Greetings, and welcome to the Streamline Health Solutions Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jacob Goldberger. Thank you. Please go ahead..

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the third quarter of 2023, which ended October 31, 2023. As the conference call operator indicated, my name is Jacob Goldberger.

Joining me on the call today are Tee Green, Executive Chairman; Ben Stilwill, President and Chief Executive Officer; and B.J. Reeves, Interim 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 www.streamlinehealth.net or from 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 all of our earnings calls should be viewed. We therefore submit for the record the following statement.

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 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 booked SaaS ACV. 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 and calculate their own non-GAAP measures.

To help me 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, Executive Chairman..

Thank you, Jacob, and thank you all for joining us this morning. As previously announced on October 13, 2023, the company executed a strategic restructuring. Ben Stilwill was promoted to the role of CEO, supported by B.J. Reeves as our interim CFO, while I have stepped into the role of Executive Chairman.

Hence, the execution of the restructuring, the strategic decisions made by Ben and B.J. have confirmed the Board's confidence in this leadership team. Streamline remains committed to its mission to ensure our health system clients are compensated for the care they provide. This has never been more critical for our nation's health systems.

And we know that preserving in our effort to deliver pre-bill revenue cycle solutions will deliver tremendous value for clients, shareholders, and our associates. The board and management understand the long-term value of this business and are evaluating several options to improve the company's financial flexibility.

We expect to update you in the near future on our progress. With that, I'd like to turn the call over to Ben for our corporate update..

one, a displacement campaign related to an existing offering in eValuator space, where we believe our tool delivers significantly better results in a SaaS format instead of an on-premise infrastructure heavy format; two, it continued emphasis on our Oracle partnership, which continues to aggressively push RevID; three, the development of a new and effective channel partner; four, and the last one, beyond new client sales, we have significant potential for upsell and cross-sell within our existing client base.

For example, in addition to the significant new client win towards the end of the third quarter and the one we announced yesterday, the team recently closed a deal to expand an existing evaluated relationship with the addition of our Pro-Fee Module, a testament not only to our growth team, but also the value that client success can have.

We also have several late-stage discussions with existing clients to become the first enterprise user of both our flagship solutions, which has been a key corporate objective for fiscal 2023. We've also shifted our marketing focus. The sales and procurement cycle in our industry has always been onerous.

But in the last 12 months, it's been elongated or complicated due to macro and industry-specific factors that have increasingly impacted our nation's health systems negatively.

In response, we have shifted our marketing efforts to emphasize the acceleration of known prospects and developing marketing plans and collateral to help specific deals at each stage of the pipeline.

Clients and prospects continue to recognize the ROI we can deliver and, in many cases, we are getting better at helping them navigate their internal IT processes to help them get out of their own way. The heightened level of scrutiny on which revenue cycle projects to pursue emphasizes the need for our solutions.

Health systems continue to be financially challenged and our ability to ensure they are accurately paid for the care they provide is paramount. And with that, I'd like to turn the call over to our Interim CFO, B.J. Reeves.

B.J.?.

Thank you, Ben. For the quarter ended October 31, 2023, total revenue was $6.1 million compared to $6.2 million during the prior year period. For the nine months ended October 31, 2023, total revenue was $17.2 million compared to $18.1 million for the first nine months of fiscal 2022.

As previously reported, the company had a large professional services contract that did not renew at the end of its 2022 fiscal year. These professional services contracts are not expected to be part of the company's core business going forward.

SaaS revenue grew 22% in the third quarter and the first nine months of 2023 compared to the same prior year periods.

During the previously announced nonrenewal of a -- due to the previously announced nonrenewal of a legacy client, we anticipate sequential declines of quarterly SaaS revenue in the fourth quarter of fiscal 2023 and first quarter of fiscal 2024 and that SaaS revenues will return to a sequential growth during the second half of fiscal 2024.

Total operating expense was $19 million during the third quarter of fiscal 2023 compared to $9.4 million for the third quarter of '22. For the first nine months of fiscal 2023, operating expense totaled $35.8 million compared to $27.1 million during the first nine months of fiscal 2022.

The higher operating expense was primarily attributable to a $10.7 million noncash impairment charge primarily related to goodwill.

Not including the impairment, the lower operating expense in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 and is associated with lower headcount and the integration of the Avelead and eValuator businesses.

Third quarter fiscal 2020 net loss totaled $11.9 million compared to a loss of $3.1 million in the third quarter of fiscal 2022. For the first nine months of 2023, net loss totaled $17.3 million compared to a loss of $9.2 million during the first nine months of 2022.

The increased net loss was primarily the result of the noncash impairment charge offset by the lower operating -- lower cash operating expenses on relatively static total revenues. During the third quarter of fiscal 2023, we generated $0.4 million of adjusted EBITDA compared to a loss of $1.2 million during the third quarter of fiscal 2022.

For the first nine months of fiscal 2023, adjusted EBITDA was a loss of $1.8 million compared to a loss of $3.5 million for the prior year period.

The improved adjusted EBITDA is the result of the shift in the company's revenue composition in favor of high-margin SaaS revenue as well as significant cost savings achieved through the fiscal 2022 strategic alignment.

As Ben mentioned, we believe that beyond $15.5 million of implemented -- million dollars of implemented SaaS ARR, the company will generate persistent adjusted EBITDA, and with significant operating leverage from that point. Currently, we expect we can achieve that run rate during the second half of fiscal 2024. Moving to the balance sheet.

As of October 31, 2023, we had $2.6 million of cash on hand compared to $6.6 million at January 31, 2023. The balance of our term loan was $9.4 million and we had drawn $0.5 million on our revolver. The Board and executive team have prioritized improving the company's liquidity position.

We have a strong working relationship with our current lender and we are exploring a number of options and working to ensure we make the right move for the business and not just the most expedient. As Tim mentioned, we expect to update you on our progress in the near term.

The company's accounts receivable was $3.7 million at October 31, 2023, compared to $7.7 million as of January 31, 2023. The company has a number of large annual receivables which it expects will be created during the fourth fiscal quarter. That concludes my review. I will now turn the call back to Ben for his closing remarks..

Thank you, B.J. Let me close by reiterating the confidence we have in the current and go-forward business. First, I have the privilege of talking to our clients and prospects every day.

They are facing staffing challenges, increased denials, and complex or inefficient systems, macro and micro variables have required them to be conscientious of how they prioritize projects and investments.

That's translated into current clients who are incredibly appreciative in demanding while prospects are looking for more validation due to the complexity and enormity of the problems we're solving. It ironically creates both lags and timing and increased confidence that we are in exactly the right business.

And second, while working with my associates through this transition, I have been incredibly inspired by their willingness to step up, lean in, and be creative with our new structure. There's no team I would rather put in front of our clients.

from the persistence in our growth team to the agility of our innovations associates to the tactfulness and implementation to the empathy and value drive and client success. We are all motivated and aligned to help our clients get paid for the care they provide. With that, I'll turn it over to the operator for Q&A. Operator..

[Operator Instructions]. Our first question today is coming from Matt Hewitt of Craig-Hallum. Please go ahead..

Good morning, and thank you for taking my question. Maybe first off, I'd like to dig in a little bit on the environment. Obviously, it's been pretty challenging over the past year, hospitals under pressure, as you mentioned.

I'm just curious, as you have these daily conversations with customers and prospects, are you hearing any change in tone? What are your expectations as we start to look in the new calendar year?.

Yes. Thanks, Matt. Tee here.

Ben, why don't you take that for Matt?.

Sure. Yes, I think that as it's become more obvious that some of the challenges are starting to be structural.

So, like the staffing shortages and even the relationship with the health care insurers it's become more clear that there needs to be longer-term fixes, and they've -- these health systems have looked at, for example, the entire revenue cycle and done a comprehensive solution to say, here's where we are strong and weak and where we need to invest.

I think in the short term, there was a lot of outsourcing that was done, and now they're looking for things that are going to be a little bit more sustainable. And honestly, that's where our sweet spot is, is trying to drive structural revenue cycle improvement..

That's helpful. And then maybe separately, and maybe this is for you, Ben.

Obviously, given the challenges over the past year, the structural realignment, and some of the other changes that you've implemented, I'm just curious with the current employees, the morale, the excitement that they bring into the office every day, how are you -- how is your team doing?.

Yes. We had a group that got together in person last week and then a management team meeting earlier this week. And I'd say that they really are rising up and leaning in. I think it's allowed us to be creative and question some of the structures we had previously.

There's no doubt that making sure that we hit the bookings targets and secure the financing is over their head. And I think yesterday's announcement around the large RevID win was a huge one for us. And I think they see the path to move forward. Good question..

Thank you..

The next question is coming from Brooks O'Neil of Lake Street Capital Markets. Please go ahead..

Thank you, good morning, everyone. I guess I have a few questions. I'd follow on with Matt in terms of trying to dig in just a little bit more. Obviously, you've got, at a minimum, to, and some might argue, three 800-pound gorilla's in the broad marketplace. And I'm thinking more specifically about Oracle, Cerner, and Epic.

And maybe you could just give us a sense for a couple of things related to those two.

One is how willing or reasonable are they in terms of being open to working with you guys and allowing your systems to at least interface and coexist with theirs? And whether you've seen either of those two entities making any efforts to create their own products that do more or less what your products do..

Yes, Ben, why don't you -- Brooks, Tee here, go ahead. But certainly, we have insights on the Oracle side, and we also have some insights on the Epic side of what their system doesn't do. So, go ahead, Ben..

Yes. And there was an earnings call earlier this week, where Oracle talked a little bit about their strategy with Cerner and what they're doing there. Obviously, the fact that we have a formal relationship with them, and they continue to recognize that they're not trying to build something to do what RevID does is very reassuring.

They are trying to move their clients to new accounting platforms and make a number of changes after the Oracle acquisition. We view those as entry points for us to be able to come in. We've been at their trade shows. They did a sponsored webinar for us. There's a lot of good activity on that side.

The -- on the Epic side, they're notoriously not as famous for signing a similar agreement like the one we have with Oracle. On the flip side, they're very easy to integrate with. It's a very standardized set of data. They have some tools that in theory, would directly compete, but the sophistication and the service level is just very different.

We believe that they have a lot of runway to invest in the clinical side of their EHR so to make sure that a physician burnout is at a minimum and that they continue to convert various health systems. So, at this time, we don't think that they are -- we know that they're not trying to invest specifically in the in the space that we play.

But even if they were to, we have a moat around the value of our workflow, rules, and UI and then you add on the service component where we're sitting with our clients on a monthly basis and helping them, giving them the tools to succeed. So, there's the technology and the insight part.

They're very good at investing in the technology, and they're very focused on the clinical side. So, I'm not worried about them for the foreseeable future, especially given the pace of change within healthcare IT..

Great. That color was helpful. Yes. So, let me just ask you a second question. You obviously have two primary products that you sell into the hospital and physician world that's out there.

I guess I'm curious if you envision sort of keeping these two separates or whether in your longer-term vision, you could envision a sort of product family that ultimately integrates and, on some level, does the majority of the work that a hospital would be looking for from the kind of systems you guys offer?.

Yes, that's a great question, Brooks. This is Tee. But certainly, the teams are all integrated now. So, there's not a separate organizational structure. So that's the first step. But yes, it's a good question and one that we continue to look at as we move forward.

Ben, why don't you opine on some of your thoughts there?.

Yes. There's a lot of really good stand-alone value in RevID today. I think long term, we would be able to merge the technology platforms. And if you look at eValuator, very easy to see how we could expand further into denials tracking and quality measurements and a handful of other that would just look like an additional module.

The workflow that we have already has multiple teams in there. each module that you could add there would use the same data model, same workflow, just a different team and a different outcome.

There's -- we have a huge effect on the rate of denials today but we believe that there's a lot that we can do and denials are the ultimate post-bill error, and we want to make sure that we manage and prevent those. So, I think there's a lot that we can expand into.

And I think making sure that our sales pipeline helps us creep into that without getting too far past our strategic core is critical..

Yes. Okay. Let me just ask one more, and I appreciate the color. So, when I think about the booked SaaS ACV versus the implemented, obviously, you're making some good progress there, but you still have in the range of $3 million of, I guess, I'd call it, unimplemented but sold business.

So, talk to us about sort of the time frame, whether there's still bottlenecks there in terms of completing implementations, and any other headwinds you see versus nice sales traction, and hopefully, we can get that implemented in a timely way in 2024. But just talk to us about what's happening out there in that regard..

Yes, B.J., why don't you take the first part of that on the actual numbers, and then Ben can jump in on some of the timing we're seeing with our clients?.

Yes. Thanks Tee, and thanks, Brooks. So, as you mentioned, we are tracking to that $15.5 million number that we mentioned, and with yesterday's announcement, it gets us even closer on the booked SaaS ACV so that we are not closing in on having it booked. And then -- but the implementations, we are seeing some headwinds that Ben will give some color.

There is still a little bit with the staffing, but the implementations are progressing, and we are seeing that the as those projects go forward, as we mentioned that we'd see the SaaS revenue from that start to grow back in the second half of the year.

So, we're seeing progress there, and it's just some of the business challenges that Ben will elaborate on that's just slowing them down a little bit.

Ben, do you want to jump in on the business aspect?.

Yes. the eValuator side seems to have largely returned to what our expectations was. But we still have trouble kicking off the projects even though IT has budgeted and things like that. But we're pretty confident the couple that are in our backlog right now will be in the early part of next year. The RevID side has two factors.

One, it's obviously just a much more complex system in that you have to train individual departments, it's a larger rollout. It's a harder problem that we're solving there.

So, we're pretty conservative in our forecast, and even the one that we announced yesterday, we have -- we pushed pretty far into 2024, just to be conservative, even though they have -- the client has expectations to go live a lot sooner because we're replacing another vendor.

There are some still when we're tied to a much larger upgrade within Oracle that get pushed out and they end up being up to a year or more kind of project. We only have really one or two of those left. And so, the RevID one should be in the middle of 2024. That's why we're targeting that EBITDA flip in the midpoint of 2024 right around there..

Okay. That's great. I did lie, I apologize.

But -- are you seeing Oracle Cerner being bottled up with their own internal integration and expansion efforts? Or do you think they're pretty capable of interacting with you and waste that can allow you to make the progress you hope to make with the business?.

Yes. And after the initial acquisition, there definitely was a -- it was slower than we all would have liked in understanding who we were supposed to go to. It's a very large complex organization.

So, it took a while to figure out that, oh, for this -- for the community works, which are the smaller hospitals, it's a whole different -- not only just the sales team, but the way that they approach those clients and the way that they deploy them for the larger clients, that's by this region.

And that said there was some getting to know you kind of stuff, even though their product management team was super excited to have us in the portfolio. It took a little bit. And obviously, with the acquisition, there were people coming in and out. I think now we're in a pretty good spot. So, like I mentioned, the -- they sponsored a webinar for us.

They brought us to their community works for them. They brought us -- they gave us a great spot at their Oracle Health Conference. So, I do think that there's momentum. And as we -- I think we mentioned last quarter that we have had the through that channel, and we have a list of clients that we're specifically targeting to convert.

The -- it's a lot easier when they're pushing us sort of stand-alone versus if they're trying to roll out an entire patient accounting system at 10 facilities. It's a larger ACV, don't get me wrong. And so, it will be great, but it is a lot more complicated process. They bring in outside consultants to help with that implementation.

And it's more hands in the cookie chart. So, it's definitely more complex, and that's the 1 that I mentioned that is still much later in 2024 that's tied to an Oracle project. That's the reason is there's large implementation teams and many moving parts..

Okay. That's a great color. I'm excited about what you guys are doing, and I'm pretty sure we're going to see better results in 2024. So, keep it up..

At this time, I'd like to turn the floor back over to Mr. Goldberger for closing comments..

Thank you all again for your interest and support of Streamline Health Solutions. If you have any additional questions or any more information please contact me at jacob.goldburger@streamlinehealth.net. We look forward to speaking with you all again when we discuss our fourth quarter and fiscal year 2023 financial performance. Good day..

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day..