct operating expense for the three and nine months ended September 30, 2014, also increased $1.0 million and $5.2 million, respectively, due to costs associated with third-party tenant revenue.



	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2014		2013		Amount		Percent		2014		2013		Amount		Percent
	(in thousands)								(in thousands)
Selling and marketing	$	45,206	$	37,584	$	7,622	20	%	139,155		111,541		$	27,614	25	%
Research and development	18,087		15,104		2,983		20	%	49,659		41,317		8,342		20	%
General and administrative	31,800		21,690		10,110		47	%	91,600		77,437		14,163		18	%
Depreciation and amortization	17,258		11,263		5,995		53	%	46,693		30,711		15,982		52	%
Total	$	112,351	$	85,641	$	26,710	31	%	$	327,107	$	261,006	$	66,101	25	%

Selling and Marketing Expense. The increase in selling and marketing expense was in part due to compensation costs, including stock-based compensation expense, internal sales commissions and external channel partner commissions, which increased approximately $3.1 million and $11.1 million for the three and nine months ended September 30, 2014, respectively, largely due to a 23% increase in headcount from September 30, 2013. We hired additional sales personnel to focus on adding new customers and increasing penetration within our existing markets. Additionally, amortization related to purchased intangible assets allocated to selling and marketing expense increased $1.8 million and $8.3 million for the three and nine months ended September 30, 2014, respectively, compared to the three and nine months ended September 30, 2013, primarily

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due to our acquisition of Epocrates in March 2013. Also contributing to the increase in selling and marketing expense was a $1.7 million and $5.6 million increase in other general selling and marketing-related costs for the three and nine months ended September 30, 2014, respectively, compared to the three and nine months ended September 30, 2013.

Research and Development Expense. The increase in research and development expense was primarily due to higher compensation costs, including stock-based compensation expense, which increased approximately $2.4 million and $6.3 million for the three and nine months ended September 30, 2014, respectively, largely due to a 42% increase in headcount from September 30, 2013. The additional research and development personnel were necessary in order to upgrade and expand our service offerings and develop new technologies. Research and development expense was also impacted by an increase of $0.7 million and $2.0 million for the three and nine months ended September 30, 2014, respectively, in consulting fees for third-party developers.

General and Administrative Expense. General and administrative expense increased in the three and nine months ended September 30, 2014, primarily due to higher compensation costs, facilities-related expenses, and outside professional services costs. Compensation costs, including stock-based compensation unrelated to the Epocrates acceleration of vesting associated with our acquisition, increased approximately $3.3 million and $11.6 million for the three and nine months ended September 30, 2014, respectively, largely due to an 18% increase in headcount from September 30, 2013. We increased our general and administrative personnel to support our growth. Facilities-related expenses, which includes rent expense, increased $3.8 million and $7.2 million for the three and nine months ended September 30, 2014, respectively. The increase in headcount drove an increased investment in our infrastructure which resulted in expansion in four of our locations. Additionally, outside professional service costs increased $1.7 million and $4.6 million for the three and nine months ended September 30, 2014, respectively.

The increase in general and administrative expense for the three and nine months ended September 30, 2014, was partially offset by the absence of $0.8 million and $11.6 million of transaction and integration costs we incurred associated with the Epocrates and Arsenal transactions and stock-based compensation related to the acceleration of vesting for certain Epocrates employees upon termination during the three and nine months ended September 30, 2013, respectively. Finally, the nine months ended September 30, 2013 reflected a $2.5 million net gain due to the early termination of our lease and the realization of the remaining balance in deferred rent upon our acquisition of the Arsenal on the Charles.

Depreciation and Amortization Expense. Depreciation and amortization expense increased for the three and nine months ended September 30, 2014. This increase was partially due to $3.1 million and $8.2 million of amortization related to an increase in our software development costs for the three and nine months ended September 30, 2014, respectively, and $2.4 million and $4.8 million of depreciation from higher fixed asset expenditures for those same periods, respectively. The increase was also impacted by $0.4 million and $3.0 million of depreciation related to the Arsenal on the Charles for the three and nine months ended September 30, 2014, respectively.

Interest Expense. Interest expense increased $1.2 million for the nine months ended September 30, 2014 due to a full nine months of interest expense in 2014 for our newest debt agreement that was signed in May 2013.



	Three Months Ended September 30,						Change			Nine Months Ended September 30,						Change
	2014			2013			Amount		Percent	2014			2013			Amount		Percent
	(in thousands)									(in thousands)
Income tax benefit (provision)	$	853		$	(80	)	$	933	(1,166)%	$	6,074		$	5,290		$	784	15%
Effective tax rate	34.3		%	6.4		%				33.9		%	33.4		%

Income Tax Benefit (Provision). Because a relatively small change in our projected pre-tax net (loss) income could result in a volatile effective tax rate, we used a discrete tax approach in calculating the tax benefit (provision) for the three and nine months ended September 30, 2014 and 2013. The difference in our effective tax rate for the three and nine months ended September 30, 2014, compared to the three and nine months ended September 30, 2013, is primarily due to a decrease in permanent differences related to non-deductible transaction costs associated with the Epocrates transaction in 2013.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2014, our principal sources of liquidity consisted of cash and cash equivalents of $59.5 million compared to $62.3 million as of September 30, 2013.

As of September 30, 2014, we have outstanding indebtedness of $212.5 million compared to $242.5 million as of September 30, 2013. The decrease as of September 30, 2014 is due to periodic payments on our credit agreement, which was

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entered into primarily to fund our purchase of the Arsenal on the Charles. On May 10, 2013, we entered into a five-year $325.0 million senior credit facility consisting of a $200.0 million unsecured term loan facility and a $125.0 million unsecured revolving credit facility (the “Senior Credit Facility”). The Senior Credit Facility replaced our previous revolving credit facility. The Senior Credit Facility contains terms and conditions that are customary to facilities of this nature, and may be used to refinance existing indebtedness, to finance the acquisition of the Arsenal on the Charles, and for working capital and other general corporate purposes. We may increase the Senior Credit Facility up to an additional $100.0 million subject to certain terms, including obtaining lender commitments. As of September 30, 2014, we had $177.5 million outstanding on the unsecured term loan facility and $35.0 million outstanding on the unsecured revolving credit facility. As of September 30, 2014, we had $90.0 million available on the unsecured revolving credit facility. As of September 30, 2014, we were in compliance with our covenants under the Senior Credit Facility.

We believe our current sources of liquidity are sufficient to sustain operations, to finance our strategic initiatives, to make payments on our contractual obligations, and to purchase property and equipment in the foreseeable future. Our analysis is supported by the growth in our new client base and a high rate of renewal with our existing clients and the corresponding increase in billings and collections. 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 2014 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.

Comparison of the Nine Months Ended September 30, 2014 and 2013

Operating Cash Flow Activities



	Nine Months Ended September 30,
(in thousands)	2014			2013			Change
Net (loss) income	$	(11,848	)	$	(10,551	)	$	(1,297	)
Non-cash adjustments	102,029			72,396			29,633
Net income after non-cash adjustments	90,181			61,845			28,336
Cash provided by (used in) changes in operating assets and liabilities	13,960			(5,642		)	19,602
Net cash provided by operating activities	$	104,141		$	56,203		$	47,938

The increase in the cash flow provided by operating activities is mainly attributable to an increase in net income after non-cash adjustments due to our growth in operations. The non-cash adjustments include an increase in depreciation and amortization expense of $25.7 million, resulting from the acquisitions of Epocrates and the Arsenal on the Charles.

The increase in cash provided by changes in operating assets and liabilities is due in part to an $8.4 million increase in accrued compensation due to our headcount growth. Further, the purchase of the Arsenal on the Charles, which we previously leased, and our recent execution of new leases which include free rent and other leasehold incentives, provided an additional increase of $11.1 million.

Investing Cash Flow Activities

Net cash used in investing activities decreased $307.6 million to $89.7 million for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013. In the prior year, our spend included cash paid for the acquisitions of Epocrates and the Arsenal on the Charles of $410.2 million, net of cash acquired, which was offset by $56.2 million of proceeds from the sales and maturities of investments.

We have increased our investments in property and equipment in 2014 by $29.7 million. In conjunction with our 2013 purchase of the Arsenal on the Charles, our Board of Directors approved a master plan to improve the campus for our employees and to open the space to local residents. We began to recognize costs associated with our master plan in 2014 and expect these investments to increase in the foreseeable future to support our continued growth and new service offerings. Additional capital expenditures also relate to expansion in four of our office locations during 2014.

We have increased our investment in software development costs in 2014 by $19.9 million and we expect investments to continue to increase as we develop and enhance new and existing services.

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Financing Cash Flow Activities

Net cash (used in) provided by financing activities decreased $268.3 million to $(19.8) million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to the receipt of $200 million in proceeds from our term loan and $50 million in net proceeds from our line of credit during the nine months ended September 30, 2013, which we utilized in our acquisitions of Epocrates and the Arsenal on the Charles in the prior year. For the foreseeable future, we anticipate that income taxes paid for the net settlement of stock unit awards will be greater than the cash received for stock option exercises because of the recent increase in our stock price and the increase in the issuance of stock units compared to stock options.

Contractual Obligations

The following table summarizes our long-term contractual obligations and commitments as of September 30, 2014:



	Payments Due by Period
(in thousands)	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years		Other
Long-term debt ⁽¹⁾	$	177,500	15,000		30,000		30,000		102,500		—
Operating lease obligations ⁽²⁾	146,209		7,014		24,655		24,330		90,210		—
Purchase obligations	5,157		4,559		598		—		—		—
Other ⁽³⁾	4,973		—		—		—		—		4,973
Total	$	333,839	$	26,573	$	55,253	$	54,330	$	192,710	$	4,973

⁽¹⁾ We have cash interest requirements due on the Senior Credit Facility payable at variable rates which are not included in the above table.

⁽²⁾ We are party to agreements for non-cancelable operating leases for office space and data centers which expire between 2014 and 2029.

⁽³⁾ “Other” consists of uncertain tax benefits. We have not recognized these uncertain tax benefits, nor do we have an expectation of when these uncertain tax benefits would be challenged. As of September 30, 2014, we cannot reasonably estimate when any future cash outlays would occur related to these uncertain tax positions.

Off-Balance Sheet Arrangements

As of September 30, 2014 and December 31, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “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.



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. None of our consolidated revenues are generated outside of the United States. None of our vendor relationships, including our contracts with our offshore service providers for work performed in India and the Philippines, is denominated in any currency other than the U.S. dollar. For the three and nine months ended September 30, 2014 and 2013, approximately 1% of our expenses occurred in our direct subsidiary in Chennai, India, and was incurred in Indian rupees. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not likely.

Interest Rate Risk. We had $212.5 million of outstanding borrowings under our Senior Credit Facility at September 30, 2014. The Senior Credit Facility bears interest at the British Bankers Association London Interbank Offered Rate (“LIBOR”) plus an applicable margin. Accordingly, we are exposed to fluctuations in interest rates on borrowings under the Senior Credit Facility. A one hundred basis point change in the interest rate on our borrowings outstanding as of September 30, 2014 would result in a change in interest expense of approximately $0.9 million annually.

During the three and nine months ended September 30, 2014, we utilized an interest rate swap to manage exposure to interest rates on the variable rate of our indebtedness. Our interest rate swap is with a major financial institution and is not used for speculative or trading purposes. We have designated our interest rate swap as a cash flow hedge and changes in the fair value of the interest rate swap are recognized in other comprehensive (loss) income. Hedge ineffectiveness, if any, associated

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with the interest rate swap will be reported in interest expense. We recorded the interest rate swap at fair value, which amounted to a liability of $0.2 million at September 30, 2014.



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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of September 30, 2014 (the “Evaluation Date”), our management, with the participation of our Chief 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 Chief Executive Officer and Chief Financial Officer have 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 control over financial reporting for the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION



Item 1.	Legal Proceedings

On July 18, 2011, we filed a complaint against ADP AdvancedMD, Inc. in the United States District Court for the District of Massachusetts. The complaint alleges that ADP AdvancedMD, Inc. has infringed two of our U.S. Patents: No. 7,617,116, which was issued on November 10, 2009, for “Practice Management and Billing Automation System” and No. 7,720,701, which was issued on May 18, 2010, for “Automated Configuration of Medical Practice Management Systems.” On May 16, 2012, the Court entered the parties’ joint stipulation of dismissal without prejudice of claims and counterclaims related to U.S. Patent No. 7,720,701. A Markman Hearing was held on September 14, 2012, and a ruling was issued on November 26, 2013. We are seeking permanent injunctive relief, damages, pre- and post-judgment costs and interest, and attorneys’ fees.

On July 28, 2011, a complaint was filed by PPS Data, LLC naming us in a patent infringement case (PPS Data, LLC v. athenahealth, Inc., Civil Action No. 3:11-cv-00746, United States District Court for the Middle District of Florida). The complaint alleges that we have infringed U.S. Patent No. 6,343,271 with a listed issue date of January 29, 2002, entitled “Electronic Creation, Submission, Adjudication, and Payment of Health Insurance Claims” (the “‘271 Patent”). The complaint seeks an injunction enjoining infringement, damages, pre- and post-judgment costs and interest, and attorneys’ fees. On September 8, 2011, we filed a motion to dismiss, or, in the alternative, a motion for summary judgment. On October 18, 2011, the plaintiff filed a motion for leave to amend its complaint to allege that we have infringed on U.S. Patent No. 6,341,265 with a listed issue date of January 22, 2002, entitled “Provider claim editing and settlement system,” and U.S. Patent No. 7,194,416 with a listed issue date of March 20, 2007, entitled “Interactive creation and adjudication of health care insurance claims.” The Court granted the plaintiff’s motion for leave to amend its complaint on December 21, 2011, and on December 23, 2011, the plaintiff filed its amended complaint. On December 27, 2011, we filed a motion to dismiss, or, in the alternative, a motion for summary judgment of non-infringement with respect to the ‘271 Patent. On December 29, 2011, the United States Patent and Trademark Office granted our request for reexamination of the ‘271 Patent. On January 9, 2012, we filed a motion to stay the case pending completion of the patent reexamination, and on March 1, 2012, the Court granted our motion to stay the case. We believe that we have meritorious defenses to the amended complaint and will continue to contest the claims vigorously.

On March 1, 2013, a complaint was filed in the United States District Court for the Northern District of California captioned Police and Fire Retirement System of the City of Detroit v. Epocrates, Inc. et al., Case No. 5:13-cv-945, on behalf of a putative class of Epocrates’ stockholders against Epocrates and its former officers and directors. The complaint asserted claims under sections 11, 12 and 15 of the Securities Act of 1933 on behalf of all stockholders that purchased Epocrates stock in its initial public offering (“IPO”) and claims under sections 10(b) and 20 of the Securities Exchange Act of 1934 on behalf of all stockholders that purchased shares between February 2, 2011 (the day after the IPO) and August 9, 2011. On October 8, 2013, plaintiffs filed an amended complaint, alleging only claims under the Securities Exchange Act of 1934 and voluntarily dismissing a number of the individual defendants. Plaintiffs allege that Epocrates made false or misleading statements with respect to the fact that Epocrates’ pharmaceutical clients were awaiting guidance from the Food and Drug Administration on the use of advertising and social media, which caused the clients to delay marketing and negatively impacted the timing of Epocrates’ sales and revenue growth. The complaint seeks certification as a class action, compensatory damages in an unspecified amount, plaintiffs’ costs, attorneys’ fees, and such other and further relief as the court may deem just and proper. On December 9, 2013, we filed a motion to dismiss the amended complaint. On June 4, 2014, the court issued an order dismissing the complaint and granting plaintiffs leave to amend their complaint. On June 30, 2014, plaintiffs filed a second amended complaint, which asserts substantially similar claims as those set forth in the first amended complaint. On July 14, 2014, we filed a motion to dismiss the second amended complaint. On October 2, 2014, the court granted plaintiffs leave to file a third amended complaint by October 23, 2014, and denied the motion to dismiss as moot. We deny the allegations in the second amended complaint and will contest the claims vigorously.

In addition, from time to time we may be subject to other 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

In Part I, Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on February 7, 2014, we described risk factors relevant to our business. The following risk factor updates and supplements those set forth in our Annual Report on Form 10-K for the year ended December 31, 2013. You should carefully review these risk factors and those described in other reports we file with the SEC in evaluating our business.

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Potential health care reform and new regulatory requirements placed on our software, services, and content could impose increased costs on us, delay or prevent our introduction of new service types, and impair the function or value of our existing service types.

Our services may be significantly impacted by health care reform initiatives and will be subject to increasing and changing regulatory requirements, any of which could affect our business in a multitude of ways. Such reforms or changes could render our existing services obsolete, unprofitable, or impossible to provide or make the development of new services more costly, more time-consuming, or impracticable. Further, where we lead the industry in implementing new standards, changes in or delays in implementing those standards could impact our competitive position in the market. These effects could, in turn, impose additional costs upon us to adapt to the new operating environment, further develop services or software, or rework our marketing strategy, as well as reduce our revenue or the demand for our services.



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

Not applicable.



Item 3.	Defaults Upon Senior Securities

Not applicable.



Item 4.	Mine Safety Disclosures

None.



Item 5.	Other Information

None.



Item 6.	Exhibits



Exhibit No.		Exhibit Description

10.1†		Employment Agreement by and between the Registrant and Kristi Ann Matus, dated July 21, 2014

10.2		Amendment No. 2 to Office Lease Agreement by and between the Registrant and JAMESTOWN Ponce City Market, L.P., dated August 18, 2014

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

31.2		Rule 13a-14(a) or 15d-14 Certification of Chief Financial Officer

32.1*		Certifications of Chief 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 September 30, 2014, formatted in XBRL:
		(i) the Condensed Consolidated Balance Sheets
		(ii) the Condensed Consolidated Statements of Income
		(iii) the Condensed Consolidated Statements of Comprehensive Income
		(iv) the Condensed Consolidated Statements of Cash Flows
		(v) the Notes to Condensed Consolidated Financial Statements



*	Furnished herewith.
†	Indicates a management contract or any compensatory plan, contract, or arrangement.

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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/ Jonathan Bush
		Jonathan Bush
		Chief Executive Officer, President, and Chairman

By:		/s/ Kristi A. Matus
		Kristi A. Matus
		Executive Vice President, Chief Financial and Administrative Officer

Date: October 17, 2014

ATHN-2014.09.30-EX 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement’) is entered into as of the Effective Date set forth on Schedule A hereto, by and between athenahealth, Inc. (“Athena”) and the undersigned Employee (“Employee”).

The parties agree as follows:

1.Employment; Term

a. Athena hereby employs Employee, and Employee accepts employment with Athena, upon the terms and conditions contained in this Agreement.

b. Employee acknowledges and agrees that adequate consideration (e.g., an offer of employment, a promotion, or an incentive payment, as well as access to Athena’s confidential information to which Employee would not otherwise have had access) was given in exchange for Employee’s entry into this agreement and that the provisions of this Agreement shall apply regardless of any change in Employee’s compensation, duties, responsibilities, role, reporting structure, or title during the course of the Employment Period.

c. Employee’s employment is at-will and for no definite period of time; either Employee or Athena may terminate Employee’s employment at any time with or without reason and with or without advance notice. Upon termination of employment, Employee will only be entitled to receive any accrued but unpaid portion of Employee’s base salary through the date of termination, any accrued but unused paid time off, outstanding expenses reimbursable under Athena’s then-applicable policies, severance as and to the extent earned as set forth in Schedule B hereto, and any other benefits that may be owed through the date of termination. Upon and following termination, Athena will have no liability or obligation to Employee other than as specifically set forth in this Section 1(c) or as provided by law.

d. Upon Athena’s request or the termination of Employee’s employment, Employee will immediately return to Athena all (i) documents, materials, records, files, notes, designs, drawings, notebooks, data, databases, and other information, in any media, related to the business of Athena or any of its affiliates, including all copies; (ii) property (whether owned or leased) of Athena or any of its affiliates that is in Employee’s possession or control (including, but not limited to, badges, computer hardware, data storage devices, manuals, programs, printers, faxes, telephones, calling or credit cards, supplies, tools, and vehicles); and (iii) documents and other media containing any Confidential Information (as defined in Section 5). At such time, Employee shall also destroy any Confidential Information in Employee’s possession or control that cannot be returned to Athena (e.g., information that is in an electronic or magnetic format and not on equipment or media owned by Athena). At Athena’s request, Employee will provide Athena or its designee with access to electronic devices that Employee used during the Employment Period so that Athena can confirm that no Athena information is on such equipment.

e. Sections 5 through 11 of this Agreement and the terms of Schedule B hereto will remain in effect following termination of Employee’s employment with Athena.

2. Duties

a. During the period that Employee is employed by Athena (the “Employment Period”), Employee will: (i) serve in the position set forth in Schedule A or in any other position that Athena may from time to time assign to Employee provided that such other position reports directly to Athena’s Chief Executive Officer and Employee continues to have an officer title; (ii) perform all duties associated with each such position, as well as such other duties as Athena may from time to time assign to Employee, in each case in a timely and professional manner and in accordance with Athena’s reasonable instructions; (iii) devote substantially all of his or her business time and effort to the performance of such duties; and (iv) comply with Athena’s policies and procedures as in effect from time to time (including, but not limited to, those relating to conduct or legal compliance).

b. Employee warrants to Athena that, except as disclosed on Schedule A hereto, Employee is not party to any agreement or understanding that would limit the ability of Employee to work in any capacity or position at Athena (e.g., any non-compete, non-disclosure, or similar agreement).

3. Compensation

a. Employee’s compensation will be as set forth in the attached Schedule A.

b. Any grant of shares, or right to acquire shares, of Athena’s stock set forth in Schedule A is a promise only to recommend such grant to Athena’s Board of Directors and is therefore subject to (i) separate approval of the Board of Directors or its designee (which approval may be withheld for any or no reason), (ii) determination of any exercise price and vesting schedule by the Board of Directors, and (iii) the terms and conditions in Athena’s equity incentive plan under which the grant is made and the applicable grant agreement form in effect at the time of approval. Regardless of any agreement to the contrary, any grant of a right to acquire shares of Athena stock will be solely an incentive to potential future performance from the date of vesting forward, and Employee will have no right to exercise that right or to acquire such stock except as explicitly set forth in Athena’s applicable equity incentive plan and agreement forms.

c. Section 409A Deferred Compensation Tax Savings Provision

i. Regardless of any provision of this Agreement to the contrary, to the extent that any payment or benefit under this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and such payment or benefit is payable upon Employee’s termination of employment, such payment or benefit shall only be payable upon Employee’s Separation from Service. “Separation from Service” means Employee’s separation from service from Athena, an affiliate thereof, or a successor entity within the meaning set forth in Section 409A, determined in accordance with the presumptions in Treasury Regulation Section 1.409A-1(h).

ii. Regardless of any provision of this Agreement to the contrary, if at the time of Employee’s Separation from Service, Athena determines that Employee is a “specified employee” within the meaning of Section 409A, then, to the extent that any payment or benefit to which Employee becomes entitled under this Agreement on account of such Separation from Service would be considered deferred compensation subject to the 20% additional tax imposed under clause (a)(1)(B)(i)(II) of Section 409A, such payment or benefit shall not be payable or provided until the earlier of (A) six months and one day after Employee’s Separation from Service or (B) Employee’s death. Any such delayed payment shall earn interest at an annual rate equal to the applicable federal short-term rate published by the Internal Revenue Service for the month in which the Separation from Service occurs, from the date of Separation from Service until the payment is made.

iii. This Agreement shall be administered in accordance with Section 409A, and, to the extent that any provision hereof is ambiguous as to its compliance with that Section, that provision shall be read so that all payments hereunder comply with that Section. This Agreement may be amended at the reasonable request of either party as necessary to fully comply with Section 409A and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

iv. Athena makes no representation or warranty and shall have no liability to Employee or any other person if any provision of this Agreement is determined to constitute deferred compensation subject to Section 409A but does not satisfy an exemption from, or the conditions of, that Section.

4. Expenses; Benefits

a. Athena shall reimburse Employee, in accordance with Athena’s policies as in effect from time to time, for reasonable expenses incurred by Employee in connection with the performance of Employee’s duties for Athena hereunder.

b. Employee will be entitled to paid time off (PTO) and leave of absence in accordance with Athena’s policies as in effect from time to time.

c. Employee will be entitled to participate in any health, life, or disability insurance plans and retirement, pension, or profit-sharing plans that may be offered by Athena, subject to the eligibility rules of each plan. Benefits under each plan are governed solely by that plan, and Athena may in its sole discretion modify or eliminate any plan or benefits thereunder on a prospective basis by notice to Employee.

5. Confidential Information

a. “Confidential Information” means any and all information belonging to Athena, or belonging to any third party (e.g., any of Athena’s affiliates, clients, or vendors) and held in confidence by Athena, that: (i) is not generally known to the public, (ii) is designated or treated by Athena or such third party as confidential, or (iii) would be reasonably understood to be of a confidential nature for a company in Athena’s industry. Confidential Information may be in any form and includes, but is not limited to, information consisting of or relating to: algorithms, formulas, methods, models, processes, and work flows; specifications; know-how, show-how, and trade secrets; Assigned Intellectual Property and Proprietary Rights (each as defined below); research and development activities and test results; patent and trademark applications; software, source code, and object code; contracts and arrangements; business records; customer and vendor lists and information; marketing plans, business plans, and financial information and projections; compensation arrangements and personnel files; tax arrangements and strategies; intercompany arrangements; costs, price lists, and pricing policies; and any existing or proposed acquisition, strategic alliance, or joint venture.

b. Confidential Information shall not include information that (i) is or becomes publicly available through no fault of Employee, (ii) is shown by written record to have been in the possession of or known to Employee prior to the Employment Period, (iii) is shown by written record to have been independently developed by Employee, or (iv) is made available without restriction to Employee by a third party outside Athena and its affiliates without breach of any confidentiality obligation. Furthermore, this Section 5 will not apply to the extent that Employee is required to disclose any Confidential Information by applicable law or legal process, and, to the extent legally permissible, Employee promptly notifies Athena of such requirement and cooperates with Athena (at its expense) to contest or limit such disclosure.

c. During the Employment Period and at all times thereafter, Employee shall use best efforts to hold all Confidential Information in the strictest confidence, without disclosure to any third party (even Athena’s employees, consultants, and professional advisors) except as necessary to perform Employee’s duties hereunder or as expressly authorized in advance by Athena, and will use such information solely for the purpose of performing services for Athena and not for Employee’s own benefit or that of any third party. Employee shall not (i) disclose or use more than the minimum amount of information necessary for the purpose of that disclosure or use; (ii) render any services to any third party to which or to whom Confidential Information has been, or is threatened to be, disclosed contrary to this Section 5; or (iii) use or disclose any information that is subject to confidentiality restrictions placed upon it by a third party and may not be disclosed to Athena (Athena expressly disclaims any request or requirement that Employee disclose or use any such information).

d. Employee recognizes and acknowledges that (i) Athena is regulated as a Covered Entity under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); (ii) in the course of employment, Employee may have access to Protected Health Information (“PHI”), as defined under HIPAA, and other personally identifiable information (“PII”) covered by applicable privacy laws; and (iii) PHI and PII are Confidential Information, subject to strict confidentially and security restrictions under HIPAA, applicable Athena policies, and other applicable law.

e. All Confidential Information and any media containing it are and shall remain the property solely of Athena or the third party that provided such information to Athena, and Employee shall not obtain any right, title, or interest in or to any Confidential Information under this Agreement or by the performance of any obligations hereunder.

6. Intellectual Property

a. Definitions

i. “Assigned Intellectual Property” means any and all Intellectual Property that is in whole or in part authored, conceived, created, developed, discovered, invented, learned, made, originated, prepared, or reduced to practice by Employee, either alone or together with others, during or after the Employment Period and (A) arises out of, is based upon, or incorporates any Confidential Information; (B) is made through the use of equipment, facilities, supplies, funds, or other property of Athena or any of its affiliates; or (C) arises out of or relates to work performed by Employee for Athena or any of its affiliates.

ii. “Intellectual Property” means all concepts, creations, developments, discoveries, ideas, improvements, innovations, and inventions; designs, models, plans, and prototypes; methods, procedures, processes, shop practices, and techniques; algorithms and formulas; data, databases, and data structures; source and object codes, software, and computer programs; systems and topologies; data, hardware, and user interfaces; reports and test results; specifications; documentation, memoranda, notebooks, notes, papers, records, workbooks, and writings; drawings, expressions, graphics, illustrations, and photographs; dress, marks, and names; works of authorship; know-how, show-how, and trade secrets; and any improvements on or to, or derivative works from, any of the foregoing, whether or not reduced to writing, patented or patentable, or registered or registrable under copyright, trademark, or similar laws.

iii. “Proprietary Rights” means any and all right, title, and interest in, to, and under (A) patents, copyrights, trademarks, service marks, and trade names that constitute or relate to Assigned Intellectual Property; (B) applications to register any of the foregoing (including, but not limited to, any continuations, divisions, extensions, and reissues of any patent application); (C) trade secrets that constitute or relate to Assigned Intellectual Property; and (D) goodwill associated with any of such trademarks, service marks, or trade names.

b. Employee hereby acknowledges and agrees that any Assigned Intellectual Property that is an original work of authorship protectable by copyright is a “work made for hire,” as that term is defined in the United States Copyright Act of 1976, and will be automatically the property solely of Athena. If the copyright to such Assigned Intellectual Property will not be Athena’s property by operation of law, Employee hereby, without further consideration, assigns to Athena all of Employee’s right, title, and interest in and to such copyright.

c. Employee hereby irrevocably and exclusively assigns to Athena all right, title, and interest that Employee has, or at any time may come to have, in and to any and all Assigned Intellectual Property and Proprietary Rights. During the Employment Period and thereafter, Employee shall (i) keep and maintain adequate and current notes and other records of all Assigned Intellectual Property, (ii) provide such notes and records to Athena from time to time upon Athena's request, and (iii) provide prompt written notice to Athena of the development or creation of any Assigned Intellectual Property or Proprietary Right. Employee agrees to execute such instruments of assignment, confirmation, conveyance, or transfer and other documents as Athena may reasonably request to confirm, evidence, or perfect the assignment of all of Employee’s right, title, and interest in and to any and all Assigned Intellectual Property and Proprietary Rights. Employee hereby waives and quitclaims to Athena any and all claims of any nature whatsoever that Employee may now or hereafter have in any Assigned Intellectual Property or for infringement of any Proprietary Rights assigned hereunder.

d. At Athena’s request and expense, Employee will assist Athena in every proper way (including, without limitation, by executing patent applications) to obtain and enforce Proprietary Rights in any country. Employee’s obligation under this paragraph shall continue indefinitely after the Employment Period.

e. By this Agreement, Employee hereby irrevocably constitutes and appoints Athena as Employee’s attorney-in-fact solely for the purpose of executing, in Employee’s name and on Employee’s behalf, (i) such instruments or other documents as may be necessary to evidence, confirm, or perfect any assignment

pursuant to the provisions of this Section 6 and (ii) such applications, certificates, instruments, or documents as may be necessary to obtain or enforce any Proprietary Rights in any country of the world. This power of attorney is coupled with an interest on the part of Athena and is irrevocable.

f. Employee’s obligation to assign Assigned Intellectual Property and Proprietary Rights shall not apply to any Prior Invention disclosed on Schedule A hereto. Employee represents that Schedule A contains a complete list of all Prior Inventions and, if there is no Schedule A attached hereto, or if it is left blank, there are no Prior Inventions. If Employee incorporates into a product, service, or process of Athena or any of its affiliates a Prior Invention or any other Intellectual Property in which Employee has an interest, or if the manufacture, use, sale, or import of any product or service of Athena or any of its affiliates or the practice of any process of Athena or any of its affiliates would infringe any Prior Invention or any other Intellectual Property in which Employee has an interest, Athena is hereby automatically granted a non-exclusive, royalty-free, fully paid, irrevocable, transferable, perpetual, world-wide license under such Prior Invention or other Intellectual Property to make, have made, modify, use, import, and sell such product or service or to practice such process, Prior Invention, or Intellectual Property.

g. The provisions of this Section 6 shall not apply to the extent that they are invalid under applicable law. For example, if Employee is a resident of the State of California, the assignment provisions of Section 6(c) shall apply only to Intellectual Property that meets any one of the following criteria: (i) at the time of conception or reduction to practice of that Intellectual Property, it relates to (A) the business, projects, or actual or demonstrably anticipated research or development of Athena of any of its affiliates; (B) any product or service of any of those entities; or (C) the manufacture or utilization of any of those products or services; (ii) it results from any work performed directly or indirectly by Employee for Athena; or (iii) it results, at least in part, from Employee’s use of Athena’s time, equipment, supplies, facilities, or trade secret information; provided, however, that Assigned Intellectual Property shall not include any Intellectual Property that that is excluded under the provisions of California Labor Code Section 2870 (a copy of which is included on Schedule A).

7. Covenant Against Competition; Non-Solicitation

a. Exclusions. Each provision of this Section 7 shall not apply to the extent that it is invalid under applicable law (e.g., if Employee is a resident of the State of California, the provisions of Section 7(c) shall not apply at any time following the Employment Period). In addition, the provisions of Section 7(c) shall not apply at any time following the Employment Period if Employee’s employment is terminated by Athena without Cause or by Employee for Good Reason (see definitions in Section 7(f)).

b. Maintenance of Third-Party Confidentiality. Athena respects the confidentiality of third parties’ information, and Employee shall not provide any information that is confidential to a former employer to Athena or use such information in the performance of Employee’s duties as an Athena employee.

c. Non-Compete. During the Employment Period, Employee shall not render any services in any capacity to any Competitive Business or be a director, officer, stockholder, partner, principal, manager, member, owner, or trustee of, or joint venturer with, any Competitive Business, provided that Employee may own up to 2% of an entity’s equity securities that are traded on any national securities exchange. Following the Employment Period, Employee shall not, in the United States, at any point during the six months (or twelve months if the Employment Period was longer than six months) immediately following the Employment Period: (A) render any services in any capacity to any Competitive Business; or (B) be a director, officer, stockholder, partner, principal, manager, member, owner, or trustee of, or joint venturer with, any Competitive Business, provided that Employee may own up to 2% of an entity’s equity securities that are traded on any national securities exchange.

d. Non-Solicitation. At all times while Employee is subject to any of the restrictions of Section 7(c), Employee shall not, directly or indirectly:

i. solicit or encourage any of the following to purchase or use products or services competitive with those offered by Athena or any of its affiliates: (A) any client of Athena or any of its affiliates or (B) any prospect of Athena or any of its affiliates with which Employee had contact in connection with employment by Athena; or

ii. on behalf of Employee or any third party, (A) solicit or encourage any employee of Athena or any of its affiliates to leave such employment or (B) hire or retain as an employee, consultant, or in any other capacity any person who has left the employment of Athena or any of its affiliates within one year of such hiring or retention.

e. Tolling. Except to the extent prohibited by applicable law, if Employee violates any of his or her obligations under this Section 7, the term of that obligation will be extended by a period equal to the duration of such violation.

f. Definitions

i. “Cause” means any of the following: (A) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (B) a conviction of, or a plea of guilty or nolo contendere to, any felony (not involving the operation of a motor vehicle) or any misdemeanor involving moral turpitude; (C) engagement in any activity that Employee knows or should know could materially harm the business or reputation of Athena or any of its affiliates, provided that this clause (C) shall not apply to any actions taken or omitted in a good faith belief that the action taken or omission was in the best interest of Athena; (D) material violation of any statutory, contractual, or common law duty or obligation owed to Athena (including, without limitation, the duty of loyalty) that causes demonstrable injury to Athena or any of its affiliates; (E) material breach of this Agreement; or (F) repeated failure, in the reasonable judgment of Athena, to substantially perform Employee’s assigned duties or responsibilities; provided that an event described in (E) or (F) above shall constitute Cause only after written notice from Athena describing such event in reasonable detail and Employee’s failure to cure the breach or failure, as applicable, within thirty days of receiving such written notice, provided that written notice must be provided only if such event is capable of cure.

ii. “Competitive Business” means any business engaged in the development, offer, license, sale, service, or support of any product or service that competes with any product or service that is developed or sold by Athena or any of its affiliates, or that Employee is materially involved in planning, at any time during the Employment Period; provided that Competitive Business shall not include a business that is primarily engaged in insuring medical care. Examples of Competitive Businesses include, but are not limited to: Automatic Data Processing, Inc. (AdvancedMD); Allscripts Healthcare Solutions, Inc.; CareCloud Corporation; Cerner Corporation; Doximity, Inc.; eClinicalWorks, LLC; Epic Systems Corporation; Greenway Medical Technologies, Inc.; Medical Information Technology, Inc. (Meditech); Medfusion, Inc.; NextGen Healthcare Information Systems, LLC; PDR Network, LLC; Practice Fusion, Inc.; Quantia Communications, Inc. (QuantiaMD); ShareCare, Inc.; SkyScape.com, Inc. (Physicians Interactive); Surescripts, LLC; WebMD Health Corp. (Medscape); and WorldOne, Inc. (WorldOne Interaction/Sermo).

iii. “Good Reason” means either of the following that arises without Employee’s written consent: (A) if Employee commutes, a permanent relocation of Employee’s assigned office that results in an increase in Employee’s one-way commuting distance by more than 35 miles; (B) a 5% or greater decrease in the total of Employee’s base salary and target bonus compensation at plan (except for any decrease in compensation that applies to Athena employees generally); or (C) a material reduction in the Employee’s duties, authority, or responsibilities relative to the duties, authority, or responsibilities in effect immediately prior to such reduction. Regardless of the foregoing, termination for Good Reason shall not exist unless (I) such termination occurs within 90 days after the initial existence of any condition that constitutes Good Reason, (II) written notice is provided to Athena (or any successor entity) of the existence of the Good Reason condition within 30 days

following the initial existence of the condition, and (III) Athena (or its successor entity) fails to cure such condition within a period of 30 days following such written notice.

8. Equitable Relief

Employee acknowledges and agrees that the rights and obligations set forth in Sections 5, 6, and 7 of this Agreement are of a unique and special nature, that Athena would be materially and irreparably damaged if Employee breached any of those Sections, that monetary damages or any other remedy at law would not adequately compensate Athena for such injury, and that the provisions of those Sections are reasonable and necessary to preserve to Athena valuable proprietary and confidential information that gives Athena advantage over its competitors. Accordingly, in addition to any other rights and remedies it may have, Athena will be entitled to (a) an injunction, specific performance, or other equitable relief (without the necessity of posting any bond or other security or proving damages) in case of any breach or threatened breach by Employee of Sections 5, 6, or 7 and (b) indemnification against any costs and expenses (including, but not limited to, actual attorneys’ fees and court costs) incurred by Athena in obtaining any relief under clause (a).

9. Notices

Notices and other communications required or permitted to be given under this Agreement must be in writing and will be deemed to have been duly given (a) when personally delivered; (b) on the third business day after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid); or (c) on the next business day after timely delivery to an overnight courier; in each case addressed to the intended recipient at the applicable address set forth on the signature page hereto (or such other address as the intended recipient may specify from time to time by notice to the other party).

10. Mediation; Jurisdiction; Waiver of Jury Trial

Except with respect to remedies and rights set forth in Section 8, any dispute or controversy arising under or relating to this Agreement or concerning Employee’s employment with or separation from Athena will be referred to mediation administered by JAMS in accordance with its employment dispute resolution rules. The mediation shall be held in the state in which the office to which Employee reports is located, and Athena shall pay the full costs thereof, excluding attorneys’ expenses and fees. If the dispute or controversy is not resolved through mediation or direct negotiation, then any action relating to that dispute or controversy must be brought in a court of competent jurisdiction in the state in which the office to which Employee reports is located. Each party agrees that any such dispute shall be tried by a judge alone and hereby waive and forever renounce the right to a trial before a civil jury.

11. Miscellaneous

This Agreement may be executed in two or more counterparts, which together will be deemed one original. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may only be amended by a written agreement signed by both parties hereto. If any provision of this Agreement is held to be unenforceable or overly broad, such unenforceability shall not render any other provision unenforceable, and the court or tribunal making such determination shall modify such provision so that the provision will be enforceable to the broadest extent permitted by law. This Agreement will be binding upon and inure to the benefit of both parties and their respective successors and assigns; provided, however, that the obligations of Employee are personal and may not be assigned by him or her. No waiver by Athena of any breach under this Agreement will be considered valid unless in writing signed by Athena, and no such waiver will be deemed a waiver of any subsequent breach. This Agreement, performance hereunder, and Employee’s employment with or separation from Athena shall be governed by the laws of the state in which the office to which Employee reports is located, without regard to conflict of laws principles; provided, however, that wage and hour matters shall be governed by the laws of the state in which Employee is domiciled.

In witness whereof, the parties hereto have executed this Agreement as of the Effective Date.



EMPLOYEE /s/ Kristi A. Matus [Signature] Print name: Kristi A. Matus Print address: 11 Westwood Road West Hartford, CT 06117	ATHENAHEALTH, INC. By: /s/ Daniel Orenstein Name: Daniel Orenstein Title: General Counsel 311 Arsenal Street, Watertown, MA 02472

SCHEDULE A TO EMPLOYMENT AGREEMENT



Employee Name:			Kristi Ann Matus
Effective Date:		July 21, 2014
Position:	Chief Financial & Administrative Officer

Conflicting Agreements: The following is a complete list of all agreements may prohibit, restrict, or impair the ability of Employee to work in any capacity or position at Athena:



	No such agreements
X	The agreements listed below (attach a copy of each agreement)

Non-solicitation agreement with Aetna relative to employees or customers until July 1, 2015.

Compensation: Employee’s base salary will be at an annual gross rate set forth below, which rate may be increased from time to time in Athena’s sole discretion or decreased by written consent of the parties (the “Base Salary”). The Base Salary and any cash payments identified in Other Compensation below shall be payable in accordance with Athena’s payroll practices, as in effect from time to time, and shall be subject to required federal, state, and local taxes and withholdings. Employee will be entitled to annual consideration for a bonus based on Employee’s and Athena’s performance, provided that Employee was an employee of Athena during the third quarter of the year in question, is not on an action plan at the time of the performance review, and remains an employee of Athena at the time that the bonus is to be paid. Such bonus, if any, shall be determined by Athena in its sole discretion, and shall be paid according to the schedule determined by Athena; provided that, with respect to Employee’s annual bonus for fiscal year 2014, Employee’s annual bonus will be based on a “Meets” expectations personal achievement, with a Target Bonus based on 80% of the Base Salary actually earned by Employee during fiscal year 2014, as adjusted up or down based on attainment of the corporate scorecard applicable to fiscal year 2014. Employee will be entitled to annual consideration for long-term incentive compensation in the form of an equity award based on Employee’s performance. Such equity award, if any, shall be determined by Athena and its sole discretion. Employee’s target equity award (expressed as a percentage of Base Salary) based on individual performance rating for 2014 is as follows:



	Below	Meets	Exceeds
Target Equity Award	275%	450%	675%



Base Salary:	400,000



Other Compensation:	• An Initial Equity award consisting of a stock option exercisable for 30,000 shares of Athena common stock and • 40,000 restricted stock units issuable for shares of Athena common stock • Severance as and to the extent earned as set forth in Schedule B hereto • A non-refundable hiring bonus of $200,000, to be paid following Employee’s commencement of work at Athena

Initials of Employee: KAM Schedule A – Page 1

Prior Inventions: The following is a complete list of all Prior Inventions.



X	No Prior Inventions
	Prior Inventions described below (reference and attach additional, initialed sheets if necessary)

CALIFORNIA LABOR CODE SECTION 2870

2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

Initials of Employee: KAM Schedule A – Page 2

SCHEDULE B TO EMPLOYMENT AGREEMENT

Regardless of any provision of this Agreement to the contrary, if Athena terminates Employee’s employment without “Cause” (as defined in the Agreement) or Employee resigns her employment for “Good Reason” (as defined in the Agreement), then Athena shall continue to pay Employee’s base salary at the then-current rate and in accordance with Athena’s regular payroll practices until the end of the Severance Period set forth below. Solely for purposes of Section 409A, each such payment shall be considered a separate payment. In addition, if Athena terminates Employee’s employment without “Cause” (as defined in the Agreement) or Employee resigns her employment for “Good Reason” during the first four years of her employment, the stock options and restricted stock options that Employee is granted at the commencement of her employment (the “Initial Equity” listed in Schedule A of the Agreement) will continue to vest through the first vesting date that next follows such termination of employment. Thus, for example, if such an event occurs after Employee has been employed by Athena for 18 months, then subject to the conditions below Employee will become vested in the Initial Equity as though she had been employed for two full years. No benefits shall be provided or paid for by Athena following termination of employment.

As a condition to her receipt of severance, Employee must execute an Athena-prepared separation agreement containing a mutual release of claims between the parties, and mutual covenants of cooperation, confidentiality, and non-disparagement (the “Separation Agreement”). Athena must deliver the Separation Agreement to Employee by no later than the fifteenth day following Employee’s “separation from service” as defined under Section 409A; provided that, if such Separation Agreement is not delivered to Employee by such time, the severance payments described below shall not be conditioned on her execution of the Separation Agreement and she shall be entitled to receive the severance pay without any conditions. Upon receiving a timely Separation Agreement, Employee must deliver a fully executed copy of the Separation Agreement to Athena within twenty-one days following the date that the Separation Agreement is initially delivered to her by Athena; provided that, if Employee fails to deliver a fully-executed Separation Agreement to Athena in such 21-day period, she shall be deemed to have irrevocably forfeited her right to the severance payments in this Schedule B. Notwithstanding any other payment schedule set forth in this Agreement, none of the severance payments will be paid or otherwise delivered prior to the effective date of the Separation Agreement. If the Separation Agreement could become effective in more than one calendar year (depending on when the Employee delivers the Separation Agreement), then to the extent that any severance payments described in this Schedule B are not exempt from Section 409A the severance payments shall be delayed until the second of those two taxable years, with the balance of the severance payments being paid as originally scheduled.





Severance Period:	Twelve months immediately following the end of the Employment Period

Initials of Employee: KAM Schedule B – Page 1

ATHN-2014.09.30-EX 10.2

AMENDMENT NO. 2 TO OFFICE LEASE AGREEMENT

THIS AMENDMENT NO. 2 TO OFFICE LEASE AGREEMENT (this “Amendment”) is made as of the 18th day of August, 2014 by and between JAMESTOWN Ponce City Market, L.P., a Delaware limited partnership (“Landlord”) and athenahealth, Inc., a Delaware corporation (“Tenant”).

RECITALS:

Landlord and Tenant entered into that Office Lease Agreement dated March 7, 2013 (the “Original Lease”), amended by that certain Amendment No. 1 to Office Lease Agreement dated April 23, 2014 (the Original Lease, as amended, is referred to herein as the “Lease”) for certain premises known as Suite 9000 (the “Premises”) in that certain mixed use commercial project located at 675 Ponce de Leon Avenue, NE, Atlanta, Georgia.

The parties desire to amend the Lease to provide for the expansion of the Premises, in accordance with the terms hereof.

NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars ($10.00) and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, the parties do hereby covenant and agree as follows:

1.Defined Terms. Any defined term used in this Amendment and not defined herein shall have the definition set forth in the Lease.

2.Recitals. The Recitals of the Original Lease are amended to replace the number “475,618” with the number “557,122.”

3.Basic Provisions. Sections 1.1(b), (j) and (m) of the Original Lease are hereby deleted and replaced with the following, respectively:

“(b) Base Rent: For that portion of the Demised Premises on the 8^th Floor, consisting of approximately 30,291 square feet:




Lease Year	Annual Base Rent PSF	Monthly Base Rent	Annual Base Rent
Year 1	$0.00	$0.00	$0.00
Year 2	$25.50	$64,368.38	$772,420.50
Year 3	$26.01	$65,655.74	$787,868.91
Year 4	$26.53	$66,968.35	$803,620.23
Year 5	$27.06	$68,306.21	$819,674.46
Year 6	$27.60	$69,669.30	$836,031.60
Year 7	$28.15	$71,057.64	$852,691.65
Year 8	$28.72	$72,496.46	$869,957.52
Year 9	$29.29	$73,935.28	$887,223.39
Year 10	$29.88	$75,424.59	$905,095.08
Year 11	$30.48	$76,939.14	$923,269.68

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For that portion of the Demised Premises on the 9^th Floor, consisting of approximately 45,349 square feet:




Lease Year	Annual Base Rent PSF	Monthly Base Rent	Annual Base Rent
Year 1	$0.00	$0.00	$0.00
Year 2	$29.84	$112,767.85	$1,353,214.16
Year 3	$30.43	$114,997.51	$1,379,970.07
Year 4	$31.04	$117,302.75	$1,407,632.96
Year 5	$31.66	$119,645.78	$1,435,749.34
Year 6	$32.29	$122,026.60	$1,464,319.21
Year 7	$32.94	$124,483.01	$1,493,796.06
Year 8	$33.60	$126,977.20	$1,523,726.40
Year 9	$34.27	$129,509.19	$1,554,110.23
Year 10	$34.96	$132,116.75	$1,585,401.04
Year 11	$35.66	$134,762.11	$1,617,145.34

Base Rent for the first Lease Year is abated in accordance with Paragraph 1 of Exhibit H, attached to the Lease.

(j) Office Component Area: Approximately 557,122 square feet.

(m) Tenant’s Proportionate Share: Thirteen and 58/100 percent (13.58%)”

4. Exercise of 20,000 Expansion Right. (a) Landlord and Tenant hereby acknowledge and agree that Tenant has exercised the 20,000 Expansion Right set forth in Exhibit H, Paragraph 8(a) of the Original Lease, and that for all intents and purposes, that certain space containing approximately 21,155 rentable square feet as depicted on Exhibit A attached hereto shall be deemed to be the 20,000 Expansion Space. Landlord shall deliver the 20,000 Expansion Space to Tenant on July 1, 2015 (the “20,000 Expansion Delivery Date”) with the Landlord’s Work within the 20,000 Expansion Space Substantially Complete.

(b) Following the 20,000 Expansion Delivery Date, Tenant shall perform the Tenant’s Work with respect to the 20,000 Expansion Space, in accordance with and pursuant to the terms and conditions of Exhibit D to the Original Lease (as previously amended), except that Landlord shall contribute as the “Tenant Allowance” for the 20,000 Expansion Space an amount equal to One Million Four Hundred Sixty-Eight Thousand Five Hundred Nine and 58/100 Dollars ($1,468,509.58), and the FF&E and Rent Cap for the 20,000 Expansion Space shall be ten percent (10%) thereof.

(c) The earlier of the date upon which Tenant commences operations within the 20,000 Expansion Space, or November 1, 2015, shall be the “20,000 Expansion Commencement Date.”

(d) The Lease is hereby amended so that, as of the 20,000 Expansion Commencement Date, the Demised Premises shall include the 20,000 Expansion Space, such that:

2745827-5 11723.0024904

(i) The Demised Premises Area as set forth in Section 1.1(h) of the Original Lease shall be 96,795 rentable square feet; and

(ii) Tenant’s Proportionate Share shall be seventeen and 37/100 percent (17.37%).

(e) Commencing on the 20,000 Expansion Commencement Date, Tenant shall pay to Landlord Base Rent for the 20,000 Expansion Space in the amounts set forth below, with the term “Lease Year” unchanged and the same as the Lease Year for the initial Demised Premises:




Lease Year	Annual Base Rent PSF	Monthly Base Rent	Annual Base Rent
Year 2	$25.50	$44,954.38	$539,452.50
Year 3	$26.01	$45,853.46	$550,241.55
Year 4	$26.53	$46,770.18	$561,242.15
Year 5	$27.06	$47,704.53	$572,454.30
Year 6	$27.60	$48,656.50	$583,878.00
Year 7	$28.15	$49,626.10	$595,513.25
Year 8	$28.72	$50,630.97	$607,571.60
Year 9	$29.29	$51,635.83	$619,629.95
Year 10	$29.88	$52,675.95	$632,111.40
Year 11	$30.48	$53,733.70	$644,804.40

5. Tenant Parking. Commencing on the 20,000 Expansion Commencement Date, Landlord shall provide and Tenant shall rent from Landlord an additional sixty-four (64) parking spaces in the parking facilities serving the Office Component, based on a ratio of three (3) spaces per one thousand (1,000) rentable square feet of the 20,000 Expansion Space. Of such parking spaces, twenty-five percent (25%), or sixteen (16) parking spaces, shall be Standard Spaces, and the remaining seventy-five percent (75%), or forty-eight (48) parking spaces, shall be Premier Spaces. Tenant shall pay the parking fees for all parking spaces in the manner and in the amounts set forth in Section 5.2 of the Original Lease.

6. 40,000 Expansion Right. Section 8(b) of Exhibit H of the Original Lease is hereby amended to insert the following at the end thereof:

“The 40,000 Notice must be delivered no later than July 1, 2016 in order to be effective. Landlord shall deliver the 40,000 Expansion Space to Tenant within twelve (12) months after receipt of the 40,000 Notice (the “40,000 Expansion Delivery Date”), and thereafter Tenant shall perform the Tenant’s Work with respect to the 40,000 Expansion Space, in accordance with and pursuant to the terms and conditions of Exhibit D to the Lease (as previously amended). The 40,000 Expansion Space shall become part of the Demised Premises, and Base Rent and all Additional Rent shall commence with respect to the

2745827-5 11723.0024904

40,000 Expansion Space, on the earlier to occur of (i) the date upon which Tenant commences operations within the 40,000 Expansion Space, or (ii) the date which is one hundred twenty (120) days after the 40,000 Expansion Delivery Date, which date shall be the ‘40,000 Expansion Commencement Date.’”

7. Commencement Date. Section 8(c) of Exhibit H of the Original Lease is amended as follows:

(a) The phrase “(the Expansion Date”) is deleted from where it appears in the second line of subparagraph (i).

(b) The phrase “Expansion Date” is deleted from where it appears in line 4 of subparagraph (i), line 2, line 4 and line 5 of subparagraph (ii), line 4 of subparagraph (iii), and line 1 of subparagraph (iv), and replaced in each instance with the phrase “the 20,000 Expansion Commencement Date or the 40,000 Expansion Commencement Date, as applicable.”

8.Ratification. Except as amended hereby, the Lease is ratified and confirmed, and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered on the day and year first written above.

[Remainder of page intentionally blank]

2745827-5 11723.0024904

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the date written above.



		LANDLORD:
		JAMESTOWN Ponce City Market, L.P., a Delaware limited partnership By: JT Ponce City Market GP, LLC, a Georgia limited liability company, its general partner By: _/s/ Molly Mackenzie__________ Name: _Molly Mackenzie__________ Title: _Authorized Person__________



		TENANT:
		athenahealth, Inc., a Delaware corporation By: _/s/ Bridger McGaw___________ Name: _Bridger McGaw___________ Title: _Director___________________

2745827-5 11723.0024904

EXHIBIT A

20,000 Expansion Space

2745827-5 11723.0024904

ATHN-2014.09.30-EX 31.1

EXHIBIT 31.1

Certification

I, Jonathan Bush, 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:	October 17, 2014	/s/ Jonathan Bush
		Chief Executive Officer

ATHN-2014.09.30-EX 31.2

EXHIBIT 31.2

Certification

I, Kristi A. Matus, certify that:

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

(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:	October 17, 2014	/s/ Kristi A. Matus
		Executive Vice President, Chief Financial and Administrative Officer

ATHN-2014.09.30-EX 32.1

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 September 30, 2014, 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 September 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of athenahealth, Inc.

Dated as of this 17th day of October 2014.




s/ Jonathan Bush				/s/ Kristi A. Matus
Jonathan Bush Chief Executive Officer				Kristi A. Matus Chief Financial Officer

athn-20140930.xml
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athn-20140930.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

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