Digital Turbine, Inc.

Good day, and welcome to the Digital Turbine's fourth quarter and fiscal 2019 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the call over to Brian Bartholomew, Senior Vice President, Capital Markets and Strategy. Please go ahead.

Thanks, John. Good afternoon, and welcome to the Digital Turbine fourth quarter and fiscal full year 2019 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 discussion of the risk factors that could cause our actual results to differ materially from these 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 will turn the call over to Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call today. Our stated goal has been to build and sustain a profitable growth business. With this objective in mind, We had a very strong fiscal 19 as the company set all-time annual records in revenue, gross profit, EBITDA, non-GAAP net income, device installs, and revenue per device, or RPD. I'm going to break out my prepared remarks into three areas. First, we'll summarize our fiscal 19 accomplishments. Second, we'll provide some real-time operational updates on many of the exciting new partnerships and initiatives underway. And finally, we'll end with some commentary about the strategic value of the platform and how we are positioned for fiscal 2020 and beyond. To close out fiscal 19, I want to add a bit broader perspective than just the March quarter and compare our fiscal 19 performance against fiscal 18. We finished fiscal 19 with $103.6 million in revenue, which represented 39% growth compared to fiscal 18. Our non-GAAP gross margin, which has been an area of focus for us, improved to 36% for the year and reached 42% in the March quarter, an improvement of nearly 600 basis points year over year. This resulted in 40% annual growth in gross profit including over 50% growth in the March quarter, and along with disciplined cost management, enabled us to generate a record $8.9 million in adjusted EBITDA, showcasing the strong operating leverage of the business. Barrett will provide more specifics on the financials, but from an operational perspective, I was very pleased with our revenue per device performance, driven by strong advertiser demand and incremental contributions from newer products. As I've emphasized in the past, RPD is a fundamental health metric of the business. As a specific example of this point, if we compare the launch of the flagship Samsung S8 in March 2017 to the S9 in March 2018 and then the S10 in March 2019 on the Digital Turbine platform, We saw more than 50% accretion in RPD from the S9 to the S8, and then the S10 was 50% higher than the S9. An additional key strategic focus area for us in fiscal 19 was diversification of revenue. Diversification of partners, diversification of advertisers, business models, and products. For our O&O partners, Revenue from our top four US partners grew 36% year over year, but their contribution percentage of our total revenues decreased from fiscal 18 to fiscal 19. This growth was due to a 44% lift in annual RPD as our global media team did a fantastic job executing in the headwinds of declining US smartphone sales. Much of our 30% annual revenue growth was due to 66% annual growth from all other partners such as American Mobile, Tracfone, Motorola, our open market channel, and numerous others. In other words, in aggregate, all of these other partners have faster growth than our big four U.S. partners that is helping to add diversification to the platform. For advertisers, we continue to have strong diversification of application partners as we launch thousands of campaigns across hundreds of application developers with no single individual app provider being more than 10% of our revenues. We also saw improvements in our diversification of products. We grew our new product revenues by almost 4x, which equates to over $11 million year-over-year increase so that $15 million of our revenues were comprised of non-dynamic installs and including contributions from products like single tap, folders, app wizard, and notifications. And although these numbers are trending in the right direction, it's a major focus area for us to continue to improve results here. And finally, we saw improvement in our diversification of business models, and in particular, the amount of recurring revenues we receive. In fiscal 18, about 1% of our revenues were recurring. In fiscal 19, we saw that grow to nearly 5%, including positive sequential growth in March from December. Now turning to the forward outlook, I want to provide some commentary on how we're positioned for continued growth across each of our growth levers. Devices, media demand, and new products as we now have entered our new fiscal year. First on devices, as I mentioned on our prior earnings call, I know there's been a lot of negative press surrounding slowing smartphone replacement rates in the US and other mature smartphone markets. While our business model is certainly sensitive to the overall smartphone market, we are not at all fully dependent upon it at the current time. For one thing, we are still largely a penetration story, and that even with an annualized install rate greater than 100 million devices, we are still on fewer than 10% of the Android smartphones sold globally today. We are, however, continuing to add key strategic partners to the platform to meaningly grow this Thank you very much. while also improving depth as we add new device models in the countries we have already launched. Scaling this relationship is a key strategic priority for the business. And before I leave the discussion on devices, I want to note a few possible positive catalysts for devices in 2019, the most significant of which is the recent launch of 5G here in the United States. We are now live on the Samsung S10 5G device with Verizon and expect many more launches with other devices and partners this year. And as we've witnessed with previous network upgrades, we anticipate some incremental demand as both smartphone users look to take advantage of the benefits of 5G and operators look to take advantage of the cost savings and advantages. And as been publicly reported, it is anticipated that 5G for 2019 and 2020 will be exclusively on Android with no Apple 5G devices expected in the immediate term. I also want to again repeat that we continue to assess opportunities to extend our platform onto new device types beyond smartphones, such as televisions, which would also foster incremental growth. Shifting to our other key drivers of the business for fiscal 2020, first on the new product front. While our Singletap revenues outside of our social media partner and large US operator integration are not yet material, I'm pleased we are now live with Singletap on more than 130 million devices worldwide, including 50 million here in the United States. It's taken us a longer time to get to that scale than we anticipated, But now that we are here, it has made signing up demand partners much easier. Onboarding new partners such as Twitter, Pinterest, Pandora, and many others is a top priority of the Singletap team. And although the conversion rates continue to perform well with improvements anywhere from 30% to 200% versus non-Singletap or the traditional flow via the App Store, The partners needed to see device volumes to justify the investment of resources on their side. That's now happening and is largely an operational and distribution demand exercise from this point forward to scale. Our recent press announcement on leveraging the infrastructure and relationships of our mobile measurement partners, including Branch, Cachava, AppsFlyer, and Singular, is a focus area for the business to scale Singletap as this represents 85% of the top applications in the global app install market. And finally, I want to call out our new subproduct. We are excited to offer this non-app install product, which is a natural extension of our product portfolio that leverages both the secular tailwind of customers consuming content on their device versus traditional outlets like magazines, television, and newspapers, and our strong distribution footprint of operator and OEM partners. We anticipate launching this product later this summer and will report out our progress on future calls. And finally, before I turn it over to Barrett, I want to conclude my remarks with a shout-out to our team. I know most investors usually only see Barrett, Brian, and myself, but the real work is not happening with us but happening with the broader team. I've been in the telecom media and technology or TMT space for over 25 years and the hustle and the passion that our global team demonstrates each day is superior to any other place I've been. To differentiate for us and become a core part of our company culture. For investors, This ultimately translates into fiscal 19 financial results, setting many an all-time first for us, and our future growth levers of devices, media, demand, and new products are all coming together to drive continued profitable growth into fiscal 2020. With that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.