Digital Turbine Quarterly Report: Q3 FY2016

Key insights

7 takeaways

01
Digital Turbine reported significant revenue growth for the nine months ended December 31, 2015, reaching $63.5 million compared to $18.0 million in the same period of 2014, a 252.4% increase.
02
The Advertising segment drove the majority of revenue growth, surging to $42.7 million for the nine-month period compared to $2.5 million in 2014, bolstered by the acquisition of Appia Core and organic growth in DT Ignite.
03
The Content business grew 34.3% year-over-year for the nine-month period, reaching $20.7 million, primarily due to increased demand for DT Pay and expansion into Australian and Southeast Asian markets.
04
Despite strong revenue growth, the company recorded a net loss of $22.2 million for the nine months ended December 31, 2015, compared to a $15.3 million loss in the prior year period.
05
As of December 31, 2015, the company maintained $76.6 million in goodwill across its business units, with no impairment identified during the third quarter of fiscal year 2016.
06
The company is subject to a $8 million senior secured debenture with North Atlantic SBIC IV, L.P. maturing on March 6, 2017, which carries a 10% interest rate for the first year and 14% thereafter.
07
Digital Turbine settled a potential investor claim on July 30, 2015, by issuing 117,000 shares of common stock to resolve disagreements regarding investment rights and obligations.

Summary

Digital Turbine experienced a period of aggressive expansion during the third quarter of fiscal year 2016, characterized by a substantial increase in consolidated net revenue. Driven primarily by the acquisition of Appia Core and organic growth within the advertising segment, total revenue for the quarter reached $24.1 million, compared to $7.0 million in the same period the previous year. For the nine-month period ending December 31, 2015, revenue surged by 252.4% to $63.5 million. However, this top-line growth was offset by a net loss of $5.8 million for the quarter and $22.2 million for the nine-month period, a result of elevated operating expenses and a shift toward lower-margin product offerings.

The company’s financial position remains supported by a strengthened liquidity profile, bolstered by a $12.6 million public offering and access to a $5 million revolving credit facility. Management asserts that these resources, combined with existing cash reserves, provide sufficient capital to sustain operations through at least the end of 2016. Furthermore, the company maintains compliance with all debt covenants related to its senior credit facility and subordinated debentures, and no material impairments to goodwill or intangible assets were recorded during this timeframe.

Despite these financial developments, internal controls over financial reporting remain a critical area of concern. Management has identified ongoing material weaknesses and is currently executing a comprehensive remediation plan, which includes significant upgrades to enterprise resource planning systems and increased staffing levels. While the company continues to navigate these internal control challenges and the integration of its recent acquisitions, it reports no material liabilities from legal matters and continues to refine its segment operations to better align with its long-term growth strategy.