Negative Points
-
Non-GAAP gross margin declined to 43% from 47% a year ago, due to higher revenue share (49% vs. 45%) and increased hosting and platform costs.
-
EBITDA guidance was reiterated rather than raised despite the revenue beat, as Digital Turbine Inc (NASDAQ:APPS) plans incremental investments in data and AI, which may pressure near-term profitability.
-
Global device volumes face macro headwinds from DRAM pricing issues in the supply chain, which could constrain ODS growth.
-
The new Tier 1 EU operator win and Orange ramp are not expected to be material to revenue in the current fiscal year, limiting near-term contribution.
-
Operating expenses are expected to face upward pressure from investments in AI talent and compute, partially offsetting efficiency gains from automation.
Q & A Highlights
Q: You raised revenue guidance but left EBITDA unchanged. Why didn’t EBITDA guidance get raised as well? A: CEO William Stone explained that encouraging results in the performance advertising business prompted the company to make incremental investments in data and AI, both in people and systems. He noted the company is being prudent on the bottom line while scaling the top line, since different businesses carry different profitability profiles. CAO Joshua Kinsell added that strong growth in gross businesses pressured margins, and the company wants to make measured investments to accelerate growth in FY 2028 and beyond.
Q: How long will it take to ramp Orange, and is the new EU Tier 1 carrier win similar in product, opportunity, and size? A: CEO William Stone said the new Tier 1 EU operator win follows the company’s established pattern of starting with a few products and markets before expanding over time. He does not expect either Orange or the new partner to be material to the back-half revenue guide for this fiscal year, but both should be growth drivers in the next fiscal year.
Q: What is the payback period on the incremental AI and data investments, and how much should they improve the growth trajectory relative to the current pace? A: CEO William Stone described the phases: first, proving data and AI deliver good advertiser outcomes (done); second, delivering incremental revenue (underway and visible in results); third, optimizing to drive more gross profit and EBITDA. He said the company is being prudent in guidance but made incremental investments because its unique first-party data and distribution approach is a differentiator.
Q: AGP continues to significantly outperform consensus. What areas of optimism exist in the non-gaming mix, and should we expect elevated AGP growth through this year and into next? A: CEO William Stone said operational and back-office targeting improvements will let the company cast wider nets with audience targeting on its data, and brand dollars are migrating to mobile-first channels from the open web. On DTX, non-gaming continues to grow healthily, with more AI and agentic AI apps leveraging the SDK footprint internationally, plus better use of signals with its own DSP and third-party DSPs.
Q: How much of the accelerated AGP growth is share-taking from internal initiatives like AI-driven data targeting versus a tailwind from dollars moving off the open web? A: CEO William Stone said it is a combination of both. Dollars migrating out of the open web is a macro tailwind, with App Store apps up 30% and more time spent in apps. But the combination of first-party data and broad distribution footprint delivers better advertiser outcomes, driving retention and more ad dollars.
Q: With OpEx down 5% sequentially, will G&A and R&D continue to decline as AI efficiencies are leveraged, and where will the investments be focused? A: CAO Joshua Kinsell said the incremental investments will focus more on demand-driving areas, including direct costs and R&D, rather than G&A or sales and marketing, with money directed toward AI and data analytics.
Q: How far along is internal AI adoption, and how much more efficiency is left to gain? A: CEO William Stone said it is still early days and framed AI investments in three areas: automate and simplify (showing tangible OpEx results now), driving incremental top-line and gross margin dollars, and strategically leveraging distribution for other companies’ AI efforts. Automation savings will be partially offset by investments in data science, machine learning personnel, and compute, but should generate more EBIT over time.
Q: What is driving ODS growth in revenue per device and international, have macros been stable versus 90 days ago, and how should we think about the second half across both segments? A: CEO William Stone said ODS international grew 50% year over year, with device volumes increasing despite handset pricing and shipment macro headwinds, and better advertiser outcomes driving improved rates. For AGP, he expects continued brand momentum and DTX growth from a larger SDK footprint plus more of its own DSP demand and third-party DSPs.
Q: Can you elaborate on Ignite and how you prioritize new signal categories for the machine learning models? A: CEO William Stone said first-party data signals from Ignite, including installed packages, time spent on devices, location, device types, and app usage, are a unique differentiator that others in the ecosystem may not have, enabling better advertising outcomes. Ignite also serves as a platform to deliver products beyond apps, partnering with third parties, which is another growth driver within ODS.
Q: Non-gaming now represents about 40% of DTX ad spend. Is there a midterm goal for the non-gaming mix, and which verticals are driving diversification? A: CEO William Stone said the goal is to grow the entire pie rather than shift between gaming and non-gaming. Non-gaming is attractive because it indexes on digital services like streaming audio, streaming video, and social media rather than energy prices and tariffs, with agentic AI apps also emerging as a growth area. CAO Joshua Kinsell noted the 40% non-gaming figure is on the demand side, while the supply side is actually quite a bit higher, an important differentiator.
Q: For brand and DTX combined growth of over 36%, what are expectations for rate expansion versus higher volumes going forward? A: CEO William Stone said the company will focus on both, but rates have been driving more of the results than supply because better execution against data using AI tools delivers better return on ad spend, encouraging advertisers to spend more and enabling higher pricing through more competition.
Q: What is driving elevated AGP growth rates for the last several quarters, and can customers measure better performance versus other ad tech solutions? A: CEO William Stone said the business is data-driven and binary: if advertisers see performance they spend more. Consecutive quarters of impressive growth reflect better results driven by AI, data, targeting, and operational execution. He highlighted that the real turnaround since the last earnings call has been on the performance side with the company’s own DSP.
Q: Can you share details on the new EU partner, such as customer size, devices, or countries? A: CEO William Stone declined to share specifics yet, calling it an exciting win and proof point of traction in international ODS. With Orange,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
