Q1 2022 Digital Turbine Inc Earnings Call
And from school.
Joining me on today's call to discuss our results are CEO Bill Stone and CFO Barrett garrison before we get started I would like to take the opportunity to remind you that our remarks today will include forward looking comments.
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 on file with the Securities and Exchange Commission on.
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'm happy to turn the call over to CEO, Mr. Bill Stone.
Thanks, Brian and thank you all for joining our call Tonight.
First I want to formally welcome appreciate add colony and fiber to our team.
This is our first earnings call announcing results as 1 digital turbine.
I've been impressed with the ability of all of our team whether from add Tony fiber appreciate or digital turbine to focus on the execution on the day to day, what youre seeing in our results.
But also simultaneously focusing on building out 1 company.
<unk> is well underway.
I've been pleased with how the teams from each company are beginning to gel together.
Sure.
Very few companies have the ability to walk and chew gum, but our team continues to show an amazing set of skills, whether it's on acquisitions integrations COVID-19, new business opportunities or whatever comes at us to maintain focus on hustle on what's right in front of us, but also simultaneously anticipate what's around the corner.
I'm going to break my remarks out into 4 areas.
First just some commentary on our consolidated results for the quarter.
Second is a breakout of each of our segments.
Third will be some real time operational updates.
And finally, we closed on our strategic integration progress of 1 digital turbine.
I want to remind investors that our results announced today are for a partial quarter of results for both add colony and fiber.
Our results include a full quarter of appreciate 2 months of AD colony, and 1 month of fiber.
At a macro level, our consolidated actual results were $213 million in revenue.
$40 million of adjusted EBITDA and 34.
Non-GAAP earnings per share.
Our topline and EBITDA growth were over 100% and 200% respectively on a pro forma basis.
And our earnings per share growth was over 150%.
This showcases the operating leverage of the model the strength of the businesses independently and doesn't include much in terms of synergies that we believe will fuel future top and bottom line growth for the company.
We also believe it demonstrates how well we are now positioned with real scale to attack the $300 billion plus mobile media market.
More specifically, we will begin reporting our business across 3 segments.
The first is our on device media business, which includes our App media content media and single tab businesses.
The second segment is our AD colony business and a third segment is our fiber business.
Given that digital turbine at colony and fiber have all been public companies. We believe reported in these segments in the short term will provide investors the best comparison and transparency of results.
Also to make comparisons easier for investors I am going to refer to the AD colony and fiber results as if we had owned them for the full quarter.
We believe this will be an easier apples to apples measurement versus the stub quarters that may be a bit more confusing.
First I'll summarize our on device media segment.
Our on device media business set all time revenue records in the June quarter and generated over $120 million on revenue, which is 93% organic growth year over year.
Driving this strong organic growth with strong performance across the board and our content media at media and single tap business.
Our media business grew an impressive 81%.
In particular, we saw hyper growth of nearly 600% year over year with our single tap business.
Single tap was almost 20% of our total on device media revenues in the June quarter.
Compared to 4% a year ago.
Having single tap now fully integrated with our appreciate acquisition.
As a major driver of these accelerating growth results.
We expect to see continued momentum in single tap as I am pleased to announce that Samsung has decided to begin launching single tap across their global footprint, which historically has been approximately 250 million devices per year.
Our results in Latin America have been strong and Samsung now wants to expand to other geographies and we've already started the process of expanding into Europe.
Our international growth in App media continued as we saw approximately 50% of that media demand now being outside of the United States. Despite U S demand growing more than 30% year over year.
This is fueled by companies such as King play ticker Alibaba Tencent and many others.
We expect it to continue to grow as evidenced by our recent announcement that we are expanding our tictoc relationship.
<unk> been a strategic partner for Us in Latin America, and we are now expanding that to North America, which will drive short term growth for us, but more strategically we look to collaborate with tic toc on many of our strategic products from App media content media fiber and add colony in the future.
Our content media business grew by nearly 150% year over year.
We think this growth rate is obviously impressive and now includes a full year of results of owning mobile posse.
We continue to be on track to launch additional content media products on AT&T and Verizon later, this fiscal year, which we expect to be a future catalysts for growth.
And as we began integrating fiber and add colony, we think it's important to remind investors how well the <unk> team and mobile posse teams have integrated into 1 company as demonstrated by the strong operating performance of our content media business.
Turning to our <unk> segment at colony has an impressive 46% year over year growth comparing this june quarter until last June quarter.
In particular, the AD colony brand business, which is highly strategic for our <unk> digital turbine efforts showcased over 70% year over year growth and now accounts for over 80% of <unk> revenues.
We were pleased to see AD colony recently recognized by Adweek as having a top AD network for brands and continue to see very strong momentum in the global brand business.
As was widely anticipated we began to see some impact of apples <unk> changes late in the June quarter as add colonies less strategic performance business, which is less than 20%. Other total revenues declined year over year.
So we're now starting to see budgets return in the current quarter from many performance advertisers that we're taking a wait and see approach earlier in June.
Turning to fiber fibers.
<unk> full quarterly results were impressive showcasing nearly 200% year over year growth.
Fibers achieved nearly 90% of last year's revenues and triple the adjusted EBITDA in the first 6 months of 2021 compared to the full year of 2020.
In other words, they are not only accelerating growth on the topline but are now at that critical inflection point of scale that enables accelerating operating leverage in their core business.
This impressive growth was driven by both rates and volumes on.
On race fiber saw <unk> more than double from a year ago and on volume of ads delivered more than 60% growth.
More specifically for you on this strong growth was nearly 450% growth in marketplace video.
Both at colony and fiber made strategic investments in video rendering of mobile ads over the past few years and are now capitalizing on the macro global tailwind a video AD formats as advertisers prefer to stickier richer and more price elastic AD format compared to other traditional.
<unk> digital formats.
With these 3 segments now in place our diversification of revenues and partners has also changed dramatically.
For example.
Our top U S carrier partners.
Have grown over 40% in the past year.
But as a percentage of our total reported revenues. They are just over 25% of our total pro forma revenues.
Compared to nearly 80% a year ago.
We now have no single customer or partner that is more than 10% of our pro forma revenues.
In particular, we've seen both add Tony on fiber show nice 71% growth combined in the U S.
But outside the U S. It has grown by over 160%.
This is important to remind investors that while Apple and Android are approximately 50.50 market share here in the U S. Android approximately 85% of the global market.
Thus our on device advantages with technologies like single tap combined with the impressive more than 1 billion device global footprint between AD Cowen and fiber.
It should be a nice driver for future global growth given the strong international infrastructure of people partners customers and technology that all of the businesses have.
Now turning to the forward outlook I want to provide some commentary on how we are positioned for continued growth.
With our acquisitions, our growth levers of devices products and media have not changed they've just been accelerated.
First on devices.
After many quarters of flattish to declining device sales in the U S. I am pleased to announce that we grew devices nearly 10% in the U S and more than 60% internationally compared to last June quarter.
We're also seeing over 40% of new devices sold with our largest U S carrier partners being <unk>, which is a material increase compared to prior quarters.
This is important as it drives richer video advertising formats.
We'll now passed over 700 million devices that are software has been installed on.
On the product front, our revenues from dynamic installs grew by almost 50% year over year in the June quarter.
But now represent less than 30% of our total pro forma revenues compared to over 60% last year.
As the company has been repositioned to monetizing over the life of the device versus just monetizing at first activation.
Our revenues that occur over the life of the device now represent over 70% of our total revenues compared to just 38% last year.
Diversifying away from revenues only attributable to first food and monetizing over the life of device as a strategic priority for our business and this progress today as material.
I mentioned single tap is a major growth driver earlier in my remarks, but we're also looking to offer many other products that are generating growth such as notifications discover bar fair bid offer at wall and marketplace.
In other words diversification is working well to drive both topline growth and no reliance on any single product to drive growth.
I'm also pleased to see the cross selling of new products into our existing operator and OEM partners. This is and will continue to be a driver for our improved revenue per device or our <unk> metrics.
On the media front, our new acquisitions extend our global reach the AD colony global brand relationships with companies like Mcdonald's and Starbucks BMW Ford Unilever and so on per up perfectly to match that brand demand with the increased supply of fiber.
Publisher relationships in a digital turbine on device relationships.
We're also seeing our increase in our ability to go to our media partners with a more holistic solution, which is being seen as a big positive.
This scale.
US better rates, which on a revenue per slot or on an ECP on basis.
I now want to turn to our recent acquisitions and our strategic game plan.
With the completion of the acquisitions, we have now successfully assembled the key pieces for a full stack end to end AD Tech platform.
I want to spend a minute here to highlight for investors what truly differentiates our end to end platform versus other industry players.
I should start with our overriding mission statement, which is to become the largest independent mobile advertising monetization platform leveraging our unique on device technology and long term partner on advertising relationships.
A couple of here is a couple of words here I want to stress because they represent what differentiates us.
First is having our technology on device.
This software presence on underlying devices provides us distinct advantages are critical 1 of which is our ability to use our patented single tap technology to drive materially higher conversion rates on the platform.
Second is our independence.
We've opted to vertically integrate by functionality. Unlike many other industry players who have drifted into the content arena, thereby compromising on their platform neutrality and posing potential conflicts of interest for other app publishers and advertisers on our platform.
In essence, our on device technology presence and independent approach.
Make our platform more attractive to App publishers and advertisers trying to optimize monetization and return on investment.
It's still early days, but we've already received positive feedback from numerous partners and customers validating this unique approach and we're already benefiting from revenue synergies within specific accounts.
In closing I want to emphasize to investors, how well the 4 businesses of digital turbine appreciate add colony in fiber, our operating organically and independently.
But they are also already working synergistically and we're already seeing encouraging results.
We're ecstatic about the people the products and the companies, we've acquired and how they fit together to achieve our mission.
Our excitement and optimism about the future of digital turbine is at a 52 week high.
With that this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.
Thanks, Bill and good afternoon, everyone before I cover our financial results I will start by echoing Bill's sentiment.
We're excited to be announcing our first quarter with the results of the newly joined acquisitions I want to welcome to fiber and add colony teams to our 1 digital turbine team.
Across the teams the cultures and values are incredibly well aligned and I continue to be excited about the tremendous opportunity ahead of digital turbine, especially during this transformational phase of the company.
Now turning to our results. We're pleased with the strong first quarter performance, which exceeded our expectations for both our existing business and the performance on the new acquisitions.
As a reminder, we completed the acquisitions of AD colony and fiber on April 29th in May 25, 2021, respectively, and our actual reported results reflect partial contributions of those businesses beginning on the day to the acquisitions closed I will occasionally referenced results on a pro forma basis, which referenced quarterly.
<unk> and comparisons as if all acquired businesses were owned for the entirety of the first quarters of fiscal 2021 and fiscal 2022.
We believe these pro forma results provide additional insight into the underlying trends when comparing current performance against prior periods.
My comments today will refer to comparisons on a year over year basis, unless otherwise noted.
Revenue of $212.6 million in the quarter was up 260% as reported and 104% on on a pro forma basis, adjusted EBITDA increased to $39.8 million growing 183% year over year.
As a result of the successful acquisitions, starting this quarter, we are reporting on our revenues in 3 segments.
On device media.
<unk> media AD colony and in App media fiber on device media revenue, which represents existing revenue derived from the company's application media inclusive of single tab, DSP and content media and platform products increased 93% year over year to $120.3 million.
Dollars.
Total in App media AD colony revenue contributed $44.9 million during the quarter and was up 46% on a pro forma basis or in a media or in App fiber business contributed $49.6 million during the quarter and was up over 190% on a pro forma basis.
On a pro forma basis as if both fiber and add colony were owned for the full quarter total consolidated pro forma revenue for the fiscal quarter 2000 true.
Would have been $292 million, representing 104% increase.
Non-GAAP gross profit was up 172% to $72.4 million.
Each was up 87% on a pro forma basis.
Gross margin on the platform was 34% in Q1.
The newly acquired businesses, we will have further margin impact in Q2 since Q1 contained a partial stub period and I would highlight while our gross margins in the quarter are impacted by the business mix of new acquisitions, we continue to experience expanding sequential margin improvement in our on device business.
We experienced continued impressive.
<unk> scale on the platform as cash expenses were $32.6 million in Q1 or 15% of revenue that was down from 21% of revenues in the prior year and increased only 21% year over year on a pro forma basis, while our revenues were up over 100% in the period.
Total operating expenses were $52.6 million, including approximately $8.3 million in transaction related costs and compared to total operating expenses of $15.5 million in the prior year for the acquisitions.
I will note that while the key rationale of our new acquisitions is based on driving new revenue growth and platform capabilities and not a reduction a cost reduction play we do expect to realize favorable expense synergies over time that will further complement the operating leverage and scale on the platform.
While we are still early in the process. The integral integration efforts are off to a strong start and we anticipate certain cost benefits to be realized over the coming quarters as integration efforts are successfully implemented to further improve our operating leverage.
As a reminder, our operating leverage is being achieved even as we continue to make a number of focused near term investments primarily with our within our sales force and technology teams to support new partners and products to drive future incremental revenues onto the platform.
I also continue to be pleased with the profitability and free cash flow delivered by our business in the quarter. We achieved non-GAAP adjusted net income of $33.4 million or <unk> 34 per share as compared to $12.5 million or <unk> 13 per share in the same quarter last year.
Adjusted EBITDA was $39.8 million in the quarter up 183% over prior year, and our non-GAAP free cash flow totaled $14.3 million, enabling us to exit Q1, with a cash balance of $83.1 million.
Our GAAP net income was $14.3 million or <unk> 14 per share based on $98.8 million diluted shares outstanding compared to a first quarter of 2020 net income of $9.9 million or <unk> 11 per share.
I would also highlight with respect to the recent acquisitions. Each of these new businesses are high revenue growth companies and profitable on a standalone basis and are accretive to both our earnings and free cash flow further improving the profile.
The digital turbine enterprise.
Turning to the balance sheet.
During the quarter, we successfully closed on these 2 acquisitions and the upfront cash at closing was approximately $250 million.
Which was primarily funded with our existing debt facility, we exited with $257.5 million of debt consists consisting of $237.1 million drawn against our $475 million revolving credit facility inclusive of a $75 million accordion.
Plus $24 million in debt assumed through the fiber acquisition, our net debt position at the end of the quarter was $174.4 million.
With our recently expanded credit facility, our healthy balance sheet.
And strong free cash flow is combined with the transformative new acquisitions out of the platform, we're excited and poised to execute on our growth plans for fiscal 2022 and beyond.
Now, let me turn to our outlook.
The momentum underway has positioned us for a strong fiscal 2022 in that context. We currently expect revenue for Q2 to grow to between $300 million and $306 million and expect adjusted EBITDA growth to between $44 million and $46 million and adjusted net income.
Per diluted share to be 38 based on approximately 105 million diluted shares outstanding.
With that let me hand, it back to the operator to open the call for questions operator.
Thank you we will now begin the question and answer session.
That's a question you May press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Our first question.
Comes from.
Darren.
Uh huh.
Revenue from Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking my questions on a nice job on the quarter. So 2 things.
On your comments about Samsung.
Just kind of curious how big the opportunity is there and then maybe a derivatives.
You've been working with Samsung for a while now I'm just curious if there's any other kind of large OEM handset.
And larger screen sizes, where you feel there is a kind of a near term opportunities, where we might see another name low there'll be on Samsung.
Yes, sure Darren so specifically on Samsung I think it's important to highlight to investors. We have all of these new products. We've got are on device products, whether it's our new dynamic installed on the back Wizard that people are familiar with but you know we're talking about things like single tap our content media products things that we now have as part of our.
<unk> from fiber and add colony, so as we think about.
Taken our Samsung relationship with broader which we're talking about today with more devices, but also deeper as it relates to a lot of these new products. So we're pretty excited about that and.
Encourage investors to think a little bit more broadly about the opportunity there than just kind of his historical our first food products.
That's definitely how we want to think about it throughout the entire life of the device with Samsung in terms of other operating OEM relationships, yeah, a lot of good things happening here.
Because we have so many things to talk about on today's call. We didn't get into any specifics like we did back on the old days of specific accounts, but yes, theres a lot of good things happening here and the results are starting to see a lot of our other partners around the world beginning to grow in scale and use that includes people like Xiaomi Telefonica.
To name a few in the pipeline continues to remain encouraging for us as we expand globally and it's just a classic scale begets scale. So we feel pretty good about the strategy and the ability to add additional partners additional screens and so on.
Yes.
Great and then just 1 more if I may so.
With that I'd call it.
Anybody in their stable or your core stable on the brand side, where you've already seen kind of cross pollination in terms of opportunity or is it still too early there.
Yes, so we're seeing great opportunities both on the fiber side.
And on the <unk> side at colony, a couple of specific examples I would highlight would be Mcdonald's and Starbucks.
On the ones that are already today, where there is cross selling up selling and we're able to pull through.
Mcdonald's brand dollars on AD colony into some of our on device media products. So those would be a couple of examples of the pipeline is pretty rich and encouraging right now and then on the supply side with fiber you are already working with a number of various publishers around there. So you can think of names like Zynga and scope Lee and triple Dod and names like that debt.
We're already seeing nice synergies from in terms of collaborating together.
Great. Thank you.
The next question comes from Austin <unk> from Canaccord. Please go ahead.
Thanks for taking my questions and also thanks for all that transparency.
Can you talk a little about how meaningful your Verizon and AT&T.
On content deployments might be later this year in terms of.
Wide range and those deployments will be and can you also maybe talk about somebody.
Other cross selling you've realized thus far between the 2 entities.
Yes sure Austin.
As we think about are.
Do we think about the opportunity today, we have just north of around 10 million daily active users primarily on T. Mobile today. So I think in terms of we think about the opportunity set.
At 10 million users generating let's call it roughly $100 million of <unk>.
Revenue.
That seems like an opportunity set given that they've got a third of the market and Verizon as a third in AT&T is a third in rough terms, so that seems like the market opportunity that we should be thinking about.
In terms of the specifics of rolling out we're working those real time right now I don't think Verizon or AT&T want me, making forward looking statements on their behalf today about their rollout plans, but just if I say I think we're in a good shape with both partners right now.
And they're excited to get going on these incremental opportunities.
Got it and last question what does the guidance assume.
Congress performance.
Yes.
Breaking out the segment spin.
Specific guidance, but we see a lot of headroom on.
On the horizon for each of our businesses, we did break out their growth in our prepared remarks as well as in the queue.
But and those are those are organic obviously organic growth rates and so the synergies that bill touched on will be things on the horizon that will come at different paces.
But we've been very pleased with.
Each individual performance on each of our segments.
And have high aspirations for their growth rates.
Okay. Thanks very much.
Again, if you have a question. Please press Star then 1.
The next question comes from Allen Klee from Maxim Group. Please go ahead.
Hi.
2.
Financial questions 1.
Thank you.
Your tax rate was around 19% for this quarter is it reasonable to assume that going forward youll youll be a taxpayer and is that a reasonable rate and then how.
How do you define you mentioned the term non-GAAP free cash flow how are you defining that thank you.
Yes.
Yeah. Good good tax question, so obviously with the acquisitions were.
We've got operations in different regions now.
So it makes it a little more complex, we still do have Nols in certain regions. So we will be.
<unk> taken advantage of shelving.
Some of our taxes in some of those regions.
But we are generating.
Net income and operating income so we will have tax obligations in certain regions. So.
Couldnt give you Alan I couldn't give you specifically the effective tax rate, we're going to be on an enterprise level.
Some obviously will be shielded with Nols and other tools, but we will be.
It will be a net taxpayer overall, fortunately given the profitability in the business.
And then with respect to the <unk>.
We determined our operating non-GAAP free cash flow, we have a table.
Included in the press release, when you get a chance youll be able to be able to see the work there, but we're basically demonstrating the the free cash flow after so.
Our operating free cash flow.
Less capex and less any non recurring activities, so trying to get to our true inherent.
Business cash flow result.
Thank you.
Okay.
The next question comes from Dennis.
Dennis La Valle from Blanch from please go ahead.
First of all Bill I wanted to thank you for assembling a team that made this all possible.
On today's call you didn't mention anything about the TV market space number 1 how big is that and who are the competitors and when will we.
Be able to see some results from that arena.
Yes, Thanks, Dennis Yes.
You already have some results in terms of some revenue from 1 of our carrier partners that has paid us for some licensing on televisions.
We're excited about the opportunity we're excited about the space that's for sure and we think the opportunity is compelling thats why were in it but I would highlight to investors.
While we're excited about the opportunity today, we just talked about adding 60 million <unk>.
Devices to the footprint plus the 1 billion devices and AD, calling in fiber on yes, I think if you look at a company like like Roku for example, I think they don't they have less in total users and we just announced on a quarter on televisions, so the opportunity while there and it's impressive the.
The linear TV market is roughly a $100 billion market relatively flat the mobile media markets 300 billion. So we view the TV market is a nice adjacency for us but in terms of just total size and scope we.
We see the mobile market as.
Vastly larger and given 300 billion plus mobile media market were less than 1% of that we've seen an enormous opportunity to grow that and generate results. So.
I think the key for US is with our operator and OEM partners is showing the breadth of services that we can offer both on whether it's on smartphones or tablets on televisions and really integrating those things together.
Thing that we're excited about but in terms of the overall opportunity I think it's important to have kind of on a relative size between mobile versus TV.
As always you're on top of it. Thank you.
The next question comes from Anthony Stoss from Craig Hallum. Please go ahead.
Hey, guys nice job Bill you talked about 70% of your revenues right now are for the life of the device.
Mentioned notifications and a bunch of other.
Software adds that are forthcoming when you look out.
<unk> potential revenue per device do you see over the next couple of years versus where youre at today.
Yes on 1 of the things on that Tony is we continue to say Theres a lot of opportunity for revenue per day. So we've been asked this for many years and it continues to go up into the right I think what we've seen both in our international business and our domestic business as we've seen revenue per device in the June quarter go up 60% year over year.
Which we're pretty excited about is north of 4 box now here in the United States.
So now with all these new products, we see continued accretion there and we see the accretion coming from the both the additional products, which adds revenues I think think of notification single tap etcetera, but also now all these new media relationships to right. So the combination of the media relationships and the new products on all these cross selling up selling it.
Gives us a lot of optimism.
Being able to have increased rpgs, especially as the percentage of our revenues that are monetized over the life of the device increased and so for example, our app and our App media and content media businesses are legacy dynamic install business was up like 50% year over year, which is great, but all the other products combined were up over 107.
5%.
So that kind of growth is really what's driving the improved revenue per device metrics and we think that's something that investors should be excited about.
Then a clarification on Samsung is it just single tap debt the new agreements covering and then how quickly is that going to begin.
Yes, so what we announced today was for single tap and as I had mentioned it to Darren earlier, Tony is I'd encourage investors to think about the relationship with Samsung brought more broadly than just the app should get out of the box, which is I think how most investors have seen that relationship historically.
We'd like to think about it now, but all of these products and things that we've we've acquired an assembled over that over the past few years. So today, we are live with Samsung in Latin America on single Tap, we just recently expanded that into Europe, and we look forward to continue to expand that to other geographies and we're working through those details with Samsung on real time.
Thanks, Bill appreciate it good luck.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Bill stone for any closing remarks.
Yes, thanks, everyone for joining the call today, we look forward to reporting on our progress against all the points. We made on today's call and we'll talk to you again on our fiscal 2022 second quarter call in a few months, thanks and have a great night.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yes.
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Yeah.
Yes.
Okay.