Vitalhub Corp. (VHI) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us this morning for our Fourth Quarter 2022 Financial Report. 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 within the meaning of applicable securities laws including, among others, statements concerning the company's 2023 objectives, the company's strategy to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Such forward-looking statements reflect management's current belief and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the 2 can be found in our MD&A and -- which is available on SEDAR and our website. With that, I will hand over the call to our CFO, Mr. Brian Goffenberg, to go over our financial highlights for the quarter. Please go ahead, Brian.

Good morning, everybody, and thank you for taking the time to join us this morning. 2022 was another strong year as we continue to focus on our corporate strategy and milestones and growing our client base organically. With growth in revenue, gross profit and bottom line net income, we continue to grow our health care clinic offerings to our client and continue to gain market share in our target markets. On that note, I will share our financial highlights for the quarter and the year. Total revenue for Q4 2022 totaled $11.3 million compared to $6.9 million in Q4 '21, an increase of 63% year-over-year. Total revenue for the full year 2022 was $40 million compared to $24.7 million in fiscal 2021, an increase of 62% year-over-year. Revenue from term licenses made in Q4 2022 was $8.7 million compared to $5.3 million in Q4 '21, an increase of 65%. Revenue from term licenses, maintenance and support for the full year 2022 was $29.4 million compared to $19.3 million in 2021, an increase of 43% (sic) [ 53% ] year-on-year. The increase in term licenses, maintenance and support revenue had the impact of continued organic revenue growth from the company's being listing in a wide suite of products, capital revenue derived from acquisitions completed during the quarter and year. Revenue from perpetual licenses in Q4 2022 was $498,000 compared to $541,000 in Q4 '21, a decrease of 8%. Revenue from perpetual licenses for the full year 2022 was $3.6 million compared to $1.4 million in 2021, an increase of 150%. Revenue from professional services and hardware in Q4, '22 totaled $2.1 million compared to $1.1 million in Q4 '21, an increase of 87%. Revenues from professional services and hardware for the full year of 2022 was $7 million compared to $4 million in fiscal '21, an increase of 76%. Annual recurring revenue, or ARR, which we formerly refer to annual contract revenue totaled $31.6 million as of December 31, 2022, compared to $22.1 million as of December 31, 2021, an increase of 54% (sic) [ 45% ]. Sequentially, ARR increased by $5.2 million, an increase of 17%. The sequential growth was from organic growth for acquisitions and increases of foreign exchange value. Gross margin on total revenue in Q4 2022 was 82% compared to 79% for the same period last year. And gross margin on total revenue in the full year of 2022 was 82% compared to 79% in 2021. Operating expense in Q4 '22 totaled $7.3 million compared to $4.9 million in Q4 '21, an increase of 51% while operating expenses for the full year totaled $25.1 million compared to $17 million in fiscal '21, an increase of 48%. The increases are due to costs from acquisitions during the year and the [indiscernible] cost savings to be recognized, which can be longer for G&A expenses due to the nature. Net loss in Q4 2022 was $338,000 compared to a net loss of $606,000 in Q4 '21, decrease in net loss of 44%. Net income for the full year of 2022 was $1.2 million compared to a net loss of $1.9 million in 2021, an increase of 162%. EBITDA for the fourth quarter was $470,000 compared to EBITDA of $470,000 in Q4 '21. EBITDA for the full year 2022 was $5.2 million compared to $1.1 million in fiscal '21, an increase of 371%. Debt/EBITDA in Q4 '22 was $2.5 million compared to $1.4 million in Q4 2021, an increase of 82%. Debt/EBITDA for the full year of 2022 was $9.5 million compared to $4.5 million in 2021, an increase of, 109% year-over-year. The continued improvement is attributable to several factors including increased revenues combined with the improved margins of [ synergies ] in early acquisitions and management's continued efforts to reduce costs. Cash flow from operations was $6.1 million for the year ended December 31, 2022 versus $402,000 for the year ended December 31, 2021. Cash on hand on December 31, '22 was $17.4 million compared to $16.4 million at the end of 2021. With that, I'd like to hand the call over to Dan for an update on the business.

Thanks, Brian. And welcome, everybody. 2022 is a great year for us. I think we all remember that we came out of the -- into the year with a lot of expectations. Markets were still buoyant. I think we did one of the last capital raises of the year about a year ago, and we had a really great Q1, which led us to the year. But I think the biggest thing about 2022 is it's really leading us into 2023. I think I saw one analyst report used the word predictable. And I think that's where we've gotten ourselves as an organization. We got a lot of meat on the bone. So with that scale, which allows our business model to show really what it can do, and we always thought that as we got to the $50 million revenue rate, which we're knocking on the door on that, we could start doing some really interesting things. So for the total year, we came to the year with $22 million in recurring and we exited with $37 million of recurring [indiscernible] acquisition. So going in, we got $9 million order on recurring, which really gives us a really good base to run the business. And to do what we need to do to get the results that we're looking for. As Brian mentioned, we left the year with -- in Q4 last year, we had adjusted EBITDA of $1.3 million annualized; it's about $4 million, $5 million a year. In 2022, in Q4 we were close to $2.5 million. So we're entering the year at a $10 million in adjusted EBITDA rate. So we've doubled that, which really gives good margin and it starts allowing us to get some serious cash flow coming off of what we're doing. So we're excited of what we had to do. In Q4, again, predictable. We're continuously adding anywhere between $800,000 to $1.5 million of ARR per quarter. We've got close to $1 million of new ARR. We're starting to see our AR starting to spread across all of our business units a little bit more. U.K. still is a nice chunk of it, but we're starting to see some impact from our Hicom Group and we're definitely starting to see a really nice impact from our TREAT group in the Canadian sector, and we expect that as we go into 2022. As I said, adjusted EBITDA grew to $2.5 million. We're starting to see a little bit of a tail off in our professional revenue. That's by design. We only have the one unit in touch that does that, and we're really trying -- we tried to get that business model change to more of a recurring model. So there could be a little bit of blips in terms of a onetime revenue as we go into 2023, but we expect the ARR to camouflage that as that continues to grow. So we've been in good shape. Going into next year, we're starting with $37 million of recurring. We expect to continue to add our $800 million to $1.5 million per quarter. We expect our adjusted EBITDA to continuously claw its way forward as we produce more ARRs for our high-margin businesses and as we get more cost synergies, which we still got a lot of work to do there in terms of some of our newer acquisitions in terms of our Columbo based strategy. There's -- we have always been operating this company on the rule of 40, where traditionally, we've been a 20-20 company, 20% growth. I think you're going to start seeing it moving more to 25% on the bottom line, 15% of the growth as the denominator grows to do that. We're sitting on a nice cash balance of $17 million. We have [ $50 ] million of available other resources for both operating and for doing acquisitions. Acquisitions, we're being careful, but they're still in work and we still see opportunities, and we still expect to do it. So -- and we are starting to invest a little bit more in our sales and marketing at international level. We're trying to bring our U.K. products into Canada a little bit more robust. I think we made an announcement for some deals in Canada with the transforming systems work. The Intouch business, we've ramped up a team to sell that in Australia, and we've ramped up a little bit more of a serious team on the back of the Hicom acquisition to start moving stuff into the UAE in the Middle East countries. So we are putting a little bit of effort into a little bit more sales and marketing into those other groups. So we're excited about 2023, we got a good base to grow up. And I think that we're predictable and steady as she goes. You never know, we can have some great quarters. We've had some blips, but we've got a really good, solid foundation as we move forward. And I'm open to answer any questions that anybody has.

Thanks, Dan. [Operator Instructions] First question comes from Gavin Fairweather of Cormark. Please go ahead, Gavin.

Congrats on the strong results. Dan, you talked to the $15 million increase in ARR in 2022. It's just obviously, a mix of organic growth and inorganic. I guess when you're thinking high level about 2023, when you look at the organic sales environment and the opportunity set on M&A kind of in front of you, do you think that you could maybe repeat that level of success? Is that within kind of the range of outcomes? Or how are you thinking high level about the year?

The acquisition card is always a wild card out like I think we can, but we already added one acquisition. There's stuff in play and -- but it's -- we're pretty careful. We got cash, but we want to make sure that we use it properly, and we're generating cash now a little bit. So we're not going to make any mistakes on any acquisitions. I do see the visibility just based on our backlog and what our pipeline grows and so stuff is still at $4 million to $6 million of ARR next year, right? So that part is there. Can we add another $5 million, $6 million of ARR through acquisitions? Sure. I think we can. But I'm not here to commit on it, but it's there. We don't run our budget based off of having to do acquisitions. We run our budgets on what we have and acquisitions are definitely important and we want to do them. But at the same time, we want to make sure we're going to do the right ones.

Yes, that makes sense. And you referenced the Q1 of '22, which was just a blockbuster quarter from a sales perspective. And I know that maybe that was will be kind of tough to repeat. But how are you thinking about Q1 of this year, given U.K. fiscal year-end, the pipeline that you brought into the year and how sales are progressing?

It's definitely not going to be what it was last year. That is all onetime revenue from Intouch and that money is not available like it was at that point. But definitely a little bit of tightening of budgets in the U.K. for some of those products. But we've got deals that are coming over the line, and we have done deals that have come over the line and are really spread across all of our areas. We expect to still have a pretty strong quarter and still progress in the proper fashion and I don't think it's going to be like last year's gangbusters, but it's still going to be pretty strong.

You touched on budgets and funding, which was kind of my next question. And it wasn't really so much about Q1 of this year. But given that the new fiscal year is starting in a week in the U.K. Anything that you're hearing from your customers on funding or IT priorities for the year ahead?

Yes, I think it's always a balance. I think our solutions, especially our transforming product is really gaining visibility in the U.K. market, and we expect that product to continue through 2023. It comes from a different type of budgeting than our other products, and there's more NHS, the government body that's buying it versus the trust themselves. But the trust budget seems to be less and it seems to be tightening them up, but there seems to be money floating around at the NHS level that flows down to the trust. So it's -- I personally think it's definitely a little bit tighter than it was, but our U.K. team thinks there's still money floating around to do stuff and they always seem to come through in many different ways. So time, it's hard to really measure, but on a conservative side and he said, it is a little bit less, but I wouldn't be surprised if we could knock some big deals out of the block because we got some interesting stories that are percolating in many different spots.

Got it. And then maybe just on M&A. Obviously, you're very active in 2022. And obviously, it takes some time to kind of integrate all these things. So maybe you could just give us an update on how integration of some of the recent acquisitions is progressing. And I'm not sure if you have a sense of the total amount of kind of cost synergies, which are yet to be realized?

I still think there's [indiscernible] to some of the acquisitions that we made were pretty complex development environments that are a little bit more challenging to integrate, but we're moving along. To do that, our Colombo team has ramped up to like 115 people. We tend to ramp that up and work in dual mode for a while, while we move things across or move things into different areas. So we're in the process of doing that. There's definitely more to happen. It will happen all the way through 2023 and to 2024. It's always work in progress. It's hard to identify on a -- we definitely made some cost synergies type of stuff, and we've -- we move some of those cost synergies into a little bit more sales and marketing expenses as we start to ramp. We ramped up some teams in Australia and Canada to bring some of the U.K. products a little bit more robustness and into the Mid-East to bring those products there. So we are doing a little bit of investment in some of that to bring those over. So we are getting some cost synergies but we're earmarking, we won't do that at the expense of the Rule of 40. So we're still trying to make that happen. But we do believe some those U.K. products need a little bit more attention abroad so we have done some work to move those -- some increasing costs in those areas to get some sales and marketing going but not at the expense of still producing what we need to there.

That's very helpful. Congrats on your progress.

The next question is from Christian Sgro of Eight Capital. Please go ahead, Christian.

The first one I'll ask, when you think about 2023 and the backlog you commented on, where do you have the highest visibility this year on organic growth? And I'm wondering what you'd want to share on anything you're seeing geographically or across your products?

Yes. I think the 2 promising products going to 2023 from our perspective is the TREAT product in Canada and the Transforming product in the U.K. Both of those are starting to get visibility at a higher government level versus just at the individual areas. The TREAT product itself is I think we saw a provincial announcement yesterday, I have a huge amount of spending going into the mental health children's area in the Ontario marketplace, and we got the leading software product, but we're seeing a lot of attention in terms of that going on. We still have our Solicitor General deal, which we announced last quarter, which is in the process of being delivered and it's producing a significant amount of professional services that we expect to go right through 2023 and 2024 as we implement that, and there's still a fair amount of licenses to go through in that particular perspective. And these organizations all talk to each other and they all get connected. So you start to get a little bit of a pinball effect with these things starting to happen, and we're right in the center of that based initiative with the TREAT product. the Nova Scotia project is the outward facing project called MyAccount, which I've been talking about for years is probably becoming a reality. It's all that stuff is starting to go through. We're seeing some attention on the transforming stuff from a national perspective, visibility into what it can do and we got a big scale of that, but we're starting to see recognition of that at a pretty high level. And the Hicom business, those guys generate -- they bid on very large projects and a very strong development group. And they already have a pretty significant footprint in the UAE market, and we're starting to see more RFPs and tenders for activity in that marketplace, which they already got at some pretty nice wins. They're pretty bullish on doing that. Hicom has this large project called [indiscernible], which already was doing over $2 million of recurring a year and project just keeps expanding on a quarter on an often basis and adding revenue to itself. We've got a backlog of services work. We've got existing customers doing work. We've got new initiatives. The CDS business in Australia has consistently over years added business. We got many different ways to add revenue into the business now as we -- as I said, as we get scale and more meat on the bone. And I think you're going to see a little bit more of a spread out type of revenue stream coming from us in some areas, we'll have down quarters, and some areas we'll have up quarters. But we have different ways to skin the tiger.

That sounds helpful color. I'll ask just one more question before passing the line. I know you touched on Canada quite a bit there, but just wondering your view on the pace of deployments. You said the Sol Gen contract was going to be '23 '24, guess between Nova Scotia and everything else brought in Canada. Could we expect to get pro services left and then ARR to trickle through?

Yes, I think we've already seen our Pro services left, right? I think it will be continuous for a while here and as we add licenses to those guys on finished modules, the -- we should see lift in ARR in both of those projects, I think more towards the end of the year. as we keep going through those projects, but we do expect those to go through 2023 and 2024 with those projects and we're winning RFPs on other projects as well, not to the size of those guys, but there's still significant projects.

The next question is from Doug Taylor of Canaccord.

Yes. Thank you. The forecast for 15% organic top line growth, kind of $800 million to $1.5 million in AR added per quarter. Certainly, the highest and the most confidence I've heard you talk about is the expectations for the future. And so I guess my question is, what's changed here that's, if anything, that's giving you that confidence in your ability to add that kind of revenue each quarter. Is it something about the combination and the acquisitions you've done? Or is there something that's changed within your end markets that's provided that kind of visibility?

The geographical markets, right? So when you get the ball rolling with a particular product, it tends to lead into other organizations, right? So we're starting to see that on some of our product lines. And we've got a backlog just of our existing projects that we know that once we get stuff implemented, the ARR is going to grow on those particular projects, right? Sol Gen, the Nova Scotia projects, a lot of the Hicom work, which is not there yet, but we know that once we implement it, it's going to get there and sometimes these implementations take longer than we think, but eventually, they get there. So it also gives a little bit more visibility into what we can do plus we still are getting newer business, right? So yes, some of the products that are not as bullish as it was before, but some of them, I am, but things can change there. But a lot of it -- if you look at our deferred revenue, there's still a fair amount sitting there. that we just keep tapping into. There's, I think, Canada alone and we got a very big backlog of professional services work that we're popping our way through here and the teams are working hard to get through. But the true product is challenging to implement. But once it's there, it's good. But we know that there's projects going on. And we know that there's other customers that are watching these projects, and we'll need to go through those same initiatives. So we think we're going to get a little bit of [ nurture up ] in a lot of our areas.

Okay. And within the Canadian market, you've mentioned some of the increased emphasis in spending on mental health. But I mean, stepping back, we've seen obviously the federal government make cut deals with the provinces on some transfer payments to help fund healthcare expansion. I know a lot of that's primary care and areas that maybe you're not necessarily directly involved with, but can you speak to what you're seeing in terms of the behavior of your customers in the Canadian market and your ability to participate in some of that increased funding?

In the mental health area and the children's mental health, they are 2 distinct areas, there's a ton of reorganizations going on in amalgamation of these community agencies into larger entities. And as part of those -- as part of that, they're ramping up new digital systems to help bring those things to line. And that's where a fair amount of that funding is going as they're revitalizing those organizations. Some of those are just work around these old archaic systems that might have been homegrown or other entities, of which we bought in a bunch of them already in that particular marketplace. So we've had a strategy to become the leader in that community agency in mental health space, Ontario, but also Canada wide and is starting to work. But we're seeing money going into restructuring these organizations fundamentally into more robustness and they're putting new CEOs, new management teams, they're just revitalizing them. So that's where the funding we think is coming into a fair amount of this stuff. And part of new initiatives is just putting a new digital system in which they put tenders out for and we've been winning some of them.

Okay. So it sounds like still more to come mostly in the mental health area.

Yes. And we're also bringing some of the U.K. systems into Canada. I think we just announced that deal in Winnipeg, which is a city system where the TREAT product. I'm sorry, the Transforming product is going in that -- we finally got that one project where we got high governmental visibility into the product. They love it. It's not formally live yet, but it will be very soon, and we think that will be that showcase account for that product. We're hoping we can do in Canada what we did in the U.K. with that product, but it's early days though.

All right. And one more question for me. The prospect of 25% adjusted EBITDA margins that you mentioned, the kind of the other side that gets you to that Rule of 40 alongside the 15% organic growth. from the kind of 22-ish percent level that you've been clipping out over the last couple of quarters. Are you messaging that you expect to migrate up towards 25% by the end of this current calendar year? Would that be a reasonable time frame given the integration road map you've got with the assets in your portfolio right now?

Listen, if you theoretically think we're adding $1 million per quarter of new ARR and that's high-margin based business and you sort of limit your expense level or just don't increase it that much. Theoretically, that should start coming to the bottom line, right? So it's a question do we hit the numbers? Do we get the synergistic value? Do we get it done in time? Can we execute on that stuff? But yes, we -- we've invested a little bit of that money back into sales and marketing, a little bit of a bet that we can grow some of those other verticals that might not happen as much in 2023. But we do think we needed to make a little bit of investment for 2024 to get into some other markets with those products besides the U.K. So we are doing a little bit of that. But yes, I think we can. I think we should. It's not going to be at the end of this year, it will be early in the next year, but I think we can get there. We just got -- every quarter, we're going to add more recurring. I don't know how much, but we'll add and it should come -- [indiscernible] that should come to the bottom line.

The next question is from Gabriel Leung from Beacon Securities. Please go ahead, Gabriel.

Congrats on all the progress. Just got a couple of questions. First, Dan, you talked about being pretty excited about the TREAT and the Transforming system pipeline heading to the current year. Are you able to talk about what does that pipeline currently looks like? I know they are sort of bigger ticket items maybe longer lead times. So can you sort of quantify for us how many sort of deals you're working on within those 2 product sets, sort of ticket sizes and where you are along the sales cycles for some of these deals?

The 2 products, I think adds anywhere between like, I don't know, $50,000 to $200,000 to $250,000 of ARR on each transaction, depending on the size of it. And you typically get that amount of professional services, double it for implementation. So hope it's 100,000 ARR, they probably got 100,000 services as well, that goes along with that particular route. But yes, we're starting to add 2, 3 deals a quarter. It looks like here on that particular product segment, some big, some small. And there's a significant -- when that product gets implemented, it's one product we're not afraid to do some development work which the customers pay for as part of those implementations. So that comes along with that as well, but that's probably where it is. Transforming seems to be in the same level 2, 3 deals, a couple of deals, 2, 3 deals a quarter type of thing. There tend to be chunkier deals, probably I don't know, $250,000 of ARR average deal type of thing, right, that they do. And there's deals going but we're starting to see some more visibility, as I said on international scale for that product. So I don't know. I'm always reluctant to say what that pipeline is because I've seen stuff work don't happen, and I've seen others where it just surprises me, right? So government tends to move in spurts and sometimes we think it's happening and it doesn't and in other times, we think it is something is happening, something bigger happens because the money is there, all of a sudden to go do it, and they want to go do it. So we just keep going. I still like to use my guidance, I think we're consistently going to add between $800,000 and $1.5 million per quarter, sure there could be variations to that here and there. But that, I think, predictability, we should be okay with that.

Got you. And just in terms of, I guess, the margin expansion. Near term, anyways, if I look at the -- some of the cost synergies out of CDS, CDI and I guess, Coyote in Q1. Would you anticipate EBITDA margins improving in Q1 just given the combined with sort of the revenue base you had right now, would you expect an improvement right in Q1?

Yes. It all depend on how much onetime revenue we're going to produce, right? It's up -- we keep telling our group, we want recurring revenue, we want recurring revenue and come March, from the end of the quarter, I'm begging for onetime professional revenue and services revenue because it is the only thing we can do to change the top line to get the margins, right? So it all depends on how that all comes to work in terms of what we do. But we're -- I do -- we do want it to go up from where it is, and we're trying to get it there.

Got you. Just one last thing on M&A. I think I've asked before, but I think previously, the potential acquirees are still hanging on to a relatively high valuation in terms of what they want. But have you seen valuation in the last couple of months perhaps come a little bit lower you get to a bit more reasonable level for you guys?

It's the same. Every deal is different. Every person has different ideas of what it is. And a lot of our acquisitions are owner-operated businesses that aren't really DC funded, this is their life or their savings or their future and their lifestyle sort of all that other stuff. So it all depends on where they are in their -- where that company is sitting, what its values are, where it's going which really stipulates the valuations. I think most of our acquisitions have not been bidding processes, just getting to know operators. And I'm talking them through this type of stuff on a regular basis. And eventually, they're saying this makes more sense to do it. So that's my comment on that. We're going to pay what we think it's worth. And if it is, it is and if it isn't, it isn't. We'll pay a higher valuation if the business is good and is growing and if the business isn't growing and it's sort of flat, we're not going to pay that, right? So -- but I think we've got enough history of our acquisitions of how we do that and what our models are, and I think that will be consistent in terms of where it is. It's like the healthy market. Sure, the prices have gone down, but there's not as much for sale and people still want to get those values for those houses. So, yes. I don't think pricing has changed that much and it hasn't changed for us in terms of how we look at things. So we don't really look at it that way. We just look at it for where it's worked to us.

Got you. I appreciate that and congratulations on the progress.

The next question is from Richard Baldry of ROTH Capital. Please go ahead, Richard.

Sorry, I think I was muted.

Welcome aboard, Richard.

Maybe given some of the investments you're making in sales, could you recap a little bit your -- what you view your sales capacity versus sort of productivity, maybe average tenure, given how important sales productivity is with tenure in an open seats hiring plans, just broadly recap sales things.

Yes. We got -- we definitely got a bigger sales and marketing expense in our U.K. market segment, we do a significant more of sales and marketing in those particular marketplaces has been where our growth has come from, and we've got a bigger team, we got an inside group and we got outside sales reps and we invest a significant amount in account management to maintain stock turn and also brand on sales. So we have that going in there. We just have recently ramped up resources in our UAE market and have experience in terms of doing that. And we just -- with our CDS acquisition, we ramped up Intouch, deployment team, support team as well as sales teams in the Australian marketplace with the Intouch. And we've added some sales people with some experience in the Canadian marketplace to sell the Intouch and the Transforming product and the Synopsis product sets in the Canadian marketplace. So that was budgeted going into 2023, and we've ramped up -- we ramped in those resources up. They're good sales reps where they've been in the market for a while. And they got 10 years. We got other -- but most of our sales reps have been selling these products for 5 to 10 years and they have a lot of experience in this particular space. So we rely on that expertise in 10 year to go top.

Given people are viewing the market as sort of high risk right now. Can you talk about the defensibility of your ARR base and maybe specifically, any changes you've seen in your net retention or overall retention rates?

Our churn levels are still, I don't know, the 3-ish percent, 3%, 4% level. Churn happens once in a while as -- churn happens in our particular business for a bunch of different reasons. Sometimes money is given to these organizations too quickly and they don't actually and it's onetime envelope and they actually don't get the stuff implemented correctly or properly and then the regime changes in those particular organizations and they go, well, we haven't really got this in place anyway. And we don't have any money in our operating budgets anymore because it was great to begin with. And we're just not going to continue with it till the net worth guidance started. The other reason churn happens is just on mergers that are still the place -- mergers of that place and they just redo all their digital systems and we get locked out of something. Those are the 2 primary reasons we get churns off. So we know why we -- that's why our team is focused on getting the stuff implemented, I'm getting them using it. And once they're up and running and using and it becomes mission-critical. You don't really get that most churn unless there's a total restructure of the place of their epic but we don't have much of that going on in our base, and that's only for a hospital-based system. So does propose a threat sometimes if it comes in because they just erased everything -- that's what their strategy is. So [indiscernible] can be a little bit of a risk in some of our organizations. But for the most part, I think we've got lots of years of experience, the churn is being minimal here and it's government-funded based systems. And if you get it in there, you're pretty good.

And last for me. Given the backdrop of the fairly depressed valuations, do you think how you approach M&A changes short term and all, maybe thinking about how much stock you use or earn-outs because you can show the companies you have the ability to offshore some of their costs, increase their core profitability? Do you think they'll be more likely to start longer-term focus deals where the value comes out over time as they prove what they can do and maybe a little [ upstair ] on you.

I think in I think that makes a lot of sense if we're trying to do like a bigger acquisition, a little bit more transformative definitely being able to use that and convince. You got in those rare circumstances in our area, you got like a VC-funded organization or some of those raised a lot of capital and than they actually can't get to profitability because they just don't have that ability to do it or anything really high there so the organic sales have stopped or trickle down and they got a really big development cost and just -- but they're still sitting on a significant amount of cash, but it's going down because it's operationally. And those are scenarios we'd like to see. And there are a few of those out there that we're taking around that. Because I think we can bring something to the table to our offshore development group and our currency and our ability to restructure that into a winning business. So we look for those. We want those trying to make that happen is a different story, but we definitely are thinking about those type of deals for sure.

Maybe final question. Now that your adjusted EBITDA is up to a pretty meaningful level. Maybe talk about your willingness to use that to deploy leverage as opposed to cash flow or equity for M&A?

Yes. When we started, we got leverage already in our ability. We think it's there to go do it. We're generally pretty conservative people. What we would go in to that lot of the credit for something that makes sense. I think we're saving that for something that's a little bit more transformative. We're still sitting on $17 million of cash and we're generating cash, we think that cash balance can help us through these small little acquisitions. Interest rates are high, right? So you got to be careful on leverage, but we would use it in the right circumstances for sure.

Congrats on a great quarter.

Thanks, Richard. I do not see any further questions. I would like to thank everyone for joining us this morning. And with that, I will hand over the call back to you, Dan, for your closing remarks.

Yes. Thanks, everybody. Nothing really more now. I think the questions are really good. I think we added some pretty good color on where we are. I'd like to think we're in a pretty good predictable state. Everything seems to be going well. We'll have some good quarters, we'll have some, maybe not so good quarters, bear with us. But I think the moral of the story is we got a big base of recurring revenue, and we're still adding and we expect to continue that. We look at this from a long basis. That's just the way we are [indiscernible] big investors in the same way. So we are steady as you go, sometimes it might be a little bit boring, but that's what we're about, and we're just trying to make things happen.

Thanks, Dan. Thanks, everyone.

Thanks, everybody.

This concludes today's call. Everybody have a great day.