Digital Turbine (APPS) has been a longtime favorite for us in our SHU Growth Portfolio market, and even before that. The company posted very strong first quarter results, but the shares were sold nonetheless. We believe this is unwarranted.
Pro forma revenue rose 104% to $ 292 million, nearly a run rate of $ 1.2 billion, up nearly 20% from the first quarter, when it reached a pro forma execution rate of $ 1 billion.
App Media business grew 81%. Dynamic installations (Ignite) has grown by 50% and is now installed on over 700 million devices. Media Content (the old Mobile Posse) increased by 150%.
The latter is not yet complete, as AT&T (T) and Verizon (VZ) will launch content later this year, potentially tripling the number of users and revenue (now around $ 100 million with 10 million daily active users on T-Mobile (NASDAQ: TMUS)).
Just one click grew by almost 600%, now accounts for almost 20% of their media on the device (their traditional business after the last three ad acquisitions) and that too has only just scratched the surface.
SingleTap has the advantage of being able to offer higher conversion rates because it provides a seamless experience for users (who do not have to leave the activity they are engaging in). This is a big deal, and others are starting to notice it.
Samsung (OTC: SSNLF) (which is good for some 250 million cell phone sales per year) is starting to launch SingleTap into its global footprint.
The recently acquired AdColony grew 46%, although 20% of their revenue was down due to changes to Apple’s IDFA.
Fiber grew nearly 200%, with Adjusted EBITDA growing even faster as their eCPM doubled from last year and market video (which is “stickier, richer and more inelastic to price”) increases by 450%.
The American telephony market is growing again (+ 10%) thanks to 5G.
All three acquisitions are high growth companies on a stand-alone basis and accretive to earnings and cash flow with cost and revenue synergies yet to emerge.
Operational lever
- Operating expenses were $ 52.6 million, but included $ 8.3 million in costs related to the acquisition.
- Non-GAAP gross margin increased 172% to $ 72.4 million or + 87% pro forma (acquisitions have some negative effect on gross margin, but gross margin is expanding in core business ).
- Revenue growth was over 100%, while non-GAAP Adjusted EBITDA growth increased by 183% and earnings per share growth exceeded 150%.
- Management also expects certain cost synergies to materialize in the coming quarters.
Outlook
From the first quarter conference call:
Second quarter revenue is expected to be between $ 300 million and $ 306 million and Adjusted EBITDA is expected to be $ 44 million to $ 46 million. And adjusted net income per diluted share at $ 0.38 based on approximately 105 million diluted shares outstanding.
This may be the cause of the (slight) sell-off as the forecast looks a bit soft. But that’s really at odds with Q1 results, which showed hypergrowth in several parts of their business, including SingleTap, Fyber, content and video media, and content media deals with AT&T and Verizon. future.
Cash flow and balance sheet
- Non-GAAP free cash flow (operating cash flow – CapEx – non-recurring items) amounted to $ 14.3 million.
- At the end of the quarter, the company had a cash balance of $ 83.1 million and debt of $ 257.5 million for net debt of $ 174.4 million.
Evaluation
With the company already on a pro forma execution rate of $ 1.2 billion, the shares are trading at a very modest 5x EV / S, which seems too low for a company with that growth profile, that position on. the market, this profitability and this generation of cash.
Conclusion
We remain bullish on equities and see several reasons to buy:
- Incredible revenue growth including SingleTap and Fyber, but also video and content media.
- There is already considerable operating leverage and the cost and revenue synergies of the three recent acquisitions have not yet taken hold.
- The company benefits from growing free cash flow.
- Unreasonable valuation of 5x EV / S.
