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Greenway Medical Technologies (GWAY)

Q3 2013 Earnings Call

May 06, 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

Zachary William Sopcak - Morgan Stanley, Research Division

Gavin Weiss - JP Morgan Chase & Co, Research Division

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

Charles Rhyee - Cowen and Company, LLC, Research Division

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

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Mohan A. Naidu - Piper Jaffray Companies, Research Division

Caroline LeCates - Lazard Capital Markets LLC, Research Division

Neil Chatterji - Sidoti & Company, LLC

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Third Quarter 2013 Greenway Medical Technologies, Inc. Investor Conference Call. My name is Cheverly, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to hand the presentation over to your host for today, Mr. Bill Esslinger, Chief Counsel. You may proceed, sir.

William G. Esslinger

Thank you, Cheverly. Good afternoon, everyone, and welcome to the Greenway Medical Technologies' 2013 Third 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 performance 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. Thanks for joining our investor call today. We're in the midst of a fairly pronounced and accelerated shift of our revenues from nonrecurring license and training sales to cloud-based subscription services and business services. More provider groups of every size are opting to join the PrimeSUITE platform through our cloud-based PLUS S offering than in the past. An uptake of our subscription services for data liquidity, patient engagement and mobility, as well as business services continues to gain traction.

Our plan to move toward a recurring model was working. Unfortunately, it's working faster than we have budgeted. That had an impact on our third quarter results and led to last week's revision of our outlook for the remainder of fiscal '13. The composition of our pipeline in our bookings is changing and is changing quickly. Our pipeline continues to grow. But where we once had a relatively predictable view into which deals or premise in which were PLUS S, we're seeing 2 things happen.

First, the percentage of transactions that are identified as PLUS S is growing. PLUS S transactions are more than 15% of our total pipeline in dollar value, and that's up from historical levels in the low double digits. That's an incremental change but it's not significant.

The second factor is significant. At this time, the majority of our pipeline is transactions that are quoted with the option of both premise and PLUS S. Our prospective new customers are moving through the sales cycle. And at the same time, they're running all of the analysis, making evaluations of just how they will join our fully integrated platform. By design, we're offering our customers flexibility in how to deploy our platform. This makes it difficult for us to forecast based on historical patterns.

Having said that, we take responsibility for those forecasts. They were based on the information we had about onetime revenue, as well as recurring revenue growing at a certain pace. Our actual results demonstrate that the pace is faster than we expected, even 3 months ago. This transition has been deliberate on our part. So we also take responsibility for executing on a strategy to offer our customers the flexibility to deploy our solutions in ways that work for their organizations. We planned it. We've shared those plans with you on calls like this. Over time, this will be a great thing for our customers and for our shareholders, but we understand the pain that comes from any technology company engaged in this transition.

This is more than a pipeline issue. It had revenue implications during the third quarter. We had 4 transactions working their way through our pipeline that were expected to be deployed as premise sales. Back in February, when we reviewed our pipeline and its expected conversion, these transactions were expected to be recognized as a onetime systems sales and training revenue. As these transactions move to the finish line and they did close during the quarter, the deployment method chosen was our cloud solution PrimeSUITE PLUS S. This was just under $1 million in revenue that would have been nonrecurring revenue and now comes to us as a monthly subscription revenue as support services and training revenue that is deferred into the future. We've added the providers. And over time, I expect we'll recognize as much more revenue as we would have with the onetime sale.

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