Streamline Health Solutions, Inc. (NASDAQ:STRM) Q3 2023 Earnings Call Transcript December 14, 2023
Operator: 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.
Jacob Goldberger: 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.
Tee Green : 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.
Ben Stilwill : Thank you, Tee. Since the restructuring, I've been impressed by the dedication and commitment of our associates that drive for success and ability to rapidly evolve in a changing situation. The strategic decisions we announced in October allow us to continue to deliver value for our current clients, efficiently convert our backlog to live revenue, and focus our sales execution, all while realizing significant cost savings. And we expect that these savings have meaningfully lowered our future breakeven run rate. Today, we believe that a $15.5 million SaaS ARR run rate will translate to persistent adjusted EBITDA generation and that any ARR generated beyond that level will result in gross margins in excess of 80% with significant operating leverage.
As we announced yesterday, booked SaaS ACV which is the annual contract value for all agreements currently being recognized as well as bookings that have not been implemented totals $14.5 million. Of that, approximately $11.2 million has already been implemented. Following the restructuring, our client success team has had an increased emphasis on connecting with each of our clients. ensuring we understand their overall satisfaction with our products and provide clarity about the changes we were making at Streamline. They continue to be supportive. Our clients rely on our solutions to successfully collect all the cash they are owed for their services and are overwhelmingly happy with our team and their results. As evidence, our team was recently able to convert some of our single-year renewal contracts to three-year contracts.
One of our clients is so pleased with our eValuator solution that they ask for a five-year renewal in conjunction with transitioning to Epic's EHR. Within our backlog, the team successfully completed the implementation of a $1 million SaaS ACV Rev ID project with a large multi-health system client. During the final user training, the super user there related his excitement to the facility staff by saying, we have never been able to look across our systems the way RevID enables us to. This tool will allow us to get accurately paid for the care we provide. It was gratifying to see our client comprehend and echo our company mission unprompted. And this was the first health system to go live on RevID within a much larger multi-region client. And we believe that the combination of our smooth implementation, talented client success team, and substantial financial impact will allow us to expand our relationship in fiscal 2024.
A clinical medical professional helping a patient while using an integrated health information technology software.
Our implementation team's effectiveness has been enhanced by this year's architecture improvements, and we expect that they will continue to improve their processes resulting in a smoother client experience while reducing our overall expense. Our innovation team was the most impacted by our restructuring. During the past 18 months, we made significant improvements to both platforms including RevID's architecture and eValuator's AIML system, which enhances rural development to drive client ROI. And so today, the innovation group is aligned as one team and leadership structure which allows them to work on the top priorities regardless of solution. Currently, those priorities include the completion of a significant user interface upgrade for eValuator and client-facing features for RevID.
The combined innovation leadership structure also allowed for new opportunities for high-potential leaders we have been cultivating. And to be clear, we believe that the development progress we've already made within eValuator and RevID are sufficient to maintain a strong competitive edge in the marketplace while allowing us to aim our efforts in response to the growth direction of the business. And so, turning to that growth team, we're now focused on four key strategies with specific named accounts where we believe we can execute and have shown success. The strategies include: 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.?
B.J. Reeves : 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.
Ben Stilwill : 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.
