Digital Turbine, Inc.: Form 10-Q for the period ended Dec 31, 2024

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 (this “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 (the “Exchange Act”). Forward-looking statements involve substantial risks and uncertainties. When used in this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “will,” “seek,” “should,” “could,” “can,” “would,” “may,” “might,” “intend,” “plan,” “target,” “project,” “contemplate,” “predict,” “suggest,” “potential,” and “continue” and the negative of these words and other 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, 2024, 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 estimates based on assumptions, known historical 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”). We offer 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

Impact of Economic Conditions and Geopolitical Developments

Our results of operations are affected by macroeconomic conditions and geopolitical developments, including but not limited to levels of business and consumer confidence, actions taken by governments to counter inflation, potential trade disputes, including but not limited to any U.S. government actions against China based developers and publishers, Russia’s invasion of Ukraine, and the recent conflict in Israel.

Inflation, rising interest rates, supply chain disruptions, and reduced business and consumer confidence have caused and may continue to cause a global slowdown of economic activity, which has caused and may continue to cause a decrease in demand for a broad variety of goods and services, including those provided by our clients.

We are impacted by declining volume of sales of new mobile devices by our partners. We believe this is driven by the impact of inflation, economic uncertainty, and their potential impacts on consumers. These negative macroeconomic trends have resulted, and may continue to result in, a decrease in mobile phone sales volume. Continued weakness in the sale of new mobile devices is likely to continue to impact our business, financial condition, and results of operations, the full impact of which remains uncertain at this time.

Further, various U.S. federal and state governmental agencies continue to examine the distribution and use of apps developed and/or published by China based companies. In some cases, government agencies have banned certain apps from mobile devices. Further actions by U.S. federal or state governmental agencies or other countries to restrict or ban the distribution of China based apps could negatively impact our business, financial condition, and results of operations.

While Russia’s invasion of Ukraine has not had a direct, material impact on our business, any European conflict, if expanded to include other countries, would likely have a material, negative impact on general economic conditions and would impact our business directly.

Additionally, we continue to actively monitor the recent developments in Israel, Gaza, Lebanon, and Syria for any material impacts to our business. While no adverse financial or operational impacts have been noted in the current period, if such conflict continues or escalates, it could have a potential negative impact on our business, given our significant presence in the region.

The extent of the impact of these macroeconomic factors on our operational and financial performance is also dependent on their impact on carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, as well as the impact on application developers and in-app advertisers. If negative macroeconomic factors or geopolitical developments materially impact our partners over a prolonged period, our results of operations and financial condition could also be adversely impacted, the size and duration of which we cannot accurately predict at this time.

We continue to actively monitor these factors and we 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. In addition to monitoring the developments described above, the Company also considers the impact such factors may have on our accounting estimates and potential impairments of our non-current assets, which primarily consist of goodwill and finite-lived intangible assets.

See Part I, Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on May 28, 2024, for additional information related to risks associated with macroeconomic challenges.

Goodwill and Intangible Assets

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment, including qualitative and quantitative factors such as the identification of reporting units, identification and allocation of assets and liabilities to reporting units, and determinations of fair value. In estimating the fair value of our reporting units when performing our annual impairment test, or when an indicator of impairment is present, we make estimates and significant judgments about the future cash flows of those reporting units and other estimates including appropriate discount rates. Discount rates can fluctuate based on various economic conditions including our capital allocation and interest rates, including the interest rates on U.S. treasury bonds. Changes in judgments on these assumptions and estimates, particularly expectations of revenue and cash flow growth rates in future periods and discount rates, could result in goodwill impairment charges.

In addition to evaluating goodwill for impairment when events or circumstances indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company also evaluates goodwill for impairment on an annual basis. The Company’s next annual evaluation of goodwill for impairment will be as of March 31, 2025.

Finite-lived intangible assets and property, plant, and equipment have been assigned an estimated finite useful life and are amortized on a straight-line basis over the number of years that approximate their respective useful lives. The Company evaluates intangible assets other than goodwill for impairment at least annually or upon the occurrence of events or circumstances that indicate the carrying value of an asset may not be recoverable. In determining whether an impairment exists, the Company considers factors such as changes in the use of the asset, changes in the legal or business environment, and current or historical operating or cash flow losses.

Transformation Program

Beginning in fiscal year 2023, the Company entered into a business transformation project that includes the implementation of a new, global cloud-based enterprise resource planning (“ERP”) system to upgrade our existing enterprise-wide operating systems. Additionally, a new human resource (“HR”) system was also implemented to streamline employee management processes and enhance organizational effectiveness. We are also undertaking the consolidation of existing ancillary systems and deploying other new platforms and systems to improve our operations and drive business and cost efficiencies.

This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services with business partners engaged in the planning, design and business process review that would not qualify as software configuration and implementation costs. In addition, the Company is incurring duplicative personnel and other operating costs to maintain legacy systems and operations during the deployment of the new systems and certain other ancillary platforms and systems. The Company completed the first deployment phase in the third quarter of fiscal year 2024. Costs are anticipated to be incurred through various deployment phases that are expected to continue through early fiscal year 2026. The Company incurred $1,976 of business transformation costs during the nine months ended December 31, 2024. These costs are recorded in General and Administrative expenses and Product Development expenses in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

Additionally, the Company is in the process of initiating further transformation efforts. In October 2024, the Company began a transformation program intended to improve various measures across the organization. These measures include but are not limited to current and future operating expenses, cash flows, and personnel costs. Additionally, the initiatives intend to simplify and streamline business operations, including product optimization, procurement and cost optimization, and team restructuring. As part of the transformation program, we implemented a two phased reduction in our workforce, one in November 2024 and the other in January 2025. During the three and nine months ended December 31, 2024, the Company incurred expenses of $2,887, related to our transformation program primarily consisting of severance and other one-time termination benefits. The transformation program includes several other initiatives that are underway, and the Company expects the transformation program to be substantially completed by the first quarter of fiscal year 2026. The transformation program is targeted to yield more than $25,000 in annual cash expense savings, and the Company expects the program to be substantially implemented by the first quarter of fiscal year 2026.

Costs incurred in connection with the transformation program are categorized under two primary headings: severance costs and business transformation costs. The costs classified as severance costs primarily reflect expenses associated with workforce reductions aimed at realigning the Company’s structure as part of the transformation program. These severance-related expenses are directly tied to the Company's efforts to reduce headcount and optimize its labor force to better align with its long-term strategic goals. In addition, the business transformation costs primarily reflect investments made in the prior year for the upgrade of key business systems, including the implementation of a global cloud-based ERP system and a new HR system. These costs, while also part of the broader transformation efforts, are not related to workforce reductions but rather to the modernization of the Company’s technological infrastructure to support long-term operational improvements.

RESULTS OF OPERATIONS

The following table sets forth our results of operations for the three and nine months ended December 31, 2024 and 2023 (in thousands):

Net revenue

Comparison of the three and nine months ended December 31, 2024 and 2023

Over the three-month comparative periods, net revenue decreased by $7,997 or 5.6%, and over the nine-month comparative periods, net revenue decreased by $60,905 or 14.1%. See the segment discussion below for further details regarding net revenue.

On Device Solutions

ODS revenue for the three months ended December 31, 2024, decreased by $2,562 or 2.7% compared to the three months ended December 31, 2023. Revenue from content media decreased by approximately $399 primarily due to unforeseen impacts on the demand auction. In addition, revenue from application media decreased by approximately $2,162. The decrease was primarily driven by lower new device volumes, partially offset by an increase in revenue-per-device in the US region and internationally. These decreases in revenue were primarily driven by the Europe, Middle East, and Africa regions and were partially offset by increases in the Asia Pacific and China regions.

ODS revenue for the nine months ended December 31, 2024, decreased by $36,808 or 12.6% compared to the nine months ended December 31, 2023. Revenue from content media increased by approximately $918 primarily due to increased activity with a carrier that resulted in higher daily active users on prepaid devices. In addition, application media revenue declined by approximately $37,726 for the nine months ended December 31, 2024. The decline in revenue in application media was primarily due to lower device volumes, partially offset by an increase in revenue-per-device in the US region and internationally. These decreases in revenue were primarily driven by the US and Canada regions and the Europe, Middle East, and Africa regions, partially offset by increases in the Asia Pacific and China regions.

App Growth Platform

AGP revenue for the three months ended December 31, 2024, decreased by $4,940 or 10.0% compared to the three months ended December 31, 2023. Performance and brand advertising revenue increased by approximately $3,483. Advertising exchange revenue declined by approximately $8,403, primarily due to weaker demand and the impact of the consolidation and exiting of certain legacy AdColony platforms and business lines. The decrease in advertising exchange revenue was primarily driven by lower performance in the US and Canada regions, partially offset by higher performance in the Asia Pacific and China region of $1,347. Revenues from reseller partnerships remained flat between the comparable periods.

AGP revenue for the nine months ended December 31, 2024, decreased by $24,344 or 16.9% compared to the nine months ended December 31, 2023. Performance and brand advertising revenue declined by approximately $1,134 and advertising exchange revenue declined by approximately $23,226, primarily due to weaker demand and the impact of the consolidation and exiting of certain legacy AdColony platforms and business lines. The decrease in advertising exchange revenue was primarily due to lower performance in the US and Canada regions. Revenues from reseller partnerships remained flat between the comparable periods.

Costs of revenue and operating expenses

Comparison of the three and nine months ended December 31, 2024 and 2023

Total costs of revenue and operating expenses decreased by $4,511 or 3.0% and decreased by $185,121 or 30.9%, respectively, for the three and nine months ended December 31, 2024, compared to the three and nine months ended December 31, 2023.

Total costs of revenue and operating expenses for the nine months ended December 31, 2023 included an impairment of goodwill of $147,181. Excluding the impairment of goodwill, total costs of revenue and operating expenses decreased by $37,940 or 8.4% for the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023.

The decrease in total costs of revenue and operating expenses for both comparative periods, after excluding the impairment of goodwill, was primarily due to lower revenue share, general and administrative, and product development costs. These decreases were partially offset by higher sales and marketing costs. The reduced revenue share is the result of lower revenue over the same comparative periods. Costs of revenue and operating expenses included total business transformation, severance and acquisition-related costs of $3,094 and $5,228 for the three and nine months ended December 31, 2024, respectively, compared to $5,718 and $9,537 for the three and nine months ended December 31, 2023, respectively. In connection with the Company’s transformation program, business transformation and severance costs are expected to increase in the future remaining quarter of fiscal year 2025.

Revenue share

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

Revenue share decreased by $417 or 0.6% to $69,947 for the three months ended December 31, 2024, and was 52.0% as a percentage of total net revenue compared to $70,364, or 49.3% of total net revenue, for the three months ended December 31, 2023.

Revenue share decreased by $26,583 or 12.7% to $182,092 for the nine months ended December 31, 2024, and was 49.0% as a percentage of total net revenue compared to $208,675, or 48.3% of total net revenue, for the nine months ended December 31, 2023.

The decrease in 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. Revenue share as a percentage of total net revenue for the three and nine months ended December 31, 2024 compared to the prior year comparative periods remained flat.

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 associated with capitalized software costs and amortization of developed technology intangible assets.

Other direct costs of revenue increased by $340 or 3.9% to $8,954 for the three months ended December 31, 2024, and was 6.7% as a percentage of total net revenue compared to $8,614, or 6.0% of total net revenue, for the three months ended December 31, 2023.

The increase in other direct costs for the three months ended December 31, 2024 was primarily due to higher platform and bidding fees. The increase in other direct costs of revenue as a percentage of total net revenue was due to the decline in total net revenue.

Other direct costs of revenue decreased by $2,062 or 7.6% to $25,182 for the nine months ended December 31, 2024, and was 6.8% as a percentage of total net revenue compared to $27,244, or 6.3% of total net revenue, for the nine months ended December 31, 2023.

The decrease in other direct costs for the nine months ended December 31, 2024 was primarily due to lower amortization of developed technology intangible assets, lower hosting costs, and a comparable decrease in total net revenues between comparable periods. The increase in other direct costs of revenue as a percentage of total net revenue was due to the decline in total net revenue.

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. Additionally, product development expenses include certain integration and business transformation costs, which may impact the comparability of product development expenses between periods.

Product development expenses decreased by $2,833 or 21.7% to $10,203 for the three months ended December 31, 2024, compared to $13,036 for the three months ended December 31, 2023. Product development expenses included severance costs of approximately $491 for the three months ended December 31, 2024. Product development expenses included severance and business transformation costs of $1,681 for the three months ended December 31, 2023.

Product development expenses, after excluding severance and business transformation costs, decreased by approximately $1,643 for the three months ended December 31, 2024 compared to the three months ended December 31, 2023. The decrease in product development expenses was primarily due to lower hosting and software costs of $958, third-party development costs of $451, and other costs, including travel and facilities of $769. These decreases were partially offset by increased personnel related costs of $536.

Product development expenses decreased by $12,523 or (29.2)% to $30,350 for the nine months ended December 31, 2024, compared to $42,873 for the nine months ended December 31, 2023. Product development expenses included severance costs of approximately $671 for the nine months ended December 31, 2024. Product development expenses included severance, acquisition-related, and business transformation costs of approximately $3,363 for the nine months ended December 31, 2023.

Product development expenses, after excluding severance, acquisition-related and business transformation costs, decreased by approximately $9,831 for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The decrease in product development expenses was primarily due to lower employee-related costs, including base salary and incentive compensation of $3,010, lower hosting and software costs of $3,162, reduced third-party development costs of $1,283, and other operating costs, including facilities and travel of $2,369.

Product development expenses, excluding severance, acquisition-related, and business transformation costs, changed to 7.2% and 8.0% of total net revenue for the three and nine months ended December 31, 2024, respectively, compared to 8.0% and 9.1% of total net revenue for the three and nine months ended December 31, 2023, respectively. The decrease in product development expenses as a percentage of total net revenue for the nine months ended December 31, 2024 was primarily due to lower employee-related costs and revenues declining at a rate faster than product development expenses due to the Company’s continued investments in its technology platforms.

Sales and marketing

Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management. Additionally, sales and marketing expenses include certain integration and business transformation costs, which may impact the comparability of sales and marketing expenses between periods.

Sales and marketing expenses increased by $1,062 or 7.4% to $15,494 for the three months ended December 31, 2024, and was 11.5% as a percentage of total net revenue compared to $14,432, or 10.1% of total net revenue, for the three months ended December 31, 2023. Sales and marketing expenses included severance costs of approximately $1,018 and $576 for the three months ended December 31, 2024 and December 31, 2023, respectively.

Sales and marketing expenses, after excluding severance expenses, increased by approximately $620 for the three months ended December 31, 2024 compared to the three months ended December 31, 2023. The increase in sales and marketing expenses was primarily due to higher employee-related costs, including base salary and incentive compensation of $1,041, and higher third-party development costs of $356. These increases were partially offset by lower other operating costs, including facilities and travel of $641.

Sales and marketing expenses increased by $2,082 or 4.6% to $47,628 for the nine months ended December 31, 2024, and was 12.8% as a percentage of total net revenue compared to $45,546, or 10.5% of total net revenue, for the nine months ended December 31, 2023. Sales and marketing expenses included severance costs of approximately $1,524 for the nine months ended December 31, 2024. Sales and marketing expenses included severance and acquisition-related costs of approximately $1,199 for the nine months ended December 31, 2023.

Sales and marketing expenses, after excluding severance and acquisition-related expenses, increased by approximately $1,757 for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The increase in sales and marketing expenses was primarily due to higher employee-related costs, including base salary and incentive compensation of $2,946. This increase was partially offset by lower costs for sales events and sales related travel of $614 and reduced facilities and other operating costs of $890.

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. Additionally, general and administrative expenses include certain integration and business transformation costs, which may impact the comparability of general and administrative expenses between periods.

General and administrative expenses decreased by $2,663 or 5.9% to $42,792 for the three months ended December 31, 2024 compared to $45,455 for the three months ended December 31, 2023. General and administrative expenses included severance, acquisition-related, and business transformation costs of approximately $1,585 for the three months ended December 31, 2024. General and administrative expenses included severance, acquisition-related, and business transformation costs of approximately $3,461 for the three months ended December 31, 2023.

General and administrative expenses, after excluding severance, acquisition-related and business transformations costs, decreased by $787 for the three months ended December 31, 2024 compared to the three months ended December 31, 2023. The decrease was primarily due to lower professional fees of $1,576, depreciation and amortization of $832, and reduced bad debt expense of $446. These decreases were partially offset by higher personnel related costs, including stock-based compensation of $1,261 and higher other operating expenses, including software and license fees of $562.

General and administrative expenses increased by $1,146 or 0.9% to $128,485 for the nine months ended December 31, 2024, compared to $127,339 for the nine months ended December 31, 2023. General and administrative expenses included severance, acquisition-related, and business transformation costs of approximately $3,033 for the nine months ended December 31, 2024. General and administrative expenses included severance, acquisition-related, and business transformation costs of $4,975 for the nine months ended December 31, 2023.

General and administrative expenses, after excluding severance, acquisition-related, and business transformation costs, increased by $3,088 for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The increase was primarily due to higher employee related costs of $2,653 and other operating costs, including software and travel of approximately $2,852. These increases were partially offset by lower stock-based compensation expense of $1,749 and professional services, including audit, tax, and legal fees of $1,232.

Interest and other income (expense), net

Comparison of the three and nine months ended December 31, 2024 and 2023

Interest expense, net

For the three and nine months ended December 31, 2024, interest expense, net, increased by $780 or 10.2% and $3,028 or 13.2%, respectively, compared to the three and nine months ended December 31, 2023. The increase was primarily due to an increase in interest rates of 70 basis points and 98 basis points, respectively, and higher average outstanding borrowings of $25,000 and $5,489, respectively, over the comparative periods.

Income tax provision (benefit)

During the three and nine months ended December 31, 2024, a tax provision expense of $2,412 and $5,562, respectively, resulted in an effective tax rate of (11.6)% and (8.2)%, respectively. Differences between the effective tax rate and the statutory tax rate primarily relate to foreign income expense and a valuation allowance on loss from operations.

During the three and nine months ended December 31, 2023, a tax benefit of $2,845 and $5,097, respectively, resulted in an effective tax rate of 16.8% and 2.7%, respectively. Differences between the effective tax rate and the statutory tax rate primarily relate to the non-deductible goodwill impairment charge, tax limitations on deductions for compensation, state tax benefits and foreign rate differences.

Liquidity and Capital Resources

Liquidity

Our primary sources of liquidity are our cash and cash equivalents, cash from operations, and borrowings under our Credit Agreement (“Amended and Restated Credit Agreement”) with Bank of America, N.A. (“BoA”). As of December 31, 2024, we had unrestricted cash of approximately $34,620 and restricted cash of approximately $694. Restricted cash consists primarily of cash held by a bank in a collateral account as collateral to cover the Company's corporate credit cards. The Company had $14,000 available to draw under the Amended and Restated Credit Agreement with BoA, excluding the accordion feature, subject to the required covenants. The Amended and Restated Credit Agreement matures in 2026. We incurred a net loss of $(23,131) and $(73,273), respectively, and generated cash from operating activities of $10,443 and $372, respectively for the three and nine months ended December 31, 2024.

Our principal cash requirements for the twelve-month period following this Report primarily consist of personnel costs, contractual payment obligations, including office leases, cloud hosting costs, capital expenditures, minimum commitments under hosting agreements (see Liquidity and Capital Resources—Hosting Agreements below) payment of interest and required principal payments under our Amended and Restated Credit Agreement, cash outlays for income taxes, and cash requirements to fund working capital. In the longer term, we would expect to have similar cash requirements.

We are exploring various cost saving opportunities, namely through the Company’s recently initiated transformation program, and we intend to continue seeking opportunities to generate additional revenue through operations. There can be no assurance that we will be successful in our plans described above. If we are unable to effectively implement additional cost reductions, generate additional revenue or refinance our Amended and Restated Credit Agreement or raise additional funding, we may be forced to delay, reduce or eliminate some or all of our strategic operational efforts and product and service expansion, and our business, financial condition and results of operations could be materially and adversely affected.

We believe our existing cash and cash equivalents, cash flow from operations and undrawn available balance under our Amended and Restated Credit Agreement will be sufficient to meet our working capital and other business requirements for at least 12 months from the filing date of this Report. However, 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 availability of borrowing capacity under our Amended and Restated Credit Agreement and our ability to access capital markets as well as financial, business, and other factors affecting our operations, many of which are beyond our control. These factors include general and regional economic, financial, competitive, legislative, regulatory, and other factors such as health epidemics, economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine, the political climate related to China, and the conflict in Israel. We cannot guarantee we will generate sufficient cash flow from operations, or that future borrowings or capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. See Part I, Item 1A, “Risk Factors,” in its Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission on May 28, 2024, for additional information related to the foregoing risks.

Capital Resources

Our outstanding secured indebtedness under the Amended and Restated Credit Agreement is $411,000 as of December 31, 2024. The maturity date of the Amended and Restated Credit Agreement is April 29, 2026, and the outstanding balance is classified as long-term debt, net of debt issuance costs of $2,846, on our consolidated balance sheets as of December 31, 2024. For further description of the terms of the Amended and Restated Credit Agreement, see Note 11—Debt under the heading “Revolver” in the notes to our condensed consolidated financial statements under Part I, Item 1 of this Report.

The collateral pledged to secure our secured debt, consisting of substantially all of 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.

Our Amended and Restated Credit Agreement also contains a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio. 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 us.

The Company entered into a Fourth Amendment to the Amended and Restated Credit Agreement on August 6, 2024 to renegotiate its required covenants. Refer to Note 11—Debt for further discussion. As of December 31, 2024, we were in compliance with all covenants under the Amended and Restated Credit Agreement.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be less unfavorable to the Company.

Hosting Agreements

We enter into hosting agreements with service providers, and, in some cases, those agreements include minimum commitments that require us 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 $244,388 over the next six fiscal years.

Cash Flow Summary ($ in thousands)

Operating Activities

Our cash flows from operating activities are primarily driven by revenue generated from user acquisition and advertising activity, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from customers and payments to our carrier and publisher partners as well as other vendors. Our future cash flows from operating activities will be diminished if we cannot increase our revenue levels and manage costs appropriately. Cash provided by operating activities was $372 for the nine months ended December 31, 2024, compared to $40,433 for the nine months ended December 31, 2023. The decrease of $40,061 was due to the following:

• $110,669 decrease in net loss;
• $3,220 net increase due to changes in operating assets and liabilities, driven primarily by working capital changes, specifically accounts receivable and other current assets;
• $153,950 net decrease in non-cash charges during the nine months ended December 31, 2024 primarily related to the impairment of goodwill reported for the nine months ended December 31, 2023.

Investing Activities

Our primary investing activities have consisted of acquisitions of businesses, purchases of property and equipment, and capital expenditures in support of creating and enhancing our technology infrastructure. For the nine months ended December 31, 2024, net cash used in investing activities decreased by $6,464 to $20,533. Our cash used in investing activities for the nine months ended December 31, 2024 and December 31, 2023, was primarily comprised of capital expenditures related to internally-developed software.

Financing Activities

For the nine months ended December 31, 2024, net cash provided by financing activities was $23,245, which was comprised of: (1) the repayment of debt obligations of $13,000, (2) a payment of $1,627 for debt issuance costs, and (3) payment of payroll withholding taxes for net share settlement of equity awards of $231. These cash outflows were offset by cash inflows comprising of proceeds from borrowings of $38,000 and stock option exercises of $103.

For the nine months ended December 31, 2023, net cash used in financing activities was $39,275, which was comprised of: (1) the repayment of debt obligations of $62,134, (2) payment of payroll withholding taxes for net share settlement of equity awards of $1,176, and (3) payment of $3,751 for the acquisition of the remaining minority interest shareholders’ outstanding shares in one of our subsidiaries. These cash outflows were offset by cash inflows from proceeds from borrowings of $25,000 and stock option exercises of $2,786.

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, 2024, and Note 2—Basis of Presentation and Summary of Significant Accounting Policies,” of this Report on Form 10-Q for our fiscal third quarter ended December 31, 2024.

The Company has operations both within the U.S. and internationally and is exposed to market risks in the ordinary course of business - primarily interest rate and foreign currency exchange risks.

Interest Rate Fluctuation Risk

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

The Company’s borrowings under its Amended and Restated Credit Agreement are subject to variable interest rates and thus expose the Company to interest rate fluctuations, depending on the extent to which the Company utilizes its Amended and Restated Credit Agreement. As of December 31, 2024, the Company had $411,000 drawn against the Amended and Restated Credit Agreement and had $14,000 available to draw on the revolving line of credit under the Amended and Restated Credit Agreement, excluding the accordion feature, subject to the required covenants. As of December 31, 2024, the interest rate was 8.25% and the unused line of credit fee was 0.35%. Market interest rates have increased significantly, and if market interest rates continue to materially increase, the Company’s results of operations could be adversely affected. A hypothetical increase in market interest rates of 100 basis points would result in an increase in interest expense of $10 per year for every $1,000 of outstanding debt under the Company’s Amended and Restated Credit Agreement. The Company has not used any derivative financial instruments to manage its interest rate risk exposure. The Company is potentially exposed to refinancing risk in the future, should the Company seek to refinance its debt or raise new debt. As such, the type, cost, and terms of any new debt potentially raised in the future may differ from that of our existing debt agreements.

Foreign Currency Exchange Risk

Foreign currency exchange risk is the risk that the Company’s results of operations and/or financial condition could be affected by changes in exchange rates. The Company has transactions denominated in currencies other than the U.S. dollar, principally the euro, Turkish lira, and British pound, which expose the Company’s operations to risk from the effects of exchange rate movements. Such movements may impact future revenues, expenses, and cash flows. In certain of the Company’s foreign operations, the Company transacts primarily in the U.S. dollar, including for net revenue, revenue share, and employee-related compensation costs, which reduces the Company’s 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 also impact net income. As the Company’s foreign operations expand, results may be impacted further by fluctuations in the exchange rates of the currencies in which the Company does business. The Company has not used any derivative financial instruments to manage its foreign currency exchange risk exposure.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated 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 defined 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 rules and forms of the SEC. 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 our 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, regardless of how well they were designed and are operating, 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 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than as set forth below, the Company is not aware of any material changes to 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, 2024, filed with the Securities and Exchange Commission on May 28, 2024.

Our transformation program and reduction in force may not adequately reduce our operating costs or improve our operating margins or cash flows, may lead to additional workforce attrition and may cause operational disruptions.

In October 2024, the Company began a transformation program intended to improve various measures across the organization. These measures include but are not limited to current and future operating expenses, cash flows, and personnel costs. Additionally, the initiatives intend to simplify and streamline business operations, including product optimization, procurement and cost optimization, and team restructuring.

The charges and expenditures that we expect to incur in connection with the transformation program and reduction in force, and timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and we may incur costs that are greater than we currently expect in connection with the transformation program and reduction in force. The transformation program and reduction in force may yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, employee attrition beyond our intended reductions in force, a reduction in morale among our remaining employees, greater-than-anticipated costs incurred in connection with implementing the transformation program and reduction in force and the risk that we may not achieve the benefits from the transformation program and reduction in force to the extent or as quickly as we anticipate, all of which may have a material adverse effect on our results of operations or financial condition. These restructuring initiatives could place substantial demands on our management and employees, which could lead to the diversion of our management's and employees' attention from other business priorities. In addition, while we eliminated certain positions in connection with the transformation program and reduction in force, certain functions necessary to our reduced operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees or to external service providers, which could result in disruptions to our operations. We may also discover that the workforce reductions and other restructuring efforts will make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel, which may require us to incur additional and unanticipated costs and expenses. We may further discover that, despite the implementation of our transformation program and reduction in force, we may require additional capital to continue expanding our business, and we may be unable to obtain such capital on acceptable terms, if at all. Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our business, financial condition and results of operations.

Our corporate culture has contributed to our success, and if we cannot maintain this culture, we could lose the innovation, creativity, passion and teamwork that we believe contribute to our success and our business may be harmed.

We believe a critical contributor to our success has been our company culture, which we rely on to foster innovation, creativity, a customer-centric focus, passion, teamwork, collaboration and loyalty. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to ensure employees effectively focus on and pursue our company objectives. As we continue to evolve our business, we may find it difficult to maintain these important aspects of our culture, which could limit our ability to innovate and operate effectively. The effects of our transformation program and planned reduction in workforce could make it more difficult to preserve our company culture and could negatively impact employee morale.