Good afternoon and welcome to the Digital Turbine Second Fiscal Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ghen Laraya, Vice President, Business and Legal Affairs. Please go ahead.

Thank you. And welcome everyone to Digital Turbine's fiscal 2016 second quarter earnings conference call. I'm Ghen Laraya. With me today are Bill Stone, Digital Turbine's Chief Executive Officer; and Andrew Schleimer, our Executive Vice President and Chief Financial Officer. Statements made on this call including those during the question-and-answer session may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations concerning matters that are not historical facts and include for example; statements about guidance, expected revenue and profitability, product sales, market penetration, speed of customer adoption in orders and overall business momentum. We caution investors that any forward-looking statements are based on beliefs and assumptions made by and information currently available to us. Such statements are based on assumptions and actual outcome will be affected by known and unknown risks, trends and uncertainties and factors are beyond the control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations and these differences maybe material. that are subject to risks and uncertainties. Please refer to the Safe Harbor Statement included in today’s press release, as well as Digital Turbine's periodic filings with the SEC for a complete discussion of the risks and uncertainties. We are not undertaking any obligation to update any forward-looking statements. In addition, we will be discussing certain non-GAAP financial results, including non-GAAP gross profit and gross margin, non-GAAP adjusted EBITDA and non-GAAP EPS. Non-GAAP measures are not substitutes for GAAP measures. Please refer to the press release issued earlier today for important information about the limitations on using non-GAAP financial results as well as a reconciliation of these non-GAAP measures to the most comparable GAAP measures. Please note that on March 6, 2015, Digital Turbine, Inc., a Delaware corporation acquired Appia, Inc. Digital Turbine's current year results are therefore not comparable to prior year results and this call will include sequential comparisons unless otherwise noted. Now it is my pleasure to turn the call over to Bill Stone.

Thanks, Ghen. And thanks to all of you for joining our call. I am going to start today by providing you with specific data points on what is happening in the business right now and how we're ramping into the December quarter, our highest volume quarter of the year. Second, I will then discuss some operational details on each of our business segments in the September quarter. Third I will review our guidance and finally wrap up with some more strategic thoughts on where we see the business going and how Digital Turbine fits into that. Andrew will take you through the numbers before we open it up for Q&A. First, in what's happening in our business today; we just finished October, recording our strongest month in the history of the company at $7.8 million in revenue. And early November has continued on the same trend. Although we are only in the first week of November, our DT Media, Appia Core and content businesses are all now equally contributing to our revenue reflecting the rapid growth in our DT Media business. Our October results are 340% organic growth on a reported basis and 82% higher on a pro forma basis compared to last October assuming we had owned Appia for all the entire year. Our October results set us up for a good holiday selling season. I am excited that we have strengthened our financial flexibility to feed our long-term growth with our recent financing. The material drivers for our top line growth including specific improvements in yield per device, number of devices sold, new customers and demand from advertisers are all happening right now and we are very excited about the business we are building. Specifically, all of our U.S. carrier partners are currently running at least eight slots…

Thanks, Bill. I will start with a review of our financial results for Q2 fiscal '16 and then offer some additional color on some recent traction in the business and touch upon our full-year outlook. Please note that all comparisons I will discuss today are being made to the prior sequential quarter unless specifically noted. We believe that this is a better indicator of how our business is performing, given the vast differences between our company today at this time last year, namely as a result of the growth in our advertising business and the March 6, 2015 acquisition of Appia. I also would like to remind everyone that we have two reporting segments, Advertising and Content, with Advertising comprised of Appia Core and DT Media and Content comprised of DQ Marketplace and DT Pay. These segments are the basis for our financial reporting as well as for my discussion today. With that said let's begin. Revenue for the fiscal second quarter was $20.7 million as compared with revenue of $18.7 million for the first fiscal quarter for sequential growth of 11%. On a constant currency basis assuming no adverse impacts from a falling Aussie dollar which was approximately $500,000 in the quarter, second quarter revenue increased to $21.2 million or 13% growth versus Q1. Each of our businesses, DT Media, Appia Core and DT Content grew in the quarter in constant currency terms. 66% of second quarter revenue was generating from our advertising business versus 62% in the fiscal first quarter, while 34% of second quarter revenue was generated from our Content business as compared to 38% in the prior quarter. This sequential change in mix underscores the continued adoption of DT Ignite as well as Appia Core revenue growth within our Advertising business. Advertising revenue in the quarter…

[Operator Instructions] Our first question is from Mike Malouf of Craig-Hallum Capital Group. Please go ahead.

Great. Thanks a lot and appreciate all the color on the call it was very helpful. My first question is with regards to the slots. You said eight slots a couple of times and then you said 8 to 10 slots once and I am just trying to get a sense of how -- what is the actual number of the slots and in particular have you seen any degradation in any phones that have had eight slots to-date? Because I think there are some phones that have more slots than four.

Thanks, Mike. Sure. So yes, on the slots I referenced the folders and what I think you are going to see us ultimately dealing with some partners is moving to on the situation where apparently on your phone you have the games folder, you have a music folder, you have a social folder and so on. And that will actually offer us the opportunity to put more applications onto the phone obviously in a targeted way. So that folder's content required some collaboration with the OEMs in terms how those actually physically get placed in Android. So that was really the reference there to how we see slot expansion going beyond eight. What we are doing with our U.S. operative partners right now is we have just recently kicked off putting eight onto the device and now really in the process of looking at it in terms of per app and per device and a lot of focus on just some operational things scaling the back end infrastructure in advance of the holiday. So in other words, things like hosting, IP addresses, those kinds of things just to make sure their operational readiness to handle the increased demand. So you are really seeing us here in early November focused on the operational readiness against the slots. So one of the things we want to do is make sure we have got that operational readiness, make sure that we don't have the diminishing returns that you referenced in terms of adding additional slots on many things that indicates that so far, but we want more data costs, more devices. And then we want to make sure that on the scale across the entire device lineup of our U.S. carrier based partners and that allows that clarity to come back with you. The bottom line is it's a net positive for the business in a material way. How much of it is, that's why I want to have a few weeks of performance under my belt to come back and provide some clarity.

Okay. Great. And then can you go over again the AT&T rollout as you talked about? Specifically, I think you are going to be rolling it out you said using the wizard, the setup wizard and I am just wondering, how did the slots -- how should we think about number of slots with regards to AT&T and are they rolling out that wizard in time for the Samsung Galaxy S7 to be released?

Sure. The first thing I mentioned is, obviously AT&T and the first one is Cricket, and Cricket has been very aggressive moving Android smartphones. Obviously also with Cricket being a prepaid customer they want to maximize revenue per device. So I would anticipate Cricket being fairly aggressive on how they want to go about using the silent install which is more than using the other partners around the globe today and right now we anticipate that coming in the March for us. So that will be Phase 1. Phase 2 with AT&T more broadly, as you referenced we will have the wizard, how we think about the slots is it could be anywhere from zero to dozens depending on what the customer selects. So as you are going through the setup process, you will have a screen that comes to, that says, okay install your social apps, Facebook, Twitter, Instagram, et cetera. [indiscernible] Pandora's Auto 5, whatever are your games and all the way down. So however many the customer selects will be how many we deliver. I don’t know if we are in a position today to provide any specific guidance on what the average number of slots will be. One of the things we do know from like products being introduced in other markets is that the average price per slot tends to be higher because of the nature of the customer self-selecting the application. So we would expect to see higher per slot fees, how many slots, I think it's a little bit early for us to get into that as it is still a number of months away from us.

One more follow-up on American Movil. Can you remind us how many devices roughly on the Android side that they are selling per month? And then how should we think about their -- because I know they have been pretty aggressive in the past, how should we think about them with regards to the number of slots?

Yes. American Movil's moving on 40 million Android phones per year right now. And if you look globally at just smartphone statistics you are seeing decreased growth rates in developed markets like the United States and in definitely increasing growth rates in emerging markets such as Latin America. So we are very optimistic that those numbers should continue to improve. But just to give investors some context here, that would be more Android devices than AT&T and Verizon combined here for American Movil and while we do anticipate the yields to be lower just given the dynamics of the markets, such as Brazil and Argentina and Mexico and so on. We are excited about the relationship because for American Movil they are already pre-loading an application today to handle a lot of the app recommendation and discovery work. But they don't have the capabilities to install applications, have the ability to track what's happening and provide updates, provide marketing a variety of other features and functionality which Ignite will help them do. So they had a need in the marketplace to solve an existing problem versus a situation where starting with a greenfield such as what we do with Verizon and what we will be doing with AT&T. So we believe that will be a very material agreement for us. As I referenced we expect to have that ready to go in the March quarter. We are already having commerce between Digital Turbine and American Movil through our Appia business today. We have already launched that. So we are off to a good start. So as I referenced before and we will come back to you guys in December, have some more specifics as we are real-time on working through the implementation details with American Movil.

Okay. Great. Thanks. Thanks for the help.

Our next question is from Brian Alger of ROTH Capital Partners. Please go ahead.

A lot of data tonight, still with the commentary with regards to an eight figure backlog with multiple advertisers, what does that mean? Obviously I know what eight figures is, but certainly we haven't seen you guys put up eight figures in any of your revenue lines.

Yes. What we mean here is that we have insertion orders or IOs from advertisers in excess of $10 million. So in other words, if we can run it on quality supply sources, then we can go ahead and generate the revenue. The key there and I referenced in my comments is the quality supply sources and that's a major focus area for us right now, not only on the syndicated network throughout Appia Core. But also more strategically as we launch our programmatic and real-time bidding business that will actually offer the ability to go bid on more supply sources at quality using our data times algorithms and allow us to really leverage all of that demand and backlog we have from insertion orders that want to ensure their quality app installs.

And kind of along those lines you talked about a pretty sizeable difference at least in percentage terms for your CPP rates, when it's targeted versus not targeted. Where are we in terms of having that ability to use third party data for targeting and is that something that we should expect to be implemented basically at all the time going forward or is it only in certain seasons or how should we think about that targeting?

Yes. Ultimately the third party is going to dictate how and when they want us to use that with them, since it's in their interest too. What I am pleased to announce is that we are doing it at scale. On prior on our -- I mean on our prior earnings call we talked about that we had some campaigns launched and we talked about doing at this scale, now we have got the ability to do this in much more automated fashion. And if you think about all the different segments in permutations of age, gender, income, language preference, location, and so on and all the different things that can get to do this tweak of segment, this tweak of go, this tweak of the language and so on. You can get into many, many different permutations of options. So having the ability to do this at scale and in an automated fashion is really what I most excited about and we have seen a lot of advertiser demand to come in and say, okay can you target males between the ages of 25 and 45, can you target people in Southern California, can you target females that do this or people who speak Spanish do this and so on. So those kinds of capabilities to do at scale is something we expect to continue to do. But obviously the third-party that has the data will dictate the terms by which we can help them with our targeting capabilities.

Would it be wrong to think about, in a seasonally strong period, when there is a lot of demand obviously with your backlog and it being in the carrier's best interest to utilize that information that if we are looking at eight slots and we have that kind of number for CPP why wouldn't we just load up on that?

Yes. And that's precisely what the game plan is Brian. We just literally over this past weekend started that with one of our largest operators. So I want to make sure I have got some data and some empirical results under my belt before we get over our skis on it. But the opportunity here is exactly as you say, it is enormous for us. But let's get some results under our belt, let's show our ability to accrete this and scale this and then when we can come back with some clarity on exactly where it's going.

Will it be also reasonable to think that CPP rates given that they have 100% reliability here, would be driving the math for a CPI or a CPA type of rate card?

Absolutely. So we are continually measuring CPI rates against CPP rates and getting better, as the CPI campaign in May performed differently on a Samsung Galaxy S6 compared to a Motorola Droid, even though it’s the same campaign. So we are continually optimizing that formula and one is I am excited by what I referenced, relationship with the new operators here today, where we can do a lot of this trialing and experimentation to really get the formula optimized for what we are doing. But we definitely continue to expect to launch CPI campaigns, it's not just going to a pure CPP model. This is one of those things we are to going to continue to optimize the business.

Great. I will get back in the queue.

Our next question is from Sameet Sinha of B. Riley. Please go ahead.

A couple of questions. So in the commentary that you have given there is a lot of positives here everything that kind of points you towards a much higher guidance number for the next [two] years. So my question is why would you not affirm guidance? You could say that it is conservative but still affirm and then come out and beat it. So if you can address that and then I have a couple of follow-ups.

Yes, sure, Sameet I will take that and I will let Andrew add some color on to it. So for us -- let me start this one on a macro perspective and we will drill down to the micro. From a macro perspective what we know is the following things. We know that we have got new customers who want our products as evidenced by the recent contracts. We know that the existing customers that we have want to do more with our software. We know that our yields pretty wise, from some of the questions Brian was just asking around CPP and CPI are getting better as our ability to get to the right customer. So all of those macro trends make us very enthusiastic and excited and hopefully give investors some clarity and reassurance around the much bigger picture of the ability to ramp this business with specific data points now versus just talking about it. However at a micro level we now have to translate that into specific daily, weekly, monthly, and quarterly revenue numbers and in what's going to happen in January, what's going to happen in March. It's not a question of happening it's a question of when. So what we want to do is we've learned that we are very good at forecasting things once we have got a trend line behind us. Many of the things we talked about today, I don't have that trend line yet. So I don't want to get ourselves in a situation where we are whipsawing investors around and talking about guidance in advance of the largest period of device sales, in advance our ability to prove out the eight slots, in advance of our launch date of all these new customers. So especially if we are talking about 30 days versus three months, I'd much rather come back, do an improved job with expectation management based upon facts and data and results than speculate on those three things and then in 30 days they could all materially change. The good news is they are all positive things, but what the exact impact of those things is going to be I don't know yet and so until we have those empirical things under our belt we think the prudent thing is to come back with some more clarity in 30 or so days.

So what you are saying is that when you gave the full year guidance, you had kind of implied assumptions for some of these positive things in those numbers. Now you just want more room to operate within some of the new parameters that you have.

Yes. I want to know what the risk discount rates of all those parameters. So we talk about the slot expansion for example, while I haven't done that at scale yet. We are now doing it, it's real, it's happening, but in terms of making sure that we got all the back end infrastructure, the IP addresses, some of the things I referenced earlier are in place. I want to make sure that's there. I want to make sure that the device sell through forecast that we believed before will continue to hold true. I want to make sure make sure that the device launches for all these new customers we have announced, I'm working in real-time, we will have answers over the next 30 days. I want to make sure that we have got good tight forecasting around those things. So the combination of those things will give us the clarity in 30 days to get much more precise with investors based upon empirical results and that's really what we wanted to do here today.

Thank you for the clarity. Next question, just wanted to delve deeper into the sell through rate or the attach rate that you are seeing. The trend as you see many of your carrier partners and your relationship goes into year two or call it versus the end of year one. How are those trending? Is that trending as per scale? Are you being installed on more of the newer devices that are coming out? Can you shed some light there and of course is that a similar pattern that we expect AT&T to develop? I understand you have guidance basically indicated that it's going to start contributing in 2016, but should we assume that the first year attach rate or sell through rates are going to be low and then kind of pick up in the second year?

Every operator is going to be a little bit different Sameet in terms of how they approach. However with that being said, I think that what we saw in the early days with Verizon, well over a year ago, is that you had a product in the marketplace that hasn't been as battle tested as it is now. So our ability to point to that battle testing, point to those launches tends to get our new operator customers much more comfortable with the ability to scale. On a specific example that is Vodafone in Australia, when they launched they attached Ignite to 100% of their devices out of the gate. There wasn't any, well let's trial for a couple of devices and then we will see what happens and move on. They went 100% right out of the gates. So our contracts out with Deutsche Telekom where we had some unique security issues that we're dealing with and so they took a much more cautious rollout on a country by country basis. So each operator is going to be a little bit different. I think as it relates to AT&T, they have been a great partner so far. They put a lot of energy into this and so our anticipation is that they are really leaning in here and I wouldn't anticipate them doing this much leaning in just to really slow ramp this thing.

Thank you very much.

Our next question is from Jon Hickman of Ladenburg Thalmann. Please go ahead.

Can you tell us what the average slot per device was in October as things got pretty good there?

Yes, Jon, it depends on operator. But I had generally say for October it was right around four or just north of four on a global basis. Some of the activities we have done and talked about today are things that recently just happened and I am hard pressed to explain that.

And then American Movil is that included in new customers that equals this 500 million new subscribers?

Yes.

And you expect American Movil to be contributing to revenues in the March quarter?

Correct.

Let's see, you seem to be talking about AT&T and Cricket as kind of separate entities, can you elaborate on that?

Yes. They are definitely one entity. I am talking about in separate entities in the sense that Cricket will be deploying Ignite how most investors understand Ignite today, mean a silent install. You pull your phone out of the box, applications targeted you show up on your device. Cricket is deploying in that manner. AT&T is looking at it a little bit differently through the setup wizard which is you pull your phone out of the box, you go through a setup wizard and as your setting up all your things, your emails, your contacts, et cetera, you will be prompted to then select which applications you want to put on your device. That's part of Ignite 2.0 with the setup wizard. AT&T has some unique and customer requirements that we need to integrate into hence us being conservative and talking about that in the conference at the June quarter.

But haven't you been dealing with -- Cricket's been a customer for more than a year now, hasn't it?

Yes. We have had Cricket as a customer for a long time back before they were purchased by AT&T, Jon. And then after Cricket was purchased by AT&T, what happened is AT&T shutdown all the Cricket subscribers on their CDMA network and then migrated them over to AT&T's traditional 3G and 4G LTE networks to free up that spectrum for other things AT&T wanted to use. So as a result of that AT&T and Cricket were not focused on putting Ignite on new devices. Now that that issue is behind them they can now refocus on putting it on additional devices.

And then can you go over, you were talking really fast. Can you go over the factors in the quarter that kind of limited your DT Media business? You mentioned one which is device sell through, but you mentioned several others.

Yes, absolutely. There were a couple of things that happened. First is, there happened to be occasion where an operator wanted us to run a house app, which would be their branded app or something they got a relationship with and anyways it was not a revenue generating app but it continues to slot. That's not in the operator's interest at all times, but sometimes there will be one-offs that want those apps to be down on a specific device. Second, is we do see some advertisers that want to save some dry powder for the holidays and really pack the holiday devices. I know some of the ones that are out there. We also, as I mentioned, we saw our revenues increase outside the United States from October till September, they increased by 50%, so that's going to bring your weighted average down. And then finally, it was back to Brian's question around targeting, as we mentioned we are now at scale to do targeting earlier on in the quarter, in the early months of the quarter we were not, hence advertisers wanted to wait until we had some of that targeting capability as did we, because they are willing to pay higher CPP rates to us to do that. So the combination of those factors were the things that really drove our yield per device for the quarter. For future quarters and looking more forward, obviously the expansion of slots will take the aggregate number up to or above our $2 range that we guided to earlier.

One last thing, Andrew, can you -- how long does this amortization going to last?

Well we have amortization you should expect in the $2 million per quarter range for the foreseeable future. That relates back to both our MIA and now Appia acquisition. We put it on the books.

I was talking about Logia.

That was a one -- the $2.4 million was a one-time write-off this quarter. So therefore it's a one-time event and hence why we show on an EPS basis, EPS ex-items at $0.10 per share versus the $0.14 loss on a reported basis given the fact that this is a one-time event.

That's detailed in your extra?

So in our tables in the press release we have a non-GAAP reconciliation to non-GAAP EPS. Just note that one of the reasons why gross profit on a reported basis was virtually -- was roughly $77,000 was because of this $2.4 million charge hit us in the cost of goods sales line.

That's it for me.

Our next question is from Ilya Grozovsky of National Securities. Please go ahead.

It's Ilya Grozovsky, thanks. Just wanted to get back to your comments on the guidance. When you issued the guidance I guess six months ago and then reiterated it on the last conference call three months ago or so. Did you have better visibility then than you do now?

No. I wouldn't say, we clearly got better visibility now, but in terms of now getting granular there we want to make sure that -- again we are talking about 30 days, we are not talking about three months or six months. We think it's better rather than running the risk of whipsawing investors around. That we believe that taking -- or given the date on the calendar we are at, if we are having this call in December I had give you a different answer. But given the date that we are having this call on I feel much more comfortable to provide investors clarity on empirical data in results and an ability for us to extrapolate out that line in the rearview mirror on these new business units versus speculate on exactly what it's going to be and speculate on how many devices a large operator in the U.S. is going to sell on Black Friday, I don't know the answer to that. We got to guesstimates based upon our history but I can't forecast that with a crystal ball, so let's come back in 30 days with some clarity.

Since before your guidance was a range $110 million to $130 million, would it be safe to assume that a number below $110 million you would be personally disappointed in and numbers above that you would be happy with?

We are always going to be pleased with higher numbers, that's for sure. But, yes, again we are going to come back in 30 days, we will provide some clarity on a lot of this Ilya and get very specific on some of the granularity.

Then my other question was, in terms of the devices so you have now had about six months of a track record with four apps on let's say at Verizon. When you think about, what percentage of new Android buyers or upgraders click on one of those apps or two or three or four, if you think about it that way as opposed to the yield for the phone in general. Just what percentage click on just one of the four apps that you present to them? Is that 80% or what's the number look like?

Yes. I think you've to look at over the access of time. So if I want to look at it over the course of a year that number should be very, very high. If I want to look at it over the course of seven days it's going to be lower. So anyway that's going to depend on the app. What we see is really we maximize the device. So we see campaigns with open rates that we have been paid on, in the mid-60% range. We have seen campaigns that we are paid on that were in the 10% range and everything else in between on that in terms of CPI campaigns and we will continue to optimize on those. On the CPPs that Brian was referencing, we get paid on a 100% of the applications whether a customer opens it or doesn't open it. And that's a much different dynamic.

Okay. Thank you.

Our next question is a follow-up from Brian Alger of ROTH Capital Partners. Please go ahead.

Obviously a lot going on here. It seems to me that with the highest slot count and with even a non-targeted CPP rate we should be seeing some pretty substantial growth coming in this quarter. I wonder if some of the uncertainties with regards to the March quarter, because I know that in the past we felt that March could see a sequential increase. Is that another thing that's a variable?

Yes, absolutely, Brian. There is three variables here. One is, device sell through for the holidays; the second variable is, the ability in terms of eight slots scales with any potential diminishing returns rather operational things to deliver those increased payload to each device; and then the final one is, what you just mentioned which is, what's the impact from the new launches. We have got visibility into these launches today. Over the next 30 or so days though it would seem we had get much more precise on specific devices and specific dates. And so that visibility will also help us in terms of the annual guidance by providing greater clarity rather than just saying March quarter or June quarter, we can say February and we can believe February was this much impact based upon these device forecasts. And those are things that I have got an idea of today, but I will have much greater clarity in December.

Then just one backwards looking question, as we look at the $4.1 million in the Advertising revenue attributable to DT Media. We have a lower revenue per device number there. Would it be appropriate to look at that total dollar amount divided by the revenue per device and come up with a unit number and compare that to the June quarter or is there something else going on? Because I mean intuitively we should have seen flat units to something better given a full quarter with the asset.

Yes. I think the math obviously as we have discussed in the past Brian works just that way. The only impact obviously in the June quarter as in my prepared remarks was higher professional services, which we report in the $4.1 million vis-a-vis the $3.2 million in the June quarter. But pro forma professional services you can back out yield to get an [perfect] number of devices.

The other thing I mentioned Brian in terms of devices is, out in the June quarter you had a number of new launch devices, in the September quarter you only had the Samsung Galaxy Note 5 is really the new material device that came out then. So I think that's going to impact your volumes a little bit from quarter to quarter.

Thanks.

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

Great. Thanks for everyone for joining the call today. Next week we are going to be at the ROTH Capital Partners Technology Corporate Axis Day. We are focused and excited about our medium and long-term prospects and look forward to coming back to you in December with a report on our holiday selling and guidance. Have a great night. Thanks very much.

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