# Digital Turbine, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Digital Turbine, Inc.](/companies/apps.md) (CIK 317788)
- Form: 10-Q
- Filed: 2022-11-09
- Accepted by EDGAR: Nov 9, 2022, 17:07 ET
- Period: 2022-09-30
- Accession: 0001628280-22-029313
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/317788/000162828022029313/apps-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/317788/000162828022029313/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $174.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-04-01 to 2022-09-30 | $363.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $76.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2022-04-01 to 2022-09-30 | $164.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $98.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-04-01 to 2022-09-30 | $199.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $14.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-04-01 to 2022-09-30 | $28.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $21.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-04-01 to 2022-09-30 | $45.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $4.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-04-01 to 2022-09-30 | $9.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $11.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-04-01 to 2022-09-30 | $26.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-04-01 to 2022-09-30 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-04-01 to 2022-09-30 | $0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 102,898,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-04-01 to 2022-09-30 | 102,777,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-04-01 to 2022-09-30 | $64.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $82.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $365.4m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $1.37bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $312.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $788.4m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $447.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $583.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,507 characters.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated 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 (the “Securities Act”), 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, 2022, 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 (collectively “Digital Turbine” or the “Company”), is a leading, independent mobile growth platform that levels up the landscape for advertisers, publishers, carriers, and device original equipment manufacturers (“OEMs”). The Company offers end-to-end products and solutions leveraging proprietary technology to all participants in the mobile application ecosystem, enabling brand discovery and advertising, user acquisition and engagement, and operational efficiency for advertisers. In addition, our products and solutions provide monetization opportunities for OEMs, carriers, and application (“app” or “apps”) publishers and developers.

### Recent Developments

### Credit Agreement

On February 3, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A. (“BoA”), which provides for a revolving line of credit (the “Revolver”) of up to $100,000 with an accordion feature enabling the Company to increase the total amount up to $200,000. Funds are to be used for acquisitions, working capital, and general corporate purposes. The Credit Agreement contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated leverage ratio and minimum fixed charge coverage ratio.

On April 29, 2021, the Company amended and restated the Credit Agreement (the “New Credit Agreement”) with BoA, as a lender and administrative agent, and a syndicate of other lenders, which provided for a revolving line of credit of up to $400,000. The revolving line of credit matures on April 29, 2026, and contains an accordion feature enabling the Company to increase the total amount of the revolver by $75,000 plus an amount that would enable the Company to remain in compliance with its consolidated secured net leverage ratio, on such terms as agreed to by the parties. The New Credit Agreement contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio.

On December 29, 2021, the Company amended the New Credit Agreement (the “First Amendment”), which provides for an increase in the revolving line of credit by $125,000, which increased the maximum aggregate principal amount of the revolving line of credit to $600,000, including the accordion feature. The First Amendment made no other changes to the term or interest rates of the New Credit Agreement.

On October 26, 2022, the Company amended the New Credit Agreement (the “Second Amendment”) to replace the

London Interbank Offered Rate (“LIBOR”) with the Term Secured Overnight Financing Rate (“SOFR”). As a result, amounts outstanding under the New Credit Agreement where the applicable rate was LIBOR will accrue interest at an annual rate equal to SOFR plus between 1.50% and 2.25%. The Second Amendment made no other changes in the terms of the New Credit Agreement.

As of September 30, 2022, we had $450,134 drawn against the revolving line of credit under the New Credit Agreement. The proceeds were used to finance the acquisitions detailed below. As of September 30, 2022, the interest rate was 4.57% and the unused line of credit fee was 0.20%, and we were in compliance with the consolidated leverage ratio, interest coverage ratio, and other covenants under the New Credit Agreement.

### Acquisitions

***AdColony Holding AS.*** On April 29, 2021, the Company completed the acquisition of AdColony Holding AS, a Norway company (“AdColony”), pursuant to a Share Purchase Agreement (the “AdColony Acquisition”). The Company acquired all outstanding capital stock of AdColony in exchange for an estimated total consideration in the range of $400,000 to $425,000, to be paid as follows: (1) $100,000 in cash paid at closing (subject to customary closing purchase price adjustments), (2) $100,000 in cash to be paid six months after closing, and (3) an estimated earn-out in the range of $200,000 to $225,000, to be paid in cash, based on AdColony achieving certain future target net revenue, less associated cost of goods sold (as such term is referenced in the Share Purchase Agreement), over a 12-month period ending on December 31, 2021 (the “Earn-Out Period”). Under the terms of the earn-out, the Company would pay the seller a certain percentage of actual net revenue (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) of AdColony, depending on the extent to which AdColony achieves certain target net revenue (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) over the Earn-Out Period. The earn-out payment will be made following the expiration of the Earn-Out Period.

AdColony is a leading mobile advertising platform servicing advertisers and publishers. AdColony’s proprietary video technologies and rich media formats are widely viewed as a best-in-class technology delivering third-party verified viewability rates for well-known global brands. With the addition of AdColony, the Company expanded its collective experience, reach, and suite of capabilities to benefit mobile advertisers and publishers around the globe. Performance-based spending trends by large, established brand advertisers present material upside opportunities for platforms with unique technology deployable across exclusive access to inventory.

On August 27, 2021, the Company entered into an Amendment to Share Purchase Agreement (the “Amendment Agreement”) with AdColony and Otello Corporation ASA, a Norway company and AdColony’s previous parent company. Pursuant to the Amendment Agreement, the Company and Otello agreed to set a fixed dollar amount of $204,500 for the earn-out payment obligation, to set January 15, 2022, as the payment due date for such payment amount, and to eliminate all of the Company’s earn-out support obligations under the Share Purchase Agreement. As a result, the Company recognized an $8,913 reduction of the earn-out payment obligation in change in fair value of contingent consideration on the condensed consolidated statement of operations and comprehensive income / (loss) for the fiscal second quarter ended September 30, 2021.

The Company paid the cash consideration amounts that were due at closing and on October 26, 2021, with a combination of available cash-on-hand and borrowings under the Company’s senior credit facility. The payment made on October 26, 2021, was reduced to $98,175 due to an adjustment for the impact of accrued and unpaid taxes to the net working capital acquired. The difference between the amount due of $100,000 and amount paid resulted in an adjustment to goodwill.

On January 15, 2022, the Company paid the AdColony Acquisition earn-out consideration of $204,500 with available cash-on-hand and an additional $179,000 of borrowings under the New Credit Agreement.

The Company recognized costs related to the AdColony Acquisition in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income / (loss) of $64 and $214, respectively, for the three and six months ended September 30, 2022, and $620 and $3,491, respectively, for the three and six months ended September 30, 2021.

***Fyber N.V.*** On May 25, 2021, the Company completed the initial closing of the acquisition of 95.1% of the outstanding voting shares (the “Majority Fyber Shares”) of Fyber N.V. (“Fyber”) pursuant to a Sale and Purchase Agreement (the “Fyber Acquisition”) between Tennor Holding B.V., Advert Finance B.V., and Lars Windhorst (collectively, the “Seller”), the Company, and Digital Turbine Luxembourg S.ar.l., a wholly-owned subsidiary of the Company. The remaining outstanding shares in Fyber (the “Minority Fyber Shares”) are (to the Company’s knowledge) held by other shareholders of Fyber (the “Minority Fyber Shareholders”) and are presented as non-controlling interests within these financial statements.

Fyber is a leading mobile advertising monetization platform empowering global app developers to optimize profitability through quality advertising. Fyber’s proprietary technology platform and expertise in mediation, real-time bidding, advanced analytics tools, and video combine to deliver publishers and advertisers a highly valuable app monetization solution. Fyber represents an important and strategic addition for the Company in its mission to develop one of the largest full-stack, fully-independent, mobile advertising solutions in the industry. The combined platform offering is advantageously positioned to leverage the Company’s existing on-device software presence and global distribution footprint.

The Company acquired Fyber in exchange for an estimated aggregate consideration of up to $600,000, consisting of:

i. Approximately $150,000 in cash, $124,336 of which was paid to the Seller at the closing of the acquisition and the remainder of which is to be paid to the Minority Fyber Shareholders for the Minority Fyber Shares pursuant to the tender offer described below;

ii. 5,816,588 newly-issued shares of common stock of the Company to the Seller, which such number of shares was determined based on the volume-weighted average price of the common stock on NASDAQ during the 30-day period prior to the closing date, equal in value to $359,233 at the Company’s common stock closing price on May 25, 2021, as follows.

1\. 3,216,935 newly-issued shares of common stock of the Company equal in value to $198,678, issued at the closing of the acquisition;

2\. 1,500,000 newly-issued shares of common stock of the Company equal in value to $92,640, issued on June 17, 2021;

3\. 1,040,364 newly-issued shares of common stock of the Company equal in value to $64,253, issued on July 16, 2021;

4\. 59,289 shares of common stock equal in value to $3,662, to be newly-issued during the Company’s fiscal second quarter 2022, but subject to a true-up reduction based on increased transaction costs associated with the staggered delivery of the Majority Fyber Shares to the Company, which true-up reduction has been finalized, as described below; and

iii.Contingent upon Fyber’s net revenue (revenue less associated license fees and revenue share) being equal to or higher than $100,000 for the 12-month earn-out period ending on March 31, 2022, as determined in the manner set forth in the Sale and Purchase Agreement, a certain number of shares of the Company’s common stock, which will be newly-issued to the Seller at the end of the earn-out period, and under certain circumstances, an amount of cash, which value of such shares, based on the weighted average share price for the 30-days prior to the end of the earn-out period, and cash in aggregate, will not exceed $50,000 (subject to set-off against certain potential indemnification claims against the Seller). Based on estimates at the time of the acquisition, the Company initially determined it was unlikely Fyber would achieve the earn-out net revenue target and, as a result, no contingent liability was recognized at that time.

The Company paid the cash closing amount on the closing date with a combination of available cash-on-hand and borrowings under the Company’s senior credit facility.

On September 30, 2021, the Company entered into the Second Amendment Agreement (the “Second Amendment Agreement”) to the Sale and Purchase Agreement for the Fyber Acquisition. Pursuant to the Second Amendment Agreement, the parties agreed to settle the remaining number of shares of Company common stock to be issued to the Seller at 18,000 shares (i.e., a reduction of 41,289 shares from the 59,289 shares described in (ii)(4) above). As a result, the Company issued a total of 5,775,299 shares of Company common stock to the Seller in connection with the Company’s acquisition of Fyber.

As of March 31, 2022, the Company had recognized the acquisition purchase price liability of $50,000. The Company settled the obligation through the issuance of 1,205,982 shares of the Company’s common stock effective May 19, 2022.

Pursuant to certain German law on public takeovers, following the closing, the Company launched a public tender offer to the Minority Fyber Shareholders to acquire from them the Minority Fyber Shares. The tender offer was approved and published in July 2021, and is subject to certain minimum price rules under German law. The timing and the conditions of the tender offer, including the consideration of €0.84 per share offered to the Minority Fyber Shareholders in connection with the tender offer, was determined by the Company pursuant to the applicable Dutch and German takeover laws. During the fiscal year ended March 31, 2022, the Company purchased an additional $18,341 of Fyber’s outstanding shares, resulting in an ownership percentage of Fyber of approximately 99.5% as of September 30, 2022. The Company expects to complete the purchase of the remaining outstanding Fyber shares during fiscal year 2023.

The delisting of Fyber's remaining outstanding shares on the Frankfurt Stock Exchange was completed on August 6, 2021.

The Company recognized costs related to the Fyber Acquisition in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income / (loss) of $443 and $1,003, respectively, for the three and six months ended September 30, 2022, and $8,116 and $11,715, respectively, for the three and six months ended September 30, 2021.

### Segment Reporting

As of March 31, 2022, the Company operated through three segments, each of which was a reportable segment. The three segments were On Device Media (“ODM”), In-App Media - AdColony (“IAM-A”), and In-App Media-Fyber (“IAM-F”). Effective April 1, 2022, the Company made certain changes to its organizational and management structure that resulted in the following: (1) the renaming of the On Device Media segment to On Device Solutions and (2) the integration of IAM-A and IAM-F into a single segment. The integration of IAM-A and IAM-F was completed to drive operating efficiencies and revenue synergies. As a result of the integration of IAM-A and IAM-F, the Company reassessed its operating and reportable segments in accordance with ASC 280, *Segment Reporting*. Effective April 1, 2022, the Company reports its results of operations through the following two segments, each of which represents an operating and reportable segment, as follows:

- **On Device Solutions (“ODS”) -** The Company re-named the ODM segment On Device Solutions to better reflect the nature of the segment's product offerings. This segment generates revenue from the delivery of mobile application media or content to end users. This segment provides focused solutions to all participants in the mobile application ecosystem that want to connect with end users and consumers who hold the device, including mobile carriers and device OEMs that participate in the app economy, app publishers and developers, and brands and advertising agencies. This segment's product offerings are enabled through relationships with mobile device carriers and OEMs.
- **App Growth Platform (“AGP”) -** This segment consists of the previously reported IAM-A and IAM-F segments. AGP customers are primarily advertisers and publishers and the segment provides platforms that allow mobile app publishers and developers to monetize their monthly active users via display, native, and video advertising. The AGP platforms allow demand side platforms, advertisers, agencies, and publishers to buy and sell digital ad impressions, primarily through programmatic, real-time bidding auctions and, in some cases, through direct-bought/sold advertiser budgets. The segment also provides brand and performance advertising products to advertisers and agencies.

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM.

### Impact of COVID-19, Global Economic and Geopolitical Developments

Our results of operations are affected by economic conditions, including macroeconomic conditions, levels of business confidence, and consumer confidence. The worldwide spread of COVID-19, including the emergence of variants, as well as economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine, have resulted, and may continue to result, in a global slowdown of economic activity, which may decrease demand for a broad variety of goods and services, including those provided by our clients, while also disrupting supply channels, sales channels and advertising and marketing activities for an unknown period of time until economic activity normalizes. In addition, fears of a recession or economic downturn have and may result in decreasing or delaying advertising budgets. With the current uncertainty in economic activity, the impact on our revenue and our results of operations is likely to continue, the size and duration of which we are currently unable to accurately predict. The extent of the impact of these macro-economic factors on our operational and financial performance will depend on the impact to carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, and on the impact to application developers and in-app advertisers. If these, or other, macro-economic factors and geopolitical developments continue to have a significant negative impact on global economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted. Presently, we are conducting business as usual. We will continue to actively monitor the situation and may take further actions that alter our business operations, as required, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders.

### Impact of Inflation

Global inflation has increased significantly over the past year. In the United States (“U.S.”), the Consumer Price Index for All Urban Consumers increased 8.2% over the twelve months ended September 30, 2022, as reported by the U.S. Bureau of Labor Statistics. Eurostat reported that consumer prices in the 19 countries sharing the Euro (the “Eurozone”) rose 9.9% year-over-year in September 2022. Energy prices contributed significantly to the increases in both the U.S. and the Eurozone. The Company does not have physical supply chain or input costs and, as a result, we have been largely insulated from the inflationary cost pressures experienced globally in the past year. The Company has experienced limited inflationary cost impacts in two areas; however, those have not materially affected our financial results to date: (1) modest wage pressures when hiring certain positions, primarily in technology and product development and (2) carrier and OEM supply chain challenges.

In addition, like other advertising technology companies, we have seen a slowdown in digital advertising spending, which we believe is driven in part by the impact of inflation and fears of a recession and its potential impact on consumers. The slowdown in digital advertising spending is varied and depends on the geography, advertising type, operating system and business vertical.

We will continue to actively monitor the impact of inflation and the broader economic outlook on our operations and financial results and will take actions as deemed necessary.

### RESULTS OF OPERATIONS

### (Unaudited)

### Net revenue

| Net revenue | Three months ended September 30, 2022 | 2021 | % of Change | Six months ended September 30, 2022 | 2021 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| On Device Solutions | $108,466 | $129,449 | (16.2)% | $227,103 | $249,832 | (9.1)% |
| App Growth Platform | 68,256 | 64,177 | 6.4% | 140,622 | 103,651 | 35.7% |
| Elimination | (1,863) | (5,058) | (63.2)% | (4,233) | (6,840) | (38.1)% |
| Total net revenue | $174,859 | $188,568 | (7.3)% | $363,492 | $346,643 | 4.9% |

### Comparison of the three and six months ended September 30, 2022 and 2021

Over the three month comparative periods, net revenue decreased by $13,709 or 7.3%, and over the six-month comparative periods, net revenue increased by $16,849 or 4.9%. See the segment discussion below for further details regarding net revenue.

### On Device Solutions

ODS revenue for the three months ended September 30, 2022 decreased by $20,983 or 16.2% compared to the three months ended September 30, 2021. The decrease was primarily attributable to lower daily active users (“DAU”) for content media, which resulted in a $20,700 reduction in revenue. The majority of the decline in DAU was due to a decline in prepaid phone users. The decline in content media was partially offset by an increase for application media. Revenue for application media included approximately $8,700 due to a contract amendment during the three months ended September 30, 2022.

ODS revenue for the six months ended September 30, 2022 decreased by $22,729 or 9.1%, compared to the six months ended September 30, 2021. The decrease was primarily attributable to lower DAU for content media, which resulted in a $33,300 reduction in revenue for the same reason as noted for the three months ended September 30, 2022. The decline in content media was partially offset by an increase of approximately $10,600 for application media, including approximately $13,700 as a result of two contract amendments during the six months ended September 30, 2022.

### App Growth Platform

App Growth Platform revenue for the three months ended September 30, 2022 increased by $4,079 or 6.4% compared to the three months ended September 30, 2021. The increase was primarily due to strong demand and customer spending on the

Company’s exchange platform for banner advertising. This increase was partially offset by a decline in performance advertising largely due to broader weakness in the advertising markets.

App Growth Platform revenue for the six months ended September 30, 2022 increased by $36,971 or 35.7%, compared to the six months ended September 30, 2021. The increase was primarily due to the impact of a full six months of operations resulting from the AdColony Acquisition and Fyber Acquisition. Please see Note 3, “Acquisitions,” for further information regarding the acquisitions.

### Costs of revenue and operating expenses

| Costs of revenue and operating expenses | Three months ended September 30, 2022 | 2021 | % of Change | Six months ended September 30, 2022 | 2021 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| License fees and revenue share | $76,881 | $91,508 | (16.0)% | $164,248 | $175,316 | (6.3)% |
| Other direct costs of revenue | 9,199 | 7,827 | 17.5% | 18,114 | 12,295 | 47.3% |
| Product development | 14,736 | 13,915 | 5.9% | 28,869 | 26,839 | 7.6% |
| Sales and marketing | 15,490 | 17,479 | (11.4)% | 31,548 | 31,215 | 1.1% |
| General and administrative | 37,471 | 41,307 | (9.3)% | 75,196 | 65,301 | 15.2% |
| Total costs of revenue and operating expenses | $153,777 | $172,036 | (10.6)% | $317,975 | $310,966 | 2.3% |

### Comparison of the three and six months ended September 30, 2022 and 2021

Over the three and six months ended September 30, 2022, total costs of revenue and operating expenses decreased by $18,259, or 10.6% and increased $7,009, or 2.3%, respectively, compared to the three and six months ended September 30, 2021. The decrease in total costs of revenue and operating expenses over the three month comparative period is primarily due lower license fees and revenue share, which is the result of lower revenue. The increase in total costs of revenue and operating expenses over the six month comparative period is a primarily due to the impact of a full six months of operations resulting from the AdColony Acquisition and Fyber Acquisition. Costs of revenue and operating expenses included transaction costs of $1,284 and $2,584, respectively, for the three and six months ended September 30, 2022, compared to $9,159 and $17,503, respectively, for the three and six months ended September 30, 2021.

### License fees and revenue share

License fees and revenue share are reflective of amounts paid to our carrier and OEM partners, as well as app publishers and developers, and are recorded as a cost of revenue.

License fees and revenue share decreased by $14,627, or 16.0% to $76,881 for the three months ended September 30, 2022, and was 44.0% as a percentage of total net revenue compared to $91,508, or 48.5% of total net revenue, for the three months ended September 30, 2021.

License fees and revenue share decreased by $11,068, or 6.3% to $164,248 for the six months ended September 30, 2022, and was 45.2% as a percentage of total net revenue compared to $175,316, or 50.6% of total net revenue, for the six months ended September 30, 2021.

The decrease in license fees and revenue share was attributable to the decrease in total net revenue over the same periods as these costs are typically paid as a percentage of our revenue. The decrease in license fees and revenue share as a percentage of total net revenue for the three and six months ended September 30, 2022 compared to the prior year comparative periods, was primarily due to revenue mix changes as well as the two contract amendments discussed above.

### Other direct costs of revenue

Other direct costs of revenue are comprised primarily of hosting expenses directly related to the generation of revenue and depreciation expense accounted for under ASC 985-20, *Costs of Software to be Sold, Leased, or Otherwise Marketed.*

Other direct costs of revenue increased by $1,372, or 17.5% to $9,199 for the three months ended September 30, 2022, and was 5.3% as a percentage of total net revenue compared to $7,827, or 4.2% of total net revenue, for the three months ended September 30, 2021.

Other direct costs of revenue increased by $5,819, or 47.3% to $18,114 for the six months ended September 30, 2022, and was 5.0% as a percentage of total net revenue compared to $12,295, or 3.5% of total net revenue, for the six months ended September 30, 2021.

The increase in other direct costs of revenue in both the three and six months ended September 30, 2022, compared to the prior year comparative periods, as well as as a percentage of revenue was primarily driven by an increase in hosting expense and higher depreciation of developed technology assets.

### Product development

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 increased by $821, or 5.9% to $14,736 for the three months ended September 30, 2022, compared to $13,915 for the three months ended September 30, 2021. Product development expenses included acquisition-related costs of $543 and $455 for the three months ended September 30, 2022 and 2021, respectively. The increase in product development expenses was primarily due to higher employee related costs driven by higher wages and stock compensation reflective of market conditions for product development employees.

Product development expenses increased by $2,030, or 7.6% to $28,869 for the six months ended September 30, 2022, compared to $26,839, for the six months ended September 30, 2021. Product development expenses included acquisition related costs of $1,085 and $1,910 for the six months ended September 30, 2022 and 2021, respectively. The increase in product development expenses for was primarily due to a full six months of operations from the AdColony Acquisition and Fyber Acquisition.

### Sales and marketing

Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management.

Sales and marketing expenses decreased by $1,989, or 11.4% to $15,490 for the three months ended September 30, 2022, and was 8.9% as a percentage of total net revenue compared to $17,479, or 9.3% of total net revenue, for the three months ended September 30, 2021. This decrease was primarily due to lower sales and account management headcount through attrition as well as the result of the integration of the AdColony Acquisition and Fyber Acquisition.

Sales and marketing expenses was relatively unchanged, increasing by $333, or 1.1% to $31,548 for the six months ended September 30, 2022, and was 8.7% as a percentage of total net revenue compared to $31,215, or 9.0% of total net revenue, for the six months ended September 30, 2021.

### General and administrative

General and administrative expenses represent management, finance, and support personnel costs in both the parent and subsidiary companies, which include professional services and consulting costs, in addition to other costs such as rent, stock-based compensation, and depreciation and amortization expense.

General and administrative expenses decreased by $3,836, or 9.3% to $37,471 for the three months ended September 30, 2022, and was 21.4% as a percentage of total net revenue compared to $41,307, or 21.9% of total net revenue, for the three months ended September 30, 2021. The three months ended September 30, 2022 and 2021 included acquisition-related costs of $686 and $8,587, respectively. Excluding acquisition-related costs, general and administrative expenses increased $4,065. The increase in general and administrative expenses after excluding acquisition-related costs was primarily due to bad debt expense and the amortization of trade names intangibles.

General and administrative expenses increased by $9,895, or 15.2% to $75,196 for the six months ended September 30, 2022, and was 20.7% as a percentage of total net revenue compared to $65,301, or 18.8% of total net revenue, for the six months ended September 30, 2021. The six months ended September 30, 2022 and 2021 included acquisition-related costs of $1,391 and $15,191, respectively. Excluding acquisition-related costs, general and administrative expenses increased $23,695. The increase in general and administrative expenses was primarily due to higher wages, bad debt expense and amortization of trade names intangibles. In addition, the increase was due in part to the impact of a full six months of operations resulting from AdColony Acquisition and Fyber Acquisition.

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

| Interest and other income / (expense), net | Three months ended September 30, 2022 | 2021 | % of Change | Six months ended September 30, 2022 | 2021 | % of Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Change in fair value of contingent consideration | $— | $(22,087) | 100.0% | $— | $(22,087) | 100.0% |
| Interest expense, net | (5,229) | (1,955) | 167.5% | (9,311) | (3,112) | 199.2% |
| Foreign exchange transaction loss | (281) | (249) | 12.9% | (612) | (519) | 17.9% |
| Other income / (expense), net | 312 | (477) | 165.4% | 384 | (512) | 175.0% |
| Total interest and other income / (expense), net | $(5,198) | $(24,768) | (79.0)% | $(9,539) | $(26,230) | (63.6)% |

### Comparison of the three and six months ended September 30, 2022 and 2021

### Change in fair value of contingent consideration

For the three and six months ended September 30, 2021, the Company recorded charges for changes in fair value of contingent consideration in connection with the AdColony Acquisition and Fyber Acquisition of $22,087. There were no such charges recorded for the three and six months ended September 30, 2022.

### Interest expense, net

Over the three and six months ended September 30, 2022, interest expense, net, increased by $3,274, or 167.5% and $6,199, or 199.2%, respectively, compared to the three and six months ended September 30, 2021. The increases were primarily due to an increase in interest rates and higher average outstanding borrowings under the New Credit Agreement.

### Liquidity and Capital Resources

Our primary sources of liquidity are our existing cash and, cash from operations, and borrowings under our New Credit Agreement. As of September 30, 2022, we had unrestricted cash of approximately $82,653 and $149,866 available to draw under the New Credit Agreement with BoA. The maturity date of the New Credit Agreement is April 29, 2026, and the outstanding balance of $450,134 is classified as long-term debt, net of debt issuance costs of $2,941, on our condensed consolidated balance sheet as of September 30, 2022. We generated $64,309 in cash flows from operating activities for the six months ended September 30, 2022.

Our ability to meet our debt service obligations and to fund working capital, capital expenditures, and investments in our business will depend upon our future performance, which will be subject to financial, business, and other factors affecting our operations, many of which are beyond our control, availability of borrowing capacity under our credit facility, and our ability to access the capital markets. For example, these factors could include general and regional economic, financial, competitive, legislative, regulatory, and other factors such as health epidemics such as COVID-19, economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine. We cannot guarantee that we will generate sufficient cash flow from operations, or that future borrowings or the capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital, or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.

The Company believes it will generate sufficient cash flow from operations and has the liquidity and capital resources to meet its business requirements for at least twelve months from the filing date of this Quarterly Report on Form 10-Q.

### Hosting Agreements

The Company enters into hosting agreements with service providers and in some cases, those agreements include minimum commitments that require the Company to purchase a minimum amount of service over a specified time period (“the minimum commitment period”). The minimum commitment period is generally one-year in duration and the hosting agreements include multiple minimum commitment periods. Our minimum purchase commitments under these hosting agreements total approximately $194,288 over the next 4.25 years.

### Outstanding Secured Indebtedness

The Company’s outstanding secured indebtedness under the New Credit Agreement is $450,134 as of September 30, 2022. See “Recent Developments - Credit Agreement” for additional information on the New Credit Agreement. The Company's ability to borrow additional amounts under its New Credit Agreement could have significant negative consequences, including:

- increasing the Company’s vulnerability to general adverse economic and industry conditions;
- limiting the Company’s ability to obtain additional financing;
- violating a financial covenant, potentially resulting in the indebtedness to be paid back immediately and thus negatively impacting our liquidity;
- requiring additional financial covenant measurement consents or default waivers without enhanced financial performance in the short term;
- requiring the use of a substantial portion of any cash flow from operations to service indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;
- limiting the Company’s flexibility in planning for, or reacting to, changes in the Company’s business and the industry in which it competes, including by virtue of the requirement that the Company remain in compliance with certain negative operating covenants included in the credit arrangements under which the Company will be obligated as well as meeting certain reporting requirements; and
- placing the Company at a possible competitive disadvantage to less leveraged competitors that are larger and may have better access to capital resources.

Our credit facility also contains a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio. There can be no assurance we will continue to satisfy these ratio covenants. If we fail to satisfy these covenants, the lender may declare a default, which could lead to acceleration of the debt maturity. Any such default would have a material adverse effect on the Company.

The collateral pledged to secure our secured debt, consisting of substantially all of our and our U.S. subsidiaries’ assets, would be available to the secured creditor in a foreclosure, in addition to many other remedies. Accordingly, any adverse change in our ability to service our secured debt could result in an event of default, cross default, and foreclosure or forced sale. Depending on the value of the assets, there could be little, if any, assets available for common stockholders in any foreclosure or forced sale.

### Cash Flow Summary

*(in thousands)*

| Consolidated statements of cash flows data: | Six months ended September 30, 2022 | 2021 | % of Change |
| --- | ---: | ---: | ---: |
| **Net cash provided by operating activities** | **$64,309** | **$7,754** | **729.4%** |
| Business acquisitions, net of cash acquired | — | (148,056) | 100.0% |
| Capital expenditures | (12,930) | (10,411) | (24.2)% |
| **Net cash used in investing activities** | **$(12,930)** | **$(158,467)** | **91.8%** |
| Proceeds from borrowings | — | 267,134 | (100.0)% |
| Payment of debt issuance costs | — | (2,988) | 100.0% |
| Options and warrants exercised | 939 | 2,155 | (56.4)% |
| Payment of withholding taxes for net share settlement of equity awards | (5,929) | — | (100.0)% |
| Repayment of debt obligations | (86,500) | (46,256) | (87.0)% |
| **Net cash provided by / (used in) financing activities** | **$(91,490)** | **$220,045** | **141.6%** |

### Operating Activities

Cash provided by operating activities was $64,309 for the six months ended September 30, 2022, compared to $7,754 for the six months ended September 30, 2021. The increase of $56,555 was due to the following:

- $3,221 decrease due to lower non-cash charges as the six months ended September 30, 2021 included the impact of changes in the fair value of contingent consideration. This was partially offset by accelerated amortization of trade name assets amidst rebranding and a larger employee base receiving share based compensation for the six months ended September 30, 2022 ;
- $41,481 increase for changes in operating assets and liabilities, primarily due to lower net working capital for the six months ended September 30, 2022; and
- $18,295 increase in net income.

### Investing Activities

For the six months ended September 30, 2022, net cash used in investing activities decreased by $145,537 to approximately $12,930. Current period cash used in investing activities is comprised entirely of capital expenditures, related mostly to internally-developed software, of $12,930. For the six months ended September 30, 2021, net cash used in investing activities was approximately $158,467, comprised of cash expenditures for business acquisitions, net of cash acquired, of $148,056 related to our acquisitions of AdColony and Fyber, and capital expenditures, related mostly to internally-developed software, of $10,411. The $2,519 increase in capital expenditures was due to incremental investments in product development efforts and is also reflective of the larger product portfolio due to the acquisitions of AdColony and Fyber.

### Financing Activities

For the six months ended September 30, 2022, net cash used in financing activities was approximately $91,490, comprised of repayment of debt obligations of $86,500, payment of withholding taxes for net share settlement of equity awards of $5,929, and options exercised of $939. For the six months ended September 30, 2021, net cash provided by financing activities was approximately $220,045, comprised of proceeds from borrowings of $267,134 primarily used for the acquisitions of AdColony and Fyber and proceeds from the exercise of stock options of $2,155, offset by repayment of debt obligations of $46,256 and payment of debt issuance costs of $2,988.

### Critical Accounting Policies and Estimates

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 and application of accounting policies, 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 policies and estimates, please 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, 2022, and Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of this Quarterly Report on Form 10-Q for our fiscal second quarter ended September 30, 2022.

## Market risk

As filed, 1,909 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 $10 per year for every $1,000 of outstanding debt under the credit facility.

### Foreign Currency Exchange Risk

We have foreign operations, that expose us to risk from the effects of exchange rate movements of respective foreign currencies, which may affect future revenue, costs and cash flows. Foreign currency exchange risk is the risk that our results of operations or financial position could be affected by changes in exchange rates. In certain of our foreign operations, we transact primarily in the U.S. Dollar, including our net revenue, license fees and revenue share, and employee related compensation costs, which reduces our exposure to foreign currency exchange risk. In addition, gains / (losses) related to translating certain cash balances, trade accounts receivable and payable balances, and intercompany balances impact our net income. 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, 4,853 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 Quarterly Report on Form 10-Q. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and other procedures designed to ensure information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer, who is the principal executive officer, and the Company’s Chief Financial Officer, who is the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As previously disclosed in Item 9A. Disclosure Controls and Procedures of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of March 31, 2022. Based on this evaluation, management concluded, as of such date, the Company’s disclosure controls and procedures were not effective due to the existence of the material weakness in its internal control over financial reporting therein described.

Management concluded the Company’s internal control for business combinations did not include a control adequately designed to ensure acquiree accounting policies, as they relate to presentation and classification, were conformed to those of the Company and GAAP.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2022. Based on this evaluation, as a result of the identification of the material weakness described above, management concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2022.

### Remediation Plans for Material Weakness in Internal Control over Financial Reporting

Prior to the identification of the material weakness, management, with oversight from our audit committee, completed a review of the recently acquired business’ product lines with the assistance of a large, third-party accounting firm as part of the financial close and reporting process. This included a review, at the acquired businesses, of representative customer contracts and agreements, supply/publisher agreements, and each product line’s business model and operations with key operations personnel. Further, management had taken several actions to strengthen the Company’s control environment, including the hiring of a new Chief Accounting Officer, and the creation of and hiring for key positions, including a Senior Manager of Internal Audit/ICFR and Director of Global Tax.

The Company is continuing to make progress in implementing improvements to its policies and procedures by:

- Strengthening the Company’s procedures for reviewing accounting policies of material acquired companies, inclusive of the accounting for revenue, through initial reviews during the due diligence period and alignment of accounting policies prior to the first interim reporting date;
- Standardizing customer and publisher contract review processes to ensure consistent accounting and reporting of revenue transactions; and
- Formalizing the approval process for making changes to the global chart of accounts and accounting systems to ensure the accurate classification of financial statement amounts, including changes resulting from material acquisitions.

Management believes these additional steps will be effective in remediating the material weakness described above and may take additional measures to address the material weakness or modify the remediation plan described above, if deemed necessary. Management continues to make progress implementing the remediation steps discussed above.

### Changes in Internal Control Over Financial Reporting

Other than the revenue recognition review process and ongoing remediation steps described above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 262 characters.

The Company is not aware of any material changes from the risk factors set forth under Part I, Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission on June 6, 2022.

Filed Nov 9, 2022.
Source: SEC EDGAR, the filing index for accession 0001628280-22-029313. Last ingested by Listed: Oct 30, 2026, 16:33 ET. No prices; not investment advice.