# Digital Turbine, Inc.: Form 10-Q for the period ended Dec 31, 2019

- Company: [Digital Turbine, Inc.](/companies/apps.md) (CIK 317788)
- Form: 10-Q
- Filed: 2020-02-10
- Accepted by EDGAR: Feb 10, 2020, 16:34 ET
- Period: 2019-12-31
- Accession: 0001628280-20-001236
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/317788/000162828020001236/q3fy202010-qdocument.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/317788/000162828020001236/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-10-01 to 2019-12-31 | $36.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-04-01 to 2019-12-31 | $99.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-10-01 to 2019-12-31 | $22.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-04-01 to 2019-12-31 | $61.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-10-01 to 2019-12-31 | $14.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-04-01 to 2019-12-31 | $38.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-10-01 to 2019-12-31 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-04-01 to 2019-12-31 | $8.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-10-01 to 2019-12-31 | $4.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-04-01 to 2019-12-31 | $10.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2019-10-01 to 2019-12-31 | $3.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-04-01 to 2019-12-31 | $82.0k | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2019-10-01 to 2019-12-31 | 92,472,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2019-04-01 to 2019-12-31 | 89,759,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2019-04-01 to 2019-12-31 | $20.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2019-12-31 | $33.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-12-31 | $64.2m | us-gaap:AssetsCurrent |
| Total assets | at 2019-12-31 | $113.7m | us-gaap:Assets |
| Current liabilities | at 2019-12-31 | $54.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-12-31 | $56.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-12-31 | $57.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,901 characters.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”). The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve substantial risks and uncertainties. When used in this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “will,” “seeks,” “should,” “could,” “would,” “may,” and similar expressions, as they relate to our management or us, are intended to identify such forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in, or implied by, these forward-looking statements as a result of a variety of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, as well as those described elsewhere in this Report and in our other public filings. The risks included are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period. We do not undertake any obligation to update any forward-looking statements made in this Report. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

All numbers are in thousands, except share and per share amounts.

### Company Overview

Digital Turbine, Inc., through its subsidiaries, innovates at the convergence of media and mobile communications, delivering an end-to-end platform solution for mobile operators, application developers, device original equipment manufacturers ("OEMs"), and other third parties to enable them to effectively monetize mobile content and generate higher-value user acquisition. Through December 31, 2019, Digital Turbine has delivered over 3 billion application pre-loads on over 369 million devices across thirty-five Operator and OEM (O&O) partnerships. The Company operates this business as one reportable segment – Advertising.

The Company's Advertising segment operates the O&O business, an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of services including:

- Ignite™ ("Ignite"), a software platform with targeted media delivery and management capabilities, and
- Other recurring and life-cycle products, features, and professional services delivered on the Ignite platform.

Prior to the sale of the A&P Assets described above under Note 4. "Discontinued Operations," the Advertising reporting segment also included the A&P Assets as an operating segment within Advertising.

### Advertising

#### O&O Business

The Company's O&O business is an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of Ignite and other recurring and life-cycle products, features, and professional services delivered on the Ignite platform.

Ignite is a software platform that enables mobile operators and OEMs to control, manage, and monetize devices through application installation at the time of activation and over the life of a mobile device. Ignite allows mobile operators and OEMs to personalize the application activation experience for customers and monetize their home screens via revenue share agreements such as: Cost-Per-Install (CPI), Cost-Per-Placement (CPP), Cost-Per-Action (CPA) with third party advertisers; or via Per-Device-License Fees (PDL) agreements which allow operators and OEMs to leverage the Ignite platform, products, and features for a structured fee. Setup Wizard, Dynamic Installs, and Software Development Kit ("SDK") are the three delivery methods available to operators and OEMs on first boot of the device. Additional products and features are available throughout the life-cycle of the device that provide operators and OEMs additional opportunity for advertising revenue streams. The Company has launched Ignite with mobile operators and OEMs in North America, Latin America, Europe, Asia Pacific, India, and Israel.

### Disposition of the Content Reporting Segment and A&P Business

On April 29, 2018, the Company entered into two distinct disposition agreements with respect to selected assets owned by our subsidiaries.

DT APAC and DT Singapore (together, “Pay Seller”), each wholly-owned subsidiaries of the Company, entered into an Asset Purchase Pay Agreement (the “Pay Agreement”), dated April 23, 2018, with Chargewave Ptd Ltd (“Pay Purchaser”) to sell certain assets (the “Pay Assets”) owned by the Pay Seller related to the Company’s Direct Carrier Billing business. The Pay Purchaser is principally owned and controlled by Jon Mooney, an officer of the Pay Seller. At the closing of the asset sale, Mr. Mooney was no longer employed by the Company or Pay Seller. As consideration for this asset sale, Digital Turbine is entitled to receive certain license fees, profit-sharing, and equity participation rights as disclosed in the Company’s Form 8-K filed May 1, 2018 with the SEC. The transaction was completed on July 1, 2018. With the sale of these assets, the Company has exited the reporting segment of the business previously referred to as the Content business.

DT Media, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “A&P Agreement”), dated April 28, 2018, with Creative Clicks B.V. (the “A&P Purchaser”) to sell business relationships with various advertisers and publishers (the “A&P Assets”) related to the Company’s Advertising and Publishing business. As consideration for this asset sale, we are entitled to receive a percentage of the gross profit derived from these customer agreements for a period of three years as disclosed in the Company’s Form 8-K filed May 1, 2018 with the SEC. The transaction was completed on June 28, 2018 with an effective date of June 1, 2018. With the sale of these assets, the Company exited the operating segment of the business previously referred to as the A&P business, which was previously part of the Advertising segment, the Company's sole continuing reporting segment.

### Discontinued Operations

As a result of the dispositions, the results of operations from our Content reporting segment and A&P business within the Advertising reporting segment are reported as “Net loss from discontinued operations, net of taxes” and the related assets and liabilities are classified as “held for disposal" in the consolidated financial statements in Item 1 of this Report. The Company has recast prior period amounts presented within this Report to provide visibility and comparability.

All discussions in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, unless otherwise noted, relate to the remaining continuing operations in our sole operating segment after the dispositions described above.

### RESULTS OF OPERATIONS

### (Unaudited)

*(in thousands, except per share amounts)*

*(in thousands, except per share amounts)*

|  | Three months ended December 31, 2019 | 2018 | % of Change | Nine months ended December 31, 2019 | 2018 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net revenues | $36,016 | $30,411 | 18.4% | $99,364 | $76,377 | 30.1% |
| License fees and revenue share | 21,576 | 19,195 | 12.4% | 59,997 | 50,213 | 19.5% |
| Other direct costs of revenues | 400 | 538 | (25.7)% | 1,022 | 1,553 | (34.2)% |
| Gross profit | 14,040 | 10,678 | 31.5% | 38,345 | 24,611 | 55.8% |
| Total operating expenses | 9,908 | 8,222 | 20.5% | 28,058 | 23,100 | 21.5% |
| Income from operations | 4,132 | 2,456 | 68.2% | 10,287 | 1,511 | 580.8% |
| Interest income / (expense), net | 59 | (194) | (130.4)% | 118 | (648) | (118.2)% |
| Foreign exchange transaction gain / (loss) | — | (2) | (100.0)% | — | 7 | (100.0)% |
| Change in fair value of convertible note embedded derivative liability | — | (1,476) | (100.0)% | — | 1,096 | (100.0)% |
| Change in fair value of warrant liability | (870) | (1,651) | (47.3)% | (10,601) | 845 | (1,354.6)% |
| Loss on extinguishment of debt | — | (10) | (100.0)% | — | (25) | (100.0)% |
| Other income / (expense) | (19) | (43) | (55.8)% | 455 | (169) | (369.2)% |
| Income / (loss) from continuing operations before income taxes | 3,302 | (920) | (458.9)% | 259 | 2,617 | (90.1)% |
| Income tax provision | 41 | 216 | (81.0)% | 6 | 157 | (96.2)% |
| Income / (loss) from continuing operations, net of taxes | 3,261 | (1,136) | (387.1)% | 253 | 2,460 | (89.7)% |
| Net income / (loss) | $3,326 | $(1,348) | (346.7)% | $82 | $848 | (90.3)% |
| Basic and diluted net income / (loss) per common share | $0.04 | $(0.01) | (500.0)% | $— | $0.01 | (100.0)% |
| Weighted-average common shares outstanding, basic | 85,876 | 77,645 | 10.6% | 83,869 | 76,977 | 9.0% |
| Weighted-average common shares outstanding, diluted | 92,472 | 77,645 | 19.1% | 89,759 | 79,371 | 13.1% |

### Comparison of the three and nine months ended December 31, 2019 and 2018

### Net Revenues

During the three and nine months ended December 31, 2019, there was an approximately $5,605 or 18.4% and $22,987 or 30.1% increase in overall revenue, respectively, as compared to the three and nine months ended December 31, 2018.

The Company's O&O business is an advertiser solution for unique and exclusive carrier and OEM inventory. During the three and nine months ended December 31, 2019, the main revenue driver for the O&O business was the Ignite platform. Ignite is a mobile application management software that enables mobile operators and OEMs to control, manage, and monetize applications installed at the time of activation and over the life of a mobile device. This increase in Ignite net revenue was attributable to increased demand for the Ignite service, driven primarily by increased revenue from advertising partners across existing commercial deployments of Ignite with carrier partners as well as expanded distribution with new carrier partners and the deployment of new Ignite services and products.

With respect to customer revenue concentration, during the three and nine months ended December 31, 2019, Verizon Communications Inc., primarily through its subsidiary Oath Inc., represented 14.4% and 17.7% of net revenues, respectively. During the three and nine months ended December 31, 2018, Oath Inc. represented 28.8% and 31.1% of net revenues, respectively.

With respect to partner revenue concentration, the Company partners with mobile carriers and OEMs to deliver applications on our Ignite platform through the carrier network. During the three and nine months ended December 31, 2019, Verizon Wireless, a carrier partner, generated 37.5% and 40.3%, respectively; AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 29.8% and 30.9%, respectively; and America Movil Inc., a carrier partner, primarily through its subsidiary TracFone Wireless Inc., generated 12.4% and 10%, respectively, of our net revenues. During the three and nine months ended December 31, 2018, Verizon Wireless, a carrier partner, generated 43.7% and 47.6%, respectively; and AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 38.5% and 38.4%, respectively, of our net revenues.

A reduction or delay in operating activity from these customers or partners, or a delay or default in payment by these customers, or a termination of the Company's agreements with these customers, could materially harm the Company’s business and prospects.

### Gross Margin

*(in thousands)*

*(in thousands)*

|  | Three months ended December 31, 2019 | 2018 | % of Change | Nine months ended December 31, 2019 | 2018 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Gross margin $ | $14,040 | $10,678 | 31.5% | $38,345 | $24,611 | 55.8% |
| Gross margin % | 39.0% | 35.1% | 11.1% | 38.6% | 32.2% | 19.9% |

Total gross margin, inclusive of the impact of other direct costs of revenues (including amortization of intangibles), was approximately $14,040 or 39.0% of net revenues and $38,345 or 38.6% of net revenues for the three and nine months ended December 31, 2019, respectively, versus approximately $10,678 or 35.1% of net revenues and $24,611 or 32.2% of net revenues for the three and nine months ended December 31, 2018, respectively. The increase in gross margin over the comparative periods of $3,362 or 31.5% and $13,734 or 55.8%, respectively, is primarily attributable to an increased yield from an improved mix of partner diversification and non-dynamic install revenue on our O&O platform.

### Operating Expenses

*(in thousands)*

*(in thousands)*

|  | Three months ended December 31, 2019 | 2018 | % of Change | Nine months ended December 31, 2019 | 2018 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Product development | $2,783 | $2,428 | 14.6% | $8,312 | $8,174 | 1.7% |
| Sales and marketing | 2,815 | 1,962 | 43.5% | 7,534 | 5,711 | 31.9% |
| General and administrative | 4,310 | 3,832 | 12.5% | 12,212 | 9,215 | 32.5% |
| Total operating expenses | $9,908 | $8,222 | 20.5% | $28,058 | $23,100 | 21.5% |

Total operating expenses for the three and nine months ended December 31, 2019 were approximately $9,908 and $28,058, respectively, and for the three and nine months ended December 31, 2018 were approximately $8,222 and $23,100, respectively, an increase of approximately $1,686 or 20.5% and $4,958 or 21.5% over the comparative periods, respectively.

Product development expenses include the development and maintenance of the Company's product suite. Expenses in this area are primarily a function of personnel. Product development expenses for the three and nine months ended December 31, 2019 were approximately $2,783 and $8,312, respectively, and for the three and nine months ended December 31, 2018 were approximately $2,428 and $8,174, respectively, an increase of approximately $355 or 14.6% and $138 or 1.7%, respectively, over the comparative periods. The increase in product development expenses over the comparative three-month periods was primarily attributable to increased product development headcount and other employee-related and third-party development-related costs as the Company continues to scale its product development organization to support the Company's growth. Product development expenses remained flat over the comparative nine-month periods.

Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management. Sales and marketing expenses for the three and nine months ended December 31, 2019 were approximately $2,815 and $7,534, respectively, and for the three and nine months ended December 31, 2018 were approximately $1,962 and $5,711, respectively, an increase of approximately $853 or 43.5% and $1,823 or 31.9%, respectively, over the comparative period. The increase in sales and marketing expenses over the comparative periods was primarily attributable to increased travel expenses related to the Company's continued expansion of its global footprint and increased commissions associated with the sales team generating more revenue through new and existing advertising relationships.

General and administrative expenses represent management, finance, and support personnel costs in both the parent and subsidiary companies, which include professional and consulting costs, in addition to other costs such as rent, stock-based compensation, and depreciation expense. General and administrative expenses for the three and nine months ended December 31, 2019 were approximately $4,310 and $12,212, respectively, and for the three and nine months ended December 31, 2018 were $3,832 and $9,215, respectively, an increase of approximately $478 or 12.5% and $2,997 or 32.5%, respectively, over the comparative periods. The increase over the comparative periods is primarily attributable to higher employee-related expenses related to the overall growth of the Company.

### Interest and Other Income / (Expense)

*(in thousands)*

*(in thousands)*

|  | Three months ended December 31, 2019 | 2018 | % of Change | Nine months ended December 31, 2019 | 2018 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income / (expense), net | $59 | $(194) | (130.4)% | $118 | $(648) | (118.2)% |
| Foreign exchange transaction gain / (loss) | — | (2) | (100.0)% | — | 7 | (100.0)% |
| Change in fair value of convertible note embedded derivative liability | — | (1,476) | (100.0)% | — | 1,096 | (100.0)% |
| Change in fair value of warrant liability | (870) | (1,651) | (47.3)% | (10,601) | 845 | (1,354.6)% |
| Loss on extinguishment of debt | — | (10) | (100.0)% | — | (25) | (100.0)% |
| Other income / (expense) | (19) | (43) | (55.8)% | 455 | (169) | (369.2)% |
| Total interest and other income / (expense), net | $(830) | $(3,376) | (75.4)% | $(10,028) | $1,106 | (1,006.7)% |

Total interest and other income / (expense), net, for the three and nine months ended December 31, 2019 was approximately $(830) and $(10,028), respectively, and for the three and nine months ended December 31, 2018 was $(3,376) and $1,106, respectively, a decrease in interest and other income / (expense) of approximately $2,546 or 75.4% and an increase of approximately $11,134 or 1,006.7%, respectively, over the comparative periods. The decrease and increase, respectively, in other income / (expense) over the comparative periods are primarily attributable to the change in fair value of convertible note embedded derivative liability and the change in fair value of warrant liability, primarily as a result of increases in the trading price of the Company's common stock. Interest and other income / (expense), net, includes net interest income / (expense), foreign exchange transaction gain / (loss), change in fair value of convertible note embedded derivative liability, change in fair value of warrant liability, loss on extinguishment of debt, and other ancillary income / (expense) earned or incurred by the Company.

### Interest Expense, Net

Interest expense is primarily attributable to 1) fees related to the obtainment of debt, which were recorded as debt issuance costs and expensed as a component of interest expense over the life of the debt in the prior comparative periods; 2) interest expense incurred on the Notes at a stated interest rate of 8.75% in the prior comparative periods and interest expense incurred on the Credit Agreement at approximately 6.75% (Wall Street Journal Prime Rate + 0.50%) in the prior comparative periods; and 3) amortization of debt discount related to the Notes, which were expensed as a component of interest expense over the life of the debt in the prior comparative periods.

Interest income consists of interest income earned on our cash.

During the three and nine months ended December 31, 2019, the Company had no outstanding debt and incurred no interest expense. Interest expense during the three and nine months ended December 31, 2018 was incurred from the $16,000 aggregate principal amount of 8.75% Convertible Notes due 2020 (the “Notes”), issued on September 28, 2016, and from amounts drawn on our business finance agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”).

The Company recorded $59 and $118 of interest income during the three and nine months ended December 31, 2019, respectively, and $194 and $648 of interest expense during the three and nine months ended December 31, 2018, respectively. The increase in interest income is a function of earning interest on our cash balances during the three and nine months ended December 31, 2019. The decrease in interest expense is a function of no principal debt outstanding during the three and nine months ended December 31, 2019.

### Change in Fair Value of Convertible Note Embedded Derivative Liability

The Company accounts for the convertible note embedded derivative liability in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. All of the underlying debt related to the derivative liability was converted to equity during the prior fiscal year, and the derivative position settled. As such, no change in fair value was recorded during the three and nine months ended December 31, 2019.

Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the loss and gain, respectively. During the three and nine months ended December 31, 2018, the Company recorded a (loss) and gain from change in fair value of convertible note embedded derivative liability of $(1,476) and $1,096, respectively, due to the increase in the Company's closing stock price during the three months ended December 31, 2018 from $1.24 to $1.83 and due to the decrease in the Company's closing stock price during the nine months ended December 31, 2018 from $2.01 to $1.83. In addition to the Company's stock price being the primary driver, valuation of the derivative liability is also impacted by the conversion of underlying notes and associated warrants. See Note 8. "Debt" for more information regarding the conversion of Convertible Notes during fiscal years 2018 and 2019.

### Change in Fair Value of Warrant Liability

The Company accounts for the warrants issued in connection with the above-noted sale of Notes in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that these warrants did not meet the criteria for classification as equity. Accordingly, the Company classified the warrants as long-term liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income / (expense), net, in the Consolidated Statements of Operations and Comprehensive Income / (Loss).

Due to the valuation of the derivative liability being highly sensitive to the trading price of the Company's stock, the increase and decrease in the trading price of the Company's stock has the impact of increasing the loss and gain, respectively. During the three and nine months ended December 31, 2019, the Company recorded a loss from change in fair value of warrant liability of $870 and $10,601, respectively, due to the increase in the Company's closing stock price during the three months ended December 31, 2019 from $6.45 to $7.13 and during the nine months ended December 31, 2019 from $3.78 to $7.13. During the three and nine months ended December 31, 2018, the Company recorded a (loss) and gain from change in fair value of warrant liability of $(1,651) and $845, respectively, due to the increase in the Company's closing stock price during the three months ended December 31, 2018 from $1.24 to $1.83 and due to the decrease in the Company's closing stock price during the nine months ended December 31, 2018 from $2.01 to $1.83.

### Liquidity and Capital Resources

Our primary sources of liquidity are cash from operations and debt. As of December 31, 2019, we had cash and restricted cash totaling approximately $33,879 and no debt.

### Cash Flow Summary

*(in thousands)*

| Consolidated statements of cash flows data: | Nine months ended December 31, 2019 | 2018 | % of Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities - continuing operations | $20,155 | $2,529 | 697.0% |
| Capital expenditures | (3,179) | (1,781) | (78.5)% |
| Options and warrants exercised | 6,353 | 223 | 2,748.9% |
| Repayment of debt obligations | — | (50) | 100.0% |
| Effect of exchange rate changes on cash | (364) | (5) | (7,180.0)% |

### Operating Activities

During the nine months ended December 31, 2019 and 2018, the Company's net cash provided by operating activities from continuing operations was $20,155 and $2,529, respectively, a positive change of $17,626 or 697.0%. The increase in net cash provided by operating activities was primarily attributable to the change in working capital accounts, excluding current assets and current liabilities held for disposal, over the comparative periods.

During the nine months ended December 31, 2019, net cash provided by operating activities from continuing operations was $20,155, resulting from a net income of $253 offset by net non-cash expenses of $14,809, which included depreciation and amortization, loss on disposal of fixed assets, change in allowance for doubtful accounts, stock-based compensation, stock-based compensation related to the vesting of restricted stock for services, and the change in fair value of warrant liability of approximately $1,484, $4, $206, $2,044, $470, and $10,601, respectively. Net cash provided by operating activities during the nine months ended December 31, 2019 was also impacted by the change in net working capital accounts as of December 31, 2019 as compared to March 31, 2019, with a net increase in current liabilities of approximately $10,281 (inclusive of accounts payable, accrued license fees and revenue share, accrued compensation, accrued interest, and other current liabilities) offset by a net increase in current assets of approximately $5,022 (inclusive of accounts receivable and prepaid expenses and other current assets but excluding cash and current portion of deferred tax assets) over the comparative periods. Lastly, net cash provided by operating activities during the nine months ended December 31, 2019 was also impacted by the increase in right-of-use assets of $2,029, offset by the increase in other non-current liabilities, mainly due to the long-term components of our lease liabilities of $1,823, due to our implementation of ASC 842.

### Investing Activities

For the nine months ended December 31, 2019 and 2018, net cash used in investing activities from continuing operations was approximately $3,179 and $1,781, respectively, which is comprised of capital expenditures related mostly to internally-developed software.

### Financing Activities

For the nine months ended December 31, 2019, net cash provided by financing activities was approximately $6,353, comprised of proceeds from the exercise of stock options and warrants. For the nine months ended December 31, 2018, net cash provided by financing activities was approximately $173, comprised of proceeds from the exercise of stock options of $223 offset by repayment of debt obligations of $50.

As of December 31, 2019, our total contractual cash obligations were as follows:

*(in thousands)*

| Contractual cash obligations | Total | Payments Due by Period Within the Next 12 Months | 2 to 3 Years | 4 to 5 Years | More Than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating leases (a) | $4,011 | $948 | $1,816 | $1,247 | $— |
| Interest and bank fees | 41 | 41 | — | — | — |
| Uncertain tax positions (b) | — | — | — | — | — |
| Total contractual cash obligations | $4,052 | $989 | $1,816 | $1,247 | $— |

(a) Consists of operating leases for our office facilities.

(b) We have approximately $1,003 in additional liabilities associated with uncertain tax positions that are not expected to be liquidated within the next twelve months. We are unable to reliably estimate the expected payment dates for these additional non-current liabilities.

The Company believes it has sufficient liquidity and capital resources to meet its business requirements for at least twelve months from the filing date of this Report.

### Senior Secured Credit Facility

On May 23, 2017, the Company entered into a Business Finance Agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”). The Credit Agreement provided for a $5,000 total facility.

On May 22, 2019, the Company amended its existing Credit Agreement with the Bank to extend the term of the agreement and to modify the covenants as detailed below. The Credit Agreement, as amended, provides for up to a $20,000 total facility, subject to draw limitations derived from current levels of eligible domestic receivables.

The amounts advanced under the Credit Agreement, as amended, mature in two years, or May 22, 2021, and accrue interest at prime plus 0.50%, subject to a 6.00% floor, with the prime rate defined as the greater of the prime rate published in the Wall Street Journal or 5.50%. The Credit Agreement, as amended, also carries an annual facility fee of 0.20% of our available credit limit, and an unused line fee of 0.10% per annum. The obligations under the Credit Agreement are secured by a perfected first-position security interest in all assets of the Company and its subsidiaries. Two of the Company’s subsidiaries, Digital Turbine USA and Digital Turbine Media, are additional co-borrowers.

The Credit Agreement contains customary covenants, representations, indemnities, and events of default. In addition to customary covenants, including restrictions on payments (subject to specified exceptions) and restrictions on indebtedness (subject to specified exceptions), the Credit Agreement requires the Company to comply with the following financial covenants:

(1) Maintain a Quick Ratio, measured at the end of each month during which any advances are outstanding, of at least:

0.75:1.00 May 31, 2019 - August 31, 2019

0.80:1.00 September 1, 2019 - February 28, 2020

0.85:1.00 March 1, 2020 - August 31, 2020

0.90:1.00 September 1, 2020 and thereafter

(2) Trailing six-month earnings before depreciation, amortization, stock compensation, non-cash warrant and derivative liability expense, and any other onetime non-recurring expenses the Bank deems appropriate ("EBDAS") of not less than $1, tested as of each fiscal quarter end during which any advances are outstanding.

The Company was in compliance with all covenants of the Credit Agreement as of December 31, 2019.

At December 31, 2019, there was no outstanding principal on the Credit Agreement.

### Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We believe, therefore, that we are not materially exposed to any financing, liquidity, market, or credit risk that would arise if we engaged in such relationships.

### Critical Accounting Policies and Judgments

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements. The preparation of these financial statements is based on management's selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and notes. For more information regarding our critical accounting estimates and policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

## Market risk

As filed, 1,846 characters.

We have operations both within the United States and internationally and we are exposed to market risks in the ordinary course of our business, primarily interest rate and foreign currency exchange risks.

### Interest Rate Fluctuation Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Our cash and cash equivalents consist of cash and deposits, which are sensitive to interest rate changes.

Our borrowings under our credit facility are subject to variable interest rates and thus expose us to interest rate fluctuations depending on the extent to which we utilize the credit facility. If market interest rates materially increase, our results of operations could be adversely affected. A hypothetical increase in market interest rates of 100 basis points would result in an increase in our interest expense of $0.01 million per year for every $1 million of outstanding debt under the credit facility.

### Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. While a portion of our sales are denominated in foreign currencies and then translated into U.S. dollars, the vast majority of our media costs are billed in U.S. dollars, causing both our revenue and, disproportionately, our operating income / (loss) and net income / (loss) to be impacted by fluctuations in exchange rates. In addition, gains / (losses) related to translating certain cash balances, trade accounts receivable balances, and inter-company balances that are denominated in these currencies impact our net income / (loss). As our foreign operations expand, our results may be more impacted by fluctuations in the exchange rates of the currencies in which we do business.

## Controls and procedures

As filed, 2,603 characters.

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). See Exhibits 31.1 and 31.2 to this Report. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

### Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Report, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 3,806 characters.

The Company is not aware of any material changes from the risk factors set forth under “Risk Factors” in its Annual Report on Form 10-K for the year ended March 31, 2019, except as follows:

### Risks Related to Our Business

### General Risks

### There are risks and uncertainties associated with our proposed acquisition of Mobile Posse

On February 6, 2019, Digital Turbine Media, Inc. (“DT Media”), a wholly-owned subsidiary of ours, entered into a Stock Purchase Agreement (the “Purchase Agreement”) with ACME Mobile, LLC (“ACME”), Mobile Posse, Inc., a wholly-owned subsidiary of ACME (“Mobile Posse”), and certain equityholders of ACME, pursuant to which DT Media would acquire (the “Acquisition”) all of the outstanding capital stock of Mobile Posse. There are risks and uncertainties related to the closing of the Acquisition, including the satisfaction of conditions to the closing of the Acquisition. In addition, we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the Acquisition, and these fees and costs are payable by us regardless of whether the Acquisition is consummated.

***Failure to complete the proposed Acquisition could adversely affect our business and the market price of our common stock.***

There is no assurance that the closing of the Acquisition will occur, and we cannot predict with certainty whether and when the conditions to closing will be satisfied. In addition, the Purchase Agreement may be terminated under certain specified circumstances. Also, if the Acquisition is not consummated by March 16, 2020, under certain circumstances we may be required to pay ACME a termination fee of $5,000. If the Acquisition is not consummated, our stock price may decline. We will have incurred significant costs, including, among other things, the diversion of management resources, for which we will have received little or no benefit if the closing of the Acquisition does not occur. A failed transaction may result in negative publicity and a negative impression of us in the investment community. The occurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and the market price of our common stock.

***The failure to successfully integrate Mobile Posse’s business and operations in the expected time frame may adversely affect our future results.***

We believe that the acquisition of Mobile Posse will result in certain benefits, including providing complementary platform offerings and creating growth opportunities. To realize these anticipated benefits, however, the business of Mobile Posse must be successfully integrated. The success of the Acquisition will depend on our ability to realize these anticipated benefits from integrating the business of Mobile Posse. The Acquisition may fail to realize the anticipated benefits for a variety of reasons, including the following:

- failure to successfully expand relationships with carriers, OEMs, and other partners and customers;
- failure to successfully take advantage of revenue growth opportunities;
- failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the complementary offerings;
- potential difficulties integrating and harmonizing operations and other key functions;
- the loss of key employees; and
- failure to combine product offerings quickly and effectively.

The integration may result in additional and unforeseen expenses or delays. If we are unable to successfully integrate Mobile Posse’s business and operations, or if there are delays in integrating the business, the anticipated benefits of the Acquisition may not be realized or may take longer to realize than expected.

Filed Feb 10, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-001236. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.