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. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings press release and 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 our CFO, Brian Goffenberg, to go over financial highlights for the quarter. Over to you, Brian.
Thanks, Christian. Good morning, everyone. Thank you for joining the call today. We are pleased to report results for the first quarter of 2025. For the three months ended March, we added $1.8 million of net new organic annual recurring revenue and delivered adjusted EBITDA margins of 26%. We're happy with these results. We are steadily building scale in terms of revenue and cash generation, and our cash balance at the end of March was CAD 91 million with no debt. I'll now provide more detail on our first quarter operating performance. Our annual recurring revenue was CAD 73.7 million to close the quarter, an increase of 54% over the prior year. Over the previous year, organic growth contributed 14%. In the first quarter, total revenue was CAD 21.7 million, an increase of 42% year- over- year.
Recurring revenue, or the term license, maintenance, and support segment, was CAD 18.3 million, or 85% of revenues. This compared to CAD 12.5 million, or 82%, in the prior year period. Perpetual license revenue was CAD 200,000 in the quarter, an increase from CAD 100,000 in the prior year period. Our services, hardware, and other revenue was CAD 3.1 million in the quarter, an increase of 19% year- over- year. Our gross margin was 80% of revenue as compared to 81% in the prior year period. Net income before taxes was CAD 1.5 million compared to CAD 2 million in the prior year period. Adjusted EBITDA for the quarter was CAD 5.6 million, or 26% of revenues, compared to CAD 4 million, or 27% in the prior year period. Turning to the balance sheet, and as previously mentioned, as of March 31, 2025, we had cash on hand of CAD 91.2 million.
We have no debt currently and have borrowing capacity of up to CAD 65 million. In the first quarter, we completed a bought deal financing for a total net proceeds of approximately CAD 32 million. With our stable quarterly cash generation, we continue to build capacity for M&A. With that, I'd like to hand the call over to Dan for an update on the business.
Thanks, Brian. Yeah, I think we only met five weeks ago, so in terms of changes, we're probably talking about minimal. Yeah, we'll talk about the first quarter results and talk a little bit about Induction and an M&A update going forward in terms of what we see in terms of the marketplace. Yeah, we're happy with the quarter results. It's as we anticipated. Going forward, we hit the mark on our guidance in respect to ARR with CAD 1.8 million, and we're progressively working on synergistic value with both Strata and MedCurrent, and both of those are proceeding, and both of those contributed to the quarter. We are making some progress on our cost rationalization of both those organizations, but still have a fair amount of work to go in respect to that. We continue to work forward. We're very happy with those acquisitions.
Both of those, I think, are in a sweet spot of where healthcare is today, with referral management being a very important aspect of where things are going on. And MedCurrent is right in that area of referral management in terms of imaging referrals and how that works in the whole ecosystem. Both of those organizations have footprints internationally, and we're integrating it into our U.K. sales group as effectively as we can, and we're continuing to work on that. Yeah, we're happy with those results. We continue to move forward into the next quarter, and we think we're in a good position with our cash balance and our pipelines and our programs coming into place. A little bit about Induction. We're still not in a position in a regulatory fashion to really give much information on that.
The vote is happening, I think, on Monday for that, and we expect the process to continue to move. I think we will probably close that transaction in early July or end of June, somewhere in there, in the timeframe. I think we gave a little bit of later guidance with that, but I think this is where we're seeing things moving in the proper direction for that. Again, I think we explained the Induction acquisition for us is mainly focused on that Zesty Solution. It's an entry point into the ecosystem with a patient portal. It's a very key engagement, a key component of a patient engagement platform. We see synergistic value in many of our products that do have patients that come into the EHR systems and schedule appointments, but we really don't have a front end for that.
Things like our Treat product and our Diamond product in the U.K., we see synergistic value with our MyPathway offering as well as our pre-operative-based assessment synopsis. There is value in its ecosystem. They have an OEM deal with Cerner in the U.K. marketplace, so every new Cerner deal that happens in the U.K. uses the Zesty product. There is a significant amount of Cerner implementations that are underway, where Zesty has not come in yet, but they will be coming into those implementations as those implementations get closer to going live. That is the main ingredient we like about the Zesty product. In terms of M&A, we are really busy. We are seeing some stuff going on, both Canada, the U.K., and Australia and abroad, and we are working small and some pretty significant acquisitions in the framework.
We expect in the near future, depending on how things are going, to be able to announce some more transactions, and we continue to move on that as our business model would suggest. We are excited about how things are moving along, and we keep going. I would like to turn things over to Christian to see if there are any questions at all.
Perfect. Thanks, Dan. We'll now open up the line to questions from analysts. Again, please press star one or use the raise hand function if you'd like to ask a question. Today's first question comes from Gavin Fairweather of Cormark Securities. Gavin, your line is open.
Oh, hey, thanks for taking my questions and congrats on the strong quarter. Maybe just to start, I noticed the quote in the press release around M&A valuations on smaller deals starting to improve. Maybe Dan, you could just touch on the deal environment, elaborate on what you're seeing, maybe both on the smaller end and then as well as the bigger transactions.
We're seeing some smaller companies that are in a potential distressed mode. There's not much capital roaming around, and the owners are looking for alternatives to do that. We're seeing that on some of the bigger deals too, where they're not getting much capital and they're making transactions. Yeah, depending on those environments, I think the valuations would be reflected accordingly. With that being said, we're still seeing for some larger deals that are performing well and got good upside portfolio, it still is attracting the proper buyers, and valuations in a competitive process still sometimes get bid up. There's no real rule again to Gavin. Nothing's really changed, but I do sort of sense a little bit of on the smaller side, some of those transactions struggling a little bit more, and we're in a better position to get them.
That's great. Maybe just on the bookings that you saw in the first quarter, can you just describe kind of the mix or any trends in terms of products which were quite popular and had a lot of sales in the quarter or anything that you saw regionally? Also, any change in the environment at the NHS?
Yeah, I think in the quarter we had, we continue to see an increase in the user counts on both the ORIOL platform, on HiCom, on the workforce management system, as well as the Treat platform in Nova Scotia. Quarter over quarter, the user counts continue to grow in both those quarters. We continue to see value that gets corresponded with those two products. We did see some deals on the transforming side, and we did see a little bit of Treat work, although Treat did not contribute to the quarter as it has in the past. I do not think that is any indication of stuff. It is just the way things are moving, and there is still a significant amount of Treat deals in the pipeline that we are working on. We did see some really good contribution from MedCurrent in the quarter.
We did see, I don't know, a bunch of transactions in the NHS that did correspond with that. It is really the mix. Again, we do see little stuff from all the other platforms are contributing in some ways. In terms of the NHS, that is still early days of what is going on. We do anticipate changes going there. We know that the ICBs are going to be reduced and going into a regional-based group. We think that could potentially help us because we got footprints in most of the ICBs. When they integrate into a regional group, there could be some ICBs that do not have Treat, I mean, Treat, and there could be some growth from that perspective. With that being said, when there is change, people are still wondering what is going on, and they could be sitting on their hands and so forth.
Our concern really is not that budgets are not going to be available. Our concern is just the mix-up of the new structure and how it is all going to work and delays that could come from procurement that get associated with that. So far, we have not seen that. There is still a demand for the products, and there are still people finding ways to get things done. We are in a little bit of a cautionary mode in terms of what that impact will be on a temporary basis. If anything happens, we do think it will be temporary because at the end of the day, they are still looking for these solutions, and we are in the mix of it.
I appreciate that color . Lastly for me, I know the vote for Induction is on Monday, but let's just assume that that comes into the fold, I guess, late in Q2, early Q3. You're going to be pushing up on being a bit over a CAD 100 million company. Maybe you can just discuss kind of the organizational structure as it is now, how you're thinking about evolving it further over time, given the bigger breadth of the company, any tweaks that you need to make, and whether you have enough resources looking at M&A and governance, those types of things.
Yeah, I think we've been progressively adding in terms of our group. We got a security group, and we got a pretty good central IT group that's pretty large now, and we have a governance privacy team that's been put together over time. We have a centralized operations group that manages all the software and manages all the integrations of the company. I think we are set up to do that. Will we do this as quick as we did before? It depends how we're backing up the transactions and how we're doing, but we're definitely getting quicker at integrating the companies. I think we're in fine shape to do it. Every time we do this, there's usually a challenge, but we've gotten a lot better at it, and the team is ready to go. We do have an integration plan ready to go for Induction.
We've had time to build it, and we got to I think we do got some ideas of the changes that we want to make, although we need to ratify that once we get in there and see the operations a little bit more in depth. We think we do got a pretty good idea of some of the things that have happened there.
Thanks so much. I'll pass the line.
Thanks, Gavin. The next question today comes from Doug Taylor of Canaccord Genuity. Doug, your line is open.
Yeah, thank you. Good morning. I just want to maybe push a little further on that last line of questioning regarding Induction. I think you did a great job outlining the opportunity in terms of top-line synergies and cross-sell potential. As you say, you've got a plan about the integration roadmap there. Given where Induction stands right now in terms of profitability, I wonder if I could get you to maybe expand a little bit more on how you expect it to contribute to profitability as it gets folded into the VitalHub ecosystem in the coming months.
Yeah, I think we got some work to do there for sure. I think if you read the statements and so forth that we put in for the regulatory work and that stuff, we do mention that there will be a 15%-25% staff reduction in the organization. We are going to proceed to execute that plan pretty quickly in regard to that plan and put that in place. We do have plans to do that. It is a public company today, and it will not be a public company after we are completed. A significant amount of those costs go away with being a public entity. We do think there are more synergies with respect to G&A and other aspects in the technology groups that can be unlocked with those organizations in a pretty timely fashion. That is what our goal is.
Maybe to frame that up differently or maybe ask the question a little differently, you've previously talked about the objective with your M&A program of getting assets to a sort of corporate or average EBITDA margin of 20% over a four- to six-quarter time frame. Is there anything that you think stands in the way of you doing that with Induction as well?
I don't think so. You never know until you actually go in there and see what's going on and how things are put together, although we've done a significant amount of due diligence there on where it goes. We wouldn't have completed the transaction if we didn't think we could do that. We're off and running to execute the plan. You never know until you do it. Yeah, I don't think—I do think we wouldn't have did it if we didn't think we couldn't do it.
Okay. Moving beyond or, I guess, excluding the Induction impact in the coming months, you say that Strata and MedCurrent integration pace, I mean, that's been a positive surprise here for the last couple of quarters. You said you still got a fair amount to go with respect to optimizing that cost profile as well. Can I get you to maybe frame up what you think remains on the table there as we think about the margin ramp into Q2 and the second half of this year, excluding Induction?
Yeah, it's hard to say in terms of what the speed of that will be, but we progressively are doing synergies just at value with our salespeople. We're looking at we are ramping up teams in Sri Lanka for both of those organizations. We're consolidating our G&A profiles, and it still hasn't been completed. Yeah, there's still a significant amount of work. I'd hate to put a dollar figure on that, but there's still work to be done there.
Okay. I won't push it further then. Thank you. I'll pass the line.
Thanks, Doug. The next question comes from David Kwon of TD Securities. David, your line is open.
Hey, guys. Curious if you're seeing much impact given what's going on from a macro perspective, trade wars, considering the potential recession here, impacting what you're seeing in either the M&A environment or maybe customer purchasing behavior.
Yeah, I don't believe that trade war. We're talking about a software services business for government-funded base healthcare. There's no goods in certain and we don't work in the United States, at least minimally. So all of our trade is in other countries, and it's all software-related. We haven't seen any impact of that. No, there's impact from other things, but there's no impact from that.
How about from an M&A perspective? Are you seeing just more tangentially just the potential impact of a slowing economy because of a slowing economy perspective?
Yeah, I think what we've seen is trend since after the COVID boom, right? I do think the I think Induction is an example of things. You got an organization there that was built during the boom, and it moved along and raised a significant amount of capital at a high valuation and had aspirations to grow in a pretty serious way and could not get there to the degree that it thought it could from an investment perspective and changed hands and so forth. You get a bit of a legacy in terms of your mindset and how you work, and you get yourselves into some challenges that go along with it, right? You are put in a position that you have to actually sell at a valuation that you probably did not want to, but you really got no choice.
That's an example of, I think, what can happen in the tech world. I don't think that is insular to the healthcare tech world. I think we see that in a lot of the SaaS-based products that maybe overdid it during that boom and have lasted till now but are now in a position where they can't actually go any further and need to look for a strategic scenario to keep going.
That makes sense. Thanks. Thanks, Dan. I guess what's happened with Induction maybe is somewhat similar to some of the other opportunities you're seeing from an M&A standpoint when it comes to smaller players. Are you seeing more competition because the pricing is getting more attractive, albeit because these smaller companies maybe are a bit struggling, so there's more work that needs to be done?
Yeah, I don't think you, I think when you get scenarios like that, it turns away competition more than, I think, competition you're going to see in more of the healthier companies. These other companies, we're in a unique position to actually do transactions with these smaller groups because we got the infrastructure and the teams in place to still operate these companies. I don't think competitive offerings do have that ability. Yeah, we get those scenarios for sure.
That makes sense. One last question for me. Just in terms of the bandwidth, I know you kind of touched on it in terms of your team and adding in certain parts of it to help with the integration, I think, in particular. Looking at your pipeline right now, looking at the opportunities that are out there, how many more deals do you think we could see over the balance of this year? More specifically, I guess, I think you could probably do a lot of these smaller deals, but for potential kind of Strata-type deals, how many of those could you possibly do this year?
We've got a mixture of big and small going on, and some of them are in our world are significant, right? We are looking at it from both sides. Yeah, I think we can do two, three, four deals still this year.
That's great. Thank you.
Thanks, David. Next question comes from Kevin Krishnaratne of Scotia Capital. Kevin, your line is open.
Hello. Good morning.
Hey, Kev.
Awesome. Hey, guys. Hey, thanks. Congrats on a good quarter. The ARR looks solid, I think, for Q1, one of the higher marks for Q1. I'm wondering if you can talk about what you're seeing so far in Q2, anything kind of popping out. It's a little bit over a month here. Do we expect the same sort of seasonality, a lower organic figure in Q2? I think that's normally been the case. Just can you just talk about sort of what you're seeing right now?
Yeah. Our indications suggest that Q2 should still be okay and hitting the mark in terms of what our rationale is. Yeah, we feel okay with that in respect to some of the transactions that are in play in respect to that. From our perspective, it's still in play.
Outside of the ARR, your services revenue line continues to be strong around CAD 3 million. Can you just remind us again what's being booked in there and how you see that line sort of trending over the remainder of the year?
I still think we should be between the CAD 2.5 million-CAD 3 million mark on a go-forward basis. We're sitting on a significant amount of services backlog, primarily in the Treat world in Canada. We continue to get work from Nova Scotia and Solgen, and they continue to look for enhancements and are willing to pay for that in terms of moving those systems to what the requirements could be. We expect that trend to continue for a while with those two organizations. Every time we close a transaction, we do get services revenue. There is still a significant backlog of services work. Yeah, it could dip in some seasonality, I think, in the summer timeframe.
Yeah, that seems to be a challenge for us on the services world where we have a lot of holidays, or our customers have a lot of holidays, and it's hard to get the hours put in on the projects, and they sort of go into a little bit of a rest mode during those periods. Yeah, traditionally, Q1 and Q2 are good services numbers. For us, Q3 and Q4 become a little bit more challenging. That is typically how the trends work in the seasonality of that in our world.
Got it. Okay. I have another question also on the Induction. It hasn't closed yet, so maybe you can't comment too much. You talked about the Zesty platform. There's another one that they've got as well that's sort of been more in decline. Can you maybe talk about the plans there? Are you going to run that down? Are you going to try to do some investment there to keep it going? Just any high-level thoughts you can give us there.
Yeah. I think we're going to look at that as a separate platform. We don't actually view that as software ARR. We're not going to put that in our ARR figures. You'll see that being listed as a separate category called virtual platform, virtual services, because it is different from our perspective. Yeah, they did see that product came off of a national project that they got for the NHS during COVID. What happened is the NHS said, "Okay, you guys are on your own now. You need to go by yourself." Through that, they got some—I wouldn't call it churn. It's more price reductions. I think they changed from a flat model to a usage model. When they got into the usage model, the price points went down, and they had to stay in a usage model to compete.
We are seeing—and they were seeing—there is some pressure on those from things like Zoom and Teams, and we expect that pressure to continue on those things. However, it does seem to be holding up on its own, holding up in terms of what it's producing and what it's doing. There is, again, we've gone into this with our eyes open in respect to that platform, and we know the challenges that could come with it in terms of growth and sustaining its ARR. Yeah, we're going to list that as a separate platform and look at it from its separate world.
Okay. That's super helpful. Maybe just a last small one for Brian. The gross margin kind of dipped from Q4 to Q1 just slightly. I'm wondering what drove that dynamic. Is that maybe the full quarter inclusion of Strata and MedCurrent, or what were you seeing there? Anything to note? Where do you see gross margin sort of trending out over the year?
Not bey ond me. Brian.
No, I think you're correct. It is primarily from the two acquisitions. We've still got to get those costs in line, and we want to get them, obviously, north of that 80% going forward.
Cool. Thanks a lot. I'll pass the line. Thank you, guys.
Thanks, Kevin. The next question comes from Michael Freeman of Raymond James. Michael, your line is open.
Hey, good morning, everyone. Have you got me?
Yep. Hey, Michael. How are you?
Hey, things are good. Thanks for taking my question. Congrats on a strong quarter. I'm going to ask a few things about Induction as well. You sort of alluded to this, how you were going to be separating revenue within Induction between ARR and not. Based on you mentioning that the Attend Anywhere platform you're not viewing as ARR, should we be doing some rough math on last year's numbers? Does this look like less than half of Induction revenue should be considered ARR?
Yeah, probably. Yeah, based on where that is for, yeah.
Okay. All right. Now, on this OEM deal with Cerner in the U.K. marketplace, I wonder if you can confirm that this relationship will continue while Induction's under your roof. And if you view that as a major benefit to this transaction, how you might plan to leverage it or expand it into the future?
Yeah. It was a big part of the transaction, so of course, we did our due diligence on that to ensure that. I do believe it will continue. They have a significant investment by both parties to get a very, very tight integration of Zesty into Cerner. And Zesty has a very good footprint in the Cerner world in terms of understanding how that works and how that will be integrated into a front-end portal. There is a very tight integration that works there that would be very challenging for Cerner to look for an alternative solution. I do not see any reason why they should. A lot of work has been put in by both Cerner in the U.K. and Zesty in terms of doing that. There is a very good footprint of users that use it on the Cerner platform and are happy with that platform.
We expect that to continue. We do believe there's some opportunity in other markets with Cerner, or at least we're hoping there is, although we're not 100% sure. It definitely can hurt to have a strong partnership with Cerner in the U.K. and see what can be done to try to expand that in different ways in other markets. We'll for sure try to accomplish that in other markets once the transaction closes.
Okay. Thanks, Dan. When you talk about other markets, are you thinking about other geographies or other sort of software areas?
I think it's a little bit of both. I think when we integrate Zesty into our things like Induction and MyPathway into Cerner accounts. We already have InTouch and MyPathway working in Cerner accounts where Zesty has done some work. We just need to connect that plumbing up to those accounts with some tighter Cerner integration. Our hope is that we can be able to grow all those platforms into Cerner accounts even more by connecting more products to our Zesty product that is now connected into Cerner, if that makes any sense to you.
I think that makes sense.
I thought I was talking to [salesperson], but yeah.
No, no. You nailed it. Last question. It looked like we sort of had set a new high watermark for R&D this quarter. I wonder if, Brian, if this level should be something we should be thinking about as consistent through the rest of the year, or was this an irregularly high quarter?
I think a little higher. With any acquisition, we take on people. We end up with a little bit higher R&D to start off with, and then we start trying to get that down as we get synergies going forward.
Okay. Okay. So maybe a fourth- quarter level would be something we should be looking at going forward?
Absolutely. I think it would be a strive for.
Okay. Thank you. That's all for me. I'll pass it along.
Michael. The next question comes from Gabriel Leung of Beacon Securities. Gabriel, your line is open.
Good morning. Thanks for taking my questions. Yeah, I just want to dig a little bit further into the cost structure and, I guess, margins, Dan or Brian. I noticed that in your EBITDA margins, you did benefit from a, I think it's a 300 basis point tailwind from foreign currency gains. But if I were to normalize for that, it looks like EBITDA margins were down from Q4 and from Q1 last year as well. I'm just curious if that's just the timing of some of the cost rationalization you're doing, or if there are some permanent resources you're putting in place to reflect the larger scale of your business now.
It's primarily due to the timing of the acquisitions. We only did close those acquisitions later in the quarter last year. As we go forward, we will add to resources to make sure that the business is scalable.
Gotcha. No, thanks for that. Dan, I know there's obviously a big focus around your U.K. business, but a lot of your peers have talked about a very robust pipeline here in Canada as well in terms of IT opportunities. I'm just curious, you're seeing similar opportunities and how you're feeling about growth here in Canada? Also, as it relates to the Zesty digital front door, is that compatible with the Canadian healthcare system?
When you're talking about IT, talking about on the M&A side or just on the sales side?
Organic sales opportunities.
Yeah. I think our products, I think our Treat product that we go-to product with is still going. I do think in Ontario and other areas, the market has woken up since post-COVID. We're seeing a lot of initiatives that started prior to COVID, at least in Ontario, where they set up a group called Ontario Health right at the beginning of, I think, the Ford world. COVID hit, and those guys were so busy with COVID that really there were no new initiatives that were going on in that period. We are seeing new initiatives that are moving through that, and we are seeing funding that continues to go on and programs that the government is giving to the hospitals and the groups, giving them funding to purchase software. We are still seeing more initiatives that are going through those systems.
We're also starting to see some of the early Epic and Cerner implementations in Canada that were adopting those solutions, starting to notice that those solutions aren't delivering all the components that are needed, and they're starting to go back to work on looking at peripheral-based solutions. We're still seeing deals flowing in Canada, and it's still moving. I still like to caution, even to our peers, you are talking about Canada. It is segmented by the province. It is still a—it's not the biggest ham in the world. You still get challenges in terms of your growth in this marketplace. We do see some increased stuff.
In terms of Zesty, we didn't bank on our ability to move that to other areas, but we do think—I personally do think that there are some opportunities to explore Zesty in terms of a portal, especially in the Cerner world and other worlds in the Canadian marketplace. We do see an opportunity of adding that to some of our existing products, like our Treat product and so forth, that we're just starting to embark on that portal-based world. Using third-party, it will save us some costs in terms of putting Zesty into our own products as well, where we require portals. As we make acquisitions that might not have a strong portal, Zesty could offer that as a solution on a go-forward basis as well. We do see strategic value there.
That's great. Thank you for the feedback, and congrats on all the progress.
Yeah.
Thanks very much, Gabriel. There are no further questions at this time. I'll hand the call back to you, Dan, for any closing remarks.
Yeah. Again, we just met five weeks ago. I think the questions were pretty comprehensive. The next time we meet, we'll have Induction closed and be able to get better light on those numbers, I think, than we're giving right now. We are a little bit constrained in respect to that. We are looking forward to moving on, and time's flying. Someone said you're already into Q2, which we are. We look again to meet with the group, I guess, in the August timeframe. In the meantime, I'm sure many of the analysts and investors will reach out to us in terms of updates, but we're always available to answer questions. Thanks, everyone.
Yes. That's great, Dan. Thank you. This now concludes today's conference call. Thank you all for joining.