VIQ Solutions Inc 6-K, filed Nov 10, 2022
VIQ Solutions Inc. (VQSSF)
About this 6-K
VIQ Solutions Inc filed this 6-K on November 10, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2022
Commission File Number: 001-40717
VIQ SOLUTIONS INC.
(Name of registrant)
5915 Airport Road
Suite 700
Mississauga, Ontario L4V 1T1
Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
| x Form 20-F | ¨ Form 40-F |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VIQ SOLUTIONS INC. | |||
| (Registrant) | |||
| Date: November 9, 2022 | By: | /s/ Alexie Edwards | |
| Name: | Alexie Edwards | ||
| Title: | Chief Financial Officer | ||
Form 6-K Exhibit Index
Exhibit 99.1
VIQ Solutions Reports Third Quarter and Nine Months 2022 Financial Results
PHOENIX, AZ, November 9, 2022 - VIQ Solutions Inc. (“VIQ” or the “Company”) (TSX and Nasdaq: VQS), a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, today reported its unaudited financial results for the three and nine months ended September 30, 2022. Results are reported in US dollars and prepared in accordance with International Financial Reporting Standards ("IFRS").
“Our customers and the market are moving away from large technology purchases to buying and engaging on a monthly basis over the course of a contract. As a result, we are in the midst of a transition toward a subscription-based annual recurring revenue (ARR) model. Over time, we expect this will manifest in the financial results with higher revenue and overall margins, and more consistent monthly and annual revenues. Additionally, we believe it will improve the customer lifetime value,” said Sebastien Paré, Chief Executive Officer, VIQ.
“This past quarter we continued to transition our contract with the much-anticipated large customer in Australia. This also follows the acquisition of Auscript in Australia, the Company’s largest acquisition to date. The overall integration of Auscript temporarily pressured our margins and we expect that, once fully integrated, we will normalize gross margins above 50% and positive Adjusted EBITDA margins,” said Susan Sumner, President and Chief Operating Officer of VIQ.
Third Quarter 2022 Financial Highlights
| · | Revenue of $11.8 million compared to $7.1 million in the same quarter of 2021, up 66%, driven by the acquisition of Auscript in Australia and The Transcription Agency (“TTA”) in the United Kingdom. This was partially offset by negative foreign currency impacts on revenue outside of the US due to the appreciation of the US dollar relative to foreign currencies; |
| · | Gross profit was $5.6 million, or 47.3% of revenue, compared to $3.6 million, or 51.4% of revenue, in the same quarter of 2021. Excluding COVID-19 wage subsidies, Gross Profit Margin for Technology Services1 for the three months ended September 30, 2022, would be 44.6% versus 43.9% in the comparative period in 2021, which has increased due to productivity gains achieved through NetScribe, powered by aiAssist and our global workforce; |
1
| · | Net loss was $1.3 million, or $0.04 per diluted share, versus net loss of $3.9 million, or $0.15 per diluted share, in the same quarter in 2021; and |
| · | Adjusted EBITDA1 was negative $0.6 million versus a negative Adjusted EBITDA of $3.1 million in the third quarter of 2021. For a reconciliation of net loss to Adjusted EBITDA, please see the table at the end of this press release. |
First Nine Months of 2022 Financial Highlights
| · | Revenue of $35.7 million compared to $23.5 million for the same period of 2021. The increase in revenue of 52% was driven by the acquisitions of Auscript and TTA, partially offset by negative currency impacts; |
| · | Gross profit was $17.1 million, or 48.1% of revenue, compared to $11.6 million, or 49.5% of revenue, for the same period of 2021. Excluding COVID-19 wage subsidies, Gross Profit Margin for Technology Services1 for the nine months ended September 30, 2022, would be 45.9% versus 40.5% in the comparative period in 2021, which has increased due to productivity gains achieved through NetScribe, powered by aiAssist; |
| · | Net loss was $6.5 million, or $0.21 per diluted share, versus net loss of $16.0 million, or $0.63 per diluted share in the same period in 2021; |
| · | Adjusted EBITDA1 was negative $2.2 million versus a negative Adjusted EBITDA of $3.1 million for the same period of 2021. For a reconciliation of net loss to Adjusted EBITDA, please see the table at the end of this press release; and |
| · | Year to date Bookings1 of $7.1 million, of which, approximately 10% were recognized as revenue up to September 30, 2022. |
1 Represents a non-IFRS measure. Please refer to the "Non-IFRS Measures" section below and the reconciliation tables at the end of this press release.
“In addition to our acceleration to an annual recurring revenue model, we are currently focused on the integration of the Australia businesses as well as rightsizing our cost base to enable us to move closer to positive Adjusted EBITDA in 2023. Additionally, we are ramping up our tech-enabled services capacity to recognize revenue for the sizeable new bookings we won this year,” said Alexie Edwards, Chief Financial Officer, VIQ.
Revised Full Year 2022 Financial Goals:
The Company has revised its full year 2022 goals to be in the range of $46-$47 million in revenue and a negative Adjusted EBITDA to be in the range of $2.3 - $2.8 million. Revenue expectations for the year have been revised below the Company’s goal of $50 million as a result of several factors including the negative impact of foreign exchange rates, the timing of execution of new contracts and the ramp up of new bookings, and ongoing labor shortage constraints in some regions that impacted production capacity during the third quarter. The Company’s gross margin goal has been tightened and is expected to be in the range of 48% - 51% for the full year. Although we do not currently expect these negative factors will be recurring, there can be no assurance that our financial performance goals will be achieved.
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Conference Call Details
VIQ will host a conference call and webcast to discuss its third quarter 2022 financial results on Thursday, November 10 at 11:00 AM Eastern Time. The call will consist of updates by Sebastien Paré, VIQ CEO, Alexie Edwards, VIQ CFO, and Susan Sumner, VIQ President and COO, followed by a question-and-answer period.
Investors may access a live webcast of the call on the Company’s website at www.viqsolutions.com/investors or by dialing 1-888-440-4052 (North America toll-free) or +1-646-960-0827 (international) to be connected to the call by an operator using conference ID number 4983233. Participants should dial in at least 10 minutes prior to the start of the call.
A replay of the webcast will be available on the Company’s website through the same link approximately one hour after the conference call concludes.
For additional information:
| Media Contact: | Investor Relations Contact: |
| Laura Haggard | Laura Kiernan |
| Chief Marketing Officer | High Touch Investor Relations |
| VIQ Solutions | Phone: 1-914-598-7733 |
| Phone: (800) 263-9947 | Email: viq@htir.net |
| Email: marketing@viqsolutions.com |
For more information about VIQ, please visit viqsolutions.com.
About VIQ Solutions
VIQ Solutions is a global provider of secure, AI-driven, digital voice and video capture technology and transcription services. VIQ offers a seamless, comprehensive solution suite that delivers intelligent automation, enhanced with human review, to drive transformation in the way content is captured, secured, and repurposed into actionable information. The cyber-secure, AI technology and services platform are implemented in the most rigid security environments including criminal justice, legal, insurance, government, corporate finance, media, and transcription service provider markets, enabling them to improve the quality and accessibility of evidence, to easily identify predictive insights and to achieve digital transformation faster and at a lower cost.
Forward-looking Statements
Certain statements included in this press release constitute forward-looking statements or forward-looking information (collectively, “forward-looking statements”) under applicable securities legislation, including, Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.
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Forward-looking statements typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project" or similar words, including negatives thereof, suggesting future outcomes or that certain events or conditions “may” or “will” occur. These statements are only predictions. Forward-looking statements in this press release include, but are not limited to statements with respect to the implications of the Company transitioning towards a subscription-based ARR model, longer-term benefits resulting from the integration of Auscript, the Company’s focus on the integration of its Australia businesses and rightsizing its cost base to enable VIQ to move toward profitability in 2023, expected gross margin, the Company’s full year 2022 financial goals and the timing of the Company's earnings call.
Forward-looking statements are based on several factors and assumptions which have been used to develop such statements, but which may prove to be incorrect. Although VIQ believes that the expectations reflected in such forward-looking statements are reasonable when made, undue reliance should not be placed on forward-looking statements because VIQ can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding, among other things, recent initiatives and that sales and prospects may provide increased revenue . Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions that have been used.
Forward-looking statements are necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this press release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in greater detail in the “Risk Factors” section of the Company’s annual information form dated March 31, 2022, in the Company’s annual report form on SEC Form 20-F and in the Company’s other materials filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission from time to time, available at www.sedar.com
and www.sec.gov, respectively.
These factors are not intended to represent a complete list of the factors that could affect the Company, however, these factors should be considered carefully. Such estimates and assumptions may prove to be incorrect or overstated. The forward-looking statements contained in this press release are made as of the date of this press release and the Company expressly disclaims any obligations to update or alter such statements, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law. Although we do not currently expect these negative factors will be recurring, there can be no assurance that our financial performance goals will be achieved.
Financial Outlook
This press release contains a financial outlook within the meaning of applicable Canadian securities laws and such financial outlook contains “forward looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The financial outlook has been prepared by management of the Company to provide an outlook for the Company's revenue, gross margin and Adjusted EBITDA for the 2022 fiscal year and may not be appropriate for any other purpose. The financial outlook has been prepared based on a number of assumptions including the assumptions discussed under the heading "Forward-looking Statements" above and assumptions with respect to market conditions, pricing, and demand. The actual results of the Company's operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. The Company and its management believe that the financial outlook has been prepared on a reasonable basis. However, because this information is highly subjective and subject to numerous risks, including the risks discussed and referred to under the heading "Forward-looking Statements" above, it should not be relied on as necessarily indicative of future results.
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VIQ Solutions Inc.
Consolidated Statements of Financial Position
(Expressed in United States dollars, Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 3,854,773 | $ | 10,583,534 | ||||
| Trade and other receivables, net of allowance for doubtful accounts | 5,696,881 | 5,594,368 | ||||||
| Inventories | 33,149 | 49,557 | ||||||
| Prepaid expenses and deposits | 2,040,125 | 2,054,793 | ||||||
| Non-current assets | 11,624,928 | 18,282,252 | ||||||
| Restricted cash | 466,443 | 303,945 | ||||||
| Property and equipment | 1,084,690 | 460,974 | ||||||
| Right of use assets | 775,717 | 1,134,493 | ||||||
| Intangible assets | 12,162,277 | 14,762,140 | ||||||
| Goodwill | 11,881,278 | 12,595,323 | ||||||
| Deferred tax assets | 468,202 | 464,800 | ||||||
| Total assets | $ | 38,463,535 | $ | 48,003,927 | ||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Trade and other payables and accrued liabilities | $ | 6,390,545 | $ | 5,692,924 | ||||
| Income tax payable | 347,333 | 97,784 | ||||||
| Share based payment liability | 64,679 | 551,201 | ||||||
| Derivative warrant liability | 1,043,515 | 1,862,876 | ||||||
| Current portion of long-term debt | 878,886 | 1,109,713 | ||||||
| Current portion of lease obligations | 291,664 | 287,901 | ||||||
| Current portion of contract liabilities | 1,494,212 | 1,003,187 | ||||||
| Non-current liabilities | 10,510,834 | 10,605,586 | ||||||
| Deferred tax liability | 837,711 | 1,199,266 | ||||||
| Long-term debt | 7,827,511 | 11,999,108 | ||||||
| Long-term contingent consideration | – | 166,603 | ||||||
| Long-term lease obligations | 594,006 | 900,868 | ||||||
| Other long-term liabilities | 1,052,611 | 1,042,938 | ||||||
| Total liabilities | 20,822,673 | 25,914,369 | ||||||
| Shareholders' Equity | ||||||||
| Capital stock | 74,232,063 | 72,191,764 | ||||||
| Contributed surplus | 5,750,924 | 4,842,208 | ||||||
| Accumulated other comprehensive income | (785,192 | ) | 74,526 | |||||
| Deficit | (61,556,933 | ) | (55,018,940 | ) | ||||
| Total shareholders’ equity | 17,640,862 | 22,089,558 | ||||||
| Total liabilities and shareholders' equity | $ | 38,463,535 | $ | 48,003,927 | ||||
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VIQ Solutions Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars, Unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 11,785,713 | $ | 7,086,357 | $ | 35,662,349 | $ | 23,532,391 | ||||||||
| Cost of Sales | 6,208,528 | 3,444,259 | 18,501,913 | 11,891,379 | ||||||||||||
| Gross Profit | 5,577,185 | 3,642,098 | 17,160,436 | 11,641,012 | ||||||||||||
| Selling and administrative expenses | 5,960,010 | 6,516,449 | 18,628,758 | 14,008,605 | ||||||||||||
| Research and development expenses | 164,849 | 317,546 | 642,291 | 817,219 | ||||||||||||
| Stock based compensation | 681,193 | 859,119 | 2,173,969 | 7,632,906 | ||||||||||||
| Gain on revaluation of options | – | (501,974 | ) | (1,063,662 | ) | (501,974 | ) | |||||||||
| Gain on revaluation of RSUs | (137,224 | ) | (119,012 | ) | (445,682 | ) | (119,012 | ) | ||||||||
| Foreign exchange loss (gain) | (151,354 | ) | (445,978 | ) | 597,209 | (77,252 | ) | |||||||||
| Depreciation | 156,916 | 45,736 | 432,483 | 189,392 | ||||||||||||
| Amortization | 1,115,721 | 989,215 | 3,219,135 | 3,282,037 | ||||||||||||
| Interest expense | 234,892 | 329,598 | 815,733 | 996,611 | ||||||||||||
| Accretion and other financing costs | 466,316 | 236,309 | 755,596 | 755,970 | ||||||||||||
| Loss (gain) on contingent consideration | 11,807 | (80,252 | ) | 107,879 | (66,977 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability | (2,477,746 | ) | (763,499 | ) | (3,524,526 | ) | (763,499 | ) | ||||||||
| Loss on extinguishment of debt | 747,865 | – | 747,865 | – | ||||||||||||
| Restructuring costs | 134,582 | 35,072 | 303,690 | 395,324 | ||||||||||||
| Business acquisition costs | 23,339 | 183,324 | 418,856 | 183,324 | ||||||||||||
| Other income | (170 | ) | (2,226 | ) | (899 | ) | (10,520 | ) | ||||||||
| 6,930,996 | 7,599,427 | 23,808,695 | 26,722,154 | |||||||||||||
| Current income tax (recovery) expense | (97,827 | ) | (42,562 | ) | 74,815 | (41,204 | ) | |||||||||
| Deferred income tax (recovery) expense | 73,956 | (55,262 | ) | (185,081 | ) | 985,018 | ||||||||||
| Income tax (recovery) expense | (23,871 | ) | (97,824 | ) | (110,266 | ) | 943,814 | |||||||||
| Net loss for the period | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Exchange loss on translating foreign operations | (823,213 | ) | (432,533 | ) | (859,718 | ) | (166,499 | ) | ||||||||
| Comprehensive loss for the period | $ | (2,153,153 | ) | $ | (4,292,038 | ) | $ | (7,397,711 | ) | $ | (16,191,455 | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||
| Diluted | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||
| Weighted average number of common shares outstanding - basic | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
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VIQ Solutions Inc.
Adjusted EBITDA
(Expressed in United States dollars, Unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| (unaudited) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net Loss | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Add: | ||||||||||||||||
| Depreciation | 156,916 | 45,736 | 432,483 | 189,392 | ||||||||||||
| Amortization | 1,115,721 | 989,215 | 3,219,135 | 3,282,037 | ||||||||||||
| Interest expense | 234,892 | 329,598 | 815,733 | 996,611 | ||||||||||||
| Current income tax expense (recovery) | (97,827 | ) | (42,562 | ) | 74,815 | (41,204 | ) | |||||||||
| Deferred income tax expense (recovery) | 73,956 | (55,262 | ) | (185,081 | ) | 985,018 | ||||||||||
| EBITDA | 153,718 | (2,592,780 | ) | (2,180,908 | ) | (10,613,102 | ) | |||||||||
| Accretion and other financing costs | 466,316 | 236,309 | 755,596 | 755,970 | ||||||||||||
| Gain on revaluation of options | - | (501,974 | ) | (1,063,662 | ) | (501,974 | ) | |||||||||
| Gain on revaluation of RSUs | (137,224 | ) | (119,012 | ) | (445,682 | ) | (119,012 | ) | ||||||||
| Gain on revaluation of the derivative warrant liability | (2,477,746 | ) | (763,499 | ) | (3,524,526 | ) | (763,499 | ) | ||||||||
| Loss on extinguishment of debt | 747,865 | - | 747,865 | - | ||||||||||||
| Restructuring costs | 134,582 | 35,072 | 303,690 | 395,324 | ||||||||||||
| Business acquisition costs | 23,339 | 183,324 | 418,856 | 183,324 | ||||||||||||
| Other income | (170 | ) | (2,226 | ) | (899 | ) | (10,520 | ) | ||||||||
| Stock-based compensation | 681,193 | 859,119 | 2,173,969 | 7,632,906 | ||||||||||||
| Foreign exchange loss | (151,354 | ) | (445,978 | ) | 597,209 | (77,252 | ) | |||||||||
| Adjusted EBITDA | $ | (559,481 | ) | $ | (3,111,645 | ) | $ | (2,218,492 | ) | $ | (3,117,835 | ) | ||||
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Non-IFRS Measures
EBITDA, Adjusted EBITDA, and Bookings, are not measures recognized by IFRS and do not have standardized meanings prescribed by IFRS. Therefore, these terms as used by VIQ may not be comparable to similar measures presented by other issuers. Investors are cautioned that EBITDA and Adjusted EBITDA should not be construed as an alternative to net income (loss) as determined in accordance with IFRS.
The Company prepares its financial statements in accordance with IFRS. Non-IFRS measures are used by management to provide additional insight into our performance and financial condition. We believe non-IFRS measures are an important part of the financial reporting process and are useful in communicating information that complements and supplements the consolidated financial statements. This news release also includes certain measures which have not been prepared in accordance with IFRS such as Adjusted EBITDA, and Bookings.
To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “EBITDA” refers to net income (loss) before adjusting earnings for depreciation, amortization, interest expense, and current and deferred income tax expense. The term “Adjusted EBITDA” refers to net income (loss) before adjusting earnings for stock-based compensation, depreciation, amortization, interest expense, accretion and other financing expense, (gain) loss on revaluation of options, (gain) loss on revaluation of restricted share units, gain (loss) on revaluation of derivative warrant liability, restructuring costs, (gain) loss on revaluation of conversion feature liability, loss on repayment of long-term debt, business acquisition costs, impairment of goodwill and intangibles, other expense (income), foreign exchange (gain) loss, and current and deferred income tax expense. We believe that the items excluded from EBITDA and Adjusted EBITDA are not connected to and do not represent the operating performance of the Company. The term “Bookings” refers to the annualized estimated monthly value of our recurring client contracts entered into during the period from (i) new clients and (ii) net upgrades by existing clients within the same workload, plus the actual (not annualized) estimated value of professional services consulting, advisory or project-based orders received during the period. Recurring client contracts are any contracts entered into on a multi-year or month-to-month basis, but excluding any professional services contracts for consulting, advisory or project-based work.
We believe that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the Company’s main business activities prior to taking into consideration how those activities are financed and taxed as well as expenses related to stock-based compensation, depreciation, amortization, impairment of goodwill and intangibles, other expense (income), and foreign exchange (gain) loss. Accordingly, we believe that this measure may also be useful to investors in enhancing their understanding of the Company’s operating performance.
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We believe that Bookings is useful supplemental information as it measures the amount of new business generated in a period, which we believe is an important indicator of new client acquisition and our ability to cross-sell new services to existing clients. While we believe Bookings, in combination with other metrics, is an indicator of our near-term future revenue opportunity, it is not intended to be used as a projection of future revenue. Our calculation of Bookings may differ from similarly titled metrics presented by other companies.
We believe Gross Margin for Technology Services without Covid 19 Subsidies is useful supplemental information as it provides an indication of the cost of sales and gross margin generated by the Company’s technology segment excluding the impact of Covid 19 subsidies.
For a reconciliation and/or calculation of Adjusted EBITDA, Bookings and Gross Margin for Technology Services without Covid 19 subsidies please refer to the section entitled "Key Operating Metrics – Non-IFRS Measures" in the Company's management's discussion and analysis for the three and nine months ended September 30, 2022, which is available on the Company's SEDAR profile at www.sedar.com.
Trademarks
This press release includes trademarks, such as “NetScribe, and “aiAssist,” which are protected under applicable intellectual property laws and are the property of VIQ. Solely for convenience, our trademarks referred to in this press release may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we will not assert our rights to these trademarks, trade names and services marks to the fullest extent under applicable law. Trademarks which may be used in this press release, other than those that belong to VIQ, are the property of their respective owners.
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Exhibit 99.2
VIQ Solutions Inc.
Interim Condensed Consolidated Financial Statements
Three and nine months ended September 30, 2022 and 2021
(Unaudited)
(Expressed in United States dollars)
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Financial Position
United States dollars, unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| Restated (note 4) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 3,854,773 | $ | 10,583,534 | ||||
| Trade and other receivables, net of allowance for doubtful accounts (notes 5, 6) | 5,696,881 | 5,594,368 | ||||||
| Inventories | 33,149 | 49,557 | ||||||
| Prepaid expenses and deposits | 2,040,125 | 2,054,793 | ||||||
| Non-current assets | 11,624,928 | 18,282,252 | ||||||
| Restricted cash | 466,443 | 303,945 | ||||||
| Property and equipment | 1,084,690 | 460,974 | ||||||
| Right of use assets | 775,717 | 1,134,493 | ||||||
| Intangible assets (note 7) | 12,162,277 | 14,762,140 | ||||||
| Goodwill (note 7) | 11,881,278 | 12,595,323 | ||||||
| Deferred tax assets | 468,202 | 464,800 | ||||||
| Total assets | $ | 38,463,535 | $ | 48,003,927 | ||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Trade and other payables and accrued liabilities | $ | 6,390,545 | $ | 5,692,924 | ||||
| Income tax payable | 347,333 | 97,784 | ||||||
| Share based payment liability (note 10) | 64,679 | 551,201 | ||||||
| Derivative warrant liability (note 9) | 1,043,515 | 1,862,876 | ||||||
| Current portion of long-term debt (note 8) | 878,886 | 1,109,713 | ||||||
| Current portion of lease obligations (note 16) | 291,664 | 287,901 | ||||||
| Current portion of contract liabilities | 1,494,212 | 1,003,187 | ||||||
| Non-current liabilities | 10,510,834 | 10,605,586 | ||||||
| Deferred tax liability | 837,711 | 1,199,266 | ||||||
| Long-term debt (note 8) | 7,827,511 | 11,999,108 | ||||||
| Long-term contingent consideration (note 4) | – | 166,603 | ||||||
| Long-term lease obligations (note 16) | 594,006 | 900,868 | ||||||
| Other long-term liabilities | 1,052,611 | 1,042,938 | ||||||
| Total liabilities | 20,822,673 | 25,914,369 | ||||||
| Shareholders' Equity | ||||||||
| Capital stock (note 10) | 74,232,063 | 72,191,764 | ||||||
| Contributed surplus | 5,750,924 | 4,842,208 | ||||||
| Accumulated other comprehensive income | (785,192 | ) | 74,526 | |||||
| Deficit | (61,556,933 | ) | (55,018,940 | ) | ||||
| Total shareholders’ equity | 17,640,862 | 22,089,558 | ||||||
| Total liabilities and shareholders' equity | $ | 38,463,535 | $ | 48,003,927 | ||||
See accompanying notes to interim condensed consolidated financial statements.
| Approved by the Board | Signed “Larry Taylor” | Signed “Sebastien Paré” |
| Larry Taylor, Director | Sebastien Paré, CEO and Director |
1
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars, unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue (note 15) | $ | 11,785,713 | $ | 7,086,357 | $ | 35,662,349 | $ | 23,532,391 | ||||||||
| Cost of Sales | 6,208,528 | 3,444,259 | 18,501,913 | 11,891,379 | ||||||||||||
| Gross Profit | 5,577,185 | 3,642,098 | 17,160,436 | 11,641,012 | ||||||||||||
| Selling and administrative expenses | 5,960,010 | 6,516,449 | 18,628,758 | 14,008,605 | ||||||||||||
| Research and development expenses | 164,849 | 317,546 | 642,291 | 817,219 | ||||||||||||
| Stock based compensation (note 11) | 681,193 | 859,119 | 2,173,969 | 7,632,906 | ||||||||||||
| Gain on revaluation of options (note 10) | – | (501,974 | ) | (1,063,662 | ) | (501,974 | ) | |||||||||
| Gain on revaluation of RSUs (note 10) | (137,224 | ) | (119,012 | ) | (445,682 | ) | (119,012 | ) | ||||||||
| Foreign exchange loss (gain) (note 17) | (151,354 | ) | (445,978 | ) | 597,209 | (77,252 | ) | |||||||||
| Depreciation | 156,916 | 45,736 | 432,483 | 189,392 | ||||||||||||
| Amortization (note 7) | 1,115,721 | 989,215 | 3,219,135 | 3,282,037 | ||||||||||||
| Interest expense | 234,892 | 329,598 | 815,733 | 996,611 | ||||||||||||
| Accretion and other financing costs (note 8) | 466,316 | 236,309 | 755,596 | 755,970 | ||||||||||||
| Loss (Gain) on contingent consideration (note 4) | 11,807 | (80,252 | ) | 107,879 | (66,977 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability (note 9) | (2,477,746 | ) | (763,499 | ) | (3,524,526 | ) | (763,499 | ) | ||||||||
| Loss on extinguishment of debt (note 8) | 747,865 | – | 747,865 | – | ||||||||||||
| Restructuring costs | 134,582 | 35,072 | 303,690 | 395,324 | ||||||||||||
| Business acquisition costs | 23,339 | 183,324 | 418,856 | 183,324 | ||||||||||||
| Other income | (170 | ) | (2,226 | ) | (899 | ) | (10,520 | ) | ||||||||
| 6,930,996 | 7,599,427 | 23,808,695 | 26,722,154 | |||||||||||||
| Current income tax (recovery) expense | (97,827 | ) | (42,562 | ) | 74,815 | (41,204 | ) | |||||||||
| Deferred income tax (recovery) expense | 73,956 | (55,262 | ) | (185,081 | ) | 985,018 | ||||||||||
| Income tax (recovery) expense | (23,871 | ) | (97,824 | ) | (110,266 | ) | 943,814 | |||||||||
| Net loss for the year | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Exchange loss on translating foreign operations | (823,213 | ) | (432,533 | ) | (859,718 | ) | (166,499 | ) | ||||||||
| Comprehensive loss for the year | $ | (2,153,153 | ) | $ | (4,292,038 | ) | $ | (7,397,711 | ) | $ | (16,191,455 | ) | ||||
| Net loss per share (note 12) | ||||||||||||||||
| Basic | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||
| Diluted | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||
| Weighted average number of common shares outstanding - basic (note 12) | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
| Weighted average number of common shares outstanding - diluted (note 12) | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
See accompanying notes to interim condensed consolidated financial statements.
2
VIQ Solutions Inc.
Interim Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in United States dollars, unaudited)
| Capital stock | Contributed | Accumulated other comprehensive | Total | |||||||||||||||||||||
| Number | Amount | surplus | Deficit | income (loss) | equity | |||||||||||||||||||
| Balance as at December 31, 2021 | 29,881,717 | $ | 72,191,764 | $ | 4,842,208 | $ | (55,018,940 | ) | $ | 74,526 | $ | 22,089,558 | ||||||||||||
| Comprehensive loss for the period | – | – | – | (6,537,993 | ) | (859,718 | ) | (7,397,711 | ) | |||||||||||||||
| Share issued due to Private Placement (note 9) | 3,551,852 | 1,886,497 | – | – | – | 1,886,497 | ||||||||||||||||||
| Shares issued due to exercise of restricted share units (note 10) | 122,227 | 153,802 | (210,509 | ) | – | – | (56,707 | ) | ||||||||||||||||
| Stock-based compensation (note 11) | – | – | 1,119,225 | – | – | 1,119,225 | ||||||||||||||||||
| Balance as at September 30, 2022 | 33,555,796 | $ | 74,232,063 | $ | 5,750,924 | $ | (61,556,933 | ) | $ | (785,192 | ) | $ | 17,640,862 | |||||||||||
| Capital stock | Contributed | Accumulated other comprehensive | Total | |||||||||||||||||||||
| Number | Amount | surplus | Deficit | loss | equity | |||||||||||||||||||
| Balance as at December 31, 2020 | 23,591,427 | $ | 50,234,551 | $ | 4,970,945 | $ | (35,340,191 | ) | $ | (78,906 | ) | $ | 19,786,399 | |||||||||||
| Comprehensive loss for the period | – | – | – | (16,024,956 | ) | (166,499 | ) | (16,191,455 | ) | |||||||||||||||
| Issuance cost reimbursement | – | 1,673 | – | – | – | 1,673 | ||||||||||||||||||
| Share issued due to registered direct offering (note 9) | 4,235,294 | 13,572,259 | – | – | – | 13,572,259 | ||||||||||||||||||
| Shares issued due to exercise of stock options (note 10) | 203,333 | 393,313 | (147,154 | ) | – | – | 246,159 | |||||||||||||||||
| Shares issued due to exercise of warrants and warrant repricing (note 10) | 1,123,878 | 2,746,706 | (654,430 | ) | – | – | 2,092,276 | |||||||||||||||||
| Shares issued due to exercise of restricted share units (note 10) | 724,686 | 5,325,354 | (5,999,951 | ) | – | – | (674,597 | ) | ||||||||||||||||
| Stock-based compensation (note 11) | – | – | 6,636,358 | – | – | 6,636,358 | ||||||||||||||||||
| Balance as at September 30, 2021 | 29,878,618 | $ | 72,273,856 | $ | 4,805,768 | $ | (51,365,147 | ) | $ | (245,405 | ) | $ | 25,469,072 | |||||||||||
See accompanying notes to interim condensed consolidated financial statements.
3
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Cashflow
(Expressed in United States dollars, unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash provided by (used in) | ||||||||||||||||
| Operating activities | ||||||||||||||||
| Net loss for the period | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Items not affecting cash: | ||||||||||||||||
| Depreciation | 156,916 | 45,736 | 432,483 | 189,392 | ||||||||||||
| Amortization (note 7) | 1,115,721 | 989,215 | 3,219,135 | 3,282,037 | ||||||||||||
| Stock-based compensation (note 11) | 681,193 | 859,119 | 2,173,969 | 7,632,906 | ||||||||||||
| Accretion and other financing costs (note 8) | 466,316 | 236,309 | 755,596 | 755,970 | ||||||||||||
| Interest expense (note 8) | 234,722 | 329,598 | 815,732 | 996,611 | ||||||||||||
| Income tax recovery | (23,871 | ) | (97,824 | ) | (110,266 | ) | 943,814 | |||||||||
| Loss (gain) on contingent consideration (note 4) | 11,807 | (80,252 | ) | 107,879 | (66,977 | ) | ||||||||||
| Gain on revaluation of options, RSUs, and derivative warrant liability (note 9, 10) | (2,614,970 | ) | (1,384,485 | ) | (5,033,870 | ) | (1,384,485 | ) | ||||||||
| Loss on extinguishment of debt (note 8) | 747,865 | – | 747,865 | – | ||||||||||||
| Other income (expense) | 899 | (2,226 | ) | 899 | (10,520 | ) | ||||||||||
| Foreign exchange loss (note 17) | (151,354 | ) | (445,978 | ) | 597,209 | (77,252 | ) | |||||||||
| Unrealized foreign exchange (gain) loss | (336,861 | ) | (264,258 | ) | (325,788 | ) | 86,627 | |||||||||
| Net change in working capital balances (note 13) | (752,824 | ) | 2,233,808 | 1,472,955 | (1,264,259 | ) | ||||||||||
| Cash used in operating activities | (1,794,381 | ) | (1,440,743 | ) | (1,684,195 | ) | (4,941,092 | ) | ||||||||
| Investing activities | ||||||||||||||||
| Purchase of property and equipment | (659,816 | ) | (20,520 | ) | (897,702 | ) | (62,767 | ) | ||||||||
| Deferred consideration and earn out payment (note 4) | (552,294 | ) | (358,116 | ) | (745,798 | ) | (1,103,617 | ) | ||||||||
| Development costs related to internally generated intangible assets (note 7) | (420,549 | ) | (556,463 | ) | (1,334,143 | ) | (1,657,771 | ) | ||||||||
| Change in restricted cash | – | 3,632 | (234,286 | ) | (45,961 | ) | ||||||||||
| Cash used in investing activities | (1,632,659 | ) | (931,467 | ) | (3,211,929 | ) | (2,870,116 | ) | ||||||||
| Financing activities | ||||||||||||||||
| Issuance of share capital and derivative warrants, net of placement agent fees (note 9) | 4,418,325 | 16,715,000 | 4,418,325 | 16,715,000 | ||||||||||||
| Issuance cost reimbursement | – | – | – | 1,673 | ||||||||||||
| Proceeds from exercise of stock options (note 10) | – | 43,303 | – | 246,159 | ||||||||||||
| Proceeds from exercise of warrants (note 10) | – | – | – | 2,092,276 | ||||||||||||
| Payment of amendment fees on debt (note 8) | – | – | (239,880 | ) | – | |||||||||||
| Repayment of debt (note 8) | (173,521 | ) | (215,850 | ) | (4,616,975 | ) | (825,398 | ) | ||||||||
| Repayment of lease obligations (note 16) | (69,338 | ) | (20,428 | ) | (186,658 | ) | (126,383 | ) | ||||||||
| Payment of interest on debt (note 8) | (210,438 | ) | (319,288 | ) | (841,724 | ) | (956,074 | ) | ||||||||
| Payment of interest on lease obligations (note 16) | (23,773 | ) | (6,266 | ) | (78,764 | ) | (21,085 | ) | ||||||||
| Cash provided by (used in) financing activities | 3,941,255 | 16,196,471 | (1,545,676 | ) | 17,126,168 | |||||||||||
| Net increase (decrease) in cash for the period | 514,215 | 13,824,261 | (6,441,800 | ) | 9,314,960 | |||||||||||
| Cash, beginning of period | 3,491,907 | 12,374,825 | 10,583,534 | 16,835,671 | ||||||||||||
| Effect of exchange rate changes on cash | (151,349 | ) | (174,482 | ) | (286,961 | ) | (126,027 | ) | ||||||||
| Cash, end of period | $ | 3,854,773 | $ | 26,024,604 | $ | 3,854,773 | $ | 26,024,604 | ||||||||
See accompanying notes to interim condensed consolidated financial statements.
4
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 1. | Nature of operations |
VIQ Solutions Inc. (“VIQ” or the “Company”) is a technology and service platform provider for digital evidence capture, retrieval, and content management. VIQ’s modular software allows customers to easily integrate the platform at any stage of their organization's digitization, from the capture of digital content from video and audio devices through to online collaboration, mobility, data analytics, and integration with sensors, facial recognition, speech recognition, and case management or patient record systems. VIQ operates worldwide with a network of partners including security integrators, audio-video specialists, and hardware and data storage suppliers.
The Company also provides recording and transcription services directly to a variety of clients including medical, courtrooms, legislative assemblies, hearing rooms, inquiries and quasi-judicial clients in numerous countries including Canada, the United Kingdom, the United States and Australia.
VIQ was incorporated by articles of incorporation in the province of Alberta in November 2004. On June 21, 2017, the Company continued under articles of continuance in the province of Ontario. The Company’s head offices are located at 700 – 5915 Airport Road, Mississauga, Ontario, L4V 1H1. VIQ is a public company and the Company graduated from the Toronto Venture Exchange to the Toronto Stock Exchange in 2021. The Company's common shares began trading on the TSX and Nasdaq under, trading symbol VQS, at the market open on January 21, 2021, and August 12, 2021, respectively.
| 2. | Basis of preparation |
| (a) | Statement of compliance |
The Company prepares its interim condensed consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), IAS 34, Interim Financial Reporting and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations, as issued by the International Accounting Standards Board (“IASB”) and using the same accounting policies as described in the Company’s December 31, 2021 consolidated financial statements. The preparation of the interim condensed consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the interim condensed consolidated financial statements, are disclosed in note 3.
The accounting policies applied in these interim condensed consolidated financial statements are based on IFRS issued as at November 9, 2022, the date the Board of Directors approved the interim condensed consolidated financial statements.
| (b) | Basis of preparation |
The notes presented in these interim condensed consolidated financial statements include only significant changes and transactions occurring since the Company’s last year end and are not fully inclusive of all disclosures required by IFRS. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the years ended December 31, 2021 and 2020. The interim condensed consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value as noted below.
5
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| (c) | Functional currency, presentation currency and foreign currency translation |
The financial results of each subsidiary consolidated in the Company’s interim condensed consolidated financial statements are measured using the subsidiary’s functional currency, which is the currency of the primary economic environment in which the entity operates for each of the Company’s wholly owned subsidiaries. The following are the functional currencies of each of the subsidiaries:
| Company/Subsidiary | Functional currency | |
| VIQ Solutions Inc. | CAD | |
| Dataworxs Systems Limited | CAD | |
| VIQ Solutions, Inc. | USD | |
| VIQ Australia PTY Ltd. | AUD | |
| Dataworxs Systems Australia Ltd. | AUD | |
| VIQ Solutions PTY Ltd. | AUD | |
| VIQ Solutions Australia PTY Ltd. | AUD | |
| VIQ PTY Ltd. | AUD | |
| VIQ Australia Services PTY Ltd. | AUD | |
| VIQ Services Inc. | USD | |
| Net Transcripts, Inc. | USD | |
| Hometech, Inc. | USD | |
| Transcription Express, Inc. | USD | |
| VIQ Media Transcription Inc. | USD | |
| wordZexpressed, Inc. | USD | |
| VIQ Solutions (UK) Limited | GBP | |
| VIQ Services (UK) Limited | GBP | |
| The Transcription Agency LLP | GBP |
The exchange rates used were as follows:
| USD / CAD exchange rate | September 30, 2022 | December 31, 2021 | September 30, 2021 | |||||||||
| Closing at the reporting date | 0.7302 | 0.7874 | 0.7867 | |||||||||
| Average rate for the period | 0.7663 | 0.7976 | 0.7940 | |||||||||
| USD / AUD exchange rate | September 30, 2022 | December 31, 2021 | September 30, 2021 | |||||||||
| Closing at the reporting date | 0.6491 | 0.7261 | 0.7211 | |||||||||
| Average rate for the period | 0.6835 | 0.7525 | 0.7402 | |||||||||
| USD / GBP exchange rate | September 30, 2022 | December 31, 2021 | September 30, 2021 | |||||||||
| Closing at the reporting date | 1.1157 | 1.3510 | 1.3459 | |||||||||
| Average rate for the period | 1.1765 | 1.3762 | 1.3813 | |||||||||
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the interim condensed consolidated statements of loss and comprehensive loss.
6
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The financial statements of entities that have a functional currency different from the presentation currency of USD are translated into USD as follows: assets and liabilities at the closing rate at the date of the balance sheet and income and expenses at the average rate of the period as this is considered a reasonable approximation to actual rates. All resulting changes are recognized in other comprehensive income (loss) as translation adjustments.
The Company has monetary items that are receivable from foreign operations. A monetary item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the parent company’s net investment in that foreign operation. Such exchange differences are recognized initially in other comprehensive income and reclassified from equity to net loss on disposal of the net investment in foreign operations.
| (d) | Use of estimates and judgements |
The preparation of the interim condensed consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the application of the Company’s accounting policies and the amounts reported in the interim condensed consolidated financial statements and the related notes. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. These estimates have been applied in a manner consistent with that in prior periods and there are no known trends, commitments, events or uncertainties that the Company believes will materially affect the assumptions utilized in these interim condensed consolidated financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis and revisions to estimates are recognized prospectively. The estimates are impacted by many factors, some of which are highly uncertain and actual results may differ from those estimates
The continuing uncertainty around the outbreak of the novel coronavirus (“COVID-19”) pandemic required the use of judgments and estimates in the preparation of the interim condensed consolidated financial statements for the period ended September 30, 2022. The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant impact to the reported amounts of assets, liabilities, revenue and expenses in these and any future interim condensed consolidated financial statements. Examples of accounting estimates and judgments that may be impacted by the pandemic include, but are not limited to, impairment of goodwill and intangible assets and allowance for doubtful accounts.
| 3. | Significant accounting policies |
| i) | Significant accounting policies, estimates and judgements |
The preparation of the financial statements in accordance with IAS 34 requires management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements and notes to the interim condensed consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Actual results may differ from those estimates. Significant estimates and judgments made by the Company include the valuation of acquired intangible assets, the determination of the recoverable amount of goodwill and non-financial assets, amounts recorded as provisions, recognition of deferred tax assets, the provision for long-term service leave and other employee benefits, contingent consideration, stock based compensation, derivative warrant liabilities and the determination of functional currency.
| ii) | New Accounting Pronouncements Adopted in 2022 |
We adopted the following accounting amendments that were effective for our interim and annual consolidated financial statements commencing January 1, 2022. The adoption of these standards did not have a material impact on our financial results for the nine months ended September 30 2022 and are not expected to have a material impact in the future.
| · | Amendments to IFRS 3, Business Combinations - Updating a Reference to the Conceptual Framework, updating a reference in IFRS 3 to now refer to the Conceptual Framework. |
| · | Amendments to IAS 16, Property, Plant and Equipment: Proceeds before intended use, prohibiting reducing the cost of property, plant and equipment by proceeds while bringing an asset to capable operations. |
| · | Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts, specifying costs an entity should include in determining the "cost of fulfilling" a potential onerous contract. |
7
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| · | Amendments to IFRS 9, Financial Instruments, The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. |
| · | IFRS interpretations Committee Agenda Decision - Demand Deposits with Restriction on Use Arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows) - In April 2022, the IFRS Interpretations Committee (“IFRS IC”) concluded that restrictions on the use of a demand deposit arising from a contract with a third party do not result in the deposit no longer being cash, unless those restrictions change the nature of the deposit in a way that it would no longer meet the definition of cash in IAS 7 Statement of Cash Flows. In the fact pattern described in the request, the contractual restrictions on the use of the amounts held in the demand deposit did not change the nature of the deposit – the entity can access those amounts on demand. Therefore, the entity should include the demand deposit as a component of “cash and cash equivalents” in its statement of cash flows. The Company is currently assessing the impact of this IFRS IC agenda decision. |
(iii) Standards and interpretations issued but not yet effective
Deferred Tax related assets and liabilities arising from a Single Transaction (Amendments to IAS 12)
The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences – e.g. leases and decommissioning liabilities. For leases and decommissioning liabilities, the associated deferred tax asset and liabilities will need to be recognized from the beginning of the earliest comparative period presented, with any cumulative effect recognized as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments apply to transactions that occur after the beginning of the earliest period presented. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company is currently assessing the impact of this new amendment and will not be early adopting.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The amendments provide guidance to help entities disclose their material (previously "significant") accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company is currently assessing the impact of these amendments and will not be early adopting.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors). The amendments define accounting estimates and clarify the distinction between changes in accounting estimates and changes in accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company is currently assessing the impact of these amendments and will not be early adopting
Other Standards
The following new and amended standards are not expected to have a significant impact on the Company’s consolidated financial statements.
| · | Amendments to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Noncurrent, clarifying the classification requirements in the standard for liabilities as current or non-current (January 1, 2023) |
| · | Lease liability in a Sale and Leaseback Amendment to IFRS 16 – Amendment to IFRS 16 specifies the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of the gain or loss that relates to the right of use it retains. (January 1, 2024) |
| 4. | Acquisition |
On December 13, 2021, the Company through its Australia subsidiary VIQ Solutions Australia Pty Ltd. acquired certain assets of Auscript Australasia Pty Ltd. (“Auscript”). Auscript is a leading supplier of secure court recording and transcription services for courts and law firms throughout Australia and complements the Company’s transcription services business. As part of this transaction, $150,000 was paid as contingent consideration via a performance-based earn-out payable paid August 2022. The acquisition was funded by utilizing cash on hand and $7,496,856 was paid during 2021 and an additional $298,927 was paid on August 5, 2022 for the final working capital adjustment contemplated in the purchase agreement.
8
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The acquisition completed during the year ended December 31, 2021 was determined to be a business combination and was accounted for using the acquisition method in accordance with IFRS 3 with the results of operations consolidated with those of the Company effective December 13, 2021 for Auscript.
The Company has retrospectively adjusted the purchase price allocation and restated the previously reported consideration and goodwill in accordance with the requirements of IFRS 3 in regards to measurement period adjustments. The measurement period adjustment of $298,927 relates to additional consideration paid upon the finalization and settlement of the working capital adjustment with the seller. The total consideration for the Auscript acquisition and the preliminary purchase price (“PPA”) allocation is as follows:
| Previously Reported at December 31, 2021 | Adjustment | Restated at December 31, 2021 (Preliminary) | ||||||||||
| Consideration | ||||||||||||
| Cash | $ | 7,496,856 | $ | 298,927 | $ | 7,795,783 | ||||||
| Contingent Consideration | 150,000 | – | 150,000 | |||||||||
| Total Consideration | $ | 7,646,856 | $ | 298,927 | $ | 7,945,783 | ||||||
| Identifiable assets acquired and liabilities assumed | ||||||||||||
| Trade and other receivables net of allowance for doubtful accounts | 2,124,687 | – | 2,124,687 | |||||||||
| Prepaid expenses and deposits | 168,009 | – | 168,009 | |||||||||
| Property and equipment | 283,394 | – | 283,394 | |||||||||
| Right of use assets | 912,910 | – | 912,910 | |||||||||
| Trade and other payable and accrued liabilities | (1,886,414 | ) | – | (1,886,414 | ) | |||||||
| Current portion of contract liabilities | (44,313 | ) | – | (44,313 | ) | |||||||
| Lease obligations | (911,101 | ) | – | (911,101 | ) | |||||||
| Deferred tax liability | (852,557 | ) | – | (852,557 | ) | |||||||
| Customer relationships | 2,552,075 | – | 2,552,075 | |||||||||
| Non-compete | 57,030 | – | 57,030 | |||||||||
| Brand | 734,256 | – | 734,256 | |||||||||
| Goodwill | $ | 4,508,880 | $ | 298,927 | $ | 4,807,807 | ||||||
The valuations of the property and equipment and intangible assets acquired are still under evaluation and as such the business combinations have been accounted for on a preliminary basis. The Company is still assessing the future attrition and growth rates as it relates to the Customer relationships acquired. Fair values assigned to these assets and liabilities may be subsequently adjusted with a corresponding adjustment to goodwill prior to one year after the date of acquisition, which is December 13, 2022.
2020 Acquisition:
On February 26, 2020, the Company through its US subsidiary VIQ Services Inc., acquired 100% of the shares of WordZ. WordZ was a provider of English transcription services to medical service providers and to insurance companies in the USA and complements the Company’s transcription services business. As part of this, an estimated $1,671,670 was to be paid as contingent consideration via a performance-based earnout payable quarterly over 36 months. The Company had agreed to make quarterly payments to the sellers between October 1, 2020 and July 1, 2023 based on the achievement of quarterly revenue targets as defined in the purchase agreement. At the date of acquisition, contingent consideration was measured on a discounted cash flow basis, reflecting the present value of undiscounted expected future payments of $2,175,231, which is the expected payout based on forecast revenues, discounted using a risk-adjusted discount rate of 16.1 percent.
9
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The contingent consideration of WordZ is adjusted based on the revision of the estimated quarterly revenue target achievements, due to decline and/or incline in operational performance. During the three and nine months ended September 30, 2022, the Company reported a loss on contingent consideration of $11,807 and a loss on contingent consideration of $107,879 respectively (three and nine months ended September 30, 2021 – gain of $80,252 and loss of $66,977 respectively for a reduction in the earnout payable) for the additional earnout payable and reduction in payable. Additionally, accretion recovery of $1,345 and an accretion expense of $29,669 (three and nine months ended September 30, 2021 - $111,161 and $367,947 respectively) was recorded for WordZ during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2022, earnout payment of $103,367 and $296,871 were paid respectively to the previous owners of WordZ (2021 - $1,103,617).
As at September 30, 2022, total contingent consideration payable to WordZ sellers is $378,320 (December 31, 2021 - $523,926), of which $378,320 (December 31, 2021 - $357,323) is recorded as trade and other payables and accrued liabilities, and nil has been recorded as long-term contingent consideration (December 31, 2021 - $166,603).
| 5. | Trade and other receivables |
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | $ | 4,767,594 | $ | 4,423,315 | ||||
| Other receivable (note 6) | 1,185,437 | 1,487,255 | ||||||
| Less: allowance for doubtful accounts | (256,150 | ) | (316,202 | ) | ||||
| $ | 5,696,881 | $ | 5,594,368 | |||||
As at September 30, 2022, other receivable relates to unbilled revenue of $837,375 (December 31, 2021 - $807,067), government assistance receivable of $nil (December 31, 2021 – $574,703) and sales tax receivable and other receivables of $348,062 (December 31, 2021- $105,485).
| 6. | Government Assistance |
| Australian Business Wage Subsidies |
| During 2021, the Australian government introduced programs to support Australian businesses whose revenues were impacted by the COVID-19 pandemic. During the three and nine months ended September 30, 2022, there were no government wage subsidies (three and nine months ended September 30, 2021 - $176,232 and $208,077, respectively) recognized as a reduction to the related payroll expenses in the interim condensed consolidated statements of loss and comprehensive loss. |
| U.S. Employee Retention Credit Program |
| During 2021, the Company determined it was qualified for the U.S. Employee Retention Credit. The Company received $nil and $225,453 during the three and nine months ended September 30, 2022 respectively (three and nine months ended September 30, 2021 - $586,996 and $1,453,735, respectively). |
| As at September 30, 2022, there is no outstanding balance reported on the consolidated statement of financial position for assistance receivable (2021 - $574,703) in trade and other receivables. The $574,703 receivable at December 31, 2021 was collected during the nine months ended September 30, 2022. |
10
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 7. | Intangible assets and goodwill |
Details of the Company’s intangible assets as of September 30, 2022 are listed as follows:
| Balance December 31, 2021 |
Additions | Foreign exchange |
Balance September 30, 2022 |
|||||||||||||
| Cost | ||||||||||||||||
| Customer relationships | $ | 15,459,158 | – | (467,480 | ) | $ | 14,991,678 | |||||||||
| Technology | 470,000 | – | – | 470,000 | ||||||||||||
| Non-compete | 176,140 | – | (96,811 | ) | 79,329 | |||||||||||
| Brand | 2,375,539 | – | (17,396 | ) | 2,358,143 | |||||||||||
| Patents | 15,232 | – | – | 15,232 | ||||||||||||
| Internally generated intangible assets | 9,371,951 | 1,334,143 | (723,821 | ) | 9,982,273 | |||||||||||
| $ | 27,868,020 | 1,334,143 | (1,305,508 | ) | $ | 27,896,655 | ||||||||||
| Accumulated amortization | ||||||||||||||||
| Customer relationships | 6,361,535 | 1,690,518 | (65,966 | ) | 7,986,087 | |||||||||||
| Technology | 290,499 | 47,000 | – | 337,499 | ||||||||||||
| Non-compete | 56,743 | 823,732 | (17,812 | ) | 862,663 | |||||||||||
| Brand | 349,495 | 114,637 | (18,674 | ) | 445,458 | |||||||||||
| Patents | – | – | – | – | ||||||||||||
| Internally generated intangible assets | 6,047,608 | 543,248 | (488,186 | ) | 6,102,670 | |||||||||||
| 13,105,880 | 3,219,135 | (590,638 | ) | 15,734,377 | ||||||||||||
| Net book value | $ | 14,762,140 | $ | 12,162,277 | ||||||||||||
Details of the Company’s goodwill as of September 30, 2022 are listed as follows:
| Balance December 31, 2021 |
Foreign exchange | Balance September 30, 2022 |
||||||||||
| VIQ Solutions PTY Ltd. | $ | 612,574 | (64,471 | ) | $ | 548,103 | ||||||
| Dataworxs | 141,504 | (10,279 | ) | 131,225 | ||||||||
| Net Transcripts | 1,575,511 | – | 1,575,511 | |||||||||
| Transcription Express | 1,516,904 | – | 1,516,904 | |||||||||
| HomeTech | 477,860 | – | 477,860 | |||||||||
| ASC (VIQ Media Transcription) | 2,614,802 | – | 2,614,802 | |||||||||
| The Transcription Agency LLP | 763,597 | (125,031 | ) | 638,566 | ||||||||
| Auscript (note 4) | 4,892,571 | (514,264 | ) | 4,378,307 | ||||||||
| $ | 12,595,323 | (714,045 | ) | $ | 11,881,278 | |||||||
11
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 8. | Long-term debt |
| September 30, 2022 | December 31, 2021 | |||||||
| Crown Capital Funding Partner LP Note Payable (a) | $ | 7,899,229 | $ | 11,781,127 | ||||
| Unsecured HomeTech interest-free promissory note (b) | 295,625 | 443,322 | ||||||
| Unsecured WordZ 5% promissory note (b) | 511,543 | 770,103 | ||||||
| U.S. Paycheck Protection Program loan (c) | – | 114,269 | ||||||
| Less current portion of long term debt | (878,886 | ) | (1,109,713 | ) | ||||
| $ | 7,827,511 | $ | 11,999,108 | |||||
| (a) | Crown Capital Funding Partner LP Note Payable |
During the year ended December 31, 2018, the Company entered into a secured debt facility with Crown Capital Funding Partner LP (“Crown”) of $10,953,062 (CAD$15,000,000) bearing an interest rate of 10 percent payable quarterly. The loan is secured by a general security agreement covering all assets of the Company. The outstanding principal balance of the loan is repayable on November 28, 2023. Additionally, during the period ended September 30, 2020, the Company cancelled previously issued 450,000 common share purchase warrants and reissued new warrants to reflect a price per Share equal to CAD$2.06 (the “Exercise Price”) until expiry on November 28, 2023. As a result of this modification, the Company recorded $84,287 (CAD$111,387) reflecting the incremental fair value of the warrant associated with the amendment as a reduction in the carrying value of the note payable as at September 30, 2020. The Company incurred fees of $353,115 (CAD$450,000) associated with establishing the amended debt facility which was recorded as a reduction in the carrying value of the note payable. These fees remain unpaid and the long-term payable is added to the Company’s outstanding principal. These fees accrue interest at 10 percent and repayment is due on November 28, 2023. During the three and nine months ended September 30, 2022, the Company recorded interest expense of $201,650 and $706,623 respectively (three and nine months ended September 30, 2021 - $309,203 and $923,457 respectively).
The difference between the face value and ascribed value of the Crown Capital note payable is being accreted over the remaining life of the debt facility. Corresponding transaction costs were netted against the face value of the debt facility and are recognized as accretion and other financing expense over the term of the loan. During the three and nine months ended September 30, 2022, there was $50,014 and $248,171 recorded respectively (three and nine months ended September 30, 2021 - $86,789 and $259,982) as accretion and other financing expense related to the note payable in the interim condensed consolidated statements of loss and comprehensive loss.
The Company signed an amendment related to the Crown debt facility that required the Company to pay $4,005,768 (CAD $5,000,000) of the principal balance on March 30, 2022 and pay an amendment fee of approximately $239,880 (CAD $300,000). The interest on the Crown Debt facility remained at 10% annual interest and future interest payments were reduced to the reduced principal amount. The amendment did not result in the terms of the original agreement being substantially modified, as such the transaction is accounted for as a modification of the old debt. The amended secured debt facility waived the Fixed Charge Coverage Ratio for the quarter ending December 31, 2022 and the Net Debt to EBITDA ratio for quarters ended March 31, 2022 and June 30, 2022. Additional financial covenants were added to the amended Crown debt facility, which include restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure (including internally generated intangible assets and capitalized assets) in each of the respective quarters ending June 30, 2022, September 30, 2022 and December 31, 2022. As at September 30, 2022, the Company was in compliance with the additional financial covenants.
On July 14, 2022, the Company signed an amendment to the Crown debt facility which removed entirely the Fixed Charge Coverage Ratio and Net Debt to EBITDA covenants for the term of the facility. The covenants relating to the restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure for the quarter ending September 30, 2022 and December 31, 2022 were unchanged.
12
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The July 14, 2022 amendment resulted in the terms of the agreement being substantially modified, as such the transaction is accounted for as an extinguishment of the old debt. The Company recognized a loss on extinguishment of debt of $747,865 and the new debt was recognized at fair value of $7,706,896.
In addition, the Company has agreed to make certain payments to the lender in the event that there is a balance outstanding under the debt facility as at certain periods in time. Such fees, if applicable, are payable in cash or Common Shares, at the Company's sole discretion. On October 31, 2022, the Company issued 500,000 Common Shares to Crown Capital Funding, LP in connection with the first of such payments
Term and repayment schedule excluding amendment fees - Crown Capital Debt Facility (CAD)
| Balance at September 30, 2022 | $ | 10,450,000 | ||
| Interest payable Dec 31, 2022 | 263,397 | |||
| Interest payable Mar 31, 2023 | 257,671 | |||
| Interest payable Jun 30, 2023 | 260,534 | |||
| Interest payable Sept 30, 2023 | 263,397 | |||
| Interest payable Nov 28, 2023 | 168,917 | |||
| Principal payment Nov 28, 2023 | 10,450,000 |
| (b) | Unsecured Promissory Notes |
As part of the acquisition of HomeTech, the Company issued an unsecured interest-free promissory note to the former owners of HomeTech with a face value of $1,200,000, to be paid monthly for 60 months in equal installments of $20,000 beginning February 25, 2019 to the period ending January 25, 2024. For the nine months ended September 30, 2022, the Company repaid a total principal of $180,000 (nine months ended September 30, 2021 - $180,000). The Company recorded the unsecured promissory note by discounting the principal amounts due using a market annual interest rate of 12%. The difference between the present value and the face value is being accreted over the term of the unsecured promissory notes. The Company recorded an accretion expense of $9,368 and $32,302 for the three and nine months ended September 30, 2022, respectively (three and nine months ended September 30, 2021 - $14,786 and $48,108 respectively).
An additional note was issued to the former owners of WordZ with a face value of $1,200,000 bearing interest at 5% to be paid
Quarterly for 36 months beginning January 5, 2021 to the period ending October 5, 2023. The fair value of the unsecured promissory notes was determined on a market annual interest rate of 12%. The difference between the face value and the ascribed value of the notes is being accreted over life of the notes. During the three and nine months ended September 30, 2022, the Company recorded interest expense of $7,261 and $24,562 respectively (three and nine months ended September 30, 2021 – $11,971 and $39,175 respectively) and accretion expense of $15,035 and $52,210 respectively (three and nine months ended September 30, 2021 - $24,799 and $79,932). In addition, the Company repaid $307,037 (2021 – $307,614) during the nine months ended September 30, 2022.
| (c) | U.S. Paycheck Protection Program Loan |
During the nine months ended September 30, 2022, the Company repaid $114,269 of the loan balance (2021 - $nil).
| 9. | Derivative warrant liability |
On July 21, 2022, the Company completed a private placement offering to institutional investors (“PIPE”). Under the PIPE, the Company sold 3,551,852 units (the “Units”) at a price of $1.35 per Unit for gross proceeds to the Company of approximately $4,800,000 before the deduction of any fees and other PIPE expenses. Each Unit consists of one Common Share and one Common Share purchase warrant (“Warrant”). Each Warrant entitles the holder thereof to purchase one Share at an exercise price of $1.39. The Warrants will be exercisable beginning on January 21, 2023 and will expire on July 21, 2027. Issuance cost of $741,000 were incurred with $344,000 being recorded as a reduction of common shares and $397,000 recorded in accretion and other financing costs.
13
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
On September 15, 2021, the Company closed its direct offering with institutional investors (the “Offering”). Under the Offering, the Company sold 4,235,294 units (the “Units”) at a price of $4.25 per Unit for gross proceeds to the Company of approximately $18,000,000 before the deduction of any fees and other estimated Offering expenses. Each Unit consists of one common share of the Company (a “Common Share”) and one-half of one Common Share purchase warrant (each whole Common Share purchase warrant, a “Warrant”). A total of 2,117,647 Warrants were issued. Each Warrant entitle shareholder thereof to purchase one Common Share (a “Warrant Share”) at an exercise price of $5.00. The Warrants will be exercisable beginning on March 15, 2022 and will expire five years from the issuance date on September 14, 2026.
In accordance with IFRS, a contract for the issuance of equity instruments that fails to meet the fixed for fixed criteria i.e. issue a fixed number of shares for a fixed amount of cash or another financial asset, fails to meet the definition of equity. The exercise price the Warrants issued pursuant to the PIPE and Offering are denominated in USD currency, which differs from the CAD functional currency of the issuing entity. As a result, the warrants are recorded as a derivative warrant liability since the Company will be receiving cash in a currency other than the issuing entity’s functional currency and therefore is deemed to be variable.
The derivative warrant liabilities are measured at fair value with changes in fair value recognized in the interim condensed consolidated statements of loss and comprehensive loss at each period-end. The derivative warrant liabilities will ultimately be converted into the Company’s equity (common shares) when the Warrants are exercised or will be extinguished on the expiry of the outstanding Warrants and will not result in the outlay of any cash by the Company.
The Company uses the Black-Scholes pricing model to estimate fair value at initial recognition and at each reporting date. The Company considers expected volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the life of the Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of issue and at the time of revaluation. The life of warrant is based on an estimated exercise term. The following are assumptions used by the Company to fair value at initial recognition and the month ended September 30, 2022:
PIPE July 21, 2022
| September 30, 2022 Period-End | July 21, 2022 Initial Recognition | |||||||
| Fair value (CAD) | $ | 0.34 | $ | 0.93 | ||||
| Share price (CAD) | $ | 0.82 | $ | 1.41 | ||||
| Exercise price (CAD) | $ | 1.90 | $ | 1.79 | ||||
| Expected volatility | 71.03 | % | 69.94 | % | ||||
| Expected life (years) | 4.8 | 5.0 | ||||||
| Expected dividends | 0 | % | 0 | % | ||||
Offering September 15, 2021
| September 30, 2022 Period-End | September 15, 2021 Initial Recognition | |||||||
| Fair value (CAD) | $ | 0.11 | $ | 1.93 | ||||
| Share price (CAD) | $ | 0.82 | $ | 4.43 | ||||
| Exercise price (CAD) | $ | 6.85 | $ | 6.33 | ||||
| Expected volatility | 73.4 | % | 62.06 | % | ||||
| Expected life (years) | 3.96 | 5.0 | ||||||
| Expected dividends | 0 | % | 0 | % | ||||
For the three and nine months ended September 30, 2022, a gain on revaluation of derivative warrant liabilities was recorded in the amount of $2,477,746 and $3,524,526 respectively (three and nine months ended September 30, 2021 - $763,499).
14
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
As at September 30, 2022, there were 5,669,499 warrants outstanding and nil exercised (September 30, 2021 – 2,117,647 and nil exercised)
| 10. | Capital Stock |
Omnibus Equity Incentive Plan
On April 29, 2021, the Company adopted a new omnibus equity incentive plan (the “Omnibus Equity Incentive Plan”) by way of a Shareholder Resolution. The Omnibus Equity Incentive Plan is a “rolling” plan which, subject to certain adjustment provisions, provides that the aggregate maximum number of Common Shares that may be issued upon the exercise or settlement of awards granted under the Omnibus Equity Incentive Plan shall not exceed 10% of the Company’s issued and outstanding Common Shares from time to time. The Omnibus Equity Incentive Plan is considered an “evergreen” plan, since the Common Shares covered by awards which have been exercised, settled or terminated shall be available for subsequent grants under the Omnibus Equity Incentive Plan, and the number of awards available to grant increases as the number of issued and outstanding Common Shares increases. As such, the Omnibus Equity Incentive Plan must be approved by the majority of the Company’s Board and its Shareholders every three years following its adoption pursuant to the requirements of the TSX.
Under the Omnibus Equity Incentive Plan, the Company is able to grant equity-based incentive awards in the form of Stock Options, Restricted Share Units (“RSUs”), Performance Share Units (“PSUs”) and Deferred Share Units (“DSUs”). All future grants of equity-based awards will be made pursuant to the Omnibus Equity Incentive Plan, and no further equity-based awards will be made pursuant to the Company’s Stock Option Plan, DSU plan, and Stock Appreciation Rights Plan (collectively, the “Legacy Plans”). The Legacy Plans will continue to be authorized for the sole purposes of facilitating the vesting and exercise of existing awards previously granted under the Legacy Plans. Once the existing awards granted under the Legacy Plans are exercised or terminated, the Legacy Plans will terminate and be of no further force or effect.
No equity incentive securities have been granted under the Legacy Plans for the nine months ended September 30, 2022 (December 31, 2021 – nil stock options granted).
Common Shares
The Company’s authorized capital consists of an unlimited number of common shares with no par value. As at September 30, 2022, common shares of the Company were reserved as follows:
| Exercise Price (CAD) | Expiry dates | Number outstanding | ||||||
| Options – Legacy Plan | $2.84 - $6.00 | January 2023 – December 2023 | 128,750 | |||||
| $2.20 - $3.10 | January 2024 – December 2024 | 222,017 | ||||||
| $3.13 | January 2025 – December 2025 | 376,000 | ||||||
| Options – Omnibus Equity Incentive Plan | $2.80 - 8.84 | January 2031 – June 2031 | 338,000 | |||||
| $0.98 - 1.35 | January 2032 – December 2032 | 555,947 | ||||||
| Deferred share units – Legacy Plan | $1.20 | N/A | 66,667 | |||||
| Restricted share units – Omnibus Equity Incentive Plan | N/A | January 2024 – December 2024 | 25,000 | |||||
| N/A | January 2031 – June 2031 | 171,017 | ||||||
| N/A | N/A | 518,202 | ||||||
| Performance share units – Omnibus Equity Incentive Plan | N/A | N/A | 165,000 | |||||
15
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
Warrants
During the three and nine months ended September 30, 2022, there were no warrants exercised (three and nine months ended September 30, 2021 nil and 1,123,878 respectively) for $nil proceeds (three and nine months ended September 30, 2021 - $nil, and $2,092,276 respectively). During the three and nine months ended September 30, 2022, there were no warrants issued under the Legacy plans (three and nine months ended September 30, 2021 – nil).
As at September 30, 2022, there were no warrants outstanding other than those classified as derivative warrant liabilities in Note 9 (2021 – nil).
Stock Option Plan
The Company has an incentive stock option plan for its directors, officers, employees, and contractors. The Company's stock option plan allows for the granting of options (and Deferred Share Units as described below) up to an aggregate amount equal to 10% of the aggregate number of common shares of the Company outstanding. The options, which have a term not exceeding five years when issued, generally vest as follows:
| • | 1/3 at time of issue |
| • | 1/3 after one year |
| • | 1/3 after two years |
Under the Omnibus Equity Incentive Plan, the stock options that are granted have a term not exceeding ten years when granted, and can be fully vested on date of grant or vest as follows:
| • | 1/3 after one year |
| • | 1/3 after two years |
| • | 1/3 after three years |
During the three and nine months ended September 30, 2022, certain stock options granted included cash settlement alternatives at the discretion of the stock option holder, subject to the approval of the Company’s Plan Administrator. The option holder could elect to perform the following on the settlement date:
| • | acquire common shares of the Company on a 1:1 basis to vested Options |
| • | receive cash payment, net of withholding taxes, equal to vested Options multiplied by the market price of common shares of the Company |
| • | acquire and receive a combination of common shares and cash payment, respectively, as noted above |
Since the election and choice of settlement method lies with the stock option holder, which includes a cash settlement, the Company has recorded the associated grants with this option as a cash-settled share-based payment and recorded a share-based payment liability, which is remeasured at each reporting period. On June 11, 2021 the Company initially recorded a share-based payment liability of $141,186 related to the 155,517 options that are deemed to be cash-settled share-based payments. As at September 30, 2022, the Company had no options outstanding that are to be cash-settled as these options were all forfeited.
The forfeiture resulted in a reversal of stock based compensation of $445,821.
As at September 30, 2022, 726,767 options were vested related to the legacy plan (December 31, 2021 – 749,267) with a weighted average exercise price of CAD $2.88 per share (December 31, 2021 – CAD $3.16).
As at September 30, 2022, 345,197 options were vested related to the Omnibus Equity Incentive plan (December 31, 2021 – 46,500) with a weighted average exercise price of CAD $1.45 per share (December 31, 2021 – CAD $8.84).
During the three months and nine months ended September 30, 2022, the Company granted 319,384 and 555,947 stock options respectively to directors, officers, employees, and contractors (three and nine months ended September 30, 2021 – nil and 790,086 respectively). The Company utilized the Black-Scholes option pricing model to fair value the stock options granted and included the following assumptions:
16
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| Nine months ended September 30th, 2022 | Nine months ended September 30th, 2021 | |||
| Omnibus Equity Incentive Plan | Omnibus Equity Incentive Plan | |||
| Fair value at grant date | $0.95 - $ 1.32 | $7.29 | ||
| Share price at grant date | $0.95 - $1.32 | $8.93 | ||
| Exercise price | $0.98 - $1.35 | $8.84 - $8.93 | ||
| Expected volatility | 62.47% - 69.88% | 81.60% | ||
| Option life | 5.5 – 6.5 | 10.0 | ||
| Expected dividends | 0% | 0% | ||
| Risk-free interest rate (based on government bonds) | 2.91% - 3.16% | 1.38% |
During the three and nine months ended September 30, 2022, nil options were exercised (three and nine months ended September 30, 2021 – 25,000 and 203,333 respectively), for $nil proceeds (three and nine months ended September 30, 2021 - CAD$55,000 and CAD$312,833 respectively). There were 50,000 and 859,586 stock options forfeited during the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 – nil). There were nil and 72,000 stock options that expired during the three and nine months ended September 30, 2022 respectively (three and nine months ended September 30, 2021 - 7,500).
The following information applies to stock options outstanding and exercisable per the legacy plan as at September 30, 2022, along with their respective exercise prices and related weighted average remaining contractual life:
| Range of exercise prices (CAD) | Options outstanding | Weighted average remaining contractual life | Weighted average exercise price (CAD) | Options exercisable | Weighted average exercise price (CAD) | |||||||||
| $2.84 -$6.00 | 128,750 | 1.1 years | $3.01 | 128,750 | $ | 3.01 | ||||||||
| $2.20 - 3.10 | 222,017 | 1.8 years | $2.37 | 222,017 | $ | 2.37 | ||||||||
| $3.13 | 376,000 | 2.6 years | $3.13 | 376,000 | $ | 3.13 | ||||||||
| 726,767 | 2.1 years | $2.88 | 726,767 | $ | 2.88 | |||||||||
The following information applies to stock options outstanding and exercisable per the Omnibus Equity Incentive plan as at September 30, 2022, along with their respective exercise prices and related weighted average remaining contractual life:
| Range of exercise prices (CAD) | Options outstanding | Weighted average remaining contractual life | Weighted average exercise price (CAD) | Options exercisable | Weighted average exercise price (CAD) | |||||||||
| $8.84 – $8.93 | 18,000 | 8.7 years | $8.84 | 18,000 | $ | 8.84 | ||||||||
| $2.80 - $2.99 | 320,000 | 9.2 years | $2.90 | - | - | |||||||||
| $1.35 | 236,563 | 9.6 years | $1.35 | 57,813 | $ | 1.35 | ||||||||
| $0.98 | 319,384 | 10.0 years | $0.98 | 269,384 | $ | 0.98 | ||||||||
| 893,947 | 9.6 years | $1.92 | 345,197 | $ | 1.45 | |||||||||
Deferred Share Units Plan
In 2015, the Company established a Deferred Share Units (“DSUs”) Plan to provide non-employee directors to participate in the long-term success of the Company. DSUs are fully vested upon being granted.
The Board of Directors may grant DSUs (and the number of options to purchase shares described above) up to a maximum of 10% of common shares outstanding and up to a maximum of 100,000 units.
17
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
Maximum allowable grants under the Stock Option and DSU plans in aggregate as at September 30, 2022 were 3,355,580 (December 31, 2021 – 2,988,172) of which 1,620,714 were outstanding stock options, 66,667 were outstanding DSUs, 714,219 were outstanding RSUs, and 165,000 of outstanding PSUs for a total of 2,566,599 (December 31, 2021 – 2,259,036).
The Company did not grant any DSU’s to Directors of the Company during the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 – nil).
Restricted Share Units Plan
Under the Omnibus Equity Incentive Plan, the Company established a Restricted Share Units Plan. RSUs have a term not exceeding ten years to indefinite expiry when granted, can be fully vested or vest as follows:
| • | 1/3 after one year |
| • | 1/3 after two years |
| • | 1/3 after three years |
During the three and nine months ended September 30, 2022, certain RSU granted included cash settlement alternatives at the discretion of the RSU holder, subject to the approval of the Company’s Plan Administrator. The RSU holder could elect to perform the following on the settlement date:
| • | acquire common shares of the Company on a 1:1 basis to vested RSUs |
| • | receive cash payment, net of withholding taxes, equal to vested RSUs multiplied by the market price of common shares of the Company |
| • | acquire and receive a combination of common shares and cash payment, respectively, as noted above |
Certain RSUs issued by the Company included the choice of settlement method lies with the RSU holder, which includes a cash settlement, the Company has recorded the associated RSU grants as a cash settled share based payment and recorded a share based liability. As at June 11, 2021, the Company initially recorded a share-based payment liability of $36,219 related to the RSUs that are deemed to be cash-settled share-based payments.
During the three and nine months ended September 30, 2022, 424,489 and 678,463 RSUs respectively were granted to directors, officers, employees, and contractors (three months and nine months ended September 30, 2021– nil and 998,378). 424,489 RSUs were vested and 40,549 RSUs were exercised for the three months ended September 30, 2022(2021 – nil vested and nil exercised) and 608,463 RSUs were vested and 160,261 RSUs were exercised for the nine months ended, 2022 (2021 – 842,861 vested and 821,679 exercised). The Company utilized the Black-Scholes option pricing model to initially fair value the RSUs granted and included the following assumptions:
| Nine months ended, September 30, 2022 |
Nine months ended September 30, 2021 | |||
| Omnibus Equity Incentive Plan |
Omnibus Equity Incentive Plan | |||
| Fair value (CAD) | $0.95 - $1.32 | $8.93 | ||
| Share price (CAD) | $0.95 - $ 1.32 | $8.93 | ||
| Exercise price (CAD) | N/A | N/A | ||
| Expected volatility | 64.17% | 81.58% | ||
| Option life (years) | N/A | 10.0 | ||
| Expected dividends | 0% | 0% | ||
| Risk-free interest rate (based on government bonds) | 2.91% - 3.16% | 1.38% |
As a result of measuring the RSUs classified as cash-settled share-based payments related to the Omnibus Equity Incentive Plan at fair value, the Company recorded a gain of $137,224 and $445,978 for during the three and nine months ended September 30, 2022 (three and nine months ended 2021 $119,012). The significant inputs used in the Black-Scholes option pricing model were as follows:
18
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| Three months ended September 30, 2022 |
Year ended December 31, 2021 | |||
| Omnibus Equity Incentive Plan |
Omnibus Equity Incentive Plan | |||
| Fair value (CAD) | $0.82 | $3.11 | ||
| Share price (CAD) | $0.82 | $3.11 | ||
| Exercise price (CAD) | N/A | N/A | ||
| Expected volatility | 81.30% | 83.07% | ||
| Option life (years) | 8.7 | 9.5 | ||
| Expected dividends | 0% | 0% | ||
| Risk-free interest rate (based on government bonds) | 3.16% | 1.42% |
Performance Share Units Plan
Under the Omnibus Equity Incentive Plan, the Company established a Performance Share Units Plan (“PSU”). The PSUs have an indefinite term when granted and vest 100% after one year if the performance vesting conditions are met. As at September 30, 2022, the Company has determined that it is probable that the performance vesting condition will be met by the respective employees.
On May 16, 2022, 195,000 PSUs were granted to employees of which 30,000 shares were forfeited at September 30, 2022. The Company utilized the Black-Scholes option pricing model to initially fair value the PSUs granted and included the following assumptions:
| Three and nine months ended, September 30, 2022 | ||
| Omnibus Equity Incentive Plan | ||
| Fair value (CAD) | $1.32 | |
| Share price (CAD) | $1.32 | |
| Exercise price (CAD) | N/A | |
| Expected volatility | 64.17% | |
| Option life (years) | N/A | |
| Expected dividends | 0% | |
| Risk-free interest rate (based on government bonds) | 2.91% |
| 11. | Stock-based compensation |
The total compensation expense relating to the value assigned to the stock options, RSUs, and PSUs granted to directors, officers, employees and contractors for the three and nine months ended September 30, 2022 was $681,193 and $2,173,969 respectively (three and nine months ended September 30, 2021 - $859,119 and $7,632,906) which was included in the stock-based compensation expense with a corresponding charge to contributed surplus of $1,119,226 (2021 – $33,014 and $6,636,358) and share based payment liability of $1,054,743 (2021 - $826,105 and $996,548).
19
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 12. | Net loss per share |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator for basic and diluted net loss per share: | ||||||||||||||||
| Net loss for the period | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Denominator for basic net loss per share: | ||||||||||||||||
| Weighted average number of common shares outstanding | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
| Effect of potential dilutive securities | – | – | – | – | ||||||||||||
| Adjusted denominator for diluted net loss per share | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||
| Basic net loss per share | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.21 | ) | $ | (0.63 | ) | ||||
| Diluted net loss per share | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.21 | ) | $ | (0.63 | ) | ||||
As at September 30, 2022, 8,236,098 of potentially dilutive common shares (September 30, 2021 - 4,058,198) issuable upon the exercise of warrants, deferred share units, restricted share units, preferred share units, and options were not included in the computation of loss per share because their effect was anti-dilutive.
| 13. | Supplemental cash flow information |
Components of the net change in non-cash working capital are as follows:
| Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Trade and other receivables | $ | (399,742 | ) | $ | 741,540 | $ | (450,163 | ) | $ | (542,722 | ) | |||||
| Inventories | 3,595 | 12,382 | 16,408 | (13,367 | ) | |||||||||||
| Prepaid expenses | (280,184 | ) | (1,275,388 | ) | 14,668 | (1,639,853 | ) | |||||||||
| Trade and other payables | (124,628 | ) | 2,867,402 | 1,401,018 | 1,363,259 | |||||||||||
| Income taxes payable | - | (113,853 | ) | - | (113,853 | ) | ||||||||||
| Contract liabilities | 48,135 | 1,725 | 491,024 | (317,723 | ) | |||||||||||
| Total | $ | (752,824 | ) | $ | 2,233,808 | $ | 1,472,955 | $ | (1,264,259 | ) | ||||||
Other supplemental cash flow information as follows:
| Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash received for interest | $ | 170 | $ | 2,226 | $ | 899 | $ | 10,520 | ||||||||
| Cash paid for interest | 234,211 | 325,554 | 920,488 | 977,159 | ||||||||||||
| Taxes Paid | - | 113,853 | - | 113,853 | ||||||||||||
| 14. | Segmented financial information |
The Company has determined it has two reportable business segments namely technology and related revenue and technology services. The technology segment, develops, distributes and licenses computer-based digital solutions based on the Company’s proprietary technology; and the technology service segment, provides recording and transcription services.
20
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The Company’s reportable segments are strategic business segments that offer different products and/or services. These business segments work on different business models and operate autonomously. The Company does not segregate sales and associated costs by individual technology products. Accordingly, segmented information on revenue and associated costs is only provided for the full line of software solutions currently offered by the Company.
The Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer are the operating decision makers and regularly reviews our operations and performance by segment. They review segment income (loss) as the key measure of profit for the purpose of assessing performance of each segment and to make decisions about the allocation of resources.
Financial information by reportable business segment is as follows:
| Three months ended September 30, 2022 | ||||||||||||||||
| Technology and related revenue | Technology services | Corporate | Total | |||||||||||||
| Consolidated income (loss) | ||||||||||||||||
| Revenue | $ | 1,150,737 | $ | 10,634,976 | $ | - | $ | 11,785,713 | ||||||||
| Gross profit | 836,181 | 4,741,004 | – | 5,577,185 | ||||||||||||
| Selling and administrative expenses | 3,746,210 | 1,607,874 | 605,926 | 5,960,010 | ||||||||||||
| Stock-based compensation | 67,279 | 613,914 | – | 681,193 | ||||||||||||
| Research and development expenses | 164,849 | – | – | 164,849 | ||||||||||||
| Depreciation and amortization | 358,794 | 913,843 | – | 1,272,637 | ||||||||||||
| Foreign exchange (gain) loss | (697,288 | ) | 545,934 | – | (151,354 | ) | ||||||||||
| Interest, accretion and other financing costs | (10,386 | ) | 133,336 | 578,258 | 701,208 | |||||||||||
| Gain on contingent consideration | – | 11,807 | – | 11,807 | ||||||||||||
| Gain on revaluation of RSUs | – | – | (137,224 | ) | (137,224 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability | – | – | (2,477,746 | ) | (2,477,746 | ) | ||||||||||
| Loss on extinguishment of debt | – | – | 747,865 | 747,865 | ||||||||||||
| Restructuring costs | 11,282 | 123,300 | – | 134,582 | ||||||||||||
| Business acquisition costs | – | – | 23,339 | 23,339 | ||||||||||||
| Other income | (32 | ) | (138 | ) | – | (170 | ) | |||||||||
| Current income tax expense | – | (97,827 | ) | – | (97,827 | ) | ||||||||||
| Deferred income tax recovery | – | 73,956 | – | 73,956 | ||||||||||||
| Segment income (loss) | (2,804,527 | ) | 815,005 | 659,582 | (1,329,940 | ) | ||||||||||
21
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| Three months ended September 30, 2021 | ||||||||||||||||
| Technology and related revenue | Technology services | Corporate | Total | |||||||||||||
| Consolidated income (loss) | ||||||||||||||||
| Revenue | $ | 791,802 | $ | 6,294,555 | $ | - | $ | 7,086,357 | ||||||||
| Gross profit | 542,945 | 3,099,153 | – | 3,642,098 | ||||||||||||
| Selling and administrative expenses | 1,295,611 | 2,130,553 | 3,090,285 | 6,516,449 | ||||||||||||
| Stock-based compensation | – | – | 859,119 | 859,119 | ||||||||||||
| Research and development expenses | 317,546 | – | – | 317,546 | ||||||||||||
| Depreciation and amortization | 474,100 | 560,851 | – | 1,034,951 | ||||||||||||
| Foreign exchange (gain) loss | (457,146 | ) | 11,168 | – | (445,978 | ) | ||||||||||
| Interest, accretion and other financing expense | 5,972 | 294 | 559,641 | 565,907 | ||||||||||||
| Gain on contingent consideration | – | (80,252 | ) | – | (80,252 | ) | ||||||||||
| Gain on revaluation of options | – | – | (501,974 | ) | (501,974 | ) | ||||||||||
| Gain on revaluation of RSUs | – | – | (119,012 | ) | (119,012 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability | – | – | (763,499 | ) | (763,499 | ) | ||||||||||
| Restructuring costs | 35,072 | – | – | 35,072 | ||||||||||||
| Business acquisition costs | 20,484 | 162,840 | – | 183,324 | ||||||||||||
| Other income | (1,387 | ) | (839 | ) | – | (2,226 | ) | |||||||||
| Current income tax recovery | – | (42,562 | ) | – | (42,562 | ) | ||||||||||
| Deferred income tax recovery | – | (55,262 | ) | – | (55,262 | ) | ||||||||||
| Segment income (loss) | (1,243,302 | ) | (350,762 | ) | (2,265,441 | ) | (3,859,505 | ) | ||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||
| Technology and related revenue | Technology services | Corporate | Total | |||||||||||||
| Consolidated income (loss) | ||||||||||||||||
| Revenue | $ | 2,989,505 | $ | 32,672,844 | $ | - | $ | 35,662,349 | ||||||||
| Gross profit | 2,049,922 | 15,110,514 | – | 17,160,436 | ||||||||||||
| Selling and administrative expenses | 9,714,728 | 6,999,013 | 1,915,017 | 18,628,758 | ||||||||||||
| Stock-based compensation | 182,240 | 1,991,729 | – | 2,173,969 | ||||||||||||
| Research and development expenses | 642,291 | – | – | 642,291 | ||||||||||||
| Depreciation and amortization | 747,723 | 2,903,895 | – | 3,651,618 | ||||||||||||
| Foreign exchange loss | (429,351 | ) | 1,026,560 | – | 597,209 | |||||||||||
| Interest, accretion and other financing costs | – | 177,941 | 1,393,388 | 1,571,329 | ||||||||||||
| Loss on contingent consideration | – | 107,879 | – | 107,879 | ||||||||||||
| Gain on revaluation of options | – | – | (1,063,662 | ) | (1,063,662 | ) | ||||||||||
| Gain on revaluation of RSUs | – | – | (445,682 | ) | (445,682 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability | – | – | (3,524,526 | ) | (3,524,526 | ) | ||||||||||
| Loss on extinguishment of debt | – | – | 747,865 | 747,865 | ||||||||||||
| Restructuring costs | 25,458 | 278,232 | – | 303,690 | ||||||||||||
| Business acquisition costs | – | – | 418,856 | 418,856 | ||||||||||||
| Other income | (418 | ) | (481 | ) | – | (899 | ) | |||||||||
| Current income tax expense | – | 74,815 | – | 74,815 | ||||||||||||
| Deferred income tax recovery | – | (185,081 | ) | – | (185,081 | ) | ||||||||||
| Segment income (loss) | (8,832,749 | ) | 1,736,012 | 558,744 | (6,537,993 | ) | ||||||||||
22
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| Nine Months ended September 30, 2021 | ||||||||||||||||
| Technology and related revenue | Technology services | Corporate | Total | |||||||||||||
| Consolidated income (loss) | ||||||||||||||||
| Revenue | $ | 3,710,276 | $ | 19,822,115 | $ | – | $ | 23,532,391 | ||||||||
| Gross profit | 2,754,015 | 8,886,997 | – | 11,641,012 | ||||||||||||
| Selling and administrative expenses | 5,008,334 | 4,617,294 | 4,382,977 | 14,008,605 | ||||||||||||
| Stock-based compensation | – | – | 7,632,906 | 7,632,906 | ||||||||||||
| Research and development expenses | 817,219 | – | – | 817,219 | ||||||||||||
| Depreciation and amortization | 1,534,839 | 1,936,590 | – | 3,471,429 | ||||||||||||
| Foreign exchange loss | (89,167 | ) | 11,915 | – | (77,252 | ) | ||||||||||
| Interest, accretion and other financing expense | 18,863 | 2,222 | 1,731,496 | 1,752,581 | ||||||||||||
| Gain on contingent consideration | – | (66,977 | ) | (66,977 | ) | |||||||||||
| Gain on revaluation of options | – | – | (501,974 | ) | (501,974 | ) | ||||||||||
| Gain on revaluation of RSUs | – | – | (119,012 | ) | (119,012 | ) | ||||||||||
| Gain on revaluation of the derivative warrant liability | – | – | (763,499 | ) | (763,499 | ) | ||||||||||
| Restructuring costs | 275,416 | 119,908 | – | 395,324 | ||||||||||||
| Business acquisition costs | – | – | 183,324 | 183,324 | ||||||||||||
| Other income | (9,436 | ) | (1,084 | ) | – | (10,520 | ) | |||||||||
| Current income tax recovery | – | (41,204 | ) | – | (41,204 | ) | ||||||||||
| Deferred income tax expense | – | 985,018 | – | 985,018 | ||||||||||||
| Segment income (loss) | (6,005,508 | ) | (5,106,136 | ) | (4,913,312 | ) | (16,024,956 | ) | ||||||||
The comparative figures have been adjusted for the three and nine months ended September 30, 2021 to reflect the current year’s presentation. The revenue originally reported for the three and nine months ended September 30, 2021 for technology and related revenue was $788,488 and $3,375,891 respectively. For technology services, the revenue originally reported was $6,297,909 and $20,156,500 respectively for the three and nine months ended September 30, 2021. The gross profit originally reported for the three and nine months ended September 30, 2021 for technology and related revenue was $775,172 and $3,215,267 respectively. For technology services, gross profit originally reported for the three and nine months ended September 30, 2021 was $2,866,926 and $8,425,745 respectively. The adjustments were not considered material and did not affect the Company’s consolidated revenue or consolidated net loss.
| 15. | Revenue |
The Company generates revenue primarily from the delivery of technology and transcription services to its customers. Revenue from contracts with customers is disaggregated by primary geographical market, major products and services and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Company’s reportable segments (note 14).
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| Primary geographical markets | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Australia | $ | 6,983,536 | $ | 4,807,873 | $ | 20,569,416 | $ | 14,489,821 | ||||||||
| United States | 4,254,165 | 2,040,134 | 13,509,582 | 6,992,012 | ||||||||||||
| United Kingdom | 375,989 | 169,241 | 1,273,741 | 1,376,115 | ||||||||||||
| Canada | 114,141 | 5,964 | 211,044 | 113,831 | ||||||||||||
| Other | 57,882 | 63,145 | 98,566 | 560,612 | ||||||||||||
| Total | $ | 11,785,713 | $ | 7,086,357 | $ | 35,662,349 | $ | 23,532,391 | ||||||||
23
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| Major products/service lines | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Technology services | $ | 10,634,976 | $ | 6,294,555 | $ | 32,672,844 | $ | 19,822,115 | ||||||||
| Software licenses | 136,610 | 82,052 | 229,459 | 1,344,808 | ||||||||||||
| Support and maintenance | 459,073 | 394,352 | 1,409,978 | 1,395,008 | ||||||||||||
| SaaS | 25,744 | 82,590 | 64,108 | 161,282 | ||||||||||||
| Subscriptions | 132,760 | - | 349,808 | - | ||||||||||||
| Professional services | 361,245 | 109,315 | 738,943 | 406,334 | ||||||||||||
| Hardware and other | 35,305 | 123,493 | 197,209 | 402,844 | ||||||||||||
| Total | $ | 11,785,713 | $ | 7,086,357 | $ | 35,662,349 | $ | 23,532,391 | ||||||||
The Company had one customer who contributed greater than 10 percent of consolidated total revenues during the period ended September 30, 2022 which comprised of 13.3% (2021 – one customer at 11.7 percent).
Technology services, software licenses, professional services, hardware and other revenue are recognized at a point in time and support and maintenance, SaaS, and subscription revenue is satisfied over time.
| 16. | Lease obligations |
Below is a summary of the activity related to our lease liabilities for the three and nine months ended September 30, 2022 and 2021:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Lease liabilities, beginning of period | $ | 1,018,924 | $ | 267,500 | $ | 1,188,769 | $ | 354,199 | ||||||||
| Additions | - | - | - | - | ||||||||||||
| Disposals | - | - | - | - | ||||||||||||
| Interest on lease liabilities | 23,773 | 6,266 | 78,764 | 21,085 | ||||||||||||
| Interest payments on lease liabilities | (23,773 | ) | (6,266 | ) | (78,764 | ) | (21,085 | ) | ||||||||
| Principal payments of lease liabilities | (69,338 | ) | (20,428 | ) | (186,658 | ) | (126,383 | ) | ||||||||
| Adjustments | - | - | (8,642 | ) | - | |||||||||||
| Cumulative translation adjustment | (63,916 | ) | (995 | ) | (107,799 | ) | 18,261 | |||||||||
| Lease obligations, end of period | $ | 885,670 | $ | 246,077 | $ | 885,670 | $ | 246,077 | ||||||||
| Less: current portion of lease obligations | (291,664 | ) | (48,403 | ) | (291,664 | ) | (48,403 | ) | ||||||||
| Long-term lease obligations | $ | 594,006 | $ | 197,674 | $ | 594,006 | $ | 197,674 | ||||||||
The Company and its subsidiaries have entered into agreements to lease office premises until 2025. The annual rent expenses for premises consist of minimum rent and does not include variable costs. The minimum payments under all agreements are as follows:
| 2022 | 100,606 | |||
| 2023 | 428,968 | |||
| 2024 | 304,308 | |||
| 2025 | 223,097 | |||
| $ | 1,056,979 |
24
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 17. | Risk management for financial instruments |
The estimate fair values of cash, trade and other receivables, restricted cash, trade, accrued liabilities and other payables approximate their carrying values due to the relatively short-term nature of the instruments. The estimated fair values of current and long term debt and obligations under finance lease also approximate carrying values due to the fact that effective interest rates are not significantly different from market.
Fair value measurements recognized in the consolidated balance sheets must be categorized in accordance with the following levels:
| · | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| · | Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and | |
| · | Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The Company’s financial instruments carried at fair value on the consolidated statements of financial position consist of cash and restricted cash. Cash and restricted cash are valued using quoted market prices (Level 1). Share based payment liability, contingent considerations, and derivative warrant liability are categorized using observable market inputs (Level 2). The Company did not value any financial instruments using valuation techniques based on non-observable market inputs (Level 3) as at September 30, 2022.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach in managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, by continuously monitoring actual and budgeted cash flows.
The Company has sustained losses over the last number of periods and has financed these losses mainly through a combination of equity and debt offerings. Management believes that it has raised sufficient cash to meet all of its contractual debt that is coming due within twelve months and has the ability to fund any operating losses that may occur in the upcoming periods.
Credit risk
Credit risk arises from the potential that a customer or counterparty will fail to perform its obligations. The Company is exposed to credit risk from its customers; however, the Company has a significant number of customers, minimizing the concentration of credit risk. Further, a large majority of the Company’s customers are economically stable organizations such as government agencies or departments with whom the Company transacts with on a regular basis, further reducing the overall credit risk. Historically, the Company has suffered losses under trade receivables. In order to minimize the risk of loss from trade receivables, the Company’s extension of credit to customers involves review and approval by senior management and conservative credit limits for new or higher risk accounts.
The Company reviews its trade receivable accounts regularly and writes down these accounts to their expected realizable values, by making an allowance for expected credit losses based on aging and historic collection of receivables. The allowance is recorded as an expense in the interim condensed consolidated statements of loss and comprehensive loss. Shortfalls in collections are applied against this provision. Estimates for allowance for expected credit losses are determined by a customer-by-customer evaluation of collectability at each balance sheet reporting date, taking into account the amounts that are past due and any available relevant information on the customers’ liquidity and going concern issues. Normal credit terms for amounts due from customers call for payment within 30 to 60 days.
25
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
The Company’s exposure to credit risk for trade receivables by geographic area was as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| United States | 56 | % | 48 | % | ||||
| Australia | 27 | % | 31 | % | ||||
| United Kingdom | 10 | % | 14 | % | ||||
| Rest of world | 7 | % | 7 | % | ||||
| 100 | % | 100 | % | |||||
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk is primarily related to the Company’s interest-bearing debts on its consolidated balance sheet. The Company does not have a material amount of long-term debt with variable interest rates, thereby minimizing the Company’s exposure to cash flow interest rate risk.
Foreign currency risk
Foreign currency risk arises because of fluctuations in exchange rates. The Company conducts a significant portion of its business activities in foreign currencies, primarily the U.S. and Australian dollars and Great Britain pounds with a large portion of the Company’s sales and operating costs being realized in these foreign currencies. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in Canadian, U.S. and Australian dollars.
The financial assets and liabilities that are denominated in foreign currencies will be affected by changes in the exchange rate between the United States dollar and these foreign currencies. This primarily includes cash, restricted cash, trade and other receivables, trade and other payables, provisions and obligations under finance lease which were denominated in foreign currencies.
The Company’s Australian subsidiaries have a majority of revenue and expenses being transacted in Australian dollars. As of September 30, 2022, fluctuations of the Australian dollar relative to the United States dollar of 5% would result in an exchange gain or loss on the net financial assets, impacting the Company’s comprehensive income by approximately $4,000 (2021 – $19,000).
The Company’s computer products and services operations are exposed to exchange rate changes in the U.S. dollar relative to the Canadian dollar since a substantial portion of this business unit’s sales are denominated in U.S. dollars with most of the related expenses in Canadian dollars. A 5% fluctuation of the U.S. dollar would result in an exchange gain or loss on the net financial assets of approximately $47,000 as at September 30, 2022 (2021 – $90,000).
The Company’s computer products and services operations are exposed to exchange rate changes in the Great Britain pound relative to the United States dollar since a portion of this business unit’s sales are denominated in Great Britain pounds with most of the related expenses in United States dollars. A fluctuation of the Great Britain pound of 5% would result in an exchange gain or loss on the net financial assets of approximately $4,000 as at September 30, 2022 (2021 – $5,000).
The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currencies cash flows as management has determined that this risk is not significant at this point in time. The Company recognized a foreign exchange gain from operations of $151,354 for the three months ended September 30, 2022 and a foreign exchange loss of $597,209 nine months ended September 30, 2022 (three and nine months ended September 30, 2021 – foreign exchange gain from operations of $445,978 and $77,252).
26
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
Capital management
The Company considers its capital structure to consist of shareholders’ equity, long-term debt and convertible debt. The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy, fund research and development and undertake selective acquisitions, while at the same time taking a conservative approach toward financial leverage and management of financial risk.
| 18. | Seasonality |
Interim period revenues, gross profit and net income or loss are not necessarily indicative of the results of operations for the full fiscal year. Within the Company’s Technology Services segment, the Company has identified that the first and fourth quarter revenues are generally lower than revenues generated during other interim periods, specifically due to decreased historic revenues in the months of December and January related to annual holidays.
27
Exhibit 99.3
VIQ Solutions Inc.
Q3 2022 Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Expressed in United States dollars)
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The following Management’s Discussion and Analysis (“MD&A”) comments on the financial condition and results of operations of VIQ Solutions Inc. for the three and nine months ended September 30, 2022. This MD&A should also be read in conjunction with the Q3 2022 unaudited condensed consolidated interim financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), IAS 34, Interim Financial Reporting and International Financial Reporting Interpretations Committee interpretations as issued by the International Accounting Standards Board and are available on SEDAR at www.sedar.com. This MD&A should also be read in conjunction with our annual MD&A and audited financial statements for the years ended December 31, 2021, and 2020, which we prepared in accordance with IFRS and are available on SEDAR at www.sedar.com and filed as an Exhibit to our Annual Report on Form 20-F available on EDGAR at www.sec.gov/edgar.
Certain information included herein is forward-looking and based upon assumptions and anticipated results that are subject to substantial risks and uncertainties. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See “Forward-Looking Statements” and “Risk Factors”. The information in this MD&A is provided as of November 9, 2022, unless otherwise indicated.
Unless the context otherwise requires, all references to “VIQ”, “Company”, “VIQ Solutions”, “our”, “us”, and “we” refer to VIQ Solutions Inc. and its subsidiaries. Additional information regarding the Company, including in its annual information form for its fiscal year ended December 31, 2021 (the “AIF”), is available on SEDAR at www.sedar.com. Information regarding the Company is also available on EDGAR at www.sec.gov/edgar.
All amounts herein are presented in United States dollars, unless otherwise indicated.
Forward-Looking Statements
This MD&A contains forward-looking statements about our expected achievements, the recovery of the global economy, the impacts of COVID-19, the timing of disclosure related to key performance indicators, the use of future cash and capital allocation, the remediation of material weaknesses in internal controls, the future adoption of technology, the future success of our business and technology strategies, performance, goals and other future events. Management’s assessment of future plans and operations, cash flows, methods of financing and the ability to fund financial liabilities and the timing of and impact of adoption of IFRS and other accounting policies may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, the risks identified below.
Therefore, the Company’s actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although the Company currently believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because such statements are subject to substantial risks and uncertainties and the Company can give no assurance that such expectations will prove to be correct.
In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the expected impact of increasing competition; the general stability of the economic and political environment in which the Company operates, including significant changes in demand from the Company’s clients as a result of the impact of a global economic crisis and capital markets weakness; the risk of potential non-performance by counterparties, including but not limited to, clients and suppliers, during uncertain economic conditions; the Company’s dependence on a limited number of clients; the Company’s dependence on industries affected by rapid technological change; the Company’s ability to successfully manage its operations internationally including in the United Kingdom, Australia and the United States; the challenge of managing its financial exposures to foreign currency fluctuations; the Company’s ability to obtain and retain qualified staff and services in a timely and cost-efficient manner; the Company’s ability to obtain financing on acceptable terms when needed, including anticipated sources of funding of working capital and financial losses which may include securing credit facilities, accessing new equity, corporate acquisitions or business combinations or joint venture arrangements; the ability to secure new contracts on terms acceptable to the Company; the ability to successfully develop new products; the Company’s ability to effectively register, for protection, its new and existing technologies and products in certain jurisdictions; the Company’s ability to protect new and existing products from proprietary infringement by third parties and its ability to effectively enforce such proprietary infringements; taxes in the jurisdictions in which the Company operates, including Canada, the United Kingdom, Australia and the United States; and the Company’s ability to successfully market its products. Readers are cautioned that the foregoing list of factors is not exhaustive.
| Management Discussion & Analysis | Page 1 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The purpose of the forward-looking statements is to provide the reader with a description of management’s current expectations regarding the Company’s 2022 outlook and may not be appropriate for other purposes. Readers are encouraged to read the section entitled “Risk Factors” in this MD&A and the section entitled “Risk Factors” in the AIF and the Company’s annual report on Form 20-F filed with the SEC for a broader discussion of the factors that could affect its future performance. Furthermore, the forward-looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Trademarks
This MD&A includes trademarks, such as “CapturePro”, “aiAssist”, “NetScribe”, which are protected under applicable intellectual property laws and are the property of VIQ. Solely for convenience, our trademarks referred to in this MD&A may appear without the ® or ™ symbol, but such references are not intended to indicate, in any way, that we will not assert our rights to these trademarks, trade names and services marks to the fullest extent under applicable law. Trademarks which may be used in this MD&A, other than those that belong to VIQ, are the property of their respective owners.
Non-IFRS Measures
The Company prepares its financial statements in accordance with IFRS. Non-IFRS measures are used by management to provide additional insight into our performance and financial condition. We believe non-IFRS measures are an important part of the financial reporting process and are useful in communicating information that complements and supplements the consolidated condensed financial statements.
We use the following non-IFRS financial performance measures in our MD&A:
| · | Adjusted EBITDA |
| · | EBITDA |
| · | Annual Recurring Revenue (“ARR”) |
| · | Bookings |
| · | Average Technology Services Revenue per Day |
| · | Technology Services Cost of Sales without COVID-19 Subsidies per Minute of Audio |
| · | Gross Margin for Technology Services without COVID-19 Subsidies |
| · | Gross Margin for Technology and related revenue |
For a detailed description of each of the non-IFRS measures and ratios used in this MD&A and a detailed reconciliation to the most directly comparable measure under IFRS, please refer to the “Key Operating Metrics – Non-IFRS Measures” section of this MD&A. The non-IFRS measures and ratios set out in this MD&A are intended to provide additional information to investors and do not have any standardized meaning under IFRS, and therefore may not be comparable to other issuers, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
| Management Discussion & Analysis | Page 2 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Overview
VIQ Solutions is a leading provider of capture software and cloud-based transcription workflow automation solutions to assist government agencies and commercial enterprises securely digitize information-intensive voice and video content.
Our technology, which delivers a seamless, proprietary workflow and documentation platform securely captures, transforms, distributes, and manages complex digital voice and video content for over 4,155 active clients in the criminal justice, legal, insurance, media, government, and financial services verticals. We have operations in the U.S., Canada, Australia, Europe, the Middle East and Africa.
Our scalable technology utilizes artificial intelligence (“AI”) designed to ingest significant amounts of evidentiary content to produce accurate, verbatim, diarized transcripts for mission critical events that have lasting financial and social impacts. For the nine months ended September 30, 2022, our platform processed over 13.3 million minutes of recorded, multi-speaker, multi-channel audio and video and created approximately 7.2 million pages of secure, industry specific evidence documentation creating actionable information for use by our clients.
Our technology solutions are proven to deliver productivity enhancements, which drive down our overall production costs and speed of delivery, leading to meaningful gross margin improvements. Our automated workflow has enabled profitable growth while improving the overall service levels, strengthening our AI learning, and bolstering our competitive advantage.
Revenue
The recurring nature of our revenue base is a key indication of performance. Most of our revenue is tied to major contracts and is expected to remain generally the same or increase in terms of the overall contribution to the Company. Also, these clients are tied to government entities and multinational Fortune 500 companies that provide little credit risk and accordingly provide a reliable revenue stream.
Our revenue comes from transcription services, software-as-a-service (SaaS), software license fees, support and maintenance and other recurring fees, professional service fees, and hardware sales. Transcription service revenue consists of fees charged for editing documentation services provided to our clients. Technology service revenue consists of fees charged for automated transcription services. Software-as-a-service (SaaS) allows customers to use hosted software over a term without taking possession of the software and is provided on a subscription basis. Software license revenue is comprised of license fees charged for the use of our software products generally licensed under perpetual arrangements and to a lesser extent sale of third-party software licenses. These license sales are larger contracts with longer sales cycles and are more variable in nature. Support and maintenance and other recurring revenue primarily consist of fees charged for client support on our software products post-delivery. Professional service revenue consists of fees charged for customization, implementation, integration, training and ongoing services associated with our software products and technology services. Hardware revenue includes the resale of third-party hardware that forms part of our client solutions. Occasionally, our clients may purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity vary by client to create a solution for the client’s unique requirements.
| Management Discussion & Analysis | Page 3 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Cost of Sales
Cost of sales consists primarily of staff costs, independent contractors, professional services and the cost of hardware and third-party licenses to fulfill client arrangements.
Selling and Administrative Expenses
Selling and administrative expenses consist of personnel and related costs for our sales and marketing functions, including salaries and benefits, contract acquisition costs including commissions earned by sales personnel, direct marketing campaigns, public relations and other promotional activities. Selling and administrative expenses also consist primarily of personnel and related costs associated with the administrative functions of our business including corporate, finance, and internal information system support as well as legal, accounting, other professional fees, investor relations, occupancy costs and insurance.
We continue to invest globally in sales, marketing and business development to continue to diversify across segments, industries and geographies building awareness of global brand to increase our future revenue growth opportunities.
Research and Development Expenses
Research and development expenses include personnel and related costs for ongoing research, development and product management initiatives.
Business Overview of Q3 2022
Q3 2022 was pivotal to VIQ in the maturity and adaptation of the solutions delivered. In all segments across all geographies there was accelerated response to the technology solutions to utilize the Netscribe workflow solution, enhanced by the First Draft product been prioritized over more traditional methods of capturing and delivering documentation. First Draft provides the documentation almost real time in a usable form that enables highly accurate content, diarization and formatting. This solution along with the incorporation of Netscribe and Carbon for customers to capture and manage this near real time content and do it as a SaaS offering has rapidly progressed given the global challenges to manage through financial constraints, particularly in governmental entities, many of which are still rebounding from the impact of COVID-19. This pivot has moved the market from technology license fees that deliver large upfront contract to SaaS based model that drives both higher margin and higher lifetime value of the customer.
The quarter began with the long-awaited phase one of the Queensland Courts transcription contract. While the Auscript acquisition provided a baseline for this contract, the new agreement moved the courts to a new technology that required engagement to test and evolve that technology, retrain our production and IT teams to adapt and adopt to this new environment. The impact of this migration weighed heavy on the production teams, constraining capacity by up to 30 percent and 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 turn around time modifications that drive lower revenue and lower revenue per file. Phase two of the Queensland agreement began toward the middle of September and the final phase began in early October. VIQ is adapting to these challenges and began to recognize the revenues of the new contracts in Victoria and New South Wales.
| Management Discussion & Analysis | Page 4 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The reduction in the volumes associated with insurance segment in the US caused by adjustments to the post COVID-19 world. As most of the revenue is tied to property and casualty, particularly auto claims, reduced by the hybrid work environment and improved automobile technologies that reduce the overall incident rates. This has reduced the overall number of statements of record that require full transcription. While this impacted Q3 revenues, this “evolution” has accelerated our First Draft strategy providing higher margin alternatives to traditional transcription. This reduction in revenue is not tied to any contract losses, conversely, all major agreements have renewed, and new named major contracts will be announced in Q4.
Despite the headwinds of Q3, we have seen very favourable market trends in new agreements with major insurance, courts and legal customers. We have expanded our active trials with courts in both the US, UK, and AU for our SaaS solutions, helping to resolve the challenges from the post COVID-19 work force and helping to deliver to the courts and parliamentary groups the ability to gain access to draft content in a format that is very usable and accurate.
In Q3, the expansion of an additional speech-to-text (STT) engine added additional efficiency to the technology and improved the basis or the addition of our AI to continue to improve the usability of our drafts. The strategy to remain engine agnostic and taking advantage of improved available technologies is delivering the results of our gross margin. Considering the impact of exchange rates and COVID-19 subsidies, we were still able to improve overall gross margin by approximately 1% and this will further accelerate in Q4 as we complete the TTA migration and begin the Auscript migration in Australia.
Trends in ARR, new bookings and gross margin gains continue to provide a solid foundation for the ARR exiting Q4 as contracts from Q2 begin to reach operational scale.
Key Operating Highlights during the three months and nine months ended September 30, 2022
| · | Total revenue for the three months ended September 30, 2022, was $11,785,713, an increase of $4,699,356 or 66% from $7,086,357 recognized in the comparative period in 2021. Total revenue for the nine months ended September 30, 2022, was $35,662,349, an increase of $12,129,958 or 52% from $23,532,391 recognized in the comparative period in 2021. |
| · | Gross margin for the three months ended September 30, 2022, was $5,577,185 representing 47.3% of revenue versus 51.4% of revenue in the comparative period in 2021. Gross margin for the nine months ended September 30, 2022, was $17,160,436 representing 48.1% of revenue versus 49.5% of revenue in the comparative period in 2021. |
| · | Net loss for the three months ended September 30, 2022, was $1,329,940 a decrease of $2,529,565 or 65% from a net loss of $3,859,505 recognized in the comparative period in 2021. Net loss for the nine months ended September 30, 2022, was $6,537,993, a decrease of $9,486,963 or 59% from a net loss of $16,024,956 recognized in the comparative period in 2021. |
| Management Discussion & Analysis | Page 5 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
| · | Adjusted EBITDA1, for the three months ended September 30, 2022, was a deficit of $559,481, a decrease of $2,552,164, from an Adjusted EBITDA deficit of $3,111,645 recognized in the comparative period in 2021. The improvement in Adjusted EBITDA was primarily due to increased gross profit resulting from increased revenue versus comparative period 2021. Also, reduction in selling and administrative expenses as comparative period 2021 includes approximately $2.2M in one-time professional service fees related to capital raise, Nasdaq listing fees and M&A activity. Further decrease in Adjusted EBITDA deficit was driven by lower research and development expenses primarily due to lower project costs than comparative period 2021.The decrease in Adjusted EBITDA deficit is partially offset by selling and administrative expenses generated from Q4 2021 acquisitions and lower COVID-19 subsidies than comparative period 2021. The three months ended September 30, 2022, included nil in COVID-19 wage subsidies versus $763,227 recorded in the comparative period in 2021. Adjusted EBITDA, for the nine months ended September 30, 2022, was a deficit of $2,218,492, a decrease of $899,343, from an Adjusted EBITDA deficit of $3,117,835 recognized in the comparative period in 2021. The improvement in Adjusted EBITDA for the nine months ended September 30, 2022, was primarily due to increased gross profit resulting from increased revenue versus comparative period 2021. Also, comparative period 2021 includes approximately $3.0M in one-time professional services fees related to capital raise, Nasdaq listings and M&A activity. The decrease in Adjusted EBITDA deficit was partially offset by higher selling and administrative expenses generated from Q4 2021 acquisitions, incremental increase in cloud services expenses related to support our customer migration to editing and technology-based workflows, higher D&O insurance, and higher headcount. In addition, the nine months ended September 30, 2022, included $225,843 reduction in expenses related to COVID-19 wage subsidies versus $1,661,812 recorded in the comparative period in 2021. |
Results of Operations
Key financial performance indicators that we use to manage our business and evaluate our financial results and operating performance include revenue, expenses, net income (loss) and Adjusted EBITDA. We evaluate our performance on these metrics by comparing our actual results to management budgets, forecasts, and prior period performance.
1 Adjusted EBITDA is earnings before stock-based compensation, depreciation, amortization, interest expense, accretion and other financing costs, loss on extinguishment of debt, gain on revaluation of options, RSUs, and derivative warrant liability, restructuring costs, business acquisition costs, other income, foreign exchange (gain) loss, and current and deferred income tax expense (recovery), is a non-IFRS measure. Please refer to the section entitled “Non-IFRS Measures.”
| Management Discussion & Analysis | Page 6 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The following table sets forth a summary of our results of operations for the three months and nine months ended September 30, 2022, and 2021:
Unaudited
| Three
months ended September 30 | Period
over Period Change | Nine
months ended September 30 | Period
over Period Change | |||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | |||||||||||||||||||||||||
| Revenue | 11,785,713 | 7,086,357 | 4,699,356 | 66 | 35,662,349 | 23,532,391 | 12,129,958 | 52 | ||||||||||||||||||||||||
| Cost of sales | 6,208,528 | 3,444,259 | 2,764,269 | 80 | 18,501,913 | 11,891,379 | 6,610,534 | 56 | ||||||||||||||||||||||||
| Gross profit | 5,577,185 | 3,642,098 | 1,935,087 | 53 | 17,160,436 | 11,641,012 | 5,519,424 | 47 | ||||||||||||||||||||||||
| Expenses | 47 | % | 51 | % | 48 | % | 49 | % | ||||||||||||||||||||||||
| Selling and administrative expenses | 5,960,010 | 6,516,449 | (556,439 | ) | (9 | ) | 18,628,758 | 14,008,605 | 4,620,153 | 33 | ||||||||||||||||||||||
| Research and development expenses | 164,849 | 317,546 | (152,697 | ) | (48 | ) | 642,291 | 817,219 | (174,928 | ) | (21 | ) | ||||||||||||||||||||
| Loss (Gain) on contingent consideration | 11,807 | (80,252 | ) | 92,059 | (115 | ) | 107,879 | (66,977 | ) | 174,856 | (261 | ) | ||||||||||||||||||||
| Stock-based compensation | 681,193 | 859,119 | (177,926 | ) | (21 | ) | 2,173,969 | 7,632,906 | (5,458,937 | ) | (72 | ) | ||||||||||||||||||||
| Depreciation | 156,916 | 45,736 | 111,180 | 243 | 432,483 | 189,392 | 243,091 | 128 | ||||||||||||||||||||||||
| Amortization | 1,115,721 | 989,215 | 126,506 | 13 | 3,219,135 | 3,282,037 | (62,902 | ) | (2 | ) | ||||||||||||||||||||||
| Interest expense | 234,892 | 329,598 | (94,706 | ) | (29 | ) | 815,733 | 996,611 | (180,878 | ) | (18 | ) | ||||||||||||||||||||
| Accretion and other financing expense | 466,316 | 236,309 | 230,007 | 97 | 755,596 | 755,970 | (374 | ) | (0 | ) | ||||||||||||||||||||||
| Loss on extinguishment of debt | 747,865 | - | 747,865 | 100 | 747,865 | - | 747,865 | 100 | ||||||||||||||||||||||||
| Gain on revaluation of options | - | (501,974 | ) | 501,974 | (100 | ) | (1,063,662 | ) | (501,974 | ) | (561,688 | ) | 112 | |||||||||||||||||||
| Gain on revaluation of RSUs | (137,224 | ) | (119,012 | ) | (18,212 | ) | 15 | (445,682 | ) | (119,012 | ) | (326,670 | ) | 274 | ||||||||||||||||||
| Gain on revaluation of the derivative warrant liability | (2,477,746 | ) | (763,499 | ) | (1,714,247 | ) | 225 | (3,524,526 | ) | (763,499 | ) | (2,761,027 | ) | 362 | ||||||||||||||||||
| Restructuring Costs | 134,582 | 35,072 | 99,510 | 284 | 303,690 | 395,324 | (91,635 | ) | (23 | ) | ||||||||||||||||||||||
| Business acquisition costs | 23,339 | 183,324 | (159,984 | ) | (87 | ) | 418,856 | 183,324 | 235,532 | 128 | ||||||||||||||||||||||
| Other income | (170 | ) | (2,226 | ) | 2,056 | (92 | ) | (899 | ) | (10,520 | ) | 9,621 | (91 | ) | ||||||||||||||||||
| Foreign exchange (gain) loss | (151,354 | ) | (445,978 | ) | 294,624 | 66 | 597,209 | (77,252 | ) | 674,461 | (873 | ) | ||||||||||||||||||||
| Loss before income taxes | (1,353,811 | ) | (3,957,329 | ) | 2,603,518 | 66 | (6,648,259 | ) | (15,081,142 | ) | 8,432,883 | 56 | ||||||||||||||||||||
| Current income tax recovery (expense) | 97,827 | 42,562 | 55,265 | 130 | (74,815 | ) | 41,204 | (116,019 | ) | (282 | ) | |||||||||||||||||||||
| Deferred income tax recovery (expense) | (73,956 | ) | 55,262 | (129,218 | ) | (234 | ) | 185,081 | (985,018 | ) | 1,170,099 | (119 | ) | |||||||||||||||||||
| Income tax recovery (expense) | 23,871 | 97,824 | (73,953 | ) | 76 | 110,266 | (943,814 | ) | 1,054,080 | 112 | ||||||||||||||||||||||
| Net Loss | (1,329,940 | ) | (3,859,505 | ) | 2,529,565 | 66 | (6,537,993 | ) | (16,024,956 | ) | 9,486,963 | 59 | ||||||||||||||||||||
| Adjusted EBITDA (1) | (559,481 | ) | (3,111,645 | ) | 2,552,163 | (82 | ) | (2,218,492 | ) | (3,117,835 | ) | 899,343 | (29 | ) | ||||||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||||||||||||||||||
| Diluted | 32,749,800 | 26,359,517 | 30,854,262 | 25,292,160 | ||||||||||||||||||||||||||||
| Net loss per share | ||||||||||||||||||||||||||||||||
| Basic | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||||||||||||||||||
| Diluted | (0.04 | ) | (0.15 | ) | (0.21 | ) | (0.63 | ) | ||||||||||||||||||||||||
1Adjusted EBITDA is earnings before stock-based compensation, depreciation, amortization, interest expense, accretion and other financing expense, loss on extinguishment of debt, gain on revaluation of options, RSUs, and derivative warrant liability, restructuring costs, business acquisition costs, other income, foreign exchange (gain) loss, and current and deferred income tax expense (recovery), is a non-IFRS measure. Please refer to the section entitled “Non-IFRS Measures.”
| Management Discussion & Analysis | Page 7 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Comparison of the three months and nine months ended September 30, 2022, and 2021
Revenue and Insights
Total revenue for the three months ended September 30, 2022, was $11,785,713, an increase of $4,699,356, or 66%, from $7,086,357 recognized in the comparative period in 2021. The increase in revenue for the three months ended September 30, 2022 was primarily due to technology service revenue generated from Q4 2021 acquisitions. Our revenue was impacted negatively by approximately $0.2M due to the weakening Australia and UK currencies in comparison to the USD.
Total revenue for the nine months ended September 30, 2022, was $35,662,349 an increase of $12,129,958, or 52%, from $23,532,391recognized in the comparative period in 2021. The increase in revenue for the nine months ended September 30, 2022, was primarily due to technology service revenue generated from Q4 2021 acquisitions which were partially offset by lower organic technology service revenue generated from legacy businesses and lower technology sales versus the comparative periods in 2021. The foreign exchange impact for the nine months ended September 30, 2022 resulted in a reduction in revenue of $0.5M.
Cost of Sales
Cost of Sales for the three months ended September 30, 2022, increased by $2,764,269, or 80%, to $6,208,528, from $3,444,259 for the comparative period in 2021. Cost of Sales for the nine months ended September 30, 2022, increased by $6,610,534 or 56%, to $18,501,913 from $11,891,379 for the comparative period in 2021.
The increase in Cost of Sales for the three months and nine months ended September 30, 2022, is primarily due to Cost of Sales related to Q421 acquisitions which were partially offset by productivity gains achieved through NetScribe, powered by aiAssist, and our global workforce.
The Company continued to utilize the global labor force which provides scale and real-time capacity, lower costs and 24-hour production is expected to be another accelerator to the gross margin improvements that began in Q4 2021.
During the three months ended September 30, 2022, the Company received and recorded nil of COVID-19 wage subsidies vs. $336,691 in the comparative period in 2021. During the nine months ended September 30, 2022, the Company received and recorded $129,247 of COVID-19 wage subsidies vs. $673,281 in the comparative period in 2021.
Gross Profit
Gross Profit for the three months ended September 30, 2022, increased by $1,935,087 or 53%, to $5,577,185, from $3,642,098, for the comparative period in 2021. The increase in Gross Profit for the three months ended September 30, 2022, is primarily due to Q4 2021 acquisitions and productivity gains. In addition, the comparative period 2021 includes $336,691 in COVID-19 wage subsidies compared to nil in the three months ended September 30, 2022. Excluding COVID-19 wage subsidies, Gross Profit Margin for the three months ended September 30, 2022, would be 47.3% vs. 46.6% in the comparative period in 2021 which has increased due to productivity gains achieved through NetScribe, powered by aiAssist, and our global workforce.
Gross Profit for the nine months ended September 30, 2022, increased by $5,519,424, or 47%, to $17,160,436, from $11,641,012, for the comparative period in 2021. The increase in Gross Profit for the nine months ended September 30, 2022, is primarily due to Q4 2021 acquisitions and productivity gains, partially offset by lower technology revenue vs. the comparative period in 2021. In addition, the comparative period in 2021 includes $673,281 in COVID-19 wage subsidies vs. $129,247 in the nine months ended September 30, 2022. Excluding COVID-19 wage subsidies, Gross Profit Margin for the nine months ended September 30, 2022, would be 47.8% vs. 46.6% in the comparative period in 2021 which has increased due to productivity gains achieved through NetScribe, powered by aiAssist, and lower labour costs due to our global workforce.
| Management Discussion & Analysis | Page 8 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Selling and Administrative Expenses
Selling and Administrative Expenses for the three months ended September 30, 2022, decreased by $556,439, or 9%, to $5,960,010, from $6,516,449, for the comparative period in 2021. The decrease for the three months ended September 30, 2022, is primarily due to approximately $2,200,000 in one-time professional service fees related to capital raise, Nasdaq listing fees and M&A activity reported in comparative period 2021 partially offset by selling and administrative expenses generated from Q4 2021 acquisitions. In addition, the three months ended September 30, 2022, included $95,565 for COVID-19 wage subsidies versus $426,536 in the comparative period in 2021.
Selling and Administrative Expenses for the nine months ended September 30, 2022, increased by $4,620,153, or 33%, to $18,628,758, from $14,008,605, for the comparative period in 2021. The increase for the nine months ended September 30, 2022, includes Selling and Administrative Expenses related to Q4 2021 acquisitions of approximately $5,000,000, higher D&O insurance of approximately $500,000 and incremental costs associated with cloud services of approximately $800,000 to support our customer migration to editing and technology-based workflows, remaining increase related to increased headcount. The increase in selling and administrative expenses was partially offset by approximately $3,000,000 in one-time professional service fees reported in comparative period 2021 relating to capital raise, Nasdaq listing fees and M&A activity. In addition, the nine months ended September 30, 2022, included $95,565 for COVID-19 wage subsidies versus $988,531 in the comparative period in 2021.
Research and Development Expenses
Research and Development Expenses for the three months ended September 30, 2022, decreased by $152,697, or 48%, to $164,849, from $317,546, for the comparative period in 2021. The decrease in Research and Development Expenses for the three months ended September 30, 2022, is primarily due to lower project costs than the comparative period in 2021. Research and Development Expenses for the nine months ended September 30, 2022, decreased by $174,928, or 21%, to $642,291, from $817,219, for the comparative period in 2021. The decrease in Research and Development Expenses for the nine months ended September 30, 2022, is primarily due to lower project costs than the comparative period in 2021.
Loss (Gain) on Contingent Consideration
For the three months ended September 30, 2022, Contingent Consideration changed by $92,059, from a gain of $80,252 recognized in the comparative period in 2021 to a loss of $11,807. For the nine months ended September 30, 2022, Contingent Consideration changed by $174,856, from a gain of $66,977, recognized in the comparative period in 2021 to a loss of $107,879. The change for the three and nine months September 30, 2022, is mainly due to changes in anticipated acquisition earnout payments primarily as a result of higher forecasted revenue for the wordZXpressed, Inc. (“WordZ”) acquisition. In addition, the prior year gain on contingent consideration related to the earnout of the ASC acquisition which was settled in Q4 2021. Revenue forecasts are updated on a quarterly basis and the related anticipated acquisition earnout payment accruals are updated accordingly.
Stock-Based Compensation
For the three months ended September 30, 2022, Stock Based Compensation decreased by $177,926 to $681,193 from $859,119, recognized in the same period of 2021. The decrease in Stock Based Compensation is due to the impact of 319,384 options, and 424,489 RSUs granted during the three months ended September 30, 2022 compared to nil stock options and RSUs granted for the three months ended September 30, 2021.
For the nine months ended September 30, 2022, Stock Based Compensation decreased by $5,458,937 to $2,173,969 from $7,632,906, recognized in the same period of 2021. The decrease in Stock Based Compensation is due to the impact of 555,947 options, 689,463 RSUs and 195,000 PSUs granted during the nine months ended September 30, 2022 compared to 790,086 stock options and 998,378 RSUs granted for the nine months ended September 30, 2021. In addition, the 2022 RSUs, PSUs and stock options were recorded at lower fair value due to lower share price.
| Management Discussion & Analysis | Page 9 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Depreciation
For the three months ended September 30, 2022, Depreciation increased by $111,180, to $156,916 from $45,736 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, depreciation increased by $243,091, to $432,483, from $189,392 recognized in the comparative period in 2021. The increase in depreciation for the three months and nine months ended September 30, 2022, is due primarily to the addition of right of use assets acquired with Q4 2021 acquisitions and capital assets purchased during the period.
Amortization
For the three months ended September 30, 2022, Amortization increased by $126,506, to $1,115,721, from $989,215 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Amortization decreased by $62,902, to $3,219,135, from $3,282,037 recognized in the comparative period in 2021. The increase in amortization for the three months ended September 30, 2022, is mainly attributable to the amortization of intangible assets related to Q4 2021 acquisitions. The decrease in amortization for the nine months ended September 30, 2022 is attributable to the reduction in amortization of capitalized internally generated intangible assets due to the timing of projects partially offset by amortization of intangible assets related to Q4 2021 acquisitions.
Interest Expense
For the three months ended September 30, 2022, Interest Expense decreased by $94,706, to $234,892, from $329,598 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Interest Expense decreased by $180,878, to $815,733, from $996,611 recognized in the comparative period in 2021. The decrease in Interest Expense for the three months and nine months ended September 30, 2022, is primarily due to $4,005,768 principal repayment on long term debt, which occurred in Q1 2022.
Accretion and Other Financing Costs
For the three months ended September 30, 2022, Accretion and Other Financing Costs increased by $230,007, to $466,316, from $236,309 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Accretion and Other Financing Costs decreased by $374 to $755,596 from $755,970 recognized in the comparative period in 2021. The increase in Accretion and Other Financing Costs for the three months is due to incremental amendment fees incurred on debt financing. The decrease in Accretion and Other Financing Costs for the nine months is due to extinguishment of debt offset by incremental amendment fees incurred on debt financing.
Loss on extinguishment of debt
On July 14, 2022, the Company amended the terms of the debt agreement with Crown Capital Partner Funding, LP (the “Crown Debt Facility”). The amendment resulted in the terms of the Crown Debt Facility being substantially modified, as such the transaction is accounted for as an extinguishment of the old debt. The Company recognized a loss on extinguishment of debt of $747,865 for the three and nine months ended September 30,2022 and the new debt was recognized at a fair value of $7,706,896.
| Management Discussion & Analysis | Page 10 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Gain on Revaluation of Options
For the three months ended September 30, 2022, Gain on Revaluation of Options decreased by $501,974, to $nil, from $501,974 recognized in the comparative period in 2021. The $nil amount is due to the forfeiture of options that were cash-settled options which resulted in no gain on revaluation of options being required for the current quarter. For the nine months ended September 30, 2022, Gain on Revaluation of Options increased by $561,688, to $1,063,662, from $501,974 recognized in the comparative period in 2021. This increase is due to the revaluation of cash-settled options recorded under share-based payment liability, due to the decrease in fair value from the date of initial measurement compared to the re-measurement and the forfeiture of these options.
Gain on Revaluation of RSUs
For the three months ended September 30, 2022, Gain on Revaluation of RSUs increased by $18,212, to $137,224, from $119,012 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Gain on Revaluation of RSUs increased by $326,670, to $445,682, from $119,012 recognized in the comparative period in 2021. This increase is due to the revaluation of RSUs recorded under share-based payment liability, due to the decrease in fair value from the date of initial measurement compared to the re-measurement at the close of September 30, 2022.
Gain on Revaluation of Derivative Warrant Liability
For the three months ended September 30, 2022, Gain on Revaluation of Derivative Warrant Liability increased by $1,714,247, to $2,477,746, from $763,499 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Gain on Revaluation of Derivative Warrant Liability increased by $2,761,027, to $3,524,526, from $763,499 recognized in the comparative period in 2021. The Gain on Revaluation of Derivative Warrant Liability for the three and nine months ended September 30, 2022 is due to a decrease in share price which results in a gain recognized.
Restructuring Costs
For the three months ended September 30, 2022, Restructuring Costs increased by $99,510, to $134,582, from $35,072 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Restructuring Costs decreased by $91,635, to $303,690, from $395,324 recognized in the comparative period in 2021. The increase in Restructuring Costs for the three months ended September 30, 2022 is due to higher organizational restructuring costs related to mainly employee severance incurred versus comparative period in 2021. The decrease in Restructuring Costs for the three months and nine months ended September 30, 2022 is due to lower organizational restructuring costs related to mainly employee severance incurred versus comparative period in 2021.
Business Acquisition Costs
For the three months ended September 30, 2022, Business Acquisition costs decreased by $159,984, to $23,339, from $183,324 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Business Acquisition costs increased by $235,532, to $418,856, from $183,324 recognized in the comparative period in 2021. The increase in Business Acquisition Costs for the three months and nine months ended September 30, 2022, is primarily due to Q4 2021 acquisitions.
| Management Discussion & Analysis | Page 11 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Other Income
For the three months ended September 30, 2022, Other Income decreased by $2,056, to $170, from $2,226 recognized in the comparative period in 2021. For the nine months ended September 30, 2022, Other Income decreased by $9,621, to $899, from $10,520 recognized in the comparative period in 2021. The decrease in Other Income for the three months ended September 30, 2022, is due to lower interest earned on term deposits.
Foreign Exchange (Gain) Loss
For the three months ended September 30, 2022, Foreign Exchange Gain decreased by $294,624 from a gain of $445,978 recognized in the comparative period in 2021 to a gain of $151,354. For the nine months ended September 30, 2022, Foreign Exchange Loss increased by $674,461, from a gain of $77,252 recognized in the comparative period in 2021 to a loss of $597,209. The gain/loss on foreign exchange is due to fluctuations in the foreign exchange rates. Our businesses are organized geographically so many of our expenses are incurred in the same currency as our revenues, which mitigates some of our exposure to currency fluctuations. Foreign exchange gain and losses are primarily related to the unrealized foreign translation gains and losses of certain USD, AUD and GBP denominated working capital balances to CAD and USD denominated working capital balances to AUD.
Income Tax Recovery (Expense)
We operate globally and we calculate our tax provision in each of the jurisdictions in which we conduct business. Our effective tax rate on a consolidated basis is, therefore, affected by the realization and anticipated relative profitability of our operations in those various jurisdictions, as well as different tax rates that apply and our ability to utilize tax losses and other credits. For the three months ended September 30, 2022, Income tax recovery, net of deferred income tax recovery, decreased by $73,953 to a tax recovery of $23,871, from a tax recovery of $97,824 in the comparative period in 2021. For the nine months ended September 30, 2022, Income tax expense, net of deferred income tax recovery, decreased by $1,054,080 to a tax recovery of $110,266, from a tax expense of $943,814 in the comparative period in 2021. The decrease for the three months and nine months ended September 30, 2022, is primarily due to the recording of a valuation allowance on deferred tax asset recorded for our US entities in 2021 based on forecasted profitability and taxable profit recognized for our Australian subsidiaries.
Net Loss and Earnings Per Share
Net loss for the three months ended September 30, 2022, was $1,329,940 compared to net loss of $3,859,505, for the same period in 2021. On a per weighted average share basis, this translated into a net loss per share of $0.04 in the three months ended September 30, 2022, compared to a net loss per weighted average share of $0.15 for the comparative period in 2021. Net loss for the nine months ended September 30, 2022, was $6,537,993 compared to a net loss of $16,024,956, for the same period in 2021. On a per weighted average share basis, this translated into a net loss per share of $0.21 in the nine months ended September 30, 2022, compared to a net loss per weighted average share of $0.63 for the comparative periods in 2021.
| Management Discussion & Analysis | Page 12 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Quarterly Results of Operations
The following table sets out selected financial information for each of the eight most recent quarters, the latest of which ended September 30, 2022. Our quarterly operating results have historically fluctuated significantly and may continue to fluctuate significantly in the future. Therefore, we believe that past operating results and period to period comparisons should not be relied upon as an indication of the Company's future performance.
| (unaudited) | ||||||||||||||||||||||||||||||||
| Sep-22 | Jun-22 | Mar-22 | Dec-21 | Sep-21 | Jun-21 | Mar-21 | Dec-20 | |||||||||||||||||||||||||
| Revenue | 11,785,713 | 12,351,655 | 11,524,981 | 7,514,421 | 7,086,357 | 8,191,812 | 8,254,222 | 7,775,674 | ||||||||||||||||||||||||
| Net loss | (1,329,940 | ) | (3,198,138 | ) | (2,009,916 | ) | (3,653,793 | ) | (3,859,505 | ) | (10,498,662 | ) | (1,666,789 | ) | (3,099,688 | ) | ||||||||||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 32,749,800 | 28,653,056 | 29,881,717 | 29,880,185 | 26,359,517 | 25,029,019 | 24,467,151 | 20,341,203 | ||||||||||||||||||||||||
| Diluted | 32,749,800 | 28,653,056 | 29,881,717 | 29,880,185 | 26,359,517 | 25,029,019 | 24,467,151 | 20,341,203 | ||||||||||||||||||||||||
| Net loss per share: | ||||||||||||||||||||||||||||||||
| Basic | (0.04 | ) | (0.11 | ) | (0.07 | ) | (0.12 | ) | (0.15 | ) | (0.42 | ) | (0.07 | ) | (0.15 | ) | ||||||||||||||||
| Diluted | (0.04 | ) | (0.11 | ) | (0.07 | ) | (0.12 | ) | (0.15 | ) | (0.42 | ) | (0.07 | ) | (0.15 | ) | ||||||||||||||||
Key factors that account for the fluctuation in quarterly results include the variability in the Company’s revenue due to timing of acquisitions and seasonality of revenue. Seasonality impacts the transcription services industry in some cases by summer holiday seasons, such as court closings in January in Australia, and the Thanksgiving and December holidays in the US, Canada and the UK. It also has a slight impact in the US summer period. Our quarterly results may also fluctuate as a result of the various acquisitions which may be completed by the Company in any given quarter. We may experience variations in our net income/(loss) on a quarterly basis depending upon the timing of certain expenses or gains, which may include changes in provisions and acquired contract liabilities.
Key Operating Metrics – Non-IFRS Measures
ARR
Metric: The ARR has decreased to $48.1M from $49.6M reported in the previous quarter. The decrease in ARR is primarily due to capacity constraints in quality assurance as we expand our global capacity and retrain, reduction in insurance demand and impacted by the significant weakening of the Australian dollar.
Measure Definition ARR: is the annualized equivalent value of the (i) software support maintenance, (ii) software subscription and (iii) technology services revenue of all existing contracts as of the date being measured. This excludes non-recurring revenue from implementation, support, and maintenance fees. The majority of our editing services contracts are volume based. Accordingly, our calculation of ARR assumes that the clients will renew the contractual commitments on a periodic basis as those commitments come up for renewal. A portion of the contract renewals are through a competitive tender process. Contracts may be subject to contract value increases upon renewal reflecting both inflationary increases and the additional value and added products and services provided by our solutions. ARR is not adjusted for the impact of any known or projected future client cancellations, loss of renewals, service upgrades or downgrades or price increases or decreases.
| Management Discussion & Analysis | Page 13 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate its operating performance. We believe ARR is useful supplemental information as it provides a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring client contracts, assuming minor cancellations. Accordingly, we believe that this measure may also be useful to investors in enhancing their understanding of the Company’s operating performance.
This measure provides a fair real-time measure of the performance in a volume and subscription-based environment. ARR provides us with the visibility for consistent and predicable growth to our cash flows. Our total revenue, ARR and bookings allow us to look at the strength of the expansion of our business on a go forward basis.
At September 30, 2022 - Reconciliation of 2021 Technology Services, support and maintenance, SaaS and Subscription revenues to ARR
| 2022 | ||||
| Technology Services | 26,676,738 | |||
| Support & Maintenance | 1,772,203 | |||
| SaaS | 65,187 | |||
| Subscription | 189,359 | |||
| Add: The Transcription Agency Revenue Jan 1 - Oct 1, 2021 | 1,083,415 | |||
| Add: Auscript Revenue Jan 1 - Dec 13, 2021 | 10,163,719 | |||
| Add: Client Adjustments | 8,172,556 | |||
| Total Annual Recurring Revenue | $ | 48,123,177 | ||
At June 30, 2022 - Reconciliation of 2021 Technology Services, support and maintenance, SaaS and Subscription revenues to ARR
| 2022 | ||||
| Technology Services | 26,676,738 | |||
| Support & Maintenance | 1,772,203 | |||
| SaaS | 65,187 | |||
| Subscription | 189,359 | |||
| Add: The Transcription Agency Revenue Jan 1 - Oct 1, 2021 | 1,083,415 | |||
| Add: Auscript Revenue Jan 1 - Dec 13, 2021 | 10,163,719 | |||
| Add: Client Adjustments | 9,623,666 | |||
| Total Annual Recurring Revenue | $ | 49,574,287 | ||
Adjusted EBITDA
Measure Definition:
To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “Adjusted EBITDA”, as defined by management, refers to net income (loss) before adjusting earnings for stock-based compensation, depreciation, amortization, interest expense, accretion and other financing costs, loss on extinguishment debt, gain on revaluation of options, gain on revaluation of RSUs, gain on revaluation of derivative warrant liability, restructuring costs, business acquisition costs, other expense (income), foreign exchange (gain) loss, current and deferred income tax expense (recovery). We believe that the items excluded from Adjusted EBITDA are not connected to and do not represent the recurring operating performance of the Company. “EBITDA” is a non-IFRS financial measure and is not a standardized financial measure under the financial reporting framework used to prepare the financial statements of the Company and accordingly might not be comparable to similar financial measures disclosed by other issuers. To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “EBITDA”, as defined by management, refers to earnings before depreciation, amortization, interest expense, current and deferred income tax expense (recovery).
| Management Discussion & Analysis | Page 14 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The Corporation believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate its operating performance. We believe that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the Company’s main business activities prior to taking into consideration how those activities are financed and taxed as well as expenses related to stock-based compensation, depreciation, amortization, restructuring costs, acquisition, other expense (income), and foreign exchange (gain) loss. Accordingly, we believe that this measure may also be useful to investors in enhancing their understanding of the Company’s operating performance.
The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income (loss) as determined in accordance with IFRS. These non-IFRS measures should be read in conjunction with the financial statements of the Company. The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the three months and nine months ended September 30, 2022, and 2021:
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| (unaudited) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net Loss | $ | (1,329,940 | ) | $ | (3,859,505 | ) | $ | (6,537,993 | ) | $ | (16,024,956 | ) | ||||
| Add: | ||||||||||||||||
| Depreciation | 156,916 | 45,736 | 432,483 | 189,392 | ||||||||||||
| Amortization | 1,115,721 | 989,215 | 3,219,135 | 3,282,037 | ||||||||||||
| Interest expense | 234,892 | 329,598 | 815,733 | 996,611 | ||||||||||||
| Current income tax expense (recovery) | (97,827 | ) | (42,562 | ) | 74,815 | (41,204 | ) | |||||||||
| Deferred income tax expense (recovery) | 73,956 | (55,262 | ) | (185,081 | ) | 985,018 | ||||||||||
| EBITDA | 153,718 | (2,592,780 | ) | (2,180,908 | ) | (10,613,102 | ) | |||||||||
| Accretion and other financing expense | 466,316 | 236,309 | 755,596 | 755,970 | ||||||||||||
| Loss on extinguishment of debt | 747,865 | - | 747,865 | - | ||||||||||||
| Gain on revaluation of options | - | (501,974 | ) | (1,063,662 | ) | (501,974 | ) | |||||||||
| Gain on revaluation of RSUs | (137,224 | ) | (119,012 | ) | (445,682 | ) | (119,012 | ) | ||||||||
| Gain on revaluation of the derivative warrant liability | (2,477,746 | ) | (763,499 | ) | (3,524,526 | ) | (763,499 | ) | ||||||||
| Restructuring costs | 134,582 | 35,072 | 303,690 | 395,324 | ||||||||||||
| Business acquisition costs | 23,339 | 183,324 | 418,856 | 183,324 | ||||||||||||
| Other income | (170 | ) | (2,226 | ) | (899 | ) | (10,520 | ) | ||||||||
| Stock-based compensation | 681,193 | 859,119 | 2,173,969 | 7,632,906 | ||||||||||||
| Foreign exchange (gain) loss | (151,354 | ) | (445,978 | ) | 597,209 | (77,252 | ) | |||||||||
| Adjusted EBITDA | $ | (559,481 | ) | $ | (3,111,645 | ) | $ | (2,218,492 | ) | $ | (3,117,835 | ) | ||||
| Management Discussion & Analysis | Page 15 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Bookings
Measure Definition: We calculate “Bookings” for a given period as the estimated contract value (for services tied to volume) of our recurring client contracts entered into during the period from (i) new clients and (ii) net upgrades by existing clients within the same workload, plus the actual (not annualized) estimated value of professional services consulting, advisory or project-based orders received, software licenses, subscriptions, SaaS and hardware during the period.
Recurring client contracts are any contracts entered into on a multi-year or month-to-month basis, but excluding any professional services contracts for consulting, advisory or project-based work, software license and hardware.
We use Bookings to measure the amount of new business generated in a period, which we believe is an important indicator of new client acquisition and our ability to cross-sell new services to existing clients. Bookings are also used by management as a factor in determining performance-based compensation for our sales force. While we believe Bookings, in combination with other metrics, is an indicator of our near-term future revenue opportunity, it is not intended to be used as a projection of future revenue. Booking information is a non-IFRS measure, which involves judgments, estimates and assumptions, which does not have a standard industry definition. Our calculation of Bookings may differ from similarly titled metrics presented by other companies.
While we continue to acquire new clients, we also aim to deepen relationships with these clients through high-margin technology services and software bookings. In addition, we are investing in initiatives to drive sales productivity improvements.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Bookings | $ | 1,114,788 | $ | 1,033,614 | $ | 4,359,086 | ||||||
Focus on global courts as well as media provided the baseline for the increased booking in the quarter in comparison to prior year quarter.
Average Technology Services Revenue per Day
Measure Definition: Average Technology Service revenue per Day is calculated by region based on the total technology services revenue divided by the total billing days during the period. This number is highly impacted by seasonality and should be looked at for monthly trends. As an example, average revenue per day will likely drop in November and December in the US and December and January in Australia and the UK.
(unaudited)
| US | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Technology Services Revenue | $ | 4,136,509 | $ | 4,595,074 | $ | 4,392,021 | ||||||
| Number of Billing Days | 64 | 64 | 64 | |||||||||
| Average Technology Services Revenue per Day | $ | 64,633 | $ | 71,798 | $ | 68,625 | ||||||
Decline in average US technology services revenue per day against prior year comparative quarter was driven by capacity constraints in quality assurance as we expand our global capacity and retrain, particularly impacting Law Enforcement clients and revenue impact to rates driven by longer turn around times. Also, impacting the reduction are changes related to insurance demand and the beginning of migrations to First Draft technology.
(unaudited)
| Australia | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Technology Services Revenue | $ | 6,263,423 | $ | 1,699,481 | $ | 6,604,366 | ||||||
| Average Number of Billing Days | 57.6 | 63.2 | 56.5 | |||||||||
| Average Technology Services Revenue per Day | $ | 108,740 | $ | 26,891 | $ | 116,891 | ||||||
The 304% increase from Q3 2021 to Q3 2022 reflects the full quarter of Auscript activity. Auscript was acquired on December 13, 2021.
| Management Discussion & Analysis | Page 16 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
(unaudited)
| UK | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Technology Services Revenue | $ | 235,043 | N/A | $ | 275,199 | |||||||
| Number of Billing Days | 60 | N/A | 60 | |||||||||
| Average Technology Services Revenue per Day | $ | 3,917 | N/A | $ | 4,587 | |||||||
Decrease in revenue per day quarter over quarter relates to the Queen’s funeral and barrister strikes that lasted approximately 2 weeks. In addition, weakened GBP versus USD.
(unaudited)
| Consolidated | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Technology Services Revenue | $ | 10,634,976 | $ | 6,294,555 | $ | 11,271,586 | ||||||
| Average Number of Billing Days | 60.0 | 63.8 | 59.3 | |||||||||
| Average Technology Services Revenue per Day | $ | 177,250 | $ | 98,661 | $ | 190,077 | ||||||
Technology Services Cost of Sales without Covid 19 subsidies per Minute of Audio
Measure Definition: Technology Services Cost of Sales without COVID-19 subsidies per Minute of Audio is defined as the direct labor cost of edited content divided by the volume of audio content delivered.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Technology Services Revenue | $ | 10,634,976 | $ | 6,294,555 | $ | 11,271,586 | ||||||
| Cost of Sales | $ | 5,893,972 | $ | 3,195,401 | $ | 5,907,462 | ||||||
| Add Back: COVID 19 subsidies | Nil | $ | 336,691 | $ | 129,247 | |||||||
| Cost of Sales without COVID 19 subsidies | $ | 5,893,972 | $ | 3,532,092 | $ | 6,036,709 | ||||||
| Number of Minutes | 4,565,595 | 3,384,682 | 4,653,018 | |||||||||
| Technology Services Cost of Sales without Covid 19 subsidies per Minute of Audio | $ | 1.29 | $ | 1.04 | $ | 1.30 | ||||||
| Management Discussion & Analysis | Page 17 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Gross Margin for Technology Services without COVID-19 Subsidies
Measure Definition: Gross Margin for Technology Services as reported less COVID-19 related subsidies received related to technology services employees.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Technology Services Revenue | $ | 10,634,976 | $ | 6,294,555 | $ | 11,271,586 | ||||||
| Cost of Sales | $ | 5,893,972 | $ | 3,195,401 | $ | 5,907,462 | ||||||
| Add Back: COVID 19 subsidies | Nil | $ | 336,691 | $ | 129,247 | |||||||
| Gross Margin | $ | 4,741,004 | $ | 2,762,463 | $ | 5,234,877 | ||||||
| Gross Margin % | 44.6 | % | 43.9 | % | 46.4 | % | ||||||
Gross margin was negatively impacted by training, migrations and onboarding costs related to Australia and UK Technology Services.
Gross Margin for Technology and related revenue
Measure Definition: Gross margin for technology and related revenue as reported.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Technology Revenue | $ | 1,150,737 | $ | 791,802 | $ | 1,080,069 | ||||||
| Cost of Sales | $ | 314,556 | $ | 248,857 | $ | 349,991 | ||||||
| Gross Margin | $ | 836,181 | $ | 542,945 | $ | 730,078 | ||||||
| Gross Margin % | 72.7 | % | 68.6 | % | 67.6 | % | ||||||
Gross Margin for Technology and related revenue was favorably impacted by increased VIQ technology sales versus 3rd party technology sales.
Key Performance Indicators
VIQ Solutions monitors several KPIs to help it evaluate its business, measure its performance, identify trends affecting its business and formulate strategic plans.
Annual Delivered Content
Measure Definition: We define Annual Delivered Content as the annualized equivalent of the total number of unstructured digital audio minutes transformed into client specific structured text that is delivered electronically to the clients in the form of delivered pages.
(unaudited)
| Annual Delivered Content | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Minutes | 4,565,595 | 3,384,682 | 4,653,018 | |||||||||
| Pages | 2,442,476 | 1,876,161 | 2,479,759 | |||||||||
Improvements in Q3 2022 from Q3 2021 are tied to reduced revenues in the US related to seasonality, reduced insurance volumes and fewer unplanned billing days in Australia and UK.
| Management Discussion & Analysis | Page 18 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Productivity
Measure Definition: We define Productivity as the ratio of the time spent working on a particular document, including idle time, over the duration of the associated recording. This ratio is called OpenRT.
(unaudited)
| Productivity | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| OpenRT | 242/3.5 | 285/3.4 | 252/3.6 | |||||||||
OpenRT was negatively impacted by adoption to Netscribe technology from migrations in the UK and new contractors hired globally to train for new services contracts to commence in Q4.
Active Clients and Client Retention
Measure Definition: We define Active Clients as customer invoiced accounts who have an active license and technology service agreement with us that remains in effect in the twelve months ending at the specified period. The retention and expansion of our relationships with existing clients are key indicators of our revenue potential. We started tracking this metric in Q4 2021.
(unaudited)
| Active Clients | Q3 2022 | Q3 2021 | Q2 2022 | |||||||||
| Technology | 70 | N/A | 68 | |||||||||
| Technology Services | 4,085 | N/A | 3,387 | |||||||||
| Total | 4,155 | N/A | 3,455 | |||||||||
Technology Services Active Clients reflects the relatively larger number of net new customers in the US and increase in private pay customers globally.
Net Promoter Score
Measure Definition: The Net Promoter Score (“NPS”) measures the loyalty of clients to a company. NPS scores are measured with a survey and reported with a number from the range -100 to +100, a higher score is desirable. We conduct transactional surveys which are sent out after the client interacts with VIQ. It is used to understand client satisfaction on a granular level and provide feedback about a very specific topic and are likely to recommend the Company’s services.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Net Promoter Score | 86 | 81 | 86 | |||||||||
The NPS shows a high probability that customers are secure and likely to recommend VIQ.
| Management Discussion & Analysis | Page 19 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Total Number of Minutes of Content Processed on aiAssist
Measure Definition: We define the total number of minutes of content processed on aiAssist.
(unaudited)
| Q3 2022 | Q3 2021 | Q2 2022 | ||||||||||
| Number of Minutes of Content Processed on aiAssist | 1,600,039 | 1,255,351 | 1,449,680 | |||||||||
The in number of minutes Content Processed on aiAssist increased in Q3 2022 from Q3 2021 due to migrations that have taken place in Q3 2022 and additional use of the platform by technology customers.
Liquidity
As of September 30, 2022, we held cash of $3,854,775 as compared to $26,024,604 as of September 30, 2021 and $10,583,534 as of December 31, 2021. On July 21, 2022, the Company completed a private placement offering to institutional investors (“PIPE”). Under the PIPE, the Company sold 3,551,852 units (the “Units”) at a price of $1.35 per Unit for gross proceeds to the Company of approximately $4,800,000 before the deduction of any fees and other estimated PIPE expenses. We believe that ongoing operations, working capital and associated cash flows in addition to our cash resources provide sufficient liquidity to support our ongoing business operations and satisfy our obligations as they become due for at least the next 12 months. If we continue to acquire accretive businesses, we may need additional external funding depending upon the size and timing of the potential acquisitions.
Below is a summary of our cash provided by (used in) operating, investing, and financing activities for the periods indicated:
| (unaudited) | Three Months Ended September 30 | Nine months ended September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash provided by (used in) operating activities | (1,794,381 | ) | (1,440,743 | ) | (1,684,195 | ) | (4,941,092 | ) | ||||||||
| Cash used in investing activities | (1,632,659 | ) | (931,467 | ) | (3,211,929 | ) | (2,870,116 | ) | ||||||||
| Cash provided by (used in) financing activities | 3,941,255 | 16,196,471 | (1,545,676 | ) | 17,126,169 | |||||||||||
| Net increase (decrease) in cash for the year | 514,215 | 13,824,261 | (6,441,800 | ) | 9,314,960 | |||||||||||
| Cash, beginning of period | 3,491,907 | 12,374,825 | 10,583,534 | 16,835,671 | ||||||||||||
| Effect of foreign exchange | (151,349 | ) | (174,482 | ) | (286,961 | ) | (126,028 | ) | ||||||||
| Cash, end of period | 3,854,773 | 26,024,604 | 3,854,773 | 26,024,603 | ||||||||||||
Cash Provided by (used in) Operating Activities
We utilized cash of $1,794,381 in operating activities for the three months ended September 30, 2022. This resulted from $1,329,940 in net loss plus $288,383 of non-cash adjustments and $752,824 attributable to movements in working capital with changes primarily arising from an increase in accounts receivable, prepaid expenses, and contract liability which was offset with a decrease in accounts payable, a decrease in inventories.
We utilized cash of $1,684,195 in operating activities for the nine months ended September 30, 2022. This resulted from $6,537,993 in net loss plus $3,380,843 of non-cash adjustments and $1,472,955 attributable to movements in working capital with changes primarily arising from an increase in accounts receivable, accounts payable, contract liabilities which was offset with a decrease in inventories and prepaid expenses.
| Management Discussion & Analysis | Page 20 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Cash Provided by (used in) Investing Activities
For the three months ended September 30, 2022, cash used in investing activities was $1,632,659 which consisted of purchase of property and equipment of $659,816, development costs related to internally generated intangible assets of $420,549 and a deferred consideration and earnout payout for WordZ and Auscript of $552,294.
For the nine months ended September 30, 2022, cash used in investing activities was $3,211,929 which consisted of purchase of property and equipment of $897,702, $298,927 of additional working capital related to the business acquisition of Auscript, development costs related to internally generated intangible assets of $1,334,143, a deferred consideration and earnout payout for WordZ and Auscript of $745,798, and change in restricted cash of $234,286.
Cash Provided by (used in) Financing Activities
Cash generated by Financing Activities for the three months ended September 30, 2022, was $3,941,255 which consisted of $4,418,325 of cash provided by issuance of share capital net of issuance costs, cash used in repayment of debt of $173,521, repayment of lease obligations of $69,338, repayment of interest on lease obligations of $23,773, repayment of interest on debt of $210,438.
Cash used by Financing Activities for the nine months ended September 30, 2022, was $1,545,675, which consisted of $4,418,325 of cash provided by issuance of share capital net of issuance costs, cash used in repayment of debt of $4,616,975, payment of amendment fees on debt of $239,880, repayment of lease obligations of $186,658 payment of interest on lease obligations of $78,764, and payment of interest on debt of $841,724.
Debt Covenants
In accordance with our debt agreement with Crown Capital Partner Funding, LP (the “Crown Debt Facility”), the Company is required to maintain quarterly (i) a Fixed Charge Coverage Ratio (“FCCR”) of greater than 1.25 calculated based on EBITDA for such period less liabilities paid in cash in connection with the Company’s share appreciation rights plan, cash dividends paid, and capital expenditures divided by debt service for such period and (ii) a Net Debt to EBITDA Ratio less than 3. These financial covenants were waived for Q3 2022.
On March 30, 2022, the Company signed an amendment related to the Crown Debt Facility that required the Company to pay $4,005,768 (CAD $5,000,000) of the principal balance on March 30, 2022 and pay an amendment fee of approximately $239,880 (CAD $300,000). The amended secured debt facility waives the Fixed Charge Coverage Ratio for Q4, 2022 and the Net Debt to EBITDA ratio for Q1 and Q2 2022. Additional financial covenants were added to the amended Crown Debt Facility, which include restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure (including internally generated intangible assets and capitalized assets) in each of Q2 2022, Q3 2022 and Q4 2022. As at September 30, 2022, the Company was in compliance with these additional financial covenants.
On July 14, 2022, the Company signed an amendment to the Crown debt facility which removed entirely the Fixed Charge Coverage Ratio and Net Debt to EBITDA covenants for the term of the facility. The covenants relating to the restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure for the quarter ending September 30, 2022 and December 31, 2022 were unchanged. In addition, the Company has agreed to make certain payments to the lender in the event that there is a balance outstanding under the debt facility as at certain periods in time. Such fees, if applicable, are payable in cash or Common Shares, in the Company's sole discretion. On October 31, 2022, the Company issued 500,000 Common Shares to Crown Capital Funding, LP in connection with the first of such payments. The 500,000 Common Shares issued are subject to a statutory hold period of four months plus a day.
| Management Discussion & Analysis | Page 21 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Contractual Obligations
The following table summarizes our contractual obligations as at September 30, 2022, including commitments relating to leasing contracts:
| (unaudited) | 2022 | 2023 | 2024 | 2025 | Total | |||||||||||||||
| Trade and other payables | $ | 6,540,545 | $ | – | $ | – | $ | – | $ | 6,540,545 | ||||||||||
| Lease obligations | 100,606 | 428,968 | 304,308 | 223,097 | 1,056,980 | |||||||||||||||
| Crown Debt Facility | – | 7,630,590 | – | – | 7,630,590 | |||||||||||||||
| Contingent Consideration - WZ | 92,509 | 304,610 | – | – | 397,119 | |||||||||||||||
| WordZ promissory note | 111,638 | 446,552 | – | – | 558,190 | |||||||||||||||
| HomeTech VTB loan | 60,000 | 240,000 | 20,000 | 320,000 | ||||||||||||||||
| Total | $ | 6,905,298 | $ | 9,050,720 | $ | 324,308 | $ | 223,097 | $ | 16,503,424 | ||||||||||
Capital Resources
Our objective in managing capital is to ensure sufficient liquidity to pursue our growth strategy, fund research and development to enhance existing product offerings as well as to develop new product offerings to maintain our competitive advantage, pursue accretive acquisitions and provide sufficient resources to meet day-to-day operating requirements, while managing financial risk. We intend to use our operating income and funds on hand to meet funding requirements for the development and commercialization of our technology products and services based on anticipated market demand and working capital purposes. Our actual funding requirements will vary depending on a variety of factors, including our success in executing our business plan, the progress of our research and development efforts, our commercial sales, and our ability to manage our working capital requirements.
Our officers and senior management are responsible for managing the capital and do so through monthly meetings and regular review of financial information. Our Board of Directors is responsible for overseeing this process. We manage capital to ensure that there are adequate capital resources while maximizing the return to shareholders through the optimization of the cash flows from operations and capital transactions.
Capital Allocation
A significant component of our strategy is to effectively and efficiently allocate capital between opportunities that generate the highest return on our capital with the goal over time to maximize shareholder equity.
The Company's capital allocation is centered on generating organic growth, investment in technologies, mergers and acquisitions, and balance sheet deleveraging. VIQ's focus is on closing and integrating strategic and accretive acquisitions, continuing to grow and drive market share and achieve consolidation efficiencies while maturing its AI engines through technology service volumes.
Paying out dividends, or buying back stock, are not anticipated as being part of our capital allocation strategy for the immediate future. Our goal with capital allocation is to increase the earning power of the Company and reinvest the free cash flow of the business to generate more cash.
| Management Discussion & Analysis | Page 22 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Other Commitments
Other commitments include operating leases for office equipment and facilities. Also, occasionally we structure some of our acquisitions with contingent consideration based on the future performance of the acquired business. The fair value of contingent consideration recorded in our September 30, 2022, unaudited interim condensed financial statements was $378,320 in trade and other payables and accrued liabilities. Aside from the aforementioned, we do not have any other business arrangements or any equity interests in any non-consolidated entity.
Contingent Off-Balance Sheet Arrangements
As a general practice, we have not entered into off-balance sheet financing arrangements.
Transactions Between Related Parties
There were no transactions between related parties for the three and six months ended September 30, 2022.
Critical Accounting Policies and Estimates
General
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies and historical experience and are believed by management to be reasonable under the circumstances. Such estimates and assumptions are evaluated on an ongoing basis and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from these estimates.
Our significant accounting policies are fully described in Note 3 to our financial statements for the years ended December 31, 2021, and 2020 which are available on SEDAR (www.sedar.com) and EDGAR (www.sec.gov/edgar). Certain accounting policies are particularly important to the reporting of our financial position and results of operations and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different, estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could have a material impact on the financial statements. We believe that there have been no significant changes in our critical accounting estimates for the three and nine months ended September 30, 2022, from the years presented in our annual financial statements for the years ended December 31, 2021, and 2020.
Management believes the following critical accounting policies and estimates reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
| Management Discussion & Analysis | Page 23 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
New accounting pronouncements adopted
We adopted the following accounting amendments that were effective for our interim and annual consolidated financial statements commencing January 1, 2022.
| i. | Amendments to IFRS 3, Business Combinations - Updating a Reference to the Conceptual Framework, updating a reference in IFRS 3 to now refer to the Conceptual Framework. |
| ii. | Amendments to IAS 16, Property, Plant and Equipment: Proceeds before intended use, prohibiting reducing the cost of property, plant and equipment by proceeds while bringing an asset to capable operations. |
| iii. | Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts, specifying costs an entity should include in determining the "cost of fulfilling" a potential onerous contract. |
The adoption of these standards did not have a material impact to our financial results and are not expected to have a material impact in the future.
Internal Controls over Financial Reporting and Disclosure Controls and Procedures
Disclosure Controls & Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported to senior management, including the CEO and the CFO, on a timely basis so that appropriate decisions can be made regarding public disclosure, including to ensure that information required to be disclosed by the Company in reports that the Company files or submits under Canadian securities legislation and the U.S. Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in securities legislation. Management, under the oversight of the CEO and CFO, has evaluated the design and effectiveness of the Company’s disclosure controls and procedures as of September 30, 2022. Based on this evaluation, the CEO and the CFO concluded that, as of September 30, 2022, 2-22 the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings and in Rule 13a-15(e) and Rule 15d-15(e) under the U.S. Exchange Act) were ineffective as a result of material weaknesses identified in the Company’s internal control over financial reporting, which is further described below.
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that material information relating to the Company is made known to us by others, particularly during the period in which the annual filings are being prepared and of achieving their objectives, and the CEO and CFO do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Notwithstanding the material weaknesses, management has concluded that the Company’s unaudited interim condensed financial statements as at and for the three months ended September 30, 2022, present fairly, in all material respects, the Company’s financial position, statement of loss and comprehensive loss, changes in shareholders’ equity and cash flows in accordance with IFRS.
| Management Discussion & Analysis | Page 24 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Internal Controls over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external purposes in accordance with IFRS.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
An evaluation of the design and effectiveness of the Company’s internal controls over financial reporting was carried out by management, under the supervision of the CEO and CFO. In making this evaluation, the CEO and CFO used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control – Integrated Framework (2013). Based on this evaluation, the CEO and CFO have concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2022 due to the material weaknesses described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that our management identified related to the following:
| · | the Company’s review controls in various financial reporting processes did not operate with sufficient precision, particularly with respect to the determination of the appropriate period in which to recognize revenue and expenses; |
| · | the Company did not maintain adequate review controls to ensure that complex accounting areas such as business combinations, impairment of non-financial assets, revenue recognition and accounting for income tax provisions were appropriately recorded in accordance with IFRS; and |
| · | the Company did not effectively design and maintain appropriate segregation of duties and controls over the effective preparation, review and approval, and associated documentation of journal entries. |
These material weaknesses resulted in material misstatements, which were corrected, and also immaterial misstatements, some of which were corrected, prior to the release of the consolidated financial statements as of and for the three and nine months ended September 30, 2022
Remediation
We intend to implement a remediation plan that involves a third-party software solution to formalize the documentation and evidence of our review and approval of subjective and higher risk journal entries in our financial reporting system including implementing improved process over cut off of transactions. We will implement more formalized documentation and evidence of review over complex accounting transactions. The plan will include the involvement of management and sufficient training of all relevant personnel. We will take the measures necessary to address the material weaknesses, which may require significant management attention, and our efforts may not prove to be successful in remediating the material weaknesses and do not guarantee that we will not suffer additional material weaknesses and/or significant deficiencies in the future.
| Management Discussion & Analysis | Page 25 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
The CEO and CFO do not expect that internal controls over financial reporting will prevent all misstatements. The design of a system of internal controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that the design will succeed in achieving the stated goals under all potential future conditions.
Internal Controls over Financial Reporting
Except for the material weaknesses described above, there were no changes in the Company’s Internal Control over Financial Reporting that occurred during the period ended September 30,, 2022 that has materially affected or reasonably likely to materially affect the Company’s Internal Control over Financial Reporting.
Risk Factors
A complete description of the risks and uncertainties affecting the Company is included in the most recently filed AIF and the Company’s annual report on Form 20-F filed with the SEC. Additional risks and uncertainties not presently known to us or that we currently consider immaterial also may impair our business and operations and cause the price of our common shares (the “Common Shares”) to decline. If any of the noted risks actually occur, our business may be harmed, and the financial condition and results of operation may suffer significantly. In that event, the trading price of the Common Shares could decline, and shareholders may lose all or part of their investment.
Disclosure of Outstanding Share Data
The Common Share trade on the Toronto Stock Exchange and the Nasdaq Capital Market under the symbol “VQS.” The Company is authorized to issue an unlimited number of Common Shares. As at November 9, 2022 there were (i) 34,055,796 Common Shares issued and outstanding, (ii) 726,767 stock options outstanding with a weighted average exercise price per Common Share of $2.88 CAD expiring between 2023 and 2025 under the Company’s legacy stock option plan (iii) 893,947 stock options outstanding with a weighted average exercise price per Common Share of $1.92 CAD expiring 2031 and 2032 under the Omnibus Equity Incentive Plan, (iv) 66,667 deferred share units outstanding with an average exercise price per Common Share of $1.20 CAD with no expiry date (v) 714,219 RSUs outstanding expiring 2031 and selective units with no expiry dates under the Omnibus Equity Incentive Plan (vi) 165,000 PSUs with no expiry dates (vii) warrants to purchase 2,117,647 Common Shares at an exercise price of $5.00 USD expiring 2026 and (viii) warrants to purchase 3,551,852 Common Shares at an exercise price of $1.39 USD expiring July 21, 2027.
Diversity
Our success as a company continues to be made possible by our global workforce. We aim to attract, develop, and retain exceptional talent to meet the needs of our clients and create value for our shareholders. We understand that we have more to do to increase our overall representation to better reflect the world we live in. We believe that when people come from diverse backgrounds and have a variety of life experiences, they bring unique perspectives to the table. These perspectives increase innovation, creativity, and overall corporate performance.
In order to continue to produce our innovative technologies and technology services, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make VIQ a diverse and safe workplace, with opportunities for our employees in each region and functional area to grow and develop in their careers, supported by advancements and programs that build connections between our employees and their communities.
We believe that a diverse workforce is critical to our success, and we continue to focus on the hiring, retention and advancement of women and underrepresented populations. Our recent efforts have been focused in three areas: inspiring innovation through a diverse culture; expanding our efforts to recruit and hire world-class diverse talent; and identifying strategic partners to accelerate our diversity, equity and in the coming years inclusion (“DE&I”) programs.
| Management Discussion & Analysis | Page 26 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for the Three and the Nine Months ended September 30, 2022
Under the leadership of the current management team and the Board of Directors, VIQ has worked to create an environment and culture that enables all employees to participate and thrive. We know that onboarding people with diverse backgrounds and skillsets is a key ingredient for innovation, which is why our recruitment processes are built around improving our ability to identify the best, most diverse candidate pools. We use gender-neutral language in job descriptions and commit to bringing a diverse slate of candidates to a diverse interview panel at all levels of the Company. VIQ has a variety of diversity-related data points that exemplify how our workforce looks like the world around us and thrives as a result of it.
As of September 30, 2022, VIQ Diversity Metrics were as follows:
| · | Global Employee Gender Diversification for all roles: 58% Women, 42% Men |
| · | Global Employee Gender Diversification for leadership roles: 60% Women, 40% Men |
| · | Global Race and Ethnicity Representation for all roles: 80% White, 16% Asian, 1% Black and 3% Latino |
| · | Geography where we work: 76% Australia, 12% United States, 2% Canada, 4% India, 3% Mexico, 2% United Kingdom and Philippines 1%. |
| · | Brick & Mortar: Eight physical Offices in four Countries |
Due to its global footprint, VIQ has come to appreciate that amazing perspectives are grown all around the world and that DE&I programs can be most powerful when they are localized to the individual experiences that resonate with people in the countries, cities, and communities where they live.
Further support of DE&I includes changes that were made at the Board of Directors level through the Nomination Committee to align with the diversity of the organization globally as the Company scales to its next level in 2022.
| Management Discussion & Analysis | Page 27 |
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings Full Certificate
I, Sebastien Pare, Chief Executive Officer of VIQ Solutions Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of VIQ Solutions Inc. (the “issuer”) for the interim period ended September 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations (COSO) 2013 financial controls framework. |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
| (a) | a description of the material weakness; |
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| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2022 and ended on September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 9, 2022
| /s/ Sebastien Pare | |
| Sebastien Pare | |
| Chief Executive Officer |
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Exhibit 99.5
Form 52-109F2
Certification of Interim Filings Full Certificate
I, Alexie Edwards, Chief Financial Officer of VIQ Solutions Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of VIQ Solutions Inc. (the “issuer”) for the interim period ended September 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations (COSO) 2013 financial controls framework. |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
| (a) | a description of the material weakness; |
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| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2022 and ended on September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 9, 2022
| /s/ Alexie Edwards | |
| Alexie Edwards | |
| Chief Financial Officer |
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