Streamline Health Solutions Inc (NASDAQ:STRM)
Q2 2009 Earnings Call
September 9, 2009; 4:30 pm ET
Brian Patsy - President & Chief Executive Officer
Don Vick - Interim Chief Financial Officer
Joe Diaz - Investor Relations, Lytham Partners
Hello and welcome to the Streamlines Health Solutions second quarter 2009 financial results conference call. All participants will be in a listen-only mode for this event. (Operator Instructions) I would now like to turn the call over to Joe Diaz. Mr. Diaz, please go ahead.
Thanks Amie, and thanks all of you for joining us to review the financial results of Streamline Health Solutions for the second quarter of fiscal year 2009 which ended on July 31, 2009. As the conference call operator indicated, my name is Joe Diaz. I’m with Lytham Partners. We are the financial relations consulting firm for our Streamline Health.
With us on the call representing the company today are Mr. Brian Patsy, President and Chief Executive Officer and Mr. Don Vick, Interim Chief Financial Officer. At the conclusion of today’s prepared remarks we will open the call for a question-and-answer session. If any one participating on today’s call does not have a full text copy of the release, you can retrieve it off the company’s website at www.streamlinehealth.net or numerous financials websites on the Internet.
Before we begin with prepared remarks, we submit for the record the following statement: Statements made by the management team of Streamline Health Solutions during the course of this conference call that are not historical facts are considered to be forward-looking statements, subject to risks and uncertainties.
The private Securities Litigation Reform Act of 1995 provides the Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimates, will and other similar statements of expectation identify forward-looking statements. The forward-looking statements contained herein are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein.
These risks and uncertainties include, but are not limited to, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors, the products, the ability of the company to control costs, availability of products produced from third party vendors, the health care regulatory environment, healthcare information systems budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results and other risks detailed from time-to-time in the Streamline Health Solutions filings with the U.S. Securities and Exchange Commission.
Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
With that said, let me turn the call over to Brian Patsy, President and Chief Executive Officer of Streamline Health Solutions. Brian.
Thank you, Joe and good afternoon everybody. This afternoon Don Vick, our Interim Chief Financial Officer will summarize our financial results and then after Don’s remarks, I’ll discuss our second quarter results and then we open it up to usual question-and-answer session.
At this point, I’d like to turn the call over to Don Vick. Don.
Thanks Brian. I would like to highlight the more significant aspects of the financial results of our second quarter, of fiscal year ended July 31, 2009. Revenues for second quarter of 2009 decreased 16% to $4.1 million, compared with $4.9 million in the second quarter of 2008. The net loss for the quarter was $18,000 or $0.00 per share, compared to a net loss of $429,000 or $0.05 per share in the second quarter of 2008.
System sales in the second quarter were $441,000, compared with $1.3 million in the second quarter of fiscal 2008. This decrease is due to a system sale of one customer, in excess of $1.1 million, which was recorded in the second quarter of fiscal 2008, without a similar such system sale in the most recent fiscal year.
While we have a large nearly $1 million new contract signed in this most recent second quarter, it was another hosting contract where the revenues will be recognized over the four plus year term of the contract. The trend and shift by customers towards our hosting service software delivery model and away from our historically phenomenon purchase licensing model as previously described in the past few conference calls continues into fiscal 2009.
Services, maintenance and support revenues for the second quarter totaled $2.8 million, reflecting 5% increase from the $2.7 million of services, maintenance and support revenues in the second quarter of 2008. Revenue growth was principally driven by approximately 14% improvement or $115,000 increase in professional services revenues.
Application-hosting services revenues were $828,000 in the second quarter of fiscal 2009, compared with $907,000 in the second quarter of fiscal 2008. This decrease is primarily attributable to the loss of a large hosting client as previously discussed in prior conference calls in July of 2008.
However, it is worth noting than on a sequential basis, we continue to make good progress in replacing this loss revenue as many of the hosting contract signed during the past year continued to come online. The hosting revenues for the second quarter of fiscal 2009 were up 20% from $688,000 recorded in the first quarter of fiscal 2009.
Total operating expenses declined by more than $1.2 million to $1.4 million for the second quarter of 2009, from $5.3 million for the comparable period in 2008. This was primarily a result of company-wide cost reductions initiated in the third quarter of 2008, an increased capitalization of software development cost, due to the current phase of development for our next-generation flagship product and related workflows.
As a result of revenue and expense items noted above, our operating loss for the second quarter of fiscal 2009 was $17,000, compared with an operating loss of $427,000 in the second quarter of fiscal 2008. This reflects a significant improvement in operating income of $410,000 over the comparable period last year. The improvement in operating income for the six month comparable period is an excess of $1.2 million.
Total backlog at the end of the quarter is $23.4 million representing increase of 32% over the comparable backlog of the year ago. Growth in the backlog was primarily driven by a large increase in SaaS based hosting services contracts won throughout 2008.
Our cash at July 31, 2009, was approximately $1.5 million, with $800,000 drawn under the line of credit. Our cash cycles were still very much dependent upon the seasonal patterns of prepaid annual maintenance billings to our clients. We continue to monitor our expenses, cash balances and receivables carefully to insure their own plan.
We are currently working with Fifth Third Bank to finalize the documentation for a new improved replacement line of credit. It’s expected that this new line of credit agreement will be signed very soon. The latest proposal from the bank is for a two year term, $2.75 million line on eligible receivables priced on a spread over LIBOR. The covenants are expected to be very similar to our current arrangement. Our current $2 million line expires in August of 2010. That concludes my review of the numbers for the quarter.
Let me now turn the call back to Brian Patsy. Brian.
Thank you, Don. Today, I’ll focus on four topics. First, the brief discussion on three specific marketing programs that are underway. Two, I’ll review recent sales activities; three, the achievement of a significant development milestone, and finally a mid year assessment of our progress, and achieving our internal business plan, and our goal of sustaining consistent revenue growth and profitability. After my remarks, we will conduct our question-and-answer session.
Let me start by discussing three important marketing programs that were launched within the last two months. First, our Blue Ocean program, in our second quarter we launched a marketing and sales program through specifically target, the over 2100 hospitals that are between 50 and 200 beds that are typically community and critical access hospitals.
We call this initiative our Blue Ocean program, because it targets approximately 43% of the market space. It has lower market penetration in the higher end of the healthcare provider market and it presents us with an opportunity to gain market share and accelerate the growth of our hosting services.
We believe that we have a unique opportunity to grow our recurring revenues by promoting the economies of our SaaS based subscription model and the value creation of our document workflow solutions for that market segment. A launch of the Blue Ocean program in Q2 included the hiring of the experience since the successful sales dollar. They will focus on the specific needs of the community and critical access hospital market space.
The reprising of our SaaS based fees, to offer an enterprise wide solution at an extremely attractive monthly subscription fee and finally, contracting and noted marketing firm to generate quality leads to generate sales opportunities for the Blue Ocean program. Our expectation is that we will achieve several additional SaaS based opportunities this year as a result of the Blue Ocean program, which should lead to additional incremental recurring revenue next year, as contracts executed and the new customers go into production.
Our second marketing program and campaign targets existing Eclipsys issuers, as a result of our great success of integrating our solutions to the Eclipsys Sunrise Clinical Manager or Clinical Information System at one of our sites, we have now targeted other Eclipsys issuers, who may not have yet invested in an enterprise document workflow solution.
We are showcasing one of our most successful Eclipsys implementations at Sarasota Memorial Hospital, which is also Eclipsys Sunrise Clinical Manager showcase account. Even though, Eclipsys offers a completing solution, Streamline earn the opportunity to implement our solution at Sarasota Memorial Hospital, because of our enterprise document workflow vision and capabilities, and our proprietary integration tool that allowed us to tightly integrate with Eclipsys Sunrise Clinical Manager.
The Eclipsys program, which is well underway, included the following. Development of a white paper offered by Sarasota Memorial Hospital, which presents the value and return on investment achieved by their organization, creation of a short video featuring Sarasota’s Chief Information Officer, who discusses the document savings of our solution and the value of the integration to Eclipsys.
Email and mailing campaign target at existing Eclipsys issuers and finally, a seminar which was conducted earlier today by Sarasota Memorial Hospital for interested Eclipsys issuers. Our expectations are that we will generate several qualified leads from this program.
Our third marketing initiative is our Business Process Management or BPMS program. This initiative involves a serious of webinars promoting our suite of highly successful business process management solutions, including the following new workflows. The Family Medical Leave Act workflow, Invoice Routing, Certification of Reimbursement, Tuition Reimbursement, Status/Change in Life Events, Performance/Compensation workflow, and finally Refunds Approvals workflow.
We had successfully installed the number of these workflows at Children’s Medical Center at Dallas and anticipate installing the remaining workflows over the remainder of the year. To a growth the Project Manager at Children’s Medical Center, Streamline’s BPM workflow solutions were instrumental in driving better productivity and higher accountability in our key business processes.
At this point, I would like to briefly discuss our recent sales activities. This past quarter, we closed a significant new hosted workflow sale, preoperative workflow in a very large healthcare organization in the New York metropolitan area. This new contract involves integration to Microsoft Amalga product, which is a unified health enterprise platform designed to retrieve and display patent information from many sources. We hope to announce this new sale in a very near future.
Also during our second quarter, we received a new order to expand a licensing of our accessANYware solution for a large customer within our installed base. Again of these orders will account for over $1 million in additional revenue over the next five years.
Finally, we will be introducing a new serious of compliance workflow solution targeted had at 15 healthcare organizations and managing the government mandated audits, one of which is the Recovery Audit Contractor or RAC program for Medicare reimbursement. One of our showcase account, Sarasota Memorial Hospital participate in the U.S. government’s trial of the RAC program in Florida and have assisted us in our RAC workflow product development efforts. We expect that our RAC workflow solution will be available within our fourth quarter.
Now, I’d like to touch on our product development efforts. We are very proud to say that, on the exact date predicted almost two years ago when we started this journey, we achieved the significant milestone in July with the delivery of our fifth generation architecture and multi-language capabilities to the University of Montreal Health Centers in Canada, to our relationship with Telus Health. The new solution and associated documentation was delivered in the French Canadian language.
This is further conformation that the changes we have made in our product development organization that put us in a position to continue to deliver new features and functions to our markets in a timely and predictable fashion. I would want to underscore that, while the immediate value is important. We are now capable for producing software much more efficiently, which can significantly reduce our time to market for new solutions and be a value for many years to come.
This new software platform called accessANYware 5.0, represents our fifth generation architecture and is now well into the customer Beta testing process. We anticipate going live in the first hospital and clinics that the University of Montreal Health Centers, during our fourth quarter and are still on track, we’re announcing general availability status before the end of our fiscal year. Needles to say, this was the monumental effort that until the large portion of our $11 million in R&D investment over the past two years.
As a result, that significant investment in our product line, we can now boast these capabilities: multi-language, multi-time-zone, single sign-on across multiple applications in seamless integration with leading clinical systems an advanced internal workflow engine, built-in instrumentation to help identify problems to great accelerate troubleshooting, the capacity to significantly lower our cost structure for hardware and software delivery in support.
Finally, our newest version uses a Service Oriented Architecture or SOA. SOA is an architectural approach for constructing complex of software intensive systems from a set of universally interconnected and interdependent building blocks help services. An SOA based architecture can provide a competitive advantage for Streamline Health, because we can now respond more quickly and cost effectively to changing market conditions.
This type of architecture promotes reuse at the macro level rather than at the micro level. It can also simply interconnection too and usage of existing information technology assets in the healthcare organization, therefore allowing for important interoperability to existing clinical, billing and administrative information systems.
This new architecture will also allow us to partition our technology platform, such as scanning, indexing storage retrieval and workflow components and potentially generate implemental revenue from new market segments across of the broader healthcare sector and possibly even outside of the healthcare sector.
Let me finish my remarks by providing a mid-year assessment of our progress toward achieving our internal business plan and our goal of sustaining consistent revenue growth and profitability. Thanks to our shift to a recurring revenue models. We are slightly ahead of our internal plan for revenue for the first half of the year. We are also well ahead of our internal plan for profitability and $1.2 million ahead of last year’s first half operating performance. Accordingly, we are pleased with our first results.
As Don mentioned earlier, this is due to the efficiencies we implement at the second half of last year and the SaaS based contract secured over the last year that are now contributing recurring revenue.
In terms of guidance for the remainder of the year, contingent on achieving general availability for accessANYware 5.0 before the end of our fiscal year. We now anticipate revenue in the $18 million range and profitability in the $1.5 million to $2 million range. This assumes no adjustments for capitalized software impairment charges or deferred tax asset valuations, which can be difficult to estimate.
This concludes my formal remarks. I’d like to turn the call over to Joe for the question-and-answer session. Don Vick will also available for this quarter’s discussion. Joe.
Thanks Brian and Amie, if you would please give the queuing instructions for the Q-and-A session.
(Operator Instructions) We show no question at this time. I’d like to turn the conference back over to Mr. Patsy for any closing remarks.
Thank you, Amie. We want to thank everyone for their participation today and we look forward to next quarters earnings call. Joe, do you have any comments.
Now, I’ll appreciate everybody taking the time to listening on the call, and Amie for chances are there any other questioners on the queue right now?
(Operator Instructions) I show no questions at this time.
Then I want to thank everybody for participating and as Brian indicated, we look forward to talking with you again at the conclusion of the current quarter. Thank you for your time and have a great day.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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