VerticalScope Holdings Inc.

Hello everyone and welcome to the Vertical Scope Holdings Incorporated Q3 2024 earnings call. My name is Emily and I'll be coordinating your call today. After the presentation, there will be the opportunity for you to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now hand over to our host, Diane Yu, Chief Legal Officer to begin. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Vertical Scope Holding's third quarter 2024 earnings call. I'm joined by Rob Laidlaw, our founder, chair, and chief executive officer, Vince Bellissimo, our chief financial officer, and Chris Goodrich, our president and chief operating officer. We'll begin with commentary on the quarter before opening the floor to questions. Before we begin, I'd like to remind everyone that today's presentation contains forward-looking information that involves known and unknown risks, 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 and nine month periods ended September 30th, 2024, which is available under the company's profile on CEDR Plus, as well as on the company's website. We 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 VerticalScope. Rob?

Thanks, Anne. Good morning, everyone, and thank you for joining us today. Our business performed well in the third quarter of this year, growing revenue by 15%, while serving a record 122 million MAUs, up 21% over last year. There is very strong demand for our communities right now, and while we expect to lap some strong quarters from 2023, we continue to see positive MAU growth headed into Q4 and 2025. AI content and AI overviews are continuing to drive more users to seek out the authentic content that is found on Fora, Reddit, and other user-generated content communities, while traffic from AI search bots is just beginning but is also growing rapidly. We believe this will be a years-long trend as user behavior has shifted. As we break down our revenue growth, we saw digital advertising grow by 22%. with strong demand for programmatic advertising leading to a 36% increase. Programmatic is one of the core strengths of our team and platform and allows us to capitalize on increased MAUs and scales effortlessly. It is high margin and now makes up 71% of the channel. On the direct advertising side, we were flat for the quarter but concluded Q3 with some strong momentum as we signed a major automotive OEM for Q4 and have another in the works for late Q4, Q1. We expect to see direct return to double-digit growth as we start to recognize these revenues. Overall, last quarter I mentioned the ad market was tepid, and I would say this narrative is finally improving. With a run-up to the U.S. election, CPMs began Q4 very strong, and we are seeing nice momentum building into the holiday shopping season, and as mentioned previously, with some key direct sales clients. We are hopeful that this time the momentum in the ad market will carry forward and feel this is likely with a new administration bringing out a greater risk and investment appetite in the United States. Turning our attention to our profitable business model, our adjusted EBITDA grew 9% versus last year, coming in at 7.4 million, while free cash flow increased 7% to 6.4 million. This level of free cash flow is sustainable and gives us a wide variety of options to grow our business organically and through M&A. Speaking of M&A, we are close to making our second small token acquisition while ramping up our team size. We think there is a better deal-making environment around the corner and will be prepared to close on an increased number of transactions. Interestingly, we are seeing some fast-growing upstart communities that are new on our radar. Some are break-offs of subreddits, and others are entrepreneurs just starting out. There's more interest in the sector, and it is great to see, and that is leading to more opportunities. Our pipeline is growing, and we think 2025 will be fruitful for Forum Tuckin. We are building an impressive financial position at Vertical Scope. Our debt is down to less than $40 million as of this call, and we are now at 1.3 times leverage. We have plenty of dry powder available on our balance sheet and through our new credit facility to make deals happen. We will be patient to only take swings on deals we love, and that will be immediately accretive to our business. Product wise, we are continuing to invest in our For All mobile app and exploring more deeply some of the opportunities available to us around product ownership, user created communities, and emerging technologies, including both AI and blockchain. We view both of these fast emerging technologies as providing us with credible opportunities to grow our user base, improve retention, and increase engagement. We are in the very early days of exploring opportunities around further enhancing and verifying the authenticity of our users, potentially using blockchain technology. We think it could help to further differentiate our communities from Reddit, and highlight the verified authenticity of our users and the products they own. Similar to Reddit, we are seeing a lot of the same growth opportunities with AI technology, including using it to increase engagement and also drive new audiences, including international audiences. AI provides us a lot of opportunities with a 2 billion plus post content corpus. and we look to report back some concrete results in future quarters. Lastly, we did not sign any LLM deals in the quarter. The process towards finding the right licensing arrangements will continue into 2025, and we remain patient and steadfast in our belief that this will one day be a meaningful contributor to our business. We do not intend to provide any further comments on the timing or quantum of potential deals in our pipeline. With that, I'll turn it over to Vince and Chris.