Digital Turbine(APPS) - 2025 Q2 - Quarterly Results

Fiscal 2025 Second Quarter Financial Results Overview Digital Turbine reported mixed Q2 FY25 results with sequential revenue growth but year-over-year declines, improved GAAP net loss, and reduced non-GAAP profitability, alongside a new transformation program and acquisition Recent Financial Highlights Digital Turbine reported Q2 FY25 revenue of $118.7 million, a 1% quarter-over-quarter increase but a 17% year-over-year decline, with GAAP net loss significantly improving while Non-GAAP adjusted net income and EBITDA decreased year-over-year, alongside a transformation program and acquisition announcement Q2 FY25 Key Financial Highlights (in millions) | Metric | Q2 FY25 | Q2 FY24 | | :-------------------------------- | :------ | :------ | | Revenue | $118.7 | $143.3 | | GAAP Net Loss | ($25.0) | ($161.5) | | GAAP EPS | ($0.24) | ($1.61) | | Non-GAAP Adjusted Net Income | $5.0 | $13.9 | | Non-GAAP Adjusted EPS | $0.05 | $0.13 | | Non-GAAP Adjusted EBITDA | $15.3 | $27.7 | - Revenue increased 1% quarter-over-quarter but declined 17% year-over-year; GAAP net loss improved significantly year-over-year, primarily due to a $147.2 million noncash goodwill impairment charge in Q2 FY24; Non-GAAP adjusted net income and EBITDA both declined year-over-year[2][3] - The company initiated a transformation program targeting over $25.0 million in annual cash expense savings to drive efficiency and enhance cash flow; Digital Turbine also announced the acquisition of ONE Store International to create an alternative app ecosystem[3][4] CEO Commentary CEO Bill Stone noted a second consecutive quarter of sequential growth with expectations for continued sequential growth and a return to year-over-year growth in the March quarter, despite a reduced full fiscal year 2025 outlook due to legacy business headwinds and an ongoing strategic transformation project targeting over $25 million in annual cost savings - Achieved second consecutive quarter of sequential growth and anticipates continued sequential growth in the December quarter, with a return to year-over-year growth in the March quarter[5] - Fiscal 2025 outlook reduced due to significant anticipated headwinds in legacy businesses[5] - Enacted a strategic transformation project to drive greater efficiencies, enhance cash flow generation, and accelerate innovation, expected to yield over $25 million in annual cost savings[5] Detailed Financial Performance The company's Q2 FY25 revenue was $118.7 million with a GAAP net loss of $25.0 million, and it projects FY25 revenue between $475 million and $485 million Fiscal 2025 Second Quarter Financial Results (GAAP & Non-GAAP) Total revenue for Q2 FY25 was $118.7 million, with On Device Solutions contributing $82.4 million and App Growth Platform $37.3 million before intercompany eliminations, resulting in a GAAP net loss of $25.0 million, a substantial improvement from the prior year's $161.5 million loss, while Non-GAAP adjusted net income was $5.0 million and Non-GAAP adjusted EBITDA was $15.3 million, both showing year-over-year declines Q2 FY25 Detailed Financial Results (in millions) | Metric | Q2 FY25 | Q2 FY24 | | :-------------------------------- | :------ | :------ | | Total Revenue | $118.7 | $143.3 | | On Device Solutions Revenue (pre-elim) | $82.4 | $99.1 | | App Growth Platform Revenue (pre-elim) | $37.3 | $46.2 | | GAAP Net Loss | ($25.0) | ($161.5) | | GAAP EPS | ($0.24) | ($1.61) | | Non-GAAP Adjusted Net Income | $5.0 | $13.9 | | Non-GAAP Adjusted EPS | $0.05 | $0.13 | | Non-GAAP Adjusted EBITDA | $15.3 | $27.7 | Business Outlook for Fiscal Year 2025 For the full fiscal year 2025, Digital Turbine projects revenue to be between $475 million and $485 million, and Non-GAAP adjusted EBITDA to range from $65 million to $75 million, without providing a GAAP net income outlook due to the difficulty in estimating certain variable expenses FY25 Business Outlook (in millions) | Metric | Range | | :--------------------- | :------------------ | | Revenue | $475 - $485 | | Non-GAAP Adjusted EBITDA | $65 - $75 | - A business outlook for GAAP net income is not provided due to the inability to reasonably estimate changes in stock-based compensation expense and other difficult-to-predict items[7] Company Information Digital Turbine empowers mobile consumer experiences for telcos and advertisers, and held a conference call to discuss Q2 FY25 results About Digital Turbine, Inc. Digital Turbine empowers mobile consumer experiences and delivers results for leading telcos, advertisers, and publishers through its platform, which simplifies awareness, acquisition, and monetization, connecting partners with consumers across various devices, with headquarters in North America and global offices - Digital Turbine's core business is empowering superior mobile consumer experiences and results for telcos, advertisers, and publishers[8] - The company's end-to-end platform simplifies partners' abilities to supercharge awareness, acquisition, and monetization, connecting them with more consumers across more devices[8] Conference Call Details Digital Turbine hosted a conference call and webcast on November 6, 2024, at 6:00 p.m. ET to discuss Q2 FY25 financial results and operational updates, with replay options available for a week and an online webcast archive accessible for one year - A conference call and webcast were held on November 6, 2024, at 6:00 p.m. ET to discuss fiscal 2025 second quarter financial results and operational updates[9] - A playback was available through November 13, 2024, and an online webcast will be archived for one year on the Investor Relations section of Digital Turbine's website[10] Non-GAAP Financial Measures Digital Turbine uses various non-GAAP measures like adjusted net income, EBITDA, and free cash flow to provide a clearer view of core business performance by excluding specific non-recurring or non-cash items Use and Definition of Non-GAAP Measures Digital Turbine utilizes non-GAAP measures such as adjusted net income, EPS, EBITDA, free cash flow, and gross profit to complement GAAP financial statements, aiming to provide investors with a clearer understanding of the company's core business performance by excluding certain non-recurring or non-cash expenses, facilitating period-to-period comparisons and trend analysis, while emphasizing that these non-GAAP measures should not be considered in isolation or as a substitute for GAAP results - Non-GAAP measures (adjusted net income/EPS, EBITDA, free cash flow, gross profit) are used to supplement GAAP statements, enhancing understanding of current financial performance and prospects[11][12] - These measures provide meaningful supplemental information by excluding expenses and benefits not indicative of recurring core business operating results, improving comparability and transparency[12] - Non-GAAP measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared in accordance with GAAP[12] Non-GAAP Adjusted Net Income and EPS Definition Non-GAAP adjusted net income and EPS are defined as GAAP net income and EPS, respectively, adjusted to exclude specific items including stock-based compensation expense, amortization of intangibles, business transformation costs, transaction-related expenses, severance costs, impairment of goodwill, changes in fair value of contingent considerations, and tax adjustments - Non-GAAP adjusted net income and EPS exclude stock-based compensation, amortization of intangibles, business transformation costs, transaction-related expenses, severance costs, impairment of goodwill, changes in fair value of contingent considerations, and tax adjustments[13] Non-GAAP Adjusted EBITDA Definition Non-GAAP adjusted EBITDA is calculated by taking GAAP net income and excluding various cash and non-cash expenses, including stock-based compensation, depreciation and amortization, net interest income (expense), net other income (expense), business transformation costs, foreign exchange transaction gains (losses), income tax (benefit) provision, transaction-related expenses, impairment of goodwill, changes in fair value of contingent considerations, and severance costs - Non-GAAP adjusted EBITDA is GAAP net income excluding stock-based compensation, depreciation and amortization, net interest income (expense), net other income (expense), business transformation costs, foreign exchange transaction gains (losses), income tax (benefit) provision, transaction-related expenses, impairment of goodwill, changes in fair value of contingent considerations, and severance costs[14] Non-GAAP Free Cash Flow Definition Non-GAAP free cash flow is a non-GAAP financial measure derived from net cash provided by operating activities, excluding transaction-related expenses, severance costs, and business transformation costs, and further reduced by capital expenditures - Non-GAAP free cash flow is defined as net cash provided by operating activities, excluding transaction-related expenses, severance costs, and business transformation costs, reduced by capital expenditures[15] Non-GAAP Gross Profit Definition Non-GAAP gross profit is defined as GAAP income from operations adjusted to exclude specific cost categories, including product development costs, sales and marketing costs, general and administrative costs, impairment of goodwill, and depreciation of software - Non-GAAP gross profit is GAAP income from operations adjusted to exclude product development costs, sales and marketing costs, general and administrative costs, impairment of goodwill, and depreciation of software[16] Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to various risks, including operational challenges, industry competition, regulatory changes, intellectual property issues, and capital structure limitations Forward-Looking Statements Disclaimer This news release contains forward-looking statements regarding future results, financial position, economic conditions, and product releases, which involve known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations, and the company explicitly states it does not undertake to update these statements, except as required by law - The news release includes forward-looking statements concerning future results, financial position, economic conditions, and product releases, which are predictions of future performance or events[18] - These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied[18] - The Company does not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law[25] Risks Specific to Digital Turbine's Business Digital Turbine faces several business-specific risks, including a history of net losses, limited operating history for its current assets, significant demands on management due to growth, and global operational exposure to added business, political, regulatory, and economic risks, alongside highly variable financial results, reliance on a limited number of wireless carriers and customers, goodwill impairment, economic downturns, software errors, data security failures, IT system disruptions, cyber-attacks, talent retention challenges, acquisition integration issues, and potential litigation - Risks include a history of net losses, limited operating history for current assets, significant demands on management from growth, and global operational risks[19] - Financial results can vary significantly quarter-to-quarter, with a substantial portion of revenue derived from a limited number of wireless carriers and customers; there is also a risk of goodwill impairment and adverse effects from economic downturns[19] - Operational risks include software errors, data security failures, IT system failures, network disruptions, and cyber-attacks; challenges in hiring and retaining key talent, maintaining corporate culture, integrating future acquisitions, and potential litigation also pose risks[19] Risks Related to the Mobile Advertising Industry The mobile advertising industry is intensely competitive and rapidly evolving, posing risks of market decline or limited growth, with Digital Turbine's business dependent on the continued growth of smartphone usage and its ability to adapt to rapidly changing wireless technologies, facing challenges from device complexity, incompatibilities, potential security vulnerabilities, and shifts in technology platforms by wireless carriers and device manufacturers, alongside external factors like legal liability, public health issues, geopolitical conditions, and U.S.-China relations - The mobile advertising industry is intensely competitive and rapidly evolving, with markets that may decline or experience limited growth[20] - Business is dependent on the continued growth in smartphone usage and the ability to work with rapidly changing wireless technologies, facing challenges from device complexity and incompatibilities[20] - Risks include actual or perceived security vulnerabilities, legal liability for mobile and online services, public health issues, geopolitical conditions, and the geopolitical relationship between the U.S. and China[20] Industry Regulatory Risks Digital Turbine is subject to rapidly changing and increasingly stringent laws and regulations concerning privacy, data security, and child protection, with its international operations also governed by anti-corruption, import/export, and government sanction laws, and potential government regulation of marketing methods that could restrict the company's ability to adequately advertise and promote its products and services in certain jurisdictions - The company is subject to rapidly changing and increasingly stringent laws, regulations, and contractual requirements related to privacy, data security, and protection of children[21] - International operations are subject to anti-corruption, import/export, government sanction, and similar laws[21] - Government regulation of marketing methods could restrict or prevent the ability to adequately advertise and promote content, products, and services[21] Risks Related to Intellectual Property and Potential Liability Digital Turbine faces risks related to intellectual property, including the potential for third parties to improperly use its IP, which could adversely affect its competitive position if not adequately protected, and the company may also be sued for intellectual property infringement, leading to significant damage awards and business disruption, additionally, the platform's use of open-source software and indemnity provisions in various agreements expose the company to substantial liability for IP infringement, malicious software, and other losses - Third parties may obtain and improperly use the company's intellectual property, adversely affecting its competitive position if IP rights are not adequately protected[22] - The company may be sued for intellectual property infringement, which could prevent or limit IP use, disrupt business, and require significant damage awards[22] - The platform contains open-source software, and indemnity provisions in agreements potentially expose the company to substantial liability for intellectual property infringement, damages caused by malicious software, and other losses[23] Risks Relating to Common Stock and Capital Structure Digital Turbine's financial flexibility is limited by its secured and unsecured indebtedness, requiring significant cash generation for debt service and other obligations, with the market price of its common stock being highly volatile, and shareholders potentially unable to resell shares at or above their purchase price, alongside other risks including the inability to raise capital for growth, lack of securities or industry analyst research coverage, potential material weaknesses in internal control over financial reporting, and anti-takeover provisions in charter documents - Secured and unsecured indebtedness could limit financial flexibility, requiring significant cash generation dependent on factors beyond control[24] - The market price of common stock is likely to be highly volatile, with a risk of being unable to resell shares at or above the purchase price[24] - Risks include not being able to raise capital, lack of securities or industry analyst research coverage, potential material weakness in internal control over financial reporting, and anti-takeover provisions in charter documents[24] Condensed Consolidated Financial Statements Q2 FY25 financial statements show a net loss of $25.0 million, total assets of $844.5 million, and net cash used in operating activities of $8.7 million Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income For the three months ended September 30, 2024, Digital Turbine reported a net loss of $25.0 million on net revenue of $118.7 million, representing a significant improvement from the net loss of $161.5 million in the prior year, which included a substantial goodwill impairment charge, with loss from operations also improving considerably Condensed Consolidated Statements of Operations (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :------ | :------ | | Net Revenue | $118,728 | $143,259 | | Total Costs of Revenue & Operating Expenses | $132,270 | $295,876 | | Loss from Operations | ($13,542) | ($152,617) | | Total Interest & Other Expense, Net | ($10,044) | ($9,578) | | Loss Before Income Taxes | ($23,586) | ($162,195) | | Income Tax Provision (Benefit) | $1,400 | ($713) | | Net Loss | ($24,986) | ($161,482) | | Basic EPS | ($0.24) | ($1.61) | | Diluted EPS | ($0.24) | ($1.61) | Condensed Consolidated Balance Sheets As of September 30, 2024, Digital Turbine's total assets were $844.5 million, a decrease from $865.5 million at March 31, 2024, while total liabilities increased to $662.1 million from $651.6 million, primarily driven by an increase in long-term debt, consequently, total stockholders' equity decreased to $182.4 million from $213.9 million Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2024 | Mar 31, 2024 | | :-------------------------------- | :----------- | :----------- | | Total Current Assets | $243,889 | $242,341 | | Total Assets | $844,486 | $865,540 | | Total Current Liabilities | $223,631 | $236,024 | | Long-term Debt, net | $407,620 | $383,490 | | Total Liabilities | $662,116 | $651,608 | | Total Stockholders' Equity | $182,370 | $213,932 | Condensed Consolidated Statements of Cash Flows For the three months ended September 30, 2024, net cash used in operating activities was $8.7 million, a shift from $27.5 million provided in the prior year, with net cash used in investing activities at $7.5 million, and net cash provided by financing activities significantly improved to $13.4 million, compared to $20.2 million used in the prior year, resulting in an overall decrease of $3.0 million in cash and cash equivalents during the quarter Condensed Consolidated Statements of Cash Flows (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :------ | :------ | | Net Cash Provided by (Used in) Operating Activities | ($8,719) | $27,454 | | Net Cash Used in Investing Activities | ($7,477) | ($7,001) | | Net Cash Provided by (Used in) Financing Activities | $13,406 | ($20,244) | | Net Change in Cash & Cash Equivalents | ($2,964) | ($420) | | Cash & Cash Equivalents, End of Period | $32,765 | $58,649 | Supplemental Financial Data Supplemental data provides detailed revenue by segment and reconciliations for non-GAAP metrics such as gross profit, adjusted net income, EBITDA, and free cash flow Revenue by Segment In Q2 FY25, Digital Turbine's On Device Solutions segment generated $82.4 million in revenue, a 17% year-over-year decrease, while the App Growth Platform segment reported $37.3 million, down 19% year-over-year, resulting in consolidated revenue for the quarter of $118.7 million, representing a 17% year-over-year decline Revenue by Segment (Three Months Ended September 30, in thousands) | Segment | Q2 FY25 | Q2 FY24 | % Change | | :------------------ | :------ | :------ | :------- | | On Device Solutions | $82,414 | $99,060 | (17)% | | App Growth Platform | $37,346 | $46,183 | (19)% | | Consolidated | $118,728 | $143,259 | (17)% | GAAP (Loss) Income from Operations to Non-GAAP Gross Profit Reconciliation For Q2 FY25, Non-GAAP gross profit was $54.0 million, resulting in a Non-GAAP gross profit percentage of 45%, a decrease from 47% in Q2 FY24, with this reconciliation starting from GAAP loss from operations and adding back product development, sales and marketing, general and administrative costs, depreciation of software, and goodwill impairment Non-GAAP Gross Profit Reconciliation (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :------ | :------ | | (Loss) Income from Operations | ($13,542) | ($152,617) | | Add-back items (total) | $67,547 | $218,149 | | Non-GAAP Gross Profit | $54,005 | $67,032 | | Non-GAAP Gross Profit Percentage | 45% | 47% | GAAP Net (Loss) Income to Non-GAAP Adjusted Net Income Reconciliation Non-GAAP adjusted net income for Q2 FY25 was $5.0 million, down from $13.9 million in Q2 FY24, with this figure reconciled from GAAP net loss by adding back stock-based compensation, amortization of intangibles, tax adjustments, business transformation costs, severance costs, and goodwill impairment, while adjusting for changes in fair value of contingent consideration Non-GAAP Adjusted Net Income Reconciliation (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :------ | :------ | | Net (Loss) Income | ($24,986) | ($161,482) | | Add-back items (net) | $30,009 | $175,398 | | Non-GAAP Adjusted Net Income | $5,023 | $13,916 | | Non-GAAP Adjusted Net Income per Common Share | $0.05 | $0.13 | GAAP Net (Loss) Income to Non-GAAP Adjusted EBITDA Reconciliation Non-GAAP adjusted EBITDA for Q2 FY25 was $15.3 million, a decrease from $27.7 million in Q2 FY24, with this reconciliation beginning with GAAP net loss and adding back various non-cash and non-recurring expenses, including stock-based compensation, depreciation and amortization, net interest expense, income tax provision, and goodwill impairment Non-GAAP Adjusted EBITDA Reconciliation (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :------ | :------ | | Net (Loss) Income | ($24,986) | ($161,482) | | Add-back items (total) | $40,300 | $189,146 | | Non-GAAP Adjusted EBITDA | $15,314 | $27,664 | GAAP Cash Flow from Operating Activities to Non-GAAP Free Cash Flow Reconciliation Non-GAAP free cash flow for Q2 FY25 was a negative $15.7 million, a significant change from a positive $23.9 million in Q2 FY24, derived from net cash used in operating activities by adjusting for capital expenditures, transaction-related expenses, severance costs, and business transformation costs Non-GAAP Free Cash Flow Reconciliation (Three Months Ended September 30, in thousands) | Metric | Q2 FY25 | Q2 FY24 | | :------------------------------------ | :-------- | :-------- | | Net Cash Provided by (Used in) Operating Activities | ($8,719) | $27,454 | | Capital Expenditures | ($7,477) | ($7,001) | | Transaction-related Expenses | — | $79 | | Severance Costs | $268 | $809 | | Business Transformation Costs | $237 | $2,528 | | Non-GAAP Free Cash Flow Provided (Used) by Operations | ($15,691) | $23,869 |