Mr. Aziz Rahimtoola reports

SABIO DELIVERS POSITIVE ADJUSTED EBITDA(1) FOR Q32023; SECURES RECORD UPFRONT COMMITMENTS FOR 2024

Sabio Holdings Inc. has released its unaudited financial results for the third quarter ended Sept. 30, 2023. Unless otherwise indicated, all amounts are expressed in U.S. dollars.

"Despite challenging comparables to last year that was boosted by the 2022 U.S. midterm election cycle, where Sabio's top-line growth markedly outpaced our key peer group, our CTV/OTT business continues to remain strong," said Aziz Rahimtoola, chief executive officer. "Excluding political and advocacy CTV/OTT spending, CTV/OTT revenues were up 29 per cent compared to Q3 2022, as we continued to see strength across several verticals, including [consumer packaged goods], finance and quick-service restaurant. Sabio is now more diversified on a regional, per-seller and customer concentration basis than it was entering the year. Armed with a newly optimized cost structure and the most diversified CTV/OTT business in our company's history, we expect a sequential step-up in fourth quarter revenues. Moreover, the return of political and advocacy spending in 2024 is expected to drive material growth and, with the optimized cost structure in place, result in meaningful gains in operating leverage."

"We are pleased to have delivered positive adjusted [earnings before interest, taxes, depreciation and amortization] despite pronounced declines in political advocacy spending over the quarter and category-specific events, including the auto workers strike," commented Sajid Premji, chief financial officer. "The implementation of our cost and operational initiatives as outlined in our press release of Oct. 30, 2023, which are expected to yield close to $4.0-million in annualized cost savings, had immediate beneficial impacts. Our ability to swiftly capitalize on the benefits associated with these initiatives is a testament to our ability to rapidly adjust our operating infrastructure in response to changes in market dynamics. Normalized for sales commissions, the initiatives drove a 12-per-cent reduction in Q3 2023 operating expenses compared with the prior year's period and an 18-per-cent decrease in Q3 2023 operating expenses compared to Q2 2023. Ahead of 2024, Sabio has already secured over $10-million in non-political, upfront endeavour to spend commitments, representing close to 25 per cent of 2022's annual revenues. By comparison, the company had not secured any upfront commitments by the end of 2021, ahead of the 2022 U.S. election cycle, and went on to see record revenues in 2022, strongly driven by the 2022 U.S. midterm elections. As political and advocacy spending once again heats up in the leadup to next year's U.S. presidential election cycle, we are well positioned for material adjusted EBITDA gains in 2024 as we benefit from a more diversified sales mix, strong gross margins and a reduced break-even point, and better operating leverage."

Third quarter 2023 financial highlights:

• Sabio delivered revenues of $8.8-million in Q3 2023, down 26 per cent from $11.9-million in Q3 2022. The decrease was primarily driven by pronounced declines in political and advocacy spending compared with the prior year's quarter. Seventy-eight per cent of consolidated revenue came from repeat customers as the company retained 90 per cent of its top-20 customers.
• Connected TV/OTT sales as a category decreased by 8 per cent to $6.15-million, compared with $6.7-million in the prior year's quarter. The decrease was driven by a decrease in political and advocacy spend compared with the same quarter last year, where the category benefited from the 2022 U.S. midterm election cycle. Excluding political and advocacy sales, CTV/OTT revenues were up 29 per cent as it continued to see strength across several verticals, including CPG, finance, agriculture, food and beverage, and quick-service restaurants.
• Connected TV/OTT sales accounted for 70 per cent of the company's sales mix, compared with 56 per cent in the prior year's quarter.
• Mobile display revenues of $2.6-million in Q3 2023 were down 49 per cent from $5.0-million in Q3 2022. Legacy mobile display campaigns continued to shift their spend with Sabio from mobile display to higher-margin mobile OTT streaming, recognized under its connected TV/OTT revenue category. Additionally, category-specific events, such as the auto workers and SAG-AFTRA strikes, led certain mobile display customers to shift campaign launches to the fourth quarter of 2023.
• Gross profit was $5.2-million in Q3 2023 down from $7.3-million in Q3 2022. Gross margin was 59 per cent compared with 61 per cent in second quarter 2022. Competitive pricing pressures were countered through Sabio's expanded use of Vidillion CTV supply, its ability to continue to shift legacy mobile customers into CTV/OTT and direct sales generated by its App Science business, which included a direct test on a recurring revenue contract with an agency representing a top-10 automotive brand.
• Positive adjusted EBITDA of $100,000 in Q3 2023 compared with $1.2-million in Q3 2022. Declines in revenues were partially offset through cost and operational efficiency initiatives implemented during the second and third quarters of 2023.
• As of Sept. 30, 2023, the company had cash of $2.2-million, as compared with $3.6-million on Sept. 30, 2022.
• As of Sept. 30, 2023, the company had $6.5-million outstanding under its credit facility with Avidbank.

Third quarter 2023 business highlights:

• On Aug. 16, 2023, the company closed a non-brokered private placement financing of secured convertible notes in the aggregate principal of $1.2-million (Canadian) and unsecured convertible notes for aggregate gross proceeds of $537,850 (Canadian) for total gross proceeds of $1,737,850 (Canadian). The notes will mature on Aug. 16, 2025. The notes will be convertible in whole or in part, at the option of the holder, into common shares in the capital of the company at a price of $1 (Canadian) per common share at any time before or on the maturity date. The unsecured notes bear interest at the rate of 14 per cent per annum payable as of the maturity date, except that: (i) the interest on the unsecured note issued to Mr. Rahimtoola -- the company's chief executive officer -- will be payable monthly; and (ii) the company may prepay the unsecured note issued to Mr. Rahimtoola any time after 12 months from the issue date. The secured notes bear interest at the rate of 14 per cent per annum payable semi-annually in arrears in cash or common shares at the option of the company, and are secured against all personal property and assets of the company. The security interests are structurally subordinated to the first-lien security interest of Avidbank. The secured notes can be prepaid in all or a part of the principal plus accrued and unpaid interest without penalty or bonus, except for the case of repayment within the 12 months following the issue date, in which the holder will be entitled to receive a repayment amount that is equal to the principal amount and interest calculated for a period of 12 months from the issue date.
• Vidillion continues to add new demand and supply sources, increasing on a sequential basis its demand-side integrations by 32 per cent and supply-side integrations by 10 per cent from second quarter 2023.

Events subsequent to Sept. 30, 2023:

• On Oct. 10, 2023, the company entered into a strategic partnership with Mediahub U.S., an award-winning global media agency, across both companies' portfolio of brands. The relationship reinforces Mediahub's commitment and support of minority-owned media and a focus on diverse audience insights, leveraging Sabio's unique data sets so its clients can effectively reach growing U.S. multicultural audiences.
• On Oct. 20, 2023, 2,500 share options of the company were granted to certain officers, and 85,000 share options of the company were granted to certain employees, at an exercise price of 40 Canadian cents and 270,000 restricted stock units of the company were granted to certain independent directors of the company at the grant date fair value of the company's common shares of 40 Canadian cents. Sixty-five thousand of the share options will vest quarterly over 36 months while the remaining 22,500 of the share options will vest quarterly over one year. The RSUs will vest on the first anniversary of the grant date.
• To manage the applicable requirements relating to foreign private issuer status under U.S. securities law, on Oct. 23, 2023, the company entered into a share exchange agreement with certain shareholders whereby the company agreed to purchase from the participating shareholder for fair market value, on the terms and conditions contained in the share exchange agreement, 1,271,127 exchanged shares. The company satisfied the purchase price for the exchange shares by issuing to the participating shareholder an equivalent number of convertible restricted voting shares in the capital of the company.
• On Oct. 30, 2023, the company disclosed that it booked over $9.0-million in endeavour to spend upfront commitments for 2024 from major agencies and was continuing to negotiate further potential commitments. Subsequent to the release, the company has secured over $1.0-million in additional endeavour to spend upfront commitments for an aggregate of over $10-million secured already for 2024.
• On Nov. 16, 2023, the company and Avidbank agreed on an extension of up to six months (May, 2024) for the bank's credit facility. The bank will assess for a longer-term renewal by Feb. 21, 2024. The current extension maintains a $500,000 increase in credit available, as amended for during the third quarter of 2023, and provides an accounts receivable line of credit, with $7.5-million maximum loans outstanding, at an interest rate of the greater of the Wall Street Journal prime rate plus 1.00 per cent to 4 per cent, with a floor between 9.5 per cent and 12.5 per cent.
• On Nov. 20, 2023, arrangements were agreed to between the company and certain Canadian, arm's-length parties, pursuant to which and subject to which final execution of definitive documentation would effect the exercise of an aggregate of 2,804,702 share purchase warrants at an exercise price of 21 Canadian cents previously issued by the company on Jan. 11, 2021. These arrangements include the provision of promissory notes between the company and warrantholders. The principal amount outstanding under the three-year term would bear interest at the prime rate and mature on Dec. 31, 2026, subject to the terms of the note, which provide, in certain limited circumstances, accommodations, including potential forgiveness and/or share cancellation qualifications, should the exercise price exceed public market values at the date of maturity. The exercise is expected to benefit the company's endeavours to comply with the applicable requirements relating to foreign private issuer status under U.S. securities law.

Coming changes in issuer's foreign private issuer status

As at June 30, 2023, Sabio determined that it no longer qualified as a foreign private issuer under U.S. securities laws due primarily to the amount of Sabio's securities held by residents of the United States. Management has enacted an action plan with the intention of regaining FPI status at the next testing date of June 30, 2024. While the loss of FPI status is not at this time expected to result in Sabio becoming a reporting issuer with the Securities and Exchange Commission, such loss may make it more difficult for Sabio to issue securities in the future should the company be unable to regain FPI status. While management believes the company will be able to regain FPI status as of June 30, 2024, there can be no assurances that the company will be successful in its endeavour.

Sabio's interim consolidated financial statements, including the notes thereto, and management's discussion and analysis for the three months and nine months ended Sept. 30, 2023, and Sept. 30, 2022, can be found under Sabio's profile on SEDAR+.

Outlook

Despite facing challenging comparatives with the 2022 U.S. election cycle, the company continued its expansion into the connected TV/OTT market by delivering 23-per-cent revenue growth in the category for the nine months ended Sept. 30, 2023, notwithstanding a material decline in political and advocacy CTV/OTT spend from the prior year's period. The decline was offset through continued strength across several verticals, including CPG, finance and quick-service restaurant, as its core, non-political/advocacy CTV/OTT business continues to take market share during off-election cycles, growing 59 per cent for the nine-month period compared with the prior year. The majority of Sabio's CTV impressions delivered are through direct supply gained through the acquisition of Vidillion, making Sabio one of the highest direct supply options amongst OpenWeb platforms in the CTV/OTT space, and supporting strong gross margins.

Moreover, during the nine months ended Sept. 30, 2023, approximately 78 per cent of consolidated revenues came from repeat customers as Sabio retained 90 per cent of its top-20 customers, bringing more stability and larger deal sizes to its revenue model and gaining cost-efficiencies. Additionally, its customer mix continues to become less transitory and more predictable. Approximately 22 per cent of the revenues in the nine months ended Sept. 30, 2023, were generated from top logos that did not spend with Sabio previously, further diversifying its sales mix.

While the macroheadwinds impacting overall advertising spend were pronounced in the third quarter, Sabio was able to deliver adjusted EBITDA profitability for the three-month period, aided through cost and operational initiatives, to optimize its operating infrastructure. Management remains optimistic as it enters not only the strongest quarter of the year but, more significantly, the 2024 U.S. election cycle ahead. Category-specific events, including the auto workers strike that impacted third quarter performance, came to positive resolutions subsequent to quarter-end. Ahead of 2024, Sabio has already secured over $10-million in non-political, upfront endeavour to spend commitments, representing close to 25 per cent of 2022's annual revenues. For comparison, during the fourth quarter of 2021, the company had not secured any upfront commitments for 2022 -- a year in which annual revenues eventually reached a company record, propelled by the U.S. midterm elections. As political and advocacy budgets once again increase in the lead-up to the U.S. presidential election and down-ticket ballot races, Sabio is well positioned for meaningful adjusted EBITDA gains in 2024, benefiting from a more diversified sales mix, strong gross margins and a reduced break-even point. Operating expenditure spend in the third quarter of 2023, normalized for sales commissions, decreased by 18 per cent compared with the second quarter of 2023, with further efficiency gains anticipated in the quarters ahead as the full benefit of its reductions are realized.

Conference call

The company will host an investor conference call for the third quarter ended Sept. 30, 2023, at 9 a.m. ET (6 a.m. PT) on Nov. 21, 2023. The webinar details are below.

Date:  Tuesday, Nov. 21, 2023

Time:  9 a.m. ET (6 a.m. PT)

Please register for the webinar.

Dial: For higher quality, dial a number based on your current location.

Canada

Toronto local:  1-647-374-4685

Vancouver local:  1-778-907-2071

Webinar ID:  844 1873 5735

Please connect five minutes prior to the conference call to ensure time for any software download that may be required.

About Sabio Holdings Inc.

Sabio (TSX Venture Exchange: SBIO) (OTCQX: SABOF) is one of the fastest-growing CTV/OTT technology and service providers in the high-growth ad-supported video-on-demand (AVOD) and Fast channel space. Its cloud-based CTV/OTT technologies provide publishers with distribution, monetization and analytics while delivering return on investment validation for brands and agencies. The Sabio portfolio is composed of: Sabio, its trusted and transparent content monetization DSP; App Science, its cutting-edge, non-panel-based, real-time measurement and attribution software-as-a-service platform; and Vidillion, its cloud-based ad-insertion, and content distribution and management platform.

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