Digital Turbine, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Description of Stock Plans

Description of Stock Plans

12 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Employee Stock Plan

The Company is currently issuing stock awards under the Amended and Restated Digital Turbine, Inc. 2011 Equity Incentive Plan (the “2011 Plan”), which was approved and adopted by our stockholders by written consent on May 23, 2012. No future grants will be made under the previous plan, the 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”). In the year ended March 31, 2015, in connection with the acquisition of Appia, the Company assumed the Appia, Inc. 2008 Stock Incentive Plan (the “Appia Plan”). The 2011 Plan and 2007 Plan are collectively referred to as “Digital Turbine’s Incentive Plans.” Digital Turbine’s Incentive Plans and the Appia Plan are all collectively referred to as the “Stock Plans.”

The 2011 Plan provides for grants of stock-based incentive awards to our and our subsidiaries’ officers, employees, non-employee directors, and consultants. Awards issued under the 2011 Plan can include stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units (sometimes referred to individually or collectively as “Awards”). Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“NQSOs”).

The 2011 Plan reserves 20,000,000 shares for issuance, of which 6,366,088 and 8,685,457 remained available for future grants as of March 31, 2020 and 2019, respectively. The change over the comparative period represents stock option grants, stock option forfeitures/cancellations, and restricted share grants of common stock of 2,624,244, 489,785, and 184,910, respectively.

Restricted Stock Units

Awards of restricted stock units ("RSUs") may be either grants of time-based restricted units or performance-based restricted units that are issued at no cost to the recipient. The cost of 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. Compensation expense for RSUs with a performance condition are recognized on a straight-line basis based on the most likely attainment scenario, which is re-evaluated each period.

In June 2018, the Company issued 232,558 RSUs to its Chief Executive Officer and Chief Financial Officer. The shares vest over three years. The fair value of the shares on the date of issuance was $400.

In May 2019, the Company issued 109,416 RSUs to its Chief Executive Officer and Chief Financial Officer. The shares vest over three years. The fair value of the shares on the date of issuance was $413.

With respect to RSUs, the Company expensed $220 during the year ended March 31, 2020 and $140 during the year ended March 31, 2019, respectively. For the year ended March 31, 2018, there were no outstanding RSU agreements or associated expense.

Stock Option Agreements

Stock options granted under the Company’s Stock Plans typically vest over a three-to-four-year period. These options, which are granted with option exercise prices equal to the fair market value of the Company’s common stock on the date of grant, generally expire up to ten years from the date of grant.

Stock Option Activity

The following table summarizes stock option activity for the Stock Plans during the years ended March 31, 2020 and 2019:



	Number of Shares		Weighted-Average Exercise Price (per share)		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Options Outstanding, March 31, 2018	9,741,969		$	2.08	7.82	$	6,286
Granted	1,463,925		1.69
Forfeited / Canceled	(1,552,192	)	3.72
Exercised	(524,817	)	0.94
Options Outstanding, March 31, 2019	9,128,885		1.80		7.31	16,347
Granted	2,624,244		5.00
Forfeited / Canceled	(488,952	)	2.05
Exercised	(2,279,747	)	1.70
Options Outstanding, March 31, 2020	8,984,430		$	2.75	7.17	$	16,517
Vested and expected to vest (net of estimated forfeitures) at March 31, 2020 (a)	7,987,627		$	2.59	6.96	$	15,424
Exercisable, March 31, 2020	5,377,389		$	2.21	6.16	$	11,552

For options vested and expected to vest, options exercisable, and options outstanding, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Digital Turbine's closing stock price on March 31, 2020 and the exercise price multiplied by the number of in-the-money options) that would have been received by the option holders had the holders exercised their options on March 31, 2020. The intrinsic value changes based on changes in the price of Digital Turbine's common stock.

Information about options outstanding and exercisable at March 31, 2020 is as follows:



	Options Outstanding			Options Exercisable
	Number of Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Life (Years)	Number of Shares	Weighted-Average Exercise Price
$0.51 - 1.00	1,539,065	0.73	6.60	826,195	0.73
$1.01 - 1.50	1,839,036	1.29	6.35	1,739,744	1.30
$1.51 - 2.00	969,494	1.67	8.06	545,113	1.66
$2.01 - 2.50	548,972	2.23	8.06	293,356	2.21
$2.51 - 3.00	535,958	2.59	4.09	535,958	2.59
$3.51 - 4.00	1,763,300	3.89	7.85	764,985	3.93
$4.01 - 4.50	475,000	4.13	4.54	475,000	4.13
$4.51 - 5.00	60,000	4.65	2.99	60,000	4.65
$5.01 and over	1,253,605	6.29	9.56	137,038	6.14
	8,984,430			5,377,389

Other information pertaining to stock options for the Stock Plans is as follows:



	Year ended March 31,
	2020		2019		2018
Total fair value of options vested	$	2,577	$	1,977	$	3,335
Total intrinsic value of options exercised (a)	$	10,890	$	603	$	202


a.	The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the fiscal year.

During the years ended March 31, 2020, 2019, and 2018, the Company granted options to purchase 2,624,244, 1,463,925, and 1,963,378 shares of its common stock, respectively, to employees with weighted-average grant-date fair values of $2.86, $1.02, and $0.94, respectively.

At March 31, 2020, 2019, and 2018, there was $4,787, $2,639, and $2,353 of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted-average period of 2.3 years, 1.9 years, and 2.2 years, respectively.

Valuation of Awards

For stock options granted under Digital Turbine’s Incentive Plans, the Company typically uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant date. The Black-Scholes option pricing model incorporates various assumptions, including volatility, expected term risk-free interest rates, and dividend yields. The assumptions utilized in this model during fiscal years 2020, 2019, and 2018 are presented below.



	Year ended March 31,
	2020	2019	2018
Risk-free interest rate	0.64% to 2.25%	2.38% to 2.96%	1.77% to 2.73%
Expected life of the options	5.02 to 9.83 years	5.52 to 9.19 years	5.65 to 9.84 years
Expected volatility	64% to 66%	66%	66% to 73%
Expected dividend yield	—%	—%	—%
Expected forfeitures	29%	29%	28% to 29%

Expected volatility is based on a blend of implied and historical volatility of Digital Turbine's common stock over the most recent period commensurate with the estimated expected term of Digital Turbine’s stock options. Digital Turbine uses this blend of implied and historical volatility, as well as other economic data, because management believes such volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.

Total stock compensation expense for the Company’s equity plans, which includes both stock options, restricted stock, and warrants issued, is included in the following Consolidated Statements of Operations and Comprehensive Income / (Loss) components. See Note "Capital Stock Transactions" regarding restricted stock.



	Year ended March 31,
	2020		2019		2018
Product development	$	—	$	—	$	—
Sales and marketing	—		—		—
General and administrative	3,353		2,531		2,978
Total	$	3,353	$	2,531	$	2,978