VerticalScope Holdings Inc.

Hello and good morning everyone and welcome to the Vertical Scope Holdings Incorporated Q3 2025 Earnings Call. My name is Emily and I will be coordinating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing star followed by the number 1 on your telephone keypad. I would now like to turn the call over to Diane Yu, Chief Legal Officer to begin. Diane, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Vertical Scope Holding's third quarter 2025 earnings call. I'm joined by Chris Goodridge, our chief executive officer, and Vince Bellissimo, our chief financial 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 a company's management discussion and analysis for the three- and nine-month period ended September 30, 2025, which is available under the company's profile on CDR Plus 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 the decision. 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 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 Chris Goodrich, CEO of Vertical Scope. Chris?

Thanks, Diane, and good morning, everyone. It's a fast-moving environment, and despite some short-term volatility in our monthly active user base, I'm really encouraged by how our teams are navigating this change and focusing our efforts on growth. The strategy that we articulated on our last call is our blueprint for driving organic growth and continuing to build our platform and cash flow. We're building stronger direct relationships with our users, making their experience richer and more useful with AI, and turning that direct engagement into diversified revenue streams. And we'll use our free cash flow and financial capacity to pursue growth opportunities that further our strategy and positioning in a more AI-centric web. We believe that the most enduring and successful online experiences will be protected spaces with micro communities of trusted users. This has been the core of our business model for years and will continue to be the foundation of our long-term success. Turning to our results, I'll start with some observations on our MAUs and the trends we're seeing. We averaged 83 million monthly active users in Q3, which was down from the record levels we experienced last year as a result of a surge in search-based traffic. However, Q4 started on a much stronger note, with MAUs surpassing 90 million in October, and we saw gains across all major traffic sources, and most importantly with direct users, which were up nearly 60% over last year. With the majority of our MAU now coming from non-Google sources, we think the worst is behind us and expect to see MAU growth going forward from direct and other sources. Beyond direct and search, we're also seeing opportunities to grow our paid sources of traffic and to efficiently acquire new users who will be members of one or more of our communities for years to come. Paid channels have historically been a minor source of users for Vertical Scope, but we believe this is an important channel to drive additional user growth in the years ahead as search experiences become more fragmented and people increasingly seek out authentic perspectives from real users to validate information they receive from AI. When you combine our efforts to grow direct users with paid channels, we're well positioned to grow our total user base from here. Vince will go through our financials and details shortly, but I wanted to offer up a few observations. First, our revenue improved modestly on a sequential basis in Q3 and came in at $14.7 million. When we compare back to last year, revenue was 17% lower, essentially all as a result of programmatic ads tied to search traffic. Second, aside from programmatic, all major sources of revenue were either flat or up in Q3. Direct advertising has been very resilient and was up 3% year over year, as we saw a nice pickup with some key auto, power sports, and insurance customers in the quarter, driven in part by new immersive experiences we're making available to brands. E-commerce grew by 40%, mainly as a result of the ritual acquisition, with the rest of our subscription and transaction revenue sources remaining stable. We're still seeing plenty of opportunity to build up commerce, both in our core community experience, but also with Ritual. When you combine our solid direct advertising results with e-commerce gains, ARPU pushed up 21% over last year and reaching its highest level that we've seen in three years and demonstrates our ability to generate more value, even with volatility in MAU. I think most impressively in the quarter, though, was adjusted EBITDA improving by 45% over Q2. margins exceeding 40%, and our free cash flow conversion growing to 94%. This result clearly demonstrates the strength of our business model and the adaptability of our team. Turning to product initiatives, AI continues to open up completely new experiences for our users and is increasingly providing us with operational gains. Machine translations are introducing our communities to new audiences speaking German, Spanish, Portuguese, Dutch, Polish, and French. and AI summaries are making it easier for new users to find what they're looking for in threads. We're most excited about the potential of our AI community assistant, 4afrank. We introduced 4afrank last quarter and we've continued to roll it out across our communities. Its main purpose initially was to encourage posting activity from our users and help them ask better questions to elicit higher quality responses. We're taking a lot of inspiration from how other platforms have successfully used conversational AI to drive engagement. including the X platform and how it's deployed rock. Our early results suggest that thread engagement increases by over three times when 4Frank is mentioned. So we're looking for more ways to grow 4Frank's visibility and distribution within the communities while continuing to improve its capabilities. Our goal is to have AI enhance the human experience within our communities, not to replace it. There are so many interesting applications we see for the technology. For example, with our SMB subscription product, 4frank can help our customers post and drive more engagement with their content, adding value and improving retention. We've also built an AI prospecting tool for our sales team that identifies new potential customers and incorporates relevant community content into our outreach messaging. We see this as a game-changing capability that we believe will boost the efficiency and close rates of our sales team. Beyond the work to improve our community experience and grow direct sales with AI, we're starting to envision completely new AI-driven services powered by our rich data sets and that can leverage our distribution to millions of users. It's very early, but we're excited about these opportunities and we'll have a lot more to say in the quarters ahead. Turning to our data license efforts, I'm keenly aware that we've been discussing this opportunity for several quarters. This space is evolving very quickly and I believe our patient approach will pay off. We're at the very beginning of a major shift with how content on the web is both created and consumed and how consumer decisions will be made. We know that users like the experience of engaging with an AI chatbot, and we expect that they will also start to transact more within those experiences. But for that to happen, to be a great user experience, the AI must have access to the best data available. Over the past several months, we're starting to see a shift in market conditions as the lack of a real value exchange between LLMs and content owners becomes an increasing source of friction. For example, major lawsuits have been filed against the LM companies, including Reddit's recent lawsuits against Anthropic, Perplexity, and a host of other data scrapers for the alleged unauthorized use of Reddit user content. In parallel, industry efforts are underway to establish standards for data licensing and compensation through the RSL Collective, a nonprofit organization that is using the music industry as a model and which is supported by a number of significant platforms, including Reddit, internet brands, and Vertical Scope. And finally, we're seeing key players powering the infrastructure of the web, taking steps to close off access by AI companies. Cloudflare, which is approximately 20% of total internet traffic flowing through its network, has been particularly active on this front and is now blocking AI scraping by default. Base model training is obviously still relevant for LLMs, but we see bigger potential opportunity with AI companies requiring access to the most up-to-date information through retrieval augmented generation. We expect this need to accelerate as more and more AI services are launched and scaled. As this happens, we believe that access to accurate, up-to-date information will be critical. Data quality will be the currency. Our communities contain the authentic, high-intent human context that AI agents need to understand what people actually want to do, and we believe this positions Vertical Scope as part of the foundational data layer for this new agentic web. So where are we at with all this? We've taken steps over the past several quarters to block all known AI scrapers at the CDN level. We have very clear terms of use that prohibit scraping outside of a licensed relationship, and we're regularly updating our robots.txt to disallow AI scraping. Another big step forward on this front is our recent partnership with Tolbit. Tolbit's technology integrates with our CDN to intercept AI scraper traffic and redirect it to a paywall. From there, the AI company can either pay our set rate to start scraping, or contact us to license access to a richer structured data feed through our API that would come at a premium. We've been working through the process of onboarding Toolbits across our network of communities over the past few weeks and are close to completion. Toolbits Analytics Week gives us a detailed view of AI bot activity we can detect across our communities. And early data highlights just how aggressively AI systems are trying to access our content. To illustrate the point, 12-bit data from the past week detected scrape attempts, which we're actively blocking, outnumbering real users in some cases by up to 13 times. While this reflects only the activity we can observe, it underscores the scale of AI demand for our data. We're actively monitoring this changing landscape and continue to evaluate how regulatory, legal, and commercial developments may affect our strategy. At the same time, our capabilities are improving Our sense of demand and value is growing. We intend to surface that value in a way that best serves our communities and shareholders for the long term. Finally, before passing it over to Vince, I'll offer a few comments on capital allocation and M&A. We've made four small acquisitions so far this year, and we expect to complete a couple more small ones before the year end. We continue to see higher inbound activity, which we think is tied to how smaller companies are navigating the broader industry change. Again, we think our shareholders will be best served by a patient approach, and so we expect to continue to accumulate cash and build capacity to pursue larger opportunities that will accelerate our long-term growth strategy. And with that, I'll turn it over to Vince to walk through the numbers.