Vitalhub Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 11, 2023

There are 10 speakers on the call.

Operator

Good morning, everyone, and thank you for joining us this morning for VitalHub's 2023 Second Quarter 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 security laws, including among others, statements concerning the company's 2023 objectives, the company's strategy to achieve those objectives, outlook as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Such forward looking statements reflect management's current beliefs statements and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially statements from those anticipated. Also, our commentary today will include adjusted financial measures, which are non GAAP measures.

Operator

Statements. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the 2 can be found in our MD and A, outlook, which is available on sedar.com and our website. With that, I will hand over the call to our CFO, Mr. Brian Goffenburg to go over our financial highlights for the quarter.

Operator

Please go ahead, Brian.

Speaker 1

Good morning, everybody, and thank you for taking the time to join us this morning. We maintained our upward trajectory in the 2nd quarter, steadily and consistently growing our customer portfolio by organic growth and mergers and acquisitions. During this quarter, we've seen a positive trend in both revenue and gross profits, fueled by our commitment to expanding health care product offerings and deeper integration into health care networks. This has led to a notable increase in stable annual recurring revenue of 31.4% for the first half of twenty twenty three. At.

Speaker 1

We remain very bullish on the diversified portfolio of product offerings we currently have at our disposal, and we'll continue to target specific health care sectors outlook. Total revenue for Q2 'twenty three totaled $13,100,000 compared to $9,500,000 in Q2 'twenty two, earnings, an increase of 38% year over year. Total revenue for the 6 months ended June 30, 2023, was CNY 25,700,000 income compared to the DKK 18,900,000 for the same period in 2022, an increase of 36%. At. Revenue from term licenses, maintenance and support in Q2 'twenty three was $10,200,000 compared to $7,200,000 in Q2 'twenty two, earnings, an increase of 41%.

Speaker 1

Revenue from term license maintenance and support for the 6 months of 2023 was $20,200,000 compared to 13,000,000 outlook for the 1st 6 months of 2022, an increase of 56%. This increase reflects the impact of continued organic revenue growth in the company's suite of products, capital with revenue derived from acquisitions completed during the previous quarters year. Revenue from perpetual licenses in Q2 2023 was 250 at $5,058 compared to $149,253 in Q2 'twenty two, an increase of 71%. Revenue from perpetual license for the first half of twenty twenty three was $565,456 adjusted earnings compared to $2,900,000 in the same period in 2022, a decrease of 81%. The decrease was primarily attributable Revenue from Professional Services and Hardware in Q2 2023 totaled CAD 2,600,000 compared to CAD 2,100,000 in Q2 2022, earnings, an increase of 25%.

Speaker 1

Revenue from Professional Services and Hardware for the first half of twenty twenty three was DKK 4,900,000 income compared to $3,100,000 for the same period in 2022, an increase of 63%. The increase is primarily driven outlook. Annual recurring revenue, or ARR, of which we formally refer to as annual contract value, totaled $41,000,000 as of June 31, income of 2023 compared to $31,200,000 in June 30, 2022, an increase of 31%. At the financial results. The continued increase in AUR growth is reflective of our strategy to grow the business, both organically and through acquisitions.

Speaker 1

Gross margin on total revenue in Q2 2023 was 81% compared to 83% for the same period last year. Outlook. The gross margin of total revenue for the 1st 6 months of 2023 was 81% compared to 84% in the same period in 2022. Statements. The decrease in both quarterly and year to date gross margins were due to the unusual wide level of high margin compared to license revenue in Q1 'twenty two compared to this year.

Speaker 1

At. Operating expenses in Q2 2023 totaled $8,200,000 compared to $6,400,000 in Q2 20 activities and operating expenses in the first half of twenty twenty three totaled DKK15,900,000 compared to DKK11,700,000 in the same period last year, outlook and the outlook for the Q1 of 2019, a 36% increase. The increase is due to sales and marketing expenses for Conferences and the Exhibitions and R and D expenses for acquisitions Net income before income taxes in Q2 2023 was $742,516 income compared to a net loss of $9,957 in the prior period. Net income before income taxes for the first half of twenty twenty three was DKK1.5 million expenses compared to $1,600,000 in the same period last year. Net income in Q2 'twenty three was 621 ARS 1,000 compared to ARS 74,000 in Q2 2022, an increase of 733%.

Speaker 1

And net income for the 1st 6 months was ARS 784 compared to €1,500,000 in the same period 'twenty 2, a decrease of 48%. EBITDA in Q2 'twenty 3 was €1,900,000 at the cash flow of $1,980,000 compared to $1,000,000 in Q2 2022, an increase of 93%. For the 1st 6 months of 2023, the EBITDA was at the JPY 3,970,000 compared to JPY 3,390,000 for the same period in 2022, an increase of 17%. Adjusted EBITDA in Q2 'twenty three was CNY2.97 million or 23 percent of revenue compared to CNY1.87 million earnings or 20% of revenue in Q2 2022, an increase of 59%. For the 1st 6 months of 2023, adjusted EBITDA was CAD 5.8 $9,000,000 compared to $4,900,000 in the same period in 2022, contributing to an increase of 20%.

Speaker 1

EPS was primarily attributable to the higher recurring revenues of $10,210,000 in Q2 'twenty three as compared to $7,230,000 in Q2 2022. For the 1st 6 months of 2023, cash flow from operations before changes in working capital was $4,100,000 expenses compared to $3,900,000 for the same period last year. Cash on hand at June 30, 2023 was $22,900,000 income compared to $17,500,000 at the end of 2022. And with that, I'd like to hand the call over to Dan for an update on the business. At.

Speaker 2

Thanks, Brian. I don't have much to say today. I'll look for some questions at from everyone that's out there, just to add some clarity, but just a few comments to make. I think as you can see over the last quarters, Q2 is just steady as we go. We're as I mentioned in our Q1 call, I think we've got ourselves into a stage where we are starting to be a little bit of a under here and things are starting to work.

Speaker 2

I still think we got work to do. I think a little more size would help in terms of our organizations. But as you can see, we're at moving the needle on most of our key indicators on a quarterly basis, and we expect to continue to do that. Our ARR is growing at above our expense level at this stage in the game. And we still think we got room on the expense side to do some things.

Speaker 2

So, it's steady as we go at. We're still seeing demand for our products. We're still I don't know how many quarters it's been now, but we're doing between $801,000,000 $1,500,000 in the 2 quarters of being closer to the higher end of that set. And it's really split amongst our products looking in terms of number of deals and deals that are there. Of note, on our product set, our treat at.

Speaker 2

On a set in the Canadian marketplace is seeing some really good momentum in the last little while and we're excited of what we're doing in Canadian opportunity. It is turning into a Canadian standard for larger based initiatives, at where community and mental health agencies are combining or looking to get to the next level and we've consistently been winning some tenders in that space. The Transform product in the UK continues to steadily produce in the OREAL product. At the education platform of the Hynix acquisition continues to add users on a quarterly basis. And we're also starting to see impact from the CDS company in Australia as well.

Speaker 2

We are seeing a little bit of a slower turn on our inTouch products that it's still producing, but at that quarter that we had in 2022 is long gone at this stage in the game, but we're still seeing impact from there. At. We're making great progress on our cost side. We continue to ramp up our Sri Lankan Innovation Lab. At.

Speaker 2

Really proud of what that group has done. It's not just QA and development anymore. We got IT operations support. At. They're doing implementations, consulting, new versions of product updates and so forth.

Speaker 2

They're all starting to go through there. So at. We're there. We still think there's room to expand on cost geographies. We're starting to see some work in that world, especially in the Canadian marketplace with some of the in touch product sets.

Speaker 2

And we're still seeing growth on our products across the board. So we're happy with the way that's going. At. Traditionally, Q3 is a slower quarter, mainly because it's hard to get services over the finish line. I think we're doing okay so far, but it is pretty hard to government agencies to do the work in the quarter.

Speaker 2

So we always worry about this quarter, but we're continuing to progress it. At. On the acquisition side, we're still seeing deal flow. We've been cautious in that regard. There were a couple of scenarios that We didn't do because we didn't like the way they turned out, but we do have stuff in the works and we continue to work those areas.

Speaker 2

We're still sitting on a significant amount of cash. I think we saw our balance go close to $23,000,000 in the quarter. Note the accounts receivable amount in our balance sheet. We expect that at number to continue to go up, as we continue to progress through our deals and through our business model. So we're happy with what we're doing.

Speaker 2

At. I think if you take cash and look at our valuation, I think we're at like a $90,000,000 enterprise value based company right now. At. And we expect to continue to have cash and AR and continue to grow on those lines. So we're going to just keep executing the plan and keep doing what we're doing.

Speaker 2

And we're open for any questions.

Operator

Perfect. Thanks, Dan. Statements. First question is from Richard Baldry of Roth Capital. Statements.

Operator

Go ahead, Richard.

Speaker 3

Thank you. I'm mobile, so hopefully I'm not too carbled. Could you talk about the spike in deferred revenue in quarter. Obviously, that's a disproportionate cash generator when it can run hard. It was up almost well over 50% sequentially.

Speaker 3

At. Maybe let us know how that happened, what's sustainable about that or one time oriented?

Speaker 2

At. It's a combination and Brian can add some light on this as well. It's a combination of annually, we did some more acquisitions. So, inherently, that's going to grow. At.

Speaker 2

We're also pretty cyclical business in terms of our recurring timeframes, right. So we do a lot of stuff that gets renewed in Q1, which would increase the at the end of Q1, which would increase the deferred balance in Q2 as we go through it. And then we've added some deals into that scenario. So deferred is often a question of the timing of when the contracts were signed. Brian?

Speaker 1

Yes, I think to add to Dan's comments, really, there's a fair amount of billing that went out towards the end of the quarter, Of which the revenue will only be recognized in the following quarters. It's just really timing.

Speaker 3

At. Okay. Got it. And so you said another narrow new high for adjusted EBITDA, but at the same time, we're seeing you're able to invest at pretty strongly in sales and marketing and R and D on a sequential uptick basis. So you talk about are those sequential upticks at.

Speaker 3

Are there opportunistic hiring or in response to some of the demand you're seeing? Do you think that the new levels we're seeing are sort of sustainable here forward?

Speaker 2

Looking. We have ramped up some new hires in terms in Australia and the Canadian marketplace to try to get cross selling and some synergistic work out of some of our product sets. So we have done a bit of that on the sales and marketing and beefed up that. And There are some products that we think have better potential from a sales perspective. So, we are putting a little bit more development into those as well.

Speaker 3

And last for me would be revenues were up sequentially and the COGS line actually It fell very narrowly, but let's call it flat. Are you seeing incremental areas of synergies there or Maybe was 1Q a little ahead of trend and so it was easier to go sideways even as the revenues were climbing? Thanks.

Speaker 1

At. Pods are usually

Speaker 2

attributed to 2 things that sort of fluctuate that line for us. 1 is we deliver more professional services. We got higher cost of goods and 2, the hardware component on those deals. On some of our deals, we have one product that is hardware based. So, we get a little bit of a hardware spike.

Speaker 2

You'll see the COGS increasing on there. At. We look at our cost synergistic. We're always trying to figure out ways to be a little bit more innovative to move things into our combo innovation group, where things like IT resources, help desk, 20 fourseven support, things that we can do to move sequentially down move things over there. So we're always thinking of those things, Richard.

Speaker 2

And it's constant and it will always be constant that we're just trying to to think of out of the box in that area.

Speaker 3

Great. Congrats on a good quarter, especially on the cash generation, especially in a tough environment.

Operator

Looking statements. Thanks. Thanks, Richard. The next question is from Gavin Fairweather of Cormark. Gavin, your line is open now.

Speaker 4

Hey, good morning. Can you hear me?

Operator

Yes. Yes, we can.

Speaker 4

Okay, great. Dan, you referenced the ARR range Kind of $800,000 to $1,500,000 Nice to see you coming in kind of at the higher end of the range. But I typically think is tends to be a bit of a seasonally slower quarter. At. So is that still kind of the right range for you?

Speaker 4

Do you think that as you get into the busier sales period, you could actually poke above that range? How do you think about the kind of sales potential of the business on a quarterly basis.

Speaker 2

You could see spikes and valleys in this thing. You never know. It's government at Healthcare, right. So funding envelopes open up. Sometimes they're not opened up, right.

Speaker 2

So you just don't know at. Where that's going to go, right? If we hit between $800,000 $1,500,000 and don't at. We'll miss it and we keep Bart. So yes, maybe we'll be on the low end one side of the quarter, but we're still generating cash, right, at that stuff.

Speaker 2

And it's still coming to the bottom line in the quarter. But this is the long game for us. Based on our current product set, I think the 800,000 to 1.5 is at probably the number which I feel comfortable with. But more acquisitions will lead to different product sets. And there's some growth products that are out there.

Speaker 2

I think we can increase it. But that's where I feel comfortable at this stage in the game still.

Speaker 4

Got it. And then maybe on the Australian market, you mentioned that as seeing some increasing traction. I know you added some sales resources there on the patient flow side. You're You're also planning on taking kind of treat into that market. So I know it's still kind of early days from a revenue perspective, but maybe you can just discuss kind of the demand environment at.

Speaker 4

And the reception to some of your increasing sales investments in the region?

Speaker 2

We have a with CDS, we got the ability to execute by adding support people and salespeople and making sure that they're going to get proper supervision and management. And so we got the structure in there to to execute. It will take some time for that to happen. We do got a base of about a dozen InTouch customers. I think we've got a large MCAP customer already in Australia and you got your CDS customers.

Speaker 2

And we did ramp up a new sales team that has gone through and has been onboarded and is starting to progress in those areas. We've also introduced the tree product into the CDS group, who's got the ability and the demand experience to sell it. And at the and we're starting to see tenders and things come through there. And we're starting to understand what we need to do to tweak the product a little bit to the marketplace. But at the product is being well received based on what we've shown people so far.

Speaker 2

And at. We're starting to feel that product can be can expand into other markets besides Australia as well based on the results that we're getting in Canada. So at. We're beating some pretty high profile names with that product set. There's been a ton of R and D that's gone into it over the last 3, 4 years.

Speaker 2

It's a pretty big team and we're happy with the way that product has progressed. So we're continuing to push the envelope on that product. And these are slow sales processes, but they're larger transactions, and we'll just keep pushing the envelope on it.

Speaker 4

What about TREAT in the UK?

Speaker 2

Yes. We're starting to see at some opportunities for that. Again, ideally, it's Treat would ideally, I'd like to enter that with an acquisition in the UK, which This would be a great thing for us to do, but we are doing a little bit there. But it takes a team to support that, that really understands that domain and that grouping. It's a lot more complex of an implementation and sales process and at.

Speaker 2

We don't really want to make the investment in a team. Ideally, we'd like to do that through an acquisition.

Speaker 4

Makes sense. And if we were speaking, I guess, first half of at 2022. You would have said that your goal was to grow the business to kind of $50,000,000 and obviously you've been there for kind of a couple of quarters. Do you have any other kind of fresh targets in mind and thoughts around Kind of timelines around those, like what's the dot on the wall internally now that you've achieved that $50,000,000

Speaker 2

Listen, it would be nice to get to the $75,000,000 to $80,000,000 range looking statements. It was the same metrics that we have producing right now. So, at. Going out organically, it will be a little bit of a slow growth. But every quarter, we get some cash.

Speaker 2

We'll do acquisitions. We still got the acquisition line. Ideally, at. A larger acquisition that is very synergistic would be the ideal way that we'd like to go here. But at.

Speaker 2

At the same time, that's a pretty big decision to make and we have to be really careful in how we make that. So at. We're continuously progressing and looking for those avenues and we'll see what happens.

Speaker 4

Okay. Rick, you congrats on Nice combo of organic growth and margin and cash flow here.

Speaker 2

Thanks.

Operator

Thanks, Gavin. The next question is from Christian Skrull of 8 Capital. Go ahead, Christian.

Speaker 5

Hey, good morning, Dan and Brian, and congrats on some good organic growth in the quarter and good results overall. Following on Gavin's question, Q2 isn't normally the strong seasonal one, but hit the high end of the sequential I guess absent a flurry of new customer announcements in the UK or otherwise, would you say that a lot of the ARR ad was expansion. And then I might ask separately about Canada, but was some of the deployments in Canada, was that a big part of the growth this quarter?

Speaker 2

Combination of everything. We keep adding users on the OREO platform. We're not announcing every transaction at this at the stage in the game. To do that, some of our customers don't want them announced and just because of the government sector of where it's at and we're just not announcing every single little deal anymore. We're just we're letting things go through there.

Speaker 2

So at. It's been a combination of everything. There's been some add ons to the Oriel product. There's some rollouts on the tree product that have brought that into at. Bought those deals and allowed us to recognize licenses revenue in there.

Speaker 2

Transform continues to add stuff on a consistent basis. So we've seen it across all the areas of our business. CVS traditionally at. Always adds $100,000 to $150,000 per quarter and they're all small deals, but they consistently add them. So We got growth coming from many different areas these days, Christian.

Speaker 2

That's really what's going on.

Speaker 5

That's great. And I'll still ask a separate question on Canada, but you You had mentioned there's treatment momentum.

Speaker 2

Yes. Would you say that? We're seeing consolidation and we're seeing Decommissioning of all their legacy systems that were being run by government bodies that they're looking for new vendors and at. We're winning those RFPs. So we expect to see a flurry of 3 deals over the next few quarters.

Speaker 5

Great. That's all in the pipeline. It was a forward looking comment, which is good. I'll ask maybe just one more poke at the M and A, at. Your appetite there and what you're looking for.

Speaker 5

Would you stick to the same plan that you've had for 3 plus years, high margin recurring, at. Something adjacent or is there anything else you're seeing that could be attractive to you? Any color you want to give on the geography or the Yes.

Speaker 2

I think if it's something we would enter a new type of at. Maybe not new geographies other than the United States. We're still not ready to go there. But new geographies for sure, at. We're looking for the similar type of product sets.

Speaker 2

We know the gaps that we're trying to fill in those gaps, and we're targeting at. Those organizations that we're either working with or competing against in the field. So we're consistently looking. We'll do at. The $1,000,000 recurring businesses and those things are still out there and we expect to execute on a few more of those.

Speaker 2

At, but we still got some larger ones that are in the works as well. So we continue just to do what we're doing. I think the last 2, 3 quarters, we've been a little bit careful to make sure that we got ourselves into a cash generation engine, which I think we have. So we just wanted to make sure that we can self fund these things. And at.

Speaker 2

If we do dip into our debt facility, it really needs to make sense from a synergistic perspective. So we would want to have a profitable organization out of the get for that or and so forth so that we know we could carry that debt. So we're the smaller ones. They're not profitable yet. We'll make them profitable very quickly if that's easily done.

Speaker 2

The big one is a little bit more challenging. So we just want to be careful as we move through there and we're looking all over as we always have been. At.

Speaker 5

You know what, I'll sneak in a 4th for Brian, but it's quick and mechanical. On the income statement, Brian, for the operating lines, Was there some reallocation from Q1 to Q2, some of the G and A going to R and D, not a huge impact to the overall profile, but to help us with modeling. It looks like there were just some shifts there.

Speaker 1

Yes, it was a little bit. We've got we've at. Put a new system in place, which allows us to better allocate some of the people side. So there was a little bit of a reallocation.

Speaker 5

Perfect. That's all for me. Thanks so much for taking my questions.

Operator

Thanks, Christian. Next question is from Doug Taylor of Canaccord. Doug, your line is open.

Speaker 6

Hi, good morning. This is Neil Bakshi on behalf of Doug. He was on another call unfortunately. Congratulations first on the quarter, Good organic growth and free cash flow, so those have echoed. First question I have, you had mentioned the inTouch product set was A little bit of a down quarter.

Speaker 6

Just wondering in terms of resource allocation or efforts at. See growth return back to its previous levels that we should look at in terms of InTouch as a standalone?

Speaker 2

It's an anomaly there's 2 things we'll be in touch. Number 1 is where we've tried to evolve, move that into a recurring revenue model from professional model with some success, but no, it's not totally, right? So there's still a little bit going it's still coming through, but more to the recurring side versus the professional side. But at. Because the perpetual side just sort of explained that number a little bit.

Speaker 2

But because there's a hardware component that gets sold with that, the perpetual It seems to be the way that those customers would like to buy that because we're not going to we're not ready to at. Do recurrent models on the hardware just because we don't make much margin on it, which doesn't make sense to you. I don't want to get paid for that stuff upfront as we support it. So of course, the license needs to roll into it. They got a pretty big penetrated base in the UK.

Speaker 2

We've had some success in Australia with it and we're trying to move it into at the Canadian markets and so forth, but there's still enough left in the UK to sell. I still expect that we're going to sell that product and we'll continue to sell it and it's still at. That business unit still produces really good margin for us. So we expect for it to continue. In the UK, we've integrated our groups together pretty nicely, except Highcom at this stage.

Speaker 2

So we can move resources around from at. The InTouch group can start helping with transforming in the BI groups and so forth, etcetera. So we have the ability to move resources around, which is part of at another good concept of our business model. So, it's not that if the timing is not right for, we see an uptick in transforming, which we and expect to continue moving resources from the projects team and the implementations teams can be done. So that's part of our plan as well in BUK.

Speaker 7

At. Great. Thank you. And then

Speaker 6

just a question with respect to S12. You mentioned, I guess, in the previous update that we could see a bit of An uptick later this year as new modules are added, but just wondering how progress is going with that product?

Speaker 2

Yes, we did a little in Q2, we didn't see much impact, but at. Those 2 product sets are 1 is totally completed and in the market, and we're starting to see stuff for Q3. And The other one is coming around as well. So we do expect a little bit in Q3 and in Q4, we do expect to see some more impact into next year as well.

Speaker 7

Okay, great. Thank you.

Operator

Thanks, Neil. Next question is from Daniel Rosenberg of Paradigm. Daniel, your line is open.

Speaker 8

Hi, good morning guys. My first question was just around the use of the resources to have. You've reached a point where momentum is strong on all fronts. The cash pile is growing. But outside of M and A, at.

Speaker 8

Has it changed your thinking on what to invest in, whether it be new product internally, at. Targeting new verticals or adjacent verticals, has your thinking changed at all about what you can allocate capital to?

Speaker 1

At. Yes. We're still

Speaker 2

pretty careful on capital allocation. We have generated some capital into the Canadian and Australia marketplace to expand sales and marketing. So we've done that as well. There's other product sets, which we think are newer sets that need at some more development groups like the ADI product we acquired last year with the My Pathway product and the Synopsys product, they're in touch with 2 products that we think need at some more R and D done on them. So we've invested in increasing the R and D base function.

Speaker 2

At. We need to consistently develop our products to maintain their leadership positions in some of those markets. So, the transforming product still consistently against development. So, yes, we do ramp up our costs in some areas to go do that, but we try to move that into our Colombo group as much as we can at to do that. But from a sales and marketing perspective, we're not going to be this organization that's going to go into a new geography unless it's with a partner at or with an acquisition, very easily.

Speaker 2

It's an expensive process and it's very difficult to do, but acquisitions are the way to enter those markets. So we did make the investment in Australia. So that's one of the areas in Canada. Of course, we got a base already. So that's another area.

Speaker 2

So healthcare is very tied to their geography and at. In breaking into that culture of how that healthcare system works, really takes people that have been in that space for a while to really understand it. So we want those people those people are really part of what our assets are and We'd like to acquire those assets and expand those assets with expanding the products versus just risking it by going in there.

Speaker 8

At. And then on the success you've had in kind of community health, I mean healthcare is just a Massive market. So are there any areas that you would ever consider expanding into or community health is just Obviously, there's plenty of runway for you, but it feels like you're kind of at a different point.

Speaker 2

Yes, there at. There's a lot of community health vendors out there, right? All those areas need to be digitized, but they're all they are moving at. This world has changed into like I don't have anything, so I need something better world. And we're starting to we're seeing we need something better and we think we have that better product with to treat solutions.

Speaker 2

So we're progressing into those worlds and those other organizations that don't have the better solutions become acquisition targets, right? So at. That's really in that particular area, it's to keep expanding the treat product to keep growing in and keep buying inferior products that we can upsell them to the 3 product. That's what our business philosophy is there.

Speaker 8

Okay. I appreciate that. And I'll echo the comments. Congrats on continued success.

Speaker 2

Thanks,

Operator

Thanks, Daniel. Next question is from Gabriel Lung of Beacon Securities. Gabe, your line is open.

Speaker 9

Good morning. Thanks. Dan, just got a couple of questions on the M and A side of Thanks. Just curious, have you found the M and A environment a bit less competitive now, just given the current cost of capital? Concurrently, have you seen seller expectations become, I guess, more reasonable vis a vis past couple of years?

Speaker 9

At. And then, actually one more thing as well on the M and A. You mentioned during your preamble that, I guess, you were close to the finish line on a couple of opportunities, but I guess at the end, it didn't tick the boxes. I'm just curious to hear what those boxes might have been?

Speaker 2

Yes, let me answer that. I think at. We sort of predicted this when the markets would go down, right. So the sellers at first still they're still thicker, at. The prices were still high.

Speaker 2

I think a lot of people took their things off of the market. So, we are starting to see Some more deal flow, but sort of these companies that have tried to get out of the box and sort of have a little bit got out of the box They've raised capital, but now that capital is dead. So we're seeing a bunch of scenarios where they got like 3 or 4 implementations. They're bringing in at. $300,000 $400,000 worth of recurring.

Speaker 2

It's a really neat product, but it's not totally done yet. And at. They got customers that like it, but they need and they really need investment more than they need acquisition. So we're and some of those at. A little bit more on the larger side too.

Speaker 2

So we're careful of those, right, where the product at. We think it's there, but then we get through the due diligence. It's not actually totally there yet. It still needs this work. It needs that work to be competitive.

Speaker 2

And So we'll take those on if it has enough scale, because we think we can add to things that we can do it. But if it doesn't have enough scale, we get a little bit worried about it. And those are a couple of the scenarios that you have. And the other scenario, just the accounting wasn't what at today's audit was, right. So, some people just don't some analysts don't understand recurring revenue, the way that it should be done.

Speaker 2

So, that's what you see in some of these smaller acquisitions and smaller target sets. But, in general, I think we are seeing a little bit at. More of an uptick on the M and A side as capital. People thought it dried up, but they would wait. And now they've waited and it Still drying up and I think there are a little bit more scenarios that are cooking or maybe it's just opportunistic, but we do see more deal flow at floating around in the summer of this year than we did towards the end of last year type of thing.

Speaker 2

So, we're progressing. This opportunity has given just a long time a little bit of time to digest these acquisitions and we needed that. And we've revamped a bunch of processes in terms of our data analytics and our operations and so forth. So we're positioned really well to absorb acquisitions right now and we're actively looking.

Speaker 9

Got you. Thanks for that. And then just shifting over to the, I guess, the growth and demand side of things. I'm Curious if you sort of heard anything from your customers, prospective customers that might give you worry that at stuff. I might give you a worry about your ability to hit sort of that booking quarterly bookings range you've talked about.

Speaker 9

And sort of concurrently, is there anything internally within Vital Health, you feel you can sort of tweak to help the business consistently hit out of that range or the upper end

Speaker 2

of that range, I guess? At it. Yes. You always got your price increases and things like that, which we do, probably a lot more conservative than a lot of organizations. There's probably still room for tweaking on that perspective.

Speaker 2

We sell a lot to these customers, so we don't like

Speaker 8

to play that

Speaker 2

game totally in a bad fashion. So we're careful from a perspective. The growth needs to come by expanding to other geographies or Adding add ons or more acquisitions, we still think there's enough of a TAM for our products that we still got a couple of years of runway at these at. Adding to these rates, right, the $800,000,000 in the $1,500,000 level. And we'll make more acquisitions for some growth products,

Speaker 1

which will

Speaker 2

allow that to grow. So we expect to be able to continue to think of ways and be innovative to go do that. At. It's not the end of the world that we don't do it a few quarters here and there as long as we got our expense level. We look at this as a steady as you go.

Speaker 2

At some quarters we'll add $3,000,000 $4,000,000 of adjusted EBITDA and maybe we'll have a quarter where we do at. Because we didn't sell a lot, we do $1,500,000 to $2,000,000 But 3 months later, we'll be back to doing the $3,000,000 or $4,000,000 So we look at this at. As a bigger picture, as long as we're continuously building up and adding cash on a consistent basis and got the model to do it, at. We're happy as an organization and we're not going to lose sleep or we're not going to go take risk of investing in sales and marketing to go get that at other world because I don't that's not

Speaker 6

what this space is all about it.

Speaker 9

Got you. No, thanks for all the feedback and congrats on the progress.

Speaker 2

Yeah.

Operator

Statements. Thanks Gabe. There are no further questions. I would like to now thank everyone for joining us this morning and hand over the call back to Dan for his closing remarks. Thanks everyone.

Speaker 2

It's just the same theme as anything I think we got. I keep saying, we think of 3 things here today. We're trying to do accretive acquisitions for synergistic products at. And trying to do those acquisition at the right price, even if it's not the right price, but it will be accretive down the road, that's okay with us as well-to-do that. At.

Speaker 2

We do got the ability to execute by using our Colombo Innovation Lab as effectively as possible, and we try to bring as much there from a cost reduction perspective, and we're always looking for organic growth of high margins. And we think of those things every day, and we're always statements. We got some pretty good analytics going on in the company. We just keep tweaking our business models accordingly. We're going to have some things are good right now.

Speaker 2

We might have at a bad quarter, but it still won't be bad. It will still be generating cash. So we just keep going, at. And that's what the business model is here. And we're looking for investors that like the idea and like the steady growth and just like the economics of it.

Speaker 2

It's at. Relative to what other things are out there, like I don't know how many companies are out there with like $41,000,000 of recurring, at $3,000,000 of adjusted EBITDA and trading at a $90,000,000 enterprise value market cap when you take the cash off. So at. That's where we're at right now. I guess it's just a sign of time to the market.

Speaker 2

But our job is just to make the investors aware of what this is all about. And hopefully, we do that. And at. If you want to know more, feel free to give us a shout. We're always open to talking to any investor from an institution to an individual and trying to explain the business model in more depth to them.

Speaker 2

So

Operator

at. Appreciate it. Thanks, Dan. This concludes today's call. Thanks, everyone.

Operator

Okay. Bye bye.

Speaker 2

Thank you. Bye.

Operator

Bye bye.

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Earnings Conference Call
Vitalhub Q2 2023
00:00 / 00:00