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

Good morning, everyone, and welcome to Sabio Holdings Q2 Conference Call. The financial statements and management discussion and analysis are available on the SEDAR+ website. Today is Thursday, August 20. Joining us are Founder and Chief Executive Officer, Aziz Rahimtoola; and Chief Financial Officer, Sajid Premji. After management's remarks, we will open the call for questions [Operator Instructions] Before we begin, please note that today's remarks may contain forward-looking information. These statements involve known and unknown risks and uncertainties. Please refer to the filings on SEDAR+ for more information. All figures are stated in U.S. dollars, unless otherwise noted. With that, I turn it over to Aziz.

Thank you, Martin, and good morning, everyone. Q2 demonstrates how effectively we've been leveraging our tech stack and data backbone to scale our U.S. programmatic and EMEA ad-supported streaming business. The growth of our U.S. programmatic and EMEA momentum couldn't happen at a better time. We're benefiting from three shifts happening simultaneously: Client need to be in ad-supported streaming, transacted programmatically while having the option to scale it globally. 49% of Q2 revenue came from U.S. programmatic and EMEA expansion, growing at a strong 290% year-to-year rate. We're not achieving this by sacrificing margins, we're actually expanding them sequentially to 61%. And we're growing it through new logos against the backdrop of political and advocacy historically skewed 70% in the second half of the year. We're executing and growing across all key metrics while becoming a leaner organization, thanks to AI-driven efficiencies. I'm now going to hand it to Sajid Premji, our CFO, to dig into the numbers.

Thank you, Aziz. In Q2, we began to see the investments in efficiency work that we've been driving all year show up in the numbers, with the larger impact still to come in the second half. Growth in adjusted EBITDA margins expanded meaningfully and our loss narrowed sequentially. Our newest growth channels, U.S. programmatic and our international platform covering Europe, the Middle East and Africa or EMEA; continue to scale at a robust pace with a 77% increase in new customer logos. Meanwhile, our more mature ad-supported streaming managed service business continues to underpin a strong 82% recurring revenue rate, including 92% in the U.S. While we faced some of the same seasonal headwinds we called out last quarter, Sabio's underlying business is moving in the right direction. Consolidated gross revenues were USD 9.7 million, down from USD 11.7 million a year ago, primarily due to the absence of approximately USD 2.5 million in higher-margin political and advocacy revenue, which in election years is historically concentrated in the second half. Normalized for that political and advocacy spend, our brand business grew 6% year-over-year, driven by continued strength in our top logos, even as we absorb that seasonal shift. Ad supported streaming, our foundational business, came in at USD 6.2 million compared with USD 7.9 million a year ago. Once again, though, normalized for political and advocacy spend, brand results were largely flat, down about 2%, and that slight decline was due to an existing customer, a top global brand shifting a specific high dollar campaign into our new digital out-of-home offering, which we began monetizing this quarter. Excluding that shift, core streaming growth would have been positive. And as further evidence, our mobile business benefited from that same shift. Gross mobile gross sales were USD 3.5 million compared with $3.6 million a year ago and normalized for political advocacy, brand mobile sales were up 32% year-over-year, driven by that shift into our new digital out-of-home offering. U.S. programmatic in EMEA, again, drove the growth story this quarter. U.S. programmatic sales reached USD 2.9 million, up 240% year-over-year and now representing 30% of consolidated gross sales. Our U.S. programmatic customer count grew 116% year-over-year, with 90% of Q1 programmatic customers renewing into Q2 and 79% of U.S. programmatic customers increasing their spend. EMEA sales reached USD 1.9 million, up 186% year-over-year. On a first half basis, EMEA sales reached $5 million and have already matched our full year 2025 EMEA revenue over that 12-month period. 54% of second quarter EMEA logos were new, up 343% year-over-year. And together, U.S. programmatic in EMEA represented 49% of our second quarter gross sales, up 10% from a year ago. Globally, new customer logos grew 77% year-over-year, representing 35% of our Q2 logo base. And recurring revenue represented 82% of total revenues and 92% in the U.S., underscoring the visibility and predictability of our domestic revenue base. Gross margins came in at 61%, up 8 points sequentially from 53% in the first quarter, driven by improved supply agreements, tech efficiencies and an improving sales mix. We expect continued margin improvement through the second half supported by these factors and the return of higher-margin political and advocacy spend. Adjusted EBITDA was a loss of $2.7 million, narrowing sequentially from a loss of $3.4 million in Q1, an improvement of 14 percentage points on a margin basis. Our cost reduction initiatives are expected to deliver more than 2 million annualized when fully implemented. As we head into the second half, we've already secured more than USD 5 million in political and advocacy commitments. Seasonality is meaningful for Sabio's business. In 2025, 88% of EMEA revenue and 82% of U.S. programmatic sales came in the second half. And in our last political year 2024, 69% of total revenues came in the second half of the year. With improving margins, a leaner cost structure, strong customer retention and a substantial pipeline of second half political and advocacy commitments, we believe that Sabio is positioned for adjusted EBITDA to return to profitability in the second half of 2026. Turning to capitalization. Sabio ended the quarter with USD 1.5 million in cash, up by $500,000 in Q1. Debt outstanding under our U.S. and U.K. credit facilities was roughly flat at $6.1 million compared to USD 6.2 million at the end of Q1 and down from $9.1 million at year-end. Sabio's receivables continue to show very low loss rates, driven by customer base made up primarily of major global brands and leading ad agencies. As collections come in, they used to repay our facilities, which can be drawn on an ongoing basis for working capital needs, giving us a self-replenishing source of liquidity. On the strength of our international EMEA business, during the quarter, Sabio was approved for an increase in its U.K. credit facility from GBP 3 million to GBP 5 million. We also supplemented this with a CAD 900,000 convertible debt note, the proceeds of which were used to secure higher-margin direct supply. That supply helped drive gross margins to 67% in June, our strongest margin month of the year. Subsequent to quarter end, we further strengthened our position by raising USD 1.5 million through a nondilutive term loan secured by certain assets of our EMEA operations. Together, these steps give Sabio greater balance sheet flexibility as we enter what is historically our strongest sales quarters of the years, including the capacity to secure more higher-margin direct supply ahead of the political season. Aziz, back to you.

Thank you, Sajid. To recap, in terms of our outlook ahead, core business is positioned strong for our growth back half. Our AI power programmatic capabilities continue delivering strong results with 90% renewal rate and growing. Internal expansion is continuing -- international expansion is continuing to accelerate. And then finally, $5 million in pol fee is already committed to and secured. We expect this second half to be very similar to what we saw in 2024, where 70% of our revenue was in the second half of this year. So on that note, we will take additional -- we'll take questions.

[Operator Instructions] Gross margin has rebounded to 61% due to better supply agreements and technology efficiencies. Do you see further room for expansion above 61% as higher-margin political revenue scales in the second half?

At this point, what we're -- we want to focus in on expanding the business. And so 61% is a is a good margin for us. Yes, sure. Sajid was just about to say there is an opportunity to expand more, but we are comfortable with the 61% margin. And really, our focus is to now get the top line revenue moving in the right direction at a double-digit clip as we were in the past. That's really our primary focus. So we do feel good with 61%, but we're not focusing on the margin at this point. We need to scale on the top line.

Yes. I guess into that note, we definitely expect more consistency in our margin on a month-by-month basis in the second half of the year, which will benefit our business. As we kind of pointed out in the transcript, our best month of the year and on a margin basis was June, was around 67%. That was on the back of the supply deals that we were able to secure using the small financing that we did in April. And one that we closed a couple of weeks ago, that will enable us to get more direct supply in to really secure that margin.

We will now take call some questions from analysts. I'm opening the line for Daniel Rosenberg. Daniel?

My first question just comes around the outlook for the second half. You mentioned $5 million in secured sales already booked. You also alluded to 2024. I'm just wondering, how that $5 million looks at this point compares to your 2024 experience?

Dan, thank you for the question. At this point, we really haven't seen a whole lot of that just yet. As we mentioned, 70% of our political and efficacy as well as what we're seeing in top line growth from our brand business, usually in political years, happens in the second half. So we haven't seen a lot of that, but we know we are being told it's coming in and it's going to be coming in strong. So we're feeling pretty bullish about that amount.

And then maybe anecdotally, obviously, 2024 was a massive second half, so $16 million and $18 million in Q3 and Q4. So as you think about the momentum going into that quarter, like is this the baseline that you're thinking about? Or is it where should we set our expectations?

The difference and there's two key differences in '24 versus this year. First of which is, obviously, as you mentioned, it was a national election cycle. And what happens is in 24 during a national election cycle, the two candidates already decided. Everything is squared away. And so what will happen is you will get some of those dollars, a heavier portion of it also coming in Q3. And then Q4 will continue that specifically, obviously, October. And in a season where you have a lot of primaries and a lot of different candidates. You will see that uptick in Q3, but what we're seeing is advocacy tends to like back load in the second half of the year. And so we're going to see a really strong push in Q4. And so we do feel -- is it going to be perfectly aligned to what we saw in '24? Probably not, but we're going to see very similar patterns. We do believe, though, that Q4 will be heavier this year simply because we also have the benefit of international. And so international continues to accelerate. And what we saw last year in international revenue was that started off strong, specifically at September, but really Q4 is where a lot of that additional uptick was taking place. So we're uniquely positioned this year because of international as well. So yes, political obviously is exciting for us, and it's going to be a great election cycle but really in on top of it, this international growth, and then you add in programmatic, is big. Sajid, anything you want to add to that?

Yes. I think that was well said. I think pointed out 1 big difference this year is that we do have these two big pillars in U.S. programmatic in EMEA, international. That wasn't there in 2024. And Aziz correctly pointed out, last year, close to 90% of international sales were in the last half of the year, 50% of that -- 50% of full-year sales in international came in Q4. U.S. programmatic, a very similar story, where more than 80% of second half sales last year came in the second half of the year, with Q4 being the biggest quarters. So we really are set up to benefit from those two tailwinds. And then you're adding political on top of that, which is going to come in through that $5 million commitment plus other ones that we're working on as well. So we are expecting a [indiscernible] second half. That's all going to be a lot more diversified than we were in the past.

And Daniel, I don't know if we mentioned this enough, but there were cost efficiencies that we were -- that were recognized in the earlier part of this year. Those cost efficiencies are also going to hit in Q3, Q4. So that is really where the brunt of we're going to see some of these efficients come in. So similar pattern that we did in '24. What did we do? We tied in our belt at the end of to 23% going into '24, we then accelerated up with cost efficiencies and really starts dropping more to the bottom line. So we're aiming for the same type of strategy here as we did in '24.

That's correct. Yes. We generated -- if you look at '24, we generated about $5 million of EBITDA between the second half of the year. And we used that to significantly reduce our payables and really rightsize our balance sheet. And we're seeing a similar kind of game plan this time around.

Okay. So then turning to the balance sheet. One difference is, I would say, you're in a different position today than you're in back then. I know you did a finance in the post quarter. But can you walk me through what those liabilities look like in the near term? I think you have within a year, a number of things do. And just how you intend to bridge to get that paid off?

Yes, yes. So I think that we did lead on payables in the balance sheet more in 2025 and year-to-date in 2026. And that is consistent with the working capital cycle that we have seen in nonpolitical years been accentuated. But this does follow a pattern that we've seen before. In 2023, payables increase all the way up to the second half of 2024 -- I mean in the first half of 2024. And then is applicable spending return, we were able to make great headway. What's different now is that we do have U.S. programmatic in EMEA, and we continue to scale and diversify that revenue base. And looking into the second half of 2026, we expect a similar dynamic. But I guess, the issue really is to address is why is our balance sheet stressed at this point in time? And how is that going to be corrected, right? And that's the brunt of your question there, Daniel. And the investments that we've been making since the beginning of 2025 have really been aimed at getting the business out of that boom and bust cycle tied to the political cycle, right? So looking at 2025, we had about $10 million of political advocacy revenue to replace that was there in 2024, that dropped up in 2025. And we entered that year with no programmatic product development, so zero sales there; and international business that ended 2024 with USD 1.4 million of sales. So that's the base we had to absorb a $10 million loss on political sales. And you kind of compound that with tariff uncertainty that impacted second half spending, and that's exactly why 2025 was so difficult. At the scale from a new offering, it just wasn't there yet. And so what has fundamentally changed is that if you fast forward to today, to the first half of 2026. U.S. programmatic and international combined are running each about $5 million a piece, so $10 million combined. In 2025, both of those businesses did more than 80% of the other sales in the second half of the year. But let's say we take a conservative approach, says even 50-50 split, that's still a run rate of $20 million in entering into versus the $1.4 million we had going to 2025. And so '27 brings the political step-down similar to what we had in 2025. We're still entering that base with a 10x larger to absorb it. And you kind of combine that with the cost cutting that the Aziz pointed out, more than $2 million of annualized cost cutting, and that's what gives us the confidence that 2027 looks a lot more structurally different into 2023 or '25, and that will be able to meet those debt obligations. So yes, that transition has been a bit of a painful journey that shows up in the balance sheet in the first half of the year. But it had to be done and the results is going to be a much more sustainable business.

And Daniel, just to add to that. Sajid talked about how there is the current -- the legacy business, which is our managed service CTV/OTT and how we are really kind of transforming this business in a couple of ways. A, programmatic is what our clients are looking to use versus the managed service that we used to see in the past. And the reason for that is that it creates efficiencies for them and us, the ability to activate campaigns quicker in shorter cycles and also turn off when need be as was caused during the tariffs. The second thing is the diversification, as Sajid pointed out, on international, that's growing at a fast rate. And the third part, which we haven't talked about a whole lot is also Creative TV continues to expand. And that is going to give us some new opportunities and revenue streams, especially as it relates to -- we've already started seeing the impact of revenue, but really that's going to be accelerating at the end of '26 and then '27 that's going to add us in. So we've really diversified this business. We've had to put those investments in to the company to ensure that this starts accelerating up. And I think today, while the numbers look single digit on the top line revenue in our brand business that is, what I think is missing in that whole picture is the fact that we are essentially moving out of this old business model of managed service very quickly and into a new AI-driven programmatic capability that really is well suited for the marketplace and the growth that we're going to see in the coming years. So we're feeling good about the second half. And not only second half but really the momentum in '27 to then take care of these outstanding debt payments and paybacks that we need to take care of.

Maybe touching on that idea of CTV versus mobile. I mean, obviously, a lot of competition coming on the streaming space with the big platform streamers. I was wondering if you could speak to how you see the business along those lenses between mobile streaming -- I guess basically the competitive dynamic that you're seeing?

Yes. And we're seeing actually a CTV and ad-supported streaming, CTV and OTT is going to continue growing. I mean we see that as a huge opportunity. I think look, reflective of the fact that we actually increased margins, and so there's an opportunity here that, that is going to continue growing. Where it's growing at a faster rate than managed -- sorry, faster rate is programmatic versus managed. And when we first got into CTV/OTT and we did the transition to mobile, we talked about how CTV was a new platform, and we're seeing a tremendous amount of growth. Well, we're still seeing that growth. except that growth now is moving into programmatic. So it's CTV/OTT, which is ad-supported streaming into programmatic. Mobile is actually having another -- is having a resurgence as well as it relates to spend. So while it didn't show up this quarter, we do expect mobile, especially as it relates to political spending; to start showing up and some of the advocacy to start showing up. But really, the way to think about this is CTV/OTT, which is ad-supported streaming, has a long ways to go and a lot of upside. And despite the fact, sure, there are going to be more competitors in the space and scale is going to be an issue, but we are actually friendly with the competitors. In fact, we've just ticked up supplies deals with some of the biggest players out there, including Tubi, which is now currently running directly from us in our platform. So there's a lot of direct-supply deals that we're doing with these big streaming companies. And the reason clients are using us is not simply for the supply. That's not our value proposition. And that's why you don't see us talking about simply selling inventory, which is the SSP business model. We've made a very intentional -- we've been very intentional in our approach to focus in on the higher-margin business. Sure, we can show you top line growth and just sell inventory that we don't own and arbitrage that. That's not where our value add is. Our value-add continues to be this App Science-driven demand that our clients are looking for. And that's why we work with the biggest brands in the world, and our margins continue to grow because of that. So the App Science-driven media is critical, and that's where we see a lot of opportunity because in the marketplace, you're right, there are going to be big players out there that are going to provide supply. But that does not mean they're going to be able to have a differentiated offering, whereas we do with App Science and Creator TV.

Okay. I appreciate that. Last question for me. I was just wondering if you could give us an up-to-date number on today's cash balance with that. I know first quarter, you did the financing. And then I'll pass the line.

So it's -- while we don't kind of publicly disclose our history of interim monthly cash balances. It's very similar to what it was when we ended Q2.

Daniel, thank you for your questions. I will now open the call to Nicholas Cortellucci.

The first thing I wanted to ask about was some of the operating expenses. So just looking quarter-over-quarter, we've seen a bit of an increase in S&M and G&A. It's down year-over-year, but just wanted to get some color on why it's increased quarter-over-quarter and what do we expect going into back half.

So the G&A expenses have increased quarter-over-quarter, that was tied to the headcount reductions that we've done. So we did a bit of an internal restructure. And so there's cost involved in that. And so those were onetime in nature. And so I think that if you're looking at the G&A line item, that's where that kind of shows up, although that was kind of reflected in their adjusted EBITDA number as well. So I think that looking ahead, those costs should be normalized and we should expect G&A to be quite steady.