Digital Turbine, Inc. (APPS) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Digital Turbine Second Quarter 2017 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 also note that this event is being recorded. At this time, I would now like to turn the conference call over to Mr. Brian Bartholomew, Senior Vice President of Capital Markets and Strategy. Sir, you may begin.

Thank you. Good afternoon and welcome everyone to the Digital Turbine's second quarter 2017 earnings conference call. Joining me today to discuss our results are Bill Stone, CEO; and Barrett Garrison, our CFO. 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 specific risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements please refer to the documents we filed with the Securities and Exchange Commission. Also during this call, we will discuss non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today’s press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now, it is my pleasure to turn the call over to Mr. Bill Stone.

Thanks, Brian, and thanks to all for joining the call today. First, I would like to welcome Barrett Garrison our new CFO to his first earnings call. Glad to have Barrett on board and while he has only been here a couple of months, he is already having a positive impact on the business. But before I turn it over to Barrett to take you through the numbers, I would like to cove our four topics today. First, is a review of our September quarter including updates on both the content and pay business as well as our Advertising and Publisher or A&P business. Second, is an update on the December quarter and a variety of operational updates in metrics. Third as a new announcements that we believe will be strong drivers of future growth, and finally there are some strategic thoughts of the business and how we are working to unlock shareholder value. First on the September quarter, I'm disappointed with the overall top line of 22.8 million, I am very pleased that despite numerous headwinds such as the Note 7 recall, some testing delays of AT&T and América Móvil specific technical issues which I'll discuss in more detail later in my remarks. And we still grew our O&O or Operator and OEM business by 42% sequentially to a record 9.9 million, which also represented a 143% growth versus the comparable period last year. As most of you know this O&O business is both a short and long-term growth driver and margin expansion focus for us. The relative outperformance of our O&O business is why our total gross margin dollars grew sequentially. We saw revenues from our U.S. O&O partners grow nearly 40% sequentially and our revenues from international partners nearly doubled quarter over quarter. So in other words, we are growing revenues with our largest domestic partners and also growing revenue with our new international ones. We expect material future growth in our O&O business in the current quarter and beyond and I'll comment more on that later. The content business has been choppy over the past six months, the June quarter saw a 41% sequential increase from March and the September quarter saw a 32% sequential decrease from the June quarter. The bulk of the recent volatility has been tied to our pay business, which comprises approximately 90% of our total content revenues. In late June, Telstra implemented a new double opt-in in process where consumers were forced to click twice to confirm subscription to a service, which also included a checkbox they had to see at the bottom of a small screen. As a result many content providers accelerated their marketing spend in advance of this change in June which drove over revenue spike during the June quarter and then lower their marketing spend in the September quarter. Today, we have seen the business stabilize and expect it to continue to grow. I'm actually meeting with one of the senior Telstra executives in Australia next week to work through how we drive increases and performance in a very short-term as well as had some more strategic product conversations on how we do things like package pay in the other applications. We continue to view the content business and more specifically our pay business as a growth segment for Digital Turbine especially in Asia. Although materially lower revenues per transaction we are seeing a nice ramp in pay activities in India as we are now processing over 300,000 transactions per month, which is approximately 50% of the transaction volume we do today in Australia. We expect to see our Asian pay business begin to catch up to the Australia business on overall transaction volumes this fiscal year and be on a trajectory to exit the year on seven figure run rate of revenue. The legacy advertising and publishing or A&P business declined 9% sequentially, we made a conscious decision to prioritize profitability as the number one initiative in the company. The pay business and e-pay business are profitable and have been profitable for many months. The A&P business is not. As a result, we have combined our A&P and O&O teams into a single organization to achieve a lower cost structure for our A&P business and shift resources to the higher growth higher margin O&O business. This does have a consequence of reducing top line growth at the A&P business. As a result, we have increased our focus on machine learning or programmatic bidding, which we call RTB or real time bidding. We see RTB evolving into additional business models above and beyond our current cost per install or CPI arbitrage price approach. This includes new business models such as selling cost per click or CPC driver adders or monetizing to brands on a eCPM basis. The point is the data set is unique and the platform has flexibility. However, to be clear I don’t anticipate our RTB growth outrunning a legacy A&P business declines in the immediate term. Now let me shift gears to the current quarter and some real time operational updates in our ONO or Operator and in OEM business. First I want to adjust the same sign Note 7recall and its impact. Overall, we estimate the recall cost us just under $1 million in revenue in the September quarter and expected to be between $1 million to $1.5 million in the current quarter. Before I get into specifics, I do want to say while this clearly is not a good news, I do believe the street reaction is been over blown. At its peak in August the Note 7 was never more than 15% of our daily device sales. While the impact could up or down depending upon holiday promotions, we don’t expect a material impact from the Note 7 with our larger, more establish partners, where we have device diversification. However, we believe that the impact is greatest for us with our new partners, such AT&T and América Móvil and Dutch Telecom. We were tired with these operator to have Ignite included on the Note 7 and then lower number devices we are currently on are not likely make up for that gap. We do believe tough that Samsung is highly motivated to not lose market share, as a result of this issue and we likely to provide you lots of holiday incentives to operators on existing devices and determine, how they can get package those incentives up, with incentives on other Samsung products like tablets, accessories and even televisions. With our Operator and OEM partners despite the Note 7 headwind, we saw a 39% increase in sequential revenue with our U.S. partners. This was partially due to nearly 20% improvement in revenue per device from our U.S. partners in September compared to June. Our international Ignite revenue nearly doubled on the strength of new and existing partners such as Reliance Jio in India, América Móvil and Blue in Latin America and [Bleak] (Ph) in Europe. I also want to provide some additional color on our business with respect to advertisers. We believe that diversity of advertisers is key. Year-to-date we delivered more than 3000 different applications to customers with no single applications accounting for more than 6% of our advertising revenue. This is across many categories of applications including games, shopping, brands, music and utility applications and so on. And regarding our partners, I want to call our U.S. partners of Reliance Jio in América Móvil in my prepared remarks. We continue to grow revenue with our largest U.S. partner and we continue work closely with them on their integration with ALO, Milenio and the potential Yahoo acquisition. Those advertising companies do not have an app-installed platform like Ignite. So partnering with them to extend their advertising foot prints both inside and outside the U.S., are added to it to their revenue stream. We are also live with Ignite on AT&T devices today. Due to combination of factors including our focus on the Note 7, the iPhone launch and the overall Note 7 recall at AT&T. AT&T's device and testing teams are focused on those issues which did push out a few additional devices we thought would launch this quarter. We expect that beyond those devices in the March quarter through a variety of mainly such as new launches as well as software updates, and become a standard feature on AT&T Android devices going forward. Internationally Reliance Jio is off to a terrific start. As a reminder, Jio is initially not an advertising model. It's a licensing deal where we are paid for each device, which means 100% gross margin to us. We get paid by Jio when we delivered it applications to a consumer. Today we have installed Ignite on over 2.5 million devices with Jio and expect that number to more than double for the remainder of the quarter. In addition, I'm pleased to report that we are working with Jio on a advertising model that we also anticipate will launch soon. Jio is arguably better than most engage O&O partner anywhere in the world and one key lesson we have learned is that the higher engagement from the partner the greater the revenue opportunity. Jio has really transformed the overall Indian mobile market with the combination of their LTE network deployment and aggressive promotions. Morgan Stanley has forecasted Jio will move more than 60 million smartphones over the next 18 months, so I'm very optimistic about how large of the partner they can grow with us. Combined with our Airtel launch, which we expect this quarter I'm very pleased with our Indian strategy is now executing in bearing fruit. It is a high growth market and we have positioned ourselves with the two fastest growing operators. We also rely with the América Móvil in Latin America and generating revenue during both pushes to older devices and now has Ignite live and select new devices as well. We expect at beginning in the March quarter, we will have Ignite on all of the new Android devices launched in the region, which equates to 10s of millions of devices per year. We have had many learning's from our América Móvil launch which has been both time consuming and difficult operationally and technically. The number one learning is that sophistication required to support advertiser requirements inside our Ignite SDK which is inside the América Móvil container application which is inside the Android operating system and OEM such as Samsung software it does create many moving parts, and one very minor issue can cause the entire process and afterward. We have made material progress on solving these operational and technical issues in collaboration with América Móvil, and expect to see stronger revenue growth this quarter and into the future, as the opportunity is enormous and we remains worth the investing in time and resources. I'm excited to also announce the few items today. First is that we launched with French OEM Archos this week. Archos is the top 10 android Smartphone and tablet supplier in Europe and it's a nice compliment to our European activities with Bleak, Deutsche Telekom and MTS in Russia. We also expect to launch Ignite on prepaid phone s with our largest partner here in the United States during in March quarter. We believe this to be worth approximately $3 million to $5 million in incremental revenue during the first year of launch. And finally, we are also beginning to launch Ignite on T-Mobile here in the United States. We will start on a few devices in the March quarter and then expand from there. Strategically these announcements plus our existing plans with existing partners means we have anticipate having line of sight to be on the vast majority of U.S. android Smartphones as we go into the holidays next year. The pipeline remains rich and robust and with the focus on profitability in the near term, we are being very selective on which accounts we pursue, having saying no to some customers as the custom work size or other considerations make the opportunity cost not worth it to us. As you have heard me say many times, winners win disproportionately and we continue to win new accounts around the globe. The vast majority of our pipeline is customers reaching out to us now versus the other way around. And finally, before I turn it over to Barrett I do want to say a few strategic thoughts about the business. I continue to be extremely confident and optimistic in our prospects. Strategies winning in the market place and the new growth engine of Ignite is showing materially better results each quarter. However, as we look at market comparables for like companies, I believe our business is currently value properly for the strategic assets and franchise value that we have built. Thus, the burden is on us to prove that via execution but we also need to investigate how we can unlock some of that strategic value on some or all of our assets. With that, I'll turn it over to Barrett.

Thanks Bill, and good afternoon everyone. It's a pleasure to be here on my first earnings call and I look forward to working with many of you more closely in the near future. I have been with Digital, I have been Digital Turbine's CFO for almost two months now, and before I review the financials I would like to take a moment to share with you my motivation in joining the company in areas of focus going forward. Career changes are challenging choices, but in the case after meeting Bill, his team and our Board Members it was an easy decision and it was clear that company has built an exciting set of strategic assets, which will enable Digital Turbine to achieve the next level of performance in a rapidly expanding marketplace. My passion is to be in a business focused on growth, with a compelling addressable market, products in high demand, a robust pipeline and board support to make this a reality. Based on my early observations, I believe these ingredients are in place here at Digital Turbine. In addition, being part of a global company was important to me as this presents further opportunities for growth. In the end, all these factors made it the right choice for me to join the company. While I continue to advance my understanding of the underlying business my immediate focus is centered around strengthening our financial position and achieving profitability through deliberate resource allocation directed towards growth initiatives driving increased cost discipline continuing to improve our companies control environment and also establishing credibility with investors. I'm excited to be here and I look forward to helping drive our strategy forward over the long term. Now let's review the financials. Revenue for the fiscal second quarter of 2017 of 22.8 million decreased 5% sequentially and increased 10% year-on-year. Of this total advertising revenue of 15.2 million increased 19% sequentially driven by O&O's strong growth, while content revenue decreased 32%, which was a steeper decline than expected as a result of volatile spending patterns tied to new opt-in policies related to our largest pay carrier partner. Within advertising O&O revenue increased 42% sequentially and a 143% year on year to $9.9 million driven by continued demand for Ignite from both our U.S. carrier partners combined with contributions from the new partnerships launched globally particularly in India and Latin America over the past few quarters. U.S. revenue was assisted by a rebound in average slot counts with our major North American partner for most of the quarter, which was partially offset by the Note 7 recall challenges we have discussed earlier. Which we will have a continued effect into the holiday season. Our legacy A&P revenue was $5.3 million in the quarter down 9% sequentially and 45% year-over-year, we’re taking steps to right size our expense structure with recent revenue levels, including the efforts to complete it, that Bill mentioned to combine the A&P team with O&O. We expect to perceive additional actions to redirect resources towards our growth areas. We are however encourage to see a growing mix of advertisers traditional network spend shift over to our native home screen inventory with Ignite device preloads. Content revenue during increased 8% year-over-year to $7.6 million, however this represented a 32% sequential decline to the record content results in the prior quarter. Specifically DT-pay which represent a 94% of the content revenue in the quarter, decline 33% quarter-over-quarter. The decline in the September quarter was fewer than anticipated falls [building] and spending patterns by our content provider partners was fully absorbed into the results. The volatility in our Australia base pay business is mass progress made to diversify our pay business into other attractive growth markets including India and the Philippines. GAAP gross margin during the quarter was 14% up from 12% in the first fiscal quarter, and 0.4% reported in the fiscal second quarter from last year, which prior year was impacted by an acceleration of amortization and it is about $2.4 million. Excluding the amortization of intangibles non-GAAP adjusted gross margin was 22% in the second quarter of 2017, as compared to 20% for the first quarter in 22% in the second quarter of 2016. The sequential increase of approximately 2% on lower revenue was driven by a mix shift towards our higher margin O&O. The O&O increase in gross profit was partially offset by a top carrier partner, achieving a volume tier in the quarter, creating less favorable revenue share to the company. Total operating expenses for the second quarter of 2017 were 9.5 million, up slightly from 9.4 million in the first quarter and up 15% from second quarter 2016. The sequential change reflects an increase in hosting technology cost, driven largely from the Ignite platform and higher recruiting expense, partially offset by lower employment and accounting expense on the quarter. Total cash operating expenses in the quarter were $8.1 million as compared to $7.9 million in the perceiving quarter. As I referenced earlier, expenses are in the immediate area focus, set it on driving incremental cost discipline and effective resource allocation. Net loss for the second quarter was 7.3 million or $0.11 per share based on 66.5 million weighted average shares outstanding. This compares to a net loss of 8.2 million or $0.14 per share for the fiscal first quarter of 2016 on 53.7 million shares outstanding. It’s worth noting including in our net loss for the quarter is a recorded loss of 600,000 from the impact of the change in the fair value of derivative liabilities resulting from our recent convertible note issued in the quarter. I will expand on this in more detail within our balance sheet section. Non-GAAP adjusted EBITDA loss for the second quarter 2017 was 3 million as compared to a loss of 3.1 million for the first fiscal quarter and a loss of 2.1 million for the second fiscal quarter of 2016. The sequential decrease and adjusted EBITDA loss results from higher gross margin partially offset by an increasing cash operating expenses in the quarter that I described earlier. Let's now move to the balance sheet. In the quarter, the company fully replaced its short-term debt with the long-term debt facility. On September 28, 2016, we completed $16 million of private placement of an 8.75% convertible senior notes due in 2020. We receive net proceeds of 14.3 million from the operating after initial purchasers discounts, commissions and operating expenses and use the 11 million in proceeds to fully repay outstanding amounts owed on the revolving line with Silicon Valley Bay and our outstanding debt with North Atlantic Capital. The notes are convertible at an equivalent to an initial conversion price $1.36 per share and include issuance up to $4.4 million warrants of the same conversion price as the notes. Due to certain turns and features of this convertible notes and the issue detach for warrants we recorded a derivative liability of 4.1 million under U.S. GAAP, which represents the fair value of the instrumental as the balance sheet gate and a warrant liability of 1.4 million to account for the warrants issuance along with the notes. Changes in the fair value of these liabilities related to stock price changes are reflected in our income statement as gain and loss. These derivative liabilities on our balance sheet will fluctuate as our stock price moves and may have an material impact on our reported GAAP financials. In the September quarter we recorded a loss of about 600,000 from the change in fair value between the issue date of the notes from September 28 and at the end of the quarter as of September 30th. We finished the quarter with 9.4 million in cash essentially flat from the end of the first quarter with 3.2 million in net cash provided from financing activities. Operations concerned about 2.5 million in cash flow during the quarter and the working capital debts at that quarter end was 3.6 million. While allocating resources towards growth initiatives, we continue to manage levels cash levels through effective working capital management. Total long-term debt at quarter end was 9.4 million consisting of the new convertible notes maturing September 2020, which consists of the outstanding principle of 16 million net of the 6.6 million income and amortized debt discount. That concludes my financial review and before I turn it over to the operator for questions. Let me reiterate that my initial impression of my initial impression at the stage. I'm enthusiastic by growth driven largely from our O&O business through new and existing partners and expect O&O to be an important catalyst for our future growth. That concludes our prepared remarks. Now I'll turn it over to the operator to give instructions for Q&A. Operator.

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Malouf from Craig-Hallum Capital Group. Please go ahead with your question.

Thanks guys for taking my questions. Bill, if I could just start with the couple of comments on AT&T and América Móvil. You said that you are planning to be on all of the android phones but I just I didn’t quite get the dates when are you expect that will be rolled out fully?

Yes, sure. Mike. So we anticipate that as we get into the fourth quarter of our fiscal year that will be on the new AT&T device that launch and then going forward on those new devices, your exception I probably drive you attention over to the pixel. I’m fine that’s obviously unique to Google, but all the other android phones, we expect to be included as a standard feature on. And then there is some maintenance release or software upgrades to existing phones, they were also plan that was supposed to be launched in the current quarter. But as result of some of the issues that referenced with the iPhone launch and Note 7 recall excreta, that was that pushed out into next quarter or so, we will be those going forward as well.

Okay and then América Móvil the same?

So for América Móvil, we have started embedded base pushes out to a variety of phones and primarily in Mexico but also throughout all Latin America as part of the new continue to or which is power Ignite embedded in. So basically our to the existing base of devices are still many, many, many more to go. I would say we just scratch the surface - many millions but there is tens of millions in terms of opportunity remaining. And now we have just started over the past 30 days, now having Ignite loaded on new devices but starting first in Mexico and then as we get into the March, you will see that expand into the Latin American markets in South America. But the game plan will be as we exit the quarter that will be standard feature on the América Móvil and new phones being sold going forward.

And then good news on T-Mobile, can you talk a little bit about the relationship there and what you are actually providing for them, I think there might be, that differ than what you are providing for some of the auditors?

Yes. So we anticipate that will be in going here, probably over the next, I would say 90 days, with T-Mobile on a couple of devices and we are working through all the technical details right now. But similar to what we do with Bleak in France where they already have an app delivery away to get their house apps out to customers, there is no way to get third-party apps, you don’t think apps like Uber, Starbucks, E-bay et cetera. And so what we’ll be doing basically handing to our Ignite platform, all of the mentioned above the third-party applications on our devices. So we are going to start first on two devices but tends delivery capability already on the existing phones, similar to how we move quickly with Bleak. I’m feeling very optimistic right now, that will be able to move quickly with T-Mobile since we are just adding on just third-party campaign integration into something that already doing versus starting from scratch, like we were with the AT&T or América Móvil.

As you look into the next year, what kind of the flavor of Ignite can we expect with your largest U.S. carrier now, I know that they have started originally with just standard Ignite and we have gone through some adorations. And also if you could just comment a little bit on that relationship, how much longer do you have on that contract? Thanks.

Yes sure. So we can’t comment specifically, any specific agreement, so we are not going to talk about that and then say there is so as many years left on it, on that agreement. I feel right now that, the relationship is in the fantastic place, where we have been able to really add a lot of value, bringing together a lot of the ALO assets and then being able to take those on to Verizon devices, that’s going to take a bright spot for Verizon. So very happy with how the relationship is right now but to your point, we are looking at a variety of things and how we can continue to collaborate with them as we go forward above and beyond just pre-installed, on the home screen. Whether that’s how we can better leverage advertising models, paying the methods, delivery methods, there is a variety of things that are underway there, that we are working with on. But in a very, very short-term as we get into the current quarter the focus is to continue to optimize the experience with the right apps to the right phones.

Okay, thanks a lot Bill.

Thanks Mike.

Our next question comes from Brian Alger from ROTH Capital Partners, please go ahead with your question.

Hi guys, good afternoon, I appreciate you guys providing the update today. A couple of questions, first off with regards to the DT-pay business. We talked about that being down, it was down a little bit more than we had expected, is that expected to be bouncing back on a seasonal basis.

Yes, so, Brian so as I mentioned in the remarks, I'm going to be over there next week, and there is a variety of very near term things that we are working on. And so one reason I'm making the long trip over there is to unlock some of those things the content providers want to do to take advantage of the seasonality. So we'll have more details on it over the next few weeks. As I did mention in remarks, we did see the business stabilize from October from where it was, so we don't expect anything to deteriorate, the question is how much can we ramp it with the seasonality and approval of new services combined as we start ramping pay in places like India, Singapore, and the Philippines as well.

And we look at that DT-pay business today a lot of that if not most of it has been with the Australian partners. How much of the business as you see looking into the next call it calendar year do you think will be outside of Australia.

So today where that calendar year, the goal is right now if you kind of think of that business is historically you are not looking at any one quarter. But just kind of in more generically think of that business kind of in a $30 plus million range looking in the rear view mirror and us being able to grow that not just in Australia, but as we think about that overland to Asia. I don't see any reason why it shouldn’t be getting to anywhere from kind of 10 to 30% you know of that total as we go into next year.

Great, and not to be pulling on the negatives here. But the A&P business with the app pay guys, how should we think about that, as we go forward we have talked about the shift obviously moving to you know the programmatic and what not, has that stabilized are we going to grow from here is that seasonal. Give us a base line on how to really bring that up.

Sure so how I think about it Brian, is our number one initiative in the business is really to remain profitable and we got be able to show investors that we are generating cash not burning cash and as I mentioned in my remarks Ignite, the Ignite business and the pay business are profitable today and they have been profitable. The A&P business has not been profitable. So we really want to look at how we can get the cost structures right sized and aligned on that which is we have done that through some organizational things over the last few months to really focus on the higher growth O&O. But that doesn't mean I see the A&P business going away or going to zero or anything like that I think there is kind of more in a steady state with it right now as we really kind of right size the effort and resources around it. The question is how quickly can we take advantage of some of the AI machine learning capabilities through RTB and we are looking at how we expand we are just doing some specific things so there how we think about that platform and taking the Ignite data set of knowing what customer's running what apps and what apps they may have a propensity to want to be able to take on. Not just during our CPI basis like we have historically done but if we do that to more brands and advertisers that are looking at targets specific customers for example that they have only had the device for 30 days or may only have the specific device in a specific neighborhood and we have got the ability to do that. So we have been looking at our business models to monetize it and take advantage of data set and in my opinion is that's how we are going to win in the space that's unique that's different to us and so the question is how quickly can you get hit that business ramp? We have made some really material progress on that but we are not the pace yet where we have out run those AMP declines but this is a big investment area for us. This is one of the few strategic investment areas in our business as today against the backdrop of profitability, because we believe strongly that we have got the winning dataset and the world is moving to programmatic way versus doing this new and old kind of business development ways of years past. So I think we are on the right track with this to really sort of move it faster.

Alright, and on the more positive note obviously really happy to see what is going in India I have been tracking that fairly closely. How many [scores of pack here though] you guys describe been involved about 2.5 million devices. My check indicates that in the first 26 days Jio signed up 25 million subscribers and with the first two months there are over 40 million subscribers. How do we square the peg from subscribers versus devices?

Sure. So, on to the vast majority Brain of what we are focused on right now are the Jio branded experience devices, which is the 2.5 million that we have referenced. There are customers who can bring other devices in from in whatever markets they happen to be swap a sim card in Jio is running a free data promotion right now that has a tremendous amount of traction in the marketplace kind of really turning it over. And so when we think about relationship with Jio I think about it really on three dimensions and we are kind of just in the first dimension, which is delivering Jio house applications out to Jio devices and so that's growing nicely it's growing rapidly, I reference some of the comments on the growth that in my remarks. Number two, is they are in taking a same devices and then using similar to what we do with Verizon and taking brands like FaceBook or Uber, Amazon and applications like Flipkart or whatever happen to be in ticking those to those devices in the Indian market. And then number three has been working with other OEM. So I think Samsung and some of the Indian OEMs Micromax, Karbon and [Indiscernible] et cetera. And then having working with Jio to put Ignite on those devices as it's in Jio's interest who wants to do that. So we are just kicking off that process, so that would be another revenue streams. So I really think off Jio as generating three separate unique revenue streams for us as we go into the next 12 months. But in the very present we are really just focused on the first one.

Great and has is there been any revenue to-date with party?

Yes, we expect them to launch of this quarter, we are kind of in the final strokes.

Awesome. Great guys, I appreciate all the help.

Thanks Brian.

And our next question comes from Sameet Sinha from B. Riley. Please go ahead with your question.

Yes. Thank you very much. A couple of questions. Can you detail all the measures you are taking in terms of profitability for that term number of times on this call, and if you could provide together with how you are combining O&O and A&P and do you expect to see - apart from these cost synergies are there any possibilities of revenue synergies off putting them together. Secondly, can you comment on - you announced the Brightstar last quarter that's a big distributor cell phone. Any update so with that and lastly at some point in the call you mentioned if slowing and how to generate value out of certain assets that you have. Can you elaborate on what exactly you are thinking about? Thank you.

Yes, absolutely Sameet. I'll start with it, then I'll turn it over to Barrett for some additional color. First let me take Brightstar. So we are engaged with a number of operators on pretty much every continent right now with Brightstar, you know there is one in Asia that we expect to launch our first service with this quarter. So that's underway right now will be our first you know kind of new partner that we have collaborated with Brightstar and to go and sell in a variety of kind of business development activities with them around the globe. So we continue to be very excited about that relationship and the opportunities are very complementary to what they are doing and what we are trying to do. Regarding the strategy that we are looking at, I think that as I said in my comments we believe that market comparables for what we have built here and the franchise value are misaligned. So it's incumbent upon us to first and foremost execute, but second of all if there is opportunities for the market to establish other values for some of those assets a minor reposition those assets or whatever happens to be, how do we unlock value to showcase that to the street. So that's something that we are going to start beginning to explore here to ensure that the full franchise value of what we have built and assembled can be reflected and be closer to other market comparables in the company. And then, finally regarding profitability. Yes I mean the goal here is to start generating cash, not burning cash and I'll turn it over to Barrett for some additional comments. But from my perspective its first how do we get revenue synergies we are doing that today with the O&O and A&P business where now we have got a common sales force selling both and selling both its products and we got opportunities where O&O can come in and sell some home screen preload inventory. And as a result be able to pull through some RTB campaigns and vice versa. So you know that continues as we integrate know this not separate sales forces now going out and selling that's one very specific thing that we are doing. And then regarding our cost structure, we are teaching you when to look at our cost structure. In one specific area I have been really focused on is hosting. We have done some things as we have scaled the O&O business to throw servers and bandwidth at problems and there is a lot more efficient ways for us to do that especially as AWS and Microsoft and Google are in price wars right now for a lot of that cloud bandwidth. And so I think there is a great opportunity for us to drive a lot more efficiency in the business and how we have been doing that. That’s been a very material expense driver for us, so that would be a second initiative. And third and probably most important, I’ll let Barrett jump in with any color he has to add. It’s just generating higher margin revenues from these new Ignite partners, as we have talked about a lot of these new Ignite partners that were launching have gross margins anywhere from 40% to a 100%. So our ability to ramp those faster than some of the margins in our other businesses with other providers is really a material driver to free cash flow. So those are kind of the key areas that I'm particularly honed on and I don’t know if want to add anything.

I think Sameet, if you think about the comments in the prepared remarks are focused around we are encouraged by our O&O group engine and that's where free cash flow is going to be generated in a near-term. And so the focus around directing our investments in areas that accelerate that time to launch and revenue generation along with many of the things Bill just referenced being more intelligent about our hosting, having visibility of the cost and drivers. There is not an easy quick wins, but there is a number of areas that we are focused on that are making progress already that we are excited about.

Great couple of follow-ups. Also on the call you mentioned about hitting a volume threshold with a particular carrier and can you elaborate on that comment, and are there other material tiers threshold that you could hit, which could probably bring down the overall unit economics? That’s it. Thank you.

So to start whether you think about the tiers I comment on. One of our large U.S. partners that hit during the, in the quarter due to significantly more volume in the period. We had a tier towards the end of the quarter and to give you some reference probably in the range of 1.5 points in margin for the O&O business and the construct of some of our agreements are tailored around incentivizing growth. And those volumes tiers for instance this one, is one they reached in the quarter and due to their quick growth in the quarter.

Thank you.

And our next question comes from Bill Sutherland from Emerging Growth Equities. Please go ahead with your question.

Thanks. Good evening guys. So what is the status of, I know your approaching a couple of new carrier opportunities in Europe, what is the update there?

Yes. So let me just comment in kind of in generically on the pipeline that give any kind of one name here. Yes we have got names in Europe, we got names in Asia, we have names in Latin America kind of all over the place. One that the biggest things that we have been focused on a business is, how do we ensure that when you take a lot of these new contracts on, we can do it a way that doesn’t have a lot of custom work and can accelerate time to revenue. I like to use Bleak in France, it’s kind of the foster child where basically within 45 days the contract signature we are up live generating revenue and now they are I believe a top five Ignite partner for us. So we are looking for that kind [Indiscernible] a lot of the work we have to do with América Móvil and AT&T, which I know was very pain staking for all of us, waiting for that revenue to start bear fruit, which it is now, but it took us a very long to do that. So as we are looking at the pipeline, we really look at it through that lens in terms of how quickly can we get up in running and start really gain some traction with these accounts. And then also making sure that we have got strong engagement. The more engagement we get versus just people signing and deal and then they kind a go away and a lot of those things, you need to lose a lot of energy in those accounts, that’s what we see as a big correlator. So that’s where we focus and the other things is been very helpful, as we have a lot of as I said wining gets wining and as a result of that people know who we are in the industry and we have had some nice reach outs from an inbound prospective. There are names that everybody on this call are familiar with. And so I’m quite excited about those because, at anytime, anybody is trying to call you versus the other way around, obviously that names are engaged, when they want to be going and actually give us more leverage in terms of, getting things go in a faster time to revenue way.

Great and then, understand this, but above in the area as far as giving us a sense of how this quarter is going to trend. But maybe it would be helpful for us if you could help us think about the sequential and seasonality kind of effects this year, based on the fact that, you have got so much ramping with América Móvil and T-Mobile and AT&T in the March quarter. And so maybe some sense of maybe how the quarters might be slicing this year?

Yes, let me start and I'm going to turn it over to Barrett. I’ll start off with some operational dynamics and Barrett will comment on the some of the financial specifics. Remember 40% of all the cell phones gets sold in this quarter and I think about 70% or 80% of those get sold from basically the week of Black Friday through the end of the year. So there is definitely a big seasonality ramp and now we have got a couple of those under our belt, so I think from a modeling perspective we know what to expect. The only wild card is going to be what are the carriers promoting for the holidays, a lot of people they expected the Note 7 to be a major driver for the holidays, Samsung is very eager not to lose market share. So the question will be did the carriers respond to those incentives and what they do and are there any other manufacturers that feel that [Indiscernible]. So to me that's kind of the one wildcard, I would put out there operationally for the December quarter. And then, yes, you nailed that for the March quarter obviously as the seasonality impact falls off a little bit in the March quarter, but that's offset by a variety of new partner launches as well as some of the attribution from December phones to kind of role into January as well. So I think those factors will keep the momentum going for us. [Indiscernible] any more specific financials barrier ending that.

Yes, I think couple of things I would point you to, certainly on Bill's prepared remarks he talks about the activities that are undergoing with the pay business and discussions there, but it's points around we think we are stabilized at this point and maybe poised for growth in the future. Also certainly you would have taken away from our comments, our excitement around the O&O business and its growth. And while Bill highlighted some things around seasonal demand, we are still learning everyday about how in place of Note 7 how carriers are developing their promotional programs, but all-in we are certainly encouraged by O&O’s progress.

Great. Thanks for the color guys.

Our next question comes from the line of Jon Hickman from Ladenburg Thalmann. Please go ahead with your question.

Hi. Barrett, could you walk me just through to that thing real quick. In my math as that if you got 14.3 million from proceeds of the convertible and you used 11 million to pay out for debt. Maybe you have about 3 million left right?

That correct.

And then I can add that to the 9 million you have on the balance sheet?

Yes, that's right. So we have our 9.4 million at the end of the June quarter. We generated approximately 3.2 million in cash from net financing activities and then we ended obviously actually that 9.4 so between operations and CapEx we consumed about the same amount of cash that we generated with the financing activity in the quarter.

Okay, then Bill, didn’t you guys build and [REG] (Ph) in Appia?

Yes, so Appia had some RTB activities going on prior to the acquisition. What we did is we moth balled some of those activities when we took over the business until we get our Ignite data set ready to go and ramp. So I think that's what will you need to have win not just the platform. So we took that out of mothball and made a variety of technical and operational improvements to that, that we are doing now. So we very much think about it as iterating and building off of it and many of the people that were involved in that are still involved with building a platform we have today.

So, do you feel like you have the financial wherewithal to utilize that now.

Yes, we are being pretty judicious on the investment here, obviously would always like to be able to go out and do more, so we are being pretty judicious how we are managing it. But it’s definitely an investment area for us and it's definitely where the world is going from a macro perspective. And I believe our data set can win not just in terms of in doing traditional CPI app installs, but those I referenced in the remarks, things like cost per click is more value to brand, the CPM which has more value to brand, how you pack data set up to people. When looking for people within the first 30 days to buy a phone and maybe they like a Bluetooth headset and those kind of things where it adds a lot of value to advertisers in a very discreet targeted audience and something that we should be able to monetize. So that's where we see the platform going.

Okay and then just one more clarification, you did say you have some phones right now this quarter with T-Mobile.

No. yes we anticipate a launch, yes we did say launching a couple of phones of T-Mobile in the March quarter.

In the March quarter, okay, thank you. That's it from me.

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

Ok thanks guys. Just on the housekeeping side, can you just give a little bit of color on the yield per phone in the quarter, you guys usually give that out.

Yes, so Ilya I have referenced that we finished September up with our U.S. partners 20% higher than where we finished June. In terms of yield per phone, it’s something problem we could follow-up offline, it's got a lot of nuance to it, because now what we have got is you got new phones versus the existing phones. You have got pushes to the embedded base, you obviously got variances based on geography and geography influencing things and so there is a lot of moving parts on that. So I think that's a great follow-up item for us as we talk with you and some of the other sell side guys to get a little more granular on that. We didn't want to kind of overload people with a lot of moving parts.

Okay, got it. And then just on the RTB, so I feel like we have been talking about it for probably three, going back three quarters kind of getting it off the ground. At this point, do you have a functioning RTB offering in effect?

Yes, so RTB is live, it's generating revenue, we have had days that [indiscernible] 10% of our total A&P revenues depending upon kind of campaigns and days. So the business is ramping and continues to ramp in size, it just needs to ramp faster and I think some of these business models and things I referenced are maybe some of the key catalyst to grow that above and beyond just the traditional CPI [indiscernible] campaigns.

Okay. So it's about 10% of the A&P number, is that what you are...

Yes, on a pretty good day, it’s not every day. But I mean my point being to be illustrate here is that yes it's live and we have put up some pretty good numbers on any particular day with it.

Okay and from a successful perspective, how would you characterize the success of that platform right now. I mean in other words my question is kind of, it should be much more successful, much faster then it seems to be given that you guys have been focused on this for three quarter or so. I’m just try to understand, what could be from this really taking off?

Yes, sure. I think it’s a little bit, it kind of relates to Jon’s question, it’s partially a resource issue, I think if we invested more resources against there we would probably able to move a little faster, we have in certain areas. The other thing is this is highly complex, I can’t emphasize enough how many moving parts there are to this business. And so there is a lot of things go into it, from the data science, to the platform, to the exchanges and so on. So it’s one of those where, the way the platform works, is you go out and you bid on traffic, and then you try to basically spend less money on the traffic then the advertisers willing to pay you for the application. So if you are not smart and intelligent of how you are going about it, you can lose a lot of money really quickly. So we been very proved and any very conservative to make sure we don’t find ourselves in those situations. And in terms of risk taking on some of those kinds of things again could have moved the platform a little faster along. Those are kind of all the consideration in terms of kind of timing, cost, complexity, et cetera, but we are still continuing to make some pretty modest investment. Again I just want to highlight that it is investment area for the business.

Okay great and the last question, profitability perspective, what color that you can give us as far the second half of this year, when do you think that you can be breakeven? Thanks.

Yes, so we didn’t give specific guidance. I don’t want to with respect to profitability [Technical Difficulty] seasonal demand in the quarter, we want to see some of these things play out. I wanted to ensure as one of the points I made earlier in my comments. It’s important to me to establish investor credibility and I thought at this stage I would like another quarter, under my belt before I give any prospective on timing on profitability.

Okay. Thank you.

And ladies and gentleman, at this time I’m showing no additional questions. I would like to turn the conference back over to management for any closing remarks.

Yes. Thank you very much and thanks to all for your support. We appreciate it and we will see you on likely, potentially some upcoming conference and defiantly on the next earnings call. Thanks for joining.

And ladies and gentleman that thus conclude today’s conference call. We thank you for attending. You may now disconnect your telephone lines.