VitalHub Corp (CVE:VHI) (FRA:6OV) provides EHR and mobile healthcare solutions. CEO Dan Matlow updates viewers on the integration and commercialization of recent acquisitions H.I. Next Inc and B Sharp Technologies Inc. Matlow shares details of a new deal between VitalHub and the Province of Nova Scotia. VitalHub is helping Nova Scotia transform its social services by creating an integrated platform for the province. The initial contract is for 5 years with the possibility to extend for an addition five years. The base transaction will provide $9 million in revenue for VitalHub with the opportunity to expand service offerings and increase funds. VitalHub is looking to secure similar deals with other regional and provincial governments. The company’s 2019 plans include further acquisitions and possible European expansion.
James West: I’m here now with Dan Matlow, CEO of VitalHub, trading on the TSX Venture under VHI. Dan, welcome back.
Dan Matlow: Thank you, thanks for having us.
James West: Yeah, it’s been a while since we’ve chatted. Tell me what has developed for VitalHub in the last little while since we talked.
Dan Matlow: Oh God, I think we’re getting close to nine months to a year; I can’t remember exactly. We’ve made a great amount of progress since the beginning. You know, we had a business plan that was setting out to do some M&A in the healthcare/IT space, primarily focused on the mental health community agency space, and we did our first two acquisitions that have been integrated pretty effectively – a company called B Sharp and another called H.I. Next, and then we’ve added three other additional small acquisitions meant to us.
So we’ve progressively been integrating the companies very effectively, and we’re showing the results accordingly for it.
James West: Okay, great. So then you announced a five year deal in the province of Nova Scotia; what does that mean for the company’s revenue structure?
Dan Matlow: You know, as I said, we integrated all the companies, and that particular transaction came through a company called H.I. Next. Their product is called TREAT; it’s an electronic health record for mental health and community agencies. Nova Scotia started embarking on a journey to transform their social agencies, so their company called Department of Community Services has been going through a transformation project for about two years, and came to the conclusion that they wanted to transform and get one cohesive technology set that would do everything for the entire department.
So they went through a pro camera process, issued a request for proposal, in which we bid on using the TREAT particular software. I think, we don’t know exactly, but we’ve competed through some pretty large organizations, brand name organizations that would be, you know, multi-billion-dollar multinational based organizations. We got shortlisted, went in, did the presentations, and we won the business.
James West: Great.
Dan Matlow: So the transaction is a five year initial term with an option to extend to five years; we fully expect based on that it’ll be a ten-year project. It’s close to the $20 million rank over a 10 million period, but published a $9 million procurement for the first five years.
James West: So, $9 million bottom line to VitalHub.
Dan Matlow: $9 million worth of revenue, and upon implementation. It’ll take us a little bit of time to get implemented, so we initially there will be some licenses revenue and some recurring revenue that come along. There will be some services revenue as we build out the system. There’s pretty well 80 to 85 percent built but we need to do some tweaking for the particular province, but once we get full deployment, we expect that to be about a $2.5 million recurring revenue stream that’s going to come into the organization. So, very material based.
James West: So how many deals like that are you going to do in 2019 do you think?
Dan Matlow: We’ve got others that we’re working on, on a provincial nature. We can’t give any disclosure but we are seeing the trend, and Nova Scotia, by the way, there’s still expansion in that deal. That doesn’t include all the services. We expect there’s more services that we can go build over those years, so that’s the initial based transaction.
But we are seeing trends. We do have a very good install base of product across the country already in piecemeal effects, but we are seeing trends to do regional and provincial-type transactions. So we are starting to see organizations say Hey, we’ve got these piecemeal based systems; how do we integrate them all? How do we do those type of base systems?
So we’re excited. We think we’re in a good position. It doesn’t move overnight in government, but we do expect to see some indications of that as years go on.
James West: Okay, so how does the competitive landscape look in this sector generally, now? I mean, I haven’t heard of too many other companies coming along to do what you do.
Dan Matlow: You know, mental health community services is a newer-niche based marketplace in the health are sector. We have by far the largest footprint in Ontario, and, I think, in the Canadian marketplace, and there’s still a long way to go in terms of that footprint, and we are thinking of doing some other scenarios internationally as well.
So you know, different provinces have different requirements, but we got footprints in those provinces. So we’re a Canadian- based organization, but other footprints will be American or other based organizations, but other Canadian-specific content that needs to go into these things. So we think we’re very well positioned into that market.
James West: Okay. So what is the sort of the global growth strategy for the company long term?
Dan Matlow: The global growth strategy hasn’t changed. So our mandate is to make M&A acquisitions, so we’ve done five, we’re looking at others right now in this sector and other sectors we’re familiar with.
The next one we’d like to do, which, you know, knock on wood, we think we’re getting close to, is on an international basis. So we want to get something that is outside of the Canadian marketplace, primarily in the European marketplace. So we’re looking at expanding; we want to expand our footprint internationally into other sectors. So we’re looking at that, to do that.
As some of our people have understand, we have an offer development group, so we have an offer development group in Sri Lanka which we’ve built up really nicely, and it really creates a cost effective, and not just cost effective, they’re really good developers, that can develop technology and do some work out in those marketplaces. So as we make acquisitions, it allows us to expand our technology set in a cost effective way. So we do those acquisitions, and doing that. So 2019, do we want to do more acquisitions? That’s the first part.
The other part is, we think we’re really good at commercializing assets. So as we get assets and we say hey, we think these are really viable, we think we can sell those things, then we’re going to put our marketing and our sales efforts into those things and start expanding that. And Nova Scotia is a really good example of that. You know, we took an organization that was doing $3 million in revenue and in one transaction got a, what did we get, a $20 million transaction based off of their technology set. So we’re constantly looking at expanding and building on those commercialization efforts.
James West: Wow. So then if you were to say there’s a number globally that you could go for in terms of the market value of the whole opportunity, what would that be?
Dan Matlow: Oh, it’s hundreds of millions. It’s the mental health space in particular is just a growth-based sector, but we’re looking at other sectors. We are familiar in the patient flow world, which is the concept of moving patients effectively through hospitals on a cost-effective patient to free up beds – that’s the next sector we’d really like to get into, and we’re really looking at some of those areas as well.
James West: Fantastic. Okay, so what would you saw is going to be the biggest growth driver for 2019 and beyond?
Dan Matlow: M&A, and expansion. So bigger, larger provincial deals. We’ve still got our cookie-cutter, you know, one-off deals that are going to keep coming in place. So we’re constantly going to get those deals and put them through, and we’re looking to go add larger based deals. And then we’ll start making some, layering on some acquisitions for those things. We really want to get outside of the Canadian and US marketplace and start getting some expansion internationally and start getting some distribution channels done; but you know, we’ve set up the framework, we’ve set up the foundations so far, and now we’re looking to, you know, expand through M&A and through those acquisition strategies.
We want to get cost-effective M&A, we want, you know, win-win situation for the targets as well as us. We tend to use a little bit of currency and cash through there, but we’re starting to see that these things still hitting our bottom line as the deal starts coming through and the acquisitions start coming through.
So we’ve been profitable on adjusted EBITDA for the past two, three quarters, we expect that to continue, and we, you know, we expect to improve on that bottom line as we continue to grow.
James West: All right. Well that’s great, Dan, thanks for the update. We’ll leave it there for now, we’ll come back to you soon.
Dan Matlow: Yeah, yeah, we’ll sit there, we got some more news, and we’ll come back and talk to you guys again.
James West: You bet. All the time.
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