Release Date: May 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- VerticalScope Holdings Inc (VFORF, Financial) reported a positive increase in programmatic revenue outside of video, indicating the effectiveness of their tech stack.
- The company is focusing on improving its AI capabilities to enhance user experience, including AI translations which have attracted approximately 2 million MAUs.
- VerticalScope Holdings Inc (VFORF) is ramping up investment in direct traffic sources such as mobile apps and email newsletters to reduce reliance on search engines.
- The company completed acquisitions of Enthused Digital and Ritual Technologies, which are expected to contribute to future growth.
- VerticalScope Holdings Inc (VFORF) maintains a strong balance sheet with a net leverage ratio of 1.24 times, providing financial flexibility for growth opportunities.
Negative Points
- Q1 revenue declined by 8% year over year, primarily due to a decrease in MAUs and lower video advertising CPMs.
- The company experienced a net loss of $2.4 million, a less favorable position compared to the prior year.
- Adjusted EBITDA margin decreased from 36% to 27% year over year, driven by a lower revenue base and increased operating expenses.
- The company faces challenges from Google's algorithm changes, which have impacted organic traffic and MAUs.
- Investments in new initiatives such as AI and direct traffic sources are expected to impact margins, with guidance indicating margins in the low 30s.
Q & A Highlights
Q: How should we think about the recovery of organic MAUs following the recent Google algorithm changes?
A: Rob Laidlaw, CEO, explained that the recent Google algorithm changes are pushing organic search results further down the page in favor of AI overviews. This affects the entire digital media ecosystem. While this may have a sustained impact, users still seek social proof from forums, Reddit, and YouTube. VerticalScope is focusing on improving user experience and expects some recovery, though not full, as the landscape evolves.
Q: Is the sound-off feature in video ads related to the core algorithm change, and how does it impact the outlook?
A: Christopher Goodridge, COO, clarified that the sound-off feature is unrelated to the Google algorithm change. It was a significant contributor in 2024, but its classification change has impacted revenue. VerticalScope prioritizes user experience and is exploring ways to improve ad experiences without disrupting content generation.
Q: Will investments in driving traffic, such as email marketing and newsletters, impact margins?
A: Vincenzo Bellissimo, CFO, confirmed that these investments will incur incremental costs, affecting margins. The company is investing in translations, email partners, and consulting to accelerate strategies, with expected margins in the low 30s based on guidance.
Q: How is VerticalScope addressing the challenges posed by AI-driven changes in user behavior?
A: Rob Laidlaw, CEO, stated that VerticalScope is enhancing its AI to provide better user experiences and focusing on direct traffic sources like mobile apps and email newsletters. The company believes forums will become more valuable as AI-driven consumer behavior shifts, providing long-term value.
Q: What is the impact of recent acquisitions on VerticalScope's financials and strategy?
A: Christopher Goodridge, COO, noted that recent acquisitions like Enthused Digital and Ritual Technologies are expected to contribute to growth. Enthused Digital has shown 30-40% gains in programmatic revenue, reinforcing the value of VerticalScope's ad tech. The company remains selective in M&A, focusing on opportunities that align with its strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
