Streamline Health Solutions Inc (STRM) 2021 Q3 法說會逐字稿

Greetings. Welcome to Streamline Health's Third Quarter 2021 Conference Call. (Operator Instructions) Please note that today's conference is being recorded.

I will now turn the conference over to Jacob Goldberger. Mr. Goldberger, you may now begin.

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the third quarter of 2021, which ended October 31, 2021. As conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Tee Green, our President and Chief Executive Officer and Chairman of the Board; Randy Salisbury, Chief Sales and Marketing Officer; 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 announcing 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 all of our earnings calls should be viewed. We therefore submit for the record the following statement. 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 of 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 release 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 recent 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. To help 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 complete GAAP measures.

I would now like to turn the call over to Tee Green, our President and Chief Executive Officer.

Thank you, Jacob, and thank you all for joining us this morning. As we have previously announced on August 16, we acquired Avelead, and going forward, their financial performance will be included in our GAAP results from that date.

As a company, we continue to follow a simple formula for successful growth: innovation plus service equals growth. Our goal is to back up our innovative industry-leading solutions like eValuator and RevID with a world-class customer success team to create a community of customers that enhances our potential for long-term revenue growth.

Today, our flagship solutions, eValuator and RevID are leading an industry movement to help our hospital customers capture 100% of the revenue they have earned for the care they have provided through revenue integrity validation before the bill goes out the door. Our focus on shifting revenue integrity practices to the front end of the revenue cycle yields significant return on investment for our customers and is driving our rapid SaaS revenue growth.

Thank you, Jacob, and thank you all for joining us this morning. As we have previously announced on August 16, we acquired Avelead, and going forward, their financial performance will be included in our GAAP results from that date.

As a company, we continue to follow a simple formula for successful growth innovation plus service equals growth. Our goal is to back up our innovative industry-leading solutions like eValuator and RevID with a world-class customer success team to create a community of customers that enhances our potential for long-term revenue growth.

Today, our flagship solutions, eValuator and RevID are leading an industry movement to help our hospital customers capture 100% of the revenue they have earned for the care they have provided through revenue integrity validation before the bill goes out the door. Our focus on shifting revenue integrity practices to the front end of the revenue cycle yields significant return on investment for our customers and is driving our rapid SaaS revenue growth.

To capitalize on the significant opportunity in front of us, we made key investments in the valuator side of our business throughout the year, especially in sales. Today, we have built out a direct sales force with 4 high-profile regional vice presidents, all of whom have demonstrated a track record of closing deals. We have partnered each of these RVPs with business development representatives to open more doors and schedule evaluator presentations with our prospective customers.

The investments into our new RVPs and their BDR partners are in addition to our previously announced hiring of Lance Seach our Senior VP of Business Development, who has been instrumental in signing some of our most meaningful channel partner agreements. The investment we made in sales talent has increased the number of eValuator prospects in our sales pipeline.

As previously announced, eValuator was the subject of a positive report published by KLAS Research, a leading health care IT research firm. KLAS is a resource that hospital executives use for guidance on what to buy. The report highlighted the strong capabilities of eValuator and our customer satisfaction with the technology. KLAS Research conducted surveys with stand-alone hospitals and found that a 100% of customers saw very positive outcomes within six months and universally agreed they would buy eValuator again. There was high price for eValuator's targeted reporting and robust rule sets as well as Streamline's willingness and ability to make enhancements to the system.

We believe well-regarded, third-party confirmation of our innovative products and strong customer service reflects the reputation that Streamline is building in the health care community.

Within the Avelead business, while we plan to make additional investments into the sales team, we are currently focused on the I and the S functions of our growth equation, innovation and service. We recently hired a new technology leader whose focus will be ensuring that Avelead software remains highly scalable. To strengthen Avelead service function, we added a new service leader, who will be responsible for overseeing its customer success team to ensure the highest level of customer satisfaction.

Moving now to our financial results. On an unaudited pro forma basis, assuming we had owned Avelead for the entirety of our fiscal third quarter of this and last year, total revenue was approximately $6.1 million, up 17% compared to approximately $5.2 million during the third quarter of 2020.

Pro forma unaudited SaaS revenue totaled approximately $3.1 million; a 1% increase compared to approximately $1.7 million during the prior year period.

Moving now to our GAAP consolidated financial results for the 3 months ended October 31. Total revenue for the third quarter of 2021 was $5.5 million, a 109% increase from the third quarter of 2020. Notably, our SaaS revenue grew 214% from the third quarter of 2020 to 2021. Recurring revenue accounted for 71% of total revenue this quarter compared to 75% for the third quarter of 2020.

Third quarter 2021 adjusted EBITDA was a loss of $300,000 compared to an adjusted EBITDA loss of $700,000 during the third quarter of 2020. As of October 31, 2021, we had $10.4 million of cash on hand with $10 million of debt related to a term loan, which we entered into with Bridge Bank subsequent to the acquisition of Avelead. To close the Avelead acquisition, we utilized approximately $12.4 million of our cash and issued approximately $6.6 million of restricted stock to the sellers.

In addition to the closing consideration, we contracted an earn-out over the next two sequential 12-month anniversaries of the closing of Avelead that is tied to Avelead's performance and includes a combination of cash and restricted common stock. Our cap table remains very clean with only one class of common stock. Tom Gibson, our CFO, will provide additional details about our financials during his prepared remarks.

Now I'll turn the call over to Randy Salisbury for an update on sales. Randy?

Thank you, Tee. Total bookings for the third quarter of 2021 were $2.1 million, approximately $800,000 of which was attributable to our SaaS solution. On the eValuator sales and marketing front, our primary focus is on moving our eValuator prospects through our selling process from Stage 1, qualified to Stage 4, contracting.

During the third quarter, we had three prospects in the contracting stage and we signed one, Carolina East Medical Center. Following that, we moved two more prospects into the contracting stage. We anticipate two of the four prospects in contracting will find deals for eValuator in the next couple of weeks, and we're putting to close the others in January before the end of our fiscal year. The first two contracts alone would generate enough bookings to meet our quarterly goal of $2 million to $3 million.

Now that we have completed the transformation of our sales force as Tee mentioned at the outset of this morning's call, I look forward to improved bookings momentum. The current team of proven consultative sales professionals cover each of our four sale territories. Eastern Seaboard, Great Lakes, Central and Western regions. Each of these Regional Vice Presidents of Sales are supported by a dedicated business development resource to help them mine their territories, generate leads, and schedule introductory meetings. And by the way, we're finally starting to see some in-person, on-premise sale presentations, which we've been asking for most of this fiscal year, but we have not realized since many of our key decision-makers and ultimate end users are still working from home.

As a reminder, we target medium to large sized hospital systems. Given the scale of their operations, these health care systems experienced persistent hardship with staffing and accurate bill coating, among other complexities in the revenue cycle, making them ideal candidates for our technologies.

When we go to market, we're able to show potential customers a clear return on investment based on our analysis of their historical billing data in the form of Medicare billing during calendar year 2020. Our prospective health care provider customers can see for themselves the upside that our solutions deliver prior to making a decision. Another area of focus for us is building and maintaining a sustainable business pipeline for our industry-leading eValuator technology.

Despite the ongoing difficulties associated with COVID-19, we continue to generate interest in our prebuilt coating analysis solutions, and we expanded our list of prospects via our direct selling efforts in concert with the business development team and via the great work our reseller channel partners are doing in expanding the roster of vendors or consultants with large health care provider practices.

During the third quarter, our new BDR secured 23 initial eValuator presentations and they did so just in the last two months of the quarter. Further, the reseller partner channel has generated approximately 17 prospects and are opening additional opportunities for RVPs in the sales pipeline.

With the introduction of the Delta variant earlier this fall and now the threat of the Omicron variant looming, many health care providers are still experiencing significant disruptions to their operations. In some cases, including the suspension of high-value electric procedures with the attendant negative effect on their revenue.

Much like other companies whose business is selling enterprise software to hospitals. Many of our prospects have delayed the decision-making due to the uncertainty related to the top line revenue, which has a significant impact on their budgeting process. The financial uncertainty created by these factors tend to delay, but not cancel new purchase approvals. As we continue to increase our prospect count, we expect to translate our expanded pipeline into an accelerated rate of bookings in a more normalized environment.

In addition, many of the contracts in our pipeline are on average significantly larger than our historical $300,000 annual contract value. These factors considered, we remain confident in the long-term opportunities ahead of us and continue to target closing $2 million to $3 million of staff dilution per quarter. The sales team is very pleased with the expanding roster of referenceable customers. As mentioned in previous earnings calls, we know that as our community of happy customers grows, the idea of leading health care providers joining our movement is easier to envision and enact.

I'm very excited about the progress we're making in the sales and marketing area. Our goal is to lead an industry movement to pre-bill revenue integrity validation. We believe that by leveraging our talented teams and large reseller partners with hundreds of active provider relationships, we'll be able to expand our reach and accelerate adoption of our technologies.

I'll now turn the call over to Tom Gibson, our CFO, to review the third quarter's financial results in more detail.

Thank you, Randy. Total revenues for the third quarter of fiscal 2021 were $5.5 million, a 109% increase over the comparable period of last year. $2 million of the increase is a result of the acquisition of Avelead on August 16, 2021.

SaaS revenue increased $1.9 million or approximately 214% compared to the same quarter a year ago. $1.2 million of the increase in SaaS revenue is attributable to Avelead. Third quarter 2021 operating expenses were $9.3 million compared to $4.5 million for the prior year period. $1.9 million of the increase is related to nonroutine costs, primarily attributable to the acquisition. $2.3 million of the increase is related to Avelead. R&D expenses grew $0.6 million, $0.3 million of that increase is related to Avelead.

The higher R&D expense is impacted by lower capitalization rates in the third quarter than prior periods for the eValuator product. Loss from continuing operations for the three months ended October 31, 2021 and 2020 totaled $4.4 million and $1.9 million, respectively. Loss from continuing operations for the three months ended October 31, 2021, included $1.9 million of nonroutine costs and other expenses of $0.6 million each are primarily related to the acquisition of Avelead.

Depreciation and amortization increased approximately $0.4 million and there was an income tax benefit of $0.8 million in the prior year associated with accounting for the discontinued operations. Adjusted EBITDA for the third quarter of fiscal 2021 was a loss of $0.3 million compared to an adjusted EBITDA loss of $0.7 million in the same quarter of fiscal 2020. The improvement in adjusted EBITDA came despite a lower rate of capitalized R&D expenses.

Moving to the balance sheet. As of October 31, 2021, we had $10.4 million of cash on hand compared to $2.4 million at the end of fiscal year 2020. As Tee indicated in his remarks, the company closed Avelead, utilizing approximately $12.4 million of cash and $6.6 million of restricted stock. Under the acquisition agreement, the company will provide additional consideration in each of the two annual anniversaries of the closing date. These will be paid to the sellers in cash and stock and are valued on the balance sheet as of October 31, 2021, at $11.1 million. Subsequent to the closing of the Avelead acquisition, we entered into a five-year $10 million term loan with Bridge Bank.

The company maintains this position that the uncertainty related to the effects of the novel coronavirus on the health care market prevents us from providing detailed guidance. The company remains focused on continued growth of SaaS revenue. The company experienced a one-time benefit in its third quarter from a customer nonrenewal and its SaaS revenue of approximately $300,000. Further, the tremendous growth by our Avelead business will temper on a sequential basis in the coming two quarters. As a result, the company will continue to report strong year-over-year growth as it has in this third quarter.

However, we do not anticipate sequential growth in the SaaS revenue line for the following two quarters, after which we will resume the strong sequential growth the company experienced through the first three quarters of fiscal 2021. The company continues to evaluate its consolidated forecast with Avelead and we are optimistic that the combined entity will reach cash generation by Q2 or Q3 of 2023. We have pushed our projection of cash generation out one year, primarily due to the investments we plan for Avelead as well as the company's shortfall on eValuator bookings through the third quarter of fiscal 2021. That concludes my remarks.

I will now turn the call back to Tee Green for his closing. Tee?

Thank you, Tom. In reflecting on the past year, I am proud and impressed with the work our team has accomplished persevering through the macro impacts of the coronavirus showing up every day with a positive can-do mentality and maintaining a vision for the long-term impact we can have on the industry has put us in a position to seize the market opportunities ahead of us.

Before we begin our Q&A session, I'd like to once again thank the entire Streamline team for all their hard work and dedication during these uncertain times. Their contributions are essential for us to support our health care, providing customers 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 for your support of our vision.

Now I'd like to open up the call to your questions. Operator?

(Operator Instructions) And our first question is from the line of Matt Hewitt with Craig Hallum.

Maybe first up regarding the Avelead integration. If you could provide an update on kind of where that sits? And more importantly, I think as we look out over the next 12 to 24 months, what is the initial feedback been on the cross-selling opportunity? Are you seeing interest from that Avelead installed base? And how quickly do you think you could get some of those customers to sign up for eValuator?

Yes. Thanks, Matt. Tee here. The Avelead integration, as we mentioned, we're focused really the whole model. You guys have to have your innovation done correctly that can scale at an enterprise level. Then you've got to get your service platform correct, and then you can really grow.

So, right now, on the Avelead, we're laser focused on the innovation side. We knew going into the acquisition. There were some enterprise capabilities from the scale that needed to be done in the platform, and that's what we're working on. We also knew that they didn't have a real good service delivery meaning that we didn't have the right implementation, training very similar to way eValuator was 1.5 years ago. So those are the two focuses right now.

You'll see probably middle of next year some co-effort on the eValuator sales side and the Avelead sales side because clearly, there's 92 health systems or 92 opportunities on the Avelead side that they don't have eValuator. And eValuator, we're at 12 customers now, so less than -- huge opportunity. So yes, but I wouldn't anticipate a lot of joint sales efforts until we get I and S really nailed down on Avelead side because you don't want to -- the worst thing we could do with Avelead is to outgrow its capacity to deliver. And we're not going to do that.

Understood. And then maybe just a clarification, Tom, regarding your guidance there regarding Q4 and Q1, you're not expecting a sequential growth, but are you expecting the revenues to be essentially flat the next couple of quarters before then kind of initiating that ramp that we've been watching here with the recent past?

Yes. That's correct, Matt. We're looking at relatively flat revenues in Q4 in particular. Q1, we have some potential upside for nonrecurring, but I'm certainly not expecting growth on the SaaS line on a sequential basis.

Understood. And then maybe the last one. As far as some of the investment that you're going to be making from particularly on the software side, is that tied to essentially bringing the Avelead and evaluator platforms together? Or are there some new applications that you anticipate adding to the combined platform?

Matt, can you say that one more time? I'm sorry, I had a...

Yes. So the R&D investment that you're going to be making. Is that tied to essentially bringing the Avelead and Streamline platforms together so that they can essentially be sold as one core platform? Or is there some new applications, some new opportunities where you could add some new apps, if you will, to the one or more of the platforms? Does that make sense?

Yes. So Tom, you may have to -- the dollars that we're investing on each side, I'll let Tom opine. But as far as the Avelead side goes, it's -- and if you think of RevID, the flagship application from there and then eValuator the flagship from the core stream. Currently in the next 12 months, we do not have a product road map where those would merge. We're really focused on what those two applications solve for our customers because they're both incredibly valuable. And they both have a product road map that certainly stretches the next three quarters. So we're not going to do anything other than continue to make those two platforms stronger and stronger. At some point down the road, we can evaluate, does it make sense to put them together or not, we haven't made that call yet.

(Operator Instructions) Our next question comes from the line of Brooks O'Neil with Lake Street Capital.

I'm -- I guess I'd start off by just trying to dig in a little bit more about what you're seeing from your hospital customers related to COVID and just trying to understand the disruptions you're seeing. Maybe you could talk about it a little bit on month-by-month basis, what's been going on out there? And just help us to understand how they're thinking about buying products like you guys offer in the world that is perhaps being dominated by COVID disruption right now.

Yes. Thanks, Brooks. Tee here. I think everybody is ready to quit talking about this, but it is real. And we're not unlike any other health care IT vendor, first things first, and that's battling this virus, where you thought it was behind this Delta came. Omicron is here. What we're seeing is clearly, it impacts decision-making in health systems. And in different parts of the country are impacted a bit more than others. If you look at the Northeast where we've called in the National Guard into three states. Yes, we're probably not going to close a lot of contracts there. That's a real store in May. When you got the National Guard coming in to assist your health care facilities, buying new technology is not going to happen. That's just a fact.

However, the Southeast, all the way through the Midwest, there's -- we're not having those type issues. And so we're seeing -- we're actually we're seeing contracts that have been hung up in legal. Actually, last Friday said to us, they've redlined it. So that's movement, right? And so that's really encouraging. But again, when the National Guards called in to help the health care system, that's not positive.

The second thing that you're seeing in some areas of the country are these mandated vaccines and helps the mandate for employees to get vaccines, right? Well, 30% of the nursing staff in the United States is not vaccinated. And so that's a whole another issue. I was with the leader of a health system last Sunday, and he said, Tee on Monday next -- well, this coming Monday, we're announcing to our health systems that you have to be vaccinated or you're not going to be employed. He's anticipating hundreds of nurses. That can't be good. So those kinds of things, they are what they are, but the good news is there are parts of the country where we're starting to see things move. So that's cool.

But again, if employers are not just health systems, you saw probably this morning where Jefferies went back to remote work requiring everybody to wear mask in any of their facilities. People say these variants aren't real and it's not -- but if you're in the health care world, you know that it is real, and you know that it's going to be a couple of more quarters battling through this stuff. But I think there's enough -- finally, there's enough -- we've got six deals that are in this -- right there that are exciting. We know these deals are coming. I guess that's my point. But this is not eValuator -- it's just too valuable. There's too much return on investment. It's too easy to install. It's just -- It's just one of those no-brainers once we get the right hours in the energy and the health systems, so they can move forward.

So I'm super encouraged, so encouraged that we basically rebuilt the entire sales team over the last 90 days. I wasn't interested in doing that at the beginning [before everyone] because there's no reason to go invest in high-end sales personnel if nobody is going to return your phone call.

But we felt like the virus was behind us. And so we rebuilt that -- we just brought in seasoned veterans, right? And they're more expensive, but they know how to do this. So I guess I'm probably as excited or more bullish than ever have been at this point on the eValuator.

That's fantastic, and I appreciate all that color. Let me just ask one other question. I totally understand the comments you made about investing in Avelead to bring it up to enterprise capabilities and strengthen the support organization. What I'd love to hear is just any color as you think about what you've learned in the last, whatever it is, 60 days, 85 days, whatever that number is in terms of are you as excited about the overlap and what I would call, I don't know if this is a word, but complementarity between the Avelead, what that does, its customers, its organization and the opportunity, ultimately, when things normalize and when you get the upgrades done, do you think this is going to be a case of 1 plus 1 equals 3 or 4 still? And just give us a little color on what you're seeing there.

Yes. Well, first of all, that Jawad, the CEO of Avelead and the team there, they're phenomenal. I mean, it's everything you could have hoped for in bringing a company into the Stream family. So that alone we're super excited about. There's several really, really large pilots that have started with RevID that we'll be talking about in the future that are just -- I mean, it's -- it's 1 plus 1 equals 5 or 6, in my opinion. So yes, we're excited. Again, Avelead is serving 92 hospitals and eValuator is in 12 and Avelead is 92 top health systems in the country. So yes, we're pretty enthusiastic about that.

At this time, we've reached the end of the question-and-answer session. I will turn the line back to Jacob Goldberger for closing remarks.

Thank you all again for your interest and support of Streamline Health. If you have any additional questions or need more information, please contact me at jacob.goldberger@streamlinehealth.net. We look forward to speaking with you all again when we discuss our fourth quarter and fiscal year 2021 financial performance. Good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.