Good afternoon and welcome to the Digital Turbine Third Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ghen Laraya, Vice President, Business and Legal Affairs. Please go ahead.

Thank you. And welcome everyone to Digital Turbine's fiscal 2016 third quarter earnings conference call. I'm Ghen Laraya. With me today are Bill Stone, Digital Turbine's Chief Executive Officer and Andrew Schleimer, our Executive Vice President and Chief Financial Officer. Statements made on this call including those during the question-and-answer session may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations concerning matters that are not historical facts and include for example; statements about guidance, expected revenue and profitability, product sales, market penetration, speed of customer adoption in orders and overall business momentum. We caution investors that any forward-looking statements are based on beliefs and assumptions made by and information currently available to us. Such statements are based on assumptions and actual outcome will be affected by known and unknown risks, trends and uncertainties and factors are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations and those differences maybe material. Please refer to the Safe Harbor Statement included in today's press release, as well as Digital Turbine's periodic filings with the SEC, for a discussion of such risks and uncertainty. We are not undertaking any obligation to update any forward-looking statements. In addition, we will be discussing certain non-GAAP financial results, including non-GAAP adjusted EBITDA. Non-GAAP measures are not substitutes for GAAP measures. Please refer to the press release issued earlier today for important information about the limitations on using non-GAAP measures as well as a reconciliation of these non-GAAP financial results to the most comparable GAAP measures. Please note that on March 6, 2015 Digital Turbine, Inc., a Delaware corporation acquired Appia, Inc. Digital Turbine's current year results are therefore not comparable to prior year results and this call will include sequential comparisons unless otherwise noted. Now it is my pleasure to turn the call over to Mr. Bill Stone.

Thanks, Ghen. And thanks to all of you for joining our call today. I wanted to focus on five things in my prepared remarks. First is to start with rear view of both last quarter and an update on DT Media. Second, is provide an update on Appia Core. Third, an update on our content business. Fourth, an update on new and existing customers. Fifth, an update on the current quarter and finally will close with some strategic views on our business and our positioning. First on the fiscal third quarter, we finished with $24.1 million in revenue or $24.6 million excluding one-time adjustment from a prior period that Andrew will describe in more detail. While Andrew will also present our revenue growth on a sequential basis. It's important to note, that the third quarter represents an impressive increase from last December of 244% on a reported basis and a 47% increase on a pro forma basis, as if we had owned Appia for all of last year's third quarter. This performance reflects our strong execution during the critical holiday selling season, while also successfully executing our growth strategy. Increasing DT Media's penetration across carrier partners, arising levels of productivity and growing our Appia Core business. The DT Media business represented almost $7 million this December quarter, which compares to $4.1 million, $3.2 million and approximately $1 million over the past three quarters. The DT Media business is now at approximately $2.20 device yield, well in excess of our $2 device guidance earlier in the year. As we've discussed before, this is the most important operational metric in our business to demonstrate the health and demand of what we're building. It is important to note, that monetizing the home screen of the device is a unique and differentiated asset. I…

Thank you, Bill. I'll start with a review of our fiscal results for the third quarter and then offer some additional color on our full year outlook and touch upon Q1, 2017. Please note that, all comparisons I'll discuss today are being made to the prior sequential quarter and less specifically noted. We believe, that this is a better indicator of how our business is performing given the vast differences between our company today and at this time, last year. Namely as a result of the growth in our advertising business and the March 6, 2015 acquisition of Appia. For those new into Digital Turbine story, we have two segments for financial reporting purposes advertising and content. With advertising comprised of Appia Core and DT Media, which consists of DT Ignite and IQ. Content is comprised of Marketplace and Pay. These segments are the basis for our financial reporting as well as for my discussion today. Note however, that going forward we intend to rename these reporting segments to be consistent with the branding initiatives that Bill previously described. With that said, let's begin. On a GAAP basis revenue for the third quarter increased 16% to $24.1 million as compared with $20.7 million for the second quarter. Advertising revenue increased approximately 28% with DT Media and Appia Core revenue increasing 71% and 10% respectively. DT content revenue decreased approximately 6% stemming from the decline in DT Marketplace. Resource reallocation from the DT content business to our higher growth, higher margin media business adversely impacted content revenues in the quarter. The negative effect of the Aussie Dollar exchange rate was minimal at approximately $50,000. As for the press release, we issued earlier today. Our results for the third quarter included one-time net adjustment of approximately $500,000. This adjustment was a result…

[Operator Instructions] and our first question comes from Mike Malouf of Craig Hallum Capital Group. Please go ahead.

Let's start with, can you just talk a little bit more Bill on this America Movil. It sounded like, you were going to go basically into an existing clients or existing customer base, that sounds pretty expansive and exciting, but you've never done that before. So can you expand a little bit on that opportunity?

Yes, sure. So Mike, we have three ways that we deliver applications to consumers with Ignite. We've got our silent boot, which is what we do with partners such as Verizon and US Cellular and Vodafone. We have a wizard that will be due with AT&T and others and then we have Ignite as an STK, where we preload Ignite inside other applications and in this third case, is what we're doing with America Movil and here you'll see as to with others as well into the future and basically what that means is that, America Movil is preloading this existing app within some special permissions through Google Android operating system and what that will enable us to do when they do a software update and we now include this Ignite STK into that application. It will have us, it will allow us the opportunity to push and recommend applications out to the existing customer base. So America Movil just recently started doing this. So I'm not prepared today to give you guys any specific numbers around, what the impact will be. But really what I wanted to make sure to emphasize for investors today on this is two things. Number one is that, Ignite is not just about going out to new devices. There is opportunities especially emerging markets to go out to existing devices and number two, companies is large and substantial as America Movil 300 million plus subscribers. Their commitment to doing this and changing how they're loading this application in advance of us putting on new devices. I think says a lot around their commitment and views and strategies on the relationship.

Okay, great and then. Just follow-up question, with regards to specifically Verizon, but just your existing account base now. What percentage do you think you're hitting as far as the number of percentage of Android phones now that have Ignite on them, with Verizon. And then when you look out into this March quarter. You're $3 million to $5 million incremental Ignite revenue, does that kind of come from existing clients or is it coming from some of these new clients? Thanks.

Yes, so Mike I'm not going to comment any specific partner, numbers and what specific partners are doings. But what I will say is, across all of our North American partners which is numerous. I'd say right now, we're probably in the somewhere in the 70% plus range in terms of existing devices that were hitting. When the S7 launches, I would anticipate that would take a material step up for us. And one important point I think that is important for investors to understand is that, last year when we launched Ignite on the S6, we were not the S5. And so therefore, we missed that opportunity as people are familiar with whether it's Samsung or Apple or any new handset provider. When those new models come out, the existing models tend to get a bump and so, this year as the S7 launches we anticipate that, should be a benefit to us because we're on the S6, as well. So I would expect that overall percentage to increase just a bit. And then in terms of the increase in Ignite revenues for this quarter. As we stated on our guidance call, last December. We really haircut the impact of the new customers and the haircut that I believe into six figure range versus seven figure range in terms of their impact for the March quarter. So I think anything they do above and beyond that would be upside for us. So we think about the incremental lift. We really see that coming from our existing partners and anything we get from, some of the ones I referenced in my prepared remarks. I would be upside on top of that.

Great, thanks a lot.

The next question will come from Brian Alger of ROTH Capital Partners. Please go ahead.

Lots to go over, a lot of information in here. I guess, I'll start with just a real basic one. With the Sift Media deal there. How is that $1 million cash payment to being accounted for? Is that a royalty, is that a license fee, is that one-time sale? How does that impact the P&L and is that already in the balance sheet for the December quarter?

Yes, so when we bought the Appia business, we put some intangibles on the book associated with the acquired technology of approximately $7 million. Inclusive of that $7 million, were amounts associated with RTB and other assets license to Sift. The overall transaction value was $1 million of cash and 10% or roughly $2 million at the time, that we made our investment and the accounting is to net, the amount of those proceeds against the acquired intangibles first. And in the event, that there is any excess which in this case there aren't or isn't, we would record other income below the line. So the transaction will result in the reduction of acquired intangibles which will have a positive amortization impact in the future quarters. But in no way, will hit the P&L otherwise.

And you guys did a deal on the 28, does this already goes through the balance sheet that we're looking at?

That's correct, yes.

Okay, great and then as we look forward into next quarter. Can you maybe give us puts and takes, as we think about the EBITDA breakeven or EBITDA policy in line. It sounds like, most of content is going to be coming from Pay, which I know is lower margin as oppose to marketplace. But we have some other movement obviously going within DT Media. Can you maybe give us a sense of in terms of how the margins on operating basis flow through with pluses and minuses?

Yes, sure. So without getting too specific on numbers. The positive here will obviously be associated with a much higher percentage of the overall mix related to DT Media, which carried roughly 40% margins in this past quarter without the contribution of any professional services, which as we know we said in the past are lumpy. As we look forward into this quarter, Millicom has already launched and we expect to have a positive gross profit or gross margin impact for the remainder of the quarter, as will the contribution of MTS, Cricket and DT Media revenue is associated with the S7. So as we think about keeping costs in line, at the $7.2 million or $7.3 million cash cost level that we historically run out, sans one-time items. We will need to get at the midpoint of the implicit range of revenues for the remainder of the year. North of roughly 25% of gross margins, 26% which are achievable based upon mix, in order to attain adjusted EBITDA profitability, which by our definition would exclude obviously depreciation, amortization and stock-based compensation.

Right. Okay, so and it seems the incremental margin that we're going to see March quarter relative to December quarter is pretty significant going from a slight EBITDA loss here increasing the revenues implied by the midpoint here, that's a pretty good incremental flow through from incremental dollar to the business point. Is that unique to this quarter as a result of professional fees being lumpy and coming in with four new carriers or is that something, that as we grow scale and gain revenues, we see that sort of leverage coming through, more on an ongoing basis.

Yes, while we expect and the impact of professional services in the quarter will be greater than zero versus Q3. We do not believe, that will be material contributor to the accretion of margin that we expect. And we expect that accretion of margin largely to come from an increase in mix to DT Media as you've noted, while we expect to see growth on absolute basis and relative basis in content, which carries lower margins and obviously Appia Core business which carries about 19% margins that we saw this quarter, as we ramp up DT Media at the 40% plus range. It's going to be a mix issue, which will impact Q4 but then we expect into Q1 in all fiscal 2017 to realize the scale of this business as we diversify way from large US distribution partners and some of the partners that we've discussed make up more material portion of the overall revenue mix for DT Media.

And one last one, if I can. And maybe this is for Bill. How should we think about the linearity in the March quarter relative to the December quarter? Intuitively, I would think December is back end loaded with the attribution windows and the holidays and whatnot, whereas because of that same thing, I would think we're front end loaded here in March. And ultimately, we're getting at is, at the point of the conference call here today. And looking at what's with the guidance for the quarter is, do we have a greater line of sight on that number than maybe we did for the December quarter when so much is up in the air, with holidays and whatnot?

Yes, Brian I think we do and I think there's one wild card and I'll talk about. But I think as we look about the March quarter being sequentially up from the December quarter. There is really four things that are going to drive that. Number one, is an increased slot count that we anticipate having for this quarter, that we only have for half the quarter in December. Number two, is the impact of new customers that you heard about in my prepared remarks, is obviously incremental revenue. Third, is the attribution benefit that we get from the December device sales, their flow into this quarter. And the final one which is the wild card is, what's the impact of the S7 going to be? Most people are speculating that the S7 will launch sometime around the second week of March. Obviously that's not something that we control and what that impact is and what the attribution is, in March versus April, that's where I think we've got a little bit on uncertainty. But that's not uncertainty in terms of what we believe the device will do across the life of the device just only in the context of March 31 versus April 1 and what's going to flow into a particular quarter there. To us, in terms of visibility on the quarter. I'd say, those are really the four drivers that we're focused on right now.

All right, thanks guys.

Our next question will come from Sameet Sinha of B. Riley. Please go ahead.

Bill, I was hoping that you could shed some light on, your targeting efforts as you work with the partner specifically. How are those efforts coming along? And should we expect some sort of step up or should be gradual benefits that we see from these targeted campaigns? Secondly, you spoke about certain revenue share concessions given as you hit certain thresholds. Is that with specific advertisers or carriers, I didn't quite get that. If you can talk about that and is that possible, should we expect something like this to happen on regular basis as some of these customers are partners scale. And my last question related to your RTB platform. Do you have any results or some initiative test on how that's skews one of the benefits to overall volume or pricing or margins, that will be helpful? Thank you.

Sure. Yes, so let me get your first question on targeting. It's - really for us on targeting about 40% of our total campaigns are running. We don't have 40% of the total campaigns meaning, they're hitting all customers rise, 40% of our total. So we've got hundreds of campaigns, 40% of those are being run with targeting data because we don't have the targeting data necessarily for 100% of the customers. But what we're seeing right now, is we're doing at a scale. So no longer, we trialing it on a device or trialing with specific set of targets in a specific market and we're now doing this, scale. As I mentioned in my remarks, what I'm really excited about, is this is something especially is part of our advertising partners program I referenced. Advertisers are, the ability for them to hit a specific segment of the population is netting up cost replacement or CPP rates that are 40% higher than we're now targeting. So that's something that really highlights the importance of doing this and doing the scale. We anticipate, we're going to continue to expand that because it is better for all stakeholders involved. So stay tuned for additional updates on that. But I would say, at this stage. We graduated from trialing it, to now doing at scale until the next step for us as it relates to targeting is going to be our ability to incorporate across more operators, on globally. Secondly on the rev share question. Yes, what we do is. [Indiscernible] gross profit dollars and we want to incent our operator and OEM partners to put our Ignite software across their entire device line up and so we'll incent them with increased revenue shares to do that and as Andrew mentioned in his…

On quick follow-up, if I may? Can you talk about, when the split of the campaigns between cost per install campaigns versus cost per based on other metrics like open rates and how is that trending, which one would you specifically favor over the other and I guess, you can benefit this particular quarter from the attribution, which was delayed from the previous quarter. Should we expect that sort of this sort of dynamic to continue from here on or was it, you think it was a sort of one or two quarter event?

Sure, so right now in terms of mix of CPI versus CPP. What we see is, more using targeting the vast majority that is CPP and we're using non-targeting the vast majority of that is CPI. And so, since we're only targeting 40% of the campaigns, the vast majority of the revenues today are still oriented towards CPI and that's actually, okay. So, if someone is willing to pay us to heed the math simple here $0.30 CPP rate. And we know, that somebody wanted to pay us $2 CPI rate and I can get, a 20% open rate off a $2 CPI, that's $0.40 CPI, which is better than $0.30 CPP. So its net beneficial for us to have the CPI deal. So we'll continually do that math and calculus to see what's better. But when I say it's a general rule as to the advertiser is willing to take more risk, when they know it's targeted and hence sign up for a CPP. If it's untargeted that's where we role more into CPI campaigns.

Thank you.

[Operator Instructions] the next question will come from Jon Hickman of Ladenburg. Please go ahead.

I just have two. Basically, could you go through this revenue reversal? Exactly, can you give us little more detail, what happened? Did you make some kind of estimate of what the revenues would be for the customers and then it didn't happened, so you had to refund some of their money?

In that, there were two components to the reversal. So the one-time net adjustment that we took was comprised off a concession with a large advertiser, where we had revenues recorded that we from prior periods and this existing period, that we ended up reversing a portion of those, in the quarter as a concession based upon, their views on the way that we approach to the distribution market from a publisher side and some of the publishers tactics, views to ultimately yield the installation. So based upon the size of the advertiser and the materiality of their contribution to our business today and on a go forward basis, we made a concession with that advertiser and hence took a reversal of revenue in this quarter, that was then offset by a change in estimate for sales allowance. We had reserve for sales allowance on our books based upon a prior convention, where we were essentially over reserving for credits and as we got better overtime, we had realized that there was a required to make a change in estimate, which caused us to reverse out that reserve which had a positive impact offsetting the negative impact from the reduction in revenue from the advertiser. So when you net those two against each other, it was roughly $0.5 million in the period.

So none of that's affected in the March quarter, right?

No, not at all. It's purely one-time. One of the reasons, why we actually pursued it this way, was to ensure that we continued on good standing in terms with the large advertising partner for our business. This is absolutely behind us and on the revenue side and the sales alongside, which netted against the revenue adjustment, this obviously was a one-time change in estimate for the way, that we reserved for sales credits. So we had a change in convention, that required us to reverse that, which had a positive impact. So that again, two is behind us.

Okay and you're still working with that large advertiser.

Absolutely.

Okay, my second question is about the Millicom relationship. You said that, Bill said that's a licensing deal, how are you pricing that like an estimate of how many devices?

Yes. Jon, this is Bill. What we do is similar to the stretches out, we were talking about with Sameet on the prior questions, as - we provide incentives for our partners to put Ignite software on additional devices. But rather than doing it as a revenue share on advertising Millicom is looking at this initially as something that's more of an operational opportunity use Ignite for their business. So while we have some discussions in path forward advertising and lectures [ph] around that, what we've done is we structured a deal that, starts out with a licensing fee and then as they continue to add more and more devices, we'll create incentives to take the licensing fee down, overtime as it goes across more devices, consistent with the philosophy I shared before around maximizing gross profit dollars.

So, right now they're trying to get all the advertising dollars and just pay you a licensing fee.

Yes, right now they're not actually doing advertising. They're using it for operational things, for some of their own existing applications, that they want to put on. So it's really not, Ignite is not really an advertising play for them, at this current point in time, that could obviously change in the future and something that we both contemplated. But right now, they're looking as Ignite as an opportunity to help them with the growth of smartphones across their footprint in terms of how they preload applications and manage the customer experience.

Okay, that's it from me. Thanks.

The next question will be a follow-up from Brian Alger of ROTH Capital Partners. Please go ahead.

Following up on the commentary with regard to America Movil and installing the cost there, installed base. Just thinking it through a little bit, if we have the ability to push Ignite onto installed devices and I think you said, utilize app recommendations. It seems like a logical explanation that something, we can or you can do with other carriers. Especially given some of the integration [indiscernible] Ignite 2.0 and start getting into more of a returning revenue stream off of Ignite. Number one, am I interpreting that correctly? And number two, is there resistance anywhere within the ecosystem to such a recurring revenue stream?

What you see from us, Brian as I mentioned, we kind of break it up it into two sections here. So one is, how do we get Ignite to the device. I mentioned before, we can do it through silent, we can do it through wizard and we can do it through STK. So if I double click on the STK, really what that is a software inside another operator application. So if that application is already preloaded in the proper place within the android operating system, when we do push out Ignite as part of that update to that existing operators app, that's when it opens up additional opportunities for recommendations and other applications and different partners will have different views on how aggressive or not aggressive they want to be on that. So it is definitely something that we could do beyond America Movil, as we think about our Ignite 2.0 launch in selling the STK, as a different product from the silent product that we used for example with Verizon and US Cellular in Vodafone and others today. So that would be one piece of it. But the larger question that you're asking around ongoing monetization. Absolutely, we can do that through all three methods. So there's things that we can do buy things like Ignite recommends and notifications and in a variety of other things that, we begun trialing with some partners right now and I would expect to see us to continue to do that in 2017, with kind of overarching strategy here, of how do we move beyond one and done out of the box and develop a much more ongoing consumer relationship. So that's something we're very much focused on as a business. Not getting too much into [indiscernible] on the Q&A, there is multiple paths and ways for us to get there.

Great and then just one last one, if I can. I think you said that, Deutsche Telekom was going to [indiscernible] countries is that from three and if so, what is the two new ones?

Yes, so right now. Stay tuned on some of that. Brian, I want to be respectful of Deutsche Telekom hasn't made any announcements of that. So I want to be respectful of their individual country. So we'll follow back up on that. But I would say that there are five countries that we anticipate being live in the next few months and one of those is not Germany, though just to be clear for investors.

Very well, thanks.

Our next question will be Steven Massocca of Wedbush Equity Management. Please go ahead.

So the last time you talked, there was a technical. One of your partners had a technical snafu on Black Friday, as results some revenues were loss. But could possibly be picked up in December. Do we now know, the amount of those revenues that were lost due to that technical snafu?

Yes, sure Steve this is Bill. Let me first say, that the technical issue is been addressed and it's not a technical on a go forward basis. We've addressed that with the partner and have a very clear line of sight in terms of how the capacity will scale with that partner, who is doing the implementation of their data network and the downloading of the applications are bit different than other partners are globally. So first and foremost the issue is been addressed. What we realized is that, the total impact of this was about $200,000 to $300,000. A little bit of that yes, we did recoup that's been on the user experience of how people power on the phones on Black Friday and then what happened if they opened them up underneath Christmas trees. But I would say, the vast majority of it, we made a business decision with the partner to not push applications out after the customer already had their phone. Our view was that, that's a poor customer experience and the customer experience trump's that short-term revenue gain. But going forward, we don't see this as an issue in terms of what happened.

Bill, my point is the quarter would have been $300,000 better had that problem been fixed, had not happened.

That's correct.

Thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Bill Stone for his closing remarks.

Yes, thank you all for joining our call and we will be back to you with updates on our progress and be on the lookout for upcoming news flow. And finally, we will be appearing at the ROTH Annual Conference in March and we look forward to seeing many of you there. Thanks again and have a great evening.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.