# Digital Turbine, Inc. (APPS) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Digital Turbine, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/317788/000162828024025455/apps-20240331.htm
Accession: 0001628280-24-025455
Filing date: 2024-05-28
Report date: 2024-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/APPS/
All MD&A years: /company/APPS/mda/
Previous year: /company/APPS/mda/fy2023/ (FY 2023)
Next year: /company/APPS/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes appearing in Item 8. Financial Statements and Supplementary Data. This section of our Annual Report generally discusses the results of our operations for the year ended March 31, 2024, compared with the year ended March 31, 2023. For a discussion of the results of our operations for the year ended March 31, 2023, compared with the year ended March 31, 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the fiscal year ended March 31, 2023. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs, and expected performance. The forward-looking statements are dependent upon events, risks, and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed below and elsewhere in this Annual Report, particularly in Item 1A. Risk Factors and the Cautionary Note Regarding Forward-Looking Statements, all of which are difficult to predict. In light of these risks, uncertainties, and assumptions, the forward-looking statements discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

All U.S. dollar amounts, except share and per share amounts, in this Annual Report are in thousands.

Company Overview

Digital Turbine, Inc., through its subsidiaries (collectively “Digital Turbine” or the “Company”), is a leading independent mobile growth platform that levels up the landscape for advertisers, publishers, carriers, and device “OEMs”. We offer end-to-end products and solutions leveraging proprietary technology to all participants in the mobile application ecosystem, enabling brand discovery and advertising, user acquisition and engagement, and operational efficiency for advertisers. In addition, our products and solutions provide monetization opportunities for OEMs, carriers, and application (“app” or “apps”) publishers and developers.

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Recent Developments

Credit Agreement

The Company entered into a Third Amendment to the New Credit Agreement (as defined under the caption “Revolver” in Note 11—Debt of the notes to the consolidated financial statements in Part II, Item 8 of this Annual Report) on February 5, 2024 to provide further financing flexibility to fund strategic growth initiatives and meet general corporate obligations. The Third Amendment to the New Credit Agreement amended the maximum consolidated secured net leverage covenant and the minimum consolidated net interest coverage covenant. In addition, it increased the limit of permitted, other investments, including equity investments and joint ventures from $20,000 in the aggregate in any fiscal year of the Company to $75,000 and increased the annual interest rate, which will be SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio.

As of March 31, 2024, we had $386,000 drawn against the revolving line of credit under the New Credit Agreement. The proceeds from the borrowings were primarily used to finance past acquisitions. As of March 31, 2024, the interest rate was 7.71% and the unused line of credit fee was 0.35%, and we were in compliance with the consolidated leverage ratio, interest coverage ratio, and other covenants under the New Credit Agreement.

Business Transformation Initiative

Beginning in fiscal year 2023, the Company entered into a business transformation project that includes the implementation of a new, global cloud-based enterprise resource planning (“ERP”) system to upgrade our existing enterprise-wide operating systems. Additionally, a new human resource system was also implemented to streamline employee management processes and enhance organizational effectiveness. We are also undertaking the consolidation of existing ancillary systems and deploying other new platforms and systems to improve our operations and drive business and cost efficiencies.

This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services with business partners engaged in the planning, design and business process review that would not qualify as software configuration and implementation costs. In addition, the Company is incurring duplicative personnel and other operating costs to maintain legacy systems and operations during the deployment of the new systems and certain other ancillary platforms and systems. The Company completed the first deployment phase in the third quarter of fiscal year 2024. Costs are anticipated to be incurred through various deployment phases that are expected to continue through early fiscal year 2026. The Company incurred $9,417 of business transformation costs in the twelve months ended March 31, 2024. These costs are recorded in General and Administrative expenses and Product Development expenses in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

Impact of Economic Conditions and Geopolitical Developments

Our results of operations are affected by macroeconomic conditions and geopolitical developments, including but not limited to levels of business and consumer confidence, actions taken by governments to counter inflation, potential trade disputes, including but not limited to any U.S. government actions against China based app developers and publishers, the recent conflict in Israel, and Russia’s invasion of Ukraine.

Inflation, rising interest rates, supply chain disruptions, and reduced business and consumer confidence have caused and may continue to cause a global slowdown of economic activity, which has caused and may continue to cause a decrease in demand for a broad variety of goods and services, including those provided by our clients.

We are impacted by the volume of sales of new mobile devices by our partners, which has been below our expectations. We believe this is driven by the impact of inflation, economic uncertainty, and their potential impacts on consumers. These negative macroeconomic trends have resulted, and may continue to result, in a decrease in mobile phone sales volume. Continued weakness in the sale of new mobile devices is likely to continue to impact our business, financial condition, and results of operations, the full impact of which remains uncertain at this time.

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Further, various U.S. federal and state governmental agencies continue to examine the distribution and use of apps developed and/or published by China based companies. In some cases, government agencies have banned certain apps from mobile devices. Further actions by U.S. federal or state governmental agencies or other countries to restrict or ban the distribution of China based apps could negatively impact our business, financial condition, and results of operations.

While the financial impact of Russia’s invasion of Ukraine has not had a direct, material impact on our business, any European conflict, if expanded to include other countries would likely have a material, negative impact on general economic conditions and would impact our business directly.

Additionally, we continue to actively monitor the recent and ongoing conflict in Israel and the Gaza Strip for any material impacts to our business. While no adverse financial or operational impacts have been noted in the current period, if such conflict continues or escalates, it could have a potential negative impact on our business, given our significant presence in the region.

The extent of the impact of these macroeconomic factors on our operational and financial performance is also dependent on their impact on carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, as well as the impact on application developers and in-app advertisers. If negative macroeconomic factors or geopolitical developments continue to materially impact our partners over a prolonged period, our results of operations and financial condition could also be adversely impacted, the size and duration of which we cannot accurately predict at this time.

We continue to actively monitor these factors and we may take further actions that alter our business operations, as required, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. In addition to monitoring the developments described above, the Company also considers the impact such factors may have on our accounting estimates and potential impairments of our non-current assets, which primarily consist of goodwill and finite-lived intangible assets.

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment, including qualitative and quantitative factors such as the identification of reporting units, identification and allocation of assets and liabilities to reporting units, and determinations of fair value. In estimating the fair value of our reporting units when performing our annual impairment test, or when an indicator of impairment is present, we make estimates and significant judgments about the future cash flows of those reporting units and other estimates including appropriate discount rates. Discount rates can fluctuate based on various economic conditions including our capital allocation and interest rates, including the interest rates on U.S. treasury bonds. Changes in judgments on these assumptions and estimates could result in goodwill impairment charges.

Finite-lived intangible assets and property, plant, and equipment are amortized or depreciated over their estimated useful lives on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period or an impairment. We test these assets for potential impairment whenever we conclude events or changes in circumstances indicate carrying amounts may not be recoverable.

As of March 31, 2024, we considered the developments discussed above, our current operating results, and our estimates of future operating results. Please see Note 2—Basis of Presentation and Summary of Significant Accounting Policies for further information.

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RESULTS OF OPERATIONS

The following table sets forth our results of operations for the years ended March 31, 2024 and 2023 (in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","Year ended March 31,"],["","","","","","","","","2024","","2023","","% of Change"],["Net revenue","","","","","","","","$","544,482","","","$","665,920","","","(18.2)","%"],["Costs of revenue and operating expenses"],["Revenue share","","","","","","","","262,226","","","309,247","","","(15.2)","%"],["Other direct costs of revenue","","","","","","","","34,799","","","36,445","","","(4.5)","%"],["Product development","","","","","","","","54,157","","","56,486","","","(4.1)","%"],["Sales and marketing","","","","","","","","61,481","","","63,295","","","(2.9)","%"],["General and administrative","","","","","","","","169,617","","","154,282","","","9.9","%"],["Impairment of goodwill","","","","","","","","336,640","","","\u2014","","","100.0","%"],["Total costs of revenue and operating expenses","","","","","","","","918,920","","","619,755","","","48.3","%"],["(Loss) income from operations","","","","","","","","(374,438)","","","46,165","","","(911.1)","%"],["Interest and other (expense) income, net"],["Change in fair value of contingent consideration","","","","","","","","372","","","\u2014","","","100.0","%"],["Interest expense, net","","","","","","","","(30,838)","","","(23,352)","","","32.1","%"],["Foreign exchange transaction gain (loss)","","","","","","","","101","","","(1,026)","","","(109.8)","%"],["Other (expense) income, net","","","","","","","","(328)","","","229","","","(243.2)","%"],["Total interest and other (expense) income, net","","","","","","","","(30,693)","","","(24,149)","","","27.1","%"],["(Loss) income before income taxes","","","","","","","","(405,131)","","","22,016","","","(1940.2)","%"],["Income tax provision","","","","","","","","15,317","","","5,146","","","197.6","%"],["Net (loss) income","","","","","","","","(420,448)","","","16,870","","","(2592.3)","%"]]
[[/GREPCENT_TABLE]]

Net revenue ($ in thousands)

[[GREPCENT_TABLE]]
[["","","Year ended March 31,"],["","","2024","","2023","","% of Change"],["Net revenue"],["On Device Solutions","","$","370,112","","","$","420,328","","","(11.9)","%"],["App Growth Platform","","178,760","","","252,995","","","(29.3)","%"],["Elimination","","(4,390)","","","(7,403)","","","40.7","%"],["Total net revenue","","$","544,482","","","$","665,920","","","(18.2)","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2024 compared to fiscal 2023

During the year ended March 31, 2024, net revenue decreased by $121,438 or 18.2% compared to the prior year. See the segment discussion below for further details regarding net revenue.

On Device Solutions

ODS revenue for the year ended March 31, 2024, decreased by $50,216 or 11.9% compared to the year ended March 31, 2023. Revenue from content media declined by approximately $30,812 primarily due to the end of a carrier partnership that resulted in lower daily active users on prepaid devices. Revenue from application media declined by approximately $19,403 primarily due to lower new device volume in the U.S. and internationally and weakness in mobile advertising and user acquisition spending.

App Growth Platform

AGP revenue for the year ended March 31, 2024, decreased by $74,235 or 29.3% compared to the year ended March 31, 2023. The decrease was primarily due to a decline in brand and performance advertising of approximately $41,963 and a decline in advertising exchange of approximately $21,275 due to broader weakness in

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mobile advertising markets and the impact of the consolidation and exiting of certain legacy AdColony platforms and business lines. In addition, there was a decline of approximately $10,997, primarily due to the end of a reseller partnership in the Nordic region.

Costs of revenue and operating expenses ($ in thousands)

[[GREPCENT_TABLE]]
[["","","Year ended March 31,"],["","","2024","","2023","","% of Change"],["Costs of revenue and operating expenses"],["Revenue share","","$","262,226","","","$","309,247","","","(15.2)","%"],["Other direct costs of revenue","","34,799","","","36,445","","","(4.5)","%"],["Product development","","54,157","","","56,486","","","(4.1)","%"],["Sales and marketing","","61,481","","","63,295","","","(2.9)","%"],["General and administrative","","169,617","","","154,282","","","9.9","%"],["Impairment of goodwill","","336,640","","","\u2014","","","100.0","%"],["Total costs of revenue and operating expenses","","$","918,920","","","$","619,755","","","48.3","%"]]
[[/GREPCENT_TABLE]]

Fiscal 2024 compared to fiscal 2023

For the year ended March 31, 2024, total costs of revenue and operating expenses increased by $299,165 compared to the year ended March 31, 2023.

Total costs of revenue and operating expenses included total impairment of goodwill charges of $336,640. Excluding the impairment of goodwill, total costs of revenue and operating expenses decreased by $37,475 or 6.0% for the year ended March 31, 2024, compared to the year ended March 31, 2023.

The increase in total costs of revenue and operating expenses is primarily due to the impairment of goodwill charges in 2024 of $336,640 partially offset by lower revenue share, which is the result of lower revenue over the same comparative periods. Costs of revenue and operating expenses included total business transformation costs, severance and transaction costs of $9,418, $2,795 and $338, respectively, for the year ended March 31, 2024, compared to $0, $2,174, and $4,739, respectively, for the year ended March 31, 2023.

Revenue share

Revenue share includes amounts paid to our carrier and OEM partners, as well as app publishers and developers through revenue sharing arrangements or via direct cost-per-thousand (“CPM”), cost-per-install (“CPI”), cost-per-placement (“CPP”), or cost-per-acquisition (“CPA”) arrangements, and are recorded as a cost of revenue. In addition, when indirect arrangements exist through advertising aggregators (ad networks) and revenue is shared with our carrier and app development partners, the shared revenue is also recorded as a cost of revenue.

Revenue share decreased by $47,021 to $262,226 for the year ended March 31, 2024, and was 48.2% as a percentage of total net revenue compared to $309,247, or 46.4% of total net revenue, for the year ended March 31, 2023.

The increase in revenue share as a percentage of total net revenue for the year ended March 31, 2024, compared to the prior year, was primarily due to revenue mix changes, specifically net revenue from AGP, which has a higher margin profile, representing a lower portion of total revenue. In addition, the year ended March 31, 2024 included the benefit of a contractual revenue share adjustment with an ODS partner.

Other direct costs of revenue

Other direct costs of revenue are comprised primarily of hosting expenses directly related to the generation of revenue and depreciation expense associated with capitalized software costs and amortization of developed technology intangible assets.

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Other direct costs of revenue decreased by $1,646 or 4.5% to $34,799 for the year ended March 31, 2024, and was 6.4% as a percentage of total net revenue compared to $36,445, or 5.5% of total net revenue, for the year ended March 31, 2023.

The decrease in other direct costs of revenue for the year ended March 31, 2024, compared to the prior year, was primarily due to slightly lower amortization of developed technology intangible assets and lower hosting costs. The increase in other direct costs as a percentage of total net revenue was due to the decline in total net revenue for the year ended March 31, 2024.

Product development

Product development expenses include the development and maintenance of the Company’s product suite and are primarily a function of personnel. Additionally, product development expenses include certain integration and business transformation costs, which may impact the comparability of product development expenses between periods.

Product development expenses decreased by $2,329 to $54,157 for the year ended March 31, 2024 compared to $56,486 for the year ended March 31, 2023. Product development expenses included severance costs and acquisition-related costs of $858 and business transformation costs of $2,716 for the year ended March 31, 2024. Product development expenses included severance costs and acquisition-related costs of $2,233 for the year ended March 31, 2023. Excluding severance costs, acquisition-related costs and business transformation costs, product development expenses decreased by $3,670 for the year ended March 31, 2024.

The decrease in product development expenses after excluding severance costs, acquisition-related costs and business transformation costs was primarily due to lower employee-related costs of $948, depreciation and amortization expense of $3,085, reduced third-party development costs of $1,530, and other operating costs, including facilities and travel of $1,817. These decreases were partially offset by higher hosting and software costs of $3,709.

Sales and marketing

Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management. Additionally, sales and marketing expenses include certain integration and business transformation costs, which may impact the comparability of sales and marketing expenses between periods.

Sales and marketing expenses decreased by $1,814 to $61,481 for the year ended March 31, 2024 compared to $63,295 for the year ended March 31, 2023. Sales and marketing expenses included business transformation costs, acquisition-related costs and severance costs of $1,688 for the year ended March 31, 2024. Sales and marketing expenses included acquisition-related costs and severance costs of $1,836 for the year ended March 31, 2023. Excluding business transformation costs, acquisition-related costs and severance costs, sales and marketing expenses decreased by $1,666 for the year ended March 31, 2024.

The decrease in sales and marketing expense after excluding business transformation costs, acquisition-related costs and severance costs was primarily due to lower costs for sales events and sales related travel of $863, reduced recruiting and relocation of sales personnel of $405, a reduction in the use of professional services of $410, and lower facilities and other related costs of $398, partially offset by an increase of personnel related costs of $411.

General and administrative

General and administrative expenses represent management, finance, and support personnel costs in both the parent and subsidiary companies, which include professional services and consulting costs, in addition to other costs such as rent, stock-based compensation, and depreciation and amortization expense. Additionally, general and administrative expenses include certain integration and business transformation costs, which may impact the comparability of general and administrative expenses between periods.

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General and administrative expenses increased by $15,335 to $169,617 for the year ended March 31, 2024 compared to $154,282 for the year ended March 31, 2023. General and administrative expenses included acquisition-related costs of $424, business transformation costs of $6,639 and severance costs of $226 for the year ended March 31, 2024. General and administrative expenses included acquisition-related costs of $2,496 and severance costs of $350 for the year ended March 31, 2023. Excluding acquisition-related costs, business transformation costs and severance costs, general and administrative expenses increased by $10,892 for the year ended March 31, 2024.

The increase in general and administrative expenses after excluding acquisition-related costs, business transformation costs and severance costs was primarily due to higher stock-based compensation of approximately $3,233, depreciation and amortization of $8,136, and professional services including audit, tax and legal fees, of $693. These increases were partially offset by lower employee-related costs of approximately $570, bad debt expense of approximately $63, recruiting and relocation costs of $134, and other operating costs, including software and travel of approximately $402.

Impairment of Goodwill

The Company evaluates goodwill for impairment at least annually or upon the occurrence of events or circumstances that indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value. As a result of the triggering event described below, the Company performed a goodwill impairment evaluation as of September 30, 2023. In addition to this, the Company performed its annual impairment evaluation as of March 31, 2024. For both periods evaluated, the Company determined that the fair value of the AGP reporting unit was below its carrying value. As a result of these evaluations, the Company recorded two separate impairment charges during fiscal year 2024.

During the three months ended September 30, 2023, as a result of sustained decline in the quoted market price of the Company’s common stock, increase in interest rates, and the Company’s forecasted operating trends, the Company identified interim indicators of impairment related to the goodwill assigned to the AGP reporting unit. The Company completed an interim impairment assessment of its goodwill, and as a result of this review, recorded a $147,181 non-deductible, non-cash goodwill impairment charge for the AGP reporting unit as of September 30, 2023.

Additionally, the Company performed its annual goodwill impairment evaluation as of March 31, 2024, noting continued trends in quoted market price, interest rates, and the Company’s forecast as described above. The Company completed the annual impairment assessment of its goodwill, and as a result, recorded an additional $189,459 non-deductible, non-cash goodwill impairment charge for the AGP reporting unit as of March 31, 2024. Total non-deductible, non-cash goodwill impairment charges for the AGP reporting unit for the twelve months ended March 31, 2024, was $336,640.

For each goodwill impairment evaluation performed at September 30, 2023 and March 31, 2024, respectively, the fair value of each reporting unit was estimated using a weighted combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach (the “Guideline Public Company Method”). The Company’s interim and annual testing reflected a 75%/25% allocation between the income and market approaches. The Company believes the 75% weighting to the income approach is appropriate, as it directly reflects its future growth and profitability expectations.

The discounted cash flow method requires significant assumptions and estimates, the most significant of which are projected future growth rates, capital expenditures, tax rates, gross margins and terminal values. In addition, the Company determines its weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. For the September 30, 2023 impairment evaluation, as compared to the Company’s annual evaluation as of March 31, 2023, the Company reduced its estimated future cash flows used in the impairment assessment, including revenues, gross profits, and EBITDA to reflect its best estimates at that time. For the March 31, 2024 annual impairment evaluation, as compared to the Company’s interim evaluation as of September 30, 2023, the Company further reduced its estimated future cash flows, including revenues, gross profits, and EBITDA to reflect its best estimates at this time. In each evaluation, the Company also updated key inputs for the discounted cash flow models, including the weighted-average cost of capital, which incrementally increased due to higher interest rates, market volatility, and the company specific premium.

The market approach estimates the fair value of the reporting unit by applying multiples of operating performance measures to the reporting unit’s operating performance. These multiples are derived from comparable publicly-traded companies with similar investment characteristics. For the September 30, 2023 impairment evaluation, as compared to the March 31, 2023 testing, the Company reduced its revenue and EBITDA market multiples, reflecting declining valuations across the Company’s selected peer group. For the March 31, 2024 impairment evaluation, as compared to the September 30, 2023 evaluation, the Company further reduced its

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revenue and EBITDA market multiples, reflecting declining valuations across the Company’s selected peer group. These updates, along with those made to the discounted cash flow models described above, had significant impacts on the estimated fair values of the Company’s reporting units.

There was no impairment of goodwill for the ODS reporting unit during the fiscal year.

Interest and other income (expense), net ($ in thousands)

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[[/GREPCENT_TABLE]]

Fiscal 2024 compared to fiscal 2023

Total interest and other income (expense), net, for the years ended March 31, 2024 and 2023, was approximately $30,693 and $24,149, respectively, an increase in net expenses of $6,544.

Change in fair value of contingent consideration

For the year ended March 31, 2023, the Company did not record a charge for changes in fair value of contingent consideration in connection with earn-outs associated with its recent acquisitions. For the year ended March 31, 2024, the company reassessed the fair value of the earn-out liability associated with its recent acquisition of In App Video Services UK LTD. and recorded a remeasurement gain equal to the change in fair value of $372.

Interest expense, net

For the years ended March 31, 2024 and 2023, the Company recorded net interest expense of $30,838 and $23,352, respectively, an increase of $7,486 or 32.1%. The increase was primarily due to an increase in interest rates of 262 basis points and lower average outstanding borrowings of $65,500 over the comparative period. Another driving factor of the increase was the Company’s entrance into a Third Amendment to the New Credit Agreement on February 5, 2024, which increased the annual interest rate to SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio.

Foreign exchange transaction gain (loss)

For the years ended March 31, 2024 and 2023, the Company recorded foreign exchange transaction gain and loss of $101 and $1,026, respectively, and was primarily attributable to fluctuations in foreign exchange rates for trade accounts receivables and payables denominated in currencies other than the functional currency of foreign entities.

Liquidity and Capital Resources

Our primary sources of liquidity are our cash and cash equivalents, cash from operations, and borrowings under our New Credit Agreement. As of March 31, 2024, we had unrestricted cash of approximately $32,916 and $139,000 available to draw under the New Credit Agreement with BoA, excluding the accordion feature, subject to the required covenants. We generated $28,677 in cash flows from operating activities for the twelve months ended March 31, 2024.

Our ability to meet our debt service obligations and to fund working capital, capital expenditures, and investments in our business will depend upon our future performance, which will be subject to availability of borrowing capacity under our credit facility and our ability to access capital markets as well as financial, business, and other factors affecting our operations, many of which are beyond our control. These factors include general and regional economic, financial, competitive, legislative, regulatory, and other factors such as health epidemics,

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economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine, the political climate related to China, and the conflict in Israel. We cannot guarantee we will generate sufficient cash flow from operations, or that future borrowings or capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.

We believe we will generate sufficient cash flow from operations and have the liquidity and capital resources to meet our business requirements for at least 12 months from the filing date of this Annual Report.

Outstanding Secured Indebtedness

Our outstanding secured indebtedness under the New Credit Agreement is $386,000 as of March 31, 2024. The maturity date of the New Credit Agreement is April 29, 2026, and the outstanding balance is classified as long-term debt, net of debt issuance costs of $2,510, on our consolidated balance sheets as of March 31, 2024. For further description of the terms of the New Credit Agreement, see Note 11—Debt under the heading “Revolver” in the notes to our consolidated financial statements under Part II, Item 8 of this Annual Report.

The collateral pledged to secure our secured debt, consisting of substantially all of our U.S. subsidiaries’ assets, would be available to the secured creditor in a foreclosure, in addition to many other remedies. Accordingly, any adverse change in our ability to service our secured debt could result in an event of default, cross default, and foreclosure or forced sale. Depending on the value of the assets, there could be little, if any, assets available for common stockholders in any foreclosure or forced sale.

Our credit facility also contains a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio. If we fail to satisfy these covenants, the lender may declare a default, which could lead to acceleration of the debt maturity. Any such default would have a material adverse effect on us.

As of March 31, 2024, we were in compliance with all covenants under the New Credit Agreement. Additionally, we entered into a Third Amendment to the New Credit Agreement on February 5, 2024 to provide further financing flexibility to fund growth initiatives and meet general corporate obligations. Refer to Note 11—Debt for further discussion.

Hosting Agreements

We enter into hosting agreements with service providers, and, in some cases, those agreements include minimum commitments that require us to purchase a minimum amount of service over a specified time period (“the minimum commitment period”). The minimum commitment period is generally one year in duration, and the hosting agreements include multiple minimum commitment periods. Our minimum purchase commitments under these hosting agreements total approximately $269,315 over the next six fiscal years.

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Cash Flow Summary ($ in thousands)

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Operating Activities

Our cash flows from operating activities are primarily driven by revenue generated from user acquisition and advertising activity, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from customers and payments to our carrier and publisher partners as well as other vendors. Our future cash flows from operating activities will be diminished if we cannot increase our revenue levels and manage costs appropriately. Cash provided by operating activities was $28,677 for the year ended March 31, 2024, compared to $113,376 for the year ended March 31, 2023. The decrease of $84,699 was due to the following:

•$437,318 decrease in net income, which includes the goodwill impairment charge of $336,640.

•$1,955 increase due to changes in operating assets and liabilities, driven primarily by working capital changes.

• $350,664 increase in non-cash charges during the year ended March 31, 2024 primarily related to goodwill impairment, increased deferred income taxes and increased stock-based compensation, partially offset by lower right-of-use assets for the year ended March 31, 2024.

Investing Activities

Our primary investing activities have consisted of acquisitions of businesses, purchases of property and equipment, and capital expenditures in support of creating and enhancing our technology infrastructure. For the year ended March 31, 2024, net cash used in investing activities increased by $8,783 to $43,848. Our cash used in investing activities for the twelve months ended March 31, 2024 and March 31, 2023, was primarily comprised of capital expenditures related to internally-developed software and equity investments in strategic businesses.

Financing Activities

For the year ended March 31, 2024, net cash used in financing activities was $29,300, which was comprised of: (1) the repayment of debt obligations of $77,134, (2) payment of $3,751 for the acquisition of the remaining minority interest shareholders’ outstanding shares in one of our subsidiaries, and (3) payment of payroll withholding taxes for net share settlement of equity awards of $1,286. These cash outflows were partially offset by cash inflows comprising of proceeds from borrowings of $50,000 and stock option exercises of $2,871.

For the year ended March 31, 2023, net cash used in financing activities was $128,288, which was comprised of repayment of debt obligations of $149,000, payment of payroll withholding taxes for net share

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settlement of equity awards of $6,709, partially offset by cash inflows from proceeds from borrowings of $25,500 and stock option exercises of $2,020.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to contingencies, litigation, and goodwill and intangible assets acquired from our acquisitions. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We generate revenue from transactions for the purchase and sale of digital advertising inventory through our various platforms and service offerings. Our revenue is based on fixed CPM, CPI, or CPA arrangements or a percentage of the ad spend through our platforms depending on the platform or service offering. We recognize revenue upon fulfillment of our performance obligation to our customers, which generally occurs at the point in time when an ad is rendered or an end consumer action, such as an app install, is completed.

ODS - Application Media

Supply - Carriers and OEMs

We enter into contracts with carriers and OEMs for our ODS segment to help the customer control, manage, and monetize the mobile device through the marketing of application slots or advertisement space/inventory to advertisers and delivering the applications or advertisements to the mobile device. The Company generally offers these services under a revenue share model. These agreements typically include the following services: the access to a SaaS platform, hosting, solution features, and general support and maintenance. The Company has concluded that each promised service is delivered concurrently, interdependently, and continuously with all other promised services over the contract term and, as such, has concluded these promises are a single performance obligation that is delivered to the customer over a series of distinct service periods over the contract term. The Company meets the criteria for overtime recognition because the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs, and the same method would be used to measure progress over each distinct service period. The fees for such services are not known at contract inception, but are measurable during each distinct service period. The Company’s contracts do not include advance non-refundable fees. The Company’s fees for these services are based upon a revenue-share arrangement with the carrier or OEM. Both parties have agreed to share the revenue earned from third-party advertisers, discussed below, for these services.

Demand - Developers and Advertisers

The Company generally offers these services through CPI, CPP, and/or CPA arrangements with application developers and advertisers, generally in the form of insertion orders. The insertion orders specify the type of arrangement and additional terms such as advertising campaign budgets and timelines as well as any constraints on advertising types. These customer contracts can be open ended in regards to length of time and can renew automatically unless terminated; however, specific advertising campaigns are generally short-term in nature. Under these agreements, the Company delivers the customer’s applications to end user mobile devices, allowing for the application to be installed by the end user at their discretion. The Company gains access and control of application slots on wireless carrier and OEM mobile devices and markets those slots on their behalf to the Company’s customers.

The Company has concluded that the performance obligation within the contract is complete upon delivery

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of the application to the end user mobile device. Revenue recognition related to CPI and CPA arrangements is dependent upon an action of the end user. As a result, the transaction price is variable and is fully constrained until an install or action occurs. Revenue recognition related to CPP arrangements is dependent only upon the delivery of the application to the end user mobile device. As a result, revenue is recognized once delivery of the application has been completed as the Company’s performance obligation has been fulfilled.

ODS - Content Media

The Company generally offers programmatic advertising and targeted media content delivery services under CPM impression arrangements and page-view arrangements. Through its mobile phone first screen applications and mobile web portals, the Company markets ad space/inventory within its content products for display advertising. The ad space/inventory is allocated to the Company through arrangement with the carrier or OEM in the contracts discussed above. The Company controls this ad space/inventory and markets it on behalf of the carriers and OEMs to the advertisers. The Company’s advertising customers can bid on each individual display ad and the highest bid wins the right to fill each ad impression. Advertising agencies acting on the behalf of advertisers bid on the ad placement via the Company’s advertising exchange customers. When the bid is won, the ad will be received and placed on the mobile device by the Company. The entire process happens almost instantaneously and on a continuous basis. The advertising exchanges bill and collect from the winning bidders and provide daily and monthly reports of the activity to the Company. The Company has concluded that the performance obligation is satisfied at the point in time upon delivery of the advertisement to the device based on the impressions or page-view arrangement, as defined in the contract.

Through its mobile phone first screen applications and mobile web portals, the Company’s software platform also recommends sponsored content to mobile phone users and drives web traffic to a customer’s website. The Company markets this content to content sponsors, such as Outbrain or Taboola, similarly to the marketing of ad space/inventory. This sponsored content takes the form of articles, graphics, pictures, and similar content. The Company has concluded that the performance obligation within the contract is complete upon delivery of the content to the mobile device.

AGP - Marketplace

The Company, through its AGP segment, provides platforms that allow DSPs and publishers to buy and sell ad inventory, respectively, in a programmatic, real-time bidding (“RTB”) auction. The Company generally contracts with DSPs through an RTB Ad Exchange Agreement. It also separately contracts with publishers through an advertising insertion order or service order to provide access to its auction platform and the ad inventory available through the platform. The auction is held when ad inventory becomes available. The Company will send bid requests to various DSPs, which may choose to bid on the available ad inventory. Once a DSP wins an auction, it must deliver an ad, which is generally served through the Company’s software development kits (“SDK”). The entire auction process is nearly instantaneous. The Company bills the DSPs based on the total number of impressions and the bid price. It then remits the payment to the publishers, net of a revenue share agreed with the publisher that is generally a percentage of the DSPs’ total spending with the publisher through the platform.

AGP - Brand and Performance

The Company, through its AGP segment for its Brand and Performance offerings, contracts directly with advertisers or agencies. through insertion orders, that require the Company to fulfill advertising campaigns by identifying and purchasing targeted ad inventory and serving ads on behalf of the advertiser. The insertion orders or addendum communications provide advertising campaign details, such as campaign start and end date, target demographics, maximum budget, and rate. Rates are generally based on an end user action (CPI) or on a CPM basis. Revenue is recognized based on the rate and the number of impressions or end user actions at the time the ad is rendered or the end user action is completed.

Principal vs Agent Reporting

The determination of whether we act as a principal or as an agent in a transaction requires significant judgement and is based on our assessment of the terms of customer arrangements and the relevant accounting guidance. When we are the principal in a transaction, revenue is reported on a gross basis, which is the amount billed to DSPs, advertisers and agencies. When we are an agent in a transaction, revenue is reported net of revenue share paid to app publishers or developers.

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The Company has determined that it is a principal for its advertiser services for application media and content media when it controls the application slots or ad space/inventory. This is because it has been allocated such slots or space from the carrier or OEM and is responsible for marketing or monetizing the slots or space. The advertisers look to the Company to acquire such slots or space, and the Company’s software is used to deliver the applications, ads or content to the mobile device. The Company also may manage application or ad campaigns of advertisers associated with these services. If the applications or advertisements are not delivered to the mobile device or the Company doesn’t comply with certain policies of the advertiser, the Company would be responsible and have to indemnify the customer for these issues. The Company also has discretion in setting the price of the slots or space based on market conditions, collects the transaction prices, and remits the revenue-share percentage of the transaction price to the carrier or OEM.

The Company recognizes the transaction price received from application developers, advertisers, content providers, or websites gross and the carrier or OEM share of such transaction price as costs of revenue - revenue share - in the accompanying consolidated statements of operations and comprehensive (loss) income.

The carrier or OEM may have the right to market and sell application slots or ad space to advertisers using the Company’s software. The carrier or OEM will share revenue with the Company when it does so. The Company recognizes the revenue shared by the carrier or OEM on a net basis as the Company is not considered the primary obligor in these transactions.

The Company has determined that it is a principal for its Brand and Performance offerings as the advertisers or agencies provide parameters for their target audiences, as well as a budget for ad campaigns. Once an advertiser or advertising agency provides its specifications, the Company has the discretion to fulfill the campaign by utilizing its data and proprietary technology. The Company controls the service because it has the ultimate discretion in purchasing ad inventory; and once an ad inventory slot is purchased, filling that ad inventory slot. As a result, the Company reports the revenue billed to advertisers and agencies on a gross basis and revenue shares paid to publishers as revenue share.

The Company has determined that it is an agent in transactions on its Marketplace platforms. The Company acts as an intermediary between DSPs and publishers by providing access to a platform and the SDKs that allow both parties to transact in the buying and selling of ad inventory. The transaction price is determined through a real-time auction and the Company has no pricing discretion or obligation related to the fulfillment of the advertising delivery.

Software Development Costs

The Company applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of the unamortized cost or net realizable value of the related product. At this time, the Company does not invest significant capital into the research and development phase of new products and features as the technological feasibility aspect of its platform products has either already been met or is met very quickly.

The Company has adopted the “tested working model” approach to establishing technological feasibility for its products. Under this approach, the Company does not consider a product in development to have passed the technological feasibility milestone until the Company has completed a model of the product that contains essentially all the functionality and features of the final product and has tested the model to ensure that it works as expected.

The Company considers the following factors in determining whether costs can be capitalized: the emerging nature of the mobile market; the gradual evolution of the wireless carrier platforms and devices for which it develops products; the lack of pre-orders or sales history for its products; the uncertainty regarding a product’s revenue-generating potential; its lack of control over the carrier distribution channel resulting in uncertainty as to when, if ever, a product will be available for sale; and its historical practice of canceling products at any stage of the development process.

After products and features are released, all product maintenance cost are expensed.

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The Company also applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the functions intended.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740-10, Accounting for Income Taxes (“ASC 740-10”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Under ASC 740-10, the Company determines deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, along with net operating losses, if it is more likely than not the tax benefits will be realized using the enacted tax rates in effect for the year in which it expects the differences to reverse. To the extent a deferred tax asset cannot be recognized, a valuation allowance is established, if necessary.

The Company is required to evaluate its ability to realize its deferred tax assets using all available evidence, both positive and negative, and determine if a valuation allowance is needed. Further, ASC 740-10-30-18 outlines the four possible sources of taxable income that may be available to realize a tax benefit for deductible temporary differences and carry-forwards. The sources of taxable income are listed below from least to most subjective:

•Future reversals of existing taxable temporary differences

•Future taxable income exclusive of reversing temporary differences and carryforwards

•Taxable income in prior carryback year(s) if carryback is permitted under the tax law

•Tax-planning strategies that would, if necessary, be implemented to, for example:

◦Accelerate taxable amounts to utilize expiring carryforwards

◦Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss

◦Switch from tax-exempt to taxable investments

ASC 740-10 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters as a component of the provision for income taxes.

The Company’s income is subject to taxation in both the U.S. and foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company establishes reserves for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when the Company believes that positions do not meet the more-likely-than-not recognition threshold. The Company adjusts uncertain tax liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities that are considered appropriate.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards made to employees and non-employee directors based on estimated fair values on the date of grant. To determine the fair value of the stock-based awards, we use the closing price of our common stock publicly traded on the Nasdaq on the date of grant for time-based and performance-based restricted stock awards, and we utilize the Black-Scholes option pricing model to value stock options, which involves the input of subjective assumptions, including the expected volatility of our common stock, interest rates, dividend rates, and an option’s expected life. As a result, the financial statements include amounts that are based on our best estimates and judgments for the expenses recognized for stock-based compensation. The compensation expense is recognized on a straight-line basis over the requisite service or performance period. The Company may issue either new shares or treasury shares upon exercise of these awards. The Company accounts for forfeitures as they occur and records any excess tax benefits or deficiencies from equity awards in the Consolidated Statement of Operations in the reporting period for which the exercises occur. Performance-based restricted units (“PSUs”) are evaluated on a quarterly basis for probability of meeting

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performance metrics and any adjustments to share-based compensation expense are then made in the quarter of evaluation. For PSUs, we must also make assumptions regarding the likelihood of achieving performance metrics. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Business Combinations

We allocate the purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, estimated replacement costs and future expected cash flows from acquired users, acquired technology, acquired patents, and acquired trade names from a market participant perspective. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects Company amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill

We evaluate goodwill for possible impairment at least annually or upon the occurrence of events or circumstances that indicate that they would more likely than not reduce the fair value of a reporting unit below its carrying amount. When the Company completes a quantitative assessment of goodwill impairment, the fair value of each reporting unit is determined and compared to the reporting unit’s carrying value. If the carrying value of a reporting unit exceeds the fair value, a goodwill impairment charge is recorded. Determining the fair value of a reporting unit required the Company to make assumptions and estimates, the most significant of which are projected future growth rates, discount rates, capital expenditures, tax rates, gross margins and terminal value. Changes in key estimates or market conditions, could result in an impairment charge. For the year ended March 31, 2024, impairment charges of $336,640 were recorded. There was no impairment charge recorded during the years ended March 31, 2023 and 2022. Refer to Note 6—Goodwill and Intangible Assets for further details.

Recently Issued Accounting Pronouncements

Recent accounting pronouncements are detailed in Note 2—Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included in Part II, Item 8 of this Annual Report.