Streamline Health Solutions Inc (STRM) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to today's Streamline Health first-quarter 2016 financial performance conference call. Today's conference is being recorded and at this time, I would like to turn the conference over to Mr. Randy Salisbury, Chief Marketing Officer. Please go ahead, sir.

Thank you for joining us to review the financial results of Streamline Health Solutions for the first quarter of fiscal year 2016, which ended April 30, 2016. As the conference call operator indicated, my name is Randy Salisbury. As Senior Vice President, Chief Marketing Officer here at Streamline Health, I manage all communications, including investor relations.

Joining me on the call today are David Sides, our President and Chief Executive Officer and Nick Meeks, our 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 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 the US Securities and Exchange Commission, including our most recent Form 10-K reports for the 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 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 to David Sides, President and Chief Executive Officer. David?

Thank you, Randy, and good afternoon, everyone. Today, I want to comment on our first-quarter performance by framing against where we were one year ago and where I believe we will be one year from now.

As released earlier today, for the first quarter of fiscal 2016, we generated revenues of approximately $6.7 million, an 8% increase over the same quarter a year ago and nearly 5% ahead of last quarter. Recurring revenues were 86% of total revenue for the first quarter.

Professional services revenues for the first quarter was the best in my tenure to date at $691,000, up from $351,000 in Q1 of 2015 and 19% over Q4.

Turning our attention now to adjusted EBITDA, we generated approximately $600,000 in the first quarter of this year, a dramatic improvement over the negative $1.3 million in Q1 of 2015 and up approximately 20% over Q4. In GAAP terms, our net loss for the first quarter was $1.5 million. As stated on this call one year ago, after just a few months in the role of CEO, that I believe Q1 of 2015 financial results would represent the lowest point in our Company's go-forward path to improved performance.

Looking back over the previous four quarters, Q2 2015 through Q1 2016, you will note that the numbers support our early prediction. Our quarterly revenue, while not where we want it yet, has remained above the $6.2 million mark of Q1 2015. Our adjusted EBITDA has clearly exceeded our own expectations and remains on a positive track.

As importantly, our ratio of cash to debt has improved dramatically over this same period of time. A year ago, we had $10 million in debt and just $5.3 million in cash. At the end of Q1, our bank debt has been reduced to $8.1 million and our cash on hand is $6.5 million.

Due to certain stipulations in our credit agreement with Wells Fargo and our continuing strong bottom-line performance, we actually paid down more debt over the last four quarters than we originally intended. I have asked Nick Meeks to comment on this subject in his remarks later in the call.

So as stated last quarter, we believe that, as a company, we are on a much stronger financial footing. Our biggest area of opportunity remains sales and more specifically our quarterly bookings performance. We have already exceeded our first-quarter 2016 bookings of $500,000 just five weeks into our second quarter and our active pipeline to close deals over the remaining seven weeks of this quarter is substantial.

I believe we are making progress in our sales efforts and here is why. First, our increased investment in sales and marketing, an area of lead generation, is having a positive effect on the number of solution demonstrations we have conducted over the previous two quarters, meaning Q4 of 2015 and Q1 of this year. We have seen a substantial increase in demos of our CDI, coding and computer-assisted coding solutions and meaningful increase in demos for our financial management solutions as compared to our demo activities in quarters two and three of last year.

This increase in activity stems from a number of sources -- our RVPs of Sales working in their respective territories, our investment in additional lead generation resources to schedule meetings with C-level executives that are prequalified as being interested in our solutions, as well as from our investment in inside sales personnel. Inside sales function has proven to be so effective that we are hiring two more people in this role.

Second, we reorganized the sales team under the leadership of Shaun Priest, our new Senior Vice President and Chief Growth Officer. After being onboard for just 60 days, we are appreciating the energy, effort and focus that he brings to this important role. We are focusing our sales around our Company's strengths primarily in the area of revenue cycle management and analytics.

Given the broad transition that is taking place in the US healthcare industry today, the fact that our Looking Glass platform delivers enterprise solutions for revenue cycle optimization is, we believe, the right message for CFOs, directors of revenue cycle management and HIM directors throughout the country and Canada.

The primary buyers of our solutions 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. Beyond this, our salespeople will focus their efforts on our ECM and patient scheduling solution.

Third, the activity we are seeing in our partnership channel both in terms of perspective new clients through existing reseller partners, as well as through the number and quality of strategic conversations we are having with high-profile perspective new channel partners has convinced us that there is great opportunity for future bookings and revenue growth here. So much so that we are looking to add additional resources to Hal Walsh's team. I mentioned Hal in our last earnings call as an important addition to our selling efforts in the newly created position of Vice President of our Channel Partners.

We also mentioned last quarter during the Q&A session that we were working on another reseller agreement with a large healthcare IT supplier that would be a really good channel partner for us. We believe that we would be able to publicize the agreement in a month or so. Suffice it to say, we are still working on this channel partner arrangement and believe we are very close to finalizing the legal documents.

Fourth, we have invested substantially in solution development and have brought onboard two new seasoned solution directors and new account executives to help us better leverage the potential that we believe exists to grow with our current clients. To date, we are in conversations to expand our relationship with approximately half a dozen current clients by either adding additional solutions or enabling more of their facilities with the Looking Glass solution they are already using.

Fifth, all of the sales channels I've spoken about over the past year are starting to generate solid pipeline activity in the same quarter. By way of background, I've used the analogy of a wedding cake to visualize how I see the four layers of our total sales efforts.

The relationship with current clients and opportunities for growth are the responsibility of our account executives, which is the first layer of sales. The addition of the new account executive I just mentioned brings to four the number of account executives we have, one for each of our solution suites. Perspective new client deals are the purview of our regional Vice President of Sales in five geographic territories. This is the second layer of sales.

Unlike in the past when our RVPs were tasked with growing current client revenue and also to seek out new client opportunities, this year and going forward, our RVPs focus solely on securing new clients. With this new focus, we are seeing more potential new client relationships in the pipeline. Our plan is to publicly announce these new client agreements as they close as we gain client approval to do so. It has been our experience that some clients will not endorse a supplier or approve the publishing of a press release, but certainly when we can announce a new client, we will.

The third layer of our sales efforts is comprised of our reseller partners. As mentioned earlier, over the past six months, we conducted substantially more solution demonstrations of potential new clients than we did in the previous six months and many of these demos are for or on behalf of one of our reseller partners.

Our experience is that solid solution demonstrations are the first step in signing new clients and we fully expect our solution demonstration activity to continue to increase in support of our many reseller partners.

The top layer of the sales structure or wedding cake is our strategic partner channel. Strategic partners include companies like Optum360 and Net Health. As an aside, certainly want to congratulate Net Health for their successful IPO last week. Currently, Net Health is pursuing two large sized new client opportunities that would include our Looking Glass clinical analytic solution. Our relationship with Optum360 remains very strong and we believe that we will continue to sign one new booking with an Optum360 client every year at a minimum.

As I stated last quarter, we are confident that we will see a solid lift in our bookings performance going forward, but especially in the second half of this year as the investments we are making in sales and marketing take hold. I will now turn the call over to Nick Meeks, our CFO, for additional insight into our first-quarter performance. Nick?

Thanks, David, and good afternoon, everyone. I will begin this quarter by again thanking both my own team and the RSM engagement team for a second smooth quarter of working together. The ease with which we have collectively been able to effect this change has been quite gratifying.

Shifting now to the results for the fiscal first quarter of 2016, David has already covered revenue and adjusted EBITDA. I would add to his comments that there were no material adjustments made to EBITDA beyond stock-based compensation expense. From an income statement perspective, I will highlight that expenses in the areas of services, SaaS and SG&A were all materially below the same period last year.

Through a combination of increased revenue and markedly lower expense, I would also point out that the professional services organization generated positive gross margin for the first time in several years.

For the full 2015 fiscal year, management has suspended the capitalization of software development efforts. This decision was primarily grounded in management's concern that the processes and systems in place to establish and document technical feasibility did not provide an appropriate level of surety.

After a year of standardization and integration of the development resources from the various acquisitions, I am pleased to note that management does now possess the confidence to resume capitalizing our software development expense. This is a decision in keeping with both the long-term historical practices of Streamline Health, as well as our broader industry peer group.

On the balance sheet, we ended the quarter with a decrease of $3.4 million of cash from Q4 of last fiscal year. That decrease decomposes to $503,000 in cash profitability netted against a $2.9 million deployment of cash through net working capital changes, as well as $0.5 million of capital expenditures and a $400,000 use of cash and paying down our senior term loan and capital lease balance.

While I would always prefer to show cash building every quarter, currently, there is a pronounced cyclicality to Streamline's cash cycle. Roughly 50% of our revenue is invoiced through clients annually in advance. Of that half of revenue, roughly half again is invoiced entirely in Q4.

As we have worked as a team to tighten our cash management cycle both in terms of invoicing timeliness and collection, it has only served to exaggerate that cyclicality. In essence, while the management recognition stream is materially constant quarter to quarter, absent any new perpetual license sales, the associated cash is substantially overweighted to Q4 and underweighted to Q1. When historical DSO measures were extended, it served to partially negate this concentration impact, but with improved collection times, the disparity becomes more apparent.

While we also used cash in the same period last year, I would point out that we experienced a roughly $840,000 cash profitability loss in Q1 of last year and while the deployment to working capital was less than this year's fiscal first quarter, it was primarily the result of less effective collection performance in prior quarters. I am confident that the full fiscal year 2016 will reflect meaningful cash generated from operations.

To exacerbate the low level of inbound cash in Q1, it is also a quarter with a concentration of cash outflows related to annual events such as the audit and prepayment of corporate insurance. On net, as we continue to sell more monthly subscriptions relative to maintenance agreements, this volatility in cash flow will diminish.

Lastly and as David previously mentioned, I wanted to note the material subsequent event in early May. There is an excess cash flow suite provision in our credit agreement with Wells Fargo. It calls for a mandatory prepayment based on a function of our total leverage ratio and adjusted cash generation for the year.

Given the incredibly strong cash generation we delivered during fiscal year 2015, the prepayment to Wells Fargo made at the beginning of Q2 was approximately $1.7 million. The future impact of this prepayment will be a reduction in our leverage ratio, which both reduces our interest rate paid and reduces the likely magnitude of future mandatory cash sweeps. With this prepayment, our level of debt at Wells Fargo is now down to $6.6 million.

That concludes my prepared remarks. I will now turn the call back over to David Sides. David?

Thank you, Nick. In my prepared remarks last quarter, I discussed the three strategic objectives we established for our Company for fiscal year 2016. First is to be more client-centric. I mentioned earlier the changes we made in our sales approach moving RVPs to focus solely on new clients and empowering our account executives to own our client relationships. Equally important in my opinion is the investment we have made in solutions development bringing on new seasoned talent with lead innovation in each of our solution suites.

Innovation is the third strategic objective for this year and these two go hand in hand in my opinion. With improved client-centric performance and commitment, and continuing innovation in our solution offerings, we will be in a better position to communicate the many benefits and return on investment we deliver to our existing clients. This more client-centric approach has led to more active conversations with a handful of key accounts about expanding our role with them. I believe we can grow this funnel of opportunities going forward.

Our second strategic objective is sales growth. I think I have covered how we plan to generate more organic revenue growth in my earlier comments. I think it is important to mention that we can also grow revenue via smart acquisitions that augment our solutions and current client mix.

As I mentioned in our last earnings call, with the material improvement in our balance sheet, we are in position to once again consider potential acquisitions. We continue to look at all appropriate opportunities, be it incremental technologies or services and believe we can add accretive tuck-in acquisitions during the course of this fiscal year that would add materially to our revenue picture. We will, of course, provide all the necessary information on any deal should we close one this year.

Regarding guidance for fiscal year 2016, there is no change to our estimates at this time as we continue to anticipate generating at least $29 million in revenue and at least $3.6 million in adjusted EBITDA. That said, as the programs we have detailed in recent earnings calls gain traction, we anticipate being able to raise guidance and will certainly do so in a prudent manner.

That concludes my prepared remarks, but before turning the call over to the operator, 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 am convinced we are on the right path and are about to accelerate our financial performance in a manner and at a pace that will make us all proud. I'm excited about our growing team of professionals dedicated to providing enterprise solutions, revenue cycle optimization. I will now turn the call over to the operator for our Q&A session. Operator?

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

Good afternoon, gentlemen. Thank you for taking our questions. I have a handful of questions here. First, you mentioned that the bookings have already improved here in Q2 versus Q1 and that the pipeline looks good for the remainder of the quarter. How should we be thinking about what the growth will look like sequentially? Should we be anticipating something like a double or are there opportunities to maybe even provide greater bookings growth here in Q2? Thanks.

Matt, this is David. I think we will do at least a double, probably more. It depends on the mix obviously of what comes in, but it will at least be in the millions.

Okay. Secondly, regarding the partnership, it sounds like you are being held up maybe by the legal documents, but could you provide -- you've talked about it being a large healthcare IT vendor. How should we be thinking about that opportunity? Will it be something similar to an Optum where you might see one, maybe two deals a year that could be substantial in size or is this something where you would be selling into their installed base and maybe the opportunities are greater as far as numbers are concerned, but from a financial, from a revenue perspective, maybe they are a little bit smaller? I'm just trying to quantify what this partnership could look like.

I think it will be more into their client base, so the one example, they have some clients who have a legacy application that we would be helping them move forward to our application and they also have their own client base who needs the solution and obviously new deals we could be pulled along, but I think it will be -- from call it two to four deals per year of health systems or single hospitals, so smaller deals than the larger entire outsourcing of some of our strategic partners, but meaningful deals.

It could be at least our average size of $350,000 to $0.5 million booking from each. So the good news there is too there actually is pent-up demand within that base because we have been talking about it for some time and we have demos scheduled with that client base as well. So it is one that we anticipate and we are going to put resource to help move along that could go quickly from signature, to demo, to signature with the other -- with actually their client base. I would expect something by the end of the year from that agreement.

Okay, great. And then shifting gears to your installed base as it sits right now and forgive me, I can't recall if we touched on this last quarter, but I know one of your Midwest health system customers recently acquired another facility. Where does that fit? I would assume that they would be adopting the streamlined platform as well at some point. Is that something we could see here in the second quarter or might it take a little bit longer to get that deal closed?

That is something we could see in the second quarter. Surely, every time our clients grow, we are excited for the opportunity to grow with them. Clients that have been with us for a long time, most of our clients have been with us 10 or 11 years, it is easier to roll out to another facility. They actually often do it themselves with the additional license fee or maintenance revenue. So there are some good opportunities there in each of the next three quarters actually.

Okay, great. One last one from me, this one I think is for Nick probably. You mentioned that the debt, you had that sweep provision with Wells that kicked in here already in the second quarter and that your debt position will be down at the end of the quarter. Where does your cash sit at the moment given that debt paydown?

Certainly, cash is always in flux day to day, Matt, but we are materially close to parity with that right now and I think that will hold true through the quarter.

Great. Thanks and congratulations on the progress you guys are making.

(Operator Instructions). Frank Sparacino, First Analysis.

Just wanted to go back to some of the earlier comments on the areas of product strength. It has been a while I think since we talked about revenue cycle on the financial management product suite and just wanted to get some color there in terms of what is driving that renewed demand, both kind of internally, what you have done from a sales and maybe product perspective and then also externally, just things you see in the marketplace.

Frank, this is David. The financial management has been resurging for us. Last year, we spent the first half of the year working on the stability of the application, shoring up our existing client base and that's in a positive way kept clients with us. So we have seen less attrition there. We added new functionality where you can look across the health organization from inpatient to outpatient and kind of have this corporate rollup view of where is my best opportunity to reduce denials or improve my accounts receivable. Now that I own so many physicians, it may be in a physician practice or a physician group that I own now, not just a department in the hospital and we can look across both. That has gotten some traction in the market, as well as talking with channel partners, we have seen a renewed interest there in the revenue cycle as people look forward and our tools are more relevant there with this new functionality than they have been in the past and that is a resurgent space for us.

On the coding side, we were at ACDIS, which is the Clinical Documentation Improvement Specialist Conference, last week in Atlanta, in our hometown and we were very encouraged with the relevancy of our coding offerings, especially CDI for that conference. It was a dynamic market, we liked our position, there were buyers at that market. So some of the initiatives we have worked on for functionality there to also cover outpatient, which we see as a trend as hospitals purchase more physician groups and have a larger piece of their operating revenue come from outpatient, they are looking at things like the same clinical documentation improvement process on inpatient on outpatient. So from that trend, I think we see encouragement in both of those solutions.

Good, thank you, David. Nick, maybe just on the cash flow side of things, so when you talk about meaningful cash flow generation this year, could you be more specific? I assume we are obviously not going to see anywhere near the strength we saw last year in terms of nearly $6 million?

So certainly last year we were able to capture a nice improvement in working capital, but you can't go back to that well continuously. That said, I would think that overall cash flow should align pretty closely to our adjusted EBITDA guidance at about $3 million for the year.

Good. Thank you, Nick. I will get back in the queue. Thanks.

(Operator Instructions). It looks like we have no additional questions, if we would like to go back to Frank Sparacino for a follow-up.

So on the professional services side of things, just maybe talk about what you think that trend line looks like this year and then also, I know in the past, Nick, you have given a figure in terms of some unrecognized work. I don't recall you talking about that figure, but maybe just comment on those two things.

Sure, Frank, so when we do implementation services for subscription-related agreements, we defer those implementation services over the life of that agreement rather than recognize them as the services are delivered. Obviously, we continue to do that through time, it becomes a building number. Now we have had some SaaS clients around long enough that we are also seeing some fully exit or fully amortized, but right now it is in the neighborhood of $200,000 or so a quarter, which is a nice number.

The rest of it is I think a positive trend line for the year. Will it be quite as high as this? There were some milestone payments that came in in this quarter, but I think this is a neighborhood that we expect to live in and I think the positive contribution from that department should carry forward through the year.

Okay. And maybe, lastly, David, probably best for you, just be curious to get your feedback on -- it seems from a lot of different viewpoints and vendors that selling into hospitals is always challenging, but maybe even more challenging in the current environment that we are in. I would just be curious to get your perspective on the mindset of the conversations that you have had.

Yes, I think it is always challenging because the sales cycle and the size of the organizations are usually large so there is a lot of consensus to be built and more approval, approval processes there than maybe in smaller organizations or more nimble technology organizations if you are selling to them.

Our approach is really to focus on the revenue return on investment, so where we can deliver return on investment or show clients in case studies to other clients of they implemented our technology and here was the outcome, it is even more relevant in a time of reduced margins than before. So we are not trying to sell as much a cash savings, which is difficult in any environment and needed, but a revenue increase or keeping your revenue at a high integrity level so that you don't have any large amount of denials or revenue that you are missing.

So we are really approaching it from a return on investment perspective and have really updated all of our sales decks around that to try to be relevant to clients and get through all of the messages that they see from others so that they say, okay, there's a lot of people coming at me, but this one actually looks reasonable and one that will help me get a good return. So that is really our sales strategy and approach to that market.

Great, thank you, guys.

[Stephen Lobo].

I would like to congratulate you on all of the hard work that you have put in over the last year, but I am disappointed with the stock price, where it is right now and I look at the revenue numbers and again another quarter with a $6 million handle. It seems like you guys are struggling or finding it difficult to break what I call the sound barrier of $29 million or $30 million annual revenues. I would like to know why despite having a quality product (inaudible) Looking Glass (inaudible) at the [Black Book Review], despite all the (inaudible) that you have put over the last year, your revenue [claims] are just -- because appear to be struggling. Could you explain what is the reason for that?

At a high level, we are not getting the sales traction that we would like to see from the product strength. And so you are seeing that not turn into the revenue as much as you like and if you go back to 2014, we had more attrition of clients that we had to sell just to stay even. So this year at a high level, we have not had as much attrition, it is much more reasonable in our historic norms of 4% to 6%. And so as we sell from here, I think you will see a good acceleration of growth, both on the revenue side and the EBITDA side because there is not a lot of incremental cost to get the revenue or deliver that revenue. So from the go-forward, I think you will see, as we sell more, we will raise guidance on the revenue side and EBITDA will raise by a proportionate amount.

And again, (inaudible) down the road, maybe another three quarters down the road, despite all of the efforts that you have put in, the increasing sales team, if the revenue stream doesn't grow, would you be open to being acquired? Would the Board of Directors at least consider because I have seen many cases in the past -- based on my experience, small companies, they just struggle, they struggle to get the revenue beyond a certain level. For me, it looks like the $30 million is like the sound barrier, it's like the mach number and you guys are struggling and in case you fail to get the right growth over the next few quarters, three, four quarters, would you be open to being acquired? At least consider the acquisition of the Company because if you look at the stock price, the stock price was $8 many years -- not several years ago, just two years. Two years ago, it was like $8 or so and it's consistently falling and now it is like $1. Very disappointed for the long-term shareholders.

I congratulate you for the effort that you are putting in your team, David, and I really appreciate that. It was amazing to see you and the team buy so many shares back in January. That was very nice. It gives me confidence that the Company can execute well in the coming quarters, but, yes.

So to answer your first piece, I think we will see growth here in the next three quarters. So the main way to get shareholders growth is growing the Company, growing EBITDA. So I feel like we have a lot of runway there, Stephen. Like I said in my comments, I think we will all be happy with the growth when we are a year from now on this same call.

On the acquisition piece, we are publicly traded, so we are -- I say sometimes kind of flippantly, but we are for sale every day on the public market. We are not totally in control of our acquisition discussions, but obviously the Board has a fiduciary responsibility to consider if those occur. And so we would. We have I think a strong well-functioning Board, but I think the Board and I think that there is more runway to being independent and growing and executing our sales plan to create shareholder value than to look at other alternatives.

Now, of course, if those come up, we would consider them because obviously, like you said, we are large shareholders, each and every one of us and we think about it a lot. So we are totally committed to how do we create good shareholder value here and we think the best way is sales execution, as well as being client-centric, working with our clients closely and if you are good to your clients, they will be good to you and things will work out.

That's actually pleasing to hear, because if you look at the stock, the market cap, the market cap is -- it's $24 million, so one times recurring revenues. For a software company, that is really pathetic. So I'm very pleased to hear what you said.

Thanks.

(Operator Instructions). It looks like we have nothing further from the audience at this time. I would like to turn the floor back to Randy Salisbury for any additional remarks.

Thank you. Thanks, again, for your interest in and support of Streamline Health. If you have any additional questions or need more information, please don't hesitate to contact me at randy.salisbury@streamlinehealth.net. We look forward to speaking with you all again in September when we will discuss our second-quarter 2016 financial performance. Good day.

Once again, ladies and gentlemen, that does conclude today's conference. Thanks for your participation.