RE:RE:VIQ Q4 2022 earnings transcriptsorry about that - i noticed once i posted....but the link to seeking alpha article still works if you want the full transcript...i'll try to post below again, hopefully it works
Viq Solutions, Inc. (NASDAQ:VQS) Q4 2022 Earnings Conference Call March 30, 2023 11:00 AM ET
Company Participants
Laura Kiernan - Head, Investor Relations
Sebastien Pare - CEO & Director
Susan Sumner - President, COO & Director
Alexie Edwards - CFO
Conference Call Participants
Scott Buck - H.C. Wainwright & Co.
Brian Kinstlinger - Alliance Global Partners
Operator
Good morning, ladies and gentlemen. My name is Brent, and I will be your conference operator. Today, we are hosting a conference call to discuss the fourth quarter and full year 2022 financial results for VIQ Solutions Inc. [Operator Instructions].
Your host for today is Ms. Laura Kiernan, Head of Investor Relations for VIQ. Please go ahead.
Laura Kiernan
Thank you, Brent. Good morning, everyone, and welcome to our call.
Before we begin, I would like to point out that certain statements made on today's call contain forward-looking information subject to known and unknown risks, uncertainties and other factors. For a complete discussion of the risks and uncertainties facing VIQ, we refer you to the company's MD&A and other continuous disclosure filings which are available on SEDAR at sedar.com and on sec.gov.
As a reminder, all dollar amounts are in U.S. dollars unless otherwise stated. With us today, we have Sebastien Pare, CEO; Alexie Edwards, CFO; and Susan Sumner, President and Chief Operating Officer of VIQ, all of whom will be available for questions following the prepared remarks.
I will now turn the call over to Sebastien Pare to begin.
Sebastien Pare
Thank you, Laura. Welcome, everyone, to our 2022 fourth quarter and full year earnings call. I'll provide some high-level remarks on our results, and then I'll hand it over to Susan, who will discuss our operating results, who will then be followed by Alexie, who will discuss our financial results briefly. We will then open up the call for questions.
Now into our results. 2022 was an exceptionally tough year for the industry and for VIQ. We continued to work our way through the post-pandemic Great Resignation, rising interest rates and inflation, currency impact in a tech sector that saw the worst performance in the public markets since the Global Financial Crisis 15 years ago.
We spent the year focused on improving our P&L and productivity while driving operational excellence and automation across the business. The migration of our clients and transcription teams to NetScribe, powered by aiAssist, was a key objective to increase efficiency and to rightsize our global head count while boosting productivity.
We ended up 2022 with a 48% increase in year-over-year revenue, of which 93% is annual recurring revenue, known as ARR, and a 53% increase year-over-year in our net new bookings. Net new bookings are an early indicator of organic growth as the main driver for 2023.
We delivered on our promise to bring end-to-end workflow technologies to clients around the globe to solve key problems like the critical shortage of court reporters in courts, the demand to manage and access the vast amount of data that is recorded and the need to move content securely to the cloud. As our customers find more efficient ways to create and digitize their evidentiary content, we continue to execute on our strategy to extend our AI to targeted verticals through scale, industry-specific content, optimized workflow and human knowledge.
The automation of multi-speaker transcription is a challenging work and requires fine-tuning and elevated human task to bolster accuracy and usability for clients who rely on the accuracy of the spoken word for decision-making. With the continual advancements in natural language models from large global speech-to-text companies, it's reliant upon technology service experts like VIQ to lead the implementation of these technologies to shape the transcription industry in core verticals like legal, courts, criminal justice, insurance and media. Successful verticalization requires scale, specialized data, industry-specific workflow and unsurpassed human knowledge, which is at the core of VIQ.
I will now pass the call over to Susan to discuss the operating results in greater details. Over to you, Susan.
Susan Sumner
Thanks, Seb. As Seb stated, 2022 was a challenging year, but strength and growth comes only through continuous effort and perseverance. We have become laser-focused on performance, productivity, measurement and accountability of all of our teams. I am pleased with how we are improving our execution related to client migration, the utilization of our global workforce, our new global sales footprint and the creation of new innovations that drive our customer success.
The positive impact our AI-powered NetScribe technology has had in our most mature markets is impressive. Global margins post migration reached 55.8% in the United States and 61.6% in the United Kingdom. This is a material improvement from the gross margin ranges noted post acquisition.
Australia, representing 57% of our revenue going into 2023, is scheduled to complete these migrations going onto the platform in late 2023, which will further improve the margins. The key attainments in productivity and efficiency gains have positioned us for success with the Australian migration, where we expect to continue driving significant momentum as we experienced in the fourth quarter.
We ended 2022 with an increase of 48% in year-over-year revenue and a 53% increase in year-over-year net new bookings. Unfortunately, a significant portion of anticipated revenue in Q3 and Q4 was delayed due to the Great Resignation, constraining capacity, slowing the onboarding of our bookings and delaying migrations that would have driven further improvements on gross margin.
The second half of 2022 was focused on stabilizing key customers, and we succeeded in renewing or extending all of our major contracts that were up for renewal in 2022 and maintaining an NPS score in the mid-90s. While our industry was hit hard, we were able to persevere and preserve critical relationships across all geographies. We are ramping up our capacity to recognize net new bookings as organic growth through 2023.
The onboarding of the new DJAG contract in Australia required VIQ to adopt their new technology that altered the way orders were processed and how workflows were executed. This had a short-term impact on production, and constraining capacity in limiting the onboarding of new agreements that were earmarked to begin in late July and August. This also impacted our on-time delivery of our existing contracts and revenue associated with turnaround time modifications that drove lower revenue and lower revenue per file.
We had great wins across products, industries and geographies, and we strengthened relationships with our clients and partners. We expanded our relationship in insurance to include partnerships with 7 of the top 10 U.S. insurance companies, increasing their productivity and expediting access to documentation using our AI-powered technologies.
The Criminal Investigations Bureau investigates crimes against people and crimes against property. It is of vital importance that information and quotes collected from the interviews are accurate and provide comprehensive evidence to support testimony in court. Our FirstDraft has been proven to reduce efforts to transcribe interviews by at least 50%, decrease overhead costs by implementing AI-generated transcripts and to save time on more important investigation tasks. Deputies and detectives across the U.S. are editing the AI-generated interview transcripts to include in their investigative report within 1 hour versus the previous 3 hours to 3 days.
We expanded our global NetScribe footprint, selling to transcription companies, courts and law firms to secure and transform the way transcripts are created. We signed a multiyear contract with a global transcription services company to use and resell NetScribe platform across all of India.
Our technology is making a difference in the way transcripts are created, workflows are processed and information is accessed. One of our clients realized a 40% improvement in turnaround time with NetScribe. Their production workflow is resulting in cost efficiencies; they have greater enterprise functionality compared to their competitors; and they can handle an increased number of projects simultaneously; and best of all, they increased transcriptionist and client satisfaction. This is a true testament to how our technology will drive improvements both internally for us and for our clients across the globe.
We brought new innovations to market. We further enhanced our proprietary automated speech recognition technology, which improved efficiency and diarization, along with the usability and accuracy of our FirstDraft in all verticals.
Our strategy to remain engine-agnostic ensures that we utilize the best-suited and most efficient engine focusing our R&D investments on industry, geography and customer-centric customization based on the characteristics of the file. Creating the best document is reliant on the engine's ability to learn and take advantage of our vast database of content to accelerate our improvements in AI for targeted industries like insurance, media and courts.
We also enhanced the Carbon solution to include strategic integration with Sony Ci to create efficiency and speed complex projects for media professionals across the globe. The integration with Sony Ci securely manages synced audio and video recording for expedited content creation, enabling the media team to utilize VIQ's AI-powered draft documentation to self-edit or send on for professional verbatim recorded documentation by VIQ's team, which is now utilized by major news and media outlets.
We announced a strategic partnership with ORdigiNAL, expanding our reach in EMEA through their 1,200 resellers. This partnership anchors on our delivery of multi-speaker speech solution to the partners that have historically focused on single-speaker products.
We share alignment on bringing cloud-based solutions to legal, law enforcement and courts across EMEA. Our teams responded to this extraordinary opportunity by enhancing our NetScribe technology to allow for a more self-automated implementation and reporting. These changes increase access to this market and appeal to a broader range of users as we pivot to our critical subscription model.
And what I believe is the greatest achievement of 2022 is the relationship that VIQ continues to maintain with our customers. Despite the headwinds of 2022, largely precipitated by capacity constraints, we renewed all of our major contracts that were set to expire this period. We sacrificed short-term growth to preserve our essential relationships during this time, and we have seen this in our continued customer loyalty.
In closing, I am confident in our team and our ability to manage near term while continuing to position ourselves for the future. We are unwavering in our commitment to deliver customer success and in our transformation to profitable growth.
I will now pass the call over to Alexie to discuss our financial results in greater detail. Alexie?
Alexie Edwards
Thank you, Susan, and good morning, good afternoon and good evening to everyone. Let me recap a few of our fourth quarter 2022 financial highlights.
Q4 revenue of $10.2 million, an increase of $2.7 million or 35% from the same period in the prior year, primarily driven by a full quarter of Auscript versus 18 days in the prior year quarter. Gross profit of $4.8 million, an increase of $1.5 million or 45% from the same period in the prior year. The gross margin was 46.8% versus 43.7% in the prior year. Our net loss was $2.2 million, which is a decrease of $1.5 million versus last year. And finally, our adjusted EBITDA was negative $1.2 million, representing a decrease of $0.6 million or 35% from last year.
Our full year 2022 financial highlights provide an overall picture of the year. Firstly, we generated revenue of $45.8 million, which was an increase of $15 million or 48% from 2021. Our gross profit was $21.9 million, an increase of $7 million or 47% from the same period in the prior year. Our net loss was $8.7 million, which represented a decrease of $11 million or 56% from 2021. Our adjusted EBITDA was a negative $3.4 million, a decrease of $1.5 million or 31% from the same period in the prior year. The improvement in adjusted EBITDA was mainly driven due to efficiency gains from scalability, cost-cutting measures and lower corporate costs than 2021.
We refinanced our legacy debt facility 11 months ahead of maturity. On January 13, 2023, we entered senior debt facility with Beedie Investments Ltd with maximum available funds of $15 million. $12 million of the loan has been advanced to VIQ with an additional $3 million available to be drawn for growth initiatives.
In 2022, we adjusted our focus, aligning our global resources, conducting a 10% reduction in headcount and restructured to improve adjusted EBITDA as we work to evolve into a leaner, more data-driven company without sacrificing our ability to scale and meet customer demands. As we look to begin generating positive free cash flow later this year, we believe this facility provides us with the necessary liquidity to support growth.
Now I'd like to hand it over to the operator for Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from the line of Scott Buck with H.C. Wainright.
Scott Buck
Sebastien, I was hoping maybe you could speak a little bit to revenue visibility in '23. I noticed there wasn't any conversation in the press release or on the call about targets, goals, which is a little bit of a departure from previous quarters.
Sebastien Pare
Yes. So we -- what we decided to do is, at this point, to really opt for no specific guidance going into 2023. At this point, we're really, really are focusing on Q1 and Q2. And then we'll come back, I think more openly, kind of halfway through the year with an update in terms of where we're at.
Particularly after last year and some of those organic and basically net new bookings that got delayed because of all those environmental constraints that we talk about, we felt it was prudent going into 2023 without really providing any specific guidance.
We do have, obviously, a large number of net new bookings that came through last year. Obviously, we're actively trying to accelerate the ramp up of those contracts which will translate into organic growth in Q1 and Q2. We also have a number of very large and mid-sized opportunities with ORdigiNAL, as Susan alluded to, across Europe and EMEA, that are in the process of going into evaluation.
So depending on all of those assumptions coming out in the first 6 months of the year, we felt it was more prudent to basically abstain from providing specific guidance knowing that we will come back to you probably later in July with an update. And at that point, once those assumptions have been fully validated and there's been no environmental constraint impacting our capability to scale, then we'll provide a little bit more specific guidance moving forward.
Scott Buck
That's helpful. And then as you migrate Australia to NetScribe, do you anticipate those gross margins to look more like the U.S., in the mid-50s? Or more like the U.K. at potentially 60-plus percent?
Sebastien Pare
Yes. So that's a very good question. We've been asked a lot. I think what we're aiming for is -- obviously, it's a process, it's a journey. But we're truly aiming towards what was accomplished in the United States. It's going to take some time, but now Australia representing 57% of our revenue, then you could appreciate that gaining a 10%, 15% gross margin on that revenue in Australia will be absolutely significant moving forward. But again, we want to be conservative, and those migrations are well underway as we speak, and then we'll provide an update halfway through the year.
Scott Buck
Okay. Perfect. That's helpful. And then last thing. Are there any more levers in OpEx that you could potentially pull to reduce costs further there, if you had to? Or are you kind of cut down to the bone at this point?
Alexie Edwards
We're constantly monitoring OpEx, Scott. And we are reviewing on a monthly basis, and we will take whatever action necessary to maintain OpEx below a certain level.
Operator
Your next question is from the line of Brian Kinstlinger with AGP.
Brian Kinstlinger
Can you talk about when you expect the Queensland contract will be at a mature, steady state? And then also when you expect you will have onboarded new contracts that you have been awarded.
Sebastien Pare
Susan, do you want to take that on?
Susan Sumner
Sure. I would say, Brian, that the new Queensland contract is probably at 90% efficiency right now. It gets better every single month. And as I referenced in my remarks, it was a long slog from July until now. And I think the teams have -- it's been a combination of both our internal adoption of their technology and some technical issues that the courts actually had on their end. And I think we're at full stride. I think that we will be fully up to what I would call business as usual by early May. But we're doing really well now.
In terms of the execution of the bookings from 2022, it's been a slower-than-anticipated onboarding process because of the constraints that I referenced also in my speaking notes, but we are starting to see the implementation and the ramping of the 2 major contracts that came out of 2022. And we expect that by June, those contracts will be fully onboarded.
Sebastien Pare
At scale.
Brian Kinstlinger
And just to be clear, when you're talking about 90% efficiency on Queensland, does that mean all the volume's going through, but you're not as efficient as you can be? Or does that mean that you're only doing 90% roughly of the volume that you could possibly do?
Susan Sumner
No. We're doing all of the volume that we can possibly be. Actually, our volumes are accelerating pretty quickly. We're at all the volumes that we are allocated through that contract. I'm talking about the efficiency rates from the internal teams that have affected our cost structures around that.
Brian Kinstlinger
Right. Okay. And then the first quarter is typically seasonally light. I believe it's in Australia, that is the reason as some courts shut down. Again, I could be mistaken on my geographies in my memory.
Sebastien Pare
No, you're correct.
Brian Kinstlinger
If the first quarter is down, should we think about it as seasonally weak compared to the fourth quarter? Or should we think about that fourth quarter missed some revenue, and those seasonality versus oncoming revenue may offset each other?
Sebastien Pare
The first quarter is the highest in terms of the seasonality impact. You're absolutely correct, basically, 95% of the courts will shut down between Christmas and the end of January. So obviously, we plan for this. It's been like that forever. And then those contracts starts really going back to normal capacity in February and March. So Alexie, I don't know if you want to -- I think from a model perspective, what to expect?
Alexie Edwards
I think it's -- Brian, as Seb alluded to, right? I mean, the courts are shut down for most of January. And Q1 is going to be within the same range, I would say, as Q4 or slightly better, based on all seasonality trends. That's how we view it.
Brian Kinstlinger
Great. My other question is, with the -- we obviously see the balance sheet at the end of the fourth quarter, and you discussed subsequent events. I guess I just want to make sure. How much of the -- I think it was -- I forget the number, $13 million or $15 million that you took, is used to offset, pay down the other debt? Or have you taken $12 more million that's sitting as cash on the balance sheet? I'm just trying to understand what cash looks like, where you are roughly today.
Alexie Edwards
Yes. So we draw down $12 million as an initial advance. Most of that was used to liquidate the Crown debt of about approximately $8 million. Plus, we paid fees associated with the financing, and the balance is being absorbed in business -- additional working capital.
It's too early. We haven't finalized the March numbers. So at this point, we cannot provide an actual cash update in terms of where the balance sits. But the $12 million was -- most of it was utilized to pay down the Crown debt and some fees associated with it, and the balance was absorbed for working capital.
Operator
There are no further questions at this time. I would like to turn the conference back over to Sebastien Pare for closing remarks.
Sebastien Pare
Thank you. I would like to, again, thank you for taking the time. And we'll be back in terms of reporting Q1 fairly quickly in terms of the month of May. And so if you've got any questions or any outstanding that you think will require a little bit more details than these first questions, please do not hesitate to reach out to Laura Kiernan.
At that point, thank you very much, and have a good day.
Operator
Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.