Exhibit 99.1

athenahealth, Inc. Reports Third Quarter Fiscal Year 2011 Results

	§		33% Revenue Growth Over Third Quarter of 2010
	§		GAAP Net Income of $5.3 Million, or $0.15 Per Diluted Share
	§		Non-GAAP Adjusted Net Income of $8.7 Million, or $0.24 Per Diluted Share

WATERTOWN, MA — October 20, 2011 — athenahealth, Inc. (NASDAQ: ATHN) (the “Company”), a leading provider of cloud-based practice management, electronic health record (EHR), patient communication, and care coordination services to medical groups, today announced financial and operational results for the third quarter of fiscal year 2011. The Company will conduct a conference call tomorrow, Friday, October 21, 2011, at 8:00 a.m. Eastern Time to discuss these results and management’s outlook for future financial and operational performance.

Total revenue for the three months ended September 30, 2011 was $83.7 million, compared to $63.1 million in the same period last year, an increase of 33%.

“During Q3, athenahealth made significant progress toward our vision of an information infrastructure that makes health care work as it should,” said Jonathan Bush, the Company’s Chairman, President, and Chief Executive Officer. “Our cloud-based services continue to chip away at inefficiency in the health care supply chain and to disrupt the legacy software model.”

Bush continued, “In keeping with our mission to be medical groups’ most trusted business service, we set a new industry standard for transparency with our Meaningful Use performance dashboard, exposing our clients’ performance across all measures in near real-time. Each update to this dashboard illustrates the combined power of our cloud-based application and services model to successfully guide clients through complex payment programs. We enhanced the power of this model by completing the acquisition of Proxsys LLC and launching athenaCoordinator to enable hospitals and other receivers of patient referrals to better coordinate care.”

For the three months ended September 30, 2011, Non-GAAP Adjusted Gross Margin was 63.8%, up from 62.8% in the same period last year. Non-GAAP Adjusted EBITDA grew to $18.9 million, or 22.6% of total revenue, from Non-GAAP Adjusted EBITDA of $14.6 million, or 23.0% of total revenue, in the same period last year. For the three months ended September 30, 2011, GAAP net income was $5.3 million, or $0.15 per diluted share, and Non-GAAP Adjusted Net Income was $8.7 million, or $0.24 per diluted share. See “Use of Non-GAAP Financial Measures” below.

“The growth we achieved during Q3 reflects strong market demand for our services,” said Tim Adams, the Company’s Chief Financial Officer. “It was a very productive quarter during which we leveraged strong top line performance to invest in continued growth and innovation. As we approach the close of 2011, we are updating our fiscal year 2011 guidance.”

athenahealth’s revised fiscal year 2011 guidance is presented below:

For the Fiscal Year Ending December 31, 2011
GAAP Total Revenue		$320-325 million
Non-GAAP Adjusted Gross Margin		63.0-63.5%
Non-GAAP Adjusted EBITDA		$64-68 million
Non-GAAP Adjusted Net Income per Diluted Share		$0.78-0.85
GAAP Effective Tax Rate		~42%

Key metrics and milestones in the third quarter of fiscal year 2011 included the following:

	•		$1.9 billion in collections posted to client accounts in the third quarter of 2011, compared to $1.5 billion in the same quarter of 2010
	•		39.7 average client Days in Accounts Receivable (DAR) in the third quarter of 2011, compared to 38.8 average client DAR in the same quarter of 2010
	•		31,675 active medical providers using athenaCollector® at September 30, 2011, 22,477 of whom were physicians, compared to 26,317 providers and 18,573 physicians at September 30, 2010
	•		5,849 active medical providers using athenaClinicals® at September 30, 2011, 4,202 of whom were physicians, compared to 2,818 providers and 1,992 physicians at September 30, 2010
	•		4,117 active medical providers using athenaCommunicator® at September 30, 2011, 2,931 of whom were physicians, compared to 946 providers and 625 physicians at September 30, 2010
	•		Completed the acquisition of Proxsys LLC in an all-cash transaction on August 31, 2011 and launched the athenaCoordinator service offering

As of September 30, 2011, the Company had cash, cash equivalents, short and long-term investments of $122.2 million. The Company does not have any outstanding debt obligations. Subsequent to the quarter ended September 30, 2011, athenahealth entered into a five-year $100 million revolving credit facility. The Credit Agreement replaces a $15 million credit facility that expired September 30, 2011.

Use of Non-GAAP Financial Measures

In the Company’s earnings releases, conference calls, slide presentations, and webcasts, the Company may use or discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure, are included in this press release after the condensed consolidated financial statements. The Company’s earnings press releases containing

such non-GAAP reconciliations can be found on the Investors section of the Company’s web site at http://www.athenahealth.com.

Conference Call Information

To participate in the Company’s live conference call and webcast, please dial 800-447-0521 (or 847-413-3238 for international calls) using conference code No. 30770697, or visit the Investors section of the Company’s web site at www.athenahealth.com. A replay will be available for one week following the conference call at 888-843-7419 (and 630-652-3042 for international calls) using conference code No. 30770697. A webcast replay will also be archived on the Company’s website.

About athenahealth

athenahealth, Inc. is a leading provider of cloud-based business services for physician practices. athenahealth’s service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, automated and live patient communication services, and the coordination of care among participants in the health care system. For more information, please visit http://www.athenahealth.com/ or call (888) 652-8200.

Forward-Looking Statements

This press release contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements reflecting management’s expectations for future financial and operational performance and operating expenditures, expected growth and business outlook, statements regarding the expected benefits resulting from the Proxsys LLC acquisition, the benefits of the Company’s current service offerings, and statements found under the Company’s Reconciliation of Non-GAAP Financial Measures section of this release. The forward-looking statements in this release do not constitute guarantees of future performance. These statements are neither promises nor guarantees, and are subject to a variety of risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: the Company’s fluctuating operating results; risks associated with the acquisition and integration of companies and new technologies; the Company’s variable sales and implementation cycles, which may result in fluctuations in its quarterly results; risks associated with its expectations regarding its ability to maintain profitability; the impact of increased sales and marketing expenditures, including whether increased expansion in revenues is attained and whether impact on margins and profitability is longer term than expected; changes in tax rates or exposure to additional tax liabilities; the highly competitive industry in which the Company operates and the relative immaturity of the market for its service offerings; and the evolving and complex governmental and regulatory compliance environment in which the Company and its clients operate. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances, or otherwise. For additional disclosure regarding these and other risks faced by the Company, see the disclosures

contained in its public filings with the Securities and Exchange Commission, available on the Investors section of the Company’s website at http://www.athenahealth.com and on the SEC’s website at http://www.sec.gov.

Contacts:

Jennifer Heizer (Investors)
Director, Investor Relations
athenahealth, Inc.
(617) 402-1322
investorrelations@athenahealth.com

John Hallock (Media)
Director, Corporate Communications
athenahealth, Inc.
(617) 402-1428
media@athenahealth.com

athenahealth, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)

		September				December
		30, 2011				31, 2010
Assets
Current assets:
Cash and cash equivalents		$	66,107			$	35,944
Short-term investments			52,359				80,231
Accounts receivable — net			47,116				36,870
Deferred tax assets			4,598				3,856
Prepaid expenses and other current assets			8,295				6,749
Total current assets			178,475				163,650
Property and equipment — net			40,480				31,899
Restricted cash			5,382				8,691
Software development costs — net			5,826				3,642
Purchased intangibles — net			19,812				12,651
Goodwill			48,307				22,450
Deferred tax assets			12,148				10,959
Investments and other assets			6,188				7,228
Total assets		$	316,618			$	261,170
Liabilities & Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	—			$	2,909
Accounts payable			3,230				559
Accrued compensation			20,962				19,178
Accrued expenses			15,053				10,981
Current portion of deferred revenue			5,723				4,978
Interest rate derivative liability			—				490
Current portion of deferred rent			930				1,497
Total current liabilities			45,898				40,592
Deferred rent, net of current portion			3,179				5,960
Deferred revenue, net of current portion			41,975				35,661
Other long-term liabilities			5,550				1,897
Debt and capital lease obligations, net of current portion			—				6,307
Total liabilities			96,602				90,417
Stockholders’ equity:
Preferred stock, $0.01 par value: 5,000 shares authorized; no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			—				—
Common stock, $0.01 par value: 125,000 shares authorized; 36,599 shares issued, and 35,322 shares outstanding at September 30, 2011; 35,808 shares issued and 34,530 shares outstanding at December 31, 2010.			366				358
Additional paid-in capital			236,307				200,339
Treasury stock, at cost, 1,278 shares			(1,200	)			(1,200	)
Accumulated other comprehensive (loss) income			(402	)			28
Accumulated deficit			(15,055	)			(28,772	)
Total stockholders’ equity			220,016				170,753
Total liabilities and stockholders’ equity		$	316,618			$	261,170

athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenue:
Business services		$	80,640			$	61,087			$	223,475			$	170,051
Implementation and other			3,100				2,056				8,080				6,121
Total revenue			83,740				63,143				231,555				176,172
Expense:
Direct operating			31,695				24,543				87,985				72,163
Selling and marketing			20,784				13,233				56,540				37,986
Research and development			6,141				4,645				16,386				13,543
General and administrative			11,869				10,390				35,306				33,470
Depreciation and amortization			4,749				2,869				11,884				7,946
Total expense			75,238				55,680				208,101				165,108
Operating income			8,502				7,463				23,454				11,064
Other income (expense):
Interest income			84				75				300				219
Interest expense			(6	)			(102	)			(237	)			(437	)
Loss on interest rate derivative contract			—				(111	)			(73	)			(475	)
Other income			64				33				108				96
Total other income (expense)			142				(105	)			98				(597	)
Income before income taxes			8,644				7,358				23,552				10,467
Income tax provision			(3,364	)			(3,532	)			(9,835	)			(5,066	)
Net income		$	5,280			$	3,826			$	13,717			$	5,401
Net income per share — Basic		$	0.15			$	0.11			$	0.39			$	0.16
Net income per share — Diluted		$	0.15			$	0.11			$	0.38			$	0.15
Weighted average shares used in computing net income per share:
Basic			35,155				34,174				34,934				34,101
Diluted			36,277				35,156				35,901				35,179

athenahealth, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

		Nine Months Ended
		September 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	13,717			$	5,401
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,353				9,325
Amortization of premium on investments			1,269				938
Provision for uncollectible accounts			649				575
Excess tax benefit from stock-based awards			(10,210	)			(5,981	)
Deferred income tax			(1,931	)			(2,334	)
Increase in fair value of contingent consideration			340				304
Stock-based compensation expense			13,032				10,455
Loss on interest rate derivative contract			73				475
Changes in operating assets and liabilities:
Accounts receivable			(9,735	)			(3,403	)
Prepaid expenses and other current assets			8,688				4,009
Other long-term assets			335				(341	)
Accounts payable			2,383				(395	)
Accrued expenses			3,567				779
Deferred revenue			7,059				6,452
Deferred rent			(3,348	)			(960	)
Net cash provided by operating activities			39,241				25,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs			(5,251	)			(2,426	)
Purchases of property and equipment			(9,406	)			(14,105	)
Proceeds from sale or disposal of equipment			—				363
Proceeds from sales and maturities of investments			124,804				78,502
Purchases of short-term and long-term investments			(97,461	)			(102,204	)
Payments for acquisitions			(34,882	)			—
Decrease in restricted cash			3,309				331
Net cash used in investing activities			(18,887	)			(39,539	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under stock plans			12,826				4,440
Excess tax benefit from stock-based awards			10,210				5,981
Payment of contingent consideration accrued at acquisition date			(2,980	)			—
Payment to terminate interest rate derivative contract			(563	)			—
Payments on long-term debt and capital lease obligations			(9,216	)			(2,692	)
Net cash provided by financing activities			10,277				7,729
Effects of exchange rate changes on cash and cash equivalents			(468	)			39
Net increase in cash and cash equivalents			30,163				(6,472	)
Cash and cash equivalents at beginning of period			35,944				30,526
Cash and cash equivalents at end of period		$	66,107			$	24,054
Supplemental disclosures of non-cash items — Property and equipment recorded in accounts payable and accrued expenses		$	258			$	127
Supplemental disclosures — Cash paid for interest		$	236			$	437
Supplemental disclosures — Cash paid for taxes		$	2,164			$	1,465
Property and equipment acquired under capital leases		$	—			$	363

athenahealth, Inc.
STOCK-BASED COMPENSATION EXPENSE
(Unaudited, in thousands)

Set forth below is a breakout of stock-based compensation expense for the three and nine months ended September 30, 2011 and 2010:

		Three months ended								Nine months ended
		September 30,								September 30,
		2011				2010				2011				2010
Stock-based compensation expense charged to:
Direct operating		$	810			$	601			$	2,225			$	1,721
Selling and marketing			1,842				962				3,924				2,540
Research and development			480				524				1,496				1,527
General and administrative			1,984				1,674				5,387				4,667
Total		$	5,116			$	3,761			$	13,032			$	10,455

athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES
(Unaudited, in thousands, except per share amounts)

The following is a reconciliation of the non-GAAP financial measures used by the Company to describe the Company’s financial results determined in accordance with United States generally accepted accounting principles (GAAP). An explanation of these measures is also included below under the heading “Explanation of Non-GAAP Financial Measures”.

While management believes that these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying performance of the Company’s business operations, investors are reminded to consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. In addition, it should be noted that these non-GAAP financial measures may be different from non-GAAP measures used by other companies, and management may utilize other measures to illustrate performance in the future. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP.

Please note that these figures may not sum exactly due to rounding.

Non-GAAP Adjusted Gross Margin

Set forth below is a presentation of the Company’s “Non-GAAP Adjusted Gross Profit” and “Non-GAAP Adjusted Gross Margin,” which represents Non-GAAP Adjusted Gross Profit as a percentage of total revenue.

(unaudited, in thousands)		Three Months Ended								Nine Months Ended
		September 30								September 30
		2011				2010				2011				2010
Total revenue		$	83,740			$	63,143			$	231,555			$	176,172
Direct operating expense			31,695				24,543				87,985				72,163
Total revenue less direct operating expense			52,045				38,600				143,570				104,009
Add: Stock-based compensation expense allocated to direct operating expense			810				601				2,225				1,721
Add: Amortization of purchased intangibles			549				460				1,469				1,380
Non-GAAP Adjusted Gross Profit		$	53,404			$	39,661			$	147,264			$	107,110
Non-GAAP Adjusted Gross Margin			63.8	%			62.8	%			63.6	%			60.8	%

Non-GAAP Adjusted EBITDA Margin

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted EBITDA” and “Non-GAAP Adjusted EBITDA Margin,” which represents Non-GAAP Adjusted EBITDA as a percentage of total revenue.

(unaudited, in thousands)		Three Months Ended								Nine Months Ended
		September 30								September 30
		2011				2010				2011				2010
Total Revenue		$	83,740			$	63,143			$	231,555			$	176,172
GAAP net income			5,280				3,826				13,717				5,401
Add: Provision for income taxes			3,364				3,532				9,835				5,066
Add: Total other (income) expense			(142	)			105				(98	)			597
Add: Stock-based compensation expense			5,116				3,761				13,032				10,455
Add: Depreciation and amortization			4,749				2,869				11,884				7,946
Add: Amortization of purchased intangibles			549				460				1,469				1,380
Non-GAAP Adjusted EBITDA		$	18,916			$	14,553			$	49,839			$	30,845
Non-GAAP Adjusted EBITDA Margin			22.6	%			23.0	%			21.5	%			17.5	%

Non-GAAP Adjusted Operating Income

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Operating Income” and “Non-GAAP Adjusted Operating Income Margin.” Non-GAAP Adjusted Operating Income Margin represents Non-GAAP Adjusted Operating Income as a percentage of total revenue.

(unaudited, in thousands)		Three Months Ended								Nine Months Ended
		September 30								September 30
		2011				2010				2011				2010
Total revenue		$	83,740			$	63,143			$	231,555			$	176,172
GAAP net income			5,280				3,826				13,717				5,401
Add: Provision for income taxes			3,364				3,532				9,835				5,066
Add: Total other (income) expense			(142	)			105				(98	)			597
Add: Stock-based compensation expense			5,116				3,761				13,032				10,455
Add: Amortization of purchased intangibles			549				460				1,469				1,380
Non-GAAP Adjusted Operating Income		$	14,167			$	11,684			$	37,955			$	22,899
Non-GAAP Adjusted Operating Income Margin			16.9	%			18.5	%			16.4	%			13.0	%

Non-GAAP Adjusted Net Income

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Net Income” and “Non-GAAP Adjusted Net Income per Diluted Share.”

(unaudited, in thousands except per share amounts)		Three Months Ended								Nine Months Ended
		September 30								September 30
		2011				2010				2011				2010
GAAP net income		$	5,280			$	3,826			$	13,717			$	5,401
Add: Loss on interest rate derivative			—				111				73				475
Add: Stock-based compensation expense			5,116				3,761				13,032				10,455
Add: Amortization of purchased intangibles			549				460				1,469				1,380
Sub-total of tax deductible items			5,665				4,332				14,574				12,310
(Less): Tax impact of tax deductible items (1)			(2,266	)			(1,733	)			(5,830	)			(4,924	)
Non-GAAP Adjusted Net Income		$	8,679			$	6,425			$	22,461			$	12,787
Weighted average shares — diluted			36,277				35,156				35,901				35,179
Non-GAAP Adjusted Net Income per Diluted Share		$	0.24			$	0.18			$	0.63			$	0.36

(unaudited, in thousands except per share amounts)		Three Months Ended								Nine Months Ended
		September 30								September 30
		2011				2010				2011				2010
GAAP net income per share — diluted		$	0.15			$	0.11			$	0.38			$	0.15
Add: Loss on interest rate derivative			—				—				—				0.01
Add: Stock-based compensation expense			0.14				0.11				0.37				0.30
Add: Amortization of purchased intangibles			0.01				0.01				0.04				0.04
Sub-total of tax deductible items			0.15				0.12				0.41				0.35
(Less): Tax impact of tax deductible items (1)			(0.06	)			(0.05	)			(0.16	)			(0.14	)
Non-GAAP Adjusted Net Income per Diluted Share		$	0.24			$	0.18			$	0.63			$	0.36
Weighted average shares — diluted			36,277				35,156				35,901				35,179

athenahealth, Inc.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
TO COMPARABLE GAAP MEASURES FOR FISCAL YEAR 2011 GUIDANCE
(Unaudited, in thousands, except per share amounts)

Please note that these figures may not sum exactly due to rounding.

Non-GAAP Adjusted Gross Margin Guidance

Set forth below is a presentation of the Company’s “Non-GAAP Adjusted Gross Profit” and “Non-GAAP Adjusted Gross Margin” guidance for fiscal year 2011, which represents Non-GAAP Adjusted Gross Profit as a percentage of total revenue.

		LOW				HIGH
		Fiscal Year Ending December 31, 2011
Total revenue		$	320.0			$	325.0
Direct operating expense			123.7				123.9
Total revenue less direct operating expense		$	196.3			$	201.1
Add: Stock-based compensation expense allocated to direct operating expense			3.1				3.1
Add: Amortization of purchased intangibles			2.2				2.2
Non-GAAP Adjusted Gross Profit		$	201.6			$	206.4
Non-GAAP Adjusted Gross Margin			63.0	%			63.5	%

Non-GAAP Adjusted EBITDA Guidance

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted EBITDA” and “Non-GAAP Adjusted EBITDA Margin” guidance for fiscal year 2011, which represents Non-GAAP Adjusted EBITDA as a percentage of total revenue.

		LOW				HIGH
		Fiscal Year Ending December 31, 2011
Total Revenue		$	320.0			$	325.0
GAAP net income			15.7				18.0
Add: Provision for income taxes			11.3				13.0
Add: Total other (income) expense			(0.2	)			(0.2	)
Add: Stock-based compensation expense			18.5				18.5
Add: Depreciation and amortization			16.5				16.5
Add: Amortization of purchased intangibles			2.2				2.2
Non-GAAP Adjusted EBITDA		$	64.0			$	68.0
Non-GAAP Adjusted EBITDA Margin			20.0	%			20.9	%

Non-GAAP Adjusted Net Income Guidance

Set forth below is a reconciliation of the Company’s “Non-GAAP Adjusted Net Income” and “Non-GAAP Adjusted Net Income per Diluted Share” guidance for fiscal year 2011.

		LOW				HIGH
		Fiscal Year Ending December 31, 2011
GAAP net income		$	15.7			$	18.0
Add: Loss on interest rate derivative contract			0.1				0.1
Add: Stock-based compensation expense			18.5				18.5
Add: Amortization of purchased intangibles			2.2				2.2
Sub-total of tax deductible items		$	20.8			$	20.8
(Less): Tax impact of tax deductible items (1)			(8.3	)			(8.3	)
Non-GAAP Adjusted Net Income		$	28.1			$	30.4
Non-GAAP Adjusted Net Income per Diluted Share		$	0.78			$	0.85
Weighted average shares — diluted			35.9				35.9

		LOW				HIGH
		Fiscal Year Ending December 31, 2011
GAAP net income per share — diluted			0.44				0.50
Add: Loss on interest rate derivative contract			0.00				0.00
Add: Stock-based compensation expense			0.52				0.52
Add: Amortization of purchased intangibles			0.06				0.06
Sub-total of tax deductible items		$	0.58			$	0.58
(Less): Tax impact of tax deductible items (1)			(0.23	)			(0.23	)
Non-GAAP Adjusted Net Income per Diluted Share		$	0.78			$	0.85
Weighted average shares — diluted			35.9				35.9

Explanation of Non-GAAP Financial Measures

The Company reports its financial results in accordance with United States generally accepted accounting principles, or GAAP. However, management believes that in order to properly understand the Company’s short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures in accordance with GAAP. These items result from facts and circumstances that vary in frequency and/or impact on continuing operations. Management also uses results of operations before such items to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in the Company’s ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of the Company’s ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. Management believes that these non-GAAP financial measures provide additional means of evaluating period-over-period operating performance. In addition, management understands that some investors and financial analysts find this information helpful in analyzing the Company’s financial and operational performance and comparing this performance to its peers and competitors.

Management defines “Non-GAAP Adjusted Gross Profit” as total revenue, less direct operating expense, plus stock-based compensation expense allocated to direct operating expense and amortization of purchased intangibles, and “Non-GAAP Adjusted Gross Margin” as Non-GAAP Adjusted Gross Profit as a percentage of total revenue. Management considers these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends. Moreover, management believes that these measures enable investors and financial analysts to closely monitor and understand changes in the Company’s ability to generate income from ongoing business operations.

Management defines “Non-GAAP Adjusted EBITDA” as the sum of GAAP net income before provision for income taxes, total other (income) expense, stock-based compensation expense, depreciation and amortization, and amortization of purchased intangibles and “Non-GAAP Adjusted EBITDA Margin” as

Non-GAAP Adjusted EBITDA as a percentage of total revenue. Management defines “Non-GAAP Adjusted Operating Income” as the sum of GAAP net income before provision for income taxes, amortization of purchased intangibles, total other (income) expense, stock-based compensation expense, and “Non-GAAP Adjusted Operating Income Margin” as Non-GAAP Adjusted Operating Income as a percentage of total revenue. Management defines “Non-GAAP Adjusted Net Income” as the sum of GAAP net income before (gain) loss on interest rate derivative contract, stock-based compensation expense, amortization of purchased intangibles, and any tax impact related to these items, and “Non-GAAP Adjusted Net Income per Diluted Share” as Non-GAAP Adjusted Net Income divided by weighted average diluted shares outstanding. Management considers these non-GAAP financial measures to be important indicators of the Company’s operational strength and performance of its business and a good measure of its historical operating trends, in particular the extent to which ongoing operations impact the Company’s overall financial performance.

Management excludes each of the items identified below from the applicable non-GAAP financial measure referenced above for the reasons set forth with respect to that excluded item:

	•		Stock-based compensation expense — excluded because these are non-cash expenses that management does not consider part of ongoing operating results when assessing the performance of the Company’s business, and also because the total amount of expense is partially outside of the Company’s control because it is based on factors such as stock price, volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred.
	•		Amortization of purchased intangibles — purchased intangibles are amortized over a period of several years after an acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, this item is not considered by management in making operating decisions. Thus, including such charge does not accurately reflect the performance of the Company’s ongoing operations for the period in which such charge is incurred.
	•		Gains and losses on interest rate derivative contract — excluded because until they are realized, to the extent these gains or losses impact a period presented, management does not believe that they reflect the underlying performance of ongoing business operations for such period.