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Edited Transcript of STRM earnings conference call or presentation 10-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Streamline Health Solutions Inc Earnings Call

Cincinnati Apr 11, 2017 (Thomson StreetEvents) -- Edited Transcript of Streamline Health Solutions Inc earnings conference call or presentation Monday, April 10, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David William Sides

Streamline Health Solutions, Inc. - CEO, President and Director

* Nicholas A. Meeks

Streamline Health Solutions, Inc. - CFO and SVP

* Randolph W. Salisbury

Streamline Health Solutions, Inc. - CMO and SVP

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Conference Call Participants

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* Kyle Davis

CG Capital, Research Division - 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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Good day, everyone, and welcome to the Streamline Health to report fourth quarter and fiscal year 2016 financial performance conference call. Todays' conference is being recorded. At this time, I would like to turn the conference over to Randy Salisbury, Senior Vice President and Chief Marketing Officer for Streamline. Please go ahead, sir.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - CMO and SVP [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-end of 2016, which ended January 31, 2017. As the conference call operator indicated, my name is Randy Salisbury, a Senior Vice President, Chief Marketing Officer here at Streamline Health I manage all communications, including investor relations. Joining me on the call today are David Sides, our President and Chief Executive Officer; and Nick Meeks, Senior Vice President and 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 the release, you can retrieve it from the company's website at 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 for more information about these risks, uncertainties, 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. And 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. 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 reach using their own non-GAAP measures. To help you compare these amounts on consistent terms, please again 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.

With that said, let me turn the call over to David Sides, President and Chief Executive Officer. David?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [3]

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Thank you, Randy, and good afternoon, everyone. Today, I want to comment on our fourth quarter and year-end performance. After which, I will share some of our thoughts and plans for fiscal year 2017. As released earlier today, for the fourth quarter of fiscal 2016, we generated revenues of approximately $6.4 million, which is the same as Q4 a year ago. Recurring revenues were 82.7% of total revenue for the fourth quarter, down by 1.6 percentage points over 84.4% in Q3, driven by the acquisition of Opportune IT in September 2016.

For the fiscal year 2016, we generated $27.1 million in revenue, which was within the range we provided in our third quarter earnings call last December and down approximately 4% as compared to $28.3 million in revenue in fiscal year 2015. As stated in our third quarter call, the reasons for the 4% decline were the lower year-over-year contribution of perpetual license revenue from one of our larger reseller partners and the loss of 2 months of revenue from our former patient scheduling solution following the divestiture in early December. Previewing my later remarks on 2017 expectations, I attended a meeting last week with our largest channel partner, and I'm excited by the possibilities of that relationship for the second half of this year and beyond.

Turning our attention now to professional services. Revenues were approximately $526,000 in the fourth quarter, a decrease of approximately 9% over same quarter a year ago and approximately $2.4 million for the fiscal year 2016, an increase of approximately 8.3% over fiscal year 2015. I stated last quarter that we believe our bookings for fourth quarter of 2016 would continue to be strong as our investment in sales and marketing begins to take hold. I'm pleased with the $2.9 million we booked in the quarter, especially given that the bookings were almost exclusively software sales. We also are seeing interest in each of our solutions with the bookings in the quarter covering at least one instance of every solution we sell in the coding and auditing arena, from abstracting to CDI to our new coding audit service suite.

Adjusted EBITDA for the fourth quarter was $533,000, up approximately 13% from $472,000 in the fourth quarter of 2015. Adjusted EBITDA for the fiscal year 2016 totaled $2.9 million or approximately 11% of revenue, a slight improvement over our fiscal year 2015 adjusted EBITDA of $2.8 million just under 10%.

In GAAP terms, our net loss for the fourth quarter was $1 million and $5.2 million for the fiscal year. This compares to last year's performance when our net loss for Q4 was $1.4 million and $4.3 million for the fiscal year. Nick Meeks, our CFO, will address these items more specifically in his prepared remarks coming up in a few minutes.

Looking at our overall financial position. I believe we made great progress on our objective to continue strengthening our balance sheet and improve our operational efficiency while continuing to invest in the development of key solutions we believe fit urgent market needs. Reducing operating cost, generating incremental cash flow and reducing our level of bank debt is something we focus on every year.

A comparison of our year-end metrics from 2015 to 2016 makes this point. In fiscal year 2016, we reduced our term loan by $2.8 million, from $8.5 million at the end of last fiscal year to approximately $5.7 million at the end of this fiscal year. We maintained cash on hand at level similar to that of our bank debt while buying an audit service company and selling our patient scheduling solutions.

Additionally, cash from operations was $1 million, down from $5.9 million at the end of 2015. Cash profitability decreased by approximately $0.5 million year-over-year as we invested in sales, while the majority of the reduction came from our outsized improvements we were able to harvest from working capital in fiscal year 2015. Our adjusted EBITDA increased modestly to $2.9 million even as our revenue declined in 2016 for the reasons that I mentioned earlier.

The strengthening of our financial performance continues to provide us with the ability to be active in the marketplace regarding strategic acquisitions. When we find the right asset or assets, augment our vision of helping health care providers optimize their revenue cycle, we will explore opportunities to add those solutions to our offerings. The strategic shift via acquisition and divestiture we made in the second half of last year has sharpened our focus on the middle of the revenue cycle. This is where we believe our primarily decision makers, CFOs, HIM directors and revenue cycle directors, are highly focused. Our services and software can help any health care provider and these decision makers transform their revenue cycles into revenue streams.

Let me give you an example of what our clients and prospects face in today's health care environment and the opportunity these create. Accuracy in billing codes, especially following the transition to ICD-10, is impacting provider revenue intake in a meaningful way. Industry data suggests that back during the days of ICD-9, hospitals averaged nearly 95% accuracy for their inpatient coding performance. However, the transition to ICD-10 led to a nearly ten-fold expansion in the number of codes available for patient records. Through the second quarter of last year, the average accuracy per hospital for inpatient coding dropped to just 84.9%. The national coding contest facilitated by Central Learning found that the post-ICD-10 accuracy rates may be far lower, more like 55% on average for inpatient coding. In one sample of low coding accuracy resulted in an average of $1,877 lost per inpatient case. For a facility with 30,000 discharges per year, this represents $56 million in potential lost revenue.

Coding inaccuracy contributes to revenue loss, both by neglecting to include chargeable medical services and by increasing the likelihood of a denial or delay for the claim. As many as 1 in 5 claims is denied or delayed, which can equate to as much as a 3% dip in a health care provider's revenue stream. A $1 billion institution therefore loses or delays receipt of upwards of $30 million annually. Recent data suggest that coding accuracy plays a material role here. For example, the Centers for Medicare & Medicaid Services, CMS, reported that 10% of Medicare fee-for-service claims submitted are denied with 22% of those denials resulting from invalid codes or incomplete or invalid information. We're talking real money here, and one can better understand the pressure our clients and prospects are under.

Our solutions can help our clients better avoid these revenue losses. Take our new eValuator solution. By running every claim coded through Streamline Health's eValuator prior to transmission, the health care provider can add an entirely new level of automated coding review to identify errors and with the speed and accuracy of automated software versus human eyes. If eValuator determines the record contains a potential error, it provides a detailed narrative on the error identified and the recommended corrections to the coding or audit staff in order to expedite coding review, edits and billing. This can help assure a client's management team that the charts are accurately coded. And the solution continues to get smarter over time as underlying rule set is continually updated both for new coding releases and to broaden the scope of potential errors discovered. We think this is a real differentiator for us in the marketplace.

We also have the opportunity to offer our eValuator solution with our base coding audit services package, which includes our coding opportunity report engine or CORE, audit workflow technology and our coding audit services. In fact, the pathway to market for eValuator is to initially provide clients with the base coding audit services package and then to upgrade them to eValuator as an additional solution. Hospital systems today have tens of thousands of patient bills annually, often with a highly manual review process. We can help them improve the handling of every one of them.

We envision a future where hospitals everywhere can turn tangled revenue cycles into dynamic revenue streams from charge capture to bill drop, unbroken streams of revenue that are carried by connected systems and workflows driven by analytics that get continually smarter. Our clients and prospects need to keep pace with the increasing complexity and sophistication of medical science and the information captured around care. This means we need to help hospitals master the exponential growth in codes used to classify diagnosis and treatment and help them work around the scarcity of coders skilled at translating intricate patient encounters into accurate bills. We provide seamless workflows that help bridge care through to billing. We help automate routine activities that invite mistakes with adaptive technology that stays a step ahead of regulatory requirements and clinical innovations.

Our services and solutions help hospitals ensure that their clinical data is accessible for coding and billing with technology like Abstracting; that the data is complete using our clinical data documentation improvement and Physician Query software; that it's as accurate as possible, relying on our CORE and eValuator technologies and that they are continually improving by virtue of feedback from our analytics and learning from providing coding audit services. This improved focus and simplified message will appear on our new website later this month and will be the backbone of all of our marketing and sales presentations and communications going forward.

I will now turn the call over to Nick Meeks, who'll provide greater detail on our financial results for the quarter and year. Nick?

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Nicholas A. Meeks, Streamline Health Solutions, Inc. - CFO and SVP [4]

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Thanks, David, and good afternoon, everyone. As always, allow me to begin by thanking my own team, the whole of Streamline and our auditors for a smooth reporting effort.

Beginning with income statement, David already covered revenue and EBITDA. I would add first that beyond stock-based compensation expense, EBITDA was further adjusted by approximately $250,000 in expenses related to strategic transactions during the year. With respect to the expense structure, I wanted to highlight that while overall SG&A expense decreased by nearly $400,000, that represents a decrease of approximately $800,000 on the general and administrative side and an increased investment of $400,000 on sales.

During the third quarter call, I mentioned the expectation that there would be a noncash write-off related to the sale of our scheduling assets. The magnitude of that adjustment was approximately $238,000 in the fourth quarter. The approximately $5.2 million net loss for the year was driven primarily by the approximately $7.2 million of depreciation, amortization and stock-based compensation expense recorded during this year.

Moving on to the balance sheet. We finished the year with approximately $5.7 million of cash on hand after reducing our debt by $2.8 million and paying $1.4 million for the Opportune IT acquisition. We also closed out all, save one, of the non-real estate leases during the fiscal year, and we will eliminate the straggler during the year upcoming.

On the cash flow statement, as David mentioned, we generated $1 million of cash from operations through the year, netted against a $1.8 million use of cash in investing and a $3.4 million use of cash in financing, the latter being predominantly early debt retirement. While we were not able to match the dramatic $3.4 million in working capital improvements we harvested during fiscal year 2015, we were able to mostly sustain those improvements, and the $2 million of cash profitability during the fiscal year leave me comfortable with the financial flexibility of the business.

With respect to future visibility, backlog decreased over the end of the third fiscal quarter by approximately 8% or $4.3 million to $50.6 million. This change was driven by the divestiture of our scheduling assets partially offset by sales in the quarter. I would also note here that due to the variable nature of some of our audit services engagements, we only record in backlog those agreements with clearly definable backlog terms.

That concludes my remarks, and I'll now turn the call back over to David Sides. David?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [5]

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Thank you, Nick. As I mentioned at the outset of my prepared remarks, I want to spend a few minutes looking ahead to our fiscal year 2017. Last year, I detailed 3 strategic objectives for our company, and I continue to believe that those are the 3 things we must remain focused on to be successful.

First, we need to continue to be more client centric. I believe that with improved relationships comes the opportunity to expand our business with both current and prospective clients. We are beginning to see this renewed energy paying off. I mentioned on our December earnings call that in the fourth quarter, we closed a meaningful expansion with an existing client, University Hospitals in Cleveland, for our CDI technology. And last month, we published a press release announcing the expansion of our long-term relationship with Nebraska Medicine as they signed on to use our coding audit services. These are just a couple of examples of the benefits we believe we will continue to realize in the client relationship management program we instituted at this time last year when we made our account managers solely responsible for all revenue activities inside our existing client base.

Today, our sales pipeline has many more of these client expansion opportunities. Our focus on greater client centricity also helped us maintain a 4% to 6% revenue attrition rate that we have experienced historically other than fiscal year 2014 when the rate spiked to approximately 13% for unique reasons.

Our second strategic objective remains sales growth. Our recent investments in sales and marketing to expand our market presence through direct and indirect sales resources are starting to deliver results. Shaun Priest, our Chief Growth officer, will mark his first anniversary with our company this week. When we hired Shaun, we challenged him to rearchitect our sales approach, enhance our presence through better direct sales and better management of indirect sales through partnerships. During his first year with us, we've added resources to our inside sales team, replaced the entire outside sales group and added resources to our channel partner sales team. We now have very experienced regional vice presidents of sales. All of them have previous experience and success in selling CDI and coding technology and coding audit services.

Our investment in and successful transformation of our sales resources are translating into results. The announcement last week of the West-Coast-based hospital, we signed to use our coding audit services, represents a new client for us sold by our new West Coast regional vice president of sales. And the announcement last month of our new reseller agreement with Allscripts is a direct result of having dedicated partner channel resources focused solely on gaining and growing new partners to help us sell our services and solutions into the marketplace. Hal Walsh, VP of Channel Partners, did a very nice job of marshaling our resources to get the contract signed, and now he's working directly with Allscripts to help them close new clients for our Abstracting and Physician Query technologies.

Finally, our third strategic objective is to improve our innovation. Last year, I challenged our team to rebalance our design and development efforts from what had been primarily a stability-driven emphasis to one that is more focused on innovation in order to meet future client needs and drive greater quality in a value-based world. Improvements in our existing coding technology suite will increase the market competitiveness of those solutions moving forward, and I'm pleased with the progress we've made there.

Perhaps the best example of progress against this objective was bringing to market both the CORE and eValuator technology in the time frames we have. We officially launched eValuator during HIMSS in February after a rapid development effort to advance that solution to market readiness. While based on technology we acquired last fall, these solutions now contain meaningful new functionalities and capabilities we developed in the past few months.

2015 was my first year as CEO of Streamline. It was dominated by effort in rationalizing our expense structure and unifying an organization that was the product of multiple acquisitions. Last year, we pivoted our focus to reshaping our sales strategy and finding the team that would execute that strategy as well as sharpening our focus on the middle of the revenue cycle. As we push into 2017, our focus is now on executing that sales strategy and responding to the signals we received from the market. Those early signals are positive and I believe will lead to appreciable growth for Streamline in 2017 and beyond.

We continue to build a strong pipeline, especially in coding audit services and associated technologies through our outbound prospecting and amongst our existing clients. These initial client contracts are smaller than our standard software contracts, but we believe they offer us the flexibility to grow with these new clients as we demonstrate a positive return on investment and introduce them to our new software solutions that can further help them improve their coding accuracy and efficiency and minimize human errors. These smaller contracts will affect our Q1 bookings performance, but we believe we have many more prospective opportunities in this area that can grow into more sizable bookings over time.

Only 1.5 months after introducing eValuator at HIMSS, the level of interest expressed has been incredibly exciting. We are currently advancing opportunities within our client base and beyond that potentially represent nearly 1 million annual discharges at some of the most prestigious health care systems in the country. I'm optimistic that we will see our first eValuator sale close in Q2 of this year and that it will be the first of many to come. The prospects for eValuator paired with the potential of audit services and excitement level around our channel partners are all great indicators for Streamline's future.

That said, [ accepting ] perpetual licenses in-year sales will have only a measured impact on revenue performance this year, but they will supercharge 2018 growth. The growth in our sales pipeline for recurring revenue sales, coupled with the expansion of reseller partners that will be writing perpetual license contracts, gives us the confidence to project our 2017 revenue to grow between 7% and 9% to approximately $29 million to $29.5 million. We expect our partnership with Optum360 to deliver material perpetual license contract in the year and that our new relationship with Allscripts will bear similar fruit.

That said, we anticipate a decline in our Q1 2017 revenue due to the effect of the roll-off of some of last year's client attrition and continued challenges in predicting timing for contract execution through some of our channel partner relationships. But we fully expect to generate growing revenues in each of the succeeding quarters as our direct and indirect sales efforts pay off as I just mentioned. Our forecast for adjusted EBITDA for fiscal year 2017 is between $3 million and $3.5 million, and our projections for cash generation during the year are in the $1 million-plus range.

One final note. I stated last quarter that I believe the move toward value-based health care will not change under the new Trump administration. We saw that the recent efforts to repeal and/or replace the Affordable Care Act without an appropriate care and value-based focused replacement has faced challenges in Washington. Last week, I attended the Health Evolution Summit and heard Secretary Price speak on Friday about value-based care. He reiterated that the administration is committed to value-based care and many of the projects that have started because it works for both the government and consumers to look at how do we increase quality while reducing cost.

While the current administration could resurrect a new health care bill, I have more conviction than ever that this important industry shift to value-based health care will continue. We firmly believe that our focus on revenue cycle optimization will remain compelling for the long term as health care providers, big and small, need to improve their efficiency from charge capture to bill drop and that the strategic moves we have made and will make going forward will continue to support our brand promise, which remains, quality is the new revenue.

That concludes my remarks. But before turning the call over to the operator, I want to thank our Streamline Health associates for their continued hard work and dedication to our clients, to our shareholders, to each other.

I will now turn the call over to the operator for our Q&A session. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will come from Matt Hewitt with Craig-Hallum Capital Group.

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

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First up, and I think, David, you might have just touched on this briefly. But I was wondering if you could give us a little sense of the hospital selling environment. There's been a bit of a mixed message that's been given since the election, some seeing delays in hospital purchasing, others not seeing that, and then leading up to the expectation for a vote here recently with Trumpcare. How has that affected your selling ability? What are you hearing from customers? Anything along those lines will be helpful.

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [3]

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Thanks, Matt. So from the selling environment perspective, we haven't seen much change from our clients. The ACA didn't really help our -- necessarily our piece. We're in the middle of the revenue cycle, so we weren't a part of the process that would have been helped or hurt by that being repealed or not. And similarly with the ACHA, it wasn't going to necessarily change things for us. I think it was having more of an effect on the payer side than the provider side perhaps. One thing we do like is that there has been a shift from meaningful use that people are disappointed with interoperability there, and so there's not as much of a push. And so you're seeing IT budgets, in our perspective, free up for projects that have really good return on investments. We think we have good solutions there that can help coding accuracy and both controlled risk and reward from that process. And so we actually see people looking for concrete ways to show a return on investment where maybe with meaningful use, they were spending money on IT just to get systems in. Now we're looking for what are the ways that we can get a real return on that big IT investment. And we're well positioned there. So we still see a good hospital buying environment for us to sell into and are pleased with our positioning here in the middle with something like coding that's not going to go away, whether there's macro changes on the exchanges or how insurance works either way. People are going to be paying by coding the medical chart, and that's exactly where we are.

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

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Okay. Shifting gears to, I guess, the sales channels. The Nebraska and the -- more recently, the West Coast win, were those Q4 or were those Q1 events?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [5]

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We had, I think, one of each. And we're trying to get some of the news out about those as far as we had a new client footprint, and we're getting more new client footprints with the coding audit services. And then the next phase is to expand those into additional modules sold into that same account. So Nebraska Medicine, they had been a client of ours for some time and they're now a client of services. And so our next step is to then sell them CDI technology, Abstracting technology or eValuator coding accuracy technology or workflow technology for audit. So we're trying to get the story out that we're both getting new clients and we're seeing with new clients expansion into some of our modules, which is, we think, positive. And we mentioned in the call that we also sold for the first time in some time basically almost one of every product, which was a really nice quarter for us to have kind of a breadth of new sales of each solution.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Right. As far as -- how should we be thinking about -- maybe you don't necessarily need to go into those deals specifically. But how should we be thinking about average size for some of -- for the different offering buckets, whether it's on the coding side or the audit side? I mean, could you give us a general sense for how those deals will flow through bookings and then to revenues?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [7]

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So if you think about it, there's the average deal size, maybe about 400- or 500-bed hospital. Most of our solutions are priced modestly in the $200,000 to $250,000 per year range for those clients. So that's how I'd think about them. You look at most of these, maybe the audit services could be smaller depending on the number of charts that we're auditing but in that kind of range.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Okay. That's really helpful. Shifting into -- or shifting into the Allscripts agreement, what does the pipeline look like? If I remember correctly, there was an opportunity with a potential large reseller agreement, and this dates back a couple of years ago. I know something was in the works, and at the time, it wasn't disclosed who it was. I don't know if that's Allscripts now. But there was a decent pipeline there where there was a number of customers that needed some of the solutions that you provide. One, I guess looking back, is that Allscripts? And two, could you describe what the pipeline looks like? Is there an immediate need within their installed base where you can see incremental growth maybe even ahead of what you had anticipated with your guidance today?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [9]

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Yes. So Matt, it was Allscripts we're working on a year ago. We started talking with them at HIMSS a year ago. They have -- if you watch them, they've been doing a good job of selling new bookings, getting to growth. So we're happy to be working with them on -- with their clients on ways that we can bring some technology to their coding process. So we think there's a real good opportunity there. Early days on the pipeline. We're meeting with them in 2 weeks at the Becker's conference in Chicago to go through things in more detail. So we can't quantify the impact of it today other than they're a very large player, obviously, with a lot of clients and a lot of reach. So we're really excited to be working with them.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [10]

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Oh, that's great. Two more for me. First on -- I just want to clarify one point that you made in your guidance. Q1 would be down. Is that down sequentially or down year-over-year?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [11]

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It could be down sequentially depending on the timing. We're working on a couple of perpetual opportunities. And we felt like it would be better to be conservative and say it could be down sequentially from Q4. But that can change in the next 3 weeks. But given where we are today, we thought we'd better -- rather be conservative. And then we can see a good Q2 ramp but just to be sure that we're not surprising the market if we come up with a number that's without a perpetual in Q1.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [12]

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Fair enough. All right, last one for me. The audit services, maybe if you could talk, since closing that acquisition in Q3, maybe talk a little bit about the pipeline. What are you expecting from a margin profile for that business? Obviously, it's very early days. I would expect you to ramp that business. But how should we be thinking about that? And then an update on the cross-selling opportunities within the respective installed bases.

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Nicholas A. Meeks, Streamline Health Solutions, Inc. - CFO and SVP [13]

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Matt, it's Nick. I would expect kind of contribution margins in high 20s to low 30s from that business moving forward. And then the Nebraska Medicine deal that was announced was a cross-sell to that within that client base. I think there'll be several others. There's been one additional small one where we did some training with a hospital down in Florida. But the pipeline is developing nicely, both net new and within the existing client base. And I think it's really a function of we're seeing a very large distribution of deal size there, if you will. Some hospitals audit a lot and they do it all externally. Some hospitals audit a little and they do it less frequently. And so we're seeing a big standard deviation in terms of deal size there. But I think the pipeline is developing nicely, both in terms of volume of deals and overall (inaudible).

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Operator [14]

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From CG Capital, we'll hear from Kyle Davis.

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Kyle Davis, CG Capital, Research Division - Analyst [15]

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Have you had any conversation with your strategic partners about CORE and eValuator? Is there any chance of selling through those channels?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [16]

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Yes. So we've talked with -- those are our new acquired -- some of that technology, and we've really kind of built those applications out since we acquired Opportune IT in September. And we officially announced both at HIMSS this year. So to answer your question, with all of our current channel partners, we've talked about both technologies with them and said, "You have existing paper. If this is something that would be useful with your client base, here's where how we'd like to expand it." So I'm flying out tonight to talk with the partner about that some more, some discussions we've had there. But the interest certainly in the eValuator and CORE, both if they're doing audit, looks really good. The eValuator solution has return on investment piece. We can run historical data through eValuator and give an idea of the quantification of the difference we can make. So in the sales process, that can be pretty compelling with the clients we've run through so far. So we're seeing a lot of uptake there because we give them the true data of this code was incorrect and it cost you this much money in revenue. This code was incorrect and it's a risk to your organization if someone were to claim that back. And so the total of improving your accuracy can be worth this. So we've had good discussions so far. We haven't signed that with any of our current partners, but we're working on it. And we expect to get something in the next few months. And just the pipeline of that so far is probably -- excluding our channel partners, we probably see a pipeline of about 1 million discharges through all of the work that we've done on our own new clients and cross-sell into our base.

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Kyle Davis, CG Capital, Research Division - Analyst [17]

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Okay. And with those initial conversations that you've been having, what's the feedback, the general feedback that you've been hearing?

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [18]

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The feedback has been good. So the -- we charge on a per discharge basis. So if you're a client, you can see a really good return on investment. Most of the time, they're looking at, at least 5x the return. We are talking about how we integrate the technology. So one of the things we've worked on is integrating to other EMRs and suppliers. And we've got that integration work done in the last 6 months. That's a big box to tick, going forward. So you kind of have to meet the technical criteria first. And we're making it through those pieces where we have a number of clients that are starting to purchase and implement that technology. And so we're getting a growing reference list of clients. So one of the next things you hit is you have 3 to 5 clients using the technology, and we can start to answer that affirmatively. And that's moving us through the next stage because as you know, most of our channel partners are large players in the industry and so they're kind of looking at clients of approximate scale. We're moving those conversations forward, and we'll see how that works out through this year. But I think we'll see some good success and uptake through those partners with their clients this year.

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Kyle Davis, CG Capital, Research Division - Analyst [19]

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Okay, great. And in regards to mixing the audit services and the technology, can you give some color to how that sales cycle works, the timing of it? Because usually, software takes a bit longer than services to sell, so I'm just a little curious for some more color there.

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David William Sides, Streamline Health Solutions, Inc. - CEO, President and Director [20]

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So you're right. It takes more time to get through the software sales cycle. The good thing about both of these technologies and most of our other technologies is that they're cloud-based. So once you get to sale, we can get to implementation and revenue more quickly than we could. If you look at our past 2 years ago, we typically start with a discussion around return of investment, what problem are we trying to solve, kind of a challenger sale model flow, and then from there, propose solutions to that or what the return on investment would look like. So I'd say you're looking at from a first contact to a decision process, somewhere between 3 and 5 months. Then you add on contracting, which is typically a little bit slower with hospitals, and you're looking at another couple of months. So we're trying to get the sales cycle to closer to 2 to 3 quarters instead of what's typically a year sales cycle. And we'll see, right? So we launched in February. We think we'll sign a client in Q2. So that would have been essentially a 2-quarter sales cycle. So we're excited about that possibility, and as that proves out, that will be an accelerant to our growth this year and a lot into 2018.

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Operator [21]

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(Operator Instructions) And at this time, I would like to turn the conference over to management for any additional or concluding remarks.

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Randolph W. Salisbury, Streamline Health Solutions, Inc. - CMO and SVP [22]

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Thank you again for your interest in and support of Streamline Health. If you have any additional questions or need information, please contact me at randy.salisbury@streamlinehealth.net. We look forward to speaking with you again in June when we will discuss our first quarter 2017 financial performance. Good day.

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Operator [23]

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Ladies and gentlemen, that does conclude today's presentation, we do thank everyone for your participation. You may now disconnect.