TORONTO--(BUSINESS WIRE)--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") ended September 30, 2022.
"We had another good quarter despite the challenges that have emerged over the past few months in the macro environment, commented Rob Laidlaw, Founder and CEO of VerticalScope. Total Revenue was $19.6 million in Q3, up 40% compared to prior year. Adjusted EBITDA was $7.0 million, up 19% compared to prior year. Excluding the positive impact of Paycheck Protection Loan Forgiveness last year, Adjusted EBITDA is up 40% in Q3. Advertising revenue continued to be strong in the quarter, up 33% compared to 2021 with growth across programmatic and direct sales. The E-commerce momentum we experienced in Q2 continued in Q3. E-commerce was up 58% over last year. We believe there is tremendous untapped potential in our communities that will be unlocked in the months and years ahead, but we expect that the macro environment will weigh on our results over the next few quarters as consumers pull-back spending, and advertisers re-visit their budgets."
Financial Highlights for the Three Months Ended September 30, 2022. All comparatives, unless otherwise noted are versus the same period in the prior year:
- Revenue increased 40% year-over-year to $19.6M, and was the highest grossing third quarter on record.
- Consecutive quarters of double digit growth from Digital Advertising and E-commerce channels, with Digital Advertising growing 33% to $13.4M and E-commerce growing 58% to $6.2M in the quarter.
- Adjusted EBITDA grew 19% to $7.0M. Excluding $0.9M in Paycheck Protection Loan forgiveness recognized in the prior year, Adjusted EBITDA grew by 40% and Adjusted EBITDA margin was flat to prior year at 36%.
- Free Cash Flow generated in the quarter was $4.6M inclusive of $1.2M in cash taxes for the period. Excluding the Paycheck Protection Loan forgiveness in the prior year, Free Cash Flow in the quarter grew by 24%.
- Net loss in the quarter was $6.0M compared to a net loss of $2.1M. The loss is related to increased acquisition activity, and more specifically the amortization of acquired intangibles which was $8.3M in the quarter compared to $3.5M in the prior year.
Laidlaw added, "Audience trends showed improvement in Q3 reaching a total of 110 million, up 17% compared to last year. Our organic trends also improved in the quarter, posting a decline of 2.9%, compared to the 4.4% decline experienced in Q2. Despite the relatively strong quarter, we are not immune from the broader market trends which began to negatively impact our results in the back half of Q3 for digital advertising spending, e-commerce activity, and monthly active users. We expect these trends to continue into Q4 and 2023. As we highly value our profitability and cash flow, we will continue to review the investments we are making, and ensure they are properly weighted towards initiatives with the highest growth potential."
Chris Goodridge, President and COO, commented that, "We continue to take a cautious approach to acquisitions, completing two tuck-in community acquisitions for $425,000 in total consideration in Q3. Year-to-date we have signed and closed 13 acquisitions for $4.3 million in total consideration. As a result of our slower pace of acquisitions and strong free cash flow, we have strengthened our balance sheet, reducing long-term debt by over $20 million this year. We continue to evaluate a number of great acquisition opportunities but will maintain our discipline to ensure the company is well-positioned to navigate the economic headwinds."
Earnings Announcement
Management will host a conference call and webcast to discuss the Company's financial results at 7:00 am ET on Wednesday, November 9, 2022.
Live Call Registration and Webcast:
https://events.q4inc.com/attendee/943452329
Joining by telephone:
Canada: 1 833 950 0062
United States: 1 833 927 1758
All other locations: +1 929 526 1599
Participant Access code: 278051
If you are unable to join live, an archived recording of the webcast will be available on the investor relations section of the VerticalScope website.
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 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, 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, 2022, 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 Average Revenue Per User (“ARPU”) and MAU, which are operating metrics 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 and costs directly incurred in connection with the Initial Public Offering that are not deducted from the equity proceeds.
“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.
“Average Revenue Per Monthly Active User” (“ARPU”) is defined as our average revenue over a given period divided by the average MAU over the same period. Similarly, each of our revenue streams can be used as the numerator in this measure to determine the ARPU for each revenue stream. We believe that measuring ARPU is reflective of how we are monetizing the users across our communities.
SOURCE VerticalScope Holdings Inc.
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 September 30, |
Nine Months Ended September 30, |
||
(in thousands of US dollars) |
2022 |
2021 |
2022 |
2021 |
Net loss |
($6,044) |
($2,077) |
($24,916) |
($5,586) |
Net interest expense |
859 |
1,071 |
2,096 |
5,581 |
Income tax recovery |
(993) |
(410) |
(2,567) |
(1,259) |
Depreciation and amortization |
9,813 |
4,770 |
29,629 |
13,870 |
EBITDA |
3,635 |
3,354 |
4,242 |
12,606 |
Share-based compensation |
2,577 |
1,665 |
8,246 |
2,697 |
Share performance related bonuses |
(287) |
337 |
(1,080) |
337 |
Unrealized loss from changes in derivative fair value of financial instruments |
65 |
8 |
110 |
79 |
Severance ⁽¹⁾ |
167 |
— |
801 |
105 |
Loss (gain) on sale of assets |
(4) |
12 |
3 |
14 |
Foreign exchange loss (gain) |
(5) |
(22) |
55 |
91 |
Impairment of investment |
— |
250 |
— |
250 |
Adjustment to contingent considerations |
150 |
— |
9,016 |
— |
Other Charges ⁽²⁾ |
729 |
321 |
2,233 |
3,466 |
Adjusted EBITDA |
7,026 |
5,926 |
23,624 |
19,645 |
Less capital expenditures |
(1,212) |
(1,286) |
(4,432) |
(3,729) |
Income taxes received (paid) |
(1,195) |
(22) |
(1,726) |
1 |
Free Cash Flow |
$4,619 |
$4,618 |
$17,465 |
$15,917 |
(1) Severance is included in wages and consulting on the consolidated statements of loss and comprehensive loss. |
||||
(2) Other charges are included in wages and consulting and general and administrative on the consolidated statements of loss and comprehensive loss. For the three months ended September 30, 2022, these charges include direct and incremental asset acquisition or business acquisition related costs. |
||||
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statement of Financial Position
(In U.S. dollars)
(Unaudited)
|
September 30, |
December 31, |
|
2022 |
2021 |
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$7,764,325 |
$20,494,313 |
Restricted cash |
167,201 |
179,743 |
Trade and other receivables |
14,571,402 |
15,519,944 |
Lease receivable |
559,194 |
588,101 |
Income taxes receivable |
— |
317,040 |
Prepaid expenses |
1,466,780 |
1,103,283 |
Derivative instruments |
— |
18,325 |
|
24,528,902 |
38,220,749 |
|
|
|
Property and equipment |
1,171,470 |
986,683 |
Right-of-use asset |
1,958,500 |
2,629,130 |
Intangible assets |
78,281,784 |
98,805,989 |
Investments |
1,000,000 |
1,000,000 |
Goodwill |
52,950,295 |
53,436,546 |
Deferred tax asset |
23,551,962 |
20,662,839 |
Lease receivable |
1,060,595 |
1,586,014 |
|
|
|
Total assets |
$184,503,508 |
$217,327,950 |
|
|
|
Liabilities and Shareholders' Equity |
||
|
|
|
Current liabilities: |
|
|
Accounts payable and accrued liabilities |
$7,668,391 |
$10,247,092 |
Income taxes payable |
1,125,692 |
1,075,699 |
Derivative instruments |
91,211 |
— |
Deferred revenue |
944,781 |
1,028,515 |
Current portion of long-term debt |
3,140,184 |
3,150,663 |
Lease liability |
1,124,589 |
1,200,836 |
Contingent considerations |
15,000,000 |
7,916,259 |
|
29,094,848 |
24,619,064 |
|
|
|
Deferred revenue |
5,671 |
13,917 |
Long-term debt |
55,476,649 |
75,972,078 |
Lease liability |
2,730,273 |
3,734,829 |
Deferred tax liability |
9,510,880 |
11,281,781 |
Contingent considerations |
7,395,734 |
5,463,741 |
Total liabilities |
104,214,055 |
121,085,410 |
|
|
|
Shareholders' equity: |
|
|
Share capital |
160,876,710 |
160,182,417 |
Contributed surplus |
23,740,519 |
15,568,994 |
Accumulated other comprehensive income |
100,369 |
3,327 |
Deficit |
(104,428,145) |
(79,512,198) |
|
80,289,453 |
96,242,540 |
Total liabilities and shareholders' equity |
$184,503,508 |
$217,327,950 |
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statement of Loss and Comprehensive Loss
(In U.S. dollars, except per share amounts)
(Unaudited)
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$19,577,080 |
$14,001,350 |
$61,394,194 |
$44,343,216 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
Wages and consulting |
|
9,192,294 |
5,515,705 |
27,421,041 |
17,228,248 |
Share-based compensation |
|
2,576,906 |
1,665,206 |
8,245,605 |
2,697,047 |
Platform and technology |
|
2,333,041 |
1,680,405 |
6,701,002 |
5,052,043 |
General and administrative |
|
1,699,883 |
1,545,209 |
5,710,412 |
6,404,544 |
Depreciation and amortization |
|
9,812,617 |
4,770,062 |
29,629,030 |
13,869,966 |
Impairment of investment |
|
— |
250,000 |
— |
250,000 |
Adjustment to contingent considerations |
|
149,651 |
— |
9,015,734 |
— |
|
|
25,764,392 |
15,426,587 |
86,722,824 |
45,501,848 |
|
|
|
|
|
|
Operating loss |
|
(6,187,312) |
(1,425,237) |
(25,328,630) |
(1,158,632) |
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
Loss (gain) on sale of assets |
|
(4,320) |
11,944 |
2,808 |
13,800 |
Net interest expense |
|
859,287 |
1,071,077 |
2,095,989 |
5,581,055 |
Loss on investments |
|
— |
402 |
— |
402 |
Foreign exchange loss (gain) |
|
(5,097) |
(21,569) |
55,123 |
91,455 |
|
|
849,870 |
1,061,854 |
2,153,920 |
5,686,712 |
|
|
|
|
|
|
Loss before income taxes |
|
(7,037,182) |
(2,487,091) |
(27,482,550) |
(6,845,344) |
|
|
|
|
|
|
Income taxes (recovery) |
|
|
|
|
|
Current |
|
330,411 |
112,538 |
2,093,421 |
431,552 |
Deferred |
|
(1,323,618) |
(522,707) |
(4,660,024) |
(1,690,886) |
|
|
(993,207) |
(410,169) |
(2,566,603) |
(1,259,334) |
|
|
|
|
|
|
Net loss |
|
($6,043,975) |
($2,076,922) |
($24,915,947) |
($5,586,010) |
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified to net loss: |
|
|
|
|
|
Foreign currency differences on translation of foreign operations |
|
101,796 |
(211,800) |
97,042 |
(208,254) |
|
|
|
|
|
|
Total comprehensive loss |
|
($5,942,179) |
($2,288,722) |
($24,818,905) |
($5,794,264) |
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
Basic |
|
($0.28) |
($0.09) |
($1.17) |
($0.27) |
Diluted |
|
(0.28) |
(0.09) |
(1.17) |
(0.27) |
VERTICALSCOPE HOLDINGS INC.
Condensed Consolidated Interim Statement of Cash Flows
(In U.S. dollars)
(Unaudited)
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
|
|
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
Net loss |
|
($6,043,975) |
($2,076,922) |
($24,915,947) |
($5,586,010) |
Items not involving cash: |
|
|
|
|
|
Depreciation and amortization |
|
9,812,617 |
4,770,062 |
29,629,030 |
13,869,966 |
Net interest expense |
|
859,287 |
1,071,077 |
2,095,989 |
5,581,055 |
Loss (gain) on sale of assets |
|
(4,320) |
11,944 |
2,808 |
13,800 |
Unrealized loss in derivative instruments |
|
65,490 |
7,895 |
109,536 |
78,571 |
Loan forgiveness |
|
— |
(899,289) |
— |
(899,289) |
Impairment of Investment |
|
— |
250,000 |
— |
250,000 |
Income tax expense (recovery) |
|
(993,207) |
(410,169) |
(2,566,603) |
(1,259,334) |
Adjustment to contingent considerations |
|
149,651 |
— |
9,015,734 |
— |
Share-based compensation |
|
2,576,906 |
1,665,206 |
8,245,605 |
2,697,047 |
|
|
6,422,449 |
4,389,804 |
21,616,152 |
14,745,806 |
Change in non-cash operating assets and liabilities |
|
1,132,558 |
(1,428,448) |
(1,061,270) |
5,150,235 |
Interest received (paid) |
|
— |
50,866 |
(1,514,942) |
(1,703,462) |
Income taxes received (paid) |
|
(1,194,983) |
(22,484) |
(1,726,388) |
829 |
|
|
6,360,024 |
2,989,738 |
17,313,552 |
18,193,408 |
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
Repayment of initial term loan |
|
(625,000) |
(625,000) |
(1,875,000) |
(45,500,000) |
Repayment of delayed draw term loan |
|
— |
— |
— |
(7,714,977) |
Repayment of revolving loan |
|
(6,500,000) |
— |
(19,000,000) |
— |
Proceeds from issuance of share capital |
|
— |
14,282,656 |
— |
110,308,011 |
Proceeds from exercise of share options |
|
— |
— |
186,477 |
156,250 |
Repurchase of share capital for cancellation |
|
(58,049) |
— |
(58,049) |
— |
Credit facility financing fees |
|
— |
— |
— |
(1,274,597) |
Lease payments |
|
(331,486) |
(225,694) |
(963,599) |
(679,400) |
Proceeds from sublease payments |
|
155,203 |
— |
473,549 |
— |
|
|
(7,359,332) |
13,431,962 |
(21,236,622) |
55,295,287 |
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
Additions to property and equipment and intangible assets |
|
(1,640,283) |
(2,286,916) |
(8,683,507) |
(8,229,084) |
Proceeds from sale of assets |
|
9,250 |
8,680 |
35,984 |
16,876 |
|
|
(1,631,033) |
(2,278,236) |
(8,647,523) |
(8,212,208) |
|
|
|
|
|
|
Increase (decrease) in cash |
|
(2,630,341) |
14,143,464 |
(12,570,593) |
65,276,487 |
|
|
|
|
|
|
Cash, beginning of the period |
|
10,454,719 |
55,516,675 |
20,494,313 |
4,603,609 |
|
|
|
|
|
|
Change in restricted cash balances |
|
(586) |
— |
12,542 |
— |
Effect of movement of exchange rates on cash and restricted cash held |
|
(59,467) |
214,522 |
(171,937) |
(5,435) |
|
|
|
|
|
|
Cash, end of period |
|
$7,764,325 |
$69,874,661 |
$7,764,325 |
$69,874,661 |
