Q4 2023 Streamline Health Solutions Inc Earnings Call

Participants

Jacob Goldberger; Director, Investor Relations and FP&A; Streamline Health Solutions Inc

Benjamin Stilwill; President, Chief Executive Officer, Director; Streamline Health Solutions Inc

Bryant Reeves; Chief Financial Officer; Streamline Health Solutions Inc

Matthew Hewitt; Analyst; Craig-Hallum Capital Group LLC

Brooks O'Neil; Analyst; Lake Street Capital Markets

Presentation

Operator

Greetings and welcome to the Streamline Health Solutions Fourth Quarter and Fiscal Year 2023 earnings call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Jacob Goldberger, Vice President of Finance. 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 fourth quarter and fiscal year 2023, which ended January 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 at all of our earnings calls should be viewed. We therefore, submit for the record the following statements 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, which 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. Participant 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 books at ATV. 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. So if 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.

Benjamin Stilwill

Thank you, Jacob. For fiscal year 2023 was challenging for our business. However, the positive impact our solutions have for our clients' operations continue to fuel our team and our excitement about the future. Our clients need our solutions and the market needs our business model to exist. So when we face adversity we knew we had to become a stronger, leaner and more agile organization. Today, we exist as a more experienced team capable of driving innovation and growth in the complex landscape of hospital revenue cycles as we announced yesterday.
So SaaS ACV, which is the annualized contract value for all agreements currently being recognized as well as bookings that have not been implemented totaled $15.6 million, $11.7 million of which is implemented. Notably, this is above the $15.5 million run rate needed for breakeven adjusted EBITDA. We discussed previously, we expect that we can implement the remaining $3.9 million of implemented bookings over the course of this year and achieving adjusted EBITDA breakeven run rate during the second half of this year.
I'd like to take a moment to comment on the current state of our clients' challenges before talking about how our business is set up to address them. Our nation's health systems exist to provide clinical care for more and more. They're forced to spend valuable time and resources to get paid for providing that care. The reimbursement system was already incredibly complex, but in recent years, payers have made it even more difficult to increase denials and hard-nosed contract negotiation to combat these challenges, hospitals have historically added more staff to their revenue cycle.
But in today's labor market that is just not possible to many have turned to outsourcing the challenge altogether. As a result, we think this is an unfortunate outcome, not only because it keeps the cost to collect high, but I thought sourcing something so critical to operations, they missed the chance to make more fundamental fixes my vision, which is shared by our team recognizes the true organizational change must come from within the health system, and then we can serve as the guide for their quest to be accurately compensated for the care they have provided our investment in innovation via our flagship solutions, providing eValuator reflect this vision. Both of them identify, prioritize and make actionable specific financial opportunities.
They have been cemented by our service model, which creates the education and feedback loops necessary to allow our clients to make the systemic changes needed to improve as we prove our innovation and service model and messaging in a way that resonates with today's Innodata revenue cycle leaders, we will inevitably create growth.
So let me provide some updates on the innovation and growth from before handing off to BJ, during fiscal 2023, we made significant strides within innovation. We mentioned previously the re-architecture of rev ID, which set the stage for enhanced performance and client satisfaction because we look forward our focus on innovation within REV ID is automation for our users and enhanced interoperability for increased financial impact on eValuator during 2023.
We developed an AI model that enhances the intelligent and financial impact of our rules. We're happy to report that in the first six weeks of deployment, the enhanced rules found a million of impact across our client base. And looking forward, we have opportunities to substantially improve the existing AI model as well as other AI features. Further out, we feel more comfortable tackling with the initial project under our belt. We also spent time in a feature called My evaluator, which is rolling out users this week money. It is a major advancement of the eValuator user experience with role-based user profiles to enhance productivity going forward, we'll leverage that to create more and more efficiency for our users.
And there's a theme here going back to the vision health systems need to find more financial opportunities while leveraging automation to make the most out of their teams. That's the focus of our roadmap and continued improvements in financial ROI and usability of our products will improve client relationships and help expand our footprint.
And then on the growth front, we remain confident in our revised current strategy under Amy's leadership as we certainly last year, we went from a broad market approach to one that is much more tailored to proven market advantages using these four key strategies and specific named accounts and approaches, and they include one a displacement campaign related to an existing offering in eValuator space where we believe our tool delivers better results to lower costs to the continued emphasis on our Oracle partnership, which continues to aggressively push RFID and three, the development of a new and effective channel partner. And then for the last one Beyond new client sales, we have significant potential for upsell and cross-sell within our existing client base.
We've seen progress in each of these strategies, and I do want to call out that we've had several recent expansions within our existing client base, including two enterprise clients contracted for both flagship solutions. Amy has been using an agile approach to managing our growth strategy, both in terms of who's on the team and where they focus. We're also enhancing our messaging to emphasize our success, not only in coding and charge reconciliation, but also our ability to decrease denials and ultimately improve cash flow. These are top priority areas for all health care organizations will allow us to engage most effectively with prospects at multiple levels within their organizations.
We believe that making these focus and strategy adjustments will help us to capitalize on the investments made in innovation and service. We remain optimistic about our need to be in the marketplace and ability to work with health systems on their challenges.
And with that, I'd like to turn the call over to our CFO, B.J Reeves.

Bryant Reeves

Thank you, Ben. Total revenue for the fourth quarter of fiscal 2023 was $5.4 million as compared to $6.7 million during the fourth quarter of fiscal 2022. For the 12-months ended January 31, 2024 revenue totaled $22.6 million as compared to $24.9 million during fiscal 2022.
The change in total revenue for both periods was attributable to lower revenue from the company's legacy maintenance and support contracts and professional services offerings offset by a higher SaaS revenue. As previously reported, the Company had a large professional services contract, which did not renew at the end of its 2022 fiscal year. This was a professional services contract that is not related to the Company's core business going forward.
During the fourth quarter and fiscal year 2023, SaaS revenue grew $0.3 million and $1.7 million, respectively, as compared to the prior year period. Please note, due to the previously announced changes in our client base, we anticipate recognizing a sequential decline in our SaaS revenues during the first quarter of fiscal 2024 and anticipate that SaaS revenue for the duration of fiscal 2024 will lag fiscal 2023.
Total operating expense was $6.5 million during the fourth quarter of fiscal 2023 compared to $8.6 million for the fourth quarter of 2022. Lower overall operating expense was the real result of the Company's previously announced integration of the Abilene and eValuator businesses 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 compared to our third fiscal quarter.
Total operating expenses, excluding impairment expenses of $10.8 million decreased a total of $1.7 million. The sequential decline in operating expenses compared to the third quarter was the result of the previously announced restructuring and seasonally low expenses in our fourth quarter. Looking forward based on our current operating model, we anticipate that expenses will stabilize at a slightly higher run rate than we experienced during the fourth quarter of fiscal 2023.
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 the ease of implementation, especially for the red ID technology. Please note that we expect our fiscal first quarter operating expenses to be sequentially higher than the fourth quarter due to audit and annual shareholder meeting expenses expenses, which we recognize during our first quarter fiscal 2023 operating expense totaled $42 million compared to $35.7 million during fiscal 2022.
Higher operating expense was primarily attributable to a $10.8 million noncash impairment charge, primarily related to goodwill not including the impairment. The lower operating expense in fiscal 2023 compared with fiscal 2022 is associated with lower headcount and the integration of the Abilene and eValuator businesses. Fourth Quarter Fiscal 2023 net loss totaled $1.4 million compared to a loss of $2.2 million for the fourth quarter of fiscal 2022. Fiscal 2023 net loss totaled $18.7 million compared to a net loss of $11.4 million during fiscal 2022. The increased net loss was primarily the result of the noncash impairment charge, offset by lower cash operating expenses on relatively static total revenues.
During the fourth quarter of fiscal 2023, we generated $0.4 million of adjusted EBITDA compared to a loss of $0.2 million during the fourth quarter of fiscal 2022. Fiscal 2023 adjusted EBITDA was a loss of $1.4 million compared to a loss of $3.8 million in fiscal 2022. The improved adjusted EBITDA is the result of the shift in the Company's revenue composition in favor of higher-margin SaaS revenue as well as significant can cost savings achieved through the fiscal 2022 strategic alliance.
Now moving to the balance sheet. As of January 31, 2024, we had $3.2 million of cash on hand compared to $6.6 million at January 31, 2023, the balance of our term loan was $9 million, and we had $1.5 million drawn on our revolver as previously announced, subsequent to the close of the quarter on February 7, 2024, we executed private placements for gross proceeds of $4.5 million. As been previously mentioned, our current booked SaaS ACV, including our recently announced wins of $15.6 million is above our expected $15.5 million SaaS ARR breakeven point. As a result, we anticipate that we can achieve our breakeven run rate during the second half of fiscal 2024 as these bookings are implemented.
That concludes my review. I will now turn the call back to Ben for his closing.

Benjamin Stilwill

In closing, we believe the impact our solutions bring to our current and future clients. We've seen numerous third party reports emphasizing shifting macro conditions and help us and priorities that we expect to translate to increased demand for the prebuilt revenue cycle solutions we offer more than half of respondents in a survey conducted by class in September was investment in new technologies to support their revenue cycle as a top priority. We know the value our solutions provide and the importance of our dedication to prebuild revenue integrity are leading a movement for our health system clients and grateful for the opportunity to lead this team and have high expectations for our ability to thrive as an organization. (technical difficulty) is made up of dedicated hard-working associates who each day rise to meet new challenges in support of our mission to ensure our nation's health systems are paid for all of the care they provide. And I thank you for your continued support of our team. And now I'd like to open up the call to your questions.
Operator?

Question and Answer Session

Operator

(Operator Instructions) Matthew Hewitt, Craig-Hallum.

Matthew Hewitt

Good morning. Thank you for taking the questions. Maybe first off you noted that last year was a very challenging year from hospitals for a spending perspective. But I'm just curious, how is that environment evolved? It sounds like maybe things are getting a little bit better. I know the Change Healthcare situation last quarter kind of put a rank on things, but it does sound like things are getting a little bit better. Maybe if you could provide a little color on what you're seeing right now?

Benjamin Stilwill

Sure.
Thanks, Matt.
Yeah so I think there's a lot of health systems who are understanding that they need to straighten out their technology priorities and understand how to integrate some of the technology solutions that are out there into the problems that they're having change. Healthcare certainly had a momentary hopefully disruption into those buying cycles. But I think people have returned to saying all right, how can I solve some minor issues? As we talked about in the prepared remarks, I think the dynamic of some health systems are looking at fully outsourced solutions and others are waking up to say we can't outsource these outcomes. We need to find some of these technology vendors who can help us what are specific problems.

Matthew Hewitt

Got it.
All right.
Thank you. And then maybe secondly, and this is pretty current. You've got a couple of wins on the tape here in the past week or so and that those are both cross-selling opportunities. Maybe talk a little bit more about the opportunities there on maybe what's helping drive some of those wins and where you see that going over the course of the year and going forward.

Benjamin Stilwill

So we mentioned that combined with one that was earlier in the calendar year that we've had to enterprise clients where they have an existing solution that and they bought our other flagship solution. In both cases, it was an example of they they've trusted us as a partner for several years, and they saw the service model that we put on top of our technology.
And so when they reached out and said, hey, we're also having issues in the other areas of our revenue cycle. We know you guys have a solution as long as it's the same service model we're in. And so there was a level of trust and understanding that we have a commitment to their outcomes that really helps with the the overall selling to an enterprise client. We anticipated having some more of them if we were to do that across the client base. It's something like a $30 million total addressable ARR, which is double what our current SaaS number is today.
So definitely substantial We also see consolidation of health systems. We see entities trying to expand within the footprint that they have, whether it's buying prophy or expanding to other facilities or building other facilities we're seeing a fair amount of that as well. So so we do we're very happy with the service model that we have. And if it turns out, it can turn into some material bookings as well.

Matthew Hewitt

Got it. And just just to be clear, that $30 million ARR, that's incremental or that's the total opportunity?

Benjamin Stilwill

That would be the total incremental opportunity Yes, from what we had not incrementally sold. So if we sold all the solutions all the clients, that's what that would look like.

Matthew Hewitt

Okay. Got it. And then maybe one last one. I'll hop back into queue. But with the AI. opportunity, obviously you've got the new rules for eValuator if that's a real big opportunity for you guys. But as you look out over the coming years, where else could you take that on the AI. model? Is there other opportunities on either current portfolio or on new opportunities beyond that? Thank you?

Benjamin Stilwill

Yes, I think so today we're using it in a very specific case. It's obviously creating a lot of value the way that we built it as we refer to it as a scaffolding. So we're looking at things that humans are doing that, not necessarily noticed by our solution and then feeding that back end so that the solution notices it in the future. We're doing it on our current data as we get more data elements from our clients, things like denials, things that we can bring in with additional data feeds. We can incrementally improve that model in a meaningful way. We see that opportunity as well.
On the revenue side, probably more in the automation and the automation focus on the user always does this task whenever they're trying to reconcile a charge, the model is able to observe that and then trying to make it so that the next time they see that automatically creates the task. There is a lot of them things for a company of our size where we're trying to use tools that are out there that are democratized, but there's also just now that we've had one project that we've been able to do, we have a little bit better understanding we had to educate our subject matter experts who are medical subject-matter experts on how as digital technology works and now that we've kind of been able to do that, at least once it feels like we're going to be able to deploy this in other other areas. And we have a lot of associates who have great ideas on how we can do that in a very modular fashion. So we're excited about it. I mean there's no doubt that there's current value on it, but there's a roadmap as well for questions.

Matthew Hewitt

That's great. I'm looking forward to hearing more about that. Thank you.

Benjamin Stilwill

Yes.

Operator

(Operator Instructions) Brooks O'Neil, Lake Street Capital Markets.

Brooks O'Neil

Good morning, guys. I have a couple of questions. First, I think I know the answer to this question, but do you guys collect any rebate at all on the on implemented that a contract that you have been awarded but have not yet implemented? Do we issue the numbers that the question box, I'm sorry, I'm sorry, you asked me that question again.

Benjamin Stilwill

Could you repeat your questions?

Brooks O'Neil

What I'm trying to figure out obviously is you're talking about -- $15.6 million and then you're talking about getting to a level at which you were above. Does that breakeven? And I'm curious if that includes the $3.9 million of unhedged implemented contracts, do you think you'll get those implemented in the relatively near term? Or how are you thinking about all of that.

Benjamin Stilwill

Understood. So the book SaaS ACV is just over that $15.5 million. And so you have to get to the breakeven, we need to implement the $3.8 million we have a line of sight into those projects that get us there. There's a couple of large ones that have where we're relatively close to. But in general, the $3.8 million is over the course of the rest of the year. And that's why we've guided towards the second half flipping into that profitability territory. But there are a couple of large projects that we have very good line of sight into going live with.

Brooks O'Neil

Great. That's helpful. And then secondly, I think in the prepared remarks, I heard a reference to a new channel partner, and I'm not sure I'm 100% familiar with who that is or what's involved there. Can you give us any color on and what that's all about?

Benjamin Stilwill

Sure. So we had four focused sales strategies that we're working on, one of which is a new productive channel partner. So it's a channel partner that we are in negotiations with you obviously, we consistently talk to others in the market about channel partnerships, but we're really looking for one that would be more of a mutual benefit. We've signed pure reseller relationships in the past one of the ones that we are something very significantly is one that would provide mutual benefit to both of our client bases as opposed to just a paid relationship amongst the sales teams. It's not enough yet it would be announced if we got to that point.

Brooks O'Neil

Okay.
We'll keep an eye out for that one. And then just see it I wrestle with this all the time, and I'm sure you guys do, too, but I sit here and I think to myself what you provide at least as well as I can understand it is what I think of is a no brainer for the industry at this time. And yet here we are just barely at breakeven at that level. And I guess the question is, what am I missing in this picture? Are your solutions do not understand your solutions properly? Or is it is it true that the marketplace just doesn't get the value proposition you bring to the party if somebody else bring a far superior solution to the party, my sense is you guys have the best thing out there, but tell me what what I'm missing in this picture?

Benjamin Stilwill

Yes. So I think that there is an element of being able to message appropriately to the fit to the priorities that revenue cycle executives have our solutions specifically affect the quality of coding and your ability to reconcile challenges better than magalogs hierarchy. That's that's kind of the primary need that we serve. What we are trying to do now as work on our messaging to show how we're impacting the entire cost to collect. We've heard from our current clients that they believe we have a far greater impact than what our two specific solutions do.
And so being able to message to that higher executive around how we affect the overall picture and work with other vendors work with their staff, et cetera, fit into that picture. That's what we are currently working on the in terms of the landscape, yes, there are other vendors who have a couple of more solutions in their pocket or maybe they have gone these this outsourcing angle, there's also, yes, just the sales cycle itself for decisions like these are relatively long. And so as disruption six months ago happened. That's when the next prospect should have entered the pilot.
So we're pretty confident whenever we get to a significant conversation with these prospects that we can get them across the line. And so it's really how do we make sure that we're messaging it in such a way that we get that level of attention get into due diligence and then show show that impact. And the most powerful way to do that is to herald our current clients and how they're able to do it from. That's why you see the two enterprise clients we mentioned. But also you see that our ability to use our clients has preferences is significantly higher than many others in the industry. And so we're trying to leverage them and their voices in that sales process.

Brooks O'Neil

That's great. And I appreciate that. Let me just ask one more as a follow-up to what you are just talking about it strikes me if I understand it correctly, and I'm really trying to be sure I understand it correctly that there's two parts to the value proposition that you guys bring one I think you just alluded to is the cost to collect the money. And I am sure your solutions with the SaaS underpinning are way more cost effective than hiring a bunch of people in a labor constrained environment, but it also strikes me that a key part of your value proposition is you collect you help clients collect all the money there too from payers based on the real care that's been provided by doctors and others in the health system. Am I understanding that two-part formula correctly?

Benjamin Stilwill

Yes. So the cost to collect metric is one that we have recently been talking to our clients about because there's two parts. There's how much revenue I'm able to bring in. And then how much did it cost me to get that revenue. So we own the two prongs that we do as we find more financial opportunities so that the numerator and then we do it with the existing staff you have with the SaaS solution, et cetera. That's the denominator.

Brooks O'Neil

Got it. Makes sense. Thank you very much.

Benjamin Stilwill

Thank you.

Operator

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Jacob Goldberger

Thank you all again for your interest and support of Streamline Health. And if you have any additional questions or need more information, please contact me at Jacob dot Goldberger at StreamlineHealth.net. We look forward to speaking with you all again, when we discuss our first quarter 2024 financial performance. Good day.

Operator

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