Digital Turbine, Inc.

Good afternoon, and welcome to the Digital Turbine fourth quarter and fiscal year 2023 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, Capital Markets and Strategy. Please go ahead.

Thank you, Gary. Good afternoon, and welcome to the Digital Turbine fourth quarter and fiscal year 2023 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 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 our CEO, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I wanted to start my commentary closing out our fiscal 23 results, provide some real-time operational commentary on the state of our business today, and conclude with some thoughts about our future and specifically the role of AI and machine learning in our current and future business. First, turning to our fiscal 23 results, we closed the year with $666 million of revenue $163 million of EBITDA, and $1.15 of non-GAAP EPS. In addition, we reported gross margins of 49% and EBITDA margins of 25%. As we stated previously, our view is that the first half of this calendar year is the trough of the business, and our expectations are that our improved execution, new products, and media relationships, combined with increased stability in the macro environment, will equate to sequential growth. And today we are seeing recent positive trends on all of these factors. Also included in our results is a change in the expected timing of a strategic demand agreement that was signed in the March quarter with an app publisher. We do these strategic demand contracts to help drive unique advantages for the publisher on our inventory and also accrete incremental margins for us. Our previous outlook anticipated a portion of the economics from that contract to impact the prior March quarter However, the majority of the economic benefit from this agreement will be realized in fiscal year that we're in right now. This is strictly a timing issue, and these agreements actually have a positive impact on the fundamentals and operations of our business, and as the total expected revenues and profits from that contract are unchanged. Barrett will provide more detail in his remarks. Turning to our on-device business, we put our Ignite technology on over 285 million global devices over the past year, which is a 7% increase year over year. But in the U.S., we saw a double-digit percent decline in devices year over year. New device sales in the U.S. were the lowest we have seen since 2019. Offsetting device volume declines in the U.S., however, was positive progress on our rates and demand for our platform. And despite continued headwinds being able to scale nearly nine figures of demand from Chinese publishers, on our U.S. operator and OEM supply, I was pleased that in the U.S., our revenue per device, or RPD, increased both double-digit sequentially and year-over-year, driven by better rates and more products. In particular, I was pleased to see growth return on our DSP that we utilized for direct single-tap installs, showing double-digit growth from the March quarter last year to this year. We expect the DSP to be one of our major growth drivers as we progress into the current fiscal year. Progress also continued with our single tap licensing business. Our install volume running single tap licensing was double in the March quarter from all of 2022 and our expectations our current June quarter will double the March quarter. We're excited to have welcomed many top 25 grossing gaming customers such as Player X and FunPlus. Additionally, we're also encouraged by the expansion of a number of our high-profile partners, such as Amazon and Epic, who expanded both the volume of single-tap implementations across their portfolio apps, adding additional titles and more traffic sources. We're also excited about the expected launch of our Google Marketplace integrations, where both Digital Turbine and Google are jointly expanding Tier 1 publishers and brands all within Google's ecosystem. We have a healthy pipeline of partners looking to adopt Singletap through Google and the Google Cloud Marketplace. And finally, I'm pleased to report that we've made progress with multiple large social media companies and expect to have them begin the first pilots running Singletap over their networks in the next few months. Bigger picture for Singletap licensing, the product market fit is very strong. And while we're excited about our prospects, I do want to remind investors that while Singletap licensing is generating revenue today, It'll take time to get to material revenue generation. The operational complexity of bringing together not just the on-device technology, but the advertisers, publishers, attribution providers, telcos, and OEMs has many moving parts requiring tight coordination and management. It's taken us more time than we like to get to scale, but the good news is that given all of this complexity, once established, the moat is very difficult to replicate at scale. Similar to the early days of our dynamic install business, where we launched on one mobile operator with only a slot or two and ramped, and then added another and so on, it layered on nice sequential growth as we expanded the depth and breadth of carriers and OEMs. It's very early days, but we're seeing those similar trends emerge here. On the app growth platform or AGP business, revenue was down 4% from fiscal 22 to fiscal 23. However, we expect these results to be the trough for our AGP business as we've seen revenue trends improving since the beginning of the calendar year. With the integration of our acquisitions now largely complete, the benefit is that our execution in this part of the business has made major strides compared to last year, and we now expect that to bear fruit as we scale things like our AI machine learning, our SDK bidding, our video rendering technology improvements, and so on. I was also pleased to see Google Bidding integrate with our mediation solution, FairBid, that should continue to improve our share of voice as we add more demand into our publisher supply. Turning to the future, I want to spend a few moments highlighting our new product growth drivers. I mentioned both new enhancements on our ad tech solutions and single tap licensing earlier in my remarks as strategic growth opportunities, and we've also mentioned on prior calls we want to build a Shopify for app stores on device. We believe we're uniquely positioned with our on-device technology, our publisher relationships, and our operator and OEM relationships. We have now launched our first alternative app stores with four US operators and also have a very strong international pipeline. We also believe the global regulatory environment will provide additional thrust to this vision. A specific example of the regulations changing is Apple is preparing to support sideloading applications in the EU as part of its future versions of its iOS operating system. And to achieve this vision, there are some market pain points we will be solving, including making it easier for app publishers to port their apps to a new platform, managing payments, installing the apps, and managing curation of the microstores. On making it easier to port apps and manage payments, we took the first step in accelerating our efforts in this area with taking an equity position in an alternative app store company called Aptoide, which has approximately 430 million users, 10 billion downloads, and over a million apps. Combining these capabilities with things like Singletap will make installs easier for consumers, and we're actually running Singletap installs on Aptoide's alternative app store today. The alternative app stores will also help us further leverage our ad tech assets with applications supported by in-app advertising revenue. But the app stores will also help us with our first foray into this in-app purchasing market, which is a $100 billion global addressable market today. And here in the U.S., it's over a $50 billion market today and expected to grow to over $600 billion by 2030. You'll see us refer to this business as our DTHub business, and variants on the hub, whether that be things like DT GameSub, DT AppHub, and so on. And to tie all this past, present, and future together, because of the exclusivity and uniqueness of our position with our on-device and publishers, we're able to create deeper, more strategic relationships with our partners. And to that end, we've secured many tens of millions of dollars of revenue bookings for this current fiscal year across various verticals, such as social media, weather, gaming, and so on. We will provide the publishers with an alternative route to market, leveraging our on-device and single tap footprint, whether this through our new DT app hub, our dynamic installs, our DSPs, and so on. And this has not just the strategic benefit and validation of the DT platform benefit, but also the financial benefit of de-risking future revenues. And finally, before I turn it over to Barrett, I wanted to spend a few moments discussing our AI and machine learning strategies for investors. And while I do think these terms are getting a bit overhyped in the press right now, they nevertheless are and have been important components of our past, present, and future strategies. Our business was actually built a decade ago creating machine learning models to deliver dynamic experiences to users based upon using first party data from our carrier and OEM partners. We continue to use AI and machine learning to help us optimize our single tap business, automate workflows, and curate content in our content media business, leveraging large language model or LLM-based conversational AI and ML models to optimize our ad platform. We'll continue to leverage AI as a foundational technology in our business, including our hubs business, as we build curated privacy preserving experiences based upon AI recommendation engines and port applications that are tailored to specific audiences. The important takeaway for investors is that there are three key success factors to winning with AI and machine learning. The first is the quantity, quality, and uniqueness of the data sets. Companies that have access to unique first-party data will have material advantages over other players using third-party data that is either for sale or generally available on the Internet. Digital Turbine's access to on-device data with Ignite present on over a billion devices globally is the foundational core for us to leverage AI and machine learning models and algorithms, which run on anonymized data that enables us to protect user privacy. The second is the quality of the models. We're doubling our investment in dedicated data science teams and machine learning engineers, both in Europe and here in the United States, building these models across all segments of the DT network. The final component is the actual application being used commercially to deliver value to the end user. Our applications like SingleTap, Content Media, and Hub are all specific use cases of AI and machine learning enhanced offerings, bringing value to all of our stakeholders across end users, operators and OEMs, and app publishers. We're very bullish on AI and machine learning, both for our future success as well as for society at large, but I caution investors to be able to separate the hype hyperbole, and storytelling of these new technologies from the actual practical use cases of how AI machine learning is and will be delivering value in the marketplace. Investors should look for companies that have all three of these success factors of unique data modeling and applications being offered. And in conclusion, I'm proud of our team as I've seen a marked improvement in our execution that combined with the stabilization of the macro environment will be catalysts for future growth. Our outlook for the long term remains unchanged as the total addressable market for mobile advertising is over $300 billion. The addressable market for in-app payments is even larger than that into the future. I want to remind investors that in addition to this enormous and growing addressable market, we have products our customers want, a favorable regulatory environment, and a profitable business model to drive operating leverage from our revenues and cost structure to attack the enormous market opportunity in front of us. With that, That concludes my prepared marks, and I'll turn it over to Barrett to take you through the numbers.