Digital Turbine, Inc.

Good day and welcome to the Digital Turbine second quarter fiscal 2020 earnings 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew. Please go ahead.

Thank you, Sarah. Good afternoon and welcome to the Digital Turbine fiscal 2020 second 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 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 scale a profitable growth business. With this objective in mind, we continued our strong start to fiscal 2020 with our second quarter results setting all-time quarterly records for revenue, gross profit, EBITDA, and device installs. I'm going to break out my prepared remarks into three areas. First, I'll summarize our quarterly results. Secondly, I'll provide some real-time operational updates on many of the exciting new partnerships and initiatives underway. And finally, I'll end up with some commentary about the strategic value of the platform and where we're going into the future. To close out the September quarter, we finished with $32.8 million in revenue and I was even more pleased with our 57% growth in non-GAAP gross profit. This record gross profit, combined with continued effective operating expense management, enabled the company to achieve $4.5 million in EBITDA, $5.7 million in free cash flow, and non-GAAP earnings per share of $0.05 during the quarter. Barrett will provide some more specifics on the financials, but from an operational perspective, I was really pleased with our revenue per device performance, or RPD, driven by strong underlying advertiser demand and incremental contribution from our newer platform products. Revenue per device is a core health metric of our business, and our RPD with our four longest tenured U.S.-based partners once again increased more than 30% year over year. As you have heard me say on prior calls, diversification is a major strategic priority for our company. Diversification of partners, business models, products, geographies, and advertisers. We continue to have success with those four tenured U.S.-based carrier partners with whom we grew revenues healthy double digits year over year despite a modest decline in the total number of devices activated. However, our revenues with other partners outside of this group more than tripled year over year and represented approximately 24% of our total revenues in the quarter compared to less than 8% in the prior year. Also, our revenue from new products outside of our dynamic installs grew 32% sequentially and represented 18% of total revenues during the quarter. Although this marks solid improvement, I'm not satisfied with the results, as the opportunities for these products are enormous, and the market reception has been tremendous. 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, new products, and media. First on devices... Thank you for joining us. as elongated upgrade cycles are likely offset by new flagship device launches along with expanded 5G availability, promotion, and adoption. Given the flattish U.S. trends at the moment, the overwhelming majority of our growth in devices occurred internationally as we ramped new partners such as Samsung. Our partnership with Samsung is now moving into the next phase as we continue to install our software onto more devices and more markets and more products. We began with two devices across 12 countries in the March quarter, have expanded the footprint to more than 50 countries today, and expect to be in more than 20 different Samsung device models across more than 70 countries over the next few months. And we also have reached an agreement with Samsung to launch SingleTap which we anticipate beginning in 2020. We also anticipate launching with Telefonica this fiscal year which is a direct result of our Samsung partnership. For those U.S. investors not familiar with Telefonica, they have more mobile subscribers than AT&T and Verizon and are focused primarily in Europe and Latin America. And as you have heard me mention on prior calls, expanding devices beyond smartphones is an exciting opportunity for us and a natural extension of our offerings. We've made some material progress on our TV offerings as we see the secular tailwinds of Android TV and other over-the-top streaming offerings gain in popularity. We expect to begin to see revenue from our TV efforts in 2020 with a variety of Tier 1 partners. All in all, the prospects for us to continue to expand the reach of our platform and grow our business with additional device types like television looks very promising. On the new product front, our revenues derived from non-dynamic install products grew 32% sequentially, with newer products such as Single Tap, Wizard, Notifications, and our Media News Hub product all showing healthy sequential growth. In the June quarter, they were collectively 15% of revenue, and for this past quarter, they were 18% of our total revenue. And while this strong growth is positive, I'm not satisfied with those results as our internal expectations are higher. We need to improve our ability to scale these products as the opportunity continues to be massive. We have great product market fit and solid commercial models to not just drive incremental revenue growth but also expand overall profit margins for the business. This is a major focus area for us and we've made some organizational tweaks to better refine our focus and improve our execution as delivering results against our core dynamic install business has cannibalized some management focus away from scaling the new products. I'm happy to report that these changes are already yielding improved new product and international performance just over the past 30 days. And on the media front, we are currently very focused on scaling our international demand to meet a significantly greater supply of international devices worldwide. while continuing to see international application developers that want to be on U.S. devices. Our international media demand grew 58% from last year and now accounts for 32% of our revenues across our U.S. and international operator and OEM partners. We'll continue to work hard and, where necessary, add strategic resources to improve our international revenue for device and ensure that we scale the partnerships and infrastructure effectively to capitalize on the enormous opportunity in front of us. Here in the United States, many of you saw the Disney Plus and Verizon news and I'm pleased to announce that we will be the partner delivering that application to Android devices for the upcoming holiday season and beyond. We're proud that Verizon trusts us to handle distribution and management of the very high profile applications Thank you for joining us. and emerging international brands such as Alibaba, TikTok and Tencent as they look to expand their presence here in the United States. And finally, before I turn it over to Barrett, I want to highlight now that we are operating at scale. It's opened up even more material opportunities for our business with many of the largest players in the TMT space. Our business is growing. both the top and bottom lines at a nice 30 plus percent rate. But our number one opportunity and challenge is to grow it not with just these positive comps against prior quarters or prior years, but grow it against a massive addressable market opportunity set. That's where we're focused. And with that, this concludes my prepared remarks and I'll turn it over to Barrett to take you through the numbers.