Greetings. Welcome to Streamline Health Solutions Second Quarter 2024 Earnings 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] Please note that this conference is being recorded.

I would now like to turn the conference over to Jacob Goldberger, Vice President of Finance. Thank you. You may begin..

Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the second quarter of fiscal 2024, which was the three-month period that ended July 31, 2024. As the conference call operator indicated, my name is Jacob Goldberger.

Joining me on the call today are Ben Stilwill, President and Chief Executive Officer; and B.J. Reeves, 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 with 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 in calculating their own non-GAAP measures.

To help you 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 Ben Stilwill, President and CEO..

the first, a displacement campaign related to an existing offering in eValuator space where we believe our tool delivers better results at a lower cost; two, a continued emphasis on our Oracle partnership, which continues to aggressively push RevID; and three, the development of a new and effective channel partner; four, and the last one, beyond new client sales, we can more than double our existing ARR through upsells and cross-sells within our existing client base.

We've seen success in each of these areas. We've had a number of positive discovery activities as a result of our displacement campaign, and with the right pricing strategy, I'm confident we will see a win from that channel in this fiscal year.

We've had several successful Oracle go-lives already in fiscal '24 with more in our backlog and Oracle has been instrumental in a portion of our new bookings and our marketing efforts.

We've been presenting jointly with our sales team to additional prospects and at trade shows and continue to see an uptick in the number of prospects Oracle is introducing us to. We've also had successful upsells during the quarter and are working to expand our upsell potential with additional eValuator functionality.

Our first enterprise clients, one who added RevID, another who added eValuator, will both go live with their respective new Streamline solutions during the second half of this year. We'll be excited to share success stories obviously once we've had some time to work with these clients after their go-lives.

From a sales operation standpoint, we're arming our sales force with enhanced messaging to match with industry priorities and better explain the overall financial impact of our solutions for all prospects to align with the priorities of the C-suite leadership and with VP and Director level counterparts.

In some cases, clients have brought up our solutions at peer roundtables and we're looking to encourage more peer-to-peer activities in our user base. So, healthcare systems need to be able to succeed in the revenue cycle so that they can get paid for the care they provide.

We believe it is our duty to develop the products and provide the insights so that they can succeed. And so, with that, I'd like to turn the call over to our CFO, B.J. Reeves..

Thank you, Ben, and good morning, everybody. As Ben mentioned, our booked SaaS ACV as of July 31, 2024, totaled $13.6 million, and we continue to expect that we can generate persistent positive adjusted EBITDA above $15.5 million SaaS ARR run rate.

Currently, $10.7 million of our booked SaaS ACV is implemented and we anticipate we will successfully implement and achieve that $15.5 million ARR run rate during the second half of fiscal 2025. As Ben noted, this adjusted breakeven timing expectation is the result of unexpected churn during this fiscal quarter.

We expect to continue to recognize revenue from more than half of the $2.8 million of non-renewal contracts through November of 2024. Total revenue for the second quarter of fiscal 2024 was $4.5 million as compared to $5.8 million during the second quarter of fiscal 2023.

Revenue for the first six months of fiscal 2024 was $8.8 million as compared to $11.1 million for the same period of fiscal 2023. The change in total revenue for both the three- and six-month periods was attributable to previously announced client non-renewals, offset by the successful implementations of new SaaS contracts.

SaaS revenue totaled $3 million and $3.5 million, representing 67% and 60% of total revenues during the second quarters of fiscal 2024 and 2023, respectively. For the first six months of fiscal 2024, SaaS revenue totaled $5.8 million, 66% of total revenue, compared to $6.7 million or 60% of total revenue during that same period of fiscal 2023.

As previously reported, the company had a SaaS contract which did not renew toward the end of its fiscal -- its 2023 fiscal year.

On a pro forma basis, excluding the revenue recognized from that client, SaaS revenue grew 19% in the second quarter of fiscal 2024 and 21% in the first six months of fiscal 2024 versus the same respective periods for fiscal 2023.

As a result of the client non-renewals and reductions Ben mentioned, we currently anticipate that third quarter fiscal 2024 total revenue will decline sequentially by approximately $300,000, but will return to approximately $4.5 million of total revenue in the fourth quarter of fiscal 2024 as we successfully implement the existing contracts, and expect revenue to grow sequentially in fiscal 2025.

Total operating expense during the most recent quarter was $6.7 million compared to $8.4 million for the second quarter of fiscal 2023. During the first six months of 2024, operating expense totaled $13.3 million as compared to $16.7 million during the first half of 2023.

The lower overall operating expense for the three and six months period was the result of the company's previously announced strategic restructuring and was primarily reported in SG&A and R&D. We also saw lower costs associated with our professional fees and software licenses in line with lower overall revenue from that portion of our business.

We do not anticipate significant increases in operating expenses for the duration of the fiscal year or in fiscal 2025.

We continue to make investments to improve our technology, including the development of enhancements such as the My eValuator update, continuing development and expansion of applications for the AI technology that we have leveraged to generate additional content and improvements related to automation and usability for the RevID solution.

Second quarter fiscal 2024 net loss totaled $2.8 million or a loss of $0.05 per share, compared to a loss of $2.5 million or a loss of $0.04 per share in the second quarter of fiscal 2023.

The more significant net loss during the recent quarter, despite improved operating costs, was primarily the result of higher non-cash interest expense associated with the private placement notes issued during the first quarter of this fiscal year, as well as an approximate $100,000 valuation adjustment expense in this recent second quarter of fiscal 2024, as compared to $359,000 of valuation adjustment income during our second quarter of fiscal 2023.

For the six months ended July 31, 2024, total net loss was $5.5 million, or a loss of $0.09 per share, as compared to $5.4 million or a loss of $0.10 per share for the same six-month period of fiscal 2023.

The relatively static net loss despite lower revenue was the result of the significant cost savings that I previously mentioned, offset by the same non-cash interest and valuation expenses that impacted the three-month period.

Adjusted EBITDA for the second quarter of fiscal 2024 was a loss of $300,000, compared to a loss of $900,000 during the second quarter of fiscal 2023. For the six months ended July 31, 2024, our adjusted EBITDA was a loss of $1 million, compared to a loss of $2.2 million for the same period of fiscal 2023.

The significant improvement of adjusted EBITDA for the three- and six-month period is the result of the company's focus on the growth of its SaaS revenue solutions, as well as significant cost savings achieved through the previously announced strategic restructuring. Moving to the balance sheet.

As of July 31, 2024, we had $3.5 million of cash on hand compared to $3.2 million at January 31, 2024. As a reminder, during the first quarter, we executed private placements for gross proceeds of $4.5 million.

Our total debt, including senior debt loan and notes resulting from that private placement, was $12.5 million, and we had no balance outstanding on our $2 million revolving credit facility as of July 31, 2024.

Looking forward, as we continue to execute new bookings in fiscal 2024, we anticipate significant revenue growth in fiscal '25 and the achievement of persistent adjusted EBITDA profitability and significant improvement in our use of cash for operations throughout 2025. That concludes our review. Operator, please begin the question-and-answer session..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Matt Hewitt with Craig-Hallum. Please proceed with your questions..

Good morning, and thanks for taking the questions. Maybe digging in a little bit on the market itself, what are you hearing from customers? I know that procedure volumes seem to be improving a little bit, but it's not to say that it's broad based or that all hospitals or health systems are in recovery mode yet.

So, any details on what you're hearing from customers would be helpful?.

Yeah. Thanks for the question, Matt. So, what we've heard is that they are making material investments into whether it's expanding their physical footprints or new service lines to accommodate the patient volumes that they're seeing.

But they're still struggling with the -- what I'll say is that the revenue cycle side of things and sort of the payer dynamics, you've heard a lot about managed care, et cetera. And so, they're still trying to navigate those payer dynamics and use tools to do that..

Got it. And then, shifting gears a little bit. So, over the past couple of years, you've kind of created or added a number of enhancements to your software. What gives you confidence now that you're kind of turning the corner here in that? As we look to '25, you mentioned sequential growth next year.

What gives you the confidence that you can see those types of returns?.

Yeah. I think our products are definitely better than the competition as far as a standalone technology and then pair that with our service model. We do have opportunities to add additional modules to our existing software as well. And people are very ecstatic about some of those opportunities, the current clients that we have.

So, if we extrapolate that to the broader market, we do think that we have a lot of opportunity there..

Got it. All right. Thank you..

Thank you. Our next questions come from the line of Michael Potter with Monarch Capital. Please proceed with your questions..

Hey, Ben. I was hoping that you can give us a little bit more detail around the pipeline that we currently see.

And how late is that pipeline in regards to, are we expecting significant movement in that pipeline being converted into contracts over the next quarter or two?.

Sure. So, we were not happy with the first half bookings number, for sure.

I think when I stepped into the role and I looked at the opportunities that we have had out there, the ones that we're currently using our reps to close, we should see a good uptick in the second half of the year just from the opportunities that are out there, not including some of the initiatives that I kind of mentioned during my remarks..

Okay.

So, you're expecting some significant closings before the end of the fiscal year?.

That's correct. Yeah, we have a good line of sight on some deals that will actually close before the end of the fiscal year..

Can you give us a dollar value of the current pipeline?.

We're not currently giving guidance on the total value of the pipeline, but I would say that if you look at the first half bookings, we're looking at more than double that in the second half. As far as the total overall pipeline, it is pretty heavily weighted in the middle of it.

So, we expect to still get back on track to have a couple of deals a quarter closing at that $0.5 million ACV..

Okay.

And then, can we touch upon a little bit on the value proposition to our customers? Obviously, we hit a bump in the road for extenuating circumstances, it seems, but what are you hearing from our existing customer base? Are we exceeding their expectations? Are they seeing the cost savings? Are they seeing reduction in compliance costs? What kind of feedback are you getting from our current customer base?.

Yeah. So, from our current client base, they're very -- by and large, like I said, they are motivated to turn around their revenue cycle. Our best clients are very resource positive, so they can use the most of our solutions.

I would refer to some of our prospect conversations as being very interesting right now because they, during COVID or shortly after, outsourced some of these to other vendors, and they're now disenfranchised by that outcome. They've realized how much they lost by doing that.

And so, one of our marketing pushes in the near future is going to be take back the revenue cycle, because people realize, hey, I need to bring this back in-house and I need to enable my troops to be able to find the financial impact..

Okay. And just one other question, the Cerner-Oracle relationship, you said we have several implementations on the platform at this point and several more in our pipeline. How is that progressing? And how is that different? I know that's the RevID offering.

How is that different than how our go-to-market with eValuator?.

Yeah. So, we had a couple that went live at the beginning of the year who have now seen significant impact. They've been referenceable clients, which is obviously a huge thing in this selling process. As of late, they are signing up to do a webinar very soon. So, they're very positive.

And then, we have a couple in the pipeline who are -- sorry, in the implementation backlog, who are well on their way. Some of it is tied to Oracle's upgrade of their accounting system, but some of it is just going through the project process. As we get more of those, it's a very connected community.

And so, we anticipate that they'll be very vocal with their counterparts. But Oracle themselves has committed to the relationship. They are making active introductions and working with us.

How that compares to eValuator? It is a little bit more complex sale, sometimes viewed as a -- it can be more impactful at an enterprise level, so you have to bring in more departments versus eValuator's, can sometimes be viewed as something that helps a specific department. And so, maybe you can have less people involved in the process..

Okay, great. All right. Thanks, Ben, for the color. Good luck in the second half of the year..

Thank you, Mike..

Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to management for closing remarks..

Thank you all for joining us today, and thank you for your continued support of Streamline Health Solutions. We look forward to speaking with you again when we will discuss our third quarter financial results. Thank you, and good day..

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day..