This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Hello everyone and welcome to the Vertical Scope Holdings Inc Q3 earnings call. My name is Charlie and I'll be the coordinator for today's call. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. I'll now hand over to your host Diane Yu, Chief Legal Officer of Vertical Scope Holdings to begin. Diane, please go ahead.
spk00: Thank you, operator. Good morning, everyone, and welcome to Vertical Scope Holdings' third quarter 2021 earnings call. I'm joined by Rob Laidlaw, our founder and chief executive officer, Vince Bellissimo, our chief financial officer, and Chris Goodbridge, 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 and other factors that could cause actual events to differ materially from current expectations. These statements should not be read as assurances of different 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 statement. A more complete discussion of the risks and uncertainties facing the company appear in the company's management discussion and analysis for the three-month period ended September 30th, 2021, which are available under the company's profile on CDAR, 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 claims any 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 and free cash flow, 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 Lailoff, founder and CEO of Vertical Scope. Rob?
spk05: Thank you, Diane, and good morning, everyone. It's a very exciting time for us at Vertical Scope. With the amazing support of our shareholders through our IPO in June, we've announced three major acquisitions that continue our mission of enabling people with common interests to connect, explore their passions, and share knowledge about the things that they love. Two of these transactions, HomeTalk and the Streamable, will be immediately accretive to EBITDA, and we expect them to deliver between $10 and $14 million of adjusted EBITDA next year. HomeTalk is a community of DIYers and creators that are passionate about their homes. This community serves over 6 million monthly active users. In the last 18 months, they've also launched Food Talk for foodies and home chefs, and UpStyleDaily.com for people that are much more fashionable than myself. The HomeTalk team has created superb video and email solutions, and their team of 35 people, including their senior team, will be joining Vertical Scope. The streamable is an incredible community of cord cutters. In the month of September, the site provided over 3 million users with the information they needed to find the best streaming provider for their needs. We are excited about the opportunity to launch a Aura-based forum within this community and we'll be welcoming the very talented and savvy entrepreneurs behind the site to our team as well and finally we also announced the acquisition of threadloom which will bring an incredible team and their years of experience and that technology that they have built to empower communities to enhance user engagement including helping users find the products and product reviews that they are seeking in these online communities with the technology that they've built we will rapidly advance our commerce playbook on our forum communities while adding significant user value. While it's not immediately a pre-dip to EBITDA, we couldn't be more excited about the long-term growth prospects for their technology on the Fora platform. Not only will we be able to grow revenue, but we will be doing so in a manner that will increase our MAUs and our pools. Between these three transactions, we have acquired three key ingredients, First and foremost, an incredible financial profile. These communities are experiencing growth rates that are even faster than our own. Second, amazing people and teams that we are excited to work together with to build Vertical Scope even larger in the future. And three, some awesome pieces of technology that will advance our own platform and de-risk much of our future commerce playbook. I want to give some kudos to our M&A team. They've worked around the clock, even prior to our IPO, to source thousands of potential transactions. They never lost faith when they heard targets that weren't interested in selling or when I told them that the deals were not a good fit or just plain too expensive. They stuck with it, kept hunting, and brought forward these transactions that we got really passionate about and are presenting to you today. And it's not just these. We have a full M&A pipeline. We have capital available to continue acquiring communities and we think we'll be able to close some additional transactions before year-end and into next year. So it is with the utmost confidence that I tell you we see no problem meeting our IPO guidance around deploying the full proceeds of our IPO within a 12-month time period. So now turning to our Q3 results. Before I turn it over to Vince to go through the details, I'll give you a few quick comments. Q3 was a great quarter for us. And not all of that story can be found in the numbers. We grew our team significantly. We added new team members in finance, legal, M&A, and our product and engineering groups. We took on new costs as a public company while facing FX headwinds. On the revenue side, not only did we face supply chain related challenges across both advertising and e-commerce, but we also faced some reopening headwinds as people across the globe were released from lockdowns and allowed to enjoy their summers outside. Still, in the face of that, we grew our MAUs by 8.5% overall and by 12% on our 4i communities. Last year in Q3, our commerce business was roaring as people were indoors and shopping online. This year, we have seen that others, including Amazon and Peloton, had a tough comparable when it came to e-commerce. I feel very confident that once we finally get through some of these supply chain challenges, that our business is well positioned for long-term growth and want to thank our team for their hard work on continuing to deliver against these headwinds. Our advertising business was strong, growing 27% in the quarter, despite the fact that some of our largest advertisers in the automotive and power sports industries delayed or canceled campaigns as they simply had no inventory to sell. With devices, our direct advertising business still grew 24%, while programmatic grew 29% versus last year. Our commerce business declined 27% versus last year. With fewer COVID lockdowns, online shopping slowed across the board as people got out of the house. This is even more pronounced in the fitness space where we have a leadership position on high dollar value purchases such as treadmills and rollers. Out of stock products were a major issue across the board. In simplest terms, we cannot earn a sales fee when the merchants do not have product to sell. Unfortunately, we expect this to continue for at least another two quarters until supply chains hopefully recover. This headwind is also a reason why we are increasing our focus on our digital goods efforts, including streaming, which are not affected by these supply chain challenges. Before I turn it over to Vince, I want to leave you with this. Our business is performing very well, and we bring to the market a unique mix, our cloud platform, our organic revenue, and MAU growth. And our M&A story is just beginning. You've got fast-growing tech with, let's call it, $30.5 million of adjusted EBITDA in the past 12 months, plus an additional $10 to $14 million a year of adjusted EBITDA from HomeTalk and the streamable for 2022. So for simplicity, just putting those together at the midpoint, you're looking at $42.5 million U.S., or 53.1 million Canadian of adjusted EBITDA. And then we've got Threadloan, which we think will further our organic revenue growth. With that, I'll turn it over to Vince to dive into the financial details.
spk10: Thanks, Rob, and welcome to everyone who has joined. I'm excited to walk you through our Q3 financial results. Expanding on some of the highlights shared by Rob earlier, Revenue in the quarter grew by 5% compared to last year and marked our fourth consecutive quarter of top-line growth, driven by consistent MAU and digital advertising ARPU growth across communities running on the Flora software platform. Revenue from digital advertising was $10.1 million in the quarter, up 27% year-over-year. This growth was led by the following. 16.7% increase in digital advertising ARPU as a result of improved performance from communities running on the Fora software platform, and increased spend from direct advertisers relative to an improving quarter in the prior year, despite overarching COVID-19 headwinds. Programmatic advertising posted the fourth consecutive quarter of double-digit revenue growth, finishing at $5.5 million, which is up 29% year-over-year. Our investment in the Fora platform continues to be a key growth driver with the modern UI, active page speeds, and increased ad viewability, driving MAU growth of 8.5% and programmatic ARPU growth of 19% compared to last year, with accelerated MAU growth of 12% in the quarter compared to last year from communities running on the Fora software platform. Despite being muted by supply chain-induced campaign deferrals, the direct advertising channel had an equally impressive result, hosting the third consecutive quarter of double-digit growth, finishing up 24% year-over-year at $4.5 million. Direct advertising ARPU was up 15% year-over-year, led by increased display and custom content spend from customers. The team has shown great perseverance in navigating through evolving macro headwinds, and are positioned well to capture incremental budgets during the peak Q4 period. Turning to e-commerce, the channel contributed $3.9 million in revenue in the quarter, which is down 27% year-over-year as it lapsed a record-breaking Q3. The year-over-year decline is primarily attributed to a decrease in e-commerce art group of 33% as a result of rapid reopenings in the U.S., releasing pent-up demand from customers to return to pre-pandemic in-store shopping and gym routines. Supply chain issues are also having an impact on the channel, with the rise in out-of-stock statuses across major retailers and marketplaces resulting in a lower level of attribution from the traffic we drive to those sites. Despite all of that, we are excited about our four marketplace initiatives that are currently in testing phase and looking forward to the progress we can make in 2022 across our entire commerce platform. Our recent acquisitions will also accelerate our commerce revenues and add world-class capabilities and technology, helping to accelerate development of our platform, making e-commerce a significant part of our organic revenue growth. Operating expenses in the quarter were up 20% year-over-year at $15.4 million, and were inclusive of the following items. $899,000 in benefits relating to the forgiveness of our PPP loans in the quarter versus $412,000 in sues and shred-related benefits in the prior year, $1.3 million in one-time IPO and incremental public company costs, and a $248,000 adverse impact as a result of a strengthening Canadian versus U.S. dollars. excluding these variances and non-cash operating expenses. Cash operating expenses were up 11% year over year, primarily driven by growth in headcount. Global health count as of September 30th was 260, up 7% compared to last year. As of September 30th, the product engineering teams made up 42% of our global workforce. Our shift to a work-from-anywhere policy has also allowed us to reassess office space requirements in multiple jurisdictions and generate material cost savings. We have downsized our office space at our Toronto headquarters by approximately 66%, which will result in net rent savings of approximately 3.3 million Canadian over the next four years. Moving to adjusted EBITDA, the supply chain impact on the top line revenue, coupled with incremental operating expenses noted earlier, were key pressures on the 60% year-over-year decline in the quarter, finishing at 5.6 million. Notable adjusted EBITDA impacting items in the quarter include the $248,000 adverse impact from the strengthened Canadian versus U.S. dollar, a $1.2 million in incremental public company costs, and $809,000 in benefits related to the forgiveness of the PPP loans in the quarter versus $412,000 in dues and shred related benefits in the prior year. Excluding these items, adjusted EBITDA decreased by $128,000, or 2% compared to the previous year. Our profitability and even that conscious approach continues to drive healthy, adjusted with our margins and strong, free cash flow generation that is reinvested in the four platform and M&A to generate sustainable long-term growth opportunities. The four platform and its unified code base will also generate ongoing automation and efficiencies, creating additional operating leverage as we scale. In line with the year-over-year change in adjusted EBITDA, free cash flow for the quarter was $4.3 million, down 17% compared to last year, resulting in a free cash flow conversion of 77%, excluding adverse FX impacts, incremental public company costs, and the COVID-19 relief benefits noted earlier. Free cash flow was $4.8 million, up 1% compared to last year. Our net loss for the quarter was $2.3 million, less favorable by $3.3 million compared to last year. The net loss in the quarter was largely driven by the $1.2 million in incremental public company costs and $1.3 million in share-based compensation costs recognized under a new omnibus incentive plan. And now I'll pass you over to Chris for an update on M&A.
spk09: Chris? Thanks very much, Vince, and thanks, everyone, for joining today. As Rob mentioned in his opening remarks, we are thrilled with the progress of our M&A pipeline and pleased to report that we are ahead of schedule in deploying the IPO proceeds on accretive transactions. The deals we've completed to date both fit very well strategically, but also meet our discipline valuation criteria. Inclusive of the three acquisitions we just announced, we've completed 16 acquisitions so far this year for total cash consideration, excluding future earnouts of approximately $75 million. In October, we announced the acquisition of ProBoards, ProBoards is a platform that allows creators to set up and grow their own communities. We are very excited about adding this product and capability to our business and providing an additional organic growth lever as we continue to build the feature set of our forum platform. We're also pleased with the revenue synergies we're seeing. ProBoards' primary revenue stream is programmatic advertising, and since converting it to our programmatic setup, we are seeing upwards of 50% lift in revenue. Turning to the HomeTalk, Streamable, and Threadling transactions we announced last night. As Rob commented, these are tremendous acquisitions for Vertical Scope. We add over 9 million MAU with strong growth profiles while continuing to accelerate our commerce-driven revenue. We expect that HomeTalk and the Streamable acquisitions will add between 10 million and 14 million in adjusted EBITDA in 2022 at around 50% margins. Threadling is not expected to contribute a positive EBITDA in 2022, but we have a high degree of conviction that it's technology and highly skilled team will be a major accelerant for both MAU and commerce-driven R2 growth on FORA. These deals meet our valuation criteria, but are also structured to incentivize future growth. The purchase price for HomeTalk and the streamable combined net of cash remaining in the businesses total 63.5 million payable in cash on closing with the potential for up to an additional 30 million cash payable over a two-year period if certain performance thresholds are met. That $30 million splits evenly between year one and year two with a $15 million potential on each anniversary. The streamable acquisition has just closed, and HomeTalk is expected to close, I guess, any minute now. Threadloom is a unique deal for us. It brings great technology and an exceptional team with deep farm experience. This is the first time we've used shares to make an acquisition, but we think this transaction provides alignment with our shareholders, incentivizes future growth and adds a great group of investors to Vertical Scope. The Threadloom deal is expected to close before the end of November 2021 and represent $16 million in upfront consideration and up to $9 million in contingent and retention consideration paid over a two-year time period heavily weighted to year two. So just providing some additional background on each of these transactions. HomeTalk fits our acquisition criteria perfectly. It comes with large and vibrant communities of creators providing dedicated spaces for DIYers, foodies, and fashionistas to explore their passions and share knowledge. HomeTalk's user-generated content library is impressive, with over 169,000 home improvement and DIY tutorials on HomeTalk and 7,000 recipes on FoodTalk. Most of HomeTalk's user base is in the U.S., and the communities have large membership and email subscriber bases. HomeTalk has built strong video capabilities that will be a great asset to Vertical Scope. The bulk of the revenue today comes from programmatic advertising, and we see a significant opportunity to layer in commerce experiences to drive additional growth moving forward. The Streamable is a cord-cutting and OTT community which helps its users find where to stream their favorite sports, shows, and movies. A majority of the site's users come from the US, but the Streamable now provides recommendations in 28 countries. The site reached 3 million MAU for the first time in September, and will continue to benefit as consumers shift away from traditional linear TV options to streaming and OTT services. A majority of the Streamable's revenue comes from enabling commerce transactions. Our platform will be able to provide additional reach for the Streamable's recommender tool and commerce engine while growing a cord-cutting community on Fora. And finally, with Threadloom. Threadloom's technology, capabilities, and team are a tremendous fit with Vertical Scope. Paul, Raquel, and the rest of the team are exceptional. They've spent the past number of years building technologies to improve the experience for form users and will now be able to bring all of that knowledge and experience to accelerate the growth of FORA. We're particularly excited about what Threadloom has accomplished with product reviews and recommendations and believe this will be a significant catalyst to future organic growth. Before turning it back to Rob, I just wanted to offer a comment on our M&A pipeline. We've been working very hard to continue to build a robust pipeline of communities that fit with our playbooks. We will continue to stay disciplined and will act decisively when the right opportunities surface at accretive multiples. We are very confident in our ability to acquire communities that will add value for our shareholders, and we see a number of additional transactions that could close in Q4 and into 2022. And with that, I'll now pass it back to Rob for closing remarks. Rob?
spk05: Thanks, Chris, and thanks everybody for joining today. As always, we appreciate your trust and support and look forward to accelerating our growth going forward. We'll now open it up for questions.
spk04: Of course, if you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. Our first question comes from Vince Valentini of TD Securities. Vince, your line is now open.
spk03: Thanks very much. A few questions to clarify some stuff on the acquisitions first. For home talking and streamable, the contingent consideration there, over two years in order for that to be paid should we assume that the ebitda run rate has to be 14 million instead of the 10 million or is 10 to 14 just you know the next year estimate and potentially needs to be even higher than 14 for for those earnouts to be paid yeah that's chris here i'll take that um so
spk09: The 10 to 14 is our estimate of what we think the businesses will produce next year. To hit the full amount of year-and-out, we expect earnings levels that are higher than that.
spk03: Okay. Thank you. Rob, when you say you're very confident that all of the IPO proceeds will be invested within one year, obviously you seem to be well on track with that target. But I just want to make sure, Cliff, how you define that. Does that just cash consideration paid for acquisitions will exceed that? We'll use up all the IPO proceeds, or does that include potentially $18 million, or maybe it's not quite that much because you're paying a bit of cash, but $16 million of stock being issued for ThreadZoom?
spk05: Thanks, Ed. Yes, net IPO proceeds. I call it Canadian dollar, $135 million. And that's really the, you know, to exclude the share consideration, we think we could spend Canadian dollar, $135 million in the next 12 months. Just in cash? Sorry, someone from the IPO.
spk03: Sorry, you think you can spend $135 million Canadian just in cash? Is that what you said? Okay, yes. And on thread, this is a bit different than the acquisition template I think you'd done in the past or communicated to us, so I just want to make sure you understand it. It's not going to generate positive EBITDA right away, but as you make use of the technology that they have and integrate it into all the other sites, it will start to generate positive EBITDA. And is that... something that could get to $3 million or more by 2023 and beyond so that we have sort of an effective purchase multiple in the times range? Or is this something sort of a necessary evil that you need the technology and it may not fit that, call it six to nine times purchase multiple ever?
spk05: Yeah, I think good question on spreading them. And, you know, first, Obviously, we're really excited about kind of fast-forwarding the commerce playbook with Threadloom. So, you know, a lot of the things that they've already built are things that we wanted to build. They've got a great team, you know, Google Shopping, background, a number of people out of Google. So we expect this transaction, while it will take a little longer to get to those types of multiples that we've previously guided, that it will get there. And really, you know, the big thing that we have to do is integrate some of their technology into the platform. And, you know, from there, we will expect it to, I think, as we mentioned in the press release, be break-even by the end of 2022. And I think thereafter, really accelerate and get into those kind of common acquisition multiples that we've seen on other deals.
spk03: Awesome. Thanks for that on the acquisitions. And just one question on the current results in business. You're obviously cautioning us on Q4 that these headwinds you're seeing are going to continue. Can we make sure we're level set on just how tough it could be? I mean, you had a pretty good quarter on e-commerce revenue growth in Q4 last year. So is it Possible we see things down 50% or more on a year-over-year basis in Q4. And similar but slightly different for the advertising revenue. I assume that decelerates from 27% growth. Is it as bad as getting to single-digit year-over-year growth temporarily until the world gets back to normal?
spk05: Sure, I can dig that one. So maybe addressing advertising first. We think advertising could still be very strong in Q4. I'm not very concerned about advertising pulling back to the extent that you just spoke about. So I think we still see good growth on advertising. And as we turn to commerce, I mean, commerce is harder to predict. What we are seeing is definitely, I think, there's supply chain challenges. The fitness space is more difficult, which means kind of with Peloton and some of the other fitness players. So, you know, we're going to kind of see how that one goes. But, again, I think commerce is a little bit trickier, but long-term, very bullish on that. And for QTOR, I think, advertising, we're still on track there and feeling good about advertising in G4.
spk03: Thanks very much.
spk04: Thanks, Vince. Perfect. Thank you, Vince. Our next question comes from Drew McReynolds of RBC. Drew, your line is now open.
spk07: Yeah, thanks very much. Good morning. Vince got one of my questions there. Maybe back to just M&A and so good to hear kind of the pipeline strong, Rob, maybe for you or Chris. In terms of Threadloom and the great team you're bringing on board and technology, does that essentially kind of complete the capabilities that you could look for in terms of these types of acquisitions or Are there others? So just trying to understand the balance between acquiring traditional communities versus technology. And then second follow-up question there, just with things off to such a good start on the M&A side, as you look to potentially take on a net debt over the course of two to three years out from now, if that pipeline is strong, what kind of leverage are you comfortable with having on the balance sheet? Thank you.
spk05: Right. Thanks for the question. So I think in terms of technology, this one was a big one for us, different than the deals we typically do, but very exciting in that we've got a great team coming on board with Paul, Raquel, Alyssa, Tina, the whole group. So we're very excited, but this is really the only tech play that we really had that we were looking at. It was kind of different than what we typically look for in acquisitions. So I think, at least for now, you probably won't see another deal like this in the near term, nothing that's in the pipe. And then in terms of the M&A pipeline, as Chris alluded to, it's very, very strong and it's very down the fairway. So we're excited about that and willing to take on some net debt to make those deals happen. We are comfortable operating with debt. We've done it in the past. But obviously, you know, we want to stay somewhat conservative. And I think, you know, in the kind of neighborhood of two to two and a half times leverage with the ability, obviously, with our EBITDA and free cash flow to quickly deleverage is really where we'd be thinking about as we kind of move forward.
spk07: That's great. Thanks for that. One follow-up just on the MAU front. Good to see, obviously, the results here in Q3 as well as some commentary there on October. And then clearly with these acquisitions you're adding kind of more MAUs. Just anything you want to comment there in terms of your MAU base? Anything surprising underneath the hood here or simply in line with what you would have expected a couple of quarters ago as you were working through the IPO?
spk05: Yeah, I think we're really excited about the MAU growth. The one thing I want to point out is I actually think it was a bit of a tougher comparable because, you know, people were very much, as you saw with the commerce results, very much kind of getting out of their homes and, you know, in the United States at least, I think, traveling and taking vacations and getting out to cottages and all that kind of fun stuff. I think they were spending less time online in general. So I think we were very pleased with the result against Q3 of last year. And we expect to kind of continue as we go forward with good, you know, positive MAU growth on a year-over-year basis.
spk07: Super. Thank you very much.
spk04: Thanks, Drew. Thank you, Drew. Our next question comes from Aravinda Galapathij of Chemical Genuinity. Aravinda, your line is now open.
spk08: Good morning. Thanks for taking my questions and congrats on the traction on the M&A front. A couple for me. First of all, with respect to some of your new initiatives in terms of product development, you talked about sponsored marketplaces in the past, obviously your mobile app and so forth. I was wondering if you can give us an update on that. And secondly, you know, as you sort of step up M&A activity, you know, directionally, when you look at your mix of properties, are there exposures that you sort of want to increase or decrease as you pick up M&A? I mean, whether it's in terms of sectors or the nature of content, I wanted to get a sense of whether you're perhaps looking to get into slightly less niche but broader audience properties. Any color there would be helpful.
spk05: Yeah, perfect. Thanks, Aravinda. So maybe just first on the new product development. So Marketplaces is really exciting for us. That is, I think, kind of the culmination of a lot of these different efforts coming together. So it's everything from peer-to-peer classifieds and buying and selling on these communities, really bringing that forward, providing them with structured ways of doing that, being able to potentially participate in those transactions to a greater degree, and then partnering also with whether it's dealerships or small businesses and vendors, but how do we activate those people that do have products available to sell to our niche communities and have great niche products into these online forums. So marketplaces is going to be something we talk a lot about over the next year, year and a half, as we really add that capability to our business. And Threadloom helps us, you know, kind of advance that as well with their Um, you know, really advanced, um, technology around product, product, metadata, um, knowing what these communities are talking about shopping for being able to aggregate, um, product reviews in a really user friendly way. So very excited about marketplaces. Um, and that'll be, you know, really something we'll talk about every quarter. I think in 2022, uh, mobile app is coming along very nicely. It's something that, uh, again, It's just kind of a core to our plan and our business is to provide our community members with the most efficient and user-friendly format for participating in our communities. So I think we'll have more information on that in Q1 and hopefully, you know, from that point be able to – you know, show everybody, you know, at least, uh, a good look at the, um, what we're thinking there and how it's, um, how it's come together with respect to acquisitions and kind of exposures. I think, you know, obviously one of the things that, uh, we talked a little bit about today was just digital goods. Um, so I think some of the plays that we really like right now are just around digital goods and creators. And, you know, thinking about how we kind of activate those to a greater degree on our platform. And also, you know, still, as you've seen with things like paddling.com, just we really feel there's great tailwinds around the outdoors. Some of it is kind of pandemic-related, but something that we feel never goes back to normal. More and more people, as we move forward from the pandemic, will be working remotely, not just at VerticalScope, but at companies around the world. that capability that really has been added to workforces around the globe will allow people to spend more time outdoors and doing the things that they love. So that's where these niche communities, I think, have some great tailwinds. So with that being said, on your final point, whether we go more niche or less, I would say, We're very committed to the niche strategy. We're not looking to get into memes and politics and mass social media. We really want to focus on things that people are passionate about and want to go deep on. And that's going to be where we need to spend our time on acquisitions.
spk08: Thanks, Rob. And just a quick follow-up. With respect to the mobile app, do you feel confident that as some of the audiences sort of shift or that audience on the mobile app develops, that monetization won't be affected considering some of Apple's privacy initiatives?
spk05: Yeah, we tend to think that in terms of the mobile app that there's going to be different types of monetization. That's why marketplaces will be important. We think that engagement levels will rise. And overall, when we think about ARPU, we actually think that ARPU on the mobile app has the potential to be even stronger than it does on the web. I think really it's a matter of getting those communities really engaged and creating more content, selling more products, participating in marketplaces. So we think from a kind of closed-loop perspective of having everybody on our platform in that mobile app should be very positive for long-term revenue growth. Thank you.
spk04: Thank you, Aravinda. Our next question comes from Siddhant Dilawari of Cormark Securities. Siddhant, your line is now open.
spk01: Hi, thanks for taking my question. I'm just filling in for David and Sajid. You know, you talked about the shortage of vehicles for the automotive sector and the chip shortage being a headband for advertising revenue, and this is something we've seen across the board. But despite that, you delivered solid growth in advertising revenue during the quarter and even the underlying metrics. Could you maybe just talk about some of the verticals that performed well during the quarter which drove that growth, and maybe these are the same verticals that are driving your confidence for Q4 for advertising revenue? Thank you.
spk05: Chris, do you want to take that one?
spk09: Sure. Yeah, happy to take it. Thanks for the question, Dan. So no question, as you call out, we've seen automotive and power sports as well, customers wanting to advertise but not necessarily having the inventory to kind of justify the campaign. So we have seen some of those delays in those categories. But in other categories, particularly some retail customers, we've seen a fair amount of strength, particularly outdoor-focused retailers have continued to spend more you know, really well. And we continue to see that trend through Q4. Some of our technology advertisers as well have been spending and continue to spend. So, you know, those would be a couple that I would observe that have been particularly strong. And then, of course, with programmatic, you know, I think overall what's happened, you know, with programmatic is our investments in in those quality ad experiences that are really driving, you know, demand for our impressions. And that type of demand that flows through programmatic would be pretty broadly based as far as industries or categories.
spk01: Okay, thanks. And then, sorry, just one on e-commerce. Just given your commentary earlier, is it fair to assume mid-to-high single business decline in e-commerce revenue for Q4, just given the strong comparable quarter last year?
spk09: Yeah, we think that's probably it. Go ahead, Rob.
spk05: I think as we kind of answered previously, you know, commerce is a little bit tricky to kind of forecast for Q4 because of, you know, the COVID last year and kind of some of the additional online shopping that was happening. So I think you're right in terms of, you know, kind of double-digit decline. But what double-digit that is is, I think, hard for us to give kind of further guidance on at this point.
spk07: Okay, great. Thanks. That's really helpful.
spk04: Perfect. Thank you, Siddhant. Our next question comes from Adam Shine of National Bank Financial. Adam, your line is now open. Adam, your line is now open.
spk06: Yeah, can you hear me now? Can you hear me now? Yes. Can you hear me now? Okay, sorry about that. Okay. Three parallel calls today, so a bit rough. But maybe if we can jump into margins and, you know, post-IPO sort of averaging around 40% and clearly – You guys have talked, I'm sure, of some of the context of the tough comp, so it's not necessarily a normal seasonality trend, plus there's some incremental costs associated with the IPO. But can you help maybe Rob or Chris or Vince in regards to how we should be thinking about margins perhaps in 2021? And then to the extent that you want to elaborate further into next year, that would certainly be helpful. And then I'll follow up with a few more.
spk05: Chris, do you want to take that one on margin?
spk09: Sure. So, you know, in the quarter, we were right around that 40% range. And I think as we've talked about it in the past, Adam, as we layer in creative M&A, we do expect to see, you know, margins continue to expand. You know, we've obviously, you know, post the IPO had some additional costs that are in the business, you know, that were growing. we're growing into, but we do think what we've said in the past with respect to being able to expand margins as we enter into next year and beyond with M&A will be something we're looking for.
spk06: And not to push too hard, Chris, but if we just maybe reset some expectations here, is it fair to say that at least for 21, we should be thinking clearly sub-45%? And then perhaps to the extent that you're talking about looking ahead with the accretion on some recent M&A, then we can start thinking about above 45% as we look post-21. Is that a fair way to set things?
spk09: Yeah, I think that's fair, Adam.
spk06: Okay, great. Maybe, Rob, obviously, it's been maybe a bit longer time coming than some investors post-IPO thought. You took your time and you delivered, and there seems to have been a lot of pull-through in terms of at least the critical mass of M&A that's being done here. Can you speak at all about, you know, the ability to integrate? I mean, we've all heard about, obviously, how, you know, the Forum platform allows for an easier and faster integration, at least as it relates to the communities. But can you just, you know, maybe talk a little bit more about the ability to execute on the integration here pretty quickly, any incremental costs we should be thinking about to facilitate that, and then, obviously, the step forward into next year?
spk05: Yeah, thanks, Adam. So, yeah, we had a big pipeline, and we were able to find the transactions that we felt really good about and were able to get passionate about and get them closed, which it took maybe a little bit longer than some people had hoped, but I think sometimes finding the right deals is more important than kind of a month or two of timing. So excited about these deals, and we think they become immediately accretive. There's, you know, in terms of, you know, the teams will be will be joining. Even looking back to kind of paddling and pro boards, we've seen really good double digit revenue increases right out of the gate. So we don't think despite the fact these are a lot of transactions that they require you know, a heavy lift. These are, you know, pretty down the fairway for us, things that we understand well, and we'll be able to move very quickly with respect to getting these, you know, onto our platform and delivering that EBITDA that shareholders are expecting. So I think we'll see that happen very quickly. And I wouldn't, you know, I think that the heavy lift sometimes is getting to closing. And, you know, now we can do the fun stuff. So I think that'll come along very quick.
spk06: Okay, that's great, Pierre. I appreciate that. And I missed the pre-Q&A part, but I know Vince asked the question around Threadloom as it relates to EBITDA. So maybe I'll just poke a little bit more. Just to be clear, as you acquire Threadloom, EBITDA, just to be clear, Chris, is sort of zero or... you know, loss proposition, and then the context being that ultimately to get it up to more of a, you know, contributor or call it even break-even proposition, you know, we get perhaps in theory towards, let's call it, I don't know, $7.5 million, $8 million, potentially, within short order into next year or thereafter. I'm just not clear exactly on, you know, how Rob answered that question earlier.
spk05: Yeah, I can dive a little deeper on that. So Threadloom is not profitable today. It's not EBITDA positive. So as that comes over, it probably looks more like an increase in our CapEx spend over the next year. And really, I think what we've kind of guided to is this – call it, within 2022, getting that to break even as we integrate some of that technology into the 4L platform, which we think, once it's integrated, will be very accretive. And then it will be a really strong grower for us and get us into that five to seven times guidance that we've provided in the past around kind of where we expect M&A to take place. It's just going to take a little longer to get there. Thanks for that. I appreciate it.
spk04: Thank you, Adam. At this current stage, we have no further questions. I'll hand back to Rob Laidlaw for any further closing remarks.
spk05: Great. Thank you. And thank you, everybody. We're excited, and we'll see you next quarter.
spk04: Thank you all for joining today's call. You may now disconnect your lines and have a lovely day.
Disclaimer