Good afternoon, and welcome to the Digital Turbine Fiscal Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to turn the conference over to Brian Bartholomew, Senior Vice President, Capital Markets. Please go ahead.

Thanks, Debbie. Good afternoon and welcome to the Digital Turbine fiscal year 2023 second quarter earnings conference call. Joining me on the call today to discuss our results are CEO, Bill Stone; and CFO, Barrett Garrison. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statement. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we filed with the Securities and Exchange Commission. Also during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. 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, I will turn the call over our Chief Executive Officer, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I know the vast majority of investors are currently focused on the macroeconomic environment and what it means for our business versus the micro operational details. And while I'm going to cover both in my prepared remarks, I'd like to begin by talking about the macro environment and what it means to us before diving into our results for the second quarter. The macro environment we've experienced over the last 2.5 years has been the most dynamic I've seen in my 30-year career. It's required companies to operate lean, while being nimble, flexible and open to change. I want to focus my commentary on the current macro operating environment and what we're seeing regarding digital ad spending devices, and operator and OEM focus areas. First on digital ad spending, at the headline level, and as many others have already reported, it has slowed. However, we believe that this is both temporary, and also much more nuanced in the details, as many are painting all digital ad spending dynamics with the same brush. We believe this trend is temporary for a very simple reason. Since the beginning of the first ad dollar spends hundreds of years ago, continuing to today and ultimately tomorrow, ad dollars have always followed where our eyeballs are, and today our eyeballs are on digital devices and we don't see that changing. In fact, we see that growing. So while there are some modest deceleration in the short-term, as advertisers figure out how to best optimize their spends in an inflationary and slowing macroeconomic environment, the dollars are there and will be there over the mid and long term. Also, we see a lot of nuance in the ad dollar spends. For example, platforms that have…

Thanks, Bill, and good afternoon, everyone. Our Q2 results reflect our continued focus to deliver sustainable profitability as we make conscious efforts to expand our gross profit and EBITDA margins even during these dynamic times. Before I begin, as a reminder, we passed the anniversary dates of our acquisitions made last year and will no longer refer to results on a pro forma basis. Revenue of 174.9 million in the quarter was down to 7% year-on-year. Despite a softer ad market, our AGP business grew 6% driven primarily by growth on the exchange platform. Our ODS segment was down 16% over prior year, largely driven by the near-term headwinds Bill discussed as we evolve our content media products, which were partially offset by the modest growth experienced on our app media products as North America RPD yields continue to expand. As I've mentioned previously, in this environment, global companies are facing headwinds driven by the trending strength and the U.S. dollar. Fortunately, foreign exchange rates have had only a modest impact on our revenues despite the macro climate. This is due primarily to our current business model, where we'll only have modest foreign exchange exposure given the majority of our revenues and expenses are nominated in U.S. dollars. Our margin expansion efforts enabled gross profits to increase 1% to 90.5 million and gross margin on the platform expanded to 52% in Q2, up from 48%, as reported in the prior year, and up sequentially from 50% in Q1. While continued focus on margins enabled expansion across all our business lines, our ODS segment was an important driver in the year-on-year improvement. In addition to our core business expansion, we also experienced the benefit in the quarter from a renewed partner agreement that enhanced margins. And as a reminder, while gross…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Dan Day with B. Riley Securities.

So look, if I'm doing the math, right. Just based on a couple of the things you provided in the prepared remarks, it would seem that a content media revenue was down a little over 40% with this transition to postpaid in mind. So maybe if you could just -- first if you could just confirm that's about right? And then if you could just walk investors through the expected revenue wrap. How long you think it should get back to the pre-transition levels where we are with the Verizon AT&T, potential partnerships, and then whether you might get some of the business from T Mobile that has been lost in the prepaid side back on their postpaid side at some point?

Yes. Thanks, Dan. Just on the numbers, we did reference -- we don't break out the content specifically. But we, the segment, we report ODS. It was we did reference it was impactful. Overall excluding our content business App Media business was up slightly. I'll let Bill answer address the strategic point.

Yes. Yes, sure, Dan. The first thing I'd say is just as a reminder for us, between 80% and 90% of our revenues of our company come from something other than this just for context. But as it relates to content media specifically, yes, we've been really beginning to focus a lot more on the postpaid product. We want to get better quality for our advertisers and really get after the broader market that goes with postpaid. So, we've been really focusing our resources on deploying that. And as I mentioned in my remarks, we're starting to see some nice traction with that. Now we've got to turn that nice traction and engagement into revenue, which is what we expect to happen as we get back into 2023. But it had -- that focus has negatively impacted our prepaid business. And so we've seen some declines in daily active users as a result of that. But we expect that to resume as we get into 2023.

Awesome. And then one other thing, you talked in the prepared remarks about sort of this delay between when you get the licensing deal when it starts to generate material revenue, I think like the perception from some investors is you're going to strike these deals and then they turn it all on the platform and then the money starts flowing in. Clearly, it's more complicated than that. So maybe if you could just walk us through why that is, and so we can understand a little better why there might be a delay between getting a deal and SingleTap revenue coming in.

Yes, sure. You know, I think one thing it's important for investors to understand about SingleTap is really an enablement capability. And we've got four different types of revenue streams that we have our SingleTap, we've got it in our DSP business, we run it through our legacy, AdColony business. We just integrated into our Fyber exchange business. And then the fourth part is the licensing business that's attracting a lot of investor attention and a market we're excited about. In that fourth part of it, I really just view this very similar to we started the dynamic install business many, many years ago, where you start with one material player, you get going, then that player wants to expand to do more and more, whether that's in you know, more geographies, or more ad types, or whatever it happens to be in this case, and then continue to expand it to other providers, but you go deeper with the ones you've got, you go broader with new ones. But I think that kind of sequential growth is something that, we just want to make sure we manage expectations. We're very excited about it. We've run the models, we know what it looks like, internally. We think this could be really big. But at some point, we don't want to get over our skis, in terms of managing expectations on because there are a lot of last mile operational issues that are associated with getting this thing going and ramped. And that's where we're really focused right

Next question is from Darren Aftahi with ROTH Capital Partners. Please go ahead.

Thanks for taking my questions. Nice job on the cash flow. Could you just kind of give us an update, Bill, with everything that's kind of going on with Europe, just the Samsung SKUs, the relationship there? Are you guys seeing any better traction than kind of your commentary last quarter? And then my second question on the licensing business for SingleTap. You mentioned some Tier 1 wins in Google Cloud, like -- do you feel like you finally hit an inflection point? Or this is going to be more of a roller coaster ride, maybe like the early days of dynamic install?

Yes, sure. Thanks, Darren. Yes. So first on the devices. I was really pleased in this to have 75 million devices put on the board. I think that's a record for us all time in this environment. And as I mentioned in my prepared remarks, the vast majority of that was internationally, which obviously, Samsung is a major contributor the largest contributor of all of those around the world. So we're pleased with that. And we're going to look to continue to expand that number. I think one of the things that negatively impacted not just us but everybody here in COVID was working a lot of different kind of global relationships to add more supply and we're starting to see kind of a rethink of that as operators and OEMs are looking for new revenue streams. And so, obviously, we provide that them. So I'd expect to see continued traction and momentum on that. Regarding the inflection point question, yes, I think we're at a point now where we've taken this from a great idea to now getting signed contracts, seeing a little bit of revenue roll in. But as I mentioned to Dan earlier, I just want to make sure we temper expectations. We're excited about it. We do think we're at an inflection point. But we want to make sure that we manage expectations around it, so we don't get over our skis. And those are things in mistakes we made many, many years ago in the past, back to your reference on the dynamic install business. And so, I want to make sure we don't repeat that. So we do want to continue to focus on how we can under promise and over deliver there.

If I could sneak in one more maybe for Barrett. Your comments about deleveraging like what's your kind of general rule of thumb about cash -- free cash flow generation relative to debt pay down?

Yes. So our view on our long-term EBITDA conversion to free cash flow hasn't changed, right? We've still been in the -- we still view that as the 70% to 80% just given the nature of our financial engine. So at that rate, you could assume that we don't have a lot of assets that we're going to be investing in. And so if there's not an opportunity, we turned that free cash flow, we direct that towards paying down our debt. So Darren, you can take the 70% to 80% over the year and apply that to debt pay down.

Our next question is from Omar Dessouky with Bank of America. Please go ahead.

Just wanted to ask about any progress on the SingleTap fiber integration. I'm wondering if that is launched. And if there's anything worth calling out in terms of flows and demand that you're seeing there?

So we've soft launched it. And we've enabled it. We are right now, we're pressure testing it with the DSPs that plug into Fyber. And we want to make sure we've got that right, relative to our own DSP performance. And so we're doing a lot of kind of A/B testing around that to make sure that it's meeting their expectations in terms of return on ad spend versus just sheer number of installs. So I'd say we're being pretty cautious with it. But we're very excited about it.

And do you have any sense of when we might be able to see incremental revenue from that in the next year?

I would expect as we get in as you see is get into future quarters, we're going to see incremental revenue from that. Absolutely.

Our next question is from Anthony Stoss with Craig-Hallum. Please go ahead.

Congrats on the nice margins. Bill, just getting back to SingleTap for a second here, I know, there's been a lot of custom work for a bunch of these Tier 1s. Have you learned a lot through this process where you can potentially onboard other Tier 1s much quicker? And I'm curious if you think he can take on your several new launches per quarter. And then I had to follow-up on after that?

Yes. Sure. Tony, thanks. Yes. we're working on that right now. That's a major focus area, some of the stuff I'll call it, it's not necessarily the sexy stuff in terms of announcing some of the larger deals is in the implementation. And what we've learned, in the early days, when we launched with Verizon, and Samsung, and AT&T, in our Dynamic install business, that last mile of execution at high scale, that last mile of execution is just critical to success. And so we're absolutely working on how we automate. And we've learned a lot for that versus getting into a variety of bespoke solutions. But we do have to work to integrate with these partners. And so, the work isn't necessarily difficult, the work just has to get integrated into their existing processes. And that's something that I think would probably spend the hardest thing for us in terms of taking the time to get going. But I think we're making some material progress against it. And very excited to see how this business can play out for us in 2023.

And then, Bill, you seem pretty excited about this combo after a launch in early 2023. With the U.S. operator, any more detail you can share or maybe the revenue impact. And then I wanted to sneak in one for Barrett, just kind of thoughts on gross margins higher next year, fiscal year this year still?

Yes. So, as we think about the alternative app store space or we're calling our hub internally. We think there's a real opportunity for curated app stores. Just like in our regular worlds today, we'll go to Amazon and buy stuff in the e-commerce world. But we also see things in our local stores are powered by Shopify that are maybe more curated for our personal experiences. And given our unique position on device, we think we've got a really good back here to not just leverage our ad tech assets for in app advertising, which we're doing, but also is our first foray into in app purchasing. And as I mentioned my remarks, that's $100 billion market. So if you can think about us now collecting dollars in terms of acquiring new users, collecting dollars for the advertising inside those apps, and now expanding that to another dimension, with the NF payment piece of this, I think that adds, you know, a nice revenue growth opportunity for us. And so we're going to get this going off the ground early next year. But I think the thing that also will be exciting, and now that, you know, getting over midterms, is how the regulatory environment goes. We see all the Digital Markets Act in the EU just get passed, and it's in the process of getting implemented. I expect to see now some legislation getting going here in the U.S. as bipartisan support that could be a real nice tailwind and thrust to our activities in the space.

Our next question is from Arthur Chu with BofA Security. Please go ahead.

Hey, thanks. Thanks for taking my question. Actually, my question was just asked by Omar, so no worries. Thank you guys.

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

Thank you all for joining the call today. And we'll look forward to reporting our progress against all the points we made on today's call. We'll talk to you again in our fiscal 2023 third quarter call in a few months. Thanks and have a great night.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.