Title

Presentation

Operator: Good afternoon, and welcome to the Digital Turbine Fiscal 2025 First Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead.

Brian Bartholomew : Thank you, Anthony. Good afternoon, and welcome to the Digital Turbine fiscal 2025 first quarter earnings conference call. Joining me on the call today to discuss our results are CEO, Bill Stone and CFO, Barrett Garrison. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward looking topics. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect.

Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we file with the Securities and Exchange Commission. Also during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today’s press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now, I’ll turn the call over to our CEO, Bill Stone.

Bill Stone: Thanks, Brian, and thank you all for joining our call tonight. I’d like to break my remarks into three areas. First, I want to summarize our Q1 results. Secondly, I want to provide some operational updates as we continue our return to growth. And finally, we’ll conclude with some strategic comments on how we’re positioned for the future. For our first quarter results, I’m pleased to announce that we have returned to sequential growth in revenue, EBITDA and non-GAAP earnings per share. As expected, the March quarter was a trough for our business and the June quarter was a positive step on our journey to return to growth. We achieved $118 million of revenue, $15 million of EBITDA and $0.07 of non-GAAP EPS. In addition to the numbers, we made notable progress on numerous investment activities that set us up for the future, including our progress on our new version of Ignite, our new hosting platform has moved from migration phase to optimization phase, Our launch of improved bidding capabilities is showing positive growth with brands and many new back end corporate systems consolidated and launched, which are simplifying and automating our work.

I was pleased to see our return to growth both in our ODS and AGP business segments driven by better execution on our controllables. In particular, our revenue per device or RPDs improved 15% despite continued softness in U.S. device sales. U.S. operators have publicly reported another quarter of post pay upgrade rates that were less than 3% of the base for the June quarter or a run rate of approximately 11% per year. This would imply more than an 8 year upgrade cycle, which I think all of us would recognize as unsustainable for the long-term, but this is a reality in the present. We expect this trend to reverse as we get to the back end of our fiscal year, as we see the anniversary of the migration from 2 to 3 year leases in the U.S. market, as well as likely upgrades driven by new AI features on OEM hardware.

As mentioned above, our RPDs were a bright spot, especially internationally, as we transitioned away from reliance on Chinese applications on U.S. devices and have been able to bring both new brands to the U.S. and international markets and improve our spends of Chinese apps on our international supply. And we also returned our content media business to growth both in the quarter as well as year-over-year through improved execution. Our AGP business grew 11% sequentially. Two main drivers for the performance are solid eCPM improvements as advertisers are seeing positive return on ad spend or [role as] from our offerings and the second driver is the ability to drive more first-party data traffic over our own network. We’ve had high conviction in our strategy to leverage the combination of our unique assets we have on device, our approach to working with big brands and our integrated AdColony and Fyber exchanges, which we brand as DTX to have a differentiated offer from others.

The legacy Appreciate, AdColony, and Fyber businesses had the vast majority of their traffic being third-party demand or supply running through the pipes. Now being able to run first-party demand over our own network offers better solutions for our customers, publishers, better margins for us, a mode to differentiate our approach from competitors and also creates a flywheel effect. As an example of this, the amount of traffic running first-party demand under our control over our network has grown from just over 10% two years ago to 25% last year and now it’s over 40%. In particular, our brand has momentum with double-digit sequential growth. And as we’re growing over year-over-year headwinds with one large brand advertiser, the sunset of legacy systems and the migration from being performance centric to brand centric in our advertising, we expect to grow over these year-over-year headwinds as we move forward through the fiscal year.

Turning to our operational progress, our focus is expanding on the growth from the June quarter. We do that through three focus areas, growing our device footprint, launching and scaling new products and finally growing our media relationships. First is growing our device footprint. Despite soft device sales here in the U.S, we’ve been expanding our global device relationships through partners like Motorola, Nokia, ONE Store in Korea and Xiaomi. I’m also pleased to announce that we’ve been selected by a large Brazilian operator with over 60 million subscribers to be there on device partner that will be leveraging Ignite. This is a nice win for us as we now have all the major Brazilian telco partners choosing Digital Turbine. Returning to growth through new devices, our new partners plus existing partners showing momentum are the keys to our first growth driver.

Our second growth driver is expanding our product portfolio for both our ODS and AGP businesses. Scaling new ad tech and on device capabilities are critical to our return to growth. On our AGP business, as mentioned earlier, our SDK bidding capabilities have been a nice product enhancement to unlock brand spends on our exchange. While we still have plenty of work to do to transform our migration to this method of bidding with such enhancements as improved AI machine learning, integration of more first-party data and so on, SDK bidding is already showing strong growth. Our investment here is a major enabler to drive more brand revenues through our network. And the early returns are encouraging that this will be a nice growth driver for us versus solely focused on performance advertising dollars like the majority of our competitors in the marketplace.

Our brand revenues for the June quarter were up over 25% sequentially and we’re also close to 40% of our revenues on our DT Exchange coming from SDK bidding, which is a requirement for many brands and agencies and how they bid for audiences. This allows us to grow our revenues not just with direct brand deals, but also with brand OMNI DSPs like The Trade Desk and Google DV360. Our other AGP product growth driver will be increasing our share of voice for leveraging our first-party data and our Ignite capabilities via our demand side platforms or DSP. We do this today through our Appreciate acquisition, which is showing renewed growth. We’re also beginning to partner with third-party DSPs in this current quarter that can help grow our share of voice and all of this translates not just to topline revenue growth with more demand dollars, but also is key in driving the flywheel effects of improving revenues on our other products such as SingleTap, our DT Exchange and FairBid, our mediation product.

Our primary growth drivers on the ODS business are SingleTap, alternative apps and better leveraging our first-party data for our existing ODS products. SingleTap continues to add more devices, more advertisers and better execution. And it’s early days for alternative app distribution approach, but as we’ve discussed on prior calls, we will look to begin showing our progress of distribution of not just Android and iOS apps, but also alternative app versions. The interest from large Tier 1 publishers is very encouraging and will be a growth driver for us this year. And finally, we’ve been historically focused on leveraging our distribution footprint to drive ODS revenue. We have not optimized our first-party data. We are beginning to do a better job here and seeing increased interest from our supply partners to also leverage these insights to help advertisers drive better outcomes on device.

And our third growth driver is our media relationships. We’re continuing to expand directly with top consumer brands and advertising agencies that are driving this double digit annual growth. We also continue to have many strategic demand relationships with large global game publishers. With a tailwind of alternative app distribution, these players are increasingly attracted to Digital Turbine to build deeper relationships. The final media growth driver is our change in channel strategy to grow our revenue per device outside the U.S. As I mentioned earlier, I was pleased to see very strong sequential growth here and we want to build on that by bringing more demand to our international supply. We’ve talked about this many times on prior calls, so it’s nice to see our execution improving here.

So to summarize, our number one priority this fiscal year is continuing to demonstrate sequential growth with our three growth drivers and this will be through expanding our device footprint, expanding new products such as SingleTap, DT Exchange, alternative app stores and improved use of first-party data and finally expanding our media relationships. And beyond this fiscal year, the goal is not just to return to growth, but to accelerate it. The key driver here will be expansion of our alternative app strategy. We have launched our first alternative app distribution products, which we brand as DT Hub with five operators here in the U.S. We expect to begin increased focus in the EU with the Digital Markets Act or DMA now in effect. As a reminder for investors, the DMA launched in March of this year in the EU and in particular, we would encourage investors to pay close attention to the details around this such as how the regulators manage Apple’s defiance and compliance and the corresponding opportunities that it presents for us.

I would also encourage investors to pay close attention to all the developments here in the United States, such as the recent decision on Google’s loss on the DOJ Antitrust Suit and a variety of other legal and regulatory matters that should be tailwinds for smaller companies like Digital Turbine. I also want to emphasize that the alternative app strategy is not just about new in app payment revenues, but perhaps more importantly be a catalyst to accelerate our existing lines of business beyond this fiscal year. Today, approximately 50% of our business is driven by user acquisition and 50% driven by in app advertising. Our app providers want to find ways to acquire more users at lower cost with alternative users and we believe that this will also open up new app providers to leverage our ad tech stack as part of the strategy, thereby driving more AGP revenue growth.

We are live today running both alternative app user acquisition campaigns and in app advertising leveraging our technology. In other words, improving our present revenues and cash flow are both closely linked to the future strategy. In conclusion, we’ve made improved execution a top priority of the company. I’m pleased to see that execution improve starting to show up in our results with sequential growth. We have a lot more opportunity in front of us to build on the momentum. And with that, I’ll turn it to Barrett to take you through the numbers.

Barrett Garrison : Thanks, Bill, and good afternoon, everyone. Revenue of $118 million in the quarter was up 5% sequentially with revenues improving sequentially across both segments of our business. On device solutions or ODS and our app growth platform or AGP from the March quarter and EBITDA of $14.5 million improved 18% sequentially. Our ODS segment revenues of $80.7 million were up 3% sequentially from the March quarter and down 18% from the prior year. However, as Bill referenced while macro trends continued with softer U.S. device volumes in Q1, this impact was partially offset by sequential improvement in RPD or revenue per device across both the U.S. and international regions, and growth in our content media revenues which were up 12% year-on-year in the quarter.

In our AGP business, Q1 revenues of $38.4 million which increased 11% sequentially. We experienced positive signals on increasing advertising spend levels particularly within brand evidenced by greater than 20% year-on-year revenue increases. Our consolidated Q1 gross margin was 46%. This was a 50 basis point expansion sequentially and compared to 47% in Q1 from the prior year. Sequentially, margins were impacted by positive modest increases across both segments. And as a reminder, margin rates can fluctuate from quarter-to-quarter, but we generally anticipate long term margin expansion as we continue to execute on our growth strategies. With our commitment to financial discipline and resilience, we continue to pursue expense efficiencies maximize the profitability of our growth strategy and we remain disciplined with our cost control measures.

Cash operating expenses were $40 million in Q1, decreasing 5% from prior year and represented 34% of revenues in the quarter. Turning to profitability, our adjusted EBITDA of $14.5 million in the quarter increased $2.2 million sequentially and was down from $27 million in the prior year driven primarily from lower revenues and partially offset by a reduction in cash OpEx. Our EBITDA margin of 12% grew sequentially from 11% in the March quarter. And given the inherent operating leverage in our business model, we continue to expect the active focus on expense measures and integration efforts we have completed will strengthen the platform as we return to growth and enable a greater portion of those dollars to follow the bottom line. In the quarter, we achieved non-GAAP adjusted net income of $7.3 million or $0.07 per share as compared to $18.2 million or $0.18 per share in the first quarter of fiscal 2024.

During the period, we experienced a higher than expected positive tax benefit. Our GAAP net loss was $25.1 million or $0.25 per share loss based on 102.4 million basic shares outstanding compared to prior year net loss of $1.61 per share. Moving to the balance sheet and cash flow. Our cash balance at the end of the quarter was $36 million an increase of $2 million from the March quarter and cash flow from operations was a negative $1.3 million which improved over $10 million from the March quarter with the increase in EBITDA sequentially and improved working capital stemming from the correction of the invoicing timing delays we discussed in the prior quarter and expect to return to generating positive free cash flow in the back half of the year.

We recently amended our credit facility as disclosed in our credit agreement amendment which provides further flexibility for the company to execute on our return to growth plans. Among other changes, we amended our credit facility lower by $100 million which maintains a solid liquidity position with sufficient resources to meet our operational and strategic needs. These changes will allow us to focus on our key strategic initiatives without interruption, specifically to progress on our alternative app store opportunity. We are pleased to have the ongoing support of our banking partners reflecting their confidence in our business model and long term strategy. Our debt balance ended the quarter at $396 million drawn on the revolving credit facility.

And as our business continues to strengthen, we would expect to pay down our revolver in larger quarterly increments. Now let me turn to our outlook. Looking ahead to our growth roadmap, we reaffirm our expectations of revenue to be in the range of $540 million to $560 million for fiscal year 2025, reflecting our confidence in the underlying trajectory of our business and the momentum we are seeing in the market and project our non-GAAP adjusted EBITDA of between $85 million and $95 million underscoring our commitment to driving operational efficiency and delivering value for our shareholders. In closing, we’re pleased to deliver sequential growth in the quarter and set up growth for this year and beyond. As we look ahead to the balance of fiscal year 2025, we are confident in our ability to capitalize on the emerging opportunities, drive top line and free cash flow growth and deliver sustainable long term value for our shareholders and we continue to be excited about the journey ahead.

With that, let me hand it back to the operator to open the call for questions. Operator?

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Anthony Stoss with Craig-Hallum.

Anthony Stoss: Thanks. Congrats on the return to growth guys. Nice to see you again. Bill, a couple of questions. Can you — within your full year fiscal guide, are you assuming or do you need on device sales to grow substantially to hit that number or can you hit it even if device sales stay flat? And I have a couple of follow-ups.

Bill Stone: Yeah, sure, Tony. Our assumption right now is that we’re not going to see an acceleration of devices or deceleration in devices that we’re going to kind of see the status quo. What we’re seeing is what our expectations are. So anything that would go off kind of the current status quo could either headwind or tailwind for us. And a lot of the growth that will taking right now is coming from the addition of some of the new products I talked about, expansion of media relationships, expansion of the RPDs and so on.

Anthony Stoss: Got you. And then can you confirm that all your systems integration, the Fyber, call it, the combination of the DTX Hub that that’s all behind you, that’s complete or is there still a little bit more work to go? I know you’re seeing some of the fruits of it now, but I’m just curious if you’re completely done with that?

Bill Stone: No. We still have a little bit to go in a variety of areas, but the lion’s share of the work on the — especially on the exchange consolidation in particular that is really helping us drive a lot of brand growth. We’ve been talking a long time around how we wanted to take the leverage of the AdColony brand business and the Fyber supply business and bring those together. So getting that piece done is very material for us in terms of and also be a material driver for our future growth. So that was the big one. But there’s a variety of other things that so going on here.

Anthony Stoss: Got you. Then one last question and I’ll jump back in the queue. You highlighted kind of the EU keep your eye on things. I know SingleTap has been out there for a while in terms of alternative app platforms. Is there something coming with the European guys you can talk about now? Do you expect to land new customers and go live potentially by the end of this year? Just any more detail would be helpful.

Bill Stone: Yeah. So, we expect the European situation to be a big tailwind for us and that would obviously be good for things like SingleTap. No question around it. I mentioned in my remarks that we’re going to see what European Commission does as it relates to Apple. I think, our view on that is they’re not very happy right now and they’re going to put some enforcement on app on. The question is when. And then I think you’re going to see that be a catalyst not just for us in our activity with the EU telcos, but I think you’re going to see other mega cap tech players in a variety of folks coming in more aggressively into the EU market once that regulation comes into place.

Operator: [Operator Instructions] It appears we have no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Bill Stone for any closing remarks.

Bill Stone: Thanks everyone for joining the call tonight. We’ll talk to you again at our fiscal 2025 second quarter call in a few months. Thanks and have a great night.

Operator: Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.