Good day, and welcome to the Digital Turbine Fiscal 2024 First Quarter Earnings Conference Call. Today, all participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that today’s 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, sir.

Thanks, Chris. Good afternoon, and welcome to the Digital Turbine fiscal year 2024 first 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’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 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’ll turn the call over to our CEO, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. For the June quarter, I was pleased that we beat the top end of our guidance range, both on the top and bottom lines, but we still have a lot of work to do to reach both our internal expectations and the potential of our broader total addressable market or TAM. I was pleased that we had a very clean quarter as operationally we sequentially improved our business performance across key financial metrics. But the strategy is not simply to harvest our profitable products for short-term financial performance, but rather use our profitability to make capital investments against the future with new technology platforms, new ad tech capabilities, our Hub, alternative app distribution, and SingleTap. We believe these investments will prove to be well served against our future growth. I’ll provide updates on those future growth drivers after providing some operational updates and commentary on the current business. For the June quarter, we had $146.4 million of revenue, $27 million of EBITDA, and $0.18 of non-GAAP earnings per share, and gross profit margins were 47.1%. All of these financial metrics represented sequential improvements from our March quarterly results. From a segment perspective, despite continued soft device sales, our on-device business or ODS also grew sequentially to $98.3 million. Operationally, I was pleased with our improvement of revenue per device or RPD in the U.S., which continues to grow and set an all-time high in the June quarter. Over the past five years, our RPDs have accreted from just over $2 in fiscal year 2020 to $3 in fiscal 2021, to $4 in fiscal 2022, to $5 in fiscal 2023, and today is now over $6. We continue to see strong demand from our platform both from advertisers and new products contributing more revenue to each device. Expanding global demand to our U.S. device supply has also been a big driver of those improved revenue per device results as two years ago U.S. demand was approximately 50% of our U.S. supply, and today it is less than 25%. In particular, we’ve seen some positive movement on the willingness of our U.S. supply partners to soften their positions on some popular Chinese applications, which increases the overall demand for our platform. While we expect the current quarter to experience continued softness in the U.S. devices, we expect a strong global pipeline of expanding telcos and OEM relationships to help offset any macro weakness in device sales in the future. We also made progress on our SingleTap enablement. As a reminder, we have five ways to monetize SingleTap. The first is direct demand via our demand side platform where we leverage our own AI and machine learning to target advertising to SingleTap enabled devices. The second is enabling other third-party demand partners from companies who can buy advertising on our SingleTap enabled supply. The third is licensing mobile web traffic from brands such as Epic Games' Fortnite title, which then uses SingleTap to convert its web visitors into native Fortnite users. The fourth is distributing alternative versions of applications, whether that’s our own DT Hub version, Amazon version, and so on for direct distribution device. And the fifth is enabling large distributors of application installs, such as large social media players to leverage the conversion rate benefits of SingleTap across their entire network. And given there are so many use cases of how we utilize SingleTap going forward, we’re going to focus on talking about SingleTap in the aggregate versus confusing investors with each individual use case, which may be seen as overwhelming with various operational metrics. However, given the investor focus on this product and interest in social media players in particular, I did want to provide some operational updates on our progress. It’s early days, but we have now generated our first revenues with TikTok, who is running SingleTap campaigns for their advertisers, wanting to use their own version of an application to their users. We are also launching this quarter with LinkedIn, who’s converting their mobile web users to native app users. And finally, we expect to begin a revenue-generating pilot with another large social media company across their entire user base here in the U.S. later this calendar year. Later in my remarks, I want to connect these operational updates to where we see SingleTap converging with the alternative app distribution markets of the future. Our app growth platform segment or HEP business, I was pleased to see our business show sequential growth in the June quarter, which was up nearly 10% from the March quarter. We are seeing sequential improved ECPM rates on both our brand demand and DSP from advertisers, and in particular, it was encouraging to see our brand business show double-digit sequential growth as we expand our relationships with large advertisers such as Starbucks and Chase Bank. The macro market has stabilized and our execution is improving. In addition, our exchange business had solid double-digit sequential growth in the quarter and the exchange business continues to be well diversified globally with approximately 40% of our publishers in North and South America, 35% in Europe, Middle East, Africa, and 25% in Asia Pacific. We’ve made numerous enhancements to our ad tech capabilities such as improved AI and machine learning optimizations, ad rendering, new ad formats, and new bidding methodologies. We spent the last year integrating the companies and are now finally building upon the integration with new products and services. The combination of the new demand solutions and the expansion of supply types are allowing us to focus on controlling what we can control to drive improved performance. Combined with a more stable macro environment for ad spend, we expect these new ad tech capabilities to be a growth driver for our business as we enter the second half of this fiscal year. Turning to the future, I want to spend a few moments highlighting our longer-term growth drivers. I mentioned SingleTap earlier in my remarks as a strategic growth opportunity, but as we’ve mentioned on prior calls, we are building alternative app distribution for app publishers. We believe we’re uniquely positioned with our on-device technology, our expansion of publisher relationships, and our operator and OEM relationships. We’ve launched our first alternative app distribution products, which we brand as DT Hub with four operators here in the United States, leveraging our Aptoide investment, and are generating revenue today. The carrier feedback has been impressive and supportive and it’s very early days and not yet material to our overall results, but we are seeing incremental higher RPDs from devices engaging with our Hub product, which is a combination of incremental in-app purchase revenues and incremental cost per install revenues from helping publishers acquire more users. So the focus for us is driving more devices, more engagement, and more downloads. We have not started leveraging our in-app advertising assets into this alternative app distribution, but we do expect to add that as an additional revenue stream to this opportunity. And then all three of these monetization capabilities being drivers of RPD accretion into the future. We also believe the global regulatory environment will provide additional thrust to this vision. Many of you may have seen articles in the press talking about a concept of direct distribution of applications involving mega cap tech players. This is highly strategic, and I want to spend a few moments describing it. Direct distribution is where any app publisher, such as Spotify, Netflix, or Epic Games can run advertising for a user to install its application. But rather than take the user to the Apple or Google store after clicking on the advertisement, it would direct download the application to the device with its own unique version of the application outside of the traditional app stores. And to achieve this, there are some market pain points that need to be solved, such as making it easy for the app publishers to port their app to a new version, managing the payments and advertising inside the application, installing the apps without friction as there may not be a store involved at all, and managing the curation of the applications. These are all things that Digital Turbine is uniquely positioned to deliver on, whether directly via our own Hub product, or indirectly through white labeling our capabilities to large players wanting to leverage their large audiences. To accomplish all of these new growth areas, allocating resources will be key. In addition to paying down our debt, we are allocating capital to these new investments with a new dedicated team focused on unlocking this future growth opportunity. Despite these investments, our cash operating expenses are flat from the June quarter last year as we were focused on running lean and efficiently with our legacy products while simultaneously investing in new platforms and products for future growth and scale. And Barrett will provide additional details in his remarks. Before I turn it over to Barrett, I want investors to take away from a quarter that we had a very clean quarter and operationally, we sequentially improved our business performance across the key financial metrics, and we’re making progress against our longer-term vision, but still have much work to do. Our strategy is to use that profitability to make investments against the future with new technology platforms, new ad tech capabilities, our Hub and alternative app distribution, and SingleTap. And with that, this concludes my prepared remarks. I’ll turn it over to Barrett to take you through the numbers.

Thanks, Bill, and good afternoon, everyone. Overall, we were pleased to see results in the quarter ahead of our expectations for both top line and profitability measures. Revenue of $146.4 million in the quarter was up 4% sequentially and down 22% year-on-year, with revenues improving sequentially across both segments of our business on-device solutions or ODS, and our app growth platform or AGP from the March quarter. Within ODS, revenues were slightly up sequentially from the March quarter and down 17% to the prior year. However, as Bill referenced, while we saw softer device volumes in Q1, this impact was offset by improved U.S. revenue per device, which exceeded $6 per device and increased sequentially quarter-over-quarter. As we’ve discussed in the past, while our content business has stabilized in the quarter, our ODS segment continues to experience headwinds from our prepaid content media business from a year-over-year comparison, and we expect this growth over comp to run off by Q3 within the December quarter. On our AGP business, Q1 revenues increased 9% sequentially and declined 32% over the prior year. While we’re encouraged by the improvement in the core business, the overall decline in AGP year-on-year continues to be driven largely by the short-term impact of the consolidation and exiting of certain legacy ad colony business lines that we have discussed previously. We would expect these comps to fully run off by the back half of this fiscal year. I reiterate Bill’s earlier comment that despite the near-term headwinds, we’re encouraged by the integration benefits we are seeing from the investments we’re making to bring these businesses together and expect these moves to have a positive return on our future growth. Our consolidated gross margin was 47% in Q1, which increased from Q4 sequentially and was down from 50% in Q1 from the prior year. Improvements in margins sequentially were largely driven by the combination of quarterly product mix shifts, where we experienced an increase in the mix of certain higher-margin products or those where revenues are recognized on a net basis. As a reminder, while gross margin rates can fluctuate from quarter to quarter, we generally anticipate long-term margin expansion as we continue to execute on growth opportunities. We remain disciplined with expenses and cash operating expenses were $42 million in the quarter, increasing 1% from the prior year and represented 29% of revenues in the quarter. I’d highlight, while our expenses have remained relatively constant, we are making important investments that Bill referenced to ensure we capitalize on the full potential of our growth strategy. These internal initiatives are focused on integrating the technology platforms and financial and back office systems across our assets, developing new ad tech capabilities and strategic growth initiatives Bill discussed, namely within DT Hub, alternative app distribution, and SingleTap. While the current and near-term periods will incur increased costs due to the completion of these integrations and new growth initiatives, we expect both the efficiencies and growth to begin to be reflected in our results as we move into calendar year 2024. During this investment phase, we will continue to remain highly focused on operating efficiency. Turning to our profitability, our adjusted EBITDA of $27 million in the quarter increased $3.8 million sequentially and was down from $52 million in the prior year. Our EBITDA margin of 18% grew sequentially from 16% in the March quarter. Given the inherent operating leverage in our business model, we expect the active focus on expense measures and integration efforts we are taking will strengthen the platform as we return to growth and enable a greater portion of those dollars to fall to the bottom line. In the quarter, we achieved non-GAAP adjusted net income of $18.2 million or $0.18 per share, as compared to $38.7 million or $0.38 per share in the first quarter of last year. As compared to prior year, we incurred greater interest expense driven by the rising rate environment on our outstanding debt. Our GAAP net loss was $8.4 million or $0.08 per share based on a 103.5 diluted shares outstanding and compared to a prior year net loss of $15 million or $0.15 per share, on a 102.7 million diluted shares outstanding. Our cash balance at the end of the quarter was $58.6 million after paying down an additional $5 million in debt, using cash flows from operations to further deleverage our debt position. Cash flow and working capital were negatively impacted by the timing of revenues, which will wait toward the end of the quarter, and we expect to return to generating positive free cash flow in Q3. Our debt balance ended the quarter at $408 million drawn on our revolving credit facility, and as our business continues to strengthen, we would expect to continue to pay down our revolver in larger quarterly increments. We continue to be confident in our balance sheet and our capital position given our profit model, cash flow generation, and access to low-cost credit facility. Now let me turn to our outlook. We currently expect revenue for fiscal Q2 to be between $141 million and $149 million and adjusted EBITDA to be between $25 million and $27 million. Non-GAAP adjusted net income per diluted share to be between $0.13 and $0.15 based on approximately a 104 million diluted shares outstanding and an effective tax rate of 25%. With that, let me hand it back to the operator to open the call for questions.

Thank you. We’ll begin the question-and-answer session. Today’s first question comes from Omar Dessouky with Bank of America. Please proceed.

Hey, guys. This is Arthur on for Omar. Thanks for taking the question. My question is on Google’s header bidding into fair bit, you know, I understand this has been testing, but I was wondering if you guys could talk a little bit about, you know, some of the early signals we’re seeing from the initial integrations and, you know, what sort of learnings are you taking away from the initial testing? And probably just, you know, on the same note, like, if we should be expecting any sort of revenue contribution impact for the testing in the next fiscal year? Thank you.

Yes, sure. I’ll take that one. The short answer is yes. We’re seeing positive impacts there, and the strategy here is obviously to increase our share of voice and demand into the mediation platform, which then benefits publishers. So, having the ability to bring Google’s vast demand is a positive for us, still very early days. I wouldn’t characterize it as moving to any sort of finished product yet. We’re still kind of optimizing what we’re doing around that. But it’s absolutely something we think will be beneficial as we go into next year with more demand and bringing the credibility of Google to our publishers.

Today’s next question comes from Dan Day with B. Riley Securities. Please proceed.

Yes. Good morning, guys. Can you hear me? There was a little choppy at that.

Yes, I think it’s the operator’s line.

Okay, great. So, thanks for taking the questions. Bill, in the past, when you talked about SingleTap on these calls, you’ve been pretty cautious around, kind of, the path to material revenue generation. You’ve been pretty clear. You know, you’re developing it, investors should be patient. I didn’t hear you say that this time. Can we take that as a sign that you guys maybe have any more visibility than you have in past quarters into it becoming a material revenue contributor, or am I just reading too much into that?

Yes, we continue to be excited about SingleTap. I mean, there’s no question about that. It was not material to our results in the June quarter, but there are a lot of catalysts that we’re seeing into the future right now. So, we’re starting to see some excitement on the catalysts and the opportunity for scale to really improve on that. I will say it will take time, but the encouraging signs are starting to really show for us with the product. And the thing that I want to remind investors about is we have this embedded base of many hundreds of millions of devices, and that’s extremely difficult for anyone to replicate. Having that high number of devices already out in the market at global scale, and our focus to continue to grow that, is something that I think advertisers, publishers, and demand-side platforms are about to take advantage of. One important point I want to also make on this is the integration with the alternative app stores. There is going to be increasing pressure on the duopoly of app stores today. The ability for a publisher to acquire new users at lower rates to pay will be something they will want to take advantage of, and SingleTap is an enabler to help make that happen.

Great, thanks. And then just for the fiscal second quarter revenue outlook, the midpoint is right around where fiscal first quarter revenue came in. Just any material difference between the on-device versus the app growth platform segments, as far as the outlook goes? Or do you think pretty flat for both quarter-over-quarter?

Yes. Dan, I think we think about, you know, in the Q1, we’ve seen we touched on the improvements we’re seeing in AGP business, you know, near 10% sequential improvement. We think there’s a lot of opportunity there. We don’t give guidance by segment, but, you know, we’re seeing nice trends there. We touched on some of the device softness, that, you know, is sometimes hard to predict, but I think we might see that for the near-term that’s embedded in our guidance. I think the AGP business is growing nicely on a sequential basis, and I think that might be a continued trend we’d expect to see.

Today’s next question comes from an unidentified analyst. Please proceed.

Hey, this is Dylan on for Darren. Thanks for taking my questions. I wanted to sort of talk about RPD in the U.S., you mentioned it’s an all-time high at $6. I think you sort of said 25% full supply. So I guess, I mean, what are sort of your strategies in going after growing that RPD on the international side, both with sort of higher monetization on the existing devices and sort of just capturing more devices in the different markets with some of the partners you’ve mentioned in the past?

Yes, sure. What we’re seeing right now and it was encouraging, is the diversification of our demand on our U.S. supply. And I wanted to highlight that particularly because now we’re to a point where we’re well north of 50% of the demand coming into U.S. supply from places outside the United States. A lot of international advertisers, whether they are from Europe or APAC, want to be on those devices. So, being able to bring those onto devices, and then we can do strategic demand deals allows that international competition as well to come in. Now the key is for us is how do we expand that to other markets, whether that’s in Europe or Latin America, or what have you. This is a major focus area for us to replicate the success that we’re seeing in the U.S. outside. That’s on the advertiser side. The other part would be on the product side. Historically, we started with dynamic installs as a primary product. But as we’ve added many other products to our portfolio, the product growth is also enhancing RPD. So, the combination of more demand on the platform combined with the more products on the platform is really helping drive those accretion and results.

Great. Thank you. And sort of as a follow-up with some of the investments you mentioned, with ad tech, and with other app stores, like, how should we think about the timeline of that trade-off of the incremental investment dollars that aren’t really bringing in revenue, in terms of, like, the OpEx, sort of, when do you start to see those contribute?

Yes, let me start on the revenue side and then we’ll turn it over to Barrett on the OpEx side. Right now in terms of how we’re thinking about it, in terms of the back end of this year, Barrett mentioned his remarks on AGP showing a nice sequential growth. Our view right now is in the short-term as we look at future quarters, that you’re going to see more things like with the Hub, SingleTap, and some of these other things ramping as we think about it from a revenue/business perspective. I’ll turn it over to Barrett to talk about the OpEx and the investment side.

Yes, Dylan, I think, you know, for your model, we touched on it in my remarks, you know, we’re incurring those expenses for, you know, a lot of the back office systems that we’re integrating, bringing the companies together. Those are our financial systems, HR systems, as well as the investments in the teams that Bill touched on. Those investments are in place today. I think we’re going to carry those expenses at kind of similar levels out through the end of the calendar year and then we’ll start to see those costs drop off, and you’ll start to see efficiencies in both our cost structure and the incremental growth in revenues begin to pick up as well.

Great. Thank you.

Thanks, Dylan.

The next question comes from Anthony Stoss from Craig Hallum. Please proceed.

Hey, Bill. I wanted to ask about this verge article where they were interviewing a meta employee and they are discussing what certainly sounded like SingleTap functionality. If not Digital Turbine, who else could it be?

Yes, it’s hard for me, Tony, to comment on things that came from somebody on future speculation. I’m going to stay away from that. But what I will say is that you’re seeing mega cap tech players not just meta, but others talking about alternative app distribution. Specifically in Europe, now that the digital markets act is coming into reality, you’re seeing, for example, side-loading applications on things like iOS 17, which is really opening up a lot of interest from mega cap players, and I’d highlight Amazon and the Microsoft Activision Blizzard deal getting done, as examples. There’s a lot of interest and you’re starting to see it right now. The key question is how will it be achieved? It’s one thing to have the interest. The question becomes how? When considering how apps get ported from different versions, managing the internal plumbing, ensuring a friction-free experience, and curating that on the device with your telco and OEM partners, these are all things that we’ve got unique advantages to deliver. Whether directly through our Hub product or indirectly through white labeling our capabilities to large players wanting to leverage their large audiences. I think about CTV a few years ago and how CTV is today, and I almost think about alternative app distributions as kind of being in the early innings today. It’s something that, as the regulations evolve and larger players seek alternative choices, I believe we’re well-positioned to capture opportunities.

Okay. And then a couple of follow-ups on. In past quarters, Bill, you talked about, I think it was in your prepared remarks, quite often with international carrier launches. Clearly, the on-device segment is weak in the U.S., not a shock to anybody. Is there anything or new carriers that you’re planning on launching that will help offset that? I mean, I think in the past, you used to highlight the percent of the international markets covered, and then you guys haven’t really done that lately. I’m just curious if you could update us on that.

Yes, absolutely. I did make a comment in the prepared remarks around a strong global pipeline of expanding the telcos and OEM relationships. I kind of alluded to that. We’re not going to name specifics here on the call for obvious reasons, but we think we have a lot of optimism right now regarding our ability to expand our addressable market here.

Got it. And then if I could ask one for Barrett, normally your December quarter shows a strong seasonal increase. Do you expect it to be less intense again this year like it was last?

Maybe Andrew, that’s December?

Yes.

But Tony, December was an unusual quarter last year. The markets shifted quickly. Looking at the current situation, I hope we can return to a more typical seasonal trend. I'm not fully confident we're back to 2021 levels, but we do anticipate seeing some seasonal growth for the holiday quarter.

Got it. And one last quickie for Bill. Love to hear more on Aptoide; I hope, I know you think it is. I’m just curious kind of where you’re at with Aptoide?

Yes, you know, we continue our Aptoide technology partnership has been great. Their tech is integrated into our Hub product today. They’ve been great to work with. We’re looking forward to expanding with them and looking forward to expanding with others. There are a lot of players out there in the space, and Aptoide has been fantastic, but I think we want to think about it even broader than that. We think there’s an enormous community, and you heard the word 'investment' a lot, in Barrett’s and in my prepared remarks. We really want to think about how we can get after the space and really have some first-mover advantages.

Thank you, Tony.

At this time, we conclude our question-and-answer session. I would now like to turn the conference back over to Bill Stone for any closing remarks.

Yes. Thanks for everyone joining the call today. We’ll look forward to reporting on our progress against all the points that we made on the call, and we’ll talk to you again on our fiscal 2024 second quarter call in a few months. Thanks, and have a great night.

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