Streamline Health Solutions Inc (STRM) 2021 Q4 法說會逐字稿

Greetings, and welcome to the Streamline Health Solutions Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jacob Goldberger, Director of Investor Relations, FP&A. Please proceed.

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the fourth quarter and fiscal year 2021, which ended January 31, 2022. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on are Tee Green, President and Chief Executive Officer and Chairman of the Board; Ben Stilwill, President and CEO of eValuator; Jawad Shaikh, President and CEO of Avelead; and Tom Gibson, our 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 with 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 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 we 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. Go ahead, Tee.

Thank you, Jacob, and thank you all for joining us this morning. As a reminder, and as we have previously announced on August 16, 2021, we acquired Avelead, and going forward, 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 fiscal year 2021, we ended the year with roughly $6.1 million of new SaaS bookings and $13.9 million of total new bookings. We believe operating conditions within acute care hospital systems are improving as COVID's impact lessens. As a result, we expect to see an accelerated pace of bookings for both Avelead and eValuator Solutions. Going forward, we expect our bookings performance to be an average range of $3 million to $5 million per quarter through fiscal 2022. We have already achieved this goal for our first fiscal quarter. On an unaudited pro forma basis, assuming we had owned Avelead for an entirety of this and last year, total revenue for the fiscal year 2021 was approximately $22.6 million, a 15% increase compared to approximately $19.7 million during fiscal 2020.

Pro forma unaudited SaaS revenue totaled approximately $11.3 million in fiscal 2021, an 82% increase compared to approximately $6.2 million during fiscal 2020. We are pleased to see the significant expansion of our SaaS revenue. We continue to focus our resources on the growth of our SaaS business.

Moving now to our GAAP consolidated financial results for the 12 months ended January 31. Total revenue for fiscal year 2021 was $17.4 million, a 53% increase from fiscal 2020. Notably, our SaaS revenue grew 121% from 2020 to 2021. Recurring revenue accounted for 71% of total revenue in fiscal 2021 compared to 73% for fiscal 2020. We have successfully grown our recurring revenues despite the difficult sales environment our industry has experienced for the past 2 years as a result of the COVID pandemic.

Adjusted EBITDA for fiscal 2021 was a loss of $2 million compared to an adjusted loss of $1.9 million in fiscal 2020. As of January 31, 2022, we had $9.9 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. As a reminder, the closed Avelead acquisition, we utilized approximately $12.5 million of our cash and issued approximately $6.5 million of restricted stock to the sellers.

In addition to the closing consideration, we contracted an earn-out over the next 2 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 clean with only 1 class of common stock. Tom Gibson, our CFO, will provide additional details about our financials during his prepared remarks.

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 world-class client success teams to create a community of clients 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 clients capture 100% of the revenue they have earned for the care they have provided through revenue integrity validation before a bill goes out the door. Our focus on shifting revenue integrity practices to the front end of the revenue cycle yield significant return on investment for our clients and is driving a rapid SaaS revenue growth.

Over the course of the past 6 months, we have made significant investments to upgrade eValuator's direct sales force. And most recently, we brought Amy Sebero on Board as eValuator's new Chief Growth Officer. Amy is an industry veteran with 4 decades of experience, improving the financial well-being of health care organizations, including 28 years with nThrive.

Joining us on today's call are Ben Stilwill, President and CEO of eValuator Solutions; and Jawad Shaikh, President and CEO of Avelead Solutions, who will be giving updates on their respective businesses. Ben is a motivated leader poised to take eValuator through its growth phase. Ben has been with Streamline since 2013, and during his tenure has touched every part of the eValuator business. Most recently, Ben was the leader of eValuator's client success function. He is directly responsible for creating an industry-leading customer service experience, listening numerous referenceable clients. Ben's relationship with our clients makes him the perfect fit for the leadership position at eValuator.

You were previously introduced to Jawad Shaikh, President and CEO of Avelead Solutions. Jawad and Avelead have made tremendous progress in adopting our winning processes.

I'll now turn it over to Ben to introduce himself and provide an update regarding eValuator. Ben?

Thank you, Tee, and good morning. I've had the fortune of working with Streamline for the last 9 years, gaining exposure to functions across the company beginning in finance before moving into IT than sales and business strategy. Over the last 2 years, I've led our client success team focused on aligning our clients' journey and enabling their financial and operational success. Our clients and prospects are medium to large-sized hospital systems. They experienced persistent challenges in efficiently capturing and accurately reflecting the value of care they provide. This can be attributed to the complexities in coding, a lack of integration in the systems, which process and report the coding in hardships with staffing. While many of the prospective clients we talk to are aware of their hurdles and the potential solutions in the market, they are also very familiar with the disruption that comes with implementing new solutions and changing existing processes.

eValuator helps with many of those problems and does so before builds are set out the door. Our solution is built on decades of experience in coding and auditing and has been constantly updated for both regulatory changes in hyper specific scenarios mined from our data that has been incorporated into our proprietary rules-based engine. An intuitive workflow combined with centralized dashboard reporting empower end users and leadership alike to make agile improvements for efficiency and accuracy. Being cloud-based, our solution integrates directly and easily into coding systems and can be implemented by our clients in under 60 days, enabling remote teams with limited IT resources to achieve their return on investment quickly.

One of our newly implemented clients went live in under 60 days and achieved a positive ROI from eValuator in its initial month. Another client was able to add unbudgeted resources using eValuator reporting, which identified substantial miss revenue. Admitted a recent staffing shortage another client turned to us for a process improvement project and we're able to help supplement their staffing.

Our clients are our partners, and they're becoming rating fans, thanks to the success they're experiencing with eValuator. I believe these client stories and references supplemented with data analysis showing positive ROI to potential prospects will allow us to expand our client community. As Tee mentioned in his introduction, Amy Sebero has joined our company to lead the growth area of eValuator Solutions. Amy was previously responsible for SaaS revenue in excess of $220 million as well as managing relationships with over 900 health systems, including 37 of the 40 largest health care providers in the U.S. Amy's resume speaks for itself, and we're looking forward to benefiting from our extensive relationships with hundreds of hospital systems and years of experience operating in our industry.

Amy's focus is on activating potential clients in the early stages of our pipeline to sign contracts with us. I believe her experience in the market, combined with a more normalized environment will accelerate bookings. Additionally, many of the contracts in our pipeline today are, on average, larger than our historical $300,000 annual contract value. As for our recent performance, during the fourth quarter, we signed another North Carolina hospital system, our third. Additionally, we signed a seventh facility Epic EHR health system in Pennsylvania in the first quarter of fiscal 2022. During the fourth quarter, our inside sales team successfully added $11.3 million of total contract value to the pipeline, while our reseller partner channel add an additional 17 new prospects.

Before I hand the call back over, I'd like to thank all of our associates at eValuator Solutions from software development to client success, services, sales and finance for the dedication they have to making sure our clients are successful and to our clients who have built a community with one another around bettering their teams, improving financial performance and providing us the feedback that is making eValuator better.

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 all. As a bit of a background, and for those of you who are new to our story, I'll begin first with a brief overview of Avelead. Avelead's mission is to put an end to lost revenue for our health care providers. As those of you who follow the revenue cycle management space closely, most health care organizations are losing millions of dollars every year as a result of clerical errors and the increasing complexity in coding and billing. At Avelead, we've built a suite of revenue cycle solutions borne out of our consulting practice that just like eValuator help our health care providers capture 100% of the revenue they've earned.

Also just like eValuator, at Avelead, we go to market through a combination of direct selling and through channel partnerships with industry influencing EHR leaders. Like eValuator, our solutions are EHR-agnostic, yet we enjoy a long-standing relationship with Cerner, which has helped drive our growth and help Cerner continue to envelope their clients.

Our flagship RevID eliminates revenue leakage by ensuring all clinical activities are built. In addition to RevID, we also sell our powerful compare tool, a comprehensive audit and interoperability software that assist the hospital clients with the integration and implementation of RevID and other non-athlete products within the revenue cycle management space. Additionally, we are in the early stages of rolling out novel cloud-based solutions for different portions of a health care providers' revenue cycle management processes that we develop based on client demand. We will keep you apprised of our product development progress in future updates.

Today, our solutions and services are utilizing more than 90 facilities, and in every case, we have delivered a significant positive ROI for our clients. Our largest existing clients increased their usage of our solutions by 8 new facilities in the first quarter of fiscal 2022. Avelead is at an exciting point in its history, as we continue our mission of enabling hospitals to better capture and accurately build charges through the revenue cycle processes, we made the strategic decision to expand our leadership team to include a Chief Technology Officer and a Senior Vice President of Services. By expanding our leadership team, we are better positioned to provide world-class service to our existing clients while executing on our product road map.

As a reminder, Avelead's focus for 2022 is to improve the innovation and service components of our business to set the stage for rapid future growth. With that said, growth opportunity in 2022 is to expand our footprint within existing contracted clients. Further, we have an exhaustive list of opportunities through our large channel partners, Cerner. We have successfully worked with Cerner to build our existing client base and pipeline. Within our sales process, we plan to leverage RevID's proven ROI and satisfy client relationships to drive bookings and revenue in fiscal 2022. Just like eValuator, we see opportunities opening up as the impact from COVID retreats within both our direct and partner sales.

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

Thank you, Jawad. Total revenues for the fourth quarter of fiscal 2021 were $6 million, a 103% increase over the comparable period of last year. $2.5 million of the increase was attributable to the acquisition of Avelead on August 16, 2021. SaaS revenue increased $1.7 million or approximately 155% compared to the same quarter a year ago. Total fiscal 2021 revenue was $17.4 million, a 53% increase over fiscal 2020. $4.5 million of the increase is a result of the acquisition of Avelead. SaaS revenue for fiscal 2021 increased $4.4 million or approximately 121% compared to fiscal 2020.

Fourth quarter 2021 operating expenses totaled $8.2 million compared to $4.3 million for the prior year period. $3 million of the increase was related to the acquisition of Avelead, $146,000 of the increase is related to nonroutine costs, primarily attributable to the acquisition.

Fiscal 2021 operating expenses were $28.1 million compared to $17.3 million in fiscal 2020. $6 million of the full year operating cost increase was the result of the Avelead acquisition. The remaining cost increases over fiscal 2020 can be explained by investments in the sales and marketing teams and innovation costs for the eValuator Solution and $2.9 million related to nonroutine costs primarily attributable to the acquisition.

Loss from continuing operations for the 3 months ended January 31, 2022 was $4,000 compared to loss from continuing operations of $1.6 million for the 3 months ended January 31, 2021. Loss from continuing operations for the 3 months ended January 31, 2022, included $146,000 of nonroutine costs and other income of $2.3 million, primarily related to the acquisition of Avelead. The income of $2.3 million was a direct result of a valuation adjustment on the acquisition liabilities that were set up on the Avelead opening balance sheet.

Loss from continuing operations for fiscal 2021 totaled $6.9 million compared to $4.8 million in fiscal 2020. Loss from continuing operations for fiscal 2021 included $2.9 million of nonroutine costs and other income of $1.9 million, each are primarily related to the acquisition of Avelead. The company also recorded $2.3 million of other income as a result of the forgiveness of its PPP loan for the full fiscal year ended January 31, 2022.

For fiscal year 2020, the company recorded an income tax benefit of $1.3 million to reduce its loss from continuing operations. Adjusted EBITDA for the fourth quarter of fiscal 2021 was a loss of $299,000 compared to an adjusted EBITDA loss of $122,000 in the same quarter of fiscal 2020. Adjusted EBITDA for fiscal 2021 was a loss of $2 million compared to an adjusted EBITDA loss of $1.9 million in fiscal 2020.

Moving to the balance sheet. As of January 31, 2022, we had $9.9 million of cash on hand compared to $2.4 million at the end of fiscal 2020. As Tee indicated in his remarks, the company completed the acquisition of Avelead, utilizing 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-month 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 the future amounts that will be paid in both cash and restricted common stock upon the anniversary dates 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 the close. $500,000 is required in the second year following the close, which equates to a $41,667 monthly payment beginning in September 2022. The company maintains its position to the uncertainty related to the effects of the novel coronavirus on the health care market prevents us from providing detailed guidance. We are targeting an average go-forward SaaS booking space of $3 million to $5 million TCV per quarter for 2022. The company is well positioned to achieve its target bookings in 2022.

Streamline remains focused on continued growth of SaaS revenue. The growth of our SaaS revenue tempered on a sequential basis this quarter as a result of an outside payment recognized in Q3 2021. Going forward, we expect SaaS revenue to remain at its current levels in the fiscal first quarter of 2022 before resuming the strong sequential growth that the company experienced through all of fiscal 2021. The company continues to evaluate its consolidated forecast with Avelead. As noticed on our update, we are optimistic that the combined entity will reach cash generation by Q3 2023.

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

Thank you, Tom. As we close out fiscal 2021, I won't recognize the tremendous change that has occurred in our organization over the past 12 months. From our transformational acquisition of Avelead to the new leadership and clients we've added, we have taken major steps forward to drive more diversified recurring revenue streams and better position our company for long-term growth. I'm proud and grateful for the hard work that our teams exhibited through routineous macro conditions and large-scale evolutions of our business.

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 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 for your support of our vision.

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

(Operator Instructions) Our first question is from Matt Hewitt with Craig-Hallum Capital Group.

Maybe the first one is if you could provide an update on what you're hearing from customers and potential customers regarding the sales process. I know that the last couple of years has been incredibly challenging, hospitals in some places reluctant to bring in new software or even applications or services because of the pandemic, just feeling that their employees are already dealing with too much. But as we kind of exit or appear to be exiting stricter confines, are you starting to see things open up a little bit?

Matt, Tee, thanks for the question. Thanks for joining us this morning. Quick answer is yes. And you're seeing it in our Regional Vice President's being able to travel again and go on site and have dinners and do presentations live. So that's an early indicator that things are beginning to thaw. Another one that I'd point to is our trade shows, like it's HFMA. We did a region 5 show and created just 7-plus opportunities just for eValuator just at that show. I mean, people are reengaging, I guess, is the right word, and that's a welcome for sure.

That's great. And then since Ben is on the call this morning, I actually have a couple of questions for you. I'm curious, you've been with the firm for a while. But obviously, in your new role, have you implemented any changes? And with Amy coming on board, what have you been able to learn since she joined obviously in the past month?

Matt, thanks for the question. So having been in a client success organization for the last 2 years and seeing some good progress just focusing and putting the client more at the center of things, that's kind of the mentality that I'm trying to bring to our management team. So whether it's getting the development team more in front of the client stories that I kind of mentioned, we're getting the sales team more familiar with how our successful clients are able to work. I think that's really started to make a difference and people are more aware of the use cases, which helps define our road maps and how we approach prospects.

So I think that's the major change that we'll kind of see is in a purpose statement and things like that, it's much more partner and client focused. And then as far as Amy, I mean, I really enjoy working with her so far. She had a good balance of both the art and the science of selling. So on the science side, she's put in place new reporting in dashboard. She has quantitative expectations around trade shows, a prospect fit tool to make sure we're approaching the right health systems, that sort of thing. But like I said, the number of connections that she has in the industry is very helpful. She's already reached out to a number of CFOs, just to talk about our market applicability and how we're approaching potential prospects and then obviously trying to bring the ones that actually do make a good fit for us into the fold more significantly.

So she's very helpful on the sales front, but just being on the leadership team that we have as well as we talk about where the product is going to go over the next couple of years and to find that vision, her industry expertise is very, very helpful.

That's great. And then maybe one more for me, and I'll hop back in the queue. But in the presentation, I think you mentioned that 17 new customers that have been added to the pipeline from your reseller channel. Maybe just an update on which partners you're starting to see some traction with and how quickly those could translate from pipeline opportunities to potential signed contracts?

Sure. Yes. So we have both what we'll call value-added resellers, which there is some level of integration with the technology itself. And they have pretty good footprints, and we see a lot of opportunity there. So right now, we're going through the motions of talking to their sales teams, to their integration teams, some of which we already have integration at a client or 2, but trying to expand upon that relationship. I think that one is probably a little bit -- it's probably a little bit easier to do because we have a proven use case and I think we'll see that towards the -- I still think it's in probably Q3 or Q4 that we'll see a lot of increase there. And then we have sort of traditional resellers who are people who are going out in the market. They have relationships and they have maybe a consulting relationship or something like that already in place, and it's been advising based on the needs that they currently have that eValuator would be the appropriate product.

And so it's a different profile. And so there's -- it's probably a little bit longer of a pipeline or a tail, I should say, than the ones that are value-added. But both -- we're trying to hit both of them because we see them as really a multiplier of growth as opposed to individual relationships that we set up with our direct sales team.

Our next question comes from Niraj Gupta with GCI Partners.

I appreciate you guys doing this expanded format for this call, very helpful. I guess my first question, if I could ask Jawad a couple. Jawad, can you talk a little bit about the client expansion from the -- that you guys announced recently this meaningful expansion? What drove that? And could you also just give us a little bit of history on the duration of the relationship just to kind of give us some perspective?

Sure. Yes. Thanks for the question, Niraj. Yes, the expansion was with an existing client that has actually been getting a lot of value and utilization out of the tool. They've seen the successes that they had. They have a large footprint of hospitals. So we were just probably about 1/3 of their hospitals. So we're slowly kind of expanding that and the -- we've proven it working really well there, and they just want to try and expand that into additional one of their hospital sets as well, too. So that's what's driving that growth, just our success at the existing facilities and then trying to expand it to the rest of their facilities. And they're one of our early adopters. So we've been with this client or they've had been live on our RevID product for roughly over 2 years.

Okay. So you've had the relationship for 2 years. And with this expansion that you're doing, would you say you're closer to 50% penetrated in the system? Is that fair?

Yes. That would be accurate.

Okay. So is that another way of saying you got another -- you have an opportunity to further double your revenue with this customer over time? And is that a reasonably likely possibility?

Yes. It's likely kind of overtime as well, too. There are different models or different type of facilities and hospitals that they have. So it's kind of a mix. I don't know if they'll be every 100%, but it is something that we're going to continue to grow into, and there's still definitely room for more expansion with it even within that client base.

Okay. And do you think that this client base, just again, just kind of thinking about the opportunity just with 1 really large customer. Do you think that there's an opportunity for other solutions like compare that you announced today? And also, are they potentially a candidate for eValuator over time?

Yes. One of the things our kind of strategy is like we're going to do it really well. We're doing really well with this client and others and doing that kind of land and expand approach. Because once we have a great relationship with them and we can solve some of the problems, especially some of the things that the industry is dealing with around staffing and then coding issues is obviously one on as well, too, that just naturally opens the door to add some of the additional products that I mentioned earlier as well as eValuator to that mix. So that's the strategy, and that's the plan, and that will open the gateway to hopefully do that more with this client as well as others.

So another question just about lead gen, right? Or just thinking about like piloting. My understanding is you're working on a pretty large pilot right now with another large health system. Could you just speak to kind of how that's progressing at this early stage? And also, is this something like how are you driving these relationships? Is this again an extension of the Cerner relationship?

Yes. I can't go too much on the detail.

Yes, let's go on to the next question, if we can.

Okay. All right. Then -- maybe one for Ben. Ben, could you -- Ben, could you speak to -- maybe just how your experience with eValuator has evolved over the last couple of years? For us sitting on the outside, it's kind of hard to see what's been going on because we've been dealing with watching from a distance why you guys have been dealing with COVID, et cetera. But can you talk about kind of the changes that you've implemented and the -- you've seen implemented in the organization over the last 2 years period of time. And how our go-to-market is different versus what it was 2 years ago and why you feel so optimistic going forward?

Sure. So I would say that the clients that we've added in the last maybe going back 3 or 4 years now, have been very successful. And I think the reason for that is our emphasis on the client success. So we have a team that meets with our clients on a monthly basis to say what's being most effective, how do we make sure that the resources you do have are being able to review the most encounters, the rule that we have, which ones need to be turned on, turned off, and really a level of customization for that client that has heck or high water, they're going to be successful because we're making sure that they're reviewing exactly the right encounters. And then that feeds back into the features we develop and then the rules we write, et cetera. So I think that has started to really be an additive process. And so the latest clients that we have coming on now are going live in less than 60 days because we don't have any technical barriers to getting them and then we're basically day 1, we already have things configured so that they can review the better encounters and it kind of -- it has just accelerated everything.

The thing that I would say is as COVID has gone on, the demographics of the encounters coming through, we've been able to learn from that. But as we come out of -- hopefully come out of COVID, we're now shifting the rule sets and we're able to shift the rule sets to a place where we see how those demographics change and really pivot towards that. So I think the clients that we have, they're raving fans, like I said, and they're willing to be references. They want more people within that client community because they see talking to each other and building on that as being a plus.

Great. I appreciate, again, all the updates, and it's nice to see things coming together. Good luck going forward.

Thanks, Niraj.

It appears that there are no further questions at this time. I would like to turn the floor back over 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 results for the first quarter of fiscal 2022. Good day.

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