Good afternoon, and welcome to the Digital Turbine Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. 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, Gary. Good afternoon, and welcome to the Digital Turbine fourth quarter and fiscal year 2023 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 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 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'll turn the call over to our CEO, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I wanted to start my commentary closing out our fiscal '23 results, provide some real-time operational commentary on the state of our business today and conclude with some thoughts about our future and specifically, the role of AI and machine learning in our current and future business. First, turning to our fiscal '23 results. We closed the year with $666 million of revenue, $163 million of EBITDA and $1.15 of non-GAAP EPS. In addition, we reported gross margins of 49% and EBITDA margins of 25%. As we stated previously, our view is that the first half of this calendar year is the trough of the business. And our expectations are that our improved execution, new products and media relationships combined with increased stability in the macro environment will equate to sequential growth. And to date, we are seeing recent positive trends on all of these factors. Also included in our results is a change in the expected timing of a strategic demand agreement that was signed in the March quarter with an app publisher. We do these strategic demand contracts to help drive unique advantages for the publisher on our inventory and also accrete incremental margins for us. Our previous outlook anticipated a portion of the economics from that contract to impact the prior March quarter. However, the majority of the economic benefit from this agreement will be realized in fiscal year that we're in right now. This is strictly a timing issue, and these agreements actually have a positive impact on the fundamentals and operations of our business and as the total expected revenues and profits from that contract are unchanged. Barrett will provide more detail in his remarks. Turning to our On Device business. We put our…

Thanks, Bill, and good afternoon. For the fiscal year 2023, we reported $665.9 million in revenue, down 11% year-on-year and generated $163.2 million in adjusted EBITDA or 25% of revenues and delivered $118.2 million (sic) in adjusted net income or $1.15 per share as compared to $1.66 per share in the prior year. Now turning to the financial performance in the quarter. Revenue of $140.1 million in the quarter was down 24% year-on-year. Overall revenue performance was driven in large part by continued soft advertiser spending across both of our business segments. Within our On Device Solutions segment or ODS, revenues were sequentially flat to the December quarter and down 19% to the prior year March quarter. However, as Bill referenced, while we saw global devices increase year-on-year, we experienced greater than 20% declines year-over-year in U.S. device volumes, which have a greater overall impact given their higher revenue per device than our non-U.S. global operators and OEMs. Impacts from lower U.S. device volumes were partially offset by improved revenue per device in the U.S., which exceeded $5 per device and increased both sequentially and year-on-year. In addition to the impact from the near-term macro conditions, our ODS segment experiences headwinds from the prepaid content media that we have discussed in the past. And while the year-on-year decline has moderated, we expect the grow over comps to continue for the next couple of quarters. On our App Growth Platform or AGP business, fiscal '23 revenues were down 4% over last year, and Q4 declined 35% over prior year. Recent declines in the quarter year-on-year were driven in part by macro declines in ad rates and the short-term impact of the consolidation and exiting certain legacy AdColony business lines we have discussed previously. I'd reiterate Bill's earlier comment that despite the…

Our first question is from Darren Aftahi with ROTH MKM. Please go ahead.

First, I just want to get more clarity. I was just doing some math, it looks like your business fell sequentially last year 15%, fell 14% this year on revenue. But the non-GAAP gross profit fell quite a bit more this year versus last year. And in the context of your comments about the strategic app publisher relationship, I guess, can you quantify how much in terms of like gross profit dollars are moving from what would have been in the March quarter to maybe down the line? I'm just trying to understand if that's the main reason for kind of the non-GAAP gross margin weakness or if there's something else.

Yes. Thanks, Darren. Yes, I'll give you kind of an indication of the magnitude. I referenced in my prepared remarks that it was several million dollars. And so I'd also reference that we were basically in line with our expectations, had those not shifted out. But those several million dollars of revenue related to timing will move into FY '24.

Got it. And then maybe could you just talk about the quarter you just came out of and maybe trends in April and May just in terms of impressions and eCPM? And then any kind of good, bad and different? You've called out, I think in the last quarter, you talked about regional performance. So anything in that context would be helpful. Thanks.

Yes, Darren. It's Bill. I'll take that one. I'd say in terms of trends that we're seeing so far in the current calendar year; we continue to see improvement on the AGP part of our business, I think, which is in line with other players that have already reported. We're seeing rebounds in eCPMs. We're seeing rebounds in publishers wanting to continue to integrate our products. We're seeing really good progress I referenced in my commentary on the DSP, which we leverage SingleTap for. So I'd say on the AGP part of the business, the trends have been encouraging. On the ODS side of the business, the two major headwinds that we've been dealing with are really just new device sales and then having an enormous amount of insertion orders from these various Chinese publishers that want to run on our O&O supply. But quite frankly, due to primarily political considerations in the short-term, it's been a little bit of a struggle for us to do that. I think we've got a variety of other things that are in our control that I think give us optimism in terms of new supply, new products, other strategic demand relationships that we're referencing that it will all counteract that as we go forward into the fiscal year. But those two primary factors are the headwinds we're facing right now. And we want to put that consideration in our guidance for the current quarter. If something changes on those factors, obviously, that would be a tailwind for us.

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

Thanks for calling out FairBid and having Google as one of its partners. Could you help us frame the size of that opportunity a little bit and also understand the competitive landscape in real-time bidding?

Yes. Sure, Omar. Yes, we're excited because Google only announced a handful of partners that they're integrating with, and we were one of them. So it was really with the biggest mediation players in the industry. So we're quite proud of that. And our main issue on mediation has not been on the supply side in terms of getting publisher access. It's really having the share of voice on the demand side bidding into the platform. And so now really being able to add the strength of Google's, I'll call it, firehose of demand they can bring into the supply we can mediate really helps our mediation platform's competitiveness and scale. So that's something we're excited about because it's really about improving the share of voice that you're running on all these different apps on consumers' devices. And so this is a big win in terms of being able to add more demand to our supply.

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

Hey, Bill. A couple of questions related to the timing of that contract that didn't happen. Do you expect any revenue to hit in the June quarter?

I'll let Barrett take that one.

Yes. So just to clarify, we entered into the arrangement in the March quarter. The timing of the recognition of the revenues was different than we anticipated, and that shifted into fiscal '24, just to clarify that. And that timing of revenue will be throughout the year.

All right. So do you not expect any for the June quarter, I guess, my question.

Well, we won't spell out the particular assumptions in the guidance, but we do anticipate some of that revenue will flow into June as well as other contracts that we've executed in the past.

Got it. And then, Bill, late in the quarter, you were at a conference, you're talking about Digital Turbine signing its biggest contract in history with Temu, and you rattled off a whole bunch of others. Were you able to book revenue from Temu in March? And what would you expect from them specifically up sequentially in June?

Yes. I'd say that right now, we're running revenue with some of our O&O partners today on Temu but the amount of revenue they want to run versus the amount of supply that's available to be run is where the mismatch is. And I mentioned that we signed a greater than mid 8-figure deal with Temu that they really wanted to leverage our platform. But given a lot of the, I'll call it, politics around Chinese apps on U.S. devices right now, whether it's one player or multiple players, it's something I think that our O&O partners are taking a very cautious stance on. I don't expect that to continue. And so if and when that changes, that would be a really nice tailwind for our business because we'd be adding some really good demand onto the platforms at very high rates. But for now, we wanted to be cautious in our approach for the current guide to assume that doesn't happen at any scale for us.

Got you. Two last questions, and maybe both probably for Barrett. When you look at the remainder of fiscal 2024 versus 2023, would you expect revenues to be up year-over-year? And then also give us a sense on kind of the trajectory on gross margins throughout the year.

Yes. So as we think about the year, obviously, we don't guide for the full year. We provided guidance for the June quarter. I think the things that would be important to the growth factors beyond the strategic initiatives that Bill touched on would be the macro environment. And our expectation is that we see improvements in the second half of the calendar year. And then on the margin profile, I think what we've commented, we've seen a little bit of fluctuations over time in our gross margins, if that's what you're referring to or EBITDA margins?

Gross margins.

Gross margin. We would expect those to kind of stabilize in the high 40 range in the near term. But again, our long-term growth expectations around margins that they would continue to expand.

. The next question is from Dan Day with B. Riley. Please go ahead.

So maybe just a little more about your expectations for device shipments in the June quarter. What's embedded in there for the guide, I appreciate the commentary you gave around the double-digit decline in the March quarter. And then you also talked about U.S. RPD. Anything you can provide on international RPD, how that's trended? Anything you're doing to try and close that gap with U.S. RPD would be great.

Yes. Sure, Dan. I'll take that. As far as first on international RPD, we are basically flat on our international RPD sequentially. We've got work to do there. So given there was some seasonality in the December quarter, I'm not saying it's not horrible, but it's not something we're happy with. I think our expectations continue to be higher, and we can do more. The one thing about the international RPD is that also varies by country. So if we're in developing countries versus developed countries on devices that can skew your international headline number a little bit. So for example, we do more devices in Latin America than Western Europe. The RPDs are a little lower. So your overalls would be lower if that makes sense. But on the domestic side, we've continued to focus in on some modest declines on devices here in the U.S. for the current quarter baked into our guide. Obviously, if that changes here over the next 5 or 6 weeks, that would be a tailwind for our business. But for right now, our assumption is that the trends are going to continue as we've seen.

And then anything you can provide if I look at like the App Growth Platform line, 35% year-over-year decline, like how much of that was due to these non-core business lines being shut down versus like what it would have been, had those not been in it a year before. I think it would just help us frame up like what you guys are doing organically versus any of the peers out there in mobile ad tech.

Yes. So I think you think of it as some of the legacy that we're winding down is in the range of kind of 10% of that historical revenue mix. The other thing that we're doing is, as we combine these platforms, there's an impact as they migrate. And those challenges or those revenue headwinds are, I wouldn't spell them out, but they're modest in the particular quarter.

If I could sneak one more in. Just for another quarter down the line with GamesHub, these alternative app store products you guys are working on, any better idea of when these might start to be a revenue growth driver? Or is it just kind of still way too early to say?

Yes. I mean, we're seeing revenue on the products today. They're contributing incremental revenue that we didn't have last year. It's not in a place where it's moving the needle that -- but it is in a place where it is showing growth. So our optimism is we're going to continue to talk about it improving sequentially. And that's why I kind of referenced kind of the early days of our Dynamic Install business many, many years ago where it took a while to get going, but then once you get it going and each partner ramps by themselves and then you keep adding additional partners to it, that's why you really drive the top-line growth. And so our expectations are that something you're going to see as we go forward in time. The product market fit has been extremely encouraging from what we've seen in the marketplace. And now it's just a matter of kind of putting all the operational touches on it to put it in place to scale and that's where kind of the part we're focused on right now.

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

Yes. Thanks, everyone, for joining the call today, and we look forward to reporting on our progress against all the points we made on tonight's call. We'll talk to you again on our fiscal '24 first quarter call in a few months. Thanks, and have a great night.

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