VerticalScope Holdings Inc.

Hello, everyone, and welcome to the Vertical Scope Holdings Incorporated Q4 and full year 2022 earnings call. My name is Emily, and I'll be coordinating your call today. After the presentation, you will have the opportunity to ask any questions by pressing start, followed by the number one on your telephone keypads. I will now turn the call over to our host, Diane Yu, Chief Legal Officer. Please go ahead, Diane.

Thank you, operator. Good morning, everyone, and welcome to Vertical Scope Holdings' fourth quarter and full year 2022 earnings call. I'm joined by Rob Laidlaw, our founder, chair, 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 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 and 12-month periods ended December 31st, 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 all 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 Vertical Scope. Rob?

Thanks, Diane. Good morning, everyone, and thank you for joining us today. I would like to start off by expressing my gratitude to the exceptional team at Vertical Scope for their hard work over the past few months. Our efforts have yielded significant progress on Thora, and we are more excited than ever about some of the product initiatives that we are currently focused on. On today's call, I'll give you just a brief overview of the financial results and let Vince and Chris provide more detail. We wrapped up 2022 with $80.5 million of revenue, up 22% versus the prior year, including $19.1 million in the fourth quarter, down about 11%. Most of the decline came from our commerce channel, where we continue to face post-COVID pullbacks, combined with economic headwinds and reduced levels of commerce-related traffic. There is no quick fix for our commerce challenges, and therefore, we reduced our team sizing in February 2023. Programmatic and direct advertising fared better than commerce, but still encountered some pullbacks in the quarter as advertisers reduced spend throughout late November and December. We believe that we have some additional levers to pull and continue to be optimistic about 2023 advertising revenue as we get those optimizations into place. Our 2022 adjusted EBITDA came in at $30.9 million. up 6% versus the prior year, and inclusive of $7.2 million of fourth quarter adjusted EBITDA, which amounted to a 23% decline. The holiday shopping season showed weakness for us in key categories such as fitness, while streaming providers pulled back on new customer acquisition costs in what were both high margin categories for us. The decline in adjusted EBITDA and in overall EBITDA margins in the fourth quarter positioned us to reduce our costs in February and become more selective about our growth initiatives. We value our margins and believe they are part of what makes Vertical Scope a unique and special business in the tech space, and we plan to get them back to the 40% plus level. MAUs in the quarter were 114 million, which was up 7% versus last year. However, we had to overcome a 5.9% organic decline as we saw a pullback around some volatility with Google algorithms in the period. We expect that we will continue an organic decline for a few more quarters as we work towards achieving some of our product goals and work towards long-term organic growth. For 2023, we have strengthened our focus around three key product initiatives at Vertical Scope. One, revenue growth. Two, our mobile app.