Digital Turbine, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

Acquisitions

9 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Acquisition of Fyber N.V.

On May 25, 2021, the Company completed the initial closing of the acquisition of 95.1% of the outstanding voting shares (the “Majority Fyber Shares”) of Fyber N.V. (“Fyber”) pursuant to a Sale and Purchase Agreement (the "Fyber Acquisition") between Tennor Holding B.V., Advert Finance B.V., and Lars Windhorst (collectively, the “Seller”), the Company, and Digital Turbine Luxembourg S.ar.l., a wholly-owned subsidiary of the Company. The remaining outstanding shares in Fyber (the “Minority Fyber Shares”) are (to the Company's knowledge) held by other shareholders of Fyber (the “Minority Fyber Shareholders”) and are presented as non-controlling interests within these financial statements.

Fyber is a leading mobile advertising monetization platform empowering global app developers to optimize profitability through quality advertising. Fyber’s proprietary technology platform and expertise in mediation, real-time bidding, advanced analytics tools, and video combine to deliver publishers and advertisers a highly valuable app monetization solution. Fyber represents an important and strategic addition for the Company in its mission to develop one of the largest full-stack, fully-independent, mobile advertising solutions in the industry. The combined platform offering is advantageously positioned to leverage the Company’s existing on-device software presence and global distribution footprint.

The Company acquired Fyber in exchange for an estimated aggregate consideration of up to $600,000, consisting of:

i.Approximately $150,000 in cash, $124,336 of which was paid to the Seller at the closing of the acquisition and the remainder of which is to be paid to the Minority Fyber Shareholders for the Minority Fyber Shares pursuant to the tender offer described below;

ii.5,816,588 newly-issued shares of common stock of the Company to the Seller, which such number of shares was determined based on the volume-weighted average price of the common stock on NASDAQ during the 30-day period prior to the closing date, equal in value to $359,233 at the Company's common stock closing price on May 25, 2021, as follows.

1.3,216,935 newly-issued shares of common stock of the Company equal in value to $198,678, issued at the closing of the acquisition;

2.1,500,000 newly-issued shares of common stock of the Company equal in value to $92,640, issued on June 17, 2021;

3.1,040,364 newly-issued shares of common stock of the Company equal in value to $64,253, issued on July 16, 2021;

4.59,289 shares of common stock equal in value to $3,662, to be newly-issued during its fiscal second quarter 2022, but subject to a true-up reduction based on increased transaction costs associated with the staggered delivery of the Majority Fyber Shares to the Company, which true-up reduction has been finalized, as described below; and

iii.Contingent upon Fyber’s net revenues (revenues less associated license fees and revenue share) being equal to or higher than $100,000 for the 12-month earn-out period ending on March 31, 2022, as determined in the manner set forth in the Sale and Purchase Agreement, a certain number of shares of the Company's common stock, which will be newly-issued to the Seller at the end of the earn-out period, and under certain circumstances, an amount of cash, which value of such shares, based on the weighted average share price for the 30-days prior to the end of the earn-out period, and cash in aggregate will not exceed $50,000 (subject to set-off against certain potential indemnification claims against the Seller). Based on estimates at the time of the acquisition, the Company initially determined it was unlikely Fyber would achieve the earn-out net revenue target and, as a result, no contingent liability was recognized at that time.

The Company paid the cash closing amount on the closing date with a combination of available cash-on-hand and borrowings under the Company’s senior credit facility.

On September 30, 2021, the Company entered into the Second Amendment Agreement (the “Second Amendment Agreement”) to the Sale and Purchase Agreement for the Fyber Acquisition. Pursuant to the Second Amendment Agreement, the parties agreed to settle the remaining number of shares of Company common stock to be issued to the Seller at 18,000 shares (i.e., a reduction of 41,289 shares from the 59,289 shares described in (ii)(4) above). As a result, the Company issued a total of 5,775,299 shares of Company common stock to the Seller in connection with the Company’s acquisition of Fyber.

As of September 30, 2021, the Company determined it was likely Fyber would achieve the earn-out net revenue target, based on estimates available at that time. As a result, the Company recognized and accrued the fair value of the contingent earn-out consideration of $31,000.

As of December 31, 2021, the Company re-evaluated the fair value of the contingent earn-out consideration based on current estimates. The Company recognized a charge to change in fair value of contingent consideration on the condensed consolidated statement of operations and comprehensive income / (loss) of $18,200 for the three months ended December 31, 2021, resulting in a total accrued fair value of the contingent earn-out consideration of $49,200. The fair value of the contingent consideration is subject to material changes based upon certain assumptions, primarily the estimated likelihood of Fyber achieving the earn-out net revenue target. The Company will re-evaluate the fair value of the contingent consideration at the end of the earn-out period on March 31, 2022.

Pursuant to certain German law on public takeovers, following the closing, the Company launched a public tender offer to the Minority Fyber Shareholders to acquire from them the Minority Fyber Shares. The tender offer was approved and published in July 2021, and is subject to certain minimum price rules under German law. The timing and the conditions of the tender offer, including the consideration of €0.84 per share offered to the Minority Fyber Shareholders in connection with the tender offer, was determined by the Company pursuant to the applicable Dutch and German takeover laws. During the fiscal quarter ended September 30, 2021, the Company purchased approximately $21,000 of Fyber's outstanding shares, resulting in an ownership percentage of Fyber of approximately 99.4%. The Company expects to complete the purchase of the remaining outstanding Fyber shares during its fiscal fourth quarter 2022.

The delisting of Fyber's remaining outstanding shares on the Frankfurt Stock Exchange was completed on August 6, 2021.

The fair values of the assets acquired and liabilities assumed at the date of acquisition are presented on a preliminary basis and are as follows1:


	May 25, 2021		Measurement Period Adjustments		May 25, 2021 (adjusted)
Assets acquired
Cash	$	71,489	$	—	$	71,489
Accounts receivable	64,877		293		65,170
Other current assets	10,470		—		10,470
Property and equipment	1,561		—		1,561
Right-of-use asset	13,191		—		13,191
Publisher relationships	106,400		(95)		106,305
Developed technology	86,900		—		86,900
Trade names	32,100		474		32,574
Customer relationships	31,400		—		31,400
Favorable lease	1,483		—		1,483
Goodwill	303,015		(4,104)		298,911
Other non-current assets	851		—		851
Total assets acquired	$	723,737	$	(3,432)	$	720,305

Liabilities assumed
Accounts payable	$	78,090	$	(1,501)	$	76,589
Accrued license fees and revenue share	5,929		—		5,929
Accrued compensation	52,929		—		52,929
Other current liabilities	12,273		(224)		12,049
Short-term debt	25,789		—		25,789
Deferred tax liability, net	25,213		707		25,920
Other non-current liabilities	15,386		—		15,386
Total liabilities assumed	$	215,609	$	(1,018)	$	214,591
Total purchase price	$	508,128	$	(2,414)	$	505,714

During the nine months ended December 31, 2021, the Company recorded a cumulative net measurement period adjustment that decreased goodwill by $4,104, as presented in the table above. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date.

The excess of cost of the Fyber Acquisition over the net amounts assigned to the fair values of the net assets acquired was recorded as goodwill and was assigned to the Company’s In App Media - Fyber segment. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not deductible for tax purposes.

The identifiable intangible assets consist of publisher relationships, developed technology, trade names, customer relationships, and a favorable lease. The publisher relationships, developed technology, trade names, and customer relationships intangibles were assigned useful lives of 20.0 years, 7.0 years, 7.0 years, and 3.0 years, respectively. The below-market favorable lease was derived from Fyber's office lease in Berlin, Germany and, per ASC 842, Leases, will be combined with Fyber's right-of-use asset for that lease and will be amortized over the remaining life of that lease. The values for the identifiable intangible assets were determined using the following valuation methodologies:

•Publisher Relationships - Multi-Period Excess Earnings Method

•Developed Technology - Relief from Royalty Method

•Trade Names - Relief from Royalty Method

•Customer Relationships - With-and-Without Method

•Favorable Lease - Income Approach

The Company recognized $5,183 and $16,898 of costs related to the Fyber Acquisition, which were included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income / (loss) for the three and nine months ended December 31, 2021, respectively.

Acquisition of AdColony Holdings AS

On April 29, 2021, the Company completed the acquisition of AdColony Holding AS, a Norway company (“AdColony”), pursuant to a Share Purchase Agreement (the "AdColony Acquisition"). The Company acquired all outstanding capital stock of AdColony in exchange for an estimated total consideration in the range of $400,000 to $425,000, to be paid as follows: (1) $100,000 in cash paid at closing (subject to customary closing purchase price adjustments), (2) $100,000 in cash to be paid six months after closing, and (3) an estimated earn-out in the range of $200,000 to $225,000, to be paid in cash, based on AdColony achieving certain future target net revenues, less associated cost of goods sold (as such term is referenced in the Share Purchase Agreement), over a 12-month period ending on December 31, 2021 (the “Earn-Out Period”). Under the terms of the earn-out, the Company would pay the seller a certain percentage of actual net revenues (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) of AdColony, depending on the extent to which AdColony achieves certain target net revenues (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) over the Earn-Out Period. The earn-out payment will be made following the expiration of the Earn-Out Period.

AdColony is a leading mobile advertising platform servicing advertisers and publishers. AdColony’s proprietary video technologies and rich media formats are widely viewed as a best-in-class technology delivering third-party verified viewability rates for well-known global brands. With the addition of AdColony, the Company will expand its collective experience, reach, and suite of capabilities to benefit mobile advertisers and publishers around the globe. Performance-based spending trends by large, established brand advertisers present material upside opportunities for platforms with unique technology deployable across exclusive access to inventory.

On August 27, 2021, the Company entered into an Amendment to Share Purchase Agreement (the “Amendment Agreement”) with AdColony and Otello Corporation ASA, a Norway company (“Otello”) and AdColony's previous parent company. Pursuant to the Amendment Agreement, the Company and Otello agreed to set a fixed dollar amount of $204,500 for the earn-out payment obligation, to set January 15, 2022, as the payment due date for such payment amount, and to eliminate all of the Company’s earn-out support obligations under the Share Purchase Agreement. As a result, the Company recognized an $8,913 reduction of the earn-out payment obligation in change in fair value of contingent consideration on the condensed consolidated statement of operations and comprehensive income / (loss) for the fiscal second quarter ended September 30, 2021.

The Company paid the cash consideration amounts that were due at closing and on October 26, 2021, with a combination of available cash-on-hand and borrowings under the Company’s senior credit facility. The Company intends to pay the remaining cash consideration with a combination of available cash-on-hand and borrowings under the Company's New Credit Agreement (as defined in Note 9, "Debt").

The payment made on October 26, 2021, was reduced to $98,175 due to an adjustment for the impact of accrued and unpaid taxes to the net working capital acquired. The difference between the amount due of $100,000 and amount paid resulted in an adjustment to goodwill.

The fair values of the assets acquired and liabilities assumed at the date of acquisition are presented on a preliminary basis and are as follows:


	April 29, 2021		Measurement Period Adjustments		April 29, 2021 (adjusted)
Assets acquired
Cash	$	24,793	$	—	$	24,793
Accounts receivable	57,285		—		57,285
Other current assets	1,845		—		1,845
Property and equipment	1,566		—		1,566
Right-of-use asset	2,460		—		2,460
Customer relationships	102,400		(600)		101,800
Developed technology	51,100		—		51,100
Trade names	36,100		(100)		36,000
Publisher relationships	4,400		—		4,400
Goodwill	202,552		(3,502)		199,050
Other non-current assets	131		—		131
Total assets acquired	$	484,632	$	(4,202)	$	480,430

Liabilities assumed
Accounts payable	$	21,140	$	—	$	21,140
Accrued license fees and revenue share	28,920		—		28,920
Accrued compensation	8,453		—		8,453
Other current liabilities	1,867		—		1,867
Deferred tax liability, net	10,520		(2,377)		8,143
Other non-current liabilities	1,770		—		1,770
Total liabilities assumed	$	72,670	$	(2,377)	$	70,293
Total purchase price	$	411,962	$	(1,825)	$	410,137

During the nine months ended December 31, 2021, the Company recorded a cumulative net measurement period adjustment that decreased goodwill by $3,502, as presented in the table above. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date.

The excess of cost of the AdColony Acquisition over the net amounts assigned to the fair values of the net assets acquired was recorded as goodwill and was assigned to the Company’s In App Media - AdColony segment. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not deductible for tax purposes.

The identifiable intangible assets consist of customer relationships, developed technology, trade names, and publisher relationships and were assigned useful lives of 8.0 years to 15.0 years, 7.0 years, 7.0 years, and 10.0 years, respectively. The values for the identifiable intangible assets were determined using the following valuation methodologies:

•Customer Relationships - Multi-Period Excess Earnings Method

•Developed Technology - Relief from Royalty Method

•Trade Names - Relief from Royalty Method

•Publisher Relationships - Cost Approach

The Company recognized $486 and $3,977 of costs related to the AdColony Acquisition, which were included in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income / (loss) for the three and nine months ended December 31, 2021, respectively.

Acquisition of Appreciate

On March 1, 2021, Digital Turbine, through its subsidiary Digital Turbine (EMEA) Ltd. ("DT EMEA"), an Israeli company and wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement with Triapodi Ltd., an Israeli company (d/b/a Appreciate) (“Appreciate”), the stockholder representative, and the stockholders of Appreciate, pursuant to which DT EMEA acquired, on March 2, 2021, all of the outstanding capital stock of Appreciate in exchange for total consideration of $20,003 in cash (the "Appreciate Acquisition"). Under the terms of the Purchase Agreement, DT EMEA entered into bonus arrangements to pay up to $6,000 in retention bonuses and performance bonuses to the founders and certain other employees of Appreciate. None of the goodwill recognized was deductible for tax purposes.

The acquisition of Appreciate delivers valuable deep ad-tech and algorithmic expertise to help Digital Turbine execute on its broader, longer-term vision. Deploying Appreciate's technology expertise across Digital Turbine’s global scale and reach should further benefit partners and advertisers that are a part of the combined Company’s platform.

Acquisition Purchase Price Liability

The Company has recognized acquisition purchase price liability of $253,700 on its condensed consolidated balance sheet as of December 31, 2021, comprised of the following components:

•$204,500 of contingent earn-out consideration for the AdColony Acquisition

•$49,200 of contingent earn-out consideration for the Fyber Acquisition

Pro Forma Financial Information (Unaudited)

The pro forma information below gives effect to the Fyber Acquisition, the AdColony Acquisition, and the Appreciate Acquisition (collectively, the “Acquisitions”) as if they had been completed on the first day of each period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Acquisitions been completed on the first day of each period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the Acquisitions and does not reflect additional revenue opportunities following the Acquisitions. The pro forma information includes adjustments to record the assets and liabilities associated with the Acquisitions at their respective fair values, which are preliminary at this time, based on available information and to give effect to the financing for the Acquisitions.


	Three months ended December 31,				Nine months ended December 31,
	2021		2020		2021		2020
	Unaudited		Unaudited		Unaudited		Unaudited
	(in thousands, except per share amounts)
Net revenue	$	375,487	$	271,536	$	977,740	$	604,556
Net income / (loss) attributable to controlling interest	$	7,007	$	(19,183)	$	(17,262)	$	(15,226)
Basic net income / (loss) attributable to controlling interest per common share	$	0.07	$	(0.20)	$	(0.18)	$	(0.16)
Diluted net income / (loss) attributable to controlling interest per common share	$	0.07	$	(0.19)	$	(0.17)	$	(0.15)