Good afternoon and welcome to the Digital Turbine Report Fiscal 2024 Third Quarter Results Conference Call. [Operator Instructions] Please also note that this event is being recorded. At this, I would now like to turn the floor over to Brian Bartholomew, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to the Digital Turbine fiscal year 2024 third quarter earnings conference call. Joining me today on the call to discuss our results are CEO, Bill Stone; and CFO Barrett Garrison. 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 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 to our CEO, Mr. Bill Stone.

Thanks, Brian, and thank you all for joining our call tonight. I'm going to break my remarks into three areas. First, I want to summarize our December results. Second, I want to describe the current state of our technology migrations and operations and changes we are making to improve our execution. And finally, I want to discuss the progress we're making against the future opportunities, which are very encouraging. For the December quarter, we achieved $143 million of revenue, $25 million of EBITDA, and $0.15 of non-GAAP earnings per share. We finished in line with our outlook expectations for our HEP business, but were below our expectations for our ODS business. We experienced three unique issues in our ODS business late in the quarter that were the difference between coming in below versus above our overall outlook. First, despite our forecast in U.S. device sales, to continue facing headwinds year-over-year, they were even more disappointing than what our conservative expectations were. Secondly, we finalized the migration of our cloud hosting platform late in the quarter. The good news is that this is a major milestone is now complete. However, some elements of our software that were working fine on our prior platform were not performing to the same on the new platform for a few weeks. These issues have now been fixed. And finally, we made some changes to our AI machine learning models for the holidays to drive improved engagement from our customers. The good news is that the engagement happened, but it happened at the expense of advertisers willing to pay more money to be on the platform for the holiday season and less focused on engagement. Combined, these three things were the difference between our results being below versus above our outlook. I'll discuss later in my…

Thanks, Bill. And good afternoon, everyone. Total revenue of $142.6 million in the quarter was flat sequentially and down 12% year-on-year. Within our on-device solutions, or ODS segment, revenues of $94.3 million were down 2% to prior year, December quarter. These results were below our expectations we provided on our November earnings call, largely due to further softening in U.S. carrier device volumes during the holiday season, even against our conservative outlet. Combined with the temporary execution issues, Bill referenced stemming from certain platform integration efforts. These headwinds were partially offset by continued strength from improved U.S. revenue per device growth year-on-year. Our content media revenues were slightly up sequentially in the quarter. And while this part of our business has experienced headwinds from the prepaid content media from a year-on-year comparison, this headwind was fully lapped in the December quarter. We're encouraged by both the developments of our new partnership that Bill shared and our robust pipeline, providing the opportunity to leverage our existing device footprint and grow revenues on new supply, particularly outside the U.S. In our app growth platform, or AGP business, Q3 revenues of $49.2 million, which performed in line with our guidance expectations, grew 6.5% sequentially and declined 27% over prior year. We saw improving signs of spend levels, particularly within brands, evidenced by greater than 25% sequential revenue increases. While the overall decline in AGP year-on-year continues to be impacted in the short term by the consolidation and exiting of certain legacy business lines that we have discussed previously, we're pleased that as of the beginning of this calendar year, the revenue lines have been integrated and fully operational onto our consolidated DT exchange. I'd reiterate Bill's earlier comment that despite the near-term headwinds, we're encouraged by the platform consolidations we're making to bring…

[Operator Instructions] And our first question today comes from Darren Aftahi from ROTH MKM.

Hey guys, thanks for taking my questions. Just to clarify, if I may. I know the first one may not be an easy one to answer, but it seems like the device headwind is pretty persistent. I'm just kind of curious, are there any kind of green shoots you're seeing in the market? I know, Barrett, you've made some comments about accelerated declines in the U.S. But any kind of sense for when this kind of reverses itself? To, Bill, your comments about the tech stack, I'm just kind of curious, when are we going to be fully complete with implementation of that? And the just lastly, on the open app store initiatives and some of the stuff you're doing and investing in, when do you think that's going to start to have an impact on your P&L in a more material way? Thanks.

Yes, thanks, thanks, Darren. I'll jump in on those and Barrett can provide any color, on the device headwinds. Yes, here in the United States, we saw a double digit year-over-year declines with our U.S. partners, which was something that we weren't expecting that precipitous of a decline, even though we'd forecasted one. So that continues to be an issue for us. And as Barrett referenced in his comments, January was off to a slow start, which reflects some of the things you saw in our outlook. The first weekend was encouraging for the S-24, although weekend does not make a trend. We'll see, but we want to make sure that we're being extra cautious regarding that. Based on some of the comments we've heard from chipset suppliers, it sounds like those device supplies will get better as the year goes on. Also, as we start seeing anniversary and out of three year anniversaries of lease contracts here in the United States on both Apple and Android devices from the US operators. I think we'll also be helpful. And then the thing for us is rather than get focused on those uncontrollables, what can we control? Well, we can control getting more devices in places like Korea that I mentioned. We can also expand our relationships with some of our other partners. We can take advantage of a pretty attractive competitive environment right now with bringing on new device supply. So we're really focused on doing that right now versus being relying upon some of the operators here in the United States. On the second question regarding the tech stack, it's going to be rolling. So every quarter you're going to see improvements from us. My expectation is it over the next 12 months that it'll be done. But you're…

Our next question comes from Omar Dessouky from Bank of America.

Hi guys, thank you for taking my question. I was intrigued by your partnership and your investment in ONE Store. And I was hoping that you could talk about the economics of the deal. For example, what's the fee structure like, price per install, revenue share, things like that. And then secondly, what part of the consumer journey are you going to be involved in with regards to, I guess Korean customers. Is it just going to be the app install, or the in-app ads or potentially the in-app purchases as well?

Yes, sure, Omar. Yes. So we're viewing our relationship with ONE Store, this really phase one of something that we were planning to do something bigger with those guys as we get into the future. And I think that as we, as the Digital Markets Act becomes live over the next 30 days or so, we're looking forward to really collaborating with them in the EU with the opening up of Google Play Store and Apple Store there. So I'd kind of stay tuned for something more strategic, more tactically in Korea, we've got to really do three things. We've got to number one; we've got to show that we can improve our dice biomes as I just answer on the prior question from Darren. And this helps us get our tech on about 40 million devices in Korea immediately, we can do that kind of as one fell swoop. Number two is we can drive user acquisition now with SingleTap, so we can be able to acquire more users into the ONE Store with those alternative apps leveraging our DSP and our ONE Store capabilities and a friction freeway for Korean customers. And then number three, we can work with the local app publishers in Korea and then get our own in-app advertising tech stack onto those, whether those are games or other types of applications and now it provides a new revenue stream force on our AGP side. So those are really the things that we're focused on. I am not obviously going to disclose any specific terms of how we're working the revenue with ONE Store other than say that I think it's a good win-win partnership for both sides.

And could I just ask as well, how should we think about the strategic value of these deals kind of coming together, right? You have the Aptoide, you have ONE Store. How do we think about synergies and the strategic value across regions and with multiple assets now?

Yes, I think what's important for investors is if you believe that the alternative app store space is going to grow and be extremely disruptive over the upcoming years, which obviously we believe that, we believe we're uniquely positioned in partnering with the companies that continue to bring the capabilities because in order to enable this, there's a lot of things behind the scenes that have to happen, whether that's porting the apps into the alternative versions, managing the payments, doing it in a friction freeway with customers, having the publisher relationships to do multi-variants, I can go on and on about all the different things. But anybody that wants to do that, whether it's us direct or whether it's with other mega cap tech companies that have ambitions to go do this, there's a lot of those plumbing and electricity things that have to happen that make us super uniquely positioned to go out and help enable that. So now having these relationships with these companies all together is something that I think is going to make it easier for a one-stop shop for any app publisher to come to what we're doing to be able to solve the single biggest issue they have on their P&L, which is the egregious 30% tax that is getting paid to the two that are running the duopoly today.

Our next question comes from Dan Day from B Riley Securities.

Yes, guys, thanks for taking the question. So Bill, in the prepared remarks you talked about changes in leadership and new org structure. Just it would be great if you could elaborate on that are you planning to bring in totally new people to run certain business lines, just sort of switching around positions or reports. It should be good to get a sense of what you're looking to accomplish with those changes.

Yes, absolutely. I think the biggest issue we need to improve our execution is just getting alignment around the organization. So we need to make faster decisions. We need to have clearer accountability in what we're driving right now. So one of the things we're going to be doing is moving our business into a GM model where we'll be able to have clearer accountability to make results and drive the short-term profit and loss for different business lines each quarter. So we're making leadership changes to accomplish that, but this is really about us just getting better focus externally with our customers and better alignment internally between our different functions. And so we've got to change what we're doing and we've done a nice job assembling the companies, the legacy companies we've acquired and now have standardized a lot of things of how we've worked versus the legacy DT way versus the AdColony way versus the fiber way and so on. So now we're at a point and now where we can take that standardization and now decentralize that standardization out that's closer to customers and have clear accountability internally to who's making decisions. So what we're doing is really aligned around that.

Okay, great. Thanks. And then just for me, you've consistently said that US RPD is sit around over $5 for the last few quarters. Has that helped pretty steady even if devices have been a lot softer than you thought?

Yes, device RPDs have been pretty consistent. They were marginally down in the December quarter from the September quarter and that was 100% driven by those two execution issues I mentioned earlier in my remarks. If you take out those two issues, it would have accrued it again.

Our next question comes from Anthony Stoss from Craig-Hallum.

Hey, Bill, I just wanted to follow up on your comment about why the SingleTap trial wasn't live. You talked about administrative issues. Can you give us a little bit more color on that when you expect that to be resolved? And then I had a couple of follow-ups.

Yes, sure, Tony. Yes, we, as we know, we've all been impatiently waiting for us to go live and we'd work through the kind of final tech and ops issues, yes, that may be confident and talk about it. Yes, there's a final administrative decision that the partner wants to make with some other considerations that they're looking at bigger picture and they're going through that internal discussion right now. So as soon as that discussion is done, then I expect us to go live with the pilot. I don't have a timeline at least given our past here that I want to commit to on the call today, but I would just consider it to say it's important for both sides to work through that.

Got it. Then maybe, this is probably more for Barrett, for your March guide, the down sequential revenues, can you break out how much of the decline was from ODS or your expectations versus AGP? Are they both down equally or is one worse than the other? Just a question.

Hey, Tony. Yes. Here's what I would say. We obviously don't guide by segment, but I would say our seasonality is that if you look back at our seasonality for AGP business, it's relatively constant. We got a little bit of headwind I mentioned on as we completed the consolidation of the exchange. The real factor that on the change is kind of an accelerating decline on the Q4 US devices that we've contemplated in our guidance.

Got you. And Bill, back to you. Just curious if you could talk about what you're seeing in the competitive environment. If one source is having issues or not, just what you expect, and then I had one last question after that.

Yes, I think in the competitive environment, obviously there's been a lot of announced changes out there in the market for one of our competitors. So we're looking at that as an opportunity for our business, especially as we talked about this softness in US device supply. And while we expect that to rebound by some of the things, I was talking about with chipset suppliers and flagship devices and all that, we also have to take matters in our own hands. And so we're viewing some of those changes happen in the macroenvironment with some of the competitors as a positive for us. And there's a lot of encouraging things going on in the pipeline right now.

Got you. And then hopefully you can answer this or give everybody a sense. It's been a frustrating stock for some time. Numbers keep going down. When you look over the next 12 months, so fiscal 2025, would you expect at least revenue growth in ‘25 over ‘24?

Tony, your question around run rate growth?

No, just fiscal year 2025 revenue is your next, call it June through the next March quarter. Do you expect growth? Given everything that's going on in the tech stack and the issues that's created?

Yes, all the things we're working towards, all the things we have in our planning and execution that we talked about are to drive growth next year. And that would be the expectation.

And ladies and gentlemen, with that, we'll be ending today's question and answer session. I'd like to turn the floor back over to our CEO, Bill Stone, for any closing remarks.

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

Ladies and gentlemen, that will conclude today's conference call. We thank you for attending today's presentation. You may now disconnect your lines.