Digital Turbine(US:APPS)2023-02-09 00:30Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $162.3 million, down 25% year-over-year, impacted by a deceleration in advertising spending and declines in U.S. device sales [26][28] - Non-GAAP gross profit margin increased to 50% from 46% year-over-year, with non-GAAP gross profit of $81.2 million, down 18% year-over-year [27][28] - Adjusted EBITDA was $40 million, a decrease of 30% year-over-year, with an EBITDA margin of 25% compared to 26% in the prior year [28][29] - Non-GAAP adjusted net income was $30.2 million or $0.29 per share, down from $50.9 million or $0.49 per share in Q3 2022 [29] Business Line Data and Key Metrics Changes - The on-device business saw a 10% year-over-year increase in overall devices, but U.S. device sales were the lowest since fiscal 2019, impacting quarterly results [15][26] - Revenue per device (RPD) in the U.S. was over $5, up year-over-year, while international RPD did not see the same growth due to a higher mix of devices in developing markets [15][16] - The app growth platform (AGP) business was flat quarter-over-quarter but down 24% year-over-year, primarily due to macro declines in ad rates and consolidation of AdColony business lines [18] Market Data and Key Metrics Changes - Global device shipments declined by 12% in 2022, the lowest level since 2013, with U.S. shipments at their lowest since 2019 [10][15] - ECPMs across all ad formats and geographies declined between 10% to 20% year-over-year, consistent with industry trends [19] Company Strategy and Development Direction - The company is focusing on capital allocation towards future projects, emphasizing growth in the brand business and SingleTap while deemphasizing legacy performance and reseller ad tech businesses [14] - The launch of alternative app stores is seen as a strategic growth opportunity, with plans to leverage on-device technology and partnerships to create new revenue streams [20][22] - The company aims to build a Shopify for app stores, addressing market pain points and enhancing app publisher experiences [21][22] Management's Comments on Operating Environment and Future Outlook - Management views the current macroeconomic challenges as temporary, with expectations for a rebound in digital ad spending as advertisers adjust their strategies [8][12] - The company is committed to running a lean and profitable business, with cash operating expenses decreasing year-over-year [30] - The outlook for fiscal 2023 revenue is projected to be between $660 million and $670 million, with adjusted EBITDA between $165 million and $170 million [31] Other Important Information - The company has extended contracts with AT&T and Verizon for three and four years, respectively, which is expected to provide stability [13] - The company is experiencing headwinds from prepaid content media products, which are not prioritized over other growth initiatives [54] Q&A Session Summary Question: Visibility on device numbers and assumptions for the March quarter - Management indicated that they had visibility on device forecasts from partners, but the holiday season did not meet expectations, leading to a haircut in assumptions for the current quarter [34][35] Question: Pipeline for SingleTap licensing - Management noted strong product market fit for SingleTap, with operational challenges being the main hurdle rather than interest from potential partners [36][37] Question: Impact of pricing and volume on revenue decline - Management clarified that the decline was primarily driven by pricing on the ad tech side, while volumes remained relatively flat [47][48] Question: Update on prepaid content media partnerships - Management acknowledged the need for improvement in content media partnerships but emphasized focus on other growth areas [52][54] Question: Challenges from SDK runtime changes - Management stated that they are not currently facing headwinds from SDK changes, focusing instead on ad tech enhancements [56]