Good day. And welcome to the Digital Turbine Fiscal 2019 Second 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, Capital Markets and Strategy. Please go ahead.

Thank you, Sean. Good afternoon and welcome to the Digital Turbine second 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. And with that, I will now turn the call over to Mr. Bill Stone.

Thanks, Brian. And thanks to all for joining us today. Our stated goal has been to build and sustain a profitable growth business. We grew revenues 50% year-over-year in the September quarter and this growth, along this sequential improvement in gross operating margins, enabled us to generate more than $1.6 million in adjusted EBITDA during the quarter, marking our sixth consecutive quarter of positive adjusted EBITDA. We also generated $1.6 million in free cash flow during September quarter. And as pleased as I am with this financial performance, I'm even more excited about the traction of our platform. We continue to see the strategic value of the platform grow with several new and renewal agreements signed over the past few months with blue-chip names such as Verizon, AT&T, Samsung and Netflix. I'm going to break out my prepared remarks into three areas; first, some commentary about these new agreements; secondly, some operational commentary about both the September quarter and the current December quarter; and finally, some commentary about the growth drivers and progress against them as we enter into 2019. I'm pleased to announce that we recently signed a number of new multiyear deals. First, our new AT&T agreement matches the existing terms of the prior agreement. And in addition, we have some enhanced margin terms for new products that are redundant to this existing agreement. We also anticipate additional enhanced margin opportunities as we get into 2019 as we work with AT&T on various integration opportunities with the Time Warner assets. Secondly, we signed a multiyear global deal with Samsung to integrate our mobile delivery platform on Samsung devices. I'll provide additional details on the agreement later in my remarks. But it's a great validation of both our platform and our long-term strategy. And finally, I am pleased to…

Thanks, Bill and good afternoon everyone. As Bill mentioned, we're very pleased with the results in the quarter, delivering 50% growth, sustainable and expanding profitability with adjusted EBITDA of $1.6 million and non-GAAP net income of $1.1 million, enabling positive free cash flow generation of $1.6 million in the quarter. Now, let me turn into the financial performance in the quarter. As a reminder, the results of our divested businesses treated as discontinued operations for all periods presented in our financials. My comments today will refer to results from continuing operations unless otherwise noted. All of our comparisons are on a year-on-year basis unless otherwise noted. Revenue of $23.9 million in the quarter grew at 50%. This growth rate represents an acceleration over Q1. While we continue to deliver revenue growth from more devices from the platform, a larger portion of the revenue growth generated in the quarter came from expanding revenue per device. Revenue per device or RPD of $0.96 in Q2 was up 30% over the prior year, fueled by both increasing advertiser demand and the expansion of our new products. In the quarter, other product revenues or our non-dynamic install business made up over 17% of total revenues as compared to less than 3% in the same quarter last year, illustrating the progress of the new products added to our platform. Turning to gross profit and margins. Revenue growth enabled non-GAAP gross profit dollars to increase by $2 million year-on-year to $8.1 million in the quarter. Non-GAAP gross margin was 34% in Q2, expanding sequentially from 31% in Q1 of this year, and down from 38% from Q2 of last year. The sequential rebounding margin is largely driven by improved revenue mix towards higher-margin partners in the quarter. As a reminder, our gross margin rates can be…

We’ll now begin the question-and-answer session [Operator Instructions]. Our first question comes from Mike Malouf with Craig Hallum. Please go ahead.

If I could just talk about a couple of things, first off on Single Tap, sounds like your launch with one partner and you’re very close on the other to launch. Can you take us through little bit of -- now that you're starting to watch a little bit of how the model works and who were some of the publishers that are actually using the product?

So we’re live with one at scale. We’re in the process this month of getting scale with the other one. We’re live on some devices with them. It’s just going through the scaling process, which is really important for the demand side. They want to see those volumes from those two operator before they really go much larger at it. So now that we’ve been able to deal with this kind of chicken or egg problem, we’re excited about the prospects from it. In terms of the specific publishers that are using the platforms, I think of names like Twitter, Yelp, the Weather Channel, all being examples of companies that are using the platform today. The pipeline in terms of people that are interested in it, it’s quite impressive but they want to see scale. So that’s what our focus is on right now. And in terms of the model what we’re seeing right now is we've got really two models with this version of Single Tap, not the integration we have with the large social media provider. But this model Single Tap, where we were getting paid per transaction fee, whether that's from advertisers for the video add, for example, and then getting this Single Tap application, would be one model and the other one would be WAP to app, we're in a mobile Web site like ESPN or Yelp or the Weather Channel and we're able to click and get the app directly to your phone and so stay in that experience. And that model is per transaction fee as well. But that price for download we get on that latter model right now is trending a little bit higher as well is what we're seeing. But it's early days as we have to get the scale at it. But how we're thinking about it, Mike, is a per transaction fee that we get from every app that’s downloaded.

And then you just share that with the carrier. Correct?

That's right, or if it's open market and that's on device and we would keep the 100% of the revenue. But yes, that's right.

And then with this new agreement with Samsung, it sounds to me like they're going to roll this out in very specific areas first. Is that how you see it? And then eventually get to larger or how do you see this working?

Yes, so we're in the planning phases of that for next year real time as we speak. The good news is that it's not academic. We're launching this quarter, as I referenced in my remarks here in the United States, within our platform it's now been basically integrated into the Samsung engine, if you will. And then what we will do is we'll go through the planning exercise, both with Samsung and their geographies and open market, as well as planning exercise and working with global operators that currently are not Digital Turbine partners. And then we'll work with them to decide which products off the platform they want to chose, so it'll be a Chinese menu. So they could select Wizard, they could select Single Tap, they could select Wizard Single Tap and dynamic installs Folders, it will vary based upon what that specific operator or what that specific Samsung open market geography is interested in, and we're working through that real time.

And then one final question, with regards to the self service platform. That's obviously we, I think, really needed in this brand new environment. Can you talk a little bit about where you are in that process and where do you think that -- when will that be up and running?

Yes. So we already have some, what I would like to call, beta versions up doing some things now with that. We've bought in this new inside sales team. It's done a great job really working on the long -- what I'd call the long tail of applications. There's a lot of things to go to get that to commercial scale in terms of validating applications and approvals and testing and all those things. It's definitely something that's a roadmap item for at scale in 2019 but yes, we are just getting started on it today. And as I referenced in my remarks, we are starting to see some nice traction from that insight sales group.

Our next question comes from Darren Aftahi with ROTH Capital Partners. Please go ahead, Darren.

Could you just I guess, first with the Netflix deal. Bill. Could you give a little background how that came about, tying to get something like that over the hump, and then just given how prevalent the need to drive subscribers across a myriad businesses? I mean, what the pipeline look like for similar type media streaming deals. Second question would be the mix on new products going from 15% to 17% or better as a composition. What drove the marginal improvement within new products? And then can you indulge me if my math is right, and I appreciate there's some seasonal expenses here. But you are guiding to 4,000 and roughly better of EBITDA sequentially but revenues roughly 5 million better. So I am just trying to make heads and tails of where the expenses -- the incremental expenses are coming from there as compared to business? Thanks.

So, Darren, I'll take the Netflix and then new product question, I’ll turn it over to Barrett to talk a little bit of the guidance on revenue and EBITDA. Yes, as regarding the Netflix deal, Netflix historically hasn’t done a lot in terms of user acquisitions. And they don’t have the same way that other traditional application companies work with what’s called attribution meaning, how you measure the app, track the app who has opened it, who has used it and there’s a lot of providers who do that. So we worked with Netflix on a custom solution and integrated that in with a large North American operator. And that’s been live for a month or so now. So we’ve been excited about that. And then as we continue work with Netflix, we decided to really expand that into the white space. So in many cases, Netflix may have other direct deals around the world with other providers and there’s many that they don’t. And so as they looked at our roster of partners and pipelines, I think that’s something they became excited about to expand their distribution or reach not just here in the United States but our large North American partner, but more globally. And I think as most people know including yourself that that’s a big important metric for subscriber growth for them, so great that we can help partner with them to meet their goals and objectives. And as far as the business model goes, one of the things we’re starting to do is historically we've done more cost per install or cost per placement where we get paid a fixed fee for the customer ready to putting app on the phone or the customer opening and engaging with the app. And now we’re starting to…

Your question around investments, I’ve made some comments in the script. If you look back over, there’s some seasonally high expenses, just variable expenses that come with a higher revenue that we've experienced in past holiday quarters, that’s one. But in addition to that, we have investments across our sales force, across our product groups and our technology groups to make sure we’re taking advantage of these new partnerships that we’re rolling out. Some of those are already planned and some of those we’re working with these partners to make sure these regions and these new launches are successful. Those are the types of expenses we’d anticipate seeing in Q3.

Thank you. Our next question comes from Sameet Sinha with B. Riley. Please go ahead.

I want to ask a couple of question, let me start with Samsung. And can you talk to us about -- I know it's early stages, you're talking about 2019. How would the deal go? Is it all devices or is it only on mid-tier low-tier devices? Can you give us some inside there? Secondly, talking about the self service product, I'm just trying to understand. I mean, if we and all know that add inventory is highly valuable. What is the decision that you have to make, whether to go after the big brands versus some of the long tail applications. Do they pay more if they pay a higher price? How much higher is that some, some insight there? And then I have a one follow-up.

So first regarding the Samsung agreement. From a technical perspective, it will work across the entire Samsung line up, so there's not -- or Android line up. So there 's nothing that’s unique about low end or high end from a technical perspective. My guess would be is that will be contingent upon whatever the global operator wants to do if they want to put it across the whole line-up, only the high end, only the low end, across mid-tier wherever that happens to be. So that would be something that we'll work with the global operators are. History would suggest it goes across all of those based upon how we've deployed it in the past, but we'll see how that works. And then what we will do in the open market and then we'll work with Samsung and their local management teams in India or Brazil, or whatever the geography happens to be, to decide which devices they want to target and which products they want to target. And we're just getting into the plan and stages of that right now. And then we'll have a revenue share between us in terms of how all of that will work. So we're really excited about the partnership and where that's going. As far as the self service platform and how we decide what goes where, now that we're adding all of these products and you think about things like folders where you've got to have dozens of applications and the right applications is to recommend to a customer of being able to have those right applications delivered they may not have the big budgets that some of the big names that I mentioned in my script will have. But nevertheless, those are the right apps with the right customer. So we'll use a variety of techniques, AI and targeting, to get the right apps to the right customer. Obviously, we'll use an option process combined with that AI to get the right apps to the right customer to ensure that we're meeting what the customer expects from us. But the self service platform this inside sales group will be a key to drive growth of these new products, as well as growth in a lot of these geographies outside the United States and making sure that we've got inventory filled for those partners.

I have two follow-up questions one is as you test out these new revenue streams and like you explained the Netflix a continued revenue share. What's the breakeven period between a CPI -- what you would have got paid on the CPI basis versus this revenue share? And second thing was as you sign much more of these long-term deals, whether it's Verizon or AT&T. Help us understand those thresholds that you have to meet. Is it on a cumulative, on a deal term basis or are they annual resets, how would that work, because obviously, you're showing great progress on a gross margin basis. I'm just trying to see if we that resets every year or not.

So first, in terms of decision process, we have a model that we use to optimize the yield that we'll get from a specific application. We will know just because we've done this at scale now for a while what the probability of consumer engagement is, consumer converting to paying subscriber, consumer open rates are, et cetera. And then we can basically work the math backwards to say at the simplest level if somebody wants to pay us $0.50 CPP or somebody is willing to pay us $1 CPI but 50% of the customers open or we know on a recurring rev share model that 10% of the customers are going to pay us $0.05 a month for 10 months, we theoretically be indifferent between those models, because it all yield the same per device. So that would really go to the AI and to the targeting to make sure we're getting the right app to the consumer. So we will do that math and calculus to really optimize the yield, so we’re maximizing the revenue per slot on that device. The revenue share something that’s becoming much more material, but we have taken a very short-term that we would get for CPI. But as we’re starting to get numbers now, it pays dividends in the long run as that revenue stream continues to grow. And then for your second question in terms of how that relates to our operator agreements. Obviously, I am not going to get into specifics of any operator agreements but just say generally from what we filed is with our Verizon agreement it's aggregate or cumulative. So you add up all the revenues together and then you hit a tier and then you're able to accrete margins. With our AT&T agreement, these are done as addendums. So individual product may have different margin profiles depending on what those products are and what strategic goals AT&T and we are trying to achieve. So they're a little bit different in that regard.

Our next question comes from question comes from Jon Hickman with Ladenburg Thalman. Please go ahead.

Bill, I just want to follow-up on the Samsung just a little bit. So Samsung going to put you Ignite on all of their android devices and then the operator gets to decide to put it on and off. Is that what you’re -- or is it a negotiation like the operator will say I want to send Samsung install it?

So Jon what we have is we have our suite of product on our platform, from dynamic installs to Wizard, to Single Tap and so on. And so now what we’ve done is we’ve integrated that platform into Samsung as an on device installer. So we’ve integrated that platform into Samsung’s core engine if you will versus us just placing it on separately, which is historically we’ve done with other operators and OEMs. So now it’s integrated into their broader platform. And so then it will be a decision for Samsung of what they want to do in each individual geography in device for open market, and then it will be something that Samsung and us jointly pursue with different global operators. And then those global operators would decide which products they want to deploy on which devices. And then there’s already pre-existing commercial agreements around what that revenue split would look like between us and Samsung and to the extent the operators involved for non-open market devices. So we’re just getting that kicked off right now and working through the process as we get into 2019.

So you and Samsung have to go out and convince the operator to do this?

Well, I think the barrier historically has been more that the operators have had friction with Samsung getting any third party platform installed globally. Now that Samsung has a solution, if you’re a global operator, you’ve the opportunity for the Digital Turbine solution on non-Samsung devices now that’s integrated one on Samsung. So if you’re a global operator who had some friction with this in the past now Samsung is able to offer solutions. So we think that's great news for our global mobile operator pipeline going forward.

Our next question comes from Ilya Grozovsky with National Securities. Please go ahead.

I just had two questions. One, can you give the geographic revenue mix? And then the follow-up question that I had was on the Samsung opportunity. What you think the impact will be on your gross margins, will it be better than the carrier direct or will it be the same or worse? Thank you.

So let me take the first one on the Samsung and I'll turn it over to Barrett on the second one, Ilya. As far as the Samsung deal goes, we expect the margins to be better than what we currently have with our large North American partners on a go forward basis. And I'll turn it over to Barrett for the second one.

You'll find listen in the Q we've got the revenue breakout by region. It's a little north of 70% for the U.S. and that’s a breakout by advertiser location, so just north of 70% is coming from U.S.

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

Thanks everyone for joining the call today. And we'll look forward to reporting on our progress against all the points made on today's call and we'll talk to you again on our fiscal third quarter call in early 2019. Thanks, and have a great night.

The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.