Streamline Health Solutions Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 13, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to Streamline Health Solutions First Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded.

Operator

At this time, I'll turn the conference over to Jacob Goldberger. Jacob, you may now begin.

Speaker 1

Thank

Speaker 2

which ended April 30, 2023. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Tee Green, Chief Executive Officer and Chairman of the Board Ben Stilwell, President 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 Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information Statements made on this conference call that Historical facts are considered to be forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 2

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 ks Annual Report, which is on file with the SEC for more information about these risks, uncertainties and assumptions and other factors. As always, we are presenting management's current analysis of these items as of today.

Speaker 2

Participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline Health is not undertaking any commitment or obligation to publicly revise any such forward looking statements made today. On today's call, we will discuss non GAAP financial measures such as adjusted EBITDA and booked SaaS ACV. 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.

Speaker 2

To help you compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release I would now like to turn the call over to Tee Green, Chief Executive Officer.

Speaker 3

Thank you, Jacob, and thank you all for joining us this morning. Following my opening remarks, Ben Stillwell, President, We'll provide an operations and sales update followed by a financial update from our CFO, Tom Gibson. Beginning with the financial overview, during 2022, we began reporting a new metric, book SaaS ACV, Which is the annualized contract value for all agreements that are being recognized into revenue as well as bookings that have not been implemented. As of April 30, 2023, book SaaS ACV was $17,800,000 as compared to $17,200,000 as of January 31, 2023. $12,700,000 of our booked SaaS ACV is implemented and contributing to recognized revenue.

Speaker 3

Our growth team is negotiating with large IDNs and hospital networks. And as a result, we expect some lumpiness in our reported bookings. That said, our Q1 was below our expectations. As of April 30, 2023, We had $6,000,000 of cash on our balance sheet and the balance on our term loan was $9,600,000 We believe our cash on hand is sufficient to achieve positive adjusted EBITDA, less capitalized software development in fiscal 2023. We have access to a $2,000,000 of liquidity through our non formula line of credit.

Speaker 3

We combined Abilene and eValuator operations on November 1, 2023. Under Ben's leadership, the integration process was executed smoothly and we continue to achieve significant cost savings And operational improvements. We are working towards 4 corporate objectives in fiscal 2023. To have a client leveraging both our flagship solutions, RevID and eValuator An Epic based facility utilizing Rev ID, improved performance from our partner channel and the achievement of breakeven adjusted EBITDA Less Capitalized Software. Our flagship solutions are gaining a foothold in the industry.

Speaker 3

Our prebuilt solutions allow our clients to bill accurately the first time. We believe this has a significant financial impact for our hospital systems clients and offer a fundamentally better way of doing business. Our nation's healthcare providers continue to emerge from COVID. Solutions like ours Our solutions yield higher net patient revenue margins for our clients, Increasing their available cash to better pay for higher cost of personnel and supplies. We have often commented about the backlog of potential high priority projects that we are competing with inside our hospital clients.

Speaker 3

In some cases, even after a successful booking, that macro environment is easy and we expect implementations to accelerate meaningfully Over the quarters to come and maintain our expectation of having $17,000,000 of SaaS ARR implemented during the Q3 This fiscal year and that run rate will translate to breakeven adjusted EBITDA. We also continue to expect we will exit fiscal 2023 with $30,000,000 of book SaaS ACV. With that, I'd like to turn the call over to our President, Mr. Ben Stilwell.

Speaker 4

Thank you, T. The integrated Streamline team is growing closer each day and is making significant progress towards our annual priorities, which are: 1, scaling the Rev ID and Compare technology for growth 2, increasing client effectiveness through eValuator usability 3, enhancing delivery for Rev ID and Compare clients 4, doubling evaluated client outcomes through our enhanced rules and 5, expanding our reach to new logo clients. Our innovation team has been hard at work retooling the architecture of our Rev ID and Compare solutions. Currently, we expect That work will be completed during the Q3 of this year. In addition, our services team has developed an improved repeatable implementation plan We saw a 20% increase in eValuator's DRG change rate during the Q1, which I attribute to the rules team we established in November 2022.

Speaker 4

Our eValuator rule seems has been expanding the rules library, largely focused on clinical indicator driven rules, A deeper level of specificity than the tool previously achieved. Within our growth function, We are finding novel ways to replicate the success we have seen in the Southeast region across our other three regions. In addition, we are getting smarter about who we target through our ideal client profile, which uses quantifiable attributes of potential clients to rank their likelihood to buy and be a successful client for our solutions. The Q1 was slower than expected for growth wins, But we are excited for the team to execute, especially in the back half of this year. The growth team has 3 pathways to success for fiscal 2023.

Speaker 4

The direct channel where we have made continued investments, our partner channel where we leverage larger sales forces to influence or resell our solutions, and our existing client base. Our growth and services functions must continue to execute for each pathway to perform. The integrated team is up to speed and generating momentum daily. As Tee stated, we are disappointed in our Q1 results, but still feel strongly about our growth prospects in fiscal 2023 from our ongoing investments and the strong team we have assembled. Before I turn the call over to Tom, I would like to thank all of our hardworking team members who are supporting our mission to ensure our healthcare provider clients or paid for all the care they provide.

Speaker 4

I am very excited to lead our talented team and believe strongly that our innovation plus service equals growth formula With that, I'll hand the call over to our CFO, Tom Gibson.

Speaker 5

Thank you, Ben. Please note, the company has moved past all previous periods that include discontinued operations from the sale of the ECM Business in Fiscal 2020 or pro form a information for the acquisition of Avilead in fiscal 2021. At the end of fiscal 2022, the company changed its categories for reporting revenue. SaaS revenue is now the headline of our income statement. For the quarter ended April 30, 2023, total revenue was $5,300,000 compared to $5,900,000 during the prior year period.

Speaker 5

As previously reported, the company had a large professional services contract that did not renew at the End of its 2022 fiscal year. These professional services contracts are not part of the company's core business going forward. SaaS revenue grew 12% in the Q1 of 20 23 compared to the Q1 of 2022. You will see growth on the SaaS in the coming quarters as the company has successfully implemented its solutions. We currently anticipate 30 percent SaaS revenue growth in fiscal 2023 compared to fiscal 2022.

Speaker 5

The company has approximately $5,100,000 of unimplemented booked SaaS ACV As of April 30, 2023, while we had a number of successful go lives during the Q1, They finalized during the middle of April, and as a result, little or no revenue was recognized from those agreements. However, we expect Q2 2023 revenue to include a full quarter of revenue recognition from these first Quarter go lives, in addition to partial revenue from contracts implemented during the Q2 of 2023. Total operating expense was $8,300,000 during the Q1 of 2023, down 9 percent compared to $9,100,000 for the Q1 of 2022 respectively. The lower operating expense was attributable to the lower headcount associated with the non renewal of the large professional services contract as well as the cost savings achieved through the integration of Avaliad and eValuator Businesses Discussed earlier, historically, the company's 1st quarter operating expense is its highest Due to expenditures associated with this Annual Audit and Shareholder Meeting, Q1 2023 net loss totaled $2,900,000 compared to a loss of $2,800,000 in fiscal 2022. The static net loss On lower revenues demonstrates the value of growing our high margin SaaS revenue as EBITDA was a loss of $1,300,000 unchanged compared to the Q1 of fiscal 2022.

Speaker 5

The company expects its adjusted EBITDA loss will narrow rapidly and anticipates reaching breakeven adjusted EBITDA in the Q3 of fiscal The company believes it needs to implement approximately $4,000,000 of its Unimplemented book SaaS ACV to achieve this goal. Moving to the balance sheet. As of April 30, 2023, we had $6,000,000 of cash on hand compared to $6,600,000 At January 31, 2023, under the Avalede acquisition agreement, the company is contracted to provide an additional consideration On each of the first two 12 monthly anniversaries of the closing date, the first of these payments was paid in the Q4 of fiscal 20 22 using approximately $2,000,000 of cash $3,000,000 of restricted common stock. The second payment will also be paid in cash and stock and is valued on the balance sheet at approximately $3,400,000 Of this amount, it is estimated that we will pay approximately $1,400,000 in cash. The liability is referred to as acquisition earn out liability on the company's balance sheet.

Speaker 5

Subsequent to the closing of the Avolade acquisition in 2021, we entered into a 5 year $10,000,000 term loan with Bridge Bank. There was no repayment of the term loan required in the 1st year following the close. $500,000 or $41,667 monthly are required In the 2nd 12 month period following the close, the balance of our term loan as of April 30, 2023 $9,600,000 We also have access to a $2,000,000 line of credit, which we can draw if necessary. We believe that our cash on hand is sufficient to achieve positive adjusted EBITDA less Capitalized software development, but are pleased to have access to additional liquidity if necessary. As Tim mentioned, we have introduced a new metric that we call book SaaS ACV, where ACV stands for annual contract value.

Speaker 5

We believe that Book SaaS ACV is a proxy for our annual recognized revenue as if all executed contracts Please note that the recognition of revenue from our signed contract This is subject to the timing of implementations. Implementations may sometimes be delayed by clients due to competing projects or be timed after a larger Our book SaaS ACV as of April 30, 2023, totaled 17.6 $1,000,000 $5,100,000 of that booked SaaS ACV was not implemented. On its current cost structure, we believe our overall business will achieve breakeven at a SaaS revenue run rate of $17,000,000 We achieved this level of bookings in Q4 of 2022 and expect to have the majority of this revenue fully implemented During the Q3 of 2023, the company is realizing incremental SaaS gross margins above 80%. I am proud of the progress this company continues to make and want to commend all of our staff. That concludes my review.

Speaker 5

I will now turn the call back to Tee Green for his closing remarks. Tee?

Speaker 3

Thank you, Tom. We continue to enable healthcare providers to proactively address revenue leakage and improve financial performance and have taken major steps forward to drive recurring revenue streams that better position our company for growth And to deliver significant shareholder value over the long term. The alignment has enabled us near term visibility to cash flow Without losing momentum in growth or innovation, we believe that given the macroeconomic conditions facing all companies today, Our ability to be self sustaining and generate cash from operations is a significant next step in our lifecycle. I am proud of our team for making the necessary changes and executing on this milestone for our business. Before we begin our Q and A session, I'd like to thank the entire Streamline team once again for all their hard work and dedication.

Speaker 3

Their contributions are essential for us to support our healthcare providing clients and ensure they have the necessary tools to free up time and resources to provide quality care for the communities they serve. Thank you all for your support of Streamline Health and our vision. Now I'd like to open the call up to your questions. Operator?

Operator

Thank you. And a confirmation tone will indicate your line is in the question Thank you. And our first question comes from the line of Matt Hewitt with Craig Hallum. Please proceed with your questions.

Speaker 6

Good morning and thank you for taking the questions. Maybe first up, if we could talk a little bit about the macro environment. It sounds like you're Seeing some improvement. Hospitals are making decisions a little bit faster. You're allowed to get in to get the implementations done a little bit faster.

Speaker 6

But What are you hearing and seeing from customers today? And is that what is giving you confidence that you can hit your targets for the year?

Speaker 3

Yes, Matt, T here. Thanks for the question. Clearly, we were disappointed in the bookings in the quarter, but As you know, anybody that's been around healthcare IT selling the large health systems, that's always lumpy. And So that's going to be normal and as continue to move forward. But What we have seen is, yes, there are decisions being made, which is exciting because we're that's why we know that contracts are being negotiated, This is Esmerald.

Speaker 3

We're confident in this back half. And I guess another thing that we're really pleased with, in some areas of the country, the legal departments Aren't as backed up as they were. So that's a plus. And some areas of the country, the IT staff are not as And so we're able to move forward with things we've already booked. We're actually able to get them installed.

Speaker 3

So Yes. Are we seeing improvement? Yes. Is it improving fast enough? We would like it to go faster because we have capacity.

Speaker 3

But It's these health systems, some areas of the country are just doing a lot better than others.

Speaker 6

Understood. That's helpful. Thank you. And then maybe a little bit different question. So you're working on the integration of Avaliad, Avali's Revive ID and the eValuator platform, what other types of innovation are you working on for the software to stay ahead of the market?

Speaker 3

Yes, great, great question. Obviously, we've done a lot of work over the years on eValuator and that platform is Incredibly solid enterprise class and then the Rev ID product, obviously, it's approaching that status as well. And I think over the next couple of quarters, you'll be able to hear from us and see from us what we're doing on The AI front and what that's going to mean to the revenue cycle platform is just going to be amazing.

Speaker 6

That's great. All right. Thank you. Thank

Operator

you. Our next question is from the line of Brooks O'Neil with Lake Street Capital. Please proceed with your questions.

Speaker 1

Good morning, everyone. Tee, I just heard you say the magic words that seem to resonate with all investors right now, AI. Obviously, I see some indications that people I heard Doctor. Gottlieb talk about Concerns about AI and healthcare, but it seems to me that the kind of rev Can you just give us a little color on some of the things you might be Thinking about working on for the future?

Speaker 3

Yes. I mean, if you just think about the revenue cycle, Especially in the pre bill where we're the front runners, we believe. When you're dealing with the 100 and 100 of 1000 Of different scenarios, if you can train your AI platforms correctly, those are going to enhance What your teams can do and it's going to enhance what our clients can do. And so we're not talking about AI in a way that's Going to help a physician diagnose. We're on the other side of that, right?

Speaker 3

We're using technology to be able to Process 100 and 100 of 1000 of different scenarios and provide our teams with things that we as humans may miss.

Speaker 1

That makes sense to me. So just following up on Matt's question On the disappointment, would you guys say that the confidence you have in the outlook is more based On work you're doing to simplify and streamline Implementations or is it more based on your expectation that the external environment is going to improve in the back half of the year?

Speaker 3

I think a bit of both. Our growth teams are Engaged in just some really exciting opportunities and on the booking side. And then from the implementation side, our teams have, 1, innovation has gotten so much stronger, obviously, on Evaluator and Rev ID,

Speaker 1

Cool. That makes sense. And then the last question I had was, I think I understand your thinking about Dialing back

Speaker 2

on the

Speaker 1

Service part of the business to favor the SaaS side of the business, but can you just confirm that the Non renewal of the contract you called out in the press release is consistent with your planning, your expectations and not A move that maybe the client made to your dismay.

Speaker 3

Yes, Tom, go ahead.

Speaker 1

Thank you, Tee. I had

Speaker 5

to get off of mute. So we had put no investment in the professional services side And so we knew that contract would come to an end and we have not been pursuing new contracts. So I think the answer to your question, Brooks, and thank you for the question, is that we had that was part of our plan.

Speaker 1

Got it. Thank you very much. I'm looking forward to the second half of the

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