Digital Turbine, Inc. Q3 FY2020 Earnings Call

Good afternoon and welcome to the Digital Turbine Third Quarter Fiscal 2020 Earnings Conference Call. All participants will be in listen-only mode. 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 and Strategy. Please go ahead.

Thanks. Good afternoon and welcome to the Digital Turbine fiscal 2020 third 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 may inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a 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 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, I will turn the call over to Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I’m going to break out my prepared remarks into three areas. First, we'll close out the December quarter. Secondly, we'll provide some operational real-time color on our current growth drivers. And then finally, I want to spend some time discussing why I'm so excited about the acquisition of Mobile Posse. Closing out the December quarter, we finished with $36 million in revenue and $5.6 million in EBITDA, and while the top-line revenue number fell short of our expectations, largely due to soft device sales with our core U.S. operators in the month of November, we nonetheless managed to exceed expectations for EBITDA as a result of great operational execution in the quarter. I really want to give a shout out to our entire Digital Turbine team. The team's focus and hustle, along with our internal command over key business drivers, really set a positive tone. And from time to time, we'll experience certain uncontrollable near-term factors, such as weaker Android smartphone sales in a particular quarter, but I couldn't be happier with our execution in all aspects of the business within our control. This execution was particularly evident in the December quarter with a record high blended revenue per device or RPD north of $3 with our core U.S. operators, which is an increase from just under $2.50 versus the prior year, and also meaningful quarter-over-quarter and year-over-year growth with our international partners. Our revenue per device performance continues to be driven by strong demand among advertisers across numerous categories, including brands, games, and mobile-first applications such as Pandora, Disney Plus, Apple Music, Snap, Amazon, and others. Barrett will take you through the financials in a few minutes. But for now, I do want to quickly highlight our efficient operating leverage and record cash flows generated during the quarter. This is one of the primary reasons I get so excited about the inherent potential of our business model. Now that we operate as a cloud-based mobile software company at true scale, we’re really starting to harvest the fruits of real operating leverage, as our profitability expands at a far faster clip than our revenues. This was evident in the December quarter, a quarter in which we managed to grow our EBITDA at a 47% annual rate and generate an all-time record of more than $7 million of free cash flow, even despite headwinds impacting our top-line growth. In addition to our operational products this quarter, I also want to highlight our markedly improved diversification. As you've heard me say many times, we're extremely focused on diversifying our business, diversifying it by partner, by geography, by product. In terms of partner diversification, our total revenue with our initial U.S. partners Verizon, AT&T, Cricket, and U.S. Cellular increased year-over-year, despite a decline in the total combined devices sold, and represented just over 70% of our total revenues in the December quarter, which compares to approximately 85% in the year-ago December quarter and over 90% in the December quarter two years ago. Helping us in this diversification are our rollouts with newer U.S. partners such as Tracfone and international partners such as Samsung and America Movil. Specifically with respect to Samsung, and given the importance of this partnership, I want to provide an update on our progress. To date, our software has been installed on more than 7 million unlocked Samsung devices across more than 75 countries. In particular, I want to call out Brazil as a highly strategic market for both us and Samsung. Samsung has the majority OEM market share in Brazil, and we’re focused on growing our business not only with Samsung and Brazil, but also Telefonica, America Movil, and others. We currently believe that we have line of sight to have our software on the vast majority of devices in the Brazilian market by the end of this calendar year. With this expectation in mind, we continue to invest resources in Latin America to best ensure that we optimally capitalize on our wealth of opportunities in Brazil and the surrounding areas. I'd also like to announce today that we have a partnership with AT&T in Mexico that we expect to launch this summer. For context, AT&T Mexico has approximately 20 million subscribers. We expect this partner diversification trend to continue going forward, as Samsung and other new partners such as Telefonica continue to progress and as we add additional partners such as LG to the platform. We're very excited to formally announce our global partnership with LG today. We've already begun working on integration and go-to-market plans with LG, and expect this partnership to begin contributing revenues this summer. Similar to our announced partnership with Samsung, we will be focused initially on LG’s open market devices across multiple geographies. In the big picture, our LG partnership is another validation of the value that our solutions can provide Tier-1 OEMs. I also want to continue to reiterate that we have productive ongoing discussions with many other OEMs, including several of the leading Chinese ones that we hope will lead to additional forms of global partnerships for us in future quarters. In short, we see a tremendous amount of opportunities to grow our global device count, which is, as all of you know, one of our three key growth drivers for our business. Product diversification is another primary growth driver for the business. In terms of product diversification for the December quarter, our newer products beyond Dynamic Installs nearly doubled year-over-year and reached an all-time high of 20% of our total revenues during the quarter, as compared to 13% in the year-ago December quarter and 2% in the December quarter two years ago. We saw encouraging performance metrics and heightened demand for many of our newer products during the quarter. Our Notification and Wizard products were the largest aggregate contributors to revenue growth, but other products such as Media Hub and Single-Tap continue to show promise. In particular, our media products are worth noting here. The recurring revenue nature of that business and our early positive returns were a catalyst for our pursuit of Mobile Posse, which I'll discuss later in my remarks. We are now live with our initial Single-Tap with our first mobile measurement partner, Branch. Although it's taken us longer than expected to integrate with them, we still believe this integration will be a catalyst for growth going forward. We continue to work with many other high-profile partners on Single-Tap, including names such as Pinterest, Twitter, Epic Games, which owns the Fortnite franchise, to name a few. Lastly, I want to mention that we’re continuing to make meaningful progress in discussions with select strategic partners regarding expansion into televisions and expect this new product and device category to be a growth driver for our overall business in the future. I want to now turn to our Mobile Posse acquisition. First, I want to call out and recognize Founder and CEO, Jon Jackson, and the Mobile Posse team. Jon and I’ve talked a number of times over the years and have been admiring their process. They've done an amazing job building their business from scratch. Six years ago, this was a business doing less than $10 million in revenue. Today, it's doing over $55 million annually with all of its revenues being of a recurring nature and as such, less sensitive to fluctuations in new smartphone sales from quarter to quarter. Jon's brought a great entrepreneurial spirit to his team in building the business. We believe we can now leverage their success and take it to a true global level with our scale relationships and operational expertise. Culturally, the Moxie of the Mobile Posse team is something we really like and resonate with. They not only understand the mobile ecosystem and share our vision of connecting the dots between mobile operators and OEMs to customers and advertisers who want to be on the home screen, but they do this with amazing hustle, professionalism, and real attention to detail. Mobile Posse has many different mobile products that are complementary to our app install products. They have a minus one screen that you swipe left off the home screen for content, a product that powers the mobile operators' content portals, home screen products, and also a product similar to our Media Hub product that curates news, weather, sports, and other content through an application or widget on the home screen. They monetize these products by way of programmatic advertising, and their platform works with the largest advertisers such as highly recognizable names like Google, The Trade Desk, and Rubicon, to name a few. That is their demand and their source of revenues. Similar to us, they then pay their supply partners via revenue share, such as T-Mobile, MetroPCS, Boost, AT&T, Blue, and Cricket. We're excited about this transaction for many reasons. First, it is immediately accretive and fully funded with our existing cash and debt resources. There is no dilution to Digital Turbine’s shareholders. Secondly, 100% of Mobile Posse’s revenue is recurring and therefore will dramatically increase the overall percentage of our combined revenues that we derive from more predictably recurring revenue sources. Third, we're excited about the revenue synergies. Specifically, we believe our ability to cross-market their differentiated products to our vast set of distribution partners and conversely cross-sell our DT products to their unique distribution partners, along with the opportunity to establish the combined entity as more of an advertising powerhouse with more products and more partners can improve the revenue per device on Mobile Posse’s existing business. This acquisition fits hand in glove with our core diversification strategy. Post close, we expect the combined entity to generate more than one-third of total revenue from recurring sources and expect no single mobile operator or OEM distribution partner to be responsible for more than one-third of our total company revenues. At close, CEO Jon Jackson will join our team as General Manager of the Mobile Posse business to ensure we don't miss a beat on execution. Together, we'll work to facilitate a smooth integration process to unlock revenue and cost synergies wherever possible. The bottom line is this will be a transformative acquisition for Digital Turbine and will significantly move the needle for top-line and bottom-line growth trajectories. With that, let me turn it over to Barrett Garrison to take it to the numbers.

Thanks, Bill, and good afternoon, everyone. Before I step through our quarterly results, I'd like to cover our recent news on our agreement to acquire Mobile Posse. We're very excited about this transaction as it represents a unique opportunity for Digital Turbine. While Bill touched on many of the strategic rationale points, from a tactical perspective, this acquisition enables us to gain access to a strong team, a new set of technologies, partners, and distribution channels, broaden our relationship with existing customers, and drive accretive financial performance. Now, in terms of deal specifics, we entered into an agreement with Mobile Posse to acquire all of the outstanding capital stock for an estimated total purchase consideration of $66 million, with $41.5 million paid in cash at closing and the balance through a 12-month earn-out based on certain target net revenues, less associated revenue share or what we refer to as our gross profit. We expect the cash consideration to be funded by a combination of existing cash balances, future cash flows from the combined operations, and debt financing. As this is an all-cash transaction, no equity will be issued as part of the purchase consideration for this transaction. While we will finalize our estimates of the transaction's financial impact and the accounting for the transaction when we close the deal, which is expected in our fiscal Q4, I did want to share a little about Mobile Posse’s profile based on their preliminary unaudited financials. First and foremost, we like their attractive financial model, which includes all recurring revenues, strong operating leverage, resulting in sustainable profitability and positive free cash flows. For the calendar year ended December 2019, Mobile Posse generated revenue in excess of $55 million with profitable healthy growth, gross profit, and EBITDA margins that are both accretive to our standalone results. I'm also very optimistic about this acquisition. Jon Jackson, Mobile Posse’s CEO, and the team at Mobile Posse have built a great business. We’re really looking forward to welcoming all of the employees at Mobile Posse to the Digital Turbine team. I'm confident that our teams will come together quickly and effectively. Now, turning to the results in the quarter, we delivered strong results in our third quarter with continued top-line growth along with expanding profit margins, enabling us to generate adjusted EBITDA of $5.6 million and $7 million in free cash flow during the quarter. As a reminder, my comments will refer to comparisons on a year-over-year basis and results for continuing operations unless otherwise noted. Revenue of $36 million in the quarter was up 18% versus the prior year. We experienced expanding margins with non-GAAP gross margins increasing to 40%, up over 300 basis points year-over-year, enabling us to generate $14.4 million in gross profit, representing a growth rate of 29% year-over-year. Our gross margin expansion is largely being driven by a successful diversification of partners and products on the platform, and as a reminder can be sensitive from quarter to quarter based on changes in partner mix and revenue type. Total operating expenses were $9.9 million during the third quarter compared to $8.2 million in the prior year. Cash operating expenses totaled $8.9 million, representing an increase of 19% year-over-year, as gross profits are growing 29% in the same period. I would highlight that our operating leverage is being achieved even as we make a number of focused investments specifically within our international business to support the initiatives that Bill outlined earlier and to support new partners and products to drive future incremental revenues on the platform. Now turning to net income and cash flow, we achieved non-GAAP net income of $5 million or $0.05 per share during the quarter. Adjusted EBITDA was $5.6 million in the quarter, up 47% over the prior year, and margins continue to expand to 15.5% this quarter from 12.5% in the prior-year quarter. Free cash flow totaled $7 million, an impressive increase of $5 million compared to the prior-year quarter, strengthening our networking capital position to a positive $11.7 million in the quarter, which is an improvement of $7.7 million from the sequential quarter and better by $14.5 million over the same quarter last year. Our GAAP net income from continuing operations for Q3 was $3.3 million or $0.04 per share, based on 92.5 million weighted diluted shares outstanding, compared to a third quarter of 2019 net loss of $1.1 million or $0.01 loss per share. Included in our GAAP net income for the quarter is a recorded loss of $0.9 million from the impact of the change in fair value of derivative liabilities connected to outstanding warrants issued related to our previously retired convertible notes. With respect to the balance sheet, the positive cash flow trends that I noted earlier contributed to a much stronger balance sheet at quarter-end. We finished the quarter with $33.7 million in cash, up from $10.9 million in the prior-year quarter and zero debt on the balance sheet. With the strength of our current balance sheet position and the accretive financial profile of the announced Mobile Posse acquisition, we're excited about our position to further bolster our balance sheet. Now let me turn to our outlook. We currently expect revenue for Q4 to grow between $33.2 million and $34.5 million, representing growth of 24% at the midpoint of this range, and expect adjusted EBITDA to grow to between $3.5 million and $4.0 million. Please note, our outlook is exclusive of any impact from the acquisition of Mobile Posse. With that, let me hand it back to the operator to open the call for questions.

We will now begin the question-and-answer session. Our first question is from Mike Malouf with Craig-Hallum. Please go ahead.

Great, thanks for taking my questions and congrats on the pending acquisition of Mobile Posse, it sounds great. A couple of questions on that. Can you talk a little bit, you talked a little bit about how much growth they had in the last six years. But could you comment on recent growth, particularly 2019 growth? And then when you talk about cross-selling, wondering if you could just talk a little bit more with regards to carriers, are there any particular large carriers that they can get you into? Thanks.

Yes, thanks, Mike. Let me take the second part and I'll turn over to Barrett for the growth part of your question. Yes, that's one of the things we're really excited about is not just the performance of their existing business and the EBITDA they're already generating and the revenue they've been able to grow over the past few years, but the ability for revenue synergies and the ability for us to take our products onto some of their distribution which would include companies like T-Mobile and MetroPCS, but also the ability for us to take their products onto our distribution, both here in the United States, as well as outside the United States. As I referenced in my prepared remarks, the early returns on our Media Hub product were very encouraging. So the ability for us to leverage Mobile Posse’s similar situated products, they're already built, already tuned, already ready to go onto our distribution, we think it will generate some nice top-line growth for us in the future, so we see that going both ways. And as far as the growth rate, I’ll turn over to Barrett.

Yes, sure Mike. Thanks, by the way. Yes, we won’t comment directly on specifics with respect to prior-year’s growth, but we will disclose the appropriate financials when we close the deal later this quarter. I will say you would have heard in our comments, we think a lot of this team that Mobile Posse is certainly centered on growth orientation, and so they've seen a lot of growth, and they've built a lot of products, both existing and new products that enable that growth over the long term that we're pretty excited about this acquisition.

Okay, great. And then just a couple more questions with regards to Samsung. It sounds like certainly getting into Brazil is a big deal and you continue to expand that relationship. Where are we now with regards to say the percentage of unlocked phones on Samsung as we stand now? And how long do you think it will take to get through all of those? And then maybe just to comment on LG, how big do you see the opportunity of LG versus Samsung? How big is that opportunity?

Yes, so first let me talk about LG. I think that globally you see LG is roughly about 10% of the size of Samsung in terms of global units shipped. We’ll see what their roadmap looks like for the balance of this year. In terms of Samsung specifically, as I referenced, we’re in 77 countries, many million devices. How I like to think about Samsung is if I go back and I look at now how Tracfone has ramped or Cricket or Verizon or AT&T, they’ve all had this really nice steady drumbeat over time, and we see continued momentum quarter-over-quarter with different growth. The great news about Samsung is as you’re well aware, they move north of 200 million smartphones a year. The fact that we’re talking about now getting out into kind of mid-seven figures, approaching eight figures in devices, gives us a lot of room to grow that relationship. Our expectation is you saw a really nice clip of growth from the December quarter compared to September, and we’d expect to see similar growth for the March quarter and going forward. I’d expect to see it continue to grow at a real nice healthy clip, although it’s not like we’re going to flip a switch and it’s going to go to 200 million in the March quarter or anything like that. But I do think we’re on a nice trajectory to continue to grow it, as evidenced by the increase both in models and countries.

Okay, great. That’s all I have guys.

Thanks, Mike.

The next question is from Darren Aftahi with ROTH Capital Partners. Please go ahead.

Hey guys, good afternoon. Thanks for taking the questions. Just going to follow up on a couple of things regarding Mobile Posse. So correct me if I'm wrong, they have no international presence. Is that correct?

Yes, that's correct.

Okay, so a couple questions there. Number one, why is that the case? Number two, how hard is that to kind of take their platform internationally? And then three, is there a leveragability point in your platform where you can actually take this to other screens besides?

Yes, so the last question, Darren, absolutely. That’s part of our thinking already within part of the excitement here is we start thinking about televisions and advertising on televisions and how good of a job Mobile Posse does of doing that on home screens of smartphones. It’s a natural extension. This is one of the reasons I think Mobile Posse is doing the transaction—the ability to leverage our distribution and scale. They simply didn’t have the reach we have as we know for those who have been here for a number of years, it takes a while to get these relationships established. So you have the ability to port that technology to allow these international partners, which is something we’re really encouraged by. We’re going to start talking about that in Mobile World Congress here in a few weeks, so absolutely something we’re excited about regarding your platform. With some minor changes around the edges in terms of internationalization and localization, but nothing that I would consider a material forklift in terms of supporting these international partners.

Got it. And then just two more if I may, maybe one for Barrett. So you said cash on hand and future cash flows in debt. What's kind of the right level for this combined entity to have kind of a cash balance, just trying to understand how much is this going to be financed versus kind of cash on the books?

Yes, I think we think about, we've got two businesses here that have positive working capital, right. It’s a nice equation to have. The amount of cash that the company would need is minimal—call it $5 million to $15 million, Darren, if we’re considering that, given that both businesses have positive cash conversion. So you should think about a range of debt in the range of $20 million to $25 million.

Got it, that's helpful. Just last one for me. You guys have done a really good job in the past to guide kind of in the face of some of these macro headwinds on the handset. There are two questions here. One I was curious, is there anything you can call out about November in particular with handset sales? And then as we contemplate your March quarter guidance, is there any type of inherent risk that this repeats itself in that quarter? Or is that kind of already factored in? Thanks.

Yes, so Darren, I think that in terms of the guidance, we were really surprised at what we saw in just the month of November. I called that out specifically because we actually exceeded our own internal plans for December regarding both devices and revenue from other sources. So it was really a month of November, and I think November was driven by a couple of factors. You heard me reference on the last earnings call just the shorter number of shopping days and those kinds of things. I think those dynamics were definitely at play. I also think in November, we saw a little bit more aggressive iOS promotional activity than we've seen in prior years. So I think those two factors, amongst our core U.S. operators, drove a surprisingly disappointing performance. Yet in December, we didn't necessarily see that. I kind of view that as a one-month flip. I think we've got pretty good command and control over our device forecast. We're working closely with our partners on that on a go-forward basis, and definitely bake that thinking and input into our guidance.

Got it, thank you.

The next question is from Austin Moldow with Canaccord. Please go ahead.

Hi, thanks for taking my questions. The first one I just wanted to ask about Telefonica. Can you give us an update on the timing and impact of that rollout that's expected?

Yes, so Austin, we're really close to launching with Telefonica. We hope to have some good news on that soon. We're kind of in the throes of integration playing with them and Samsung as we speak, and expect to launch that in a number of countries in Latin America, including Brazil, but also in the U.K. as well. How we go those first devices in first markets will dictate the speed and intensity by which we roll out from there.

Okay. And related to that, can you walk us through the revenue share in that three-way relationship relative to what you're currently getting with Samsung and how adding a partner to the mix will change that?

Yes, so there's kind of two elements there. One is how it works with Samsung, and then one would be how it works without Samsung devices and other third parties. Those are separate. In aggregate, I mean we're not going to give specifics about any particular agreement here on the call, but what I will say is what we are doing with Telefonica in aggregate is not going to be detrimental to our overall margin structure.

Got it. And for RPD, I think you said RPD from the four major U.S. partners was over $3? Can you get any more granular with that or maybe share the growth rate on that? Or maybe if you can only speak qualitatively, can you just talk about some of the drivers there or which of the partners perhaps did worse or better? Thanks.

Yes, sure. I think that it's really comprised of two things. One is more media being run by those media partners paying higher rates, and then the second is the new product growth really starting to kick in. As we referenced, for the first time, we were able to hit 20% of our revenues coming from non-Dynamic Installs. That’s one driver of the $3 that we saw. The other one is just our media partners spending more across different types of categories. In terms of partners, I would call out more generally that we continue to do a great job on flagship high-profile devices. I can say that we still have some work to do to improve our kind of lower-end or lower-tier devices in terms of how we see the growth bifurcated out. Something like, for example, 5G would be a tailwind for us. To the extent we see lower-end devices coming to market, that may be a little bit of a headwind in terms of aggregate RPD.

Got it, thanks very much.

The next question is from Lee Krowl with B. Riley FBR. Please go ahead.

Great, thanks for taking my questions. Could you maybe just on the Mobile Posse acquisition touch base on whether there are any cost synergies associated with the combination?

Yes, let me talk at a high level and turn over to Barrett. Yes, this is a revenue synergies deal, not a cost-synergies deal. That being said, there may be some cost synergies in terms of our hosting agreements with AWS—where we've got more purchasing power and buying power and some things around the edges like that. But this is really about investment in revenue synergies and how do we continue to grow the top-line business for both companies. But Barrett, do you want to add anything else into that?

No, I think you hit on it. This is a growth acquisition while there'll be some small corporate costs that can be avoided in the future. We like their culture, we like their financial model as Bill and I mentioned. They've got a lot of operating leverage in their model. This is a growth play and a revenue play.

Got it. And then switching over to Single-Tap for Samsung. You guys announced it on the last call. Maybe provide an update there and perhaps an update on the timeline to generating revenue with Single-Tap on Samsung?

Yes, we expect it to go live sometime later this quarter. I think Samsung is actually having a kickoff event for our Single-Tap launch in Brazil later this week. We’re just getting going with the planning and getting to local demand partners. They're excited about it. As soon as we start bringing some of those demand partners on, expect it to go live then. The overall international Single-Tap story is something we’re also encouraged by as we move forward.

Got it. And then just the last one from me. You guys have kind of talked about making investments in the sales force, especially internationally. Where are we on the timeline for those investments translating to increased productivity around RPD for some of the lower-end devices?

Yes, so when we think about our investments in our channel strategy, we really think about it across three dimensions. We think about automation and self-serve as one to really capture the long tail of app providers. We think about growing our existing sales force and continuing to add bodies in local areas where it makes sense. The third is the establishment of channel partnerships and agency partnerships where we can work with third parties who are already in the process of selling media, whether it’s app installs or other types of media, and leverage their footprint and relationships. We’re making investments across all three of those areas right now, and we're already starting to see some efficiencies from that. As we think about especially scaling the international part of demand, I would really focus on more channel partnerships to cast a wider net and more self-serve options for some of the long tail of app providers in these countries that will really be the key catalyst to drive improved productivity.

Got it. Thanks for taking my questions.

Thanks, Lee.

The next question is from Jon Hickman with Ladenburg. Please go ahead.

Hey, thanks for taking my questions. Bill, almost all of my questions have been asked and answered. But I would appreciate your comments on what's going on in China versus with the virus. Is your March guidance factoring in possible softness there this quarter?

Yes, thanks, Jon. So regarding China, the good news for us is that we don't have any partnerships in China. We're not doing business in China. We're really focused on what's called a China-out strategy, which is how do we help the Chinese OEMs and App developers, like Tencent and Alibaba. We're working a lot with TikTok right now, and how do we continue to expand their presence outside of China to other international markets, whether it's the U.S., Latin America, Europe, etc. Regarding the virus, we're not seeing any impacts because it's really focused—all those activities are focused outside of China. We've got a lot of exciting Chinese OEM opportunities in the pipeline. I will say some of—not just the virus, but also some of the other macro noise that's going on have been a little bit of a headwind on some of those deals. But we expect as that goes away, we’ve got the macro thesis of our opportunity to work with those Chinese OEMs, which is something we're really excited about. So stay tuned.

Okay. And then so when do you think—you said you were going to close the acquisition this quarter. You think it's going to take most of the quarter to get that done?

Yes, there's not anything really complex about the close activity. And so yes, we think probably—we’re five weeks away here from closing.

Okay, so that will put you into March, right?

That's right.

Okay, thank you.

Okay, thanks, Jon.

The next question is from Allen Klee with National Securities Corporation. Please go ahead.

Hello, how do you think about how the new 5G phones are going to impact calendar 2020? And do you believe that overall devices in the U.S. are going to decline or that there's an opportunity for that to grow?

Yes, thanks, Allen. We expect to start seeing an increase of 5G devices as we go through 2020. I just saw an article a few days ago that AT&T just lit up 13 more cities with their 5G product. As those cities come online, you would expect devices to follow. I think as you're well aware, there's not an Apple 5G device that's expected to come out until the back end of this year. It's only Android. As those markets light up, I think that's something that will definitely benefit us. I just would make a point to say as markets light up, it is in the operators' interest to get the 5G devices into customers' hands just because the cost to deliver all the video and other high-bandwidth applications is better for the carrier. So it's not just the customer pulling the device; it would be the carrier pushing the device onto the marketplace. We expect to start seeing more high-profile 5G devices launch, like the Samsung devices, LG, Motorola, etc.

Thank you. My other question is for new products; you grew that to around 20% of revenue. I was wondering if there’s a way we can think about how penetrated that is in the overall number of devices you sell to try to figure out what the opportunity is there?

Yes, you'd have to break that apart. It's not exactly the way we look at it because not all devices are created equal. We look at what portion of the RPD or total revenue streams we are driving from non-Dynamic Installs. That's how we've measured it. I wouldn't have all poured out how to translate that to per device. But we like the direction we’re moving in diversifying these new product streams. As Bill said, hitting 20% was an important step for us.

Yes, thanks, Allen.

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

Great, thanks everyone for joining the call today. We look forward to reporting on our progress against all the points made on today's call. We'll talk to you again on our fiscal 2020 fourth quarter call in a few months. Thanks and have a great night.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.