Digital Turbine Inc (APPS) 2026 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to the Digital Turbine fiscal 2026 third-quarter earnings conference call. (Operator Instructions) Please also note this event is being recorded.

I would now like to turn the conference call over to Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead.

Thanks, Jamie. Good afternoon, and welcome to the Digital Turbine fiscal 2026 third-quarter earnings conference call. Joining me today on the call to discuss our results are CEO, Bill Stone; and CFO, Steve Lasher.

Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics.

Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we file with the Securities and Exchange Commission.

Also, during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today's press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures.

Now I'd like to turn the call over to our CEO, Bill Stone.

Thanks, Brian, and thanks, everyone, for joining our call tonight. Our December quarter showcased accelerating business momentum across both our On Device Solutions and App Growth Platform segments. Strong demand for our platform, combined with our disciplined operational execution drove top- and bottom-line results that exceeded our expectations.

Revenue for the quarter came in at $151.4 million, representing 12% year-over-year growth. We also achieved $39 million in quarterly EBITDA that was 76% year-over-year growth with EBITDA margins of 26%. All of these results are proof points demonstrating the inherent operating leverage in our model.

In particular, there are three things at a corporate level I wanted to call out before getting into my detailed segment remarks.

First is the diversification of our revenues and a double-digit growth across so many of our products and geographies. We are seeing many drivers of our growth versus being tied to a single thing.

Second is our improving use of AI and machine learning tools, not only in our data and targeting that power revenue, but also for our operations that's driving improved efficiency in our coding, quality assurance, regression timelines and a variety of other administrative and back-office tasks. As an example of this, in the December quarter, our gross profit dollars increased by more than 25%, while our operating expenses declined.

And finally, is the strong progress we've made in strengthening our balance sheet. Our debt leverage ratio now stands at roughly three turns, down from more than five turns just a year ago. This disciplined deleveraging is positioning us exceptionally well to pursue the $0.5 trillion-market opportunity in front of us.

Now turning to breaking our results out by segment. Our On Device Solutions business generated nearly $100 million in revenue, which was up approximately 9% from the December quarter last year. In particular, our international business continues to be the driver of this growth with a greater than 20% increase in both devices and revenue per device, or RPD, that drove more than 60% year-over-year international growth. And for the first time in our history, more than 30% of our revenues on our Ignite platform were from outside the United States.

Our Application Growth Platform, our AGP, business was another bright spot for the quarter and continued its momentum from the September quarter with December year-over-year growth of 19%, posting $53 million in revenue. In particular, I was pleased with the strong results in our brand business and also growth in our DTX or SSP business of over 30%. The hard work we did over the past few years to stay the course and integrate our legacy tech stacks into a common platform is now paying dividends and we expect the momentum to continue in the future.

For our growth drivers, improving supply and demand trends power the improved performance. First, on increased supply. While we continue to see softness for US devices, our overall devices grew 20% year over year, driven by strong volumes from our international partners. In addition, our AGP supply volumes increased impressions by over 20% year over year, driven by strong performance internationally and strong increases in non-gaming inventory.

We also had higher advertiser demand, which translated into improving pricing and fill rates, particularly for premium placements on our platform. The strong advertiser demand resulted in year-over-year growth in revenue per device in both the US and international markets for our advice business.

For our brand business, we reorganized our sales teams last year around verticals, and I'm pleased to see those changes bearing fruit in our results as our focus on vertical sales areas, including consumer packaged goods, retail, telecom and technology, all demonstrated increased spend. In particular, our retail vertical had 5x growth compared to last holiday season as our retail media efforts are bearing fruit with large retailers wanting to extend their audiences.

As we now enter 2026, we have five strategic priorities that we believe will continue to build on our profitable growth trajectory of both our ODS and AGP segments into the future.

The first strategic priority is unlocking the value in our first-party data. This effort is centered on leveraging data signals across all of our DT products to create and enhance the Ignite graph and apply DTiQ AI and machine learning models to drive better outcomes across our end consumer experiences.

Our second priority is building the flywheel effect between our supply and demand. We have over 80,000 applications that have integrated our ad monetization technology, leveraging that position in our demand side technology to acquire more users for these apps creates a flywheel effect of increased monetization and higher investment into our platform.

Our third priority is scaling our brand business. Over the last couple of years, we've established a brand and agency-facing business that diversifies and differentiates our monetization activities. This business has been showing positive growth and scaling it is the key to the next phase of our growth.

Fourth is expanding the services offered through our Ignite platform. Ignite has been the backbone of our highly scalable app distribution business and we're looking to leverage its footprint across more than the 500 million devices to unlock better monetization and a superior user experience for our carrier and OEM partners.

And finally is the alternative app opportunity. We believe the app economy is entering an era of democratization beyond the traditional duopoly and that the ecosystem will benefit from solutions that are agnostic to the format or path developers use to distribute apps or how users choose to discover and use them.

We've made some recent progress with three of the largest global mobile game developers signed in the December quarter now using Single-Tap capabilities in their alternative distribution efforts. Combined, these five things have $0.5 trillion market opportunity in front of them and our assets are uniquely positioned to go after this growth. You'll hear more about our progress on these areas on future calls.

To wrap up, our business momentum is accelerating, and our priorities to continue our growth are focused and clear. We showed solid year-over-year double-digit growth in both revenue and EBITDA, driven by a healthy mix of disciplined execution, innovation and favorable industry dynamics.

We're building the right foundation through operational discipline and strategic investment to drive sustained profitable growth. We're excited by the traction we're seeing across our business and confident in our ability to continue delivering value to partners, advertisers, users and shareholders.

With that, I'll turn it over to Steve to take you through the financials in more detail.

Thank you, Bill, and good afternoon, everyone. The fiscal third-quarter results were reflective of sustained business momentum. We delivered another quarter of double-digit revenue growth, further expanded profit margins and delivered top- and bottom-line results that surpass expectations. We also made significant progress strengthening our balance sheet in the process.

Now let's get into the numbers. Total revenue for the fiscal third quarter was $151.4 million, representing 12% growth year over year. Both segments of our businesses, ODS and AGP, contributed positively to the overall growth and upside versus expectations.

Our ODS business delivered $99.6 million in revenue, up 9% year over year. This growth was primarily driven by higher device volumes and RPDs primarily with our international partners. Our AGP segment delivered $52.6 million in revenue, up 19% from the prior year. These results reflect the positive outcomes of our strategic focus to better utilize first-party data and showcase our AI-driven capabilities.

The combination of strong top-line growth and efficient operational execution yielded 76% year-over-year growth in adjusted EBITDA in the quarter. Adjusted EBITDA for the fiscal third quarter totaled $38.8 million, representing a 76% increase year over year. EBITDA margin reached 26% marking the seventh consecutive quarter of expansion and improvement of more than 900 basis points versus the prior year.

This comparison includes approximately $3.5 million of onetime benefits in the period primarily related to a sublease settlement and improved working capital. Free cash flow for our third quarter totaled $6.4 million. Our non-GAAP gross margin in the fiscal third quarter was 49%, well above the prior year figure of 44%. This expansion was primarily the result of a more positive product and segment mix during the quarter. Cash operating expenses were $36 million, down 4% year over year.

We're pleased with the progress we've made on our cost controls and operational discipline which allowed us to achieve double-digit year-over-year revenue growth with lower cash operating expenses. We will continue to identify areas of additional efficiency while maintaining targeted disciplined investments to support future growth.

Turning to the bottom line. We reported a GAAP net income of $5.1 million or $0.03 per share in the fiscal third quarter. On a non-GAAP basis, we generated net income of $21.7 million or $0.18 per share on 120 million shares outstanding.

Looking at the balance sheet. We ended the December quarter with a cash balance of $40 million, up approximately $1 million from the end of the September quarter. Meanwhile, our total debt, net of debt issuance cost, declined during the quarter by more than $41 million and ended the quarter at $355 million. This decline was a result of a positive cash flow generation supplemented by proceeds from our at-the-market offering. The company sold a total of 6.8 million shares at an average price of $6.54 during the December quarter, yielding $44.6 million in gross proceeds.

We are pleased with the progress we have made to our balance sheet in recent months. To that end, we made the decision to terminate our existing at-the-market equity program. Given our performance and improved leverage profile, we believe our current liquidity and balance sheet strength eliminates the need for this funding source as a component of our long-term capital management strategy.

Now let me turn to the updated outlook for fiscal 2026. Following the stronger-than-expected December quarter performance and with improved visibility into the current March quarter, we are once again raising our full-year revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $553 million to $558 million and adjusted EBITDA to be in the range of $114 million to $117 million for fiscal year 2026. At the midpoint, this represents an increase of $10 million in revenue guidance and over $13 million in EBITDA guidance compared to our prior outlook.

In closing, I want to reiterate Bill's earlier comments, that momentum across our core business remains strong, and we're increasingly confident in our ability to build on this performance as we move forward.

With that, let me hand the call back to the operator to open up the line for questions. Jamie?

(Operator Instructions) Anthony Stoss, Craig-Hallum.

Great. I have a couple, so I'll just -- I'll go one at a time. Bill, I'd love to hear you use the word flywheel. What are you seeing in terms of maybe the App Install business? If those same customers are now giving you advertising within the app, any thoughts just on how things are starting to come in faster and faster. I'd love to hear it.

Yes. Sure, Tony. Yes, this, as I mentioned, this is one of our five strategic priorities in the business. And there's an enormous opportunity given that we have over 80,000 different applications with our technology and those applications are all out trying to acquire users. So the ability for us to integrate their budgets that were paying them back into acquiring users, both with our own DSP as well as our own device business, then feeds back into the monetization and becomes a flywheel feeding on itself to generate incremental growth in revenue and better margins. So this is a big area to integrate those.

Now that we have the tech stacks integrated that we had not had over the prior few years, we can put a lot more energy behind this. So we're really excited about this being a driver for growth for us as we look into the future.

Got it. And then, Bill, I've fielded a couple of calls in the last few days regarding the Google Gemini announcement. Maybe you can help us understand how you think that will impact you.

Yes. So first, for us, we've made a concentrated effort -- I mentioned in my remarks to diversify away from just strictly gaming inventory and increased non-gaming inventory. And so that's been a growth driver for us.

As it relates to Google's announcement specifically, I think it's a great thing for our company. And what I mean by that is we don't -- we're not in the game business. We don't make games; we distribute them. And so as more games come into the market, they're all going to need distribution.

So our ability to leverage our extensive distribution footprint, both on device and with our DSP, I think, is going to bring more games to market and they're going to need more distribution to acquire the users regardless of how they're generating the technology to make the game. So I view it as positive for our business.

And as I mentioned in our remarks, more broadly around AI. It's driving revenue growth for us and is driving efficiencies in the back office. So I look at it as a net positive. I can't speak for other companies, but for us, we're excited about it.

Got it. And I just want to call out, you're mentioning of the three largest global gaming companies have signed in the December quarter for Single-Tap. How do they plan on using it? What's kind of the timing and how quickly do you think it will ramp?

Yes. So I'm excited to say they're live today. And so they're using it today to distribute alternative applications or their own versions that can be their own house billing, if you will, versus using one of the duopolies billing for that.

They're also using it for a thing called dual downloads and what that is, is the ability to download an application with Single-Tap, but also download the store that goes with that. So in other words, if a large gaming studio, you want you, Tony, want a game, you download it, well, you also get the store that can be delivered in the background. So once you enter in your credentials and pay through that app or game you've downloaded, now it's pretty wired for anything that, that publisher wants to do.

So it reduces the friction in the future. It lowers the cost structure for the app publishers. So Single-Tap's a key enabler to make that happen. So we're excited about that. And it's already generating revenue today.

(Operator Instructions) Omar Dessouky, Bank of America.

This is Arthur on for Omar. Bill, there's been some recent chatter about Meta back on iOS bidding for non-IDFA traffic. I think after a couple of years only bidding on the IDFA traffic. Any sort of observations you have around maybe just any changes in the competitive landscape as a result of Meta being caring a little bit more active on iOS?

Yes. So nothing to comment specifically on them and iOS here. I would just say, from a competitive perspective, I'm excited to see that the overall market grew kind of mid- to high-single digits in the December quarter. And our growth on the AGP side was 20%. So in other words, our growth is 2x the market.

So from a competitive perspective, we're out taking share. Obviously, we're focused -- we have iOS and Android. We're focused on more on Android, given our unique device position there. So nothing specific on Meta to comment on this call. But in terms of what we're doing, we're outgrowing the market right now.

Ladies and gentlemen, I'm showing no additional questions at this time. I'd like to turn the floor back over to Bill Stone for any closing remarks.

Thanks, everyone, for joining our call tonight. We'll talk to you again on our fiscal '26 fourth-quarter call in a few months. Thanks, and have a great night.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.