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VIQ Solutions Inc. (VQS) CEO Sebastien Paré on Q2 2022 Results – Earnings Call Transcript

VIQ Solutions Inc. (NASDAQ:VQS) Q2 2022 Earnings Conference Call August 11, 2022 11:00 AM ET

Company Participants

Laura Kiernan – IR

Sebastien Paré – CEO

Alexie Edwards – CFO

Susan Sumner – President and COO

Conference Call Participants

Scott Buck – H.C. Wainwright

Brian Kinstlinger – Alliance Global Partners

Daniel Rosenberg – Paradigm Capital

Marla Marin – Zacks

Brian Kinstlinger – Alliance Global Partners

Operator

Good morning, ladies and gentlemen. My name is Chantel. And I will be your conference operator. Today we are hosting a conference call to discuss the Second Quarter 2022 Financial Results for VIQ Solutions Inc. [Operator Instructions].

Your host for today is Ms. Laura Kiernan, Head of Investor Relations for VIQ. Please go ahead.

Laura Kiernan

Thank you, Chantel. Good morning, everyone, and welcome to VIQ Solutions’ second quarter and first half results conference call. Before we begin, I would like to point out that certain statements made on today’s call contain forward-looking information subject to known and unknown risks, uncertainties, and other factors. For a complete discussion of the risks and uncertainties facing VIQ, we refer you to the company’s MD&A and other continuous disclosure filings, which are available on SEDAR at sedar.com and on sec.gov. As a reminder, all dollar amounts are in U.S. dollars unless otherwise stated.

With us today, we have Sebastien Paré, CEO; Alexie Edwards, CFO; and Susan Sumner, President and Chief Operating Officer of VIQ. All of them available for questions following the prepared remarks.

I’ll now turn the call over to Sebastien Paré to begin.

Sebastien Paré

Thank you, Laura. Really appreciate everyone joining the call today, and I hope that you and your families are doing well. During today’s call, I will provide some high level remarks on the quarter and the first half of the year. Next, Alexie will speak about our financial results, followed by Susan who will discuss our operating results. We will then open the phone line to answer your questions.

We made great progress in Q2 against several of our priorities. We reported a 51% growth in revenue net new bookings of $4.4 million, which are up to 159% versus the first quarter of this year, and a 20% increase in the number of net new clients also versus the first quarter. This shows strong momentum going into the third quarter driven by organic revenue growth. Additionally, we reaffirm our previously announced full year 2022 goals.

We’re in a strong position, our tech platform and digital infrastructures, products and human edits and expertise in all regions are better than we’ve ever been. And we are more competitive than ever. The choppy waters are behind us as our customers reasserted their quest to confront the productivity and the delivery challenges amid the labor constraints that are evident in the global verbatim document industry today. After navigating COVID headwinds for 26 months, we place a sharper focus on our key performance indicators to provide greater transparency and measures of success. Based on our bookings and the recovery in our production capacity for the first half of the year, we anticipate organic revenue growth, excluding acquisitions to meet the expectations.

Our KPIs related to net new bookings, active clients, production volumes, and annual deliver content all have increased to new high while the cost to produce a minute of documentation dropped by 8.5% when compared to Q1. We achieve a positive EBITDA in the month of June and we’re on track to achieve positive adjusted EBITDA in the second half of the year. We are reaffirming our goals for 2022 including generating at least $50 million in revenue with a gross margin in the range of 47% to 55%.

Now, Alexie will provide you with some details on the results. And we’ll speak about the raise we’ve made after the quarter close. Alexie?

Alexie Edwards

Thank you, Sebastien. And depending on where you are, good morning, good afternoon, and good evening, everyone. We reported revenue of $12.4 million compared to $8.2 million in the same quarter of 2021. The increase of approximately $4.2 million or 51% was primarily driven by the acquisitions of Auscript and the Transcription Agency.

Our bookings of $4.4 million represent an increase of 159% over the previous quarter. This positive indicator will take time to flow through us revenue, as it will positively contribute to organic growth starting in the second half of the year.

Our gross profit was $6.1 million or 49.3% of revenue compared to $4 million or 48.6% of revenue last year. The increase in gross profit for the three months ending June 30, 2022 is primarily driven due to the Q4, 2021 acquisition and productivity gains versus the comparative period in 2021. Note, the comparative 2021 period includes $0.2 million in COVID-19 with subsidies versus $0.1 million in the three months ending June 30, 2022.

Our net loss was $3.2 million or $0.11 per diluted share, versus net loss of $10.5 million or $0.42 cents per diluted share last year. And our adjusted EBITDA was negative $0.7 million versus a negative adjusted EBITDA of $0.3 million in the second quarter of 2021. The decrease in adjusted EBITDA was driven primarily by lower COVID-19 wage subsidies, which included $0.2 million reduction in expenses for the current quarter versus $0.6 million recorded in the comparative quarter period in 2021, higher D&O insurance and professional fees for regulatory filings. The decrease in adjusted EBITDA was partially offset by productivity gains relating to the migration of customers to NetScribe powered by aiAssist.

In the first half of 2022, our revenue was $23.9 million compared to $16.4 million in the first half of 2021. As a reminder, in early February 15 days of lockdown in Australia negatively impacted revenue by an estimated $0.5 million. Our gross profit was $11.6 million or 48.5% of revenue, compared to $8 million or 48.6% of revenue in the same period in 2021. The increase in gross profit is primarily due to Q4, 2021 acquisitions and productivity gains partially offset by lower technology revenue versus a comparative period in 2021. In addition, the comparative 2021 period includes $0.3 million in COVID-19 wage subsidies, versus $0.1 million in the six months ending June 30, 2022.

Our net loss was $5.2 million or $0.17 per diluted share versus net loss of $12.2 million or $0.49 per diluted share last year. And our adjusted EBITDA was negative $1.7 million versus adjusted EBITDA of essentially nil for the first half of 2021. The decrease in adjusted EBITDA for the six months ending June 30, 2022 was driven by selling and administrative expenses related to professional fees or regulator filings and D&O insurance, also incremental increase in cloud services expenses and a decrease in traditional one-time license sales.

In addition, the six months ending June 30, 2022, included $0.2 million reduction in expenses related to COVID-19 wage subsidies versus $0.9 million recorded in the comparative period 2021. The decrease in adjusted EBITDA was partially offset by productivity gains to migration of customers to NetScribe powered by aiAssist.

We saw the recovery in production capacity in June, which led to a positive EBITDA for that month. We expect to generate positive cash flow from operations and improve liquidity in the back half of 2022 relative to the first half. And we are pleased that despite the impact of the great resignation primarily in Australia, we still expect to achieve our full year 2022 revenue and gross margin goals. Also, based on the first half of the year, and positive June results and preliminary July numbers, we expect the revenue run rate and gross margin for the second half of the year to be higher than the first half.

Following the close of the quarter, we announced a pipe of about $4.8 million, which was very strategic for the company. We leverage the opportunity to raise the funds to invest in special commercial opportunities and strengthen our balance sheet ahead of some anticipated commercial agreements.

Now, I would like to hand it over to Susan. Susan?

Susan Sumner

Thank you, Alexie. As Sebastien mentioned earlier, we delivered a strong second quarter with bookings of $4.4 million, which represented an increase of 159% and over Q1, 2022. With our strong client relationships and comprehensive solution portfolio, we capitalized on healthy demand across the market served, adding new customers with newly launched solutions, new customers with traditional solutions and additional services to current clients. The quarter also had high levels of renewals for critical accounts that confirm not only that we have been developing — what we have been developing has demand, but that what we are delivering is also well received by our customers across the globe.

Seeing this pivot in our bookings is a positive indicator and while it takes time to flow through its revenue, it will positively contribute to our overall organic growth. In previous calls, we discussed the active trials taking place that we consider to be disruptive in terms of the way the clients are utilizing in technology that we have deployed.

Let me take a minute and update you on those trials. Last year, we collaborated with the eight districts of Kansas to help them solve a critical issue impacting their court. The resources to produce court transcripts by court reporters, were going to be depleted due to retirements taking place in the near-term. As a trusted partner to the courts, they’ve been using our CapturePro software for many years. Our challenge now was to help them solve the resourcing issue with improved technologies that connected to CapturePro to make the resources more efficient, while remaining cost effective.

We added NetScribe and FirstDraft to their CapturePro footprint to help the court manage the flow of audio files captured and provide the delivery of a FirstDraft to their team, both administrative and judicial for their court reporters to create their final court report. This beta was hugely successful not only did it lead to an upgrade in the CAPTCHA solutions, but they also purchased both NetScribe and FirstDraft which quickly became an integral part of the court workflow. This trial was a first for us, allowing us to validate that we can be used to improve overall efficiency and fill the gap of the critical workforce that is eroding daily. We will help the court to meet their demand the process risks to the continuity of the judicial process.

Our second trial, which also has been highly successful is with a large governmental body that employs over 80 in-house editors and has four major outsourced contracts to deliver content. We are moving from Phase 1 of the proof-of-concept to a paid trial in the fall. We’ve proven that with our ability to manage content workflow within the NetScribe technology gives more control to the agency. And that FirstDraft, with its incredibly high accuracy and usability is saving both time and money. This agency has looked for years for a solution that would allow them to incorporate speech to text into their environment and have commented that nothing has even come close to the VIQ Solutions.

And the third trial, again to a major court system, we had to prove to the courts that the utilization of FirstDraft would provide an accurate and usable documents to judges while they wait for the final court report. The ability to segment, select and annotate specific elements of the court record for draft as a new concept that will ultimately improve the efficiency of both the judges and the courts is critical. Across this 1,000s of files selected for the trial, our accuracy rates average 78% — 97%. This is a testament to the quality of the audio capture by CapturePro that provides the foundation for the accuracy of the FirstDraft.

In addition, the customization of AI that supported the unique needs of this customer, deliver the high levels of usability of the documents that we tested. While the build of revenue associated with SaaS has certainly been slower than we expected due to the shutdown that delayed availability for trial just like the ones we’ve discussed today. It is very clear that we are now at the beginning of the intersection of markets that are in place and ready to invest in disruption and the availability of our technology that has been years in the making.

Later this year, we will also launch services that will enable access to all capture technologies, including those of our competitors to further reduce the upfront cost for SaaS Solutions and to accelerate innovation for court, law enforcement, insurance and media.

I would also like to take a minute to review the Carbon acquisition that was announced a few weeks ago. The media space is key to our global expansion. The overlap in the core requirements of the segment allow us to capitalize on both technologies but also our global organization. Media never sleeps and neither does the VIQ team.

Carbon provided us a unique platform to engage with our edit — with editorial staff, producers, and journalists to collaborate in near real time, incorporating video into the content development process. We are very lucky to have a base of loyal customers that are actively helping to influence the direction of this technology. We now see cross-over applications for law enforcement agencies that need access to both audio and video in content production. And we’re very excited about what this brings to the VIQ portfolio.

While the NetScribe Technologies are driving efficiency improvements for our customer, it is also driving efficiencies to our service organization as evidenced by our improvements in gross margin. The usability of drafts continue to improve and so does the efficiency of the editors using that technology. This is proven by the 8.5% reduction in the cost to produce a minute of transcription.

We continue to improve our global scale, we are better at evaluating, planning and implementing our technologies. We’ve also seen a dramatic improvement in gross margin from TTA and deficiencies in organizational consolidation in Australia. And we are only at the early stages. We still have approximately 70% of our revenue largely in Australia to migrate to aiAssist and NetScribe. There is no doubt that we will see gross margin improvements continue.

While our booking numbers are exciting, it is the adaptation of the organization to changes in the workforce, the enablement of our technology, and the acceleration of demand that has been our focus, and we are seeing the results now.

Cost containment has also been a key consideration to all of our operating units. We joined many technology companies and building a culture of doing more with less. Our leadership team is committed to the investments of the past to show favorable bottom line results going forward in 2022 and beyond.

Operator, I’ll hand it back to you to open the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll pause for just a moment to compile the Q&A roster. Our first question comes from Scott Buck with H.C. Wainwright. Your line is open.

Scott Buck

Hi, good morning, guys. Congratulations on [Technical Difficulty]. I guess my first question is, in terms of the — your revenue guide, what is left to meet that $50 million that’s not currently in the bookings are in current pipeline. I mean, what — how much incremental [Technical Difficulty] to meet that or can you do it with the current customer base?

Sebastien Paré

Susan, do you want to take that one?

Susan Sumner

Well, I think if you look at the run rate, Scott, that kind of answers the question that we’re very, very well positioned with what we did in the first half of the year to achieve the objectives in the second half and we’re very excited about what the incremental bookings might mean to that as well.

Scott Buck

Okay, so you feel like you have pretty good pipeline on that?

Susan Sumner

We do.

Sebastien Paré

Yes. Yes, Scott…

Scott Buck

Yes. All right, great.

Sebastien Paré

Yes, Scott, I would going to add that, when we — when you look at the first half of the year, based on what’s in the booking pipeline, as you remember, in Q1, our bookings was $1.6 million and in Q2 its $4.4 million. So we have a healthy bookings pipeline that will start to flow through in the second half of the year to achieve our goals.

Scott Buck

Great, I appreciate that, guys. And then on some of these new announcements [Technical Difficulty] come out over the past couple of weeks of the new business, is there — I know, we’re expecting kind of longer term gross margin expansion, but in your near-term pressure on gross margin when you start up with a new or expand with a customer?

Sebastien Paré

Susan?

Susan Sumner

Well — so there are a couple of things. The big expansion that we were expecting this year with the Queensland contract that we’ve talked about, we were able to offset some of that what would normally Scott have been a pressure on the gross margin. We saw some of that gross margin impact in Q2 because we began the integration of the DJ contract through the Auscript acquisition. We also saw some constraints and capacity in Q2 related to more of a global distribution and acceleration to the new technologies for the law enforcement agencies, meaning if it’s going on the new technologies, while we’re training editors, there’s a hard — a higher percentage of work that goes over to quality assurance.

So we saw that in capacity constraints that impacted revenue in a negative way in the second quarter. But we did see that rebound as capacity balanced out in June. So you start to see that recovery. Most of the big bookings contracts that we have, while they may put a slight constraint on gross margin, they generally, because of the limitations of their internal organization, will have a slow migration. So you’ll see the revenue build slowly. And you’ll also see the gross margin adjustment to that a lot more favorable than you would if you’ve had a major very quick migration for those customers.

Scott Buck

Great. That’s very helpful, Susan. And then last one, for me, you talked about organic growth getting you to the $50 million annual number, I’m curious what the appetite is here for some additional roll up M&A?

Sebastien Paré

I mean, we always as we mentioned before, the M&A pipeline is always been there as [assuming] the fact coming out of the COVID and the great resignation and the labor shortages. So the pipeline is getting stronger and stronger. But we also are very, very focused on replicating the June results to make sure that they get carried across in Q3. We have done I think something that was outstanding in terms of navigating the labor shortages in the last several months really until mid-May. And we stayed really close to all our customers. And that was really key, the retention of the revenue, and then the rebuild of the capacity.

And all of that came together in the month of June. So while we still have a really obviously a number of active discussions with a lot of good assets out there, our primary focus right now is really about replicating the June results and making sure that we go from one month to a quarter in terms of profitability. And that’s where we stand. But clearly coming out of this period in the industry, we’re starting to see more and more RFPs, where now they’re starting to introduce FirstDraft speech to text digital workflow in the RFP.

And you can appreciate from small companies that might have been doing really well in the manual world for the last 30 years, it’s becoming increasingly difficult for them to compete with those highly complicated where there’s a lot of emphasis on technology, cloud infrastructure, iOS certification all of that. So the pipeline is healthier than ever before. But we are very, very selective who we’re talking to. And at this point, we’re focusing on making sure that we go from one month of profitability to a full quarter profitability.

Scott Buck

Make sense. Well I appreciate the time, guys. Thank you very much.

Sebastien Paré

Thank you, Scott.

Alexie Edwards

Thanks, Scott.

Susan Sumner

Thanks, Scott.

Operator

Our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open.

Brian Kinstlinger

Hi, guys. Good morning, and thanks for taking my questions. With the new Queensland contract starting and being mostly automated, is automated transcription a gradual process or is everything in place and it’s basically turned on and automated from the back from the [indiscernible]?

Sebastien Paré

Susan you want to take that one?

Susan Sumner

Well, I would say that Queensland is probably not the best example of the way that we utilize our technology, because it’s a very complex and new way that the courts are engaging with technology. The answer for the majority of our on-boarding, Brian, is that absolutely, they will start out in the new technology, there certainly is what I would call a migration period, where we are training internal and external resources and that that really does depend on the size of the contract.

And a couple of examples I’ll give you in this quarter, we will be launching a mobile application that will allow for complete self sufficiency of a small customer. That typically the in the past the on-boarding of a small customer looked very similar to the on-boarding of a major customer to be able to allow small customers to self activate, to self manage was a really important piece to us to be able to add that small-to-medium sector that that was kind of missing in the overall client base that we had. On the big customers and again, they go immediately into our core technologies. They go in through a mobile application with an ecommerce adaptation that allows for immediate billing, immediate access into standardized templates.

And the ability to opt out from that technology to send to full editing a FirstDraft isn’t sufficient for them. So that end-to-end begins in our technology, it ends in our technology. And there’s no manual process from the start. On the major contracts where you have judicial organizations in the multi millions of dollars, it really doesn’t depend on us, it depends on where those customers are in their migration of technology.

So some of them like the eight districts are starting with a complete revamp of workflow whereas other smart — small court entities will absolutely begin to add up our technology for their internal purpose. But all of those companies begin with our technology as the creator of the content that we distribute back to them. Does that answer your question?

Brian Kinstlinger

Kind of I mean, it certainly gives good clarity into how things progressed over time and transition, but specifically on the Queensland contract, because it’s such a driver and a big piece of business that you’ve won and is transitioning from Auscript, I think, to your business is the new contract and it gradually recognize better margins, over say three, six, nine months or whatever you want to communicate of how that’s going to happen or does right at the beginning the new margin profile take place?

Susan Sumner

It will migrate over time, because there are — there — while the Auscript technology is technology that we will use for internal deployment, therefore reducing the negative impact the gross margin that you might have, when you’re bringing on a new customer like that that was part of the strategy in the original Auscript acquisition. You will also see that that the way we are deploying the solution for the DJ changes, it’s a slow progression and the way that they’re bringing that on board. And also it is an internal training for our teams, because they’re changing the way they’re actually building that documentation. So it won’t be immediate. But we will see margin improvement over the course of the probably the first six months from the baseline that we have in the Auscript acquisition.

Brian Kinstlinger

Great. One more question in Queensland, I promise I won’t ask any more. The manual process of transcription, was that done through third-party contractors that was subcontracted out for transcript or that company’s own employees and as it transitions will — take it those services will no longer be needed? Is that right?

Susan Sumner

Not exactly everything that we do in Australia is a combination of employee base transcriptionists, as well as independent contractors. We don’t use third-party organizations, we do use independent contractors because we have very rigid security requirements around background checks that we need to control. But the profile of how we sourced that work will remain consistent from the prior contract to the new contract. And any incremental resources that may not be needed because of efficiency gains in the new technologies are going to be used to source the new booking contracts that we have in that region. So we’ve got plenty of demand to utilize all the resources that we have there.

Brian Kinstlinger

Great. I joined later on, maybe it was addressed, but there were some COVID lockdowns unexpectedly in Australia during the second quarter, did that have an impact on revenue and expenses and if at all and can you quantify either?

Sebastien Paré

The last impact of COVID was actually in Australia. So you’re correct, but it was in March. So it was really at the end of the first quarter. But — and that was the reference that Alexie made. There was also that everybody knows about the international use when they saw the historical flooding that took place in the Brisbane area that really put the State of Queensland under emergency. So all of that was kind of Q1 related hit.

And with the help of our auditors, we were able to assess roughly about $0.5 million in revenue, so all of that now is behind us. But in Q2, the major headwind was really at the start of Q2 in terms of the labor capacity, and all the work that we had to go through in Australia, to collaborate with our clients to make sure that not only we retain all that revenue, but that we work collaboratively with them. And I think we did, because starting in June, you saw what happened when there’s no COVID.

And there’s no labor shortage, and we get our production capacity back, then it started to really show. And I think the other piece that we talked about at the early of the call is none of that revenue yet in Australia has been fully migrated. So now for us, this is really starting to be a very different ballgame moving forward, because we’ve proven the model in the United States are now in the process of getting everybody in the U.K. fully migrated. And now the heavy lifting has started in Australia.

And that’s where we’ve been modeling. So we’re going into the second half of the year with a different kind of mindset and different kinds of confidence, because COVID is behind us after 26 years. And the majority of the labor shortages that we’ve experienced, like everybody else in the industry is behind us. So for us, June was a new benchmark. And basically, we’re going from this plan.

Brian Kinstlinger

Great. And then on the — touching on the $4.4 million of annual run rate bookings was Kansas a major piece of that. And a follow up on that is maybe any details around where you’re seeing that is it the courts? Is it media, U.S. courts, insurance? Just some details on where that –yes — those bookings are starting to pick up?

Sebastien Paré

Maybe I could – Kansas….

Susan Sumner

So Kansa — I am sorry go ahead sir.

Sebastien Paré

No go ahead Susan.

Susan Sumner

I was going to say Kansas wasn’t a major piece of it. Kansas is a small court system. And while we’re very excited about the contract, it is a staff contract for our technologies, the big impacts to the bookings were in courts in Australia, media in North America and in the — courts in the United States. So largely on the services side, the technology SaaS revenue we’re really, really excited about it. We have trials like the eight districts and probably eight different locations around the U.S. But that’s going to be a slower build, right as you know, when you go from licensing agreements into SaaS contracts, there is a bridge while you’re building those very high margin, but monthly lower revenue contracts. And so the big hits were still on hybrid services contracts. And we did have healthy growth, though in the in the number of pure SaaS contracts that we signed in the quarter.

Alexie Edwards

I think I can add…

Sebastien Paré

Please.

Alexie Edwards

There was also in the $4.4 million included was a major insurance contract that came in out of the United States. And I think this is aligned with what we’ve been saying for the last two years during COVID. If — and I think your report does a good job as far as explaining all of that, but we tend to deal with the insurance claims 6 to 10 months after the accidents have happened. So if you really model this out, we’ve been seeing that all along that our insurance revenue in the United States got impacted during COVID back to 2021 and 2020. But now that, we’re back into kind of normal and cause the normal capacity on the roads accident started to happen again and sure enough. So now the insurance revenue started to climb up again. And I think that was a big contribution also in the $4.4 million in that sector as well.

Sebastien Paré

And Brian, I just want to clarify your comment, when you said $4.4 annualized. The $4.4 million, the contract value. And the reason why that’s important is because included in that $4.4 million is one contract that was — that as a two-year value of about $2.2 million.

Brian Kinstlinger

Got it, okay. That actually was important. Now, let’s backward looking. If I look, last question forward-looking. Do you see more opportunity insurance courts in the U.S., courts in Australia media, I know. There’s opportunity probably need to them but maybe rank where you see the most growth opportunity in the pipeline? Thank you.

Susan Sumner

Wow, that’s an interesting question. And I would say yes, I would say in order probably the SaaS clients in the courts space, the utilization of FirstDraft in filling that labor shortage and the way we’re deploying that technology around the world, we’re having very good result with the trial NetScribe cost. So I would say the deployment of the NetScribe and FirstDraft technology to the court systems is a very big part of our current pipeline. But we are very excited about what’s going on with the introduction of Carbon to media around the globe. It is a very unique platform and as we put development into that to accelerate the integration to our core technologies. It opens up a wide range of opportunities around the world, that really will provide us with acceleration of both technology and hybrid services, sales. So those will be the two at the top of the list. Insurance is really at a great place. But I think it’s going to take a little longer to be able to get them to the concepts around migration to the mobile applications that we’re just now launching and to the FirstDraft applications that are in trial with a couple of our major insurance companies right now.

Brian Kinstlinger

Thank you so much. That was helpful.

Sebastien Paré

Thank you, Brian.

Alexie Edwards

Thanks, Brian.

Operator

Our next question comes from Daniel Rosenberg with Paradigm Capital. Your line is open.

Daniel Rosenberg

Hi, good morning, I wanted to ask a question around the Queensland contract. Can you just remind us on timing of how revenue impacts you this year? And just kind of what you’re expecting in terms of lumpiness is there upfront or back end portions to it? Any info would be helpful. Thanks.

Sebastien Paré

Susan?

Susan Sumner

Yes, I will just say that that it’s hard to comment on that, because we’re in the middle of deployment, first of all, and second, some of that is constrained to the customer agreements, but it is in migration, Daniel. So we will see it won’t be lumpy, I think that you will see a very consistent transition. Certainly a slower start than I think what we expected, but I think that the overall expectation of the revenue profile is consistent with what we had expected in the projections for the year.

Daniel Rosenberg

And then, just on that profile, I mean, since it was first announced, the multi-year agreement has a change in terms of what you weren’t expecting initially versus now it’s actually been deployed?

Susan Sumner

You mean the total contract value?

Daniel Rosenberg

Yes.

Susan Sumner

No. It hasn’t changed at all.

Daniel Rosenberg

And then, in terms of the bookings number as just kind of a similar question and to understand how you see that being deployed, going forward, just the bookings pipeline, that you have any visibility in terms of — when we can expect to see that incremental revenue hit the statements.

Sebastien Paré

Alexie?

Alexie Edwards

Yes. Daniel, what going to happen, it’s — it varies by contract. But we anticipate seeing some of that flow ensure the revenue line started in July ramping up to Q4, as I made — my earlier comment, stated that included in the Q2 bookings number $4.4 million is about $2.2 million for two year contract. So that will take a longer time to flow through. But the other percentage, the Q1 and the balance of the contracts making up Q2 workflows started in Q3 and Q4 and into next year as well.

Sebastien Paré

And I think if I could add as well, Daniel, that’s what we the last couple of earning calls, we made it very clear that we wanted to improve the transparency and the visibility of those early KPIs into our operation. And if you take a look at the MD&A, we have introduced about six key KPIs that we feel comfortable, that will provide you an early indicators of what’s coming. And obviously the net new booking is in there. Also the number of minutes that is going through the number of pages, the volume that is now flowing to the eyes. So now you can start to see and what we’re trying to achieve with this is to give our shareholders enough visibility at the early stage of what’s coming next.

And knowing that when net new bookings do happen, then it does take a couple of months to get them going, get them connected with a platform, then there’s the obviously training that takes place early on, but then it starts flowing to the revenue. And we did that because now we are pretty bullish about the second half of the year. And a big part of that is not only the current run rate with the existing customers, but is a portion of that net new bookings that started flowing in starting in July.

So, all of this is coming to basically together in the second half of the year. And we’ve been saying all along, everybody has been really patiently waiting to see. But we’re post-COVID. And we’re post-major labor constraint. And we’ve always said to everybody, what’s going to happen when we get our production back, and there’s no such thing as lockdowns are a major constraint on the resources.

And we saw that with their results in June. So that’s where we stand. And that’s what we felt comfortable today to share with all of you. They had the — what we think about the second half of the year, in terms of revenue, but also potentially, on the gross margin as Alexie stated in terms of the — we believe that the gross margin will be higher in the second half of the year, compared to the first half of the year.

Daniel Rosenberg

And I could ask on the acquisitions that were completed late last year, have those been — are those client bases on NetScribe or what percentage of them are on the more productive platform today and can we expect some synergies going forward?

Sebastien Paré

Yes, so the — in the U.K., as we stated before, in the U.K., that process is well underway. And this summer is the time where now everybody has been turned on. On the new platform, the editors have been cross train all the cybersecurity compliance with all the different regions, all the different clients. So the U.K. is in good shape as far as on the platform by before the end of the summer, fully productive with that with FirstDraft coming in. And what we stated is, basically Australia is the one that now the heavy lifting is all hands on deck.

So we expect Australia to take several months, because obviously it’s 70% of our revenue right now. And Australia will be mostly migrated and mostly up and running with FirstDraft before the end of the year. And it might go a little bit towards the beginning of next year. And at that point, we’re talking about a completely different organization moving forward, where now FirstDraft is now the fact of the standard across the organization for the production of the various documentation.

And then you start layering on top of it, what we’ve been doing with Carbon, and why we went after Carbon is to bring the next level up now that we’ve able to generate the FirstDraft in a really rapid way, and still show the productivity and the cost that really for the customer base. Now we’re moving towards the near real time. And that’s what the Carbon piece was so important in terms of what’s going to happen towards the second half of the year, but also going into 2023. So we’re really bullish about it.

And that Carbon piece is the beginning of what you’re going to expect to see towards the end of the year, once everybody has been migrated. And once the margin that have been pushed to where they need to be with Australia fully productive on the platform, then what you’re going to start to see in 2023 is the next step above that, which is the near real time, and the ability to bring in a lot more self driven transactions by our own employees, but also by our customers and partners. So that’s why we did it that way. And that’s what today, we felt was really important to acknowledge that we’ve all been waiting for 26 months for this kind of intersection to take place. And it finally happened in June.\

Daniel Rosenberg

Thanks for that. And lastly, for me, just on the balance sheet. I mean, last year, you guys renegotiated your debt position and had to make a payment there. And recently you did the financing. So can you just explain to me priorities and uses of cash and then how you’re thinking about financing operations in the near-term and medium-term, whether equity or debt and just the decisions around that for your capital needs?

Alexie Edwards

Yes, so Daniel, in terms of the raise, it was specifically funds were raised specifically to commercial agreements and commercial contracts that we’re looking at right now and some very good commercial opportunities, and also for working capital. Those are specific related to that, and maybe one or two small acquisitions as we contemplate the pipeline and if they are creative enough, we’ll take advantage of those. In terms of in the near-term everything that we have been talking about.

We are bullish about it, because we know based on the June results and preliminary results for July, that we will be able to generate enough cash from operations to fund the business in the near-term. And as we progress through the latter half of this year, and even to next year, when we start to realize some more synergies from consolidation of the Q4 acquisition that we did, especially in Australia, we expect to generate lower OpEx related that will flow to the EBITDA line ultimately to the cash. So we think in the near-term, short-term and near-term, we’ll have enough cash generated from operations to fund the business.

Daniel Rosenberg

Okay. Thanks for taking my questions.

Sebastien Paré

Thank you, Daniel.

Alexie Edwards

Thanks, Daniel.

Operator

Our next question comes from Marla Marin was Zacks. Your line is open.

Marla Marin

Thank you. I wanted to follow up on an answer you gave earlier to the question about organic growth. We’ve been talking about COVID and the disruptions the COVID disruptions. But would it be fair to also think that there was a little bit of positive coming out of COVID in terms of, driving Carbon awareness of the shift to digital generally in many sectors? And would you think that there’s some benefit you’re seeing there now in terms of driving your existing customers and growing interest in the platform as a result of that?

Sebastien Paré

Yes, Marla — Marla, the — it’s at the core of what we’ve been, if you look at the analysis of every earnings transcript for the last two years, what we’ve seen in Q2 with that kind of net booking is directly related to one single challenge faced by our customers, productivity, productivity amid a workforce that is getting older, really hard to recruit. Yet the KPIs for faster turnaround, while maintaining the accuracy has never been greater. If you look at any media news, whether or not it’s media, whether or not it’s government agencies, courts, law enforcement, their biggest issue right now is all the delays in the system related to the time it takes to create all the verbatim documentation that is required for the evidence to be going forward.

So what we’ve seen whether or not it’s the eight districts, whether or not it’s in the U.K. that we’ve been talking about as far as the trial more than ever now, we now understand that the old days of doing all that work manually is not going to cut it. So now it’s post-COVID. And then they’re facing the same labor shortages and labor constraint that we’ve been facing as well. And now they’ve got an issue of retirement on top of that, when you combine those three kind of macro trends together, then you’ve got a major crisis on your hand. And I think that’s what when Susan said, it’s kind of the intersection of what we’ve been building up for the last couple of years, coming to terms with the fact that now the market is receptive. And we’re right there. And in a way, COVID, it’s been really, really tough on everybody.

But coming out of COVID, the reception level is much higher, the desire to explore technology to push the productivity of people as ever been greater. So the answer your question, the answer is yes. Very clearly that COVID and all of what created around that has push our agencies and our clients to look at new ways of continuing delivering because the volumes are going up. And then the accuracy has ever been more critical. And yet, they cannot really expect that the manual workflow for the last 30 years is going to work for them moving forward. And I think most customers have come to realize that now in a post-COVID environment. So we’re really bullish about it. It’s just — it’s obviously COVID put a dent into that. But in a way COVID also contributed to acknowledging the crisis around productivity. And that’s what we’re driving on right now with our revenue.

Marla Marin

Okay, thank you. Now, switching gears a little bit, the media vertical, I mean, that’s a relatively new vertical for you. And with Carbon acquisition, it looks like you’re strengthening your offering there. Do you anticipate any kind of a bump that that vertical is kind of correlated to the political cycle? I believe. So are you thinking about that in terms of how you foresee revenue in that vertical and if so any expected bump because of the mid-term elections?

Sebastien Paré

Susan?

Susan Sumner

So, the answer, the short answer is absolutely the media space is very important to us, so there’s really three elements to the media space. One is the governmental pieces of it that are really tied to what happens on the hill. So you saw a lot of incremental demand as we go through Supreme Court hearings and any kind of committee meetings on the hill. The Carbon product is really more toward live news media, journalists in the field, people that are recording video and need to be able to engage with that video content for production reasons almost real time.

So while we’ve historically done morning news shows as an example, this will allow us to do not just the recorded media, but also much more of the field and real time work that’s being produced out there. So we’re really excited about that. And yes, that should not only should the mid-terms any election cycle that seems to actually start almost after then the actual mid-terms, as well as the incremental business and the new sub segment of the live news market will be incremental to us. Also, we’ve been isolated in media to the United States. We now believe that the applications that we have will now begin to be populated in our pipeline in both the U.K. and Australia as we look for extended media opportunities around the world.

Marla Marin

Okay, thank you, Susan. And that leads to my next and last question, which is the M&A pipeline and you’ve been pretty consistent over the last few quarters you are saying that M&A will not be a focus, as you look to integrate and consolidate and strengthen the existing business and deal with business changing in a post-COVID environment. But in terms of potential M&A tuck-ins, would it be fair to think that you would be looking to strengthen an existing vertical rather than expanding into the new one, as you did a while back was when you moved into media?

Sebastien Paré

Yes, the….

Susan Sumner

I think that would be very fair to say.

Sebastien Paré

Yes, Marla. I think we we’ve — we go back. The answer is yes. And I also want to reiterate why we purposely went into media to go back to the back earning call that month, when we did the acquisition, we talked about that what’s happening in the industry of media is a leading indicator of where courts, insurance and law enforcement will be. And we’ve compared that really, the reason we got our foot into media, is because it’s moving the organization towards where we want it to be.

So from our perspective, the Carbon acquisition was kind of the second leg to that statement that we’re now obviously media will remain absolutely critical, we actually expanding in media. But number 3, is what you start to see happening in media as far as going towards near real time, journalists, self editing, and editor self editing, not only audio, but now we’ve introduced video, all of what we’re seeing in media, internally, without going into the competitive nature, what we do internally, if you look at our labs, and you look at our roadmap on the technology, it’s all falling from that, in terms of what’s going to happen with the courts, with NetScribe Live, what’s going to happen with the insurance industry with the self serve, and the mobility aspect of it. So we’re using media, really, as our leader in terms of what’s happening with the verbatim content, and how we manipulate it, how we produce it. And then we basically take that innovation across the other sectors.

So that’s where we stand right now. And in terms of acquisition, obviously, we believe that for us, if there’s going to be anything, it will be about strengthening the existing markets. In terms of where we at, we have been very careful not to get into verticals, where some of the magic recipe for us doesn’t apply. And one of them is where a draft is good enough. We’re always looking for market where the FirstDraft is highly usable. But ultimately, there’s also a good price and a good value attached to the final edited version of it, because that’s where the markets that we serve, and that’s where we want to stay. So to answer your question, if there’s any it will be 100% of those strengthening the four verticals that we’re in today.

Marla Marin

Thank you.

Sebastien Paré

Thank you Marla.

Alexie Edwards

Thanks, Marla.

Operator

Our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open.

Brian Kinstlinger

Great. Just one follow-up on the expense side. Maybe Alexie, if you will. I thought that in the first quarter, there were some items in SG&A that may have fell-off, and I expected that might tail-off in the June quarter. So take me through the $6.5 million SG&A were there any non-recurring items in there? And just trying to understand as you get to profitability what that assumes on overhead in SG&A?

Alexie Edwards

Yes, great question, Brian. And so in Q2, we had some one-time expenses related to regulator filings. As you may or may remember with our 20F for the first time in the history of the company, and that came with some professional services fees additional professional services fees with that those how we expect Q3 and Q4 OpEx to the lower than Q2.

Brian Kinstlinger

Okay. And I think it that doesn’t — you’re not including in that lower any fees related to transaction costs such as your capital raise or anything else like that’s non-recurring. So you’re just talking about on a go forward basis?

Sebastien Paré

That’s correct. Any cost related to capital raises is offset against equity. So the net proceeds is what used to flow through the balance sheet on the capital side of the balance sheet.

Brian Kinstlinger

And can you disclose how much it was professional fees with $0.5 million in the second quarter, were they more, were they low?

Sebastien Paré

There were less than $0.5 million.

Brian Kinstlinger

Thank you for breaking out together, sorry.

Sebastien Paré

Brian?

Brian Kinstlinger

Yes, I think you’re coming in and out in a lot. So I couldn’t hear you. Sorry.

Sebastien Paré

Right. Well, I’m seeing that the professional fees were lower than $0.5 million.

Brian Kinstlinger

Got it. Okay. And but other than that, there’s nothing coming out. I mean, there’s no cost cutting efforts in SG&A that’s driving that further lower than that in that filing, is that right?

Sebastien Paré

In addition to that, it also a consulate in synergy that we expect to get as we consolidate the organization in Q3, and Q4, as we flow through the migration of customers, onto NetScribe, there are some OpEx related expenses for the consolidation, as we realize the synergies from the Q4 acquisition. So we expect some of that to manifest itself in Q3 and Q4 in terms of lower OpEx.

Brian Kinstlinger

Prefect. Yes, great. Just trying to get to that profitability and see where you are. Thank you so much.

Sebastien Paré

You’re welcome.

Alexie Edwards

Thank you Brian.

Operator

There are no further questions at this time. I would now like to turn the conference back over to Sebastien Paré for closing remarks.

Sebastien Paré

Well, I’d like to thank everyone for joining our call today. I think the Q&A was really, really positive in terms of the depth of the questions, and hopefully we’ve answered most of them. If there’s any follow up by anybody, please do not hesitate to book one-on-one. And we can go a little bit further. Also, please know that we will be participating virtually in the upcoming H.C. Wainwright global investment conference that is being held in New York City on September the 12th to the 14th. Meetings are starting to be booked.

And if you’re interested with that, just make sure that you’re registered or you get in touch with Laura Kiernan to do the follow up. So thank you, everyone, for joining us today. It’s been quite a journey to get to this point. But I think you can appreciate where we stand in terms of what we’ve got in-store for what’s coming next. And we’re pretty bullish about it. So we look forward to speaking with you in a few months when we review our Q3 results. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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