Digital Turbine, Inc.

Good day, and welcome to the Digital Turbine Report's fiscal 2025 second quarter earnings 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 a touch-tone phone. 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, Head of Investor Relations. Please go ahead.

Thanks, Nick. Good afternoon, and welcome to the Digital Turbine Fiscal 2025 Second 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 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 statement, 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 CEO, Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. Before breaking down our specific quarterly results, I want to start the call with a summary of where we're at in our business. Our results for the September quarter were marginally better than our June quarter, and our results for the June quarter were better than the March quarter. Our outlook for the remainder of the fiscal year assumes December will be better than September, and we will perform better in this upcoming March than we did last March. However, while these results are showing positive progress, that progress is below our expectations and thus has been baked into our go-forward forecast. We've been able to grow the strategic areas of our business that we discussed on prior calls and will discuss later in my remarks. But that new growth has not been strong enough to offset the declines in both our exited businesses and legacy businesses, including device sales with our U.S. partners, our Sunset products, and our legacy performance bidding strategies into the DSPs on our exchange. Given this new operating environment, we need to make these businesses more efficient and right-size their costs and support structures to reflect their current profitability contributions. We've begun a transformation project, including some third-party consultation, to take out more than $25 million of annual costs in our business to become leaner, improve cash flow, and enable us to invest in these growth areas. That future is bright is evidenced by a multi-year agreement we've just signed with a new Tier 1 operator here in the U.S. for a variety of services and a relationship with one store that will be a catalyst for us to grow additional device supply here in the U.S., the EU, and Latin America. In addition, our brand strategy on our AGP part of our business is now showing solid year-over-year and sequential growth, and we believe we are building a nice moat around our strategy. I'll provide more details in my remarks on these items, but the bottom line is we need to execute better, faster, and more efficiently in the present as a company so we can attack the enormous market opportunity in front of us in the future. That's our number one priority. To move to our second quarter results, We achieved $119 million of revenue and just over $15 million of EBITDA. In addition to the numbers, and as we've discussed on prior calls, we continue to invest in the future with notable progress on numerous investment activities that set us up for the future, including our progress on our new version of Ignite. Our new hosting platform has moved from migration phase to optimization phase. Our launch of improved bidding capabilities is showing positive growth with brands, and many new back-end corporate systems consolidated and launched, which are simplifying and automating our work. For the quarter, we had a variety of encouraging activities that are showing improvement and a variety of activities that need improvement. First on the ODS segment, on the positive side, as we've discussed on prior calls, the importance of increasing our revenue for device or RPD outside the United States to offset the device declines inside the United States. As places here, international ODS revenues improved nearly 25% year-over-year, driven by better RPDs and new supply offsetting legacy U.S. supply. We also saw both sequential and year-over-year growth in our content media business, We still need to add more supply to our content media business, but I was pleased to see the team doing a great job optimizing the supply we do have to drive growth. We also saw our single tap licensing product continue to grow as we expanded relationships with many partners. The biggest headwind call-outs are device sales and reduced software updates over the life of those reduced device volumes. In the U.S., operators have now publicly reported another quarter of post-pay upgrade rates that were approximately 3% of the base for the September quarter, or a run rate of approximately 12% per year. That would imply more than an eight-year upgrade cycle, which I think all of us would recognize as unsustainable for the long term, but this is a reality in the present. We do expect this trend to reverse in 2025 as we see the anniversary and migration from two to three releases in the U.S. market, as well as likely upgrades driven by new AI features on OEM hardware. For an IGP business, the bright spots continue to be our investment in brands that want to leverage our first-party data to reach their existing and potential customers over our global network. That is now bearing fruit. We achieved double-digit sequential growth, and our year-over-year growth was up over 25%. As we've discussed on prior calls, this is a strategic objective for us and something we have invested in to differentiate us from other players. We're now in a great position to continue to grow, and we will continue to invest here as we believe we are building a moat given the high barriers to entry and work required to earn the trust of brands like P&G, Coke, Disney, Starbucks, and so on. However, this new growth has been offset by declining legacy performance advertising on our exchange. Improving our own performance advertising, leveraging our own first-party data, is our most important execution improvement area for our HEP business. We have simply not made the progress here that we need. The legacy fiber and ad colony exchange businesses were focused on waterfall bidding with third-party performance DSPs, primarily buying gaming advertising inside gaming applications. As expected, these DSPs have been executing their own supply path optimization strategies to vertically integrate the demand connected to their own supply. And for those companies, without a strong mediation footprint, it has become a largely commoditized ad tech gaming space for both iOS and Android. We saw this risk years ago, and that's why we invest in our own brand and SDK bidding activities to mitigate that risk, increase our own first-party activities over our own network, and continue to invest in mediation. We've also been able to expand our AGP supply from being largely dependent upon game publishers to much more diversified over non-gaming. To illustrate this point, our DTX revenues on non-gaming applications have nearly doubled over the past year. In summary, our investment and focus areas are showing growth. We just need them to grow faster to offset the impacts of U.S. device sales with our legacy supply partners and also outrun our legacy performance DSP declines on our exchange as we just transition to more brand, more AI machine learning in our data science, increase our non-gaming applications, and improve our share of voice or first-party performance demand over our network. Those are our AGP priorities. Turning to the future, our focus is on growth and efficiency. The keys to driving growth are more devices, improved performance from legacy and new products, and a wider and deeper net of media and brand relationships. The key to efficiency is automation, aligning operating costs to gross profit, and realigning our people, process, and systems for maximum benefit. Barrett will provide more details on our transformation activities in his remarks. To drive faster growth, the first driver is expanding our device footprint. Despite those soft device sales in the U.S., we have been expanding our global device relationships through partners like Motorola, Nokia, One Store, Xiaomi, and Telecom Italia Brazil. Today, I'm pleased to announce that a tier one U.S. operator has recently selected us for a variety of services leveraging our Ignite platform such as Singletap in a multi-year deal that should prove to be a nice 2025 growth catalyst for us. This win is a nice proof point and validation of the product market fit for our solutions. Our second growth driver is expanding our product portfolio for both our ODS and AGP businesses. Scaling new ad tech and on-device capabilities are critical to our return to growth. On our AGP business, as mentioned earlier, our SDK bidding capabilities have been a nice product enhancement to unlock brand spends on our exchange. While we still have plenty of work to do to transform our migration to this method of bidding with such enhancements of improved AI machine learning, integration, and more first-party data and so on, SDK bidding is already showing strong growth. It's now approximately 70% of the total impressions on our exchange compared to only 5% a year ago. We're diversifying away from waterfall bidding as it's less than 40% to our traffic compared to 90% a few years ago. Our investments in first-party data, DTX, and other features are a major enabler to drive more brand revenues through our network. Our other AGP product growth driver will be increasing our share of voice for leveraging our first-party data and our Ignite capabilities via our own demand-side platform, or DSP. We do this today through our Appreciate acquisition, which is showing renewed growth, and we're beginning to partner with third-party DSPs that can help grow our share of voice. This will all translate not to just top-line revenue growth with more demand dollars, but it's also key in driving the flywheel effects of improving revenues for other products like Single Tap, the DT Exchange, and Fairbid, our mediation product. On the ODS side of our business, our primary growth drivers are Single Tap, alternative apps, and better leveraging our first-party data for our existing ODS products. Single-cap continues to add more devices, more advertisers, and better execution. It's early days for alternative app distribution approach, but as many saw with our recent PR announcement with OneStore, our strategy is starting to come together. We believe one of the keys to unlocking more device supply will be the ability to offer alternative app distribution to publishers, OEMs, mobile carriers, and mega-cap tech players. Many of you have read about all of the regulatory activity around the globe in the EU, Japan, Korea, India, and here in the U.S. There's building momentum to increase options for consumers and publishers on how they distribute and get applications to market. And all of our hard work over the past decade has positioned us perfectly to leverage these opportunities. I encourage investors to pay close attention to these developments in the space as they'll likely open up growth opportunities for companies like Digital Turbine. And beyond this fiscal year, our goal is not just to return to growth, but to accelerate it. And the key driver here will be the expansion of our alternative app strategy. We've launched our first alternative app distribution products, which we brand as DTHub, with five operators here in the United States. With our OS, our one-store announcement last week, we will be leveraging the platform across our operator relationships, not just in the United States, but also in the European Union and Latin America. Be on the lookout for operator and OEM progress here, as this will be a major driver of accelerating our device supply and thus revenues. We're excited about our one-store relationship for many reasons, but one is that it is not capital intensive, as we can leverage the great work the one-store team has done in Korea with alternative apps and their local work with Korean operators. We expect to begin increased focus in the EU with the Digital Markets Act, or DMA, now in effect. And as a reminder for investors, the DMA launched in March of this year in the EU, and we would encourage investors to pay close attention to the details around this, such as how the regulators manage Apple compliance and the corresponding opportunities it presents to us. I'd also encourage investors to pay close attention to all the developments here in the United States, such as the recent decisions on Google's loss and the DOJ antitrust suit and a variety of other legal and regulatory manners that should be tailwinds for companies like ours. I also want to emphasize that the alternative app strategy is not just about new in-app payment revenues, but perhaps more importantly, to be the catalyst to accelerate our existing lines of business beyond this fiscal year. Today, approximately 50% of our business is driven by user acquisition, and 50% is driven by in-app advertising. Our app providers want to find innovative ways to acquire more users at lower costs And also, we believe that this will open up new app providers to leverage our ad tech stack as part of the strategy, thereby driving more AGP revenue growth. We're live today running both alternative app user acquisition campaigns and in-app advertising leveraging our technology. In other words, improving our present revenues and cash flow are closely linked to this future strategy. In conclusion, improving our execution remains the top priority of the company. We're confident we have the right strategy, partners, market opportunity, commercial model, and products to have a very bright future as we're in the right space at the right time, which is critical for any tech company. With that, I'll turn it over to Barrett to take you through the numbers.