Digital Turbine, Inc.

Good afternoon and welcome to the Digital Turbine Fiscal 2026 Second 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'll be an opportunity to ask questions. To join the question queue, 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. Good afternoon and welcome to the Digital Turbine Fiscal 2026 Second Quarter Earnings Conference Call. Joining me today on the call to discuss our results are CEO Bill Stone and CFO Steve Lasher. 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 I'd like to turn the call over to our CEO, Mr. Bill Stone.

Thanks, Brian, and thanks, everyone, for joining our call tonight. Our September quarter showcased accelerating business momentum across both our on-device solutions and app growth platform segments. Strong demand for our platform combined with disciplined operational execution, drove top and bottom line results that exceeded expectations. Revenue for the quarter came in at $140.4 million, representing 18% year-over-year growth. We also achieved 78% year-over-year growth in adjusted EBITDA, demonstrating significant operating leverage in our model as we scale. We continue to execute against our strategy of connecting app developers operators, and OEMs in a mobile-first world. The combination of our install base, monetization capabilities, and growing partner network uniquely positions Digital Turbine to capture a meaningful share of the half a trillion dollar market opportunity in front of us. Also in September, we successfully completed our debt refinancing through a new four-year term loan facility, providing additional flexibility and a stronger balance sheet to support growth initiatives. Breaking our results down by segment, our on-device solutions business generated $96 million in revenue, up approximately 17% from the September quarter last year. In particular, it was encouraging to see 10% growth in both global devices and revenue per device year over year, with the bright spot continuing to be our international ODS business, which drove 80% year over year revenue growth. And we also achieved a nice milestone in the quarter, as for the first time in our history, our international revenues exceeded 25% of our total ODS revenues. Our application growth platform business was another bright spot for the quarter and returned to year-over-year growth, posting $45 million in revenue, which was up 20% year-over-year. In particular, I was pleased with the over 40% sequential improvement in our brand business and also double-digit increase in our DTX or SSP business. The hard work we did over the past few years to stay the course and integrate the legacy tech stacks into a common platform is now paying dividends, and we expect the momentum to continue into the future. Three key drivers powered our improved performance this quarter. First was higher advertiser demand, which translated into improved pricing and fill rates, particularly for premium placements on our platform. This strong advertiser demand resulted in over 30% year-over-year growth in revenue per device in both the US and international markets for our device business. The second driver was increased supply. Our global devices grew year-over-year, driven by strong volumes from our international partners. In addition, our AGP supply volumes increased impressions by nearly 30% year-over-year, driven by expansion of our distribution of our SDK footprint, strong performance in our APAC region, and strong increases in non-gaming inventory. And finally, we made meaningful progress on our first-party data and AI machine learning platform, which is setting the foundation for smarter targeting, higher return on ad spend for advertisers, and improved user experiences, all being direct benefits of us leveraging our data. Beyond just near-term execution, we're also making strategic progress positioning Digital Turbine for the future. Our first-party data investments coupled with real-time AI-driven decisioning, are unlocking new levels of precision and scale. These capabilities are becoming even more valuable as advertisers seek alternatives to the closed-wall garden ecosystems and look for transparent, performant ways to engage mobile users. We brand these unique advantages as the DT Ignite Graph, which fuels our AI machine learning platform, and we also brand our AI machine learning platform as DTIQ, Scaling our Ignite graph and DTIQ are one of our top priorities in the business, and we see these capabilities as a major growth driver for our business into the future. We're also seeing increasing brand engagement directly on our platform. We continue to expand the number of brands leveraging our capabilities. Much of this growth comes through traditional media buying agencies, but where we're especially excited is with brands that have brought their media buying in-house and want a direct relationship with Digital Turbine, particularly in the retail and consumer packaged goods categories. In fact, direct brands accounted for 47% of our total brand revenue in the September quarter, which was up from 22% in the prior quarter. This growth reflects the value we deliver through meaningful supply path optimization savings enabled by our extensive SDK footprint and a truly differentiated offering from omnichannel SSPs through our unique on-device scale. Moreover, the macro environment continues to shift in favor of direct distribution and alternative app distribution models. With the combination of our tech enablers, such as IgniteGraph, DTIQ, SingleTap, and dual downloads, which enabled the distribution of application and alternative apps stores directly distributed to devices, And as an example, our use of single tap technology grew 45% sequentially, which is a nice example of helping publishers create a simple user experience to distribute their applications. And adding our ad tech tools on top of these capabilities helps them acquire more users. Regulatory momentum is accelerating in all geographies around the world to offer customer and publisher choice. In other words, our alternative app strategy is simply leveraging our existing technology, capabilities, and strengths for Android and iOS into a new and growing channel of distribution. To wrap up, our growth accelerated in the second quarter. We showed solid year-over-year double-digit growth in both revenue and EBITDA, driven by a healthy mix of disciplined execution, innovation, and favorable industry dynamics. We're building the right foundation through operational discipline and strategic investment to drive sustained, profitable growth. We're excited by the traction we're seeing across the business and confident in our ability to continually deliver value to partners, advertisers, end users, and shareholders. With that, I'll turn it over to Steve to take you through the financials in more detail.

Thank you, Bill, and good afternoon, everyone. The fiscal second quarter represented another meaningful step forward for Digital Turbines. We accelerated revenue growth, expanded profit margins, and delivered top and bottom line results that exceeded our expectations. We also advanced several key strategic initiatives and strengthened our balance sheet with a new longer term credit facility. As we look in the numbers, total revenue for the fiscal second quarter was 140.4 million, representing 18% growth year over year. At a segment level, our ODS business delivered 96.5 million in revenue, up 17% year-over-year. This growth was driven by higher device volumes and revenue per device, particularly from our international partners. International ODS revenue reached a record high and surged more than 80% year-over-year. We're pleased to see our AGP segment return to year-over-year growth, delivering 44.7 million in revenue, up 20% from the prior year. These results reflect the early benefits of our strategic efforts to better harness our proprietary first-party data and AI-driven capabilities. The combination of accelerated top-line growth and ongoing operational efficiencies produced another strong profitability quarter. Adjusted EBITDA for our fiscal second quarter was $27.2 million up 78% year over year. EBIT margin of 19.4% expanded for the sixth consecutive quarter. Free cash flow for our second quarter was $7 million, an improvement of nearly $23 million year over year. Our non-GAAP gross margin for the fiscal second quarter was 47%. representing an improvement of 200 basis points compared to the same period last year, driven largely by product and segment mix. Cash operating expenses were $38.9 million, flat year-over-year. We're very pleased with the progress we are making on cost control and operational discipline, which allowed us to achieve 18% year-over-year revenue growth with flat operating expenses. We will continue to identify areas for additional efficiency while maintaining targeted discipline investments to support future growth. Turning to the bottom line, we reported a GAAP net loss of 21.4 million or 20 cents per share in the fiscal second quarter. On a non-GAAP basis, we generated net income of 16.5 million or 15 cents per share based on 113 million shares outstanding. Looking at the balance sheet, we ended the quarter with a cash balance of $39 million, up approximately $5 million from the end of the June quarter. Our total debt net of debt issuance costs stood at $396 million. In early September, we completed a successful debt refinancing with a new four-year term loan facility. This financing meaningfully extends our maturity timeline and ensures ample liquidity to execute our growth strategy in the years ahead. Let me turn to our updated outlook for fiscal 2026. Following a stronger than expected quarter and with improved visibility into the remainder of the fiscal year, we are raising our full year revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $540 million to $550 million. and adjusted EBITDA in the range of $100 million to $105 million for fiscal year 2026. At the midpoints, this represents an increase of $12.5 million in revenue guidance and $9 million in EBITDA guidance compared to our prior outlook. In closing, we have positioned the company for sustainable growth in fiscal 2026 and beyond. Momentum across our core businesses remains strong, and we are confident in our ability to build on this performance moving forward. With that, let me hand it back to the operator to open the line for questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star and 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Once again, to join the question queue, please press star, then one, now. Our first question comes from Anthony Stoss of Craig Hallam. Please go ahead.

Hi, guys. Congrats on the continued nice execution. Bill, maybe to dig a little bit deeper on the brand business, it's accelerating, you're landing new customers. Maybe can you talk about what they're seeing on the ROI? Can they get this similar ROI elsewhere or just the fact that you've tied in all the different platforms, you have something so unique. And then also, maybe if you can update us if you have any thoughts on whether or not you'll land, or not land, but go live with additional Singletap people by the end of this year.

Yeah, thanks, Tony. First, on your brand question, let me lift it up and talk about just AGP in general. We did the acquisitions a few years back, and we could have easily just focused on revenue But we made the tough decisions to integrate the platforms. And that was a lot of hard work. And we're really happy to see that starting to bear fruit. And you're seeing that show up in the results with nice double-digit increases because it's really a flywheel in terms of how the demand and supply work for each other. And we're starting to see that. And that's super important as we think about where we're going to grow that business in the future. One of the inputs into that flywheel is the brand business. And as I mentioned in my prepared remarks, You know, we're great to see our direct brand relationships account for almost half of our total brand revenue in the September quarter. So, you know, we've worked really hard to get approved and certified by the large advertising agencies. And that's something that's really bearing fruit for us. But we're seeing this trend towards a lot of brands bringing media buying in-house.

And they can spend more time understanding. audiences.

And so especially with consumer packaged goods brands and retail brands in particular, you're starting to see some really nice growth in momentum there. So something we're excited about, especially as we get into the holiday season. And as far as your question on Singletap, As I mentioned in my prepared remarks, we saw almost 50% increase in single-tap installs quarter after quarter. I think that would be the metric that I'd point you to in terms of our progress here versus any single one brand name or partner that we're working with, as we're working with a lot that are names that all of you are familiar with. But we're excited to see that platform continue to be a benefit to end-users and advertisers by just simplifying the experience of getting apps to device. So that growth that we saw in the quarter was something that we're encouraged by.

Thanks for the detail. It's kind of a follow-up here on the international side. It was really strong yet again. If you took a step back, how much or how penetrated do you think that international market is? And I know you highlighted that the RPD revenue was strong. Can you give us any more detail on what it was up, maybe quarter to quarter or year over year?

Yeah, so in terms of international RPDs, we saw really nice, solid, double-digit growth year-over-year in that, and obviously solid growth in devices that drove the 80% increase that we have year-over-year. And so I mentioned that for the first time in the history, and obviously you've been around the company for a long time, we've talked about international for many, many quarters and so forth. To now exceed 25% of our revenues for ODS is something that I was really happy to see, and You know, it's a combination of, you know, more devices, better demand, better execution. And so, you know, really proud of the team, you know, on this one, generating strong results.

Great job, guys. I'll jump back in queue. Okay. Thanks, Tony.

Our next question comes from Mitch Pindus of Wells Fargo. Please go ahead.

Hi, guys. I echo previous sentiments. Nice quarter. Well done. I have a question related to AI, and I wanted to find out a little bit more about if it's playing a role with digital turn line as it relates to either operations or advertising.

Yeah, sure. Yeah, sure, Mitch. Yeah, AI is a really critical part of our strategy going forward. It's been a part, you know, looking back as well and, you know, being able to use AI to simplify and automate our business and our business processes to make our business more efficient. It's something that we've been doing and continue to make investments in, and those investments will drive future operating expense and operating leverage for the business. And then on the customer side, we've made some material investments in AI, specifically which we're branding as DTIQ, that is our AI machine learning platform that can deliver better models, better outcomes, better predictions for our advertisers to drive better return on ad spend. And so big material investments for us. We're starting to see some fruits of that show up in the current quarter. But as we think about our growth drivers into 2026 and beyond, this will be a major driver for us. And this is one of our major focus areas of the company.

Thank you for that. One more question. after the recent Supreme Court ruling which was adverse to Google Play, are you seeing any effect to DT as an alternative app storefront alternative? And if so, can you speak to the progress and your thoughts for potential of that business?

Yeah, Mitch. There's something we're really excited about is we see more democratization of app distribution. And, you know, the rulings obviously support that. And so what we see going forward is a lot of app publishers that you want to have direct access with their billing to their subscribers or look at other third parties to do that. And we enable both of those. So how I would think about it is that business is going to happen regardless of whatever Digital Turbine does. But in terms of facilitating that, in terms of distributing those alternative apps or being able to help those app publishers acquire more users, that's where we come in. And I think we can really help provide a lot of value to those app publishers that want to do that. So another major focus area for our business going forward and something we anticipate to see a lot of growth and momentum for in 2026 and beyond.

Got it. All right. Well, thank you very much. And again, nice job.

Okay. Thanks, Mitch.

Our next question comes from Arthur Chu. of Bank of America. Please go ahead.

Hey, guys. It's Arthur. Thanks for taking my question. Bill, maybe just a follow-up on IgniteGraph and DTIQ. What types of data that the AI ML platform is using that are sort of unique to Digital Turbine you know, that could perhaps help advertisers surface some conversion signals that are different from, you know, what some of the other ad platforms are doing?

Yeah, sure, Arthur. Yeah, so we've got, you know, over a thousand different signals that come in from all over the, you know, all over our network. And that network could be, you know, more than the half a billion devices that we have Ignite on or the, you know, two, between two and three billion devices that we have our SDK footprint on. in terms of leveraging the signals that come from all of those places. And specifically, we think part of our unique secret sauce is really on the Ignite side of the business in terms of having access to the data in terms of what applications are on the device in terms of how they're used and installed, not installed, user engagement and the rest of that. And so I think with those unique signals for us can help drive better outcomes for advertisers in a more efficient way, which obviously leverages our set of capabilities. So all of that really produces a DT Ignite graph that we can use then to build models and prediction on, and what we're calling that AI machine learning platform is DTIQ. And so we're excited about the early returns that we're seeing on that, but as we go forward, that's going to be a major investment and focus area for us. All right, thank you, Bill.

That's super helpful. Maybe if I could just ask another follow-up question. This one is on the competitive landscape. What are you seeing? Let's say if you just, you know, look back into the past, like, six to 12 months, what are you seeing? Are you seeing any changes in competitive landscape, you know, with perhaps some of the other players, like, pulling out of the market? You know, just wondering, like, if there are any changes that you're seeing there.

Yeah, I think on the competitive landscape, you know, on the device side, you know, of the business, you know, we've – We're actually seeing a little bit less competition as one of the major players exited that business over the past six months or so. So that's something I think that is good news for us, although it continues to remain robust, competitive with other players, other large players. On the AGP side of the business, we're really focused on just now building out our flywheel in terms of how we can better connect our demand to our supply and more so than competition. And a lot of the names in the industry may be competition on one part of the business, SSP or exchange side, but yet they're customers for ours on the DSP side. So it's a little bit nuanced in terms of getting into the details on this call. But I would say we haven't seen anything material happen in the competitive landscape on the AGP side over the past six months or so.

Got it, Anderson. Thank you. Thank you, everybody.

This concludes the question and answer session. I would now like to hand the conference back over to Bill Stone for any closing remarks.

Yeah, thanks everyone for joining our call tonight. We'll talk to you again on our fiscal 26 third quarter call in a few months. Thanks and have a great night.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant