Vitalhub Corp. (6OVA.F) Earnings Call Transcript & Summary

Hello, and good morning, everyone, and thank you for joining us today for our 2025 second quarter conference call. With me on the call today are VitalHub CEO, Dan Matlow; and CFO, Brian Goffenberg. [Operator Instructions] Now, before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release and in our SEDAR filings. As well, our commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the 2 can be found in our SEDAR filings. Now with that, I will hand the call over to our CFO, Brian Goffenberg, to go over the financial highlights for the quarter. Over to you, Brian.

Good morning, everyone, and thank you for joining the call today. We are pleased to report results for the second quarter of 2025. In the June quarter, we added $1.9 million of organic annual recurring revenue and delivered a 26% adjusted EBITDA margin. In a moment, Dan will provide an update on the business. First, I'll provide a summary of our second quarter financial performance. Our annual recurring revenue was $79.6 million to close the quarter, an increase of 55% over the prior year. Over the previous year, organic growth contributed 14%. In the second quarter, total revenue was $23.9 million, an increase of 47% year-over-year. Recurring revenue, or the Term License, Maintenance, and Support segment, was $19.9 million or 83% of total revenue. This compared to $13 million or 80% in the prior year period. We added a new segment, Virtual Care Term License, that relates to the Attend Anywhere platform acquired with the Induction acquisition. Virtual Care Term License revenue was $300,000 in the quarter. For reference, total Induction revenue was $500,000 from the date of closing to June 30, 2025. Perpetual License revenue was $1 million in the quarter, an increase of $22,000 in the -- over the prior year period -- an increase from $22,000 in the prior year period. Services, Hardware, and other revenue was $2.7 million in the quarter, a decrease from $3.2 million in the prior year period. Our gross margin was 81% of revenue, consistent with the prior year period. Net income before taxes was $2.3 million, up 63% year-over-year. Adjusted EBITDA for the quarter was $6.3 million or 26% of revenue compared to $4.2 million or 26% in the prior year period. We think this is a strong proxy for cash flow. We closed the quarter with $94 million of cash. After June 30, we paid about $38.5 million to Novari and repaid $15 million bridge loan. All considered, our cash balance is north of $45 million to date. We're in a comfortable position to execute on growth and acquisition opportunities as we work to integrate the new acquisitions. And with that, I'd like to hand the call to Dan for an update on the business.

Good morning, everyone. As I always do, I'm just going to do this in a little bit of an informal sense and then very happy to take questions from analysts and try to fill in the gaps that we haven't told any -- but yes, we are happy with our Q2 results considering we had MedCurrent and Strata just a little while ago and both those organizations came into the organization on a -- not really on a profitable basis and there's still work to go on into those organizations. So the rest of the company definitely came up to fill that scenario in respect to our costs and our basis there and we're excited about that. We're still working on Strata and hopefully expect to get some more gains from that. Again, we like to think that the quarter again just proves the model. And I think the model is the most important thing that we're trying to focus on right now is that, we like to think it's a good model. It's doing what we hope it will do and we continue to execute it in our teams that we acquire and our management team, executive team, understand what we're trying to do and what we're trying to accomplish. And we're really getting some momentum internally in terms of what that's about. We're busy though. We -- it's really 4 acquisitions and some significant size over the last 6 months and we're continuing to work on those every day that we're doing. We're at the $90 million ARR level. Hopefully, it's going to be pretty cool when we can hit that $100 million ARR level, but it's knocking on the doorstep and we continue to work and it just provides that really big base of good revenue that allows us to do what we need to do and if we had to absorb some bumps in the road. So we're excited to be able to do that. Organic growth continues to do what it does. We continue to provide it. And our hope is we continue to provide it. Again, as I always say here, we're not a single-product base vendor. We've got a whole bunch of multiple ways to make organic growth and we've got a whole multiple ways of not making organic growth. So predictability is challenged for that. And -- but so far, so good, we continue to do that. But I always caution and state in our investor meetings, like, don't get too excited if we do $2.5 million of ARR and don't freak out if we do $500,000 of ARR in a quarter, it's just that type of business to do it. We like our ARR, we want our growth, we want our organic growth, but we're -- it's always cost first, the bottom line first here for us and that's sort of how we work here as an organization. The macro levels still seems pretty good for our organic growth levels. We're still seeing government activity in segments of our portfolio where they're buying solutions and we're seeing changes in other parts of the portfolio where they're not buying it as much. And it's the value of having all these different acquisitions is, when one area is not going, the other areas can. So we're -- we continue to move and continue to do what we're doing. There's -- the -- this continuing on a bunch of different fronts. I'll talk a little bit about Induction. Induction is a U.K.-based business. It's a challenging acquisitions in terms of it was publicly traded and there was a significant amount of costs in that business that we felt was not being run correctly and we felt that if we could take this thing over and we paid a pretty good price for the organization, but we have work to do to get that business rightsized and we're in the middle of it right now. So we're working hard at it and we expect to get a lot of the work done in Q3 and hopefully start rightsizing that I think in Q4 and then a little bit by little bit on the quarters after, but it's -- we're not taking our time here and we're moving pretty quick at it to try to get it to the right format that we need. We really did that acquisition for the Zesty Solution. We didn't have a portal-based solutions in that, really, that provides the front end to get into health care organizations. So we have our own electronic health record system, such as Trade and Caseworks, and Diamond and Twinkle in the U.K., that can use a front-end solution. So Zesty will become that front-end solution where we're required to do that. And we also felt there was opportunities to integrate that solution with our Intouch and our Synopsis and MyPathway solution to provide one comprehensive solution to the marketplace where it's needed. So we're excited about that product and what it can do. It has a partnership with Cerner in the U.K. So every time Cerner is sold in the U.K., Zesty is sold along with it. So it continues to do that business to do it. So we continue to work on that. Attend Anywhere, very different product. We purposely took it out of our ARR numbers because it's not ARR, it's user-based license based on usage and there's minimum thresholds, but there's no real contractual requirement to do -- to recur or not recur. So it's usage-based type of product. So we did not want it to model what we call pure SaaS software ARR. And we leave that as a separate segment. So us and the analysts can dissect that on its own basis. So we think it was a smarter thing to do with it. On to Novari. We are really excited about Novari. It was a bit of a competitive process to get it and we got it. Novari has been around for a very long time, a very strong brand in Canada based out of Kingston and it's done some good work and it has started to make headway in the U.K. and Australia. So we think we can take it to the next step in U.K. and so forth. There's a lot of buzz in the Canadian marketplace for the referral management-based system and connecting organizations together and Novari is right in the middle of that for certain pathways, primarily the surgical and what they call central intake, which is really mental health and imaging referrals. And we think it's -- it will provide a significant amount of the organization's ARR going into '26 and '27 and onwards of our business. So we're looking forward to that business and working together. We've known each other for a long time and we're excited to have John and -- John Sinclair in the team as part of VitalHub. It's really a good fit and we're excited to do that. Where are we sitting now? What do we do now? We think we're in a pretty good shape. We're generating good cash. We're north of $45 million of cash in the account at this stage. So we're still coming out of here. We're generating cash. There still are other acquisitions that are coming at us and we're being a teeny bit more careful trying to get this thing -- get these guys digested a little bit, but if they're a little on the smaller side or if it's something that we just have to do because it makes sense, we're going to do it. So we continue to move along in all those directions. And that's it for me today. I'd be happy to answer some questions.

Great. [Operator Instructions] Today's first question comes from Gavin Fairweather of Cormark Securities.

Maybe just to start at the funding level, the NHS just announced a massive tech budget increase recently. Dan, maybe you can just touch on your read on their priorities and which of your solutions are well-suited to benefit from that increased spending?

Yes, it's interesting in the NHS, like they're in a bit of -- there's money floating around, but they're in a bit of flux as well, at least in the ICB level, which is where we sell some of our product set to do it. The product sets that I actually think will get money from this stuff will be the Intouch, Zesty, MyPathway, Synopsis type of products. There's PEP project funding that they called and I forget what the acronym is, that is being released and it's a significant amount of money in our area that our teams are currently going after in those areas. So we're hoping to get a bunch of that. That money also fits into the referral area. So we do believe -- we know we've got a half a dozen Strata implementations that are there. We think Novari is close on its first deal in the U.K. and our teams are getting up to speed pretty actively on the referral-based projects. So we're definitely trying to pivot a little bit toward those things in the U.K. But yes, there's always funding rolling around in the U.K. in different areas and it's just trying to find it and get part of it. Yes, we'll go after it. We'll see what happens with it and go from there.

And then secondly, on Novari and Induction, I know you did due diligence these things like crazy from an external perspective, but now that you own them, I'm curious, what's surprised you about the organizations or products now that you're kind of under the hood?

Novari, what was the other, Gavin? Sorry.

Induction.

We're just -- yes, Novari, we're literally, I don't know, 4 or 5 weeks into it, right? So we're going there. Induction has a really a lot of really good people there that have got some really good experience and have done some things, just too many of them. So we're excited about some of the talent that we're potentially going to get there from that organization, especially on the technology side, to do that. So there's some good people there and we think they're going to help us in a lot of different areas and really good methodologies, good ideas, good people. So it's a bigger-scale organization. I think they all know how to run properly. That's a bit pleasure to do. Yes, it's the same thing with Novari. Yes, it's a company that we've known for a long time and we've evaluated over the years and they purposely have made commitments to process and change and in putting in proper metrics and so forth to monitor its business. So pretty good structure and really run pretty well, probably the best-run company that we've acquired so far. So yes, that's pretty cool when you get something that big and they already understand how to run properly and we can get our stuff. We can get joined at the hips and they actually got some solutions. I think that will overall help us as well. So it's pretty good when you walk into a company and our integration team goes, hey, guys, we got a problem, they actually do this better than us. We can't take them backwards. So -- and we think we do pretty good on their stuff and not all of their stuff, but some of their stuff. So it's a really good-run company and we think it's going to be really helpful for us.

That's great. And then lastly for me, just sticking on the Novari theme, given their pretty sizable installed base in Canada and the sales team that they have there, do you think that can end up being a bit of a channel for your U.K. products? You've got a much bigger installed base in Canada, just to help accelerate the adoption in Canada, those U.K. products?

Yes. Good question, Gav. Well, we do think they are. They have a couple of salespeople there. Like Canada is not a big health care IT market and if you got to go there, there's -- I would call a little more than a handful, but there is not that many like highly experienced sales reps that are running around here unless they're working for the Cerners and so forth of those worlds. But they have a couple of salespeople that I would regard as like blue-chip A1 salespeople. They've been doing this for both of them for, I think, north of 20 years in this market. They got great connections. And I think they'll do -- I think our coverage along with our Canadian team is just going to take us to a little bit of a higher level in Canada. So that's a little bit exciting.

Congrats on the strong numbers.

The next question comes from Doug Taylor of Canaccord Genuity.

I wanted to ask another couple of questions about Induction Health and as it relates to how we should model it in here. They were, I think, doing about $20 million in trailing revenue, you've added only $4 million to the ARR, which is just the Zesty and I think you explained well your rationale for doing that. So this new line for Attend Anywhere, can you help us with the modeling parameters around that, how we should think about the size of that line initially for a full quarter, seasonality, maybe some churn if that's what we should anticipate and bake into our model?

Yes, it's about a little less than GBP 4.5 million of -- and it variates. It could go lower than that depending on quarter-to-quarter, Doug, just on usage. That's probably a number to use there for it in terms of where it's starting for it.

And that's an annual number, right?

That's an annual number, Doug. Churn, they have gone through pricing changes and usage changes to remain competitive with other organizations to do that. There could be churn in this product. We're prepared for churn on this product and it's one of the reasons why the price point was the price point for that organization. So we're prepared for it, but we also think it's going to generate some significant cash for us. And we're not so sure it's going to churn very fast either if it does at all, but we're suspicious of it only because of the Zooms and the Teams type of businesses. There are definitely a lot of features in Attend Anywhere that are clinically based and I think the users like it. I think they've done a really good design of that application. But it's just you've got IT groups that are looking for uniform base and want to get Zoom and other stuff in there. So it could come under pressure and -- but it might not. And if it doesn't, we've modeled in that there will be a little bit. I don't know how to look at it in a productive way, or at least going to sit on this call and give that information to you because we actually don't really know ourselves what that will happen. I know that we're -- the way that we're planning to structure it and do it, we're going to make some really good money at it while we have it and maybe for a long time. So that's how we're looking at that asset.

Okay. So to use the GBP 4.5 million annually as and just model that flat line is not a bad place to start with pretty high margins?

Yes. Yes. It is. Well, not margins yet.

Well, I'll ask more about margins in a minute, but just to close that thought, I mean, there's the balance of the -- there's a pretty big step up in services revenue that came with Induction as well and Strata, if I'm not mistaken, that would form the balance of a -- the sort of $10 million you've talked about to $20 million?

Yes, they have done -- they have in the past have done what I'll call one-off services projects that had nothing to do with their technology. So we don't think the services revenue is going to -- at least under our [indiscernible], we're not going to do that work. We're going to do services work to our product. We're not -- we're a software company, not a services company. So that could be a little bit different as it goes forward. But there still is services on every single Zesty implementation that happen that is pretty -- that is significant.

Okay. So it will step up, just maybe not the full amount that we've seen historically. I appreciate that. You mentioned margins. So maybe I'll ask a question, you've got Novaria in the fold. And despite everything you said about how well it has been run historically, I believe you've also identified R&D as a function where there's a lot of promise in terms of synergizing with VitalHub's operating system. I know it's been only a month, but maybe you can talk about near and medium-term integration milestones as I'm sure you've begun the work there and sort of map us the path back to 25% EBITDA margins that we're now seeing from VitalHub as both of those acquisitions are folded in here? It's a question I get a lot from investors.

Yes, I think I don't think Novari is going to be one of those organizations that's given us 25% EBITDA overnight here, I think we'll get it profitable and we'll look at it. And then the real -- the real test is how fast that revenue comes in that we see coming at them pretty close, right? Is it going to be -- how soon in '26 is that stuff going to start coming in and start getting onto the books, right? So if all that revenue is coming in, they're going to need people to implement it and do stuff. But at the same time, we believe there's a program for adding people. We already have added people in Sri Lanka and doing work for them. They have used a group in Colombia. So they're prepared to use offshore development group. And so we are moving pretty quickly to try to help that out and see what we need to do from other parts of the organization to help them deliver, which we think will be a significant amount of business there.

And so Induction may be a little quicker than that based on what you're seeing and the work you're doing?

Yes. Yes.

Yes, okay. And so maybe last question for me then, you've been pretty consistent, remarkably so in delivering double digit ARR growth. And I understand everything you said about the lumpiness quarter-to-quarter you alluded to in your prepared remarks. But I guess I just want to gauge your confidence in continuing to do so on the recurring revenue side as you scale into $100 million in ARR. I ask this because I think if I look at consensus expectations, it shows a bit of a deceleration into sort of the high single digits by my math. And I just want to explore with you whether the pipeline you're talking about with Novari and others supports continuing to punch at a double digit clip here?

Yes, it's so hard, Doug, and I just -- and the internal part of me always wants to be warning our group on the cautious part of that side of our business, like we got some outlier implementations of software that -- a lot of these companies, like remember what we're buying, right? They're owner-operated businesses that have done it, right? And before they get into like their core business, like they [ diddy daddle ] and they pivot a bunch of times. And so we got outlier solutions that are out there that we know at some point are going to churn out of there, well, we've been pretty -- although, health care is pretty resilient and they continue to keep growing. But like when we buy these things, we go, well, okay, let's model that that's going to stick around for 2 years and it's still here like 6 years later and no indications of it. But there are pieces of software roaming around here like that we think are going to churn throughout this process. And then you have one like quarter of no sales and then boom, all of a sudden, you're like in this like single low-volume type of business and boom, it grows. And then other quarters like there's a funding for -- coming in from some area and you've got to get this by a certain date and just boom ARR grows like crazy, right? So it just could be all over the map, right? We're excited about what Novari can bring. But that could get offset by some slowness of no funding for other types of solutions that we might have had a couple of years ago. So I think our comfort level still sits in this like $10 million to $15 million area to do that. We've always said over time, as that denominator grows, the ARR is a bit harder and it's like we could be going like to this 12, 28, 10, 30 type of business. I still believe that's probably where it's going, as this type of business, it just gets harder to get that amount of deals through there. So yes, that's where the challenge comes in us projecting that to everybody in a pretty effective way. But I've been saying that for a while and historically, we've been doing what we do and there's no indication that says that should change. But I do want everyone always to be prepared for like don't get too excited when it's too high and don't get crazy if like we crapped it, we just have a crappy quarter because the model is the model and it's not going to change anything.

Yes, you've been consistent on that. Okay. I'll pass the line.

[Operator Instructions] The next question today comes from John Shao of National Bank.