Greetings and welcome to the Streamline Health Solutions' second quarter 2019 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, Chief Marketing Officer. Please go ahead, sir..

Thank you for joining us to review the financial results of Streamline Health Solutions for the second quarter of fiscal 2019, which ended July 31, 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 Tee Green, Interim President and Chief Executive Officer and Chairman of the Board; David Driscoll, Chief Revenue Officer; and Tom Gibson, Chief Financial Officer.At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session.

If anyone participating on today's call does not have a full-text copy of our press release announcing these results, you can retrieve it from the company's website at streamlinehealth.net or from 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 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 US 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 our 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 Tee Green, Interim President and Chief Executive Officer.

Tee?.

Thank you, Randy.

Good morning, everyone, and thank you for joining us to discuss our fiscal year 2019 second quarter performance which ended July 31 and to spend some time reviewing what we see in the coming quarters and our plans for growth.Unlike previous earning calls where the CEO highlights the financial performance of the most recent quarter, I am asking Tom Gibson, our CFO, to review that in detail later in this call.But since I just took on the CEO responsibilities at the end of July, I think it would be beneficial if I share my views on our company and why I'm excited about our revenue growth prospects.As far as our strategic plan is concerned, I do not see any reason to change our primary areas of focus, which is to bring best-in-class solutions and services to help our clients and prospects with the middle of that revenue cycle.You have heard from this management team about the very difficult environment in which healthcare providers work.

Reimbursements and associated red tape of providers reimbursement interfere with, rather than support, quality of care.

Getting compensation commensurate with the care provided to patients is an incredibly and increasingly difficult task.Today, most healthcare providers are accepting lower reimbursement rates in exchange for faster, but less accurate, collections.

We are helping providers increase fee and increase accuracy of reimbursements through effective use of technology.One of my first acts as the interim CEO was to gather together the executive team followed by the broader leadership team to review and refine our strategic plan.

One of my primary objectives is to help our company create greater velocity in all things we do.As an innovative company, we want to be constantly improving, so that our clients can find our people, products and services to be indispensable.

The idea of leading an industry movement to deliver coding analysis before a patient record is built is exciting and right for the market.We are at the forefront of this prebuild movement with an immense amount of opportunity in both the short and long-term.

I have asked Dave Driscoll, our Chief Revenue Officer and primary architect of our selling efforts, to discuss this in greater detail.But the opportunities we see to attract new clients and to cross-sell current clients is very encouraging.

Our pipeline continues to grow with some of the biggest healthcare providers in the country.Our most recent eValuator wins, along with names in our prospect funnel, tell me that we're on the right track.

As we reported last month, our second quarter bookings performance of nearly $3.8 million was far superior to any previous quarters of the recent past.As CEO, I would attribute the acceleration in bookings to, one, the presence and traction of Dave Driscoll in his role as CRO and, two, the focus on the C suite of larger healthcare providers.In the second quarter, we signed three big multiyear eValuator deals, with nationally recognized providers such as Catholic Health Initiatives and CHRISTUS Health were both new clients for Streamline Health.

And Memorial Hermann, a longtime Streamline client, that uses our abstracting technology.I view the $3.8 million in total contract bookings as a very good start.

The Q2 2019 bookings show that the company has been executing on a good plan for sales growth, and I want to find ways to increase the velocity on the plan that is in place.Before turning the call over to Dave, I want to comment on our nationwide search for a new president and CEO.

I'm very pleased to report that we have already interviewed a number of highly qualified candidates who are excited about the potential they see in our company.

I will keep you updated as to the board's progress on this front, but in the meantime, I want to reiterate how excited I am to be working closely with the talented folks we have on our team.I will now turn the call over to Dave Driscoll to discuss our selling efforts and prospects for continued bookings growth.

Dave?.

Thank you, Tee. When I spoke with you last, I'd only been on the job for a month or so.

I mentioned then that I thought the company's focus on the middle of the revenue cycle was smart not just because it's a large annual spend for providers, approximately $3 billion and growing at nearly 10% per year, but also because Streamline Health could help providers gain systematic efficiencies without the need to add resources.Our solution can help providers throughout their entire enterprise.

Our eValuator solutions are cloud-based, pre-bill, auditing platform that can help providers improve their revenue integrity for inpatient and outpatient billing and soon for their physician practices as well.During the past five months, I have reorganized the sales structure to help us gain greater prospect covers throughout the country.

We are adding additional reseller partners to certain regions of the country to help us increase that coverage.I have worked with our strategic advisory board members to help us gain greater access to C suites and to quickly target larger healthcare providers, to move upstream to larger provider organizations, which I commented in my April remarks was based on my years of experience when I learned that large organization are more advanced and have an appetite for new technologies like eValuators.This adjustment in our targeting resulted in the closing of new eValuator contracts during the second quarter for Catholic Health Initiatives, Memorial Hermann and CHRISTUS Health as Tee previously mentioned.Part of my role over the last two months has been to determine the total addressable market for the eValuator product and refine the pipeline.

This exercise has created more excitement for our company and has contributed to the strategic plan Tee has refined and implemented.Company's addressable market for inpatient and outpatient is more than 20 times the company's current total revenue.

The company's pipeline has increased fourfold from where it was when I first spoke to you in April.We have realized a fourfold increase in the terms of total revenue opportunities, while the number of prospects in our pipeline has increased only slightly in the same period.

Pretty easy to see that we have moved up to larger opportunities that represent annual recurring revenue potential of two to three times that of our current average eValuator client today.And many of these larger clients will be rolled out in phases, providing us the opportunity to grow annual revenue as we enable more of their facilities add outpatient and pro fee solutions as well as bundling audit services.To state more clearly, the company has much of an opportunity to grow annual recurring revenue from expansion of our current clients as it does from signing new logo businesses.The opportunity to expand within our client base and add new logo business are not mutually exclusive.

We can and will target both market opportunities simultaneously.With regard to targeting these larger opportunities, we are also making strides in the solution itself to enhance our appeal to these audiences.

One key recent development involves eValuator's interoperability with Epic, the largest provider of EHR technology with the largest share of market among hospitals.We have finished our joint development with Epic and we will be rolling out the eValuator application program interface, or API, within Epic App Orchard, which basically is their version of apps you can download to your smartphone.Any Epic client interested in improving various processes inside the organization can simply look at Epic's App Orchard to find Epic-approved contributors of technology that have already been integrated into the Epic platform.By gaining acceptance into this community, we make eValuator notification, what we call flagged accounts, that need further review for coding accuracy directly available to coders in Epic hyperspace.This simplified access means their coding staff can receive our notifications and advice directly within their existing workflow, making it simpler and easier to review flagged content and address and correct any issues before submitting to bill.Working inside our organization's inertia is one less hurdle for us to clear when selling a new solution like eValuator, which is a paradigm shift from post-billing coding analysis to pre-billing coding analysis.We are excited about bringing this to the attention of Epic-based hospital systems throughout the country this fall and will be promoting this new application next week at AHIMA, one of our industry's largest tradeshow.

This year, the event is being held in Chicago.I believe we made strides in our sales discipline in targeting, prospecting, demonstrating and closing current and prospective clients for eValuator.

One of our strongest differentiators continues to be our ability to run client data over historical period through our system and show an expected return on revenue that is specific to that client.

We are committed to providing return on revenue that can be quickly delivered with minimal disruption to the health system.Over the last few months, we've been refining our sales qualification process to build a more qualified and accurate pipeline. Our key focus has been in the following areas.

One, discovery calls that understand a prospect's current state; two, better understanding of our competitors by creating competitive scorecards; three, identifying and gaining access to key stakeholders; four, describing future state along with our associated business plans; and five, gaining earlier access to the C suite.In addition, we have made some changes in our account management function to help strengthen our client relationships and to expand our cross-sell and upsell revenue opportunities.This is another area of green space that the company has not yet fully executed.

We have approximately 80 healthcare providers that are using one of our solutions that is not eValuator.Part of our strategic plan is to improve our service levels and increase our value proposition to all our clients, with the anticipation that more cross-selling and upselling opportunities will be realized.But eValuator technology is not the only thing we are actively selling.

We have numerous opportunities to sell our excellent auditing services, both as standalone services to help with post-bill audit, as well as in tandem with the eValuator platform, both pre-bill and post-bill.Our pipeline also includes opportunities for our clinical documentation integrity, or CDI, technology and our abstract and physician query solutions.Looking ahead, I remain very encouraged by the velocity in our sales pipeline, mostly in terms of annual recurring revenue, but also in the number of potential deals in various stages of maturity, especially those in stage three, which is finalizing the business case because this is where we leverage our technology and our subject matter experts which is the real strength of ours.By gaining more access to the C suite, we have dramatically increased the number of potential opportunities of size and in two or more of the recent contract signing in terms of reducing the close as well.I believe we have just scratched the surface.

I anticipate the percentage of revenue contribution from our channel network will grow in the coming quarters as we bring on new partners.

Our direct sales team will continue to make a market in the pre-bill coding analysis space with our eValuator technology that can be used to improve coding accuracy for inpatient, outpatient and professional fee billing.There is a lot more I could tell you about our pipeline and the numbers we see in each stage of our sales process, but for competitive reasons we believe silence here is the best policy.Thank you.

I'll now turn the call over to Tom Gibson..

Thank you, Dave. And good morning to everyone on the call. As you might expect, the company's highlights and focus is in bookings and sales velocity.

As I have reported in previous quarters, the company has freed up investment in sales to create the coming growth.That said, the company has experienced a decline in recurring revenue that can be summarized more as a timing issue as opposed to a continuing trend.Fiscal year 2019 has been impacted by the timing of perpetual revenue as compared with prior year and the timing of new eValuator bookings has had a delayed impact on recurring SaaS based revenue.As we review the financial performance for Q2 2019, it is important to note that the company has previously discussed an inflection point between legacy and new solutions, specifically in recurring revenue.The company will recognize that inflection point later this fiscal year as the growth in recurring revenues for new solutions are expected to exceed the attrition in our legacy business.As announced in yesterday's press release regarding our performance for the second quarter and first half of fiscal year 2019, we generated revenue of approximately $4.8 million, down approximately 11% as compared with previous quarter's revenue sequentially and down approximately 9% from the second quarter of last fiscal year.Total revenues for the first half of fiscal year 2019 were approximately $10.2 million, down approximately 12% from $11.5 million in the same period last year.The first half of fiscal 2018 revenues included a single perpetual license transaction of approximately $1.1 million as compared to no significant perpetual transactions in fiscal year 2019.

Absent the perpetual revenue, 2019 was down less than 3% versus the first six months of fiscal year 2018.The decline in recurring revenue in the second quarter is a result of our bookings performance during the previous quarters of fiscal 2018 and fiscal 2019.

Until this quarter, our fiscal year 2018 and 2019 quarterly bookings, especially eValuator, have underperformed our targets.We have publicly announced our target of $2 million to $3 million in bookings per quarter.

The actual historical bookings of $1.9 million, $1.8 million, $1.1 million and $1.4 million from Q2 of last year through Q1 of this year have not generated enough recurring revenue to grow our recurring revenue base over the attrition we have experienced in our legacy solutions.But our Q2 bookings of $3 million of eValuator represents a pace of go-forward revenue contribution with the compounding effect of monthly recurring SaaS revenue that can help us overcome this attrition and return to top line revenue growth in the years ahead.Projected growth will begin to expand in 2020 with consistent, low double-digit percentage top line growth.

Again, this will occur as the eValuator SaaS revenue expands at an accelerated pace over the legacy solutions.The company expects revenue to increase in the coming quarters with the existence of perpetual revenue and recurring revenue ramp from eValuator clients coming online, primarily those reported in the Q2 bookings.Recurring revenues were approximately 82% of total revenue for the second quarter, slightly higher than 77% from the first quarter of this year.

Recurring revenues for the first half of fiscal 2019 were 79%, slightly ahead of the same period a year ago of 76%.Moving now to adjusted EBITDA. We generated $238,000 in Q2 of 2019 as compared with $1.1 million in Q1 of 2019 and $355,000 in Q2 of last fiscal year.

Adjusted EBITDA for the first six months of fiscal year 2019 was $1.3 million, up nearly 40% from $1 million in the first six months of last fiscal year.One can see the improvements in our operations from the cost savings initiatives that we completed last year.

This is having a positive impact on operations without regard to the lower revenue.As previously reported, the company's operating costs are in a relevant range that can be expected for the next few quarters.

The operating costs are able to be maintained in the coming quarters on the higher expected revenues.We did experience $140,000 of executive transition costs in the second quarter associated with the search for a new CEO.

These costs are expected to be $800,000 for the full year of fiscal 2019.These costs include recruiting fees, fixed retention bonuses for certain key executives and a consulting agreement necessary to successfully transition the new CEO.

These executive transition costs do not include the fees paid to our interim president and CEO as it's not incremental operating cost.Additionally, the company reported $70,000 and $148,000 of interest expense for the second quarter of fiscal 2019 and year-to-date fiscal 2019 compared with $110,000 and $227,000 for the same period last year.

Lower interest cost is a combination of higher amounts of interest being capitalized to our software development and lower term loan balances from our mandatory principal repayments.The company continues to look to replace its current term loan and revolving credit facility.

However, the company's organizational documents allow for the preferred holders to protect their priority, giving them the right to assent to a new senior lender.As filed with the company's 10-Q, we have extended our credit facility through August 2020 with our current lender.

The amendment and extension with our current senior debt lender will cost the company up to $200,000 in fees if the agreement were to go to its natural term. The company will continue to work with all of its financial partners to find the right long-term solution to its capital needs.

The amendment and extension will provide the company with time to work through these matters with all its current capital partners.Turning now to other areas.

The company recognized $449,000 in Q2 2019 and $883,000 in year-to-date 2019 of non-cash depreciation and amortization compared with $810,000 and $1,634,000 in comparable periods of the prior-year.The company also recognized $160,000 and $144,000 of share-based compensation for the second 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 events.The share-based compensation is higher in the second quarter of fiscal 2019 as compared to the same period a year ago because of certain actions initiated by the board to secure the interim CEO and retain certain key executives as a result of the vacancy left from the previous CEO.

The reported share-based compensation will continue to trend higher in the remaining quarters of fiscal 2019 from previous levels.Moving to the balance sheet, we finished the quarter with approximately $1.2 million of cash on hand. This amount is down from $2.4 million as of January 31, 2019.

The company's cash on the balance sheet is trailing where it was in fiscal 2018 due to the lower revenue. However, the lower cost structure will continue to reduce the pressure on cash in fiscal 2019.The company has always experienced seasonality in its cash balance.

The company invoices approximately $5 million in and around November of each year for annual licenses to certain legacy products. Those legacy products are collected in January and February of the following year.

What is left is a company that uses cash specifically in the late summer months and early fall.Beyond operations, for the second quarter 2019, we invested $1.878 million in software development, primarily new functionality for our key client solution, eValuator.

This is comparable to $1.529 million in the same period one year ago.We have previously reported that we were not expecting to invest as much in the full year fiscal 2019 as we invested in fiscal 2018. However, given the opportunities that we are seeing in the marketplace, we believe it is smart to continue our investment in eValuator.

The company sees the features and functionality of its flagship product to be a significant opportunity to expand its sales velocity.Continuing to expand the capabilities of eValuator for inpatient, outpatient and professional fees settings as well as improving the functionality of our dashboards, as we announced last week in a press release, we believe will help us continue to accelerate our sales success.The company continues to have flexibility with the investments we make into our software, both the timing, nature and type of spend.During the quarter, the company made its regular $150,000 quarterly payment on its term loan, the balance of which is now down to $3.7 million net of financing costs.In addition, the company has maintained a revolver with a $5 million capacity.

There was $1 million outstanding on the revolver at the end of the second quarter of fiscal 2019.The company believes that it has a very reasonable debt load in comparison to its operations.

The company continues to believe moving away from a term debt to a revolving credit facility and thereby removing the need to have mandatory principal repayment is a better long-term strategic move.

We will seek the right lender to help us accomplish this goal and gain the approval of the preferred shareholders.When we are successful in refinancing the debt to a single revolving credit facility, the company would carry as current all of the debt on its balance sheet.We remain bullish on bookings for the full fiscal year 2019.

However, because these bookings occur later in the company's fiscal year, there is less of an impact on the company's full year recognized revenue.

Likewise, we believe we will achieve full-year bookings at or above our target for perpetual licenses.Similar to eValuator bookings, the impact of timing on the perpetual license and related services to later in the company's fiscal year is to lower full-year recognized revenue for those related services on perpetual licenses.With this in mind, I want to provide revised guidance for the fiscal year and give a first look at where we believe our eValuator recurring revenue could be in fiscal year 2020.The impact of the timing on the company's recognized revenue for both delayed eValuator bookings and perpetual license sales could impact our full-year 2019 guidance by up to $2 million.Consequently, we believe it is prudent to lower our topline range of revenue guidance from $22.5 million to $23.5 million to $20.5 million to $21.5 million.We are revising our projections for adjusted EBITDA to $3.0 million to $3.5 million from $4.5 million to $5 million for fiscal 2019.That said, the lift in Q2 bookings of approximately $3.8 million and the potential of ongoing bookings from our eValuator sales pipeline are very encouraging signs that we will return to revenue growth in fiscal 2020.Our projections for revenue generated by our eValuator clients, with a conservative projection of new additions over the next 18 months, shows us exiting next fiscal year at a recurring revenue run rate for eValuator of approximately $9 million.

It is important to note that this is a fraction, less than one-twentieth of the fully identified addressable market for eValuator for two of the three modules – inpatient and outpatient.That concludes my remarks.

But before I turn the call back to Tee, 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 the revenue cycle.There is tremendous growth opportunity for the company's products in this space.

The company has been on the right trajectory and we are laser focused on what we can do to accelerate our path and to realize our full potential.We are prepared to rapidly leverage future increased revenue and accelerate the creation of EBITDA and cash flow for the business.Tee?.

Thank you, Tom. I want to thank everyone on today's call for your support of our company as we make this transition in leadership.

I see great potential here and I'm excited about the future.I assure you that I will remain at the helm of Streamline Health until a highly qualified successful candidate is found and I will do all I can to make sure that that candidate is successful from the very start.Before I conclude my remarks today, I want to take this opportunity to thank all our Streamline Health associates for their hard work and dedication.I will now turn the call over to the operator for our Q&A session.

Operator?.

Thank you. [Operator Instructions]. Our first question today is coming from Matt Hewitt from Craig-Hallum. Your line is now live..

Good morning. Thank you for taking the questions..

Good morning, Matt..

Good morning, Matt..

First couple for me relate to the pipeline and some of the upcoming opportunities. Obviously, $3.8 million in Q2 was a fantastic quarter. I'm just curious, how should we be thinking about the back half of the year? I think you previously talked about $2 million to $3 million a quarter.

Is that what we should be expecting here for Q3, Q4 and that's what gets you to your preliminary outlook for fiscal 2020 of the, call it, $9 million in recurring revenues?.

This is Dave Driscoll. I think that's a good way of looking at it. We expect, from a point of baseline, of $2 million to $3 million per quarter. And the upside being – you can look at two things, large organizations that we're currently talking to. If we bring in one or two of the extra-large ones, that number will spike up.

And then, the other aspect, even within our current implementations, we have the opportunity to upsell with additional facilities that are, like, within the contracts that we can exercise and also optional modules. So, the combination between those two things, you will see the increase and spike of maybe revenue in this quarter.

And when you look at the announcements, that will be kind of like – maybe some organizations that were very similar to the ones that we announced last quarter and also the ability of us of really cross-selling and upselling within our client base, which includes the new existing eValuator deals..

Okay. And then, you mentioned in the prepared remarks new physician practice eValuator.

I'm curious, how should we be thinking about that market from a size perspective, a TAM, and what would be your go-to-market strategy? Obviously, that would either require an addition to the sales force or is that where you're maybe using some resellers to go after that end of the market?.

Pertaining to the pro fee, that's a module. We're focused on the acute care side of the house and dealing with those organizations that have large physician practices. And the way that we're seeing the healthcare is being provided, not only in hospital outpatient environments, but also in these professional fee type of arrangements that they have.

We're very well-positioned in that aspect. And there's a lot of interest there. So, to us, it will be an add-on. It will be an incremental one. Also, I think for all intents and purposes, that's going to differentiate us from our competitors..

Okay..

Because our goal is to drive an enterprise-wide revenue integrity solution that supports them. And our story is they expand and deliver care within their continuum of care that they can have a revenue integrity program that goes right alongside with it..

Got it, okay..

I think David answered that perfectly. We're going after acute-care hospital systems. And the interested buyer for the physician fees will be those that have investments in physician practices as opposed to a standalone physician system..

Okay, okay. Maybe one last one for Tom and then I'll hop back in the queue.

With the updated guidance, is there any contribution from term or perpetual licenses before the end of the year? Or would that be upside? And maybe a little bit of thought or color on the potential for one of those types of deals to come in before the end of the year? Thank you..

Yeah. Thank you, Matt. And that's a great question. So, we do have perpetual license revenue in the rest of the year as forecasted. I will tell you that our pipeline on that side is very strong and there is every reason to believe that we can overachieve on that side through the end of the year. So, yeah, I think we do have some dollars in there.

I think it is a possibility that we overachieve as it relates to perpetual license fees..

Okay, great. Thank you..

Yeah, thank you..

Thank you. [Operator Instructions]. Ladies and gentlemen, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to Randy for any further or closing comments..

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 at randy.salisbury@streamlinehealth.net. We look forward to speaking with you all again in December when we'll discuss our third quarter fiscal year 2019 financial performance. Good day..

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