Good afternoon, and welcome to the Digital Turbine Fourth Quarter Fiscal 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, Senior Vice President, Capital Markets and Strategy. Please go ahead.

Thank you. Welcome everyone to Digital Turbine's fiscal 2016 fourth quarter earnings conference call. 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 the actual outcome will be affected by known and unknown risks, trends, and uncertainties and factors that are beyond our 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 those differences may be material. Please refer to the Safe Harbor statement included in today's release, as well as Digital Turbine's periodic filings with the SEC, for a discussion of such 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 adjusted EBITDA. 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 measures as well as reconciliations of these non-GAAP financial results 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 Mr. Bill Stone.

Great. Thanks, Brian, and thanks to all of you joining us today. I want to cover our four main topics in my remarks. First is closing out 2016; second will be operational updates that will contribute to the June and September quarters; third is a view on how we see that translating into our reported results; and finally some strategic comments about our business. Andrew will take you through the numbers and also provide updates and other important financial issues. To close out fiscal 2016, we finished the year at 86.5 million in revenue and the quarter at $23 million in revenue, which was 206% higher on a reported basis and nearly 50% higher on a pro forma basis compared to the prior fiscal year. Increasing our annual organic pro forma revenue nearly 50% from fiscal 2015 while actually lowering our annual operating expenses showcases the operating leverage of our business. However, we’re not satisfied with those results and this was disappointing against our expectations and guidance. We own this and we have not done a good job forecasting new customers in the timing of the revenue. This was the major gap against our actuals versus expectations. From an annual perspective, we believe this issue has been addressed for the current fiscal year and I'll discuss our guidance approach in more detail later in my remarks. But despite the tiny gaps of expectations management, the business is now positioned the best its history against capitalizing on the larger market opportunity. Before diving into the specifics of our DT Media or O&O business, I want to talk about our A&P and Content business. Combined, we expect both businesses to be sequentially up compared to the prior quarter and remain on approximately the same trajectory as today for the next quarter. Our…

Thanks, Bill. I’ll start with a review of our financial results for the fourth quarter of fiscal '16 and full fiscal year 2016. Please note that all fiscal fourth quarter comparisons I will discuss today are being made to the prior sequential quarter unless specifically noted. We believe this is a better indicator of how our business performed during the quarter given the vast differences between our company today and at this time last year, namely as a result of the rapid growth in our advertising business and the March 6, 2015 acquisition of Appia. As a reminder, we have two reporting segments; Advertising and Content. We have renamed the components of our Advertising business to better reflect the parties with whom we partner. The Advertising segment is now comprised of advertisers and publishers or A&P previously known as Appia Core and our new RTB business and operators and OEMs or O&O, which includes our Ignite and discover platform as well as select professional advertising services. Content, as before, is comprised of Marketplace and 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 fourth quarter declined approximately 4% to 23 million within the range that we preannounced in April compared with 24.1 million for the third quarter. Advertising revenue of 15 million declined approximately 40% sequentially and represented 65% of total revenue in the quarter. Within Advertising, O&O achieved a new record for the company at 8 million and was up 15% versus the prior quarter. Strength in our O&O business was driven by continued penetration at our largest North American carrier along with the contribution from several new distributors, such as Cricket and Millicom which launched during the quarter. We were able…

We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Mike Malouf with Craig-Hallum Capital Group.

Great. Thanks guys for taking my questions.

Yes, thanks, Mike.

Bill, I'm really intrigued with the push aspect of your business model and I’m just wondering if you could just spend a couple of minutes talking about where you're at with the push? I think you said six carriers that you're working with now. And just how does that work? They get a notification that an app has got into their folder or is – just talk to me about how that works?

Yes, sure, Mike. So we’re working with a half-dozen operator and OEM partners, so it’s both. It’s not just operators, it’s not just OEMs. And really the strategy here is historically with our Ignite business, we’ve only thought about new device sales out-of-the-box. And we haven't done as much with the whole lifecycle of the device for the customer once they’ve had their device and how do we improve the experience for the customer and get them better applications. And so yes, we can do that through a variety of means and each operator and OEM will perhaps have a little different wrinkle on how they want to implement that, but it can range from anywhere from when an operator and OEM’s doing a software update, the opportunity to deliver additional applications to that device it can be done through an opt-in notification. It can be done with an existing application they do with our SDK product. So there’s a variety of different ways that it can be done and there's – without getting into details on this call, it’s one of the point that I want to make more strategically is it’s now us doing a much better job looking at the device over the lifecycle of the device and attacking new devices that aren’t just brand new ones out-of-the-box.

Great. And the pricing for these apps are similar on a per slot basis, I guess it would be just an open slot as you’ve been getting across the globe?

Yes. I’d say there’s a little bit – it varies a little bit on geography first of all. So I’d say it’s a little bit lower than a brand new device out of the box. And the reason for that is that especially in the case of a customer does a software update and they’re having additional applications to deliver. It may take the customer a little bit longer to realize they are there versus when they get their device right out of the gates, they’re more intent on exploring the new things that might be on it. But generally speaking, yes, overall advertising rates on a per slot basis are roughly in line with a new device versus an existing one.

Okay, great. And then on the América Móvil rollout, you said that that’s starting now. You’re obviously going to do the push as we just talked about. But how fast can you roll that out to all of their new devices? You said that AT&T was going to roll out faster than previous rollouts. What about América Móvil?

Yes, so right now with América Móvil it’s really a bit complicated with the various versions of software that are out in the field, the various manufacturers and so on and that’s what’s taking us so long to work through a lot of the technical operational complexities. I anticipate that we’re going to spend the next 100 days laser-focused on the embedded base of customers, because the opportunity quite frankly is larger than just new devices. And then as we get into the summer and fall timeframe, we’ll start seeing it show up on their new devices. But even the new devices that we’re not on now, we’ll be able to get to those through the embedded base, so it’s not like it’s a lost opportunity. But right now our view and América Móvil’s view is let’s really focus on the embedded base.

So how about Airtel, how does that rollout work?

Yes, so with Airtel we’re – we said at B. Riley that we’ll be out live with them this calendar year. We’re making great progress with them right now. Once we deliver the first APK that we both validated, yes, everything works okay, then the clock starts running on their minimum guarantees and commitments back to us that are time based. So they’re highly incentivized to want to get it out into the market quickly. And the other part on Airtel is it’s a licensing deal and they’re solving a little bit of a different problem. So they’re not looking at this through an advertising opportunity lens, it’s really helping them solve a variety of operational issues with the existing apps and updates. So they’re more motivated perhaps because it’s solving a problem they’re already experiencing.

Got it, okay. Thanks for taking my questions.

Thanks, Mike.

The next question is from Brian Alger at ROTH Capital Partners.

Hi, guys. Good afternoon. I’ll follow up with Mike’s question on Airtel first, I guess. As we look at the [stop] [ph] clock starting, can you maybe give us a sense – I know you don’t want to give us the details of the contract, obviously, but in terms of scale, 100% gross margin flows to the bottom line pretty quickly. As we’re looking at that initial ramp, you said there was some minimum guarantees in there. Are we talking just like tens of thousands or are we talking eight figures? Can you maybe put some parameters on this?

Yes, so I’d say it’s between those two book-ins, Brian. It’s material. They are the material commitments. I want to respect the confidentiality of our agreement, but I would consider it a material contract for us.

All right. And how long do you think it will take for the – I think you called it [80k] [ph] to get evaluated and signed off on?

I’m sorry, Brian. I missed that.

You had an acronym I wasn’t familiar with but both of you have to agree on and capital support --

So there was the Ignite APK, their software to get burned on to the ROM of the device. Basically once we deliver that to Airtel, we both agree that everything’s working, it’s advertised, that’s what starts the clock for the minimum guarantees they have to hit.

Now it’s a little bit different in India to my knowledge in that there are just dozens if not hundreds of knockoffs. Do you have to verify and validate every phone or is it just certain versions of Android?

Yes, so what it is, is with Airtel they, as the number one player in India, have a lot of leverage over the OEMs. So Airtel’s the one that actually will be coordinating that with the OEMs, not us. And they’ll be working and prioritizing those devices directly with them in terms of which ones they want the Ignite software to be loaded on.

Okay. Shifting gears if I can, I was pleased to hear you guys working with Yahoo. It’s a bit interesting in the context that it seems just a couple of months ago, everybody was nervous about your relationship at Verizon kind of post AOL. Our checks certainly seem to indicate that everything is going on track and certainly getting the S7 up and running would verify that as well. How do we think about your largest customer in the context of them engaging with these media giants? And how does that fit with your strategic positioning there?

There’s a couple of points I’d look at that from. First is how our technology can help them in terms of getting the applications from point A to point B with their subscribers directly. So that’s point number one. And we’re doing that with them today where they may have advertising relationships through AOL that we use Ignite to deliver AOL customer wins or advertiser wins to Verizon subscribers. So we’ll do that today using the Ignite technology. I think the larger opportunity that we’re both equally excited about is how do we look beyond just Verizon subscribers and how can we learn to leverage AOL sales relationships with many well-known brands and can we extend those relationships to the globe and can we extend those relationships to operators in Latin America, in Asia and potentially the parts of North America. And so I think using our platform as a way to help increase their distribution, breadth and scale is something that we’re really focused on. So I’d say the relationship there has been great, very strong, a lot of exciting things happened in the pipeline working with them.

Maybe take an extension on that as a follow on, in the past in prior iterations, carriers haven’t really been too cooperative with each other. They tend to keep their cards relatively close to the vest. But it seems at least from my perspective that they’re not competing with each other for these dollars, they’re competing with Facebook and Google who are making a mint on their networks. Is there any chance that these carriers actually work together via Digital Turbine?

Absolutely. We’ve had certain operators actually be references to send to other operator accounts for our technology to help go out and get that scale. And so these are carriers you wouldn’t expect that would be talking to each other about providing references for a company like ours. But I think to your point it’s in everybody’s interest to look at this amazing growth that is in the mobile content applications space and how can they take part in that versus those dollars being siphoned off to other players in Silicon Valley. And so that’s something that I think we positioned ourselves pretty well for and in fact that we’ve actually seen some of those references and reference checks translate into business for us is something that we’re pretty proud of.

Okay, great. Thanks, guys. I appreciate the update today. Thank you.

The next question is from Sameet Sinha at B. Riley.

Yes. Thank you very much. A couple of multipart questions actually. So in terms of Appia, A&P is known right now. What sort of revenue visibility do you have going out next – let’s say a couple of quarters? You’ve given us what impacted this quarter but in terms of visibility if you could provide some more information there? Secondly, you mentioned RTB could be 5% to 10% of that segment revenues in the June quarter. Now would that be incremental or is it just displacing the old way of buying media? The second question comes down to basically the slot count issue and any sort of visibility that you have there when – I’m glad to see that the number of slots is actually going up, so they’re moving in the right direction but any chance that they’re going up even further from here? And also if you can talk about your experience into the number of slots at other carriers, that would be helpful? Thank you.

Yes, great. Thanks, Sameet. I’ll touch on both of those and then Andrew can jump in especially as it relates to the revenue visibility on A&P. First, let me take your slot count question. I think it’s in everybody’s interest of finding the balance of what’s the right number of slots to deliver for a customer. As we launch with AT&T, it’s important to note that AT&T will be implementing our wizard product, so the customer will have approximately 20 plus applications. So it can be mobile – in mobile music; Pandora, Spotify, et cetera. Social, Twitter, Facebook, Instagram, and games and the customer will select whatever applications they want. So the customer can select anywhere from zero to 20 something applications. So the actual slot count in that case would be customer dependent. We expect that slot count to be roughly the same as when we do that through the silent method, which is what we do with customers like Verizon and Cricket in U.S. today. But that would definitely be a wrinkle there. We’re obviously always working with our operator partners and advertisers to optimize the slot count for the device. In certain cases, in certain geographies and I alluded to this with Cricket, there may be memory issues on the phone that we want to be sensitive to for the customer that could limit the slot counts. But for generally speaking, most – that’s not an issue for more higher-end devices. As we work with our operator partners that’s a number in constant discussion on what’s the right number. And in certain of those there could also be house applications or free applications that could add on to that in addition to the ones we’re already doing. So it’s definitely something where it’s a variable that will…

I think the only thing to add, Sameet, is we managed this business on a daily basis. Given some of these competitive pressures, particularly in the core syndicated network business, our guys are laser-focused not only from the advertiser side but from the publisher side. We see every post-publisher agreement to enhance our scale, distribution on the core network business and we manage advertising accounts on a daily basis. So we have good visibility and good flexibility in terms of being reactive to market conditions. We have our challenges as the market shifts more towards programmatic and that’s why we’re just laser-focused on ensuring we capture every last revenue dollar.

One final question. Your pro forma gross margin came in ahead of our expectation, so – and you kind of went through the reasons but I missed a few of them. Can you just repeat some of those reasons please?

Sure. So we came in at 25% in the fourth quarter versus 23% in the third quarter. We attribute that a, to the mix shift towards our O&O business which had a record quarter at 8 million. And as you know, the O&O business has the highest margin profile in our company. That was somewhat offset by a mix shift within content away from Marketplace to Pay. And in the quarter we now see Pay representing roughly 90% of our content business. And then we also in our fiscal year close had the positive impact of the reversal of some accruals that we had in Australia related to revenue share, the content providers that we deemed that we didn’t have to pay, which also had a positive impact. So it was a mix of organic items and a small one-time item which brought us to 25%.

One final question. You were dealing with a number of issues with a large domestic carrier in the quarter. Any sort of one-time OpEx that you could attribute to it or it’s – that we can expect to kind of fall off going forward or not?

I think we’ve demonstrated over the last couple of quarters from a GAAP OpEx perspective depending upon where we are with the stock-based compensation, anywhere between $8.5 million and $9 million of GAAP OpEx. This quarter we actually realized a reduction on our cash operating expense from 7.6 million in Q3 to 7.3 million in Q4. I think the best way to think about it absent seasonal fluctuations, i.e. in the June quarter we’ll have the costs associated with our technical audit [ph], so a bit higher on the cash and GAAP OpEx side. The $2.5 million per month or 7.5 million per quarter given the various ins and outs is a safe place to be for the remainder of this fiscal year.

Thank you.

[Operator Instructions]. Our next question is from Ilya Grozovsky at National Securities.

Thanks. So I just wanted to talk a little bit about the guidance. I get that you guys don’t want to issue guidance for the current quarter. I’m a little bit – and I understand that there could be fluctuations. It sounds like you said the low smaller numbers plus or minus a couple hundred thousand here or there. What about for the year? You guys in the past have issued guidance for the fiscal year. Given that we’re starting a new fiscal year, any thoughts on what the year could look like?

Thanks, Ilya. Nothing we’re going to specifically comment on today. I think what I want to focus investors on right now is first is we said this current quarter will be sequentially up, so we’re going to make sure that there is not any real doomsday scenario. I want to make sure that that message gets across loud and clear. But rather what we want to do is we want to focus on momentum in the business and showing continued progress in the business. We’ve got ourselves into trouble in the past by some of those low small numbers and we want to avoid that. I think if you would ask most investors would they like to be in a business that’s growing at 50% year-over-year, it’s cutting operating expenses, the answer would be of course. But I think that if you go out and set the expectation that’s going to be more of that and better than that and then things take a little longer than we would have liked, that’s something that has caused us a lot of pain despite the momentum of us just winning in the marketplace. So we want to focus investors on the momentum that we’ve got in the business right now. Strong underlying fundamentals and we know all these lead indicators, like revenue per slot and new partner wins and slots and all these things, all those lead indicators ultimately need to translate into lag indicators of revenue and free cash flow. But right now we don’t want to get ourselves in a situation where Dot-One, Dot-Two type of thing which is literally $100,000, $200,000 around the edges against a larger opportunity is where we’re spending our time talking about, by the way, on either side of the ledger. So therefore we want to just focus on executing and showing our investors continued momentum in the business.

Okay. And then what about the profitability? Do you guys see – in terms of EBITDA what’s the trajectory there? You guys have kind of plateaued it there roughly 1.5 million to 2 million for the past couple of quarters. Are we going to see continued improvement there or are you guys – if you could talk --?

I think the key in terms of profitability is first and foremost highlighting the fact that we’ve seen OpEx at roughly 7.5 million per quarter and we feel pretty comfortable in this quarter and the out quarters that that’s a real expectation. So then it comes down to mix and gross margin. And as we continue to introduce new distribution partners in the O&O business, that revenue share is more favorable than the existing mix, we should see gross margin accretion. In order to get to 7.5 million in gross profit depending upon mix and if you would assume a 25% or 27% gross margin depending upon mix, that would imply anywhere from $27 million to $30 million of revenue in order for us to start making cash.

Got it, great. Thank you.

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

Great. Thank you all for joining us on the call today. I think we communicated a lot of momentum in our business right. We look forward to keeping you updated upon our progress and we’ll be back to you on our August call. Thank you very much.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.