VerticalScope Holdings Inc.

Hello and welcome to the Vertical Scope Holdings Inc. 3rd Quarter 2022 Earnings Conference Call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now hand over to your host, Diane Yu, Chief Legal Officer. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Vertical Scope Holdings 3rd Quarter 2022 Earnings Calls. I'm joined by Rob Laidlaw, our Founder and Chief Executive Officer, Vince Bellissimo, our Chief Financial Officer, and Chris Goodridge, 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 uncertainties and other factors that could cause actual events to differ materially 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- and nine-month period ended September 30, 2022, which is 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 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 and CEO of Vertical Scope. Rob?

Thanks, Diane. Good morning, everyone, and thank you for joining us today. The third quarter started out great for our business, and ended with some concerns. We performed well in July and most of August before macroeconomic headwinds caught up with us, and we experienced a much tougher end to the quarter, which continued into October. Overall, third quarter revenue was up 40% year over year to $19.6 million. A solid result, but it could have been better. We saw weakness in programmatic advertising begin around the midpoint of August and worsen in September. Similarly, our direct business, which has been growing, started to feel the effect of slower decision-making from our advertisers and resulting in delayed or reduced all advertising plans. Notably, our visibility to Q4 is less than we would prefer at this point, where things look a little more flat on a year-over-year basis versus the double-digit growth we had experienced earlier in the year and the 8% growth we experienced in Q3. Turning to e-commerce. That is where I think there is more uncertainty. A fantastic result in Q3 with 58% growth over the same quarter last year, but I think that will probably be the peak result until we see some economic stability return and consumer confidence improve. We are seeing pullbacks from our largest spenders here, and we're seeing some of the largest e-commerce retailers in the world now calling for a soft Q4. We are being cautious, optimizing daily against our best performing partners, But ultimately, this is primarily a commission-based product where we earn revenue when consumers buy goods from our partners. It would appear that customers are either saving more of their disposable income or it's being redirected towards ever-increasing food and mortgage costs. Regarding adjusted EBITDA, I think we survived peak tech wage inflation relatively well, reporting $7 million of adjusted EBITDA in the quarter, up 40% versus last year, excluding the paycheck protection loan forgiveness in the prior year period. Now it is up to us as a leadership team to manage our costs appropriately. I highly value our free cash flow and our profitability, and those will be key factors for us as we look at 2023. We are deeply focused on ensuring that we are appropriately investing capital and properly weighting our investments towards the growth initiatives with the highest potential. With that in mind, We have slowed a number of investments and are putting more resources towards what makes our community special. That is the ability to find authentic perspectives from real world owners and enthusiasts, particularly around products. We are reallocating resources towards our products and e-commerce initiatives, helping our enthusiast customers find the products and authentic reviews of those products that are best suited to them. We are also focused on getting a better mobile app for our users. It's behind schedule, but we're iterating to deliver a high-quality, high-retention app. We look forward to giving you more perspectives on the results of these investments in future quarters. Finally, I want to talk about MAUs. They were slightly better than expected in the quarter to begin and then tailed off a bit in September to a level below our expectations. Overall, we finished at 110 million MAUs and had a slight organic decline of 2.9% compared to minus 4.4% last quarter. Through September and October, there were a number of search engine algorithm updates, perhaps one of the most volatile periods for search engine ranking that the market has ever seen. Our sites, again, remained extremely resilient and fared quite well against the competition. But overall, we did experience a mid single-digit decline that could be partially attributed to macroeconomic factors and partially towards the algorithm updates. To add some confusion to the matter, we will be changing our reporting from Google Analytics 360, or GA360, over to the newer version, GA4, hopefully in the next quarter. This may cause some additional noise in the numbers in future quarters, but we will do our best to decipher the data and give you a clear picture of the trend. I realize that I haven't been particularly forward about what Q4 and 2023 will look like for our business, but I think that is because there is a great deal of macro uncertainty and mixed messages in the market. For us, we will focus on delivering results for our shareholders, and at today's share price, I think much of what I've told you today, investors seem to have already fully built into our share price. We are long-term investors and compounders, and we think that while the near-term is foggy, the medium and long-term is as bright as it's ever been. We're excited about the organic growth opportunities that we are uncovering and also the potential for future M&A at Creative Multiples. I thank you for your support and confidence, and now we'll turn it over to Chris and Vince to give you some more details on the quarter.