Streamline Health Solutions Inc (STRM) 2008 Q3 法說會逐字稿

Good afternoon. My name is Shawdey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Streamline Health Solutions Q3 2008 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

I would now like to turn the call over to Joe Diaz of Lytham Partners.

Thank you, Shawdey, and thanks to all of you for joining us to review the financial results of Streamline Health Solutions for the third quarter and the nine months ended October 31, 2008. As the conference call operator indicated, my name is Joe Diaz. I am with Lytham Partners. We are the financial relations consulting firm for Streamline Health.

With us on the call representing the company today are Brian Patsy, President and Chief Executive Officer; Don Vick, Interim Chief financial Officer; Gary Winzenread, Senior Vice President of Product Development and Strategy; and Joe Brown, Chief Information Officer and Vice President of Client Services.

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 set copy of the release, you can retrieve it off the company's website at streamlinehealth.net or numerous financial sites on the Internet.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Streamline Health Solutions during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward looking statements. The words believe, expect, anticipate, estimate, will and other similar statements of expectations identify forward looking statements.

The forward looking statements contained herein are subject to certain risks and uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward looking statements included herein.

These risks and uncertainties include, but are not limited to, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell the company's products, the ability of the company to control costs, availability of products produced from third party vendors, the health care regulatory environment, healthcare information systems budgets, availability of healthcare information systems trained personnel for implementation of new systems as well as maintenance of legacy systems, fluctuations in operating results and other risks detailed from time to time in the Streamline Health Solutions filings with the US Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward looking statements, which reflect management's analysis only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to these forward looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. With that said, let me turn the call over to Brian Patsy, President and Chief Executive Officer of Streamline Health Solutions. Brian?

Thank you, Joe, and good afternoon, everybody. This afternoon, Don Vick, our recently appointed Interim Chief Financial Officer, will summarize our financial results. And then after Don's remarks, I will comment on the pertinent aspects of our quarter and our business. After my remarks, we will open it up to the question and answer session. At this point, I would like to turn the call over to Don Vick. Don?

Thanks, Brian. I would like to highlight the more important, the more significant aspects of our financial results for the third quarter. Total revenues for the quarter increased 11% to $4.4 million compared with $3.9 million reported in the third quarter of last year. Operating profit was $26,000 compared with $16,000 in the same quarter last year. Total revenues for the first nine months increased 17% to $12.8 million compared to $10.9 million in the prior comparable period. The operating loss for the first nine months of this year was $1.2 million compared with a loss of $1.5 million last year.

System sales for the quarter were $1.3 million compared to $41,000 in the comparable quarter last year. This increase was primarily the result of a large system sale of nearly $1 million, including streamlined, developed and third-party software through one of remarketing partners.

While there was a decrease in services, maintenance and support revenues for the quarter, primarily due to the timing of project management revenues, the margins associated with this revenue stream remain healthy. These revenues increased from $7.4 million to $7.6 million on a comparable year to date basis through October.

During the quarter, two more application hosting contracts were signed. These will contribute more than $8.1 million in future hosting revenues. Application hosting services revenues were $517,000 compared with $872,000 in the comparable quarter last year. This reduction in revenue was primarily due to the loss of an application services hosting customer. Revenues from the recently signed hosting customers will begin to contribute to revenues during the next few quarters and have not yet offset the loss of this customer.

As demonstrated by the results above, the company is experiencing a shift away from its traditional purchase model of software sales towards the large increase in demand for our application hosting services business model. As a result, near the end of the quarter, the company realigned to reduce our cost structure and cash flow needs to offset some of the effects of the slower revenue ramp up and upfront cash needs of the application hosting model. These actions are expected to reduce expenses by approximately $800,000 per quarter going forward.

Backlog for the period increased to over to $22.8 million in the quarter as a result of a large increase in application hosting services contracts. The backlog for these hosting services has grown from $2.4 million in April to approximately $12.9 million as of October 31, 2008.

During the quarter, the company borrowed $2 million under its line of credit. Since October 31, we have collected a significant amount of annual prepaid maintenance contract billings. As a result, our current cash position today exceeds $3 million. We continue to monitor our expenses, cash balances and receivables carefully to ensure they are on plan. That concludes my review of the numbers for the quarter. Let me turn the call back to Brian Patsy. Brian?

Thanks, Don. At this point I would like to discuss additional remarks regarding our financial performance, our sales accomplishments over the last quarter, an update on our product development activities, and our realignment recently implemented to improve efficiency and address the market shift toward hosted services, and finally our recurring revenue and operating expense prospects for this year and next based on this year's surge in hosted contracts.

Regarding our Q3 financial performance, as Don discussed, our Q3 revenues were approximately $4.4 million or 11% ahead of the comparable prior quarter. Our revenue year-to-date of $12.8 million was 17% ahead of last year's performance. Our Q3 results were below management's expectations, primarily due to a significant and unanticipated shift towards hosted solutions this year that impacted our ability to recognize revenue in Q3 and year to date.

As a result of this shift to hosted services, our year to date results were also slightly behind management's expectations. However, it is important to note that had this year's contract mix followed traditional patterns where 75% of our transactions are licensed and 25% hosted, we would now significantly ahead of our internal plan for revenue and operating incomes.

This point was further exemplified when you look at our current backlog. Keep in mind that the hosted deals go into backlog and don't contribute to revenue until the customer begins using our hosted services, which is typically six to nine months after contract signing.

At the end of Q3, our total backlog stood at $22.8 million as Don indicated. This was primarily the result of our $12.9 million backlog for application hosting services, which increased $8.3 million or 180% greater than Q2's hosting backlog of $4.6 million. When looking at the year-to-date hosting backlog growth, we experienced an increase of $10.5 million or 438% greater than Q1's hosting backlog of $2.4 million.

The significant increase in hosting and total backlog during the quarter was primarily due to the signing of two additional hosted customers, which I'll discuss in further detail later. Included in the $22.8 million total backlog is $3 million in recurring maintenance services. So our backlog related to future recurring revenues for hosted and maintenance services is $15.9 million or 70% of the total backlog.

Finishing out our total backlog is $1.2 million related to future deliverables for Streamline Health software and custom software licenses, $4.9 million related to future contracted professional services as systems are implemented, and finally $800,000 related to third-party hardware and software components.

At this point, I would like to review our sales activities. We signed three new agreements in our third quarter, seven new agreements through the first three quarters, and eight new agreements so far this year counting the Massena contract that was reported last week. The three new agreements in the quarter contributed approximately $1 million to Q3 revenue. Also during the quarter, we had a quarterly record of $9.5 million added to the revenue backlog, primary from the two new hosted transactions. As you know, our hosting agreements provide monthly recurring subscription revenue over the life of the contracts, which are typically five years.

On the hosting front, the two new hosted contracts signed in the quarter and six signed year-to-date provide great visibility in terms of recurring revenues and cash flow. However, these hosted deals also spread out the payments over the life of the contracts and require upfront investments in hosting infrastructure such as hardware and third-party software and other [deliver] on the contracts.

Even though the large growth in hosted backlog and its result on future recurring revenue streams is a good thing for Streamline Health in the long term, it does create a cash drain in the near term until such time as the monthly subscription fees come in, which is typically six to nine months after the contract is executed.

The good news is that we are making significant progress in 2008 versus 2007 in signing many more new customers. In fiscal year 2007, we closed four large system sales, three was purchased and on was hosted, that generated $6.8 million in combined revenue and backlog. We have already signed twice as many contracts this year as all of last year. More importantly, our eight contracts have contributed to the $23.8 million in combined revenue and backlog, which is 3.5 times greater than what was generated in all of 2007.

At this point, I would like to provide additional insight into the three transactions closed this quarter. One of the two new hosted contracts was with the Health Alliance of Greater Cincinnati, a network of five hospitals throughout Metropolitan Cincinnati, who signed a new five-year agreement to implement our document workflow solutions in four additional hospitals in their network, while renewing the existing agreement with the University of Cincinnati hospital for an additional five years. The University Hospital is our first customer and has been using our solution for over 17 years. Implementation activities at the four new facilities have already begun.

As a part of the agreement, we also will be delivering the SMARTworks Clinical Enterprise solution to deliver e-forms functionality to our partnership with Standard Register. This marks our first significant sale of Standard Register's suite of solutions.

The second hosted contract signed in the quarter was a five-year agreement signed with one of the nation's largest hospital organizations located in the New York City metropolitan area. This is the fifth major hospital in the New York City area to utilize our solutions and the sixth new hosted customer signed this year. Our document workflow solution will be integrated into the hospitals existing Eclipsys clinical information system with implementation scheduled for early next year.

And finally, the third contract in the quarter was announced this morning and involved a sizable system sale to a large healthcare organization located in the Great Lakes region of the US. This was a purchase, or a perpetual license contract, signed through our remarketing partner, GE Healthcare. This contract calls for us to integrate our enterprise document management and workflow solutions with the hospital's existing GE Centricity Enterprise system, and includes our access anywhere repository and our three health information management workflows, which are completion workflow, coding workflow and release of information workflow.

After the quarter closed, we announced our sixth new ASP customer this year and eight new customers overall by signing the Massena Memorial Hospital located in upstate New York. We are excited about this new ASP customer, because it our first implementation of our enterprise document workflow solutions integrated into the MEDITECH MAGIC health information system environment. MEDITECH has a large market share within the small to medium-size hospital market. Once we achieve production on our solutions sometime early next year, we will be well positioned to leverage our success at the Massena Memorial Hospital in winning other MEDITECH sites.

At this point, I would like to comment on our product development activities. We continue to make good progress on the design and development of our next generation enterprise document workflow and management solution that incorporates multi language capabilities as well as enhanced functionality and new document workflows.

As discussed last quarter, our time to market for new workflow solutions has been significantly reduced, which in turn will help create additional sales opportunities as each new workflow becomes available. For example, our pre-operative workflow solution is now in beta at one of our customers' sites. Pre-operative workflow streamlines the process of collecting the required documents necessary for surgery in order to avoid expensive delays in rescheduling operating rooms or canceling procedures.

This is the third workflow that we delivered this year on the new workflow architecture and we expect to complete our fourth new workflow before the end of our fiscal year. Since we have invested a significant portion of our resources over the past year toward new product development initiatives such as the new multi-language architecture and new workflows, we have also experienced a commensurate increase in our capitalized software, which is apparent on our Q3 balance sheet and income statement, which brings me to a discussion of some of the recently implemented changes to our organization.

Over the past quarter, we have realigned our sales, our product development, and our services organization to better meet the changing needs of the marketplace. Specifically we implemented plans to create a more efficient organization in order to respond to the shift in the marketplace that we experienced towards hosted solutions. Even though we didn't anticipate the shift towards hosted solutions in our business planning process late last year, we believe this shift is here to stay and will require us to fundamentally change our approach to the marketplace.

Factors that we believe have contributed to this shift are, hosted solutions are now becoming more main stream and market adoption has increased dramatically over the past few years. Small to midsize healthcare organizations don't have the capital or the information technology staff to support complex locally installed solutions. The recent financial crisis and credit crunch has forced hospital organizations to reconsider their capital purchases and look to operating leased alternatives such as our hosted solutions to meet their software needs. And finally hosted solutions are an excellent hedge against future obsolescence and provide a lower risk alternative to traditional licensed models.

In order to respond to these recent market dynamics, and as a part of a planned scaling back of R&D expenses after achieving certain new product architecture milestones in the second half of the year, we have recently realigned the business. As a result, we have achieved approximately a 15% reduction in our cost structure through more efficient use of our resources. We believe these changes are prudent in today's economic environment and will result in positive cash flow in future quarters.

We also believe that these changes will better focus and position the company to take advantage of increased market opportunities for hosted services, particularly at the lower end of the market, where opportunities for hosted services is growing much faster than the marketplace in general. And finally we believe that our hosted solutions provide us with a significant advantage in the marketplace as many of our competitors do not have a comparable offering.

Let me conclude my remarks by providing some further information regarding our recurring revenue and operating expense prospects for the remainder of this year and next year based on this year's surge in hosted contracts. When looking back on our strong sales year-to-date, we have seen a fundamental shift to the hosted model which results in revenue recognition being deferred over the life of the contract rather than recognizing the softer revenue upfront. A desirable byproduct of this shift to hosted services is much better visibility for future revenue streams based on backlog fulfillment from hosted contracts over the five-year contract period.

With regards to our expectation for the remainder of this year, we, as is the case with many other healthcare software IT companies, are concerned about the impact of the recent financial crisis on hospital organizations' ability to allocate capital dollars towards large IT projects. This concern is corroborated by a December 2008 survey of hospital and health system CFOs, vice presidents and CIOs entitled "Healthcare It Spending And Economic Realities" published by the College of Health Information Management Executives. The results of the study showed that 55% of surveyed CFOs are experiencing delays in accessing capital and expect the financial crisis to last 12 to 24 more months. Consequently 57% of the CFOs are deferring IT purchases and 52% are delaying or lengthening implementation timeframes for continuing initiatives.

Two thirds of the surveyed CIOs are implementing longer timeframes for applications projects. One third of all CIOs have reduced spending on outsourced IT services. And finally almost all respondents, 94%, have cut IT budgets by extending the implementation time of existing projects and delaying or reducing the slate of new projects. As a result, we are guarded about the possible impact of these potential delays on purchase deals that are currently in our pipeline and anticipated to close in Q4 and beyond. With that concern in mind, we believe we can overcome some of the capital constraint challenges by more aggressively promoting our hosted solutions as a means of avoiding large capital investments and taking an operating expense approach, thereby spreading the payments over multiple years.

Because of the surge in hosted deals this year, and the fact that we recognize revenue over the life of the contract once productive use is achieved, I thought it would be helpful to provide some insight regarding anticipated recurring revenues next year based on our improved visibility related to the six new hosted contracts signed year-to-date.

When considering our existing hosted contracts and the six new hosted contracts signed year-to-date and without considering any potential new hosting contracts, our current hosting revenues should nearly double by the end of fiscal year 2009. In addition to this increase in hosting revenue, we also expect backlog revenues fulfillment of approximately $1 million as a result of the delivery of the multi-language support to our Emergis customer, McGill University and the University of Montral sometime in the second half of 2009.

Next year, recurring maintenance services and professional services should show a modest growth in the range of 5% to 10%. Based on the third quarter realignment of the business, we reduced our cost structure by approximately $800,000 per quarter going forward. And finally, we expect that next year's quarterly operating expense growth should be very modest, in the range of 5% or less. Our goal over the next 12 to 18 months is to cover all of our fixed operating cost with recurring revenues. We hope to do this by greatly expanding our hosted customer base, plus any new system sale or hosted contract would drop directly to our bottom line.

This concludes my formal remarks. I have asked Gary Winzenread, our Senior Vice President of Product Development and Strategy, Joe Brown, our CIO and VP of Client Services, and also Don Vick, our Interim Chief Financial Officer, to be available for this quarter's discussion to give you an opportunity to hear from our executive team and to ask than any specific question. Also Scott Boyden, our Senior Vice President of Sales and Marketing, is traveling today but may be available for the Q&A session. Let me now turn the call over to the operator for the question-and-answer session. Operator?

Yes, sir. (Operator Instructions) Your first question comes from Tom Carpenter of Hilliard Lyons.

Good afternoon, everyone.

Hello, Tom.

Bryan, I wanted to say I am wholeheartedly in favor of the new strategy and it looks likes it's already paying dividends with Catholic Healthcare West and the unnamed hospital in New York City, which it looks like it is a major hospital based on the revenue you talked about going forward. These are hospitals that can choose whatever system they like and they are choosing you guys.

It seems like the distribution has always been the issue with you guys but you seem like with the new -- we're shifting the focus to ASP, you all will be getting in the door more than you were in the past and get the companies to sign on the dotted line instead of protracting the deals that we saw in the past.

Well, Tom, thank you for your comments. We sincerely appreciate it. There is a lot of dynamics going on right now, and I would like to say the vectors seem to be pointing all in the positive direction for a whole host of reasons. One is, we've brought in some very talented senior sales leadership in Scott Boyden, who has clearly focused our team on the true differentiators in the marketplace which we are calling at a higher level and we have a much more cohesive message.

Second of all, there is a shift that we're seeing toward ASP solutions for the reasons I mentioned in my comments, but also with the financial crisis, that even increased more opportunity to look at a hosted solution versus a purchased solution, and now we are focusing on what we do well. And we are not chasing every deal but focusing specifically our resources on hosted opportunities and large purchase transactions where we have a strategic advantage. And as you said, the dividends are starting to pay off here.

So with Catholic Healthcare West and the large hospital in New York City, maybe you can give us some insight as to why they chose Streamline, how you beat out some of your competitors, and that can help us frame the investment decision better for next year.

Well, regarding Catholic Healthcare West, first of all, they wanted by definition an ASP solution. So that eliminated a lot of the competition right there, in fact in the case of the shortlist for Catholic Healthcare West, it eliminated all of the competition who could not provide the scalability that we have with our ASP solution.

Also it was important that the selected vendor be able to integrate their solution into their disparate clinical information system environment. And with 43 hospitals, you can imagine, there are a whole list of clinical information system vendors deployed, and so we proved that we could do the integration with multiple different vendors. Being vendor neutral as we are, that was a big advantage for us.

The first three, refresh our memory, what was the system that the first three you are doing?

It is integration to Cerner. I think one is MEDITECH. And Scott Boyden, are you getting online? I think it was Cerner and --

Siemens and McKesson and Cerner.

Siemens and McKesson along with Cerner. Joe Brown who is responsible for implementation just corrected me.

So Cerner, Siemens and McKesson are the three you are integrating?

The first three.

Okay.

Scott, I thought I heard you out there. Are you out there and available for answers as well?

Yes, I am.

Okay, great.

So the other, how many different CIS systems do they have in the 43 hospitals?

I really don't know the number but a reasonable guess would be over five and possibly as many as six or seven.

But there will be multiple other sites you have the opportunity to bid on based on your integration capabilities?

Let me word it very carefully there. Catholic Healthcare West is 42 or 43 hospitals, of which we signed a master agreement that we would have the opportunity to implement in a good number of those, so more than the three that we started. So there is a master agreement in place and we are the preferred vendor, so as other hospitals choose to move forward with a document workflow solution, we are the preferred vendor. There is no contract per se that needs to be negotiated.

Okay, that is good news.

-- schedule that has to be executed.

Then in the New York hospital, it is unnamed, but I think they have Eclipsys as their system, what was the selection process there?

The key factor at that location was the volume of documents that were physical documents that were in that institution were enormous. And they needed to have access to basically the historical repository of medical records, and they preferred again a hosted solution because of the cost of deployment, and so again we were in the driver seat simply because we had a hosted solution.

And the second reason sounds very similar to Catholic Healthcare West was our proven integration to the Eclipsys clinical information system. Those were the two dominant factors that moved the deal our way. And then I'll add a third one in scalability in terms of we have a proven track record, not only with ASP but with handling the largest of the large hospitals in terms of volume. Our system is very scalable up to the largest of the hospitals.

I hope most of those become showcase accounts for future references.

Indeed.

Real quick on cash, so I think we've all got the balance sheet in front of us, so we saw that last quarter I think you guys were at about -- I don't know -- 300 and change positive cash. It looks like you guys have captured a lot of it this quarter, but you said counting what you guys showed in the balance sheet at the end of October and prepayments on 2009 maintenance contracts that you now have in excess of $3 million?

Yes, that is correct. This is Don. Just within the last few weeks, we have had very sizeable collections of the large prepaid maintenance base that we have.

Well, that's good news. Is the plan then to draw down the revolver so there is not a charge, ongoing charge for that for at least for the part that you are tapping?

That's something we'll certainly look at just based on our cash flow and where we are at. That is certainly one of the key factors that we will continue to monitor and decide.

And I -- this is Brian, I want to interject that we have, as Don indicated, over $3 million in cash. There is actually, in looking just prior to this call, another $2 million coming in the near term. And so one of those options we have is to pay down the loan. However, don't jump to that conclusion. To the degree that we are hugely successful in signing new ASP deals, remember that the revenue is spread typically over a five-year period and we have some infrastructure to buy in order to get those projects of the ground. So we're going to watch it very closely, but it is a nice position to be in.

Okay. So you said you have $3 million now, you expect another $2 million then by the end of your fiscal year?

You know, it all depends on when the checks are cut, but --

Right, I realize that you are --

Looking at our receivables, it looks encouraging.

Okay. It is nice to see that MEDITECH win since they have so many -- wouldn't they have a thousand, have several thousand small hospitals in US?

They are the single largest player as I understand it in that market segment. I couldn't tell you how many sites they have. It is a lot.

All right. Going back to a topic we touched on earlier, the small and midsize market, the 250 bed or less, surely the predominant number of hospitals out there, they are so spread apart, it has always been a key issue for you guys, how do you get in front of them, you can go to all the state medical conferences and things of that nature.

I'm going to ask --

Tom Carpenter -- Hilliard Lyons: I am going to ask Scott can you walk us through the plans to get you guys in front of more of those hospitals.

Before -- first of all, I'm going to hand that question off to Scott Boyden. But before I do it, I wanted to emphasize something that I think is very important at the low end of the market. Clearly, our distribution is a key need for us, but I wanted to point out that at the low end of the market, you have some significant clinical information system players, and MEDITECH being one, CPSI being another, and QuadraMed being a third.

And now that we have this MEDITECH site which is in the process of being implemented, we will have integration to all three. We have sites that will have our solution installed in all three. We have a CPSI site is Thomas Hospital, we have the MEDITECH site we just announced. We also have a QuadraMed site at the small end of the market. So as you said, Tom, the real need here is to go after that market in a big way. And Scott Boyden, I would like you to weigh in on just how we're going to accomplish that goal.

Sure. That end of the market is very, very exciting for us. In fact in our strategic planning, if you were to go ahead and actually look at the number of hospitals beds, 200 and below, it is about 72% of the entire market, a little over 3,500 beds. So what that can do for us is a lot. Quickly, number one, it gives us a collapsed sales cycle as opposed to some of the larger deals which we will still go after, and based on our success and also based on our customer base, which is really the who's who of Healthcare if you really just study that, that will continue to be a big lever for us, but we need other levers.

And I think one of the biggest challenges we've had but frankly is getting the word out in terms of what we do and how we do it. So you're going to see a lot more virally in terms of what happens on the web and kind of a refresh of who we are.

Secondly, hospitals talk, and I think once we get the MEDITECH integration behind us with the deal that we just signed, I think we have got some strategies behind that in terms of how to leverage that win, and leverage it fairly quickly. And obviously when we continue that growth ramp, we will begin I think also to include some more sales folks based on what those numbers look like.

But fundamentally that is a market that I don't we have completely leveraged. I think right now we are in the middle of a perfect storm, not only the economy, but also more and more people obviously looking toward the SAS model vis--vis our ASP solutions.

And I don't think a lot of people know that we have been doing it for 10 years and have over 22,000 users. So that is very, very exciting to us as we begin to grow that end of that sector, that is going to bleed up into the middle sector as well as the upper sector. And we expect the velocity curve to increase, hopefully like a hockey stick, but we have got a lot of plans around really both of those levers in being able to pull them.

Okay. That's great. Thank you. One more question, I'll jump back into the queue. Brian, you talked about operating expenses growing 5% or less in fiscal year '09 since you -- and I want to tie that in with the $800,000 in quarterly reduction that you mentioned as well. I guess you started off the first two quarters at a higher operating expense run rate than this quarter than probably what quarter is going to be like. So I just want to clarify that the 5% or less that you have based on all of fiscal year 2008? Obviously you've based it under kind of the new second half of the year numbers annualized?

Tom, that is a great question. It is the latter. Actually the impact of those efficiencies really didn't hit or will not hit till this quarter, Q4. So Q4 you should see approximately $800,000 reduction in our run rate, and that will carry forward next year and the 5% or less applies to the lower number.

Okay, that is good news. Thank you.

Your next question comes from Bill Bunn of Fort Washington Investment.

I've got a number of questions including some follow-ups, but first I am not familiar with the name Joe Diaz of Lytham Partners. What is their role there?

They are our Investment Relations firm.

Okay, great. Just to follow on some of the balance sheet questions, is the bank line just for $2 million? At this point, are you fully drawn?

Yes, we are fully drawn at this point, Bill.

Are there any covenants associated with that that we should be aware of?

There's a tangible net worth covenant, and there is also an EBITDA covenant which factors in to determining what the overall borrowing base is.

Is that filed in the SEC document? I'd be able to look that up?

Yes, it is.

All right. You talked about the cost-cutting, is that largely through the loss of certain employees?

I'll jump in. It's a combination of things. For example, part of it was a planned scaling back of R&D as Gary and his group got to certain milestones. As we indicated, we're going to spend more money in 2008 to get our new architecture out. As we get further down the road on that, we start scaling back. Some of that was reductions and some of it was turning some contractors into employees, and some of it was letting go some contractors.

We also realigned our sales organization to be more active efficient around the ASP approach which allowed us to actually save some money in that area as well. And then Joe Brown and his team got more efficient and realigned to save some money in the professional services area.

What is the make-up of the sales force at this point?

Scott?

We have got two National Account Managers, we have got an Inside Sales Professional, and then we have three Outside Professional Sales Executives. And then we have a couple of folks in kind of sales operation roles, and then we have two Application Specialists who help us with demonstrations.

And how long have the National -- I've forgotten the title there, National Marketing --

National Account Manager?

Yes, how long have they been with you guys?

One is brand new and one has been with us for over 10 years.

And as far as the three Outside Sales Execs?

Let's see. Two of them are fairly new, within a year, and one has been here I think for over four years.

Okay. Now that you have realigned and got your costs in order, what revenue base are you now sized for? How can you increase the top line without stressing the existing employee base?

Well, let me jump in, Bill, and clearly we don't want to give an indication of future expectations on revenue. But Scott and his realignment of the sales organization, we have lots of room for revenue growth within the existing employee base that we have. We're going to be taking advantage of our distribution relationships with GE Healthcare, with Emergis, which is now owned by TELUS in Canada, and with Standard Register to create reach.

And then Scott and his team will be going after selective high end accounts and primarily middle to low end accounts for the hosting opportunities. Scott, you want to add any comments on that?

No. I was completely remiss. We do have a very, very important strategic role in the channel account executive. He does manage those relationships and we are beginning to see with some additional focus I think some additional results and you obviously saw that with the Health Alliance contract. So we hope to gain leverage there by just some additional focus and talent in that area and then maximizing the current great group that we have.

All right. Thanks. What's the progress if any at this point to through the Emergis contract, has that started to provide revenue at this point?

Well, keep in mind that we reported earlier in the year two major wins in Canada, which is the University of Montral and the McGill University, French-Canadian speaking, which has started the process of rearchitecting (inaudible) which we were planning to do anyway.

But there has been a lot of activity with our partner in Canada in several other opportunities. And we are engaged in very specific sales opportunities in other sites and that is all I can disclose at this point. But I have said in the past and I will repeat it, over a period of a couple years, I would expect our relationship with Emergis to yield the kind of results we're getting from our partnership with GE Healthcare.

Has there been any contribution from Standard Register at this point?

Significant contribution, particularly in our first deal, which is the Health Alliance of Cincinnati. That was a very positive outcome for us. Not only did we expand to four new hospitals for five years, but re-upped for another five years on the existing hospital. And it was our first major contract with our partners Standard Register, very large in its revenue value to the company, again ASP.

So that is one nice kick-off for our relationship and our business development activities are very aggressive now in finding other opportunities to remarket the Standard Register e-forms solution as a part of our package. And sometime in Q1 of next year, the reverse will be true where they will be launching, remarketing our standalone workflow solutions, particularly referral order workflow, which fits very well into their world.

Could you guys walk me through a hypothetical ASP sort of contract, when expenses are incurred, when you start seeing revenues realize quarter by quarter, just a hypothetical one?

Yes, Bill. This is Joe Brown. On an ASP deal, we typically see the hosting revenue start 90 days after the effective date. So 90 days after the customer signs, our hosting fees would start, so those would be the hosting revenues. Professional Services start right away because we start implementing. There is some capital expense, some scanner hardware that we resell, and again that is up front, plus the actual hosting fees start 90 days after the contract is signed.

At that point, are they up to their run rate or does it grow from there?

It advances as an add-on as they have added on some third-party software like e-forms, those could come on later. It depends if there is a phased approach in the contract. But if it is just our software, those would just typically start 90 days, but it could be and it would be a full impact, I mean all the revenues will start 90 days. But again it depends on the contract. Some customers negotiate different terms and if there is phases built in, that would ramp up over time.

And so given that 90 day period, we should begin to see those six contracts delivering as soon as the quarter we are in now, right?

Well, there are six contracts, and there is probably six different terms negotiated in that, but our standard is 90 days after they sign.

So in the current quarter you had application hosting and services revenue of $517 million? What do you think that would be on a run rate based on just the six that you have got in addition to the ones that are out there?

I don't know if I want to comment, I don't really have those numbers in front of me at the moment. But I think if we go back to Brian's comments when he mentioned where we are at today with hosting fees and where we would be at the end of next year, so from a month's comparison, not an annualized, I think Brian mentioned that it is going to approximately double.

All right, thanks very much.

Thank you.

(Operator Instructions). Our next question comes from Mark Cahill, a private investor.

Good afternoon, gentlemen.

Good afternoon, Mark.

With respect to the hosting facilities, are you processing the deals through your own facilities or through GE?

They are through our own facilities. Is that right, Joe?

Yes, Mark. We have a hosting center in downtown Cincinnati. It's not our brick and mortar, as we lease space, and we do have a backup site that we replicate the data to also, that again is our facility, not a GE facility. So the GE customers as well as the direct Streamline Health customers are hosted by Streamline in our hosting center.

Is that by customer choice? GE is not pushing their own facility?

No. I mean they do have their own facility, but just the way the technology works, the increased bandwidth between facilities, GE has their own hosting facility in Chicago. They are the experts in managing their application Centricity Enterprise and the like, and we are the experts in our application. We just felt it is a better arrangement that the experts wanted.

And again with the technology available, it is seamless for the customer. They don't know that Centricity Enterprise sits in Chicago and the Streamline applications in Cincinnati. It's just presented to them as one application.

Right, so it is more efficient through your facility than theirs, it sounds like?

Again for the reasons I mentioned, yes. It just works out better that we host our application and they host their application.

Has Streamline aligned with GE's PAC system or the CPOE system yet?

No, we are not.

Any thoughts of doing that in the future?

We're not aligned with the PAC system. This is Brian. They are really different technologies and different architectures. DICOM is a whole different ball game for PACS images. We are a document workflow company, not a PACS workflow company. Relative to CPOE, yes, we are aligned. We have integration to GE Centricity Enterprise, and so that is one of the real differentiators in the GE installed base.

Good. The hosting agreement, it sounds like the old agreements used to be two to three years contracts, and now you are five to seven, is that right, am I correct there?

You know maybe years ago the agreement was a four-year agreement, but the standard now is five year agreements. We have had some discussion about seven and eight year agreements. So there's some benefits obviously the customer and us to lock in for a longer-term.

And I also would comment that we have some really mature hosting customers going back to 1998, '99 timeframe, and those original agreements were either four or five years. Once the four or five years expired, then they went on annual renewals and that may be where you are -- I mean if you look at the continuum of all the deals, some of them are annual renewals but most -- almost all the new ones are five years or more.

Right. The [Great Lakes] deal that you announced this morning, can you give a little more detail of how big a organization, how many hospitals there are?

I'm not at liberty to share too many details. Let's say you can triangulate and figure out who it is, but I can tell you it is very large. It is on the high end of the scale.

Similar to the Catholic Healthcare, you are going to install a few first?

It is a very large hospital as opposed to a bunch of medium to small hospitals; very, very large with a large number of beds.

Got you. Going to Standard Register, have you established a pipeline of that angle yet?

We have. Scott, can you -- got a commentary there?

Yes. We have established the pipeline, several meetings, several focus groups, several value prop discussions. They have been at our user group conference. We are now planning to do something similar with theirs. We talked about several different market initiatives, and I'm not at liberty to go into the details, but, yes, that is a very focused relationship and we are both very excited about it.

I think I heard in some comments that they are going to start selling Streamline products in the first quarter? I thought they were doing that already?

Well, they are going to be selling our standalone workflows. They had to defer the launch of that because they had another major product that was being launched. So we'll be getting out of the box in Q1 of next year.

Okay. Are we devoting one sales resource to that, to Standard Register, or are all the executives --

Well, we're leveraging the entire team, but we believe in singular owners. And so we have a channel account executive who is only handling and focused on three of our core partners. And then from that relationship, there's referral, those leads -- once that's dashboarded out there and managed, then that percolates into our entire sales funnel across all the territories, both into our base as well as new opportunities.

Is there an individual pipeline out of TELUS yet?

We have a pipeline. It is actually one that we are sharing and putting together as we speak that really originated from the user group meeting just because it was starting to grow and so we need to put some discipline around that and so that is why we named the channel account manager to really handle that and managed that relationship from our side and to have subsequent meetings since then which then the dashboard was a big component of it. So yes, we do have one, we do have a pipeline, and we are looking at it.

Last question for me. The pre-operative product, I saw that back at the HIMSS show, I was surprised to hear that's still in beta, aren't you close to finalizing that?

I will turn that one over to Gary. He has been anxious to have his voice heard yet.

Thanks. Good question actually. Now the product has been in development, at least from our development environment for several months now. As you know, we take all of our products through customer beta. So the customers' schedules impact how quickly we can get it through the beta process, but it has held up well. It is not a product issue, and it will probably be in beta for another 30 days or so before we can announce it as GA.

So, it'll be starting to sell in Q1?

I would hope that Scott is already working on that, but yes.

Okay, that is good news. All right, that is for me. Thank you.

Got the baton.

There are no further questions at this time. I would now like to turn the call over to Brian Patsy for closing remarks.

Let me thank you one more time for participating on today's call. We appreciate your continued interest in Streamline Health. We look forward to talking with you again at the conclusion of the current quarter. I would also like to wish you and yours all the best for the holiday season. Have a great day.

This concludes today's conference call. You may now disconnect.