Digital Turbine Inc

Note 6—Goodwill and Intangible Assets

Changes in the carrying amount of goodwill by segment follows:

The Company evaluates goodwill for impairment at least annually or upon the occurrence of events or circumstances that indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value. As a result of the triggering event described below, the Company performed a goodwill impairment evaluation as of September 30, 2023. In addition to this, the Company performed its annual impairment evaluation as of March 31, 2024. For both periods evaluated, the Company determined that the fair value of the AGP reporting unit was below its carrying value. As a result of these evaluations, the Company recorded two separate impairment charges during fiscal year 2024.

During the three months ended September 30, 2023, as a result of sustained decline in the quoted market price of the Company’s common stock, increase in interest rates, and the Company’s forecasted operating trends, the Company identified interim indicators of impairment related to the goodwill assigned to the AGP reporting unit. The Company completed an interim impairment assessment of its goodwill, and as a result of this review, recorded a $147,181 non-deductible, non-cash goodwill impairment charge for the AGP reporting unit as of September 30, 2023.

Additionally, the Company performed its annual goodwill impairment evaluation as of March 31, 2024, noting continued trends in quoted market price, interest rates, and the Company’s forecast as described above. The Company completed the annual impairment assessment of its goodwill, and as a result, recorded an additional $189,459 non-deductible, non-cash goodwill impairment charge for the AGP reporting unit as of March 31, 2024.

For each goodwill impairment evaluation performed at September 30, 2023 and March 31, 2024, respectively, the fair value of each reporting unit was estimated using a weighted combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach (the “Guideline Public Company Method”). The Company’s interim and annual testing reflected a 75%/25% allocation between the income and market approaches. The Company believes the 75% weighting to the income approach is appropriate, as it directly reflects its future growth and profitability expectations.

The discounted cash flow method requires significant assumptions and estimates, the most significant of which are projected future growth rates, capital expenditures, tax rates, gross margins and terminal values. In addition, the Company determines its weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. For the September 30, 2023 impairment evaluation, as compared to the Company’s annual evaluation as of March 31, 2023, the Company reduced its estimated future cash flows used in the impairment assessment, including revenues, gross profits, and EBITDA to reflect its best estimates at that time. For the March 31, 2024 annual impairment evaluation, as compared to the Company’s interim evaluation as of September 30, 2023, the Company further reduced its estimated future cash flows, including revenues, gross profits, and EBITDA to reflect its best estimates at this time. In each evaluation, the Company also updated key inputs for the discounted cash flow models, including the weighted-average cost of capital, which incrementally increased due to higher interest rates, market volatility, and the company specific premium.

The market approach estimates the fair value of the reporting unit by applying multiples of operating performance measures to the reporting unit’s operating performance. These multiples are derived from comparable publicly-traded companies with similar investment characteristics. For the September 30, 2023 impairment evaluation, as compared to the March 31, 2023 testing, the Company reduced its revenue and EBITDA market multiples, reflecting declining valuations across the Company’s selected peer group. For the March 31, 2024 impairment evaluation, as compared to the September 30, 2023 evaluation, the Company further reduced its revenue and EBITDA market multiples, reflecting declining valuations across the Company’s selected peer group. These updates, along with those made to the discounted cash flow models described above, had significant impacts on the estimated fair values of the Company’s reporting units.

There wasno impairment of goodwill for the ODS reporting unit during the fiscal year.

As of March 31, 2024, the Company recorded a purchase price adjustment of $65 associated with the acquisition of In App Video.

Intangible Assets

The components of intangible assets were as follows as of the periods indicated:

During the fiscal years ended March 31, 2024, 2023, and 2022, the Company recorded amortization expense of $64,358, $64,608, and $48,420, respectively, in general and administrative expenses on the consolidated statements of operations and comprehensive (loss) income. As of March 31, 2022, the Company changed the useful lives of all its trade names intangible assets to approximately 3.33 years due to the rebranding of the Company’s past acquisitions.

Estimated amortization expense in future fiscal years is expected to be:

Note 7—Accounts Receivable

Billed accounts receivable represent amounts billed to customers for which the Company has an unconditional right to consideration. Unbilled accounts receivable represent revenue recognized but billed after period-end. All unbilled receivables as of March 31, 2024 are expected to be billed and collected (subject to the allowance for credit losses) within twelve months.

Allowance for Credit Losses

The Company maintains reserves for current expected credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, current economic trends, and changes in customer payment patterns to evaluate the adequacy of these reserves.

Changes in the allowance for credit losses on trade receivables were as follows:

The Company recorded $3,202, $3,342, and $1,583 of credit loss expense during the years ended March 31, 2024, 2023, and 2022, respectively, in general and administrative expenses on the consolidated statements of operations and comprehensive (loss) income.

Note 8—Property and Equipment

Depreciation expense for the years ended March 31, 2024, 2023, and 2022, was $19,504, $16,465, and $9,032, respectively.

During the years ended March 31, 2024, 2023, and 2022, depreciation expense includes $15,459, $10,190, and $4,617, respectively, related to internal-use assets included in general and administrative expense and $4,045, $6,275, and $4,415, respectively, related to internally-developed software to be sold, leased, or otherwise marketed included in other direct costs of revenue.

During the years ended March 31, 2024, 2023, and 2022, the Company did not write down any computer software balances to net realizable value.

Note 9—Leases

The Company has entered into or assumed through acquisitions, various non-cancellable operating lease agreements primarily for office space. These lease agreements expire between fiscal years 2025 and 2029 and, in certain cases, includeone or more options to renew. The Company recognizes a right-of-use (“ROU”) asset and lease liability at the lease commencement date based on the estimated present value of lease payments over the lease term. Variable lease payments consisting of non-lease component and services are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation is incurred.

Leases are classified on the balance sheet as follows:

The current portion of the Company’s lease liabilities, payable within the next twelve months, is included in other current liabilities, and the long-term portion of the Company’s lease liabilities is included in other non-current liabilities on the consolidated balance sheet.

Schedule, by fiscal year, of maturities of lease liabilities as of:

During the years ended March 31, 2024, 2023, and 2022, expenses related to operating leases were $4,953, $6,854, and $5,704, respectively, and were included in operating expenses.

Note 10—Other Current Liabilities

Other current liabilities consisted of the following:

Note 11—Debt

The following table summarizes borrowings under the Company’s debt obligations and the associated interest rates:

Debt obligations on the consolidated balance sheets consist of the following:

Revolver

On February 3, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A. (“BoA”), which provided for a revolving line of credit (the “Revolver”) of up to $100,000 with an accordion feature enabling the Company to increase the total amount up to $200,000.

On April 29, 2021, the Company amended and restated the Credit Agreement (the “New Credit Agreement”) with BoA, as a lender and administrative agent, and a syndicate of other lenders, which provided for a revolving line of credit of up to $400,000. The revolving line of credit matures on April 29, 2026, and contains an accordion feature enabling the Company to increase the total amount of the Revolver by $75,000 plus an amount that would enable the Company to remain in compliance with its consolidated secured net leverage ratio, on such terms as agreed to by the parties. The New Credit Agreement was subsequently amended as follows:

•First Amendment: Increase in the Revolver to $525,000 while retaining the $75,000 accordion feature discussed above, for a total potential revolving line of credit of $600,000 on December 29, 2021.

•Second Amendment: LIBOR was replaced with the Term Secured Overnight Financing Rate (“SOFR”). As a result, borrowings under the New Credit Agreement where the applicable rate was LIBOR will accrue interest at an annual rate equal to SOFR plus between 1.50% and 2.25% beginning on the effective date of the Second Amendment, which was October 26, 2022.

•Third Amendment: On February 5, 2024, the maximum consolidated secured net leverage covenant and the minimum consolidated net interest coverage covenant were amended. In addition, it increased the limit of permitted, other investments, including equity investments and joint ventures from $20,000 in the aggregate in any fiscal year of the Company to $75,000 and increased the annual interest rate, which will be SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio.

Other than the changes described above regarding the covenants in the Third Amendment, the amendments discussed made no other changes to the terms of the New Credit Agreement, which contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio.

The Company incurred debt issuance costs of $4,937 for the New Credit Agreement, inclusive of costs incurred for the First, Second, and Third Amendments. Deferred debt issuance costs are recorded as a reduction of the carrying value of the debt on the consolidated balance sheets. All deferred debt issuance costs are amortized on a straight-line basis over the term of the loan to interest expense.

As of March 31, 2024, the Company had $386,000 drawn against the New Credit Agreement, classified as long-term debt on the consolidated balance sheets, with remaining unamortized debt issuance costs of $2,510.

As of March 31, 2024, amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to, at the Company’s election, (i) SOFR plus between 1.50% and 2.75%, based on the Company’s consolidated secured net leverage ratio, or (ii) a base rate based upon the highest of (a) the federal funds rate plus 0.50%, (b) BoA’s prime rate, or (c) SOFR plus 1.00% plus between 0.50% and 1.75%, based on the Company’s consolidated secured leverage ratio. Additionally, the New Credit Agreement is subject to an unused line of credit fee between 0.15% and 0.35% per annum, based on the Company’s consolidated leverage ratio. As of March 31, 2024, the interest rate was 7.71% and the unused line of credit fee was 0.35%.

The Company’s payment and performance obligations under the New Credit Agreement and related loan documents are secured by its grant of a security interest in substantially all of its personal property assets, whether now existing or hereafter acquired, subject to certain exclusions. If the Company acquires any real property assets with a fair market value in excess of $5,000, it is required to grant a security interest in such real property as well. All such security interests are required to be first priority security interests, subject to certain permitted liens.

As of March 31, 2024, the Company had $139,000 available to draw on the revolving line of credit under the New Credit Agreement, excluding the accordion feature, subject to the required covenants. As of March 31, 2024, the Company was in compliance with all covenants. The fair value of the Company’s outstanding debt approximates its carrying value.

Interest expense, net

Interest expense, net, amortization of debt issuance costs, and unused line of credit fees were recorded in interest expense, net, on the consolidated statements of operations and comprehensive (loss) income, as follows:

Note 12—Stock-Based Compensation

2020 Equity Incentive Plan of Digital Turbine, Inc. (the “2020 Plan”)

On September 15, 2020, the Company’s stockholders approved the 2020 Plan, pursuant to which the Company may grant equity incentive awards to directors, employees and other eligible participants. A total of 12,000,000 shares of common stock were reserved for grant under the 2020 Plan. The types of awards that may be granted under the 2020 Plan include incentive and non-qualified stock options, stock appreciation rights, restricted stock, and restricted stock units. The 2020 Plan became effective on September 15, 2020, and has a term often years. Stock options may be either incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified stock options. As of March 31, 2024,4,677,162 shares of common stock were available for issuance as future awards under the 2020 Plan.

Stock Options

Stock options are granted with an exercise price no lower than the fair market value at the grant date. They typically encompass a vesting period oftwo tothree years and a contractual term often years. Share-based compensation expense for stock options is recognized on a straight-line basis over the requisite vesting period, determined by the grant-date fair value for the portion of the award expected to vest. The Company employs the Black-Scholes options-pricing model to estimate the fair value of its stock options. The Company may issue either new shares or treasury shares upon exercise of these awards.

The following table summarizes stock option activity:

At March 31, 2024, total unrecognized stock-based compensation expense related to unvested stock options, net of estimated forfeitures, was $11,869, with an expected remaining weighted-average recognition period of 1.75 years.

Restricted Stock

Awards of restricted stock units may be either grants of time-based restricted stock units (“RSUs”) or performance-based restricted stock units (“PSUs”) that are issued at no cost to the recipient. The stock-based compensation expense for 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. The Company periodically grants PSUs to certain key employees that are subject to the achievement of specified internal performance metrics over a specified performance period. The terms and conditions of the PSUs generally allow for vesting of the awards ranging between forfeiture and up to 200% of target. Stock-based compensation expense for PSUs with a performance condition are recognized on a straight-line basis based on the most likely attainment scenario over the performance period. The most likely attainment scenario is re-evaluated each period.

Restricted stock awards (“RSAs”) are awards of common stock that are legally issued and outstanding. RSAs are subject to time-based restrictions on transfer and unvested portions are generally subject to a risk of forfeiture if the award recipient ceases providing services to the Company prior to the lapse of the restrictions. The stock-based compensation expense for these awards is determined using the fair market value of the Company’s common stock on the date of the grant. The RSAs have time conditions and 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 toone year, depending on the terms of the RSA.

The following table summarizes RSU, PSU, and RSA activity:

At March 31, 2024, total unrecognized stock-based compensation expense related to RSUs, PSUs and RSAs, net of estimated forfeitures was $34,445, with an expected remaining weighted-average recognition period of 1.87 years.

Valuation of Awards

For stock options granted, the Company 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 2024, 2023, and 2022 are presented below.

Total fair value of options vested and total intrinsic value of options exercised was as follows for the fiscal years presented:

Stock-Based Compensation Expense

Stock-based compensation expense for the years ended March 31, 2024,2023, and 2022, was $33,763, $30,401, and$19,304, respectively, and was recorded within general and administrative expenses onthe consolidated statements of operations and comprehensive (loss) income.

Note 13—Earnings per Share

Basic net (loss) income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the applicable methods. The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is antidilutive.

The following table sets forth the computation of basic and diluted net (loss) income per share of common stock (in thousands, except per share amounts):

Potentially dilutive outstanding securities of 4,405,087,1,390,650, and 559,190 for the years ended March 31, 2024, 2023, and 2022, respectively, were outstanding but not included in the calculation of diluted earnings per share because inclusion of the securities in the calculation would be antidilutive due to their exercise prices exceeding the average market price of the common shares during the periods.

Note 14—Income Taxes

The components of the Company’s income tax provision (benefit) attributable to operations are as follows:

(Loss) income before income taxes included (loss) income from domestic operations of $(170,057), $(6,801), and $6,504 for the years ended March 31, 2024, 2023, and 2022, respectively, and (loss) income from foreign operations of $(235,074), $28,817 and $37,468 for the years ended March 31, 2024, 2023, and 2022, respectively.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the actual income tax provision follows:

The Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily as a result of changes in valuation allowance, impairment of goodwill, and nondeductible executive compensation.

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. A net tax expense of $29,010 was realized in the fiscal year ended March 31, 2024, as a result of changes in the valuation allowance. A valuation allowance of $55,852 was recorded against deferred tax assets as of March 31, 2024, related to non-U.S. locations with a history of losses.

A net tax benefit of $6,500 was realized in the fiscal year ended March 31, 2023, as a result of changes in the valuation allowance. A valuation allowance of $25,921 was recorded against deferred tax assets as of March 31, 2023, related to non-U.S. locations.

The 2017 tax reform act amended the Internal Revenue Code (“Code”), effective for amounts paid or incurred in tax years beginning after December 31, 2021, to eliminate the immediate expensing of research and experimental expenditures (“R&E”) and to require taxpayers to charge their R&E expenditures and software development costs (collectively, R&E expenditures) to a capital account. Capitalized costs are required to be amortized over five years (15 years for expenditures attributable to foreign research). Additionally, the R&E credit may only be claimed for costs that are eligible to be treated as R&E expenditures under the Code. At March 31, 2024, the Company has charged a total of $20,900 of R&E expenditures and software development costs to a capital account and has recorded tax amortization of $5,800 on such costs to date.

The Inflation Reduction Act (“IRA”) was signed into law in August 2022. The Company has evaluated the provisions of the IRA and does not expect any material impact to its consolidated provision for income taxes.

Deferred income tax assets and liabilities consist of the following:

The following details the scheduled expiration dates of the Company’s net operating loss (NOL) carryforwards:

The Company’s income is subject to taxation in both the U.S. and foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company establishes liabilities for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities for tax contingencies are established when the Company believes that a tax position is not more likely than not sustainable. The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of uncertain tax liabilities and changes in liabilities that are considered appropriate.

The Company has not provided for deferred taxes on approximately $69,429 of undistributed earnings from foreign subsidiaries as of March 31, 2024. The Company has not provided for any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax, or foreign exchange gain or loss that would be due when cash is repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional taxes. Because of the various avenues to repatriate the earnings, the determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings, if eventually remitted, is not practicable.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended March 31, 2024, 2023, and 2022, is as follows:

Included in the net deferred income tax assets (liabilities) balances at March 31, 2024, 2023, and 2022, on our consolidated balance sheets are $2,168, $2,024, and $1,424, respectively, of unrecognized tax benefits, which would affect the annual effective tax rate if recognized. The Company recognized $24, $44, and $59 for interest and penalties on uncertain income tax liabilities in income tax expense for the years ended March 31, 2024, 2023, and 2022, 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 2019 through 2024.