Digital Turbine(US:APPS)2024-02-07 22:09Financial Performance - Net revenue for the three months ended December 31, 2023, was $142,634, a decrease of 12.1% compared to $162,310 for the same period in 2022 [122]. - For the nine months ended December 31, 2023, net revenue was $432,259, down 17.8% from $525,802 in the prior year [123]. - On Device Solutions revenue decreased by $2,018 or 2.1% to $94,298 for the three months ended December 31, 2023, and by $31,811 or 9.8% to $291,608 for the nine months [125]. - App Growth Platform revenue fell by $18,226 or 27.0% to $49,181 for the three months and by $63,706 or 30.6% to $144,323 for the nine months [127]. - Total costs of revenue and operating expenses for the three months ended December 31, 2023, were $151,901, a slight decrease of 0.4% from $152,513 in 2022 [128]. - For the nine months, total costs increased by 27.3% to $598,858 compared to $470,488 in the previous year [129]. - Revenue share decreased by $3,006 or 4.1% to $70,364 for the three months ended December 31, 2023, and by $28,943 or 12.2% to $208,675 for the nine months [132]. - General and administrative expenses increased by 16.2% to $45,455 for the three months and by 11.4% to $127,339 for the nine months [128]. - The company reported a $214,665 thousand decrease in net income, which included a goodwill impairment charge of $147,181 thousand [167]. Goodwill Impairment - As of September 30, 2023, the company recognized a goodwill impairment charge of $147,181 for its AGP reporting unit due to a sustained decline in the market price of its common stock and unfavorable operating trends [112]. - The impairment of goodwill was recorded at $147,181 for the nine months ended December 31, 2023 [129]. - The company’s next annual evaluation of goodwill for impairment is scheduled for March 31, 2024, with potential for further impairments if growth rates decline [113]. - The company recorded a non-deductible, non-cash goodwill impairment charge of $147,181 for the AGP reporting unit for the quarter ended September 30, 2023 [150]. Business Transformation and Investments - The company incurred business transformation costs of $4,763 and $7,291 for the three and nine months ended December 31, 2023, respectively, related to the implementation of a new global cloud-based ERP system [119]. - The company is undertaking a multi-year business transformation initiative aimed at improving operational efficiency through new systems and platforms [118]. - The company entered into an agreement to invest $10,000 in One Store, the largest alternative app store in South Korea, with additional investments contingent on performance milestones [117]. - The company incurred total business transformation, severance, and transaction costs of $5,718 and $9,535 for the three and nine months ended December 31, 2023, respectively [131]. Economic and Market Conditions - The company has observed a decrease in mobile device sales volume, attributed to inflation and economic uncertainty, which may continue to impact its business and financial condition [106]. - The company’s financial performance is influenced by macroeconomic conditions, including inflation and consumer confidence, which have led to a global slowdown in economic activity [105]. - The company is actively monitoring geopolitical developments, including the conflict in Israel, which could potentially affect its operations given its significant presence in the region [108]. - The company continues to face risks from U.S. government actions against China-based developers, which could negatively impact its business operations [109]. Debt and Cash Management - As of December 31, 2023, the company had unrestricted cash of approximately $48,959 and $149,000 available to draw under the New Credit Agreement [156]. - Outstanding secured indebtedness under the New Credit Agreement is $376,000 as of December 31, 2023, with a maturity date of April 29, 2026 [160]. - The company amended its New Credit Agreement to increase the limit of permitted investments from $20,000 to $75,000 and adjusted the interest rate to SOFR plus between 1.50% and 2.75% [116]. - Cash flows from operating activities generated for the nine months ended December 31, 2023, amounted to $40,433 [156]. - Net cash provided by operating activities decreased to $40,433 thousand for the nine months ended December 31, 2023, down 58.5% from $97,514 thousand in the same period of 2022 [164]. - Net cash used in investing activities increased to approximately $26,997 thousand for the nine months ended December 31, 2023, compared to $25,306 thousand in the prior year, primarily due to capital expenditures [168]. - Net cash used in financing activities was approximately $39,275 thousand, a significant decrease from $116,701 thousand in the same period of 2022, mainly due to reduced debt repayment [169]. - The company has minimum purchase commitments under hosting agreements totaling approximately $278,600 thousand over the next four fiscal years [163]. Expenses and Costs - Product development expenses decreased by $1,182 or 8.3% to $13,036 for the three months ended December 31, 2023, compared to $14,218 for the same period in 2022 [136]. - Sales and marketing expenses decreased by $2,037 or 12.4% to $14,432 for the three months ended December 31, 2023, remaining at 10.1% of total net revenue [141]. - Interest expense, net, increased by $753 or 10.9% for the three months ended December 31, 2023, primarily due to an increase in interest rates of 201 basis points [154]. - Product development expenses as a percentage of total net revenue for the nine months ended December 31, 2023, increased to 9.1% from 7.8% in the prior year [140]. Foreign Currency and Interest Rate Risks - The company is exposed to foreign currency exchange risks, particularly with transactions in euros, Turkish lira, and British pounds, which may impact future revenues and cash flows [175]. - 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 credit facility [174].