CES Energy Solutions Q4 2023 Earnings Call Transcript

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April 27, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Streamline Health 4th Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jacob Goldberg, thank you, sir.

Operator

You may begin.

Speaker 1

Thank you for joining us

Speaker 2

for the corporate update and financial results review of Streamline Health Solutions for the Q4 Fiscal year 2022, which ended January 31, 2023. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Tee Green, Chief Executive Officer and Chairman of the Board Ben Stilwell, President 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, can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites.

Speaker 2

Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record 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.

Speaker 2

S. Securities and Exchange Commission, including our most recent Form 10 ks Annual Report, which is on file with the SEC for more information about these risks, 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, book SaaS ACV and unaudited figures related to our acquisition of AbbVie. Management uses these measures to help provide better insight into our financial performance.

Speaker 2

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. To my health.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, Chief Executive Officer and Chairman of

Speaker 3

the Board. Thank you, Jacob, and thank you all for joining us this morning. Following my opening remarks, Ben Stillwell, President, will provide an operations and sales update followed by a financial update from our CFO, Tom Gibson. As a reminder, on August 16, 2021, we acquired Aboliv and their financial performance Will be included in our GAAP results from that day. With that, I'll get started.

Speaker 3

Beginning with the financial overview. The total contract value of bookings for the 12 months ended January 31, 2023 totaled $26,500,000 $22,400,000 of which was attributable to our SaaS products, an average of $5,600,000 of SaaS total contract value per quarter in 2022, exceeding Our estimates of $3,000,000 to $5,000,000 of TCV per quarter. Our booking success is a credit To the strong direct sales channel we've built and the value our products provide our clients, macro headwinds associated with our client staffing and backlog of IT projects continue to hinder conversion of new bookings to revenue. However, During the year, we successfully grew total revenue 43% to 24,900,000 And our SaaS revenues increased $4,200,000 a 53% improvement Compared to fiscal 2021. During 2022, we began reporting a new metric, book SaaS ACV, Which is the annualized contract value for all agreements that are being recognized into revenue as well as bookings that we have not As previously reported, as of January 31, book SaaS ACV Was $17,200,000 as compared to $10,600,000 as of January 31, 2022, Exceeding our previously announced $17,000,000 target.

Speaker 3

As of January 31, 2023, We had $6,600,000 of cash on our balance sheet and the balance on our term loan was $9,700,000 We believe our cash on hand is sufficient to achieve positive adjusted EBITDA less capitalized software development in fiscal 2023. We have access to an additional $2,000,000 of liquidity through our non formula line of credit. We combined Abilene and eValuator operations on November 1, 2022. Under Ben's leadership, the integration process has moved more quickly than we expected. Our eValuator and NaviLead Software solutions share common selling call point.

Speaker 3

We have achieved significant cost savings from the integration, $1,500,000 of which was executed on November 1, 2022 and was attributable to the elimination of redundant management positions, voluntary reduction of executive salaries and certain other contractors. We anticipate realizing additional $1,500,000 of cost savings throughout fiscal 2023 As compared to our models that had the business operating separately. Looking ahead to fiscal 2023, We expect the continued expansion of booked SaaS ACV will be a leading indicator of revenue growth to come And that the business will begin to realize strong incremental margins after achieving a breakeven run rate during the second half of the year. Beyond continued growth from new logos and within our existing relationships, we have identified certain key corporate objectives for Our existing business in 2023, they are in no particular order to have client leveraging both our flagship Solutions Rev ID and Evaluator, an Epic based facility utilizing Rev ID, improved performance from our partner channel And achieving a breakeven adjusted EBITDA Less Capitalized Software. Please note, As our SaaS revenues and book SaaS ACV continue to expand, we no longer believe that each individual contract signature is material news.

Speaker 3

Going forward, we will no longer press release individual bookings unless we deem them significant. We remain committed to keeping you apprised of our progress against our key corporate objectives and of significant contract signings. We remain confident in our growth prospects going forward. Our products and services are part of the answer for our hospital clients and the macroeconomic burdens they are facing today. Unfortunately, for our industry, That demand is not enough to guarantee success.

Speaker 3

Our clients are experiencing a continued hangover effect from the impacts of the COVID pandemic on their hospital operations, which has manifested in a backlog of potential high priority projects. Our team is working hard to ensure they are clearly communicating the impact of our automated prebuilt solutions, which enable our clients to capture and bill accurately for All the care they have provided. This will never this has never been more critical to our industry than it is today, And we believe our bookings will continue to accelerate as a result. We maintain our stated goal to exit fiscal 2023 With $30,000,000 of book SaaS ACV. With that, I'd like to turn the call over to our President, Mr.

Speaker 3

Ben Stiller.

Speaker 4

Thank you, Tee. As Tee alluded to, the integration of Avaliad and eValuator has proceeded smoothly. I'm grateful to our team members who have quickly adapted to their rapidly changing teams, all while maintaining a high level of service and commitment to client success. Internally, the team at Streamline is working toward 5 annual priorities, which will support the corporate objectives Tee laid out and fuel our long term growth. The first is scaling the Rev ID and Compare technology for growth.

Speaker 4

2nd, increasing our client effectiveness through eValuator usability improvements. The third is enhancing the service delivery of Rev ID and Compare products. The 4th being doubling eValuator client outcomes through enhanced rules. And 5, expanding our reach to new logo clients. Our client conversations remain focused on Increased denial rates and the need for automation within the revenue cycle.

Speaker 4

We recently published a case study of evaluators impact for one of our clients, Cooper University Healthcare, a 6 60 bed hospital system, which employs 961 individual physician providers. Cooper found $3,200,000 of financial impact as a result of their use of eValuator, which translated to a 16 times return on investment. The case study also confirmed Cooper's reasons for selecting eValuator. In addition to the financial impact, the Cooper team highlighted the tool's ease of use And are robust reporting suite. Their team is able to leverage eValuator's results and insights to improve the organization And justify the addition of FTEs to optimize future outcomes.

Speaker 4

Said differently, the organization found that staff empowered by our automated provide additional momentum as we work toward the sales related goals we highlighted earlier. Within innovation, our primary focus remains on improvements to the back end architecture of our Rev ID and Compare suite. We are making improvements to those products that will reduce the effort associated with our implementations And improve the user experience. Easing the burden associated with the implementation of Rev ID enables us to recognize revenue and generate customer ROI earlier. We also continue to make incremental improvements to the eValuator system as well, expanding our rule set and overall making the solution more effective.

Speaker 4

We are taking some initial steps to incorporate machine learning techniques into how our rules are generated and maintained for eValuator, which should help us develop more effective rules and translate to a higher ROI for our clients. The client centric organization we developed within eValuator has been a true differentiator for us in the market. As I highlighted above, Prospective clients are actively searching for solutions that are well supported. We're maintaining our cadence of monthly education and quarterly executive client meetings To establish the value of the tools we are providing, administrative staff within hospitals remain strained and understaffed, especially within their IT departments. This has delayed implementation timing for our solutions and our implementation teams are working hard to ensure that we are never the bottleneck.

Speaker 4

On the sales front, we were thrilled to report TCV SaaS bookings of $22,400,000 for fiscal 2022, Above our expected average of $3,000,000 to $5,000,000 for TCV SaaS bookings per quarter. The achievement of significant bookings growth Fiscal 2022 was the result of the growth team structure, which Amy Severeaux, our Chief Growth Officer, established early in the year. The shifts in our marketing efforts are palpable and our branding refresh was received well by our clients. And finally, we have spoken in the past about the lead time from contract signature to revenue or the implementation window that has been hindered by competing projects at our hospital clients. For eValuator, this has been steadily improving.

Speaker 4

We experienced 2 new go lives in Q4 of 2022. We have 4 go lives in Q1 of 2023 and have 2 more slated for early in Q2 2023. These new implementations will have a meaningful impact on recognized SaaS revenue year over year and on a sequential quarterly basis in fiscal 2023. Before I turn the call over to Tom, I would like to thank all of our hardworking associates who are supporting our mission to ensure our healthcare provider clients are paid for all the care that they provide. I'm very excited to lead our talented team and believe strongly that our innovation plus service equals growth formula will yield tremendous results for all of us as we continue to execute and expand.

Speaker 4

With that, I'll hand the call over to our CFO, Tom Gibson.

Speaker 1

Thank you, Ben. As Tim mentioned in his opening remarks, we acquired Abilene on August 16, 2021. All operations of Avaliad are included in our reported GAAP numbers from that date. We also pro form a numbers that assume we owned Avali from the beginning of the prior year period. For the year ended January 31, 2023 total GAAP revenue increased 43% to $24,900,000 For the year ended January 31, 2023, SaaS revenue grew 53% compared to fiscal 2021.

Speaker 1

$3,400,000 of the increase in SaaS revenue was attributable to the acquisition of Aboliv. Total revenue for fiscal year 20222021 was $24,900,000

Speaker 5

of actual

Speaker 1

$22,600,000 on a pro form a basis. We have been impacted by headwinds that face our hospital clients. Hospitals are overcoming shrinking Operating margins, personnel shortages and significant backlog of IT projects, a hangover effect These headwinds impact our contracting process and our contract implementation timeline. We do not know how long these delays will impact our clients and accordingly, our recognized revenue. $5,400,000 of our annualized SaaS contract value is unimplemented as of January 31, 2023.

Speaker 1

As these contracts are implemented in the coming quarters, $35,700,000 $28,100,000 for fiscal year 2022 2021, respectively. There is $4,300,000 $3,700,000 in fiscal year 2022 2021, respectively, our depreciation and amortization in those operating expense totals. $12,200,000 of the increase is attributable to the acquisition of Abilene. The company experienced higher severance, bonus And travel and entertainment expenses than that of the previous year. Fiscal 2022 net Loss totaled $11,400,000 compared to a loss of $6,900,000 in fiscal 2021.

Speaker 1

The higher net loss in fiscal 2022 is the result of a full year of Abilene operations as compared with a partial year in fiscal 2021. Additionally, net loss in the Q4 of fiscal 2021 included each of $2,300,000 of income related to a loan forgiveness And $1,900,000 of income from Avilead Acquisition earn out valuation adjustment. Fiscal 2022 adjusted EBITDA was a loss of $3,800,000 compared to an adjusted EBITDA loss of 2 $1,000,000 in fiscal 2021. The higher EBITDA loss can be explained by A full year of Abilene operations in fiscal 2022 as compared with a partial year in fiscal year 2021. Investments in the architecture of the Abilene technology, higher headcount and salaries for our upgraded sales function And administrative costs such as performance bonuses and travel and entertainment in fiscal 2022 As compared with fiscal 2021.

Speaker 1

Certain of these costs have been curtailed Due to the integration of AvaliV and eValuator units. Moving to the balance sheet. As of January 31, 2023, we had $6,600,000 of cash on hand compared to 9,900,000 dollars at January 31, 2022. The company completed a registered direct offering in the Q4 of fiscal 2022, Which resulted in gross proceeds of approximately $8,300,000 Under the Avalit acquisition agreement, The company is contracted to provide additional consideration on each of the first two twelve monthly anniversaries of the closing date. The first of these payments were paid in the Q4 of fiscal 2022.

Speaker 1

The payment was made using $2,000,000

Speaker 5

of cash

Speaker 1

and $3,000,000 of restricted common stock. The second payment will also be paid in cash and stock and is valued on the balance sheet at approximately $3,700,000 Of this amount, It is estimated that we will pay $1,500,000 in cash. The liability is referred to as Acquisition earn out liability on the company's balance sheet. Subsequent to the closing of the Abilene acquisition in 2021, we entered into a 5 year $10,000,000 term loan with Bridge Bank. There was no repayment of term loan required in the 1st year following the close.

Speaker 1

$500,000 or $41,667 monthly is required in the 2nd year following the close. The balance of our term loan as of January 31, 2023 was $9,700,000 As Steve mentioned, we recently expanded our relationship with Bridge Bank to include a $2,000,000 line of credit, which we can draw on If necessary, we believe that our cash on hand is sufficient to achieve a positive adjusted EBITDA Less Capitalized Software Development, But we are pleased to have this access to additional liquidity. As Keith mentioned, we have introduced a new metric It provides an annualized contract value for client agreements that are being recognized into revenue, As well as an annualized contract value for client agreements that have not implemented. We refer to this figure as our booked SaaS ACV, where ACV stands for annual contract value. We believe booked SaaS ACV will provide a proxy for our annual recognized revenue as if all Executed contracts are live and recognizing revenue.

Speaker 1

Please note that the recognition Of revenue from our signed contracts is subject to the timing of implementations. Implementations may sometimes be delayed by clients due to Competing projects or be timed after a larger implementation of another system. Our booked SaaS ACV As of January 31, 2023, totaled $17,200,000 And $5,400,000 of that booked SaaS ACV was not implemented. Subsequent to the end of fiscal 2022, As of March 31, 2023, our book SaaS ACV totaled $17,600,000 $5,300,000 of which was unimplemented. We remain focused on continued growth Of SaaS revenue, on its current cost structure, we believe our overall business will achieve breakeven at a SaaS Revenue run rate of $17,000,000 We achieved this level of bookings in Q4 of 2022 and Expect to have this revenue fully implemented during the second half of fiscal twenty twenty three.

Speaker 1

The company is realizing incremental SaaS gross margins above 80%. I am proud of the progress We have made in fiscal 2022, and I would like to commend our staff on their recent success. That concludes my review. I'll now turn the call back to Tee Green for his closing remarks. Tee?

Speaker 3

Thank you, Tom. We continue to enable healthcare providers to proactively address revenue leakage and improved financial performance and have taken major steps forward to drive recurring revenue streams that better position our company for growth And to deliver significant shareholder value over the long term. The alignment has enabled us near term visibility to cash flow Without losing momentum in growth or innovation, before we begin our Q and A session, I'd like to thank the entire Streamline team Once again for the 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.

Speaker 3

Now I'd like to open the call up to your questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question Our first question comes from Matt Hewitt with Craig Hallum Capital Group. Please proceed with your question.

Speaker 6

Good morning, gentlemen, and congratulations on the strong finish to 2023. Maybe first up, I was hoping we could dig in a little bit more on the selling environment. You talked about some of the headwinds that you experienced last year, the hangover from COVID. Some of the commentary coming out of public hospitals, HCA tenant, for example, appears to show some improvement, particularly on the staffing side, The procedure volumes are following suit. How should we be thinking about that in context of what you're seeing?

Speaker 6

Do you expect for those headwinds to maybe abate a little bit as the year progresses? And how quickly do you think that that will Translate into improvements in not only the contracting, but also the implementations.

Speaker 3

Yes, Matt, Tee here. Thanks for The question and the comments, it was a great year and we're excited about 'twenty three and 'twenty four. But You're right. You pointed out like Tenet, for example, right, incredible growth, Revenue exceeding projections in their reports, profitability exceeding, but then on the other side of the camp, So it's the tale of 2 cities, right, in the healthcare system. I do think in the I do think well, I know right now we're still in the headwinds.

Speaker 3

We still have a lot of health Systems that are still dealing with the post COVID stuff and they're getting through their contracts, Their IT staffs are still stretched, so the implementation still can be delayed. They're dealing with the Financial environment that's a little different now with these health systems and interest rates and what they're having to go through. So All of that though points to more and more, I guess, tailwinds for why they need Streamline. So these are all good things, but they are I do think the first half of this year is still going to be like the back half of last year is going to be Fighting for time in the CFO's office, fighting for time in the General Counsel's office, and then fighting for time And the Head of the IT department. And so that's just something we have to be better than others.

Speaker 3

1, I think we have an incredible growth team led by Amy. But second, our Technology is exactly what they need. It can be implemented quickly. It requires very little of their IT staff and it solves Obviously, major issues such as revenue, but also staffing. So Ben, you want to opine any further on that?

Speaker 4

Yes, I think you hit it on the head. Our current clients and pipeline prospective clients are definitely feeling the need for And just finding dollars where they can. So volumes and margins have improved as we've kind of seen, but they're still Struggling to make sure that there's continued improvement.

Speaker 6

That's really helpful. Thank you. And maybe just a Follow-up on that as far as the pipeline is concerned, are you seeing that continue to expand? Are things moving, albeit maybe slower than you would hope, but maybe moving through that pipeline where you're still feeling Confident about the $30,000,000 in booked SaaS ACV exiting this year?

Speaker 3

Yes. The pipeline continues to expand In quantity, but I would say more in quality. We've gone through significant analysis On the evaluator side, so, Matt, not only our pipeline growing, but the pipeline is growing of where we believe We can be the most impactful, meaning who's most likely to lean into the value added solutions, Where can we generate the largest ROI for the client? Yes, so those are some of the things that it's I wish I could show you some of the details, but it's more exciting than ever about the pipeline because of the quality of the pipeline, if that makes sense.

Speaker 6

Absolutely. Yes, thank you. And then maybe one last one for me and I'll hop back in the queue. As far as gross margins are concerned, A nice uptick here in the Q4. I think you mentioned that the SaaS Margins are 80% plus on the incremental implementations.

Speaker 6

But How should we be thinking about that line on total gross margins for the company as you progress through 'twenty three and maybe as you look out a few years?

Speaker 3

I'll let Tom get the details, but they should expand.

Speaker 7

Thank you, Tee and hey, Matt. Yes. So there is about almost 20% of that FaaS Cost of goods line is related to capitalized software development amortization. And so we had about, on a normalized kind of cash basis around 65% So 70% on a cash basis going through that as a gross margin And you're going to see that continue to expand with volume.

Speaker 6

Got it.

Operator

Our next question comes from Brooks O'Neil with Lake Street Capital Markets. Please proceed with your question.

Speaker 5

Good morning, everyone. I just want to be sure I understand sort of what you're talking about with the Non implemented business, I think you said $5,400,000 of the booked ACV has not been implemented. So I assume that's not in the revenue line yet.

Speaker 7

Tee, if you don't mind me answering. Hey, Brooks, how are you doing? That is 100% correct. You may have heard in Ben's remarks That we had 4 go lives in Q1 and 2 that are coming up in early Q2. And so you're going to see that revenue start being recognized into revenue on those eValuator deals In 2023, and that's why we talk about the strong growth on that revenue line.

Speaker 5

Yes, that's great. Now With the headwinds still out there though, as we book new contracts, I'm assuming there's going to be some implementation delays on those as well. So there's going to be sort of this Continuous process of putting more contracts in the bucket, implementing past Contracts, but not necessarily catching up in terms of a shorter Time between contract signing and implementation and revenue recognition. Is that the right way to think about it?

Speaker 7

Tee, you want me to start off and

Speaker 3

then Kevin? Yes, go ahead, Austin.

Speaker 7

Yes, thanks. So, Brooks, what I am seeing is that delay getting a lot shorter, Especially with that later. Yes. With Rev ID, it's a client by client thing And it depends heavily on whether we're following Cerner or not. So I would tell you, you're seeing on the eValuator side That getting a lot shorter.

Speaker 7

With Rev ID, we plan on making it shorter, but it's not there yet as far as the timing. Steve?

Speaker 3

No, that's it. Nothing further.

Speaker 5

Okay. That's great. And then let me just ask one more. If I was listening It sounded to me like there might be a subtle shift in kind of the positioning You guys are coming to market with in terms of I always thought in the past The focus was on pre bill because that was going to enable these hospital systems to Avoid the disallowed revenue and whatnot. But I think I was hearing you say today that automation of the revenue cycle may be resonating Better with the hospitals.

Speaker 5

Am I picking that up properly or am I over reading into your comments?

Speaker 3

It might be over reading just a bit, Brooks. We are absolutely focused on pre bill operations. We are the leader in pre bill operations. In fact, we're beginning to maybe ask questions. Who's the Vice President of pre bill for the health system?

Speaker 3

I say that a bit jokingly, but that position doesn't exist right now in the health systems, but it should. And we will we are the leader In this side of the industry, and so now you may maybe read a little further into it, but it all evolves around automation as well, but on the

Speaker 5

Okay. I get that. Let me just ask one last thing. Tom mentioned following Cerner. Help me to understand what's going on with Cerner, obviously, with the integration with Oracle.

Speaker 5

Is that ultimately going to be a positive for you? Or Is that just that integration on their side something that slows You guys down for a period of time until they kind of get through.

Speaker 3

Well, the Oracle that A lot of that, I guess, we don't have insight into Oracle strategy, right? So Oracle Cerner Yes. That's something that We really don't influence at all. So when you look at Oracle's Cerner and you look at the Cerner Healthcare strategy As it relates to pre bill initiatives, that hasn't changed. And in fact, I would say they've gotten more excited coming out of QBR with the team about what eValuator can do and rev IDs have already been part of the Cerner plan, eValuator has not.

Speaker 3

I don't the pre bill side of the Cerner strategy is accelerating and that's good for us.

Speaker 5

Great. Thank you very much for taking my questions.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Jacob Goldberger for closing comments.

Speaker 2

Thank you all again for your interest and support of Streamline Health. If you have any additional questions or need more information, please contact me at jacob.goldburgerstreamlinehealth.net. We look forward to speaking with you again when we discuss our Q1 2020 financial performance. Thank you.

Operator

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

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