Digital Turbine, Inc.

Good afternoon and welcome to the Digital Turbine Fiscal 2022 Third Quarter 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 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, Senior Vice President of Capital Markets. Please go ahead.

Thank you, Gary. Good afternoon, and welcome to the Digital Turbine fiscal 2022 third 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. or 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 gap measures. Now we'll turn the call over to our CEO, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. First, I want to formally recognize the amazing hustle and effort of our combined 1DT team. This is our second earnings call, announcing a full quarter of results as one digital turbine, and I'm proud of being part of such an amazing team that is successfully scaling together so quickly. I also want to welcome Molly Spillman, who officially joined our board of directors last week. Molly's deep ad tech, mobile, and cloud experience will be helpful as we scale and grow our company. Tonight, we're going to focus on our December results and our near-term forward outlook. As a reminder, we hosted an analyst day in November where we discussed our longer-term outlook and strategies. and how we plan to build DT into a $4 billion top line and $1 billion bottom line business. For investors that want to better understand our longer-term approach, I'd encourage you to go to our website where that replay is available. For our near-term results, I'm going to break my remarks into four areas. First is some commentary on our consolidated results for the quarter, including a breakout of each of our segments. Second are some real-time operational updates. Thirdly, we'll update on the strategic integration progress of One Digital Turbine. And finally, provide some commentary on the current events going on in our industry and economy, such as regulations, supply chains, inflation, Apple's IDFA impact, and others. For the December quarter, we delivered just over $375 million in revenue and $57 million in EBITDA. Compared to the December quarter of last year, This represents over a 300% increase on an as reported basis and nearly a 40% increase on a pro forma basis for revenues and more than 150% increase in EBITDA on a reported basis and nearly a 50% increase in EBITDA on a pro forma basis. I was most pleased to see the operating leverage of the model with our combined entity as we were able to deliver strong revenue growth while holding operating expenses flat year over year. As we've said on prior earnings calls, the ability for us to grow the top line faster than the expenses required to support it validates the profitability of our platform. To support this point, I want to call out our all-time record of $57 million of EBITDA generated from the December quarter as proof of this strong operating dynamic and the health of our overall business model. Turning to the segment results, This will be the final quarter that we break our results into our three segments of on-device media, ad colony, and fiber. We did this approach for the past year, given the historic public company comps for all three companies that could easily provide a pro forma, apples to apples basis for investors. But as we begin our new fiscal year on April 1st, and we've now integrated our companies together, we will begin breaking out our business into two segments. our on-device business comprised of our app media, content media, and single tap business, and our app growth platform business comprised of our fiber, ad colony, and non-single tap appreciate DSP business. This will allow us the best of all worlds in finding the right balance between a greater focus on our customers, our ability to simplify, and our ability to accelerate our synergies. We've recently completed a restructuring of our organization to align with these new segments. I'm pleased to announce that we have appointed Mike Ng, our former DT chief revenue officer, as president of our app growth platform business, and hired telco and ad tech industry veteran Matt Gillis to be our president of our on-device business. Both leaders have P&L responsibility for the respective segments and are supported by a shared service infrastructure team to ensure we get all the one DT synergy benefits. We're using this current March quarter to make the transition from our three segment to two segment approach as we begin the next fiscal year. Turning to our December quarterly segment results, our on-device media business set all-time revenue records and generated over $134 million in revenue, which is 43% growth year over year. driving the strong organic growth with strong performance in our content media, app media, and single tap business. Our revenues for the on-device business in the last three December quarters have gone from $55 million in 2019, $93 million in 2020, and $134 million this past quarter. We're happy to see such strong organic growth driven by improved revenue per device and accelerating device growth. In the December quarter, we saw over 68 million devices integrated with DT Software, which is an all-time record. Singletap has been a major driver of these strong top-line results. After trying for many years, we proved in 2021 there's a real business with Singletap as the growth broke out in a major way as revenues increased 800% year over year. Now as we turn to 2022, We were focused on four main areas for future single tap growth that's comprised of optimizing performance for our existing advertisers, increasing the number of advertisers on the direct platform or DSP that we purchased from Appreciate. Third is the licensing of the technology as more of a SaaS-like play. And finally is getting single tap on more global devices. I'm pleased to report that we made progress in the quarter on all fronts as we increased the number of active direct advertisers to approximately 50 and are working with multiple Tier 1 partners on licensing single tap more broadly. As mentioned earlier in my remarks, we also added 68 million new devices in the quarter. But in addition to the strong single tap growth, revenue per device, or RPD, grew nearly 50%. RPD is a core health metric of our business as it showcases the value of our platform to advertisers and to customers. And finally, it is important to note that this is all organic growth, and now with our synergies from our acquisitions and continued expansion with new and existing partners give us optimism on the future growth prospects for our on-device business. Turning to our ad colony segment, Ad Colony rebounded strong from the September quarter with 53% sequential growth and 28% year-over-year growth comparing December quarter to last year. In particular, the Ad Colony brand business, which is highly strategic for our one digital turbine efforts, showcased approximately 35% year-over-year growth. The performance business, which it had contracted in the prior September quarter by 18%, primarily driven by Apple's IDFA changes, rebounded nicely with nearly 25% growth in the December quarter. We continue to be excited with the expanding new brand relationships in multiple industries with new top-tier names such as Procter & Gamble, Disney, CVS, and Progressive Insurance, just to name a few. Turning to Fiverr, Fiber's full quarterly results were impressive, showcasing year-over-year growth of nearly 50%. Even more impressive is Fiber's EBITDA increase to over 150% year-over-year. In other words, Fiber's not only accelerating growth on the top line, but it's now at that critical inflection point of scale that enables accelerating operating leverage in the core business. The impressive growth was driven by both rates and volumes. On rates during the December quarter, Fiverr saw eCPMs approved across all ad formats three years ago, while increasing impressions by over 40%. More specifically, fueling a strong growth was Marketplace Video and our APAC region, which were both up over 100% year-over-year. Both ad colony and fiber have made strategic investments in video rendering of mobile ads over the past few years and are now capitalizing on the macro global tailwind of video ad formats as advertisers prefer the stickier, richer, and more price and elastic ad format compared to other traditional digital formats. And for our ad colony and fiber businesses, we saw combined APAC revenues grow by over 90% year over year. While it's still a small percentage of overall revenues at approximately 15% of our total ad colony and fiber revenues, but as we add more synergies and devices in the region, we're excited about the growth prospects in that part of the world. And finally, on our segment results, we're beginning to increase our focus on revenue synergies. Our synergy revenue run rate approached 10% of overall revenues as we exited the quarter. We're working on over a dozen different revenue synergies between the companies, whether it has ad colonies demand on fiber supply, appreciate buying on fiber supply, or expanding ad colonies demand reach with our DT content media products, just to name a few examples. In addition to the revenue these synergies create, many of these synergies also improve our gross margins while simultaneously delivering more value for our partners by taking unnecessary links out of the supply chain of digital advertising. This is a major strategic focus area for our team to accelerate our progress here. Turning to our forward outlook, I want to provide some commentary on how we're positioned for continued growth. With our acquisitions, our growth levers of devices, products, and media have not changed. They've just been accelerated and expanded. First on devices, We've now passed over 800 million devices that our software has been installed on, including 68 million in the December quarter. We're excited to begin working with new partners such as OPPO and Vivo, and are also excited to begin expanding further with existing partners such as Samsung and Telefonica. On the product front, our revenues from dynamic installs grew by over 20% year-over-year in the December quarter, but now only represent 15% of our total consolidated revenues compared to over 50% last year, as the company's been repositioned to a monetization over the life of the device company versus just a monetization at first activation company. Our revenues that occur over the lifetime of a device now represent approximately 85% of our total revenues compared to just about 50% last year. Diversifying away from revenues, only attributable to first boot and monetizing over the life of the device, has been a strategic priority for our business, and this progress is material. I mentioned Singletap as a major growth driver earlier in my remarks, but we are also looking to drive growth in many other products, such as Notifications, Discover Bar, Fairbid, OfferWall, and Marketplace. As a simple example, our Smart Folder product grew by over 300% year over year. In other words, diversification is working well to drive both top line growth and we don't have reliance on any single product to drive growth. And to further emphasize this point, this is now our second consecutive quarter where we do not have a single partner or customer that constitutes more than 10% of our revenues. I now want to turn to our integration updates. With the completion of the acquisitions, we've now successfully assembled the key pieces for our full-stack, end-to-end ad tech platform. Last quarter, I spent time in my prepared remarks discussing the strategy of how we're going to win, and tonight I want to spend some time on the operational elements. We already discussed the organizational segments earlier in my remarks, so the first area I'd like to discuss is our Google relationship. Our first material milestone in leveraging our scale was our strategic announcement with Google. Our Google announcement has three primary benefits. First is the financial benefit of our hosting agreement. We expect this to yield material cost savings over the next few years. And secondly is the commitment by Google to work with us across their businesses, including the Android group. We've already begun working with Google on a variety of operational and strategic areas into the future. And finally is credibility. We understand that Google has been viewed as an existential threat by many to our business, and hopefully hearing from Google in their own words helps mitigate any of those concerns. We've been focused on integrating new systems like common HR, accounting, Salesforce, and technology platforms so we can operate like one versus four companies. Combined with that is also focusing on unifying our processes, like how we work on new clients, manage our people, and manage our customer accounts. These things all allow us to operate more efficiently so we can capitalize on the future strategy. I want to highlight this to investors to showcase how proud of this I am from the team. Very few companies can walk and chew gum by simultaneously executing the present while doing all the necessary work to prepare for the future. especially when dealing with COVID fatigue that we're all experiencing. To close out my prepared remarks, I wanted to reiterate my commentary from last quarter on the macro and industry-specific events happening real-time. First, on the macro environment, one of the great things about our business as a cloud-based mobile software company is we don't have input or hard costs. Thus, our exposure to supply chains and inflation risk is extremely low relative to other organizations. On the regulatory front, we are seeing legislation around the globe about regulating big tech firms to offer more consumer choice and control. In particular, here in the United States, Bill S-2710, or also known as the Open App Markets Act, received a 21 to 1 bipartisan vote from the Senate Judiciary Committee this past week as a strong endorsement to continue to proceed through the legislative process. This would de-bundle the Google and Apple app stores from the operating system and offer consumer choice of which app stores and apps consumers can select. From a DT perspective, we are closely monitoring these regulations and have already partnered and supplied input to regulatory authorities. Given our unique position with operators and OEMs, we see today's regulatory environment as a tailwind, not a headwind, for our business. For investors interested in more details on these dynamics and what they potentially mean for us, I'd encourage you to listen to our comments we made at our Analyst Day in November, which are available on our website. Turning to Apple's iOS platform and the impacts of IDFA. I want to first emphasize for investors that our Android share continues to grow and is now over 70% of our total revenues. But even with this mixed shift to Android, we saw a return to iOS growth in the December quarter. Our iOS revenues grew 33% sequentially and 20% year-over-year, which demonstrates that IDFA has not been a material headwind for our business. Other larger players that are relying upon IDFA for things like view-through attribution have been hit hard by Apple's changes, but these factors are not relevant for our business. If anything, IDFA has leveled the playing field versus providing disproportionate advantages to the mega-tech players. We already support Apple's FK ad network integration, also known as SCAN, and our machine learning models improve on-device decisioning for players like us. However, what we believe makes us different from others is our concentration of brand dollars from ad colony that work both on iOS and on Android and tend to be a bit more pricey and elastic. Our majority focus on Android and our capabilities with single tap. And finally, before I turn it over to Barrett, I want to make a comment about the market. Our job is to execute on our winning strategy and our enormous addressable market in front of us. That's what we can control. But we are living in a time where investors seem to put companies into a growth bucket or a value bucket. We are very proud in our ability to deliver both significant growth but simultaneously deliver profitability that's growing even faster than our top line. With that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.