Digital Turbine(APPS) - 2022 Q4 - Annual Report

PART I Business Digital Turbine operates an independent mobile growth platform providing end-to-end solutions for the mobile ecosystem - Digital Turbine is an independent mobile growth platform offering end-to-end products for advertisers, publishers, carriers, and OEMs, focusing on brand discovery, user acquisition, and monetization[10] - The company executed a strategy to become a leading end-to-end solution for mobile advertising and monetization through the recent acquisitions of Appreciate (March 2021), AdColony (April 2021), and Fyber (May 2021)[11] - The business is organized into three main product and solution categories: On Device Media (ODM), In-App Media - Fyber (IAM-F), and In-App Media - AdColony (IAM-A)[23][24][26] Product Development Expenses (FY2020-FY2022) | Fiscal Year Ended March 31 | Product Development Costs (in thousands) | | :--- | :--- | | 2022 | $52,723 | | 2021 | $20,119 | | 2020 | $12,018 | - In fiscal year 2022, no single customer represented more than 10% of net revenue, a contrast to prior years where major carriers were significant revenue sources[36][38] Risk Factors The company faces significant risks related to acquisition integration, industry competition, regulatory changes, and a material weakness in internal controls - The company's business is subject to numerous risks, including the failure to successfully integrate recent acquisitions, reliance on a limited number of wireless carriers, and the rapidly evolving nature of its markets[54] - The mobile advertising industry is intensely competitive, and the business depends on the continued growth of smartphone usage, which may be affected by changing technologies and consumer behavior[55] - The company is subject to increasingly stringent and rapidly changing laws related to privacy and data security, such as GDPR and CCPA, which could impose significant costs and restrictions[57] - A material weakness in internal control over financial reporting has been identified, which could result in material misstatements in financial statements if not remediated[62] - The Russia-Ukraine conflict is identified as a risk factor that could negatively impact geopolitical conditions, the global economy, and advertising spending, potentially affecting the company's operating results[85][86][87] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[271] Properties The company's principal executive offices are in Austin, Texas, with additional leased offices in the US and internationally - The company's main offices are in Austin, Texas[271] - Digital Turbine leases additional office properties in Durham, NC; Arlington, VA; San Mateo, CA; Los Angeles, CA; and San Francisco, CA[271] - International leased properties are located in Singapore, Berlin, Germany, and Tel Aviv, Israel[271] Legal Proceedings Information regarding legal proceedings is incorporated by reference from the notes to the consolidated financial statements - Details on legal proceedings are provided in Note 13 of the financial statements[273] Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable[274] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ under "APPS," with no cash dividends anticipated and no equity repurchases in fiscal year 2022 - Common stock is traded on the NASDAQ Capital Market under the symbol "APPS"[276] - As of May 24, 2022, there were 99 holders of record of the common stock[276] - The company has not paid cash dividends and does not plan to in the foreseeable future, with dividends also restricted by debt covenants[276] - No purchases of equity securities were made by the issuer during the fiscal year ended March 31, 2022[276] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2022 revenue grew 138.4% to $747.6 million, driven by organic growth and acquisitions, while expenses rose 157.6% Net Revenue by Segment (FY2022 vs. FY2021) | Segment | FY 2022 Net Revenue (in thousands) | FY 2021 Net Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | On Device Media | $502,636 | $313,579 | 60.3% | | In App Media - AdColony | $169,725 | $0 | 100.0% | | In App Media - Fyber | $92,611 | $0 | 100.0% | | Elimination | ($17,376) | $0 | (100.0)% | | Total Net Revenue | $747,596 | $313,579 | 138.4% | Costs of Revenue and Operating Expenses (FY2022 vs. FY2021) | Expense Category | FY 2022 (in thousands) | FY 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | License fees and revenue share | $370,648 | $178,649 | 107.5% | | Other direct costs of revenue | $29,838 | $2,358 | 1,165.4% | | Product development | $52,723 | $20,119 | 162.1% | | Sales and marketing | $63,309 | $19,304 | 228.0% | | General and administrative | $138,837 | $33,940 | 309.1% | | Total Costs & Expenses | $655,355 | $254,370 | 157.6% | - As of March 31, 2022, the company had $524.1 million drawn against its revolving credit facility, primarily to finance recent acquisitions[287] Cash Flow Summary (FY2022 vs. FY2021) | Cash Flow Activity | FY 2022 (in thousands) | FY 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $84,738 | $62,795 | | Net cash used in investing activities | ($172,002) | ($37,808) | | Net cash provided by / (used in) financing activities | $185,243 | ($15,216) | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations on its variable-rate debt and foreign currency exchange rates - The company's primary market risks are interest rate fluctuations and foreign currency exchange risk[382] - Borrowings under the credit facility are subject to variable interest rates; a 1% (100 basis points) increase in market rates would increase annual interest expense by $1 million for every $100 million of debt outstanding[384] - Foreign currency risk exists due to revenue and expenses denominated in currencies other than the U.S. dollar, which affects reported financial results upon translation[385] Financial Statements and Supplementary Data The auditor issued an unqualified opinion on financial statements but an adverse opinion on internal controls due to a material weakness - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements but an adverse opinion on the company's internal control over financial reporting as of March 31, 2022[392][404] - The adverse opinion on internal controls was due to a material weakness related to the failure to adequately conform the accounting policies of acquired companies to U.S. GAAP, specifically concerning revenue presentation and classification[405] Consolidated Balance Sheet Highlights (as of March 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,458,509 | $260,369 | | Goodwill | $559,792 | $80,176 | | Total Liabilities | $942,294 | $115,257 | | Long-term debt, net | $520,785 | $0 | | Total Stockholders' Equity | $514,571 | $145,112 | Consolidated Statement of Operations Highlights (Year Ended March 31) | Account | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net Revenue | $747,596 | $313,579 | | Income from continuing operations | $92,241 | $59,209 | | Net Income | $35,569 | $54,884 | | Diluted EPS | $0.35 | $0.57 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting principles, practices, or financial disclosures - None reported[574] Controls and Procedures Management concluded that disclosure controls were not effective as of March 31, 2022, due to a material weakness in internal control - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to a material weakness in internal control over financial reporting[576][578] - The material weakness relates to the company's internal control for business combinations, which did not adequately ensure that accounting policies of acquired companies were conformed to company policy and GAAP[584] - The error led to the improper gross presentation of certain revenues that should have been reported net and the misclassification of certain hosting costs[582][583] - A remediation plan is in place to strengthen accounting policy reviews for acquisitions, standardize contract review processes, and formalize the approval process for changes to the global chart of accounts[586] Other Information The company reports no other information for this item - None[587] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections The company reports no information for this item - None[587] PART III Directors, Executive Officers, and Corporate Governance Required information is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the 2022 Annual Meeting of Stockholders[589] Executive Compensation Required information is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the 2022 Annual Meeting of Stockholders[589] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Required information is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the 2022 Annual Meeting of Stockholders[589] Certain Relationships and Related Transactions and Director Independence Required information is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the 2022 Annual Meeting of Stockholders[589] Principal Accountant Fees and Services Required information is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the 2022 Annual Meeting of Stockholders[590] PART IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the report, including financial statements and various material exhibits - This section contains the index to Consolidated Financial Statements and a list of all exhibits filed with the report[592] - Financial statement schedules are omitted because they are not applicable or the required information is already included in the financial statements[592] Form 10-K Summary The company provides no summary for this item - None[597]