Streamline Health Solutions Inc. (STRM) Q2 2020 Earnings Call Transcript

Streamline Health Solutions Inc.  (NASDAQ: STRM) Q2 2020 earnings call dated Sep. 10, 2020

Corporate Participants:

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Wyche Green — President & Chief Executive Officer

Thomas Gibson — Senior Vice President & Chief Financial Officer

Analysts:

Matt Hewitt — Craig-Hallum — Analyst

Brooks O’Neil — Lake Street Capital Markets — Analyst

Jim Kennedy — Marathon Capital — Analyst

Presentation:

Operator

Hello and welcome to the Streamline Health Solutions’ Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It’s now my pleasure to turn the call over to Randy Salisbury, Senior Vice President and Chief Sales and Marketing Officer. Please go ahead, sir.

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Thank you for joining us to review the financial results of Streamline Health Solutions for the second quarter of 2020, which ended July 31, 2020. 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 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 US Securities and Exchange Commission, including our most recent Form 10-K Annual Report, which is on file with the SEC for more information about these risks, uncertainties and assumptions, and other factors.

As always, we’re 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 may 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 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 turn the call over to Tee Green, President and Chief Executive Officer. Tee?

Wyche Green — President & Chief Executive Officer

Thank you, Randy, and thank you all for joining us this morning. Before I comment on the progress I believe our Company made during the second quarter, I want to reiterate our support of our healthcare provider clients during this global Coronavirus crisis. Our team has deep respect for our frontline healthcare professionals. We are grateful for their heroic services to our nation. To do our part during this pandemic, the Streamline team has been successfully working remotely since March and will continue to do so for the foreseeable future.

As we reported last quarter, our hospital system customers have been deeply impacted by this ongoing crisis in many ways. Clearly, their primary focus remained on the treatment of those patients suffering from COVID-19. But in many instances, healthcare providers all over the country have seen high-margin elective procedure business replaced by low-margin critical care patients. As a result, our nation’s hospital systems have experienced significant revenue and profitability shortfalls. The necessity to quickly and efficiently get patient records accurately coded and out the door is greater than ever. Our eValuator pre-bill coding analysis technology can help every provider do this and we continue to push for the adoption of our paradigm shifting solution.

We are pleased to announce yesterday that our second quarter 2020 revenue totaled $2.9 million, up 16% compared to $2.5 million during the second quarter of 2019, despite the headwinds our industry faces today. Importantly, our SaaS revenues grew 46% to $802,000 of a modest number from the same period in 2019. This rapid growth in SaaS revenues is emblematic of the new code structure we discussed following the exit of our legacy ECM business at the beginning of this fiscal year. Our SaaS revenue segment and specifically eValuator is the growth engine of our business, and this quarter’s revenue growth is a direct result of our team’s execution.

Recurring revenue accounted for 70% of total revenue this quarter compared to 73% during the second quarter of 2019. The difference in revenue composition is primarily due to an increase in perpetual revenue generated this quarter as compared to the same quarter last year. Our sales team successfully closed $2.9 million of new bookings during the second quarter, including two significant eValuator deals, which contributed $2.2 million of total bookings in the quarter.

We recently announced the Vidant, a 1,297-bed hospital system in North Carolina, with more than 60,000 annual discharges, will be implementing our eValuator inpatient and outpatient modules. Vidant’s flagship facility is an Epic EHR-based academic medical center. Like many large providers, Vidant has made a substantial investment in Epic platform. eValuator will enable Vidant to integrate our pre-bill coding analysis technology directly into Epic’s coding workflows. We look forward to adding Vidant to our roster of referenceable customers for potential future Epic-based hospital systems, looking to improve their billing processes once they’re up and running.

Randy will add additional detail about our sales efforts and prospects for continuing eValuator bookings success in a few minutes.

Turning now to operating expenses. For the three months ended July 31, 2020, we saw some modest improvements in operating expenses, totaling $4.1 million during second quarter, which was down from $4.3 million during the same year-ago period.

Our team has successfully managed costs throughout the year, and as a result, adjusted EBITDA improved to a loss of $378,000 compared to an adjusted EBITDA loss of $1.4 million during the same prior-year period.

As of July 31, 2020, we had $5.7 million of cash on hand, which we believe is sufficient to fund our operations through 2021. As we previously discussed, we anticipate that if we continue to meet our bookings goal, we will be cash flow positive by the second half of next year. In addition, our only debt is related to our PPP loan secured in April. We are currently working through the process of determining the amount of the loans that will be converted into a grant and we’ll communicate that once we know. As always, our CFO, Tom Gibson, will provide a thorough review of our finances during his portion of today’s presentation.

Changing subjects for a moment. As stated in previous earnings calls, we are committed to building world-class product management and customer success teams to ensure that we provide the best product and customer service possible. Our product management team has made great progress in adding more features and benefits to our flagship eValuator solution.

After soliciting feedback from our clients and prospects about their most immediate needs, the team successfully released a new dashboard for our eValuator outpatient module and enhanced eValuator reporting functionality for both its inpatient and outpatient applications. In addition, we are constantly expanding eValuator’s rule set.

During the quarter, we increased the total number of rules in our eValuator platform as we added new COVID-19 rules within days of the new CMS guide, and expanded our outpatient rule set by approximately 20%. Our research and development function has generated a dramatic improvement in efficiency where development activities have been allocated toward improvements to our growth products.

Our customer success team has made major strides to ensure that we have happy referenceable customers. The team holds monthly meetings with every eValuator customer to ensure that we are meeting their needs. We work with our customers to help refine their workflows, develop and deliver more educational opportunities, and of course, to review the financial impact eValuator’s delivering to them.

In addition, our eValuator implementation team continues to find ways to shorten the timeline to go up. Today, the average length of customer implementation, regardless of size or complexity, is approximately 80 days. But we have completed some projects in less than 60 days. Our go-forward goal is to get all new eValuator customers up and running in 60 days or less. It always takes both parties to make this a reality. But our team now provides more input and next steps earlier in the process and many times even during the sales process to take more obstacles out of the implementation process.

Importantly, our customers’ success team has noted that our Audit Services group has experienced a nice bounce back from a temporary COVID-created decline in the number of audits that we were conducting.

To summarize, I believe the key functions inside our Company are working well together and producing results, not just on the bookings line, but throughout the organization. Now for a review of our sales team’s progress and the pipeline update, I’d like to hand the call over to our Chief Sales and Marketing Officer, Randy Salisbury. Randy?

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Thank you, Tee. During the second quarter, even with the continuing impact COVID-19 is having on every healthcare provider across the country, our sales team successfully closed $2.9 million in bookings, which is near the high end of our ongoing quarterly goal of $2 million to $3 million, and as Tee stated, $2.2 million of the second quarter’s bookings were from two large eValuator customers.

Speaking of eValuator, our pipeline of potential new eValuator clients, remains substantial. We currently have approximately $61 million of total contract value opportunity across 68 prospects. If you’ve been following our story, you may note, to compare to last quarter, the total dollar value of our pipeline is nearly the same, but the total number of prospects is slightly lower. There are few factors at play here. First, we’ve successfully closed some contracts, as I just mentioned. Second, the average potential contract size has increased materially. And third, we’ve had some clients request a pause during the continuing impact of the pandemic and we’ve shifted those prospects out of our near-term pipeline numbers. We remain enthusiastic about the number and quality of the conversations we’re having with these prospects.

Today, many of these healthcare providers are in stages three and four of our sales processes, meaning they’re either in an active selection process or in contracting with us. As Tee has mentioned, we’re pleased to have Vidant as our newest eValuator customer, and to get our third quarter sales efforts off to a nice start. This newest eValuator sales win is an example of one of the many prospects that are in the final stages of negotiations, despite the negative impact of the novel Coronavirus on their overall financial performance because they see the advantages of improving their revenue integrity through pre-bill coding analysis of 100% of their patient records.

We look forward to closing more deals over the next two months of our third quarter which ends October 31. We’ve also made great progress in targeting strategic resellers for eValuator. During the quarter, we signed a new eValuator reseller agreement with Chartwise, a successful CDI provider, whose clients should be a natural fit for eValuator as we can integrate their CDI functionality directly into eValuator’s.

Also, during the quarter, we are pleased to expand our reseller agreement with Allscripts, who has sold our abstracting technology for three years now, and will add our eValuator and CDI technology to their suite of solutions. We anticipate that revenue generated through these partnerships will be less perpetual licenses and more of the recurring revenue SaaS model, we have built the eValuator technology on.

Furthermore, we believe resellers are an important ingredient to expanding our reach in the more of the thousands of healthcare providers that should move their coding analysis from post-bill to pre-bill. Our mission is to lead an interesting movement in this direction and we’re conducting conversations with more large scale potential reseller partners. We look forward to updating you on the progress with these conversations in the coming quarters.

Before I conclude my remarks, I want to remind everyone that we are by no means seeing return yet to pre-COVID decision making. As I mentioned in my pipeline remarks, we’ve seen a number of interested prospects ask us to delay for the conversations until they have a better handle on their budgeting process going forward. Many, approximately 15%, have asked us to connect again either later this calendar year or early next. We completely understand the pressure they are under. But make no mistake, we take every opportunity to remind these prospects that the eValuator revenue integrity program is not at the end of the day an expense. Rather, it delivers a positive ROI over time, and at a minimum, its expense neutral with a matter of months.

That said, we anticipate meeting our objectives of generating at least $2 million to $3 million of new eValuator bookings this quarter and in the quarters ahead, if market conditions continue even as they are today. Eventually when our industry sees a reduction in the number of COVID cases and the more profitable elective procedures are reinstated nationwide, we anticipate that those prospects that had asked for a delay, will return to the conversations. And our expanding reseller network should see more purchasing activity as well driving eValuator sales and corresponding revenue in future quarters.

I’ll be available for questions following our prepared remarks, but for now, I’d like to turn the call over to our CFO, Tom Gibson, who will review the quarter’s financial results in more detail. Tom?

Thomas Gibson — Senior Vice President & Chief Financial Officer

Thank you, Randy, and good morning to everyone on the call. Streamline Health has become an organization that thrives on execution. Development, sales, customer service and shared service are all focused on delivering to our customers, employees and shareholders. You will continue to hear this from me during my opening comments going forward. It is now ingrained in our culture. Allow me to provide you with a quick reminder of some of our past initiatives that are reflected in our reported financial results for the second quarter ended July 31, 2020.

The initiatives include the Company’s sale of the ECM assets effective February 24, 2020 and the funding of our PPP loan in April 2020 that support our ongoing operations during the novel Coronavirus pandemic.

As a result of the sale of the ECM assets, the Company is reporting discontinued operations in fiscal 2020 and for comparability fiscal 2019. Discontinued operations effectively separate the ECM assets and operations from the remaining or continuing business. As a result of this separation, we will report on continuing operations for the current and comparable previous period. This will set a basis for the guidance of revenues, earnings and cash flows of the continuing operations once these are provided. I will address the subject of guidance in more detail at the conclusion of my remarks.

Now let me turn to the Company’s operating performance for the second quarter ended July 31, 2020. As announced in yesterday’s press release, we generated revenues of approximately $2.9 million and $5.7 million for the three and six months period ending July 31, 2020, respectively. This was an increase of 16% and 1% from the three and six months period ending July 31, 2019 respectively. The increase in revenues for the three month period ending 31, 2020 of 16% is a direct result of the timing of a perpetual sale that occurred in Q2, 2020, as there was not such a sale in Q2 a year ago.

The Company’s professional services, perpetual revenue and audit services have each been adversely impacted by coronavirus. Perpetual sales primarily generated through our reseller partnership with Allscripts and centered solely on our abstracting technology, were delayed due to healthcare organizations’ putting larger system changes on hold.

However, this Company’s SaaS revenue increased by $254,000 and $474,000 in the first three months and six months ended July 31, 2020 over the comparable previous quarters, a result of increased revenue from the Company’s evaluator solution.

Our Company has given substantial insight to you regarding our legacy versus growth businesses. There are only two legacy revenue streams that continue for the Company. One is Clinical Analytics, which represented approximately $200,000 of revenue in the first quarter ended April 30, 2020 and $130,000 in the second quarter ended July 31, 2020. This is a patient care system measuring outcomes of certain procedures and has a different buyer, primarily in the research and educational segment of healthcare. It is not in the Company’s core business and as previously announced, this platform was sunset in fiscal year 2019.

The revenue stream for Clinical Analytics, a component of the Company’s maintenance support category, expired in the second quarter of this fiscal year. The sun setting of this platform complements our selling of the ECM assets. The Company has committed to exit solutions that are not focused on solving customer problems in the middle of their revenue cycle or that do not offer future growth as we continue to make strides in removing obstacles that have kept us from generating incremental top line revenue growth.

Turning now to bookings. As Tee has mentioned — as Tee and Randy mentioned earlier, the Company generated approximately $2.9 million of bookings in the second quarter of fiscal 2020 which met our target. The onset of the coronavirus slowed the pace of our eValuator bookings, but we are now seeing traction and remain enthusiastic about the upward trend for future eValuator bookings performance. Recurring revenues were approximately 70% of total revenue for the second quarter, lower than the 73% from the same period last year. All of the revenue that the Company believes were impacted by coronavirus in our first half of 2020. Perpetual, professional services and audit services were non-recurring in nature.

Moving now to adjusted EBITDA. We reported a deficit of $378,000 and $1.4 million for the three months ended July 31, 2020 and 2019 respectively, and the deficit of $1 million and $1.7 million in the first six months of July 31, 2020 and 2019 respectively. This lower deficit and adjusted EBITDA is the direct result of higher revenues in Q2, 2020 as compared with the same period in 2019, as well as the Company’s continued cost discipline within the business.

Lower spend on trade shows and travel due to the coronavirus contributed to a portion of the additional cost savings. Regarding adjusted EBITDA for the first six months of this fiscal year and as previously reported during the first quarter of fiscal 2020, the Company moved its corporate office space to Alpharetta Georgia and took a non-recurring loss on exit of an operating lease of $105,000 upon abandoning its previous shared office space.

The Company reported $27,000 and $148,000 of interest expense for the first six months of fiscal 2020 and 2019 respectively. The Company paid the entirety of its term loan on the data close the sale of the ECM assets February 24, 2020. The Company qualified and received a PPP loan in April of 2020 with 1% interest rate.

Turning now to other areas, the Company recognized depreciation and amortization of $1,082,000 and $679,000 during the first six months of 2020 and 2019 respectively. The Company has accelerated completion of projects that are in inventory for capitalized software development under the agile method of development and that is leading to higher rates of amortization.

The Company has added tighter discipline to its development procedures by limiting the starting and completion of projects to within one or two, three week sprints. This speeds in the development work to completion and should result in higher amortization in future periods for capitalized software development.

Another added benefit of this development method is that our customers will see greater velocity, increasing their confidence and all of our technology solutions. The Company recognized $575,000 and $429,000 of share-based compensation for the first six months of fiscal 2020 and 2019 respectively. As mentioned, last quarter the Company expects share-based compensation to trend higher in fiscal 2020 as compared to last year.

The Board has continued to favor equity compensation for executives as opposed to the Company’s cash. Further, the Company’s development partner is receiving a portion of their compensation in stock, which is reported in the share based compensation figure.

The Company reported income from discontinuing operations, net of tax for the first six months of 2020 and 2019 of $4.7 million and $2 million respectively. The discontinued operations for fiscal 2020 includes a gain on sale of $6 million. The discontinued operations in fiscal 2019 represents the income from the ECM assets that are categorized as discontinued operations.

The Company has $800,000 of the original proceeds from the sale of the ECM assets held in escrow that may be released May 2021 unless there is an impairment that is discovered of the underlying assets sold. The Escrow funds are reported in the Company’s balance sheet as other assets.

Finally, the Company recognized an income tax benefit in the second quarter for continuing and discontinuing operations of approximately $92,000 and an income tax expense of $2000 for the three months of Q2 2020 and 2019 respectively. The Company has substantial federal and state income tax net operating loss carry-forwards that may be used for the gain on sale of the ECM assets. We do not expect to pay any income tax for the full fiscal year 2020.

For GAAP purposes, the income tax originally reported in the first quarter of 2020 related to the gain from discontinued operations will be reversed out during the remaining quarters of this fiscal year.

Moving to the balance sheet. We finished the quarter with approximately $5.7 million of cash on hand, compared to $1.2 million at the end of the second quarter of fiscal 2019. The Company generated $5.4 million in the sale of the ECM assets, net of the term loan repayment. Additionally, the Company applied for and and received a PPP loan of $2.3 million in April 2020.

Beyond operations for the first six months of fiscal year 2020, we invested $1,094,000 into the capitalized software development asset, primarily new functionality for our key client solution eValuator as compared to $1,543,000 in the first six months of fiscal year 2019. The continuation of this spend and development of the eValuator platform is deemed essential to expand our sales velocity through extended capabilities for inpatient and outpatient module. 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 from a standpoint of timing, nature and type of spend. It’s worth noting that in the Company’s MD&A disclosures, total research and development costs have come down substantially from prior years. This is the result of our previously disclosed rationalization on January 31, 2020 and our ability to focus development attention on the Company’s growth engine eValuator.

During the first six months of fiscal 2020, the Company made no payment on the term loan as it was principle free for the first 12 months. The term loan balance was $4 million when we closed with Bridge Bank on December 12, 2019. The term loan was repaid upon closing of the sale of the ECM assets. The Company did not draw on the revolving credit facility during the first six months of fiscal 2020.

The PPP loan has no repayment requirements for the first seven months. Additionally based on certain requirements, the company may not be required to repay a portion of the PPP law, the criteria are still being finalized by federal regulation. So we will not attempt estimate any amounts that may be forgiven under the loan at this time.

We will provide any appropriate update to this information in our third quarter financial performance report. It help me [Phonetic] is not in a position to provide guidance for fiscal 2020 due to the continued uncertainty around the effects of the novel Coronavirus. However, we did want to provide measures to help our investors understand the size and shape of the build forward streamline health.

The company will continue to report DCM revenue as discontinued operations in fiscal 2020 and it will impact all prior periods. With company reported $5.7 million in revenues and the six months ended July 31, 2020. This was the higher end of the spectrum. We indicated during our earnings call at the end of the first quarter 2020.

We believe the revenues will begin a modest increase from Q1 and Q2 2020 levels. Depending of course on the timing of for [Phonetic] as you all sales and any change in the operating environment as a result of Coronavirus. The fiscal year 2020 as previously reported the company projects to generate a negative adjusted EBITDA. The effects of the Coronavirus have increased our estimate of the shortfall in adjusted EBITDA for this year.

The company is running the business. So it’s, [Indecipherable] it will need, no other operating cash through the end of next fiscal year. We are attempting to solve for that through operating cost controls in our back office functions. We have no intention of decreasing our investment in the company’s growth engine, eValuator. Once again, we are not intending for these comments to be considered guidance, rather they are an effort to help our investors understand the way we are thinking about management of the business through this growth stage. We are beginning to see our organization become a growth company. The company will provide guidance as soon as there is more certainty around the timing of the return of our macro economy as it relates to COVID-19.

That concludes my remarks. But before I turn the call back to Tee, I wanted to say again that I am very proud of our team’s accomplishments over the last few quarters. We are realizing a new culture of velocity and execution. I am highly confident that you have seen and will continue to see financial results that will support my confidence in our new Streamline organization.

Wyche Green — President & Chief Executive Officer

Thank you, Tom. There has been no shortage of evidence about the hardship hospital systems are facing today. Kaufman Hall recently reported that nationwide 2020 hospital operating margins are down 28% through July compared to the same period of 2019 even with the federal funding provided by the CARES Act. This is very believable. In fact, among the scores of recently published articles regarding the ongoing impact of the COVID-19 pandemic, the well-regarded Cleveland Clinic recently reported a 15% revenue shortfall during their second quarter relative to 2019 against increased operating expenses, resulting in an operating loss of nearly $202 million compared to an operating income of $116 million during the second quarter of 2019. This environment reinforces important to evaluate this paradigm shift to pre-bill coding analysis. By efficiently ensuring revenue integrity, we can help hospital systems avoid high value errors while getting accurately coded bills out the door sooner thereby improving cash flow.

We continue to believe in the strength in many benefits of leading an industry movement to pre-bill coding analysis to improve revenue integrity. Our customer success team is working to ensure that all of our new eValuator clients will be happy to serve as references to future eValuator customers as they come online. And as Randy mentioned, we are encouraged by the potential network of reseller partners that we are engaging. Today, we are singularly focused on bringing world class products and services to the mid revenue cycle management market, which according to research and markets is expected to grow to $4.5 billion by 2023.

We have plenty of greenfield to cover and we believe our industry is right for the kind of disruption that our eValuator revenue integrity program can bring to the front-end of the billing process. Our suite of solutions is specifically designed to solve some of the market’s largest pain points, including the need for improved data accuracy, minimization of coding errors and shortening the claims reimbursement cycle. Despite the challenges of today, our growth engine is turning on. This quarter we grew revenue while shrinking expenses, met our bookings target and maintain a clean balance sheet. I remain confident in our team’s ability to execute and believe firmly in the future of Streamline Health.

Before we begin our Q&A session, I would like to extend my heartfelt thanks to the team members at Streamline for their hard work and perseverance during the enormously challenging time. Your contributions enable us to support our hospital system customers and ensure they have the tools they need to free up time and resources to provide quality care for the communities they serve. Thank you all for your support of Streamline Health and for your support of our vision.

Now, I would like to open the call up to your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is coming from Matt Hewitt from Craig-Hallum. Your line is now live.

Matt Hewitt — Craig-Hallum — Analyst

Thank you for taking the questions. Congratulations on the strong bookings this quarter. The first question regarding hospital budgets, you spoke and gave us some data points there. What have you seen and obviously, the pandemic — the closed elective procedures. Those have started to come back in June and July. In fact, vendors in spine and other markets have talked about a pretty strong rebound in those months in particular. What have you seen given that your quarter end in July, maybe even in August, what have you seen from a hospital budget perspective, has there been improvement there?

Wyche Green — President & Chief Executive Officer

Yes, Matt. Thanks for the question. This is Tee. I was on the phone yesterday with the large health system in the state of Georgia with their CEO and he was talking about their capacity in the health system itself is relatively full. However, it’s not full with the number of elective surgeries and the type of high margin business that they would be accustomed to because of the backlog of COVID-19 call it 20% still COVID-19 in the system, but the people for 6 months that didn’t come into the system that needed to have some type of treatments done, that’s what’s flowing in. So, it’s still — the health systems are relatively full, but I still think it’s low margin business to this point and that backlogs kind of flow through. Now, that’s ironically good for us, because what it’s done it highlighted the need for revenue integrity platform. I mean, it’s one thing that the system when everybody is making a ton of money and things are going really well, sometimes it’s hard to get people’s attention on what we were doing. I think what this last 6 months has done has highlighted the need for pre-bill auditing technology in a cloud platform like eValuator. So, we are going to see — we are still very cautious, but the following is happening around the country. The flu season — the guys have been on the phone we think it’s going to be a relatively light flu season, because of our awareness. We are washing hands, we are wearing masks, we are social distancing, that alone would is going to knock back the traditional flu, and they think that’s going to allow the elective and more high margin procedures to pick back up. So I don’t have a crystal ball, but that’s my thoughts as of right now.

Matt Hewitt — Craig-Hallum — Analyst

No, that’s really helpful. Thank you. And then I think Randy, you commented on a substantial increase in the order size for your eValuator. And I am wondering, what do you think or what are you hearing from customers? What is driving that increased booking size if you can put your finger on it?

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Yes, I think we can. Our financial model, our pricing model map is based on bed size. And what’s happened with our prospecting in say, the last six months is that we are gaining traction and conversations in more and more of the larger hospital systems in the country. So we announced a while back, Matt, that M held Fairview in Minneapolis, very large 2200 bed system. My team mentioned this morning, just signed last week, another large system, all those types of opportunities take us beyond what had originally been sort of the target of about a $300,000 a year for 3-year SaaS fees. Now our pipeline averages much higher than that doesn’t mean we will get them all and we still have some in the $0.25 million a year range, but that’s what we are finding.

Matt Hewitt — Craig-Hallum — Analyst

Got it. And then the audit services obviously that probably saw the biggest impact, I would think from Corona virus, the inability to get into the facilities, obviously the impact from the electives and budgets and all that you talked a little bit about a nice ramp or rebound. I think Tom mentioned this, a nice rebound in that business is that catch up? Is that kind of making up for some of the lost revenues last quarter, or are you going to see or expect to see that actually that growth kind of accelerate because of what’s going on with the pandemic

Wyche Green — President & Chief Executive Officer

Yes, Randy, why don’t you take that just consider what you think maybe correlate existing contracts, we just we have closed and then the new prospects what they are saying?

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Yes Absolutely. Yes, part of that is, is exactly that math. I mean, what transpired in the springtime, right, March, April, May, was sort of this inundation of Covid cases. And as you know, there are brand new codes for that which we put into eValuator within days. But that kind of said, we are not quite sure that we are need to do post bill audits that our auditing team tends to do right away as they fought that battle. Part of what we have seen last quarter and this quarter is more opportunity to get our foot in the door with brand new clients with audit services at a modest level. Most people in the audit services business if they are changing, or coming to the market for the first time, which is a bit rare, tend to kick the tires first by using a smaller pilot session, maybe $15,000 to $20,000 worth of opportunity for us and assuming we hold up our end, then also when you get all the quarterly or bi-annual audits and that can grow. And I am pleased with the progress we have seen there. Tee and I think I told everybody this, Tee said at the outset look, eValuator is our future and we believe in leading that industry movement to pre-bill, but one way to get into the door there is to go with the inertia of if you do post, they will let us help you with that, but then let us show you how our technology makes our post-bill analysis and audit services more effective. So, I think that’s what we are seeing and I think we will see some more of that hopefully going through the second half of this year.

Matt Hewitt — Craig-Hallum — Analyst

Got it. Alright. And then one last one and then I will hop back, when you are talking about your pipeline and thank you for all the clarity there, but when you are talking about your pipeline, is that all direct business or are you including some of your reseller opportunities in that pipeline as well? Thank you.

Wyche Green — President & Chief Executive Officer

Yes, Randy, go ahead.

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Matt, it’s an easy answer, all direct.

Matt Hewitt — Craig-Hallum — Analyst

Got it. Understood. Thank you.

Operator

Thank you. [Operator Instructions] Our next question today is coming from Brooks O’Neil from Lake Street Capital Markets. Your line is now live.

Brooks O’Neil — Lake Street Capital Markets — Analyst

Good morning, guys and congratulations on all the progress you are making. I was hoping to kind of start at the high level and just it seems to be that your ability to lead the movement to pre-bill and cloud in the billing process, probably your small stature is important, but it’s also going to be important to see some of the other players in the industry moving in this direction. So, can you just give us a sense to what’s happening in the competitive environment and I am kind of thinking a little more competitive activity might be good for you guys. So, tell me what you are seeing out there?

Thomas Gibson — Senior Vice President & Chief Financial Officer

Yes, one, Brooks, thanks for your comment and thanks for your question. The team at Streamline has made tremendous progress. And while I do think some competition is healthy for any industry, I would like to keep it quiet right now. We are doing pretty good, so.

Brooks O’Neil — Lake Street Capital Markets — Analyst

Right.

Wyche Green — President & Chief Executive Officer

We have — I mean, Randy and his team with the restriction we did in research and development, product management, our customer success team, it’s enabled our growth engine to do what we said it would do once we had the building blocks in place, regardless of what’s happening competitively and that’s what I am most excited about is the pipeline — well, the recent deals are evident. I mean — and the pipeline continues to grow of just world class new logos out there that are saying this is critical. We have to do something different in the pre-bill world and this eValuator cloud platform makes all the sense in the world. So, that’s what we are focused on, yes, there is competitors out there, but there is not anybody that’s doing pure what we are doing. So, I kind of like that right now. Like I said, in the beginning, we want to get a head start, we know it’s coming, but Randy, you want to comment on any specific players of what we are seeing in the recent transaction kind of who was there or who did we displace?

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Sure. Brooks, I would say that the two providers that have been in the market a little bit and they are a little bit long in the tooth, which then implies that some of their technology is yes, ICD-9 written originally and we have been in ICD-10 now for years, but we are seeing a little bit of the smart technology where we have won a number of deals there and then a little bit of the older 3M audit expert, but we are not targeting that, right. I mean, I think to Tee’s point, the reason we are having conversations with large brands which you would be familiar, whereas before we never did is because of the utility of this technology, the concept of moving to the front end of the billing cycle to make sure that you have done everything correctly is inarguable and it’s allowing us to do some prospecting to get into places that where heretofore we couldn’t have. And so I would say to you in general, the Greenfield comment that the team made at the outset remains yet on occasion, we run into someone that knows about it and says, I have already got this, are you better. We have run an analysis and if we are better, we are better, if we are not we are not so far in all cases we are better.

Brooks O’Neil — Lake Street Capital Markets — Analyst

That’s fantastic. That’s great. All that color is fantastic. So one other question I had was obviously, you had a solid relationship with Epic. And I am just curious if you feel the need or are seeing any traction with any of the other big players out there in from that perspective?

Wyche Green — President & Chief Executive Officer

Yes, go ahead, Randy.

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Sure. Interestingly this fiscal year, we have landed a number of new customers that are either 100% or at least have an academic facility and almost universally these academic facilities are Epic-based. So to your point, it certainly doesn’t hurt to be well-integrated with Epic if you will and to be a member of the Epic app Orchard, as you know, Brooks. I would suggest to you that we are seeing a little bit of opportunity in almost every other EHR or EMR-based facility, you can name whether it’s Meditech sooner and a little bit of Allscripts, but the lion’s share of the market is owned and operated by Epic. And as long as you can get along with them and show them from that get go, but it’s not an issue that we integrate very nicely and smoothly with them. And we have plenty of referenceable accounts. Yes, we are Epic and it’s easy to do. That makes it a lot easier for us. So I would suggest to you that being from Switzerland and being agnostic to everybody is really a plus for us.

Brooks O’Neil — Lake Street Capital Markets — Analyst

That’s fantastic. So, maybe just one more question, obviously, you guys have accomplished a tremendous amount in terms of product in the sales and service organization that Tee talked about at the outset, but are there one or two or three things that you would consider key needs or key priorities for the rest of the year and the early part of 2021 or do you guys feel you are in pretty good shape and now the ball is in Randy’s court to just sell like health?

Wyche Green — President & Chief Executive Officer

Well, it’s definitely in Randy’s court, but he is going to — he is backed up by a world class team now on the product management side, the research and development side and the customer success side. So, you can’t build a growth engine without solid concrete under you and we have done that and the teams are getting stronger the product roadmap, the amount of functionality that our teams are able to design code test and release is I don’t have the numbers right in front of me, but it’s probably 4x or 5x more than the teams ever done in the past. And so we are chewing through the roadmap nicely and that’s going to enable Randy to go echo more and more. So, Brooks, there is not anything that we see out in front of us this mystic or and I don’t believe anything we are trying to do is rocket science, it’s really about execution.

Brooks O’Neil — Lake Street Capital Markets — Analyst

That’s great. Fantastic. Congratulations. Keep up all the good work.

Wyche Green — President & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question today is coming from Jim Kennedy from Marathon Capital. Your line is now live.

Jim Kennedy — Marathon Capital — Analyst

Thank you. Hi, guys. Congratulations on the progress.

Wyche Green — President & Chief Executive Officer

Thanks, Jim.

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Thank you, Jim.

Jim Kennedy — Marathon Capital — Analyst

Most of my questions have been asked and answered thank you, just had one when you said that you have a development partner that is receiving stock or equity in lieu of cash compensation, are these restricted shares are they freely tradable and can you give us an idea of the approximate volume or number of shares?

Wyche Green — President & Chief Executive Officer

Sure. Tom, go ahead.

Thomas Gibson — Senior Vice President & Chief Financial Officer

Thank you, Tee. Yes. So, it is a minor portion of their overall compensation. They are unrestricted shares. And today, you are talking about 160,000 shares, the earliest that they maybe converted to public shares is 2021.

Jim Kennedy — Marathon Capital — Analyst

Okay, so they are restricted in that regard.

Thomas Gibson — Senior Vice President & Chief Financial Officer

Correct.

Jim Kennedy — Marathon Capital — Analyst

Okay. Very good. Thanks, guys. Keep up the good work.

Thomas Gibson — Senior Vice President & Chief Financial Officer

Thank you, Jim.

Operator

Thank you. We reached the end of our question-and-answer session. I would like to turn the floor back over to Randy for any further or closing comments.

Randy Salisbury — Senior Vice President and Chief Sales and Marketing Officer

Thank you all for your interest and support of Streamline Health. And if you have any additional questions or need more information, please don’t hesitate to contact me at randy.salisbury@streamlinehealth.net. We look forward to speaking with you all again in December when we will discuss our third quarter 2020 financial performance. Good day.

Operator

[Operator Closing Remarks]