Viq Solutions Inc
TSX:VQS
Earnings Call Analysis
Q4-2023 Analysis
Viq Solutions Inc
The year 2023 brought both challenges and pivotal changes for the company, characterized by a period of recovery and adjustment. Despite a gloomy backdrop marked by declining revenue and gross profit, there were early indicators suggesting a reversal of negative trends. For the fourth quarter of 2023, a revenue uptick of 1.7% to $10.3 million was reported, signaling a modest but positive shift from the previous year.
On a broader scale, the annual revenue saw a notable drop, coming in at $41 million, which was $4.8 million or 11% lower than the year before. This downturn was attributed to the ending of a high-margin contract and the impact of foreign exchange rates. Gross profits also took a hit, decreasing by 17% to $18.1 million. Against the backdrop of these declines, a net loss of $14.3 million undercut the company's financial standing, a substantial 65% increase from the previous year. Despite these setbacks, a strategic reduction in selling and administrative expenses contributed to a more manageable adjusted EBITDA deficit, improving by 18%.
In response to the challenges, the company prioritized the alignment of global resources and institutional cost-cutting to transform into a leaner organization, targeting improvements in operational performance and EBITDA. This shift resulted in a reduction of selling and general & administrative expenses by $2.8 million from 2022's expenses. Furthermore, bolstering the company's financial flexibility, a successful $1.2 million oversubscribed private placement was completed in February.
Looking ahead, the company expressed optimism for the first quarter of 2024 and anticipates it will reflect the positive results of its strategic refocusing. There is also considerable anticipation around the impact of a technology migration in the Australian legal and court segments, which command a significant 55% of the company's global revenue. Investors are encouraged to watch for the mid-May announcement, which will provide a comprehensive update on the company's progress and highlight trends that are expected to shape the financial landscape throughout 2024.
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Good day, ladies and gentlemen. Today, we are hosting a conference call to discuss the 2023 fourth quarter and full year financial results for VIQ Solutions, Inc. [Operator Instructions].
Your host for today is Audrey Liu, Corporate Finance Controller for VIQ. Please go ahead.
Thank you. Good morning, everyone, and welcome to VIQ Solutions 2023 Fourth Quarter and Full Year 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. As a reminder, all dollar amounts are in U.S. dollars unless otherwise stated. With us today, we have Sebastien Pare, CEO; Susan Sumner, President and COO; and Alexie Edwards, CFO of VIQ.
I will now turn the call over to Sebastien Pare to begin.
Thank you, Audrey. Welcome, everyone, to our fourth quarter of 2024 earnings calls. I would like to call 2023, the year of clearing the way forward to 2024. While the year's results reflect the challenges of the year, Q4 represents the way forward to our return to positive EBITDA in 2024.
This progression was not a small feat. We pulled through the remaining legacy of the pandemic, with capacity adjustments that rebounded in Q4. We committed and executed aggressive cutting measures to meet our commitments to positive EBITDA. We began AI migrations in late 2023 to meet our commitment to increase productivity and gross margin attainment in Australia to be consistent with other regions globally.
All of this while ensuring that we remain fully committed to preserving and growing profitable revenue and continuing to invest in innovation that protect our competitiveness advantage in our core segments with particular focus on technologies that are disruptive in the courts, law firms and legal, insurance and criminal justice space.
We're particularly excited about the market penetration for our SaaS product, FirstDraft. Everyone can route an audio and video file into a speech-to-text. Yet speech-to-text a very small step in our AI workflow, you need a lot more intelligence and continues to provide learnings with human experts built in to bring sophisticated multi-speaker FirstDraft products to meet the market demands of stringent legal requirements for evidence purposes for our clients.
Our clients rely on documentation recorded and produced by VIQ for a range of legal activities, including interviews, testimonies, depositions, trial, litigation and settlement. Our unique domain-specific language models, alongside our post-processing rose engines per industry by region and recently by customer, have evolved leaps and bounds with the volume that have been migrated in 2023 that are now flowing to the platform globally, 24/7.
This is partially what we mean by technology that are disruptive in the court, legal, insurance and criminal justice space. We enable our clients to be more productive and more responsive to the evolving needs of their complex client [ with ] value accuracy. Our entire industry has been challenged with growth during the pandemic in the year that follow. Our industry is adapting to emerging AI technologies and the unavoidable catch-up that the government entities that we're dealing with.
Following the annual court reset seasonality late December and early January in the United Kingdom in Australia, February results, while not a long runway, we'll likely bring in further evidence to the market that the company actions from 2023, both cost reductions and productivity gains, alongside a steadier revenue post pandemic and net new bookings are gradually reshaping favorably the financial foundation of VIQ going forward in 2024.
At a time when the addressable market is growing much faster than our consumer that our customers can handle to their legacy manual workflow. Capital markets, particularly in the microcap space have certainly shown volatility, but we're very proud that despite market headwinds, we were able to close successfully a private placement, which ended up being oversubscribed.
It was made possible for the support of many tech AI savvy investors alongside [indiscernible] Partners BD, we took a hard look at the company progression towards positive EBITDA in 2024, alongside latest industry trends and the results. Their support reaffirmed their commitment to VIQ and is a testament to the belief that we're off to a very strong 2024. We have remained focused on our 2 main core objectives requiring to emerge in 2024: number one, yielding the results of the cost reductions; and number two, an accelerated return to profitability. We're very pleased to say that our results in Q1 of 2024 will likely show the results of that focus is on track.
And now I will turn it over to Susan Sumner for the operational update. Susan?
Thank you, Sebastien. As Seb mentioned, 2023 was a year of recovery and forward movement, which has created the foundation for our acceleration in 2024. While the first 3 quarters of 2023 were full of challenges related to capacity and reduced volumes tied to that capacity, Q4 showed the beginning of the reversal of that trend. . We cleared the U.S. backlog in Criminal Justice, and we saw a significant uplift in insurance volumes that are trending to pre-pandemic rates. We cleared much of the backlog in criminal justice in Australia as well as we began the acceleration of the court work that had been hindered by capacity constraints in our prior quarters.
While Q4 was still negatively impacted by abatements and discounts, we were able to favorably renegotiate terms with key customers in Australia that will reduce the risk of abatements as well as provide significant price increases. These changes commenced in Q1 of 2024. We are committed to aligning with our customers to deliver exceptional service, but to also pricing our services to ensure profitability and aligning our pricing structures with the value that we deliver to our customers.
We believe our customers recognize the value, and hence, have allowed us to successfully better position these critical contracts. In Q3, we began the migration to NetScribe for the Australian court. This was a major milestone. This migration was long incoming and required enhancements to our technology to maximize both the efficiency and the reliability of this huge undertaking. As previously discussed, this migration began approximately a year later than expected.
The reason for this was twofold: first, we didn't feel that the operational organization could undertake this level of disruption during the critical capacity challenges and the nuances that were required to create the efficiency of the technology for court applications were highly complex. In the end, the decisions to delay the migration and the expanded investment in this technology were both sound. We created a collaboration with our transcription and client organizations that allow them not only to embrace the technology but also to influence it.
No technology is ever static, but the best execution is fluid and improved by user feedback, and that is absolutely the case in Australia. We are excited to now have over 50% of our available work on NetScribe in Australia, and the impact on key performance indicators provides us with confidence that this migration will be consistent with the results we've seen in other regions.
In Q4, we also saw the expansion of our commercial bundles at the enterprise level. driving what we believe will be representative of the hybrid AI commercial mix that will drive our growth. The combination of technology to manage internal workflow, draft documentation to deliver expanded access to digitize content with the option to sell edit while adding the additional access to professional others to finalize the last mile of critical content and all the while translation is available through every step of this workflow.
This has always been where we believe this industry will land. And based on our bookings and enterprise growth, our customers agree. Each of these pillars are critical to our segments as they evolve. This is where VIQ stands out as we have invested in and continue to invest in the modernization of our segments. Historically, our customers would hand off an audio file to a transcription organization and trust that it would be returned. Now the power of this documentation creation sits with the customer, how it is created, how it is managed from the priority of the matter, the status in the workflow, how it is formatted and to what degree of accuracy they choose.
The power of this modular approach to documentation capture, creation and distribution sits with the customer and is enabled by NetScribe. In 2023, we focused on key elements of the [ Porton ] legal technology for the Australian and U.K. markets. In 2024, we will augment that work with expansion on automation and formatting requirements for the highly complex U.S. and Canadian court markets as well. We look forward to expanding on these achievements in our 2020 -- Q1 2024 release.
And now I will hand it over to Alexie Edwards for a review of the financial results.
Thank you, Susan. And good morning, good afternoon or good evening to everyone, depending on where you are. Let me recap a few of our fourth quarter 2023 financial highlights for you.
Revenue of $10.3 million, an increase of $0.2 million or 1.7% from the same period in the prior year. Excluding the DJAG contract change and impact of foreign currency exchange, we would have reported revenue growth over the same period in the prior year of 3%. Gross profit of $4.7 million, which was similar to the same period in the prior year. Net loss of $2.9 million, an increase of $0.8 million from the same period in the prior year and adjusted EBITDA of negative $0.7 million, an improvement of $0.5 million or 45% from the same period in the prior year.
The decrease in EBITDA deficit was primarily due to reduced selling and G&A expenses. Now for our full year 2023 financial highlights. Revenue of $41 million, a decrease of $4.8 million or 11% from the same period in the prior year. Excluding the DJAG contract change and impact of foreign currency exchange, we would have reported revenue growth over the same period in the prior year of 2%.
Gross profit of $18.1 million, a decrease of $3.8 million or 17% from the same period in the prior year. The decrease in gross margin was primarily due to the DJAG contract, which had a reduction in volume from the high-margin DJAG contract that ended in 2022.
Net loss of $14.3 million, an increase of $5.6 million or 65% for the same period in the prior year. And adjusted EBITDA was negative $4 million, an increase of $0.6 million or 18% from the same period in the prior year. The increase in adjusted EBITDA deficit was primarily due to the decreased gross margin as a result of the expected change in the DJAG contract and a negative impact of foreign currency exchange, partially offset by decreased selling and G&A expenses.
In 2023, the company's selling and G&A expenses were $21.7 million, a decrease of $2.8 million compared to $24.5 million in 2022. We are on track to realize even further reductions in SG&A in 2024. We continue to align our global resources to evolve into a leaner company to improve our operating performance and adjusted EBITDA. Improving VIQ's EBITDA performance continues to be a top priority, and we are encouraged by our fourth quarter of 2023 and the start of fiscal 2024.
Additionally, we have implemented a series of measures aimed at improving EBITDA performance, including further cost reductions. We're also proud that we completed a $1.2 million oversubscribed private placement in February for working capital and general corporate purposes.
Now I would like to hand it over to the operator.
Thank you. For questions and answers regarding recent disclosures or any other matter, please reach out directly to the company using the contact details on the company website.
We look forward to mid-May, very shortly, to bring forward results from Q1 2024 and further update our shareholders on the latest trends, including the rolling impacts throughout 2024 of the technology migration in Australia in our legal and court segments, which represents 55% of our global revenue today. Until then, thank you, everyone, for listening today. Goodbye. .
Thank you for joining our call today. This now concludes our conference call, and you may disconnect.