Streamline Health Solutions, Inc. Q3 2009 Earnings Call Transcript

Dec. 9.09 | About: Streamline Health (STRM)

Streamline Health Solutions, Inc. (NASDAQ:STRM)

Q3 2009 Earnings Call

December 9, 2009 4:30 pm ET

Executives

Joe Diaz – IR Lytham Partners

Donald Vick – Interim CFO

Brian Patsy – President & CEO

Analysts

Tom Carpenter – Hilliard Lyons

Mark Cahill – Private Company

Operator

Good afternoon and welcome to the Streamline Health Solutions third quarter 2009 financial results conference call. (Operator Instructions) I would now like to turn the call over to Joe Diaz, of Lytham Partners. Mr. Diaz, please go ahead.

Joe Diaz

Thanks all of you for joining us today to review the financial results of Streamline Health Solutions for the third quarter of fiscal year 2009 which ended on October 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 Streamline Health.

With us on the call representing the company today are Mr. Brian Patsy, President and Chief Executive Officer and Mr. Donald 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 healthcare 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 US 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 Mr. Brian Patsy, President, and Chief Executive Officer of Streamline Health Solutions.

Brian Patsy

Thank you, Joe and good afternoon. For today’s call, Donald Vick, our Interim Chief Financial Officer will summarize our financial results and after Donald’s summary, I’ll discuss our second quarter results and then we conduct our question-and-answer session.

At this point, I’d like to turn the call over to Donald Vick.

Donald Vick

Thanks Brian, I would like to highlight the more significant aspects of the financial results of our third quarter of our fiscal year ended October 31, 2009. Revenues for the third quarter of 2009 decreased 7% to $4.1 million compared to $4.4 million in the third quarter of 2008. The decrease in revenues was primarily due to the decrease of approximately $1.2 million in system sales when compared to the comparable third period of last year as customers are increasingly shifting towards application hosting services.

Accordingly the decrease in system sales was offset by increases in hosting services, maintenance, and support and professional services revenues. The net loss for the quarter was $296,000 or $0.03 per share compared to a net profit of $15,000 or zero cents per share in the third quarter of 2008.

System sales in the third quarter were $170,000 compared with $1.3 million in the third quarter of fiscal 2008. This decrease is due to a system sale of approximately $1 million for one customer which was recorded in the third quarter of fiscal 2008 without a similar such system sale in this most recent fiscal year.

After the close of the quarter we signed a new large purchase contract valued well in excess of $1 million. It is expected that this contract should contribute at least $600,000 in revenues in the fourth quarter of 2009.

Services, maintenance, and support revenues for the third quarter totaled $3 million reflecting an 18% increase from the $2.5 million of services, maintenance, and support revenues in the third quarter of 2008. This growth was principally driven by a significant increase in professional services revenues due to the timing of the services performed.

Application hosting services revenues increased 80% to $930,000 in the third quarter of fiscal 2009 compared with $517,000 in the third quarter of fiscal 2008. This increase is a result of the incremental rollout of the new hosting customers that we have noted in our prior conference calls.

The customer trend towards hosting services is now beginning to make a significant positive impact in our financial results. Total operating expenses for the three months ended October 31, 2009 and 2008 were each $4.4 million.

Total operating expenses for the nine months ended October 31, 2009 were $12.2 million compared with $14.1 million in the prior comparable period. This $1.9 million expense reduction was primarily the result of effective cost management measures begun in the third quarter of 2008.

The cost of system sales for the three months ended October 31, 2009 was $658,000 compared with $950,000 in the comparable prior period. The decrease in the cost of sales was primarily the result of the reduced capitalized software amortization expense pending general release of our latest generation product line, in addition to the reduction in direct costs associated with reduced third party hardware and software sales.

The cost of services, maintenance, and support for the three months ended October 31, 2009 was $1.3 million compared with $1.1 million in the prior period. This increase is due to increased professional services staffing costs and third party maintenance contract costs associated with supporting an increased customer base and the start up costs of the business process management group, as we refer to it as BPM, services initiatives.

The cost of application hosting services for the three months ended October 31, 2009 was $408,000 compared with $286,000 in the prior period. The increase is primarily attributable to increased depreciation and third party license and maintenance fees as a result of the growing hosting center operations.

Selling, general and administrative expenses for the three months ended October 31, 2009 and 2008 were $1.5 million and $1.7 million respectively. This decrease of 9% over the comparable prior period is due to effective cost management measures begun in the third quarter of 2008. The company has been able to capitalize on efficiencies gained in the current three and nine month periods by improving the allocation of resources and reducing expenses.

During the third quarter of fiscal 2009 research and development expenses increased approximately $102,000 or 28% when compared with the comparable prior quarter of fiscal 2008. This increase is primarily attributable to the final stage development efforts of the rearchitecture and international [inaudible] of the company’s flagship product, accessANYware in preparation of its expected general release in the fourth quarter of 2009.

The company capitalized approximately $859,000 and $1.217 million of product research and development costs in the third quarter of fiscal 2009 and 2008 respectively. As a result of revenue and expense items noted above, our operating loss for the third quarter of fiscal 2009 was $285,000 compared to an operating profit of $26,000 in the third quarter of fiscal 2008.

The operating loss for the first nine months of fiscal 2009 was $275,000 compared with an operating loss of $1.215 million in the first nine months of fiscal 2008. This represents a significant improvement of approximately $940,000 over the comparable prior period. Total backlog at the end of the quarter was $22.6 million compared with $22.8 million backlog of a year ago.

The bulk of our backlog continues to come from hosting services contracts versus software licensing sales. We were pleased to renegotiate and close a new increased line of credit with [inaudible] bank during the third quarter. The two year facility is priced off of LIBOR and has a maximum borrowing amount of $2.75 million.

The terms and covenants are more favorable than our previous facility. Our cash at October 31, was approximately $800,000 with $1.9 million drawn under our line of credit. Our cash cycles are still very much dependent upon our seasonal patterns of prepaid annual maintenance billings to our clients.

Our fourth quarter is traditionally our best quarter for collections of these annual maintenance billings as will be the case again this year. We anticipate approximately $3 million in collections from maintenance billings this quarter and accordingly we intend to pay down approximately $1 million on our line of credit from the excess cash generated during this quarter.

We continue to monitor our expenses, cash balances and receivables carefully to ensure they are on plan. That concludes my review of the numbers for the quarter. Let me now turn the call back to Brian Patsy.

Brian Patsy

Thanks Donald, today I’ll briefly provide three updates; one an update on our sales and implementation activities, two, an update on efforts to deliver our fifth generation architectural platform, which is called accessANYware 5.0, and finally I’ll provide updated guidance for the remainder of our year. After my updates we’ll move to the question-and-answer session.

Let me start by updating our sales and implementation activities since our last earnings call. Last quarter I mentioned that we closed a significant new departmental workflow sale via our hosted delivery model in a very large healthcare organization in the New York City metropolitan area.

Although we were precluded from issuing a press release due to hospital policy, I am able to provide further details in this earnings call. The customer is New York Presbyterian Hospital which is composed of two renowned medical centers, Columbia University Medical Center, and Weill Cornel Medical Center.

The contract calls for the implementation of our preoperative workflow solution integrated to their existing Microsoft Amalga Unified Intelligence system which provides retrievable and display of patient information for many disparate sources.

As a result of our integration to the Microsoft Amalga solution, we are in sync with Microsoft’s initial forays into the healthcare marketplace. Hospitals such as New York Presbyterian Hospital often waste valuable resources when a scheduled surgery is delayed or cancelled. A litany of forms and paperwork must be completed to successfully prepare a patient for surgery.

Much of this preparation is document based and consequently is a manual error prone process. Given the volume of paperwork required, the multiple document owners, and consistent pressure to maximize operating room time, the preoperative check list is sometimes not completed in time for the scheduled surgery.

At other times documents requiring additional clinical follow up are not found in a timely manner or absent all together. This causes delays, surgeon dissatisfaction, and lost revenue. Our preoperative workflow solution will automate and manage their entire preoperative document workflow process and help nurses gather, complete and correct insurance information as well as clinical documentation for each patient prior to surgery.

Automated document deficiencies will be electronically presented to their surgical staff in time for resolution in advance of scheduled procedures, while the entire surgical team will be provided with convenient electronic access to all the pertinent preoperative information from a single location thereby enhancing patient safety and surgeon satisfaction.

New York Presbyterian Hospital is a well recognized surgery hospital with some of the world’s busiest and best surgeons. This speaks to the importance and relevance of providing an innovative solution that can fill current gaps associated with surgery delays, lost productivity, and surgeon dissatisfaction.

Once implemented early next year, our preoperative workflow solution will greatly help New York Presbyterian more efficiently and effectively manage their 1.3 million documents required for the preoperative process, driving their 65-plus operating suites and over 66,000 ambulatory surgeries last year.

This is the first departmental workflow implementation at New York Presbyterian Hospital that takes advantage of our previously installed enterprise document repository integrated with their Eclipse Sunrise Clinical Manager, clinical information system.

The total value of the New York Presbyterian workflow installed and hosted is approximately $1 million in hosting services over a five year period which is in addition to the approximately $1.6 million in a hosted contracted signed with them in the latter part of last year for an enterprise document management services solution.

As a final note, New York Presbyterian is the second major New York hospital to install our preoperative workflow solution. As mentioned yesterday in a press release just after the end of our third quarter we closed another large sale to our GE Healthcare partnership with Moses Cone Health Care System located in Greensboro, North Carolina.

This license based contract valued well in excess of $1 million of which at least $600,000 should be recognized in Q4 of this year calls for us to implement our enterprise workflow solutions integrated seamlessly with Moses Cones GE Centricity Enterprise system in order to provide clinicians immediate access to complete patient information.

Implementation is already begun and once fully implemented sometime mid next year, Moses Cone clinicians will have instant electronic access to all forms of healthcare information. Our trusted relationship with the customer, our integration to GE Healthcare, our large portfolio of departmental workflow solutions, and our ability to help Moses Cone achieve its goal of becoming paperless within the next five years, were key differentiators in closing this sale.

Needless to say our partnership with GE Healthcare remains productive and we are off to a great start for our fourth quarter of this year. We also have closed three large system upgrades within our installed base of customers in addition to two expansions at two other customer locations.

The upgrades include [Christiana] Care Health System, the Health Alliance of Cincinnati, and Beth Israel Medical Center. The system expansions include Albert Einstein Health network and NASA University Medical Center.

Combined these new opportunities will contribute approximately $750,000 in incremental new services revenue over the next 12 months. As a final comment, this Thursday we’ll be announcing the signing of another new streamlined health business process management workflow solution at a large multi hospital organization which will help that organization ensure government compliance within their materials management organization.

Clearly we are beginning to gain traction in our sales and marketing efforts to grow hosting revenues via our expanding portfolio of departmental workflow solutions. These recent wins help corroborate our vision of market expansion and incremental revenue growth by focusing on business process management workflow solutions and services at the departmental level.

Next I’ll update our progress toward achieving general availability status for our fifth generation accessANYware 5.0 platform. As was mentioned in last quarter’s earnings call, in late July this year we achieved a significant development milestone by completing the coding, internal testing, and delivery of our fifth generation architectural platform called accessANYware 5.0 to the University of Montreal Heath Centers in Canada through our partnership with TELUS Health. This new product platform provides many new and improved capabilities such as multi language, multi time zones, single sign on for multiple applications, and advanced internal workflow engine, and built in troubleshooting diagnostics, among other things.

Our new platform in medical records solutions portfolio is now installed in Canada, is deep into the Beta testing process and is performing as expected. We are on target for a January go live milestone in 12 selected pilot locations. Ultimately under existing contracts and active implementation projects, our solution will be installed in over 60 in patient and out patient healthcare facilities in the Montreal region.

We have invested heavily in this new architecture to the tune of $11 million in planned R&D expenditures over the past two years and are on course for achieving general availability status by the end of our fiscal year. Given general availability status we estimate that between $1.7 to $2 million in incremental revenue will be recognized in our Q4 as a result of realization of revenue deferrals on our two major contracts with TELUS Health.

One for the University of Montreal and McGill University Heath Center signed late last year and one for the Montreal Agency of Health and Social Services signed earlier this year. And finally I’ll update our guidance for the remainder of the year.

Our internal business plan at the beginning of 2009 called for laying the groundwork for achieving and sustaining consistent double-digit revenue growth and much improved profitability. Anticipating constrained capital procurement for information technology in the hospital segment due to broad adverse economic conditions late last year and much of this year, our plan called for achieving approximately 12% to 15% revenue growth this year.

We also expected profitability impacted by our planned large investments in R&D this year to deliver our fifth generation architectural platform in the range of $700,000 to $800,000. We also provided guidance at the beginning of the year that because of the increased predictability related to subscription based hosting services, we anticipated approximately and 80% increase in application hosting revenues in the latter part of this year as a result of our eight new hosting contracts signed last year and new hosting contracts expected this year.

And finally we targeted significant operating expense reduction as a result of cost management measures implemented late last year. I am pleased to report that our internal targets for revenue growth, for maintaining expense reduction targets, and improving operating income have played out exactly as expected or better this year.

Our updated guidance for the remainder of the year continues to call for revenue in the $18 million revenue range, contingent on general availability status for our accessANYware 5.0 platform. We also expect our profitability to be well ahead of our internal plan assuming no adjustments for capitalized software impairment charges or deferred tax asset valuations which are difficult to estimate.

Let me close my remarks by providing a glimpse into next year, as Donald pointed out earlier our subscription based hosting contracts secured over the last year and a half are contributing significant new recurring revenue which will continue to grow next year.

When considering the recurring revenue that will be generated by all of our hosting contracts signed to date, our recurring maintenance revenues, our anticipated professional services revenues, and typical add on revenue for expansion within our installed base of customers, we are now looking at a revenue run rate next year in approximately the $17.5 million range exclusive of any expected new customer contracts.

As stated earlier our goal is consistent double-digit revenue growth year over year and a profit improvement growth rate in excess of our revenue growth rate. This concludes my prepared remarks.

Now I’d like to turn the call over to Joe for the question-and-answer session.

Joe Diaz

Thank you Brian and Donald for your comments, with that, we are now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Tom Carpenter – Hilliard Lyons

Tom Carpenter – Hilliard Lyons

I want to make sure I’m crystal clear on next year so the revenue run rate at $17.5 million is basically you go on vacation, that’s no new deals whether they’re system sales or [ASPs].

Brian Patsy

That’s correct.

Tom Carpenter – Hilliard Lyons

And do you see the system sales stabilizing next year. A lot of your competitors that are focused on both big, small, medium hospitals, are seeing an uptick in interest because of the stimulus and they’ve actually been hiring more folks who they expect a large increase, they’re already seeing an increase in the pipeline but they expect the deals to be signed starting some time in the first half of next year. Where are you seeing the most interest. I know you’ve been saying the past year and a half on the hosted side but are system sales going to come back or is it going to be pretty much ASP the next two years.

Brian Patsy

Great question, I’ll start by saying that we anticipated a slowdown in deal cadence this year as a result of the economic conditions and it played out for all healthcare IT companies first part of the year. Although I will agree that over the last quarter and a half its picked up substantially and it does relate to the stimulus dollars, it does relate to budgets being freed up.

For example one of our large ASP customers out west had a moratorium on capital and subscription deals over the last year and that was just released so that’s good news. We’re also seeing a pick up in our sales activities, our pipeline, and budgets are starting to roll again.

So what I see now is a deal cadence that is comparable to last year, not this year, so we’ll pick up the cadence quite a bit. Where we see it is still predominantly ASP based and as you know those deals don’t drop right into recognizable revenue in the short-term but they sure build for the long-term and that’s what we’ve been enjoying this year as a result of last year’s success.

Tom Carpenter – Hilliard Lyons

Over the last couple of years you’ve invested very heavily in product development both in the architecture, multi language capabilities and revamping the sales team, we saw some efforts in 2008 especially on the new win side and you built ASP now back to where it was before, after you had a customer transition, are we going to see a big bump in the coming years. I know already for next year you’ve got the base line fairly close to this year but when are we going to see the pay off from the investments in sales people and R&D.

Brian Patsy

Great observations, first of all as you know we did invest heavily over the last two years to the tune of $11 million in R&D. Our headcount went up substantially. Our costs went up substantially. Now we finished, we’re on the tail end of that project so I need to comment that our R&D expenditures will table off, perhaps decline.

We’re going to start shifting those investments onto the sales side now in terms of creating demand. So we are anticipating an uptick in revenue and I should say an uptick in deal cadence because as you know if 100% of those deals come through ASP you may not see that revenue in the short-term but you certainly will see it in the long-term.

We see the growth in terms of our core business of creating an electronic repository growing. We see our accessANYware 5.0 opportunities growing. We are focusing more on the small to medium sized hospitals now. We describe that as our blue ocean policy. We see that growing and the greatest growth that we see right now is what we’ve just announced and what we will be announcing between now and the end of the year and that’s departmental workflow solutions that provide business process optimization.

We see that as our biggest driver and growth factor next year and beyond. Those deals which can be standalone such as preoperative workflow at New York Presbyterian do pull us into enterprise opportunities including enterprise document management and workflow.

So we do anticipate significant pick up in business.

Tom Carpenter – Hilliard Lyons

Hats off Donald last year on managing the cash and renewing the credit line at more favorable terms. That’s not easy. As we look out into next year going past the fourth quarter I think those of us that are interested in the stock and some of our investors we work with would like to see the cash start growing so its not one of these things where, hey fourth quarter looks great and then throughout the year it kind of bleeds down and you go through the process maybe where you start out running that with the strong base that you have, for next year, is this going to be kind of the last year that we see that cycle where its so pronounced they’re going to even out now that ASP is picking up significantly.

Donald Vick

Unfortunately I can’t say that it is our last year. We’re still very much dependent on the huge maintenance billing collections that we have and the size of those collections are still much larger than the ASP side of the house. The ASP continues to build, it will certainly fill that void and will tend to get us towards the more positive cash flow.

However just as Brian mentioned given the nature of the rollout of the ASP in the, sort of the incrementally slow rollout it takes some time in order for that cash to really build.

Tom Carpenter – Hilliard Lyons

Right the pay back for you is kind of years three, four and five.

Donald Vick

Yes, and just in my forecasting as of this moment I’m not seeing enough of that build on the ASP to totally fund everything that we’re needing however, where the real positive cash flow will be is where there are new system sales on top of the ASP and those large deals are what can really provide the cash cushion.

Brian Patsy

The other comment I’ll make and it’s a challenge, when you’re seeing significant growth in hosted deals, it absolutely creates cash pressures in the short-term. We have to go out and buy equipment and install it in our hosting center and the payments are spread out over four to five years so we go negative cash flow in the first 12 to 14 months.

So in some degree we’re a victim of our own success here and it’s a nice problem and there’ll be an inflection point clearly but it isn’t, we don’t see it in the next 12 months because of the large amount of, as Donald said, the maintenance renewal dollar amount. It will take a while for us to get that critical mass to cover that inflection point.

Tom Carpenter – Hilliard Lyons

With accessANYware 5.0 general availability hopefully this quarter where does that change the game for you with some of the other folks that you integrate with like Epic, Eclipses, [Walston] some of the other BPO, BPM companies and then maybe some of the other ones with a small side, maybe you can help investors on the call understand what this is going to do to take you to the next level.

Brian Patsy

Well it’s a great question and I don’t want to get too technical on you, but I’ll kind of speak in layman’s terms. We mentioned last quarter’s earnings call that this new generation software and we literally wrote it from scratch. Obviously we took of all our domain knowledge and all of the functionality of our existing solution and carried it forward.

But what we basically did was build it in something called a service oriented architecture. And the best analogy I can give is like building a car the old fashioned way before Henry Ford where they custom build everything and hard wired everything to building harnesses and making things interconnect so that a transmission in a Chevy fits a transmission of Pontiac.

We’ve taken all of our sub components, we call those business objects, for example scanning, auditing, security, printing, viewing, workflow. All those things were now built modular and what that allows us to do is first of all tremendously lower our support costs and we built in telemetry that identified problems which will lower our, shorten our time to market.

The other thing that it does for us is opens up new business opportunities because we can take that components and we built a library of these objects and we can market those to different types of companies and have them embedded into their applications.

So these containers now can be sold in piece parts. It also gives us multi language which clearly I’ve talked in the past opens up international opportunity and indeed that’s how we won the business in Canada, the French speaking application, French Canadian, and it also allows us to significantly lower our infrastructure costs and this is probably one of the two biggest benefits of this is that we have something called multi entity or multi instance.

Today when we implement a hosted deal for a customer we isolate the equipment to each customer and keep them partitioned by physical equipment. With this new architecture we can now use one set of computers and partition logically so that we can now deliver our applications and keep all the data completely separate and secure with one set of computers instead of dozens of computers for dozens of customers.

So we have a competitive advantage price wise. We have a technology advantage because the IT people as I like to joke, that we’re the [inaudible] are going to love the flexibility and the freedom that they have with our architecture and we’re going to have competitive advantage in terms of our ability to get speed to market in terms of reacting to market needs.

So there’s a lot of things that come under the hood of this new architecture that we’re really licking our chops and can’t wait to get it deployed.

Tom Carpenter – Hilliard Lyons

Is the first customer going to go live in the fourth quarter or is that just a unique customer because of the language capabilities.

Brian Patsy

No, it’s the same product that will be deployed throughout all of North America. It just happens to be French Canadian language and it will go live in January and it’s the same product that we are already in the process of contracting to upgrade our current installed base to this new platform in the states next year.

That will create opportunities for revenue in terms of upgrades.

Tom Carpenter – Hilliard Lyons

So this is something you’ve been going out and talking to customers about.

Brian Patsy

I’ve got to tell you the response is really excitement about the architecture and the ease of use and probably most importantly, the two big areas in terms of cost savings are cost of support and cost of infrastructure to deliver the application on an ASP basis. We’re going to be more competitive because of that.

Tom Carpenter – Hilliard Lyons

That should make for some exciting press releases and earnings calls in 2010.

Brian Patsy

We hope so.

Operator

Your next question comes from the line of Mark Cahill – Private Company

Mark Cahill – Private Company

Congratulations on the Moses deal. Could you go into a little bit more on the blue ocean program. How many new sales staff are you going to need and what more you can add on to that.

Brian Patsy

We’ve been focusing on providing a solution to the, we describe that as 50 beds up to 250 beds. And we launched it mid this year and we had a dedicated sales professional that we hired to launch it and launching it had a lot of work in the back room.

We had to basically better package our implementation services, streamline them because there are not high end hospitals that have large IT staff so we had to basically cookie cut the implementation and services component. We had to reprice it. We had to rebrand it and remessage it and we’ve done all those things and we’ve gone out to market.

Now what we’ve learned and by the way we have a pipeline of opportunities in the blue ocean. What we learned that we didn’t know when we launched this mid year is the sales cycles are almost as long as the high end of the market. That’s something that we didn’t factor in. So you haven’t seen the deal cadence just yet because the sales cycle frankly are longer than we anticipated.

But the activity is there. The pipeline is there its just that smaller hospitals take just as long to make decisions as large hospitals even though the dollar amounts are smaller.

Mark Cahill – Private Company

What kind of numbers regarding sales people are you create kind of hub and spoke sales organization for this effort.

Brian Patsy

Its funny you should bring that up, and I don’t want to go into a lot of details just yet because this is a work in process and we’re pulling all of our sales people in next week to discuss our strategy and I don’t want to give a pre announce or even give our competitors a glimpse, but we’re going to be changing our sales strategy to be more comprehensive and give us better reach into the market.

And I’ll leave it at that for now and I’ll provide further details in the next earnings call. So we’re changing the formula on how we get reach into the market in the blue ocean and I’m excited about it and I think our sales people will be as well. We’re also going to invest a lot more money upstream in lead generation, in house as well as outsource.

We’re going to be active in speaking engagements, we’re going to be active in the regional shows. There’ll be a lot of things that we’ll be rolling out that I’ll provide more color commentary in the next earnings call.

Mark Cahill – Private Company

I saw the Cincinnati article about you getting some tax credit from the Ohio Tax Credit Authority, adding 25 new jobs and retaining 73 or whatever it was. It sounds to me like the expansion of employees are going to be geared towards the sales side.

Brian Patsy

That’s correct, its geared to three primary areas; sales, number one because now that we have the new architecture, the new platform we’ve established a beach head for business process optimization for these departmental workflows as you heard in terms of some of our announcements, we’re now enjoying success with those departmental workflows, ASP delivery model.

We’ve had some experience as well. Sales is number one, number two is investing in business process management expertise so that we can have more feet on the street in terms of digging into the departmental needs and building these configurable solutions that are standalone so those are more of a consultative type people.

And thirdly our implementation people because as the deal cadence picks up we obviously need to provide the resources to implement those systems. So you’ll see revenue bumps on the ASP side which by the way are spread over four to five years so you’re not going to see, even though we may have dramatic deal cadence, you’re not going to see dramatic revenue increases.

You’re going to see dramatic deal cadence, you’re going to see more experts providing consulting services, and you’re going to see more professional services revenues as a result of these deals.

Donald Vick

One thing I’ll add to that is that estimate of the 25 jobs, that’s not like instantaneous. Its spread over roughly a three year period is the way that we have modeled it with the state of Ohio.

Brian Patsy

But the message is we’re growing and we’re investing now. We’re shifting the investments from R&D to get the word out and improve the reach which is where we need to be. We didn’t want to get ahead of our skis last year, we wanted to make sure we finished the product first and now we’re ready to, we’re at the starting gate and we’re getting ready for that gun to go off.

Mark Cahill – Private Company

Regarding GE Healthcare are they done with their inter mountain partnership, are they integrating the new platform, is that done.

Brian Patsy

Well I want to be careful not to comment on GE’s business other than to say the relationship is strong and they are now selling and have won deals with the new architecture which bodes well for us. As you know that relationship although strong, the deal cadence for net new deals for our partner GE have been flat over the last several years because everybody is anticipating the new architecture that they’re releasing.

They are where we are. They have now finished that task and it is rolling out and so I am hopeful that the deal cadence through our GE partner will pick up as well.

Mark Cahill – Private Company

Is the Moses Cone deal under the new platform or the old, are you integrating into the old platform.

Brian Patsy

That’s an existing customer on GE’s previous platform and so, it is a GE deal of course but its on the old platform.

Mark Cahill – Private Company

With respect to TELUS, I believe you said you had about 12 pilot locations, are you going to have somewhere just under 20 total when you’re all said and done, right.

Brian Patsy

Sixty total. Including clinics. Several hospitals and a number of clinics. Unfortunately I’m not sure of the breakdown between hospitals and clinics but there are 60 total locations. The 12 pilots are all clinics.

Mark Cahill – Private Company

Assuming this gets completed, are you going to do a general availability announcement.

Brian Patsy

You bet we are, absolutely.

Mark Cahill – Private Company

Is TELUS, their sales force already trying to line up new clients using your product.

Brian Patsy

We are engaged with their sales force and we are involved in incremental deals besides the ones we’ve already signed in the sales pipeline now, not, so we are active there.

Mark Cahill – Private Company

In your prepared remarks you mentioned this Thursday you’re making an announcement, that’s tomorrow.

Brian Patsy

I’m sorry, you’re right, when I prepared my remarks it was yesterday, so yes, tomorrow we will have an announcement tomorrow morning. I don’t want to take the thunder away from that.

Mark Cahill – Private Company

Was this a new sales—

Brian Patsy

Yes. Yes it’s a new sale. It’s a departmental workflow sale and it just corroborates as I said in my prepared remarks that we’re starting to bare the fruit of business process management, standalone workflow applications that solve very acute problems in specific departments in hospitals which gets us in the door with some very nice revenue streams that are ASP based and gives us opportunities and a platform to sell up to the enterprise.

Mark Cahill – Private Company

Regarding cash, have you already received prepayments, is you cash level—

Donald Vick

Yes we have. We’ve had quite a few that came in here early December and we’re still expecting some more. Basically for the, here for the quarter, the number looks like it should be around $3 million in those collections.

Mark Cahill – Private Company

And you’re going to pay down $1 million on the—

Donald Vick

That’s my plan at this point, yes.

Mark Cahill – Private Company

Also I think it was last conference call you mentioned your profitability range of $1.5 to $2 million I think it was, with the addition of this Moses Cone would you increase that range.

Brian Patsy

No that was considering Moses Cone which I couldn’t talk about at the time. [Life is] timing, that deal closed just a few days after our quarter otherwise we would have been talking about it last quarter but it all comes out in the wash as long as we get it closed before the end of the year.

So that was anticipating Moses Cone.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Brian Patsy

Again we appreciate the time you’ve invested in listening to our story and our recent success and we look forward to having a spirited discussion in our next earnings call toward the end of March. Thanks again everyone.

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