Vitalhub (TSE:VHI) reported a higher third-quarter profit and its strongest adjusted EBITDA margin in two years, even as revenue remained flat and uncertainty surrounding its SHREWD business weighed on annual recurring revenue growth.
The healthcare software company posted revenue of CAD 31.9 million for the third quarter of 2026, in line with the year-earlier period. Net income was CAD 2.6 million, compared with a net loss of CAD 900,000 a year earlier, Chief Financial Officer Brian Goffenberg said on the earnings call.
Adjusted EBITDA rose to CAD 8.6 million, or 27% of revenue, from CAD 7.2 million, or 22%, a year earlier. Goffenberg attributed the improvement primarily to lower research and development expenses, integration synergies from Induction Healthcare and Novari Health, and a favorable foreign exchange impact.
Annual recurring revenue, or ARR, stood at CAD 107.2 million at the end of September, up 14% from a year earlier. That included 8% organic growth and approximately CAD 4.5 million from the July acquisition of Buddy Healthcare.
Recurring revenue grows as services decline
Recurring revenue rose to CAD 25.8 million from CAD 23.6 million, accounting for 81% of total revenue compared with 74% a year earlier. Services, hardware and other revenue fell to CAD 3.7 million from CAD 5.5 million, while perpetual license revenue declined to CAD 100,000 from CAD 500,000.
Goffenberg said services revenue was seasonally lighter over the summer, compared with elevated project activity in the prior-year period. Gross margin was 79%, down from 81%, reflecting the timing of services revenue recognition and allocations among development, operating expenses and cost of sales.
Chief Executive Officer Dan Matlow said the services backlog had never been stronger, but revenue recognition depends on project milestones and can be uneven. He said more milestones should be reached in the fourth quarter, when customer involvement typically increases, although he did not quantify the backlog.
Cash provided by operating activities was CAD 23.9 million in the first nine months of the year, up 69% from the prior-year period. VitalHub ended the quarter with CAD 129 million in cash and short-term investments and no debt.
SHREWD uncertainty remains
Matlow said ARR increased by more than CAD 800,000 during the quarter and would have grown considerably more without suspensions and uncertainty involving SHREWD. He described the business as fragile while the company waits for clarity from the U.K.’s National Health Service about its direction on the federated data platform, or FDP.
Customer decisions have been difficult to quantify, Matlow said, with some suspending accounts, some reversing suspensions and others renewing after initially indicating they would not. Funding sources for renewals have also varied.
Asked about SHREWD’s size, Matlow initially estimated that close to CAD 10 million of revenue remained across different parts of the business, while cautioning that it was difficult to determine which accounts were at risk. Later in the call, he estimated SHREWD represented about 7% to 8% of the company’s ARR. He said suspended accounts had been removed from ARR in some cases but not others.
Matlow declined to predict the outcome of speculation about the FDP’s future. He said VitalHub was speaking with potential alternative consortiums, but had not seen an NHS report confirming an extension. He also said a break clause in the contract for the Palantir product falls in February 2027 and that a decision should provide more clarity.
Product integration and acquisition plans
Matlow said VitalHub is integrating its patient flow and care coordination products more closely and plans to market them increasingly as a platform with individual modules, rather than primarily under separate product brands. He expects that positioning could lead to larger transactions over time, although he did not provide cross-selling or average contract-size data.
The company has introduced an AI transcription product for TREAT and is seeing interest in a protocoling product in the Novari suite, Matlow said. It is also developing AI capabilities for its MedCurrent and MCAP clinical decision support products. He estimated a potential market of CAD 30 million to CAD 40 million from adding AI products across the installed customer base, while noting that the opportunity had not been fully quantified.
In Canada, Matlow said the imaging portion of an Ontario rollout had gone live and work on other pathways was expected to continue through 2027. He also cited activity in British Columbia, the Maritimes and the U.S. for Strata Health and Novari Health.
VitalHub continues to pursue acquisitions, including larger opportunities, Matlow said. He said the company’s lack of share repurchases through September was more about preserving flexibility for potential acquisitions, though buybacks remain possible depending on acquisition activity, the share price and the board’s assessment of value.
On Buddy Healthcare, Matlow said margin improvement would likely come from a combination of cost reductions and revenue growth. He estimated the process would typically take six months to a year, with integration work already underway.
About Vitalhub (TSE:VHI)
VitalHub 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.
