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Mandalay Digital Group (APPS) Q1 2020 Earnings Call Transcript

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Mandalay Digital Group (NASDAQ: APPS)
Q1 2020 Earnings Call
Aug 05, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone, and welcome to the Digital Turbine first-quarter fiscal 2020 earnings conference call. [Operator instructions] Please also note, today's event is being recorded. And at this time, I'd like to turn the conference call over to Mr. Brian Bartholomew, senior vice president of capital markets.

Please go ahead.

Brian Bartholomew -- Senior Vice President of Capital Markets

Thanks, Jamie. Good afternoon, and welcome to the Digital Turbine fiscal 2020 first-quarter earnings conference call. Joining me on the call today to discuss our results are CEO Bill Stone and CFO Barrett Garrison. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements.

These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For 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.

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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 measure. Now I will turn the call over to Mr.

Bill Stone.

Bill Stone -- Chief Executive Officer

Thanks, Brian. And thank you all for joining our call tonight. Our stated goal has been to build and sustain a profitable growth business. With this objective in mind, we had a very strong start to our fiscal 2020 with our first-quarter results, continuing to set all-time quarterly records and our continuing operational revenue, gross profit, adjusted EBITDA, non-GAAP net income, earnings per share, device installs and U.S.

revenue per device. I'm going to break out my prepared remarks into three areas: first, I'll summarize our quarterly results; secondly, we'll provide some real-time operational updates on many of the exciting new partnerships and initiatives under way; and finally, we'll end with some commentary about the strategic value of the platform and where we're going into the future. To close out the June quarter, we finished with $30.6 million in revenue, which was a 38% annual growth rate. I was even more pleased with our 78% annual growth in non-GAAP gross profit on the strength of 40% gross margins in the quarter.

Record gross profit, combined with continued effective operating expense management, enabled the company to achieve over $4 million in non-GAAP net income, EBITDA and free cash flow during the quarter. We also reached a new high for quarterly non-GAAP EPS at $0.05 per share. Barrett will provide more specifics on the financials, but from an operational perspective, I was very pleased with our revenue per device performance, or RPD, driven by strong advertiser demand and incremental contributions from new products. Our RPD with our four largest U.S.-based partners increased 38% year over year and currently exceeds $2.75 per device.

As you've heard me say on prior calls, diversification is a major strategic priority for the company: diversification of partners, business models, products, geographies and advertisers. Regarding our partners, we continue to have success with our top four U.S.-based carrier partners with whom we grew revenues 18% year over year. However, our revenues with other partners outside of this group grew nearly 4x year over year and represented approximately 28% -- 21% of total revenue in the June quarter, up from less than 8% in the prior year. Our revenue from new products outside of dynamic installs grew from 13% of total revenues in the March quarter to 15% in the June quarter.

Although growing, I'm not satisfied with this result as we still have more work to do. We expect this figure to continue to grow as products such as our wizard, notifications, single-tap and folders become a greater part of the story. I'll provide more information later in my remarks. But overall, I'm excited about the opportunity with all the new products and the validation we are getting in the marketplace from our partners and customers, and have been pleased with our execution so far with wizard and Media Hub but want to see faster operational progress against our BYOD, single-tap, notifications and folders.

Now turning to the forward outlook, I want to provide some commentary on how we're positioned for continued growth across each of our key growth levers: devices, media and new products as we have now entered the new fiscal year. First on devices, we set a quarterly record of over 30 million new devices onboarded to our platform. For context, Apple just reported global iPhone shipments estimated at just over $33 million for their June quarter, so we are now operating at real global scale. In the U.S., we saw a flattening out of the broader smartphone market during the June quarter.

We expect this trend to continue over the next several quarters as elongated upgrade cycles are likely offset by new flagship device launches along with expanded 5G availability, promotion and adoption. We are also seeing nice growth internationally as we ramp new partners such as Samsung. Our partnership with Samsung is now moving into the next phase as we install our software in more devices, in more markets. We expect our Samsung partnership to grow to approximately 50 countries in the September quarter compared to 12 in the June quarter.

We also anticipate launching our first devices with Telefonica this fiscal year that is also a direct result of our existing integration work with Samsung. We have numerous other operator and OEM partners very deep in the pipeline and contract process and expect more to have -- to communicate soon. All in all, the prospects for us continue to grow our top line with additional devices and partners looks very promising. On the new product front, while our single-tap revenues outside of our social media partner and large U.S.

operator integration are not yet material and I'd like to see faster progress, we do continue to make positive, steady progress as we work to integrate more partners. Conversion rates continue to perform well with improvements anywhere from 30% to 200% versus non-single-tap or the traditional flow via the App Store. Partners, who are awaiting enough device scale to justify the investment of resources on their side, are now starting to take progressive action. It's now an operational and distribution demand exercise moving forward.

Our recent press announcement on leveraging the infrastructure and relationship of our mobile measurement partners including Branch, Kochava, AppsFlyer and Singular is a focus area for the business to scale single-tap as this represents 85% of the top applications in the global app install market. We are working most actively with Branch to integrate their deep-linking capabilities into single-tap. So for example, you could be researching a restaurant on a Yelp mobile web page and with single-tap, you're taken to the richer Yelp application experience directly to the restaurant you're researching versus having to start at the homepage of the application. You can imagine this deep-linking capability for many other types of applications like news, weather, social media, sports, airlines and so on.

And finally, I do want to call out our new sub product that will go into beta release with multiple partners this quarter. We're excited about the potential of this non-app install product, which is a natural extension of our product portfolio, that leverages both the secular tailwind of customers consuming information and entertainment content directly on their device versus traditional outlets like magazines, televisions and newspapers, and also leverages our strong distribution footprint of operator and OEM partners. Assuming successful beta testing, we anticipate more broadly launching this product throughout the remainder of the fiscal year, and we'll report out on our progress on future calls. On the media front, we continue to show nice diversification of applications as no single application is more than 10% of our revenues.

We are currently very focused on scaling our international demand to be a significantly greater supply of international devices. We are continuing to work hard and where necessary, add strategic resources to improve our international revenue per device and ensure that we scale our partnerships and infrastructure effectively to capitalize on the enormous opportunity in front of us. Specifically, I can report incremental increases in spending by some high profile, multinational advertising clients, such as Pinterest, Twitter and Uber. And finally, before I turn it over to Barrett, I want to take a personal moment and thank many of you that have been patient and stuck with us.

I know it hasn't always been the smoothest pass toward the development and adoption of our platform but we're now beginning to really bear fruit from the original vision. I'm more excited than ever about our future and believe we're just getting started. And with that, this concludes my prepared remarks, and I'll turn it over to Barrett to take you through the numbers.

Barrett Garrison -- Chief Financial Officer

Thanks, Bill, and good afternoon, everyone. We're pleased with the results delivered in the quarter and off to a great start to our fiscal year. As a reminder, my comments will refer to comparisons on a year-over-year basis and results for continuing operations, unless otherwise noted. Revenue of $30.6 million in the quarter was up 38%, experiencing strengthening momentum as the quarter progressed.

This accelerating rate of growth was driven by positive momentum from all three major growth drivers across our business: media demand, product expansion and device volumes on the platform. While we're excited about the top-line growth in our business, I am particularly pleased with our expanding margins, which drove 78% increase in non-GAAP gross profit dollars over prior year to $12.3 million. Non-GAAP margin was 40% in Q1, expanding from 31% in the prior year. Our continued margin expansion is largely driven by the successful diversification of our partners and products.

We also experienced continued positive margin benefit in the quarter from a recent carrier contract renewal, which is not expected to continue beyond Q1. Overall, we're pleased with the expanding margin levels in the business over the last several periods. And as a reminder, our gross margin rates can be sensitive to future changes in partner mix and revenue type, and these fluctuations may vary from quarter to quarter. We experienced continued impressive expense scale on the platform.

Total operating expenses were $9 million compared to $7.6 million in the prior year, and our cash expenses in the quarter were $8.1 million. That $8.1 million represented 26% of revenues compared to 30% in the prior year during a period of revenue and gross profit growth of 38% and 78%, respectively. I will highlight that these results are achieved while we continue to make focused investments to support the new partners and new products launched on the platform. Adjusted EBITDA was $4.2 million, up from $200,000 in Q1 of last year and represented an EBITDA margin of 14%.

This resulted in a marginal EBITDA conversion rate of almost 50% on incremental revenues year over year and further emphasizes the embedded operating leverage in our business. Non-GAAP adjusted net income in the quarter was $4.2 million or $0.05 per share as compared to a net loss of $0.6 million or $0.01 loss per share in the first quarter of 2019. Turning to our GAAP net income. As a reminder, included in our GAAP results, we see the impact of changes in the fair value and liabilities resulting from our recently retired convertible note that is highly sensitive to the company's stock price, which increased significantly in the last quarter.

For this reason, among others, we offer the previous mentioned supplemental non-GAAP adjusted net income measure, which we believe is more indicative of the recurring core business operating result. Our GAAP net loss from continuing operations for Q1 was $1.7 million or a $0.02 loss per share based on 81.8 million weighted shares outstanding compared to a first quarter of 2019 net income of $1.5 million or $0.02 per share. Included in our GAAP net income for the quarter is a recorded loss of $5.2 million from the impact of the change in fair value of derivative liabilities resulting from our recently retired convertible note, which is highly sensitive to the company's stock price that I referenced earlier. Moving on to the balance sheet.

We generated $4.3 million in positive free cash flow. Finishing the quarter with $16.2 million in cash and exited the period with 0 debt. This represents an improvement in our net cash position of approximately $15 million year over year. And during this time, we also improved our net working capital position in the quarter, exiting with a positive $5.5 million balance which is a $13.8 million improvement over prior year.

Now let me turn to our outlook. We currently expect revenue for Q2 to grow to between $31 million and $32 million and expect adjusted EBITDA to grow to between $3.2 million and $3.7 million. With that, let me hand it back to the operator to open the call for questions. Operator?

Questions & Answers:


Operator

[Operator instructions] Our first question today comes from Mike Malouf from Craig-Hallum. Please go ahead with your question.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Thanks for taking my question and let me offer my congratulations, it's a very impressive quarter from you guys.

Bill Stone -- Chief Executive Officer

Thanks, Mike.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

First off, I'd like to just kind of explore a little bit on the new product side going from 13% in March to 15% in June, certainly a nice improvement. And I -- but I would like to get a little bit more color on the single-tap side. Is it more of a chicken-and-egg thing with regards to ramping that? Basically, the advertisers didn't want to put -- as you said, put the resources into it and tell you we're at scale. And then of course trying to get the scale with no advertisers is always tough.

But can you just talk us through that process and where we are currently with that?

Bill Stone -- Chief Executive Officer

Yes. Yes, sure, Mike. So first, let me just talk about new products in aggregate. As I mentioned in my remarks, we did grow those sequentially, low seven figures in revenue quarter over quarter.

So we're pleased with that. But by far, I'm satisfied. We expect that to continue to go up into the right is a lot of products, such as wizard, notifications and others continue to scale and also I'm excited about the potential that the media hub product has, we're seeing a lot of demand out there for that. Regarding single-tap specifically, yes, we've had a chicken-or-egg problem in regards to first getting the devices launched with our partners, we've now accomplished that.

And then it's a matter of working through -- seeing when our demand partners -- by demand partners, we're talking about companies like Twitter, Pinterest and so on. And now we're in a place where we're doing that, and it's largely an operational scaling game. So we've been going, what I'll call, brick by brick to do that, seeing nice progress. And most importantly, we're seeing the conversion rate lift versus the traditional flow that you get through the Google Play store, be anywhere from 30% to 200% better.

So as long as those metrics continue to show, the product's working as advertised, we're excited, but we've got to scale it. I touched in my remarks around how we're doing that with these mobile measurement partners, most notably one called Branch out on the West Coast that we're excited to work with as a partner. We see a tremendous amount of opportunity for these mobile measurement partners to accelerate our efforts. And we look forward to continue to report on that in subsequent quarters.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

OK. That's great. And then just a follow-up on Samsung. You said you're going from 12 countries to 50 countries in -- by September.

Can you talk a little bit about what's the most important part of that Samsung arrangement. Is it countries? Or is it actual devices? And maybe you can give us an update on which devices that you're on? Or at least how many devices you're on. Just give us a sense of where that's scaling relative to the number of devices that Samsung sells.

Bill Stone -- Chief Executive Officer

Sure. Yes, so when I think about the Samsung relationship, I think of four key benefits that it brings us. Number one is what we talked about, just the expansion of devices and countries with Samsung open-market devices, and we talked about how we're expanding into many more countries in -- primarily in Europe and Latin America with them from the prior quarter to the current quarter, expect that to continue to grow. So that's important.

But the other benefit is I'd referenced Telefonica in my remarks. And the second benefit of the Samsung relationship is -- our integration with them is really opening up a lot of opportunity with other international operators. So we think Telefonica's the tip of the Iceberg here, and so we're quite excited about that. And that integration with Samsung is key, not just to get on the Samsung devices, but other OEMs as well because those operators want one-stop shop.

They don't want to go to multiple providers, so that's good for us. The third benefit with the Samsung relationship is how that helps us with our media partners. So having the credibility now of having an anchor tenant like Samsung, just like we -- internationally, it's important. So we have anchor tenants here in the United States with Verizon and AT&T to help pull through other U.S.

demand. Same thing of having Samsung internationally with advertisers. So we think that bodes well for our broader international revenue per device efforts to help us really scale the international business. And then the final benefit is just our pipeline with other OEMs.

Obviously, having an operator is great, but having Samsung is a way that brings us additional credibilities to work with those other global OEM partners. So in aggregate, that makes us really excited about the Samsung relationship but taking a very near-term operational focus. Yes, it's really about more devices, more markets and just continuing to execute well. And a nice, slow, steady drumbeat of ramp as we've seen with other partners over the years.

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

OK. Got it. Thanks a lot for the help. Appreciate it.

Operator

Our next question comes from Darren Aftahi from Roth Capital. Please go ahead with your question.

Darren Aftahi -- Roth Capital Partners , LLC -- Analyst

Hey, good afternoon and thanks for taking my questions. And let me offer my congratulation as well. Just a couple -- want to follow up on Mike's question on Samsung. Bill, maybe it's too early, but when you've launched new devices, I'm kind of curious how fast you kind of launched to actually seeing kind of real revenue.

When you call out 12 to 50 countries, what kind of lag can we expect in terms of when this starts to move the needle on the top line?

Bill Stone -- Chief Executive Officer

Yes. So I think -- as I think about the Samsung relationship, one thing's that -- we've got in our business is we go back and we look at time. And we look to when we started Verizon. And we look just when we started AT&T.

And we look when we started Cricket. We go down the line and most recently, TracFone. What we see is a pretty stable, steady drumbeat of ramping. Those things, as they go quarter over quarter, we see nice top-line growth.

And we'd expect Samsung to mimic those prior data points that we've gotten, and we're starting out of the gates to see that as we go from one figure to two to three to four to five and so on of daily revenue with these guys. We'd expect to see that trend continue. And yes, now it is really a ramp-and-scale game. We'd expect to see that start showing up in more material ways each quarter going forward.

Darren Aftahi -- Roth Capital Partners , LLC -- Analyst

Great. And then on your -- on single-tap. So when you talk about demand partners, I know you've got kind of the third-party ecosystem of analytics and attribution partners, I guess two questions there. What is causing a branch to maybe scale faster than some of those other partners? And then the second question is, where do you expect to see more kind of demand from that product? Is it going to be from the third-party partners? Or is that has to be committed demand partners?

Bill Stone -- Chief Executive Officer

Yeah. So yes, I think regarding Branch, specifically, I think they've got some unique technology that I know they're excited about and our investors are excited about, but so are we. It's really -- there's deep-linking capabilities. Most of us go to mobile web pages today and want to check a sports score, an airline flight or what have you, and the ability to deep-link right into that and get the app and the richer experience, I think it's something that's natural for all of us as consumers.

So integrating single-tap into that capability is a natural. And so I think the ability to really do two things, one is that technical integration but then also leverage the business development footprint of their existing partners and our existing partners is another natural. So it's not something that's going to necessarily show up and bake into our guidance here for the September quarter. But I think as we think about subsequent quarters, this is a key piece of the ramp-and-scale part of the single-tap story.

So yes, we're excited about our Branch partnership. And I look forward to give you guys updates on future calls.

Darren Aftahi -- Roth Capital Partners , LLC -- Analyst

Then maybe one for Barrett. I think if I'm looking at the right things, the last two quarters, your marginal dollar of EBITDA on the revenue ramp year over year has been 50%, roughly. How do we think about that marginal operating leverage longer term? I mean I don't -- can you sustain it at that level? Or what's kind of the right way to think about it?

Barrett Garrison -- Chief Financial Officer

Yeah. We've been pleased with the progress in that trajectory. I wouldn't say that we count on that same level ongoing. But I think it is proof that there's strong operating leverage in the business model.

We would think that would hover probably between 30% and 50% over time. And it also, Darren, as you know, can change with -- if we were to structure any kind of different pricing models with the arrangement that's been on the business as it is, I think we'll see it wane a little bit but it will still be strong.

Darren Aftahi -- Roth Capital Partners , LLC -- Analyst

Great. Thank you.

Operator

Our next question comes from Austin Moldow from Canaccord. Please go ahead with your question.

Austin Moldow -- Canaccord Genuity -- Analyst

Hi. Thanks for taking my quesitons and congrats on the quarter. The device installation growth accelerated pretty nicely, so wondering if we could just dig into that a little bit. And maybe you can talk about, if possible, what kind of contribution you saw from carriers versus OEMs in the quarter.

And maybe if there's anything that was particularly successful in the quarter?

Bill Stone -- Chief Executive Officer

Yeah, sure, Austin. We saw nice growth internationally with devices, so that's something that really contributed toward strong device growth in terms of getting to the all-time record quarter. We also saw a real stabilization of our big four partners. As you and others are aware, those have been in decline for a while.

So now we're starting to see that flattening through a combination of flagship devices, beginning to 5G, being offset by some of these elongated upgrade cycles. So that's encouraging and a trend we expect to continue. And then we've got the comp of some new partners. So people like Samsung and TracFone and so on are also helping to contribute to the incremental device growth.

And we'd expect that see that continue.

Austin Moldow -- Canaccord Genuity -- Analyst

Great. And on the international side, I know you mentioned Telefonica, but wondering if you could maybe talk about what you're seeing at -- progress that you're seeing with other large international operators like maybe American Mobile or something like that?

Bill Stone -- Chief Executive Officer

Yeah. So as it relates to kind of pipeline, nothing to specifically report out on the call today other than to say we're encouraged and I'm very excited about the future. In terms of existing partners, American Mobile is someone that we expect to see benefit from the Samsung relationship. And it's really just a shopping mall concept.

You bring on more anchor tenants into a shopping mall, everyone benefits in terms of more traffic into it. Same concepts here, where now demand partners, our advertising partners that want us to want to work with us. In Latin America, as we expand our Samsung relationship and the quality of the Samsung brand will allow us, in my opinion, to help cope your American Mobile demand as well in that as we just increased our footprint and our scale in those markets. So that's something that we're encouraged and excited by.

Austin Moldow -- Canaccord Genuity -- Analyst

Got It. And last one for me is on the additional resources going into improving your international RPD rates. Can you talk about specifically what kind of resources you're referring to?

Bill Stone -- Chief Executive Officer

Yeah. So yes, really, three different types of resources. One is -- incremental demand is really the No. 1 priority.

So that's a combination of direct sales folks as well as folks that could help us on account management and partnerships with other advertising agencies would be bucket one. Bucket two would be on the supply side as we now launch these new operator and OEM partners, ensuring that we've got account management to really develop strong relationships in market with these operator and OEM partners in terms to get our software and the device. And then third is really some the technical and the operational side as we onboard more devices and more partners. In aggregate, we don't view it as a material number in the state of our overall head count.

But definitely, we're making investments across those three areas.

Austin Moldow -- Canaccord Genuity -- Analyst

Great. Thanks very much for taking my questions.

Operator

Our next question comes from Lee Krowl from B. Riley FBR. Please go ahead with your question.

Lee Krowl -- B. Riley FBR -- Analyst

Yes. Thanks for taking my questions and congrats on a solid quarter and outlook. Just wanted to jump into North American RPD. Obviously, you guys signaled for flattening device growth in the U.S., I don't think anyone is surprised by that.

But could you maybe talk about some of the growth drivers underlying your RPD growth. And kind of what gives you the confidence that you can continue to grow RPD at such a solid rate throughout the year.

Bill Stone -- Chief Executive Officer

Yeah. So I'll start with that and Barrett -- if Barrett wants to add any color, jump in. I think as we think of RPD growth, we think of it really across three levers. The first one is just media partners that are seeing results in ROI in the platform and therefore, were able to continue to charge higher rates because they're getting a higher ROI for their customers, whether that's new -- more incremental listeners for Pandora or more incremental riders for Uber or more rewards members for Starbucks or whatever.

As long as those folks continue to see an ROI on the platform, that allows us to continue to garner higher rates. So that would be No. 1. Number two is we continue to expand number of applications on the device for some of our partners, which obviously drives more real estate, which allows us to get a higher revenue per device.

And then the final one, which we talked about a little bit in Mike's first question, is the ability to continue to add new products to the story as we grow from 13% of revenues to 15% of revenues. And we expect that to continue to grow, that will continue to drive accretive RPD for us. So I think those three factors are exciting. I think no one kind of puts a sub-bullet around that would be recurring revenues as we do more of that.

But in aggregate, those are all helping to drive positive RPD performance.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. And then maybe it's a no comment or maybe no impact, but just kind of your thoughts on the recent consolidation in the U.S. carrier space and the impact that potentially has on your business.

Bill Stone -- Chief Executive Officer

Yeah. So we see a few benefits of that as we think about our business. We've recently established a partnership with a company called InMobi, who's handling a lot of the advertising distribution for Sprint. We've actually just launched with them on new devices with Sprint and are seeing revenue on that.

We would expect to continue to grow that partnership, that would be a specific -- one opportunity. We continue to have, I think, positive relationships and dialogue with T-Mobile. Obviously, they are focused more on getting the merger closed out right now. But I think long term, that has a potential opportunity for us.

And the final one, we'll see what happens with Boost and Dish. We've got good relationships there. So to the extent that becomes a fourth operator in the market, that could be something that's encouraging. And we can leverage our strong prepaid presence right now with -- what we've got with folks like Cricket and TracFone, for example, and continue to leverage that into those markets as well.

Got it. Thank you for taking my questions.

Operator

Our next question comes from Ilya Grozovsky from National Securities. Please go ahead with your question.

Ilya Grozovsky -- National Securities -- Analyst

Thanks. I just wanted to talk about the gross margins a little bit. Barrett, I think you had said that the gross margin trend, the results were from a contract renewal. But if I heard you correctly that that trend was not going to continue.

Can you just kind of elaborate on what's going on with that contract that it wouldn't continue?

Barrett Garrison -- Chief Financial Officer

Yeah. We got a -- we had a renewal at the end of last year, one of our major partners. And as part of that renewal, we had a higher amount -- a percentage of revenue that we retained at a certain volume. And then we just recently crossed the volume tier where it resets back to where the legacy rates were back to prior year.

So that's what I was referencing in that comment.

Ilya Grozovsky -- National Securities -- Analyst

And is that recent on an annual basis? On a fiscal basis? What's -- how does that work?

Barrett Garrison -- Chief Financial Officer

No. It's on a -- it's a onetime on a contract basis. So it's -- we renewed that contract. It was a multi-year contract so we got a benefit at the beginning of the contract period.

Ilya Grozovsky -- National Securities -- Analyst

Got it. And so kind of -- if we think about gross margins going forward for the next -- for the fiscal year, kind of where you see them heading and kind of what's the ceiling for them?

Barrett Garrison -- Chief Financial Officer

Yeah. So without that benefit, we would have -- that benefit was worth one to two points of gross margin in the quarter. And it will -- keeping the product mix the same, I would assume the margins are in the high 30s on a normalized basis. And then, as Bill talked about, the traction, the growth we're seeing in some of the higher-margin products, they may or may not move the needle in the next quarter or two.

But our expectation is our margin profile will be at or above 40% on an ongoing basis. But over the next few quarters, we're probably in the high 30s.

Ilya Grozovsky -- National Securities -- Analyst

Great. And then just on the new product, given your high-level of comfort and confidence in the September quarter guidance, what percentage of revenues do you think new products will be in September?

Barrett Garrison -- Chief Financial Officer

Well, I think there will be above where we are, whether it's one point or three points, I'm not certain yet, we're still early in the quarter. But the bright spot here is we can continue to move this portion of our revenues to more -- toward our new product mix.

Ilya Grozovsky -- National Securities -- Analyst

So it will be up sequentially, right, as you thought.

Barrett Garrison -- Chief Financial Officer

We would expect it to -- yeah, we would expect it to continue to move up.

Ilya Grozovsky -- National Securities -- Analyst

Great. OK. Thanks guys.

Operator

[Operator instructions] Our next question comes from Chip Richardson for -- who is a private investor. Please -- [Operator instructions] And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to Bill Stone for any closing remarks.

Bill Stone -- Chief Executive Officer

Thanks, everyone, for joining the call tonight. We look forward to reporting against our progress on all the points made on today's call, and we'll talk to you again on our fiscal 2020 second-quarter call in a couple of months. Thanks, and have a great night.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Brian Bartholomew -- Senior Vice President of Capital Markets

Bill Stone -- Chief Executive Officer

Barrett Garrison -- Chief Financial Officer

Mike Malouf -- Craig-Hallum Capital Group -- Analyst

Darren Aftahi -- Roth Capital Partners , LLC -- Analyst

Austin Moldow -- Canaccord Genuity -- Analyst

Lee Krowl -- B. Riley FBR -- Analyst

Ilya Grozovsky -- National Securities -- Analyst

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