Vitalhub Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2023

There are 7 speakers on the call.

Operator

Good morning, everyone, and thank you for joining us this morning for our Q1 2023 conference call. 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, efforts, including among others, statements concerning the Company's 2023 objectives, the Company's strategy to achieve those objectives, information 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 reflects management's current beliefs

Speaker 1

information and are

Operator

based on information currently available to management and is subject to a number of significant risks and uncertainties efforts that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, efforts, which are non GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Efforts. Reconciliations between the two can be found in our MD and A, which is available on sedar.com and our website.

Operator

Efforts. With that, I will hand over the call to our CFO, Mr. Brian Goffenburg to go over our financial highlights for the quarter. Please go ahead, Brian.

Speaker 2

Efforts. Good morning, everybody, and thank you for taking the time to join us this morning. We continue to show momentum by consistently growing our client base efforts both organically and through M and A. This quarter, we've experienced growth in both revenue and gross profits as we focus on scaling our healthcare product offerings solutions will continue to gain traction in our cognitive health care sectors. On that note, I will share financial highlights of the quarter.

Speaker 2

Efforts. Total revenue for Q1 'twenty three totaled $12,600,000 compared to $9,400,000 in Q1 'twenty two, efforts, an increase of 34% year over year. Revenue from term licenses made since the quarter Q1 'twenty three was 10,000,000 compared to $5,700,000 in Q1 2022, an increase of 74%. The increase reflects the impact of continued organic growth in the company's suite of products, Capital with revenue derived from acquisitions. Revenue from perpetual licenses in Q1 2021 was 310,000 compared to $2,800,000 in Q1 'twenty two, a decrease of 89%.

Speaker 2

This decrease is due to the unusual volume of high margin perpetual license sales Q1 'twenty two, which already skewed our Q1 'twenty two numbers. Revenue from professional services and hardware in Q1 'twenty three So in Q1 2022, an increase of 148%. The revenues from professional services and hardware can vary depending on the timing of hardware deliveries and the progression of customer projects. Annual recurring revenue or ARR, of which we formally refer to as annual Contract value totaled RMB 39,600,000 as of March 31, 2023 compared to RMB 24,000,000 as of March 31, 2022, an increase of 65%. The growth in AOR benefit from the organic growth, acquisitions and a slight increase in foreign exchange revenue.

Speaker 2

Gross margin on total revenue in Q1 'twenty three was 80% compared to 84% for the same period last year. The decrease in Q1 'twenty information. Operating expenses in Q1 'twenty three totaled $7,600,000 compared to $5,300,000 in Q1 'twenty two, an increase of 45%. Efforts. The increase is due to costs from acquisitions completed during the year and the time it takes for synergies and cost savings from the integration of acquisitions to be realized.

Speaker 2

Efforts. Additionally, with the lifting of travel restrictions, marketing and travel expenses have also increased compared to the same period last year. Net income before income taxes in Q1 'twenty three was $780,000 compared to $1,600,000 in Q1 'twenty two, efforts, a decrease of 783,000 or 50%. Net income in Q1 'twenty three was 162,000 at compared to $1,400,000 in Q1 'twenty two, a change in 89%. This is versus a loss of $338,000 in Q4 'twenty two.

Speaker 2

Efforts. EBITDA in Q1, twenty twenty three was $1,200,000 compared to $2,300,000 in 2022, a interest expense, a decrease of 16% versus an EBITDA of $470,000,000 in Q4 2022. Adjusted EBITDA in Q1 'twenty three was $2,900,000 or 23 percent of revenue compared to $3,100,000 or 32 percent of revenue in Q1 'twenty two, efforts. Decrease in adjusted EBITDA was primarily attributable to the high volume of high margin compared to our licenses in Q1 'twenty two. Adjusted EBITDA in Q4 'twenty two was $2,400,000 Cash flow from operations was $1,500,000 information in March 23 versus $2,500,000 for the same period last year.

Speaker 2

Cash on hand at March 31, 2023 was $17,200,000 compared to $17,500,000 at the end of 2022. That's after spending $1,800,000 on acquisitions in the quarter. Efforts. With that, I'd like to hand the call

Speaker 1

over to Dan for an update on the business. Good morning, everybody. Welcome to the conference call. Efforts. Yes, I was thinking of words that we could talk about.

Speaker 1

I think it seems like yesterday, but it was a year ago that we were sitting here after announcing at a huge volume of perpetual licenses, mainly on the InTouch software suite that we had record times. And this quarter, the question was, can you sustain it? And I said, I think that's going to be a pretty difficult thing to do. But efforts. The reality of it is, is we came pretty close to the exact same adjusted EBITDA, pretty well the exact same adjusted EBITDA at a year ago when we did 2.7 percent of perpetual licenses compared to 300 ks this year.

Speaker 1

So this year's model reflects pretty accurately what our model is. And we think we're in a great spot. We don't think we've been in a better deposits. We've started, we've got 80% of our revenue is recurring in nature and that's been that way for a long time and we expect that to continue. $40,000,000 we're at the $40,000,000 mark, which gives us some great flexibility in terms of really trying to understand our business and being predictable efforts in all those different areas.

Speaker 1

We've had contribution from all areas of the business. There hasn't been I think all areas contributed to the increase in our organic ARR growth, which was still at about $1,500,000 which we've consistently at predicted that we believe we can do between $800,000 $1,500,000 on a quarterly basis. And I think we've done that consistently over the last at 10 quarters. We've been announcing these things. But we've seen contribution in AR from all of our business sectors.

Speaker 1

The 3 main areas we're seeing it are from the Hightom business. It's a business we bought last April. It has a product called Oriel, efforts, which is a national NHS service for the recruitment of clinical people, primarily physicians into practices and they use that system and it just keeps expanding with more skill sets in more areas and just keeps adding recurring revenue on a quarterly basis, from that business. The Treat business in Canada, we've seen at a really nice uplift and we expect that to continue with RFPs that we've been seeing issued in the mental health area, primarily in the children's area and we continue to win business efforts in the Canadian marketplace. In the transforming business, the transforming fruit product continues to expand across the NHS and we are seeing traction in the Canadian market now.

Speaker 1

So there's lots of in the Canadian market now. So there's lots of opportunity, we think, on that product expanding in many different jurisdictions. We still think we got more work to do on the cost side. We continue to work on that particular area. Our at.

Speaker 1

Columbus Sri Lankan base continues to build and mature. I think we're up to about 110 employees in that area across all the different skill sets. Efforts. But we still got work to do in terms of our base, in terms of getting products over there and so forth. So we continue to work on that.

Speaker 1

Efforts. We still live by our guidance on our organic growth stuff. We still expect that to continue. We see lots of opportunities, lots of RFPs And we still were we're still there. On the acquisition front, there's work in progress.

Speaker 1

We're being careful, but we do believe that We are going to get things across the finish line before the end of the calendar year. We continue to explore and we continue to look at that areas and that efforts. The group has been very active. We're being very careful in our situation. We got lots of cash.

Speaker 1

We're above $17,000,000 in cash for the quarter. We still got at our bank facilities that we can call on and we're generating cash from operations. So we are just inching into at the true compounding nature of which we predicted what would happen in 2023. So we're bullish

Operator

efforts. Should you have a question, please use the Zoom raise hand function on the bottom of your screen and we will make sure to open your line. Efforts. The first question comes from Gavin Fairweather of Cormark. Efforts.

Operator

Please go ahead, Devin.

Speaker 3

Hey, good morning. Congrats on all the progress. Dan, you talked about the breadth of the growth efforts this quarter kind of across products and geographies. Curious if you think, you know, that should make your sales performance maybe a little bit less seasonal, a little bit more smoothed out over the year kind of over time.

Speaker 1

Yes. I think I do think that should be the case in terms of what we got going on. We're not seeing it just being one product that's contributed and it's not relying on at government funded envelopes, etcetera, etcetera, that's coming there. So I think that's probably a good statement to do it. I've never felt like Q1 definitely has traditionally in our sector been a better quarter for everybody.

Speaker 1

But I've never felt that's at firm statement in looking at our business. We look at our pipeline and we see things moving across all of this. Theoretically, we should get more business and often we do, but it doesn't mean that you can see a Q1 quarter in Q3. It just depends on how things happen. We had a fair amount of new deals on a regular basis, but we're not It's not a huge amount of deal.

Speaker 1

So there's still not enough there to really predict in terms of like, hey, at this quarter is just going to be that much more than that quarter because it could happen in any quarter.

Speaker 3

Got it. And then given all the acquisitions that you've done In the UK, Mark, can you just touch on how kind of the nature of your sales is changing? You know, are you talking to different people? I think at. Last quarter, you talked about, you know, potential for a strategic deal for transforming.

Speaker 3

Are you seeing more cross selling come through? Like, how with your expanded

Speaker 1

at. The UK market continues to do that. Definitely a little bit lighter on the InTouch product set, but we still see business in that area and we still continue efforts to close deals when we do it. The transforming Screw product still sees a fair amount of opportunity To expand into that marketplace, we're adding deals. There's a lot of exposure on a national scale for what at the type of products that transforming can do and the visibility based solution.

Speaker 1

We think there's opportunities there and we're seeing a lot of conversations of at being able to grow that product in a material way in the UK. But time will tell if that comes to fruition. At you just never know where that step goes. The S12 product set has been pretty quiet over the last couple of quarters, but we've been at very busy in the development world to creating 2 add on modules. So we already have 80% of mental health practitioners that would do the S12 compliance based world on that platform.

Speaker 1

And they've been asking for new modules and new opportunities. So we finally finished those modules. So we think there's going to be opportunity in the latter half of the year to be able to add more revenue into that product set as well. So we're continuously at working on that and we expect that product to contribute a little bit more in the second half of the year. The ADI product set is being integrated into because they're looking for a portal based solution there.

Speaker 1

So there's opportunities on there for cross selling the products within the UK market as well. Yes, we're seeing different pockets of things that we're working on and different ideas that we can keep creating and adding add on products into our suite that at that we're trying to be opportunistic on.

Speaker 3

How should we think about perpetual licenses going forward? Obviously, last year you had at. Kind of like the gold rush of perpetual licenses there, more modest this year. Are you being much more selective in in when you sell them? Should we effect those to kind of gradually decline over time as you're shifting to SaaS.

Speaker 3

How do you think about that?

Speaker 1

Well, that decline in perpetual license is two reasons. One is it just didn't close as many in touch deals as we did in the previous quarter, but more it's that we've introduced a recurring revenue model for that product set, which we wanted to go into. So efforts. We've never really want to be a perpetual license based company and we're still going to do some. There's still some opportunistic side.

Speaker 1

There's a hardware component to that product, which we always want to do as a one time license. So it's a little bit challenging to do one element as one time And the other element as recurring. So that's why we get those perpetual deals on the in touch side efforts that come out of there. But we do expect that not to be high as ever in that particular area. You never know what could happen, but we don't expect that.

Speaker 3

Information. Got it. And then just lastly, before I pass the line, you touched on M and A integration and still having some work to do. At. Do you have a sense of kind of how much cost you'd like to reduce or how much work further work you can ship to Sri Lanka and how are you thinking about the timing of that taking place.

Speaker 1

Yes, I think it's an ongoing process and we're constantly quarter over quarter making that way. Efforts. We've done a fair amount of acquisitions over the last little while. It's a lot first really good to digest. And efforts.

Speaker 1

Some of the companies have been very technologically heavy. So we got a queue of work to do there and we expect at quarter over quarter just keep to either complement those existing groups to get more innovation or if necessary trying to reduce the cost from that perspective. I don't feel comfortable putting guidance and numbers on it, but we're constantly going to chip away at it.

Operator

Efforts. The next question is from Christian Skrow of 8 Capital. Christian, your line is open now.

Speaker 4

Efforts. Great. Thanks, Vivek. Good morning, everyone.

Speaker 5

No problem.

Speaker 4

I'll follow on the cost side of the business. Gavin's last line of questioning. Efforts. Only just to unpack some seasonal fluctuations in G and A and R and D that we saw in Q1. I know you didn't want to give forward guidance, Dan, but efforts.

Speaker 4

Maybe help us understand maybe some of the increases, decreases in Q1, maybe some of it's due to FX or other reasons. Efforts. And then again, without giving guidance, where you think the OpEx profile can trend through the year?

Speaker 1

Yes. We've been working when you're doing acquisitions and so forth, trying to get for allocation. Sometimes it becomes a challenge. We've introduced in the latter half of last year an analytics team and platforms and so forth, right. So coming into this year, we did a lot of work on reallocation of costs into the particular bucket to get that.

Speaker 1

So part of it is that going on into the perspective part of it is at the introduction of the acquisitions where you get more different skill sets that lead to that particular areas of those G and As. But information. D and A is what it is, right? It's a cost based stuff. It usually gets flat.

Speaker 1

We don't expect that to grow. We've invested a fair amount efforts in the latter part of last year and this year in terms of, beeping off our processes and our procedures. And we've introduced, at more of a corporate operations group, which is helping with some things that we've purchased a bunch more software to help us interest in our integration side. So that's also part of it. R and D, we're constantly looking at that, right.

Speaker 1

So efforts. We'd like to move as much offshore as we can to do that, which really just goes back to Gavin's old question. We're going to constantly nip away at that.

Speaker 4

Okay, perfect. And then on, like to revenue on the professional services segment of the business, Probably a way we would think of the growth there is just stable growth as the company is busier and scales. But do you have visibility into Services may be increasing more than we would expect with deployments in Canada. Anything else going on in the UK or Australia? And where do you see that service trending?

Speaker 1

Professional services is a direct correlation to the mixture of the product sets that we have and the increase in that is primarily attributable to the HyComm and the Treat business, which have the ability to do custom development and get paid for it as part of their implementation cycles. So both those products have started to contribute, which she didn't really have a year ago in our mix, efforts, right? We're also really working hard with our subsidiaries to get paid for professional services where efforts. In the past, they didn't get paid as much as they probably should have in the delivery of their product sets. They sort of just rolled it in as a lot of small companies do, as efforts.

Speaker 1

Rolled in the installation and rolled in the work as part of the license fee. And we're not firm believers of that particular model. So at. We're just culturally changing our acquisitions to say, hey, we got to get a little, we got to get paid for this stuff. So that's a direct correlation of where at our services revenues increasing as well.

Speaker 1

And, we've been working hard on just getting that cultural change within the organization to get paid for that and trying to keep our Get Our Services business as an accurate P and L for the business.

Speaker 4

Got it. Thanks very much, Dan. Just those 2 for me this 1 and then I'll pass the line. Thank you.

Operator

Thanks, Christian. Information. The next question comes from Gabriel Lung of Beacon Securities. Go ahead, Gabriel.

Speaker 1

Efforts. Good

Speaker 5

morning and thanks for taking my questions. Dan, can you talk a little bit about the breadth of assets you've got in your

Speaker 1

efforts. You've gotten your M and A pipeline

Speaker 5

right now. And as you look towards closing some of these, what's the bottleneck that's

Speaker 1

to preventing them near term.

Speaker 5

Is it more financial? Just trying to figure out if it's the right fit for you guys right now.

Speaker 1

I don't know if this might answer. We got the ability to execute and we will. It's just trying to get the sellers to get an appetite to do something, right. At this economy has put people in cocoons, even though the valuations might go down. It's the same I at.

Speaker 1

Talking analogies way too much in what I do, but I think it's the same analogy of why are people selling their houses now when they were selling them 2 years ago, right? And it's Because they don't think they can get the price for their house and the market's gone down. So they take that off the market and say, we'll just live here for another 3, 4 years till the market increases. And I think that's at part of what we're seeing in M and A. I've been reading stats that private equity is down on M and A in an extensive amount and just volume overall is just efforts down overall, and I think that's attributable to it.

Speaker 1

With that being said, we're also being more careful in what we do in terms of at where it goes. And we know we're being measured on the bottom line, not on the top line. And we got to feel really comfortable that efforts. We can get that bottom line. So a lot of the business that we have might be breakeven businesses that we got at.

Speaker 1

We've got to bear some pain for a little while till we get them into our mixture of what we do. So we need to really carefully look at that and efforts. We want to be careful with everything that we do from the acquisition side, but we do have things going on and we expect still to do stuff on a basis. So we want to do stuff and it's not like we've put the brakes on at all. We're definitely looking.

Speaker 5

Efforts. And in terms of the stuff that's in the pipe, are they more tuck ins you think interim or is there stuff that could, I guess, more meaningfully move the needle on your ARR?

Speaker 1

Efforts. Yes. I think the part that I do think there are opportunities for businesses that do have investors that are in them, that their valuations have decreased and the investors are saying, hey, I want some liquidity options and they're exploring liquidity options or thinking of exploring liquidity options. So there are scenarios like there that we're communicating with and we would like to get involved with some of those. And those would be more on the larger scale type of stuff because that's got the investors and the ability to do that.

Speaker 1

With that being said, we're also doing the tuck ins, which wouldn't necessarily have those characteristics at all. But those are the attributes that we're doing and we continue to look at it.

Speaker 5

Got you. And just one last thing for me. Any additional talking points around geographic expansion outside of your existing core areas.

Speaker 1

Yeah. Australia is still An area that we've beefed up costs there on the sales on the marketing side. We're starting to see activity with the treat business efforts. In the Australian marketplace, which is really exciting for us, we haven't been able to move that. We haven't tried to move that out of Canada, but Australia we think is really prime for that business and efforts.

Speaker 1

Early indications, at least the customers that we've spoken to go, wow, this is something we don't have in this market, which has been really exciting for us. Efforts. The Mideast with Hycom has given us the ability to look at has given us much more leverage with our UK products efforts into the Mideast and the sales group that has been responsible for Highcom in the Mideast has been really helpful for us. So we got some things going on. Efforts.

Speaker 1

On the acquisition side, we've broadened our scope into the more of the European marketplace and we've got more activity cooking there. We would like to get into the European marketplace a little bit more. We think there's a lot of our products that those markets don't have yet. But we would we need to we don't want to hit to those markets at really without a beachhead of an acquisition. So it would be nice to get something there.

Speaker 1

But again, we'll be patient to make sure we do it in the right way.

Speaker 5

Actually as a follow-up that your comment on the interest in treating Australia, would that do you think that would translate into at a little bit more additional lumpiness on the license services side or do you think you can get an arrangement whereby Tree might be offered more on a subscription basis as opposed to a bigger license.

Speaker 1

It is on a subscription basis, although there's a services element, right? It's all recurring from that business. Yeah. And the lumpiness comes in the services side of that particular area. It's the same business model there that it would be in the Canadian marketplace.

Speaker 1

The only difference is we got a team, we've got a 20 person team with the CBS acquisition that actually understands the domain and understands the space and is getting trained on the tree product set to go out there and try to go sell it. Right. So And they'll be the ones that need to do the implementations of it. So we have seen RFPs in that marketplace. We're responding to those RFPs and

Operator

information. Thanks Gabe. The next question comes from Richard Baldry of Roth. Please go ahead Richard. Efforts.

Operator

Richard, you need to unmute.

Speaker 6

Hi, can you hear me now?

Operator

Yes, perfect.

Speaker 1

Efforts. Thanks. Can you talk about

Speaker 6

how much of the organic growth is cross sell versus new clients? And then maybe speak to the breadth of the sales, whether that's at globally or across your product sets, start trying to figure out if it's across the portfolio or if there's some hotspots in weaker areas? Thanks.

Speaker 1

Yes, the sales are done with all of our products, I mean, so there's nothing that's really sticking out. Every most of our business units that we expect to contribute, we have some business units that we don't expect to contribute to our sales and they're just upsell opportunities for other products as we've got duplicate products in that particular area. So we don't expect them efforts to increase, but those areas that we expect to are primarily the Hycom OREAL products that at the tree product, which is the high next acquisition of the early product, the set that we have, and the transforming solutions products that transform and hicom are part of the UK based transforming is Most of those sales are new entities that just keep expanding. Within it, Hycom is upsell within its existing set that's just adding more users and more skill sets. It's just a one website implementation that just keeps growing.

Speaker 1

That's fair. Treat is all new product sets as well. But if If you look at the transforming set, a lot of those customers are probably InTouch customers. So they are add on and you know, what impact did impact you didn't touch. I have with that probably in some of the cases, yes.

Speaker 1

And you know, we got product all over the NHS. I think we're installed everywhere, right? So every deal that we do probably has some impact from another person to to do that. So it's hard to really qualify as a new customer or an add on. But most of our contracts is because our sales groups and our teams have those relationships.

Speaker 1

And if they don't, if one group is trying to get in somewhere, We see that we have another product set. We call that particular group and say, hey, can you get me in here? And that's what happens, right? So We get access to decision makers. We get access to buyers through our product sets and a lot of our deals are sold that way, both of them.

Speaker 1

Then

Speaker 6

maybe to build on that, you talk about you've done a lot of acquisitions. So how do you feel about the overall combined, you know, sales headcount you've got, the productivity levels you're at, the capacity to sort of keep up this organic growth rate. I don't know if you want to think about it in terms of how long a tenure they have with your company specifically. So how good they're at selling the suite of products, just Sort of an overall thought there. Thanks.

Speaker 1

We got a sales force that's been doing this for a long time. It's not very Yes, we just we have increased our sales force in the Australian marketplace. Those are newer sales reps, but we did hire people with experience that have sold into those marketplaces before. Efforts. The group that's been in the Mideast has been doing it for a long time.

Speaker 1

The transforming team has been in the market for a long time. The InTouch suite, we got sales reps that have been here for 15 years. So we got some pretty mature sales efforts. Do we have enough of them? I think in some areas we got too many of them and other areas we don't have enough of, probably need to rebalance that to a degree information on our TAM and which products we can sell more than other products.

Speaker 1

But that's one of the advantages of at going through M and A and adding new products as you just don't get the products, but you get the people. And we're pretty good at at keeping the people on our team, at least the ones we want to and preserving the brand and the integrity and what they've built up over the years and try to use that as a platform to grow it and not destroy it. So we got lots of expertise there, Rich, if that answers your question. Efforts.

Speaker 6

Great. Thanks and congrats on a great quarter.

Speaker 1

Yeah.

Speaker 2

You too.

Operator

Thanks, Richard. Efforts. There are no further questions. I will hand over the call back to Dan for your closing remarks.

Speaker 1

Yes. I just I guess the message is we got ourselves, I guess, if you take our adjusted EBITDA close to $3,000,000 at producing $12,000,000 of adjusted EBITDA on a $50 ish above $50,000,000 level revenue, which 80 percent of it's recurring and we expect to continue to grow off of that, expand off of it and move ourselves forward. Efforts. It would be nice to add some more M and A to that equation and we will. And we just keep on the business model, but I think quarter over quarter, it just becoming just keeps coming clearer and clearer and we just keep growing that number.

Speaker 1

So I think we got ourselves to, interest. I don't know, on an enterprise level, if you use our cash, we've got no debt, maybe 8 times adjusted EBITDA based world. So interest. It's just a question on what the investors want to see because I'll just keep going and some point it'll be 7, 6, 5 times EBITDA. I don't know what valuation will be unless the stock goes up.

Speaker 1

But we just keep looking at it and we keep going and we hope the investors can Understand. We'll try to be transparent with our business model and we'll continue to do that. So we're excited about what we did in Q1.

Operator

Efforts. Thanks, Dan. Thanks, everyone. Appreciate everyone joining the call this morning. You may disconnect now.

Operator

Bye bye. Have a great day.

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Earnings Conference Call
Vitalhub Q1 2023
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