Streamline Health Solutions Inc (STRM) 2013 Q4 法說會逐字稿

Good day and welcome to the Q4 2013 earnings and fiscal year conference call hosted by Streamline Health. Today's call is being recorded.

At this time I would like to go ahead and turn the conference over to Randy Salisbury, Senior Vice President. Please go ahead, sir.

Thank you, and thank you for joining us to review the financial results of Streamline Health Solutions for the fourth-quarter fiscal 2013, which ended January 31 of this year and for the fiscal year ended the same day. As the conference call operator indicated my name is Randy Salisbury and as Senior Vice President and Chief Marketing Officer here at Streamline Health, I manage all communications including Investor Relations.

Joining me on the call today are Bob Watson, our President and Chief Executive Officer, and Nick Meeks, our Senior Vice President and Chief Financial Officer. At the conclusion of this morning'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 text copy of the release you can retrieve it from the Company's website at streamlinehealth.net, or from numerous financial websites.

Per usual 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 within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein.

Please refer to the Company's press releases and filings made with U.S. Securities and Exchange Commission including our most recent Form 10-K reports for more information about these risks, uncertainties and assumptions and other factors. Participants on this call are cautioned not to place undue reliance on these forward-looking statements that reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements.

On this call the Company will discuss non-GAAP financial measures, such as adjusted EBITDA. Please refer to our website at streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures.

Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. These non-GAAP measures do not include certain items of income and expense that affect operations and other companies may calculate these non-GAAP measures differently.

With that said let me turn the call over this morning to Bob Watson, our President and Chief Executive Officer. Bob?

Thank you, Randy, and good morning to all of you participating on today's call. First, please accept my apologies for the delay in reporting our 2013 fiscal yearend and fourth quarter.

Early in fiscal year 2013 we made the decision that a switch to a major bracket audit firm was the correct decision for this Company as we looked at our strategic and operational plan for the next five years. During 2013 we also hit market capitalization levels that required us to provide an audit of our internal controls pursuant to Sarbanes-Oxley, or SOX.

The convergence of those two events coupled with a change in our finance organization personnel created a perfect storm, if you will, that contributed to the filing delay. The good news is that the actual audit resulted in relatively minor changes to the financials initially provided to the audit team. The bad news is that it took longer and consumed much more human and economic capital than it should have.

But with it passed us and a pathway for improvement of our internal controls in front of us, we remain as confident today on our future as we did 3.5 years ago when we began to form our strategy and build our team. I will have more commentary on those points in a minute but first let me again express my thanks for your time today and your continued interest in and support of our Company.

Despite the fact that we are nearly five months into our current fiscal year I do want to take a few minutes to look back on 2013. The year itself was another year of significant transformation for this Company. We continued to make great progress in changing this Company from a single solution perpetual license-based revenue model company, to a robust platform of software as a service based solutions.

This platform is designed to help our clients reduce exposure to risk, enhance their clinical, financial and operational performance and improve patient care. I have said this before and will likely remind everyone of this again, this is a marathon exercise in corporate transformation. This is simply not a sprint.

There was a tremendous amount of work done in 2013 to position us for the years ahead of us both in terms of human capital and the development of our solutions offerings. That said, in 2013 revenue grew 20% over the prior year to $28.5 million, 76% of which was recurring revenue including 27% from software as a service revenues and 49% from revenues related to long-term maintenance agreements.

Gross margins improved from 51.2% to 53.8%. By the way this is an area where we have had very material improvements in the last three years. In fact, in fiscal year 2010, the gross margin was only 35.9%.

Bookings increased 14% to $21.4 million. Again this is an area where we have seen steady improvement for the last three years but admittedly an area that was sub-optimal to our internal plan for 2013.

Backlog increased 11% to $56.6 million, of which $21.1 million is SaaS-based revenue. Again, good, steady forward progress.

Our solution suite was enhanced to include patient engagement via the Unibased Systems Architecture acquisition at the end of the fiscal year and patient care via the license transaction with Montefiore Medical Center. This solution in particular was an area of significant R&D investment in 2013 and will likely continue into fiscal year 2014. We will touch more broadly on this topic as the call progresses.

In an attempt to level the playing field, let me remind everyone that in April 2013 we began to implement a very comprehensive and aggressive five-year business plan that contained four strategic objectives. We believed then as we do now that these four strategic objectives will be the primary drivers of our growth over the long term. These objectives were developed by listening to and partnering with our clients to understand where those clients had gaps in, or an opportunity for improvement in, their existing information technology investments.

This review of their IT investments is primarily driven by their need to better navigate the increasingly complex convergence of clinical and financial data within their enterprises. These are strategic decisions that our clients are critical their ability to make better clinical, financial and operational decisions.

That said I'm very pleased to note that we have made major progress in year one of our five-year plan in each of the four key objectives set forth in the plan last April. By any measure we are far ahead of our plan.

It is also worth noting that in April of 2014 our Board revisited that plan and made only minor tweaks to it. We are staying the course.

First, we focused on offering a subscription-based solutions optimization advisory service to help our clients maximize their return on their investments in our solutions. We design these new services in-house, staff them in-house and began to deploy them in the first quarter of 2013.

The investment thesis here was very straightforward. This offering would augment sales by driving cross-sell opportunities as we work more closely with our clients to understand their technology gaps as well as to ensure high rates of client retentions.

Solutions optimization by design would also generate incremental subscription revenues. So far so good on this front.

Our first client signed a solutions optimization agreement in February of last year. Today approximately 25% of our financial analytics client base has subscribed for this offering. As we move into fiscal year 2014 we are expanding this offering into our other solution suites.

Second, as our clients began to look at the need to link clinical decision making and patient outcomes to financial results through analytics we wanted to broaden our suite of solutions to include clinical analytics. As you know in October of last year we announced the exclusive license to commercialize a clinical analytics platform for Montefiore Medical Center Bronx, NY. This capability enables us to offer a meaningful and relevant solution that places us squarely in the population health management trend that is of critical importance to healthcare providers.

Frankly our ability to empower our clients with clinical and financial analytics has never been more important. According to a leading investment bank's research team in a survey of hospitals CEOs in Q4 of 2013, and I quote, we won't see accelerating HCIT spending growth in 2014; however, HCIT vendors with robust analytics capabilities could experience a nice tailwind fueled by population health initiatives. End quote.

We introduced our new Looking Glass clinical analytics solution in February at HIMs which coincided with the release of that solution to our sales team. The early returns, as measured by sales engagement statistics, indicate significant interest not only within our current clients but also with net new sales prospects.

Third, as the payment model changes facing our clients has started to become a reality, they have expressed an interest in how we might assist them as they begin to focus, to shift their focus, to the front end of the patient engagement process. In a world such as we have today where keeping a patient in your enterprise network is critical to better clinical and financial results, that first contact point between a patient and a provider is critical.

Likewise, as the broader payer market shifts to alternative payment models, providers must be more proactive in managing their patient populations both financially and clinically. Financially the provider industry needs to lower their back-office patient financial services expenses on the one hand and on the other hand they need to improve their financial clearance outcomes and point-of-service collection execution before any given patient is admitted. Clinically they need to ensure that the patient gets the right care at the right time by the right provider.

For example, to ensure that an asthmatic diabetic patient preparing for ACL repair surgery is actually prepared for the surgical event clinically that patient might require multiple visits for lab work, radiology work and counseling prior to surgery to A, ensure that the surgery takes place as scheduled; B, the clinical outcome is favorable; and C, the risk of readmission is lowered. To that end in November, as part of our public offering, we announced that we were in negotiations to acquire a company with solutions in both patient scheduling and surgery management.

We negotiated the terms throughout the fourth quarter of the last fiscal year and closed the Unibased Systems Architecture transaction on the first business day of our new fiscal year. The offerings from Unibased have extended our solution suite to enable us to deepen our front-end patient access offerings that are critically important to the issues I just mentioned. These offerings will assist our clients in managing the risk inherent in their accountable care organization relationships as well as addressing the increased payment burden on the patient.

Fourth, it has been well documented in the trade press that healthcare providers are experiencing substantial downward pressure on revenue, which in turn has placed greater importance on cost and spend management. As amazing as this may seem many of the largest healthcare providers in this country struggle with being able to map the direct cost of individual department operations to their revenue.

Our business plan thesis is to buy offering a complete financial analytics solution including financial decision, support and cost management capabilities. We will have a unique and compelling selling proposition.

Again, in November we announced we were in early negotiations to acquire a company with leading software as a service based cost management solutions to help us augment our financial management suite of solutions. Recently we announced that we had executed a definitive purchase agreement to acquire the assets of CentraMed, Inc., a Carlsbad, California-based company with highly regarded cost and spend management solutions. We anticipate this transaction, which is subject to certain closing conditions that have yet to be satisfied, to close in 30 to 45 days.

This acquisition will add an additional 15 clients. And unlike the Unibased transaction, there is no overlap among our current client base.

However, as we look at our financial performance in 2013, it was obviously a challenging year for us as well as for many of our competitors. As we chronicled throughout the year on our earnings calls and at various investors conferences, several factors outside of our control impeded top-line revenue growth.

First, as we discussed on prior calls this year we experienced implementation challenges resulting in delayed revenue recognition. We have a significant amount of committed, orderly, recurring revenue sitting in an unimplemented bucket in our backlog. Nick will provide additional color on this topic in his prepared remarks but it is worth noting that these delays impacted our ability to also recognize certain contractual milestones that would have allowed us to recognize professional services revenues as well as software as a service fees.

In point of fact, our fiscal year 2013 professional service revenue, which is a good measure of implementation progress, was 42% less than our own internal plan for the fiscal year. At 13% of the total revenue for fiscal 2013 we were down from 16% in 2012.

Our internal forecast aside, if we had simply been able to maintain the same relative percentage in 2013 as in 2012, we would have generated over $850,000 in additional top-line revenue in-year, not to mention the financial impact of having additional clients reach go-live status. Bottom line, the delays in implementation materially impacted our top-line revenue.

Delays also negatively impacted our margins given that our human capital spend did not align well to the revenue we recognized. We made a decision mid-year to address the human capital challenges we and our clients faced by relying heavily on third-party consultants beginning in third quarter and throughout the fourth quarter when that spend hit its highest point.

Our thesis, which did not frankly play out in our favor, was to augment not only our team but to take on work that we would have normally layered onto our clients. It was simply an attempt to get our clients to go-live environments so that we could recognize the revenue that sits in our backlog.

That strategy, which we abandoned at the start of this fiscal year, did not result in materially faster go-lives and the cost we incurred was nearly 2 times our plan. We considered it an investment in driving top-line revenue but it simply did not work out in our favor and led to a material drag on adjusted EBITDA in Q4.

Second, the delay in the ICD-10 purchase decisions impacted top-line revenue. Computer-assisted coding solution sales decisions were delayed when the news of the disastrous experience many of the early adopters of computer-assisted coding suffered at the hands of some of our well-known competitors. The bottom line for Streamline Health was that we did not close certain computer-assisted coding sales opportunities as budgeted.

However, we did close two significant computer-assisted coding opportunities in 2013. One of which was closed as a software as a service opportunity rather than a perpetual license sale and therefore negatively and materially impacted near-term revenue.

For the record, we believe that the recently enacted legislation that delayed the ICD-10 transition for at least a full year should be good for vendors like ourselves. We have surveyed our clients and for the most part they are viewing this reprieve as an opportunity to be more thoughtful about how they go about protecting their revenue when the industry finally moves to the ICD-10 codes.

Let me give you an example. One of our clients advised us that they had more than 20 different vendors involved in their ICD-10 transition. This delay gives them the opportunity to rightsize the number of vendors they will use for this project.

Given that we are one of the critical go-forward vendor partners they employ, we believe it will give us an opportunity to work more closely with them to provide the right combination of our solutions to make the transition to ICD-10 successful. In addition, it appears that the delay reduces the near-term human capital resource pressure felt by our clients and should free up resources to be devoted to our implementations at certain client sites. In fact, we announced last month that we had implemented three go-lives in the first quarter of this year, which represents the most go-lives we have had in any one quarter.

And it appears we are on pace to do it again in the second quarter. This should have a positive impact on our revenue recognition as we move through fiscal year 2014.

Finally, fiscal year 2013 top-line revenue was negatively impacted by the transition to software as a service based revenue. As mentioned on previous earnings calls, our sales team was successful at guiding a major new client to this revenue model. Although we know in the long run this revenue model is better for our Company, in the short term revenue was negatively impacted by approximately $1.5 million in 2013.

In summary, the transition of Streamline Health continues. In fiscal year 2013 even in the face of some macro-market headwinds this was an investment year. We invested in additional solutions capabilities and in human capital talent to better position our Company to take advantage of the runway in front of us.

Turning our attention now to the fourth quarter of 2013, we continue to experience some revenue recognition challenges due to the implementation delays that we have discussed today as well as in previous earnings calls.

Clearly this has impacted our financial performance for the period. As I mentioned earlier, Nick will comment on a new metric that we will report, contracted, unimplemented orderly recurring revenue. We believe that this is a good metric to share as a measure of our Company's vitality, especially given the headwinds noted in my previous remarks.

New contract bookings for Q4 were $5.3 million in the quarter, essentially flat compared to Q4 of fiscal year 2012. Bookings plus renewals in the fourth quarter were approximately $6.6 million. For the year bookings were $21.4 million and renewals were $5.9 million.

Our backlog at the quarter end was $56.6 million, up from $51 million in Q4 last year and up from $55 million at the end of the previous quarter. This is an 11% increase over the prior year and a 3% increase over Q3 of this year.

I will now turn the call over to Nick Meeks, our CFO, to review the specifics of our fourth-quarter and fiscal year 2013 financial performance. Nick?

Thank you, Bob. I would like to review some of the more significant aspects of the financial results for the quarter and the fiscal year ended January 31, 2014.

As reported Friday, revenues for fiscal year 2013 increased approximately 20% over fiscal year 2012 of which approximately 76% were recurring comprised of software as a service, maintenance and a limited amount of term licenses. Also as reported our fourth-quarter revenues were down slightly from the same period a year ago primarily due to the implementation delays we have discussed in prior-period fiscal year 2013 calls and today.

As we have previously discussed in this fiscal year we experienced the final runoff of a few client contract terminations announced in 2010. This did create a bit of a headwind for us last year.

I think it's important to note, however, that at the end of the fiscal year we had nearly $0.75 million of unimplemented quarterly recurring revenue sitting in backlog. This was driven by new bookings with a total contract value of approximately $21.4 million for the fiscal year and $5.3 million in the fourth quarter. We believe this metric, unimplemented quarterly recurring revenue, provides added visibility into our overall financial performance as it relates to revenue under contract that is not currently recognizable.

From a future visibility perspective we finished the year with approximately $56.6 million in revenue backlog representing an 11% increase from the end of fiscal year 2012. 37% of the backlog is SaaS-based revenue.

In our earnings release we have included a table reconciling our net loss to the non-GAAP financial measure of adjusted EBITDA. Given the relatively large amount of non-cash charges and expenses not related to core operations, we feel that adjusted EBITDA is a more meaningful measure in understanding our underlying cash-based earnings.

With regard to adjusted EBITDA for both the year and the quarter, as Bob mentioned 2013 was a transformational year. Fueling that transformation were a number of strategic investments to better position our Company for future growth and to lessen the implementation delay challenges.

Specifically during the second half of the fiscal year we engaged a number of consultants in an attempt to bring clients live. But we were unable to reach the desired efficacy from those added resources.

The bottom line is that no matter how many human assets we put on the ground we did not turn the tide of our clients' lack of resources on their end. Consequently beginning at the start of fiscal 2014 we have pulled back on those consulting resources. Despite that reduction in headcount on our end, we have managed to bring now five new clients live so far this fiscal year.

The dominant focus of our professional services organization year to date in 2014 has been the SaaS go-lives. The net impact of this focus on recurring revenue will play out in improved SaaS revenues but modestly lower professional services revenue in the near term.

During the fourth quarter we added 12 development associates with the acquisition of our clinical analytics solutions which added to the R&D expense line. During the fiscal year we made material and focused R&D investments to continue to enhance the value of our total platform to our clients. But for a variety of reasons that work could not be capitalized and directly impacted our adjusted EBITDA.

These expense items in the fourth quarter were a principal driver of negative adjusted EBITDA results in the quarter as those expenditures reached an apex. Entering 2014 we expect continued improvement in the implementation timelines to drive higher top-line revenue numbers while reducing these types of strategic investments.

Transitioning to the balance sheet, I want to spend a moment reviewing our cash position. As reported we generated significant cash from operations during this fiscal year despite approximately $1 million of cash spend related to the year's M&A activities.

We finished the fiscal year with nearly $18 million of cash on the balance sheet including proceeds from the follow-on offering we closed in November of 2013. During the year we deployed $3 million of cash to acquire the exclusive license of our clinical analytics solutions from Montefiore Medical Center. And on net we retired roughly $4.5 million of debt removing the mezzanine term note from our capital structure completely thus lowering our effective interest rate by approximately 200 basis points.

Finally this morning I would like to spend a few moments discussing the delay in releasing this past year's audited financials. First, let me also apologize for the delay in filing and the concomitant uncertainty that visited upon all of our stakeholders.

I would also like to take a moment to thank our entire finance team who labored many hours, nights and weekends to ensure that this untimely interval was as short as possible. Part of the transformation year that Bob mentioned occurred in the finance department here at Streamline. In 2013 our Company changed both our Chief Financial Officer and our audit firm.

In addition we crossed the market capitalization threshold that requires full Sarbanes-Oxley compliance beginning with our 2013 fiscal year. This also triggered, as most of you know, accelerated filing deadlines. These extensive changes were contributors to the filing delay.

The audit itself was very thorough with a focus placed on a number of complex accounting areas including revenue recognition, capitalized software development and stock-based compensation. The preponderance of all revenue was reviewed for the fiscal year 2013 and that resulted in less than a one-tenth of 1% change in the net revenue number originally presented.

Conversely we did alter our calculation methodology with respect to capitalized software development to improve the overall accuracy of that value, resulting in roughly $605,000 adjustment, $511,000 of which were from prior periods. But all of those expense adjustments were run through the fourth-quarter accounting.

We also altered three variables underpinning our stock-based compensation expense leading to an adjustment of approximately $48,000. Given the depth and breadth of this audit, which we welcomed, I am very pleased, as Bob noted earlier, that the final audit results revealed a relatively minor set of adjustments to our financials. Regrettably, this resulted in significant stakeholder anxiety.

On the learning side of this process we realized that we have opportunities to improve our financial controls and improve the methodologies to better document existing financial controls. Going forward we will augment our human capital resources with both technology and additional staff based on the findings of this audit. That better team has now turned its full attention to the first-quarter 10-Q filing, which we will complete as soon as practical.

Clearly, given this delay in completing our fiscal year 2013 audit we will be late in filing our first-quarter results. We plan to issue a press release on this subject per SEC requirements later today.

I have every expectation from the second quarter forward we will return to and remain on a timely filing schedule. That concludes my remarks so I will now turn the call back over to Bob.

Thank you, Nick. Looking ahead for a moment we will continue to focus our development efforts on the solutions we provide to our clients. One of our greatest strengths is the ability to listen to and follow our clients' needs.

Our solutions roadmap is a direct reflection of this invaluable input. We will integrate and cross sell the solutions we offer today. We will continue to listen to our clients to augment those offerings as appropriate in the future.

Given that our first quarter of 2014 has already ended I want to provide some insight on our performance in that quarter at a very high level. I mentioned earlier in this call that in the first quarter we realized three go-lives that will generate recurring revenue beginning primarily in the second quarter of this year. However, as Nick noted, professional services revenue did lag plan for the period.

Also in Q1 the newly acquired solution from Unibased led to a new and significant sale. In addition, we signed several significant long-term renewals in the first quarter. We view these renewals as a positive commentary on our Company's value proposition.

The total of net new sales and renewal agreements in the quarter exceeded $10 million and was heavily weighted to those renewals. As you know, we provide solutions to many of the largest healthcare enterprises in the country in a very very vendor-competitive environment. These are organizations that can choose to do business with anyone and they choose to do business with Streamline Health because our solutions deliver real and demonstrable value and a meaningful return on their investment.

With this in mind we have, as most of you know, repositioned our solutions branding under a single naming convention. At the beginning of this fiscal year we unveiled our new nomenclature at the HIMs trade show in Orlando. All of our solutions are delivered by our Looking Glass platform.

Through the Looking Glass platform we can capture, aggregate and translate all of the disparate data, both structured and unstructured, residing across an enterprise. The untapped intrinsic value of this previously random, siloed and indiscriminate data can be unlocked and leveraged to the advantage of our clients.

By the way, to be successful given the market headwinds our clients face, they must unlock and leverage their own data. With the expansion of our solution suite during the past year we offer specific workflows in four distinct areas of need for healthcare enterprises -- patient engagement, patient care, HIM coding and CDI and financial management. The single Looking Glass brand will make it easier for our clients to see the connection and the relevance of our many solutions and assist our salespeople in their cross-selling efforts.

Finally, today I want to update our previous early guidance on fiscal year 2014 to reflect the Unibased transaction. We expect our top-line revenue to grow to $35 million to $37 million including the assets acquired in the Unibased acquisition. And our adjusted EBITDA to expand to $6 million to $7 million in 2014 representing adjusted EBITDA margin percentage to be in the upper teens to low 20%s.

For the record we will add back the unanticipated costs of our fiscal 2013 audit to adjusted EBITDA as we consider this expense to be the one-time cost of switching. This guidance does not reflect the CentraMed transaction as it has not closed. We will update our forecast when and if that transaction closes.

Please note that this guidance does have some dependency on some license revenue in-year. That said if we have the chance to take a material contract as software as a service, we would make that trade-off as we did in fiscal 2013. When and if that happens we will adjust our forecast accordingly.

Each quarter I remind everyone that this is a process, a transformation. We continue to pursue a measured yet aggressive growth plan and as such there may be bumps along the way. Frankly, 2013 was one of those bumps.

By methodically executing on our strategic plan we believe we will continue to see positive results. Given the work we have done in 2013 to expand and integrate our solutions to better meet the needs of our current and prospective clients, we believe that we are well positioned for continued success.

Likewise, we feel strongly that our human capital investments in the prior year, and in early fiscal 2014, will position us for continued improvements in implementation cycles. As I've said in the past, we will continue to thoughtfully make investments in our future through increased investments in development and infrastructure. Likewise we will focus on the long-term strength and stability of our revenue stream by driving whenever possible our sales contracts to the software as a service model.

We are building this enterprise for the long run. This is not a quarterly sprint but rather a plan of measured, sustainable growth as we continue down the pathway to become the world-class healthcare information technology company I know we can be.

Finally as I have from my first call with you three years ago, I want to thank our entire team of associates for their hard work, dedication to and support of management's strategic plan. I am convinced that the vision we had for this Company three years ago to provide critically important solutions to our clients and net new sales prospects, as they face increasing pressure to improve their overall performance, is timely and accurate.

As always there is much left to do and many opportunities in front of us. We look forward to accomplishing great things in the years ahead.

I will now turn the call over to the operator for our question-and-answer session. Operator?

Thank you. (Operator Instructions). Matt Hewitt, Craig-Hallum, Capital Group.

Good morning, gentlemen. It's good to finally have the K out. I know it's been tough work for you.

We're kind of pleased ourselves, Matt.

I'm going to focus more on the future and 2014 and beyond given that's where we sit today. In the press release, and you commented briefly about it during the prepared remarks, the five go-lives, could you provide a little bit more color on maybe who those customers are, which offerings you are specifically seeing the most interest in getting those implemented? And then maybe a little about what you are seeing here as Q2 plays out?

So, by design we haven't specifically disclosed which clients go-live when. So I will decline to answer the question on who, if you don't mind. As to the mix, the predominant mix of the go-lives were SaaS-based analytics clients that had signed contracts either in 2012 or 2013.

Okay, size? Are they typical deal sizes, or are you seeing maybe an increase, are they bigger health systems? Just trying to quantify those a little bit.

No, these are all clients that signed in prior years and most of them would have been covered in press releases we did about who they were. But they are all pretty much in the ballpark of the standard size as we have been in the past with the platform formerly known as Opportunity AnyWare, now known as our financial management offering.

All right. And then I know that Q1 is traditionally a big renewals period for you. Maybe a little bit of additional color on what your clients or customers are saying about the renewals period. Are they are excited to not only get the contract renewed but when you are engaging them how are those discussions leading to incremental opportunities?

In general it's sort of interesting, a little bit of history here. When we arrived in early 2011, one of the first things we put in place was a plan to renew our clients on three- to five-year agreements. What I am counting when I arrived in 2011 was that most of the contracts were one-year renewals which had you in this perpetual cycle of renewal work and also opened up the opportunity for some competitive challenges.

Having done a pretty good job of that in 2011 we found ourselves in the first quarter now three years later having to renew a bunch of those and frankly that worked out very well in our favor. So not only did we get them locked up again for three to four, or five years but it gave us an opportunity to engage with our clients on the broader Looking Glass platform.

As you know we didn't really release that platform concept to our clients in the market until February. So much of the work our sales organization did January, February, March and April of this year was out inside our current client base retelling the story. And all of which creates potential sales opportunities for us as we look at 2014 and beyond.

Maybe one more from me and then I will hop back in the queue. Could you just remind us as far as CentraMed, it is SaaS, but what was there, or what are their revenues today?

We hadn't disclosed them previously and until that transaction closes we probably won't.

Okay. All right, I will hop back in the queue. Thanks.

Charles Rhyee, Cowen and Company.

Yes, thanks a lot guys. Just wanted to -- just a quick question on the quarter itself. In terms about the third-party professional services this year. It sounds like you need a push here to drive greater implementation and what you are basically saying is that, is it all just a function that clients on the other end they didn't have resources to deploy and therefore it just didn't make a real difference?

And is there any type of a cost that you expensed in the quarter as you -- did you have to incur any additional costs as you exited consulting contracts? Or were those sort of at-will? Thanks.

Fundamentally here is how the decision process played out for us. And like I said in the prepared remarks, it didn't play out in our favor.

Our assumption was that given our clients' shortage of personnel that if we essentially layered more people onto our organization to take on work that they would normally do, that we could accelerate the implementation process. That turned out to be completely wrong. And the reason is that an outside consultant stepping into XYZ health system doesn't have the innate natural knowledge of how that health system's IT infrastructure is organized and, therefore, cannot be that helpful. So that was our plan. It didn't work.

So when we exited the contract, for the most part those contracts allowed us to simply cut them off. There were a couple that had tails on them that ran out in Q1, but for the most part at the start of the fiscal year, we made some fairly significant reductions in our human capital spend.

Okay, so then in terms of that then going forward, should we expect -- you talked about the professional services revenue dipping a bit. Do our costs come down as well? In other words, are we still going to be losing money here at the gross profit line and professional services over the near term, or actually can we start -- if you are saying if it's two times the cost, then we kind of exited that, maybe just show where directionally we should be going on this line.

I think, again, in Q1 I think there will still be some negative margin in the professional services organization. One of the things that happens when we have tasked our professional service organization to focus on getting the SaaS-based clients live, so we create that stable long-term revenue base. In doing so, we sacrifice the opportunity to realize professional services revenue around upgrades where there are percentage of completion contracts or time and materials contracts.

So we have a little bit of disconnect playing out in Q1. But as we move through the latter half of the year, that should normalize back. The goal is, right now, is to get everybody live as quick as we can and then go back to the more traditional professional services work, which has a pretty decent margin in it for us.

Okay. Maybe then looking forward here, Unibased, you talked about one large new contract win. Can you talk about what they were exactly purchasing? Was it the whole suite of the Unibased, or was it anything specific either scheduling or surgery management?

It was scheduling.

Scheduling. I would like to talk about that a little bit because it seems like scheduling is a really big opportunity. And certainly one of your larger competitors' spaces sort of trumpeted their entry into this market, or their attempt to enter this market.

And it looks like from our checks that the opportunity to improve revenues for hospitals is significant here. Can you talk about the experience at Unibased and what you are having here right now? What is the ability to -- how big of an opportunity can you help a hospital system improve revenue?

And then lastly, it seems like you guys delivered really as a software as a service, meaning the hospital then takes it on and operates it themselves. Is that the right model here?

Is this something that can be outsourced, or do you think that this schedule ends up being something intrinsic to a health system? And I will stop there. Thanks.

Okay, so let me answer the last question first and we'll come back to the opportunity. So my current take on the market is that the actual process of the scheduling, the people side of that business is a core hospital-based function. I don't think there is a necessarily, certainly not for us but for others, a near-term opportunity in providing the scheduling as a service itself as opposed to providing software as a service.

One of the reasons I think that plays out is you take for example, take a (inaudible), I won�t use a specific example, take a health system that has made four or five acquisitions in the last two years. Those underlying EMRs are likely not the same EMR system as the core acquiring hospital. As a result if you are in an environment where you are at risk either because of an ACO contract or some other relationship, if an individual has to call in and make multiple scheduling calls to multiple sources, that creates a challenge of keeping that individual in the network.

That's the key thing. So I think putting it in an environment where it is a centralized scheduling where it interfaces to the multiple EMRs where people are aware of the services performed at those multiple sites is an important part of this.

As the opportunity side goes we have been very pleased with the way this opportunity has played out for us. Again, the driver, frankly, is the fact that these organizations are acquiring multiple physicians� practices, multiple ambulatory care centers, other hospitals and they are not on the same EMR.

But you want to be able to make the scheduling event a tied together package so you keep that patient in your system. Likewise that data that is collected in the scheduling process in our world can fire off the clinical analytics platform also has impact on patient care as the result to in terms of regards of clinical documentation improving and other parts of our offering, so the tie -- it ties together pretty well for us. And the receptivity among the client base has been pretty good.

Okay, then just one follow-up on the new client win in Unibased. You said it was for scheduling.

Were they an existing clients of your other solutions? In other words did they look at the value of the scheduling system, being able to -- the data collected there to fire off onto the clinical side? Thanks.

It was a net new sale through one of our distributor partners.

Okay. Great.

It was not one of our current clients.

All right. Thanks a lot, guys.

Richard Close, Avondale Partners.

Yes, thank you for taking the questions this morning. Nick, I was curious if you could go over the G&A spend in the quarter and R&D spend in the quarter. How much of each, or in each of those categories, is one-time in nature and then how we should think about those two line items as we progress into fiscal 2014?

Sure, so as I noted in the remarks, $602,000 of that is specifically related to the R&D, sorry -- is prior periods running through the fourth quarter. So that's a one-time not-coming-back number.

That's in R&D or -- ?

That's in R&D, yes.

And what exactly is that, can you help me out on that?

It was a change in the methodology by which we capitalized software development that resulted in a collection of prior-period changes all of which were run through the fourth quarter.

Okay, so first quarter should drop down by that amount?

I think that is a fair assessment. Now in the fourth quarter we added the staffing, the 12 associates that we hired from Montefiore into the R&D line. That will be a persistent change.

So if you look at less that $600,000, the change from Q3 to Q4, that is the predominant shift upward there. At this stage given the rapidity with which they are releasing software I don't anticipate that we will capitalize much of their development expense. So it will probably live on the income statement.

Okay. And then on the G&A side of things, obviously $4.2 million, I assume that includes a bunch of different stuff. Was there anything that you called out specifically on that front?

I don't know that there is -- (multiple speakers)

Was there like persistent -- is their audit expenses in there at your maybe one-time in nature?

There are some audit expenses in there but the convention is not to accrue them in the year. It is to accrue what you expected them to be and then the balance as incurred. So the primary cost of the overrun is not there.

What is there are a number of transaction expenses both related to the CLG transaction, which closed in October, and the Unibased and CentraMed transactions, Unibased having closed at the beginning of the year has the bulk majority of its expense in Q4. CentraMed has some but not all of its expense.

So is it fair to say that if we look at G&A expense as we head into the first quarter, or head into 2014, that -- obviously, in the first quarter you have all the audit expenses and everything that happened there, probably some additional stuff with CentraMed. But if we look maybe beyond first-quarter 2014, is the G&A we drop down into the $3 million to $3.5 million quarterly run rate on SG&A?

I think that's reasonable. I think excising the nonrecurring items, so if we were to do another transaction that would obviously layer in expense there but I think as a run rate number you are making a fair ballpark there.

Okay. I guess one of my questions would be, with respect to you cut off the use of third-party consultants that you made a decision to go with in the second half of fiscal 2013, what was the real driving factor to really be able to get the implementations up and going and live?

Was it just you guys came to the end of it, you had been working and it just all happened in the first quarter? Or was there something that majorly changed to allow you to go live? I guess for -- in first and second quarter.

One external factor that certainly helped us was the ICD-10 delay rebalanced some hospital prioritizations. I don't know that we will ever be able to overcome the need for hospital resources to get our things active.

So as they moved from panic around ICD-10 to having a longer runway to deal with that, it rebalanced some resources and allowed us to close the gap. So I think our core implementation services team is capable of doing the work necessary to bring our clients live in a very timely fashion.

What we were unable to do is augment the client staff because you need data dollars that exist at reach. That answer your question?

Yes. And the new metric that you guys are giving, can you go over that again? I didn't quite write fast enough, or type fast enough.

Sure. It's unimplemented quarterly recurring revenue. And so it is revenue that has been contracted with a client but is unrecognizable at the moment, almost always because the client is not live on the software.

And the number was?

For the fourth quarter it was $750,000.

Okay. And is there any type of comparisons that you can give us? Is this just a number we're going to get on a go-forward basis on a quarterly basis, or?

Yes. You will get it on a quarterly basis moving forward.

Okay. I guess final question would be for you guys would be just talking about the pipeline of new business. The opportunities that you see there. Are you seeing more deal flow, more RFPs, maybe characterize the opportunities that you have?

Yes, I would say, Richard, this is Bob, that obviously with the addition of the Unibased asset at the start of the fiscal year, there is a change in the mix of the opportunities in pipeline. At the end of Q3 we were at approximately 50% were financial analytics, 30% coding and 20% our HIM content management offering was the mix.

Today analytics in general continues to be in the 50% range in the opportunities. However, scheduling is now probably in the 10% to 15% of the opportunity portfolio and growing rapidly primarily because of some external activities in the scheduling market that has been well publicized lately.

It's creating a significant amount of sales demand for us and sales opportunity demand. We continue to see the coding assets as again having some growth, material growth in the pipeline. I think one of the sales in Q4 that worth note was a sale where we bundled BDI computer-assisted coding and our content management into a single SaaS-based offering for a client. So there is some activity around that sort of mix of solutions, which I frankly think is clearly a positive for us and an interesting trend that was unanticipated.

So, just to follow on that, so today financial analytics is 50%, scheduling 10% to 15%, coding any hazard of a guess in terms of the pipeline? And HMM? And then finally, where does clinical analytics, the Montefiore asset fall in the pipeline as well?

So the 50% that is analytics includes the clinical analytics and the financial analytics bundled in that financial management suite as we refer to it today. So that has the sales opportunities for that particular -- for the Monte -- solution formerly known as the Montefiore solution in that 50% bucket.

Scheduling, let's call scheduling at 15%, that leaves us 35 points to deal with. 20 points of that 35 points is, actually probably closer to 25 is coding related. Then the balance is traditional HIM content management related.

Okay, thank you very much.

Jack Wallace, Sidoti & Company.

Good morning, Bob, Randy and Nick. Thanks for taking my questions here.

On the last call it was mentioned that the implementation specialist team consisted of somewhere between 12 and 14 heads and that there was plans to hire an additional 20%. Can you tell us roughly where you are there and if all of those heads were hired?

Did you mean sales team, Jack?

I thought it was the implementation staff but maybe you guys bundled both the sales and the implementation team together as a (multiple speakers)

The implementation team is much larger than that. The implementation team is much larger than a dozen people, so I think we are probably talking about the combined sales and marketing organization combined. The direct salespeople, the indirect salespeople, the marketing support team, in that 12 to 14 range.

Sure. So talking about that team then, were those heads hired and where are we at now?

Like everybody else in the industry, you always have some turnover in your sales organization because you like to move out the non-performers as quickly as you can. That said, we have been very fortunate on the hiring side in terms of our net new sales team.

We have added several resources, it's either two or three since the start of the fiscal year. And so we are again we continue to add to that team. We expect the number of direct salespeople in terms of pure salespeople to over the course of the year to add four additional salespeople.

Okay, thanks. Then in terms of the backlog, it looks like you did have some pretty solid growth in Q4.

Just wondering maybe you can just expand a little bit on one of the other questions. Better or worse conditions both internally and externally for you to go ahead and convert the backlog into go-live scenarios.

I think early returns nearly 5 months, 4.5 months into the fiscal year, it does feel like there is some loosening of the resources belt, if you will, at the client side. I think our own organizations have matured as well, which will create some improvements in cycle times.

Again early returns are pretty positive. I think we said today in the press release a few weeks ago we noted that we had three go-lives in Q1. I think in the prepared remarks today we noted we had two additional go-lives as we moved into the early part of Q2 though current course and speed we should hopefully add another go-live or two in this quarter and continue down that path.

So we will start taking a bite at that backlog number and obviously it will move around as our sales team sells more things. Backlog goes up as we implement things and the backlog comes down. In general it feels like a much better implementation environment today than it did six months ago.

Great, thanks, that's helpful. Can you talk a little bit about the decision cycle on the clients' end with some of the new accounts potentially be brought on? Does it seem like it's getting a little bit easier now that the ICD-10 has been pushed back about a year?

You almost asked me a question where you could've gotten a Jonathan Bush moment out of me. Look, sales cycles and healthcare are long. They have been, I've been at this for 30 years, they are pretty much the same.

That said, the reprieve on the ICD-10 created an environment where clients could reassess their vendor selections, reassess the strategy they wanted to deploy. We had a fair number of our current clients, for example, in their cycle in 2013 make the decision to go down a dual coding path as opposed to computer-assisted coding. And we will lever up their resources with people in the fall of this year.

Now with the delay for a year they can be more thoughtful about whether or not they actually deploy computer-assisted coding and cut back on the spend on those coders. Cutting back on the spend on the coders frees up dollars to be used in other parts of the organization, hopefully to get some of our projects implemented. So there's a set of events going on that again not an overwhelming perfect storm, if you will, but it feels pretty positive as we move into the year.

And you touched on a fact that hospitals have been able to consider a number of things, strategy, vendors, etc. Outside of your M&A activity, at least from your vantage point, can you just give us the status of the competitive landscape and if you have been able to, and again, outside of your M&A activity, take market share?

In our analytics solutions on the financial side of the analytics, for the most part that is taking share. It is taking share from the obvious cast of characters.

In the coding arena, those tend to be competitive greenfield opportunities. You're not taking share from someone but you are competing. But again the obvious cast of characters that you would expect in a coding situation.

In the content management, HIM space, oddly enough that is for the most part greenfield. Primarily driven by those organizations that selected Epic. And Epic as we know does not have a content management offering and we're are one of the four preferred vendors so it creates a four-horse race competitive environment in those Epic shops.

On the coding side, or excuse me on the scheduling side, it's interesting that what we are seeing is in the commercial sector of our scheduling business our sales opportunities are generally not competitive. In our governmental sales opportunities they obviously are competitive. But in the commercial market the scheduling opportunities for the most part are greenfield opportunities and not a lot of competition I think.

Our biggest competition there is the largest, most difficult competitor in health care which is no decision. And if we look at our opportunities to move through our pipeline where they sit for long periods of time that is really an opportunity where the competition is no decision. And that no decision is either timing, cost, any number of things but that is the biggest competitor.

Great. That will be all for me. Thanks again, guys.

Bruce Jackson, Lake Street Capital Markets.

Good morning. You guys were able to do better with your acquisition valuations than anticipated. You've got some cash.

I was wondering if we could get your current thoughts on the product portfolio? Are there any areas you are looking at? Do you feel like you need to do anymore acquisitions, or do you think you might be focusing just solely on execution for a while?

For the most part I think we are in execution mode. And I will just define execution as not just sales execution but also integration execution.

Integrating these platforms is critical and we highlighted the R&D spend in the call. We will continue to see some of that in that arena.

That said, on the inorganic acquisition side, to the extent that there are opportunities that come our way, we will be opportunistic if it makes sense. We think it makes sense for our clients, we will but primarily we're pretty much heads down.

In answer to your other question, are there gaps in the portfolio? I have said this before that I think there is one particular area that we presently interface with our competitors and should an opportunity arise we would probably look at it, and that is in the area of what is traditionally called contract management. But we're not out there aggressively seeking it at this point.

Okay, great. And then if I could just toss in one question on ICD-10, originally you had the module that would allow your clients to transition over. Now they are looking more at the computer-assisted coding types of products.

Do you have any ballpark numbers on what that conversion rate looks like upselling to the computer-assisted coding? And the revenue bump you might get for moving from the module to the full package?

I can't give you the conversion rate because we're early in that process. That decision to delay was made early in the quarter and it takes health care organizations, even when you are a current vendor like ourselves, some period of time to make a decision.

That said, the number of those opportunities in our, if you look at the percentage of our pipeline that is coding related, a overwhelming majority of that pipeline are current clients reviewing the opportunity to move from a dual coding environment to computer-assisted coding. We haven't talked about price and value for those solution sets in the past and probably won't today but it is, they are very sizable opportunities.

It's very complex implementation. The software itself is incredibly robust and the price points are quite high.

Okay. Great. Thank you very much.

Charles Rhyee, Cowen and Company.

Yes, thanks. I just wanted to follow-up on this metric you guys were talking about, the contracted unimplemented quarterly revenue that was $750,000 in the quarter.

Just to clarify, you are saying that this is revenue that is unimplemented due only to client resources? And my question really is around what defines that for you guys, how do you figure out that something goes from essentially just being backlogged versus this revenue could have been recognized had the client been ready? Thanks.

So the contracted, unimplemented recurring quarterly revenue is in backlog. So when we sign a contract, so for example we sign a contract that is $0.25 million a year in SaaS revenue that and it is a five-year deal, $1.25 million are going to backlog. The quarterly committed quarterly revenue number will jump by one-fourth of $250,000, referring to that number, so the numbers are tied together.

Right, I understand that. Is this metric really only to show sort of what our next 12 months effectively of our backlog really is more than really a reflection of what could've been in revenue? I'm not sure why this value is necessarily more meaningful than just backlog itself, or revenues.

Right. The backlog itself, the challenge in backlog itself, we break out the buckets but what you can't tell from the buckets is what the quarterly impact of that revenue is when it is implemented. So what we are trying to get out there is to say look, there is in this backlog number are X dollars that could have been revenue or should be revenue, could've been revenue in the prior quarter, will be revenue at some point in the future to sort of give you a guide to say look, the sales organization is producing.

We are starting to have better visibility on the revenue number. And we are trying to use it as a gauge to give everyone better visibility into what revenue is in front of us that has already been contracted for that we simply need to get and simply is probably not the best choice of words.

Okay, but it's not a reflection really -- it doesn't say anything to the timing or the pace that you can necessarily implement that. So if we are more successful in implementing we will get it sooner, if we have delays like we have had sometimes in the past they will be later, is that right?

That's correct. You're absolutely right.

Okay, thanks. I just wanted to clarify that. Thanks a lot.

Mark Cahill, Private Investor.

Good morning, gentlemen. Congratulations on getting through a busy year. The acquisitions, CentraMed and Unibased, are you going to consolidate everything into Atlanta?

Not a question that I am prepared to answer today, Mark.

Okay. With respect to Unibased, they have a surgery management business line. Does that make your PreOpWare redundant?

Yes. Fundamentally.

Last question. Regarding the ICD-10 delay issue, the customer, is it still a number one problem for them? Where does it rank in your priority list of -- ?

Let's separate the scale of priorities. I would say in terms of long-term fear of long-term financial stability of a health system, the ICD-10 conversion is at the top of every CFO's mindshare. They are panicked by it.

Does that make it necessarily top of mind for the IT department? Probably not.

So it is that internal battle between revenue side of the house and the technology side of the house inside our clients that creates some of the drag on implementation timelines and other challenges. It's just that natural conflict.

But I can tell you from a fear standpoint it is the single, in my view, it's the single biggest anxiety point for our CFO clients. Our IT clients, the challenge is how do I get enough resources to get Epic implemented, or Allscripts implemented, or whatever.

I think, one other question, with these acquisitions, are you inheriting any other partnerships?

Yes. With the Unibased acquisition we inherited two distribution relationships. And one of them generated a sale in the first quarter of fiscal year 2014.

Great. That's it for me. Thank you.

That concludes today's question-and-answer session. At this time I will go ahead and turn the call back to Mr. Salisbury for any additional closing remarks.

Thank you, operator, and thanks everyone for your interest in and support of Streamline Health. If you have any additional questions or need more information please feel free to contact me at randy.salisbury@streamlinehealth.net or call me directly at 404-229-4242.

We look forward to speaking with you again as soon as possible when we report our first-quarter 2014 earnings. Good day everybody.

And that does conclude today's conference. We thank you for your participation.