Business Overview and History

Streamline Health Solutions, Inc. (STRM) is a leading provider of innovative healthcare information technology solutions and associated services that enable healthcare providers to proactively address revenue leakage and improve financial performance. The company’s comprehensive suite of products and services targets the critical revenue cycle management challenges faced by today’s healthcare organizations.

Streamline Health was founded in 1988 and is headquartered in Atlanta, Georgia. The company provides healthcare information technology solutions and associated services to hospitals and integrated healthcare delivery systems in the United States and Canada. Streamline Health’s software and services enable healthcare providers to capture, store, manage, route, retrieve and process patient clinical, financial and other information related to the patient revenue cycle.

In 2021, Streamline Health made a strategic acquisition of Avelead Consulting, LLC, a recognized leader in revenue integrity solutions for healthcare providers. This acquisition strengthened Streamline Health’s position as a trusted partner in optimizing the revenue cycle for its clients and was part of the company’s strategic expansion into the acute-care healthcare revenue cycle management industry.

Streamline Health’s flagship products, eValuator and RevID, leverage advanced analytics and automation to help hospitals and healthcare systems accurately capture, bill, and be paid for the care they provide. The eValuator solution utilizes AI-powered pre-bill code auditing to ensure coding accuracy, while the RevID platform automates the charge reconciliation process to accelerate cash flow.

In October 2023, Streamline Health announced it was executing a strategic restructuring designed to reduce expenses while maintaining the company’s ability to expand its SaaS business. The restructuring initiatives included a reduction in force, resulting in the termination of 26 employees, or approximately 24% of the company’s workforce. Streamline Health recorded $759,000 in expenses related to the strategic restructuring in the three months ending January 31, 2024.

Financials and Key Metrics

As of the company’s most recent fiscal year ended January 31, 2024, Streamline Health reported total revenue of $22.6 million, a decline from $24.9 million in the prior year. This decrease was primarily driven by the non-renewal of a significant SaaS client contract towards the end of fiscal 2023. However, the company’s SaaS revenue grew by $1.7 million year-over-year, highlighting the continued shift towards a subscription-based business model.

The company’s net loss widened to $18.7 million in fiscal 2023, compared to a net loss of $11.4 million in the prior year. This increase was largely attributable to higher operating expenses, which rose to $42 million from $35.7 million in the previous fiscal year. The rise in expenses was primarily driven by investments in research and development, as well as the strategic restructuring initiative announced in October 2023.

For the most recent quarter (Q2 2024), Streamline Health reported revenue of $4.476 million, a 22% decrease year-over-year due to previously announced client non-renewals, partially offset by new SaaS contract implementations. The net loss for the quarter was $2.803 million, with the decrease in net income primarily attributable to higher non-cash interest expense and valuation adjustments.

Liquidity

As of July 31, 2024, Streamline Health maintained a cash balance of $3.54 million and had access to a $2 million revolving line of credit. The company also has a term loan facility with an initial maximum principal amount of $10 million. The debt-to-equity ratio stood at 0.7840, while the current ratio and quick ratio were both 0.61, indicating potential liquidity concerns.

Streamline Health’s key operational metric, booked SaaS Annual Contract Value (ACV), stood at $13.6 million as of July 31, 2024, with $10.7 million already implemented. This is below the company’s previously estimated $15.5 million adjusted EBITDA breakeven threshold. Due to unexpected churn during the quarter, the company now estimates it will achieve this adjusted EBITDA breakeven run rate during the second half of fiscal 2025.

Revenue Breakdown and Segment Performance

Streamline Health operates in one segment as a provider of healthcare information technology solutions and associated services. The company’s revenue streams include Software as a Service (SaaS), maintenance and support, and professional fees and licenses.

Software as a Service (SaaS) Revenue

For the three and six months ended July 31, 2024, SaaS revenue decreased by $453,000 and $905,000, respectively, compared to the prior year periods. This decrease was primarily driven by the non-renewal of a previously announced client, which contributed to declines of $953,000 and $1.90 million for the three and six month periods, respectively. However, revenue from new clients on the company’s eValuator and RevID products provided an offset to this negative impact. The company expects relatively flat SaaS revenue in each quarter of fiscal 2024 as it delivers on executed agreements to replenish the lost revenue related to the client non-renewal. As of July 31, 2024, the company had approximately $2.90 million of annualized contract value of SaaS contracts to be implemented.

Maintenance and Support Revenue

For the three and six months ended July 31, 2024, revenue from maintenance and support decreased by $217,000 and $484,000, respectively, compared to the prior year periods. As the company continues to prioritize SaaS products, it anticipates maintenance and support revenue will decline in fiscal 2024 due to expected contract non-renewals and limited new sales in this area.

Professional Fees and Licenses Revenue

Revenues from professional fees and licenses, which include proprietary software, term license, professional services and audit and coding services revenue, totaled $515,000 and $1.23 million for the three and six months ended July 31, 2024, respectively. This represents decreases of $624,000 and $906,000 compared to the prior year periods. The company has primarily shifted its business from perpetual software licenses to a SaaS model, resulting in lower professional services and software license sales. For the six month period, the company did see an increase in license revenue of $61,000 compared to the prior year. However, the company is primarily focused on growth of its SaaS products and is not expecting growth in license revenue for the remainder of fiscal 2024.

Cost Structure and Operational Efficiency

Cost of Sales

The company’s total cost of sales for the three and six months ended July 31, 2024 decreased by $569,000 and $1.08 million, respectively, compared to the prior year periods. This was driven by lower infrastructure costs and lower contract and personnel costs related to the company’s SaaS solutions. The amortization of capitalized software remained relatively unchanged. For the three and six month periods, the cost of SaaS solutions included non-cash charges of $556,000 and $1.10 million, respectively, related to the amortization of capitalized software.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1.13 million and $1.78 million for the three and six months ended July 31, 2024, respectively, compared to the prior year periods. This was driven primarily by lower compensation and related benefits as the company successfully implemented cost saving initiatives in these areas.

Research and Development

Research and development expenses decreased by $571,000 for the six months ended July 31, 2024, compared to the prior year period. This decrease was due to cost savings related to outside staff augmentation and headcount reductions. The company continues to focus its R&D activities on its eValuator and RevID SaaS solutions.

Navigating Challenges and Transitioning to Growth

The fiscal 2023 results reflect the challenges Streamline Health has faced in navigating a difficult healthcare IT market, characterized by resource-constrained healthcare systems and pandemic-related disruptions. The company’s strategic restructuring, announced in October 2023, was aimed at reducing expenses while maintaining its ability to expand the SaaS business.

During the fourth quarter of fiscal 2023, Streamline Health received notifications of non-renewals and renewals at lower rates for contracts with an aggregate value of $2.8 million in SaaS ACV. This client churn, primarily driven by healthcare systems outsourcing their revenue cycle management functions, has had a significant impact on the company’s financial performance.

To address these challenges, Streamline Health has taken several proactive steps. The company has increased its focus on client success and retention, leveraging its expertise to help healthcare systems maintain control of their revenue cycle and avoid the pitfalls of outsourcing. Additionally, the company is investing in product innovation, with enhancements to eValuator and RevID designed to drive greater operational efficiencies and financial impact for its clients.

Looking ahead, Streamline Health is optimistic about its growth prospects. The company has a robust pipeline of new business opportunities, including a successful partnership with Oracle Health, which has enabled the company to expand the adoption of its RevID solution. The company is also targeting a displacement campaign in the eValuator space, where it believes its technology can deliver superior results at a lower cost compared to competing offerings.

Future Outlook and Guidance

Streamline Health’s management team remains confident in the company’s long-term strategy and its ability to weather the current market challenges. The company’s focus on SaaS-based revenue cycle management solutions, combined with its commitment to innovation and client success, positions it well to capitalize on the growing demand for technology-enabled revenue cycle optimization in the healthcare industry.

In terms of near-term guidance, Streamline Health expects its third quarter fiscal 2024 total revenue to decline sequentially by approximately $300,000, but then return to approximately $4.5 million in the fourth quarter of fiscal 2024. The company anticipates significant revenue growth in fiscal 2025 and the achievement of persistent adjusted EBITDA profitability and significant improvement in their use of cash for operations throughout 2025.

It’s worth noting that the company’s pro forma SaaS revenue grew 21% during the first six months of fiscal 2024 after excluding revenues from a client non-renewal in fiscal 2023. This growth in core SaaS revenue is a positive indicator of the company’s ongoing transition to a subscription-based business model.

Risks and Conclusion

While Streamline Health has demonstrated resilience in the face of industry headwinds, the company is not without its risks. The healthcare IT market remains highly competitive, and the company faces the ongoing challenge of client retention in a resource-constrained environment. Additionally, the company’s recent financial performance and liquidity position raise concerns about its ability to maintain compliance with certain debt covenants, which could impact its access to capital and future growth.

Despite these risks, Streamline Health’s long-standing expertise in revenue cycle management, coupled with its innovative product suite and strategic partnerships, positions the company as a compelling investment opportunity for investors seeking exposure to the growing healthcare technology sector. As the company navigates the current challenges and transitions towards renewed growth, it will be essential for Streamline Health to execute its strategic initiatives effectively and continue to deliver value to its healthcare provider clients.

The company’s ability to achieve its adjusted EBITDA breakeven target and successfully implement its $2.90 million of annualized contract value in SaaS contracts will be crucial factors in determining its financial performance in the coming quarters. With a clear focus on SaaS growth, cost management, and product innovation, Streamline Health is poised to capitalize on the increasing demand for advanced revenue cycle management solutions in the healthcare industry.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.