Digital Turbine, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended September 30, 2021. Dollar amounts below are in millions unless stated otherwise. The company provides mobile advertising and monetization technology. Results now include three reportable segments: On Device Media (ODM), In App Media–AdColony, and In App Media–Fyber. AdColony and Fyber were acquired during the period, so reported year-over-year growth is not a like-for-like comparison.
Financial performance
| Metric | Quarter ended Sep. 30, 2021 | Prior-year quarter | Six months ended Sep. 30, 2021 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $310.2 | $70.9 | $522.8 | $129.9 |
| Operating income | $16.5 | $12.1 | $35.7 | $22.7 |
| Net income / (loss) | $(5.9) | $0.4 | $8.4 | $10.3 |
| Net income / (loss) attributable to Digital Turbine | $(5.9) | $0.4 | $8.4 | $10.3 |
| Diluted earnings / (loss) per share | $(0.06) | $0.00 | $0.08 | $0.11 |
- Quarterly revenue increased 337.6%; six-month revenue increased 302.5%. ODM revenue rose 82.6% for the quarter and 92.3% for the six months, attributed to stronger demand, higher revenue per placement, expanded advertising relationships, and new distribution and services. Acquired businesses contributed materially to consolidated growth.
- Quarterly operating margin was approximately 5.3%, versus 17.1% in the prior-year quarter. License fees and revenue share were 68.7% of quarterly revenue, compared with 57.2%; the filing attributes the higher share partly to the acquisitions’ higher contractual revenue-share rates.
- The quarterly net loss included a $22.1 million net expense from changes in fair value of contingent consideration. This comprised a $31.0 million Fyber earn-out charge, partly offset by an $8.9 million reduction in the AdColony earn-out obligation. Six-month net income also reflects this net expense.
- Operating cash flow was $7.8 million for the six months, down from $29.7 million. Investing cash outflow was $158.5 million, including $148.1 million for acquisitions and $10.4 million of capital expenditures. Financing cash inflow was $220.0 million, primarily reflecting borrowings.
- At September 30, cash was $95.5 million (plus $0.7 million restricted cash). Debt was $257.4 million net of issuance costs, including $244.0 million long-term debt and $13.4 million short-term debt assumed with Fyber. The company had $152.9 million available under its $400 million revolving facility and reported covenant compliance.
- Current assets were $345.2 million and current liabilities $642.1 million; the latter included $335.5 million of acquisition purchase-price liabilities. Goodwill was $559.0 million and net intangible assets $467.5 million at period-end.
Material changes, outlook and risks
- The company acquired AdColony on April 29, 2021, and a 95.1% stake in Fyber on May 25, 2021; it also acquired Appreciate in March 2021. These transactions expanded the business into in-app advertising and changed segment reporting. Fyber ownership was approximately 99.4% at September 30.
- AdColony’s earn-out was fixed at $204.5 million, due January 15, 2022. The company also recorded $31.0 million for Fyber’s earn-out, which may reach $50.0 million and depends on Fyber meeting its revenue target. The $335.5 million acquisition liability included these amounts and $100.0 million of unpaid AdColony consideration.
- After quarter-end, the company borrowed an additional $98.0 million under its credit facility and paid $98.175 million of the deferred AdColony consideration on October 26, 2021. Management said it expected to have sufficient liquidity and capital resources for at least 12 months from the filing date. No formal revenue or earnings guidance was provided in the supplied filing text.
- Management cited potential risks from acquisition integration and execution, variable-rate secured debt and covenant compliance, future earn-out valuations and payments, and the company’s ability to generate cash or access financing. The credit facility is secured by substantially all personal property assets. The filing also notes uncertainty around COVID-19 effects and exposure to interest-rate and foreign-exchange movements.
- The company reported no material change to previously disclosed risk factors, no legal proceedings, and effective disclosure controls. Integration of AdColony and Fyber into internal financial controls was ongoing.
Investor verification priorities
- Separate organic ODM growth from acquired revenue; confirm the contribution and subsequent performance of AdColony and Fyber.
- Track operating cash generation and working-capital movements, particularly accounts receivable and accrued compensation.
- Verify funding and payment of remaining acquisition consideration and earn-outs, including their effect on debt, liquidity, and share dilution.
- Monitor credit-facility borrowings, covenant headroom, variable interest costs, and the refinancing or repayment of Fyber’s short-term debt.
- Assess acquisition integration, intangible-asset amortization, and whether the acquired businesses achieve expected growth and synergies.