Vitalhub Corp.

Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release and in our CDAR filings. As well, our commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the two can be found in our CDAR filings. With that, I will hand the call over to our CFO, Brian Goffenberg, to go over financial highlights for the quarter. Over to you, Brian.

Thanks, Christian. Good morning, everyone. Thank you for joining the call today. We are pleased to report results for the first quarter of 2025. For the three months ended March, we added $1.8 million of net new organic annual recurring revenue and delivered adjusted EBITDA margins of 26%. We're happy with these results. We are steadily building scale in terms of revenue and cash generation. And our cash balance at the end of March was 91 million with no debt. I'll now provide more detail on our first quarter operating performance. Our annual recurring revenue was 73.7 million to close the quarter, an increase of 54% over the prior year. Over the previous year, organic growth contributed 14%. In the first quarter, total revenue was 21.7 million, an increase of 42% year over year. Recurring revenue or the term license maintenance and support segment was 18.3 million or 85% of revenues. This compared to 12.5 million or 82% in the prior year period. Perpetual license revenue was 200,000 in the quarter, an increase from 100,000 in the prior year period. Our services, hardware and other revenue was 3.1 million in the quarter, an increase of 19% year over year. A gross margin was 80% of revenue as compared to 81% in the prior year period. Debt income before taxes was $1.5 million compared to $2 million in the prior year period. Adjusted EBITDA for the quarter was $5.6 million or 26% of revenues compared to $4 million or 27% in the prior year period. Turning to the balance sheet, and as previously mentioned, as of March 31, we have cash on hand of $91.2 million. We have no debt currently and have borrowing capacity of up to 65 million. In the first quarter, we completed a board deal financing for total net proceeds of approximately $32 million. With our stable quarterly cash generation, we continue to build capacity for M&A. With that, I'd like to hand the call over to Dan for an update on the business.

Thanks, Brian. I think we only met five weeks ago, so in terms of changes, we're probably talking about minimal, but we'll talk about the first quarter results and talk a little bit about induction in an M&A update. going forward in terms of what we see in terms of the marketplace. But yeah, we're happy with the quarter results. It's as we anticipated going forward. We hit the mark on our... on our guidance and respect to ARR with 1.8 million. And we're progressively working on synergistic value with both Strata and MedCurrent. And both of those are proceeding and both of those contributed to the quarter. We are making some progress on our cost rationalization of both those organizations, but still have a fair amount of work to go in respect to that. So we, we continue to work for it. We're very happy with those acquisitions. Um, both of those, I think are, are in a sweet spot of where, uh, healthcare is today with referral management being a very important aspect of, of where things are going on. And, uh, you know, MedCurrent is, is right in that area of referral management in terms of imaging referrals and, and how that works in, in the whole ecosystem. Uh, both of those organizations have footprints internationally and, uh, and we're integrating it into our UK sales group, uh, as effectively as we can. And we're continuing to work on that. So, uh, Yeah, we're we're happy with with those results. You know, we continue to move forward into the next quarter and we think we're in good position with our cash balance and in our pipelines and our programs coming into place. A little bit about induction. We're still not in a position in a regulatory fashion to really give much information on that. The vote is happening, I think, on Monday for that. And we expect the process to continue to moving. I think we We'll probably close that transaction in early July or end of June, somewhere in there in the timeframe. I think we gave a little bit of later guidance with that, but I think this is where we're seeing things moving in the proper direction for that. Again, I think we explained the induction acquisition for us is mainly focused on that zesty solution. It's a entry point into the ecosystem with a patient portal. It's a very key engagement of a key component of a patient engagement platform. And we see synergistic value in many of our products that do have patients that come into the EHR systems and schedule appointments, but we really don't have a front end for that. So things like our Treat product and our Diamond product in the UK, we see synergistic value with our MyPathway offering as well as our preoperative base assessment synopsis. So there's There's value in its ecosystem. They have a OEM deal with Cerner in the UK marketplace. So every new Cerner deal that happens in the UK uses the Zesty product. So there's a significant amount of Cerner implementations that are underway where Zesty has not come in yet, but they will be coming into those implementations as those implementations get closer to going live. That's the main ingredient we like about the Zesty product. In terms of M&A, we're really busy. We're seeing some stuff going on, both Canada, the UK, and Australia and abroad, and we're working small and some pretty significant acquisitions in the framework. uh we expect you know in in the near future uh depending on how things going to be able to announce some more transactions uh and we continue to to move on on that as as our business model would suggest so we're excited about how things are moving along and uh and we keep going i will like to turn things over uh you know to christian see if there's any questions at all perfect thanks dan

We'll now open up the line to questions from analysts. Again, please press star one or use the raise hand function if you'd like to ask a question. Today's first question comes from Gavin Fairweather of Cormark Securities. Gavin, your line is open.

Oh, hey, thanks for taking my questions and congrats on a strong quarter. Maybe just to start, I noticed the quote in the press release around M&A valuations on smaller deals starting to improve. Maybe, Dan, you could just touch on the deal environment, elaborate on what you're seeing, maybe both on the smaller end and then as well as the bigger transactions.

We're seeing some smaller companies that are in a potential distress mode. There's not much capital roaming around and the owners are looking for alternatives to do that. We're seeing that on some of the bigger deals too, where they're not getting much capital and they're making transactions. Yeah, so depending on those environments, I think the valuations would be reflected accordingly. with that being said we're you know we're still seeing you know for some larger deals that are performing well and got good upside portfolio it still is attracting um you know the proper buyers and uh valuations you know in a competitive process still sometimes uh get bid up so there's no real rule again to gavin nothing's really changed it but i do sort of sense say a little bit of, on the smaller side, some of those transactions, you know, struggling a little bit more and we're in a better position to get them.

That's great. Maybe just on the bookings that you saw in the first quarter, can you just describe kind of the mix or any trends in terms of products which were, you know, quite popular and had a lot of sales in the quarter or anything that you saw regionally? And then also, you know, what any change in the environment at the NHS?

Um, yeah, I said, you know, I think in the quarter we had, um, you know, we continue to see increased in the user counts on both the, uh, the Oreo platform on high comm on the workforce management system, as well as the, the treat platform, um, in Nova Scotia. So quarter over quarter that, um, the user accounts continue to grow in both those quarters. So we continue to see value that gets corresponded with those two products. Um, we did see some, um, some deals on the transforming side and we did see a little bit of treat work, although treat didn't contribute to the quarter as, as it has in the past. Um, I don't think that's any indication of stuff. It's just the, the way things are moving and there's still some, there's still a significant amount of treat deals and in the pipeline that, that, uh, that we're working on. We did see some really good contribution from MedCurrent in the quarter. So we did see, I don't know, a bunch of transactions in the NHS that did correspond with that. So, you know, it's really the mix. And again, we, you know, we do see little stuff from other, from all the other platforms are contributing in some ways. In terms of the NHS, that's still early days of what's going on. We do anticipate changes going there. We know that the ICBs are going to be reduced and going into a regional-based group. We think that could potentially help us because, you know, as we got footprints in most of the ICBs and then when they integrate into a regional group, there could be some ICBs that don't have treat. I mean, shrewd and there could be some growth from that perspective. With that being said, when there's change, people are still wondering what's going on and they could be sitting on their hands and so forth. So our concern really isn't that budgets aren't going to be available. Our concern is just the mix up of the uh of the new structure and how it's all going to work and you know delays that could come from procurement that get associated with that so far we haven't seen that there's still a demand for the products and there's you know there's still people finding ways to to get things done but you know it is we are in a little bit of a cautionary mode in terms of what that what that impact uh will be in a temporary basis and if anything happens we do think it will be temporary uh because the end of the day they're still looking for these solutions and and we're in the mix of it i appreciate that color and then just lastly for me you know another vote for induction is on monday but

Let's just assume that that comes into the fold, I guess, late in Q2 or Q3. You're going to be pushing up on a bit over $100 million company. Maybe you can just discuss kind of the organizational structure as it is now, how you're thinking about evolving it further over time, given the bigger breadth of the company, any tweaks that you need to make, and whether you have enough resources, looking at M&A and governance, those types of things.

Yeah, I think we've been progressively adding in terms of our group. So, you know, we got a security group and we got a pretty good central IT group that's pretty large now. And we have a governance, you know, privacy team that's been put together. Over time, we have a centralized operations group that manages all the software and manages all the integrations of the company. So I think we are set up to... to do that. Will we do this as quick as we did before? It depends how we're backing up the transactions and how we're doing, but we're definitely getting quicker at integrating the companies. Yeah, I think we're in fine shape to do it. Yeah, every time we do this, There's usually a challenge, but we've gotten a lot better at it, and the team is ready to go. We do have an integration plan ready to go for induction. We've had time to build it, and I think we do got some ideas of the changes that we want to make, although... We need to ratify that once we get in there and see the operations a little bit more in depth, but we think we do got a pretty good idea of some of the things that have to happen there.

Thanks so much. I'll pass the line.

Thanks, Gavin. The next question today comes from Doug Taylor of Canaccord Genuity. Doug, your line is open.

Yeah, thank you. Good morning. I just want to maybe push a little further on that last line of questioning regarding induction. I think you did a great job outlining the opportunity in terms of top-line synergies and cross-sell potential. But as you say, you've got a plan about the integration roadmap there. Given where induction stands right now in terms of profitability, I wonder if I could get you to maybe expand a little bit more on how you expect it to contribute to you know, profitability as it gets folded into the vital hub ecosystem in the coming months?

Yeah, I think we got, uh, I think we got some work to do there for sure. And I think if you read the, uh, you know, the, the, the statements and so forth that we put in for the regulatory work and that stuff, we, we do mention, um, that, you know, there will be a 15 to 25%, um, staff reduction in the organization. And, uh, you know, we are going to proceed to execute that plan, um, pretty quickly, um, in regard to, to that plan and put that in place. So, um, we do have plans to do that. It is a public company today and it won't be a public company after we're, we're completed. So a lot, uh, a significant amount of those costs go away with being a public entity. And, uh, but we do think there's more synergies with respect to, um,

gna and other aspects of the in the technology groups that can be unlocked with those organizations in in a pretty timely fashion and and that's what our goal is and so maybe to frame that up differently or maybe ask the question a little differently you've previously talked about the objective with your m&a program of you know getting assets to a sort of you know a corporate hour average ebitda margin of 20 percent over a four to six quarter timeframe. Is there anything that you think stands in the way of you doing that with, with induction as well? I don't think so.

Doug, like you never know until you, you actually go in there and see, you know, what's going on and, and, you know, how, how things are, are put together. Although we've done a significant amount of due diligence there on, on where it goes. And we, we, we wouldn't have completed the transaction if we didn't think we could do that so um you know we're we're off and running to execute the plan you never know till you do it but uh yeah i don't think you know i i do think we wouldn't have did it if we didn't think we couldn't do it okay and then moving you know beyond or i guess excluding the induction impact in the coming

months, you say that Strata and Medcurrent integration pace, I mean, that's been a positive surprise here for the last couple of quarters. You said you still got a fair amount to go with respect to optimizing that cost profile as well. Can I get you to maybe frame up what you think remains on the table there as we think about the margin ramp into Q2 and the second half of this year, excluding induction?

Yeah, you know, yeah, it's hard to say, you know, in terms of to what the speed of that will be. But, you know, we progressively are doing synergistic value with our salespeople. And, you know, we're looking at we are ramping up teams in Sri Lanka for both of those organizations, you know. you know, we've consolidating our GNA profiles and it still hasn't been completed. So, yeah, there's still a significant amount of work. I'd hate to put a dollar figure on that, but, you know, we still, you know, there's still work to be done there. Okay. I won't push it further then.

Thank you. I'll pass the line.

Thanks, Doug. The next question comes from David Kwan of TD Securities. David, your line is open.

hey guys i'm curious if uh you're seeing much impact given what's going on from a macro perspective trade wars considering the potential statute here impacting what you're seeing in either the m&a environments um or maybe customer purchasing behavior yeah i don't i don't believe that trade war we're talking about software services business for government-funded base health care there's

There's no goods and we don't work in the United States, at least minimally. So all of our trade is in other countries and it's all software related. We haven't seen any impact of that. No, there's impact from other things, but there's no impact from that.

And how about from an M&A perspective, are you seeing just more tangentially just the potential impact of a slowing economy because of what's going on?

Yeah, I think we've seen this trend since, you know, after the COVID boom, right? I do think the, you know, I think induction is an example of, you know, of things. You got an organization there that was built during the boom and it moved along and raised a significant amount of capital at a high valuation and had aspirations to grow in a pretty serious way and couldn't get there to the degree that it thought it could from an investment perspective. And changed hands and so forth. So, you know, you get a bit of a a legacy in terms of your mindset and how you work and you get yourselves into some challenges that go along with it, right? And you're put in a position that you have to actually sell at a valuation that you probably didn't want to, but you really got no choice. So it's an example of, I think, what can happen. in the tech world. I don't think that is insular to the healthcare tech world. I think we see that in a lot of the SaaS based products that maybe overdid it during that boom and have lasted till now, but are now in a position where they can't actually go any further and need to look for a strategic scenario to keep going.

Thanks. Thanks, Dan. And I guess what's happened with induction maybe is somewhat similar to some of the other opportunities you're seeing from an M&A standpoint, most of the smaller players. Are you seeing more competition because the pricing is getting more attractive, albeit, you know, because these smaller companies maybe are a bit struggling, so there's more work that needs to be done, but... Yeah, you know, there...

I don't think you... I think when you get scenarios like that, it turns away competition more than... I think competition you're going to see in more of the healthier companies. These other companies... We're... We're in a unique position to actually do transactions with these smaller groups because we got the infrastructure and the teams in place to still operate these companies. I don't think competitive offerings do have that ability. So yeah, we get those scenarios for sure.

That makes sense. One last question for me. Just in terms of the bandwidth, I know you kind of touched on it in terms of your team and adding in certain parts of it to help it with the integration, I think in particular, but, you know, looking at your pipeline right now, looking at the opportunities that are out there, you know, how many, you know, how many more deals do you think we could see over the balance of this year? And more specifically, I guess, you know, I think you could probably do a lot of these smaller deals, but for, for Tesla kind of strata type deal, like how many of those could you possibly do this year?

Um, we've got a mixture of big and small going on and some of them are, you know, in our world, like pretty are significant. Right. So we're, we're, we're looking at it from both sides, but yeah, I think we can do two, three, 40 also still this year.

That's great. Thank you.

Thanks, David. Next question comes from Kevin of Scotia capital. Kevin, your line is open.

Hello. Good morning. Hey, guys. Hey, thanks. Congrats on a good quarter. The ARR looks solid, I think, for a Q1, one of the higher marks for a Q1. I'm wondering if you can talk about what you're seeing so far in Q2, anything kind of popping out. It's a little bit over a month here. Do we expect the same sort of seasonality, a lower seasonality,

organic uh figure in q2 i think that's normally been the case just can you just talk about sort of what you're what you're seeing right now yeah you know our our indications suggest that q2 should should still be okay and hitting the mark and and in terms of what our rationale is so um yeah we we feel you know we we feel okay with that in respect to uh into some of the transactions that are in play in respect to that. And, you know, from our perspective, it's still, it's still in play.

And, you know, outside of the ARR, your services revenue line continues to be strong around 3 million bucks. Can you just remind us again, you know, what's being booked in there and how you see that line, you know, sort of trending over the remainder of the year?

Um, I, I still think we should be like between the two and a half, 3 million mark on a go for a basis. We're, we're sitting on a, you know, we're sitting on a significant amount of, um, services backlog primarily in the treat world and in Canada. Um, We continue to get work from Nova Scotia and Solgen and they continue to look for enhancements and are willing to pay for that in terms of moving those systems to what the requirements could be. We expect that trend to continue for a while with those two organizations. You know, every time we close a transaction and we do get services revenue. So there is still a significant backlog of services work. So, yeah, it could dip in some seasonality, I think, in the future. The summer timeframe, that seems to be a challenge for us on the services world where we have a lot of holidays or our customers have a lot of holidays and it's hard to get the hours put in on the projects and they sort of go into a little bit of a rest mode. during those periods. But yeah, traditionally Q1 and Q2 are good services numbers. For us, Q3 and Q4 become a little bit more challenging. So that's typically how the trends work in the seasonality of that in our world.

Got it. Okay. I have another question also on the induction. You know, it hasn't closed yet, so maybe you can't comment too much. You talked about the Zesty platform. There's another one that they've got as well, you know, that's sort of been more in decline. Can you maybe talk about the plans there? Are you going to run that down? Are you going to try to do some investment there to keep it going? Just, you know, any high level thoughts you can give us there?

Yeah, I think we're going to look at that as a separate platform. We don't actually view that as software ARR. We're not going to put that in our ARR figures. You'll see that being listed as a separate category called virtual platform, virtual services, because it is different from our perspective. Yeah, they did see, you know, they did that product came off of a national project that they got for the NHS during COVID. And what happened is the NHS said, OK, you guys are on your own now. You need to go by yourself. And through that became COVID. They got some, I wouldn't call it churn, it's more price reductions. I think they changed from a flat model to a usage model. And when they got into the usage model, the price points went down and they had to stay in a usage model to compete. But we are seeing, and they were seeing, there is some pressure on those from things like Zoom and Teams, and we expect that pressure to continue on the on those things however um it does seem to be holding up on its own it holding up in terms of of uh what it's producing and what it's doing but there is you know again we've gone into this with our eyes open in respect to that platform and uh and we we know the challenges that that could come with it in terms of growth and sustaining its ARR. But yeah, we're going to list that as a separate platform and look at it from its separate world.

Okay, that's super helpful. Maybe just the last small one for Brian. The gross margin kind of dipped from Q4 to Q1 just slightly. I'm wondering what drove that dynamic. Is that maybe the full quarter inclusion of Strata and Medcurrent or You know, what were you seeing there? Anything to note? And where do you see gross margin sort of trending out over the year?

I'm going to be on here, Bri.

No, I think you're correct. It is primarily from the two acquisitions. We've still got to get those costs in line. And we want to get them obviously north of that 80% going forward.

Cool. Thanks a lot. I'll pass the line. Thank you, guys.

The next question comes from Michael Freeman of Raymond James. Michael, your line is open.

Hey, good morning, everyone. Have you got me? Hey, Michael. How are you? Things are good. Thanks for taking my question. Congrats on a strong quarter. I'm going to ask a few things about induction as well. You sort of alluded to this, how you are going to be separating revenue within induction between ARR and not. So based on you mentioning that the Attend Anywhere platform you're not viewing as ARR, should we be doing some rough math on last year's numbers? Does this look like less than half of induction revenue should be considered ARR?

Yeah, probably. Yeah. Based on where that is. Yeah.

Okay. All right. Now, on this OEM deal with Cerner in the UK marketplace, I wonder if you can confirm that this relationship will continue while Induction's under your roof. And if you view that as a major benefit to this transaction, how you might plan to leverage it or expand it into the future?

Yeah, we... It was a big part of the transaction, so of course we did our due diligence on that to ensure that. I do believe it will continue. They have a significant investment by both parties to get a very, very tight integration of Zesty into Cerner. And Zesty has a very good footprint in the Cerner world in terms of understanding how that works and how that will be integrated into a front-end portal. So there's a very tight integration that works there that would be very challenging for Cerner to look for an alternative solution, and I don't see any reason why they should. A lot of work has been put in by both Cerner in the UK and Zesty in terms of doing that. And there's a very good footprint of users that use it on the Cerner platform and are happy with that platform. So we expect that to continue. We do believe there's some opportunity in other markets with Cerner, at least we're hoping there is, although we're not 100% sure. But it definitely can't hurt to have a strong partnership with Cerner in the UK and see what can be done to try to expand that in different ways in other markets. And we'll for sure try to accomplish that in other markets once the transaction closes.

Okay, thanks, Dan. And when you talk about other markets, are you thinking about other geographies or other sort of software areas?

I think it's a little bit of both. I think when we integrate Zesty into our things like induction and MyPathway into certain accounts, so we already have... in touch in my pathway, working in Cerner accounts where Zesty has done some work. So we just need to connect that plumbing up into those accounts with some tighter Cerner integration. And our hope is that we can be able to grow all those platforms into Cerner accounts even more by connecting more products to our Zesty product that is now connected into Cerner, if that makes any sense to you.

I think that makes sense. I thought I was talking in circles, but yeah. No, no, you nailed it. Last question. It looked like we sort of had set a new high watermark for R&D this quarter. I wonder if, Brian, if this level should be something we should be thinking about as consistent through the rest of the year, or was this an irregularly high quarter?

I think a little higher, you know, with any acquisition where we take on people, we end up with a little bit higher R&D to start off with. And then we start trying to get that down and we get synergies going forward.

Okay. Okay. So maybe a fourth quarter level would be something we should be looking at going forward?

Absolutely. I think it would be a stride forward.

Okay. Thank you. That's all from me. I'll pass it along.

The next question comes from Gabriel Leung of Beacon Securities. Gabriel, your line is open.

Good morning, and thanks for taking my questions. I just want to dig a little bit further into the cost structure, and I guess margins, Dan or Brian. I noticed that in your EBITDA margins, you did benefit from, I think it's a 300 basis point tailwind from currency gains. But if I were to normalize for that, it looks like EBITDA margins were down from Q4 and from Q1 last year as well. I'm just curious if that's just the timing of some of the costs, rationalization you're doing, or if there's some permanent resources you're putting in place to reflect the larger scale of your business now.

It's primarily due to the timing of the acquisitions. We only just closed those acquisitions later in the quarter last year. And then as we go forward, we will add to resources to make sure that the business is scalable.

Gotcha. No, thanks for that. And then, Dan, I know there's obviously a big focus around your UK business, but a lot of your peers have talked about a very robust pipeline here in Canada as well in terms of IT opportunities. I'm just curious if you're seeing similar opportunities and how you're feeling about growth here in Canada. And also, as it relates to the Zesty digital front door, is that compatible with the Canadian healthcare system?

When you're talking about IT, are you talking about M&A on the M&A side or just on the sales side? Organic sales opportunities. Yeah, I think our products are... I think our tree product that we go to product with is still going. I do think in Ontario and other areas, the market has woken up since post-COVID. We're seeing a lot of initiatives that we... That started prior to COVID, at least in Ontario, they set up a group called Ontario Health right at the beginning of, I think, of the Ford world. And then COVID hit and those guys were so busy with COVID that really there was no new initiatives that were going on in that period. But we are seeing new initiatives that are moving through that, and we are seeing funding that continues to go on in programs that the government is giving to the hospitals and the groups, giving them funding to purchase software. So we are still seeing more initiatives that are going through those systems. We're also starting to see some of the early... Epic and Cerner implementations in Canada that we're adopting those solutions, starting to notice that those solutions aren't delivering all the components that are needed, and they're starting to go back to work on looking at peripheral-based solutions. So we're still seeing deals flowing in Canada, and it's still moving, but I still like to caution, like even, you know, even to our peers, you are talking about Canada. It is segmented by the province. It is still a, um, it's not the biggest ham in the world. So you still get challenges in terms of your growth and in this marketplace. And, uh, but we do see some increased stuff in terms of Zesty, um, We didn't bank on our ability to move that to other areas, but I personally do think that there is some opportunities to explore Zesty in terms of a portal, especially in the Cerner world and in other worlds in the Canadian marketplace. We do see... an opportunity of adding that to some of our existing products like our tree product and so forth that we're just starting to embark on that portal based world. So using third party. So, you know, we'll save us some costs in terms of putting Zesty into our own products as well, where we require portals and as we make acquisitions that might not have a strong portal. Zesty could offer that as a solution on a go-forward basis as well. So we do see strategic value there.

That's great. Thank you for the feedback and congrats on all the progress.

Yeah. Thanks very much, Gabriel. There are no further questions at this time. I'll hand the call back to you, Dan, for any closing remarks.

Yeah, again, we just met five weeks ago. I think the questions were pretty comprehensive. The next time we meet, we'll have induction closed and be able to get better light on those numbers, I think, than we're getting right now, but we are a little bit constrained. in respect to that. So we're looking forward to moving on and time's flying and someone said you're already into Q2, which we are. But we look again to meet with the group, I guess, in the August timeframe. And in the meantime, I'm sure many of the analysts and investors will reach out to us in terms of updates, but we're always available to answer questions. And thanks, everyone.

Yes, that's great, Dan. Thank you. This now concludes today's conference call. Thank you all for joining.