Streamline Health Solutions Inc (STRM) 2015 Q4 法說會逐字稿

Good day and welcome to the Streamline Health reports fourth-quarter and fiscal year 2015 financial performance conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Salisbury, Chief Marketing Officer. Please go ahead.

Thank you for joining us to review the financial results of Streamline Health Solutions for the fourth quarter and fiscal year end 2015 which ended January 31, 2016.

As the conference call operator indicated, my name is Randy Salisbury. 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 David Sides, President and Chief Executive Officer, and Nick Meeks, Senior Vice President and Chief Financial Officer.

At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it from the Company's website at Streamlinehealth.net or at numerous financial websites.

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 fact 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, functions and other factors that could cause actual results to differ materially from those reflected in the forward-looking statements contained herein.

Please refer to the Company's press releases and filings made with the US Securities and Exchange Commission including our most recent Form 10-K reports for more information about these risks, uncertainties, 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 such 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.

That said; let me turn the call over to David Sides, President and Chief Executive Officer. David?

Thank you, Randy, and good afternoon, everyone. Today I want to comment on our fourth-quarter and year-end performance after which I will share some of our thoughts and plans for fiscal year 2016.

As released earlier today for the fourth quarter of fiscal 2015, we generated revenues of approximately $6.4 million, a decline of approximately 3.4% from the same quarter a year ago. Recurring revenues were 89%, total revenue for the fourth quarter. For the fiscal year 2015, we generated $28.3 million in revenue which is approximately 2.4% below our revenue target of $29 million for the year.

Half of the revenue shortfall was due to negative foreign currency exchange from our Canadian client. The other half of the revenue miss stemmed from an anticipated modest size perpetual license deal getting delayed and is expected later this year.

Turning our attention now to professional services, revenues were approximately $580,000 in the fourth quarter and approximately $2.2 million for the fiscal year. Last quarter we anticipated that adjusted EBITDA would be closer to breakeven due to the timing of certain expenses such as audit costs.

I am pleased to report that we generated approximately $500,000 of EBITDA in Q4 bringing the total amount of adjusted EBITDA for the fiscal year to $2.8 million. The primary contributor was in fact more reasonable audit costs in the quarter. Clearly we have exceeded the estimated range of adjusted EBITDA for fiscal 2015, originally projected to be $1 million to $1.5 million which we raised $2.3 million during our Q3 earnings call.

I believe that in fiscal year 2015, we made great progress primarily inside our Company especially in critical areas such as balance sheet improvement and operational efficiency. Reducing operating costs, generating incremental cash flow, reducing our level of bank debt, changing audit firms put us on a stronger financial footing for the future.

A comparison of our year-end metrics from 2014 to 2015 clearly makes this point. In fiscal year 2015, we increased our cash on hand by $3.4 million growing from $6.5 million at the end of 2014, nearly $10 million at the end of this past year. We reduced our term loans by nearly $1.5 million from $10 million to $8.5 million.

Additionally, cash from operations improved $8.9 million from a negative $3 million in fiscal year 2014 to $5.9 million at the end of 2015. As previously mentioned, adjusted EBITDA increased to nearly $2.8 million from a negative $1 million in 2014, a $3.8 million improvement. Importantly, we achieved this improved bottom-line financial performance while growing revenues by a modest 2.5%.

Finally, we successfully changed audit firms from KPMG to RSM formerly known as McGladrey. While we had no fundamental disagreements with KPMG, they were clearly too large for us and we were likely too small of a client for them. Going forward we believe this change should result in annual audit fees at a quarter of the previous expense.

I stated last quarter that the continuing improvement in our balance sheet and specifically our improving cash position will enable us to execute on a couple of key initiatives we believe will help us return to meaningful revenue growth.

First, we can invest more in sales and marketing and we are doing just that. Two weeks ago we announced the creation of a new role inside our Company, Chief Growth Officer, and have brought on Mr. Shaun Priest to lead our go-forward selling efforts both with existing and as importantly with new clients. I have asked Shaun to join us on the call today and he will be available for questions during the Q&A session following our prepared remarks.

Earlier this year we hired Hal Walsh as Vice President for our Reseller Channel. Hal brings sales leadership, dedicated to this important bookings and revenue channel, a first for our Company. We anticipate that Hal will make a major contribution this fiscal year.

Second, with the material improvement in our balance sheet, we are in a position to once again consider potential acquisitions in future quarters as we look to augment our offering and to add inorganic revenue into our go-forward growth strategy. While there is nothing imminent at this writing, we are looking at all appropriate opportunities to expand the role we play with current and future clients, be that incremental technologies or services.

Before I turn the call over to Nick, I want to comment on our fourth-quarter bookings. I stated last quarter that our bookings performance has been an area that has not met our expectations. It is the key reason why we made a change in our sales leadership and brought in Shaun as Senior Vice President and Chief Growth Officer. I fully expect Shaun to make major contributions from resources, structure inside our sales organization that will positively impact our sales going forward.

That said, I believe we will begin to see the fruits of Shaun's efforts in the second half of our fiscal year, as he puts his imprint on all of our selling efforts.

In the meantime although bookings improved to $2 million in Q4 of 2015 from $1.1 million in the previous quarter, given the improvement in our internal operations, I will be able to focus more of my time and energy working directly with Shaun to accelerate our bookings growth. I believe that together we can make a material difference by the second half of this fiscal year.

I continue to believe that by employing a multi-tiered sales approach, with account managers working with existing clients, regional vice presidents working on new prospects, a more robust reseller channel working with quality partners reselling various Looking Glass solutions to their clients and key strategic partners such as Optum360 filling gaps in their product offerings with our Looking Glass solutions, we will be able to improve our quarterly bookings performance quarter over quarter as each of these four different layers of selling gain traction in the marketplace.

I will now turn the call over to Nick Meeks, our CFO, for additional insight into our quarterly and fiscal year-end performance. Nick?

Thanks, David, and good afternoon, everyone. Let me start today by thanking our new audit firm, RSM, and my own team for affecting a smooth transition to complete this year's audit and filing. The collective effort of all involved allowed us to file nearly two weeks earlier than the statutory deadline despite the change in audit.

Shifting now to the results for the fiscal fourth quarter and the 2015 fiscal year, David has already covered revenue and adjusted EBITDA. I would only add to his comments that there were no material adjustments made to EBITDA beyond stock-based compensation expense and the non-cash impact of revaluing our warrant liability.

From an income statement perspective, I will highlight as I have throughout the year, that expenses ran uniformly below prior-year levels as we experienced the benefit of consolidated savings effort throughout the organization.

Controlling for the one-time intangible asset impairment in fiscal year 2014, operating expenses decreased by more than $5 million year-over-year. On the balance sheet, we finished the year with an increase of $3.4 million in cash. That increase decomposes to $2.5 million in cash profitability coupled with $3.4 million of improvement in net working capital driven not least by strong collection. Those positives being partially offset by approximately $0.5 million in capital expenditure and a net $2 million use of cash in paying down our senior term loan and capital lease balance.

Total liabilities decreased by $4 million throughout the fiscal year driven largely by a $1.5 million reduction in the outstanding balance of our term loan with Wells Fargo. That banking relationship remains strong and positive and we continue to maintain an additional $5 million undrawn revolver.

Given the current strength of our relationship with Wells Fargo along with the dramatic improvement in balance sheet liquidity, should we pursue inorganic expansion in the coming fiscal year I am comfortable we can do so through a combination of cash and debt without deploying additional equity.

Lastly, with respect to future visibility, the revenue backlog at quarter end was $67.1 million materially unchanged from the end of last quarter.

That concludes my remarks and I will now turn the call back to David.

Thanks, Nick. As I mentioned at the outset of my prepared remarks, I want to spend a few minutes looking ahead to our fiscal year 2016. For the coming year, I have established three strategic objectives for our Company.

First, I want us to be more client centric. I believe we can continue to improve engagement with our clients, ensure that we are meeting their operational goals, that we are aligned with our strategy to reinforce client partnership.

I believe that with improved relationships comes the opportunity to expand our business with both current and prospective clients. With this in mind, I have implemented a new client relationship management program inside our Company establishing new multiple levels of relationship between our team and our client's team.

Our account managers are now responsible for all revenue activities inside our existing clients, while our Regional Vice Presidents of Sales are responsible for targeting and attaining new clients. This new approach enables greater focus to support growth both within and beyond our current client base.

Clearly greater client centricity will help us with our second strategic objective which is greater sales growth. As stated, we will invest in sales and marketing, expand our market presence through direct and indirect sales resources. As mentioned earlier, with the great improvement in our balance sheet, we will be able to execute on a couple of key initiatives we believe will help us return to meaningful revenue growth.

First, we will invest more in sales and marketing. Already we have implemented a needed change in our sales leadership, the hiring of a well recognized and highly regarded national sales leader, Shaun Priest.

We have challenged him to re-architect our sales approach, enhance our presence through better direct sales and better management of indirect sales through partnerships.

We have added an experienced channel manager in Hal Walsh and inspect what we expect from our growing number of channel partners. We will continue to grow our Company employed salesforce throughout the year under Shaun's leadership.

Our third strategic objective for 2016 is to improve our innovation. We have great solutions not the least of which is our Looking Glass enterprise scheduling resource management software which earlier this year won best in class again for a record 13 consecutive years. The class awards are in effect our Industry's JD Power award, measuring quality and client satisfaction.

I have challenged our team to rebalance our design and development efforts from what has been primarily a stability driven emphasis to one that is more focused on innovation in order to meet future client needs and drive greater quality in a value-based world. Improvements to our Looking Glass clinical analytics user interface and those of our CDI and Business Analytics Solutions will aid in solution functionality while also improving the user experience.

Completing software links among our solution will further enhance the user experience and enable us to demonstrate greater value to current and prospective clients. Linking our clinical and financial data together will enable our users to expedite their revolution from volume to value and protect more of the revenue they generate while improving their level of care.

Regarding guidance for fiscal year 2016, given my preference for conservative estimates, we anticipate generating at least $29 million in revenue and at least $3.6 million in adjusted EBITDA. That said, as I take a longer-term view of the business, I am firmly convinced that we will return to double-digit revenue growth in fiscal year 2017 and that our adjusted EBITDA will be 15% or higher.

Last year I wrote that I believe the Company's vision and long-term strategic plan to provide a full suite of data driven solutions for large complex healthcare providers throughout North America is well conceived and right for the market today. I believe that it is more true today than just a year ago. I wanted to refine our brand messaging to be more direct and more easily understood.

Given the incredible transition that is taking place in the US healthcare system today, our new tagline, Quality is The New Revenue, communicates our brand promise more clearly and helps us position Streamline Health more competitively in the market.

Our Looking Glass platform delivers enterprise solutions for revenue cycle optimization, plain and simple. CFOs, Directors of Revenue Cycle Management, HIM Directors, all understand the need to deliver higher-quality care to their patients as the best means of generating greater revenue. Our integrated solutions and analytics enable healthcare providers to drive quality in this new value-based world.

Today, we have approximately 90 clients representing more than 800 facilities throughout North America. We create and manage on their behalf over 135 million patient records representing more than 12 million patient visits per year and $13 billion in coded charges.

Our clients cover more than 24 million patient lives. We have scheduled more than one million appointments per year for them and we believe our Looking Glass Solutions are needed now more than ever.

As always, I want to thank our Streamline Health Associates for their continued hard work and dedication to our clients, to our shareholders and to each other. I remain excited about our prospects and proud to lead such a quality team of professionals dedicated to providing enterprise solutions and revenue cycle optimization.

I will now turn the call over to the operator for a Q&A session. Operator?

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

Good afternoon, gentlemen. Thanks for taking the questions. A few for me. First, a little bit of an uptick in the bookings in the quarter but obviously it is good to hear that you're going to be making these investments on the sales and marketing front. But why flat for the year? I mean is there any more attrition that you are seeing this year, some of the old legacy clients falling off or why wouldn't you anticipate growth this year?

First, let me apologize for the delay in getting the release out, Matt, and everyone else on the call, that wasn't on purpose. We had some hiccup with PR Newswire. So I just wanted to assure you it wasn't with the auditors there. I know you didn't get much time to look at it ahead of time.

The reason for flat is really kind of goes back to sales bookings of last year, a little bit if you go back two years some of our larger bookings with Nant and Optum, we said those would be back-end loaded and those didn't get to the resellers or to the number of clients we thought they would sell in the case of Nant or to the project place we thought we would be this year with the Optum Dignity project. We thought we would have more deployed by now and so those have been a little slow. And then this year I just think we just need to be conservative since we didn't meet our expectations last year. There could be an uptick there but we thought we would be better off having modest 3% growth and upticking from there if we do better on bookings this year which we expect we will do and next quarter looks especially good. If that flows through, we will have an uptick but we don't want to get ahead of ourselves.

all right, fair enough. I guess speaking to the partners and maybe a status update on how things are going. Obviously Nant and more specifically Optum are a couple of your keys but you've got at several others. If you could provide an update on how things are going with your channel partners, that would be helpful.

Yes, overall really well. So we are in active discussions with all of them. With Nant the pipeline looks good so we are pleased with that. It just hasn't closed, we thought we would close a little bit more there but they've got some really good clients in that group.

Optum, we are in discussions with them about expanding that relationship perhaps over time. With (inaudible) [NPA], we didn't expect anything from those relationships yet, we just announced them last quarter but they look like they are going to do well this year and then we've got another one that we are working on that we think will get announced in the next month or so that we have talked about a large healthcare IT supplier that will be a really good channel for us to have an immediate need for some clients. And we have good integration with them already so we are excited about that one. And you will see that one released sometime here in the next month.

That is great. Maybe a quick question for Shaun since he is on. I know you've only been on here for a couple of weeks, I am imagining that you have had a chance to at least kick the tires with your sales force and more importantly have some discussions with some of your larger clients maybe even going into meet some of them. Through those discussions, what are some of the key takeaways that you see, maybe opportunities either to grow the business or areas to strengthen via additions I guess as you look at the sales team today? Any color there would be helpful as well.

So obviously it is early days but I am very enthusiastic in the space in regards to revenue cycle and Quality is The New Revenue. And I have gone through and met with each members of the team. I have been fortunate to meet with a couple of our clients and I would think in regards to the strategies so we can increase sales in 2016 and 2017 is around focus so taking the strategy of the different partners and strategic partners and the client sales team and then the new business sales team, focus them around specific solutions on a revenue cycle side.

So just a couple of weeks in but I am very enthusiastic where we are and opportunities to grow in the second half of this year.

Okay, great. Maybe one more and then I will hop back into queue. Looking at the calendar here, you've got a week left for your first quarter plus you are earlier than a lot of your peers. I'm just curious what you are seeing in the broader market from I guess health of the customers standpoint, spending patterns, Q3 of last year was weak for the broader market, Q4 we didn't really get much of an uptick. What are you seeing now here in the first calendar quarter?

So I think again at the high level, we have got a lot of activity in the pipeline and again this is more for my previous experience, calendar Q1 has been weaker has been my experience. But I think in regards to the pipeline and moving opportunities along in the space I do see the market moving and part of my enthusiasm or transition to Streamline is the revenue cycle business.

Okay, great. Thank you.

Charles Rhyee, Cowen & Company.

Thanks, guys. I apologize. I had to hop off for a second if I missed it but David, so if I heard earlier part of the revenue miss was a SaaS client that there was like a delay but this should get ramped up -- is it this quarter or the next quarter?

No, we missed a perpetual license deal last quarter that we are working through now. But that was the miss and a little bit of foreign exchange that we had from our Canadian clients unfortunately.

So the perpetual license miss, it just to get closed and so we are not ramping it up, didn't make the revenue. But can you talk about what was sort of behind that and I apologize if I missed it.

It was just a miss, we didn't get that one closed in the quarter so it was a flush.

Charles, this is Randy. On a perpetual, we recognized the revenue almost immediately so it is not a ramp issue, it is a closing the deal and booking your revenue.

Anything -- because I know in the past like once in a while we will have these misses and it is kind of like it is either the priorities that the client has kind of pushed you a little bit aside. Is it anything like that or is this just getting something signed on paper or something?

This was more again getting it signed on paper, it was with a government contract, a government client so that makes it a little -- well, it makes it many degrees harder to get through their process. And so we are still working through that piece. So it wasn't a normal single hospital kind of client worth a little bit easier, more predictable. But all intentions looked good for that to close. So that's why we thought we would make it. We thought we had plenty of time and runway to get that done and bureaucracy got in our way in the end.

Okay. When we think about to drive better selling efforts going forward to drive the bookings, what are your assumptions in terms of more salespeople to help (multiple speakers) that?

So the first assumption is a better sales leader to be sure we hold the salespeople accountable. So we have talked about it before being sure that account execs have been doing a good job, the channel partners have been hit or miss but we've got a channel manager now that I mentioned in my notes, Hal Walsh, really excited about him joining the team and what he can do with us now that we have signed Channel Partners to have somebody working with them. So that should start to work and then having Shaun work on the whole group but with the RVPs specifically on new client logos, how do we get really good at that and really focused at that. That is where we are going to both improve and add people to that group.

So it will become a larger group than it was before.

And then when do you think we should expect as that kind of gets ramped -- when would you expect to see a flow through, pull through?

We are looking at hiring people, additional people now and we will probably see the flow through in Q3, Q4.

Okay. Okay, that is all I had. Thanks.

Frank Sparacino, First Analysis Group.

Hi, guys. I guess two questions. Maybe first to start is, can you just remind me 2015 what renewal we lost and then when you look at 2016, are there any significant contracts up for renewal?

So when we entered from 2014 to 2015, I think we talked about losing 12% or 13% and we had a goal last year of only losing 4% to 6%. We met our goal last year so this year we are not facing any real headwinds from a client loss perspective. It is more of a -- we need to add new logos so we can then cross sell across the logos.

Good. And then my follow-up is earlier there were some comments around the revenue cycle which obviously is pretty broad in scope. I was hoping as you look at the pipeline and just the conversations with clients, are there specific areas or products you are excited about? It seems like in the coding and CDI space that has been challenging for a variety of different reasons but just curious where you think the momentum in 2016 will be?

I think it circles back to coding more this year now that we are past ICD 10. We are seeing a lot of demand especially around clinical documentation improvement. We have had clients that we have taken live in the last year that we sold last year that are seeing a 4 to 5 time return on their investment with us in improved revenue, so a revenue return on investment which is really compelling because they are working on 2.5% to 5% margins. If we can increase that 1% to 2% just by being accurate in the coding and documentation, that makes a huge difference for our client so we are seeing a lot of interest there in the marketplace today.

Great, thank you, guys.

(Operator Instructions). Bruce Jackson, Lake Street Capital Markets.

Just to get really specific with the sales force, how many reps do you have now and then what are your hiring plans specifically for this year?

So in regards to open positions on the sales team today, we have one on the new business side, we have one on the client sales side and we have one as a cold [caller] and then we actually have an executive assistant as we grow the team. So those are our open positions today. And then we have six folks on the new business side. We have three folks on the client sales side and then as David mentioned, we recently added the partnership and added Hal to the team.

And then in terms of the contract activity for fiscal Q4 and looking at your win/loss ratio with the renewals, how many people stuck with you and then how many people went somewhere else? Just rough percentages.

Q4 I don't know off the top of my head, Bruce. I would say for the entire fiscal year, we had about a 96% renewal rate. There was very little renewal activity in Q4. I know of one multi-year renewable that came up. There may be some evergreens that rolled over but essentially no loss in Q4 proper.

Okay. And with your revenue guidance for next year how much of that is perpetual license, roughly?

About the same as last year, about $2 million . So consistent -- $1.5 million to 2 million.

Okay. Then a little while back, 3M was going through a strategic assessment. There was an announcement in February that they have completed that and they are going to run with the business and invest in the business. You were getting some advantages from a distracted competitor. Have you noticed that they are now refocused and have you encountered any renewed level of excitement around 3M?

Not yet. Not so far. So I hope that they are still working through all of that new structure.

Okay. All right, that is it for me.

Matt Hewitt, Craig-Hallum Capital Group.

Thanks. Just one follow-up for me. There has been a fair amount of hospital consolidation that has been ongoing for a couple of years now. As you look at that, have there been or do you anticipate any opportunities where a customer or multiple customers are maybe buying other hospitals and it creates opportunities for you to go in and upsell or cross sell within that existing customer base?

Yes so that is a good spot for us. There is actually a couple of things in the pipeline where larger health systems that have acquired four or five hospitals and we are looking at expanding across that group. So there is some good opportunities there.

Excellent, thank you.

(Operator Instructions). With no further questions at this time, I would like to turn the call back over to Randy Salisbury for any additional or closing remarks.

Thank you again for your interest and support of Streamline Health. If you have any additional questions or need information, please don't hesitate to contact me at randy.salibury@streamlinehealth.net. We look forward to speaking with you all again in early June when we will discuss our first-quarter 2016 financial performance and when we will have our press release out on time. Thank you and have a good day.

That does conclude today's conference. Thank you for your participation. You may now disconnect.