VIQ Solutions Reports First Quarter 2020 Results and Updates 2020 Outlook

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PHOENIX, ARIZONA, May 7, 2020VIQ Solutions Inc. (“VIQ” or the “Company”) (TSX Venture Exchange: VQS and OTC Markets: VQSLF) a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, today reported financial results for the first quarter 2020 and updated its 2020 outlook.  Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards (“IFRS”).

“We completed another great quarter achieving several milestones against our long-term strategy to significantly increase and improve revenue quality, migrate our clients and our workforce to our proprietary technology platform, and, advance our capital markets journey,” said Sebastien Paré, VIQ President and CEO.

“Recurring revenue grew by 31% in the quarter, positive EBITDA was generated, and we closed a number of important organic wins, bolstering our client base. We added two new accretive, non-dilutive acquisitions and a fourth growth vertical to our portfolio of B2B customers. Conferencing, Finance, Media and Political digital content, strategically diversify equally, our long-term recurring and organic revenue.”

“We also reported a rolling backlog of $3 million in new SaaS Technology orders which further supports the accelerated digital transformation underway within our markets,” said Mr. Paré.

Key First Quarter 2020 Financial Highlights include:

  • Revenue of $7.5 million increased 19% quarter-over-quarter,
  • Recurring revenue increased 31% from $5.5 million to $7.2 million, which represents 96% of total revenue,
  • Generated 72% of revenue in the United States, 26% in Australia and 2% in EMEA and Canada,
  • Gross profit of $3.2 million represented 42.8% of revenue versus 47.8% of revenue in the prior year. Lower gross margin was due to the impact COVID-19 on our Courts vertical which usually produces higher gross margins plus the impact of FX. Additionally, Q1 2019 gross margin of 47.8% included hardware sales that were not repeated in Q1,2020. As previously stated, VIQ is not pursuing hardware sales, instead is working with its partners to fulfill hardware orders in the future.
  • EBITDA and Adjusted EBITDA were $0.6 million, representing an increase of 86% year over year,
  • Excluding the impact of this one-time non-cash interest charge, inducement charge and notes revaluation expense related to the convertible note, the net loss per share in the first quarter of 2020 was $0.06 as compared to nil in the first quarter of 2019,  

“During the quarter, we also converted $6.4 million in convertible debt to equity with strong support from all Noteholders for an early, non-cash, exercise of the Note. This allowed us to optimize our capital structure, increase stock liquidity, strengthen our balance sheet and is in alignment with our shareholders,” said Alexie Edwards, VIQ CFO.

Key First Quarter 2020 Business Highlights include:

  • Completed two accretive acquisitions of leading U.S. documentation transcription service providers in February comprised of ASC Services LLC of Washington, D.C. (“ASC”) and wordZXpressed, Inc. (“WordZ”) of Atlanta, Georgia for a total of $11.6 million.  The two acquisitions are expected to add annualized revenue of approximately $12 million,
  • On a proforma 12-month basis, VIQ’s annualized recurring revenue is now approximatively $37 million excluding organic growth and future acquisitions. The two acquisitions were funded through drawdowns of approximately $4.4 million in debt, $1.2 million in promissory note and $6.0 million to be paid in earn-outs to acquired company management,
  • Added approximately 90 additional clients organically and through acquisitions,
  • Further migrated a significant percentage of US and Australian customers into NetScribe™, powered by aiAssist™ and transitioned the workforce to become industry specific editors,
  • VIQ’s $55.4 million total enterprise value at March 31, 2020 was comprised of market capitalization of $43.8 million, and net debt of $11.6 million, comparing favorably to enterprise value a year ago of approximately $37 million comprised of market capitalization of $25 million plus net debt of $12 million. (Note the net debt balance at the quarter end was slightly lower than previously reported due to foreign currency translation adjustments.)
  • Stock market liquidity volume of approximately 1.2 million shares for the period of January 1 to March 31, 2020 increased approximately 118% over the same period in 2019. Second quarter 2020 volume run rate is on course for annual record volume, tradable on more than thirteen North American exchanges.
  • Year-to-date stock market liquidity (through May 6th) volume and price increased significantly.  Traded volume, across all markets, grew to 3.2 million shares, up 450% versus the prior year.  The Company’s volume weighted average price (VWAP) was CAD$3.43 (US$2.44), up 35% versus the prior year.  Equity dollar volume increased to CAD$11.0 million (US$7.8 million), up by 600% versus the prior year.

 “We should again achieve record revenue, gross margin and EBITDA results this year despite the global pandemic impact. We cautiously adjusted our topline to reflect events in Q1 and we protected our income guidance by qualifying for and receiving $2.5 million in wage subsidies in our key markets.  We expect that, depending upon market conditions, we will qualify for an up listing to a major national US exchange by end of 2020 or during 2021,” stated Mr. Paré.

Outlook FY 2020

  • Considering known Covid-19 impacts from Q1, VIQ announced a 2020 revenue goal range of between $34 and $37 million of which 85%-90% is in core recurring technology and services revenue from existing clients. This goal excludes acquisitions. As economies start to reopen, organic growth from net new customers will be added back to the revenue goal,
  • Serving 1,300 clients across four markets: 26% Law Enforcement, 25% Judicial Legal, 25% Insurance and 24% conferencing, media and regulatory,
  • The Covid-19 pandemic has impacted the  Australian courts ability to conduct hearings and  are expected to generate 8%-12% lower revenue than  expected  However, this is offset, at present, by higher than expected US revenues, driven by an increased demand from our global broadcast, political, and law enforcement clients, while insurance volumes remains steady,
  • At end of Q1, approximately 30% of the transcription volume is processed using VIQ’s new NetScribe, powered by aiAssist, platform. The Company expects to reach its target of 70% by the end of June 2020 resulting in an expected 50% -55% in gross margins for the year,
  • In April, VIQ received a loan under the US Paycheck Protection Program of $2.1 million and qualified for wage subsidies of $1.1 million in Australia over 6 months. The company is currently awaiting results of additional pandemic related wage subsidies in Canada,
  • Adjusted EBITDA is expected to range between 10% and 15% of revenue at $4-$6 million,
  • Earnings per share for the year will include the $0.41 per share impact in the first quarter related to the non-cash charges on the Notes conversion (as described above),
  • The current backlog of booked orders but not yet delivered is approximately $3 million, primarily consisting of long-term SaaS technology and services contracts awarded to VIQ, is expected to generate incremental recurring revenue, and will be fully realized throughout 2021,
  • VIQ maintains an active M&A pipeline, which may result in additional acquisitions completed in 2020 and 2021.

VIQ Solutions has taken what it believes to be the appropriate measures to ensure continuity of its business during the COVID-19 health crisis and remains on solid footing with diversified revenue sources across multiple markets and regions.

On April 24, 2020, the company received a loan for $2.1M under the U.S. Small Business Administration Paycheck Protection Program through BMO Harris Bank. Loan matures in two years and carries an interest rate of 1%.  Principal and interest are due beginning seven months from date of the note.  Generally, the loan will be forgiven if utilized for payment of qualifying expenses during the eight-week period that begins at the origination date of the loan.

The Company granted 396,000 stock options to employees. The options were granted in accordance with the Company’s stock option plan and have an exercise price of CAD$3.13 per share, with a five-year term, vesting one third on the grant date, one third on the first anniversary of the grant date and one third on the second anniversary of the grant date.

The Consolidated Financial Statements and Management’s Discussion and Analysis for the quarter will be posted on the Company’s website at https://viqsolutions.com/investors and on the SEDAR website at www.sedar.com

The financial information included in this news release should be read together with the consolidated financial statements for the year ended March 31, 2020, including the notes thereto.

Conference Call Details

VIQ will hold a conference call to discuss its first quarter 2020 results on Thursday, May 7 at 5:00 p.m. ET. The call will consist of a brief update by VIQ President and CEO, Sebastien Paré, and Alexie Edwards, VIQ’s CFO, followed by a question and answer period.  Investors may participate by dialing 1-844-678-4797 (U.S. toll-free) or 1-270-855-8581 (international) to be connected to the call by an operator using conference ID number 3678024. Participants should dial in at least 10 minutes prior to the start of the call. A replay of the call will be available on VIQ’s website at  https://viqsolutions.com/investors or by dialing 1-855-859-2056 with passcode number 3678024 beginning at 8:00 p.m. ET for thirty days.

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