VQSLF: Second Quarter 2019 Improvements
By M. Marin
OTC:VQSLF | TSX:VQS
READ THE FULL VQSLF RESEARCH REPORT
VIQ Solutions (VQSLF) (VQS.V), which operates a technology platform that offers artificial intelligence (AI) enabled video capture software and audio recording with voice-to-text capabilities, recently reported 2Q19 financial results. Revenue came in at a record $6.2 million, which represents an 88% year-over-year advance from $3.2 million recorded in 2Q18.
On the higher revenue base, the company reported gross profit of $2.45 million. This compares to gross profit of $1.1 million in the prior year quarter. On the higher gross profit, VIQ generated adjusted EBITDA of $419,000. This represents a 193% year-over-year increase.
VIQ management ascribes its 2Q19 financial improvements to the successful execution of its growth strategy. Key aspects of the strategy include:
• Transitioning toward recurring SaaS accounts to improve the quality of revenue
• Growing the client base via strategic M&A transactions
• Expanding gross margins by driving cybersecurity, AI and cloud solutions for transcription clients
• Cross-selling a growing suite of software products
• Boosting recurring, higher margin revenue
VIQ has about 1,200 customers globally. The company’s single largest market is the U.S. Some 55% of 2Q19 revenue was generated in the U.S., with another 37% coming from Australia and the remaining 8% from EMEA markets and Canada.
Management Anticipates Further Gross Margin Improvement
The higher $2.45 million gross profit noted above represents a gross margin of 39.6%. This compares to gross margin of 33.6% recorded in the prior year second quarter. It represents a year-over-year improvement of about six percentage points.
The company expects gross margins to improve further, reflecting its strategy to drive business towards a recurring SaaS revenue model and the transition from 100% manual workflow to AI collaboration. Management estimates that AI collaboration could reach 80% of workflow by the end of 2021. Management also notes that there is an incremental margin increase with each client migration into the cloud. Moreover, the company expects to achieve growing scale as it continues to increase the number of minutes it transcribes. This is another factor that likely will contribute to margin improvement, management believes.
New Contracts Expected to Add High Margin Revenue
In July, the company announced a new five-year contract with the Western Australia (WA) Police Force, which oversees more than 150 police stations across eight metropolitan and seven regional districts. The WA Police Force believes that it polices the world’s largest, single police jurisdiction. With this new contract, the company notes that its subsidiary Spark & Cannon has become Australia’s largest provider of law enforcement transcription services.
VIQ anticipates that the new contract will add more than $1 million in recurring annual revenue. If the margins align with those of other recent similar contracts, the company expects gross margin of 25% to 50% on the new revenue. The contract began on July 1.
In addition, the company’s Net Transcripts subsidiary signed new contracts that added an aggregate 96 new United States enforcement clients. In May 2019, the company added 83 new recurring clients. Then in June, the company added 13 new clients and also renewed contracts with three existing clients.
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