Revenue increased 14% to $16.7 million Adjusted EBITDA increased 29% to $7.1 million Free Cash Flow increased 58% to $6.6 million 122 Million Monthly Active Users in Q2, up 23% from prior year
Unless otherwise stated, all amounts are in US dollars.
TORONTO, August 07, 2024--(BUSINESS WIRE)--VerticalScope Holdings Inc. ("VerticalScope" or the "Company") (TSX: FORA; OTCQX: VFORF), a technology company that has built and operates a cloud-based digital platform for online enthusiast communities, today announced financial results for the second quarter ended June 30, 2024 ("Q2" or "the quarter").
"We are happy to report that VerticalScope continues to deliver improving financial and operating results," said Rob Laidlaw, Founder, Chair and CEO of VerticalScope. "Our results were driven by a 23% increase in Q2 monthly active users (MAU) to a record 122 million, including 42% growth on our forum communities, reaching a total of 83 million. Increasingly, users are seeking out the authentic perspectives being shared in our Fora communities to discuss their hobbies and inform their purchase decisions."
Mr. Laidlaw continued, "Revenue in the quarter was $16.7 million, driven by a 20% increase in digital advertising revenue, with particular strength in programmatic ads. Demonstrating the operating leverage of our model, our Adjusted EBITDA increased 29% to $7.1 million and we generated $6.6 million in Free Cash Flow, enabling us to further reduce our debt, and providing incremental capital for future deployment."
Financial Highlights for the Three Months Ended June 30, 2024
Revenue increased by 14% to $16.7 million, driven by a 20% increase in Digital Advertising revenue. The growth in Digital Advertising is attributed to incremental contributions from video, a 23% increase in MAU, and strong performance from our programmatic channel compared to prior year.
Adjusted EBITDA increased by 29% to $7.1 million and Adjusted EBITDA margins expanded to 42%, compared to 37% margins in the prior year period.
Free Cash Flow generated was $6.6 million, an increase of 58% year over year, and reflected strong conversion of 93%, up from conversion of 76% in the prior year.
Cash flow from operations of $6.2 million allowed us to further strengthen our balance sheet through strategic debt reduction. In Q2, the Company made a total of $6.5 million in principal payments towards our credit facility, of which $5.9 million was voluntary. Net leverage as defined by our credit facility improved to 1.5x compared to 1.8x at the beginning of the quarter.
Net Income of $0.4 million and Earnings Per Share of $0.02 in Q2 were $2.4 million and $0.12 better than prior year, respectively.
"The improving financial profile of VerticalScope supports our ongoing capital deployment strategy," stated Vince Bellissimo, CFO of VerticalScope. "Our near-term focus is on reducing debt, executing share buybacks through our Normal Course Issuer Bid, and pursuing high-quality, accretive M&A opportunities. 2024 to date we have purchased 122,300 shares for cancellation at an average cost of C$7.42 per share, while reducing debt by $13.1 million."
Earnings Conference Call and Webcast Management will host a conference call and webcast to discuss the Company's financial results at 8 a.m. ET on Thursday, August 8, 2024.
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 120 million monthly active users.
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 April 1, 2024, 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:
"EBITDA" is calculated as net income (loss) excluding interest, income tax expense (recovery), and depreciation and amortization.
"Adjusted EBITDA" is calculated as 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):
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands of US dollars)
2024
2023
2024
2023
Net income (loss)
$423
($2,012)
($561)
($6,509)
Net interest expense
1,075
1,465
2,238
2,581
Income tax expense (recovery)
556
(661)
431
(2,395)
Depreciation and amortization
4,501
5,280
9,066
11,787
EBITDA
6,555
4,072
11,173
5,464
Share-based compensation
368
1,313
789
2,382
Share performance related bonuses ⁽¹⁾
—
—
(3)
—
Unrealized loss from changes in derivative fair value of financial instruments
19
8
75
8
Severance ⁽²⁾
—
34
—
1,440
Gain on sale of assets
(1)
(10)
(5)
(11)
Gain on sale of investments
—
(2)
(16)
(2)
Foreign exchange loss (gain)
—
(57)
28
(24)
Adjustment to contingent considerations
—
—
—
(1,051)
Other charges ⁽3⁾
135
123
262
211
Adjusted EBITDA
7,076
5,481
12,302
8,417
Less capital expenditures
(399)
(571)
(834)
(1,117)
Income taxes received (paid)
(120)
(762)
258
(806)
Free Cash Flow
$6,557
$4,147
$11,726
$6,494
(1)
Share performance related bonus is included in wages and consulting on the condensed consolidated interim statements of income (loss) and comprehensive income (loss).
(2)
Severance is included in wages and consulting on the condensed consolidated interim statements of income (loss) and comprehensive income (loss).
(3)
Other charges are included in general and administrative on the condensed consolidated interim statements of income (loss) and comprehensive income (loss). For the three and six months ended June 30, 2024 and June 30, 2023, these charges include non-recurring legal related costs.
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Financial Position
(In U.S. dollars)
(Unaudited)
June 30,
December 31,
2024
2023
Assets
Current assets:
Cash
$6,320,979
$6,015,184
Restricted cash
92,861
93,840
Trade and other receivables
12,010,839
14,175,352
Lease receivable
584,117
595,961
Income taxes receivable
379,271
797,465
Prepaid expenses
952,722
804,692
Derivative instruments
—
51,303
20,340,789
22,533,797
Property and equipment
609,226
754,293
Right-of-use asset
1,840,603
2,123,739
Intangible assets
44,896,866
52,480,458
Goodwill
52,635,164
52,635,164
Other assets
271,412
283,278
Deferred tax asset
19,677,827
21,786,506
Lease receivable
49,312
354,288
Total assets
$140,321,199
$152,951,523
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
$5,382,810
$5,563,354
Income taxes payable
318,225
229,770
Derivative instruments
23,400
—
Deferred revenue
1,380,268
1,157,049
Current portion of long-term debt
2,972,117
3,614,396
Lease liability
1,216,786
1,227,160
11,293,606
11,791,729
Long-term debt
45,348,944
54,431,100
Lease liability
1,556,125
2,248,029
Deferred tax liability
1,679,935
3,609,683
Other long-term liabilities
185,924
185,399
Total liabilities
60,064,534
72,265,940
Shareholders' equity:
Share capital
166,272,039
167,705,234
Contributed surplus
22,691,997
22,435,738
Accumulated other comprehensive loss
(132,648)
(145,494)
Deficit
(108,574,723)
(109,309,895)
80,256,665
80,685,583
Total liabilities and shareholders' equity
$140,321,199
$152,951,523
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(In U.S. dollars, except per share amounts)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Revenue
$16,687,516
$14,664,619
$31,410,960
$27,536,431
Operating expenses:
Wages and consulting
6,822,678
6,686,010
13,762,711
15,028,835
Share-based compensation
367,575
1,313,193
788,816
2,381,549
Platform and technology
1,675,344
1,706,851
3,218,879
3,712,058
General and administrative
1,268,179
954,940
2,460,804
2,038,355
Depreciation and amortization
4,500,984
5,279,603
9,065,612
11,787,227
Adjustment to contingent considerations
—
—
—
(1,051,222)
14,634,760
15,940,597
29,296,822
33,896,802
Operating income (loss)
2,052,756
(1,275,978)
2,114,138
(6,360,371)
Other expenses (income):
Gain on sale of assets
(1,098)
(10,020)
(4,718)
(10,809)
Net interest expense
1,074,882
1,465,252
2,237,814
2,580,724
Gain on investments
—
(1,895)
(16,398)
(1,895)
Foreign exchange loss (gain)
261
(56,642)
27,641
(24,199)
1,074,045
1,396,695
2,244,339
2,543,821
Income (loss) before income taxes
978,711
(2,672,673)
(130,201)
(8,904,192)
Income tax expense (recovery)
Current
163,747
95,279
252,365
205,815
Deferred
391,866
(756,227)
178,929
(2,600,742)
555,613
(660,948)
431,294
(2,394,927)
Net income (loss)
$423,098
($2,011,725)
($561,495)
($6,509,265)
Other comprehensive income (loss)
Items that may be reclassified to net income (loss):
Foreign currency differences on translation of foreign operations
(13,399)
(19,471)
12,846
(41,808)
Total comprehensive income (loss)
$409,699
($2,031,196)
($548,649)
($6,551,073)
Earnings (loss) per share:
Basic
$0.02
($0.10)
($0.03)
($0.31)
Diluted
0.02
(0.10)
(0.03)
(0.31)
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statements of Cash Flows
(In U.S. dollars)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
Cash provided by (used in):
Operating activities:
Net income (loss)
$423,098
($2,011,725)
($561,495)
($6,509,265)
Items not involving cash:
Depreciation and amortization
4,500,984
5,279,603
9,065,612
11,787,227
Net interest expense
1,074,882
1,465,252
2,237,814
2,580,724
Gain on sale of assets
(1,098)
(10,020)
(4,718)
(10,809)
Gain on sale of investments
—
—
(16,398)
—
Unrealized loss in derivative instruments
19,035
7,565
74,703
8,267
Income tax expense (recovery)
555,613
(660,948)
431,294
(2,394,927)
Adjustment to contingent considerations
—
—
—
(1,051,222)
Share-based compensation
367,575
1,312,681
788,816
2,381,293
6,940,089
5,382,408
12,015,628
6,791,288
Change in non-cash operating assets and liabilities
414,915
(257,500)
1,858,879
3,440,968
Interest paid
(1,070,476)
(1,061,062)
(2,233,328)
(2,092,251)
Income taxes received (paid)
(119,557)
(762,444)
257,529
(806,379)
6,164,971
3,301,402
11,898,708
7,333,626
Financing activities:
Repayment of term loan
(625,000)
(625,000)
(1,250,000)
(1,250,000)
Proceeds from issuance of revolving loan
—
—
—
15,000,000
Repayment of revolving loan
(5,875,000)
(4,250,000)
(8,250,000)
(7,250,000)
Repurchase of share capital for cancellation
(435,859)
—
(669,085)
—
Lease payments
(340,661)
(360,264)
(701,643)
(744,084)
Proceeds from sublease
147,878
150,586
297,956
300,151
Proceeds from leasehold improvement allowance
—
—
—
106,426
(7,128,642)
(5,084,678)
(10,572,772)
6,162,493
Investing activities:
Additions to property and equipment and intangible assets
(599,185)
(571,379)
(1,033,796)
(1,116,828)
Proceeds from sale of assets
1,967
11,533
6,081
20,957
Proceeds from sale of investments
—
—
16,398
—
Payment of contingent considerations
—
—
—
(15,000,000)
(597,218)
(559,846)
(1,011,317)
(16,095,871)
Increase (decrease) in cash
(1,560,889)
(2,343,122)
314,619
(2,599,752)
Cash, beginning of the period
7,908,036
8,479,087
6,015,184
8,766,769
Change in restricted cash balances
(3,287)
1,928
979
27,026
Effect of movement of exchange rates on cash and restricted cash held
