Digital Turbine Inc.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:57
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (this "Report"). The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements involve substantial risks and uncertainties. When used in this Report, the words "anticipate," "believe," "estimate," "expect," "will," "seek," "should," "could," "can," "would," "may," "might," "intend," "plan," "target," "project," "contemplate," "predict," "suggest," "potential," and "continue" and the negative of these words and other similar expressions, as they relate to our management or us, are intended to identify such forward-looking statements. Our actual results, performance, or achievements could differ materially from those expressed in or implied by these forward-looking statements as a result of a variety of factors, including those set forth under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, as well as those described elsewhere in this Report and in our other public filings. The risks included are not exhaustive and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time-to-time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period. We do not undertake any obligation to update any forward-looking statements made in this Report. Accordingly, investors should use caution in relying on past forward-looking statements, which are estimates based on assumptions, known historical results and trends at the time they are made, to anticipate future results or trends. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
All numbers are in thousands, except share and per share amounts.
Company Overview
Digital Turbine, Inc., through its subsidiaries (collectively "Digital Turbine" or the "Company"), is a leading independent mobile growth platform that levels up the landscape for advertisers, publishers, carriers, and device original equipment manufacturers ("OEMs"). We offer end-to-end products and solutions leveraging proprietary technology to all participants in the mobile application ecosystem, enabling brand discovery and advertising, user acquisition and engagement, and operational efficiency for advertisers. In addition, our products and solutions provide monetization opportunities for OEMs, carriers, and application ("app" or "apps") publishers and developers.
Recent Developments
Impact of Economic Conditions and Geopolitical Developments
Our results of operations are affected by macroeconomic conditions and geopolitical developments, including but not limited to levels of business and consumer confidence, actions taken by governments to counter inflation, potential trade disputes, including but not limited to any U.S. government actions against China based developers and publishers, Russia's invasion of Ukraine, and the recent conflict in Israel.
Inflation, rising interest rates, supply chain disruptions and constraints, changes in regional or global business, political, macroeconomic and market conditions, including as a result of conflicts, hostilities, recessionary fears, the impact of global instability, domestic and foreign tariffs and other trade protection measures, and reduced business and consumer confidence have caused and may continue to cause a global slowdown of economic activity, which has caused and may continue to cause a decrease in demand for a broad variety of goods and services, including those provided by our clients.
We are impacted by declining volume of sales of new mobile devices by our partners. We believe this is driven by the impact of inflation, economic uncertainty, and their potential impacts on consumers. These negative macroeconomic trends have resulted, and may continue to result in, a decrease in mobile phone sales volume. Continued weakness in the sale of new mobile devices is likely to continue to impact our business, financial
condition, and results of operations, the full impact of which remains uncertain at this time.
Further, various U.S. federal and state governmental agencies continue to examine the distribution and use of apps developed and/or published by China based companies. In some cases, government agencies have banned certain apps from mobile devices. Further actions by U.S. federal or state governmental agencies or other countries to restrict or ban the distribution of China based apps could negatively impact our business, financial condition, and results of operations.
While Russia's invasion of Ukraine has not had a direct, material impact on our business, any European conflict, if expanded to include other countries, would likely have a material, negative impact on general economic conditions and would impact our business directly.
Additionally, we continue to actively monitor the recent developments in Israel, Gaza, Lebanon, and Syria for any material impacts to our business. While no adverse financial or operational impacts have been noted in the current period, if such conflict continues or escalates, it could have a potential negative impact on our business, given our significant presence in the region.
The extent of the impact of these macroeconomic factors on our operational and financial performance is also dependent on their impact on carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, as well as the impact on application developers and in-app advertisers. If negative macroeconomic factors or geopolitical developments materially impact our partners over a prolonged period, our results of operations and financial condition could also be adversely impacted, the size and duration of which we cannot accurately predict at this time.
We continue to actively monitor these factors and we may take further actions that alter our business operations, as required, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. In addition to monitoring the developments described above, the Company also considers the impact such factors may have on our accounting estimates and potential impairments of our non-current assets, which primarily consist of goodwill and finite-lived intangible assets.
See Part I, Item 1A, "Risk Factors," in its Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission on June 16, 2025, for additional information related to risks associated with macroeconomic challenges.
Financing Agreement
On August 29, 2025 (the "Closing Date"), the Company refinanced its existing senior credit facility. The
Company and certain wholly-owned subsidiaries of the Company, as guarantors (the "Guarantors"), entered into a Financing Agreement (the "Financing Agreement") with Blue Torch Finance LLC, as administrative agent and as collateral agent ("Administrative Agent"), and the lenders from time to time party thereto ("Lenders"), pursuant to which the Lenders made loans and other extensions to the Company under certain term loan credit facilities on the terms and conditions as set forth therein.
The Financing Agreement (i) has a four-year term from the Closing Date and (ii) provides for three separate tranches of term loans in an aggregate principal amount of $430,000 (the "Loans"), all of which were borrowed in full by the Company on the Closing Date. The Loans are secured by substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
The Loans accrue interest, at the Company's option, at a term SOFR rate or a reference rate for U.S. dollar borrowings, plus an applicable margin. The applicable margin for Loans accruing interest at the term SOFR rate ranges from 7.50% to 8.00% and ranges from 6.50% to 7.00% for loans accruing interest at the reference rate. The outstanding principal amount of the Loans is subject to scheduled repayment as follows: (i) on the last day of each fiscal quarter until the maturity of the Loans, the Company will repay the outstanding principal amount of term loans in an amount equal to $2,688 in the aggregate across all three tranches and (ii) on the maturity date, the Company will pay the remaining aggregate outstanding principal amount, including all accrued and unpaid interest thereon. In addition, the Financing Agreement contains certain mandatory prepayment provisions, including from proceeds raised from equity issuances and, beginning in fiscal year 2027, 50% of any excess cash flows, and the Company
would also be required to pay certain escalating exit fees and duration fees if two tranches of term loans are not repaid by certain dates.
The Financing Agreement contains various customary affirmative and negative covenants, as well as financial covenants. The Financing Agreement requires the Company to maintain (i) a maximum leverage ratio with step-downs every fiscal quarter and (ii) minimum liquidity of (A) $10,000 from the Closing Date until March 31, 2026 and (B) $20,000 from and after April 1, 2026 until the maturity date.
Warrants to Purchase Common Stock
In connection with the Financing Agreement, on the Closing Date, the Company issued warrants (the "August 2025 Warrants") to purchase an aggregate of 824,421 shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"), to certain affiliates of the Lenders (in such capacity, the "August Holders") at an exercise price of $4.84 per share (the "Exercise Price"), which is equal to the 30-day volume-weighted average price per share of Common Stock ending on and including the trading day immediately preceding the Closing Date. In addition, the Company issued, on September 15, 2025, an additional warrant to purchase an aggregate of 397,997 shares of Common Stock to an affiliate of a Lender (in such capacity, the "September Holder" and, together with the August Holders, the "Holders") at the Exercise Price (the "September 2025 Warrant" and, together with the August 2025 Warrants, the "2025 Warrants").
The 2025 Warrants expire on March 1, 2030. The Exercise Price and the number of shares underlying the 2025 Warrants are subject to adjustment in the event of specified events, including a subdivision or combination of the Common Stock, a reclassification of the Common Stock, certain change of control transactions, certain rights offerings or specified dividend payments, subject to certain limitations as set forth in the 2025 Warrants. Upon exercise, the aggregate exercise price may be paid, at each warrant holder's election, in cash or on a net issuance basis, based upon the fair market value of the Common Stock at the time of exercise.
The Company agreed to provide certain customary registration rights with respect to the resale of shares of Common Stock underlying 2025 Warrants held by or issuable to the holders from time to time. The 2025 Warrants also contain customary indemnity and contribution obligations in connection with such registration.
ATM Offering
On August 5th, 2025, the Company entered into a Sales Agreement with RBC Capital Markets LLC and Craig Hallum Capital Group LLC as our sales agents, pursuant to which we could offer and sell from time-to-time shares of our Common Stock for aggregate gross proceeds of up to $150,000. As of September 30, 2025, the Company sold approximately 3,125,089 shares of Common Stock at an average selling price of $4.48 per share, yielding aggregate gross proceeds of $13,993, and incurred commission costs of $420 associated with such sales.
$10,092 of the net proceeds were raised subsequent to the execution of the Financing Agreement and, as required under the Financing Agreement, were used as a prepayment to the principal of the Loans.
Goodwill and Intangible Assets
The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment, including qualitative and quantitative factors such as the identification of reporting units, identification and allocation of assets and liabilities to reporting units, and determinations of fair value. In estimating the fair value of our reporting units when performing our annual impairment test, or when an indicator of impairment is present, we make estimates and significant judgments about the future cash flows of those reporting units and other estimates including appropriate discount rates. Discount rates can fluctuate based on various economic conditions including our capital allocation and interest rates, including the interest rates on U.S. treasury bonds. Changes in judgments on these assumptions and estimates, particularly expectations of revenue and cash flow growth rates in future periods and discount rates, could result in goodwill impairment charges.
In addition to evaluating goodwill for impairment when events or circumstances indicate they would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company also evaluates goodwill for impairment on an annual basis. The Company's next annual evaluation of goodwill for impairment will be as of March 31, 2026.
Finite-lived intangible assets and property, plant, and equipment have been assigned an estimated finite useful life and are amortized on a straight-line basis over the number of years that approximate their respective useful lives. The Company evaluates intangible assets other than goodwill for impairment at least annually or upon the occurrence of events or circumstances that indicate the carrying value of an asset may not be recoverable. In determining whether an impairment exists, the Company considers factors such as changes in the use of the asset, changes in the legal or business environment, and current or historical operating or cash flow losses.
Transformation Program
Beginning in fiscal year 2023, the Company entered into a business transformation project that includes the implementation of a new, global cloud-based enterprise resource planning ("ERP") system to upgrade our existing enterprise-wide operating systems. Additionally, a new human resource ("HR") system was also implemented to streamline employee management processes and enhance organizational effectiveness. We are also undertaking the consolidation of existing ancillary systems and deploying other new platforms and systems to improve our operations and drive business and cost efficiencies.
This is a multi-year project that includes various costs, including software configuration and implementation costs that would be recognized as either capital expenditures or deferred costs in accordance with applicable accounting policies, with certain costs recognized as operating expense associated with project development and project management costs, and professional services with business partners engaged in the planning, design and business process review that would not qualify as software configuration and implementation costs. In addition, the Company is incurring duplicative personnel and other operating costs to maintain legacy systems and operations during the deployment of the new systems and certain other ancillary platforms and systems. The Company completed the first deployment phase in the third quarter of fiscal year 2024. Costs are anticipated to be incurred through various deployment phases that are expected to continue through early fiscal year 2026. The Company incurred $31 and $1,309 of business transformation costs during the six months ended September 30, 2025 and September 30, 2024, respectively. These costs are recorded in General and Administrative expenses and Product Development expenses in our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
Additionally, the Company is in the process of initiating further transformation efforts. The Company launched an additional transformation effort in October 2024, in which the Company began a transformation program intended to improve various measures across the organization. These measures include but were not limited to current and future operating expenses, cash flows, and personnel costs. Additionally, the initiatives intend to simplify and streamline business operations, including product optimization, procurement and cost optimization, and team restructuring. As part of the transformation program, the Company implemented a two phased reduction in our workforce, one in November 2024 and the other in January 2025. No costs associated with our transformation program were incurred during the six months ended September 30, 2025. During the fiscal year ended March 31, 2025, the Company incurred expenses of $2,886, related to our transformation program primarily consisting of severance and other one-time termination benefits. The transformation program included several other initiatives and was substantially completed in the fourth quarter of fiscal year 2025. The transformation program is targeted to yield more than $25,000 in annual cash expense savings.
The business transformation program is inclusive of multiple projects, to which the costs discussed in Note 16-Transformation Program Activities specifically and exclusively relate. Costs incurred in connection with the transformation program are categorized under two primary headings: severance costs and business transformation costs. The costs classified as severance costs primarily reflect expenses associated with workforce reductions aimed at realigning the Company's structure as part of the transformation program. These severance-related expenses are directly tied to the Company's efforts to reduce headcount and optimize its labor force to better align with its long-term strategic goals. In addition, the business transformation costs primarily reflect investments made in the prior year for the upgrade of key business systems, including the implementation of a global cloud-based ERP system and a new HR system. These costs, while also part of the broader transformation efforts, are not related to workforce reductions but rather to the modernization of the Company's technological infrastructure to support long-term operational improvements.
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the three and six months ended September 30, 2025 and 2024 (in thousands):
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Three months ended September 30,
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Six months ended September 30,
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| 2025 | 2024 | % of Change | 2025 | 2024 | % of Change | |||||||||||||||||||||||||||||||||
| Net revenue | $ | 140,377 | $ | 118,728 | 18.2 | % | $ | 271,303 | $ | 236,717 | 14.6 | % | ||||||||||||||||||||||||||
| Costs of revenue and operating expenses | ||||||||||||||||||||||||||||||||||||||
| Revenue share | 63,093 | 56,336 | 12.0 | % | 121,231 | 112,145 | 8.1 | % | ||||||||||||||||||||||||||||||
| Other direct costs of revenue | 11,242 | 8,438 | 33.2 | % | 22,046 | 16,228 | 35.9 | % | ||||||||||||||||||||||||||||||
| Product development | 10,979 | 9,433 | 16.4 | % | 21,126 | 20,147 | 4.9 | % | ||||||||||||||||||||||||||||||
| Sales and marketing | 14,446 | 15,887 | (9.1) | % | 28,035 | 32,134 | (12.8) | % | ||||||||||||||||||||||||||||||
| General and administrative | 34,083 | 42,176 | (19.2) | % | 76,992 | 85,693 | (10.2) | % | ||||||||||||||||||||||||||||||
| Total costs of revenue and operating expenses | 133,843 | 132,270 | 1.2 | % | 269,430 | 266,347 | 1.2 | % | ||||||||||||||||||||||||||||||
| Income (loss) from operations | 6,534 | (13,542) | (148.2) | % | 1,873 | (29,630) | (106.3) | % | ||||||||||||||||||||||||||||||
| Interest and other (expense) income, net | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | - | 200 | 100.0 | % | - | 200 | (100.0) | % | ||||||||||||||||||||||||||||||
| Interest expense, net | (11,498) | (8,776) | 31.0 | % | (20,298) | (16,725) | 21.4 | % | ||||||||||||||||||||||||||||||
| Amortization of debt discount and issuance costs | (2,778) | (456) | 509.2 | % | (3,932) | (757) | 419.4 | % | ||||||||||||||||||||||||||||||
| Unrealized loss on derivatives | (2,335) | - | 100.0 | % | (2,335) | - | 100.0 | % | ||||||||||||||||||||||||||||||
| Foreign exchange transaction gain (loss) | 1,136 | (976) | (216.4) | % | 222 | (158) | (240.5) | % | ||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | (9,795) | - | 100.0 | % | (9,795) | - | 100.0 | % | ||||||||||||||||||||||||||||||
| Other (expense) income, net | (1,207) | (36) | (3252.8) | % | (1,875) | 78 | (2503.8) | % | ||||||||||||||||||||||||||||||
| Total interest and other expense, net | (26,477) | (10,044) | 163.6 | % | (38,013) | (17,362) | 118.9 | % | ||||||||||||||||||||||||||||||
| Loss before income taxes | (19,943) | (23,586) | (15.4) | % | (36,140) | (46,992) | (23.1) | % | ||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 1,452 | 1,400 | 3.7 | % | (641) | 3,150 | (120.3) | % | ||||||||||||||||||||||||||||||
| Net loss | (21,395) | (24,986) | (14.4) | % | (35,499) | (50,142) | (29.2) | % | ||||||||||||||||||||||||||||||
Net revenue
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Three months ended September 30,
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Six months ended September 30,
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| 2025 | 2024 | % of Change | 2025 | 2024 | % of Change | |||||||||||||||||||||||||||||||||
| Net revenue | ||||||||||||||||||||||||||||||||||||||
| On Device Solutions | $ | 96,464 | $ | 82,414 | 17.0 | % | $ | 191,912 | $ | 163,064 | 17.7 | % | ||||||||||||||||||||||||||
| App Growth Platform | 44,685 | 37,346 | 19.7 | % | 80,977 | 75,738 | 6.9 | % | ||||||||||||||||||||||||||||||
| Elimination | (772) | (1,032) | (25.2) | % | (1,586) | (2,085) | (23.9) | % | ||||||||||||||||||||||||||||||
| Total net revenue | $ | 140,377 | $ | 118,728 | 18.2 | % | $ | 271,303 | $ | 236,717 | 14.6 | % | ||||||||||||||||||||||||||
Comparison of the three and six months ended September 30, 2025 and 2024
Over the three-month comparative periods, net revenue increased by $21,649 or 18.2%, and over the six-month comparative periods, net revenue increased by $34,586 or 14.6%. See the segment discussion below for further details regarding net revenue.
On Device Solutions
ODS revenue for the three months ended September 30, 2025, increased by $14,050 or 17.0% compared to the three months ended September 30, 2024. Revenue from content media remained flat period over period, and revenue from application media increased by approximately $14,050. This increase was primarily due to higher device volumes internationally and an increase in revenue-per-device globally, offset by lower device volumes in the US. The increase in revenue was primarily driven by improved performance in the Asia Pacific and China regions.
ODS revenue for the six months ended September 30, 2025, increased by $28,848 or 17.7% compared to the six months ended September 30, 2024. Revenue from content media increased by approximately $865 primarily due to increased activity with a carrier that resulted in higher daily active users on prepaid devices. In addition, application media revenue increased by approximately $27,983 for the six months ended September 30, 2025. The increase in revenue in application media was primarily due to higher device volumes internationally and an increase in revenue-per-device globally, offset by lower device volumes in the US. The increase in revenue was primarily driven by improved performance in the Asia Pacific and China regions.
App Growth Platform
AGP revenue for the three months ended September 30, 2025, increased by $7,339 or 19.7% compared to the three months ended September 30, 2024. The increase was primarily a result of an increase in advertising exchange of approximately $9,995, which was largely due to an increase in advertiser spend in the beginning of the quarter. This increase was partially offset by a decline in performance and brand advertising revenue by approximately $2,375 due to reduced demand by major brands, partially offset by an increase in private marketplace spend. The increase in advertising exchange revenue was primarily driven by higher performance in the Asia Pacific and China regions and Europe, Middle East and Africa regions. Revenues from reseller partnerships decreased by $281, between the comparable periods.
AGP revenue for the six months ended September 30, 2025, increased by $5,239 or 6.9% compared to the six months ended September 30, 2024. The increase was primarily a result of an increase in advertising exchange of approximately $12,870, which was largely due to an increase in advertiser spend internationally. Performance and brand advertising revenue declined by approximately $7,076 primarily due to weaker demand domestically. The increase in AGP revenue was primarily due to higher performance in the Asia Pacific and China regions and Europe, Middle East and Africa regions. Revenues from reseller partnerships decreased by $555, between the comparable periods.
Costs of revenue and operating expenses
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Three months ended September 30,
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Six months ended September 30,
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| 2025 | 2024 | % of Change | 2025 | 2024 | % of Change | |||||||||||||||||||||||||||||||||
| Costs of revenue and operating expenses | ||||||||||||||||||||||||||||||||||||||
| Revenue share | $ | 63,093 | $ | 56,336 | 12.0 | % | $ | 121,231 | $ | 112,145 | 8.1 | % | ||||||||||||||||||||||||||
| Other direct costs of revenue | 11,242 | 8,438 | 33.2 | % | 22,046 | 16,228 | 35.9 | % | ||||||||||||||||||||||||||||||
| Product development | 10,979 | 9,433 | 16.4 | % | 21,126 | 20,147 | 4.9 | % | ||||||||||||||||||||||||||||||
| Sales and marketing | 14,446 | 15,887 | (9.1) | % | 28,035 | 32,134 | (12.8) | % | ||||||||||||||||||||||||||||||
| General and administrative | 34,083 | 42,176 | (19.2) | % | 76,992 | 85,693 | (10.2) | % | ||||||||||||||||||||||||||||||
| Total costs of revenue and operating expenses | $ | 133,843 | $ | 132,270 | 1.2 | % | $ | 269,430 | $ | 266,347 | 1.2 | % | ||||||||||||||||||||||||||
Comparison of the three and six months ended September 30, 2025 and 2024
Total costs of revenue and operating expenses increased by $1,573 or 1.2% and increased by $3,083 or
1.2%, respectively, for the three and six months ended September 30, 2025, compared to the three and six months ended September 30, 2024.
The increase in total costs of revenue and operating expenses for both comparative periods was due to increased revenue share, other direct costs of revenue, and product development costs. These increases were partially offset by lower sales and marketing and general and administrative costs. The increase in revenue share is a direct result of higher revenue in the current year over the same comparative periods. Costs of revenue and operating expenses included total business transformation and severance costs of $341 and $536 for the three and six months ended September 30, 2025, respectively, compared to $505 and $2,134 for the three and six months ended September 30, 2024, respectively.
Revenue share
Revenue share includes amounts paid to our carrier and OEM partners, as well as app publishers and developers, and are recorded as a cost of revenue.
Revenue share increased by $6,757 or 12.0% to $63,093 for the three months ended September 30, 2025, and was 44.9% as a percentage of total net revenue compared to $56,336, or 47.4% of total net revenue, for the three months ended September 30, 2024.
Revenue share increased by $9,086 or 8.1% to $121,231 for the six months ended September 30, 2025, and was 44.7% as a percentage of total net revenue compared to $112,145, or 47.4% of total net revenue, for the six months ended September 30, 2024.
The increase in revenue share was attributable to the increase in total net revenue over the same periods, as these costs are typically paid as a percentage of our revenue. Revenue share as a percentage of total net revenue for the three and six months ended September 30, 2025 compared to the prior year comparative periods increased primarily due to revenue mix changes.
Other direct costs of revenue
Other direct costs of revenue are comprised primarily of hosting expenses directly related to the generation of revenue, depreciation expense associated with capitalized software costs and amortization of developed technology intangible assets, and bidding and platform fees, which are fees incurred by the Company for facilitating certain programmatic ad transactions on our exchange platform. These fees are generally calculated as a percentage of gross advertising spend.
Other direct costs of revenue increased by $2,804 or 33.2% to $11,242 for the three months ended September 30, 2025, and was 8.0% as a percentage of total net revenue compared to $8,438, or 7.1% of total net revenue, for the three months ended September 30, 2024.
The increase in other direct costs for the three months ended September 30, 2025 was primarily driven by favorable monetization methodology changes implemented to the exchange. This change, while driving an increase in bidding and platform fees, also increased revenue, which resulted in a higher margin for the exchange platform. The increase in other direct costs was further driven by the achievement of higher revenue targets in the current year. The increase in other direct costs of revenue as a percentage of total net revenue was also due to the monetization methodology changes.
Other direct costs of revenue increased by $5,818 or 35.9% to $22,046 for the six months ended September 30, 2025, and was 8.1% as a percentage of total net revenue compared to $16,228, or 6.9% of total net revenue, for the six months ended September 30, 2024.
The increase in other direct costs for the six months ended September 30, 2025 was primarily driven by favorable monetization methodology changes implemented to the exchange. This change, while driving an increase in bidding and platform fees, also increased revenue, which resulted in a higher margin for the exchange platform. The increase in other direct costs was further driven by the achievement of higher revenue targets in the current year. This increase was offset by lower amortization of developed technology intangible assets between comparable periods. The increase in other direct costs of revenue as a percentage of total net revenue was primarily due to the monetization methodology changes.
Product development
Product development expenses include the development and maintenance of the Company's product suite. Expenses in this area are primarily a function of personnel. Additionally, product development expenses include certain integration and business transformation costs, which may impact the comparability of product development expenses between periods.
Product development expenses increased by $1,546 or 16.4% to $10,979 for the three months ended September 30, 2025, compared to $9,433 for the three months ended September 30, 2024. Product development expenses included severance costs of approximately $49 for the three months ended September 30, 2025. Product development expenses included severance costs of $109 for the three months ended September 30, 2024.
Product development expenses, after excluding severance costs, increased by approximately $1,606 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase in product development expenses was driven by higher employee-related costs, primarily cash incentive compensation, of $856, an increase in hosting and software costs of $944, and an increase in offsetting capitalization of labor costs related to internally-developed software of approximately $764. These increases were partially offset by a decrease in professional services of $825 and other costs, including travel and entertainment, of $133.
Product development expenses increased by $979 or 4.9% to $21,126 for the six months ended September 30, 2025, compared to $20,147 for the six months ended September 30, 2024. Product development expenses included severance costs of approximately $105 for the six months ended September 30, 2025. Product development expenses included severance costs of approximately $180 for the six months ended September 30, 2024.
Product development expenses, after excluding severance costs, increased by approximately $1,054 for the six months ended September 30, 2025 compared to the six months ended September 30, 2024. The increase in product development expenses was primarily driven by higher employee-related costs, primarily cash incentive compensation, of $1,422 and an increase in hosting and software costs of $1,140. These increases were partially offset by a decrease in professional services of $1,113, a decrease in offsetting capitalization of labor costs related to internally-developed software of approximately $162, and a decrease in other costs, including travel and recruiting of $233.
Product development expenses, excluding severance and business transformation costs, changed to 7.8% and 7.7% of total net revenue for the three and six months ended September 30, 2025, respectively, compared to 7.9% and 8.4% of total net revenue for the three and six months ended September 30, 2024, respectively. The decrease in product development expenses as a percentage of total net revenue for the six months ended September 30, 2025 was primarily due to revenues increasing at a rate faster than product development expenses.
Sales and marketing
Sales and marketing expenses represent the costs of sales and marketing personnel, advertising and marketing campaigns, and campaign management. Additionally, sales and marketing expenses include certain integration and business transformation costs, which may impact the comparability of sales and marketing expenses between periods.
Sales and marketing expenses decreased by $1,441 or 9.1% to $14,446 for the three months ended September 30, 2025, and was 10.3% as a percentage of total net revenue compared to $15,887, or 13.4% of total net revenue, for the three months ended September 30, 2024. Sales and marketing expenses included severance costs of approximately $292 and $96 for the three months ended September 30, 2025 and September 30, 2024, respectively.
Sales and marketing expenses, after excluding severance expenses, decreased by approximately $1,637 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease in sales and marketing expenses was primarily due to a decrease in employee-related costs of $1,298, inclusive of increased cash incentive compensation of $866, lower offsetting capitalization of labor costs related to internally-developed software of approximately $906, and lower other operating costs, including various marketing event and lead generation costs of $299.
Sales and marketing expenses decreased by $4,099 or 12.8% to $28,035 for the six months ended September 30, 2025, and was 10.3% as a percentage of total net revenue compared to $32,134, or 13.6% of total net revenue, for the six months ended September 30, 2024. Sales and marketing expenses included severance costs of approximately $355 for the six months ended September 30, 2025. Sales and marketing expenses included severance costs of approximately $506 for the six months ended September 30, 2024.
Sales and marketing expenses, after excluding severance expenses, decreased by approximately $3,948 for the six months ended September 30, 2025 compared to the six months ended September 30, 2024. The decrease in sales and marketing expenses was primarily due to lower employee-related costs of $3,425, inclusive of increased cash incentive compensation of $1,304, lower offsetting capitalization of labor costs related to internally-developed software of approximately $1,627, lower sales costs for marketing events and lead generation of $458 and other lower costs, including travel and entertainment, of $120. These decreases were partially offset by higher costs for professional services of $378. The decrease in sales and marketing expenses as a percentage of total net revenue for the three and six months ended September 30, 2025 were driven by a decrease in overall headcount, partially offset by improved sales performance, as well as capitalization of employee-related costs.
General and administrative
General and administrative expenses represent management, finance, and support personnel costs in both the parent and subsidiary companies, which include professional services and consulting costs, in addition to other costs such as rent, stock-based compensation, and depreciation and amortization expense. Additionally, general and administrative expenses include certain integration and business transformation costs, which may impact the comparability of general and administrative expenses between periods.
General and administrative expenses decreased by $8,093 or 19.2% to $34,083 for the three months ended September 30, 2025 compared to $42,176 for the three months ended September 30, 2024. General and administrative expenses did not include any severance or business transformation costs for the three months ended September 30, 2025. General and administrative expenses included severance and business transformation costs of approximately $300 for the three months ended September 30, 2024.
General and administrative expenses, after excluding severance and business transformations costs, decreased by $7,793 for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was primarily due to lower stock-based compensation expense of $3,516, lower depreciation and amortization of $4,444 related to certain intangible assets that became fully amortized in the current period, lower credit loss expense of $1,029, and a decrease in other costs of $392. These decreases were partially offset by higher costs for professional services of $889 and higher employee-related costs of $699, primarily driven by cash incentive compensation.
General and administrative expenses decreased by $8,701 or (10.2)% to $76,992 for the six months ended September 30, 2025, compared to $85,693 for the six months ended September 30, 2024. General and administrative expenses included severance and business transformation costs of approximately $76 for the six months ended September 30, 2025. General and administrative expenses included severance and business transformation costs of $1,448 for the six months ended September 30, 2024.
General and administrative expenses, after excluding severance and business transformation costs, decreased by $7,329 for the six months ended September 30, 2025 compared to the six months ended September 30, 2024. The decrease was primarily due to lower stock-based compensation expense of $5,516, lower depreciation and amortization of $1,800 related to certain intangible assets that became fully amortized in the current period, lower credit loss expense of $455, lower facilities costs of $243, lower software and license fees of $229, and lower other costs of $646. These decreases were partially offset by higher employee-related costs of $969, primarily cash incentive compensation, and higher professional fees of $591.
Interest and other income (expense), net
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Three months ended September 30,
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Six months ended September 30,
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| 2025 | 2024 | % of Change | 2025 | 2024 | % of Change | |||||||||||||||||||||||||||||||||
| Interest and other (expense) income, net | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | $ | - | $ | 200 | 100.0 | % | $ | - | $ | 200 | (100.0) | % | ||||||||||||||||||||||||||
| Interest expense, net | $ | (11,498) | $ | (8,776) | 31.0 | % | (20,298) | (16,725) | 21.4 | % | ||||||||||||||||||||||||||||
| Amortization of debt discount and issuance costs | (2,778) | (456) | 509.2 | % | (3,932) | (757) | 419.4 | % | ||||||||||||||||||||||||||||||
| Unrealized loss on derivatives | (2,335) | - | 100.0 | % | (2,335) | - | 100.0 | % | ||||||||||||||||||||||||||||||
| Foreign exchange transaction gain (loss) | 1,136 | (976) | (216.4) | % | 222 | (158) | (240.5) | % | ||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | (9,795) | - | 100.0 | % | (9,795) | - | 100.0 | % | ||||||||||||||||||||||||||||||
| Other (expense) income, net | (1,207) | (36) | 3,252.8 | % | (1,875) | 78 | 2,503.8 | % | ||||||||||||||||||||||||||||||
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Total interest and other (expense), net
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$ | (26,477) | $ | (10,044) | 163.6 | % | $ | (38,013) | $ | (17,362) | 118.9 | % | ||||||||||||||||||||||||||
Comparison of the three and six months ended September 30, 2025 and 2024
Interest expense, net
For the three and six months ended September 30, 2025, interest expense, net, increased by $2,722 or 31.0% and $3,573 or 21.4%, respectively, compared to the three and six months ended September 30, 2024. The increase was primarily due to increased interest rates of 239 basis points and 147 basis points for the three and six months, respectively, and higher average outstanding borrowings of $8,695 and $10,812, respectively, over the comparative periods. These increases were a result of the negotiated terms under the Company's August 29, 2025 Financing Agreement, in association with the new term loans.
Amortization of debt discount and issuance costs
For the three and six months ended September 30, 2025, amortization of debt issuance costs increased by $2,322 or 509.2% and $3,175 or 419.4%, respectively, compared to the three and six months ended September 30, 2024. The increase was primarily due to increased amortization of issuance costs associated with the Fifth Amendment to the Amended and Restated Credit Agreement, signed on June 13, 2025, contributing to higher monthly amortization beginning in June 2025. Subsequently, on August 29, 2025, the Company signed the Financing Agreement, fully paying off the revolver and replacing it with term loans, at which time all remaining capitalized debt issuance costs associated with the Amended and Restated Credit Agreement were fully amortized as a loss on extinguishment of debt. Additionally, the Company made a payment of $10,092 on the principal of the term loans, at which time a pro rata portion of the original issue discount and debt issuance costs were amortized.
Unrealized loss on derivatives
For the three and six months ended September 30, 2025, unrealized loss on derivatives increased by $2,335 or 100.0% compared to the three and six months ended September 30, 2024. The increase was due to the issuance of warrants in relation to the Company's Financing Agreement. The Company classified these warrant instruments as derivative liabilities at fair value and adjusts the instruments to fair value at each reporting period. This liability is re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company's statements of operations and comprehensive (loss) income as an unrealized gain or loss on derivatives.
Foreign exchange transaction gain (loss)
For the three and six months ended September 30, 2025, the Company recorded foreign exchange transaction gains of $1,136 and $222, respectively. For the three and six months ended September 30, 2024, the Company recorded foreign exchange transaction losses of $976 and $158, respectively. The changes were primarily attributable to fluctuations in foreign exchange rates for trade accounts receivables and payables
denominated in currencies other than the functional currency of foreign entities.
Loss on extinguishment of debt
For the three and six months ended September 30, 2025, the Company recorded a loss on extinguishment of debt of $9,795 or 100.0% compared to the three and six months ended September 30, 2024. The increase was driven by the amortization of all remaining debt issuance costs associated with the Company's revolver in connection with the Amended and Restated Credit Agreement, which was terminated and fully paid as of September 30, 2025.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are our cash and cash equivalents, cash from operations, borrowings under the Financing Agreement, and the issuance of common stock under our ATM program. As of September 30, 2025, we had unrestricted cash of approximately $38,846 and restricted cash of approximately $438. For the three and six months ended September 30, 2025, we incurred a net loss of $21,395 and $35,499, respectively, and generated cash from operating activities of $14,460 and $23,248, respectively.
Our principal cash requirements for the twelve-month period following this Report primarily consist of refinancing certain Loan tranches under the Financing Agreement and payment of interest and required principal payments thereunder in addition to personnel costs, contractual payment obligations, including office leases, cloud hosting costs, capital expenditures, minimum commitments under hosting agreements (see Liquidity and Capital Resources-Hosting Agreements below), cash outlays for income taxes, and cash requirements to fund working capital.
We have been and are continuing to explore various cost saving opportunities, namely through the Company's transformation program, and we intend to continue seeking opportunities to generate additional revenue through operations. There can be no assurance that we will be successful in our plans described above. If we are unable to effectively implement additional cost reductions, generate additional revenue or refinance certain Loan tranches under the Financing Agreement or raise additional funding, we may be forced to delay, reduce or eliminate some or all of our strategic operational efforts and product and service expansion, and our business, financial condition and results of operations could be materially and adversely affected.
As described above, we are currently seeking to refinance certain Loan tranches under the Financing Agreement and are exploring options to raise additional capital through our ATM program or the sale of equity securities or equity-linked or debt-financing arrangements. Under the Financing Agreement, the Company is required to pay certain escalating exit fees and duration fees if two tranches of term loans are not repaid by certain dates. If we successfully refinance such Loans on acceptable terms, we believe our existing cash and cash equivalents, cash flow from operations and issuance of common stock under our ATM program would be sufficient to meet our working capital and other business requirements for at least 12 months from the filing date of this Report. However, our ability to meet our debt service obligations and to fund working capital, capital expenditures, and investments in our business will depend upon our future performance and our ability to access capital markets and refinance such Loans, as well as financial, business, and other factors affecting our operations, many of which are beyond our control. These factors include general and regional economic, financial, competitive, legislative, regulatory, and other factors such as the U.S. and global economic climate uncertainty, the impact of tariffs, the state of the equity and debt markets and the ability to raise capital in such markets, health epidemics, economic and macro-economic factors like labor shortages, supply chain disruptions, and inflation, and geopolitical developments, including the conflict in Ukraine, the political climate related to China, and the conflict in Israel. We cannot guarantee we will generate sufficient cash flow from operations, or that future borrowings or capital markets will be available, in an amount sufficient to enable us to pay our debt, refinance Loan tranches under the Financing Agreement or to fund our other liquidity needs. See Part I, Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission on June 16, 2025, and Part II, Item 1A in this Report for additional information related to the foregoing risks.
Capital Resources
Our outstanding secured indebtedness under the Financing Agreement is $419,908 as of September 30, 2025. The maturity date of the Financing Agreement is August 29, 2029, and the outstanding balance is classified as long-term debt, net of debt issuance costs of $9,123, and original issuance discount of $14,344 on our
consolidated balance sheets as of September 30, 2025. For further description of the terms of the Financing Agreement, see Note 11-Debt under the heading "Financing Agreement" in the notes to our condensed consolidated financial statements under Part I, Item 1 of this Report.
The collateral pledged to secure our secured debt, consisting of substantially all of our U.S. subsidiaries' assets, would be available to the secured creditor in a foreclosure, in addition to many other remedies. Accordingly, any adverse change in our ability to service our secured debt could result in an event of default, cross default, and foreclosure or forced sale. Depending on the value of the assets, there could be little, if any, assets available for common stockholders in any foreclosure or forced sale.
Our Financing Agreement also contains a maximum leverage ratio and minimum liquidity amount. If we fail to satisfy these covenants, the lender may declare a default, which could lead to acceleration of the debt maturity. Any such default would have a material adverse effect on us.
As of September 30, 2025, we were in compliance with all covenants under the Financing Agreement.
As described above, we are currently seeking to refinance certain Loan tranches under the Financing Agreement and are exploring options to raise additional capital through our ATM program or the sale of equity securities or equity-linked or debt-financing arrangements. If we raise additional funds through our ATM program or by issuing equity or equity-linked securities, it may be at a price and on terms and conditions that are less favorable to the Company, and the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring new indebtedness, we may be subject to increased interest rates, increased fixed payment obligations and could also be subject to additional restrictive covenants and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be less favorable to the Company. We cannot assure you that we will be able to refinance any of our indebtedness or enter into equity or equity-linked financing arrangements on commercially reasonable terms, or at all.
If the Company is unable to refinance certain Loan tranches under the Financing Agreement by certain dates, the Company will be required to pay exit and duration fees on such tranches when repaid, which could have a material adverse impact on our business, financial condition and results of operations.
Hosting Agreements
We enter into hosting agreements with service providers, and, in some cases, those agreements include minimum commitments that require us to purchase a minimum amount of service over a specified time period ("the minimum commitment period"). The minimum commitment period is generally one year in duration, and the hosting agreements include multiple minimum commitment periods. Our minimum purchase commitments under these hosting agreements total approximately $213,379 over the next five fiscal years.
Cash Flow Summary ($ in thousands)
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Six months ended September 30,
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| 2025 | 2024 | % of Change | ||||||||||||||||||
| Consolidated statements of cash flows data: | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 23,248 | $ | (10,071) | (330.8) | % | ||||||||||||||
| Capital expenditures | (15,386) | (13,408) | 14.8 | % | ||||||||||||||||
| Net cash used in investing activities | $ | (15,386) | $ | (13,408) | 14.8 | % | ||||||||||||||
| Proceeds from borrowings, net of original issue discount | 418,700 | 38,000 | 1,001.8 | % | ||||||||||||||||
| Payment of debt issuance costs | (19,915) | (1,561) | 1,175.8 | % | ||||||||||||||||
| Payment of deferred business acquisition consideration | (842) | - | 100.0 | % | ||||||||||||||||
| Repayment of debt obligations | (421,092) | (13,000) | 3,139.2 | % | ||||||||||||||||
| Proceeds from issuance of common stock in connection with at-the-market offering, net of issuance costs of $420 | 13,573 | - | 100.0 | % | ||||||||||||||||
| Payment of withholding taxes for net share settlement of equity awards | (301) | (160) | 88.1 | % | ||||||||||||||||
| Options exercised | 1,645 | 93 | 1,668.8 | % | ||||||||||||||||
| Net cash provided by (used in) financing activities | $ | (8,232) | $ | 23,372 | (135.2) | % | ||||||||||||||
Operating Activities
Our cash flows from operating activities are primarily driven by revenue generated from user acquisition and advertising activity, offset by the cash costs of operations, and are significantly influenced by the timing of and fluctuations in receipts from customers and payments to our carrier and publisher partners as well as other vendors. Our future cash flows from operating activities will be diminished if we cannot increase our revenue levels and manage costs appropriately. Cash provided by (used in) operating activities was $23,248 for the six months ended September 30, 2025, compared to $(10,071) for the six months ended September 30, 2024. The increase of $33,319 was due to the following:
•$14,643 decrease in net loss;
•$11,257 net increase due to changes in operating assets and liabilities, driven primarily by working capital changes, specifically an increase in the change in accrued revenue share. This was offset by an increase in the change in accounts receivable also driven by increased revenue and accrued revenue share, as well as changes in the timing of publisher invoices received towards the end of the quarter;
•$7,419 net increase in non-cash charges during the six months ended September 30, 2025 primarily related to the loss on extinguishment of debt, amortization of debt discount and issuance costs, and the unrealized loss on derivatives in the current period.
Investing Activities
Our primary investing activities have consisted of acquisitions of businesses, purchases of property and equipment, and capital expenditures in support of creating and enhancing our technology infrastructure. For the six months ended September 30, 2025, net cash used in investing activities increased by $1,978 to $15,386. Our cash used in investing activities for the six months ended September 30, 2025 and September 30, 2024, was primarily comprised of capital expenditures related to internally-developed software.
Financing Activities
For the six months ended September 30, 2025, net cash used in financing activities was $8,232, which was comprised of: (1) proceeds from borrowings, net of original issue discount of $418,700, (2) the repayment of debt obligations of $421,092 related to the termination and pay-down of the Company's revolver of $411,000 and $10,092 prepayment on the Company's new term loans, (3) payment of $19,915 for debt issuance costs, (4) payment of deferred business acquisition consideration of $842 and (5) payment of payroll withholding taxes for net share settlement of equity awards of $301. These cash outflows were offset by cash inflows comprising of (1)
proceeds from the issuance of common stock in connection with at-the-market offering of $13,573 and (2) stock option exercises of $1,645.
For the six months ended September 30, 2024, net cash provided by financing activities was $23,372, which was comprised of: (1) the repayment of debt obligations of $13,000, and (2) a payment of $1,561 of debt issuance costs, and (3) payment of payroll withholding taxes for net share settlement of equity awards of $160. These cash outflows were offset by cash inflows from proceeds from borrowings of $38,000 and stock option exercises of $93.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements. The preparation of these financial statements is based on management's selection and application of accounting policies, some of which require management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and notes. For more information regarding our critical accounting policies and estimates, please see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies," of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, and Note 2-Basis of Presentation and Summary of Significant Accounting Policies," of this Report on Form 10-Q for our fiscal second quarter ended September 30, 2025.
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