Digital Turbine, Inc.

supports fiscal 2024 second quarter 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 that 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. Good afternoon, and welcome to the Digital Turbine Fiscal Year 2024 Second Quarter Earnings Conference Call. Joining me today on the 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 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. Hillstone.

Thanks, Brian, and thank you all for joining our call tonight. For the September quarter, we finished in line with our guidance range, And I was pleased with the cash flow generation in the quarter with sequentially higher EBITDA and free cash flow. And we still have much work to do to reach both our internal expectations and the potential of our broader total addressable market, or TAM. I continue to be encouraged with our effort and execution on controllables and believe they'll pay dividends into the future as we work through some of the uncontrollables with soft U.S. device sales and also being able to expand the reach of popular Chinese applications on our U.S. supply. I was also pleased with the tangible progress on a variety of capital investments against the future with new technology platforming, new ad tech capabilities, our hub initiative, alternative app distribution, and single tab. We believe these investments will prove to be well served against our future growth and also have the added benefit of being able to reallocate many of those resources against shorter term revenue initiatives over the next few quarters to drive growth. I'll provide updates on those future growth drivers after providing some operational updates and commentary on the business. For the September quarter, we had $143 million of revenue, $28 million of EBITDA, 13 cents of non-GAAP earnings per share, and our gross profit margins were 47%. Our EBITDA approved sequentially, driven by reduced controllable costs. Barrett will talk about the details in his remarks, but it was positive to also see us reduce our debt in the quarter by $22 million, driven by improved sequential free cash flow. From a segment perspective, despite continued soft device sales here in the United States, our on-device business grew revenues sequentially to just over $99 million. Operationally, I was pleased with our improvement of revenue per device, or RPD in the U.S., which continues to be over $6 for all of our partners, and for two of our U.S. post-pay carriers, we almost hit $10 for the first time. Over the past five years, our RPDs have accreted from just over $2 in fiscal year 20 to $3 in fiscal year 21 to $4 in fiscal year 22 to $5 in fiscal 23, and today is over $6. We continue to see strong demand for our platform, both from advertisers and new products contributing more revenue to each device. Expanding global demand to our U.S. device supply has also been a big driver of those improved RPD results, as U.S. demand is less than 20% of revenues on our U.S. supply, despite some continued headwinds on being able to run all the Chinese media dollars that we have budgets for. While we expect the current quarter to experience continued device softness here in the U.S., going into 2024, we will be expanding our global telco and OEM relationships to help offset weakness in device sales from our existing partners. As an example to this point, many of you have seen our announcement with Xiaomi that is focused on growing in Europe, Middle East, Africa, and Asia Pacific, and we're also adding new operator partners in Latin America in this current quarter, and our global pipeline remains robust. And regarding our content media business, as we've discussed on prior calls, we expected it to trough in the June quarter, and that is what happened as we showed sequential growth quarter over quarter in September. On our app growth platform segment, or AGP business, we finished with $46 million in revenues. We're seeing sequential improvements in eCPM rates on both our brand demand and DSP from advertisers, And in particular, it was encouraging to see our brand business continue to grow nearly 10% sequentially, as we saw ECPMs improve by nearly 25% in the quarter. The macro market has stabilized, and our execution is improving, but there's still some uncertainty baked into our outlook, given some of the global macro and geopolitical issues others have mentioned in their commentary. Our exchange and offer wall business was roughly flat in the quarter and the exchange business continues to be well diversified globally with approximately 37% of our publishers in North and South America, 51% in Europe, Middle East, Africa, and 12% in Asia Pacific. We have nearly completed our consolidation of multiple exchanges into a single DT exchange. The main benefit of this consolidation is the efficiencies and new products such as SDK bidding that will help us capture more ad dollars from companies such as the Trade Desk, Google, and Amazon into the future. And as part of that migration, which will be complete in the current quarter, we've also chosen not to migrate some of the many thousands of long-tail publishers on the legacy exchanges over to the DT Exchange, which will create headwinds on past comps, even as we grow our DT Exchange into the future. We've also beta-launched our evolution of our demand-side platform, or DSP, that we brand as DT Direct. This allows us to have more intelligent buying and selling of ad dollars across the DT network, which means better margins and better return on ad spend for our customers, as we can better leverage single-tap, our first-party data, data science, machine learning, and AI at better scale and performance than our legacy DSP. These enhancements mean that DT Direct will be a growth driver for us in 2024. In addition to leveraging single tap on the DSP, we continue to utilize it in many other ways across our device solutions as an enablement technology. The first is direct demand via the DSP, where we leverage our own AI and machine learning to target advertising to single tap devices. The second is enabling other third-party demand partners from companies who can buy advertising on our single-tap enabled supply. The third is licensing mobile web traffic from brands such as Epic Games' Fortnite title, which then uses Singletrap to convert its web visitors to native applications. The fourth is distributing alternative versions of the applications, such as what we do with our Hub, an Amazon version, and so on, for direct distribution of the device. And finally, is enabling large distributors of applications, such as large social media players, to leverage the conversion rate benefits of Singletap across your network. We continue to make progress on all fronts, including with multiple social media companies. In particular, I'm encouraged by the number of publishers wanting to use Singletap to distribute alternative builds of their applications, which fits nicely with our strategy of alternative app distribution and hub that I'll talk later in my remarks. And as the market expands with alternative builds, Singletap will be a primary differentiator from others for distributing those new versions of applications. Turning to future, I want to spend a few moments highlighting our longer-term growth drivers. We believe we're uniquely positioned with our on-device technology, including our first-party data, our AI, machine learning tools, Singletap, and our extensive publisher relation and operator and OEM relationships. We have launched our first alternative app distribution products, which we brand as DTHub, with five operators here in the US, leveraging our Aptoide investment that are generating revenue today. We have increased our equity investment in Aptoide to almost 20%. The carrier feedback has been encouraging, and we expect to be across many tens of millions of devices by the end of this calendar year. It's still early days and still not yet material to our overall results, but we are seeing incremental and higher revenue per device from devices engaging with our hub product, which is a combination of in-app purchase revenues and incremental cost per install or CPI revenues helping publishers acquire new users. So the focus for us is driving more devices, more engagement, and more downloads. We've not yet started leveraging our in-app advertising assets into this alternative app distribution, but do expect that to add an additional revenue stream to this opportunity, and all three of these monetization capabilities being drivers of incremental RPD into the future. Monetizing via cost per install in-app advertising are all very natural extensions of our existing business models. We also believe the global regulatory environment will provide additional thrust to this vision, especially in the EU, as the Digital Markets Act becomes effective next March. Many of you have seen articles in the press talking about a concept of direct distribution of applications that involve mega cap tech players. This is highly strategic, and I want to spend a few moments describing it. Direct distribution is where any app publisher, such as Spotify, Netflix, Epic Games, and so on, is running advertising for a user to install its application. But rather than take the user to the Apple or Google store after clicking on the ad, it would direct download the application to the device with its own unique version of an application outside of the traditional app stores. And to achieve this, there's some market pain points that need to be solved, such as making it easy for app publishers to port their apps to a new version, managing the payments and advertising inside the application, installing the apps without friction, as there may not be a store involved, and also managing the curation of the applications. And these are all things that Digital Turbine is uniquely positioned to deliver on, whether directly via our own hub product or indirectly through white labeling our capabilities to large players wanting to leverage their large audiences. And to that end, in addition to Aptoide, we're expanding our partnership with Flexion, who is the market leader importing applications into alternative version. Flexion works not just with us, but with all the other major alternative app stores, such as the Samsung Galaxy Store, Amazon App Store, Xiaomi Git Apps, Huawei's App Gallery, Aptoide, one store in Korea, and many others. In addition to paying down our debt, we're allocating our capital to pursue these new investments with a new dedicated team focused on unlocking this future growth opportunity. To recap, we have an enormous addressable market large customers that want our solutions, and operating leverage with our business models. Our focus is bringing these elements together with all the initiatives underway mentioned earlier in my remarks from alternative app stores, ad tech enhancements, platform modernizations, strategic media relationships, and leveraging our global device footprint. This is our formula for future growth and scale. And with that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.