Vitalhub Q3 2026 Earnings Results & Report

Vitalhub EPS Results

• Actual EPS: C$0.04
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 1 of last 7 quarters

Vitalhub Revenue Results

• Actual Revenue: C$31.91 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Vitalhub (TSE:VHI) is a leading software company dedicated to empowering health and human services providers globally. VitalHub's comprehensive product suite includes electronic health records, operational intelligence, and workforce automation solutions that serve over 1,300 clients across the UK, Canada, and other geographies. The Company has a robust two-pronged growth strategy, targeting organic opportunities within its product suite and pursuing an aggressive M&A plan. VitalHub is headquartered in Toronto with over 700 employees globally, across key regions and the VitalHub Innovations Lab in Sri Lanka.

Vitalhub Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: ARR rose 14% year over year to CAD 107.2 million, including 8% organic growth and approximately CAD 4.5 million from the Buddy Healthcare acquisition. Recurring revenue increased 9% year over year.
• Positive Sentiment: Adjusted EBITDA increased to CAD 8.6 million, or 27% of revenue, versus CAD 7.2 million and 22% a year earlier; net income was CAD 2.6 million, and the company ended the quarter with CAD 129 million in cash and short-term investments and no debt.
• Negative Sentiment: SHREWD remains a source of uncertainty amid NHS-related suspensions and renewal questions. Management estimated the product represents about 7%–8% of ARR, but said the amount at risk is difficult to quantify and expects greater clarity in coming months.
• Neutral Sentiment: Revenue was flat at CAD 31.9 million as lower services and perpetual-license revenue offset recurring-revenue growth. Management attributed the services decline to summer timing and milestone-based recognition, citing a strong services backlog and expecting more milestones to be reached in Q4.
• Positive Sentiment: Management is expanding AI features and integrating products into a broader Vitalhub platform, which it believes could support cross-selling and larger deals. It cited an estimated CAD 30–40 million of AI opportunity across its installed base, though that potential has not been quantified into a firm forecast.

Presentation

[Christian Sgro, Head of Investor Relations at VitalHub]

VitalHub CEO, Dan Matlow, and CFO, Brian Goffenberg. I just heard a recording in progress prompt, so I will just begin those comments once more and then we will keep going. Good morning, everyone, and thank you for joining us for our 2026 third quarter conference call. With me on the call today are VitalHub CEO, Dan Matlow, and CFO, Brian Goffenberg. After our prepared remarks, we will open up the line to questions from analysts. Please press star one or use the raise hand function to indicate that you would like to ask a question. 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.

[Christian Sgro, Head of Investor Relations at VitalHub]

For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release, as well as in our SEDAR 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 SEDAR filings. With that, I will hand the call over to Brian to go over financial highlights for the quarter. Over to you, Brian.

[Brian Goffenberg, CFO at VitalHub]

Good morning, everyone. Thank you for joining the call today. We are pleased to report results for the third quarter of 2026. We closed September with CAD 107.2 million of annual recurring revenue, an increase of 14% over the prior year, including 8% organic growth and approximately CAD 4.5 million from the Buddy Healthcare acquisition in July. Our recurring revenues continue to grow at 9% year-over-year, and our adjusted EBITDA margin was 27%, our highest level in the last two years. Some of the key financial highlights for the quarter are as follows. We reported total revenue of CAD 31.9 million, in line with the prior year period. Recurring revenue or term license maintenance and support segment was CAD 25.8 million, or 81% of total revenue. This compared to CAD 23.6 million, or 74% of total revenue in the prior year period.

[Brian Goffenberg, CFO at VitalHub]

Perpetual license revenue was CAD 100,000 compared to CAD 500,000 in the prior period. Services, hardware, and other revenues were CAD 3.7 million compared to CAD 5.5 million in the prior year period. Services revenue is seasonally lighter over the summer against elevated projected activity in the prior year period. Our gross margin was 79% of revenue compared to 81% in the prior period. This reflects timing of services, revenue recognition, and allocations between development, operating expenses, and cost of sales. Adjusted EBITDA for the quarter was CAD 8.6 million, or 27% of revenue, compared to CAD 7.2 million, or 22% of revenue in the prior year period. The increase was primarily due to lower research and development expenses, synergies from the integration of Induction Healthcare and Novari Health, and a favorable foreign exchange impact in the quarter.

[Brian Goffenberg, CFO at VitalHub]

Net income for the quarter was $2.6 million compared to a net loss of $900,000 in the prior year period. Cash provided by operating activities was $23.9 million in the first nine months of the year, an increase of 69% over the prior year period. We closed the quarter with $129 million of cash and short-term investments and no debt. With that, I'd like to hand the call over to Dan for an update on the business.

[Dan Matlow, CEO at VitalHub]

Good morning, everyone. Welcome today. Yeah, it was our summer quarter, and that's always an interesting one in the government healthcare-based sector, but there's lots of good things happening in the company and lots of good things that happened in the quarter. As Brian mentioned, compared to 2025, perpetual licenses and services licenses were newer. That's our variable part of our business. Services is always an interesting one when it comes to revenue recognition, but our backlog for our services revenue has never been stronger. It was just the case of getting it into the revenue recognition state, and that tends to be lumpy as we go through our revenue recognition policies, which are correlated to completion of certain milestones in certain projects. But we're very bullish on what our professional services number looks like on a go-forward basis.

[Dan Matlow, CEO at VitalHub]

We're excited that we got our cash flow back to our levels of our 27% adjusted EBITDA, and as you guys can see, the cash continues to generate. That's always been the primary view of our business and continues to be the primary view of our business. We continue to look at, I think if you look back two years ago, our adjusted EBITDA was in the fives, and now it's in the high eights relative to what it is. That's a result of really the Induction and the Novari Health acquisition that we did just a little over a year ago, and our ability of our team to complete what that mission was all about and what our hypothesis was all about.

[Dan Matlow, CEO at VitalHub]

As you can see, we did succeed in those levels, and we have gotten those back to the levels that we wanted, and it was proving that those two acquisitions have worked out in a pretty good way. Our ARR, it did grow by CAD 800 and something K per the quarter. I know the question's going to start coming back in terms of where that would have been without the SHREWD scenario. It would have been considerably higher relative to the SHREWD scenario, as we got some suspension of certain accounts and uncertainty as it relates to that business. So that's still a part of the business that is still fragile in nature, and we continue to wait for answers from the NHS in respect to that, and how that looks from the FDP.

[Dan Matlow, CEO at VitalHub]

And we expect to get that answer hopefully within the next month or so, in terms of what the direction is. I'm not sure we'll get it totally at that time, but we continue to look at that on a go-forward basis. It continues to be an issue that we're dealing with. In respect to AI, we have introduced our AI Transcription product into the market for the TREAT product, and we're starting to see a lot of interest in respect to that. Also, our protocoling product within our Novari-based suite is getting a ton of interest. We're starting to build new AI functionality into many more of our products. In particular, we've launched campaigns for our two clinical decision support products that are based on clinical guidelines, our MedCurrent products and our MCAP products.

[Dan Matlow, CEO at VitalHub]

And the customer bases in both those areas are very excited about what those capabilities to do it. We're starting to use AI pretty extensively in our development processes. We're starting to see some really good output from some of those in terms of speed and some of the things that we're being able to do. Of particular interest has been our technical integration. We're getting to the ability where we're now integrating our patient flow and care coordination suite in a technological perspective. So we're starting to be able to join the products together in the field a lot more effectively. AI is helping us with that as well as other areas. And we are getting to the position where we can present our suite of solutions as a suite of products that are integrated, which we're really excited about.

[Dan Matlow, CEO at VitalHub]

So, you'll start seeing that being messaged a lot more through our organization in terms of VitalHub and the VitalHub platform versus the brands of the particular products on a go-forward basis. And we're going to be making that shift as we continue to move forward on there. We continue on the acquisition sales. With any luck, we'll be able to get another one over the finish line before the end of the year. We continue to look at some larger scale areas, and our activity level continues to be high. And there are two or three companies that we have earmarked since the very beginning that are now in market, and we're looking to do some things in terms of making that happen. So, we continue to work on that front.

[Dan Matlow, CEO at VitalHub]

That's my update for today, and I'm sure I'll get a lot more information through some of the questions that some people will ask. So, we'll turn it over to the questions at this point.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Dan. We'll now open up the line to questions from analysts. Please press star one or use the raise hand function if you would like to ask a question. Today's first question comes from Gavin Fairweather with ATB Cormark Securities. Gavin, your line is open.

[Gavin Fairweather, Managing Director and Co-Head of Institutional Equity Research at ATB Cormark Securities]

Oh, hey, good morning. Thanks for taking my questions. Maybe just on the F impact on ARR. Curious if you looked at the organic ARR growth, ex-SHREWD, and give us a sense of how the rest of the business is performing.

[Dan Matlow, CEO at VitalHub]

The rest of the business is performing strong, Gavin. I'm reluctant just to give out the exact numbers because they change literally by the week. We got customers that are suspending but then are not suspending, and we got customers that we think are renewing that aren't renewing, and we got customers that all different elements in terms of where it is. And then we got renewals of customers that said they weren't going to renew. It's just a question of the customers being able to find money other than going to the NHS itself and having money coming from its ICBs in terms of renewals. And we're seeing it just coming from a lot of different directions with it. And the usage of the product continues to be high. It's just turned into a little bit of a political/financial scenario when it comes to the product.

[Dan Matlow, CEO at VitalHub]

I do believe if we didn't have the suspensions or the reversals on some of those SHREWD cuts, we would have been very close to our Rule of 40 base level with what the strong adjusted EBITDA numbers would be, and we would be on track with our regular numbers that we would be producing and have traditionally produced. Yeah, we're going through this right now, but it's being made up pretty nicely by the rest of our business.

[Gavin Fairweather, Managing Director and Co-Head of Institutional Equity Research at ATB Cormark Securities]

Appreciate that. There was an interesting FT article maybe last week just on potentially FDP being renewed for two years, a new RFP being issued where they're going to evaluate British alternatives. If that's kind of what plays out, would you expect the churn to moderate if trusts know that the FDP might be pulled out, and could VitalHub be kind of part of a British-made alternative?

[Dan Matlow, CEO at VitalHub]

We're definitely speaking to some of those alternative envelopes to be part of those consortiums for it, because I think that's what it would take potentially to do it. With that being said, I just don't know what the answer would be. There's one argument that says it's going to be a lame duck for two years, and they're just doing it for a transition scenario to other products, which is coming literally, which is just coming from news channels. We haven't seen any reports from any NHS things. I saw a note today from Palantir that said they've had no notification that they're going to be extended for two years. So, we don't actually know what that will be.

[Dan Matlow, CEO at VitalHub]

But using that assumption, it will be extended for two years, then the real question comes, are they going to continue to work on FDP initiatives in those two years, or are they going to be transitioning? If they are going to be continuing to work on FDP initiatives, will any of the ICBs take up that software knowing that it could be out of there in a couple years? So, I just don't know what the answer to that will be, and we'll just have to wait and see how that progresses. But I don't really want to put an opinion either way, because I just actually don't know, and I don't think anyone in our organization really knows at this stage.

[Gavin Fairweather, Managing Director and Co-Head of Institutional Equity Research at ATB Cormark Securities]

That's fair. Thanks for the color there. Maybe just heading into the busier sales period of kind of Q4, Q1, and Q2 for ARR, could you just discuss kind of how the pipeline is shaping up and how deals are moving kind of coming out of a quieter summer period?

[Dan Matlow, CEO at VitalHub]

We definitely got deals. The Novari and the Strata and the Zesty and the Buddy of this world, and the Intouch are actually leading the way in terms of what the revenue is. We continue to progress with deals. I am excited by how some of that work is starting to come into the Canadian marketplace, and I am excited on our cross-selling. Not cross-selling just from a sales perspective, but we are actually integrating cross-sells, which is getting really interesting in terms of what that is. The suite is really come together with all the different pathways, and there is some interesting things going on in the field with our products.

[Gavin Fairweather, Managing Director and Co-Head of Institutional Equity Research at ATB Cormark Securities]

Thanks so much. That is excellent.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Gavin. The next question comes from Doug Taylor with National Bank Financial. Doug, your line is open.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Yeah, thanks. Good morning. I guess I will try and ask a couple more SHREWD questions, so to speak. I know you have got a bunch of that business that you have renewed and some that is churned. I mean, maybe I think it would be helpful for us to understand the range of outcomes here. If you could give us a sense of the amount of SHREWD revenue in the U.K. that maybe you started with versus what is in your ARR today, and maybe comment on the renewal timetables that you are kind of watching. I know it is a dynamic situation.

[Dan Matlow, CEO at VitalHub]

Doug, I am hesitant to do that because we literally got customers that are in, we put them into churn mode, but they are in suspend mode. It is hard to quantify what that level is. I still think there is close to about CAD 10 million or so-ish of SHREWD revenue that is still out there to a degree in all different pockets of it that are there. It is hard to say which ones are not at risk or at risk and relative to that.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Of CAD 10 million of SHREWD revenue, maybe I will just come at this a different way. When someone has gone into suspend mode, as you say, that has been removed from your ARR. Is that correct?

[Dan Matlow, CEO at VitalHub]

In some of the cases, yes. In some of the cases, no.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Okay. All right. Well, a range of outcomes there. I do not know if I need to speculate anymore.

[Dan Matlow, CEO at VitalHub]

I do not want to speculate because I think we will know more in another quarter or so how that comes out in respect to it.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Okay. We will look forward to an update on that. Maybe switching gears then, one of the highlights has been Ontario, the success you have had there. Can you maybe update us on the rollout progress in Ontario?

[Dan Matlow, CEO at VitalHub]

Yeah. It is rolling out really well where the imaging world is, that part of the pathways has gone live, which is a nice chunk of that, and we are starting to work on some of the other pathways. We expect to continue that work through 2027. But it has been a strong product, and we are also starting to see a lot of activity in the British Columbia area and the Maritimes areas for both Strata Health and Novari Health. Strata has gotten some rejuvenation of its business, and we are actually starting to see some really good outputs in the U.S. marketplace with Strata, where they already had somewhat of a base. But we are seeing some pretty active business going on in the U.S. market as well.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

With some of those areas like Ontario and the Maritimes, as you mentioned, where you have known that there has been built-in growth because you have won business, but there is a staged rollout. I mean, do you have enough visibility with some of those to say that, in any event, with what happens in the U.K. with SHREWD, you still expect to produce growth in the, we will say, high single to low double digits?

[Dan Matlow, CEO at VitalHub]

Yeah.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Could I get you to venture that far?

[Dan Matlow, CEO at VitalHub]

At the end of the day, all the SHREWD business isn't going away, for sure. We got customers that are renewing for multiple years, and it's definitely not going away. It's getting a blip. With that being said, whatever shortfalls is being made up by the other businesses, and we're happy with the way that work is going on in some of those other initiatives. Yes, there's a potential blip here. We've been talking about this for about six, nine months now, but we continue to move forward, and we're excited about the business in its entirety.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Last one for me. I mean, the integration work with Buddy and also some of your other assets seems to be going well. The margins were indeed a highlight this quarter. Maybe you want to give us an update on the current integration roadmap progress, low-hanging fruit there, or how we should anticipate margins on the organic business as it stands right now going forward.

[Dan Matlow, CEO at VitalHub]

Yeah. Listen, we got ourselves to 27% this quarter, but we got to 27% with the reduction in services and perpetual licenses, which is a blip for the summer from my perspective, right? If we would have hit our normal services revenue that we would have hit, that just would have added to the bottom line in respect to this quarter, and that would have grew that number even more. So from a margins perspective, yeah, I think our team's done a really good job on the integration of Novari Health and Induction Healthcare. There's still a little bit of work to do there, but they're pretty well in line with our business fundamentals, and we're happy with how that's going.

[Dan Matlow, CEO at VitalHub]

Buddy's still early days, but Buddy's just a natural fit into a lot of our different products, and it's good tech, and we've really got a quick start on doing some of that integration, primarily with the Zesty product is a big part of integration into that base product set. That work is underway, and we're starting to see some interest in the Buddy product selling into the surgical scheduling product with the Novari. If you know Novari's, it has its referral business, but it also has its surgical referral business where it sets up all the surgeries for probably about 40% of hospitals in Canada.

[Dan Matlow, CEO at VitalHub]

We have a lot of relationships with the pre-operative or the booking systems of hospitals in Canada, and then there is a need for something like Buddy for pre-operative based assessments all through the Canadian marketplace, and we've validated that, and we continue to work on seeing what business we can get there, but we're excited what that opportunity can bring.

[Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial]

Okay, thank you. I'll give the others a chance here.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Doug. The next question comes from Kevin Krishnaratne with Scotia Capital. Kevin, your line is open.

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

Hey there. Good morning, guys. Can you hear me?

[Dan Matlow, CEO at VitalHub]

Yeah.

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

Hey, awesome. Hey, a question. You talked about the backlog for your services has never been stronger. Any way you can sort of quantify that? How far does it extend? As you think about Q4, will we certainly see that tick up from the level that we saw in Q3? Just thoughts there.

[Dan Matlow, CEO at VitalHub]

I think it should tick up in Q4 if the projects. The problem we got, Kevin, with services revenue in our business, it's just not a straight line, right? It depends how the contracts are negotiated in terms of milestones and putting time sheets and everything that correspond with it. Trying to get that in a smooth line is sometimes challenging, but we do think there's a lot more milestones that should be hit in Q4 than in Q3. You just sort of got more customer involvement during that period to try to get things finished and over the finish line. So yeah, we feel comfortable that Q4 should get there.

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

Okay, got you. I want to switch to AI. You talked about, I think I got here four different products now, the Transcription and TREAT, the Protocol and Novari. You talked about MedCurrent and then MCAP. So the question that I had there is, if you can give us, like how much ARR sort of uplift do you think AI can give you from those products alone as you start? You talked about customers being very excited, so just kind of curious what, like within that base, what your opportunity might look like.

[Dan Matlow, CEO at VitalHub]

I think those four products themselves are what the potential TAM could be, the MedCurrent one and the MCAP one. Just building those, like if those products come to market, what they would be, or as an upsell, or just overall?

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

I'd like to know maybe what, yeah, maybe whatever you want to give me.

[Dan Matlow, CEO at VitalHub]

Yeah, it's hard. We haven't quantified it totally, but there's millions of dollars just on the MCAP and the MedCurrent product. Those two products are clinical decision support products using guidelines. AI allows those guidelines to just work automatically against patient data and just start giving information directly without any entry and just letting AI do the work by talking or just asking the systems what the guidelines are. We've done some pretty good prototypes on both those systems, and we think the real IP of those products are the guidelines themselves. We believe those are two products that if we put guidelines in place for them, that they should be able to do some interesting things.

[Dan Matlow, CEO at VitalHub]

We're always looking at initiatives with AI with our product sets of what we can build on top of what are solutions, but those two have come somewhat to the top in terms of initiatives that we have. There's other ones that we have going on as well, but our customers continue to ask for it. We believe just by adding AI products into our install base, there's probably about CAD 30 million, CAD 40 million of TAM just on top of that. We just continue to work our way through it.

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

Oh, okay. Well, great to hear on that one. Maybe just the last one. You talked about the good opportunities, Novari and Strata. The Ontario rollout progresses. You have got opportunities in B.C. We know sort of what the ARR was for both of those when you bought them, sort of the CAD 12 million, CAD 13 million ARR sort of range. What are your thoughts on how big those businesses could become over the next couple of years, just touching on those opportunities you talked about?

[Dan Matlow, CEO at VitalHub]

I think we have already seen some growth in our Novari products and our numbers for the first time. We expect that to continue. Yeah, I think we should be able to get that Novari product well over the CAD 20 million in ARR numbers. Strata, I think it can continue to grow, and we see another CAD 3 million-CAD 5 million in the pipeline of some stuff that could happen over the next couple years. Yeah, I think both those products can continue to grow.

[Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital]

Okay. You know what? I am going to leave it there. Thanks a lot, Dan. We will chat later. Take care.

[Dan Matlow, CEO at VitalHub]

Okay.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Kevin. The next question comes from Amr Ezzat with Canaccord Genuity. Amr, your line is open.

[Amr Ezzat, Managing Director, Equity Research at Canaccord Genuity]

Good morning. Thanks for taking my questions. Maybe switching gears a bit, Dan. You've talked about moving increasingly from individual products towards an integrated VitalHub platform. Are you guys starting to see that translate commercially into larger contract sizes or more products per customers? Maybe you can share with us if you guys track average products per customers or cross-sell penetration internally.

[Dan Matlow, CEO at VitalHub]

I wouldn't feel comfortable with data on it accordingly for it, but I do feel comfortable just with my understanding of what the markets are and the integrations that we have completed in the field and through the acquisitions that we've completed, how we've really put together a suite of products that we think correlate with each other and provide a narrative as well as outcomes when they work together that are pretty effective. AI has given us the ability to start integrating these platforms a lot more faster when it comes together. What we are going to start doing is start positioning it more as a platform with individual modules that you can procure versus the brand of the products itself. We feel that will lead to some larger transactions.

[Dan Matlow, CEO at VitalHub]

I think it's probably naive to say that there's any accounts that don't have some of the modules already built or bought either through us or through other product sets. So, you're never going to sell the entire thing at once, but they do correlate to each other, and I think from a positioning perspective, it's just a better way to describe what our capabilities is. I do think in the long run, will lead to some more revenue as we continue to grow.

[Amr Ezzat, Managing Director, Equity Research at Canaccord Genuity]

Thanks. That's good color. Given where these shares are trading, I'm just wondering, has that changed the return hurdle you guys apply to M&A? There were no NCIB purchases through September. Was that timing or blackout related, or was it more about preserving flexibility for larger M&A opportunities?

[Dan Matlow, CEO at VitalHub]

I think it's more the latter. We've continued to explore some scenarios that we've been exploring for years, but one of these days, we might surprise you, or we might not surprise you. I don't know. They're always difficult to judge. But yeah, we do think the company operationally is in a really strong position that it can absorb something of some larger size. I'm really bullish on how we're running as an organization and the processes and really we're pretty cleaned up. We got some really good metrics. We got tons of data. We understand our roles. We understand our process. We understand our integration methodologies, and I'm really bullish on our ability to absorb something of some critical size, and I do think that something would be good. But with that being said, we're not going to make a mistake as well in that respect.

[Dan Matlow, CEO at VitalHub]

We continue to look. We continue to do our smalls, our singles. We're pretty disciplined, and we continue to be disciplined. It's always been what we're all about. We just want to figure out I always said there's three ways that we make money here. One of them is through M&A, and we make money through cost absorption and really strong processes and new ARR, but that's only one side of our business, and we continue to focus on all three of them equally.

[Amr Ezzat, Managing Director, Equity Research at Canaccord Genuity]

Fantastic. Then maybe one last one for Brian Goffenberg. Just on the R&D, it was down quite meaningfully year-on-year, and I guess one of the drivers of the strong EBITDA. How much of that reflects permanent integration savings versus timing or allocation? Then for modeling purposes, is the current R&D run rate a reasonable base going forward?

[Brian Goffenberg, CFO at VitalHub]

Yeah, we're constantly trying to reduce the R&D, I think, where appropriate, remove things to Sri Lanka as much as we can. So yeah, I think we'll continue to see progress in that area. Obviously, some areas we're going to be adding as we do more work on AI. And timing-wise, sometimes it does, like this quarter, there was more costs moving because some of our people in development do work on projects, that gets moved to cost of goods. It probably continue in the same level going forward.

[Amr Ezzat, Managing Director, Equity Research at Canaccord Genuity]

Thank you. I will pass the mic.

[Christian Sgro, Head of Investor Relations at VitalHub]

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

[David Kwan, Director and Equity Research Analyst at TD Securities]

Thanks, guys. How long do you think it will take to get Buddy's margins kind of up to the corporate average, call it in the mid-20s-ish? Because I think it was running at roughly break-even when you guys acquired it. How much of that is expected to come from cost optimization, like you would probably be doing with, you have done with Induction versus probably more operating leverage like at Novari?

[Dan Matlow, CEO at VitalHub]

Yeah, it is not a big organization, right, David? So it should not take us long to get that right size. It will be through both a combination of a little bit of cost reduction and revenue generation on it. So we do It is coming with a pipeline of some interesting initiatives, plus there is more initiatives in our side of the business as well for it. So, theoretically, when you start adding new revenue, that also gets you on the margin side. So, we always look at both sides when it comes to the margin side to go do it.

[Dan Matlow, CEO at VitalHub]

The trick is not adding people once that continues to grow by absorbing it into the other areas of our business, and that is sort of what we did effectively with Novari and Induction. There is a little bit of cost reduction, but there is the revenue growth as well.

[Dan Matlow, CEO at VitalHub]

Traditionally, when companies grow revenue, they also add costs, and that is really important that we try not to do that as it continues to grow. It will be a little bit of both. Typically, we say it takes six months to a year, and probably that would be the same here. It is well in progress, and we are looking at ways to get that to its level. It is pretty small on what it is, but there is a little bit of work still to do.

[David Kwan, Director and Equity Research Analyst at TD Securities]

No, thanks. That definitely makes sense. Thanks, Dan. I guess when you look at the margins, though, if you took out kind of FX gains and losses, the margins were actually down, I think, a little bit over 100 basis points sequentially, which I assume was just due to that dilution from Buddy. Assuming there is no M&A, should we assume that margins on that front kind of improve from these levels?

[Dan Matlow, CEO at VitalHub]

Yeah. We win some quarters, lose some quarters with that, right? Sometimes it is down because of that too. We are generating cash in a pretty serious way. As I mentioned, we were low on the services side. That starts going to the bottom line immediately with it, and you got the Buddy work and the other work to do it. We are comfortable that we are going to sustain and if not improve that number on a quarter-over-quarter basis at this stage.

[David Kwan, Director and Equity Research Analyst at TD Securities]

No, that is great. Maybe just a couple more questions, maybe on the Induction acquisition. You have had that in the fold now for a year and a half now. Can you talk about maybe how the Zesty revenue has ramped, to what extent the disruption of what is going on in the U.K. has maybe slowed that growth trajectory, and how things are going with the partnership with Cerner?

[Dan Matlow, CEO at VitalHub]

I think that product continues to grow. It has exceeded expectations on its growth, and Cerner continues to do business with us. It is no effect in what is going on in the NHS. That area in terms of digitalization of the front door into the hospitals or into those organizations is a pretty prominent area within the U.K., and we are right in the middle of it.

[David Kwan, Director and Equity Research Analyst at TD Securities]

Great. Maybe one last question, just on NHS Attend Anywhere. The revenues were up a bit sequentially, albeit last quarter it was down a little bit more. How should we look at the trajectory of that? Do you still kind of expect that to decline moderately?

[Dan Matlow, CEO at VitalHub]

Theoretically, yes. Realistically, we have done a good evaluation of all the customers in there, and we got a lot of very happy customers that are using that product extensively. While there could be some limited stuff, we also see some new deals cooking on it that maybe offset some of that stuff. We will find out. All that stuff gets renewed in the March timeframe, and we will figure it out at that point in time.

[David Kwan, Director and Equity Research Analyst at TD Securities]

I appreciate it. Thanks, guys.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, David. The next question comes from Michael Freeman with Raymond James. Michael, your line is open.

[Michael Freeman, Equity Research Analyst covering Healthcare at Raymond James]

Hey, good morning, team. Can you hear me? Yes, you can. Yeah.

[Christian Sgro, Head of Investor Relations at VitalHub]

Yes, we hear you okay.

[Michael Freeman, Equity Research Analyst covering Healthcare at Raymond James]

Yes. Sorry. My question is sort of back to the NHS. You mentioned that you think you'll know quite a lot more about the outcomes of some of these dynamics of the NHS within the next quarter or so. Is there a decision point for the ICBs that's coming up, or why is it that you think you'll know more within the next several months?

[Dan Matlow, CEO at VitalHub]

They have a break clause in their contract for February of 2027 that they can exercise on the Palantir product. They have to make a decision on what they are going to do very shortly in respect to that. That is how we are going to know, Michael. They will announce what their decision is going to be shortly.

[Michael Freeman, Equity Research Analyst covering Healthcare at Raymond James]

Gotcha. Okay, thank you. On prospecting new acquisitions, you mentioned that you have been eyeing up some of these deals for a couple years now. I wonder what is it that you have been monitoring? What is it that, I guess, is maybe causing reluctance to pull the trigger? Or what is it that will make the time right to execute these deals?

[Dan Matlow, CEO at VitalHub]

Nothing. Just your normal process, and it takes two to tango. We continue to work with these organizations, and we just got to get them over the finish line.

[Michael Freeman, Equity Research Analyst covering Healthcare at Raymond James]

Sure. All right. Thank you very much.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Michael. The next question comes from Paul Treiber with RBC Capital Markets. Paul, your line is open.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Thanks, and good morning. Sorry to go back to SHREWD, but to set expectations, what is the magnitude of SHREWD in terms of the ARR currently? What did it previously peak at?

[Dan Matlow, CEO at VitalHub]

The magnitude of SHREWD is about 8% of our revenue, right? Something like that. 7%, 8% of our revenue to do it.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Okay, that is helpful. Shifting gears to a couple of other areas.

[Dan Matlow, CEO at VitalHub]

Take that back, Paul. 7%, 8% of our ARR number, not our revenue number.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Okay, yeah.

[Dan Matlow, CEO at VitalHub]

Yeah.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Shifting gears to a couple of other areas. Deferred revenue, I think it declined sequentially through the year, but it looks like it is down a little bit on a year-over-year basis. How do you think about billings? Does that relate to milestones in terms of on the professional services side?

[Dan Matlow, CEO at VitalHub]

On the professional services side, yeah, billings usually it depends on the contract, but we do have milestone based on services in a significant amount of our contracts, but not all of them.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Okay. On the expense side, G&A expenses were higher, I imagine. Is that primarily higher sequentially? Is that primarily attributable to Buddy Healthcare, or what else is in there, and what is your view in terms of driving down G&A?

[Dan Matlow, CEO at VitalHub]

Buddy Healthcare is an addition to it. We have introduced new auditors and new professional services and things like that into those equations. That is sort of where that would probably come from a relative perspective to it. But every time you do make an acquisition, you do get new G&A that comes as part of it.

[Paul Treiber, Director of Equity Research at RBC Capital Markets]

Okay. Thanks for taking the questions.

[Dan Matlow, CEO at VitalHub]

Okay.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Paul. The next question comes from Justin Keywood with Stifel. Justin, your line is open.

[Justin Keywood, Managing Director and Equity Research Analyst at Stifel]

Hi. Good morning. Thanks for taking my call. Not sure if I missed this, but is there a path to recapture Rule of 40 status in 2027 through a combination of margin or increased ARR organic growth?

[Dan Matlow, CEO at VitalHub]

Yeah, we think so. We do believe that's the case. The margins will continue to increase, and we're seeing real pipelines. We do got our bottom line back to the levels that we had two years ago, so that's definitely the start point here.

[Justin Keywood, Managing Director and Equity Research Analyst at Stifel]

Is it back half weighted, or is there going to be a gradual recapture, or any indication there?

[Dan Matlow, CEO at VitalHub]

I think if we didn't have the SHREWD scenario, the Rule of 40 company is definitely in existence here, right? That's the only scenario that's creating some of the challenges in our business. The rest of our 90-something percent of our business continues to operate in a pretty strong fashion.

[Justin Keywood, Managing Director and Equity Research Analyst at Stifel]

Okay, understood. Then nice to see the strong cash generation in the quarter and the balance sheet strength. There hasn't been any share buybacks yet. Is that something that we should expect for the rest of the calendar year?

[Dan Matlow, CEO at VitalHub]

That potentially could be happening, where it's there for a reason, and it just depends on what we got going on the M&A side versus share price and where we think the best value is meant for the money. But it's in place, and we meet regularly as a board to chat about that, and we'll continue to do that.

[Justin Keywood, Managing Director and Equity Research Analyst at Stifel]

Thank you very much.

[Christian Sgro, Head of Investor Relations at VitalHub]

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

[Dan Matlow, CEO at VitalHub]

Yeah, thanks, everyone. I think the overall message to everyone is the business model's always been go make money first and continue to go, and we continue to do that. I'm still very bullish on our product sets and what they have and what is going on in the marketplace and the adoption that we continue to get. Our view is that will continue in a pretty serious fashion. We continue to move forward and onward and upward to Q4.

[Christian Sgro, Head of Investor Relations at VitalHub]

Thanks, Dan. This now concludes

[Dan Matlow, CEO at VitalHub]

Thanks, everyone. Bye-bye.

[Christian Sgro, Head of Investor Relations at VitalHub]

This concludes today's call. Thank you all for joining. Thank you.

[Dan Matlow, CEO at VitalHub]

Bye-bye.

Participants

Analysts

• Christian Sgro, Head of Investor Relations at VitalHub
• Brian Goffenberg, CFO at VitalHub
• Dan Matlow, CEO at VitalHub
• Gavin Fairweather, Managing Director and Co-Head of Institutional Equity Research at ATB Cormark Securities
• Doug Taylor, Managing Director and Equity Research Analyst at National Bank Financial
• Kevin Krishnaratne, Director and Equity Research Analyst at Scotia Capital
• Amr Ezzat, Managing Director, Equity Research at Canaccord Genuity
• David Kwan, Director and Equity Research Analyst at TD Securities
• Michael Freeman, Equity Research Analyst covering Healthcare at Raymond James
• Paul Treiber, Director of Equity Research at RBC Capital Markets
• Justin Keywood, Managing Director and Equity Research Analyst at Stifel