Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts)
1. Organization
Digital Turbine was incorporated in the state of Delaware in 1998. Digital Turbine, through its subsidiaries, works at the convergence of media and mobile communications, delivering end-to-end products and solutions for mobile operators, application advertisers, device OEMs and other third parties to enable them to effectively monetize media content and generate higher value user acquisition.
2. Liquidity
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.
Our primary sources of liquidity have historically been issuance of common and preferred stock and debt. As of March 31, 2020, we had cash, including restricted cash, totaling approximately $21,659.
On May 23, 2017, the Company entered into a business finance agreement (the "Credit Agreement") with Western Alliance Bank (the "Bank"). The Credit Agreement provides for a $5,000 total facility. On May 22, 2019, the Company entered into an amendment to the Credit Agreement that extends the agreement through May 23, 2021 and provided for up to a $20,000 total facility, subject to draw limitations derived from current levels of eligible domestic receivables.
On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for (1) a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the acquisition of Mobile Posse (the "Acquisition"), and (2) a revolving line of credit of $5,000 to be used for working capital purposes. DT USA and DT Media are additional co-borrowers under the New Credit Agreement. The term loan must be repaid on a quarterly basis beginning in July 2020 until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio. The revolving line of credit matures on February 28, 2025.
In connection with the Company entering into the New Credit Agreement with the Bank on February 28, 2020, the Company and the Bank terminated the Credit Agreement, dated as of May 23, 2017 (and the amendments thereto), which was the previous revolving credit facility of the Company.
As of March 31, 2020, the Company's drawn amount on the New Credit Agreement was $20,000. Please refer to the "Debt" footnote for more detail.
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 New Credit Agreement. In addition, the Company may raise additional capital through future equity or, subject to restrictions contained in the Credit Agreement, debt financing to 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.
During the evaluation by management of the Company’s financial position, factors such as working capital, current market capitalization, enterprise value, and the fiscal year 2021 operating plan of the Company were considered when determining the ability of the Company to continue as a going concern. Recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which, in turn, is dependent upon the Company’s ability to generate positive cash flows from operations. Based on the year-over-year revenue and gross margin increases coupled with the Company’s management of operating expenses and access to debt, management has determined that when considering all relevant quantitative and qualitative factors, the Company has sufficient cash and capital resources to continue to operate its business for at least twelve months from the filing date of this annual report on Form 10-K.
In view of the matters described in the preceding paragraphs, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities, that might be necessary should the Company be unable to continue its existence.
3. Acquisitions
On February 28, 2020, the Company completed the acquisition of Mobile Posse, Inc. (“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 (the “Acquisition”) 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 (the “Earn-Out 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 will pay ACME a certain percentage of actual net revenues (less associated revenue shares) of Mobile Posse depending on the extent to which Mobile Posse achieves certain target net revenues (less associated revenue shares) for the relevant period. The earn-out payments will be paid quarterly with a true-up calculation and payment after the first nine months of the Earn-Out Period. The acquisition of cash is not reflected in the total consideration detailed above. Final working capital adjustments have not yet been determined.
The preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition are as follows:
|
|
|
|
|
|
Assets
|
|
|
Cash
|
|
$
|
4,613
|
|
Accounts receivable
|
|
10,864
|
|
Other current assets
|
|
422
|
|
Property, plant, and equipment
|
|
2,041
|
|
Right-of-use asset
|
|
2,379
|
|
Developed technology
|
|
1,600
|
|
Customer relationships
|
|
42,500
|
|
Goodwill
|
|
27,267
|
|
Other non current assets
|
|
1,473
|
|
Total Assets
|
|
$
|
93,159
|
|
|
|
|
Liabilities
|
|
|
Accounts payable
|
|
$
|
499
|
|
Accrued license fees and revenue share
|
|
6,847
|
|
Accrued compensation
|
|
180
|
|
Other current liabilities
|
|
827
|
|
Non-current deferred tax liability
|
|
10,854
|
|
Other non-current liabilities
|
|
3,469
|
|
Total Liabilities
|
|
$
|
22,676
|
|
Note the the total consideration listed above excludes cash of $4,613 and working capital adjustments.
The amortization period for the intangible assets acquired in the transaction are as follows:
|
|
|
|
Intangible Asset
|
|
Remaining Useful Life
|
Developed technology
|
|
5 years
|
Customer relationships
|
|
18 years
|
Goodwill
|
|
Indefinite
|
The operating results of Mobile Posse, Inc. which are included in the accompanying consolidated statements of operations from the acquisition date to March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
Unaudited
|
Revenues
|
|
$
|
4,817
|
|
Cost of goods sold
|
|
2,512
|
|
Gross profit
|
|
2,305
|
|
Operating expenses
|
|
1,290
|
|
Net income
|
|
$
|
1,015
|
|
Unaudited pro forma combined financial statements are presented below for informational purposes only. The unaudited pro forma combined statements of operations for the twelve months ended March 31, 2020, and for the twelve months ended March 31, 2019 for the Company and the period from April 3, 2018 through March 31, 2019 for Mobile Posse, combine the historical consolidated statements of operations of the Company and Mobile Posse, giving effect to the acquisition as if it had been consummated on April 3, 2018, the beginning of the earliest period presented.
DIGITAL TURBINE, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the twelve months ended March 31, 2020
(Unaudited)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Digital Turbine
|
|
Historical Mobile Posse
|
|
Pro Forma Adjustments
|
|
|
|
Pro Forma Combined
|
|
|
US$
|
|
US$
|
|
US$
|
|
Footnote
|
|
US$
|
Net revenues
|
|
$
|
138,715
|
|
|
$
|
52,205
|
|
|
$
|
—
|
|
|
|
|
$
|
190,920
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
83,588
|
|
|
24,932
|
|
|
|
|
|
|
108,520
|
|
Other direct cost of revenues
|
|
1,454
|
|
|
1,735
|
|
|
|
|
|
|
|
3,189
|
|
Total cost of revenues
|
|
85,042
|
|
|
26,667
|
|
|
|
|
|
|
|
111,709
|
|
Gross profit
|
|
53,673
|
|
|
25,538
|
|
|
|
|
|
|
|
79,211
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
12,018
|
|
|
6,831
|
|
|
|
|
|
|
18,849
|
|
Sales and marketing
|
|
11,244
|
|
|
4,794
|
|
|
|
|
|
|
16,038
|
|
General and administrative
|
|
17,199
|
|
|
5,518
|
|
|
173
|
|
|
(a)
|
|
22,890
|
|
Total operating expenses
|
|
40,461
|
|
|
17,143
|
|
|
173
|
|
|
|
|
57,777
|
|
Gain / (loss) from operations
|
|
13,212
|
|
|
8,395
|
|
|
(173
|
)
|
|
|
|
21,434
|
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest income / (expense), net
|
|
41
|
|
|
(1,741
|
)
|
|
675
|
|
|
(b) (c)
|
|
(1,025
|
)
|
Change in fair value of warrant liability
|
|
(9,580
|
)
|
|
—
|
|
|
|
|
|
|
(9,580
|
)
|
Loss on extinguishment of debt
|
|
—
|
|
|
(590
|
)
|
|
590
|
|
|
(d)
|
|
—
|
|
Other income / (expense)
|
|
232
|
|
|
(1,421
|
)
|
|
|
|
|
|
(1,189
|
)
|
Total interest and other income / (expense), net
|
|
(9,307
|
)
|
|
(3,752
|
)
|
|
1,265
|
|
|
|
|
(11,794
|
)
|
Income / (loss) from operations before income taxes
|
|
3,905
|
|
|
4,643
|
|
|
1,092
|
|
|
|
|
9,640
|
|
Income tax provision
|
|
(10,375
|
)
|
|
1,668
|
|
|
|
|
|
|
(8,707
|
)
|
Net income / (loss) from continuing operations, net of taxes
|
|
14,280
|
|
|
$
|
2,975
|
|
|
$
|
1,092
|
|
|
|
|
18,347
|
|
Income / (loss) from discontinued operations
|
|
(380
|
)
|
|
|
|
|
|
|
|
(380
|
)
|
Net income / (loss) from discontinued operations
|
|
(380
|
)
|
|
|
|
|
|
|
|
(380
|
)
|
Net income / (loss)
|
|
13,900
|
|
|
|
|
|
|
|
|
17,967
|
|
Foreign currency translation adjustment
|
|
(235
|
)
|
|
|
|
|
|
|
|
(235
|
)
|
Comprehensive income / (loss):
|
|
$
|
13,665
|
|
|
|
|
|
|
|
|
$
|
17,732
|
|
Basic net income / (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
0.17
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Discontinued operations
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Net income / (loss)
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Weighted average common shares outstanding, basic
|
|
84,594
|
|
|
|
|
|
|
|
|
84,594
|
|
Diluted net income / (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
0.16
|
|
|
|
|
|
|
|
|
0.20
|
|
Discontinued operations
|
|
—
|
|
|
|
|
|
|
|
|
$
|
—
|
|
Diluted net income / (loss) per common share
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
Weighted-average common shares outstanding, diluted
|
|
89,558
|
|
|
|
|
|
|
|
|
$
|
89,558
|
|
DIGITAL TURBINE, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the period April 3, 2018 through March 31, 2019 for Mobile Posse
and April 1, 2018 through March 31, 2019 for Digital Turbine, Inc.
(Unaudited)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Digital Turbine
|
|
Historical Mobile Posse
|
|
Pro Forma Adjustments
|
|
|
|
Pro Forma Combined
|
|
|
US$
|
|
US$
|
|
US$
|
|
Footnote
|
|
US$
|
Net revenues
|
|
$
|
103,569
|
|
|
$
|
59,387
|
|
|
$
|
—
|
|
|
|
|
$
|
162,956
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
License fees and revenue share
|
|
65,981
|
|
|
30,464
|
|
|
—
|
|
|
|
|
96,445
|
|
Other direct cost of revenues
|
|
2,023
|
|
|
1,903
|
|
|
—
|
|
|
|
|
3,926
|
|
Total cost of revenues
|
|
68,004
|
|
|
32,367
|
|
|
—
|
|
|
|
|
100,371
|
|
Gross profit
|
|
35,565
|
|
|
27,020
|
|
|
—
|
|
|
|
|
62,585
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
10,876
|
|
|
6,316
|
|
|
—
|
|
|
|
|
17,192
|
|
Sales and marketing
|
|
8,212
|
|
|
5,095
|
|
|
—
|
|
|
|
|
13,307
|
|
General and administrative
|
|
13,032
|
|
|
10,448
|
|
|
197
|
|
|
(a)
|
|
23,677
|
|
Total operating expenses
|
|
32,120
|
|
|
21,859
|
|
|
197
|
|
|
|
|
54,176
|
|
Gain / (loss) from operations
|
|
3,445
|
|
|
5,161
|
|
|
(197
|
)
|
|
|
|
8,409
|
|
Interest and other income / (expense), net
|
|
|
|
|
|
|
|
|
|
|
Interest income / (expense), net
|
|
(1,120
|
)
|
|
(3,233
|
)
|
|
2,071
|
|
|
(b) (c)
|
|
(2,282
|
)
|
Foreign exchange transaction gain / (loss)
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
3
|
|
Change in fair value of convertible note embedded derivative liability
|
|
(1,008
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(1,008
|
)
|
Change in fair value of warrant liability
|
|
(4,875
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(4,875
|
)
|
Loss on extinguishment of debt
|
|
(431
|
)
|
|
—
|
|
|
—
|
|
|
|
|
(431
|
)
|
Other income / (expense)
|
|
153
|
|
|
—
|
|
|
—
|
|
|
|
|
153
|
|
Total interest and other income / (expense), net
|
|
(7,278
|
)
|
|
(3,233
|
)
|
|
2,071
|
|
|
|
|
(8,440
|
)
|
Income / (loss) from operations before income taxes
|
|
(3,833
|
)
|
|
1,928
|
|
|
1,874
|
|
|
|
|
(31
|
)
|
Income tax provision
|
|
469
|
|
|
887
|
|
|
—
|
|
|
|
|
1,356
|
|
Net income / (loss) from continuing operations, net of taxes
|
|
(4,302
|
)
|
|
$
|
1,041
|
|
|
$
|
1,874
|
|
|
|
|
(1,387
|
)
|
Income / (loss) from discontinued operations
|
|
(1,708
|
)
|
|
|
|
|
|
|
|
(1,708
|
)
|
Net income / (loss) from discontinued operations
|
|
(1,708
|
)
|
|
|
|
|
|
|
|
(1,708
|
)
|
Net income / (loss)
|
|
(6,010
|
)
|
|
|
|
|
|
|
|
(3,095
|
)
|
Foreign currency translation adjustment
|
|
(31
|
)
|
|
|
|
|
|
|
|
(31
|
)
|
Comprehensive income / (loss):
|
|
$
|
(6,041
|
)
|
|
|
|
|
|
|
|
$
|
(3,126
|
)
|
Basic and diluted net income / (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Discontinued operations
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
(0.02
|
)
|
Net income / (loss)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
$
|
(0.04
|
)
|
Weighted average common shares outstanding, basic
|
|
77,440
|
|
|
|
|
|
|
|
|
77,440
|
|
Weighted average common shares outstanding, diluted
|
|
77,440
|
|
|
|
|
|
|
|
|
77,440
|
|
Pro Forma Adjustments
(a) Amortization of intangible assets. Adjustment to remove the impact of Mobile Posse historical intangible amortization expense and record the estimated amortization expense on identified intangible assets recorded as part of the purchase price allocation. The adjustment is based on estimated useful lives of 18 years for customer relationships and 5 years for developed technology.
(b) Interest expense. Adjustment to eliminate Mobile Posse historical interest expense and record interest on Loan Agreement with Western Alliance Bank.
(c) Interest expense. Adjustment to eliminate Mobile Posse historical amortization of debt discount and debt issuance costs and record amortization of debt issuance costs on Loan Agreement with Western Alliance Bank.
(d) Loss on extinguishment of debt. Eliminate Mobile Posse historical loss on extinguishment of debt.
4. Discontinued Operations
On April 29, 2018, the Company entered into two distinct disposition agreements with respect to selected 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 as of 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 has determined that it will exit the segment of the business previously referred to as the Content business.
In accordance with the Pay Agreement, the Company assigned and transferred a material contract to the Pay Purchaser. Subsequent to the closing of the transaction associated with the Pay Agreement, the Company received notification from the Pay Purchaser that the partner to the material contract had terminated the contract with the Pay Purchaser. Due to the material contract being terminated, the Company has determined that the estimated earn out from the Pay Purchaser to be $0. As all the assets being transferred had been fully impaired prior to the closing of the transaction, the gain/loss on sale related to the Pay Agreement transaction is currently estimated at $0. Furthermore, the Company retained certain receivables and payables for content delivered for the benefit of the partner to the material contract, where these certain receivables and payables were all recognized prior to the closing of the Pay Agreement. These amounts were presented as assets and liabilities held for disposal in prior presented periods. As of March 31, 2020, the Company has determined there to be uncertainty surrounding the collectability of the receivables due to a breakdown in ongoing discussions with the business partner. We have determined that the amounts recorded are more likely than not to be uncollectible due to disputes surrounding the content delivered, furthermore the related payables would also be contractually withheld unless payment is received at a later date. At this time, the Company has reserved for all balances remaining, both receivables and payables, related to the discontinued operations of the Pay business. The total impact to the Company if all of the remaining receivables and payables are subsequently collected is immaterial. These fully reserved assets and liabilities remain on our books as of March 31, 2020.
DT Media, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “A&P Agreement”), dated as of 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 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 has determined that it will exit the operating segment of the business previously referred to as the A&P business, which was previously part of Advertising, the Company's sole continuing reporting unit. No gain or loss on sale was recognized related to this divestiture. All transferred assets and liabilities, with the exception of goodwill, were fully amortized prior to entering into the sales agreement. As the consideration given by the purchaser was already materially determined at March 31, 2018, goodwill was impaired to the estimated future cash flows of the divested business, which was effectively the purchase price. With the consummation of the sale, the remaining goodwill asset was netted against the purchase price receivable for a net impact of $0 on the Consolidated Statement of Operations for the year ended March 31, 2019.
These dispositions have allowed the Company to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.
The following table summarizes the financial results of our discontinued operations for all periods presented herein:
Condensed Statements of Operations and Comprehensive Loss
For Discontinued Operations
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net revenues
|
|
—
|
|
|
3,970
|
|
|
48,877
|
|
Total cost of revenues
|
|
(1,202
|
)
|
|
1,788
|
|
|
42,950
|
|
Gross profit
|
|
1,202
|
|
|
2,182
|
|
|
5,927
|
|
Product development
|
|
60
|
|
|
732
|
|
|
2,194
|
|
Sales and marketing
|
|
—
|
|
|
350
|
|
|
1,444
|
|
General and administrative
|
|
1,433
|
|
|
2,671
|
|
|
1,835
|
|
Income / (loss) from operations
|
|
(291
|
)
|
|
(1,571
|
)
|
|
454
|
|
Loss on impairment of goodwill
|
|
—
|
|
|
—
|
|
|
(34,045
|
)
|
Interest and other income / (expense), net
|
|
(89
|
)
|
|
(137
|
)
|
|
431
|
|
Loss from discontinued operations before income taxes
|
|
(380
|
)
|
|
(1,708
|
)
|
|
(33,160
|
)
|
Income tax provision / (benefit)
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss from discontinued operations, net of taxes
|
|
(380
|
)
|
|
(1,708
|
)
|
|
(33,160
|
)
|
Foreign currency translation adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
Comprehensive loss
|
|
(380
|
)
|
|
(1,708
|
)
|
|
(33,160
|
)
|
Basic and diluted net loss per common share
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.47
|
)
|
Weighted-average common shares outstanding, basic
|
|
84,594
|
|
|
77,440
|
|
|
70,263
|
|
Weighted-average common shares outstanding, diluted
|
|
89,558
|
|
|
77,440
|
|
|
70,263
|
|
Notes on the impairment of goodwill for discontinued operations
We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. During the fiscal year ended March 31, 2018, in connection with the planned sale of the Content reporting unit and the A&P business within the Advertising reporting segment, we performed a full analysis of the carrying value of the associated goodwill. Since the impairment assessment concluded, based on the future cash flows of the businesses, that it is more likely than not that the fair value is less than its carrying value, we performed the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. The carrying value of the net assets assigned to the aforementioned reporting units exceeded the fair value of the reporting units, therefore the associated goodwill was impaired. The impairment recorded above represents the results of this assessment.
Based on the results of the annual impairment tests performed during the fourth quarter of fiscal 2018, the Company recorded an impairment of approximately $34,045 at March 31, 2018 which is detailed in the table above. No remaining goodwill remains related to the discontinued reporting units.
Details on assets and liabilities classified as held for disposal in the accompanying consolidated balance sheets are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
Assets held for disposal
|
|
|
|
|
Accounts receivable, net of allowances of $0 and $1,589, respectively
|
|
$
|
—
|
|
|
$
|
1,883
|
|
Property and equipment, net
|
|
—
|
|
|
143
|
|
Total assets held for disposal
|
|
$
|
—
|
|
|
$
|
2,026
|
|
|
|
|
|
|
Liabilities held for disposal
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
3,158
|
|
Accrued license fees and revenue share
|
|
—
|
|
|
537
|
|
Accrued compensation
|
|
—
|
|
|
226
|
|
Other current liabilities
|
|
—
|
|
|
3
|
|
Total liabilities held for disposal
|
|
$
|
—
|
|
|
$
|
3,924
|
|
The following table provides reconciling cash flow information for our discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss from discontinued operations, net of taxes
|
|
$
|
(380
|
)
|
|
$
|
(1,708
|
)
|
|
$
|
(33,160
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
19
|
|
|
279
|
|
|
1,037
|
|
Change in allowance for doubtful accounts
|
|
(1,589
|
)
|
|
1,011
|
|
|
194
|
|
Loss on disposal of fixed assets
|
|
109
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
|
—
|
|
|
37
|
|
|
189
|
|
Impairment of intangible assets
|
|
—
|
|
|
—
|
|
|
1,065
|
|
Impairment of goodwill
|
|
—
|
|
|
—
|
|
|
34,045
|
|
(Increase) / decrease in assets:
|
|
|
|
|
|
|
Accounts receivable
|
|
3,472
|
|
|
5,119
|
|
|
(1,928
|
)
|
Goodwill
|
|
—
|
|
|
309
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
54
|
|
|
8
|
|
Increase / (decrease) in liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
(3,158
|
)
|
|
(5,631
|
)
|
|
708
|
|
Accrued license fees and revenue share
|
|
(537
|
)
|
|
(2,522
|
)
|
|
(2,459
|
)
|
Accrued compensation
|
|
(226
|
)
|
|
(303
|
)
|
|
(24
|
)
|
Other current liabilities
|
|
(3
|
)
|
|
(346
|
)
|
|
25
|
|
Other non-current liabilities
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
Cash used in operating activities
|
|
(2,293
|
)
|
|
(3,701
|
)
|
|
(324
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
—
|
|
|
(142
|
)
|
Cash used in investing activities
|
|
—
|
|
|
—
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
Cash used in discontinued operations
|
|
$
|
(2,293
|
)
|
|
$
|
(3,701
|
)
|
|
$
|
(466
|
)
|
5. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 for each period presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Revenue from Contracts with Customers
The Company adopted ASC 606 on April 1, 2018, and ASC 606 is effective from the period beginning April 1, 2018 using the modified retrospective method for all contracts not completed as of the effective date. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with practical expedient ASC 606-10-65-1-(f)-4, which did not have a material effect on the adjustment to accumulated deficit. The reported results for fiscal year 2017 reflect the application of ASC 606 guidance while the reported results for fiscal year 2016 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as "legacy GAAP" or the "previous guidance". The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.
To achieve this core principle, the Company applied the following five steps:
1) Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. None of the Company's contracts contain financing or variable consideration components.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
5) Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations at a point in time as discussed in further detail under "Disaggregation of Revenue" below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
Disaggregation of Revenue
All of the Company's performance obligations, and associated revenue, are generally transferred to customers at a point in time.
Media Distribution Services
The Company’s Media Distribution business consists of an advertiser solution for unique and exclusive carrier and OEM inventory, which is comprised of services including:
|
|
•
|
An application and content management software platform that enables mobile operators and OEMs to control, manage, and monetize applications installed at the time of activation and over the life of a mobile device. This allows operators to personalize the application activation experience for customers and monetize their home screens via Cost-Per-Install or CPI arrangements, Cost-Per-Placement or CPP arrangements, and/or Cost-Per-Action or CPA arrangements, with third party advertisers. There are several different delivery methods available to operators and OEMs on first boot of the device: Wizard, Silent, or Software Development Kit ("SDK"). Optional notifications and other features are available throughout the life-cycle of the device, providing operators and OEMs opportunity for additional revenue streams;
|
|
|
•
|
Programmatic advertising and targeted media delivery. This allows operators to to monetize their operator branded on phone applications by showing in application advertisements via cost per thousand impression arrangements, and page view arrangements,; and
|
|
|
•
|
Other products and professional services offered related to the core platform.
|
Carriers and OEMs
The Company generally offers these services under a vendor contract revenue share model or under a customer contract per device license fee model with carriers and OEMs for a two to four year software as a service ("SaaS") license agreement. These agreements typically include the following services: the access to the SaaS platform, hosting fees, solution features, and general support and maintenance. The Company has concluded that each promised service is delivered concurrently with all other promised service over the contract term and, as such, has concluded these promises are a single performance obligation that includes a series of distinct services that have the same pattern of transfer to the customer. Consideration for the Company’s license arrangements consist of fixed and usage based fees, invoiced monthly or quarterly. The Company's contracts do not include advance non-refundable fees. Monthly license fees are based on the number of devices on a per device license fee basis. Monthly hosting and maintenance fees are generally fixed. These monthly fees are subject to a service level agreement ("SLA"), which requires that the services are available to the customer based on a predefined performance criteria. If the services do not meet these criteria, monthly fees are subject to adjustment or refund. The Company satisfies its performance obligation by providing access to its SaaS platform over time and processing transactions. For non-usage based fees, the period of time over which the Company performs its obligations is inherently commensurate with the contract term. The performance obligation is recognized on time elapsed basis, by month for which the services are provided. For usage-based fees, revenue is recognized in the month in which the Company provides the usage to the customer.
Third-Party Advertisers
Application Management Software
The Company generally offers these services under a 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 through partner networks, defined as carriers or OEMs, to home screens of devices. The Company has concluded that the delivery of the advertisers application is delivered at a point in time and, as such, has concluded these deliveries are a single performance obligation. The Company invoices fees which are generally variable based on the arrangement, which would typically include the number of applications delivered at a specified price per application. For applications delivered, revenue is recognized in the month in which the Company delivers the application to the end consumer.
Programmatic advertising and targeted media delivery.
The Company generally offers these services under cost per thousand impression and page view arrangements.
Through its mobile phone first screen applications and mobile web portals, the Company allocates space/inventory within its content products for display advertising. 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. If the bid is won, the ad is placed. The entire process happens almost instantly 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. Payments by the advertising exchanges are made net of revenue shares and certain administrative expenses to the Company. Revenue is sourced from the actual ad sales.
Through its mobile phone first screen applications and mobile web portals, the Company’s platform recommends sponsored content to mobile phone users. This sponsored content takes the form of articles, graphics, pictures and similar content. Typical content sponsors are Outbrain and Taboola. Revenue is sourced from the clicks provided by the Company’s user base.
Through its mobile phone first screen applications and mobile web portals, the Company drives consumers (web traffic) to the customer’s website in exchange for a share of the revenue that the customer generates from the web traffic sourced from the Company’s applications. The monetizing of the click/impression is performed by the customer through its website.
Professional Services
The Company offers professional services that support the implementation of its platform for carriers and OEMs, including technology development and integration services. These contracts generally include delivery and integration of the technology development product and revenue recognized when formal acceptance is confirmed by the customer. Services are billed in one lump sum. For the majority of these contracts, for which the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company's performance to date, the Company recognizes revenue based on the amount billable to the customer in accordance with practical expedient ASC 606-10-55-18.
Costs to Obtain and Fulfill a Contract
The Company capitalizes commission expenses paid to internal sales personnel that are incremental to obtaining customer contracts. These costs are deferred in “prepaid expenses and other current assets,” net of any long-term portion included in “other non-current assets." The judgments made in determining the amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract. Costs to obtain a contract are amortized as sales and marketing expense on a straight-line basis over the expected period of benefit. These costs are periodically reviewed for impairment. The Company has evaluated related activity in prior periods and have determined the costs to obtain a contract to be immaterial and do not require disclosure.
The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract, ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract and iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to cost of revenue as the Company satisfies its performance obligations by transferring the service to the customer. These costs, which are classified in “prepaid expenses and other current assets,” net of any long term portion included in “other non-current assets,” principally relate to direct costs that enhance resources under the Company’s demand response contracts that will be used in satisfying future performance obligations. The Company has evaluated related activity in prior periods and have determined the costs to fulfill a contract to be immaterial and do not require disclosure.
Financial Statement Impact of Adopting ASC 606
The Company adopted ASC 606 using the modified retrospective method. After applying the new guidance to all contracts with customers that were not completed as of April 1, 2017, the Company has determined no changes in revenues or contract costs for which an adjustment would be required to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the Company determined that the impact of adoption was not material and that no adjustments would need to be made to accounts to the consolidated balance sheet as of April 1, 2017.
Comprehensive Loss
Comprehensive loss consists of two components, net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that, under generally accepted accounting principles, are recorded as an element of stockholders’ equity, but are excluded from net income. The Company’s other comprehensive loss currently includes only foreign currency translation adjustments.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments purchased with a maturity of three months or less to be cash equivalents.
Restricted Cash
Cash accounts that are restricted as to withdrawal or usage are presented as restricted cash. As of March 31, 2020 and March 31, 2019, the Company had $125 and $165, respectively, of restricted cash held by a bank in a collateral account as collateral to cover the Company's corporate credit cards as well as a letter of credit issued to guarantee a facility lease in the prior period.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
Deposits
As of March 31, 2020, the Company had deposits of $159 comprised of facility and equipment lease deposits, as compared to $132 as of March 31, 2019.
Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
The carrying amounts of certain financial instruments, such as cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The fair value of the Notes issued on September 28, 2016 is determined using the residual method of accounting whereby, first, a portion of the proceeds from the issuance of the Notes is allocated to derivatives embedded in the Notes and the warrants issued in connection with the issuance of the Notes, and the proceeds so allocated are accounted for as a convertible note embedded derivative liability and warrant liability, respectively, and second, the remainder of the proceeds from the issuance of the Notes is allocated to the convertible notes, resulting in debt discount. The convertible notes are carried on the consolidated balance sheet on a historical cost basis, net of discounts and debt issuance costs. The carrying value of debt, less capitalized debt issuance costs, approximates fair value.
The Company estimated the fair value of the convertible note embedded derivative liability and warrant liability using a lattice approach that incorporates a Monte Carlo simulation valuation model that considers the Company's future stock price, stock price volatility, probability of a change of control, and the trading information of the Company's common stock into which the Notes are or may become convertible while the Notes were outstanding. After the conversion of all outstanding Notes in the fiscal year ended March 31, 2019, the Company simplified the process for valuing the remaining warrant liability using a Black-Scholes valuation model for the entirety of the fiscal year ended March 31, 2020. As of the March 31, 2020 balance sheet date, all remaining warrants had been exercised and no liability remained.
Changes in the inputs into these valuation models have had a significant impact on the estimated fair value of the convertible note embedded derivative liability and warrant liability. For example, a decrease (increase) in the stock price results
in a decrease (increase) in the estimated fair value of the liabilities. The change in the fair value of the convertible note embedded derivative liability and warrant liability are primarily related to the change in price of the Company's underlying common stock and are reflected in the consolidated statements of operations and comprehensive loss as "Change in fair value of convertible note embedded derivative liability” and "Change in fair value of warrant liability." Refer to Note "Fair Value Measurements" for more details.
As of March 31, 2020 and 2019, the carrying value of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued license fees, accrued compensation, and other current liabilities approximates fair value due to the short-term nature of such instruments.
Convertible Note Embedded Derivative Liability
Embedded derivatives that are required to be bifurcated from the underlying debt instrument (i.e. host) are accounted for and valued as a separate financial instrument. We evaluated the terms and features of the Notes issued on September 28, 2016 and identified embedded derivatives (i.e. conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions) requiring bifurcation and accounting at fair value due to the economic and contractual characteristics of the embedded derivatives meeting the criteria for bifurcation and separate accounting. ASC 815-10-15-83 (c) states that if terms implicitly or explicitly require or permit net settlement, then it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The conversion features related to the Notes consisted of a “make-whole interest” provision, fundamental change provision, and down round conversion price adjustment provisions which, as the Notes were to be converted, placed the Note holder in a position not substantially different from net settlement. Given this fact pattern, the conversion features met the definition of embedded derivatives and required bifurcation and accounting at fair value. All Notes were converted prior to the March 31, 2019 balance sheet date.
See Note "Fair Value Measurements," of this report for a description of our embedded derivatives related to the Notes and information on the valuation model used to calculate the fair value of the embedded derivatives, otherwise called the convertible note embedded derivative liability. Changes in the inputs into the valuation model had a significant impact on the estimated fair value of the convertible note embedded derivative liability. For example, a decrease (increase) in the stock price resulted in a decrease (increase) in the estimated fair value of the liability. Change in the fair value of the liability was primarily attributable to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of convertible note embedded derivative liability.”
Warrant Liability
The Company issued detachable warrants with the Notes issued on September 28, 2016. The Company accounts for its warrants issued in accordance with US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which required 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 were 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. We estimated the fair value of these warrants at the respective balance sheet dates using a lattice approach that incorporates a Monte Carlo simulation that considers the Company's future stock price through the March 31, 2019 balance sheet date in conjunction with the valuation approach taken to value the Notes. As all the Notes were converted prior to the March 31, 2019 balance sheet date, during the fiscal year ended March 31, 2020, the Company simplified the approach to valuing the remaining warrants using a Black-Scholes valuation model. Option pricing models employ subjective factors, including judgments and assumptions, to estimate liability.
See Note "Fair Value Measurements," of this report for a description of our warrant liability and information on the valuation model used to calculate the fair value of the warrant liability. Changes in the inputs into the valuation model had a significant impact on the estimated fair value of the warrant liability. For example, a decrease (increase) in the stock price resulted in a decrease (increase) in the estimated fair value of the liability. The change in the fair value of the liability is primarily related to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of warrant liability.”
Debt Issuance Costs
In April 2015, the FASB issued accounting guidance which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability under ASU 2015-03. The guidance is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years; as such, the Company adopted this guidance in the quarter ended June 30, 2016. The Company has determined that adopting ASU 2015-03 did not have a significant impact on its consolidated results of operations, financial condition, and cash flows. Refer to Note "Debt" for more details.
Carrier Revenue Share and Content Provider License Fees
Carrier Revenue Share
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 goods sold. 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.
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 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 and games. 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. Through fiscal year 2016, the Company had not incurred significant costs between the establishment of technological feasibility and the release of a product for sale; thus, the Company had expensed all software development costs as incurred. In fiscal year 2017, the Company began capitalizing costs related the development of software to be sold, leased, or otherwise marketed as we believe we have met the "tested working model" threshold. Costs will continue to be capitalized until the related software is released. 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 mobile phones for which it develops products; the lack of pre-orders or sales history for its products and games; the uncertainty regarding a product’s or game’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 function intended. For fiscal years 2020, 2019, and 2018, the Company capitalized software development costs in the amount of $1,453, $1,544, and $1,641.
Product Development Costs
The Company charges non-capitalizable costs related to design, development, deployment, and maintenance of products to product development expense as incurred. The types of costs included in product development expenses include salaries, contractor fees and allocated facilities costs.
Advertising Expenses
The Company expenses the costs of advertising as incurred. Advertising expense was $200, $135, and $83 in the years ended March 31, 2020, 2019, and 2018, respectively.
Foreign Currency Translation
The Company uses the United States dollar for financial reporting purposes. Assets and liabilities of foreign operations are translated using current rates of exchange prevailing at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transaction occurred. Statement of Operations amounts are translated at average rates in effect for the reporting period. The foreign currency translation adjustment loss of $235, $31, and $4 in the years ended March 31, 2020, 2019, and 2018 has been reported as a component of comprehensive income / (loss) in the consolidated statements of stockholders’ equity and comprehensive income / (loss).
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are the lesser of 8 to 10 years or the term of the lease for leasehold improvements and 3 to 5 years for other assets.
Leases
On April 1, 2019, we adopted Accounting Standards Update 2016-02, Leases (Topic 842) using the modified retrospective transition approach such that we accounted for leases that commenced before the effective date of ASU 2016-02 in accordance with previous GAAP unless the lease is modified, except that we recognized right-of-use ("ROU") assets and a lease liability for all such leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. Results and disclosure requirements for reporting periods beginning after June 30, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840. The adoption of ASU No. 2016-02 resulted in the recognition of incremental right-of-use assets and related lease liabilities on the Consolidated Balance Sheet as of June 30, 2019.
Under Topic 842, we determine if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, we consider only payments that are fixed and determinable at the time of commencement. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate is a hypothetical rate based on our understanding of what our credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. When determining the probability of exercising such options, we consider contract-based, asset-based, entity-based, and market-based factors. Our lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. Our lease agreements generally do not contain any residual value guarantees or restrictive covenants.
Operating leases are included in operating lease ROU assets, operating lease liabilities, current and operating lease liabilities, non-current on our consolidated balance sheets. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities on our consolidated balance sheets.
Goodwill and Indefinite Life Intangible Assets
Goodwill represents the excess of 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, including trademarks and trade names, through ASC 805 Purchase Price Accounting, is not amortized to expense, but rather evaluated on an at least annual basis to determine if there are potential impairments. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit goodwill is less than the carrying value. If the fair value of an indefinite lived intangible (such as trademarks and trade names) is less than its carrying amount, an impairment loss is recorded. 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.
Goodwill values assigned through ASC 805, Purchase Price Accounting, related to the acquisition of Mobile Posse are subject to adjustments prior to the finalization of the purchase price accounting, one year from the date of acquisition, notably related to the actual earn-out amount due to the seller.
Impairment of Long-Lived Assets and Finite Life Intangibles
Long-lived assets, including intangible assets subject to amortization, primarily consist of customer relationships and software that have been acquired and are amortized using the straight-line method over their useful lives, ranging from five to eighteen years, and are reviewed for impairment in accordance with FASB ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
There were no indications of impairment present or that the carrying amounts may not be recoverable during the fiscal years ended March 31, 2020 and March 31, 2019.
In the fiscal year ended March 31, 2018, the Company did not record any impairment related to continuing operations. The Company did record an impairment related to planned dispositions which is detailed in Note "Discontinued Operations."
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.
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.
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 option pricing model. The fair value for awards that are expected to vest is then 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 ultimately vest based upon 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 actually vest or are forfeited are recorded.
The Black-Scholes option pricing 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 upon our best estimates and judgments relating to the expenses recognized for stock-based compensation.
The Company grants restricted stock subject to market or performance conditions that vest based on the satisfaction of the conditions of the award. Unvested restricted stock entitles the grantees to dividends, if any, with voting rights determined in each agreement. The fair value of performance-based awards is determined using the market closing price on the grant date. Derived service periods and the periods charged with compensation expense for performance-based awards are estimated based on the Company’s judgment of likely future performance and may be adjusted in future periods depending on actual performance.
Preferred Stock
The Company applies the guidance enumerated in FASB ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”) when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value in accordance with ASC 480-10. All other issuances of preferred stock are subject to the classification and measurement principles of ASC 480-10. Accordingly, the Company classifies conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders’ equity.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at two major financial institutions that the Company's management has assessed to be of high credit quality. The Company has not experienced any losses in such accounts.
The Company mitigates its credit risk with respect to accounts receivable by performing credit evaluations and monitoring advertisers' and carriers' accounts receivable balances. As of March 31, 2020, two major customers represented 11.6% and 11.5% of the Company's net accounts receivable balance. As of March 31, 2019, one major customer represented 25.7% of the Company's net accounts receivable balance.
With respect to 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. The Company counts all advertisers and carriers within a single corporate structure as one customer, even in cases where multiple brands, branches, or divisions of an organization enter into separate contracts with the Company. During the year ended March 31, 2020, one major customer represented 15.3% of our consolidated net revenue. During the year ended March 31, 2019 one major customers represented 28.6% of our consolidated net revenues. During the year ended March 31, 2018, two major customers represented 23.5% and 16.1% of our consolidated net revenues, respectively.
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.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires the use of management's estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year-end, and the reported amounts of revenues and expenses during the fiscal year. Actual results could differ from those estimates.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our advertising business, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change as new events occur and additional information emerges, and such changes may be recognized and disclosed in our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848), which contains practical expedients for reference rate reform related activities that affect debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply elections as applicable as changes in the market occur.
In January 2020, the FASB issued Accounting Standards Update 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company will adopt ASU 2020-01 during the quarter ended June 30, 2022 and does not expect the impact of the future adoption of this standard to have a material impact on its consolidated results of operations, financial condition and cash flows based on our current investments.
In December 2019, the FASB issued Accounting Standard Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. The Company will adopt ASU 2020-01 during the quarter ended June 30, 2022 and does not expect the impact of the future adoption of this standard to have a material impact on its consolidated results of operations, financial condition and cash flows based on our current investments.
In August 2018, the FASB issued Accounting Standard Update 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted upon its issuance. The amendments in this update will be applied prospectively. The Company will adopt ASU 2018-15 during the quarter ended June 30, 2020 and does not expect the impact of the future adoption of this standard to have a material impact on its consolidated results of operations, financial condition and cash flows.
In August 2018, the FASB issued Accounting Standard Update 2018-13: Fair Value Measurement (Topic 820). The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, as a result of the FASB’s final deliberations of the financial reporting concepts pursuant to the March 4, 2014 issued FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, as they relate to fair value measurement disclosures. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted upon its issuance. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company will adopt ASU 2018-13 during the quarter ended June 30, 2020, and does not expect the impact of the future adoption of this standard on its consolidated results of operations, financial condition and cash flows to be material.
Other authoritative guidance issued by the FASB (including technical corrections to the FASB Accounting Standards Codification), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to have a material effect on the Company’s consolidated financial statements.
Accounting Pronouncements Adopted During the Period
In February 2016, the FASB issued Account Standard Update 2016-02: Leases (Topic 842). This update changes lessee accounting to reflect the financial liability and right-of-use assets that are inherent to leasing an asset on the balance sheet. The Company adopted ASU No. 2016-02 during the quarter ended June 30, 2019, and applied the modified retrospective approach such that we accounted for leases that commenced before the effective date of ASU No. 2016-02 in accordance with previous GAAP unless the lease is modified, except that we recognized right-of-use assets and a lease liability for all such leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. The adoption of ASU No. 2016-02 resulted in the recognition of incremental right-of-use assets and related lease liabilities on the Consolidated Balance Sheet as of June 30, 2019 and did not have a material impact on our consolidated results of operations, financial condition, and cash flows. Please refer to Note "Leases" for related disclosures.
In June 2018, the FASB issued Accounting Standard Update 2018-07: Compensation—Stock Compensation - Improvements to Non-employee Share-Based Payment Accounting. This update aligns the accounting for share-based payment awards issued to employees and non-employees. The existing employee guidance will now apply to non-employee share-based transactions with some exceptions. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted upon its issuance. The amendments in this update should be applied prospectively. The Company adopted ASU 2018-07 during the quarter ended June 30, 2019 and it has had de minimus impact on our consolidated results of operations, financial condition, and cash flows.
6. Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
Billed
|
|
$
|
18,927
|
|
|
$
|
11,833
|
|
Unbilled
|
|
18,267
|
|
|
11,769
|
|
Allowance for doubtful accounts
|
|
(4,059
|
)
|
|
(895
|
)
|
Accounts receivable, net
|
|
$
|
33,135
|
|
|
$
|
22,707
|
|
Billed accounts receivable represent amounts billed to customers that have yet to be collected. Unbilled accounts receivable represent revenue recognized, but billed after period end. All unbilled receivables as of March 31, 2020 are expected to be billed and collected within twelve months.
The Company recorded $1,739, $300, and $530 of bad debt expense during the years ended March 31, 2020, 2019, and 2018 respectively.
7. Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
Computer-related equipment
|
|
$
|
11,649
|
|
|
$
|
7,077
|
|
Furniture and fixtures
|
|
681
|
|
|
223
|
|
Leasehold improvements
|
|
2,099
|
|
|
558
|
|
|
|
14,429
|
|
|
7,858
|
|
Accumulated depreciation
|
|
(6,246
|
)
|
|
(4,428
|
)
|
Property and equipment, net
|
|
$
|
8,183
|
|
|
$
|
3,430
|
|
Depreciation expense for the years ended March 31, 2020, 2019, and 2018 was $2,124, $1,535, and $1,244, respectively.
During the years ended March 31, 2020, 2019, and 2017, depreciation expense includes $670, $839, $931 respectively, related to internal-use assets included in General and Administrative Expense and $1,454, $696, and $313
respectively, related to internally-developed software to be sold, leased, or otherwise marketed included in Other Direct Costs of Revenue.
8. Leases
The Company has entered into various non-cancellable operating lease agreements for certain offices. These leases currently have lease periods expiring between fiscal years 2024 and 2026. The lease agreements may include one or more options to renew. Renewals were not assumed in the Company's determination of the lease term unless the renewals were deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease costs, weighted-average lease term, and discount rate are detailed below.
Schedule, by fiscal year, of maturities of lease liabilities as of:
|
|
|
|
|
|
|
|
March 31, 2020
|
Fiscal year 2021
|
|
$
|
1,390
|
|
Fiscal year 2022
|
|
1,493
|
|
Fiscal year 2023
|
|
1,549
|
|
Fiscal year 2024
|
|
1,374
|
|
Fiscal year 2025
|
|
1,081
|
|
Thereafter
|
|
882
|
|
Total undiscounted cash flows
|
|
7,769
|
|
(Less imputed interest)
|
|
(1,137
|
)
|
Present value of lease liabilities
|
|
$
|
6,632
|
|
The current portion of our lease liabilities, payable within the next 12 months, is included in other current liabilities and the long-term portion of our lease liabilities is included in other non-current liabilities on our Consolidated Balance Sheets.
Associated with this financial liability, the Company has recorded a right-of-use asset of $4,237, which is calculated using the present value of lease liabilities less any lease incentives received from our landlords and any deferred rent liability balance as of the date of implementation. The discount rates used to calculate the imputed interest above range from 5.50% to 6.75% and the weighted-average remaining lease term is 5.29 years.
9. Intangible Assets
We make judgments about the recoverability of purchased finite-lived intangible assets whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of finite-lived intangible assets is measured by comparing the carrying amount of the asset to the future undiscounted cash flows that the asset is expected to generate. We perform an annual impairment assessment in the fourth quarter of each year for indefinite-lived intangible assets, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the carrying value of the assets may not be recoverable. Recoverability of indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to the future undiscounted cash flows that the asset is expected to generate. If we determine that an individual asset is impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts.
We complete our annual impairment tests in the fourth quarter of each year unless events or circumstances indicate that an asset may be impaired. During the fiscal years ended March 31, 2020, 2019, and 2018, we determined that there were no indicators of impairment related to the Company's continuing operations.
The components of intangible assets as at March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Developed Technology
|
|
$
|
7,926
|
|
|
$
|
(5,861
|
)
|
|
$
|
2,065
|
|
Customer relationships
|
|
46,971
|
|
|
(5,154
|
)
|
|
41,817
|
|
Total
|
|
$
|
54,897
|
|
|
$
|
(11,015
|
)
|
|
$
|
43,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Developed Technology
|
|
$
|
5,826
|
|
|
$
|
(5,826
|
)
|
|
$
|
—
|
|
Total
|
|
$
|
5,826
|
|
|
$
|
(5,826
|
)
|
|
$
|
—
|
|
During the fiscal years ended March 31, 2020, 2019, and 2018, the Company recorded amortization expense in the amount of $218, $1,231, and $1,416, respectively. For the fiscal year ended March 31, 2020, amortization expense is a component of general and administrative operating expenses on the Statements of Operations and Comprehensive Income / (Loss). For the fiscal years ended March 31, 2019 and 2018, amortization expense is a component of other direct costs of revenues on the Statements of Operations and Comprehensive Income / (Loss). The determination of the expense category for amortization of intangible assets is determined by capitalization under ASC 350, Intangibles - Goodwill and Other, or ASC 985-20, Costs of Software to be Sold, Leased, or Otherwise Marketed. ASC 350 leads to accounting for amortization of intangible assets under operating expenses, while ASC 985-20 leads to accounting for amortization of intangible assets under other direct costs of revenues.
Based on the amortizable intangible assets as of March 31, 2020, the Company expects future amortization expense to be approximately $2,681 per year over the next five fiscal years and $30,482 in residual expense thereafter.
Below is a summary of intangible assets:
|
|
|
|
|
|
|
|
Intangible Assets
|
Balance as of March 31, 2017
|
|
$
|
2,647
|
|
Amortization of intangibles
|
|
(1,416
|
)
|
Balance as of March 31, 2018
|
|
1,231
|
|
Amortization of intangibles
|
|
(1,231
|
)
|
Balance as of March 31, 2019
|
|
—
|
|
Purchase of Mobile Posse
|
|
44,100
|
|
Amortization of intangibles
|
|
(218
|
)
|
Balance as of March 31, 2020
|
|
$
|
43,882
|
|
10. Goodwill
A reconciliation of the changes to the Company’s carrying amount of goodwill for the periods or as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
O&O
|
|
Total
|
Goodwill as of March 31, 2017
|
|
$
|
42,268
|
|
|
$
|
42,268
|
|
Adjustments
|
|
—
|
|
|
—
|
|
Goodwill as of March 31, 2018
|
|
42,268
|
|
|
42,268
|
|
Adjustments
|
|
—
|
|
|
—
|
|
Goodwill as of March 31, 2019
|
|
42,268
|
|
|
42,268
|
|
Purchase of Mobile Posse
|
|
26,994
|
|
|
26,994
|
|
Goodwill as of March 31, 2020
|
|
$
|
69,262
|
|
|
$
|
69,262
|
|
Fair value is defined under ASC 820, Fair Value Measurements and Disclosures as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company considered the income and market approaches to derive an opinion of value. Under the income approach, the Company utilized the discounted cash flow method, and under the market approach, consideration was given to the guideline public company method, the merger and acquisition method, and the market capitalization method.
Goodwill is recorded when the purchase price for an acquisition exceeds the estimated fair value of the net tangible and identified intangible assets acquired. Goodwill is allocated to our reporting units based on relative fair value of the future benefit of the purchased operations to our existing business units as well as the acquired business unit. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. Our reporting units are consistent with the operating segments identified in Part I, Item 1 under the section “Business” of this Form 10-K.
We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and we are not required to perform the two-step goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.
For reporting units in which the impairment assessment concludes that it is more likely than not that the fair value is less than its carrying value, we perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform additional analysis. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. If we determine during the second step that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, we record an impairment loss equal to the difference.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The goodwill impairment test we utilized in the fourth quarter ended March 31, 2020 utilized an income method to estimate a reporting unit’s fair value. The Company believes that the income method is the best method of determining fair value for our Company. The income method is based on a discounted future cash flow approach that uses the following reporting unit estimates: revenue, based on assumed growth rates; estimated costs; and appropriate discount rates based on a reporting unit's weighted average cost of capital as determined by considering the observable weighted average cost of capital of comparable companies. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data and against the Company’s market capitalization value which includes a control premium estimate. A reporting unit’s carrying value represents the assignment of various assets and liabilities.
Based on the analysis performed for fiscal 2020 all continuing operations, which is comprised entirely of the O&O reporting unit, have an estimated fair value in excess of the carrying value of the associated goodwill.
In the years ended March 31, 2020 and 2019, the Company determined there was no impairment to goodwill.
11. Debt
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
Short-term debt
|
|
|
|
|
Short-term debt, net of debt issuance costs of $62 and $0, respectively
|
|
$
|
1,188
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
March 31, 2019
|
Long-term debt
|
|
|
|
|
Long-term debt, net of debt issuance costs of $245 and $0, respectively
|
|
$
|
18,505
|
|
|
$
|
—
|
|
Convertible Notes
On September 28, 2016, the Company sold to the Initial Purchaser, $16,000 aggregate principal amount of 8.75% convertible notes maturing on September 23, 2020, unless converted, repurchased or redeemed in accordance with their terms prior to such date. As of the close of the issuance of the Notes on September 28, 2016, the Company incurred $1,700 in debt issuance costs directly related to the issuance of the Notes, which in accordance with ASU 2015-03, the Company recorded these costs as a direct reduction to the face value of the Notes and amortized this amount over the life of the Notes as a component of interest expense on the consolidated statement of operation and comprehensive loss. During the remainder of fiscal 2017, the Company further incurred $234 in costs directly associated with the issuance of the Notes, for the preparation and filing of the registration statement on Form S-1 to register the underlying common stock related to the Notes issued and related Warrants issued along with the Notes, which was required to be done in accordance with the indenture. The convertible notes remained on the consolidated balance sheet at historical cost, accreted up for the amount of cumulative amortization of the debt discount over the life of the debt. As of March 31, 2019, all of the Notes have been extinguished, the underlying indenture relieved, and all derivative liabilities related to the Notes settled.
Each purchaser of the Notes also received warrants to purchase 256.60 shares of the Company's common stock for each $1 in Notes purchased, or up to 4,105,600 warrants in aggregate, in addition to the 250,000 warrants issued to the initial purchaser, as described above. The warrants were issued under a Warrant Agreement (the "Warrant Agreement"), dated as of September 28, 2016, between Digital Turbine, Inc. and US Bank National Association, as the warrant agent.
The warrants were immediately exercisable on the date of issuance at an initial exercise price of $1.364 per share and will expire on September 23, 2020. Certain caps on the number of shares that could be issued under the Notes and the Warrants were effectively lifted by our stockholders approving the full issuance of all potentially issuable shares at our January 2017 annual meeting of stockholders.
During the year ended March 31, 2019, 484,900 of the warrants were exercised. During the year ended March 31, 2020, 3,614,100 of the warrants were exercised. No outstanding warrants related to the Warrant Agreement remained outstanding at March 31, 2020.
Senior Secured Credit Facility
On May 23, 2017, the Company entered a Business Finance Agreement (the “Credit Agreement”) with Western Alliance Bank (the “Bank”). The Credit Agreement provides for a $5,000 total facility.
The amounts advanced under the Credit Agreement mature in two (2) years, and accrue interest at the following rates and bear the following fees:
(1) Wall Street Journal Prime Rate + 1.25% (currently approximately 5.25%), with a floor of 4.0%.
(2) Annual Facility Fee of $45.5.
(3) Early termination fee of 0.5% if terminated during the first year.
The obligations under the Credit Agreement are secured by a perfected first position security interest in all assets of the Company and its subsidiaries, subject to partial (65%) pledges of stock of non-US subsidiaries. The Company’s subsidiaries Digital Turbine USA and Digital Turbine Media are co-borrowers.
In addition to customary covenants, including restrictions on payments (subject to specified exceptions), and restrictions on indebtedness (subject to specified exceptions), the Credit Agreement requires the Company to comply with the following financial covenants, measured on a monthly basis:
(1) Maintain a Current Ratio of at least 0.65, defined as unrestricted cash plus accounts receivable, divided by all current liabilities.
(2) Revenue must exceed 85% of projected quarterly revenue.
The Credit Agreement required that at least two-thirds (2/3rds) of the holders of the Notes at all times be subject to subordination agreements with the Bank. The Company obtained the consent of the holders of at least two-thirds (2/3rds) of the Notes, which were held by a small number of institutional investors. In consideration for such consents, the Company entered into a Second Supplemental Indenture, dated May 23, 2017 (the “Supplemental Indenture”) to the Indenture, and also entered into a First Amendment, dated May 23, 2017 (the “Warrant Amendment”) to the Warrant Agreement. The Supplemental Indenture and Warrant Amendment provided for a 30 day stock price measurement period to determine whether or not there would be any change to the conversion price or exercise price of the Company’s outstanding convertible notes or related warrants. The measurement period concluded on September 20, 2017, with no change to the existing $1.364 per share conversion or exercise price of our convertible notes or related warrants.
On May 22, 2019, the Company entered into an amendment to the Credit Agreement that extends the agreement through May 23, 2021 and provided for up to a $20,000 total facility, subject to draw limitations derived from current levels of eligible domestic receivables.The amounts advanced under the Credit Agreement, as amended, mature in two years, or May 22, 2021, and accrue interest at prime plus 0.50% subject to a 6.00% floor, with the prime rate defined as the greater of prime rate published in the Wall Street Journal or 5.50%. The Credit Agreement, as amended, also carried an annual facility fee of 0.20% of our available credit limit, and an unused line fee of 0.10% per annum.
On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for (1) a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition, and (2) a revolving line of credit of $5,000 to be used for working capital purposes. DT Media and DT USA are additional co-borrowers under the New Credit Agreement.
The term loan must be repaid on a quarterly basis, beginning in July 2020, until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio. A description of this ratio is provided in Exhibit 10.9, incorporated by reference to this Form 10-K.
The revolving line of credit matures on February 28, 2025.
Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index), subject to a 1.75% floor, plus 3.75%. The obligations under the New Credit Agreement are secured by a perfected first-priority security interest in all the assets of the Company and its subsidiaries. The New Credit Agreement contains customary covenants, representations and events of default, and also requires the Company to comply with a fixed charge coverage ratio and total funded debt to consolidated adjusted EBITDA ratio.
The description of the New Credit Agreement provided herein is qualified by reference to the New Credit Agreement, which is incorporated by reference to this Form 10-K.
The New Credit Agreement contains representations and warranties by each of the parties to the New Credit Agreement, which were made only for purposes of the New Credit Agreement and as of specified dates. The representations, warranties and covenants in the New Credit Agreement were made solely for the benefit of the parties to the New Credit Agreement, are subject to limitations agreed upon by such parties, including being qualified by schedules, may have been made for the purposes of allocating contractual risk between the parties instead of establishing these matters as facts, and are subject to standards of materiality applicable to the parties that may differ from those applicable to others. Others should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the New Credit Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
In connection with the Company entering into the New Credit Agreement with the Bank, on February 28, 2020, the Company and the Bank terminated the existing Credit Agreement, dated as of May 23, 2017, between the Company, DT Media, DT USA and the Bank (and the amendments thereto), which was the previous revolving credit facility of the Company.
At March 31, 2020, there was $20,000 outstanding principal on the New Credit Agreement and the Company had $5,000 available to draw.
Interest Expense
Inclusive of the Notes issued on September 28, 2016 and the Credit Agreement entered into on May 23, 2017 in prior years, and the New Credit Agreement in the current year, the Company recorded $101, $322, and $1,049 of interest expense during the years ended March 31, 2020, 2019, and 2018 respectively.
Additionally, aggregate debt discount and debt issuance cost amortization related to the Notes in the prior years, detailed in the paragraph above, and debt issuance cost amortization related to the New Credit Agreement in the current year, is reflected on the Consolidated Statement of Operations as interest expense. Inclusive of this amortization of $6 recorded during the year ended March 31, 2020, $798 recorded during the year ended March 31, 2019, and $1,018 recorded during March 31, 2018, the Company recorded $107, $1,120, and $2,067 of total interest expense for the years ended March 31, 2020, 2019, and 2018 respectively.
12. Fair Value Measurements
The Company applies the provisions of ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
|
•
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities From Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect
fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes model.
The Company’s financial liabilities as of the issuance date of the convertible notes on the initial measurement date of September 28, 2016 are presented below at fair value and were classified within the fair value hierarchy as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of September 28, 2016
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,693
|
|
|
$
|
3,693
|
|
Warrant liability
|
|
—
|
|
|
—
|
|
|
1,223
|
|
|
1,223
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,916
|
|
|
$
|
4,916
|
|
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the liability. Fair value of the Notes is determined using the residual method of accounting whereby, first, a portion of the proceeds from the issuance of the Notes is allocated to derivatives embedded in the Notes and the warrants issued in connection with the issuance of the Notes, and the proceeds so allocated are accounted for as a convertible note embedded derivative liability and warrant liability, respectively, and second, the remainder of the proceeds from the issuance of the Notes is allocated to the convertible notes, resulting in an original debt discount amounting to $4,916. The convertible notes remained on the Consolidated Balance Sheets at historical cost, accreted up for the amount of cumulative amortization of the debt discount over the life of the debt. The method of determining the fair value of the convertible note embedded derivative liability and warrant liability are described subsequently in this note. Market risk associated with the convertible note embedded derivative liability and warrant liability relates to the potential reduction in fair value and negative impact to future earnings from an increase in price of the Company's common stock. Please refer to Note 9 "Debt" for more information.
The carrying amounts of certain financial instruments, such as cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
As of March 31, 2020, and 2019 the Company’s financial assets and financial liabilities are presented below at fair value and were classified within the fair value hierarchy as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of March 31, 2020
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Warrant liability
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of March 31, 2019
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Convertible note embedded derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Warrant liability
|
|
—
|
|
|
—
|
|
|
8,013
|
|
|
8,013
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,013
|
|
|
$
|
8,013
|
|
Convertible Note Embedded Derivative Liability
On September 28, 2016, the Company sold to an investment bank (the "Initial Purchaser"), $16,000 principal amount of 8.75% convertible notes maturing on September 23, 2020 (the “Notes”), unless converted, repurchased, or redeemed in accordance with their terms prior to such date. We evaluated the terms and features of our convertible notes and identified embedded derivatives (conversion options that contain “make-whole interest” provisions, fundamental change provisions, or down round conversion price adjustment provisions; collectively called the "convertible note embedded derivative liability") requiring bifurcation and accounting at fair value because the economic and contractual characteristics of the embedded derivatives met the criteria for bifurcation and separate accounting. ASC 815-10-15-83 (c) states that if terms implicitly or explicitly require or permit net settlement, then it can readily be settled net by means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. The conversion features related to the convertible notes consists of a “make-whole interest” provision, fundamental change provision, and down round conversion price adjustment provisions, which if the convertible notes were to be converted, would put the convertible note holder in a position not substantially different from net settlement. Given this fact pattern, the conversion features meet the definition of embedded derivatives and require bifurcation and accounting at fair value.
During fiscal 2018, holders of $10,300 of the Notes elected to convert such Notes. During fiscal 2019, holders of $5,700 of the Notes elected to convert such notes, thereby converting all of our outstanding notes and leaving an aggregate principal amount of $0 of Notes outstanding, net of debt issuance costs and discounts of $0 and $0, respectively, as of March 31, 2019. Refer to Note "Debt" sub section Convertible Notes and Note "Capital Stock Transactions" for more details.
Changes in the fair value of the convertible note embedded derivative liability is reflected in our consolidated statements of operations as “Change in fair value of convertible note embedded derivative liability.”
The Company recorded a gain / (loss) of $0 during the year ended March 31, 2020 since all Notes were converted prior to fiscal 2020.
Due to the Company's closing stock price increasing from March 31, 2018 to March 31, 2019 from $2.01 to $3.50, the Company recorded a loss of $1,008 during the year ended March 31, 2019.
The market-based assumptions and estimates used in valuing the convertible note embedded derivative liability include amounts in the following amounts:
|
|
|
|
|
March 31, 2019
|
Stock price volatility
|
60
|
%
|
Stock price (per share)
|
$4.18
|
Expected term
|
0.50 years
|
|
Risk-free rate (1)
|
0.17
|
%
|
(1) The Black Scholes model assumes the continuously compounded equivalent (CCE) interest rate of 0.17% based on the 1-year U.S. Treasury securities as of the valuation date.
Changes in valuation assumptions can have a significant impact on the valuation of the convertible note embedded derivative liability. For example, all other things being equal, a decrease/ increase in our stock price, probability of change of control, or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk-free interest rates increases/decreases the valuation of the liabilities.
Warrant Liability
The Company issued detachable warrants with the convertible notes issued on September 28, 2016. The Company accounts for its warrants 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. 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 statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using a lattice approach that incorporates a Monte Carlo simulation that considers the Company's future stock price. Option pricing models employ subjective factors to estimate warrant liability; and, therefore, the assumptions used in the model are judgmental.
Changes in the fair value of the warrant liability is primarily related to the change in price of the underlying common stock of the Company and is reflected in our consolidated statements of operations as “Change in fair value of warrant liability.”
The following table provides a reconciliation of the beginning and ending balances for the warrant liability measured at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
Level 3
|
Balance at March 31, 2019
|
|
$
|
8,013
|
|
Change in fair value of warrant liability
|
|
9,580
|
|
De-recognition of liability upon exercise
|
|
(17,593
|
)
|
Balance at March 31, 2020
|
|
$
|
—
|
|
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.
Due to the Company's closing stock price increasing from March 31, 2019 to March 31, 2020 from $3.50 to $4.18, the Company recorded a loss of $9,580 during the year ended March 31, 2020.
Due to the Company's closing stock price increasing from March 31, 2018 to March 31, 2019 from $2.01 to $3.50, the Company recorded a loss of $4,875 during the year ended March 31, 2019.
The market-based assumptions and estimates used in valuing the warrant liability include amounts in the following amounts:
|
|
|
|
|
March 31, 2020
|
Stock price volatility
|
60
|
%
|
Stock price (per share)
|
$4.18
|
Expected term
|
0.50 years
|
|
Risk-free rate (1)
|
0.17
|
%
|
(1) The Black Scholes model assumes the continuously compounded equivalent (CCE) interest rate of 0.17% based on the 1-year U.S. Treasury securities as of the valuation date.
Changes in valuation assumptions can have a significant impact on the valuation of the warrant liability. For example, all other things being equal, a decrease/increase in our stock price, probability of change of control, or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk-free interest rates increases/decreases the valuation of the liabilities.
13. Description of Stock Plans
Employee Stock Plan
The Company is currently issuing stock awards under the Amended and Restated Digital Turbine, Inc. 2011 Equity Incentive Plan (the “2011 Plan”), which was approved and adopted by our stockholders by written consent on May 23, 2012. No future grants will be made under the previous plan, the 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”). In the year ended March 31, 2015, in connection with the acquisition of Appia, the Company assumed the Appia, Inc. 2008 Stock Incentive Plan (the “Appia Plan”). The 2011 Plan and 2007 Plan are collectively referred to as “Digital Turbine’s Incentive Plans.” Digital Turbine’s Incentive Plans and the Appia Plan are all collectively referred to as the “Stock Plans.”
The 2011 Plan provides for grants of stock-based incentive awards to our and our subsidiaries’ officers, employees, non-employee directors, and consultants. Awards issued under the 2011 Plan can include stock options, stock appreciation rights (“SARs”), restricted stock, and restricted stock units (sometimes referred to individually or collectively as “Awards”). Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options (“NQSOs”).
The 2011 Plan reserves 20,000,000 shares for issuance, of which 6,366,088 and 8,685,457 remained available for future grants as of March 31, 2020 and 2019, respectively. The change over the comparative period represents stock option grants, stock option forfeitures/cancellations, and restricted share grants of common stock of 2,624,244, 489,785, and 184,910, respectively.
Restricted Stock Units
Awards of restricted stock units ("RSUs") may be either grants of time-based restricted units or performance-based restricted units that are issued at no cost to the recipient. The cost of these awards is determined using the fair market value of the Company’s common stock on the date of the grant. No capital transaction occurs until the units vest, at which time they are converted to restricted or unrestricted stock. Compensation expense for RSUs with a time condition is recognized on a straight-line basis over the requisite service period. Compensation expense for RSUs with a performance condition are recognized on a straight-line basis based on the most likely attainment scenario, which is re-evaluated each period.
In June 2018, the Company issued 232,558 RSUs to its Chief Executive Officer and Chief Financial Officer. The shares vest over three years. The fair value of the shares on the date of issuance was $400.
In May 2019, the Company issued 109,416 RSUs to its Chief Executive Officer and Chief Financial Officer. The shares vest over three years. The fair value of the shares on the date of issuance was $413.
With respect to RSUs, the Company expensed $220 during the year ended March 31, 2020 and $140 during the year ended March 31, 2019, respectively. For the year ended March 31, 2018, there were no outstanding RSU agreements or associated expense.
Stock Option Agreements
Stock options granted under the Company’s Stock Plans typically vest over a three-to-four-year period. These options, which are granted with option exercise prices equal to the fair market value of the Company’s common stock on the date of grant, generally expire up to ten years from the date of grant.
Stock Option Activity
The following table summarizes stock option activity for the Stock Plans during the years ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average
Exercise Price
(per share)
|
|
Weighted-Average
Remaining Contractual
Life (in years)
|
|
Aggregate Intrinsic
Value
(in thousands)
|
Options Outstanding, March 31, 2018
|
|
9,741,969
|
|
|
$
|
2.08
|
|
|
7.82
|
|
$
|
6,286
|
|
Granted
|
|
1,463,925
|
|
|
1.69
|
|
|
|
|
|
Forfeited / Canceled
|
|
(1,552,192
|
)
|
|
3.72
|
|
|
|
|
|
Exercised
|
|
(524,817
|
)
|
|
0.94
|
|
|
|
|
|
Options Outstanding, March 31, 2019
|
|
9,128,885
|
|
|
1.80
|
|
|
7.31
|
|
16,347
|
|
Granted
|
|
2,624,244
|
|
|
5.00
|
|
|
|
|
|
Forfeited / Canceled
|
|
(488,952
|
)
|
|
2.05
|
|
|
|
|
|
Exercised
|
|
(2,279,747
|
)
|
|
1.70
|
|
|
|
|
|
Options Outstanding, March 31, 2020
|
|
8,984,430
|
|
|
$
|
2.75
|
|
|
7.17
|
|
$
|
16,517
|
|
Vested and expected to vest (net of estimated forfeitures) at March 31, 2020 (a)
|
|
7,987,627
|
|
|
$
|
2.59
|
|
|
6.96
|
|
$
|
15,424
|
|
Exercisable, March 31, 2020
|
|
5,377,389
|
|
|
$
|
2.21
|
|
|
6.16
|
|
$
|
11,552
|
|
|
|
a.
|
For options vested and expected to vest, options exercisable, and options outstanding, the aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Digital Turbine's closing stock price on March 31, 2020 and the exercise price multiplied by the number of in-the-money options) that would have been received by the option holders had the holders exercised their options on March 31, 2020. The intrinsic value changes based on changes in the price of Digital Turbine's common stock.
|
Information about options outstanding and exercisable at March 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Life (Years)
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
$0.51 - 1.00
|
|
1,539,065
|
|
|
0.73
|
|
|
6.60
|
|
826,195
|
|
|
0.73
|
|
$1.01 - 1.50
|
|
1,839,036
|
|
|
1.29
|
|
|
6.35
|
|
1,739,744
|
|
|
1.30
|
|
$1.51 - 2.00
|
|
969,494
|
|
|
1.67
|
|
|
8.06
|
|
545,113
|
|
|
1.66
|
|
$2.01 - 2.50
|
|
548,972
|
|
|
2.23
|
|
|
8.06
|
|
293,356
|
|
|
2.21
|
|
$2.51 - 3.00
|
|
535,958
|
|
|
2.59
|
|
|
4.09
|
|
535,958
|
|
|
2.59
|
|
$3.51 - 4.00
|
|
1,763,300
|
|
|
3.89
|
|
|
7.85
|
|
764,985
|
|
|
3.93
|
|
$4.01 - 4.50
|
|
475,000
|
|
|
4.13
|
|
|
4.54
|
|
475,000
|
|
|
4.13
|
|
$4.51 - 5.00
|
|
60,000
|
|
|
4.65
|
|
|
2.99
|
|
60,000
|
|
|
4.65
|
|
$5.01 and over
|
|
1,253,605
|
|
|
6.29
|
|
|
9.56
|
|
137,038
|
|
|
6.14
|
|
|
|
8,984,430
|
|
|
|
|
|
|
5,377,389
|
|
|
|
Other information pertaining to stock options for the Stock Plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Total fair value of options vested
|
|
$
|
2,577
|
|
|
$
|
1,977
|
|
|
$
|
3,335
|
|
Total intrinsic value of options exercised (a)
|
|
$
|
10,890
|
|
|
$
|
603
|
|
|
$
|
202
|
|
|
|
a.
|
The total intrinsic value of options exercised represents the total pre-tax intrinsic value (the difference between the stock price at exercise and the exercise price multiplied by the number of options exercised) that was received by the option holders who exercised their options during the fiscal year.
|
During the years ended March 31, 2020, 2019, and 2018, the Company granted options to purchase 2,624,244, 1,463,925, and 1,963,378 shares of its common stock, respectively, to employees with weighted-average grant-date fair values of $2.86, $1.02, and $0.94, respectively.
At March 31, 2020, 2019, and 2018, there was $4,787, $2,639, and $2,353 of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted-average period of 2.3 years, 1.9 years, and 2.2 years, respectively.
Valuation of Awards
For stock options granted under Digital Turbine’s Incentive Plans, the Company typically uses the Black-Scholes option pricing model to estimate the fair value of stock options at grant date. The Black-Scholes option pricing model incorporates various assumptions, including volatility, expected term risk-free interest rates, and dividend yields. The assumptions utilized in this model during fiscal years 2020, 2019, and 2018 are presented below.
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Risk-free interest rate
|
|
0.64% to 2.25%
|
|
2.38% to 2.96%
|
|
1.77% to 2.73%
|
Expected life of the options
|
|
5.02 to 9.83 years
|
|
5.52 to 9.19 years
|
|
5.65 to 9.84 years
|
Expected volatility
|
|
64% to 66%
|
|
66%
|
|
66% to 73%
|
Expected dividend yield
|
|
—%
|
|
—%
|
|
—%
|
Expected forfeitures
|
|
29%
|
|
29%
|
|
28% to 29%
|
Expected volatility is based on a blend of implied and historical volatility of Digital Turbine's common stock over the most recent period commensurate with the estimated expected term of Digital Turbine’s stock options. Digital Turbine uses this blend of implied and historical volatility, as well as other economic data, because management believes such volatility is more representative of prospective trends. The expected term of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.
Total stock compensation expense for the Company’s equity plans, which includes both stock options, restricted stock, and warrants issued, is included in the following Consolidated Statements of Operations and Comprehensive Income / (Loss) components. See Note "Capital Stock Transactions" regarding restricted stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Product development
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Sales and marketing
|
|
—
|
|
|
—
|
|
|
—
|
|
General and administrative
|
|
3,353
|
|
|
2,531
|
|
|
2,978
|
|
Total
|
|
$
|
3,353
|
|
|
$
|
2,531
|
|
|
$
|
2,978
|
|
14. Capital Stock Transactions
Preferred Stock
There are 2,000,000 shares of Series A Convertible Preferred Stock, $0.0001 par value per share (“Series A”), authorized and 100,000 shares issued and outstanding, which are currently convertible into 20,000 shares of common stock. The Series A holders are entitled to: (1) vote on an equal per share basis as common stock, (2) dividends paid to the common stock holders on an as-if-converted basis and (3) a liquidation preference equal to the greater of $10 per share of Series A (subject to adjustment) or such amount that would have been paid to the common stock holders on an as-if-converted basis.
Common Stock and Warrants
For the years ended March 31, 2020 and 2019, the Company issued 2,279,747 and 524,817 shares, respectively, of common stock for the exercise of employee options.
For the years ended March 31, 2020 and 2019, the Company issued 0 and 4,446,265 shares, respectively, of common stock to the holders of the Notes in exchange for the extinguishment of the Notes. See Notes "Debt" and "Fair Value Measurements" for more details.
In September 2016, in connection with the issuance of the Notes, the Company issued 250,000 and 4,105,600 warrants to the initial purchaser and holders of the Notes, respectively. The warrants were immediately exercisable on the date of issuance at an initial exercise price of $1.364 per share and set to expire on September 23, 2020. The exercise price is subject to proportional adjustment for adjustments to outstanding common stock and anti-dilution provisions in case of dividends or distributions, stock split or combination, or if the Company issues or sells shares of common stock at a price per share less than the conversion price on the trading day immediately preceding such issuance of sale. See Note "Fair Value Measurements" for more details.
For the years ended March 31, 2020 and 2019, the Company issued 3,283,090 and 333,924 shares, respectively, of common stock to the holders of these warrants upon exercise.
The following table provides activity for warrants issued and outstanding during the year ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Number of Warrants Outstanding
|
|
Weighted-Average Exercise Price
|
Outstanding as of March 31, 2019
|
|
3,639,100
|
|
|
$
|
1.37
|
|
Issued
|
|
—
|
|
|
—
|
|
Exercised
|
|
(3,614,100
|
)
|
|
1.36
|
|
Canceled/Expired
|
|
—
|
|
|
—
|
|
Outstanding as of March 31, 2020
|
|
25,000
|
|
|
$
|
2.04
|
|
Restricted Stock Agreements
From time to time, the Company enters into restricted stock agreements (“RSAs”) with certain employees and consultants. The RSAs have performance conditions, market conditions, time conditions, or a combination thereof. In some cases, once the stock vests, the individual is restricted from selling the shares of stock for a certain defined period, from three months to two years, depending on the terms of the RSA. As reported in our Current Reports on Form 8-K filed with the SEC on February 12, 2014 and June 25, 2014, the Company adopted a Board Member Equity Ownership Policy that supersedes any post-vesting lock-up in RSAs that are applicable to people covered by the policy, which includes the Company’s Board of Directors and Chief Executive Officer.
During the years ended March 31, 2020 and 2019, the Company issued 75,493 and 306,655 restricted shares, respectively, to its directors for services. The shares vest over 1 year.
With respect to RSAs, during the years ended March 31, 2020, 2019, and 2018, the Company expensed $424, $380, and $323 related to time condition RSAs, respectively. As of March 31, 2020, 37,746 shares remain unvested.
During the years ended March 31, 2020 and 2019, the Company entered into restricted stock units (RSU) agreements with certain officers of the Company to issue 109,416 and 232,558 shares of common stock, respectively, upon vesting. As of March 31, 2020, 67,830 RSUs related to these agreements were vested and an equivalent number of shares of commons stock were issued.
The following is a summary of restricted stock awards and activities for all vesting conditions for the years ended March 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Unvested restricted stock outstanding as of March 31, 2018
|
|
132,569
|
|
|
$
|
1.09
|
|
Granted
|
|
306,655
|
|
|
1.39
|
|
Vested
|
|
(285,896
|
)
|
|
1.24
|
|
Cancelled
|
|
—
|
|
|
—
|
|
Unvested restricted stock outstanding as of March 31, 2019
|
|
153,328
|
|
|
1.39
|
|
Granted
|
|
75,494
|
|
|
5.58
|
|
Vested
|
|
(191,076
|
)
|
|
2.22
|
|
Cancelled
|
|
—
|
|
|
—
|
|
Unvested restricted stock outstanding as of March 31, 2020
|
|
37,746
|
|
|
$
|
5.58
|
|
All restricted shares, vested and unvested, cancellable and not cancelled, have been included in the outstanding shares as of March 31, 2020.
At March 31, 2020 and March 31, 2019, there was $140 and $144, respectively, of unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested restricted stock awards expected to be recognized over a weighted-average period of approximately 0.34 and 0.34 years, respectively.
15. Net Income / (Loss) per Common Share
Basic and diluted net income / (loss) per share is calculated by dividing net income / (loss) by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee stock-based awards in periods where the Company has net losses. Because the Company had net losses for the years ended March 31, 2019 and 2018, all potentially dilutive shares of common stock were determined to be anti-dilutive and, accordingly, were not included in the calculation of diluted net loss per share for those fiscal years.
The following table sets forth the computation of net income / (loss) per share of common stock (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Income / (loss) from continuing operations, net of taxes
|
|
$
|
14,280
|
|
|
$
|
(4,302
|
)
|
|
$
|
(19,697
|
)
|
Weighted-average common shares outstanding, basic
|
|
84,594
|
|
|
77,440
|
|
|
70,263
|
|
Basic net income / (loss) per common share
|
|
$
|
0.17
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.28
|
)
|
Weighted-average common shares outstanding, diluted
|
|
89,558
|
|
|
77,440
|
|
|
70,263
|
|
Diluted net income / (loss) per common share
|
|
$
|
0.16
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.28
|
)
|
Common stock equivalents excluded from net loss per diluted share because their effect would have been anti-dilutive
|
|
4,964
|
|
|
3,312
|
|
|
2,572
|
|
16. Employee Benefit Plans
The Company has a qualified contributory retirement plan under section 401(k) of the IRC covering eligible full-time employees. Employees may voluntarily contribute eligible compensation up to the annual IRS limit. During the years ended March 31, 2020, 2019, and 2018, the Company made matching contributions of $267, $226, and $172, respectively.
17. Related-Party Transactions
On April 29, 2018, Digital Turbine Asia Pacific Pty, Ltd. and Digital Turbine Singapore Pte Ltd. (together, “Pay Seller”), each wholly-owned subsidiaries of the Company, entered into an Asset Purchase Agreement (the “Pay Agreement”), dated as of 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.
18. Income Taxes
The provision (benefit) for income taxes by taxing jurisdiction was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Current state and local
|
|
$
|
182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current non-U.S.
|
|
(55
|
)
|
|
(63
|
)
|
|
(116
|
)
|
Total current
|
|
127
|
|
|
(63
|
)
|
|
(116
|
)
|
Deferred U.S. federal
|
|
(7,928
|
)
|
|
—
|
|
|
—
|
|
Deferred state and local
|
|
(2,624
|
)
|
|
—
|
|
|
—
|
|
Deferred non-U.S.
|
|
50
|
|
|
532
|
|
|
(835
|
)
|
Total deferred
|
|
(10,502
|
)
|
|
532
|
|
|
(835
|
)
|
Total income tax (benefit) / provision
|
|
$
|
(10,375
|
)
|
|
$
|
469
|
|
|
$
|
(951
|
)
|
A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Statutory federal income taxes
|
|
$
|
741
|
|
|
$
|
(1,163
|
)
|
|
$
|
(5,750
|
)
|
State income taxes, net of federal benefit
|
|
144
|
|
|
—
|
|
|
—
|
|
Non-deductible expenses
|
|
900
|
|
|
2,074
|
|
|
1,355
|
|
Rate change
|
|
—
|
|
|
—
|
|
|
14,830
|
|
Change in uncertain tax liability
|
|
32
|
|
|
(5
|
)
|
|
(103
|
)
|
Change in valuation allowance
|
|
(12,262
|
)
|
|
(2,422
|
)
|
|
(10,528
|
)
|
Return-to-provision adjustments
|
|
70
|
|
|
1,985
|
|
|
(755
|
)
|
Income tax provision / (benefit)
|
|
$
|
(10,375
|
)
|
|
$
|
469
|
|
|
$
|
(951
|
)
|
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 relates to intangible assets recorded at fair market value for financial accounting 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 remainder of the change in valuation allowance impacting the March 31, 2020 effective tax rate relates to annual income or loss by tax jurisdiction.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.
The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a
company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
In connection with our initial analysis of the impact of the Tax Act, we determined that the tax law changes have no effect on the Company’s tax provision in the period ending March 31, 2018 due to the valuation allowance against the U.S. deferred tax assets. The Company remeasured its U.S. deferred tax assets and liabilities as of March 31, 2018 using the reduced statutory rate of 21%, resulting in a reduction of the U.S. deferred tax assets of $14,830, and adjusted the valuation allowance against the U.S. deferred taxes for a net zero impact on the tax provision. Additionally, the Company does not estimate having a liability for the Transition Tax as a result of deficits in earnings and profits of its non-U.S. subsidiaries. The Accounting for the Tax Act was completed in the year ended March 31, 2019 consistent with our initial accounting in the prior year.
Deferred tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Deferred income tax assets
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
21,913
|
|
|
$
|
23,471
|
|
|
$
|
25,848
|
|
Stock-based compensation
|
|
3,775
|
|
|
3,996
|
|
|
3,095
|
|
Other
|
|
2,312
|
|
|
1,228
|
|
|
2,732
|
|
Gross deferred income tax assets
|
|
28,000
|
|
|
28,695
|
|
|
31,675
|
|
Valuation allowance
|
|
(15,710
|
)
|
|
(27,972
|
)
|
|
(30,394
|
)
|
Net deferred income tax assets
|
|
$
|
12,290
|
|
|
$
|
723
|
|
|
$
|
1,281
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(1,648
|
)
|
|
$
|
(678
|
)
|
|
$
|
(680
|
)
|
Intangibles and goodwill
|
|
(10,356
|
)
|
|
—
|
|
|
—
|
|
Other
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Net deferred income tax assets / (liabilities)
|
|
$
|
286
|
|
|
$
|
40
|
|
|
$
|
596
|
|
As of March 31, 2020, the Company had net operating loss (NOL) carry-forwards for U.S. federal and state tax of approximately $80,500, Australia federal tax of approximately $8,403, and Israel federal tax of approximately $3,025. The U.S. federal and state NOLs expire between 2028 and 2037, and the Australia and Israel NOLs have an unlimited carryover period. Utilization of the NOLs in the U.S. are subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign limitations. These ownership changes limit the amount of NOLs that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% percentage points of the outstanding stock of a company by certain stockholders or public groups.
As of March 31, 2020, realization of a large portion of the Company’s gross deferred tax assets was not considered more likely than not and, accordingly, a valuation allowance of $15,710 has been provided. During the year ended March 31, 2020, the valuation allowance decreased by $12,262. The reduction primarily relates to U.S. deferred tax liabilities recorded in the acquisition accounting for Mobile Posse as described above.
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. Based on the history of cumulative book and tax losses, a valuation allowance has been recorded for assets that management believes are not more likely than not realizable.
ASC 740 provides guidance on the minimum threshold that an uncertain income tax position is required to meet before it can be recognized in the financial statements. ASC 740 contains a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the income tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit can be recorded. We recognize accrued interest and penalties related to uncertain income tax positions in income tax expense on our Consolidated Statements of Operations and Comprehensive Income / (Loss).
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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended March 31, 2020, 2019, and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Balance at April 1
|
|
$
|
788
|
|
|
$
|
838
|
|
|
$
|
941
|
|
Additions for tax position of prior years
|
|
—
|
|
|
—
|
|
|
59
|
|
Reductions for tax positions of prior years
|
|
(1
|
)
|
|
(50
|
)
|
|
(162
|
)
|
Balance at March 31
|
|
$
|
787
|
|
|
$
|
788
|
|
|
$
|
838
|
|
Included in the balances at March 31, 2020, 2019, and 2018 are $787, $788, and $838, respectively, of unrecognized tax benefits, which would affect the annual effective tax rate if recognized. The Company recognized $33, $45 and $26 of expense for interest and penalties on uncertain income tax liabilities in its statement of operations for the years ended March 31, 2020, 2019, and 2018 respectively. The Company does not expect the amount of unrecognized tax benefits to change significantly in the next twelve months.
The Company’s U.S. federal, state, and foreign income tax returns generally remain subject to examination for the tax years ended 2015 through 2020.
19. Segment and Geographic Information
The Company manages its business in one operating and reportable segment: Media Distribution. Our chief operating decision maker does not evaluate operating segments using asset information. The Company has considered guidance in Accounting Standards Codification (ASC) 280 in reaching its conclusion with respect to aggregating its operating segment into one reportable segment. Specifically, the Company has evaluated guidance in ASC 280-10-50-11 and determined that aggregation is consistent with the objectives of ASC 280 in that aggregation into one reportable segment allows users of our financial statements to view the Company’s business through the eyes of management based upon the way management reviews performance and makes decisions. Additional factors that were considered included: whether or not an operating segment has similar economic characteristics, the nature of the products/services under each operating segment, the nature of the production/go-to-market process, the type and geographic location of our customers, and the distribution of our products/services.
The Company attributes its long-lived assets, which primarily consist of property and equipment, to a country primarily based on the physical location of the assets. Goodwill and intangibles are not included in this allocation.
The following table sets forth geographic information on our net revenues and net property and equipment for the years ended March 31, 2020, 2019, and 2018. Net revenues by geography are based on the billing addresses of our customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Net revenues
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
90,245
|
|
|
$
|
72,898
|
|
|
$
|
40,743
|
|
Europe, Middle East, and Africa
|
|
34,970
|
|
|
18,606
|
|
|
5,691
|
|
Asia Pacific and China
|
|
11,865
|
|
|
9,324
|
|
|
23,608
|
|
Mexico, Central America, and South America
|
|
1,635
|
|
|
2,741
|
|
|
4,709
|
|
Consolidated net revenues
|
|
$
|
138,715
|
|
|
$
|
103,569
|
|
|
$
|
74,751
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
United States and Canada
|
|
$
|
8,132
|
|
|
$
|
3,405
|
|
|
$
|
2,701
|
|
Europe, Middle East, and Africa
|
|
38
|
|
|
15
|
|
|
41
|
|
Asia Pacific and China
|
|
13
|
|
|
10
|
|
|
15
|
|
Mexico, Central America, and South America
|
|
—
|
|
|
—
|
|
|
—
|
|
Consolidated property and equipment, net
|
|
$
|
8,183
|
|
|
$
|
3,430
|
|
|
$
|
2,757
|
|
20. Commitments and Contingencies
Operating Lease Obligations
The Company leases office facilities under non-cancellable operating lease agreements expiring between fiscal years 2024 and 2026.
The following table provides a summary of future minimum payments under initial terms of leases as of:
|
|
|
|
|
|
Year ending March 31,
|
|
|
2021
|
|
$
|
1,390
|
|
2022
|
|
1,493
|
|
2023
|
|
1,549
|
|
2024
|
|
1,374
|
|
2025
|
|
1,081
|
|
Thereafter
|
|
882
|
|
Total Minimum Lease Payments
|
|
$
|
7,769
|
|
These amounts do not reflect future escalations for real estate taxes and building operating expenses. Rental expense for continuing operations amounted to $1,093, $1,065, and $857, for the years ended March 31, 2020, 2019, and 2018, respectively.
Debt Repayment Obligations
On February 28, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with the Bank, which provides for a term loan of $20,000, the proceeds of which the Company used to pay a portion of the closing cash purchase price for the Acquisition. See Note "Debt" for further details.
The term loan must be repaid on a quarterly basis, beginning in July 2020, until the term loan maturity date of February 28, 2025, at which time the remaining unpaid principal balance must be repaid. The quarterly principal payment amounts increase from $250 to $1,250 over the term of the term loan. In addition, the Company must, following each fiscal year-end, make principal repayments equal to a percentage of its excess cash flow (as defined under the New Credit Agreement) for the fiscal year, which percentage is determined based on the Company’s total funded debt to consolidated adjusted EBITDA ratio.
The following table provides a summary of future minimum payments under initial terms of the New Credit Agreement as of:
|
|
|
|
|
|
Year ending March 31,
|
|
|
2021
|
|
$
|
1,250
|
|
2022
|
|
2,000
|
|
2023
|
|
2,750
|
|
2024
|
|
3,750
|
|
2025
|
|
10,250
|
|
Thereafter
|
|
—
|
|
Total Minimum Debt Payments
|
|
$
|
20,000
|
|
Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to LIBOR (or, if necessary, a broadly-adopted replacement index), subject to a 1.75% floor, plus 3.75%.
Inclusive of the Notes issued on September 28, 2016 and the Credit Agreement entered into on May 23, 2017 in prior years, and the New Credit Agreement in the current year, the Company recorded $101, $322, and $1,049 of interest expense during the years ended March 31, 2020, 2019, and 2018 respectively.
Additionally, aggregate debt discount and debt issuance cost amortization related to the Notes in the prior years, detailed in the paragraph above, and debt issuance cost amortization related to the New Credit Agreement in the current year, is reflected on the Consolidated Statement of Operations as interest expense. Inclusive of this amortization of $6 recorded during the year ended March 31, 2020, $798 recorded during the year ended March 31, 2019, and $1,018 recorded during March 31, 2018, the Company recorded $107, $1,120, and $2,067 of total interest expense for the years ended March 31, 2020, 2019, and 2018 respectively.
Legal Matters
The Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time in the ordinary course of its business. The Company accrues a liability when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. The Company reviews these accruals at least quarterly, and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated, and therefore, accruals have not been made.
21. Supplemental Consolidated Financial Information
Unaudited Quarterly Results
The following tables set forth our quarterly consolidated statements of operations in dollars for each quarter of fiscal 2020 and 2019. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. In the opinion of management, the financial information in these tables reflects all adjustments, consisting only of normal recurring adjustments that management considers necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included in this Part II, Item 8 of this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2020
|
|
December 31, 2019
|
|
September 30, 2019
|
|
June 30, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
|
Net revenues
|
|
$
|
39,351
|
|
|
$
|
36,016
|
|
|
$
|
32,795
|
|
|
$
|
30,553
|
|
|
$
|
27,192
|
|
|
$
|
30,411
|
|
|
$
|
23,854
|
|
|
$
|
22,112
|
|
License fees and revenue share
|
|
23,591
|
|
|
21,576
|
|
|
20,146
|
|
|
18,275
|
|
|
15,768
|
|
|
19,195
|
|
|
15,802
|
|
|
15,216
|
|
Other direct cost of revenues
|
|
432
|
|
|
400
|
|
|
344
|
|
|
278
|
|
|
470
|
|
|
538
|
|
|
508
|
|
|
507
|
|
Gross profit
|
|
15,328
|
|
|
14,040
|
|
|
12,305
|
|
|
12,000
|
|
|
10,954
|
|
|
10,678
|
|
|
7,544
|
|
|
6,389
|
|
Total operating expenses
|
|
12,403
|
|
|
9,908
|
|
|
9,190
|
|
|
8,960
|
|
|
9,020
|
|
|
8,222
|
|
|
7,229
|
|
|
7,649
|
|
Income (loss) from operations
|
|
2,925
|
|
|
4,132
|
|
|
3,115
|
|
|
3,040
|
|
|
1,934
|
|
|
2,456
|
|
|
315
|
|
|
(1,260
|
)
|
Total interest and other income / (expense), net
|
|
721
|
|
|
(830
|
)
|
|
(4,380
|
)
|
|
(4,818
|
)
|
|
(8,384
|
)
|
|
(3,376
|
)
|
|
1,730
|
|
|
2,752
|
|
Income / (loss) from operations before income taxes
|
|
3,646
|
|
|
3,302
|
|
|
(1,265
|
)
|
|
(1,778
|
)
|
|
(6,450
|
)
|
|
(920
|
)
|
|
2,045
|
|
|
1,492
|
|
Income tax (benefit) / provision
|
|
(10,381
|
)
|
|
41
|
|
|
72
|
|
|
(107
|
)
|
|
312
|
|
|
216
|
|
|
(23
|
)
|
|
(36
|
)
|
Net income (loss) from operations, net of taxes
|
|
14,027
|
|
|
3,261
|
|
|
(1,337
|
)
|
|
(1,671
|
)
|
|
(6,762
|
)
|
|
(1,136
|
)
|
|
2,068
|
|
|
1,528
|
|
Basic and diluted net income / (loss) per common share from continuing operations
|
|
$
|
0.16
|
|
|
$
|
0.04
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
Weighted-average common shares outstanding, basic
|
|
86,784
|
|
|
85,876
|
|
|
83,909
|
|
|
81,814
|
|
|
79,404
|
|
|
77,645
|
|
|
77,193
|
|
|
76,204
|
|
Weighted-average common shares outstanding, diluted
|
|
91,875
|
|
|
92,472
|
|
|
83,909
|
|
|
81,814
|
|
|
79,404
|
|
|
77,645
|
|
|
78,780
|
|
|
79,598
|
|
Quarterly Trends and Seasonality
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, some of which are outside our control. We have experienced rapid growth since the acquisition of Appia, Inc. on March 6, 2015, which has resulted in a substantial increase in our revenue and a corresponding increase in our operating expenses to support our growth. We are continuously working on enhancing our technology and our operational abilities. This rapid growth has also led to uneven overall operating results due to changes in our investment in sales and marketing and research and development from quarter to quarter and increases in employee headcount. Our historical results should not be considered a reliable indicator of our future results of operations.
Many advertisers spend the largest portion of their advertising budgets during the third quarter, to coincide with the holiday shopping season. As a result, typically the third quarter of each calendar year historically represents the largest percentage of our revenue for the year, and the first quarter of each year represents the smallest percentage.
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Description
|
|
Balance at Beginning of Period
|
|
Charged to Income Statement
|
|
Charged to Allowance
|
|
Balance at End of Period
|
|
|
|
|
(in thousands)
|
Trade receivables
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Allowance for doubtful accounts
|
|
$
|
895
|
|
|
$
|
1,739
|
|
|
$
|
(1,425
|
)
|
|
$
|
4,059
|
|
2019
|
|
Allowance for doubtful accounts
|
|
512
|
|
|
300
|
|
|
(83
|
)
|
|
895
|
|
2018
|
|
Allowance for doubtful accounts
|
|
228
|
|
|
530
|
|
|
246
|
|
|
512
|
|
22. Subsequent Events
None.
|
|
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.