VitalHub Corp. Continues to Report Positive EBITDA in Q3 2019

Vitalhub Corp. has filed its interim condensed consolidated financial statements and management’s discussion and analysis report for the quarter ended Sept. 30, 2019, with the Canadian securities authorities. These documents may be viewed under the Company’s profile at www.sedar.com.

When asked to comment on the results of Q3 2019, Vitalhub CEO Dan Matlow said, “Traditionally the summer months are more challenging to deliver professional services, and this combined with having minimal one-time perpetual licenses reflects the revenue change for quarter. It should be noted that our new license deals for the quarter were primarily recurring in nature and as a result the revenue is deferred. We are happy with the results as we continue to have positive EBITDA numbers while continuing to grow our recurring license values.”

We would like to highlight the following insightsDue to the high amount of non-cash items on the Company’s income statement relating to the amortization of intangibles from acquisitions, we focus primarily on Adjusted EBITDA to track our performance. We continue to make great progress here, with Adjusted EBITDA continuing to represent 22% even with the slight reduction in revenue for the quarter.The company took measures to reduce its expensive debt vehicle by paying off its $2,219,000 debenture and associated penalties of $110,950 and partially substituting the debt with a new traditional bank vehicle at a substantially reduced rate of interest. As part of this transaction the company took a non-cash charge of $358,023 off set by a one time gain on the redemption of the debenture of $159,851. The company continues to have a strong cash balance.Annual contract value grew by 5% for the quarter to $5,579,377 without Nova Scotia (user licenses), it has yet to materially effect this number as it only represents approximately 4% of total ARR for the company.

COMPANY HIGHLIGHTS

Revenue for the three months ended September 30, 2019 was $2,395,662 as compared to $2,118,093 for the three months ended September 30, 2018, an increase of $277,569 or 13.1%. Revenue for the nine months ended September 30, 2019 was $7,667,264 as compared to $6,897,929 (which includes a one-time perpetual license fee of $1,613,362) for the nine months ended September 30, 2018, an increase of $769,335 or 11.2%. Excluding the one-time perpetual license fee of $1,613,362, revenue for the nine months ended September 30, 2019 increased by $2,382,697 or 45.1%.

EBITDA (defined as earnings before interest, taxation, depreciation and amortization) for the three months ended September 30, 2019 was $445,290 as compared to $155,794 for the three months ended September 30, 2018, an increase of $299,496. EBITDA for the nine months ended September 30, 2019 was $1,349,938 as compared to $504,107 for the nine months ended September 30, 2018, an increase of $845,831. EBITDA is a non-IFRS measure.

Adjusted EBITDA (defined as earnings before interest, taxation, depreciation, amortization, share based compensation, and acquisition related expenses) for the three months ended September 30, 2019 was $523,669 as compared to $296,403 for the three months ended September 30, 2018, an increase of $227,266. Adjusted EBITDA for the nine months ended September 30, 2019 was $1,732,966 as compared to $1,067,969 for the nine months ended September 30, 2018, an increase of $664,997. Adjusted EBITDA is a non-IFRS measure.

Adjusted EBITDA as a percentage revenue for the three months ended September 30, 2019 was 22% as compared to 14% for the three months ended September 30, 2018. For the nine months ended September 30, 2019 adjusted EBITDA as a percentage revenue was 23% as compared to 15% for the nine months ended September 30, 2018. Adjusted EBITDA as a percentage revenue is a non-IFRS measure.

The Company defines Annualized Contract Value (“ACV”) of recurring revenue as the contracted annual renewable software license fees and maintenance services. The ACV of recurring revenue at September 30, 2019 was $5,579,377 as compared to $5,321,119 at June 30, 2019 an increase of 5%. ACV is a non-IFRS measure.

The Company defines acquisition revenue as gross revenues of the companies acquired at the time of acquisition and organic revenue as revenue over and above the acquisition revenues. For the three months ended September 30, 2019, organic revenue represented 33% of total revenue (Q3/2018 – 30%, Q4/2018 – 29%, Q1/2019 – 35%, Q2/2019 – 44%), with the remaining 67% representing acquisition revenue (Q3/2018 – 70%, Q4/2018 – 71%, Q1/2019 – 65%, Q2/2019 – 56%). Acquisition and organic revenue growth are non-IFRS measures.

On September 30, 2019, the Company redeemed its 12% debentures under an early redemption right with a total payment amounting to $2,396,520, which included the principal amount of $2,219,000, a 5% penalty fee of $110,950 and all accrued and unpaid interest to date of $66,570, saving the Company approximately $204,000 in interest payments. During the nine-months ended September 30, 2019, the Company recognized a gain on the early redemption of $159,851, additional accretion expense of $306,919 for a total of $456,785 and $310,120 in interest expense.

During the quarter, 5,465,000 warrants were exercised for cash proceeds of $983,700. These warrants were issued under a brokered private placement in September 2017, the remaining 25,828,044 warrants expired September 13, 2019.

During the quarter the Company entered the Australian market, having signed a 5 year State-wide licensing agreement for the Oak Group’s evidence-based decision-support acuity management tool with the Tasmanian Health Service (“Tasmania”). This deal marks the first Oak Group product of its kind to enter the Australian market and includes recurring revenue over the 5 year term of approximately $1,065,900 CAD ($1,182,600 AUD), implementation services of $23,118 CAD ($25,650 AUD) per instance, and approximately $54,845 CAD ($60,850 AUD) in professional services revenue.

The Company went live with it’s first TREAT client management system with the Province of Nova Scotia’s Department of Community Services (“DCS”), (as per the press release dated November 5, 2019), which has contributed to approximately 4% of the Company’s ACV. With the success of this first phase of deployment, DCS and Vitalhub Corp. expect to complete the remaining Access, Family Visitation and Transportation services implementation of the TREAT client management solution across all offices in early 2020. Over the coming three years the Company’s TREAT client management software will be rolled out to support all three of the DCS’s core services: Employment Support and Income Assistance, Child, Youth & Family Supports and the Disability Support Program.

Subsequent to the period, the Company entered into an agreement to acquire all of the issued and outstanding shares of Oculys Health Informatics Inc. (“Oculys”), which closed on November 21, 2019. Oculys provides a real-time and predictive operational management system for hospitals. The company currently has 18 hospital customers located across Ontario and Manitoba. Oculys’s revenue for the year ended March 31, 2019 was $2,066,540 with $1,559,177 being recurring in nature. Total consideration to be paid by the Company, after a closing net equity adjustment, is expected to be approximately $4,227,000 (the “purchase price”). The purchase price is composed of a $2,200,000 (the “share component”) issuance of common shares of the Company (“common shares”) and a cash payment (the “cash component”) equal to the difference between the purchase price and the share component, which is estimated to be approximately $2,027,000. The cash component includes $1,585,805 to be paid to certain creditors of Oculys, with the remainder paid to shareholders of Oculys. The share component shall be composed of 12,222,222 common shares issued at a price of $0.18 per share (the “share purchase price”). The Company has also agreed to certain additional cash payments to the shareholders of Oculys pursuant to an earn-out clause triggered on achievement of certain business milestones of Oculys in the proceeding two (2) year period. $330,000 of the cash component will be subject to escrow, to be released twelve (12) months post-closing, subject only to reduction in the event the funds in escrow are required for an indemnity claim made by the Company, or any purchase price adjustment, in accordance with the agreement. In addition, seventy-five percent (75%) of the share component shall be held by the applicable escrow agent and released to the vendors in five (5) equal and consecutive semi-annual installments over a thirty (30) month period following the closing date of the acquisition. Epic Capital Management Inc. (“Epic”), a boutique investment and strategic consulting firm, acted as advisor to Oculys with respect to the acquisition. On closing, Epic will be paid a total work fee (“work fee”) of $247,500 which is satisfied by a $99,000 cash payment and the issuance of 825,000 common shares at the share purchase price for an aggregate value of $148,500. The work fee is paid by the shareholders of Oculys out of the cash component paid and share component issued thereto, respectively, on the closing of the acquisition, and does not represent an additional cost, payment, or share issuance from the Company.

ABOUT VITALHUB:

Vitalhub develops mission-critical technology solutions for Health and Human Services providers in the Mental Health (Child through Adult), Long Term Care, Community Health Service, Home Health, Social Service and Acute Care sectors. Vitalhub technologies include Blockchain, Mobile, Patient Flow, Web-Based Assessment and Electronic Health Record solutions.

The Company has a robust two-pronged growth strategy, targeting organic growth opportunities within its product suite, and pursuing an aggressive M&A plan. Currently, Vitalhub serves 200+ clients across North America. Vitalhub is based in Toronto, Canada, with an offshore development hub in Sri Lanka.