Streamline Health Solutions Q2 2024 Earnings Call Transcript

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September 14, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Streamline Health Solutions Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference is being recorded.

Operator

At this time, I would like to hand the call over to Jacob Goldberger, Director of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the Q2 of 2023, which ended July 31, 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 The Board, Ben Stillwell, President and Tom Gibson, Chief Financial Officer. After conclusion of today's prepared remarks, we will open the call for a question and answer session. 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.

Speaker 1

Before we begin with prepared remarks, we want to be sure we are clear for everyone 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 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from these 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.

Speaker 1

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 is not undertaking any commitment or obligation 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 1

To help you compare these amounts on consistent terms, please refer to our website www.streamlinehealth.netandourearningsreleasefora reconciliation of such non GAAP measures to the most comparable GAAP measures. I would now like to turn the call over to Tee Green, Chief Executive Officer and Chairman of the Board. Tee?

Speaker 2

Thank you, Jacob, Thank you all for joining us this morning. Following my opening remarks, our President, Ben Stillwell, will provide an operations and sales review, followed by a financial update from our CFO, Tom Gibson. 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 July 31, 2023, book SaaS ACV was $17,600,000 as compared to $17,200,000 as of January 31, 2023. We successfully closed new bookings totaling $300,000 of ACV.

Speaker 2

This was offset by an evaluator client, which notified us of their non renewal during the quarter, whose ACV was approximately 5 $100,000 Ben will discuss these events in more detail. $14,800,000 of our book SaaS ACV is implemented and contributing to recognized revenue. We continue to make progress towards our goal of having approximately $17,000,000 of book SaaS ACV implemented by the end of the Q3 of fiscal 2023. As of July 31, 2023, we had $4,100,000 of cash on our balance sheet and the balance on our term loan was $9,500,000 We believe our cash on hand is sufficient to achieve positive adjusted EBITDA less capitalized software development. We have access to an incremental $2,000,000 of liquidity through our non formula line of credit.

Speaker 2

We combined Avaliad And evaluate our operations on November 1, 2022. Under Ben's leadership, the integration process was smooth and we continue to achieve significant We are working towards 4 corporate objectives in fiscal 2023. 1, a client utilizing both of our flagship solutions, Rev ID and eValuator an Epic based Facility utilizing Rev ID, improved performance from our partner channel and the We are in discussions with existing clients and remain confident We will close this fiscal year with 1 or more clients utilizing both Rev ID and eValuator. Similarly, we are in late stage discussions about Rev ID with multiple Epic based prospects. Within our partner We are focusing only on channel partners that can deliver strong results without unduly diverting the energy of our overall growth team.

Speaker 2

Since our alignment in November 2022, we have seen significant cost savings and expect that trend will continue and expect that this approach in combination with top line growth will deliver our profitability and cash flow goals. The HCIT industry has experienced significant challenges in fiscal 2023, and we are no different. The administrative arms of our nation's health systems are overwhelmed, slowing their decision making and their ability to execute. We have seen our sales and client success operations become increasingly consultative and more difficult to forecast as a result. Increased bureaucracy and understaffed IT department has significantly slowed our bookings and we now anticipate closing Fiscal 2023 with $24,000,000 of book SaaS ACV.

Speaker 2

To be clear, this change in guidance as a result of macro conditions, I believe that under the leadership of Amy Severo, our growth team is doing the right things and that our solutions' ability To ensure complete and accurate billing prior to the first bill drop is invaluable for our target market. Our solutions offer a fundamentally better way of processing claims in the front of the revenue cycle. We are improving at identifying the impact we can have on net revenue, billing volumes, denial rates and increase in available cash We have seen continued strong demand for our solutions and our sales team rarely hears the word no. Our implementation timelines for Rev ID are accelerating, which will result in a shorter lag between booking and revenue generation. We maintain our expectation of having $17,000,000 of SaaS ARR implemented during the Q3 of fiscal 2023.

Speaker 2

With that, I'd like to turn the call over to our President, Mr. Ben Stilwell.

Speaker 3

Thank you, T. The integrated Streamline team is evolving and is making significant progress towards our annual priorities, which are Scaling the Rev ID and Compare technology for growth, increasing client effectiveness through Evaluator usability, Enhancing delivery for Rev ID and Compare, doubling the eValuator client outcomes through enhanced roles and expanding our reach to new logo clients. These priorities have allowed our innovation and service teams to become fully integrated and they are close to using one seamless process on all our products. Our clients will soon be able to rely on the same world class service set and delivery regardless of solution. Let me expand some on the progress in innovation.

Speaker 3

Our innovation team completed the architecture scaling work on Rev ID and Compare ahead of schedule. As T mentioned, this will translate not only into a more efficient implementation process, but also a better client experience. These solutions are now truly scalable. We will continue to make improvements in system integrations, which can further enhance the improvements we've already made. The team that was focused on the architecture work is now pivoting to more traditional feature functionality development following our roadmap.

Speaker 3

Another result of the rearchitecture is a significant cost savings as the Rev ID solution has moved to a serverless architecture. I am also thrilled to announce that we've introduced our 1st AI based tool for eValuator. This internal solution is being leveraged by our eValuator rules management team. It is actively reviewing the coding changes flowing through eValuator that were and were not suggested by our solution and finds patterns that are easily overlooked by humans. The tool has already identified rules that could represent more than $20,000,000 Annualized financial impact across our client base.

Speaker 3

This could translate into a 3 to 5 times incremental ROI for eValuator clients. The team is excited about the potential impact of these AI techniques on our revenue cycle solutions and this is just our first step. We plan to continue to research how and where to implement these new technologies within our solutions and we'll certainly keep you updated on our progress. Now looking at client service. As Tee mentioned, one of our eValuator clients notified us during the Q2 that they do not plan to renew their contract.

Speaker 3

This client had undergone significant management turnover and had trouble keeping enough coding and auditing staff on hand over the past year. This client was still seeing a 10 times annualized return, but as they lost staff, we saw their audits drop to less than a 6th of the rate they were auditing at in 2021. We learned quite a bit from this relationship. This client joined us prior to the formation of our client success team, which we have made significant investment in over the recent years. Today, that team meets with our clients on a monthly basis to ensure they have fully optimized the solutions, understand the value of the tools we provide and nurture the client relationships.

Speaker 3

We do not expect to see non renewals on a regular basis, But it would be arrogant to expect that we do not have some churn. Moving to growth, we expect that our bookings will continue to be lumpy, But I'm very pleased that our solutions continue to be adopted by some of the largest healthcare providers in the country. The growth team is leveraging new tools like our ideal client profile, Our business impact analysis, which uses quantifiable values of future clients to rank their likelihood to buy and be a successful client for our solutions. Overall, the growth team has 3 pathways to success for fiscal 2023. The direct channel, which we have made continued investments in Our partner channel where we leverage larger sales forces to influence or resell our solutions and lastly cross selling within our existing client base.

Speaker 3

I believe we have the right strategy for each of these pathways. As T stated, we're disappointed that the healthcare market has not recovered from post COVID impacts as quickly as we had anticipated, but feel strongly about our growth prospects in fiscal 2023 and beyond. Before I turn the call over to Tom, I would like to thank all of our hardworking team members for supporting our mission to ensure our healthcare provider clients I'm very excited to lead our talented team and believe strongly that our innovation plus service equals growth formula We yield tremendous results for all of us as we continue to execute and expand. With that, I'll hand the call over to our CFO, Tom Gibson.

Speaker 4

Thank you, Ben. 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 July 31, 2023, Total revenue was $5,800,000 compared to $6,000,000 during the prior year period. And for the 6 months ended July 31, 2023, total revenue was 11 point $1,000,000 compared to $11,900,000 for the 1st 6 months of 2022.

Speaker 4

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 13% in the 2nd quarter and first half of twenty twenty three compared to the prior year period. We expect to see growth on the SaaS revenue line in the coming quarters as the company has successfully implemented its solutions. We maintain our expectation of 30% SaaS revenue growth in fiscal 2023 compared to fiscal 2022.

Speaker 4

The company has approximately $3,400,000 of unimplemented book SaaS ACV as of July 31, 2023. Total operating expense was $8,400,000 during the Q2 of 2023, down 3% compared to 8,600,000 For the Q2 of 2022. For the first half of fiscal twenty twenty three, operating expense Totaled $16,700,000 down 6% compared to $17,800,000 during the first half of fiscal 2022. The lower operating expense was attributable to lower head Count associated with the non renewal of the large professional services contract as well as the cost savings achieved through the integration of Abilene and Evaluator Businesses discussed by Tee earlier in this call. 2nd quarter 2023 net Loss totaled $2,500,000 compared to a loss of $3,300,000 in fiscal 2022.

Speaker 4

For the 6 months for the 1st 6 months of 2023, net loss totaled 5,400,000 dollars compared to a loss of $6,100,000 during the 1st 6 months of 2022. The smaller net loss On lower revenues demonstrates the value of growing our high margin SaaS revenue as compared to the professional services Track that was not renewed. 2nd quarter 2023 adjusted EBITDA was a loss of 0 point $9,000,000 compared to a loss of $1,100,000 during the Q2 of fiscal 2022. For the 1st 6 months of 2023, adjusted EBITDA was a loss of $2,200,000 compared to a loss of $2,400,000 for the year ago period. The company expects that its adjusted EBITDA loss We'll continue to narrow and anticipate reaching near breakeven adjusted EBITDA in the Q3 of fiscal 2023.

Speaker 4

Moving to the balance sheet. As of July 31, 2023, we had 4 point dollars at January 31, 2023. Under the Aveline acquisition agreement, the company is contracted to provide additional consideration On each of the first two twelve monthly anniversaries of the closing date, the first of these payments were paid in the Q4 of Fiscal 2022. The second payment will be paid in cash and stock and is valued on the balance sheet at approximately $3,000,000 Of this amount, it is estimated that we will pay $1,200,000 in cash on November in November 2023. The liability is referred to as acquisition earn out liability on the company's balance sheet.

Speaker 4

The company's accounts receivable was $2,800,000 at July 31, 2023, substantially lower Then January 31, 2023, the lower accounts receivable is partially attributable to recently implemented evaluator contracts with performance guarantees that are not invoiced until the guarantee is met. The company has historically met these guarantees within 2 to 3 months of implementation. The balance of our term loan as of July 31, 2023 was $9,500,000 As of September 1, 2023, we are in the 3rd 12 month period of the loan and will make $1,000,000 of Principal payments over the course of the next 12 months. We have access to a $2,000,000 Line of credit, which we can draw if necessary. Based on our current forecast, we may need additional financing to fund our ongoing operations without sacrificing future growth.

Speaker 4

Our current bank debt of 9 point $5,000,000 is approximately 0.5 times our annual recurring revenue or ARR. We believe the industry average debt to ARR ratio for companies similarly We believe that the venture backed credit markets are improving and we could successfully Refinance our bank debt with a credit facility in the range of 1.0 to 1.25 times ARR. On its current cost structure, we believe our overall business will achieve adjusted breakeven at a SaaS revenue rate of 17 $1,000,000 We achieved this level of bookings in Q4 of 2022 and expect to have 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 our staff. That concludes my comments.

Speaker 4

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

Speaker 2

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 reoccurring revenue streams that better position our company for growth and to deliver Significant shareholder value over the long term. While the macro environment remains more challenging than previously expected, We see strong demand for our prebuilt revenue cycle methodology and our solutions. We believe our ability to be self Sustaining and generate cash from operations is a significant next step in our lifecycle. I am proud Thank you for making the necessary changes and executing on this milestone for our business.

Speaker 2

Before we begin our Q and A I'd like to thank the entire Streamline team once again for all the hard work and dedication. 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 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. We will now be conducting a question and answer session. Our first questions come from the line of Matt Hewitt with Craig Hallum. Please proceed with your questions.

Speaker 5

Good morning and thank you for taking the questions. Maybe first up, I'd like to dig in a little bit more on the current selling environment. Obviously, you commented a little bit on some of the challenges that you're seeing. I know you had a 2.5 year period with COVID Weighing on hospitals decision making process. We started to see this spring, we started to see some of the procedure volumes improving, which I think expectations were that, you would see some of that increased revenue flowing, to software and equipment purchases and whatnot.

Speaker 5

But What where are we right now? I mean, if hospitals are seeing a little bit of improvement there, what's kind of the gating factor to kind of the lift off That I think many are expecting as we get through this fiscal year for you guys.

Speaker 2

Yes, Matt, thanks. This is Tee here. Yes. Can you hear me okay?

Speaker 4

Absolutely.

Speaker 2

Okay, good. Yes. I mean, the first half of twenty twenty three has been fairly slow, I think, industry wide. The Coming out of the administration's office, when I mean the CFO and legal, those seem to have been Starting to fall or make its way through the pipeline. I think IT, we still have some real struggles getting the priority In the IT departments, but that's even beginning to thaw as well.

Speaker 2

If you look at Q2, We did 4 transactions, which is really, really encouraging. They were smaller. They weren't maybe average like 130 ACV. One of them was with Oracle though, which is super encouraging because we had this relationship with Cerner and then we all know what happened and it's taken 4 or 5 months for all of the management and the strategy to shake themselves out. So we're really encouraged.

Speaker 2

We have In fact, we have like 34 book meetings with the Oracle clients and we're their Prebuild Technology Solutions, so that's really encouraging. We didn't close it. We've got 7 other deals that are in this kind of Targeted quarter in the ACV 600. So we didn't get the big ones, but it looks like they're coming through the system. And then you look at Q4 and the ACP jumps to 900.

Speaker 2

So all the things that we've been working towards, It feels like these things are starting to open up. Like I said, 4 already on the smaller side, But again, one of them Oracle. So this is these are good green lights for us. We're still cautious. We do think, as Ben mentioned, that The bookings is going to be lumpy because when we say when we close the $1,000,000 ACV deal versus a 250 $1,000 ACV deal, obviously, that's vastly different.

Speaker 2

But if you look at where the deals in our pipeline that are red lines, I mean, the contracts are red line going back and forth between our team and their team. You look at the back half of the quarter and going into Q4, Really, really, really impressive transactions in front of us. So not a lot of great press releases from us in the last A quarter or 2, but I think those are coming again. So we're excited about that.

Speaker 5

That's very encouraging. Thank you. And then Maybe a separate question. So, congratulations on the new AI or jumping into the AI fray. Was this a product that was requested by customers?

Speaker 5

Was this something that you guys have been working on and realize that Now is the time. What is feedback, Ben? I realize it's just launched, but what is the feedback initial feedback, Ben, from customers? Any additional color on that

Speaker 2

Yes. Thanks, Matt. This is Tee again. I'm going to let Dan opine as well. But you can't go into a customer or client Without the word being asked about even if the questioner doesn't really understand what they're asking, right.

Speaker 2

It's in every conversation If you're in technology, we started working on the AIML technology here at Stream Well over a year and a half ago, defining what we could do, how we could use it. And so what we've done is we've rolled it out internally In our rules division. So where most of rules in the healthcare world or in the RCM world are being written by humans, right? And so now we're able To introduce technology that's able to find things that were wrong with rules, but also find things that weren't even written by humans. And we've just started this process and as Ben mentioned, we've already found $20,000,000 of additional revenue capture We just rolled this out in the last month.

Speaker 2

And so clients haven't seen it yet. They're not touching it yet. Only our internal team, so we're kind of eating our own dog food, if you will. Ben, you want to make any further comments on that?

Speaker 3

Yes. We've hyped it up a little bit with our clients already and so they knew it was coming and it's somewhat intuitive. The process that we go through today is having individuals do a lot of this research on their own, a lot of reporting, a lot of data mining on their own, And it just cuts out that whole initial research step and gives very intelligent findings right off the bat. And I think The users themselves, our internal users are excited about it, but then our technologists are just thinking and very Excited about how that's going to expand into a variety of areas and eventually be client facing and do all sorts of things, but we're already talking about it with current clients Are already hyping it up with our prospects as well.

Speaker 5

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

Operator

Thank you. Our next question has come from the line of Aaron Wukner with Lake Street Capital. Please proceed with your questions.

Speaker 6

Hey, good morning, guys. This is Aaron on the line for Brooks this morning. So just last quarter you mentioned a couple of goals towards making progress towards sort of your annual priorities. Are you comfortable with where you're at in terms of Sort of scaling the Rev ID and maybe increasing client effectiveness through the eValuator usability. And if we could just get So there's more color on progress there and if there's sort of a higher priority that you guys are focusing on going into the back half of the year here?

Speaker 2

Yes. Thanks, Aaron. This is Tee and I'll start and let Ben opine as well. But Rev ID, major, major progress. We knew going into it, there was a re architecture that was going to have to be done on the platform.

Speaker 2

Not unlike many innovation projects, it was probably a little larger than we envisioned, but that tech has been It is wrapping up and glad it has wrapped up. It's to the cloud and so it's now A true cloud based platform. We have I don't know, don't hold me to the exact numbers then, but what is think we've lowered our infrastructure cost almost like $40 a month, something like that. I mean, just major. And now it can scale to the enterprise Everything we've talked about, it has to be in a class, it has to be enterprise class.

Speaker 2

And so that's been really cool. It's going to Our velocity and how we tackle future projects on the platform now. We've actually for the first We have a project based roadmap for rev ID, so we know what we're building in every sprint. You couldn't do that until you have the architecture ready. So the architecture is ready to go.

Speaker 2

On eValuator, it is enterprise class. I mean, It's an exciting tool that is continuing to grow and create opportunities for Streamline. Technology wise, the biggest things right now on like eValuator is really getting Epic I mean, not Epic, but getting the defined roadmap for eValuator, It's really making sure that that 2 year roadmap that we have in front of us is just continually being Evaluated with our clients. So we can go really, really fast, on the Valuator side. So, that's exciting.

Speaker 2

I I don't see anything other than the introduction of AI and ML on that platform. That's obviously the biggest thing we've done. And Clients are going to receive the benefit of that in the next several quarters, so that will be cool. But Ben, anything specific about these two platforms?

Speaker 3

No, I think you're right on the cost decline on going to serverless. But I think, like you said, the most important part is Prospects and current clients don't find the architecture stuff too exciting other than it's more reliable. What they find exciting is that now we're going to start rolling out a lot more That will affect them. And then, yes, I agree with your comments, evaluator as well.

Speaker 6

Great. Yes, that is

Speaker 3

Thank you.

Operator

We have reached the end of our question and answer session. I would now like to turn the floor back over to Jacob Goldberger for any closing comments.

Speaker 1

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.goldburgerstreamlinehealth.net. We look forward to speaking with you all again when we discuss our Q3 financial performance. Good day.

Operator

Thank you. This does conclude today's

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Key Takeaways

  • Streamline Health’s Book SaaS ACV increased to $17.6 million as of July 31, 2023, with $14.8 million already implemented and a target of $17 million implemented by the end of Q3.
  • Q2 total revenue was $5.8 million (vs. $6.0 million LY), with SaaS revenue up 13% and 30% SaaS growth expected for full-year 2023; the company anticipates near-breakeven adjusted EBITDA in Q3.
  • As of July 31, cash on hand was $4.1 million and term loan balance $9.5 million, with a $2 million line of credit available and cash sufficient to drive positive adjusted EBITDA less capitalized software development.
  • Sales bookings have been delayed by increased bureaucracy and understaffed IT at health systems, prompting revised full-year guidance of $24 million in Book SaaS ACV.
  • Technology upgrades include completing a serverless rearchitecture of Rev ID for scalability and cost savings, plus the launch of an AI-based tool for eValuator that has already uncovered over $20 million in potential annualized impact.
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Earnings Conference Call
Streamline Health Solutions Q2 2024
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