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Edited Transcript of STRM earnings conference call or presentation 23-Apr-20 1:00pm GMT

Q4 2019 Streamline Health Solutions Inc Earnings Call

Cincinnati Apr 29, 2020 (Thomson StreetEvents) -- Edited Transcript of Streamline Health Solutions Inc earnings conference call or presentation Thursday, April 23, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Randolph W. Salisbury

Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer

* Thomas J. Gibson

Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer

* Wyche T. Green

Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board

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Conference Call Participants

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* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Streamline Health Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Randy Salisbury. Thank you, sir. You may begin.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [2]

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Thank you for joining us to review the financial results of Streamline Health Solutions for the fourth quarter and fiscal year 2019, which ended January 31, 2020. And as the conference call operator indicated, my name is Randy Salisbury. As Senior Vice President and Chief Sales and Marketing Officer here at Streamline Health, I manage all communications, including Investor Relations.

Joining me on the call today are Tee Green, President and Chief Executive Officer and Chairman of the Board; and Tom Gibson, Chief Financial Officer.

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

Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information, which may be provided today, as with all of our earnings calls, should be viewed. We therefore submit for the record the following statement. First, statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss. Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K annual report and a proxy statement filed earlier this week for more information about these risks, uncertainties and assumptions and other factors.

As always, we are presenting management's current analysis of these items as of today. Our participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline Health is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today.

Second, we will discuss non-GAAP financial measures, such as adjusted EBITDA. In addition, we are presenting some figures on a pro forma basis as a result of the sale of our ECM business, which we successfully closed on February 24 of this year and announced in a press release on February 25. Management uses these measures to help provide better insight into our financial performance. However, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may utilize in calculating their own non-GAAP measures. To help you compare these amounts on consistent terms, please refer to our website at streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures.

I would now like to turn the call over to Tee Green, President and Chief Executive Officer. Tee?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [3]

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Thank you, Randy, and thank you all for joining us this morning. Before I begin my comments on our fourth quarter and fiscal year 2019 performance, I want to begin by acknowledging the incredibly difficult and dangerous situation our health care provider customers are facing during this COVID-19 pandemic. By putting themselves in harm's way and caring for the hundreds of thousands of our citizens who have been affected by this virus, they are showing us all what it means to be an American and to answer the call to help. Our thoughts and prayers are with all of them.

At Streamline Health, we've taken action to ensure the safety of our team in light of this pandemic. Fortunately, a significant portion of our staff had already successfully transitioned to teleworking following the rationalization of our New York City office space in 2018. And in early March, we transitioned the remainder of our staff to work-from-home status. We are grateful to our team members who remain productive despite this disruption to daily life and continue to support our hospital system customers during these trying times.

From a business perspective, our hospital system customers have, of course, been deeply impacted by the ongoing crisis that they have seen their high-margin elective procedure business replaced by low-margin critical care patients. Customers and prospects tell us their current focus, as it should be, is to treat those patients suffering from COVID-19 symptoms, but they are all well aware of the revenue shortfall this pandemic is creating for their organization and they, like the rest of us, are impatient to see things return to more normal times.

When that happens, they predict there will be a high demand for all forms of health care that have been delayed due to this pandemic, and the need to generate accurate billing quickly and efficiently will be greater than ever. I believe this pent-up demand for elective and other noncritical procedures will provide a significant opportunity for our software solutions and our Auditing Services.

The fact that we have signed about $1 million in new eValuator bookings so far in Q1 of this new fiscal year is a reflection of how critical our solutions are to our customers. At the beginning of this year, we anticipated revenue from our ongoing core business, the suite of SaaS-based tools, including Abstracting, CDI and eValuator, along with our Auditing Services would grow approximately 15% in fiscal 2020 and accelerate at a greater pace of growth in fiscal year 2021. But despite the relative strength of our first quarter bookings so far, we have made the decision to suspend our financial guidance until there is more certainty around the magnitude of the coronavirus effect on our overall economy and for our customers. Given the vitality of our pipeline, which Randy will discuss shortly, we remain encouraged and excited about our opportunities for growth, but believe the prudent approach is to hold off on providing specific financial performance guidance for 2020 at this time.

On our third quarter call, we discussed some key improvements that we want to make to the eValuator product for inpatient, outpatient and professional fee settings. During this period of time, when the COVID-19 pandemic has slowed some of our prospects buying activity, we are focusing our product management efforts on making improvements in eValuator technology. Given the sale of our ECM legacy business, we are in the fortunate position to have the capital necessary to institute these improvements based upon feedback from current clients and prospects as well.

Specifically, our team is working to expand the reporting functionality for both the inpatient and outpatient versions of eValuator and to finish the dashboard functionalities of the software with outpatient module. We are actively soliciting customer feedback and taking action on the recommended improvements that will deliver the most value to clients and prospects alike.

During 2019, our team made great strides in expanding the customer base for our core SaaS-based solutions and in reshaping our cap structure, enabling us to position our company for growth through the successful sale of our legacy ECM business. Today, Streamline is more nimble, highly focused company, providing solutions and services to help our hospital customers better manage the issues in the middle of their revenue cycle. From initial charge capture to bill drop, we believe that the value of our offerings will only increase as the health care industry becomes more complex. Our eValuator customers are helping to seed the value of pre-bill auditing in the marketplace. An industry movement we are focused on leading.

One of our customers, a large academic facility in the West, recently hosted a reference call for another large academic facility in the Midwest. During the call, our customers described many of the benefits they have experienced using eValuator over the past couple of years. She stated and I quote, "The eValuator is the only tool out there that actually provides real-time feedback to the coders." As she said, this feature was what matters most to her, she added, "Our coders work in Epic to code the patient record and then submit it to eValuator through a simple [HL70]. Within 3 to 5 seconds, the record is either synced to billing or returned to the coder for further analysis, which doesn't slow down the workflow at all."

Last fall, this customer conducted a large post-bill audit using a well-known independent auditing services firm. And out of 30,000 cases reviewed by the auditors, they found only 6 DRG changes. Our client gave the lion's share of the credit for this incredible coding accuracy to their use of eValuator. And before you ask, I'll keep you in the loop as to how we fare with this large eValuator prospect in the Midwest. They are listed as a late-stage prospect in our second quarter.

Shifting gears. I want to review some of the top line figures from yesterday's press release. And then, as usual, our CFO, Tom Gibson, will review the numbers in greater detail. We generated $20.7 million of revenue in fiscal 2019 as compared to $22.4 million during fiscal year 2018. I'd like to note that approximately $11 million of 2019 revenue was generated by our go-forward solutions. The revenue decline was primarily the result of our now exited legacy ECM business and lower volumes from our perpetual sales. I believe that in a stable business environment which I know we all hope to see in the very near future, our company would be able to generate revenue growth from our go-forward solutions of approximately 15% this year.

For the fiscal year, 76% of total revenue was recurring compared to 80% of total revenue in fiscal 2018 due to the relative strength of our Audit Services business.

Our fiscal 2019 adjusted EBITDA was $3.1 million, up 7% (sic) [8.4%] compared to $2.9 million in 2018. We closed the year with $1.6 million of cash and cash equivalents. However, the sale of our ECM business resulted in an additional $5.4 million in net proceeds, upon closing and funding on February 24, 2020, that added to our cash balance at the beginning of this new fiscal year.

The sale of our ECM business will continue to add cash beyond the date of closing, including the escrowed funds that will come to the company in May of 2021. But like many other public companies, we have followed, with great interest, our government's effort to provide financial assistance to keep our associates employed. Early last week, in concert with Bridge Bank, we successfully completed and submitted our PPP application. We were notified 2 days later that our application was approved. We are awaiting confirmation of receipt of these funds which I'm sure you all know are mostly a grant as long as we keep our employees in the small amount of debt at an attractive and very affordable 0.5% to 1% interest rate. We will provide an update on these funds as we know more.

Turning our attention now to sales. You may recall that at the beginning of the fiscal year in early February, we expanded Randy's role to include Chief Sales Officer in addition to his chief Marketing Officer responsibilities. Randy has been a leader inside Streamline since 2014 and has been responsible for all client relationship management during that time. He also developed our brand positioning for eValuator and the corresponding sales tools that we continued to refine for our team. Randy is directly responsible for some of our most significant client contracts to date across the business. When we were evaluating our company after determining the path forward for ECM, it was clear that he was the right sales leader for our newly formed growth business.

Now I'd like to pass the mic back to him for an overview of our current sales effort and what he's seeing on the ground. Randy?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [4]

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Thank you, Tee. In 2019, we closed about $9 million of new bookings from our core ongoing business, which includes our SaaS offerings and Audit Services. We had previously announced on an ongoing quarterly goal of $2 million to $3 million of new bookings of all of our solutions. And on average, we met the lower end of that range. As I see it, when we talk about growth in 2020 and beyond, we are primarily talking about eValuator sales. However, entering this fiscal year, I have also challenged our sales team to be more proactive in seeking out Auditing Services opportunities. We have an excellent reputation in the industry with long-tenured auditors, and these Audit Services clients are given an opportunity to see firsthand the power and benefits of our eValuator technology.

Looking at our first quarter bookings performance to this point, we closed a number of modest-sized Audit Services deals, which I believe will increase in size during the course of this year. And even with the extraordinary impact of COVID, which began to affect our ability to get new meetings beginning in about mid-March, our sales team generated approximately $1.3 million in bookings thus far in Q1. And again, more importantly, $1 million of that total is from a new eValuator client.

I'm pleased with the effort and attitude of the entire team, and I believe we'll see acceleration in deal closings in the coming quarters as the COVID-19 pandemic recedes and as Tee mentioned, these elective procedures return. I'm also pleased with the strength and vitality of our sales pipeline of eValuator prospects. We expect that new accounts will be slower to close in the current environment, but our team remains engaged and highly motivated, and the value of our products, especially eValuator, is more relevant than ever as they see intense margin contraction for Tee's earlier comments.

I mentioned we've experienced a slowdown in our ability to get some new sales meetings. More specifically, to date, about a dozen prospects out of a total of about 85 in our pipeline have asked us to delay further conversations for a few weeks to a month as they work through their most pressing needs, while adjusting to working from home. But given the pipeline strength, both in terms of potential deal size and in the total number of opportunities, we believe future quarters can meet or exceed our established targets of $2 million to $3 million in bookings per quarter when the business environment begins to improve.

I'll be available for questions and answers following our prepared remarks, but for now, I'd like to turn the call over to our CFO, Tom Gibson, who will review the financial results for Q4 and fiscal year 2019 in greater detail. Tom?

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Thomas J. Gibson, Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer [5]

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Thank you, Randy, and good morning to everyone on the call. The company has built on the initiatives reported to you in the third quarter. These will be highlighted first as it is critical to the financial results for the fourth quarter ended January 31, 2020. These include the capital raise, the related redemption of our preferred shares that was completed in the third quarter, finalizing our new banking relationship with Bridge Bank and the sale of our ECM assets that closed and funded on February 24, 2020. These had to occur in the order that they did and in a very short period of time. I am proud of our teams for executing on these critical initiatives. I believe this supports the company's embrace of velocity and execution into our culture.

The company successfully completed its new banking relationship in the fourth quarter of 2019 with Bridge Bank. While the company paid the term loan upon closing the sale of the ECM assets, the company will continue to have access to the revolving credit facility that is based upon our accounts receivable. This will provide the company with an inexpensive fallback to our cash balance that is expected to finance the company for 2 years or more. And of course, as Tee mentioned, we anticipate receiving PPP funds in the not too distant future.

As previously announced, the company closed and funded the sale of the ECM assets on February 24. This sale represents one of the last moves that was required to achieving its ultimate goal of becoming a fast-growing health care technology company focused on the middle of the revenue cycle. The sale of the ECM assets will free the company from its legacy-based revenue stream that was atrophying every year.

Beginning with the first quarter of 2020, the company will report the ECM business as a discontinued operation, which will eliminate this revenue base and related costs from current and prior periods. This will remove the revenue stream for ECM from the GAAP financial statements and show the appropriate amount of growth from the remaining solutions and services. We are all very excited about executing on this last key initiative and how it positions the company to achieve an accelerated rate of growth going forward.

Now let me turn the company -- to the company's operating performance for the fourth quarter ended January 31, 2020. As announced in yesterday's press release regarding our performance for the fourth quarter and for the full 12 months of fiscal year 2019, we generated revenues of approximately $4.8 million, down approximately 17% sequentially and down approximately 12% from the fourth quarter of last fiscal year. The shortfall to prior periods was lower perpetual sales and lower revenues from the ECM business.

Total revenues for the 12 months of fiscal year 2019 were approximately $20.7 million, down 8% from $22.4 million in the same period last year. The reduction in annual revenue, again, was related to a lower revenue of the legacy business and lower contribution from perpetual revenue, which we have historically generated from a select few client or partner relationship. It is worth noting that the company's revenue is within the range of guidance provided in the second quarter of 2019.

Turning now to bookings in the fourth quarter. As Randy stated, the company has publicly announced a target of between $2 million and $3 million in bookings per quarter. The bookings for Q4 2019 were $1 million, which was lower than our target. As stated in previous earnings calls, our Q2 2019 bookings comprised of $3 million of eValuator represents a pace of go-forward revenue contribution that can help us add substantial revenue to our company, a recurring technology revenue base. The bookings for Q4 2019 included a $400,000 eValuator upsell deal. That upsell was on one of the 3 deals that closed in Q2 2019. The hospital system, we're seeing value in our technology and expanded our relationship within their facilities. That is significant to our models going forward. An upsell can be implemented quickly and has little upfront cost to the company.

Recurring revenues were 84% of total revenue for the fourth quarter, higher than the 67% from the third quarter of this year but lower than the 86% from Q4 of last fiscal year. Ending the fiscal year at a higher recurring revenue percentage supports the top line revenue growth model for fiscal year 2020. Recurring revenue for fiscal year 2019 was 76% of total revenue, basically in the same range as fiscal year 2018 recurring revenue, which was 80%.

Moving now to adjusted EBITDA. We generated $480,000 in Q4 of 2019 as compared with $1.3 million in Q3 of 2019 and $1.1 million in Q4 of last fiscal year. Adjusted EBITDA for fiscal year 2019 was $3.1 million, up 7% (sic) [8.4%] from $2.9 million of last fiscal year. Some of this favorable EBITDA on lower revenue is the direct result of our successful cost savings initiative we completed last year. That initiative is continuing to have a positive impact on operations. The company's cost containment measures were certainly prudent given the lower sales volumes.

The company incurred $1.4 million in nonrecurring operating expenses for the fourth quarter and a total of $2 million for the full 12 months of fiscal year 2019. The components of the nonrecurring costs are the previously announced executive transition cost of $800,000, a previously announced head count rationalization of $400,000, transaction expenses on the sale of the ECM assets of $600,000 and $200,000 in cost associated with the correction of the immaterial error on amortization of capitalized software development costs to report the third quarter 10-Q. Of these costs, the head count rationalization was completed at the end of the company's fiscal year in an effort to better align its go-forward cost with revenues. The company is always reviewing opportunities to be more efficient with its personnel and back-office cost.

Additionally, the company recorded $70,000 and $309,000, respectively, of interest expense for the fourth quarter and the full year of fiscal 2019 compared with $52,000 and $384,000, respectively, for the same periods last year. Lower interest cost was achieved primarily by deferring higher interest amounts to our capitalized software development assets.

Turning now to other areas. The company recognized $1.1 million in Q4 2019 and $2.4 million for the 12 months of fiscal year 2019 of noncash depreciation and amortization compared with $588,000 and $2.9 million in comparable periods of fiscal year 2018. In addition to normal recurring amortization from the company's capitalized software development, the company included an impairment charge of $354,000 for projects that were canceled during the fourth quarter of 2019.

Finally, the company has accelerated completion of projects that are in inventory under the agile method of development. The company has added tighter discipline to its development procedures by limiting the starting and completing of projects to within one or two 3-week spreads. This should result in higher amortization in future periods for capitalized software development.

The company also recognized $934,000 and $629,000 of share-based compensation for fiscal 2019 and 2018, respectively. As discussed in the third quarter's earnings call, the share-based compensation continues to trend higher compared to the same period a year ago because of certain actions initiated by the Board to secure its executive team and the hiring of our CEO.

Moving to the balance sheet. We finished the quarter with approximately $1.6 million of cash on hand compared to $1.2 million at the end of the third quarter. The company invoices approximately $5 million in and around November of each year for annual licenses to certain legacy products. Those legacy invoices are collected in January and February the following year. What is left is a company that uses cash specifically in the late summer months and early fall. Substantially, all of these seasonal paying customers are from the ECM business that was sold on February 24 of this year.

Beyond operations for the fiscal year 2019, we invested $3.4 million into the capitalized software development asset, primarily new functionality for our key client solution, eValuator. This is comparable to the $3 million in fiscal year 2018. The continuation of this spend and development of the eValuator platform was being essential to expand our sales velocity through expanded capabilities for inpatient and outpatient modules. We are also continuing to develop the product with improved dashboards to increase user functionality and satisfaction.

The company continues to have flexibility with the investments we make into our software, both the timing, nature and type of spend. It is worth noting that in the company's MD&A disclosures, total research and development costs are going down. This is the result of more costs proportionately being capitalized into software development. The company has reduced head count and refocused its R&D efforts around the company's fewer ongoing solutions, while less effort is being attributed to older legacy solutions.

During the fourth quarter, the company made no payment on the term loan as it was principal-free for the first 12 months. The term loan balance was $4 million when we closed with Bridge Bank on December 12, 2019. The company did not draw on the revolving credit facility during the fourth quarter.

As mentioned by Tee, the company is not offering guidance due to the uncertainty based on the effects of the novel coronavirus. However, we did want to provide measures to help our investors understand the size and shape of the go-forward Streamline Health company. The company will report ECM revenue as a discontinued operation in fiscal 2020, and it will impact all prior periods.

Looking back upon fiscal year 2019, on a quarterly basis, think about revenues as $3.0 million, $2.3 million, $3.3 million and $2.5 million for each of Q1, Q2, Q3 and Q4 2019. This totals fiscal year 2019 base of $11 million.

For fiscal 2020, think in terms of the company's revenue beginning in the range of $2.4 million to $2.8 million per quarter and growing from that level on a quarter-over-quarter basis. For fiscal year 2020, as previously reported, the company projects to have negative adjusted EBITDA of not more than $1 million. The company's cash balance at the end of fiscal 2020 is projected to be in the $3 million range without drawing on its revolving credit facility. The company continues to project that it will begin generating cash flow from operations by the third quarter of 2021 without requiring additional financing or drawing on its line of credit.

Again, these are not intended to be guidance numbers. Rather, they are intended to help our investors size our company on a go-forward basis. The company will provide guidance as soon as there is more certainty around the timing of the return of our economy as it relates to COVID-19.

That concludes my remarks. But before I turn the call back to Tee, I wanted to reiterate that I am very proud of our team's accomplishments over the last few months. We are realizing a new culture of velocity and execution, and I am confident you will hear that as a recurring theme in future releases about our company. Tee?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [6]

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Thank you, Tom. Our leadership team now has an internal code word for our company, and that is Newco because that's what we believe we are. A new company that has moved beyond its legacy business and is now laser-focused on selling SaaS solutions to health care providers to help them with the middle of their revenue cycle. We believe if we can help our customers do a better job in the middle of their revenue cycle from charge capture to bill drop, their need to focus on the back end of the revenue cycle, especially denials and accounts receivable, will be minimized.

As this Newco, we are committed to building a world-class customer success organization with lots of happy clients who provide the needed references to increase velocity in our sales efforts. To have happy clients, we need to have world-class SaaS solutions like eValuator that meet and exceed our customers' expectations. And to ensure we have that, we are building a world-class product management team with top level research and development talent to keep eValuator ahead of the curve by designing today what the market will need tomorrow.

I am grateful to our team members who have remained diligent in the face of tremendous upheaval to their daily lives and who remain committed to ensuring that our hospital system customers have the tools they need to minimize the time they spend on administrative activities so they can maximize their clinical time. We have a unique offering that is gaining traction in the marketplace. And I know we will continue to lead our industry's movement toward the use of cloud-based, pre-bill coding analysis technology.

Thank you all for your support of our company and for sharing our vision. I would now like to open up the call for questions, and will turn the call over to the operator. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Matt Hewitt of Craig-Hallum.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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Maybe the first one, what was the ECM contribution in Q4? Do you have that, Tom?

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Thomas J. Gibson, Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer [3]

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No, but I'll look for it real quick, Matt. Do you have other...

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Okay. Well, maybe while you're looking for that, a broader question regarding the current environment. With the coronavirus, hospitals shutting their doors to nonessential procedures, salespeople can't get in, obviously. You talked about this a little bit. But as you look over the coming weeks, as some states, including your own, Georgia, where they're starting to relax some of those restrictions, how quickly do you anticipate being able to get in there, have those meetings and ultimately close on some new wins?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [5]

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Yes. Matt, this is Tee. I'll start, thanks for the on, then I'll let Randy maybe follow it up. But obviously, we're having a lot of conversations with health systems and CEOs around the country. And I think one of the key things that we're looking at region by region, state by state, in some cases county by county, but it's when elective surgeries are put back on the books. I think that's a key measurement or a key data point for us to say when that starts happening, these systems are going to begin opening up. And there's obviously, what, 5 weeks of pent-up demand. So we think once it opens, this is going to accelerate quickly, provided there's not a bounce back of the virus. But -- so assuming that's going to be the case, I think, one, we're having a number of conference calls and video calls, interesting enough, people are getting used to that. And so we're still seeing demos take place. We're still seeing contracts being sent across the wire, so to speak. And so -- but as far as, at least in a dozen or so states, I think you could see in the late May, early June time frame, some of these deals actually closing. So at least that's what it feels like. I don't have any -- certainly not guaranteeing that. But Randy, do you want to follow that up?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [6]

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Yes. Sure. Matt, I think I saw that the state of Texas announced yesterday that they're going to start allowing elective surgeries. And what we're hearing anecdotally from prospects, there's one in Ohio that we're pursuing that it said, "Boy, I wish we had eValuator now." And the reason was that, a, it is a great tool for those that are no longer working in the office. Our dashboards and our reports allow virtual management better, right, because of the daily reports to say, what's the accuracy of my coders? How busy are my auditors? What's the output? But past that, the other item is that we're hearing stories about how revenue is being cut by up to 50%, in some instances greater. So obviously, they're being squeezed for cash. And they know that once electives come back, they got to capture every penny that's accurate and is due them. And that's part of our go-forward pitch is, "Don't wait, don't make mistakes on your coding and billing once this happens and have it all slowdown in the back end. Do it right the first time." And that's kind of what the vernacular promise of eValuator is, it's do it right the first time. So I think that's echoing well. And to Tee's point, we're still doing plenty of demos. We've been doing virtual demos for a while. And I think you'll find that, hopefully, we'll get closures here in Q2 from some of the guys that were closed in Q1 and in March and early April said, "Hey, guys, we -- I got to focus on other things in the near term."

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [7]

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Understood. Okay. That's great. And a silly question, are there codes -- specific codes for coronavirus? Or does that -- just treating these patients that are coming in right now, does that create issues in and of itself?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [8]

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Yes.

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [9]

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Go ahead, Randy.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [10]

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Well, there are codes for the virus in early April. The CMS put new ones out. It's not enough. What happens is once you get into intensive care, the amount of reimbursement is nowhere near what is necessary. So it's putting them in a pinch. But I think more than that, Matt, it's -- more than half of their business has just been stopped, right? And a variety of practitioners have been asked to stay away from the hospitals, and they're not even working, ophthalmologists and on and on and on. So that's what we're waiting for to come back to say to our middle of the revenue cycle folks, you're going to see a bolus, a group of bills coming out quickly now and you got to get them right and you got to get them paid.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [11]

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Okay. That's helpful. And then maybe one last one for me. As we look at the current pipeline, would you say that -- obviously, given the current environment, it makes it challenging. But would you say that, that even despite the coronavirus that you've seen that pipeline continue to build, even if you're not necessarily getting contracts to the goal line, but the pipeline itself has continued to build and it gives you confidence as we get into maybe the back half of fiscal '20 that as things potentially start to open back up, the larger pipeline is resulting in a larger conversion rate?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [12]

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Yes. Randy, I'll let you take that, but I'll start by saying I think what some of this has done is truly highlighted the need for eValuator. And I think as this thing accelerates when elective surgeries and the like come back online, I think the last 5 weeks, I wouldn't say, Matt, that our pipeline just accelerated because, one, it was fairly large going into this thing. But two, what it has done is allowed that pipeline to become more qualified, I guess, is the word I would use. So Randy, do you want to follow that up?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [13]

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Yes. I would agree with that, Tee. And by qualified, it means if you're staying in touch with us, Matt, and working through appropriate go-forward dates, meaning if we were supposed to have met 2 weeks ago but they needed to delay it, we stay in touch, obviously, but they're picking the ball up again, saying, "Hey, how about we meet now on May 10 or whatever it might be?" And that's more -- they're seeing it. The guys that were very close to what I would have told you we would have signed by end of this quarter, I think are just going to roll over 30 to 60 days, the ones that we're really at the bottom of the funnel. But to your point, Matt, there are -- I mean every day -- not every day, every week, I see more new opportunities opened in sales force, which means they've moved beyond Stage 1. And a number of the ones in the pipeline today, Matt, are dramatically higher than our current average. And higher than the average we've discussed with you and everybody else publicly of, in round numbers, about $300,000 a year for 3 years. There's a number of them in the pipeline that are substantially higher than that as larger organizations see the value of this, including the one Tee mentioned in his comments from the Midwest.

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Thomas J. Gibson, Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer [14]

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Matt, this is Tom, again. We generated $2.1 million of revenue from ECM in the fourth quarter. And we generated $1.4 million of adjusted EBITDA from ECM. That is on a direct cost basis only and does not include the rationalization that we did beyond these employees that moved to Highland on February 24. But yes, you're looking at $2.1 million top line and $1.4 million adjusted EBITDA.

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Operator [15]

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(Operator Instructions) Our next question is coming from Brooks O'Neil of Lake Street Capital Markets.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [16]

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A lot of information, we appreciate all of it. I was hoping you guys could talk just a little bit about the implementation time line for eValuator so that we can get a sense of kind of how long it will take for the installation of the system and revenue recognition for you guys from new orders coming in?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [17]

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Yes. Thanks, Brooks. Good question. Fortunately, we have an incredible technology platform. So deploying the technology is pretty easy because of the architecture and the SaaS nature. So it becomes more about getting the data flowing into the platform and then the training of the end users. So we look at it from contract signing to go out building in about 60 days. It can go faster depending on the client, but...

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [18]

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Sure. Could you guys talk just a little bit about some of the specific focus of your R&D initiatives and the things you think will -- you can add that will significantly improve the functionality or user friendliness of the system?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [19]

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Yes, there are several things we're working on. But I would say, structurally, the most important thing we've done in -- over the last couple of quarters is put in place a product management organization that drives the functionality of the platform, which historically had not been the case. So we have a much more funneled approach in what comes out of the R&D organization, which -- that streamlines a tremendous amount of work and creates efficiencies and kind of -- we know which way we're going. So -- but if you look at -- we have the outpatient dashboards, we have advanced reporting, we had some architectural things inside the value-added platform that we've made more sound and more scalable. So those are some of the big items. But I would say the reporting side of it and the dashboards are going to be the biggest things that our clients are going to see over the next quarter.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [20]

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And is it sort of recognizing the structure of many integrated delivery systems today? I assume these companies -- these hospital systems need maybe 3 big components, right? They need hospital billing, they need outpatient billing and then they need physician billing. Do you guys offer all of that?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [21]

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The inpatient and outpatient, yes, and the prophy side of it is something that's on our road map.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [22]

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Okay. Cool. And then maybe just 1 or 2 more quick ones. Randy or Tom, I know you guys aren't providing guidance here, and I'm not looking for guidance. But I was curious if you have a rough guess of what the split might be between the eValuator and the auditing business going forward?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [23]

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Yes. Tom, do you want to take that or you want me to?

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Thomas J. Gibson, Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer [24]

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Yes. Let me give some color and then you can come on top. So our strongest revenue base going forward is going to be CDI and Abstracting. It will probably be in the neighborhood of 60% to 70% of our revenue base. And then Audit Services will contribute 20-ish percent, maybe a little bit stronger. And then the eValuator will be a smaller piece or what's left there for fiscal 2020.

But the thing to keep in mind is that eValuator, the way -- it's a SaaS model. And so every time we make one of these sales, it adds incrementally, but it stacks. So the 3 that we sold in fiscal 2019, Q2 of fiscal 2019, which had about $1 million of ACV only -- we only recognized a very small portion of that in fiscal 2019, but we will get all of that in fiscal 2020. So you can see how those stacking of the revenue is going to have a big impact going forward.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [25]

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Yes, that's great. One last one I had -- oh, Randy, go ahead, sorry.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [26]

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I was just going to add that I think what we're finding, at least I'm finding early in Q1 with the sales team, there is a lot of opportunity to add new Audit Services clients but most of those first contracts books are modest. They're -- I haven't worked with you before. Let me do something smallish, see how it goes, and then we can grow from there. As compared to kind of a standard eValuator contract, which in round numbers is around $300,000 a year for 3 years, pure SaaS. So I think what will happen is, God willing and the creek don't rise, very quickly, we're going to find the eValuator revenue building quickly and usurping the revenue contribution of our Audit Services pretty quickly. It's because of the size and the build, but I don't want to diminish the fact that these new Audit Services clients, I think, are very important first steps to having them see the value of eValuator and choosing to use it themselves.

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Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [27]

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That makes a lot of sense. I was hoping, and I apologize for this, have you went through all the various, I think, largely nonrecurring fourth quarter expenses related to the transactions and the refinancing and stuff? Is it possible for you to give us one summary number for kind of the nonrecurring expenses from Q4, just so we can think about how things will look in 2020 a little easier?

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [28]

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Tom?

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Wyche T. Green, Streamline Health Solutions, Inc. - President, CEO & Chairman of the Board [29]

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Tom is maybe on mute.

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Thomas J. Gibson, Streamline Health Solutions, Inc. - Senior VP, CFO & Principal Accounting Officer [30]

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Sorry about that. Thank you, Tee. Yes. We summarized that, of course, in our reconciliation of EBITDA. And I think you're thinking about a number of about a $1.5 million nonrecurring expenses for Q4.

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Operator [31]

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This brings us to the end of our question-and-answer session. I would like to turn the floor back over to Mr. Salisbury for closing comments.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - Senior VP and Chief Marketing & Sales Officer [32]

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Thank you, and thank you all on the call this morning, again, for your interest and support of Streamline Health. If you have any additional questions or need more information, please feel free to contact me at randy.salisbury@streamlinehealth.net.

We look forward to speaking with you all again in June when we'll discuss our first quarter 2020 financial performance. Good day.

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Operator [33]

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Ladies and gentlemen, thank you for your participation. You may now disconnect or log off the webcast, and have a wonderful day.