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Edited Transcript of APPS earnings conference call or presentation 12-Jun-18 8:30pm GMT

Q4 2018 Digital Turbine Inc Earnings Call

Los Angeles Jun 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Digital Turbine Inc earnings conference call or presentation Tuesday, June 12, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barrett Garrison

Digital Turbine, Inc. - Executive VP & CFO

* Brian Bartholomew

* William Gordon Stone

Digital Turbine, Inc. - CEO & Director

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Conference Call Participants

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* Darren Paul Aftahi

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Ilya Grozovsky

National Securities Corporation, Research Division - Senior Equity Analyst

* Jon Robert Hickman

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst

* Michael Fawzy Malouf

Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team

* Sameet Sinha

B. Riley FBR, Inc., Research Division - Senior Analyst of Internet and E-commerce

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Digital Turbine fiscal fourth quarter and fiscal year 2018 results conference call. (Operator Instructions) Please note, this event is being recorded.

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

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Brian Bartholomew, [2]

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Thank you. Good afternoon, and welcome to the Digital Turbine Fourth Quarter and Fiscal 2018 Earnings Conference Call. Joining me on the call today to discuss our results are Bill Stone, CEO; and Barrett Garrison, our CFO.

Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics. Although we believe that our assumptions are reasonable, they're not guarantees of future performance, and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we filed with the Securities and Exchange Commission. Also, during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today's press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures.

Lastly, before I turn the call over to Bill, I want to quickly remind everyone that we will be hosting an Analyst Day next Thursday, June 21 at the Four Seasons in Midtown, New York. Many of you have already registered for the event, and I would encourage others that have an interest in attending to reach out to me directly on my e-mail address provided in today's earnings release. I think it will prove to be a highly insightful event where investors will have a chance to hear real-world testimonials directly from our partners and customers and get to see a series of new product demonstrations as part of the Day's presentations. So I hope to see a lot of you there. Now without further ado, it's my pleasure to turn the call over to Mr. Bill Stone.

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [3]

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Thanks, Brian, and thanks to all for joining us today. I want to start my remarks with our progress against our stated goal. Our goal has been to build a sustainable and profitable business while demonstrating solid execution against our strategy. I'm pleased to report that we continued our momentum in the March quarter as we delivered $5 million of free cash flow and $2.6 million of adjusted EBITDA for the full fiscal year. This compares to a negative free cash flow of $13 million and an adjusted EBITDA loss of nearly $9 million for the prior fiscal year. I'll break out my remarks into 4 areas: first are some comments about our divestitures; second, we'll be closing out the March quarter; thirdly will be some strategic comments about our 3 growth levers of devices, new products and media; and then we'll close out with some current quarter operational updates against those growth levers. First on the divestitures. We announced last month the sale of our advertiser and publisher business and our content and pay business in 2 separate transactions. These transactions were done for 2 primary purposes. First, and most importantly, we did these transactions for strategic focus. We are now 100% focused on one business, not 3, and our business had strong top line growth, better margins, better operating leverage and fits perfectly with our strategic vision. Second was capital allocation. Specifically, our ability to leverage the proceeds we receive on future gross profits from those transactions will be invested back into our mobile delivery platform business. Barrett will take you through the numbers in his remarks to ensure there's no confusion on how we report, account and communicate the discontinued operations from our continued operations. But what I'm excited about is that we're already seeing benefits in our focus as many in our team that were sharing time-managing, multiple projects and activities across multiple businesses are now laser-focused on our Mobile Delivery Platform business that generates faster growth, better margins and greater operating leverage. Now to close out March on the operational performance. Please note all of my comments will be on our continuing operations, not including any results from our discontinued operations.

Our overall revenues were $21 million for the quarter, which compares to $11.6 million in the March quarter a year ago or 81% annualized growth. This growth occurred despite disappointing initial sales of a flagship device here in North America against expectations. The growth was driven by improvements in our revenue per device or RPD across our base as we've added additional advertisers and slots of devices. In particular, we increased our revenue with our largest carrier partner by 64% year-over-year in the March quarter on a modest 10% year-over-year growth in devices. And in doing so, our quarterly revenue per device with this particular carrier reached an all-time high in the quarter.

I believe this speaks strongly to the demand from advertisers and the emergence of contribution from other added platform products that I'll discuss later in my remarks. I was also pleased to finish the quarter with $12.7 million of cash on the balance sheet, which compares to $6.9 million in the December quarter, while simultaneously reducing our debt. We always know there's fluctuations in working capital, but I'm pleased to see our ability to continue to strengthen the balance sheet. I know many want to focus on quarter-to-quarter results, but if we pull the lens back and compare our balance sheet today to our balance sheet both a year ago or even 2 years ago, it has materially improved, and I want to give a shout-out, not just to the full team but also Barrett and the finance team for doing a great job.

Next, let me shift to our growth in the future. The key to exponential growth in any business is the ability to create network effects from a platform. We see this with companies such as Apple, Google, Facebook, Amazon and others that are able to harness end-user growth, combined with multiple product and revenue streams, once users are engaged with their platform. For us, we see the ability to add end-users via more devices, more products and additional advertiser demand as our 3 growth levers, that will have the ability to create network effects once the software is installed on the device. I'll spend more detailed time on these levers at our Analyst Day next week but did want to share some operational updates against our progress we're seeing in the current June quarter. First on devices. At the end of March, we had 155 million devices with Ignite on them. This is an important metric to help demonstrate scale and network effects from our platform. We continue to add more devices with our existing partners and have signed numerous additional deals in Asia Pacific with new OEM partners that we anticipate will add many millions of incremental devices over this upcoming year. Our pipeline is very robust as we continue to place a major focus into Asia, where OEMs distribute their devices directly versus through operators like here in the United States. I would encourage investors to pay close attention to our progress against this goal.

Secondly is on products. Our strategic focus is growing our primary dynamic install product but also diversifying with others. 2 years ago, we saw our dynamic-installed product generating 98% of our O&O revenues. Last year, it was 93%. And today, it is less than 90%. In other words, while the dynamic-installed revenues continue to show strong growth, additional products are beginning to contribute additional revenues. To date, in 2018, we've added 3 new products that are now contributing revenue. What I'm really excited about is that all 3 of these products are recurring revenue streams for the company versus only able to monetize upon activation of the device. Our first 2 product launch has been Single-Tap. This has been launched in 2 ways. First, we've launched our Single-Tap installer directly with a large social media platform and integrated it with a large North American operator. It's now being deployed across all of their new Android devices. We've also expanded Single-Tap with many other media partners, including an additional social media platform. The overall Single-Tap opportunity is one I continue to be excited about as a potential game changer, but also one I would encourage patience from investors as we work through a variety of last mile operational issues. I'd also like to call out our Smart Folders and Post-Install action products as they also represent a tremendous opportunity but most likely are not getting as much attention and focus from analysts and investors. Both of these are live across multiple operators here in North America, and the early results are encouraging. Our Smart Folders product organizes applications into a folder on a device and then allows us to make app recommendations to end-users based upon what they're showing interest in. Our Post-Install product allows customers to increase their engagement and applications they've already downloaded. The early returns are also encouraging with this, and we are now in the process of scaling it. We'll provide more details on early results, demonstrations and additional color on all of these new products at our Analyst Day next week.

And finally, our third growth lever is our media business. We measure our success on this growth via revenue per device. Revenue per device continues to improve as a result of our advertising and media relationships. An encouraging trend is that our year-over-year revenue per device increased 27% here in North America. We are starting to see advertisers such as Yelp, AccuWeather and eBay as specific examples, beginning to share their spend and increase it on platforms like ours versus continuing to expand their spend on platforms like Facebook and Google. These types of macro trends are beginning to see turn up in macro results as Facebook and Google actually saw their share of digital advertising decline in the first quarter of 2018 for the first time. This is another thing we will provide additional color at our Analyst Day next week. I want to conclude my remarks in fiscal '18 with the year where our business turned the corner with improvements on focus, profitability and growth. Now in fiscal '19, our business is positioned nicely for the future and my excitement and optimism about where it is continues to hit 52-week highs.

And with that, I'll turn it over to Barrett to take you through the numbers.

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [4]

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Thanks, Bill, and good afternoon, everyone. As Bill mentioned, we're very pleased with the way fiscal 2018 came together. In the year, we achieved several milestones against our stated objectives: first, the company delivered profitability of $2.6 million in adjusted EBITDA as compared to a loss of $8.9 million in the prior year and delivered $5 million in free cash flow; secondly, we strengthened the financial position of our balance sheet, exiting the year with $12.7 million in cash, while deleveraging our gross debt position to $7.4 million this year, down from $16 million at the end of fiscal 2017; we also divested of our A&P and Pay businesses, enabling greater focus on our O&O growth engine; and finally, we made important improvements in our controls environment, and I'm proud to report the company is now fully Sarbanes-Oxley compliant. Before we go into more detailed overview of the numbers, we recently announced the divestiture of our advertising and publisher business and our Content Pay business that are expected to close later this month. These non-core divestitures are expected to drive greater focus on our higher margin, higher growth O&O business. The results of these divested businesses are treated as discontinued operations for all periods presented in our financials. And as a result, all shared and corporate costs are allocated to continuing operations. My comments today will refer to results on continuing operations unless otherwise noted.

Now let me turn to the specific financial performance in the quarter. All of our comparisons are on a year-on-year basis unless otherwise noted. Revenue of $21 million in the quarter was up 81%, growth across devices on the platform and meaningful improvements and revenue contribution per device that Bill outlined were primarily driven from our North American operators, drove the results in the quarter.

Turning to margins, reporting our business on a continuing ops basis highlights the higher-margin profile of our O&O business, where our non-GAAP margin was 36% for both Q4 and the fiscal year 2018. This compares to 38% gross margins for the same quarter in the prior year and 34% for fiscal 2017. While we are excited by the improving margin expansion in the year, margins in the quarter were negatively impacted by a lower mix of high-margin licensing revenue, which represented less than 2% of revenue mix in this quarter as compared to over 6% in the same quarter last year. Accelerating revenue growth enabled non-GAAP gross profit dollars to increase by over $3.1 million year-on-year to $7.5 million in the quarter.

Let me leave the discussion on margins by noting that while we are pleased with the continued improvement in this area and encouraged about our opportunity to expand margins overall, our gross margin rates can be sensitive to changes and partner mix and revenue types and these fluctuations may vary from quarter-to-quarter. Now turning to expenses. As I noted earlier, since we are now reporting our divested business under discontinued operations, all of our shared and corporate expenses are being allocated to continuing operations. Total operating expenses for continuing operations for the fourth quarter were $8.2 million compared to $6 million in the prior year quarter. Cash expenses in the quarter were approximately $7.6 million, which were down slightly on a sequential basis and inclusive of investments in our internal controls, growth in personnel resources focused primarily on our sales force as we've continued to reallocate and invest resources towards our O&O business. And lastly, increases in sales and marketing spend in our annual Mobile World Congress event held in February. Also, as a reminder, we typically incur higher accounting and internal controls expenses in the June quarter. For the fiscal year, expenses were $30.9 million, up only 9% over prior year and during the same time, our revenue growth was 81%, demonstrating the inherent operating leverage in our business.

In the quarter, our total adjusted EBITDA, inclusive of discontinued operations, was a positive $700,000, up from a loss of $700,000 in the fourth quarter of 2017. Adjusted EBITDA for continuing operations was breakeven in the quarter as compared to an $800,000 loss in the prior year. For the total fiscal year 2018, we delivered $2.6 million in adjusted EBITDA, including discontinued operations as compared to a loss of $8.9 million in the prior year. Non-GAAP adjusted net loss in the quarter was $600,000 from continuing operations or $0.01 per share loss as compared to a net loss of $1.5 million or a $0.02 per share loss in the fourth quarter of 2017.

Our GAAP net loss from continuing operations for the fourth quarter was $4.2 million or a $0.06 loss per share based on 75.2 million weighted shares outstanding compared to a net loss of $5.8 million or a $0.09 loss per share for the fiscal fourth quarter of 2017. Included in our GAAP net loss for the quarter is a recorded loss of $1.9 million from the impact of the change in fair value of derivative liabilities resulting from our convertible note, which is highly sensitive to the company's stock price. As a reminder, the derivative liabilities on our balance sheet will fluctuate as our stock price moves and may have a material impact on our reported GAAP financials.

Our GAAP net loss, including discontinued ops was $38.4 million or a $0.50 -- $0.51 per share loss. These results include $34 million impairment on goodwill related to the divested business lines I mentioned earlier.

Moving to the balance sheet, we finished the quarter with $12.7 million in cash and generated $6.9 million in positive free cash flow from continuing operations in the quarter and $5.3 million for the fiscal year as compared to a $13 million negative cash flow in the prior fiscal year. As I mentioned at the beginning of my comments, this is a very important milestone for the company against our stated objectives. During the quarter, we benefited from favorable working capital from collections from our seasonally strong December revenue quarter. And while these working capital fluctuations can wash over the full year, it is important to point out that seasonality may drive quarterly working capital fluctuations. The leverage on the balance sheet was further reduced in the quarter in addition to reducing the revolving credit by $0.25 million. $2.9 million of the convertible notes were converted by noteholders in Q4. And the gross principal amount of our original $16 million notes currently stands at $5.7 million at the end of the quarter. As Bill noted, the momentum leading into the new year has positioned us for a strong fiscal 2019. In that context, we currently expect Q1 revenue of approximately $23 million representing a projected year-on-year growth greater than 50% and expect positive adjusted EBITDA in the quarter.

With that, let me hand it back to the operator to open the call for questions.

Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mike Malouf with Craig-Hallum Capital Group.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [2]

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One of the things that I get asked a lot is about the Verizon contract you guys are, I think, at the later stages of getting signed. And with, I think, over 50% of your business with Verizon, a lot of eyes on that. Can you give us a sense of how that's going? And how should we think about that as we look out into fiscal '19?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [3]

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Yes. Sure, Mike. Yes, I don't have anything to report today on that. Obviously, we're not going to comment on any one specific contract until we have something to announce. What I will say though is that we're pleased to have Roy Chestnutt, who just recently joined our board as the former Chief Strategy Officer and Head of M&A at Verizon. So he's been a great addition to our board. Also, we've got some great relationships. They're in continuous -- you've heard some of my remarks about some of the impressive performance that's put up. So -- and we feel good about things. They're a great partner of ours and stay tuned for future announcements regarding them.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [4]

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Okay, great. And then, was there any Single-Tap business? It didn't sound like it because it was really small on the licensing side. But was there any Single-Tap business in the March quarter?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [5]

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There was very little bit as it associated with the large social media company and the large North American operator, but I wouldn't -- I would call that de minimis as it relates to the March quarter.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [6]

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Okay. And then, when you take a look at expanding beyond the first carrier, have you gotten any visibility with regards to expanding Single-Tap into other carriers?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [7]

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Yes, we're actually live with Single-Tap across multiple carriers today. And we're in the process as well [you said about some of his] last mile issues is we have to go carrier by carrier and OEM by OEM. Each one has a little bit different nuance and characteristics in terms of getting it integrated into their environment. So we're working through those right now. But, yes, we're already live today with multiple.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [8]

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Okay, great. And then, just a last question. I don't want to steal a lot thunder from your Analyst Day coming up. But could you give us just a little bit more color on the Asia opportunity and how you see that playing out in 2019?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [9]

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Yes, one of the things, I think, it's important for investors to note is that, how people buy devices here in the United States is different than how they buy them in the rest of the world. And we view those devices where people just go into their carrier store and pick up SIM cards, we call that open market. And the vast majority of the devices, let's call it, 800 million are sold in that way outside of the United States. It's a material number. And so our ability to go do direct deals with those OEMs and whether they're in Korea or China or India or even some other places, I know it's really key to expanding that 155 million device number that we quoted in our remarks in our press release. So a major focus area on that. And, obviously, you can multiply those devices times some revenue per device assumption and those incremental devices that obviously generate incremental revenue for the company. So that's a major focus area for us.

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Operator [10]

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The next question comes from Darren Aftahi with Roth Capital Partners.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11]

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Congrats on the quarter. Nice cash flow. Nice to see that. I just want to start, Bill, to your comments about Asia, are there any limitations with your software platform to potentially work with somebody like a $0.10 where it's not a app per se but it's a mini program? And then I've got a couple of follow-ups.

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [12]

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Yes, So we actually have a deal with $0.10 today, where we actually distribute some $0.10 applications outside of China. So they're actually a customer of ours. And as they're looking to expand and scale outside of China, I think they see our platform as a potential catalyst for growth for them. So that's a tremendous opportunity. But we're not embedding our Ignite on their platform, but rather they're embedding their software into ours. So it's the other way around.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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Got it. Understood. That's helpful. I think, last quarter, you mentioned a couple of stats, and I want to follow up on those. Could you talk about the percentage of addressable devices that are now enabled with Single-Tap?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [14]

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Yes, So we'll give a lot more color on this one for next week. Right now, we view the addressable market for Single-Tap would be a subset of the 155 million devices we've already got live today. As I mentioned, we kind of have to go operator by operator to get those implemented and deployed. We're now in the low-8 figures of devices that have Single-Tap already turned on and live today, and that's getting bigger and bigger each day. So I would say that we're doing it at scale, but we're nowhere near the scale that we anticipate being over the upcoming quarters.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [15]

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Great. And then on the mix of constituents that are actually using Single-Tap among publishers, operators, OEMs, et cetera. Can you give any sense for if there's a SKU or one of those verticals is kind of over-indexing versus the other? And then my last 2 questions are, one, with the divestitures, are there any kind of legacy cost drag on the business? And then the second social media platform that you said is using Single-Tap today. Is that a North American-based or outside of North America?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [16]

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Yes, sure. So I'll take the Single-Tap questions, and I'll turn it over to Barrett for your questions on the costs on the divestitures. Yes, as it relates to Single-Tap, right now, we're live with another North American company. It's not outside North America. Yes, as far as results, we're giving a lot more color next week at Analyst Day because one of the things that you have to keep in mind is that you'll see variances in performance, not just based on type of device or geography, meaning India versus here in the United States, for example. But we'll also see variance in performance depending upon what type of add unit is, so whether it's a video or interstitial or banner or what have you, we're seeing differences in performance and conversion rates on those things. We'll talk about, again, some numbers next week on that. But really this is kind of the place in the evolution of how we fine-tune the model. And it reminds me a lot of when we started the dynamic install business with Verizon many years ago, and we learned that gaming apps in certain phones perform this way, but travel apps perform this way and so on and so forth. And we've gotten a lot smarter on that over time, and we're in that same learning curve and process right now with Single-Tap.

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [17]

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Yes, and Darren, to your question around cost drags, we will -- once we close on the transactions that we've -- there will be some wind-down activities. I think about those as in a period of months as we cost, for example, largely kind of G&A, office, office wind-down and some hosting costs that we'll be winding down over a period of a few months.

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Operator [18]

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The next question comes from Sameet Sinha with B. Riley FBR.

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Sameet Sinha, B. Riley FBR, Inc., Research Division - Senior Analyst of Internet and E-commerce [19]

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Couple of questions here. So if I look at 25 million devices added during the quarter, but your revenue per device went down. Now I can understand you're coming off a seasonally -- a very strong quarter. But what I wanted to kind of get an impression was, as you look on your current contracts and you look out the rest of the year, is that 3 million-plus sort of additions every quarter kind of the standard, and that's how we should be modeling it? And me, obviously, making assumptions around RPD. And second question I have is, you highlighted Smart Folders [as a] product, as kind of the new products that are gaining as a percentage of your overall revenue. Can you tell us -- just maybe spend a minute, talk about those new products, what the functionalities over there and how it's been marketed, and what's -- what is it -- what's the value proposition?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [20]

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Yes, sure. So let me take the second part of that question, Sameet, and I'll turn it over to Barrett to talk about how to think about modeling the device forecast going forward. Yes, as it relates to the new product, so we'll give you a -- we're live with our Smart Folders products against multiple carriers, I'll talk about AT&T as a specific example. When you get your phone from AT&T out-of-the-box, rather than scrolling through screen after screen of apps that many of us have in our Smart Folders, we could organize those apps into different categories. AT&T chose to put games in one of those categories. So we'll organize all the games into one folder that it would be on your home screen of your phone. And within that folder, then we can create different recommendations for additional games or future games that would be tied to the types that you already have on your device. And then it's just Single-Tap to download those 2 device so you don't need to go to the Google Play store so no friction for the end consumer. And those gaming companies will pay us, whether that's paid on a CPI basis, or we can cut it into a CPP basis, either way then, we'll work those with the gaming providers and then share the revenue back with AT&T. The exciting thing about that is that it's ongoing for the life of the device. So if you download a game in month 1, month 6, month 12, that would be 3 separate revenue events for us. So we've seen early results been encouraging on that, and we're fine-tuning the product to platform and so on. But we're live with multiple operators across that. And then the other was post-install actions where you're just creating additional engagement from customers, we all have apps in our phones and we've downloaded -- sometimes we don't engage with all of them on a daily basis and forget they're there, but they can add value [through] some event or whether it's where you are, what time or year it is or what have you. So your notifications platform creates a nice lift in engagement for the end-user, providing end value, and then we're able to generate revenue from that increased engagement from the advertiser and share back with the operator. So the early returns on that have been something we're quite excited about, and now we're just working through scaling issues. So as far as devices though, I'll turn it over to Barrett.

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [21]

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Yes. So Sameet, just to be clear, make sure we understand, as far as device growth, what we're seeing is, in the mid-20s to low-20s, millions of new devices coming onto the platform. And what drives that growth beyond where we are today or what can impact that growth is obviously new launches of new flagship devices as well as new partners coming onto the platform and their timing which they launch devices. But we expect that number to continue to grow, and it has grown over time. But just to make sure we're clear, we're in the kind of low to mid-20 million devices on to the platform each quarter.

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Operator [22]

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The next question comes from Jon Hickman with Ladenburg Thalmann.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [23]

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Barrett, could you tell us what the fully diluted share count would be if all your notes got converted?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [24]

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I can. So we exited close to $76 million at the end of the quarter. And the -- there is about $5 million -- a little over $5 million, notes outstanding and those convert at a -- if there were to convert at $1.36, which is a convert price. We're in the $4 million range from the incremental there plus we have about $4 million in warrants that could be exercised. So in addition to the $9 million related to the notes plus the $76 million we have outstanding, that would bring it to the total inclusive of the convertible notes.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [25]

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So the warrants are -- are the warrants also like on the 36 sort of range around there?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [26]

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Yes, that's correct. They're the same -- they have the same effective price as the notes themselves.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [27]

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So those would bring in $1.36 each if they got exercised?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [28]

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That's right, they would bring in inflow of cash.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [29]

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Okay. So then I'd like to go back to the question about costs. So as you kind of finish the transition here on these discontinued operations, can we expect some more dollars to come out of your operating expenses?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [30]

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You will see a reduction in the company's total overall expenses, obviously as we wind down these 2 businesses and those transition to new owners, we won't maintain those cost. Those will be reported in discontinued ops. And then you will begin to see that net of the gross profit sharing that is part of the agreement, which will be inflows to the company, which will flow into discontinued ops.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [31]

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So can you put a dollar amount on that, like over the course of the year?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [32]

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Yes. So I think -- we're not giving guidance on the contribution from those but what I can say is that over the course -- they're both 3-year contracts, and they're not insignificant amounts of dollars. And they're intended to replace the amount of contribution the businesses were generating when we owned the assets. And we like to think and expect that it will be a positive free cash flow over the course of the agreement.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [33]

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So I'm sorry, I'm not so concerned about the contribution, I'm concerned about the reduction in costs that go along with that.

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [34]

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The reduction in cost relating to some...

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [35]

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In operating cost. Yes, so over the course of the year, you're going to save another $1 million or what's -- can you put any parameters around that?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [36]

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Yes, So you would have seen, once you have a chance to dig into the K, you'll see that the costs related to these businesses are in the range of $1 million to $1.5 million a quarter. And so there will be a little bit of cost drag, but eventually, those costs will come out of the business completely.

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Operator [37]

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(Operator Instructions) The next question comes from Ilya Grozovsky with National Securities.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [38]

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I think you had said it but just -- I didn't catch it. The percentage of revenues from the 3 new products, did you give that a number?

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [39]

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Yes, that's actually -- first, it's for the 3 new products plus some other ones like our Wizard product that we have with AT&T and Motorola, our licensee product that we have with some operators outside the United States. And yes, Ilya, the point was, it was a couple of years ago where 98% of our revenue was dynamic and then it's gone to 93%, and now it's in the 80s. And so we've seen -- and even though the overall revenue is [grown] up. So we're seeing those other products starting to contribute more to the bottom line.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [40]

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Okay, great. And then, given the divestitures, what's the head count look like now?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [41]

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Yes, So reported in the K, I believe we're close to 150. There'll be further transitions as the 2 agreements and transactions close.

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Ilya Grozovsky, National Securities Corporation, Research Division - Senior Equity Analyst [42]

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Okay, great. And then finally, so you guys obviously gave guidance for Q1 for the June quarter, which ends in roughly 2 weeks. What are your thoughts on the fiscal 2019 number? And you guys used to give out an annual number, I believe, at the end of the previous year. So that would be, I think, [now]. What are your initial thoughts?

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Barrett Garrison, Digital Turbine, Inc. - Executive VP & CFO [43]

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Yes, So first we have only guided to the quarter. There's a lot of activity with the divestitures and those activities. We like the growth outlook that we have. And we think that we've got a good beat on the June quarter. And we'll continue to evaluate our position on given annual guidance over the next few quarters.

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Operator [44]

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

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William Gordon Stone, Digital Turbine, Inc. - CEO & Director [45]

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Great. Thank you, everyone, for joining the call today. We look forward to reporting on our progress against all the points made on today's call, and, hopefully, we'll see many of you next week at our Analyst Day in New York, and we'll talk again on our next earnings call for our first quarter results for fiscal '19. Thanks. And have a great night.

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Operator [46]

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