Viq Solutions Inc (OTC:VQSLF)

Viq Solutions Inc (OTC:VQSLF) ($3.10; $57.7 market cap) is a global provider of secure, AI-driven, digital voice and video capture technology and services.

Segment breakdown of client base

• 40% law enforcement
• 35% Judicial and legal
• 25% Insurance

During the week,  the company announced its acquisition of WordZ, a leading U.S transcription provider. 

• Acquisition expected to be immediately accretive to VIQ’s operating income and net earnings;
• Adds approximately $6 million in annualized recurring profitable revenue;
• Acquisition is non-dilutive;
• Adds over 100 clients including Fortune 500 insurance clients;

“The purchase price paid for the WordZ acquisition was $4.7 million, with $1.3 million paid in cash on closing, $1.2 million paid via a promissory note payable quarterly over 36 months and $2.2 million paid via an earnout payable quarterly over 36 months.”

Below are our brief reasons for tracking VQSLF

• Shifting to a recurring revenue model
  • Future growth to be driven by improving the size and quality of its 3 recurring revenue streams: VIQ transcription services, VIQ SaaS software and VIQ aiAssist, focused on the design, development and deployment of AI services.
  • As of Q3 2019, 91% of revenue was recurring
• Strategic acquisitions have helped to transform the business to a recurring SaaS model
  • In Q4 2018 the company acquired 3 leading transcription providers
  • The industry is highly fragmented and the company continues to believe accretive acquisitions will be part of its future growth plans
• Global geographic footprint and customer diversification with more than 1200 clients in over 25 countries
• Favorable Financial Trends
  • Strong Q3 results with $6.5 million vs $2.4 million in the prior year; Reported small profit vs small loss in the prior year 
  • Gross margins are expected to continue to increase with a goal of ~45% for 2019 up from 30% last year. 2020 targeted gross margins of ~65%
  • 2019 revenue guidance of about $27 million implies a near $9 million Q4
• Large addressable market (Global digital transformation of $10.6 billion by 2021 from $8.5 billion in 2018)
• Improving capital structure; 
  • Recently completed a 1 for 20 reverse split to improve the cosmetics of the stock
  • Cancelled 9 million warrants in exchange for warrants at much better terms
  • Agreed to early equity conversion with noteholders, strengthening the company’s balance sheet. This could  be seen as a sign of confidence from its debtholders.
  • Fully diluted share count is ~14.4 million (the next quarterly financial filing will need to provide confirmation of this number). 
•  Need to raise capital seems minimal
  •  Management stated that it expects cash on hand to fund operating activities
• Favorable Valuation:
  • Despite the recent sharp rise of over 40% in the past week, shares are selling at a Price to Sales ratio of around 2, with the industry average being about 6.5.