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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-35958
DIGITAL TURBINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2267658
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
   
110 San Antonio Street, Suite 160, Austin, TX
 78701
(Address of Principal Executive Offices) (Zip Code)
(512) 387-7717
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, Par Value $0.0001 Per Share
APPSThe Nasdaq Stock Market LLC
(NASDAQ Capital Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
    
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 
As of October 22, 2020, the Company had  88,697,103 shares of its common stock, $0.0001 par value per share, outstanding.



Digital Turbine, Inc.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED September 30, 2020
TABLE OF CONTENTS
Item 1.
  
Item 2.
 
Item 3.
 
Item 4.
 
 
Item 1.
Item 1A.
 
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 



PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Digital Turbine, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except par value and share amounts)
September 30, 2020March 31, 2020
(Unaudited)
ASSETS  
Current assets
Cash$32,967 $21,534 
Restricted cash 125 
Accounts receivable, net of allowances of $4,656 and $4,059, respectively
46,273 33,135 
Prepaid expenses and other current assets2,016 3,653 
Total current assets81,256 58,447 
Property and equipment, net10,458 8,183 
Right-of-use assets3,993 4,237 
Intangible assets, net42,541 43,882 
Goodwill70,452 69,262 
TOTAL ASSETS$208,700 $184,011 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities 
Short-term debt, net of issuance costs of $62 and $62, respectively
$1,938 $1,188 
Accounts payable36,355 $31,579 
Accrued license fees and revenue share22,200 19,423 
Accrued compensation5,536 4,311 
Accrued earn-out18,412 23,735 
Other current liabilities6,581 2,573 
Total current liabilities91,022 82,809 
Long-term debt, net of issuance costs of $214 and $245, respectively
17,536 18,505 
Other non-current liabilities4,910 5,243 
Total liabilities113,468 106,557 
Commitments and contingencies (Note 15)
Stockholders' equity  
Preferred stock 
Series A convertible preferred stock at $0.0001 par value; 2,000,000 shares authorized, 100,000 issued and outstanding (liquidation preference of $1,000)
100 100 
Common stock
$0.0001 par value: 200,000,000 shares authorized; 89,431,559 issued and 88,697,103 outstanding at September 30, 2020; 88,041,240 issued and 87,306,784 outstanding at March 31, 2020
10 10 
Additional paid-in capital367,876 360,224 
Treasury stock (754,599 shares at September 30, 2020 and March 31, 2020)
(71)(71)
Accumulated other comprehensive loss(778)(591)
Accumulated deficit(271,905)(282,218)
Total stockholders' equity95,232 77,454 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$208,700 $184,011 
The accompanying notes are an integral part of these consolidated financial statements.
3


Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income / (Loss) (Unaudited)
(in thousands, except per share amounts)
Three months ended September 30,Six months ended September 30,
2020201920202019
Net revenues$70,893 $32,795 $129,905 $63,348 
Cost of revenues
License fees and revenue share40,532 20,146 72,832 38,421 
Other direct costs of revenues662 344 1,222 622 
Total cost of revenues41,194 20,490 74,054 39,043 
Gross profit29,699 12,305 55,851 24,305 
Operating expenses  
Product development4,217 2,735 8,625 5,529 
Sales and marketing4,835 2,441 9,153 4,719 
General and administrative8,531 4,014 15,335 7,902 
Total operating expenses17,583 9,190 33,113 18,150 
Income from operations12,116 3,115 22,738 6,155 
Interest and other income / (expense), net  
Interest income / (expense), net(287)41 (593)59 
Change in fair value of warrant liability (4,505) (9,731)
Change in estimated contingent consideration(10,757) (10,757) 
Other income / (expense)(38)84 (38)474 
Total interest and other income / (expense), net(11,082)(4,380)(11,388)(9,198)
Income / (loss) from continuing operations before income taxes1,034 (1,265)11,350 (3,043)
Income tax provision / (benefit)661 72 1,037 (35)
Income / (loss) from continuing operations, net of taxes373 (1,337)10,313 (3,008)
Income / (loss) from discontinued operations (88) (236)
Net income / (loss) from discontinued operations, net of taxes (88) (236)
Net income / (loss)$373 $(1,425)$10,313 $(3,244)
Other comprehensive income / (loss)  
Foreign currency translation adjustment(45)(418)(187)(320)
Comprehensive income / (loss)$328 $(1,843)$10,126 $(3,564)
Basic net income / (loss) per common share
Continuing operations$ $(0.02)$0.11 $(0.04)
Discontinued operations    
Net income / (loss)$ $(0.02)$0.11 $(0.04)
Weighted-average common shares outstanding, basic88,035 83,909 87,712 82,860 
Diluted net income / (loss) per common share
Continuing operations$ $(0.02)$0.11 $(0.04)
Discontinued operations    
Net income / (loss)$ $(0.02)$0.11 $(0.04)
Weighted-average common shares outstanding, diluted96,057 83,909 94,988 82,860 
The accompanying notes are an integral part of these consolidated financial statements.
4


Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended September 30,
20202019
Cash flows from operating activities  
Net income / (loss) from continuing operations, net of taxes$10,313 $(3,008)
Adjustments to reconcile net income / (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization3,241 944 
Loss on disposal of fixed assets 8 
Provision for doubtful accounts597 158 
Non-cash interest expense36  
Stock-based compensation3,668 1,300 
Stock-based compensation for services rendered458 297 
Change in fair value of warrant liability 9,731 
Change in estimated contingent consideration10,757  
(Increase) / decrease in assets:
Accounts receivable(13,735)(2,754)
Deferred tax assets 33 
Prepaid expenses and other current assets1,637 (86)
Right-of-use assets244 (2,133)
Increase / (decrease) in liabilities:
Accounts payable4,776 7,401 
Accrued license fees and revenue share2,777 (4,575)
Accrued compensation1,225 (34)
Other current liabilities4,005 2,554 
Other non-current liabilities(333)1,928 
Net cash provided by operating activities - continuing operations29,666 11,764 
Net cash used in operating activities - discontinued operations (192)
Net cash provided by operating activities29,666 11,572 
Cash flows from investing activities  
Acquisition of Mobile Posse(7,968) 
Capital expenditures(4,177)(1,805)
Net cash used in investing activities(12,145)(1,805)
Cash flows from financing activities  
Payment of contingent consideration(9,302) 
Options and warrants exercised3,526 4,813 
Repayment of debt obligations(250) 
Net cash (used in) / provided by financing activities(6,026)4,813 
Effect of exchange rate changes on cash(187)(320)
Net change in cash11,308 14,260 
Cash and restricted cash, beginning of period21,659 11,059 
Cash and restricted cash, end of period$32,967 $25,319 
Supplemental disclosure of cash flow information
Interest paid$571 $ 
The accompanying notes are an integral part of these consolidated financial statements.
5


Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Unaudited)
(in thousands, except share counts)
Common Stock
Shares
AmountPreferred Stock
Shares
AmountTreasury Stock
Shares
AmountAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Accumulated
Deficit
Total
Balance at March 31, 202087,306,784 $10 100,000 $100 754,599 $(71)$360,224 $(591)$(282,218)$77,454 
Net income— — — — — — — — 9,940 9,940 
Foreign currency translation— — — — — — — (142)— (142)
Stock-based compensation— — — — — — 1,438 — — 1,438 
Stock-based compensation for services rendered— — — — — — 173 — — 173 
Options exercised224,012 — — — — — 437 — — 437 
Balance at June 30, 202087,530,796 $10 100,000 $100 754,599 $(71)$362,272 $(733)$(272,278)$89,300 
Net income— — — — — — — — 373 373 
Foreign currency translation— — — — — — — (45)— (45)
Stock-based compensation61,553 — — — — — 2,230 — — 2,230 
Stock-based compensation for services rendered45,110 — — — — — 285 — — 285 
Options exercised1,059,644 — — — — — 3,089 — — 3,089 
Balance at September 30, 202088,697,103 $10 100,000 $100 754,599 $(71)$367,876 $(778)$(271,905)$95,232 
The accompanying notes are an integral part of these consolidated financial statements.
6


Digital Turbine, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Unaudited)
(in thousands, except share counts)
Common Stock
Shares
AmountPreferred Stock
Shares
AmountTreasury Stock
Shares
AmountAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Accumulated
Deficit
Total
Balance at March 31, 201981,620,485 $10 100,000 $100 754,599 $(71)$332,793 $(356)$(296,118)$36,358 
Net loss— — — — — — — — (1,819)(1,819)
Foreign currency translation— — — — — — — 98 — 98 
Settlement of warrant derivative liability— — — — — — 715 — — 715 
Stock-based compensation38,759 — — — — — 560 — — 560 
Stock-based compensation for services rendered— — — — — — 122 — — 122 
Options exercised616,208 — — — — — 910 — — 910 
Warrants exercised212,250 — — — — — 289 — — 289 
Balance at June 30, 201982,487,702 $10 100,000 $100 754,599 $(71)$335,389 $(258)$(297,937)$37,233 
Net loss— — — — — — — — (1,425)(1,425)
Foreign currency translation— — — — — — — (418)— (418)
Settlement of warrant derivative liability— — — — — — 8,648 — — 8,648 
Stock-based compensation9,690 — — — — — 740 — — 740 
Stock-based compensation for services rendered75,494 — — — — — 175 — — 175 
Options exercised1,006,792 — — — — — 1,891 — — 1,891 
Warrants exercised1,667,293 — — — — — 1,723 — — 1,723 
Balance at September 30, 201985,246,971 10 100,000 100 754,599 (71)348,566 (676)(299,362)48,567 
The accompanying notes are an integral part of these consolidated financial statements.
7


Digital Turbine, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2020
(in thousands, except share and per share amounts)
1.    Description of Business
Digital Turbine, Inc., through its subsidiaries, simplifies content discovery and delivers it directly to the device. Its on-device media platform powers frictionless application and content discovery, user acquisition and engagement, operational efficiency, and monetization opportunities. Through September 30, 2020, Digital Turbine's technology platform has been adopted by more than 40 mobile operators and device original equipment manufacturers (" OEMs"), and has delivered more than 4 billion application preloads for tens of thousands of advertising campaigns. The Company operates this business as one operating and reportable segment - Media Distribution, which was previously referred to as the operating segment O&O (operators and OEMs) and the reportable segment Advertising.
As the Company's suite of product offerings expands, both organically and through acquisitions, we believe that this renaming of our reporting and operating segment better reflects the way management views the business. There are no changes or historical differences to product offerings and financial information that were referred to as the Advertising segment in prior periods. While advertising, in general, remains a focus of our Media Distribution segment, we feel that this change in name more accurately conveys to the reader what we do for our customers and partners.
The Company's Media Distribution business consists of products and services that simplify the discovery and delivery of mobile application and content media for consumers.

Application Media represents the portion of the business where our platform delivers apps to end users through partnerships with carrier networks and OEMs. Application Media optimizes revenues by using the developed technology to streamline, track and manage app install demand from hundreds of application developers across various publishers, carriers, OEMs and devices.

Content Media represents the portion of the business where our platform presents news, weather, sports and other content directly within the native device experience (e.g., as the start page in the mobile browser, a widget, on unlock, etc.) through partnerships with carrier networks and OEMs. Content Media optimizes revenue by a combination of:

Programmatic Ad Partner Revenue – advertising within the content media that’s sold on an ad exchange, at a market rate (CPM - Cost Per Thousand),
Sponsored Content – sponsored content media from 3rd party content providers – presented similar to an ad – that is monetized when a recommended story is viewed (CPC – Cost Per Click)
Editorial Content – owned or licensed media – presented similar to an ad – that is monetized when the media is clicked on (CPC - Cost Per Click).
    On February 28, 2020, the Company completed the acquisition of Mobile Posse, Inc. (the "Acquisition") from ACME Mobile, LLC (“ACME”). The Company acquired all of the outstanding capital stock of Mobile Posse in exchange for an estimated total consideration of: (1) $41,500 in cash paid at closing (subject to customary closing purchase price adjustments) and (2) an estimated earn-out of $23,735, to be paid in cash, based on Mobile Posse achieving certain future target net revenues, less associated revenue shares, over a twelve-month period (the “Earn-Out Period”) following the closing of the Acquisition, noting that the earn-out amount is subject to change based on final results and calculation. Under the terms of the earn-out, over the Earn-Out Period, the Company will pay ACME a certain percentage of actual net revenues (less associated revenue shares) of Mobile Posse depending on the extent to which Mobile Posse achieves certain target net revenues (less associated revenue shares) for the relevant period. The earn-out payments will be paid quarterly with a true-up calculation and payment after the first nine months of the Earn-Out Period. The acquisition of cash is not reflected in the total consideration detailed above. Final working capital adjustments were determined during the quarter ended June 30, 2020 and resulted in additional purchase price consideration of $453, which was reflected on the balance sheet as an increase in goodwill. This changed the initial cash consideration, not inclusive of the earn-out, to $41,953.
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During the quarter ended September 30, 2020, $10,757 was added to the previous estimated earn-out of $23,735. Of the amounts recorded and accrued for the earn-out related to the Acquisition, $16,080 has been paid to ACME, and $18,412 remains accrued as of September 30, 2020. See Note "Commitments and Contingencies" for more information regarding the estimated earn-out. As of September 30, 2020, estimated total consideration, inclusive of estimated remaining earn-out, for the Acquisition is $76,445, of which $58,033 has been paid and $18,412 remains accrued. The actual remaining earn-out payments are subject to continued performance of the Acquisition, and are subject to re-valuation prior to the final settlement based on final actual results and calculations in March 2021.
During the quarter ended September 30, 2020 an adjustment to increase goodwill in the amount of $736 was made to reclassify the impact of a change in assumptions related to deferred tax assets previously booked as a component of purchase accounting for the Acquisition.
The Acquisition is consistent with the Company's strategy to provide a comprehensive media and advertising solution for operator and OEM partners while enriching the mobile experience for end users by delivering relevant media rich content to their fingertips. The addition of Mobile Posse's offerings will provide synergies and options for our partners and advertisers. The Company's suite of offerings continue to focus on promoting higher user engagement and boosting advertising revenue for mobile operators and OEMs.
With global headquarters in Austin, Texas and offices in Durham, North Carolina; San Francisco, California; Arlington, Virginia; São Paulo, Brazil; Mexico City, Mexico; Mumbai, India; Singapore; and Tel Aviv, Israel, Digital Turbine’s solutions are available worldwide. For additional information, please visit www.digitalturbine.com.
Unless the context otherwise indicates, the use of the terms “we,” “our,” “us,” “Digital Turbine,” “DT,” or the “Company” refer to the collective businesses and operations of Digital Turbine, Inc. through its operating and wholly-owned subsidiaries: Digital Turbine USA, Inc. (“DT USA”), Digital Turbine EMEA Ltd. (“DT EMEA”), Digital Turbine Australia Pty Ltd (“DT APAC”), Digital Turbine Singapore Pte. Ltd. (“DT Singapore”), Digital Turbine Luxembourg S.a.r.l. (“DT Luxembourg”), Digital Turbine Germany, GmbH (“DT Germany”), Digital Turbine Media, Inc. (“DT Media”), and Mobile Posse Inc. We refer to all of the Company's subsidiaries collectively as "wholly-owned subsidiaries."
2.    Liquidity
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), which contemplate continuation of the Company as a going concern.

Our primary sources of liquidity have historically been cash from operations, issuance of common stock, preferred stock, and debt. As of September 30, 2020, we had cash totaling approximately $32,967.

On May 23, 2017, the Company entered into a Business Finance Agreement (the "Credit Agreement") with Western Alliance Bank (the "Bank"). The Credit Agreement provided for a $5,000 total facility. On May 22, 2019, the Company amended its existing Credit Agreement with the Bank. The Credit Agreement, as amended, provided for up to a $20,000 total revolving credit facility, subject to draw limitations derived from current levels of eligible domestic receivables.
On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for (1) a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition, and (2) a revolving line of credit of $5,000 to be used for working capital purposes. DT USA and DT Media are additional co-borrowers under the New Credit Agreement. The term loan must be repaid on a quarterly basis which began on July 2020 until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio. The revolving line of credit matures on February 28, 2025.
    In connection with the Company entering into the New Credit Agreement with the Bank on February 28, 2020, the Company and the Bank terminated the Credit Agreement, which was the previous revolving credit facility of the Company.
    As of September 30, 2020, the Company's principal amount outstanding under the New Credit Agreement was $19,750, and no amount was drawn on the $5,000 revolving line of credit. Please refer to the "Debt" footnote for more detail.
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The Company anticipates that its primary sources of liquidity will continue to be cash-on-hand, cash provided by operations, and the credit available under the New Credit Agreement. In addition, the Company may raise additional capital through future equity or, subject to restrictions contained in the New Credit Agreement, debt financing to provide for greater flexibility to make acquisitions, new investments in under-capitalized opportunities, or to invest in organic opportunities. Additional financing may not be available on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of its existing stockholders would be reduced. New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.
During the evaluation by management of the Company’s financial position, factors such as working capital, current market capitalization, enterprise value, and the fiscal year 2021 operating plan of the Company were considered when determining the ability of the Company to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to generate positive cash flows from operations. Based on the year-over-year revenue and gross margin increases, coupled with the Company’s management of operating expenses and access to debt, management has determined that when considering all relevant quantitative and qualitative factors, the Company appears to have sufficient cash and capital resources to continue to operate its business for at least twelve months from the filing date of this quarterly report on Form 10-Q.
In view of the matters described in the preceding paragraphs, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities, that might be necessary should the Company be unable to continue its existence.
3.    Summary of Significant Accounting Policies
Basis of Presentation
    The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual financial statements. The financial statements, in the opinion of management, include all adjustments necessary for a fair statement of the results of operations, financial position and cash flows for each period presented.
Interim Consolidated Financial Information
The accompanying consolidated financial statements of Digital Turbine, Inc. and its subsidiaries should be read in conjunction with the consolidated financial statements and accompanying notes filed with the SEC in Digital Turbine, Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2020. The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of Digital Turbine, Inc. and its consolidated subsidiaries at September 30, 2020, the results of their operations and corresponding comprehensive income / (loss) for the three and six months ended September 30, 2020 and 2019, and their cash flows for the six months ended September 30, 2020 and 2019. The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2021.
Recently Issued Accounting Pronouncements
The significant accounting policies and recent accounting pronouncements were described in the Notes of the consolidated financial statements, under the heading "Summary of Significant Accounting Policies," included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020. There have been no significant changes in or updates to the accounting policies since March 31, 2020. Only significant new accounting pronouncements, pertinent to the Company, issued and adopted subsequent to the issuance of our Annual Report are described below. Accounting pronouncements issued and adopted not described in either the Annual Report or in this quarterly report have been determined to either not apply or to have an immaterial impact on our business and related disclosures.
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Accounting Pronouncements Adopted During the Period
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. As such, the Company adopted this standard during the quarter ended June 30, 2020 on a prospective basis, and such adoption has not had a material impact on the Company's consolidated results of operations, financial condition, and cash flows in the current presented periods.
    In August 2018, the FASB issued ASU 2018-13: Fair Value Measurement (Topic 820). The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, as a result of the FASB’s final deliberations of the financial reporting concepts pursuant to the March 4, 2014 issued FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, as they relate to fair value measurement disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. As such, the Company has adopted this standard during our quarter ended June 30, 2020, and it has not materially impacted our consolidated results of operations, financial condition and cash flows.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. As such, the Company has adopted this standard during our quarter ended June 30, 2020, and it has not materially impacted our consolidated results of operations, financial condition and cash flows.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one major financial institution that the Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts.
The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring advertisers' and carriers' accounts receivable balances. The Company counts all advertisers and carriers within a single corporate structure as one customer, even in cases where multiple brands, branches, or divisions of an organization enter into separate contracts with the Company. As of September 30, 2020, one major customer represented approximately 13.1% of the Company’s net accounts receivable balance. As of March 31, 2020, two major customers represented 11.6% and 11.5% of the Company's net accounts receivable balance.
With respect to customer revenue concentration, the Company defines a customer as an advertiser or a carrier that is a distinct source of revenue and is legally bound to pay for the services that the Company delivers on the advertiser’s or carrier's behalf. During the three and six months ended September 30, 2020, no single customer represented 10.0% or greater of the Company's net revenues. During the three and six months ended September 30, 2019, Verizon Communications Inc., primarily through its subsidiary Oath Inc., represented 20.6% and 19.6%, respectively; and GSN Games, Inc. represented 10.1% and 10.9%, respectively, of net revenues.
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With respect to revenue partner concentration, the Company partners with mobile carriers and OEMs to deliver applications on our platform through the carrier network. During the three and six months ended September 30, 2020, Verizon Wireless, a carrier partner, generated 19.6% and 20.0%, respectively; AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 23.4% and 23.2%, respectively; T-Mobile US Inc., including Sprint and other subsidiaries, generated 26.4% and 24.5%, respectively; and America Movil Inc., a carrier partner, primarily through its subsidiary TracFone Wireless Inc., generated 9.6% and 10.5%, respectively, of our net revenues. During the three and six months ended September 30, 2019, Verizon Wireless, a carrier partner, generated 43.3% and 43.5%, respectively; and AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 31.4% and 32.7%, respectively, of our net revenues.
There is no assurance that the Company will continue to receive significant revenues from any of these or other large customers. A reduction or delay in operating activity from any of the Company’s significant customers or partners, or a delay or default in payment by any significant customer, or a termination of agreements with significant customers, could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentrations, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company's significant customers.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates that impact the reported amounts in the consolidated financial statements and accompanying notes. These estimates are recurring in nature and relate to transactions occurring in the normal course of business. In the opinion of management, these are appropriate estimates for arrangements to be settled at a later date based on the facts and circumstances available at the time of filing. Actual results could differ materially from those estimates.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our advertising business, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change as new events occur and additional information emerges, and such changes may be recognized and disclosed in our consolidated financial statements.
4.    Discontinued Operations
    On April 29, 2018, the Company entered into two distinct disposition agreements with respect to selected assets owned by our subsidiaries.
    DT APAC and DT Singapore (together, “Pay Seller”), each wholly-owned subsidiaries of the Company, entered into an Asset Purchase Pay Agreement (the “Pay Agreement”), dated as of April 23, 2018, with Chargewave Ptd Ltd (“Pay Purchaser”) to sell certain assets (the “Pay Assets”) owned by the Pay Seller related to the Company’s Direct Carrier Billing business. The Pay Purchaser is principally-owned and controlled by Jon Mooney, an officer of the Pay Seller. At the closing of the asset sale, Mr. Mooney was no longer employed by the Company or Pay Seller. As consideration for this asset sale, Digital Turbine is entitled to receive certain license fees, profit-sharing, and equity participation rights as disclosed in the Company’s Form 8-K filed on May 1, 2018 with the SEC. The transaction was completed on July 1, 2018. With the sale of these assets, the Company exited the segment of the business previously referred to as the Content business.
    In accordance with the Pay Agreement, the Company assigned and transferred a material contract to the Pay Purchaser. Subsequent to the transaction closing associated with the Pay Agreement, the Company received notification from the Pay Purchaser that the partner to the material contract had terminated the contract with the Pay Purchaser. Due to the material contract being terminated, the Company determined that the estimated earn-out from the Pay Purchaser was $0. As all the assets being transferred had been fully impaired prior to the closing of the transaction, the gain/loss on sale related to the Pay Agreement transaction was $0. Furthermore, the Company retained certain receivables and payables for content delivered for the benefit of the partner to the material contract, where these certain receivables and payables were all recognized prior to the closing of the Pay Agreement. As of September 30, 2020, the Company has determined there to be uncertainty surrounding the collectability of the receivables due to ongoing discussions with the business partner. We have determined that the amounts recorded are more likely than not to be uncollectible due to disputes surrounding the content delivered. Furthermore, the related payables would also be contractually withheld unless payment is received at a later date. At this time, the Company has reserved for all balances remaining, both receivables and payables, related to the discontinued operations of the Pay business. The total impact to the Company if all of the remaining receivables and payables are subsequently collected and paid is immaterial. These fully reserved assets and liabilities remain on our books as of September 30, 2020.
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    DT Media, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “A&P Agreement”), dated as of April 28, 2018, with Creative Clicks B.V. (the “A&P Purchaser”) to sell business relationships with various advertisers and publishers (the “A&P Assets”) related to the Company’s Advertising and Publishing business. As consideration for this asset sale, we are entitled to receive a percentage of the gross profit derived from these customer agreements, for a period of three years, as outlined in the Company’s Form 8-K filed on May 1, 2018 with the SEC. The transaction was completed on June 28, 2018 with an effective date of June 1, 2018. With the sale of these assets, the Company exited the operating segment of the business previously referred to as the A&P business, which was previously part of Advertising, the Company's sole reporting segment (which is now Media Distribution). No gain or loss on sale was recognized related to this divestiture. All transferred assets and liabilities, with the exception of goodwill, were fully amortized prior to entering into the sales agreement. As the consideration given by the purchaser was already materially determined at March 31, 2018, goodwill was impaired to the estimated future cash flows of the divested business, which was effectively the purchase price. With the consummation of the sale, the remaining goodwill asset was netted against the purchase price receivable for a net impact of $0 on the Consolidated Statement of Operations and Comprehensive Loss for the year ended March 31, 2019.
    These dispositions have allowed the Company to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.
    No assets or liabilities were held for disposal as of September 30, 2020 or March 31, 2020.
The following table summarizes the financial results of our discontinued operations for all periods presented in the accompanying Consolidated Statements of Operations and Comprehensive Income / (Loss):

Condensed Statements of Operations and Comprehensive Income / (Loss)
For Discontinued Operations
(in thousands, except per share amounts)
(Unaudited)
Three months ended September 30,Six months ended September 30,
2020201920202019
Net revenues$ $ $ $ 
Total cost of revenues    
Gross profit    
Product development 29  62 
Sales and marketing    
General and administrative 23  85 
Loss from operations (52) (147)
Interest and other income / (expense), net (36) (89)
Loss from discontinued operations before income taxes (88) (236)
Loss from discontinued operations, net of taxes (88) (236)
Comprehensive loss$ $(88)$ $(236)
Basic and diluted net loss per common share$ $ $ $ 
Weighted-average common shares outstanding, basic and diluted 83,909  82,860 

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    The following table provides reconciling cash flow information for our discontinued operations:
Six months ended September 30,
20202019
(Unaudited)(Unaudited)
Cash flows from operating activities
Net loss from discontinued operations, net of taxes$ $(236)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 19 
Change in allowance for doubtful accounts (99)
Loss on disposal of fixed assets 104 
(Increase) / decrease in assets:
Accounts receivable 510 
Increase / (decrease) in liabilities:
Accounts payable (289)
Accrued license fees and revenue share (84)
Accrued compensation (32)
Other current liabilities (85)
Cash used in operating activities (192)
Effect of exchange rate changes on cash and cash equivalents  
Cash used in discontinued operations$ $(192)
5.    Accounts Receivable
September 30, 2020March 31, 2020
(Unaudited)
Billed$25,352 $18,927 
Unbilled25,577 18,267 
Allowance for doubtful accounts(4,656)(4,059)
Accounts receivable, net$46,273 $33,135 
Billed accounts receivable represents amounts billed to customers that have yet to be collected. Unbilled accounts receivable represents revenue recognized but billed after period end. All unbilled receivables as of September 30, 2020 and March 31, 2020 are expected to be billed and collected (subject to the reserve for allowance for doubtful accounts) within twelve months.
The Company recorded $136 and $228 of bad debt expense during the three and six months ended September 30, 2020 , and $74 and $128 of bad debt expense during the three and six months ended September 30, 2019.
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6.    Property and Equipment
September 30, 2020March 31, 2020
(Unaudited)
Computer-related equipment$2,005 $1,953 
Developed software13,778 9,696 
Furniture and fixtures675 681 
Leasehold improvements2,147 2,099 
Property and equipment, gross18,605 14,429 
Accumulated depreciation(8,147)(6,246)
Property and equipment, net$10,458 $8,183 
Depreciation expense was $1,018 and $1,900 for the three and six months ended September 30, 2020, respectively, and $482 and $944 for the three and six months ended September 30, 2019, respectively. Depreciation expense for the three and six months ended September 30, 2020 includes $356 and $678, respectively, related to internal-use assets included in general and administrative expense and $662 and $1,222, respectively, related to internally-developed software to be sold, leased, or otherwise marketed included in other direct costs of revenue. Depreciation expense for the three and six months ended September 30, 2019 includes $138 and $323, respectively, related to internal-use assets included in general and administrative expense and $344 and $621, respectively, related to internally-developed software to be sold, leased, or otherwise marketed included in other direct costs of revenue.
7.    Leases
    The Company has entered into various non-cancelable operating lease agreements for certain offices. These leases currently have lease periods expiring between fiscal years 2024 and 2026. The lease agreements may include one or more options to renew. Renewals were not assumed in the Company's determination of the lease term unless the renewals were deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease costs, weighted-average lease term, and discount rate are detailed below.
    Schedule, by fiscal year, of maturities of lease liabilities as of:
September 30, 2020
(Unaudited)
Remainder of fiscal year 2021$731 
Fiscal year 20221,493 
Fiscal year 20231,549 
Fiscal year 20241,374 
Fiscal year 20251,081 
Thereafter882 
Total undiscounted cash flows7,110 
(Less imputed interest)(945)
Present value of lease liabilities$6,165 

    The current portion of our lease liabilities, payable within the next 12 months, is included in other current liabilities and the long-term portion of our lease liabilities is included in other non-current liabilities on our Consolidated Balance Sheets.

    Associated with this financial liability, the Company has recorded a right-of-use asset of $3,993, which is calculated using the present value of lease liabilities less any lease incentives received from our landlords and any deferred rent liability balance as of the date of implementation. The discount rate used to calculate the imputed interest above ranges from 5.50% to 6.75% and the weighted-average remaining lease term is 4.82 years.
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8.    Intangible Assets
The components of intangible assets at September 30, 2020 and March 31, 2020 were as follows:
 As of September 30, 2020
(Unaudited)
CostAccumulated AmortizationNet
Developed technology$7,926 $(6,021)$1,905 
Customer relationships46,971 (6,335)40,636 
Total$54,897 $(12,356)$42,541 
 As of March 31, 2020
CostAccumulated AmortizationNet
Developed technology$7,926 $(5,861)$2,065 
Customer relationships46,971 (5,154)41,817 
Total$54,897 $(11,015)$43,882 
The Company recorded amortization expense of $670 and $1,341, respectively, during the three and six months ended September 30, 2020 and $0 during the three and six months ended September 30, 2019. Amortization expense for the three and six months ended September 30, 2020 is a component of general and administrative operating expenses in the Statements of Operations and Comprehensive Income / (Loss). The determination of the expense category for amortization of intangible assets is determined by capitalization under ASC 350, Intangibles - Goodwill and Other, or ASC 985-20, Costs of Software to be Sold, Leased, or Otherwise Marketed. ASC 350 leads to accounting for amortization of intangible assets under operating expenses, while ASC 985-20 leads to accounting for amortization of intangible assets under other direct costs of revenues.
Based on the amortizable intangible assets as of September 30, 2020, the Company expects future amortization expense to be approximately $2,681 per year over the next five fiscal years and $29,141 in residual expense thereafter.
9.    Debt
Senior Secured Credit Facility
On May 23, 2017, the Company entered into a Business Finance Agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”). The Credit Agreement provided for a $5,000 total revolving credit facility.
On May 22, 2019, the Company amended its existing Credit Agreement with the Bank, to extend the term of the agreement to May 22, 2021, to increase the maximum available revolving credit and to modify the covenants as detailed below. The Credit Agreement, as amended, provided for up to a $20,000 total facility, subject to draw limitations derived from current levels of eligible domestic receivables.
The amounts advanced under the Credit Agreement, as amended, accrued interest at prime, as published in the Wall Street Journal, plus 0.50%, subject to a 6.00% floor. The Credit Agreement contained customary covenants, representations, indemnities, and events of default.The obligations under the Credit Agreement were secured by a perfected first-position security interest in all assets of the Company and its subsidiaries. Two of the Company’s subsidiaries, Digital Turbine USA and Digital Turbine Media, were additional co-borrowers.
On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for (1) a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition, and (2) a revolving line of credit of $5,000 to be used for working capital purposes. DT Media and DT USA are also additional co-borrowers under the New Credit Agreement.
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The term loan must be repaid on a quarterly basis, beginning in July 2020, until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio.
The revolving line of credit matures on February 28, 2025.
Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index), subject to a 1.75% floor, plus 3.75%. The obligations under the New Credit Agreement are secured by a perfected first-priority security interest in all the assets of the Company and its subsidiaries. The New Credit Agreement contains customary covenants, representations and events of default, and also requires the Company to comply with a fixed charge coverage ratio and total funded debt to consolidated adjusted EBITDA ratio.
The New Credit Agreement contains representations and warranties by each of the parties to the New Credit Agreement, which were made only for purposes of the New Credit Agreement and as of specified dates. The representations, warranties and covenants in the New Credit Agreement were made solely for the benefit of the parties to the New Credit Agreement, are subject to limitations agreed upon by such parties, including being qualified by schedules, may have been made for the purposes of allocating contractual risk between the parties instead of establishing these matters as facts, and are subject to standards of materiality applicable to the parties that may differ from those applicable to others. Others should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the New Credit Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
In connection with the Company entering into the New Credit Agreement with the Bank, on February 28, 2020, the Company and the Bank terminated the existing Credit Agreement, which was the previous revolving credit facility of the Company.
At September 30, 2020, there was $19,750 outstanding principal on the New Credit Agreement and the Company had $5,000 available to draw under the revolving line of credit.
The Company was in compliance with all covenants of the New Credit Agreement as of September 30, 2020.
Interest Income / (Expense)
The Company recorded $(287) and $(593), respectively, of interest income / (expense), net, during the three and six months ended September 30, 2020. This is comprised of amortization of annual facility fees and interest accrued on drawn amounts under the New Credit Agreement, partially offset by interest income earned on cash balances.
In the prior fiscal year, the Company recorded $41 and $59, respectively, of interest income / (expense) during the three and six months ended September 30, 2019. This is comprised of interest income earned on cash balances.
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10.    Fair Value Measurements
The inputs to the valuation techniques used to measure fair value are classified into the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Under ASC 820, a fair value measurement of a nonfinancial asset considers a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Therefore, fair value is a market-based measurement and not an entity-specific measurement. It is determined based on assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date. The fair value was measured by applying the present value of the expected contingent payments to be made to a Monte Carlo probability-weighted discounted cash flow model for probabilities of possible future payments.
As of September 30, 2020, the carrying value of cash and cash equivalents, trade accounts receivables, and accounts payable approximates fair value due to the short-term nature of such instruments.

The following table summarizes the fair value of our financial assets and liabilities that are measured at fair value:     
Level 1Level 2Level 3As of September 30, 2020
Financial Liabilities
Estimated Earn-out related to the purchase of Mobile Posse$  18,412 $18,412 
Total  18,412 18,412 

The following table provides a reconciliation of the beginning and ending balances for the estimated contingent earn-out liability measured at fair value using significant unobservable inputs (Level 3):
Level 3
Balance at March 31, 2020$23,735