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 fourth quarter (“Q4” or "the quarter") and full year ended December 31, 2022 ("2022").
“Despite all of the economic uncertainty, VerticalScope had a solid year in 2022. We grew revenue to over $80 million and delivered over $30 million in Adjusted EBITDA”, commented Rob Laidlaw, Founder, Chair and CEO of VerticalScope. “As we previously reported, our Q4 results came in lower than last year as a result of macroeconomic weakness through the holiday shopping period which translated to lower advertising rates as well as reduced volume from e-commerce partners. We took steps to streamline our operations in February which will allow us to maintain a strong financial position as we work through the current economic environment while continuing to improve our platform for our communities.”
Financial Highlights for the Three and Twelve Months Ended December 31, 2022. All comparatives, unless otherwise noted, are versus the same period in the prior year:
- 2022 revenue experienced a 22% increase to a record $80.5 million, due to contributions from 2021 acquisitions, despite an 11% drop to $19.1 million in Q4 attributed to macroeconomic conditions compared to record performance in the prior year.
- Revenue from Digital Advertising increased 25% in 2022 to $55.1 million inclusive of a Q4 decline of 6% to $14.2 million. E-commerce revenue grew by 17% to $25.4 million in 2022 inclusive of a Q4 drop of 24% to $4.9 million. Digital Advertising and E-commerce growth in revenue in Q4 was affected by a decline in advertising and conversion rates compared to prior year due to macroeconomic pressures.
- 2022 Adjusted EBITDA rose to $30.9 million, representing an increase of 6% from the previous year. Despite this, Adjusted EBITDA for Q4 decreased by 23% to $7.2 million, due to negative macroeconomic impacts that had an adverse effect on revenue growth. To address this, the Company announced organizational changes on February 1, 2023 aimed at aligning cost structure to core long-term growth opportunities.
- In 2022, the Company generated Free Cash Flow of $21.7 million, resulting in a 70% Free Cash Flow conversion rate, after accounting for $5.3 million in capital expenditures and $3.9 million in cash taxes.
- In 2022, net loss increased to $24.8 million, compared to a net loss of $12.3 million in the prior year. This increase in net loss was mainly due to an increase in amortization of intangibles recognized in the period, amounting to $37.3 million compared to $19.2 million in the prior year.
Laidlaw added, “Our platform served 113.6 million monthly active users in Q4, up 7.4% compared to last year. We experienced a 5.9% organic decline but we are optimistic that our current product initiatives will start to add value for our users in the coming quarters with our new mobile app and product discovery experiences for our communities. Q1 2023 revenue will continue to be challenged as the negative trends we felt in the fourth quarter last year have continued into the new year. However, we expect revenue trends to improve in Q2 2023 and throughout the balance of 2023 as a result of our organic revenue initiatives, including programmatic optimization and video advertising tests. With a more streamlined operation, we are well positioned to improve our margins as revenue trends improve. In closing, this has been a challenging few months, but we feel confident that we have made the necessary adjustments for the current environment and look forward to delivering stronger results for our shareholders going forward.”
Earnings Announcement
Management will host a conference call and webcast to discuss the Company's financial results at 8:00 am ET on Wednesday, March 8, 2023.
Live Call Registration and Webcast:
https://events.q4inc.com/attendee/164550660
Joining by telephone:
Canada: 1 833 950 0062
United States: 1 844 200 6205
All other locations: +1 929 526 1599
Participant Access code: 268314
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 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, 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 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 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.
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 income (loss):
|
Three Months Ended
|
Twelve months ended
|
||
(in thousands of US dollars) |
2022 |
2021 |
2022 |
2021 |
Net income (loss) |
$144 |
($6,678) |
($24,772) |
($12,264) |
Net interest expense |
998 |
492 |
3,094 |
6,073 |
Income tax expense (recovery) |
234 |
(571) |
(2,333) |
(1,830) |
Depreciation and amortization |
9,030 |
6,766 |
38,659 |
20,636 |
EBITDA |
10,406 |
10 |
14,648 |
12,615 |
Share-based compensation |
1,564 |
3,435 |
9,809 |
6,132 |
Share performance related bonuses ⁽¹⁾ |
1 |
743 |
(1,079) |
1,080 |
Unrealized loss (gain) from changes in derivative fair value of financial instruments |
(91) |
(16) |
18 |
62 |
Severance ⁽²⁾ |
202 |
— |
1,003 |
105 |
Loss on sale of assets |
— |
397 |
3 |
411 |
Foreign exchange loss (gain) |
(77) |
27 |
(22) |
118 |
Impairment of investment |
1,000 |
— |
1,000 |
250 |
Adjustment to contingent considerations |
(6,345) |
1,710 |
2,671 |
1,710 |
Other charges ⁽3⁾ |
585 |
3,097 |
2,818 |
6,563 |
Adjusted EBITDA |
7,245 |
9,403 |
30,870 |
29,048 |
Less capital expenditures |
(870) |
(1,500) |
(5,303) |
(5,229) |
Income taxes paid |
(2,134) |
(240) |
(3,860) |
(239) |
Free Cash Flow |
$4,241 |
$7,663 |
$21,706 |
$23,580 |
(1) Share performance related bonus is included in wages and consulting on the consolidated statements of loss and comprehensive loss.
|
||||
VERTICALSCOPE HOLDINGS INC.
Consolidated Statement of Financial Position
(In U.S. dollars)
|
December 31, |
December 31, |
|
2022 |
2021 |
|
|
|
Assets |
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$8,766,769 |
$20,494,313 |
Restricted cash |
116,830 |
179,743 |
Trade and other receivables |
15,712,508 |
15,262,284 |
Lease receivable |
569,278 |
588,101 |
Income taxes receivable |
— |
317,040 |
Prepaid expenses |
1,127,365 |
947,453 |
Derivative instruments |
— |
18,325 |
|
26,292,750 |
37,807,259 |
|
|
|
Property and equipment |
1,065,888 |
986,683 |
Right-of-use asset |
1,745,398 |
2,629,130 |
Intangible assets |
70,579,988 |
98,805,989 |
Investments |
— |
1,000,000 |
Goodwill |
52,635,164 |
53,436,546 |
Other assets |
315,403 |
413,490 |
Deferred tax asset |
23,991,561 |
20,662,839 |
Lease receivable |
929,682 |
1,586,014 |
Total assets |
$177,555,834 |
$217,327,950 |
|
|
|
Liabilities and Shareholders' Equity |
||
|
|
|
Current liabilities: |
|
|
Accounts payable and accrued liabilities |
$8,334,556 |
$9,948,758 |
Income taxes payable |
549,713 |
1,075,699 |
Deferred revenue |
889,259 |
1,028,515 |
Current portion of long-term debt |
3,209,382 |
3,150,663 |
Lease liability |
1,027,309 |
1,200,836 |
Contingent considerations |
15,000,000 |
7,916,259 |
|
29,010,219 |
24,320,730 |
|
|
|
Deferred revenue |
4,389 |
13,917 |
Long-term debt |
54,883,514 |
75,972,078 |
Lease liability |
2,518,053 |
3,734,829 |
Deferred tax liability |
8,310,894 |
11,281,781 |
Contingent considerations |
1,051,222 |
5,463,741 |
Other long-term liabilities |
281,959 |
298,334 |
Total liabilities |
96,060,250 |
121,085,410 |
|
|
|
Shareholders' equity: |
|
|
Share capital |
160,559,106 |
160,182,417 |
Contributed surplus |
25,306,872 |
15,568,994 |
Accumulated other comprehensive income (loss) |
(86,145) |
3,327 |
Deficit |
(104,284,249) |
(79,512,198) |
|
81,495,584 |
96,242,540 |
Total liabilities and shareholders' equity |
$177,555,834 |
$217,327,950 |
VERTICALSCOPE HOLDINGS INC.
Consolidated Statement of Loss and Comprehensive Loss
(In U.S. dollars, except per share amounts)
|
|
For the year ended December 31, |
|
|
|
2022 |
2021 |
|
|
|
|
|
|
|
|
Revenue |
|
$80,488,146 |
$65,761,629 |
|
|
|
|
Operating expenses: |
|
|
|
Wages and consulting |
|
35,818,079 |
26,918,057 |
Share-based compensation |
|
9,809,234 |
6,132,391 |
Platform and technology |
|
8,816,339 |
7,177,465 |
General and administrative |
|
7,743,383 |
10,428,293 |
Depreciation and amortization |
|
38,659,197 |
20,636,368 |
Impairment of investment |
|
1,000,000 |
250,000 |
Adjustment to contingent considerations |
|
2,671,222 |
1,710,000 |
|
|
104,517,454 |
73,252,574 |
|
|
|
|
Operating loss |
|
(24,029,308) |
(7,490,945) |
|
|
|
|
Other expenses: |
|
|
|
Loss on sale of assets |
|
3,198 |
411,209 |
Net interest expense |
|
3,094,352 |
6,073,298 |
Loss on investments |
|
— |
402 |
Foreign exchange loss (gain) |
|
(21,753) |
118,457 |
|
|
3,075,797 |
6,603,366 |
|
|
|
|
Loss before income taxes |
|
(27,105,105) |
(14,094,311) |
|
|
|
|
Income taxes (recovery) |
|
|
|
Current |
|
3,093,317 |
723,939 |
Deferred |
|
(5,426,371) |
(2,553,984) |
|
|
(2,333,054) |
(1,830,045) |
|
|
|
|
Net loss |
|
($24,772,051) |
($12,264,266) |
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
Items that may be reclassified to net loss: |
|
|
|
Foreign currency differences on translation of foreign operations |
|
(89,472) |
(144,489) |
|
|
|
|
Total comprehensive loss |
|
($24,861,523) |
($12,408,755) |
|
|
|
|
Loss per share: |
|
|
|
Basic |
|
($1.16) |
($0.59) |
Diluted |
|
(1.16) |
(0.59) |
VERTICALSCOPE HOLDINGS INC.
Consolidated Statement of Cash Flows
(In U.S. dollars)
|
|
For the year ended December 31, |
|
|
|
2022 |
2021 |
|
|
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
Operating activities: |
|
|
|
Net loss |
|
($24,772,051) |
($12,264,266) |
Items not involving cash: |
|
|
|
Depreciation and amortization |
|
38,659,197 |
20,636,368 |
Net interest expense |
|
3,094,352 |
6,073,298 |
Loss on sale of assets |
|
3,198 |
411,209 |
Loss on sale of investments |
|
— |
402 |
Unrealized loss in derivative instruments |
|
18,325 |
62,181 |
Loan forgiveness |
|
— |
(899,289) |
Impairment of Investment |
|
1,000,000 |
250,000 |
Income tax recovery |
|
(2,333,054) |
(1,830,045) |
Adjustment to contingent considerations |
|
2,671,222 |
1,710,000 |
Share-based compensation |
|
9,809,234 |
6,132,391 |
|
|
28,150,423 |
20,282,249 |
Change in non-cash operating assets and liabilities |
|
(1,346,439) |
1,564,976 |
Interest paid |
|
(2,307,714) |
(2,005,649) |
Income taxes paid |
|
(3,860,370) |
(238,942) |
|
|
20,635,900 |
19,602,634 |
|
|
|
|
Financing activities: |
|
|
|
Repayment of term loan |
|
(2,500,000) |
(46,125,000) |
Proceeds from issuance of revolving loan |
|
— |
30,000,000 |
Repayment of delayed draw term loan |
|
— |
(7,714,977) |
Repayment of revolving loan |
|
(19,000,000) |
— |
Proceeds from issuance of share capital |
|
— |
110,308,011 |
Proceeds from exercise of share options |
|
186,477 |
156,250 |
Repurchase of share capital for cancellation |
|
(430,324) |
— |
Credit facility financing fees |
|
— |
(1,274,501) |
Lease payments |
|
(1,352,625) |
(945,076) |
Proceeds from sublease |
|
622,604 |
— |
|
|
(22,473,868) |
84,404,707 |
|
|
|
|
Investing activities: |
|
|
|
Additions to property and equipment and intangible assets |
|
(9,715,075) |
(23,688,128) |
Proceeds from sale of assets |
|
57,475 |
20,345 |
Acquisitions |
|
— |
(64,088,074) |
|
|
(9,657,600) |
(87,755,857) |
|
|
|
|
Increase (decrease) in cash |
|
(11,495,568) |
16,251,484 |
|
|
|
|
Cash, beginning of the period |
|
20,494,313 |
4,603,609 |
|
|
|
|
Change in restricted cash balances |
|
62,913 |
(179,743) |
Effect of movement of exchange rates on cash and restricted cash held |
|
(294,889) |
(181,037) |
|
|
|
|
Cash, end of period |
|
$8,766,769 |
$20,494,313 |
