Good morning, everyone. Welcome to the Sabio Holdings earnings call for the 3rd quarter of 2022. The financial statements and MD&A have been filed. They can be accessed through the SEDAR website. My name is Aideen McDermott, Investor Relations Associate at Sabio. Joining us on our call today is Aziz Rahimtoola, Founder and CEO, and Sajid Premji, Chief Financial Officer. We will begin today's call with Aziz and Sajid discussing the financial results. We will then follow that up with a Q&A session. Just 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. With that, I will turn it over to Aziz.
Thank you, Aideen. Welcome, everyone. We are excited about the continued momentum our business is seeing, as demonstrated by the strong metrics across the board, including organic revenue growth, EBITDA, growth margins, average deal size, retention rate, and many others. The early and continued investments in proprietary ad serving, Sabio, analytics, App Science, and recent acquisition of Vidillion differentiates our offering in the quickly growing CTV/OTT space. Our objective this year was to aggressively scale up our overall business and more specifically the CTV/OTT portion, while at the same time maintaining fiscal discipline to ensure we delivered another year of adjusted positive EBITDA. This quarter speaks to all those points, of which I will let Sajid get into more detail. Sajid?
Thanks, Aziz. We are pleased to close a record quarter for Sabio, which was also our fifth consecutive quarter of record sales and our sixth consecutive quarter of over 50% growth. For the three months ending September 30th, 2022, we generated $11.9 million in sales, up 75% for the prior year. This was the highest quarterly sales in our company's history. Our connected TV and OTT sales grew 132% to $6.7 million, compared to $2.9 million in the prior year's quarter. For the first time in our history, connected TV and OTT streaming was our dominant sales category, making up 56% of our overall sales mix versus 42% in the prior year.
Our mobile business, meanwhile, continued to achieve double-digit growth, with third quarter sales growing 27% to $5 million from $3.95 million in the prior year's quarter. For the nine months ended September 30th, 2022, we have now recognized more sales than we did in all of 2021. CTV and OTT streaming now composes the largest category in our sales mix. Our continuing expansion in CTV and OTT streaming has underpinned a 39% increase in our average deal size as we continue to leverage our end-to-end technology stack to upsell our legacy mobile customers with new CTV, OTT and App Science offerings. The early investments made in our sales apparatus are paying dividends, with sales per seller increasing 75% during the nine months ended.
It should be noted that connected TV and OTT streaming remains one of digital advertising fastest growing channels. That said, we are not just riding the wave of a growing market that is estimated to expand over 20% to 30% a year. As our Q3 results indicate, in comparison to both the overall market and our peers, we are significantly outpacing these trends and are taking market share with the median growth reported by our peers in Q3 at 8%. The advertising business is seasonal, with the third and fourth quarter producing the greatest spend. Our business is no different. To normalize the seasonality, we've constructed a trailing twelve-month visual illustrating that we are now generating over $35 million in revenues on a trailing twelve-month basis. The upward trend is consistent.
In comparing the trailing 12 months for Q2 2022 versus 2021, sales increased 86% from $19 million in the prior period to $35.3 million in the current trailing 12 months period. Moving over to this slide, our cost of sales is directly tied to revenue and is a full costing consisting of all media, technical, creative, and data costs, in addition to bandwidth, data center, and hosting costs connected to our revenue-producing platform. We continue to grow our sales at a significant pace while maintaining strong margins. For the three months ended September 30, 2022, we improved gross margins to 61.4% versus 60.8% in the prior year. The increase in margins is partially driven by CTV and OTT streaming becoming the company's largest sales category during the quarter.
Margin efficiencies were also realized by leveraging our end-to-end technology stack through the increased bundling of App Science and Sabio's use of Vidillion Supply. We should note that we have not seen a material deterioration in market fundamentals across our businesses, and CTV and OTT streaming remains strong. That said, we believe the value our App Science offerings provide in maximizing customer ROI will serve as an important risk mitigant. It offers downside protections as brands and advertisers will seek the highest return under ad dollar expenditures in an economic downturn. In the previous quarter earnings call, we mentioned the heavy in-investment period in our operating infrastructure is now largely complete, and we expected to gain operational efficiencies and margin improvements in 2023. These efficiencies we spoke of did indeed start to make their way into our bottom line during the third quarter.
Sequentially, the growth in our OpEx moderated while sales accelerated. Adjusted EBITDA increased 78% to CAD 1.2 million versus CAD 700K in the prior year's quarter. Operating and adjusted EBITDA margins also remained consistent from the prior year's quarter despite the added overhead of being a public company in 2022 versus being a private company for the entirety of the prior year's quarter. It should also be noted that we filled several high-profile positions subsequent to the third quarter of 2021, including a chief growth officer, chief revenue officer, and continuing the expansion of our sales and marketing apparatus, including in the all-important New York market. Our ability to maintain consistent EBITDA margins despite these additions is a testament to the early contributions that they have provided.
Our New York office alone drove 26% of our sales growth for the quarter. We also believe we are still in the early innings in unlocking the full potential from these investments. Importantly, we also continue to be well-funded and well-capitalized. We ended the quarter with CAD 3.6 million in cash on our balance sheet, the highest quarter-end cash position in the history of our company, and also ended the quarter with positive working capital and over CAD 3 million still available under our line of credit with Avidbank. At quarter end, we had 45.8 million shares outstanding, 4.2 million warrants outstanding, and 3.9 million options and RSUs outstanding, with insiders owning 64% of the company.
Looking ahead to the fourth quarter, our sales pipeline remains robust and diverse, with continuing strength across several verticals, including automotive, CPG, and political and advocacy. We are also trending towards both year-over-year and sequential sales growth in the fourth quarter and expect to be adjusted EBITDA profitable for the fiscal 2022 year. In the third quarter, we started to see efficiencies from the earlier investments made in our operating infrastructure. Looking ahead to 2023, we expect to unlock further operational efficiencies as our sales apparatus matures and our support and control cost continues to moderate. Back to you, Aziz.
Thank you, Sajid. You know, this backdrop, this execution and our ability to really expand our sales apparatus effectively, differentiated product offering, in addition to a really quickly growing ecosystem of CTV OTT provides a great opportunity for us. As we've mentioned in the past, there are more people, cord cutters have now surpassed paid TV subscriptions in the U.S. Market, and we're really just in the early stages of ad spending as it relates to connected TV and OTT. We are set up to win in a backdrop of constant growth and big expansion. On that note, I'm gonna hand it back to Aideen for questions.
Thanks, Aziz and Sajid. We'll now open the call up for a Q&A session. Analysts have been given speakers' permission, so please raise your virtual hand, and if anyone else has a question, please post it in the chat. We will begin today's Q&A with Gabriel Leung from Beacon Securities. Gabriel.
Morning, everyone, thanks for taking my questions. Aziz, as I think about calendar 2023, you know, obviously the year-over-year growth comps are gonna be a bit more difficult given the strong growth of 2022. How should we think about, you know, the business in terms of how you plan to maintain these strong growth rates outside of the organic demand? Should we be thinking about, you know, more investments being made to sales and marketing, the sales and marketing infrastructure to maintain these, you know, better than industry growth rates?
Thank you for the question, Gabe. The way we're viewing it, as Sajid mentioned, a lot of our spending on our OpEx spending has started moderating, and we don't feel there's a big need to exponentially increase our sales apparatus. We do believe we're already seeing efficiencies in the business. The way to think about it is, this year, we are in the process of negotiating more upfront deals than in any years past. Our idea, our thinking is we are achieving sales efficiency. Sure, we will add some folks to our sales team, but for the most part, we believe we're gonna benefit from the efficiencies of existing sellers in our organization.
In addition to that, what we've proven is our ability to upsell to existing customers and increase the amounts by which our existing average deal size by which, you know, the average deal size that we are actually achieving from those same customers. We have big nameplates under our belt, and our view is we're only currently... I mean, we are growing fast, but we're only taking a small percentage of their overall spend. We don't feel the need to initially exponentially increase sales hiring to achieve next year's objectives. We believe that can be achieved through efficiency.
Gotcha. Thanks for that. In terms of the competition, I mean, obviously you guys have a good differentiator with the Household Graph, the App Science platform. I know a lot of your competitors are talking about CTV as being a big growth driver for them. You know, what are you seeing from your comps in terms of what they're doing, you know, technology-wise and sales-wise? Has that, any of that changed in the last six months- 12 months?
We are seeing definitely more competition in the space, but we're not seeing any major threats from a differentiated offering. We have said all along what is unique to our offering in the CTV OTT space, yes, is our analytics, our App Science analytics. The unique supply we have through Vidillion, but really it is this focus on bringing mobile data and other insights to this ecosystem and connecting the dots. Where other companies are focused in on really content creation and they're focused in on, you know, as in Netflix, and focused in on, you know, kind of going after programmatic and big brands who are just literally hook connecting the pipes. We're focused in on providing ROI and really explaining to the brands we work with how their spend is effective and why it's effective.
I think by having this unique mobile data and additional data sets, which it really brings together in the form of, well, comes together in the form of App Science, we are uniquely positioned in a market that is gonna account, that is gonna require more accountability next year than it did this year. To kind of, you know, sum it up, we do see more competition, but we believe our differentiated insights and analytics is the key, and how we are the only company in the space that is bringing a mobile mindset, connecting the dots between mobile users and their behaviors, addition to other data sets, and the TV consumer. No one else is doing that, and no one else is doing it as effectively as we are.
Gotcha. Just one last question from me. Do you have any metrics around how much of the business this quarter was being driven by, you know, selling to existing base versus signing up new banners?
Yeah. I believe, and Sajid correct me on this, but I believe 75% of our revenue this quarter was from existing customers. Sajid, is that-
That's correct. That's correct. It is worth noting that, as far as the number of logos go, we did have 40% from new logos as far as the, you know, if you compare new logos versus existing logos. There is a great opportunity for us to make further inroads into those new logos in 2023.
Exactly to my point of your earlier question, Gabe, we're barely scratching the surface with these major brands. We're not dealing with the small, mom pops here. We're dealing with, huge, you know, Fortune 50, top 50 brands that, we see a lot of upside potential and, our execution lends it to, you know, this idea that we can execute at a high level and actually take more market share with those brands.
Gotcha. That's really helpful. Thanks for all the feedback, and congrats on the great progress.
Thank you.
Thanks, Gabe. Next up we have Daniel Rosenberg from Paradigm Capital.
Thanks and good morning. Congrats on a strong quarter. My first question was around the impressive numbers that you are showing around kinda sales productivity in terms of the growth in the sales per seller. I was curious to know what do you, what are the capacity limitations around an individual in sales? Is it a number of logos? Is it the size of, you know, ad spend? What is the potential that capacity that is left that you can grow into with the current sales force?
That's a great question. What tends to happen is, what we're seeing is the limitation on capacity is really driven by, there is just so much opportunity and not enough time for our existing sellers to go out and connect with clients. That is some level of capacity as it relates to looking for new logos. The way we can actually overcome that is to really focus in on our, on the logos we have today, and organically grow those logos. You know, like I mentioned on the call with Gabe just a few minutes ago, we don't feel a need to exponentially increase our sales team. We do believe there's an opportunity to really kind of increase the amount that we're getting from existing logos.
How we do that, we have more capacity from an operational support perspective than we're fully utilizing. We've, you know, we made investments in 2016 in operations not only in the U.S. and Canada, but also in India. It allows us to really have additional capacity relative to what we have today. We have additional capacity relative to what we're fully utilizing today. Our strategy, Daniel, is to really to exponentially increase our existing logos while of course getting new logos in. As Sajid just mentioned, 75% of our revenue this quarter came from existing logos, but we added, you know, a lot more new 40% new logos this quarter.
We're literally, we're in this really unique position where we have two roads ahead, the road of organic growth with our existing logos, huge opportunity, in addition to that, this opportunity for new logos. We don't see a lot of limitations in capacity other than, you know, at some point, we will restructure our sales org to provide our sellers, to have less responsibility with existing clients and really focus them on a little bit of new, you know, identifying new logos. We don't feel the need to increase our sales apparatus a lot. Sajid, anything you wanna add to that?
No, I think that was well captured.
Okay, thanks. Daniel, did that answer your question?
Yes, appreciate all that context. I was curious around the client front. You know, clearly you guys are seeing strong demand and outpacing, you know, the peers that we've seen report through Q3. I was wondering if you're seeing any frontline indication of, you know, you know, given the macro environment, any changes in, you know, time to decision-making or just any color around any change in that frontline demand that you're seeing?
Time to decision-making has certainly increased. I think there are some clouds and some concerns as relates to the macro environment for next year. Having said that, because we are, you know, we're still fairly small, there's a lot of opportunity in the CTV/OTT space. We are, we see a lot of upside despite some of the, some of the challenges that, you know, we're hearing about in the macro environment. Having said that, you know, there's nothing in our current visibility that we have any with our current viewpoint that is, that's giving us any indications that there's any type of pullback in Q4 or for next year thus far.
We also do believe that with chip shortages being straightened out, some of the commodity issues taken care of, inflation most likely getting, you know, more under control, with the Fed not needing to be as aggressive, we think there's gonna be a huge opportunity not only in the automotive space, but in the CPG area. In addition to that, travel. With the dollar being as strong as it is, travel is gonna also be a huge opportunity for us, with airlines, hotels, you know, with consumer spending more both in the U.S. and externally. We think there's a lot of upside potential for next year, but we are being mindful of the fact that some of our peers are doing a pullback.
In our case, we intend to add to our team next year. We have no plans thus far. As Sajid's mentioned, we started throttling back our OpEx couple of quarters ago, and that wasn't related to any type of economic situation. That was just our planning cycle. We are very much adding to our team and we don't see, you know, outside of, once again, as you asked, outside of our, the planning cycles taking being a little longer, we're not seeing a whole lot of overall concern in terms of the economy next year. Ad spending as it relates to, yeah, ad spending and economy connected.
Right. Right. Lastly for me, just on profitability, I mean, it was ahead of expectations, sooner than expected. I was wondering if that changes your thoughts about, you know, investing in the potential for next year. How are you thinking about striking that balance between profitability and the growth opportunity you have?
Yeah. We really wanna. You know, this is, the current environment lends itself to really focusing in on profitability. You know, we certainly don't wanna sacrifice growth for, at the risk of profitability, but profitability is our core focus right now. We are not interested in kind of getting ourselves in a position where we need to borrow capital or anything like that. In fact, we wanna just, we wanna stay in this posture. We believe we can, as I mentioned, we believe we can organically grow, and organically grow with existing resources we have with the additions we'll make next year, without sacrificing profitability. Profitability is our key focus right now. You know, and we believe we can maintain both, as we did this quarter. I mean, we said...
And look, we're in a fiscal, our business, you know, has cyclical patterns, and we said earlier this year we are going to spend money in Q1 and Q2, and we're going to reap the benefits of that in later quarters, and you're seeing that in Q3. So we're going to see the same pattern next year. We will obviously in Q1 spend a little bit more, Q2, but, you know, we're throttling up that spend. But overall, profitability is our key focus. We're not going to sacrifice that, especially in the current environment.
Great. Thanks for taking my questions, and congrats again on a strong quarter.
Thank you. Appreciate it, Daniel.
Thanks, Daniel. Next up, we have Rob Goff from Echelon Wealth Partners.
Good morning and thank you for taking my question. My question is around the gross profit line or the margin. Can you talk to what the impact there might be with respect to the changing mix?
Sajid, you-
Yeah, yeah. CTV and OTT tends to be a higher margin business. As we see more of a shift into CTV and OTT, that does provide some margin protection. We do expect there to be some pricing pressures in general in the economy, but this shift provides an important hedge. What's a even more, you know, important hedge is that we have this full technology stack that includes Vidillion and App Science. We saw some margin improvements really through our use of Vidillion supply and also the bundling of App Science as well. We have a, you know, a few different areas that will provide protection on that margin in 2023 and beyond.
Yeah, one of the things, Rob, and great question, one of the things that also benefits us is because we have been in the data analysis game, we've built infrastructure for that in the form of App Science, we also benefit from not having to rely on third parties for data, for some of our data segments and some of that. Now we have Vidillion, which is obviously a supply partner. What we've done is we've effectively. Everyone talks about the big, big word, you know, is path optimization. I mean, that's really a term that everyone likes throwing around now.
We've been doing this since we started the company, building capacity in different forms to increase efficiency, and that really benefits us on the margin side because we're not reliant on external parties for our data segments. We're less reliant on external parties for inventory, and so the more we can control our own ecosystem, and I think you and I have had conversations about this before, we're building our own ecosystem essentially, and that benefits us from a margin perspective.
Thank you very much. It was very encouraging to hear discussion about the travel category returning to the marketplace. Can you talk to how you see the visibility into Q1? Like, how does that unfold for you as we progress closer and closer towards it?
Yeah. I think the way we're gonna do our best to provide as much visibility in that is when we start talking about some of the upfront commitments we're currently negotiating. Thus far we feel very optimistic that we will have a record number of upfront commitments. Nothing has been finalized, we're still, you know, very much in deep conversations. We think that's a good proxy to understand where the business is going. Overall, if you just, you know, kind of look at, our trajectory as it relates to Q3 and Q4, and then the patterns that follow usually in Q1, Q2, there is a little bit of a drop-off seasonal-wise in Q1, and then certainly Q2 starts ramping up too, but we're pretty consistent.
The numbers will show Q4 goes up, we'll pull down a little Q1, and then Q2 will start revving up. If you take a percentage of our Q4 overall, you know, once we report that'll give you really good visibility of where Q1 is. Because we're seeing... You know, we have a really high renewal rate overall. As we mentioned, 75% of our revenue this quarter is coming from existing brands, and so that's really our strategy. Certainly we're adding new nameplates and we're excited about those new nameplates, but really we see a lot of potential. We're, you know, we're just taking a small percentage of these big brand spends and we see nothing but upside, especially as they move further into CTV and OTT. They're all testing. They're in the early stages as this chart talks about.
We're all in the early stages. Yeah. To answer your question, I think we will try providing some insights into that as we get closer to the end of Q4 about our Q1 visibility with potentially a record number of upfront deals.
Well, thank you very much, and, congratulations on the quarter.
Thank you, Rob. Appreciate it.
Thanks, Rob. It looks like that's it for all the questions today, so... Oh, actually, hold on. Sorry. Rob, did you want to...
I think I was just slow in lowering my hand, but thank you.
Oh, okay. With that, I will hand it back to Aziz.
Great. Well, thank you. Thank you once again, we, you know, we couldn't be any more excited about our trajectory ahead. As some of you might be aware, it was a year ago that we became a public company on TSXV. In that period of time we have continued to deliver results quarter after quarter. We do not see any concerns on our, you know, moving forward of any type of macro environment issues affecting that. I mean, we certainly realize we're susceptible to that, but thus far we feel really good about the road ahead. Thank you again for joining us for the call, look forward to having this discussion again in a few months from now. Thank you.