COMPANY NAME - VIQ Solutions



VIQ SOLUTIONS INC.

Moderator: Audrey Liu

March 4, 2020

4:00 p.m. ET

OPERATOR: This is Conference #: 4089749

Operator: Good day, ladies and gentlemen. On today's investor call, we will discuss VIQ's recent strategic acquisitions, organic sales growth and the 2020 financial outlook. At this time, all participants are in a listen-only mode. Should you require any assistance during the call, please press “star” then “0” on your touchtone phone.

We will have a question-and-session at the end of the call, at which time all participants wishing to ask a question will be instructed to press “star,” “1” and identify themselves before asking a question.

Please note that certain statements made on today's call may contain forward-looking information subject to known and unknown risks, uncertainties and other factors. For a more complete discussion of the risks and uncertainties facing VIQ, we refer you to VIQ's Q3 2019 annual MD&A and other continuous disclosure filings which are available on SEDAR at .

Please note that all amounts are in U.S. dollars unless otherwise stated. I would now like to turn the meeting over to George Soteroff, please go ahead.

George Soteroff: Welcome to VIQ Solutions’ Analyst and Investor Conference Call. Today, we will discuss VIQ's recent strategic acquisitions, organic sales growth and 2020 financial outlook. I'm George Soteroff, an investor assisting the company. I am your moderator today.

As a guide, may I advise we are not able to respond to questions on perspective and development business for reasons of (competition) and confidentiality, nor are we able to discuss contracts, with security conscious customers and partners who request non-disclosure.

VIQ's President and CEO, Sebastian Pare, will begin with a brief overview. Alexie Edwards, VIQ's Chief Financial Officer will follow with a recap of 2019 and cap table. And Susan Sumner, VIQ's COO, will discuss the rationale behind the acquisitions and the value they bring to our business model.

At this stage, the company can only disclose pro forma, and when permissible, specifics they have already disclosed publicly. Audrey Liu, the company corporate (comptroller), is also present for this call.

For some in-depth questions, we may refer to the latest MD&A and Associated Press release. We are limited today to 45 minutes and I know Mr. Pare wants to answer as many questions as possible after his initial statement. Please identify yourself with your name and affiliation if you're an analyst, or state if you are an investor.

I'll now call on Mr. Pare.

Sebastian Pare: Thank you, George. Thank you to everyone for taking the time today to attend our first investor call of 2020. We're pleased to provide this investors update following the steady media coverage since our third quarter earnings last year. The strong surge in new investors is partly due to VIQ being noticed as an undervalued early disruptor digital company and our growing steadily in a very large addressable market that is in no doubt ripe for disruption.

Many also see our addressable markets and what VIQ provides as somehow recession-proof – and we agree.

VIQ's growth is driven by three categories. Acquisition, organic growth from our 1,300 existing clients globally, and new prospects from our rapidly increasing sales pipeline. In addition, we are to achieve a 2x gross margin improvement using AI augmented productivity which directly fuels our financials over time. It's an incremental process, not an overnight transformation. Our investors see a clear strategy; slow and steady, diligent execution; and a growth path that is trending in the right direction.

At this stage, our plan is about growth, disruption, first mover, margins, EBITDA, market share and acquisitions. Also making sure our fundamentals are improving – including cash – and we are an international enterprise with a leadership team and a technology that could scale.

Our audience for today's call is the largest we've ever had historically, so let's get into it.

As many of you are aware, the commercial launch of NetScribe aiAssist was a significant milestone for our company. The launch was similar to putting a new bicycle on the road and taking it for a test ride. While riding it, we noticed a few things needed to be fine tuned that will make the ride smoother. We're happy to report the training wheels have come off. We have a significant number of clients, transcriptionists, editors, partners at a massive growing volume of data in processing.

Slow and steady wins the race. And it's exactly what we intend to do over the next two or three years, with the best senior leadership depth in the industry.

Currently, we're in the second phase of our digital migration to consolidate transcription platforms and transition all our customers to our new platform which is powered by AI and designed to streamline operation and increase efficiencies.

As of March 1st, roughly 40 percent of our transcription volume is on the new platform. Ten months ago, the volume was non-existent. (Our) editors, migrating to NetScribe aiAssist and have been on the platform for more than 30 days. Their productivity overall has improved by over 30 percent and it's very early in the throughput productivity improvement curve that we're working with.

Also, of those 30 percent, the productivity time is less when delivering a document by editing online when compared to traditional typing transcription.

These are fundamental breakthroughs in our industry at the core of our technology platform strategy with profound impacts on our recurring revenue and future financials.

In parallel, our gross margins went from 28 percent entering 2019 to 44 percent when we exited 2019. By the end of June of 2020, all our customers and editors will be migrated to NetScribe and all our transcription volume will be processed using our advanced technology. We have successfully calibrated aiAssist to support single speaker for law enforcement and insurance as well as multi speakers for courts and multi speakers and verbatim for law enforcement.

We also have mastered compliance requirements for United States, Australia, EME for our infrastructure and services and we've made tremendous progress in our industry-specific solution sets, which was very critical to increase productivity and provide our clients the next generation of services and transcript that they've come to expect.

We will continue to adjust the infrastructure to support localization in each of our regions for maximum productivity gains and better customers' outcomes in the years to come. Our gross margin targets for 2020 are directly tied to the transition of the client volumes to NetScribe aiAssist and the ability to gain efficiencies for our core markets.

We've seen a flurry of media and market research attention on our fast-evolving industry lately, creating a predictable perfect storm as many describe it. It's likely that speech to text will transform the industry. But without the underlying human expertise, cyber-security, workflow and cloud computing, speech to text technology and other AI tools in our markets are not using – going to be successful.

It's important to keep a human expert in the loop to provide context and management of the data in the highly regulated machine learning augmented infrastructure.

This is a fundamental value to our enterprise and how we have approached artificial intelligence from the get-go. We are preserving an industry while enabling its modernization from an offline workflows that are not secure, non-compliant legacy system and processes – and moving to an online, highly secure AI augmented productivity workflow.

The offline legacy market is definitely shifting. In fact, it's becoming obsolete. And our customers fully appreciate that, and there's no doubt that our industry will look drastically different in a few years. We believe the digital race in our core markets and around the globe, VIQ is progressively emerging as an early disruptor.

Similar to what occurred in healthcare industry over the past 10 years, we believe the end-to-end workflow will become digitized and machine learning will be responsible for producing more than 60 percent of the volume.

Additionally, transcripts will be finalized to 100 percent accuracy according to each client specs, by experienced transcription editors using cloud-based solutions operating at a much higher level of productivity.

I would like to make you aware that we plan to issue our 2019 year-end results in early April.

I would like to cover several other important items today including our two recent acquisitions, organic growth, the state of our new SaaS and services backlog, the optimization of our cap table, our initial results for 2019, our latest outlook for 2020.

Given the recent rise in stock price and volume, we want to take this time to update you on our expectations just to make sure we're all aligned and we're all in the same page. Since the third quarter, in addition to the two accretive and non-dilutive acquisitions, we have announced Organic Win, completed a 1 to 20 reverse split, obtained our second patent pending for NetScribe aiAssist platform, upgraded our OTC listing to the QX, converted the vast majority of our convertible notes to equity, obtained our Criminal Justice Information Service certification known as CJIS in the United States. Also as of this morning, we have called a significant portion of the outstanding warrants that are in the money in order to fund our contracted backlog of new SaaS technology clients.

As committed to our shareholders last fall, with the exception of our two recent acquisitions, all of our clients acquired in 2019 were on target to be fully migrated by the end of June, which is a key milestone to turn on the AI augmentation resulting in increased productivity and the ability to lift the gross margins to our projected level this year.

On the real estate front, we've been very diligent about consolidating operations into our core production facility in Phoenix, Arizona. This change will eliminate six of the eight offices in the United States that we were inherited with the acquisitions. Phoenix, Arizona is our global operating hub.

2019 financial results will reflect many of these one-time expenses and large scale customers' migrations and investment made in operations to set things up for 2021 onward.

As of today, post the last two acquisitions, 69 percent of VIQ revenue is now in the United States, 24 percent in Australia, and 7 percent in EME and in Canada – supporting 1,300 clients across insurance, law enforcement, courts and government agencies. All of this activity is to support our larger strategic goals which we'll recap in a few minutes.

Now, our CFO, Mr. Alexie Edwards will comment on the cap table and the preliminary results of last year. Alexie, over to you.

Alexie Edwards: Thank you, Sebastian. To summarize the impact on our capital table and financial statements of these changes, the following is as of Monday, March 2nd market close, 54 million market cap which is derived from 17,248,265 shares times $3.12. Our current debt is 14.5 million as of February 28.

As of Monday, March , our current enterprise value is $66 million. As of December 31, 2018, VIQ's enterprise value was $32.5 million, still very early for VIQ, however, our enterprise value is up by 103 percent in just over 12 months.

At the same time, we continue to execute on our three growth categories that Sebastian mentioned as well as margin improvements.

With a significant portion of the outstanding warrants being called earlier today, we expect new cash of approximately $1.8 million and 1.1 million shares to be called before the end of March. If all is exercised, this will take our outstanding shares from 17,248,265 to 18,351,791 outstanding shares.

Please note that all insiders who have those warrants are already exercised. Calling these warrants will accelerate the funding of our yet to be disclosed backlog of major SaaS contracts that have been won since the start of 2020 with revenue generation to start in Q1 of 2021. At that time, we will begin to recognize revenues from this backlog which will be part of our 2021 run rate.

You will also see a 4.1 million non-cash interest charge on income statement in Q1 related to the debt reduction via the conversion of the convertible notes to equity. The MD&A will explain this in detail.

Now, to discuss our preliminary results for full-year 2019. We generated revenues of approximately $25 million for the full year and a gross margin of about 44 percent. Adjusted EBITDA is yet to be finalized due to all the year-end M&A expenses and financials being reviewed by external auditors.

As mentioned on our last earning call, we planned last year for a net loss due to the commercial ramp up in our customer migration to the transcription platform and the scalability and leadership investments made in 2019 to position the company for 2020 - 2021 growth.

2019 year end will also include a series of one-time charges related to diligence for ASC Services and wordZXpressed acquisitions incurred in the last 30 days of 2019. While these two acquisitions closed early in 2020, the bulk of the M&A work was executed in Q4 of 2019, thus 2019 EBITDA would reflect these one-time charges.

I would then ask Susan Sumner, VIQ's COO, to share more details in regard to the recent acquisitions.

Susan Sumner: Thank you, Alexie. I'll provide a bit of color around why we made the most recent acquisitions and the value that they bring to VIQ.

ASC Services is headquartered in Washington, D.C. We are very excited about the ASC acquisition, as it not only brings the U.S. $6 million of incremental revenue, but it also extends our footprint into the media and political sector which is highly synergistic to our core services. This provides us huge opportunities for expansion both domestically and globally.

ASC services almost all of the major network and cable news outlets in the U.S. and many high profile government agencies as they deliver practically real-time transcripts, resulting in the delivery of content for consumption by news and regulatory agencies.

In a highly competitive sector where time and accuracy are critical, combining our technology with the ASC customer base provides a competitive advantage not only to us, but to the customers ASC serves as well.

We do this by improving the state of delivery and automating workload. A key limitation to the growth of ASC has historically been their access to labor. With our technology, we will allow more productivity from the individual transcriptionist and also provide access to some of our over thousand editors that will be able to support this incremental demand.

Anchoring our entrance into new sectors with the best of the sector will be paramount to our expansion strategy. Consistent with that, we are also thrilled to bring in a second acquisition, wordZXpressed or wordZ as we call them, which also adds approximately U.S. 6 million in revenue with a portfolio that includes several Fortune 500 insurance clients. Insurance is one of our core verticals, and this solidly places VIQ as the leader.

wordZ is a natural extension to the acquisition to be completed in (2018). In addition to the insurance industry, they also service legal and law enforcement segments that are core to the VIQ strategy based on our acquisition model in acquiring healthy synergistic businesses where we are confident that our applied technology will favorably influence both the customer experience and our gross margin.

As with prior acquisitions, they too follow our integration methodology to which the cornerstone is first, do no harm.

We are proud to say that we have not lost a single customer from the acquisition we did in (2018). In the upcoming months, we will drive those operational efficiencies using our process to deliver the highest outcome with the least disruption and the best financial performance. We believe these acquisitions are consistent with our prior acquisition in bringing in the marquee names in each sector to our portfolio of both companies and customers.

We welcome both companies and their extraordinary leadership teams to the VIQ family.

Back to you, Sebastian.

Sebastian Pare: Thank you. Well done, Susan. For 2020, given everything we've just highlighted and the closings of ASC and wordZ in Q1 rather than Q4 2019, our current recurring run rate of stable long-term recurring revenue is now $35.5 million, a 51 percent increase year-over-year against our $23.5 million from last year.

To augment our recurring run rate, our range of organic growth forecasted for this year is between $2.5 million and $4 million in organic growth, between 10 and 15 percent. In 2020, our approximate EBITDA percentage range is expected to be between 10 and 15 percent and our gross margin range between 50 and 60 percent. We have a sizeable pipeline of active organic opportunities globally which we expect to convert several during this fiscal year. Many of these are included as part of the growth range targets.

Starting in 2020, we will also start to report on our backlog of technology and services revenue contracts already awarded with revenue to be recognized in the future. This should help investors with their two years outlook models.

As of March 1, this backlog is approximately $3 million per year. It's mainly made of long-term SaaS technology and services contracts recently awarded to VIQ which will start generating high margin monthly recurring revenue at the end of 2020 and fully realized in 2021 and beyond. These new backlog contracts will make their way into public disclosures when permitted by the clients in due course throughout the year.

Also we have an M&A pipeline which we continue to work on quarterly. ASC and wordZ acquisitions are the latest to be converted. We have others in process that may close in the second half of this fiscal year or early in 2021.

I'm also pleased to announce that we've added organically six new court and law enforcement clients in Q4 of last year. As requested by the clients and due to competitiveness, these six undisclosed contracts are located in the United States, United Kingdom and Australia and are expected to yield approximately $500,000 in long-term recurring annual revenue in 2020.

These are not yet included in our current $35.5 million run rate. These new contracts reinforce VIQ's global market presence and establish crucial references and increase our pipeline to secure additional contracts both within existing customers and new customers.

We have stated that two of our top strategic goals are to improve the quality of our revenue by transitioning towards recurring and SaaS revenue as well as cross-selling a range of purpose built software products to our customer base while we continue to expand with our existing customer base.

These new organic contracts are evidenced that our strategic play is playing out as intended and will continue to accelerate growth. These 2020 revenue and gross margin goals represent significant growth driven both organically and by acquisition and provides tangible proof of the continued successful execution of our strategy fuelling our financials overtime.

In closing, we expect to continue driving organic growth, successfully integrating acquisitions and pursuing non-dilutive acquisitions that are accretive to earnings which will enable us to reach our goal this year. 2019 year end will be filed early in April and Q1 2020 a few weeks later in May.

This concludes the short formal updates today. Thank you for attending. Now, the moderator will pause and we will be pleased to take your questions. Thank you.

Operator: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. That's “star,” “1” on your telephone keypad to ask a question.

And I'm not seeing any questions at this time.

Sebastian Pare: I'm good with that.

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