Digital Turbine, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise.
Business context
Digital Turbine operates one reportable segment, Media Distribution. Its platform delivers apps and content through mobile-carrier and device-manufacturer partnerships. The company completed its acquisition of Mobile Posse in February 2020; its Content Media offering contributed to the period’s results.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2020 | Year-over-year change | Nine months ended Dec. 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $88.6 | +146.0% | $218.5 | +119.9% |
| Gross profit | $37.7 | +168.5% | $93.6 | +144.0% |
| Gross margin | 42.6% | 39.0% prior year | 43.0% | 38.6% prior year |
| Operating income | $20.5 | +396.5% | $43.3 | +320.5% |
| Net income | $14.5 | $3.3 prior year | $24.8 | $0.1 prior year |
| Diluted EPS | $0.15 | $0.04 prior year | $0.26 | Less than $0.01 prior year |
- Quarter revenue comprised $56.9 million of Application Media and $31.7 million of Content Media. Management attributed growth to higher demand and revenue per available placement, expanded distribution and services, and Mobile Posse.
- For the nine months, operating cash flow was $48.6 million, compared with $20.2 million a year earlier. Investing activities used $14.5 million and financing activities used $11.8 million. Capital expenditures were $6.5 million.
- At December 31, cash was $43.7 million; current assets were $104.6 million and current liabilities $98.5 million. Debt principal outstanding was $19.25 million; $5.0 million remained available under the then-existing revolver. The company reported compliance with its debt covenants.
- Total assets were $232.4 million and stockholders’ equity was $112.2 million at December 31. Accounts receivable, net, was $59.0 million.
Material changes and unusual items
- Revenue increased substantially versus the prior-year periods, while gross margin expanded by 3.6 percentage points in the quarter and 4.4 points for the nine months. Operating expenses also rose, by 73.4% and 79.3%, respectively, but more slowly than revenue.
- Mobile Posse’s estimated earn-out increased by $4.7 million in the quarter and $15.4 million year to date, recorded as expense. The estimated liability was $10.0 million at period end; the remaining payment depended on acquired-business performance and was subject to revaluation.
- The company recorded a $1.397 million stock-compensation credit in the quarter as an out-of-period adjustment related to adoption of ASU 2018-07. Management said it was not material to prior periods or the current quarter and did not revise prior statements.
- On February 3, 2021, after quarter-end, the company entered a $100 million Bank of America revolving facility, with an accordion feature up to $200 million, and terminated the Western Alliance facility and repaid its outstanding amounts. The new facility matures in February 2024 and is secured by substantially all company assets.
Outlook, commentary, and risks
The filing provides no specific revenue or earnings guidance. Management said cash, operating cash flow, and access to credit were expected to provide sufficient resources for at least twelve months from the filing date. Management cited revenue and gross-margin growth, expense management, and access to debt in its assessment.
- Carrier and OEM partner concentration remains material: in the quarter, T-Mobile represented 30.6% of revenue, AT&T 20.3%, Verizon Wireless 16.5%, and America Movil 10.4%. No individual customer represented 10% or more of revenue. One customer represented 12.7% of net receivables.
- Management cautioned that loss of, reduced activity from, delayed payment by, or less favorable terms with significant partners or customers could harm results. COVID-19-related macroeconomic uncertainty could affect advertising demand and estimates.
- Variable-rate borrowings expose the company to interest-rate risk; foreign-currency movements can affect operating income and net income. The company said there were no material changes to the risk factors in its prior annual report.
- The estimated Mobile Posse earn-out and its final settlement remained contingent on performance and calculations. The filing also reports no legal proceedings.
Important facts for investors to verify
- Whether growth and margin gains persist, and how much is attributable to organic Application Media versus acquired Content Media.
- The final Mobile Posse earn-out calculation and payment, including its effect on reported earnings and cash.
- Trends in partner concentration, receivables collection, and the company’s exposure to major carriers and OEMs.
- Terms, availability, covenants, and subsequent utilization of the new $100 million credit facility.
- Cash conversion and investment needs, particularly the effects of receivables, accrued revenue shares, and capitalized software spending.