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Streamline Health Solutions (NASDAQ:STRM)

Q2 2012 Earnings Call

September 12, 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

Dennison Theodore Veru - Palisade Capital Management LLC

Frank Sparacino - First Analysis Securities Corporation, Research Division

Joseph Mondillo - Sidoti & Company, LLC

Sam Rebotsky

Operator

Greetings, and welcome to the Streamline Health Solutions Second 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, Mr. Landon Barretto. Thank you, Mr. Barretto. You may begin.

Landon Barretto

Thank you, Louis. Thank you for joining us to review the financial results of Streamline Health Solutions for the second quarter of fiscal year 2012, which ended July 31, 2012. As the conference call operator indicated, my name is Landon Barretto with Barretto Pacific Corporation. We're the investor relations consulting firm for Streamline Health. With us on the call representing the company today are Bob Watson, President and Chief Executive Officer; and Steve Murdock, Senior Vice President and Chief Financial 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 vendors that resell the company's products, the ability of the company to control costs, availability of products produced from third-party vendors, the health care regulatory environment, health care information systems budgets, availability of health care 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 the 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

Good morning to all of you joining us on today's call. Thank you for your time today and for your continued interest and support of the company.

Noted in our press release earlier this morning, we continue to produce demonstrable results as we follow the strategic plan that we laid out at the beginning of this fiscal year. This was another strong quarter for our company. Revenue growth as compared to the same quarter last year remains strong, cash from operations continued to build, and our new sales bookings continue to grow.

After adjusting for certain expenses associated with the previously announced acquisition of Meta Health Technology, Inc. and the addition of 1,500,000 shares to our primary share count related to the Interpoint note conversion announced earlier in the quarter, our year-to-date EPS on a non-GAAP basis remains $0.05 per share, which is in line with our guidance earlier this year. We continue to see and trust, our stakeholders do as well, signs that indicate we are making real and meaningful progress against our strategic and financial initiatives.

At this point, I'd like to turn the call over to Steve Murdock, our Chief Financial Officer, for a summary of our financial results for the quarter ended July 31, 2012. At the conclusion of Steve's remarks, I'll provide additional perspective on the results of the quarter and the fiscal year, and we'll open the call 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 July 31, 2012, and the fiscal year-to-date.

Revenue for the second quarter was $5.1 million or 22% increase over the second quarter of last year. This included $630,000 of revenue from the previously acquired Interpoint business. On the same-store basis, revenue increased 7% over the prior year, which included a 4% increase in maintenance revenue and a 21% increase in SaaS revenue. Revenue for the fiscal year-to-date is $10.5 million, a 27% increase over the last year.

As Bob mentioned, our second quarter operating income performance was negatively affected by certain nonrecurring expenses associated with the acquisition of Meta Health Technology. I will detail some of those onetime charges in just a minute.

Operating expenses increased approximately 23% during the second quarter over the prior year period, contributing to an operating loss of $24,000 compared to an operating profit in the prior year quarter of $20,000. The net loss for the second quarter was $463,000 or $0.04 per share compared to a net loss in the second quarter of last year of $7,000 or $0.00 per share. Net income for the fiscal year-to-date is $28,000 compared to a net loss for the prior fiscal year period of $288,000.

As I mentioned, these results included $550,000 of nonrecurring expenses related to the acquisition of Meta Health Technology we closed on August 16. These onetime costs were comprised of: $147,000 in due diligence consulting, $37,000 in legal expense; $312,000 in transaction and factory expense; and $55,000 in internal expense related to the due diligence. It is worth noting that $26,000 of nonrecurring expense related to the Meta transaction was realized in the first quarter. In addition, we estimate that during the third quarter of this fiscal year, an additional nonrecurring expense of approximately $110,000 related to the Meta acquisition will be realized.

Excluding these nonrecurring items, net income for the second quarter in fiscal year-to-date was $61,000 and $578,000, respectively, or $0.01 and $0.05 per share. It is important to note that during June 2012, the convertible note issued to Interpoint Partners LLC as part of that acquisition was converted into common stock resulting in the issuance of approximately 1,530,000 shares. This impacted fiscal year-to-date earnings by $0.01 per share, leaving our net non-GAAP EPS at $0.05 per share.

Those of you who have followed our company for a while now know that we experienced modest seasonality based on the timing of our contract renewals. Historically, our second and third quarters are slightly lower in this regard than our first and fourth quarters. With that said, new bookings for the second quarter were $4,700,000, and contract renewals were $1,151,000. This resulted in an increase in our backlog from the end of the first quarter of $739,000 for a total backlog of $32,186,000. Approximately $27,270,000 of this backlog is related to maintenance and support and SaaS contracts.

We continue to see a favorable increase in cash from operations and cash collections, and our cash balances at the end of the quarter were $4.1 million. Additionally, there was no outstanding debt under our line of credit facility.

On 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, stock-based compensation expense and nonrecurring transaction expenses. Given the relatively large amount of noncash charges, we feel that adjusted EBITDA is the more meaningful measure in understanding our underlying cash-based earnings. For the 3 months ended July 31, 2012, adjusted EBITDA was $1,482,000 compared to a corresponding adjusted EBITDA of $919,000 for the prior comparable period. We will continue to provide this non-GAAP financial measure in future earnings releases.

In addition to the Meta Health Technology acquisition we closed, as noted in the earlier press release, an equity investment totaling $12 million from Great Point Partners and Noro-Moseley Partners, as well as establish an enhanced credit facility with Fifth Third Bank, nonrecurring transaction expenses of $196,000 related to these activities have been capitalized during the fiscal year-to-date. This includes $86,000 in investor legal fees; $47,000 in placement agent fees and $63,000 in legal expenses. Management estimates that an additional $1 million of transaction-related expenses will be capitalized during the third quarter of this fiscal year.

That concludes my review of the financial results for the second quarter of fiscal year 2012. Let me now turn the call back to Bob Watson. Bob?

Robert E. Watson

Thanks, Steve. As I noted earlier, we continue to be very pleased with our financial performance year-to-date. As Steve noted, the non-GAAP EPS for the quarter arrived at by adjusting for the transaction cost associated with the acquisition is $0.01 per share. As I stated in our Q1 conference call, our plan is to build for growth so that we are positioned to provide world-class health care information technology solutions to our growing list of clients.

In the second quarter, we did just that. We built for growth by investing in incremental associate headcount in key areas such as sales, marketing and importantly, in operational and implementation resources.

Also, during the Q1 2012 conference call, we set 4 strategic goals for this fiscal year, as you may remember. We believe that during the second quarter, we made meaningful and material progress against those strategic goals. The first goal, as noted earlier, was to continue to invest in our human capital. The addition of the 40 associates from Meta clearly impacts our headcount and investment in human capital. However, as I noted on the Meta acquisition call, the quality of the professionals that joined us via that acquisition is very encouraging.

Additionally, we've made significant progress on our internal technical and administrative projects that impact the ongoing productivity of our associates. Many of those projects are now nearing completion. For example, during the quarter, the relocation of the data center acquired during our acquisition of Interpoint last year to our primary data center was successfully completed.

Second, we continue to expand our sales footprint to capture a greater share of net new sales opportunities. Clearly, the addition of the solutions from Meta, especially in the area of computer-assisted coding, will open many new sales opportunities for us. However, with much of our sales team having over 3 months of boots on the street, we see a positive increase in the dollar value, and most importantly, the quality of our sales pipeline. As I have stated in numerous calls, we will also continue to pursue other distribution partnerships. To that end, during the quarter, we announced a new marketing affiliation with nTelagent. As with our decision to partner with FTI earlier this year, these are decisions that we do not take lightly. The sales organization is working through the business plan with the nTelagent team to make that relationship as productive as our relationship with FTI has been.

Third, our efforts to improve the client experience continue. With this strategic goal, I do want to emphasize that this is a journey, it is not a destination. We will always be looking to improve the experience of our clients. During this quarter, scheduled meetings with our clients are progressing as we advance our commitment to be in market facing. The additional 30 clients from Meta will be added to that visitation cycle and those meetings are underway. Importantly, we were invited to the user group meetings of 2 important EMR vendors, Allscripts and Epic. This provides us with a forum to further engage with our clients, especially on the very important topic of our integrations, the EMRs of those vendors.

Fourth, on the subject of strategically introducing new and enhanced solutions to the market, the Meta transaction was clearly an investment in this strategy. However, we remain committed to bolstering our internal development efforts by investing in the associates necessary to innovate solutions that meet our clients' needs.

At the risk of beating the drum one too many times, I want to reiterate that this company is singularly committed to and focused on improving the financial and operating performance of our clients. That improvement can only be achieved by delivering market-leading technological advancements, which is our soon-to-be released computer-assisted coding solution. This solution is designed to meet the needs of a provider market that is facing the daunting challenge of converting from ICD-9 billing codes to ICD-10 billing codes. This is a staggering and complex challenge as the raw number of billing code options for providers will expand over tenfold. The Meta acquisition was a meaningful step in our commitment to deliver solutions to our clients in the market in general that solve the important and pressing challenges that they face.

Finally, as we have believed for each of the past 6 quarters, we are confident that we are making real and meaningful progress on our pathway to becoming a world-class health care information technology company. However, as I've done in all of our prior calls, I do want to remind everyone that this is a process. The recent acquisition is indicative of the aggressive part of our execution plan, but I can assure you, we will remain true to being measured and thoughtful about how we move this company forward. We are and will continue to make investments required to deliver the results that we have committed to all of our stakeholders, our clients, our associates and our shareholders.

I want to thank our entire team of associates for their hard work, results and support of management’s strategic plans. I especially want to welcome, again, our new associates from Meta. With their help and hard work, side-by-side with our teams in Cincinatti and Atlanta, we will reach our goals. Our financial results continue to improve, the backlog continues to grow and our sales pipeline is very solid, both in terms of dollar value and the quality of the sales prospects.

We have plenty of work left in front of this team. The Meta transaction alone represents a higher order of complexity than the Interpoint transaction of last December, but we will manage this integration test with thoughtfulness, commitment and determination. We remain committed to the process of improving the way in which we run this enterprise as we make significant progress to our goal of becoming a world-class health care information technology company.

This concludes my prepared remarks. We will now open the call for your questions. Operator, please instruct our listeners how to queue up.

Question-and-Answer Session

Operator

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

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

I'm going to focus, if I can, on the go-forward opportunities for the company. Obviously, you've made some acquisitions in the space, and you bolstered your team over the last year or so. And I'm curious, as you look out over the next couple of quarters, and more importantly, over the next couple of years, what kind of cross-selling opportunities you envision with Interpoint and now with Meta Health? And also, given the recent hiring activity, how quickly those resources can get trained on the full product portfolio, if that's the plan? And how quickly they can become productive?

Robert E. Watson

Thanks, Matt. On the cross-selling side, I think we said this in prior calls, that as it relates to the solutions acquired in the Interpoint transaction in December, we expect that particular portfolio of solutions to be very significant for us in terms of near-term growth. And in fact, if you look at our press releases around sales we've announced this year, the bulk of the net new sales opportunities have come from that solution set. We think that momentum will continue to increase as we move into 2013 and 2014. As it relates to the Meta side, clearly, a part of our investment thesis in the acquisition was the ability to cross-sell that solution into our current 65-ish or so Streamline clients, as well as the opportunity, obviously, to sell both electronic content management and our business analytics solutions into the Meta clients. So I think the cross-sell opportunity, bundled with the market where we actually think the net new sales demand right now is particularly strong given the -- not only the complexity of the ICD-9 to ICD-10 shift, but the looming shift in the payment model more broadly in the marketplace are creating an opportunity for us in the analytics area that we think is significant. We did disclose earlier in an 8-K that we felt that the cross-sell opportunity just between the acquired Interpoint solutions and Streamline was in the order of magnitude of $60 million at retail value, which translates into about $7 million to $8 million per year in SaaS revenue. So that was in an earlier presentation. It was filed in, I think, May or June of this year. We're working through the analysis now on what we think the Meta opportunity is from a cross-sell standpoint. As it relates to the resources, on the sales side, our investment in the sales personnel happened early in Q2. We do have to get the associates, sales associates, from Meta up to speed and that will take us 3 to 4 months to cycle them through our training processes. As it relates to the implementation resources and the operational resources, again, we let our hiring occur as we noted in Q2. That process of training those new associates takes, legitimately probably 2 or 3 client implementations for them to be fully up to speed and executing at the kind of productivity levels we'd like to see them in. So it's a process, but I would say by Q1 of next year, our implementation resources we hired in Q2, plus the folks we've onboarded from the Meta transaction should be up to speed. Does that answer your question?

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

Yes, absolutely. That's great. As far as what you're seeing in the marketplace, you know -- your last 2 acquisitions have gotten you into 2 of the fastest-growing markets. And I'm curious, now that hospitals, at least in my opinion, appear to have gotten past the Stage 1 of the Meaningful Use, getting the Epic system or getting the Allscripts system in place, and now they're starting to look at, "Okay, how do we generate some return on this substantial investment?" As you're talking to customers, what -- how are they envisioning the investment in this next step, whether its business analytics or coding software, or anything else that they're looking at? Is this something that they're ready to jump on right now? Or do you think that it's going to accrue over the next few years, it's going to be more of a slower process?

Robert E. Watson

So as it relates to our sales prospects and our current clients, the pace of decision-making on the coding side of the business we think will now begin to accelerate, primarily because shortly after we made the Meta acquisition, like a week afterwards, CMS issued dates for the adoption of the ICD-10 codes, which is October of 2014. That suggests to us that providers need to have their ICD-9 to ICD-10 conversion and their decisions on computer-assisted coding made prior to the summer of 2014 to be prepared, so we think we -- a window here of opportunity is pretty significant. On the analytics side, it's interesting. Forward thinkers in the provider market are moving rapidly in their decision making. You've seen it in ours, I think we've done 5 or 6 transactions this year, which, in terms of net new sales, that's significant for a company of our size. And we think that pace of decision making will continue to be strong. I think when we make the case to our clients and sales prospects that the linkage between electronic content management, coding and analytics, we think that's a very strong marketing message to the marketplace and as well as being frankly different than some of our competitors.

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

Okay, that makes sense. I guess, last one for me and then I'll jump back in the queue. Let somebody else jump on here. But from a financial performance perspective, this quarter, I believe, was pretty much in line with your expectations, at least that is what it sounded like, as well as mine. But going forward, for the remainder of this year, I would expect Q3 -- you talked a little bit about some seasonality, but given the recent Meta Health acquisition, you'll have Interpoint under your belt for a full year, I would expect that there would be a nice pop in the fourth quarter. Is that how you're kind of looking at it as well?

Robert E. Watson

Well, in Q4, obviously, we'll have the benefit of the entire quarter of the Meta revenue. We'll have, at that point, a significant portion of our integration efforts in terms of the high-cost integration efforts. It occurred during the first 60 to 90 days of an acquisition will be behind us in Q3. So we're very encouraged about as we look forward into the end of the year and into the first quarter of next year. In this quarter -- in this third quarter, we'll see the benefit of about 2.5 months of the Meta revenue. On top of that, we'll have the integration cost, on the cost side of the ledger in Q3. But we again, as I said on the call around Meta, other than addressing the top line change in the top line number on a pro forma basis for the year, we're holding steady on our current original EPS forecast for the year.

Operator

Our next question comes from the line of Den Veru of Palisade Capital Management.

Dennison Theodore Veru - Palisade Capital Management LLC

Previously, I know it's too early to tell about the direct integration with Meta -- I mean, how your -- not integration, the -- what you think it's going to do from sales with existing customer. But could you talk more broadly what sort of market share does Meta give you in the New York region? I'm assuming they had a lot more exposure in the New York area since that's where they were headquartered. And what sort of overlap with your existing roster of hospitals does that exist -- does exist there? And I'm wondering if you have enough data points now on how quick or slow the sales cycle is at cross-sell and based on the data points that you're looking at.

Robert E. Watson

Okay. As it relates to shared clients between Meta and Streamline, we actually share 2 clients today, one of those in metropolitan New York. Together, however, and we think this is important, in the metropolitan New York region, we believe that, combined, we have something north of 80% of the hospital beds in metropolitan New York City as clients. Client list, everyone knows that we have -- historically had New York-Presbyterian and Memorial Sloan-Kettering. With our new clients from Meta, we have Long Island Jewish, Continuum, Montefiore all, as you know, Den being in New York are all big names in that market. So we think that is a very significant position for us to have and to maintain, and the opportunities for cross-selling between those client bases is significant because, as in true in any Metropolitan area, the senior executives all know each other across the provider groups, so we think we're in an enviable position as it relates to that. As we look at the time, the cross-selling time frame, what the window is, we had some very early successes with the Interpoint, less than 90 days. We settled in now to a path that appears to be a 6- to 9-month sales cycle, which is 4, 5 or, even frankly, almost a year less than the sales cycle, you might experience in the content management business. I suspect, in the case of the Meta clients, we'll see a couple of near-term quick successes and then settle into something that's probably a 6-month sales cycle. Again, I think the market dynamics are shortening the sales cycle for everybody. When I talked to our competitors, which I talk to regularly too, we're all experiencing some degree of shortening as it relates to analytics and in the coding space. I think now that CMS has put that date certain out there that I mentioned to Matt -- when I was talking to Matt, that having that date certain in ink forces people to make decisions. They have to do it, and they've got to make the decision before the summer of 2014. Is that helpful?

Dennison Theodore Veru - Palisade Capital Management LLC

Absolutely. Any plans to do any sort of -- I know you've got a lot on your plate, but it would be really great for investors to see a site. Could there be an opportunity down the road to take investors, do it at sort of an Investor Day at a hospital or see some of the products as the customers are using. Is that something you've given any thought to?

Robert E. Watson

No. Actually, I haven't, Den. So let me give some thought to that. I mean, it's sort of an interesting idea. It's not something I think Streamline has ever done historically. I do know that some of our competitors have done that. So that's actually a really good idea. I will invest some thought around that, and particularly for those investors in metropolitan New York, we'd clearly pull something together. Likewise, in -- we have pretty significant client concentrations, not only in New York, but now in Philadelphia, where we have 3 of the top 5 health systems in metropolitan Philadelphia's clients. Same way in Dallas and Houston, we have strong concentrations. So there's some -- that's a good idea. Thank you.

Operator

Our next question comes from the line of Frank Sparacino with First Analysis.

Frank Sparacino - First Analysis Securities Corporation, Research Division

I was hoping you could just talk a little bit further around the paper reform as it relates to how that's really impacting your business. So trying to get a sense as or the direct impact, and I would assume that's more of a long-term play just given the ACO's double payments, various forms of payment delivery. Yours just sort of unfold it. Just trying to get a better handle on exactly how that's helping.

Robert E. Watson

Okay, so I did -- actually, your point is well taken. I mean, in the coding side, I think there is a -- the pace is driven by that date certain. On the analytics side, and I think I said this earlier, and if I did, I apologize, and if I didn't, I should have, and that's -- we think the forward-looking, larger, multi-institutional, multiple-care setting providers are preparing themselves for the payment changes they were talking about. So they're trying to get ahead of the curve. As we all know, many of the large IDNs have started to acquire physician practices, additional ambulatory surgery centers, home health care businesses, alternate site delivery mechanisms. And one of the challenges that occurs is that in very rare, very few cases are the financial reporting systems the same across those various entities. So the ability to have an analytic solution that allows you to look across the entire portfolio of your owned assets and your entire portfolio of revenue, we think, is material. And so the buyers we've seen this year have been the more -- the institution is trying to get ahead of the -- where there's going to be an ACO or whatever the market model is going to be for payment, to repair themselves from when those days come. So I think that pace is steady. I think it's -- we'll continue to be a much longer term growth opportunity for us, particularly as we look at the opportunities around clinical analytics, in addition to our current financial analytics solution set. I think it is a longer-term steady growth for us.

Frank Sparacino - First Analysis Securities Corporation, Research Division

Good. And just following up on the coding side of things, it seems like the window is relatively short. I don't know if that's the right word, but there's going to be a lot of decisions in the next 9 to 12 months. And just curious how you -- would you feel like Meta was active in terms of getting into the appropriate sales cycles? Or do you feel like that's somewhat of a frenzy as to how you really make sure you're getting involved in those deals just to make sure you capitalize on that opportunity?

Robert E. Watson

Yes, I think Meta had, by design, a relatively small sales team. And -- but, that being said, they had been in front of their clients and their sales prospects with the computer-assisted coding offering, which is called Collabra, by the way, starting in the first quarter of this past -- of this year. And so there are opportunities in the sales pipeline. And we know, from the research we did among our own clients prior to the acquisition, that some of our clients have made a decision. We saw the pace of decisions be significant in Q1, which sort of drove us down the path to this decision. But many of our clients sat on the sidelines waiting for the CMS decision. We now see the RFP volume accelerating, and we think it will continue to accelerate. Our distribution relationship with FTI, we think, will give us some additional insight into opportunities that our direct sales team will not necessarily be able to source on their own. So we think we've got a couple of opportunities to get our share of that looming market.

Operator

Our next question comes from the line of Joe Mondillo with Sidoti & Company.

Joseph Mondillo - Sidoti & Company, LLC

Real quick, just to follow up. Bob, what was the size of Meta's sales force when you acquired them?

Robert E. Watson

5.

Joseph Mondillo - Sidoti & Company, LLC

5. Also, how many billing codes are there -- out there, roughly?

Robert E. Watson

In ICD-9 today, roughly, we'll call it 10,000 codes of which less than 1,000 are regularly used. In ICD-10, that number of codes go somewhere between 140,000 and 160,000 codes. It is incredibly complex, and an enormous challenge where we believe that a provider, irrespective of the care setting, is not going to be able to effectively and efficiently bill without some kind of computer-assisted coding solution in their technology stack.

Joseph Mondillo - Sidoti & Company, LLC

Okay. In regards to Meta, did they have any relationships with any consulting firms like you guys do with FTI?

Robert E. Watson

They did not.

Joseph Mondillo - Sidoti & Company, LLC

Okay. And I guess, I just -- I got 2 last questions. Any idea on when this new coding software will be released? I'm not sure if you mentioned that.

Robert E. Watson

Q4 this year is sort of our timing for our development partners to receive it.

Joseph Mondillo - Sidoti & Company, LLC

Okay. And my last question. In regards to the churn, are you seeing -- what's the rate? Are you guys seeing any clients leaving because of the Software-as-a-Service or some of the changes that you're making?

Robert E. Watson

No. Actually, quite to the contrary, our renewals continue to be strong. We think our relationships with our legacy electronic content management clients have improved over the last 18 months. We've made a -- going back to my very first call in April of 2011, I stated then, and I've continued to state in subsequent quarters during 2011 and even as we moved into 2012, that we think, for this organization to be successful, we have to be market facing. In order to be market facing, we have to invest in the human capital that allows our associates to get in front of our clients, understand their needs and challenges, and that process helps us understand what solutions we need to have in our solutions portfolio to be able to -- to be a key part of their go-forward IT stack.

Joseph Mondillo - Sidoti & Company, LLC

Okay. And I just have one more. If you could ballpark, what do you think the market opportunity for coding software is? Roughly, what's the size of the market?

Robert E. Watson

It is enormous. If you think that there -- if you look at it just purely at the physical hospital level, let's call it 4,000 reasonable candidates because small hospitals are not necessarily candidates so 4,000 hospitals, depending on what we see in terms of the variability of pricing, let's take at the low end, let's say, on average, $250,000 to $350,000 a year kind of opportunity, those are big numbers on a recurring revenue basis. Very big business.

Joseph Mondillo - Sidoti & Company, LLC

On the pricing, do you guys offer à la carte? Or is it more a package deal?

Robert E. Watson

We think, again, there are, obviously, the opportunities to acquire our solutions on an à la carte basis. We think the power of this solution portfolio that we've put together in the last 18 months gives us the opportunity to deliver to our clients a bundled opportunity, and we think that has value. Now we do know that some of our competitors bundle. We don't have this one opportunity. I mean, the large competitor in the coding space, for example, as we understand it, only sells their coding as bundled within an encoder and some other solutions. We think the ability to deliver it both as a stand-alone and as a bundled solution is important to our market positioning.

Joseph Mondillo - Sidoti & Company, LLC

Okay. Also, did you happen to see Mediware was bought out this morning?

Robert E. Watson

Mediware? No. I was a little busy this morning.

Operator

[Operator Instructions] Our next question comes from the line of Sam Rebotsky with SER Asset Management.

Sam Rebotsky

Bob, you've been very busy. I -- unfortunately, well, I was on vacation and you did a wonderful acquisition, it appears. As far as your backlog, the $32 million, what is the time frame that this could be billed and recorded?

Robert E. Watson

It'll play out over -- on average, it's about 36 months or so on average now. It'll come up as it plays out.

Sam Rebotsky

Okay. Now is there a possibility on the Meta to use FTI also going forward?

Robert E. Watson

No. We suspect so. We had not had a chance to sit down with them yet, but I think that's on the calendar for our sales and marketing team some time in the next couple of weeks to sit with the folks at FTI and relook at our solutions portfolio.

Sam Rebotsky

Okay. I haven't listened to the conference call yet on the Meta, but was there any discussion as far as what the goodwill would be and what the previous sales and profits were on this transaction?

Robert E. Watson

No. There were financial statements filed in the 8-K that were filed shortly after the announcement of the acquisition.

Sam Rebotsky

Okay. And as far as -- did you have a shelf registration to do, $25 million to $100 million, or do you expect to do other transactions? Or what's your thoughts on that?

Robert E. Watson

No. You've asked me this question for every call for the few months I've been here, Sam, so I'll give you the same answer, and I appreciate the question. And as I said earlier, we are very focused on being market facing, and I think being market facing and understanding our clients' challenges and the marketplace, in general’s challenges. It's an important part of what we're doing here, and to the extent that we can invest in the human capital and have enough runway to develop solutions ourselves will go down the development path for certain solutions. That being said, if we see a market opportunity either in our install base, which today is 100-ish clients and over 400-plus facilities, which is a far cry from the 45 and 180 we were at 18 months ago, if we see opportunities in that -- in our client base and opportunities in marketplace in general that we feel like we have an opportunity to address them via an acquisition option, we will go down that path.

Sam Rebotsky

Well, Bob, you've been executing very well, and clearly, I guess, the question is even more opportune now that you just filed a -- this registration, this openness to do $25 million to $100 million, and further that you've done just $12 million just recently. So evidently, you're on that path and I guess, as you get larger, it is easier to integrate into what you're doing and grow the business, and that seems to be where it seems to be going.

Operator

Our next question comes from the line of Mark Cagle [ph], a private investor.

Unknown Shareholder

Let's talk about nTelagent first. Can you give us a short description of their company, the sales group? It seems also like you've got a geographical strategy there because nTelagent's customers are mostly in the Midwest and southern half of the U.S., I think.

Robert E. Watson

Yes, nTelagent is an early-stage provider of a set of solutions. They're at the front end of the patient experience, the front end of the revenue cycle. We think that the challenges that affect what happened on the back end of the payment stream occasionally happen on the front end. And as the payment models change, where there's a significant burden on the consumer, that to the extent that our clients and our net new sales prospects can address that front-end consumer payment issue at the beginning of the admissions process is an important area for us. And that's where the nTelagent folks live and work in that area. So we're happy. The fact that they seem to have a -- they do have a geographic concentration. It's merely a function of where they started. And -- I mean, it's a national-based company, funded by significant, well-known national investors. It's just the nature of who their shareholders are.

Unknown Shareholder

Regarding Meta, do they have offices outside of New York?

Robert E. Watson

No, just New York City.

Unknown Shareholder

Okay, do you envision them operating as an autonomous unit? Or are they going to learn about Streamline products and then they're going to sell everything?

Robert E. Watson

Everything, over time, will be integrated. For the time being, it's one company, it's one portfolio of solutions. People will be cross-trained. We'll leverage our assets. What I mean, in terms of not only our physical assets, but also our human capital, in a manner that gets the best return for everyone.

Unknown Shareholder

Okay. Streamline's products are designed mainly for hospitals. Meta has some nursing homes clients. I believe it was from the announcement. Am I correct on that?

Robert E. Watson

Yes, they do.

Unknown Shareholder

All right. Can Streamline's products be adopted for nursing homes?

Robert E. Watson

The reality is our solutions were designed for health care providers, without regard for the care setting. So the core accessANYware solution is deployable in nursing homes and other non-acute care settings. We have physicians groups using accessANYware, physician groups using OpportunityAnyWare. One of the new clients at Meta is Cancer Treatment Centers of America, which is a non-acute care kind of provider setting. We think all of our solutions need to be designed and available across entire enterprise, irrespective of their care setting.

Unknown Shareholder

Okay. I saw on Meta's website that they have had ICD-10 in Canada since 2003. Is that going to be the same product for the U.S.?

Robert E. Watson

Yes, yes, it is.

Unknown Shareholder

Okay. Regarding distribution, do you still view that as -- is that Streamline's Achilles' heel?

Robert E. Watson

Achilles' heel might be a little strong. Again, this goes back to the first call I did in April of 2011. I think the challenges that face this organization, in 2008 to 2010, were a function of the organization's reliance on GE Healthcare for distribution. We've worked diligently in the last 18 months to build -- we continue to have a relationship with GE. We built a relationship with FTI, which has been very productive. We think the relationship with nTelagent will be productive for us as we look out into Q4 and Q1 and into 2013. And most importantly, we've invested in our sales organization. Today, our sales and account management and marketing organization, which was 3 people in January of this year is a dozen people today. That's a very significant investment for a company of our size. And we've made that investment because we believe that there's market opportunity and that time is right now to go grab that market share.

Unknown Shareholder

Right. Have your replaced that sales guy who left for the -- on the West Coast?

Robert E. Watson

That's Mark.

Unknown Shareholder

Regarding the pipeline, has that grown significantly?

Robert E. Watson

We mentioned this in the prepared remarks, but we're very pleased with the growth in the pipeline. And I want to be -- make it a point here. It's not just about the growth in the dollar value, which is significant as you'd expect it to be when you now have 10 additional or 9 additional resources in the team. You'd expect it to grow. But what I think is very important is that the quality of the pipeline is much better than what we had 18 months ago. I mean, these are organizations that are making decisions. They're in process. We know a decision is going to be made. Are we going to win all of them? No. I mean, that's the facts, right? But we are going to win our fair share of them, and it's quality leads in the pipeline. I think that's very important.

Operator

There are no further questions at this time. I'd like to hand the floor back over to management for closing comments.

Robert E. Watson

Thank you. Thank you to everyone for participating on today's call. In the past 6 quarters, we have taken demonstrable and meaningful steps in implementing our strategic plan. We are focused on delivering results for all of our stakeholders, our clients, our associates and our shareholders. As each day passes, we take steps towards our goal of becoming a world-class health care information technology company. Thank you for your time today. We look forward to talking to you again at the conclusion of the current quarter. Have a good day. Thank you.

Operator

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

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Source: Streamline Health Solutions Management Discusses Q2 2012 Results - Earnings Call Transcript

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