Digital Turbine, Inc.

Hello and welcome to the Digital Turbine Fiscal Second Quarter Results Conference Call. All participants will be in a 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 touchtone phone. 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.

Thanks, Brandon. Good afternoon, and welcome to the Digital Turbine Fiscal 2021 Second Quarter Earnings Conference Call. Joining me today on our call to discuss our results are CEO Bill Stone and TFO Baird Garrison. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking comments. 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 I'll turn the call over to our Chief Executive Officer, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I'm going to break my prepared remarks into three areas. First, I'll summarize our quarterly results. Second, I'll provide some real-time operational updates on many of the exciting new partnerships and initiatives underway. And finally, I'll end with some commentary about the strategic value of the platform and where we're going in the future. To close out our fiscal 21 second quarter, we continued to build on our breakout momentum from our first quarter with record results across the board. We had $70.9 million in revenue, which represented over 100% annual growth on an as-reported basis and over 50% on a pro forma basis. I was even more pleased with our over 250% growth in adjusted EBITDA and 200% growth in adjusted earnings per share. I want to highlight the operating leverage of our platform as EBITDA margins expanded materially driven by more than 50% gross profit growth and only 8% operating expense growth on a pro forma basis. This record gross profit combined with continued effective operating expense management enabled the company to achieve $16.5 million in EBITDA, $21.5 million in free cash flow, and non-GAAP earnings per share of 15 cents during the quarter. Barrett will provide more specifics on the financials, but from an operational perspective, I was also very pleased with our results in both our application and content businesses. Our overall application revenues grew by 50% year over year, driven by nearly 40% revenue per device or RPD growth in the US combined with over 100% revenue growth internationally. This improved revenue per device performance was driven by strong underlying advertiser demand and incremental contributions from our newer platform products. And as a reminder, revenue per device is a core health metric for our business. We also added over 60 million devices in the quarter, which represents over 60% growth year over year. This growth was achieved despite an overall decrease for Android devices in the macro global market. In other words, we're still very much a penetration story against the larger opportunity. In our content business, revenues for the September quarter organically increased by over 60% year over year. This compares to a 5% decline year-over-year in the June quarter as improved execution, our new content platform being fully deployed, and the legacy platform being sunset, and improved advertising rates all drove better operating results. And these results of over $20 million in revenue were achieved against approximately 10 million daily active users, or DAOs, which is an 18% increase year over year and 11% increase sequentially. It includes very little contribution from revenue synergies on our existing addressable market distribution footprint which is now over 500 million devices. We have begun generating modest synergy revenues with our content business on our existing distribution footprint and the combination of the recurring nature of those content revenues plus our global distribution footprint create optimism and excitement for us that the content business will be a major contributor to our future growth plans. And 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. We continue We continue to have success with our 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 this group increased by over 100% year over year. Turning to the forward outlook, I want to provide some commentary on how we are positioned for continued growth across each of our growth levers, devices, Media, and New Products. First on devices, with our quarterly record of more than 60 million new devices globally onboarded to our platform, we are set up well for the future. In the US, total devices activated with our US partners were modestly down year over year. We expect flattish growth over the next several quarters in the United States, as elongated upgrade cycles are likely offset by new flagship device launches along with expanded 5G availability, promotion, and adoption. Given the flattest US device trends at the moment, the overwhelming majority of our growth in devices is occurring internationally as we are currently ramping many of our international partners such as Samsung, Telefonica, Telecom Italia, Nokia, and Xiaomi, to name a few. Our pipeline remains robust and we're excited about the many opportunities in front of us to further increase our device footprint. And as you've heard me explain on prior calls, expanding devices beyond smartphones is an exciting opportunity for us and a natural extension of our offerings. We continue to make positive progress on our television offerings as we discussed our last earnings call and look forward to those launches occurring in 2021. On the product front, our revenues from dynamic installs grew by nearly 50% year-over-year and represented 57% of our total revenues compared to over 80% last year. Revenues derived from non-dynamic install products grew over 35% sequentially and over 400% year-over-year with our content products, single tap, and other products showing solid growth. and while the strong growth is exciting, I believe it should be even better as we drive more revenue synergies on our content products. We continue to capture the recent momentum in our single tap business and other emerging products such as notifications ramp even faster. Our recurring revenues are now 40% which compares to less than 10% a year ago. The bottom line here is that we have exciting growth occurring on multiple product fronts and we're going to continue to make this diversification a major focus area for the business. On the media front, we are currently very focused on scaling our international demand to meet a significantly greater supply of international devices while continuing to see international application developers that want to be on U.S. devices. Our international media demand grew over 250% from last year and now accounts for 34% 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 overseas to improve our international revenue per device and ensure we scale our partnerships and infrastructure effectively to capitalize on this enormous opportunity. We continue to see the benefits of global scale where we see partners spending on more geographies and more devices outside their home geography, whether that's, for example, Chinese companies like Alibaba, Tencent, and ByteDance spending in Latin America and Europe and the U.S., or European companies and U.S. companies such as Pinterest, Snap, Uber, McDonald's, King, Walmart, just to name a few, all spending with us outside of their respective home geographies. And finally, before I turn over to Barrett, I want to highlight these record results in upbeat outlook are occurring despite all the macro headwinds we're facing as a society. These numbers are a direct result of our DT team's laser focus on our customers, our partners, and the collaboration with each other. And now that we're 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 impressive rates, 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 the massive addressable market opportunity set, which is greater than these current growth rates. And that's where we're laser focused. With that, that concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.