Digital Turbine, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2021. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. The company provides mobile advertising and monetization technology, including on-device distribution and in-app advertising services.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Nine months ended Dec. 31, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $375.5 | $88.6 | $898.3 | $218.5 |
| Operating income | $29.1 | $20.5 | $64.8 | $43.3 |
| Net income attributable to Digital Turbine | $7.0 | $14.5 | $15.4 | $24.8 |
| Diluted EPS | $0.07 | $0.15 | $0.15 | $0.26 |
| Operating cash flow | Not separately presented | Not separately presented | $43.5 | $48.6 |
Quarterly revenue increased 323.8% year over year, with acquisitions of AdColony and Fyber contributing substantially; legacy On Device Media revenue grew 50.8%. Operating margin was approximately 7.8% versus 23.2% a year earlier, and net margin was approximately 1.9% versus 16.4%. Higher license fees and revenue share, acquisition-related costs, amortization, interest, and fair-value charges weighed on margins and earnings. License fees and revenue share were 71.3% of quarterly revenue, compared with 56.6% in the prior-year quarter.
Quarterly segment revenue and segment profit (revenue less license fees and revenue share) were: On Device Media $133.6 million and $47.1 million; In App Media–AdColony $94.3 million and $30.0 million; and In App Media–Fyber $157.4 million and $30.7 million, before eliminations where applicable.
For the nine months, operating margin was approximately 7.2% and net margin approximately 1.7%. Reported-period comparisons are materially affected by the timing of the acquisitions. On a pro forma basis assuming the acquisitions had occurred before the periods presented, quarterly revenue was $375.5 million versus $271.5 million, and quarterly net income attributable to controlling interest was $7.0 million versus a $19.2 million loss. Nine-month pro forma revenue was $977.7 million versus $604.6 million; pro forma net loss attributable to controlling interest was $17.3 million versus $15.2 million.
Cash, debt and liquidity
- Cash and restricted cash totaled $115.4 million at December 31, 2021. Current assets were $428.6 million and current liabilities $609.6 million, including $253.7 million of acquisition purchase-price liabilities.
- Debt was $357.6 million: $345.1 million drawn on the revolving credit facility and $12.5 million of Fyber-assumed short-term debt. The revolver’s maximum capacity had been increased to $525 million; $179.9 million was available at quarter-end. The company reported compliance with its covenants.
- Operating cash flow for the nine months was $43.5 million. Investing cash outflow was $163.9 million, including $148.2 million for acquisitions and $15.7 million of capital expenditures. Free cash flow, defined as operating cash flow less capital expenditures, was approximately $27.8 million.
- After quarter-end, the company drew an additional $179 million and paid AdColony’s fixed $204.5 million earn-out on January 15, 2022. The remaining Fyber earn-out was estimated at $49.2 million at quarter-end and depended on meeting its revenue target.
Material changes, outlook and risks
- AdColony and Fyber acquisitions expanded the business into two in-app media segments, alongside the legacy On Device Media segment. The acquisitions also materially increased goodwill, intangible assets, debt, amortization expense and integration requirements.
- Quarterly and nine-month earnings included fair-value charges for contingent consideration of $18.2 million and $40.3 million, respectively. These estimates are sensitive to expected acquisition performance. Acquisition-related costs were $6.2 million for the quarter and $23.7 million for the nine months.
- Management stated that it expected sufficient cash flow and resources to meet requirements for at least 12 months from the filing date. The filing gives no numerical revenue or earnings guidance.
- Risks include integration and execution of acquisitions, achievement of the Fyber earn-out target, substantial secured variable-rate debt and covenant compliance, working-capital demands, foreign-exchange and interest-rate movements, competition, and potential prolonged COVID-19 impacts. Hosting agreements carry approximately $228.8 million of minimum commitments over five years.
- Management reported disclosure controls and procedures were effective. No material changes to previously disclosed risk factors were identified, and the filing reports no legal proceedings.
Important facts for investors to verify
- Whether acquired businesses deliver durable growth and synergies, and how results compare with the filing’s pro forma figures.
- Fyber’s progress toward the $100 million earn-out revenue threshold and the resulting final consideration.
- Post-payment cash, debt and revolver availability following the $179 million draw and AdColony earn-out payment.
- Changes in revenue-share costs, operating margins, receivables and operating cash conversion as the combined business scales.
- Debt covenant headroom, variable-rate exposure, integration progress and the fulfillment of hosting commitments.