Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GWAY > SEC Filings for GWAY > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for GREENWAY MEDICAL TECHNOLOGIES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GREENWAY MEDICAL TECHNOLOGIES INC


9-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A-"Risk Factors," but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition.

Forward-looking statements can be identified by the use of words such as "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Form 10-Q and in our other SEC filings, including our Annual Report on Form 10-K filed with the SEC on September 24, 2012. Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. 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. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

Business overview

We are a leading provider of integrated information technology solutions and managed business services to healthcare providers serving communities throughout the United States. At the core of our suite of solutions and services is PrimeSUITE, our award-winning, fully integrated EHR, PM and interoperability solution. PrimeSUITE integrates clinical, financial and administrative data in a single database to enable comprehensive views of patient records and efficient workflow throughout each patient encounter, reduce clinical and administrative errors, and allow for the seamless exchange of data between our customers and the broader healthcare community. We augment our solutions by offering managed business services such as clinically-driven revenue cycle and EHR-enabled research services. By integrating clinical, financial and administrative data processes, our solutions and services allow providers to deliver advanced care and improve their efficiency and profitability.

Our technology solutions and services are designed to address the needs of providers in various settings: independent physician practices, group practices, hospital-affiliated and hospital-owned clinics and practices, retail clinics, employer clinics, university and academic centers, federally-qualified health centers ("FQHCs"), community health centers ("CHCs"), accountable care communities ("ACCs") and accountable care organizations ("ACOs"), and integrated delivery networks ("IDNs"). As providers' needs evolve, our scalable platform allows for the efficient development and integration of new solutions, which we refer to as our innovation platform. Our solutions are available on either a cloud-based or, with respect to PrimeSUITE, a premise-based model.

The ambulatory EHR market has historically been underpenetrated and installed systems have been underutilized. Adoption of these technologies has been low for several reasons, including providers' resistance to making the required investment as well as concerns that electronic records would disrupt clinical and administrative workflows. Adoption of EHR solutions is accelerating as more providers realize the possible return on investment from adoption of solutions such as PrimeSUITE. Government initiatives and legislation have provided financial incentives and implementation support for ambulatory providers to adopt EHR solutions.

In order for us to continue to deliver on this commitment to our providers we are committed to investing in our innovation platform and managed business services to address the trends and challenges we believe will affect our providers now and in the future. We will invest in the development of new products and enhancements to existing products that we believe present opportunities for substantial efficiencies to ourselves and our providers' businesses. In responding to the acceleration of EHR adoption, government regulations such as the HITECH Act and ARRA, and other market trends such as increasing consumerism, the shift to quality-based reimbursement and the focus on improving the coordination of care among providers, we also face the following opportunities, challenges and risks, which could impact our business:

? Maintaining Adequate Capacity to Satisfy Changing Market Demand. We have taken steps to position ourselves to take advantage of expected changes in market demand by appropriately calibrating our direct sales force, enhancing our relationships with strategic alliance partners with established sales forces and modulating our systems installation capacity by utilizing third-party training and implementation specialists certified in PrimeSUITE deployment. While we believe these steps are sufficient to address expected changes demand, additional investments and steps may be required.


? Ensuring Continued Certification of Our Solutions. In order to qualify for government incentives for EHR adoption, our solutions must continue to meet various and changing requirements for product certification and must enable our providers to achieve "meaningful use" as defined by existing and new regulations. We will continue to invest significant resources to ensure compliance of our solutions and to train and consult with our providers to enable them to navigate "meaningful use" regulations. Our ability to achieve certification under applicable standards from time to time and the length and cost of related solutions development and enhancement could materially impact our ability to take advantage of increased demand and require larger research and development investments than anticipated.

? Ensuring Our Ability to Address Emerging Demand Trends. Trends toward community-based purchasing decisions where individuals, hospitals, health systems and IDNs subsidize the purchase of EHR solutions for their affiliated physicians in order to expand connectivity within their provider community, and government-funded providers and initiatives, such as RECs, to encourage and support the implementation of EHR, could result in longer sales cycles and installation periods. This may also increase the need for additional training and implementation specialists because of the size and complexity of those sales. As a result, while we expect these trends to result in increased demand for our solutions and managed business services, they may require additional investment by us and may have unintended or unexpected consequences that could impact our business.

? Demand by Provider Groups, Both Small and Large, Could Accelerate Transition to Cloud-based Model. 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 cloud-based arrangements as opposed to perpetual licensing arrangements. As well, enterprise-type customers are increasingly choosing cloud-based deployment of technology. While additional cloud-based arrangements will result in increased recurring revenue over a longer period of time than we have achieved historically, near-term revenue would be reduced as a result while costs associated with these sales would still be expensed currently. Additionally, training and implementation revenue associated with cloud-based deployments is subject to deferral over extended periods which further reduces near-term revenue.

? Uncertain Impact of Recent Legislation. Recently enacted public laws reforming the U.S. healthcare system may impact our business. The Patient Protection and Affordable Care Act ("PPACA") and The Health Care and Education and Reconciliation Act of 2010 (the "Reconciliation Act"), which amends the PPACA (collectively the "Health Reform Laws"), were signed into law in March 2010. The Health Reform Laws contain various provisions that may impact the Company and our customers. Some of these provisions may have a positive impact, by expanding the use of electronic health records in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including the Company.

Sources of Revenue and Expenses

Revenue

We derive our revenue primarily from sales of our PrimeSUITE platform of proprietary solutions, related hardware and professional services to providers in ambulatory settings. Currently, a significant portion of our solution sales are made as perpetual licenses to our customers. Our core PrimeSUITE application is available in a premise-based model. In addition, it is also available in a cloud-based model, which is the sole deployment model for all of our other solutions.

We classify our revenue as: (1) Systems Sales, (2) Training and Consulting Services, (3) Support Services, and (4) Electronic Data Interchange and Business Services. Systems Sales are products comprised of software licenses, primarily PrimeSUITE, and related hardware and third-party software. Training and Consulting Services include implementation, training and consulting associated with Systems Sales and our other technologies as well. Support Services includes revenues derived from support provided to our premise-based customers as well as all the solutions we offer on a per user or transaction basis, such as PrimePATIENT and PrimeEXCHANGE, and third-party database charges. Electronic Data Interchange and Business Services include third-party charges for patient claims, statements and eligibility, and clinically-driven RCM and EHR-enabled research services.

As our installed customer base continues to grow, we anticipate that Support Services and Electronic Data Interchange and Business Services, particularly our clinically-driven RCM services, all of which are recurring in nature, will expand as a percentage of our total revenue. As cloud-based offerings continue to gain acceptance, we anticipate and are currently observing increased migration toward this model for our core PrimeSUITE application. Historically, we have experienced moderate seasonality to our annual revenue with the smallest percentage of sales typically occurring in our first fiscal quarter due primarily to provider purchasing patterns. See "Results of Operations" for more information.


Cost of Revenue

Cost of revenue for Systems Sales consists primarily of third-party costs and allocable compensation and benefits related to application development for certain customers, third-party hardware and software costs and amortization of capitalized software development costs and acquired technology. Cost of revenue for Training and Consulting Services consists primarily of compensation (including stock-based compensation) and benefits of our billable professionals and fees to third-party specialists for deployment, implementation and training, and travel costs. Cost of revenue for Support Services consists primarily of compensation (including stock-based compensation) and benefits of support specialists, and fees to third-parties for database services and services from our managed services partners. Cost of revenue for Electronic Data Interchange consists primarily of fees to third-parties for processing claims, statements and eligibility requests; cost of revenue for Business Services consists primarily of compensation (including stock-based compensation) and benefits of personnel who deliver our revenue cycle management services and various third-party costs associated with our EHR-enabled clinical research services. As higher-margin recurring revenue increases as a percentage of total revenue, we believe overall gross margin will also increase over time.

Sales, General and Administrative Expenses

Sales, general and administrative ("SG&A") expenses consist primarily of compensation (including stock-based compensation) and benefits, commissions, travel, professional fees, advertising and other administrative and general expenses, including depreciation and amortization of equipment and leasehold improvements, for the Company's sales and marketing functions; executive offices, administration, human resources, corporate information technology support, legal, finance and accounting, and other corporate services. We intend to invest in our infrastructure as appropriate to expand our market share and accommodate our growing customer base. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and compliance costs under the Sarbanes-Oxley Act and the requirements of the New York Stock Exchange. As a result, we expect SG&A expenses to increase as we grow, but remain relatively constant as a percentage of revenue and ultimately decline as we achieve leverage from our infrastructure investments.

Research and Development Expenses

Research and development expenses consist primarily of compensation (including stock-based compensation) and benefits, third-party contractor costs and other facility and administrative costs, including depreciation of equipment directly related to development of new products and upgrading and enhancing existing products. In accordance with GAAP, research and development costs related to new application development and enhancements to existing products are expensed until technological feasibility is established. Once technological feasibility is established such costs are capitalized until the product or enhancement is ready for market, at which point capitalization ceases. We capitalize research and development costs under these criteria including the compensation-related costs of personnel and related third-party contractors working directly on specific projects. We intend to invest in our innovation platform to maintain cutting-edge technology for the benefit of our customers as well as to meet evolving requirements of the market, including certifications and standards.

Provision for Income Taxes

In preparing our financial statements, we estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities.


Results of Operations

The following table sets forth revenue and cost of revenue by category for the
three and nine months ended March 31, 2013, as compared to the comparable
periods of the prior year:

                                       Three Months Ended March 31,                                  Change
                                   2013                           2012                       Increase (Decrease)
                         Amount                          Amount                           Amount
                         (000's)       Percentage       (000's)        Percentage        (000's)           Percentage
Revenue:

System sales            $  10,430               31 %   $   10,271               31 %   $        159                   2 %
Training and
consulting services         4,243               13 %        7,643               23 %         (3,400 )               (44 )%
Support services           11,375               34 %        8,741               27 %          2,634                  30 %
Electronic data
interchange and
business services           7,775               23 %        6,210               19 %          1,565                  25 %

Total revenue              33,823              100 %       32,865              100 %            958                   3 %

Cost of revenue:

System sales                5,221               50 %        2,558               25 %          2,663                 104 %
Training and
consulting services         3,281               77 %        5,355               70 %         (2,074 )               (39 )%
Support services            3,340               29 %        2,691               31 %            649                  24 %
Electronic data
interchange and
business services           5,130               66 %        4,226               68 %            904                  21 %

Total cost of revenue      16,972               50 %       14,830               45 %          2,142                  14 %

                                       Nine Months Ended March 31,                                  Change
                                   2013                            2012                       Increase (Decrease)
                         Amount                           Amount                          Amount
                         (000's)       Percentage       (000's)         Percentage       (000's)            Percentage
Revenue:

System sales            $  30,103               30 %   $   26,125               30 %   $      3,978                  15 %
Training and
consulting services        15,213               15 %       20,547               23 %         (5,334 )               (26 )%
Support services           32,726               33 %       23,508               27 %          9,218                  39 %
Electronic data
interchange and
business services          21,276               21 %       17,458               20 %          3,818                  22 %

Total revenue              99,318              100 %       87,638              100 %         11,680                  13 %

Cost of revenue:

System sales               12,643               42 %        7,166               27 %          5,477                  76 %
Training and
consulting services        11,195               74 %       14,347               70 %         (3,152 )               (22 )%
Support services            9,654               29 %        7,620               32 %          2,034                  27 %
Electronic data
interchange and
business services          13,723               64 %       12,201               70 %          1,522                  12 %

Total cost of revenue      47,215               48 %       41,334               47 %          5,881                  14 %

Revenue. Total revenue was $33.8 million for the three months ended March 31, 2013, compared to $32.9 million for the three months ended March 31, 2012, an increase of $.9 million or 3%. Systems sales grew by 2%, support services and electronic data interchange and business services grew 30% and 25%, respectively, while training and consulting services declined 44%. Overall the revenues from systems sales and training and consulting services, which we characterize as one-time in nature, declined 18% from the comparable period of 2012. On the other hand, revenues from support services and electronic data interchange and business services, which we characterize as recurring in nature, grew 28% over the year-ago quarter and accounted for 57% of total revenue.

The current quarter's trend in systems sales and training and consulting services reflects fewer transactions overall in the current quarter and the impact of timing of implementation services for several larger customers. We believe these factors are due principally to the accelerated pace at which provider groups are choosing the cloud-based deployment model for our PrimeSUITE solution; which reduces licenses, training and consulting revenue recognizable currently in favor of subscription-based, recurring revenue, as well as the increasing number of opportunities in the market segment captioned "enterprise" which we define as a hospital or health system. Enterprise opportunities are typically larger transactions with longer sales and implementation cycles which influence the timing of booking the business and recording the revenue. Additionally, such customers often prefer to assume portions of the system implementation which can mean fewer hours of training and consulting services associated with such transactions. The lessening influence on buying patterns of the "Meaningful Use" regulatory regime is also a contributing factor which stimulated demand in prior periods to a greater extent than is now the case; impacting license revenues as well as training and consulting services. Further, the required deferral, over an extended period, of implementation-related revenue in connection with cloud-based deployments of our solutions, principally PrimeSUITE, negatively affects current revenue recognition for training and consulting services for these transactions. These trends are likely to continue influencing results in the near term as we continue executing the planned transition of our business to the recurring revenue model our cloud-based solutions were designed to take advantage of.


Support services, electronic data interchange and business services are recurring in nature and growth in this revenue is largely attributable to our growing customer base. Our ability to sell additional products, including the cloud-based version of our core PrimeSUITE offering, and services to our existing customer base also benefitted revenue growth in the three months ended March 31, 2013, compared to the same period of the prior year.

For the nine months ended March 31, 2013, total revenue was $99.3 million compared to $87.6 million for the nine months ended March 31, 2012, an increase of $11.7 million or 13%. Systems sales grew by $4.0 million or 15%, support services and electronic data interchange and business services grew 39% and 22%, respectively, while training and consulting services declined 26%.

Cost of Revenue. Total cost of revenue was $17.0 million for the three months ended March 31, 2013, compared to $14.8 million for the three months ended March 31, 2012, an increase of $2.2 million or 14%. Cost of systems sales increased by 104%, cost of support services and electronic data interchange and business services grew 24% and 21%, respectively, while cost of training and consulting services declined 39%. On an overall basis, gross profit margins were 50% for the three months ended March 31, 2013, as compared to 55% for the same period of the prior year.

The cost of sales trend in the quarter resulted from a combination of factors; including a sales mix with higher-margin support services that contributed increased revenue and margin for the period as compared to the third quarter of fiscal 2012. Improved margins for support services and electronic data interchange and business services were also realized in the current quarter. Support services margins and electronic data interchange and business services margins continue to improve due to customers' adoption of higher-margin innovations and to improvements in margin profiles of various services offerings that involve third parties. These beneficial effects were more than offset by 1) the impact of training and consulting services that, although reflected improved gross margins, experienced a significant decline in overall revenue driven by lower utilization in the quarter and thus gross profit; 2) $634,000 in increased amortization of software development costs and recently-acquired technology, and
3) the impact on the margin profile of systems sales for on-going, lower margin, development work we are currently doing for a certain customer.

For the nine months ended March 31, 2013, total cost of goods sold was $47.2 million compared to $41.3 million for the nine months ended March 31, 2012, an increase of $5.9 million or 14%. Cost of systems sales grew by $5.5 million or 76%, cost of support services and electronic data interchange and business services grew 27% and 12%, respectively, while cost of training and consulting services declined 22%.

Sales, General and Administrative. Total SG&A expenses were $15.1 million for the three months ended March 31, 2013, compared to $11.8 million for the three months ended March 31, 2012, an increase of $3.3 million or 28%. Growth in SG&A is largely a result of the required infrastructure to support the overall growth in the business. Approximately 3% of the increase in the current period is related to integration of the acquisitions we made in the previous quarter. We have increased headcount and related costs and have made other investments in sales, marketing and advertising which we believe positions us to capture increased market share in what we believe will be an expanding market over the next several years. Additionally, implementation of our long-term equity incentive plan increased stock-based compensation by $573,000 for the three months ended March 31, 2013 as compared to the year-ago period. Further, growth in our headcount and professional services related to implementation of a new suite of business tools has increased SG&A costs for subscription to these services. As a percentage of revenue, SG&A was 45% for the three months ended March 31, 2013, compared to 36% for the three months ended March 31, 2012.

For the nine months ended March 31, 2013, total SG&A was $43.2 million compared to $34.0 million for the comparable period of 2012, an increase of $9.2 million or 27%. As a percentage of total revenue, SG&A was 43% for the nine months ended March 31, 2013, compared to 39% for the nine months ended March 31, 2012. We believe that investments in our growth and related infrastructure can be leveraged to maintain our sales growth in future years without a proportionate increase in cost. We will also diligently manage the cost structure as we accelerate transition to the recurring revenue model.

Research and Development Expenses. Research and development expenses were $4.6 million for the three months ended March 31, 2013, compared to $4.0 million for the three months ended March 31, 2012, an increase of $534,000 or 13%. The increases are largely related to compensation, including stock-based compensation of $101,000, benefits and related costs for additional headcount and to increased costs related to the expanded platform of development tools. Our innovation platform requires continuing investment in research and development, which evolves to meet the needs of our customers, our market and industry regulators. In addition to research and development to support our innovation platform, we develop new products and enhance functionality of existing products. These application development costs are capitalized once technological feasibility is attained and capitalization ceases once the technology is available for market. Capitalized software development costs were . . .

  Add GWAY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GWAY - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.