Streamline Health Solutions Inc (STRM) 2009 Q2 法說會逐字稿

Hello, and welcome to the Streamline Health Solutions Second Quarter 2009 Financial Results Conference Call. All participants will be in listen-only mode for this event.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the call over to Joe Diaz. Mr. Diaz, please go ahead.

Thanks, Amy, and thank all of you for joining us to review the financial results of Streamline Health Solutions for the second quarter of fiscal year 2009, which ended on July 31, 2009. As the conference call 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 streamlinehealth.net or numerous financial websites 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 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 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 products, the ability of the Company to control costs, availability of products 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, fluctuations in operating results and other risks detailed from time to time in 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 Interim Chief Financial Officer, will summarize our financial results. And then, after Don's remarks, I'll discuss our second quarter results, and then we will open it up to the 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 second quarter of our fiscal year ended July 31, 2009. Revenues for the second quarter of 2009 decreased 16% to $4.1 million, compared to $4.9 million in the second quarter of 2008. The net loss for the quarter was $18,000, or $0.00 per share, compared to a net loss of $429,000, or $0.05 per share, in the second quarter of 2008.

System sales in the second quarter were $441,000 compared with $1.3 million in the second quarter of fiscal 2008. This decrease is due to a system sale of one customer in excess of $1.1 million, which was recorded in the second quarter of fiscal 2008 without a similar such system sale in the most recent fiscal year. While we had a large nearly $1 million new contract signed in this most recent second quarter, it was another hosting contract where the revenues will be recognized over the four-plus-year term of the contract.

The trend and shift by customers towards our hosting service software delivery model and away from our historically predominant purchase licensing model, as previously described in the past few conference calls, continues into fiscal 2009.

Services, maintenance and support revenues for the second quarter totaled $2.8 million, reflecting a 5% increase from the $2.7 million of services, maintenance and support revenues in the second quarter of 2008. Revenue growth was principally driven by approximately 14% improvement, or $115,000 increase, in professional services revenues.

Application services -- application hosting services revenues were $828,000 in the second quarter of fiscal 2009, compared with $907,000 in the second quarter of fiscal 2008. This decrease is primarily attributable to the loss of a large hosting client, as previously discussed in prior conference calls, in July of 2008.

However, it is worth noting that on a sequential basis, we continue to make good progress in replacing this lost revenue, as many of the hosting contracts signed during the past year continue to come online. The hosting revenues for the second quarter of fiscal 2009 are up 20% from the $688,000 recorded in the first quarter of fiscal 2009.

Total operating expenses declined by more than $1.2 million to $4.1 million for the second quarter of 2009, from $5.3 million for the comparable period in 2008. This was primarily a result of company-wide cost reductions initiated in the third quarter of 2008 and increased capitalization of software development costs, due to the current phase of development for our next generation flagship product and related workflows.

As a result of revenue and expense items noted above, our operating loss for the second quarter of fiscal 2009 was $17,000 compared with an operating loss of $427,000 in the second quarter of fiscal 2008. This reflects a significant improvement in operating income of $410,000 over the comparable period last year.

The improvement in operating income for the six months -- for the six-month comparable period is in excess of $1.2 million. Total backlog at the end of the quarter is $23.4 million, representing an increase of 32% over the comparable backlog of a year ago. Growth in the backlog was primarily driven by a large increase in SaaS-based hosting services contracts won throughout 2008.

Our cash at July 31, 2009 was approximately $1.5 million, with $800,000 drawn under the line of credit. Our cash cycles are still very much dependent upon the season -- upon the seasonal patterns of prepaid annual maintenance billings to our clients. We continue to monitor our expenses, cash balances and receivables carefully to ensure they are on plan.

We are currently working with Fifth Third Bank to finalize the documentation for a new improved replacement line of credit. It is expected that this new line of credit agreement will be signed very soon. The latest proposal from the bank is for a two-year term, $2.75 million line on eligible receivables priced on a spread over LIBOR. The covenants are expected to be very similar to our current arrangement. Our current $2 million line expires in August of 2010.

That concludes my review of the numbers for the quarter. Let me now turn the call back to Brian Patsy. Brian?

Thank you, Don. Today I will focus on four topics. First, a brief discussion of three specific marketing programs that are underway. Two, a review of recent sales activities. Three, the achievement of a significant development milestone. And finally, a midyear assessment of our progress in achieving our internal business plan and our goal of sustaining consistent revenue growth and profitability. After my remarks, we'll conduct our question and answer session.

Let me start by discussing three important marketing programs that were launched within the last two months. First, our Blue Ocean program. In our second quarter, we launched a marketing and sales program to specifically target the over 2,100 hospitals that are between 50 and 200 beds that are typically community and critical access hospitals.

We call this initiative our Blue Ocean program because it targets approximately 43% of the market space, it has lower market penetration in the higher end of the healthcare provider market, and it presents us with an opportunity to gain market share and accelerate the growth of our hosting services. We believe that we have a unique opportunity to grow our recurring revenues by promoting the economies of our SaaS-based subscription model and the value creation of our document workflow solutions for that market segment.

The launch of the Blue Ocean program in Q2 included the hiring of experienced and successful sales talent that will focus on the specific needs of the community and critical access hospital market space; the re-pricing of our SaaS-based fees to offer an enterprise-wide solution at an extremely attractive monthly subscription fee; and finally, contracting a noted marketing firm to generate quality leads to generate sales opportunities for the Blue Ocean program.

Our expectation is that we will achieve several additional SaaS-based opportunities this year as a result of the Blue Ocean program, which should lead to additional incremental recurring revenue next year as contracts executed and the new customers go into production.

Our second marketing program and campaigns targets existing Eclipsys users. As a result of our great success of integrating our solutions to the Eclipsys Sunrise Clinical Manager or clinical information system at one of our sites, we have now targeted other Eclipsys users who may not have yet invested in an enterprise document workflow solution. We are showcasing one of our most successful Eclipsys implementations at Sarasota Memorial Hospital, which is also an Eclipsys Sunrise Clinical Manager showcase account.

Even though Eclipsys offers a competing solution, Streamline earned the opportunity to implement our solution at Sarasota Memorial Hospital because of our enterprise document workflow vision and capabilities and our proprietary integration tool that allowed us to tightly integrate with Eclipsys Sunrise Clinical Manager.

The Eclipsys program, which is well underway, included the following. Development of a white paper authored by Sarasota Memorial Hospital, which presents the value and return on investment achieved by their organization; creation of a short video featuring Sarasota's chief information officer, who discusses the document and savings of our solution and the value of the integration to Eclipsys; an email and mailing campaign targeted at existing Eclipsys users; and finally, a seminar which was conducted earlier today by Sarasota Memorial Hospital for interested Eclipsys users. Our expectations are that we will generate several qualified leads from this program.

Our third marketing initiative is our Business Process Management, or BPMS program. This initiative involves a series of webinars promoting our suite of highly successful business process management solutions, including the following new workflows. A Family Medical Leave Act workflow, invoice routing, certification reimbursement, tuition reimbursement, status change and life events, performance compensation workflow, and finally, refunds approvals workflow.

We have successfully installed a number of these workflows at Children's Medical Center of Dallas, and anticipate installing the remaining workflows over the remainder of the year. To quote the project manager at Children's Medical Center, Streamline's BPM workflow solutions were instrumental in driving better productivity and higher accountability in our key business processes.

At this point, I would like to briefly discuss our recent sales activities. This past quarter we closed a significant new hosted workflow sale, Preoperative Workflow, in a very large healthcare organization in the New York metropolitan area. This new contract involves integration to Microsoft's Amalga product, which is a unified health enterprise platform designed to retrieve and display patient information from many sources. We hope to announce this new sale in the very near future.

Also during our second quarter, we received a new order to expand the licensing of our accessANYware solution for a large customer within our installed base. Together, these orders will account for over $1 million in additional revenue over the next five years.

And finally, we will be introducing a new series of compliance workflow solutions targeted at 15 healthcare organizations in managing the government mandated audits, one of which is the Recovery Audit Contractor, or RAC program, for Medicare reimbursement. One of our showcase accounts, Sarasota Memorial Hospital, participated in the US government's trial of the RAC program in Florida and has assisted us in our RAC workflow product development efforts. We expect that our RAC workflow solution will be available within our fourth quarter.

Now I'd like to touch on our product development efforts. We are very proud to say that, on the exact date predicted almost two years ago when we started this journey, we achieved a significant milestone in July with the delivery of our fifth generation architecture and multi-language capabilities to the University of Montreal Health Centers in Canada through our relationship with Telus Health.

The new solution and associated documentation was delivered in the French Canadian language. This is further confirmation that the changes we have made in our product development organization have put us in a position to continue to deliver new features and functions to our markets in a timely and predictable fashion.

I would want to underscore that while the immediate value is important, we are now capable of producing software much more efficiently, which can significantly reduce our time to market for new solutions and be of value for many years to come.

This new software platform, called accessANYware 5.0, represents our fifth generation architecture and is now well into the customer beta testing process. We anticipate going live in the first hospital and clinics at the University of Montreal Health Centers during our fourth quarter, and are still on track for announcing general availability status before the end of our fiscal year. Needless to say, this was a monumental effort that entailed a large portion of our $11 million in R&D investment over the past two years.

As a result of that significant investment in our product line, we can now boast these capabilities; multi-language, multi-time zones, single sign-on across multiple applications and seamless integration with leading clinical systems, an advanced internal workflow engine, built-in instrumentation to help identify problems to greatly accelerate troubleshooting, the capacity to significantly lower our cost structure for hardware and software delivery and support, and finally, our newest version uses a service oriented architecture, or SOA.

SOA is an architectural approach for constructing complex software intensive systems from a set of universally interconnected and interdependent building blocks called services. An SOA-based architecture can provide a competitive advantage for Streamline Health because we can now respond more quickly and cost effectively to changing market conditions.

This type of architecture promotes reuse at the macro level rather than at the micro level. It can also simplify interconnection to and usage of existing information technology assets in a healthcare organization, therefore allowing for important interoperability to existing clinical, billing and administrative information systems.

This new architecture will also allow us to partition our technology platform, such as scanning, indexing, storage retrieval, and workflow components, and potentially generate incremental revenue from new market segments across the broader healthcare sector and possibly even outside of the healthcare sector.

Let me finish my remarks by providing a midyear assessment of our progress toward achieving our internal business plan and our goal of sustaining consistent revenue growth and profitability. Thanks to our shift to a recurring revenue model, we are slightly ahead of our internal plan for revenue for the first half of the year. We are also well ahead of our internal plan for profitability and $1.2 million ahead of last year's first half operating performance. Accordingly, we are pleased with our first half results.

As Don mentioned earlier, this is due to the efficiencies we implemented the second half of last year and the SaaS-based contracts secured over the last year that are now contributing recurring revenue.

In terms of guidance for the remainder of the year, contingent on achieving general availability for accessANYware 5.0 before the end of our fiscal year, we now anticipate revenue in the $18 million range and profitability in the $1.5 million to $2 million range. This assumes no adjustments for capitalized software impairment charges or deferred tax asset valuations, which can be difficult to estimate.

This concludes my formal remarks. I'd like to turn the call over to Joe for the question and answer session. Don Vick will also be available for this quarter's discussion. Joe?

Thanks, Brian. And, Amy, if you would please give queuing instructions for the Q&A session?

Thank you.

(Operator Instructions)

We show no questions at this time. I would like to turn the conference back over to Mr. Patsy for any closing remarks.

Thank you, Amy. We want to thank everyone for their participation today and we look forward to next quarter's earnings call. Joe, do you have any comments?

No. We appreciate everybody taking the time to listen in on the call. And, Amy, perchance are there any other questioners on the queue right now?

(Operator Instructions)

And I show no questions at this time.

Well, then, I want to thank everybody for participating. And as Brian indicated, we look forward to talking with you again at the conclusion of the current quarter. Thank you for your time. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.