Presentation:.

Hello, and welcome to the Streamline Health Solutions Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jacob Goldberger. Please go ahead, Jacob..

statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss.

Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K Annual Report, which is on file with the SEC for more information about these risks, uncertainties and assumptions and other factors.

As always, we are presenting management's current analysis of these items as of today. Participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline Health is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today.

On today's call we will discuss non-GAAP financial measures such as adjusted EBITDA and unaudited figures related to our acquisition of Avelead. 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 compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures.

I would now like to turn the call over to Tee Green, President and Chief Executive Officer..

one, CRO Amy Sebero, three season business development personnel to manage Cerner relationships, three [NZ] (ph) sales personnel that generate leads and push promotions, six direct regional sales personnel that have C-suite relationships inside hospitals in their regions and five marketing and advertising personnel.

The team has a sales administrative who coordinate all these activities along with a demonstration personnel. We have worked hard over the last year to build this structure and make the right investments. Today 18% of our total headcount is dedicated to growth.

And we believe the current investment level is sufficient to meet or exceed our bookings goals. I'll now turn the call over to Ben to provide an update regarding eValuator.

Ben?.

Thank you, Tee. And good morning. We are pleased to close several significant eValuator bookings during our second quarter, one of which was the largest ever eValuator deal by ACV and another which represented our first existing client expanding into our new professional fee module.

There is no doubt that our sales success is a result of providing white glove client service, investing into product innovation and the build out of our growth team which Tee referenced. We continue to meet with many of our existing and potential clients onsite.

During these meetings, our clients and prospects described numerous headwinds from the backlog of IT projects to turnover above clinical and professional staff.

I believe our key to success will be approaching these healthcare organizations with solutions that reduce or eliminate the effort required to achieve the financial outcomes our software enables.

One way we do that today is with our Client Success program, which includes monthly conversations on how we can improve the use of the software, regular client roundtables to discuss key issues and quarterly leadership meetings to fit our product into the bigger picture.

We consistently hear that our Client Success program is a primary differentiator between us and the rest of the vendor landscape. As a result, our existing clients are seeing significant financial impact. We recently published a whitepaper for Cooper University Hospital on our website that illustrates this impact.

Cooper is a great example of a client who gets created, pushes us and ultimately enable better outcomes. Still potential clients need help getting the same values as Cooper, and during the sales process they often express concern with their ability to achieve value quickly given staffing challenges.

To address these needs, we are expanding the Client Success offering to include what we are calling the eValuator concierge, which helps to shift the speed to value curve to the left. These concierges start off fully integrated with the clients team allowing us to quickly learn about and react to any potential pain points.

These concierges will provide us the insights we need to speed adoption and maximize client resources. We also continue to execute on eValuator product innovation. On our last call, I mentioned that the pro fee module of eValuator had entered its beta phase.

The pro fee module help contribute to bookings this quarter and was a component of the largest ever eValuator deal. Many of our current clients are interested in complementing their inpatient and outpatient suite of products with our pro fee module and we anticipate it will be a contributor to our bookings going forward.

It was a very rewarding quarter, and I think our associates clients and prospects for making it possible. I look forward to sharing additional success and updates on our next call. And I will now turn the call over to President and CEO of Avelead, Jawad Shaikh to provide a business update for Avelead.

Jawad?.

Thank you, Ben, and good morning to you all. Unlike eValuator, Avelead has investments required on the innovation and service side to deliver a world-class technology and client satisfaction. We have not finalized our scorecard for our clients to observe the ROI delivered by our products.

We continue to make significant improvements to our tools to ensure they are ready for the enterprise double growth we anticipate in the coming years. With that said, the growth opportunity lies in expanding our footprint within existing, contracted clients, an an exhaustive list of opportunities through our large channel partner Cerner.

We have successfully worked with Cerner to build our existing client base and pipeline. Within our sales process, we utilized RevID’s proven ROI and referenceable client relationships to drive bookings and revenue. Just like eValuator we see opportunities opening within our direct and channel partner pipeline as the impact from COVID retreats.

During the second quarter, we closed our first successful booking with one of the largest hospital systems space, primarily in the Southwestern United States. This initial booking came on the heels of a rigorous nine month pilot program and resulted in a contract for our compare product across approximately 5% of its total facilities.

Again, the initial booking was one product compare across a minor portion of the entire hospital system base. The Southwestern United States hospital system has the potential of being larger than the Tennessee hospital system that is now generating over $5 million of annualized topline SaaS revenue for our business.

I will now turn the call over to our CFO, Tom Gibson, to review our financial results in more detail.

Tom?.

Thank you, Jawad. As Tee mentioned in his opening remarks, we acquired Avelead on August 16, 2021. All operations of Avelead are included in our reported GAAP numbers from that date. We also provide pro forma numbers that assume we owned Avelead from the beginning of the prior year period.

Total GAAP revenues for the second quarter of fiscal 2022 were $6 million, a 109% increase over the comparable period of last year. $2.5 million was attributable to Avelead. For the six months ended July 31, 2022, total GAAP revenue increased a 105% to $11.9 million, $5 million of the increase was attributable to the acquisition of Avelead.

SaaS GAAP revenue increased $1.8 million or approximately 138% compared to the same quarter a year ago. And for the six months ended July 31, 2022 SaaS GAAP revenue increased $3.5 million or approximately 139%.

Total revenues for the second quarter of fiscal 2022 and year-to-date were $6 million and $11.9 million compared with pro forma revenues of $5.1 million and $10.5 million, respectively for the year-ago periods.

Moving back to our GAAP numbers, second quarter 2022 operating expenses totaled $8.6 million compared to $5.2 million for the prior year period. $3.2 million of the increase was related to the acquisition of Avelead. The company increased its spend in innovation during the quarter by approximately $500,000.

This increased spend was related to the acquisition of Avelead and certain costs to deliver several critical product improvements. Further, the company saw the full impact of its investments in the quarter for its reformed sales function and travel resumed to nearly pre-COVID levels.

For the six months ended July 31, 2022 total operating expenses were $17.8 million as compared to $10.7 million during the prior year period. $6.4 million of that increase was attributable to the acquisition of Avelead.

Loss from continuing operations for the three months ended July, 31, 2022 was $3.3 million compared to loss from continuing operations of $100,000 for the three months ended July 31, 2021.

Loss from continuing operations for the three months ended July 31 2022 included $49,000 of acquisition related cost and $425,000 related to evaluation adjustment on acquisition related liabilities. Loss from operations for the quarter ended July 31, 2021 included $2.3 million of income associated with the forgiveness of the company's PPP loan.

For the six months ended July 31, 2022 loss from continuing operations was $6.1 million compared to a loss from continuing operations of $2.5 million for the six months ended July 31, 2021.

Loss from continuing operations for the first half of fiscal 2022 included a $139,000 of acquisition related costs, while loss from continuing operations for the first half of 2021 included $0.8 million of acquisition related costs and $2.3 million of income associated with forgiveness of the company's PPP loan.

Adjusted EBITDA for the second quarter of fiscal 2022 was a loss of $1.1 million compared to an adjusted EBITDA loss of $800,000 in the same quarter of fiscal 2021. The higher adjusted EBITDA loss can be explained by investments made by the company in innovation and sales during the first six months of fiscal 2022, when compared to fiscal 2021.

Moving to the balance sheet, as of July 31, 2022, we had $5.9 million of cash on hand, compared to $9.9 million at January 31, 2022. The company completed the acquisition of Avelead using approximately $12.5 million of cash and $6.5 million of restricted stock at closing.

Under the acquisition agreement the company will provide additional consideration on each of the next two 12 monthly anniversaries of the closing date. These will be paid to the sellers in cash and stock and are valued on the balance sheet at approximately $8.8 million.

These liabilities are referred to as acquisition earn-out liabilities and aren’t estimate of the present value of future amounts that will be paid in cash and restricted common stock upon the anniversary dates of the acquisition. Subsequent to the closing of the Avelead acquisition, we entered into a five year $10 million term loan with Bridge Bank.

There is no repayment of the term loan required in the first year following close. $5,000 is required in the second year following close, which equates to $41,667 monthly beginning in August 2022.

The company maintains this position that the uncertainty related to the effects of the novel coronavirus impacts on the healthcare market prevents us from providing detailed guidance. We continue to target an average go forward SaaS bookings pace of $3 million to $5 million of TCV per quarter for 2022.

And as a reminder, to date we have closed $12.5 million of SaaS TCV. As Tee mentioned, we are introducing a new metric that provides each of an annualized contract value for agreements that are being recognized into revenue, as well as bookings that have not implemented.

We will refer to this figure as our booked SaaS ACV, were ACV stands for annual contract value. We believe both SaaS ACV will provide a proxy for our annual recognize revenue as all executed contracts are live and recognizing revenue. Please note that the recognition of revenue from our signed contracts is subject to the timing of implementations.

Implementations may sometimes be delayed by customers due to competing projects or be timed after a larger implementation of another system. Generally, we have recognized revenue from the eValuator projects in 90 to 120 days from contract signing, while Avelead products due to the complexity of implementation maybe 120 to 250 days.

As Tee remarked, our booked SaaS ACV as of July 31, 2022 was $14.3 million and approximately $3.2 million of that booked SaaS ACV has not been implemented. We remain focused on continued growth of SaaS revenue. On its current cost structure, we believe our overall business will achieve breakeven at a booked SaaS ACV of $17 million.

We expect that we will reach this level of bookings in Q3 or Q4 2022 and have this revenue fully implemented by Q3 or Q4 of 2023. The company is realizing incremental SaaS gross margins above 80%. Since I joined the company in September 2018, we have not experienced our current level of growth, nor the near-term visibility to cash generation.

I am proud of the progress we have made to date and want to commend our staff on our recent success. That concludes my review. I will now turn the call back to Tee Green for his closing remarks.

Tee?.

Thank you, Tom. We continue to enable healthcare providers to proactively address revenue leakage and improve financial performance and have taken major steps forward to drive diversified recurring revenue streams and better position our company for growth and to deliver significant shareholder value over the long term.

The integration of Avelead into the Streamline Health family has been smooth, and the product innovation and dedication to our healthcare partners remains a priority and strength across the company. Before we begin our Q&A session I'd like to thank the entire Streamline team once again for all their hard work and dedication.

Their contributions are essential for us to support our healthcare providing clients and ensure they have the necessary tools to free up time and resources to provide quality care for the communities they serve. Thank you all for your support of Streamline Health and our vision. Now, I'd like to open the call up to your questions. Operator..

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

Good morning. Congratulations on the progress and thank you for taking the questions.

Maybe the first one for me, and you touched on this a little bit in your prepared remarks, but regarding the hospital spending environment, obviously, as we're coming out of pandemic you're able to get in and meet with the customers, meet with the hospital administration, but they still are facing a pain point from a staffing perspective and I'm curious how those conversations are going given that your products actually solves some of that problem for them or are you -- are you finding the customers more receptive because your technology helps them on that front?.

Yeah, Matt. Tee here. Thanks for the question.

Yeah, we're clearly seeing health systems, I guess, get back to, I wouldn’t use the word normalcy, but getting back to their typical work in fashion of making clinical, financial and administrative decisions and how they run their health system versus everything focused on COVID and nothing else mattered which was what they had to do for several years.

So now, that is [solved] (ph), the CEOs and CFOs are definitely looking toward, okay, where can I make improvements in my business now. And it's probably not necessarily building new facilities in the inflationary environment [indiscernible] so that's probably not the right swim lane.

And the second thing is, everybody wants the clinical per care, care, care, but some of these clinical applications, although much needed, some of them are going to have to wait because of the financial scenarios these health systems [indiscernible]. So looking at revenue cycle technology is the logical next place for CFOs to look.

Is it, how do we improve financial performance. And so, clearly, things like eValuator and RevID from Avelead fit right in that discussion. Then the second thing they we look at is, well, if you look at all my auditors and billing personnel, they left.

I mean, there is -- I don't know what percent it will be interesting to see some of the studies coming out, but a large percent of the people left the hospital workforce that we used to work in what you would consider the revenue cycle area.

They're not coming back, and so the health system is not only having a hard time staffing nurses, there having a tremendous staffing in their revenue cycle business. So they have to look for innovation. And I think that's where Streamline is in a really neat place we believe going forward..

That's great and really helpful. Thank you. Maybe a follow-up regarding the new Southwest Health system win in the quarter. Thank you for the color on that.

I'm curious, I mean, at 5% -- or I'm sorry, what was it, five hospitals with the potential to expand much larger than that in the future, are there -- is there is like set milestones or criteria that would allow you to expand into additional hospitals within that system or how should we be thinking about that contract?.

Yeah. I'll take this and I’ll let Jawad and Tom maybe chime in as well.

But there is -- there are -- some of this will be confidential to our technology and things like RevID are so valuable, but when you think about our model, innovation plus service equals growth, if we don't get the innovation correct in the pilot there is no way we're going to move to the next step. And so that's the focus with these is.

Get the innovation correctly, prove that it can scale an enterprise and then make sure the service side, make sure that we're delivering [indiscernible] we're still working.

We know there's tremendous ROI, but we're still working on those getting in advance to stay on the eValuator side, so that we can prove every month, every quarter that we are hitting the margin more or less. And that's where the service component comes in. We do those two things that we know we're going to grow. So that's where we're focused..

Got it. And then maybe a last one for me and I'll hop back into the queue. But as things are signing up and you're seeing hospitals refocusing their energy on just running the business versus kind of treating COVID patients.

Could you talk a little bit about the pipeline and how that has built over the -- maybe the first half of the year and how you expect that to kind of play out over the back half? Thank you..

Yeah. Why don't we do this -- Hi, Ben, why don't you take the eValuator just so that they -- the investors here from you guys, and Jawad you take the Avelead side. They're both very exciting..

Yeah. So I think what we've seen kind of build throughout this year as we built out the sales team. Amy obviously coming on board, we've sort of shifted how we're presenting ourselves. You heard me mention the Client Success program.

I think that really -- we've started to lean into that because of the staffing challenges, because of the desire to get more out of less kind of concept and that program really helps enable that. So, as we push that more and more, and kind of helped overcome some of the objections that we normally here, which are budget and staffing.

We've seen our ability to talk to those kind of improve. And so I think the pipeline has built up as a result. And then we've had a lot of delivery on the innovation side, on the product side, that's also helps increase productivity and things like that.

Jawad?.

Yeah. And just to kind of add-on to that. Our focus has continued to be, obviously, on innovation as Tee mentioned, but our pipeline is continuing to focus on obviously growing within our existing customers, which has been going well. And then also expanding with our Cerner partnership as well too.

But the goal is really to stay patient and continue to invest in that innovation as we are continuing to build these relationships and continuing to build the pipeline, so everything kind of lines up with the [indiscernible] as well to.

So we’ll continue to focus on those partners and we're getting good pipeline growth, steady pipeline growth with that as we continue to focus on our R&D..

That's great. Thank you very much..

Thank you. Next question is coming from Kyle Bauser from Lake Street Capital Markets. Your line is now live..

Great. Hi, everyone. Great results today and thanks for the updates.

So we're clearly seeing an expansion of new clients being layered into the business from all the recent contract win announcements and recurring revenue metric of 71% versus 84% a year ago, and it sounds like the investments into the eValuator commercial team are really driving a lot of this presumably with the existing relationships that the sales reps have, but I just wanted to get a sense of the magnitude of some of the other drivers, you talked a little bit about this, but I think you can talk more about other drivers, such as hospital referral there we've seeing that or even the rollout of your services to new facilities within growing hospital systems that are consolidating or even hospitals that have kind of in a holding pattern in your pipeline and are now kind of moving forward.

Just kind of curious, the magnitude of each of these other drivers..

Yeah. Thanks, Kyle. This is Tee. The macro side of it is, there is two, I guess, major things happening right now in the health systems. One is the CFOs recognizing that 2.5 years of COVID has taken a significant financial impact on the business. And so they have to ride the ship in many areas. And that leads to revenue cycle improvements.

And so that's -- if you go in any health system in the country that’s probably one of the top conversation. The second is staffing. And so it's one thing to say, okay, here's our revenue cycle challenges and here's what we got to do to ride the ship and to get back to financial health.

The second part of that is, you would normally go out and historically ramp your billing, your collections, you're auditing, and you would -- you can overcome some weakness just through sheer human effort.

The problem today is, that human effort is not coming back and that's -- so those are two major things happening in health systems today that are going to require the CFOs to technologies innovation that can improve financial performance, but also you can do without having that can replace head count.

And because of our pre-built technology it does both. It improved financial performance, it also reduces the need for bodies to be in that business.

And to me that, yes, we have to staff our growth teams, yes, we have to have great strategies for marketing and BD, but those two macro trends right there are your drivers for the next several years in my opinion..

I appreciate that. Clearly the value prop is the highest it’s ever been based on kind of what you just said, Tee. I appreciate that. And then I guess regarding the pro fee module. It's great to see that is already being deployed within new and existing clients.

I'm just kind of curious to the extent you can estimate maybe percentage or number, how many of your current clients do you think are kind of high probability targets or adding on this new pro fee module..

Hey, Ben, why don't you take that and also cover not just current, but what you're pipeline shows for pro fee..

Yeah. So I think -- I'd say it's about half of our current clients are ideal candidates at the moment. I think the main signal to us is whether or not that professional practice is in the same revenue cycle function or if it's something that recently acquired and is not integrated with hospital revenue cycle function.

And so we -- you see it done both ways. And we're probably going to be a lot more success in the initial outset if those two groups are together, because then you're benefiting from common coding practices from reporting, et cetera. As far as the pipeline, I think we're seeing the largest deal that we announced a little bit earlier.

That was -- we were able to do that because we had professional fee. It was a need for that in order to work with us. And so we're seeing there is a number of opportunities that we've talked in the past and kind of said it was great, but we were trying to find something that goes across the entire enterprise and now we have that ability.

So I think we'll see that more or less sold with the vast majority of our net new deals going forward. I'm still dependent on that the revenue cycles being integrated, but, yeah, it's kind of -- it's opening up doors for us I would say..

Great. I appreciate that. And then just lastly, kind of a similar question on Avelead side of the business. Kind of what are the key drivers for, in particular the EHR migration.

So is it just old systems finally getting upgraded or consolidation in the space where we're switching systems that targeted companies that were using to the ones that that acquirers are using or and then just kind of a natural share dynamics playing out between EHR companies.

Just trying to kind of get a sense of what also driving the contracts like the one announced in early August, I think on August 1? Thank you..

Yeah. Hi, Jawad, why don’t you [indiscernible] through the Cerner relationship [indiscernible] what the technologies compare and RevID can do and what we've seen in Epic and Meditech and others..

Yeah, definitely. And I think our starting point, our history has been kind of conversions or EHR migrations and that continues to play a role in kind of driving and getting engagement with some of these clients and including this big one as well, too.

But it's kind of a twofold step we were going to continue to do those, we’re partnering with Cerner to do those as well too.

But as we're getting more clients under our belt in being able to clearly document the ROI and the value our clients are getting, we're able to use that to go back to other clients that are already maybe live on our EHR or have been for a long period of time. So kind of growing it that way as well too.

So it's both conversion EHR migration as well as expanding naturally and just telling the ROI and the better clients are getting and spreading that were to more future clients..

That make sense. Great. Thanks for taking my questions and congrats on the great update today..

Thank you, Kyle..

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

Thank you all again for your interest and support of Streamline Health. Do you have any additional questions or need more information please contact me at jacob.goldberger@streamlinehealth.net. We look forward to speaking with you all again when we discuss our third quarter fiscal year 2022 performance. Good day..

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