# Digital Turbine, Inc. (APPS) FY 2026 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Digital Turbine, Inc.'s 10-K for fiscal year 2026.

SEC filing source: https://www.sec.gov/Archives/edgar/data/317788/000162828026038115/apps-20260331.htm
Accession: 0001628280-26-038115
Filing date: 2026-05-26
Report date: 2026-03-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

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

RESULTS OF OPERATIONS

The following table sets forth our results of operations for the years ended March 31, 2026 and 2025:

[[GREPCENT_TABLE]]
[["","","","","","","Year Ended March 31,"],["","","","","","","","","2026","","2025","","% of Change"],["","","","","","","","","(in thousands)"],["Net revenue","","","","","","","","$","565,251","","","$","490,506","","","15.2","%"],["Costs of revenue and operating expenses"],["Revenue share","","","","","","","","243,638","","","235,287","","","3.5","%"],["Other direct costs of revenue","","","","","","","","46,971","","","34,541","","","36.0","%"],["Product development","","","","","","","","40,476","","","39,464","","","2.6","%"],["Sales and marketing","","","","","","","","58,000","","","61,642","","","(5.9)","%"],["General and administrative","","","","","","","","142,124","","","173,647","","","(18.2)","%"],["Total costs of revenue and operating expenses","","","","","","","","531,209","","","544,581","","","(2.5)","%"],["Income (loss) from operations","","","","","","","","34,042","","","(54,075)","","","(163.0)","%"],["Interest and other expense, net"],["Change in fair value of contingent consideration","","","","","","","","(231)","","","(300)","","","(23.0)","%"],["Interest expense, net","","","","","","","","(58,580)","","","(34,783)","","","68.4","%"],["Unrealized gain on derivatives","","","","","","","","1,504","","","\u2014","","","100.0","%"],["Foreign exchange transaction gain","","","","","","","","3,536","","","1,297","","","172.6","%"],["Loss on extinguishment of debt","","","","","","","","(9,795)","","","\u2014","","","100.0","%"],["Other expense, net","","","","","","","","(1,816)","","","(3)","","","60433.3","%"],["Total interest and other expense, net","","","","","","","","(65,382)","","","(33,789)","","","93.5","%"],["Loss before income taxes","","","","","","","","(31,340)","","","(87,864)","","","(64.3)","%"],["Income tax expense","","","","","","","","6,392","","","4,235","","","50.9","%"],["Net loss","","","","","","","","$","(37,732)","","","$","(92,099)","","","(59.0)","%"]]
[[/GREPCENT_TABLE]]

Comparison of Our Results of Operations for the Year Ended March 31, 2026 to March 31, 2025:

Net Revenue

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2026","","2025","","% of Change"],["","","(in thousands)"],["On Device Solutions","","$","382,429","","","$","341,632","","","11.9","%"],["App Growth Platform","","185,742","","","153,229","","","21.2","%"],["Elimination","","(2,920)","","","(4,355)","","","33.0","%"],["Total net revenue","","$","565,251","","","$","490,506","","","15.2","%"]]
[[/GREPCENT_TABLE]]

Net revenue increased by $74,745 or 15.2% during the year ended March 31, 2026 compared to the prior year.

On Device Solutions

On Device Solutions (“ODS”) net revenue for the year ended March 31, 2026, increased by $40,797 or 11.9% compared to the year ended March 31, 2025 and was primarily driven by improved performance in the Asia Pacific and China regions. Revenue from application media increased by approximately $38,307 primarily due to higher device volumes internationally and an increase in revenue-per-device in the U.S. and internationally, offset by lower device volumes in the U.S. Net revenue from content media increased by approximately $2,490 primarily due

42

Table of Contents

to an increase in activity with a carrier that resulted in higher daily active users on prepaid devices.

App Growth Platform

App Growth Platform (“AGP”) net revenue for the year ended March 31, 2026, increased by $32,513 or 21.2% compared to the year ended March 31, 2025 and was primarily driven by improved performance in the Asia Pacific and China regions. Advertising exchange revenues increased $36,607, which was largely due to the continued onboarding of new publishers and demand partners. Performance and brand advertising revenue declined by approximately $2,826, primarily due to reduced demand in major brands. Net revenues from reseller partnerships decreased by $1,268, between the comparable periods.

Costs of Revenue and Operating Expenses

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2026","","2025","","% of Change"],["","","(in thousands)"],["Revenue share","","$","243,638","","","$","235,287","","","3.5","%"],["Other direct costs of revenue","","46,971","","","34,541","","","36.0","%"],["Product development","","40,476","","","39,464","","","2.6","%"],["Sales and marketing","","58,000","","","61,642","","","(5.9)","%"],["General and administrative","","142,124","","","173,647","","","(18.2)","%"],["Total costs of revenue and operating expenses","","$","531,209","","","$","544,581","","","(2.5)","%"]]
[[/GREPCENT_TABLE]]

Revenue share

Revenue share increased by $8,351 or 3.5% to $243,638 for the year ended March 31, 2026, and was 43.1% as a percentage of total net revenue compared to $235,287, or 48.0% of total net revenue, for the year ended March 31, 2025. The increase in revenue share coincides with the increase in total net revenue over the same periods, as these costs are typically paid as a percentage of our revenue. The decrease in revenue share as a percentage of total net revenue was primarily driven by product mix changes, including certain high-margin product lines driving a higher percentage of total net revenue between the comparative periods and the absence in the year ended March 31, 2026 of a non-recurring contract-related cost of $3,800 that was included in the year ended March 31, 2025.

Other direct costs of revenue

Other direct costs of revenue increased by $12,430 or 36.0% to $46,971 for the year ended March 31, 2026, and was 8.3% as a percentage of total net revenue compared to $34,541, or 7.0% of total net revenue, for the year ended March 31, 2025. The increase in other direct costs of revenue for the year ended March 31, 2026, compared to the prior year, was primarily driven by favorable monetization methodology changes implemented to the exchange. This change, while driving an increase in bidding and platform fees, also increased revenue, which resulted in a higher margin for the exchange platform. The increase was further driven by the achievement of higher revenue targets in the current year. The increase in other direct costs as a percentage of total net revenue was primarily due to the monetization methodology changes.

Product development

Product development expenses increased by $1,012 or 2.6% to $40,476 for the year ended March 31, 2026 compared to $39,464 for the year ended March 31, 2025. The increase in product development expenses was primarily due to higher employee-related costs, primarily cash incentive compensation, of $3,818 and hosting and software costs of $1,192. These increases were partially offset by decreases in professional service fees of $2,792, severance of $223, and travel and entertainment costs of $144. Additionally, the Company had a $694 increase in capitalized labor and third-party costs related to internally developed software during the year ended March 31, 2026 which served to reduce product development expenses as compared to the year ended March 31, 2025.

43

Table of Contents

Sales and marketing

Sales and marketing expenses decreased by $3,642 or 5.9% to $58,000 for the year ended March 31, 2026 compared to $61,642 for the year ended March 31, 2025. The decrease in sales and marketing expense was primarily due to higher offsetting capitalization of labor costs related to internally developed software of approximately $2,433 and decreases in severance costs of $1,428 and events and lead generation costs of $877. These decreases were partially offset by higher professional service fees of $749 and employee-related costs of $674, which include a decrease in headcount offset by an increase in incentive compensation expense.

General and administrative

General and administrative expenses decreased by $31,523 or 18.2% to $142,124 for the year ended March 31, 2026 compared to $173,647 for the year ended March 31, 2025. The decrease was primarily due to decreases in stock-based compensation of $17,056 and depreciation and amortization expense of $11,226 primarily related to certain intangible assets that became fully amortized between the comparative periods. Additionally, the Company had lower credit loss expense of $2,534, facilities costs of $2,102, business transformation costs of $2,029, severance costs of $1,427, supplies and other costs of $685, and software costs of $504 as compared to the year ended March 31, 2025. These decreases were partially offset by higher employee-related costs of $4,559, primarily cash incentive compensation, and higher professional services and consulting fees of $1,937.

Interest and Other Income (Expense), Net

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2026","","2025","","% of Change"],["","","(in thousands)"],["Change in fair value of contingent consideration","","$","(231)","","","$","(300)","","","23.0","%"],["Interest expense, net","","(58,580)","","","(34,783)","","","(68.4)","%"],["Unrealized gain on derivatives","","1,504","","","\u2014","","","100.0","%"],["Foreign exchange transaction gain","","3,536","","","1,297","","","(172.6)","%"],["Loss on extinguishment of debt","","(9,795)","","","\u2014","","","100.0","%"],["Other expense, net","","(1,816)","","","(3)","","","(60,433.3)","%"],["Total interest and other expense, net","","$","(65,382)","","","$","(33,789)","","","(93.5)","%"]]
[[/GREPCENT_TABLE]]

Change in fair value of contingent consideration

The change in fair value of contingent consideration decreased $69 or 23.0% to $231 for the year ended March 31, 2026 compared to $300 for the year ended March 31, 2025 as a result of the earn out period associated with the Company’s acquisition of In App Video Services UK LTD being completed as of December 31, 2025.

Interest expense, net

For the years ended March 31, 2026 and 2025, the Company recorded net interest expense of $58,580 and $34,783, respectively, an increase of $23,797 or 68.4%. The increase was primarily due to higher applicable margins on our outstanding debt under the Financing Agreement as compared to the Revolver, which was refinanced on August 29, 2025, and higher amortization of debt discount, issuance costs and exit and duration fees associated with the Financing Agreement. The weighted-average interest rate on our debt during the year ended March 31, 2026 was 11.3% compared to 8.4% for the year ended March 31, 2025. The Company also made total payments of $55,000 on the principal of the term loans during the year ended March 31, 2026, at which time a pro rata portion of the original issue discount and debt issuance costs associated with the Financing Agreement in the amount of $3,205 were accelerated and fully amortized. See Note 12—Debt in the notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the Financing Agreement.

Unrealized gain on derivatives

For the year ended March 31, 2026, the Company recognized unrealized gains on derivatives of $1,504. There was no comparable amount for the year ended March 31, 2025. The increase was due to the issuance of the

44

Table of Contents

2025 Warrants in connection with the Company’s Financing Agreement. The Company classified these warrant instruments as derivative liabilities at fair value and adjusted the instruments to fair value at each reporting period.

Foreign exchange transaction gain

For the years ended March 31, 2026 and 2025, the Company recorded foreign exchange transaction gains of $3,536 and $1,297, respectively, and was primarily attributable to fluctuations in foreign exchange rates for trade accounts receivable and payables denominated in currencies other than the functional currency of foreign entities.

Loss on extinguishment of debt

For the year ended March 31, 2026, the Company recorded a loss on extinguishment of debt of $9,795. There was no comparable balance in the year ended March 31, 2025. The increase was driven by the amortization of the remaining debt issuance costs associated with the Company’s Revolver in connection with the Amended and Restated Credit Agreement, which was terminated and fully paid as of March 31, 2026.

Other Expense, net

Other expense, net increased $1,813 to $1,816 for the year ended March 31, 2026 as compared to $3 for the year ended March 31, 2025 due primarily to certain professional services fees associated with the Company’s equity and financing transactions undertaken during the year ended March 31, 2026.

Income Tax Expense

[[GREPCENT_TABLE]]
[["","Year Ended March 31,"],["","2026","","2025","","% of Change"],["","(in thousands)"],["Loss before income taxes","$","(31,340)","","","$","(87,864)","","","(64.3)","%"],["Income tax expense","6,392","","","4,235","","","50.9","%"],["Effective tax rate","(20.4)","%","","(4.8)","%","","(15.6)","%"]]
[[/GREPCENT_TABLE]]

Income tax expense increased $2,157 or 50.9% to $6,392 for the year ended March 31, 2026 in comparison to $4,235 for the year ended March 31, 2025. The increase when comparing the periods was primarily due to an increase in foreign tax rate differences and a valuation allowance on the loss from operations.

Liquidity and Capital Resources

Liquidity

Our primary sources of liquidity are our cash and cash equivalents, cash from operations, and borrowings under the Financing Agreement. As of March 31, 2026, we had unrestricted cash of approximately $37,719 and restricted cash of approximately $241. For the year ended March 31, 2026, the Company generated a net loss of $37,732 and cash from operating activities of $41,805.

Our principal cash requirements for the twelve-month period following this Annual Report primarily consist of refinancing certain loan tranches under the Financing Agreement and payment of interest and required principal payments thereunder in addition to employee-related costs, contractual payment obligations, including office leases, cloud hosting costs, capital expenditures, minimum commitments under hosting agreements (see Liquidity and Capital Resources—Hosting Agreements below), cash outlays for income taxes, and cash requirements to fund working capital.

We have been and are continuing to explore various cost-saving opportunities, and we intend to continue seeking opportunities to generate additional revenue through operations. There can be no assurance that we will be successful in our plans described above. If we are unable to effectively implement additional cost reductions, generate additional revenue or refinance certain loan tranches under the Financing Agreement or raise additional funding, we may be forced to delay, reduce or eliminate some or all of our strategic operational efforts and product and service expansion, and our business, financial condition and results of operations could be materially and

45

Table of Contents

adversely affected.

We are currently seeking to refinance certain loan tranches under the Financing Agreement and are exploring options to raise additional capital through the sale of equity securities or equity-linked or debt-financing arrangements. Under the Financing Agreement, the Company is required to pay certain exit and duration fees if one of the two remaining tranches of term loans is not repaid by certain dates. See Note 12—Debt under the heading “Financing Agreement” in the notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a discussion of the exit and duration fees. If we successfully refinance such loans on acceptable terms, we believe our existing cash and cash equivalents, cash flow from operations, and ability to access debt financing arrangements would be sufficient to meet our working capital and other business requirements for at least 12 months from the filing date of this Annual Report. However, 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 and our ability to access capital markets and refinance such loans, 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 the U.S. and global economic climate uncertainty, the impact of tariffs, the state of the equity and debt markets and the ability to raise capital in such markets, health epidemics, economic and macroeconomic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflicts in Ukraine, Iran, Israel, Gaza, Lebanon and Syria and the political climate related to China. 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, refinance Loan tranches under the Financing Agreement or to fund our other liquidity needs. See Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2026 for additional information related to the foregoing risks.

Capital Resources

Our outstanding secured indebtedness under the Financing Agreement is $391,150 as of March 31, 2026. The term loans under the Financing Agreement are fully borrowed and there is no further borrowing capacity under the Financing Agreement. The maturity date of the Financing Agreement is August 29, 2029, and the outstanding balance is classified as long-term debt, net of original issuance discount of $11,917, debt issuance costs of $7,517, unamortized exit and duration fees of $10,753, and the current portion of long-term debt of $7,031 on our consolidated balance sheet as of March 31, 2026. For further description of the terms of the Financing Agreement, see Note 12—Debt under the heading “Financing Agreement” in the notes to our consolidated financial statements under Item 8 of Part II of this Annual Report on Form 10-K.

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 Financing Agreement also contains a maximum leverage ratio and minimum liquidity amount. 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, 2026, we were in compliance with all covenants under the Financing Agreement.

As described above, we are currently seeking to refinance certain loan tranches under the Financing Agreement and are exploring options to raise additional capital through the sale of equity securities or equity-linked or debt-financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, it may be at a price and on terms and conditions that are less favorable to the Company, and the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring new indebtedness, we may be subject to increased interest rates, increased fixed payment obligations, and could also be subject to additional restrictive covenants and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be less favorable to the Company. We cannot guarantee that we will be able to refinance any of our indebtedness or enter into equity or equity-linked financing arrangements on commercially reasonable terms, or at all.

If the Company is unable to refinance certain loan tranches under the Financing Agreement by certain

46

Table of Contents

dates, the Company will be required to pay exit and duration fees on such tranches when repaid, which could have a material adverse impact on our business, financial condition, and results of operations. On April 20, 2026, the Company entered into an amendment to the Financing Agreement, which modified the timing and potential of certain exit and duration fees. See Note 18—Subsequent Events in the notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding amendment to the Financing Agreement.

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 $192,294 over the next four fiscal years. See Note 17—Commitments and Contingencies in the notes to the consolidated financial statements in Part II, Item 8 of this Annual Report for a breakdown of these minimum purchase commitments by year over the next four fiscal years.

Cash Flow Summary

[[GREPCENT_TABLE]]
[["","","Year Ended March 31,"],["","","2026","","2025","","% of Change"],["","","(in thousands)"],["Net cash provided by operating activities","","$","41,805","","","$","11,880","","","251.9","%"],["Net cash used in investing activities","","(30,619)","","","(27,477)","","","11.4","%"],["Net cash provided by (used in) financing activities","","(10,864)","","","23,281","","","(146.7)","%"],["Effect of exchange rate changes on cash, cash equivalents, and restricted cash","","(2,446)","","","(1,205)","","","103.0","%"],["Net change in cash, cash equivalents, and restricted cash","","$","(2,124)","","","$","6,479","","","(132.8)","%"]]
[[/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. If we cannot increase our revenue levels and manage costs appropriately, our future cash flows from operating activities may be negatively affected. Cash provided by operating activities was $41,805 for the year ended March 31, 2026, compared to $11,880 for the year ended March 31, 2025.

The increase of $29,925 in net cash provided by operating activities during the year ended March 31, 2026 as compared to the year ended March 31, 2025 was due primarily to the $88,117 increase in operating income, partially offset by decreases in non-cash stock-based compensation expense and depreciation and amortization expenses of $17,188 and $11,458, respectively. Additionally, our operating cash flows were affected by increases in cash paid for interest and income taxes in the amounts of $11,505 and $19,145, respectively.

Investing Activities

Our primary investing activities have consisted of purchases of property and equipment, capital expenditures in support of creating and enhancing our technology infrastructure, and to a lesser extent acquisitions of businesses. For the year ended March 31, 2026, net cash used in investing activities increased by $3,142 to $30,619. Our cash used in investing activities for the years ended March 31, 2026 and March 31, 2025, was primarily comprised of capital expenditures related to internally developed software.

Financing Activities

Financing cash flows consist primarily of repayments associated with our long-term debt, proceeds from the issuance of shares of common stock in our ATM and through equity incentive plans, and the repurchase of common stock to satisfy withholding tax requirements related to the settlement of restricted stock units, including our

47

Table of Contents

performance-based restricted stock units.

Net cash used in financing activities increased $34,145 during the year ended March 31, 2026 as compared to the year ended March 31, 2025. Net cash used in financing activities during the current year included significant activity as we paid in full the Amended and Restated Credit Agreement with the proceeds of the loans provided under the Financing Agreement. The Company incurred debt discount costs of $11,300 which were netted in the proceeds received from the Financing Agreement and paid debt issuance costs of $20,486 in connection with both the Amended and Restated Credit Agreement and the Financing Agreement. The Company also participated in an ATM that raised $56,809, net of seller’s costs and promptly used those proceeds to prepay $55,000 of principal associated with the Financing Agreement.

During the years ended March 31, 2026 and 2025, we withheld and retired shares of common stock to satisfy $937 and $465, respectively, of statutory withholding tax requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees related to the settlement of restricted and performance stock units during the relevant periods. These shares are treated as common stock repurchases in our consolidated financial statements.

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.

For contracts with durations less than one year, the Company has adopted the practical expedient in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606-10-50-14 Revenues from Contracts with Customers (“ASC 606”) which allows the Company to exclude disclosure of unsatisfied performance obligations for such contracts.

The Company utilizes the practical expedient in ASC 606 which states the Company is not required to disclose the estimate of variable consideration to the allocation of wholly unsatisfied performance obligations.

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

48

Table of Contents

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 regard 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. 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 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 auction. The Company generally contracts with DSPs through service orders. It also separately contracts with publishers through service orders 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 exchange platform 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

49

Table of Contents

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, which 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 CPI or 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 judgment 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.

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 income (loss).

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 Topic 985-20, Accounting for the Costs of Computer

50

Table of Contents

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 establish 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 costs are expensed.

The Company also applies the principles of FASB ASC Topic 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.

51

Table of Contents

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. 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 the 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 statements of operations and comprehensive income (loss) in the reporting period for which the exercises occur. Performance-based restricted units (“PSUs”) are evaluated on a quarterly basis for probability of meeting 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 the Company’s 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. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative “Step 0” assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment considers the following factors: macroeconomic conditions, industry and market considerations, cost factors, overall company financial performance, events affecting the reporting unit and changes in the Company’s fair value.

If the reporting unit does not pass the qualitative assessment, the Company carries out a “Step 1” quantitative test for impairment of goodwill. This is done by comparing the fair value of the reporting unit with the carrying value of the reporting unit that includes goodwill. If the fair value of the reporting unit is greater than its carrying value, including goodwill, no impairment results. The Company utilizes a combination of both an income

52

Table of Contents

and market approach and applies a 75% weighting to the income approach and a 25% weighting to the market approach to arrive at the total fair value of our reporting units used for impairment testing. The Company applies a greater weighting to the income approach as we believe the income approach is a better indicator of fair value by using projected cash flows of the reporting units being valued. Determining the fair value of a reporting unit requires 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. The Company at its option may elect to bypass the qualitative assessment and proceed directly to performing a quantitative goodwill impairment assessment.

Recently Issued Accounting Pronouncements

Recent accounting pronouncements are detailed in Note 2—Basis of Presentation and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.