VIQ Solutions Inc. — Interim / Quarterly Report 2023

Mar 28, 2024

VIQ Solutions Report Fourth Quarter and Full Year 2023 Financial Results

MISSISSAUGA, Ontario--(BUSINESS WIRE)--March 27, 2024--VIQ Solutions Inc. (“VIQ”, “VIQ Solutions” or the “Company”) (TSX), a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, today announces its unaudited financial results for the fourth quarter and full year ending December 31, 2023. Results are reported in US dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”).

“We are encouraged by our fourth quarter of 2023 results and the start to fiscal 2024 as the post pandemic industry headwinds that lingered until end of the third quarter of 2023 are abating. Revenue increased marginally during the fourth quarter of 2023 compared to the previous year after normalizing for the previously disclosed changes to the DJAG contract in Australia. We also retained a solid level of net new bookings during the quarter, and improved productivity in all regions while implementing comprehensive cost-cutting measures throughout the Company. These initiatives have not only strengthened our operational efficiency but also resulted in $2.8M of annualized cost savings going forward. Achieving these results, while remaining firmly committed to preserving our client experience and the critical migrations to our technology platform, required a well-orchestrated plan at a time when our customers are modernizing and digitizing their workflows and empowering their stakeholders to deliver and access the best transcripts possible,” said Sebastien Pare, VIQ’s Chief Executive Officer.

Mr. Pare added, “following the success of the migrations in other regions throughout 2023, the technology migrations in Australia are almost complete. We believe 2024 will show improved financial performance from these actions as the Company remains focused on further cost reductions, improving gross margins, and returning to positive EBITDA.”

Fourth Quarter 2023 Operational Highlights

• Continued migrations of Australian court customers to NetScribe in Q4, which improved gross margin in the quarter.

• Gains seen in the insurance vertical with a new US client that ranks in the Top 5. The trend in higher volumes is expected to continue.

• Client adoption and utilization of FirstDraft are increasing.

• Gross margin in Australia improved during the fourth quarter of 2023 as we have addressed capacity and training costs that reduced margins in the third quarter of 2023. Current migration efforts in Australia may temporarily impact gross margin while adoption accelerates. Overall productivity trends remain favorable to drive further margin improvements in 2024.

• Early success from initial AU migrations shows a material improvement in gross margin percentage in the region.

• Australia’s market demand remains strong reflected by improving volumes.

• Q4 Bookings[1] remain strong at $1 million, demonstrating continued demand despite capacity challenges.

• As a result of our Domain Specific Language Models (DSLM’s), we anticipate an increase in SaaS revenue driven by high “usability and accuracy” of the drafts we are delivering to customers.

“Exiting 2023, we delivered the directional results that we have waited two years to see. US insurance and criminal justice are trending upward and returning to pre-COVID levels in early 2024. Growth in US insurance for SaaS, translation and traditional pro edit solutions are examples of how we expect other sectors to evolve through 2024. Our Migration in Australia to our Netscribe technology is being embraced by our transcribers and is resulting in productivity gains, demonstrating that this is the right solution at the right time. The court and legal readiness initiatives we invested in throughout 2022 and 2023 provides a commercial offering in those sectors that will globally reposition this Company to disrupt how documentation is created,” said Susan Sumner, VIQ’s President and Chief Operating Officer.

Fourth Quarter 2023 Financial Highlights

• Revenue of $10.3 million, an increase of $0.2 million, or 1.7%, from the same period in the prior year. Excluding the DJAG contract change and impact of foreign currency exchange, the Company would have reported revenue growth over the same period in the prior year of 3%.

• Gross profit of $4.7 million, which was similar to the same period in the prior year.

• Net loss of $2.9 million, an increase of $0.8 million, from the same period in the prior year.

• Adjusted EBITDA[1] of negative $0.7 million, an improvement of $0.5 million, or 45%, from the same period in the prior year.

Full Year 2023 Financial Highlights

• Revenue of $41 million, a decrease of $4.8 million, or 11%, from the same period in the prior year. Excluding the DJAG contract change and impact of foreign currency exchange, the Company would have reported revenue growth over the same period in the prior year of 2%.

• Gross profit of $18.1 million, a decrease of $3.8 million, or 17%, from the same period in the prior year. The decrease in gross margin was primarily due to the DJAG contract change, which had a reduction in volume from the highmargin DJAG contract that ended in 2022.

• Net loss of $14.3 million, an increase of $5.6 million, or 65%, for the same period in the prior year.

• Adjusted EBITDA[1] was negative $4 million, an increase of $0.6 million, or 18% from the same period in the prior year. The increase in Adjusted EBITDA deficit was primarily due to the decreased gross margin reported above, as a result of the expected change in the DJAG contract, and the negative impact of foreign exchange, partially offset by decreased selling and administrative expenses.

“We continue to align our global resources to evolve into a leaner company to improve our operating performance and Adjusted EBITDA,” said Alexie Edwards, VIQ’s Chief Financial Officer. Improving VIQ’s EBITDA performance continues to be a top priority and we have implemented a series of measures aimed at improving EBITDA performance, including further cost reductions. We are also proud that we completed a $1.2M oversubscribed private placement in February 2024 for working capital and general corporate purposes,” said Alexie Edwards, VIQ’s Chief Financial Officer.

1 Represents a non-IFRS measure. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Management believes non-IFRS measures, including Adjusted EBITDA and Bookings, provide supplementary information to IFRS measures used in assessing the performance of the Company’s business. Please refer to the "Non-IFRS Measures" section below and the reconciliations of the non-IFRS financial measures to their most directly comparable IFRS financial measures in the tables at the end of this press release.

A copy of the Company’s audited financial statements and accompanying MD&A for the year ended December 31, 2023 and 2022 (collectively, the “Financial Information”) will be available under the Company’s profile on SEDAR+ at www.sedarplus.ca.

Conference Call Details

VIQ will host a conference call and webcast to discuss the Financial Information on March 28, 2024 at 11:00 a.m. (Eastern time). The call will consist of updates by Sebastien Paré, VIQ’s Chief Executive Officer, Alexie Edwards, VIQ’s Chief Financial Officer, and Susan Sumner, VIQ’s President and Chief Operating Officer, 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- 888-500-3691 (North America toll-free) or +1-646-307-1951 (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.

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 (collectively, “forward-looking statements”) 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 (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 in this press release include but are not limited to statements with respect to the Company’s improved 2024 performance, including to margin, the Company’s focus and its priorities, expected higher volumes, increases in SaaS sales and the evolution of sectors in 2024, the filing of the Financial Information on SEDAR+ and the conference call to discuss the Company’s financial results.

Forward-looking statements are based on several factors and assumptions which have been used to develop such statements, but which may prove to be incorrect. Although VIQ believes that the expectations reflected in such forward-looking statements 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, cost savings from workforce optimization, cost reductions from the Company’s workflow solutions and that sales and prospects may increase revenue. In addition to other factors and assumptions that may be identified in this press release, assumptions have been made regarding, among other things, recent initiatives, cost savings from workforce optimization, cost reductions from the Company’s workflow solutions, and that sales and prospects may increase revenue. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions that have been used.

Forward-looking statements are 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 statements, including but not limited to the factors described in greater detail in the “Risk Factors” section of the Company’s annual information form and in the Company’s other materials filed with the Canadian securities regulatory authorities.

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. Such estimates and assumptions may prove to be incorrect or overstated. 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 such statements, or the factors or assumptions underlying them, 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 USD dollars, unaudited)

VIQ Solutions Inc. Consolidated Statements of Financial Position (Expressed in USD dollars, unaudited)
	December 31, 2023		December 31, 2022
Assets Current assets Cash Trade and other receivables, net of allowance for doubtful accounts Income tax recoverable Inventories Prepaid expenses and deposits			$ 1,657,571 5,305,728 104,670 37,807 2,050,661
	$ 1,621,778 4,382,668 –
		29,146
		1,636,349
Non-current assets Restricted cash Property and equipment Right-of-use assets Intangible assets Goodwill Deferred tax assets		7,669,941 185,655 1,066,194 596,063 8,066,733 12,090,609	9,156,437 463,743 1,432,133 1,058,600 10,731,917 12,047,048 655,004
		–
Total assets	$ 29,675,195		$ 35,544,882
Liabilities Current liabilities Trade and other payables and accrued liabilities Income tax payable Share-based payment liability Derivative warrant liability Current portion of long-term debt Current portion of lease obligations Current portion of contract liabilities			$ 5,937,880 45,212 31,487 290,712 8,634,258 487,673 1,745,415
	$ 6,269,023 59,044
		25,246
		188,042 19,812
		483,362
		1,809,003
Non-current liabilities Deferred tax liability Long-term debt Long-term lease obligations Other long-term liabilities		8,853,532	17,172,637 868,643 19,812 718,575 1,121,805
		–
		13,246,176 220,750
		1,179,639
Total liabilities		23,500,097	19,901,472
Shareholders' Equity Capital stock Contributed surplus Accumulated other comprehensive loss Deficit			74,690,527 5,892,192 (1,214,354) (63,724,955 )
		76,230,158
		8,671,879 (670,788 )
		(78,056,151 )
		6,175,098	15,643,410
Total liabilities and shareholders' equity	$ 29,675,195		$ 35,544,882

VIQ Solutions Inc.

Consolidated Statements of Loss and Comprehensive Loss (Expressed in USD dollars, unaudited)

	Year ended December 31 2023 2022	Year ended December 31 2023 2022	Year ended December 31 2023 2022
Revenue Cost of Sales	$ 41,024,024		$ 45,843,929 23,918,226
		22,911,952
Gross Profit		18,112,072	21,925,703
Expenses Selling and administrative expenses Research and development expenses Stock based compensation Gain on revaluation of options Gain on revaluation of RSUs Gain on revaluation of the derivative warrant liability Foreign exchange loss (gain) Depreciation Amortization Interest expense Accretion and other financing costs Loss (Gain) on contingent consideration Impairment of goodwill and intangibles Impairment of property and equipment Loss on extinguishment of debt Loss on modification of debt Restructuring costs Business acquisition costs Other income			24,526,303 734,115 2,779,312 (1,511,399) (550,260) (4,255,017) (452,068) 579,249 5,508,954 1,052,618 1,231,194 80,071 – 15,246 747,865 – 323,075 433,372 (1,291 )
		21,738,200 679,589 955,571 – (197,711 ) (383,428 ) 566,530 795,104 4,553,255 1,358,579 1,472,400 (10,389 )
		157,464
		– –
		549,646
		403,870 –
		(26,248 )
Total expenses Current income tax (recovery) expense Deferred income tax recovery		32,612,432 33,596	31,241,339 (105,256) (504,365)
		(202,760 )
Income tax recovery		(169,164 )	(609,621)
Net loss for the year	$ (14,331,196 )		$ (8,706,015)
Exchange gain on translating foreign operations	543,566		(1,288,880)
Comprehensive loss for the year	$ (13,787,630 )		$ (9,994,895)
Net loss per share Basic Diluted			(0.28 ) (0.28 )
		(0.38 )
		(0.38 )
Weighted average number of common shares outstanding - basic Weighted average number of common shares outstanding - diluted		37,289,689	31,648,001 31,648,001
		37,289,689

The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the three months and year ended December 31, 2023, and 2022:

(Unaudited) Net Loss Add: Depreciation Amortization Interest expense Current income tax (recovery) expense Deferred income tax recovery EBITDA Accretion and other financing costs Loss on extinguishment of debt Loss on modification of debt Gain on revaluation of options Gain on revaluation of RSUs Loss (Gain) on revaluation of the derivative warrant liability Impairment of property and equipment Impairment of intangible assets Restructuring Costs Business acquisition costs Other Expense (Income) Stock-based compensation Foreign exchange (gain) loss Adjusted EBITDA	Three months ended December 31 2023 2022	Year ended December 31 2023 2022
	(2,934,336) (2,168,022) 175,794 146,766 1,075,210 2,289,819 361,605 236,885 65,697 (180,071) (340,984) (319,284)	(14,331,196) (8,706,015) 795,104 579,249 4,553,255 5,508,954 1,358,579 1,052,618 33,596 (105,256) (202,760) (504,365)
	(1,597,014) 6,093	(7,793,422) (2,174,815)
	325,181 475,598 - - 549,646 - - (447,737) (27,620) (104,578) 25,172 (730,491) - 15,246 - - (127,593) 19,385 - 14,516 257,665 (392) 62,470 605,343 (123,045) (1,049,277)	1,472,400 1,231,194 - 747,865 549,646 - - (1,511,399) (197,711) (550,260) (383,428) (4,255,017) - 15,246 157,464 - 403,870 323,075 - 433,372 236,227 (1,291) 955,571 2,779,312 566,530 (452,068)
	(655,138) (1,196,294)	(4,032,853) (3,414,786)

Non-IFRS Measures

The Company prepares its financial statements in accordance with IFRS. Non-IFRS measures are provided by management to provide additional insight into our performance and financial condition. VIQ believes non-IFRS measures are an important part of the financial reporting process and are useful in communicating information that complements and supplements the consolidated financial statements. Adjusted EBITDA and Bookings are not measures recognized by IFRS and do not have standardized meanings prescribed by IFRS. Therefore, Adjusted EBITDA and Bookings may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income (loss) as determined in accordance with IFRS.

To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “Adjusted EBITDA” refers to net income (loss) before adjusting earnings for stock-based compensation, depreciation, amortization, interest expense, accretion, and other financing expense, (gain) loss on revaluation of options, (gain) loss on revaluation of restricted share units, gain (loss) on revaluation of derivative warrant liability, restructuring costs, (gain) loss on revaluation of conversion feature liability, loss on extinguishment of long-term debt, loss on modification of debt, business acquisition costs, impairment of property and equipment, impairment of goodwill and intangibles, other expense (income), foreign exchange (gain) loss, current and deferred income tax expense. We believe that the items excluded from Adjusted EBITDA are not connected to and do not represent the operating performance of the Company.

We believe that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the Company’s main business activities prior to taking into consideration how those activities are financed and taxed as well as expenses related to stock-based compensation, depreciation, amortization, impairment of goodwill and intangibles, loss on modification or extinguishment of debt, other expense (income), and foreign exchange (gain) loss. Accordingly, we believe that this measure may also be useful to investors in enhancing their understanding of the Company’s operating performance.

We calculate “Bookings” for a given period as the estimated contract value (for services tied to volume) of our recurring client contracts entered into during the period from (i) new clients and (ii) net upgrades by existing clients within the same workload, plus the actual (not annualized) estimated value of professional services consulting, advisory or project-based orders received, software licenses, subscriptions, SaaS, and hardware during the period.

Recurring client contracts are any contracts entered into on a multi-year or month-to-month basis, excluding any professional services contracts for consulting, advisory, or project-based work, software licenses, and hardware.

We use Bookings to measure the amount of new business generated in a period, which we believe is an important indicator of new client acquisition and our ability to cross-sell new services to existing clients. Bookings are also used by management as a factor in determining performance-based compensation for our sales force. While we believe Bookings, in combination with other metrics, are an indicator of our near-term future revenue opportunity, it is not intended to be used as a projection of future revenue. Booking information is a non-IFRS measure, that involves judgments, estimates, and assumptions, which does not have a standard industry definition. Our calculation of Bookings may differ from similarly titled metrics presented by other companies.

Trademarks

This press release includes trademarks, such as “NetScribe”, which are protected under applicable intellectual property laws and are the property of VIQ. Solely for convenience, our trademarks referred to in this press release may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we will not assert our rights to these trademarks, trade names, and services marks to the fullest extent under applicable law. Trademarks that may be used in this press release, other than those that belong to VIQ, are the property of their respective owners.

Contacts

For additional information:

Media:

Jacob Manning VIQ Solutions Email: marketing@viqsolutions.com

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