Mandalay Digital adds Deal with Verizon to its Quiver
Wednesday morning Mandalay (NASDAQ:MNDL) hosted a brief conference call to update shareholders on its recent progress. On the call the company disclosed that it had sealed a deal with Verizon (NYSE:VZ) for both its Digital Turbine Ignite and IQ products. Commercial launch with Verizon is expected Summer 2014.
The Ignite product is the flagship product of Mandalay as it enables the carriers to regain control and monetization of application delivery and installation across their customer base. The IQ product is a user interface that organizes applications and search in a way that is customized for the individual and at the same time provides recurring revenue potential to both the carrier and Mandalay, regardless of operating system. Mandalay also has products targeting content distribution/management and digital payments that have been adopted by a number of carriers around the globe. We would strongly encourage anyone unfamiliar with Mandalay to review the investor presentation on the web as it not only describes the various products, but also illustrates the breadth of Mandalay's success to date.
The Verizon deal discussed on Wednesday morning is just the latest in a series of big carrier deals signed by Mandalay over the past 12 months. In mid-December, Mandalay hosted a more detailed call outlining several new projects including an expansion of their existing relationship with Telstra in Australia. Mandalay's slide deck summarizes these deals as already providing access to over 1 Billion subscribers. On the December call, Mandalay also introduced a number of metrics for the Street to track their progress. Slide 22 of the presentation recaps them as follows:
• Total global smart phone market = ~ 6 billion units (Asia Pacific planning to grow at ~6x greater than the US)
• MNDL current total addressable market = ~1 billion units
• MNDL technologies currently deployed on 30 million units (several hundred thousand DT Ignite™ installations completed and pending on new phone releases)
• MNDL products and technologies used on 2.0-2.5 million unique devices, or an average of 2.25 million over the three months ended 11/30/13
• MNDL realized $3.02 in ARPU for quarter ended 9/30/13 with varying margins versus an industry average $1.00
Importantly, Mandalay doesn't need to expand its operations to deliver its solutions. Mandalay's infrastructure is massively scalable via Cloud computing. While some sales and support staff will ultimately be required, the financial leverage in the model is immense and CAPX requirements are minimal. Mandalay is targeting break even EBITDA results exiting 2013. Moving into 2014, with the numerous deals already engaged/announced, we believe the money is going to rapidly fall to the bottom line.
Mandalay is currently covered by only two sell-side shops (Ladenburg Thalmann and Merriman) and none of the models have VZ in them. Our contacts suggest that at least two other analysts are on the cusp of initiating coverage, potentially before the company reports earnings in February. The addition of Verizon not only adds credibility and US exposure to the story, but more importantly it solidifies the leverage to the financial models that is just beginning to take hold.