Digital Turbine, Inc.

Good day, everyone, and welcome to the Digital Turbine first quarter fiscal 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please see no conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. And at this time, I'd like to turn the conference call over to Mr. Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead.

Thanks, Jamie. Good afternoon, and welcome to the Digital Turbine Fiscal 2020 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'd 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 filed 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 we'll turn the call over to Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. Our stated goal has been to build and sustain a profitable growth business. With this objective in mind, we had a very strong start to our fiscal 2020 with our first quarter results, continuing to set all-time quarterly records in our continued operational revenue, gross profit, adjusted EBITDA, Non-GAAP net income, earnings per share, device installs, and U.S. revenue per device. I'm going to break out my prepared remarks into three areas. First, I'll summarize our quarterly results. Secondly, 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 where we're going into the future. To close out the June quarter, we finished with $30.6 million in revenue, which was a 38% annual growth rate. I was even more pleased with our 78% annual growth in non-GAAP gross profit on the strength of 40% gross margins in the quarter. Record gross profit combined with continued effective operating expense management enabled the company to achieve over $4 million in non-GAAP net income Ebitda, and Free Cash Flow during the quarter. We also reached a new high for quarterly non-GAAP EPS at $0.05 per share. Baird will provide more specifics on the financials, but from an operational perspective, I was very pleased with our revenue per device performance, or RPD, driven by strong advertiser demand and incremental contributions from new products. Our RPD with our four largest U.S.-based partners increased 38% year-over-year and currently exceeds $2.75 per device. As you've heard me say on prior calls, diversification is a major strategic priority for the company. Diversification of partners, business models, products, geographies, and advertisers. Regarding our partners, we continue to have success with our top four U.S.-based carrier partners with whom we grew revenues 18% year-over-year. However, our revenues with other partners outside of this group grew nearly 4X year-over-year and represented approximately 21% of total revenue in the June quarter, up from less than 8% in the prior year. Our revenue from new products outside of dynamic installs grew from 13% of total revenues in the March quarter to 15% in the June quarter. Although growing, I'm not satisfied with this result as we still have more work to do. We expect this figure to continue to grow as products such as our wizard, notifications, single tap, and folders become a greater part of the story. I'll provide more information later in my remarks, but overall, I'm excited about the opportunity with all the new products and the validation we are getting in the marketplace from our partners and customers, and have been pleased with our execution so far with Wizard and MediaHub, but want to see faster operational progress against our BYOD single-tap notifications and folders. Now turning to the forward outlook, I want to provide some commentary on how we're positioned for continued growth across each of our key growth levers. Devices, media, and new products as we now enter the new fiscal year. First on devices, we set a quarterly record of over 30 million new devices onboarded to our platform. For context, Apple just reported global iPhone shipments estimated at just over 33 million for their June quarter, so we are now operating at real global scale. In the U.S., we saw a flattening out of the broader smartphone market during the June quarter. We expect this trend to continue over the next several quarters as elongated upgrade cycles are likely offset by new flagship device launches along with expanded 5G availability, promotion, and adoption. We're also seeing nice growth internationally as we ramp new partners such as Samsung. Our partnership with Samsung is now moving into the next phase as we install our software in more devices in more markets. We expect our Samsung partnership to grow to approximately 50 countries in the September quarter compared to 12 in the June quarter. We also anticipate launching our first devices with Telefonica this fiscal year that is also a direct result of our existing integration work with Samsung. We have numerous other operator and OEM partners very deep in the pipeline and contract process and expect more to communicate soon. All in all, the prospects for us continue to grow. Our top line with additional devices and partners looks very promising. On the new product front, while our single tap revenues outside of our social media partner and large U.S. operator integration are not yet material and I'd like to see faster progress, we do continue to make positive, steady progress as we work to integrate more partners. Conversion rates continue to perform well with improvements anywhere from 30% to 200% versus non-single tap or the traditional flow via the App Store. Partners, who were waiting enough device scale to justify the investment of resources on their side are now starting to take progressive action. It's now an operational and distribution demand exercise moving forward. Our recent press announcement on leveraging the infrastructure and relationship 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. We are working most actively with Branch to integrate their deep linking capabilities into Singletap. So for example, you could be researching a restaurant on a Yelp mobile web page and with Singletap get taken to the richer Yelp application experience directly to the restaurant you're researching versus having to start at the homepage of the application. You can imagine this deep linking capability for many other types of applications like news, weather, social media, sports, airlines, and so on. And finally, I do want to call out our new subproduct that will go into beta release with multiple partners this quarter. We're excited about the potential of this non-app install product, which is a natural extension of our product portfolio that leverages both the secular tailwind of customers consuming information and entertainment content directly on their device versus traditional outlets like magazines, televisions, and newspapers, and also leverages our strong distribution footprint of operator and OEM partners. Assuming successful beta testing, we anticipate more broadly launching this product throughout the remainder of the fiscal year and will report out on our progress on future calls. And on the media front, we continue to show a nice diversification of applications as no single application is more than 10% of our revenues. We are currently very focused on scaling our international demand to meet a significantly greater supply of international devices. We are continuing to work hard and, where necessary, add strategic resources to improve our international revenue per device and ensure that we scale our partnerships and infrastructure to capitalize on the enormous opportunity in front of us. Specifically, I can report incremental increases in spending by some high-profile multinational advertising clients such as Pinterest, Twitter, and Uber. And finally, before I turn it over to Barrett, I want to take a personal moment and thank many of you that have been patient and stuck with us. I know it hasn't always been the smoothest of paths towards the development and adoption of our platform, I'm more excited than ever about our future and believe we're just getting started. And with that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.