VerticalScope Holdings Inc. (FORA) Earnings Call Transcript & Summary

Welcome to the Annual General and Special Meeting of the Shareholders of VerticalScope Holdings Inc. Please note that the meeting is being recorded. I would like to introduce Diane Yu, Chief Legal Officer, and Corporate Secretary of the company, who will provide some introductory remarks before the formal portion of this meeting. Diane, please go ahead.

Good afternoon, and welcome to the 2024 Annual General and Special Meeting of the Shareholders of VerticalScope Holdings Inc. My name is Diane Yu and I am the Chief Legal Officer, and Corporate Secretary of the company. Before we begin the formal proceedings, I would like to introduce the following members of our Board who are present at today's meeting. We have Rob Laidlaw, Wayne Bigby, Philip Evershed, Cory Janssen; and Michael Washinushi. In addition to myself, the following members of management are present for today's meeting. Rob Laidlaw, the Founder, Chief Executive Officer, and Chair of the Board of Directors; Chris Goodridge, the President and Chief Operating Officer; and Vince Bellissimo, the Chief Financial Officer. This meeting is being held as a completely virtual meeting. The meeting will be conducted in the same manner as an in-person meeting, and our goal is to replicate the experience you would have had if we were able to come together today in person. We would like to remind you that only registered shareholders and duly appointed proxy holders who have signed in using a control number are able to ask questions during the meeting. Instructions on how to ask questions are on your screen. In order for us to run the meeting efficiently, I will pause before calling for a vote on any matter of business to allow time for any questions on that matter of business. General questions will be addressed during the question period following the conclusion of the formal business to be conducted at the meeting and the business update. Voting at today's meeting will be conducted by online ballot for all matters. Registered holders of subordinate voting shares and multiple voting shares who we will refer to as registered share will just ease and their duly appointed proxy holders who have signed and using a control number may vote on the online platform with respect to each item of business once I advise that the polls are open and until I declare the polls are closed. Instructions on How To Vote are on your screen. Please remember that if you have already voted by proxy and you vote again during the online ballot, your online vote will revoke your previously submitted proxy. If you have already voted by proxy and do not wish to revoke your previously submitted proxy, do not vote again during the meeting. We have 3 matters of business to be considered at this meeting, being the election of the directors, the reappointment and remuneration of the company's auditors for the coming year and the renewal of the Omnibus Incentive Plan. And the approval of all unallocated options, rights, and other entitlements thereunder. The results of the votes on each matter will be announced prior to the close of the meeting. Each item of business requires a majority of the votes cast by holders of the subordinate voting shares and multiple voting shares voting together as a class with each multiple voting share by representing 10 votes per share and each subordinate voting share of representing 1 vote per share be voted in favor in order for the resolution to pass. I will now hand the meeting over to Rob Laidlaw, our Founder, Chief Executive Officer, and Chairman to conduct the formal business of the meeting. Rob, please go ahead.

Thanks, Diane. Welcome all to the Annual General and Special Meeting of the Shareholders of VerticalScope Holdings Inc. The meeting is now called to order. In accordance with the bylaws of the company, I will preside as Chair of this meeting, and Diane, you will act as Secretary of this meeting. I appoint Rebecca Prentice of TSX Trust Company to act as the scrutineer for the meeting. In order to make the best use of our time, certain shareholders have been asked to move and second motions relating to the business to be conducted at this meeting that is not intended in any way to limit your right to participate in this meeting. I now declare that the polls are open for voting on each item of business. The notice calling this meeting and the management information circular describing the business of the meeting have been made available to holders of subordinate voting shares and multiple voting shares of the company as of May 6, 2024. Copies of the 2023 audited annual financial statements of the company and the auditor's report thereon as well as the related management's discussion and analysis are available on the company's website and under the company's profile on SEDAR+. Accordingly, I will dispense with reading of the notice of meeting. Prior to the commencement of this meeting, the scrutineer filed a preliminary report on attendance and the Secretary has confirmed to me that there is a quorum of shareholders present at this meeting. Accordingly, the meeting is duly and properly constituted for the transaction of business. I direct that the confirmation of mailing of the Notice of the Meeting and Management Information Circular received from TSX Trust Company and the scrutineers' complete report on attendance be attached to the minutes of the meeting. We will now proceed with the presentation of the company's audited consolidated financial statements for the year ended December 31, 2023, and the auditor's report thereon, which are available under the company's profile on SEDAR+. I declare that the company's audited consolidated financial statements for the year ended December 31, 2023, and the auditor's report thereon have been received. The next item of business at this meeting is the election of the directors of the company. The number of directors to be elected at this meeting is 5. The management information circular contains the names and backgrounds of the 5 individuals that have been nominated by the company for election as directors until close of business of the next Annual General Meeting. I now declare the meeting open for nominations. In the interest of expediency, I will ask Diane Yu, Chief Legal Officer, and Corporate Secretary of the company to make the nominations on behalf of management of the company.

I nominate each of the persons specified in the management information circular delivered with the notice of meeting, namely Rob Laidlaw, Wayne Bigby, Cory Janssen, Michael Washinushi, Philip Evershed, to serve as directors of the company in to hold office until the close of the next Annual Meeting of Shareholders of the company or until their respective successors are duly elected or appointed.

As the company did not previously receive timely notice of any further nominations of persons for election as directors of the company, as required by the advanced notice provisions of the company's bylaw #3, I declare that nominations closed. In order that a vote may be held on the matter, I request a motion that the 5 persons nominated as directors of the company be still elected.

I so move.

I second the motion.

Before I call for a vote on the nominated directors, I will pause for a moment to allow for any questions on the matter to be submitted.

I confirm that we have not received any questions relevant to this motion.

Thank you. Registered shareholders and duly appointed proxy holders who have signed in using a control number can now vote by online ballot. [Voting]

I will now proceed with the next item of business and report on the votes at the conclusion of this meeting. We will now proceed with the reappointment and fixing of the remuneration of the auditor of the company. In order that a vote may be held on the matter, I request a motion that KPMG LLP be reappointed as the auditor of the company until the close of the next Annual Meeting of the Shareholders of the company and that the Board of Directors of the company be authorized to fix their remuneration.

I so move.

I second the motion.

Before I call for a vote on the motion, I will now pause for a moment to allow for any questions on this matter to be submitted.

I confirm that we have not received any questions relevant to this motion.

Thank you. To registered shareholders and duly appointed proxy holders who have signed in using a control number can now vote by online ballot. [Voting]

The next item of business is the renewal of the Omnibus Incentive Plan and the approval of all unallocated options, rights and other entitlements thereunder as described in the management information circular. This approval is required by the TSX every 3 years. I now ask for a motion on this matter.

I so move.

I second the motion.

Before I call for a vote on the motion, I will now pause for a moment to allow for any questions on this matter to be submitted.

I confirm that we have not received any questions relevant to this motion.

Thank you. Registered shareholders and duly appointed proxy holders who have signed in using a control number can now vote by online ballot. [Voting]

We've now dealt with all items of business, and I declare that the polls are closed for voting. I'm pleased to confirm that the scrutineer has reported to me that all matters put to a ballot have been passed with the requisite shareholder approval. Accordingly, I hereby declare the nominated directors elected, the auditors reappointed, and the Board of Directors authorized to fix the auditor's remuneration, the Omnibus Incentive Plan renewed and the unallocated options, rights and other entitlements under the Omnibus Incentive Plan approved. A press release will be issued forthwith following this meeting. This concludes the formal business brought before the meeting. As there is no further business that may be properly considered at this meeting, I declare the meeting to be terminated.

Management will now present an overview of the company's key accomplishments in 2023. Rob?

Thanks, Diane. 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. 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, and I am pleased to report that all trends have continued into Q2. As we look ahead, we are well positioned, have a strong balance sheet, an incredible team and are continuing to invest in the Fora platform, having over 1,000 forum communities on 1 common platform is incredibly powerful and with increased consumer interest in online form communities, we are able to scale quickly. We are focusing on 3 key areas to enhance user experience and drive growth. First, we continue to improve our Fora mobile app. We're working on features requested by users and encouraging richer content creation, particularly photos and videos directly from their mobile devices. This not only improves the app itself, but also aims to boost user engagement and long-term retention. Second is our focus on products that our community members own with a strong emphasis on the value of authentic perspectives from real product owners. This combats the prevalence of low-quality AI-generated reviews found elsewhere. By making this valuable user-generated content more readily accessible, we aim to empower informed purchasing decisions for those shopping for enthusiast products. Finally, 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 of [indiscernible] (00:13:29). We want them to join and learn from the extensive knowledge that is in these helpful communities. With that, I will pass it over to Vince for an update on results. Vince?

Thanks, Rob. We're off to a strong start in 2024 with Q1 revenue up 14% year-over-year, led by 2 key factors. Looking back to the first half of 2023, we made strong strategic investments towards our monetization strategy, which included optimizing our programmatic ad stack and ad layouts introducing a video advertising unit across all of our communities. These changes, coupled with improving traffic trends on our 4 communities, boosted performance from our digital advertising channel in the second half of 2023, with the channel returning to growth in Q4, finishing up 6% year-over-year. We're currently reaping the incremental benefits of these changes and trends with Q1 digital advertising up 26% year-over-year. With the channel making up 85% of overall revenue, we expect these changes to continue to have incremental benefits to our consolidated results. Our business model is designed for profitability, generating strong 40% adjusted EBITDA margins and 90% free cash flow conversion over the last 12 months. Q1 results demonstrate the power of our strategy. Operating expenses dropped 18% year-over-year, thanks to prior period optimization. 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 help drive free cash flow conversion and margin expansion in the period with 78% 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 a 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 prior period filing. Excluding this refund, our free cash flow conversion would have been 91% in the quarter. We continue to put this strong free cash flow to work towards strengthening our financial position and building that solid foundation that will allow us to continue to grow organically and accelerate this growth through M&A. We have a strong track record of deleveraging debt incurred as a result of M&A, upgrading as high as 3.8x leverage in 2019, which really speaks to our discipline and the accretive nature of properties that are acquired and brought on to our platform. Since January of 2022, we reduced our net debt position by $36 million and are sitting at a very comfortable net leverage of 1.79x as defined by our credit agreement. With $70 million in liquidity when you combine cash on hand and the balance that can be withdrawn on our revolver. Looking ahead, we will continue to take a 3-pronged approach to capital allocation, which are strengthen our financial position through debt repayments, tuck-in M&A and share buybacks under our NCIB. And now I will pass it to Chris to walk through our growth drivers. Chris?

Thanks, Vince. With the solid foundation we have in place, there are a number of exciting avenues available to drive long-term growth at VerticalScope. The first is capitalizing on the tailwinds in the industry that are supporting our organic user growth and the increasing importance of the authentic content found in our communities. This is driving double-digit user growth on Fora, which is translating to double-digit organic revenue growth. Our team is also laser-focused on continuing to improve Fora to drive even greater engagement for our passionate users. A great example of this is our Fora mobile app, which allows users to browse all 1,200 of our communities from the convenience of a single mobile app. The second driver of our growth is executing on our proven M&A playbook. Given the health of our balance sheet, we're well positioned to use some of our free cash flow to add high-quality communities and continue to build scale on Fora. The third driver of our growth will come from continuous monetization improvements. We launched video last year, and there's a lot of room to continue to grow both on direct and programmatic sales. Our recently announced partnership and direct integration with the Trade Desk will also be an important driver in our programmatic business. And as third-party cookies go away, our data will become increasingly valuable to advertisers and will provide additional tailwinds to our business. And finally, as we look further out, we believe there's opportunity to service further value with our data through AI and partnerships with LLM owners. We have over 2 billion posts of highly contextual and valuable information on our platform today. And in addition, the mobile app will open up new sources of organic growth for our business, such as user-generated communities. With all of these growth opportunities at our disposal, we've never been more excited for the future at VerticalScope. And with that, I'll turn it back to Rob for closing remarks.

Thank you, Chris. And just echoing your excitement for the future at VerticalScope. I wanted to say thank you to all of our shareholders for your continued support. We look forward to bringing you improving results throughout the rest of this year, and we will now enter our question period. We will now pause for a moment for any questions to be submitted.

I confirm that we have not received any questions.

On behalf of the board and management of the company, I would like to thank everyone for attending today.

Thank you for attending today's meeting. You may now disconnect.