Mr. Dan Matlow reports
VITALHUB REPORTS CONTINUED 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 SEDAR.
When asked to comment on the results of third quarter 2019, Vitalhub chief executive officer Dan Matlow said: "Traditionally, the summer months are more challenging to deliver professional services, and this combined with having minimal one-time perpetual licences reflects the revenue change for quarter. It should be noted that our new licence 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 licence values."
The company would like to highlight the following insights:
- Due to the high amount of non-cash items on the company's income statement relating to the amortization of intangibles from acquisitions, the company focuses primarily on adjusted EBITDA (defined as earnings before interest, taxation, depreciation, amortization, share-based compensation and acquisition-related expenses) to track its performance. The company continues to make great progress here, with adjusted EBITDA continuing to represent 22 per cent 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 offset 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 per cent for the quarter to $5,579,377 without Nova Scotia (user licences). The company has yet to materially effect this number as it only represents approximately 4 per cent of total ARR for the company.
Revenue for the three months ended Sept. 30, 2019, was $2,395,662 as compared with $2,118,093 for the three months ended Sept. 30, 2018, an increase of $277,569 or 13.1 per cent. Revenue for the nine months ended Sept. 30, 2019, was $7,667,264 as compared with $6,897,929 (which includes a one-time perpetual licence fee of $1,613,362) for the nine months ended Sept. 30, 2018, an increase of $769,335 or 11.2 per cent. Excluding the one-time perpetual licence fee of $1,613,362, revenue for the nine months ended Sept. 30, 2019, increased by $2,382,697 or 45.1 per cent.
EBITDA (defined as earnings before interest, taxation, depreciation and amortization) for the three months ended Sept. 30, 2019, was $445,290 as compared with $155,794 for the three months ended Sept. 30, 2018, an increase of $299,496. EBITDA for the nine months ended Sept. 30, 2019, was $1,349,938 as compared with $504,107 for the nine months ended Sept. 30, 2018, an increase of $845,831. EBITDA is a non-international financial reporting standard measure.
Adjusted EBITDA (defined as earnings before interest, taxation, depreciation, amortization, share-based compensation and acquisition-related expenses) for the three months ended Sept. 30, 2019, was $523,669 as compared with $296,403 for the three months ended Sept. 30, 2018, an increase of $227,266. Adjusted EBITDA for the nine months ended Sept. 30, 2019, was $1,732,966 as compared with $1,067,969 for the nine months ended Sept. 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 Sept. 30, 2019, was 22 per cent as compared with 14 per cent for the three months ended Sept. 30, 2018. For the nine months ended Sept. 30, 2019, adjusted EBITDA as a percentage revenue was 23 per cent as compared with 15 per cent for the nine months ended Sept. 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 licence fees and maintenance services. The ACV of recurring revenue at Sept. 30, 2019, was $5,579,377 as compared with $5,321,119 at June 30, 2019, an increase of 5 per cent. 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 Sept. 30, 2019, organic revenue represented 33 per cent of total revenue (third quarter 2018: 30 per cent, fourth quarter 2018: 29 per cent, first quarter 2019: 35 per cent and second quarter 2019: 44 per cent), with the remaining 67 per cent representing acquisition revenue (third quarter 2018: 70 per cent, fourth quarter 2018: 71 per cent, first quarter 2019: 65 per cent and second quarter 2019: 56 per cent). Acquisition and organic revenue growth are non-IFRS measures.
On Sept. 30, 2019, the company redeemed its 12 per cent 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-per-cent 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 Sept. 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, and the remaining 25,828,044 warrants expired Sept. 13, 2019.
During the quarter, the company entered the Australian market, having signed a five-year statewide licensing agreement for the Oak Group's evidence-based decision-support acuity management tool with the Tasmanian Health Service. This deal marks the first Oak Group product of its kind to enter the Australian market and includes recurring revenue over the five-year term of approximately $1,065,900 ($1,182,600 (Australian)), implementation services of $23,118 ($25,650 (Australian)) per instance, and approximately $54,845 ($60,850 (Australian)) in professional service revenue.
The company went live with its first Treat client management system with the Province of Nova Scotia's Department of Community Services (DCS) (as per the press release dated Nov. 5, 2019), which has contributed to approximately 4 per cent of the company's ACV. With the success of this first phase of deployment, DCS and Vitalhub expect to complete the remaining access, family visitation and transportation service 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 and 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., which closed on Nov. 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 is composed of a $2.2-million issuance of common shares of the company and a cash payment 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 rest paid to shareholders of Oculys. The share component shall be composed of 12,222,222 common shares issued at a price of 18 cents per share. The company has also agreed to certain additional cash payments to the shareholders of Oculys pursuant to an earnout clause triggered on achievement of certain business milestones of Oculys in the proceeding two-year period. A total of $330,000 of the cash component will be subject to escrow, to be released 12 months postclosing, 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, 75 per cent of the share component shall be held by the applicable escrow agent and released to the vendors in five equal and consecutive semi-annual instalments over a 30-month period following the closing date of the acquisition. Epic Capital Management Inc., a boutique investment and strategic consulting firm, acted as adviser to Oculys with respect to the acquisition. On closing, Epic will be paid a total 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 Corp.
Vitalhub develops mission-critical technology solutions for health and human service 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 merger-and-acquisition plan. Currently, Vitalhub serves 200-plus clients across North America.
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