VerticalScope Holdings Inc

TSX:FORA

Earnings Call Transcript 2022-Q2

[Operator]

Hello, and welcome to today's VerticalScope Holdings Inc. Q2 2022 Earnings Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Diane Yu, Chief Legal Officer, to begin. Diane, please go ahead.

[Diane Yu, executive]

Thank you, Jordan. Good morning, everyone, and welcome to VerticalScope Holdings Second Quarter 2022 Earnings Call. I'm joined by Rob Laidlaw, our Founder and Chief Executive Officer; Vince Bellissimo, our Chief Financial Officer; and Chris Goodridge, our President and Chief Operating 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 discussion and analysis for the 3-month period ended June 30, 2022, 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, MAU and ARPU, which are non-IFRS measures. All references to currency in this presentation shall refer to U.S. dollars unless otherwise specified.

Now I will turn the call over to Rob Laidlaw, Founder and CEO of VerticalScope. Rob?

[Robert Laidlaw, executive]

Thanks, Diane. Good morning, everyone, and thank you for joining us today. During the second quarter of 2022, our business performed very well. We are proud of the results we are presenting today, and we're excited about the bright future for our company. I'd like to thank our team for their efforts this quarter, setting us up for success this year. Without our team, we wouldn't be here sharing these incredible results today.

Revenue growth of 51% in the quarter was powered by our advertising business, which continues to show signs of strength, growing 43% year-over-year, inclusive of a 62% gain from our programmatic business. Our direct business, which is predominantly organic growth grew 15% year-over-year despite the tough macroeconomic environment as advertisers tighten their belts. Helping our growth, we are beginning to see some gains from the automotive sector, as some advertisers began spending in Q2 and have signed contracts with us for Q3. We believe we have seen the bottom on supply chain issues and are starting to see recovery.

Our e-commerce business continued the improving trends that we saw in Q1 increased 68% year-over-year. This is an impressive result and comes despite continued headwinds for our fitness business. Other properties in our portfolio, including properties we acquired in Q4, we're able to overcome those headwinds and deliver a solid result for our business. While we expect some reduction in consumer spending in future quarters, we are optimistic that we are well positioned for continued growth now that we have lapped the COVID-impacted quarters and as retailers look to offer savvy shoppers, on sites like RedFlagDeals, discounts on tough-to-sell inventory and run promotions with our advertising and commerce businesses.

Our acquisitions are performing very well, and we continue to believe that the 2 large acquisitions we did in Q4, Hometalk and The Streamable, will deliver between $10 million and $14 million of incremental EBITDA in 2022. With their strong performance, we have increased our expectations around contingent considerations as we expect the threshold for achievement of the earnout in 2022 to be highly likely to occur. This is great news for us and for the entrepreneurs that will receive their earnout payment. VerticalScope continues to be a great buyer of online communities and structures achievable earnouts where we can succeed together with founders, a true win-win.

Adjusted EBITDA grew 54% year-over-year to $9.3 million in the quarter. Perhaps even more impressive is that our free cash flow of $7.2 million represented 78% of that adjusted EBITDA. Our unique financial model and the ability to generate that type of free cash flow also allowed us to reduce our revolving debt facility at the end of the quarter and take advantage of lower interest rates for the forward period. While we prefer to deploy this capital on acquisitions, we are being patient in finding the right transactions, and we're happy to gain more financial flexibility while retaining access to capital for M&A.

Touching on MAUs. They came in at $109 million for the quarter, up 15% versus the prior year, inclusive of a 4.4% organic decline in line with our expectations. We did see some improvement in the MAU trend within the quarter and are hoping to trim these declines in the second half of the year. We think we should see quarterly improvements on that decline going forward. Our sites do tend to perform better in difficult economic times as users are staying home, doing more DIY projects and engaging in their hobbies and passions to take their mind off the market.

As we look forward to the second half of the year, we are being cautious in our approach. Our business has held up very well, and we are not seeing the same level of headwinds as some of the larger tech companies, particularly those that are monetizing large mobile app audiences. Our desktop and mobile web audiences that are in niche categories with strong shopping intent continue to monetize well. But I think we should expect and plan to see some tougher conditions in Q3 and Q4. But to be clear, we're not seeing that yet.

Finally, I want to make a comment on our recent stock performance. It's been a little bit disappointing for myself as a shareholder and leader of the company as we feel our business is being deeply misunderstood and is priced by the market, and as the CEO, it's my responsibility to make sure that the market understands our value. We have a unique and powerful financial model that's driving real free cash flow to the bottom line, and we can make highly accretive acquisitions in good times and tough times.

We are certain that the recent stock performance does not reflect the fundamentals of our business that we have achieved in Q2, including 51% revenue growth, 54% adjusted EBITDA growth or our $7.2 million in free cash flow. We are looking forward to continuing to prove ourselves in the second half of this year and better educate investors on VerticalScope's value to shareholders.

With that, I will turn it over to Vince to walk you through the financials in more detail.

[Vincenzo Bellissimo, executive]

Thanks, Rob, and welcome to everyone who's listening in. As Rob indicated, we are extremely proud of the strong Q2 results that we have delivered for our shareholders, thanks to the hard work of our talented employees and the power of our financial model.

Our 51% in top line revenue growth in the quarter was driven by exciting trends in both advertising and e-commerce and powered by our performance-driven revenue model across our topic-focused communities. Advertising revenue grew by double digits for the sixth consecutive quarter, with revenue from programmatic partners contributing $9.6 million or 68% of overall revenue for the channel.

Year-over-year growth in programmatic is driven by contributions from Q4 acquisitions and increased performance from ad units running on the Fora software platform. Direct advertising grew to $4.7 million in the quarter from predominantly organic sources, driven by incremental spend from brands and advertisers across multiple categories, looking to get their products and services in front of our intent-driven audience. The quality of our audience and the on-topic nature of our communities continues to drive valuable and brand-safe environment for our advertisers. As Rob mentioned earlier, we are encouraged by the increased spending we are seeing from automotive OEMs, and we are well positioned to capitalize on additional spend as supply chain conditions subside.

E-commerce's acceleration has brought the channel back to a growth position for the year. The channel is up 68% in the quarter and 25% in the year, with Q4 acquisitions more than offsetting the pullback in the fitness due to demand that was brought forward during the peak of the pandemic. Our top line revenue growth and disciplined approach to managing EBITDA continues to generate healthy margins and free cash flow for our business. Adjusted EBITDA was $9.3 million in the quarter, resulting in a 43% margin when compared to revenue. Our strong operating position allows us to take strategic and productive approach to managing our business and creating long-term value for our shareholders.

Also, now that we have crossed our first year of being a public company, we look forward to realizing additional cost savings from elevated professional fees and insurance premiums recognized by first year issuers. We continue to reinvest our free cash flow into business through investments in our platform, highly accretive M&A and strengthening of our financial position. Free cash flow generated on a fiscal year-to-date basis grew by 14% year-over-year to $12.8 million for a conversion of 77% when compared to adjusted EBITDA for the same period. In the quarter, we made a $12.5 million voluntary prepayment towards our credit facility, reducing our total debt to $65 million, with $57.5 million revolving credit available to draw.

Our net debt position at the end of the quarter, excluding contingent considerations, was $64.5 million, resulting in a net leverage position of under 2x when compared to adjusted EBITDA for the 12 months ending June 30th. Net comprehensive loss in the quarter was $7 million compared to $4.4 million in the prior year, driven by $8.8 million in incremental costs associated with the amortization of acquired sites and the accrual of contingent considerations.

Today, we have accrued $22 million of the possible $30 million in contingent considerations relating to Q4 acquisitions with $50 million of which is expected to be earned by fiscal year-end. These contingent considerations will continue to be revalued quarterly based on probability of achievement.

And now I'll pass it over to Chris for an update on M&A. Chris?

[Christopher Goodridge, executive]

Thanks, Vince, and good morning, everyone. We completed 4 tuck-in community acquisitions in Q2 for a total cash consideration of $2.8 million. And subsequent to the quarter end, we signed 3 more deals for a cash consideration of $600,000. These communities cover interest categories in home improvement, cooking, musical instruments and gardening, all great communities with strong commerce potential that will be unlocked with migration to our platform.

Turning to the current pipeline. As we discussed last quarter, in the current macro environment, we're being deliberate with capital deployment decisions. Our pipeline of opportunities continues to be strong, but valuation expectations held by many targets aren't fully aligned with current market conditions. So we'll continue to be patient, but will act swiftly on the best opportunities and highest-quality assets that will add the most value for our shareholders.

We believe that price expectations will align better in the coming quarters as the macro situation evolves. Our forecast for capital deployment for the balance of 2022 is fluid. As we saw in the fourth quarter last year, our acquisitions can come in waves. Our balance sheet and free cash flow are real strength in this market and our proven acquisition process allows us to move very quickly for the right opportunities.

And with that, I'll pass it back to Rob to wrap things up.

[Robert Laidlaw, executive]

Thanks, Chris. Just to reiterate what you said there, we're going to be very opportunistic here with M&A. We have the balance sheet and the patience and discipline and potential sellers are starting to call us. We're open for business. And with that, we'll open it up to questions.

[Operator]

[Operator Instructions] Our first question comes from Adam Shine of National Bank Financial.

[Adam Shine, analyst]

So Rob, I appreciate the comments and obviously a positive, albeit a cautious tone. But in terms of M&A, if I work my way backwards, I think to the back half of the year, the expectation was that maybe you would deploy about $50 million to $80 million in the fiscal year on M&A. And I think to Chris' points, market is fluid and if we don't necessarily see it all happening in the second half of the year, I think my readthrough from your comments is that there's optimism that the execution of that M&A ultimately unfolds perhaps in subsequent quarters. Maybe just a little bit of color from you on that.

[Christopher Goodridge, executive]

Sure. Yes. Adam, I can take that. It's Chris here. I think that's right. It's hard to predict when deals will close. But like as I pointed out, when you look back to last year and how things evolved as the year went on, as those opportunities worked through our process, we're able to move very, very quickly on deals. So the lead time between when we have agreement on price and our ability to close a deal is very, very fast. So we could see quite a bit more capital deployed in the second half than we did see in the first half, that's for sure. But the perfect timing, whether it's Q3, Q4, Q1 next year, it is a fluid situation.

[Adam Shine, analyst]

Perfect. And Rob, specific to you, just in terms of the advertising environment, obviously, you highlight some of the macro backdrop, but obviously also speak to the fact that things are trending well for you and the M&A that has been done is obviously delivering to your expectations. Can you talk about the ad trend through the Q2? And ultimately, what you're seeing early in the Q3?

[Robert Laidlaw, executive]

Yes. Thanks, Adam. Look, I think what I mentioned was we're being cautious because of what we're hearing other company is saying. And this is a situation where we're not going to bury our heads in the sand and say, "Hey, we're doing great, and we're immune from macro." I don't think that's the case. We know what the market looks like. And ultimately, for us, the trend throughout Q2 was very strong and July has held up as well. And I think that's kind of reflected in our comment that we're not seeing it yet. And we don't know necessarily that because we're smaller than some of the big players, is that because we've got these really strong communities with shopping intent, is that for a number of reasons.

Some of our product development in the Fora software platform is helping us kind of grow through some of the pain that others are feeling or maybe it's the mobile app audiences versus kind of desktop and mobile web for ourselves. So all I can say at this point is, we're being cautious and careful in how we look at the back half. But at this point, we haven't felt some of the effects that are certainly being talked about in the market, and I think there's a great deal of fear obviously. And there's been a huge shift in valuations of not just our own shares but those of other players in our space.

[Adam Shine, analyst]

Maybe just one last question for you. Just in the context of new initiatives, new product developments. Any update on marketplaces, the app or anything else that you could talk to?

[Robert Laidlaw, executive]

Yes. We're really leaning into kind of 3 things right now. The first is kind of the shopping and commerce push. And we're putting a lot more efforts there because we recognize kind of the macro environment. And we think it's kind of one of the top places where we can recognize on some of that community shopping intent, so really excited about that. With respect to the mobile app, what we're doing there is really just tweaking and tuning and optimizing and really trying to make sure that when we go kind of full public launch with a mobile app that we have kind of best-in-class retention rates. We want to make sure this thing is a success, and we've got the patience to kind of work with the team to make that happen. .

And then the third is really around our platform and how we think about kind of things like integrating the ProBoards acquisition with respect to self-service communities, so continue to be excited there. We think that's a potential game changer for us, so continuing to invest in that. But really across the board, excited what Paul Lee has brought to the business as Chief Product Officer, and I think we've got some really exciting quarters ahead.

[Operator]

Our next question comes from Vince Valentini of TD Securities.

[Vince Valentini, analyst]

Thanks very much. Let me start with the use of capital. So acquisitions have not been overly busy recently. And Chris, you said -- sort of you signaled you're being patient and maybe activity will slip into next year. Can I read into that, that you may be considering using some of your balance sheet flexibility for buybacks instead. I mean you've got to be considering now your valuation relative to what you're paying for much smaller scale new assets. It's got to be a pretty compelling argument to just buy your own company that you know. Can you give any comment on that?

[Robert Laidlaw, executive]

Vince, I'll take that one. It's Rob. So look, I think you nailed it on the head with respect to -- and something we're very disappointed with is how our stock has been valued in this market. But we know our business better than any business, including those we're looking at acquiring. So we'll take advantage of the very, very best deals that are available to us, those that are accretive. We do think that this mispricing is hopefully very temporary. But at the same time, it's a business we know very well. So we're engaging in some conversations around how we might be able to take advantage of that situation as well.

[Vince Valentini, analyst]

Okay. And secondly, can I try to delve into organic trends and then this outlook you're sort of providing for Q3. If we look at -- I know it's not always easy, you integrate acquisitions and there's a constant flow of them, but you are -- you have been able to separate very clearly organic versus inorganic on the MAU front. So if we use that as a proxy, I mean, is there an approximate 20-point delta between you reported revenue growth and what you'd consider organic? Or are there big different drivers on revenue versus MAU?

[Robert Laidlaw, executive]

The organic sides have performed quite well on a revenue basis. So when we think about things and kind of look through our numbers and -- like you said, it's a little bit difficult to unpack with the various moving pieces. But on a fully organic basis, including growth from some of the acquisitions that we've spent a lot of time integrating and migrating to our platform to take advantage, we're seeing pretty strong double-digit organic growth year-to-date. So we think the business is performing well. We think the MAUs is, again, kind of just lapping some tougher quarters. And we're -- we think the rest of the year that those declines start to get closer to becoming growth drivers again.

[Vince Valentini, analyst]

Okay. So what I'm trying to get it is, you're not seeing any headwinds from the macro environment or sort of digital media sector challenges that others seem to be facing. You're not seeing that yet, but you're prudently cautious. Does that mean that you're through the first half of the third quarter? Your growth rates in revenue are basically trending the same as they were in Q2, with maybe just a slight adjustment because you have a bit less flow through of acquisition perhaps?

[Robert Laidlaw, executive]

I think the way you positioned the question is fair. And I think for us, we are being prudent and cautious. But again, through the first half of the third quarter or not quite the first half -- we are not yet seeing the macro effects that we've been cautious about.

[Vince Valentini, analyst]

Apologies. I'm just going to push a little further on this because I really -- as with you, I don't really understand what the share price is doing. I think people were expecting you to come out on this call and say, Q2 was okay because as we said, the first couple of quarters got off to a good start, but things kind of fell off a cliff. And I think people expected you to give some pretty negative guidance for the back half of the year. You're not doing that. So I just want to make sure we fully understand.

Is there anything big in terms of regional trends that you're -- maybe Canada is holding up a lot better than the U.S. for ad revenue? Or is there anything just by categories? Is it maybe auto was so weak and it's such a big factor for you that -- as that comes back a little bit, it can offset a bunch of headwinds in 4 or 5 other categories? If you can try to a little more detail here because I think The Street obviously doesn't seem to be in a totally different position than what you're talking about in terms of what your revenue outlook was going to be.

[Robert Laidlaw, executive]

Yes. I agree with you on the mispricing, and it's challenging for us as well. We've been talking to multiple participants to try and figure out what is going on and what are people worried about. Again, I think maybe there's a challenge in the market in understanding the attractiveness of our communities in a tougher economic time and how shopping intent and performance-driven advertising perhaps outperform really brand-driven advertising.

I think I read something last night from IAC around that kind of performance-driven versus the brand-driven advertising. And from the brand perspective, a lot of our dollars would traditionally come from automotive, power sports and some of the bigger outdoor players. And we've certainly seen, in automotive, that the trend is actually getting better for us as opposed to worse. So maybe we're feeling the effects of supply chain kind of opening up a little bit more just kind of starting to see those green shoots of supply chain recovery, and that has driven us past the, what I would say, category where we do not have much business and maybe others do is things like CPG.

So I think we are in some different categories. We have high shopping intent. And ultimately, we think we're able to drive a lot of commerce business. We're seeing it through things like Amazon Prime Day. These platforms and retailers really need to turn to sites like the ones that we own to drive those sales and those discounts. So look, again, I think maybe that was misunderstood by the market. Maybe it felt like all businesses were going to get hurt. We haven't felt it yet. We're being cautious about the back half of the year. But hopefully, our team can continue to pull through and deliver the dollars here. And that will certainly allow us to accelerate our M&A spend.

[Vince Valentini, analyst]

And the last one on this topic and then I'll pass the line. Rob, you -- I know you had a much different business with lower scale back in the global financial crisis. But are there any learnings from that or anything you can tell us from your experience there, were things sort of humming along at a pretty good clip and then all of a sudden, you fell off a cliff, one quarter nobody wanted to pay to put ads on your community sites? Or we were able to sort of ride through that economic storm reasonably unscathed?

[Robert Laidlaw, executive]

Yes. Our business performed very, very well through the kind of '07, '08 period. And certainly, there was some advertising disruption. And you could look at it and say, was it down kind of 10%-ish type of thing. But at the end of the day, again, MAUs grew very nicely through that period. And I think again, these communities when people are kind of stuck at home, they're not going out to restaurants. They're not going out to the movie theater. They're saving money. They're spending time on their passions at home. They're doing the DIY projects. So MAUs performed very well.

And ultimately, we think the performance-driven advertising, people still need to sell product. They need to push product, and then supply turns the other way. They've got too much inventory. They need to blow it out on RedFlagDeals or get it out into these community sites. So I think back then, we saw a real kind of mix shift from advertisers. They move their dollars from print and TV and moved them over to digital advertising. And I think maybe what we're seeing even in the back half of this year is maybe some of those brand dollars move more so into performance dollars, which again, I think, bodes well for our portfolio.

[Operator]

Our next question comes from Drew McReynolds of RBC.

[Drew McReynolds, analyst]

Yes. Just echo Vincent's great color comment. Rob, just a couple of drill downs here. On the automotive category for VerticalScope, are you able to just put that into some kind of quantitative tailwind as that category comes back? And then maybe just secondly, on the integration of some of the M&A that you've done, presumably just given your contingent consideration commentary, you're hitting all of your internal financial objectives. Just wondering, as you're bringing these properties on to Fora platform, just are you seeing kind of the similar type of improvement in KPIs that you've articulated over the last year and a bit? And I have one more, I'll ask after.

[Robert Laidlaw, executive]

Yes. Thanks, Drew. I would say, look, yes, the fact we're reaching the contingent considerations and -- the acquisitions have performed very well. We're pretty excited about even the future kind of looking opportunities there. So in my opinion, we think we've got more juice to squeeze on the integration side. The migrations certainly have been maybe a touch slower than we would like, but that leaves us with more work to do and more opportunity in front of us. And we would certainly say that there's more growth left to accomplish there.

With respect to the automotive question, I think it certainly is kind of going from a headwind to a tailwind for us. I think we talked about on a previous call, there was kind of a couple of million dollar hole from auto and the big automotive spenders. So I think that could hopefully get back to kind of previous trend lines from 2018 to 2019 and really could help offset any challenges we may see in other kinds of brand advertising.

[Drew McReynolds, analyst]

Super. And just one last one for me and just kind of squaring off just the forecast here. From a margin and free cash flow conversion perspective, you're certainly hitting our numbers and the business model continues to perform quite well. Are you seeing any change in that business model as either the revenue mix evolves or M&A comes into the picture. Are you still fairly confident that what we see today continues to be the case going forward?

[Vincenzo Bellissimo, executive]

Yes. Drew, this is Vince. And to answer your question, yes, we are still confident that what you're seeing today from a margin and free cash flow conversion perspective will continue in the back half of the year. The one component that you might see and you may have noticed in the MD&A, cash taxes will start appearing more in our quarterly results, and therefore, drive free cash flow conversion a bit downward. I believe there was about $0.5 million recorded or paid in Q2. That will probably continue as a baseline in Q3 and Q4 and ramp sequentially as seasonal spikes in revenue do as well. So if you're modeling that out, I think it's safe to assume that, that baseline of $0.5 million can be used with a slight ramp sequentially in Q3 and then in Q4.

[Operator]

Our next question comes from Andy Nguyen of Raymond James.

[Andy Nguyen, analyst]

This is Andy on for Steven Li. Just a quick question on the e-commerce, very strong performance this quarter. Can you -- do you see -- you can sustain this level of results for the second half of the year? And also, like, is there any sort of like seasonality in terms of forecasting your planning for e-commerce for the rest of the year?

[Christopher Goodridge, executive]

Thanks, Andy. It's Chris here. Yes, we were thrilled with the result, like I said, 68% growth in e-commerce, a little bit even faster than we thought. So really great. Typically, on the point on seasonality, Q4 is where we see pickup in ad revenue and in e-commerce, particularly around Black Friday, and obviously, holiday shopping drives a lot of that forward. So we'd expect to see strength -- more pronounced strength in Q4. And in Q3, we expect to still see very strong double-digit growth in e-commerce as we work our way through. Again, a combination of unlocking more of those commerce experiences in the communities and recent acquisitions really helping drive that growth forward. So we do expect it to continue to be in a growth position and double-digit growth.

[Andy Nguyen, analyst]

Got you. And I know we touched on this during the call as well. But given the valuation in the space has come down significantly, would you be disappointed for the second half of the year if the M&A account -- it doesn't -- the spend -- you don't spend for like $50 million, $60 million for the rest of the year on M&A. Would you be disappointed if that didn't happen?

[Robert Laidlaw, executive]

This is Rob. I'll take that one. I would be disappointed simply because if we can put $50 million to work, it's going to be a great multiples, and it's going to be very accretive. So we're excited to deploy capital. If we can't deploy capital and find great deals, that's more of a concern for us. So we want to make our shareholders more money, and obviously, there's a number of strategies to do that, but we think M&A is one of the ones that we're best at.

[Operator]

Our next question comes from David McFadgen of Cormark Securities.

[David McFadgen, analyst]

A couple of questions. So first of all, just on the MAU decline, would you attribute that to a couple of verticals? Or is it more widespread throughout the communities? And then secondly, I know you said you expect it to improve in the latter half of the year, but I was wondering if you can give us any idea on when you think it actually would be positive on an organic basis.

[Robert Laidlaw, executive]

Thanks, David. Yes, great questions. And there is some specificity to 2 verticals or categories here. So when we look at something like mountain biking, that's a really tough year-over-year comparable. I think that one just, off the top of my head, might be off like 50%. And that's just lapping some of those kind of super-COVID quarters and people, even last summer, really getting out side for the first time. So I think I would say it's kind of -- it is broad, but there's a couple kind of hotspots where it is more pronounced, and that kind of is probably bringing it from more like flat or slow growth into that kind of slightly negative position.

On the other hand, we have some stuff that's doing quite well. And we are seeing some pickup in DIY. So DIY deals, those sorts of things are starting to kick in. There's a bit of noise in deals because you had things like Prime Day. But overall, we're pretty optimistic here that we can continue to kind of trim the decline and turn positive in the next couple of quarters, whether that's Q1 or Q4, which exact quarter that kind of flips over to positive again. I can't be certain at this point, but we feel good about it. Like, it's not -- it's something we want to reverse, but it's not really affecting kind of drastically how we're managing the business. It's something that is quite livable at this point.

[David McFadgen, analyst]

Okay. And then maybe a question on just the general advertising. I think when you were talking about the last economic downturn, the last recession, digital advertising at that point in time was growing quite quickly and its share of total media spend was still fairly low. But now, it's -- I think it's around 2/3 of total ad spend, obviously, a more mature business.

So I was just wondering about your view on how digital advertising would perform in a recession? Do you think now it's going to be more like traditional media? Or is still going to just keep chugging along as more and more people put more and more dollars on digital?

[Robert Laidlaw, executive]

I think digital is still the most provable, trackable and results-oriented advertising you can get. And that's on top of that, really what the Fora platform delivers. And I think having that shopping intent, in fact, being -- if you think about search as being one of those areas that probably holds up pretty well in digital advertising, we're like one step further than search. Not only did they perform that search for that product but now they're on our community reading reviews. They're one step closer to making that purchase.

So we think our business probably performs more aligned to something like search than it would to call it like brand or video advertising. I think when you think about some of the video spend and some of that stuff, it's really driven by some of those large platforms, and it's almost like the old broadcast spend at this point. And we think digital where we play, which is really kind of like performance and post search clicks, I think, can be very resilient through a downturn. We're not immune to it, but I would use the word resilient.

[David McFadgen, analyst]

Okay. And then just one last one for Vince. I was wondering if you can give us the net debt-to-EBITDA leverage ratio on a pro forma basis.

[Vincenzo Bellissimo, executive]

On an LTM pro forma basis, David, including notes, you're looking at just over 2, I think it's 2.08 to be exact.

[Operator]

[Operator Instructions]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

[Aravinda Galappatthige, analyst]

Congrats from me as well on the quarter. I wanted to go back to some of the larger acquisitions you did in Q4, Rob, and thanks for your color on how they're tracking. In terms of Hometalk and Streamable, in particular, I was wondering if you can talk about the integration and what kind of synergistic tailwinds you're seeing from those 2? I know that part of the strategy was to perhaps introduce a little bit more e-commerce to Hometalk and maybe leverage your other 1,200-plus properties to direct more traffic to the Streamable and then increase the monetization on that basis. I just wanted to get your thoughts on -- or an update on how that's going.

[Christopher Goodridge, executive]

Aravinda, it's Chris here. I can take that one. So quickly on Hometalk, as you pointed out and as Rob alluded to, like, we're very happy with how these integrations have gone. Hometalk, I'll start there. The synergies that we're seeing are really going both ways. They've built a really incredible platform that leverages and is able to build as much direct traffic as possible. So they are experts in e-mail newsletters, for example, and how they're able to build audiences that way. And so they've done an excellent job with that, and they're helping us think about that as a means of increasing traffic across our business. That's just one example.

And then with it being predominantly programmatic monetize today, there's been some really good value that we've been able to unlock and kind of combining the efforts there. And bringing their, joining them up with our scale on that side and sharing learnings and building a really robust programmatic business across the board. And there's some really great talent that came with that acquisition as well that's collaborating well with the rest of the organization. So we're really, really pleased with what Hometalk has delivered.

And then on Streamable, so absolutely has performed really, really quite well. For us, with respect to the commerce space, it gave us exposure to more services and away from goods because it's obviously promoting different streaming services and really solving the problem for users as to where they want to be able to stream a show or a sporting event. It's an incredibly fragmented space. The lifetime value of the customers for these platforms is incredibly high, and what Streamable delivers is that qualified traffic at the bottom of the funnel, and that really has played out beautifully.

And with respect to what we've been able to do together, a big part of our focus is to build community around Streamable's commerce business, so -- and that works both ways. It's from being able to distribute their commerce recommendations into our communities but also to build a dedicated streaming community and help build up that traffic. So both have performed exceptionally well, as Rob alluded to, the fact that the first earnout likely to be hit has us really, really happy because we want everyone involved in a transaction like that to do well. And we're really excited about the continued growth we're going to see from both properties.

[Aravinda Galappatthige, analyst]

And then maybe just kind of when you think about sort of the comments you've made about the second half? And then obviously, there's some uncertainty there as well. I know that a general indication you -- or general objective that you had is to at least deliver some degree of organic EBITDA growth in fiscal '22. Is that -- do you think that is still -- you're still on track to achieve that when you consider sort of obviously the EBITDA contribution that you alluded to from the 2 or 3 large acquisitions that's there?

[Robert Laidlaw, executive]

Yes. I think we're well on track to deliver organic EBITDA growth. And I would say if you looked at our numbers kind of ex fitness, we're doing really, really nicely on organic growth. Fitness has been a headwind and acquisitions have helped. But looking at the core business, we're really happy with how it's performing and think that there's definitely a nice organic story here that it is probably not being fully recognized just because of some of the noise that we've gone through in lapping some of those difficult Q1 in particular. So pretty happy with the year-to-date on organic and definitely I think we'll see some nice uptick there as well.

[Aravinda Galappatthige, analyst]

Okay. Great. And my last question for Vince. With respect to the earn-outs, are you -- should we kind of think of kind of a low double-digit number there for this year, recognizing that last year -- sorry, the next year can obviously change depending on performance. But for fiscal '22, sort of I guess, kind of a $12-ish million number. Is that what we're tracking towards.

[Vincenzo Bellissimo, executive]

Yes. In this year or year 1, we're tracking towards a $15 million number, which if you look at the current portion of that accrual, it's in around $15 million. And the balance right now is $7 million is related to year 2, but that will be revalued quarterly. So -- but in terms of year 1, $15 million is what we're on track for.

[Operator]

We have no further questions on the phone line, so I'll hand back for any closing remarks.

[Robert Laidlaw, executive]

Great. Thanks, everybody, for joining us today. I think we're very proud of the results in Q2. We're excited about the back half of the year and look forward to presenting some further great results for you in future quarters. Thank you.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your lines.