Vitalhub Corp.

Good morning, everyone. Thank you for joining Vital Hubs 2023 fourth quarter and year end 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 2024 objectives, the company's strategy to achieve those objectives, 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 and are based on information currently available to management and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the two can be found in our MD&A which is available on CDAR Plus and our website. With that, I will hand over the call to our CFO, Mr. Brian Goffenberg, to go over our financial highlights for the quarter. Please go ahead, Brian.

Good morning, everybody, and thank you for taking the time to join us this morning. As we reflect on this quarter and the year as a whole, we have much to celebrate. Our Q4 and year-end results are a testament to the tangible outcomes of our efforts showcasing not only significant growth, but also the effective execution of our strategic initiatives. Moreover, our performance has revealed robust financial health and heightened operational efficiency. This success is underpinned by strategic expansions of our healthcare product portfolio, deeper integration within our healthcare networks, and an extension of our global footprint. Our strategic efforts have clearly paid off, with solid improvements across key financial metrics revenue, annual recurring revenue, gross profits, net income, and cash generation. We anticipate this momentum will accelerate to 2024. Today, I'm proud to share with you the financial milestones we achieved in the fourth quarter, as well as our full year highlights. Total revenue for Q4 23 was 13.6 million, compared to 11.3 million in Q4 22, an increase of 20% year over year. Total revenue for the 12 months into December 31, 2023 was 52.5 million compared to 40 million for the same period in 2022, an increase of 31%. Revenue from term licenses made in support in Q4 23 was 11.3 million compared to 8.7 million in Q4 22, an increase of 29%. Revenue from term licenses, maintenance and support for the year 2023 was 42.3 million compared to 29.4 million in 2022, an increase of 44%. The positive increase reflects the impact of organic revenue growth in the company's suite of products, coupled with revenue derived from acquisitions completed during the year, or the acquisition completed in the year. Term licenses, maintenance, and support represent an important strategic source of revenue given its predictability and recurring nature and represents 83% of revenues in Q4 23 compared to 77% in Q4 22. Revenue from perpetual licenses in Q4 23 was $286,000 compared to $497,000 in Q4-22, a decrease of 43%, and revenue from perpetual licenses for the year 23 was $909,000 compared to $3.6 million in the same period in 2022, a decrease of 75%. Perpetual software licenses are dependent on the types of products sold, and the decrease was primarily attributable to the timing of deliveries of the company's in-touch products, in addition to the unusual high volume March in perpetual license sales of over 2.7 million in the first quarter of 2022. Revenue from professional services and hardware in Q423 totaled 2.1 million compared to 2.6 million in Q422, a decrease of 2%. Professional services and hardware revenue vary depending on the timing of hardware deliveries and the progression of customer projects. The decrease is primarily attributable to the deployment of the ongoing customer projects and the timing of delivery of hardware. Revenue from professional services and hardware for 2023 was 9.3 million compared to 7 million for the same period in 2022, an increase of 33%. The increase during this period is primarily attributable to the deployment of ongoing customer projects, deliveries of hardware, and additional service revenues from the new subsidiary. Additional annual recurring revenue, or ARR, which we formally refer to as annual contract value, totaled 44.6 million at December 31, 23, compared to 42.6 million in September 23, representing a sequential increase of 4.6%. A significant part of this growth, 1.9 million, or 5%, or annualized 21.7%, was organic, reflecting our focus on sustainable growth. Gross profit and total revenue in Q4 23 was 83% compared to 82% for the same period last year. The increase was primarily due to higher term licenses maintenance and support revenue with recurring revenue representing 83% of revenues in the quarter compared to 77% in Q4 22. Gross margin on total revenue for 2023 was 82% compared to the same number in 2022. Operating expenses in Q4-23 totaled $7.6 million compared to $7.3 million in Q4-22, an increase of 4.2%. Operating expenses in 2023 totaled $31.4 million compared to $25.1 million in the same period last year, an increase of 25%. The increase is due to higher sales and marketing expenses for conferences and exhibitions and R&D expenses for for acquisitions completed in 2023 and previous years. However, it is important to note that we continue to experience significant reduction in operating expenses as a percentage due to increasing operating cost synergies with operating expenses dropping to 56.2% of revenue in Q4 23 versus 65% in Q4 2022. Net income before income taxes in Q4 23 was 2 million compared to a net loss of 656,000 in the equivalent prior period, an increase of 2.7 million year-over-year. Net income before income taxes for the year 2023 was 5.3 million compared to 1.3 million in the same period last year, an increase of 308% year-over-year. The increase for the quarter and full year was primarily attributable to the significant increase in revenues from organic growth and acquisitions coupled with an ongoing effort to reduce costs and gain operating cost synergies. Net income after tax in Q4-23 was $939,000 compared to a loss of $338,000 in Q4-22, an improvement of $1.3 million. Net income after tax was $4.5 million compared to $1.2 million in the same period in 2022, an increase of 275%. EBITDA in Q4-23 was $3 million compared to 470,000 in Q4 2022, an increase of 536%. For the full year, 2023 EBITDA was 9.9 million, compared to 5.2 million for the same period in 2022, an increase of 82%. Adjusted EBITDA in Q4 2023 was 4 million, or 29% of revenue, compared to 2.5 million, or 22% of revenue in Q4 2022, an increase of 62%. The increase was primarily attributable to the higher recurring revenues of 11.3 million in Q4-23 as compared to 8.7 in Q4-22. Coupled with an ongoing effort to reduce costs and gain operating cost synergies for the full year of 2023, adjusted EBITDA was 13.3 million, or 25% of revenues, compared to 9.5 million, or 24% of revenues for the same period in 2022, an increase of 40%. The increase was primarily attributable to the higher recurring revenues of 42.3 million for the year ended December 31-23, as compared to 29.4 million in the equivalent prior year, coupled with an ongoing effort to manage costs and gain operating cost synergies. Capital from operations before changes in working capital for 2023 was 11.2 million, compared to 7.1 million for the same period last year. Cash on hand at December 31, 23 was 33.5 million compared to 17.4 million at the end of 2022. In comparison to Q3, 23, the cash on hand increased by 3.7 million and we have no debt. With that, I'd like to have a call over to Dan for an update on the business.

Thanks, Brian. I'm just going to formally just highlight a few things and talk things and hopefully flesh out some things with questions. But again, thanks to everyone for great support. It's hard to believe we're already in March for 2023 and what we believe is starting to shape up as a great 2024 as well. So thank you, everyone, from a shareholder base that's continuing to support us. In Q4, we continue to see what I like to believe is the validation of our engine or our business model with our continued success of added organic growth across those product lines that we've learned to expect to continue to have growth into. So we started to see the impact of the shrewd rollout for the command centers across the UK that was announced previously in Q4, and we expect that to continue into, I'm sorry, in the end of 2023 and then into 2024. We're still seeing great impact of our tree product in our Canadian base as it continues to accelerate as the leading product for community electronic records in Canadian marketplace. The oil product in our Hong Kong base continues to expand in usage, and we're getting contributions from a lot of our other business lines as well in respect to that. So it's definitely more of a diverse addition that we're starting to see as we go. We continue to look at innovation in a cost-effective way by Using our Sri Lankan-based innovation lab as effectively as possible, it really has turned into be a great asset of the company and for our ability to compete in these markets with innovative software in a cost-effective fashion. And that group has grown up to over 167, 170 people at this point in time. I think it started when we first started with 22. So we've really done a great job of doing that. It's also interesting that we completed an acquisition previously, about a month ago, with the Bookwise acquisition in the UK. And we are starting to see more substantive acquisition flow into our pipeline in a more realistic base. And we are starting to see a lot of these smaller SaaS base or other base companies that really don't have access to capital markets starting to look for acquisitions as a strategy for strategic initiatives. So we are starting to see that working its way through the system. Finally, we thought that would happen in 2024. And we think we're positioned and working hard to get our share of those acquisitions as they continue to do. Our cash continues to grow. You know, we continue to add cash. I don't know, close to like a $4 million rate per quarter at this stage in games. and we're excited the way the engine is working on all cylinders and we're looking forward just to continue to expand as we continue to move forward. And I'm open to any questions.

Thanks, Dan. Should you have a question, please use the Zoom raise hand function at the bottom of your screen and I'll make sure to open the line for you. First question comes from Christian Screw of Aid Capital. Christian, please go ahead.

Hi, good morning, and thanks for taking my questions. I'll start with a broad one on just the geographic markets and what you're seeing, Dan. Now, which market, maybe between Canada, the US, Australia, or another one, do you think could surprise most positively this year?

Which one will add most positively? we still got more assets in the UK than anywhere else. So we still expect significant contribution from the UK, but we are definitely seeing initiatives in the Canadian marketplace on the community electronic record space in terms of consolidation and really modernizing that digitization of that space. And we're busier than ever in that particular business unit with a huge backlog of services work and opportunities that continue to come into the organization. So we're excited about that. We're, we are, we have ratcheted up our Australian and our Mideast business with our products that we've invested into sales groups and partnerships. And we, you know, we're hopeful that we'll see contributions from those particular groups in 2024 more than they've uh, more than they've done in the past as well.

Okay. And as you think about expansion, um, you mentioned services, are you leaning on partners? Would you say more and more to do some of either the lead generation or implementation, or are you comfortable?

We do all of our own implementations and we'll continue to very initiated solutions. And it's difficult to get partners to, um, initiate that we have, uh, you know, as needed, we can flex up with some subcontractors into our services group. And we've done that recently with some of the shrewd implementations. We've just got an abundance of work. So we have ramped up a few PMs and other skill sets to help us deliver those in a timely fashion and flexing some resources to help us deliver that work. But we're continuing to see a big backlog of services work which usually comes on the other side of seeing good organic growth in the soil that's got to get implemented.

I'll ask one more question before passing the line. I know the Oriel recruitment portal is something that you've been excited about, but just if you could elaborate for myself and all listening, the dynamics there, the traction you're having in the UK market with that product.

It's a long-time contract. It's branded Oriel. It's a recruitment-based, credentialization-based solution, which really allows healthcare professionals, doctors being the primary source, when they've completed their university education, to find work placements across the NHS in the UK. And they use that particular website as a matching solution to go build that, and we The group there has done a good job of expanding the different skill sets that have access to that particular solution, which every time you get different domain or different type of doctors, we did optometry, for example, and that just adds in the growth of that user base and the transaction base of that particular platform and then increases the license fees accordingly. So we continue to see that.

Thanks for taking my questions.

Thanks, Christian. Next question is from Gavin Fairweather of Cormark. Please go ahead, Gavin.

Hey, good morning. Maybe we can just zero in on Shrewd posting an announcement of the system coordination center funding. I know you mentioned it in the prepared remarks. Can you just kind of discuss you know, the pipeline, you know, how long you expect, you know, this funding to provide a tailwind to your results and maybe just touch on kind of your win rates and success rates and converting new logos, given that funding backdrop.

Yeah, it's a national program where they're giving money to what they call ICBs in the UK, which is the regional groups to set up these regional command centers to be able to display integrated data so they can look at a regional-based view of their facilities on a performance-based access, which is right up the sweet spot of the Shrewd-based solution. Shrewd already has a significant footprint. This is something that allowed us to grow across further areas, and that was definitely a fair bit of the impact of Q4 and We expect that to continue for the next couple of quarters. We do have competition in that world, and the ICBs also have the ability to build their own system. So it's not a slam dunk by no means, Gavin, in terms of what we're doing, but we're comfortable that we continue to get some of that business as we go through to Q1 and Q2, and we'll see how that progresses beyond that. to see where that continues to grow. But we're busy with it at the moment.

Awesome. Good to hear. And then maybe just building on Christian's kind of question around regions, the recent Middle Eastern partnership with Abu Dhabi Health Data Services seems pretty interesting. Maybe you can just discuss kind of which products you think have a fit into that market and how you're thinking about the potential contribution to organic growth there.

Yeah, it's a, you know, it's a particular large organization that does, it owns a bunch of facilities themselves. So hopefully we get entry into their own facilities as well as it provides digital services across the Mideast. All of our products are in player, but I do think the ones that would probably be the most affected by it will be the in touch based solution, the diamond point cold diabetes solution, which is coming out of the high comm. Uh, base suite of products and, and probably the transforming, uh, base solution and MCAP, uh, which is, uh, we already have a footprint in, in the middies would probably be my guess of the products that they'll initially look at the most. Uh, we'll explore that tree product through that avenue as well. I'm not sure where that's going to go with it, but those are probably the products that they'll look at initially.

Okay, good to hear. And then maybe we can just flush out some of the comments on M&A. It's interesting to hear that the deal environment seems to be improving. I guess what's your perspective on what's changed to catalyze the environment getting better? And how do you kind of characterize your deal flow that you're seeing today compared to, I don't know, I mean, six or nine months ago?

Yeah, I think we're starting to see those organizations that have raised some money or are looking for an opportunity to raise some money that window is not as easy to get to as it was before. And they're looking for what the next step is. So, you know, growth might not be that great or they can't raise money or they've raised a bunch and just don't know where to go with from here. So we're starting to see those type of deals cross our desks a little bit more than before. You know, I think people have come to accept that this new world that we are living in in 2024 is, very different than what we were living in between, you know, 2019 and 22. And, but this world is real and we just got to deal with it. So we're, we're seeing the flow accordingly.

Good to hear that. And maybe lastly for me, for Brian, just on the working capital, I mean, the inflows that we saw in 2023 were pretty impressive and they seem to be kind of outpacing the natural rate that we would expect, you know, given your growth and, and, and, deferred revenue as you're paid upfront. Curious, are you improving kind of your collection processes? Is this kind of another synergy that you can capture on acquisitions? How should we, maybe we can put that working capital and flow into context for us.

Yeah, we spend quite a, quite a lot of time looking at our collections and, you know, most small organizations required don't have a really sophisticated collections engine. We've spent a ton of time and our people have really done a really good job the last little while correcting that and getting it done. You'll find most of the customers are quite happy to pay for the services. They're a big organization, so receivables is not an issue. It's just a matter of getting the process correct. And once you've got that in line, the funds should flow. And we've cleared up a lot of stuff that we had in the past from small organizations. And now it seems to be running pretty effectively. So I think my hat's off to our collections team.

Thanks so much. Congrats on the progress.

Thank you.

Thanks, Gavin. Next question is from Donna Angela Volpe from Beacon Securities.

Please go ahead. Hey guys, congratulations on the quarter. Just to tie on to Gavin's question on the M&A. So have you guys been seeing it become more competitive? And as you bump up against other bidders, are you seeing them be more aggressive with what multiples they're assigning?

You know, it's, yeah, they're, you know, some of these things are competitive or supposedly competitive, like we're not 100% sure. at the end of the day, our valuations, like we just, we value what we believe the company has worked to us, not what the company has worked to somebody else. So, uh, where we look at the businesses, we, we look at the opportunities, we, we look at the synergies, we look at what we can do with it. And we did what we think is appropriate for it. Um, a lot of times we, get the acquisition. Sometimes we don't, but it is what it is. But I don't think the pricing has changed that dramatically. It definitely hasn't got, you know, it's definitely not where it was in terms of the high valuations. And I don't think there's as much stupidity going on out there. I think the valuations are what they are and they're fair. And I think they're in the alley where we'd like to pay for it.

Thank you. And then just to turn things over, you spoke of strong adjusted EBITDA margins being driven by reducing costs and gaining operating cost synergies. Given the exceptional margin, is this being driven by the usual process of moving R&D overseas or have there been other areas within the business or kind of 2023 acquisitions that you've been able to optimize?

You know, we, we, we, we, we, we do both of, you know, we, We're 80 something percent SaaS revenue and that's high margin, right? So intuitively licensed deals bring high margin, low cost of sales. We got one product that has some hardware in there. And if that gets sold a lot, that cost of goods could be there. Hosting costs are starting to get a little crazier, which is a little bit of a challenge in terms of margins. But we watch that pretty carefully as well. in terms of what we do. But yeah, we intuitively SaaS-based products bring you good margin. And we all know that the biggest cost and expense associated with our teams are our technology folks. We'd like to use our innovation lab as much as we can, but we also want innovation in our products as well. We think we can get both with our innovations lab. We think it's a good team. We think we've got a good process and we encourage our groups to use our lab as effectively as possible. And we're always looking to do that. But, you know, we're also, it doesn't happen overnight and need to be carefully done so that we don't lose the IP and the value that we have in our products. And it really, the combination works well. We get good technology solutions as well as, you know, cost effectiveness in there.

Okay, thank you for taking my questions, guys. And once again, congratulations on the quarter.

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

Yes, thank you. Good morning. And congratulations on what was a standout quarter by most metrics. A very strong sequential ARR build. You've talked in earlier questions and addressing earlier questions about the strength in the pipeline for Shrewd in UK, Treat in Canada. So I guess my question is whether the old million to a million and a half in ARR build per quarter is still a relevant target range, or do you now think that you'll consistently surpass that based on what you're seeing with respect to the near-term pipeline?

I wish Doug I could go above that 1.5 number, but I'm not going to. I still think the measure, although we've repeatedly beaten it and things look promising to continue to do that, I think the 800 to 1.5 million is a valid measure for what we do. It's just the... diversity of where our revenue comes from and the lack of predictability sometimes that still gives me a little bit of fear to go beyond that um at the same time gives me a little bit of comfort that there's different ways to make that number but it's not like we get a holistic view of it coming from all different areas we've put some pretty sophisticated sales force casting in place and data to get a lot more predictable on it uh but you know with that being said you know i There could be a quarter where we do what we did this quarter and that's all great. And we shall be happy for what we have accomplished for it. But at the same time, if we have a $600,000 quarter, I don't want everyone here to go, oh, wow, what's going on here? Because it could happen. So we keep moving along, even if we don't sell anything. one ounce of software in a particular quarter, we're still generating cash. And we look at this as a long-term scenario and we just keep working on our business model as it keeps corresponding. So we accept the good quarters and we'll accept the weak quarter if it happens at the same way. But we really want the investor base and our staff to really just to focus on what the overall business model is of what we have here and what we can accomplish.

Well, forgive me for trying. I know. We haven't seen services revenue. I mean, I think it was down a little year over year, and I know it can be lumpy. You did say a little earlier that you had a large backlog of services work. Should we expect that to rebound then? Is that a seasonal element there?

Yeah, we got a lot of milestone services work, right? So it gets a little tricky in terms of how that comes in. on our delivery factor, but there's a lot of work that's in the backlog, especially in the Canadian treat world. And of course, with these shrewd implementations, they'll be there. So we expect that, we expect 2024, our services number should be, you know, higher than it was in 2023, that's for sure. You know, by a fair bit as we go through here. But, you know, At the same time, it's just how it smooths through. It does get seasonal through the summer months and the Christmas times where you just go see a little bit of a lull in those type of areas. But we are taking service for it for sure.

And Doug, it was that year over year, just quarter over quarter, it was just pretty much on par. Right.

Right. You know, last question for me, following on Don Angelo's EBITDA questions, EBITDA margins, you know, I think naturally a bit higher because of the mix related to services that we just talked about. But, you know, is there anything to suggest that that mid to high 20% range isn't now achievable on a sustained basis? Is there some reason we shouldn't kind of journal that across our model going forward, given, you know, the updated mix of business here?

I think it should be pretty consistent. We're at that level. We continue to make little investments in our groups on infrastructure and corporate initiatives and so forth in the particular groups that were there. But we're striving to still look at that Rule of 40-based initiative with the top line and the bottom line. the top line is going to be harder to get as the denominator grows. And we think the bottom line will continue to edge its way forward as we make more acquisitions and, and get more meat on the bone as we continue to do that. So we'd like to think it's going to, you know, creep up still a little bit more.

All right. Well, congrats again on a great quarter. I'll pass the line.

Thanks Doug. Next question is from Daniel Rosenberg of Paradigm. Danny, your line is open. Please go ahead.

Good morning, Dan and Brian. My first question comes around the sales strategy. I was wondering if there's any changes in your thoughts around go to market, just now that you're in several markets and gaining scale in each market, just how do you think about the use of partnerships? And you've been successful with the Abu Dhabi partnership. That looks quite interesting. But partnerships versus direct sales versus inbound, could you just speak to the dynamic you're seeing and how you're thinking about the company at this stage?

Yeah, my experience would suggest that partnerships become a bit of a challenge unless you've got customers in that particular region and you've got something to work with, which we do in the Mideast. There's some long-term relationships that we've acquired over the years with companies doing stuff. So we're doing that stuff. We've got a little bit of a base in Australia. We do talk to the consulting groups and the people that influence in those particular areas. But we're not going to go. We do believe a direct sales model is still the best way to do that with local people that know how to get into those markets. And the best way to do that is with an acquisition where you acquire an engine already to go into those verticals. So we continue to look for acquisitions and other verticals and continue to and continue just to work to enhance all of our distribution channels and, you know, the areas that we're into. So. healthcare within a particular geography is always a cooperative type of world with, you know, with, uh, uh, projects and other vendors that are looking to get those projects. And, and you're talking to that ecosystem all the time in many different ways of partners, seeing, uh, project management competing in, in our case acquisitions, right. So, you know, we're, we're always talking to those particular groups. So, there's that ecosystem, you speak to it all the time and that's sort of how you go to market.

Okay, appreciate that color. And then in terms of hiring, I mean, it's been a successful use of the R&D group and in scaling that internally. So, you know, for the next stages of growth for Vital Hub, what are the areas that you think Um, you would want to have, um, additional talent on board, um, or is, or is the ship correct as it is, and you could attack the markets that you're looking at, uh, with the team as is.

Yeah, we, you know, we can continue, you know, the more meat on the bone, the more surplus we get for investment for sure. There's areas we would like to, uh, continue to, to expand in, in terms of infrastructure and, uh, we've already made significant investments. Security and compliance are becoming a huge issue in all our space, but definitely in government and healthcare in terms of that type of stuff. So we continue to make investments and we continue to need to make more investments in those areas. We think it's really turning into a competitive factor for us winning deals now by having a strong security and compliance-based world. So we continue to to look at that world and try to make investments and to probably continue to make more investments. Um, as we continue to grow, you know, accounting functions and, um, streamlining, uh, processes and things like that continue to get, um, more demanding and, and, uh, you know, those types of investments, uh, uh, need to continue to grow. So we, we think we got a pretty strong model to build up as a completely finished to scale this thing. Um, where we'd like to now we still think we got you know some more investments to go but we we've been gradually adding and we expect to continue to gradually add over as we continue to grow understood um that's it for me thanks for taking my questions thanks daniel there are no further questions then i'll hand the call back to you for your closing remarks uh again just thanks everyone for 2000 and 20, you know, to support the 2023 and 2024. And, you know, just want everyone to just understand what our business model is, what we're trying to accomplish and, you know, what we're, it's, we're always looking at the long run here and we're just trying to continue to build this business model out as effectively then and continue to scale it. But we're excited that the model as we envision it is taking shape and, it's also equally exciting to see that the investment community is understanding it. So just thanks to everybody. And if anyone ever has any questions and wants to reach out to Brian and I or through Bab or anyone, we're always available to answer your questions. And again, thanks for supporting.

Thanks, everyone. This concludes our call today. You may hang up. Thanks. Bye-bye. Bye-bye.