VIQ Solutions Inc.

Ladies and gentlemen, and welcome to BIQ Solutions' 2075 First Quarter Earnings Conference Call. Currently, all participants are in a listen-only mode. For those that dialed in should require any assistance during the call, please press R10 on your touch-tone phone. For questions and answers regarding your tip disclosure or any other matter, please reach out directly to the company using the contact details on the company website. Your host for today is Audrey Liu, Corporate Finance Controller for BIQ. Please go ahead.

Thank you. Before we begin, please note that term statements made on today's calls are forward-looking within the meaning of applicable securities law. These statements involve risks and uncertainties that may cause actual results to differ materially. Please refer to the forward-looking statements section in our press release and the company's filing on CDARplus.ca. As a reminder, all dollar amounts are in U.S. dollars unless otherwise stated. With us today are Mr. Badshah Pari, Chief Executive Officer, and Alexi Edwards, Chief Financial Officer. I will now turn the call over to Sebastian.

Thank you, Audrey, and good morning, everyone. At VIT, we're always, it's not just about where we're going. It's also about how we're getting there. In Q1, we delivered clear, measurable proof that our strategy is working. We entered 2025 with a strong momentum across all regions, especially in Australia, where the impact of our platform strategy is now unquestionable. First drop output in Australia grew over 232% year-over-year following the completion of last year's technology migration. Each month, adoption continues to climb with more functionalities being rolled out, and more of our human workforce adapting to new first draft buyer workflow. We're seeing the results in our margins. In the UK, first draft usage for human editing increased by over 80%. In the US, we saw steady growth across every first draft metric. Overall, first draft adoption increased by 39% year over year as a source of our productivity gains and the financial margin gains reflected in T1 results. Our decision to roll out platform migration in phases, starting in the U.S. and the U.K. in prior years, was intentional. It gave us a chance to apply those learnings in Australia. And now we're seeing the payback. Steady regional margin gains driven by repeatable cross-market playbooks. The U.S. and the U.K. are now consistently operating at about 60% gross margin. That's a powerful validation of our transformation framework. Australia is at a key inflection point, transitioning from a fixed-off model to a more flexible, variable labor approach. It's assured that positions us well to unlock the next phase of margin expansion in 2025. And it's why we remain confident in our ability to scale effectively, even if that volume and client capacity fluctuates seasonally. Thanks to our expanding growth margin, we are tracking towards a sustainable operation and its ability to generate free cash flow later this year, assuming term productivity levels and volumes hold steady. That matters because it reduced our reliance on capital to fund operations going forward. To be clear, technical fluctuation and backlogs will continue to appear from time to time, but the structural improvements we've made give us the tools to manage through them. In Q1, we delivered an adjusted EBITDA of almost $900,000. That's a meaningful improvement from the loss of $83,000 a year ago and nearly doubled what we reported last quarter in Q4. On a constant currency basis, revenue was flat year over year. The 3.5% decline reported was mostly tied to the foreign exchange headwinds, not the fundamentals. And with the U.S. and U.K. volumes trending up post-quarter, we feel optimistic. at this stage on how Q2 is shaping up. Most importantly, the gross margin in Q1 hit 51.9%, which is up to 7.6% from 44.3% in Q1 of last year. That's a strong indicator that our model is scaling and that the free cash flow in fiscal 2025 is within reach. We're not done. We believe there's still room to extend margins much further. This quarter also marked major progress on cost control. We achieved greater workflow flexibility and lower unit production costs, improving we believe our durable, not one-time gains. With automation and AI at the center of our model, we will continue to improve our customer unit profitability and extend our lead in every region we serve. These views also prove that our strategy is not just working, it's accelerating. To provide you a little bit of industry context ahead of the AGM in June, the evidence-transition industry is undergoing a fundamental transformation, shifting from manual, labor-intensive workflows to AI-powered platforms that offer speed, accuracy, security, and compliance at scale. At the core of this evolution is a hybrid model, where human-in-the-loop oversight continues to play a critical role, tailored to the precision, context, and accountability required by each client and use case. To illustrate the pace of change, today most advanced devices can transcribe over a 90-minute long audio file in less than 30 seconds, a task that traditionally before any technology took five to six hours of manual effort, depending on the complexity and the number of speakers involved. Speech-to-text accuracy is no longer the barrier. The real challenge and the real opportunity lies in the downstream steps. Client-specific formatting, direct efficient, domain-trained language models, intelligent post-processing, contextual validations, all while meeting rigorous evidence and regulatory standards. These are the areas where human oversight remains crucial, and it basically varies based on the content and the risk profile of each organization. This is more than the technology upgrade. It's a structural shift in how transcription services are delivered and scaled. It demands new tools, new workflow, and a collaborative approach between people and machines Our team are embracing it, leveraging the AI-enabled processes to enhance productivity, shorten turnaround times, and deliver measurable client value. Our enterprise clients are also evolving. They now expect secure self-serve mobile and audit workflow, system integration, verify accuracy, summarization, multilingual capabilities, and fast, reliable deliveries. all governed by strict SLAs and KPIs. Speed remains essential, but flexibility is becoming just as important. Across segments, we see clients calibrating the level of human verification based on use case, content type, and operational risk. Some rely on a fully verified transcript for evidence purposes. Others use first draft outputs with minimum human review for early stage analyses. or internal workflow. This variability is shaping a more intelligent, efficient operating model. Just to give you some examples, legal teams may use first draft for early case development, applying full human verification for courts submitted for evidence transcripts. Government agencies and the offices may process internal briefing and procedural records with first draft first model, while applying oversight for policy and compliance amendments. Media organizations may prioritize speed for live coverage and real-time publishing while flexibly applying editorial review for in-depth or regulatory content. Insurance providers often automate routine documentation and claims and takes with additional scrutiny reserved for disputed or litigated related files. Law enforcement units may also use for a draft generated transcript for a general investigation. escalating to the full human review for interviews going for corporate use. This practical, fit-for-purpose model reflects a broader industry trend. In fact, recent surveys show that over two-thirds of our legal services leaders around the world are now viewing AI adoption as a top strategic priority. BIQ is exceptionally well-positioned to meet that demand. Adoption of our first draft platform, next by the first draft, continues to grow. driven by measurable gains in speed, efficiency, security, and compliance across complex volume environments. Looking ahead, our product roadmap includes deeper regional expertise, multilingual automation, real-time dialyzation, and enhanced software capabilities, all designed to give our client more control and more stability based on their unique operational demands. We're not just deploying the next generation of tools. for enabling the new standards for secure, scalable, AI-driven content services, and BIQ is meaning that evolution. Q1 marked a strategic and clinching point as we shifted from customization to margin-led execution. First, in Australia. First, that volume increased by 232% year-over-year following the platform migration. Productivity gains accelerated as S5 adoption This tight, elevated volume and ecosystem backlog for low-quality audio from search and police clients. From December to March, editing efficiency improved by 13.25%, reflecting continued workforce optimization and a growing impact of the automated workflow. These gains have strengthened our ability to take on more short-term consumer work while enhancing margin resilience. First Draft's ultimate first draft usage without professional editing by DIQ rose 72% year-over-year, longest-scoring its value in delivering fast, accurate, and compliant transcripts for high-volume, complex content. Adoption was strictly strong among governance and law enforcement clients, where mobile users reached 96.4%. In March, we had over 300 active users on First Draft, reflecting deeper integration into client workflow and growing reliance on our AI power workflow. Foreign languages. Our multilingual capabilities rolled out late last year. We're now a meaningful driver of the margin expansion that we saw in Q1 results. As the platform adoption has scaled, we've seen an average of 26% year-over-year increase in foreign language margin contributions. with performance varying by language complexity and automation maturity. A key driver of this improvement has been the strategic shift from external vendors to in-house trained partners, including multilingual specialists now operating on Nest by platform. This transition alone has contributed to a 17% uplift in overall margin, reinforcing the value of our platform-centric delivery model in driving sustainable cost efficiency and scalability. In the United Kingdom, the weekly throughput post-consumption to the platform rose 64%, driven by increased automation and better resource alignment. We also successfully completed the ISO 9001 certification, reinforcing our commitment to quality and compliance in regulated markets. In the United States, our near real-time offering is gaining momentum in the corporate finance and government sectors, and we're poised to become a keystone in our largest account for each of those verticals. In Q1, we completed a formal strategic review, led by an independent special committee of the board with external financial and legal advisors. The committee validated multiple paths, including a number of private proposals received, capital structure changes, and strategic alternatives. Based on market conditions and the company's improved financial trajectory, the board, as recommended by the independent committee, concluded that the best course is to remain public and continue executing our automation first strategy. The cost related to the strategic review and special committee has been purposely broken out and separated from operating activities of the company to allow shareholders to better understand the underlying performance of our business activities. The term adjusted operating loss was added in the MD&A for that specific purpose. It does not preclude future strategic actions. The company remains open to opportunities that strengthen our capital position, accelerate growth, or enhance shareholder value. The external interest we receive and the outcome of our strategic review reaffirms that we are on the right path in making measurable progress. With four consecutive quarters of positive EBITDA, strengthening recurring revenue, and a more efficient cost structure, we are well positioned to preserve and expand our strategic option moving forward. Alexi, over to you.

Thank you, Sebastian. Good morning, good afternoon, or good night, depending on where you are. I'd like to recap our Q1 2025 financial highlights. Revenue for the quarter was $9.6 million, a 3.5% year-over-year decline, driven primarily by unfavorable foreign exchange. On a constant currency basis, and accounting for typical January quarter seasonality, revenue held steady year-over-year, reflecting stable volumes and targeted price increases. Gross profit rose 13% to $5 million, aided by cost efficiencies and a $152,000 owner's contract reversal. Including this one-time item, gross margin remains strong at 60.4%. FD&A declined 12%, reflecting ongoing restructuring and disciplined expense management. Adjusted EBITDA was $872,000 up from negative adjusted EBITDA of $83,000 in Q1 of 2024 and higher than the positive adjusted EBITDA of $494,000 in Q4 of 2024. Net loss was $1.8 million, same as comparable period in 2024. The company reported adjusted operating loss of $0.7 million. representing year-over-year improvements of $1.1 million from a loss of $1.8 million in the same period of 2024. This figure excludes non-recurring costs relating to the strategic review, including a $900,000 contingent amount payable to BD Capital only in the event of a debt default by the company. We ended the quarter with $1.6 million in cash, generating $652,000 in positive capital from operations, thanks to improved adjusted data and working capital management. Discussions with our lending partner remains collaborative, with a shared focus on implementing a sustainable path forward under a revised and achievable covenant structure that supports continued operational improvements. We are very excited about the clear trends we have established on growth margin, increases year over year. For Q1 2025, we increased growth margin to 51.9%, which is up 7.6% from 44.3% in Q1 of 2024. Growth margin expansion is a critical element in our goal of reaching free cash flow during fiscal 2025. Why are we so confident in our ability to continue to expand growth margins? Firstly, Q125 marked another successful quarter of GIT with demonstrates in our cost control efforts. During this time, we achieved high levels of workforce flexibility and lowered unit production costs. We do not believe these are one-time improvements. We believe we can continue to leverage automation and AI as a workflow to further strengthen unit economics and continue to expand growth margins. Secondly, through growth margin expansion, we are well positioned to achieve sustainable operations and free cash flow in 2025 and beyond. This is important to us as it will allow VIQ to become less reliant on finding sources of capital to fund operations, providing there are no material variations to revenue through that period and the company continues to achieve the desired growth margin levels. To summarize, we are very excited about the trends established in Q1 with respect to growth margin expansion. Secondly, we are confident that we will continue to expand growth margin through automation and AI-driven workflow. And finally, growth margin will allow us to achieve sustainable operations and free cash flow. Back to you, Sebastian.

Thank you, Mike. Looking ahead, our priorities are very, very clear. Number one, sustain the gross margin gains to expanded adoption of NetScribe and Furswap, moving next level of automation to the core of all our workflows. Chainline on America and the UK operations, where delivery models are now tightly aligned to client demand, driving a sustained reduction in cost to serve. Both regions consistently deliver gross margin above 60%. on the scoring disability efficiency of the platform and the operating model. Drive further efficiency in Australia, where gross margin has moved from the low 20s to the mid 40s. The path to higher margin continues in 2025, as we complete a transition to a higher variable label model mid-year, and we expect continued upside. We also plan to deploy resources with discipline, prioritizing margin expansion scalable fast growth, and adjusting high margin revenue streams. Currently, there are several initiatives accelerating the fast adoption and unlocking connected sources of recurring revenue, strengthening free cash flow, and positioning the business for sustained value creation. In parallel, we're also in constructive conversation with our lander, BD Capital, to recalibrate some of the landing covenants. The goal is to modify to reflect where we are today and avoid the drag of ongoing short-term waivers tied to the company operating progress. The discussions are progressing. In closing remarks, Q1 delivered a strong and strategically meaningful start to 2025, the best ever in the history of the company. In Q1, we're not just recovering, we're scaling towards profitability. We've delivered four straight quarters of positive adjusted EBITD and extended gross margins to over 51%, proving that our platform automation first strategy is working. The industry is moving fast. From manual transmission to AI power workflow, the activist front with NetScribe and FirstDraft now widely adopted across all our key regions. Powering faster, more accurate, and compliant workflow for courts, law enforcement, insurance, media, and government clients. Cue on market turning point. Automation is now driving the real financial gains. We've improved editing efficiencies, expanded adoption by 72%, and a multilingual margin rise of 26%. Our Australia margins jumped from the low 20s to the mid 40s, and the UK and the United States are now exceeding 60%. That's progress. Importantly, these are not short-term cuts. They are structural improvement from an increasingly improved and matured tech platform, deeper automation, and clearly a well-defined blueprint for execution. We review multiple strategic paths this quarter, including a number of gold private authors, and conclude that the best way to build value at this time is to remain public and keep executing That's how we remain open for opportunities to accelerate growth and shareholder value creation. Our story is very simple. We're turning a manual, high-volume industry on its head, and DIC is setting the benchmark for secure, scalable, AI-driven content services. We look forward to sharing our future results in August. The ACM is scheduled for June the 13th. For any follow-up questions, please do not hesitate to contact the company directly.

Operator, I'll leave that to you for the closing. Thank you. As one difficult call, you may now disconnect your line. Thank you for your participation.