VerticalScope Holdings Inc. (“VerticalScope” or the “Company”) (TSX: FORA), a technology company that has built and operates a cloud-based digital platform for online enthusiast communities, today announced financial results for the fourth quarter (“Q4” or “the quarter”) and full year ended December 31, 2023 (“2023”).
“We recovered well from a challenging first half of the year, and our team’s focused response has put us back in a position of growth,” said Rob Laidlaw, Founder, Chair and CEO of VerticalScope. “Our growth is led by digital advertising, up 6% in the quarter, supported by our investment in user experience and the introduction of video advertising on our platform.” Laidlaw further added, “We’ve made strategic shifts in our spending, focusing more on areas where we can make major gains and generate long-term value. This resulted in 14% growth in Adjusted EBITDA, expanded Adjusted EBITDA margins of 46%, and robust Free Cash Flow of $8.1M in the quarter.”
Financial Highlights for the Three and Twelve Months Ended December 31, 2023 (“Q4” or “YTD” respectively).
- Q4 revenue decreased by 6% to $17.9M, a sequential improvement from Q3 that included a return to growth in Digital Advertising revenue which increased by 6% on incremental contributions from video and ad optimizations. YTD revenue decreased by 24% to $60.9M, but with promising MAU and Digital Advertising trends to end the period.
- Q4 Adjusted EBITDA increased by 14% to $8.3M driven by growth in Digital Advertising. YTD Adjusted EBITDA decreased by 24% to $23.5M with improving margins in the period attributed to cost optimizations completed in the first half of the year. Q4 and YTD Adjusted EBITDA Margins were 46% and 39% respectively, compared to 38% for each period in the prior year.
- Our rate of Free Cash Flow Conversion significantly increased from last year. Q4 Free Cash Flow of $8.1M converted at 98%, up from 59% in the prior year, while YTD Free Cash Flow of $20.5M converted at 87%, up from 70% in the prior year. The increase in conversion is attributed to a decline in capital expenditures and cash taxes.
- Cash flow from operations was $4.6M in Q4 and $15.5M YTD, with funds reinvested towards paying down debt and strengthening our financial position. In Q4 and YTD we made $4.4M and $15.3M in principal payments against our credit facility respectively, of which $3.8M and $12.8M were voluntary.
- Net Income of $2.1M and Earnings Per Share of $0.10 in Q4 were $1.9M and $0.09 better than prior year, respectively. YTD Net Loss and Earnings Per Share of $5.0M and negative $0.23 respectively are $19.8M and $0.93 more favorable than prior year.
“We are encouraged to see the momentum from Q3 accelerate into Q4 and Q1 2024,” said Laidlaw. “Our forum communities, with their wealth of authentic content by real enthusiasts, are proving to be a highly valued resource for users seeking reliable information. This is reflected in the 18% year-over-year growth in forum community MAUs in Q4 from 61M to 72M, with overall VerticalScope MAUs reaching 108M. In a landscape littered with AI-generated content, users crave the depth, authenticity, and human connection fostered by our forums, giving us a significant runway for continued growth.”
“Armed with a strengthening balance sheet, we are geared for growth in 2024,” stated Vince Bellissimo, CFO of VerticalScope. “Our capital allocation strategy will be focused on reducing debt, pursuing share buybacks through our Normal Course Issuer Bid, and transacting on high-quality, accretive M&A opportunities within the forums space.”
Earnings Announcement
Management will host a conference call and webcast to discuss the Company’s financial results at 8:00 am ET on Thursday, March 14, 2024.
Live Call Registration and Webcast:
https://events.q4inc.com/attendee/988221791
Joining by telephone:
Canada: 1 833 950 0062
United States: 1 833 470 1428
Participant Access code: 803590
If you are unable to join live, an archived recording of the webcast will be available at: https://investors.verticalscope.com/.
About VerticalScope
Founded in 1999 and headquartered in Toronto, Ontario, VerticalScope is a technology company that has built and operates a cloud-based digital platform for online enthusiast communities in high consumer spending categories. VerticalScope’s mission is to enable people with common interests to connect, explore their passions, and share knowledge about the things they love. Through targeted acquisitions and development, VerticalScope has built a portfolio of over 1,200 online communities and over 100 million monthly active users. VerticalScope is listed on the Toronto Stock Exchange (TSX: FORA).
Forward-Looking Statements
This news release contains forward-looking information within the meaning of applicable securities legislation that reflects the Company’s current expectations regarding future events. When used in this news release, words such as “should”, “could”, “intended”, “expect”, “plan” or “believe” and similar expressions indicate forward-looking statements. Forward-looking information, including the Company’s plans for organic growth, deployment of capital, investments in our platform, the growth of revenue and MAU, information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, plans and objectives, is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Company’s control. Although the Company believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurances can be given that actual results will be consistent with these forward-looking statements. Such risks and uncertainties include, but are not limited to, the implementation and effectiveness of the Company’s capital allocation strategy, the availability of high-quality M&A opportunities, and the factors discussed under “Risk Factors” in the Company’s Annual Information Form dated March 31, 2023, which is available on the Company’s profile on SEDAR Plus at https://sedarplus.ca. Actual results could differ materially from those projected herein. VerticalScope does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required under applicable securities laws.
Non-IFRS Measures
This press release references certain non-IFRS measures, including Adjusted EBITDA and Free Cash Flow, and Free Cash Flow Conversion as described below. This press release also makes reference to MAU, which is an operating metric used in our industry. These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS.
The Company uses non-IFRS measures including:
“Adjusted EBITDA” is calculated as net income (loss) excluding interest, income tax expense (recovery), and depreciation and amortization, or EBITDA, adjusted for share-based compensation, share performance related bonuses, unrealized gains or losses from changes in fair value of derivative financial instruments, severance, adjustments to contingent consideration liabilities measured at fair value through profit and loss, gain or loss on sale of assets, gain or loss on sale of investments, foreign exchange loss (gain), impairment and other charges that include direct and incremental business acquisition related costs.
“Adjusted EBITDA Margin” measures Adjusted EBITDA as a percentage of revenue.
“Free Cash Flow” means Adjusted EBITDA less capital expenditures and income taxes paid during the period.
“Free Cash Flow Conversion” is equal to Free Cash Flow for the period divided by Adjusted EBITDA for the period.
“Monthly Active Users” (“MAU”) is defined as the number of individuals who have visited our communities within a calendar month, based on data as measured by Google Analytics. To calculate average MAU in a given period, we sum the total MAU for each month in that period, divided by the number of months in that period.
The following table sets forth a reconciliation of Adjusted EBITDA and Free Cash Flow to net income (loss):
|
|
Three Months Ended |
|
Twelve Months Ended |
|||||||||||||
|
(in thousands of US dollars) |
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
Net income (loss) |
$2,074 |
|
$144 |
|
($4,951 |
) |
($24,772 |
) |
||||||||
|
Net interest expense |
|
1,207 |
|
|
998 |
|
|
5,087 |
|
|
3,094 |
|
||||
|
Income tax expense (recovery) |
|
(470 |
) |
|
234 |
|
|
(2,917 |
) |
|
(2,333 |
) |
||||
|
Depreciation and amortization |
|
4,634 |
|
|
9,030 |
|
|
21,322 |
|
|
38,659 |
|
||||
|
EBITDA |
|
7,445 |
|
|
10,406 |
|
|
18,541 |
|
|
14,648 |
|
||||
|
Share-based compensation |
|
886 |
|
|
1,564 |
|
|
4,517 |
|
|
9,809 |
|
||||
|
Share performance related bonuses (1) |
|
— |
|
|
1 |
|
|
— |
|
|
(1,079 |
) |
||||
|
Unrealized loss (gain) from changes in derivative fair value of financial instruments |
|
(62 |
) |
|
(91 |
) |
|
(51 |
) |
|
18 |
|
||||
|
Severance (2) |
|
5 |
|
|
202 |
|
|
1,475 |
|
|
1,003 |
|
||||
|
Loss (gain) on sale of assets |
|
(7 |
) |
|
— |
|
|
(178 |
) |
|
3 |
|
||||
|
Gain on sale of investments |
|
— |
|
|
— |
|
|
(2 |
) |
|
— |
|
||||
|
Foreign exchange gain |
|
(1 |
) |
|
(77 |
) |
|
(32 |
) |
|
(22 |
) |
||||
|
Impairment of investment |
|
— |
|
|
1,000 |
|
|
— |
|
|
1,000 |
|
||||
|
Adjustment to contingent considerations |
|
— |
|
|
(6,345 |
) |
|
(1,051 |
) |
|
2,671 |
|
||||
|
Other charges (3) |
|
(5 |
) |
|
585 |
|
|
277 |
|
|
2,818 |
|
||||
|
Adjusted EBITDA |
|
8,260 |
|
|
7,245 |
|
|
23,496 |
|
|
30,870 |
|
||||
|
Less capital expenditures |
|
(431 |
) |
|
(870 |
) |
|
(2,258 |
) |
|
(5,303 |
) |
||||
|
Income taxes received (paid) |
|
243 |
|
|
(2,134 |
) |
|
(694 |
) |
|
(3,860 |
) |
||||
|
Free Cash Flow |
$8,072 |
|
$4,241 |
|
$20,544 |
|
$21,706 |
|
||||||||
|
(1) |
|
Share performance related bonus is included in wages and consulting on the consolidated statements of loss and comprehensive loss. |
|
(2) |
|
Severance is included in wages and consulting on the consolidated statements of loss and comprehensive loss. |
|
(3) |
|
Other charges are included in wages and consulting and general and administrative on the consolidated statements of loss and comprehensive loss. For the three and twelve months ended December 31, 2023, these charges include one-time legal related costs. For the three and twelve months ended December 31, 2022, these charges include direct and incremental asset acquisition or business acquisition related costs. |
VERTICALSCOPE HOLDINGS INC.
Consolidated Statements of Financial Position
(In U.S. dollars)
|
|
December 31, |
|
December 31, |
|||||
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
||||||
|
Assets |
|
|
||||||
|
|
|
|
||||||
|
Current assets: |
|
|
||||||
|
Cash and cash equivalents |
$6,015,184 |
|
$8,766,769 |
|
||||
|
Restricted cash |
|
93,840 |
|
|
116,830 |
|
||
|
Trade and other receivables |
|
14,175,352 |
|
|
15,712,508 |
|
||
|
Lease receivable |
|
595,961 |
|
|
569,278 |
|
||
|
Income taxes receivable |
|
797,465 |
|
|
— |
|
||
|
Prepaid expenses |
|
804,692 |
|
|
1,127,365 |
|
||
|
Derivative instruments |
|
51,303 |
|
|
— |
|
||
|
|
|
22,533,797 |
|
|
26,292,750 |
|
||
|
|
|
|
||||||
|
Property and equipment |
|
754,293 |
|
|
1,065,888 |
|
||
|
Right-of-use asset |
|
2,123,739 |
|
|
1,745,398 |
|
||
|
Intangible assets |
|
52,480,458 |
|
|
70,579,988 |
|
||
|
Goodwill |
|
52,635,164 |
|
|
52,635,164 |
|
||
|
Other assets |
|
283,278 |
|
|
315,403 |
|
||
|
Deferred tax asset |
|
21,786,506 |
|
|
23,991,561 |
|
||
|
Lease receivable |
|
354,288 |
|
|
929,682 |
|
||
|
|
|
|
||||||
|
Total assets |
$152,951,523 |
|
$177,555,834 |
|
||||
|
|
|
|
||||||
|
Liabilities and Shareholders’ Equity |
||||||||
|
|
|
|
||||||
|
Current liabilities: |
|
|
||||||
|
Accounts payable and accrued liabilities |
$5,563,354 |
|
$8,334,556 |
|
||||
|
Income taxes payable |
|
229,770 |
|
|
549,713 |
|
||
|
Deferred revenue |
|
1,157,049 |
|
|
889,259 |
|
||
|
Current portion of long-term debt |
|
3,614,396 |
|
|
3,209,382 |
|
||
|
Lease liability |
|
1,227,160 |
|
|
1,027,309 |
|
||
|
Contingent considerations |
|
— |
|
|
15,000,000 |
|
||
|
|
|
11,791,729 |
|
|
29,010,219 |
|
||
|
|
|
|
||||||
|
Deferred revenue |
|
— |
|
|
4,389 |
|
||
|
Long-term debt |
|
54,431,100 |
|
|
54,883,514 |
|
||
|
Lease liability |
|
2,248,029 |
|
|
2,518,053 |
|
||
|
Deferred tax liability |
|
3,609,683 |
|
|
8,310,894 |
|
||
|
Contingent considerations |
|
— |
|
|
1,051,222 |
|
||
|
Other long-term liabilities |
|
185,399 |
|
|
281,959 |
|
||
|
Total liabilities |
|
72,265,940 |
|
|
96,060,250 |
|
||
|
|
|
|
||||||
|
Shareholders’ equity: |
|
|
||||||
|
Share capital |
|
167,705,234 |
|
|
160,559,106 |
|
||
|
Contributed surplus |
|
22,435,738 |
|
|
25,306,872 |
|
||
|
Accumulated other comprehensive loss |
|
(145,494 |
) |
|
(86,145 |
) |
||
|
Deficit |
|
(109,309,895 |
) |
|
(104,284,249 |
) |
||
|
|
|
80,685,583 |
|
|
81,495,584 |
|
||
|
Total liabilities and shareholders’ equity |
$152,951,523 |
|
$177,555,834 |
|
||||
VERTICALSCOPE HOLDINGS INC.
Consolidated Statements of Loss and Comprehensive Loss
(In U.S. dollars, except per share amounts)
|
|
|
For the year ended December 31, |
||||||
|
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
|||||
|
|
|
|
|
|||||
|
Revenue |
|
$60,899,089 |
|
$80,488,146 |
|
|||
|
|
|
|
|
|||||
|
Operating expenses: |
|
|
|
|||||
|
Wages and consulting |
|
|
28,157,502 |
|
|
35,818,079 |
|
|
|
Share-based compensation |
|
|
4,517,052 |
|
|
9,809,234 |
|
|
|
Platform and technology |
|
|
6,941,603 |
|
|
8,816,339 |
|
|
|
General and administrative |
|
|
4,005,025 |
|
|
7,743,383 |
|
|
|
Depreciation and amortization |
|
|
21,321,892 |
|
|
38,659,197 |
|
|
|
Impairment of investment |
|
|
— |
|
|
1,000,000 |
|
|
|
Adjustment to contingent considerations |
|
|
(1,051,222 |
) |
|
2,671,222 |
|
|
|
|
|
|
63,891,852 |
|
|
104,517,454 |
|
|
|
|
|
|
|
|||||
|
Operating loss |
|
|
(2,992,763 |
) |
|
(24,029,308 |
) |
|
|
|
|
|
|
|||||
|
Other expenses: |
|
|
|
|||||
|
Loss (gain) on sale of assets |
|
|
(178,450 |
) |
|
3,198 |
|
|
|
Net interest expense |
|
|
5,087,087 |
|
|
3,094,352 |
|
|
|
Gain on investments |
|
|
(1,791 |
) |
|
— |
|
|
|
Foreign exchange gain |
|
|
(31,661 |
) |
|
(21,753 |
) |
|
|
|
|
|
4,875,185 |
|
|
3,075,797 |
|
|
|
|
|
|
|
|||||
|
Loss before income taxes |
|
|
(7,867,948 |
) |
|
(27,105,105 |
) |
|
|
|
|
|
|
|||||
|
Income tax expense (recovery) |
|
|
|
|||||
|
Current |
|
|
(420,837 |
) |
|
3,093,317 |
|
|
|
Deferred |
|
|
(2,496,156 |
) |
|
(5,426,371 |
) |
|
|
|
|
|
(2,916,993 |
) |
|
(2,333,054 |
) |
|
|
|
|
|
|
|||||
|
Net loss |
|
($4,950,955 |
) |
($24,772,051 |
) |
|||
|
|
|
|
|
|||||
|
Other comprehensive income |
|
|
|
|||||
|
|
|
|
|
|||||
|
Items that may be reclassified to net loss: |
|
|
|
|||||
|
Foreign currency differences on translation of foreign operations |
|
|
(59,349 |
) |
|
(89,472 |
) |
|
|
|
|
|
|
|||||
|
Total comprehensive loss |
|
($5,010,304 |
) |
($24,861,523 |
) |
|||
|
|
|
|
|
|||||
|
Loss per share: |
|
|
|
|||||
|
Basic |
|
($0.23 |
) |
($1.16 |
) |
|||
|
Diluted |
|
|
(0.23 |
) |
|
(1.16 |
) |
|
VERTICALSCOPE HOLDINGS INC.
Consolidated Statements of Cash Flows
(In U.S. dollars)
|
|
|
For the year ended December 31, |
||||||
|
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
|||||
|
Cash provided by (used in): |
|
|
|
|||||
|
|
|
|
|
|||||
|
Operating activities: |
|
|
|
|||||
|
Net loss |
|
($4,950,955 |
) |
($24,772,051 |
) |
|||
|
Items not involving cash: |
|
|
|
|||||
|
Depreciation and amortization |
|
|
21,321,892 |
|
|
38,659,197 |
|
|
|
Net interest expense |
|
|
5,087,087 |
|
|
3,094,352 |
|
|
|
Loss (gain) on sale of assets |
|
|
(178,450 |
) |
|
3,198 |
|
|
|
Unrealized loss (gain) in derivative instruments |
|
|
(51,303 |
) |
|
18,325 |
|
|
|
Impairment of investment |
|
|
— |
|
|
1,000,000 |
|
|
|
Income tax recovery |
|
|
(2,916,993 |
) |
|
(2,333,054 |
) |
|
|
Adjustment to contingent considerations |
|
|
(1,051,222 |
) |
|
2,671,222 |
|
|
|
Share-based compensation |
|
|
4,517,052 |
|
|
9,809,234 |
|
|
|
|
|
|
21,777,108 |
|
|
28,150,423 |
|
|
|
Change in non-cash operating assets and liabilities |
|
|
(1,068,235 |
) |
|
(1,346,439 |
) |
|
|
Interest paid |
|
|
(4,507,773 |
) |
|
(2,307,714 |
) |
|
|
Income taxes paid |
|
|
(694,349 |
) |
|
(3,860,370 |
) |
|
|
|
|
|
15,506,751 |
|
|
20,635,900 |
|
|
|
|
|
|
|
|||||
|
Financing activities: |
|
|
|
|||||
|
Repayment of term loan |
|
|
(2,500,000 |
) |
|
(2,500,000 |
) |
|
|
Proceeds from issuance of revolving loan |
|
|
15,000,000 |
|
|
— |
|
|
|
Repayment of revolving loan |
|
|
(12,750,000 |
) |
|
(19,000,000 |
) |
|
|
Proceeds from exercise of share options |
|
|
— |
|
|
186,477 |
|
|
|
Repurchase of share capital for cancellation |
|
|
(134,803 |
) |
|
(430,324 |
) |
|
|
Lease payments |
|
|
(1,455,419 |
) |
|
(1,352,625 |
) |
|
|
Proceeds from sublease |
|
|
599,634 |
|
|
622,604 |
|
|
|
Proceeds from leasehold improvement allowance |
|
|
106,426 |
|
|
— |
|
|
|
|
|
|
(1,134,162 |
) |
|
(22,473,868 |
) |
|
|
|
|
|
|
|||||
|
Investing activities: |
|
|
|
|||||
|
Additions to property and equipment and intangible assets |
|
|
(2,257,811 |
) |
|
(9,715,075 |
) |
|
|
Proceeds from sale of assets |
|
|
191,288 |
|
|
57,475 |
|
|
|
Payment of contingent considerations |
|
|
(15,000,000 |
) |
|
— |
|
|
|
|
|
|
(17,066,523 |
) |
|
(9,657,600 |
) |
|
|
|
|
|
|
|||||
|
Increase (decrease) in cash and cash equivalents |
|
|
(2,693,934 |
) |
|
(11,495,568 |
) |
|
|
|
|
|
|
|||||
|
Cash and cash equivalents, beginning of the year |
|
|
8,766,769 |
|
|
20,494,313 |
|
|
|
|
|
|
|
|||||
|
Change in restricted cash balances |
|
|
22,990 |
|
|
62,913 |
|
|
|
Effect of movement of exchange rates on cash and restricted cash held |
|
|
(80,641 |
) |
|
(294,889 |
) |
|
|
|
|
|
|
|||||
|
Cash and cash equivalents, end of year |
|
$6,015,184 |
|
$8,766,769 |
|
|||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240313859338/en/