Good afternoon and welcome to the Digital Turbine’s Fiscal 2019 First Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, Senior Vice President of Capital Markets and Strategy. Please go ahead.

Thanks, Kate. Good afternoon and welcome to the Digital Turbine first quarter fiscal 2019 earnings conference call. Joining me on the call today to discuss our results are Bill Stone, CEO; and Barrett Garrison, our CFO. Before we get started, I would 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 file with the Securities and Exchange Commission. Also, during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today’s press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now, it is my pleasure to turn the call over to Mr. Bill Stone.

Thanks, Brian. And thank you all for joining us today. I want to start with our stated goal which is to build a growing and profitable business. Our June quarter was our fifth consecutive quarter of positive adjusted EBITDA with 46% revenue growth year-over-year despite several headwinds. I am going to break my comments out into three areas. First is some commentary around our new agreement with Verizon. Second is a recap of the June quarter. And final will be some operational commentary around our three growth levers of devices, new products and our media business. First, I’m pleased to announce we’ve reached agreement with Verizon on a new four year deal that will go through August 2022 and are in process of executing the agreement. This new agreement will not only cover our current products but also includes new products that Verizon is interested in, such as Single Tap, Folders, notifications and post-install actions. We expect this deal to be accretive to revenue and gross profit over the term of the contract. There are incentives for us as we achieve higher revenue tiers to improve our revenue share and gross margin percentage. The lowest revenue tiers are identical margins to our prior agreement. In other words, there are no commercial terms that are unfavorable to our prior agreement, only upside opportunities for us. We are also exploring additional product collaboration opportunities at Verizon's request that would be incremental to this agreement. We are processing some minor administrative details on the agreement and anticipate filing an 8-K in advance of the expiration of the current agreement next week. Next, our June quarter finished at $22.1 million in revenue, up 46% over prior year and $0.2 million in positive adjusted EBITDA. If I break out the headwinds and tailwinds from the…

Thanks, Bill. And good afternoon, everyone. Before we go into a more detailed overview of the numbers, I wanted to provide a couple of updates. First, we recently announced the closing of two divestiture transactions with our Advertiser & Publisher business and our Content & Pay business and the teams are now in the process of fully transitioning these businesses to the new owners. As a reminder, these non-core divestitures are expected to enable greater organizational focus on a higher growth and higher margin O&O business. Secondly, I wanted to provide an update on the progress with the SEC as it relates to the previously disclosed internal control matter. We are finalizing a proposed settlement of this matter with the staff of the SEC, which is subject to the final approval of the SEC. We expect to provide an update or disclose the final resolution before our next quarterly report in November. We have included the general parameters of the proposed settlement in our 10-Q filed today, which includes the settlement of $100,000 payable by the company. Based on the proposed settlement terms, the company does not expect this matter to have a material impact on its operations or financial position or any impact on historical financials. This matter and internal controls are very important to the company and I'm pleased to be finalizing this matter and proud of the diligent efforts of the team can now be SOx compliant. Now, let me turn to the financial performance in the quarter. As a reminder, results of our divested businesses are treated as discontinued operations for all periods presented in our financials. My comments today will refer to results on the continuing operations, unless otherwise noted. All of our comparisons are also a year-on-year basis unless noted otherwise. Revenue of $22.1…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Mike Malouf of Craig-Hallum Capital Group. Please go ahead.

I wanted to know if you could just sort of explore Verizon just a little bit. So if I understand what you said, if you were to keep the revenues basically flat with Verizon, then you would experience basically the same margins that we have and that any incremental growth adds to the gross profit margin, is that how I should read it?

Yes. So, Mike, if you think about it, is that the new deal is identical to the existing deals, nothing changes, but as we add new products, then the opportunity for us to hit higher revenue tiers would result in higher gross margins for us. And so, it's really a more holistic deal. So rather than just think about the past -- over the past four years and rather thinking about the next four years and the things we want to do, how we can think about accreting the margins of our current products as well as our new ones to achieve higher revenue tiers.

So that’s a lot different than sort of how you were set up from the beginning of Verizon where you had as your revenue grew to different tiers your gross profit actually would go down.

That’s right. So almost I think it’s reverse revenue here, that how we’re kind of referring to it internally but it really is contemplating now a much expanded product relationship with Verizon than what we had in the real view there.

Got it. That’s helpful. And then with regards to Single Tap, can you just give us an update on where we are with that roll out? You mentioned that it negatively affected the June quarter, based on a particular rollout, but it sounded like it was a one-time roll out, so more confused by that.

Yes. Sure. So there is really two elements of Single Tap. One is, our integration with a large social media platform, a large operator here in the United States and that continues to grow nicely. With that, we had an opportunity for one-time event with them to be able to go out and do something that would generate basically one-time opportunity for us that was material. That opportunity is still out there. We had thought that was going to come in the June quarter but it did not. So that was a little bit disappointing to us but the opportunity still remain to go do that as we go out to the remainder of the fiscal year. The second part of Single Tap is integrating with other media partners and platforms and that is live on a number of operators. It is not yet live on Verizon and AT&T. We expect that to happen in the current quarter and that will help accelerate the second part of our Single Tap offering.

Okay, great. And then just one final question. With regards to América Móvil, I know that you were putting your APK, get it installed with Samsung. Is that ongoing now so you can start to jumpstart that? And to what extent if you can get Samsung to install this that could they install this on all their phones to make it sort of ubiquitous, so you could cover -- basically worldwide coverage?

Yes. So as far as América Móvil goes, we are working on expanding some new technology with them that going to dramatically improve the install rates and performance, which for you as well as others that have followed the story for well, know that’s been a disappointment. So I guess many heard at the Analyst Day, América Móvil, commented on that directly they are excited about some of those technical improvements that will improve the install rates. Regarding Samsung, I’m very excited and bullish about the opportunities that we’ve got with them globally, right now, so you’ve got to stay tuned for more.

The next question is from Darren Aftahi of ROTH Capital Partners. Please go ahead.

I wanted to follow-up on a couple things on the prior question. So on your sort of one-time opportunity with the social platform, is that something you can kind of couch as being a calendar 2018 event, or should we just -- is that kind of discount as you can't really kind of gauge the timing of when that’s going to happen?

Yes. What we’ve done in our kind of -- in our forward-looking guidance Darren is we’ve taken it out. So if that happens, it would be upside for us. We still think there's an opportunity there but I’d rather hope for the best, plan for the worst kind of thing on that one-time opportunity. So it’s taken out of our guidance, but it’s still very much on the table.

Fair enough. And then with your new product line up, as you complete the Verizon deal here in the near future, can you just strategically talk about which of your new products you feel like will resonate with AT&T and Verizon more quickly? Then in conjunction with, I know you guys noted the base improvement in the new product revenue. Can you just kind of give us a sense for where you see kind of that mix going over the next six months?

Yes. So, I’ll break it out into three categories. I think in terms of very short-term performance, I am really excited about the engagement results we’ve seen on post-install action. So that’s the type of thing where all of this we see -- for example, with the Starbucks app on a phone, you’ll see notifications, as they come on and you get a free latte at your birthday or what those kind of things were, you might not have remembered, you had a Starbucks app on your phone. And we see tremendous listen engagement for that and that in turns drives better revenue per slot and revenue per device performance. And so, we’re really in a process of scaling that real time right now. So that's quite encouraging in the very short-term. In the mid-term, we’re excited about the opportunities with AT&T and the Time Warner merger as it relates to things like our Folders products, they -- between DirecTV, AT&T and Time Warner have nearly 200 different applications that you got to think about how to get the right apps to the right people at the right time. And so, there’s tremendous opportunity for us to add value there with our Folders product with them and -- as well as with Verizon and Oath and others. So I think I am excited about that in the mid-term. Long-term, I am most excited about Single Tap. We’re seeing some very encouraging results and now that the next step is to get that launched on Verizon and AT&T in the current quarter, and then start seeing that grow. I don’t expect to see that deliver material results for us in the September quarter. But as we go forward into the next calendar year, I am really excited about the prospects there.

And then just a couple of more. On the 15 million incremental devices by the end of the year to stem in OEMs, can you just talk about the context? Is that being influenced by your Qualcomm relationship you announced earlier this year?

Yes, no, it’s not really specifically with Qualcomm but it is being driven by our business development activities in Asia which we have been pretty aggressive in Korea, China, in India. So really this is about cutting our cheese with these new OEMs. It’s a new distribution channel for us. They’ve some different requirements. It’s obviously international. We want to learn from all of our new products with them. And I think it sets us up really nicely for some of the much higher profile players in the region which I mentioned in my comments we’re really deep in the pipeline process. So I'm excited about it’s really getting to cut our cheese with these longer tailed OEMs albeit with material device volumes, we’re talking about eight figures of device volumes, but it’s really set us up now to learn to scale when some of the bigger boys come on later.

And just last one from me. You talked about the expansion into other form factors. Can you just indulge us -- are these sort of handheld form factors or perhaps something much larger?

It’s something that we’ve demonstrated at Mobile World Congress and other places that, really our platform is screen agnostic and we’re focused on smartphones just because that’s the largest opportunity. But what we’re seeing now is the lot of inbound interest. It’s not us going out trying to create outbound, it’s inbounds coming to us. They say, “Hey, can you work on these different screens” and whether these are large tablets, or wearables or televisions or what have you, people are interested in how they can use our mobile delivery platform to help them with these other screens. And so, we’re spending some time right now making some investments on how we could do that and then enjoy opportunity to do -- looking and sharing things cross-screen, so in other words you could be on a television watching the Golf Channel and you see Golf app come up and have a Golf app delivered directly to your phone, things like that, that we’ve seen some advantages from. So those are things that we’re investigating, not anything for the very near term for the next quarter but as we think about the growth opportunity for the business it’s definitely something that’s encouraging and exciting.

The next question is from Sameet Sinha of B. Riley FBR. Please go ahead.

Hey, guys. This is Lee Krowl filling in for Sameet. Thanks for taking my questions and congrats on getting the Verizon deal in. First question, I just wanted to dig in, during the quarter you guys had a weak performance from marquee product launch, that same customer announced a new product for the current quarter. Just kind of curious what kind of expectation you have for that device in light of the last quarter's kind of tepid performance as it relates to revenue guidance?

I will take that one. We’ve obviously considered the S9 device perform last quarter in our guidance, it was not a strong launch. So I think we've been rather conservative. But we do expect -- we have -- we don’t have it from last year. While we think that it could be an exciting opportunity I think we’ve been prudent in our guidance here and factored in how the most recent launch has performed.

Okay. And then switching over to RPD performance, I know you guys said that it was around $2. Just kind of curious what the drivers behind the jump is, whether it's brand driven or maybe just one-time event, just kind curious because it is such a large jump in a single quarter?

Yes. So our commentary was really about doing some $2 in the US compared to a $1, about $1.32 a year ago in the same quarter. It was driven by two factors. One is just increased demand from advertisers and advertisers have seen a positive return on investment from using the Digital Turbine platform and I referenced in my remarks about how there is diminishing returns on platforms like Facebook and Google and we’re seeing a number of advertisers like The Bank of America and Yelp and eBay and others. They are saying “Hey, my incremental dollars are better spent on Digital Turbine than spending more money on those other platforms”. So that helps us accrete results, is variable number one. And then variable number two is, we’ve been able to expand our slots with AT&T and a couple of other providers. So that obviously adds us an incremental revenue opportunity. So that’s a combination of those two things that’s helping drive the improved performance. And yes, I really want to reiterate that that’s a fundamental health metric of our business as advertisers are willing to spend and continue to spend more to be on the home screen. So that’s something I encourage investors to continue to look at as far as our performance goes.

Got it. And then it’s very clear that North America is doing really well and it seems like that's a little bit offset by international and we would read that to mean that perhaps India is still maybe a headwind. Just thoughts on when maybe India and a few other geographies can you maybe snap back and start to contribute to growth?

Yes. So I am encouraged in India with both the new OEM deals that we’ve announced, as well as we expect to see Reliance Jio that had initially launched with a smartphone and they moved to really low end featured phones, transitioned back to smartphones. Again I think that will really help jumpstart that relationship for us going into the future. So we continue to be pretty bullish on India. But with that being said, we still have some work to do in terms of how we scale our international demand and that's a major focus area for the business right now which is a combination of us adding additional local salespeople on the ground, doing partnerships, I referenced Oath as an example but other advertising agency partnerships and then leveraging our global inside sales force for the long tail of apps. And that’s really the factor to get a better reach in that particular market as well as Asia Pacific more broadly. But we’ve got some wood to chop to get where we need to be, but we are excited about it because that’s where the growth is. And for most of our Asia Pacific and Latin America and European accounts, the margin structure is also favorable. So it is a major focus area for us.

[Operator Instructions] The next question is from Ilya Grozovsky of National Securities. Please go ahead.

Just wanted to kind of go through the gross margins a little bit more. So if you had the contract that you will have going forward for the next several years with your largest customer, had you had that in this current quarter, what do you think gross margins would've been like in the current quarter, given the volumes that you did?

Yes. So just to reemphasize what Bill outlined as far as the proposed terms in the agreement, the existing level of revenue volumes would be at kind of the current gross margins that we’re seeing today in the quarter and what it -- what the contract would allow us to do is when we drive incremental revenue at certain levels with new products or even if we’re driving core revenue upwards of levels close to where we are today, then those would accrete margins. But based on the volume today we would with the new contract have similar gross margins.

So -- and then -- so that leads me to my next question which is given the -- how big your largest customer is and where your gross margins have trended over the past several quarters down to the low 30s here in the current quarter, would that be offset by the new customers that you have and plus the higher margin new products that you have in terms of the incremental growth is really from those guys, right? So you’re continuing to reduce your largest customer, your dependence on the largest customer. I think last quarter you were down below the 50% level. And so, shouldn't the gross margins be helped by the non-largest customer contribution?

Well they wouldn’t be. But one other thing that’s important to understand is the product mix and the -- whether it’s licensing or it’s a rep share, the product mix has a lot to do with it as well as the partner mix. And so what we have -- while we’ve seen our largest partner make up less of a concentration, we also have partnerships that have similar structures to revenue sharing that we’ve seen -- that we have with the Verizon contract Bill just outlined, whereby as their volumes increase, they get a higher revenue share. And one of our fastest growing -- as I mentioned in the call, one of our fastest growing partners had a higher revenue share this year versus last year, and you see that as we grow over that year. The other thing is depending on the particular product and who it’s launched with; it could either accrete or compress margins. And in this quarter, I referenced in my comments around the gross margins that we launched a product had margins below the aggregate for this particular product and for this particular partner and that impacted margins in the quarter.

The next question is from Jon Hickman of Ladenburg. Please go ahead.

I have a question about operating expenses. As you know transition the discontinued operations to their new owners, you seem to indicate that there was further reduction in particularly the SG&A are, is that true?

Well I don’t think I indicated that today on the call. But what we do see is because the way we’ve recognized our expenses, we breakout our continuing operations and our discontinued operations. We have -- I referenced -- I mentioned in the call that we’ve reduced our cash expenses, our cash OpEx what we call it for our continuing operations. And so, we will evaluate our SG&A and the requirements to support just growing our business ongoing but right now I wouldn't outline any significant declines in our overall SG&A in the near term.

The next question is from Michael Solomon of Maxim. Please go ahead.

The margin question was answered, and Bill, this is probably more an opinion question but it seems like you've been able to hand these carriers business that basically carries no cost for them. And now you're handing some social media companies in the same opportunity. Why do you think -- I’m struggling with the market cap and where the stock is traded based on your progression and what you’re doing, something doesn't make sense. Do you get a feel for why that's happening or what the carriers are saying and can we get a bigger piece of the puzzle when you sign some of these deals going forward?

I appreciate it. I mean I can’t comment on the stock, I guess if had a crystal ball, I knew what’s going on with the stock I wouldn't be doing this job, I would be doing a different job, I am a TMT mobile person and I’ve got a lot of experience and expertise on that. But then -- and we saw -- what I’d say is that we’re going to staying continue to execute. We think we got pretty special here; the franchise value of what we've built with all of these deals around the globe is something we’re proud of. We think we’ve put ourselves in a really great position for the future and now we got a platform. And as we add devices and we add products and we add all these advertising partners, those are things that should enable a real scale and real exponential growth and those are things we’re excited about. That’s why we’re here. And we’re going to continue to grind out and execute on that. And my belief is that markets may not get it right in the short-term but in the long-term they will and we’re going to continue to grind it out and focus on the strategy that we’re excited about. And at some point, the market should be paying attention to that.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Stone for closing remarks.

Thanks all, and appreciate everyone joining the call today. We will be back in touch in our next earnings call later this year and we will keep you apprised of our progress. Thanks to all and have a good night.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.