Digital Turbine Quarterly Report: Q3 FY2018

Key insights

7 takeaways

01
Digital Turbine reported a significant improvement in operating performance for the nine months ended December 31, 2017, reducing its operating loss to $3.37 million from $18.17 million in the same period of the previous year.
02
Total net revenue for the nine months ended December 31, 2017, grew to $92.04 million, compared to $69.16 million for the same period in 2016.
03
The company faces high customer concentration risk, with AT&T (via Cricket) accounting for 24% of net revenue in the nine months ended December 31, 2017, while Verizon accounted for 26.6% of revenue in the same period of 2016.
04
Digital Turbine maintains a $5 million credit facility with Western Alliance Bank, which requires the company to maintain a current ratio of at least 0.65 and ensure quarterly revenue exceeds 85% of projections.
05
The company significantly reduced its debt obligations during 2017 by issuing 6.19 million shares of common stock to extinguish $7.37 million in convertible notes.
06
The Advertising segment is the primary revenue driver, generating $60.50 million of the $92.04 million total revenue for the nine months ended December 31, 2017, while the Content segment contributed $31.54 million.
07
As of December 31, 2017, the company reported $32.49 million in net accounts receivable, a substantial increase from $14.96 million reported on March 31, 2017.

Summary

Digital Turbine experienced substantial financial expansion during the third quarter of fiscal year 2018, characterized by a 70.7% year-over-year increase in net revenues to $38.0 million. This growth was primarily fueled by a 96.1% surge in Ignite platform revenue and a 139.8% increase in Pay content services, signaling a successful strategic pivot toward high-margin advertising and away from legacy syndicated network operations. Despite this top-line momentum, the company recorded a net loss of $3.8 million for the quarter, an increase from the $2.6 million loss reported in the same period the previous year.

The bottom-line performance was heavily influenced by non-cash charges, specifically the fair value re-measurement of derivative liabilities and warrants, which are highly sensitive to fluctuations in the company’s stock price. While the company successfully reduced its debt through the conversion of convertible notes and maintained compliance with all financial covenants, it remains reliant on a concentrated customer base, with major carriers like Verizon and AT&T accounting for a significant portion of total revenue. Furthermore, the company transitioned to positive cash flow from operating activities and maintains sufficient liquidity to support its business objectives for the upcoming twelve months.

Operational oversight remains a critical area of focus, as management identified ongoing material weaknesses in internal controls over financial reporting as of December 31, 2017. To address these deficiencies, the company is actively executing a remediation plan involving system upgrades and enhanced staff training. While the company faces exposure to interest rate and foreign currency volatility, it does not anticipate that the U.S. Tax Cuts and Jobs Act will materially alter its effective tax rate, given existing valuation allowances. Overall, the period reflects a company successfully scaling its core advertising and content segments while navigating complex capital structures and internal control challenges.