Digital Turbine, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2020. Financial amounts are in thousands of dollars unless stated otherwise. Digital Turbine operates one reportable segment, Media Distribution, which delivers application and content media through mobile operator and device-maker partnerships.
Financial performance
| Metric | Quarter ended Sep. 30, 2020 | Six months ended Sep. 30, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $70.9 million | $129.9 million | $32.8 million quarter; $63.3 million six months |
| Revenue growth | 116.2% | 105.1% | Year over year |
| Gross profit / margin | $29.7 million / 41.9% | $55.9 million / 43.0% | 37.5% quarter; 38.4% six months |
| Operating expenses | $17.6 million | $33.1 million | $9.2 million quarter; $18.2 million six months |
| Operating income | $12.1 million | $22.7 million | $3.1 million quarter; $6.2 million six months |
| Net income / (loss) | $0.4 million | $10.3 million | ($1.4) million quarter; ($3.2) million six months |
| Diluted earnings per share | Reported as — (less than $0.01) | $0.11 | ($0.02) quarter; ($0.04) six months |
Revenue growth reflected higher demand and yield for application media, expanded placements and distribution partners, and Mobile Posse content media. In the quarter, Application Media contributed $49.1 million and Content Media $21.8 million. Gross margin improved 4.4 percentage points for the quarter and 4.6 points for the six-month period. Operating expenses rose, but more slowly than revenue.
Six-month operating cash flow was $29.7 million, compared with $11.8 million a year earlier. Investing cash outflow was $12.1 million, including $4.2 million of capital expenditures and $8.0 million related to Mobile Posse. Financing cash outflow was $6.0 million, including $9.3 million of contingent-consideration payments, partly offset by $3.5 million from option exercises. Cash increased to $33.0 million from $21.5 million at March 31, 2020.
Balance sheet, debt and liquidity
At September 30, 2020, current assets were $81.3 million and current liabilities $91.0 million; the resulting current ratio was approximately 0.89. Cash was $33.0 million. Debt principal outstanding was $19.75 million, with $5.0 million available under the undrawn revolving line. The secured term loan matures in February 2025, bears interest at LIBOR (subject to a 1.75% floor) plus 3.75%, and has quarterly and excess-cash-flow repayment requirements. The company reported compliance with its debt covenants.
Management said cash, operating cash flow and available credit should provide sufficient resources for at least 12 months from the filing date. The filing also notes that additional financing may not be available on acceptable terms, and that any equity financing could dilute existing holders.
Material changes, outlook and risks
- Mobile Posse acquisition: Acquired February 28, 2020. Estimated total consideration was $76.4 million, including an $18.4 million accrued earn-out at quarter-end. The earn-out is performance-based and subject to revaluation and final settlement in March 2021.
- Unusual expense: The estimated earn-out liability was increased by $10.8 million during the quarter, recorded in other expense. This contributed to quarterly pretax income of only $1.0 million despite $12.1 million of operating income. The liability estimate is based on unobservable assumptions and may change.
- Partner concentration: For the quarter, T-Mobile and related entities represented 26.4% of revenue, AT&T and Cricket 23.4%, and Verizon Wireless 19.6%. No single customer accounted for at least 10% of revenue. A reduction in activity or loss of a major partner could materially affect results.
- COVID-19 and other risks: Management cited uncertainty about macroeconomic conditions and potential effects on advertising demand and accounting estimates. The company also has exposure to variable interest rates and foreign-currency movements. No material changes to the risk factors in its fiscal 2020 Form 10-K were reported; no legal proceedings were listed.
- Guidance: The filing provides no numerical revenue or earnings guidance. Management commentary emphasizes growth, platform expansion and expense discipline; interim results are not necessarily indicative of full-year results.
Investor verification priorities
- Track Mobile Posse performance, earn-out assumptions and the final March 2021 settlement.
- Assess whether revenue and gross-margin growth persist, including the relative contributions of Application Media and Content Media.
- Monitor major carrier-partner concentration, receivable collection and customer or partner changes.
- Review debt repayments, covenant headroom, working-capital needs and the sustainability of operating cash flow.
- Consider the effect of stock-based compensation and potential dilution; a new 2020 equity plan reserves 12 million shares for awards, with no awards issued under it by quarter-end.