Greetings and welcome to the Streamline Health Solutions' Fourth Quarter and Full Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Randy Salisbury, Senior Vice President and Chief Marketing Officer. Please go ahead sir..

Thank you for joining us to review the financial results of Streamline Health Solutions for the fourth quarter and fiscal year end of 2018, which ended January 31st of 2019. As the conference call operator indicated my name is Randy Salisbury.

As Senior Vice President and Chief Marketing Officer here at Streamline Health here, I manage all communications including Investor Relations. Joining me on the call today is David Sides, President and Chief Executive Officer; Tom Gibson, Senior Vice President and Chief Financial Officer; and Dave Driscoll Chief Revenue 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 streamlinehealth.net or at 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 following statement.

First, statements made during 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 our -- 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'll 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 a consistent term please refer to our website at streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures for the most comparable GAAP measures. With that said let me turn the call over to David Sides, President and Chief Executive Officer.

David?.

Methodist Hospitals in Indiana, our third Epic EMR-based hospitals system; and Sampson Regional Medical Center in North Carolina. Both of these new eValuator clients are live and doing well. Now on to Dave Driscoll. Dave joined Streamline from American Well.

And just a couple of years as Chief Growth Officer at Avizia, he was -- which was acquired by American Well, Dave drove annual revenue growth of 30%. Before that Dave was equally successful at Conifer, driving over 30% annual revenue growth as Vice President of Sales and Business Development for the Value-Based Care Division.

I'll ask Dave to tell you what he saw in our company that encouraged him to join our team and we're certainly glad he did.

Dave?.

Thank you, David and good morning everyone. Let me begin by saying that I'm excited to be part of the leadership team here at Streamline Health.

I was certainly familiar with the company before being approached, but I must admit the more I dug into the client base and their technology and not just eValuator, the more I saw a great opportunity for growth. I believe their focus on the middle of the revenue cycle is smart.

Our recent conversations with healthcare leaders confirmed they are focused on optimizing clinical and financial workflows by gaining systematic efficiencies without adding resources. This trend is verified by recent research.

According to the Global Market Outlook from Research and Markets, the mid-revenue cycle management and clinical documentation in proven market was just under $3 billion in 2017 and is projected to reach $6 billion by 2026, representing a compounded annual growth rate of about 8.5%.

The growth is coming from a rise in the healthcare expenditure increase in the need for managing more and more fragmented unstructured healthcare data which is being compounded by declining reimbursements. I believe our industry is right for change, change based on better ways of doing business.

Given the market opportunity I just mentioned and the headlines that David shared with us, there's not a client out there that doesn't need to improve their revenue integrity and compliance programs and our solutions and services can help them all do that throughout their entire enterprise.

I'm not just talking hospitals here I'm talking about all the clinics that large and medium-sized healthcare providers now operate outside of the traditional hospital settings. In fact, more of revenue is generated in outpatient segment of the healthcare provider industry than ever before.

And we're talking about physician practices and doctor offices all over the country. Many if not all of our larger clients purchase or form strong affiliations with physician practices over the last two years and all of them need help in making sure that they are billing and documenting for the care they are providing in a timely and accurate manner.

I now am in the right place, at the right time to see this company grow and I'm excited about it. Without tipping our hand to any of our competitors, let me share with you my primary focus for this fiscal year. First, take a fresh look at what we are doing, how we are doing in sales and marketing.

I'm learning what our lead-generation processes are and how we first approach and message our solution to prospects. We're spending time, focusing on any barriers or hurdles to saying yes to our solutions and aligning our messages for different levels of the health system.

The good news, what I'm saying is that many of our current clients or new prospects that are in the sales funnel remain in the sales funnel and for a good reason. Really are we being told? No.

Instead, when dealing primarily with HIM directors and revenue cycle managers, we run into decision delays which brings me to my second topic, the decision-makers. I think Streamline is doing a really good job of getting the attention of clients who will be using our solutions.

They see the value in analyzing every coded patient record before it's sent to billing. But they don't control the budget, so we need to get more exposure and leverage at a higher level inside these organizations. I know plenty of C-suite executives and so do members of the advisory board.

So I'm working closely with them to focus our efforts on key individuals at clients and prospect sites already in our pipeline and at new as yet uncalled targeted prospects. Now on to the third topic best targets.

It's been my experience that larger organizations are better prospect for new technologies, new and better ways of improving their business than smaller organization.

To that end, while we continue to pursue all the targets in our pipeline, I am focusing some of my time in combination with Hal Walsh on some of the largest healthcare systems in the country along with a few larger revenue-outsourcing companies that provide services to these organizations.

But with all our prospects, especially the larger health systems, the strategy is to engage all levels within organization at the same time especially the C-suite. And finally sales expansion, not only do we have many great opportunities for sales in front of us. I've been networking successful sales talent around the country.

Many people I know and many that have been referred to me by my network in the industry. My plan is to augment the team with a few quality sales closers, while refining our enterprise solution selling approach at Streamline Health.

With highly regarded solutions as eValuator and Abstracting and CDI my conversations with prospective new hires are going quite well. I'm sure we'll keep you updated on that front as we add quality members to our sales team. While I enjoyed speaking with you all this morning, I want to be clear that my one and only job is to help this company grow.

I will be focused on sales and marketing 100% of the time. While I have enjoyed speaking with you this morning, I want to be clear that my one and only job is to help the company grow. I will be focused on sales and marketing 100% of the time, do not plan to be a regular guest on the quarterly calls.

However, our management team felt that this introduction is critical for you to better understand our short- and long-term strategy and that I was the right person to communicate this too. Lastly, I'm very happy to be here at Streamline and I feel I've been given the resources I need to be successful. Thank you.

Now, I turn the call over to Tom Gibson, our CFO to provide greater detail on our financial results for the fourth quarter and fiscal year 2018.

Tom?.

Thank you, Randy, David, Dave and good morning to everyone on the phone. The company has experienced notable successes through fiscal 2018. The cost-containment activities have resulted in our company being able to leverage revenue growth in fiscal 2019 driven primarily by eValuator.

The company's eValuator product impacted recognized revenue in the fourth quarter of 2018 above our expectations. And as David Sides mentioned earlier, our sales bookings for fiscal 2018 were almost double that of 2017.

As you have heard from Dave Driscoll, we continue to strive for improvement in the rate and size of our sales booking number and we have made notable investments in our plan for 2019 to improve our sales and marketing efforts. I will now discuss the financial performance for the fourth quarter and full year fiscal 2018.

In the quarter, we generated $5.5 million in revenue and $1.1 million in adjusted EBITDA compared with the same period in 2017, when we generated $6.1 million of revenue and $1.2 million in adjusted EBITDA. The lower revenues in 2018 primarily came from recurring content management software and professional services.

The content management software known as ECM has experienced some pricing pressure, which we have reviewed in previous earnings calls, but evaluators has much better margins as pure SaaS technology, with longer contracts, lighter implementation and consist of recurring revenue.

To assist in growing this newer technology we have repositioned some of our auditing professional services staff to expand and support the eValuator product line. In the quarter, we took a charge of impairment on our Clinical Analytics solution, which I will discuss in more detail shortly.

Operating expenses, net of this onetime charge and income from an adjustment to the onetime office move, were approximately $5.1 million in the fourth quarter of 2018, representing an approximate go-forward run rate for 2019. The primary factors in the lower operating cost from 2017 were facility cost as well as reductions in cost of sales and G&A.

The reduction in research and development cost is primarily attributable to the improved apportionment of development personnel to enhancements for eValuator and cost and sales and G&A were primarily depreciation and amortization.

As I just mentioned in the fourth quarter of 2018, the company recognized an impairment, for the Clinical Analytics product. Clinical analytics was acquired in fiscal 2013, and the product is mainly focused around educational and research groups in healthcare.

The company as previously announced has focused its efforts on developing and providing solutions and services to help providers with the middle of their revenue cycle.

As a result of our refined focus, the company's selling efforts centered around HIM directors, revenue cycle managers and CFOs, reducing our effort targeted at educational and research groups. We do not have the customer base necessary to support the assets we carry on our balance sheet for Clinical Analytics.

The company made the decision to fully write-off the assets relative to Clinical Analytics. The write-off in the amount of $3.7 million is inclusive of intangibles for $3.2 million and capitalized software of $0.5 million. There are no further intangible assets or capitalized assets that are not related to the company's middle of the revenue cycle.

Accordingly, the company does not expect further write-offs as a result of its focus on mid-revenue cycle solutions and services. Additionally for the fourth quarter 2018, the company realized a $300,000 benefit from an adjustment to estimates made on its operating lease exit.

There were liabilities associated with operating cost under the New York facility sublease agreement, that were negotiated away as part of the settlement with the company's sub-lessor.

In addition to the impairment and adjustment for the onetime cost of the facility initiatives, and the impairment of Clinical Analytics, the company recognized $588,000 and $1.1 million of non-cash depreciation and amortization for the fourth quarters ended January 31, 2019 and 2018 respectively.

The company also recognized $136,000 and $264,000 of share-based compensation for the fourth quarters of fiscal 2018 and 2017 respectively. It should be noted that this company's depreciation and amortization is trending down due to many assets being fully depreciated and the assets being impaired or written off.

The company's depreciation and amortization will be continue to trend lower in fiscal 2019 as a result of these actions. Moving to the balance sheet, we finished the quarter with approximately $2.4 million of cash on hand.

This amount is down from the balance sheet at January 31, 2017 of $4.6 million, which is directly attributable to the timing of two large customer cash receipts. The customer paid just before fiscal 2017 and just after fiscal 2018. The company for fiscal 2019 is trending well against cash receipts as compared with fiscal 2018.

The benefit of the lower cost structure will allow us to generate marginal incremental cash in fiscal 2019. The company is expected to close the first quarter fiscal 2019 with at least $2 million of cash on its balance sheet.

Beyond operations for the fourth quarter 2018, we invested $715,000 in software development primarily a new functionality for our client solution eValuator. We foresee continuing to invest in the solutions that have the most potential for revenue growth.

The company spent a total of $3 million on capitalized software development for the full fiscal year 2018 as compared to a $1.8 million in fiscal 2017. The company anticipates a slightly lower spend in fiscal 2019 as the heavy lifting required to introduce the eValuator into the market is behind us.

The company contends that it has flexibility within software capitalization cost both the timing, nature and type of spend. On the financing side, we continue to make our regular $150,000 quarterly payments on our term loan, the balance of which was $3.9 million net of financing cost at the end of the quarter.

The company has a revolver with $5 million capacity. There were no amounts outstanding on the revolver at either of 2018 or 2017 balance sheet dates. The company anticipates being able to achieve its fiscal 2019 plan without any extended drawing on the revolving line of credit.

Turn our attention -- turning our attention to future trends and non-GAAP measures. Backlog increased for the second quarter in a row and now stands at $28 million as of January 31, 2019, representing a growth of $1.9 million sequentially over October 31, 2018.

A reminder here that due to the variable nature of some of our audit services engagements, we only record in backlog those agreements that have clear fixed revenue commitments.

The backlog measure, as reported, includes only contracts through their natural, original term or through the end of the next succeeding auto renewal term, and are not extended for future auto renewal periods.

The timing of the contracts to their natural terminations compared with the end of the quarter could materially impact the reported value of the backlog measure. The increase in backlog is the direct result of increased contracts from eValuator, as well as our efforts to solidify certain legacy products with long-term contracts.

The company had previously announced this initiative. That concludes my remarks. But before I turn the call back to David, I wanted to add that our entire team's focus every day is to sell. From sales marketing operations, innovation support, accounting, and administration, we are leading and supporting our sales efforts.

All of our employees are involved in some form or fashion in helping the sales process. We look forward to showing the same success in the sales front that we have realized in operations, and in the cost containment efforts.

David?.

Thank you, Tom. Continuing with these sales comments, we're starting to see some successes in our reseller partnerships. In the first quarter of this new fiscal year, our Abstracting reseller partner Allscripts, closed a very nice deal in the Southwestern United States.

And they have more deals in their pipeline, which would include Abstracting should they come to fruition. Additionally, our long-term client, Sarasota Memorial, expanded their use of eValuator, adding outpatient pre-bill code auditing capabilities.

Before we open the conference call up for questions, I want to discuss our top line guidance for this fiscal year. As stated earlier, we believe we're at an inflection point with our revenue and adjusted EBITDA we can generate from it. Our projected revenue for fiscal 2019 is $22.5 million to $23.5 million.

While these projections are modest, this represents new revenue generation of approximately 13%, which is offset by the attrition in our legacy solutions previously mentioned. Adjusted EBITDA from this revenue will increase appreciably in fiscal 2019, from $2.9 million this past year to a projected range of $4.5 million to $5 million.

This represents an adjusted EBITDA margin of approximately 20%. And we believe, we will see margin expansion as our new SaaS revenue growth, primarily in the form of our eValuator solution. On another note, I'm pleased to report that we fully expect to be net income positive in 2019 and beyond.

The company has over $40 million in Fed-owned state net operating losses that can secure or generate cash flow in the coming years, which is now reported as a benefit in our financial statements. 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?.

Thank you. We'll now be conducting question-and-answer session. [Operator Instructions] Our first question today is coming from Matt Hewitt from Craig-Hallum. Your line is now live..

Yes, thanks for taking the question. This is Lucas Baranowski on for Matt. So, I guess just a few things here. I believe during the quarter you got that third Epic customer that you needed for eValuator to become referenceable. So, maybe you could just provide an update on that product.

And where you're at in regard to getting it added to Epic's App Orchard?.

Hi Lucas thanks for the question, its David Sides. All three of our Epic clients are live now which is a good milestone for us. We are in the process of getting through that App Orchard security, so we've written the application as another integration method.

But we're integrating the Epic today for those three clients and their workflow and the App Orchard will just be a more real-time kind of with their APIs that clients can download from the App Orchard themselves. It's just another method. We think it's a good one. It kind of says that we work well with Epic.

We're in their ecosystem and so we're excited about it. Should be able to give you an update in the next quarter that'll be available to all Epic clients and we're hoping there's a way to kind of get to the more volume of that client base..

Yes, that's great to hear. And then I believe Mr. Driscoll touched on some efforts to maybe add a few salespeople. So, maybe you could tell us are these may be the salespeople that would be targeting larger hospital systems.

I mean I think last quarter you talked about potentially some efforts to go after your systems was greater than $10 billion in revenue. I don't know just any color you could give on those salespeople that are being added would be great..

Hey hi, this is Dave Driscoll.

Can you hear me?.

Yes, I can hear you..

Yes, we hear you fine..

Okay. Okay. Okay good. At this time we're looking at two additional sales resources that are experienced working with a larger more complex healthcare systems.

That will comprise and lead our team to eight at the same time what we're looking to is also to grow at what I call a solutions selling team that will work in concert with the sales team and how we position and make sure we have the right people, in the right needing, at the right place with a lot of these key deals.

As we see this, we're aggressively going to be selling and also packaging more if not just a platform, but total services which you can think of that being a program. So, with that and these people on these eight along with -- the total of eight along with like modeling outside, I'd say the subject matter experts.

We look at that being the right team to move forward. And then I'll look to refine that as we go along, along with what is the key messaging. We'll get that from marketing and learn more from our customers and our clients.

But as we do that and as David mentioned, if we get the differences and we get more implementations ongoing, I think you'll see an acceleration there knowing that we're in probably in some of these larger places than -- and like the old trick there is be at the right place, get to decision-makers and the influencer.

And there's key people over the years that have become very I think comfortable in those settings and those are the type of individuals who we want to augment with our team. So, hopefully we'll see more of a learning of everybody in the organization and the sales and marketing organization as we move forward..

Okay. Great. And then, I guess, while we're on the topic of just larger opportunities last quarter it sounded like the pipeline contained several, I believe you characterized some of them as greater than $300,000 opportunities. And, you know, it sounds like the pipeline has actually continued to grow both in number of deals and size of deals.

So maybe you could just kind of talk about some of those larger opportunities and your level of confidence that those will be signed..

Well, I won't name some of those on the call, but my comfort level is as we go in for example the next quarter as we're sitting there today we have 20-plus deals that are in various stages.

The good news is as we realigned our sales stages and we look at that later stage when we're getting to the -- further making of their final selection of like say, you know two finalists and before we get into contracting is we have a good core set of those already building up.

So I think that's what you're hearing that there's -- probably around 6 to 10 of those that we already entered the later stages. So all we got to do is bring those across the finish line.

As we see the next phase, you know, the next wave of those deals which you're mentioning, we've been targeting and way off the back going towards the larger providers -- that you get those ones that are -- that have 20, 30 type of facilities.

And also the regional healthcare IDNs, the ones that are 5, 6, 7 hospitals that might be an academic organization that has affiliated hospitals. There's a whole bunch of those out there that fit the model we call the larger IDNs. There's another one there, which you can think of that you put into category of the jumbos.

That are the Providence, the HCAs, the Sutters -- it's -- they're out there. So we want to work on those. And within those, we're working closely with our strategic advisory board of getting contacts, getting to the right -- level within those organizations.

They're more complex sales, but at the same time, I think that they're more apt to move very quickly if they see a very compelling disruptive technology that will impact them and have a return on revenue which clearly we have. And when we look at what we call the total impact of booking at under-billing and over-building.

So the good news is that those type of organizations are starting to come into the sales funnel, which means at the same time that -- the annual license fees along with the associated training, implementation is larger. And we're modeling that to confirm that you know, i.e.

what is the pricing model? So, we've been working on that over the last month and we have that in place now of pricing this accordingly to those types of organizations..

Okay. Thank you. That’s really good color. I think that’s all we had..

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Salisbury for any further or closing comments..

Thank you again for your interest and support on Streamline Health. If you have any additional questions or need more information, please contact me at randy.salisbury@streamlinehealth.net. We look forward to speaking with you all again in June, when we'll discuss our first quarter of fiscal 2019 financial performance. Good day..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..