Digital Turbine Inc (APPS) 2014 Q4 法說會逐字稿

Please stand by. We are about to begin. Good day and welcome to the Mandalay Digital fourth-quarter financial results conference call. Please note that today's call is being recorded. And now, at this time, it is my pleasure to turn the conference over to Mr. Jeff Klausner. Please go ahead, sir.

Thank you and welcome, everybody, to Mandalay Digital's fiscal 2014 year-end earnings conference call. With me today is Peter Adderton, Mandalay's CEO, Bill Stone, our President and COO, and I am Jeff Klausner, our CFO.

Statements made on this call, including those during the question-and-answer session, may contain forward-looking statements that are subject to risks and uncertainties. Please refer to the Safe Harbor statement in today's press release as well as Mandalay's periodic filings with the SEC for a complete discussion of the risks and uncertainties that cause actual results to differ materially from those we may perceive today.

We will be discussing certain non-GAAP financial results. The press release issued earlier today contains a reconciliation of these non-GAAP financial results to their most comparable GAAP measures.

Now it is my pleasure to turn the call over to Peter Adderton. Peter?

Thanks, Jeff, and thanks, everyone, for joining today's call, and a special thanks to those who got up early on the West Coast. This past year has represented a significant turning point for us as a company, including the signing of the most prominent carrier in the US, Verizon, as well as two strong capital raises to completely deliver and shore up our balance sheet with just over $30 million in net proceeds.

For fiscal 2014, we increased our revenue more than fivefold through the combination of organic and inorganic growth. We reached new milestones supplying our software and services on over 20 global carriers, including Verizon and Cricket, which is now AT&T, here in the USA. And shortly, we will be announcing the signing of our newest Tier 1 use carrier, which is really exciting news for all of our stakeholders. I am confident that, for fiscal 2015, all of our hard work will result in even stronger revenue growth and the stage is now set for us to ramp in scale.

As you know, we have an investor meeting in New York in a couple of weeks where we intend to share a lot more information on how we are tracking, product demonstrations and the introduction of (technical difficulty) key Mandalay executives from around the Globe. I'm also excited to announce that will be joined by our carrier and advertising partners to give their perspective on the mobile content industry and Mandalay's place in it.

All in all, I am pleased with the direction we are moving.

Finally, on the M&A front, I will say we have identified some real strategic targets and we will continue to pursue these with a laser focused and disciplined approach. And we will update you guys further as we get down the road.

Let me turn it over to Bill to give you an update on our business. Bill?

Thanks, Pete. As Peter said, we have positive momentum which gives us confidence in reiterating our fiscal 2015 guidance. However, before moving to that detailed commentary, I wanted to say that we have been focused on preparing and scaling our business for the upcoming Ignite and IQ ramps that begin to scale over the next few months. The opportunity in front of us is enormous, and we have made a strategic decision to focus on prioritizing flawless execution on these new launches over some short-term opportunities much smaller in scale than our current content management business. While there may be some nominal immediate term impact of this, getting the organization, systems, processes, and people tuned up now in advance of the ramp is critical to our success.

I wanted to cover two main areas with you today. The first is an update on demand generation with our existing and new operator partners, and second is an update on the supply of applications and advertisers to meet that demand. On the demand side with our new customers and existing customers, I will cover off Americas, Europe/Middle East/Africa, and finally Asia-Pacific.

In the Americas, I'm pleased to announce that we will be deploying our IQ product on T-Mobile USA this calendar year on multiple devices. We are excited about this IQ opportunity not only because it offers a better user experience, but also the opportunity to monetize multiple and simultaneous CPI, or cost per install campaigns. Unlike Ignite that may have two to eight slots of preloaded applications, with IQ, we can run literally hundreds of different campaigns to the same customer over the entire life of the device based upon the customer's behavior. And as we stated previously, we expect Ignite to be the material driver of our new revenue growth for fiscal 2015. But this launch will be the beginning of a next wave of growth with IQ, as we have said we expect to see IQ begin materially ramping in fiscal 2016 as we launch with customers such as T-Mobile and Vodafone.

While getting the T-Mobile agreement completed took longer than we would have liked, we wanted to ensure we negotiated the right deal with the right terms. While I can't share the specifics of the agreement, what I can say is that it's a multiyear deal and includes terms for launching IQ on all of T-Mobile's Android devices. Having done this before with a Tier 1 US operator, we are confident about where the relationship is heading. Our goal is to ensure transparency, but we realize that preannouncing progress and traction on these types of deals can create some short-term investor noise and distractions on timing of signature dates, announcements and so on, versus ensuring investor focuses on the customer, the delivery and the overall value of the contract. Going forward, we will not be preannouncing specific fields so we can keep the focus on the customer versus the deal signature date.

As far as other customers in the Americas, we continue to make positive progress for our launch with Verizon. We are in the final preparation and testing phases for the first device launch which we expect in the next few weeks. We feel extremely confident in both Verizon's and our readiness.

In addition, we continue to have our engagement with AT&T, who recently completed their purchase of Cricket. Our relationship with Cricket is strong. However, AT&T's focus at the current time is to migrate Cricket's current subscriber base to AT&T's GSM network and free up Cricket's CDMA spectrum for future AT&T technology and capacity improvements. What all of this means is that it's unlikely that we will deploy our solution on additional devices in the immediate term, but do believe that, once this migration is complete, we will have a very strong opportunity for further expansion with AT&T.

All of these updates for the US market are included in our guidance and as we have planned. There are also a number of other strong pipeline customers in both North and South America that we look forward to providing updates on in the near future.

In Europe/Middle East/Africa, we continue to launch Ignite on devices in Turkey and Israel. We have launched numerous CPI agreements and are showing good progress with app installs on brands such as El Al Airlines, and Domino's pizza. For example, in Israel, we are seeing gross CPI revenue of approximately NIS10 or $2.80 per device across two to three slots. We will provide some additional color and details of these examples at our investor day.

We've run into a delay with our Russia launch partner due to some administrative issues with the current geopolitical sanctions. We expect to find some alternative solutions to this issue and be in the market in Russia in the next 90 days. There are a number of very strong pipeline customers in Russia and all of Europe that we look forward to providing updates on for future calls.

In Asia-Pacific, we are busy preparing for our launch of Ignite and IQ with Vodafone in Australia, which we expect this calendar year. We anticipate it will be across 100% of Vodafone's new Android devices.

We also continue to make progress in our core business with Telstra and SingTel Optus. With Telstra in particular, we recently relaunched our content management business with them in January. We did see a negative impact with this relaunch with their feature phone customers as we designed the storefront for smartphones. However, this feature phone impact did cause a decline in traditional content revenues for January and February that was approximately $300,000 of impact. We have now rolled back the marketplace for feature phone customers while keeping the redesign for smartphones and as a result have stemmed decline back to levels before the launch and actually seen some growth in a few areas.

We will also be launching our streaming music service on SingTel's network in Australia in the next 30 days. We do see an opportunity for streaming music as it is a growing market and a strategic fit with our app install future and our content management roots. We also see the recent Apple acquisition of Beats Music as a positive because it is not only increasing awareness of streaming, but we do expect Beats to be an Apple iOS service in a future which is not optimal for operators as Apple would have to support Google, Microsoft, and other operating systems which we view as unlikely in the long-term.

In other Asian markets, we also launching with MSAI in India in the next few weeks. The MSAI launch will be across approximately 200,000 devices and (technical difficulty) three different device OEMs. We will also be launching Ignite with SingTel in the Philippines on the Globe network. We will be launching in July across four devices, including the Samsung Galaxy S5.

The last Asia-Pacific update I wanted to provide is some color on our recent DT Pay press release with SingTel. As many of you are aware, DT Pay is approximately 40% of our revenues today and the service is live in both Australia and Italy. Content providers like to have their content put directly on the customer's cell phone bill versus going through storefronts such as Google Play or the Apple App Store. Our expansion with SingTel will enable us to provide this service to a potential 515 million subscribers in Asia-Pacific and Africa.

In the short-term, we are particularly excited about launching DT Pay in the Philippines as we will now have billing connectivity with 100% of the mobile market there. Filipino customers are especially accustomed to using their cell phone bill as a method of payment. However, more strategically, this kind of capability can allow us to close the loop with the app install from a product such as Ignite or IQ, where we not only get paid to install the application but then when a customer makes a purchase in the application, we can also get paid for completing a transaction if the customer chooses to put the charges on the cell phone bill.

Many of you have seen the recent market speculation about Facebook's hiring of the top PayPal executive and Facebook's interest to do something in mobile payments. While I don't have any insight into the validity of the speculation, what I can say is the battle for payments is heating up and the mobile operators clearly want to be part of that value stream, and our products enable this to happen to match up to what many believe Facebook wants to do, which is to connect the application install to the application monetization.

And finally, I wanted to provide an update on the supply side of the business. We have been busy talking to advertisers and our partners and the advanced purchases of our CPI slots has exceeded our expectations. The desire to get to the home screen of the device is one that advertisers and application developers are willing to pay for. We'll provide additional color for you at investor day.

And with that, I'll turn it over to Jeff for a discussion of the financials. Jeff?

Thank you Bill. Before I begin my discussion of the year-end and quarterly results, I'd like to remind you that the divestiture of Twistbox is now fully reflected as a discontinued operation. All of my remarks today relate to our continuing operation unless otherwise specified.

We are pleased to report a significant improvement in revenue for the fiscal year with an increase of more than 500% over the prior year. Recall that our Asia-Pacific office was acquired in the beginning of 2014 and accounted for the majority of this growth. Solid results operational and financially set the stage for our upcoming product launches throughout the globe.

I will begin with a discussion of the results for the full fiscal year. Total revenue for fiscal 2014 was $24.4 million, up from $3.9 million a year ago. The year-over-year increase was driven by continued momentum in our business, including a full-year contribution from our EMEA region, which was purchased in September 2012, and significant contributions from our Asia-Pacific office which was purchased in April of 2013.

For the full fiscal year, foreign-exchange negatively impacted our revenues by approximately $2.7 million, primarily related to the fluctuation of the Australian dollar during the period. This impact is the result of a GAAP consolidation and currency translation and is not an actual cash loss as currency does not transfer back and forth to the United States. Had foreign currency exchange remained constant for the fiscal year, our annual revenues would have been $27.1 million.

On a geographic basis, total revenue for the year was comprised of the following regional results -- 17%, or $4.2 million, came from our customers in the EMEA region, up from $3.8 million for the prior year; approximately 1%, or $200,000 from customers in the US, up from only $5000 in the prior year; and 82%, or $20 million, from our Asia-Pacific customers. Note that the revenues from this region are a part of the acquisition of our DT Asia-Pacific office that took place in the first quarter of fiscal 2014.

With the potential ramp up of revenues of DT Ignite and DT IQ products in the United States from Verizon, T-Mobile and other carriers, we anticipate that the United States will become a much larger percentage of our total revenue base. The other regions are also anticipated to continue their growth trajectory.

For the year, gross profit grew to $7.8 million from $2.2 million last year. Adjusted gross margin for the fiscal year was just below 40%. And adjusted gross margin, as a reminder, excludes amortization of intangible assets from GAAP gross margin.

On a GAAP basis for non-cash amortization, gross margin for the full fiscal year was 32%. With an anticipated ramp of the DT Ignite and IQ products, moving forward we continue to expect adjusted gross margins to improve in the 50-plus% range for fiscal 2015. While the product mix may continue to shift on a quarterly basis, and with the introduction of the ramp of our DT Ignite and IQ products, our future gross margins will fluctuate. Over time, we project that gross margins will continue to increase and enjoy the benefit from the rollout and installation of the DT Ignite and DT IQ products.

Total operating expenses for the year amounted to $23.4 million compared with $13.2 million last year. The current fiscal year included $5.9 million of non-cash operating expense, specifically depreciation, amortization, impairment of intangibles and stock-based compensation, compared to $4.1 million in the prior year. Included in our operating expenses are costs related to our product development. These costs are predominantly for headcount. This brings our loss from continuing operations net of income taxes for fiscal 2014 to $17.2 million ,or $0.63 per share, based on 27.5 million weighted shares outstanding, compared with a loss from continuing operations net of income taxes of $12.7 million, or $0.72 per share, based on 17.6 million weighted shares outstanding. Excluding all of the costs mentioned for both periods, losses from continuing operations for fiscal 2014 net of taxes would have been $9.5 million, or $0.35 per share, compared with a loss from continuing operations net of taxes of $8.2 million or $0.47 per share for fiscal 2013.

Our non-GAAP adjusted EBITDA defined in our press release for fiscal 2014 was a loss of $6.8 million versus a loss of $6.6 million for fiscal 2013, thus remaining relatively constant while we have significantly invested in the DT Ignite and DT IQ products as well as integrated our acquisitions during the current fiscal year.

Cash, cash equivalents and restricted cash totaled $22 million at March 31, 2014 compared with $1.1 million at March 31, 2013. The increase relates to the stock offerings we completed during our fiscal year of 2014 where we raised a total of $33.3 million net of offering related costs. Additionally, during the year, we cleaned up our balance sheet and we are now debt-free. We also have substantially enhanced our working capital position, going from a negative working capital at the end of fiscal 2013 to a positive working capital position of nearly $15.6 million at the end of fiscal 2014.

Accounts Receivable grew to $5.1 million at the end of fiscal 2014 from $2 million last year. This increase is a direct result of the more than 500% increase in sales.

Now I will briefly discuss the fourth quarter and our guidance before turning the call back over to Peter. Revenue for the fourth quarter of fiscal 2014 increased 329% to $6.1 million as compared to the same quarter for the prior year. This significant increase is primarily related to the Asia-Pacific acquisition and resulting revenues. However, on a sequential basis, total revenue was down due to the timing of a product relaunch with a customer, a deferral of revenues related to setup fees, as well as the impact from the Australian dollar exchange rate. Combined, these items had a negative impact of approximately $900,000 on the quarter.

The revenues related to the product relaunch and set up fees will slow in the coming quarters. Setup fees are related solely to our Ignite and IQ products and are immaterial to the total value of those contracts when taking into account the future CPI revenues. Additionally, setup fees impacted the quarter as they are being amortized over the term of their respective agreements.

Adjusted gross margin for the fourth quarter was 38.3%, a sequential improvement from 35.1% in the third quarter of fiscal 2014. We believe that with the launch of the DT Ignite and IQ products, our gross margins over time should continue to increase.

Operating expenses remain steady at $5.7 million from the fourth quarter. We are holding expenses relatively stable despite costs related to severance payments for certain European employees and the related consolidation of our technology teams. Loss from continuing operations net of taxes for the fiscal fourth quarter was $3.4 million, or $0.10 per share based on 33.3 million weighted shares outstanding, compared with a loss from continuing operations net of income taxes of $2.9 million, or $0.19 per share based on 18.4 million weighted shares outstanding for the fourth quarter of fiscal 2013.

We are maintaining our guidance, as further reiterated in our press release, called for the following -- revenue in the range of $46 million to $50 million for fiscal 2015 equal to revenue growth of 90% to 100% over our fiscal 2014 results adjusted gross margin growing to the 50-plus% range, a substantial increase from our prior years, and adjusted EBITDA positive for the full second quarter ending September 30, 2014. I'd like to reiterate that as we continue to increase revenues and deploy our DT Ignite and IQ products, the leverage we have built from our operating model should continue to drive improved results.

With that, I'd like to turn the call back to Peter for some closing remarks.

Thanks, Jeff, and thanks, Bill. We really believe we've as a management team and as a company built a platform in the States for us to really enhance our revenues over the next 12 to 18 months on some of the work we've done in the past. All of you have been very patient shareholders, have seen the growth story and we really believe we're going to start to deliver that.

So what I'd like to do is now turn it across to the operator to have you guys ask us some questions.

(Operator Instructions). Mike Malouf, Craig-Hallum Capital Group.

Great, thanks. Thanks for taking my question and nice job on signing your second Tier 1 carrier.

Thanks, Mike.

So, I'm wondering if you could give us just a little bit of insight. I'm sure you're probably going to go through this at your analyst day, but just a little bit about how Ignite metrics compare to the IQ metrics. Obviously, this new Tier 1 is going to be IQ, so just trying to understand that. It sounds like it could be a much larger over time, but maybe not quite as much in the near term. Can you help us with that?

Yes, sure. This is Bill. I'll take that one. So, with Ignite, when you pull the phone out of the box, it will have anywhere from two to eight slots of potential applications that will be preinstalled on the customer's device. And while we have the capabilities technically to have campaigns come in and out, out of the gate, as we are ramping this, we will be just doing it as the customer powers their phone on at first boot. So the monetization will occur right out of the gate.

With IQ, what will happen is you'll take all the applications that you've already downloaded that you made decisions to have that we all have on our devices, and then as we learn about what you are downloading, we can then, for each individual category, whether it's games or apps or travel or whatever it happens to be, we can recommend apps based upon your preferences. So what you get recommended as a customer will be different than what I get recommended and so on. And we can do this for the entire life of the device. So, if a customer is taking their device for two-plus years, you can have hundreds of different campaigns (technical difficulty) and may be all different between each other. And because of the unique targeting capability of that, we actually are pretty optimistic that the CPI rates therefore that we can get will be better on IQ. And so to that extent, we are excited about it.

I think the big factor in the ramp is not going to be the campaigns of the CPI out of the gate. It's going to be how many devices do we get it on. So, as I mentioned in my remarks, we will have it on both Vodafone and T-Mobile this calendar year. And so we'll have an opportunity to really start seeing it ramp this calendar year and into next calendar year, but Ignite will be the material driver, but a big monetization opportunity for us.

And I would say, Mike, I was just going to say, to reiterate against what Bill just said, I think the Holy Grail going forward in the app marketplace is the discovery of apps. I think everybody is trying to crack that nut. I think what IQ does, and does a very good job of, is instead of you having to find app, the app will actually find you. And I think that's far greater value both for the customer and of course also the app developer. But I think if you look at what Google is doing, what Apple is doing and what the carriers are doing, and Facebook, this concept of app discovery really is something that hasn't been cracked yet, and we think that IQ really does a great job of that.

That's great. If I heard you correctly, on T-Mobile in particular, this is a multi-year deal, and one that T-Mobile has decided to go through all of their devices. Is that something that would happen right away, or is it going to take them a while to roll this out onto all their devices, including the Samsung Galaxy I guess?

Yes, so the Samsung Galaxy comment was in reference to growth on SingTel's network, not was there any reference to T-Mobile. But we will be launching on multiple devices this calendar year. The decision in terms of when and how and where and those kinds of things for devices in the future, we will make that decision with T-Mobile. But the agreement is already covered for it. So, we are not going to launch on 100% of T-Mobile USA's devices out of the gate, but we are in the process of doing it on multiple.

Great. And then could you give us a little bit of clarity on Verizon? Are they going to make a decision about how quickly they will ramp up their coverage of their devices? And do you know what phone they're going to be launching here in the next couple of weeks?

The second question is yes, I do know which phone they are launching on. Unfortunately, I can't share that with you guys today. But yes, we do know which devices we will be launching on with Verizon for this calendar year.

As far as the decision to go forward, I'd kind of say stay tuned to that. We'll talk a little bit more about that at investor day, and as we go forward in time. But I just want to reiterate, we feel really good about our relationship with Verizon right now, and just are in kind of the final throes here of a lot of operational readiness types of things. But we are in good shape.

Great. And then just one final question. I got a couple of questions recently about, Bill, your stock sale. And I'm just wondering if you could address that, especially given the opportunity ahead of you certainly in the next six to nine months.

Yes, yes, sure. So, I was granted some restricted shares back in September of 2012, I believe. And those shares have started to vest monthly. And so I have a tax bill on those, and the tax bill is actually I believe greater than my salary. So, it's kind of ironic that I am paying the Company to work here. And so what we did, just like I think a lot of people do, is just selling a nominal amount of shares just to cover the tax bill on it. I have no plans to sell any additional shares above and beyond what's needed just for tax purposes. And we put that 10b5-1 in place a few months ago.

Great. Thanks for the clarification and good luck over the next few months, and we will see you in July.

Andrew D'Silva, Merriman Capital.

Hey guys, good morning and thanks for taking my call. I just have a couple quick questions. First off, what were your third-quarter revenues, excluding benefits from Twistbox, just so I have a sequential comparison?

Through the nine months ended without Twistbox, we were roughly at about $18 million.

But you don't have an actual breakout for the December quarter.

We have not yet broken out the December quarter for the Twistbox. That is information that will come through in our next -- in our upcoming Qs, we'll breakout the (multiple speakers)

Got it.

-- comparative would be standalone without the Twistbox operations.

Got it, okay. That's fine. And then on the expense side, did your fourth-quarter operating expenses contain any one-time items, or is your fourth-quarter level a good model to build off of going forward?

I think our fourth-quarter model is a good model to build off of. Obviously, as we continue the development and the investments in our upcoming products, both Ignite and IQ, I don't see us slowing down on supporting those products from our carrier partners. As we go forward, we believe we have the proper headcount on a relative basis for the opportunities that lie ahead of us. Probably a good basis as a going forward.

Okay. I've got a few Ignite questions for you. Have there been any set-up fees related to Ignite recognized in your March quarter? And then can we expect some initial set-up fees in your June quarter since you're launching with MSAI and Verizon in the coming weeks?

So the set-up fees in the contracts are a small, immaterial part of the overall contract values, as we talked about. Set-up fees are in the low six digits whereas the total contract values are in the multiple millions depending on the number of devices, app installs, etc., that take place. In terms of how those are recognized, the technical guidance has those set-up fees recognized over the period of the term of the agreement. So, while they may have been pushed out of one quarter, those revenues will still come in. They will just be spread over a period of time as opposed to being recognized upfront.

Okay, so they are actually recognized over the whole term of the contract that you'd have with the carrier.

That's correct.

Okay. And then as far as that 12 million Ignite users go, can you provide a little color on geographically where you are expecting a majority of them to be as far as maybe Western worlds or developing, emerging markets, if you can kind of break it out like that, because different regions are going to demand different rates on the CPI model.

Yes, this is Bill. We haven't broken out that publicly for anybody. We'll probably provide a little bit of color at the investor day but I would say, generally speaking, it's a mix. And one of the reasons, in terms of some of the numbers that we've talked about with you guys before around using kind of average rates of a dollar, is that kind of takes into a blend of what you see in the developed and developing world. So, obviously, a market like India is going to be a lot less than a market like with Verizon here in the United States. So that's why we like to kind of look at an average of the averages. I think you'll see just a nice mix around the world. We are not going to be real hit upon any one geography for our Ignite installs.

Okay, that's fair enough. But assuming everything goes as planned, it would be fair to assume at this point it would likely be a 50-50 split as far as emerging markets versus mature markets go? Just for modeling?

Yes.

Okay.

And my last question for you is can you provide us with an update on how some of your older carrier partnerships are developing, primarily Telefonica? You launched Ignite on various op codes over a year ago, and I'm just wondering how the product has been received since then.

Yes, so, I'll start with for example Cellcom in Israel, and I made some comments around them in terms of what we're seeing with NIS10 of gross CPI revenue. We continue to install a Ignite on 100% of their Android devices. I think we are seeing good contraction there and it's really been good because we are doing a lot of nice local campaigns and sort of just doing more global national campaigns in that market. We also continue to launch Ignite into Turkey. With Telefonica, in particular we did a deal with Telefonica Digital which was the group, and that group has disbanded. And so we have been working individually with operating company to operating company. I would characterize us as having a lot of traction with various operating companies around the world. But that's no longer a group deal specifically with Telefonica, since you called that out.

But I would generally say the response to Ignite has been really positive and that's I think one of the data points to point it as we have and live with SingTel in Singapore now for probably six-plus months. And now we are launching in other SingTel markets as you're seeing. So obviously if things weren't going well or as planned, you wouldn't see that expanding into additional markets. So overall, we are excited, we're learning, and as we start really ramping the thing over the next few months, I think we are in a pretty good place to scale it.

Absolutely. But as far as attrition goes, you're not seeing that too much other than when an organization breaks up or matters outside of the technology itself?

.

No. Not at all.

Perfect, that's all I had. Thanks a lot.

(Operator Instructions). Jon Hickman, Ladenburg.

Good morning. Jeff, could you reiterate what you said about the -- you said you had some revenue displacement from currency and from the feature phone deal, but what was the third one?

Thanks. The comment that I made was that, on a sequential basis, our revenues were down due to the timing of the product relaunch, the deferral of revenues related to set-up fees that we just talked about, and the Australian dollar exchange rate.

So the set-up fees have been coming a little slower than you had anticipated, is that what you were indicating?

No, the set-up fees, as we just talked about, those are going to be recognized and amortized over the life of the agreement as opposed to recognized upfront. And again, the issue there is simply just the timing of those revenues. Those set-up fees will still be recognized. However, rather than recognizing them up front, that will be amortized over the life of the existing agreement with those set-up fees. And again, just as a reminder, those set-up fees are an immaterial part of the overall contract value. Each of these Ignite contract values is in the multiple millions as the CPI campaigns beginning to kick in, whereas the set-up fees are in the low six digits.

So those three things together were $900,000?

In the fiscal fourth quarter. That's correct.

Okay. Then when you were talking about -- and I think this is a question for Bill -- when you were talking about Ignite versus IQ, isn't there a big opportunity to monetize the search function inside IQ instead of just delivering apps?

Absolutely. So, we've, actually, what we've done with our IQ product is we actually have two variations on it and we'll talk more about this at investor day. One is what we call our IQ App Drawer to our products, which is what we'll be doing with both T-Mobile and Vodafone. And our other is our IQ search product that we are currently launching with Telstra in Australia with. And so that's the product where you can search on various brands, music artists, sports teams, whatever you want to be, and we aggregate and bring all the results back for that. So, it allows us the opportunity to not only similar content because you are bringing the content to the customers, as Peter mentioned earlier, but also the opportunity to do a lot of different types of advertising that are very targeted based upon the brands and the people and so on that they want to see. So, that's something that we are excited about and looking to help incorporate some of that functionality into our App Drawer product as well.

Bill, while I've got it, could you elaborate on your comment about how you've maybe sacrificed some near-term revenue opportunities in order to kind of get prepared and to make sure everything was working right for these coming launches, product launches?

Yes, sure. So, some specific examples of that are we have a number of content management services, whether those are game services, and we could do things for example on porting some game services over, things like HTML 5. We could do some things with different music services that we haven't on our traditional download business, and the intention to add different kinds of applications and promotions. And all of those things require resources to do. And while they are positive in the short-term, what we have seen, as you can look at our operating expenses and our operating expenses from the fourth quarter to the first quarter were basically flat. So, we are making sure that we are being really responsible in terms of how we are ramping and scaling. So we made some opportunity cost decisions to prioritize some of those resources against those kinds of initiatives to getting ready for these IQ and Ignite ramps, because the numbers of the scale that those things have is much more significant than a few hundred thousand dollars here or there, although we recognize that a few hundred thousand dollars here or there is material in our current base. But for the many millions of dollars of opportunity, we want to make sure we are just getting the organization focused on really going after the major opportunities.

So, do you believe you have the headcount you need right now to carry out what's going on in the next 12 months or so?

Yes, we do. And we will continue to ramp and scale the headcount as we ramp and scale with the customers, but it will be in a very managed, controlled way where we are not adding headcount unless we are adding revenue associated with it. But right now, the key for us is less around headcount and more about just management focus and prioritization. And so we are ensuring that focus is on some of these extremely material contracts for us and executing on them. As we've taken all of you guys through in prior meetings and presentations, you guys know how big the opportunity is for some of these Ignite and IQ launches. The numbers get quite large. So, that's really where we've got headcount focused.

Okay. Then one last question and it's probably a Peter question. Since your quarter ended today, are you going to talk about that on the 9th?

We are going to give a highlight. I Think this is one of the things that is important for the investor day. We're going to give highlights on how we are tracking. We are really not in a position to -- and I don't think we've learned a valuable lesson in going out there ahead of ourselves. So ,we are really going to take a fairly disciplined approach as management to make sure that we are very confident of what we put out there, when we put it out there, and how it will be received. Because, again, we don't want distractions in the marketplace. So, we will be giving a lot more detail I think around some of the specifics around our customers at the analyst day to give guys just an idea of where we are heading.

Okay, thank you. That's it for me.

Bill Sutherland, Emerging Growth Equities.

Thanks. Most of mine have been asked. I was curious if you had any comments on the DT Pay and what the opportunities look like either near-term or immediate for that?

Yes, sure. Bill, this is other Bill. I'll take that one. Yes, so we continue to be excited about expanding DT Pay in Australia. We continue to add new customers for that product. As people for the strategic reasons I mentioned in my comments about wanting to go directly to customers and not have to run them through the Google Play store, the Apple App Store to put things on their cell phone bill. So we are seeing additional customer adds in Australia in particular.

And as we've announced with SingTel, now getting that connectivity and getting the same product launched in other markets such as the Philippines will continue to drive some growth there for us, so we are excited about that. What I really want to emphasize here is more of the strategic side and the ability to close the loop on the transaction. Many of you, for example, saw the AT&T and Uber announcement where Uber will be on the AT&T devices. And that's a situation where obviously Uber will pay to do that. But the opportunity then to, once you have the vehicle come to where you are and be able to actually put that charge on your cell phone bill and capture a piece of transaction and close that loop, I think that's what a lot of people are really looking for. And the DT Pay product, combined with our other products, whether it's content management, or whether it's IQ or whether it's Ignite, really closes that loop and the experience and so really allows us multiple opportunities to monetize. That's what I'm really excited about us building towards. We have not guided towards that, that is a future thing, but I do want to make sure though that people understand how the products can be sold separately or be integrated as one.

Right. I was just trying to get a sense of where you were in the curve as the carrier's readiness to kind of move ahead with that kind of opportunity yet.

Yes, I would characterize it as extremely, extremely enthusiastic. I would say that the Asia-Pacific region is probably the most -- the furthest along in that thinking, especially since a lot of people in that part of the world don't have credit cards. They are not banked. They use their cell phone already to make purchases. And a lot of the other traditional services that we are familiar with here in the US don't really have the traction there, so I would say that's the market we're particularly focused on right now for this.

Okay, it makes sense. Just one last one, a clarification really for Jeff on ignite implementations for the year of devices, 12 million. Is that for the year or does that include the 1 million from the year just ended?

Yes, so, the 1 million was recent, so that's to date. It wasn't for the quarter ending March 31. I think we called that in the release, so the 1 million is part of the 12 million.

Right, and that's since the end of the fiscal year. Okay. Thanks everybody.

Jason Revland, Blueprint Capital.

Good morning, everyone. I'm wondering if you can comment on the strategic impact of Google's recently announced Android 1 strategy and whether that potentially accelerates or expands your target market within emerging markets?

Yes, I'm really excited about that one. And for those of you that you may not be familiar, Google had a conference last week, announced some things they are doing with Android to accelerate the deployment of smartphones. And one of the things the media tends to focus on is really the battle at the high end in terms of Apple versus Google, or Microsoft and others. And really the battle is going to be for the emerging markets. There are 6 billion mobile devices out there and about 2 billion smartphones. So how is that next 4 billion going to get converted and how is it going to happen?

I don't really think the media focuses a lot on who has been nipping at Google's heels on the low-end. You've got people like Mozilla with their Firefox OS; you've got Tizen, which is a JV with Intel and Samsung. You've got some ex-Nokia guys with a thing called Sailfish. And anyways, there's a bunch of competitors trying to really get to low-cost smartphones. And so Google's announcement to build a lower-end Android phone is really about fending off some of that competition to go after this growing market. And so, for what we do with Ignite and IQ and other products, anything that's going to accelerate the deployment of smartphones is a big positive for us. Obviously, we are already ported to Android. We can also port our products to other operating systems. It doesn't really matter to us. So I think the fact that Google is trying to accelerate this is a good thing for what we are trying to accomplish.

Great, thanks for the color on that.

There appears to be no further question. I'd like to turn the conference back over to Mister Adderton for any additional or closing comments.

Again, thank you, everybody, and we look forward to some of you coming and joining us and others who want to dial into our live webcast that we will be having around the analyst day where we will highlight some of our products. We do believe we have positioned this company for very, very strong growth over the next 12 to 18 months, and appreciate you guys taking the time. Thanks everybody.

With that, ladies and gentlemen, that does conclude today's conference call. We'd like to thank you again for your participation.