MicroCap Tech Earnings May 09: VIQ Solutions (VQS.V)

Positive outlook for company remains intact
See the April post related to FY 2008 results for this Company. The fundamental outlook for this Company has not changed. The performance outlook for VIQ Solutions should be enhanced by the rollout of various national infrastructure stimulus plans announced by governments throughout Europe and North America.

Sales results weak for Q1; but as expected
Q1 results (which are typically the weakest seasonally) reflect the pre-stimulus challenges the company has faced, particularly in the United States. The previous US Administration and Congress had dramatically cut back funding for courts during the 2008 budgets. Election year uncertainty, combined with a deepening recession, made the situation worse. As a result, US contracts all but dried up for VIQ Solutions, reflected in Q1 2009 sales, which were $2.5 million, down from $2.8 million for the previous year Q1.

Margins improve for Q1
Management cut input expenses, and signed more software contracts, resulting in gross margins improving to 39% up from 37% for Q1 2008. Management expects gross margins to continue to improve going forward as the company continues to sign more software deals. EBITDA loss increased to $0.14 million for Q1 2009 versus $0.12 million loss for the previous year, although it should be considered virtually unchanged. Margin performance improved even as the company increased activity related to major signed contracts and ramped up sales execution during the quarter to take advantage of the more positive market conditions. Net loss for the quarter was virtually unchanged at $0.24 million loss, or $0.00 loss per share versus a $0.25 million loss for Q1, 2008, $0.00 loss per share.

Management drove positive cashflow; should stay that way
Despite a $0.3 million quarter-over-quarter decline in sales, the Company was able to report positive cashflow from operations of $0.06 million for Q1 2009 versus a cash outflow of $0.23 million for the same quarter 2008. The company has accelerated cash by reducing expenses, and by negotiating better terms on newer deals, resulting in DSO (Days Sales Outstanding)declining from nearly 70 days previously to approximately 40 days now. Investors should be pleased with management activities related to maximizing cashflow. Management has stated that it expects to remain cashflow positive for the foreseeable future.

Major contracts from Q1
During Q1, the company announced major contract signings in the UK (3.3 million Euro over 8 years) and in Australia (AUT$2.5 million over 3 years), which should begin to positively impact performance for Q2 2009 and onward. According to management, a majority of the revenue associated with new software-oriented contracts is recognized within the first year of multi-year contracts.

Subsequent events
Subsequent to Q1, the company has been active signing and deploying new contracts and contract extensions with undisclosed clients. Revenue associated with these transactions should positively impact performance for Q3 and Q4 2009 and beyond. The stimulus funds are starting to flow through the system from various governments worldwide including the United States. As a result, the company is beginning to see large opportunities for bid, which could positively impact performance as early as Q4, 2009.

Positive outlook enhanced by management's focus on cashflow
Notwithstanding the positive market outlook for the company, investors should be pleased that management has been able to generate positive operating cashflow for a weak sales quarter.

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