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 (the "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, and Section 21E of the Securities Exchange Act of 1934, 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 endedMarch 31, 2021 , 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 figures are in thousands, except per share and per share amounts.
Company presentation
Digital Turbine, Inc. , through its subsidiaries (collectively "Digital Turbine" or the "Company"), is a leading end-to-end solution for mobile technology companies to enable advertising and monetization solutions. Its digital media platform powers frictionless end-to-end application for brand discovery and advertising, user acquisition and engagement, operational efficiency, and monetization opportunities. The Company provides on-device solutions to all participants in the mobile application ecosystem that want to connect with end users and consumers who hold the device, including mobile carriers and device original equipment manufacturers ("OEMs") that participate in the app economy, app publishers and developers, and brands and advertising agencies.
RECENT DEVELOPMENTS
credit agreement
OnFebruary 3, 2021 , the Company entered into a credit agreement (the "Credit Agreement") withBank of America, N.A . ("BoA"), which provides 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 . Funds are to be used for acquisitions, working capital, and general corporate purposes. The Credit Agreement contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated leverage ratio and minimum fixed charge coverage ratio. OnApril 29, 2021 , the Company entered into an amended and restated Credit Agreement (the "New Credit Agreement") with BoA, as a lender and administrative agent, and a syndicate of other lenders, which provides for a revolving line of credit of up to$400,000 . The revolving line of credit matures onApril 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 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. 26 -------------------------------------------------------------------------------- Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to, at the Company's election, (i) London Inter-Bank Offered Rate ("LIBOR") plus between 1.50% and 2.25%, based on the Company's consolidated 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) LIBOR plus 1.00% plus between 0.50% and 1.25%, based on the Company's consolidated 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. 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.
From
Acquisitions
Appreciate OnMarch 1, 2021 ,Digital Turbine , through its subsidiary DT EMEA, an Israeli company and wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement withTriapodi Ltd. , an Israeli company (d/b/a Appreciate) ("Appreciate"), the stockholder representative, and the stockholders of Appreciate, pursuant to which DT EMEA acquired, onMarch 2, 2021 , all of the outstanding capital stock of Appreciate in exchange for total consideration of$20,003 in cash (the "Appreciate Acquisition"). Under the terms of the Purchase Agreement, DT EMEA entered into bonus arrangements to pay up to$6,000 in retention bonuses and performance bonuses to the founders and certain other employees of Appreciate. The Purchase Agreement contains customary representations and warranties, covenants, and indemnification provisions. The Company determined the operating results of Appreciate to not be material to the condensed consolidated financial statements for the three months endedJune 30, 2020 and, therefore, has not included pro forma financial information for Appreciate below. None of the goodwill recognized for the Acquisition was deductible for tax purposes. The acquisition of Appreciate delivers valuable deep ad-tech and algorithmic expertise to helpDigital Turbine execute on its broader, longer-term vision. Deploying Appreciate's technology expertise acrossDigital Turbine's global scale and reach should further benefit partners and advertisers that are a part of the combined Company's platform. AdColony Holding AS. OnApril 29, 2021 , the Company completed the acquisition of AdColony Holding AS, aNorway company ("AdColony"), pursuant to a Share Purchase Agreement (the "AdColony Acquisition"). The Company acquired all outstanding capital stock ofAdColony 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 onAdColony 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 onDecember 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) ofAdColony , depending on the extent to whichAdColony achieves certain target net revenues (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) over the Earn-Out Period. The earn-out payment will be made following the expiration of the Earn-Out Period. The Company paid the cash closing amount on the closing date and intends to pay the remainder of the cash consideration for the acquisition with a combination of available cash-on-hand, borrowings under the Company's senior credit facility, and proceeds from future capital financings.AdColony is a leading mobile advertising platform servicing advertisers and publishers.AdColony's proprietary video technologies and rich media formats are widely viewed as a best-in-class technology delivering third-party verified viewability rates for well-known global brands. With the addition ofAdColony , 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. 27 --------------------------------------------------------------------------------Fyber N.V. OnMay 25, 2021 , the Company completed the initial closing of the acquisition of at least 95% of the outstanding voting shares (the "Majority Fyber Shares") ofFyber N.V. ("Fyber") pursuant to a Sale and Purchase Agreement (the "Fyber Acquisition") betweenTennor Holding B.V .,Advert Finance B.V ., andLars Windhorst (collectively, the "Seller"), the Company, andDigital Turbine Luxembourg S.ar.l., a wholly-owned subsidiary of the Company. The remaining outstanding shares in Fyber (the "Minority Fyber Shares") are (to the Company's knowledge) widely held by other shareholders of Fyber (the "Minority Fyber Shareholders") and are presented as non-controlling interests within these financial statements.
The Company acquired Fyber in exchange for an estimated aggregate consideration of up to
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, 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 , based on the closing price of the Company's common stock on the date of the acquisition, as follows:
1.3 216,935 newly issued ordinary shares of the Company with a value equal to
2.1,500,000 newly issued ordinary shares of the Company with a value equal to
3.1,040,364 newly issued ordinary shares of the Company with a value equal to
4.59,289 shares of common stock of the Company equal in value to$3,662 , to be newly-issued during its fiscal second quarter 2022, but subject to a true-up reduction based on increased transaction costs associated with the staggered delivery of the Majority Fyber Shares to the Company; and iii.Contingent upon Fyber's net revenues being equal to or higher than$100,000 for the 12-month earn-out period ending onMarch 31, 2022 , as determined in the manner set forth in the Sale and Purchase Agreement, a certain number of shares of the Company's common stock, which will be newly-issued to the Seller at the end of the earn-out period, and under certain circumstances, an amount of cash, which value of such shares and cash in aggregate will not exceed$50,000 (subject to set-off against certain potential indemnification claims against the Seller). The Company paid the cash closing amount on the closing date and intends to pay the remainder of the cash consideration for the acquisition with a combination of available cash-on-hand, borrowings under the Company's senior credit facility, and proceeds from future capital financings. Pursuant to certain German law on public takeovers, following the closing, the Company launched a public tender offer to the Minority Fyber Shareholders to acquire from them the Minority Fyber Shares. The tender offer is subject to certain minimum price rules under German law. The timing and the conditions of the tender offer, including the consideration ofEUR 0.84 per share offered to the Minority Fyber Shareholders in connection with the tender offer, was determined by the Company pursuant to the applicable Dutch and German takeover laws. The Company anticipates completing the tender offer during its fiscal second quarter 2022. Please see Note 15, "Subsequent Events," for further information. 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. 28 --------------------------------------------------------------------------------
Sector reports
Prior to the acquisitions of bothAdColony and Fyber, the Company had one operating and reportable segment called Media Distribution. As a result of the acquisitions, the Company reassessed its operating and reportable segments in accordance with ASC 280, Segment Reporting. EffectiveApril 1, 2021 , the Company reports its results of operations through the following three segments, each of which represents a reportable segment, as follows: •On Device Media ("ODM") - This segment is the legacy single reporting segment ofDigital Turbine prior to theAdColony and Fyber acquisitions. This segment generates revenues from services that deliver mobile application media or content media to end users. This segment's customers are mobile device carriers and OEMs that pay for the distribution of media. The other reporting segments are not dependent on these mobile device carrier and OEM relationships. •In App Media -AdColony ("IAM-A") - This segment is inclusive of the acquiredAdColony business and generates revenues from services provided as an end-to-end platform for brands, agencies, publishers, and application developers to deliver advertising to consumers on mobile devices around the world. IAM-A customers are primarily advertisers. •In App Media - Fyber ("IAM-F") - This segment is inclusive of the acquired Fyber business and generates revenues from services provided to mobile application developers and digital publishers to monetize their content through advanced technologies, innovative advertisement formats, and data-driven decision making. IAM-F customers are primarily publishers.
Impact of COVID-19
Our results of operations are affected by economic conditions, including
macroeconomic conditions, levels of business confidence, and consumer
confidence. There is some uncertainty regarding the extent to which COVID-19
will impact our business and the demand for our service offerings. The extent to
which COVID-19 impacts our operational and financial performance will depend on
the impact to carriers and OEMs in relation to their sales of smartphones,
tablets, and other devices, and on the impact to application developers and
in-app advertisers. If COVID-19 continues to have a significant negative impact
on global economic conditions over a prolonged period of time, our results of
operations and financial condition could be adversely impacted. Presently, we
are conducting business as usual, with some modifications to employee travel,
employee work locations, and cancellation of certain marketing events, among
other modifications. We will continue to actively monitor the situation and 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.
RESULTS OF OPERATIONS
(Unaudited)
Net revenues
Three months ended June 30,
2021 2020 % of Change
Restated Restated
Net revenues
On Device Media $ 120,383 $ 59,012 104.0 %
In App Media - AdColony 30,302 - 100.0 %
In App Media - Fyber 9,172 - 100.0 %
Total net revenues $ 159,857 $ 59,012 170.9 %
Comparison of the three months ended
Net revenues increased by 170.9% ($100,845 ) over the comparative periods due to a combination of continuing organic growth of the Company's historical legacy business (On Device Media) and contributions from recent acquisitions. 29 --------------------------------------------------------------------------------
On the device stand
The Company's On Device Media segment generates revenues from services that deliver mobile application media or content media to end users. This segment is the legacy single reporting segment ofDigital Turbine (previously called Media Distribution) and its customers are mobile device carriers and OEMs that pay for the distribution of media. On Device Media revenues increased by 104.0% ($61,371 ) over the comparative periods due to increased demand for our application media and content media distribution services, which led to higher CPI and CPP revenues per available placement, and driven primarily by increased revenues from advertising partners as placement across existing commercial partners expanded, distribution with new partners expanded, and new services and features were deployed or expanded upon.
In App Media –
The Company's IAM-A segment generates revenues from services provided as an end-to-end platform for brands, agencies, publishers, and application developers to deliver advertising to consumers on mobile devices around the world. IAM-A customers are primarily advertisers. IAM-A revenues increased by 100.0% ($30,302 ) over the comparative periods due to the acquisition and integration ofAdColony during our fiscal first quarter 2022 endedJune 30, 2021 . Please see Note 4, "Acquisitions," for further information.
In App Media – Fyber
The Company's IAM-F segment generates revenues from services provided to mobile application developers and digital publishers to monetize their content through advanced technologies, innovative advertisement formats, and data-driven decision making. IAM-F customers are primarily publishers. IAM-F revenues increased by 100.0% ($9,172 ) over the comparative periods due to the acquisition and integration of Fyber during our fiscal first quarter 2022 endedJune 30, 2021 . Please see Note 4, "Acquisitions," for further information.
Revenue costs and operating expenses
Three months ended June 30,
2021 2020 % of Change
Restated Restated
Costs of revenues and operating expenses
License fees and revenue share $ 83,808 $ 32,300 159.5 %
Other direct costs of revenues 4,468 560 697.9 %
Product development 12,924 4,408 193.2 %
Sales and marketing 13,736 4,318 218.1 %
General and administrative 23,984 6,804 252.5 %
Restructuring and impairment costs 10 - 100.0 %
Total costs of revenues and operating expenses $ 138,930 $ 48,390 187.1 %
Comparison of the three months ended
Costs of revenues and operating expenses increased by 187.1% ($91,094 ) over the comparative periods, a result of continuing organic and inorganic growth, including the acquisitions of Appreciate,AdColony , and Fyber. Company-wide cost control measures show the Company's ability to scale revenues at a greater rate than operating expenses.
License fees and revenue sharing
License fees and revenue share are reflective of amounts paid to our carrier and OEM partners who drive the revenues generated from advertising via direct CPI, CPP, or CPA arrangements with application developers or when indirect arrangements through advertising aggregators (ad networks) are shared with our carrier and application development partners and the shared revenue is recorded as a cost of revenue. License fees and revenue share increased by 159.5% ($51,508 ) over the comparative periods, attributable to the increase in total net revenues over the same period as these costs are paid as a percentage of our revenues.
Other direct revenue costs
30 --------------------------------------------------------------------------------
Other direct revenue costs primarily include hosting expenses directly related to revenue generation and amortization expenses accounted for under ASC 985-20, Costs of Software for Sale, Lease, or Otherwise Commercialization. Other direct revenue costs increased by 697.9% (
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 increased by 193.2% ($8,516 ) over the comparative periods, attributable to increased product development headcount, both organically and through our recent acquisitions, and other employee-related and third-party development-related costs as the Company continues to scale its product development organization to support the Company's growth.
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 218.1% ($9,418 ) over the comparative periods, attributable to the addition of new personnel in existing markets related to the Company's continued expansion of its global footprint and increased commissions associated with the sales team generating more revenue through new and existing advertising relationships and markets, in addition to inorganic additions through our recent acquisitions.
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 252.5% ($17,180 ) over the comparative periods, attributable to employee-related expenses as a function of higher headcount, inclusive of an increase in the Company's annual accrued bonus expense, increase in depreciation and amortization related to capitalized internal-use software, and continued growth including the acquisitions ofAdColony and Fyber and the amortization of intangible assets acquired through those acquisitions.
Interest and other income / (expenses), net
Three
months ended
2021 2020 % of Change Interest and other income / (expense), net Interest expense, net$ (1,157) $ (306) (278.1) % Foreign exchange transaction loss (270) - (100.0) % Loss on extinguishment of debt - - - % Other income / (expense), net (35) - (100.0) % Total interest and other income / (expense), net$ (1,462) $ (306) 377.8 %
Comparison of the three months ended
Interest and other income / (expense), net, increased by 377.8% ($1,156 of expenses) over the comparative periods, primarily due to an increase in our interest expense, net, detailed further below, and also with contributions to the net period-over-period increase from foreign exchange transaction loss and other income / (expense), net.
Interest expense, net
Interest expense, net, increased by 278.1% ($851 ) over the comparative periods, largely due to our borrowings under our New Credit Agreement with Bank of America, which were used for the cash portions of the purchase prices for our acquisitions ofAdColony and Fyber, and, to a lesser degree, due to unused line fees under our New Credit Agreement and interest on the loans we assumed through our acquisition of Fyber. Interest expense also includes the amortization of debt issuance costs related to our New Credit Agreement. 31 --------------------------------------------------------------------------------
Cash and capital resources
Our primary sources of liquidity are cash from operations and debt. As ofJune 30, 2021 , we had cash totaling approximately$84,012 and$237,134 drawn under and$162,866 available to draw under our New Credit Agreement with Bank of America. The amount drawn under our New Credit Agreement is due byApril 29, 2026 , and is classified as long-term debt on our condensed consolidated balance sheet as ofJune 30, 2021 . In addition, subsequently to our fiscal first quarter endedJune 30, 2021 , we drew an additional$30,000 under our New Credit Agreement in order to fund the tender offer to the Minority Fyber Shareholders detailed above. 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 financial, business, and other factors affecting our operations, many of which are beyond our control, availability of borrowing capacity under our credit facility, and our ability to access the capital markets. For example, this could include general and regional economic, financial, competitive, legislative, regulatory, and other factors. We cannot ensure that we will generate cash flow from operations, or that future borrowings or the capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital, or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Company believes it has sufficient liquidity and capital resources to meet its business requirements for at least twelve months from the filing date of this Quarterly Report on Form 10-Q.
Acquisition Purchase Price Liability
The Company has recognized acquisition purchase price liability of$313,413 on its condensed consolidated balance sheet as ofJune 30, 2021 , comprised of the following components: •$100,000 of unpaid cash consideration for the AdColony Acquisition (due on or beforeOctober 29, 2021 ) •$213,413 of estimated contingent earn-out consideration for theAdColony Acquisition (due followingDecember 31, 2021 ) The Company intends to pay this consideration with a combination of available cash-on-hand, borrowings under the Company's New Credit Agreement, including up to utilizing the accordion feature of the senior credit facility, and proceeds from future capital financings.
Outstanding guaranteed debt
The Company's outstanding secured indebtedness under the New Credit Agreement of$237,134 as ofJune 30, 2021 , additional draw of$30,000 under the New Credit Agreement subsequent to its fiscal first quarter endedJune 30, 2021 , and ability to borrow additional amounts under its New Credit Agreement could have significant negative consequences, including: •increasing the Company's vulnerability to general adverse economic and industry conditions; •limiting the Company's ability to obtain additional financing; •violating a financial covenant, potentially resulting in the indebtedness to be paid back immediately and thus negatively impacting our liquidity; •requiring additional financial covenant measurement consents or default waivers without enhanced financial performance in the short term; •requiring the use of a substantial portion of any cash flow from operations to service indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures; •limiting the Company's flexibility in planning for, or reacting to, changes in the Company's business and the industry in which it competes, including by virtue of the requirement that the Company remain in compliance with certain negative operating covenants included in the credit arrangements under which the Company will be obligated as well as meeting certain reporting requirements; and •placing the Company at a possible competitive disadvantage to less leveraged competitors that are larger and may have better access to capital resources.
Our credit facility also contains a maximum consolidated secured net leverage ratio and a minimum consolidated interest rate
32 -------------------------------------------------------------------------------- coverage ratio. There can be no assurance we will continue to satisfy these ratio covenants. 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 the Company. The collateral pledged to secure our secured debt, consisting of substantially all of our and ourU.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.
Debt supported by acquisition of Fyber
As a part of the Fyber Acquisition, the Company assumed$20,415 of debt previously held by Fyber. This debt is comprised of amounts drawn against three separate revolving lines of credit, details for which can be found in Note 10, "Debt," of the condensed consolidated financial statements, and is classified as short-term debt on the condensed consolidated balance sheet as ofJune 30, 2021 . The revolving lines of credit from Billfront,Discount Bank , andBank Leumi mature onSeptember 10, 2021 ,November 15, 2021 , andDecember 30, 2021 , respectively.
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