Digital Turbine, Inc.

Good day and welcome to the Digital Turbine Fiscal 2025 Third Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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. And 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 Mr. Brian Bartholomew, Head of Investor Relations. Please go ahead, sir.

Thank you, Chuck. Good afternoon, and welcome to the Digital Turbine Fiscal 2025 Third Quarter Earnings Conference Call. Joining me on the call today to discuss our results are CEO Bill Stone and CFO Eric 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 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 we'll turn the call over to our CEO, Mr. Bill Stone.

Thanks, Brian, and good afternoon, everyone. Before diving into our quarterly results, I'd like to announce an exciting addition to our executive team. Steve Lasher will be joining us, our new CFO, effective tomorrow. Steve brings a wealth of technology and financial leadership experience as a former public company CFO of Vonage, and before that, handling many financial executive positions with IBM. We're thrilled to have Steve on board. However, it's bittersweet for me as Barrett has been instrumental in building our business over the past eight years. We transitioned into a consultant role for the next few months to ensure we have a very smooth and solid continuity and transition. When I reflect back on where we were at when Barrett first started on day one and compare that to where we're at today, the progress has been enormous. I want to thank Barrett for everything he's done to build DT and a close relationship we've built over the years, not just as colleagues, but also as friends. During the quarter, I was pleased to see us exceed expectations and also generate positive free cash flow. More specifically, we did $135 million in revenue, $22 million in adjusted EBITDA, and 13 cents in non-GAAP EPS. I'll break out additional details in my remarks, but the main takeaways for the investors on the drivers for our improved performance are improved advertising demand for our overall platform, Our transformation efforts are showing early bottom results, online results, and overall improved execution as a company, especially for our on-device international business and our brand strategy. We've talked about all these things on prior calls, and it's great to see them now showing up in the results and enable us to raise our outlook. For the March quarter, we're guiding for both year-over-year growth, not just on the top line, but nearly 50% growth in EBITDA. For our ODS segments, revenues reached $92 million, an 11% sequential increase from the September quarter. We set all-time records for revenue for device both inside the U.S. and internationally, driven by strong advertiser demand. However, this was partially offset by continuing softness with U.S. device volumes. With the anniversary of three releases here in the U.S., new AI features, and new flagship device launches, we do expect to see stable device sales in the U.S. in 2025. But the highlight here is our nice breakthrough in our international on-device business. Our on-device international revenues were up 100% year-over-year, driven by strong advertiser demand and improved by execution by our sales, product, tech, and operations teams. For our AGP business, we reported $44 million of revenues and $34 million of gross margin. The bright spots continue to be our investment in brands and our PMPs that want to leverage our first-party data to reach their existing and potential customers over our global network. That's now bearing fruit. We achieved double-digit sequential growth in this part of the business. As discussed on prior calls, this is a strategic objective for us and something we've invested in to differentiate us from other players. We are 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 transitioning from waterfall bidding to SDK bidding on our exchange. Improving our own performance advertising, leveraging our own first-party data, is our most important execution improvement area for our AGP business. 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. And as expected, these DSPs have been executing their own supply path optimization strategies to vertically integrate their demand connected to their own supply. And for those companies without a strong mediation footprint, it's become a largely commoditized ad tech gaming space for both iOS and Android. We saw this risk years ago, and that's why we invested in our own brand and SDK bidding activities to mitigate that risk, increase our own first-party activities over our network, and continue to invest in mediation. We've also been able to expand our AGP supply from historically being largely dependent on game publishers to much more diversified over non-gaming. To illustrate this point, our GTX revenues on non-gaming applications have nearly doubled over the past year. In summary, our investment and focus areas are showing encouraging growth that is now showing up both in gross profit and EBITDA. We needed them to show faster growth to offset the impacts of U.S. device sales with our legacy supply partners and also outrun our legacy performance DSP declines in our exchange as we transition to more brand AI machine learning or data science, increase our non-gaming applications, and finally improve our share of voice or first-party performance demand over our network. Those are our AGP priorities. Turning to 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. Baird will provide more details on our transformation activities and his remarks later. But on our last call, we discussed targeting more than $25 million of annual operating expense savings from this work, and I'm pleased to announce we're on track to accomplish that goal. Our other goal is driving growth. As a reminder, our growth drivers are devices, products, and media relationships. And for devices, our goal is to expand and deepen our device footprint. And despite the soft device sales in the U.S., we've been expanding our global device relationships through partners like Motorola, Nokia, One Store, Xiaomi, and Telecom Italia Brazil, and now T-Mobile here in the United States. This new supply was a growth driver for our international RPDs improving as more supply density helps us bring more scale in our demand. Our second growth driver is expanding our product portfolio for both our ODS and HEP 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, SDK bidding is already showing strong growth. It's now over 70% of total impressions on our exchange compared to only 5% a year ago. And we're diversifying away from our waterfall bidding now at less than 30% of our traffic compared to over 90% a year ago. Our investments in first-party data and our digital turbine exchange and other features here 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 innate capabilities via our demand-side platform or DSP. We do this today through our Appreciate acquisition, which is showing renewed growth. We're also beginning to partner with many other third-party DSPs that can help grow our share of voice. This all translates not into just top-line revenue growth with more demand dollars, but it's very key in driving the flywheel effects of improving revenues on our other products, such as Singletap, the Exchange, and Fairbid, our mediation product. Our primary product drivers in our ODS business are Singletap, alternative apps, and better leveraging our first-party data for our existing products. Singletap continues to add more devices, more advertisers, and better execution. Its early days for alternative app distribution approach But as many saw with our PR late last year, our announcement with One Store, our strategy is now starting to come together. We've already distributed One Store on many millions of devices and are scaling quickly as we are live on three operators here in the U.S., including Verizon. Epic, Microsoft, and Pinterest are recent examples of partners taking advantage of our alternative and single tap distribution services. We believe one of the keys to unlocking more device supply will be the ability to offer alternative app distribution to publishers, OEMs, mega cap tech players, and mobile operators. Many of you have read about all this regulatory activity around the globe in the EU, Japan, Korea, India, and also here in the US. There's building momentum to increase options for consumers and publishers on how they distribute and get applications to market. All of our hard work over the past decade has positioned us perfectly to leverage these opportunities. I also want to emphasize that the alternative app strategy is not just about new in-app payment revenues, but perhaps more importantly, be a catalyst to accelerate our existing lines of business beyond this fiscal year. Today, approximately 50 percent of our business is driven by user acquisition and 50 percent driven by in-app advertising. Our app publishers want to find ways to acquire more users at lower cost with alternative users, and we believe that this will also 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 both closely linked to the future strategy. In conclusion, the December quarter and current March quarter are additional data points demonstrating that Digital Turbine's momentum has changed. The business is transforming both strategically and financially. We're confident we have the right strategy, partners, market opportunity, commercial model, and products to have a very bright future. We're in the right space at the right time, which is critical for any technology company. And with that, I want to turn it over to Steve Lasher to say a few words, and then over to Barrett to take you through the numbers.