Greenway Medical Technologies May Stand Out In a Busy Week For IPOs

| About: Greenway Medical (GWAY)

Greenway Medical Technologies (NYSE:GWAY) aims to modernize the doctor's appointment. The IT solutions provider for healthcare practices hopes to raise $80 million this week by offering 7 million shares at a price range of $11 to $13. Greenway plans to list on the New York Stock Exchange under the ticker symbol GWAY. J.P. Morgan, Morgan Stanley and William Blair are the lead underwriters on the deal, which is one of eight on the calendar this week.


By moving patient histories and practice management from paper-based systems to computers, Greenway's software allows physicians to have a more comprehensive view of patient records. Adoption rates have been aided by the HITECH Act, which offers $19 billion in incentives to providers. The market opportunity is estimated at $35 billion. Greenway currently serves approximately 1,800 small practices with a 95% retention rate.


A deadline in the HITECH Act helped to boost revenue 55% to $25.7 million in the most recent quarter. During the period, license revenue grew 49%, implementation services revenue was up 35%, and revenue from subscriptions and business/outsourcing services together increased 44%. Gross margin was flat at 52%, while the operating margin turned positive to 2%.


Greenway faces significant competition and has seen its gross margin decline partly because of pricing pressure. The HITECH Act establishes standards for certification and "meaningful use" that could be difficult or costly to attain. The company is in the early stages of scaling its business and it may face issues in transitioning from licenses to subscriptions.


The performance of two healthcare technology IPOs last year was mixed. MedQuist Holdings (OTCPK:MEDH), which provides medical transcription services, is trading up 31% from its IPO price. Mobile drug reference app maker Epocrates (NASDAQ:EPOC), which tried to move into the electronic health records space, is down 41%. Both companies went public in early February 2011.

We think investors will be pleased with Greenway's fundamentals. It addresses a large market opportunity, and government incentives are pushing customers to adopt. Its 95% retention rate indicates value, and its recurring revenue (45% of sales) provides visibility. Although there are concerns about competition and pricing pressure, the growing software company has a chance to stand out in a busy week for pricing activity.