Digital Turbine, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2016. The request metadata says “2015 Q4,” but this filing reports fiscal 2016 results and includes quarterly data. Amounts below are in U.S. dollars.
Business context and period
Digital Turbine provides mobile advertising and content services to carriers, device manufacturers, advertisers, publishers, and content providers. Its businesses include Advertising (operator and OEM products such as Ignite and Discover, and the advertiser/publisher network acquired with Appia) and Content (Pay carrier billing and Marketplace storefronts). The Appia acquisition closed March 6, 2015; fiscal 2016 includes a full year of Appia results, compared with only 26 days in fiscal 2015, limiting year-over-year comparability.
Financial results and liquidity
| Metric | FY ended Mar. 31, 2016 | FY ended Mar. 31, 2015 |
|---|---|---|
| Revenue | $86.541 million | $28.252 million |
| Gross profit / margin | $9.819 million / 11.3% | $6.132 million / 21.7% |
| Operating loss | $25.936 million | $23.737 million |
| Net loss | $28.032 million | $24.647 million |
| Basic and diluted loss per share | $0.46 | $0.63 |
| Cash used in operating activities | $7.069 million | $14.500 million |
Advertising revenue rose to $57.776 million from $6.243 million, while Content revenue increased to $28.765 million from $22.009 million. Growth reflected a full year of Appia’s advertiser/publisher network, expansion of Ignite, and growth in Pay. Gross margin fell mainly because the acquired A&P business has lower margins, Content mix shifted toward lower-margin Pay, and the company recorded approximately $2.4 million of accelerated amortization following customer terminations.
At March 31, 2016, cash and cash equivalents were $11.231 million; current assets were $29.674 million and current liabilities were $38.982 million, yielding a $9.308 million working-capital deficit. The company raised $12.627 million net from an October 2015 public offering. It reported $10.560 million of short-term debt, including a $3.0 million revolving-line draw and a $7.560 million carrying value for the subordinated debenture; the debenture’s principal was $8.0 million. The $5.0 million SVB revolver matured June 30, 2016, and the debenture was due March 6, 2017. The company stated that available resources were expected to fund operations through March 31, 2017, while noting that additional financing might be needed for growth or acquisitions.
Material changes, outlook, and risks
- Revenue increased 206.3%, but the comparison is substantially affected by the Appia acquisition. Operating and net losses widened, while operating cash use decreased. The reported loss per share narrowed partly alongside a larger weighted-average share count.
- Total gross margin declined to 11.3% from 21.7%. Management said gross margin excluding the approximately $2.4 million accelerated amortization would have been about 14.1%; this is a management-adjusted figure, not the reported GAAP margin.
- Marketplace revenue declined 35.0%, including after termination of an Israel contract and continued movement of consumers toward larger app stores. Pay revenue increased 78.6%. The Australian dollar’s weakness also weighed on reported revenue.
- No specific financial guidance or quantified forward outlook is provided. Management cited seasonal advertising spending, commonly higher in the third and fourth fiscal quarters, and described continued investment in product development and growth opportunities.
- Liquidity and covenant compliance warrant attention. The company reported an April 2016 adjusted quick ratio estimate of 0.89 against a 0.90 minimum; SVB consented not to exercise remedies solely for that period’s shortfall. The filing also describes extensions to the North Atlantic debt-related warrant deadline, most recently to July 15, 2016, and ongoing refinancing efforts.
- Management and the auditor concluded that internal control over financial reporting was ineffective at March 31, 2016 because of a material weakness involving the financial close/reporting process and IT controls. The financial-statement audit opinion was unqualified.
- Other notable exposures include customer concentration (one Content carrier represented 26.1% of FY2016 revenue), reliance on carrier and OEM relationships and Android compatibility, intense competition, privacy and data regulation, foreign-exchange exposure, and a history of losses. Goodwill was $76.621 million; the company reported no goodwill impairment for FY2016.
- In a related-party transaction, DT Media licensed intellectual property to Sift for $1.0 million cash and 9.9% of Sift’s preferred stock. A former Digital Turbine director was Sift’s founder, CEO, and majority shareholder and left Digital Turbine’s board in January 2016.
Important facts for investors to verify
- Whether the company refinanced or repaid the North Atlantic debenture and renewed, replaced, or repaid the SVB revolver after their stated deadlines; confirm any related warrants, fees, or covenant waivers.
- Whether operating cash use, working capital, and receivable collections improved, and whether the company achieved its stated liquidity runway.
- How much revenue and gross profit growth was organic versus acquired, and whether lower-margin advertising and Pay growth can support improved consolidated margins.
- Whether the material weakness in internal controls was remediated and whether the planned accounting-system and staffing improvements were completed.
- Whether major carrier and advertiser relationships, including the customer responsible for 26.1% of FY2016 revenue, continued on acceptable terms.