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spk01: Greetings. Welcome to Streamline Health's third quarter 2021 conference call. At this time, all participants will be in the listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. 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.
spk02: Thank you for joining us for the Corporate Update and Financial Results Review of Streamlined Health Solutions for the third quarter of 2021, which ended October 31st, 2021. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are T. 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 with all of our earnings calls, should be viewed. We therefore submit to 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, Streamlined 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 unordered figures related to our recent acquisition of Avalie. 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 T. Green, our President and Chief Executive Officer.
spk04: Thank you, Jacob, and thank you all for joining us this morning. As we have previously announced, on August 16th, we acquired Abilene, 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 a 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 make key investments in the evaluator side of our business throughout the year, especially in sales. Today, we have built out a direct sales force with four high-profile regional vice presidents, all of whom have demonstrated a track record of closing deals. We have partnered each of these RVPs with a business development representative 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 Siech, 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 Class Research a leading healthcare IT research firm. Class 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. Class research conducted surveys with standalone hospitals and found that 100% of customers saw very positive outcomes within six months and universally agreed they would buy Evaluator again. There was high praise for evaluators' 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 healthcare community. Within the Avali business, while we plan to make additional investments into the sales team, we are currently focused on the eye, in the S functions of our growth equation, innovation and service. We recently hired a new technology leader whose focus will be ensuring that Avalit software remains highly scalable. To strengthen Avalit's 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 Avalit 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 SAS revenue totaled approximately $3.1 million, an 81% increase compared to approximately $1.7 million during the prior year period. Moving now to our GAAP consolidated financial results for the three months ended October 31st. Total revenue for the third quarter of 2021 was $5.5 million, 109% increase from the third quarter of 2020. Notably, our SAS 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 31st, 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 Ridge Bank. subsequent to the acquisition of Avalit. To close the Avalit 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 Avalit that is tied to Avalit'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?
spk07: Thank you, T. Total bookings for the third quarter of 2021 were $2.1 million, approximately $800,000 of which was attributable to our SAF solutions. On the evaluator sales and marketing front, our primary focus is on moving our evaluator prospects through our selling process from stage one, qualified, to stage four, 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 sign deals for Evaluator in the next couple of weeks, and we're pushing 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 to $3 million. Now that we have completed the transformation of our sales force, as T mentioned at the outset of this morning's call, I look forward to improved Booking's momentum. The current team of proven consultative sales professionals cover each of our four sales 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 sales 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 size hospital systems. Given the scale of their operations, these healthcare systems experience persistent hardship with staffing, and accurate bill coding, 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 healthcare 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 pre-built coding analysis solution, 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 of vendors or consultants with large healthcare 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 our VPs in the sales pipeline. With the introduction of the Delta variant earlier this fall and now the threat of the Omicron variant looming, many healthcare providers are still experiencing significant disruptions to their operations. In some cases, including the suspension of high-value elective 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 tends 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 to $3 million of SaaS solutions 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 healthcare 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.
spk08: 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 Avalib on August 16, 2021. SAS revenue increased $1.9 million, or approximately 214%, compared to the same quarter a year ago. $1.2 million of the increase in SAS revenue is attributable to Avali. 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 non-routine costs primarily attributable to the acquisition. 2.3 million of the increase is related to Avalie. R&D expenses grew 0.6 million. 0.3 million of that increase is related to Avalie. The higher R&D expense is impacted by lower capitalization rates in the third quarter than prior periods for evaluated 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 non-routine costs and other expenses of $0.6 million. Each are primarily related to the acquisition of Abilene. 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 T. indicated in his remarks, the company closed Avalie 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 Avalit acquisition, we entered into a five-year contract $10 million term loan with Bridge Bank. The company maintains its position that the uncertainty related to the effects of the novel coronavirus on the healthcare market prevents us from providing detailed guidance. The company remains focused on continued growth of SAS revenue. The company experienced a one-time benefit in its third quarter from a customer non-renewal in its SAS revenue of approximately $300,000. Further, the tremendous growth by our Avalie 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 SAS 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 Avalit, 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 Avalie, 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 T. Green for his closing.
spk04: Thank you, Don. 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 healthcare, 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?
spk01: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 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. One moment, please, while we poll for questions. Thank you. And our first question is from the line of Matt Hewitt with Craig Helm. Please proceed with your questions.
spk06: Good morning and thank you for taking the questions. Maybe first up regarding the Avalede 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, Ben, on the cross-selling opportunity? Are you seeing interest from that Avalade install base, and how quickly do you think you could get some of those customers to sign up for Evaluator?
spk04: Yeah, thanks, Matt. T here. Good morning. The Avalade integration, as we mentioned, we're focused really, you know, the whole model, you have to have your innovation team, 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 Avali side, we're laser focused on the innovation side. We knew going into the acquisition there was some enterprise capabilities from a 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 the way Evaluator was a year and a half 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 Avalit sales side, because clearly there's 92 health systems or 92 opportunities on the Avalit side that they don't have evaluators. And, you know, evaluator where it 12 customers now, so less than – huge opportunity. So, yeah, but I wouldn't anticipate a lot of joint sales efforts until we get INS really nailed down on the Avalit side because you don't want to – the worst thing we could do with Avalit is outgrow its capacity to deliver, and we're not going to do that.
spk06: Understood. Thank you. 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?
spk08: Yeah, that's correct, Matt. We're looking at relatively flat revenues in Q4 in particular. Q1, we have some potential upside from non-recurring revenues. but I'm certainly not expecting growth on the SaaS line on a sequential basis.
spk06: Understood. Thank you. And then maybe the last one, you know, as far as some of the investment that you're going to be making, particularly on the software side, is that tied to essentially bringing the Avalid platform and evaluator platforms together, or are there some new applications that you anticipate adding to the combined platform? Thank you.
spk04: Hey, Matt, can you say that one more time?
spk06: I'm sorry, I had a... Yeah, so the R&D investment that you're going to be making Is that tied to essentially bringing the Avalit 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 one or more of the platforms? Does that make sense?
spk04: Yes, sort of, Tom. You may have to – the dollars that we're investing on each side, I'll let Tom opine. But as far as the Avalit side goes, it's – and if you think of RevID, the flagship application from there, and then Evaluator, the flagship from the core stream, you know, currently in the next 12 months, we do not have a product roadmap 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, you know, they both have a product roadmap that certainly stretches the next, you know, 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.
spk06: All right. Thank you.
spk01: Thank you. As a reminder to ask a question today, you may press star one from your telephone keypad. Our next question comes from the line of Brooks O'Neill with Lake Street Capital. Pleased to see you with your questions.
spk05: Good morning, guys. Thanks for taking my questions. 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 a 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.
spk04: Yeah. Thanks Brooks. T here. Um, I think everybody's ready to quit talking about this, but, you know, it is real. And, you know, we're not unlike any other healthcare IT vendor. You know, first things first, and that's battling this virus where, you know, you thought it was behind this Delta came, Omicron's here. What we're seeing is clearly it impacts decision-making in health systems. And in different parts of the country, you're impacted a bit more than others. You know, if you look at the Northeast where we've called in the National Guard into three states, yeah, we're probably not going to close a lot of contracts there. You know, that's a real issue. When you've 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, in the Southeast, all the way through the Midwest, you know, we're not having those type issues. And so we're seeing – you know, we're actually – excuse me. We're seeing contracts that have been hung up in legal actually last Friday sent to us that they've redlined it. So that's movement, right? And so that's really encouraging. But, again, when the National Guard is 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 health – 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 other issue. I was with the leader of a health system last Sunday, and he said, T, on Monday, next, well, this coming Monday, we're announcing to our health system 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. Right. Right, right. You know, those kind 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, you know, if employers are, you know, not just health systems, you saw probably this morning where Jeffries went back to remote work requiring everybody to wear masks in any of their facilities. You know, people say these variants aren't real and it's not. But, you know, 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, you know, finally there's enough, you know, we've got six deals that are in this, you know, right there that are exciting. We know these deals are coming, I guess is my point, Brooke. This is not a, evaluators, 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 eyes and, you know, the energy and the health systems, they can move forward. So I'm super encouraged, you know, so encouraged that we basically rebuilt an entire sales team over the last 90 days. I wasn't interested in doing that in the beginning of 2021 because there was no reason to go invest in high-end sales personnel if nobody's going to return your phone call. But we felt like the virus was behind us. And so we rebuilt that, and we just brought in seasoned veterans, right? And they're more expensive, but they know how to do this. You know, so I guess I'm probably as excited or more bullish than I ever have been at this point on the evaluator.
spk05: Oh, that's fantastic, and I appreciate all that, Culler. Let me just ask one other question. I totally understand the comments you made about investing in 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 of between the Avalade, 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 one plus one equals three or four still? And just give us a little color on what you're seeing there.
spk04: Yeah, well, first of all, Javad, the CEO of Avalit, 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. You know, there's several really, really large pilots that have started with Rev ID that we'll be talking about in the future that are just – I mean, it's – It's one plus one equals five or six, in my opinion. So, yeah, we're excited. Again, Avalit is serving 92 hospitals and evaluators in 12, and Avalit 92 are the top health systems in the country. So, yeah, we're pretty enthusiastic about that.
spk05: Great. Thank you very much. I'm excited, too.
spk01: Thank you. At this time, we've reached the end of the question and answer session. I'll turn the line back to Jacob Goldberger for closing remarks.
spk03: 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 when we discuss our fourth quarter and fiscal year 2021 financial performance. Good day.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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