Streamline Health Solutions Inc (STRM) 2020 Q4 法說會逐字稿

Hello, and welcome to the Streamline Health Solutions Fourth Quarter and Fiscal Year 2020 Earnings Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Randy Salisbury, Senior Vice President, Chief Sales and Marketing Officer of Streamline Health Solutions. Please go ahead, sir.

Thank you for joining us to review the financial results of Streamline Health Solutions for the fourth quarter and fiscal year 2020, which ended January 31, 2021. As the conference call operator indicated, my name is Randy Salisbury. As Senior Vice President and Chief Sales and Marketing Officer here at Streamline Health, I manage all communications, including Investor Relations.

Joining me on the call today are Tee Green, President and Chief Executive Officer and Chairman of the Board; 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 streamlinehealth.net or at numerous other financial websites.

Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how we -- how certain information, which may be provided today, as with all of our earnings calls, should be viewed. We, therefore, submit for the record the following statement. First, 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 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. Our 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.

Second, we'll discuss non-GAAP financial measures such as adjusted EBITDA. 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 streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures.

I'd now like to turn the call over to Tee Green, President and Chief Executive Officer. Tee?

Thank you, Randy, and thank you all for joining us this morning. We all know how difficult this year has been as we continue to deal with the many repercussions of the COVID-19 pandemic. For our health care systems customers, the rhythm of day-to-day operations was upended, forcing linear decision-making focused solely on the global pandemic. Today, with more Americans receiving vaccinations, we believe a return to normalcy during the second half of this year is a real possibility. And that should free up decision-makers leading to new evaluator contract wins from our pipeline, which steadily grew throughout 2020.

Looking back on 2020, the sale of our legacy ECM business earlier in the year enabled us to focus solely on providing technology and services to help providers solve problems and gain efficiencies in the middle of their revenue cycle. As the pandemic slowed contract closings, we asked our employees to focus on improving our processes and preparing for growth. This internal focus, combined with cash resources provided by the divestiture, enabled us to develop a world-class product management team to continually expand and improve our value-added technology supported by our new customer success team, including an implementation team that has obtained incredible traction and has been setting a personal best for timing on the last few implementations. This improved customer experience has delivered an expanding roster of referenceable customers, a prerequisite in closing health care IT solutions. Current customer references were a critical element in helping us successfully close 5 new evaluated contracts last year.

Moving now to our financial results. Despite the macro issues related to COVID, total revenue for the fourth quarter of 2020 was $3 million, up 11% compared to the same period of 2019. For the year, total revenue was $11.3 million compared to $11.9 million during 2019. SaaS revenue grew 50% from fourth quarter of '19 to '20 and 17% sequentially. Recurring revenue accounted for 75% of total revenue this quarter and 74% for the full year 2020 compared to 80% and 68% for the fourth quarter and full fiscal year 2019, respectively.

Fiscal year 2020 adjusted EBITDA improved to a loss of $1.9 million compared to an adjusted EBITDA loss of $2.3 million during 2019. The improved adjusted EBITDA loss was the result of cost containment activities related to operational improvements and the divestiture which occurred earlier in the fiscal year.

As of January 31, 2021, we had $2.4 million of cash on hand with no bank debt. As we previously announced, effective March 2, 2021, we successfully closed a public offering resulting in gross proceeds to the company of $16.1 million. Our cap table remains clean with approximately 43 million fully diluted shares outstanding as of today, all of which is common stock.

I am pleased with the strength and talent of our people, and I believe we have a strong operational foundation vital for accelerating revenue growth. With the new growth capital we raised in February, we can invest in sales, marketing and certain software enhancements to capitalize on our industry-leading movement to improve the financial performance of every health care provider through our eValuator prebill coding analysis technology.

I will now turn the call over to our Chief Sales Marketing Officer, Randy Salisbury, for an update on sales activities and the state of our pipeline. Randy?

Thank you, Tee. We began 2020 with a great deal of promise. In February, we closed the University of Louisville Hospital, an Epic-based, Epic academic medical center, a great start to achieving our stated objective of 12 new evaluated contracts in fiscal year 2020 with total contract value of $10.8 million. And then just a few weeks later, I completed what was to be my last on-site sales call at a large facility in the Midwest. That was more than a year ago, and that prospect remains very engaged. And we believe they will sign a contract for eValuator as soon as the organization returns to more standard departmental decision-making.

I believe this is an example -- this example is representative of the state of the market over the last 13 months. Financial uncertainty created by the pandemic led to decision delays, even for paradigm shifting solutions like eValuator shown to generate a positive return on investment. Given this, I believe our sales performance last year should be assessed in 2 ways: first, the number of new eValuator contracts and corresponding total contract value; and second, the number of prospects in our sales pipeline with the corresponding total contract value.

On the first measure, we closed 5 new eValuator contracts totaling $5.6 million in total contract value. Secondly, at the end of the fiscal year, our pipeline contained 72 prospects representing $79 million in total contract value and as compared to 69 prospects representing $54 million in total contract value at the end of our last fiscal year of 2019.

As Tee mentioned, we believe that departmental decision-making is beginning again. Given the health of our pipeline, which contains nearly all the prospects we engaged with over a year ago, plus new customers introduced in 2020, we remain committed to our goal of $2 million to $3 million of total contract value bookings per quarter going forward.

Our target for the number of new eValuator contracts has increased substantially from last year's target and now stands at 18. We believe we can achieve increased volume of contracts by activating our robust pipeline as we begin to exit the COVID-retrained decision environment and continue to sign, target and close key prospects through our expanding channel partnerships.

We plan to increase our direct sales force in a deliberate manner to get more coverage in the regions where we've seen the greatest response. In addition, our focus last year to attract new reseller partners is gaining traction as we have already signed 1 new large partner joining both Allscripts and ChartWise. And we are negotiating with 2 others, both of which have very large health care customer footprints.

Our goal is to lead an industry movement to prebill revenue integrity validation, and we believe large reseller partners will help us expand our reach and accelerate our sales. We'll update you on these potential reseller partners as appropriate through press releases or during subsequent earnings calls.

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

Thank you, Randy. Total revenues for the fourth quarter of fiscal 2020 were $3 million compared to $2.7 million in the prior year period. SaaS revenue was up $349,000 or approximately 50% compared to the same quarter a year ago. The revenue growth during the quarter was driven primarily by SaaS, system sales and professional services, but offset somewhat by lower revenue from audit services and maintenance and support.

Fiscal year 2020 revenue was $11.3 million compared to $11.9 million during fiscal 2019. SaaS revenue in fiscal 2020 grew 46% to $3.7 million compared to $2.5 million during 2019. Recurring revenue comprised 74% of total revenue during fiscal 2020 compared to 68% during the prior year.

Net loss for the fourth quarter of fiscal 2020 was $1.2 million as compared to a net loss of $2.4 million during the fourth quarter of fiscal 2019. Fourth quarter fiscal 2020 net loss included $0.4 million of income from discontinued operation in connection with the sale of the company's legacy ECM business, which closed February 24, 2020, compared to $18,000 of income from discontinued operations during the fourth quarter of fiscal 2019.

The company recorded $0.3 million of net income for the 12 months ended January 31, 2021, which included $5.1 million of income from discontinued operations. This is compared to a net loss of $2.9 million during fiscal 2019, which included $3.4 million of income from discontinued operations. Loss from continuing operations improved in fiscal year 2020 to $4.8 million as compared to a loss of $6.2 million during fiscal 2019.

Adjusted EBITDA for the fourth quarter of fiscal 2020 was a loss of $100,000 compared to adjusted EBITDA loss of $600,000 in the fourth quarter of fiscal 2019. Fiscal year 2020 adjusted EBITDA was a loss of $1.9 million compared to a loss of $2.3 million during fiscal 2019. The profitability improvements that we have seen through the operations have come primarily from cost containment activities.

Moving to the balance sheet. We finished the fourth quarter with approximately $2.4 million of cash on hand compared to $1.6 million at the end of last year. The company generated $5.4 million on the sale of the ECM assets net of the term loan repayment.

Additionally, the company applied for and received a PPP loan of $2.3 million in April 2020. The company has applied for but not been granted forgiveness of the PPP loan at this time. No accounting or the forgiveness will be reported in the company's financial statements unless or until it is granted by the SBA. Outside of the PPP loan, the company has no debt outstanding.

As Tee commented in his opening remarks, the company completed a successful capital raise earlier this year for gross proceeds of $16.1 million. Contemporaneously with the closing of the capital raise on March 2, 2021, we replaced the revolving credit facility, which was an asset-based loan, with the recurring revenue line facility. The $3 million capacity recurring revenue line facility will provide more flexibility with our growth goals. The company plans to use the proceeds of the capital raise and additional debt capacity as growth capital for expanding sales and marketing and continued investment in the eValuator product.

The company's strategic initiative is to take full advantage of this position as first to market with eValuator, its prebill auditing technology. The company is not in a position to provide guidance for fiscal 2021 due to the continued uncertainty around the effects of the novel coronavirus. As Randy mentioned in his remarks, the company is targeting 18 new eValuator bookings for its fiscal 2021. The company remains focused on continued growth of SaaS revenue. In the fiscal year ended 2020, the company used approximately $1 million of cash per quarter.

Based on the company's current forecast, it will begin generating cash from operations in Q2 or Q3 of fiscal year 2022. Each quarter, we should see an improvement in the use of cash through the time we began cash generation.

This concludes my comments. I will now turn the call back to Tee Green for his closing remarks. Tee?

Thank you, Tom. Within our executive team as managers and leaders, our responsibility is to control what we can and win at that every day. Throughout the difficulties of the past year, we successfully managed cost while making significant improvements to our organization, including our teams and our products that create a foundation for the rapid growth of our eValuator platform.

With the additional capital from our recent offering, we will be able to grow our sales team and continue to invest in our eValuator technology to help us capitalize on the opportunity in front of us. Our commitment to lead an industry movement to prebill revenue integrity validation is real and we believe will gain momentum in the quarters and years ahead. I am confident that as health care providers return to more normal budgeting and purchase decision-making, innovative financial solutions like eValuator will be at the forefront of their minds.

Before we begin our Q&A session, I'd like to extend my heartfelt thanks to the team members at Streamline for their hard work and perseverance during an enormously challenging time. Your contributions enable us to support our hospital system customers and ensure they have the tools they need 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 the call up to your questions. Operator?

(Operator Instructions) Our first question today is coming from Matt Hewitt from Craig-Hallum.

Congratulations on getting through a pretty challenging year. Several questions. First on the pipeline. Maybe if you could give us a little bit of an update on the conversations you've been having with not only the customers that are in the pipeline but those potential new customers. Where are they -- as they get through kind of dealing with the rush of patients, now you're starting to see more vaccinations. What is -- how has the conversation with those customers or potential customers evolved?

Yes. Thanks, Matt. This is Tee. I'll lead into that and then let Randy follow that up. But if you look at the ones that we have kind of the first half of the year, these are conversations that obviously have been going on for some time. And what we're seeing, as we've seen in the last month, as we announce these new deals, is most of these 17, 18 deals that we've been targeting were in the final stages. And so those deals are coming back to the CFO's desk and the CEO's desk. And red lines have been done, legal has reviewed, VAs are signed. And so all of that's super encouraging.

What we're seeing in the -- what we call maybe net new -- the new prospects that are coming in for the -- slated for the back half of the year, in general, the health systems are saying May 1, at least this is -- what we're hearing is that it appears that, that's the date that many of these health systems, for some reason, have said, it's back to business. The vaccinations are, for the most part, being managed. The COVID cases in many parts of the country are down. I was with a Chief Medical Officer last night in the health system, and I think they have 1 or 2 COVID patients in the whole health system. And so he was saying that it feels like things are going to get back to normal.

What that means is, historically, these health systems have been able to make clinical decisions, financial decisions and administrative decisions simultaneously, right? And then COVID hit, everything went linear. We've talked about that in the past. I think you're going to see these departmental initiatives come back on the table. We're seeing some (inaudible) already, especially for the ones that are already -- contracts have already been red lined. But these new ones, it looks like new demos, new meetings and all, it looks like that May time frame, things are starting to open back up. So Randy, anything else to add there?

I think I was very thorough. I would suggest just on the latter part of that. The newbies coming in, we've been doing a nice job, Matt, in our prospecting of sharing the identified press releases and the like to let them know that there is a -- I won't say a groundswell, Matt, but that they're joining a good company. And I think that's helping as well.

That's great. And then maybe -- and you touched on this a little bit in your prepared remarks regarding your resellers. I think in the slide deck, you just called out ChartWise and Allscripts. Maybe an update on those.

And then the new potential resellers coming on board, I realize you might not be able to name names yet, but if you could maybe provide a little bit of color on maybe the types of resellers you're looking at. Are these traditional auditing firms? Are these -- any additional color just to help us kind of think about where those opportunities may lie.

Yes, Randy, go ahead.

Great. Thanks. I was hoping Tee would take this. But we signed a really, I think, terrific reseller partner, Matt, that we cannot name. It's in the consulting, auditing arena, as you could imagine. The 2 others I mentioned that we're currently negotiating with are also like-minded. In other words, they have a practice that is a health care-oriented practice, obviously, in the services arena because they're looking at our technology as an add-on. And that's about, unfortunately, all I can say because they've asked us not -- the one that has signed that we're already going to market with asked us not to mention their name. And the 2 new ones aren't signed yet. Hopefully, we'll be able to talk about them in the not-too-distant future.

As far as with ChartWise and Allscripts, I would assume, at this point, they're starting to kind of maybe build their own pipelines. I think that those are probably not included in your pipeline, but how should we be thinking about those partners and how their business could ramp for you?

Yes. Thanks, Matt. This is Tee. It takes a lot of energy and time to build good channel partners where you've trained their sales force, they have the ability to talk intelligently about the platform. And so those kind of quarters are behind us, and you are seeing the pipelines build inside these. In fact, at the last -- we just did a release. We've had our first business partner transaction close. So we're -- the pipelines are certainly building in these business partners, but we've actually seen a contract already come through. So that's super encouraging to us.

And like Randy said, we do have some really exciting, very large organizations in the consulting world and auditing world that are going to be taking the eValuator platform to their customer base. And these have the potential to be substantial partnerships for Streamline.

That's great and helpful. Maybe one for Tom. There was a noticeable step-down in SG&A in Q4. Was that -- there -- was there some timing there? Should that bounce back starting in Q1, particularly given your comments regarding the incremental cash that you brought in here in Q1 and your desire to add some sales and marketing resources? Any color along those lines would be helpful.

Matt, how are you doing? Good to talk to you. Appreciate your questions, Matt. So as you may recall, in our Q4, we always have a step-down in SG&A. It's associated with 2 very specific items. One is the reversal of our PTO that's accrued up until the end of the calendar year and then reversed. And the second is our R&D tax credit, which comes out in the fourth quarter of every year. And so that has a meaningful decrease on our SG&A. And it has to happen in the fourth quarter every year based on timing.

So we'll always have that step-down. This year, it was a little bit higher than it has been in years past. But that is the step-down and it should return to more normalcy in Q1 and Q2 because you won't have those onetime items. I'm not expecting the investments in the sales side to hit us until Q3.

Thank you. We reached end of our question-and-answer session. I'd like to hand the call back to your host, Randy Salisbury, for closing comments.

Thank you, again, for your interest and support of Streamline Health. If you have any additional questions or need more information, please contact me directly at randy.salisbury@streamlinehealth.net. We look forward to speaking with you again in June when we'll discuss our first quarter 2021 financial 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.