Q2 2025 Digital Turbine Inc Earnings Call
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Speaker Change: I would now like to turn the conference over to Brian Bartholomew head of Investor Relations. Please go ahead.
Brian Bartholomew: Thanks, Nick Good afternoon, and welcome to the digital turbine fiscal 2025 second quarter earnings Conference call.
Brian Bartholomew: Joining me on the call today to discuss our results are CEO, Bill stone and CFO Barrett garrison.
Brian Bartholomew: Before we get started I would like to take this opportunity to remind you that our remarks today will include forward looking statements.
Brian Bartholomew: 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.
Brian Bartholomew: 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.
Brian Bartholomew: Also during this call we will discuss certain non-GAAP measures of our performance.
non-GAAP measures are not substitutes for GAAP measures.
Brian Bartholomew: 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.
Brian Bartholomew: Now I'll turn the call over to our CEO Bill Stone.
Bill Stone: Thanks, Brian and thank you all for joining our call Tonight.
Before breaking down our specific quarterly results I want to start the call with a summary of where we're at in our business.
Our results for the September quarter were marginally better than our June quarter. Our results for the June quarter were better than the March quarter.
Bill Stone: Our outlook for the remainder of the fiscal year assumes December will be better than September and we will perform better in this upcoming March than we did last March however.
Brian Bartholomew: However, while these results are showing positive progress that progress is below our expectations and that has been baked into our go forward forecast.
Brian Bartholomew: We've been able to grow the strategic areas of our business that we've discussed on prior calls we will discuss later in my remarks.
But that new growth has not been strong enough to offset the declines in both our exited businesses and legacy businesses.
Brian Bartholomew: Device sales with our U S partners, our sunset products and our legacy performance bidding strategies into the D. S piece in our exchange.
Given this new operating environment, we need to make these businesses more efficient and rightsize, our cost and support structures to reflect their current profitability contributions.
We began a transformation project, including some third party consultation to take out more than $25 million of annual cost in our business to become leaner and improve cash flow enable us to invest in these growth areas.
Brian Bartholomew: That future is bright as evidenced by our multiyear agreement, we just signed with a new tier one operator here in the U S for a variety of services and our relationship with one store that will be a catalyst for us to grow additional device supply here in the U S. The EU and Latin America.
Brian Bartholomew: In addition, our brand strategy on our AGP part of our business is now showing solid year over year and sequential growth and we believe we are building a nice moat around our strategy.
Brian Bartholomew: I'll provide more details in my remarks on these items, but the bottom line is we need to execute better faster and more efficiently than the present as a company. So we can attack the enormous market opportunity in front of us in the future.
Brian Bartholomew: Our number one priority.
To move to our second quarter results, we achieved $119 million of revenue and just over $15 million of EBITDA.
In addition to the numbers.
Brian Bartholomew: And as we've discussed on prior calls.
Brian Bartholomew: We continue to invest in the future with notable progress on numerous investment activities that set us up for the future, including our progress on our new version of ignite our new hosting platform has moved from migration phase two optimization phase of our launch of improved bidding capabilities are showing positive growth with brands and many new backend corporate systems consolidate.
Brian Bartholomew: And launched which are simplifying and automating our work.
Brian Bartholomew: For the quarter were at a variety of encouraging activities that are showing improvement in a variety of activities that need improvement.
Brian Bartholomew: First on the Ods segment on the positive side as we've discussed on prior calls.
The importance of increasing our revenue per device or are P. D outside the United States to offset the device declines inside the United States.
Brian Bartholomew: I was pleased to see our international Ods revenues improved nearly 25% year over year, driven by better our P DS and new supply offsetting legacy U S supply.
We also saw both sequential and year over year growth in our content media business, we still need to add more supply to our content media business, but I was pleased to see the team doing a great job optimizing the supply would you have to drive growth.
Brian Bartholomew: Okay.
Brian Bartholomew: We also saw our single tap licensing product continue to grow as we expanded relationships with many partners.
The biggest headwind callouts or device sales and reduced software updates over the life of those reduced device volumes.
In the U S operators have now publicly reported another quarter of postpaid upgrade rates there were approximately 3% of the base for the September quarter or run rate of approximately 12% per year.
Brian Bartholomew: That would imply more than an eight year upgrade cycle, which I think all of us would recognize as unsustainable for the long term, but this is a reality in the present.
Speaker Change: Would you expect this trend to reverse in 2020 five as we see the anniversary and migration from two to three year leases in the U S market as well as likely upgrades driven by new AI features on OEM hardware.
Speaker Change: Corey AGP business, the bright spots continue to be our investment in brands that want to leverage our first party data to reach their existing and potential customers over our global network that is now bearing fruit.
Brian Bartholomew: We achieved double digit sequential growth in our year over year growth was up over 25%.
As we've discussed on prior calls this is a strategic objective for us and something we have invested in to differentiate us from other players.
Brian Bartholomew: We're now in a great position to continue to grow and we will continue to invest here as we believe we are building a moat given the high barriers to entry.
And work required to earn the trust of brands like PNG Coke Disney Starbucks and so on however.
Brian Bartholomew: However, this new growth has been offset by declining legacy performance advertising on our exchange.
Improving our own performance advertising leverage in our own first party data is our most important execution improvement area for our <unk> business. We are simply not made the progress here that we need.
Brian Bartholomew: The legacy fiber and add colony exchange businesses were focused on waterfall bidding with third party performance Dsp's, primarily buying gaming advertising inside gaming applications.
Brian Bartholomew: As expected these dsp's had been executing their own supply path optimization strategies to vertically integrate their demand connected to their own supply.
And for those companies without a strong mediation footprint. It has become a largely commoditized AD tech gaming space for both iOS and Android.
Brian Bartholomew: We saw this years ago, and that's why we invest in our own brand an SDK bidding activities to mitigate that risk increase our own first party activities over our network and continue to invest in mediation.
Brian Bartholomew: We've also been able to expand our AGC AGP supply from being largely dependent upon game publishers to much more diversified over non gaming.
Brian Bartholomew: To illustrate this point our gtx revenues are non gaming applications had nearly doubled over the past year.
Brian Bartholomew: In summary, our investment focus areas are showing growth, we just need them to grow faster to offset the impacts of U S device sales with our legacy supply partners and also outrun our legacy performance DSP declines on our exchange as we just transitioned to more brand more AI machine learning to our data science increase our own.
Brian Bartholomew: Non gaming applications and improve our share of voice or first party performance demand over our network those are AGP priorities.
Brian Bartholomew: Turning to the future our focus is on growth and efficiency.
Brian Bartholomew: The keys to driving growth or more devices improved performance from legacy and new products and a wider and deeper net of media and brand relationships.
Brian Bartholomew: The key to efficiency is automation aligning operating cost to gross profit and realigning our people process and systems for maximum benefit.
Speaker Change: <unk> will provide more details on our transformation activities in his remarks.
Speaker Change: To drive faster growth. The first driver is expanding our device footprint.
Brian Bartholomew: Despite the soft device sales in the U S. We have been expanding our global device foot relationships through partners like Motorola Nokia one store Xiaomi and Telecom Italia, Brazil today, I am pleased to announce that a tier one U S. Operator has recently selected us.
Brian Bartholomew: For a variety of services leveraging our ignite platform such as single tap and a multiyear deal that should prove to be a nice 2025 growth catalyst for us.
Brian Bartholomew: This win is a nice proof point and validation of the product market fit for our solutions.
Brian Bartholomew: Okay.
Brian Bartholomew: Our second growth driver is expanding our product portfolio for both our ods and <unk> businesses.
Brian Bartholomew: Scaling new AD tech and our device capabilities are critical to our return to growth.
Brian Bartholomew: On our AGP business as mentioned earlier, our SDK bidding capabilities have been a nice product enhancement to unlock brand spends on our exchange.
Brian Bartholomew: While we still have plenty of work to do to transform our migration to this method of bidding with such enhancements have improved the AI machine learning integration of more first party data and so on.
Brian Bartholomew: CK bidding is already showing strong growth.
Brian Bartholomew: It is now approximately 70% of the total impressions on our exchange compared to only 5% a year ago.
Brian Bartholomew: We're diversifying away from waterfall bidding is it's less than 40% to our traffic compared to 90% a few years ago.
Brian Bartholomew: Our investments in first party data Gtx and other features are a major enabler to drive more brand revenues through our network.
Brian Bartholomew: Our other AGP product growth driver will be increasing our share of voice for leveraging our first party data and our ignite capabilities via our own demand side platform or DSP we.
Brian Bartholomew: We do this today through our appreciate acquisition, which is showing renewed growth and we are beginning to partner with third party DSP. They can help grow our share of voice.
Brian Bartholomew: This will all translate not to just topline revenue growth with more demand, but also key in driving the flywheel effects of improving revenues for other products like single tap the <unk> exchange and fair bit our mediation product.
Brian Bartholomew: Yeah.
Brian Bartholomew: On the <unk> side of our business. Our primary growth drivers are single tap alternative apps and better leveraging our first party data for existing Ods products.
Brian Bartholomew: Single tap continues to add more devices more advertisers and better execution.
Brian Bartholomew: It's early days for alternative App distribution approach, but as many saw with our recent PR announcement with one store our strategy is starting to come together.
Brian Bartholomew: We believe one of the keys to unlocking more device supply will be the ability to offer alternative app distribution to publishers Oems mobile carriers and Mega cap Tech players.
Brian Bartholomew: Many of you have read about all of the regulatory activity around the globe in the EU, Japan Korea, India and here in the U S.
Brian Bartholomew: There's building momentum to increase options for consumers and publishers on how they distribute and get applications to market.
Brian Bartholomew: And all of our hard work over the past decade has positioned us perfectly to leverage these opportunities.
Brian Bartholomew: Encourage investors to play close attention to these developments in the space as it will likely open up growth opportunities for companies like digital turbine.
Brian Bartholomew: Yes.
Brian Bartholomew: And beyond this fiscal year. Our goal is not just a return to growth but to accelerate it.
Brian Bartholomew: The key driver here will be the expansion of our alternative App strategy. We've launched our first alternative app distribution products, which we brand as D. T hub with five operators here in the United States with R. O S. R. One store announcement last week, we will be leveraging their platform across our operator relationships not just in the United States, but also in the European Union and Latin America.
Brian Bartholomew: Erica.
Brian Bartholomew: We're on the lookout for operator, and OEM progress here as this will be a major driver of accelerating our device supply and thus revenues.
Brian Bartholomew: We're excited about our once a relationship for many reasons, but one is that is not capital intensive as we can leverage the great work. The once our team has done in Korea with alternative apps and their local work with Korean operators.
Brian Bartholomew: We expect to begin increased focus in the EU with a digital markets Act or DNA now in effect.
Brian Bartholomew: And as a reminder for investors the DMA launched in March of this year and EU and we would encourage investors to pay close attention to the details around this such as how the regulators manage apple compliance and the corresponding opportunities it presents to us.
Brian Bartholomew: I'd also encourage investors to pay close attention to all the developments here in the United States such as the recent decisions on Google's loss and the Doj antitrust suit and a variety of other legal and regulatory matters that should be tailwind for companies like ours.
Brian Bartholomew: I also want to emphasize that the alternative App strategy is not just about new in app payment revenues, but perhaps more importantly to be the catalyst to accelerate our existing lines of business beyond this fiscal year.
Brian Bartholomew: Today, approximately 50% of our business is driven by user acquisition and 50% is driven by in App advertising.
Brian Bartholomew: Our app providers want to find innovative ways to acquire more users at lower cost.
Brian Bartholomew: And also we believe that this will open up new app providers to leverage our AD Tech stack as part of the strategy, thereby driving more AGP revenue growth.
Brian Bartholomew: <unk> today running both alternative App user acquisition campaigns and in App advertising leveraging our technology.
Brian Bartholomew: In other words, improving our present revenues and cash flow are posted both closely linked to this future strategy.
Brian Bartholomew: In conclusion, improving our execution remains a top priority of the company. We're confident we have the right strategy partners market opportunity commercial model and products to have a very bright future as we are in the right space at the right time, which is critical for any tech company with that I'll turn it over to Barrett to take you through the numbers, Thanks, Bill and good.
Barrett: As we review our performance in this quarter, it's clear we've made progress, though not at the pace, we had anticipated revenue of $119 million in the quarter was up modestly sequentially and EBITDA of $15 3 million also improved quarter over quarter.
Brian Bartholomew: And our Ods segment revenues reached $82 4, million% to 2% increase from the June quarter, but down 17% compared to the same period last year. While we are encouraged by the positive revenue growth from our international Ods efforts driven by a focused initiative to expand our pds outside the U S. We are facing significant.
Brian Bartholomew: Can headwinds softer U S device volumes have impacted our performance with Q2 device volumes experiencing the largest year on year percentage decline in the past four quarters and we have integrated these disappointing trends into our revised forecast for FY 'twenty five.
Brian Bartholomew: Alternative App distribution remains a critical growth initiative within ods, while our efforts accelerated distress. This strategy are still in early stages. We are energized by the recent advancements with our one store partnership requiring minimal capital outlay and we believe this will help us gain further momentum in the market.
Speaker Change: Turning to our AGP business Q2 revenues came in at $37 3 million, which was a modest sequential decline as Bill mentioned revenues from brand spending continues to shine.
Speaker Change: With brand revenues up 26% year over year, and 13% sequentially. However, these positive trends are tempered by our exchange business, which underperformed expectations in Q2, despite our initiatives to enhance our bidding capabilities and attract improved ESP spending on our platform we have not yet achieved the.
Speaker Change: The patent progress.
Speaker Change: Our consolidated Q2 gross margin was 45% down from 46% in Q1 and 47% in Q2 of the prior year. This sequential decline in margins was primarily influenced by modest product mix changes and AGP, where our higher margin exchange business has not kept pace with the growth.
Speaker Change: And our brand revenue.
Speaker Change: We remain committed to pursuing expense efficiencies to maximize the profitability of our growth strategy. We are disciplined in our cost controls, which I will discuss further in relation to our important transformation program as bill highlighted.
Speaker Change: Our cash operating expenses were $38 7 million in Q2 down 3% sequentially and 2% year on year, representing 33% of our revenues for the quarter.
Speaker Change: It is important to note that the actions from our recently announced transformation program did not yet impact Q2 result.
Brian Bartholomew: In the quarter, we achieved non-GAAP adjusted net income of $5 million or <unk> <unk> per share as compared to a 30, $13 9 million or <unk> 13 per share in the second quarter of fiscal 2024.
Brian Bartholomew: Our GAAP loss was $25 million or 24 per share based on 103 million basic shares outstanding compared to a prior year net loss of $1 61 per share.
Brian Bartholomew: Moving to the balance sheet and cash flow our cash balance at the end of the quarter stood at $32 million a decrease of $3 million from the June quarter cash flow from operations was negative $8 7 million, primarily driven from an improvement in working capital as we reduced payable balances in the quarter.
Brian Bartholomew: Our networking capital increased $8 million in the quarter to $23 million with steady growth in sequential EBITDA and recent cost reduction actions, we maintain ample liquidity to execute on our growth plans.
Brian Bartholomew: We increased the amount drawn on our revolver.
Speaker Change: $15 million in the quarter, bringing our debt balance at the end of the quarter to $411 million as our business continues to strengthen we would expect to pay down our revolver in quarterly increments.
Speaker Change: Reducing our debt and lowering leverage remain top financial priorities to strengthen our balance sheet objectives that are crucial for our shareholders.
Speaker Change: Our recently launched transformation program is a significant step towards achieving this goal.
Speaker Change: Now, let me address the transformation program that Bill mentioned.
Speaker Change: Despite green shoots of improved performance in the first half of the year, we recognize there's more work to do.
Speaker Change: We are not making sufficient progress on our growth initiatives to offset the headwinds in our legacy business lines and response, we have enacted a program aimed at achieving more than $25 million in cost reductions across the business.
Brian Bartholomew: We will drive these efficiencies by streamlining our processes and leveraging the system integrations and platform migrations. We have recently completed our goal is to create a faster and leaner organization.
Speaker Change: Additionally.
Speaker Change: We will cut cost in non strategic areas and ensure all our overall cost structure is aligned with our our greatest growth opportunities importantly, we plan to reinvest a portion of our savings into strategic growth areas, such as our alternative business to fuel growth, while we improved profitability.
Speaker Change: We have taken aggressive action to optimize our cost structure in the current quarter, we have already reduced annualized cost savings by $15 million, primarily through a reduction or a workforce focused on non revenue generating areas combined with other non personnel expenses.
Speaker Change: While these changes involve difficult decision they are necessary to optimize our company and strengthen our balance sheet and invest in the future we.
Speaker Change: We expect to achieve the majority of our $25 million target on a forward run rate basis by the first quarter of fiscal 2026, we will provide more specifics on our plans and the timing in our coming quarters.
Speaker Change: Now, let me turn to our outlook.
Speaker Change: Reflecting the current operating environment and recent trends, we anticipate revenue in the range of 475 million to $485 million in the fiscal year 2025.
Speaker Change: With projected non-GAAP, adjusted EBITDA of between $65 million and $70 million.
Speaker Change: As we look ahead to the second half of the year. We expect continued sequential revenue growth in Q3.
Speaker Change: We also lapped the residual impact of the exited legacy businesses in Q4, which persist positions us to return to growth year on year top line in the March quarter.
Speaker Change: In closing despite these challenging circumstances, we are energized and optimistic about the future. We are committed to executing our plans to capitalize on the emerging opportunities strengthen our financial position drive top line and free cash flow growth and position <unk> to achieve its full potential.
Speaker Change: With that let me hand, it back to the operator to open the call for questions operator.
Speaker Change: Operator, we can open the call for questions now.
Speaker Change: So you're ready for the next question.
Speaker Change: Our next question comes from Neil <unk> private Investor.
Speaker Change: Yeah.
Speaker Change: Neil. Please go ahead with your question.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: So Mr Nobody's disconnected.
Speaker Change: If you'd like to ask a question. Please press Star then one.
Speaker Change: The next question comes from.
Speaker Change: Anthony Scott's from Craig Hallum.
Anthony Scott: Thank you operator.
Anthony Scott: Bill just I am curious if you could lay out.
Anthony Scott: You talked about the phone activation side of the business.
Speaker Change: I think thats been bouncing along the bottom according to most of our cover companies within the handset space, though.
Anthony Scott: Struggling to see why that's getting worse and maybe just comment on that but also do you think youre, losing.
Speaker Change: Substantial share on the performance advertising side just in more detail would be helpful. Then I have a couple of follow ups. Thanks.
Speaker Change: Yeah, Hey, Tony.
Speaker Change: So we're seeing some new partners, we brought on that I referenced in my remarks that are actually growing our device supply, which is which is encouraging a few of those names are showing nice growth, but just not enough to outrun some of the legacy.
Speaker Change: The legacy supply issues here in the United States and one nuance.
Speaker Change: Here is we also because of the declining supply base in the United States, what we've been able to work with our partners on is working on services that would offer our applications. After the new software updates and that that part of the business because of the reduced volume volume is also now starting to have reduced software updates over over the life and so those two drivers are a real.
Speaker Change: What we're seeing and we saw the major U S operators report their upgrade rates in the quarter that were down year over year.
Speaker Change: So no I don't have that broken out by iOS or Android, but in aggregate. They are young where you'll continue to still see that show up in our show up in our volumes.
Speaker Change: That we see but we're seeing some encouraging things internationally on the performance DSP side. Yes. This is the biggest area, we got to improve on the on our <unk> business.
Speaker Change: Specifically, we've done a nice job on brands and bringing brands into our.
Speaker Change: Our our network and we think that's unique and differentiated from other players.
Speaker Change: <unk> taken our first party data that we have on things like ignite, bringing onto our performance business, whether we do that through our build which is appreciated each director we do that through leasing at those AI machine learning capabilities from other third parties. We've got to improve here. This is our single biggest area for improvement on the AGP side of the business.
Speaker Change: As we see some of our legacy performance DSP is doing their own supply path optimization strategy. So it's made major focus area, but there's some other bright spots in the ADP business, but that's the one we got to focus on.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Once again to ask a question you May press Star then one.
Speaker Change: Is there another question from Anthonys concert Craig Hallum.
Speaker Change: Somehow I got cut off Bill could you could you list or tell us what the RP D was was it up down flat in the quarter and then also just sort of get cut off from the operator again.
Speaker Change: At what point does the board start to explore strategic alternatives.
Bill Stone: Yeah, so Tony as far as as far as Rpgs go Yeah, we had nice improvement in our RPT is outside the United States. So it was it was encouraging to see some accretion and growth. There. That's always been a focus area is to bring more revenue outside outside the U S. In the U S. We saw rpt's decline a little bit, but that was primarily driven by that software issue.
Bill Stone: I mentioned earlier in.
Speaker Change: In my remarks.
Speaker Change: And then as far as strategic options go for the company. There are our focus right. Now is we got to go execute in the business. We think we've got a we've got we've got some great assets, we just got to improve our present to get to the bright future for what we're doing.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: At this time, we show no further questions. So I'd like to turn the conference back over to <unk>.
Speaker Change: Bill stone for closing remarks.
Bill Stone: Thanks, everyone for joining the call Tonight, we will talk to you again in our fiscal 'twenty five third quarter call in a few months, thanks and have a great night.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Bill Stone: [music].