Randy Salisbury Robert E. Watson - Chief Executive Officer, President and Director Nicholas A. Meeks - Chief Financial Officer, Senior Vice President and Secretary

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division Frank Sparacino - First Analysis Securities Corporation, Research Division

Good day, everyone, and welcome to the Streamline Health Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Randy Salisbury, Communications, Investor Relations. Please go ahead, sir.

Thank you for joining us to review the financial results of Streamline Health Solutions for the third quarter of fiscal year 2013, which ended October 31, 2013. As the conference call operator indicated, my name is Randy Salisbury, and I manage Communications and Investor Relations here at Streamline Health Solutions. Joining me on the call today are Bob Watson, 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 press 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 submit for the record the following statement: statements made by the management team of Streamline Health Solutions during the course of this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein. Please refer to the company's recent press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K and 10-Q reports for more information about these risks, uncertainties, assumptions and other factors. Participants on this call and cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the day hereof. The company undertakes no obligation to publicly revise these forward-looking statements. On this call, the company will discuss non-GAAP financial measures, such as adjusted EBITDA. Please refer to our earnings release for reconciliation of such non-GAAP measures to the most comparable GAAP measure. Management uses certain non-GAAP measures to evaluate and monitor the ongoing financial performance of our operations. These non-GAAP measures do not include any items of income and expense that affect operations, and other companies may calculate these non-GAAP measures differently. With that said, let me turn the call over to Bob Watson, President and Chief Executive Officer. Bob? Robert E. Watson: Thank you, Randy, and good morning to all of you participating on today's call. Thank you for your time today and for your continued interest in and support of our company. As stated in our press release on November 14, 2013, in which we provided our preliminary Q3 financial results, we continue to build our SaaS and recurring maintenance and support revenue streams. During the quarter, our sales organization was successful in its effort to shift a large license transaction in its quarterly forecast to a SaaS delivery model sales opportunity. We expect that contract to close in the current quarter. As a company, we continue to embrace and emphasize with our clients and net new sales prospects the benefits of acquiring our solutions by way of our SaaS delivery model. That said, with the movement of a sizable perpetual license sale to SaaS, revenue for the quarter was $6.70 million. Our bookings in the third quarter were up 23% sequentially, which continues to be a positive trend for our business. Bookings plus renewals in the third quarter were approximately $10 million. Our indirect sales channel strategy paid a dividend in the quarter as we gained a significant contract from a client of one of our distribution partners. We also closed a significant multiyear maintenance and support renewal in the quarter with a large multi-facility client. We think this is particularly worth noting given that the client conducted a complete review of all their technology providers and chose to keep only a few of their existing partners, of which we were one. More on the specifics of our quarterly performance in a minute, but as I have done in these quarterly calls during 2013, I'd like to take some time to review another of our key strategic objectives from our 5-year plan. You may recall that at the beginning of the fiscal year, we completed a 5-year strategic plan, detailing our key areas of strategic focus and that we would discuss our strategic initiatives, as appropriate, throughout the year. The first one of these strategic areas of focus was solutions optimization, which we worked quickly to bring to market in Q1 with internal resources. This solution provides enhanced post-implementation support to ensure that our analytics clients maximize their return on investment. Since initializing this endeavor, we have had 6 clients sign up for this solution. Last quarter, I reviewed our second strategic objective, and that was our intention to develop and deliver our solution in the area of clinical analytics in Q1 2014. Since we last spoke, we have made major progress toward the strategic objective as evidenced by our announcement in late October of an exclusive 15-year licensing agreement with Montefiore Medical Center at Bronx, New York to commercialize their clinical analytics platform that has been successfully in use at Montefiore since 2002. We think this asset is a critical component of our analytics and population health management strategy and will materially accelerate the development of our entire analytics solution suite. During the quarter, we also successfully began managing a multiyear contract with the Bronx RHIO, a Health Information Exchange. Our clinical analytics platform has been deployed as a core platform of the RHIO and enables providers throughout the Bronx to access critical patient information across multiple health care providers as part of a strategy to deliver high-quality medical care to all residents of the Bronx. The platform allows health care providers to assemble all of the clinical data available from the multiple care delivery points in the Bronx, including lab results, ambulatory encounters and prior acute care visits. This deep, rich clinical information assists caregivers by allowing them to draw actionable conclusions on demand. This real-time access to the clinical history across multiple care settings is designed to improve patient care, safety and clinical outcomes. With the clinical analytics platform in our portfolio, we believe we are well positioned to commercially deliver a market-changing clinical analytics solution in the first quarter of next year, as we discussed last quarter. The third objective from our 5-year plan is to provide our clients and sales prospects with patient access solution. The definition of patient access solution is, by design, fairly broad and includes scheduling, insurance verification and propensity to pay as possible components of this offering. Based on our belief that payment models are changing and that there will be increased economic pressure on the consumer as part of this change and that health care providers will enter into risk-based or outcome-based payment contracts with insurers, we believe it will be more important for health care providers to be able to access and utilize any information available about a patient at the access point in their health system. This access point could be a scheduled event or simply a registration or admission event. The information gathered as a patient initializes engagement with a health system is a critical step in the process of triggering our entire analytics platform, both clinical and financial. As payment models change, our clients and prospects are joining or developing accountable care organizations where they assume some degree of economic risk and have to clinically manage a population of patients. We believe being able to offer a solution at the point where a patient first engages with a health care provider, regardless of the care setting, is critical to delivering those health care provider's prospective clinical and financial intelligence about that patient. In essence, a patient access solution would trigger our clinical analytics and population management capabilities to deliver actionable knowledge and predictive analytics to care providers prior to the clinical encounter. A solution like this could drive a health care provider's ability to manage a patient in a care pathway that may lead to better quality outcomes, lower readmission rates and improvement in the provider's overall clinical and operational efficiency, all of which impacts their operating margins. We plan to go to market with this third objective in fiscal year 2014 because we believe that the marriage of improved clinical outcomes with financial margin management is important to our clients and prospects in this environment of changing reimbursement models. Before returning to this quarter's financial results, I want to take this time to thank those of you who participated in our recent public offering. As you know, we completed a follow-on public offering of 3.45 million shares of our common stock priced at $6.50 that generated net proceeds to the company of $20,750,000. I'm pleased to report that the offering was oversubscribed and that many of our current institutional shareholders took part in this secondary offering. Your continued support is greatly appreciated and does not go unnoticed by the company. Returning to this quarter's financial results, I want to remind everyone that we projected at the beginning of the year that our coding solutions or Collabra sales would occur more in the second half of the year, which we are seeing, and that they would be weighted to a perpetual license model rather than our SaaS-based model. This has largely been the case. For example, as you know, there was a multimillion dollar Collabra perpetual license contract in late Q2 this fiscal year. However, as we moved sales prospects through the sales pipeline in the last 3 months, our teams have been very successful in converting potential perpetual license opportunities to the SaaS delivery model opportunity. This is clearly the desired outcome as we are committed to building this company for the long run. It is also a better delivery model for our clients at a time when capital access continues to be more constrained for them. That change in revenue mix, however, has affected our top line revenue forecast for the balance of fiscal year 2013 and 2014 as well. Therefore, last month, we provided updated financial guidance for fiscal year 2013 revenue in the range of $29 million to $31 million. And we had our first look at projected revenue for fiscal 2014 in the range of $35 million to $37 million based on an organic growth rate of 20%. This fiscal year 2014 projection does not reflect any potential revenue from inorganic growth options. As we said earlier, revenue for the quarter was $6.7 million. Approximately 80% of that revenue is recurring of which 34% is SaaS revenue. New contract bookings were $6.5 million in the quarter, 125% increase as compared to Q3 of fiscal year 2012. Further, those new contract bookings were an increase of 23% over Q2 of this year. We continue to invest in our sales organization. And as we move into fiscal year 2014, we expect the sales organization to grow by approximately 20%. Our backlog at quarter end was $55 million, up from $48.7 million in Q3 last year and up from $51.9 million in the previous quarter. This is a 13% increase over the prior year and a 6% increase over Q2 of this year. And finally, as with last quarter, I want to remind everyone that most of our implementation timing is driven by our clients. And given the many demands their IT departments are facing, we are rarely able to move as quickly as we wish we could. We continue to see this resource issue among our clients and it continues to have a negative impact on our revenue recognition. I mentioned last quarter that we were understaffed in our implementation department, but that is no longer the case. We have hired new associates and are now at full headcount. It also bears noting that for Q3 and likely continuing through Q1 of 2014, we will see some negative margin impact on our maintenance and support line as we provide our clients with inversion upgrades to comply with the forthcoming ICD-10 change. These inversion upgrades are included in their support agreements and therefore are not billable. This primarily impacts our accessANYware and Collabra clients and will, over time, reduce our own direct cost of support as clients are standardized on the same version. This is a key component of our strategy to seek margin improvement as we scale this enterprise. I will now turn the call over to Nick Meeks, our CFO, to review more of the specifics of the third quarter with you. Nick? Nicholas A. Meeks: Thank you, Bob, and good afternoon, everyone. I'd like to reviews some factors underlying the financial results for the quarter ending October 31, 2013. Adjusted EBITDA for the quarter was $0.6 million, compared with $1.6 million in the same quarter of last fiscal year. Let me start by noting that during this period last year, we experienced a trough in hiring and a peak in vacancy, which had a positive effect on our adjusted EBITDA for that quarter. So turning to operating expenses for this third quarter. 3 items deserve special mention: first, we began recording consulting expenses related to our SOX compliance effort; second, we made substantive investments in our quota-carrying sales force; and third, we closed the gap in implementation associate hiring, a shortfall that Bob mentioned in last quarter's conference call. Moving now to non-operating expenses. Let me speak to 2 items that contributed significantly to our net loss in the quarter. Similar to our most recent quarters, we incurred a charge of approximately $400,000 to mark to market the outstanding warrant liability on our balance sheet. And as stated in our press release on November 14, we completed the final earn-out settlement with Interpoint Partners, an acquisition we made in December of 2011. The settlement expense of $4.1 million was comprised of 3 parts: a $1.3 million cash payment; a $900,000 note maturing over 3 years; and $400,000 common shares of Streamline stock, which had a $2 per share nominal value as defined in the original purchase agreement, but which accounting standards dictated that we mark to market up to this quarter. We will subsequently mark those shares to market in January when they are issued and that will be the final accounting event for this earn-out. Finally, I want to comment on our cash balance. We ended the quarter with $4.3 million of cash on the balance sheet. This number is net of a $3 million payment related to clinical analytics software transaction with Montefiore Medical Center that was announced during Q3. Absent that investment, our cash balance would have been $7.3 million, up $1.9 million in the third quarter. As I mentioned in our first quarter earnings call when I had just taken the CFO role, our company would improve its cash balance every quarter for the remainder of fiscal year '13. I'm pleased to report that we are doing just that. As Bob already mentioned, after the quarter closed, we conducted a successful follow-on offering completed on November 27, generating net proceeds to the company of $20,750,000 in cash. Clearly, these numbers do not include those class proceeds. That concludes my remarks about the third quarter of this fiscal year. I will now turn the call back over to Bob Watson, our CEO. Bob? Robert E. Watson: Thanks, Nick. As we have noted today and in prior calls, we will continue to focus on the long-term strength and stability of our revenue stream by driving, whenever possible, our sales contracts to the SaaS model and with renewing our maintenance and support agreements for perpetual license clients to make those agreements long term as well. We will continue to seek incremental revenue in bookings from cross-selling our solutions into our existing clients. In fact, subsequent to the end of Q3, we cross-sold our analytics solution to a long-time client of our enterprise content management solution or accessANYware. Cross-selling will continue to be an important part of our growth and momentum, especially as we add new clients via acquisition. Our cross-sell teams have done well. However, we believe the runway for growth from this avenue remains significant. In terms of our net new clients, our analytics solution suite is driving the opportunity for growth. We materially expanded that solution during the quarter with the addition of the clinical analytics solution discussed earlier. Overall, our analytics suite continues to gain demonstrable traction with sales prospects that are seeking to improve their decision-making based on the actionable knowledge we can deliver them by mining their financial and now their clinical data. As I had said before, we believe that health care organizations seek actionable knowledge, not just information, and our solutions give them the actionable knowledge to enable them to perform better, both clinically and financially. In closing, I want to thank our entire team of associates for their hard work, results and support of management's strategic plan. We have seen our teams grow and mature during this fiscal year. The knowledge we have learned this year positions us well as we move into 2014. As I've said before, this is not a sprint, this is a marathon and we are still in the first 10 kilometers of the race. I will now turn the call over to the operator for our question-and-answer session. Operator?

[Operator Instructions] We'll take our first question from Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: First one from me. The deal that you were able to convert at the end of the third quarter from perpetual license to SaaS, could you give us a little bit of color as far as who that customer is? The -- I don't know if you're willing to give us the size of that opportunity. Any details, I guess, would be helpful. Robert E. Watson: So I'll give you what I can give you, obviously. The client, or potential client, is a nontraditional buyer, which frankly, in my own view, has probably recently had a late-in-the-game shift from SaaS -- from perpetual license to SaaS. The other part of that transaction when it switches like that in the last 3 or 4 days of the quarter, it takes a lot of -- to redo the legal work. We're negotiating that agreement now. We're in several turns of it. As I said earlier in the prepared remarks, we expect that agreement to close this quarter. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: Okay, great. The clinical analytics licensing agreement that, I guess, eventually will become an acquisition, but the licensing agreement, how quickly do you think that you can get that integrated with the rest of your analytics platform? And what kind of demand are you anticipating for that offering? Robert E. Watson: So our plan is to analyze and start planning in January, train our sales organization in January and start to move forward with sales of the solution in the third quarter of fiscal 2014. That said, there's a -- as you know, you follow the market, so there's tremendous activity around alternative care organizations. Risk-based payment contracts need to drive clinical information to the front end of the care process. And so we think that it should be a pretty significant, as I said in the call, for us I think a market-changing [indiscernible] for us as we go into 2014. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: Okay. Maybe a couple more for me and then I'll hop back into queue. Could you provide a little bit of an update on the Collabra suite? Obviously, it's been a hot topic this year. We know it's going live October 1. We know that hospitals are behind the curve as far as getting systems implemented and ready to go. But as you talk to customers, what are you hearing from them as far as their desire to get that implemented as quickly as possible? And as it relates to you, obviously, you've got a full implementation payment it sounds like now. How quickly can you flip the switch and get them the systems that they need? Robert E. Watson: It's interesting. I think I said this on prior calls and I think it's worth noting. First, that I think if an organization hasn't started deployment of computer-assisted coding by now, it's unlikely that the computer-assisting coding component will be online by 10/1/2015. That said, we publicly announced a month or 2 ago a concurrent dual coding solution, which essentially allows the case for the coding did in 9, the codes for 10 are suggested to the coder and then the coder has to make the decision as opposed to the computer making the decision. We think those types of offerings that are essentially bridges to solve the problem are critical, given the fact that the decision making by many of the hospitals has been delayed for any number of reasons: internal resource constraints, acknowledgment that they're -- that they didn't have the resources to take on the challenges, something like that. So from our standpoint, we think that the market for the Collabra suite is -- this is not a Y2K problem. I mean, this is an opportunity where the potential growth for us plays out well into 2015 as well because people just aren't going to be ready. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: Okay, all right. One more for me and then I'll hop back in the queue. You mentioned some nice additions to sales headcount and implementation headcount. Where does your sales team stand today? Obviously, it sounds like you're going to add 20% to that next year. But where does it stand today? Robert E. Watson: I think we're approaching what I would consider to be our full pool in terms of sales. We actually just hired someone else today. So that team continues to mature. We've been pretty pleased with our ability during the last quarter to fill in for the 2 planned and the 2 departures that we talked about in the last call, one was planned and one was unplanned. And we continue to be able to attract, we think, a sales team that comes with a positive track record and a level of maturity that differentiates us from our competitors. So we're pretty pleased where we're at in that process. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: And then is it -- where are you sitting today, number-wise? Robert E. Watson: We're somewhere between 12 and 14. It moves around a little bit just because of the puts and takes. But the entire sales and marketing organization, itself, is 16. We're talking about quota-carrying in the earlier number, but we're at about 16 people in the sales and marketing organization today.

[Operator Instructions] We'll take our next question from Frank Sparacino from First Analysis. Frank Sparacino - First Analysis Securities Corporation, Research Division: Just wanted to start with ICD-10 in terms of the earlier comment about the negative impact of the maintenance and support side of things. And just wondering if you could elaborate a little bit more in terms of what's required in your side, above obviously upgrading the systems for ICD-10, but does that suggest that you have additional staff or what investments do you need to make in order to get your clients up? Robert E. Watson: Yes, so we've made those investments during the quarter, and I think, in terms of headcount investments. So anyone who is the client of our -- any of our core solutions inside the Collabra suite and certain of our accessANY clients where we provide them coding workflows, those maintenance and support agreements require that we upgrade them to be compatible with ICD-10, not pure assisted coding, not concurrent dual coding, but their current version of software is compatible with the ICD-10 code. So there's some level of work. We've probably done at least a dozen or so of those projects in process at the moment. And that'll continue, that number of projects will increase through at least the first quarter of 2015, which creates a little bit of a margin drag, as I said in the prepared remarks, on our maintenance and support line. That said, at the end of that process, we should have some consistency in terms of version control and everybody will be on the same platform. So that -- we should then easily return back to our traditional margins in that area. So it's a near term 3-quarter kind of impact. Frank Sparacino - First Analysis Securities Corporation, Research Division: And can you quantify at all, Bob? I mean, is it 100 basis points? What's the extent of the impact? Robert E. Watson: It's -- let me think about this [indiscernible]. So if our margins in this are -- we're probably talking about probably 100 basis points kind of number, I think you're probably in the ballpark. Frank Sparacino - First Analysis Securities Corporation, Research Division: Okay. And then just lastly... Robert E. Watson: What I was going to say is I'll give you a -- I'll try to give a little more clarity when we do the Q4 call in a couple of months from now. But I don't think it's going to be any worse than 100 basis points impact. Frank Sparacino - First Analysis Securities Corporation, Research Division: Okay, fair enough. And then lastly, I just wanted to kind of dig in. So if we look at -- obviously, bookings this year, from a SaaS perspective, are going to be down significantly from the prior year, which was very strong. But other than that, I'm just trying to figure out exactly what's happened on the OpportunityANYware side of things this year versus last year as to why we've seen the momentum slow in that business? Robert E. Watson: I think, it's -- I think, there has been some momentum slowness. But again, I don't think it's driven by anything other than decision cycle is lengthening for our clients. I mean, this is a very big difficult time for health systems, Frank. I mean, they're faced with trying to decide what to do about ICD-10. We got a little bit of good news from around -- pushing that out of Meaningful Use Phase 2 and 3. I think what we've seen is that the opportunities in the pipeline continue to -- analytics continues to represent more than 50% of our pipeline and continues to grow as the pipeline grows. I think the decision cycles have gotten a little longer and I don't think that's reflective of anything other than the fact that the amount of noise or pressure that CFOs are under today. It's a really difficult time to be a hospital CFO. And the road they're facing in front of them is quite complicated. And so any slowdown in that particular solution is primarily reflective, I think, of that pressure. The other thing we've seen, too, is that, in 2012, the average terms were 60 months. We're seeing a shortening of terms just because of competitive pressures from our competitors. Meaning that our competitors are offering shorter-term arrangements, we pretty much stuck on the 5-year term. We've backed up to 4-year terms this year, which had an impact on bookings.

[Operator Instructions] We'll take a follow-up from Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: Just a follow-up on the acquisitions. You had previously discussed in your press release you've got one that you were expecting to close this quarter. Have you've been able to garner any additional details for us on the second one? I think that development was a little bit more vague. Just trying to understand the opportunity there. When you think that may close? Is that potentially a Q4 event? Or do you think that may be more likely Q1? Robert E. Watson: I think it's most likely a Q1 event. The challenge on that particular acquisition and the reason we've provided less information is we're still awaiting audited financial statements. They're -- the company had not gone through an audit process. They're in the middle of it now. And I should imagine for a relatively young company going through an audit process for the first time can be a little bit complicated. And -- but from a timing perspective, it's a Q1 opportunity for us. Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division: Okay. And remind me, but I think the first acquisition, which should close this quarter was sold as a perpetual license. I would expect that you will be able to convert that to a SaaS offering. How quickly can you do that? How quickly can you get that integrated in with the rest of your platform? Robert E. Watson: Again, as we did with Meta, so if you go back to August of 2012, Meta was primarily a perpetual license business. They had some term licenses, but for all intents and purposes, it's a license business as opposed to any other delivery model. It took our sales organization the better portion of 14 months to reposition the buyers in the pipeline to consider those solutions on a SaaS basis. In that particular case, the technology effort, the development effort to move that platform to SaaS, most of that work had been done by the prior management team. So the real development effort around Meta has been integrating it with our other solutions. As it relates to the proposed acquisition, again you have a situation where it's a relatively mature company. Their solutions are deployed in clients that actually -- at the client's site they essentially deploy it as if it was SaaS based. So that the actual development work to make available in a SaaS model is not a significant amount of work. The real work is around integrating that solution with accessANYware, Collabra and the OpportunityANYware suite, which, today, includes the clinical analytics from Montefiore. So there's some work, I think in our own development cycle, as it did with Meta, you're looking at a 9- to 12-month development cycle to get it integrated. In the meantime, the solutions will be sold as is. I think it's important to note, as we highlighted in our Investor presentations posted, is that a certain number of the current clients with acquisition #1 are current clients of Streamline. And in effect, that gives us a lot of lag to do the integration work. Many of the cases were taking feeds from that particular solution today. So some of the work -- some of the work's been done. So it's really quite positive outcome for us.

And at this time, there are no further questions in the phone queue.

Well, thank you, all, for joining us today. And we appreciate your support and interest in Streamline. We look forward to talking to you at the end of the next quarter. Thank you.

This does conclude today's conference. We thank you for your participation.