Digital Turbine Inc. (NASDAQ:APPS) 34th Annual ROTH Conference March 14, 2022 12:00 PM ET
Company Participants
Bill Stone – Chief Executive Officer
Conference Call Participants
Darren Aftahi – ROTH Capital Partners
Darren Aftahi
Good Morning. We’re going to get started here. We’ve got CEO, Bill Stone from Digital Turbine. Good to see you again in person, Bill.
Bill Stone
Yeah. How about this?
Question-and-Answer Session
Q – Darren Aftahi
It’s been a couple years since we’ve done this. So you guys just reported numbers recently, but I think everybody wants to talk about your favorite partner, Google. So I’ve been covering the company too long. So I guess the question we always get is just what’s the relationship with Google? And then I guess, embedded in that, how dependent from a company standpoint are you on Google’s add ID and maybe throw a third one in there. If the world changed from Google’s perspective, how does that impact Digital Turbine?
Bill Stone
Yes, sure. I feel like our relationship with Google is a 52 week high. We put announcement out and Google’s own words right towards the end of the year with them talking about how they view Digital Turbine. So you don’t need to hear it from me. You can read it from them. And we did a deal with Google to — really as part of our synergy projects with our acquisitions to consolidate our hosting with them. And as part of that, though it wasn’t just a hosting deal, it was more strategic deal. And it was inability now for us to have dedicated resources, internally Google that could cut across the enterprise and work on a variety of different things, including Android, as an example of that. And so what we can now do is we can now get a more futuristic view in terms of where Google’s going, and how we can help them, and also help us on a variety of short term issues tactically, as we work with operators and OEMs around the world.
So we’re really excited about our relationship with Google at a strategic level. More kind of one level up from that is what we’re seeing right now is societies having this debate around privacy versus consumer choice. And the big tech players of course want to talk about privacy and how they can consolidate their information and what they know about you with themselves. And so Google’s made some announcements around how they’re going to deal with that in the future.
They made announcements many, many years ago around how they’re going do that on the website with browsers and Chrome. And now they’re looking to how they can do that on the app side. And on the browser side, they still haven’t implemented anything. So it’s been many years and they still haven’t. So they — I think we got a long ways to go, but there’s been some investor concern that the identifier that Apple uses is called IDFA. And the identifier that Google uses is called Google ad ID. Some people might call it Android ID. And there’s some concern that may go away, and what does that mean?
Well, I think what’s really is going to happen is Google’s more concerned about third party data and privacy. So think of like Facebook and Cambridge Analytica type of things. So they take your data off the phone, it gets uploaded to the cloud, it gets sold across. I think that’s more of where Google’s thinking, because everybody’s business including Google’s is tied to Android ID. So we don’t think that’s going away. Definitely not going away in the very near term, but if it were to go away. One of the things about our business is we actually have our own identifiers on the device, and that’s on 800 million devices that we’ve put that on around the world, and 60 plus million each quarter that we add.
And so with that ID, we’ve actually integrated in with the mobile measurement partners that kind of referee or keep score of what’s happening on device for the advertisers. And so we already have our own basically I’ll call it belt and suspenders. And if there was concern around that, but we don’t really think it is cause it’s not necessarily anything Google’s interest to do it. What’s in Google’s interest is more privacy side in terms of how to limit third-party data sharing, which is not anything to do with our business.
Darren Aftahi
And I would note in that blog post we did talk about not using blunt force, which I think was the reference to Apple and perhaps Facebook. But can you just talk about DTID and how kind of privacy works within the ecosystem some of your OEM partners, and also your carriers and how important that is? Because everybody, I think, seems to think that Google kind of owns the ecosystem. And I think what they’re trying to say is, we’re not going to go away from this ecosystem, but I think there’s also — you highlighted DTIT, but there’s also important privacy partners within your OEM and carrier side.
Bill Stone
Yeah, I think it’s important to note that we work with our operator and OEM partners, so think Verizon, think Samsung and so on, and we draft off their privacy policy. So if they want to do something different than what Google’s doing, and you’ve seen some public comments around many of them about that, we ride on theirs. And everything — I think a really important point here is everything we do is on device and what Google and Apple and others are really concerned about is when you take data off the device, you put it in the cloud and then it gets shared around and it follows you around the internet. Everything we do is local on device. We’re not doing anything around that third-party sharing. Everything we do is first party data on the device. So I think that’s a really, really important point about what our business is versus some other businesses that may be more reliant upon third-party data.
Darren Aftahi
So you guys have been highly inquisitive in the last 12, 18 months. I think everybody looks at ad colony fiber maybe based on purchase price, but the one that maybe doesn’t get as much play is appreciate. Now, you and I have talked about in the past, kind of last mile consternation with Single-Tap. And so can you maybe give people just some context about what Appreciate kind of did pre-acquisition for you guys? Why you bought it and why it’s been so kind of catalytic in terms of your Single-Tap business?
Bill Stone
Sure, appreciate is a demand side platform and of course, an ad tech client everything’s got an acronym associated with it, you see here as you’ll hear a term called DSP and basically, what a DSP is, is it basically programmatically buys advertising out on different applications around the world. And so when we started our Single-Tap product, our initial strategy was to go out to other third parties and take advantage of the conversion rate improvements that resulted from Single-Tap. And Darren, as you are well aware, it took us many years to go try to do that. And we made a decision to go direct. And so, in other words, we felt like that if we knew which devices had Single-Tap on them, the rest of the market doesn’t know what devices have Single-Tap on them. Therefore, we can get improved conversion rates that that was going to benefit us.
So in other words, if Uber wants to attract more riders or Starbucks wants to attack more rewards users, and they have to show a hundred ads to get at 10 installs in the normal flow through Facebook or Google, or what have you. And they can show a hundred ads and get 20 installs if the device has Single-Tap on it, well, that’s better for Uber. That’s better for Starbucks. So what we realized is if we could go out and in effect, buy the advertising, we could arbitrage the market and generate more returns for Starbucks and Uber, which obviously benefits us.
And so Appreciate was something we started leasing the capability with about a year and a half ago, and we saw great results with that. And so we made a decision to go ahead and purchase the company. And that was one of the great catalysts. And we talked about 800% growth in Single-Tap year-over-year. A lot of that was driven through the Appreciate acquisition. So we’ve been really excited about how they’ve accelerated our growth, accelerated our progress. But if we kind of think about Single-Tap, one layer up from just Appreciate, and we’re really thinking about more of an enablement capability, it’s not something that’s only going to be tied to buy and direct, but something we want to do licensing with a lot of tier one social network type providers around in terms of how do we get after the $100 billion addressable market. So really would start thinking about a Single-Tap, less as a specific revenue item and more as kind of an Intel inside or a Hamon or Ram pickup truck or what have you. So it’s really an enablement thing to drive better results across the board.
Darren Aftahi
On that point, can you kind of talk about how Single-Tap as what’s called the Intel on-site actually enables some of your other segments? And then on the licensing model, we’ve talked about almost a — maybe a per install basis, but how would that licensing model work and going forward is licensing going to be the dominant kind of mix in that revenue stream?
Bill Stone
Yes. So when we think about Single-Tap, we kind of think about it as many, many different revenue streams and what we’ve done historically, because especially for people that followed the stock for a long time like yourself, we’re kind of like, okay, we’re going to see Single-Tap. When are we going to see it? When are we going to see it? So we talked about it as a separate revenue item through our Appreciate acquisition. But when we think the potential of this a $100 billion addressable market for app installs, which a lot of its dominated by companies like Facebook and Google today, how do we get our share of that addressable market? Well, one way will be go direct to Appreciate, but really the other ways is how do we enhance our performance business with our AdColony acquisition, where they’re already running advertising inside application to drive installs, where now we can include Single-Tap in those existing advertising generate incremental performance for the AdColony network, which is great. But then we also can license Single-Tap.
So if you are a large social media provider, for example, and a lot of your businesses dependent upon driving app installs, or you’re a large social media provider, and you’ve been historically maybe rely upon Apple’s iOS platform and with IDFA, you need to figure out how to get after Android, and how do you get advantages that are going to help you with advertisers? We can license the capability out. So think of almost more like a SaaS model, where we can generate incremental revenue by the improved conversions that we bring to social media providers for their advertisers. So we’re very excited about that. We’ll provide more commentary as we get into our next earnings call about our progress on that. But we’re really excited about what’s happening in that space right now.
Darren Aftahi
So sometimes I think Ad Tech and all the acronyms get kind of confusing for any of us. When you think about differentiation, can you just speak to the fact your software is resident actually on a handset. And how that kind of plays a role in terms of differentiation for your company?
Bill Stone
I think it’s a really important point in Ad Tech land is to say, what makes you different? Why — there’s a lot — people can just — eyes can glass over with all the, I like to call them the flex capacitors of acronyms of this and that and everything else. But it’s really what makes you different? And what makes — and at the end of the day, it’s an advertiser that’s trying to reach a customer and what makes your way better than somebody else’s. And there’s, there’s really two things that make ours better. Number 1 is our software’s directly on the device. And once we put our software into device, whether it’s a Verizon device, a Samsung device, an AT&T device, or what have you, there’s no competition. We have a moat around that device. It’s just us that then decides what’s going on that device. And we partner with obviously Verizon, AT&T to what’s consistent with their strategies. But the point being is that we’re in control of that.
So a lot of things in Ad Tech are highly, highly competitive. There’s a lot of people real time bidding to do all these different things. We have that technology on device that gives us a unique advantage. That’s a moat around it, and that’s a really important point. And the second thing I think makes us really unique is we’re independent. In Ad Tech plan, there’s a lot of what I like to refer to as Fox garden henhouse. Where you’ve got providers that may be providing an Ad Tech solution. For example, there may be a gaming Ad Tech company that is working with a gaming studio like a Zynga, EA, what have you. And they may have their own games.
And what they’re trying to do is basically get the data from a Zynga or EA, so they can market across, sell their own games, right. So if you are now Zynga or EA or those kinds of companies, well, why do I want to have somebody else trying to get my customers? Yes, I’m getting some dollars for it, but they’re basically trying to steal my customers over either time. We’re independent. So when we go out, we don’t have anything other than to help the advertiser and help the publisher try to make more money. So the independence and the on device point really allow us a lot of differentiation.
Darren Aftahi
So what do you think is the most misunderstood part of your business that you think needs to be kind of clarified?
Bill Stone
I think there’s a few things. I think first is, number 1, everything we do is on device. We’re not selling third party data. So a lot of the fears that are out there that’s, I think that’s completely misunderstood, which we’ve already talked about. I also think it’s misunderstood about the uniqueness of being on device and how strategic and how important that is. The average person unlocks their phone a hundred to 200 times a day, 70% of the time they don’t even know what they’re going to go for when they unlock their phone. And having that first look for apps and content is something that’s highly strategic. And again, has a moat around it. I think, people really tend to miss that point about the story. And then the third part about the story is where is the world going right now? And how are we positioned for it?
And one of the things we’re seeing right now is regulations are happening for big tech. And we can debate where, when, how and all the details. And obviously, you don’t have time to get into all of those in this call. But what we’re seeing right now is we’re seeing legislation, for example, here in the United States, got bipartisan support. How many things have bipartisan support in the U.S. right now, where it’s called the Open App Markets Act, where you’re going to basically disintermediate the operating system from the App Stores themselves. So if you think about today, the metaphor I like to use is like, you got to buy your light bulbs from the electric company. You can’t go to Target or Walmart to do it. If you think about today, when you go get applications, you have to go to either the Apple store to get those or the Google store to get those applications. There is no Verizon store for example or AT&T store or, or those types of things.
And so the ability now to offer consumers choice and offer other brands choice, whether it’s on the payments of how they actually get to pay for applications or pay for another life in the game or pay for their ride on their Uber or whatever it is, or how they actually get the distribution for the applications, that world is going to be changing likely. And from a Digital Turbine perspective, I don’t think it’s really understood how well positioned we are, and as we look at the regulatory landscape and how much that is a tailwind for our business versus a headwind for our business. And so, I think it’s important for investors to really do the work and see, hey, where’s the differentiation. What do you guys have where the world is going versus where the world is today and then all the tier one relationships that we have in terms of doing it at scale right now.
Darren Aftahi
I want to pause and open it up with the audience if there is any questions. Shy audience. You just came back from Mobile World Congress anything significant kind of come out of that any themes?
Bill Stone
I think, well, the first theme was, it was just nice to be in person. Get back to having face to face meetings again. I think a lot of people right now are trying to sort out, where is the world going for smartphones, where is the world going for advertising on smartphones and how do companies like us make a difference in what’s happening there? So we had a lot of really productive meetings with a lot of encouraging — a lot of encouraging developments for it.
But, first and foremost, for our business, its just so important, especially for things on our operator O&O relationships, where there’s a — tends to be a little longer sales cycle to be able to get out of COVID and get out and do these things face to face now, really makes a positive difference for our business.
Darren Aftahi
Can you talk a little bit just about so pre-acquisition, you guys, I think were clipping along like 25% EBITDA margins. Some of the businesses you acquired, at scale yet little bit on lower margin side. Can you kind of just speak to maybe when there’s an inflection point post integration on some of these acquired entities? Then I guess some of the cross-selling, where are you actually installing the advertising via the app on convert — via Single-Tap, and then you actually can sell inventory and you have a lot of different ways to kind of increased wallet share. Like when does that kind of story kind of come into fruition?
Bill Stone
We encourage investors to continue to look at aggregate dollar growth versus percentage growth. And I think there’s a thing right now, we get into this concept, our own gross margins. And when we look at our guide, our EBITDA guide was 2x or 40% top-line revenue guide for the year. So there’s a tremendous amount of operating leverage in the model. There’s accelerating free cash flow, there’s accelerating earnings in the model. And so what we’re seeing right now is the revenue synergies are encouraging, because we’re already at — approx 10% of our company revenues are coming from these synergies. Those have more margins, because we’re taking links out of the digital Ad supply chain. So we’ve got a lot of optimism right now. You’re going to continue to see overall EBITDA earnings, et cetera, continue to grow and accelerate.
Darren Aftahi
I think you guys made an announcement a while back about kind of, I don’t think getting into, but ancillary services like payments. So where within the supply chain of Ad tech can you kind of add on from here and will we see future acquisitions, and getting into detail maybe is that — what area the sandboxes are interesting to you?
Bill Stone
For us we think it about it on three levels, we think about continue to look expanding devices, not just smartphones, but other device types, by no means is our platform limited to that. And we’ve talked in the past around television, tablets, and IoT and automobiles and the likes. There’s a lot of acceleration there. There’s also acceleration in terms of looking at alternative operating systems. Things are starting to get traction above and beyond just Android. So that would be area number 1.
Area number 2, would be more products. So you mentioned payments as a specific example there. So that’s something that as the regulations come in and offer customers additional options. You’ve got it Visa takes 1%, American Express takes 3%, and the two app stores that take 30%. And I think where there’s a tremendous amount of opportunity in that space to disrupt — to create some disruption and create some ad advantages for our advertising business in the process of doing that. We’re excited about that.
And then finally, as on the media side, some of you might see an announcement we did late last year around with the expanding relationship with people like TikTok for example. And so as we continue to get more scale, and our platform generates great return on Ad spend, you’re going to continue to see more media partners gravitate. So those are kind of the three areas that we see as big growth drivers for us.
Darren Aftahi
And what we’ve noticed from afar is I think you’ve had repeat announcements with Samsung, TikTok, Telefonica. I’m forgetting someone, excuse my ignorance, but what does that say about your technology? I mean, there are some really, really big companies that are endorsing you. And I guess when you kind of look forward, that’s a pretty big vote of confidence in terms of the technology works and the product ends up doing what it’s supposed to do, which a lot of times doesn’t happen.
Bill Stone
I mean, one of the things I love about our business is it’s not like we’re putting something out there and advertising, like putting an Ad on a Laker game and hoping try and be able to track who bought something. Just everything that happens on our platform has return on Ad spend. And so in a world where people want to see results and they want see what’s happening with every dollar they’re spending in a data driven world, people are going to spend money where they’re generating returns on that investment.
And so with our platform, we’re seeing a great return on investment. Hence, why you’re seeing some of the names you just mentioned wanting to spend money with us, and spend more money with us. And we talked about our metrics like revenue per device continue to go up, because it’s generating returns for the people they’re spending on it. And then for a company like a Verizon, it’s been — you know, we’ve paid them nine figures of free cash flow over the years. I mean, it’s just — so it’s a great business for them, because it’s all at a 100% gross margin. So when you’re generating returns for the advertisers, you can share that with the operators and the OEMs. It’s a, win-win all the way around.
Darren Aftahi
So for newer investors as a story like, how do they think about this simplistically? So you talk about revenue per device, but now you’ve got these two other businesses, which maybe it’s hard to kind of integrate those in, but like do we just think about this as simplistically? Hey, you can get on a couple billion devices and RPD is XYZ, and here’s the margin on that? Like, help us kind of what’s your true north when you think about this from a financial perspective as an investor?
Bill Stone
I think right now is — the big thing is if you think about advertising, it’s really a simple business. Advertisers want to get to customers that meet their target. And you’ve got all these links in the chain to be able to do that for, we can take the link directly from the device, all the way to the advertiser, take those links out of the chain. And then with taking those links out of the chain, you can share more revenue with the operator OEM and you can then get better rates for the advertiser and then obviously more margin points for us. So when we think about the north star, it’s now basically having this direct demand from point A all the way to point B. And then now we’ve got all the links in the chain to be able to control that. And so we talk about our revenue synergies and our metrics against that. That’s a real big strategic focus here for us.
Darren Aftahi
I mean, we’re running a little bit up on time, but anything we haven’t kind of touched on, you think you want to kind of convey to the audience?
Bill Stone
Yeah, no, I think that — I would just encourage — and right now, I feels like with all the macro events that are going on in our world, there’s a very much a shoot first ask questions later. And I’d really encourage investors to do the work, and understand the story and understand what makes our company or other companies different from other companies and do the work. And then see what companies are accelerating, what companies are not just growing their top-line but growing their bottom-lines faster? We think that’s important in this environment. We don’t think growth and value are mutually exclusive, we think they can coexist.
And we right now, we live in this world where everything seems to be treated as a thing, and there’s a lot of fear out in the marketplace. And our view is, we continue to execute and do our thing, the trips will fall where they fall. But right now, we encourage investors to be more discerning versus one size fits all.
Darren Aftahi
Maybe one last one. So Samsung, you guys worked with them initially. They’ve got you into some markets and you’ve expanded that relationship, which maybe hasn’t shown up quite yet, jour device numbers. Just talk about what’s gone really right with that relationship and why they decided to expand with you? And then how does that allow you to work with other OEMs in the future? And is there a pipeline for that of the magnitude of a Samsung?
Bill Stone
Yeah, I think Samsung has been an amazing partner for us. One of the things we, you touched on Mobile World Congress earlier, but just the idea of getting back and dealing with people face to face again is important. With Samsung, is no exception there. And I think that Samsung is obviously the largest smartphone provider in the world, and having a relationship with them is important and getting started with them in a strategic market like Brazil, which is where we started. And we had a lot of success in Brazil. We were able to expand that to Latin America. We were able to expand that to other products like Single-Tap and then be able to show them the results and the execution, then gives them optimism to how do we expand the relationships.
And then once other OEMs see that you’re working with Samsung, that obviously brings credibility to go deal with them. And so, now we’re in the process of expanding with a variety of other OEMs and we unfortunately don’t have time to talk about all the details on that right now. But getting Samsung an anchor tenant is very strategic in terms of bringing on the rest of them.
Darren Aftahi
Any question from the crowd? Great. That’s a wrap. Thanks so much, Bill.
Bill Stone
Thanks, Darren.
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