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 third quarter (“Q3” or “the quarter”).
“Our performance continued to improve in Q3 as a result of stronger advertising monetization and slightly improving MAU trends. We continued to see gradual improvements in topline trends supported by our new ad product initiatives including video and gains in search traffic compared to Q2”, commented Rob Laidlaw, Founder, Chair and CEO of VerticalScope. “The strength of our business model anchored by our Fora community platform combined with our efforts to improve overall efficiency are driving meaningful gains in profitability. Adjusted EBITDA margin reached 44% in Q3 up 8 percentage points compared to Q3 last year and free cash flow was $6 million, an increase of 29% over the same time period. Our strong free cash flow generation has allowed us to continue to improve our financial position which will provide us with additional operating flexibility in the coming quarters.”
Financial Highlights for the Three and Nine Months Ended September 30, 2023 (“Q3” or “YTD” respectively).
- Q3 revenue improved by 6% sequentially to $15.5 million as a result of digital advertising product improvements including the introduction of video advertising on the Fora platform and improved MAU trending resulting from successive positive search algorithm updates.
- Q3 Adjusted EBITDA was $6.8 million and Adjusted EBITDA Margins expanded to 44%, a 8 percentage point improvement when compared to prior year. The improvement is attributed to cost optimizations across the business with a particular focus on lowering the costs of our e-commerce operation.
- Q3 Free Cash Flow converted at an all-time high of 88% on $6.0 million in Free Cash Flow generated, compared to a 66% conversion rate in the prior year.
- In Q3 and YTD, $3.5 million and $11.0 million in cash flow from operations was generated and we made $2.4 million and $10.9 million in principal payments against our credit facility respectively, $1.7 million and $9.0 million of which were voluntary.
- Net Loss of $0.5 million and Earnings Per Share of negative $0.02 in Q3 were $7.0 million and $0.33 better than prior year, respectively. YTD Net Loss of $7.0 million is $17.9 million ahead of prior year and YTD Net Earnings Per Share of negative $0.33 is a $0.58 improvement over prior year.
Laidlaw added, “Our platform served 100.5 million monthly active users in Q3, a 1.8% increase over Q2. Users are increasingly discovering the firsthand, authentic perspectives that our enthusiasts share on our forum platform on a daily basis. We believe these authentic perspectives are becoming more valuable as the Internet is increasingly inundated with mass-produced, machine-generated content. Our forum communities MAU trend was up 5.6% in September versus the prior year, and up 19.7% in October versus the prior year. Our team also launched the Fora Communities mobile app, which is now available for download on the Apple App Store and Google Play Store.”
Earnings Announcement
Management will host a conference call and webcast to discuss the Company’s financial results at 7:30 am ET on Thursday, November 9, 2023.
Live Call Registration and Webcast:
https://events.q4inc.com/attendee/764746899
Joining by telephone:
Canada: 1 833 950 0062
United States: 1 833 470 1428
Participant Access code: 182994
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 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 loss:
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
|
(in thousands of US dollars) |
2023 |
2022 |
2023 |
2022 |
|
Net loss |
($516) |
($6,044) |
($7,025) |
($24,916) |
|
Net interest expense |
1,299 |
859 |
3,880 |
2,096 |
|
Income tax recovery |
(52) |
(993) |
(2,447) |
(2,567) |
|
Depreciation and amortization |
4,901 |
9,813 |
16,688 |
29,629 |
|
EBITDA |
5,633 |
3,635 |
11,096 |
4,242 |
|
Share-based compensation |
1,249 |
2,577 |
3,631 |
8,246 |
|
Share performance related bonuses (1) |
— |
(287) |
— |
(1,080) |
|
Unrealized loss from changes in derivative fair value of financial instruments |
2 |
65 |
10 |
110 |
|
Severance (2) |
30 |
167 |
1,470 |
801 |
|
Loss (gain) on sale of assets |
(160) |
(4) |
(171) |
3 |
|
Gain on sale of investments |
— |
— |
(2) |
— |
|
Foreign exchange loss (gain) |
(6) |
(5) |
(30) |
55 |
|
Adjustment to contingent considerations |
— |
150 |
(1,051) |
9,016 |
|
Other charges (3) |
71 |
729 |
282 |
2,233 |
|
Adjusted EBITDA |
6,819 |
7,026 |
15,236 |
23,624 |
|
Less capital expenditures |
(710) |
(1,212) |
(1,827) |
(4,432) |
|
Income taxes paid |
(131) |
(1,195) |
(937) |
(1,726) |
|
Free Cash Flow |
$5,978 |
$4,619 |
$12,472 |
$17,465 |
|
(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 condensed consolidated statements of loss and comprehensive loss. |
|
(3) |
Other charges are included in wages and consulting and general and administrative on the condensed consolidated statements of loss and comprehensive loss. For the three and nine months ended September 30, 2023, these charges include one-time legal related costs. For the three and nine months ended September 30, 2022, these charges include direct and incremental asset acquisition or business acquisition related costs. |
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Financial Position
(In U.S. dollars)
(Unaudited)
|
|
September 30, |
December 31, |
|
|
2023 |
2022 |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$6,435,269 |
$8,766,769 |
|
Restricted cash |
87,726 |
116,830 |
|
Trade and other receivables |
10,660,858 |
15,712,508 |
|
Lease receivable |
577,777 |
569,278 |
|
Income taxes receivable |
504,508 |
— |
|
Prepaid expenses |
978,288 |
1,127,365 |
|
|
19,244,426 |
26,292,750 |
|
|
|
|
|
Property and equipment |
812,097 |
1,065,888 |
|
Right-of-use asset |
2,269,036 |
1,745,398 |
|
Intangible assets |
56,460,733 |
70,579,988 |
|
Goodwill |
52,635,164 |
52,635,164 |
|
Other assets |
286,725 |
315,403 |
|
Deferred tax asset |
23,855,058 |
23,991,561 |
|
Lease receivable |
492,156 |
929,682 |
|
Total assets |
$156,055,395 |
$177,555,834 |
|
|
|
|
|
Liabilities and Shareholders’ Equity |
||
|
|
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued liabilities |
$4,677,917 |
$8,334,556 |
|
Income taxes payable |
434,386 |
549,713 |
|
Derivative instruments |
10,430 |
— |
|
Deferred revenue |
1,295,979 |
889,259 |
|
Current portion of long-term debt |
3,882,641 |
3,209,382 |
|
Lease liability |
1,182,302 |
1,027,309 |
|
Contingent considerations |
— |
15,000,000 |
|
|
11,483,655 |
29,010,219 |
|
|
|
|
|
Deferred revenue |
1,979 |
4,389 |
|
Long-term debt |
58,617,097 |
54,883,514 |
|
Lease liability |
2,476,591 |
2,518,053 |
|
Deferred tax liability |
5,410,218 |
8,310,894 |
|
Contingent considerations |
— |
1,051,222 |
|
Other long-term liabilities |
185,399 |
281,959 |
|
Total liabilities |
78,174,939 |
96,060,250 |
|
|
|
|
|
Shareholders’ equity: |
|
|
|
Share capital |
162,062,545 |
160,559,106 |
|
Contributed surplus |
27,266,214 |
25,306,872 |
|
Accumulated other comprehensive loss |
(64,590) |
(86,145) |
|
Deficit |
(111,383,713) |
(104,284,249) |
|
|
77,880,456 |
81,495,584 |
|
Total liabilities and shareholders’ equity |
$156,055,395 |
$177,555,834 |
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(In U.S. dollars, except per share amounts)
(Unaudited)
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
|
|
|
2023 |
2022 |
2023 |
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$15,509,334 |
$19,577,080 |
$43,045,765 |
$61,394,194 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Wages and consulting |
|
6,229,028 |
9,192,294 |
21,257,863 |
27,421,041 |
|
Share-based compensation |
|
1,249,310 |
2,576,906 |
3,630,859 |
8,245,605 |
|
Platform and technology |
|
1,525,203 |
2,333,041 |
5,237,261 |
6,701,002 |
|
General and administrative |
|
1,039,564 |
1,699,883 |
3,077,919 |
5,710,412 |
|
Depreciation and amortization |
|
4,901,141 |
9,812,617 |
16,688,368 |
29,629,030 |
|
Adjustment to contingent considerations |
|
— |
149,651 |
(1,051,222) |
9,015,734 |
|
|
|
14,944,246 |
25,764,392 |
48,841,048 |
86,722,824 |
|
|
|
|
|
|
|
|
Operating income (loss) |
|
565,088 |
(6,187,312) |
(5,795,283) |
(25,328,630) |
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
Loss (gain) on sale of assets |
|
(160,339) |
(4,320) |
(171,148) |
2,808 |
|
Net interest expense |
|
1,299,049 |
859,287 |
3,879,773 |
2,095,989 |
|
Loss (gain) on investments |
|
103 |
— |
(1,792) |
— |
|
Foreign exchange loss (gain) |
|
(6,117) |
(5,097) |
(30,316) |
55,123 |
|
|
|
1,132,696 |
849,870 |
3,676,517 |
2,153,920 |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
(567,608) |
(7,037,182) |
(9,471,800) |
(27,482,550) |
|
|
|
|
|
|
|
|
Income taxes (recovery) |
|
|
|
|
|
|
Current |
|
111,331 |
330,411 |
317,146 |
2,093,421 |
|
Deferred |
|
(163,430) |
(1,323,618) |
(2,764,172) |
(4,660,024) |
|
|
|
(52,099) |
(993,207) |
(2,447,026) |
(2,566,603) |
|
|
|
|
|
|
|
|
Net loss |
|
($515,509) |
($6,043,975) |
($7,024,774) |
($24,915,947) |
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified to net loss: |
|
|
|
|
|
|
Foreign currency differences on translation of foreign operations |
|
63,363 |
101,796 |
21,555 |
97,042 |
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
($452,146) |
($5,942,179) |
($7,003,219) |
($24,818,905) |
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
Basic |
|
($0.02) |
($0.28) |
($0.33) |
($1.17) |
|
Diluted |
|
(0.02) |
(0.28) |
(0.33) |
(1.17) |
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Cash Flows
(In U.S. dollars)
(Unaudited)
|
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
|
|
|
2023 |
2022 |
2023 |
2022 |
|
|
|
|
|
|
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
Net loss |
|
($515,509) |
($6,043,975) |
($7,024,774) |
($24,915,947) |
|
Items not involving cash: |
|
|
|
|
|
|
Depreciation and amortization |
|
4,901,141 |
9,812,617 |
16,688,368 |
29,629,030 |
|
Net interest expense |
|
1,299,049 |
859,287 |
3,879,773 |
2,095,989 |
|
Loss (gain) on sale of assets |
|
(160,339) |
(4,320) |
(171,148) |
2,808 |
|
Unrealized loss in derivative instruments |
|
2,163 |
65,490 |
10,430 |
109,536 |
|
Income tax recovery |
|
(52,099) |
(993,207) |
(2,447,026) |
(2,566,603) |
|
Adjustment to contingent considerations |
|
— |
149,651 |
(1,051,222) |
9,015,734 |
|
Share-based compensation |
|
1,249,566 |
2,576,906 |
3,630,859 |
8,245,605 |
|
|
|
6,723,972 |
6,422,449 |
13,515,260 |
21,616,152 |
|
Change in non-cash operating assets and liabilities |
|
(1,851,469) |
1,132,558 |
1,695,925 |
(1,061,270) |
|
Interest paid |
|
(1,215,173) |
— |
(3,307,424) |
(1,514,942) |
|
Income taxes paid |
|
(130,602) |
(1,194,983) |
(936,981) |
(1,726,388) |
|
|
|
3,526,728 |
6,360,024 |
10,966,780 |
17,313,552 |
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
Repayment of term loan |
|
(625,000) |
(625,000) |
(1,875,000) |
(1,875,000) |
|
Proceeds from issuance of revolving loan |
|
— |
— |
15,000,000 |
— |
|
Repayment of revolving loan |
|
(1,750,000) |
(6,500,000) |
(9,000,000) |
(19,000,000) |
|
Proceeds from exercise of share options |
|
— |
— |
— |
186,477 |
|
Repurchase of share capital for cancellation |
|
(73,673) |
(58,049) |
(73,673) |
(58,049) |
|
Lease payments |
|
(360,936) |
(331,486) |
(1,105,020) |
(963,599) |
|
Proceeds from sublease |
|
150,807 |
155,203 |
450,958 |
473,549 |
|
|
|
(2,658,802) |
(7,359,332) |
3,397,265 |
(21,236,622) |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
Additions to property and equipment and intangible assets |
|
(707,790) |
(1,640,283) |
(1,824,618) |
(8,683,507) |
|
Proceeds from sale of assets |
|
160,338 |
9,250 |
181,295 |
35,984 |
|
Payment of contingent considerations |
|
— |
— |
(15,000,000) |
— |
|
|
|
(547,452) |
(1,631,033) |
(16,643,323) |
(8,647,523) |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
320,474 |
(2,630,341) |
(2,279,278) |
(12,570,593) |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period |
|
6,126,110 |
10,454,719 |
8,766,769 |
20,494,313 |
|
|
|
|
|
|
|
|
Change in restricted cash balances |
|
2,078 |
(586) |
29,104 |
12,542 |
|
Effect of movement of exchange rates on cash and restricted cash held |
|
(13,393) |
(59,467) |
(81,326) |
(171,937) |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$6,435,269 |
$7,764,325 |
$6,435,269 |
$7,764,325 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20231108560875/en/