Beacon Securities analyst Gabriel Leung reviewed the latest quarterly results from VitalHub (VitalHub Stock Quote, Chart, News TSXV:VHI) in an update to clients on Tuesday, saying the healthcare tech company is well-positioned for 2020 and beyond.
Toronto-based VitalHub develops and supports web, mobile and electronic healthcare records solutions for organizations in the acute care, mental health, community health services and long-term care sectors.
The company announced its fourth quarter and year-end financials on April 24, posting revenue up year-over-year for the Q4 to $2.56 million from $2.22 million a year earlier.
For the year, revenue grew to $10.23 million from $9.11 million in 2018.
“We are happy with the Fiscal 2019 results, reflecting the hard work we have undertaken in transitioning to a revenue base that is primarily comprised of recurring revenue- based software products,” said CEO Dan Matlow, in a press release. “We are now producing cash from operations, and with cash on hand from our recent capital raise we look forward to continued growth through acquisitions and our ongoing organic growth.”
Over the fourth quarter, VitalHub completed the acquisition of Oculys Health Informatics, which supplies operational analytics tools for hospitals, with about 18 customers in Ontario and Manitoba. Also of note, the company entered into a partnership with Ernst and Young to provide healthcare intelligence using its MCAP platform for a Middle Eastern client.
On the quarter, Leung said the $2.56 million in revenue was equal to the analyst’s estimate of $2.54 million, while EBITDA of $120,000 was under Leung’s $287,000 estimate.
The analyst noted that relative to the previous quarter, EBITDA margins dropped from 14.3 per cent to just 4.7 per cent due in large part to higher-then-usual operating expenses. Leung expects margins to head north again for the Q1.
On the Oculys acquisition, Leung pointed out that the quarter contained only a month of contribution, which showed revenue contribution of $383,000 and roughly break even EBITDA.
“Looking forward, we believe the company has relatively good earnings visibility thanks to its $7.43 million annual recurring revenue along with a backlog of business which includes larger contracts like the five-year, $9 million contract with the Province of Nova Scotia Department of Community Services, which is currently in deployment,” Leung wrote.
“That said, we believe there could be some volatility in non-recurring revenues given the COVID-19 situation (particularly as it relates to on-premise work). However , we believe that any potential delays to deploying the backlog or booking new business is temporary. We expect IT healthcare spending to be a priority coming into and out of the COVID-19 pandemic,” he wrote.
With the update, Leung has reaffirmed his “Buy” rating and $2.80 target price, which at press time represented a projected return of 47 per cent.
With its large cash balance —VHI ended the year with $2 million in cash against $1.6 million in debt— there should be more M&A activity ahead, according to Leung, who added that there could be more upside to his target once more visibility comes on the company’s near-term acquisition pipeline.