Digital Turbine, Inc.

Good day and welcome to the Digital Turbine Report's fourth quarter and fiscal 2021 financial 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. 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 from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, SVT of Capital Markets. Please go ahead.

Thanks, Sarah. Good afternoon and welcome to the Digital Turbine fourth quarter and fiscal 2021 earnings conference call. Joining me on today's call 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 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 will turn the call over to Chief Executive Officer, Mr. Bill Stoughton.

Thanks, Brian, and thank you all for joining our call tonight. First, I want to formally welcome the Appreciate, Ad Colony, and Fiber teams to our team. This is our first earnings call being together, and while the DT team has written some great chapters to date, we think with the addition of the new teams we've now assembled, there are many even brighter chapters we're going to write together. I think it's important to reiterate to investors that people make this business happen and And from what I've seen so far, we have a great global team that fits hand in glove with our DT team. They're also now all shareholders in what we're building together. Digital Turbine's gone through an amazing transformation over the past 18 months, as in the midst of an accelerating, profitable growth trajectory that very few companies will ever experience. The operating leverage of our platform is clicking on all cylinders. On our earnings call last February, we talked about just having over $100 million annual revenue business with approximately 100 employees. Today, with the closing of Fiber, Ad Colony, Appreciate, and our own Digital Turbine triple-digit organic growth, we are now a company that has over a billion dollars of annualized revenue with nearly 1,000 employees. Given our closing of the Ad Colony and Fiber transactions, were completed in the middle of our current quarter. Baird will talk more about the details of our forward outlook later in his remarks, but I want to emphasize a strategic point regarding our forward outlook. For our current June quarter, we are forecasting all four businesses to deliver approximately $280 million in revenue and $40 million in EBITDA if we had owned all of them for the entire quarter. This represents nearly 90% top-line growth and approximately 200% EBITDA growth on an apples-to-apples or pro forma basis. These are strong businesses independently and even stronger businesses when we consider our expected synergies. And this all showcases how we're now positioned with real scale to attack the $300 billion mobile media market. I'll talk more about the details of how, when, and what we'll be doing later in my as well as provide some commentary on how we see Digital Turbine positioned against some of the macro items on investors' minds, such as inflation, post-COVID reopening trends, and the impacts of Apple's recent privacy changes with IDFA. But suffice it to say that while our past and present results are impressive, I'm even more excited about our future. But first, I want to summarize our quarterly results and provide some real-time operational updates on our business. To close out fiscal 21, we continue to build on our breakout momentum with record results across the board. We had over $313 million in revenue, which represented over 120% annual growth on an as-reported basis and over 60% on a pro forma basis. When we compare our March quarterly results this year to last year, higher gross margins and accelerating operating leverage enabled us to turn the strong revenue growth into more than four times the EBITDA compared to the EBITDA generated ago, and more than 400% growth in non-GAAP earnings per share. Here it will provide more details on the numbers, but operationally, I was pleased with the improving global reach of our platform, our demand improvements on revenue per device, or RPD, and a rebounding of device sales here in the United States. During the fourth quarter, Our international revenues from our supply partners, such as Samsung, Xiaomi, American Mobile, and others, grew over 200% year-over-year, driven by a 32% increase in device volumes and 142% increase in revenue per device. In the U.S., we saw a double-digit increase in device sales year-over-year, driven by 5G and pent-up demand from COVID. Our US RPDs continue to strengthen and exceeded 50% year-over-year growth in the fourth quarter. In our content business, revenues in the March quarter pro forma increased by approximately 120% year-over-year. This result was driven by our new content platform being fully deployed and legacy platform being sunset, as well as improved advertising rates that are all driving better operating results. I also want to reiterate from a prior earnings call that we're on track to launch with both AT&T and Verizon later this year with some of our content product offerings. 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 to have success with our U.S.-based carrier partners whom we grew revenues 74% year-over-year during the fourth quarter, while our revenues with other partners outside of this group increased by over 200% year-over-year. Turning to the forward outlook, I now want to provide some commentary on how we're positioned for future continued growth across each of our growth levers, devices, products, and media. First on devices, after many quarters of flattish to declining trends in device sales in the US, I'm pleased to announce that we grew devices more than 10% in the US and more than 30% internationally compared to the last March quarter. We're seeing approximately 30% of new devices sold with our larger carrier partners being 5G, which is a material increase compared to prior quarters. On the product front, our revenues from dynamic installs grew by 73% year over year in the fourth quarter, but now represent approximately 50% of our total revenues compared to over 70% last year. Revenues derived from non-dynamic install products grew over 300% year-over-year, as our content products, single tap, and others showed solid growth. And while the strong growth is exciting, I believe it will be even better as we drive more revenue synergies on our content products, continue to capture on the recent momentum in our single tap business, and expand other emerging products such as notifications even faster. It's important to note for investors, while we expect our dynamic install business to continue to grow, it'll be less than 20% of our total revenues as we begin reporting all revenues from our acquisitions. Our recurring revenues now represent over 50% of our total revenues compared to over just 10% when we purchased the mobile policy business last year. I also want to specifically call out our progress on Singletap. It's been a long journey on our patented product, but patience and perseverance has paid off as the results are finally beginning to match the potential. Not including our social media integration with our large carrier partner, three quarters ago we talked about Singletap being on a seven-figure annual run rate. Two quarters ago we talked about being a seven-figure quarterly business. Last quarter we talked about it being a seven-figure monthly business. And today, I'm pleased to report it's a seven-figure-per-week business. The single-tap revenue during the fourth quarter more than doubled the revenue from the third quarter, and today is up more than 1,000% from a year ago. Specifically, we're seeing nice growth from our demand-side platform, our DSP efforts, from our Appreciate acquisition, and we'll look to continue to scale our ad tech stack here both in the United States as well as internationally. The addressable market is many tens of billions of dollars for Singletap and we believe we're just getting started against this larger opportunity. The bigger picture takeaway for investors is that we have growth occurring on multiple product fronts and will continue to make this diversification a major focus area of the business and will continue to proactively make investments in these areas. On the media front, we're currently very focused on scaling our international demand to meet a significantly greater supply of international devices, while continuing to see international application developers want to be on U.S. devices. Last year, approximately 35% of our app media revenues were from international applications like TikTok and Candy Crush. This year, we saw that number increased over 50% as more media spending in our application media business is coming from companies that are not based in the United States. And this was despite a 25% year-over-year growth from our U.S. media partners. We saw international media demand grow by over 200% in the fourth quarter. And achieving this global scale from a broader set of demand partners is a direct reason why we saw revenue per device grow so much and it brings the benefits of global scale where we see partners spending on more geographies and more devices outside of their home geography. whether that is Chinese companies like Alibaba, Tencent, or TikTok spending in Latin America and Europe, and European companies and U.S. companies such as Pinterest, Snap, Uber, and McDonald's all spending outside of their home respective geographies. I now want to turn to our recent acquisitions and strategic game plan. With the completion of the Fiverr acquisition last week, along with Ad Colony and Appreciate before it, we now have successfully assembled the key pieces for our full-stack end-to-end ad tech platform. I want to spend a minute here to highlight for investors what truly differentiates our platform approach versus other industry players. I want to start with our overriding mission statement, which is to become the largest independent mobile advertising monetization platform, leveraging our unique and diverse technology and long-term partner and advertiser relationships. A couple words that I want to stress here because this is what differentiates the DT platform. First is having our technology on device. The software presence on underlying devices provides us distinct advantages. A critical one, which is our ability to use our patented single tap technology to drive materially higher conversion rates on the platform. Second is our independence. We have opted to vertically integrate by functionality, unlike many other industry players who have drifted into the content arena thereby compromising their platform neutrality and posing potential conflicts of interest for other app publishers and advertisers on the platform. In essence, our on-device technology presence and independent approach make our platform more attractive to app publishers and advertisers, trying to optimize monetization and their return on investment. It's obviously early days, but we've already received positive feedback from numerous partners and customers validating our unique approach. We're already benefiting from the revenue synergies within specific accounts, and we look forward to sharing supportive data and specific case studies with you on future earnings calls. The final but perhaps most important call-out here in terms of our differentiated platform approach relates to the organizational culture. Since they've been public companies, you can all see the obvious recent business momentum as evidenced by the accelerating growth rates, but you can't see is the cultural mindset of the teams at Fiverr ad colony appreciate. and how their lean-in, company-first, hustle attitude mirrors the same here at Digital Turbine and facilitates a more seamless path towards integration towards a 1DT organization. And as any of us would learn in a business school case study, and what we at Digital Turbine know firsthand from our prior experience with acquisitions, the number one factor that defines success of mergers and acquisitions, it's not strategy, it's not numbers or other factors, it's cultural integration. We've now fully integrated the Appreciate team into Digital Turbine, and that integration has gone very well as evidenced by our significant single tap progress we're now making. We've begun early integration with Ad Colony and Fiber with an initial focus on integrating back office functions like HR and finance, and we have a joint team of executives from Ad Colony, Fiber, and Digital Turbine that meet regularly to build out the detailed plans of 1DT. These plans will ultimately shape deeper synergistic integrations later this year. but I can't overstate how optimistic I am that we'll successfully integrate the platform and begin to execute on our plan to address the $300 billion market opportunity, which is squarely in our crosshairs. And finally, before I turn it over to Barrett, I want to comment on some of the macro items I hear from investors, such as the impacts of reopening the economy, inflation, and Apple's recent privacy changes with IDFA. Regarding the reopening, we believe our company was healthy and growing before COVID, was healthy and growing during COVID and will continue to profitably grow post-COVID. We do not anticipate the secular tailwinds of device sales and on-device media and content consumption to slow down for our business. We're very optimistic that the reopening of the economy benefits Digital Turbine in a material way as more devices are sold and more advertisers try to reach consumers, recognizing consumer eyeballs are in the applications and content, which is where the advertisers also need to be. Regarding inflation, It's important to note that Digital Turbine doesn't have any material input costs. Our cost of sales is just our revenue shares with our partners, and our people costs are nominal given we do more than a million dollars of revenue per employee. So in any potential inflationary environment, we're a company that's insulated and benefits much more than other companies to those macro pressures to continue to profitably grow our business as we can raise prices without driving increases in input costs to support the revenues. And finally, we've not seen any material impact to our ad colony or fiber business as a result of Apple's IDFA changes. It doesn't mean there's not any risk to the future, but the impact to date and our iOS advertiser rates have been mixed, with some advertisers spending more and some spending less. But more strategically, I'd reference a Forbes article to investors that came out this past weekend that highlighted from its sources that advertisers' spend on Androids jumped double digits since IDFA has been implemented. which is a clear tailwind for our broader businesses and strategy. In closing, I want to emphasize that investors should distinguish between companies that are growing but not profitable versus the companies that are not growing but profitable from the companies that are both growing revenues and growing profitably. We're excited about the operating leverage of our business that grew profitably at more than 300%, while our revenues grow over at 100%. Our expectations are that our acquisitions will generate even further operating leverage as scale begins for scale, and winners will win disproportionately. With that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.