Streamline Health Solutions, Inc.

Greetings and welcome to Streamlined Health Solutions second quarter 2021 earnings conference call and corporate update. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, you may press star one on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 go ahead.

Thank you for joining us for the Corporate Update and Financial Results Review of Streamlined Health Solutions for the second quarter of 2021, which ended July 31, 2021. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are T. Green, President and Chief Executive Officer and Chairman of the Board, Javad Shaikh, President and Chief Executive Officer of AdLead, a streamlined health company, 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 our 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 recent acquisition of AdWords. 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 comparable GAAP measures. I would now like to turn the call over to T. Green, President and Chief Executive Officer.

Go ahead, T. Thank you, Jacob, and thank you all for joining us this morning. In addition to our quarterly report, we're excited to discuss our recent acquisition of Abilene. As Jacob mentioned, today we are joined by Javad Shaikh, who founded and grew Abilene and will continue to lead that business going forward. Javad will not be making a regular appearance on these calls, but we want you all to hear directly from him about Avalit Solutions and his vision for the future. He will also be available for Q&A following today's call. Our company follows a straightforward formula for revenue growth, and that is innovation, like our paradigm-shifting evaluator software, plus service, like our customer success team, equals growth. I plus S equals G. Regarding our innovative evaluator solution, we continue to expand its capabilities and improve its features and benefits. Our customer success team provides support and reviews evaluators' top and bottom line effects on our customers' revenue. This service and innovation combination continues to yield growth. Today, we have a strong stable of referenceable customers, an expanding list of reseller partners, and growing number of large, well-known healthcare providers in our sales pipeline. Moving now to our financial results. As a reminder, Avalit is not included in these figures. Total revenue for the second quarter of 2021 was $2.9 million, in line with the second quarter of 2020. Notably, our SAS revenue grew 59% from second quarter 2020 to 2021. Recurring revenue accounted for 84% of total revenue this quarter, compared to 71% for the second quarter of 2020. Second quarter 2020, adjusted EBITDA was a loss of $800,000 compared to an adjusted EBITDA loss of $400,000 during the second quarter of 2020. As of July 31, 2021, we had $15.8 million of cash on hand with no bank debt. In connection with our acquisition of Avali, we utilized approximately $13 million of our cash and entered into a $10 million term loan with BridgeBank. We also issued $8 million of restricted stock to the sellers to round out the purchase price at closing. Our cap table remains clean with only one class of common stock. Tom Gibson, our CFO, will provide additional details about our financials during his prepared remarks. Over the last two years, the Streamline team has made significant strides to position our company for growth. We eliminated our outstanding preferred stock to clean up our cap table, cleared the bank debt on our balance sheet, found a great fit for our legacy ECM business, and successfully raised $16 million in our March 2021 offering. These achievements put us in a position to complete our recent acquisition of Abilene, a major milestone for our company. Our leadership team was impressed with Abilene's solutions And we're not the only ones. Some of the largest hospital systems in the nation have embraced Avalie's revenue cycle solutions. As a result, the company has enjoyed rapid revenue growth as of June 30, 2021. Avalie's SAS ARR run rate was $5.7 million. And total revenue for the trailing 12 months totaled $10.2 million. We expect that Avalie's SAS revenue for fiscal 2021 will be more than twice that of fiscal 2020. By combining Avali with Streamline, we have nearly doubled our consolidated revenue, moved closer to profitability, and expanded our portfolio of products and revenue cycle management for all of our customers. We are thrilled to welcome Javad Shaikh and the Avali team to Streamline. They have done a tremendous job building a successful business. Now it is my pleasure to introduce the newest member of our team, Javad Shaikh, the President and CEO of Avali, a streamlined health company.

Thank you, T. It's a pleasure to have the opportunity to speak with all of you. Avali's mission is to put an end to lost revenue for our healthcare providers. As those of you who follow the revenue cycle management space closely, most healthcare organizations are losing millions of dollars every year as a result of clinical errors and the increasing complexity in coding and billing. At Avalede, we've built a suite of revenue cycle solutions born out of our consulting practice that, just like Evaluator, help our healthcare providers capture 100% of the revenue they've earned. When I had a chance to sit down with T and better understand his vision, I realized I could not have identified a better partner for our company, our customers, or our employees. Just like Streamline, at Avalede, we go to market through a combination of direct selling and through partnerships, with industry-influencing EHR leaders. Also like Streamline, 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 customers with like-minded partners. Today, we are primarily focused on our flagship RevID solution, which is an ideal complement to Evaluator. Rev ID eliminates revenue leakage before claims are processed by comparing posted charges to clinical information, ensuring that a hospital's coding staff have complete and accurate information with which to construct their bill. Beyond Rev ID, we're in the early stages of rolling out additional cloud-based solutions for different portions of a healthcare provider's revenue cycle. I'm sure this team will keep you apprised of our progress in the market over time. Today, our solutions and services are utilized in more than 87 hospitals, and in every case, we have delivered a significant, positive ROI for our customers. Here at Avalede, we are thrilled to join forces with Streamline. Under T's leadership, and I see a bright future for our combined organizations. Now I'd like to turn it over to Randy Salisbury, Chief Sales and Marketing Officer at Streamline Health.

Thank you, Javad, and welcome aboard. I stated last quarter that we believed departmental decision-making was beginning again as the initial difficulties of dealing with a novel coronavirus began to lessen as the number of people receiving vaccinations grew. This was before the Delta variant became more prevalent, and now we're experiencing some decision-making delays again, but mostly in areas of the country that have been hardest hit with new COVID cases. Many of these health care providers have been forced to suspend elective procedures, which generate a substantial portion of their top-line revenue. The financial uncertainty created by these factors tends to delay, but not cancel, evaluator approvals. That said, we sold approximately $1.5 million of evaluator contracts in the second quarter of this fiscal year, and I'm pleased to report that we just signed a new million-dollar evaluator contract with a North Carolina-based healthcare provider, and we're in the final stages of signing another larger contract with a very high-profile hospital system in the near term, which is a good start to our fiscal year third quarter. During the second quarter, we made some substantial additions to our sales and marketing teams. As our customers continue to experience hardships with staffing, accurate coding, and more, we want to provide support for them through our unique technology. During the third quarter, Lance Siech, a very senior and successful strategic leader, joined our company as Senior Vice President of Business Development. Lance is a proven and experienced leader in the coding space. He was instrumental in helping assign some of our most recent large channel partner agreements. And on that note, during the second quarter, we added two new reseller partners and a third one in the month of August, bringing the total number of evaluator resellers to 8,000. During the second quarter, these partners added 10 new prospects to our evaluator pipeline, and we added five more just in the month of August. Our primary objective going forward is to activate the many opportunities these partners represent to drive more signed evaluator contracts. We also hired a new regional vice president of sales for our western region, a very experienced and successful salesperson in revenue cycle management technologies with great provider relationships throughout the Western United States. She joined our company because she sees how Evaluator can help hospitals improve financial performance. And as we discussed on last quarter's call, we expanded our sales development efforts with the addition of two new BDRs, or business development representatives. Our new team members are already contributing. and securing introductory conference calls between new prospects and our regional vice presidents of sales. Their focus is to open doors and set appointments with executives in the revenue cycle management department of leading healthcare providers throughout the country. As you can tell, 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. and large reseller partners with hundreds of active provider relationships will help us expand our reach and accelerate our sales. I'll now turn the call over to our CFO, Tom Gibson, to review the second quarter's financial results in more detail. Tom?

Thank you, Randy. Total revenues for the second quarter of fiscal 2021 were $2.9 million, in line with the prior year period. SAS revenue increased a half million dollars or approximately 59% compared to the same quarter a year ago. Revenue during the quarter was impacted by significantly higher revenue from SAS offset by lower revenue from software licenses and professional services and audit services during the quarter. Second quarter 2021 operating expenses were $5.3 million compared to $4.1 million for the prior year period. The higher operating expense of $1.2 million is related to non-recurring transaction expenses, higher rates of amortization on software development, higher rates of stock compensation, and a higher allocation of R&D expenses not being capitalized, as compared with the second quarter of 2020. R&D expenses grew a half million dollars primarily due to lower capitalization of development expenses. As previously reported, the company is spending more of its development efforts on the products that will provide growth. This transition has had an impact on the amount of capitalized development costs in the first six months of 2021. Loss from continuing operations for the three months into July 31, 2021 and 2020 totaled $0.1 million and $1.2 million, respectively. Loss from continuing operations for the three months ended July 31, 2021 included $2.3 million of income associated with the forgiveness of our CARES Act loan. Net loss for the second quarter of fiscal 2021 was $0.1 million as compared to a net loss of $1.1 million during the second quarter of fiscal 2020. Second quarter fiscal 2021 net loss included $11,000 of income from discontinued operations of the company's legacy ECM business, which was sold and closed on February 24, 2020, compared to $28,000 of income from discontinued operations during the second quarter of fiscal 2020. Adjusted EBITDA for the second quarter of fiscal 2021 was a loss of $0.8 million compared to an adjusted EBITDA loss of $0.4 million in the first quarter of fiscal 2020. The lower adjusted EBITDA is substantially all related to the lower rates of capitalization of R&D expenses. Moving to the balance sheet, as of July 31, 2021, We had approximately $15.8 million of cash on hand compared to $2.4 million at the end of fiscal year 2020. Subsequent to the second quarter ended July 31, 2021, we completed the acquisition of Avalit. Inclusive of transaction expenses, the company used approximately $13 million of cash to close the transaction. And we closed on a new $10 million term loan facility from Bridge Bank to finance the deal. Concurrently, with closing on our term loan, we terminated the existing $3 million revolver, which had no outstanding balance at the time. 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, the company remains focused on continued growth of SAS revenue. We are targeting a gross margin for SAS revenue of 80% in fiscal 2023. Currently, our SAS gap margins include amortization of historical development expense. Given our evaluator SAS revenue volumes, and the high levels of historical software development amortization, we have not yet reached our targeted gross margins. In the second quarter and the first six months of 2021, the company achieved gross margin in excess of 80% for SaaS after adjusting for amortization of software development costs. The company is evaluating its consolidated forecast with Avalit. However, it remains optimistic that the combined entity will reach cash generation by Q2 or Q3 2022. That concludes my comments. I will now turn the call back to T. Green for his closing remarks. T?

Thank you, Tom. With the successful acquisition of Abilene, continuing our focus on technologies to help healthcare providers improve their financial performance, sustained growth of our SAS revenues, and two years' worth of strategic accomplishments to successfully position our company to seize market opportunities in multiple areas of revenue cycle management, I feel confident that Streamline is entering a new and exciting chapter. Today, we have a strong leadership team and talented team members across all departments. Our vision of pre-bill revenue integrity continues to gain momentum in the market, and more providers every day are understanding the power of tools like Evaluator and RebID. Though we may continue to be hampered somewhat in the short term by the macro impact of the coronavirus, we are focused on controlling what we can and winning at that every day. The opportunity in front of us cannot be overstated, and I look forward to sharing our successes with you in the quarters to come. Before we begin our Q&A session, I'd like to extend my heartfelt thanks to the team members at Streamline and Abilene for their hard work and perseverance during an enormously challenging time. Their contributions enable us to support our hospital system customers and ensure that 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 streamlined health and for your support of our vision. Now I'd like to open the call up to your questions. Operator?

Thank you, sir. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question today is from Matt Hewitt of Craig Hallam Capital Group. Please proceed with your question.

Good morning and thank you for taking the questions. First one from me. I'm curious if you've had any opportunity to speak to some of the Avalit customers, get initial feedback from them on what their thoughts are, and maybe talk a little bit about the cross-selling opportunity with Evaluator and whether or not there is any initial overlap. Do you have a customer that's using both platforms?

Hey, Matt, T, I'll start that, and we can let Randy and Javad jump in as well. But, you know, when you look at, one, part of the due diligence process, right, yes, we talked to Avali customers, and obviously if they weren't ecstatic and didn't see no ROI, we probably wouldn't have done this. So, yeah. The technology that's being built at Avali with Javad, it started out very much like Evaluator. It started out as a consulting organization that has tremendous domain knowledge. I think that's where very powerful software platforms evolved from in the revenue cycle. They're developed with tremendous core domain knowledge, which that's really key here with both of these solutions. You know, Rev ID is on the pre-coding side and evaluator is on the post-coding side, but they're both pre-bill. So, you know, it fits exactly where we want to be. Now, in reference to cross-selling, you heard Javad say 83 health systems. So, yeah, I mean, that's a big market, right? And then vice versa, the Rev ID will have opportunities in the evaluator customer base. And we do have some that are using both, but, you know, it's two different sides of the house. So, It's new, but right now the two companies are certainly operating independently. We want to continue that and continue to see both of them grow. Randy or Javad, would you like to opine on any of that?

This is Randy. Just to say quickly, I think one of the upsides, Matt, is short of CHS, I don't believe we have any combined customers, which is great. We have opportunity there. Javad?

No, exactly. I was going to say the same thing. And I think our customers are kind of really excited from, from a twofold perspective, you know, of the ability for us to grow and do more things faster and better, um, from the, on the athlete side. And then just a lot of interest just kind of on the evaluator product as well too. So we can kind of know a holistic approach to helping them with their pre-bill activity.

That's great. And then I guess shifting gears a little bit to the, the partners, um, Having, I think you're up to eight distribution partners now, Streamline is, and then Avalede's got Cerner. Is there an opportunity to bring or add Evaluator to the Cerner distribution agreement, or what are your thoughts there?

Well, this is, again, a great question. On the evaluator side, just first, Randy and team with our new business development leader, Lance, they've done a tremendous job bringing on partners that see the value in the evaluator. Obviously, we want to introduce those partners to RevID and the Avali team at the right time. Saying that, we also would like the evaluator platform to be introduced to the Cerner teams at the right time. We certainly see you know, being pre-code, post-code, all pre-built, part of that niche of the revenue cycle is unique. And so this is going to be very attractive to, I believe, Cerner and others.

Fantastic. And then maybe one last one, and I appreciate it's in some ways disappointing that we've had this spike in the delta, and that's maybe delaying some of the purchasing decisions. What do you think your pipeline has continued to build throughout this? It doesn't sound like you've lost anyone from that pipeline. It's more just getting people across the goal line. What do you think is going to be the trigger that really gets customers to say, okay, we've done our due diligence. We've learned as much as we possibly can. We're excited. We're ready to sign a contract. Is there... any one or two things, either macro or micro level, that you think will ultimately lead to those contracts getting signed? Thank you.

Yeah, this is T again, and then I'll turn it over to Randy. I was with the number two guy at a large health system this past weekend over Labor Day, and he says, T, our beds are completely full. And we have people in the halls and waiting in this Delta variant. So it's a temporary spike. I mean, it's there. It's real. You can look. I don't care if you're in Coeur d'Alene, Idaho or, you know, in Georgia. You're seeing this spike across the board. You're seeing it, you know, in some areas start to dissipate, which is exciting. But, you know, I think as we announced yesterday with another great health system that's come on board, that thaw is going to happen. It's... The timing of that thought, I don't know. Randy, you can give some more insight there because you're dealing with it every day. But in general, our pipeline continues to grow. The number of contracts that we're sending out continue to grow. And you just got to get through that backlog in their legal departments. So, Randy?

Yeah, I would echo that. I would suggest, Matt, that T's right, that the volume of deals moving into the final stages where MSAs are out there They're looking at them. They're kind of waiting to get approval. One of the things that helps from the macro side is the company they keep. And the more we win, the more we're going to win. So make no mistake, we use victories in our direct marketing. And we go back to prospects in the pipeline and tell them, you know, here's more health care providers just like you, whether you're Epic-based or Cerner-based or, you know, matters not to us, are selecting the evaluator and they're seeing a positive ROI. That messaging kind of helps keep the momentum going, and they move up the list of priorities to be signed, given that all these hospital systems have multiple priorities that they're looking at.

Yeah, Matt, I'll add one more thing to that, too, because you're talking about the macro side of it. You know, on Evaluator, it's not a deinstall. It's not a conversion. And every month they don't move forward. They know how much money they're losing. So I think our sales team has a real advantage when these contracts start to fall. What's health systems going to do first? I think they're going to take the easiest route that's going to have the biggest ROI, and that's evaluators.

Got it. Well, that's very helpful. Thank you very much.

The next question is from Brooks O'Neill of Lake Street Capital Markets. Please proceed with your question.

Good morning, guys. Good questions from Matthew there. I have just two. One, and they're both for Javad, actually. I was curious, Javad, if your company was for sale before being approached by T and Team. And then secondly, I'm curious, I can see all the things you bring to Streamline and I'm curious, as you evaluated the merger possibility here, aside from the money, which is obviously probably significant, are there things you see in the streamline organization or product line or capability set that you think are going to enhance the growth of your company, you know, as you looked at your possibilities down the road? Thanks a lot.

Thanks for the question. Our strategy was really about growth. One of the things we were looking at for AdLead was is how we're going to grow, how we're going to grow faster and solve the problems that we see in healthcare. So when you say we were on market, we were for sale looking for opportunities to do that, whether that was through acquisition or through investment. And we looked at all those opportunities, we actually We're growing so successfully on our own, we decided to go off market. But during those conversations while we were on market, we had spoken to T and the Streamline team and really liked their vision. They kind of came back to us again after we went off market and said, hey, we're really interested in doing something. Built that great relationship, shared vision, and their plans were for growth, ours was for growth. So that was the primary fact of how we wanted to move forward. Cool. Great.

Thank you very much. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. There appears to be no additional questions at this time. I would like to turn the call 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 at streamlinehealth.net. We look forward to speaking with you all again in December when we will discuss our third quarter financial performance. Good day.

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