Good day, ladies and gentlemen. Today, we are hosting a conference call to discuss VIQ Solutions' long-term growth plans and outlook for 2021 and 2022. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. For those that dialed in, should you require any assistance during the call, please press star zero on your touch-tone phone. We will have a question-and-answer session at the end of the call, at which time all participants wishing to ask a question will be instructed to press star one and identify themselves before asking a question. Please limit yourself to one or two questions so that others may have a chance to ask questions. Your host for today is Ms. Kelly Stam, investor relations for VIQ. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to the VIQ Solutions update on long-term growth plans conference call. Laura Kiernan wishes she could participate on this call today. Unfortunately, she is currently traveling and is unable to join. Before we begin, I would like to point out that certain statements made during 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 COO of VIQ, all of whom will be available for questions following the prepared block.
I'll now turn the call over to Sebastien Paré to begin.
Thank you, Kelly. Welcome everyone to our conference call. I know it seems like it's been a while since our last call, but given everything that has happened over the past three months, it was the good for reasons. We had to wait until we announced the two M&A transactions before we could provide an update and speak more broadly to all of you. Our goal for today's call is to provide you with an update on our growth plans, our revised outlook for the third quarter in light of the latest situation in Australia, and the full year 2021, along with sharing with you our financial goals for 2022. Our growth plan.
We have achieved some significant corporate milestone this year, which we believe have enabled us to execute against our acquisition roll-up strategy, despite the delays caused by the pandemic and the travel restrictions. With the completion of the acquisition of The Transcription Agency and the acquisition of Auscript, which is expected to be completed in the fourth quarter of this year, coupled with strong organic growth and the anticipated ending from COVID-19 lockdowns globally, we have set a goal to generate at least CAD 50 million in revenue with a gross margin range of 47%-55% and 10%-20% adjusted EBITDA margin for next year. We also plan to break even and be free cash flow positive next year, even after significant investment in research, development, and our talents. We will also get in more details on these goals later in the discussions.
Please know that we're under a strict confidential agreement with Auscript until after the close of the transactions later this year. Our comments today will be limited. Also, I would like to provide some colors for you on the third quarter events, and Alexie will provide more details on what we're expecting to formally report in about four weeks. With a number of our largest court and law enforcement clients in Australia operating at 50% of normal capacity due to the extended shutdowns in the last three months have been particularly challenging period for everybody involved. Although we believe we've managed through the pandemic extremely well, fortified our balance sheet, and we have taken the steps necessary to execute against our roll-up strategy and long-term growth plan despite global M&A delays caused by COVID-19.
We're in a strong position from a competitive standpoint and are rolling out our FirstDraft, powered by AI, in our industry-specific machine learnings, which we expect will drive our revenue mix towards a global scale, higher margin, hybrid SaaS model. On August 12th, VIQ shares began trading on Nasdaq following our graduation to TSX in Canada earlier in the year. Just last year, we were considered a venture company, in 2021, we're listed nationally on big boards, both in Canada and U.S. This year's equity trading volumes have leapfrogged prior year volumes on all post junior exchanges combined. Our listing on national exchanges, coupled with strong trading liquidity, are expected to continue to facilitate increased investment by institutional shareholders globally.
The company's management and board of directors collectively represent the single largest shareholder group of VIQ with over 27% ownership prior to the U.S. only registered direct offering completed in September, and now hold approximately 24% ownership of the issue and outstanding shares of the company after completion of the RDO. The board and management wish to acknowledge that they were disappointed by the market reaction to both the revised near-term outlook issued on July 30 and the RDO on September 15. We believe that raising capital was needed to close on accretive acquisitions and onboard significant new institutional shareholders. At this time in our growth trajectory, we are emerging from COVID-19 in a strong position in a global digitization industry at a fast pace to accommodate the new post-pandemic delivery expectations.
Now I will hand it over to Alexie to provide some insight into our financial strategy and milestones. He will be followed by Susan, who will provide more details related to our acquisitions. She will hand it back to me, and we'll take your questions.
Thank you, Sebastien. Depending on where you are, good morning, good afternoon, and good evening, everyone. Though we are still in the process of closing our third quarter results, we are providing an interim update and expect to report revenue in the range of CAD 7 million-CAD 7.1 million, and gross margin in the range of 48%-49%. The revenue outlook for the quarter is below previously issued guidance primarily because of two reasons. One, prolonged COVID-19 shutdowns in the states of New South Wales and Victoria in Australia, where some of our larger customers are located. Secondly, lower technology services revenue from our U.S. service business. These shutdowns delayed new contracts and significantly reduced temporarily the court and law enforcement production volumes in the quarter. Additionally, labor shortages in the U.S. drove operating costs higher despite reduced volumes during the quarter.
Clients in the states of New South Wales and Victoria are expected to resume normal production in November, when 80% of the population is expected to be double vaccinated. In the U.S., labor shortages are slowly being eliminated as the direct U.S. government to independent contractor subsidies are ending. Pent-up demand caused by these delays is expected when volume production resumes. A significant demand has developed, creating opportunities for FirstDraft, powered by aiAssist, to help alleviate the operational pressure for quality, faster turnaround timelines, and new delivery expectations in post-pandemic digitization. We expect to issue the full Q3 earnings report in mid-November, when we will provide more color on the results. At this time, I'd like to recap some significant milestones that have set the stage for the next chapter for growth. Firstly, we graduated to the TSX in January 2021.
Secondly, we filed a base shelf prospectus in Canada and Form F-10 in U.S. in June 2021. Thirdly, we filed a prospectus supplement and listed on Nasdaq in August 2021. Fourth, we filed a prospectus supplement and raised $18 million through our re-registered direct offering in the United States in September 2021. Fifth, we established VIQ UK, enabling the launch of NetScribe, powered by aiAssist, in all global commercial geographies in September 2021. Sixthly, we closed the TTA acquisition on October first. Finally, we announced a binding asset purchase agreement for Auscript, which is expected to close in the fourth quarter of 2021. We believe we are positioned to increase our consolidated revenue and margin next year, as we expect to see additional tangible evidence in our results that our strategy is working.
Finally, to match the company's strategic revenue model, including SaaS, using AI as a driver to automate transcription services, we expect to begin providing enhanced disclosures of KPIs beginning next year. I would like to hand it over to Susan, who will provide more details related to our most recent acquisitions.
Thank you, Alexie, and good morning, everyone. We said that we planned to be bold and prudent this year, keeping our focus on the growth strategy that we created three years ago. The senior exchange listings on the TSX and Nasdaq and a capital raise were necessary to execute on our accretive roll-up strategy, which has accelerated with many new global opportunities. We believe the acquisition of The Transcription Agency, or TTA, a primary supplier of outsourced transcription services to clients in private and public sectors throughout the U.K., will enable us to significantly expand our presence in that region. With the localization of NetScribe and aiAssist, we will deliver on several new transcription service awards that will accelerate our organic growth in the U.K.
While this acquisition seems rather small at about $2 million, we acquired it at a great multiple consistent with prior transactions and established a competitive foothold in the region. There are also key synergies that made TTA a perfect partner. We share our largest customer in the U.K., which provides a huge opportunity to expand. TTA has also been selected to be on the purchasing grid of the NHS, which is the procurement vehicle for many law enforcement agencies, as well as insurance providers in the U.K. This is consistent with our segmentation strategy. This, combined with our expanded distribution in country, we are firmly positioned to accelerate both disruption and organic growth.
Our planned acquisition of Auscript is expected to enable VIQ to provide exceptional service and enhance the quality of delivery for all Australian clients with a significant opportunity to leverage technology to improve our overall margin profile and offer innovation to our customers and transcriptionists across all of Australia. As with other acquisitions, this positions VIQ to rapidly expand into regions and accelerate our ability to cross-pollinate other higher margin products, both in Australia and across Asia Pacific. What I can tell you is this: like TTA, the multiples paid are consistent with our prior acquisitions. Our M&A pipeline is stronger and more active than ever as we have more insight into the post-COVID environment. We may even be able to announce additional transactions in 2021 utilizing the capital that we have raised.
If you look at the goals that Sebastien provided to you will note that there is revenue growth built into the plan for 2022, with much of that driven by these acquisitions, with the addition of core organic growth related to contracts that were signed in 2021. COVID-19 related disruptions and shutdowns in the company's largest markets, the U.S., the U.K., and Australia, have challenged the industries globally to withstand significant headwinds. We have fortified our balance sheets to protect the business for uncertain economic conditions and to position the company to respond quickly to capitalize on acquisition targets that may present as COVID recovery begins, and to be very opportunistic to acquire targets that may be negatively impacted as a result of COVID. This also allows us to reduce our time to market on new products and innovations.
We expect to emerge from COVID-19 era strongly positioned in a global industry that is digitizing faster than ever to accommodate accelerated delivery expectations. Before I hand it back to Sebastien, I'd like to comment on our organic growth as the story is very exciting. While the pressure on our core revenue from COVID is not telling that story, our organic growth in terms of newly named customers, adoption of FirstDraft, and renewal of contracts has been amazing. We signed approximately CAD 950,000 of net new recurring revenue in the past four months. We have added incremental business in our media space, renewed our largest media customer for five years, renewed our third-largest insurance customer, and added FirstDraft to all of our major renewals. The market is responding favorably to our strategy.
While our industry segments are still reacting to COVID, and our revenue numbers have been impacted by this, the story and strategy is being validated daily by the success we are seeing in the market. We have four new global distributors and four NetScribe technology-only customers in markets where we do not offer services, and our pipeline is extraordinarily strong. As President and COO, and also one of the largest shareholders of VIQ, I want to stress that we do not respond to the emotions of the market, but to the execution of our operations and the strategy that we put in place over three years ago. I remain absolutely committed to consolidating and transforming this industry. While we certainly have had bumps in the road, we remain committed to our vision and the execution of that vision. Seb, back to you.
Thank you, Susan. Our goal for the year 2021 is to be in the range of $34 million-$35 million in revenue, with gross margin in the range of 48%-50%. The revised Queensland contract, previously announced in December 2020, was expected to begin during the third quarter of this year. This $5 million-plus annualized contract is now expected to commence sometimes in the first half of 2022. Our financial goals for 2022 include a full year of normalized revenue for TTA and Auscript. It also includes the new organic growth contracts, which have been delayed this year, that should have started this year. It also includes the processing of the backlog related to the COVID-19 shutdowns.
Additional goals include generating at least $50 million in revenue with 47%-55% gross margin and 10%-20% Adjusted EBITDA margins for next year. We also plan on being break even to free cash flow positive after spending on research and development and continuing building the talents within the company. VIQ acquisitions and the proven integration blueprint that we've developed over the last three years created favorable market conditions to continue building a much stronger organization globally with a focus on culture, talent, and making significant investment in our people and the technology to support them in meeting the new delivery expectations from our customers globally. TTA and Auscript have exceptional talents and years of industry-specific knowledge. That will make VIQ stronger with an exceptional talent bench for years to come. This concludes our formal updates. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that if you are listening on speakerphone to please pick up your handset for optimum sound quality. Please hold for just a moment while we poll for questions. Our first question today is coming from Brian Kinstlinger at Alliance Global Partners. Your line is live, you may begin.
Hi, good morning. Thanks for taking my questions.
Good morning, Brian.
Hi, Sebastien. The 2021 revenue guidance implies fourth quarter revenue is gonna increase, if my math's right, to about $11 million-$12 million. How much of that is from the two acquisitions? I don't know how much you can give with that, given the second one you can only give some discussion around. What are the other puts and takes outside of acquisitions that are gonna drive this significant increase from the previous three quarters?
Alexie, do you wanna take that one?
Good morning, Brian, and thank you for your question. What I'll say, Brian, is we're somewhat limited as what we can say about the contribution to Q4 from the acquisitions, given we haven't closed on Auscript yet, and we're under a confidential agreement. We anticipate that by the time we report earnings in mid-November, we'll be able to provide more information relating to the makeup. What I can say is that most of the uplift you're gonna see in Q4 is derived from acquisitions, plus we expect to generate organic growth based on net new contracts, plus catch-up of backlog as we emerge from COVID-19 shutdowns.
Okay. My follow-up is, you have some services-based business. Clearly, you're a software company, but utilization's important. With the editing and implementation staff today impacted by the volumes, and as well as delayed implementations, where is utilization today, and what is the optimal utilization you wanna run this business at, for example, next year when you're not hopefully impacted by the lockdowns as well as some of the other issues?
Good questions.
I'll go ahead and take that one, Seb, if it's okay. Brian, it's a multidimensional question, right? Our services organization certainly has been impacted like the rest of the world by the downward turn in overall productivity. There's been an element to that that's been extraordinarily timely because you may or may not recall that we did all of our migrations towards the middle of July of 2020 when COVID really began to hit. That compiled with subsidies, it negatively impacted the average productivity level of our independent contractors that are actually editing. We were able to keep on a broader base of those editors because there's no incremental cost to us.
As we went into 2021, the gross margin improvements that we've seen in the U.S. services organizations, as anticipated, were due to a combination of rate reductions because of productivity gains that are related to the improvements in the technology that we've deployed. In terms of overall scale related to the efficiency of the organization, it's been that natural balance between the average production level of the IC, keeping them on what I would call a hot standby, because we want that group of transcriptionists and editors to be ready for the accelerated growth when we hit the post-COVID phase, particularly in Australia, where we have the big Queensland contract sitting right behind us.
It has been a load exercise, but it's been one that, because of the independent contractor status for the majority of this labor, it isn't really negatively impacting our overall cost. We have been able to utilize, although at a higher rate, our follow-the-sun labor model, so that when we have required incremental productivity out of the United States to support the beginning of the ramp on the insurance side, for example, we've been able to take advantage of that available labor pool in Australia.
Okay. Thanks, Susan.
Thank you. Our next question today is coming from Scott Buck at H.C. Wainwright. Your line is live. You may begin.
Hi, good morning, guys.
Good morning.
Hi. Hoping you can help us understand, you know, where the confidence comes from to issue full year 2022 guidance. I ask because we're lowering 2021 expectations now on guidance that was issued just two months ago. Has the visibility improved that much going forward?
Yeah. The answer is yes. Really, for us, it was related to getting visibility on closing some of the M&A targets that we've been working on, which we've closed one. We finally went across the commitment for an APA with Auscript, which will close later this year. Also now we're starting to see the July, August, September results have started to come in, obviously. We're starting to see that return to pre-COVID volumes across all lines of business. You couple that with the vaccination and the reopening of the economy in New South Wales, where we've got two of our largest clients as well now Melbourne in the Victoria State just announced they're coming in next week. We answer the question is we've got that visibility now.
We've been operating the business, obviously, with limited visibility across all those different fronts, for a very long time. But I think at this point, we felt that we've now reached that level of confidence in our ability to restate and recommit to the markets and the shareholders what we now have a strong visibility on. It's a combination of a number of things. As we stated earlier, some of those contracts that Susan was referring to, they all came in this year, but they've been delayed in terms of commencement. While it has been impacting the 2021 revenue, we're sitting on a very significant backlog of both volume with existing customers, but also net new customers that got delayed.
All of this is gonna start to be normalized in the fourth quarter, and then it really kicks in to a different gear next year based on what we see. That's really the why we decided that the time was right because now we truly have that visibility, which we never did for the last year and a half, two years.
Well, that's helpful, Sebastien. Just to be clear, the guide for 2022 does not include any yet to be announced M&A, right? It includes the two deals that were announced over the last couple of weeks, but that's it.
That's correct. That's absolutely correct. As we stated in the script today, and you can look at the press release, there's really four pillars behind those numbers. Yes, those two acquisitions on a normalized basis, so that's with TTA and Auscript for 12 months, but also the organic plus the backlog that we've been dealing with. Those are the four pillars behind that, and it includes, at this point, it does exclude any additional M&A in the mix at this point.
Okay, perfect. Last one from me. On the kind of difficulty in hiring, I want to double-check and make sure that, you know, capacity is gonna be in place to meet, you know, some of the increased backlog, as it kind of comes back online here over the next, you know, nine to 12 months.
No, this is something we discussed. Susan, you go ahead.
Yeah, I would say, Scott, absolutely. That's why we have preserved our Australian labor force, and we've used them to back up our U.S., our U.S. backlog. We are actively and aggressively hiring in all three geographies. To the degree that we can, we will also hire in emerging markets where that makes sense for some of our less security-constrained clients such as media. We feel that we are in a great place because of some of the strategic hits that we took in 2021 to be well-positioned to accelerate in 2022.
Okay. Great, guys. I appreciate the update.
Thank you, Brian. Scott. I mean Scott.
Thank you. Our next question today is coming from Daniel Rosenberg at Paradigm Capital. Your line is live. You may begin.
Hi, Sebastien, Susan, and Alexie. I just had a follow-up question around the M&A plans. You mentioned in your prepared remarks that there's, you know, even potential to execute on more M&A this year. I was wondering if you could characterize the pipeline in terms of size and cadence that you guys see in the next 12 months. Are you know, trying to keep the same pace of two a year kind of thing? And any comments around size would be appreciated.
I think you'll see our size remaining consistent, Daniel. You know, the ranges that we're looking at are consistent. As we've talked about pretty consistently in the last two years, I think you'll see the kinds of targets that we look at a little more broadly, meaning that it may not be exclusively transcription services. We may broaden out to look at additional ways of exploiting the documentation that we do. So we would potentially look at translation. We would look at technologies around affecting the documents that we deliver to add incremental value to our average, you know, rate per user. So we wouldn't exclude technology as long as the technology business would be accretive, and the size range will be consistent.
You know, to the degree that the organization will absorb it, and, you know, I will always say that, to us as an organization, one of our fundamental tenets is to buy healthy companies. It's also to preserve our solid revenue base and make sure that when we buy revenue, we are not so aggressive that we risk revenue. That's one of the things that we've been dealing with over the last year, right? Making sure that those companies that we bring in are solid. I was in London two and a half or three weeks ago before we consummated the deal with TTA in order to make sure that we had that last solid touchpoint before we completed the acquisition, and you'll see that we take that very, very seriously.
The organization is better positioned to take on more than two acquisitions a year, assuming that they're healthy and assuming that they fit into our overall strategy. I think if we deviate from our typical model, that would probably change that, but I don't see that in the pipeline that we're currently looking at.
Okay. Thanks for that. You mentioned the U.K. market. I was wondering, are there any elements of that market that make it particularly appealing? Are there any other geographies that might be of interest as you think about those characteristics?
Well, there are a lot of characteristics around the U.K. and the Australian courts markets that actually were synergistic around the evaluation of these two acquisitions. We believe that our capture technologies in conjunction with the services and the FirstDraft offerings, they're ripe markets for us to really exploit that and exploit it quickly. We are in discussions with some very big customers in the U.K. on trials that will accelerate that. We believe that model is also represented in geographies like South Africa and in potentially Kenya and Nairobi, where we think that we can easily transplant the model that we have done in the U.K. to take advantage of our capture footprint. The answer is absolutely.
The U.K. seems to be incredibly strong right now in terms of organic growth opportunities for VIQ.
Thanks for that. The last question from me was around the Queensland contract. You, you mentioned that, you're looking to commence the contract in the first half of 2022. I was wondering, what are the gating factors? Is it simply the court systems opening up, or are there any, you know, kind of preparations or certain processes that you have to get through or they have to get through before you could commence that contract?
Well, I wanna start by saying that the contract and the size of the contract that we committed to is absolutely intact. There's no risk to that whatsoever. The way that state is deploying this new project is extraordinarily complicated. While we can't speak in too much detail about that, I would say it's not surprising that there are delays. It is really innovative what they're doing and the way that they will be evolving their infrastructure around the courts. I think you take that and you layer on top of it the complications of Australia, natural that there was a delay.
I think we've been very conservative in our estimates for starts, but we are very excited about the commencement of that contract.
All right, thanks for that. I'll pass the line.
Thank you. We have no further questions in the queue at this time. Mr. Paré, do you have any closing remarks that you'd like to finish with?
Yeah. Thank you everyone for joining us today on the call. We appreciate the support of our long-term shareholders as well as new investors that believe in our long-term global growth strategy. We all know this industry is undergoing historical transformation. We also know that five years from now, not 10, this industry will surely look very different in how evidence is being captured and documentation produced and delivered. We're very excited about the future for VIQ as the branded industry leader in an industry that is going through such transition. Please follow up with Laura Kiernan and Kelly Stam with any questions you may have. As previously mentioned, we're really happy to speak with you one-on-one now that we've been able to disclose this material information. We look forward to speaking with you again when we report our third quarter results in November. Thank you.
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.