Q4 2022 Digital Turbine Inc Earnings Call
Good afternoon, and welcome to the digital turbine fourth quarter and fiscal year 2022 earnings conference call.
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I would now like to turn the conference over to Brian Bartholomew Senior Vice President of capital markets. Please go ahead.
Thanks, Gary good.
Afternoon, and welcome to the digital turbine fourth quarter fiscal year 2022 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.
Projected operating metrics future products and services anticipated market demand and other forward looking topics.
So 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 could differ materially from those contemplated by our forward looking statements.
Please refer to the documents we filed with the Securities and Exchange Commission also during this call we will discuss certain non-GAAP measures of our performance non-GAAP measures are not substitutes for GAAP measures.
Please refer to today's press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures.
Now I'd like to turn the call over to our Chief Executive Officer, Mr. Bill Stone.
Thanks, Brian and thank you all for joining our call Tonight.
Before diving into our micro results I want to begin my remarks, with some commentary on the macro economic situation.
As it appears to be dominating investor focus and Overshadowing company specific news right now.
First we want to be clear that we stand behind the people of Ukraine beats.
Between our direct employees and contractors, we have over 100, Ukrainians working on the DT team.
And while the macro situation in Ukraine is horrific and sad.
Acts of kindness sacrifice and generosity I've been able to witness by a broader DT community towards helping to Ukrainian people impacted it's been an amazing tribute to the human spirit.
Our team will continue to try to do its small part to help and hope that the situation can find a peaceful outcome for Ukrainian sovereignty.
And in addition to Ukraine. The past few months since our last earnings call has seen more macro change and uncertainty than at any point during my time at digital turbine.
Inflation interest rates geopolitics supply chains other companies opining on the future of the digital AD market and timing of the next recession have dominated investor focus over fundamentals and operating performance.
100% of companies in our space are impacted by these events, including us.
However, I continue to believe the impact to us is much less than others for a few reasons, including first our company has been profitable for four years and grown at a compounded annual growth rate of over 180%.
Including nearly 160% EBITDA growth this past fiscal year.
Our platform is designed for showcasing return on AD spend which is critical in times like these for marketers.
Our market sector of mobile media is vibrant and still growing.
The operating leverage of our mobile cloud software business is relatively immune from input costs and inflationary pressures as showcased by our revenue growth.
And finally all of this momentum is occurring with no incremental cash at cash operating expenses required.
However, we are not 100% of immune and unlike many others, who have been private and recently gone public. Our history has demanded disciplined cost management to navigate uncertain waters, which we believe will be a strategic advantage for us over the long term, assuming these macro conditions persist or potentially get worse.
Yeah.
Turning to our company results highlights and forward outlook.
As a reminder, we are now organized around two divisions are on device solutions business, which includes our legacy media business.
Our content media business, and our single tap business and secondly, our outgrowth business, which includes our AD colony fiber and appreciate businesses.
My comments will be focused on how we are now organized as these new businesses versus the legacy businesses.
We've also changed some of our revenue reporting in our App growth platform business from gross revenue to net reporting.
Barrett will provide more details on the specifics and rationale but from my perspective. This helps simplify our operational approach and also provide investors a better apples to apples measure with our peers on gross margins EBITDA margins cost structure and profitability metrics.
Now as we close out our fiscal year and stepping back from the macro situation I think it's important to highlight one year ago, We reported our annual results for fiscal 'twenty. One that included revenues of $314 million $75 million of EBITDA and 74 cents of non-GAAP earnings per share.
Tonight, we are reporting our annual fiscal 'twenty two results of $748 million of revenue of $195 million of EBITDA and $1 66 of non-GAAP earnings per share.
That's an as reported growth of 138% for revenues of 158% for EBITDA and 124% for non-GAAP earnings per share.
In addition, since we closed or at colony and fiber transactions three quarters ago, we have delivered over $100 million of free cash flow in those three quarters since we've been reporting as one company.
So before we dive into the specifics I want to highlight and remind investors just how much our company has achieved in such a short amount of time and in particular in our ability to showcase the operating leverage of the model.
Just being profitable, but growing profit faster than top line.
And for the March quarter, specifically, we made a conscious effort to focus on gross margins, which improved sequentially from 46% to 49% and compares to 41% in the March quarter last year.
For our device business. The drivers of those results were driven by more devices more products and more media relationships.
In particular, we added over 266 million devices in the fiscal year, which compares to 222 million devices in the prior fiscal year.
This growth was predominantly international as U S device sales were marginally up year over year.
We also diversified our product portfolio and.
In fiscal 'twenty, 150% of our own device revenues came from dynamic installs.
And while dynamic installs grew in fiscal 'twenty, two but as a percentage of our total revenues. It is now 44% as products such as single tap folders and so on have grown much faster.
And finally, our media relationships expanded as we announced many new partners, such as tick tock and accu weather.
Yeah.
These expanded product and media relationships drove improved revenue per device or are P. D, which is a key health metrics of our business.
In the United States, our revenue per device was $2.10 in fiscal 'twenty $3 30 in fiscal 'twenty, one and $4 70 for fiscal 'twenty two.
Internationally, we're still not where we aspire to be but we have doubled our rpt's from 10 cents in fiscal 'twenty to 'twenty and fiscal 'twenty one to over 40 in fiscal 'twenty two.
On the outgrowth platform business, our year over year growth of more than 30% on revenues was driven by stronger rates and more volumes.
In particular, we saw strong double digit growth rates in E. C P EMS and a more than 40% increase in impressions served.
More penetration of video advertising with higher rates and more pricing elasticity in expanding our publisher relationships internationally, where the key drivers of that volume and rate.
In particular, I was really happy to see the strong growth in both video globally and APAC is the region for all AD formats.
APAC had strong annual growth in excess of 75%.
And as an example of the global video growth in the fourth quarter of 2020.
Fiber did $1.3 million of gross video revenue.
In the fourth quarter of 2021, it was approximately $15 million in it.
In the fourth quarter of 2022, it was $28 million.
We can tell a similar growth story for AD colonies video efforts on its private brand marketplace deals as well.
The point is that the strategic investments that both fiber and add colony made prior to the acquisitions operating in global marketplaces are what is bearing fruit today.
And finally regarding apples idea Fei changes now that we are in nearly a year on from idea Fe, we can conclude that our business really saw little impact from the Apple changes.
Our iOS share of revenues is now approximately 20% of total revenues and less than 5% of that is tied to budget explicitly linked to idea FA.
I want to call. This point out specifically as well I have no idea what Apple is going to announce at its developer conference next week I do want to remind investors what a small percentage of our overall revenues are tied to any changes Apple decides to make pro or con to its platform.
As we towards turned towards our new fiscal year I wanted to highlight the progress on our growth drivers.
Yeah.
First on our own device business, we expect to see new product growth from things such as single tap licensing where we've made some material progress since our last earnings update.
We are now signing contracts and entering live trial phase with many tier one partners. This quarter expect to see those begin generating revenue in the September quarter and ramping in the December quarter.
Early results and interest has been encouraging and we expect to see this as a large growth driver and in margin enhancer.
Into the future.
Similar to our early days of our business, where we launched one carrier ramped and then another carrier ramped and so on and layered on nice sequential growth as we expanded the depth and breadth of carriers and Oems.
I expect a similar trend to emerge with our single tap licensing business.
Ultimately, we expect this part of the single tap business to exceed our current direct approach to single tap, which grew 650% from fiscal 'twenty, one fourth quarter, two fiscal 'twenty to fourth quarter.
Okay.
We're also excited about our progress on a variety of operational improvements, we've been making to our ignite platform in terms of scalability and efficiency.
For example, migrating our American mobile account from their proprietary solution that we integrated with many years ago to our standard solution should enable better performance and better revenue per device and ability to add new features.
We've also seen the ability to better leverage our own device firmware updates and app updates to drive improved performance in revenues. This all has the impact of our improving our revenue per device.
We also expect to see growth from our App store strategy while.
While we see this more as a driver beyond 2022, we're already seeing early revenues emerge today.
And as a reminder, we are expecting numerous pieces of bipartisan legislation in both the EU and in the U S to become law that will disrupt how applications and digital advertising work.
We view these regulations as a tailwind for our business.
As a parallel in the E Commerce World, we're all used to having companies like Amazon that sell nearly everything and then more segment specific stores that white label e-commerce capabilities from companies like shopify to sell their goods and services.
Due to the dominance of Apple and Google bundling, the OS and App stores on smartphones. This white label capability has been difficult to execute in the App distribution world.
Today, we offer up things like games folders that can be from a single company like zynga or for a specific type of game catalog.
But the idea of a carrier store at Disney store, a streaming video store and so on are not widely utilized to date due to the bundling of the operating system with the App store.
We see us being in a unique position to potentially power. These types of offerings, regardless of platform and our early conversations have been encouraging.
On our App growth platform as a reminder, our main growth strategy is to own our own network, where direct demand, where we can take inefficiencies out of the digital supply chain of mobile advertising.
We continue to make progress on our revenue synergies, which are still early days and we're over 10% of our revenues.
We're planning to launch in the next few months, some new initiatives that should help accelerate those revenue synergies and simultaneously helped drive more profitable top line growth.
Specific to a few examples are consolidating our AD tech and the legacy fiber and add Tony devices into one exchange, where demand and supply platforms, such as the trade desk can purchase more inventory at scale.
We anticipate this will generate many tens of millions of dollars of incremental revenue this fiscal year and begin next quarter.
And secondly, we are integrating our single tap capabilities into the fiber exchange.
This capability will make it more attractive for advertisers to bid on fiber inventory, which in turn should be an overall growth driver for our app growth business.
We also continue to make progress in our brand efforts and our remediation efforts.
And given our relatively small market share in both of those markets. It does not take much momentum to move the needle as our efforts add more scale to sell against.
And our cost synergies have been impressive as our cash operating expenses are relatively flat year over year, despite making many investments in our efforts discussed above.
These investments are able to be funded by the synergies of the combined businesses.
And finally, we've been working on a number of integration activities of systems processes tools and organization.
This behind the scenes work has been material and while theres been some double lifting of the teams to support the president and the automation of the future. It's marginally impacted some of the execution the ability of the team to do both has been impressive.
And also we will be migrating all of our activities to the digital turbine brand. This summer and sunsetting. The appreciate add Tony and fiber brands with a renewed look and feel for the T T brand.
So combined between our App growth business in our device solutions business, we've seen plenty of profitable growth drivers and an integrated company that we believe will help to drive the next phase of our strategy.
With that this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.
Yeah.
Thanks, Bill and good afternoon, everyone. We capped off another very impressive year and delivered a strong fourth quarter performance for the fiscal year 2022, we reported $747.6 million in revenue growth of 138% as reported and 41% growth on a pro forma basis, we generated 109.
$5 2 million in adjusted EBITDA, an increase of 158% over prior year and delivered a $176 million and adjusted net income or $1 66 per share as compared to 74 cents per share prior year.
In addition to the outstanding financial performance delivered in the year, we simultaneously integrated three key acquisitions to our platform and we continue to drive towards a growing 400 billion dollar Tam.
As it relates to our recently acquired businesses and as communicated in our recent press release after conducting a thorough review we restated certain product revenues of the recently acquired businesses to be on a net basis for FY 'twenty to 'twenty two.
Previously all of the fiber and add colony publicly reported revenues were on a gross revenue classification.
In addition, certain hosting expenses associated with the acquired businesses have been reclassified as cost of revenue, which were previously partially reported as product development expenses. These changes in presentation of the new and reclassification of certain cost of revenue are reflected in our recent amended Form 10-Q.
As.
These changes did not have an impact on our operating performance.
Our earnings metrics or cash flow and there is no change to the owned device media business.
We also believe these reporting changes should assist investors peer comparisons and highlight the relative profitability of our business model.
Also since the company has closed several significant transactions during our fiscal reporting period and made the reporting amendments I referenced earlier. This has impacted the normal timing of our year end audit and as a result, we have followed the 15 day extension and anticipate reporting in our 10-K in a couple of days once the final audit is completed confirming our.
Results announced today.
Now turning to the financial performance in the quarter.
Revenue of $184 1 million in the quarter was up 94% as reported and 19% on a pro forma basis, we delivered healthy revenue within a challenging macro climate and while integrating our new businesses to the digital turbine family.
In addition, I'd highlight these results were achieved against a challenging prior year comps.
Our top our top line growth enabled gross profit to increase 129% to $90 2 million in the quarter.
Gross margin on the platform was 49% in Q4 up from 41% in the prior year and up sequentially from 46% in Q3.
While focus on margins enabled expansion across our business lines are on device business was an important driver of the sequential increase driven by the mix towards our higher margin products in Q4 represents an expected normalized level.
We experienced continued impressive expense scale on the platform as cash expenses were $39 8 million in Q4 flat year over year on a pro forma basis, while revenues were up over 19% in the period.
Total operating expenses were 62 million, including $13 5 million and amortization of intangibles and $2 6 million of transaction related costs.
Compared to our total as reported operating expenses of $23 1 million in the prior year.
While we've experienced lower than expected operating expenses, partly driven by the virtual work environment. We do anticipate these returned to work expenses to increase to near pandemic levels over the near term.
Integration of the acquisitions continue to be a focus and we expect to make continued investment to migrate certain systems to a unified platform.
These near term investments are anticipated to drive continued cost benefits should be realized over the coming quarters. As integration efforts are successfully implemented to further improve our efficiency and drive further operating leverage.
Adjusted EBITDA of $50 4 million in the quarter was up 124% over prior year.
EBITDA margin of 27% improved from 24% in the prior year.
I'm proud that our operating leverage and consistent EBITDA growth has been achieved even as we make continued focus near term investments primarily within our sales force and technology teams to support new partners and products and to drive future incremental revenues on this platform.
In this context, we would expect our EBITDA margins to continue to expand over time, given the inherent operating leverage in our business and the return to be realized from our near term investments and synergies to be generated from the integration of our acquisitions.
I also continue to be pleased with our profitability and our free cash flow delivered by our business in the quarter. We achieved non-GAAP adjusted income of 41 million or <unk> 39 per share as compared to $24 $5 million or 25 cents per share in the fourth quarter of 2021.
Our GAAP net income was $20 1 million or <unk> 19 per share based on $104 2 million diluted shares outstanding compared to fourth quarter of 2021, net income was $30 1 million or 31 cents per share.
Our free cash flow for the quarter was $36 $3 million and with the combination of the acquired businesses onto the platform. We generated a total of $127 million in free cash flow in fiscal 2022.
We exited the quarter with $127 million in cash and our debt position ended the quarter at $536 6 million consisting of 524 $1 million drawn on our revolving credit facility.
During the quarter, we made our final cash earn out payment related to the acquisition and we've completed all the cash earn out obligations related to the acquisitions made this year.
We're confident in our balance sheet and capital position with a low cost credit facility strong free cash flows combined with the strategic acquisitions integrated on the platform, we're excited and poised to execute on our growth plans for fiscal 2023 and beyond.
Now, let me turn to our outlook.
As we consider the ongoing macro environment. We currently expect revenue for Q1 to grow between $183 million and 187 million and adjusted EBITDA to grow to between $49 million and 51, nine and non-GAAP adjusted net income per diluted share to be between 34 and 35 ships.
Based on approximately 105 million diluted shares outstanding and an effective tax rate of 25% on our non-GAAP adjusted net income.
In closing we are proud to be a high growth technology company that consistently generate strong earnings and free cash flow. We're pleased with our performance in the quarter and the continued execution from our team.
I'm excited to build on the momentum and success in the fourth quarter.
Our fiscal year and beyond.
With that let me hand, it back to the operator to open the call for questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Darren <unk> with Roth Capital Partners. Please go ahead.
Hi, guys. Thanks for taking my questions a couple if I may.
Bill you mentioned on licensing.
Opportunity with the single tap I think I heard you right. You said you had some deal sign and some that are getting close to kind of ramp and.
So I guess first question around there he kind of just contextualize that.
Traction you've made there and kind of what kind of Domino's, we might see in the environment. Thanks.
Thanks Darren.
On single tap licensing as I mentioned in my remarks, I actually see this as kind of an emerging very similar to how the early days for us as he started with Verizon and AT&T cricket Samsung attract all the rest of the all the rest of them, where you bring on a partner it takes a while to bring on that partner because you got to integrate into their processes.
They do business. So you know a lot of these large tier one players already have existing processes for how did your app installs and so we've got to integrate into that and we're in the process of doing that right now as I mentioned, our trial phase with a number of them right now and we expect to start generating some revenue for next quarter, and then and then ramping it from there on out and as we add those new partners I think those will.
Be nice sequential growth drivers as we continue to add each one of them. I think is we're just seeing in the macro world right. Now people are trying to figure out how to improve their performance for their businesses, how do they improve conversion rates from the advertising dollars that they're spending and obviously single tap accomplishes that so there's a tremendous amount of interest right now in <unk>.
Single tap licensing we're excited about it I think the key for US is just having to work with these larger companies to integrate our technology into their existing processes, which requires a little bit of work by them on their side and so just getting that kind of just getting that kind of time and materials work through is what were taken to the ground floor right now, but we're extremely bullish in the fee.
So far it's been very positive.
Thank you and that'll be squeezing one more.
Could you talk about kind of the expansion of the Samsung relationship.
How many new skus.
Beyond that just what the number of devices out in the quarter were thank you.
Yeah, Yeah sure. So when we think about when we think about our Samsung relationship.
Now you know a year ago, we were doing millions of devices and you know now are doing many many tens of millions of devices with them with them globally right now.
About 75 different countries around the world right.
Right now so we continue to expand with the relationship with Samsung could you look to expand even more we obviously are bullish that single tap will be a catalyst.
For that since that's incremental economics for Samsung and we're kind of in the midst of finalizing those plans right now.
Thanks.
The next question is from Tim Horan with Oppenheimer. Please go ahead.
Thanks, guys a few questions.
The single tap you had given some expectations for revenue.
A couple of years out can you reiterate that and I know you know you said that licensing could be bigger than what you would do yourself can you just give us some more color around what you meant by that time slot.
Yeah, Hey, Jim So when we were at our Analyst day, we basically had presented a plan to say okay. Over the next next few years, how do we make this $1 billion business and we'd broken out some math to talk about how we do that on a per advertiser basis on our demand side platform and we continue to add advertisers to that and are scaling that.
Today, I referenced 650% year on year growth on that platform for where we were a year ago to today. So that that absolutely is one of the drivers for it and then today I think one because we wanted to spend a little bit more time talking about it as Darin just asked about was on the single tap licensing side and you know how we see the actually to get towards the broader 100 billion.
The addressable market for App installs today, and Thats more likely for us to get our piece of that through the licensing part of the business versus trying to only do that on a direct basis through our demand side platform. So that's where we want to talk about some of our progress point today and look forward to keeping you guys updated on future calls against that.
Okay, Great and then just two other questions.
I know you're investing for one platform. The <unk> platform in one brand are these material investments quarterly end.
Wednesday, and and should we see synergies at that point I guess, what do you think the Ebitdas and pack now and what does it mean for if it reverses.
Let me start and then I'll turn it over to bear interest for some for some specific thoughts on the on the cost structure side, one of the things I'm just really proud of is just how well this team hustled and makes investments you were able to fund investments.
Through efficiencies and synergies. The fact that we grew all the metrics that we just talked about in the prepared remarks, and basically did that was zero incremental cash opex.
A testament to the efficiency of the model the efficiency the team and then just how much hustle. They have so we're making these investments without having to go out and spend incremental dollars against them now of course, we want to we're going to continue to make investments in the business and we continue to look to accrete EBIT margins and harvest some of those investments, but barrett jump in here on some spitz.
Perfect thoughts on the cost structure.
Yeah.
Pardon me it looks like a Barrett swine has disconnected from the call.
Hey, Joe.
Let's keep going to the operator.
Okay.
The next question is from Anthony Stoss with Craig Hallum. Please go ahead.
Hey, Bill.
How much of a single tap in the March quarter.
Yep.
Yes, so we're not breaking the revenues out.
Anthony any more and the reason the reason for that is.
So we're starting to do revenues for example on the AD colony business and so we're just adding in as an adder. So we do a dollar of revenue that was already there and how much do we get into cost accounting issues in terms of applying capabilities onto revenues that were already there on incremental we've kind of wanted to think about single tap is a little bit more.
As a as an enablement capability versus specific revenue that I called out the 650% on that on the demand side platform, but.
But we're not trying to break out specific business just because there's so many elements now how single tap speed use whether it's I've talked on fiber exchange the add Tony part of the business the licensing business and the demand side platform business. It kind of get it can get confusing in terms of how you want to allocate the dollars.
Lately.
You know in the past you've talked about two different ways of getting paid kind of an ongoing revenue share also a one time fee per subscriber have you honed in any further or how do you expect to get paid from these first several partners. Yes, I think the first one is you're going to see us get paid is really a it is a licensing fee for each transaction that we.
And then some and then some kickers based upon enhanced performance.
Got it and then you called out weakness is it more.
More of the fiber side than the ethanol side or any geopolitical side I'd love to hear your thoughts just where youre seeing the weakness.
Yes, I think for our business right now I think the worst.
Seeing some AD spend softness as many others have talked about.
Europe , I think I kind of equate this time, a little bit to when <unk> came out a year ago and what happened was when you introduce all of this new change into the system a lot of times budgets people were spending $100 and then they say, okay. We're going to spend $80 just to kind of see what happens and then once they see where the dust settles then they go back to start spending $100 again.
And I think what we're seeing right now with especially specifically in the in our Europe , and Russia and part of the World is that kind of behavior is happening right. Now I think we're starting to see some early days here in the U S. In terms of people trying to be a little bit more cautious in overall, but I think one of the good things for us.
Is because everything that we do has to generate a return on AD spend so those we tend to get those dollars and those budgets because we can correlate that dollar directly back to what an advertiser spend with us.
And so that's really important to a much more important than a 32nd spot during the wire Celtics game. Later this week, where you don't necessarily know what the return on that AD spend is going to be there.
The fact that we can correlate that back I think insulates us a little bit more than others.
Got it thanks, Bill best of luck.
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.
Thanks, everyone for joining the call today, we look forward to reporting on our progress against all the points that we made on today's call and we'll talk to you again on our fiscal 'twenty two fourth 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.
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