IPO Preview: Greenway Medical Technologies

| About: Greenway Medical (GWAY)
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Based in Carrollton, Georgia, Greenway Medical Tech (NYSE:GWAY) scheduled an $80 million IPO with a market capitalization of $330 million at a price range mid-point of $12 for Thursday, February 2, 2012.

GWAY is one of eight IPOs scheduled for this week (see our IPO calendar).


GWAY provides technology and business service solutions to ambulatory healthcare providers throughout the United States. GWAY currently serves 20 million patients in the U.S., that's 1 out of 15 and suggest it will be difficult to grow top line revenue by adding significantly more patients, in GWAY's competitive marketplace.


GWAY is another premise-based software solution trying to get a cloud multiple, just because its software solutions are also available in the 'cloud' environment, presumably on a subscription basis.

Although we believe GWAY may edge up after the IPO so we would not chase it in the after market.


  • EHR: electronic healthcare record
  • PM: practice management
  • RCM: clinically-driven revenue cycle management
  • HITECH: the Health Information Technology for Economic and Clinical Health Act, enacted as part of the American Recovery and Reinvestment Act ("Stimulus" Act) of 2009. ObamaCare adds heavier penalties, more rules, and more money for enforcement.
  • KLAS: provides reviews and reports on vendors of healthcare information technology.


GWAY is a leading provider of integrated information technology solutions and managed business services to ambulatory healthcare providers throughout the United States.

GWAY's integrated EHR/PM (Electronic Healthcare Record/Practice Management) solution is consistently rated among the best in the industry. Since 2004, the lead product PrimeSUITE has received 13 "Best in KLAS" awards in ambulatory EHR and PM categories. KLAS provides reviews and reports on vendors of healthcare information technology

GWAY has achieved a customer retention rate of 95% in a market where, according to KLAS, 35% of providers who have adopted EHR technologies, are considering replacing their current vendors.


At the core of GWAY's suite of solutions and services is PrimeSUITE, an award-winning, fully-integrated electronic healthcare record ("EHR"), practice management ("PM") and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to enable comprehensive views of the patient record, which GWAY believes supports efficient workflows throughout each patient encounter, reduces clinical and administrative errors and allows for the seamless exchange of data between provider customers and the broader healthcare community.

GWAY augments its solutions by offering managed business services, including clinically-driven revenue cycle management ("RCM") and EHR-enabled research services. By integrating clinical, financial and administrative data and processes, GWAY solutions and services are designed to enable providers to deliver more advanced care and improve their efficiency and profitability.

Based on GWAY's internal tracking data, over 33,000 providers, defined as physicians, nurses, nurse practitioners, physician assistants and other clinical staff, use GWAY's solutions and services to deliver care to and manage the clinical, financial and administrative information of over 20 million patients.


Government programs in the United States initiated to accelerate the adoption and utilization of health information technology and to counter the effects of the current economic situation, may not be effective in changing the behavior of providers or may not be fully implemented or fully funded by the government.

While government programs have been initiated to improve the efficiency and quality of the healthcare sector and also counter the effects of the current economic situation, including expenditures to stimulate business and accelerate the adoption and utilization of health care technology, these programs may not be fully implemented or fully funded and there is no guarantee that GWAY's customers will receive any of these funds.

For example, the passage of the HITECH Act authorizes more than $19 billion in expenditures to incentivize adoption of electronic health records. Although GWAY believes that its technology solutions and services will meet the requirements of the HITECH Act, qualifying GWAY's customers for financial incentives, these financial incentives, may not apply to GWAY technology solutions or services


in September 2011 quarter from Support Services and Electronic Data Interchange and Business Services.

As GWAY installed customer base continues to grow, GWAY anticipates that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of total revenue.


Demand by smaller providers could accelerate transition to a subscription pricing model which could reduce near-term revenue.

The adoption of EHR by the large untapped market of smaller provider customers and their greater need to minimize capital outlays could accelerate adoption of subscription-based arrangements as opposed to perpetual licensing arrangements.

Under subscription-based arrangements, providers pay a monthly fee over a 36 to 60 month term to utilize GWAY's software as compared to perpetual license arrangements, under which providers utilize GWAY's software in exchange for a one-time license fee.

While an increased amount of subscription arrangements will result in increased recurring revenue over a longer period of time than GWAY has achieved historically, near-term revenue would be reduced as a result, while costs associated with these sales would still be expensed currently.

For comparable transactions entered into at the beginning of an annual period, the impact of subscription-based versus perpetual license arrangements would have the effect of reducing the license revenue to be recognized by 66% to 80% in the initial year which would then be made up over the remaining two to five years of the subscription arrangement.


As GWAY's installed customer base continues to grow, GWAY anticipates that Support Services and Electronic Data Interchange and Business Services, which are recurring in nature, will expand as a percentage of total revenue.

There is moderate seasonality to GWAY's annual revenue. Typically, the smallest percentage of sales occurs in the first fiscal quarter (September calendar quarter) due primarily to provider purchasing patterns.


The market for EHR, PM and other healthcare information technologies is highly competitive and we expect competition to increase in the future. We face competition from existing and new entrants.

GWAY believes its most significant competitors in EHR and PM are Allscripts (NASDAQ:MDRX), athenahealth (NASDAQ:ATHN), Cerner (NASDAQ:CERN), eClinicalWorks, Epic, GE (NYSE:GE), Quality Systems (NASDAQ:QSII), and Vitera Healthcare Solutions.

Moreover, GWAY expects that competition will continue to increase as a result of incentives provided by the HITECH Act, which was enacted in 2009 as part of the American Recovery Reinvestment Act ("ARRA") and consolidation in both the information technology and healthcare industries


athenahealth, Inc. is a leading provider of cloud-based business services for physician practices. athenahealth's service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, and care coordination services.


If GWAY sales were significantly cloud-based then they probably would have been separated in their S-1 filing, which they were not, see below. Therefore, GWAY may not deserve the 'cloud-based' multiple afforded to ATHN.

"Our single database technology platform, which reflects over 12 years of development, is available in either a cloud-based or premise-based model and is scalable to serve the needs of ambulatory providers of any size." S-1 page 1

"Currently, a sizable percentage of our solution sales are made as perpetual licenses to our customers; however, our software is currently available in a cloud-based or a premise-based model."

S-1, page 37

The word 'however' seems to suggest a perpetual license is premise-based. And perpetual licenses comprise a 'sizable percentage of our solution sales' whatever that is. So if true, then GWAY's P/E multiple should not be as high as athenahealthcare's .


GWAY expects to net $57.5 million from the sale of 5.4 million shares. Shareholders intend to sell 1.3 million shares. GWAY's proceeds are allocated as follows:

  • $23.3 million to preferred stock holders.
  • $12 million to finance the construction of new facilities
  • Remainder for working capital and general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.