Streamline Health Solutions, Inc. (NASDAQ:STRM) Q4 2023 Earnings Call Transcript April 30, 2024
Streamline Health Solutions, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Streamline Health Solutions Fourth Quarter and Fiscal Year 2023 Earnings Call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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 31st, 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 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 Ben Stilwill, President and CEO.
Ben Stilwill: Thank you, Jacob. 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, booked SaaS ACV, which is the annualized contract value for all agreements currently being recognized, as well as bookings that have not been implemented, totals $15.6 million, $11.7 million of which is implemented.
Notably, this is above the $15.5 million run rate needed for break-even adjusted EBITDA we discussed previously. We expect that we can implement the remaining $3.9 million of unimplemented bookings over the course of this year and achieve an 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 client’s challenges before talking about how our business is set up to address them. Our nation’s health systems exist to provide clinical care, but 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 through increased 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. And 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 by outsourcing something so critical to operations, they missed the chance to make more fundamental fixes. My vision, which is shared by our team, recognized that true organizational change must come from within the health system and that we can serve as the guide for their quest to be accurately compensated for the care they’ve provided. Our investment in innovation via our flagship solutions, RevID and eValuator, reflect this vision.
Both of them identify, prioritize, and make actionable, specific financial opportunities. They are then 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 message it in a way that resonates with today’s inundated revenue cycle leaders, we will inevitably create growth. So let me provide some updates on the innovation and growth front before handing off to BJ. During fiscal 2023, we made significant strides within innovation. We mentioned previously the re-architecture of RevID, which sets the stage for enhanced performance and client satisfaction. As we look forward, our focus for innovation within RevID 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 $1 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 on a feature called My eValuator, which is rolling out to users this week. My eValuator is a major advancement of the eValuator user experience with role-based user profiles to enhance productivity. Going forward, we’ll leverage this 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 road map, and continued improvement 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 growth strategy under Amy’s leadership. As we shared late last year, we went from a broad market approach to one that is much more tailored to proven market advantages. Each of these four key strategies have specific names, accounts and approaches, and they include one, a displacement campaign related to an existing offering in eValuator space, where we believe our tool delivery better results to lower costs; 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; and then four, 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 organizations and 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, BJ Reeves.
B.J. 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 have 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 periods. 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. The lower overall operating expense was the result of the company’s previously announced integration of the Avelead 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 RevID 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, which we recognized during our first quarter. Fiscal 2023 operating expense totaled $42 million compared to $35.7 million during fiscal 2022. The 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 head count and the integration of the Avelead 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 high-margin SaaS revenue as well as significant cost savings achieved through the fiscal 2022 strategic alignment.
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 Ben 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 remarks.
Ben Stilwill: Thank you, BJ. In closing, we believe in the impact our solutions bring to our current and future clients. We’ve seen numerous third-party reports emphasizing shifting macro conditions and help with some priorities that we expect to translate to increased demand for the pre-bill revenue cycle solutions we offer. More than half of respondents in the survey conducted by [indiscernible] in September was an 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 pre-bill revenue integrity and are leading a movement for our health system clients. I’m grateful for the opportunity to lead this team and have high expectations for our ability to thrive as an organization.
Streamline 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. Now, I’d like to open up the call to your questions. Operator?
Operator: Thank you. The floor is now open for questions. [Operator Instructions] Today’s first question is coming from Matt Hewitt of Craig-Hallum. Please go ahead.
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