Streamline Health Solutions Inc (STRM) 2022 Q2 法說會逐字稿

Hello, and welcome to the Streamline Health Solutions Second Quarter 2022 Earnings Conference Call.

(Operator Instructions)

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jacob Goldberger. Please go ahead, Jacob.

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the second quarter of 2022, which ended July 31, 2022. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Tee Green, President and Chief Executive Officer and Chairman of the Board; Ben Stilwill, President and CEO of eValuator Solutions; Jawad Shaikh, President and CEO of Avelead Solutions; and Tom Gibson, 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 our press release and out these results, you can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites.

Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information, which may be provided today, as with all of our earnings calls, should be viewed. We, therefore, submit for the record following statements: Statements made on 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 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss.

Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K annual report, which is on file with the SEC for more information about these risks, uncertainties and assumptions and other factors. As always, we are presenting management's current analysis of these items as of today. Participants on this call should take into account these risks when evaluating the topics we will discuss.

Please note, Streamline Health is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today. On today's call, we will discuss non-GAAP financial measures such as adjusted EBITDA and unaudited figures related to our acquisition of Avelead. Management uses these measures to help provide better insight into our financial performance. However, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may utilize in calculating their own non-GAAP measures. So if you compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. I would now like to turn the call over to Tee Green, President and Chief Executive Officer.

Thank you, Jacob, and thank you all for joining us this morning. Following my opening remarks, Ben Stilwill, President and CEO of eValuator Solutions and Jawad Shaikh, President and CEO of Avelead Solutions will be giving updates on their respective businesses, followed by a financial update from our CFO, Tom Gibson. As a reminder, on August 16, 2021, we acquired Avelead, and their financial performance will be included in our GAAP results from that date.

With that, I'll get started. Beginning with the financial overview of second quarter 2022, we ended the quarter with $5.2 million in new bookings, $4.4 million of which were SaaS bookings at the upper end of our $3 million to $5 million quarterly SaaS CCV goal. Bookings for the 6 months ended July 31, 2022, totaled $14 million, $12.5 million of which was attributable to our SaaS products.

Our strong bookings performance is the result of the significant investments we made into our sales force, and a testament to the power of our strong partnership channel. Operating conditions within acute care hospital systems have improved from the peak of the COVID crisis last year. However, headwinds associated with staffing and backlog of projects that hospitals remain. Despite the headwinds, we maintain our expectation that our SaaS bookings performance will be, on average, in the $3 million to $5 million per quarter throughout fiscal 2022. Our bookings pace has improved.

However, we believe, in a normalized environment, our bookings' performance would accelerate. Given the pace of our bookings during the first half of this quarter, we wanted to share a new metric to provide additional insight on the growth in our business. As of July 31, our book staff annual contract value total $14.3 million.

As a reminder, our GAAP SaaS revenue in fiscal 2021 was $8.1 million. Our CFO, Tom Gibson, will provide additional detail related to this metric and the timing of revenue associated with our bookings during his portion of today's call. But please note that contracts only impact recognized revenue once the software lives.

Moving now to our GAAP consolidated financial results for the 3 months ended July 31. Total GAAP revenue for the second quarter of 2022 was $6 million, a 109% increase from the second quarter of 2021. Notably, our SaaS revenue grew 138% year-over-year. Recurring revenue accounted for 71% of total revenue in Q2 2022 compared to 84% during the second quarter of 2021.

On a pro forma basis, total revenue for Q2 2022 increased 19% from the prior year. SaaS revenue grew 11%. Second quarter 2022 adjusted EBITDA was a loss of $1.1 million compared to an adjusted EBITDA loss of $800,000 in the second quarter of 2021. As of July 31, 2022, we had $5.9 million of cash on hand and $10 million term loan. Our cap table remains clean with only 1 class of common stock. Tom Gibson, our CFO, will provide additional details about our financials during his prepared remarks. Both Avelead and eValuator continue to improve the innovation and service functions of their respective businesses. Avelead is driving significant bookings with new and existing clients through its Cerner relationship. And the business is maturing rapidly under Jawad's leadership.

eValuator has made rapid progress as well. Over the past 9 months, we have made investments to extend eValuator's reach to the professional fee environment as our customers have asked for a consistent coding environment across all claims. The eValuator now offers inpatient, outpatient and professional fee modules. Both new and existing clients purchased the Profee eValuator module during the second quarter of 2022.

Before I turn the call over to Ben, I want to acknowledge the progress we have made in building a successful sales structure within our company. As we have discussed, our model is innovation plus service equals growth. We have made great progress within our innovation and service functions. Beginning in the second half of last year and culminating with the addition of Amy Sebero, eValuator CRO, we made significant investments into our growth function. This investment in growth was key as the hospital systems software market requires C-suite relationships to effectively move contracts through execution.

Today, we believe we have a powerful growth function. One, CRO, Amy Sebero, 3 season business development personnel to manage channel relationships, 3 inside sales personnel that generate leads and push promotions, 6 direct regional sales personnel that has C-suite relationships inside hospitals in their regions and 5 marketing and advertising personnel.

The team has a sales administrative coordinate all these activities, along with the demonstration personnel. We have worked hard over the last year to build this structure and make the right investments. Today, 18% of our total headcount is dedicated to growth, and we believe the current investment level is sufficient to meet or exceed our bookings goals.

I'll now turn the call over to Ben to provide an update regarding eValuator. Ben?

Thank you, Tee, and good morning.

We were pleased to close several significant eValuator bookings during our second quarter, one of which was the largest-ever eValuator deal by ACV and another which represented our first existing clients expanding into our new professional fee module. There's no doubt that our sales success is a result of providing white-glove client service investing into product innovation and the build-out of our growth team, which Tee referenced. We continue to meet with many of our existing and potential clients on site. During these meetings, our clients and prospects described numerous headwinds from the backlog of IT projects to turnover of both clinical and professional staff. I believe our key to success will be approaching these healthcare organizations with solutions that reduce or eliminate the effort required to achieve the financial outcomes our software enables. One way we do that today is with our client success program, which includes monthly conversations on how we can improve the use of the software, regular client roundtables to discuss key issues and quarterly leadership meetings to fit our products into the bigger picture.

We consistently hear that our client success program is a primary differentiator between us and the rest of the vendor landscape. As a result, our existing clients are seeing significant financial impact. We recently published a white paper for Cooper University Hospital on our website that illustrates this impact. Cooper is a great example of a client who gets creative, pushes us and ultimately enable better outcomes. Still, potential clients need help getting the same value as Cooper. And during the sales process, they often express concern with their ability to achieve value quickly given staffing challenges. To address these needs, we are expanding the client-success offering to include what we are calling the eValuator concierge, which helps to shift the speed to value curve to the left.

These concierges start off fully integrated with the clients' team, allowing us to quickly learn about and react to any potential pain points. These concierges will provide us the insights we need to speed adoption and maximize client resources. We also continue to execute on eValuator product innovation.

On our last call, I mentioned that the Profee module of eValuator had entered its beta phase. The Profee module helped contribute to bookings this quarter and was a component of the largest-ever eValuator deal. Many of our current clients are interested in complementing their inpatient and outpatient suite of products with our Profee module, and we anticipate it will be a contributor to our bookings going forward.

It was a very rewarding quarter, and I thank our associates, clients and prospects for making it possible. I look forward to sharing additional success and updates on our next call. and I will now turn the call over to President and CEO of Avelead, Jawad Shaikh, to provide a business update for Avelead. Jawad?

Thank you, Ben, and good morning to you all.

Unlike eValuator, Avelead has investments required on the innovation and service side to deliver world-class technology and client satisfaction. We have not finalized our scorecard for our clients to observe the ROI delivered by our products. We continue to make significant improvements to our tools to ensure they are ready for the enterprise level growth we anticipate in the coming years. With that said, the growth opportunity lies in expanding our footprint within existing contracted clients and an exhaustive list of opportunities through our large channel partner, Cerner. We have successfully worked with Cerner to build our existing client base and pipeline. Within our sales process, we utilize Rebid's proven ROI and referenceable client relationships to drive bookings and revenue. Just like eValuator, we see opportunities opening within our direct and channel partner pipeline as the impact from COVID retreats. During the second quarter, we closed our first successful booking with one of the largest hospital systems based primarily in the Southwestern United States. This initial booking came on the heels of a rigorous 9-month pilot program and resulted in a contract for our Compare product across approximately 5% of its total facilities. Again, the initial booking was 1 product Compare across a minor portion of the entire hospital system base. The Southwestern United States hospital system has the potential of being larger than the Tennessee hospital system that is now generating over $5 million of annualized top line SaaS revenue for our business.

I will now turn the call over to our CFO, Tom Gibson, to review our financial results in more detail. Tom?

Thank you, Jawad. As Tee mentioned in his opening remarks, we acquired Avelead on August 16, 2021. All operations of Avelead are included in our reported GAAP numbers from that date. We also provide pro forma numbers that assume we owned Avelead from the beginning of the prior year period. Total GAAP revenues for the second quarter of fiscal 2022 were $6 million, a 109% increase over the comparable period of last year. $2.5 million was attributable to Avelead. For the 6 months ended July 31, 2022, total GAAP revenue increased 105% to $11.9 million. $5 million of the increase was attributable to the acquisition of Avelead.

SaaS GAAP revenue increased $1.8 million or approximately 138% compared to the same quarter a year ago. And for the 6 months ended July 31, 2022, SaaS GAAP revenue increased $3.5 million or approximately 139%. Total revenues for the second quarter of fiscal 2022 and year-to-date were $6 million and $11.9 million compared with pro forma revenues of $5.1 million and $10.5 million, respectively, for the year ago periods.

Moving back to our GAAP numbers. Second quarter 2022 operating expenses totaled $8.6 million compared to $5.2 million for the prior year period. $3.2 million of the increase was related to the acquisition of Avelead. The company increased its spend and innovation during the quarter by approximately $500,000. This increased spend was related to the acquisition of Avelead and certain costs to deliver several critical product improvements.

Further, the company saw the full impact of its investments in the quarter for its reformed sales function and travel resumed to nearly pre-COVID levels. For the 6 months ended July 31, 2022, total operating expenses were $17.8 million as compared to $10.7 million during the prior year period. $6.4 million of that increase was attributable to the acquisition of Avelead.

Loss from continuing operations for the 3 months ended July 31, 2022, was $3.3 million compared to loss from continuing operations of $100,000 for the 3 months ended July 31, 2021. Loss from continuing operations for the 3 months ended July 31, 2022, included $49,000 of acquisition-related costs and $425,000 related to a valuation adjustment on acquisition-related liabilities. Loss from operations for the quarter ended July 31, 2021, included $2.3 million of income associated with the forgiveness of the company's PPP loan.

For the 6 months ended July 31, 2022, loss from continuing operations was $6.1 million compared to a loss from continuing operations of $2.5 million for the 6 months ended July 31, 2021. Loss from continuing operations for the first half of fiscal 2022, included $139,000 of acquisition-related costs, while loss from continuing operations for the first half of 2021 included $0.8 million of acquisition-related costs and $2.3 million of income associated with forgiveness of the company's PPP loan.

Adjusted EBITDA for the second quarter of fiscal 2022 was a loss of $1.1 million compared to an adjusted EBITDA loss of $800,000 in the same quarter of fiscal 2021. The higher adjusted EBITDA loss can be explained by investments made by the company in innovation and sales during the first 6 months of fiscal 2022 when compared to fiscal 2021.

Moving to the balance sheet. As of July 31, 2022, we had $5.9 million of cash on hand compared to $9.9 million at January 31, 2022. The company completed the acquisition of Avelead using approximately $12.5 million of cash and $6.5 million of restricted stock at closing.

Under the acquisition agreement, the company will provide additional consideration on each of the next 2, 12 monthly anniversaries of the closing date. These will be paid to the sellers in cash and stock and are valued on the balance sheet at approximately $8.8 million. These liabilities are referred to as acquisition earn-out liabilities and are an estimate of the present value of future amounts that will be paid in cash and restricted common stock upon the anniversary date of the acquisition.

Subsequent to the closing of the Avelead acquisition, we entered into a 5-year $10 million term loan with Bridge Bank. There is no repayment of the term loan required in the first year following close. $500,000 is required in the second year following close, which equates to $41,667 monthly beginning in August, 2022. The company maintains its position that the uncertainty related to the effects of the novel coronavirus impacts on the healthcare market prevents us from providing detailed guidance.

We continue to target an average go-forward SaaS bookings pace of $3 million to $5 million of TCV per quarter for 2022. And as a reminder, to date, we have closed $12.5 million of SaaS TCV.

As Tee mentioned, we are introducing a new metric that provides each of an annualized contract value for agreements that are being recognized into revenue as well as bookings that have not implemented. We will refer to this figure as our book SaaS ACV, where ACV stands for annual contract value. We believe both SaaS, ACV will provide a proxy for our annual recognized revenue as if all executed contracts are live and recognizing revenue.

Please note that the recognition of revenue from our signed contracts is subject to the timing of implementations. Implementations may sometimes be delayed by customers due to competing projects or be timed after a larger implementation of another system. Generally, we have recognized revenue from eValuator projects in 90 to 120 days from contract signing, while Avelead products, due to the complexity of implementation, may be 120 to 150 days. As Tee remarked, our book SaaS ACV as of July 31, 2022, was $14.3 million and approximately $3.2 million of that book SaaS ACV has not been implemented.

We remain focused on continued growth of SaaS revenue. On its current cost structure, we believe our overall business will achieve breakeven at a booked SaaS ACV of $17 million. We expect that we will reach this level of bookings in Q3 or Q4 2022 and have this revenue fully implemented by Q3 or Q4 of 2023.

The company is realizing incremental SaaS gross margins above 80%. Since I joined the company in September 2018, we have not experienced our current level of growth or the near-term visibility to cash generation. I am proud of the progress we have made to date and want to commend our staff on our recent success. That concludes my review. I will now turn the call back to Tee Green for his closing remarks.

Tee?

Thank you, Tom.

We continue to enable healthcare providers to proactively address revenue leakage and improve financial performance and have taken major steps forward to drive diversified recurring revenue streams and better position our company for growth and to deliver significant shareholder value over the long term. The integration of Avelead into the Streamline Health family has been smooth and the product innovation and dedication to our health care partners remains a priority and strength across the company.

Before we begin our Q&A session, I'd like to thank the entire Streamline team, once again, for all their hard work and dedication. Their contributions are essential for us to support our healthcare providing clients and ensure they have the necessary tools to free up time and resources to provide quality care for the communities they serve. Thank you all for your support of Streamline Health and our vision. Now I'd like to open the call up to your questions.

Operator?

(Operator Instructions)

Our first question today is coming from Matt Hewitt from Craig-Hallum Capital Group.

Congratulations on the progress. Maybe the first one for me, and you touched on this a little bit in your prepared remarks, but regarding the hospital spending environment, obviously, as we're coming out of pandemic, you're able to get in and meet with the customers, meet with the hospital administration, but they still are facing a pain point from a staffing perspective. And I'm curious how those conversations are going, given that your products actually solve some of that problem for them? Are you seeing -- are you finding the customers more receptive because your technology helps them on that front?

Yes, Matt, Tee here. Thanks for the question.

Yes, we're clearly seeing health systems, I guess, get back to -- I'd use the word, normalcy, but getting back to their typical work in fashion of making clinical, financial, administrative decisions and how they run their health system versus everything focused on COVID and nothing else mattered, which was what they had to do for several years.

So now that, that is stalled, the CEOs and CFOs are definitely looking towards, okay, where can I make improvements in my business now. And it's probably not necessarily building new facilities and inflationary environments we're in. So that's probably not the right swim lane for them.

The second thing is everybody wants the clinical for care, care, care, but some of these clinical applications, although much needed, some of them are going to have to wait because of the financial scenarios these health systems find them in. So looking at revenue cycle, technology is the logical next place for CFOs to look is how do we improve financial performance. And so clearly, things like eValuator and Rebid from Avelead fit right in that discussion.

And then the second thing they look at is -- if you look at all my auditors and billing personnel, they left. I mean there's -- I don't know what percent -- it will be interesting to see some of the studies coming out, but a large percent of people left the hospital workforce that we used to work in what you would consider the revenue-cycle area. They're not coming back. And so these health systems are not only having a hard time staffing nurses, they've a tremendous staffing in their revenue-cycle business. They have to look for innovation. And I think that's where Streamline is in a really unique place, we believe, going forward.

That's great, really helpful.

Maybe a follow-up regarding the new Southwest health system win in the quarter. Thank you for the color on that. I'm curious, I mean, at 5% -- or I'm sorry, what was it 5 hospitals with the potential to expand much larger than that in the future? Are there -- is there like set milestones or criteria that would allow you to expand into additional hospitals within that system? Or how should we be thinking about that contract?

Yes. I'll take this, and I'll let Jawad and Tom maybe chime in as well. But there are -- some of this would be confidential to our technology and things like Rebid are so valuable. But when you think about our model, innovation plus service equals growth, if we don't get the innovation correct in the pilot, there's no way we're going to move to the next step. And so that's the focus with these is, get the innovation correctly, prove that it can scale in enterprise. And to make sure the service side, make sure that we're delivering, right, is to watch here we're still working. We know there's tremendous ROI, but we're still working on those -- getting them in advance to say, on the eValuator side, so that we can improve every month, every quarter that we're hitting the March on the ROI side, and that's where the service component comes in. We do those 2 things. Now we know we're going to grow. So that's where we're focused.

Got it. And then maybe a last one for me, and I'll hop back into the queue. But as things are showing up and you're seeing hospitals refocusing their energy on just running the business versus kind of treating COVID patients, could you talk a little bit about the pipeline and how that has built over the -- maybe the first half of the year and how you expect that to kind of play out over the back half?

Yes. Why don't we do this? Ben, why don't you take the eValuator just so that the investors here from you guys and Jawad, you take the Avelead side as they're both very exciting?

Yes. So I think what we've seen kind of build throughout this year as we've built out the sales team, Amy obviously coming on board. We've sort of shifted how we're presenting ourselves. You heard me mention the client success program. I think that really, we've started to lean into that because of the staffing challenges, because of the desire to get more-out-of-less kind of concept and that program really helps enable that. So as we push that more and more and kind of help overcome some of the objections that we normally here, which are budget and staffing.

We've seen our ability to talk to those kind of improve. And so I think the pipeline has built up as a result. And then we've had a lot of delivery on the innovation side, on the product side. That's also helped increase productivity and things like that. Jawad?

Yes. And just to kind of add on to that, our focus has continued to be, obviously, on innovation, as Tee mentioned, but our pipeline is continuing to focus on obviously growing within our existing customers, which has been going well and also expanding with the Cerner partnership as well, too. But the goal is really to stay patient and continue to invest in that innovation as we're continuing to build these relationships and continuing to build the pipeline. So everything kind of lines up with the [hybrid model] strategy as well too. So we're continuing to focus on those partners, and we're getting good pipeline growth or steady pipeline growth with that as we continue to focus on our R&D.

Your next question is coming from Kyle Bauser from Lake Street Capital Markets.

So we're clearly seeing an expansion of new clients being layered into the business from all the recent contract win announcements and the recurring revenue metric of 71% versus 84% a year ago. And it sounds like the investments into the eValuator commercial team is really driving a lot of this presumably with the existing relationships that the sales reps have. But just wanted to get a sense of kind of the magnitude of some of the other drivers. You talked a little bit about this, but maybe you can talk more about other drivers such as hospital referrals, are we seeing that or even the rollout of your services to new facilities within growing hospital systems that are consolidating or even hospitals that have kind of been in a holding pattern in your pipeline and are now kind of moving forward? Just kind of curious the magnitude of each of these other drivers.

Yes. Thanks, Kyle. This is Tee. The macro side of it is -- there's 2 -- I guess, major things happening right now in the health systems. One is the CFOs recognizing that 2.5 years of COVID has taken a significant financial impact on the business. And so they have to ride the ship in many areas and that leads to revenue cycle improvements. And so that's -- if you go in any health system in the country, that's probably one of the top conversations.

The second is staffing. And so it's one thing to say that here's our revenue cycle challenges, and here's what we got to do to ride the ship and to get back to financial health.

The second part of that is you would normally go out and historically ramp your -- you're building your collections, your auditing, and you could overcome some weakness just through sheer human effort. The problem today is that human effort is not coming back. And that's -- so those are 2 major things happening in health business today that are going to require that CFOs look to technologies' innovation that can improve financial performance, but also you can do it without having that can replace headcount. And because of our prebuilt technologies, it does both. It improves financial performance. It also reduces the need for bodies to be in that business. And to me, that -- yes, we have to staff our growth teams. Yes, we have to have great strategies from marketing and BD, but those 2 macro trends right there are your drivers for the next several years, in my opinion.

I appreciate that. Clearly, the value prop is high, it's ever been based on kind of what you just said, so I appreciate that.

And then I guess regarding the Profee module, great to see that it's party being deployed within new and existing clients. Just kind of curious to the extent you can estimate maybe percentage or number, how many of your current clients do you think are kind of high probability targets for adding on this new Profee module?

Ben, why don't you take that and also cover not just current, but what your pipeline shows for Profee?

Yes. So I think I'd say it's about half of our current clients are ideal candidates at the moment. I think the main signal to us is whether or not that professional practice is in the same revenue-cycle function or if it's something they recently acquired and is not integrated with the hospital revenue-cycle function. And so we -- you see it done both ways, and we're probably going to be a lot more successful in the initial outset if those 2 groups are together because then you're benefiting from common coding practices, from reporting, et cetera.

As far as the pipeline, I think we're seeing the largest deal that we announced a little bit earlier, that was -- we were able to do that because we had professional fee. It was a need for them in order to work with us. And so we're seeing there's a number of opportunities that we talked to in the past, we kind of said, it's great, but we were trying to find something that goes across the entire enterprise, and now we have about $1 billion.

So I think we'll see that more or less sold with the vast majority of our net new deals going forward, still dependent on that, the revenue cycles being integrated. But yes, it's kind of -- it's opening up doors for us, I would say.

Great. Appreciate that.

And then just lastly, kind of a similar question on Avelead side of the business, kind of what are the key drivers for, in particular, the EHR migration? So they see just old systems, are they getting upgraded or consolidation in the space? Where we're switching systems that the targeted companies were using to the ones that the acquirers are using? Or as just kind of the natural share dynamics playing out between the EHR companies? I'm just trying to kind of get a sense of what's also driving the contracts like the one announced in early August, I think, on August 1.

Jawad, why don't you walk although Cerner relationship and also kind of what the technologies comparing Rebid can do and what we've seen in Epic and MEDITECH and others?

Yes, definitely. And I think our starting point in our history has been kind of conversions or EHR migrations, and that continues to play a role in kind of driving and getting engagement with some of these clients, including the big one as well too, but it's kind of a twofold step. We were going to continue to do those. We're continuing partnering with Cerner to do those as well, too. But as we're getting more clients under our belt in being able to clearly document the RR and the value our clients are getting, we're able to use that to go back to other clients that are already maybe live on EHR or have been for a long period of time. So kind of growing it that way as well, too. So it's both conversion EHR migration as well as expanding naturally and telling the ROI and about our clients are getting and spreading that word to more future clients.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you all again for your interest and support of Streamline Health. If you have any additional questions or any more information, please contact me at jacob.goldberger@ streamlinehealth.net. We look forward to speaking with you all again when we discuss our third quarter fiscal year 2022 performance. Good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.