DIGITAL TURBINE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Financial Statements and the Notes thereto included in this
Annual Report on Form 10-K (the "Report"). The following discussion contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements involve substantial risks
and uncertainties. When used in this Report, the words "anticipate," "believe,"
"estimate," "expect," "will," "seeks," "should," "could," "would," "may," and
similar expressions, as they relate to our management or us, are intended to
identify such forward-looking statements. Our actual results, performance, or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements as a result of a variety of factors, including
those set forth under "Risk Factors" in this Report, as well as those described
elsewhere in this Report and in our other public filings. The risks included are
not exhaustive and additional factors could adversely affect our business and
financial performance. We operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors, nor can management assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Historical operating
results are not necessarily indicative of the trends in operating results for
any future period. We do not undertake any obligation to update any
forward-looking statements made in this Report. Accordingly, investors should
use caution in relying on past forward-looking statements, which are based on
known results and trends at the time they are made, to anticipate future results
or trends. This Report and all subsequent written and oral forward-looking
statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section.
Company Overview
Digital Turbine, Inc., through its subsidiaries, simplifies content discovery
and delivers it directly to mobile devices. Its on-device media platform powers
frictionless application and content discovery, user acquisition and engagement,
operational efficiency, and monetization opportunities. Through March 31, 2021,
Digital Turbine's technology platform has been adopted by over 35 mobile
operators and device original equipment manufacturers ("OEMs") and has delivered
more than 5.3 billion application preloads for tens of thousands of advertising
campaigns. The Company operates this business as one operating and reportable
segment - Media Distribution, which was previously referred to as the operating
segment O&O (which refers to operators and OEMs) and the reportable segment
Advertising.
As the Company's suite of product offerings expands, both organically and
through acquisitions, we believe that this renaming of our reporting and
operating segment better reflects the way management views the business. There
are no changes or historical differences to product offerings and financial
information that were referred to as the Advertising segment in prior periods.
While advertising, in general, remains a focus of our Media Distribution
segment, we feel that this change in name more accurately conveys to the reader
what we do for our customers and partners.
The Company's Media Distribution business consists of products and services that
simplify the discovery and delivery of mobile applications and content media for
consumers.
•Application Media represents the portion of the business where our platform
delivers apps to end users through partnerships with carrier networks and OEMs.
Application Media optimizes revenues by using developed technology to
streamline, track, and manage app install demand from hundreds of application
developers across various publishers, carriers, OEMs, and devices.
•Content Media represents the portion of the business where our platform
presents news, weather, sports, and other content directly within the native
device experience (e.g., as the start page in the mobile browser, a widget, on
unlock, etc.) through partnerships with carrier networks and OEMs. Content Media
optimizes revenue by a combination of:
•Programmatic Ad Partner Revenue - advertising within the content media that's
sold on an ad exchange at a market rate (CPM - Cost Per Thousand);
•Sponsored Content - sponsored content media from 3rd party content providers,
presented similarly to an ad, that is monetized when a recommended story is
viewed (CPC - Cost Per Click);
•Editorial Content - owned or licensed media, presented similarly to an ad, that
is monetized when the media is clicked on (CPC - Cost Per Click).
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With global headquarters in Austin, Texas and offices in Durham, North Carolina;
San Francisco, California; Arlington, Virginia; São Paulo, Brazil; Mexico City,
Mexico; Mumbai, India; Singapore; and Tel Aviv, Israel, Digital Turbine's
solutions are available worldwide. For additional information, please
visit www.digitalturbine.com.
All dollar amounts are in thousands, except per share amounts.
Recent Acquisitions
The Company recently completed the below-described acquisitions of Appreciate,
AdColony, and Fyber in order to help execute on its expressed strategy of
becoming a leading end-to-end solution for mobile brand acquisition,
advertising, and monetization.
Appreciate. On March 1, 2021, DT EMEA entered into a Share Purchase Agreement
with Triapodi Ltd., an Israeli company (d/b/a Appreciate), the stockholder
representative, and the stockholders of Appreciate pursuant to which DT EMEA
acquired, on March 2, 2021, all of the outstanding capital stock of Appreciate
in exchange for total consideration of $20,003 in cash. In connection with the
acquisition, under the terms of the Purchase Agreement, DT EMEA entered into
bonus arrangements to pay up to $6,000 in retention bonuses and performance
bonuses to the founders and certain other employees of Appreciate. Appreciate is
a programmatic mobile advertising demand-side platform ("DSP") company
headquartered in Israel. Appreciate's platform collaborates closely with mobile
measurement partners ("MMPs"), exchanges, advertisers, and other partners to
programmatically provide a transparent ecosystem designed to optimize user
acquisition and ROI for the mobile advertisers utilizing its platform. Deploying
Appreciate's technology expertise across Digital Turbine's global scale and
reach should further benefit partners and advertisers that are a part of the
combined Company's platform.
AdColony Holding AS. On April 29, 2021, DT Media completed the acquisition of
AdColony Holding AS, a Norway company ("AdColony"), pursuant to a Share Purchase
Agreement with AdColony and Otello Corporation ASA, a Norway company and the
sole shareholder of AdColony ("Otello"). DT Media acquired all of the
outstanding capital stock of AdColony in exchange for an estimated total
consideration in the range of $350,000 to $375,000, to be paid as follows: (1)
$100,000 in cash paid at closing (which was subject to customary closing
purchase price adjustments), (2) $100,000 in cash to be paid six months after
closing, and (3) an estimated earn-out in the range of $150,000 to $175,000, to
be paid in cash, based on AdColony achieving certain future target net revenues,
less associated cost of goods sold, over a twelve-month period ending on
December 31, 2021 (the "Earn-Out Period"). Under the terms of the earn-out, DT
Media would pay Otello a certain percentage of actual net revenues (less
associated cost of goods sold) of AdColony depending on the extent to which
AdColony achieves certain target net revenues (less associated cost of goods
sold) over the Earn-Out Period. The earn-out payment will be made following the
expiration of the Earn-Out Period. The Company paid the closing amount and
intends to pay the remainder of the purchase price with a combination of
available cash on hand and borrowings under its existing senior credit facility
along with future capital financing. AdColony is a leading mobile advertising
platform servicing advertisers and publishers with a reach of more than 1.5
billion monthly global users. AdColony's proprietary video technologies and rich
media formats are widely viewed as a best-in-class technology delivering
third-party verified viewability rates for well-known global brands.
Fyber, N.V. On May 25, 2021, the Company and DT Media completed the initial
closing of the acquisition of 523,553,108 shares, representing approximately
95.1% of the outstanding voting shares (the "Majority Fyber Shares") of Fyber
N.V., a public limited liability company registered with the Netherlands Chamber
of Commerce Business Register ("Fyber"), pursuant to a Sale and Purchase
Agreement between Tennor Holding B.V., Advert Finance B.V., and Lars Windhorst
(collectively, the "Seller"), the Company, and DT Luxembourg. The Seller
transferred and delivered 400,000,000 shares of the Majority Fyber Shares to DT
Media on the closing date and will deliver the remaining 123,553,108 shares of
the Majority Fyber Shares to DT Media in June 2021. The remaining approximately
4.9% of the shares in Fyber (the "Minority Fyber Shares") are widely held by
other shareholders of Fyber (the "Minority Fyber Shareholders").
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DT Media acquired the Majority Fyber Shares in exchange for an estimated
aggregate consideration of up to $600,000, consisting of (i) $150,000 in cash,
which was subject to adjustments for certain items including the amount of cash
consideration to be paid to the Minority Fyber Shareholders for the Minority
Fyber Shares, paid at the closing of the acquisition, (ii) 3,216,935 newly
issued shares of common stock of the Company equal in value to $235,000 (based
on the volume-weighted average price of the common stock on NASDAQ during the
30-day period prior to the closing date), issued at the closing of the
acquisition, (iii) 2,599,653 newly issued shares of common stock of the Company
equal in value to $165,000 (based on the volume-weighted average price of the
common stock on NASDAQ during the 30-day period prior to the closing date), to
be issued in June 2021 after the receipt by the Company of a tax exemption
certificate from the Israel Tax Authority, and (iv) contingent upon Fyber's net
revenues being equal or higher than $100,000 for the 12-month earn-out period
ending on March 31, 2022, as determined in the manner set forth in the Sale and
Purchase Agreement, a certain number of shares of Company common stock, which
will be newly-issued to the Seller at the end of the earn-out period, and under
certain circumstances, an amount of cash, which value of such shares and cash in
aggregate will not exceed $50,000 (subject to set-off against certain potential
indemnification claims against the Seller). The Company paid the cash closing
amount on the closing date, and intends to pay the remainder of the cash
consideration for the acquisition with a combination of available cash on hand,
borrowings under the Company's senior credit facility, and proceeds from future
capital financings.
Fyber is a leading mobile advertising monetization platform empowering global
app developers to optimize profitability through quality advertising. Fyber's
proprietary technology platform and expertise in mediation, real-time bidding,
advanced analytics tools, and video combine to deliver publishers and
advertisers a highly valuable app monetization solution.
Pursuant to certain German law on public takeovers, following the closing, the
Company is obligated to make a public tender offer to the Minority Fyber
Shareholders to acquire from them the Minority Fyber Shares. The tender offer
will be subject to certain minimum price rules under German law. The timing and
the conditions of the tender offer, including the consideration offered to the
Minority Fyber Shareholders in connection with the tender offer, will be
subsequently determined by the Company pursuant to the applicable Dutch and
German takeover laws. The Company anticipates completing the tender offer during
the second fiscal quarter 2022.
Other Recent Developments
February 2021 Credit Facility. On February 3, 2021, the Company entered into a
credit agreement ("the BoA Credit Agreement') with Bank of America, N.A. (the
"Bank"), which provides for a revolving line of credit of $100,000, with an
accordion feature enabling the Company to increase the amount to up to $200,000,
to be used for acquisitions, working capital, and general corporate purposes. DT
Media and DT USA are additional co-borrowers under the BoA Credit Agreement.
The revolving line of credit matures on February 3, 2024.
In connection with the Company entering into the BoA Credit Agreement with the
Bank as described above, on February 3, 2021, the Company and Western Alliance
Bank terminated the Credit Agreement, dated February 28, 2020, by and among the
Company, DT Media, DT USA, and Western Alliance Bank (and the amendments
thereto), which was the previous term loan and revolving credit facility of the
Company.
Amounts outstanding under the BoA Credit Agreement accrue interest at an annual
rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index) plus
an applicable margin that ranges from 1.50% to 2.25%, depending on the Company's
consolidated leverage ratio. The obligations under the BoA Credit Agreement are
secured by a grant of a security interest in substantially all of the assets of
the Company and its subsidiaries. The BoA Credit Agreement contains customary
covenants, representations, and events of default, and also requires the Company
to comply with a maximum consolidated leverage ratio and minimum fixed charge
coverage ratio.
At March 31, 2021, there was $15,000 outstanding principal on the BoA Credit
Agreement and the Company had $85,000 available to draw.
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April 2021 Credit Facility. Subsequent to year end, on April 29, 2021, the
Company entered into an amended and restated Credit Agreement (the "New Credit
Agreement") with Bank of America, N.A., as a lender and administrative agent,
and a syndicate of lenders, which provides for a revolving line of credit of
$400,000 to be used for working capital, permitted acquisitions, capital
expenditures, and other lawful corporate purposes. DT Media and DT USA are
additional co-borrowers under the Credit Agreement, and Mobile Posse is a
guarantor (together with the Company, DT Media and DT USA, collectively, the
"Loan Parties"). This modification replaced the existing BoA Credit Agreement.
The New Credit Agreement contains an accordion feature that permits an increase
of the revolver by up to $75,000 plus an amount that would enable the Loan
Parties to remain in compliance with a consolidated secured net leverage ratio,
on such terms as agreed to by the parties.
The revolving line of credit matures on April 29, 2026.
Amounts outstanding under the Credit Agreement accrue interest at an annual rate
equal to, at the Company's election, (i) LIBOR plus between 1.50% and 2.25%
based on the Company's consolidated leverage ratio or (ii) a base rate
determined based upon the highest of (a) the federal funds rate plus 0.50%, (b)
Bank of America, N.A.'s prime rate or (c) LIBOR plus 1.00%, plus between 0.50%
and 1.25% based on the Company's consolidated leverage ratio. The Credit
Agreement contains customary covenants, representations and events of default,
and also requires the Company to comply with a maximum consolidated secured net
leverage ratio and minimum consolidated interest coverage ratio.
The Loan Parties' payment and performance obligations under the New Credit
Agreement and related loan documents are secured by their grant of a security
interest in substantially all of their personal property assets, whether now
existing or hereafter acquired, subject to certain exclusions. If the Loan
Parties acquire any real property assets with a fair market value in excess of
$5,000, they are required to grant a security interest in such real property as
well. All such security interests are required to be first priority security
interests, subject to certain permitted liens.
Media Distribution Business
The Company's Media Distribution business is an advertiser solution for unique
and exclusive carrier and OEM inventory, which is comprised of first boot and
recurring life-cycle products, features, and professional services delivered
through our platform.
Our software platform enables mobile operators and OEMs to control, manage, and
monetize devices through application installation at the time of activation and
over the life of a device. The platform allows mobile operators to personalize
the application activation experience for customers and monetize their home
screens via revenue-share agreements such as: Cost-Per-Install (CPI),
Cost-Per-Placement (CPP), and Cost-Per-Action (CPA) with third-party
advertisers; or via Per-Device-License Fees (PDL) agreements, which allow
operators and OEMs to leverage the platform, its products, and other features
for a structured fee. Setup Wizard, Dynamic Installs, or Software Development
Kit ("SDK") are the delivery methods available to operators and OEMs on first
boot of the device. Additional products and features are available throughout
the life-cycle of the device that provide operators and OEMs additional
opportunity for media delivery revenue streams. The Company has launched its
software with operators and OEMs in North America, Latin America, Europe,
Israel, and Asia-Pacific.
The acquisition of Mobile Posse provides an additional platform option, outside
of our core platform, to monetize user actions over the life-cycle of a device
by delivering media-rich advertising content to the end user and providing
operators and OEMs with an additional opportunity for revenue streams
synergistic with our core platform.
The Company's Media Distribution business consists of products and services that
simplify the discovery and delivery of mobile applications and content media for
consumers.
•Application Media represents the portion of the business where our platform
delivers apps to end users through partnerships with carrier networks and OEMs.
Application Media optimizes revenues by using developed technology to
streamline, track, and manage app install demand from hundreds of application
developers across various publishers, carriers, OEMs, and devices.
•Content Media represents the portion of the business where our platform
presents news, weather, sports, and other content directly within the native
device experience (e.g., as the start page in the mobile browser, a widget, on
unlock, etc.) through partnerships with carrier networks and OEMs. Content Media
optimizes revenue by a combination of:
•Programmatic Ad Partner Revenue - advertising within the content media that's
sold on an ad exchange at a market rate (CPM - Cost Per Thousand);
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•Sponsored Content - sponsored content media from 3rd party content providers,
presented similarly to an ad, that is monetized when a recommended story is
viewed (CPC - Cost Per Click);
•Editorial Content - owned or licensed media, presented similarly to an ad, that
is monetized when the media is clicked on (CPC - Cost Per Click).
Impact of COVID-19 on the Business
Our results of operations are affected by economic conditions, including
macroeconomic conditions, levels of business confidence, and consumer
confidence. There is some uncertainty regarding the extent to which COVID-19
will impact our business and the demand for our service offerings. The extent to
which COVID-19 impacts our operational and financial performance will depend on
the impact to carriers and OEMs in relation to their sales of smartphones,
tablets, and other devices. If COVID-19 continues to have a significant negative
impact on global economic conditions over a prolonged period of time, our
results of operations and financial condition could be adversely impacted.
Presently, we are conducting business as usual, with some modifications to
employee travel, employee work locations, and cancellation of certain marketing
events, among other modifications. We will continue to actively monitor the
situation and 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.
Disposition of the Content Reportable Segment and A&P Business
On April 29, 2018, the Company entered into two distinct disposition agreements
with respect to select assets owned by our subsidiaries.
DT APAC and DT Singapore (together, "Pay Seller"), each wholly-owned
subsidiaries of the Company, entered into an Asset Purchase Pay Agreement (the
"Pay Agreement"), dated April 23, 2018, with Chargewave Ptd Ltd ("Pay
Purchaser") to sell certain assets (the "Pay Assets") owned by the Pay Seller
related to the Company's Direct Carrier Billing business. The Pay Purchaser is
principally owned and controlled by Jon Mooney, an officer of the Pay Seller. At
the closing of the asset sale, Mr. Mooney was no longer employed by the Company
or Pay Seller. As consideration for this asset sale, Digital Turbine is entitled
to receive certain license fees, profit-sharing, and equity participation rights
as outlined in the Company's Form 8-K filed on May 1, 2018 with the SEC. The
transaction was completed on July 1, 2018 with an effective date of July 1,
2018. With the sale of these assets, the Company exited the reporting segment of
the business previously referred to as the Content business.
DT Media, a wholly-owned subsidiary of the Company, entered into an Asset
Purchase Agreement (the "A&P Agreement"), dated April 28, 2018, with Creative
Clicks B.V. (the "A&P Purchaser") to sell business relationships with various
advertisers and publishers (the "A&P Assets") related to the Company's
Advertising and Publishing business. As consideration for this asset sale, we
are entitled to receive a percentage of the gross profit, as defined by the A&P
Agreement, derived from these customer agreements for a period of three years,
as outlined in the Company's Form 8-K filed on May 1, 2018 with the SEC. The
transaction was completed on June 28, 2018 with an effective date of June 1,
2018. With the sale of these assets, the Company exited the operating segment of
the business previously referred to as the A&P business, which was previously
part of the Advertising segment, the Company's sole reporting segment (which is
now Media Distribution).
These dispositions have allowed the Company to benefit from a streamlined
business model, simplified operating structure, and enhanced management focus.
Discontinued Operations
As a result of the dispositions, the results of operations from our Content
reporting segment and A&P business within the Media Distribution reporting
segment, previously referred to as the Advertising segment, are reported as
"Loss from discontinued operations, net of taxes" and the related assets and
liabilities are classified as "held for disposal" on the prior comparative
period Consolidated Financial Statements in Item 8 of this Annual Report. The
Company has recast prior period amounts presented within this report to provide
visibility and comparability.
Results of Operations
All discussions in this Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, unless otherwise noted, relate to
the remaining continuing operations in our sole operating segment after the
dispositions, the Media Distribution business.
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                             RESULTS OF OPERATIONS
Below are our revenues, costs of revenues, and expenses for fiscal years 2021,
2020, and 2019. This information should be read in conjunction with our
Consolidated Financial Statements and Notes thereto in Item 8 in this Annual
Report.
                                                     Year ended March 31,                                               Year ended March 31,
                                                   2021                 2020               % of Change                2020                 2019               % of Change
                                               (in thousands, except per share                                    (in thousands, except per share
                                                           amounts)                                                           amounts)
Net revenues                                  $    313,579          $ 138,715                     126.1  %       $    138,715          $ 103,569                      33.9  %
Total costs of revenues and operating              254,370            125,503                     102.7  %            125,503            100,124                      25.3  %

expenses

Income from operations                              59,209             13,212                     348.1  %             13,212              3,445                     283.5  %
Change in estimated contingent                     (15,751)                 -                    (100.0) %                  -                  -                         -  %

consideration

Interest income / (expense)                         (1,003)                41                  (2,546.3) %                 41             (1,120)                    103.7  %
Foreign exchange transaction gain                        -                  -                         -  %                  -                  3                    (100.0) %
Change in fair value of convertible                      -                  -                         -  %                  -             (1,008)                    100.0  %
note embedded derivative liability
Change in fair value of warrant                          -             (9,580)                    100.0  %             (9,580)            (4,875)                    (96.5) %

liability

Loss on extinguishment of debt                        (452)                 -                    (100.0) %                  -               (431)                    100.0  %
Other income / (expense)                              (146)               232                    (162.9) %                232                153                      51.6  %
Income / (loss) from continuing                     41,857              3,905                     971.9  %              3,905             (3,833)                    201.9  %
operations before income taxes
Income tax provision / (benefit)                   (13,027)           (10,375)                     25.6  %            (10,375)               469                   2,312.2  %
Income / (loss) from continuing               $     54,884          $  14,280                     284.3  %       $     14,280          $  (4,302)                    431.9  %

operations, net of taxes Basic net income / (loss) per common $ 0.62 $ 0.17

                     264.7  %       $       0.17          $   (0.06)                    383.3  %
share from continuing operations
Weighted-average common shares                      88,514             84,594                       4.6  %             84,594             77,440                       9.2  %

outstanding, basic Diluted net income / (loss) per common $ 0.57 $ 0.16

                     256.3  %       $       0.16          $   (0.06)                    366.7  %
share from continuing operations
Weighted-average common shares                      96,151             89,558                       7.4  %             89,558             77,440                      15.6  %
outstanding, diluted


Net revenues
                                                Year ended March 31,                                               Year ended March 31,
                                              2021                 2020               % of Change                2020                 2019               % of Change
                                          (in thousands, except per share                                    (in thousands, except per share
                                                      amounts)                                                           amounts)
Net revenues
Application media                        $    217,447          $ 133,898                      62.4  %       $    133,898          $ 103,569                      29.3  %
Content media                            $     96,132          $   4,817                   1,895.7  %       $      4,817          $       -                     100.0  %
Total net revenues                       $    313,579          $ 138,715                     126.1  %       $    138,715          $ 103,569                      33.9  %


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Fiscal 2021 compared to fiscal 2020
During the year ended March 31, 2021, revenues increased $174,864, or 126.1%,
compared to the prior year.
The Company's Media Distribution business is an advertiser solution for unique
and exclusive carrier and OEM inventory. During the years ended March 31, 2021
and 2020, the Media Distribution business, primarily through silent application
delivery, was the main driver of our revenues. Application Media revenue totaled
$217,447 and $133,898, respectively, for the years ended March 31, 2021 and
2020, while Content Media revenue, primarily related to the Mobile Posse
acquisition on February 28, 2020, totaled $96,132 and $4,817, respectively. Our
application delivery and management software enables operators and OEMs to
control, manage, and monetize applications installed at the time of activation
and over the life of a device. The increase in net revenues of $83,549 related
to our Application Media business was attributable to increased demand for our
core services, and expanded platform offerings, which led to higher CPI and CPP
revenue per available placement. Of this increase in Application Media revenue,
approximately $59,900 is related to increases in demand for our core services,
and approximately $23,649 is related to new and expanded platform offerings. The
increase in net revenues of $91,315 related to our Content Media business,
primarily from the acquisition of Mobile Posse, is a function of a full year of
contribution in the current fiscal year, as opposed to one month of contribution
in the previous fiscal year, as well as post acquisition technology synergies
driving expansion across the existing Digital Turbine partner base.
With respect to customer revenue concentration, the Company defines a customer
as an advertiser or a carrier that is a distinct source of revenue and is
legally bound to pay for the services that the Company delivers on the
advertiser's or carrier's behalf. During the fiscal year ended March 31, 2021,
no single customer represented more than 10% of net revenues. During the fiscal
year ended March 31, 2020, one major customer, Oath Inc., a subsidiary of
Verizon Communications, represented 15.3% of net revenues.
  With respect to partner revenue concentration, the Company partners with
mobile carriers and OEMs to deliver applications on our platform through the
carrier network. During the fiscal year ended March 31, 2021, T-Mobile US Inc.,
including Sprint and other subsidiaries, a carrier partner, generated 26.4%,
AT&T Inc., including its Cricket subsidiary, a carrier partner, generated 22.3%,
Verizon Wireless, a subsidiary of Verizon Communications, a carrier partner,
generated 18.5%, and America Movil, primarily through its subsidiary Tracfone
Wireless Inc., a carrier partner, generated 10.8% of our net revenues. During
the fiscal year ended March 31, 2020, Verizon Wireless, a subsidiary of Verizon
Communications, a carrier partner, generated 37.3%, AT&T Inc., including its
Cricket subsidiary, a carrier partner, generated 30.0%, and America Movil,
primarily through its subsidiary Tracfone Wireless Inc., a carrier partner,
generated 10.7% of our net revenues.
A reduction or delay in operating activity from these customers or partners, or
a delay or default in payment by these customers, or a termination of the
Company's agreements with these customers, could materially harm the Company's
business and prospects. The Company is not aware of any material changes to
these relationships, or material reductions or delays in operating activity with
these customers or partners.
Fiscal 2020 compared to fiscal 2019
During the year ended March 31, 2020, revenues increased $35,146, or 33.9%,
compared to the prior year.
The Company's Media Distribution business is an advertiser solution for unique
and exclusive carrier and OEM inventory. During the years ended March 31, 2020
and 2019, the Media Distribution business, primarily through silent application
delivery, was the main driver of our revenues. Our application delivery and
management software enables operators and OEMs to control, manage, and monetize
applications installed at the time of activation and over the life of a device.
The increase in net revenues of $35,146 was primarily attributable to increased
demand for our platform offerings, which led to higher CPI and CPP revenue per
available placement. Of this increase, approximately $30,329 is related to
organic increases in demand for our platform services, and approximately $4,817
is related to revenue contributions from the acquisition of Mobile Posse.
With respect to customer revenue concentration, during the year ended March 31,
2020, one major customer, Oath Inc., a subsidiary of Verizon Communications,
represented 15.3% of net revenues. During the year ended March 31, 2019, one
major customer, Oath Inc., a subsidiary of Verizon Communications,
represented 28.6% of net revenues.
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With respect to partner revenue concentration, the Company partners with mobile
carriers and OEMs to deliver applications on our platform through the carrier
network. During the years ended March 31, 2020 and 2019, Verizon Wireless, a
subsidiary of Verizon Communications, a carrier partner, generated 37.3%
and 45.9%, respectively, while AT&T Inc., a carrier partner, including its
Cricket subsidiary, generated 30.0% and 38.7%, respectively, of our net
revenues. Additionally, during the year ended March 31, 2020, America Movil,
primarily through its subsidiary Tracfone Wireless Inc., generated 10.7% of our
net revenues.
Costs of revenues and operating expenses
                                            Year ended March 31,                                              Year ended March 31,
                                           2021                2020               % of Change                2020                2019               % of Change
                                               (in thousands)                                                    (in thousands)

License fees and revenue share $ 178,649 $ 83,588

              113.7  %       $    83,588          $  65,981                      26.7  %
Other direct costs of revenues              2,358              1,454                      62.2  %             1,454              2,023                     (28.1) %
Product development                        20,119             12,018                      67.4  %            12,018             10,876                      10.5  %
Sales and marketing                        19,304             11,244                      71.7  %            11,244              8,212                      36.9  %
General and administrative                 33,940             17,199                      97.3  %            17,199             13,032                      32.0  %
Total costs of revenues and           $   254,370          $ 125,503                     102.7  %       $   125,503          $ 100,124                      25.3  %
operating expenses


Fiscal 2021 compared to fiscal 2020
Total costs of revenues and operating expenses for the years ended March 31,
2021 and 2020 were approximately $254,370 and $125,503, respectively,
representing a year-over-year increase of approximately $128,867 or 102.7%. This
change is a result of continued growth including the acquisitions of Mobile
Posse and Appreciate. Company-wide cost control measures show the Company's
ability to scale revenues at a greater rate than operating expenses.
License fees and revenue share is reflective of amounts paid to our carrier and
OEM partners who drive the revenues generated from advertising via direct CPI,
CPP, or CPA arrangements with application developers, or indirect arrangements
through advertising aggregators (ad networks) are shared with the carrier and
the shared revenue is recorded as a cost of revenue. In each case the revenue
share with the carrier varies depending on the agreement with the carrier, and,
in some cases, is based upon revenue tiers. License fees and revenue share for
the years ended March 31, 2021 and 2020 were approximately $178,649 and $83,588,
respectively, representing a year-over-year increase of approximately $95,061 or
113.7%. The increase in these costs of revenues over the comparative period was
primarily attributable to the increase in revenues over the same period, as
these costs are paid as a percentage of revenues. License fees and revenue
share, as a percent of revenue, for the years ended March 31, 2021 and 2020 were
approximately 57% and 60%, respectively.
Other direct costs of revenues are comprised primarily of hosting expense
directly related to the generation of revenues, and depreciation expense
accounted for under ASC 985-20, Costs of Software to be Sold, Leased, or
Otherwise Marketed. Other direct costs of revenues for the years ended March 31,
2021 and 2020 were approximately $2,358 and $1,454, respectively, representing a
year-over-year increase of approximately $904 or 62.2%.
Product development expenses include the development and maintenance of the
Company's product suite. Expenses in this area are primarily a function of
talent. Product development expenses for the years ended March 31, 2021 and 2020
were approximately $20,119 and $12,018, respectively, representing a
year-over-year increase of approximately $8,101 or 67.4%. The increase in
product development expenses over the comparative period was primarily
attributable to increased product development headcount, both organic and
through the acquisitions of Mobile Posse and Appreciate, and other
employee-related and third-party development-related costs as the Company
continues to scale its product development organization to support the Company's
growth.
Sales and marketing expenses represent the costs of sales and marketing talent,
advertising and marketing campaigns, and campaign management. Sales and
marketing expenses for the years ended March 31, 2021 and 2020 were
approximately $19,304 and $11,244, respectively, representing a year-over-year
increase of approximately $8,060 or 71.7%. The increase in sales and marketing
expenses over the comparative period was primarily attributable to the addition
of new talent in existing markets related to the Company's continued expansion
of its global footprint and increased commissions associated with the sales team
generating more revenue through new and existing advertising relationships and
markets.
                                       54
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General and administrative expenses represent management, finance, and support
talent costs in both the parent and subsidiary companies, which include
professional and consulting costs, in addition to other costs such as rent,
stock-based compensation, and depreciation expense. General and administrative
expenses for the years ended March 31, 2021 and 2020 were approximately $33,940
and $17,199, respectively, representing a year-over-year increase of
approximately $16,741 or 97.3%. The increase over the comparative period is
primarily attributable to employee-related expenses as a function of higher
headcount, increased stock option expense, increases in depreciation and
amortization related to capitalized internal-use software and intangible assets,
and expenses incurred for the acquisitions of Mobile Posse and Appreciate.
Fiscal 2020 compared to fiscal 2019
Total operating expenses for the fiscal years ended March 31, 2020 and 2019 were
approximately $125,503 and $100,124, respectively, representing a year-over-year
increase of approximately $25,379 or 25.3%. This change is a result of continued
growth including the acquisition of Mobile Posse. Company-wide cost control
measures show the Company's ability to scale revenues at a greater rate than
operating expenses.
License fees and revenue share is reflective of amounts paid to our carrier and
OEM partners who drive the revenues generated from advertising via direct CPI,
CPP, or CPA arrangements with application developers, or indirect arrangements
through advertising aggregators (ad networks) are shared with the carrier and
the shared revenue is recorded as a cost of revenue. In each case the revenue
share with the carrier varies depending on the agreement with the carrier, and,
in some cases, is based upon revenue tiers. License fees and revenue share for
the years ended March 31, 2020 and 2019 were approximately $83,588 and $65,981,
respectively, representing a year-over-year increase of approximately $17,607 or
26.7%. The increase in these costs of revenues over the comparative period was
primarily attributable to the increase in revenues over the same period, as
these costs are paid as a percentage of revenues. License fees and revenue
share, as a percent of revenue, for the years ended March 31, 2020 and 2019 were
approximately 60% and 64%, respectively.
Other direct costs of revenues are comprised primarily of hosting expense
directly related to the generation of revenues, and depreciation expense
accounted for under ASC 985-20, Costs of Software to be Sold, Leased, or
Otherwise Marketed. Other direct costs of revenues for the years ended March 31,
2020 and 2019 were approximately $1,454 and $2,023, respectively, representing a
year-over-year decrease of approximately $569 or 28.1%.
Product development expenses for the years ended March 31, 2020 and 2019 were
approximately $12,018 and $10,876, respectively, representing a year-over-year
increase of approximately $1,142 or 10.5%. The increase in costs over the
comparative period is primarily a function of talent hired during fiscal year
2020 and hosting expenses associated with development activity.
Sales and marketing expenses for the years ended March 31, 2020 and 2019 were
approximately $11,244 and $8,212, respectively, representing a year-over-year
increase of approximately $3,032 or 36.9%. The increase in sales and marketing
expenses over the comparative period is primarily attributable to increased
travel expenses for existing talent, the addition of new talent in existing
markets related to the Company's continued expansion of its global footprint,
and increased commissions associated with the sales team generating more revenue
through new and existing advertising relationships and markets.
General and administrative expenses for the years ended March 31, 2020 and 2019
were approximately $17,199 and $13,032, respectively, representing a
year-over-year increase of approximately $4,167 or 32.0%. The increase over the
comparative period is primarily attributable to employee-related expenses as a
function of higher headcount, increased stock option expense, increase in
depreciation and amortization related to capitalized internal-use software, and
expenses incurred for the acquisition of Mobile Posse.
                                       55
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Interest and other income / (expense), net

                                                 Year ended March 31,                                               Year ended March 31,
                                                2021                2020               % of Change                 2020                 2019               % of Change
                                                    (in thousands)                                                     (in thousands)
Change in estimated contingent             $    (15,751)         $      -                    (100.0) %       $         -             $      -                         -  %

consideration

Interest income / (expense)                      (1,003)               41                  (2,546.3) %                41               (1,120)                    103.7  %
Foreign exchange transaction gain                     -                 -                         -  %                 -                    3                    (100.0) %
Change in fair value of convertible                   -                 -                         -  %                 -               (1,008)                    100.0  %
note embedded derivative liability
Change in fair value of warrant                       -            (9,580)                    100.0  %            (9,580)              (4,875)                    (96.5) %
liability
Loss on extinguishment of debt                     (452)                -                    (100.0) %                 -                 (431)                    100.0  %
Other income / (expense)                           (146)              232                    (162.9) %               232                  153                      51.6  %

Total interest and other income / $ (17,352) $ (9,307)

                   86.4  %       $    (9,307)            $ (7,278)                     27.9  %
(expense), net


Fiscal 2021 compared to fiscal 2020
Total interest and other income / (expense), net, for the years ended March 31,
2021 and 2020 were $(17,352) and $(9,307), respectively, an increase in net
expenses of $8,045 or 86.4%. This change in total interest and other income /
(expense), net, was primarily attributable to changes in interest income /
(expense), fair value of warrant liability, and estimated contingent
consideration related to the Mobile Posse acquisition. The change in fair value
of warrant liability was due to all holders of the remaining outstanding
warrants exercising all outstanding warrants during the year ended March 31,
2020.
Fiscal 2020 compared to fiscal 2019
Total interest and other income / (expense), net, for the years ended March 31,
2020 and 2019 were $(9,307) and $(7,278), respectively, an increase in net
expenses of $2,029 or 27.9%. This change in total interest and other income /
(expense), net, was primarily attributable to changes in interest income /
(expense), fair value of convertible note embedded derivative liability, and
fair value of warrant liability. The changes in fair values of the convertible
note embedded derivative liability and warrant liability were due to the change
in the Company's stock price from $3.50 at March 31, 2019 to $4.18 at March 31,
2020, partially offset by the settling of all of the remaining derivative
instruments during the fiscal year.
Interest income / (expense)
In the year ended March 31, 2021, interest expense was attributable to 1) fees
related to obtaining debt, which were recorded as debt issuance costs and
expensed as a component of interest expense over the life of the debt; 2)
interest expense incurred on the prior credit agreement with Western Alliance
Bank, which was the previous senior credit facility of the Company that was
terminated on February 3, 2021, at approximately 5.5% (LIBOR + 3.75% with a
1.75% LIBOR floor); and 3) interest expense incurred under the BoA Credit
Agreement at an annual rate equal to LIBOR (or, if necessary, a broadly-adopted
replacement index) plus an applicable margin that ranges from 1.50% to 2.25%,
depending on the Company's consolidated leverage ratio.
In the year ended March 31, 2020, interest expense was attributable to 1) fees
related to obtaining debt, which were recorded as debt issuance costs and
expensed as a component of interest expense over the life of the debt; and 2)
interest expense incurred on the prior credit agreement with Western Alliance
Bank, which was the previous senior credit facility of the Company that was
terminated on February 3, 2021, at approximately 5.5% (LIBOR + 3.75% with a
1.75% LIBOR floor). During the majority of the year ended March 31, 2020, the
Company had no outstanding debt and incurred no interest expense.
In the year ended March 31, 2019, interest expense was primarily attributable to
1) fees related to the obtaining debt, which were recorded as debt issuance
costs and expensed as a component of interest expense over the life of the debt;
2) interest expense incurred from the $16,000 aggregate principal amount of
8.75% Convertible Notes due 2020 (the "Notes"), issued on September 28, 2016; 3)
from amounts drawn on our business finance agreement (the "Credit Agreement")
with Western Alliance Bank (the "Bank") at approximately 6.75% (Wall Street
Journal Prime Rate + 0.50%); and 4) amortization of debt discount related to the
Notes, which were expensed as a component of interest expense over the life of
the debt.
                                       56
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Interest income consists of interest income earned on our cash.
The Company recorded $(1,003), $41, and $(1,120) of aggregate interest income /
(expense), inclusive of debt discount and debt issuance costs amortization,
during the years ended March 31, 2021, 2020, and 2019, respectively.
Change in fair value of convertible note embedded derivative liability
The Company accounts for the convertible note embedded derivative liability
issued in accordance with US GAAP accounting guidance under ASC 815 applicable
to derivative instruments, which requires every derivative instrument within its
scope to be recorded on the balance sheet as either an asset or liability
measured at its fair value, with changes in fair value recognized in earnings.
All convertible notes were settled prior to the year ended March 31, 2020 and
therefore no amounts associated with this derivative liability were recognized
in the year ended March 31, 2021 or 2020.
During the year ended March 31, 2019, the Company recorded a loss from change in
fair value of convertible note embedded derivative liability of $1,008 due to
the increase of the Company's stock price from $2.01 at March 31, 2018 to $3.50
at March 31, 2019, partially offset by the settling of $5,700 of the underlying
debt instruments.
Change in fair value of warrant liability
The Company accounts for the warrants issued in connection with the above-noted
sale of Notes in accordance with US GAAP accounting guidance under ASC 815
applicable to derivative instruments, which requires every derivative instrument
within its scope to be recorded on the balance sheet as either an asset or
liability measured at its fair value, with changes in fair value recognized in
earnings. Based on this guidance, the Company determined that these warrants did
not meet the criteria for classification as equity. Accordingly, the Company
classified the warrants as long-term liabilities. The warrants are subject to
re-measurement at each balance sheet date, with any change in fair value
recognized as a component of other income / (expense), net in the Consolidated
Statements of Operations and Comprehensive Income / (Loss).
Due to the valuation of the derivative liability being highly sensitive to the
trading price of the Company's stock, the increase and decrease in the trading
price of the Company's stock has the impact of increasing the (loss) and gain,
respectively. All warrants related to these Notes were exercised during the year
ended March 31, 2020 and the associated liability settled.
During the year ended March 31, 2020, the Company recorded a loss from change in
fair value of warrant liability of $9,580 due to the increase of the Company's
stock price from $3.50 at March 31, 2019 to $4.18 at March 31, 2020, partially
offset by the exercise of all remaining warrants.
During the year ended March 31, 2019, the Company recorded a loss from change in
fair value of warrant liability of $4,875 due to the increase of the Company's
stock price from $2.01 at March 31, 2018 to $3.50 at March 31, 2019, partially
offset by the exercise of 484,900 warrants.
Change in estimated contingent consideration
On February 28, 2020, the Company completed the acquisition of Mobile Posse,
pursuant to the previously-reported stock purchase agreement (the "Purchase
Agreement") with ACME Mobile, LLC ("ACME"), Mobile Posse, and certain equity
holders of ACME. The Company acquired all of the outstanding capital stock of
Mobile Posse in exchange for an estimated total consideration of: (1) $41,500 in
cash paid at closing (subject to customary closing purchase price adjustments)
and (2) an estimated earn-out of $23,735, to be paid in cash, based on Mobile
Posse achieving certain future target net revenues, less associated revenue
shares, over a twelve-month period following the closing of the acquisition,
noting that the earn-out amount is subject to change based on final results and
calculation.
Under the terms of the earn-out, over the earn-out period, the Company paid ACME
a certain percentage of actual net revenues (less associated revenue shares) of
Mobile Posse, depending on the extent to which Mobile Posse achieved certain
target net revenues (less associated revenue shares) for the relevant period.
Due to the financial results of Mobile Posse during the earn-out period, in
addition to the initial estimated contingent consideration of $23,735, the
Company made additional earn-out payments in the amount of $15,751 during the
year ended March 31, 2021. The earn-out period concluded during the year ended
March 31, 2021.
                                       57
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Loss on extinguishment of debt
During the year ended March 31, 2021, connected with the early termination of
the Western Alliance credit agreement, the Company recorded a loss on
extinguishment of debt of $452, which represents the write-off of all remaining
unamortized debt issuance costs related to the Western Alliance credit
agreement, as well as cash expenses incurred for the early extinguishment of the
credit facility.
No loss on extinguishment of debt was recorded during the year ended March 31,
2020.
During the year ended March 31, 2019, connected with the settlement of a portion
of the convertible notes, the Company recorded a loss on extinguishment of debt
of $431, which represents the difference between the carrying value of the
settled debt (including underlying derivative instruments) and the consideration
given to settle the debt, in this case primarily stock.
Income taxes
Accounting Standards Codification ("ASC") 740 requires the consideration of a
valuation allowance, on a jurisdictional basis, to reflect the likelihood of
realization of deferred tax assets. Significant management judgment is required
in determining any valuation allowance recorded against deferred tax assets.
During the year ended March 31, 2021, the Company's pre-tax income in the U.S.
continued to increase such that the Company was no longer in a cumulative
three-year loss position. Following the acquisition and integration of Mobile
Posse, the Company was able to sustain this pre-tax income position throughout
the full fiscal year. In the fourth quarter ended March 31, 2021, based on
management's assessment of this income trend following the integration of Mobile
Posse, we determined that the U.S. deferred tax assets were more likely than not
realizable based on expected future taxable income. A net tax benefit of $11,782
was realized in the fiscal year ended March 31, 2021 as a result of the release
of the U.S. valuation allowance.
As part of the stock acquisition of Mobile Posse on February 28, 2020, the
Company recorded a net U.S. deferred tax liability of $10,552 on the opening
balance sheet. The deferred tax liability primarily related to intangible assets
recorded at fair market value for financial accounting purposes compared to the
carryover of historical tax basis. The acquired deferred tax liabilities
represent a source of positive evidence with respect to the Company's ability to
realize deferred tax assets. In accordance with ASC 805-740-30-3, a change in
the acquirer's valuation allowance as a result of a business combination is
recorded as a component of income tax expense. As a result of the business
combination, the Company released $10,552 of valuation allowance as a component
of income tax expense in the year ended March 31, 2020.
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 liabilities for income tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes will be due. These
liabilities for tax contingencies are established when the Company believes that
a tax position is not more likely than not sustainable. The Company adjusts
these 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.
The Company's effective tax rate differs from the U.S. federal statutory tax
rate primarily as a result of changes in valuation allowance, tax deductions in
excess of book for stock compensation, nondeductible changes in stock
acquisition earn-out and warrant liabilities, and state income taxes.
                                       58
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Liquidity and Capital Resources

                                                                        March 31, 2021           March 31, 2020
                                                                                    (in thousands)
Cash                                                                  $        30,778          $        21,534
Restricted cash                                                                   340                      125

Short-term debt
Short-term debt, net of debt issuance costs of $443 and $62,                   14,557                    1,188
respectively
Total short-term debt                                                          14,557                    1,188

Long-term debt
Long-term debt, net of debt issuance costs of $0 and $245,                          -                   18,505
respectively
Total long-term debt                                                                -                   18,505

Working capital
Current assets                                                                 97,385                   58,447
Current liabilities                                                           111,149                   82,809
Working capital                                                       $       (13,764)         $       (24,362)


Our primary sources of liquidity have historically been issuances of common and
preferred stock, debt, and cash from operations. As of March 31, 2021, we had
cash, including restricted cash, totaling approximately $31,118.
The Company anticipates that its primary sources of liquidity will continue to
be cash-on-hand, cash provided by operations, and the credit available under the
Company's senior credit facility. In addition, the Company may raise additional
capital through future equity or, subject to restrictions contained in the
Company's senior credit facility, debt financing to finance the future purchase
price and earn-out payment obligations with respect to the AdColony and Fyber
acquisitions, provide for greater flexibility to make acquisitions, make new
investments in under-capitalized opportunities, or invest in organic
opportunities.
Additional financing may not be available on acceptable terms or at all. If the
Company issues additional equity securities to raise funds, the ownership
percentage of its existing stockholders would be reduced. New investors may
demand rights, preferences, or privileges senior to those of existing holders of
common stock. The Company believes that it has sufficient cash and capital
resources to operate its business for at least twelve months from the filing
date of this Annual Report on Form 10-K.
BoA Revolving Line of Credit
On February 3, 2021, the Company entered into a credit agreement ("the BoA
Credit Agreement') with Bank of America, N.A. (the "Bank"), which provides for a
revolving line of credit of $100,000, with an accordion feature enabling the
Company to increase the amount to up to $200,000, to be used for acquisitions,
working capital, and general corporate purposes. DT Media and DT USA are
additional co-borrowers under the BoA Credit Agreement.
The revolving line of credit matures on February 3, 2024.
In connection with the Company entering into the BoA Credit Agreement with the
Bank as described above, on February 3, 2021, the Company and Western Alliance
Bank terminated the credit agreement dated February 28, 2020, by and among the
Company, DT Media, DT USA, and Western Alliance Bank (and the amendments
thereto), which was the previous term loan and revolving credit facility of the
Company.
                                       59
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Amounts outstanding under the BoA Credit Agreement accrue interest at an annual
rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index) plus
an applicable margin that ranges from 1.50% to 2.25%, depending on the Company's
consolidated leverage ratio. The obligations under the BoA Credit Agreement are
secured by a grant of a security interest in substantially all of the assets of
the Company and its subsidiaries. The BoA Credit Agreement contains customary
covenants, representations, and events of default, and also requires the Company
to comply with a maximum consolidated leverage ratio and minimum fixed charge
coverage ratio.
At March 31, 2021, there was $15,000 outstanding principal on the BoA Credit
Agreement and the Company had $85,000 available to draw.
April 2021 Credit Facility
Subsequent to year end, on April 29, 2021, the Company entered into an amended
and restated Credit Agreement (the "New Credit Agreement") with Bank of America,
N.A., as a lender and administrative agent, and a syndicate of lenders, which
provides for a revolving line of credit of $400,000 to be used for working
capital, permitted acquisitions, capital expenditures, and other lawful
corporate purposes. DT Media and DT USA are additional co-borrowers under the
Credit Agreement, and Mobile Posse is a guarantor (together with the Company, DT
Media and DT USA, collectively, the "Loan Parties"). This modification replaced
the existing BoA Credit Agreement. The New Credit Agreement contains an
accordion feature that permits an increase of the revolver by up to $75,000 plus
an amount that would enable the Loan Parties to remain in compliance with a
consolidated secured net leverage ratio, on such terms as agreed to by the
parties.
The revolving line of credit matures on April 29, 2026.
Amounts outstanding under the Credit Agreement accrue interest at an annual rate
equal to, at the Company's election, (i) LIBOR plus between 1.50% and 2.25%
based on the Company's consolidated leverage ratio or (ii) a base rate
determined based upon the highest of (a) the federal funds rate plus 0.50%, (b)
Bank of America, N.A.'s prime rate or (c) LIBOR plus 1.00%, plus between 0.50%
and 1.25% based on the Company's consolidated leverage ratio. The Credit
Agreement contains customary covenants, representations and events of default,
and also requires the Company to comply with a maximum consolidated secured net
leverage ratio and minimum consolidated interest coverage ratio.
The Loan Parties' payment and performance obligations under the New Credit
Agreement and related loan documents are secured by their grant of a security
interest in substantially all of their personal property assets, whether now
existing or hereafter acquired, subject to certain exclusions. If the Loan
Parties acquire any real property assets with a fair market value in excess of
$5,000, they are required to grant a security interest in such real property as
well. All such security interests are required to be first priority security
interests, subject to certain permitted liens.
Cash Flow Summary
                                               Year ended March 31,                                                 Year ended March 31,
                                              2021                 2020               % of Change                  2020                  2019              % of Change
                                                  (in thousands)                                                       (in thousands)
Consolidated Statement of Cash
Flows Data:
Net cash provided by operating
activities - continuing                 $    62,795             $ 33,670                      86.5  %       $     33,670              $ 4,970                     577.5  %
operations
Capital expenditures                         (9,204)              (4,845)                    (90.0) %             (4,845)              (2,314)                   (109.4) %
Acquisition of Appreciate, net of           (20,348)                   -                    (100.0) %                  -                    -                         -  %

cash

Acquisition of Mobile Posse, net             (8,256)             (41,872)                     80.3  %            (41,872)                   -                    (100.0) %
of cash
Proceeds from borrowings                     15,000               20,000                     (25.0) %             20,000                    -                     100.0  %
Payment of debt issuance costs                 (469)                (313)                    (49.8) %               (313)                   -                    (100.0) %
Payment of contingent                       (16,956)                   -                    (100.0) %                  -                    -                         -  %
consideration
Options and warrants exercised                7,209                6,488                      11.1  %              6,488                  734                     783.9  %
Repayment of debt obligations               (20,000)                   -                    (100.0) %                  -               (1,650)                    100.0  %
Effect of exchange rate changes         $      (312)            $   (235)                    (32.8) %       $       (235)             $   (31)                   (658.1) %
on cash


                                       60

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Operating Activities
During the years ended March 31, 2021 and 2020, the Company's net cash provided
by operating activities from continuing operations was $62,795 and $33,670,
respectively, an increase of $29,125, or 86.5%. The increase in net cash
provided by operating activities was primarily attributable to depreciation and
amortization, stock-based compensation, and changes in working capital accounts
over the comparative periods.
During the year ended March 31, 2021, net cash provided by operating activities
from continuing operations was $62,795, resulting from net income of $54,884
offset by net non-cash expenses of $13,340, which included depreciation and
amortization, non-cash interest expense, stock-based compensation, stock-based
compensation for services rendered, loss on extinguishment of debt, change in
estimate of remaining contingent consideration, and payment of contingent
consideration in excess of amounts capitalized at acquisition of approximately
$7,114, $94, $4,853, $1,024, $255, $15,751, and $(15,751), respectively.
Depreciation and amortization expense relates primarily to capitalized software
development costs and acquired technology and IP-related intangible assets.
Stock-based compensation expense relates primarily to options granted to our
employees and, to a lesser extent, to restricted stock awards for executives and
our Board of Directors. The net impact of the change in estimated earn-out due
to ACME Mobile for the acquisition of Mobile Posse and the payment of this
additional earn-out is $0 on the Consolidated Statements of Cash Flows; the
$15,751 represents additional earn-out payments earned by ACME Mobile due to
actual financial results during the earn-out period in excess of amounts
capitalized under ASC 805 - Purchase Accounting. These amounts were all paid
during the period. Net cash provided by operating activities during fiscal year
2021 was negatively impacted by the net change in working capital accounts as of
March 31, 2021 compared to March 31, 2020, with a net increase over the
comparative periods in current liabilities of $32,456 offset by an increase in
current assets of approximately $24,540.
During the year ended March 31, 2020, net cash provided by operating activities
from continuing operations was $33,670, resulting from net income of $14,280
offset by net non-cash expenses of $15,281, which included depreciation and
amortization, non-cash interest expense, stock-based compensation, stock-based
compensation for services rendered, change in fair value of convertible note
embedded derivative liability, and change in fair value of warrant liability of
debt of approximately $2,342, $6, $2,710, $643, and $9,580, respectively.
Depreciation and amortization expense relates primarily to capitalized software
development costs and acquired technology and IP-related intangible assets.
Stock-based compensation expense relates primarily to options granted to our
employees and, to a lesser extent, to restricted stock awards for executives and
our Board of Directors. The change in fair value of warrant liability was a
result of the settlement of all outstanding warrants related to the convertible
notes during fiscal year 2020. Net cash provided by operating activities during
fiscal year 2020 was negatively impacted by the net change in working capital
accounts as of March 31, 2020 compared to March 31, 2019, with a net increase
over the comparative periods in current liabilities of approximately $15,239
offset by an increase in current assets of approximately $272.
During the year ended March 31, 2019, net cash provided by operating activities
from continuing operations was $4,970, resulting from a net loss of $4,302
offset by net non-cash expenses of $12,409, which included depreciation and
amortization, non-cash interest expense, stock-based compensation, stock-based
compensation for services rendered, change in fair value of convertible note
embedded derivative liability, change in fair value of warrant liability, and
loss on extinguishment of debt of approximately $2,766, $798, $2,011, $520,
$1,008, $4,875, and $431, respectively. Depreciation and amortization expense
relates primarily to capitalized software development costs and acquired
technology and IP-related intangible assets. Stock-based compensation expense
relates primarily to options granted to our employees and, to a lesser extent,
to restricted stock awards for executives and our Board of Directors. The change
in fair value of warrant liability was primarily a result of the change in our
stock price during fiscal year 2019, offset by the settlement of a portion of
the outstanding warrants. Net cash provided by operating activities during
fiscal year 2019 was positively impacted by the net change in working capital
accounts as of March 31, 2019 compared to March 31, 2018, with a net increase
over the comparative periods in current liabilities of approximately $2,212
offset by an increase in current assets of approximately $5,531.
Investing Activities
During the year ended March 31, 2021, cash used in investing activities was
approximately $37,808, which includes capital expenditures of $9,204, comprised
mostly of internally-developed software, the acquisition of Appreciate, net of
cash, for $20,348, and earn-out payments associated with the acquisition of
Mobile Posse, net of cash, for $8,256.
During the year ended March 31, 2020, cash used in investing activities was
approximately $46,717, which includes capital expenditures of $4,845, comprised
mostly of internally-developed software, and the acquisition of Mobile Posse,
net of cash, for $41,872.
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During the year ended March 31, 2019, cash used in investing activities was
approximately $2,314, which includes capital expenditures of $2,314, comprised
mostly of internally-developed software.
Financing Activities
During the year ended March 31, 2021, cash used in financing activities was
approximately $15,216, which is primarily attributable to proceeds from
borrowings of $15,000 and proceeds received from the exercise of stock options
of approximately $7,209, offset by the payment of debt issuance costs of $469,
payment of contingent consideration of $16,956, and repayment of debt
obligations of $20,000.
During the year ended March 31, 2020, cash provided by financing activities was
approximately $26,175, which is primarily attributable to proceeds from
borrowings of $20,000 and proceeds received from the exercise of stock options
and warrants of approximately $6,488, offset by payment of debt issuance costs
of $313.
During the year ended March 31, 2019, cash used in financing activities was
approximately $916, which is primarily attributable to proceeds received from
the exercise of stock options and warrants of approximately $734, offset by the
repayment of debt obligations of approximately $1,650.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial
partners, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. In addition, we do not have any undisclosed borrowings or
debt, and we have not entered into any synthetic leases. We believe, therefore,
that we are not materially exposed to any financing, liquidity, market, or
credit risks that could arise if we had engaged in such relationships.
Contractual Cash Obligations
The following table summarizes our contractual cash obligations at March 31,
2021:
                                                                                           Payments Due by Period
Contractual cash obligations                     Total          Less Than 1          1-3 Years           3 to 5 Years           More Than 5
                                                                    Year                                                           Years
Operating leases (a)                          $  7,027          $   1,716          $    3,242          $       2,069          $          -
Debt repayments                                 15,000             15,000                   -                      -                     -
Bank fees                                          450                150                 300                      -                     -
Uncertain tax positions (b)                          -                  -                   -                      -                     -
Total contractual cash obligations            $ 22,477          $  16,866

$ 3,542 $ 2,069 $ -

(a)Consists of operating leases for our office facilities.
(b)We have approximately $1,077 in additional liabilities associated with
uncertain tax positions that are not expected to be liquidated within the next
twelve months. We are unable to reliably estimate the expected payment dates for
these additional non-current liabilities.
Cash Contractual Obligations Associated with Acquisitions
Under the terms of the Share Purchase Agreement for the acquisition of AdColony,
we must pay $100,000 in cash on or before October 29, 2021 and an earn-out
payment estimated between $150,000 to $175,000 in cash following December 31,
2021. In addition, under the terms of the Sale and Purchase Agreement for the
acquisition of Fyber, we must pay the tender offer consideration in cash and
make a potential earn-out payment of up to $50,000, which may be paid in shares
of our common stock or, under certain circumstances, in cash. On April 29, 2021,
we entered into the New Credit Agreement and borrowed approximately $107,000 on
the revolver on that date, and we borrowed an additional $130,000 on the
revolver on May 25, 2021 to fund the cash closing payments for the AdColony and
Fyber acquisitions. In order to fund the future cash payments due in respect of
the AdColony and Fyber acquisitions, we will need to use cash flows from
operations and borrowings under the New Credit Agreement and may need to access
the capital markets. If our cash flows and borrowings under our revolving credit
facility are not available for any reason, we would need to seek funds from the
capital markets.
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Critical Accounting Policies
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, revenues, expenses, and
related disclosures of contingent assets and liabilities. On an on-going 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.
Basis of Presentation
The financial statements have been prepared in accordance with GAAP and pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC")
for annual financial statements. The financial statements, in the opinion of
management, include all adjustments necessary for a fair statement of the
results of operations, financial position, and cash flows of the Company for
each period presented.
Estimates and Assumptions
The preparation of our financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, and disclosures of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition
In accordance with ASC 606, revenue is recognized when a customer obtains
control of promised services. The amount of revenue recognized reflects the
consideration the Company expects to be entitled to receive in exchange for
these services.
Carriers and OEMs
As discussed above, contracts with carriers and OEMs are created 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 or, to a lesser
extent, a customer contract per-device license fee model for a two-to-four year
software as a service ("SaaS") license agreement. 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.
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Third-Party Advertisers
Application Management Software
The Company generally offers these services under customer contract
Cost-Per-Install or CPI arrangements, Cost-Per-Placement or CPP arrangements,
and/or Cost-Per-Action or CPA arrangements with third-party advertisers and
developers, as well as advertising aggregators, generally in the form of
insertion orders that specify the type of arrangement (as detailed above) at
particular set budget amounts/restraints. These advertiser customer contracts
are generally short-term in nature, at less than one year, as the budget amounts
are typically spent in full within this time period. These agreements typically
include the delivery of applications to home screens of mobile devices. Access
to inventory of application slots is allocated by carriers or OEMs in the
contracts identified above. The Company controls these application slots and
markets it on behalf of the carriers and OEMs to the advertisers. The Company
has concluded that the performance obligation within the contract is complete
upon delivery of the application to the 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.
Programmatic Advertising and Targeted Media Delivery
The Company generally offers these services under cost-per-thousand 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.
Gross vs Net Reporting
The Company has determined that it is the primary obligor for its advertiser
services for application management and programmatic advertising and targeted
media delivery 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 advertisers, content
providers, or websites gross and the carrier or OEM share of such transaction
price as costs of revenues - license fees and 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.
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Allowance for Credit Losses
The Company maintains reserves for current expected credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, current economic trends,
and changes in customer payment patterns to evaluate the adequacy of these
reserves.
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, we do not invest significant capital into the research
and development phase of new products and features as the technological
feasibility aspect of our 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.
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. We capitalize 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
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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 United States 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 have applied FASB ASC 718, Share-Based Payment ("ASC 718"), and, accordingly,
we record stock-based compensation expense for all of our stock-based awards.
Under ASC 718, we estimate the fair value of stock options granted using the
Black-Scholes model. The fair value for awards that are expected to vest is
amortized on a straight-line basis over the requisite service period of the
award, which is generally the option vesting term. The amount of expense
recognized represents the expense associated with the stock options we expect to
vest, based on an estimated rate of forfeitures. This rate of forfeitures is
updated, as necessary, and any adjustments needed to recognize the fair value of
options that vest or are forfeited are recorded.
The Black-Scholes model, used to estimate the fair value of an award, requires
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.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets
acquired, liabilities assumed, and intangible assets acquired based on their
estimated fair values. The excess of the fair value of 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 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 and Indefinite-Lived Intangible Assets
Goodwill represents the excess of acquisition cost over fair value of net assets
of businesses acquired. In accordance with FASB ASC 350-20, Goodwill and Other
Intangible Assets, the value assigned to goodwill and indefinite lived
intangible assets is not amortized to expense, but rather they are evaluated, at
least on an annual basis, to determine if there are potential impairments.
For goodwill and indefinite lived intangible assets, we complete what is
referred to as the "Step 0" analysis, which involves evaluating qualitative
factors including macroeconomic conditions, industry and market considerations,
cost factors, and overall financial performance. If our "Step 0" analysis
indicates it is more likely than not the fair value is less than the carrying
amount, we would perform a quantitative two-step impairment test.
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The quantitative analysis compares the fair value of our reporting unit or
indefinite-lived intangible assets to their carrying amounts and an impairment
loss is recognized equivalent to the excess of the carrying amount over the fair
value. Fair value is determined based on discounted cash flows, market
multiples, or appraised values, as appropriate. Discounted cash flow analysis
requires assumptions about the timing and amount of future cash inflows and
outflows, risk, the cost of capital, and terminal values. Each of these factors
can significantly affect the value of the intangible asset. The estimates of
future cash flows, based on reasonable and supportable assumptions and
projections, require management's judgment.
Any changes in key assumptions about the Company's businesses and their
prospects, or changes in market conditions, could result in an impairment
charge. Some of the more significant estimates and assumptions inherent in the
intangible asset valuation process include: the timing and amount of projected
future cash flows; the discount rate selected to measure the risks inherent in
the future cash flows; and the assessment of the asset's life cycle and the
competitive trends impacting the asset, including consideration of any
technical, legal or regulatory trends.
In the years ended March 31, 2021 and 2020, the Company determined there were no
indicators of impairment of goodwill. See Note "Goodwill" to the Company's
Consolidated Financial Statements in Item 8 of this Annual Report. In performing
the related valuation analyses, the Company used various valuation methodologies
including probability-weighted discounted cash flows, comparable transaction
analysis, and market capitalization and comparable company multiple comparison.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 5 to our Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form
10-K.

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