Digital Turbine, Inc. (NASDAQ:APPS) thirty fifth Annual Roth Convention March 14, 2023 3:00 PM ET
Firm Contributors
Invoice Stone – CEO
Convention Name Contributors
Darren Aftahi – Roth MKM
Darren Aftahi
Nice. Welcome, Darren Aftahi, the Web and Media Analyst right here at Roth MKM. Invoice Stone, CEO of Digital Turbine. Good to see you once more, Invoice.
Invoice Stone
Sure. Good to see you.
Query-and-Reply Session
Q – Darren Aftahi
So I believe you simply returned from Cell World Congress, simply type of how was the convention and possibly type of lay the land of the trade?
Invoice Stone
Sure. , we got here again a pair weeks in the past and it was actually encouraging. We have been actually having a tough time with COVID, getting out to satisfy a number of our worldwide companions and getting out and having the face time and construct the relationships, and actually seeing a number of want on the market from operators, OEMs, publishers, all in search of new income streams and in search of options like ours. So actually, actually encouraging.
Darren Aftahi
Are you able to — after we speak about advert tech, it simply looks like an acronym, there’s so many corporations’ type of do the identical factor. However I believe there’s actual worth in enterprise fashions. And so speak about operating an promoting know-how firm, the place software program is definitely sitting resident on a tool. You’ve got made some acquisitions type of 12 months possibly in, how the acquisition goes, type of pictures on aim, having that type of Swiss Military knife versus been following the corporate some time now that type of digital finish cap area you began with, with the carriers. I suppose, simply inform me concerning the worth proposition, what you are seeing out there when it comes to having the ability to have purchasers tackle greater than only one product and sort of what’s your entrée into that with the software program stack?
Invoice Stone
Sure. One of many issues that we’re actually enthusiastic about within the advert tech area is we have got a moat and that moat is our software program will get placed on the gadget at the manufacturing facility. After which as soon as that software program is on the gadget then we work with our service OEM companions to resolve what occurs. There’s not a bunch of individuals competing to get on that gadget and in order that’s extremely strategic to what we’re doing. And so we see this demand and advertisers wish to pay to get on that, as a result of it will get them entry to the house display screen of the cellphone. And one of many issues that we’re actually excited to see is a number of demand {dollars} coming again. And one of many issues that is new for right this moment is I am excited to announce we have going to be working with TIMU, I believe it is the quickest rising app within the app retailer, we bought a excessive eight determine deal for them to be the unique companion for us right here in america. We simply signed up Walmart as effectively. So we’re beginning to see these demand {dollars} come again to reap the benefits of that distinctive area on gadget. And so we expect that is fairly particular and exhibits the worth that we carry to the advertisers in addition to clearly the worth that we carry to the carriers as effectively.
Darren Aftahi
That’s implausible. And congrats and good to listen to that. Look, I do know digital promoting is not the best of area. So I suppose possibly speak about a number of the places and takes within the trade, possibly particular to your small business, how lengthy you suppose a few of these tendencies would possibly final, what may type of change it? They at all times say digital promoting type of the primary to show off and first to show again on.
Invoice Stone
Sure. So I am going to cowl it from a macro perspective after which we’ll take it to Digital Turbine particularly. From a macro perspective, the {dollars} are there. There is a a whole lot of billions of {dollars} of an trade and so long as we’re all our cell units, the media {dollars} are going to comply with. I do suppose we have seen some advertisers type of rethinking a few of their spends and that is — we talked about our eCPMs within the December quarter down like 10% to fifteen% and that is an trade development. However from a Digital Turbine perspective, what we have been capable of do, I simply referenced the brand new demand offers coming in on our on gadget enterprise, however we’re casting a wider web. And so now we’re seeing new demand {dollars} are available in from different verticals and that diversification is beginning to assist us see our numbers come up. And it was nice to see that our March is shaping up higher than our February, or February is best than our January. And we advised you and the remainder of the road that our expectations had been that we might see is that this be a trough and we begin seeing this factor type of rebound out and that is the way it’s deliberate out for us proper now. However when it comes to the broader market, we’re beginning to see a few of that, I might name it, panic that we — that individuals had been pondering that was again within the December quarter. We’re beginning to see issues return again to just a little extra regular atmosphere now.
Darren Aftahi
And also you guys have been prior to now over listed some, name it, what was type of new economic system throughout COVID, so the gaming and the streaming and social. A few of that may be a little bit extra mature now. So I suppose are you seeing additional demand from that as a result of it is nearly extra aggressive right this moment than what it was say two or three years in the past?
Invoice Stone
Sure. No, for us, what we have seen is that a number of issues throughout the pandemic you’ll see gaming advertisers spending more cash inside video games and we benefited from that like many different corporations did. So casting that wider web to these {dollars} is basically necessary strategic, as a result of a number of these corporations now are way more targeted on profitability. So now us going out to extra conventional manufacturers like we’re rising our relationship with Starbucks, we’re rising our relationship with lots of the Proctor and Gamble manufacturers, we’re rising our relationship with Chick-fil-A, these sorts of names now which can be spending more cash on the platform that reduces that reliance upon possibly a few of these COVID names that benefited from keep at house.
Darren Aftahi
Sure. And I imply, what are you guys seeing globally? Possibly North America, Latin America, Europe, your publicity in Asia-Pac, simply places and takes the place there’s some good issues occurring, possibly not so good.
Invoice Stone
Sure. So after I have a look at our on-device enterprise, what we’re seeing is basically sturdy provide of units outdoors america and particularly in locations like Latin America. And the place we have wanted to get it higher was on the demand aspect in these locations and we have made a number of progress on that. Within the US, we noticed the December quarter was just a little bit disappointing for Android units, and I believe a number of the carriers had been anticipating return to buying and regular Black Fridays that that they had prior to now, that did not materialize and that created an issue for us. Now on this present quarter, we have seen the S23 launch right here and there is been a number of public studies on the market about that gadget doing effectively. And clearly corporations like us profit from that right here within the US market. In APAC, we proceed to be — see actually sturdy demand on the writer aspect and our advert tech enterprise. Our group in China and Singapore does a extremely good job there. So we have seen a number of good traction. And in Europe we proceed to have nice relationships with our publishers. I might prefer to see us speed up our efforts in Europe on the on gadget aspect when it comes to including further provide as we ramp carriers like Telephonica and Telecom Italia and names like that.
Darren Aftahi
On the distribution aspect with Samsung, you guys signed that deal, I can not recall, possibly it was three or 4, or 5 quarters in the past. I do know, you’ve got executed effectively in Latin America, Europe, type of forward of schedule not on time, simply — and what are your long run ideas about Samsung as a strategic companion?
Invoice Stone
Sure. We like our relationship with Samsung, I believe, particularly, we’re enthusiastic about working with them extra intently on single faucet particularly. And so it is in Samsung curiosity to economics for any app that will get downloaded on a tool. Clearly, now we have expanded our demand when it comes to the those that we are able to carry to that. In order that’s one thing that we’re enthusiastic about working with these guys sooner or later. However we have got further work to do with them particularly as an organization however a number of different OEMs that we’re seeing a number of improved traction with proper now as effectively.
Darren Aftahi
And also you guys — on the on-device aspect after which on the content material aspect, so you’ve got type of expanded some relationships product clever particularly on the content material aspect with a few of your service companions. Are you able to type of speak about that? And I do know, you’ve got had just a little little bit of a shift of type of pay as you go to postpaid type of that technique and type of the place we’ll see fruit bear type of this 12 months or is it subsequent 12 months?
Invoice Stone
Sure. We solely have so many assets of enterprise to speculate. So we’ve made a strategic choice and we actually needed to speculate our assets and our content material media enterprise in opposition to the postpay market. Right here within the US, for instance, there’s roughly a 100 million prepay clients, however there’s over 200 million postpay clients. In order that market alternative is way larger for us. So we decided to essentially make investments in opposition to that. And so we anticipate the present quarter to be actually the trough of that enterprise and begin seeing a few of these different investments begin bearing some fruit as we go ahead within the 12 months.
Darren Aftahi
After which I suppose on single faucet, simply are you able to converse to the strategic significance of that product to your complete whole platform? And I wish to say shifting however possibly a pivot from promoting à la carte to a licensing mannequin?
Invoice Stone
Sure. So in our single faucet enterprise, for those who will not be as accustomed to it, we’ve a — single faucet’s actually an enablement functionality. And the way I like to consider it as single faucet is to app installs as Amazon OneClick is to e-commerce. It is actually nearly making the buyer expertise simpler and with much less friction. And we have traditionally monetized that by arbitraging the market the place we all know single faucet is on a tool and we are able to purchase promoting on behalf of Uber or Starbucks, or Twitter or whoever after which we are able to gather cash on the installs, as a result of we all know which units may have single faucet and which of them have not. And we have constructed that up right into a very nice enterprise and we’re enthusiastic about that enterprise persevering with to develop. We did an acquisition of a requirement aspect platform known as Recognize to essentially assist us scale in that space. However the place we actually see the chance, if you concentrate on the app set up market, it is a $100 billion market. And the way do you go after that? We’re not going to have the ability to try this on our personal. So we have got to determine the place the app installs are literally occurring. So we have began licensing our know-how out to different suppliers. Most notably we have launched with Amazon and we have launched with Epic Video games, the maker of Fortnite and people have been going rather well. I imply, we have seen Amazon has seen up prefer to 80% conversion enhancements as they’ve launched. In order that’s actually thrilling to see the merchandise is working as marketed.
One other actually massive alternative we see for singlet faucet is basically profiting from the entire visitors that all of us use, after we go to cell Websites and we might go to test our flight later right this moment or we might go test a sports activities rating, or might test the value of a home, or we might get a hyperlink to a social media feed, we do not have a social media app on our cellphone. Effectively, in all these instances, all of these corporations need you to have that app on their cellphone, as a result of there’s extra worth for them. However we as clients are simply going there for a selected function. We do not wish to go get linked out to an app retailer, wait to obtain. We simply wish to get, hey, what is the sports activities rating, what’s my flight on time. So we see an amazing alternative going out to a wide range of totally different manufacturers to principally enhance their variety of customers on the app, as a result of all of us as person are already interacting with these manufacturers as it’s. In order I discussed, we try this. We have executed that with Twitter in Europe. We’re within the means of doing that with like monetary companies like Chime and dealing with corporations like LinkedIn and Zillow, and names like that. However you’ll be able to develop that to many, many different manufacturers the place you make the expertise higher for all of us as finish clients however then you definately’re making it higher for the manufacturers themselves. And so that may be an instance how we are able to license the singlet faucet functionality out to make a greater expertise for everyone.
Unidentified Analyst
[Technical Difficulty]
Invoice Stone
Sure. So you can see — so you’ll be on a cell webpage, as an instance, you do not have the app of the airline that you simply’re flying with in your cellphone, you are simply on the cell webpage and you will see like only a button that claims set up the app. And so somewhat than set up the app, the cellphone will then look and say, is singlet faucet on the cellphone. If sure, then obtain it within the background. You then simply go onto to what you are doing. If you do not have singlet faucet in your cellphone then it might simply take you to the app retailer and then you definately would simply obtain it.
Unidentified Analyst
[Technical Difficulty]
Invoice Stone
Sure. So we’re beginning to see — to Darren’s query, we’re beginning to see elevated traction leveraging that functionality out within the market proper now.
Darren Aftahi
So how massive of a chance is licensing relative to what, I am going to name it, legacy single faucet was, multitudes larger and like why is that? After which when it comes to simply gross sales cycle, since you’re licensing versus promoting a product, is {that a} longer gross sales cycle?
Invoice Stone
Sure. our hope right here is we wish to at all times proceed to beneath promise and over ship, particularly in the case of new issues. So our expectations internally are very excessive for this product. We have got massive expectations for this product. How we flip that into your fashions, we’re going to verify to handle these expectations accordingly for it. However internally, if you concentrate on the app set up market as a $100 billion market and you make it simple or for purchasers to get apps on the telephones, it is clearly huge.
Darren Aftahi
Assist me perceive one thing. So when you concentrate on like TAM for your small business, so that you at all times seek advice from RPD for individuals who do not know that income per gadget, however you even have alternatives outdoors of RPD, whether or not it is promote aspect platform, et cetera, et cetera. So how do I take into consideration truthfully an ARPU quantity per gadget? And is the precise method long run, and I do know units get turned over, however is the precise method to consider a TAM of gadget as a software program could possibly be on after which multiplying that by an ARPU or is it too laborious as a result of a number of merchandise is likely to be touching type of the identical factor, i. e., single faucet?
Invoice Stone
Sure. So that is one thing we speak about lots internally. However simply on the highest degree, we take into consideration the market to get apps on telephones at first boot is a $10 billion market. We take into consideration the app set up market as a $100 billion market. We take into consideration the general cell promoting market as a $300 billion, $400 billion market. So huge, huge markets and we’re taking part in all of these. In order that’s how we wish to go assault it. How we wish to break it down for buyers? RPD has been an excellent metric for our legacy enterprise. It is one thing easy and straightforward for everybody to know. You simply raised a number of complexities, by how we wish to break it out. So we wish to be actually considerate. The worst factor we are able to do is introduce a metric after which pull it again after which introduce one other one and pull it again, after which buyers are type of being whipsawed round, round what to take a look at. So we speak lots about internally how we are able to get these metrics out however we wish to be actually deliberate about it. So we would find yourself do not screwing one thing up by complicated individuals and we’re simply attempting to coach individuals. However the TAM is the TAM and it is clearly huge and we’re effectively positioned.
Darren Aftahi
Two issues that you simply type of introduced the strategic initiatives, you made an funding in another Android primarily based app retailer and then you definately’ve talked about funds prior to now. Are you able to type of speak about, I suppose, one, why you made that funding? After which two, how does funds type of match into the broader image of Digital Turbine?
Invoice Stone
Sure. I wish to spend a pair minutes on this. That is, I believe, actually necessary level for buyers who’re pondering extra past Silicon Valley Financial institution and the March quarter, and actually pondering just a little bit extra strategically round what is the subsequent nook. And so after we have a look at the area, right this moment, apple and Google principally get a couple of $100 billion of free money circulation from the 30% that they take off the app shops. And our view is that’s going to be disrupted. It is only a query by who and by when. And so there’s a number of issues underway organically when it comes to various app shops or publishers the place there’s some excessive profile stuff you’ve seen with Spotify and match.com and Fortnite and others. However there’s now a want that individuals do not wish to pay 30 factors. I pay 1% of my Visa, I pay 3% on my Amex. Why is — why are these corporations taking 30%? So our expectation is there’s going to be a number of regulation the place you are going to see an unbundling of the Android working system from the Google Play Retailer or the iOS working system from the Apple App Retailer and provide selection. As a result of principally the way it works right this moment is it is nearly like you’ll be able to solely purchase mild bulbs from the electrical firm and you do not have the chance to go to Goal or Walmart or wherever to purchase these. So we have already seen it within the EU with the Digital Markets Act. There’s some laws right here in america that has bipartisan help known as the Open Markets App Act that may principally do that and permit the chance to place totally different aspect loading apps onto these platforms.
And so clearly, Apple particularly is — has some points with that they usually’re lobbying laborious. But it surely’s a troublesome query for Apple to reply why are you able to side-load apps in your Macintosh after which declare it is protected and safe nevertheless it’s not on the iPhone, proper? So our expectation is that is going to open up an infinite quantity of prospects, however there’s a number of plumbing that should occur to perform it. It’s a must to determine tips on how to port a special model of the app, you have to put funds in — the Darren’s referencing into it, it’s a must to take the set up friction away, which is one thing like singlet faucet does and it’s a must to have the AI machine studying to get these curated proper app shops to the precise individuals and that could possibly be a Microsoft retailer, it could possibly be a Disney retailer, it could possibly be an Amazon retailer, it could possibly be simply video games, it could possibly be streaming audio, streaming video, no matter. So we’re dwell with an operator right here in america and we’re anticipating being dwell with a tier one operator right here in america within the present quarter. So it is not tutorial whether or not you’ll be able to truly go in and obtain an app as various funds in it for the client, and that is one thing we’re extraordinarily bullish on. And we expect there is a there, there with that. And we took an fairness stake in an organization in Portugal known as Aptoide that is serving to companion on porting the purposes and the choice funds that go along with that. So if you wish to, for instance, hyperlink out to PayPal to pay a greenback to get to the subsequent degree or what have you ever.
And so it is a area we’re actually enthusiastic about as we glance ahead within the firm and what is going on to be a progress driver in the way forward for the corporate, as a result of we’ve the chance to monetize at three ranges. We are able to monetize [beginning] the apps on the telephones identical to we do right this moment and getting these new apps on the telephones. We are able to monetize now by pulling by way of our advert tech belongings and now having a distribution channel for advert tech belongings that we have not had earlier than. After which we are able to monetize by way of funds, which is a whole greenfield alternative for us as effectively. So we’re actually enthusiastic about it. Once more, not essentially from a March quarter or June quarter, but additionally I do wish to be sure buyers know that is dwell out there right this moment. So it is one thing that we’re placing a number of vitality and funding in opposition to.
Darren Aftahi
You guys are pretty tightly built-in with Google. I really feel like final 12 months our dialog was all centered round that. I suppose simply reiterating how’s the connection with Google, and do both of the DOJs lawsuits in opposition to Google on the advert tech aspect possibly does not precisely have an effect on you? Does which have any affect good/unhealthy and totally different, if that was the wind [indiscernible] blow the improper method?
Invoice Stone
Sure. I believe, I’d characterize our relationship with Google proper now as a 52 week excessive. They proceed to be very supportive of us, they’re truly a channel companion reselling single faucet licensing out into {the marketplace} for us, they proceed to be a fantastic companion as we work with Verizon and AT&T and others proper now. I do suppose the regulatory overhang is having them to essentially replicate upon their actions realizing that there is a number of stress on them, not simply within the app world however way more broadly proper now. So I believe for a complete number of causes, we’re persevering with to work and partnering with Google. And we’d prefer to remind individuals we have made Google over a billion {dollars} distributing their purposes over time. So after we take an Uber or Sweet Crush or a Starbucks app that is a Google app after which no matter is bought is Google’s getting the profit from that. So Google likes to seek advice from us as what their — their type of buzzword as an ecosystem enabler to principally assist forged a wider web and nearly consider us nearly like is Uber Eats for Google as they’re the restaurant, proper, to forged that wider distribution web.
Darren Aftahi
You’ve about 5 minutes left. Do you wish to open it up if there’s any questions within the viewers? Energetic crowd. So two extra possibly for me. I suppose, you’ve got made some pretty giant acquisitions prior to now 24 months. I suppose, what have you ever discovered from that? And there is positively a theme inside advert tech of consolidation. Do you see your self as a consolidator, consolidatee, simply type of humor me on that one?
Invoice Stone
Sure. So I believe from an M&A perspective, first, we wish to proceed to take a look at corporations and alternatives. We’ll try this however in a really accountable method. And we give it some thought actually on two dimensions. We wish to take into consideration issues that may add progress to our platform. So I simply talked concerning the various app supply area, for instance. There possibly issues that may add an accelerator efforts in that area that we wish to have a look at. After which we additionally wish to add scale to our platform. After which we consider our advert tech belongings have scale however scale actually issues in advert tech. And so we wish to suppose there are alternatives we are able to add further scale to it, and we’ll completely try this, however once more, in a really accountable accretive method. So we have constructed this firm on acquisitions. We’re comfy doing acquisitions. I believe we have executed an excellent job doing this many acquisitions over time so as to add a number of worth for shareholders. And we’ll proceed to do this. Nothing imminent to speak about right this moment however we’re gonna at all times give it some thought.
When it comes to what we have discovered from the acquisitions, I believe the large factor is do not attempt to purchase three corporations without delay throughout COVID. That is laborious. I believe we made it further laborious on ourselves doing that and we discovered lots about integration. However the excellent news is we’re out of that part. And after we take into consideration how we return this enterprise to progress and begin exhibiting sequential progress out to shareholders, a number of it is now we’re constructing options on high of the integrations that we have executed, and a number of that is very tried and true advert tech techniques. We’re not attempting to do any moonshots or any massive, these are simply type of actually normal basic items that we’re now launching out into {the marketplace}, whether or not they’re in machine studying, enhancement on the DSP or totally different bidding methodologies, or totally different advert codecs, and issues which can be actually tried and true, however we’re capable of construct on what we have acquired now. And so we’re seeing some encouraging outcomes that we anticipate to be progress drivers for us sooner or later. However buying corporations and integrating them is unquestionably a problem, that is for certain.
Darren Aftahi
And I suppose, so final two from me. One, we’re sitting right here in 12 months, how are we grading Digital Turbine when it comes to strategic efficiency a 12 months from now? Quantity two, even in softer instances, your small business nonetheless generates a good quantity of free money circulation. Discuss to me about capital allocation technique, your inventory no totally different than a number of tech shares have taken it on the chin, something you are able to do to be extra shareholder pleasant?
Invoice Stone
Sure. So let me begin and take the capital allocation one first. Proper now, I believe, we’re actually pleased with the working leverage that we’ve in our enterprise. And one of many nice issues about being a cell cloud software program enterprise is that you do not have enter prices in factories and uncooked supplies and all these sorts of issues. So there is a super quantity of leverage that goes with each incremental greenback of income that may circulation to the underside line. And so we actually like that about our enterprise mannequin. And we traditionally have been paying down our debt as our capital allocation technique. We’ve got about $300-ish million plus of web debt proper now and we have been persistently paying down, let’s name it, $20 million, $30 million 1 / 4 of that debt. We predict that is the prudent factor to do on this market when it comes to prioritizing our capital to present us most flexibility and no matter we are going to select. Is there one thing the place the inventory is irrational and would we ever have a look at doing one thing else? Certain, we’ll at all times be rational individuals to take a look at issues that possibly irrational out within the market.
Proper now our view is we wish to make investments in opposition to the technique we talked about and we wish to spend money on paying down our debt when it comes to capital allocation, however we’re additionally not tone deaf to what is going on on out within the market both. And so far as simply judging us sooner or later on technique, I believe there’s two issues. One is simply, hey, roll up our sleeves, blue collar, execute on the day-to-day, present the road that we are able to execute, present the road that we are able to proceed to beat and exceed expectations which can be on the market for us. We have got to do this, that is actually vital when it comes to establishing that. However on the identical time limit, we bought to stroll however then we bought to chew gum of wanting across the subsequent nook to say, hey, there’s these larger alternatives on the market with single faucet, there’s these larger alternatives on the market with various app shops, and we wish to be a part of that and we wish to half — outline the place that’s going. And so after we sit a 12 months from now, as an instance, had been we capable of do each of these issues and present this execution and present some materials progress on a few of these strategic issues that may actually catapult the corporate into a special place?
Darren Aftahi
Nice. I believe we’re nearly up [Call Ends Abruptly]
