Sabio Holdings Inc. (SABOF) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Sabio Holdings' Q2 2025 Earnings Call. The financial statements and MD&A have been filed and can be accessed through the SEDAR website. Today is Wednesday, August 27, 2025. And joining us are Aziz Rahimtoola, Founder and CEO; and Sajid Premji, CFO of Sabio Holdings. They will be presenting the company's Q2 2025 results and developments, followed by a Q&A session. [Operator Instructions] Before we begin, I would like to remind everyone that certain statements made today may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors. For a complete description of the risks and uncertainties facing the company, please refer to the MD&A and other continuous disclosure filings, which are also available on the SEDAR website. Also note that all figures discussed today are in U.S. dollars unless stated otherwise. With that, I'll turn it over to Aziz.

Thank you, Martin, and good morning, everyone. In the year without election tailwinds and tariff pressures, this quarter highlights Sabio's ability to deliver strong results through consistency, innovation and diversification, positioning us well for even greater success ahead. This quarter also reflects both the resiliency of our business and the rapid adoption of our new products going into what promises to be a very lucrative 2026 U.S. election cycle. We continue to maintain a 92% revenue model -- recurring revenue model, powerful validation of how our App Science, data-driven approach drives positive client outcomes. In today's environment, ROI and return on ad spend matter more than ever. Our proprietary 80 million cross-screen household graph delivers measurable value to both brands and agencies through better insights and outcomes. Now talking about innovation. Growth at Sabio has always been fueled by anticipated shifts and executing ahead of the curve. From the building and execution of our propriety App Science household graph in 2016, when mobile apps were not as prevalent and streaming apps really didn't exist, Sabio was there. Today, where our ad-supported streaming business now accounts for 60% of revenue and our largest contributor to annual growth, to our international expansion, launched in 2023, already generating meaningful revenue, where revenues are up 4x year-over-year with tangible growth ahead and geographic diversification becoming a reality. To the explosive growth of our new programmatic product launched in 2025, in the first half of this year alone, sales grew an average of 94% month-over-month. And most recently, the launch of Creator television in January of 2025, now one of the fastest-growing creator-driven streaming channels in the streaming space today. Viewership has surged more than 300% across streaming partners, including Comcast Xumo, Plex, Sling, Amazon Fire TV networks, with more added monthly. The creator economy is real. Category where spending is estimated to be $52 billion, yes, I mean, billion by 2030. Taken all together, our consistent revenue, rapidly adopted new products and geography expansion are providing both predictable growth and revenue diversification. We already built one of the best ad serving technologies in Sabio, one of the best analytics engines in App Science and now have tremendous momentum building one of the fastest-growing creator-inspired intelligent networks in Creator television. We are beyond excited about all we have accomplished and what more there is to come. I'm now going to hand it over to Sajid Premji to dig into the details a little bit more. Sajid?

Thanks, Aziz. We are pleased to report record second quarter revenues and our fifth consecutive quarter of double-digit revenue growth. Our shift to a streaming sales model from a mobile display-dependent model continued to deliver a robust compound annual growth rate, increased customer retention and has captured substantial cost efficiencies. For the 3 months ended June 30, 2025, Sabio generated USD 11.2 million in sales, up 25% from the prior year or 29% excluding political sales. The increase in sales was once again fully organic and driven by strong advertising demand, broader client adoption in key verticals and expansion into new geographies in combination with new product offerings and previous investments made. Double-digit growth rates were realized across several geographies within Sabio's footprint, including from the company's New York, Los Angeles and Detroit offices. Meanwhile, the company's advocacy business and international business out of the United Kingdom continued to demonstrate robust strength, compounding at triple-digit growth rates. By segment, ad-supported streaming sales grew 8% to a record USD 7.4 million compared to USD 6.9 million in the same period last year. Excluding political campaigns, ad-supported streaming grew 13%, marking our sixth consecutive quarter of double-digit growth in our core ad-supported streaming business. Included in second quarter ad-supported streaming sales were approximately $342,000 in programmatic ad sales recognized net of media costs. The increase in revenues was spread across several verticals, including automotive, finance, lottery, legal and professional services and advocacy. For the first half of 2025, Sabio's 21% growth in ad-supported streaming sales once again outpaced the estimated 13% growth rate for the U.S. ad-supported streaming market at large as we continue to take market share. With Sabio's dominant sales category, accounting for 70% of our overall sales mix in the first half, our ad-supported streaming sales feature predictable and sustained growth through very high customer retention rates. 92% of our first half sales normalized for political sales came from repeat customers. Additionally, second quarter mobile ad sales increased 88% to USD 3.5 million from USD 1.9 million in the prior year, reflecting strong adoption of Sabio's new performance marketing offering and increased use of non-OTT mobile video. Sabio's end-to-end technology stack powered by our proprietary App Science cross-screen graph and featuring several direct supply integrations continues to yield strong gross margins with first quarter -- with second quarter margins remaining consistently strong at 61%. Furthermore, programmatic ad sales recognized into consolidated revenues net of media costs benefited gross margins by approximately 1.2%. Sabio's programmatic sales typically feature lower gross margins compared to its managed service offerings, but also feature a lower OpEx profile. If the company's programmatic sales continue to make up a greater proportion of Sabio's overall sales mix, we expect downward pressure on margins to be gradually offset through greater OpEx efficiencies. With approximately 60% to 70% of our sales taking place in the second half of the year, the company has historically incurred first half losses followed by second half profitability. Our second quarter adjusted EBITDA loss was $1.2 million compared to a loss of $300,000 in the prior year's period. The loss was driven by investments in our new Creator TV, programmatic and performance marketing offerings and international expansion, which we will also soon discuss further. Also contributing to the loss was a $532,000 increase in cloud computing costs over the prior year second quarter as usage began to normalize from fourth quarter investments that will enhance the company's data security, capture AI-driven efficiencies and facilitate a robust data platform for continued growth. With the heaviest investments undertaken in the first quarter, Sabio saw a 15% sequential reduction from the previous quarter despite increased business activities. Going forward, management remains intently focused on unlocking further efficiency gains within the platform. Sabio ended the quarter with $2.2 million in cash. Delving deeper into Sabio's newest product offerings and geographical expansion, it is clear that our investments are already paying off with substantial benefits still to be realized over the coming quarters. Creator TV continued to expand its distribution during the second quarter. Since its launch, the channel's average viewership has grown by over 300% across several platforms, including Comcast Xumo Play, Plex, Sling and Amazon Fire TV. Our new programmatic CTV/OTT offering has seen a 94% month-over-month revenue growth in the first half of the year. Meanwhile, sales from our international business have quadrupled over the prior years with triple-digit growth rates continuing on into the third quarter. It is also worth reiterating that our new performance marketing offering helped underpin a robust 88% surge in second quarter mobile ad sales. Finally, Sabio's sales force has grown nearly 40% in 2025 with most hires being made within the last 6 months. The company has already realized early returns from these investments with new logos to Sabio representing 33% of our first half brand mix. Historically, it takes close to 6 months before a new seller starts to contribute with a meaningful ramp-up thereafter. Therefore, while we have already reaped early returns through our diversifying client base, the substantial benefits of our investments are expected to be realized in the second half of 2025 and into the 2026 election year as our newest sellers ramp up. Sabio's debt load consists of $1.7 million in short- and long-term debt instruments and $6.4 million outstanding under a 3-year revolving credit facility backed by Sabio's sales. This facility is used to borrow against eligible accounts receivable of the company, effectively bringing the collection of receivables forward to the draw date, similar to a factoring arrangement. Sabio's receivables have historically experienced a nominal loss rates due to a customer base that is largely composed of the most significant U.S. brands and advertising agencies. When accounts receivable are collected on, the amounts received are first directly paid towards the outstanding loan balance, which the company can then use for working capital purposes through subsequent withdrawals. As a result, the facility is continuously being repaid as AR on sales is collected upon. At quarter end, we had 50.6 million shares outstanding, 3.4 million options and RSUs outstanding. And subsequent to quarter end, Sabio retired all CAD 1.7 million of convertible notes or approximately USD 1.3 million in dollar terms through a new CAD 1.8 million debenture financing subscribed in part by Sabio's CEO. The financing reduced Sabio's fully diluted share count by approximately 1.7 million. Our acquisition of Vidillion in 2022 remains our only material dilutive event since going public in 2021. Insiders own 54% of the company with high alignment between our management team and the interest of our shareholders. Looking ahead, macroeconomic uncertainties continue to weigh on current advertising budgets, presenting near-term challenges across the industry. That said, Sabio's high repeat revenue rates, rapid programmatic adoption and ongoing international expansion positions the company well as we approach a traditionally strong fourth quarter in the 2026 midterm election year, where our compound annual growth rate has historically exceeded 60% in election year periods. I will now turn it over to Aziz, who will provide a quick recap.

Thank you, Sajid. Before we get into what is in store ahead, I want to spend a few minutes to expand on the early discussed debt transaction and our whole debt picture. Our recent debt transaction was a replacement of a convertible debt instrument that was coming due. Our hesitancy to do an equity financing deal with the tailwinds we have is exactly why we just swapped out a convertible debt instrument for a nonconvertible one. We're not concerned about paying off the debt instrument with revenue generated in our highest revenue quarters of Q4 being assisted by what is anticipated to be one of the most expensive midterm election cycles in U.S. history in 2026. Just to clarify, in the U.S., election dates are set for November 3 every 2 years, unlike that in Canada. So we have the predictability of what will happen in the next few months. Next, I want to clarify details on our debt. As Sajid discussed, outside of $1.35 million held by non-insiders, we don't have any really long-term debt. The amount that is classified that is really a mechanism that allows us to make use of receivables faster as the invoices get paid, so does our line. This type of mechanism allows us to leverage one of the best assets more effectively, which is blue chip customer payables versus having to keep large reserves on hand and not being able to deploy them for growth. What has been our default rate on invoices from our top customers or really anyone, the answer is close to 0. That is why this should be considered -- this really should not be considered a big debt component. Now in terms of the road ahead, we are winning and growing in a challenging environment, positioned perfectly as we enter what promises to be a record political cycle. From national elections to high-profile local races, including the California Governors and Los Angeles Mayors race, which by the way, the last mayors race 4 years ago had a record $100 million spent just in a matter of a few months, and that is scheduled for next year here in Los Angeles. Sabio is built for growth, consistency gives us strength, innovation gives us momentum, diversification gives us more reach, and together, they ensure we're ready for the next wave of opportunity. This was both a record second quarter and first half revenues in Sabio history, and we're just getting started. On that note, I'm going to hand it back to Martin for any questions. Martin?

Speakers, are you going to be turning on your video at this point or...?

Yes, we will.

Our first analyst questions comes from Gabriel Leung.

Congrats on the progress. Just curious if you can talk a little bit about the current programmatic pipeline. How you think that's going to shape up over the course of the year and into '26? And I'm also curious whether the growth in programmatic is going to -- do you expect it'll come at the expense of your managed business?

Welcome, Gabe. Thank you for the question. The first of which -- the first part of that is in terms of our programmatic pipeline, we're seeing tremendous opportunity of growth. And that dovetails into your second question. And it really is driven by 2 factors. First of which is we're not seeing a cannibalization of our managed service business because of programmatic. What we're seeing is there are parts of money that we did not have access to when we weren't offering programmatic. And so now we have the benefit of both managed and programmatic, hence, the fact that you could see that 92% reoccurring revenue model still consistent. The second part of this equation, what's also happening is because of the tariff situations here in the U.S. and of course, globally, advertisers aren't able to plan further ahead. And so it allows them to now turn off and off/on very quickly as it relates to changing tariff environment that we see coming out of the U.S. And so that has really facilitated the growth of programmatic. Now as you probably know, Gabe, 90% of all CTV/OTT is transacted programmatically. And so while our managed service business is consistent and we see growth there in certain categories, we do see a huge opportunity with programmatic. And that also dovetails nicely as we grow our Creator television channel because that provides us once again, unique supply of inventory. Did that answer your question, Gabe?

Yes. Super helpful. And for this midterm election cycle, do you anticipate more of a programmatic spend versus -- well, obviously, you didn't have it before, but do you expect that it will be a contributor to your programmatic growth on the political side this year?

Yes, very much so. In fact, we think we were limited while we had a record political year last year, it did limit us by not having programmatic. And this year, we are excited about the new offering in programmatic. And we're seeing, quite honestly, a lot of great success. We're seeing advertisers start testing us and just continue to keep those campaigns going and keeping them evergreen. So the consistency of our revenue will start becoming more of a factor with programmatic. Sajid, anything you want to add to that?

No, I think that was very well captured, Aziz. I think that it's worth pointing out that in political spending, most political spending is done programmatically. And we haven't had a programmatic offering in the past, right? In 2024, all our programmatic sales were through managed services. So now we have a programmatic offering. And to Aziz's point, we definitely expect that to benefit us in the midterm election year and beyond. You have to skate where the puck is going and the puck is going towards programmatic. And so that's why we're investing in it, and we definitely expect to reap the benefits of those investments.

And to that point, next year's election cycle, we're super excited about because not only do we have programmatic, but we have our own channel, the Creator television network, which is exactly where these politicians need to be. Younger audiences who can make an impact, younger, diverse audiences who can make an impact on the next cycle.

Got you. And maybe that leads to my next question. On the Creator TV side, I'm just curious if you have any talking points around whether that's been helping to drive additional growth in your core business or any evidence of that, I guess?

Yes, it has. And the reality is the first of which is the fact that it's increased our visibility as we have been, as you know all too well, we have probably been a tech player, right, monetizing everyone else's inventory, providing insights and analytics. And now we're in a position where we have our owned and operated inventory that's exclusive to us. What that does is it puts us in a completely different category of business. Not only is it a different category of business, it is one of the hottest growing categories of business, which is the creator-driven network business. And so greater content business, which I talked about, is on pace to be a $500 billion industry in a matter of years. So it does put us in a different place. It also helps us with our data and App Science. So now going back to your question of, is there anything specific that we could point to that from a numbers perspective? Well, at this point, what we want to kind of point to is this growth in our viewership and our programming. And what you will hear from us in the coming months is collaboration that is driven by this unique opportunity to program. And it's a very cost-effective approach we're taking. We're partnering up with other companies to collaborate with them on programming, on -- and collaborating with the creators. And really, it's going to give us a whole new set of selling opportunities, not just in the U.S. but globally, just in time as our global expansion and footprint is expanding. So we really are setting ourselves up for a really great acceleration, more so towards the end of this year and into '26.

Is it worth highlighting at this point how much of your revenues are being influenced by Creator TV? Or is it a number that you might provide maybe down the road?

Yes. It's probably something we're going to start talking about more at the beginning of '26, just simply because we do think there's going to be some opportunities for it to be influenced by the -- at the end of this year. But really where we see it to start making a meaningful impact is in '26. But in the meantime, as we talked about, programmatic is making a meaningful impact, international is making a meaningful impact. And those are the 2 new products that we were already in the works, while Creator TV now is getting that third leg going in a big way. So we're super excited. I mean we got so many things hitting on all gears. It's just -- I think as it relates to the loss this quarter, it's not indicative of the full picture, just simply because the investments we're continuing making are setting us up for this acceleration. And we're just -- we're excited. We're prime. This engine is starting to hit on all gears. And now as you saw what we did in '24 election cycle, we came out a challenging '23. We hit on all gears in '24. And that was before we had all of the tools in our toolbox that we have now. So super excited about that. Sajid, anything you'd add there?

No, I think you captured it well, Aziz. I think it's just worth reiterating that Creator TV just launched on Xumo and Fire TV within the last couple of months, some of these platforms after Q2 ended. And so while they're not showing up in the Q2 numbers, the viewership has exploded on these platforms since their launch, and we definitely expect them to have more of a contribution in Q3 and Q4.

Got you. Maybe one last thing for me. As the mobile group obviously had great growth this quarter, just curious if there's any commentary around that and what can we expect to see from that group over the course of the year?

I think it's a function of this need for some of our brands to go into a very performance mindset with the tariff situation and some of the uncertainties that's unfolded because of it. And we do believe that like while mobile will continue being a key component, the streaming -- the ad-supported streaming business of ours will continue being the key driver. So we don't think there's any kind of shift ahead. And I think I'll let Sajid get into this. But really, we think this is going to be -- this is just also a situation where it's -- people want to leverage our data science capabilities, our insights, our analytics to drive outcomes on a lower funnel basis. But what we suspect will also happen is branding will be coming back into vogue in a lot of ways. And so that will push the CTV upper funnel movement. Sajid, anything you want to add to that?

Yes. It's just again worth reiterating that Creator TV, programmatic CTV, OTT and performance marketing all launched this year. This is their first year of operation. They did not contribute last year. And already, performance marketing has contributed to an 88% increase in our Q2 sales in its formative stages. Programmatic CTV/OTT is going to contribute 7 figures in Q3, and it's going to ramp up even very fast afterwards. Creator TV has exploding viewership since being launched on Xumo Play and Fire TV. We are still in the early innings of what we expect to be a very robust growth cycle.

Awesome. Now appreciate the feedback. Congrats on the progress.

Thank you, Gabe. Appreciate the time.

Our next question is from Thomas Hui.

So my question is around sort of the uptick in expenses due to those internal investments. I understand you're trying to stand up these new products. We're just wondering if these are ongoing investments or if they're going to trail off any time soon?

Thanks for your question, Tom. I'm going to hand it over to Sajid. Sajid?

Yes. I think that whenever you have a new product being launched, you have to expect some sort of upfront investments being made, and that's what we've been doing in Creator TV, programmatic CTV/OTT and our international business. I think our international business is a great example. Last year, we had one seller there who contributed $1.4 million of sales. Now we have 4 sellers going to be 5 very soon. So what's the return on that? We are going to exceed all 2024 sales in Q3 internationally. So it's already paying dividends. Mobile sales, again, surged 88% because of our performance marketing product in part. Programmatic CTV/OTT is going to make up a greater portion of our sales mix in Q3 and beyond. So to answer your question, Tom, yes, these have required early investments, but we definitely expect that as these become more mature, the OpEx requirements will level off. And we see that happening around Q4 and going into the 2026 election year. And we expect the 2026 election year to be a big one. Again, we were able to turn around for perspective, a loss in 2023 into a close to $4 million gain in 2024. going into 2026, we have a lot more growth pillars set up for us. We expect 2026 to be a very big year for us.

That's well said, Sajid. And I think also, Tom, one of the things to keep in mind is that we had put a strategy. One of the things, as Sajid talked about, we came off a really strong election cycle in '24. And the thinking was like, okay, great. can -- Sabio, can you grow the revenue outside of election cycle? Well, we're doing it, right? We're executing. We did it not simply -- we're doing it in a tough environment. And I don't think sometimes we get enough credit for that. We started putting infrastructure in place last year, investments this year and are executing on those. And we are growing in a tariff-infused environment and diversified our business at the same time, going into one of the best election cycles in U.S. history. So we're super excited. And I think the reality is those investments are paying off. Sometimes, sure. If we had it -- if everything worked out the way we would have thought it worked out, there wouldn't be this thing called tariffs that showed up out of the White House that then affected some of the automotive components. There wouldn't be tariffs that are affecting some quick service restaurant or retail. And so certainly, we were affected by that. But despite that, and if the tariffs did not exist, let me just be very clear, you wouldn't see this loss today. I mean we were very much on our trajectory on an upward spiral -- upward trajectory if it wasn't for the tariff situation. And I think in the broad economy, it's being impacted everywhere. Despite that, we were able to execute and continue. And that was because the diversification that we have and the investments we put in new products. Otherwise, we would be down in a considerable way, and we're not. But I don't think it necessarily shows up in the way that we know it's going to show up later on this year.

Understood. Definitely very strong performance this quarter. I guess my last question would be on sort of the competitive landscape here. I think looking at all the U.S. ad tech companies, they all mentioned CTV as a major growth driver for them. And we also see like some increased competition such as Amazon forming like an exclusive partnership with Roku, which is like a big CTV player. I was just wondering -- I was curious to your thoughts on how the CTV landscape is shaping up and if you're seeing some competition from large players.

Well, Tom, I think you saw it early on when we showed you our thinking around creator television, this was like probably a year ago when we first started talking about it. This is a key differentiation. Now if you think about our competitors in the space, right? So we are now not competing with Amazon. We are on Amazon Fire, right? We're not competing with Comcast Xumo. We are on Xumo. We're going to be on all these other platforms. So the way to think about is -- and then while we have now content, we have our channel on these platforms, and we're having conversations with more platforms to distribute Creator TV, we are now not competing with them. We're playing with them, and we're enjoying the growth that they're having. We also have the benefit of App Science playing with them and insights and now we're talking to them about how do we use our insights for their platform. So I think the way to approach -- the way to think about Sabio is we continue to expand and now we are a piece of their environment versus us competing in their environment. So that's how we're different from a Trade Desk. The Trade Desk is competing with Amazon. There is zero-sum game there. with us, there's no zero-sum game. We are actually on Amazon. We are on Plex. We are going to be on all of these other platforms. And I think these -- that's where we see the opportunity going. So we're super excited. The more competition, the better. The more distribution sources the better for us because not only we have now content, which is the newest addition, we still have the great data and insights that these folks don't have. And so really, we see them as partnerships more than we see them as competitors. Does that answer your question, Tom?

Yes, sounds good.

Sure.

Our next questions come from Nicholas Cortellucci.

Just a couple here. Firstly, maybe if you guys could talk a bit more about the international approach with the U.K. office, and how that's opening the door to new clients and a more integrated approach?

Yes. What we learned and that -- the way this all came about, and I think it got asked by one of the investors, why would you go into the international markets, Aziz, when you have a lot of growth opportunity in the U.S. What would you -- we're still a small company. What's the rationale there? Well, the rationality for that is the fact that what we started seeing is our brands, some of the biggest brands in the world started saying to us that this tariff environment was going to -- that we saw this 3 years ago. In the '23 down -- pullback in the total U.S. market, what we saw is international markets were doing better. And we were not diversified in '23. And so our thinking in '23 was like, look, if we are going to now weather storms that are going to head our way, let's start diversifying from a geography perspective. Let's not have all our eggs in one basket in the U.S. basket. And so we started working on this in '23. And so what has happened along the way is, is we have leapfrogged some of our competitors now in the international market because we have differentiated analytics. We have our ad serving capabilities that could be anywhere in the world. And we are now connecting that -- those dots and those pipes. And we are really showing up on a lot of new campaigns across the regions, whether it is in the U.K., we're doing campaigns in Africa. We're doing campaigns in Asia. We are literally seeing opportunity everywhere. And what our brands are telling us is this is really great for them because as they now shift some dollars as is happening from some of the brands we've talked to, they're shifting dollars out of the U.S. and they are European brands, they're not pushing into U.S. They're keeping -- because of the tariff situation, they're keeping those dollars in Europe. And so we're benefiting from that. So like we are seeing a tremendous level of upside there, and it fits really well with our product set, and we're leapfrogging our competitors. And it is really -- we're super excited about that. Sajid, anything you want to add to that?

Yes. And I think that's exactly right, Aziz. And it's just we are in the early innings there, too. It's only been -- 2024 was our first year of revenues out of the U.K. 2025, we're going to exceed all last year's sales in Q3 alone. We are set up to win there. And it's -- a lot of our peers who don't have this kind of international expansion who are stuck in 1 or 2 markets. They are not reaping the benefits that we are in a year that's generally more challenging for the U.S. economy.

And Nicholas, obviously, this all -- and that goes back to the initial question, the question that we've been asked a lot. Well, Aziz, you grew revenue, but then you also grew your expenses. Yes, because we have that much opportunity. So it's like if we couldn't show it in terms of our numbers of growth in Europe or growth of Creator TV or growth of programmatic, then we should be questioned. But the fact is we are executing at a high level, and we are taking market share, and we're having fun doing it. So I hope the market understands that we are here to win. We're not here to lay around and just wait for yesterday's cycle. We're continuing to evolve and grow revenue altogether hopefully.