Vitalhub Corp. (VHI) Earnings Call Transcript

Good morning, everyone, and thanks for being with us today on our conference call for the fourth quarter of 2025. Joining me on the line are Vitalhub's CEO, Dan Matlow, and CFO, Brian Goffenberg. Once we've finished our prepared remarks, we'll open the line so analysts can ask questions. <<operator_script>> Before starting, I'll read the cautionary note about forward-looking information. Some of the information discussed on this call includes forward-looking statements, and those carry risks and uncertainties. Actual results could differ materially from what those statements set forth. To review these risks and uncertainties, please see the forward-looking statements disclosure in the earnings press release as well as in our SEDAR filings. In addition, today's commentary will include adjusted financial measures, which are non-IFRS measures. These should be viewed as a supplement to, and not a replacement for, IFRS measures. Reconciliations between the two appear in our SEDAR filings. With that, I'll turn things over to Brian, who will walk through the financial highlights for the quarter. Over to you, Brian.

Good morning, everyone, and thanks for being on the call today. We're happy to share our results for the fourth quarter and the full year of 2025. I'll give you a summary of the financial results, and then I'll hand things over to Dan for a business update. For the full year, we're proud to report total revenue of more than $100 million, which is a milestone for all of us at Vitalhub. At the end of 2025, we reported annual recurring revenues of $96.1 million, which represents net organic growth of 10% over the prior year. And we achieved adjusted EBITDA margins of 24%, up sequentially, which shows progress on integration. For the fourth quarter of 2025, we reported total revenue of $31.4 million, up 52% year-over-year, though slightly lower than Q3, mainly because of the unusually high services revenue in Q3. Recurring revenue for the term license maintenance and support segment came in at $23.6 million, or 75% of total revenue. Virtual care term license revenue was $2.4 million, down 4% sequentially. Perpetual license revenue was $500,000, an increase from $100,000 in the prior year period. Service hardware and other revenue normalized sequentially to $4.9 million compared with $2.8 million in the prior year period.

Gross margin came in at 79% of revenue, versus 81% in the prior period. Adjusted EBITDA for the quarter reached $7.4 million, or 24% of revenue, compared with $5 million, or 25% of revenue, in the prior year period, and 22% in Q3, as we keep gaining synergies from our latest acquisitions and operations. Turning to the balance sheet, we ended the year with $119.2 million in cash and no debt. With that, I'll turn the call over to Dan for a business update.

Morning, everyone. Great to have you here at this early hour — we’re glad to be with you. Before I begin, I want to acknowledge the delay and express my appreciation. Nothing material came from it whatsoever. It was simply growing pains involving the new auditor, new people, and new teams getting familiar with the business. In certain respects, we were a bit ahead of our skis. As you may have noticed, we booked 1 week earlier than last year with the new auditor — probably not the smartest move on our part. Still, we’re very pleased with the results. E&Y performed excellently. We’re in great spirits with them, and we’re moving in the right direction. I thank everyone for their patience throughout this. I won’t spend much time on the year’s results. All of that was covered in the quarter. We’re excited about how the overall results came in. It’s good to review that. We surpassed $100 million in revenue, and every metric on a yearly basis met expectations, and we’re very excited about our performance. We’re very happy with our Q4 results, particularly regarding the integration of Novari and Induction.

The integrations are going quite smoothly. They contribute quite nicely. You can look at the cost lines and how those pieces are beginning to have an effect. Once again, services revenues came in lower, mainly since Q3 was higher. We flagged during Q3 that such a figure likely wasn't sustainable, though it was a pleasant upside in Q3, and it certainly aided our results while we worked through capturing the cost synergies from the acquisitions. Same story with our term licenses in Q3. Term licenses largely reflect ARR when you attempt to correlate them, yet timing problems exist for certain of those ARRs, where renewals involve catch-ups from the rev rec standpoint. Typically that isn't very material in relation to it, but occasionally the mapping isn't fully one-to-one with what they do. Operations leave us quite pleased. Our services backlog is very strong heading into the year. We're performing excellently on new deals. The pipeline for Novari has us excited, in both Canada and the U.K. Plenty of work is underway via provincial initiatives throughout all the provinces where we're involved.

Sadly, in some provinces and with some customers, we aren’t permitted to disclose these agreements whenever they’re signed, regardless of the situation, yet there’s plenty of work ahead of us, and right now we’re shifting people between teams quite efficiently. We’re also enthusiastic about what’s underway. Every product line contributed during the quarter, and we’re eager about the pipeline that will help the company reach the Rule of 40 much sooner as we enter the new year. So we continue to anticipate cost synergies flowing through our product offerings, and we expect revenue to begin adding on the ARR side, which will then begin adding to income as we keep progressing. I’d also like to discuss AI at some length, or at least touch on it briefly. We’ve adopted it. We’ve established AI development teams and AI projects. Revenue has come in from one of our Novari projects. I believe we announced that. We’re nearly at the point of seeing revenue enter the market. We’re developing additional AI projects jointly with our customers. Thus every one of our AR projects is customer-driven for initiatives, and we have many such efforts in progress.

And we do anticipate those beginning to add to revenue as we move through the middle to the end of 2026, once they start arriving through our portfolio. We've also adopted it internally. We've brought AI initiatives into our development processes, our sales processes, and our support processes. We keep seeking ways that AI can boost our productivity, and we've begun making those investments as we keep progressing there. So we're excited about what AI can offer as an opportunity going forward. And that's everything I have to say today. We look forward to taking some questions and clearing up any details that might come up.

Thanks, Dan. At this point we’ll take questions from analysts. <<operator_script>> Our first question today is from Gavin Fairweather at ATB Cormark Capital Markets.

Nice work on the solid numbers. Perhaps to begin with the macro picture: I mean, incremental ARR came in strong this quarter, though maybe a touch lower against a tough year-over-year comparison. I know we discussed the NHS restructuring that was working its way through the system in 2025. Maybe you could just talk about the sort of spending environment you observed during the quarter and perhaps touch on whether you've noticed any shifts in Q1, which historically is the strongest quarter for bookings.

Yeah. Timing alone can make Q4 tough. You're heading into the Christmas year-end, and procurement folks aren't around. Then they figure they have Q1 to push those items through and spend down the budgets. So closing things in Q4 is sometimes difficult. I think that's really the heart of it. We did see contribution. There were plenty of deals during the quarter—just not the deal sizes, simply because of how the mix played out for the quarter. So yes, I think that's where things stand given what we're doing. Nothing—we never expected this to rise in a straight line, Gavin. I've said that all along. We're eager to see how our Q1 results look in terms of new ARR bookings. So we keep heading in the right direction.

Thanks for that. Then perhaps just turning to costs. They fell roughly 8% quarter over quarter on the OpEx line, which was encouraging to see. I suppose I'm simply wondering how you'd assess what share of the cost synergies you're targeting has already worked its way through and is being acted on with Novari and Induction.

We keep pushing expenses lower in order to accomplish that. Some of that will be partially counterbalanced by spending on AI projects. Still, on balance, I believe expenses will keep trending downward. We are attempting to shift many of those AI projects over to the lab, yet we do have training and other activities occurring in sequence within the core business. That said, yes, there remains work for us to do regarding relocating resources — both Novari and Induction maintained their own offshore development teams. And that truly was the area where certain initiatives are underway and will keep being underway when it comes to personnel. That said, yes, we have recently succeeded in folding induction into the larger U.K. operation, and that is turning out quite well. Still, we are — I would say we are — we still have work left to do, but we are working our way through it.

That's excellent. And then just one last thing from me: given the integration progress you've observed, I'm curious how the M&A environment is taking shape here in 2026 — specifically regarding the volume of deal flow you're seeing, what sellers are expecting on valuation, and the level of competition for those deals?

Yes. We are certainly seeing deals. We are actively working on deals. We keep working on deals, and we expect to complete deals in 2026. So in those respects, we are constantly in motion. Those markets have not changed at all. Valuation is always part of it — we value what we observe in the company. I do believe we are beginning to see some company — the PEs in those respects are definitely applying a lot more scrutiny to companies. And I don't think we are seeing — there are certain scenarios playing out where, maybe a couple of years ago, we would see PE that would bid the price up on those deals, and in those deals we are no longer seeing PE. We are also beginning to see a significant number of tired investors in certain deals who simply ask whether they are going to take a down round on their sale or not, right? They came in at these higher valuations. But those scenarios exist, and we still keep valuing the deals using our methodology. So how we think does not really change, but the opportunity to get deals at our price, how we think, is currently present in a bunch of scenarios, and we are working through those.

Our following question is from Kevin Krishnaratne at Scotia Capital.

Dan and the team, congratulations on an excellent quarter. Dan, could you elaborate a bit more on the AI product road map? It's certainly early days, but you mentioned — you saw last week's press release on Novari. What other logical areas might we see AI appear in first? And then you said you expect contributions from midyear through the end of the year. How will that show up — does that revenue contribution come through price uplifts or module attach? Or is it more a question of how you see that flowing through?

I think the mandate we gave our product managers was this: come up with AI use cases for the solutions. From there, we work backwards toward the ones we believed our customers would demand most, we validated that with our customer base, and we tried to price it out against what it will cost us. That is where some of the challenges show up, until you actually get the thing into production. With Novari, I think we know where that stands. Novari does have a protocoling module built into its imaging solutions, which our customers demand, and that is the first one out the door there. But we also have 2 other initiatives underway in our -- definitely a transcription solution across all of our EHR case management-based solutions. We think that is low-hanging fruit. And we have customers taking that, and there will be uplifts tied to that toward the latter part of this year, and that is currently being worked on with our partners and customers, and our hope is to have something in production midyear for that. We are also working on our SHREWD product set, again very much around how we can use voice to understand the analytics and understand the data and ask the system what is going on, as opposed to interpreting the system of what is going on.

That initiative is also progressing quite nicely alongside a few partners, and we expect it to bring in some additional revenue. We have other efforts underway too, though those 3 are strong illustrations of our AI work and the extra gains we believe we can achieve with it.

Thanks. I’ll ask a second question. In your press release, you mentioned that you’re looking at M&A across all sizes as well as adjacent geographies. Could you remind us how large a deal you would pursue, and how much debt you would be willing to add to the balance sheet? Also, when you say adjacent geographies, would the U.S. be a possibility, or are you thinking more about areas in Europe or Asia Pacific?

I'd say Europe more so than Asia Pac, probably. That's mainly the region where we're hunting for deals, and we keep seeing them. There are big initiatives being talked about, but they're being talked about in those markets. The difficulty is simply figuring out what these organizations are valued at compared with how we assess businesses and what we do. Sure, we'd take on debt if the right business came along, and we felt at ease that the business could handle that debt well enough to make it through. But we'd really need to be very bullish about what that organization would contribute to the overall mix of our business, right? We have typically been rather conservative, and we keep operating that way.

Our following question is from Richard Tse with National Bank.

This is somewhat connected to AI. As far as your customers go, what feedback are you hearing about the progress in that area? Does it shift their purchasing choices in any way? In your sector, I'd guess it's probably less disruptive, given the healthcare industry. But what are they telling you about the effect on their buying decisions here?

I believe they have interest in it, but they're far from laying out how that will translate into changes for their business compared with the current situation. There is some easy opportunity to capture here. I named a few of those items that we will and should be incorporating into our product offerings. Still, it isn't determining whether our deals succeed or fail, and it isn't determining whether our churn profile succeeds or fails as things stand. Getting to it matters, and we are doing so. That said, our customer base is definitely not as heavily engaged as other sectors are. That said, yes, we see it as a chance to introduce additional modules. Our customers are our greatest asset, and we allow our customers to shape our initiatives. And naturally, when you raise what we plan to do and talk it over with them, they are enthusiastic about new functionality and new offerings within our installed base. So we take ideas to our installed base first, and that is essentially how we operate.

All right, thanks. About Novari — I believe I saw in the filings that you increased the earnout somewhat, and I take that as a fairly positive sign regarding what the business may represent. Could you say something about what is behind that increase?

My apologies, Rich, but that question isn't clear to me. Markup?

Regarding the earnout.

Things are quite busy in Canada, and by now in the U.K. as well. Our team over in the U.K. has pushed hard on this front. They actually closed that single implementation that's currently underway. It's drawing considerable attention inside the U.K., which is what we're observing right now. So we're — how the auditors and others handle that contingent item, it always hinges on what they observe and what's taking place. So yes, there are efforts underway that raise somewhat the likelihood of paying that out, but that would be a positive outcome.

Right, right. That's more or less the point I was getting at. So, I suppose in connection with Novari and maybe the other acquisitions as well, is there anything in the way of metrics you're able to share regarding how well cross-selling has gone when it comes to getting some of those products into the existing base? I don't mean this specifically for Novari — it's probably more about your overall product set.

Yes, it's beginning to happen — MedCurrent's product and Novari are really starting to click. I believe we landed our first cross-selling deal in that area. That's now coming to fruition, and we're giving a lot of presentations, particularly in the U.K. market. MedCurrent has performed really well there, and Novari's imaging solution fits right in alongside it. And MedCurrent has built a fairly large base in the U.K. over the years. So that one appears to be moving forward. We're working on bringing the Zesty portal into our EHR product. So going forward, that will essentially become the portal itself. And we're also beginning work on integration between our Intouch platform and our Zesty customers. So as we move ahead and handle all the check-ins and so on, the Zesty product can serve as the patient engagement application. So we're definitely starting to see some cross-selling from those components in the markets.

Our following question is from David Kwan at TD Securities.

Christian, my apologies — I joined the call late, so forgive me if these points have already come up. I'm just wondering, on the margins, how we ought to think about them across the rest of the year — or through 2026 — assuming you don't do any additional material acquisitions? For instance, do you believe we could return to the levels we saw before the acquisitions, before MedCurrent and before Strata, somewhere in that 27%, 28% range as we exit the year?

Yes. If you think about it, right, we're constantly focused on the expense side and attempting to achieve integration and all that goes with it. But equally important, I believe, is that if we're able to bring in additional new ARR without raising costs, then you begin to see benefits from both directions, right? So I think it could be somewhat of a combination of both that starts entering into the picture. We do expect to add ARR, which ought to begin flowing through to the bottom line as we close it, and along with that, a bit of further synergistic effort that we're undertaking to make it happen. That's our aim, and that's what we're attempting to accomplish as part of the year, right? We've consistently stated where we wanted to reach, and nothing has changed on that front. We're budgeted to get there, and we're trying to get there.

No, that's great. And then where AI is concerned, I appreciate the detail you gave. I think you sort of hinted at and mentioned some of your customers sort of collaborating with you on certain of these AI projects and initiatives. To what degree are they paying for or assisting in paying for some of these initiatives?

Yeah, we do have efforts around the transcription product in which customers have actually paid us to build it for them. So to that extent, that's evidence of it. So we do have things there; on the Novari side, it's a separate SKU. Customers purchased it before it was built alongside them and assisted with the design and the process for doing that. And yeah, that's roughly how we like to operate. We always have been, in the sense of trying to partner with those initial customers and get some skin in the game from them, and that's how we've built our software here.

That's excellent. And then just one final question, on this quarter's cash flow. Could you give us some detail on the reason for such a large drag? I believe cash taxes played a particular part, but any information you can offer would be great.

Cash flow always presents a timing challenge. In Q4, a substantial portion of our business renews at the close of Q1. For instance, Attend — the entire Induction stream, Attend Anywhere — everything renews at the end of Q1. So that represents a major cash driver for the business, in terms of how we format it. Other products are definitely weighted more toward Q1 as well. Our AR figure is higher than we'd like when it comes to collections. Operationally, I believe both Induction and Novari faced challenges regarding how they were set up to collect money and handle billings, and on the operational side, we've made tremendous improvements there. But yes, it's creating somewhat of a drag on bringing the money in through that lens, and I think that's really all it is.