Streamline Health Solutions, Inc.

Greetings and welcome to the Streamlined Health Solutions third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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. It is now my pleasure to introduce your host, Jacob Goldberger. Thank you. Please go ahead.

Thank you for joining us for the Corporate Update and Financial Results Review of Streamlined Health Solutions for the third quarter of 2023, which ended October 31st, 2023. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are T. Green, Executive Chairman, Ben Stilwell, President and Chief Executive Officer, and B.J. Reeves, Interim Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. If anyone participating on today's call does not have a full text copy of our press release announcing these results, you can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites. Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information which may be provided today as all of our in-ex 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 is not undertaking any commitment or obligation to publicly revise any such forwarding statements made today. On today's call, we will discuss non-GAAP financial measures such as adjusted EBITDA and booked SAS ACV. 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 me 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, Executive Chairman.

Thank you, Jacob, and thank you all for joining us this morning. As previously announced, on October 13, 2023, the company executed a strategic restructuring. Ben Stilwell was promoted to the role of CEO, supported by BJ Reeves as our interim CFO, while I've stepped into the role of executive chairman. Since the execution of the restructuring, the strategic decisions made by Ben and BJ have confirmed the board's confidence in this leadership team. Dreamline remains committed to its mission to ensure our health system clients are compensated for the care they provide. This has never been more critical for our nation's health systems. And we know that preserving in our effort to deliver pre-bill revenue cycle solutions will deliver tremendous value for clients, shareholders, and our associates. The board and management understand the long-term value of this business and are evaluating several options to improve the company's financial flexibility. We expect to update you in the near future on our progress. With that, I'd like to turn the call over to Ben for our corporate update.

Thank you, T. Since the restructuring, I've been impressed by the dedication and commitment of our associates, their drive for success and ability to rapidly evolve in a changing situation. The strategic decisions we announced in October allow us to continue to deliver value for our current clients, efficiently convert our backlog to live revenue, and focus our sales execution. all while realizing significant cost savings. And we expect that these savings have meaningfully lowered our future break-even run rate. Today, we believe that a $15.5 million SAS ARR run rate will translate to persistent adjusted EBITDA generation, and that any ARR generated beyond that level will result in gross margins in excess of 80% with significant operating leverage. As we announced yesterday, booked SAS ACV which is the annual contract value for all agreements currently being recognized, as well as bookings that have not been implemented, totals $14.5 million. Of that, approximately $11.2 million has already been implemented. Following the restructuring, our client success team has had an increased emphasis on connecting with each of our clients, ensuring we understand their overall satisfaction with our products and provide clarity about the changes we were making at Streamlines. They continue to be supportive. Our clients rely on our solutions to successfully collect all the cash they're owed for their services and are overwhelmingly happy with our team and their results. As evidence, our team was recently able to convert some of our single-year renewal contracts to three-year contracts. One of our clients is so pleased with our evaluator solution that they asked for a five-year renewal in conjunction with transitioning to Epic's EHR. Within our backlog, the team successfully completed the implementation of a $1 million SAS ACV RevID project with a large multi-health system client. During the final end user training, the super user there relayed his excitement to the facility staff by saying, we have never been able to look across our systems the way RevID enables us to. This tool will allow us to get accurately paid for the care we provide. It was gratifying to see our client comprehend and echo our company mission unprompted. And this was the first health system to go live on RevID within a much larger multi-region client. We believe that the combination of our smooth implementation, talented client success team, and substantial financial impact will allow us to expand that relationship in fiscal 2024. Our implementation team's effectiveness has been enhanced by this year's architecture improvements, and we expect that they will continue to improve their processes resulting in a smoother client experience while reducing our overall expense. Our innovation team was the most impacted by our restructuring. During the past 18 months, we made significant improvements to both platforms, including RevID's architecture and Evaluator's AI ML system, which enhances rule development to drive client ROI. And so today, the innovation group is aligned as one team in leadership structure, which allows them to work on the top priorities regardless of solutions. Currently, those priorities include the completion of a significant user interface upgrade for Evaluator and client-facing features for RevID. The combined innovation leadership structure also allowed for new opportunities for high potential leaders we have been cultivating. And to be clear, we believe that the development progress we've already made within Evaluator and RevID are sufficient to maintain a strong competitive edge in the marketplace, while allowing us to aim our efforts in response to the growth direction of the business. And so turning to that growth team, we're now focused on four key strategies with specific named accounts where we believe we can execute and have shown success. The strategies include one, a displacement campaign related to an existing offering in evaluator space where we believe our tool delivers significantly better results in a SaaS format instead of an on-premise infrastructure heavy format. Two, a continued emphasis on our Oracle partnership, which continues to aggressively push RevID. Three, the development of a new and effective channel partner. Four, and the last one, beyond new client sales, we have significant potential for upsell and cross-sell within our existing client base. For example, in addition to the significant new client win towards the end of the third quarter and the one we announced yesterday, the team recently closed a deal to expand an existing evaluator relationship with the addition of our Profi module, a testament not only to our growth team, but also the value that client success can have. We also have several late stage discussions with existing clients to become the first enterprise user of both our flagship solutions, which has been a key corporate objective for fiscal 2023. We've also shifted our marketing focus. The sales and procurement cycle in our industry has always been onerous, but in the last 12 months, has been elongated or complicated due to macro and industry-specific factors that have increasingly impacted our nation's health systems negatively. In response, we have shifted our marketing efforts to emphasize the acceleration of known prospects and developing marketing plans and collateral to help specific deals at each stage of the pipeline. Clients and prospects continue to recognize the ROI we can deliver, and in many cases, we are getting better at helping them navigate their internal IT processes to help them get out of their own way. The heightened level of scrutiny on which revenue cycle projects to pursue emphasizes the need for our solutions. Health systems continue to be financially challenged, and our ability to ensure they are accurately paid for the care they provide is paramount. And with that, I'd like to turn the call over to our interim CFO, BJ Reeves. BJ?

Thank you, Ben. For the quarter ended October 31st, 2023, total revenue was $6.1 million compared to $6.2 million during the prior year period. For the nine months ended October 31st, 2023, total revenue was $1717.2 million compared to $18.1 million for the first nine months of fiscal 2022. As previously reported, the company had a large professional services contract that did not renew at the end of its 2022 fiscal year. These professional services contracts are not expected to be part of the company's core business going forward. SAS revenue grew 22% in the third quarter and the first nine months of 2023 compared to those same prior year periods. During the previously announced non-renewal of a legacy, due to the previously announced non-renewal of a legacy client, we anticipate sequential declines of quarterly SAS revenue in the fourth quarter of fiscal 2023 and first quarter of fiscal 2024, and that SAS revenues will return to a sequential growth during the second half of fiscal 2024. Total operating expense was $19 million during the third quarter of fiscal 2023, compared to $9.4 million for the third quarter of 22. For the first nine months of fiscal 2023, operating expense totaled $35.8 million, compared to $27.1 million during the first nine months of fiscal 2022. The higher operating expense was primarily attributable to a $10.7 million non-cash impairment charge, primarily related to Goodwill. Not including the impairment, The lower operating expense in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 is associated with lower headcount and the integration of the app lead and evaluator businesses. Third quarter fiscal 2023 net loss totaled $11.9 million compared to a loss of $3.1 million in the third quarter of fiscal 2022. For the first nine months of 2023, Net loss totaled $17.3 million compared to a loss of $9.2 million during the first nine months of 2022. The increased net loss was primarily the result of the non-cash impairment charge offset by the lower cash operating expenses on relatively static total revenues. During the third quarter of fiscal 2023, we generated $0.4 million of adjusted EBITDA compared to a loss of $1.2 million during the third quarter of fiscal 2022. For the first nine months of fiscal 2023, adjusted EBITDA was a loss of $1.8 million compared to a loss of $3.5 million for the prior year period. The improved adjusted EBITDA is the result of the shift in the company's revenue composition in favor of high-margin SAS revenue, as well as significant cost savings achieved through the fiscal 2022 strategic alignment. As Ben mentioned, we believe that beyond $15.5 million of implemented SAS ARR, the company will generate persistent adjusted EBITDA with significant operating leverage from that point. Currently, we expect we can achieve that run rate during the second half of fiscal 2024. Moving to the balance sheet, as of October 31, 2023, we had $2.6 million of cash on hand compared to $6.6 million at January 31, 2023. The balance of our term loan was $9.4 million, and we had drawn half a million dollars on our revolver. The board and executive team have prioritized improving the company's liquidity position. We have a strong working relationship with our current lender, and we are exploring a number of options and working to ensure we make the right move for the business and not just the most expedient. As T mentioned, we expect to update you on our progress in the near term. The company's accounts receivable was $3.7 million at October 31, 2023, compared to $7.7 million as of January 31, 2023. The company has a number of large annual receivables, which it expects will be created during the fourth fiscal quarter. That concludes my review. I will now turn the call back to Ben for his closing remarks.

Thank you, BJ. Let me close by reiterating the confidence we have in the current and go forward business. First, I have the privilege of talking to our clients and prospects every day. They are facing staffing challenges, increased denials, and complex or inefficient systems. Macro and micro variables have required them to be conscientious of how they prioritize projects and investments. That's translated into current clients who are incredibly appreciative and demanding. while prospects are looking for more validation due to the complexity and enormity of the problems we're solving. It ironically creates both lags in timing and increased confidence that we are in exactly the right business. And second, while working with my associates through this transition, I have been incredibly inspired by their willingness to step up, lean in, and be creative with our new structure. There's no team I would rather put in front of our clients. From the persistence in our growth team, to the agility of our innovations associates, to the tactfulness and implementation, to the empathy and value drive in client success, we are all motivated and aligned to help our clients get paid for the care they provide. With that, I'll turn it over to the operator for Q&A. Operator?

Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. 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 the handset before pressing the star keys. Our first question today is coming from Matt Hewitt of Craig Hallam. Please go ahead.

Good morning, and thank you for taking the questions. Maybe first off, I'd like to dig in a little bit on the environment. Obviously, it's been pretty challenging over the past year. Hospitals under pressure, as you mentioned. I'm just curious, you know, as you have these daily conversations with customers and prospects, are you hearing any change in tone? What are your expectations as we start to look in the new calendar year?

Yeah, thanks, Matt. T here. Hey, Ben, why don't you take that from Matt?

Sure. Yeah, I think that as it's become more obvious that some of the challenges are starting to be structural, so like the staffing shortages and even the relationship with the healthcare insurers, it's become more clear that there needs to be longer-term fixes. And these health systems have looked at, for example, the entire revenue cycle and done a comprehensive solution to say, here's where we are strong and weak and where we need to invest in I think in the short term, there was a lot of outsourcing that was done, and now they're looking for things that are gonna be a little bit more sustainable, and honestly, that's where our sweet spot is, is trying to drive structural revenue cycle improvement.

That's helpful, and then maybe separately, and maybe this is for you, Ben, obviously, given the challenges over the past year, the structural realignment, and some of the other changes that you've implemented, I'm just curious, with the current employees, the morale, the excitement that they bring into the office every day. How's your team doing?

Yeah, we had a group that got together in person last week and then a management team meeting earlier this week. And I'd say that they really are rising up and leaning in. I think it's allowed us to be creative and question some of the structures we had previously. there's no doubt that making sure that we hit the bookings targets and secure the financing is over their head. And I think yesterday's announcement around the large Rev ID win was a huge one for us. And I think they see the path to move forward. Good question. Thank you.

Thank you. The next question is coming from Brooks O'Neill of Lake Street Capital Markets. Please go ahead.

Thank you. Good morning, everyone. I guess I have a few questions. I'd follow on with Matt in terms of trying to dig in just a little bit more. Obviously, you've got at a minimum two, and some might argue three, 800-pound gorillas in the broad marketplace, and I'm thinking most specifically about Oracle, Cerner, and Epic. And maybe you could just give us a sense for a couple of things related to those two. One is, you know, how willing or reasonable are they in terms of being open to working with you guys and allowing your systems to at least interface and coexist with theirs? And whether you see either of those two entities making any efforts to create their own products that do more or less what your products do.

Yeah, Ben, why don't you, hey, Brooks, go ahead. But certainly we have insights on the Oracle side and we also have some insights on the Epic side of what their system doesn't do. So go ahead, Ben.

Yeah. And there was an earnings call earlier this week where Oracle talked a little bit about their strategy with Cerner and what they're doing there. Obviously, the fact that we have a formal relationship with them and they continue to recognize that they're not trying to build something to do what Rev ID does is very reassuring. They are trying to move their clients to new accounting platforms and make a number of changes after the Oracle acquisition. We view those as entry points for us to be able to come in. We've been at their trade shows. They did a sponsored webinar for us. There's a lot of good activity on that side. On the Epic side, they're notoriously not as famous for signing a similar agreement like the one we have with Oracle. On the flip side, they're very easy to integrate with. It's a very standardized set of data. They have some tools that in theory would directly compete, but the sophistication and the service level is just very different. We believe that they have a lot of runway to invest in the clinical side of their EHRs still to make sure that physician burnout is at a minimum and that they continue to convert various health systems. So at this time, we don't think that they are, we know that they're not trying to invest specifically in the space that we play, but even if they were to, we have a moat around the value of our workflow rules and UI. And then you add on the service component where we're sitting with our clients on a monthly basis and helping them, giving them the tools to succeed. So there's the technology and the insight part. They're very good at investing in the technology and they're very focused on the clinical side. So I'm not that worried about them for the foreseeable future, especially given the pace of change within healthcare IT. Thanks, Greg.

That color was helpful. Yep. So let me just ask you a second question. You obviously have two primary products that you sell into the hospital and physician world that's out there. I guess I'm curious if you envision sort of keeping these two separate or Or whether in your longer term vision, you could envision a sort of product family that ultimately integrates and on some level does the majority of the work that a hospital would be looking for from the kind of systems you guys offer.

Yeah, that's a great question, Brooks. This is T. But certainly the teams are all integrated now, so there's not separate organizational structures. So that's the first step. But yeah, it's a good question and one that we continue to look at as we move forward. Ben, why don't you opine on some of your thoughts there?

Yeah, there's a lot of really good standalone value in Rev ID today. I think long-term we would be able to merge the technology platforms. And if you look at evaluators, very easy to see how we could expand further into denials tracking and quality measurements and a handful of others that would just look like an additional module. The workflow that we have already has multiple teams in there. Each module that you could add there would use the same data model, same workflow, just a different team and a different outcome. We have a huge effect on the rate of denials today, but we believe that there's a lot that we can do. And denials are the ultimate post-bill error. And we want to make sure that we manage and prevent those. So I think there's a lot that we can expand into. And I think making sure that our sales pipeline helps us creep into that without getting too far past our strategic core is critical.

Yep. Okay. Let me just ask one more, and I appreciate the color. So when I think about the The booked SAS ACV versus the implemented, obviously you're making some good progress there, but you still have in the range of 3 million of, I guess I'd call it unimplemented, but sold business. So talk to us about sort of the timeframe, whether there's still bottlenecks there in terms of completing implementations and Any other headwinds you see versus, you know, nice sales traction and hopefully we can get that implemented in a timely way in 2024. But just talk to us about what's happening out there in that regard.

Yeah, BJ, why don't you take the first part of that on the actual numbers and then Ben can jump in on some of the timing we're seeing with our clients.

Yeah, thanks, T, and thanks, Brooke. So as you mentioned, we are tracking to that $15.5 million number that we mentioned. And with yesterday's announcement, it gets us even closer on the booked SASACV so that we are closing in on having it booked. And then with the implementations, we are seeing some headwinds that then will give some color. There is still a little bit with the staffing. But the implementations are progressing, and we are seeing that as those projects go forward, as we mentioned, that we see the SAS revenue from that start to grow back in the second half of the year. So we're seeing progress there, and it's just some of the business challenges that Ben will elaborate on that's just slowing them down a little bit. But, Ben, do you want to jump in on the business aspect? Yeah.

The evaluator side seems to have largely returned to what our expectations was, but we still have trouble kicking off the project, even though IT has budgeted and things like that. But we're pretty confident the couple that are in our backlog right now will be in the early part of next year. The rev ID side has two factors. One, it's obviously just a much more complex project. system in that you have to train individual departments. It's a larger rollout. It's a harder problem that we're solving there. So we're pretty conservative in our forecasts. And even the one that we announced yesterday, we've pushed pretty far into 2024 just to be conservative, even though the client has expectations to go live a lot sooner because we're replacing another vendor. There are some still, when we're tied to a much larger upgrade within Oracle that get pushed out and they end up being up to a year or more kind of project. We only have really one or two of those left, and so the Rev ID ones should be in the middle of 2024. That's why we're targeting that EBITDA flip in the midpoint of 2024, right around there.

Okay, that's great. I did lie, I apologize, but Are you seeing Oracle Cerner being bottled up with their own internal integration and expansion efforts? Or do you think they're pretty capable of interacting with you in ways that can allow you to make the progress you hope to make with the business?

Yeah. And after the initial acquisition, there definitely was a It was slower than we all would have liked and understanding who we were supposed to go to. It's a very large, complex organization. So it took a while to figure out that, oh, for this, for the community works, which are the smaller hospitals, it's a whole different, not only just the sales team, but the way that they approach those clients and the way that they deploy them for the larger clients that's by this region and that. So there was some getting to know you kind of stuff, even though their product management team was super excited to have us in the portfolio and It took a little bit, and obviously with the acquisition, there were people coming in and out. I think now we're in a pretty good spot. So like I mentioned, they sponsored a webinar for us. They brought us to their community works forum. They brought us – they gave us a great spot at their Oracle Health Conference. So I do think that there's momentum, and as we – I think we mentioned last quarter that we have had three through that channel, and we have a list of clients that we're specifically targeting to convert. The – It's a lot easier when they're pushing us sort of standalone versus if they're trying to roll out an entire patient accounting system at 10 facilities. It's a larger ACV, don't get me wrong. And so it'll be great, but it is a lot more complicated process. They bring in outside consultants to help with that implementation. It's more hands in the cookie jar. So it's definitely more complex. And the one that I mentioned that is still much later in 2024 that's tied to an Oracle project, that's the reason is There's large implementation teams and many moving parts.

Okay, that's great, Keller. I'm excited about what you guys are doing, and I'm pretty sure we're going to see better results in 2024. So keep it up.

Thanks, Brooks. Thank you. At this time, I'd like to turn the floor back over to Mr. Goldberger for closing comments.

Thank you all again for your interest in support of Streamlined Health Solutions. If you have any additional questions or need more information, please contact me at jacob.goldberger at streamlinedhealth.net. We look forward to speaking with you all again when we discuss our fourth quarter in fiscal year 2023 financial performance. Good day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.