Streamline Health Solutions Inc (STRM) 2008 Q4 法說會逐字稿

Good afternoon. My name is Maggie and I will be your conference operator today. At this time I would like to welcome everyone to the Streamline Health Solutions Year-End 2008 Conference Call.

(Operator Instructions)

At this time I would like to turn the call over to Mr. Joe Diaz of Lytham Partners. Mr. Diaz, you may begin your conference.

Thanks, Maggie, and thanks all of you for joining us to review the financial results of Streamline Health Solutions for the fourth quarter and the fiscal year ended January 31, 2009. As the operator indicated, my name is Joe Diaz. I'm with Lytham Partners. We are the financial relations consulting firm for Streamline Health.

With us on the call representing the Company today are Mr. Brian Patsy, President and Chief Executive Officer, and Mr. Don Vick, Interim Chief financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question and answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it off the Company's website at www.streamlinehealth.net or numerous financial websites on the Internet.

Before we begin with today's 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 fact are considered to be forward-looking statements which are 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 expectation identify forward-looking statements. The forward-looking statements contained herein are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statement 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 product produced from third party vendors, the healthcare 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, fluctuation 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 reflects 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 Chief Financial Officer, will summarize our financial results. And then, after Don's remarks, I'll highlight our fourth quarter and fiscal year 32008 results and then provide some remarks regarding the dynamics affecting the business and our operating performance. After my remarks, we will open it up to our usual question and answer session.

At this point I'd like to turn the call over to Don Vick. Don?

Thanks, Brian. I would like to highlight the more significant aspects of the financial results of our fourth quarter and our fiscal year ended January 31, 2009. Total revenues for fiscal year 2008 decreased 2% to $16.3 million, compared with $16.7 million in fiscal year 2007. The operating loss for fiscal year 2008 was $1.3 million, compared with a loss of $704,000 last year.

Total revenues for the fourth quarter of fiscal 2008 decreased 40% to $3.4 million, compared with $5.7 million reported in the fourth quarter of last year. Operating profit was a loss of $132,000 compared with a profit of $781,000 in the same quarter last year.

Systems sales for fiscal year 2008 were $3.2 million, which was a $233,000, or 8% higher than fiscal 2007, primarily due to $174,000 increase in Streamline Health software delivered in 2008, when compared with 2007. The majority of the systems revenue in fiscal 2008 occurred in the first three quarters of the year and were offset by a decline in the fourth quarter results.

Systems sales for the fourth quarter were $311,000 compared with $2.1 million in the comparable quarter last year. This decrease was primarily the result of a large systems sale of nearly $1.9 million in the fourth quarter of 2007, including Streamline developed and third party software through one of our remarketing partners. A similar large system sale did not occur in the fourth quarter of 2008, causing this wide swing in results. The new business generated in the fourth quarter was almost exclusively application hosting contracts.

While there was a $209,000 decrease in services, maintenance and support revenues for the quarter, primarily due to the timing of -- primarily due to the timing deferral of project management revenues, the margins associated with this revenue stream remain healthy. On an annual basis, these revenues remain consistent with last year's revenue of $10.1 million. This was primarily the result of increased maintenance revenues, offset by lower professional services revenues.

Maintenance and support revenues in fiscal year 2008 were $7.2 million, an increase of $481,000, or 7% over maintenance and support revenues in fiscal 2007. Professional services revenues in fiscal year 2008 were $2.8 million, compared with $3.3 million, or 14% decrease of $470,000 from fiscal year 2007. The decrease in professional services revenues was primarily due to the deferral of revenue associated with one large application hosting services client where revenue, including professional services for that customer, was deferred until customer acceptance, which is expected in 2009.

During the quarter, two new application hosting contracts and one application hosting renewal contract were signed. These will contribute nearly $1.1 million in future hosting revenues. Application hosting services revenues were $596,000 compared with $878,000 in the comparable quarter last year. This reduction in revenue was primarily due to the previously announced loss of our largest application services hosting customer.

Revenues from the recently signed hosting customers in the past two quarters will begin to contribute to revenues during the next few quarters and have not yet offset the loss of this customer. It is expected that by the fourth quarter of fiscal 2009 that approximately 85% of the quarterly revenues attributable to this lost client will be replaced by the recently signed hosting contracts.

As previously mentioned and as demonstrated by the results above, the Company has experienced a shift away from its traditional purchase model of software towards a large increase in demand for our application hosting services business model. As also previously informed, near the end of the third quarter, the Company reduced expenses 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 were the primary driver to cause expenses in the fourth quarter to drop by approximately $735,000 when compared against the immediately preceding third quarter of fiscal 2008. This expense reduction amount includes reduced capitalized software expenses. It excludes any expense impact from the [profit of sales].

Please remember to consider the impact of our capitalized development costs in order to have a complete understanding of our total development activities and expenditures. While our expenditures have been reduced due to the cost-cutting measures noted above, we continue to make significant investments in development, primarily on the activities relating to the internationalization of our product to fuel the continued expected growth we see in Canada through our partner, Telus Health, backed by Emergis.

Backlog for the period increased to over $26.2 million, primarily due to a nearly $3.6 million increase in the fourth quarter in our maintenance backlog. The backlog for application hosting services contracts was the primary growth driver in the backlog for the year. It has grown from $2.4 million in April to approximately $13 million as of January 31, 2009.

During the quarter, we collected a significant amount of annual prepaid maintenance contract billings. These collections enabled us to pay down $1.2 million on our line of credit, leaving the net outstanding under the line at $800,000. Even after paying this debt, our cash at January 31, 2009 was in excess of $3.1 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 now turn the call back to Brian Patsy. Brian?

Thank you, Don. Now I'd like to discuss a fundamental shift in market demand that prompted us to change the focus of our business model from licensing software to providing software as a service via our hosting center and the impact on the business short term and long term. Also, a few observations on the recently passed economic stimulus package and electronic health record initiatives and what that may mean to health information technology companies such as ours.

A few highlights on our sales accomplishments over the last quarter and year, our newly launched business process management services division and finally, some preliminary guidance for fiscal year 2009 regarding our new business model. I'll also discuss our recurring revenue and operating expense prospects for the coming year based on last year's dramatic increase in hosted contracts. After my remarks, we'll conduct our question and answer session.

Regarding our Q4 and fiscal year 2009 financial performance, as Don discussed, our Q4 revenue was approximately $3.4 million, which was 40% behind the Q4 2007 revenue of $5.7 million. For the year, our total revenue of $16.3 million was slightly behind last year's performance of $16.7 million. In reviewing our overall performance and comparing operating results from 2007 versus 2008, it is important to understand certain positive factors and sales achievements that were not reflected in our financial results due to the market shift to our hosted solutions and, as a result, our concentration on a new business model that focuses on software as a service.

For example, in 2008 we dramatically increased the number of new customer contracts from four to ten. We increased our systems software sales 13%. We increased our total of all backlog 64%, from $16 million to $26.2 million, and our hosting backlog 330%, from $3 million to nearly $13 million. We increased our research and development investment as we prepare to deliver our next generation architecture this year that includes multilingual capabilities. We grew our maintenance services revenues by 7%. We were cash flow positive from 2007 to 2008. And we ended the year with a cash position of approximately $3.1 million, as Don mentioned earlier.

However, there were three extraordinary events that impacted our reported revenue and, as a result, our operating performance. The first event was a dramatic market shift from licensing revenue to software as a service, or recurring hosting revenue. As a result, even though we enjoyed a 2.5-fold increase in the number of contracts and a 330% increase in hosting backlog, not $1 of software revenues from eight out of the ten new contracts was actually recognized in 2008.

Said in other words, only two of our ten new contracts signed in 2008 actually contributed to 2008 software revenues. Needless to say, that revenue backlog from eight new contracts signed in 2008 will carry over into fiscal year 2009 and beyond and provide a sizeable boost to 2009 revenues and operating income.

Had the ten new 2008 contracts followed our traditional software business model, where 75% of our transactions are licensed software and 25% hosted, we would have shown double digit growth in both revenue and operating income because we would have been able to recognize the software revenue associated with those contracts upon its shipment to the customer.

The second event was the loss of a significant hosted customer who decided to let their hosting agreement expire in order to build their own locally installed solution, after over five years utilizing our hosting services. That event created a recurring hosting revenue shortfall in 2008 in excess of $800,000 that needed to be made up from other sources of revenue.

The third event was a financial crisis and severe economic downturn in the second half of 2008, which effectively brought health information technology software purchases to a grinding halt. This extraordinary event impacted all healthcare information technology companies and we were no exception.

We were disappointed that our Q4 results fell well short of our business plan, as a large license deal was delayed due to severe economic circumstances, resulting in their capital budgets being frozen. In fact, we experienced tightening of capital budgets across the board in our entire installed base of customers and our sales prospects.

At this point I would like to elaborate on the fundamental change in focus in our business model from licensing software to providing software as a service and discuss its impact on the business short term and long term. Beginning in 1998, Streamline Health pioneered offering customers the ability to obtain our solution on a remotely hosted basis when we signed our first hosted contract as an application service provider, or ASP.

Today, remote hosting of software applications is often referred to in the information technology industry as software as a service, or SaaS for short, and under certain specific circumstances, sometimes referred to as cloud computing. Market adoption back in the late 1990s was somewhat limited because many hospitals were uncomfortable with their information being housed elsewhere and unsure of the uptime of the hosted model.

In contrast, however, our SaaS based model boasts an uptime record in excess of 99.9% as well as an unbreached security record. Over the past nine years we signed three times more license contracts than hosted contracts. However, early last year we experienced a dramatic shift in demand to software as a service, or SaaS, and in response we changed the focus of our business model by primarily focusing our sales efforts on selling SaaS.

We did so for five primary reasons. One, SaaS based hosting services are designed to better overcome obstacles in the buying decision, such as large capital commitment, length of implementation, and the scarcity of resources for healthcare organizations to implement new systems. The SaaS model also provides a lower cost of total -- excuse me, a lower total cost of ownership.

Two, the SaaS business model is especially well suited for the medium to small acute care facility marketplace, as well as the ambulatory marketplace, due to lower entry level costs. These are two target market segments for Streamline Health software revenue growth. Three, the financial crisis in 2008 precipitated a credit crunch and backlash that severely impacted available capital funds for software IT projects.

Four, SaaS based solutions are now becoming more mainstream and market adoption has increased dramatically over the past few years. And finally, five, our SaaS based hosted solutions are an excellent hedge against future obsolescence and therefore provide a lower risk alternative to the large capital investments required by traditional license models.

The decision to focus on SaaS based hosting services created significant short term revenue recognition challenges for us while positioning the Company much more favorably in the long term. For example, generally, revenues from licensed, locally installed system sales are recognized when an agreement is signed and software shipped to the customer. As a result, we get a very large boost in revenue in the quarter the software is shipped.

In contrast, revenues from SaaS based hosting services are recognized as the services are delivered on a monthly basis over the life of the SaaS based subscription agreement, which is typically five years. This spreading out of revenue recognition is often referred to as the cash chasm, where both cash receipts and revenue are spread over the term of the subscription service agreement rather than being received and recognized up front, as it is for a license transaction.

The cash chasm is created because revenues are spread, while some expenses are incurred up front to provide the necessary hardware and software infrastructure to deliver the solution from our hosting center. The tradeoff in focusing on the SaaS model of delivery is giving up short term revenue recognition in return for achieving long term revenue visibility, leading to sustained and predictable growth. We deliberately chose the latter and our 2008 results reflect that fact.

At this point I'd like to briefly discuss the recently passed economic stimulus package and what it may mean to health information technology companies such as ours. As you probably know, President Barack Obama called for universal healthcare as a part of his 2008 presidential campaign. The American Recovery and Reinvestment Act of 2009, or the stimulus bill, was enacted by Congress and signed into law on February 17th of this year. The provision of the stimulus bill that specifically addresses health information technology is known as the HITECH Act.

Some highlights of the President's healthcare initiatives and the HITECH Act are as follows. A primary focus in 2009 will be electronic health records, or EHRs. The bill intends to modernize US healthcare system with health information technology investment to reduce cost, improve quality of patient care, focusing on improving inefficient paper billing systems and preventable errors. The bill has a goal of full deployment of electronic health records by 2014, or basically within five years.

The bill provides for a $19 billion investment in HITECH provisions and includes $40,000 per physician in EHR adoption incentives, beginning in 2011, payable through 2016. It includes health information technology extension programs for regional adoption via regional health information organizations, or RHIOs. The bill earmarks funds to states to promote interoperable electronic health records.

It provides education programs to train clinicians in EHRs. The bill provides for funds to dramatically increase the number of HIT professionals because of the anticipated shortage to meet aggressive EHR adoption plans. The bill will create a health information technology grant and loan program.

And finally, the bill calls for accelerated construction of a national health information network. A recent study by the Gartner Group estimated that total US health information technology investments reached approximately $26 billion in 2007. When considering the HITECH Act estimate of $19 billion in additional health information technology investment, we anticipate a dramatic increase in technology investments above current levels.

Furthermore, we also believe the addressable market is significant based on the Gartner Group estimates of low EHR adoption rates of 8% of the approximately 5,000 US hospitals and 17% of the 800,000 physicians. As a result, Streamline Health perceives greater demand and additional federally initiated sources of funding for investments in EHRs. Our solutions are very complementary to hospital organizations plans for EHR adoption.

Now I would like to review our sales accomplishments over the last quarter and the last year. As mentioned earlier, we signed ten new agreements in 2008, including two new hosting agreements and one hosting renewal in our fourth quarter. The two new agreements, because they are hosted, did not contribute to Q4 software revenue, but will contribute to 2009 revenue and beyond. As a result of these hosting agreements, we added $1.1 million to the revenue backlog. These new hosting agreements provide monthly recurring subscription revenue over the life of the contracts which, in both cases, are five years.

In 2007 we closed four large systems sales, three purchase and one hosted, that generated $6.8 million in combined revenue and backlog. Our ten contracts in 2008, in contrast, have generated approximately an additional $17 million in combined revenue and backlog, a 150% increase over 2007.

I would like to provide additional insight into the ten transactions closed this year. The eight hosted contracts were with the following customers. The Health Alliance of Greater Cincinnati -- a network of five hospitals throughout metropolitan Cincinnati, signed a new five-year agreement for four additional hospitals in their network, while renewing the existing agreement with the University of Cincinnati Hospital for an additional five years.

Catholic Healthcare West, a network of 41 hospitals in three western states, is the eighth largest healthcare system in the nation. Our workflow solutions, in production in one hospital and near completion at a second hospital, will generate with their existing hospital -- excuse me, will integrate with their existing hospital information systems to provide a single point of access to health information.

We have a five-year agreement that was signed with one of the nation's largest hospital organizations located in the New York City metropolitan area. As with some of our other customers, this health system has a policy of anonymity regarding their health information technology investments, which prevented us from announcing the details of the contract in a press release. This is our fifth major hospital in New York City metropolitan area.

We announced Marion General Hospital, a midsize facility located in Marion, Ohio. This is another hosted customer through our relationship with GE Healthcare. We announced Columbus, Ohio Public Health Vital Statistics Office that's serving one of the largest counties in the state of Ohio. The Vital Statistics Office will use our document workflow solutions for the storage and retrieval of birth, death and other vital documents, to process their large volume of document requests, to assist in protecting their clients against identity theft and fraud, to provide better tracking of HIPAA accounting disclosure, and to reduce labor intensive document searches.

We also signed Massena Memorial Hospital, a small hospital located in upstate New York. This new hosted customer is our first implementation of our workflow solutions integrated into the Meditech health information system environment. We signed a new hosted contract with the Department of Surgery at a large university hospital on the West Coast and, again, their policy precludes disclosure. And finally, we extended an agreement with the University of California San Francisco, who renewed their hosting agreement for an additional four years.

Collectively, the eight new hosted contracts contributed $14.2 million to the total revenue backlog. But because of the SaaS model of delivery, only one of the eight hosting contracts -- the hosting renewal contract, contributed any software subscription revenue in 2008.

The two new license contracts were with the following customers. The first license contract was announced earlier in the year when we added a significant new international customer through our partnership with Telus Health, backed by Emergis, in signing a contract with McGill University and the University of Montreal Health Centers.

The implementation is well underway, as well as the development of our next generation software solution that provides multilingual capabilities as a part of the contract deliverable. We are currently planning to deliver the beta version to the customer this summer and are targeting a go-live before the end of the year. Revenue recognition this year is contingent on achieving general relief status for this software.

The second license contract was a large healthcare organization located in the Great Lakes region of the US signed through our remarketing partner GE Healthcare. Again, the hospital's policy precludes disclosure. This contract calls for us to integrate our enterprise document management and workflow solutions with the hospital's existing GE Centricity Enterprise system.

Collectively, the two new license contracts contributed approximately $1 million to revenue in 2008, while also contributing approximately $2.1 million to the revenue backlog.

Earlier today, as a part of our reporting of our Q4 and fiscal year 2008 results, we announced that we have signed another major new international contract within the past 30 days to implement our next generation workflow solutions at another large public sector health network in Canada. This is the second major contract with the government of Canada obtained through our partnership with Telus Health. We are very excited about our expanding international opportunities through our Telus Health relationship, and we hope to announce specific details concerning this impressive win in the very near future.

At this point I would like to introduce our newly launched business process management services division. We established this division to take advantage of what we believe is a significant growth opportunity to provide custom document workflow solutions and business process management consulting services. Many industry consultants, including Gartner Research, believes healthcare organizations face an ever increasing demand to improve business processes and reduce costs, especially in the current economic climate.

Business process management, or BPM, is a proven discipline which allows organizations to improve their business operations by identifying, automating and optimizing existing labor intensive business processes that cause bottlenecks and inefficiencies. BPM solutions are quickly rising to the top of technology spending priorities across many healthcare organizations. A recent CIO study by HIMSS Analytics placed BPM solutions as the number two spending priority on corporate IT budgets.

Additionally, according to Forrester Research, by 2011 the global market for BPM solutions is expected to reach $6.3 billion. This is a significant increase from the under $1 billion produced in 2006. We have already created and installed numerous custom workflow based BPM solutions at one existing large customer who is focused on streamlining their patient financial services, human resources and administrative document centric processes.

Although our revenue goals for our new BPM services group are modest this year as we get established, we anticipate this group will complement our existing portfolio of workflow solutions and help drive incremental revenue.

Let me conclude my remarks by providing some further information regarding our recurring revenue and operating expense prospects for 2009 based on our new SaaS based business model, which focuses on hosting services.

When considering revenue backlog from the eight new hosted contracts signed in 2008 and the revenue backlog from our two new purchase contracts and without considering any potential new hosting or purchase contracts, our incremental new hosting revenues in 2009, factoring in the expected implementation timing during the year, should be in the range of $500,000 on top of our 2007 hosting customer recurring revenue amount of approximately $2.9 million.

We anticipate revenue backlog fulfillment of approximately $1.6 million in recognizable software as a result of delivery and achieving general availability of the multi-language support to our Telus Health customers, McGill University, the University of Montreal Health Centers and the large new public sector health network, contract signed last month. It is important to note that revenue recognition is contingent upon successful completion of the beta process and announcing general availability, which is anticipated within our fiscal year in the January 2010 timeframe.

Next year, recurring maintenance services revenues should be consistent with 2008 results, or in the $7 million to $7.4 million range. Regarding professional services, including associated recoverable expenses, we anticipate revenue in the $3.6 million to $4 million range, contingent on the timing of system implementation and potential project delays. Our operating expense run rate, exclusive of cost of sales, should be, on average, in the range of $2 million per quarter net of (inaudible) software.

Our cost of goods sold, exclusive of third party hardware and software, which is a variable expense, should be in the $2 million to $2.4 million range per quarter. And finally, we expect that next year's operating expense growth should be very modest in the range of 5% or less.

Our anticipated recurring revenue, backlog fulfillment and predictable professional services revenue in 2009, when totaling all of the previously mentioned revenue streams, is in the $16 million to $17 million range, again exclusive of any anticipated new business. In other words, based on contracts already signed, recurring revenues and backlog fulfillment will contribute between $16 million and $17 million for the year, before we include any new contracts or add-on business obtained in 2009. Obviously, we plan on signing many new contracts in 2009.

Our stated goal over the next 12 to 18 months is to increase these recurring and predictable revenues to the point that they cover all of our total operating expense and cost of goods, exclusive of variable third party component costs. We hope to do this by greatly expanding our hosted customer base such that any new -- net new system sale or hosted contract would drop directly to our bottom line.

This concludes my formal remarks. I would like to turn the call over to Joe for the question and answer session. I have asked Joe Brown, CIO and VP of Client Services, and Scott Boyden, our Senior Vice President of Sales and Marketing, and 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 them any specific questions. Joe and Scott will be participating remotely. Gary Winzenread, our Senior Vice President of Product Development and Strategy, is not available due to a prior commitment.

Okay, thank you, Brian. Operator, would you give instructions for the Q&A session?

Absolutely. (Operator Instructions)

And our first question comes from Tom Carpenter with Hilliard Lyons.

Good afternoon, Brian.

Hello, Tom.

Hey, congratulations on the increase in deal flow last year versus the prior year and the traction you seem to be gaining with Telus. Your other large remarketing partner that's US based, it looked like it was a slow year for them. Are they undergoing a product transition, or is it just a slow -- even a slower marketplace for them in the US?

Well, Tom, that's a good observation. A couple of things are going on. I think that, candidly, our primary remarketing partner, GE Healthcare, has had what I would describe as a transition year. As you may know, they are in the process of developing their own next generation solution. It's going to be world class. We met with their senior leadership, frankly, this week at the HIMSS conference and we're really encouraged by the fact that they said that everything's coming together and that they'll actually go into production later this year with their solution.

So I think what we've witnessed over the last, frankly, two years was kind of a static market while they get that new product out. And that's, of course, impacted Streamline Health because they're a significant part of our revenue.

Right, it hurts not getting -- used to get a large deal or two in the fourth quarter from them every year and that's --

In fact --

-- change.

-- the deal that was delayed was a GE partnership deal. It was a purchase deal -- in capital dollars shrank. Which brings me to the second point. The second half of the year, literally -- mostly in Q4, the buying group of prospects literally came to a screeching halt. That isn't just a prospect, but even our installed base of customers' capital dollars shrunk. And it was really interesting that earlier in 2008 we had, of course, a pipeline of prospects that were both interested in hosting SaaS based hosting and purchase.

The large transaction in Q4 that really hurt us, that was delayed, was a purchase deal. And when everything dried up in Q4, they literally had their budget pulled and capital dollars were frozen. And what is really interesting and, frankly, a positive outcome is that now we're talking to them about hosting it because an operating expense model is much more palatable to them.

So those are the two major impacts in terms of what happened last year.

Sure. Scott, can you hear me?

Yes, Tom, I can.

Okay. Would you characterize the sales -- the state of the sales environment today if there's been any change since the stimulus package was passed? I imagine there's a lot of digestion going on. And also, maybe differentiate between what's going on in the over 100-bed hospital market and under 100-bed hospital market.

I think there's been a dramatic change just being networked in with the -- with GE and other EHR vendors. I think definitely people are trying to figure out their spend and what they will receive. That market's been frozen to a certain degree. That impacts us through our partners.

I think the most dramatic change, though, is the opportunity that we have with our new SaaS based ASP offerings. A lot of the deals that we were able to execute in 2008 were obviously because of that advantage and we see more of that coming here in 2009. So I think the capital freeze has hurt those organizations that just offer those solutions that are purchase deals, while I think it offers us an opportunity to further leverage our ASP offering.

Have the deal cycles been impacted? Sure, they've been impacted, but I think we have a real competitive advantage.

Have you seen a change since the stimulus bill was announced or hospitals waiting to see the fine print before they sign on the dotted line?

It's variable. We have seen some hospitals freeze budgets and we've actually seen others actually increase some solution sets into their budgets because they foresee that they will have an opportunity for some additional spend that they weren't planning on before the bill was enacted. So it's almost deal by deal.

Tom, this is Brian. We're also noticing that obviously every hospital organization is extremely interested in the how of the stimulus package -- how do they get their hands on the $2 million in additional IT investment. And it's across the board.

So I believe that starting next year, the market will pick up. Some folks are getting ready now and starting to ask budgeting questions relative to what can we provide. Some are waiting, which Scott alluded to in terms of the market is frozen in those regards. But I think over the period of the next two years I think -- assuming the capital markets cooperate to complement some of those earmarked dollars, I think that bodes well for us.

Excellent. And, Don, I don't want to leave you out. I have a question for you.

Sure. What's that?

In your modeling, what type of revenue run rate do you see the firm achieving breakeven? I know it depends on the mix a lot, but it's clear which way the mix is going. So when you guys are doing your forward modeling, what do you see as the breakeven run rate?

I mean, kind of what Brian alluded to even in his comments, we're looking around a $16 million to $17 million range for the year for breakeven.

I'll weigh in as well, Tom. I know you're anxious to do some modeling. If you go back over my comments in detail, you should have everything you need to do the modeling. I will say this, that even though our budget earmarks between $16 million and $17 million in total expense, we hardly ever spend all the expense that we budget.

So that's why we're giving you a range here. And obviously we do that and if market conditions change, we have the opportunity to scale back some of our spend. So some of those dollars are kind of slated toward the second half of the year to just make sure that we match our spend to our revenue growth.

Did we answer your questions?

You did. Thank you. I will jump back in the queue and see if my buddy Mr. Bunn is on the call.

Thank you. And our next question comes from the line of Bill Bunn.

Now, there's a coincidence. I have two main questions. First has to do with liquidity. Seemed to be pretty excellent for the quarter. Looks like you added about $3 million in real cash because you grew the cash number from October through January. You also paid down debt from $2 million to $800,000, so a total of $3 million. Does that represent the high watermark for the year, or you continue to improve your liquidity through the year?

Certainly we have some seasonality in our year because off the way that our annual prepaid maintenance falls. So, in the last earnings call I know we discussed what a great fourth quarter it was just in terms of the cash coming in. So that was -- that was certainly on the high side as far as quarters go.

As we go forward doing our cash flow modeling and all, what we really look for are the big pops of cash which typically come from those prepaid maintenance streams. And fortunately, there's some chunks pretty much each quarter during the year. So they certainly are not as significant as they were in the fourth quarter, but it looks encouraging.

And, Bill, this is Brian. And Don is absolutely right on. The seasonality is something that we obviously monitor and we have done modeling, or Don has done modeling through the end of the year. And if you look at our seasonality, the trough in cash receipts is typically the same time every year and it's just prior to us sending out all these invoices for our annual prepaid maintenance. So it's in the late July, August, September, October timeframe and then it picks up significantly after that.

So at this point is it fair to say that your debt should probably only continue to fall through the course of the year because you'll be able to draw down from time to time on the cash that's there? Is that what you would anticipate?

It really depends month to month just because of the way the chunkiness, if you will, of the big prepaid maintenance deals. I know we have a couple here coming up soon, then there's a month or so where there aren't as big -- those type of billings to collect. And then we get into that time during the year that Brian's talking about, from a seasonality perspective -- kind of that fall time period where there's not the big receipts.

So I'm sure we'll be tapping into the line there. But then once again, as we -- forecasting as we get into that fourth quarter again later in the year, there are some very sizeable receipts. So it really just depends on the timing during the year.

And, Bill, this is Brian again. Keep in mind that we are focusing on the SaaS model and, in theory, if we had 100% of our net new contracts SaaS, that creates some cash chasms for us. But frankly, if I look, at our -- Scott Boyden and his sales team and their forecasting, there are some purchase deals out there still, even though most of them should be SaaS based, we are still selling both models, and those would really help our cash situation.

Clearly, we're really excited about the SaaS model and what it will do for us and what it'll do for me in terms of sleepless nights to know and have predictable revenues that are consistently growing. But it sure wouldn't hurt to have a couple of pops of purchase deals this year to just mitigate the cash flow.

And obviously it certainly helps the P&L, too.

Yes.

With regard to maintenance, it was flat year-over-year and the service maintenance support was down about 10% or so for the third quarter. How does that work again? Did you actually lose some maintenance customer through the course of the year so that you were flat? And, is there a cost of living escalator in those contracts?

There is a cost of living escalator in most of those -- in most of those contracts. And the -- going forward in this year, we see that increasing. Trying to remember if there was a specific client that we lost or not.

Well, the professional services tailed off last year because of delays in implementation and that was a part of it. Maintenance -- that fluctuates. We bring on new customers. I think we negotiated a lower rate with one customer due to some circumstances, but for the most part that should grow modestly year to year.

I think you were -- did you indicate something like a 10% growth in the coming year?

I don't think it's -- it's not quite that much. I think we're --

I think it was 7% year to year. And this year -- I don't know if I commented on those expectations this year.

I was just scribbling notes when you were talking earlier about what you expect for the year.

Well, Bill, if you go back after and get the transcript and add up all the numbers, you'll get to the right place. It looks like I don't have it now. Go ahead, Don.

It looks like it's around -- $7.4 million or so is what we're estimating right now.

Now, with regard to the backlog, and in some contracts you can recognize revenue and some you can't, is the backlog an accounting backlog or a cash backlog? Or, I'm sure it's a combination of both. But if I look at the backlog, does that represent accounting earnings that you'll recognize later, but the cash has already been received?

Well, it's somewhat of a mixture because on things like our prepaid maintenance, that's where we've gotten cash upfront. Just like we were saying in the fourth quarter, we had a lot of receipts from that program. So that's cash we've received but, from an accounting perspective, the revenue will be earned as we go forward.

On the hosting contracts, well, obviously that's both cash and accounting going forward. And then you've got kind of a mixture based on other -- the other items within our revenue mix. So you've got a little bit of both going on there.

And, Bill, this is Brian. One of the things we're trying to do to mitigate the cash crunch -- the cash chasm is in where we can on net new hosting contracts, we're trying to negotiate some prepaids, like we do on the maintenance side. And I think that'll help us manage our cash flow much better.

And even we're throwing out the idea of even existing clients, if they would like to prepay that's -- we'll certainly allow that.

All right. My final question with regard to that second new Telus contract, was that also a contract that involves the dual language capability?

That is correct.

All right, thanks.

Thank you. And our next question comes from the line of [Mark Cahill].

Morning, gentlemen.

Hi, Mark.

What does your gut tell you about the capital budgets freeing up today or going in the next quarter or so?

That's subject to speculation. Wishing and hoping, I'd like to see the -- as the economy thaws that budgets will unthaw. My hope is that by midyear we'll see a definite thawing. I haven't seen it yet, to be candid. That's creating opportunities for us on the flip side in terms of hosting, and why Scott Boyden is so jazzed about the fact that we have an advantage in the marketplace and we're moving our solutions down the food chain to smaller and smaller healthcare organizations who really don't have the capital. But right now it's still -- we still need a thaw.

Okay. Regarding the government assistance or the EMR initiative, will Streamline have to get its products certified by whatever government commission is, the certification commission?

We don't anticipate getting certification as a standalone. We have been certified in conjunction with GE Healthcare and we would follow that same path with our other partners, including Telus Health. And the reason that we don't seek certification is there's certain elements that we do not provide in our mission or in our software that are required for certification that would require an EHR like medication tracking and medication errors and things like that and order entry. So we really don't qualify for certification because of the niche we're in.

What we are is a complementary solution and technology to the EHR. So in combination with a clinical information systems provider, we can enable certification, if that makes sense to you.

No -- I follow you, yes. Could you give us an idea of the implementation for the ASP deals, Massena, Catholic Healthcare -- where we stand on the implementation?

Sure. Massena is well underway and we expect to go live sometime in the early summer timeframe. So, we're well down the path there.

That's an important one because it's Meditech, right?

That's correct. And we're actually right on target with that one and it's really exciting.

Good.

I think Scott Boyden is probably jumping up and down in his remote location, anxious to get that one going so we can really aggressively pursue the Meditech market.

Catholic Healthcare West, again good news. We are in production in one facility and very near -- today is Thursday so let's just say any moment now we'll be in production at two facilities. I also mentioned that the Health Alliance of Greater Cincinnati. We are in production with a new facility there. There is that large healthcare organization in metropolitan New York, which should be going live next month.

Regarding the greater Cincinnati, you had four new ones coming under contract. It's going to be one hospital at a time over the next year or two years or --?

That's correct. It's a staged approach. And I think we could hopefully accelerate that, but we wanted to get the first one -- digest the first one and we have. By the way, they're on our newest version of our software and it's going very well.

Good.

And then I mentioned the one in the New York City metropolitan area going live in May -- very large, very large site. Columbus Vital Statistics, they're in the process of installing right now. Frankly, I don't have a go-live date on my notes here, but it will be this year certainly.

And then the Canadian hospitals are in the summer timeframe, which is the beta version, and then we will go through a beta process. And our target is to get them actually in production before the end of the year and general availability by the end of the year, in the end of our fiscal year as opposed to calendar year.

The next generation architecture is going to be completed hopefully by July?

It is on track. We're -- it is in July so we're still being cautious, but it is on track. People are working very hard here. I'm excited. When I see that product, you click a button and it jumps up in French Canadian, it really is exciting to see. And it isn't just the multilingual aspect. Clearly, we had to deliver that as a part of our contract but this is truly -- and I know it's an overused term, but a state-of-the-art. It has some capabilities in it that again, the sales force is really jazzed about.

Now, a word of caution here is that we have to go through a beta process in Canada. We also are in the process of selecting some beta partners in the US. Those would not commence until early -- the first half of 2010. And of course, any net new deals after general availability would be on the new architecture, but then we'd have to go back and upgrade all of our existing customers and that'll be a several year process.

How about new products under development?

Well, obviously the big gorilla is the new architecture and if you look at the architectural diagrams for that, it's like Star Wars. But we also have a series of departmental and module workflows. This year we're in the process of delivering several -- a new release of our referral order workflow on the new architecture, which is complete. We have also on the schedule and well underway, it's actually in beta, is preoperative workflow and we're waiting for that to finish the beta process.

We also have an exciting new workflow that we're cranking out and getting the planning stages to deliver and that's called RAC audit workflow, and that stands for recovery audit contractor. And we believe this market is enormous because it's a federally mandated program and it's entirely paper based. And I just came back, as I mentioned earlier, from the HIMSS conference and everybody is talking RAC. We think we have a real advantage in terms of our workflow solution because of its configurability and its flexibility. So that's another workflow.

And then there are others that are further down the pike that we're very excited about that are not out of the production line yet, such as contract management workflow and correspondence workflow. So we're -- we get the workflow theme, obviously, and it really tracks very well with my comments on the growth of BPM services.

Then the last thing I'll say is what we're really excited about is the introduction of our new division. I literally established a new division within Streamline to focus exclusively on custom workflows, where it's not a product that you ship off the assembly line like a GM car. It's more of a custom thing like a hotrod, if you will, to use the car analogy, where you go out into healthcare organizations and look for applications that need process improvement or streamlining that are document centric that don't lend themselves to your standard automobile or workflow. So it's not a product as much as a configurable product.

And this was so important that I actually carved out some of my top people and put them in this organization to focus exclusively on that. The neat thing is that we already have numerous of these custom workflows built, installed and ready to go. And so, this group will focus on really penetrating our existing installed base and new opportunities where it just doesn't lend itself to off-the-shelf solutions. And the neat thing is we can turn these around in weeks rather than months. And again, the goal this year is very modest, but I see this as one of our highest growth areas in the future.

The pre-op workflow, wasn't that supposed to be finished last quarter?

It's done, but the beta process is dependent on the customer and there have been some resource challenges there. So it's been long since completed. But again, our methodology is very rigorous and requires a great deal of customer testing in production and that's been the challenge.

Right. The BPM, does that involve hiring new staff or it's going to be all existing staff that -- ?

Yes, to both. Right now it's seeded with existing staff, but we have requisitions out for additional staff. And again, I want to make sure that we match our expenses to our revenue growth, so we're starting with a core group of highly experienced people who've been here and then we'll add to that and there is budget to do that.

Regarding your comments regarding GE developing its own, is that in conjunction with Intermountain?

Yes, it is. At long last. It was a monster project. I think some estimates I've heard was $150 million. And it's been several years, but we're at the end of the rainbow now. And that's exciting for us as well.

Do you think they'll have a beta by the end of this year or --?

I think, and again, I am not qualified and so you can't quote me in terms of being an expert on GE, but my understanding is that they'll be in production by the end of the year and that's exciting. I actually didn't realize that. But again, I don't want to be quoted on that because I'm not a spokesperson, nor do I have the specific knowledge of the GE contracts.

But they don't include -- they aren't creating their own document management systems? They're going to just --

We are their enterprise choice for Centricity Enterprise.

And the new one coming, whatever name that going to have, I would hope?

The new one is actually an extension of Centricity Enterprise, as I understand it.

Okay. Last question, Standard Register. Where do we stand on that?

We love Standard Register. And I've been embarrassed to say, I've been talking about Standard Register for far too long. There were some challenges. I've been very candid about those challenges. We are jazzed and they are jazzed, and we are out there. You know we disclosed a very large seven-figure transaction with them. Now their sales force is tuned.

Again, just to briefly recap, we are now selling Standard Register's forms technology -- forms on demand technology, embedded into our solutions where required. That makes Standard Register very happy and we're doing a good job of that. Those -- when we announce deals, you'll hear e-forms and when you hear that, understand that is Standard Register technology under the hood.

What's exciting to me and where Scott Boyden is jazzed as well is that we're getting them up to speed on remarketing on their paper our standalone workflow. You're going to say what took, so long. Well, we had some fits stops and starts. But frankly, we wanted to have them sell our new architecture as opposed to our old architecture.

And so, we called a timeout so that Gary Winzenread and his team could move the workflows over to the new architecture for lots of reasons, including supportability and cost, because when you sell to departments, you really need to be efficient in terms of the configuration.

I'm happy to say that referral order workflow is the first product out on the new architecture, so it's ready to go and we're putting together -- Scott is working very hard to put together the marketing collateral and get them up and out there hitting the streets with that new solution. Shortly behind that would be preoperative workflow, once it goes [GEA].

And then after that there'll be other standalone workflows. So we're finally, finally, finally at a position where Standard Register is going to pay us some dividends this year. I wanted to make sure that everyone understands modest returns this year, but we're off and running.

Right. I actually had one --

And, Brian, the only the other thing --

Go ahead, Scott.

-- that I would add to that is that we met with their senior leadership team while at HIMSS and I think the other difference is that both organizations now have anted up resources in order to put these plans together and help each other be successful. And I expect that there will be pretty significant improvements in terms of both sides helping to sell each other's solutions.

Here's my real last question. Regarding sales and marketing, are you guys happy with the balance that you have -- direct sales force and the sales force through the remarketing partners?

Scott, I'll hand that hot potato over to you.

I'm sorry, please restate your question.

Are you happy with the balance in your sales and marketing staff? The direct sales force was cut by 50% last quarter and the partners -- let's just call it a spotty year at best. Are you happy with the current balance, or do you think you're going to hire more direct sales guys?

So to answer your question, in terms of the channel I -- and I think we've -- you've seen the results of our focus and alignment around the channel. So, I'm very happy with that in terms of what we have done together with Telus. I think we're right on the cusp with Standard Register. And there may be a few select others that we may choose to add, but I think that's moving in the right direction and we've got total alignment to exploit that.

In terms of direct, we did reconfigure our client sales organization. We basically added an FTE and brought in some new talent. So, I don't think that team has ever been stronger.

What's an FTE?

Full time equivalent, or a body -- a resource. That's a healthcare term. We tend to use those same terms.

Sorry about that. We basically have added to support our customer growth. And then in terms of what I view as new system sales, we've recently added a very talented individual who joined our team roughly about six weeks ago and has already had an impact. And we will be diligent about adding others. So I do expect to add others progressively as we move throughout the year and we are in recruitment mode. So you, hopefully, will see the benefit of that and we will as well.

Did you hint at new partners?

Pardon me?

Did you hint at a possibility of new partnerships?

We're always evaluating partnerships. I think the ones that we have are very strong. And I think with our alignment and focus we expect to do more with what we currently have, but we're always evaluating.

Okay, that's it for me. Thank you.

(Operator Instructions)

Thank you. There are no further questions at this time. and I will turn the call over to Mr. Brian Patsy for closing remarks. Go ahead, sir.

Thank you, Operator. And again, I'm grateful for your participation and interest in the Company. Stay tuned for what, we think, will be a very exciting year.

This does conclude today's conference call. You may now disconnect. Speakers, please remain on the line.