Digital Turbine(APPS) - 2023 Q4 - Annual Report

Financial Performance and Results - Net revenue for 2023 was $665.9 million, down 10.9$747.6 million in 2022[307] - Net income attributable to Digital Turbine, Inc. was $16.67 million in 2023, a decrease of 53.1$35.55 million in 2022[307] - Basic net income per common share was $0.17 in 2023, down from$0.37 in 2022[307] - Diluted net income per common share was $0.16 in 2023, down from$0.35 in 2022[307] - Total costs of revenue and operating expenses decreased to $619.76 million in 2023 from$655.36 million in 2022, a 5.4% reduction[307] - Net income for the year 2023 was $16.87 million, a decrease from$35.57 million in 2022 and $54.88 million in 2021[309] - Net cash provided by operating activities in 2023 was$113.38 million, compared to $84.74 million in 2022 and$62.80 million in 2021[309] - Depreciation and amortization expenses increased to $81.07 million in 2023 from$57.45 million in 2022 and $7.11 million in 2021[309] - Stock-based compensation expense rose to$30.40 million in 2023, up from $19.30 million in 2022 and$5.88 million in 2021[309] - Net cash used in investing activities was $35.07 million in 2023, significantly lower than$172.00 million in 2022 and $37.81 million in 2021[309] - Net cash provided by (used in) financing activities was$(128.29) million in 2023, compared to $185.24 million in 2022 and$(15.22) million in 2021[309] - Common stock issued for the acquisition of Fyber was $50.00 million in 2023, down from$356.69 million in 2022[309] - Total stockholders' equity at March 31, 2023 was $516.22 million, up from$145.11 million in 2021[312] - Foreign currency translation loss was $(2.60) million in 2023, compared to$(38.44) million in 2022 and $(312) thousand in 2021[312] - Additional paid-in capital increased to$745.66 million in 2022 from $360.22 million in 2021, and further to$776.91 million in 2023[312] - The company's balance at March 31, 2023, was $99,458,369, with a net share settlement of equity awards resulting in a withholding tax payment of$6,709[313] Revenue Recognition and Segments - The company's revenue recognition is based on fixed CPM, CPI, or CPA arrangements, with revenue recognized upon ad rendering or end consumer action completion[320] - The company's On Device Solutions (ODS) segment operates under a revenue share model with OEMs and carriers, offering services such as SaaS platform access and hosting[322] - The company's ODS - Application Media segment operates through CPI, CPP, and CPA arrangements, with revenue recognized upon application delivery to end-user devices[323] - The company's ODS - Content Media segment offers programmatic advertising and targeted media content delivery under CPM and page-view arrangements[324] - The company's AGP - Marketplace segment facilitates real-time bidding auctions for ad inventory, with revenue recognized based on impressions and bid prices[327] - The company's AGP - Brand and Performance segment contracts directly with advertisers, recognizing revenue based on CPM or CPI rates[328] Acquisitions and Integration - The company recently completed acquisitions of Appreciate, AdColony, and Fyber, aiming to integrate these businesses to achieve strategic goals in mobile advertising and monetization[54] - Integration challenges with recent acquisitions could lead to unforeseen expenses, delays, or failure to realize anticipated benefits[54][57] - The company plans to pursue acquisitions to expand its business, but these could involve significant costs, integration challenges, and potential dilution of stockholder value[84][87] - The company initiated two significant acquisitions in the fiscal quarter ended June 30, 2021[313] Expenses and Costs - The company expects to increase expenses significantly due to initiatives such as new product development, international and domestic expansion, and infrastructure growth[50] - The company capitalized software development costs of $22,816,$23,784, and $8,859 for fiscal years 2023, 2022, and 2021, respectively[338] - The company's software development costs are amortized over a 3-year useful life[338] - The company made contributions to the 401(k) plan of$1,360, $811, and$558 for the years ended March 31, 2023, 2022, and 2021, respectively[342] Risks and Challenges - The company has a history of net losses and may incur substantial net losses in the future, potentially failing to achieve or sustain profitability[50] - The company faces risks in international operations, including regulatory compliance, cultural differences, and higher costs, which could hinder growth[59] - Revenue and operating results may vary significantly due to factors such as seasonal advertiser spending, product release timing, and economic conditions[62][63] - A significant portion of the company's revenue is derived from a limited number of wireless carriers and customers, making it vulnerable to changes in these relationships[64][67] - Advertising spend levels significantly impact revenue, and a reduction in advertising budgets could negatively affect financial performance[68] - The company may face goodwill impairment, potentially requiring a significant charge to earnings[70] - Global economic downturns, inflation, and geopolitical instability could adversely affect the company's business, operating results, and financial condition[71] - The company relies on complex software for its products and services, which may contain undetected errors, bugs, or vulnerabilities, potentially leading to customer dissatisfaction, delayed product launches, and financial losses[74] - The company handles confidential and personally identifiable information, and any failure to safeguard this data could result in reputational harm, legal liabilities, and financial damages[75][76] - Cybersecurity risks, including data breaches and cyber-attacks, could disrupt operations, damage the company's reputation, and negatively impact revenue and stock price[77][78] - The company faces challenges in hiring and retaining key talent, particularly in high-demand regions with high living costs, which could affect its ability to meet operational and managerial requirements[80][81] - The company is implementing a new ERP system globally, and any delays or issues in this process could disrupt business operations and financial reporting[88][89] - The company operates in a highly competitive mobile advertising industry, facing competition from major players like Google, Facebook, and Amazon, which could impact market share and profitability[93][94] - Rapid technological changes in mobile devices and networks require the company to continuously adapt its products and services, with failure to do so potentially limiting market opportunities[96][97] - The company must navigate evolving regulatory requirements, particularly in data protection, which could increase operational costs and restrict business activities[99] - The company's financial stability could be affected by adverse developments in the financial services industry, including liquidity issues or defaults by financial institutions[89][90] - The company's business depends on the continued growth in usage of smartphones, tablets, and other mobile connected devices, which could be inhibited by factors such as inadequate network infrastructure, security concerns, and changes in network carrier pricing plans[101][102] - Rapid changes in wireless communication technologies may require the company to invest heavily in product development to remain competitive, potentially delaying product releases and increasing costs[103] - The complexity and incompatibility among mobile devices necessitate continuous investment in product development and maintenance, which could lead to increased costs as more advanced devices are introduced[104] - A decline in wireless subscribers' use of mobile devices to access content and applications could adversely affect the company's business growth and future revenue[106] - Security vulnerabilities in mobile devices or wireless networks could lead to reduced user engagement and delayed adoption of new devices, negatively impacting the company's revenue[109] - The company faces potential legal liabilities related to intellectual property and data privacy, which could result in costly legal actions and require changes to its business operations[111] - The COVID-19 pandemic has caused significant disruptions to the global economy, and its ongoing impact on the company's operations and financial performance remains uncertain[113][114] - The Russia-Ukraine conflict has created geopolitical instability and economic disruptions, including inflation and supply chain issues, which could adversely affect the company's business[115] - Trade tensions between the U.S. and China, along with regulatory changes in China, could restrict the company's ability to operate in Chinese markets and impact its business[116][118] - The company is subject to stringent data protection laws, such as the GDPR and UK GDPR, which impose significant compliance requirements and potential fines for breaches[120][121] - The company is subject to the Brazilian General Data Protection Law enacted in September 2020, which imposes similar obligations to GDPR[123] - The California Consumer Privacy Act (CCPA) took effect on January 1, 2020, and became enforceable on July 1, 2020, creating new privacy rights for California consumers and increasing compliance costs[125] - The California Privacy Rights Act (CPRA) was passed on November 3, 2020, and will take substantial effect on January 1, 2023, expanding consumer rights and increasing regulation on online advertising[126] - Virginia, Colorado, and Utah have passed privacy laws taking effect in 2023, with Virginia's law effective January 1, 2023, Colorado's on July 1, 2023, and Utah's on December 31, 2023[127] - The EU-US Privacy Shield Framework was invalidated by the CJEU on July 16, 2020, creating uncertainty for cross-border data transfers from the EEA to the U.S.[129] - The U.S. and EU announced an "agreement in principle" on March 25, 2022, for a new trans-Atlantic data transfer framework, but its implementation and legal standing remain unclear[133] - China's Personal Information Protection Law and Data Security Law, effective November 1, 2021, impose stringent data transfer requirements, including data subject consent[134] - The Children's Online Privacy Protection Act (COPPA) in the U.S. requires parental consent for collecting personal information from children under 13, with increased enforcement in recent years[137] - The company faces potential fines, litigation, and reputational harm due to non-compliance with privacy laws, including GDPR, CCPA, and other global regulations[140] - The company is subject to anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, with risks increasing in countries with high corruption levels[140] - Regulatory changes in marketing and advertising could significantly impact the company's revenue and financial condition[144][145] - Potential health concerns related to mobile phone use may increase government regulation and reduce demand for the company's products[147] - Intellectual property risks include potential infringement claims and the need for costly litigation to protect rights[150][152][153] - Use of open-source software in the company's platform poses risks of security vulnerabilities and potential legal disputes[155][156][159] - The company faces potential litigation risks, including class action lawsuits, which could result in significant costs and management distraction[160][161] - Indemnity provisions in agreements with carriers and customers expose the company to substantial liability for intellectual property infringement and other losses[162] - The company has secured and unsecured indebtedness totaling $413,134 as of March 31, 2023, which could limit financial flexibility and increase vulnerability to economic conditions[164] - Variable interest rates on the company's credit facility expose it to interest rate fluctuations, potentially adversely affecting operations[165] - The company's ability to service debt and fund capital requirements depends on future performance and factors beyond its control[167] - The market price of the company's common stock is highly volatile and subject to wide fluctuations due to various external factors[168][170] - The company does not anticipate paying dividends due to restrictions from secured and unsecured indebtedness, and the Board of Directors does not intend to declare dividends for the foreseeable future[174] - A material weakness in internal control over financial reporting was identified, which could result in material misstatements if not remediated. Management concluded that internal controls were not effective as of March 31, 2022[176][177] - The company is exposed to interest rate fluctuation risk, with a hypothetical 100 basis points increase in market interest rates resulting in an additional$10 interest expense per year for every $1,000 of outstanding debt[283] - Foreign currency exchange risk impacts the company's operations, particularly with transactions in euros, Turkish lira, and British pounds. Fluctuations in exchange rates may affect future revenues, expenses, and cash flows[284] - The company's financial statements for the fiscal years ending March 31, 2023, and 2022 were audited and found to present fairly in accordance with U.S. GAAP[288] - A critical audit matter was identified regarding the goodwill impairment assessment of the App Growth Platform reporting unit, involving subjective and complex judgments in discounted future cash flow assumptions[292][293] - The company has not used derivative financial instruments to manage interest rate or foreign currency exchange risk exposure[283][284] - The company's internal control remediation efforts may divert management's attention from other business concerns, potentially harming operating results and financial condition[180] - The company's bylaws include anti-takeover provisions that could limit stockholder actions and affect the market price of its common stock[182][183] - The company's foreign operations may face increased exposure to currency exchange rate fluctuations as they expand[284] Assets and Liabilities - Total assets decreased to$1.266 billion in 2023 from $1.458 billion in 2022, a decline of 13.2$75.06 million in 2023 from $126.77 million in 2022, a 40.8$178.19 million in 2023 from $263.14 million in 2022, a 32.3$410.52 million in 2023 from $520.79 million in 2022, a 21.2$2,386, $39,395, and$312 for the years ended March 31, 2023, 2022, and 2021, respectively[345] Technology and Development - The company relies on complex software for its products and services, which may contain undetected errors, bugs, or vulnerabilities, potentially leading to customer dissatisfaction, delayed product launches, and financial losses[74] - The company uses the Black-Scholes option pricing model to value stock options, involving subjective assumptions like expected volatility, interest rates, dividend rates, and option's expected life[341] Regulatory Compliance - The company is subject to stringent data protection laws, such as the GDPR and UK GDPR, which impose significant compliance requirements and potential fines for breaches[120][121] - The company is subject to the Brazilian General Data Protection Law enacted in September 2020, which imposes similar obligations to GDPR[123] - The California Consumer Privacy Act (CCPA) took effect on January 1, 2020, and became enforceable on July 1, 2020, creating new privacy rights for California consumers and increasing compliance costs[125] - The California Privacy Rights Act (CPRA) was passed on November 3, 2020, and will take substantial effect on January 1, 2023, expanding consumer rights and increasing regulation on online advertising[126] - Virginia, Colorado, and Utah have passed privacy laws taking effect in 2023, with Virginia's law effective January 1, 2023, Colorado's on July 1, 2023, and Utah's on December 31, 2023[127] - The EU-US Privacy Shield Framework was invalidated by the CJEU on July 16, 2020, creating uncertainty for cross-border data transfers from the EEA to the U.S.[129] - The U.S. and EU announced an "agreement in principle" on March 25, 2022, for a new trans-Atlantic data transfer framework, but its implementation and legal standing remain unclear[133] - China's Personal Information Protection Law and Data Security Law, effective November 1, 2021, impose stringent data transfer requirements, including data subject consent[134] - The Children's Online Privacy Protection Act (COPPA) in the U.S. requires parental consent for collecting personal information from children under 13, with increased enforcement in recent years[137] - The company faces potential fines, litigation, and reputational harm due to non-compliance with privacy laws, including GDPR, CCPA, and other global regulations[140] - The company is subject to anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, with risks increasing in countries with high corruption levels[140] - Regulatory changes in marketing and advertising could significantly impact the company's revenue and financial condition[144][145] - Potential health concerns related to mobile phone use may increase government regulation and reduce demand for the company's products[147]