Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Bill Esslinger – Vice President, General Counsel and Secretary

Wyche T. Green, III – President and Chief Executive Officer

James A. Cochran - Chief Financial Officer

Analysts

Ryan Daniels - William Blair & Company

Sean Wieland - Piper Jeffrey

Sandy Draper - Raymond James

Ricky Goldwasser - Morgan & Stanley

Greg Bolan - Sterne Agee & Leach

Charles Rhyee - Cowen & Company

Greenway Medical Technologies (GWAY) F1Q13 Earnings Conference Call November 1, 2012 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Greenway Medical Technologies Inc. earnings conference call. My name is Dorsel and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to hand the call over to your host for today, Mr. Bill Esslinger, General Counsel, Greenway Medical. Please proceed.

Bill Esslinger

Thank you, Dorsel. Good afternoon everyone and welcome to the Greenway Medical Technologies fiscal 2013 first 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 Security 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 as detailed in the company’s filings with the SEC, including but not limited to the company’s 10-K for the year ended June 30th 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, Greenway Medical Technologies, Mr. T. Green. Tee?

Wyche T. Green, III

Thanks Bill and good afternoon everyone. Thanks for joining our call today. Our prayers are with those of you who have been impacted by hurricane Sandy. There’s no doubt this has been a difficult time and it’s our hope that all are safe.

We’ve reported another strong quarter with our fiscal 2013 first quarter results. Our revenue grew by 28% which is particularly strong given that these results compared to 55% revenue growth for last year’s first quarter. Last year’s quarter was driven largely by the meaningful use attestation timetable. So our growth this quarter without that demand bolus is particularly encouraging. These results demonstrate that we continue to effectively manage our business.

Gross margin for the first quarter expanded by 262 basis points to 54.4% and that’s after absorbing incrementally larger amortization expense. We’re encouraged by the gross margin leverage we’re achieving. As important, we’re making excellent progress in executing our long term strategy, a strategy that will expand Greenway’s platform by gaining acceptance in each of the three market categories that we are pursuing. The Greenfield opportunity for electronic health records, the growing replacement market and partnerships with innovative organizations that are shaping the delivery of ambulatory care in this country.

I’ll spend some time going through our operating highlights in a few minutes, but since this is a report on our financial results, let me turn the call over to our Chief Financial Officer Al Cochran for a detailed review of these results. Al?

James A. Cochran

Thanks, Tee, and good afternoon everyone. As Tee said, we’ve reported strong results from operations for our fiscal 2013 first quarter and are comfortable that we’re on track to meet the financial objectives that we presented to you during last quarter’s earnings call. As Tee said, our revenue for the 2013 first quarter grew by 28% to $32.8 million. That’s up from $25.7 million for the comparable fiscal ’12 period, a period that as Tee said, was up 55% from the fiscal ’11 first quarter.

We’re pleased with our overall revenue mix. Growth of revenue from recurring sources continues to outpace non-recurring system sales, training and consulting services growth. Recurring revenue grew by 36% and for the first quarter this fiscal year is now at 51% of total revenue. Looking at revenue and cost of goods sold by each of our revenue lines, system sales growth was 36%, which is particularly strong when you recall that our fiscal ’12 first quarter system sales grew by 49% from the prior year. This growth in system sales is occurring even as we see a greater percentage of our new sites accepting our cloud based PrimeSUITE plus S solution which is our subscription offering that’s booked in our supported services revenue line.

Systems sales margin was 67% which is 550 basis points lower than the prior year, but it’s important to note that this year we’re absorbing $1.2 million of incremental amortization expense related to capitalized software development and acquired technology. Systems margin would have been 80% or more than 750 basis points better than the prior year when excluding incremental amortization expense.

Our training and consulting revenue growth was 4%, which is showing growth against a 93% curve that last year was driven by providers rushing to get their new systems installed and trained in order to meet last year’s meaningful use attestation schedules. Training and consulting margins were unchanged at 33% year-over-year.

Support services revenue increased by 46% year-over-year and we’ve been able to improve margins by 162 basis points to 69.6%. As I said, more customers are choosing PrimeSUITE plus S. during the first quarter nearly one quarter of our new sites selected Pus S subscription model. Revenue related to our cloud-based Plus S solution grew by 110% in the first fiscal quarter year-over-year and importantly margin associated with that line increased substantially as we’re reaching level of critical mass.

Electronic data interchange and business services revenue increased by 23% year-over-year and margins improved by 782 basis points to 36.3%. Growth is coming from PrimeRCM, our revenue platform management offering as well as PrimeResearch. Margin improvement is related to leverage of these two business services as well improvements we’ve been making in our EDS service areas.

Overall gross profit for fiscal ’13 first quarter is $17.8 million. This is up 34% from the prior year and we’re achieving profitability along with margin improvement. Gross margin was 54.4% which is up 262 basis points from the prior year even after absorbing a 365 basis point impact related to incremental amortization expense. That’s excellent progress and consistent with a trajectory that we anticipate during this fiscal year.

Selling and General Administrative expenses grew by 25%, slightly lower than the rate of revenue growth and as a percentage of revenue declined by 97 basis points year-over-year. Research and development costs were at 14.6% of revenue. we expect that ratio to decline throughout the fiscal year’s revenue growth.

Looking at our results on an adjusted or non-GAAP basis, please refer to the detailed reconciliation of the non-GAAP measures to their GAAP equivalent which is contained in the press release we issued this afternoon and available on the investor relations portion of our website.

Adjusted EBITDA for the first quarter of fiscal ’13 was $2.6 million, which is up 181% from $930,000 for the same period of fiscal ’12 and we define adjusted EBITDA a non-GAAP measure as earnings before interest, taxes, depreciation and amortization, acquisition related transaction cost and stock based compensation. Adjusted EBITDA margin grew by 434 basis points to 8% and again, this is considerable progress towards our stated financial goals for this year.

When looking at our operating results for the quarter, it’s important to remember a typical seasonality in our business. Revenue is usually lower in the first fiscal quarter which coincides with a lot of vacation time taken by our customers. The impact of this revenue seasonality flows through in margins as our greatest expense is salaries and benefits that are spread out fairly evenly across the year. Well, that trend is occurring again this year from a revenue perspective. We are encouraged that the rate of sequential revenue decline which is first quarter relative to the prior quarter fourth quarter, was only 10%. It was 13% during the prior year and 18% from fiscal ‘10\s Q4 to fiscal ‘11’s Q1. The growth of recurring revenue as a percentage of our total revenue is creating a beneficial effect, but seasonality still exists.

Continuing with our financial discussion, cash flow from operations for fiscal ‘13’s first quarter were $2.4 million which is up significantly from $811,000 the prior year. Capitalized software development costs for the quarter were $2.9 million, then we had $1.3 million in capital expenditure, mostly related to our new headquarter facility which is due to open in the next few months.

Our balance sheet remains clean and strong. We have no debt. We have approximately $34.6 million in cash and short term investments at September 30, 2012.

Finally, our rolling backlog at September 30, 2012 was $96.5 million. This is 15% higher than for the year-ago period. Rolling backlog consists of $69.6 million of backlog from recurring revenue sources, with the remainder in system sales, training and consulting.

Recurring backlog grew by 40% which is consistent with what we’ve seen in the past several quarters. Now the way I view backlog is first with the near term visibility it provides. 25% of the nearly 70 million in recurring backlog is about $17.5 million or more than half the revenue we reported for our first quarter. Likewise, a good portion of the $27 million of system sales and training backlog will convert to revenue in the following quarter. to point this out for both near term visibility and I just said, this will to give us confidence in where we are relative to fiscal 2013 outlook that we issued during our fourth quarter earnings call.

At this point, let me turn the call back to Tee for a review of some of our operational highlights.

Wyche T. Green, III

Thanks, Al. Before opening the call for your questions, I want to go through some of the operational highlights that are behind these numbers as well as developments to give us confidence in our ability to execute our long term strategy. As I mentioned in great detail, that strategy capitalizes on emerging trends within the ambulatory market, which include the electronification of the provider community, growing consumer engagement in the healthcare system, particularly taking ownership provision and a growing trend toward aggregated data as a powerful tool that will shape improvements in population health. That’s the framework for our strategy. I’ll repeat it today only as a point of reference for how recent activities serve as markers of our progression.

During the fiscal first quarter, we’re seeing a return to the normal cycles of our business, which is a slow first quarter as our prospects and customers on vacation, followed by a ramp in the remaining three quarters, with the second half of our fiscal year being particularly strong. Last year was really an anomaly, with demand pushed forward by meaningful use attestation timetables.

Having said that, bookings for the quarter were $16.2 million and we’re tracking well for the fiscal 2013. This compares with bookings of $19.8 million for the first quarter of fiscal ’12, but as I said that’s when providers are rushing to buy systems and get the process started to train, implement and attest. We don’t have that demand driver this quarter. we built our budgets that way.

Consistent with the first quarter revenue discussion that Al led, we’re seeing a greater percentage of new sites as represented in our bookings opted to accept our cloud-based PrimeSUITE solution. Fully 30% of new sites are choosing cloud-based Plus S. that’s up slightly from the 25% of our go-lives during the first quarter and that’s up considerably from our bookings for the fiscal ’12 first quarter. Obviously we continue to deliver PrimeSUITE in multiple ways and the beauty of our architecture is that regardless of how it’s delivered to the customer, it’s the same application.

This transition to our cloud-based solution is a deliberate action on our part. This is a matter of us being proactive and is the right thing to do from a service perspective. Our strategy of shifting our business to a subscription model with greater recurring revenue and less dependent on system sales is working and we’re effectively managing this process.

During the quarter, we added about 450 providers to our platform and this quarter was particularly weighted towards position adds, with more than 400 for the period. The remainder of our new adds were mid level providers. As I’ve just said, we’re seeing a return to what I call normalized markets and this phrase is applicable for a number of reasons. So I want to provide our view of how we see the market today. First I mentioned the historic seasonality. For a long time we’ve referred to it here as Jul-August, a way of saying you often get less than a full month’s results out of each of the first two months of our fiscal year as the decision makers for our solutions are focused on purchasing decisions.

More often than not, they’re not even in their offices during this period. We didn’t see it last year. We saw it this year. We’ve also seen the normal resumption of activity in September and it continues. So we’re comfortable that we’re back to seasonally driven sales activity. The return to a normalized market also means that our sales force is engaged with prospects and customers in a very different way than last year. The conversations are about return on investment and we like those conversations. The conversations today are focused on ease of use, training and support and interoperability. These have been forces that drove our growth for a decade and will drive growth and customer retention going forward.

Many of our new customers, many of our prospects want to be sure that they’re looking at a platform that will carry them through the meaningful use requirements. But more and more they’ve returned to asking us about how our suite of solutions will help them to achieve efficiencies. Our consistently high ratings for ease of use, coupled with our award winning service places us in a good position with these prospects.

One example of that is for a contract we were recently awarded to implement PrimeSUITE for the ambulatory physicians employed by Western Michigan Hospital. We’re replacing the practiced management electronic health record systems because the physicians in this group just weren’t using it to document their clinical notes. It was too difficult to use, resulting in low adoption rate in that group. On the hospital’s perspective, we replaced an inefficient system with one that’s easy to use and by the way is connected to the HAE in that part of the state. Interoperability within communities continues to drive decisions.

Continuing with my view of the market, we’re also hearing about uncertainty, hearing that the market is taking a pause for several reasons. We’re seeing it. We’re also continuing to see the market is embracing our solutions. The roadmap for continued growth is fairly clear. Systems are going to have to be easy to use to achieve adoption by providers. They’re going to have to be interoperable within communities and across the spare systems and they’re going to need features that encourage consumer engagement. That’s what we offer today.

So rather than riding out uncertainty in the market, we’re identifying the leadership in our communities and working with them to move forward and one central how the market for example, many of the provider groups weren’t ready to proceed until the recognized leader took the first step. That leader is a large multi specialty group that has come together with primary care and several related referral providers like cardiology and gastroenterology.

Once again, our leadership position in interoperability in this case our success with the state HIE is what got us invited to the competition. We won the contract based on our approach to training and our success in attaining high levels of provider adoption of our solutions. Today that market leader is opening new opportunities for us within that community. So we’re demonstrating that we can work around the market sentiment and convince people to buy despite any uncertainty that may be out there surrounding the stimulus programs.

Continuing with our commentary of the market, there’s a sense that position consolidation is impacting HCIT system decision making. We actually see this as an opportunity. One large physician group in Florida that’s come together through a series of acquisitions within their market has chosen PrimeSUITE as part of its integration plan. They’re ripping out practice management systems in three separate EHRs and migrating 15 separate databases to a single database on PrimeSUITE. This will help them to achieve data liquidity and improve the flow of information as they grow and expand both the number of providers and size for cares delivered. This is a group that intends to make more acquisitions and we’re looking forward to being their partner as they grow.

Now you’ve heard me talk for some time about the ways the ambulatory care market is changing. Our expanding relationship with Walgreen is an example of that. In addition, we just added a new contract with a national ambulance company that is making innovative use of its capital investment to bring primary care to communities, serving remote areas and underserved populations in urban areas. They’re putting physicians and mid level providers on their ambulances and taking them to where the patients are located. We’re deploying PrimeSUITE to manage this customer’s new service line.

Greenway’s marketplace continues to grow as a way to offer innovative solutions to our customers. This is still in its first year and today we’ve signed agreements with 56 partners and 27 of those are in the market offering their solutions. That’s up from 17 groups marketing just a couple of months ago. I’ll present all of this to you with an understanding of what has been happening within the traditional physician market. As I said, for sometime our solutions have much broader application as ambulatory care evolved across new delivery mechanisms and we’re executing on this multi pronged growth strategy.

We’ve achieved consistent attractive long term growth rates before the recovery act in meaningful use because we deliver compelling return on investment to our customers. We’ll achieve our long term growth objectives because of our value proposition. At Greenway, that value proposition is our approach to service and that flexibility of our architecture which makes it possible to advance important innovation initiatives.

This service culture is a recognition that even as we are constantly innovating our platform, we never, ever leave our customers or their data behind. We don’t have issues with sun setting our products. This is a distinction worth remembering given current market conditions. There’s no doubt that we’ve entered a period of disruption in the market. During this disruptive period the organizations with a strong service culture are the ones that will gain share.

As I’ve just described, the market is moving towards solutions that are easy to use, that are flexible and that work well within the healthcare system. To that point, we’re finding that our solutions and the direction we’ve taken to innovate on our platform line up well with the final rule for meaningful use too. There will be some areas where we’re going to be investing in innovation, specifically the number of clinical quality measures expand from the current 44 to 64.

With our CMS qualified PQRS registry and our existing meaningful use dashboard, we’re in good shape to meet the requirements for these new measures. Likewise we line up well on patient engagement requirements. This past September we were a featured participant at the office of the National Coordinator for HIT 2012 consumer health IT summit as an example of trailblazing companies advancing consumer engagement for integration of the blue button on our platform. The blue button initiative is being advanced as a way for patients to access their information stored on healthcare IT systems. It’s consistent with one of the key goals of meaningful use too and we’re a recognized leader in making this available.

The other key goal is interoperability. As I discussed a few minutes ago, when providing a commentary of the market, we’re winning deals today based on our ability to allow our customers to share their data across their community. Our cloud-based prime exchange which is the key hub that connects us to practices and likewise to HIE’s labs and increasingly the hospital information systems, makes it easy to share for quality reporting and data analytics. We also think that our acceptance as the first HER solution available in the new Windows 8 platform will expand the utility of our solutions, particularly in enterprise space.

This month our revenue cycle management services are being made available across our customer base. This service was featured at our user conference in September and we expect increased acceptance of our solutions in enterprise space. This is a large market, one that is also susceptible to considerable disruption as billing in the ambulatory space moved from volume driven, fee for service to payment systems that will be based on quality outcomes and proactive management of patient care. We’re continuing to gain traction with our prime research services well.

As Al said during the financial discussion, revenues are growing, margins are improving. What I’m encouraged by is the validation of a strategy that starts to unlock the data that’s contained in the files of health providers across the country. In one of our ongoing studies, we’ve enabled participation of more than 80 of our customer sites to enroll about 1400 patients in an observational study that accesses real world outcomes of patients using the class of medications. We’re restricted from saying much about the study, but one thing that’s encouraging is that many of those sites historically would not have been on investigator recruitment lists. They’re private practice physicians, caring for patients in their community and are not affiliated with an academic center.

We’re bringing these providers into research trials, which opens new treatment options for their patients, creates revenue opportunities for the practices and help study sponsors speed the enrolment in a way that benefits population health. Overall, we’re well positioned to continue to drive growth. We can all acknowledge there’s uncertainty in the market, but let’s have some perspective to what the customer is experiencing. The overriding market dynamics that are in place in the ambulatory care market, changing payer regimes, more consumer engagement, provider shortages, expanded coverage to population demographics will all continue.

None of these factors are taking a pause. Clearly there’s more uncertainty in our market than in the past several years. During that time, providers have come to understand the value, the absolute need of partnering with those companies that are developing solutions that will meet these growing demands. Our ability to address these market concerns rest largely with our talented and long tenured teams, our human capital.

We take pride in the tenure of our leadership, from service to innovation to growth which is more than a decade. We enjoy very low turnover as we are building our employee base. Our ability to continue to succeed will be our human capital and I am confident that we have the right resources in place to meet the needs of our customers.

And now, we’ll turn it over to questions.

Question-And-Answer Session

Operator

Ladies and gentlemen (operator instructions). Your first question comes from the line of Ryan Daniels, with William Blair. Please proceed.

Ryan Daniels - William Blair & Company

Good evening, and thanks for taking my question. I want to start with the quick housekeeping just to make sure I heard this right. Did you indicate that 25% of the goal lines in the quarter were on P Suites but 30% of the new system sales are bookings were on P Suites. Did I hear that right?

Wyche T. Green, III

That’s correct.

Ryan Daniels - William Blair & Company

And I guess for Al, you are still confident even though – we’ll, two questions. Number one, I think we had talked about that being maybe 20% of the new sales this year. Now it’s turning towards 30%. So what are your thoughts, one, on the full year. Do you think it will trend back down to 20%. And number two, if it stays elevated. Do you still feel good about the revenue guidance for the year given kind of the transitory impact that it could have?

Al Cochran

I think the – that’s current rate, I don’t have any issue with the aggregate revenue guidance that we had. It’s still a little early. So it’s difficult to know exactly how it’s going to trend over the rest of the quarter but a change on that order of magnitude, I still think that the revenue guidance is in order.

Ryan Daniels - William Blair & Company

Okay. Great. That’s helpful. And then can you talk a little bit about the conversations you are having with clients till you give us a lot of detail on the importance of data liquidity and interoperability. And I am curious of that broadly across the market if you look at both Greenfield and replacement opportunities are the more savvy buyers. Those that are looking to replace the system and realizing what they have might not get them to what they need in the future.

Wyche T. Green, III

Great question Ryan, and thanks. It certainly becoming more apparent even in the Greenfield opportunities because of the guys that have gone before them that invested in systems where interoperability and data liquidity might not have been thought through as it should. So, it certainly in the replacement market. Its forefront, its number one thing they are looking at, and these are views. And, but even in the Greenfield, because what they’ve seen is investments in communities where systems aren’t talking to each other. So, I would say it’s certainly being led by the replacement side, but even in the Greenfield side, it’s kind of rising up to be one of the key issues.

Ryan Daniels - William Blair & Company

That’s great. Then final and I’ll hop off here. Just any color you have on either offence or defense of I guess from the relationships you’ve developed with Epic, which I think you announced your user day at Cerner, McKesson kind of the integration capabilities there. Is that helping you either keep them at bay if they try to integrate with the ambulatory or maybe in to new markets? Thanks Tee.

Wyche T. Green, III

Thanks, Ryan. I think these guys back turning our operability strategy with the design of Prime Exchange. What we’ve done is we’ve been able to give a lot of these systems they we were asked to work with a lot of different things in the communities and it was very difficult to write interphases and maintain those and because of Prime Exchange, we’ve been able to create efficiencies for. So I think while yes, we certainly know we still competing in certain of those markets we’ve become a friendly I guess second choice in those markets and that’s been I guess a boom for us on the new sales side.

Ryan Daniels - William Blair & Company

Great. Thanks so much.

Operator

Your next question comes from the line Sean Wieland, with Piper Jeffrey. Please proceed.

Sean Wieland - Piper Jeffrey

Thanks. One quick follow up to Ryan’s question. So if this SaaS trends continues, is it EBITDA guidance still on your sights as well as revenue?

Al Cochran

Yeah, Sean. And to think about it like this, when you talk about the number of transactions, the Plus-S transactions typically are smaller transactions for smaller transactions. So when you look at the overall mix even though with respect to the number of implementations, Plus-S is moving at still in confidence both on revenue and on the EBITDA.

Sean Wieland – Piper Jeffrey

Got it. Okay. Just wanted to clarify that. In the RCM market, eClinicalWorks works out with a 2.9% pricing. How does that compared versus what you are seeing in the market place and what’s your selling strategy to rollout RCM to your existing customer base?

Wyche T. Green, III

Good. Thanks, Sean. This is Tee. One on the pricing models I think the percentages are really whether it’s 1% for each practice or specialty. From our perspective they vary from 2.5% to as high as 6.5% just depending on the volume and what type of specialties they are. So I think those pricing you’ll see those move around. Obviously the market will go what competitive rates are but I mean you are counting the ballpark there just depending on volume. And then our rollout strategy is initially to around customer base and that’s where we are started. So you’ll see that as we serve our own customers which I think our penetration right now is still single digits as we are just rolling out the platform.

Sean Wieland - Piper Jeffrey

Okay. Last question if I could slide it in on the competitive landscape side. What do you see in so far in terms of low my-way customers?

Al Cochran

Good question. I don’t have the actual conversion – I don’t have that data in front of me. We obviously look in disruption in the market and I think providers, hospitals, COs, people who are looking for long term partners. They are looking for platforms that have investment, that aren’t being sunsetted. And I think that’s why greenways is attractive in certain situations.

Sean Wieland - Piper Jeffrey

Okay. Thanks a lot.

Operator

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

Sandy Draper - Raymond James

Thanks very much. First is a quick housekeeping item. Steve, do you have the number of providers and physicians you added in the year ago quarter? I think I got 450 and a little over 400 for this quarter. Do you have the year ago comparable?

Wyche T. Green, III

Yeah. Al, do you have that in front of you?

Al Cochran

Yes I do. We had – it was 400 physicians and about 100 mid-levels and it is September ’11 order.

Sandy Draper – Raymond James

Okay. Great. And the second question and probably for Al, in – I may have missed a little bit over during the commentary. The support service’s growth is obviously doing phenomenally well. And part of that is the conversion of SaaS, but as you think about the growth you are seeing there. Is there a way that they sort of pass out, just the growth of your customer base versus growth of more and more SaaS. And then is there any link – I am trying to think in terms of the training and consulting growth as moderated some. Is there any difference in terms of how your training people on the Prime Suite process that might cause that to slowdown. I am just trying to see if there is a connection there because they are two totally different issues. Thanks.

Al Cochran

I am not sure of following the training question.

Sandy Draper - Raymond James

I don’t know, pricing I guess if your bundling any training dollars into the process, product and so it’s all one and so there’s no separate training cost or is there still a one-time training cost?

Al Cochran

Okay, I am with you. We’ll, as I said in my comments Plus S revenues year-over-year were up over 100% but if you look at the other elements of support services, substantial growth in RCM and of course PrimeRESEARCH is still smallish in terms of coming from an absolute but the percentage growth there was substantial as well. And with regard to Plus S revenues as you are aware, training implementation services that are offered separately with that type of solution had to be deferred over the estimated value or estimated life for the contract, which means that for example in the current quarter, we deferred something in the order of $250,000 in round number of training revenue related to those Plus S implementations and that will be recognized over multiple years because of estimated life of the contract. Now, we are implementing strategies to help maybe address that from the standpoint of how better to deal with the customer and how better to try for those services, one of which might be bundle those services and just have an aggregate fee and that’s being received fairly well. But looking to hopefully navigate around that deferral of revenue because addition $250,000 of training services revenue would have certainly helped with margins in that line item in the current quarter. So maybe that answers your question.

Sandy Draper - Raymond James

Yeah. That’s it. I think that actually cover it pretty well. I guess that the final question I have is on the step up in amortization. Are we down sort of at the new run rate level or is it going to continue to build up in terms of the amortization of cap software?

Al Cochran

Now, this is the quarter that they kind of lapsed at that phenomenon and so it may see markup a little bit from this point going forward but the increase of the year ago period will not be as traumatic.

Sandy Draper - Raymond James

And what was that actual dollar announced for the quarter?

Al Cochran

The increment was 1.2 and I believe the total dollar value is like 1.4. Something on that order I think

Sandy Draper - Raymond James

And all of that is showing up in cost of good, correct?

Al Cochran

That’s correct.

Sandy Draper - Raymond James

Okay. Great. Thanks a bunch.

Operator

Your next question comes from the line of Ricky Goldwasser with Morgan & Stanley. Please proceed.

Ricky Goldwasser - Morgan & Stanley

Hi, good evening. I had a question on the PSSI acquisition by McKesson, if that has any impact on your business?

Wyche T. Green, III

Thanks Ricky. This is Tee. Now, we are not a partner with PSSI and that McKesson. We are not necessarily a partner of McKesson. So I don’t think it impacts us one way or the other.

Ricky Goldwasser - Morgan & Stanley

So you don’t think it’s going to change any of the competitive dynamics in the market place.

Wyche T. Green, III

I don’t think so. Not from what we can tell.

Ricky Goldwasser - Morgan & Stanley

Okay. And just in terms of the average implementation time for – in the quarter. I know that last quarter you talked about an increase in percentage of size that went live in 60 days. Can you just talk about a trend that you’ve seen this quarter?

Al Cochran

Up the implementation cycle is comparable for a typical size practice. So we’ve not seen that – I guess the 60 days I think we are about at the range that suits the needs of the customer and gives us the right kind of timing from implementation. So I think we’ve…

Wyche T. Green, III

I think we are about at 80% of deals are within 60 days but the practices are really driving that timetable.

Ricky Goldwasser - Morgan & Stanley

Okay. And given the Star-II you gave earlier of the I think about 400 physicians added in quarter, we should expect that for the remainder of the year?

Al Cochran

I think that will ramp up because what we were reporting to you are the actual number of physicians and go lives in the current quarter. So the positions that are in the process of being implemented are that are that are in booking as we see the year play out, that would have a tendency to grow. So I think that will ramp up with the balance of the year.

Ricky Goldwasser - Morgan & Stanley

Okay. Thank you.

Operator

And your next question comes from the line of Greg Bolan, with Sterne Agee. Please proceed.

Greg Bolan - Sterne Agee & Leach

Thanks. Al, this is a clarification. Recurring backlog was up about 33% year-on-year. Correct?

Al Cochran

I think it was closer to 40%. It was recurring backlog numbers I remember at 40%.

Greg Bolan - Sterne Agee & Leach

Okay. I have – just to clarify; I have 52.455 for this time last year. Maybe I am – is that right? For recurring?

Al Cochran

I got 49 and 8 compared to 70. So…

Greg Bolan - Sterne Agee & Leach

Okay. Thanks. That’s great. And just running somewhat a higher backlog conversion rate than last year. And it looks like the implied total backlog growth at year end would need to around 28% to kind of hit the midpoint of revenue guidance. Does that seem accurate in any thoughts on visibility on that type of growth, just kind of looking at the way non-recurring is trending and obviously just kind of looking at the past 12 months of backlog conversion and just wondering if that’s kind of the boogie that you have in the back of your mind, 25% to 30% growth and total backlog at year end of this year, fiscal year to generate call it $152 million, $153 million in revenues?

Al Cochran

Allocate – it kind of circle back to fourth quarter. We have about $100 million in total backlog and the way I look that, that gives me fully two-thirds visibility on the revenue objective for fiscal ’13. So I feel pretty good about that. And there are sources of revenue that don’t follow through bookings or backlog as we have additions for services. Some of those flow into revenue directly and I think that coupled with the ability that we have to covert the deals to go live and work so right basis. The 20%, 25% that’s historically what we had achieved but I don’t know that we have to have that in terms of backlog growth in order to hit through the revenue objective.

Greg Bolan - Sterne Agee & Leach

Okay. That’s great. And then this question was I guess partly answered earlier. We just kind to focus in a little bit more. If you could Tee, maybe talk about any business tailwinds that have come as a result of the certification and certainly the interoperability program.

Wyche T. Green, III

We’ll, one it’s fairly new. So what we’ve done so far is to take current customers that are on compasses and make sure that the data liquidity is there and information does flow seamlessly back and forth and those things is now being completed. What I will say is in the pipelines and opportunities are beginning to grow but I’d have to say kind of stay stunned where we can point to some specific winds in the next few quarters.

Greg Bolan - Sterne Agee & Leach

Fair enough. Thanks guys.

Operator

Your next question comes from the line of Charles Rhyee, with Cowen & Company. Please proceed.

Charles Rhyee - Cowen & Company

Thanks guys. Thanks for taking the questions here. Maybe just going back to the growth in the SaaS offering and now I think you kind of said that at the current levels, it doesn’t really kind of affect how you think about the full year ranges. What level though, if the mix keeps shifting would you have to sort of re-visit that? Is it sort of 40%, 50%. What’s the break point that you are going to start thinking about how the mix is affecting you?

Al Cochran

Yeah, Charles. I’ll have to think about that in a little more detail. The – what we’ve indicated today is the number of transactions that are – the Premise versus Plus S and typically those Plus S transactions as I said are smaller in nature. So even if the trend continues at current levels, I don’t see that being a problem. Now, if it accelerates significantly beyond this point and it could begin to impact top line growth. However, I think that as they grow and build recurring revenue, I think we’ve got that together with the growth in our overall customer base from position ads that our installed customers have with what we think is there in terms of RCM opportunity for us that we’ve been very conservative I think in our ’13 outlook with respect to RCM. So, again while the mix of revenues might change a little bit in terms of the sources, I still don’t have any issues in terms of our overall revenue.

Charles Rhyee - Cowen & Company

Okay. Fair enough. Now, I understand that obviously as it’s not that it affects total revenue, right? It just changes the recognition period. I was just curious if there was – at what point you would say that we’ll – Al, obviously we’ll get the revenues at some point. It’s – but it’s not changing now.

Al Cochran

But even beyond that Charles, if my deliberate conservatism with regards to revenue cycle or kind outlook. If the adoption that we get there is what we think might be possible, then that provides a hedge against anything that would happen in the Plus S arena as well.

Charles Rhyee - Cowen & Company

Got it. Okay, I understand. And then a question for Tee, you kind of mentioned at the beginning we’ve kind of gotten to sort of more historic seasonality. It’s obviously changed the conversations a little bit. And you talked about sort of the demand, future change and it certainly something that some of the other company have kind of mentioned here over the last couple of weeks. Can you talk about what we should think about this market looks like as we get maybe in the next year? How does this change as we ramp up for stage two and maybe some of the higher requirements that will come down the road. Thanks.

Wyche T. Green, III

Thanks, Charles. As we know we see – first of all we like the market where we were considered normal as where you were competing on return on investment and service. I think Greenway does quite well. The markets where the tide raises our boats, the October tide, and meaningful use did that for sure and you are seeing those tides recede. We do anticipate 2013 you are going to see MU-2 ramp the market backup. I think it’s going to kind of push another segment of that Greenfield opportunity. It’s also going to force this replacement opportunity because MU-2 as you know, the bars are going to higher as it relates to data liquidity, as it relates to how you engage consumers and many of the I guess technologies deployed today, data liquidity and patient engagement weren’t really part of the design thesis. So we anticipate maybe some October tides in ’13 if I had to bet.

Charles Rhyee - Cowen & Company

Okay. Great. Thanks a lot guys.

Operator

(Operator instructions).

Wyche T. Green, III

Alright guys, I think that’s it. I want to thank you for your time today. And look forward to being back with you next quarter.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Greenway Medical Technologies' CEO Discusses F1Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts