Earnings call transcript: VerticalScope sees Q1 2025 revenue drop

VerticalScope Holdings Inc. reported a decline in revenue for the first quarter of 2025, with figures showing an 8% year-over-year decrease, continuing a trend reflected in the company’s -5% revenue growth over the last twelve months. Despite a challenging digital advertising environment, the company continues to pursue growth through acquisitions and product innovations. The stock showed a slight increase, rising by 2.06% to close at $5.05. According to InvestingPro analysis, the company maintains a healthy financial position with a current ratio of 2.68, indicating strong liquidity.

Key Takeaways

• Q1 2025 revenue decreased by 8% year-over-year.
• The company reported a net loss of $2.4 million.
• VerticalScope acquired 23 online communities in Q1.
• The stock price increased by 2.06% following the earnings report.
• AI-driven innovations are a focal point for future growth.

Company Performance

VerticalScope Holdings reported a challenging first quarter as revenue fell to $13.6 million, marking an 8% decline compared to the same period last year. The company faced increased net losses, totaling $2.4 million, which is up by $1.2 million from the previous year. Despite these challenges, the company remains committed to expanding its digital footprint through strategic acquisitions and technological advancements.

Financial Highlights

• Revenue: $13.6 million, an 8% decline year-over-year.
• Net Loss: $2.4 million, increased by $1.2 million from the previous year.
• Adjusted EBITDA: $3.6 million, with a margin of 27%, down from 36% last year.
• Operating Cash Flow: $3 million.
• Free Cash Flow: $3.1 million, representing an 86% conversion from adjusted EBITDA.

Market Reaction

Following the earnings announcement, VerticalScope’s stock experienced a modest increase of 2.06%, closing at $5.05. This rise reflects investor optimism about the company’s strategic initiatives, despite the revenue decline and increased net losses. The stock remains significantly below its 52-week high of $14.75, indicating room for recovery.

Outlook & Guidance

VerticalScope maintains a positive outlook for the remainder of 2025, expecting monthly active users to reach approximately 90 million in the second quarter. The company is focused on leveraging AI-driven optimizations and enhancing user engagement to drive growth. E-commerce is anticipated to return to double-digit growth, further supporting the company’s long-term objectives.

Executive Commentary

CEO Rob Laidlaw emphasized the transformative impact of AI, stating, "AI disruption is already here, and I continue to believe that this is the beginning of a consumer shift in behavior that will result in forums becoming more valuable." CFO Vince Bellissimo highlighted the company’s strategic flexibility, noting, "We are pragmatic, not passive, and our scale, platform, and balance sheet provide the flexibility to navigate whatever comes next."

Risks and Challenges

• Dependence on digital advertising revenue, which is subject to market fluctuations.
• Impact of Google’s algorithm changes on organic traffic.
• The need to diversify traffic sources beyond search engines.
• Potential challenges in integrating newly acquired communities.
• Ongoing adjustments to AI-driven transformations in the digital advertising ecosystem.

VerticalScope continues to navigate a complex market landscape, balancing strategic acquisitions with innovation in AI and digital engagement. The company remains focused on long-term growth, despite current financial challenges. InvestingPro data reveals the company maintains a "GOOD" overall financial health score of 2.8, with particularly strong scores in profit potential and cash flow management. InvestingPro subscribers have access to 8 additional key insights about VerticalScope, along with detailed financial metrics and expert analysis in the comprehensive Pro Research Report.

Full transcript - VerticalScope Holdings Inc (FORA) Q1 2025:

Emily, Call Coordinator/Operator, VerticalScope Holdings: Hello, and good morning, everyone, and a warm welcome to the VerticalScope Holdings Q1 twenty twenty five Earnings Call. My name is Emily, and I’ll be coordinating your call I will now hand over to our host, Diane Yu, Chief Legal Officer, to begin. Please go ahead, Diane.

Diane Yu, Chief Legal Officer, VerticalScope Holdings: Thank you, operator. Good morning, everyone, and welcome to VerticalScope Holdings first quarter twenty twenty five earnings call. I’m joined by Rob Laidlaw, our Founder, Chair and Chief Executive Officer Vince Bellissimo, our Chief Financial Officer and Chris Goodrich, our President and Chief Operating Officer. We’ll begin with commentary on the quarter before opening the floor to questions. Before we begin, I’d like to remind everyone that today’s presentation contains forward looking information that involves known and unknown risks, uncertainties and other factors that could cause actual events to differ materially from current expectations.

These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appears in the company’s management discussion and analysis for the three month period ended 03/31/2025, which is available under the company’s profile on SEDAR plus as well as on the company’s website. You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation, except to the extent required by law, to update and revise any forward looking statements as a result of new information, future events or for any other reason.

Our discussion today will include references to adjusted financial measures, including adjusted EBITDA, free cash flow, free cash flow conversion and MAU, which are non IFRS measures. All references to currency in this presentation shall refer to USD unless otherwise specified. Now I will turn the call over to Rob Laidlaw, Founder, Chair and CEO of VerticalScope. Rob?

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: Thanks, Anne. Good morning, everyone, and thank you for joining us today. Q1 was a challenging quarter for our business. Coming off of a very strong 2024, we were provided with an uphill battle from the beginning of the quarter with changes around the treatment of certain programmatic video ad units. While these changes came without notice, they will give us the opportunity to place more focus on our direct sales team in order to not only replace this revenue, but significantly increase the CPMs.

Outside of video, programmatic revenue was actually up in the quarter, albeit single digits, but a positive sign that our tech stack is still working well there. I want to spend most of my time today speaking about MAUs. In the quarter, our MAUs were $104,000,000 with Q1 typically being the strongest quarter of the year. On a year over year basis, with the twenty twenty five March core algorithm hitting, we saw monthly patterns showing January down 1.8%, February with one less day than last year down 4.7%, and March down 16%. I caution that last year Q2 was unusually strong as Google algorithms at the time were driving record traffic levels to our foreign communities.

With the strong comparable in Q2, we expect the percentage loss year over year to increase with MAUs likely to come in around $90,000,000 based on current data we’re seeing.

Vince Bellissimo, Chief Financial Officer, VerticalScope Holdings: I think there are a

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: few points to touch on. These algorithms happen quite regularly, and we’ve been dealing with them for many, many years. Typically, you will see multiple out of those per year, sometimes as many as 10 to 12 updates. Some of these are smaller and some are larger. In the past year and a half, we’ve been major beneficiaries as Google drove more traffic to user generated foreign communities like ours and Reddit as it’s thought to send traffic to authentic voices rather than AI generated content.

Today, Google seems to be more focused on driving traffic to its own AI overviews and YouTube. And we have read a few studies and articles recently that show other publishers are being similarly affected. While Reddit seems to be at least somewhat affected, they have built a very strong DAU base on their mobile app and are continuing to benefit from platform investments. In order to counteract the MAU challenges, we are focusing on two key paths. First, we are improving our own AI to provide users with better, quicker, and faster answers and in their native languages with translations.

AI translations are already proving their value with approximately 2,000,000 MAUs now visiting one of our translated experiences on a run rate basis. Fortunately, these users are also continuing to engage at about 80% of the level of the English language visitors. This bodes well for our content flywheel. With Answers, we are moving towards creating interactive Answers experiences and increasing the quality of responses that users can expect when visiting a forum community. While we may not have as large of a user base as Reddit, we most certainly have high quality, long form, in-depth responses to highly technical questions.

We play in verticals like automotive with high consumer spending on big ticket items. According to recent studies, these are the places where users want social proof. Even when AI gives them an answer, they wanna back it up with social proof from forums, Reddit, and YouTube to make sure they are getting sound advice before making their purchase. Second, we are turning up the attention on our direct sources of traffic that do not require a search engine. Our Fora mobile app is giving users to our full network of content on their mobile devices, and we have also significantly stepped up our efforts on email newsletters and engagement.

We’ll be ramping up investment in all direct traffic sources throughout the remainder of the year and into 2026 to reduce our traffic volatility from search for the long term. We believe that over the long run, as AI begins to answer users’ questions before they get to organic search results, that our communities will become an increasingly valuable way to reach consumers during their product purchase experience. The usage of our communities, the new and novel questions being asked, and the quality of responses from authentic humans will provide significant long term value in the changing digital landscape. AI disruption is already here, and I continue to believe that this is the beginning of a consumer shift in behavior that will result in forms becoming more valuable. The business model will shift alongside consumer retention, and over time, we should see ARPU benefit from this new user retention model where forms, Reddit, and YouTube become the last step before making a purchase.

As a company and as a management team, we understand that it’s been a difficult quarter. And for those of you that have been around since the IPO, a challenging stock to navigate with various ups and downs. However, I urge you to think about your own usage patterns, where value lies in the overall ecosystem, and how in an AI driven world that forms become even more important for authenticity and real human connection. These are passionate enthusiasts that we serve every day and aren’t going away. The model is evolving and in this change, our communities will be even greater assets to our business and our shareholders.

With that, I will turn it over to Chris and Vince to walk you through the numbers.

Chris Goodrich, President and Chief Operating Officer, VerticalScope Holdings: Thanks, Rob, and good morning, everyone. Thanks for joining the call. After a strong finish to 2024, the first quarter brought some challenges that impacted our top line. That said, as Rob mentioned, we’ve got several key initiatives in motion that we expect will set us up for better results as the year progresses. Q1 revenue came in at $13,600,000 down 8% year over year.

That was mainly driven by an 8% decline in MAUs, while ARPU held steady. It’s worth noting that our recent acquisitions didn’t really contribute to Q1. Enthus Digital closed at the March and we completed the acquisition of Ritual Technologies in April. Ritual is a nice complement to our forms business and communities like Red Flag deals and brings both mobile and commerce capabilities to VerticalScope. Turning to advertising, revenue for the quarter was $11,500,000 down $1,000,000 from last year.

That drop was evenly split between programmatic and direct. On the programmatic side, revenue was down 6% mainly because of lower video CPMs tied to the classification change that Rob mentioned and we previously referenced. Essentially the format of video ads that we run with sound optimist enabled by the user is classified differently in the ad server than ads that have sound automatically turned on. We believe our approach is better for user experience and so we’re assessing other options to mitigate this impact going forward. If you exclude video, programmatic actually grew two percent in Q1.

A good sign that the work our ad tech team has done over the past several quarters is paying off. We had over 40 different demand partners contribute to programmatic revenue in Q1 and we continue to add new partners and experiment with new formats. And we’re optimistic that this work will contribute to ARPU gains in the upcoming quarters. Also encouraging, Google definitively called off its plans to phase out third party cookies in the Chrome browser in April. This adds some welcome stability to the broader programmatic landscape.

On the direct side, the quarter started off a bit slow with recognized revenue down $05,000,000 from last year. A handful of campaigns mainly in powersports and outdoor categories got pushed to later into the year. That said, direct bookings for the year are up 2% compared to this time last year, which gives us confidence that business will pick up as the year progresses. While there’s still some uncertainty around U. S.

Trade policy, we expect more clarity and momentum as we move forward. Turning to e commerce, revenue was $2,000,000 in the quarter, down 8% year over year and made up about 15% of total revenue. The good news is that two thirds of that revenue is subscription based, which continues to provide nice stability. With Ritual now in the fold, we expect e commerce to return to double digit growth in 2025 and we’ll have more to share on that in the upcoming quarter. Lastly, quick update on M and A.

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: Things have picked up

Chris Goodrich, President and Chief Operating Officer, VerticalScope Holdings: for us this year with four acquisitions already closed including enthused digital in March and ritual in April. Early results from enthused are encouraging. We’re seeing 30% to 40% gains in programmatic as we roll out our ad tech, which reinforces the value that we can bring to acquired communities. M and A continues to be an attractive option for capital deployment. We have a solid pipeline and we’re in a great spot financially, which allows us to act quickly and decisively on the right opportunities.

We’ll continue to be very selective given the broader macro environment and only close on the very best opportunities. With that, I’ll hand it over to Vince to take you through the rest of the financials.

Vince Bellissimo, Chief Financial Officer, VerticalScope Holdings: Thanks, Chris, and good morning, everyone. We appreciate you all joining the call today. As mentioned earlier, Q1 was a challenging quarter on several fronts. We experienced weaker video advertising CPMs, a lower start a slower start in direct and organic traffic headwinds, particularly toward the end of the quarter following Google’s March core algorithm update. Despite these pressures, our core business continues to demonstrate resiliency.

We remain focused on operational discipline, financial flexibility and maintaining a strong balance sheet as we invest for the future. Let me walk you through some of the financial results. As Rob and Chris highlighted, revenue declined 8% in the quarter, primarily due to softness in video advertising, which is a high margin contributor to our consolidated results. These declines flow directly through to the bottom line. We generated a net loss of £2,400,000 in the period, a £1,200,000 less favorable position compared to the prior year.

Adjusted EBITDA came in at £3,600,000 representing a 27% margin versus $5,200,000 and a 36% margin in the same quarter last year. The year over year decline was largely driven by the lower revenue base alongside a modest increase in operating expenses tied to key initiatives in areas like SEO and AI. That said, we continue to take a disciplined approach to managing our cost base and remain focused on identifying additional areas for efficiency. More importantly, our business continues to generate strong free cash flow. Operating cash flow was $3,000,000 for the quarter and free cash flow was $3,100,000 reflecting an 86% free cash flow conversion from adjusted EBITDA.

Our ability to convert EBITDA into cash is a core strength of our business model and has remained consistent even during volatile periods. We ended the quarter with a net leverage ratio of 1.24 times as defined by our credit agreement and within our target range for the year of one to 1.5 times. A strong balance sheet and ample liquidity positions us well to navigate near term uncertainty and pursue growth opportunities. In Q1, we deployed $5,500,000 toward M and A, acquiring 23 online communities. These communities are now being integrated into our hosting environment and programmatic stack and are contributing synergized results.

Our capital allocation strategy remains disciplined. Accretive tuck in M and A continues to be our top priority, and the current environment could lead to a healthier acquisition pipeline as form owners become increasingly frustrated with evolving search dynamics and a more challenging macro backdrop. That said, we will continue to be selective and valuation disciplined in deploying capital. In parallel, we’ve taken an opportunistic approach to share repurchases under our NCIB, buying back 518,000 shares year to date at an average price of CAD4.89 per share. Before wrapping up the financials, I want to briefly touch on our recent change in auditor.

On May 8, the Board approved the appointment of MNP LLP as our new independent auditor. The change was operational in nature and not the result of any reportable events or modified opinions. MMP has made meaningful investments in their TMT and public company practice and has built a strong track record with companies of our size. We look forward to working with their team on a smooth transition and continuing to uphold the highest standards in our financial reporting. I’d also like to thank KPMG for their years of service and support through many significant milestones.

Investor focus remains on our ability to stabilize and grow traffic, especially in the face of recent search volatility and broader pressures across digital advertising. We take that seriously, and these priorities are aligned with our own. Our initiatives around SEO, AI driven optimization and user engagement are designed to respond to these shifts. We’re moving with urgency and not waiting for the environment to improve. Some have also asked about the achievability of our full year outlook, particularly in the light of other platforms stepping back from guidance amid continued macro uncertainty.

We recognize there are variables at play, but based on what we see today, we continue to believe our full year outlook remains appropriate and achievable. Our actions are grounded in a clear strategy to grow engagement and deepen direct relationships with our communities. We are pragmatic, not passive, and our scale, platform and balance sheet provide the flexibility to navigate whatever comes next. In closing, Q1 presented its share of challenges, but the strength of our financial position and the resiliency of our business model allows us to continue executing through dynamic market conditions. We’re balancing cost discipline with forward looking investment, especially across our AI driven roadmap, where we’re focused on rebuilding traffic, improving monetization and driving long term value for our shareholders and employees.

Thanks again. And now I’ll hand it back over to Rob.

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: Thanks, Vince. Operator, we can now open it up for questions.

Emily, Call Coordinator/Operator, VerticalScope Holdings: Thank you. We will now begin the question and answer session. The first question today comes from Aravinda Galappatthige with Canaccord Genuity. Please go ahead, Aravinda.

Aravinda Galappatthige, Analyst, Canaccord Genuity: Good morning. Thanks for taking my questions. Two for me. Rob, the way that you described the sort of the core Google algorithm change, I mean, does seem that this is a little bit more different than perhaps with more sustained impact on sort of your organic MAUs. How should we think about the recovery outside of sort of the fact that obviously you’re leveraging sort of the language translation and the mobile app and so forth and some of the investments that you made?

Should we expect I mean, obviously gave us an indication of what Q2 is, that at an organic level, there may be a semi permanent sort of a loss of MAUs until you sort of recapture them with some of your more deliberate efforts? I mean, is that the way that we should think about this?

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: Thanks, Aravinda. Yes. Look, I think the MAE question is interesting and certainly it’s a pretty dynamic and evolving space. So what I would say with this core Google algorithm, you referred to kinda being different. I would say, look, we’ve been dealing with different Google algorithms for, like, twenty years now, so they’re all different.

I think the the different part about this one is is probably Google’s desire or insistence on trying to send more of the search queries to its own AI overviews and, you know, really kind of pushing the organic search results further down the page in in order to ultimately, you know, compete with ChatGPT in in terms of their own business and technology and placement within the market and everything else. So I would say that’s the core difference, and I would say that affects not just our business, but really, you know, everybody that relies on any sort of Google organic search traffic. So call it the entire digital media ecosystem. So that’s probably the the different part. And and we do feel like that the AI overview probably have a somewhat more sustained impact.

And and yet, you know, when you think about it in terms of rankings and a lot of the studies we’re reading right now, especially, like, some of the really in-depth user studies that are showing what users do after reading those AI overviews, is they do tend to seek out that social proof. And that’s where we think, you know, as that happens and as that evolves, behavior of advertisers, the flow of dollars will begin to change and and really come to, I think, the three sources that have been identified in those studies, forums, Reddit, YouTube. Those are the three places that people are looking for social proof. They wanna make sure the advice they’re getting from AI is correct, and those are the three places where they can kind of rely on it being human advice. So what do we do in the face of that?

And in our view is when they do get to our forums, how do we make sure they’re they’re getting the right answer, the the compiled answer? Because not everybody, especially in an AI world, wants to read a 15 or 20 page thread. So how do we pull those most relevant answers forward for them? And and that’s where we’re actually seeing when we pull some of those more relevant pieces forward, when we make the titles easier to read, when we, you know, kind of it’s obviously translated into different languages, but, you know, just do all these kind of UX tweaks, make the user experience better. That’s where we are seeing some recovery, and and we expect that there’s probably, like, you know, there’s some recovery, maybe not a full recovery.

But, again, for all you know, the next Google algorithm could again say, oh, look. All these people are looking for social proof. Let’s push the forms a little more. So I I think this is gonna be a very dynamic situation over the coming quarters. But, generally, I would expect to see, you know, hopefully, some recovery, but also with some, you know, kinda changing landscape in terms of how AI overviews and organic search results play together.

And then, you know, we go back to the obvious question, which is why having all those AI overviews been written based on the backs of the hard work of users, of writers, journalists, etcetera? And the answer is yes. I mean, all of those LLMs have scraped the web, and and that’s a real challenge. And that’s where we get into LLM licensing deals, which again is kind of, you know, at at what point do you flip from they’re stealing your data to they’re paying for your data? And that’s still, you know, kind of an open question for us to say how much we wanna give them and and how much we think it’s worth.

Aravinda Galappatthige, Analyst, Canaccord Genuity: K. That’s that’s really helpful. Thanks, Rob. And and maybe just a interim question there. The the sound off feature that Chris mentioned, is that connected to this?

Or I mean, how should we pass the the impact, like the sort of the reduction in outlook versus the core algorithm change as opposed to the sort of the video like the sound off factor that he mentioned?

Chris Goodrich, President and Chief Operating Officer, VerticalScope Holdings: Yes. Aravinda, it’s Chris here. I can take that. So that really is it’s unrelated to what Rob’s talking about first of all as far as the traffic patterns and everything else. But as far as the outlook is concerned, it has been a key contributor and was a key contributor for us in 2024.

If you look at Q1 last year, we were pushing around 15% of total programmatic in that ballpark from video. Now it’s a bit a little over half of that amount. So it’s something that we need to navigate. As I mentioned, from a user experience perspective, the user comes first for us. So we’re going to have ad experiences that complement that user experience, that make that user experience better, not putting things that are disruptive or really impact that flywheel of content generation that we that are really critical to our business.

So, that’s how we think about the ad experiences. We think there opportunities to evolve that and improve it, over time, but, the user role will always come first for us. But yes, that pullback certainly has an impact on the overall outlook.

Aravinda Galappatthige, Analyst, Canaccord Genuity: Okay. And last quick question to Vince. Rob mentioned some investments around sort of driving traffic, so the email marketing, the newsletters and so forth. Should we expect a little bit of that investment to sort of hit margins? I know you’ve given full year guidance, but I’m just trying to get a sense of the cadence there.

Thanks.

Vince Bellissimo, Chief Financial Officer, VerticalScope Holdings: Yes. Hey, Aravinda. Thanks for the question. So I think the short answer to that is yes. The investments we’re making in these carriers will come with incremental costs, especially when dealing with different models for translations, email partners, ID solutions, even some of the consulting fees year over year increase you saw there was related to getting external expertise and help to help accelerate some of these strategies.

So overall, we’ll continue to invest in these initiatives and you will see an impact to margins. We did guide from an EBITDA and free cash flow perspective. I would say from a margin profile perspective, you’re likely looking at margins based on that guidance in the low 30s.

Aravinda Galappatthige, Analyst, Canaccord Genuity: Thanks. I’ll pass the line.

Emily, Call Coordinator/Operator, VerticalScope Holdings: Thank you. At this time, we have no further questions registered. So as a final reminder, if you would like to ask a question today, please do so now With that, we have no further questions. And so I’ll turn the call back over to Rob Laidlaw for closing remarks.

Rob Laidlaw, Founder, Chair and Chief Executive Officer, VerticalScope Holdings: Great. Thank you everybody for joining today’s call. Please feel free to reach out to management if you have any further questions. We’re here to answer your questions and looking forward to delivering better results as we go forward and hitting our full year numbers here. So have a great rest of your week.

Thanks everyone.

Emily, Call Coordinator/Operator, VerticalScope Holdings: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.