Good day and welcome to the Streamline Health Quarter One 2018 Financial Results conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Randy Salisbury. Please go ahead, sir..

Thank you for joining us to review the financial results of Streamline Health Solutions for the first quarter of fiscal year 2018, which ended April 30, 2018. As the conference call operator indicated, my name is Randy Salisbury.

As Senior Vice President and Chief Marketing Officer here at Streamline Health, I manage all communications, including investor relations. Joining me on the call today are David Sides, President and Chief Executive Officer, and Nick Meeks, Senior Vice President and Chief Financial Officer.

At the conclusion of today’s prepared remarks, we’ll 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 at numerous other financial websites.

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

First, statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss. Please refer to the company’s press releases and filings made with the U.S.

Securities and Exchange Commission, including our most recent Form 10-K annual report, for more information about these risks, uncertainties and assumptions and other factors. As always, we are presenting management’s current analysis of these items as of today.

Our participants on this call should take into account these risks when evaluating the topics we will discuss. Please note Streamline Health is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today. Second, we will discuss non-GAAP financial measures such as adjusted EBITDA.

Management uses these measures to help provide better insight into our financial performance; however, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may reach using 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. With that said, let me turn the call over to David Sides, President and Chief Executive Officer.

David?.

Thank you, Randy, and good morning everyone. This morning I want to comment on our first quarter performance, look at our second quarter performance to date, and comment a bit on what we anticipate seeing for the remainder of the fiscal year.

Yesterday afternoon we announced first quarter 2018 revenue of approximately $6.3 million, about 6% higher than Q1 a year ago and 3% higher than last quarter. This revenue performance was bolstered by a nice deal for abstracting and clinical documentation integrity solutions signed in the quarter with one of our existing clients.

University Hospitals of Cleveland has been a long-term client and they have been expanding their scope in the northeastern Ohio area through acquisition, and we are growing along with them. This client prefers the perpetual license model and the contract contributed approximately $1.1 million in revenue in the quarter.

We included this revenue in our 2018 fiscal year guidance because it’s from an existing client, one of only a handful we have who prefer to purchase solutions via the perpetual license mode. At this time, we do not have any other meaningful perpetual license contracts from existing clients or resellers in our sales pipeline.

Recurring revenues were 70% of total revenue for the first quarter of 2018. Obviously this number is lower than usual due to the perpetual license revenue we recognized in the quarter, as I just stated. We generated approximately $238,000 of professional services revenue during the first quarter, down substantially from first quarter of last year.

The reasons for this decline, which was expected, relate primarily to two issues. First, in the first quarter of last year, we were very active with two large paid for implementation projects, one for a large reseller and one for an existing client.

In the first quarter of this year, the bulk of our professional services time was spent on new eValuator go-lives which do not require as much time to install as some of our other solutions and whose implementation is included in our SaaS fees.

Bookings for the first quarter of this year were up substantially from first quarter of last year and from last quarter, totaling approximately $3.4 million. During the quarter, we sold abstracting, CDI and eValuator solutions.

Since selling our first eValuator client just last October, we have closed a total of nine deals to date, seven of which are new client relationships for us. Eight clients have been implemented and are using eValuator every day, and the newest client could be up and running as soon as the end of this month.

As mentioned just weeks ago during our Q4 and fiscal year-end call, our sales funnel remains very robust. We continue to make good progress towards selling clients using every brand of EMR technology.

We announced last week that we closed a deal with another large academic facility, this one on the west coast, that uses Epic as their electronic medical records technology. That makes two Epic-based eValuator clients, both of which are large academic hospitals.

As those go live and we sell more, we will have potentially referenceable Epic clients to help secure other Epic clients, and according to [indiscernible] there are approximately 2,100 inpatient and outpatient facilities using Epic today. In addition, we have one eValuator client who uses Cerner’s EMR, which is in about 2,000 facilities.

I mentioned in my remarks in April that we have the greatest number of Meditech eValuator clients so far and there are approximately 1,200 facilities in the U.S. using Meditech as their EMR today.

These three are by far the largest providers of electronic medical records technology, which is why we’ve created deep integration with each and have targeted marketing campaigns around each [plat] [ph] type.

When we take a closer look at our pipeline and focus on what we believe are the best near-term sales opportunities for eValuator, there are about the same number of opportunities for each of the Epic, Cerner and Meditech EMR-based providers.

Turning our attention now to adjusted EBITDA, for the first quarter of this new fiscal year, we generated $645,000, up from a negative $400,000 a year ago but down from our historically best quarter of Q4, where last year it was $1.2 million.

Our adjusted EBITDA is usually slightly negative in the first couple of quarters of any new year primarily because we expense our audit charges and other annual expenses in the first quarter, but the UH Cleveland perpetual license contract in the quarter turned our adjusted EBITDA positive in a meaningful way.

Our continued focus on tight cost controls delivered improved results in the first quarter as well.

Total operating expenses decreased by approximately 15% in the first quarter as compared to the first quarter a year ago, leading to an operating loss in the quarter of approximately $263,000 as compared to an operating loss of $1.874 million in Q1 last year.

Net loss for the first quarter of this year was approximately $567,000, a marked improvement over Q1 of last year of a net loss of slightly more than $2 million. I’ve asked Nick Meeks, our CFO, to address these items and others more specifically in his prepared remarks, coming up in a few minutes.

Last quarter, I reminded everyone that this new fiscal year represents the first full year of our newly focused company with services and solutions designed to help healthcare providers improve their financial health so they can improve the health of the communities they serve.

By narrowing our focus to the middle of the revenue cycle from the first capture of charges for a patient through the submission of that patient’s bill for reimbursement, we believe we have a more distinct and compelling value proposition that can help us win in the marketplace.

Our coding solutions, like abstracting and CDI, alongside our auditing services and technologies, like eValuator, are winning in the marketplace as witnessed by our first quarter bookings performance.

During my fourth quarter 2017 prepared remarks, I spoke about the meaningful contract expansion we signed in the first quarter this year with a long-time client for both abstracting and clinical documentation integrity. That contract was the UH Cleveland deal I mentioned earlier this morning.

UH Cleveland is implementing a system-wide consolidation plan they call One UH. The plan is to have a single-vendor platform across their entire enterprise. They’ve selected us for CDI and abstracting as their enterprise-wide solution.

UH Cleveland is adding these solutions to five more facilities because they help them automate key elements of their coding functions. Our technology will enable UH Cleveland to standardize all their facilities and thereby recognize the benefits they currently get in the facilities where we are deployed throughout the entire system.

Some of those benefits include the ability to manage all their coding and abstracting work flows and functions in all 13 of their facilities. In addition, they have the ability to leverage remote coder pull access across the enterprise and to generate an enterprise-wide report from a single solution.

UH Cleveland will also have the standard physician query process throughout their organization which will help them gain quicker access to needed physician information before bills are sent.

I have discussed the game-changing benefits of eValuator in previous earnings calls, and last quarter I reviewed the benefits of eValuator for one of our west coast clients who is now expanding its use of eValuator from one facility to all four of their facilities.

This morning, I want to mention a few highlights from a baseline study we recently completed of our first four eValuator clients. As mentioned, we currently have eight clients up and running with eValuator. Of those, half now have some early baseline estimates across certain patient populations from which we can draw some conclusions.

Among these four clients, we found in every case there is improvement. To summarize, over a very short period of time, a couple of months for our earliest clients and just a few weeks for others, eValuator analyzed 26,590 cases and identified more than 2,600 cases - about 10% - with potential DRD changes.

The dollar impact of these cases represented about $600,000 that would have been lost revenue due to under-billing, and surprisingly an additional $525,000 of revenue that would have been at risk of overbilling, and I would note these numbers include clients who are smaller in bed size, telling a powerful story about what eValuator can provide.

As usage climbs among these clients and as more facilities come online, such as the west coast client I mentioned in our last earnings call, results should increase specifically in the areas of rewards, compliance and coder productivity as it will take fewer resources to process more patient records.

We believe the pace of our sales activity around eValuator will accelerate and we continue to forecast an average of four new eValuator deals each quarter throughout this fiscal year. The benefits of our cloud-based automated pre-billing technology are many and easily measured.

Our eValuator solution can enable hospitals, outpatient facilities and physician offices to greatly improve their coding practices, see potential benefits like cutting their days of A/R, improving their cash on hand, and reducing the number and dollar amount of patient bills being denied by payors.

Before I turn the call over to Nick, as we announced in our press release yesterday, Nick has resigned from Streamline. A local opportunity found him, and we wish him all the best and appreciate his many years of service. We have started a search for a CFO and are glad that Nick leaves behind such a strong team.

I will now turn the call over to Nick Meeks, who will provide greater detail on our financial results for the first quarter of 2018.

Nick?.

Thanks David. Good morning everyone. Allow me to begin by thanking all within Streamline who contributed to a successful auditor review and reporting cycle. Beginning with the income statement, David has covered revenue and EBITDA. I would first note that equity-based compensation was the only material adjustment to EBITDA recorded in the quarter.

Operating expenses continued the trend of being lower across the board year over year, netting more than $1.1 million in savings. Operating expenses did increase quarter over quarter centered around SG&A expenses due primarily to costs that recur at the beginning of each fiscal year, such as the annual audit.

Moving onto the balance sheet, we finished the quarter with approximately $3.7 million of cash on hand, a decrease from the $4.6 million of cash at the end of the fourth quarter. In the fiscal first quarter, Streamline generated $37,000 of cash from operations versus a $1.5 million usage of cash in the same quarter last year.

Offsetting that cash generation, there was a marked uptick in capitalized software development expense year over year driven primarily by increased focus on the eValuator solutions. Our bank debt decreased slightly in the first quarter as well, down from $4.6 million to $4.4 million.

As previously stated, we do not anticipate any accelerated debt prepayments moving forward. Our normal amortization on the term loan is approximately $150,000 per quarter. With respect to future visibility, backlog decreased over the end of the fourth fiscal quarter to $26.1 million.

Before handing the call back to David, I wanted to take a moment to note that this, my 20th earnings call as the Streamline CFO, will be my last. While I look forward to starting the next chapter of my professional journey, it’s a bittersweet departure for me.

Over the past six years, I’ve had the opportunity to work alongside and learn from some extraordinary individuals. Allow me to take this time to thank them for making this such a memorable experience for me. I am departing Streamline with a collection of great memories and lessons along with high expectations for the team and the company.

I look forward to monitoring their great progress from the other side of this conference line moving forward. That concludes my remarks, and I’ll now turn the call back to David Sides.

David?.

Thank you, Nick. As I mentioned at the outset of my prepared remarks, I want to spend a few minutes looking ahead to the rest of our fiscal year 2018.

We are aware that on a run rate basis, we are substantially ahead of the guidance we gave back in April, but our last two quarters of performance have contained some one-time revenue contributions that have increased our quarterly revenue.

I stated last quarter that in 2017, we experienced revenue attrition of approximately $2 million, equating to a beginning revenue run rate of approximately $22.5 million for this year. For 2018, we are projecting a slow pace of attrition around 5 or 6%, equating to a revenue base of approximately $21.5 million as our starting point.

Based on the timing of when the revenue attrition occurs, we project that next quarter, Q2 will be the lowest revenue quarter in fiscal year 2018. Beginning in Q3, we should see improvement in quarterly revenues going forward based on the contributions we expect to realize from eValuator, including sales we’ve booked over the last several months.

We continue to forecast total annual revenues of between $23.5 million to $24.5 million for this fiscal year and adjusted EBITDA contributions of approximately $1.5 million to $2.5 million.

That concludes my prepared remarks, but before turning the call over to the Operator, I want to thank our Streamline Health associates for their continued hard work and dedication to our clients, to our shareholders, and to each other. I will now turn the call over to the Operator for our Q&A session.

Operator?.

[Operator instructions] We can take our first question from Matt Hewitt from Craig Hallum Capital Group. Please go ahead, your line is open..

Good morning gentlemen. This is Charlie Eidson on for Matt. Thanks for taking my questions. First, good quarter on the bookings front - $3.4 million.

How should we be thinking about bookings as we move through 2018? Is this an outsized quarter, or should we expect to see you guys maintain this higher run rate?.

It was a good quarter. I think the $2 million to $3 million range is probably where we’ll end up most quarters. This quarter so far, we’re almost a million already, so we should be on pace for $2 million to $3 million and still targeting the same number of eValuator sales..

Okay, that’s great to hear. Second, you’ve improved the bottom line performance, it sounded like 15% year over year with tighter cost controls.

Is there still room to go here, or have you reached your internal targets?.

We’re doing pretty well on our internal targets. There’s still room to go. We are constantly iterating down on data center costs and some other things.

We’re mainly taking costs out from things like a couple years ago audit services getting to a better number there, trying to reduce any costs from being a public company to make us more competitive with private companies, so there’s more to go but we’re happy with the progress so far..

Sure.

Can you provide an update on the distribution partner relationships with Optum360 and Allscripts? Where do things sit right now?.

That’s a good question. With Allscripts, we have a couple deals in the pipeline that we’re looking to close, hopefully in the next 60 to 90 days for abstracting. We’ll talk about that more probably next quarter. With Optum, we’re always watching and optimistic as they close larger deals that we get [drug] [ph] along, so we keep really close with them.

We go to their conferences, we’ll be at the Allscripts conference here in a couple months, we were at the Meditech conference last week. So the EMR partners are an important channel for us and we’ll keep pushing forward on that way with some tighter integration with eValuator and some of other solutions..

Okay. Maybe one more from me. Last quarter you mentioned that you had over $30 million in annual revenues in your pipeline. How much of that, just for perspective, is eValuator? It sounds like we could expect maybe a run rate of four wins a quarter.

Would that be--is that lumpy or is that kind of annualized? How should we be thinking about the lumpiness of that?.

That $30 million, when we talked about that, was pretty much all eValuator, though we have other solutions that we sell on a recurring basis as well. The actual deals themselves can be somewhat lumpy depending on the size, so if it’s a health system, it will be better than obviously maybe a single facility.

But on average, we think we’ll have in the $125,000 to $150,000 per contract range there, so I think when we get above--you know, as sales success comes maybe through different EMR types or as we target sub-segments of the market, you might see that four number increase in the out quarters, which will kind of take some of the lumpiness out.

So it’s lumpy now because we’re only doing four, and if we get two big ones it gets larger. We think in the future, it will start to spread out and become more predictable..

And Charlie, you know what David was mentioning is that $125,000 to $150,000 a year for three-year contracts..

Okay, that’s great. Thanks for taking my questions. Congrats on the Q1 execution..

Appreciate it, thanks Charlie..

[Operator instructions] We will take our next question from Frank Sparacino from First Analysis. Your line is open, please go ahead..

Hi guys. David, I wanted to go back to the metrics or commentary around eValuator and how it relates to ROI. Clearly for the hospitals that you’re talking to, lost revenues, pretty clear it’s all upside.

With respect to the over-billing issue, I understand there’s some value around compliance as it relates to potential audit risk associated with that, but how do you factor that into the ROI equation, or how are the hospitals sort of looking at that?.

That’s a good question, Frank. Some of the--a lot of our clients look at that similarly to the revenue side because in a way, any over-billed could be reclaimed, so they sometimes maybe counterintuitively also think of that as revenue because it could be lost.

It’s revenue that they know if they didn’t correct before they sent it out may disappear in a denial later, and so the clients usually give us credit for that both ways because you’re kind of getting more revenue on the one hand where you’re more accurate, and you’re keeping the revenue that you’re otherwise going to lose where you’re inaccurate in the other direction.

So we usually talk about the total and that kind of variance of 5% to 8% inaccuracy of being net positive to the organization, whichever side of the ledger it falls on..

Great.

Then just one follow-up there, as you get these clients up and running and you start to have some data, has that had any impact in terms of the sales cycles perhaps shortening or making those easier for you?.

We think so, absolutely so. One of the things we’ve done to try to--we’ve got eight clients live now starting to work with them on case studies on video testimonials so that they can tell their story to other clients.

We’re able to scale that - instead of having clients make phone calls to each client, where we might overrun a client with, say, five phone calls a week, now we can have ways to get to the market more quickly that people may still call, but at least you’re kind of getting the story out, and for people to say okay, you’ve got five of these clients that are similar to being live and they’re getting this kind of benefit, I should see the same thing.

That really, we think, will accelerate the sales cycle.

The other thing we’ve done that I think can accelerate the sales cycle is we’ve done an integration with some of the EMRs directly, and so for instance we’re working with Epic directly, and that way when we go to a client, we can say, here’s the code that you need to run, so it’s not a difficult implementation from the standpoint of it’s never been done before.

We have the code, so you don’t need to necessarily pay a lot of money for that integration work, and you can get that up and live running quickly with those instructions, you’re not trying to figure it out for yourself.

Those changes have been really effective for us when speaking with clients, to say you’re not going to have to figure this out - here is the actual code, go run it. We actually even have handed the code out on a single piece of paper double-sided to people, because you don’t want to give someone a USB stick with code on it.

Nobody wants that - they’re afraid it’s a virus, but you give someone a piece of paper and say, here’s the code, run it, this is how easy it will be to connect to eValuator. People say, okay, I see exactly what you’re doing. It makes a lot more sense, it’s kind of intuitive that way..

Great, thank you..

Thanks Frank..

[Operator instructions] It appears there are no further questions at this time, so I’d like to hand the call back over to Mr. Randy for any additional or closing remarks..

We thank you again for your interest in and support of Streamline Health. If you have any additional questions or need more information, please feel free to contact me directly at randy.salisbury@streamlinehealth.net. We look forward to speaking with you al again in September when we’ll discuss our second quarter 2018 financial performance. Good day..

Ladies and gentlemen, this concludes Streamline Health’s quarter one 2018 financial results conference call. Thank you for your participation. You may now disconnect..