Transcript: VerticalScope Holdings Q2 2026 Earnings Conference Call

VerticalScope Holdings (TSX: FORA ) released second-quarter financial results and hosted an earnings call on Friday. Read the complete transcript below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

8 million, up 20% sequentially but down 5% year over year, driven by improvements in adjusted EBITDA and expanding margins. The company's strategic focus remains on AI-driven product growth, diversifying revenue sources, and using liquidity for disciplined growth investments, with MAU increasing by 14% year over year to 103 million. Programmatic revenue decline narrowed significantly, with direct advertising showing slight growth; however, commerce revenue decreased due to lower retail affiliate earnings.

AI initiatives are central to the company's future strategy, improving content moderation, member engagement, and operational efficiency, while also exploring AI licensing deals and legal protections for intellectual property. 1 million investment in AltaML to support AI growth. Management highlighted the transition from yield-focused to engagement-focused strategies for Audience Engine and emphasized the enduring value of human connections within its communities. The company forecasts continued improvement in financial performance with a focus on profitable growth from its user base and expects to maintain adjusted EBITDA margins above 30%.

Full Transcript OPERATOR Welcome everyone and thank you for joining the VerticalScope Holdings Q2 2026 earnings call. My name is Gabrielle, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two.

I will now hand over to your host, Diane Yu, Chief Legal Officer at VerticalScope. Please go ahead. Diane Yu, Chief Legal Officer Thank you, operator. Good morning, everyone, and welcome to VerticalScope Holdings second quarter 2026 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 the Company's Management's Discussion and Analysis for the three and six month period ended June 30, 2026, which is available under the Company's profile on SEDAR+ 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 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 refer to USD unless otherwise specified. Now I will turn the call over to Chris Goodridge, CEO of VerticalScope.

Chris. Chris Goodridge, President and Chief Operating Officer Thanks, Diane, and good morning everyone, and thanks for joining us today. Q2 is the quarter where the work of the past year started to show up in the numbers. Revenue trends are improving, adjusted EBITDA is growing and margins are expanding, and we're producing these results while stepping up investment in the AI initiatives that will be foundational to the future of our growth.

Our strategy is unchanged and still anchored in four areas: growing direct connections with our users and our advertisers, diversifying our revenue sources, AI-driven product growth, and using our liquidity and cash generation to make disciplined investments that accelerate growth. Let me start with audience. MAU averaged 103 million in the quarter, up 14% year over year. That's our first year over year growth since the search landscape shifted last year.

Most of that growth came from Audience Engine, a paid traffic source we're still early on in developing, plus a smaller increase from direct users. Google search traffic has been stable for us in recent months, but is still down significantly from prior year. We've been encouraged by recent product changes Google has made to attempt to surface more links to authentic, first-hand discussions like those found in our communities, but these aren't yet contributing to growth.

On the acquired audience side, this audience is profitable and right now is the main driver of MAU growth, but so far it monetizes at a lower rate than organic search, which is the explanation for lower year over year ARPU. We're in the early stages of building a new marketing capability for the business to open up new user channels and new revenue sources as the landscape for content discovery on the Internet continues to change. 8 million, up 20% sequentially and down 5% year over year. Programmatic revenue has been the pressure point for several quarters and in Q2 the year over year decline narrowed to 8% from down 34% in Q1.

Getting that gap into single digits is the single most important trend line in the quarter and reflects both improving CPM and impression trends and the ramp in Audience Engine. Direct advertising was flat in the quarter and is up 3% in the first half. Q2 results were influenced by timing of campaigns launching, and as of the end of July, direct bookings for the year were pacing 7% ahead of prior year. In July we also onboarded two new insurance customers as that category continues to show year over year improvements.

Turning to Commerce, although Commerce revenue was down 5% overall due to lower marketplace revenue from retail affiliate commerce, revenue on FORA grew 13% year over year driven by our AI initiatives, which is now approaching a $1 million annual run rate, two times higher than when we last reported. And our product roadmap has several paths to continue to scale this source up. 5 million, up 4% year over year, and margin expanded 270 basis points to 32%. As I mentioned at the top, we're benefiting from improved revenue trends and our strong cost discipline while we fund our AI initiatives.

I'll turn to those initiatives now. We said at the start of the year that our goal is to become an AI-native company. And while we're still very early in this transformation, this mindset is driving change across our teams as we redefine how our businesses run. Our work with AltaML is a key accelerant to this change.

AltaML's forward-deployed engineers are helping us unlock new automated workflows across community content and sales operations. But this work has also catalyzed a new wave of AI-focused activity across our broader business. AI is making our community stronger by improving content moderation and member engagement, increasing the speed with which we can route questions from users to the best-positioned members to respond—resulting in more engaging threads and faster answers—and by powering new multi-community experiences to unlock broader network effects across our communities and provide more opportunity for member engagement.

AI is also driving revenue improvements, including programmatic and commerce. It's helping make our advertising operations more efficient and effective by improving quality and speed of proposals and streamlining campaign management, leading to better outcomes for our ad partners. And it's making our business more efficient across every department. Taken together, these efforts are making us faster, leaner, and more valuable to our members and our partners.

And we're just getting started. Turning to AI licensing, as I mentioned previously, we're taking a patient approach to developing this line of business, but also that we're prepared to take necessary legal steps to protect our content and intellectual property against unauthorized use. These are complementary paths. Where we can reach fair commercial terms, we will.

Where we cannot, we will protect our intellectual property. We're making real progress down both paths. First, we're in advanced discussions with a major technology company on a new deal that will compensate us for contribution to AI-generated responses. That deal isn't done yet, but we're getting close and we'll provide more information once it's signed.

Down the litigation path, in May, we filed a statement of claim in Ontario Superior Court against OpenAI, and as that's now a matter before the courts, I'm not in a position to offer more information. As that case develops, we'll provide periodic updates. Beyond these, we continue to have productive discussions with other potential partners, and other avenues like Pulbit and the FORA API are sourcing smaller incremental opportunities. Overall, the market is taking shape.

A quick word on capital allocation. 3 million in total liquidity. 1 million secured debt investment in AltaML to fund continued growth. The investment is interest-bearing and matures in 18 months, with an option for AltaML to extend that to 30 months.

We also have the option for equity participation in AltaML's next funding round, providing us with exposure to a growing AI business. But overall, our capital priorities have not changed: fund our highest-conviction AI investments, keep reducing debt, and maintain optionality to act on opportunities that meaningfully accelerate our strategy. With that, I'll pass it over to Vince to walk through the numbers in more detail. Vince Bellissimo, Chief Financial Officer Thanks, Chris, and good morning, everyone.

I appreciate you joining the call today. Last quarter I noted that Q1 represented both the seasonal and structural low for the year and that as comparables cleaned up, improved performance would flow directly to our bottom line. Q2 played out the way we described it. Revenue improved sharply on a sequential basis, adjusted EBITDA returned to year-over-year growth, margins expanded, and we did all of that while continuing to fund the AI initiatives Chris just walked you through.

Q1 was a trough. We said it would be. We believe Q2 is a turn and, most importantly, we turned it using drivers that we manage. Before I get into the details, I want to reiterate the framework we are managing to through this transition because it provides the context for everything that follows.

This business has consistently generated strong free cash flow, including through this transition. We have reinvested the cash into initiatives we control and those investments will now help carry us back to growth. The cash engine itself is not new. It's the most consistent part of our business, the part with the longest track record.

What is new is where that capital is being deployed. We are investing directly in controlling our own distribution, primarily through Audience Engine and through strategic investments. We are growing an AI capability that will allow us to drive growth and efficiency throughout the business. Q2 is what the strategy looks like in motion.

With that, let me take you through the results. 8 million, down 5% year over year and up 20% sequentially, well ahead of our typical first-to-second quarter seasonal step up. 9 million, down 5%. Chris covered the revenue drivers, so I'll add the piece that matters most from my seat.

The narrowing of the programmatic decline marks the completion of our lapping of pre—algorithmic traffic volumes, and programmatic remains a meaningful and highly profitable part of our business. 9 million in the quarter and grew 7% through the first half, reflecting the full six months of Ritual against a partial period last year. The affiliate commerce line Chris referenced grew 13% and total e—commerce excluding Ritual grew 3% year over year in the quarter. AI—driven, in—thread commerce experiences continued to scale, and the anticipated declines at Ritual were absorbed while the property continued to contribute positively to adjusted EBITDA.

5 cents, down 16% year over year. Chris gave you the mix reason: acquired traffic monetizes at a lower reported rate. There is also a presentation reason, and it's that one I want to spend a moment on because the optics and economics tell different stories. Visitors acquired through Audience Engine are included in the reported MEU at full headcount, while the associated revenue is recognized net of traffic acquisition costs.

So as the program scales, MAU grows on a gross basis while revenue arrives on a net basis, and reported ARPU compresses mechanically. That mix and presentation dynamic is the substance of the ARPU decline. But our core audience monetizes the way it always has. We manage this program for contribution, not for the MAU headline, with every campaign managed against the return threshold, and the program contributed incremental revenue, adjusted EBITDA, and free cash flow in the quarter.

One more point on Audience Engine because it frames how we think about every MEU we report. Whatever the composition of our traffic, organic, direct, or acquired, the platform's job is the same: convert visitors into engaged users and monetize that engagement better over time. Audience Engine today is optimized for yield; the next phase is engagement. That is where the compounding lives.

8 million in the prior year. The improvement was driven by ongoing reductions in our cost base, with total operating expenses declining 13% year over year, including an 18% decline in wages and consulting and a 14% decline in platform and technology. 5 million in annualized savings we announced last quarter is now fully in the run rate, and we are redeploying those savings into AI CapEx. The knowledge—driven efficiencies are not yet in these results, with the first phase of applied AI workflows just being deployed into production.

We believe the efficiency gains are ahead of us. Consistent with the approximate $2 million in AI—focused capital investments we outlined last quarter, 400,000 of that was invested in Q2, and we remain on track for the full—year program. And there's a cultural layer here that does not show up as a line item. The reason we can continue to optimize our cost base is because our teams continue to embrace these tools.

Off—the—shelf chatbots, agents, coding assistants have helped teams cut the time spent on busy work—automating reports, building connectors, and managing inboxes, to name a few. And we are using AI to interrogate our own cost base, eliminating duplicate software and optimizing pricing for renewals. Our proactive actions deliver the savings to fund our AI initiative. The growing adoption of AI across the company is what makes them stick.

5 million at a 32% adjusted EBITDA margin—our first quarter of year—over—year growth since Q4 of 2024. 8 million at a 27% adjusted EBITDA margin, consistent with the seasonal pattern we have described on prior calls. Margins build from the Q1 low through the year toward the Q4 peak. Our expectations on margins have not changed.

We continue to target 30% plus margins on a full—year basis. In the quarter we converted adjusted EBITDA to free cash flow at a rate of 81%, which included the 400,000 step up in AI—related capital spending. Through the first half, our free cash flow conversion was 83%. Maintaining these conversion mechanics while funding an AI investment program speaks to the durability of our model.

4 million in the prior year. And I want to take a moment to walk through the headline comparison carefully. There are two key factors at play here. First, as Audience Engine scaled for the quarter, trade receivables grew to 20 million from about 13 million at the end of Q1, with a meaningful offset in payables for traffic acquisition costs.

Those receivables sit with large, well—established platform partners that settle on a short, consistent payment cycle, and our collection experience has not changed. That growth in timing is what drove the net investment in working capital for the period. Second, the prior—year quarter included a one—time working capital benefit relating to the Ritual acquisition, driven by assumed short—term liabilities relating to the platform's loyalty program. As we lap this initial quarter of scale from Audience Engine, we expect the swings in working capital to normalize.