Edited Transcript of APPS.OQ earnings conference call or presentation 10-Feb-20 9:30pm GMT

This execution was particularly evident in the December quarter with a record-high blended revenue per device, or RPD, north of $3 with our core U.S. operators, which is an increase from just under $2.50 versus prior year and also meaningful quarter-over-quarter and year-over-year growth with our international partners.

Our revenue per device performance continues to be driven by strong demand among advertisers across numerous categories, including brands, games and mobile-first applications such as Pandora, Disney+, Apple Music, Snap, Amazon and others. Barry will take you through the financials in a few minutes, but for now, I do want to quickly highlight our efficient operating leverage and record cash flows generated during the quarter.

This is one of the primary reasons that I get so excited about the inherent potential of our business model. Now that we operate as a cloud-based mobile software company at true scale, we are really starting to harvest the fruits of real operating leverage as our profitability expands at a far faster clip than our revenues. This was evident in the December quarter, a quarter which we managed to grow our EBITDA at a 47% annual rate and generate an all-time record of more than $7 million of free cash flow, even despite headwinds impacting our top line growth.

In addition to our operational prowess in the quarter, I also want to highlight our markedly improved diversification. As you’ve heard me say many times, we’re extremely focused on diversifying our business, diversifying it by partner, by geography and by product. In terms of partner diversification, our total revenue with our initial U.S. partners, Verizon, AT&T, Cricket and U.S. Cellular, increased year-over-year despite a decline in the total combined devices sold and represented just over 70% of our total revenues in the December quarter, which compares to approximately 85% in the year-ago December quarter and over 90% in the December quarter 2 years ago. Helping us in this diversification are our rollouts with newer based U.S. partners such as TracFone and international partners such as Samsung and América Móvil. And specifically, with respect to Samsung and given the importance of this partnership, I want to provide an update on our progress.

To date, our software has been installed on more than 7 million unlocked Samsung devices across more than 75 countries. In particular, I want to call out Brazil as a highly strategic market for both us and Samsung. Samsung has the majority OEM market share in Brazil, and we are focused on growing our business not only with Samsung in Brazil but also Telefónica, América Móvil and others. We currently believe that we have line of sight to having our software in the vast majority of devices in the Brazilian market by the end of this calendar year. And with this expectation in mind, we continue to invest on-the-ground resources in Latin America to best ensure that we optimally capitalize on our wealth of opportunities in the Brazil and surrounding areas.

I’d also like to announce today that we have a partnership with AT&T in Mexico that we expect to launch this summer. For context, AT&T Mexico has approximately 20 million subscribers. And we expect this partner diversification trend to continue going forward as Samsung and other new partner rollouts such as Telefónica continue to progress and as we add additional partners such as LG to the platform. We’re very excited to formally announce our global partnership with LG today. We’ve already begun working on integration and go-to-market plans with LG and expect this partnership to begin contributing revenues this summer. Similar to our announced partnership with Samsung, we will be focused initially on LG’s open market devices across multiple geographies.

In the big picture, our LG partnership is another validation of the value that our solutions can provide Tier 1 OEMs. And on a related note, I also want to continue to reiterate that we have productive ongoing discussions with many other OEMs, including several of the leading Chinese ones that we hope will lead to additional formal global partnerships for us in future quarters. In short, we see a tremendous amount of opportunities to grow our global device count, which, as all of you know, is 1 of our 3 key growth drivers for our business.

Product diversification is another primary growth driver for the business. And in terms of product diversification for the December quarter, our newer products beyond dynamic installs nearly doubled year-over-year and reached an all-time high of 20% of our total revenues during the quarter as compared to 13% in the year-ago December quarter and 2% in the December quarter 2 years ago. We saw encouraging performance metrics and heightened demand for many of our newer products during the quarter. Our Notification and Wizard products were the largest aggregate contributors of revenue growth, but other products such as Media Hub and Single-Tap continue to show promise.

And in particular, our media products worth to call out here. The recurring revenue nature of that business and our early positive returns were a catalyst for our pursuit of Mobile Posse, which I’ll discuss later in my remarks.

We are now live with our initial Single-Tap with our first mobile measurement partner, Branch. And although it’s taken us longer than expected to integrate with them, we still believe this integration is a catalyst for growth going forward. We continue to work with many other high-profile partners on Single-Tap, including names such as Pinterest; Twitter; Epic Games, which owns the Fortnite franchise, to name a few.

And lastly, I want to mention that we are continuing to make meaningful progress in discussions with select strategic partners regarding expansion into televisions and expect this new product and device category to be a growth driver for our overall business in the future.

I want to now turn to our Mobile Posse acquisition. First, I want to call out and recognize Founder and CEO, Jon Jackson, and the Mobile Posse team. Jon and I have talked a number of times over the years, and we’ve been admiring their progress. They’ve done an amazing job building their business from scratch. Six years ago, this was a business doing less than $10 million in revenue. Today, it’s doing over $55 million annually, with all of the revenues of a recurring nature and as such, less sensitive to fluctuations in new smartphone sales from quarter-to-quarter.

Jon’s brought a great entrepreneurial spirit to his team in building that business. We believe we can now leverage their success and take it to a true global level with our scale, relationships and operating expertise. Culturally, the moxie of the Mobile Posse team is something we really like well and resonate with. They not only understand the mobile ecosystem and share our vision of connecting the dots between mobile operators and OEMs to customers and advertisers that want to be on the home screen, but they do it with amazing hustle, professionalism and a real attention to the details.

Mobile Posse has many different mobile products that are complementary to our app install products. They have a Minus One Screen that you swipe left off the home screen for content, a product that powers the mobile operators’ content portals, a home screen product and also a product similar to our Media Hub product that curates news, weather, sports and other content through an application and/or a widget on the home screen. They monetize these products by way of programmatic advertising, and their platform works with the largest advertisers, such as highly recognizable names like Google, The Trade Desk and Rubicon to name a few. That is their demand and their source of revenues. And similar to us, they then pay their supply partners via revenue share such as T-Mobile, MetroPCS, Boost, AT&T, BLU and Cricket.

We’re excited about this transaction for many reasons. First, it is immediately accretive and being fully funded with our existing cash and debt resources. There is no dilution to Digital Turbine shareholders. Secondly, 100% of Mobile Posse’s revenue are recurring and therefore, will dramatically increase the overall percentage of our combined revenues that we derive from more predictably recurring revenue sources. Third, we’re excited about the revenue synergies. Specifically, we believe our ability to cross-market their differentiated products to our vast set of distribution partners and conversely, cross-sell our DT products to their unique distribution partners, along with the opportunity to establish the combined entity as more of an advertising powerhouse with more products and more partners can improve the revenue per device on Mobile Posse’s existing business.

This acquisition fits hand in glove with our core diversification strategy. Post close, we expect the combined entity to generate more than 1/3 of total revenue from recurring sources and expect no single mobile operator or OEM distribution partner should be responsible for more than 1/3 of our total company revenues.

At close, CEO Jon Jackson will join our team as general manager of the Mobile Posse business to ensure we don’t miss a beat on execution. And together, we’ll work to facilitate a smooth integration process while working to unlock revenue and cost synergies wherever possible. The bottom line is this will be a transformative acquisition for Digital Turbine and will significantly move the needle for our top line and bottom line growth trajectory.

And with that, let me turn it over to Barrett to take you through the numbers.

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [4]

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Thanks, Bill, and good afternoon, everyone. Before I step through our quarterly results, I’d like to cover our recent news on our agreement to acquire Mobile Posse. We’re very excited about this transaction as it represents a unique opportunity for Digital Turbine. And while Bill touched on many of the strategic rationale points, from a tactical perspective, this acquisition enables us to gain access to a strong team, a new set of technologies, partners and distribution channels, broaden our relationship with existing customers and drive accretive financial performance.

Now in terms of deal specifics, we entered into an agreement with Mobile Posse to acquire all of the outstanding capital stock for an estimated total purchase consideration of $66 million, with $41.5 million paid in cash at closing and the balance through a 12-month earn-out based on certain target net revenues less associated revenue share or what we refer to as our gross profit. We expect the cash consideration to be funded by a combination of existing cash balances, future cash flows from the combined operations and debt financing. As this is an all-cash transaction, no equity will be issued as part of the purchase consideration for this transaction.

While we will finalize our estimates of the transactions, final — financial impact as well as the accounting for the transaction when we close the deal, which is expected in our fiscal Q4, I did want to share a little about Mobile Posse’s profile based on their preliminary unaudited financials. First and foremost, we like their attractive financial model, which includes all recurring revenues, strong operating leverage resulting in sustainable profitability and positive free cash flows. For the calendar year ended December 2019, Mobile Posse generated revenue in excess of $55 million with profitable, healthy growth — gross profit and EBITDA margins, which are both accretive to our stand-alone results.

I’m also very optimistic about this acquisition. Jon Jackson, Mobile Posse’s CEO, and the team at Mobile Posse, have built a great business and we are really looking forward to welcoming all the employees at Mobile Posse to the Digital Turbine team. I am confident that our teams will come together quickly and effectively.

Now turning to the results in the quarter. We delivered strong results in our third quarter, which with continued top line growth along with expanding profit margins, enabled us to generate adjusted EBITDA of $5.6 million and $7 million in free cash flow during the quarter. As a reminder, my comments will refer to comparisons on a year-over-year basis and results for continuing operations, unless otherwise noted.

Revenue of $36 million in the quarter was up 18% versus the prior year. We experienced expanding margins with non-GAAP gross margins increasing to 40%, up over 300 basis points year-over-year, enabling us to generate $14.4 million in gross profit representing a growth rate of 29% year-over-year. Our gross margin expansion is largely being driven by successful diversification of partners and products on the platform and as a reminder, can be sensitive from quarter-to-quarter based on changes in partner mix and revenue type.

Total operating expenses were $9.9 million during the second — during the third quarter as compared to $8.2 million in the prior year. Cash operating expenses totaled $8.9 million, representing an increase of 19% year-over-year as gross profits are growing 29% in the same period.

I will highlight that our operating leverage is being achieved even as we make a number of focused investments, specifically within our international business to support the initiatives that Bill outlined earlier, and to support new partners and products to drive future incremental revenues on the platform.

Now turning to net income and cash flow. We achieved non-GAAP net income of $5 million or $0.05 per share during the quarter. Adjusted EBITDA was $5.6 million in the quarter, up 47% over prior year, and margins continue to expand to 15.5% this quarter from 12.5% in the prior year quarter. Free cash flow totaled $7 million, an impressive increase of $5 million as compared to the prior year quarter, strengthening our net working capital position to a positive $11.7 million in the quarter, which is an improvement of 7.7% from the sequential quarter and better by $14.5 million over the same quarter last year. Our GAAP net income from continuing operations for Q3 was $3.3 million or $0.04 per share based on 92.5 million weighted diluted shares outstanding compared to a third quarter of 2019 net loss of $1.1 million or $0.01 loss per share.

Included in our GAAP net income for the quarter is a recorded loss of $0.9 million from the impact of the change in fair value of derivative liabilities connected to outstanding warrants issued related to our previously retired convertible notes.

With respect to the balance sheet, the positive cash flow trends that I noted earlier contributed to a much stronger balance sheet at quarter end. We finished the quarter with $33.7 million in cash, up from $10.9 million in the prior year quarter and 0 debt on the balance sheet. With the strength of our current balance sheet position and the accretive financial profile of the announced Mobile Posse acquisition, we’re excited about our position to further bolster our balance sheet.

Now let me turn to our outlook. We currently expect revenue for Q4 to grow between $33.2 million and $34.5 million, representing growth of 24% at the midpoint of this range and expect adjusted EBITDA to grow to between $3.5 million and $4.0 million. Please note, our outlook is exclusive of any impact from the acquisition of Mobile Posse.

With that, let me hand it back to the operator to open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Mike Malouf with Craig-Hallum.

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Michael Fawzy Malouf;Craig-Hallum Capital Group LLC, Research Division, [2]

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Congrats on the pending acquisition of Mobile Posse. It sounds great. A couple of questions on that. Can you talk a little bit — you talked a little bit about how much growth they had in the last 6 years. But could you comment on recent growth, particularly 2019 growth? And then when you talk about some cross-selling, I’m wondering if you could just talk a little bit more with regards to carriers. Are there any particular large carriers that they can get you into?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [3]

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Yes. Thanks, Mike. Let me take the second part, and I’ll turn it over to Barrett for the growth part of your question. Yes, that’s one of the things we’re really excited about, is not just the performance of their existing business and the EBITDA they’re already generating and the revenue they’ve been able to grow over the past few years but the ability for revenue synergies and the ability for us to take our products onto some of their distribution, which would include companies like T-Mobile and MetroPCS but also the ability for us to take their products onto our distribution, both here in the United States as well as outside the United States. And as I referenced in my prepared remarks, the early returns on our Media Hub product were very encouraging, so the ability for us to leverage Mobile Posse’s similar situated products that are already built, already tuned, already ready to go onto our distribution, we think, will generate some nice top line growth for us in the future. So we see it going on, on both sides. And then as far as the growth rate, I’ll turn it over to Barrett.

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [4]

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Yes. Sure, Mike. Thanks by the way. Yes, we’ve — while I won’t comment directly on specifics with respect to prior year’s growth, we will disclose the appropriate financials when we close the deal later this quarter. But I will say, you would have heard in our comments, we think a lot of this team that Mobile Posse and certainly centered on growth orientation. And so they’ve seen a lot of growth and they’ve built a lot of products, both existing and new products that enable that growth over the long term. So we’re pretty excited about this acquisition.

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Michael Fawzy Malouf;Craig-Hallum Capital Group LLC, Research Division, [5]

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Okay. Great. And then just a couple more questions. With regards to Samsung, it sounds like certainly getting into Brazil is a big deal and you continue to expand that relationship. Where are we now with regards to, say, the percentage of unlocked phones on Samsung as we stand now? And how long do you think it will take to get through all of those? And then maybe just a comment on LG. How big — as you sort of see the opportunity of LG versus Samsung, how big is that opportunity?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [6]

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Yes. So first, let me talk about LG. I think that — I think, globally, you see LG is roughly about 10% of the size of Samsung in terms of global units shipped. And so we’ll see what their road map looks like for the balance of this year. In terms of Samsung specifically, as I referenced, we’re in 77 countries, many millions of devices. And how I’d like to think about Samsung is if I go back and I look at now how TracFone has ramped or Cricket or Verizon or AT&T, they’ve all had this kind of really nice, steady drumbeat over time, and we see continued momentum quarter-over-quarter with different growth.

The great news about Samsung, as you’re well aware, they move north of 200 million smartphones a year. So the fact that we’re talking about now getting on to kind of mid-7 figures, approaching 8 figures of devices, we’ve got a lot of room to grow that relationship. And so our expectation, as you saw, a really nice clip of growth from December quarter compared to September, and we’d expect similarly to see similar growth for the March quarter and going forward. So I’d expect to see it continue to grow at a real nice healthy clip, although it’s not like we’re going to flip a switch and it’s going to go to 200 million in the March quarter or anything like that. But I do think we’re on a nice trajectory to continue to grow it as evidenced by the increase both in models and by countries.

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Operator [7]

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The next question is from Darren Aftahi with Roth Capital Partners.

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Darren Aftahi, ROTH Capital Partners, LLC, Research Division – MD & Senior Research Analyst [8]

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Just to kind of follow-up on a couple of things there. On Mobile Posse, so correct me if I’m wrong, so they have no international presence, is that correct?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [9]

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Yes, that’s correct.

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Darren Aftahi, ROTH Capital Partners, LLC, Research Division – MD & Senior Research Analyst [10]

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Okay. So a couple of questions there. Number one, why is that the case? Number two, how hard is that to kind of take internationally their platform? And then, three, is there a leverageability point a la your platform where you can actually take this to other screens besides handset?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [11]

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Yes. So the last question, Darren, absolutely. And that’s part of our thinking already within — part of the excitement here is we start thinking about televisions and advertising on televisions and how good of a job Mobile Posse does of doing that on home screens of smartphones. It’s a natural extension. So that’s absolutely something that we’re thinking about.

As far as the international piece of it, this is one of the reasons I think Mobile Posse did the transaction, is the ability to leverage our distribution and scale, and they just simply didn’t have the reach that we have. As we know, for those of us that have been here for a number of years, it takes a while to get these relationships and get them established. And so the ability to now be able to have the opportunity to port that technology to a lot of these international partners is something that we’re really encouraged by, and we’re going to start talking about that at Mobile World Congress here in a few weeks. So absolutely something that we’re excited about. In terms of platform, some minor changes around the edges in terms of kind of internationalization and localization, but nothing that I would consider a material forklift in terms of supporting these international partners.

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Darren Aftahi, ROTH Capital Partners, LLC, Research Division – MD & Senior Research Analyst [12]

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Got it. And then just 2 more if I may. Maybe one for Barrett. So you said cash on hand and future cash flows and debt. What’s kind of the right level for this combined entity to have kind of a cash balance? I’m just trying to understand how much of this is going to be financed versus kind of cash on the books.

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [13]

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Yes, I think we think about we’ve got 2 businesses here that have positive working capital, right? And so the — it’s a nice equation to have. And so the amount of cash that the company would need is minimal, call it, $5 million to $15 million, Darren, if we’re thinking about that, given that it’s got a positive cash conversion, both businesses. So you should probably think about range of debt, and we’re still finalizing some of these things but in the range of $20 million to $25 million of debt.

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Darren Aftahi, ROTH Capital Partners, LLC, Research Division – MD & Senior Research Analyst [14]

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Got it. That’s helpful. Just last one for me. So you guys have done a really good job in the past of being able to guide kind of in the face of some of these macro, just headwinds on the handset. So 2 questions here. One, I’m just curious, is there anything you’d kind of call out about November, in particular, with handset sales? And then as we contemplate your March quarter guidance, is there any type of inherent risk that this repeats itself in that quarter? Or is that kind of already factored in?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [15]

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Yes. So Darren, I think that in terms of the guidance, we were really surprised of what we saw in just the month of November. And I called that out specifically because we actually exceeded our own internal plans for December in terms of what we thought in terms of both devices and revenue from other sources. So it was really a month of November, and I think November was really driven by a couple of factors. You heard me reference on the last earnings call just the shorter number of shopping days and those kind of things. I think those dynamics are definitely at play.

I also think in the month of November, we saw a little bit more aggressive iOS promotional activity than we’ve seen in prior years. And so I think those 2 factors amongst our core kind of 4 U.S. operators drove a surprising, disappointing performance, but yet, in December, we didn’t necessarily see that. So I kind of view that as a 1-month blip. I think we’ve got pretty good command and control over our device forecast. We’re working pretty closely with partners on that on a go-forward basis and have definitely baked that thinking and input into our guidance.

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Operator [16]

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The next question is from Austin Moldow with Canaccord.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [17]

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The first one, I just wanted to ask about Telefónica. Can you give us an update on the timing and impact of that rollout that’s expected?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [18]

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Yes, so Austin, we’re really close to launching with Telefonica. We hope to have some good news on that soon. We’re kind of in the throes of integration planning with them and Samsung as we speak and expect to launch that in a number of countries in Latin America, including Brazil, but also in the U.K. as well. And then how we go with those first devices in first markets will really dictate the speed and intensity by which we roll out from there.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [19]

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Okay. And related to that, can you walk us through the revenue share in that 3-way relationship relative to what you’re currently getting with Samsung and how adding a partner to the mix will change that?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [20]

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Yes. So there’s kind of 2 elements there. One is the — how it worked with Samsung and then one would be how it works without Samsung devices and other third parties, and so those are separate. In aggregate, I mean, we’re not going to give the specifics of any specific — any agreement here on the call. But what I will say is what we are doing with Telefónica in aggregate is not going to be detrimental to our overall margin structure.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [21]

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Got it. And for RPD, I think you said RPD from the 4 major U.S. partners was over $3. Can you get any more granular with that or maybe share the growth rate on that? Or maybe if you can only speak qualitatively, can you just talk about some of the drivers there or which of the partners perhaps did worse or better?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [22]

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Yes, sure. So I think that it’s really comprised of 2 things. One is more media being run and those media partners paying higher rates. And then the second is the new product growth really starting to kick in. As we referenced, for the first time, we were able to hit 20% of our revenues coming from non-dynamic installs, and so that’s 1 driver of the $3 that we saw. And then the other one is just our media partners spending more across different types of categories. In terms of partners, I’d call out or maybe more in general is I think we continue to do a great job on flagship high-profile devices, and I can say that we continue to have some work to do to improve RPD on kind of lower-end or lower-tier devices in terms of how we see the growth bifurcated out. So for something like, for example, 5G, that would be a tailwind for us. But to the extent we see lower-end devices coming to market, that may be a little bit of a headwind in terms of aggregate RPD.

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Operator [23]

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The next question is from Lee Krowl with B. Riley FBR.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division – Associate Analyst [24]

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Could you maybe just, on the Mobile Posse acquisition, touch base on whether there’s any cost synergies associated with the combination?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [25]

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Yes, let me talk at a high level. I’ll turn it over to Barrett. Yes, this is a revenue synergies deal, not a cost synergies deal. With that being said, there may be some cost synergies in terms of our hosting agreements with AWS where we’ve got more purchasing power and buying power and some things around the edges like that. But this is really about investment and revenue synergies and how do we continue to grow the top line business for the go-forward companies. But Barrett, I don’t know if you want to add anything else onto that.

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [26]

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No, I think you hit on it. This is a growth acquisition, while there’ll be some small corporate costs that are avoided in the future. We like their culture. We like their financial model. As both Bill and I mentioned, they’ve got a lot of operating leverage in their model. But this is a growth play and a revenue play.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division – Associate Analyst [27]

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Got it. And then switching over to Single-Tap for Samsung. You guys announced it on the last call, maybe provide an update there and perhaps an update on the time line to generating revenue with Single-Tap on Samsung?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [28]

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Yes. So we expect it to occur imminently. We actually have a couple of our senior guys down in Brazil as we speak. They’re going to — I think, there, Samsung is actually having a kickoff event for our Single-Tap launch in Brazil later this week. So we’re just kind of getting going with the planning and then getting to local demand partners there, excited about it. And as soon as we start bringing some of those demand partners on, we’d expect it to go live sometime later this quarter. And just the overall international Single-Tap story is something we’re also — have been encouraged by as well as we’re going forward.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division – Associate Analyst [29]

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Got it. And then just the last one for me. You guys kind of talked about making investments in the sales force, especially internationally. Kind of where we are on the time line for those investments translating to kind of increased productivity around RPD for some of the lower-end devices?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [30]

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Yes. So when we think about our investments and our channel strategy, we really think about it across 3 dimensions. We think about automation and self-serve is one to really capture the long tail of app providers. We think about growing. Number two is our existing sales force and continuing to add bodies in local areas where it makes sense. And then number three is really the establishment of channel partnerships and agency partnerships where we can work with third parties that are already in the process of selling media, whether it’s app installs or other types of media, and be able to leverage their footprint and relationships. And we’re making investments across all 3 of those areas right now, and we’re already starting to see some efficiencies from that. And so as we think about especially scaling the international part of the demand, I would really focus on more channel partnerships to cast a wider net and then more self-serve options for some of the long tail of app providers in some of these countries that will be the key catalyst to drive improved productivity.

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Operator [31]

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The next question is from Jon Hickman with Ladenburg.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [32]

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Bill, almost all my questions have been asked and answered. But I would appreciate your comments on what’s going on in China versus with the virus. Is your March guidance factoring in some possible, like, softness there this quarter?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [33]

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Yes. Thanks, Jon. Yes. So in regards to China, the good news for us is that we don’t have any partnerships in China. We’re not doing business in China. We’re really focused on what I call China-out strategy, which is how do we help the Chinese OEMs and the Chinese app developers like Tencent and Alibaba. We’re working a lot with TikTok right now, how do we continue to expand their presence outside of China to other international markets, whether it’s U.S., Latin America, Europe, et cetera.

So in regards to the virus, we’re not seeing any impact there because it’s really focused — all those activities are focused on outside of China. We’ve got a lot of exciting Chinese OEM opportunities in the pipeline right now. I will say some of — not just the virus but also some of the other macro noise that’s going on is definitely been a little bit of a headwind on some of those deals, but we expect, as that goes away, we’ve got the macro kind of thesis of our opportunity to work with those Chinese OEMs. Just something we’re really excited about, so stay tuned.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [34]

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Okay. And then — so when do you think — I know you said you were going to close — you think you’re going to close the acquisition this quarter. Do you think it’s going to take most of the quarter to get that done?

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [35]

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Yes. There’s not anything really complex about the close activity. And so yes, we think probably the — we’re probably weeks away here from closing.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [36]

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Okay. So that will put you into March, right?

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [37]

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That’s right.

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Operator [38]

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The next question is from Allen Klee with National Securities Corporation.

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Allen Robert Klee, National Securities Corporation, Research Division – Research Analyst [39]

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How do you think about how the new 5G phones are going to impact calendar 2020? And do you believe that kind of overall devices in U.S. that you will — are going to decline or that there’s an opportunity for that to grow?

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [40]

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Yes. Thanks, Allen. Yes, we expect to start seeing an increase of 5G devices as we kind of go out through 2020. I just saw an article a few days ago, actually, that AT&T just lit up 13 more cities with their 5G product. So as those cities come online, you would expect devices to follow. And I think, as you’re well aware, there’s not an Apple 5G device that’s expected to come out until the back end of this year, so it’s only Android. So as those markets light up, I think that’s something that will definitely benefit us. I just would make a point, too, as those markets light up, it’s in the operator’s interest to get the 5G devices in the hand just because the cost to deliver all the video and other high bandwidth applications is better for the carrier. So it’s not just the customer pulling the device. It’d be the carrier pushing the device onto the marketplace. And so that’s something we would expect to start seeing as we start seeing more and more high-profile 5G devices launch like the Samsung devices, LG, Motorola, et cetera.

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Allen Robert Klee, National Securities Corporation, Research Division – Research Analyst [41]

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My other question is for new products, you grew that to around 20% of revenue. And I was wondering, is there a way we can think about like how penetrated that is in the overall like number of devices you sell to try to kind of figure out what the opportunity is there?

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Barrett Garrison, Digital Turbine, Inc. – Executive VP & CFO [42]

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Yes. You’d have to break apart — it’s not exactly the way we look at it because not all devices are created equal. We really look at what portion of the RPD or the total revenue streams are we driving from non-dynamic install. So that’s how we’ve measured it. I wouldn’t have offhand a way to translate that to per device. But we like the direction that we’re moving and diversifying these new product streams. As Bill said, hitting 20% was an important step for us.

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [43]

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Thanks, Allen.

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Operator [44]

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

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William Gordon Stone, Digital Turbine, Inc. – CEO & Director [45]

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Great. Thanks, everyone, for joining the call today. We look forward to reporting on our progress against all the points we made on today’s call. And we’ll talk to you again on our fiscal 2020 fourth quarter call in a few months. Thanks, and have a great night.

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Operator [46]

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