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Greenway Medical Technologies (NYSE:GWAY)

Q4 2013 Earnings Call

August 19, 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

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

Gavin Weiss - JP Morgan Chase & Co, Research Division

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

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

Charles Rhyee - Cowen and Company, LLC, Research Division

Caroline LeCates - Lazard Capital Markets LLC, Research Division

Eugene M. Mannheimer - B. Riley Caris, Research Division

Neil Chatterji - Sidoti & Company, LLC

Operator

Good day, ladies and gentlemen, and welcome to Greenway investors call. My name is Jackie, and I will be your coordinator today. [Operator Instructions] I will now like to turn the presentation over to Mr. Bill Esslinger, General Counsel. Please proceed.

William G. Esslinger

Thank you, Jackie. Good afternoon, everyone, and welcome to the Greenway Medical Technologies 2013 Fourth Quarter and Fiscal Year End 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 position 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, and thanks for joining today's investor call to discuss our fiscal '13 fourth quarter and full year results. I consider this to be a quarter of progress at Greenway, progress on several fronts. With the results we reported today, we exceeded the outlook that had been revised in April, generating revenue of $134.8 million and adjusted EBITDA of $6.7 million. Bookings for the fiscal year '13 fourth quarter were $27.9 million, which is down slightly from last year's record quarterly bookings of $28.7 million. What's encouraging for us is that bookings were up 34% sequentially.

During the last few quarters, we've talked about our efforts to build pipeline and you're seeing that bear fruit in our bookings growth and provider adds. We also continue to manage our business as we shift from a model that was dependent on onetime system sales and training to one with predictable monthly recurring revenue or MRR. Today's fiscal '13, more than 55% of our revenue was from recurring sources. That's up from 46% for all of fiscal '12. As many of you know, that revenue shift was accelerating throughout the year.

During the fourth quarter of '13, our revenue mix was 58% from recurring sources. This is progress, considerable progress. Our management team is focused on key metrics of the number of providers added to our platform and monthly recurring revenue. We're pleased with the direction of both of these metrics.

While we're not going to start reporting monthly recurring revenue just yet, you can see that quarterly revenue from recurring sources grew by 28% for the 13th fourth quarter compared to prior years more than $20 million and grew by 31% for all of fiscal '13. Our outlook for fiscal '14 contemplates continued and consistent growth in revenue from recurring sources.

During the fourth quarter, more than 790 providers were added to Greenway's platform, a significant increase from the 425 providers added in the third quarter. These providers engage Greenway for more services from our Provider Infrastructure than in the past. In fact, more than 180 providers were added to our clinically driven revenue cycle platform during the fourth quarter, a sequential growth rate of nearly 50%.

In looking at the combination of first quarter bill to date and our existing backlog for our clinically driven revenue cycle services, I expect that we'll report a similar, if not better, growth rate for our first quarter. This is an indication of the momentum that has been built by our sales teams to engage providers in conversations about how we can help them through the next stages of our continuously evolving health care environment.

A minute ago, I used the term clinically driven revenue cycle management in describing this innovative growth platform. It's a term that is consistent with the development of our offerings into inception and the evolution of our platform over this 15-year time frame. When we started in the late '90s, most of the competing solutions were single-purpose. They were all about practice management systems. We looked at the customer issues differently, developing our fully integrated platform that handles administrative, clinical and financial needs of our customers. That's their workflow, that's the system we built. We built it with a single database, separate from the application that allows clinical data to move across disparate systems, with the ability to open our platform to other innovators to offer the best solutions to our customers, with the ability to evolve this platform to meet the growing demands placed on our customers.

I'm using this forum to talk about our original roadmap because that roadmap has been proven through the years. It's valid to date, and more important, we have remained true to that roadmap, as evidenced based on market acceptance of our clinically driven revenue cycle services. So for us, clinically driven revenue cycle management is not an afterthought to clinical workflow, rather it's a recognition that our customers have chosen the business of clinical care. And our success rests on our understanding of the numerous levers that must be pulled in order for our customers to be successful. When I use the word success, I'm referring to both clinical and financial success.

Across our revenue cycle management platform, we have achieved DSOs of 33.3 days for our customers. Of course, this varies by specialty, but it's a powerful number that speaks to the power of our integrated solution, one in which clinical processes truly drive financial performance for our customers. Early indications from customers on our platform show that as clinical information is being captured at the point of care, charges are moving through our rules engine, through our clearinghouse and the insurance payers without human intervention. This is occurring in greater than 88% of the patient visits performed by the provider.

We're making it easy for providers on our platform to get paid. Our platform is heavily automated and our innovation team is proceeding to deliver 0-touch experience for our customers. What does this mean? Our objective is for no human intervention from the time the provider completes clinical documentation and submits the information from patient encounters for claim processing. Accurate processing of clinical transactions leads to faster claims processing, which results in better, more predictable cash flow to our customers. It also leads to lower cost for provider groups and provides higher customer satisfaction for our solutions.

Demand for our clinically driven revenue cycle management is being driven by recognition that the levers that must be pulled by providers are going to change, and that change is imminent. Clinical documentation, the ability to deliver payer rules at the point of care and the ability to proactively manage population health will be measures of success for providers going forward. Our platform was built on a comprehensive system prepared to help providers to timely address these changes in reimbursement. This is why our solution has been a consistent top performer in numerous rankings. It is built on a platform that has a track record of bringing our customers forward. As a reminder, we were the first ambulatory system to achieve Meaningful Use 2 certification earlier this year. Our guarantee of readiness for reimbursement programs such as Meaningful Use and ICD-10 demonstrates the strength of our system and our vision, which has been the foundation of our success.

So as I said at the beginning of this call, this was a quarter of progress and we're excited about the progress we've made. We're building momentum with a platform designed for the health care in a post fee-for-service world, a solution that enables providers to participate in outcomes-based reimbursement programs that are being advanced in health care market by both private and the government payer.

On that point, we're excited to be expanding our platform as a result of new payer relationships. Last quarter, we announced a joint project with Availity to enable physicians to exchange clinical and patient care summaries with Florida Blue, Florida's largest health insurer. Just last week, we announced participation in a similar effort with Humana to enable clinical information exchange between doctor and payer in Humana's EHR rewards program. Humana subsidizes a purchase of EHR systems by primary care physicians, and PrimeSUITE is especially attractive in this program for its unique ability to inter-operate with disparate systems without having to create custom interfaces. We have just begun participating, and we already have 5 customers that accepted the new incentive contracts.

So these are 2 examples of where Greenway's leadership and interoperability in data liquidity is putting us in a favorable position with both providers and payers as they work together to cost-effectively improve the quality of care and outcomes and improve population health.

Longer term, we expect to form these kinds of relationship with many more payers and technology partners. Our data liquidity strategy continues to advance as well. A year ago on this call, we announced our interoperability relationship with Cerner. We asked you to stay tuned on our relationship with Epic. We didn't want to steal any thunder that was unleashed at our user conference. Today, we're live with CCD exchange on Cerner and Epic campuses. In fact, by the end of this week, we expect to be live on 5 Epic campuses with a pipeline of additional projects. This is real opportunity for us. It validates our go-to-market offering to large enterprise accounts that have best-of-breed ambulatory system that communicates with their existing investment in a hospital information system with a safe, efficient, and more importantly, a usable solution.

One final point on our data liquidity strategy, late in the fourth quarter, we announced a strategic partnership with HMS, Healthcare Management Systems, to integrate our solutions into their inpatient systems. HMS currently serves more than 700 health care facilities, mostly community hospitals and alternate sites, such as long-term acute care facilities. What's important in this relationship is the recognition of our positioning as a proven, easy-to-use solution for ambulatory providers to adopt, one delivered across an architecture that allows for data liquidity across the enterprise environment.

This is our roadmap. This is the roadmap we had when we started our organization. It's a roadmap that has been confirmed time and again, by market forces, by government, private payers, by increasingly more engaged health care consumers and by organizations like Walgreens that are developing exciting new ways to deliver patient care. We like our positioning in the development of a true health care system in this country.

So at this point, let me turn the call over to our Chief Financial Officer, Al Cochran, for a review of our results and our 2014 outlook. Al?

James A. Cochran

Thanks, Tee, and good afternoon, everyone. Tee referred to the progress we're making in shifting our business to recurring revenue model. And that progress is reflected in our results for the fourth quarter and fiscal 2013. Total revenue for the 3 months ended June 30, 2013, was $35.5 million, which was down 2% from the prior year. Our top line continues to tell 2 stories: onetime system sales training and consulting services declined by 26%, while our recurring support services, electronic data interchange and business services revenue, grew by 28%.

Looking first at our nonrecurring revenue items for the fourth quarter compared to the prior year period, system sales were $10.9 million, down 17% from $13.2 million. And training and consulting revenue was down -- was $4.2 million, down 42% from $7.3 million. The decline in system sales as a result of a higher proportion of our new customers adopting our cloud-based PrimeSUITE PLUS S offering.

Systems sales for the fourth quarter did benefit from higher revenue related to our strategic partnership with Walgreens. That had the effect of dampening the impact of lower license sales, but at a significantly lower margin than the traditional sale of incremental licenses. As a result, system sales margin for the fourth quarter were 46.9%.

During fiscal 2013, system sales were $41 million, up 4% from the prior year and system sales margin was 55%. Training and consulting revenue continued to decline year-over-year as a result of increased number of providers deployed in our cloud-based PLUS S solution. A higher proportion of our PLUS S solutions in our revenue mix has resulted in revenue for implementations that we performed being deferred over the estimated life of the relationship and we've increased the use of third-party resources for implementations. In addition, enterprise accounts are increasingly opting for a train-the-trainer model, resulting in fewer hours per provider in bookings and revenue. Training and consulting margin actually improved in the '13 fourth quarter to 40.9% from 37.6% for the prior year, as a result of improved resource utilization for implementations, and including related travel expenses.

Training and consulting revenue for fiscal 2013 was $19.4 million, down 30% and margin was 29.5%. As I said earlier, recurring revenue growth was 28% for the fourth quarter. And as notable that this continues to exceed the rate of provider growth, which was 20% for the period. This is a result of more of our providers consuming additional subscription services, which are captured in our support services revenue and cost of goods lines, as well as the increase use of our clinically driven revenue cycle management platform, which is on our electronic data interchange and business services category. Overall, support services revenue grew by 23% to $11.8 million for 2013's fourth quarter. This was driven largely by 65% year-over-year growth of revenue from our PLUS S offering; 54% growth of PrimePATIENT, our consumer engagement portal; and 41% growth in PrimeEXCHANGE, our interoperability engine.

Monthly maintenance and support fees for providers on our premise offering grew, but at a lower rate than overall support services revenue as more providers are choosing our cloud offering. Support services margin increased 149 basis points to 70.9% for 2013's fourth quarter and grew by 249 basis points year-over-year to 70.6% for fiscal 2013.

EDI and business services revenue grew by 37% to $8.6 million with '13's fourth quarter relative to the prior year. This was driven by 49% growth in revenue from our clinically driven revenue cycle management platform, which was launched during the fiscal year. EDI and business services margin of 35.7% was down 82 basis points. This is due to increased cost of infrastructure to support providers that went live on our RCM platform and for providers who contracted for our RCM services and were in backlog as of June 30.

EDI margins continued to benefit from our efforts to drive efficiencies, as well as from our clearinghouse acquisition last December. EDI and business services revenue of $29.9 million for fiscal 2013 increased by 26% and margins improved 374 basis points to 35.6%. All in, our gross profit for 2013's fourth quarter was $18.3 million or 51.5% of revenue. Gross profit and gross margin were impacted by amortization expense of $2 million related to acquired technology and capitalized software, which was 89% greater than for the prior year period.

For fiscal 2013, gross profit was $70.4 million and gross margin was 52.2%. Amortization expense for 2013 was $6.3 million, up 119% from fiscal 2012.

Moving on to operating expenses. Sales, general, administrative expenses grew by 12% during the fourth quarter to $15.2 million and grew by 23% for fiscal 2013 to $58.3 million, both year-over-year comparisons. SG&A expense growth decelerated significantly during the fourth quarter, as we adjusted our spending to reflect the shift to a recurring revenue model. Research and development expenses of $5.2 million increased by 11% for the quarter relative to the comparable prior year periods, and R&D expense grew by 21% for 2013.

I'll now 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 on the Investor Relations portion of our website.

Non-GAAP adjusted EBITDA for the fourth quarter was $2.2 million, adjusted EBITDA margin was 6.3%. For the year, adjusted EBITDA was $6.7 million or 5% of revenue. Greenway had non-GAAP net loss of $2.4 million or $0.08 per share based on weighted average of 29.8 million shares outstanding for the quarter, which compares to non-GAAP net income of $3 million or $0.10 per share based on 30.5 million fully diluted shares for the prior year period. For all of fiscal 2013, our non-GAAP net loss was $1.3 million or $0.05 per share compared with non-GAAP net income of $5.3 million or $0.21 per share -- per diluted share for fiscal 2012.

Moving onto our balance sheet. We had $11.2 million in cash and cash equivalents at June 30, 2013, and we continue to have no debt. We generated $3.3 million cash from operations during the fourth quarter and had CapEx of less than $1 million and capitalized software development costs of $4.8 million. For all of fiscal 2013, cash flow from operations was $4.6 million, CapEx was $8.6 million and capitalized software development costs were $15.3 million.

Maintenance CapEx should be lower than in the past several years as we've now completed our headquarters facility. Likewise, we expect that capitalized software development cost will decline as we're nearing completion of several significant projects, projects that will either replace third party solutions or will generate new revenue streams.

One more item related to liquidity. We've received an executed commitment letter to expand our existing revolving credit facility to $25 million and with the combination of our existing cash, cash generated from operations and our expanded borrowing capacity, we're confident we have adequate access to capital to meet our needs as we continue this transition to a recurring revenue model.

At June 30, 2013, we had a backlog of $113.4 million, which was up 18% from the year-ago period. This includes a backlog of recurring revenue totaling $83.1 million, which is 25% growth year-over-year, and a nonrecurring backlog of $30.3 million, which grew by about 1%.

At this point, I'm going to spend a minute on our financial outlook for fiscal 2014, which was highlighted in this afternoon's press release. Outlook assumes that the shift we've experienced to monthly recurring revenue will continue leading to lower revenue from nonrecurring sources with considerable growth of recurring revenue. We expect that revenue will be in the range of $142 million to $150 million for fiscal 2014. Our outlook for gross profit was in the range of $62.5 million to $68 million, which translates to a gross margin range of 44% to 45%. Our gross margin is being impacted by higher amortization expense for fiscal 2014 and our expected diminution of higher-margin license revenue.

We expect that we will have a GAAP operating loss of $6.3 million to $4.5 million for fiscal 2014 and a GAAP net loss of $6.3 million to $5 million. This translates to a $0.21 to a $0.17 loss per share on a GAAP basis. Adjusted EBITDA is expected to be in the range of $15.9 million to $17.7 million, which suggests a margin of 11.2% to 11.8%.

Finally, we expect non-GAAP loss per share to be in the range of $0.05 to $0.01 per share in fiscal 2014.

Thanks for your patience, as we've provided a lot of information this afternoon. And I'll turn the call back to Tee so that we can open up the lines for your questions.

Wyche T. Green

Great. Thanks, Al. And operator, let's take our first question.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Ryan Daniels with William Blair.

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

Let me ask a couple on the transition to the SaaS model. I guess the first would be, can you give us any detail on the number of provider adds that were under a SaaS platform in the fourth quarter? And then more important, Al, as you think of your guidance for fiscal '14, kind of what percentage of the net provider ads do you view going in that model versus the traditional license model?

James A. Cochran

Sure. Let me talk about the 2014 guidance first. We're anticipating something on the order of 20% of our providers that would be added in 2014 would be a premise provider. And we have a total of 80% will be a combination either of providers who chooses to subscribe to our platform either on the PLUS S or the PLUS S with our revenue cycles, so both of which would be the cloud-based service. And then for providers that we added in the fourth quarter, the PLUS S, we had 594 providers in total at the end of June than compared to a year ago. That's up about 220.

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

Okay, that's helpful color. And then you mentioned you're kind of rightsizing your spending levels to account for the transition to PLUS S. Can you talk a little bit more about what that entails and how you're ensuring continued provider growth while in tandem reducing the spending infrastructure?

James A. Cochran

Sure, it's -- we're reorienting, re-purposing some of the resources, for example, in implementation. We're using some of those individuals cross-trained in support, for example. Another thing that's available to us as we ramp the cloud-based platform is that the training and the sales costs that are associated with those efforts can be amortized over the life of those contracts. So when you look at those things in combination, it gives us the ability to rightsize that cost structure.

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

Okay, that's helpful color. And then I don't think if you're going to have this. I can certainly follow up for it, but last one would be -- just any color on the penetration rates you've currently got in your installed base with things like PrimePATIENT, PrimeEXCHANGE, et cetera. I know you provided that last year and it was helpful. So looking to see where that's gone during the current year.

James A. Cochran

Yes, sure. The exchange product is something in the order of 60% or so of our providers have one or more exchange connections. PrimePATIENT is approaching 30% in the installed base and PrimeMOBILE is in the order of 10% or so. The rest of the technologies are less than 10%, so we still have a lot of runway there on all of those.

Operator

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

Gavin Weiss - JP Morgan Chase & Co, Research Division

I just wanted to get some more color on the revenue growth drivers for fiscal '14. I know revenue are coming from RCM and EDI, but maybe you can walk us through a little bit more detail.

James A. Cochran

Sure. Well, the -- I mean, the drivers in the model are the anticipated providers to be added to the platform. And then we've spoken to you quarter-to-quarter about the progress of providers that are added. For all of fiscal '13, we added on the order of 2,700 providers. So kind of taking that as a baseline, we would grow the providers, we think, on the order of 20% or so for fiscal '14. So that's kind of a baseline of what we might expect '14 grows actually in terms of total provider count. The other drivers are the choice of platform that I've mentioned that we're anticipating 20% of those providers to choose premise with -- and there'll be a market for the license-based product, but we're anticipating that to decline. The other 80% will be a combination of RCM platform and our PLUS S platform or just a straight PLUS S platform. So hopefully, that helps you with that vision. Then another significant driver for 2014 will be the adoption of our RCM services by our existing base. Now we've spoken to you many times about the provider count that we currently have, round numbers 14,000 or so on the way to 15-plus thousand. And if we have a penetration in that existing base of 5% to 7%, which I think is an estimate that ought to be fairly attainable, and then you do the math on what that would mean in terms of adding those -- that number providers, call it ratably over the year, if you wanted to. And then the average per provider revenue that we get from our revenue cycle services, that's going to be a major element of our growth next year.

Gavin Weiss - JP Morgan Chase & Co, Research Division

Okay, that's very helpful. I guess, just in terms of those 2,700 providers or the 20% growth in that in fiscal '14, where are those coming from? Are those competitive wins or just still greenfield opportunity?

Wyche T. Green

Yes, Gavin, this is Tee. We're -- it's still greenfield. We have 15% of our providers in Q4 came from a competitive base.

Operator

Your next question comes from the line of Stephen Lynch with Wells Fargo.

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

Al, in the prepared remarks, you attributed the improvement in training and consulting gross margin to improved resource utilization. Is that margin sustainable at these levels?

James A. Cochran

I would be a bit more conservative regarding those margins as I look out into '14. We had benefit of some implementation that we performed in the quarter that enabled us to put more resources to work. And then we had the benefit of travel and related expenses, which were basically a wash in terms of margin. And so to the extent that those are lower, it helps improve them more. So I would think of that being more conservative as we look to '13 overall.

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

Okay, that's great. Another one for you, Al. How should we think about the PC or system sales that comes from Walgreens as fiscal 2014 progresses here?

James A. Cochran

Well, we have 4 revenue lines, the system sales, training and consulting services, support services and then business services. And as I look at 2014, I would expect the system sales line to diminish rather markedly that you compare it to where we are in fiscal 2013. I can see that declining as much as 50%, 60% or so as we execute and estimate that 20% of our provider adds would be -- would choose a license model. So that's kind of how we would think about that. And then as I think about the training and consulting services, the relationship with Walgreens has grown over the past couple of years and we are on the cusp of redefinition of that arrangement where we are providing them more of the form of consulting services. So that revenue is going to be a part of training and consulting as we move forward into '14. It's a new contract, it will go into effect. We're operating under it now and completely executing here shortly. But I would think about that being maybe $1 million to $1.25 million or so in consulting revenues per month over fiscal '14, and that's about the run rate that we're sort of seeing. And that's more definition on that number than we've provided before and hopefully, you'll respect that -- in disclosing more details on that for the individual partners is really not appropriate. I'll think about it in that regard. Supporting services, we want to continue to walk down the line. I think supporting services can grow at the 20%, 25% rate that we anticipate for the total business to grow. And the business services, EDI and the revenue cycle services, I see that growing rather substantially with the combination of what we expect to occur out of our existing base and the uptake of our revenue cycle services from new customers, and we're seeing a tremendous interest in that regard. So I see that maybe as much as growing by -- almost doubling, if you want to think about it in those terms. And while Tee said we're not going to be talking about monthly recurring revenue just yet on an overall basis, as I look out to '14, I see months of recurring revenue growing on the order of 30% or so.

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

Okay, that's very helpful. And then one, just one quick one for Tee. Tee, what pace do you to expect providers to sign up at during the year? Do you expect the normal seasonal dip that you experienced during the September quarter to be exaggerated by the declining EHR incentives?

Wyche T. Green

I think as we came out of Q2 and Q3 '13, obviously, we saw a lot of that pause. In Q4 we obviously saw an acceleration back in the markets. So I think there's certainly demand that has picked back up. I do anticipate July and August, being our summer months, will be -- first quarter will be probably slower than the remaining 3 quarters, although July this year was pretty good. So we do have some drivers that are continuing to unfold. Meaningful Use 2 is not a sneeze. You can look at the number of companies that are prepared for that, and they have diminished. And you can look at the number of companies that are truly prepared for ICD-10. Again, if you have not invested over the last 2 or 3 years in R&D, you're going to have a tough time, I think, in these next couple of years. So while you have the Meaningful Use 1 days, thankfully, are behind us all, there's still real change ahead in the market.

Operator

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

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

Just a couple quick questions. I want to make sure I heard you right, Al. In the commentary, you said that you're going to expect to see system sales in aggregate being down 50% to 60%? Or was that from the Walgreens revenue portion?

James A. Cochran

Well, that accounts -- that takes into account the fact that we have system sales that includes Walgreens in 2013. And the fact that, that contract is being reoriented in 2014, it's going to transition to a training and consulting services, if that helps.

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

Okay. And so you'll see -- so you could see the system sales line declining or the training line actually starting to bump back up. And as you indicated, the real growth coming from -- the strongest growth coming from the EDI and business services with continued solid growth on the support services?

James A. Cochran

That's right. That's the way I would think about that.

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

Okay. Second, did -- I may have missed it. You said 790 provider adds. Did you give an actual physician add or MD add number in the quarter?

Wyche T. Green

No, I don't think we have that in there, Sandy, but I'll -- let's see, so we have 709...

James A. Cochran

520.

Wyche T. Green

So it's 520 approximately provider adds -- I mean, physician adds.

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

Okay, great. And then maybe a follow up to some of the earlier questions, Tee. When you're looking at the response to the RCM, do you find now that -- I mean or I guess, so 2 questions here. Are your sales people trying to lead with RCM now because maybe there's a little bit of a shift in the market and they can pull through the full PrimeSUITE that they're really now pushing that? And then the converse of that is, as customers are coming to you, your year-end RFP, is it still more, well, we'll really looking for an EMR, but while we're doing it, we may as well look at a billing system. And hey, while we're doing that, let's think about doing on RCM outsourced type relationship? I'm just trying to understand the push-pull of what's driving the dynamic on the growth of RCM and just overall the business flow.

Wyche T. Green

Sure, Sandy. If you think about from our sales perspective, we rolled it out to our team February of this past year, so it takes -- getting the comp plans and the training and everything up to speed on a clinically driven platform where your clinical documentation is truly driving your RCM outcomes. And that's fairly unique, I think, in the industry. So that took some time. But obviously, you saw in fourth quarter, we have almost 200 provider adds to that platform. It was very successful. And if you ran the math from a sales perspective, there's a tremendous opportunity for our sales engine to be rewarded as they understand how to provide these services to our customers. And then if you look at it from an RFP side, I would doubt there's many RFPs that are coming out with a clinically driven revenue cycle request. But once you're involved in that conversation, you begin to show what's happening at the point of care and that you're going to need to be able to pull care plans from the payers directly back to the provider at the point of care, that's almost a game-changing conversation. People are beginning to understand that around the country. And so I think that's what's creating the most excitement for us as because people are beginning to see this transformation actually taking place. So then the third step for us is, why would you go buy a EHR system that couldn't do it? Well, why would you go buy a billing system that couldn't do it? Because you're going to be in the same boat 1 year or 2 from now. You're going to need to have this platform to truly be successful.

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

Great. And then -- that's really helpful. One final question, I'll drop back out. When you think about the customer, I know you guys really feel like you've got a substantially different shaded solution, but pretty much all the EMR vendors or the HIE vendors out there say they have something. How sophisticated are the customers and able to differentiate what you guys have versus some of the others. I know what I think specifically actually somebody comes in. There's a private company out there that's got a very low 2.9% price point, yes, maybe not as robust. Are people just looking at price tags and everybody can do it the same and I'll just -- whoever is going to charge me the lowest fee is where I go to? Or are they -- people understand there's a difference out there?

Wyche T. Green

No. I think that's the age old sales question value over price, but I think the amount of carnage the Meaningful Use 1 created in this market, we do have a more sophisticated buyer today. And that's encouraging, that's exciting for our organization.

Operator

Your next question comes from the line of Charles Rhyee with Cowen and Company.

Charles Rhyee - Cowen and Company, LLC, Research Division

Al, maybe first just a follow-up real quickly. Did you -- to Sandy's question, on the decline in -- that you expect in system sales that I hear is -- was that 15% to 16% or did you say 50% to 60%?

James A. Cochran

I think the -- if you look at the numbers systems -- the dollar amount for system sales in 2013 and then as you fast-forward to 2014, I think you'll see a diminution on the order of 50% to 60%. However, that includes a rather significant portion of work that we've been doing for Walgreens. And that work is going to migrate, if you will, to the training and consulting line.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. Because when I look at your guidance and I think midpoint, let's say, $145 million and then I look at your recurring revenue support services and EDI and assume, let's say, you can grow that about 30%, kind of implies that system sales plus training will only be down, maybe call it 15% to 20%, is that systems -- should I think about what I have as a shift out of system sales, probably a nice big bump in training?

James A. Cochran

Well, definitely, there will be a sizable increase in training and consulting on a percentage basis. But don't forget that the business services line, EDI and business services line, will grow rather substantially from its current level. So if you think about that in combination in the -- those 2 in combination north of the 30% growth rate that, that business services line is going to ramp significantly. So I think, hopefully, with what we've talked about, you've got enough to put those 4 buckets into a model that kind of lines up with the midpoint.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay, that's helpful. And then when I look at the margin assumption, you're kind of saying a 44% to 45%. It sounds like you're saying that our margins in EDI and business services should still be fairly stable same with support. But you're kind of saying that our training and consulting margins are going to improve. What's going to -- is it just then our system margin is just getting a hit in the near term here as we kind of resize?

James A. Cochran

Yes. Well, let me open this up you, too. But the amortization of software development cost, both what we've developed and what we've acquired, is part of cost of goods. And you saw the impact of that and the results that we just talked about on actual basis. And as I look at '14, I think that number is likely to be something in the order of 10% of total revenues, so it's a substantial number. And the return that we're getting on that investment is the future of improved margins and new technologies that we're getting, but we're being hit in the near term with that amortization. So if you look at the total revenue in the midpoint, $145 million, $146 million and you think of that amortization number being about 10% of that, that's a big chunk of it. And then the rest of that decline, if you want the total margins, is the fact that we're not having the same level of contribution from high-margin system sales.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. So then, when you allocate, when I look at the 4 buckets, does that mean you're allocating the cap software? Does it get split among the buckets? Or is it usually recorded in system sales?

James A. Cochran

Well, heretofore we've recorded that all in system sales. I think as I about the display in '14's financials, I believe it will be appropriate to pull that number out as a separate line item in the cost of goods.

Charles Rhyee - Cowen and Company, LLC, Research Division

Okay. And then maybe my last question on the guidance. On the tax, I mean, if I look at the GAAP operating loss guidance and I look at the net loss, can you help us think about how to think about tax?

James A. Cochran

Sure, yes. A couple of things that drive the effective tax rate. At that level, our permanent difference is -- are substantial. And so that makes the GAAP net effective rate really kind of difficult to do because of the -- on the range of the GAAP loss -- there's a 0 tax rate effectively and that's because the benefit from that loss is being consumed by the impact of the permanent differences. Now when we move towards more -- closer to profitability, we get a benefit of the loss but still a significant portion of the tax benefit is offset because of the effect of permanent differences. So it makes it a little funky for tax capitalization at the current level. And you'll see that the difference in the GAAP and the net income line or the operating income line, the net income line implies a tax benefit only about $500,000. And that's the reality of what I just described. So hopefully, that's...

Charles Rhyee - Cowen and Company, LLC, Research Division

Most of it towards the end of the year than the beginning?

James A. Cochran

Well, it will -- the permanent differences -- the major portion of that is the impact of stock compensation costs. And as I look at 2014, and you can see it in our results what that number is for 2013, I see that being in the order of $5 million to $6 million for 2014. And that's kind of the sort of ratable across 2014.

Operator

Your next question comes from the line of Caroline LeCates with Lazard Capital Markets.

Caroline LeCates - Lazard Capital Markets LLC, Research Division

I just missed the bookings number this quarter.

James A. Cochran

Sure. Bookings for the quarter is about $28 million. I think $27.9 million and up sequentially about 30% or so.

Caroline LeCates - Lazard Capital Markets LLC, Research Division

Okay. And then also just going back to CapEx. Now that the headquarters expansion complete, would you expect the CapEx to be about half the levels next year as they were this year?

James A. Cochran

I think that's reasonable. The actual spend on maintenance CapEx, I would envision that being something in the order of $1 million or so per quarter. And while we're talking about capital expenditures, I also want to point out that in fiscal '13, we expended almost $8 million related to business acquisitions. We had $6.8 million for acquisitions we made in '13, and then we also expended $1 million for contingent payment related to a prior acquisition. And that's not anticipated to recur as we look at the future right now.

Operator

And your next question comes from the line of Gene Mannheimer with B. Riley.

Eugene M. Mannheimer - B. Riley Caris, Research Division

With respect to the bookings growth in the quarter and the impressive number of providers you added, I guess, how much of that was due to capturing some of the deals, which pushed out from Q3, that you have talked about last quarter?

Wyche T. Green

Yes, I know -- certainly, there's waterfall effect and hopefully, that continues. We had a number of deals that pushed out from Q4 that, hopefully, are going to fall in Q1. But I think that's just a result of pipeline that have built back up, and so I think that's encouraging to us.

Eugene M. Mannheimer - B. Riley Caris, Research Division

Okay, I see. And with respect to your expectations for provider growth this coming year, I think I heard Al say in the neighborhood of 20%. Last quarter, we talked about maybe 20% to 25%, so are we just being conservative or we should expect 20% certainly as the baseline and may be some upside from there?

Wyche T. Green

Yes, I think that's the right way to look at it, Gene.

Eugene M. Mannheimer - B. Riley Caris, Research Division

Okay. And then lastly, as you continue to transition to more recurring revenue, what does that say about your backlog visibility? In other words, will you expect now to derive more of your revenue in fiscal '14 from the current backlog?

James A. Cochran

Current backlog...

Wyche T. Green

Yes. I think our focus on our MRR, yes, obviously, the backlog growth is certainly that's where the future revenue is going to come from. And if you look at $83.1 million, which grew by 25% year-over-year, that's what's exciting for us because, obviously, it becomes much more predictable for us.

Operator

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

Neil Chatterji - Sidoti & Company, LLC

It's Neil Chatterji. Al, in regards to the 20% you're projecting for the premise or license model next year, could you maybe just describe what type of client or situation that would still make sense given the rapid shift to the subscription?

James A. Cochran

Well, it's -- I think it really would cross all sorts of provider types. But I think more importantly, enterprises and larger groups, as they think of maintaining the existing IT infrastructure, as they think of the capital budget versus an operating budget, I think those will be the types of groups that will be more amenable to a license arrangement. And as I say, we're estimating maybe 20% of the providers would opt for a license model. And hopefully, maybe it's more depending on what the makeup of the customer base is, but I think that's a place to start.

Wyche T. Green

Yes, Neil, it also goes not only to enterprise accounts that have infrastructure but something that we look at in emerging markets, whether it's a Walgreens-type relationship or others. These are large organizations that are -- a lot of new entrants in health care services and we think that's going to continue. And we think the advantage of our architecture, we can give that flexibility to these organizations that want to be able to do so.

Neil Chatterji - Sidoti & Company, LLC

Okay, that's helpful. And just in terms of -- you mentioned Walgreens. I mean, are you seeing any interest kind of on that retail side outside of Walgreens?

Wyche T. Green

Yes. There is -- like I mentioned, we call it emerging markets. And there's new entrants coming into retail space certainly over the last couple of quarters. We've seen organizations. In fact, we're -- stay tuned to some of the announcements, but -- that we would have never envision they would be in health care delivery, but they are.

Operator

[Operator Instructions] And your next question comes from the line of Sandy Draper with Raymond James.

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

One quick follow-up, Al. I just want to make sure I got it. So you talked about the amortization that's going to be up in cost of goods at 10%. So you're looking at about a $14 million to $15 million impact versus only about a $6.3 million impact this year. That's a correct math, right?

James A. Cochran

Well, I think if you look at the fourth quarter run rate and annualize that, you'll get closer to like a $9 million or $10 million number.

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

Okay. So I heard you say 10% of total revenue, and so I was going off the $140 million, so I missed it. Okay.

James A. Cochran

That's a little conservative probably, but yes. Just kind of in round numbers, 9% or 10%. Okay?

Wyche T. Green

Well, we're at the 1-hour mark. And so we want to thank everyone for their interest and we will see some of you this week in Washington, D.C., and we look forward to that. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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