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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 June 30, 2021
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:
| | | | | | | | |
Common Stock, Par Value $0.0001 Per Share | APPS | The Nasdaq Stock Market LLC |
(NASDAQ Capital Market) |
(Title of Class) | (Trading Symbol) | (Name of Each Exchange on Which Registered) |
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 Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller 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 August 5, 2021, the Company had 96,096,317 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 June 30, 2021
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets1
(in thousands, except par value and share amounts)
| | | | | | | | | | | | | | |
| | June 30, 2021 | 1 | | March 31, 2021 |
| | (Unaudited) | | |
ASSETS | | | | |
Current assets | | | | |
Cash | | $ | 83,129 | | | $ | 30,778 | |
Restricted cash | | 883 | | | 340 | |
Accounts receivable, net | | 219,099 | | | 61,985 | |
Prepaid expenses and other current assets | | 20,675 | | | 4,282 | |
Total current assets | | 323,786 | | | 97,385 | |
Property and equipment, net | | 18,927 | | | 13,050 | |
Right-of-use assets | | 19,565 | | | 3,495 | |
Deferred tax assets, net | | — | | | 12,963 | |
Intangible assets, net | | 488,360 | | | 53,300 | |
Goodwill | | 572,607 | | | 80,176 | |
Other non-current assets | | 799 | | | — | |
TOTAL ASSETS | | $ | 1,424,044 | | | $ | 260,369 | |
| | | | |
LIABILITIES AND STOCKHOLDER'S EQUITY | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 155,378 | | | $ | 34,953 | |
Accrued license fees and revenue share | | 84,428 | | | 46,196 | |
Accrued compensation | | 23,251 | | | 9,817 | |
Short-term debt | | 20,415 | | | 14,557 | |
Other current liabilities | | 21,659 | | | 5,626 | |
Acquisition purchase price liabilities | | 313,413 | | | — | |
Total current liabilities | | 618,544 | | | 111,149 | |
Long-term debt, net of debt issuance costs | | 233,830 | | | — | |
Deferred tax liabilities, net | | 24,676 | | | — | |
Other non-current liabilities | | 20,219 | | | 4,108 | |
Total liabilities | | 897,269 | | | 115,257 | |
Commitments and contingencies (Note 13) | | | | |
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) | | 100 | | | 100 | |
Common stock | | | | |
$0.0001 par value: 200,000,000 shares authorized; 95,788,373 issued and 95,052,667 outstanding at June 30, 2021; 90,685,553 issued and 89,949,847 outstanding at March 31, 2021 | | 10 | | | 10 | |
Additional paid-in capital | | 736,943 | | | 373,310 | |
Treasury stock (754,599 shares at June 30, 2021 and March 31, 2021) | | (71) | | | (71) | |
Accumulated other comprehensive loss | | (20,922) | | | (903) | |
Accumulated deficit | | (213,050) | | | (227,334) | |
Total stockholders' equity attributable to Digital Turbine, Inc. | | 503,010 | | | 145,112 | |
Non-controlling interest | | 23,765 | | | — | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 1,424,044 | | | $ | 260,369 | |
1In the quarter ending June 30, 2021, the Company initiated two significant acquisitions. Please refer to Note 3 in the accompanying condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income1
(Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | |
| | 2021 | | 2020 | | | | |
Net revenues | | $ | 212,615 | | | $ | 59,012 | | | | | |
Costs of revenues and operating expenses | | | | | | | | |
License fees and revenue share | | 138,348 | | | 32,300 | | | | | |
Other direct costs of revenues | | 2,533 | | | 560 | | | | | |
Product development | | 15,547 | | | 4,408 | | | | | |
Sales and marketing | | 13,736 | | | 4,318 | | | | | |
General and administrative | | 23,296 | | | 6,804 | | | | | |
Restructuring and impairment costs | | 10 | | | — | | | | | |
Total costs of revenues and operating expenses | | 193,470 | | | 48,390 | | | | | |
Income from operations | | 19,145 | | | 10,622 | | | | | |
Interest and other income / (expense), net | | | | | | | | |
Interest expense, net | | (1,157) | | | (306) | | | | | |
Foreign exchange transaction loss | | (270) | | | — | | | | | |
Other income / (expense), net | | (35) | | | — | | | | | |
Total interest and other income / (expense), net | | (1,462) | | | (306) | | | | | |
Income before income taxes | | 17,683 | | | 10,316 | | | | | |
Income tax provision | | 3,430 | | | 376 | | | | | |
Net income | | 14,253 | | | 9,940 | | | | | |
Less: net loss attributable to non-controlling interest | | (31) | | | — | | | | | |
Net income attributable to Digital Turbine, Inc. | | 14,284 | | | 9,940 | | | | | |
Other comprehensive loss | | | | | | | | |
Foreign currency translation adjustment | | (20,781) | | | (142) | | | | | |
Comprehensive income / (loss) | | (6,528) | | | 9,798 | | | | | |
Less: comprehensive income / (loss) attributable to non-controlling interest | | (793) | | | — | | | | | |
Comprehensive income / (loss) attributable to Digital Turbine, Inc. | | $ | (5,735) | | | $ | 9,798 | | | | | |
Net income per common share | | | | | | | | |
Basic | | $ | 0.16 | | | $ | 0.11 | | | | | |
Diluted | | $ | 0.14 | | | $ | 0.11 | | | | | |
Weighted-average common shares outstanding | | | | | | | | |
Basic | | 91,585 | | | 87,386 | | | | | |
Diluted | | 98,822 | | | 93,108 | | | | | |
1In the quarter ending June 30, 2021, the Company initiated two significant acquisitions. Please refer to Note 3 in the accompanying condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows1
(Unaudited)
(in thousands) | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2021 | | 2020 |
Cash flows from operating activities | | | | |
Net income | | $ | 14,253 | | | $ | 9,940 | |
Adjustments to reconcile net income to net cash provided by / (used in) by operating activities: | | | | |
Depreciation and amortization | | 8,653 | | | 1,552 | |
Non-cash interest expense | | 127 | | | 18 | |
Stock-based compensation | | 2,365 | | | 1,438 | |
Stock-based compensation for services rendered | | 1,340 | | | 173 | |
(Increase) / decrease in assets: | | | | |
Accounts receivable, gross | | (48,817) | | | (10,686) | |
Allowance for credit losses | | 26 | | | 378 | |
Deferred tax assets | | 12,966 | | | — | |
Prepaid expenses and other current assets | | (4,492) | | | 456 | |
Right-of-use asset | | 628 | | | 61 | |
Other non-current assets | | 160 | | | — | |
Increase / (decrease) in liabilities: | | | | |
Accounts payable | | 35,396 | | | (1,698) | |
Accrued license fees and revenue share | | 3,573 | | | 4,199 | |
Accrued compensation | | (46,956) | | | (1,018) | |
Other current liabilities | | 2,455 | | | 1,036 | |
Deferred tax liabilities | | (10,089) | | | — | |
Other non-current liabilities | | (585) | | | 163 | |
Net cash provided by / (used in) operating activities | | (28,997) | | | 6,012 | |
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Cash flows from investing activities | | | | |
Business acquisitions, net of cash acquired | | (126,604) | | | (7,232) | |
Capital expenditures | | (4,364) | | | (2,011) | |
Net cash used in investing activities | | (130,968) | | | (9,243) | |
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Cash flows from financing activities | | | | |
Proceeds from borrowings | | 237,041 | | | — | |
Payment of debt issuance costs | | (2,988) | | | — | |
Options and warrants exercised | | 695 | | | 437 | |
Repayment of debt obligations | | (19,680) | | | — | |
Net cash provided by financing activities | | 215,068 | | | 437 | |
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Effect of exchange rate changes on cash | | (2,209) | | | (142) | |
| | | | |
Net change in cash | | 52,894 | | | (2,936) | |
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Cash and restricted cash, beginning of period | | 31,118 | | | 21,659 | |
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Cash and restricted cash, end of period | | $ | 84,012 | | | $ | 18,723 | |
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Supplemental disclosure of cash flow information | | | | |
Interest paid | | $ | 337 | | | $ | 299 | |
Income taxes paid | | $ | 311 | | | $ | — | |
| | | | |
Supplemental disclosure of non-cash activities | | | | |
Common stock for the acquisition of Fyber | | $ | 359,233 | | | $ | — | |
Unpaid cash consideration for the acquisition of Fyber Minority Interest | | $ | 24,558 | | | $ | — | |
Unpaid cash consideration for the acquisition of AdColony | | $ | 100,000 | | | $ | — | |
Fair value of contingent consideration in connection with business acquisition | | $ | 213,413 | | | $ | — | |
1In the quarter ending June 30, 2021, the Company initiated two significant acquisitions. Please refer to Note 3 in the accompanying condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity1
(Unaudited)
(in thousands, except share counts)
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| | Common Stock Shares | | Amount | | Preferred Stock Shares | | Amount | | Treasury Stock Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income / (Loss) | | Accumulated Deficit | | Non-Controlling Interest | | Total |
Balance at March 31, 2021 | | 89,949,847 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 754,599 | | | $ | (71) | | | $ | 373,310 | | | $ | (903) | | | $ | (227,334) | | | $ | — | | | $ | 145,112 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 14,284 | | | (31) | | | 14,253 | |
Foreign currency translation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (20,019) | | | — | | | (762) | | | (20,781) | |
Stock-based compensation | | 207,758 | | | — | | | — | | | — | | | — | | | — | | | 2,365 | | | — | | | — | | | — | | | 2,365 | |
Stock-based compensation for services rendered | | — | | | — | | | — | | | — | | | — | | | — | | | 1,340 | | | — | | | — | | | — | | | 1,340 | |
Shares for acquisition of Fyber | | 4,716,935 | | | — | | | — | | | — | | | — | | | — | | | 359,233 | | | — | | | — | | | — | | | 359,233 | |
Non-controlling interests in Fyber | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 24,558 | | | 24,558 | |
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Options exercised | | 178,127 | | | — | | | — | | | — | | | — | | | — | | | 695 | | | — | | | — | | | — | | | 695 | |
Balance at June 30, 2021 | | 95,052,667 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 754,599 | | | $ | (71) | | | $ | 736,943 | | | $ | (20,922) | | | $ | (213,050) | | | $ | 23,765 | | | $ | 526,775 | |
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| | Common Stock Shares | | Amount | | Preferred Stock Shares | | Amount | | Treasury Stock Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income / (Loss) | | Accumulated Deficit | | Non-Controlling Interest | | Total |
Balance at March 31, 2020 | | 87,306,784 | | | $ | 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 | |
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Options exercised | | 224,012 | | | — | | | — | | | — | | | — | | | — | | | 437 | | | — | | | — | | | — | | | 437 | |
Balance at June 30, 2020 | | 87,530,796 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 754,599 | | | $ | (71) | | | $ | 362,272 | | | $ | (733) | | | $ | (272,278) | | | $ | — | | | $ | 89,300 | |
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1In the quarter ending June 30, 2021, the Company initiated two significant acquisitions. Please refer to Note 3 in the accompanying condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2021
(in thousands, except share and per share amounts)
1. Description of Business
Digital Turbine, Inc., through its subsidiaries (collectively "Digital Turbine" or the "Company"), is a leading end-to-end solution for mobile technology companies to enable advertising and monetization solutions. Its digital media platform powers frictionless end-to-end application for brand discovery and advertising, user acquisition and engagement, operational efficiency, and monetization opportunities. The Company provides on-device solutions to all participants in the mobile application ecosystem that want to connect with end users and consumers who hold the device, including mobile carriers and device original equipment manufacturers (“OEMs”) that participate in the app economy, app publishers and developers, and brands and advertising agencies.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“U.S.”), or GAAP. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The Company consolidates the financial results and reports non-controlling interests representing the economic interests held by other equity holders of subsidiaries that are not 100% owned by the Company. The calculation of non-controlling interests excludes any net income (loss) attributable directly to the Company. All intercompany balances and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with the Company's audited financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (the "2021 Form 10-K").
Unaudited Interim Financial Information
These accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary to present fairly the Company’s financial condition, results of operations, comprehensive income, stockholders’ equity, and cash flows for the interim periods indicated. The results of operations for the three months ended June 30, 2021 are not necessarily indicative of the operating results for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Significant estimates and assumptions reflected in the financial statements include revenue recognition, allowance for credit losses, stock-based compensation, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, fair value of contingent earn-out considerations (please see Note 13, "Commitments and Contingencies," for further information on the fair value of the Company's contingent earn-out considerations), incremental borrowing rates for right-of-use assets and lease liabilities, and tax valuation allowances. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ materially from management’s estimates using different assumptions or under different conditions.
In light of the ongoing and quickly evolving COVID-19 pandemic, management has considered the impacts of the COVID-19 pandemic on the Company’s critical and significant accounting estimates and as of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates or judgments or revise the carrying value of its assets or liabilities as a result of the COVID-19 pandemic. These estimates may change as new events occur and additional information is obtained and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.
Summary of Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies in Note 4, “Summary of Significant Accounting Policies,” of the notes to the condensed consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021, other than the "New Accounting Standards Adopted" disclosed below and changes to the Company's segment reporting disclosed in Note 4 "Segment Information."
Revenue Recognition
As mentioned above, there have been no significant changes to the Company's revenue recognition policies, now inclusive of the acquisitions of AdColony and Fyber defined and disclosed below in Note 3, "Acquisitions", since its Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Prior to the acquisitions of AdColony and Fyber, the Company had one operating and reportable segment called Media Distribution. As a result of the acquisitions, the Company reassessed its operating and reportable segments in accordance with ASC 280, Segment Reporting. Effective April 1, 2021, the Company reports its results of operations through the three segments disclosed below in Note 4, "Segment Information," each of which represents an operating and reportable segment.
On Device Media
This segment is the legacy single operating and reporting segment (Media Distribution) of the Company prior to the AdColony and Fyber acquisitions.
In App Media - AdColony
AdColony’s principal operations consist of supplying a mobile advertising platform that includes a direct supply of in-app advertising inventory to its customers. AdColony's customers provide insertion orders for advertising during campaign windows where AdColony provides, inserts, and tracks the performance of the advertising to serve as the direct supplier for the customer. Customers will contract for this service, which is monetized through a measurement of user views, clicks, or installs of the target product or service offered by the customer. AdColony's customers generally pay subsequently to the total aggregation of the views, clicks, and installs billed, generally, on a monthly basis. Specifically, the aggregation follows the below events and parameters:
i.When a user installs a game (i.e., a user plays a game, sees advertising, clicks on it, and installs a game), based on a cost per install (CPI) arrangement.
ii.When a mobile ad is delivered to a user, based on a CPM (cost per thousand impressions) arrangement (i.e., every thousand impressions of a mobile ad inside the publisher's inventory, which can be on a mobile app or website).
iii.When a user plays a mobile video ad all the way to completion, based on a CPCV (cost per completed view) arrangement.
iv.When a user clicks on a mobile ad, based on a CPC (cost per click) arrangement (i.e., after each instance when an ad is clicked inside the publisher's inventory).
Due to the nature of AdColony's principal operations and the similarities between how customers obtain control of promised services between this segment and the Company's other two segments, revenues for this segment are recognized in a manner consistent with the Company's legacy On Device Media business.
In App Media - Fyber
Fyber’s principal operations consist of supplying a mobile advertising platform that includes a direct supply of in-app advertising inventory to its customers. Fyber specializes in software-based automated ("programmatic") trading of advertisements and aims to enable mobile app publishers to monetize their digital contents through the placement of targeted, high-quality ads within their apps. Fyber connects app developers and their users with advertisers worldwide, who bid on the ad space within the apps (predefined spaces and instances within apps where ads can be displayed at certain points of time during a session of a user engaging with the app). Fyber’s customers provide insertion orders or equivalent contracts for advertising during campaign windows where Fyber provides, inserts, and tracks the performance of the advertising to serve as the direct supplier for the customer. Alternatively, Fyber also contracts with customers using a framework agreement that is not specific to a campaign or budget, but instead determines parameters for the mobile advertising service. Customers will contract for these services, which are monetized through a measurement of user impressions, clicks, or installs of the target product or service offered by the customer. Fyber’s customers generally pay subsequently to the total aggregation of the impressions, clicks, and installs billed, generally, on a monthly basis. Specifically, the aggregation follows the below events and parameters:
i.When a user installs a game (i.e., a user plays a game, sees advertising, clicks on it, and installs a game) based on a CPA (cost per action) arrangement.
ii.When a mobile ad is delivered to a user, based on a CPM (cost per thousand impressions) arrangement (i.e., every thousand impressions of a mobile ad inside the publisher's inventory, which can be on a mobile app or website).
iii.When a user plays a mobile video ad all the way to completion, based on a CPCV (cost per completed view) arrangement.
iv.When a user clicks on a mobile ad, based on a CPC (cost per click) arrangement (i.e., after each instance when an ad is clicked inside the publisher's inventory).
Due to the nature of Fyber's principal operations and the similarities between how customers obtain control of promised services between this segment and the Company's other two segments, revenues for this segment are recognized in a manner consistent with the Company's legacy On Device Media business.
New Accounting Standards Adopted
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. The Company adopted this guidance as of April 1, 2021, which did not have a material impact on the condensed consolidated financial statements upon adoption.
3. Acquisitions
Acquisition of Fyber N.V.
On May 25, 2021, the Company completed the initial closing of the acquisition of at least 95.1% of the outstanding voting shares (the “Majority Fyber Shares”) of Fyber N.V. (“Fyber”) pursuant to a Sale and Purchase Agreement (the "Fyber Acquisition") between Tennor Holding B.V., Advert Finance B.V., and Lars Windhorst (collectively, the “Seller”), the Company, and Digital Turbine Luxembourg S.ar.l., a wholly-owned subsidiary of the Company. The remaining outstanding shares in Fyber (the “Minority Fyber Shares”) are (to the Company's knowledge) widely held by other shareholders of Fyber (the “Minority Fyber Shareholders”) and are presented as non-controlling interests within these financial statements.
Fyber is a leading mobile advertising monetization platform empowering global app developers to optimize profitability through quality advertising. Fyber’s proprietary technology platform and expertise in mediation, real-time bidding, advanced analytics tools, and video combine to deliver publishers and advertisers a highly valuable app monetization solution. Fyber represents an important and strategic addition for the Company in its mission to develop one of the largest full-stack, fully-independent, mobile advertising solutions in the industry. The combined platform offering is advantageously positioned to leverage the Company’s existing on-device software presence and global distribution footprint.
The Company acquired Fyber in exchange for an estimated aggregate consideration of up to $600,000, consisting of:
i.Approximately $150,000 in cash, $124,336 of which was paid to the Seller at the closing of the acquisition and the remainder of which is to be paid to the Minority Fyber Shareholders for the Minority Fyber Shares pursuant to the tender offer described below;
ii.5,816,588 newly-issued shares of common stock of the Company to the Seller, which such number of shares were determined based on the volume-weighted average price of the common stock on NASDAQ during the 30-day period prior to the closing date, equal in value to $359,233 at the Company's common stock closing price on May 25, 2021, as follows.
1.3,216,935 newly-issued shares of common stock of the Company equal in value to $198,678, issued at the closing of the acquisition;
2.1,500,000 newly-issued shares of common stock of the Company equal in value to $92,640, issued on June 17, 2021;
3.1,040,364 newly-issued shares of common stock of the Company equal in value to $64,253, issued on July 16, 2021;
4.59,289 shares of common stock of the Company equal in value to $3,662, to be newly-issued during its fiscal second quarter 2022, but subject to a true-up reduction based on increased transaction costs associated with the staggered delivery of the Majority Fyber Shares to the Company; and
iii.Contingent upon Fyber’s net revenues (revenues less associated license fees and revenue share) being equal to or higher than $100,000 for the 12-month earn-out period ending on March 31, 2022, as determined in the manner set forth in the Sale and Purchase Agreement, a certain number of shares of the Company's common stock, which will be newly-issued to the Seller at the end of the earn-out period, and under certain circumstances, an amount of cash, which value of such shares and cash in aggregate will not exceed $50,000 (subject to set-off against certain potential indemnification claims against the Seller). Based on current estimates, it is unlikely the contingent earn-out consideration target will be achieved and no contingent liability was recognized in the provisional purchase accounting. Management will re-evaluate this estimate on a quarterly basis.
The Company paid the cash closing amount on the closing date and intends to pay the remainder of the cash consideration for the acquisition with a combination of available cash-on-hand, borrowings under the Company’s senior credit facility, and proceeds from future capital financings.
Pursuant to certain German law on public takeovers, following the closing, the Company launched a public tender offer to the Minority Fyber Shareholders to acquire from them the Minority Fyber Shares. The tender offer is subject to certain minimum price rules under German law. The timing and the conditions of the tender offer, including the consideration of EUR 0.84 per share offered to the Minority Fyber Shareholders in connection with the tender offer, was determined by the Company pursuant to the applicable Dutch and German takeover laws. The Company anticipates completing the tender offer during its fiscal second quarter 2022. Please see Note 14, "Subsequent Events," for further information.
Due to the proximity of the Fyber Acquisition to our fiscal first quarter ended June 30, 2021, the fair values of the assets acquired and liabilities assumed at the date of acquisition are presented on a preliminary basis and are as follows1:
| | | | | | | | |
Assets acquired | | |
Cash | | $ | 71,489 | |
Accounts receivable | | 64,877 | |
Other current assets | | 10,470 | |
Property and equipment | | 1,561 | |
Right-of-use asset | | 13,191 | |
Publisher relationships | | 106,400 | |
Developed technology | | 86,900 | |
Trade names | | 32,100 | |
Customer relationships | | 31,400 | |
Favorable lease | | 1,483 | |
Goodwill | | 303,015 | |
Other non-current assets | | 851 | |
Total assets acquired | | $ | 723,737 | |
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Liabilities assumed | | |
Accounts payable | | $ | 78,090 | |
Accrued license fees and revenue share | | 5,929 | |
Accrued compensation | | 52,929 | |
Other current liabilities | | 12,273 | |
Short-term debt | | 25,789 | |
Deferred tax liability, net | | 25,213 | |
Other non-current liabilities | | 15,386 | |
Total liabilities assumed | | $ | 215,609 | |
Total purchase price | | $ | 508,128 | |
The excess of cost of the Fyber Acquisition over the net amounts assigned to the fair values of the net assets acquired was recorded as goodwill and was assigned to the Company’s In App Media - Fyber segment. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not deductible for tax purposes.
The identifiable intangible assets consist of publisher relationships, developed technology, trade names, customer relationships, and a favorable lease. The publisher relationships, developed technology, trade names, and customer relationships intangibles were assigned useful lives of 20.0 years, 7.0 years, 7.0 years, and 3.0 years, respectively. The favorable lease was derived from a sublease at Fyber's offices in Berlin, Germany and, per ASC 842, Leases, will be combined with Fyber's right-of-use asset for that lease and will be amortized over the remaining life of that lease. The values for the identifiable intangible assets were determined using the following valuation methodologies:
•Publisher Relationships - Multi-Period Excess Earnings Method
•Developed Technology - Relief from Royalty Method
•Trade Names - Relief from Royalty Method
•Customer Relationships - With-and-Without Method
•Favorable Lease - Income Approach
The Company recognized $3,599 of costs related to the Fyber Acquisition, which were included in general and administrative expenses on the condensed consolidated statement of operations and comprehensive income for the three months ended June 30, 2021.
1 The purchase consideration was translated using the Euro-to-U.S. dollar exchange rate in effect on the acquisition closing date, May 25, 2021, of approximately €1.22 to $1.00.
Acquisition of AdColony Holdings AS
On April 29, 2021, the Company completed the acquisition of AdColony Holding AS, a Norway company (“AdColony”), pursuant to a Share Purchase Agreement (the "AdColony Acquisition"). The Company acquired all outstanding capital stock of AdColony in exchange for an estimated total consideration in the range of $400,000 to $425,000, to be paid as follows: (1) $100,000 in cash paid at closing (subject to customary closing purchase price adjustments), (2) $100,000 in cash to be paid six months after closing, and (3) an estimated earn-out in the range of $200,000 to $225,000, to be paid in cash, based on AdColony achieving certain future target net revenues, less associated cost of goods sold (as such term is referenced in the Share Purchase Agreement), over a 12-month period ending on December 31, 2021 (the “Earn-Out Period”). Under the terms of the earn-out, the Company would pay the seller a certain percentage of actual net revenues (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) of AdColony, depending on the extent to which AdColony achieves certain target net revenues (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) over the Earn-Out Period. The earn-out payment will be made following the expiration of the Earn-Out Period. The Company paid the cash closing amount on the closing date and intends to pay the remainder of the cash consideration for the acquisition with a combination of available cash-on-hand, borrowings under the Company’s senior credit facility, and proceeds from future capital financings.
AdColony is a leading mobile advertising platform servicing advertisers and publishers. AdColony’s proprietary video technologies and rich media formats are widely viewed as a best-in-class technology delivering third-party verified viewability rates for well-known global brands. With the addition of AdColony, the Company will expand its collective experience, reach, and suite of capabilities to benefit mobile advertisers and publishers around the globe. Performance-based spending trends by large, established brand advertisers present material upside opportunities for platforms with unique technology deployable across exclusive access to inventory.
Due to the proximity of the AdColony Acquisition to our fiscal first quarter ended June 30, 2021, the fair values of the assets acquired and liabilities assumed at the date of acquisition are presented on a preliminary basis and are as follows:
| | | | | | | | |
Assets acquired | | |
Cash | | $ | 24,793 | |
Accounts receivable | | 57,285 | |
Other current assets | | 1,845 | |
Property and equipment | | 1,566 | |
Right-of-use asset | | 2,460 | |
Customer relationships | | 102,400 | |
Developed technology | | 51,100 | |
Trade names | | 36,100 | |
Publisher relationships | | 4,400 | |
Goodwill | | 202,552 | |
Other non-current assets | | 131 | |
Total assets acquired | | $ | 484,632 | |
| | |
Liabilities assumed | | |
Accounts payable | | $ | 21,140 | |
Accrued license fees and revenue share | | 28,920 | |
Accrued compensation | | 8,453 | |
Other current liabilities | | 1,867 | |
Deferred tax liability, net | | 10,520 | |
Other non-current liabilities | | 1,770 | |
Total liabilities assumed | | $ | 72,670 | |
Total purchase price | | $ | 411,962 | |
The excess of cost of the AdColony Acquisition over the net amounts assigned to the fair values of the net assets acquired was recorded as goodwill and was assigned to the Company’s In App Media - AdColony segment. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not deductible for tax purposes.
The identifiable intangible assets consist of customer relationships, developed technology, trade names, and publisher relationships and were assigned useful lives of 8.0 years to 15.0 years, 7.0 years, 7.0 years, and 10.0 years, respectively. The values for the identifiable intangible assets were determined using the following valuation methodologies:
•Customer Relationships - Multi-Period Excess Earnings Method
•Developed Technology - Relief from Royalty Method
•Trade Names - Relief from Royalty Method
•Publisher Relationships - Cost Approach
The Company recognized $2,871 of costs related to the AdColony Acquisition, which were included in general and administrative expenses on the condensed consolidated statement of operations and comprehensive income for the three months ended June 30, 2021.
Acquisition of Appreciate
On March 1, 2021, Digital Turbine, through its subsidiary DT EMEA, an Israeli company and wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement with Triapodi Ltd., an Israeli company (d/b/a Appreciate) (“Appreciate”), the stockholder representative, and the stockholders of Appreciate, pursuant to which DT EMEA acquired, on March 2, 2021, all of the outstanding capital stock of Appreciate in exchange for total consideration of $20,003 in cash (the "Appreciate Acquisition"). Under the terms of the Purchase Agreement, DT EMEA entered into bonus arrangements to pay up to $6,000 in retention bonuses and performance bonuses to the founders and certain other employees of Appreciate. The Purchase Agreement contains customary representations and warranties, covenants, and indemnification provisions. The Company determined the operating results of Appreciate to not be material to the condensed consolidated financial statements for the three months ended June 30, 2020 and, therefore, has not included pro forma financial information for Appreciate below. None of the goodwill recognized for the Acquisition was deductible for tax purposes.
The acquisition of Appreciate delivers valuable deep ad-tech and algorithmic expertise to help Digital Turbine execute on its broader, longer-term vision. Deploying Appreciate's technology expertise across Digital Turbine’s global scale and reach should further benefit partners and advertisers that are a part of the combined Company’s platform.
Acquisition Purchase Price Liability
The Company has recognized acquisition purchase price liability of $313,413 on its condensed consolidated balance sheet as of June 30, 2021, comprised of the following components:
•$100,000 of unpaid cash consideration for the AdColony Acquisition
•$213,413 of estimated contingent earn-out consideration for the AdColony Acquisition
Pro Forma Financial Information (Unaudited)
The pro forma information below gives effect to the Fyber Acquisition and the AdColony Acquisition (collectively, the “Acquisitions”) as if they had been completed on the first day of each period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Acquisitions been completed on the first day of each period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the Acquisitions and does not reflect additional revenue opportunities following the Acquisitions. The pro forma information includes adjustments to record the assets and liabilities associated with the Acquisitions at their respective fair values, which are preliminary at this time, based on available information and to give effect to the financing for the Acquisitions.
| | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2021 | | 2020 |
| | Unaudited | | Unaudited |
| | (in thousands, except per share amounts) |
Net revenues | | $ | 292,048 | | | $ | 142,864 | |
Net income attributable to controlling interest | | $ | (18,417) | | | $ | 3,585 | |
Basic net income attributable to controlling interest per common share | | $ | (0.19) | | | $ | 0.04 | |
Diluted net income attributable to controlling interest per common share | | $ | (0.18) | | | $ | 0.04 | |
4. Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer ("CEO") is the CODM.
Prior to the acquisitions of both AdColony and Fyber disclosed above in Note 3, "Acquisitions," the Company had one operating and reportable segment called Media Distribution. As a result of the acquisitions, the Company reassessed its operating and reportable segments in accordance with ASC 280, Segment Reporting. Effective April 1, 2021, the Company reports its results of operations through the following three segments, each of which represents an operating and reportable segment, as follows:
•On Device Media ("ODM") - This segment is the legacy single operating and reporting segment of Digital Turbine prior to the AdColony and Fyber acquisitions. This segment generates revenues from services that deliver mobile application media or content media to end users. This segment's customers are mobile device carriers and OEMs that pay for the distribution of media. The other reporting segments are not dependent on these mobile device carrier and OEM relationships.
•In App Media – AdColony ("IAM-A") - This segment is inclusive of the acquired AdColony business and generates revenues from services provided as an end-to-end platform for brands, agencies, publishers, and application developers to deliver advertising to consumers on mobile devices around the world. IAM-A customers are primarily advertisers.
•In App Media – Fyber ("IAM-F") - This segment is inclusive of the acquired Fyber business and generates revenues from services provided to mobile application developers and digital publishers to monetize their content through advanced technologies, innovative advertisement formats, and data-driven decision making. IAM-F customers are primarily publishers.
The Company's CODM evaluates segment performance and makes resource allocation decisions primarily through the metric of net revenues less associated license fees and revenue share, as shown in the segment information summary table below. The Company's CODM does not allocate other direct costs of revenues, operating expenses, interest and other income / (expense), net, or provision for income taxes to these segments for the purpose of evaluating segment performance. Additionally, the Company does not allocate assets to segments for internal reporting purposes as the CODM does not manage the Company's segments by such metrics.
A summary of segment information follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2021 |
| | ODM | | IAM-A | | IAM-F | | Eliminations | | Consolidated |
Net revenues | | $ | 120,383 | | | $ | 44,937 | | | $ | 49,641 | | | $ | (2,346) | | | $ | 212,615 | |
License fees and revenue share | | 70,031 | | | 30,194 | | | 40,469 | | | (2,346) | | | 138,348 | |
Segment profit | | $ | 50,352 | | | $ | 14,743 | | | $ | 9,172 | | | $ | — | | | $ | 74,267 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 |
| | ODM | | IAM-A | | IAM-F | | Eliminations | | Consolidated |
Net revenues | | $ | 59,012 | | | $ | — | | | $ | — | | | $ | — | | | $ | 59,012 | |
License fees and revenue share | | 32,300 | | | — | | | — | | | — | | | 32,300 | |
Segment profit | | $ | 26,712 | | | $ | — | | | $ | — | | | $ | — | | | $ | 26,712 | |
Geographic Area Information
Long-lived assets, excluding deferred tax assets and intangible assets, by region follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | March 31, 2021 |
United States and Canada | | $ | 16,245 | | | $ | 12,995 | |
Europe, Middle East, and Africa | | 2,588 | | | 40 | |
Asia Pacific and China | | 94 | | | 15 | |
Mexico, Central America, and South America | | — | | | — | |
Consolidated property and equipment, net | | $ | 18,927 | | | $ | 13,050 | |
Net revenues by geography are based on the billing addresses of the Company's customers and a reconciliation of disaggregated revenues by segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2021 |
| | ODM | | IAM-A | | IAM-F | | Consolidated |
United States and Canada | | $ | 71,072 | | | $ | 19,810 | | | $ | 27,325 | | | $ | 118,207 | |
Europe, Middle East, and Africa | | 30,060 | | | 21,782 | | | 12,690 | | | 64,532 | |
Asia Pacific and China | | 16,790 | | | 2,602 | | | 7,336 | | | 26,728 | |
Mexico, Central America, and South America | | 2,402 | | | 704 | | | 42 | | | 3,148 | |
Consolidated net revenues | | $ | 120,324 | | | $ | 44,898 | | | $ | 47,393 | | | $ | 212,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 |
| | ODM | | IAM-A | | IAM-F | | Consolidated |
United States and Canada | | $ | 38,240 | | | $ | — | | | $ | — | | | $ | 38,240 | |
Europe, Middle East, and Africa | | 15,355 | | | — | | | — | | | 15,355 | |
Asia Pacific and China | | 5,211 | | | — | | | — | | | 5,211 | |
Mexico, Central America, and South America | | 206 | | | — | | | — | | | 206 | |
Consolidated net revenues | | $ | 59,012 | | | $ | — | | | $ | — | | | $ | 59,012 | |
5. Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill, net, by segment follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | ODM | | IAM-A | | IAM-F | | Consolidated |
Goodwill as of March 31, 2021 | | $ | 80,176 | | | $ | — | | | $ | — | | | $ | 80,176 | |
Purchase of AdColony | | — | | | 202,552 | | | — | | | 202,552 | |
Purchase of Fyber | | — | | | — | | | 303,015 | | | 303,015 | |
Foreign currency translation | | — | | | (4,111) | | | (9,025) | | | (13,136) | |
Goodwill as of June 30, 2021 | | $ | 80,176 | | | $ | 198,441 | | | $ | 293,990 | | | $ | 572,607 | |
Intangible Assets
The components of intangible assets as of June 30, 2021 and March 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2021 |
| | (Unaudited) |
| | Weighted-Average Remaining Useful Life | | Cost | | Accumulated Amortization | | Net |
Customer relationships | | 8.96 years | | $ | 178,271 | | | $ | (6,902) | | | $ | 171,369 | |
Developed technology | | 7.01 years | | 155,984 | | | (13,723) | | | 142,261 | |
Trade names | | 6.94 years | | 69,244 | | | (1,592) | | | |