Streamline Health Solutions, Inc. (STRM) on Q3 2021 Results - Earnings Call Transcript
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Operator: 00:05 Greetings. Welcome to Streamline Health Third Quarter twenty twenty one Conference call. At this time, all participants will be in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, that today’s conference is being recorded. 00:25 I’ll now turn the conference over to Jacob Goldberger. Mr. Goldberger, you may now begin.
Jacob Goldberger: 00:30 Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the third quarter of twenty twenty one, which ended October 31, twenty twenty one. As the conference call operator indicated, my name is Jacob Goldberger. 00:43 Joining me on the call today are Tee Green, President and Chief Executive Officer and Chairman of the Board; Randy Salisbury, Chief Sales and Marketing Officer; and Tom Gibson, Chief Financial 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. 01:10 Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information which may be provided today, as all of our earnings calls, should be viewed. We therefore submit for the record the following statement. Statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of nineteen ninety five. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss. Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K annual report which is on file with the SEC for more information about these risks, uncertainties and assumptions and other factors. 01:48 As always, we are presenting management's current analysis of these items as of today. Participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline Health does not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today. 02:03 On today's call, we will discuss non-GAAP financial measures, such as adjusted EBITDA and unaudited figures related to our recent acquisition of Avelead. Management uses these measures to help provide better insight into our financial performance. However, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may utilize in calculating their own non-GAAP measures. To help you compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. 02:35 I would now like to turn the call over to the Tee Green, our President and Chief Executive Officer.
Tee Green: 02:41 Thank you, Jacob. And thank you all for joining us this morning. As we have previously announced on August sixteenth, we acquired Avelead, and going forward their financial performance will be included in our GAAP results from that date. As a company, we continue to follow a simple formula for successful growth. Innovation plus service equals growth. 03:04 Our goal is to back-up our innovative industry leading solutions, like eValuator and RevID with a world class customer success team to create a community of customers that enhances our potential for long term revenue growth. Today, our flagship solutions eValuator and RevID are leading an industry movement to help our hospital customers capture one hundred percent of the revenue they have earned for the care they have provided through revenue integrity validation before the bill goes out the door. Our focus on shifting revenue integrity practices to the front end of the revenue cycle yields significant return on investment for our customers and is driving our rapid SaaS revenue growth. 03:51 To capitalize on the significant opportunity in front of us, we make key investments in eValuator side of our business throughout the year, especially in sales. Today, we have built out a direct sales force with four high profile regional Vice Presidents, all of whom have demonstrated a track record of closing deals. We have partnered each of these RVP with the business development representative to open more doors and schedule eValuator presentations with our prospective customers. 04:21 The investments into our new RVPs and their BDR partners are in addition to our previously announced hiring of Lance Seach, our senior VP of Business Development, who has been instrumental in signing some of our most meaningful channel partner agreements. The investment we made in sales talent has increased the number of eValuator prospects in our sales pipeline. 04:44 As previously announced, eValuator was a subject of a positive report published by Class Research. A leading healthcare AAAC research firm classes a resource that hospital executives use for guidance on what to buy. The report highlighted the strong capabilities of eValuator and our customer satisfaction with the technology. Class Research conducted surveys with standalone hospitals and found that one hundred percent of customers saw very positive outcomes within in six months and universally agreed they would buy eValuator again. There was high priority eValuator’s targeted reporting and robust rule sets, as well as Streamline’s willingness and ability to make enhancements to the system. We believe well regarded third-party confirmation of our innovative products and strong customer service reflects the reputation that Streamline is building in the healthcare community. 05:44 Within Avelead business, while we plan to make additional investments into the sales team, we are currently focused on the I and the S functions of our growth equation, Innovation and Service. We recently hired a new technology leader, whose focus will be ensuring that Avelead Software remains highly scalable. To strengthen Avelead service function, we added a new service leader who will be responsible for overseeing its customer success team to ensure the highest level of customer satisfaction. 06:16 Moving now to our financial results. On an unaudited pro form a basis, assuming we had owned Avelead for an entirety of our fiscal third quarter of this and last year, total revenue was approximately six point one million dollars, up seventeen percent compared to approximately five point two million dollars during the third quarter of twenty twenty. 06:36 Pro Forma unaudited SaaS revenue totaled approximately three point one million dollars, an eighty one percent increase compared to approximately one point seven million dollars during the prior year period. 06:51 Moving now to our GAAP consolidated financial results for the three months ended October thirty one. Total revenue for the third quarter of twenty twenty one was five point five million dollars, one hundred and nine percent increase in the third quarter of twenty twenty. Notably, our SaaS revenue grew two hundred and fourteen percent from the third quarter of twenty twenty to twenty twenty one. Recurring revenue accounted for seventy one percent of total revenue this quarter compared to seventy five percent for the third quarter of twenty twenty. 07:27 Third quarter twenty twenty one adjusted EBITDA was a loss of three hundred thousand dollars compared to an adjusted EBITDA loss of seven hundred thousand dollars during the third quarter of twenty twenty. As of October thirty one twenty twenty one, we had ten point four million dollars of cash on hand with ten million dollars of debt related to a term loan, which we entered into with Bridge Bank subsequent to the acquisition of Avelead. To close Avelead acquisition we utilized approximately twelve point four million dollars of our cash and issued approximately six point six million dollars of restricted stock to the sellers. 08:03 In addition to the closing consideration, we contracted an earn out over the next two sequential twelve month anniversaries of the closing of Avelead that is tied to Avelead’s performance and includes a combination of cash and restricted common stock. Our CAP table remains very clean with only one class of common stock. Tom Gibson, and our CFO will provide additional details about our financials during his prepared remarks. 08:28 Now, I'll turn the call over to Randy Salisbury for an update on sales. Randy?
Randy Salisbury : 8:35 Thank you, Tee. Total bookings for the third quarter of twenty twenty one were two point one million dollars, approximately eight hundred thousand dollars of which was attributable to our SaaS solutions. 08:47 On the eValuator sales and marketing front, our primary focus is on moving our eValuator prospects through our selling process from stage one qualified o stage four contracting. During the third quarter, we had three prospects in the contracting stage and we signed one, CarolinaEast Medical Center. Following that, we moved two more prospects into the contracting stage. We anticipate two of the four prospects in contracting will find deals for eValuator in the next couple of weeks and we're perusing to close the others in January before the end of our fiscal year. The first two contacts alone would generate enough bookings to meet our quarterly goal of two million dollars to three million dollars. 09:37 Now that we have completed the transformation of our sales force, as Tee mentioned at the outset of this morning's call, I look forward to improved bookings momentum. The current team of proven consultative sales professional cover each of our four sales territories, Eastern Seaboard, Great Lakes, Central and Western regions Each of these regional Vice Presidents of Sales are supported by dedicated business development resource to help them mine their territories, generate leads and schedule introductory meetings. 10:11 And by the way, we're finally starting to see some in-person on premise sale presentations. Which we've been asking for most of this fiscal year, but we have not realized since many of our key decision makers and ultimate end users are still working from home. As a reminder, we target medium to large size hospital systems. Given the scale of their operations, these healthcare systems experience staffing and accurate bill coding among other complexities in the revenue cycle, making them ideal candidates for our technologies. 10:47 When we go to market, we're able to sell potential customer a clear return on investment based on our analysis of their historical billing data in the form of Medicare billing during calendar year twenty twenty. Our perspective healthcare provider customers can see for themselves the upside that our solution deliver prior to making a decision. 11:11 Another area of focus for us is building and maintaining a sustainable business pipeline for our industry leading eValuator technology. Despite the ongoing difficulties associated with COVID-nineteen, we continue to generate interest in our pre bill coding analysis and we expanded our list of prospects via our direct selling efforts in concert with the business development team. And via the great work our reseller channel partners are doing and expanding the roster of vendors or consultants with large healthcare provider practices. 11:45 During the third quarter, our new BDR Secure 23, initial eValuator presentations and they did so just in the last two months of the quarter. Further, the reseller partner channel has generated approximately seventeen prospects and are opening additional opportunities for RVPs in the sale pipeline. 12:06 With the introduction of the Delta variant earlier this fall and now the threat of the Omicron variant looming, many healthcare providers are still experiencing significant disruption to their operations. In some cases, including the suspension of high value electric procedures with the attended negative effect on their revenue. Much like the other companies whose business is selling enterprise software to hospitals, many of our prospects have delayed their decision making due to the uncertainty related to the topline revenue, which has a significant impact on their budgeting process. 12:38 The financial uncertainty created by these factors tends to delay, but not cancel new purchase approvals. As we continue to increase our prospect count, we expect to translate our expanded pipeline into an accelerated rate of bookings in a more normalized environment. In addition, many of the contracts in our pipeline are on average significantly larger than our historical three hundred thousand dollars annual contract value. These factors considered, we remain confident in the long term opportunities ahead of us and continue to target closing two million dollars to three million dollars of SaaS solutions per quarter. 13:16 The sales team is very pleased with the expanding roster of referenceable customers. As mentioned in previous earnings calls, we know that as our community of happy estimate grows, the idea of leading healthcare providers joining our movement is easier to envision and enact. 13:38 I'm very excited about the progress we're making in the sales and marketing area. Our goal is to lead an industry movement to pre bill revenue integrity validation. We believe that by leveraging our talented teams and large reseller partners with hundreds of active provider relationships we will be able to expand our reach and accelerate adoption of our technologies. 13:59 I'll now turn the call over to Tom Gibson, our CFO to review the third quarter's financial results in more detail.
Tom Gibson: 14:06 Thank you, Randy. Total revenues for the third quarter of fiscal twenty twenty one were five point five million dollars, a one hundred and nine percent increase over the comparable period of last year. Two million dollars of the increase is a result of the acquisition of Avelead on August sixteen twenty twenty one. 14:30 SaaS revenue increased one point nine million dollars or approximately two fourteen percent compared to the same quarter a year ago. One point two million dollars of the increase in SaaS revenue is attributable to Avelead. 14:49 Third quarter twenty twenty one operating expenses were nine point three million dollars compared to four point five million dollars for the prior year period. One point nine million dollars of the increase is related to non-retained cost primarily attributable to the acquisition. Two point three million dollars of the increase is related to Avelead, R&D expenses grew zero point six million, point three million dollars of that increase is related to Avelead. The higher R&D expense is impacted by lower capitalization rates in the third quarter than prior periods for the eValuator product. 15:40 Loss from continuing operations for the three months ended October thirty one twenty twenty one and twenty twenty totaled four point four million dollars and one point nine million dollars, respectivelyLoss from continuing operations for the three months ended October thirty one twenty twenty one included one point nine million dollars of non-retained costs and other expenses of zero point six million dollars, each are primarily related to the acquisition of Avelead. 16:15 Depreciation and amortization increased approximately zero point four million dollars and there was an income tax benefit of zero point eight million dollars in the prior year associated with accounting for the discontinued operations. 16:34 Adjusted EBITDA for the third quarter of fiscal twenty twenty one was a loss of zero point three million dollars compared to an adjusted EBITDA loss of zero point seven million dollars in the same quarter of fiscal twenty twenty. The improvement in adjusted EBITDA came despite a lower rate of capitalized R&D expenses. 16:58 Moving to the balance sheet. As of October thirty one twenty twenty one we had ten point four million dollars of cash on hand, compared to two point four million dollars at the end of fiscal year twenty twenty. As Tee indicated in his remarks, the company closed Avelead, utilizing approximately twelve point four million dollars of cash and six point six million dollars of restricted stock. Under the acquisition agreement, the company will provide additional consideration in each of the two annual anniversaries of the closing date. These will be paid to the sellers in cash and stock and are valued on the balance sheet as of October thirty one twenty twenty one at eleven point one million dollars. 17:50 Subsequent to the closing of the Avelead acquisition, we entered into a five year, ten million dollars term loan with Bridge Bank. The company maintain this disposition that the uncertainty related to the effects of the novel coronavirus on the healthcare market prevents us from providing detailed guidance. The company remains focused on continued growth of SaaS revenue. The company experienced a one-time benefit in this third quarter from a customer non-renewal in its SaaS revenue of approximately three hundred thousand dollars. 18:29 Further, the tremendous growth by our Avelead business will temper on a sequential basis in the coming two quarters. As a result, the company will continue to report strong year over year growth as it has in this third quarter. However, we do not anticipate sequential growth in the SaaS revenue line for the following two quarters. After which, we will resume the strong sequential growth the company experienced in the first three quarters of fiscal twenty twenty one. 19:08 The company continues to evaluate its consolidated forecast with Avelead, and we are optimistic that the combined entity will reach cash generation by Q2 or Q3 of twenty twenty three. We have pushed our projection of cash generation out one year, primarily due to the investments we plan for Avelead, as well as the company’s shortfall on eValuator bookings through the third quarter of fiscal twenty twenty one. 19:41 That concludes my remarks. I will now turn the call back to Tee Green for his closing. Tee?
Tee Green: 19:48 Thank you, Tom. In reflecting on the past year, I am proud and impressed with the work our team has accomplished, perusing through the macro impacts of the coronavirus showing up every day with positive can move mentality and maintaining a vision for the long term impact we can have on the industry has put us in a position to seize the market opportunities ahead of us. 20:12 Before we begin our Q&A session I’d like to once again thank the entire Streamline team for all their hard work and dedication during these uncertain times. Their contributions are essential for us to support our healthcare providing customers and ensure they have the necessary tools to free-up time and resources to provide quality care for the communities they serve. 20:36 Thank you all for your support at Streamline Health and for your support of our vision. Now I'd like to open up the call to your questions. Operator?
Q - Matt Hewitt: 21:21 Good morning, and thank you for taking the questions. Maybe first up regarding the Avelead integration. If you could provide an update on kind of where that sits? And more importantly, I think as we look out over the next twelve to twenty four months, what is the initial feedback then on the cross selling opportunity? Are you seeing interest from that Avelead installed base? And how quickly do you think you could get some of those customers to sign up for eValuator?
Tee Green: 21:48 Yes. Thanks, Matt. Tea here. Good morning, The Avelead integration as we mentioned, we're focus really -- the whole model, you have to have your innovation done correctly that can scale it in enterprise level, then you've got to get your service platform correct, then you can really grow. So right now on Avelead side we're laser focused on the innovation side, we are now going into the acquisition, there were some enterprise capabilities from the scale that needed to be done in the platform and that's what we're working on. We also knew that they didn't have a real good service delivery, meaning, that we didn't have the right implementation framing very similar to where eValuator was a year a half ago. 22:28 So those are the two focuses right now. You'll see probably middle of next year some effort on the eValuator sell side and the Avelead sales side. Because clearly there's ninety two health systems or ninety two opportunities on the Avelead -- they don't have eValuator. And eValuator -- twelve customers now, so less than -- huge opportunity. So, yes, but I wouldn't anticipate a lot of joint sales efforts until we get on really nailed down on Avelead side, because you don't want to -- worse thing we could do with Avelead is outgrow its capacity to deliver. We're not going to do that.
Matt Hewitt: 23:14 Understood. Thank you. And then maybe just a clarification, Tom. Regarding your guidance there regarding Q4 and Q1, you're not expecting a sequential growth, but are you expecting revenues to be essentially flat the next couple of quarters before then kind of initiating that ramp that we've being open watching over the recent past?
Tom Gibson: 23:38 Yes, that's correct, Matt. We're looking at relatively flat revenues in Q4 in particular. Q1 we have some potential upside from non-recurring, but I'm certainly not expecting growth on the SaaS line on a sequential basis.
Matt Hewitt: 23:59 Understood. Thank you. And then maybe the last one, as far as some of the investment that you're going to be making, particularly on the software side, is that tied to essentially bringing the Avelead and eValuator platforms together? Or are there some new applications that you anticipate adding to the combined platform? Thank you.
Tee Green: 24:32 Hey, Matt, can you say that one more time? I'm sorry. I had a –
Matt Hewitt: 24:36 Yes. So the R&D investment that you're going to be making, is that tied to essentially bringing the Avelead and Streamline platforms together ao that they can essentially be sold as one core platform? Or is there some new applications, some new opportunities where you could add some new apps, if you will, to one or more of the platforms? Does that make sense?
Tee Green: 25:07 Yes, So Tom, you may have to -- the dollars that we're investing on each side, I'll let Tom on it. But as far as the Avelead side goes, it's -- and if you think of RevID the flagship application from there and then eValuator, the flagship from the core stream. Currently in the next twelve months we do not have a product roadmap where those would merge. We're really focused on what those two applications solve for our customers, because they're both incredibly valuable and they both have -- they both have a product roadmap that certainly stretches the next three quarters. 25:46 So we're not going to do anything other than continue to make those two platforms stronger. At some point down the road, we can evaluate does it make sense to put them together or not? We haven't made that call yet.
Matt Hewitt: 26:00 All right. Thank you.
Operator: 26:04 Thank you. Our next question comes from the line of Brooks O'Neil with Lake Street Capital. Please proceed with your questions.
Brooks O'Neil: 26:15 Good morning, guys. Thanks for taking my questions. I'm -- I guess I'd start off by just trying to dig in a little bit more about what you're seeing from your hospital customers related to COVID and just trying to understand the disruption you’re seeing and maybe you could talk about it a little bit on a month by month basis what's been going on out there and just help us to understand how they're thinking about buying products like you guys offer in the world that is perhaps being dominated by COVID disruption right now?
Tee Green: 26:57 Yes. Thanks, Brooks. Tee here. I think everybody's is ready to quit talking about this, but it is reopened. And we're not unlike any other healthcare IT vendor, first things first and that's battling this virus where -- behind this delta came, omicron is here. 27:21 What we're seeing is clearly it impacts decision making in health systems. And in different parts of the country we are impacted a bit more than others. If you look at the Northeast, where we called in the national guard in the three states. Yes, we're probably not going to close a lot of contracts there. That when you got the national guard coming into the sister healthcare facilities, buying new technology is not going to happen. That's just a fact. 27:50 However, Southeast all the way through the Midwest, we're not having those type issues. And so, we're seeing -- we're actually -- we're seeing contracts that have been hung up in legal. Actually last Friday -- the red light, so that's movement, right? And so that's really --. But again, when the national guards called in to help the healthcare system, that's not positive. 28:19 The second thing that you're seeing in some areas of the country are these mandated vaccines and helps the mandate for employees to get vaccine, right? Well, thirty percent of the nursing staff in the United States is now vaccines. And so that's a whole another issue with the leader of a health system last Sunday, and he said, Tee, on Monday, this coming Monday, we're announcing our health system the you're not going to be employed. He's hundreds of nurses. That can't be good. 28:53 Those kind of things they are what they are, but the good news is, there are parts of the country where we're starting to see things move. So that's cool. But again, if employers, not just health systems, probably this morning where Jeffery went back to remote work, requiring everybody to wear mask in any of their facilities. 29:12 People say these variants aren't real and it's not -- but if you're in the healthcare world, you know that it is real and you know that it's going to be a couple of more quarters battling through this stuff. But I think there's -- finally, there's enough -- we've got six deals that are in this -- right there that are exciting. We know these deals are come. I guess it is my point, this is not a eValuator, it's just to value. 29:42 There's two there's too much return on investment, it is too easy to install. It's just one of those no brainer points we get the right and the energy on the health systems they can move forward. So I'm super encouraged. So encouraged that we basically rebuilt the entire sales team over the last ninety days. I wasn't interested in doing that in the beginning of of the month, because there's was no reason to go invest in high end sales personnel if nobody's going to return your phone call. But we felt like the virus was behind us and so we rebuilt that. We just brought in season veterans, right? And they're more expensive, but they know how to do this. 30:27 So I guess I'm probably as excited more bullish than I ever have been at this point on the eValuator.
Brooks O'Neil: 30:35 That's fantastic. And I appreciate all that color. Let me just ask one other question. I totally understand the comments you made about investing in Avelead to bring it up to enterprise capabilities and strengthen the support organization. What I'd love to hear is, just any color as you think about what you've learned in the last, whatever it is, sixty days, eighty five days whatever that number is, in terms of, are you as excited about the overlap and what I would call, I don't know if this is the word, but complementary between the Avelead, what that does at customers, its organization and the opportunity ultimately when things normalize and when you get the upgrades done, do you think this is going to be a case of one plus one equals three or four still and just give us a little color on what you're seeing there.
Tee Green: 31:37 Yeah. Well, first of all that divide the see of Avelead and the team there, they're phenomenal. I mean it's everything you could have hoped for in bringing the company into the stream families. So that alone we're super excited about. 31:56 There's several really, really large pilots that have started with RevID that we'll be talking about in the future that are just -- I mean, it's one plus one, equals five or six in my opinion. So, we're excited. Again, Avelead is serving ninety two hospitals and eValuator in twelve. And Avelead ninety two top health systems in the country. So, yeah, we're pretty enthusiastic about that.
Brooks O'Neil: 32:31 Great. Thank you very much. I excited too.
Operator: 32:37 Thank you. At this time, we've reached the end of the question and session. I’ll turn the line back to Jacob Goldberger for closing remarks.
Jacob Goldberger: 32:47 Thank you all again for your interest and support at 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 with you all again when we discuss our fourth quarter and fiscal year twenty twenty one financial performance. Good day.
Operator: 33:07 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
