© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone. Thank you for joining VitalHub's 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 reflects 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 2 can be found in our MD&A, which is available on SEDAR+ 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 is 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 profit, net income and cash generation. We anticipate this momentum will accelerate into 2024. Today, I'm proud to share with you the financial milestones we've 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 ended 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, maintenance and 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 -- the acquisitions 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 for the types of products sold and the decrease was primarily attributable to the timing of deliveries of the company's Intouch products in addition to the unusual high volume margin perpetual license sales of over $2.7 million in the first quarter of 2022. Revenue from professional services and hardware in Q4 '23 totaled $2.1 million compared to $2.6 million in Q4 '22, a decrease of 2%. Professional services and hardware revenue are very 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 23%. The increase during this period is primarily attributable to the deployment of ongoing customer projects, deliveries of hardware and additional service renews from the new subsidiary. Additional -- annual recurring revenue, or ARR, which we formally referred 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 expense 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 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 million -- $939,000 compared to a loss of $338,000 in Q4 '22, an improvement of $1.3 million. Net income for the year '23 was $4.5 million compared to 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 at 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 '23 was $4 million or 29% of revenue compared to $2.5 million or 22% of revenue in Q4 '22, an increase of 62%. The increase was primarily attributable to the higher recurring $11.3 million in Q4 '23 as compared to $8.7 million in Q4 '22. Coupled with an ongoing effort to reduce costs and gain operating cost synergies for the full year 2023, adjusted EBITDA was $13.3 million, or 25% of revenues compared to $9.5 million or 24% of revenues from the same period in 2022, an increase of 40%. The increase was primarily attributable to 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. Cash flow 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 hand the call over to Dan for an update on the business.
Thanks, Brian. I'm just going to formally 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 has continued to support us. In Q4, we continue to see what I'd 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 U.K. 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 TREAT product in our Canadian base as it continues to accelerate as the leading product for community electronic records in the Canadian marketplace and the Oriel product in our Hicom base continues to expand and 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 additions 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, it was 22. So we've really done a great job of doing that. We -- it's also interesting to know we completed an acquisition in -- previously about a month ago with the book-wise acquisition in the U.K., and we are starting to see more substantial acquisition flow into our pipeline in a more realistic base and we are starting to see the -- a lot of these smaller SaaS-based or other based 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. We continue to add cash, I don't know, close to like a $4 million rate per quarter at this stage in game, and we're excited the way the engine is working on all its cylinders. And we're looking forward just to continue to expand as we continue to move forward. And I'm open to any questions.
[Operator Instructions] First question comes from Christian Sgro of Eight Capital. Christian, please go ahead.
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 U.S., 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 U.K. than anywhere else. So we still expect significant contribution from the U.K. 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 are -- we have ratcheted up our Australian and our Mid East business with our products, and we've invested into sales groups and partnerships, and we're hopeful that we'll see contributions from those particular groups in 2024, more than they've done in the past as well.
Okay. And as you think about expansion, 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...
No. We do all of our own implementations and we'll continue. They're very niche solutions, and it's difficult to get partners to initiate that. We have -- 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 just got an abundance of work. So we have ramped up a few PMs and other skill sets to help us deliver those work in a timely fashion and flexing up some resources to help us deliver that work. But we continue to see a big backlog of services work which usually comes on the other side of seeing good organic growth. It's all that's got to get implemented.
I'll ask one more question before passing the line. I know the Oriel recruitment portal is something 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 U.K. 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're completed their university education defined work placements across the NHS in the U.K., 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 a different type of doctors, definitely 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 it increases the license fees accordingly. So we continue to see that.
Next question is from Gavin Fairweather of Cormark. Please go ahead, Gavin.
Maybe we can just zero in on SHREWD post the announcement of the system coordination center funding. I know you mentioned it in the prepared remarks. Can you just kind of discuss the pipeline, how long you expect this funding to provide a tailwind to your results? And maybe just touch on kind of your win rates and success rates in converting new logos given that funding backdrop.
Yes. It's a national program where they're giving money to what they call ICBs in the U.K., 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 asset, which is right up to the sweet spot of the SHREWD based solution. I'm sure it already had a significant footprint, and this just created some funding for us, allowed us to grow across other 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 ICPs 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?
Yes. It's a particularly 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 Mid-East. All of our products are in play there, but I do think ones that would probably be the most affected by it would be the Intouch based solution, the Diamond and Twinkle Diabetes solution, which is coming out of the Hicom base suite of products and probably the transforming based solution and MCAP, which is -- we already have a footprint in the Mid-East would probably be my guest of the products that we'll initially look at the most. We'll explore that TREAT 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 look at initially.
Okay. Good to hear. And then maybe we can just flesh 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 would you kind of characterize your deal flow that you're seeing today compared to, I don't know, I mean, 6 or 9 months ago?
Yes. I think we're starting to see those organizations that have raised some money or looking for an opportunity to raise some money that, that window is not as easy to get to as it was before, and they're looking for what the next step is. So growth might not be that great or they can't raise money or they raised a bunch. And just don't know where to go with from here. So we're starting to see those type of deals across our desk a little bit more than before. I think people have come to accept that this new world there we are living in, in 2024 is very different than what we were living in between 2019 and '22. But this world is real and we just got to deal with it. So we're seeing deal flow accordingly.
Good to hear. And then 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 given your growth and deferred revenue as your paid up front. 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 can put that working capital inflow into context for us?
Yes. We spent quite a lot of time looking at our collections. And most of the small organizations who we acquired don't have really sophisticated collections agent. We have 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 -- our customers are geared to quite happy to pay for the services that we made big organizations. 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 really running pretty effectively. So I think [indiscernible] to our collections team.
Congrats on the progress.
Next question is from Donangelo Volpe from Beacon Securities. Please go ahead.
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 are signing?
Yes. 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 we're -- we look at the businesses, we look at the opportunities, we look at the synergies, we look at what we can do with it, and we did what we think is appropriate for it. A lot of times, we get the acquisitions, sometimes we don't. But it is what it is. But I don't think pricing has changed that dramatically, it definitely hasn't gone. 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 right in the alley where we'd like to pay for.
Okay. 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?
We do both. We're 80-something percent SaaS revenue and that's high margin, right? So intuitively, license deals bring high margin, low cost of sales. We've got one product, 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 yes, we -- intuitively SaaS-based products bring you good margin. And we all know that the biggest cost and expense associated with our teams, 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 innovation lab. We think it's a good team. We think we've got a good process and we encourage our groups to use those -- to use our lab as effectively as possible, and we're always looking to do that. But we're also -- it doesn't happen overnight, and it needs 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 cost effectiveness in there.
And once again, congratulations on the quarter.
Next question is from Doug Taylor of Canaccord. Doug, your line is open.
Congratulations on what was a standout quarter by most metrics. Very strong sequential ARR build. You've talked in earlier questions and addressing earlier questions about the strength in the pipeline for SHREWD U.K., TREAT in Canada. So I guess my question is whether the old $1 million to $1.5 million 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?
Doug, I could go above that $1.5 million number, but I'm not going to. I still think the measure, although we've repeatedly beaten it and things like promising to continue to do that. I think the $800 million to $1.5 million is the 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. At the same time, it gives me a little bit of comfort that there's different ways to make that number, but it's not like we've got a holistic view of it coming from all different areas. We've put some pretty sophisticated sales forecasting in place and data to get a lot more predictable on it. But with that being said, there could be a quarter where we do what we did this quarter, and that's all great. We should all be happy for what we have accomplished for it. But at the same time, if we have a $600,000 a 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. 1 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 a 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, you forgive me for trying. 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?
Yes. We've 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 the SHREWD implementations, they'll be there. So we expect that -- we expect 2024, our services number should be higher than it was in 2023, that's for sure by a fair bit as we go through here. But at the same time, it's just how it moves through. It does get seasonal through the summer months and the Christmas time where you just see a little bit of a lull in that -- those type of areas. But we are seeing uptick in our services work for sure.
And Doug, it was up year-over-year just quarter-over-quarter, it was just pretty much on par, slightly down.
Right. Last question for me, following on Donangelo's EBITDA questions. EBITDA margins, I think, naturally a bit higher because of the mix related to the services that we just talked about. But is there anything to suggest 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 the updated mix of business here?
I think it should be pretty consistent like we're at that level. We continue to make little investments in our group's 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 get more meat on the bone as we continue to do that. So we'd like to think it's going to creep up still a little bit more.
All right. Well, congrats again on a great quarter.
Next question is from Daniel Rosenberg of Paradigm.
Dan and Brian. My first question comes around the sales strategy. I was wondering if there's any change 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?
Yes. 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 Mid-East. There's some long-term relationships that we've acquired over the years with companies doing that stuff. 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 other 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 in other verticals and continue just to work to enhance all of our distribution channels and the areas that we're into. So healthcare within a particular geography is always a cooperative type of world with projects and other vendors that are looking to get those projects and you're talking to that ecosystem all the time in many different ways of partnering project management, and competing, in our case, acquisitions, right? So we're always talking to those particular groups. So there is that ecosystem. You speak to it all the time and that's sort of how you go to market.
Okay. I 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 for the next stages of growth for VitalHub, what are the areas that you think you would want to have additional talent on board? Or is the ship correct as it is and you could attack the markets that you're looking at with the team as is?
Yes. We can continue -- the more meat on the bone, the more surplus we get for investment. For sure, there's areas we would like to continue to expand in terms of infrastructure. And we've already made significant investments. Security and compliance are becoming a huge issue and 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 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 look at that world and try to make investments in need to probably continue to make more investments. As we continue to grow accounting functions and streamlining processes and things like that, continue to get more demanding and those type of investments need to continue to grow. So we think we got a pretty strong model to build up as a completely finished to scale this thing to where we would like to now. We still think we've got some more investments to go. But we've been gradually adding and we expect to continue to gradually add over as we continue to grow.
There are no further questions. Dan, I'll hand the call back to you for your closing remarks.
Again, just thanks, everyone, for 2020 -- support through 2023 and 2024. And I just want everyone to -- just to understand what our business model is, what we're trying to accomplish and what -- 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 or to [indiscernible] with anyone, we're always available to answer your questions and again, thanks for your support.
Thanks, everyone. This concludes our call today. You may hang up.
Bye-bye.
Bye.