Streamline Health Solutions, Inc. (STRM) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the Streamline Health Solutions First Quarter 2021 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jacob Goldberger, Director of Investor Relations and FP&A. Please go ahead, sir.
Jacob Goldberger: Thank you for joining us to review the financial results of Streamline Health Solutions for the first quarter of 2021, which ended April 30, 2021. As the conference call operator indicated, my name is Jacob Goldberger, and I'm responsible for our company's Investor Relations activities. Joining me on the call today are Tee Green, President and Chief Executive Officer and Chairman of the Board; Tom Gibson, Chief Financial Officer; and Randy Salisbury, Chief Sales and Marketing Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of our press release announcing these results, you can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites.
Tee Green: Thank you, Jacob, and thank you all for joining us this morning. As I'm sure most of you are experiencing, our country is beginning to return to more normal procedures. The prevalence of vaccines has slowed the spread of the virus, which is proving beneficial to all of us. Not only are Americans able to return to a sense of normalcy, including gathering with friends and dining out, but our health care providers are experiencing the same, returning to more normal operations as the number of COVID patients decreases, allowing for more elective procedures, which is a primary source of top line revenue for them.
Randy Salisbury: Thank you, Tee. As Tee mentioned, we're seeing more activity in the purchase decision-making process among our many prospects, but that process is by no means moving quickly. During the quarter, we signed 2 new eValuator customers, amounting to $1.8 million in new bookings for the quarter. And as we move into our second fiscal quarter, we have approximately 4 new contracts that are in what we would call the final stages of our sales process. Our pipeline remains very strong with prospects that have been generated primarily through our direct selling efforts. But as Tee stated, with the growth in the number of reseller partners, we anticipate seeing growth in the top of the funnel in the quarters ahead as we work together with these partners to target their best clients for our eValuator technology. Today, we have 6 prospects in the pipeline from partners. That number should grow substantially over time. Our customer success team continues to meet monthly with customers to document the results eValuators delivered, specifically in terms of ROI. As a result, we're growing a stable of happy customers willing to provide testimonials to the power of eValuator. These references are a valuable selling tool for a product like eValuator. Our potential clients want to know that, a, they can achieve a significant ROI; and b, that their team can add this new tool into their workflow without disruption. We completed analysis last month looking back and comparing the ROI we projected for our customers based upon an initial eValuator data analysis to actual results, months or years later. In every case, where we projected an ROI, the actual results exceed the projected results.
Tom Gibson: Thank you, Randy. Total revenues for the first quarter of fiscal 2021 were $3 million compared to $2.8 million in the prior year period. SaaS revenue increased $287,000 or approximately 32% compared to the same quarter a year ago. The revenue growth during the quarter was driven by higher revenue from SaaS and software licenses, offset by lower revenue from professional services, audit services and maintenance and support. Net loss for the first quarter of fiscal 2021 was $2.1 million as compared to net income of $3.7 million during the first quarter of fiscal 2020. First quarter fiscal 2021 net loss included $320,000 of income from discontinued operations of the company's legacy ECM business, which closed February 24, 2020. This compared to $4.7 million of gain on sale and income from discontinued operations during the first quarter of fiscal 2020. Income from discontinued operations was offset by a loss from continuing operations for the 3 months ended April 30, 2021 and 2020 of $2.5 million and $1 million, respectively. A large portion of the increased loss from continuing operations in the first quarter of 2021 compared with 2020 was derived from higher amortization of software development costs, incremental stock-based compensation and certain nonroutine or transaction costs. Accordingly, adjusted EBITDA was relatively flat on consistent revenue. Adjusted EBITDA for the first quarter of fiscal 2021 was a loss of $700,000 compared to an adjusted EBITDA loss of $600,000 in the first quarter of fiscal 2020. Moving to the balance sheet. We finished the first quarter with approximately $16.7 million of cash on hand compared to $2.4 million at the end of fiscal year 2020. In February, the company completed the successful capital raise with gross proceeds of $16.1 million. In March, we replaced our asset-based revolving credit facility with a $3 million capacity recurring revenue line facility. We plan to leverage the proceeds of our capital raise and additional debt capacity to make investments into sales and marketing and continued investment in the development of our flagship, eValuator solution.
Tee Green: Thank you, Tom. Within our executive team as managers and leaders, we maintain our focus on controlling what we can and winning at that every day. We are pleased that many of the difficulties of the past year are fading, and we look forward to benefiting from significant improvements to our organization, including our teams and our products made during the past year that we believe will create a foundation for rapid growth of our eValuator solution. Our vision to lead an industry-wide movement to improve the financial performance of every health care provider through our eValuator pre-bill coding analysis technology is being validated as our customer base and the results they realize continues to grow. Before we begin our Q&A session, I want to reiterate that I am pleased with the strength and talent of our people. I thank them for their commitment and hard work on behalf of our customers, ensuring they have the tools they need to free up time and resources to provide quality care for the communities they serve.
Operator: Our first question today is coming from Matt Hewitt from Craig-Hallum.
Matt Hewitt: I've got a handful here. First up, maybe if you could walk us through the typical sales process? I think and it was helpful to hear kind of where the potential log jams or where those log jams are popping up. But could you walk through the typical sales process? And then I think you mentioned kind of the budgeting and on the legal side is where you're seeing those log jams right now. Maybe walk through what -- how those log jams are coming about? And more importantly, what do you think it's going to take to kind of get through or break through those items?
Tee Green: Yes, Matt. This is Tee. I'll tie and then let Randy chime in. But obviously, coming out of COVID in health care systems, we're beginning to see the clinical, financial and administrative decisions going back to their respective departments rather than what we spoke about during the pandemic was that linear decision that was COVID, and everything else kind of had to fall in line. We're seeing health systems go back to where departments are beginning to prioritize their needs and which -- that translates into new contracts with new companies and new vendors. And so that's the positive, right? You're beginning to see that happen. The negative is that most health systems have that one legal department where now there's a backlog of contracts that need to be reviewed. And so we're beginning to see those contracts come back to us in red line, which is fantastic. That means they're working through the system, not just sitting there. And so that's phase 1. Phase 2 then is once we get through the red lines, which we haven't had real issues doing that with any of the other contracts is fairly straightforward, but the second thing is having IT resources assigned to the Streamline eValuator project. And so that's another backlog. So very similar to the supply chain you're seeing in other goods around the country, where in L.A., you've got 42 ships that are backed up in the port, it's got to come through the system. That's no different than what we're seeing in the health systems. They're getting back to business. I think the thing that we're encouraged by, we'll see in the next, call it, next -- certainly this next quarter, is will our contracts get to the top of the list? We think they will because, one, it's an ROI. And it's not -- it's new. It's not a replacement because if you're in the replacement business with technology, you're probably -- we can still -- we can do what we're doing, we'll get to it. But if it's a new technology or service that has a tremendous ROI like eValuator does, we believe those -- and it's a fairly light implementation because we're not converting off anything, right? We're not having to migrate data from one system to another. It's kind of a net new install with great ROI. So we'll see, but I'm encouraged that the dialogues we're having with CEOs and CFOs, they're getting that when we -- if there's 10 contracts on the desk, why wouldn't you pick the one that's going to give you the biggest bang for the buck with the easiest implementation. So I'll pause there and let Randy chime in.
Randy Salisbury: Matt, I can't add a thing to that.
Matt Hewitt: Yes. No, that's really helpful. I guess, kind of staying on the pipeline side of the equation, as you've had some success, are you seeing the size of the contracts or the size of the customers grow? And I guess as we enter June 30, that's fiscal year-end for over half of the health systems in the U.S., are you seeing an opportunity to get into the new budgets for the upcoming fiscal year?
Tee Green: Randy, why don't you take that one?
Randy Salisbury: Okay. The answer to that, Matt, it's absolutely, and that's a lot of what Tee is speaking of. As we approach this next fiscal year, a July 1 start, and by the way, we're working on a couple that are October 1 start, that's where we're seeing this return to more normalcy. It doesn't mean they'll get funded, but what we're finding is the efforts we put in last year are now coming to fruition as a number of the prospects that had their hands tied are saying this is great. We're really excited about this. In the month of May mostly, we put it into the budget. We expect to hear in June. With approval, we'll move ahead starting the new fiscal. I imagine looking back real quickly at the bottom of the funnel, we probably have 3 or 4 of those, Matt, that are waiting budget approval. They may not get it. I think they will, in many instances. But as Tee mentioned, every department is now clamoring for money because they have had their initiatives put on hold for so long. But we've done a pretty good job of showing that this pace will help pretty quickly. So even though they have "be budgeted," it makes a little easier to swallow. So we'll see, but that's part of what we're doing this month. The other side of the question is -- the other side was, yes, we are calling on larger and larger institutions. And we leverage the relationships we have with our current large ones, M Health, Memorial Hermann, some of those guys come to mind as 2,500 beds and up, and we're seeing great progress with a numbers that are in the 4,000-bed and 5,000-bed range.
Matt Hewitt: That's great. And then kind of shifting gears to the partnership side of the equation. Congratulations on the new agreement with R1. Maybe talk a little bit about how that came about? And whether or not this is something that they could -- I think about their business being throwing people at the problem, trying to get the audits done. Is this something that they'll be using internally? I mean are you selling them a license? Or is this as they sign either new contracts or ones with existing customers, they'll be kind of bringing you or recommending you to that customer?
Tee Green: Yes, Matt, I'll take the first part and let Randy fill in the blanks. But in general, you have a number of health systems or outsource organizations that are very labor intensive, right, and that work when your labor force was there. But with this -- with, obviously, what's happened, you're seeing -- and I don't know the percentage yet, we'll certainly see that over the next several months, but -- or maybe the next 2 quarters, a lot of these auditors, coders, billers, people that worked in that RCM service world, they're not coming back into the workforce. And so I think a number of companies and health systems are saying, wait, we have to have technology that's going to make us more efficient and be able to perform at a higher level. So I think it's -- eValuator had such a demand going into it. I think the demand coming out of it, those that might not necessarily have been looking for technology to replace the human capital or absolutely looking at it now. So Randy, I'll let you take the rest of that one.
Randy Salisbury: Sure. Thanks, Tee. Matt, just like the reseller arrangement from a couple of months -- a couple, 3 months ago with a large accounting/consulting firm, which remained unnamed, R1 is not licensing it and using it themselves, I think, even better, they're referring us to their customer base. They're finding that this is a much more efficient and smarter use of new technology. It has a halo effect in that it makes them look good as the trusted adviser. So it extends the strength of their relationship, and it brings to their user base technology with which they're probably not familiar and where they could see the benefit and return on investment pretty quickly. So both the previous large big 4 accounting firms and R1 are approaching the market in similar ways.
Matt Hewitt: Got it. All right. And then maybe a couple for Tom on the expense side of the equation. The $440,000 of nonrecurring expenses that hit in the first quarter, what were those tied to? And is there going to be any tail to that in here in the second quarter?
Tom Gibson: Yes. So there's going to be a little tail on some of those nonroutine costs. There -- a lot of that is associated with some strategic transactions that are underway as well as there was a onetime bonus to certain executives for successfully coming out of COVID and completing the capital raise.
Matt Hewitt: Got it. And then on the gross margin front, and thanks for giving us that full guidance on SaaS gross margin, what is the ramp? I mean how should we be thinking about the ramp to get to 80%? Is that going to happen over a couple of years? Where do you see that kind of shaking out over the course of fiscal 21?
Tom Gibson: Yes. I think it's a gradual improvement from where we are now to fiscal 2023 and achieving that 80%. So we have in our models 60% to 70% eValuator clients in fiscal year 2023. So as you add that volume and you have that amortization becoming a smaller portion of your overall cost, you're going to achieve that margin.
Operator: We've reached end of our question-and-answer session. I'd like to turn the floor back over to Jacob for any further closing comments.
Jacob Goldberger: Thank you all again for your interest and support of Streamline Health. If you have any additional questions or need more information, please contact me at jacob.goldberger@streamlinehealth.net. We look forward to speaking to you all again in September when we will discuss our second quarter financial performance. Good day.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
