Q1 2023 Digital Turbine Inc Earnings Call
Good day and welcome to the digital turbine fiscal first quarter 2023 earnings conference call.
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I would now like to turn the conference over to Brian Bartholomew Senior Vice President capital markets and strategy. Please go ahead Sir.
Thanks, Rocco good afternoon, welcome to the digital turbine fiscal year 2023 first quarter earnings conference call joining.
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 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.
We used to refer to today's press release for important information about the limitations of using non-GAAP measures.
As well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures.
Now I will turn the call over to.
Chief Executive Officer, Mr. Bill Stone.
Thanks, Brian and thank you all for joining our call Tonight.
I own the vast majority of investors are currently focused on the macro environment headwinds and what they mean for our business versus the micro operational details.
Well I'm going to cover both in my prepared remarks, I'd like to begin the remarks talking about the macro environment.
And what it means to us before diving into our results for the first quarter.
The macro environment, we've experienced over the last two and a half years she's been the most dynamic I've seen in my 30 year career at.
It's required companies to operate lean, while being nimble flexible and open to change.
I'd like to break out some macro commentary across how we think about it in four primary dimensions.
The COVID-19 pandemic inflationary pressures recessionary economic growth fears and geopolitical concerns.
First on the Covid pandemic, the biggest negative impact we've seen in our business results has been the slow decision, making at large companies, resulting in a longer sales cycle for items, such as signing up new operators and Oems licensing partners for single tap or adding new features with our existing partners.
With many now back in the office combined with our ability to travel without restrictions to most locations and a need for our partners to find new income streams and the current recessionary environment, we've seen a positive trend of progress over the past few months.
And while this progress is not yet impacting our current results. We're optimistic is it a it is a lead indicator of being a growth catalyst for us over the next year.
Cause it also changed the work model for Tech companies.
Today, we are seeing more in person worked here a D T, helping with our innovation collaboration and connection to the company versus working 100% remote.
Companies that figure out a hybrid model versus a one size fits all model for the future of work will have a competitive advantage in the marketplace.
Also on the lockdown restrictions going away I believe there is an investor a hypothesis that the output of that dynamic is that the engagement and applications, especially games is being reduced as society returns to outdoor and office activities.
And while that may be true across certain publishers and app titles at a macro level, we've been able to increase our supply of AD impressions and have not seen a decrease.
We're increasing our penetration in many verticals and I'll discuss those later in my remarks.
Second regarding inflation, we don't have input costs, our physical supply chain issues. So we are largely insulated from inflationary pressures.
There are two exception to this.
First we've seen a modest impacts caused on device supply chain issues with our operator and OEM partners.
And secondly, we have experienced some modest wage pressures for hiring tech talent.
But as you can see in our Opex and device results. It has had a minimal impact on our overall results as we have now expanded EBITDA margins for five consecutive quarters.
And then also as Youll see in our gross margins compared to last year. They have expanded which we believe is a sign of strength in an inflationary environment.
Yeah.
Third on recessionary fears as many other public AD Tech companies have already are already reported we've seen a slowdown in the digital AD market as advertisers rethink their investment strategies.
This has negatively impacted our recent results and near term outlook. However, we expect this to be a temporary versus permanent dynamic.
The overwhelming feedback we see in the market is that the majority of AD spenders are more in a wait and see mode versus our we don't have money to spend mode.
And the reason for this is simple soon.
Since your invention of the printing press hundreds of years ago AD dollars have always followed eyeballs and our eyeballs continue to be on digital devices.
Today in 2022 we spent nearly four hours per day on our devices compared to less than three hours in 2018.
And if that dynamic ever changes, we could see a long term shift into core decline in digital AD spend but that's not something we see as probable.
In fact, we believe the opposite.
And combining this macro dynamic with a micro value of our differentiated end to end platform will provide a more compelling reason for customers to expand their partnerships with us compared to other less differentiated or commoditized competitors.
I'll provide more details later in my remarks, but we do believe this slowdown is not just temporary but also important for investors to understand the nuances of this dynamic by geography AD type operating system business vertical direct versus response.
Brand and so on.
And finally on geopolitics, there's two main issues impacting our results.
First is the war in Ukraine, where we've seen some very minor impacts from stopping our direct involvement in Russia slowing spends in Europe relative to other geographies and juggling product development activities given a few of our development teams were operating in the Ukraine.
The second geopolitical area has been China, where the combination of zero Covid policy limiting our ability to travel to China and broader U S. China relations have slowed our progress with Chinese Oems trying to expand outside of China.
Neither of these geopolitical issues are materially impacting our results, but they are minor headwinds nonetheless.
Now turning to our first quarter results, we had $188 $6 million of revenue $51 $9 million of EBITDA and 38 cents of non-GAAP earnings per share.
That is an as reported growth of 19% for revenues, 30% for EBITDA and 12% for non-GAAP earnings per share.
In addition, since we've now closed our AD colony and fiber transactions, we had exactly one full year of comparisons.
And over that past year, we've delivered nearly $150 million of free cash flow since we've been reporting as one company.
That compares to less than $50 million of free cash flow for the 12 months prior to the acquisitions.
Or in other words, a 200% increase.
So before we dive into the specifics I do want to highlight and remind investors just how much our company has achieved in such a short amount of time and in particular, our ability to showcase the operating leverage of the model.
We're not just profitable, but growing that profit faster than the top line.
And during the first quarter, we specifically made a conscious effort to focus on gross margins.
First is topline growth.
non-GAAP gross profit improved sequentially from 49% to 50% compared to a reported margin of 45% in the first quarter of last year.
Being able to increase our margins in this current inflationary environment is something we are proud of.
Combined with strong operating expense management, it's driven EBITDA margin expansion to 28%, which is an all time high for us.
For our own device business. The driver of these results were driven by more devices more products and more media relationships.
In particular, we added over 67 million devices in the June quarter, which compares to 63 million devices in the June quarter last year.
This growth was predominantly internationally as U S device sales were marginally down year over year.
I was pleased with our continued improvement in revenue per device or our PD in the United States. Our RPT of over $5 per device was an all time high for us and up approximately 20% year over year.
Yeah.
Given the direct response or performance nature of our own device platform seeing that double digit growth is encouraging.
We also made progress on our single tap licensing product.
As we stated on the last earnings call. The plan is to begin seeing revenue in the current quarter and ramp that product in our third quarter.
We are on track against this plan and anticipate having more than five partners lives by the end of the September quarter, and North of 10 by the December quarter.
The product market fit is very strong.
And similar to the early days of our business, where we launched one mobile operator, or OEM and then ramp to another and added another and so on it layered on nice sequential growth as we expanded both the depth and breadth of carriers and Oems.
I expect a similar trend to emerge with our single tap licensee business.
And ultimately we expect this part of the single tap business to exceed our current direct approach for single tap.
On the App growth platform or AGP business, our year over year revenue growth was 13%.
The slowing in macro digital AD spend is being offset with a higher volume of impressions as we continue to add additional supply into the market.
From a regional perspective, we continue to maintain a diversified global footprint.
In the current quarter, we saw impressions grow year over year across all of our major regions with APAC showing particular strength.
In EMEA impressions were up double digits double digits from the prior year, despite the geopolitical challenges in eastern Europe .
We have seen sequential slowing impressions, but its primarily been offset by higher rates or ECP EMS in both North America, and the Europe Middle East Africa region.
And looking at placement types. We've also maintained a balanced portfolio weighted between banner interstitial and video.
Banner saw accelerated growth this past year with the continued expansion of the digital turbine exchange and DSP.
The video growth for the quarter was in the high teens and continues to be the placement format. We believe has the most future upside.
In addition to this volume growth. We also saw improvements in our AGP margins that went from a pro forma 67% last June to 71%. This quarter as we were able to drive improved revenue synergies across our platforms.
And finally regarding apples idea Fei changes now that we're a year in an idea Fe, we can conclude that our business really saw little impact from the Apple changes.
Our iOS share of revenues is now approximately 15% of our total revenues and is even smaller than that when you consider budgets tied explicitly to apples platform that we were able to shift to Android.
There are many AD tech companies with a much higher percentage share of their revenue is tied to the iOS platform and thus are experiencing greater headwinds than us.
In addition, many if any have also many of them also have seen that Google has delayed the implementation of their privacy sandbox activities.
And while this is more relevant to the mobile web versus applications.
We do think it highlights the difference in approach on how GAAP, Google as an add company versus Apple as a hardware company our approach in the market and do you think investors should take note of these differences.
As we turn towards the future I want to highlight our top three priorities, which are first focusing on the fundamentals of our business and executing on the 300 billion dollar total addressable market.
Secondly, integrating our companies into one.
And third making the straight right strategic moves so the company as Wayne Gretzky famously said skating to where the puck is going not where it's been.
On the first party of fundamentals, we're going to grow our business by continuing to add devices add additional products and expand our media relationships.
We expect to expand both our device and product offerings.
I mentioned single tap licensing earlier in my remarks, but also want to highlight our other growth drivers we've begun pivoting our content media business to focus increasingly on postpaid subscribers versus predominantly prepaid subscribers today.
And while that's negatively impacting our short term content media results, we have increased traction with Verizon and AT&T on postpaid with a bigger addressable market that should serve as a nice growth catalyst into the future.
We're also making solid progress on our mediation solutions, adding many additional app publishers in the quarter.
And finally, I mentioned additional supply traction on devices earlier my remarks, now that the operator and OEM partners are looking for additional revenue streams more than ever in a recessionary environment and we're seeing increased traction with many global operators and Oems.
And finally, we won't expand our media relationships.
I am excited about is our expansion into verticals beyond gaming, even while we grow our gaming relationships with leading providers such as triple Dot.
Our social media vertical led by companies, such as tick tock, and pinterest or utility vertical such as weather and our financial verticals with customers such as square and Paypal all grew more than 50% year over year.
The only real material vertical showing decline, where the crypto and news verticals, which will which are low single digit percentage of our revenues.
Also we're working to realign our channel strategy and our brain business.
At colony as legacy brand business had been operating with a direct sales force in some countries and channel partners and others.
We want to realign this approach and take a more direct approach and larger brand spending countries and work with channel partners and smaller markets.
Specifically, we are going to bring our channel partners in house in the U K and look to scale up our efforts in Europe .
This should have the benefit of adding both margin and revenues to our brand business.
Yes.
Our second priority is to continue to integrate our company into one we've made material progress on internally facing things like our systems tools processes and organizational design.
And with these net elements now in place it provides us increased ability to deliver as one company versus four and we're now turning our focus externally to deliver to our customers and partners.
Specifically, we're now putting increased focus on building a D T brand in the marketplace. We rebranded the company last month with a new look and feel but more importantly, we've unified the legacy T. Mobile posse appreciate add colony and fiber teams under a common umbrella leveraging their unique assets now as one.
We are working surgically to ensure our partners customers and other stakeholders see the benefits of <unk> in the marketplace leveraging our on device position, our independence, our direct demand and our differentiation solutions such as single tap across the entire enterprise.
Early feedback from customers has been very encouraging.
Our final priority is making the right strategic moves for the future, which includes making investments in our AD Tech scalability and our App store strategies.
While we see both of these more as a driver of beyond 2022, we're already seeing traction today.
And as a reminder, we're expecting numerous pieces of bipartisan legislation.
In the EU and the U S to become law over the next year that will disrupt how applications and digital advertising work.
We view these regulations as a tailwind for our business.
As a parallel in the ecommerce world, we're all used to having companies like Amazon 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 operating system and store in smartphones.
White label capability, it's been difficult to execute in the App distribution world.
Today, we offer up things like games folder that can be from a single company like zynga or for a specific type of game catalog.
But the idea of a carrier store Disney store streaming video store and so on are not widely utilized today due to the bundling of the operating system with the App store.
We see <unk> as being in a unique position to potentially power. These type of offerings agnostic of platform and our early conversations had been encouraging.
And to make a specific example at this point, we're entering into strategic partnerships with leading app distribution platforms, which we see as a precursor to our ability to deliver on a more democratized app ecosystem over the next few years.
And as we've mentioned on prior calls we believe the regulatory framework is favorable to build a shopify for app stores and a key element of that is our ability to port apps from a publisher into various app stores.
We're looking to accelerate our efforts in this area and these arrangements should help accomplish the objective we.
We look forward to updating investors on our progress in this area.
In conclusion, while we are seeing some short term headwinds that are impacting our near term results. We believe the combination of our company specific growth catalysts and investments and rebounding secular tailwind for the digital AD spend will generate strong profitable growth for us into the future.
And on a personal note one of the requirements about being a public company CEO is the ability to focus simultaneously on both the short and the long term.
That goes with the territory of the job.
Today Investor focus on the short term is the greatest I've seen in my time at D. T I.
I definitely understand why it is but we would encourage investors that are able to take an outlook beyond a particular quarter or more likely to be rewarded over the long term.
And by looking at our past performance of being able to work in difficult times, that's definitely true for apps investors that have been with us for many years versus just a few quarters.
With that 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'll start by echoing Bill's sentiment around the challenging macro climate and the headwinds observed in Q1 and despite the current macro conditions. We continue to be excited about the expansive opportunity ahead of digital turbine, especially as we execute on this transformational.
Days of the company.
Now turning to the results in the quarter, our Q1 results reflect our focus to deliver sustainable profitability and as Bill mentioned earlier, we have made conscious efforts to expand our gross gross margin and EBIT margins even during these dynamic times.
Revenue of 180, $188 6 million in the quarter was up 19% as reported and 5% on a pro forma basis.
While revenue growth decelerated from the first fourth quarter linked to the macro challenges discussed our own device business also experienced anticipated headwinds largely from two other areas.
First as Bill mentioned earlier, our content products have been impacted as we evolve the product and ramp users with new partners.
Secondly, a focus effort on expanding margins in certain areas resulted in expected top line deceleration, while driving growth and absolute gross profit dollars.
As we've integrated our businesses over the last 12 months we.
We have made an update to our segment reporting to align with how we operate and manage the business while our own device solutions business remains the same beginning in this June quarter, we aggregate the legacy fiber and add colony AD Tech businesses with a single App growth platform segment.
And before I leave revenue I will note that in this environment global companies are facing headwinds driven by the trend and strength in the U S dollar.
Fortunately foreign exchange rates have had only a modest impact on revenues despite the macro climate.
This is due primarily to our current business model, where we only have modest FX exposure given the majority of our revenues are denominated in U S dollars.
Our top line growth enabled gross profit increased 33% as reported and 7% on a pro forma basis to $93 6 million in the quarter.
Gross margin on the platform was 50% in Q1 up from 45% as reported in the prior year and up sequentially from 49% in Q4.
While focus on margins enabled expansion across our business lines are on device business was an important driver in the sequential increase in addition to our core business expansion. We also experienced a one time benefit in the quarter from a partner agreement extension that improved margins in the quarter.
While this business while this benefit should not be expected to recur. We believe it's a testament to the company's value delivered to our partners.
As a reminder, while gross margin rates can fluctuate from quarter to quarter. We anticipate further margin expansion as we continue to execute on our growth and synergy strategies.
We continue to deliver healthy expense scale on the platform as cash expenses were $41 6 million in the quarter up 2% over prior year on a pro forma basis, while revenues were up over 5% in the period.
Total operating expenses were $67 9 million, including $16 1 million in amortization of intangibles, and $1 3 million and transaction related costs and compared to total as reported operating expenses of $57 million in the prior year.
Okay.
While we've experienced lower than expected operating expenses, partly driven by the virtual work environment, We continue making investments in our teams infrastructure and our recently announced unified brand relaunch.
We have been experiencing increases in returned to work expenses that were much less during the pandemic period, including events travel and other operated operational costs.
The integration of our acquisitions continues to be a focus and we expect to make continued investments to migrate certain systems to a unified platform.
These near term investments are anticipated to drive continued cost benefits to be realized over the coming quarters. As integration efforts are successfully implemented to further improve our efficiency and operating leverage.
Our adjusted EBITDA of $51 9 million in the quarter.
Increased 30% over prior year, and our EBITDA margin expanded to 28% up approximately 300 basis points over the prior year and were pleased to deliver in Q1, our fifth consecutive quarter of sequential EBITDA margin expansion.
I'm proud that our operating leverage and consistent EBITDA growth is being achieved even as we continue to make a number of focus near term investments.
Primarily within our sales force and technology teams to support new partners and products to drive future incremental revenues on the 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.
And the return to be realized from our near term investments and synergies to be generated from the integration of our acquisitions.
I continue to be pleased with the profitability and the free cash flow delivered by our business in the quarter. We achieved non-GAAP adjusted net income of $38 6 million or <unk> 38 per share as compared to $33 4 million of income or <unk> 34 per share in the first quarter of last year.
<unk>.
Our GAAP net income was $14 9 million or <unk> 15 per share based on $102 7 million diluted shares outstanding.
Compared to our first quarter of 2022 net income of $14 2 million or 14 cents per share.
Healthy free cash flow from the quarter grew 120% to $31 5 million in the quarter up versus prior year of $14 three.
We exited the quarter with $89 3 million in cash after paying down $65 million in debt using free cash flows from operations to further deleverage our debt position.
Our debt balance ended the quarter at $47 1 million drawn on our revolving credit facility.
And as our business continues to produce strong cash flow, we would expect to continue to pay down our revolver.
We are confident in our balance sheet and our 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 Q2 to be between $170 million and $180 million and adjusted EBITDA to be between $46 million and $50 million.
And non-GAAP adjusted net income per diluted share to be between 32 and 34 based on approximately 104 million diluted shares outstanding with an effective tax rate of 25% on our non-GAAP adjusted net income.
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.
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Pick up your handset before pressing the keys.
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Today's first question comes from Dan Day, B Riley FBR. Please go ahead.
Yes afternoon, guys. Appreciate you taking my questions.
As it relates to a single pad, maybe just talk about any incremental progress on the direct side you've talked about I appreciate the commentary on the licensing.
You laid out the number of advertisers using the product the monthly spend per advertiser.
Your day last November .
Dates on that is that generally trending in line with what you guys had expected so far.
Yes, Dan sure, yes, as we think about single tap Theres really four different ways were currently approaching the market with it today. One is you've mentioned was singled out licensing and we talked about the progress of that in my prepared remarks, I know theres a lot of investor interest around that.
Secondly, as direct.
Third is working on single tap to our fiber exchange, which just in the process of launching right now and we're excited about that and the fourth is leveraging.
Our prior add colony relationships. So we're working at across all four of those items on single tap direct side, if I want to look at the comps for that year over year, we actually generated more margin dollars, but it was really focused on improving margins versus the top line.
You are well aware we arbitrage.
CPI Cpm's for CPI.
And so you know last year, we're really focused on top line growth. This year, we're much more focus on margin. So I've been pleased with the progress.
Were making there, but we really think about single tap more as an enablement capability across all four of those things are just kind of one single element and we really think it's a nice differentiator for us in the market.
Great. Thanks, Bill and then one more for me just maybe.
I think the midpoint of guidance for the third quarter is like.
5% ish year over year revenue decline, maybe just break that out between the <unk> and just give any detail you can in between the on the buy side and the outgrowth segments just.
Just would be helpful. After quarter end and how things have trended a little more specific on where youre seeing some of the macro weakness between those two segments.
Yeah, let me start at a high level, that's kind of how.
Im thinking about it and then I'm gonna, let Barry kind of chime in with some of the specifics of your question.
I think what we've seen right now.
Is some of the Covid dynamics really created what I'll call it supply slowdown for us and as I mentioned my prepared remarks, we've seen that really improve over the last month or two as we start to get more face to face and travel and some of the recessionary concerns and I think our ONR partners have to drive more revenue. So we've seen that really improved recently and I think that will really be a.
Driver for US our results as we go forward, but in the very current time that's created some.
Supply headwinds for us because we weren't able to make some of the progress that we wanted to and then we were able to kind of work through that because of the demand strength in some of the demand slowing down and the macro headwinds I think it's created a trough for our business in the present, but we really view that as a temporary thing.
Going forward for US I was kind of like just that combination of supply and demand dynamics are have been a little bit problematic in the very very short term for us, but I don't really want to emphasize on how we believe those are temporary but as far as some of the specifics Barry I'll take that yeah sure. So we called out on the call between Bill's comments of my own Dan.
Really three factors the first one being macro conditions, we saw some dampening across demand across both our.
Both our businesses and.
Well, while others may have been harmed a bit worse, we we weren't insulated from that.
Piece the second two pieces were largely centered on around our own device business, which we anticipated in our guidance last quarter.
And have been planning for this two fold one is on our content business Bill referenced this on as we're migrating to migrating our products towards.
Tailored to more post postpaid devices, we've changed those products and begin to migrate during.
[noise] migrate to ramp new partners and Thats create a bit of a headwind.
The second one is we've looked at one when we've.
Our focus for this year was to look at our growth in margins and expand those margins or certain areas where.
We tightened things to increase our margin profile and that came in.
A reduction in revenue in some areas topline revenue, but an absolute growth in gross profit dollars, but those are the those are the three areas that gave us a headwind.
And where we are.
<unk> planned for with respect to.
With respect to the on device segment.
Got it appreciate the time guys.
I'll turn it over.
Thanks, Dan.
Our next question today comes from Darren <unk> with Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking my questions two if I may.
It's encouraging to see the focus on the margins.
Curious if you could quantify perhaps the revenue opportunity you may have given up in the quarter and then I just wanted to further understand the content piece on the media side with prepay.
Prepaid versus postpaid when you say kind of headwind could you just dive a little bit more to that to clarify. Thank you.
Yes, so why don't I start Darrin on the content opportunity Barry could talk some about the revenue margin tradeoffs.
On content media.
Our legacy content media business has been largely prepaid I think now more than 90% of our revenues had come on prepaid. We made some material investments are really going after postpaid just because of the.
A larger addressable market both in terms of users as well as our advertising dollars and so I'm excited about some of the progress we've made on that front.
It has come at the expense of a little bit of prepaid and slowing down and prepayments we haven't been focused on that as much.
So that's really about the commentary there and now we're starting to see some much more engagement from our larger.
U S carrier partners around that again, given some of their desires to drive increased.
<unk> engagement from their user so that's been a positive development, but the offset has been a little bit less of a focus on prepay for us.
And then just regarding the tradeoffs and revenue and margin.
Just as a reminder, when we launched.
The acquisition of appreciate in our DSP and single tap strategy.
We had a broad reach there and so while we've seen.
Growth in those areas, we've refined our approach in certain areas to increase those margins.
And so those of you know Darren to quantify that you could you would see our margins expand I mentioned 300 basis points year on year.
Some of that is related to that effort and that initiative.
I wouldnt breakout or comment on what is the specific revenue impact, but you can get an idea of how we're expanding our margins and what areas were driving those.
Great and if I could just squeeze one more in your comment about the five partners in September and then 10.
In December for the licensing business on single tap.
Are those broad base, meaning once the licensing deal assigned its applicable across the entire entities platform or is it kind of piecemeal about thank you.
Yes, I think it's going to you're going to see it's going to be somewhat dependent upon partner.
Obviously, the intention is to go 100% across the platform, but I think what you'll probably see is similar to how we started with our carrier partners, where we do dynamic installs and we go then we go to then we go to Wizard and we got a single tap we add things over time, I think you'll see something kind of similar here. We'll start we'll get go on and then we'll continue to ramp at a broader and broader but I think.
That's the intent of both parties involved if youre going to go through the technical work and integration to do it you are not doing it without the intent of trying to go across to everything youre doing because its improving conversion inefficiency, but obviously you want to make sure that everything out of the gates is working as advertised.
Thank you.
Thank you and our next question today comes from Anthony Stoss with Craig Hallum. Please go ahead.
Hey, guys.
Pretty solid execution, especially on EBITDA in the tough environment.
Hats off on that.
The 10 cap.
Places that you expect to have live by the end of the December quarter. How many are you planning will be tier one and what impact as you ramp single tap license fee revenue.
Will that have on overall gross margins.
Ticket upper ticket down and I had a couple of follow ups after that for Barrett.
Yes sure. So first point is on the gross margins, we absolutely expect it to be accretive since this is more of a licensing SaaS model.
For us and something we're excited about.
In terms of kind of the breakout.
The partners.
Our mix of partners in there in terms of what I would call kind of tier ones and tier twos, but if you think about our business today.
On our device business, we have tier one partners like AT&T, and Verizon and Samsung and then we have a variety of tier two partners as well.
I wouldn't sleep on the tier twos in terms of paying the bill generating that EBITDA you were just talking about.
So it's really a it's really going to be for us a blend of both on single tap licensing as well.
Okay.
Then.
Barrett.
Asking for a guide for the December quarter, but December is typically strong seasonally for you guys and if you expect to ramp quite a bit of a temp licensing revenue in the December quarter should we expect December to be up sequentially from September as you see things right now.
Yes, I think it would be unusual to not have a December quarter above September absent something something odd.
That would be our normal kind of.
Plan for that seasonality so yeah.
Okay, and then lastly, just kind of Opex going forward I know it bumps around.
But are we generally know when a range there is not additional significant investments on the opex side.
So for those that have followed the digital turbine story and even pre the material acquisitions last year, we've been able to drive scale and operating leverage in and do that while we make investments so.
Those efficiencies have been masking some of the investments, we're making but.
On the surface you would you would only see modest.
Increases in expenses relative to revenue certainly.
But we're still we're still actively making investments as I mentioned on the call that.
We will drive future returns and but there's not any transformative expenses, we're making we're actually anticipate.
Savings from unifying the systems onto one platform.
Okay, if I could sneak in one more for bill on the last quarterly conference call you talked about revenue synergies with the acquisitions being about 10% I know, it's confident a tougher economic environment, but where do you say Iraq.
On that 10% revenue synergies.
Yes, I don't think we're hanging in that ballpark, but really what we're seeing especially as we moved from the gross to net reporting is really where you're seeing the benefit is on the margin side Tony on their synergies so I talked about.
Remarks, as we saw pro forma margins go from 67% to 71% year over year and the biggest driver of that is as those are those revenue synergies. So starting really start paid some dividends for us.
Thanks, Bill Best of luck guys.
Thanks.
And our next question today comes from comes from Tim Nolan with Macquarie. Please go ahead.
Okay, I've got a couple as well actually first.
Just curious about pricing in the AD market it looks like maybe a little bit of volume pressure, but it looks like pricing may be holding on could you just talk a bit more about how that developed in the quarter and maybe what youre seeing in the current quarter and then secondly, there's been quite a lot of.
Consolidation on the AD mediation side over the last several months can you just speak a bit to your ability to compete and win revenues on that side of things.
Yes sure sure so.
So let me I'll start I'll start on the mediation.
So one of the things is I think most people are aware.
You saw you've seen some consolidation in the space announced recently with the iron source and unity.
He had a mediation solution iron source that EMEA surgeon says there is consolidation there.
A year ago, you saw consolidation with Twitter selling their Mo pub mediation.
Service over to App love incentives consolidation there. So there's actually fewer players now in the market and we've been able to add publishers I think with kind of two primary things that had been our differentiation in that space number one is our independence and a lot of the other players in the markets have their own App publishing titles.
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So the ability for us not to have that really truly be independent for the publishers is something I think that resonates with them and the second is our ability to offer them.
The new users and user acquisition and leveraging things like our relationships with Verizon and AT&T, Samsung, but also with single tap so youre, having some some differentiators in the market. There are some things really allowed us to compete.
Not a major player in this space, though relative to some of those others, but we are seeing some nice traction there in growth.
As far as your question around the pricing in the AD market.
Those right now.
It's kind of very we're seeing some nice pricing.
Social media company streaming video companies I mentioned some of my remarks.
Some of the verticals that are growing utilities, such as weather financial apps and so on where the pricing power has been very strong, but if we want to look at certain geographies, such as <unk>, such as Europe or other certain programmatic DSP players that may have some softer spence from there advertisers that definitely flows through.
Onto our exchange so.
Kind of as a little bit of a mixed bag.
Around right now.
I was probably most proud of on our on our on device business was the fact that we're well north of $5 here in the U S for revenue per device and so if you don't have strong pricing youre not going to put those kind of results up on the board with a 20% year over year growth. So that's something we're pretty proud of.
Okay and would you would you be able to comment on how things are going in the quarter now I mean, if you're talking about macro risks and things and some advertisers maybe holding off on spending does that weaken your pricing ability.
Yes, I think it's again kind of similar I think we're seeing kind of similar trends and as we think about our guidance, we're going to we always want to think about it in the sense of.
If things don't improve versus do improve.
You saw with our guide last quarter in terms of how we thought about things I think similar philosophy here now.
But I think it's kind of similar commentary that varies by vertical it varies by market. It varies by operating system. It varies by brand spend versus performance or direct response spend so it's kind of a mixed bag right now there's definitely some headwinds and tailwind, we're seeing and the president on all of those variables right now.
Okay that makes sense, thanks a lot.
And our next question today comes from Mitch Pindus with Wells Fargo Global Bank. Please go ahead.
Thank you so much actually my question was just answered so thank you and nice quarter gentlemen.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Bill Stone for 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 2023 second quarter call in a few months, thanks and have a great night.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Okay.