Vitalhub Corp. (VHI) Earnings Call Transcript & Summary

Hi. Good morning, everyone, and thank you for joining us for our 2026 2nd quarter conference call. With me on the call today are Vitalhub's CEO, Dan Matlow; and CFO, Brian Goffenberg. After our prepared remarks, we will open up the line to questions from analysts. [Operator Instructions]. 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 cover financial highlights for the quarter. Over to you, Brian.

Thank you, Christian. Good morning, everyone, and thank you for joining the call today. We are pleased to report the results for the second quarter of 2026. Vitalhub reached a new milestone this quarter exceeding $100 million of annual recurring revenue. We closed June at $101.5 million, representing 10% organic growth over the prior year. Our adjusted EBITDA margin continued to increase sequentially at 26% in the second quarter. Some of the key financial highlights for the quarter are as follows: we reported total revenue of $31.7 million an increase of 33% year-over-year. Recurring revenue or term License Maintenance and Support segment was $24.5 million or 77% of total revenue. Virtual Care term license revenue was $2.3 million. Perpetual license revenue was $800,000. Services, Hardware and other revenue was $4.1 million compared to $2.7 million in the prior year period. Our gross margin was 79% of revenue compared to 81% in the prior year period. Adjusted EBITDA for the quarter was $8.2 million or 26% of revenues as we continue to gain synergies from the acquisitions of induction and vary compared to $6.3 million or 26% of revenue in the prior year period. We closed the quarter with $136.5 million of cash and investments and no debt. We had strong cash conversion this quarter. Our cash balance increased by over $15 million this quarter benefiting from collection activity and continued platform integration. Subsequent to quarter end, we completed the acquisition of Body Healthcare. And post the transaction, we continue to have over $120 million of gas that we reach to deploy on our M&A strategy. As well, with the addition of Buddy Healthcare, pro forma ARR as at June 30, 2026, would have been approximately $106 million. With that, I'd like to hand the call over to Dan for an update on the business.

Thanks, everyone. Welcome today. just on reflecting that it's exciting to see us get over $100 million of recurring and I know our people and our staff. We're really excited about that. I think when we started this 8, 9 years ago, that was a goal, and it's achieved. So just take another one off of the bucket list and would continue to move forward. Just a little bit of it about the Buddy acquisition just before I get into some of the other things. We're really excited about that. It's an organization that we've been speaking to for 4 years. The technology is really strong. They're a group that has entered into the U.K. with it. But it gives us a really strong digital backdoor solution. So we already have a very good digital front door solution with SD that is moving through our markets. And our customers have been asking us to say that's good that you can get us into the hospital into the setting, but what about after we leave, we want to continue to communicate with you. So our plans will be to integrate that with that back to our solution. It also fits in nice with the Strata solution, which does the discharge process. And now we've got a way to communicate with the patients as we go through that discharge. So we expect once we get the technology all integrated and so forth, that will be a good addition into our cross-sell methodology. So it's good people, great technologies, and we're excited to add that piece on to it. In respect to the quarter, in terms of the numbers, you see the recurring recognized recurring growth services revenue a little bit behind the previous quarters, but it still reflects that. Services revenue is always tough to nail at 100%. I think we had a $5 million quarter, a couple of quarters ago and down here, it comes in ebbs and flows just based on revenue recognition and how that gets delivered to the customer. So we're happy with that. And we were happy with the way the virtual care, our renewal process came through about 85% to 9% of that attend anywhere renewal process comes at the end of March. And as you can see, the AR held up pretty hard for that. So we're happy with those outcomes. Revenue contribution came from really all of our products, but mainly from the in the Care Coordination products, the Strata and the Novare product. We're starting to Novare continues to move through Canada. But what we're really excited about is the momentum it's starting to get a little bit in our U.K. marketplaces. A little in other markets. But it's a unique solution, and we're excited and think it has a great opportunity to do that. that the revenue number was offset by still some challenges with our share product and the FCC that's the system control centers with and the FDP and the Palantir based solutions and along with the mergers and acquisitions. So we had some customers that I'm going to say, suspended use during the quarter waiting for the outcome of what's happening with the FDP and Palantir situation just to refresh people. The NHS has a national contract for Palantir. But there's a break clause in that contract in Q1 of 2027 and it's right up at the pomentary level, and indications are suggesting that, that product will be getting removed. And hopefully, that will continue that momentum for us on that food product through the U.K. marketplaces. In addition to that, we still have renewals coming through. So it's just some of our cases. In other cases, they are renewing. It just depends on the ICD and the approach. So it's a little bit just up in the flux, and we keep working on it. But even with that, we see a really good pipeline of all of our other solutions and still expect to continue with our organic growth profile. We've introduced AI products into the marketplaces. There's -- we have the protocoling solution. That started in the Novare product, but we're starting to move that into other products, and we're starting to see some revenue streams from that. And we're really excited about our transcription solutions for our community services base work. We've been working on that for about a couple of quarters that's now in the hands of customers to get ratification on that, and we expect that to start hitting the revenue streams, hopefully, end of this year, but definitely going into next year. we expect that to continue on that place. We're -- we're getting close to the complete integration of the Novare in the induction transaction. And as you can see, our thesis for both of those 2 large acquisitions have come to fruition, our adjusted EBIT is back to 26%. And we're generating some pretty good cash flow. I think I look back about 6 quarters ago, we were generating about $5 million of adjusted EBITDA and we're up over $8 million, and our goal is to continue to get that to grow. That's always been the thesis of the company. So I know there are a lot of question marks by people saying, "Hey, can you -- when we did those two acquisitions. Both of those were losing money at the time of that, and we've managed to integrate them. They're producing new organic revenue and they're adding to the bottom line pretty nicely. So we're excited about what our accomplishment was on that, and we continue to still work on it, but it's getting towards the visibility in terms of trying to get that number back up to the high 20s, which we're at. I also just want to talk about the NCIB. I know as we go through and have met investors, people have asked about that. We have put it in place. We do think our financial results have continued to improve. The stock to some degree, staying still. We think it is a good value for us to -- with lots of cash to start looking at buying back our own stock. So we decided a support to put that in place, and we expect to use it and as we see how the stock is reflected and so forth. So we do have it in place and we're working to do that. We continue to work on M&A deals. We have some large things that we're looking at and some small things. but the activity still seems to be there in that marketplace. And we continue to go and we do expect to do more M&A through 2026 and forward. But yes, we're happy where we are as a company. We're making money. We're growing. We're adding customers. We've got lots of cash for M&A, and we think we're in a good position. And I think we continue to improve our business model, and we're happy with what we've accomplished here. And any questions?

[Operator Instructions]. Today's first question comes from Gavin Fairweather with ATB Cormark.

Maybe just on your referral in the U.K., Dan, you mentioned that I think you've had some marquee wins in the U.K. market, which is great. Curious if you've been able to uncover any funding envelopes referral or if this is coming out of general budgets? Do you see the potential for this to become a more strategic priority at the NHS level with some bigger funding attached?

Yes, I do think the NHS is definitely, like other organizations, is looking to integrate and do a lot of different things. I think if you looked at the -- a lot of the parliamentary based approaches and things that NHS is integrating into social care and integrating into after care and rehab facilities has become a big issue, and we're expecting that to help with the state-based solutions to do that. We know by looking at other markets around the world that for all is a needed aspect of it, and we know that the NHS in the U.K. is behind relative to other places of the world, Canada included in those particular markets, and we can see the reactions to -- if we get to the right people on what the power of the solution does and how it can automate some of those things. So it's like anything else in our market is trying to get momentum, and we closed our first deal about 6, 8 months ago, and that's gone live and the natural processes referrals don't necessarily stay in 1 region and across other regions, of course, the 2 regions next to this region have seen what this 1 region is doing. So it only makes sense that those other 2 regions are now interested and we're looking at closing some business with those regions. So we're starting to see the behavior that we want in the test for those referral based products. And our sales force is pretty focused on referral about marketplace. And we are seeing available money for this. The business case is very easily justified for it.

That's great. I appreciate that. And then just on body, I've seen Finland healthcare described as pretty digitally mature. Curious what products you think have maybe greenfield opportunities in Finland where there isn't a big amount of competition?

Yes, I think they have a similar structure to regional base groups, and they've connected regions pretty nice again, we think there's opportunity for the referral-based project products within the Scandinavian-based marketplaces. We also see opportunities for the touch-based suite of products. in those marketplaces. So those would be the ones that we would primarily focus on. But yes, similar markets and Car Group has some pretty good connections to that. The Buddy product has also done some work in Germany, which is interesting, and they've done some work in that marketplace. Again, the biggest area where we see but really having opportunities would be in the Canadian and the U.K. marketplaces. So those are the areas that we focused on. Canada still is lagging behind on the digital backdoor. Based solutions, and this is a pretty comprehensive one in the U.K. is definitely lagging behind on the digital back door solutions. They've really focused on the front door. So we think we got a solution to help fill that happen to move in that traction.

Great. And then just lastly for me on the Antero Health deal. Can you just discuss the contribution this quarter to ARR growth? And how would you describe the -- how ramped up you're on ARR versus the initial scope on that deal?

I think clear I think it's adding somewhere between 500,000 to 1 million on a quarterly basis, and we expect that to continue on a ramp up over the next couple of years type of thing.

The next question comes from Doug Taylor with National Bank. Doug, your line is open.

Yes. Thank you. I wanted to drill down a little bit more on the U.K. market. Obviously, the growth there has been flat with some puts and takes. So the question is, with the impact of Shred some of the pause that you're talking about. Is that something that is reflected in the net ARR growth? And you've outgrown it through some other cross-selling? And perhaps you could help us quantify that.

Yes, we definitely took some AR reduction in the quarter with some of the shred work. but that's been offset by other products in that particular marketplace. So we're -- the net is the number that we've gotten here. I don't have the exact numbers my fingertips here, Doug. But yes, there's some of that has gone on.

And so is the idea here that if you get some sort of resolution on the situation as it relates to Palantir, some of that might rebound in your financials next year.

That's what we're hoping. We're each customer has -- we've really got two different scenarios that are cooking in here. One is we've got these new ICDs that have come together informed. So there's all new people in these particular groups. And then funding isn't really set up in some of these appropriately. So they're going like, well, hang on, there's a renewal here, what's going on here. And we got FTP. We're just going to hold here for a couple of quarters here until we see what's going on. And then reconvene this thing, it's not like they're putting FDP in these places, all of them. They're just saying we've got to suspend this well. In other cases, they're just going on as business as usual and they're renewing their contracts. So we hope within the next couple of quarters to get resolution of that. We -- even if the contracts are new, we still think there's opportunity to continue. And if it's not renewed, we're really excited about that because we continue to grow, but that's a scenario we're facing at right now.

Okay. That's helpful. Next question, I mean, you described the integration process. for induction Ivaris being substantially complete or approaching completion. And you can see the EBITDA margins here at 26%, as you say, that's been well executed. So the question is, given that EBITDA margins have been higher in the past. I mean, is there something about the way the portfolio sits now or structurally that would prevent you from continuing to march the EBITDA higher from here?

Well, every $1 million of ARR theoretically if we don't add more costs, that's a point of adjusted EBITDA, right? And we're still not completed on the other side of some reductions. There's still some work that's continued to move it, right? So the natural increase of new deals, not only does it increase new deals, it comes to the bottom line as well. So we continue to march on both of those fronts to fine-tune those things, but we continue to work our way through it.

So summarizing costs transformation work largely done, but further...

There's still work to be done, but we've taken a big chunk out of the apple.

Thank you, Doug. The next question comes from Paul Treiber with RBC Securities.

Just, Dan, just now that the company has passed $100 million in ARR, how do you look at the cadence and the drivers of organic growth from here? And what I mean is, does it become less about point solutions, individual point solutions in their growth and more about perhaps like the broader platform in cross-selling? And how does -- how are you sort of shifting the organization to sell to sustain the organic growth as a larger company?

Yes, I think a good point, Paul. I think we are -- the patient care coordination platform as we would describe it, which is really the combination of ZEST strata [indiscernible] in touch and MedCer. We've done work on integrating those products across different worlds. And we've also -- we're also adding AI injection into a lot of those base products. But we are working on moving our sales force into a regional based sales force and giving the most suite of products and merging them together in comprehensive solutions. And we're already seeing that in the field. customers asking for these things to be integrated. So just through osmosis, you get the customer and a customer already has 2 or 3 of those solutions. And they've asked to, "Hey, let's get these things working together, so we work with them in the field. We get it integrated, and then we start integrating into other places. And then we continuously add on other base products. So we are moving into that direction on our patient flow suite of based solutions, and we're starting to see it work in the field. the bigger ticket items and the more complicated ones being the Strata and Novare based implementations, yes, we're starting to see some really nice proposals going out for those products with high ticket and high numbers that get associated with. So we expect those core products to really be our -- most of our engine for our organic growth. We're still seeing work on our treat based product center and community services product set. We've successfully have moved that caseworks products into Australia, and we're having really good success with that product in those marketplaces as well. And we continue to work on those approaches. But essentially, that's how we're seeing it.

That's great to hear. Second question, just on body Healthcare. With the management team on board in a footprint in the region, does that open you up and give you more insight into other acquisitions in the Nordics region? And then how would you describe M&A opportunity in the Nordics compared to other regions?

We've done some work on that. There's a couple of other scenarios that we know of. And the CEO just told me about one other 1 yesterday. So yes, your question is very much done. Again, we our acquisition targets have really, in a lot of cases, are companies that we're well aware of because we work in the same markets and we would compete with them or complement them in many different situations. So every time we enter a new marketplace, we get expertise on that market and how that ecosystem works and what the gaps are in respect to that and those organizations that fill those gaps and what they do. So we'll definitely explore the Nordics marketplace. It is a pretty interesting marketplace. It's very similar to our other government-funded groups between the Scandinavian countries. So we'll continue to explore, and we'll continue to look at it. But yes, that is a byproduct you get by entering into another region is intelligence on that region and how that health care ecosystems are in who the players are in those areas. So we continue to work with it, and you see who's come over from Buddy very excited about the opportunity. He wanted to roll over stock into our organization, and he has and he is excited to help us in the Aus Nordics regions, and that's a good thing.

The next question comes from Michael Freeman with Raymond James.

Congrats on the results. First question is I wonder if you could tell us a bit about the -- what you're seeing in the M&A environment right now and the sort of competitive dynamics you're seeing in bids and also, I guess, the pricing environment as you're poking around.

Yes. It's -- it continues to be all over the map as it always has, Michael. And it's hard to predict in terms of everyone is a different world, and it all depends on who the founder is and how the thing is structured and what they are continuing to do. We are seeing more and more organizations that have had investments of some sort where there -- the cash is no longer going and the company is in a little bit of a stagnant standstill state in investors starting to think they want to get their money back. In some -- and then the challenge becomes either prepared to take a haircut on their money because of the valuations that they went into were higher. Buddy is one of those scenarios to a degree. So we continue to see some of those coming to market, but we still see founders and other situations coming to market as well. So it's all over the map relative to it, but probably we are seeing companies that did manage to take on investors potentially going to the market to see what their exits are because there's no more cash to be had in those particular companies. So we are starting to see that.