Greetings and welcome to the Streamline Health Solutions' first quarter 2019 earnings 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.I would now like to turn the conference over to your host, Mr.

Randy Salisbury, Senior Vice President and Chief Marketing Officer for Streamline Health Solutions. Thank you. You may begin.

Thank you for joining us to review the financial results of Streamline Health Solutions for the first quarter of fiscal 2019, which ended March 30 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, I manage all communications including Investor Relations.

Joining me on the call today is David Sides, President and Chief Executive Officer and Tom Gibson, Senior Vice President and 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 may retrieve it from the company's website at 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 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 backlog and 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 utilize in calculating their own non-GAAP measures.

To help you compare these amounts on consistent terms, please refer to our website at streamlinehealth.net, our earnings release and Form 10-Q 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. This morning I want to talk about the progress we are making to accelerate the pace of new client acquisitions and expansion within our current client base as we transition investment spending from product development to sales and marketing.

Our CFO, Tom Gibson, will cover more of the specifics of our financial performance for the quarter.Before I begin, let me summarize some key financial metrics from yesterday's announcement of our performance for the first quarter of fiscal year 2019.

We generated revenue of approximately $5.4 million, down approximately 2% sequentially, as compared with the previous quarter's revenue and down approximately 15% from the first quarter of last fiscal year.The delta in the year-over-year revenue is attributable to lower perpetual license fees in the current quarter.

In Q1 of 2018, we recognized approximately $1.1 million of perpetual license revenue. And in Q1 of this year, we realized approximately $200,000. Recurring revenues were approximately 76% of total revenue for the first quarter, down from 86% in the previous sequential quarter, but up from 70% for the same period a year ago.

The difference from Q4 to Q1 in percentage of recurring revenue is due primarily to an increase in professional fees in Q1.Looking ahead, we continue to believe that new organic revenue growth, primarily via the compounding effect of monthly recurring SaaS revenue from current and future eValuator installations will outpace the revenue attrition of our older legacy solutions.

For fiscal 2019, eValuator growth should yield single digit percentage topline growth for the company. Projected growth will begin to expand in 2020 with consistent low double digit percentage topline growth.

Again, this will occur as the eValuator SaaS revenue expands at an accelerated pace over the legacy technology revenue.Moving now to adjusted EBITDA. We generated approximately $1.1 million in Q1 of 2019, up slightly from the previous sequential quarter and up nearly 75% over Q1 of fiscal 2018.

Our rapid expansion in adjusted EBITDA in the result of the number of strategic moves we have made in the last several quarters and we remain pleased with our current cost run rate. We do not foresee further moves in this area as any excess earnings or excess cash will be reinvested in our selling efforts.

More on this in a minute.Each quarter, we display a variety of the most recent industry headlines to communicate the difficult circumstances almost every healthcare provider faces in today's environment, regardless of the size of the institution.

Since I spoke with you in April on our fourth quarter call, there have been even more articles dissecting the revenue pressures many of them are facing.

I wanted to follow this up with some primary research to frame these market needs in a powerful way.Last October, HIMSS Media conducted a survey to better understand health organization's attitude towards and concerns regarding revenue cycle management.

Their report, entitled Insights into Revenue Cycle Management, quantified many of the key issues driving the need for solutions and services that we provide. For instance, when asked about their top revenue cycle challenges, respondents from U.S.

hospitals and acute care facilities listed denials 49% and reimbursement 47% as the two most important issues.Furthermore, clinical documentation and coding were considered to be the most vulnerable areas for loss or decrease revenue with 84% listing them as high to medium risk inside their organizations.

Healthcare providers are looking for revenue integrity solution to improve their coding accuracy to ensure that they are billing the correct amount under established coding guidelines.In other words, the middle of the revenue cycle needs help and that's exactly what we do with eValuator, help with coding accuracy and CDI to help with clinical documentation improvement.I stated in our last earnings update that our company's focus and my primary goal for 2019 and beyond is revenue growth and that we have transitioned from investing in development of new technologies like eValuator and CDI for outpatient facilities to investing to selling of those new solutions.

To that end, we have added three new sales representatives under Dave Driscoll's leadership strengthening our presence in the Southeast, the West Coast and Midwest and we continue to invest.First, we have increased our focus on new distribution channels and channel partners.

Second, we have added new Advisory Board members and will continue to add as appropriate. Lastly, we have reorganized our sales department to better execute on our refined sales strategy.

The purpose behind the additional investment in these areas is to create multiple touch points inside the organization of our hospital clients and prospects.For increased revenue growth we are targeting some of the largest healthcare providers in the country and we need more influence in the C-Suite.

We are striving to simultaneously sell to multiple purchase decision makers and influencers from users of our product via departmental managers to CFOs and CIOs who control the budgetary decisions.Regarding my previous comments on improving adjusted EBITDA this year, the company has made strategic changes in its operation and back-office functions to be able to invest more substantially in sales and marketing.

In addition to the facility changes we made, eValuator was designed and built to be native cloud technology.

We run eValuator on an open, flexible enterprise grade cloud computing platform, easy to use, easy to add capacity and costs remarkably little on a monthly basis.Our strategic decision to move away from datacenters to the cloud has improved our overall efficiency, especially in the area of implementation and enabled us to reduce our CapEx spending.

Our 100% cloud-based eValuator platform can be deployed to go-live in 45 days and in some cases, less. This has allowed us to deploy smaller, more skilled teams in professional services and its helped our engineering team's focus as well.

As we develop new solutions like our outpatient and professional fee segments of eValuator pre-bill analysis, they are constantly seeking new ways to improve their efficiencies in bringing these solutions and others to market.We have dramatically improved our capital structure over the last years and we continue to challenge ourselves on this makeup.

Tom Gibson, our CFO, will discuss the possible improvement in our debt structure in a few minutes.

Before I turn the call over to Tom, I want to comment on our bookings for the first quarter and provide some commentary on our second quarter bookings so far.In Q1, we generated approximately $1.4 million in bookings including the signing of our first client using our Outpatient eValuator solution.

Bookings grew up more than $300,000 over the previous quarter and I believe are now turning up to the level we have established as our ongoing quarterly effect of at least $2 million to $3 million.Dave Driscoll, our new Chief Revenue Officer, has been with us for four months now.

The company expected a transition period for Dave, however, we are already seeing a notable increase in the number of new solution demonstrations, the number of follow-up meetings and the number of contracts submitted for legal review from his leadership and his sales strategy.As Dave articulated in his comments last quarter, we believe the market is right for change based on better ways of doing business.

He believes every healthcare system needs to improve their revenue integrity and compliance programs and our eValuator technology can help them do this.

It has been his experience that larger organizations are actually better prospects for new technologies and he shifted our focus on some of the largest healthcare systems in the country as I already mentioned.In just the last few months, Dave and his team have moved some very large eValuator opportunities into the bottom of our sales funnel with targeted close dates in Q2 and Q3 of this year.

Most of these deals are with large healthcare systems that are household names. Furthermore, these deals are two and three times larger than the current average annual revenue of the company's eValuator clients today.This is the reason why we put together our Strategic Advisory Board to help us land these very large sales opportunities.

I am very pleased with our pipeline and sales activity so far in the second quarter and believe that we can accelerate the size and pace of eValuator client contracts given Dave's focus and the addition of our Advisory Board, the many connections to C-Suite executives the have.I will now turn the call over to Tom Gibson, our CFO, who will provide greater detail on our financial results for the first quarter.

Tom?.

Thank you David and good morning to everyone on the call. As we have discussed on previous calls, all of our associates are engaged with selling.

My role over the last quarter has been to assist Dave Driscoll and David Sides in placing new talent within the sales team, contracting with Advisory Board members and solidifying new channel partner relationships. Those activities will continue into Q2 2019.

However, we are proud of the progress we have made in executing of David Driscoll's vision of how the sales organization should operate.As we enter Q2 2019, we believe that substantially all of that structure is in place.

We will always be on the lookout to add high quality salespeople, but we feel that the company has hired the right sales leadership. Our efforts have made a quantifiable impact to the number and size of opportunities in the pipeline, which are the result of addressing our customers at different levels of the organization, C-Suite to Director.

We recognize that to close a business is a result that matters and we believe we are on track to deliver those results.It is important to note that the company had planned for the investment it has made in sales and marketing.

As we previously discussed, the operating cost line which has fully realized cost containment activities in fiscal 2018 is a proxy for the remainder of the year.

Said another way, the investments in sales and marketing efforts that have already been discussed will not adversely impact the operating cost line for the remainder of fiscal 2019.In the first fiscal quarter of 2019, we generated $5.4 million in revenue and $1.1 million in adjusted EBITDA, compared with the same period in 2018 when we generated $6.3 million of revenue and $0.6 million of adjusted EBITDA.

The lower revenues in 2019 were primarily the result of nonrecurring license sales. The company recognized nearly $0.9 million less in nonrecurring licensed software year-over-year from fiscal 2019 to 2018.The results of our cost containment initiatives in fiscal 2018 maybe most prevalent in this quarter.

The company realized nearly $1.6 million of lower total operating expenses in Q1 2019 compared with Q1 2018.

Of this amount, only $0.4 million are related to amortization and depreciation, leaving $1.2 million of reduced cash cost in the quarter.As a reminder, the company has disproportionately higher cost in Q1 due to professional fees associated with the company's annual audit and annual shareholders meeting than in all of the remaining quarters.

The company changed auditors for fiscal 2019 however, much of the savings from that change will not be realized until Q1 of next year.Offsetting the company's higher professional fees in Q1 of this year was a bad debt benefit from our concerted efforts to lower the amount and age of our receivables.

Through solid execution in our collections arena, the company was able to lower its overall accounts receivable and create a reduction of cost in the statement of income for the period.

These two anomalies offset one another and resulted in a quarter that should be once again a proxy for the company's operating cost line for the remainder of fiscal 2019.Additionally, the company recorded $78,000 of interest expense for the first quarter of fiscal 2019 compared with $116,000 for the same period last year.

This illustrates the benefit of the company's successful efforts to lower its overall debt load and improve the balance sheet. The company recognized $434,000 in Q1 2019 and $824,000 in Q1 2018 of non-cash depreciation and amortization.

The company also recognized $270,000 and $224,000 of share-based compensation for the first quarter of fiscal 2019 and 2018 respectively.It should be noted that the company's depreciation and amortization is trending down due to many assets being fully depreciated.

The company's depreciation and amortization will continue to trend lower in fiscal 2019 as a result of these fully depreciated assets.Moving to the balance sheet. We finished the quarter with approximately $2 million of cash on hand. This amount is down from $2.4 million of January 31, 2019 and down from $3.7 million on April 30, 2018.

The company's cash on the balance sheet is trailing where it was in fiscal 2018 due to the low revenue.

However, the lower cost structure will continue to reduce the pressure on cash in fiscal 2019.Beyond operations, for the first quarter 2019, we invested $970,000 in software development, primarily new functionality for our key client solution, eValuator.

We foresee continuing to invest at this level for another quarter and then the dollars invested in capitalized software will temper. For the full year 2019, the company anticipates it will spend less in capitalized software as compared with the full year fiscal 2018.

The company continues to have flexibility within the software capitalization cost with regard to the timing, nature and type of spend.As David mentioned earlier, the company is looking into replacing its current term loan and revolving credit facility with a single revolving credit facility.

During the quarter, the company made its regular $150,000 quarterly payment on its term loan, the balance of which is now down to $3.8 million net of financing cost at the end of the quarter. In addition, the company has maintained a revolver with a $5 million capacity.

There were no amounts outstanding on the revolver at the end of the first quarter fiscal 2019 or 2018 or at the end of the company's fiscal year, January 31, 2019.If successful in refinancing its debt, the company would be positioned to reinvest the mandatory principal repayments on its current term loan back into the business, again primarily into sales and marketing.

The company will however, carry all of this new revolving debt as current on its balance sheet.The company is no longer reporting its backlog measure. As discussed in our previous two earnings call, the company included only contracts through their natural, original term or through the end of the next succeeding auto renewal term.

The company believes the backlog measure is not a proxy or a future indicator of recurring or total revenue. Accordingly, the company will not report backlog as previously defined. The company will continue to evaluate a measure that provides the right future indicator for sustaining and growing the revenue base.That concludes my remarks.

But before I turn the call back to David, I wanted to reiterate that I believe we have made great strides in managing the business during this transition to focusing on solutions and services to help clients with the middle of their revenue cycle.

We are prepared to rapidly leverage future increased revenue acceleration and accelerate the creation of EBITDA in cash for the business.

We look very forward to updating this growth on our next phase of execution.David?.

Thank you Tom. I want to concludes my remarks today by reiterating that we remain comfortable with the guidance we have provided for this fiscal year.

Given the strength of our pipeline and focus of our entire organization on sales, the many improvements and adjustments we have made in our cost structure over the past year, we continue to project revenue between $22.5 million and $23.5 million dollars and expect adjusted EBITDA to be between $4.5 million and $5 million at January 31, 2021.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]. Our first question comes from the line of Matt Hewitt with Craig-Hallum Capital Group. Please proceed with your question..

Good morning gentlemen. Thank you for taking our questions..

Thanks Matt..

First off, I want to make sure I heard you correctly, David, I think you said single digit revenue growth from eValuator this year accelerating to low double digit growth in 2020? Did I hear that correctly?.

Yes..

And then in conjunction with that, how should we be thinking about some of the typical erosion that we have seen over the last couple of years on the perpetual license side? So I guess where I am getting at is, where should we be kind of thinking about revenue growth as a whole for 2020?.

Matt, this is Tom. I want to make sure we are clear on the question and David's response. So we are talking about single digit growth for the entire company in 2019 that is driven primarily by eValuator. The eValuator itself will have exponential growth as a product in 2019.

But yes, we are thinking of low single digit growth in 2019 over 2018 for the company as a whole, including both recurring and nonrecurring revenue and then that going to double digits in 2020, all in the back of the eValuator and all of that is net of the churn from the legacy products..

Okay. Got it. That's actually really helpful. Thank you. And then maybe Tom, a follow-up for you, kind of moving down the income statement, there was a big pop in gross margin. Actually, you had a great quarter in gross margin.

Was there anything one-time in nature there? Or what helped drive that? And how should we be thinking about that over the remainder of the year?.

Yes. The vast majority of that is depreciation and amortization, which we have been hammering on. Also the quarter was benefited year-over-year from some reduction in support staff that occurred. So yes, I think you are looking at how gross margin is going to be for the rest of the year as total percentage base..

Okay. And then it sounds like you have added three salespeople. Could we get a total headcount for your sales organization now? And I think you had commented that know if the right person presented him or herself over the course of the year, you might add more.

But where does that team sit today?.

It's probably around 13 or 14 people, Matt. And we will continue to move money there to the extent we find good talent..

Okay. And then maybe one more and I will hop back in the queue. Prior, maybe it was Q4 or even Q3, I think it was Q4 you had mentioned that you would lock down your third Epic customer and there was discussion of getting to that threshold along you need to get out to their App Orchard. I know that they had shut that down for a short period.

I am not sure if that's been turned back on.

But any update on that front?.

Yes. It's been turned back on and we are going to be in the App Orchard and the other update would be that those three clients are all live and taking reference calls for us. So one of the ways we are moving to larger systems is, as we talked about, those Epic clients seem to be larger health systems.

We have three good live references there and that's really kind of helping us and they are being great partner taking lots of calls for us..

That's great. Thank you much..

Thanks Matt..

Thank you Matt..

[Operator Instructions]. Our next question comes from the line of Frank Sparacino with First Analysis. Please proceed with your question..

Hi guys. Just two questions for me. Tom, for you, just from a cash flow standpoint. The Q1 number was better than we have seen historically.

Just maybe any thoughts around cash flow for the year/ And then on the sales side, David, I don't know if there is any way to sort of quantify the top of the funnel and some of the metrics you alluded to as the confidence on the ability to get back to $2 million to $3 million in bookings perhaps starting next quarter?.

Thank you Frank. I will you start, if that's all right, David and you can come behind me. So thinking about cash flow for Q1 2019, if you recall, in Q4 we had a couple of customers that were delayed in paying us. Those payments came through in Q1. So we had a stronger cash flow in Q1 as a result of collection of those two customers.

And I think it was about $1.5 million or so.Cash flow for the rest of the year, I think, is going to be good. Again, we are not seeing as much cash come in but we are seeing a lower cost structure. So net-net, we should be able to cash flow positive, including debt service for 2019. After 2019, we are projecting tremendous cash flow.

We still have a little bit of cash that we are spending from our 2018 activities including the leases.So that's my comment on cash..

And then Frank, on the sales side. So compared to Q1, our Q2 is probably 50%, 60% larger at the top of the funnel of the entire top third of the funnel. In Q3, it's probably double of Q2. So we see a real acceleration possible with the size of organizations that we are going after and the quantity of organizations as well.

But the size is the real increase here. And part of that is driven by, we are now offering, we mentioned in our comments, but outpatient as well and that will go live this quarter. So we will have two outpatient clients live. We sold our first one last quarter. So we will have two outpatient clients live this quarter.

We are working quickly to get the third. So that expansion of product also helps us that we can then sell an enterprisewide solution now to cover the inpatient and outpatient and that has been well received by larger health systems, as they can see reporting across the entire enterprise.

That's a differentiator for us compared to our competitors who sometimes have separate systems and so they can't give a view of what's happening with their coding accuracy and how their revenue integrity is impacted across all clients..

Great. Thank you guys..

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I will turn the floor back to Mr. Salisbury for any final comments..

Thank you again for your interest in and support of Streamline Health. If you have any additional questions or need more additional information, please don't hesitate to contact me at randy.salisbury@streamlinehealth.net.

We look forward to speaking with you all again in September when we will discuss our second quarter of fiscal year 2019 performance. Good day..

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