VerticalScope Delivers 14% Revenue Growth, $5.2 Million in Free Cash Flow, for First Quarter of 2024

Revenue increased 14% to $14.7 million

Adjusted EBITDA increased 78% to $5.2 million

Free Cash Flow increased 120% to $5.2 million

113 Million Monthly Active Users in Q1, up 12% from Prior Year

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

TORONTO--()--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 ended March 31, 2024 ("Q1" or "the quarter").

“Our first quarter results demonstrate the strength and profitability of our business model,” said Rob Laidlaw, Founder Chair and CEO of VerticalScope. “We grew revenue organically by 14%, translating into an impressive 78% growth in Adjusted EBITDA and 120% increase in Free Cash Flow to $5.2 million. Our results were fueled by a return to organic MAU growth of 12% overall, and inclusive of 24% MAU growth on our forum communities. Video advertising continues to be an area of robust growth for VerticalScope contributing to our 26% increase in digital advertising revenue.”

Financial Highlights for the Three Months Ended March 31, 2024

  • Revenue increased by 14% to $14.7 million, driven by strong organic growth in Digital Advertising which more than offset a decline in E-commerce. Quarterly growth accelerated from a 6% decline in Q4 2023.
  • Digital Advertising revenue increased by 26% driven by incremental contributions from video and a 12% increase in MAU compared to prior year.
  • Adjusted EBITDA increased by 78% to $5.2 million and Adjusted EBITDA Margins expanded to 36%, compared to 23% in the prior year period.
  • Free Cash Flow generated was $5.2 million, an increase of 120% year over year, and reflected strong conversion of 99%, up from 80% in the prior year.
  • Cash flow from operations was $5.7 million, with funds reinvested towards paying down debt and strengthening VerticalScope's financial position. In Q1, the Company made $3.0 million in principal payments against its credit facility, of which $2.4 million was voluntary. Net Leverage, as defined by our credit facility, is 1.8x compared to 2.1x at the beginning of the quarter.
  • Net Loss of $1.0 million and Earnings Per Share of negative $0.05 were $3.5 million and $0.16 better than prior year, respectively.

"We generated significant cash from operations and particularly high Free Cash Flow Conversion, enabling us to continue to further reduce our leverage and strengthen our balance sheet," added Laidlaw. "We have a solid pipeline of acquisition targets, and closed our first acquisition of 2024 in the second quarter. Our systematic M&A process focuses on communities where we are confident we can drive growth and increase profitability, at accretive valuations."

"We remain focused on a three-prong strategy to capital deployment including reducing debt, pursuing share buybacks through our Normal Course Issuer Bid, and pursuing high-quality, accretive, M&A opportunities," stated Vince Bellissimo, CFO of VerticalScope. "Consistent profitability, organic revenue growth, and cash generation will facilitate each of these objectives going forward. Year-to-date we have purchased 117,300 of our own shares for cancellation at an average cost of C$7.44 per share, while reducing debt by $6.3 million."

Earnings Announcement
Management will host a conference call and webcast to discuss the Company's financial results at 8 a.m. ET on Wednesday, May 8, 2024.

Live Call Registration and Webcast:
https://events.q4inc.com/attendee/849375558

Joining by Telephone:
Canada: 1 833 950 0062
United States: 1 833 470 1428
Participant Access code: 212965

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 110 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 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:

“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:

(Unaudited)

Three Months Ended

March 31,

(in thousands of US dollars)

2024

2023

Net loss

($985)

($4,498)

Net interest expense

1,163

1,115

Income tax expense (recovery)

(124)

(1,734)

Depreciation and amortization

4,565

6,508

EBITDA

4,619

1,392

Share-based compensation

421

1,068

Share performance related bonuses ⁽¹⁾

(3)

Unrealized loss from changes in derivative fair value of financial instruments

56

1

Severance ⁽²⁾

1,407

Gain on sale of assets

(4)

(1)

Gain on sale of investments

(16)

Foreign exchange loss

27

32

Adjustment to contingent considerations

(1,051)

Other charges ⁽3⁾

127

88

Adjusted EBITDA

5,227

2,936

Less capital expenditures

(435)

(545)

Income taxes received (paid)

377

(44)

Free Cash Flow

$5,169

$2,346

(1)

Share performance related bonus is included in wages and consulting on the condensed consolidated interim statements of loss and comprehensive loss.

(2)

Severance is included in wages and consulting on the condensed consolidated interim statements of loss and comprehensive loss.

(3)

Other charges are included in wages and consulting and general and administrative on the condensed consolidated interim statements of loss and comprehensive loss. For the three months ended March 31, 2024, these charges include one-time legal related costs.

VERTICALSCOPE HOLDINGS INC.

Condensed Consolidated Interim Statements of Financial Position

(In U.S. dollars)

(Unaudited)

 

 

March 31,

December 31,

 

2024

2023

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

Cash

$7,908,036

$6,015,184

Restricted cash

89,574

93,840

Trade and other receivables

11,019,206

14,175,352

Lease receivable

586,512

595,961

Income taxes receivable

423,438

797,465

Prepaid expenses

929,384

804,692

Derivative instruments

51,303

 

20,956,150

22,533,797

 

 

 

Property and equipment

682,947

754,293

Right-of-use asset

1,985,714

2,123,739

Intangible assets

48,580,701

52,480,458

Goodwill

52,635,164

52,635,164

Other assets

276,752

283,278

Deferred tax asset

20,962,918

21,786,506

Lease receivable

198,645

354,288

 

 

 

Total assets

$146,278,991

$152,951,523

 

 

 

Liabilities and Shareholders' Equity

 

 

 

Current liabilities:

 

 

Accounts payable and accrued liabilities

$4,747,967

$5,563,354

Income taxes payable

319,915

229,770

Derivative instruments

4,365

Deferred revenue

1,265,848

1,157,049

Current portion of long-term debt

3,427,094

3,614,396

Lease liability

1,219,917

1,227,160

 

10,985,106

11,791,729

 

 

 

Long-term debt

51,530,891

54,431,100

Lease liability

1,891,778

2,248,029

Deferred tax liability

2,573,159

3,609,683

Other long-term liabilities

185,925

185,399

Total liabilities

67,166,859

72,265,940

 

 

 

Shareholders' equity:

 

 

Share capital

167,347,166

167,705,234

Contributed surplus

22,532,673

22,435,738

Accumulated other comprehensive loss

(119,249)

(145,494)

Deficit

(110,648,458)

(109,309,895)

 

79,112,132

80,685,583

Total liabilities and shareholders' equity

$146,278,991

$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

March 31,

 

 

2024

2023

 

 

 

 

 

 

 

 

Revenue

 

$14,723,444

$12,871,812

 

 

 

 

Operating expenses:

 

 

 

Wages and consulting

 

6,940,033

8,342,825

Share-based compensation

 

421,241

1,068,356

Platform and technology

 

1,543,535

2,005,207

General and administrative

 

1,192,625

1,083,415

Depreciation and amortization

 

4,564,628

6,507,624

Adjustment to contingent considerations

 

(1,051,222)

 

 

14,662,062

17,956,205

 

 

 

 

Operating income (loss)

 

61,382

(5,084,393)

 

 

 

 

Other expenses:

 

 

 

Gain on sale of assets

 

(3,620)

(789)

Net interest expense

 

1,162,932

1,115,472

Gain on investments

 

(16,398)

Foreign exchange loss

 

27,380

32,443

 

 

1,170,294

1,147,126

 

 

 

 

Loss before income taxes

 

(1,108,912)

(6,231,519)

 

 

 

 

Income tax expense (recovery)

 

 

 

Current

 

88,618

110,536

Deferred

 

(212,937)

(1,844,515)

 

 

(124,319)

(1,733,979)

 

 

 

 

Net loss

 

($984,593)

($4,497,540)

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Items that may be reclassified to net loss:

 

 

 

Foreign currency differences on translation of foreign operations

 

26,245

(22,337)

 

 

 

 

Total comprehensive loss

 

($958,348)

($4,519,877)

 

 

 

 

Loss per share:

 

 

 

Basic

 

($0.05)

($0.21)

Diluted

 

(0.05)

(0.21)

VERTICALSCOPE HOLDINGS INC.

Condensed Consolidated Interim Statements of Cash Flows

(In U.S. dollars)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

2024

2023

 

 

 

 

Cash provided by (used in):

 

 

 

 

 

 

 

Operating activities:

 

 

 

Net loss

 

($984,593)

($4,497,540)

Items not involving cash:

 

 

 

Depreciation and amortization

 

4,564,628

6,507,624

Net interest expense

 

1,162,932

1,115,472

Gain on sale of assets

 

(3,620)

(789)

Gain on sale of investments

 

(16,398)

Unrealized loss in derivative instruments

 

55,668

702

Income tax recovery

 

(124,319)

(1,733,979)

Adjustment to contingent considerations

 

(1,051,222)

Share-based compensation

 

421,241

1,068,612

 

 

5,075,539

1,408,880

Change in non-cash operating assets and liabilities

 

1,443,964

3,698,468

Interest paid

 

(1,162,852)

(1,031,189)

Income taxes received (paid)

 

377,086

(43,935)

 

 

5,733,737

4,032,224

 

 

 

 

Financing activities:

 

 

 

Repayment of term loan

 

(625,000)

(625,000)

Proceeds from issuance of revolving loan

 

15,000,000

Repayment of revolving loan

 

(2,375,000)

(3,000,000)

Repurchase of share capital for cancellation

 

(233,226)

Lease payments

 

(360,982)

(383,820)

Proceeds from sublease

 

150,078

149,565

Proceeds from leasehold improvement allowance

 

106,426

 

 

(3,444,130)

11,247,171

 

 

 

 

Investing activities:

 

 

 

Additions to property and equipment and intangible assets

 

(434,611)

(545,449)

Proceeds from sale of assets

 

4,114

9,424

Proceeds from sale of investments

 

16,398

Payment of contingent considerations

 

(15,000,000)

 

 

(414,099)

(15,536,025)

 

 

 

 

Increase (decrease) in cash

 

1,875,508

(256,630)

 

 

 

 

Cash, beginning of the period

 

6,015,184

8,766,769

 

 

 

 

Change in restricted cash balances

 

4,266

25,098

Effect of movement of exchange rates on cash and restricted cash held

 

13,078

(56,150)

 

 

 

 

Cash, end of period

 

$7,908,036

$8,479,087

 

Contacts

For further information
Investor and media inquiries:

Vincenzo Bellissimo, Chief Financial Officer
Tel: 416-341-7166, IR@verticalscope.com

FNK IR - Matt Chesler, CFA
Tel: 646-809-2183, fora@fnkir.com

Related Links
http://www.verticalscope.com

Release Summary

VerticalScope delivers 14% revenue growth, $5.2 million in free cash flow, for first quarter of 2024

#Hashtags

$Cashtags

Social Media Profiles

Contacts

For further information
Investor and media inquiries:

Vincenzo Bellissimo, Chief Financial Officer
Tel: 416-341-7166, IR@verticalscope.com

FNK IR - Matt Chesler, CFA
Tel: 646-809-2183, fora@fnkir.com

Related Links
http://www.verticalscope.com