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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, 2024
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 the 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 2, 2024, the Company had 102,775,975 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, 2024
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share amounts)
| | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | (Unaudited) | | |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 35,729 | | | $ | 33,605 | |
| | | | |
Accounts receivable, net | | 198,035 | | | 191,015 | |
Prepaid expenses | | 6,879 | | | 7,704 | |
Other current assets | | 12,045 | | | 10,017 | |
Total current assets | | 252,688 | | | 242,341 | |
Property and equipment, net | | 46,375 | | | 45,782 | |
Right-of-use assets | | 8,669 | | | 9,127 | |
Intangible assets, net | | 298,064 | | | 313,505 | |
Goodwill | | 219,882 | | | 220,072 | |
| | | | |
Other non-current assets | | 34,519 | | | 34,713 | |
TOTAL ASSETS | | $ | 860,197 | | | $ | 865,540 | |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 170,910 | | | $ | 159,200 | |
Accrued revenue share | | 26,322 | | | 33,934 | |
Accrued compensation | | 6,897 | | | 7,209 | |
| | | | |
| | | | |
Other current liabilities | | 36,246 | | | 35,681 | |
Total current liabilities | | 240,375 | | | 236,024 | |
Long-term debt, net of debt issuance costs | | 393,791 | | | 383,490 | |
Deferred tax liabilities, net | | 18,316 | | | 20,424 | |
Other non-current liabilities | | 11,762 | | | 11,670 | |
Total liabilities | | 664,244 | | | 651,608 | |
Commitments and contingencies (Note 14) | | | | |
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; 103,276,408 issued and 102,518,283 outstanding at June 30, 2024; 102,877,057 issued and 102,118,932 outstanding at March 31, 2024 | | 10 | | | 10 | |
Additional paid-in capital | | 866,581 | | | 858,191 | |
Treasury stock (758,125 shares at June 30, 2024, and March 31, 2024) | | (71) | | | (71) | |
Accumulated other comprehensive loss | | (50,168) | | | (48,955) | |
Accumulated deficit | | (620,499) | | | (595,343) | |
Total stockholders’ equity | | 195,953 | | | 213,932 | |
| | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 860,197 | | | $ | 865,540 | |
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 (Loss) Income
(Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended June 30, |
| | | | | | 2024 | | 2023 | | |
Net revenue | | | | | | $ | 117,989 | | | $ | 146,366 | | | |
Costs of revenue and operating expenses | | | | | | | | | | |
Revenue share | | | | | | 55,809 | | | 69,592 | | | |
Other direct costs of revenue | | | | | | 7,790 | | | 9,613 | | | |
Product development | | | | | | 10,714 | | | 15,800 | | | |
Sales and marketing | | | | | | 16,247 | | | 15,577 | | | |
General and administrative | | | | | | 43,517 | | | 40,499 | | | |
| | | | | | | | | | |
Total costs of revenue and operating expenses | | | | | | 134,077 | | | 151,081 | | | |
Loss from operations | | | | | | (16,088) | | | (4,715) | | | |
Interest and other income, net | | | | | | | | | | |
| | | | | | | | | | |
Interest expense, net | | | | | | (8,250) | | | (7,390) | | | |
Foreign exchange transaction gain | | | | | | 818 | | | 1,923 | | | |
| | | | | | | | | | |
Other income, net | | | | | | 114 | | | 244 | | | |
Total interest and other income, net | | | | | | (7,318) | | | (5,223) | | | |
Loss before income taxes | | | | | | (23,406) | | | (9,938) | | | |
Income tax provision (benefit) | | | | | | 1,750 | | | (1,539) | | | |
Net loss | | | | | | (25,156) | | | (8,399) | | | |
Less: net income (loss) attributable to non-controlling interest | | | | | | — | | | (220) | | | |
Net loss attributable to Digital Turbine, Inc. | | | | | | (25,156) | | | (8,179) | | | |
Other comprehensive loss | | | | | | | | | | |
Foreign currency translation loss | | | | | | (1,213) | | | (6,107) | | | |
Comprehensive loss | | | | | | (26,369) | | | (14,506) | | | |
Less: comprehensive income (loss) attributable to non-controlling interest | | | | | | — | | | 519 | | | |
Comprehensive loss attributable to Digital Turbine, Inc. | | | | | | $ | (26,369) | | | $ | (15,025) | | | |
Net loss per common share | | | | | | | | | | |
Basic | | | | | | $ | (0.25) | | | $ | (0.08) | | | |
Diluted | | | | | | $ | (0.25) | | | $ | (0.08) | | | |
Weighted-average common shares outstanding | | | | | | | | | | |
Basic | | | | | | 102,396 | | | 99,877 | | | |
Diluted | | | | | | 102,396 | | | 99,877 | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands) | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| | | 2024 | | 2023 | | |
| Cash flows from operating activities | | | | | | |
| Net (loss) income | | $ | (25,156) | | | $ | (8,399) | | | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 20,819 | | | 21,258 | | | |
| Non-cash interest expense | | 301 | | | 571 | | | |
| | | | | | | |
| Allowance for credit losses | | 214 | | | 752 | | | |
| Stock-based compensation expense | | 8,168 | | | 10,017 | | | |
| Foreign exchange transaction gain | | (818) | | | (1,923) | | | |
| | | | | | | |
| | | | | | | |
| Right-of-use asset | | 421 | | | 644 | | | |
| Deferred income taxes | | (2,074) | | | 1,619 | | | |
| | | | | | | |
| (Increase) decrease in assets: | | | | | | |
| Accounts receivable, gross | | (5,116) | | | (24,739) | | | |
| Prepaid expenses | | 813 | | | 587 | | | |
| Other current assets | | (1,400) | | | (3,388) | | | |
| Other non-current assets | | 514 | | | (1,233) | | | |
| Increase (decrease) in liabilities: | | | | | | |
| Accounts payable | | 9,058 | | | 18,620 | | | |
| Accrued revenue share | | (7,556) | | | (19,723) | | | |
| Accrued compensation | | (299) | | | (792) | | | |
| Other current liabilities | | 619 | | | 7,943 | | | |
| Other non-current liabilities | | 140 | | | (496) | | | |
| | | | | | | |
| | | | | | | |
| Net cash provided by (used in) operating activities | | (1,352) | | | 1,318 | | | |
| Cash flows from investing activities | | | | | | |
| | | | | | | |
| | | | | | | |
| Capital expenditures | | (5,931) | | | (7,276) | | | |
| Net cash used in investing activities | | (5,931) | | | (7,276) | | | |
| Cash flows from financing activities | | | | | | |
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| Proceeds from borrowings | | 17,000 | | | 5,000 | | | |
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| Repayment of debt obligations | | (7,000) | | | (10,000) | | | |
| Acquisition of non-controlling interest in consolidated subsidiaries | | — | | | (3,751) | | | |
| Payment of withholding taxes for net share settlement of equity awards | | (48) | | | (931) | | | |
| Options exercised | | 14 | | | 731 | | | |
| Net cash provided by (used in) financing activities | | 9,966 | | | (8,951) | | | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (559) | | | (1,580) | | | |
| Net change in cash, cash equivalents, and restricted cash | | 2,124 | | | (16,489) | | | |
| Cash, cash equivalents, and restricted cash, beginning of period | | 33,605 | | | 75,558 | | | |
| Cash, cash equivalents, and restricted cash, end of period | | $ | 35,729 | | | $ | 59,069 | | | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands) | | | | | | | | | | | | | | | |
| | | Three months ended June 30, |
| | | 2024 | | 2023 | | |
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| Supplemental disclosure of cash flow information | | | | | | |
| Interest paid | | $ | 8,104 | | | $ | 6,810 | | | |
| Income taxes paid | | $ | 703 | | | $ | 444 | | | |
| Supplemental disclosure of non-cash activities | | | | | | |
| Assets acquired not yet paid | | $ | 403 | | | $ | 440 | | | |
| Right-of-use assets acquired under operating leases | | $ | 888 | | | $ | 353 | | | |
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| Fair value of unpaid contingent consideration in connection with business acquisitions | | $ | 1,015 | | | $ | 2,738 | | | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(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 Loss | | Accumulated Deficit | | | | Total |
Balance at March 31, 2024 | | 102,118,932 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 758,125 | | | $ | (71) | | | $ | 858,191 | | | $ | (48,955) | | | $ | (595,343) | | | | | $ | 213,932 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (25,156) | | | | | (25,156) | |
Foreign currency translation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,213) | | | — | | | | | (1,213) | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | 8,424 | | | — | | | — | | | | | 8,424 | |
Shares issued: | | | | | | | | | | | | | | | | | | | | | | |
Exercise of stock options | | 8,599 | | | — | | | — | | | — | | | — | | | — | | | 14 | | | — | | | — | | | | | 14 | |
Issuance of restricted shares and vesting of restricted units | | 390,752 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
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Payment of withholding taxes related to the net share settlement of equity awards | | — | | | — | | | — | | | — | | | — | | | — | | | (48) | | | — | | | — | | | | | (48) | |
Balance at June 30, 2024 | | 102,518,283 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 758,125 | | | $ | (71) | | | $ | 866,581 | | | $ | (50,168) | | | $ | (620,499) | | | | | $ | 195,953 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(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 Loss | | Accumulated Deficit | | Non-Controlling Interest | | Total |
Balance at March 31, 2023 | | 99,458,369 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 758,125 | | | $ | (71) | | | $ | 822,217 | | | $ | (41,945) | | | $ | (175,115) | | | $ | 2,059 | | | $ | 607,255 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,179) | | | (220) | | | (8,399) | |
Foreign currency translation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,846) | | | — | | | 739 | | | (6,107) | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | 10,017 | | | — | | | — | | | — | | | 10,017 | |
Shares issued: | | | | | | | | | | | | | | | | | | | | | | |
Exercise of stock options | | 378,507 | | | — | | | — | | | — | | | — | | | — | | | 731 | | | — | | | — | | | — | | | 731 | |
Issuance of restricted shares and vesting of restricted units | | 449,781 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
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Acquisition of non-controlling interests in Fyber | | — | | | — | | | — | | | — | | | — | | | — | | | (1,173) | | | — | | | — | | | (2,578) | | | (3,751) | |
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Payment of withholding taxes related to the net share settlement of equity awards | | — | | | — | | | — | | | — | | | — | | | — | | | (931) | | | — | | | — | | | — | | | (931) | |
Balance at June 30, 2023 | | 100,286,657 | | | $ | 10 | | | 100,000 | | | $ | 100 | | | 758,125 | | | $ | (71) | | | $ | 830,861 | | | $ | (48,791) | | | $ | (183,294) | | | $ | — | | | $ | 598,815 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Digital Turbine, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2024
(in thousands, except share and per share amounts)
Note 1—Description of Business
Digital Turbine, Inc., through its subsidiaries (collectively “Digital Turbine” or the “Company”), is a leading independent mobile growth platform that levels up the landscape for advertisers, publishers, carriers, and device original equipment manufacturers (“OEMs”). The Company offers end-to-end products and solutions leveraging proprietary technology to all participants in the mobile application ecosystem, enabling brand discovery and advertising, user acquisition and engagement, and operational efficiency for advertisers. In addition, the Company’s products and solutions provide monetization opportunities for OEMs, carriers, and application (“app” or “apps”) publishers and developers.
Note 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 (“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. The Company acquired the remaining minority interest shareholders’ outstanding shares in one of its subsidiaries during the three months ended June 30, 2023 for $3,751. As a result, the Company owned 100% of all its subsidiaries as of June 30, 2024.
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, 2024.
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, 2024, 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, including the determination of gross versus net revenue reporting, 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, 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.
Management considered the potential impacts of ongoing macroeconomic uncertainty due to global events such as the conflicts in Ukraine and Israel, inflation, disruptions in supply chains, recessionary concerns impacting the markets in which the Company operates, and others, on the Company’s critical and significant accounting
estimates. 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 such factors. Management’s estimates may change as new events occur and additional information is obtained. Actual results could differ from 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 2—Basis of Presentation and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Note 3—Fair Value Measurements
Equity securities without readily determinable fair values
Occasionally, the Company may purchase certain non-marketable equity securities for strategic reasons. During the three months ended June 30, 2024, the Company did not make any such investments. During the year ended March 31, 2024, the Company purchased non-marketable equity securities for total proceeds of $9,138.
As of June 30, 2024 and March 31, 2024, the carrying value of the Company’s investments in equity securities without readily determinable fair values totaled $17,637, and are included in “Other non-current assets” in the accompanied consolidated balance sheet. These equity securities without readily determinable fair values represent the Company’s strategic investments in alternative app stores.
As the non-marketable equity securities are investments in a privately held company without a readily determinable fair value, the Company elected the measurement alternative to account for these investments. Under the measurement alternative, the carrying value of the non-marketable equity securities is adjusted based on price changes from observable transactions of identical or similar securities of the same issuer or for impairment. Any changes in carrying value are recorded within other income (loss), net in the Company's condensed consolidated statement of operations.
For the three months ended June 30, 2024, there were no adjustments to the carrying value of equity securities without readily determinable fair values.
Fair Value Measurements
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2. Significant other inputs that are directly or indirectly observable in the marketplace.
Level 3. Significant unobservable inputs which are supported by little or no market activity.
As of June 30, 2024 and March 31, 2024, Level 1 equity securities recorded at fair value were $501, and are classified as other non-current assets. As of June 30, 2024 and March 31, 2024, there were no Level 2 or Level 3 equity securities recorded at fair value.
Note 4—Segment Information
Operating segments are identified as components of an enterprise for 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 is the CODM. The Company reports its results of operations through the following two segments, each of which represents an operating and reportable segment, as follows:
•On Device Solutions (“ODS”) - This segment generates revenue from the delivery of mobile application media or content to end users with solutions for all participants in the mobile application ecosystem that want to connect with end users and consumers who hold the device. This includes mobile carriers and device OEMs that participate in the app economy, app publishers and developers, and brands and advertising agencies. This segment's product offerings are enabled through relationships with mobile device carriers and OEMs.
•App Growth Platform (“AGP”) - AGP customers are primarily advertisers and publishers, and the segment provides platforms that allow mobile app publishers and developers to monetize their monthly active users via display, native, and video advertising. The AGP platforms allow demand side platforms, advertisers, agencies, and publishers to buy and sell digital ad impressions, primarily through programmatic, real-time bidding auctions and, in some cases, through direct-bought/sold advertiser budgets. The segment also provides brand and performance advertising products to advertisers and agencies.
The Company’s CODM evaluates segment performance and makes resource allocation decisions primarily based on segment net revenue and segment profit, as shown in the segment information summary table below. The Company’s CODM does not allocate other direct costs of revenue, 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:
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| | Three months ended June 30, 2024 |
| | ODS | | AGP | | | | Elimination | | Consolidated |
Net revenue | | $ | 80,650 | | | $ | 38,392 | | | | | $ | (1,053) | | | $ | 117,989 | |
Revenue share | | 49,143 | | | 7,719 | | | | | (1,053) | | | 55,809 | |
Segment profit | | $ | 31,507 | | | $ | 30,673 | | | | | $ | — | | | $ | 62,180 | |
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| | Three months ended June 30, 2023 |
| | ODS | | AGP | | Elimination | | Consolidated |
Net revenue | | $ | 98,250 | | | $ | 48,959 | | | $ | (843) | | | $ | 146,366 | |
Revenue share | | 58,298 | | | 12,137 | | | (843) | | | 69,592 | |
Segment profit | | $ | 39,952 | | | $ | 36,822 | | | $ | — | | | $ | 76,774 | |
Geographic Area Information
Long-lived assets, excluding deferred tax assets, by region follow:
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| | June 30, 2024 | | March 31, 2024 | | |
United States and Canada | | $ | 34,255 | | | $ | 32,899 | | | |
Europe, Middle East, and Africa | | 12,037 | | | 12,809 | | | |
Asia Pacific and China | | 83 | | | 74 | | | |
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Consolidated property and equipment, net | | $ | 46,375 | | | $ | 45,782 | | | |
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| | June 30, 2024 | | March 31, 2024 | | |
United States and Canada | | $ | 3,257 | | | $ | 4,314 | | | |
Europe, Middle East, and Africa | | 5,246 | | | 4,598 | | | |
Asia Pacific and China | | 166 | | | 215 | | | |
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Consolidated right-of-use assets | | $ | 8,669 | | | $ | 9,127 | | | |
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| | June 30, 2024 | | March 31, 2024 | | |
United States and Canada | | $ | 127,175 | | | $ | 133,381 | | | |
Europe, Middle East, and Africa | | 166,760 | | | 175,878 | | | |
Asia Pacific and China | | 4,129 | | | 4,246 | | | |
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Consolidated intangible assets, net | | $ | 298,064 | | | $ | 313,505 | | | |
Net revenue by geography is based on the billing addresses of the Company’s customers and a reconciliation of disaggregated revenue by segment follows:
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| | Three months ended June 30, 2024 |
| | ODS | | AGP | | Consolidated |
United States and Canada | | $ | 33,885 | | | $ | 25,082 | | | $ | 58,967 | |
Europe, Middle East, and Africa | | 31,704 | | | 10,413 | | | 42,117 | |
Asia Pacific and China | | 14,572 | | | 2,888 | | | 17,460 | |
Mexico, Central America, and South America | | 489 | | | 9 | | | 498 | |
Elimination | | — | | | — | | | (1,053) | |
Consolidated net revenue | | $ | 80,650 | | | $ | 38,392 | | | $ | 117,989 | |
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| | Three months ended June 30, 2023 |
| | ODS | | AGP | | Consolidated |
United States and Canada | | $ | 38,941 | | | $ | 30,917 | | | $ | 69,858 | |
Europe, Middle East, and Africa | | 46,022 | | | 13,552 | | | 59,574 | |
Asia Pacific and China | | 12,543 | | | 4,447 | | | 16,990 | |
Mexico, Central America, and South America | | 744 | | | 43 | | | 787 | |
Elimination | | — | | | — | | | (843) | |
Consolidated net revenue | | $ | 98,250 | | | $ | 48,959 | | | $ | 146,366 | |
Note 5—Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill by segment follows:
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| | ODS | | AGP | | Total |
Goodwill as of March 31, 2024 | | $ | 80,176 | | | $ | 139,896 | | | $ | 220,072 | |
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Impairment of goodwill | | — | | | — | | | — | |
Foreign currency translation | | $ | — | | | $ | (190) | | | $ | (190) | |
Goodwill as of June 30, 2024 | | $ | 80,176 | | | $ | 139,706 | | | $ | 219,882 | |
The Company evaluates goodwill for impairment at least annually or upon the occurrence of events or circumstances that indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value.
During the three months ended June 30, 2024 and June 30, 2023, respectively, no occurrence of event or circumstance indicated they would more likely than not reduce the fair value of a reporting unit below its carrying value. As such, no impairment of goodwill was recognized during either period.
During the three months ended September 30, 2023, as a result of sustained decline in the quoted market price of the Company’s common stock, increase in interest rates, and the Company’s forecasted operating trends, the Company identified interim indicators of impairment related to the goodwill assigned to the AGP reporting unit. The Company completed an interim impairment assessment of its goodwill, and as a result of this review, recorded a $147,181 non-deductible, non-cash goodwill impairment charge for the AGP reporting unit as of September 30, 2023.
The Company subsequently performed its annual goodwill impairment evaluation as of March 31, 2024, noting continued trends in quoted market price, interest rates, and the Company’s forecast. The Company completed its annual impairment assessment of goodwill, and as a result, recorded an additional $189,459 non-deductible, non-cash goodwill impairment charge for a total of $336,640 to the AGP reporting unit during the twelve months ended March 31, 2024.
There was no impairment of goodwill for the ODS reporting unit during the fiscal year ended March 31, 2024.
Intangible Assets
The components of intangible assets were as follows as of the periods indicated:
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| | As of June 30, 2024 |
| | |
| | Weighted-Average Remaining Useful Life | | Cost | | Accumulated Amortization | | Net |
Customer relationships | | 11.99 years | | $ | 137,224 | | | $ | (32,250) | | | $ | 104,974 | |
Developed technology | | 4.06 years | | 146,450 | | | (64,603) | | | 81,847 | |
Trade names | | 1.08 years | | 69,932 | | | (50,044) | | | 19,888 | |
Publisher relationships | | 16.62 years | | 108,774 | | | (17,419) | | | 91,355 | |
Total | | | | $ | 462,380 | | | $ | (164,316) | | | $ | 298,064 | |
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| | As of March 31, 2024 |
| | Weighted-Average Remaining Useful Life | | Cost | | Accumulated Amortization | | Net |
Customer relationships | | 12.04 years | | $ | 168,349 | | | $ | (59,222) | | | $ | 109,127 | |
Developed technology | | 4.31 years | | 146,524 | | | (59,470) | | | 87,054 | |
Trade names | | 1.33 years | | 69,957 | | | (45,470) | | | 24,487 | |
Publisher relationships | | 16.86 years | | 108,860 | | | (16,023) | | | 92,837 | |
Total | | | | $ | 493,690 | | | $ | (180,185) | | | $ | 313,505 | |
The Company recorded amortization expense of $15,204 during the three months ended June 30, 2024, and $16,189 during the three months ended June 30, 2023, in general and administrative expenses on the condensed consolidated statements of operations and comprehensive (loss) income.
Estimated amortization expense in future fiscal years is expected to be:
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Fiscal year 2025 | | $ | 40,408 | |
Fiscal year 2026 | | 41,353 | |
Fiscal year 2027 | | 35,234 | |
Fiscal year 2028 | | 35,234 | |
Fiscal year 2029 | | 18,358 | |
Thereafter | | 127,477 | |
Total | | $ | 298,064 | |
Note 6—Accounts Receivable
| | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | | | |
Billed | | $ | 134,612 | | | $ | 136,604 | |
Unbilled | | 72,638 | | | 64,117 | |
Allowance for credit losses | | (9,215) | | | (9,706) | |
Accounts receivable, net | | $ | 198,035 | | | $ | 191,015 | |
Billed accounts receivable represent amounts billed to customers for which the Company has an unconditional right to consideration. Unbilled accounts receivable represent revenue recognized but billed after period-end. All unbilled receivables as of June 30, 2024 are expected to be billed and collected (subject to the allowance for credit losses) within twelve months.
Allowance for Credit Losses
The Company maintains reserves for current expected credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves.
Changes in the allowance for credit losses on trade receivables were as follows:
| | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2024 | | 2023 |
Balance, beginning of period | | $ | 9,706 | | | $ | 10,206 | |
Provision for credit losses | | 214 | | | 739 | |
Write-offs, net of recoveries | | (705) | | | (626) | |
Balance, end of period | | $ | 9,215 | | | $ | 10,319 | |
The Company recorded $214 of credit loss expense during the three months ended June 30, 2024, and $739 of credit loss expense during the three months ended June 30, 2023, in general and administrative expenses on the condensed consolidated statements of operations and comprehensive (loss) income.
Note 7—Property and Equipment | | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | | | |
Computer-related equipment | | $ | 11,022 | | | $ | 7,057 | |
Developed software | | 90,545 | | | 88,258 | |
Furniture and fixtures | | 2,058 | | | 2,069 | |
Leasehold improvements | | 3,678 | | | 3,690 | |
Property and equipment, gross | | 107,303 | | | 101,074 | |
Accumulated depreciation | | (60,928) | | | (55,292) | |
Property and equipment, net | | $ | 46,375 | | | $ | 45,782 | |
Depreciation expense was $5,615 for the three months ended June 30, 2024, and $5,055 for the three months ended June 30, 2023.
Depreciation expense for the three months ended June 30, 2024, includes $5,481 related to internal-use software included in general and administrative expense and $134 related to internally-developed software to be sold, leased, or otherwise marketed included in other direct costs of revenue. Depreciation expense for the three months ended June 30, 2023, includes $3,299 related to internal-use software included in general and administrative expense and $1,756 related to internally-developed software to be sold, leased, or otherwise marketed included in other direct costs of revenue.
Cloud Computing Arrangements
As of June 30, 2024, the net carrying value of capitalized implementation costs related to cloud computing arrangements that were incurred during the application development stage was $6,657, of which $1,233 was
included in prepaid expenses and other current assets and $5,425 was included in other non-current assets.
As of March 31, 2024, the net carrying value of capitalized implementation costs related to cloud computing arrangements that were incurred during the application development stage was $6,965, of which $1,239 was included in prepaid expenses and other current assets and $5,727 was included in other non-current assets.
As of June 30, 2024 and 2023, amortization expenses for implementation costs of cloud-based computing arrangements were $305 and $0, respectively.
Note 8—Other Current Liabilities
Other current liabilities consisted of the following:
| | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | | | |
Accrued expenses | | $ | 7,773 | | | $ | 7,376 | |
Accrued interest | | 3,352 | | | 3,414 | |
Foreign income tax payable | | 16,862 | | | 14,371 | |
Other current liabilities | | 8,259 | | | 10,520 | |
Total | | 36,246 | | | 35,681 | |
Note 9—Other Non-Current Liabilities
Other noncurrent liabilities consisted of the following:
| | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | | | |
Non-current lease liabilities | | $ | 5,877 | | | $ | 5,746 | |
Contingent consideration | | 1,015 | | | 1,015 | |
Other long-term liabilities | | 4,870 | | | 4,909 | |
Total | | 11,762 | | | 11,670 | |
During the three months ended June 30, 2024, the Company reassessed the fair value of its contingent consideration based on current forecasts in association with the Company’s acquisition of In App Video Services UK LTD. (“In App”). Based on the purchase agreement, executed on November 1, 2022, consideration included potential annual earn-out payments based on meeting annual revenue targets for the calendar years ended December 31, 2022, 2023, 2024, and 2025. The annual earn-out payments are up to $250 for the year ended December 31, 2022, and $1,000 for each of the calendar years ended December 31, 2023, 2024, and 2025. Also, an incremental earn-out payment will be made for each of the calendar years ended 2023, 2024, and 2025 in an amount equal to 25% of revenue that is more than 150% of that calendar year’s revenue target.
As a result of the Company’s assessment for the three months ended June 30, 2024, no remeasurement was recorded. During fiscal year ended March 31, 2024, the Company 1) paid approximately $1,100 for the earn-out associated with the calendar year ended December 31, 2023 and 2) recognized a change in the fair value of contingent consideration of $372. Changes in the fair value of the earn-out liability subsequent to the acquisition date are recognized in the condensed consolidated statements of operations and comprehensive (loss) income.
Note 10—Debt
The following table summarizes borrowings under the Company’s debt obligations and the associated interest rates:
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 |
| | Balance | | Interest Rate | | Unused Line Fee |
Revolver (subject to variable interest rate) | | $ | 396,000 | | | 8.23 | % | | 0.35 | % |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 |
| | Balance | | Interest Rate | | Unused Line Fee |
Revolver (subject to variable interest rate) | | $ | 386,000 | | | 7.71 | % | | 0.35 | % |
Debt obligations on the consolidated balance sheets consist of the following:
| | | | | | | | | | | | | | |
| | June 30, 2024 | | March 31, 2024 |
| | | | |
Revolver | | $ | 396,000 | | | $ | 386,000 | |
Less: Debt issuance costs | | (2,209) | | | (2,510) | |
| | | | |
| | | | |
| | | | |
Long-term debt, net of debt issuance costs | | $ | 393,791 | | | $ | 383,490 | |
Revolver
On February 3, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A. (“BoA”), which provided for a revolving line of credit (the “Revolver”) of up to $100,000 with an accordion feature enabling the Company to increase the total amount up to $200,000.
On April 29, 2021, the Company amended and restated the Credit Agreement (the “New Credit Agreement”) with BoA, as a lender and administrative agent, and a syndicate of other lenders, which provided for a revolving line of credit of up to $400,000. The revolving line of credit matures on April 29, 2026, and contains an accordion feature enabling the Company to increase the total amount of the Revolver by $75,000 plus an amount that would enable the Company to remain in compliance with its consolidated secured net leverage ratio, on such terms as agreed to by the parties. The New Credit Agreement was subsequently amended as follows:
•First Amendment: Increase in the Revolver to $525,000 while retaining the $75,000 accordion feature discussed above, for a total potential revolving line of credit of $600,000 on December 29, 2021.
•Second Amendment: LIBOR was replaced with the Term Secured Overnight Financing Rate (“SOFR”). As a result, borrowings under the New Credit Agreement where the applicable rate was LIBOR will accrue interest at an annual rate equal to SOFR plus between 1.50% and 2.25% beginning on the effective date of the Second Amendment, which was October 26, 2022.
•Third Amendment: On February 5, 2024, the maximum consolidated secured net leverage covenant and the minimum consolidated net interest coverage covenant were amended. In addition, it increased the limit of permitted, other investments, including equity investments and joint ventures from $20,000 in the aggregate in any fiscal year of the Company to $75,000 and increased the annual interest rate, which will be SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio.
Other than the changes described above regarding the covenants in the Third Amendment, the amendments discussed made no other changes to the terms of the New Credit Agreement, which contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio.
The Company incurred debt issuance costs of $4,937 for the New Credit Agreement, inclusive of costs incurred for the First, Second, and Third Amendments. Deferred debt issuance costs are recorded as a reduction of the carrying value of the debt on the consolidated balance sheets. All deferred debt issuance costs are amortized on a straight-line basis over the term of the loan to interest expense.
As of June 30, 2024, the Company had $396,000 drawn against the New Credit Agreement, classified as long-term debt on the consolidated balance sheets, with remaining unamortized debt issuance costs of $2,209.
As of June 30, 2024, amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to, at the Company’s election, (i) SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio, or (ii) a base rate based upon the highest of (a) the federal funds rate plus 0.50%, (b) BoA’s prime rate, or (c) SOFR plus 1.00% plus between 0.50% and 1.75%, based on the Company’s consolidated secured leverage ratio. Additionally, the New Credit Agreement is subject to an unused line of credit fee between 0.15% and 0.35% per annum, based on the Company’s consolidated leverage ratio. As of June 30, 2024, the interest rate was 8.23% and the unused line of credit fee was 0.35%.
The Company’s payment and performance obligations under the New Credit Agreement and related loan documents are secured by its grant of a security interest in substantially all of its personal property assets, whether now existing or hereafter acquired, subject to certain exclusions. If the Company acquires any real property assets with a fair market value in excess of $5,000, it is required to grant a security interest in such real property as well. All such security interests are required to be first priority security interests, subject to certain permitted liens.
The Company entered into a Fourth Amendment to the New Credit Agreement on August 6, 2024 to renegotiate its required covenants. Refer to Note 15—Subsequent Events for further discussion.
As of June 30, 2024, the Company had $29,000 available to draw on the revolving line of credit under the New Credit Agreement, excluding the accordion feature, subject to the required covenants. As of June 30, 2024, the Company was in compliance with all covenants. The fair value of the Company’s outstanding debt approximates its carrying value.
Interest expense, net
Interest expense, net, amortization of debt issuance costs, and unused line of credit fees were recorded in interest expense, net, on the condensed consolidated statements of operations and comprehensive (loss) income, as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended June 30, |
| | | | | | 2024 | | 2023 | | |
Interest expense, net | | | | | | $ | (7,840) | | | $ | (7,114) | | | |
Amortization of debt issuance costs | | | | | | (301) | | | (212) | | | |
Unused line of credit fees and other | | | | | | (109) | | | (64) | | | |
Total interest expense, net | | | | | | $ | (8,250) | | | $ | (7,390) | | | |
Note 11—Stock-Based Compensation
2020 Equity Incentive Plan of Digital Turbine, Inc. (the “2020 Plan”)
On September 15, 2020, the Company’s stockholders approved the 2020 Plan, pursuant to which the Company may grant equity incentive awards to directors, employees and other eligible participants. A total of 12,000,000 shares of common stock were reserved for grant under the 2020 Plan. The types of awards that may be granted under the 2020 Plan include incentive and non-qualified stock options, stock appreciation rights, restricted stock, and restricted stock units. The 2020 Plan became effective on September 15, 2020, and has a term of ten years. Stock options may be either incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options. As of June 30, 2024, 351,017 shares of common stock were available for issuance as future awards under the 2020 Plan.
Stock Options
Stock options are granted with an exercise price no lower than the fair market value at the grant date. They typically encompass a vesting period of two to three years and a contractual term of ten years. Share-based compensation expense for stock options is recognized on a straight-line basis over the requisite vesting period, determined by the grant-date fair value for the portion of the award expected to vest. The Company employs the Black-Scholes options-pricing model to estimate the fair value of its stock options. The Company may issue either new shares or treasury shares upon exercise of these awards.
The following table summarizes stock option activity:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Exercise Price (per share) | | Weighted-Average Remaining Contractual Life (in years) | | Aggregate Intrinsic Value (in thousands) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Options outstanding as of March 31, 2024 | | 5,797,869 | | | $ | 13.26 | | | 5.39 | | $ | 2,423 | |
Granted | | — | | | — | | | | | |
Exercised | | (8,645) | | | 1.58 | | | | | |
Forfeited / Expired | | (180,533) | | | 27.91 | | | | | |
Options outstanding as of June 30, 2024 | | 5,608,691 | | | $ | 12.81 | | | 5.09 | | $ | 779 | |
| | | | | | | | |
Exercisable as of June 30, 2024 | | 4,820,073 | | | $ | 11.62 | | | 4.54 | | $ | 779 | |
At June 30, 2024, total unrecognized stock-based compensation expense related to unvested stock options, net of estimated forfeitures, was $9,142, with an expected remaining weighted-average recognition period of 1.63 years.
Restricted Stock
Awards of restricted stock units may be either grants of time-based restricted stock units (“RSUs”) or performance-based restricted stock units (“PSUs”) that are issued at no cost to the recipient. The stock-based compensation expense for these awards is determined using the fair market value of the Company’s common stock on the date of the grant. No capital transaction occurs until the units vest, at which time they are converted to restricted or unrestricted stock. Compensation expense for RSUs with a time condition is recognized on a straight-line basis over the requisite service period. The Company periodically grants PSUs to certain key employees that are subject to the achievement of specified internal performance metrics over a specified performance period. The terms and conditions of the PSUs generally allow for vesting of the awards ranging between forfeiture and up to 200% of target. Stock-based compensation expense for PSUs with a performance condition are recognized on a straight-line basis based on the most likely attainment scenario over the performance period. The most likely attainment scenario is re-evaluated each period.
Restricted stock awards (“RSAs”) are awards of common stock that are legally issued and outstanding. RSAs are subject to time-based restrictions on transfer and unvested portions are generally subject to a risk of forfeiture if the award recipient ceases providing services to the Company prior to the lapse of the restrictions. The stock-based compensation expense for these awards is determined using the fair market value of the Company’s common stock on the date of the grant. The RSAs have time conditions and in some cases, once the stock vests, the individual is restricted from selling the shares of stock for a certain defined period, from three months to one year, depending on the terms of the RSA.
The following table summarizes RSU, PSU, and RSA activity:
| | | | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Grant Date Fair Value |
| | | | |
| | | | |
| | | | |
| | | | |
Unvested restricted shares outstanding as of March 31, 2024 | | 3,919,842 | | | $ | 12.44 | |
Granted | | 4,648,714 | | | 2.17 | |
Vested | | (420,743) | | | 11.13 | |
Forfeited | | (142,036) | | | 10.70 | |
Unvested restricted shares outstanding as of June 30, 2024 | | 8,005,777 | | | $ | 6.57 | |
At June 30, 2024, total unrecognized stock-based compensation expense related to RSUs, PSUs and RSAs, net of estimated forfeitures was $36,192, with an expected remaining weighted-average recognition period of 1.77 years.
Stock-based compensation expense for the three months ended June 30, 2024 and 2023, was $8,168 and $10,017, respectively, and was recorded within general and administrative expenses on the condensed consolidated statements of operations and comprehensive (loss) income. Stock-based compensation expense excludes the portion capitalized to software development costs related to employees who are directly associated with internal-use software development.
Note 12—Earnings per Share
Basic net (loss) income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the applicable methods. The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive.
The following table sets forth the computation of basic and diluted net (loss) income per share of common stock (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended June 30, |
| | | | | | 2024 | | 2023 | | |
Net loss per common share | | | | | | $ | (25,156) | | | $ | (8,399) | | | |
Less: net income (loss) attributable to non-controlling interest | | | | | | — | | | (220) | | | |
Net loss attributable to Digital Turbine, Inc. | | | | | | $ | (25,156) | | | $ | (8,179) | | | |
Weighted-average common shares outstanding, basic | | | | | | 102,396 | | | 99,877 | | | |
Basic net (loss) income per common share attributable to Digital Turbine, Inc. | | | | | | $ | (0.25) | | | $ | (0.08) | | | |
Weighted-average common shares outstanding, diluted | | | | | | 102,396 | | | 99,877 | | | |
Diluted net (loss) income per common share attributable to Digital Turbine, Inc. | | | | | | $ | (0.25) | | | $ | (0.08) | | | |
| | | | | | | | | | |
Potentially dilutive outstanding securities of 9,638,950 and 4,903,410 for the three months ended June 30, 2024 and June 30, 2023, respectively, were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive.
Note 13—Income Taxes
The Company’s provision for income taxes as a percentage of pre-tax earnings (“effective tax rate”) is based on a current estimate of the annual effective income tax rate, adjusted to reflect the impact of discrete items. In accordance with ASC 740, Accounting for Income Taxes, jurisdictions forecasting losses that are not benefited due to valuation allowances are not included in the Company’s forecasted effective tax rate.
During the three months ended June 30, 2024, the Company recognized a tax provision expense of $1,750, resulting in an effective tax rate of (7.5)%. The effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to foreign income expense and a valuation allowance on loss from operations.
During the three months ended June 30, 2023, the Company recognized a tax benefit of $1,539, resulting in an effective tax rate of 15.5%, which differs from the U.S. federal statutory tax rate of 21% primarily due to state income taxes, foreign income inclusions, and one-time discrete items.
Note 14—Commitments and Contingencies
Hosting Agreements
The Company enters into hosting agreements with service providers and in some cases, those agreements include minimum commitments that require the Company to purchase a minimum amount of service over a specified time period (“the minimum commitment period”). The minimum commitment period is generally one-year in duration and the hosting agreements include multiple minimum commitment periods. Our minimum purchase
commitments under these hosting agreements total approximately $261,359 over the next six fiscal years.
Legal Matters
The Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business. The Company accrues a liability when it is both probable a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made.
On June 6, 2022 and July 21, 2022, stockholders of the Company filed class action complaints against the Company and certain of the Company’s officers in the Western District of Texas related to Digital Turbine, Inc.’s announcement in May 2022 that it would restate some of its financial results. The claims allege violations of certain federal securities laws. These have been consolidated into In re Digital Turbine, Inc. Securities Litigation, Case No. 1:22-cv-00550-DAE. On July 19, 2023, the Western District court granted the Company’s motion to dismiss the case. The plaintiffs filed an amended complaint on August 23, 2023, the Company filed a motion to dismiss the amended complaint on September 22, 2023, and briefing on the motion to dismiss is complete as of November 13, 2023. The court has not yet issued a ruling on the Company’s motion to dismiss the amended complaint. In addition, several derivative actions have been filed against the Company and the Company’s directors, which all assert claims of breach of fiduciary duties arising out of the same facts as the securities class action. The cases are Olszanski v. Digital Turbine, Inc., et al.; Case No. 1:22-cv-911 in federal court in the Western District of Texas (October 4, 2022); Witt v. Digital Turbine, Inc., et al; Case 1:22-cv-01429-UNA in federal court in the District of Delaware (February 14, 2023); and Krumwiede v. Digital Turbine, Inc.; Case No. 2023-0277 in state court in the Delaware Chancery Court (March 6, 2023). The federal derivative cases have been stayed under a court order, pending a ruling on any motion to dismiss the federal class action. The Company and the individual defendants filed a motion to dismiss the Delaware Chancery case on May 11, 2023. The Company and individual defendants deny any allegations of wrongdoing and the Company plans to vigorously defend against the claims asserted in these complaints. Due to the early stages of these cases, management is unable to assess a likely outcome or potential liability at this time.
Note 15—Subsequent Events
The Company evaluated subsequent events through the issuance date of the accompanying condensed consolidated financial statements, which was August 7, 2024. There were no events or transactions during the subsequent event reporting period that required disclosure in the condensed consolidated financial statements, other than:
The Company entered into a Fourth Amendment to the New Credit Agreement on August 6, 2024 to renegotiate its required covenants and address certain other matters. The Fourth Amendment to the New Credit Agreement amended the maximum consolidated secured net leverage covenant and the minimum consolidated net interest coverage covenant retroactive to June 30, 2024, reduced the Revolver by $100,000 to $425,000 (while retaining the $75,000 accordion feature), increased the annual interest rate for highest leverage ratio results, which will be SOFR plus between 1.00% and 3.75%, based on the Company’s consolidated leverage ratio, provided for payment against the outstanding Revolver balance to the extent the Company holds cash in excess of $40,000, and reduced the permitted investments threshold limit from $70,000 to $25,000.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (this “Report”). The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) , as amended. Forward-looking statements involve substantial risks and uncertainties. When used in this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “will,” “seeks,” “should,” “could,” “would,” “may,” and similar expressions, as they relate to our management or us, are intended to identify such forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in or implied by these forward-looking statements as a result of a variety of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as well as those described elsewhere in this Report and in our other public filings. The risks included are not exhaustive and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time-to-time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period. We do not undertake any obligation to update any forward-looking statements made in this Report. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
All numbers are in thousands, except share and per share amounts.
Company Overview
Digital Turbine, Inc., through its subsidiaries (collectively “Digital Turbine” or the “Company”), is a leading independent mobile growth platform that levels up the landscape for advertisers, publishers, carriers, and device original equipment manufacturers (“OEMs”). We offer end-to-end products and solutions leveraging proprietary technology to all participants in the mobile application ecosystem, enabling brand discovery and advertising, user acquisition and engagement, and operational efficiency for advertisers. In addition, our products and solutions provide monetization opportunities for OEMs, carriers, and application (“app” or “apps”) publishers and developers.
Recent Developments
Impact of Economic Conditions and Geopolitical Developments
Our results of operations are affected by macroeconomic conditions and geopolitical developments, including but not limited to levels of business and consumer confidence, actions taken by governments to counter inflation, potential trade disputes, including but not limited to any U.S. government actions against China based developers and publishers, Russia’s invasion of Ukraine, and the recent conflict in Israel.
Inflation, rising interest rates, supply chain disruptions, and reduced business and consumer confidence have caused and may continue to cause a global slowdown of economic activity, which has caused and may continue to cause a decrease in demand for a broad variety of goods and services, including those provided by our clients.
We are impacted by the volume of sales of new mobile devices by our partners, which has been below our expectations. We believe this is driven by the impact of inflation, economic uncertainty, and their potential impacts on consumers. These negative macroeconomic trends have resulted, and may continue to result in, a decrease in mobile phone sales volume. Continued weakness in the sale of new mobile devices is likely to continue to impact our business, financial condition, and results of operations, the full impact of which remains uncertain at this time.
Further, various U.S. federal and state governmental agencies continue to examine the distribution and use of apps developed and/or published by China based companies. In some cases, government agencies have
banned certain apps from mobile devices. Further actions by U.S. federal or state governmental agencies or other countries to restrict or ban the distribution of China based apps could negatively impact our business, financial condition, and results of operations.
While Russia’s invasion of Ukraine has not had a direct, material impact on our business, any European conflict, if expanded to include other countries, would likely have a material, negative impact on general economic conditions and would impact our business directly.
Additionally, we continue to actively monitor the recent and ongoing conflict in Israel and the Gaza Strip for any material impacts to our business. While no adverse financial or operational impacts have been noted in the current period, if such conflict continues or escalates, it could have a potential negative impact on our business, given our significant presence in the region.
The extent of the impact of these macroeconomic factors on our operational and financial performance is also dependent on their impact on carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, as well as the impact on application developers and in-app advertisers. If negative macroeconomic factors or geopolitical developments materially impact our partners over a prolonged period, our results of operations and financial condition could also be adversely impacted, the size and duration of which we cannot accurately predict at this time.
We continue to actively monitor these factors and we may take further actions that alter our business operations, as required, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. In addition to monitoring the developments described above, the Company also considers the impact such factors may have on our accounting estimates and potential impairments of our non-current assets, which primarily consist of goodwill and finite-lived intangible assets.
The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment, including qualitative and quantitative factors such as the identification of reporting units, identification and allocation of assets and liabilities to reporting units, and determinations of fair value. In estimating the fair value of our reporting units when performing our annual impairment test, or when an indicator of impairment is present, we make estimates and significant judgments about the future cash flows of those reporting units and other estimates including appropriate discount rates. Discount rates can fluctuate based on various economic conditions including our capital allocation and interest rates, including the interest rates on U.S. treasury bonds. Changes in judgments on these assumptions and estimates, particularly expectations of revenue and cash flow growth rates in future periods and discount rates, could result in goodwill impairment charges.
In addition to evaluating goodwill for impairment when events or circumstances indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company also evaluates goodwill for impairment on an annual basis. The Company’s next annual evaluation of goodwill for impairment will be as of March 31, 2025.
Finite-lived intangible assets and property, plant, and equipment are amortized or depreciated over their estimated useful lives on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period or an impairment. We test these assets for potential impairment whenever we conclude events or changes in circumstances indicate carrying amounts may not be recoverable.
Business Transformation Initiative
Beginning in fiscal year 2023, the Company entered into a business transformation project that includes the implementation of a new, global cloud-based enterprise resource planning (“ERP”) system to upgrade our existing enterprise-wide operating systems. Additionally, a new human resource system was also implemented to streamline employee management processes and enhance organizational effectiveness.We are also undertaking the consolidation of existing ancillary systems and deploying other new platforms and systems to improve our operations and drive business and cost efficiencies.
This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and
project management costs, and professional services with business partners engaged in the planning, design and business process review that would not qualify as software configuration and implementation costs. In addition, the Company is incurring duplicative personnel and other operating costs to maintain legacy systems and operations during the deployment of the new systems and certain other ancillary platforms and systems. The Company completed the first deployment phase in the third quarter of fiscal year 2024. Costs are anticipated to be incurred through various deployment phases that are expected to continue through early fiscal year 2026. The Company incurred $1,072 of business transformation costs in the three months ended June 30, 2024. These costs are recorded in General and Administrative expenses and Product Development expenses in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the years ended June 30, 2024 and 2023 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three months ended June 30, | | |
| | | | | | | | 2024 | | 2023 | | % of Change |
Net revenue | | | | | | | | $ | 117,989 | | | $ | 146,366 | | | (19.4) | % |
Costs of revenue and operating expenses | | | | | | | | | | | | |
Revenue share | | | | | | | | 55,809 | | | 69,592 | | | (19.8) | % |
Other direct costs of revenue | | | | | | | | 7,790 | | | 9,613 | | | (19.0) | % |
Product development | | | | | | | | 10,714 | | | 15,800 | | | (32.2) | % |
Sales and marketing | | | | | | | | 16,247 | | | 15,577 | | | 4.3 | % |
General and administrative | | | | | | | | 43,517 | | | 40,499 | | | 7.5 | % |
Impairment of goodwill | | | | | | | | — | | | — | | | 100.0 | % |
Total costs of revenue and operating expenses | | | | | | | | 134,077 | | | 151,081 | | | (11.3) | % |
Loss from operations | | | | | | | | (16,088) | | | (4,715) | | | 241.2 | % |
Interest and other income, net | | | | | | | | | | | | |
Change in fair value of contingent consideration | | | | | | | | — | | | — | | | 100.0 | % |
Interest expense, net | | | | | | | | (8,250) | | | (7,390) | | | 11.6 | % |
Foreign exchange transaction gain | | | | | | | | 818 | | | 1,923 | | | (57.5) | % |
| | | | | | | | | | | | |
Other income, net | | | | | | | | 114 | | | 244 | | | (53.3) | % |
Total interest and other income, net | | | | | | | | (7,318) | | | (5,223) | | | 40.1 | % |
Loss before income taxes | | | | | | | | (23,406) | | | (9,938) | | | 135.5 | % |
Income tax provision (benefit) | | | | | | | | 1,750 | | | (1,539) | | | (213.7) | % |
Net loss | | | | | | | | (25,156) | | | (8,399) | | | 199.5 | % |
Net revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |
| | 2024 | | 2023 | | % of Change | | | | | | |
Net revenue | | | | | | | | | | | | |
On Device Solutions | | $ | 80,650 | | | $ | 98,250 | | | (17.9) | % | | | | | | |
App Growth Platform | | 38,392 | | | 48,959 | | | (21.6) | % | | | | | | |
Elimination | | (1,053) | | | (843) | | | 24.9 | % | | | | | | |
Total net revenue | | $ | 117,989 | | | $ | 146,366 | | | (19.4) | % | | | | | | |
Comparison of the three months ended June 30, 2024 and 2023
Net revenue decreased by $28,377 or 19.4% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. See the segment discussion below for further details regarding net revenue.
On Device Solutions
On Device Solutions revenue decreased by $17,600 or 17.9% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Revenue from content media increased by approximately $753 primarily due to increased activity with a carrier that resulted in higher daily active users on prepaid devices. Revenue from application media declined by approximately $18,352 due to lower new device volumes in the US and internationally, which was partially offset by an increase in revenue-per-device in the US. Additionally, the decrease is partially due to the winding down of certain strategic demand contracts in the current period.
App Growth Platform
App Growth Platform revenue decreased by $10,567 or 21.6% for the three months ended June 30, 2024
compared to the three months ended June 30, 2023. The decrease was primarily a result of a decline in brand and performance advertising of approximately $4,180, a decline in advertising exchange of approximately $6,400 due to a broader weakness in mobile advertising markets and the impacts of consolidating and exiting of certain legacy AdColony platforms and business lines. These declines were partially offset by an increase in revenue from reseller partnerships of approximately $13.
Costs of revenue and operating expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |
| | 2024 | | 2023 | | % of Change | | | | | | |
Costs of revenue and operating expenses | | | | | | | | | | | | |
Revenue share | | $ | 55,809 | | | $ | 69,592 | | | (19.8)% | | | | | | |
Other direct costs of revenue | | 7,790 | | | 9,613 | | | (19.0)% | | | | | | |
Product development | | 10,714 | | | 15,800 | | | (32.2)% | | | | | | |
Sales and marketing | | 16,247 | | | 15,577 | | | 4.3% | | | | | | |
General and administrative | | 43,517 | | | 40,499 | | | 7.5% | | | | | | |
Impairment of goodwill | | — | | | — | | | 100.0% | | | | | | |
Total costs of revenue and operating expenses | | $ | 134,077 | | | $ | 151,081 | | | (11.3)% | | | | | | |
Comparison of the three months ended June 30, 2024 and 2023
Costs of revenue and operating expenses decreased by $17,004 or 11.3% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to lower revenue share, which is the result of lower revenue over the same comparative periods. This decrease was also partially due to lower operating costs, primarily for product development activities. Costs of revenue and operating expenses included severance costs as well as business transformation and acquisition-related costs of $557 and $1,072, respectively, for the three months ended June 30, 2024, compared to $367 and $36, respectively, for the three months ended June 30, 2023. See below for further discussion regarding changes in costs of revenue and operating expenses.
Revenue share
License fees and revenue share are reflective of amounts paid to our carrier and OEM partners, as well as app publishers and developers, and are recorded as a cost of revenue. In addition, when indirect arrangements exist through advertising aggregators (ad networks) and revenue is shared with our carrier and app development partners, the shared revenue is also recorded as a cost of revenue.
License fees and revenue share decreased by $13,783 or 19.8%, to $55,809 for the three months ended June 30, 2024, compared to $69,592, for the three months ended June 30, 2023. The decrease in license fees and revenue share was similar to the decrease in total net revenues for the same comparable periods.
License fees and revenue share as a percentage of total net revenue was 47.3% for the three months ended June 30, 2024, compared to 47.5% for the three months ended June 30, 2023. The decrease in license fees and revenue share as a percentage of total net revenue was primarily due to revenue mix changes, specifically a lower mix of revenue reported on a net basis as compared to revenue reported on a gross basis during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 .
Other direct costs of revenue
Other direct costs of revenue are comprised primarily of hosting expenses directly related to the generation of revenue and depreciation expense associated with capitalized software costs and amortization of developed technology intangible assets.
Other direct costs of revenue decreased by $1,823 to $7,790 for the three months ended June 30, 2024 and was 6.6% as a percentage of total net revenue compared to $9,613, or 6.6% of total net revenue, for the three months ended June 30, 2023. The decrease in other direct costs was primarily due to lower hosting costs as a
result of both a strategic switch in web hosting providers during fiscal year 2024 and a comparable decrease in total net revenues between comparable periods. Other direct costs as a percentage of total net revenue remained flat between comparable periods.
Product development
Product development expenses include the development and maintenance of the Company’s product suite. Expenses in this area are primarily a function of personnel.
Product development expenses decreased by $5,086 to $10,714 for the three months ended June 30, 2024 compared to $15,800 for the three months ended June 30, 2023. Product development expenses included severance costs of $71 and $183 for the three months ended June 30, 2024 the three months ended June 30, 2023, respectively. Excluding severance costs, product development expenses decreased by $4,974 for the three months ended June 30, 2024.
The decrease in product development expenses, excluding severance costs, was primarily due to lower employee-related costs of approximately $2,535, driven by lower incentive compensation. In addition, product development expenses decreased by approximately $2,439, due to a decline in depreciation and amortization expenses, hosting costs, and professional service fees.
Sales and marketing
Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management.
Sales and marketing expenses increased by $670 to $16,247 for the three months ended June 30, 2024 compared to $15,577 for the three months ended June 30, 2023. Sales and marketing expenses included severance costs of $410 and $125 for the three months ended June 30, 2024 and the three months ended June 30, 2023, respectively. Excluding severance costs, sales and marketing expenses increased by $385 for the three months ended June 30, 2024.
The increase in sales and marketing expense after excluding severance costs was primarily due to higher personnel related costs of $945, offset by a decrease in sales and marketing events and travel-related expenses of $233, a decrease in the use of professional services of $197, and lower facilities and other related costs of $207.
General and administrative
General and administrative expenses represent management, finance, and support personnel costs in both the parent and subsidiary companies, which include professional services and consulting costs, in addition to other costs such as rent, stock-based compensation, and depreciation and amortization expense.
General and administrative expenses increased by $3,018 to $43,517 for the three months ended June 30, 2024 compared to $40,499 for the three months ended June 30, 2023. General and administrative expenses included severance costs of $76 and business transformation costs of $1,072 for the three months ended June 30, 2024. General and administrative expenses included severance costs and acquisition-related costs of $181 for the three months ended June 30, 2023. Excluding severance costs, acquisition-related costs, and business transformation costs, general and administrative expenses increased by $2,051 for the three months ended June 30, 2024.
The increase in general and administrative expenses after excluding severance costs, acquisition-related costs, and business transformation costs, was primarily due to increased depreciation and amortization costs of $2,377 and increased professional service fees of $1,111, partially offset by $1,437 from decreased stock-based compensation, credit loss expenses, and other operating costs.
Interest and other income (expense), net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |
| | 2024 | | 2023 | | % of Change | | | | | | |
Interest and other income, net | | | | | | | | | | | | |
Change in fair value of contingent consideration | | $ | — | | | $ | — | | | 100.0 | % | | | | | | |
Interest expense, net | | $ | (8,250) | | | $ | (7,390) | | | 11.6 | % | | | | | | |
Foreign exchange transaction gain | | 818 | | | 1,923 | | | (57.5) | % | | | | | | |
| | | | | | | | | | | | |
Other income, net | | 114 | | | 244 | | | (53.3) | % | | | | | | |
Total interest and other income, net | | $ | (7,318) | | | $ | (5,223) | | | 40.1 | % | | | | | | |
Interest expense, net
For the three months ended June 30, 2024, interest expense, net, increased by $860 or 11.6% compared to the three months ended June 30, 2023, primarily due to an increase in interest rates of 112 basis points offset by lower average outstanding borrowings of $13,967 over the comparative period.
Foreign exchange transaction gain (loss)
For the three months ended June 30, 2024 and 2024, the Company recorded foreign exchange transaction gains and losses of $818 and $1,923, respectively, that were primarily attributable to fluctuations in foreign exchange rates for trade accounts receivables and payables denominated in currencies other than the functional currency of foreign entities.
Liquidity and Capital Resources
Our primary sources of liquidity are our cash and cash equivalents, cash from operations, and borrowings under our New Credit Agreement. As of June 30, 2024, we had unrestricted cash of approximately $35,042 and $29,000 available to draw under the New Credit Agreement with BoA, excluding the accordion feature, subject to the required covenants. We generated $(1,352) in cash flows from operating activities for the three months ended June 30, 2024.
Our ability to meet our debt service obligations and to fund working capital, capital expenditures, and investments in our business will depend upon our future performance, which will be subject to availability of borrowing capacity under our credit facility and our ability to access capital markets as well as financial, business, and other factors affecting our operations, many of which are beyond our control. These factors include general and regional economic, financial, competitive, legislative, regulatory, and other factors such as health epidemics, economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine, the political climate related to China, and the conflict in Israel. We cannot guarantee we will generate sufficient cash flow from operations, or that future borrowings or capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.
We believe we will generate sufficient cash flow from operations and have the liquidity and capital resources to meet our business requirements for at least 12 months from the filing date of this Report.
Outstanding Secured Indebtedness
Our outstanding secured indebtedness under the New Credit Agreement is $396,000 as of June 30, 2024. The maturity date of the New Credit Agreement is April 29, 2026, and the outstanding balance is classified as long-term debt, net of debt issuance costs of $2,209, on our consolidated balance sheets as of June 30, 2024. For further description of the terms of the New Credit Agreement, see Note 10—Debt under the heading “Revolver” in the notes to our condensed consolidated financial statements under Part I, Item 1 of this Report.
The collateral pledged to secure our secured debt, consisting of substantially all of our U.S. subsidiaries’ assets, would be available to the secured creditor in a foreclosure, in addition to many other remedies. Accordingly, any adverse change in our ability to service our secured debt could result in an event of default, cross default, and foreclosure or forced sale. Depending on the value of the assets, there could be little, if any, assets available for common stockholders in any foreclosure or forced sale.
Our credit facility also contains a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio. If we fail to satisfy these covenants, the lender may declare a default, which could lead to acceleration of the debt maturity. Any such default would have a material adverse effect on us.
As of June 30, 2024, we were in compliance with all covenants under the New Credit Agreement. Additionally, the Company entered into a Fourth Amendment to the New Credit Agreement on August 6, 2024 to
renegotiate its required covenants. Refer to Note 15—Subsequent Events for further discussion.
Hosting Agreements
We enter into hosting agreements with service providers, and, in some cases, those agreements include minimum commitments that require us to purchase a minimum amount of service over a specified time period (“the minimum commitment period”). The minimum commitment period is generally one year in duration, and the hosting agreements include multiple minimum commitment periods. Our minimum purchase commitments under these hosting agreements total approximately $261,359 over the next six fiscal years.
Cash Flow Summary ($ in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | |
| | 2024 | | 2023 | | % of Change | | | | | | |
Consolidated statements of cash flows data: | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | (1,352) | | | $ | 1,318 | | | (202.6) | % | | | | | | |
Equity investments | | — | | | — | | | (100.0) | % | | | | | | |
Purchase price adjustment related to business acquisition | | — | | | — | | | (100.0) | % | | | | | | |
Capital expenditures | | (5,931) | | | (7,276) | | | (18.5) | % | | | | | | |
Net cash used in investing activities | | $ | (5,931) | | | $ | (7,276) | | | (18.5) | % | | | | | | |
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Proceeds from borrowings | | 17,000 | | | 5,000 | | | 240.0 | % | | | | | | |
Payment of debt issuance costs | | — | | | — | | | 100.0 | % | | | | | | |
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Repayment of debt obligations | | (7,000) | | | (10,000) | | | (30.0) | % | | | | | | |
Acquisition of non-controlling interest in consolidated subsidiaries | | — | | | (3,751) | | | (100.0) | % | | | | | | |
Payment of withholding taxes for net share settlement of equity awards | | (48) | | | (931) | | | (94.8) | % | | | | | | |
Options exercised | | 14 | | | 731 | | | (98.1) | % | | | | | | |
Net cash provided by (used in) financing activities | | $ | 9,966 | | | $ | (8,951) | | | (211.3) | % | | | | | | |
Operating Activities
Our cash flows from operating activities are primarily driven by revenue generated from user acquisition and advertising activity, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from customers and payments to our carrier and publisher partners as well as other vendors. Our future cash flows from operating activities will be diminished if we cannot increase our revenue levels and manage costs appropriately. Cash provided by (used in) operating activities was $(1,352) for the three months ended June 30, 2024, compared to $1,318 for the three months ended June 30, 2023. The decrease of $2,670 was due to the following:
•$16,757 increase in net loss;
•$19,994 increase due to changes in operating assets and liabilities, driven primarily by working capital changes, specifically accounts receivable;
• $5,907 decrease in non-cash charges during the three months ended June 30, 2024 primarily related to lower deferred income taxes and stock-based compensation, partially offset by lower foreign exchange transaction gain for the three months ended June 30, 2024.
Investing Activities
Our primary investing activities have consisted of acquisitions of businesses, purchases of property and equipment, and capital expenditures in support of creating and enhancing our technology infrastructure. For the three months ended June 30, 2024, net cash used in investing activities decreased by $1,345 to $5,931. Our cash used in investing activities for the three months ended June 30, 2024 and June 30, 2023, was primarily comprised of capital expenditures related to internally-developed software.
Financing Activities
For the three months ended June 30, 2024, net cash provided by financing activities was $9,966, which was comprised of: (1) the repayment of debt obligations of $7,000, and (2) payment of payroll withholding taxes for net share settlement of equity awards of $48. These cash outflows were offset by cash inflows comprising of proceeds from borrowings of $17,000 and stock option exercises of $14.
For the three months ended June 30, 2023, net cash used in financing activities was $8,951, which was comprised of repayment of debt obligations of $10,000, payment of payroll withholding taxes for net share settlement of equity awards of $931, partially offset by cash inflows from proceeds from borrowings of $5,000 and stock option exercises of $731.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements. The preparation of these financial statements is based on management’s selection and application of accounting policies, some of which require management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and notes. For more information regarding our critical accounting policies and estimates, please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies,” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, and Note 2—Basis of Presentation and Summary of Significant Accounting Policies,” of this Report on Form 10-Q for our fiscal first quarter ended June 30, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has operations both within the U.S. and internationally and is exposed to market risks in the ordinary course of business - primarily interest rate and foreign currency exchange risks.
Interest Rate Fluctuation Risk
The primary objective of the Company’s investment activities is to preserve principal while maximizing income without significantly increasing risk. The Company’s cash and cash equivalents consist of cash and deposits, which are sensitive to interest rate changes.
The Company’s borrowings under its credit facility are subject to variable interest rates and thus expose the Company to interest rate fluctuations, depending on the extent to which the Company utilizes its credit facility. If market interest rates materially increase, the Company’s results of operations could be adversely affected. A hypothetical increase in market interest rates of 100 basis points would result in an increase in interest expense of $10 per year for every $1,000 of outstanding debt under the Company’s credit facility. The Company has not used any derivative financial instruments to manage its interest rate risk exposure.
Foreign Currency Exchange Risk
Foreign currency exchange risk is the risk that the Company’s results of operations and/or financial condition could be affected by changes in exchange rates. The Company has transactions denominated in currencies other than the U.S. dollar, principally the euro, Turkish lira, and British pound, that expose the Company’s operations to risk from the effects of exchange rate movements. Such movements may impact future revenues,
expenses, and cash flows. In certain of the Company’s foreign operations, the Company transacts primarily in the U.S. dollar, including for net revenue, revenue share, and employee-related compensation costs, which reduces the Company’s exposure to foreign currency exchange risk. In addition, gains (losses) related to translating certain cash balances, trade accounts receivable and payable balances, and intercompany balances also impact net income. As the Company’s foreign operations expand, results may be impacted further by fluctuations in the exchange rates of the currencies in which the Company does business. The Company has not used any derivative financial instruments to manage its foreign currency exchange risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, regardless of how well they were designed and are operating, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Report, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business. The Company accrues a liability when it is both probable a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made.
On June 6, 2022 and July 21, 2022, stockholders of the Company filed class action complaints against the Company and certain of the Company’s officers in the Western District of Texas related to Digital Turbine, Inc.’s announcement in May 2022 that it would restate some of its financial results. The claims allege violations of certain federal securities laws. These have been consolidated into In re Digital Turbine, Inc. Securities Litigation, Case No. 1:22-cv-00550-DAE. On July 19, 2023, the Western District court granted the Company’s motion to dismiss the case. The plaintiffs filed an amended complaint on August 23, 2023, the Company filed a motion to dismiss the amended complaint on September 22, 2023, and briefing on the motion to dismiss is complete as of November 13, 2023. The court has not yet issued a ruling on the Company’s motion to dismiss the amended complaint. In addition, several derivative actions have been filed against the Company and the Company’s directors, which all assert claims of breach of fiduciary duties arising out of the same facts as the securities class action. The cases are Olszanski v. Digital Turbine, Inc., et al.; Case No. 1:22-cv-911 in federal court in the Western District of Texas (October 4, 2022); Witt v. Digital Turbine, Inc., et al; Case 1:22-cv-01429-UNA in federal court in the District of Delaware (February 14, 2023); and Krumwiede v. Digital Turbine, Inc.; Case No. 2023-0277 in state court in the Delaware Chancery Court (March 6, 2023). The federal derivative cases have been stayed under a court order, pending a ruling on any motion to dismiss the federal class action. The Company and the individual defendants filed a motion to dismiss the Delaware Chancery case on May 11, 2023. The Company and individual defendants deny any allegations of wrongdoing and the Company plans to vigorously defend against the claims asserted in these complaints. Due to the early stages of these cases, management is unable to assess a likely outcome or potential liability at this time.
ITEM 1A. RISK FACTORS
The Company is not aware of any material changes to the risk factors set forth under Part I, Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on May 28, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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| | Fourth Amendment to Amended and Restated Credit Agreement, dated as of August 6, 2024, by and among Digital Turbine, Inc., Digital Turbine Media, Inc., Digital Turbine USA, Inc., Mobile Posse, Inc., AdColony, Inc., AdColony Holdings US, Inc., and Bank of America, N.A., as administrative agent and a lender, and the other lenders party thereto. * |
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101 | | INS XBRL Instance Document. * |
101 | | SCH XBRL Schema Document. * |
101 | | CAL XBRL Taxonomy Extension Calculation Linkbase Document. * |
101 | | DEF XBRL Taxonomy Extension Definition Linkbase Document. * |
101 | | LAB XBRL Taxonomy Extension Label Linkbase Document. * |
101 | | PRE XBRL Taxonomy Extension Presentation Linkbase Document. * |
* Filed herewith.
+ In accordance with SEC Release No. 33-8212, these exhibits are being furnished, and are not being filed, as part of this Quarterly Report on Form 10-Q or as a separate disclosure document, and are not being incorporated by reference into any Securities Act registration statement.
•SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | Digital Turbine, Inc. |
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Dated: August 7, 2024 | | By: | |