AUSTIN, Texas, Nov. 9, 2016 /PRNewswire/ -- Digital Turbine, Inc. (Nasdaq: APPS), the Company empowering operators and Original Equipment Manufacturers ("OEMs") around the globe with end-to-end mobile solutions, announced financial results for the fiscal 2017 second quarter ended September 30, 2016.
The Company achieved record Operators & OEMs ("O&O") revenue of $9.9 million during the September quarter, driven primarily by growth with preexisting carrier partners, and supplemented by the onset of contribution from new carrier partners in the quarter.
International O&O revenue increased 98% sequentially, as the Company continues to work to diversify its Ignite revenue while expanding its global footprint into key strategic regions such as India and Latin America. The Company generated initial revenue from two new carriers in these regions during the September quarter.
The Company has successfully launched Ignite on more than two million devices to date with a new partner in India and more than one million devices with a new Latin American partner.
Ignite 2.0 is now live on devices at AT&T.
The Company completed a $16 million convertible notes offering on September 28, 2016. Proceeds were used to completely repay approximately $11 million of short-term indebtedness. At quarter-end, the Company had no short-term debt outstanding and $9.4 million in cash & cash equivalents.
"Digital Turbine made meaningful operational progress during the September quarter," said Bill Stone, CEO. "While unsatisfied with our A&P and Content results, we achieved 42% sequential growth in our O&O business despite slower-than-expected onboarding of key new partners and the much-publicized Samsung Note 7 recall during the quarter. Specifically, O&O revenue in the U.S. grew 38% sequentially, while International O&O revenue nearly doubled sequentially, as we grew revenue with our existing partners as well as with several new partners. With a total of 20 partners now utilizing the Ignite platform, we have successfully positioned our O&O business to achieve continued solid growth in the December quarter and beyond."
"With respect to the onboarding of new Ignite partners, we have made definitive progress in recent weeks and look forward to revenue growth with carriers such as AT&T, America Movil, Reliance Jio and Airtel in coming quarters. In addition, our pipeline remains strong, as demand for our offerings is at an all-time high. Our focus remains on turning that demand into faster time-to-revenue."
Mr. Stone concluded, "Execution and profitability remain the prevailing themes at Digital Turbine. The commitment level of our partners and the range of our opportunities has never been greater. We are making significant strides toward the realization of this opportunity, but we recognize that there is considerably more work to be performed in order to fully capitalize on our unique value proposition and generate the type of meaningful revenue and profit growth expected by our investors in the quarters ahead."
Second Quarter 2017 Financial Results
As a reminder, the Company names the components of its Advertising segment to better reflect the entities with whom it partners. Advertising is comprised of Operators & OEMs ("O&O"), which includes Ignite, Discover and other professional advertising services; and Advertisers & Publishers ("A&P"), which includes the former "Appia Core" business, as well as the developing RTB business. The Content business is comprised of Marketplace and Pay.
Revenue for the fiscal second quarter of 2017 was $22.8 million, representing growth of 10% versus the prior year quarter and a decline of 5% when compared to the fiscal first quarter of 2017. Advertising revenue of $15.2 million increased 11% versus the prior year period and 19% versus the fiscal first quarter. Within Advertising, O&O revenue reached a record $9.9 million, representing growth of 143% year-over-year and 42% when compared to the fiscal first quarter. Strength in the O&O business was primarily attributable to Ignite growth with preexisting carrier partners, but was also enhanced by the onset of revenue from new carrier partners in the quarter. O&O managed to achieve these record results despite the well-publicized Samsung Note 7 recall, which clearly had an adverse impact on revenue during the quarter.
A&P revenue of $5.3 million declined 44% year-over-year and 9% sequentially stemming from the ongoing shift in budget allocation toward programmatic and RTB away from legacy business development deals. While the Company has made some early progress with its own pivot to RTB and expects its uniquely valuable dataset to represent a strategic advantage in this business over time, RTB activities have yet to reach the critical mass necessary to keep pace with the dramatic industry shift in budget allocations.
Content revenue of $7.6 million increased 8% versus the comparable prior year period, yet declined 32% when compared to the fiscal first quarter of 2017. Within Content, DT Pay revenue of $7.2 million declined 33% quarter-over-quarter. The sequential decline in DT Pay revenue is largely driven by the pronounced impact of new double opt-in policies enacted by our largest DT Pay carrier partner during the preceding June quarter.
GAAP gross margin was 14% for the second quarter of fiscal 2017, modestly above the 12% GAAP gross margin for the fiscal first quarter. Excluding the amortization of intangibles, non-GAAP adjusted gross margin was 22%, as compared to 20% for the fiscal first quarter. The increase in GAAP and non-GAAP gross margin, despite a sequential decline in total revenue, was driven by a richer business mix during the quarter, driven by strong growth in our higher-margin O&O business. The reconciliation between GAAP and non-GAAP financial results for all referenced periods is provided in a table immediately following the Unaudited Consolidated Statements of Operations and Comprehensive Loss below.
Net loss for the second quarter of fiscal 2017 was $7.3 million, or ($0.11) per share, as compared to the net loss for the fiscal first quarter of $7.4 million, or ($0.11) per share.
Non-GAAP adjusted EBITDA loss for the second quarter of fiscal 2017 was $3.0 million, as compared to a loss of $3.1 million for the fiscal first quarter. Please see 'Use of Non-GAAP Measures' at the end of this press release for the definition of adjusted EBITDA and a reconciliation to GAAP net loss.
About Digital Turbine, Inc. Digital Turbine works at the convergence of media and mobile communications, delivering end-to-end products and solutions for mobile operators, device OEMs, app advertisers and publishers, that enable efficient user acquisition, app management and monetization opportunities. The company's products include Ignite™, a mobile device management solution with targeted app distribution capabilities, Discover™, a customized user experience and app discovery tool, Marketplace™, an application and content store, and Pay™, a content management and mobile payment solution. Digital Turbine Media encompasses a leading independent user acquisition network as well as an advertiser solution for unique and exclusive carrier inventory. Digital Turbine has delivered more than 150 million app installs for hundreds of advertisers. In addition, more than 31 million customers use Digital Turbine's solutions each month across more than 20 global operators. The company is headquartered in Austin, Texas, with global offices in Durham, San Francisco, Singapore, Sydney and Tel Aviv. For additional information visit www.digitalturbine.com or connect with Digital Turbine on Twitter at @DigitalTurbine.
Conference Call Management will host a conference call today at 4:30 p.m. ET to discuss its second quarter financial results and provide operational updates on existing business, as well as newly announced carrier initiatives. To participate, interested parties should dial 855-238-2713 in the United States or 412-542-4111 from international locations. A webcast of the conference call will be available at ir.digitalturbine.com/events.
For those who are not able to join the live call, a playback will be available through November 16, 2016. The replay can be accessed by dialing 877-344-7529 in the United States or 412-317-0088 from international locations, passcode 10093917.
The conference call will discuss guidance and other material information.
Use of Non-GAAP Financial Measures To supplement the Company's condensed financial statements presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), Digital Turbine uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP adjusted gross profit, non-GAAP gross margin and non-GAAP adjusted EBITDA. Reconciliations to the nearest GAAP measures of all non-GAAP measures included in this press release can be found in the tables below.
Non-GAAP measures are provided to enhance investors' overall understanding of the Company's current financial performance, prospects for the future and as a means to evaluate period-to-period comparisons. The Company believes that these Non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results. The Company believes the non-GAAP measures that exclude such items when viewed in conjunction with GAAP results and the accompanying reconciliations enhance the comparability of results against prior periods and allow for greater transparency of financial results. The Company believes Non-GAAP measures facilitate management's internal comparison of its financial performance to that of prior periods as well as trend analysis for budgeting and planning purposes. The presentation of Non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Non-GAAP adjusted gross profit and gross margin are defined as GAAP gross profit and gross margin adjusted to exclude the effect of intangible amortization expense. Readers are cautioned that Non-GAAP adjusted gross profit and gross margin should not be construed as an alternative to gross margin determined in accordance with U.S. GAAP as an indicator of profitability or performance, which is the most comparable measure under GAAP.
Non-GAAP adjusted EBITDA is calculated as GAAP net loss excluding the following cash and non-cash expenses: interest expense, foreign transaction gains (losses), income taxes, depreciation and amortization, stock-based compensation expense and the change in fair value of derivatives that are recorded related to the recent convertible notes offering. Readers are cautioned that Non-GAAP adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with U.S. GAAP as an indicator of performance, which is the most comparable measure under GAAP.
Non-GAAP adjusted gross profit and gross margin and adjusted EBITDA are used by management as internal measures of profitability and performance. They have been included because the Company believes that the measures are used by certain investors to assess the Company's financial performance before non-cash charges and certain costs that the Company does not believe are reflective of its underlying business.
Forward-Looking Statements This news release includes "forward-looking statements" within the meaning of the U.S. federal securities laws. Statements in this news release that are not statements of historical fact and that concern future results from operations, financial position, economic conditions, product releases and any other statement that may be construed as a prediction of future performance or events, including financial projections and growth in various products are forward-looking statements that speak only as of the date made and which involve known and unknown risks, uncertainties and other factors which may, should one or more of these risks uncertainties or other factors materialize, cause actual results to differ materially from those expressed or implied by such statements.
These factors and risks include:
risks associated with Ignite adoption among existing customers (including the impact of possible delays with major carrier and OEM partners in the roll out for mobile phones deploying Ignite)
actual mobile device sales and sell-through where Ignite is deployed is out of our control
risks associated with the timing of Ignite software pushes to the embedded bases of carrier and OEM partners
risks associated with end user take rates of carrier and OEM software pushes which include Ignite
new customer adoption and time to revenue with new carrier and OEM partners is subject to delays and factors out of our control
risks associated with fluctuations in the number of Ignite slots across US carrier partners
required customization and technical integration which may slow down time to revenue notwithstanding the existence of a distribution agreement
risk that strong Apple iPhone sales could result in a disproportionately low amount of Android sales
the difficulty of extrapolating monthly demand to quarterly demand
the challenges, given the Company's comparatively small size, to expand the combined Company's global reach, accelerate growth and create a scalable, low-capex business model that drives EBITDA (as well as Adjusted EBITDA)
challenges to realize anticipated operational efficiencies, revenue (including projected revenue) and cost synergies and resulting revenue growth, EBITDA (and Adjusted EBITDA) and free cash flow conversion from the Appia merger
the impact of currency exchange rate fluctuations on our reported GAAP financial statements, particularly in regard to the Australian dollar
ability as a smaller Company to manage international operations
varying and often unpredictable levels of orders; the challenges inherent in technology development necessary to maintain the Company's competitive advantage such as adherence to release schedules and the costs and time required for finalization and gaining market acceptance of new products
changes in economic conditions and market demand
rapid and complex changes occurring in the mobile marketplace
pricing and other activities by competitors
pricing risks associated with potential commoditization of the A&P business as competition increases and new technologies, in particular Real Time Bidding, add pricing pressure
developing RTB for A&P to the level required to compete in the increasingly important programmatic bidding area will require additional investment that, given the Company's limited resources, may not be available in the time or on the terms necessary
derivative and warrant liabilities on our balance sheet will fluctuate as our stock price moves and will also produce changes in our income statement; these fluctuations and changes might materially impact our reported GAAP financials in an adverse manner, particularly if our stock price were to rise
technology management risk as the Company needs to adapt to complex specifications of different carriers and the management of a complex technology platform given the Company's relatively limited resources, and
other risks including those described from time to time in Digital Turbine's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission (SEC), press releases and other communications. You should not place undue reliance on these forward-looking statements. The Company does not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.