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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, my name is Shauntelle, and I'll be your conference operator. Today, we are hosting a conference call to discuss the Second Quarter 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.
Thank you, Shauntelle. Good morning, everyone, and welcome to the VIQ Solutions Second Quarter and First Half Results Conference 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.
Thank you, Laura. We really appreciate everyone joining the call today, and I hope that you and your families are doing well. During today's call, I will provide some high-level remarks on the quarter and the first half of the year. Next, Alexie will speak about our financial results, followed by Susan, who will discuss our operating results. We will then open the phone line to answer your questions. We made great progress in Q2 against several of our priorities. We reported a 51% growth in revenue, net new bookings of $4.4 million, which are up to 159% versus the first quarter of this year and a 20% increase in the number of net new clients also versus the first quarter. This shows strong momentum going into the third quarter driven by organic revenue growth. Additionally, we reaffirm our previously announced full year 2022 goals. We're in a strong position. Our tech platform and digital infrastructures, products and human editing expertise in all regions are better than they've ever been, and we are more competitive than ever. The choppy waters are behind us as our customers reassert their quest to confirm the productivity and the delivery challenges amid the labor constraints that are evident in the global verbatim document industry today. After navigating COVID headwinds for 26 months, we placed a sharper focus on our key performance indicators to provide greater transparency and measures of success. Based on our bookings and the recovery in our production capacity for the first half of the year, we anticipate organic revenue growth, excluding acquisitions, to meet the expectations. Our KPIs related to net new bookings, active clients, production volumes and annual delivered content, all have increased to new high, while the cost to produce a minute of documentation dropped by 8.5% when compared to Q1. We achieved a positive EBITDA in the month of June, and we're on track to achieve positive adjusted EBITDA in the second half of the year. We are reaffirming our goals for 2022, including generating at least $50 million in revenue with a gross margin in the range of 47% to 55%. Now Alexie will provide you with some details on the results, and we'll speak about the raise we've made after the quarter closed. Alexie?
Thank you, Sebastien. And depending on where you are, good morning, good afternoon and good evening, everyone. We reported revenue of $12.4 million compared to $8.2 million in the same quarter of 2021. The increase of approximately $4.2 million or 51% was primarily driven by the acquisitions of Auscript and the transcription agency. Our bookings of $4.4 million represent an increase of 159% over the previous quarter. This positive indicator will take time to flow through as revenue, as it will positively contribute to organic growth starting in the second half of the year. Our gross profit was $6.1 million or 49.3% of revenue compared to $4 million or 48.6% of revenue last year. The increase in gross profit for the 3 months ending June 30, 2022, is primarily driven due to the Q4 2021 acquisition and productivity gains versus the comparative period in 2021. Note, the comparative 2021 period includes $0.2 million in COVID-19 wage subsidies versus $0.1 million in the 3 months ended June 30, 2022. Our net loss was $3.2 million or $0.11 per diluted share versus net loss of $10.5 million or $0.42 per diluted share last year. And our adjusted EBITDA was negative $0.7 million versus a negative adjusted EBITDA of $0.3 million in the second quarter of 2021. The decrease in adjusted EBITDA was driven primarily by lower COVID-19 wage subsidies, which included $0.2 million reduction in expenses for the current quarter versus $0.6 million recorded in the comparative quarter period in 2021, higher D&O insurance and professional fees for regulatory filings. The decrease in adjusted EBITDA was partially offset by productivity gains relating to the migration of customers to NetScribe powered by AI assist. In the first half of 2022, our revenue was $23.9 million, compared to $16.4 million in the first half of 2021. As a reminder, in early February, 15 days of lockdown in Australia negatively impacted revenue by an estimated $0.5 million. Our gross profit was $11.6 million or 48.5% of revenue compared to $8 million or 48.6% of revenue in the same period in 2021. The increase in gross profit is primarily due to Q4 2021 acquisitions and productivity gains, partially offset by lower technology revenue versus the comparative period in 2021. In addition, the comparative 2021 period includes $0.3 million in COVID-19 wage subsidies versus $0.1 million in the 6 months ending June 30, 2022. Our net loss was $5.2 million or $0.17 per diluted share versus a net loss of $12.2 million or $0.49 per diluted share last year. And our adjusted EBITDA was negative $1.7 million versus adjusted EBITDA of essentially 0 for the first half of 2021. The decrease in adjusted EBITDA for the 6 months ending June 30, 2022, was driven by selling and administrative expenses relating to professional fees for regulatory filings and D&O insurance, also incremental increase in cloud services expenses and a decrease in traditional onetime license sales. In addition, the 6 months ended June 30, 2022, included $0.2 million reduction in expenses relating to COVID-19 wage subsidies versus $0.9 million recorded in the comparative period 2021. The decrease in adjusted EBITDA was partially offset by productivity gains through migration of customers on NetScribe, powered by AI assist. We saw the recovery in production capacity in June, which led to a positive EBITDA for that month. We expect to generate positive cash flow from operations and improving liquidity in the back half of 2022 relative to the first half. And we are pleased that despite the impact of the Great Resignation primarily in Australia, we still expect to achieve our full year 2022 revenue and gross margin goals. Also, based on the first half of the year and positive June results and preliminary July numbers, we expect the revenue run rate and gross margin for the second half of the year to be higher than the first half. Following the close of the quarter, we announced a pipe of about $4.8 million, which was very strategic for the company. We leverage the opportunity to raise the funds to invest in special commercial opportunities and strengthen our balance sheet ahead of some anticipated commercial agreements. Now I would like to hand it over to Susan. Susan?
Thank you, Alexie. As Sebastien mentioned earlier, we delivered a strong second quarter with bookings of $4.4 million, which represented an increase of 159% over Q1 2022. With our strong client relationships and comprehensive solution portfolio, we capitalized on healthy demand across the market served, adding new customers with newly launched solutions, new customers with traditional solutions and additional services to current clients. The quarter also had high levels of renewals for critical accounts that confirm not only that we have been developed -- what we have been developing has demand, but that what we are delivering is also well received by our customers across the globe. Seeing this pivot in our bookings is a positive indicator. And while it takes time to flow through as revenue, it will positively contribute to our overall organic growth. In previous calls, we discussed the active trials taking place that we consider to be disruptive in terms of the way the clients are utilizing the technology that we have deployed. Let me take a minute and update you on those trials. Last year, we collaborated with the 8th District of Kansas to help them solve a critical issue impacting their court. The resources to produce court transcripts by court reporters were going to be depleted due to retirements taking place in the near term. As a trusted partner to the court, they have been using our CapturePro software for many years. Our challenge now was to help them solve the resourcing issue with improved technologies that connected to CapturePro to make their resources more efficient while remaining cost-effective. We added NetScribe and FirstDraft to their CapturePro footprint to help the courts manage the flow of audio files captured and provide the delivery of a FirstDraft to their team, both administrative and judicial for their court reporters to create their final court report. This beta was hugely successful. Not only did it lead to an upgrade in the capture solution, but they also purchased both NetScribe and FirstDraft, which quickly became an integral part of the court workflow. This trial was a first for us, allowing us to validate that we can be used to improve overall efficiency and fill the gap of the critical workforce that is eroding daily. We will help the court meet their demand that poses risk to the continuity of the judicial process. Our second trial, which also has been highly successful is with a large governmental body that employs over 80 in-house editors and has 4 major outflows contracts to deliver content. We are moving from Phase 1 of the proof-of-concept to a paid trial in the fall. We have proven that with our ability to manage content workflow within the NetScribe technology gives more control to the agency and that FirstDraft with its incredibly high accuracy and usability, is saving both time and money. This agency has looked for years for a solution that would allow them to incorporate speech to text into their environment and have commented that nothing has even come close to the VIQ solution. In the third trial, again, to a major court system, we had to prove to the court that the utilization of FirstDraft would provide an accurate and usable document to judges while they wait for the final court report. The ability to segment, select and annotate specific elements of the court record for a draft as a new concept that will ultimately improve the efficiency of both the judges and the court is critical. Across the thousands of files selected for the trial, our accuracy rates averaged 97%. This is a testament to the quality of the audio captured by CapturePro that provides the foundation for the accuracy of the FirstDraft. In addition, the customization of AI that supported the unique needs of this customer deliver the high levels of usability of the documents that we tested. While the build of revenue associated with SaaS has certainly been slower than we expected due to the shutdowns that delayed availability for trials just like the ones we've discussed today, it is very clear that we are now at the beginning of the intersection of markets that are in place and ready to invest in disruption and the availability of our technology that has been years in the making. Later this year, we will also launch services that will enable access to all capture technologies, including those of our competitors to further reduce the upfront cost for SaaS solutions and to accelerate innovation for court law enforcement, insurance and media. I would also like to take a minute to review the Carbon acquisition that was announced a few weeks ago. The media space is key to our global expansion. The overlap and the core requirements of these segments allow us to capitalize on both technologies but also our global organization. Media never sleeps and neither does the VIQ team. Carbon provided us a unique platform to engage with our -- with editorial staff, producers and journalists to collaborate in near real time, incorporating video into the content development process. We are very lucky to have a base of loyal customers that are actively helping to influence the direction of this technology. We now see crossover applications for law enforcement agencies that need access to both audio and video and content production. And we are very excited about what this brings to the VIQ portfolio. While the NetScribe technologies are driving efficiency improvements for our customers, it is also driving efficiencies to our service organization, as evidenced by our improvements in gross margin. The usability of Draft continue to improve, and so does the efficiency of the editors using that technology. This is proven by the 8.5% reduction in the cost to produce a minute of transcription. We continue to improve our global scale. We are better at evaluating, planning and implementing our technologies. We have also seen a dramatic improvement in gross margin from TTA and deficiencies in organizational consolidation in Australia, and we are only at the early stages. We still have approximately 70% of our revenue, largely in Australia to migrate to AI-assisted NetScribe. There is no doubt that we will see gross margin improvements continue. While our booking numbers are exciting, it is the adaptation of the organization to changes in the workforce, the enablement of our technology and the acceleration of demand that has been our focus, and we are seeing the results now. Cost containment has also been a key consideration to all of our operating units. We joined many technology companies in building a culture of doing more with less. Our leadership team is committed to the investments of the past to show favorable bottom line results going forward in 2022 and beyond. Operator, I'll hand it back to you to open the Q&A.
[Operator Instructions] Our first question comes from Scott Buck with H.C. Wainwright.
I guess my first question is in terms of the revenue guide. What is left to meet that $50 million that's not currently in the bookings or the current pipeline? I mean how much incremental [Technical Difficulty] to meet that? Or can you do it with the current customer base?
Susan, do you want to take that one?
Well, I think if you look at the run rate, Scott, that kind of answers the question that we're very, very well positioned with what we did in the first half of the year to achieve the objectives in the second half, and we're very excited about what the incremental bookings might mean to that as well.
Okay. So you feel like you have a pretty good sight line on that?
We do.
Yes, Scott, I was going to add that when we look at the first half of the year, based on what's in the booking pipeline, if you remember, in Q1, our bookings was $1.6 million, and in Q2 it's $4.4 million. So we have a healthy bookings pipeline that will start to flow through in the second half of the year to achieve our goal.
Great. And then on some of these new announcements out over the past couple of weeks in terms of new business. Is there -- I know we're expecting kind of longer-term gross margin expansion [Technical Difficulty] but near-term pressure on gross margin, when you start up with a new or expand with a customer?
Susan?
Well, so there are a couple of things. The big expansion that we were expecting this year with the Queensland contract that we talked about, we were able to offset some of that, what would normally, Scott, have been a pressure on the gross margin. We saw some of that gross margin impact in Q2 because we began the integration of the DJAG contract through the Auscript acquisition. We also saw some constraints in capacity in Q2 related to more of a global distribution and acceleration to the new technologies for the law enforcement agencies, meaning if it's going on the new technology as well with training editors, there's a higher percentage of work that goes over to quality assurance. So we saw that in capacity constraints that impacted revenue in a negative way in the second quarter. But we did see that rebound as capacity balanced out in June. So you start to see that recovery. Most of the big bookings contracts that we have, while they may put a slight constraint on gross margin, they generally, because of the limitations of their internal organization, will have a slow migration. So you'll see the revenue build slowly. And you'll also see the gross margin adjustment to that a lot more favorable than you would if you've had a major very quick migration to those customers.
Great. And then last one for me. You talked about organic growth getting you to the $50 million annual number. I'm curious what the appetite is here for some additional roll-up M&A?
I mean we are -- we always -- as we mentioned before, the M&A pipeline has always been there. And as a fact, coming out of the COVID and the Great Resignation and the labor shortages. So the pipeline is getting stronger and stronger, but we also are very, very focused on replicating the June results to make sure that they get carried across in Q3. We have done, I think, something that was outstanding in terms of navigating the labor shortages in the last several months, really until mid-May. And we stayed really close to all our customers, and that was really key, the retention of the revenue and then the rebuild of the capacity. And all of that came together in the month of June. So while we still have really, obviously, a number of active discussions with a lot of good assets out there, our primary focus right now is really about replicating the June results and making sure that we go from 1 month to a quarter in terms of profitability, and that's where we stand. But clearly, coming out of this period in the industry, we're starting to see more and more RFPs, where now they're starting to introduce FirstDraft, speech-to-text, digital workflow in the RFP. And you can appreciate from small companies that might have been doing really well in the manual world for the last 3 years, it's becoming increasingly difficult for them to compete with those highly complicated, where there's a lot of emphasis on technology, cloud infrastructure, ISO certification and all of that. So the pipeline is healthier than ever before, but we are very, very selective who we're talking to. And at this point, we're focusing on making sure that we go from 1 month of profitability to a full quarter of profitability.
Our next question comes from Brian Kinstlinger with Alliance Global Partners.
With the new Queensland contract starting and being mostly automated, is automated transcription a gradual process? Or is everything in place and it's basically turned on and automate from the back from get go?
Susan, do you want to take that one?
Well, I would say that Queensland is probably not the best example of the way that we utilize our technology because it's a very complex and new way that the courts are engaging with technology. The answer for -- the majority of our onboarding, Brian, is that absolutely, they will start out in the new technology. There certainly is what I would call a migration period where we are training internal and external resources, and that really does depend on the size of the contract. And a couple of examples I'll give you. In this quarter, we will be launching a mobile application that will allow for complete self-sufficiency of a small customer. That typically -- in the past, the onboarding of a small customer looked very similar to the onboarding of a major customer. To be able to allow small customers to self-activate, to self-manage was a really important piece to us, to be able to add that small to medium sector. That was kind of missing in the overall client base that we had. On the big customers, and again, they go immediately into our core technologies. They go in through a mobile application with an e-commerce adaptation that allows for immediate billing, immediate access into standardized templates and the ability to opt out from that technology to send to full editing at FirstDraft isn't sufficient for them. So that end-to-end begins in our technology, it ends in our technology, and there's no manual process from the start. On the major contracts where you have judicial organizations in the multimillions of dollars, it really doesn't depend on us. It depends on where those customers are in their migration of technology. So some of them, like the 8th District are starting with a complete revamp of workflow, whereas other small court entities will absolutely begin to add up our technology for their internal purpose. But all of those companies begin with our technology as the creator of the content that we distribute back to them. Does that answer your question?
Kind of. I mean it certainly gives good clarity into how things progress over time in transition. But specifically on the Queensland contract, because it's such a driver and a big piece of business that you've won and is transitioning from Auscript, I think, to your business. Is the new contract going to gradually recognize better margins over, say, 3, 6, 9 months or whatever, you want to communicate of how that's going to happen? Or does right at the beginning, the new margin profile take place?
It will migrate over time because there are -- while the Auscript technology is technology that we will use for our own internal deployment, therefore, reducing the negative impact to gross margin that you might have when you're bringing on a new customer like that. That was part of the strategy in the original Auscript acquisition. You will also see that the way we are deploying the solution for the DJAG changes, it's a slow progression in the way that they're bringing that on board, and also it is an internal training for our teams because they're changing the way they're actually building that documentation. So it won't be immediate, but we will see margin improvement over the course of the -- probably the first 6 months from the baseline that we had in the Auscript acquisition.
Great. One more question on Queensland. I promise I won't ask any more. See the manual process of transcription, was that done through third-party contractors that were subcontracted out or transcript -- or that company's own employees? And as it transitions, will -- I take it those services will no longer be needed. Is that right?
Not exactly. Everything that we do in Australia is a combination of employee-based transcriptionists as well as independent contractors. We don't use third-party organizations. We do use independent contractors because we have very rigid security requirements around background checks that we need to control. But the profile of how we source that work will remain consistent on the prior contract to the new contract. And any incremental resources that may not be needed because of efficiency gains in the new technologies are going to be used to source the new bookings contracts that we have in that region. So we've got plenty of demand to utilize all the resources that we have there.
Great. I joined late, so maybe this was addressed, but there were some COVID lockdowns unexpectedly in Australia during the second quarter. Did that have an impact on revenue and expenses if at all? And can you quantify either?
No. The last impact of COVID was actually in Australia. So you're correct, but it was in March. So it was really at the end of the first quarter, but -- and that was the reference that Alexie made. There was also that everybody knows about the international use when they saw the historical flooding that took place in the Brisbane area that really put the State of Queensland under emergency. So all of that was kind of Q1 related hit. And with the help of our auditors, we were able to assess roughly about $0.5 million in revenue. So all of that now is behind us. But in Q2, the major headwind was really at the start of Q2 in terms of the labor capacity and all the work that we had to go through in Australia to collaborate with our clients to make sure that not only we retain all that revenue, but that we work collaboratively with them. And I think we did, because starting in June, you saw what happened when there's no COVID and there's no labor shortage, and we get our production capacity back that it started to really show. And I think the other piece that we talked about at the early of the call is none of that revenue yet in Australia has been fully migrated. So now for us, this is really starting to be a very different ballgame moving forward because we've proven the model in the United States. We're now in the process of getting everybody in the U.K. fully migrated. And now the heavy lifting has started in Australia, and that's where we've been modeling. So we're going into the second half of the year with a different kind of mindset and different kind of confidence because COVID is behind us after 26 years and the majority of the labor shortages that we've experienced, like everybody else in the industry is behind us. So for us, June was the new benchmark. And basically, we're going from this point.
Great. And then touching on the $4.4 million of annual run rate bookings. Was Kansas a major piece of that? And a follow-up on that is maybe any details around where you're seeing that? Is it courts, is it media, U.S. courts, insurance? Just some details on where those bookings are starting to pick up.
Kansas wasn't a major piece of it. Kansas is a small court system. And while we're very excited about the contract, it is a SaaS contract for our technology. The big impacts to the bookings were in courts in Australia, media in North America and in courts in the United States. So largely on the services side. The technology SaaS revenue, we're really, really excited about it. We have trials like the 8th District in probably 8 different locations around the U.S., but that's going to be a slower build, right? As you know, when you go from licensing agreements into SaaS contracts, there is a bridge while you're building those very high margins, but monthly lower revenue contracts. And so the big hits were still on hybrid services contracts, and we did have healthy growth, though, in the number of pure SaaS contracts that we signed in the quarter.
If I could add Brian?
Please.
There was also -- in the $4.4 million included was a major insurance contract that came in out of the United States. And I think this is aligned with what we've been saying for the last 2 years during COVID. If -- and I think your report does a good job as far as explaining all of that. But we tend to deal with the insurance claims 6 to 10 months after the accidents happen. So if you really model this out, we've been saying that all along that our insurance revenue in the United States got impacted during COVID back to 2021 and 2020. But now that we're back into kind of normal and quasi normal capacity on the roads, accidents started to happen again and sure enough. So now the insurance revenue started to climb up again. And I think that was a big contribution also in the $4.4 million in that sector as well.
And Brian, I just want to clarify your comment when you said $4.4 million annualized. The $4.4 million is the contract value. And the reason why that's important is because included in that $4.4 million, there's 1 contract that was -- that has a 2-year value of about $2.2 million.
Got it. Okay. That actually was important. Now that's backward-looking. If I look -- last question is forward-looking. Do you see more opportunity insurance, courts in the U.S., courts in Australia, media. I know there's opportunity probably in each of them, but maybe rank where you see the most growth opportunity in the pipeline?
Wow, it's an interesting question. And I would say, yes, I would say in order, probably the SaaS clients in the court space, the utilization of FirstDraft in filling that labor shortage and the way we're deploying that technology around the world, we're having very good results with the trial for NetScribe. So I would say the deployment of the NetScribe and FirstDraft technology to the court system is a very big part of our current pipeline. But we are very excited about what's going on with the introduction of Carbon to media around the globe. It is a very unique platform. And as we put development into that to accelerate the integration to our core technologies, it opens up a wide range of opportunities around the world that really will provide us with acceleration of both technology and hybrid services sales. So those will be the 2 at the top of the list. Insurance is really at a great place. But I think it's going to take a little longer to be able to get them to the concepts around migration to the mobile applications that we're just now launching and to the FirstDraft applications that are in trial with a couple of our major insurance companies right now.
Our next question comes from Daniel Rosenberg with Paradigm Capital.
I wanted to ask a question around the Queensland contract. Could you just remind us on timing of how revenue impacts you this year? And just kind of what you're expecting in terms of lumpiness? Is there upfront or back-end portions to it? Any info would be helpful.
Yes, I will just say that it's hard to comment on that because we're in the middle of deployment, first of all. And second, some of that is constrained to the customer agreements. But it is a migration, Daniel. So we will see -- it won't be lumpy. I think that you will see a very consistent transition, certainly a slower start than I think what we expected. But I think that the overall expectation of the revenue profile is consistent with what we had expected in the projections for the year.
And then just on that profile. I mean since it was first announced the multiyear agreement, has it changed in terms of what you were expecting initially versus now what's actually being deployed?
You mean the total contract value?
Yes.
No, it hasn't changed at all.
And then in terms of the bookings number, just kind of a similar question to understand how you see that being deployed going forward. Just the bookings pipeline that you have, any visibility in terms of when we can expect to see that incremental revenue hit the statements?
Yes. Daniel, what's going to happen, it varies by contract, but we anticipate seeing some of that flowing through the revenue line starting in July, ramping up to Q4. As I made in -- my earlier comments stated that included in the Q2 bookings number, $4.4 million, is about $2.2 million for a 2-year contract. So that will take a longer time to flow through. But the other portion, the Q1 and the balance of the contracts making up Q2, will flow start in Q3 and Q4 and into next year as well.
And I think if I could add as well, Daniel, that's what we -- in the last couple of earnings calls, we made it very clear that we want to improve the transparency and the visibility of those early KPIs into our operation. And if you take a look at the MD&A, we have introduced about 6 key KPIs that we feel comfortable that will provide you an early indicators of what's coming. And obviously, the net new booking is in there. Also the number of minutes that is going through, the number of pages, the volume that is now flowing to the eye, so now you could start to see. And what we're trying to achieve with this is to give our shareholders -- and not visibility at the early stage of what's coming next, knowing that when net new bookings do happen, then it does take a couple of months to get them going, get them connected with the platform. Then there's the obviously training that takes place early on, but then it starts flowing to the revenue. And we did that because now we are pretty bullish about the second half of the year, and a big part of that is not only the current run rate with the existing customers, but as a portion of that net new bookings that starts flowing in, starting in July. So all of this is coming to basically together in the second half of the year. And we've been saying all along, everybody has been really patiently waiting to see, but we're post-COVID, and we're post major labor constraints. And we've always said to everybody what's going to happen when we get our production back and there's no such lockdowns for a major constraint on the resources? And we saw that with the results in tune. So that's where we stand, and that's what we felt comfortable today to share with all of you that what we think about the second half of the year in terms of revenue, but also potentially on the gross margin. As Alexie stated, in terms of the -- we believe that the gross margin will be higher in the second half of the year compared to the first half of the year.
And could I ask on the acquisitions that were completed last year, have those been -- are those client bases on NetScribe, or what percentage of them are on the more productive platform today? And can we expect some synergies going forward?
Yes. So in the U.K., as we stated before, in the U.K., that process is well underway. And this summer is the time where now everybody has been turned on, on the new platform. The editors have been cross-trained, all the cybersecurity compliance with all the different regions, all the different clients. So the U.K. is in good shape as far as on the platform before the end of the summer, fully productive with that with FirstDraft coming in. And what we stated is basically Australia is the one that now the heavy lifting is all hands on deck. So we expect Australia to take several months because obviously, 70% of our revenue right now. And Australia will be mostly migrated and mostly up and running with FirstDraft before the end of the year, and it might go a little bit towards the beginning of next year. And at that point, we're talking about a completely different organization moving forward, where now FirstDraft is now de facto standard across the organization for the production of the various documentations. And then you start layering on top of it what we've been doing with Carbon and why we went after Carbon is to bring the next level up. Now that we're able to generate the FirstDraft in a really rapid way and still show the productivity and the cost that really for the customer base, now we're moving towards the near real time, and that's what the Carbon piece was so important in terms of what's going to happen towards the second half of the year, but also going into 2023. So we're really bullish about it. And that Carbon piece is the beginning of what you're going to expect to see towards the end of the year once everybody has been migrated. And once the margin have been pushed to where they need to be with Australia fully productive on the platform, then what you're going to start to see in 2023 is the next step above that, which is the near real-time and the ability to bring in a lot more self-driven transactions by our own employees, but also by our customers and partners. So it's -- that's why we did it that way, and that's what today we felt it was really important to acknowledge that we've all been waiting for 26 months for this kind of intersection to take place, and it finally happened in June.
And lastly for me, just on the balance sheet. I mean, last year, you guys renegotiated your debt position and had to make a payment there. And recently, you did the financing. So could you just explain to me priorities and uses of cash? And then how you're thinking about financing operations in the near term and medium term, whether equity or debt and just the decisions around that for your capital needs?
Yes. So Daniel, in terms of the raise, it was -- specifically, funds were raised specifically for commercial agreements and commercial contracts that we are looking at right now and some very good commercial opportunities and also for working capital. Those were specific related to that. And maybe 1 or 2 small acquisitions as we contemplate the pipeline and if they're accretive enough, we'll take advantage of those. In terms of -- in the near term, everything that we have been talking about, we are bullish about it because we know based on the June results and preliminary results for July that we will be able to generate enough cash from operations to fund the business in the near term. And as we progress through the latter half of this year and even into next year, when we start to realize some more synergies from consolidation of the Q4 acquisition that we did, especially in Australia, we expect to generate lower OpEx related to that, that will flow to the EBITDA line ultimately to the cash. So we think in the near term, short term and near term, we'll have enough cash generated from operations to fund the business.
Our next question comes from Marla Marin with Zacks.
I wanted to follow-up on an answer you gave earlier to the question about organic growth. We've been talking about COVID and the disruptions, the court disruptions. But would it be fair to also think that there was a little bit of positive coming out of COVID in terms of driving awareness of the shift to digital generally in many sectors? And would you think that there is some benefit you're seeing there now in terms of driving your existing customers and growing interest in the platform?
Marla, it's at the core of what we've been. If you look at the analysis of every earning transcript for the last 2 years, what we've seen in Q2 with that kind of net booking is directly related to one single challenge faced by our customers: productivity. Productivity made a workforce that is getting older really hard to recruit. Yet the KPIs for a faster turnaround, while maintaining the accuracy has ever been greater. If you look at any media news, whether or not it's media, whether or not it's government agencies, courts, law enforcement, their biggest issue right now is all the delays in the system related to the time it takes to create all the verbatim documentation that is required for the evidence to be going forward. So what we've seen, whether or not it's the 8th district, whether or not it's in the U.K. that we've been talking about as far as the trial more than ever now, they now understand that the old days of doing all that work manually is not going to cut it. So now it's post-COVID, and then they're facing the same labor shortages and labor constraints that we've been facing as well. And now they've got an issue of retirement on top of that. When you combine those 3 kind of macro trends together, then you've got a major crisis on your hand. And I think that's what -- when Susan said, it's kind of the intersection of what we've been building up for the last couple of years coming to terms with the fact that now the market is receptive, and we're right there. And in a way, COVID, it's been really, really tough on everybody. But coming out of COVID, the reception level is much higher, the desire to explore technology to push the productivity of people has ever been greater. So the answer to your question, the answer is yes, very clearly, that COVID and all of what created around that has pushed our agencies and our clients to look at new ways of continuing delivery because the volumes are going up and then the accuracy has ever been more critical, and yet they cannot really expect that the manual workflow for the last 30 years is going to work for them moving forward. And I think most customers have come to realize that now in a post-COVID environment. So we're really bullish about it. It's just obviously, COVID put a dent into that. But in a way, COVID also contributed to acknowledging the crisis around productivity. And that's what we're driving on right now with our revenue.
Okay. Now switching gears a little bit. The media vertical. I mean, that's a relatively new vertical for you. And with the Carbon acquisition, it looks like you're strengthening your offering there. Do you anticipate any kind of a bump? That vertical is kind of correlated to the political cycle, I believe. So are you thinking about that in terms of how you foresee revenue in that vertical? And if so, any expected bump because of the midterm actions?
Susan?
So the answer -- the short answer is absolutely. The media space is very important to us. There's really 3 elements for the media space. One is the governmental pieces of it that are really tied to what happens on the hill. So you saw a lot of incremental demand as we go through Supreme Court hearings and any kind of committee meetings on the hill. The Carbon product is really more towards live news media, journalists in the field, people that are recording video and need to be able to engage with that video content for production reasons, almost real time. So while we've historically done morning news shows as an example, this will allow us to do not just the recorded media, but also much more of the field and real-time work that's being produced out there. So we're really excited about that. And yes, that should -- not only should the midterms and the election cycle that seems to actually start almost after it ends. The actual midterms as well as the incremental business and the new subsegment of the live news market will be incremental to us. Also, we've been isolated in media to the United States. We now believe that the applications that we have will now begin to be populated in our pipeline in both the U.K. and Australia as we look for extended media opportunities around the world.
Okay. So that leads to my next and last question, which is the M&A pipeline, and you've been pretty consistent over the last few quarters. You're saying that M&A will not be a focus as you look to integrate and consolidate and strengthen the existing business and deal with business changing in a post-COVID environment. But in terms of potential M&A tuck-ins, would it be fair to think that you would be looking to strengthen an existing vertical rather than expanding into a new one as you did a while back with when you moved into media?
I think that would be very fair to say.
Yes. Marla, I think we've -- if we go back, yes, the answer is yes. And I also want to reiterate why we purposely went into media. If you go back to that earnings call that month when we did the acquisition, we talk about that what's happening in the industry of media is a leading indicator of where courts, insurance and law enforcement will be. And we compare that -- really the reason we got our foot into media is because it's moving the organization towards where we wanted to be. So from our perspective, the Carbon acquisition was kind of the second leg to that statement that for now, obviously, media will remain absolutely critical. We're actually expanding in media. But number 3 is what you start to see happening in media as far as going towards near real-time journalists self-editing, an editor self-editing not only audio, but now we've introduced video. All of what we're seeing in media -- internally, without going into the competitive nature of what we do, internally, if you look at our labs and you look at our road map on the technology, it's all falling from that in terms of what's going to happen with the courts, with NetScribe live, what's going to happen with the insurance industry with the self-serve and the mobility aspect of it. So we're using media really as our leader in terms of what's happening with the verbatim content and how we manipulate it, how we produce it, and then we basically take that innovation across the other sectors. So that's where we stand right now. And in terms of acquisition, obviously, we believe that for us, if there's going to be anything, it will be about strengthening the existing markets in terms of where we're at. We have been very careful not to get into verticals where some of the magic recipe for us doesn't apply. And one of them is where a draft is good enough. We're always looking for market where the FirstDraft is highly usable, but ultimately, there's also a good price and a good value attached to the final edited version of it because that's where the markets that we serve, and that's where we want to stay. So to answer your question, if there's any, it will be 100% about strengthening the 4 verticals that we're in today.
Our next question comes from Brian Kinstlinger with Alliance Global Partners.
Great. Just one follow-up on the expense side, maybe, Alexie, if you will. I thought that in the first quarter, there were some items in SG&A that may have fell off and expected that might tail off in the June quarter. So take me through the $6.5 million in SG&A, were there any non-recurring items in there? And I'm just trying to understand as you get to profitability, what that assumes on overhead in SG&A?
Yes. Great question, Brian. So in Q2, we had some onetime expenses relating to regulatory filings. As you may remember, we filed 20-F for the first time in the history of the company, and that came with some professional services fees, additional professional services fees. So if we back those out, we expect Q3 and Q4 OpEx to be lower than Q2.
Okay. And I take it that doesn't -- you're not including in that lower, any fees related to transaction costs such as your capital raise or anything else? Like, that's non-recurring, so you're just talking about on a go-forward basis?
That's correct. Any costs related to capital raises is offset against equity. So the net proceeds is what you flow through the balance sheet on the capital side of the balance sheet.
And can you disclose how much those professional fees, were they $0.5 million in the second quarter? Were they more, were they less?
There were less than $0.5 million.
You're breaking out. Sorry.
Brian?
Yes. You're coming in and out a lot, so I couldn't -- I didn't here, sorry.
Well, I'm saying that the professional fees were lower than $0.5 million.
Got it. Okay. But other than that, there's nothing coming out. I mean, there's no cost-cutting efforts in SG&A that's driving that further lower in that filing. Is that right?
In addition to that, there's also synergies that we expect to get as we consolidate the organization in Q3 and Q4. As we flow through the migration of customers on to NetScribe, there are some OpEx-related expenses for the consolidation as we realize the synergies from the Q4 acquisition. So we expect some of that to manifest itself in Q3 and Q4 in terms of lower OpEx.
Great. Just trying to get to that profitability and see where you are.
There are no further questions at this time. I would now like to turn the conference back over to Sebastien Pare for closing remarks.
Well, I would like to thank everyone for joining our call today. I think the Q&A was really, really positive in terms of the depth of the questions. And hopefully, we've answered most of them. If there's any follow-up by anybody, please do not hesitate to book one-on-one, and we can go a little bit further. Also, please note that we will be participating virtually in the upcoming H.C. Wainwright Global Investment Conference that is being held in New York City on September 12 to 14. Meetings are starting to be booked. And if you're interested with that, just make sure that you register or you get in touch with Laura Kiernan to do the follow-up. So thank you, everyone, for joining us today. It's been quite a journey to get to this point, but I think you can appreciate where we stand in terms of what we've got in store for what's coming next, and we're pretty bullish about it. So we look forward to speaking with you in a few months when we review our Q3 results. Thank you.
This concludes today's conference call. You may now disconnect.