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Streamline Health Solutions (NASDAQ:STRM)

Q1 2012 Earnings Call

June 07, 2012 11:00 am ET

Executives

Landon Barretto

Robert E. Watson - Chief Executive Officer, President, Director and Member of Strategy Committee

Stephen H. Murdock - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Corporate Secretary and Treasurer

Analysts

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Joseph Mondillo - Sidoti & Company, LLC

Frank Sparacino - First Analysis Securities Corporation, Research Division

Sam Rebotsky

Scott Ferguson

Operator

Greetings, and welcome to Streamline Health Solutions First Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Landon Barretto. Thank you, Mr. Barretto. You may begin.

Landon Barretto

Thank you, Claudia. I thank all of you for joining us to review the financial results of Streamline Health Solutions for the first quarter of fiscal year 2012, which ended April 30, 2012. As the conference call operator indicated, my name is Landon Barretto with Barretto Pacific Corporation, we're the Investor Relations firm that represents Streamline Health. With us on the call representing the company today are Bob Watson, the President and Chief Executive Officer; Steve Murdock, Senior Vice President and Chief Financial Officer; and Gary Winzenread, Senior Vice President and Chief Operating Officer.

At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it from the company's website at www.streamlinehealth.net or numerous financial websites.

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 a Safe Harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, 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 the vendors that resell the company's products, the ability of the company to control costs, availability of products produced from third-party vendors, the healthcare regulatory environment, healthcare IT 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 management's 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 Bob Watson, President and Chief Executive Officer of Streamline Health Solutions. Bob?

Robert E. Watson

Thank you, Landon, and good morning to all of you participating on today's call. Thank you for your time today and for your continued interest and support of our company.

We are very pleased with the financial performance for the quarter, and as noted in our press release earlier this morning, our first quarter performance was very strong from many vantage points. Steve Murdock, our Chief Financial Officer, will discuss some of the more pertinent financial performance numbers with you in a few minutes. However, at this point in our presentation, I wanted to take the opportunity to give you my thoughts on some of our recent accomplishments.

I believe it is clear that we are continuing to make meaningful progress against our strategic initiatives, and to a great extent, are accelerating at a pace that exceeds our own projections. Forward momentum on the process of heightening our focus as a results-driven enterprise is well underway. During the first quarter, we made significant gains on each of our 4 strategic goals for this fiscal year. First, we are well into the process of investing in our human capital, but some hiring has lagged. Our operational and sales teams performed exceptionally well in the quarter despite being significantly understaffed. Our plan is to build for growth so that we may provide world-class healthcare information technology solutions to our growing list of clients. That being said, we are also seeing increased cross-sell opportunities within our current client base, as well as net new client acquisition opportunities. Therefore, we have increased the headcount in our sales team during and subsequent to the end of the first quarter.

Additionally, we have several internal, technical and administrative projects in process that, when completed, will position us to better address the growth we see being generated from the sales organization. Second, we have expanded our sales footprint to capture a greater share of net new sales opportunities. Our relationship with FTI Consulting, announced in January of this year, while in its early stages, is adding significantly to our sales pipeline opportunities. Since the inception of that agreement, we have closed 3 transactions with their participation.

We will, however, continue to pursue other distribution partnerships as I stated in our last call. We continue to believe that supplementing our direct sales organization with distribution partners is a viable strategy. During the quarter, our sales and account management teams continue to exhibit their ability to not only add to the sales pipeline, but to close solution sales or renewal agreements in an orderly and timely manner.

Third, the process of enhancing the client experience is also well underway. For 2012, NEXT Summit, or annual Users Group, was held in May. Participation among our clients and partners exceeded our original forecast for attendance and will, we believe, lead to greater cross-selling opportunities for our broadening suite of solutions. We will continue to invest significant time and resources in understanding the needs and requirements of our client base as we believe that knowledge provides a clear roadmap for selling efforts, development of new solutions and our analysis of inorganic growth opportunities.

Fourth, as I just mentioned, we will strategically introduce new and enhanced solutions to the market. This will be accomplished by bolstering our development efforts to address the solution development opportunities you see within our current client base and the broader market in general. The goal of these new and enhanced solutions is always to improve the financial and operating performance of our clients.

To summarize, we believe the results for the first quarter indicate that we are making significant progress and that momentum is building. However, as I have done in all of our prior earnings calls, I want to remind everyone that this is a process. Our execution plan is aggressive yet measured. We are making, and will continue to make, the investments required to deliver the results that we have promised to all of our stakeholders, our clients, our associates and our shareholders. As a management team, we are very deliberate and methodical in executing on our strategic and tactical plans. It is our plan to recruit only the best and brightest talent as part of the Streamline Health team, and we remain very disciplined in these efforts. The financial impact of adding this human capital talent to our teams in order to address the needs of client implementations and continuing sales opportunities will be felt in the later quarters of this year.

Now, to review the specific financial performance of the quarter, I'd like to turn the call over to Steve Murdock. At the conclusion of Steve's remarks, we'll open the calls for your questions. Steve?

Stephen H. Murdock

Thank you, Bob. I would like to review some of the more significant aspects of the financial results for the quarter, ended April 30, 2012.

As Bob stated, our first quarter performance was solid in many areas. Revenue for the quarter was $5.4 million, representing a 32% increase over the first quarter of last year. This included $490,000 of revenue related to the acquired Interpoint operations. On a same-store basis, revenue increased 20% quarter-over-quarter, comprised of a 13% increase in maintenance revenue and a 22% increase in SaaS revenue. While operating expenses increased approximately 9% over the prior year, our operating profit turned positive at $672,000 compared to an operating loss in the prior year period of $254,000. Net income for the first quarter was $492,000 or $0.05 per share compared to a net loss in the first quarter of last year of $281,000 or negative $0.03 per share.

Thirdly, our EPS exceeded our expectations for a couple of reasons. First, revenue was higher than projected and our pipeline continues to look solid. Secondly, our anticipated increase in payroll and other related areas did not materialize per our plan as we did not ramp up our headcount with additional sales and implementation resources as quickly as we had planned. As Bob said, we expect the incremental costs we anticipated in Q1 will begin to hit the financials this quarter and in the second half of the year. New bookings for the first quarter totaled $4,395,000 and contract renewals were $3,106,000. This resulted in a $4,081,000 increase in our backlog from the end of the fourth quarter of last year for a total backlog today of $31,447,000. Approximately $26 million or 83% of this backlog is related to maintenance, support and SaaS contracts.

We continue to see a favorable increase in cash from operations and cash collections. Cash balances at the end of the quarter were $3.1 million, up from $2.2 million at the end of the last quarter. Additionally, we currently have no outstanding debt under our $3 million line of credit facility. One final note, in our earnings release, we've included a table reconciling our net loss to the non-GAAP financial measure of adjusted EBITDA. We define adjusted EBITDA as net earnings or loss plus interest expense, tax expense, depreciation and amortization expense of tangible and intangible assets and stock compensation expense.

Given the relatively large amount of noncash charges, we feel that adjusted EBITDA is a more meaningful measure in understanding our underlying cash-based earnings. For the 3 months ended April 30, 2012, adjusted EBITDA increased 2.7x to $1,713,000 as compared to a corresponding adjusted EBITDA of $639,000 for the prior comparable period. We will continue to provide this non-GAAP financial measure in future earnings releases.

I will now turn the call back to Bob Watson. Bob?

Robert E. Watson

Thanks, Steve. As always, I want to thank our entire team of associates for their hard work, results and support of management strategic plans. Our progress against our strategic and tactical goals has been demonstrated by our improved financial results, growth in our backlog and the growth of our sales pipeline. There is much work left to do, not only with the continuing integration of our fourth quarter acquisitions, but internally as well. However, as I noted earlier today and in my prior calls, we remain firmly convinced that we will reach our goal of becoming a world-class, healthcare information technology company. We will do so very soon.

This concludes my prepared remarks. We will now open the call for your questions. In addition to Steve Murdock and myself, we'll be joined for this Q&A session by Gary Winzenread, Senior VP and Chief Operating Officer. Landon?

Landon Barretto

Claudia, please begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from the line of Matt Hewitt with Craig-Hallum.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

First question, maybe you could talk a little bit about the pipeline. I believe, you've provided some metrics in the past as to where you currently sit relative to your bookings.

Robert E. Watson

In terms of -- as we just reported the bookings, new sales bookings for the quarter were about $4.4 million. Contract renewals for the period just close, were at $3.1 million. Now the total sales pipeline opportunity numbers are, as you'd expect during the period, obviously, went down a little as we realized the actual closing of some sales and obviously new opportunities being entered into the pipeline. The current pipeline sits in the high $30 million range in terms of opportunities that we have visibility on.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Okay, that's great. Secondly, there was a KLAS study that was presented or announced during the quarter that garnered some press. They talked about the amount of new business intelligence and business analytics software that was likely to be purchased over the next few years. And I'm wondering if you could talk a little bit about what that has meant so far, if anything, but more importantly, what that could mean for your OpportunityAnyWare product over the next few years.

Robert E. Watson

Yes, the KLAS report suggested that something in the order of magnitude of 50% of all U.S. hospitals would be making a purchase decision in the next 3 years for business analytics solutions similar to what we provide through our operating -- OpportunityAnyWare solution. Now I can tell you that we do see a significant bolus of activity around that solution set inside our sales pipeline, so it's playing out, the level of interest is high, and there are several reasons driving that high level of interest from the marketplace, by the way. Not the least of which is the fact that virtually anyone who is active in healthcare today anticipates a significant change in the payment models in the next 2 to 3 years and to be in a position to analytically analyze what those outcomes of those new payment schemes might mean is important. And many of the current tools available in the market are not flexible enough to do that. Second, as hospitals expand their footprint through the purchase of physicians' practices, the complexities of having an enterprise view are much different than they were even 2 or 3 years ago, so those are some of the factors driving that demand.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

That's great. And as you look at the integration of the 2 software platforms, or solution platforms, could you give us an update? I mean, is that still something that you anticipate mid to late second half of this year?

Robert E. Watson

The first phase of the integration will be probably late third quarter, early fourth quarter of this fiscal year. Deeper integration will be targeted for early in 2013.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Okay. And then I guess a couple of questions about your current business. One, how many customers are currently still utilizing a perpetual software license versus how many are currently on the SaaS model? And then a little bit of a follow-up, how many cross sales have you been able to do since the Interpoint acquisition?

Robert E. Watson

In our current customer base, right now, it's probably evenly split between SaaS customers and customers still on the maintenance agreement. I can't give you the except numbers, but it's roughly 50-50 split. We reported a sale to Albert Einstein in Q1, that was the first cross-sell of the OpportunityAnyWare solution into an accessANYware client. Einstein has been a client of Streamline for quite some time, and that sales cycle was, frankly, less than 3 months from the time we purchased the asset, so we're pretty pleased with that.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Is that the type of sales cycle we should anticipate on the cross sales? And how does that compare to new business?

Robert E. Watson

Well, I think the Einstein case, I think, is particularly unique, and we're always happy to take them when the sales happen sooner than we forecast them. Our sense for the OpportunityAnyWare solution is that it's a 6 to 9 months sales cycle. It might be a little shorter with accessANYware clients on a cross-sell, but just from our own forecasting standpoint, that's how we're looking at it. AccessANYware has a much longer sales cycle. It would be a quick sale for accessANYware if it was a 9-month cycle, the average is probably 12 to 14 months.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

All right. And then one last for me, and then I'll hop back into the queue, but headcount today versus last quarter and a year ago, and I guess if you could break out the sales portion of that, that would be helpful.

Robert E. Watson

Sure. Last year, at this time, we were 91 associates at this time last year. At the end of first quarter this year, we were about 75 associates. And again, we're lagging a little bit -- as we noted earlier, we're lagging a little bit on our hiring. Since the end of quarter, we've added, I think, 5 new associates to the team. On the sales side, last year at this time, there were 3 resources admitted to the sales organization. But today, that number is 7.

Operator

Our next question is coming from Darrell Patrick [ph] with SJ Wills Investments [ph].

Unknown Analyst

The P&L shows a tenfold increase in interest expense. As a term loan and the convertible note, how much of that was put on in the last year?

Robert E. Watson

That -- the term loan and the convertible note both resulted from the acquisition of Interpoint Partners in December 8, 2011.

Unknown Analyst

Okay. And what kind of rates are you paying on those?

Robert E. Watson

The term loan from Fifth Third is at 12% interest rate, the interest rate on the convertible note is 8%.

Unknown Analyst

Okay, and what's the conversion factor?

Robert E. Watson

Conversion price is $2 a share.

Unknown Analyst

Okay. And was that a private placement?

Robert E. Watson

No, that was a part -- both those -- the debt from Fifth Third and the convertible note relate to the purchase of Interpoint Partners on December 8 of last year.

Operator

[Operator Instructions] Our next question is coming from Joe Mondillo with Sidoti & Company.

Joseph Mondillo - Sidoti & Company, LLC

Real quick, pretty much following up on the first caller. The software-as-a-service, just taking a look at the backlog here, increased significantly. How much of that do you guys think you'll work through in the next 9 months?

Robert E. Watson

How much work through the next 9 months? Next 9 months, the backlog, we will -- $14 million -- $12 million to $14 million of it, in that range. Some of it depends on the realization and professional services side.

Joseph Mondillo - Sidoti & Company, LLC

Okay. So you're saying, of the $26 million in maintenance -- in professional and -- I'm sorry, wait a minute, hold on. As far as the $26 million of maintenance and support, as well as SaaS, you think combined, you're going to work through $14 million?

Robert E. Watson

It could be -- at the outside, it's $14 million, it's probably in the $12 million to $13 million range. And when you think about -- if you look at the first quarter, at the end of fiscal year, our backlog was $27 million. Backlog now sits at $31 million, revenues for the quarter were $5.5 million, $5.4 million. The bulk of that revenue, not all of it, but the bulk of it came out of the backlog. So the backlog went down, by some significant portion of that $5.4 million, then went back up to $31 million, which reflects the $4.4 million in total -- in bookings for the period. And the $3.1 million in renewals and extensions. We will see it go up and down on that sort of order of magnitude so as the sales team produces results, we add to the backlog each quarter, we burn some of it down.

Joseph Mondillo - Sidoti & Company, LLC

Yes, and as far as -- I mean, the recurring revenue on the SaaS side, it went up 200K this quarter, is that a good number to work off of going forward or are you expecting that recurring revenue number in SaaS to increase?

Robert E. Watson

We expect the recurring -- the SaaS portion of our revenue to continue to increase.

Joseph Mondillo - Sidoti & Company, LLC

And then I guess my final question would be, if the Supreme Court struck down government healthcare, what effect, if any, would it have on you guys?

Robert E. Watson

Not a thing. Not a factor.

Joseph Mondillo - Sidoti & Company, LLC

Okay. And just one final question, sorry about that. In regards to your relationship with FTI, can you walk us through what exactly -- how it works and what they're doing? Is it to help you guys facilitate some of these sales?

Robert E. Watson

Sure. We -- the arrangement with FTI, which was announced in January is a joint marketing agreement, not dissimilar from our existing arrangement with General Electric where we co-market into the client base. They are only co-marketing on the OpportunityAnyWare platform. But FTI, as you may or may not know, is a New York stock exchange company $1.5 billion revenue, about 1/3 are...

Joseph Mondillo - Sidoti & Company, LLC

Yes. I see it on the board at Yankee Stadium.

Robert E. Watson

There you go, it's right there, I've seen it myself. And about 1/3 of the revenue comes from healthcare, and most of that healthcare revenue or a significant portion of the healthcare revenue is revenue cycle consulting. And the concept is that we will, net new customers sell our solution to the client, FTI will sell a consulting engagement and the FTI personnel will use our solution to perform their services.

Joseph Mondillo - Sidoti & Company, LLC

So that $30 million opportunity that you think, that you guys see, that includes the relationship with FTI?

Robert E. Watson

It does.

Operator

[Operator Instructions] Our next question is coming from Frank Sparacino with First Analysis.

Frank Sparacino - First Analysis Securities Corporation, Research Division

Just 2 questions. First is on the hiring, was it simply an issue just in terms of timing or are there maybe some constraints in terms of resources in the marketplace? Maybe just a comment overall on the labor market there.

Robert E. Watson

Yes, honestly, I think it was a couple of factors. One was the fact that our teams were very, very busy during the quarter, and frankly, did not -- just didn't have the bandwidth to devote the energy to the hiring process. Second, and I alluded to this in my earlier remarks, is we've -- since this team has been here, we've tried to be excessively rigid in our on-boarding and hiring practices. We think there's a certain profile of an individual, both from their technical skills level and from their ability to engage in the culture that we're building here. Because we're focused on those items -- the process is probably a little bit more elongated than some of the folks around here would like, but I think at the end of the day, it allows us to get the experienced and meaningful talent that we've been able to get to join the team. So for example, in the sales organization this past quarter, we added 3 individuals, all with strong backgrounds in healthcare IT and strong backgrounds in revenue cycle solutions selling. So we think those are critical additions to the team and reflect our commitment to really trying to hire the best talent we can find.

Frank Sparacino - First Analysis Securities Corporation, Research Division

Great. And lastly, maybe just if you could comment in terms of what you're seeing from a hospital IT spend perspective in terms of, I guess, around budgets or maybe some reallocation of where they're spending money as it relates to EHR, revenue cycle, et cetera.

Robert E. Watson

So I think we all know that, that as a result of the HITECH Act in 2008, that there has been a significant amount of EMR purchases, which has clearly driven the revenue growth for the EMR folks like Epic and Cerner and others. What we're seeing now is as those EMRs are deployed, there is a refocusing on other areas of challenge. So in some cases, as it relates to our accessANYware solution, some of the EMR purchases did not include a electronic content management solution and they're finding that there are gaps along their internal processes where this EM solution such as ours could be of huge value, so that does create some, I think, there's some moderate growth in the accessANYware business because of that. On the OpportunityAnyWare side, the drivers, as I mentioned earlier in the call with -- the question coming from Matt, is really about preparing for a change in the payment schemes. And secondly, to -- looking for solutions to address the complexity of organizations that are now not simply acute care focused, and that have challenges across their entire enterprise. A good example of that among our client base, we announced an agreement with Boston Medical Center at the end of the quarter, that they have been a customer of OpportunityAnyWare on the acute care side, and found that they needed a solution to help them look at their opportunities and their denials and their receivables across their physician enterprise. The combination of the 2 solutions from us allows them to look broadly across the entire enterprise. We think that's a significant value to the client base.

Operator

The next question is coming from the line of Sam Rebotsky with SER Asset Management.

Sam Rebotsky

Did I understand that the improvement, did any of that relate to the lack of the hiring? Would the profits be a little lower and do we expect the impact of the hiring to impact future quarters' profitability per se?

Robert E. Watson

I mean, I said in my prepared remarks that, that was I was trying to get on the table is that because the hiring lagged in the quarter, we have to hire those bodies. I mean, the good news is, Sam, when you have a sales team that performed like they did in the first quarter and as they performed in the fourth quarter, that requires high quality and really expensive talent to get those clients up and running in a timely fashion, which allows us to recognize the revenue. So we will see some impact from the hiring as we go into the year. I think Steve mentioned it in his prepared remarks as well.

Sam Rebotsky

And does it appear that you're ahead of schedule in general for revenue and in profitability based on what's happened in this quarter as you've -- the additional sales you've been making?

Robert E. Watson

I think that's a fair characterization, Sam.

Sam Rebotsky

And as far as -- how much longer before the Interpoint is fully integrated, or you're pretty much fully integrated now?

Robert E. Watson

I mean, with the exception of interfacing the individual solutions, Interpoint is fully integrated into the Streamline organization. We're nearly complete with the relocation of their data centers into ours. So we're well down that path.

Sam Rebotsky

And you basically have said that when you're selling these products, your customers are very happy that you have these extra products to sort of sell. And are you ready to start looking at other potential acquisitions? I assume you are currently doing that.

Robert E. Watson

Look, Sam, we'll consider inorganic -- I said in the prepared remarks, too, that we'll consider inorganic growth opportunities if they address a need we see among our client base or if we see a weakness in our current solutions offering. We have -- we still have a lot of work to do. We're very pleased with the Interpoint transaction. We think the addition of the OpportunityAnyWare solution to our company and to our accessANYware solution set is really a significant driver for not only our near-term growth, but our long-term growth.

Sam Rebotsky

Well, it's very exciting and it seems that you've done an awful lot in the short time that you've turned the company around, and hopefully you could achieve greater growth and create more acceptance for your products in the stock market. Good luck.

Operator

The next question is coming from Mark Cahill [ph], a private investor.

Unknown Shareholder

A couple of really quick questions. The breakeven quarterly number used to be about ballpark $4 million a quarter. Is it now about $4.25 million, $4.5 million?

Robert E. Watson

$4.5 million.

Unknown Shareholder

Okay. Cash seems to have performed well. Do you expect that to increase over the coming year?

Stephen H. Murdock

Yes, as I said in my prepared remarks, we really don't have anything out in our line of credit. We saw a significant increase this last quarter, a lot of that is, as we've mentioned in the past, related to the timing of when we'd bill maintenance. So the cash increase, we will continue to generate cash from operations. If you look at that number for the first quarter it was $1.6 million. You take out the amount of capitalized software, so it's about $1.1 million. That's actually about a $2 million turnaround of where we were at the same time last year. So we'll see that continue. We will burn some cash, as Bob mentioned, related to additional hiring and things like that, but we'll see that cash balance continue to go up, I think.

Unknown Shareholder

Right, good. Can you describe how a client gets onto your pipeline list? What qualifies them to make that list?

Robert E. Watson

To make the pipeline list, you have to have been qualified, which means our sales personnel have gone through a couple of steps and a process to get to qualification, and I can go through each of those, if you'd like. But fact of the matter is that they don't hit the list until it has -- the salesperson has had a conversation with Mike Schiller, who's the Senior VP for sales, and together, they agree, based upon the qualification, that this is a likely prospect.

Unknown Shareholder

Have -- would Streamline have been declared a vendor of choice in the competition to get the business or in the top 2?

Robert E. Watson

No. Just -- to get in the pipeline, you're in the sales process. And the pipeline has various percentages of where they are in the sales cycle. So for example, to be vendor of choice, it would be an 80% probability. So there's a probability factor involved. If you're newly on to the pipeline, you would have a 10% probability. It's ranked where you are along the continuum.

Unknown Shareholder

Is your current pipeline more geared through the shorter-cycle single solution set or as opposed to the long term trying to sell a whole HIM contract?

Robert E. Watson

No. The -- greater than 50% of the current pipeline relates to the OpportunityAnyWare solution, but it's pretty close to 50-50. So in the OpportunityAnyWare side, that's generally a net new sale or a cross-sell, selling that solution to an accessANYware client. Within the accessANYware client base, we have significant activity underway, not only about cross-selling OpportunityAnyWare, but also, as we talked about last year, selling additional workflows, selling the upgrade to the 5.1 platform and the conversion of some of our legacy maintenance clients to software-as-a-service clients. So there's a mix of stuff in that pipeline.

Unknown Shareholder

Okay. In the Boston Medical press release, the Boston Medical said it was extending Streamline's product into the acute ambulatory side. Are you guys seeing more of that? Do you think that's a new area for you guys or is it a one-off?

Robert E. Watson

No. It is not a one-off. The OpportunityAnyWare solution has both the acute care, just hospital-based, and the ambulatory -- and an ambulatory solution. Again, we see many of our hospitals today, as I noted earlier in one of the questions, many of our hospitals acquiring physicians' practices. As they acquire those practices, there is a significant need to have an enterprise view with the financial performance of those acquired practices, and OpportunityAnyWare clinic provides that type of solution for the CFOs.

Unknown Shareholder

Okay. Last question, when you convert a customer to the cloud model, are you pulling the hardware that was previously-installed from the customer and then using your own hardware?

Robert E. Watson

We simply use our own hardware. The hardware at the client sites, they can re-purpose it if they want. That's their issue. But the hardware support, hardware maintenance, database maintenance, all of those fall to our data center team.

Operator

[Operator Instructions] Our next question is coming from Matt Hewitt with Craig-Hallum.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Just one follow-up for me, gentlemen. As we look at -- given your move towards a more recurring SaaS-based model, how should we think about the linearity of your top line, your revenues? You've gone, I think, done a nice job of talking about some of the expense ramp that we should see over the coming quarters. But how should we think about that top line, the SaaS, you mentioned, should continue to grow, but what about the other areas of the business?

Robert E. Watson

The SaaS revenue line will continue to grow. The maintenance level line will, by design, decline as we convert some of those clients to software-as-a-service. So your maintenance line will go down and the revenue will reappear in software-as-a-service. Professional services, we will see some variability in the professional services number depending on the mix of installation work we're doing. It's a revenue recognition issue. In our accessANYware implementations, the implementation, these are recognized on a percentage-of-completion basis, in a OpportunityAnyWare deployment, the revenue associated with the implementation is recognized ratably over the life of that client.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Okay. And so just kind of back of the envelope math here, you had a very strong first quarter. Your guidance of which, it sounds like you're just sticking with that initial guidance given that it was the first quarter, but how should we think about, given the strong Q1, I mean, should we be kind of thinking towards the upper end of that range or just the midpoint is kind of where you want to be at the moment?

Robert E. Watson

You're still asking me to give guidance again, Matt.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Well, I'm not asking...

Robert E. Watson

Honestly, first quarter, honestly, outperformed our expectations. And that being said, I'm not prepared to change our guidance for the year, it will be somewhere in the range. Now we may see some -- because of the way revenue came in, in the first quarter, particularly around the professional services line, you may see a slight dip in professional services as we move into the second and third quarters as we implement more OpportunityAnyWare solutions to maybe dip because the revenue from professional services where the OpportunityAnyWare platform is recognized with a 3-year or 5-year contract, not at the time it's done. So you see some variability because of that. And on the other hand, the positive part of that, frankly, as we go forward, are -- have much clearer visibility. You guys will be in a much better position to accurately forecast quarter-over-quarter growth in our revenue lines. And it will be reflected in the SaaS line, not in the professional services line.

Operator

Our last question is coming from Scott Ferguson with Hilliard Lyons.

Scott Ferguson

Can we flush out just a little bit more of the employee thing? Now the 90-something figure you guys gave, is that total employees of the firm?

Robert E. Watson

That was last year at this time.

Scott Ferguson

Okay. Can you give me an idea of how many salesmen you had back then and how many you have now?

Robert E. Watson

Sales organization last year at this time was 3, it's -- I think, it's 7 today.

Scott Ferguson

Okay. And 7, including the sales manager?

Robert E. Watson

Sure.

Scott Ferguson

And is he a producing manager or is he strictly focused on trying to hire new guys and manage the ones he has?

Robert E. Watson

Everybody with a Senior VP title here is a producer on the sales side. I just don't count all of them as sales people.

Scott Ferguson

Okay. With the integration of the -- on the acquisition and with the partnership that you have with GE currently, I mean, are they adding meaningfully to your overall revenue, both of new sales, particular like on the SaaS model.

Robert E. Watson

GE, did you ask about GE?

Scott Ferguson

Yes, GE or -- who's the other one you have a...

Robert E. Watson

FTI, yes. I was hoping to get through a call, and not have to talk about GE. But the reality is GE added very little to our bookings last year or to our pipeline. We do not see material impact either in terms of new sales or pipeline growth coming through the GE channel in 2012, and there's a whole series of reasons that entirely relate to GE's challenges around getting meaningfully use for their own electronic medical record. So we've eliminated GE from our forecasting. FTI, on the other hand, as I noted in my prepared remarks, is a very significant part of our pipeline growth. We're in the early stages of that relationship, we're working very closely with them. We see that relationship is very, very important to our go-forward bookings number. And every -- because they are focused on the OpportunityAnyWare solution, all of the sales through the FTI channel will be SaaS-based.

Scott Ferguson

At this point, on the OpportunityAnyWare type of products, overall percentage of -- what were you guess in your market, overall, your market share is at this point?

Robert E. Watson

Market share in OpportunityAnyWare?

Scott Ferguson

In that type of product.

Robert E. Watson

That type of product, a de minimis. We think it's a fast growing market. There are a number of competitors. We tend to really focus in on 4 or 5 folks as competitors. But it's -- we have 18 -- 15 to 18 clients in some stage of implementation are actually up and running on that solution today. And that number will continue to grow. So it's a relatively small number relative to the total market.

Scott Ferguson

And most of the sales you guys are making in that type of product, are you poaching clients from other vendors or other companies, or you actually, are they kind of new-adds to that type of platform?

Robert E. Watson

We characterize it today at being probably 60% to 70% net new add, not so much replacement. The replacements are maybe 30% to 40% of the sales.

Scott Ferguson

At some point down the road, does it get to where most of the hospitals that would be prospects for that type of product have already -- are already entrenched in someone else's system and that opportunity is lost, I mean, or is it...

Robert E. Watson

No. I mean if you go back to, I think, one of the earlier questioners, Matt from -- asked about -- mentioned the KLAS report, which is KLAS. We may really see that 50% of the hospitals in the next 3 years making a purchase decision around that solution set. That is a tremendous number of purchase decisions.

Scott Ferguson

The reason I asked about the sales force is I've been out on the road calling on clients for a lot of years and it just seems like to me that one guy can only do so much and can only get out there and pound on so many doors, and it just seems like to me that at least having guys out banging on hospital doors is what should be probably the mantra at this point and I was just asking about it. The overall employment at 90-something and the sales force being less than 10% makes me scratch my head just a little bit.

Robert E. Watson

Remember, the 90 was last year, we're at 75 today.

Scott Ferguson

Right. So you're roughly at 10%.

Robert E. Watson

We're roughly at 10% and that doesn't include the impact of our client services team on the sales process because they are responsible, particularly within our current customer base, of highlighting sales opportunities for the account management team. So it's a little broader than that. Plus, I really think the FTI relationship is critical. I mean, they have a significant sales team out there every day, inside hospitals, talking to CFOs, and we're following right along behind them. So our ability to scale the sales team is really about having the right distribution partner, I think. Now while we have FTI and they're focused on a certain subset of hospitals around the country, we think there are other opportunities to have other partnership relationships with other consulting films to address other subsegments of the market.

Scott Ferguson

And at this point, are you guys working on those other types of relationships?

Robert E. Watson

Yes, sir.

Operator

Gentlemen, there are no further questions at this time. I'll now turn the floor back over to management for closing remarks.

Landon Barretto

Bob?

Robert E. Watson

As always, thanks for spending an hour with us today. We'll be back in touch at the end of next quarter. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

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