News Press Releases

VerticalScope Announces First Quarter 2023 Financial Results

T.FORA | May 11, 2023

Unless otherwise stated, all amounts are in U.S. dollars.

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 first quarter (“Q1” or "the quarter").

“VerticalScope navigated through a challenging quarter in Q1, and as we previously announced, we are confident it was the trough for our results. Macroeconomic pressure increased in the quarter which impacted both our advertising and e-commerce revenue, but we responded accordingly and have made the necessary changes that will allow us to emerge from this period in a much stronger position”, commented Rob Laidlaw, Founder, Chair and CEO of VerticalScope. “The strength of our business model and free cash flow generation is clearly demonstrated in challenging times like these. Despite the short-term revenue headwinds, our business generated $4.1 million in cash from operations and we made $3.0 million in voluntary payments against our debt in Q1. We did this while continuing to invest in our Fora platform and our initiatives to improve monetization across the business. Revenue trends improved as the quarter progressed and we expect that to continue into Q2 and the balance of the year.”

Financial Highlights for the Three Months Ended March 31, 2023. All comparatives, unless otherwise noted, are versus the same period in the prior year:

Q1 revenue decreased 36% year-over-year to $12.9 million resulting from challenging market conditions in both digital advertising and e-commerce and from lower search-related traffic. Direct advertising revenue was down 11% year-over-year, performing better than our other revenue channels.

Q1 Adjusted EBITDA decreased to $2.9 million, a decline of 60% from the previous year, as revenue reductions could not be fully offset by cost reductions. The restructuring completed in February will result in approximately $6 million in annualized cost savings moving forward while focusing our resources on our strategic priorities that have the most long-term term growth potential.

Free cash flow was $2.3 million in Q1, reflecting an 80% Free Cash Flow conversion rate, an improvement from the prior year's rate of 76%. Cash flow from operations was $4.1 million in Q1, down 22% year-over-year from $5.3 million but which included a $0.5 million increase in interest paid. We made $3.6 million in payments against our credit facility, $3.0 million of which were voluntary.

Q1 net loss was $4.5 million, reflecting a $7.4 million improvement from the prior year's net loss of $11.9 million. The main driver of our improved earnings profile was a 45% reduction in operating expenses including lower depreciation and amortization. Earnings Per Share in Q1 of negative $0.21, improved from negative $0.56 in the prior year.

Laidlaw added, “Our platform served 100.4 million monthly active users in Q1, which was down 11% compared to last year as a result of lower traffic from search engines. Despite the volatility in search-related traffic, we saw continued strength in direct traffic which was up 10% over prior year. Our most engaged users continue to be very active across Fora. We are excited about the forthcoming launch of our Fora mobile app which will provide an even more engaging platform for our communities. We expect the app to be rolled-out platform-wide over the remainder of Q2 and into the beginning of Q3. We have also recently launched video advertising across Fora which will provide our customers with a more engaging and impactful opportunity to reach our 100 million MAU in contextually relevant and product-focused communities. Video along with our other monetization initiatives will support an improved revenue outlook in Q2 and beyond.”

Earnings Announcement
Management will host a conference call and webcast to discuss the Company's financial results at 8:00 am ET on Friday, May 12, 2023.

Live Call Registration and Webcast:
https://events.q4inc.com/attendee/452040124

Joining by telephone:
Canada: 1 833 950 0062
United States: 1 833 470 1428
Participant Access code: 267257

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 and financially accretive M&A, deployment of capital, investments in our platform, performance of the Company’s acquisitions and 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 at www.sedar.com. 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.

Related Links
http://www.verticalscope.com

The following table sets forth a reconciliation of Adjusted EBITDA and Free Cash Flow to net loss:

	Three Months Ended March 31,
(in thousands of US dollars)	2023	2022
Net loss	($4,498)	($11,871)
Net interest expense	1,115	579
Income tax recovery	(1,734)	(1,193)
Depreciation and amortization	6,508	9,762
EBITDA	1,392	(2,723)
Share-based compensation	1,068	2,853
Share performance related bonuses (1)	—	(103)
Unrealized loss (gain) from changes in derivative fair value of financial instruments	1	(32)
Severance (2)	1,407	623
Loss on sale of assets	(1)	11
Foreign exchange loss	32	31
Adjustment to contingent considerations	(1,051)	5,627
Other charges (3)	88	995
Adjusted EBITDA	2,936	7,282
Less capital expenditures	(545)	(1,672)
Income taxes paid	(44)	(55)
Free Cash Flow	$2,346	$5,556

(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 months ended March 31, 2023, these charges include one-time legal related costs. For the three months ended March 31, 2022, these charges include direct and incremental asset acquisition or business acquisition related costs.


VERTICALSCOPE HOLDINGS INC. Condensed Consolidated Statement of Financial Position (In U.S. dollars) (Unaudited)


	March 31,	December 31,
	2023	2022

Assets

Current assets:
Cash and cash equivalents	$8,479,087	$8,766,769
Restricted cash	91,732	116,830
Trade and other receivables	9,195,167	15,712,508
Lease receivable	572,894	569,278
Prepaid expenses	905,789	1,127,365
	19,244,669	26,292,750

Property and equipment	977,337	1,065,888
Right-of-use asset	2,560,646	1,745,398
Intangible assets	64,877,767	70,579,988
Goodwill	52,635,164	52,635,164
Other assets	303,653	315,403
Deferred tax asset	24,767,502	23,991,561
Lease receivable	785,497	929,682

Total assets	$166,152,235	$177,555,834

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities	$5,472,641	$8,334,556
Income taxes payable	616,314	549,713
Derivative instruments	702	—
Deferred revenue	905,152	889,259
Current portion of long-term debt	4,036,463	3,209,382
Lease liability	1,174,029	1,027,309
Contingent considerations	—	15,000,000
	12,205,301	29,010,219

Deferred revenue	4,055	4,389
Long-term debt	65,422,311	54,883,514
Lease liability	3,126,793	2,518,053
Deferred tax liability	7,242,319	8,310,894
Contingent considerations	—	1,051,222
Other long-term liabilities	211,180	281,959
Total liabilities	88,211,959	96,060,250

Shareholders' equity:
Share capital	161,771,667	160,559,106
Contributed surplus	25,133,570	25,306,872
Accumulated other comprehensive loss	(108,482)	(86,145)
Deficit	(108,856,479)	(104,284,249)
	77,940,276	81,495,584
Total liabilities and shareholders' equity	$166,152,235	$177,555,834


VERTICALSCOPE HOLDINGS INC. Condensed Consolidated Statement of Loss and Comprehensive Loss (In U.S. dollars, except per share amounts) (Unaudited)


	Three months ended March 31
	2023	2022


Revenue	$12,871,812	$20,048,393

Operating expenses:
Wages and consulting	8,342,825	9,772,878
Share-based compensation	1,068,356	2,852,916
Platform and technology	2,005,207	2,168,511
General and administrative	1,083,415	2,308,055
Depreciation and amortization	6,507,624	9,761,686
Adjustment to contingent considerations	(1,051,222)	5,627,245
	17,956,205	32,491,291

Operating loss	(5,084,393)	(12,442,898)

Other expenses:
Loss (gain) on sale of assets	(789)	11,257
Net interest expense	1,115,472	578,905
Foreign exchange loss	32,443	30,808
	1,147,126	620,970

Loss before income taxes	(6,231,519)	(13,063,868)

Income taxes (recovery)
Current	110,536	651,458
Deferred	(1,844,515)	(1,844,723)
	(1,733,979)	(1,193,265)

Net loss	($4,497,540)	($11,870,603)

Other comprehensive loss

Items that may be reclassified to net loss:
Foreign currency differences on translation of foreign operations	(22,337)	(29,288)

Total comprehensive loss	($4,519,877)	($11,899,891)

Loss per share:
Basic	($0.21)	($0.56)
Diluted	(0.21)	(0.56)


VERTICALSCOPE HOLDINGS INC. Condensed Consolidated Statement of Cash Flows (In U.S. dollars) (Unaudited)


	Three Months Ended March 31,
	2023	2022

Cash provided by (used in):

Operating activities:
Net loss	($4,497,540)	($11,870,603)
Items not involving cash:
Depreciation and amortization	6,507,624	9,761,686
Net interest expense	1,115,472	578,905
Loss (gain) on sale of assets	(789)	11,257
Unrealized loss (gain) in derivative instruments	702	(32,205)
Income tax recovery	(1,733,979)	(1,193,265)
Adjustment to contingent considerations	(1,051,222)	5,627,245
Share-based compensation	1,068,612	2,852,916
	1,408,880	5,735,936
Change in non-cash operating assets and liabilities	3,804,894	134,510
Interest paid	(1,031,189)	(525,373)
Income taxes paid	(43,935)	(54,694)
	4,138,650	5,290,379

Financing activities:
Repayment of term loan	(625,000)	(625,000)
Proceeds from issuance of revolving loan	15,000,000	—
Repayment of revolving loan	(3,000,000)	—
Lease payments	(383,820)	(321,710)
Proceeds from sublease	149,565	159,651
	11,140,745	(787,059)

Investing activities:
Additions to property and equipment and intangible assets	(545,449)	(2,667,099)
Proceeds from sale of assets	9,424	7,115
Payment of contingent considerations	(15,000,000)	—
	(15,536,025)	(2,659,984)

Increase (decrease) in cash and cash equivalents	(256,630)	1,843,336

Cash and cash equivalents, beginning of the period	8,766,769	20,494,313

Change in restricted cash balances	25,098	2,995
Effect of movement of exchange rates on cash and restricted cash held	(56,150)	22,491

Cash and cash equivalent, end of period	$8,479,087	$22,363,135