Earnings call for the first quarter of 2022. The financial statements and MD&A have been filed and can be accessed through the SEDAR website. My name is Arinder Mahal, Advisor to the company. Today with us we have Aziz Rahimtoola, Founder and Chief Executive Officer, Sajid Premji, Chief Financial Officer, and Tom Engdahl, Executive Vice President of Vidillion. Vidillion is the company that we recently acquired. The agenda for the call today will be as follows, Aziz and Sajid will discuss the results. Tom will provide an overview of Vidillion, and then we'll follow that up with the Q&A. Before we begin, I'd like to remind everyone that certain statements made in today's call 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, we refer you to the company's MD&A and other continuous disclosure filings, which are also available on SEDAR. With that, I'll turn it over to Aziz.
Thank you, Arinder. It's great to be here this morning. Despite dealing with the headwinds from the Ukraine war, automotive chip shortages, and material supply shortages, we were able to deliver another strong quarter of growth driven by CTV, which Sajid will dig into further later on this call. The aforementioned macro level challenges have not had any impact on our current pipeline or our future trajectory. This could be attributed to a couple of reasons. First of which, we were well diversified in advertising spend and continue to being so. AVOD, advertising video on demand, is quickly becoming an attractive alternative for consumers looking to cut monthly expenses by canceling their cable and streaming subscriptions, as highlighted by Netflix's recent information. In a tightening economic environment, the reality is cord-cutting of cable will only increase.
Consumers will search out more ad-supported content while brands and agencies will wanna maximize the return on their ad spend and seek deeper validation and justification for spend. For example, despite chip shortages, automotive was one of our fastest-growing categories in Q1. This makes us cautiously optimistic that the category could be poised to pace well the rest of the year while increasing even more next year when some of the chip shortages should be resolved. In addition, our recent investments and awards in the political category are helping us see an increased momentum there as well. Continuing on the investment topic, our strong double-digit year-to-year organic growth for four quarters straight was driven by sales talent, leadership additions across various business units. The net effect has been to increase our number of upfront deals, conversations relative to years past, giving us an even stronger footing going into next year.
Overall, we feel good about the momentum of our business, along with the fact that we have never been in a stronger financial position in years past. On that note, I'm gonna hand it over to Sajid Premji to jump into the numbers a little bit more, followed by Thomas Engdahl to talk about the Vidillion acquisition and what that means for Sabio as a whole. Sajid?
Thanks, Aziz. We are pleased to close a record first quarter for Sabio. For the three months ending March 31st, we generated CAD 5.6 million in sales, up 116% from the prior year. The growth was once again driven by CTV sales, which were up 294% to CAD 2.3 million from 600K in the prior year. Mobile sales, inclusive of OTT streaming, also accelerated 64% to CAD 3.3 million from CAD 2 million in the prior year. As a percentage of our overall sales mix, CTV continued to expand, making up 42% of our sales mix for the quarter versus 23% in the prior year. This increase in our ability to expand our share of our customers' wallets underpinned a 59% increase in average deal sizes.
The advertising business is seasonal, with the third and fourth quarter producing the greatest spend, and our business is no different. To normalize the seasonality, you can see that the trailing twelve months now on your screens. On a trailing twelve-month basis, quarter-over-quarter, the upward trend is consistent. In comparing the trailing twelve months for quarter one 2021 versus quarter one 2022, sales increased 114% from CAD 12.7 million in the prior period to CAD 27.2 million in the current period. In this time, we saw an impressive 100% retention of our top CTV spenders. Despite this accelerated sales growth, we have not only held margins, but our gross margins for the quarter also improved to 61% from 60% in the prior year's quarter.
This is a testament to our value proposition, anchored by our AppScience analytics platform that maximizes the ROI on ad spend for our clients in the challenging macro environment. Our cost of sales are directly tied to revenue and is a full costing consisting of all media, technical, creative, and data costs incurred in generating sales. Our adjusted EBITDA loss for the quarter was CAD 900 thousand versus CAD 500 thousand loss in the previous year. Investments made in growth initiatives subsequent to the first quarter of 2021 continue to deliver results. Significantly, in the prior year, only 9% of our annual sales were from the New York City region. Due to subsequent investments made in the region, New York sales increased to 19% of our overall sales mix and drove 27% of our year-over-year sales growth.
Investments made in our political apparatus made in the first quarter ahead of this year's U.S. midterm elections have already paid early dividends. The political and advocacy category drove 20% of our sales growth during the quarter. Efficiency gains in our sales team were also noted, where sales per seller also increased by 60% to CAD 427K in the first quarter of 2022, up from CAD 258K in the prior year's first quarter. Importantly, we continue to be well-funded and capitalized. We ended the quarter with CAD 4 million in cash on our balance sheet, of which we used CAD 1.25 million subsequent to quarter end to fund our acquisition of Vidillion.
We ended the quarter with net working capital of CAD 3.5 million, compared to a net working capital deficit of CAD 6.9 million in the prior year. Subsequent to quarter end, we also renegotiated our line of credit with ATB Financial. The amended terms, which took effect on May 26th, includes an increase to the overall credit available under the line to CAD 7 million from CAD 4 million. Overall, we believe that we are well-funded to navigate through any foreseeable short-term challenges the current macro environment may present. As of today, we have 45.5 million shares outstanding, 3.9 million options outstanding, and 4.18 million warrants outstanding, with insiders owning 65% of the company. Back to you, Aziz.
Thank you, Sajid. We will now have Tom Engdahl of recently acquired Vidillion discuss the elements of synergies we're starting to see from the combination. Tom.
Thank you, Aziz, for the opportunity to introduce Vidillion. Vidillion is now a wholly-owned subsidiary of Sabio Holdings. 10 years ago, Vidillion realized the power of video by pioneering proprietary advanced digital video streaming technology used to create, manage, and transport video streams. In 2014, the company recognized an opportunity in the emerging connected television market to act as a conduit between content publishers and paid advertising. The company has grown and now supports 571 channels, of which 467 channels use Vidillion's technology to splice selected television ads into live and video-on-demand television shows. 83% of the Vidillion-supported applications and channels receive advertising exclusively from the company. Vidillion-supported applications are on 14 CTV platforms, including Roku, Samsung TV Plus, Amazon Fire TV, LG TV, Apple TV, and Vizio TV.
In addition, we support three proprietary end-user devices: Jadoo, Uno, and the Auto Dealer Network. Vidillion's viewer reach extends to 216 countries with streamed content in 21 languages. Over the past 12 months, we received 221.7 million requests for ads and completed ads to 106.4 million of the available requests. Vidillion's intelligent monetization and advertising content replacement platform offers Sabio partners targeted advertising based on geographic, demographic, and household profiles. Combining Vidillion's technology and embedded base of CTV viewers with Sabio's advertising products and AppScience data dashboards, we are able to offer advanced end-to-end solutions for both content publishers and brand advertisers. Our mission over the next 12 months will be focused on infusing our deep CTV knowledge into Sabio Holdings' other business, including growing AppScience software-as-a-service business and the DSP business.
In addition, Vidillion's existing CTV publishers base, combined with Sabio's advertising infrastructure, allows the combined company to build new advanced advertising products which will address the evolving and expanding CTV market. We are excited to be part of the Sabio family. We have a long history of working together and share a common vision for the industry, and thus it was an easy decision for myself and the team to join Sabio. As expected, we have hit the ground running. The teams are now fully integrated, and we look forward to executing on our vision within the Sabio family. Thank you, and back to Aziz.
Thank you, Tom. Excited to have you and the group part of our team. Just to recap today's presentation, we continue to see strong double-digit growth driven by CTV. The financial health of our company has never been in a better position. Our revenue and sales pipelines continue to be robust for the remainder of this year and into the next. Finally, we are uniquely suited to deliver on sustainable growth in the CTV marketplace, which is very much in its early innings. On that note, I will hand it back to Arinder.
Thank you, Aziz, Tom, and Sajid. We'll open the call up for Q&A now. The analysts have been given speakers' permission, so please go ahead and raise your virtual hand, and anybody else that has a question, please post it in the Q&A chat. We will begin today's Q&A with Daniel Rosenberg from Paradigm. Go ahead, Daniel.
Hi, good morning, everybody. My first question was just around the revenue mix. We saw a particular strength in mobile, and I was a bit surprised to see that quarter-over-quarter, you know, the growth rates between mobile and CTV were kind of similar, or that change quarter-over-quarter was similar. Could you speak to any one-time things that may have occurred in the quarter or what that dynamic is that's pushing that mobile strength?
Yeah, yeah. I can take that one, Daniel. There are really two elements here. Mobile is inclusive of OTT, so as well as streaming on TV, we're also running streaming campaigns on mobile devices. Separately, we've seen customers wanting to retarget viewers that they're targeting on CTV over a mobile device as well, aside from streaming. They are using our App Science Household Graph to do this. Yes, while we are seeing a mobile lift, it really is being underpinned by our App Science Household Graph.
You know, to further elaborate on that, Daniel, what will happen is exactly what Sajid said. A lot of times we're seeing a situation where our advertisers are interested in CTV and our CTV offering, and then they're asking us to help them with lower funnel targeting to retarget those same consumers on mobile devices that are on apps that are not CTV streaming apps. We're seeing a growth in both of those, exactly as Sajid mentioned.
Okay. Thanks for that. My second question was around, I saw some disclosure around, subsequent to the quarter, some initiatives around M&A advisory as well as you, as you spoke to, an increase to the debt facility available. So I was just curious around priorities of cash, whether it be debt or M&A or investment in the current team, just how you're thinking about uses of capital.
Yeah. We are working with an advisor as we continue to open up App Science, and if we see a small bolt-on acquisition, we would consider it for sure. That said, the M&A activity is not related, you know, directly related to our increase in our line. The line is primarily for working capital purposes. It gives us some further support to invest in our growth opportunities should they arise, and really provides an extra layer of insurance should the overall macro environment change. That really was the primary purpose. Yeah.
Okay. Then lastly, maybe I'll give one to Tom, as well as Aziz. Just curious about first impressions now that you guys are kinda working as one entity. Any areas that you're most excited about or potential challenges that you didn't necessarily know about when you first underwent the idea to come in, to come together?
Well, we found the integration to be rather seamless, which is a good thing. I've done a number of selling companies to other companies, and this has been by far the easiest, partly because of the synergies that we have and the ability of Vidillion and Sabio to address the same market and just expand our product offerings and what we're doing in the CTV industry. As far as first impressions go, it's been quite an exciting time for both Vidillion and I believe Sabio.
I couldn't agree more in terms of Tom's sentiment. What we're already seeing, Daniel, is we talked a little bit about this even before the acquisition. There's an opportunity where, A, Vidillion has a lot of deep technology, including something called SSAI, which is server-side ad insertion capabilities. Vidillion was a pioneer in the space in streaming and CTV, and they also have patents along those lines. We get deeper understanding of the CTV space. That's one aspect of it. The second aspect is they have a pretty extensive cloud storage system, their own CDN, a content distribution network, cloud storage, and what we're finding is there's really a great level of synergies there.
We spend a lot of money currently on Amazon for things that could now be moved over to the Vidillion cloud. We're already seeing some cost savings there in the short run, and we expect those cost savings to continue increasing as the synergies take place. Our teams are working very closely. They were working together on various projects even before this acquisition, but you know, the pace of the collaboration has accelerated. We're beyond excited about where things are going.
That's great to hear. I'll pass the line. Thanks.
Thank you, Daniel.
Our next question comes from Gabriel Leung of Beacon Securities. Go ahead, Gabriel.
Morning, guys. Thanks for taking my questions, and congrats on the progress. My first question's around Vidillion and Sabio. Aziz or Tom, can you talk about whether you've seen sort of initial sales through between, I guess, Sabio's DSP and Vidillion's SSPs thus far? As that progresses over the course of the year, you know, what are your expectations around gross margins? I imagine we probably should see some accretion as that sort of plays through.
I could take this, Tom. In terms of the way we're approaching the businesses, we're still keeping Vidillion as a separate entity altogether. Now, the reason we're doing that is because we want Vidillion to continue playing, you know, being focused in on driving revenue for the publishers at the highest margins. Having said that, we certainly are utilizing more of Vidillion revenue today than we were a quarter ago. That is certainly going to play out as it relates to accretive margins moving forward. We don't have any specific numbers on that, but we do believe there will be some positive effect overall.
Now, the overall dynamics of the market as we've talked about even in the presentation is, you know, you have a fairly quickly changing marketplace where you have additional inventory coming in from the likes of potentially Netflix in the next few months, Disney+, while at the same time, we're seeing a huge increase in demand on the political side. We do expect margins to hold as it relates to, you know, our ability to also manage our downside risk on the DSP business. Vidillion gives us that. You know, as costs go up for content, that's really what we're looking at. We're not interested in making any kind of commitments as to like the increase in gross margin or net margin.
The idea is what we wanna do is we wanna continue to. We are. We're using their inventory at a higher level, and that certainly is also a value proposition for Vidillion as they go out and talk to new channels that they can represent on a technology basis. Tom, anything you wanna add to that?
The only thing I would add is that we also bring technology along for the ability to use cloud storage and the network that we have, which would improve the Vidillion portion of the margins a little bit, not significantly, but you're exactly right. We're gonna hold the margins for the next quarter or more.
Gotcha. Just curious, are the Vidillion contributions gonna show up in the CTV, on the CTV line, or are you gonna put a separate line for that, for that revenue source?
Sajid, I'll let you
It will show up on the CTV line. Like, yeah, on the CTV line.
Gotcha. Okay. No, it's perfect. A second, Sajid, so can you just go through those numbers you provided around the New York contributions, the year-over-year, and sort of the contributions from New York? That's the first thing. The second part of that is, you know, given obviously the ROI you're seeing there, do you plan on making increasing the amount of investments in that area, or are there any other geographic areas that you can be focusing on in terms of an overall increase in investments?
In the first quarter of last year, only 9% of our annual sales were derived from the New York City region. Since that time, we built an office in New York City. We leased an office in New York City. We expanded our sales team there, hired an SVP of Sales over there, really put focus on what is really the mecca of U.S. advertising. We were able to now increase that to a range where 19% of our overall sales mix is from the New York City region. We do plan to continue to invest in the region. It's a very important part of the country.
That said, the level of advertising that we expect in future years probably won't, you know, equate directly to what's occurred last year, where we really had, you know, zero presence in New York City, as far as like a sales office goes.
I'll also jump in, Gabe. I think, you know, we've obviously made a lot of emphasis on New York, but I'll tell you, our other regions are seeing some incredible amount of growth. Yes, we did make the investments in New York. We've also made investments in Detroit, in Arkansas, in Chicago, in L.A. You know, in terms of our newest level and the highest level investment, certainly New York was it. We're seeing across the board momentum across our regions because of that. As I mentioned briefly on our call earlier, on the presentation earlier, political, that's another area where we started adding some additional resources there. We're seeing a broad base increase in revenue.
You know, certainly New York is one of the you know, the highlights of that, but we're definitely seeing great momentum across the board.
Gotcha. Two more things. The first one, Aziz, just stay with that, the comment around the political spend. I presume your expectation is that the political spend on ads will probably continue to crescendo over the course of the year leading up to the midterms in November. How should we think? It seems like it's about 20% of revenues, I think, I believe is what you said this quarter. You know, how should we think about that vertical, once we get past the midterms? Do you expect a big drop-off or, maybe that's gonna be replaced by some other source? How should we think about that?
Yeah. The way we view, and we group political and something called advocacy into the same bucket. What political is political is driven by election cycles. To answer your question, the election element of the political revenue will certainly, you know, slow down post this cycle. There's another component to that, which is advocacy. Advocacy is, you know, a lot of groups are gonna continue to be evergreen throughout the year, and what they're focusing on is to make sure their constituents and the constituents of, you know, major lawmakers understand their viewpoint, whether it is something as simple as the U.S. Postal Service or other groups.
You know, the way we're thinking about our business as it relates to political and advocacy is certainly, yes, there will be some reduction as it relates to revenue connected to political post this cycle, but we are seeing an increased interest in App Science planning tools going into next year for the advocacy business, as well as setting us up for 2024. Before we know it, the 2024 election, presidential elections will be here. This is our opportunity really in the off season, which is going to be next year, to really kind of get some additional testing going and that. Then going back to how do we replace this revenue that is going to be, that some of which will not come back.
We are seeing some great interest in the travel category as well, and so we're making additional investments there as it relates to exposure, focus. We think the travel category is going to be a really interesting category this next year, namely because if you could see the growth in advertising spend or consumption in the travel category this year, that we suspect that money is replenishing budgets for next year. We think that's another category that can certainly be while we navigate, you know, while some of this pullback is gonna happen as it relates to political, election-related.
Gotcha. One last question from me. Just in terms of the, you know, some of these sort of tier one video-on-demand channels moving to sort of ad-based lower fee supported pricing tiers, do you anticipate some of these properties to be available to Sabio on the DSP side? Or do you think they might be exclusive to certain groups? I'm just curious how you think that whole thing's gonna play out for you guys from a growth perspective.
Yeah. You know, it's hard to say at the present time. I will tell you that what we're finding overall, and I know Tom can speak to this a little bit more as well, but today there's even with some of the bigger players in the space, we're having great conversations, and those conversations are not simply being led by, "Hey, look, we can help you monetize your inventory." They're being led by, "We can help you monetize inventory with the Sabio DSP. That's a unique opportunity. We could also provide you a little bit deeper understanding of how do you monetize the inventory, thanks to AppScience capabilities." It's opening us up for a new category of business for AppScience.
The combination of both of those, to answer your question, it is, we think we're gonna have a shot at some of this new inventory that's coming out because we're not only simply providing a unique direct demand. That's, I'll highlight this without going off too much on a tangent. One of the things that makes us unique relative to our competitors in the space, and Tom and myself were at an event last week around CTV, and it became very clear to us that there's no companies in the space today that are providing a direct demand sales team capability, which we do thanks to Sabio, which is directly integrated with brands and agencies, along with the analytics, along with the SSAI-enabled technology.
We think that we're in a unique position to potentially get some more of this premium content that's gonna start flowing through. You know, we're obviously Vidillion just closed for one. We are starting to position Vidillion in the way we should and the full set of Sabio Holdings capabilities, and that is gonna take a little bit of time, but we think we're certainly gonna be in the running for some of that premium content that's gonna be flowing through.
If I might, the other aspect of this is that the advertising world has changed quite a bit, specifically with CTV, in that you have different types of advertising. You have local advertising, national brand advertising, and then there's a whole category of different advertising that's coming from different places. With the direct sales force, we're gonna be able to have unique advertising from different brands that we can offer to the premium channels. As Aziz said, we were at an event last week, and it became very obvious that the industry is really struggling with how advertising is gonna be placed out there, which is creating an incredible opportunity for us to go be a leader in that space, especially with the advanced advertising coming in the future.
One of the things that were brought up, Gabe and I'm not gonna spend too much time on it, but one of the things that was brought up to us recently was like, you know, the industry, the way it's organized today, you have an SSP model, then you have a separate DSP, and then you have analytics. You know, of course, The Trade Desk recently said, "Hey, we're gonna change that model up." That's the model we've been using, this combined model of not a separated model. We think that especially as it relates to CTV, there's an efficiency element there, and that's what we're hearing from the folks we're speaking to that, "Oh, please, yes, if you can help us, because right now it's confusing.
I don't know who to use for what, when to use this, and if I could have one model that helps me efficiently yield most revenue possible while providing me deeper analytics, that's what I'm interested in, is a one-stop shop that provides me a simplified solution." It, you know, yes, it is today, it is appealing very much to this growing increase in CTV channels that are popping up. We do suspect that some of the bigger players are gonna recognize that, look, I, you know, why do I have multiple complicated platforms that don't achieve me that efficiency that one can? That, that's really our play on this overall.
Gotcha. Thanks for all the feedback and, congrats on all the progress.
Thank you. Appreciate it, man, Gabe.
Thanks, Gabriel. Our next question comes from Andre Bodo of Echelon. Go ahead, Andre.
Hi. Congrats on the strong quarter. Today I have three questions for you. Firstly, can you speak to the momentum of OTT streaming and how that looks in your sales pipeline going forward?
In terms of what type of metric were you interested in, Andre? Like, you know, yes, we're seeing positive momentum. Are you talking about percentage or what would you like to kind of understand?
Sort of the weight that you see in your pipeline, volumes.
Sure. You know, without getting into too much specifics, the thrust of our growth will continue being especially now with the addition of Vidillion. The thrust of our growth will be CTV OTT. As Sajid even mentioned, the growth you saw in the mobile portion of our business really was also attributed. A portion of that was attributed in two elements to CTV. First of which is some of that CTV OTT money is placed within mobile, how we report it. That's one aspect of it. The second aspect of it is the retargeting of it. Really that mobile growth is driven by CTV. You add this Vidillion acquisition, which is gonna further grow our CTV OTT dollars. You know, I think you know, you saw the chart that we showed earlier.
We're in the early innings of CTV OTT. We're really in the early, very early innings of it. What we're finding, what we're seeing from both the client's perspective on the media side and then from the solution perspective from these channels is we have so much opportunity, and it's all driven primarily in that CTV OTT space, primarily. I hope that kinda answers your question.
For sure. Great.
Yeah.
Maybe could you talk a little bit about your acquisition pipeline revaluations and sort of what type of activity you're seeing in that space?
Yeah, we think that we're in a unique position as it relates to. Look, we're keeping an eye on different opportunities that exist. We're fortunate in the sense that we are, you know, a company that will continue to sustain, you know, positive EBITDA throughout this year, I mean, by the end of this year, and the idea is we're not burning through cash. We're gonna be in a unique position where we don't need to go out and raise additional capital unless there's an opportunistic situation of an acquisition. We certainly are keeping an eye out because we think there's gonna be companies out there that are currently burning through cash and who will need to raise capital. We're certainly staying close to some of these other companies out there.
We already have pretty much, with this Vidillion acquisition, we have all the real tech we need. What we're really interested in is scaling up our sales apparatus even faster. Yes, we've been doing hiring. That's been growing at a good pace, but if we can find companies that have additional client lists and contacts but don't have the tech, those are our ideal type of companies, and we think those kind of companies at some point will be looking for an exit, and we're gonna be in position to do that.
Great. Just more generally, could you sort of comment on UID2.0 and any partnerships you may be exploring there?
Yeah, you know, I think there's still a lot of like, UID2.0 is still, as everything else, there are a lot of variables involved here. We believe that any new UID changes and, you know, in terms of how we view the UID situation is we have continued to really augment our household graph. You know, just to give quick recap, I mean, we have 55 million homes cross-referenced mobile and CTV. Despite whatever changes might happen in UID2.0, specifically I think what we're gonna see some certain changes with Google as well, our view, that is the Google changes. Our view is that our household graph is insulated, helps us insulate that situation. We're not seeing a lot of degradation from our existing IDs.
Once Google rolls out that new, you know, UID2.0, will we see an additional level of degradation? We don't know. We didn't see a significant amount during when iOS made their changes. You know, to go back to your question in terms of other, we've been in this mobile space for seven years. We started the company obviously, as you know, in 2015 on the basis of mobile. We have the relationships and the partnerships in place, and everyone is, you know, kind of, collaborating on that in the future. We feel pretty good about it, quite honestly. I mean, we don't have any major concerns. We think that we're gonna continue seeing the kind of flow of data that we're seeing, unhindered.
Great. Thank you.
I think that's all the questions that we have today. Aziz Rahimtoola, if you wanna close out the call with some closing remarks.
Yeah. Well, you know, once again, thank you, Arinder. Thank you for the analysts joining us. We can't be any more confident about the future ahead. We are positioned right. You know, I know there's been some rumblings in the marketplace of pullback and, you know, specifically I think I'll point to the Snap release. We're not seeing any of that. You know, we are in a position to where we see continued growth. We are insulated because of the fact that we're diversified in our approach in various categories. We believe that this momentum, not only believe but know from what we're seeing anecdotally, this momentum is gonna continue on to next year. We feel good about the overall business. We're in a great cash position.
We have a lot of momentum, and we're just in the early innings of CTV OTT space. You know, Tom and I spent, like I said, you know, a week together last week at a conference, and we just. You know, the only challenge we have now is how quickly we can provide solutions for a lot of these companies we're talking to. It's a great time in our organization. I'm beyond excited about the acquisition of Vidillion and what they've already brought to our company, and we couldn't be any more excited for the future. On that note, thank you for joining us. Thank you, Tom, Sajid, and Arinder for hosting us on this event. On that note, we'll sign out. Thank you, everyone. Until next quarter.