Digital Turbine, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended December 31, 2022. Financial amounts below are in millions of dollars unless stated otherwise. Digital Turbine operates a mobile growth and advertising platform; its reportable segments are On Device Solutions (ODS) and App Growth Platform (AGP).
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $162.3 | $216.8 | $525.8 | $563.5 |
| Operating income | $9.8 | $29.1 | $55.3 | $64.8 |
| Net income | $4.1 | $7.1 | $30.7 | $15.4 |
| Net income attributable to Digital Turbine | $4.0 | $7.0 | $30.6 | $15.4 |
| Diluted EPS | $0.04 | $0.07 | $0.30 | $0.15 |
| Cash provided by operating activities | Not separately stated | Not separately stated | $97.5 | $43.5 |
Quarterly revenue fell 25.1% year over year; revenue for the nine-month period fell 6.7%. Quarterly operating margin was approximately 6.0%, versus 13.4% a year earlier. The filing reports license fees and revenue share of $73.4 million for the quarter and $237.6 million year to date, equal to 45.2% of revenue in both periods. Segment profit, as defined by the company, was $88.9 million for the quarter and $288.2 million year to date; it is not consolidated operating income.
- Quarterly segment revenue: ODS $96.3 million, down 27.9%; AGP $67.4 million, down 24.4%.
- Nine-month segment revenue: ODS $323.4 million, down 15.7%; AGP $208.0 million, up 7.9%.
- Cash and cash equivalents were $79.3 million at December 31, 2022. Net accounts receivable was $231.0 million.
- Debt was $425.1 million, classified as long term, with a 6.12% stated interest rate. The company had $174.9 million available to draw under its revolving credit facility, which matures April 29, 2026.
- Current assets were $342.8 million and current liabilities were $289.4 million. Nine-month capital expenditures were $18.6 million; cash used in financing activities was $116.7 million.
Changes and notable items
- ODS revenue was pressured by the end of a carrier partnership, reducing content-media activity, lower U.S. device volumes, and weaker advertising demand. Management attributed the AGP quarterly decline to weak demand, reduced performance advertising, and the absence of the usual holiday-quarter advertising uplift.
- Nine-month AGP growth reflected a full nine months of contribution from the AdColony and Fyber acquisitions. The company combined those businesses into AGP effective April 1, 2022.
- Interest expense rose to $6.9 million for the quarter and $16.2 million for nine months, primarily due to higher interest rates and average borrowings. The prior-year periods included contingent-consideration fair-value charges of $18.2 million and $40.3 million, respectively; there were no such charges in the current periods.
- Operating cash flow increased to $97.5 million from $43.5 million, with management citing working-capital changes and higher net income. Cash declined by $47.3 million during the nine-month period, including $129.5 million of debt repayments and $25.3 million of net investing cash outflow.
- In November 2022, the company acquired In App Video Services UK LTD. for $2.7 million cash at closing plus potential earn-outs; it recorded a preliminary $2.7 million acquisition purchase-price liability and $5.0 million of goodwill.
Outlook, risks, and contingencies
The filing provides no numerical revenue or earnings guidance. Management said it expects to have sufficient cash flow and liquidity to meet business requirements for at least 12 months from the filing date. It cautioned that inflation, higher interest rates, recession concerns, reduced advertising budgets, geopolitical developments, and effects on device partners and app advertisers could continue to affect results; the extent and duration remain uncertain.
- The company reported a material weakness in internal control over financial reporting related to accounting for acquired businesses, including presentation and classification. Disclosure controls were therefore concluded to be ineffective as of December 31, 2022. Management was continuing remediation and expected, subject to testing, to have sufficient evidence to assess remediation by March 31, 2023.
- Shareholder securities class actions and related derivative lawsuits concern the company’s May 2022 announcement that it would restate some prior financial results. The company and individual defendants deny wrongdoing; management said the cases were at an early stage and it could not assess likely outcomes or potential liability.
- Hosting agreements carry approximately $181.6 million of minimum purchase commitments over the next four years. The credit facility is secured by substantially all personal property assets and includes leverage and interest-coverage covenants; the company reported covenant compliance at quarter-end.
- The company identified variable interest-rate and foreign-currency exposure and reported that it had not used derivatives to manage these risks. It found no impairment triggering event for goodwill or finite-lived intangible assets as of December 31, 2022.
Important facts for investors to verify
- Whether advertising demand and ODS performance stabilize, and whether AGP can recover from its quarterly decline.
- How much of the increased operating cash flow reflects sustainable operating performance versus working-capital timing.
- Debt-service sensitivity to rates, remaining borrowing availability, covenant headroom, and the company’s ability to maintain liquidity.
- Progress and testing results for remediation of the material weakness, including any further financial-reporting adjustments.
- Developments in the shareholder lawsuits and the potential financial or reputational effects; the filing does not provide a clear estimate of potential liability.