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spk06: My name is Brica and I will be your moderator for today. All lines are on mute for the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind and would like to remove your request to speak, please press star and two. And for operator assistance at any point, it's star zero. Thank you. I would now like to pass the conference over to your host, Diane Yu, Chief Legal Officer, to begin. So, Diane, please go ahead.
spk01: Thank you, Operator. Good morning, everyone, and welcome to the Vertical Scope Holdings first quarter 2024 Earth 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 analysis for the three-month period ended March 31st, 2024, which is available under the company's profile on CDER+, as well as on the company's website. You were 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 Vertical Scope Holdings. Rob?
spk10: Thanks, Diane. Good morning, everyone, and thank you for joining us today. The strength and profitability of our business model was on display in Q1. We carried the momentum that we have been building through 2023 to deliver impressive results, including 78% growth in adjusted EBITDA. Our teams have been hard at work, and I'm very proud of their accomplishments. We delivered both organic revenue and MAU growth in the quarter, while ramping up our capital deployment strategy to include share buybacks and M&A, including closing our first acquisition of the year in recent weeks. I am pleased to report that all trends have continued into Q2, while MAU growth percentages year over year are continuing to accelerate. I'd like to take this opportunity to really talk through what I think is happening in the market and why this has become a perfect storm for Fora and will drive years long organic growth for our business. Over the past year, we have witnessed a radical shift in online consumer behavior. This change in behavior resulted from some bad actors and particularly around product reviews. Starting with the massive boom of e-commerce during COVID, thousands of online publishers rushed into the business of product reviews in order to cash in on robust affiliate commission revenues. They took the Wirecutter model, a legitimate and reputable product review website, and simplified it into its easiest form. Write articles, make them look authoritative, and then search engine optimize the hell out of it. The problem was, They were never even touching the product. And they were really just giving ratings based on the highest commission rate available. Suddenly, every mass media publisher was doing reviews of everything from air fresheners to vacuum cleaners to car batteries and motorcycle helmets. And it was working. You would see recognizable brand name publisher sites alongside random websites you've never heard of. And you would never remember writing hundreds of these reviews per month using offshore freelancers. And then suddenly, in November 2022, with the launch of ChatGPT, a whole new level was unlocked. In a nearly fully automated fashion, they were now able to write thousands or even tens of thousands of reviews per day. The internet was flooded. And that is when the shift happened. Suddenly, users started searching for and appending to their search queries words like forums and Reddit. Why? Because they didn't want to get 10 search results from these bogus or fake product reviews. They wanted authentic user-generated content from forums and Reddit, authentic perspectives from real-world owners. You see, what happened is more people started actively seeking out forums. Instead of being limited to enthusiasts nerds and geeks, forums became more mainstream. Suddenly, our content was needed and became authoritative. Google even introduced a new section on their search results called Perspectives, which just recently in March was renamed Forums, where they gave premium placement to real-world user reviews and content. And the traffic on Fora started to jump. In Q1, MAUs were up 24% versus last year, to 75.7 million, and that number is continuing to accelerate. This isn't a small change. We are in the middle of a radical shift caused by the proliferation of AI and low-quality content. Users have turned to and embraced forums and user-generated content. Our strategy of authenticity is playing out. It's something I've believed in for years, but it's always been limited to being niche, but now it's becoming mainstream. Users are coming to us and seeking us out. And the Reddit IPO has legitimized this space. It's brought more attention to online forums. They are helping to showcase the value of what we've built. We benefit in so many ways from the growth of Reddit as users become comfortable with online forums and want to go deeper on topics of interest. They are a great comparative for our business, but we also have separate and distinct value to our users. we are both benefiting from the shift in consumer behavior towards user-generated content. Next, I will speak briefly about LLMs and the opportunities around licensing deals and the importance of our data in this competitive marketplace. The Fora platform has incredible momentum right now. We have over 2 billion posts of content with the ability to increase that through both organic initiatives and M&A. Given the shift in the market that I just spoke about, we have to be very deliberate here in understanding the true value of these authentic perspectives. It is not a time for short-term thinking. These are real world users sharing in-depth knowledge on very niche and high value products over the past 10 plus years. When I go back to the earlier days of Vertical Scope, as we were aggressively buying and starting online communities, We had one focus. It was on high value consumer products and particularly enthusiast niches. We focused on communities and automotive where people were discussing car purchases, aftermarket parts and high value repairs. We became number one in power sports and outdoors for motorcycles, ATVs, fishermen and hunters. We also have communities for high end home theaters, audio, luxury wristwatches, snowboarders and so many more. We never focused on memes or news or pop culture. Instead, there was a common focus, consumers buying products that they needed and they deserve to hear from other real world owners. It was categories where spending a little extra time online to research and get the really good information was worthwhile. Today, with the flood of AI and low quality content, the authentic perspectives shared on our forums are incredibly valuable. This is the reason that AI and LLMs will love our data and will pay for it. They need it because the consumers want it. Our strong balance sheet and organic revenue growth allow us to be long-term stewards of the business and our communities. I have very high conviction in the importance of our data and will ensure that when we sign any LLM licensing deals, it will be from a position of strength with a view towards long-term shareholder value. Next, as we look at our product outlook, we are well positioned, have a strong balance sheet, an incredible team, and are continuing to invest in the floral platform. Having over 1,000 forum communities on one common platform is incredibly powerful. And with increased consumer interest in online forum communities, we are able to scale quickly. We have three pillars that we are focused on. The first is our forum mobile app. We believe the opportunity is timely to drive increased growth on our app, improve the user experience, and drive user engagement and repeat visitation. We believe we can grow content contribution, and in particular, rich content, such as photos and videos from our users' mobile devices. While the app still remains small in overall terms, we are working hard on responding to our users' requested features while improving user retention for the long term. The second is our focus on products that our community members own, repair, and love. I've already talked about poor quality product reviews on mass media websites, many of them written by AI. This is where our forms really shine. We deliver authentic content from real world owners And we will be focusing on exposing more of this content in a user-friendly manner to those who are shopping for enthusiast products and want to hear from other people, real people that are just like them. And third, we are continuing to focus on delivering better user experiences and to modernize online forms, particularly for new and novice users that are increasingly finding communities like ours and those on Reddit. We want them to join and learn from the extensive knowledge that is in these helpful communities. The results speak for themselves. Our forum communities are winning of scale, and the benefits of the Fora platform are clear. We grew MAUs by 24% year over year, and that momentum has accelerated into Q2. Last year, we added video advertising to the platform. And the growth and demand there has been robust, with sequential growth from Q4 to Q1, and again, accelerating into Q2. Lastly, I will spend a minute on our capital allocation strategy that we discussed last call. It consists of three pillars, reduced debt, buyback shares, and a creative M&A. In the first quarter, we generated free cash flow of $5.2 million. In turn, we chose to reduce our debt during the quarter by $3 million, of which 2.4 million was voluntary repayments. Year to date, we have repurchased approximately 117,000 shares at an average price of Canadian dollars, $7.44. We had a very short trading window due to the timing of Q4 and the blackout period. We believe our stock price continues to be disconnected from the value of our business And looking at the performance of our closest competitor, Reddit, we believe there is a lot of upside to the value we've created. Lastly, we completed our first M&A transaction, a tuck-in deal in Q2. We will have more tuck-ins to do this year, all in the forum space and likely all from our own proprietary pipeline. Nothing massive, just great, solid online communities. that will reward our shareholders with growth and free cash flow for years to come. Free cash flow is the focus, and we do not anticipate doing any technology deals or share deals. While we love the idea of adding more scale to our business, discipline and focus is critical here. And when we can't find great deals, we're thrilled to be buying back shares or reducing debt. With that, I'll turn it over to Vince and Chris.
spk04: Thanks, Rob. Good morning, everyone. Our team delivered a solid result in Q1 as the momentum we've been building in our advertising business accelerated to start the year. The MAU gains that Rob highlighted are translating to higher impression volumes and strong growth in high-margin programmatic revenue. Total revenue in Q1 was $14.7 million, up 14% compared to prior year, and our advertising business which represents 85% of overall revenue, delivered 26% organic growth in the quarter. E-commerce, now around 15% of total revenue, although down year-over-year in the quarter, showed a significantly improved trend compared to what we experienced in 2023. Drilling in on our advertising results, advertising revenue was $12.5 million in Q1, up 26% compared to prior year. We're seeing signs of an improving advertising market, particularly with programmatic CPMs. which strengthened as the quarter progressed. Programmatic revenue continues to be a real source of strength in our business, posting a 37% gain from prior year in the quarter and accelerating from the 20% growth we saw in Q4 last year. Programmatic made up approximately 69% of our total ad revenue in Q1. As our MAU trends continue to accelerate and advertising budgets improved, our programmatic business is benefiting and is really well positioned to continue to drive outsized growth. The investment we've made in our ad tech is delivering better yield per page, and video has added an incremental high margin source of monetization. It's particularly noteworthy that video revenue posted sequential growth in Q1 over Q4, bucking the typical seasonal trend that tends to result in lower ad spend to start the year. Direct advertising also had a solid quarter, up 7% compared to prior year, and reversing the single digit decline we experienced last year. Direct advertising accounted for 31% of our total ad revenue in the quarter. We benefited from the return of a Kia automotive client in the quarter and stability with outdoors and power sports advertisers. US insurance was an underperforming category for us last year and we've yet to see that improve as insurers overall continue to be cautious with marketing dollars. Turning to e-commerce, in the quarter e-commerce revenue is 2.3 million, down 24% from prior year but down only 15% compared to Q4. 65% of e-commerce revenue is now subscription-based. The main source of lower e-commerce volumes are from non-forum properties. Forum communities generated about 65% of the 2.3 million in e-commerce revenue in the quarter, which bodes well for the rest of the year as we see strong MAU trends driving improving purchase activity in these communities. We continue to believe that commerce will be a long-term source of growth in our platform, as users turn to the trusted information in our communities to make purchase decisions. Turning to our outlook, Q2 is off to a good start, supported by accelerating MAU trends in our forum communities and an improving advertising environment. We expect our advertising business to continue to deliver organic revenue growth in Q2, with main sources of strength again from programmatic and video. We also have a number of initiatives in the works to support organic revenue growth. A good example is our recently announced integration with the Trade Desk. We're very excited about this partnership. The Trade Desk is one of the largest ad buying platforms on the internet, and our partnership with them speaks to the quality of our audiences and the engaging advertising experiences our communities provide. A key component of our partnership is the launch of Open Pass, which is a direct connection from Trade Desk into our programmatic auctions, bypassing supply-side platforms and other ad tech intermediaries. We expect this connection will lead to more auction pressure and stronger CPMs. providing an additional tailwind to our programmatic business. Turning quickly to M&A, as Rob mentioned, we completed one small community acquisition after the quarter end. It's a boating community that will really benefit from the experience that the Fora platform can deliver. We're building up our near-term pipeline of form acquisition opportunities, but we will be very selective and we'll close on the most attractive deals as our Fora platform continues to flourish. With that, I'll now turn it over to Vince to walk you through the rest of our financial results.
spk00: Thanks, Chris, and good morning, everyone, and thank you for taking the time to join our call. As indicated by Rob and Chris, we are encouraged by the organic growth trends across our business. These growth results underscore the effectiveness of our core initiatives, which included increasing monetization, optimizing our operations, and strengthening our financial position. Collectively, these initiatives are positioned to drive continued growth and value for our users, customers, employees, and shareholders. This quarter's results demonstrate the power of our strategy. Operating expenses dropped by 18% year-over-year thanks to prior period optimizations. These optimizations included aligning our workforce with high growth areas and value creation for shareholders, as well as streamlining platform-related costs like hosting and ad tech. These improvements helped drive free cash flow conversion and margin expansion in the period. with 70% growth in adjusted EBITDA and a 13 percentage point improvement in adjusted EBITDA margin, which was 36% for the period. Our free cash flow for the quarter was strong, up 120% compared to last year, on near-perfect conversion of 99%. This conversion was positively impacted by proactive changes to our cash tax strategy to drive a tax-efficient structure for our global operations. This initiative resulted in a cash tax refund of $418,000 in the quarter relating to our prior period filing. Excluding this refund, our free cash flow conversion would have been 91% in the quarter. As described by Rob earlier, we are harnessing a three-pronged approach to capital allocation with a focus on debt repayment, share buybacks under the NCIB, and tuck-in M&A. We have a proven track record of using our strong free cash flow to improve our financial position. Since January 2022, we've reduced our principal debt balance by an impressive 36% or $28 million, demonstrating our commitment to financial strength even amidst challenging macroeconomic conditions. On the last call, we noted being under two times leverage at some point in 2024, and we have delivered through improved results and our financial discipline. In the quarter, we made $2.4 million in voluntary repayments towards our credit facility and realized a net leverage ratio as defined by our credit facility of 1.8 times, a 14% decrease in leverage when compared to a 2.1 times to start the year. As of today, we have made a total of $5 million in voluntary repayments towards our credit facility and have over $70 million in liquidity, which includes cash on hand and available funds that can be drawn under our revolving credit. Building on our successful navigation through a challenging macroeconomic environment, we continue to see positive momentum in both financial results and MAUs. This strong foundation will continue to fuel our strategic initiatives, further solidifying the competitive and profitable advantage of our user-generated content model. This continues to be a pivotal moment for forums and our forum communities. We are well positioned to capitalize on these exciting opportunities and deliver even greater long-term value for our employees and shareholders. And with that, I'll pass it back to Rob for closing remarks. Rob?
spk10: Thanks, Vince. We're excited about the future of the Forum platform and delivering on continued long-term growth for our shareholders. With that, we will open it up for questions.
spk06: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind at any time, please press star then two to remove. And we will pause here for a moment while questions are registered. Your first question comes from Drew Reynolds of RBC.
spk09: Yeah, thanks very much and good morning. My goodness, what a difference a year makes here. So three for me, just mainly at the high level. First on the digital advertising market, the overall environment. Previous commentary has been you regaining momentum based on all the company-specific initiatives that you've put in place over the last several quarters. Just wondering on the broader environment, You know what the trend is there to what extent are you seeing a tailwind emerge at the second one on just the E commerce outlook here it sounds a little bit more. Positive I think underpin by the ma you grow some you know, maybe rob can you talk a little bit about the company specific initiatives that you kind of have in the pipeline looking out the next year or so there. And then lastly, just on the M&A pipeline, maybe for you, Chris, just where is the environment today different than perhaps a couple of years ago? Thank you.
spk04: Great. Thanks, Drew. Chris here. On the advertising market overall, for sure, as we've indicated previously, it's been largely internal initiatives that have really turned the corner for us. You know programmatic ad stack video being a big a big part of that and it you know and obviously that's still a significant part of what we're seeing in the overall growth. You know, although we do think that there is an aspect of improving overall macro conditions in the in the digital ad market, particularly, we see that. with competitors in their commentary. We see it with programmatic CPMs, which for us, it's a pretty quick, when that starts to materialize, you see it pretty quickly through auction pressure. And that has been getting progressively stronger. So that's been a really good signal. And then also on the direct side of their business, which has a bit of a lag when you see that come in compared to programmatic, very good signs with some of our key advertisers with respect to spending intention. And so when you combine those things, we think there are definitely aspects of an approved market there that we're looking forward to capitalize on this year. The second question with respect to e-commerce, You know, as I alluded to in the commentary, you know, a significant portion of that commerce revenue is coming from our forum communities. And, you know, as Rob alluded to, there's just really tremendous momentum in MAU growth there. So just the sheer volume of people accessing the platform will, you know, support, we think, improving trends on on commerce, but at the same time, as Rob mentioned, from the product perspective as to the things we're going to continue to roll out, it's really surfacing that great data that we have and the great information that exists in the communities in a way that's more and more intuitive for users so that they can access the information and then act on the information that much better. So we do think that will continue to be a good source of opportunity. And then lastly on M&A, so, you know, the pipeline is definitely building. As we mentioned, you know, we're really looking for, you know, down the fairway opportunities, communities that fit our, you know, product orientation and that, you know, we know will benefit from the platform improvements that FORA can provide. So there's no specific timeline as to when we'll, you know, execute particular deals or anything like that. As both Rob and Vince mentioned, you know, we benefit from patients as well as our financial position continues to strengthen. So, you know, we'll act opportunistically on great opportunities and that'll be the way we continue to do things going forward.
spk09: That's great, Chris. And just a very quick follow up on that just in terms of, you know, a leveraged ceiling if you will, in terms of, you know, what you wouldn't want to kind of exceed as a threshold. Is there something that you have in mind? Is it kind of any different to what it was, you know, pre-downturn a couple of years ago?
spk00: Yeah. Hey, Drew, this is Vince. It's not necessarily different than, you know, a couple of years back. We've operated, you know, as high as three times. And if there is something out there that we feel is worth you know, heading into that territory again, we'll take a look at it, but obviously always with the notion that we'll, you know, pay that back and bring that leverage down quickly soon thereafter. So, no different than sort of, you know, past strategy when looking at M&A. Super. Thanks very much.
spk06: Thank you. Your next question is from Vince Valente from TD Cowen.
spk11: Yeah, thanks very much. First on that M&A question, when you say tuck-in, just want to make sure, because it obviously was not in the first quarter of financials. We'll see it in the second. Would that be like less than a million dollars, one of those really small ones, or something bigger than that?
spk04: Yeah, Vince, less than a million was the purchase price of the deal that was closed after the quarter.
spk11: Thanks, Chris. Second question, as you probably know, Reddit seems to focus on slightly different user metrics daily and weekly. Makes it a little difficult for us to make the comparison, although I think most of us analysts acknowledge that the gap is pretty wide no matter what metric you look at. But to make it easier for us, is there any way you can start giving us DAU or at least weekly?
spk10: Hey Vince, I can take that one. It's something we're looking at and considering kind of how we want to disclose. And I think everybody tends to, you know, frankly report to their strengths a little bit. So Reddit obviously is stronger on the DAUs given the types of content and user base that they have. And our strength is more in our MAUs. And I think from that perspective, you know, probably compare more favorably. We're not saying we're bigger than Reddit, but a more favorable comparison versus if we started disclosing DAUs. So it's something we'll think about, but it is definitely something that internally we're working on. Thanks, Rob.
spk11: Maybe I can sneak in two more quick ones. One, the position of strength in discussions with with GEN AI LLM providers. That's nice, but is there any sense of when you'd expect something to happen? Is it something you'd hope for in the middle of this year, or it could take longer?
spk10: I still think, Vince, it's probably to our benefit around taking our time with this and getting it right. Frankly, I think with the existing organic revenue initiatives that we have ongoing, this isn't something that we need to close ASAP. And quite frankly, I do feel like there's a bit of a rush in the market. And the LLMs are trying to negotiate based on having lots of opportunities and lots of options. So from my perspective, I don't wanna set any timelines or deadlines, but again, I think what we said on last call is like, let's not model it into this year because we want to make sure that we get the strategy and the providers or licensees correct. And these deals can take many forms, whether it's a larger exclusive deal with one party or you know working with many many parties um and it just depends on you know how much you want your data out there so i think it's a pretty complex process and one that i i don't want to um you know kind of be working against um outside or market pressures to do it before a certain deadline yep fair enough last one uh for vince probably the
spk11: Can you just confirm for us the dip below 40% this quarter is just more of a seasonal pattern or ad revenue is not as robust in the first quarter and you're still confident in north of 40 in subsequent quarters?
spk00: Yeah, that's correct Vincent. Thanks for the question. So it is all seasonal driven. The Q1 is historically the low point. from result and margin perspective, but you'll see that subsequently, you know, increase as the year progresses with Q4 being sort of a high point from a margin perspective. So, you know, the 40 mark and north of 40 in those seasonally high quarters I think is realistic.
spk11: Excellent. Thank you.
spk06: You now have Stephen Lee with Raymond James.
spk03: Thank you. Hey, Rob, Chris, Vince, very good start, guys. A few questions from me. Rob, your prepared remarks, did you actually say how much your forum MAU was in the quarter?
spk10: Yeah, forum MAUs were $75.7 million. Okay, perfect. For the first two months. Yeah.
spk03: Yeah. And the non-forum MAU that I assume has been weaker, what's your outlook there? Are they close to bottoming? What are the headwinds they're facing?
spk10: Yeah, I think they are close to bottom. And, you know, the opposite really of what our forums have been seeing is a lot of that those non-form properties are kind of professionally generated content, product review content, streaming, you know, where to find streaming options, et cetera. And those markets have been hit by these product review changes that have been to the benefit of Vora.
spk03: Okay, got it. And then from an output perspective, Forum and non-forum MAU, do they generate the same ARPU on average? Thanks.
spk10: From an ARPU perspective, you know, forums definitely I think over the long term here are going to produce a higher ARPU because of the higher engagement levels. We definitely stand to benefit from more traffic moving to the forums over the long term.
spk03: Okay, that's very helpful.
spk10: Thanks, guys.
spk06: Thank you. We now have Aravinda Gelapavich from Clanacord.
spk05: Good morning. Thanks for taking my questions. Congrats on the quarter. I wanted to go back into the questions around M&A, perhaps for Chris. I know that you keep a close eye on these targets for an extended period of time. What you're seeing now in the pipeline, I was interested to know, is that the same cluster that you were looking at for a while, or are you seeing new targets emerge? Then, given the experiences you had over the last couple of years, including what the factors that Rob talked about as well as sort of, you know, you have a sense of the ad resilience of some of these platforms. How has your criteria changed when you consider M&A now as opposed to perhaps a couple of years ago?
spk04: Yeah, thanks, Irvin. Great question. So, you know, with respect to So maybe I'll deal with the second part of your question first, just as far as criteria has changed. A couple of years back, I think we had probably a broader perspective on the types of properties we'd want to acquire. And I think what we're seeing is the core of our business is so strong. The business model itself is incredibly powerful. And so forums and forum opportunities are really where we want to play. We can add the most value to those acquisitions. The fundamentals around our business will support those acquisitions. And so that's really where the focus is going to be. We're not going to go more broadly. We're not looking at acquiring technology or anything like that. Our acquisitions will be in the forum space. And to deal with the first part of your question, the opportunities in the universe that we have of independent forums is massive. There are still thousands of independent communities that exist out there. We are in touch with many of them because we've been at this for a very, very long time. Our pipeline, we consider it to be proprietary. And in a lot of cases, we are the only logical buyer. for a lot of these sites. So I wouldn't say that there are new, brand new opportunities that we hadn't seen before or heard of before that have come about, and that changes our perspective on the M&A outlook. What I would say is we're now in a position where we can, given our financial strength, action some of these opportunities and really focus on the cream of the crop. as we get back into a more forward position on M&A. In some cases, these are targets that reach out to us after having reached out to us years and years ago. We keep up these relationships for a long time. That's really the way to think about our M&A pipeline. It's proprietary to us, and we can be very selective as to what we choose to close on.
spk10: And maybe just adding to what Chris said, you know, I think, sorry, I was just going to add, Aravinda, that, you know, I think there is a bit of, because we haven't been acquiring and because we are the only natural buyer, a bit of a backlog of sellers. There's, you know, been people contacting us over the past year and a half that have been interested. So we're able to be picky here. Um, but form acquisitions generally tend to be kind of a couple hundred thousand to low millions. Um, so it's more of a volume play. It is the proprietary pipeline. And what you won't see from us is, you know, when we look back to November, 2021, and, um, you know, we did, you know, the deals with the streamable and home talk. where you put tens of millions of dollars to work in a day, that's just not gonna happen in the form space. It's much more spread out and we get to kind of be a little more picky and buy stuff that we really like, but they're smaller deals and they're just incredible free cashflow and immediately accretive. There's no major integration work, et cetera. So that's what we're excited about in the form space.
spk05: That's really helpful. Thank you. And just a quick one on the MAUs. Rob, I think you've been quite helpful in the past sort of talking through some of the algorithm changes, the bigger ones. Maybe just remind us when the last one was. I'm not even sure where nowadays you get these maybe incremental adjustments that are sort of spurring traffic in your direction. Maybe a little bit of an update on that front. Thank you.
spk10: Sure. Yeah, we watch these algorithm changes, which nowadays, they're almost constant. Between machine learning and the user behavior shifts, what we're seeing is that search has really become a constantly moving technology. and and for us that's really been to our benefit especially as as these new tools like perspective which has now become forums um have rolled out so you know i think the last real major update google did was their their march algorithm um which finished rolling out i think in april 20th or something along those lines um so you know for us it's um constantly moving and helping accelerate MAUs as users are able to discover our sites and the authentic perspectives that our communities are delivering to those search users.
spk05: Great. I'll pass the line. Thank you.
spk06: Thank you. We now have David McFadgen. Oh, hi.
spk02: Yeah, thank you. A couple of questions. So just following up on the last question, the last conference call we talked about the potential for a large Google algorithm update. So I guess you were just referring to that. That's what happened, right? It didn't seem like it had any impact in Q1.
spk10: Hey, David. Yeah, just on the Google algorithm, the last one was the March update. And yeah, that's now fully rolled out. And I think as we mentioned previously, our MAUs have continued to accelerate into Q2 on a year-over-year basis.
spk02: Okay. So when you talk about Q2, you know, you talk about acceleration. Can you give us an idea on a percentage basis how much you think the digital advertising revenue might grow?
spk10: Yeah, I don't think we're providing guidance on Q2, but we expect it to be better than Q1.
spk02: In terms of year-over-year growth?
spk10: Correct.
spk02: Okay. So just on e-commerce, when do you think we're going to see that business bottom out and then maybe flatline or grow?
spk04: Yeah, I think e-commerce... All right, go ahead, Chris. Yeah, sorry, Rob. David, Chris here. So we think we're getting really close. As we mentioned, a lot of that activity is coming from our forum properties. 65% of the overall e-commerce revenue subscription-based is a lot more sticky. The e-commerce on the forums is benefiting and will continue to benefit from the MEU trends. we're seeing, so we're pretty close. You also just have to keep in mind that e-commerce overall is 15% of the total revenue, right? So it's not hugely impactful as far as when we see percentage change in that part of the business, but we're pretty close to it being bottomed out.
spk02: Okay. And then just on the digital advertising, you talked about video, how you're starting to monetize video. Just kind of wondering, where are you at in the monetization of video? Can you give us any idea of that?
spk04: Yeah, so we've been really pleased with how video has been rolled out across the platform. We've done it in a way that really respects the user. And we're early days on programmatic from a monetization perspective. mostly focused on programmatic at this stage. We think there's a significant opportunity with direct sales. The cycles there, of course, are longer as we kind of build up the data on what we can offer from a video perspective. And we think there's really great long-term potential on direct. But again, we've been really happy with just the progressive growth that we've seen in video revenue. So, you know, we think there's still a fair amount of upside there.
spk02: Okay. All right. Thank you.
spk06: Thank you. We now have Adam Schein of National Financial Bank.
spk08: Thanks a lot. Good morning. Rob, obviously full credit on the recovery and momentum we're seeing in the business. Will we build a little bit on some of the David questions? Is there a potential that, you know, we see double digit growth for 2024? And I say that obviously within the context of, I know you were reluctant to guide on the Q2, but you just gave David, you know, the context that you're going to see some better growth in Q2 compared to the Q1. You know, things started to improve, of course, in the back half of last year, the comps become higher. a bit more difficult. But if indeed you're seeing opportunities to further monetize and additional opportunities ahead, I'm comfortable with at least a double-digit revenue growth. And just maybe going back to Vince on the last call, I think he talked about flattish margins, 24 versus 23. I don't know if maybe that has changed and nuanced up a little bit. Thanks.
spk10: Yeah, Vince or Chris, do you want to take the request for guidance and give any further comments?
spk04: Yeah, I mean, I'll just, as Chris here, I'll let Vince comment on margin. But yeah, Adam, I don't think we'd have a lot more to say as far as guidance for the year. You know, clearly the year started out on a strong note. we've seen that momentum continue into Q2. And I think for now, that's what we'd be comfortable saying on it with respect to revenue for the year.
spk00: Yeah, hey Adam, it's Vince. And just from a margin perspective, we still feel margins will be in line with last year, but these exciting trends obviously will have an impact on that for the year. But this sort of 40% range is where we feel comfortable right now in terms of a margin perspective. You know, we continue to invest in the platform. We continue to expand our engineering and product team where needed to meet sort of these core initiatives around the mobile app, et cetera. So that also weighs into sort of where we'll land at the end of the year. And hence, you know, staying relatively flat within that 40% range is realistic.
spk08: Okay. Thank you very much.
spk06: Thank you. We now, I apologize, as a reminder, to ask any further questions, you may press star followed by one on your telephone keypad. And we have the next question from Adhir Kadav from AIDS Capital.
spk07: Hey guys, good morning and congratulations on the quarter. Maybe I'll jump on the M&A question in a different manner. But what does that wish list look like? I know in the past you guys have talked about, you know, commercial products. I know you're going to focus on communities, but is there a specific product type you'd be looking for or potentially from a verticals perspective that you kind of want to fill some white space that you currently don't have in the roster right now?
spk04: Chris here. No, not really. Nothing specific. You know, the great thing about the communities that we own, and Rob alluded to this in his remarks, is these aren't fads. These are product categories that tend to stick around and durable products in a lot of ways that people are spending a lot of time researching to make informed purchase decisions around. We just think that that's higher quality content, more valuable generally. So that's where we'll continue to focus, but we won't necessarily... limit ourselves or focus in on one kind of wishlist category where we'll complete deals.
spk07: Okay, great. And then maybe just on the cookie deprecation, it looks like it's being pushed back again. How are you guys thinking about this and how do you think the platform is benefiting? We've kind of been under this assumption that it's going to go away at some point. I think that's still the case, but Google continues to push it back. How are you guys thinking about the cookie deprecation in terms of your platform?
spk04: Yeah, thanks, Adhir. You're right. Google had originally signaled that it was going to deprecate third-party cookies by the end of this year, and that has been kicked down the road to, I think, sometime in 2025 was the last indication. This has happened several times. You know, nothing's changed as far as our view of the opportunity that exists when third-party cookies go away. What's really special and powerful about our platform is we've got 65 million plus registered users. And that continues to grow as our MAUs grow. So we have a huge amount of addressability with respect to our audience. The other thing is we have contextual relevance. And our strategy from the very beginning, as Rob alluded to, focused on product categories give us this high, highly contextual nature of the content that exists within the communities. So, you know, a third party cookie signal goes away, the value of that contextual relevance, the value of our addressable audience will just go up, right? So we think it supports our direct business, it supports our programmatic business, it's one of the reasons why, you know, the Trade Desk sees us as a really great long-term partner.
spk07: Okay, great. Thanks, Jason. I'll pass on.
spk06: Thank you. As a reminder, to ask any further questions, please press star followed by one on your telephone keypad now. I can confirm we currently have had no questions registered, so I'd like to hand it back to our founder and CEO, Rob Laidlock, for some final remarks.
spk10: Great. Thank you, everybody, for joining us today. And we look forward to seeing you all again on our Q2 call. Have a good one.
spk06: Thank you all for joining. I can confirm that does conclude today's conference call with Vertical Scope. You may now disconnect your lines and please enjoy the rest of your day.
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