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Greenway Medical Technologies (NYSE:GWAY)

Q3 2013 Earnings Call

May 06, 2013 5:00 pm ET

Executives

William G. Esslinger - Chief Legal Officer, Vice President, Secretary and General Counsel

Wyche T. Green - Chief Executive Officer, President and Director

James A. Cochran - Chief Financial Officer and Principal Accounting Officer

Analysts

Zachary William Sopcak - Morgan Stanley, Research Division

Gavin Weiss - JP Morgan Chase & Co, Research Division

Ryan Daniels - William Blair & Company L.L.C., Research Division

Charles Rhyee - Cowen and Company, LLC, Research Division

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Caroline LeCates - Lazard Capital Markets LLC, Research Division

Neil Chatterji - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen. Welcome to the Third Quarter 2013 Greenway Medical Technologies, Inc. Investor Conference Call. My name is Cheverly, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to hand the presentation over to your host for today, Mr. Bill Esslinger, Chief Counsel. You may proceed, sir.

William G. Esslinger

Thank you, Cheverly. Good afternoon, everyone, and welcome to the Greenway Medical Technologies' 2013 Third Quarter Conference Call. In the course of this conference call, management may make statements that contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements regarding future events, our company performance or estimates or projections relating to the future. Although the company believes that the assumptions underlying any forward-looking statements are reasonable, we operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial performance or results of operations. Therefore, the company's actual results could differ materially from those that may be projected in management's discussions.

Additional detailed information concerning a number of factors that could cause actual results to differ from the information that management may give you is detailed in the company's filings with the SEC, including, but not limited to, the company's Form 10-K for the year ended June 30, 2012. Copies of these reports are available upon request.

In addition, during today's call, we will refer to certain non-GAAP financial measures. Please refer to today's earnings press release available in the Investor Relations portion of our website at greenwaymedical.com for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

With that said, I'll now turn the call over to the President and Chief Executive Officer of Greenway Medical Technologies, Mr. Tee Green. Tee?

Wyche T. Green

Thanks, Bill, and good afternoon, everyone. Thanks for joining our investor call today. We're in the midst of a fairly pronounced and accelerated shift of our revenues from nonrecurring license and training sales to cloud-based subscription services and business services. More provider groups of every size are opting to join the PrimeSUITE platform through our cloud-based PLUS S offering than in the past. An uptake of our subscription services for data liquidity, patient engagement and mobility, as well as business services continues to gain traction.

Our plan to move toward a recurring model was working. Unfortunately, it's working faster than we have budgeted. That had an impact on our third quarter results and led to last week's revision of our outlook for the remainder of fiscal '13. The composition of our pipeline in our bookings is changing and is changing quickly. Our pipeline continues to grow. But where we once had a relatively predictable view into which deals or premise in which were PLUS S, we're seeing 2 things happen.

First, the percentage of transactions that are identified as PLUS S is growing. PLUS S transactions are more than 15% of our total pipeline in dollar value, and that's up from historical levels in the low double digits. That's an incremental change but it's not significant.

The second factor is significant. At this time, the majority of our pipeline is transactions that are quoted with the option of both premise and PLUS S. Our prospective new customers are moving through the sales cycle. And at the same time, they're running all of the analysis, making evaluations of just how they will join our fully integrated platform. By design, we're offering our customers flexibility in how to deploy our platform. This makes it difficult for us to forecast based on historical patterns.

Having said that, we take responsibility for those forecasts. They were based on the information we had about onetime revenue, as well as recurring revenue growing at a certain pace. Our actual results demonstrate that the pace is faster than we expected, even 3 months ago. This transition has been deliberate on our part. So we also take responsibility for executing on a strategy to offer our customers the flexibility to deploy our solutions in ways that work for their organizations. We planned it. We've shared those plans with you on calls like this. Over time, this will be a great thing for our customers and for our shareholders, but we understand the pain that comes from any technology company engaged in this transition.

This is more than a pipeline issue. It had revenue implications during the third quarter. We had 4 transactions working their way through our pipeline that were expected to be deployed as premise sales. Back in February, when we reviewed our pipeline and its expected conversion, these transactions were expected to be recognized as a onetime systems sales and training revenue. As these transactions move to the finish line and they did close during the quarter, the deployment method chosen was our cloud solution PrimeSUITE PLUS S. This was just under $1 million in revenue that would have been nonrecurring revenue and now comes to us as a monthly subscription revenue as support services and training revenue that is deferred into the future. We've added the providers. And over time, I expect we'll recognize as much more revenue as we would have with the onetime sale.

On the Training and Consulting side, we can identify well over $1 million in training revenue related to a number of sites that was pushed into future periods. Some of these include training hours that had originally been expected for the second quarter and frankly, these are largely a matter of our enterprise customers dictating a schedule for training that didn't meet the quarterly reporting cycle.

Finally, there are several transactions that were scheduled to close in the third quarter and moved beyond the quarter. The total bookings related to those transactions were greater than $4 million. That's not to say it would have been current quarter revenue if they all closed, but these are quoted on various deployment methods.

I point these out because there was a clear path towards the forecast we presented in February. The elements were that they had come together during the third quarter, we would have felt comfortable maintaining our prior outlook for 2013. Our revised outlook now shifts the deployment assumptions fairly dramatically. To be as conservative as possible with the current fiscal '13 outlook is based on what we've already booked through 5 weeks of the fourth quarter, plus the scheduled backlog and an assumption that the overwhelming majority of customers sold during the remainder of the quarter will offer a cloud-based deployment.

This is a significant change in our thinking, and I hope it gives you comfort that we can meet these numbers. As we now approach 60% of our revenue coming from recurring sources, we expect that to climb. This thinking is influencing how we are looking at fiscal '14 as we build our budgets for next year.

This is a good time for me to turn the call over to Al for a detailed review of our financial results for the quarter. Al?

James A. Cochran

Thanks, Tee, and good afternoon, everyone. Tee has walked you through the dynamics of our results for fiscal '13's third quarter, results that tell the story of declining system sales and deferred training but continued growth in recurring revenue. Total revenue of $33.8 million for the quarter grew by 3%. This reflects a 28% year-over-year growth of recurring revenue, offset by an 18% decline of nonrecurring revenue.

Our System Sales revenue of $10.4 million was up 1.5%. Sales of PrimeSUITE deployed on the premise model declined as a result of the shift by customers to our PLUS S cloud offering, as well as lower overall sales volume. Growth in System Sales came from our strategic partnership relationship, notably Walgreens. This relationship continues to grow as we support that company's expanding health cloud strategy. This relationship is structured very differently than traditional software sales, and as a result, has performed at lower margins. In fact, most of the growth in cost of goods sold related to Systems Sales is tied to the nature of the work we have performed on behalf of our partner.

Overall System Sales margins were 50%, which is down from prior year levels due to our strategic partnership work, as well as higher amortization expense. Training and Consulting services declined by 45% from last year, which is in part due to deferred training at several enterprise sites, as Tee mentioned, as well as fewer overall deployments.

During last year's third quarter fiscal '12, we added more than 1,200 providers, including 900 physicians to our platform. We also pushed the days go-live forward during last year, as providers were rushing to attest for Meaningful Use.

If you recall, Training and Consulting revenue in the third quarter of fiscal '12 grew by 72% from fiscal '11, so we're clearly coming up against a tough comp on this revenue line. Training and Consulting services margin was 22.7% for the third quarter, which is down year-over-year but up sequentially, as we've made adjustments to our deployment resources.

We generated support services revenue of $11.4 million in fiscal '13's third quarter, which is up 30% from the prior year. We also faced a tough comp in support services as well. In fiscal '12, support services grew by 51% over the fiscal '11 third quarter. However, the shift in demand for our cloud-based services is what continues to drive support services revenue growth.

And let me repeat that we had a 30% increase in support services revenue in fiscal '13 on top of a prior year 51% year-over-year growth. This point is borne out when you look at the growth of support services relative to provider growth. During the third quarter, year-over-year provider growth was 22%. Support services revenue growth of 30% demonstrates our ability to deliver more of our innovation infrastructure to our existing base.

For example, revenue from our PrimeEXCHANGE engine grew by 38%. We generated 63% growth for PrimePATIENT, our patient portal. Revenue growth for PLUS S is 61%, is roughly in line with the rate of growth of providers choosing that deployment method. Support services margin for fiscal '13's third quarter improved by 142 basis points year-over-year to 70.6%.

Our EDI and business services continues to show strong growth as well. Revenue of $7.8 million grew by 25% year-over-year, and that is accompanied by 207 basis points of margin improvement for those periods.

Attributing to EDI and business services growth was a 23% year-over-year growth in the number of providers on our RCM platform, which led to 49% revenue growth from RCM. We also incorporated some modest revenue related to acquisition, GHN-Online completed at the end of last quarter. A combination of RCM growth and GHN revenue led to the 12% sequential growth in EDI and business services.

On a revenue basis, our results were telling 2 stories, declining revenue from nonrecurring sources and steady growth coupled with margin expansion of revenue from recurring sources. These results are the product of our strategic focus. And as Tee said, the pace of this transition is occurring more rapidly than had been anticipated.

Our gross profit for fiscal '13's third quarter was $16.9 million, which is down from $18 million year-over-year, and gross margin of 49.8% declined 510 basis points from 54.9%. This decline can be attributed to lower gross margin as margin related to onetime revenue declined to just over 42% from almost 56%, and margin from recurring revenue sources improved by 210 basis points to 55.8%.

Sales, general and administrative expenses were $15.1 million, up 28% from the prior year period and research and development expenses grew by 13%. The growth in G&A expenses included some specific timing-related items, as well as the growth of G&A expenses related to GHN acquisition.

We're continuing an aggressive program that was started last quarter to leverage our infrastructure. Our goal is twofold: to align expenses relative to demand for our services and to ensure we have an appropriate infrastructure for recurring business model, the supplies to cost of goods sold, as well as to operating expenses.

Continuing on with our income statement. I'll refer to several non-GAAP or adjusted measures, and there's a detailed reconciliation of certain non-GAAP measures to their GAAP equivalent that's contained in our press release available in the Investor Relations portion of our website.

Other non-GAAP adjusted EBITDA for the 3 months ended March 31, 2013, was $588,000, which is down from $4 million from the prior year. Our adjusted EBITDA margin was 2% for fiscal '13 period, down from 12% from the prior year. Non-GAAP net income was $409,000 or $0.01 per share and is based on weighted average 30.8 million shares outstanding. And we had non-GAAP net income of $1.8 million in the prior period or $0.08 per share based on a weighted average of 24.1 million shares outstanding.

We ended the fiscal third quarter with $13.2 million in cash and cash equivalents on our balance sheet. We used $4.7 million cash to fund operations for the quarter, and this was largely related to working capital accounts. We billed one customer for a large amount of development of work toward the end of the period. A significant portion of that has already been paid during the fourth quarter.

Capitalized software development costs were $4.1 million. This include several large innovation projects that are nearing completion and will be available to the market. Maintenance CapEx was approximately $2 million, and this includes payment related to completion of our new headquarters. And finally, we had additional payments related to acquisitions completed at the end of last quarter. A lot of moving parts within this but these are all essentially onetime in nature.

At March 31, 2013, our total backlog was $103.3 million, up 16%% year-over-year and up 5% sequentially. Backlog of revenue from recurring sources grew by 29% year-over-year to $78.7 million, while backlog from system sales and training declined $24.6 million.

Finally, before I turn our call back to Tee, we're working on our fiscal 2014 business plan at this point, and we expect to provide a comprehensive outlook when we report our fourth quarter results. So that you understand where we're going directionally, we do expect continued provider growth in the range of 20% to 25%. We're expecting that the preferred method to deployment will be PLUS S, and I think it will be appropriate to set expectations along these lines.

During the transition, we would expect the System Sales will be down. That will be driven by 2 factors running in opposite directions. Our strategic partnership relationship with Walgreens should continue to grow, while software sales related to licenses will decline, as more providers opt for our cloud deployment. Our recurring revenue will continue to grow from both support and business services, which includes our innovation infrastructure, as well as traction we are seeing from RCM services, both in new accounts and adoption by our existing customers.

And at this point, let me turn the call back to Tee for some additional comments. Tee?

Wyche T. Green

Thanks, Al. I do have a few more comments before opening the call for your questions. As I said, in my opening remarks, this was a difficult quarter because of our delivery relative to the expectations that we set. It's our hope that we're establishing expectations that are adequately conservative and capture the changes that are occurring as we move faster to our recurring revenue model.

We're encouraged by a number of factors. We added more than 425 providers to our platform during the third quarter. Our bookings of $20.7 million include more than 500 providers, some of whom did go live during the third quarter. As Al said, the rate of growth of our revenue from recurring sources far outpaces our provider count, which tells you that we're offering value to our existing customers in the form of additional innovation and services.

As I said a few minutes ago, our pipeline continues to grow. We will continue to give our providers a choice in how they would join our network, and we'll continue to generate strong interest from the provider community. I will acknowledge that there's been a certain level of buyer fatigue during the past several quarters. Our sector has been driven by Meaningful Use since the HITECH Act was passed in 2009 and that demand is now in the rearview mirror.

While we're seeing the anticipated pause in the market, we're also identifying a path for our customers and prospects to continue to prepare for the changes that are on the horizon. This includes reimbursement changes, care coordination, population health management and ICD-10.

It's important that we continue to lead the provider community through these changes. In fact, in recent months, our clinically driven RCM service has moved to the proverbial pole position. We're excited now to be in a position to lead with this service across our sales platform. For our sales professionals who are leading with business services, we're seeing increased interest, deeper pipelines and growth in bookings and backlog.

During the third quarter, we added more than 70 providers to our RCM platform, bringing us to more than 375 at the close of the quarter. That represents considerable sequential growth for service line that was really just unleashed through our sales force during this quarter.

More important, as I said, we're seeing good growth in pipeline, bookings and backlog as we present a comprehensive offering that improves the financial health of our customers, as we give them the tools and services to practice better medicine.

We present a lot of material today, but I want to focus some attention on our leading position as an innovator in our segment. At last count, we're 1 of only 4 ambulatory IT vendors to achieve complete Meaningful Use Stage 2 EHR certification. We were first to receive modular EHR certification and the first to achieve complete EHR certification. Remember, there were more than 400 vendors that achieved Meaningful Use 1 certification.

Today, 7 months before providers can attest for MU2, there are only 4 ambulatory solutions to have met complete EHR certification. I'm sure that by December, the number who can bring their customers forward on the MU2 will be higher than it is today. But if you're in the market today, whether it's greenfield or a replacement buyer, small group or enterprise, our current position signals to the market that we're a reliable partner.

It also enabled us to focus our innovation resources on areas that will create value for our customers and new competitive advantages for our organization. That process is well underway at this time, and we look forward to sharing more with you in the coming months.

I appreciate your time today. We're encouraged by the accelerated acceptance of our model and our strategy. We believe that over time, the value of our cloud-based innovation and services platform that will accrue to our customers and to our shareholders under this recurring revenue model, will be far greater than the onetime purchase and ongoing maintenance of traditional license sales.

So thank you for your support. And Cheverly, I'll open this call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Ricky Goldwasser with Morgan Stanley.

Zachary William Sopcak - Morgan Stanley, Research Division

This is Zack Sopcak in for Ricky. The first question I just wanted to ask was when we look at guidance and back out the $99 million or so you've done this year in revenue, it looks like revenue is down year-over-year in the fourth order. And you mentioned that, that's conservatism on your part. Just wanted to see, does that include at all the $1 million in training that was pushed forward that you talked about? And if not, is there any expectation on when that would come back?

James A. Cochran

Zack, this is Al. It actually does not include the pushed training given the needs of these enterprise customers. We just to decided to exclude it at this point.

Zachary William Sopcak - Morgan Stanley, Research Division

And is there any point that it has to come in contractually by? Or will it just come in when it happens?

James A. Cochran

It will happen when it happens. But just felt that in the interest of conservatism that it'd be best not to include it going forward.

Zachary William Sopcak - Morgan Stanley, Research Division

Okay, great. And then Tee, you talked about buyer's fatigue following Meaningful Use Stage 1. Are you anticipating that reversing at all before Stage 2? And when do you think buyers will start getting a little bit more, I guess, excited or concerned about getting ready for Stage 2?

Wyche T. Green

Well, thanks, Zack. We're seeing it now. We're seeing the pipelines build, and I think that's leading because of MU2. It was buyer fatigue but the pipelines are growing. And so I think that's contributable to people getting ready for MU2 and seeing what's out in the market. Again, you go back to MU1 , there were 400 vendors. Now there's 4. So that's a change of events in itself.

Operator

Your next question comes from the line of Gavin Weiss with JPMorgan.

Gavin Weiss - JP Morgan Chase & Co, Research Division

I just was wondering in terms of overall market trends. Can you talk about the influence of health systems on the market? Are you seeing doctors maybe delay their decisions about an EMR and RCM pending an acquisition by a hospital? Or are they waiting for the hospital to tell them what EMR they need to use?

Wyche T. Green

Yes. Is this Gavin? Is that Gavin?

James A. Cochran

Yes.

Gavin Weiss - JP Morgan Chase & Co, Research Division

Yes. It's Gavin.

Wyche T. Green

Yes. I mean, you're definitely seeing community decisions being made. And I think, I mean, what's exciting for us is one is our capabilities from usability at the point of care. That's becoming a key factor in a lot of these enterprises and communities that may have several years ago forced some issue. But now they're seeing that the productivity has been destroyed so much that they're starting to look at some different options. And so I think usability is key, interoperability is key. And I think the walls of the health systems are coming down. I mean, you're seeing more and more sprint to what's happening in the ambulatory side of the world. And we think we're going to see that accelerate as more employers get involved in this business and start demanding change, as more consumers get involved in this business and start demanding change. But yes, you saw that, and I think buyer fatigue, as you came by the MU1, I think there was a real pause. But now that we're in MU2 and you're saying, "Hospital, what are you going to do?" And there's not an answer, I think that's when you're starting to see our pipelines build again.

Gavin Weiss - JP Morgan Chase & Co, Research Division

Okay, that's good to know. And then, Al, just trying to reconcile the full year guidance with the results in the quarter, it looks like in the fourth quarter adjusted EBITDA is going to improve. But on a GAAP basis, earnings are going to decelerate. Can you just help me there?

James A. Cochran

Sure. The -- again, in the interest of conservatism and the program that we've implemented in order to rightsize the infrastructure just conservatively did not anticipate that in the balance of this year.

Operator

Your next question comes from the line of Ryan Daniels with William Blair.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Tee, I want to go back to some of your prepared commentary on the 3 reasons that caused you to adjust your guidance for the year. One of the things you mentioned was about $4 million in anticipated sales that's built forward. So 2 questions on that. Number one, were those sales that are still in the pipeline that you're working on? Or has there been losses from a competitive standpoint? Number two, is that $4 million kind of the aggregate of a big number of deals that didn't come in the quarter? Or is that kind of a smaller isolated set of, perhaps, some larger enterprise deals?

Wyche T. Green

Yes. One, none of them are lost. They're all -- several are actually in contract negotiations, Ryan. And then, those -- that $4 million are larger transactions, so they make up about 4 or 5 transactions.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay, that's very helpful color. And then you've discussed a few times on your prepared comments and Q&A about the pipeline improving. And I'm curious if you can put a little bit more granularity on that, kind of what maybe on a year-over-year basis it's looking like or any way you guys track that, that you could share with us.

Wyche T. Green

Yes. We can -- if you look at a percent increase -- Al, what was it?

James A. Cochran

It's 30% from where we were at the end of last year.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay. And Al, a quick housekeeping for you. You mentioned the provider growth year-over-year. Could you give me that again, not the absolute number but the percentage growth in providers?

James A. Cochran

I'm sorry, Ryan, I missed it.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Just the percentage year-over-year growth, the number of providers...

James A. Cochran

Yes. That was 26%, I think it was and the growth in recurring revenue was north of 30%.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay, great. And then I guess, final question. I'll hop back in the queue. Can you talk a little bit about your customer retention rates, either in the quarter or the trailing 12 months? And then I'm also curious a little bit of a follow-up maybe for Tee, if you're seeing more hospitals push physician groups to switch to an integrated system, thinking of the Cerners or Epics of the world. And I'm curious if you're integration with both of those leading acute vendors really protects you from seeing that maybe more than others in the marketplace. So twofold question there.

Wyche T. Green

The retention rate?

James A. Cochran

Yes, retention rate remains in the 95% range, Ryan.

Wyche T. Green

Yes. And Ryan, when you're dealing with those HIS vendors and campuses where -- I think what's exciting for us is because of our interoperability and because of the usability and the success our customers are having, we are becoming a choice for those campuses. And so I think that's creating some -- certainly some opportunity for us as we come out of this buyer fatigue. And again, people are looking at MU2 now. It's -- MU2 is real. I mean, it's not going away. And you're within 7, 8 months from that becoming a reality. So I think as a company like ours that's efficient, we can move people. We can get people live more efficiently. There's more success at the point of care with our platform than others. I think that's a draw.

Operator

[Operator Instructions] Your next question comes from the line of Charles Rhyee with Cowen and Company.

Charles Rhyee - Cowen and Company, LLC, Research Division

I'd like to touch on sort of the backlog growth. Obviously, recurring revenue was still fairly strong. But the recurring revenue backlog growth has decelerated -- I mean, still quite strong. But if you look sequentially, the growth rate has been ticking down a little bit here. Likewise, when you look at the income statement, support services growth, up 30%. I understand you're saying that the comps are -- it was very tough comp in the third quarter of last year. But when you look at the sequential growth over the last 12 quarters, much stronger than we're seeing in the third quarter. I just wanted to get a sense on what's happening here. And then really, on top of that, just to think about back to the guidance, you guys talked about, if I recall correctly, this transition to SaaS is going much faster than you'd expected. But if I remember correctly, I think the SaaS mix was 51% in the first quarter, 56% in the second quarter. Now if I calculate it correct, I think it's 57% in the third quarter. When you guys gave the guidance back in February, what was your assumption for the SaaS mix for the back half of the year? And just trying to understand that.

James A. Cochran

Yes, Charles. This is Al. Well, couple of things. The -- when you mentioned the recurring revenue backlog, let me remind you that we -- that's really a rolling backlog number. We just take the current month and annualize that. So I think that the sequential growth from quarter-to-quarter, I believe, will outstrip what that actual number is at a point in time. So if you could check that. And then in terms of the growth that we mentioned, the revenue from the PLUS S transactions that we quoted, this year-over-year growth in those periods in terms of the number of implementations and transactions that we had looked to, that's been on the order of 20% or so. And the thing that happened, as Tee indicated, the growth and the -- the portion of our pipeline that's represented by PLUS S has grown rather dramatically. And a portion of the customers that are in our pipeline, who are now expressing a preference for either solution, is occurring at a much larger pace than what we'd anticipated. So that's what has led to, well, the modification of the guidance.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. So it's not -- I mean, so you didn't really have an assumption in terms of what you expected for the SaaS mix? I assume that you'd have to, right? Is it that just you have some assumption on even though you're bidding contracts on either license on premise or PLUS S, internally, my assumption is that I would think that you have an estimate of what you think will go one way or the other, right?

James A. Cochran

Well, again, that has been about 20% number that would be PLUS S. But the portion that is moving to PLUS S and the portion that we see in the pipeline that's expressing preference for PLUS S is much greater than what we had anticipated.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. Maybe one extra question here, jumping on -- following on Ryan's question. You talked about the pipeline growth being up 30% year-over-year. So you think it was improving. What was the pipeline growth looking like the last couple of quarters? And is it right to think that maybe a decelerating pipeline in the previous couple of quarters led to sort of this current period results?

Wyche T. Green

Yes. Charles, this is Tee. I think it's fair to say the last couple of quarters with, as we call it, buyer fatigue, yes, you're certainly -- that certainly attributes to that.

Charles Rhyee - Cowen and Company, LLC, Research Division

Do you have sort of a rough number of what pipeline growth was last quarter or maybe the quarter before?

Wyche T. Green

Yes. I don't have that in front of me, Charles. We can get it for you, though.

Operator

Your next question comes from the line of Sandy Draper with Raymond James.

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

A couple of housekeeping questions for a bigger picture. I missed Al or maybe it's Tee, one of you commented on that the number of docs who are on RCM, I missed that. And then the other housekeeping one is the amortization of cap software and cost of goods, what was that number?

Wyche T. Green

Yes, Sandy, on RCM platform, we launched into the sales force really this past quarter, and we're at 370-plus providers now on the platform.

James A. Cochran

And then on the amortization of capitalized software and systems cost of goods, for the quarter that number is $1.6 million, and it's up $634,000 over the year-ago period.

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

Okay, great. And then a bigger picture, Tee, you commented in your prepared remarks that sort of leading now with the RCM product. I'm just curious, is that driven by you guys and the sales force is really up pushing that and trying to drive that? Or customers are more of the -- when you get lead generation, are people looking for the revenue cycle side that you can wrap in the others' products. Just trying to figure out where the demand is coming from. Is there push from you guys or pull from the market?

Wyche T. Green

Yes, Sandy. Good question. I would say it's both. A lot of education and training on our side. And so when you look at existing customers converting, they've been waiting. They've known for some time what we were building and why we were designing it the way we are. And then new sales were, obviously, I think, that's a combination of customers excited about an option, an option to really have in this clinically-driven platform that gives them some flexibility. There's been some Hotel Californias, I guess, in software platforms in this industry. And we give them a flexibility. As their business models change, we can evolve with them. So I think it's both. I think it's our education and our training, as well as the success our early beta sites are having as a farming opportunity.

Operator

Your next question comes from the line of Jamie Stockton with Wells Fargo.

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

I guess maybe the first one and I realize this is a very preliminary view, but the 20% to 25% provider growth next year, when you think about the environment in which that would happen, is it one where the number of physicians' software decisions across the entire market, not just with you but the entire market would be up next year?

Wyche T. Green

Yes, I think so. Jamie, this is Tee. I think, obviously, with the changes in the market with MU2, with 4 platforms available out there, I think, yes, you're going to begin to see that acceleration.

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Okay. And then, Tee, you talked about, there's been some fatigue from stage 1, and now the Phase 2 is coming that you're seeing some providers come back to the market or become reengaged. Are those physicians that have adopted a different electronic health record and maybe even failed to get the Meaningful Use incentives with that other vendor or maybe failed to get the year-2 incentives with that other vendor that you're seeing come back in the marketplace?

Wyche T. Green

Yes. I mean, certainly, there's new people that were on the sideline are looking at this for the first time. That's certainly a large that we've seen in the pipeline, that growth. But then, this replacement market, I guess, as it's called, yes, you're absolutely seeing it. You're seeing people that were promised things. That they haven't been able to deliver. They didn't receive funds from Meaningful Use 1, and there's no path for MU2. So yes, that's going to create or should create some opportunity.

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Okay. And maybe just the last one for me. The implementation pushout, that there's -- it seemed like it was an issue in the December quarter, it became an issue, again in the March quarter. Is there any more color on what is causing some of these clients to defer or delay that service? Are they trying to do more of it themselves? Any color that you could give us along those lines would be great.

Wyche T. Green

Yes. We do have some large enterprises that are going live right now that are certainly using more of the train the trainer approach, so that pushes out some of it. And then, there was one site that had some request that we agreed. And so that pushes it, too. So unfortunately, those don't hit the quarters as we would want sometimes.

Operator

Your next question comes from the line of Mohan Naidu with Piper Jaffray Co.

Mohan A. Naidu - Piper Jaffray Companies, Research Division

First, for Al. Al, on the support services mix, can you comment on like what percentage of the revenues are coming from SaaS versus the regular support services or the regular on-premise clients?

James A. Cochran

I think I quoted the portion is coming from PrimePATIENT and from EXCHANGE and from SaaS individually. But it's -- with respect to SaaS, those are new customers. With respect to the some of the other technologies, those also from the same customers. But the growth in total support services, revenue of 30% outstrips the growth at our providers for the quarter, which was 22%. And Ryan, I think I misquoted that statistic when I answered your question. It's 22% growth in the provider count and 30% growth in support services revenue. So the increase over the growth in the number of providers is based on our additional adoption from the platform by existing customers.

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Okay. And on the training and the implementation revenue for the SaaS clients, how is that factored in? I know it's deferred, but is rolled into support services when it comes on?

James A. Cochran

I'm sorry, Mohan, I -- that was...

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Sorry, the training and implementation revenues for SaaS clients, how does that roll back into the revenue line? Does it come back into the support services mix?

James A. Cochran

Yes, right, right. Yes, the deferred revenue from SaaS customers will roll back in over an extended period. It's the life of the contract. And to date, we've got an aggregate on something in the order of $800,000, $900,000 in total training that's been deferred over the past several quarters, and then that will roll back in over a multiyear period.

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Yes. Tee, for you, Commonwealth, what has happened with it? I know you guys announced it at HIMMS along with several partners now. I mean, has that opened any doors at all? Or it's just like one of those things that has -- you got started but nothing has happened yet?

Wyche T. Green

Yes, I can't point to deals that it's led to. But it's certainly puts us at the forefront of interoperability, and I think what we're doing from Commonwealth is expanding Commonwealth. More and more companies are signing on. So -- and right now, the Commonwealth initiative, we're looking at different communities around the country to be the lead communities, so we can prove out these concepts.

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Any quick thoughts on PrimeRESEARCH?

Wyche T. Green

Yes. PrimeRESEARCH, we continue to evolve the platform as we look at clinical trials. I think there's 40-something different studies we're involved in right now. And I think what's exciting for us is you're seeing something that we started with that's now evolving into these population health services. We just didn't know we were ahead of our time in some of the things that we begun to offer from our PrimeRESEARCH is exactly what's happening in some of these risk-based contracts, how you manage your customers or your patients, whether you're looking at medication adherence or the like. Those are things that I think are going to be really exciting for us.

Operator

[Operator Instructions] Your next question comes from the line of Caroline LeCates with Lazard Capital Markets.

Caroline LeCates - Lazard Capital Markets LLC, Research Division

What's unique to the Walgreens contract that's causing that drag on system sales margin? And how should we think about that going forward?

James A. Cochran

Walgreens relationship has been a tremendous asset to the company. We are deploying a health cloud platform. There's license revenue associated with that. But the development work that we're doing for them currently has been at contracted rate that is not to get too specific about one customer, but the margins on the development work that we're doing are less than the 50% that we got on the total system sales margin. And that arrangement is going to continue for the next several years. It will be incremental in terms of revenue. But at the rate at which system sales are, it's going to compress margin on the overall system sales line.

Operator

Your next question comes from the line of Neil Chatterji with Sidoti & Company.

Neil Chatterji - Sidoti & Company, LLC

So I think a lot of mine have been answered already, but I guess a couple here. So if you can maybe just provide a little bit more color on what's driving the higher uptake of the PLUS S for the larger clients than in the past?

Wyche T. Green

Yes. Neil, thanks. At the end of the quarter, that's what -- that led a lot to why we -- what we did with the revision on Monday is historically, we've been able to forecast those premise transactions pretty good. And then, as we were finalizing negotiations with 4 fairly large accounts, they opted for a PLUS S. And that's what really -- when you look at -- like I mentioned earlier, when you look at several million dollars like that move that quick, it makes you look at the whole forecast different. But I think the scale that we have now in the PLUS S platform, the references we have, I think that's been a big uptick. And I think the industry is becoming more aware of cost benefits. And if you don't have the infrastructure to manage, in-house technology it becomes a great option for you. And then it comes down to whether you're going to just depend on how you're going to finance these transactions, whether they're going to be capital purchases or -- and they're going to expense them. But the total cost of ownership, I think, is what it's really coming down to.

Neil Chatterji - Sidoti & Company, LLC

Okay, okay. I mean, and then as that relates to -- I guess, as it relates to recurring revenues, so I mean, we're moving closer to the kind of that 60% level. Longer term, I mean, do you have any sort of a longer-term target for what that could potentially reach?

Wyche T. Green

Yes. I mean, it could potentially be 100% of the platform, but what we're modeling now is 80% of that platform. Because we still create options for our customers. We're not going to remove from large enterprises that want to license PrimeSUITE. The beauty about our platform is to our GSM, PrimeSUITE calls home every night, we can push to it -- it doesn't matter where it is. So again, it creates a tremendous amount of flexibility as innovation changes, we all know that. In every decade, you'll continue to see it evolve. Our whole design thesis has been no data, no customer left behind. So we'll continue to do that. But if you look at how can we be the most conservative and how we manage organization and how we provide forecast, it's this model.

Operator

[Operator Instructions]

Wyche T. Green

No questions? I think that's it, Cheverly. We want to thank you guys for your time today, and we'll talk to you next quarter.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now all disconnect, and have a great day.

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