Vitalhub Corp. (VHI) Earnings Call Transcript & Summary

VitalHub CEO Dan Matlow and CFO Brian Goffenberg. I just caught a recording-in-progress prompt, so I'll start those remarks again from the top and then we'll carry on. Good morning, everyone, and thanks for being with us on our 2026 third quarter conference call. Joining me today are VitalHub CEO Dan Matlow and CFO Brian Goffenberg. Once our prepared remarks are done, we'll open the line for analyst questions. Please press star one or use the raise hand function to signal that you'd like to ask something. Before we start, I'll read the cautionary note on forward-looking information. Some of what we discuss on this call includes forward-looking statements that carry risks and uncertainties. Actual results could differ materially from those described in such statements. To review those risks and uncertainties, please see the forward-looking statements disclosure in the earnings press release and in our SEDAR filings. Our commentary today will also include adjusted financial measures, which are non-IFRS measures. These should be viewed as a supplement to, not a replacement for, IFRS measures. Reconciliations between the two appear in our SEDAR filings. With that, I'll turn the call to Brian for the quarter's financial highlights. Over to you, Brian.

Good morning, everyone, and thanks for being on the call today. We're happy to share our results for the third quarter of 2026. At the end of September, annual recurring revenue stood at CAD 107.2 million, up 14% from the prior year, which includes 8% organic growth plus roughly CAD 4.5 million coming from the Buddy Healthcare acquisition in July. Recurring revenues are still expanding at 9% year-over-year, and our adjusted EBITDA margin came in at 27%, the highest we've seen in the last two years. Here are some of the key financial highlights for the quarter; total revenue was CAD 31.9 million, in line with the same period last year. Recurring revenue, meaning term license maintenance and support, was CAD 25.8 million, which is 81% of total revenue. That compares with CAD 23.6 million, or 74% of total revenue, in the prior year period. Perpetual license revenue came to CAD 100,000 versus CAD 500,000 in the prior period. Services, hardware, and other revenues totaled CAD 3.7 million, compared with CAD 5.5 million a year earlier. Services revenue is seasonally lighter over the summer, against elevated projected activity in the prior year period. Gross margin was 79% of revenue, compared with 81% in the prior period. That reflects timing of services, revenue recognition, and allocations among development, operating expenses, and cost of sales. Adjusted EBITDA for the quarter was CAD 8.6 million, or 27% of revenue, versus CAD 7.2 million, or 22% of revenue, in the prior year period. The rise was mainly driven by lower research and development expenses, synergies from integrating Induction Healthcare and Novari Health, and a favorable foreign exchange impact during the quarter. Net income for the quarter was $2.6 million, compared with a net loss of $900,000 in the prior year period. Cash provided by operating activities was $23.9 million in the first nine months of the year, up 69% over the prior year period. We ended the quarter with $129 million of cash and short-term investments and no debt; with that, I'll pass the call to Dan for a business update.

Morning, everyone, and thanks for joining us today. Sure—this was our summer quarter, which is always a curious one in the sector built around government healthcare, but plenty of positive developments are underway at the company, and plenty happened during the quarter. As Brian noted, perpetual licenses and services licenses were newer relative to 2025. That piece is the variable portion of our business. Services is always a curious one where revenue recognition is concerned, but our backlog for services revenue has never been stronger. The only issue was bringing it into the revenue recognition stage, and that tends to be uneven as we work through our revenue recognition policies, which are tied to the completion of specific milestones on certain projects. Even so, we're quite optimistic about how our professional services figure will look going forward. We're pleased to have restored our cash flow to the levels of our 27% adjusted EBITDA, and as you can see, cash keeps being generated. That has always been the main way we view our business, and it remains the main way we view our business. We keep watching this, and I think if you go back two years, adjusted EBITDA sat in the fives, while today it's in the high eights on a comparative basis. That comes really from Induction plus the Novari Health deal we closed a bit more than twelve months back, along with how well our team carried out the mission and validated the hypothesis behind it. As you can see, we did reach those levels, we've brought them back to where we wanted them, and it demonstrated that both acquisitions have turned out pretty well. For the quarter, our ARR increased by roughly CAD 800-something thousand. I realize the follow-up question will be where we'd have landed absent the SHREWD situation—the figure would be meaningfully larger than what SHREWD produced, since we had a few accounts suspended and there's uncertainty surrounding that business. That portion of the business therefore remains fragile, and we're still awaiting answers from the NHS regarding it and how things stand with the FDP. We hope to hear back within roughly the coming month about which direction this will take. We might not fully achieve that by then, but we keep monitoring it going forward; it remains something we're working through. On the AI front, we've brought our AI Transcription offering to market for the TREAT product, and we're seeing considerable interest in it; our protocoling product in the Novari-based suite is also drawing a great deal of attention. We're starting to add new AI features throughout a much broader range of what we offer. To be specific, we've launched campaigns for our two clinical decision support products that are centered on clinical guidelines—that is, our MedCurrent products and our MCAP products. And the customer bases across both of those areas are quite enthusiastic about what those capabilities can accomplish. We're now applying AI fairly broadly within our development processes. We're beginning to observe some genuinely strong results from a number of those efforts when it comes to speed and certain things we're now able to achieve. Our technical integration has been especially noteworthy. We're reaching the point where, from a technological standpoint, we're integrating our patient flow and care coordination suite. So in the field we're starting to link the products together far more effectively. AI is helping us in that area and in others too, and we're getting to a point where our solutions can be offered as one integrated product suite, which we're pretty excited about. So going forward you'll see that message communicated much more throughout our organization — talking about VitalHub and the VitalHub platform instead of the individual product brands. And we'll make that shift as we continue forward. We're still doing acquisition sales. With some luck, we'll get another one completed before year end; we continue to look at some larger-scale areas, and our activity level stays high. Also, a couple or three businesses we identified as targets right from day one are currently available for acquisition, and we're hoping to move forward on those; so that effort continues. That covers what I have to share today, and I'm sure the questions folks raise will give me considerably more detail; so at this point we'll open it up for questions.

Thanks, Dan. At this point we'll open the line for analyst questions. If you'd like to ask something, press star one or use the raise hand function. Our first question today is from Gavin Fairweather at ATB Cormark Securities. Gavin, your line is open.

Oh, hey, good morning, and thanks for taking my questions. Perhaps just regarding the F impact on ARR, I'm curious whether you looked at organic ARR growth, ex-SHREWD, and could give us a sense of how the rest of the business is performing.

The rest of the business is doing strong, Gavin. I'm hesitant to hand out the exact numbers simply because they shift literally week to week; we have customers suspending and then not suspending, and we have customers we believe are renewing who aren't renewing, and we have customers with all sorts of different elements in terms of where things stand; and then we have renewals from customers who said they wouldn't renew. It's simply a matter of customers being able to find money somewhere other than going to the NHS itself and having money come from its ICBs when it comes to renewals. And we're seeing it arrive from a lot of different directions. And usage of the product remains high; it's just become somewhat of a political/financial scenario when it comes to the product. I genuinely believe that without the suspensions or the reversals on some of those SHREWD cuts, we would have come very close to our Rule of 40 base level given what the strong adjusted EBITDA numbers would be, and we would be on track with our regular numbers that we would be producing and have traditionally produced. Yes, we're going through this right now, but the rest of our business is making up for it pretty nicely.

Thanks for that. There was an interesting FT piece, maybe last week, about the possibility that FDP gets renewed for two years and a fresh RFP is put out to assess British alternatives. If that is roughly how things unfold, would you anticipate the churn easing off if trusts believe the FDP could be withdrawn, and might VitalHub be able to form part of a British-made alternative?

We are certainly in conversations with some of those alternative groupings about joining those consortiums, since I think that is potentially what it would take to make it happen. That said, I simply don't know what the answer would be. One line of argument holds that it will be a lame duck for two years and that they are only doing this as a transition scenario toward other products, which is coming literally, which is just coming from news channels. We have not seen any reports from any NHS things. I saw a note today from Palantir saying they have had no notification that they will be extended for two years; so we don't actually know what that will be. But on that assumption, it will be extended for two years, then the real question becomes whether they will keep working on FDP initiatives during those two years or whether they will be transitioning. If they do keep working on FDP initiatives, will any of the ICBs adopt that software knowing it could be gone in a couple years? So I simply don't know what the answer to that will be, and we'll just have to wait and see how that progresses. But I don't really want to give an opinion either way, because I actually just don't know, and I don't think anyone in our organization really knows at this stage.

That's fair enough. Thanks for the extra detail there. Perhaps as we head toward the busier selling stretch of roughly Q4, Q1, and Q2 for ARR, could you talk a bit about how the pipeline is taking shape and how deals are progressing as we come out of a slower summer stretch?

We certainly have deals. The Novari and the Strata and the Zesty and the Buddy of this world, plus the Intouch, are really setting the pace when it comes to revenue. We keep moving deals forward. It excites me to see some of that work beginning to enter the Canadian marketplace, and our cross-selling excites me too. Not cross-selling merely from a sales standpoint, but we are genuinely integrating cross-sells, which is getting quite interesting in terms of what that involves. The suite has really pulled together with all the different pathways, and some interesting things are happening in the field with our products.

Thank you very much. That's great.

Thanks, Gavin. Doug Taylor from National Bank Financial has the next question. Doug, your line is open.

Yeah, thanks. Morning, everyone. I suppose I'll attempt to pose a few additional SHREWD questions, if you will. I realize you've got quite a bit of that business renewed and some that has churned. I mean, perhaps it would help us to grasp the range of possible outcomes here. Could you give us a sense of how much SHREWD revenue in the U.K. you maybe began with compared with what sits in your ARR today, and perhaps weigh in on the renewal schedules you're kind of monitoring. I know it's a dynamic situation.

Doug, I'm reluctant to do that, since we literally have customers that are in — we moved them into churn mode, but they're sitting in suspend mode. It's difficult to quantify what that level is. I still believe there's roughly CAD 10 million or so-ish of SHREWD revenue still out there to some degree across all the different pockets that exist. It's hard to say which ones aren't at risk or are at risk, and relative to that.

Out of the CAD 10 million in SHREWD revenue, perhaps I'll approach this from another angle. Once a customer enters suspend mode, as you mentioned, that amount has already been taken out of your ARR. Is that right?

For certain cases, that's true. For other cases, it isn't.

All right, okay. So there’s a pretty wide set of possible results. I’m not sure there’s any point in me guessing further.

I’d rather not guess, since I think in about another quarter we’ll have a clearer picture of how that plays out with regard to it.

All right. We'll be eager to hear how that develops. Perhaps shifting topics now, Ontario has stood out as one of the bright spots, given the success you've achieved there. Could you give us an update on how the rollout is progressing in Ontario?

Yes. It's going extremely well on the imaging side — that portion of the pathways is now live, which represents a substantial piece of it — and we're beginning to tackle some of the remaining pathways. We anticipate carrying that work forward through 2027. Still, it's been a robust product, and we're also beginning to witness considerable activity across the British Columbia region and the Maritimes for both Strata Health and Novari Health. Strata has seen something of a revival in its business, and we're genuinely starting to observe some very promising results in the U.S. marketplace with Strata, where they already had a certain foothold; but we're seeing fairly brisk business activity in the U.S. market too.

Take some of those regions, Ontario and the Maritimes, as you pointed out, where it's known there's built-in growth since you've won business, though the rollout comes in stages. I mean, do you have sufficient visibility on some of those to state that, regardless of what unfolds in the U.K. with SHREWD, you'd still anticipate generating growth in what we'll call the high single to low double digits?

Yeah.

Could you go out on a limb that far?

When all is said and done, the entire SHREWD business is certainly not disappearing. We have clients renewing across multiple years, so it is definitely not going away. It is experiencing a blip. That said, the other businesses are making up for any shortfalls, and we are pleased with how work is progressing on some of those other initiatives. Yes, a potential blip exists here. We have been discussing this for roughly six, nine months now, yet we keep moving forward, and we are excited about the business as a whole.

This is my final question. The integration efforts involving Buddy as well as a few of your other assets appear to be progressing nicely. Margins really stood out as a bright spot this quarter. Perhaps you could update us on where the integration roadmap stands now, what quick wins exist, or how we should think about margins for the organic business as it currently is, looking ahead.

Yeah. Look, we reached 27% this quarter, but we reached 27% alongside a decline in services and perpetual licenses, which from where I sit is a summertime anomaly, right? Had we achieved the services revenue we normally would have achieved, that would simply have contributed to the bottom line for this quarter, and it would have pushed that figure up even further. So on the margin side, yes, I believe our team has performed really well integrating Novari Health and Induction Healthcare. A bit of work remains there, yet they are fairly consistent with our business fundamentals, and we are pleased with the progress. Buddy is still in its early stages, but Buddy fits naturally into many of our various products, and it is solid technology, and we have gotten off to a fast start on some of that integration, mainly with the Zesty product, which plays a major role in integrating into that core product set. That effort is in progress, and we are beginning to see some interest in the Buddy product being sold into the surgical scheduling product alongside Novari. In case you are familiar with Novari, it has its referral business, but it also has its surgical referral business, where it arranges all the surgeries for roughly 40% of hospitals in Canada. We hold many relationships with the pre-operative or booking systems of hospitals in Canada, and there is demand for something like Buddy for pre-operative based assessments throughout the Canadian marketplace, and we have validated that, and we keep working on determining what business we can capture there, but we are excited about what that opportunity could deliver.

All right, thanks. I'll let the others have a turn here.

Thank you, Doug. Kevin Krishnaratne from Scotia Capital has our next question. Kevin, your line is open.

Hi there. Morning, everyone. Am I coming through okay?

Yes.

Hey, great. Hey, I've got a question. You mentioned the backlog for your services has never been stronger. Can you sort of put a number on that? How far out does it go? When you think about Q4, will we definitely see that rise from the level we saw in Q3? Just your thoughts there.

I think Q4 should tick up if the projects. The issue we have, Kevin, with services revenue in our business is that it just isn't a straight line, right? It depends on how the contracts get negotiated regarding milestones and putting time sheets and everything that goes with it. Getting that into a smooth line is sometimes a challenge, but we do believe there are a lot more milestones that should be hit in Q4 than in Q3. You just kind of have more customer involvement during that period to try to get things finished and across the finish line; so yeah, we feel comfortable that Q4 should get there.

All right, understood. Let me move over to AI. You mentioned — I believe I counted four separate products at this point: Transcription and TREAT, Protocol, and Novari. You brought up MedCurrent and then MCAP. So what I wanted to ask is whether you could share, say, how much of an ARR uplift you figure AI can deliver from just those products as you get going? You said customers are quite enthusiastic, so I'm just curious what that opportunity could look like within that base.

My sense is those four products on their own represent what the potential TAM might be — the MedCurrent piece and the MCAP piece. Simply from building them out, if those products reach the market, whatever they turn out to be, or through an upsell, or more broadly?

I'd be interested to hear, perhaps, whatever you're able to share with me.

Yeah, that's tough. We haven't put a total figure on it, but there are millions of dollars involved just with MCAP and the MedCurrent product. Both of those are clinical decision support products that use guidelines. With AI, those guidelines can simply operate automatically against patient data and begin delivering information directly with no data entry at all, letting AI handle the work by voice or by simply querying the systems about what the guidelines say; we've built some fairly solid prototypes for both of those systems, and in our view the true IP of those products is the guidelines themselves. We think those are two products where, if we get guidelines in place for them, they ought to be capable of some interesting things. We're constantly evaluating AI initiatives across our product sets regarding what we can build on top of our existing solutions, but those two have risen somewhat to the top among the initiatives we have. There are others underway as well, but our customers keep requesting it. We figure that simply by adding AI products into our install base, there's likely around CAD 30 million to CAD 40 million of TAM on top of that alone. We just keep working our way through it.

Oh, alright. Well, that's good to hear. Maybe just one last thing. You mentioned the solid opportunities, Novari and Strata. The Ontario rollout is moving along. There are opportunities for you in B.C. We have a sense of what the ARR was for each of those at the time you acquired them, roughly the CAD 12 million to CAD 13 million ARR range. How large do you think those businesses could get over the next couple of years, just building on those opportunities you mentioned?

I believe we have already seen some growth in our Novari products and our numbers for the first time. We expect that to keep going. Yeah, I think we should be able to get that Novari product well above the CAD 20 million in ARR numbers. Strata, I think it can keep growing, and we see another CAD 3 million to CAD 5 million in the pipeline of some things that could happen over the next couple years. Yeah, I think both of those products can keep growing.

Alright, I think that's a good place to stop. Thanks so much, Dan. We'll talk again soon. Take care.

All right.

Thank you, Kevin. Amr Ezzat of Canaccord Genuity has the next question. Amr, your line is open.

Morning, and thanks for taking my questions. Perhaps we could shift direction a little here, Dan. You've mentioned that the company is increasingly moving away from standalone products and toward an integrated VitalHub platform. Are you beginning to see that show up commercially in the form of bigger contract values or a greater number of products per customer? It would be helpful if you could tell us whether you track average products per customer or cross-sell penetration internally.

I wouldn't be at ease sharing data on that, so I'll decline on that front. Still, I am at ease based simply on my grasp of what the markets look like and the integrations we've finished in the field and through the acquisitions we've closed, and on how we've genuinely assembled a suite of products that we believe relate to one another and deliver a story along with outcomes, when they function together, that are quite strong. AI has allowed us to begin linking these platforms together much more quickly once things come together. What we'll begin doing is positioning it increasingly as a platform with separate modules that you can purchase, rather than as the brand of the products themselves; our feeling is that this will produce some bigger transactions. It's probably naive to claim there are any accounts that don't already have certain modules built or purchased, whether via us or via other product sets; so you'll never sell the whole thing in one go, yet they do relate to one another, and from a positioning standpoint I think it's simply a better means of describing what our capabilities are. I do believe that over the long run this will generate additional revenue as we keep growing.

Thanks; that gives me useful background. Given where the shares are trading right now, I'm wondering if that has changed the hurdle rate you use for M&A? There were no NCIB buybacks through September. Was that about timing or a blackout, or was it mostly to preserve flexibility for larger M&A opportunities?

I'd say mostly the latter. We've continued to explore certain scenarios that we've been looking at for years, and one of these days, we might surprise you, or we might not. I don't know. They're always hard to judge. But yeah, we do believe the company is in a really strong operational position that it can absorb something of a somewhat larger size. I feel very optimistic about how this organization operates and about our processes — we've really tidied things up. We have some strong metrics, plenty of data, a clear grasp of our roles and our process, and we understand our integration methodologies. I'm quite confident in our capacity to take on something of meaningful size, and I do believe that would be beneficial. That said, we won't make a mistake on that front either. We keep looking, we keep doing our small deals and singles, and we're disciplined — we remain disciplined. That's always been what we're about. We're simply trying to sort out — I've consistently said there are three avenues through which we generate revenue here. One avenue is M&A, where we generate revenue via absorbing costs, plus really robust processes and new ARR — yet that represents merely a single side of our operation, and we keep concentrating on each of those three avenues with equal attention.

Great. So perhaps a final question for Brian Goffenberg. Regarding R&D, it dropped fairly significantly compared with a year earlier, and I suppose that's one factor behind the robust EBITDA. What portion of that comes from lasting integration savings as opposed to timing or allocation? And for modeling purposes, would the present R&D run rate be a sensible baseline moving forward?

Yes, we're always looking to bring R&D down, I think, where it makes sense, shift things to Sri Lanka as far as we're able; so yes, I think we'll keep seeing improvement there. Obviously, in certain areas we'll be adding as we do more work on AI. And on timing, sometimes it does, as happened this quarter, there were more costs shifting because some of our development people work on projects, and that gets moved into cost of goods. It will probably stay at the same level going forward.