# Digital Turbine, Inc.: Form 10-Q for the period ended Jun 30, 2020

- Company: [Digital Turbine, Inc.](/companies/apps.md) (CIK 317788)
- Form: 10-Q
- Filed: 2020-08-05
- Accepted by EDGAR: Aug 5, 2020, 16:31 ET
- Period: 2020-06-30
- Accession: 0001628280-20-011809
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/317788/000162828020011809/apps-20200630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/317788/000162828020011809/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $59.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-04-01 to 2020-06-30 | $32.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2020-04-01 to 2020-06-30 | $26.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-04-01 to 2020-06-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2020-04-01 to 2020-06-30 | $10.6m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | $9.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.11 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 93,108,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-04-01 to 2020-06-30 | $6.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2020-06-30 | $18.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-06-30 | $65.4m | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $191.8m | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $79.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-06-30 | $102.5m | us-gaap:Liabilities |
| Long-term debt | at 2020-06-30 | $18.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2020-06-30 | $89.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,838 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, 2020, 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, simplifies content discovery and delivers it directly to the device. Its on-device media platform powers frictionless application and content discovery, user acquisition and engagement, operational efficiency, and monetization opportunities. Through June 30, 2020, Digital Turbine's technology platform has been adopted by more than 40 mobile operators and device original equipment manufacturers ("OEMs"), and has delivered more than 3.9 billion application preloads for tens of thousands of advertising campaigns. The Company operates this business as one operating and reportable segment - Media Distribution, which was previously referred to as the operating segment O&O (which refers to operators and OEMs) and the reportable segment Advertising.

As the Company's suite of product offerings expands, both organically and through acquisition, we believe that this renaming of our reporting and operating segment better reflects the way management views the business. There are no changes or historical differences to product offerings and financial information that were referred to as the Advertising segment in prior periods. While advertising, in general, remains a focus of our Media Distribution segment, we feel that this change in name more accurately conveys to the reader what we do for our customers and partners.

The Company's Media Distribution business consists of products and services that simplify the discovery and delivery of mobile application and content media for consumers.

- Application Media represents the portion of the business where our platform delivers apps to end users through partnerships with carrier networks and OEMs. Application Media optimizes revenues by using the developed technology to streamline, track and manage app install demand from hundreds of application developers across various publishers, carriers, OEMs and devices.
- Content Media represents the portion of the business where our platform presents news, weather, sports and other content directly within the native device experience (e.g., as the start page in the mobile browser, a widget, on unlock, etc.) through partnerships with carrier networks and OEMs. Content Media optimizes revenue by a combination of:
- Programmatic Ad Partner Revenue – advertising within the content media that’s sold on an ad exchange, at a market rate (CPM - Cost Per Thousand),
- Sponsored Content – sponsored content media from 3rd party content providers – presented similar to an ad – that is monetized when a recommended story is viewed (CPC – Cost Per Click)
- Editorial Content – owned or licensed media – presented similar to an ad – that is monetized when the media is clicked on (CPC - Cost Per Click).

With global headquarters in Austin, Texas and offices in Durham, North Carolina; San Francisco, California; Arlington, Virginia; São Paulo, Brazil; Mexico City, Mexico; Mumbai, India; Singapore; and Tel Aviv, Israel, Digital Turbine’s solutions are available worldwide. For additional information, please visit www.digitalturbine.com.

### Recent Developments

On February 28, 2020, the Company completed the acquisition of Mobile Posse, Inc. (the "Acquisition") from ACME Mobile, LLC (“ACME”). The Company acquired all of the outstanding capital stock of Mobile Posse in exchange for an estimated total consideration of: (1) $41,500 in cash paid at closing (subject to customary closing purchase price adjustments) and (2) an estimated earn-out of $23,735, to be paid in cash, based on Mobile Posse achieving certain future target net revenues, less associated revenue shares, over a twelve-month period (the “Earn-Out Period”) following the closing of the Acquisition, noting that the earn-out amount is subject to change based on final results and calculation. Under the terms of the earn-out, over the Earn-Out Period, the Company will pay ACME a certain percentage of actual net revenues (less associated revenue shares) of Mobile Posse depending on the extent to which Mobile Posse achieves certain target net revenues (less associated revenue shares) for the relevant period. The earn-out payments will be paid quarterly with a true-up calculation and payment after the first nine months of the Earn-Out Period. The acquisition of cash is not reflected in the total consideration detailed above. Final working capital adjustments were determined during the quarter ended June 30, 2020 and resulted in additional purchase price consideration of $453. As of June 30, 2020, $6,779 of the estimated $23,735 had been paid to the seller.

On February 28, 2020, the Company entered into a Credit Agreement (the “New Credit Agreement”) with Western Alliance Bank (the “Bank”), which provides for (1) a term loan of $20.0 million, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition, and (2) a revolving line of credit of $5.0 million to be used for working capital purposes. DT Media and Digital Turbine USA, Inc. (“DT USA”) are additional co-borrowers under the New Credit Agreement. The term loan must be repaid on a quarterly basis beginning in July 2020 until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $0.25 million to $1.25 million over the term of the term loan. The revolving line of credit matures on February 28, 2025. The Company’s Business Finance Agreement, dated May 23, 2017 (the “Credit Agreement”), with the Bank was terminated on February 28, 2020.

### Media Distribution Business

The Company's Media Distribution business is an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of first boot and recurring life-cycle products, features, and professional services delivered through our platform.

Our software platform 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 device. The platform allows mobile operators 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 platform, its products, and other features for a structured fee. Setup Wizard, Dynamic Installs, or Software Development Kit ("SDK") are the 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 media delivery revenue streams. The Company has launched its software with operators and OEMs in North America, Latin America, Europe, Israel, and Asia-Pacific.

The acquisition of Mobile Posse provides an additional platform option, outside of our core platform, to monetize user actions over the life-cycle of a device by delivering media rich advertising content to the end user, and providing operators and OEMs with an additional opportunity for revenue streams synergistic with our core platform.

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

On April 29, 2018, the Company entered into two distinct disposition agreements with respect to select 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 outlined in the Company’s Form 8-K filed May 1, 2018 with the SEC. The transaction was completed on July 1, 2018 with an effective date of July 1, 2018. With the sale of these assets, the Company 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 outlined 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 reporting segment (which is now Media Distribution).

These dispositions have allowed the Company to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.

### 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 “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 Quarterly Report. The Company has recast prior period amounts presented within this report to provide visibility and comparability.

### Results of Operations

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, the Media Distribution business.

### RESULTS OF OPERATIONS

### (Unaudited)

*(in thousands, except per share amounts)*

|  | Three months ended June 30, 2020 | 2019 | % of Change |
| --- | ---: | ---: | ---: |
| Net revenues | $59,012 | $30,553 | 93.1% |
| License fees and revenue share | 32,300 | 18,275 | 76.7% |
| Other direct costs of revenues | 560 | 278 | 101.4% |
| Gross profit | 26,152 | 12,000 | 117.9% |
| Total operating expenses | 15,530 | 8,960 | 73.3% |
| Income from operations | 10,622 | 3,040 | 249.4% |
| Interest income / (expense), net | (306) | 18 | (1,800.0)% |
| Change in fair value of warrant liability | — | (5,226) | (100.0)% |
| Other income / (expense) | — | 390 | (100.0)% |
| Income / (loss) from continuing operations before income taxes | 10,316 | (1,778) | (680.2)% |
| Income tax provision / (benefit) | 376 | (107) | (451.4)% |
| Income / (loss) from continuing operations, net of taxes | 9,940 | (1,671) | (694.9)% |
| Net income / (loss) | $9,940 | $(1,819) | (646.5)% |
| Basic net income / (loss) per common share | $0.11 | $(0.02) | (650.0)% |
| Weighted-average common shares outstanding, basic | 87,386 | 81,814 | 6.8% |
| Diluted net income / (loss) per common share | $0.11 | $(0.02) | (650.0)% |
| Weighted-average common shares outstanding, diluted | 93,108 | 81,814 | 13.8% |

### Comparison of the three months ended June 30, 2020 and 2019

### Net revenues

During the three months ended June 30, 2020, there was an approximately $28,459 or 93.1% increase in overall revenue as compared to the three months ended June 30, 2019.

The Company's Media Distribution business is an advertiser solution for unique and exclusive carrier and OEM inventory. During the three months ended June 30, 2020 and 2019,the Media Distribution business, primarily through silent application delivery, was the main driver of our revenues. Application media revenue totaled $44,233 in the quarter, while content media revenue totaled $14,779. Our application delivery and management software enables operators and OEMs to control, manage, and monetize applications installed at the time of activation and over the life of a device. This increase in net revenues was attributable to increased demand for our core services, which led to higher CPI and CPP revenue per available placement, and which was driven primarily by increased revenue from advertising partners as placement across existing commercial partners expands, as well as expanded distribution with new partners and the deployment or expansion of new services and features.

With respect to customer revenue concentration, the Company defines a customer as an advertiser or a carrier that is a distinct source of revenue and is legally bound to pay for the services that the Company delivers on the advertiser’s or carrier's behalf. During the three months ended June 30, 2020, no single customer represented 10.0% or greater of the Company's net revenues. During the three months ended June 30, 2019, Verizon Communications Inc., primarily through its subsidiary Oath Inc., and GSN Games, Inc. represented 18.5% and 11.7% of net revenues, respectively.

With respect to revenue partner concentration, the Company partners with mobile carriers and OEMs to deliver applications on our platform through the carrier network. During the three months ended June 30, 2020, Verizon Wireless, a carrier partner, generated 20.5%, AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 23.2%, T-Mobile US Inc., including Sprint and other subsidiaries, generated 21.8%, and America Movil Inc., a carrier partner, primarily through its subsidiary TracFone Wireless Inc., generated 11.4% of our net revenues. During the three months ended June 30, 2019, Verizon

Wireless, a carrier partner, generated 42.1% and AT&T Inc., a carrier partner, including its Cricket subsidiary, generated 32.8%, 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)*

|  | Three months ended June 30, 2020 | 2019 | % of Change |
| --- | ---: | ---: | ---: |
| Gross margin $ | $26,152 | $12,000 | 117.9% |
| Gross margin % | 44.3% | 39.3% | 12.7% |

Total gross margin, inclusive of the impact of other direct costs of revenues (including amortization of intangibles), was approximately $26,152 or 44.3% of net revenues for the three months ended June 30, 2020 versus approximately $12,000 or 39.3% of net revenues for the three months ended June 30, 2019. The increase in gross margin over the comparative periods of $14,152 or 117.9%. Of the increase in gross margin dollars, application media delivery drove approximately $6,826 of the period over period increase, while content media delivery contributed the remaining $6,826 of the increase. The increase was primarily attributable to an increased yield from an improved mix of partner diversification and non-dynamic application media install revenue on our Media Distribution platform, and from a full quarter of accretive gross margin contribution from content media distribution, the Acquistion, as compared to prior period.

### Operating expenses

*(in thousands)*

|  | Three months ended June 30, 2020 | 2019 | % of Change |
| --- | ---: | ---: | ---: |
| Product development | $4,408 | $2,794 | 57.8% |
| Sales and marketing | 4,318 | 2,278 | 89.6% |
| General and administrative | 6,804 | 3,888 | 75.0% |
| Total operating expenses | $15,530 | $8,960 | 73.3% |

Total operating expenses for the three months ended June 30, 2020 were approximately $15,530 and for the three months ended June 30, 2019 were approximately $8,960, an increase of approximately $6,570 or 73.3% over the comparative periods. This change was a result of continued growth including the acquisition of Mobile Posse. Company-wide cost control measures show the Company's ability to scale revenue at a greater rate than operating expense.

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 months ended June 30, 2020 were approximately $4,408 and for the three months ended June 30, 2019 were approximately $2,794 , an increase of approximately $1,614 or 57.8% over the comparative period. The increase in product development expenses over the comparative three-month period 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.

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 months ended June 30, 2020 were approximately $4,318 and for the three months ended June 30, 2019 were approximately $2,278, an increase of approximately $2,040 or 89.6% over the comparative period. The increase in sales and marketing expenses over the comparative period was primarily attributable to the addition of new personnel in existing markets 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 and markets.

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 months ended June 30, 2020 were approximately $6,804 and for the three months ended June 30, 2019 were approximately $3,888, an increase of approximately $2,916 or 75.0% over the comparative period. The increase over the comparative periods was primarily attributable to employee-related expenses as a function of higher headcount, increased stock option expense, increase in depreciation and amortization related to capitalized internal-use software, and continued growth including the acquisition of Mobile Posse.

### Interest and other income / (expense), net

*(in thousands)*

|  | Three months ended June 30, 2020 | 2019 | % of Change |
| --- | ---: | ---: | ---: |
| Interest income / (expense), net | $(306) | $18 | (1,800.0)% |
| Change in fair value of warrant liability | — | (5,226) | 100.0% |
| Other income / (expense) | — | 390 | (100.0)% |
| Total interest and other income / (expense), net | $(306) | $(4,818) | 93.6% |

Total interest and other income / (expense), net, for the three months ended June 30, 2020 was approximately $(306) and for the three months ended June 30, 2019 was approximately $(4,818), a decrease in interest and other income / (expense), net, of approximately $4,512 or 93.6% over the comparative period. The decrease in other income / (expense), net, over the comparative period was primarily attributable to the change in fair value of warrant liability due to the conversion of all warrants during fiscal year 2020. Interest and other income / (expense), net, includes net interest income / (expense), change in fair value of warrant liability, and other ancillary income / (expense) earned or incurred by the Company.

### Interest income / (expense), net

The Company recorded $(306) of interest income / (expense), net, during the three months ended June 30, 2020. This is comprised of amortization of annual facility fees and interest accrued on drawn amounts under the New Credit Agreement, partially offset by interest income earned on cash balances.

In the prior fiscal year, the Company recorded $18 of interest income / (expense) during the three months ended June 30, 2019. This is comprised of interest income earned on cash balances.

### Liquidity and Capital Resources

Our primary sources of liquidity are cash from operations and debt. As of June 30, 2020, we had cash totaling approximately $18,723 and $5,000 available to draw on the New Credit Agreement.

### Cash Flow Summary

*(in thousands)*

| Consolidated statements of cash flows data: | Three months ended June 30, 2020 | 2019 | % of Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities - continuing operations | $6,012 | $5,044 | 19.2% |
| Acquisition of Mobile Posse | (7,232) | — | (100.0)% |
| Capital expenditures | (2,011) | (783) | (156.8)% |
| Options and warrants exercised | 437 | 1,199 | (63.6)% |
| Effect of exchange rate changes on cash | (142) | 98 | (244.9)% |

28

### Operating Activities

During the three months ended June 30, 2020 and 2019, the Company's net cash provided by operating activities from continuing operations was $6,012 and $5,044, respectively, a positive change of $968 or 19.2%. The increase in net cash provided by operating activities was primarily attributable to the change in working capital accounts over the comparative periods.

During the three months ended June 30, 2020, net cash provided by operating activities from continuing operations was $6,012, resulting from a net income of $9,940 offset by net non-cash expenses of $3,559, which included depreciation and amortization, change in allowance for doubtful accounts, non-cash interest expense, stock-based compensation, and stock-based compensation for services rendered of approximately $1,552, $378, 18, $1,438, and $173, respectively. Net cash provided by operating activities during the three months ended June 30, 2020 was also impacted by the change in net working capital accounts as of June 30, 2020 as compared to March 31, 2020, with a net increase in current liabilities of approximately $2,519 (inclusive of accounts payable, accrued license fees and revenue share, accrued compensation, and other current liabilities) offset by a net increase in current assets of approximately $10,230 (inclusive of accounts receivable and prepaid expenses and other current assets but excluding cash) over the comparative periods. Lastly, net cash provided by operating activities during the three months ended June 30, 2020 was also impacted by the increase in right-of-use assets of $61, offset by the increase in other non-current liabilities of $163, mainly due to the long-term components of our lease liabilities from our implementation of ASC 842.

### Investing Activities

For the three months ended June 30, 2020, net cash used in investing activities was approximately $9,243, which is comprised of capital expenditures related mostly to internally-developed software of $2,011, and additional consideration paid related to working capital adjustments and earn-out payments in connection with our acquisition of Mobile Posse of $7,232. For the three months ended June 30, 2019, net cash used in investing activities was approximately $783 which is comprised of capital expenditures related mostly to internally-developed software.

### Financing Activities

For the three months ended June 30, 2020, net cash provided by financing activities was approximately $437, comprised of proceeds from the exercise of stock options. For the three months ended June 30, 2019, net cash provided by financing activities was approximately $1,199, comprised of proceeds from the exercise of stock options and warrants.

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 revolving credit facility.

On May 22, 2019, the Company amended its existing Credit Agreement with the Bank, to extend the term of the agreement to May 22, 2021, to increase the maximum available revolving credit and to modify the covenants as detailed below. The Credit Agreement, as amended, provided 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, accrued interest at prime, as published in the Wall Street Journal, plus 0.50%, subject to a 6.00% floor. The Credit Agreement contained customary covenants, representations, indemnities, and events of default.The obligations under the Credit Agreement were secured by a perfected first-position security interest in all assets of the Company and its subsidiaries. Two of the Company’s subsidiaries, DT USA and DT Media, were additional co-borrowers.

On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for (1) a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition, and (2) a revolving line of credit of $5,000 to be used for working capital purposes. DT Media and DT USA are also additional co-borrowers under the New Credit Agreement.

The term loan must be repaid on a quarterly basis, beginning in July 2020, until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio. A description of this ratio is incorporated by reference to the exhibits of the Company's current Form 10-K filed with the SEC.

The revolving line of credit matures on February 28, 2025.

Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index), subject to a 1.75% floor, plus 3.75%. The obligations under the New Credit Agreement are secured by a perfected first-priority security interest in all the assets of the Company and its subsidiaries. The New Credit Agreement contains customary covenants, representations and events of default, and also requires the Company to comply with a fixed charge coverage ratio and total funded debt to consolidated adjusted EBITDA ratio.

The description of the New Credit Agreement provided herein is qualified by reference to the New Credit Agreement, which is incorporated by reference to the Company's current Form 10-K filed with the SEC for the year ended March 31, 2020.

The New Credit Agreement contains representations and warranties by each of the parties to the New Credit Agreement, which were made only for purposes of the New Credit Agreement and as of specified dates. The representations, warranties and covenants in the New Credit Agreement were made solely for the benefit of the parties to the New Credit Agreement, are subject to limitations agreed upon by such parties, including being qualified by schedules, may have been made for the purposes of allocating contractual risk between the parties instead of establishing these matters as facts, and are subject to standards of materiality applicable to the parties that may differ from those applicable to others. Others should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the New Credit Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

In connection with the Company entering into the New Credit Agreement with the Bank, on February 28, 2020, the Company and the Bank terminated the existing Credit Agreement, dated as of May 23, 2017, between the Company, DT Media, DT USA and the Bank (and the amendments thereto), which was the previous revolving credit facility of the Company.

At June 30, 2020, there was $20,000 outstanding principal on the New Credit Agreement and the Company had $5,000 available to draw under its revolving credit facility.

The Company was in compliance with all covenants of the New Credit Agreement as of June 30, 2020.

### Earn-Out Payment Obligation under Mobile Posse Stock Purchase Agreement

On February 28, 2020, DT Media, a wholly-owned subsidiary of the Company, completed the acquisition of Mobile Posse pursuant to a Stock Purchase Agreement with ACME Mobile, LLC (“ACME”), Mobile Posse, and certain equityholders of ACME. DT Media acquired all of the outstanding capital stock of Mobile Posse in exchange for an estimated total consideration of: (1) $41,500 in cash paid at closing (which was subject to customary closing purchase price adjustments) and (2) an estimated earn-out of $23,735, to be paid in cash, based on Mobile Posse achieving certain future target net revenues, less associated revenue shares, over a twelve month period (the “Earn-Out Period”) following the closing of the acquisition, noting that the earn-out amount is subject to change based on final results and calculation. Of this amount, $6,779 has been paid to the sellers and an estimated $16,956 remains on the balance sheet. Under the terms of the earn-out, over the Earn-Out Period, Digital Media will pay ACME a certain percentage of actual net revenues (less associated revenue shares) of Mobile Posse depending on the extent to which Mobile Posse achieves certain target net revenues (less associated revenue shares) for the relevant period. The earn-out payments will be paid every three months with a true-up calculation and payment after the first nine months of the Earn-Out Period. The earn-out amounts are determined based on the actual results of operations of Mobile Posse and therefore cannot be determined at March 31, 2020. Accordingly, no amounts associated with this earn-out payment obligation are included in the table of Contractual Cash Obligations below.

### 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, 2020.

## 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, 2,602 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, 170 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, 2020.

Filed Aug 5, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-011809. Last ingested by Listed: Nov 5, 2026, 12:38 ET. No prices; not investment advice.