Digital Turbine(APPS) - 2023 Q3 - Quarterly Report

Part I - Financial Information This part presents the company's unaudited financial statements, management's analysis, and market risk disclosures Item 1. Consolidated Financial Statements Presents the unaudited condensed consolidated financial statements for the period ended December 31, 2022 Condensed Consolidated Balance Sheets Balance Sheet Highlights | Balance Sheet Highlights (in thousands) | Dec 31, 2022 (Unaudited) | March 31, 2022 | | :--- | :--- | :--- | | Cash | $79,307 | $126,768 | | Accounts receivable, net | $231,001 | $263,139 | | Goodwill | $560,340 | $559,792 | | Intangible assets, net | $395,181 | $440,589 | | Total Assets | $1,352,675 | $1,458,509 | | Accounts payable | $154,320 | $167,858 | | Long-term debt, net | $422,310 | $520,785 | | Total Liabilities | $745,048 | $942,294 | | Total Stockholders' Equity | $605,649 | $514,571 | Condensed Consolidated Statements of Operations Income Statement | Income Statement (in thousands) | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $162,310 | $216,818 | $525,802 | $563,461 | | Income from operations | $9,797 | $29,139 | $55,314 | $64,816 | | Net income | $4,062 | $7,062 | $30,723 | $15,428 | | Diluted EPS | $0.04 | $0.07 | $0.30 | $0.15 | Condensed Consolidated Statements of Cash Flows Cash Flows | Cash Flows (in thousands) | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $97,514 | $43,462 | | Net cash used in investing activities | ($25,306) | ($163,884) | | Net cash provided by / (used in) financing activities | ($116,701) | $210,298 | | Net change in cash | ($47,301) | $84,322 | Notes to Condensed Consolidated Financial Statements Details significant accounting policies, recent acquisitions, segment restructuring, and legal contingencies - On November 1, 2022, the Company acquired In App Video Services UK LTD for an estimated total consideration between $2.25 million and $5.5 million[30][31] - Effective April 1, 2022, the company restructured its segments into 'On Device Solutions' (ODS) and a single 'App Growth Platform' (AGP) to drive efficiencies[53][54] - As of December 31, 2022, the company had $422.3 million in long-term debt, net of issuance costs, primarily from its revolving credit facility[76] - The company is facing shareholder class action and derivative complaints related to its May 2022 announcement of a financial restatement, with an uncertain outcome[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes financial performance, including a quarterly revenue decline and segment results Results of Operations Net Revenue by Segment | Net Revenue by Segment (in thousands) | Q3 FY23 (ended Dec 31, 2022) | Q3 FY22 (ended Dec 31, 2021) | % Change | | :--- | :--- | :--- | :--- | | On Device Solutions | $96,316 | $133,594 | (27.9)% | | App Growth Platform | $67,407 | $89,113 | (24.4)% | | Total net revenue | $162,310 | $216,818 | (25.1)% | - On Device Solutions (ODS) revenue decreased by 27.9% YoY for the quarter, driven by the ending of a carrier partnership and weak new device demand[118] - App Growth Platform (AGP) revenue decreased by 24.4% YoY for the quarter, attributed to weak advertising demand and broader market weakness[120] - License fees and revenue share decreased by 32.7% YoY for the quarter, falling from 50.3% to 45.2% of total net revenue due to changes in revenue mix[124] Liquidity and Capital Resources - As of December 31, 2022, primary liquidity sources included $79.3 million in unrestricted cash and $174.9 million available under its credit facility[141] - Cash flow from operating activities increased significantly to $97.5 million for the nine months ended Dec 31, 2022, up from $43.5 million in the prior-year period[149] - The company has minimum purchase commitments under hosting agreements totaling approximately $181.6 million over the next 4 years[144] - Net cash used in financing was $116.7 million for the nine-month period, primarily due to debt repayments of $129.5 million[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk Identifies primary market risks from interest rate fluctuations and foreign currency exchange exposure - The company is exposed to interest rate risk as its credit facility borrowings are at variable rates[155] - The company faces foreign currency exchange risk from transactions denominated in currencies other than the U.S. dollar, mainly the euro, Turkish lira, and British pound[157] Item 4. Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness in internal control[161] - The material weakness relates to business combinations, where a control was not adequately designed to conform an acquiree's accounting policies to company standards[160] - Remediation efforts are underway and management expects the remediation to be complete by March 31, 2023[163][164] Part II - Other Information Covers legal proceedings and updates to risk factors Item 1. Legal Proceedings Details shareholder class action and derivative complaints related to a financial restatement - Shareholders filed class action and derivative complaints against the company and its officers in mid-2022 following the announcement of a financial restatement[168] - The claims allege violations of federal securities laws and breaches of fiduciary duties, which the company denies and plans to defend against[168] Item 1A. Risk Factors Confirms no material changes to previously disclosed risk factors from the annual report - There are no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022[169]