Vitalhub Corp. ($VHI)

Good morning, everyone, and thank you for joining us for our 2026 first quarter conference call. With me on the call today are Vitalhub's 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. With that, I'll hand the call over to Brian 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 first quarter of 2026. We closed the quarter with $99.1 million of ARR with 11% organic growth over the prior year. adjusted EBITDA margin increased sequentially to 25% from 23.6% in the prior quarter. We are happy to be executing on plan on both fronts. Some of the key financial highlights for the quarter are as follows: we reported total revenue of $31.9 million, an increase of 47% year-over-year. Recurring revenue or term license maintenance and support segment was $23.9 million or 75% of total revenue. Virtual care license revenue was $2.4 million. perpetual license revenue was $1 million, an increase of $200,000 over the prior period. Services, hardware and other revenue was $4.6 million compared to $3.2 million in the prior year period. Our gross margin was 82% of revenue compared to 80% in the prior year period. Adjusted EBITDA for the quarter was $8 million or 25% of revenue compared to $5.6 million or 26% of revenue in the prior year period. We closed the quarter with $121.3 million of cash and investments and no debt. With that, I'd like to hand the call over to Dan for an update on the business.

Thanks, Brian. Welcome, everyone. Thanks for joining us. I think the weather is hopefully, one of these days is going to pick up, but it's been windows made. I think it was just a typical Vitalhub quarter. It was a steady quarter, and we're happy with where we are. I think we're well ahead of our budgets and our plans, and we're excited to just keep moving in the same direction. Growth in the ARR in the quarter was led by Novari, but we did see contributions from other areas as they continue to grow there, and we're happy with how that is trending. We still see some significant things coming on the Novari side over the next couple of years as they keep growing their footprint across Canada, and we're seeing some really nice activity cooking in the U.K. We were helped out in the quarter by some good perpetual growth. We typically see that once in a while from our induction and touch group, and they had a healthy quarter. That product continues to sell pretty nicely in Australia and in Canada -- I'm sorry, and in U.K. And we are seeing contributions grow in our Australian markets where we've seen some pretty nice implementations, some creative implementations of that product. Services revenue continues to be strong. It's been strong for the last 2, 3 quarters, and we still see a pretty large backlog, and we expect that to continue. On the expense side, we continue to work on it. We're up to 25% adjusted EBITDA, considering we purchased 30% of our revenue towards the latter part of last year, both those acquisitions were breakeven to losing money. We're starting to get that back, and we can start seeing the contributions to do that. We're back to 25% adjusted EBITDA, and we continue to work on that. That's done being worked on by continuously just streamlining operations, but we're also starting to see our new ARR and new revenue turn into profits as we continue to add that into our mix of revenue. So we continue to want to continue to add that ARR without increasing costs and continue to work on those costs to try to get that into that area. I just want to touch on -- I know we've had some comments on our accounts receivable base balance. we're sort of excited about that. Q1 is a very big billing quarter for us at the end of March as it's our government year-end, a big large amount of our contracts get renewed there, especially the 2 new acquisitions that we got. So a lot of that billing was done in March, and we're actually starting to see that cash balance grow pretty nicely into the month of May and June, and we expect that issue to be a lot different when we report our Q2 earnings. So there's no fear there at all. We just continue to -- it's government. Sometimes it's hard to collect, but we always get it. And we do, do a lot of our billings in that month. So that's what that's about. Happy to announce on the Board. I think you saw that in the press releases that we did make a few changes in the quarter. Allan Brett, which those that follow the investment community would know very well. He was an instrumental part of the Descartes growth over the last few years has joined the Board as Chairman. We've known Allan for a while. He's helped us out on M&A over the last few years a little bit and a really nice contribution to our organization, and he's going to join in as the Chairman role. And also, we have Andrew Shen, who's going to join our Board. Andrew has been working alongside us for the last many years and has good experience in our business, and he's there to join our Board. Francis Shen is going to step off of the Board formally, although he's not going very far, he's still going to be involved in our M&A transactions. He's still going to be very near and there. And so we don't expect much change, except from a formal sense from the way Francis is working with our company on a regular basis. So Allan is going to bring some really good insights as we continue to grow, and we're excited to have him as part of it. In terms of the AI perspective, our last quarter, really phenomenal great progress on AI in all areas of our company. We're starting to see the adoption of it. coming from many different groups right through development, into implementation into our Columbus Sri Lanka based group and all the way through our organization. So we're really half of some of the opportunities that we're starting to have in some of our projects and trying to streamline some of the ways that we work to try to get productivity increases. And there's some pretty interesting works that are going on. So I feel we're really at par with what that is. There's always still questions on let's see this stuff actually do the results. But I think we've got good methodologies, and we've really set up our projects in a pretty organized way in trying to measure the productivity gains on that basis. We also have 2 of our products actively in the market now, our transcription product on -- that will go into our electronic health records. We have our first adopter that has given us money for that, and we expect to implement that adopter in this quarter and start to move that along. And we have a lot of people waiting for that transcription module that actually listens to conversations and fill out forms within our community social services area. We're also starting to see adoption of our imaging referral protocoling system, which is part of our Novari system. But we also think there's some opportunity just for that AI component within our MedCurrent base product set as well. So we continue to work on AI and looking for new ways to add to our customer bases to do that. In terms of the M&A front, we do have opportunities. We're actually really busy on that front. We expect to close transactions in '26 for sure. And we're excited with the opportunities that there's some new geographies potentially that could open up with some of this M&A that and interesting companies that we've known for a while, and we think we will have some contribution to us. So we're there. Just to end, we're continuing to do what we do. We're looking to keep growing and keep innovating as best as we can. We like our markets, and we continue to move forward. And I'm sure there's some holes in my remarks, but our friends with some questions probably can help fill those gaps. So we'll turn it over to Christian to take some questions.

That's great. Thank you, Dan. We'll now open up the line for questions from analysts. Today's first question comes from Gavin Fairweather of ATB Cormark Capital Markets.

Congrats on the strong results. Maybe just to start on the Ontario Health deal. Can you just help us understand how that contract is going to ramp over kind of 12 or 24 months? And curious how you think that deal may evolve over, call it, the longer term and if you see opportunities for more pathways or geographies in time?

Yes. I think Ontario Health has sort of taken a little bit of a leap of faith to try to change the way referrals are done in the province of Ontario. We're definitely behind in that area in terms of digitization. But yes, they're actively -- it's a really high priority. As you can appreciate, it's low-hanging fruit in terms of the cost-benefit analysis, moving patients around from these disparate organizations using facts and phones and letters is not really a good way of doing it in 2026. So we have our initial pathways. It is the Ontario government. They move good in tendency, good things that they want to move fast, but they tend to move at their pace. And revenue will continue to go as they continue to do it. I expect it to be steady and continue to that impact. It could be a little lumpy from quarter-to-quarter relative to how we get the revenue unlocked. But we still think there's plenty more pathways than we've been contracted for that really are going through the regular pathways to obscure pathways that will get digitized, right? But any way where patients are being transferred from one entity to another needs to get digitized, and we got lots of solutions that will help in that, and we expect to play in that space.

Very helpful. And then I think I saw on LinkedIn that you added the new sales rep in Australia. I'm curious if you're starting to see that market heat up, if there's specific products that you're excited about getting into that market. You touched on InTouch, but I'm curious if there's others. And just whether overall, that market could start to drive more ARR bookings on the quarter.

Yes. I think we came to the conclusion that we had to go get a senior, more experienced person, which we did and to complement those things. But we've got a footprint of a bunch of different products that we have like MedCurrent has a very strong offering that it's put into the Alfred Hospital, which is a pretty good visible hospital in the U.K. well -- in Australia, well respected. We think there's a lot of activity there. The guidelines -- radiology guidelines group in Australia has endorsed it. And we think there's an opportunity to continue to expand that. But I think you have to be local to do that in touch, of course. We do have some Novari implementation in Australia that needs to get expanded on. We have a BookWise implementation there in Australia that needs to be expanded on. And we have a [indiscernible] implementation in New Zealand and a diamond implementation for our [indiscernible] space in New Zealand as well as a strong [indiscernible] implementation in Tasmania. So there's things for him to work on in terms of expansion. All those customers are doing great work with our products. There's probably about, I don't know, 15 to 18 good in touch customers there, and there's still a wide amount of customers there. So we're hoping that we can start seeing some things there in a more fruitful way than we have so far.

Great. And then just lastly for me on M&A. You touched on the potential to start to enter some new regions. So I guess I'm curious if you have a certain profile that you're looking for to be able to go into new regions, if you have a different framework as you evaluate those types of deals? And how would you frame that up for us?

We're looking at through Europe, but we're also trying to look at through Europe for those type of software products that have successfully done some work in the U.K. So we've got some familiarity with that. And so there's groups in Scandinavia and Germany and other areas that we see that have done work and have successfully have implemented products in the U.K. marketplace. that we think we can help them in the U.K. and vice versa, they probably could bring some of our products to their markets for those ones that are applicable for it. So those are the ideas that we like to do. We don't like to do things from a cold start. We're looking for companies that sort of are a little bit warmer already and have already started that, and that tends to be what we're doing. And there are some of those opportunities that we've been speaking to for a long time that are potentially coming to fruition.

The next question comes from Kevin Krishnaratne of Scotia Capital.

Dan, just to follow up on the M&A that Kevin asked. So you've known these companies for a while. What might be getting them more willing to sell or you to actually execute on them? Are they looking for an exit, valuations looking more attractive? Just any comment there?

Yes. I think people sell companies, I mean, Kevin, for many different reasons. I think you got people that you got investors that want to see some of their money out that's been in there for a while. You see some younger people that are looking to take a little bit off the table because they started in a young age and are looking to get it into new hands and be part of that as you continue to grow and roll over into another entity and start working together to do that. I think that we're seeing a bunch of that actually as being what's going on. In our space, you see clinicians that will part time will start working on a particular project and put management teams in there and then sort of take outside investors and they run that business, but they get it to a certain point, and they know that in order to get it even more commercialized, they need to bring it into a newer entity. And those seem to be the primary reasons that were there. Yes, there is -- I think there is in the background for some of these companies, some investors that probably would just like to get some of their money. So all that is all part of it.

Got you. Second, just turning to the numbers, a great ARR add that we saw in Q1. I know we're only a month here in Q2, but can you just talk about what you're seeing and how we think about modeling the ARR in Q2? And then just in the context of some of the macro uncertainty that's been hitting enterprise software generally. Are you seeing any impact on the sales cycle, maybe the number of deals or size of deals?

We're still seeing deals out there that we're doing, and there's still a pretty healthy pipeline. It's always sometimes challenging to get these things over the finish line just with the complications that are corresponding. We still see the slowness in our product line in the U.K., primarily driven by both the integrations of those markets plus a little bit of a pause that's going on in some of these initiatives as the FPP situation gets straightened out there with that contract in that marketplace. So those are a little bit of headwinds that are coming at us on that front, but those are sort of offset by some tailwinds that we're getting through our referral management systems primarily Novari, but we're also starting to see some pretty interesting Strata business in the U.K. marketplace as well. So that's sort of heading it off. But yes, overall, the business is positive. It's just that one product line, True, which gives me angst just with the things that are going through there. But our hope is that, that's going to get offset by the other stuff. And once these ICBs gets integrated and hopefully, that FDP thing gets behind us, I think the opportunity is there for True to grow again and to prosper again. But we just have to wait and see how that all plays out in the next little while.

Got you. And I'll just leave it with one final question. I'm assuming you'd still be confident in your double -- lower double-digit ARR growth for '26?

Yes. I think that's -- we're trying to get to the rule of 40, right? And we're at the 10%, 11% range right now, and that's what we're aiming for. You never know what could happen here. It could be higher, it could be lower just because of how we do our revenue. It comes from all different spots. But yes, so far, that's where it looks like for the next quarter for sure.

The next question comes from Paul Treiber of RBC Securities.

Just a question on AI and it's helpful the comments you gave on AI. But can you specifically speak to like the regulatory environment and in terms of the broad interest in AI in light of the regulatory or some jurisdictions that may have regulatory concerns? Like are you seeing specifically for your customers, is there ones that tend to be more innovative and more willing to take the lead? How broad is that? Or there's others that are perhaps a little bit more lagging just given the uncertainty or from a regulatory point of view?

I think it seems to be all over the map. I think we're really careful in terms of what we do. sometimes we have to do it is not to be registered as a clinical device. We guide clinical decisions, but we don't make clinical decisions. It's a pretty big difference in terms of what it is. AI is getting closer to that latter aspect and you need to get through an approval process. And some of the ideas that we have will need to go through that, and we're starting to go through those and we have before with some of our products are deemed as registered clinical devices. So it's a little bit of different work. We're starting to see the marketplace is starting to set up these certification processes and so forth for AI type of ideas for clinical devices. So we'll just go through those programs where necessary, and we have lots of clinical expertise on our staff that will help us guide through those operations. We're seeing that a lot more in the hospital type marketplaces although our protocol and product, which is an imaging-based solution, it's not really -- it's just -- it's not making any decisions. It's not -- we don't believe it's a device. So far, so good in terms of doing that. In the social services area, I think in terms of like listening devices and transcriptions and so forth, I think people are letting those go through pretty good. It's just making notes, right? There's no real clinical decisions and so forth. So those are the 2 that we have, but there are some ideas that we are pursuing and working on that will need to go through a little bit more rigor to get it into the markets.

Good to understand. Just a second question, just on the drivers of margin expansion from a cost point of view. Can you speak to what are sort of the low-hanging fruit or remaining low-hanging fruit to drive margin expansion?

With AI, are you talking about, Paul, or just any or all.

Just on the cost reduction side, if you could just speak to what are the levers for the cost here?

Our biggest lever is still our Columbus Sri Lankan-based group, and we continue to use that as a big part of our area. We've got a lot of employees over there, and we really do some good work there. And they're also getting into AI pretty significantly as well. So that's our biggest driver for cost reduction in terms of what we're doing. We are starting to see some interesting capabilities in terms of refactoring products now with AI, and you saw like can you start moving databases from SQL to Postgrass so that you can -- don't have to pay those hosting fees or anymore? Or do we have an old legacy product that only 3 people know and we have trouble supporting it. Can we -- and it doesn't really have a big installed base, can you refactor that product into just a standard .net or react-based framework, which we got 1 million developers on, right? So that's an interesting area where AI can do, but we're exploring. But we're -- yes, we really like to -- we're moving finance roles over to Sri Lanka. Like we're being anywhere innovative we can to still really have real good quality staff on land and really have them productive and good people. But anywhere where we can be cost effective, we like to look at it for sure.

And then just lastly, just with the change in the Board, you mentioned that Francis will be helping with M&A. Can you speak to the M&A inner workings in terms of interactions historically between Francis and the rest of the M&A team? And what role or what capacity do you see him going forward in that?

He's a pretty smart guy when it comes to numbers. And M&A is a tricky world, right? You're spending some significant money and you want to make sure it's right. And you're looking to get as many eyes on that, especially when I'm in the eyes of the transaction on day-to-day and you start getting a little bit emotional with it and so forth, it's always really nice to have some people on the other side that just look at it from a different lens and look at it from a different perspective, and he's pretty good at that. And I value his experience in terms of looking at that way. Allan Brad has the exact same skills, maybe even comes at it a little bit more firmly from the number side. So we -- I really like teamwork when it comes to M&A. I think it's really important. I think it's -- I think you're making those decisions and you're trying -- really, really trying hard not to make wrong decisions because if you do that, that could be a catastrophe. So I'll take any expertise that I can get on those committees and Francis is really, really good at that. So I think he's I think he's doing a little bit more in his life and he's traveling a fair bit and that type of stuff. So I think the chairmanship stuff was just -- I just don't want the formal sense of this stuff anymore, but I still like this business and still want to pay attention to it. So I think that's sort of what that's all about.

There are no further questions at this time. Dan, I'll hand the call back to you for any closing remarks today.

Yes. I'm always around. I know it's a really busy season. There's some analysts that probably were on some other calls, but I'm sure they'll reach out to me with some questions. Christian is always around. I'm always around. We're excited to keep progressing here and go as steady as she goes. So just another few inches forward for Vital Hub, and we just keep moving forward gradually. We're in this for the long game. We believe in the model. The model just keeps progressing in the right direction, sometimes faster than other times, but it continues to move forward. So we're excited about how we're doing, and we look forward to adding some new ideas in the next few quarters. Thanks, everyone.

Thanks, Brian. This now concludes today's conference call. Thank you all for joining.