VerticalScope Holdings Inc T.FORA

RBC

[retiredcf]

After these earnings, I was amazed that just now, I was able to add more below $9.00 but that's the market for you. GLTA

November 12, 2024

VerticalScope Holdings Inc
Q3/24 Results - Another Solid Quarter with Momentum Continuing

TSX: FORA | CAD 8.66 | Outperform | Price Target CAD 15.00

Sentiment: Positive

Our view

Q3/24 financial results were slightly ahead of our forecast with MAUs well ahead. With momentum continuing into the seasonally strongest Q4/24, we view results as a modest positive for the shares at current levels.

First impressions

• Q3/24 financial results slightly ahead of our forecast. Q3/24 revenues and adjusted EBITDA were $17.8MM (+14.7% YoY) and $7.4MM (+9.1%), respectively, versus our estimates of $17.0MM and $7.3MM (consensus is $17.0MM and $7.2MM). The positive revenue variance versus our estimate was due to higher YoY digital advertising growth (+21.9% versus our estimate of +13.9%). Consolidated adjusted EBITDA margins were 41.8% (-215bps YoY) versus our estimate of 43.0% due to higher performance-based compensation accruals. Please see Exhibit 1 for a summary of Q3/24 results versus our forecast.

• Strength in digital advertising bolstered by MAU growth offsets expected e-commerce weakness. Q3/24 digital advertising revenues increased +21.9% YoY versus our estimate of +13.9% (and +20.3% YoY in Q2/24) with strong programmatic performance driven by new partnerships and higher MAUs while digital advertising ARPU was largely flat YoY. As expected, e-commerce remains challenged with revenues declining -20.1% YoY versus our estimate of -12.7% and -16.5% YoY in Q2/24 driven by a -33.3% decline in e-commerce ARPU (driven by commission declines in key categories such as home fitness and video streaming), partly offset by the increase in MAUs which positively impact e-commerce activity within forum communities. MAUs in Q3/24 were 121.9MM, up +21.3% YoY (versus +23.4% YoY in Q2/24) and well ahead of our 115.6MM estimate driven by an increase in search engine traffic to forum communities as search engines prioritize forum content over content driven by AI.

• Other notables from the quarter. (i) management indicated momentum continues into the seasonally strongest Q4/24 with increased demand for programmatic and direct advertising delivering strong CPMs; (ii) management indicated M&A remains a priority (no acquisitions were made in Q3/24); (iii) the company generated $6.4MM in FCF with an 86% EBITDA-to-FCF conversion versus an 88% EBITDA-to-FCF conversion in Q3/23; (iv) as of September 30, 2024, there were 1,303 communities versus 1,324 communities as of June 30, 2024; and (v) subsequent to the quarter, 198k shares were repurchased for $1.2MM (6k shares were repurchased in Q3/24).

• Issues in focus ahead of 8:00am ET conference call (dial-in 1-833-950-0062; code 420561#). (i) an update on Q4/24 pacing and the outlook for digital advertising and e-commerce in 2025; (ii) an update on the M&A environment; (iii) further progress on new product and revenue initiatives; and (iv) any progress in monetizing LLM data licensing opportunities.