VIQ Solutions Reports Fourth Quarter and Full Year 2021 Financial Results

Substantial Progress Made in 2021 Towards Scalability and Productivity-Driven Margin Expansion

Reaffirms 2022 Goals

PHOENIX, Ariz.–(BUSINESS WIRE)–VIQ Solutions Inc. (“VIQ” or the “Company”) (TSX and Nasdaq: VQS), a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, today reported its unaudited financial results for the fourth quarter and full year ending December 31, 2021, and reaffirmed its 2022 goals. Results are reported in US dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”).

“VIQ advanced its business strategy in 2021 and made significant progress in overall operational performance during a challenging year given the ebb and flow of COVID-19 recovery in our operating geographies, and the completion of our largest acquisition to date in late December 2021. We are now poised to scale profitability to the next level. We enhanced our capture to documentation offerings, deepened client relationships through new or expanded contracts, and completed two strategic acquisitions – Auscript Pty Ltd (“Auscript”) in Australia and The Transcription Agency (“TTA”) in the UK, that provide a foundation for further global growth in these regions. A key intellectual property patent was obtained for artificial intelligence (AI) innovation that covers ten unique aspects of our proprietary aiAssist automated workflow and analysis platform. The technology productivity impact in Insurance and Law Enforcement allowed us to improve margins in these verticals in 2021, and we expect to replicate these productivity improvements in our Courts vertical in 2022 which will further improve the sustainability of our future gross margin expansion,” said Sebastien Paré, VIQ Chief Executive Officer.

“We are pleased to see our base level gross margin (excluding subsidies) expand by 395 basis points in 2021, providing clear evidence of the productivity gains we are achieving by leveraging our aiAssist™ and NetScribe™ technologies. The volume of industry specialized content processed through our AI workflow increased by 24.3% exiting 2021 at 1.3 million minutes per quarter, and FirstDraft™ is gaining adoption with customers providing a digital transcript within minutes,” said Susan Sumner, VIQ President and Chief Operating Officer.

Mr. Paré continued, “During 2021 we also capitalized on our global labor capacity to lessen the impact of COVID-19 and labor shortages in our operating regions by rethinking structurally, how we utilize our human resources while still providing clients with secure end-to-end solutions without compromising speed and accuracy of content. With our two most recent acquisitions, our Court vertical is forecast to increase to 65% of 2022 revenue globally from 34% in 2021. We anticipate most of our existing Court and Media clients, as well as those gained from the two most recent acquisitions, will migrate onto VIQ’s NetScribe, powered by aiAssist, technology platform over the course of 2022.”

Fourth Quarter 2021 Financial Highlights:

  • Revenue of $7.5 million compared to $7.8 million in the same quarter of 2020. The decrease of $0.3 million or 3% was primarily due to fewer billing days in Australia Courts associated with the Government of New South Wales and Victoria COVID-19 related lockdowns, softer technology sales and lower technology service revenue in the US and UK, partially offset by revenue generated from fourth quarter 2021 acquisitions;
  • Gross profit of $3.3 million represented 44% of revenue compared to $3.0 million, or 38% of revenue, in the same quarter of 2020. The increase was a result of productivity gains from the migration of US customers to NetScribe, powered by aiAssist, particularly in the Insurance and Criminal Justice verticals, partially offset by lower revenue versus the comparative period in 2020;
  • Net loss was $3.6 million, or $0.12 per diluted share, versus net loss of $3.1 million, or $0.15 per diluted share, in the same quarter in 2020; and,
  • Adjusted EBITDA was negative $1.8 million versus Adjusted EBITDA of positive $0.7 million in the fourth quarter of 2020. The decrease was driven primarily by professional service fees and selling and administrative expenses, both related to Q4 21 acquisitions, partially offset by productivity gains through NetScribe, powered by aiAssist, and lower sales cost through use of a global workforce.

Full Year 2021 Financial Highlights:

  • Revenue of $31.0 million decreased 2% compared to $31.7 million in the prior year. The net decrease of $0.7 million of revenue was primarily due to several factors:

    • Lower US Media revenue due to skewed year over year comparisons. During 2020, the Company completed a large one-time archive project that was not repeated in 2021. Additionally, 2020 included additional volumes related to the election cycle. Combined with the COVID-19 impact on the traditional conferencing business throughout the year, Media was negatively impacted in what has otherwise been a growth vertical through the addition of two major news broadcast clients in Q4 and a significant Q1 2022 ramp up by our largest media client in financial earnings work;
    • Delayed Courts revenue in Australia was a result of having 163 fewer billing days because of COVID-19 lockdowns during 2021; and,
    • Lower US insurance claims attributed to a slower US recovery in car accident claims due to reduced movement of people and traffic from the lockdowns and decreased local policing activities from government mandated lockdowns in various states and local communities. These resulted in lower volumes of insurance recorded statements, police interviews and transcription revenue in the Insurance and Law Enforcement segments.
    • These factors are partially offset by:

      • Acquisition related revenue in the UK and Australia; and,
      • Higher adoption of FirstDraft technology.
  • We note the late December close of Auscript was tied to the delayed clearance by the Australian Competitive Bureau and subsequently had an estimated $2 million impact on planned revenue versus reported results. Gross profit of $14.9 million represented 48% of revenue versus $16.2 million or 51% in 2020. The decrease in gross profit was primarily due to reduced Covid-19 wage subsidies and delayed revenue resulting from pandemic impacts. Excluding the COVID-19 wage subsidies impact, gross margin for the full year would be 46% compared to 42% for the full year 2020 representing an increase of 395 basis points. The increase of 395 basis points in gross margin, excluding the impact of COVID-19 wage subsidies, was driven primarily by the following factors:

    • The migration of technology services to aiAssist and NetScribe technologies, particularly in the Insurance and Law Enforcement verticals. Note, the Company expects the Courts vertical to be migrated during 2022;
    • Proven labor force efficiency gains in using NetScribe and aiAssist technologies enabled a reduction in rates paid per unit of production for certain segments;
    • The migration to a global labor force to better utilize access to labor across VIQ entities (follow-the-sun model and new Center of Excellence); and
    • The stabilization of the labor force in the US post COVID-19 reducing the requirement for “bonus” payments to incentivize contract labor.
  • Net loss for 2021 was $19.7 million, or $0.74 per diluted share, versus a net loss of $11.1 million, or $0.62 per diluted share, for the same period in 2020;
  • Adjusted EBITDA was negative $4.9 million for the full year 2021 compared to a positive $5.0 million for the same period in 2020. 65% of the negative Adjusted EBITDA for the year ended December 31, 2021, was driven primarily by higher professional service fees related to various capital markets expenditures including uplisting to the Toronto Stock Exchange, adoption of the Company’s omnibus incentive plan, completion of the SEC registration, filing of a base shelf prospectus, listing on the Nasdaq stock market, and due diligence related to several acquisitions, including those we decided not to pursue. The Company also received $2.4 million in lower COVID-19 subsidies compared to 2020 and recognized $0.6 million in lower contingent consideration gain in 2021 compared to 2020. Adjusted EBITDA is a non-IFRS financial measure. For a reconciliation of net loss to Adjusted EBITDA, please see the table at the end of this press release; and,
  • Proforma Annual Recurring Revenue (“ARR”) for the year ended December 31, 2021, increased by 63% to $48.6M USD from $29.7M for the comparative period in 2020. ARR is a non-IFRS financial measure. For a reconciliation of ARR, please see the table at the end of this press release.

“In 2021 we raised $18 million in equity capital, closed on two acquisitions, and settled earn-outs on prior acquisitions. As at December 31, 2021, our cash balance was $10.6 million, and expect our cash flow and EBITDA to improve this year driven by improved gross margins on higher revenue. Our focus in 2022 is on operational execution, and integration of our recent acquisitions, and Court and Media clientele into our AI powered technology workflow. Our clients are undertaking significant investments in digital transformation post COVID-19, and we are well positioned to help many of them achieve their digitalization goals,” said Alexie Edwards, VIQ Chief Financial Officer.

Reaffirming Goals for Full Year 2022:

VIQ is reemphasizing its goals for 2022. Financial expectations include generating at least $50 million in revenue with gross margin expected to be in the range of 47%-55%.

The bridge to expected revenue of at least $50 million includes a full year of 2021 base revenue excluding acquisitions of $30 million, plus TTA and Auscript acquired annualized revenues of approximately $14 million, and the Queensland Courts contract of approximately $6 million, which effectively began in December 2021 upon the close of the Auscript acquisition.

The Company will pursue additional organic growth especially in light of the recovery following the reopening of the economy as COVID-19 restrictions subside.

VIQ’s geographic revenue mix will shift toward Australia following the completion of the Auscript acquisition with approximately 50% of its 2022 revenue derived from Australia versus 31% in 2021.

A similar revenue mix shift is expected to occur within the Company’s four verticals, namely Criminal Justice, Legal (Courts), Insurance and Media, and Corporate and Government. Legal (Courts) is expected to grow to 65% of revenue versus 34% in 2021, and Criminal Justice, Insurance and Media, and Corporate and Government are each expected to go from a revenue contribution of approximately 22% each to approximately 12% each.

The Company’s plan is to continue shifting further toward predictable, recurring, higher margin revenue as FirstDraft is adopted, and more clients leverage higher margin machine drafts.

Conference Call Details

VIQ will host a conference call and webcast to discuss its full year 2021 results on Wednesday, March 30 at 11:00 AM Eastern Time. The call will consist of updates by Sebastien Paré, VIQ CEO, Alexie Edwards, VIQ CFO, and Susan Sumner, VIQ President and COO, followed by a question-and-answer period.

Investors may access a live webcast of the call on the Company’s website at www.viqsolutions.com/investors or by dialing 1-888-440-4052 (North America toll-free) or +1-646-960-0827 (international) to be connected to the call by an operator using conference ID number 4983233. Participants should dial in at least 10 minutes prior to the start of the call.

A replay of the webcast will be available on the Company’s website through the same link approximately one hour after the conference call concludes.

For more information about VIQ, please visit viqsolutions.com.

About VIQ Solutions

VIQ Solutions is a global provider of secure, AI-driven, digital voice and video capture technology and transcription services. VIQ offers a seamless, comprehensive solution suite that delivers intelligent automation, enhanced with human review, to drive transformation in the way content is captured, secured, and repurposed into actionable information. The cyber-secure, AI technology and services platform are implemented in the most rigid security environments including criminal justice, legal, insurance, government, corporate finance, media, and transcription service provider markets, enabling them to improve the quality and accessibility of evidence, to easily identify predictive insights and to achieve digital transformation faster and at a lower cost.

Forward-looking Statements

Certain statements included in this press release constitute forward-looking statements or forward-looking information under applicable securities legislation. Such forward-looking statements or information are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.

Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words, including negatives thereof, suggesting future outcomes or that certain events or conditions “may” or “will” occur. These statements are only predictions. Forward-looking statements or information in this press release include, but are not limited to Company’s current focus, the contemplated impact of significant new and renewed contracts on the Company, the Company’s goals including revenue goals for 2022, improvement in court vertical productivity, composition of/shift in 2022 revenues, migration of verticals onto certain platforms, improvement in cash flow and EBITDA for 2022, future acquisitions and 2022 revenue growth by Company vertical.

Forward-looking statements or information is based on several factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although VIQ believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because VIQ can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding, among other things, recent initiatives and that sales and prospects may provide incremental value for shareholders. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions that have been used.

Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that while considered reasonable by the Company as of the date of this press release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, included but not limited to the factors described in greater detail in the “Risk Factors” section of the Company’s annual information form dated March 31, 2022 and in the Company’s other materials filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission from time to time, available at www.sedar.com and www.sec.gov, respectively.

These factors are not intended to represent a complete list of the factors that could affect the Company, however, these factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. The forward-looking statements contained in this press release are made as of the date of this press release and the Company expressly disclaims any obligations to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law.

Forward-Looking Financial Information

This news release may contain future oriented financial information (“FOFI”) within the meaning of applicable securities laws. The FOFI has been prepared by management to provide an outlook of the Company’s activities and results. The FOFI has been prepared based on a number of assumptions including the assumptions discussed and disclosed above, including under “Forward-looking Statements” above. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on FOFI. The Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, this FOFI, or if any of them do so, what benefits the Company will derive therefrom. The Company has included the FOFI in order to provide readers with a more complete perspective on the Company’s future operations and such information may not be appropriate for other purposes. The Company disclaims any intention or obligation to update or revise any FOFI statements, whether as a result of new information, future events or otherwise, except as required by law.

VIQ Solutions Inc.

Consolidated Statements of Financial Position

(Expressed in United States dollars, Unaudited)

 

December 31, 2021

December 31, 2020

Assets

 

Current assets

 

Cash

$

10,583,534

$

16,835,671

Trade and other receivables, net of allowance for doubtful accounts

 

5,594,368

 

4,475,751

Inventories

 

49,557

 

49,381

Prepaid expenses and deposits

 

2,054,793

 

254,230

 

 

18,282,252

 

21,615,033

Non-current assets

 

Restricted cash

 

303,945

 

42,835

Property and equipment

 

460,974

 

215,835

Right of use assets

 

1,134,493

 

309,566

Intangible assets

 

14,762,140

 

12,118,352

Goodwill

 

12,283,100

 

6,976,096

Deferred tax assets

 

464,800

 

1,441,942

Total assets

$

47,691,704

$

42,719,659

 

Liabilities

 

Current liabilities

 

Trade and other payables and accrued liabilities

$

5,380,701

$

5,305,600

Income tax payable

 

97,784

 

201,592

Share appreciation rights plan obligations

 

 

126,503

Share based payment liability

 

551,201

 

Derivative warrant liability

 

1,862,876

 

Current portion of long-term debt

 

1,109,713

 

1,486,136

Current portion of lease obligations

 

287,901

 

113,218

Current portion of contract liabilities

 

1,003,187

 

1,252,957

 

 

10,293,363

 

8,486,006

Non-current liabilities

 

Deferred tax liability

 

1,199,266

 

60,587

Long-term debt

 

11,999,108

 

12,138,799

Long-term contingent consideration

 

166,603

 

1,575,528

Long-term lease obligations

 

900,868

 

240,981

Long-term contract liabilities

 

 

70,834

Other long-term liabilities

 

1,042,938

 

360,525

Total liabilities

 

25,602,146

 

22,933,260

 

Shareholders’ Equity

Capital stock

 

72,191,764

 

50,234,551

Contributed surplus

 

4,842,208

 

4,970,945

Accumulated other comprehensive income (loss)

 

74,526

 

(78,906)

Deficit

 

(55,018,940)

 

(35,340,191)

Total liabilities and shareholders’ equity

$

47,691,704

$

42,719,659

VIQ Solutions Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in United States dollars, Unaudited)

Year ended December 31,

 

2021

2020

Revenue

$

31,046,812

$

31,749,693

Cost of Sales

 

16,123,853

 

15,599,437

Gross Profit

 

14,922,959

 

16,150,256

 

Expenses

 

Selling and administrative expenses

 

19,119,713

 

11,034,902

Research and development expenses

 

1,092,108

 

1,074,178

Stock based compensation

 

8,495,189

 

725,316

Gain on revaluation of options

 

(1,028,055)

 

Gain on revaluation of RSUs

 

(242,595)

 

Foreign exchange loss (gain)

 

22,130

 

(132,306)

Depreciation

 

257,099

 

445,995

Amortization

 

4,384,502

 

4,813,248

 

 

32,100,091

 

17,961,333

 

Operating Loss

 

(17,177,132)

 

(1,811,077)

 

Interest expense

 

(1,331,100)

 

(4,934,517)

Accretion and other financing costs

 

(967,106)

 

(1,216,949)

Loss on revaluation of conversion feature liability

 

 

(1,308,440)

Loss on repayment of long-term debt

 

 

(1,497,804)

Gain on contingent consideration

 

332,569

 

946,503

Gain on revaluation of the derivative warrant liability

 

1,368,180

 

Impairment of goodwill and intangibles

 

 

(2,258,369)

Restructuring costs

 

(432,702)

 

Business acquisition costs

 

(539,734)

 

(19,058)

Other income

 

12,003

 

10,373

 

(18,735,022)

 

(12,089,338)

Current income tax recovery (expense)

 

875

 

(106,986)

Deferred income tax recovery (expense)

 

(944,602)

 

1,051,018

Income tax recovery (expense)

 

(943,727)

 

944,032

Net loss for the year

$

(19,678,749)

$

(11,145,306)

Exchange gain on translating foreign operations

 

153,432

 

56,152

Comprehensive loss for the year

$

(19,525,317)

$

(11,089,154)

 

Net loss per share

 

Basic

 

(0.74)

 

(0.62)

Diluted

 

(0.74)

 

(0.62)

Weighted average number of common shares outstanding – basic

 

26,448,594

 

18,080,533

Weighted average number of common shares outstanding – diluted

 

26,448,594

 

18,080,533

VIQ Solutions Inc.

Reconciliation of Non-IFRS Measures

(Expressed in United States dollars) (Unaudited)

The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the periods ended December 31, 2021 and 2020:

 

 

Three Months ended December 31

 

Year ended December 31

 

2021

2020

 

2021

2020

Net Loss

(3,653,793)

(3,099,688)

 

(19,678,749)

(11,145,306)

Add:

 

 

 

 

 

Depreciation

67,707

98,632

 

257,099

445,995

Amortization

1,102,465

1,522,396

 

4,384,502

4,813,248

Interest expense

334,489

491,848

 

1,331,100

4,934,517

Current income tax recovery (expense)

40,329

(565,707)

 

(875)

106,986

Deferred income tax recovery (expense)

(40,416)

(968,126)

 

944,602

(1,051,018)

EBITDA

(2,149,219)

(2,520,645)

 

(12,762,321)

(1,895,578)

Accretion and other financing expense

211,136

335,197

 

967,106

1,216,949

Loss on revaluation of conversion feature liability

133,295

 

1,308,440

Loss on repayment of long-term debt

207,657

 

1,497,804

Gain on revaluation of options

(526,081)

 

(1,028,055)

Gain on revaluation of RSUs

(123,583)

 

(242,595)

Gain on revaluation of the derivative warrant liability

(604,681)

 

(1,368,180)

Impairment of goodwill and intangibles

2,258,369

 

2,258,369

Restructuring Costs

37,378

 

432,702

Business acquisition costs

356,410

19,058

 

539,734

19,058

Other income

(1,483)

(9,685)

 

(12,003)

(10,373)

Stock-based compensation

862,283

87,802

 

8,495,189

725,316

Foreign exchange (gain) loss

99,382

152,885

 

22,130

(132,306)

 

 

 

 

 

 

Adjusted EBITDA

(1,838,458)

663,933

 

(4,956,293)

4,987,679

The following is a reconciliation of Technology Services, Support and Maintenance, SaaS and Subscription revenue to ARR, the most directly comparable IFRS measure for the periods ended December 31, 2021 and 2020:

Reconciliation of Technology Services, Support and Maintenance, SaaS and Subscription revenue to Annual Recurring Revenue (”ARR”)

2021

2020

Technology Services

$

26,676,738

$

28,190,993

Support & Maintenance

$

2,008,877

$

1,519,424

SaaS

$

65,187

$

42,662

Subscription

$

189,359

$

Add: The Transcription Agency Revenue Jan 1 – Oct 1, 2021

$

1,083,415

$

Add: Auscript Revenue Jan 1 – Dec 13, 2021

$

10,163,719

$

Add: Client Adjustments

$

8,447,914

$

Total Annual Recurring Revenue

$

48,635,210

$

29,753,079

Non-IFRS Measures

Adjusted EBITDA and ARR are not a measure recognized by IFRS and does not have standardized meanings prescribed by IFRS.

Contacts

Media Contact:
Laura Haggard

Chief Marketing Officer

VIQ Solutions

Phone: (800) 263-9947

Email: marketing@viqsolutions.com

Investor Relations Contact:
Laura Kiernan

High Touch Investor Relations

Phone: 1-914-598-7733

Email: viq@htir.net

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