Digital Turbine, Inc.

Good day and welcome to the Digital Turbine Report's fiscal 2027 first 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 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 of Capital Markets. Please go ahead.

Thank you. Good afternoon and welcome to the Digital Turbine Fiscal 2027 First Quarter Earnings Conference Call. Joining me today on the call to discuss our results are CEO Bill Stone and Interim CFO Josh Kinsell. Before we get started, I'd 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, Bill Stone.

Thanks, Brian. Good afternoon, everyone. I want to open my remarks by recognizing our team for delivering another quarter of strong results that exceeded our expectations. The results are even more encouraging as they are not due to any single factor, but to do many factors. And I'll break those down in my prepared remarks, which will be across three areas. First, we'll be looking back at our June quarter results. Second will be some commentary on the operational and strategic elements of our business that are enabling us to raise our guidance for the remainder of the fiscal year. And then finally, I want to provide some commentary on AI and macroeconomic trends in our business. Revenue for the June quarter came in at $166 million, representing 27% year-over-year growth. We also achieved nearly 70% year-over-year growth in adjusted EBITDA during the same period, demonstrating significant operating leverage in our model as we scale. I'm also pleased with the dramatic improvement in our balance sheet that benefits from our strong results. Last June quarter, our net leverage ratio was greater than five turns. Today, we're at a healthy 2.5 turns, and as implied in our increased outlook, we expect this positive trend to continue. If we break our results down by segment, our on-device solutions business generated $110 million in revenue in the June quarter, which was up approximately 15% from last year. In particular, it was encouraging to see double-digit year-over-year growth in global devices, despite macro headwinds on global device volumes due to DRAM pricing issues in the supply chain. Growth in international ODS continues to be a bright spot, as higher device volumes combined with higher revenue per device or RPD drove nearly 80% year-over-year growth. Our application growth platform or AGP business results were another bright spot. It was our fourth consecutive quarter of year-over-year double-digit growth and our second consecutive quarter of more than 50% year-over-year growth. Meanwhile, this compares to a global digital advertising market that is growing in the high single digits. In other words, our AGP business is consistently growing many multiples more than the global industry growth rate each quarter. In June quarter, I was particularly pleased with our direct brand business growing over 70% and our DTX or SSP business growing over 40% year-over-year. It took longer than anticipated, but the combination of strong conviction to stay the course in our strategy combined with the hard work to integrate our legacy SSP tech stacks with our brand demand into a data-driven marketplace and AI-first platform is now paying dividends. Our key growth drivers in June quarter were both rates and volume that powered our improved performance. On rates, we saw higher advertiser demand, which translated into improved pricing and fill rates, particularly for premium placements on our platform. This strong advertiser demand drove incremental international RPD expansion in our ODS business, resulting in nearly 80% growth year over year. We also had strong demand with our brand and DTX businesses, each growing rates by more than 40%. This is due to our platform delivering better return on ad spend for advertisers, which in turn allows for higher rates. This improvement in ad spend is being driven by AI for two reasons. First, our platform's first-party data is able to leverage our AI tools and machine learning models to drive better advertiser outcomes. And secondly, it's a tailwind we are seeing brands migrate their spend away from the open web to other channels like apps, given traffic declines in the open web, which are caused by AI and resulting in app usage growth as brands and agencies adopt the power of AI in the mobile app channel. In addition to these positive pricing trends, we continue to see strong diversification of our demand with 80% of our advertisers spend on DTX coming from non-gaming partners. The second driver was increased supply. Our global devices grew double digits year over year, driven by strong volumes from our international partners. And within the devices we have our technology integrated, We are seeing operators and OEMs wanting to use our technology on new screens for monetization. In addition, our AGP supply continues to add new apps and publishers by expanding distribution of our SDK footprint. We're seeing this globally with the growth in publishers, but in particular, it's helping driving strong performance with APAC publisher supply, as well as adding non-gaming publishers and AI publishers looking for monetization. Turning to the future, we're increasing our guidance today for the fiscal year, and there are five drivers for this increased forecast. The first is AI and data. Our ability to leverage our unique first-party data across our platform with DTIQ and IgniteGraph drives better outcomes. This in turn drives more revenue because of better return on spend for advertisers. I'll provide some additional commentary later in my remarks on the macro impact of AI on our business. Second is the flywheel. Connecting our diversified demand and supply drives each other. We have nearly 3 billion devices and more than 80,000 apps using our ad tech technology. The opportunity for these apps to drive more user acquisition to our platform and hence more monetization will be a growth driver. The third driver is brand. Our brand business showed impressive 70% year-over-year growth. Our focus is leveraging the macro tailwinds of more time and apps combined with our micro first-party data and audience targeting to drive even more scale and growth. There are a variety of product and operational improvements being implemented real-time that are improving our ability to scale this important part of our business. Fourth driver is Ignite. Our international ODS momentum has been fueled by Latin America and Europe and current and future supply winds are expected to mitigate concerns around the global device supply chain. In addition, our Ignite platform is showcasing there is more opportunity to not just grow device supply, but also leverage the platform capability as a software enabler for distribution of other products on the screens of devices versus just our current products such as single tap, out-of-the-box setups and notifications. We are doing this today in the U.S. with an AI-first partner distributing AI agents to devices, and we see this expanding to other areas, such as e-commerce, lock screens, and other forms of content distribution. And finally is the growth of alternative applications. We continue to ramp and scale more and more partners distributing their versions of applications, helping them get to devices, whether this is via our data targeting, single tap, our DSP, and so on. The recent outcome of the Epic Google case and the Google rulings in the EU are expected to open up opportunities for increased alternative distribution. Publishers are now seeing real time what is happening to their businesses because of the impacts of AI on the open web and want to have more control over their destiny for the future versus being reliant on only one or two sources of distribution. These five things are important because it showcases our business is not relying upon any single factor to drive future growth. We've got many shots on goal that provide optimism in our ability to drive top and bottom line growth. To close out my prepared remarks, I want to provide some commentary on the impact of AI and other macroeconomic factors to our business. Regarding AI, it's clearly transformational and exciting time and a tailwind for our business. It's reinventing businesses, including ours, in three main ways. First is the automation and simplification of workflows and processes, which is now showing up in our results. A year ago, our revenue per employee was about $800,000. Today it is in excess of $1 million. The driver of this efficiency is the ability to use AI and automation activities to scale our business. We've implemented numerous new AI and automation simplification activities and processes from areas such as quality assurance, our back office, campaign management, software development, and data management, just to name a few. We're seeing an acceleration in these activities as we organize our people, our systems, and our processes for this AI-first world. The second is leveraging AI in our data to improve outcomes for our customers. As you've seen in our recent Google and Databricks press announcements, we're combining our unique first-party data signals with AI enhancements to drive better outcomes for customers leveraging our DTIQ and IgniteGraph capabilities. These are not just impacting our strong results today, but will be revenue and EBITDA drivers for us in the future. And the final area is how the broader AI landscape will leverage DT's distribution and on-device footprint and data to help their businesses grow. And there are three important macro trends that we expect to be tailwinds for us. The first is more applications. According to recent analysis from market intelligent provider AppFigures, worldwide app releases in first quarter of 2026 were up 60% year over year across both Apple's App Store and Google Play. AI makes it easier for anyone to create apps, driving both growth in app stores as creators no longer need technical skills to build mobile software. And these applications all need distribution to reach consumers given the inherent discovery limitations in the legacy to app stores. The second trend is the increase in time spent in applications. Today, the average consumer is spending about five hours per day inside applications, which is up about an hour over the past decade. This trend is accelerating as integration of AI chatbots creates a shift in the channels of how we consume information, leaning towards apps and away from the open web. Multiple measurement sources have reported that AI has likely caused a 10% open web traffic to decline so far, with some informational categories seeing anywhere from 20% to 40% declines. The final trend bringing all of this together is monetization. And for centuries, one trend's been consistent. Media dollars follow eyeballs. And as our eyeballs continue to spend more and more time in applications because of enabling technologies like AI, which is creating more breadth of apps and more depth of time and spend in apps. This is a positive for us. In addition to AI, I've also been receiving many questions on potential macroeconomic impacts to our business, given wider fears around inflation, tariffs, and geopolitics. One of my favorite things about our mobile AI cloud business is that we are more insulated than the vast majority of companies. As our business is a digital one, without the traditional input cost pressures many companies must navigate, plus the majority of our customers are using our platform to sell their digital goods and services versus goods that may be more sensitive to those risks. Of course, no single business is 100% insulated from macroeconomics, but as we saw during the pandemic, our business is a resilient one, insulated from these factors, given our mobile-first, high operating leverage approach, matching where consumers are spending their time. We expect AI to only accelerate versus slow down these trends. And with that, I'll turn it over to Josh to take you through the numbers.