Digital Turbine, Inc. — Form 10-Q summary
Reporting period: Three and six months ended September 30, 2019 (the company’s fiscal second quarter and first half of fiscal 2020). Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where shown.
Business context
Digital Turbine operates one continuing reportable segment, Advertising, centered on its Ignite platform and related services for mobile operators and device manufacturers. The company reported growth from advertising partners across existing deployments, expanded distribution with new carrier partners, and new Ignite services. Its Direct Carrier Billing and Advertising and Publishing businesses had been disposed of and are reported as discontinued operations.
Financial performance
| Metric | Three months ended Sep. 30, 2019 | Prior-year quarter | Six months ended Sep. 30, 2019 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $32.8 million | $23.9 million | $63.3 million | $46.0 million |
| Gross profit / margin | $12.3 million / 37.5% | $7.5 million / 31.6% | $24.3 million / 38.4% | $13.9 million / 30.3% |
| Operating income (loss) | $3.1 million | $0.3 million | $6.2 million | $(0.9) million |
| Net income (loss), including discontinued operations | $(1.4) million | $1.7 million | $(3.2) million | $2.2 million |
| Net loss from continuing operations | $(1.3) million | $2.1 million income | $(3.0) million | $3.6 million income |
| Basic and diluted EPS | $(0.02) | $0.02 | $(0.04) | $0.03 |
Revenue rose 37.5% for the quarter and 37.8% for the half year. Management attributed gross-margin improvement to better partner diversification and a higher contribution from non-dynamic installs. Operating expenses increased 27.1% in the quarter and 22.0% in the half year; higher sales and marketing costs reflected global expansion and commissions, while higher general and administrative costs primarily reflected company growth.
Net results were materially affected by noncash warrant remeasurement losses of $4.5 million in the quarter and $9.7 million in the half year, associated with the increase in the company’s share price. The company had no outstanding convertible notes; all notes had been converted or extinguished by March 31, 2019.
Cash flow, debt and liquidity
- For the six months, continuing-operations operating cash flow was $11.8 million, versus cash use of $0.2 million in the prior-year period. Consolidated operating cash flow was $11.6 million, including $0.2 million of cash use from discontinued operations.
- Investing cash outflow was $1.8 million, mainly capital expenditure; financing cash inflow was $4.8 million, primarily proceeds from option and warrant exercises.
- Cash and restricted cash totaled $25.3 million at September 30, 2019, compared with $11.1 million at March 31, 2019. Current assets were $53.5 million and current liabilities $51.5 million.
- No principal was outstanding under the Western Alliance Bank facility. The amended facility provides up to $20 million, subject to eligible receivables and other terms; it is secured by company assets and matures May 22, 2021. The company reported covenant compliance.
- The balance sheet included an $8.4 million warrant liability, measured using Level 3 inputs. This is a derivative liability, not outstanding borrowing. Operating lease liabilities had a present value of $2.8 million.
Management stated that cash, expected operating cash flow and available credit were sufficient for at least 12 months from the report’s issuance. The facility’s borrowing availability depends on eligible domestic receivables, and additional financing may not be available on acceptable terms.
Material changes, outlook and risks
- Revenue mix remained concentrated in key carrier partners: Verizon Wireless generated 43.3% of quarterly revenue and AT&T, including Cricket, 31.4%. These shares were lower than the respective 49.7% and 38.8% in the prior-year quarter.
- Verizon Communications, primarily through Oath, accounted for 20.6% of quarterly revenue; GSN Games accounted for 10.1%. One customer represented 27.0% of net accounts receivable at period end.
- Management cautioned that reduced activity, payment delays or termination by significant customers or partners could materially harm the business. The filing also identifies competition, foreign-exchange exposure and potential interest-rate effects as risks.
- For the disposed Direct Carrier Billing business, uncertainty remains over certain receivables and related payables. The company requested mediation and said it could not reasonably estimate which balances might be uncollectible or unpaid; stated maximum net exposure if all were unsettled was approximately $0.2 million.
- No specific revenue or earnings guidance was provided in the filing. Management’s forward-looking statements are subject to risks, and interim results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Whether Ignite growth and improved gross margins continue, and how much growth depends on major carrier partners and advertisers.
- The cash-flow contribution from working-capital movements, alongside the reported improvement in operating cash flow.
- The effect of share-price-driven warrant remeasurement on reported earnings and the remaining warrant liability.
- Actual availability under the $20 million receivables-based facility, and ongoing compliance with its financial covenants.
- Resolution and collection of balances related to discontinued operations, including the disclosed potential net exposure.