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Greenway Medical Technologies, Inc. (GWAY)

Q2 2013 Earnings Call

February 12, 2013, 05:00 pm ET

Executives

Bill Esslinger - VP & General Counsel

Wyche T. Green - President & CEO

Al Cochran - CFO

Analysts

Ryan Daniels - William Blair

Jamie Stockton - Wells Fargo

Zack Sopcak - Morgan Stanley

Sandy Draper - Raymond James

Sean Wieland - Piper Jeffrey

Neil Chatterji - Sidoti & Company

George Hill - Citigroup

Sean Wieland - Piper Jaffray

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Greenway Medical Technologies, Incorporated Earnings Conference Call. My name is Caris and I will be your coordinator 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.

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

Bill Esslinger

Thank you, Caris. Good afternoon everyone and welcome to the Greenway Medical Technologies 2013 second quarter conference call. In the course of this conference call, management may make statements that contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements regarding future events, our company performance or estimates or projections relating to the future.

Although, the company believes that the assumptions underlying any forward looking statements are reasonable, we operate in a continually changing business environment and new factors emerge from time-to-time. We cannot predict such factors or assess the impact, if any, of such factors on our financial 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. Thanks for joining today's call. We're reporting results for the first half of the fiscal year that produced 20% topline growth, continued margin expansion and acceleration in the trend toward revenue from recurring sources.

At 20% growth, we are at the low end of the guidance we issued at the start of the fiscal year. More important, revenue from recurring sources is 53% of our first half revenue, up from 47% for all of our 2012 fiscal year.

For the three months that ended December 31, 2012, however, growth of 12% was below our long-term expectation. We continue to achieve strong revenue growth from recurring sources and that was 32% for the quarter. Growth in system sales were 16%, a year-over-year decline in training and consulting revenue had a pronounced impact on our overall growth for the quarter.

Several of the factors that are affecting our quarterly results are the product of where we've been taking this company over the past several years. Specifically, our deliberate move toward a predictable recurring revenue model is happening at a faster pace this quarter than we have signaled and or gaining increased acceptance of our solutions by larger enterprise accounts. In fact, the average number of providers of our Q2 go-live sites was nearly double the average for our entire customer base.

These two factors are affecting our short-term financial results in the training and consulting services revenue line in particular. A portion of this was anticipated and included in our original outlook. A portion of this was identified by us and as I just said, this shift is occurring a little bit more rapidly than expected. With all of that, we think it's prudent to adjust our outlook for fiscal 2013 to reflect what we’re seeing.

I do want to provide some color on how this shift toward recurring revenue stream is impacting deployment related revenue. As a greater percentage of our customers choose to deploy on our cloud based [Plus S] offering, there is a direct impact on how we're able to recognize training and consulting services revenue. If we do the training, we incur the cost in the current period, but the revenue we will be recognized over an extended time.

We are also shifting some of this training particularly for smaller size to third-party partners. We can identify this shift to our Plus S and bundled revenue cycle management deployment is having a meaningful impact on comparisons of our one-time revenue lines.

Our move up market meaning to larger systems is also having an impact on deployment related revenues. Larger accounts were able to leverage their training spend across a larger provider base. As we move into the enterprise space, it's more common for us to see a train the trainer model in which the enterprise is taking more responsibility to train their providers and users, so the bookings related to deployment are lower on a per provider basis. There is one more wrinkle to this; a number of accounts build training schedules that push the service and therefore the revenue into the new calendar year which is our third fiscal quarter. January billing for training returned towards historical levels. We are encouraged by the growth in the number of providers using our platform as well as the pickup in bookings growth.

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