Hello, and welcome to the Sabio Holdings Earnings Call for the second quarter of 2024 . The financial statements and MD&A have been filed, and they can be accessed through the SEDAR website. My name is Aideen McDermott, Investor Relations Associate at Sabio, and joining us on our call today is Aziz Rahimtoola, Founder and CEO, and Sajid Premji, Chief Financial Officer. We will start today's call with Aziz and Sajid discussing our Q2 results, and we will then follow that up with a Q&A session. Before we begin today's call, I would like to remind everyone that certain statements made today may contain forward-looking information that is subject to known and unknown risks, uncertainties, and other factors. For a complete description of risks and uncertainties facing the company, please refer to the company's MD&A and other continuous disclosure filings that are also available on the SEDAR website.
Please note that all figures discussed today are in U.S. dollars unless stated otherwise. And with that, I will hand it over to Aziz.
Thank you, Aideen. Good morning, everyone. Thank you for joining Sabio's Q2 quarterly financial call. We're excited to share with you results of a quarter that demonstrated our commitment to profitable growth. Despite the seasonal nature of our business, with more than 70% of our revenue coming in the quarters ahead, more specifically Q3, Q4, we delivered the lowest Q2 adjusted EBITDA loss since going public. Our company is at an inflection point that is starting to see the benefits of combining a focus on cost efficiencies with top-line growth. Our teams continue to prove we can not only compete but win in the highly coveted ad-supported connected TV and OTT marketplace, which now makes up 77% of our revenue mix and growing. In fact, our 39% year-to-year increase in CTV/OTT ad sales outpaced the estimated growth of the overall $30 billion CTV/OTT advertising marketplace.
In addition, despite an unusual presidential campaign cycle, our teams delivered double-digit top-line growth through the strength of our core brand business, along with contributions from our growing international business. In fact, similar to what was disclosed by our U.S. public peers, the presidential campaign cycle actually had little impact on our first half revenues. This was due to, number one, the movement of some brand and advocacy spend to later in the year during non-election months, which also transpired during the last election cycle of 2022 , and two, a delay in political spend from Q2 to Q3 as campaigns reoriented themselves to a new candidate. Now that the presidential candidates are firmly in place, we expect the political spend to accelerate and be accretive to our year-over-year revenues in the second half.
Our proven strategy of increasing share of voice by providing additional differentiated product offerings to our top customers while maintaining our 90 %+ recurring rate is working. A proof point in our strategy is the fact our average deal sizing has increased from 60 k per customer pre-RTO, when we were primarily mobile display, to above a 100 k today, as we continue our expansion into CTV/OTT globally. Later in today's presentation, we will discuss new products we are on track to launch this year, which will continue to provide the positive momentum for the remainder of 2024 and help deliver a strong 2025 . I will now hand it over to Sajid Premji, our CFO, to dig further into the numbers. Sajid?
Thanks, Aziz. We are pleased to report Sabio's best second quarter results as a public company on both the top and bottom lines. For the three months ended June 30th, 2024 , Sabio generated $8.9 million in sales, up 11% compared to $8 million in the same period in 2023 . The increase in sales was primarily driven by the second straight quarter of double-digit growth within our connected TV and OTT ad-supported streaming business and robust 91% recurring revenue rates. Connected TV and OTT ad-supported streaming sales grew 39% to a Q2 record of $6.9 million, compared to $4.9 million in the same period last year. Connected TV and OTT streaming sales once again outpaced the estimated 16% growth rate for the U.S. CTV industry at large as we continue to take market share.
Connected TV and OTT ad-supported streaming continues to be our dominant sales category, accounting for 77% of our overall sales mix, identical to the first quarter of 2024 and up from 62% in the second quarter of 2023. It is worth noting that due to unusual events in the 2024 U.S. election cycle, political spend in Q2 was cautious, with the heavy spend expected to take place from Labor Day to the November elections. Therefore, the continuing double-digit growth of our ad-supported streaming business was led by our core branded one. This is a testament to Sabio's sustainability to segment ourselves in the market by leveraging proprietary data to generate viable insights through a non-cookie based platform.
Further, buyer-fueled by record upfront commitments in our branded media business and expectations of robust political spend, Sabio is well positioned in the second half for double-digit growth over the prior years' periods. Second quarter mobile display sales were $1.9 million, down 36% from $2.9 million in the second quarter of 2023. Our legacy mobile display customers continue to shift their spend with Sabio from mobile display to mobile streaming video, which is categorized under our connected TV and OTT ad-supported streaming category. Sabio's CTV OTT sales feature lower OpEx and predictable and sustained growth through high customer retention rates. Over 91% of first half sales came from repeat customers, compared to 74% in the first half of 2023. 70% of our top branded customers increased their spend with Sabio from the prior year's period.
Meanwhile, 28% of the brands who spent with Sabio in the first half of 2024 were new logos, presenting new opportunities to expand our revenue base in the quarters to come. On a trailing 12-month basis, our connected TV OTT ad-supported streaming business now represents a record 74% of our sales mix, as we continue to capitalize on one of the fastest growing categories in advertising. Within a span of just three or four years, we have completely transformed ourselves from a company that generated just 4% on trailing 12-month sales from CTV OTT in 2020. Meanwhile, the inherent cost efficiencies in transitioning to an ad-supported streaming sales model from one more dependent on mobile display continues to drive gains in our operating leverage. Operating expenses decreased 13% from the second quarter of 2023 , normalized for sales commissions and bonuses.
Our end-to-end technology stack, powered by our proprietary App Science cross-screen graph, continued to support strong margins, which improved to 61% from 60% in the prior year's quarter. All of this resulted in material improvements in operating leverage, as our second quarter adjusted EBITDA loss narrowed by over $1.4 million to a loss of under $300,000 for the quarter ending June 30th, 2024, versus a loss of $1.7 million in the prior year's second quarter. This was our lowest second quarter loss since going public, and it is worth noting once more that we ended the quarter within striking distance of adjusted EBITDA profitability with little political-related spend.
Sabio enters the second half of the year, where historically, close to 70% of annual revenues are typically generated, armed with record upfront commitments, high recurring revenues, our lowest first half adjusted EBITDA loss as a public company. With the heavy political-related spend still to come, management expects accelerating revenues and a lower cost infrastructure to culminate in the quarters ahead to return to meaningful adjusted EBITDA profitability for the year. After quarter end, Sabio leveraged its improved operating model to close a multi-year asset-based lending credit facility with SLR Digital Finance, a former lender to Sabio under an earlier iteration. We expect the $10 million facility will provide Sabio with greater balance sheet flexibility at a similar cost of capital to our previous line. Moreover, the new facility has several advantages from our previous arrangement, including increased liquidity and long-term stability through its three-year term.
At quarter end, we had 50 million shares outstanding, 3.4 million options and RSUs outstanding, and convertible debt convertible into 1.74 million shares at an exercise price of CAD 1. Insiders continue to own 60% of the company, with high alignment between our management team and the interest of our shareholders. Now I'll turn things back to Aziz for closing remarks.
Thank you, Sajid. Before we get to the closing remarks, I thought it would be important to re-highlight the key differentiation that really helps us not only win new business, but retain recurring business at a 90% renewal rate, as you can see. It is our approach to data integrity and data fidelity, and that is the cornerstone of App Science. App Science, once again, is a household graph, a proprietary household graph, that is cookieless and really make benefits from all the years of experience in both mobile and CTV, combining those two to really bring about a differentiated ability to reach consumers, both diverse and non, and understand them better through insights and analytics. Once again, the core of App Science are two key elements: data integrity and data fidelity.
And you're gonna hear more about that in the coming months and years as brands and agencies are interested in ensuring they're reaching the right audience and validating those audiences effectively. And in conclusion, key elements of today's call, and as we have spoken about in previous calls throughout this year, expect record top-line revenue in 2024, improvement in adjusted EBITDA profitability and operating leverage, material improvements in balance sheet. And finally, we're launching new products this year, and on track to do some start to do some testing in Q3 and Q4 of a new streaming TV programmatic and performance products that will add further to our top line without affecting our bottom line efficiencies. On that note, I'm gonna hand it back to Aideen.
Thank you, Aziz and Sajid. We will now open the call up for Q&A. Analysts have been given speaker permission, so please raise your virtual hand. Okay, first up, we have Gabriel Leung from Beacon Securities. Go ahead, Gabe.
Morning, thanks for taking my questions, and congrats on the progress. Aziz, just curious, can you provide a little bit more color on that last topic? You were talking about some of the new offerings that you're expecting to launch in Q3 and Q4, and sort of how... Your expectations around those?
Sure. Thank you for the question, Gabe, and good to see you this morning. Really, programmatic continues to take a hold in the advertising space. More than 70%, it's estimated between 50% and 70% of all CTV OTT advertising is now conducted through programmatic. And so what we have done, and we have, as a company, we did some initial programmatic campaigns in mobile, around the 2017 time period, and so we have experience in programmatic. But what our core business has been focusing on, especially as we moved into the CTV OTT space, has been on managed service.
Now, this new offering is going to allow us to not only continue to keep these customers who are interested in managed service campaigns, but expand the share of wallet with them through an additional offering of programmatic. It is not going to be a situation, we believe, and obviously, we're gonna start doing some testing later this quarter, in the early part of Q4. We believe that it is going to be additional revenue, not cannibalizing our existing business, and that is what we've been told by our clients. It's simply the ability to reach consumers, helping agencies and brands reach consumers through platforms they prefer using, which is programmatic, through some of the key players in the space, including Yahoo and DV360 and others. Does that answer your question, Gabe?
No, it's perfect, and then just talking about the political spend for the second half. I mean, you guys talked about expecting a ramp up, I guess, the sort of Labor Day leading into Election Day itself. You know, have you seen some of those dollars start to flow in or you know, additional commitments yet leading up to this event?
Yeah, I think that, you know, to answer your question, Gabe, we have. We've seen of late a lot of positive traction. I think that a lot of our clients are telling us that, you know, post-convention through the election day, you know, that's when we can expect the heavy political spend to happen. And I will say that, you know, we still have a month more to go in Q3, but we've already had more political spend this quarter than we had in all Q2. So we've definitely seen that ramp up.
And we've had more political spend than all of 2022. We had advocacy spend in 2022, and we've already seen more political spend this cycle than we did in 2022. So, a lot of great positive momentum forward.
Gotcha. And just one last thing, as we look into calendar 2025, you know, what sort of data points have you seen so far, or conversations have you had with your existing customers, that you're gonna be able to repeat sort of the, you know, ex political spend anyways, the sort of growth and improvement you've seen in 2024? And what sort of confidence do you have going into next year?
Yeah.
Sorry, go ahead.
We're feeling really good about, you know, what we're seeing initial signs for next year. And the reason being is, first of which is, and I was actually... I'm here in Chicago right now, and I was speaking to a political client last night, and really what they were telling me, and what we're seeing is the fact that there seems to be some sort of momentum shift.
This client specifically was telling me that they were averse to booking a lot of pre-books, and now they're gonna get in and, you know, their view was that the market will be softer and, I quite honestly told them, "I think the market's changing very quickly." We've seen really interesting dynamics where some brands were holding back on some spend because they were unsure about, you know, where the economy was going. And there seems to be a level of optimism that is taking place with our advertisers, and so that momentum now is starting to pick up for Q3 and Q4, which will then, we believe, will carry on into next year.
And so that, you know, it's about consumer sentiment, and if the consumer is feeling, overall, they start feeling better about the way things are heading, and I think it's, you know, we don't know with certainty, but all indications are the Fed's gonna reduce interest rates in September, which will further reduce the debt load on consumers or, you know, the interest rates associated with their debt loads. And so I think it's shaping up. It's gonna be shaping up in what we've been told by clients. In some cases, they've told us that there might not be as many upfront commitments, although that's not the conversations we're having.
But they've told us the upfront commitment cycle might not be as big, but that the scatter market, which is when they come in and target away, will be much bigger next year. So, you know, it. And then you add to it, Gabe, as we talked about, we're gonna be launching a new programmatic offering, which, as I mentioned, some stats are between 50% and 70% of all connected TV and OTT now is being transacted and programmatic. And so not only are we positioned well with our core customers, with 90% recurring rate, but now we have an additional offering, which has been the core of how we have won new business and continue to sustain business. We're constantly evolving and add to that the App Science differentiation. It's key.
That fidelity and integrity of our data and how we look at that and how we have, unlike platforms who just are platforms, we have a differentiation. Clients know it, they see it in their backend metrics, and we're excited to add that to our programmatic capabilities going into 2025. Sajid, anything you want to add to that?
Yeah, that was well said, Aziz. I think that, you know, just to add to that, you know, what's gonna make 2025 a good year are the same facts that made the first half of 2024 a good start. I mean, just to recap, we ended Q2 within striking range of positive EBITDA profitability, and that was with very little political dollars, right? So what do a couple of quarters without election spend appear to be? Well, I mean, we just had an adjusted first half, right? That was driven by our core business. And how do we do this? It was actually driven by-...
A conscious effort that we made internally to de-risk our business from seasonality and by changing our sales model to be more predictable and sustainable. You know, looking at our business metrics, 91%, again, of our recurring revenue rate, 91%. 70% of those repeat customers increased their spend with us over the prior year. As Aziz touched upon, we had record upfront commitments. We have a diversified sales mix. No single logo in Q2 made up more than 15% of our sales for the quarter, and all of these metrics have very little political impact. So, you know, the same trends, you know, that made this first half of 2024 solid will be just as valid in 2025.
We're seeing, just to add to it, two categories that are starting to show some real, you know, some positive signs: automotive, who had cut back spending in the early part of the year, simply connected to interest rates and consumer sentiment, is now having longer. Their cars are on lots longer. They're going to increase spend, especially as we get into the end of this year and beginning of next year. So that category, and then finally, the quick service restaurant category, which has, you know, had some challenges recently. And the challenges associated with consumer, you know, cutting back on spending. And so both those categories, we've seen very positive signs in addition to what we talked about with political and advocacy coming in. So lots, a lot of good stuff, a lot of good momentum overall.
Gotcha. Maybe one last question for Saj. So, on the operating expense side of things, I saw there was some additional restructuring charges this quarter. I'm curious, are you pretty much done in terms of, you know, the heavy lifting on the restructuring side? So this is sort of the baseline operating expense base, and you sort of, you know, grow it from here?
Yeah, I think a lot of the heavy lifting of that is complete. I think that we switched, you know, from a mobile company to a streaming company, and very fast we touched upon, right? And back in 2020, less than around 4% of our sales were from CTV, OTT, and now it's well over 75%. And so, you know, with that kind of drastic change, obviously we need to reorient our staff to kind of reflect that. And I think that a lot of that heavy lifting is complete, but we're always going to be fine-tuning and retooling. So, you know, we'll always continue to pivot ourselves as the business, as the environment pivots, too, right?
But I think that to answer your question, Gabe, yes, I think a large part of the heavy, heavy restructuring is complete.
That's great. Thank you.
Thanks, Gabe. Next up, we have Kiran Sritharan from Eight Capital . Go ahead, Kiran.
Hey, good morning, guys. Thanks for taking my questions. I think I'll start with where you ended there. Good to see the new credit facility locked in. Can you talk about some of the capital allocation plans for the year with this improved flexibility and maybe provide more color on what sort of growth spending requirements are with those new products?
Yeah. So I think that, you know, the facility provides good insurance. We have a number of growth pillars that Aziz has touched upon, including programmatic, that we don't need to finance through debt. I think that's important, first of all, to get across, is that, you know, we view this facility as more insurance, but as we touched upon, we expect to be EBITDA profitable in the second half of this year, and we expect to be EBITDA profitable for the full year. A lot of these growth initiatives will be funded through our own operating performance, and I think that, you know, is, as Aziz touched upon, I think programmatic will play a large part in that.
That's good to hear. And then, maybe, you called out some of the benefits from your own inventory contributing to the strength in the gross margins in the quarter. How do we think about this, going ahead? And also maybe an opportunity to touch on some of the CPMs, the competitiveness between the supply and the demand dynamics here.
Yeah. So I think that, you know, on the margin front, and I'll allow Aziz to add any additional context, but as we go into programmatic, you know, what we typically expect is some pressures on that gross margin. But the benefit of programmatic is that it's less OpEx intensive. Our EBITDA margins tend to be stronger. And so, you know, I would expect as our programmatic offering is launched in the quarters to come, and it gains continued traction. We'll see that gross margin being pressured, but we'll see gains falling more to the bottom line.
And I echo Sajid's sentiment on that, in the fact that we will see some pressures on inventory, you know, margins. But having said that, the differentiator, once again, comes back to App Science and the unique ability to reach those customers, both from a you know reach perspective and then an analytics perspective, really sets us apart. And that continues to be a key element of defending our margin position and helping us with renewal rate. Because if you are simply just selling inventory, and you know the Netflix folks like Netflix continue to reduce their price offering in a lot of cases to take market share, and you know Amazon's in the same boat, then you're left with not a whole lot.
So I think in our case, we're fortunate enough, you know, thinking ahead for many years, by building this App Science differentiation, it continues to be not only valuable in reaching consumers but has been proven on back-end metrics. So we feel good about our opportunity to defend our margin based off of that.
Thanks, Aziz. And I guess on my last question, I'll actually end with that one on App Science. It looks like there's some growing adoption with your top customers there. Have you made changes to the go-to-market or maybe the technology to drive this penetration?
We continue to look at always strengthening it and ensuring that we are. You know, making sure it is making use of the most recent technology. Obviously, machine learning has been a core attribute of App Science. We're implementing some new elements of AI in that. We haven't changed it substantially. What we have done is. You know, we do this periodically, making sure it is pertinent for the time and making sure it is updated. Going back to data integrity and data fidelity, making sure we have a quality product in those two elements, because without integrity and fidelity, you don't have a great product, both on front-end and back-end. So to answer your question, no, we haven't made a lot of changes.
But it, you know, App Science accounts for 100% of our top advertisers use App Science for reaching audiences. Not all of them necessarily use it for analytics and insights on the back end, but 100% of our customers use App Science to reach the consumers they're looking for. So it is a core element of our product offering.
Thanks, the call will pass the line.
Thanks.
Thanks, Kiran.
Thanks, Kiran. Next up we have Daniel Rosenberg from Paradigm Capital. Go ahead, Daniel.
Hi, good morning, Aziz and Sajid. My first question was around the new logos that you signed. I know you mentioned strength in quick serve restaurants and automotive, but I'm wondering, is that what you're seeing in terms of the new logos, or are they around different sectors?
Our focus, Daniel, thank you for the question. Our focus continues, as you're seeing the 90%+ , 91% in this quarter, but 9%+ overall recurring revenue, is really share of wallet. Certainly, we do get new logos coming in all the time, and you know, we're always interested in having those conversations and certainly especially in the automotive and quick service restaurant category, which we do well. But really our focus has been to increase share of wallet with some of the biggest brands in the world. That's who we work with. So, that's been our strategy and continues to be our strategy to focus in on that share of wallet voice overall. Anything you want to add to that, Sajid?
No, I think that was well said.
Okay, thanks, and then just turning to the political spend, I think I heard you say that you're seeing more traction than you saw in 2022 in terms of the recent demand, so you know, how can we parse that into what Q3 looks like in terms of how much demand you think you can generate from the election cycle?
Yes, I think what, you know, what Aziz had talked about is that we saw in 2022, a lot of that spend that came in the second half of the year was from the advocacy side of the coin, not political. You know, this, this year, you know, we're seeing both political and advocacy come in. So, you know, that's a differentiation there. I think that looking at the second half of the year, you are correct, Daniel. We've had more political business so far in Q3 than we've had in all of 2022 and more than we had in the first, second quarter of 2024. So I think it's, you know, how do you kind of parse that out?
Well, I mean, it's definitely gonna be a, you know, a creative and helping to make our double digit growth over last year in Q3 and Q4. You know, we don't really provide guidance to the company, but we are expecting broadly double digit growth to happen on the top line in Q3 and Q4.
Daniel, as we talked about, what has been remarkable in Q2, as we talked about it in the call, is the strength of our core business. We're seeing, you know, while political and advocacy is great, and advocacy certainly comes in, you know, stays in non-election years, like next year. Political is only obviously focused on this year, but our core business is really what is, you know, really starting to once again see acceleration and efficiencies. I mean, we've fine-tuned the business and continue seeing growth there. So, I think the combination of our growth of our core business, combined with this political and advocacy opportunity that Q3 possesses, is really gonna be a really great second half for us overall.
Yeah, I think that's an important point that you touched on with me, is that, you know, even without political, I was still expect double digit growth last year, over last year, and that's just due to the strength of our core business. We, you know, political just an added bonus.
Okay, good to hear. Then turning to OpEx, you know, as you're dealing with this demand, is there any incremental OpEx associated with dealing with the demand? I know you're benefiting from more operating leverage, but maybe in absolute terms. And then as well, you know, as you think about standing up programmatic offering, is there any incremental investment required?
Yeah, I mean, there, there's a bit more incremental investment for the political season, just as perhaps some temporary staffing needs that we have to optimize our campaigns, but I wouldn't call this anywhere in the realm of immaterial, so we are still expecting a very stable OpEx structure as we go into Q3 and Q4.
We have done a lot of reorganizing to position ourselves, including on the product side, so without requiring a lot of additional cost to go into it. It's more about efficiency, reallocating resources to the key areas of growth. You're not, to Sajid's point, gonna see that huge increase in OpEx because of a huge increase in what we're seeing in political and advocacy. Or even on the programmatic side, we continue to be very focused on moving resources into areas of growth and out of areas that are not growing.
Sounds good. Thanks for taking my questions. I'll pass the line.
Great. Thank you, Daniel.
Thanks, Daniel. That concludes it for today's questions, so I will hand it back to Aziz for closing remarks.
Great. Well, thank you everyone for joining us, call, this morning. We're excited about the second half of the year and look forward to speaking with all of you again soon. Thank you again for joining.