VerticalScope Revenue Falls 11% to $13.1M as AI Deals Signal Turn

VerticalScope (TSE:FORA) posted an 11% year-over-year revenue decline to $13.1 million in the third quarter, while adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) fell to $4.8 million from $6.2 million. Behind the soft advertising quarter sit two newly signed AI data agreements that the Toronto-based community operator expects to begin generating revenue in the fourth quarter — a shift finance teams should read as a strategic pivot in how the company monetizes its content.

What did the AI agreements deliver?

VerticalScope signed two agreements with frontier AI labs (leading developers of large-scale models), but confidentiality provisions bar disclosure of counterparties or financial terms. The structures differ, and so does the revenue mechanics.

• Training data license (nonexclusive): VerticalScope licenses training data from selected communities. It completed delivery in early November and expects to recognize most of the revenue in the fourth quarter, once the content is accepted. Fees scale with the volume of contributed tokens (units of text processed by language models), and the deal includes options for future data refreshes.
• Output-based payment: The second agreement pays VerticalScope based on its content's contribution to AI-generated responses. It covers a subset of communities initially, began generating revenue in November, and has room to expand.

CFO Vince Bellissimo said the training agreement could be a meaningful part of quarterly results, and that data-agreement revenue will likely appear as a separate line from e-commerce and digital advertising on the income statement. That segmentation matters: it gives analysts a clean view of whether the AI licensing thesis is working.

The demand signal is measurable. VerticalScope said AI companies, search engines and agents made 115 million attempts to access its communities over the preceding 30 days — attempts that do not count toward traditional traffic or monthly active users. The company continues to block unlicensed access and is pursuing its court claim against OpenAI.

Why did advertising weigh on results?

Programmatic revenue fell 13% to $6.1 million, including a partial-quarter contribution from AudienceEngine. Bellissimo attributed the decline mainly to lower search impressions and softer advertising rates during the summer. Direct advertising dropped 14% to $4 million as some customers ran smaller custom-content programs.

E-commerce held flat at $3 million, or 23% of total revenue. Excluding Ritual, the channel grew 10%, and AI-powered recommendations lifted affiliate commerce revenue on the Fora platform by 29% — concrete evidence that applied AI works on both sides of the business.

What does the AudienceEngine pullback change?

Monthly active users averaged 77 million in the quarter. VerticalScale's paid-traffic initiative proved it could acquire users profitably at scale, but those users monetized at a substantially lower rate than the core audience and consumed significant working capital. Management stopped funding it near the end of August and redirected capital toward AI investment and debt reduction.

Bellissimo said the third-quarter sequential decline in users was entirely attributable to AudienceEngine, and a further decline should be expected in the fourth quarter — the first period with no paid traffic. Average revenue per user rose to $0.057 from $0.045 in the second quarter and should keep climbing as low-monetizing traffic rolls off. Management does not expect a material revenue impact and anticipates a seasonal lift in Q4.

What about costs, cash flow and debt?

• An early-November organizational realignment should cut annualized costs by roughly $4.4 million, with about two months of savings captured in Q4 and roughly $1.6 million in one-time termination costs recorded outside adjusted results.
• Operating cash flow rose to $6.1 million from $4.7 million, helped by working capital released from AudienceEngine.
• Free cash flow came in at $3.7 million after roughly $1 million of capital expenditures, mostly applied AI work with AltaML.
• Net debt ended the quarter near $26 million; the company repaid another $2 million on its revolver after quarter-end, bringing that facility to $31 million. Bellissimo said leverage should trend toward one times in coming quarters.

Net income was $100,000 against a $400,000 loss a year earlier. Adjusted EBITDA margin was 37%, down from 42%, and Bellissimo reiterated a full-year margin floor of at least 30%.