Press release

VerticalScope Announces Fourth Quarter and Full Year 2023 Financial Results

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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

December 31,

 

Twelve Months Ended

December 31,

(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