The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this Annual Report on Form 10-K (the "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, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve substantial risks and uncertainties. When used in this Report, the words "anticipate," "believe," "estimate," "expect," "will," "seeks," "should," "could," "would," "may," and 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 this Report, 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 management 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 based on known 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 dollar amounts, except share amounts, in Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations on this Form 10-K are in thousands. 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"). The Company offers 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. 50 --------------------------------------------------------------------------------
February 3, 2021, the Company entered into a credit agreement (the "Credit Agreement") with Bank of America, N.A. ("BoA"), which provides for a revolving line of credit (the "Revolver") of up to $100,000with an accordion feature enabling the Company to increase the total amount up to $200,000. Funds are to be used for acquisitions, working capital, and general corporate purposes. The Credit Agreement contains customary covenants, representations, and events of default and also requires the Company to comply with a maximum consolidated leverage ratio and minimum fixed charge coverage ratio. On April 29, 2021, the Company entered into an amended and restated Credit Agreement (the "New Credit Agreement") with BoA, as a lender and administrative agent, and a syndicate of other lenders, which provides for a revolving line of credit of up to $400,000. The revolving line of credit matures on April 29, 2026and contains an accordion feature enabling the Company to increase the total amount of the revolver by $75,000plus 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 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. On December 29, 2021, the Company amended the New Credit Agreement (the "First Amendment"), which provides for an increase in the revolving line of credit by $125,000, which increased the maximum aggregate principal amount of the revolving line of credit to $525,000. The First Amendment made no other changes to the term or interest rates of the New Credit Agreement. Amounts outstanding under the New Credit Agreement accrue interest at an annual rate equal to, at the Company's election, (i) the London Inter-Bank Offered Rate ("LIBOR") plus between 1.50% and 2.25%, based on the Company's consolidated 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) LIBOR plus 1.00% plus between 0.50% and 1.25%, based on the Company's consolidated 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. The Company's payment and performance obligations under the New Credit Agreement and related loan documents are secured by 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, 2022, we had $524,134drawn against the revolving line of credit under the New Credit Agreement. The proceeds were used to finance the acquisitions detailed below. As of March 31, 2022, we were in compliance with the consolidated leverage ratio, interest coverage ratio, and other covenants under the New Credit Agreement.
The Company recently completed the acquisitions of Appreciate,
AdColony HoldingAS ("AdColony"), and Fyber, N.V.("Fyber") to execute on its expressed strategy of becoming a leading end-to-end solution for mobile brand acquisition, advertising, and monetization. The following is a summary of each of those acquisitions: Appreciate: On March 1, 2021, Digital Turbine, through its wholly-owned subsidiary Digital Turbine (EMEA) Ltd.("DT EMEA"), an Israeli company, entered into a Share Purchase Agreement with Triapodi Ltd., an Israeli company (d/b/a Appreciate) ("Appreciate"), the stockholder representative, and the stockholders of Appreciate, pursuant to which DT EMEA acquired, on March 2, 2021, all of the outstanding capital stock of Appreciate in exchange for total consideration of $20,003in cash (the "Appreciate Acquisition"). Under the terms of the Share Purchase Agreement, DT EMEA entered into bonus arrangements to pay up to $6,000in retention bonuses and performance bonuses to the founders and certain other employees of Appreciate. None of the goodwill recognized was deductible for tax purposes. The acquisition of Appreciate delivered valuable deep ad-tech and algorithmic expertise to help Digital Turbineexecute on its broader, longer-term vision. Deploying Appreciate's technology expertise across Digital Turbine'sglobal scale and reach should further benefit partners and advertisers that are a part of the combined Company's platform. 51 -------------------------------------------------------------------------------- AdColony Holding AS: On April 29, 2021, the Company completed the acquisition of AdColony Holding AS, a Norwaycompany ("AdColony"), pursuant to a Share Purchase Agreement (the "AdColony Acquisition"). The Company acquired all outstanding capital stock of AdColonyin exchange for an estimated total consideration in the range of $400,000to $425,000, to be paid as follows: (1) $100,000in cash paid at closing (subject to customary closing purchase price adjustments), (2) $100,000in cash to be paid six months after closing, and (3) an estimated earn-out in the range of $200,000to $225,000, to be paid in cash, based on AdColonyachieving certain future target net revenue, less associated cost of goods sold (as such term is referenced in the Share Purchase Agreement), over a 12-month period ending on December 31, 2021(the "Earn-Out Period"). Under the terms of the earn-out, the Company would pay the seller a certain percentage of actual net revenue (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) of AdColony, depending on the extent to which AdColonyachieves certain target net revenue (less associated cost of goods sold, as such term is referenced in the Share Purchase Agreement) over the Earn-Out Period. The earn-out payment will be made following the expiration of the Earn-Out Period. AdColonyis a leading mobile advertising platform servicing advertisers and publishers. AdColony'sproprietary video technologies and rich media formats are widely viewed as a best-in-class technology delivering third-party verified viewability rates for well-known global brands. With the addition of AdColony, the Company expanded its collective experience, reach, and suite of capabilities to benefit mobile advertisers and publishers around the globe. Performance-based spending trends by large, established brand advertisers present material upside opportunities for platforms with unique technology deployable across exclusive access to inventory. On August 27, 2021, the Company entered into an Amendment to Share Purchase Agreement (the "Amendment Agreement") with AdColonyand Otello Corporation ASA, a Norwaycompany ("Otello") and AdColony'sprevious parent company. Pursuant to the Amendment Agreement, the Company and Otello agreed to set a fixed dollar amount of $204,500for the earn-out payment obligation, to set January 15, 2022, as the payment due date for such payment amount, and to eliminate all of the Company's earn-out support obligations under the Share Purchase Agreement. As a result, the Company recognized an $8,913reduction of the earn-out payment obligation in change in fair value of contingent consideration on the consolidated statement of operations and comprehensive income / (loss) for the fiscal second quarter ended September 30, 2021. The Company paid the cash consideration amounts that were due at closing and on October 26, 2021, with a combination of available cash-on-hand and borrowings under the Company's senior credit facility. The payment made on October 26, 2021, was reduced to $98,175due to an adjustment for the impact of accrued and unpaid taxes to the net working capital acquired. The difference between the amount due of $100,000and amount paid resulted in an adjustment to goodwill.
of borrowings under the New Credit Agreement.
The Company recognized
$4,214of costs related to the AdColony Acquisition, which were included in general and administrative expenses on the consolidated statement of operations and comprehensive income / (loss) for the year ended March 31, 2022. Fyber N.V.: On May 25, 2021, the Company completed the initial closing of the acquisition of at least 95.1% of the outstanding voting shares (the "Majority Fyber Shares") of Fyber N.V.("Fyber") pursuant to a Sale and Purchase Agreement (the "Fyber Acquisition") among Tennor Holding B.V., Advert Finance B.V., and Lars Windhorst(collectively, the "Seller"), the Company, and Digital TurbineLuxembourg S.ar.l., a wholly-owned subsidiary of the Company. The remaining outstanding shares in Fyber (the "Minority Fyber Shares") were (to the Company's knowledge) widely held by other shareholders of Fyber (the "Minority Fyber Shareholders") and are presented as non-controlling interests within these financial statements. Fyber is a leading mobile advertising monetization platform empowering global app developers to optimize profitability through quality advertising. Fyber's proprietary technology platform and expertise in mediation, real-time bidding, advanced analytics tools, and video combine to deliver publishers and advertisers a highly valuable app monetization solution. Fyber represents an important and strategic addition for the Company in its mission to develop one of the largest full-stack, fully independent, mobile advertising solutions in the industry. The combined platform offering is advantageously positioned to leverage the Company's existing on-device software presence and global distribution footprint.
The Company acquired Fyber in exchange for an estimated aggregate consideration
of up to
$150,000in cash, $124,336of which was paid to the Seller at the closing of the acquisition and the remainder of which is to be paid to the Minority Fyber Shareholders for the Minority Fyber Shares pursuant to the tender offer described below; 52 -------------------------------------------------------------------------------- ii.5,816,588 newly-issued shares of common stock of the Company to the Seller, which such number of shares were determined based on the volume-weighted average price of the common stock on NASDAQ during the 30-day period prior to the closing date, equal in value to $359,233at the Company's common stock closing price on May 25, 2021, as follows.
1.3,216,935 newly-issued shares of common stock of the Company equal in value to
2.1,500,000 newly-issued shares of common stock of the Company equal in value to
3.1,040,364 newly-issued shares of common stock of the Company equal in value to
4.59,289 shares of common stock equal in value to
$3,662, to be newly-issued during the Company's fiscal second quarter 2022, but subject to a true-up reduction based on increased transaction costs associated with the staggered delivery of the Majority Fyber Shares to the Company, which true-up reduction has been finalized, as described below; and iii.Contingent upon Fyber's net revenue (revenue less associated license fees and revenue share) being equal to or higher than $100,000for the 12-month earn-out period ending on March 31, 2022, as determined in the manner set forth in the Sale and Purchase Agreement, a certain number of shares of the Company's common stock, which will be newly-issued to the Seller at the end of the earn-out period, and under certain circumstances, an amount of cash, which value of such shares, based on the weighted average share price for the 30-days prior to the end of the earn-out period, and cash in aggregate, will not exceed $50,000(subject to set-off against certain potential indemnification claims against the Seller). Based on estimates at the time of the acquisition, the Company initially determined it was unlikely Fyber would achieve the earn-out net revenue target and, as a result, no contingent liability was recognized at that time.
The Company paid the cash closing amount on the closing date with a combination
of available cash-on-hand and borrowings under the Company’s senior credit
September 30, 2021, the Company entered into the Second Amendment Agreement (the "Second Amendment Agreement") to the Sale and Purchase Agreement for the Fyber Acquisition. Pursuant to the Second Amendment Agreement, the parties agreed to settle the remaining number of shares of Company common stock to be issued to the Seller at 18,000 shares (i.e., a reduction of 41,289 shares from the 59,289 shares described in (ii)(4) above). As a result, the Company issued a total of 5,775,299 shares of Company common stock to the Seller in connection with the Company's acquisition of Fyber. As of March 31, 2022, the Company determined Fyber's net revenue for the measurement period exceeded $100,000. As a result, the Company recorded a charge of $50,000to change in fair value of contingent consideration on the consolidated statement of operations and comprehensive income / (loss) for the fiscal year ended March 31, 2022, which was also recorded in acquisition purchase price liabilities on the consolidated balance sheet as of March 31, 2022. The Company settled the obligation through the issuance of approximately 1,200,000 shares of the Company's common stock subsequent to its fiscal year ended March 31, 2022. Pursuant to certain German law on public takeovers, following the closing, the Company launched a public tender offer to the Minority Fyber Shareholders to acquire from them the Minority Fyber Shares. The tender offer was approved and published in July 2021, and is subject to certain minimum price rules under German law. The timing and the conditions of the tender offer, including the consideration of €0.84 per share offered to the Minority Fyber Shareholders in connection with the tender offer, was determined by the Company pursuant to the applicable Dutch and German takeover laws. During the fiscal year ended March 31, 2022, the Company purchased an additional $18,341of Fyber's outstanding shares, resulting in an ownership percentage of Fyber of approximately 99.5% as of March 31, 2022. The Company expects to complete the purchase of the remaining outstanding Fyber shares during fiscal year 2023.
The delisting of Fyber’s remaining outstanding shares on the
The Company recognized
$18,698of costs related to the Fyber Acquisition, which were included in general and administrative expenses on the consolidated statement of operations and comprehensive income / (loss) for the year ended March 31, 2022. 53 --------------------------------------------------------------------------------
Prior to the acquisitions of both
AdColonyand Fyber, the Company had one operating and reportable segment called Media Distribution. As a result of the acquisitions, the Company reassessed its operating and reportable segments in accordance with ASC 280, Segment Reporting. Effective April 1, 2021, the Company operates through the following three segments, each of which is a reportable segment: •On Device Media ("ODM") - This segment is the legacy single reporting segment of Digital Turbineprior to the AdColonyand Fyber acquisitions. This segment generates revenue from products and services that simplify the discovery and delivery of mobile apps and content media for device end-users. The Company provides ODM solutions to all participants in the mobile application ecosystem who want to connect with end users and consumers who hold the device, including mobile carriers and device original equipment manufacturers ("OEMs") that participate in the app economy, app publishers and developers, and brands and advertising agencies. This segment's product offerings are enabled through relationships with mobile device carriers and OEMs. •In App Media - AdColony("IAM-A") - The Company's In App Media - AdColony("IAM-A") segment provides a platform that allows mobile app publishers and developers to monetize their monthly active users via display, native, and video advertising. The IAM-A platform allows demand side platforms ("DSPs"), advertisers, agencies, and publishers to buy and sell digital ad impressions, primarily through programmatic, real-time bidding auctions and, in some cases, through direct-bought/sold advertiser budgets. IAM-A also provides brand and performance advertising services to advertisers and agencies. IAM-A customers are primarily DSPs, advertisers and agencies and relationships with app publishers are a key success factor. •In App Media - Fyber ("IAM-F") - The Company's In-App Media - Fyber ("IAM-F") segment consists of products and services to enable agencies, brands, and app developers to reach large audiences while achieving key performance indicators ranging from reach to frequency, cost-per-install, and return on ad spend. These campaigns are filled via in-house developed technologies and platforms customized to reach a wide array of audiences globally while being compatible with industry-recognized partners around measurement, data matching, and creative services. IAM-F customers are primarily DSPs, advertisers and agencies and relationships with app publishers are a key success factor.
Impact of COVID-19
Our results of operations are affected by economic conditions, including macroeconomic conditions, levels of business confidence, and consumer confidence. Due to the continued uncertainties associated with the COVID 19 pandemic, it is difficult to predict how our business and the demand for our service offerings will be impacted. The extent to which COVID-19 impacts our operational and financial performance will depend in part on actions taken by governments, individuals and businesses, including carriers and OEMs in relation to their sales of smartphones, tablets, and other devices, and application developers and in-app advertisers in relation to demand for advertising. If COVID-19 continues to have a significant negative impact on global economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted. Presently, we are conducting business as usual, with some modifications to employee travel, employee work locations, and cancellation of certain marketing events, among other modifications. We will continue to actively monitor the situation and 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. See the section titles "Item 1A. Risk Factors - Public health issues, such as major epidemic or pandemic, could adversely affect our business or financial results" for additional information. -------------------------------------------------------------------------------- RESULTS OF OPERATIONS
The following discusses the results of our operations for the year ended March
31, 2022, compared to the year ended
results of our operations for the year ended
Financial Condition and Results of Operations” in our Annual Report on Form 10-K
for the year ended
to “Notes” are notes to our consolidated financial statements in “Item 8.
Financial Statements and Supplementary Data."
Net revenue ($ in thousands) Year ended March 31, 2022 2021 % of Change Net revenue On Device Media
$ 502,636 $ 313,57960.3 % In App Media - AdColony 169,725 -
In App Media - Fyber 92,611 -
Elimination (17,376) -
Total net revenue
$ 747,596 $ 313,579
Fiscal 2022 compared to fiscal 2021
During the year ended
March 31, 2022, net revenue increased by $434,017or 138.4% compared to the prior year. The increase was due to a combination of continuing organic growth of the Company's legacy business (now the On Device Media segment) and contributions from recent acquisitions. When the Company reports revenue on a net basis, net revenue from the transaction is reported net of the license fees and revenue share expense associated with the transaction. Approximately $139,241of our net revenue for the year ended March 31, 2022, was reported net of the associated license fees and revenue share expense.
On Device Media
The Company's ODM segment generates revenue from services that deliver mobile application media or content media to end users. This segment is the legacy reporting segment of
Digital Turbine(previously called Media Distribution) and its customers are mobile device carriers and OEMs as well as advertisers. During the year ended March 31, 2022, ODM revenue increased by $189,057or 60.3% compared to the prior year. The increase was primarily due to increased demand for our application media and content media distribution services, which led to higher revenue per available placement, as well as increased revenue from advertising partners as placement across existing commercial partners expanded, distribution with new partners expanded, and new services and features were deployed or expanded upon. Increase in application media distribution increased $150,132as compared to the prior year, while content media distribution increased $38,925as compared to the prior year.
In App Media –
The Company’s IAM-A segment is comprised of the operations of the AdColony
Acquisition and generates revenue from its platform that allows demand side
platforms (“DSPs”), advertisers, agencies, and publishers to buy and sell
digital ad impressions, primarily through programmatic, real-time bidding
auctions and, in some cases, through direct-bought/sold advertiser budgets.
IAM-A also provides brand and performance advertising services to advertisers
and agencies. Total net revenue for the year ended
Revenue for the IAM-A segment is reported on both a gross and net (revenue, net of license fees and revenue share expense) basis. Revenue from its brand and performance services are reported on a gross basis as the Company acts as a principal in the transaction and generated net revenue of
$123,094for the year ended March 31, 2022. Revenue reported on a net basis are primarily related to the segment's platform that enables programmatic, real-time bidding for ad impressions as the Company acts as an agent in the transactions and had net revenue of $46,631for the year ended March 31, 2022. Please see Note 3, "Acquisitions," for further information. 55 --------------------------------------------------------------------------------
In App Media – Fyber
The Company's IAM-F segment provides a platform that allows mobile app publishers and developers to monetize their monthly active users via display, native, and video advertising. The IAM-F platform allows demand side platforms ("DSPs"), advertisers, agencies, and publishers to buy and sell digital ad impressions, primarily through programmatic, real-time bidding auctions and, in some cases, through direct-bought/sold advertiser budgets. The IAM-F segment is comprised of the Fyber Acquisition and, reports revenue on a net (revenue, net of license fees and revenue share expense) basis as the Company acts as an agent in the transactions. Net revenue for the year ended
March 31, 2022,were $92,611Please see Note 3, "Acquisitions," for further information.
Costs of revenue and operating expenses ($ in thousands)
Year ended March
2021 % of Change
Costs of revenue and operating expenses
License fees and revenue share
$ 370,648 $ 178,649107.5 % Other direct costs of revenue 29,838 2,358 1,165.4 % Product development 52,723 20,119 162.1 % Sales and marketing 63,309 19,304 228.0 % General and administrative 138,837 33,940 309.1 %
Total costs of revenue and operating expenses
Fiscal 2022 compared to fiscal 2021
For the year ended
March 31, 2022, total costs of revenue and operating expenses increased by $400,985compared to the year ended March 31, 2021. The increase in total costs of revenue and operating expenses was a result of continuing organic growth and the acquisitions of Appreciate, AdColony, and Fyber. Costs of revenue and operating expenses included transaction costs of $26,237for the year ended March 31, 2022, compared to $3,413for the year ended March 31, 2021.
License fees and revenue share
License fees and revenue share include amounts paid to our carrier and OEM partners, as well as app publishers and developers who drive the revenue generated from advertising via direct cost-per-thousand ("CPM"), cost-per-install (CPI), cost-per-placement ("CPP"), or cost-per-acquisition ("CPA") arrangements, and are recorded as a cost of revenue. In addition, when indirect arrangements exist through advertising aggregators (ad networks) and revenue is shared with our carrier and app development partners, the shared revenue is also recorded as a cost of revenue. License fees and revenue share increased by
$191,999to $370,648for the year ended March 31, 2022, and was 49.6% as a percentage of total net revenue compared to $178,649, or 57.0% of total net revenue, for the year ended March 31, 2021. The increase in license fees and revenue share was attributable to the increase in total net revenue over the same period as these costs are paid as a percentage of our revenue. The decrease in license fees and revenue share as a percentage of total net revenue was primarily due to our recent acquisitions, which report revenue on a net basis for certain product lines.
Other direct costs of revenue
Other direct costs of revenue are comprised primarily of hosting expenses
directly related to the generation of revenue and depreciation expense accounted
for under ASC 985-20, Costs of Software to be Sold, Leased, or Otherwise
Other direct costs of revenue increased to
$29,838for the year ended March 31, 2022, and was 4.0% as a percentage of total net revenue compared to $2,358, or 0.8% of total net revenue, for the year ended March 31, 2021. The increase in other direct costs of revenue for the year ended March 31, 2022, compared to the prior year, was primarily driven by our recent acquisitions and continued growth for the legacy On Device Media segment, both of which contributed to significant increases in hosting costs. 56 --------------------------------------------------------------------------------
Product development expenses include the development and maintenance of the
Company’s product suite and are primarily a function of personnel.
Product development expenses increased by
$32,604to $52,723for the year ended March 31, 2022, and was 7.1% as a percentage of total net revenue compared to $20,119, or 6.4% of total net revenue, for the year ended March 31, 2021. For the years ended March 31, 2022and 2021, product development expenses included acquisition-related costs of $2,699and $92, respectively. Excluding acquisition-related costs, product development expenses as a percentage of total net revenue was relatively consistent, increasing to 6.7% for the fiscal year ended March 31, 2022, from 6.4% for fiscal year ended and March 31, 2021. The increase in product development expenses for the year ended March 31, 2022, compared to the prior year, was primarily attributable to higher product development headcount, both organically and through our recent acquisitions, and incremental third-party development costs due to increased development activities to support revenue growth.
Sales and marketing
Sales and marketing expenses represent the costs of sales and marketing
personnel, advertising and marketing campaigns, and campaign management.
Sales and marketing expenses increased by
$44,005to $63,309for the year ended March 31, 2022, and was 8.5% as a percentage of total net revenue compared to $19,304, or 6.2% of total net revenue, for the year ended March 31, 2021. For the year ended March 31, 2022, sales and marketing expenses included $512of acquisition-related costs. Excluding acquisition-related costs, sales and marketing expenses as a percentage of total net revenue was 8.4% for the year ended March 31, 2022. The increase in sales and marketing expenses for the year ended March 31, 2022, compared to the prior year, was primarily due to our recent acquisitions and additional headcount in existing markets to support the Company's continued expansion of its global footprint. The increase in sales and marketing expenses as a percentage of total net revenue was primarily due to higher-leverage sales and marketing resources, advertising and marketing campaigns, and campaign management as total net revenue grew at a higher rate.
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. General and administrative expenses increased by
$104,897to $138,837for the year ended March 31, 2022, and was 18.6% as a percentage of total net revenue compared to $33,940, or 10.8% of total net revenue, for the year ended March 31, 2021. For the years ended March 31, 2022and 2021, general and administrative expenses included acquisition-related costs of $23,026and $3,321, respectively. Excluding acquisition-related costs, general and administrative expenses as a percentage of total net revenue was 15.5% and 9.8% for the fiscal years ended March 31, 2022and 2021, respectively. The increase in general and administrative expenses for the year ended March 31, 2022, compared to the prior year, was primarily due to the recent acquisitions of AdColonyand Fyber. In addition, general and administrative expenses increased due to higher employee-related expenses, including stock-based compensation, primarily from higher headcount to support the Company's growth, higher professional service costs, and an increase in amortization of intangible assets and depreciation for capitalized internal-use software due to the recent acquisitions. 57 --------------------------------------------------------------------------------
Interest and other income / (expense), net ($ in thousands)
Year ended March
2022 2021 % of Change Interest and other income / (expense), net Change in fair value of contingent consideration
$ (41,087) $ (15,751)(160.9) % Interest expense, net (8,495) (1,003) (747.0) % Loss on extinguishment of debt - (452) 100.0 % Foreign exchange transaction gain 2,062 - 100.0 % Other income / (expense), net (749)
(146) (413.0) %
Total interest and other income / (expense), net
Fiscal 2022 compared to fiscal 2021
Total interest and other income / (expense), net, for the years ended
March 31, 2022and 2021, was approximately $48,269and $17,352, respectively, an increase in net expense of $30,917.
Change in fair value of contingent consideration
For the years ended
March 31, 2022and 2021, the Company recorded charges for changes in fair value of contingent consideration of $41,087and $15,751, respectively. The change in fair value of contingent consideration for the fiscal year ended March 31, 2022, was due to a charge of $50,000for the increase in the fair value of the Fyber earn-out, offset by reduction in the fair value of the AdColonyearn-out of $8,913. The change in fair value of contingent consideration for the fiscal year ended March 31, 2021related to the Mobile Posse acquisition.
Interest income / (expense), net
For the years ended
March 31, 2022and 2021, the Company recorded net interest expense of $8,495and $1,003, respectively, an increase of $7,492or 747.0%. The increase was primarily due to borrowings under the New Credit Agreement with BoA and interest on the loans we assumed through our acquisition of Fyber. The increase in borrowings was primarily due to the recently completed acquisitions. Interest expense also includes the amortization of debt issuance costs related to our New Credit Agreement.
Foreign exchange transaction gain
The foreign exchange transaction gain of
$2,062was 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.
Liquidity and Capital Resources
Our primary sources of liquidity are cash from operations and debt. As of
March 31, 2022, we had cash in total of approximately $127,162and $866available to draw under the New Credit Agreement with BoA. The maturity date of the New Credit Agreement is April 29, 2026, and the outstanding balance of $524,134is classified as long-term debt, net of debt issuance costs of $3,349, on our consolidated balance sheet as of March 31, 2022. 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, which will be subject to financial, business, and other factors affecting our operations, many of which are beyond our control, availability of borrowing capacity under our credit facility, and our ability to access the capital markets. For example, these factors could include general and regional economic, financial, competitive, legislative, regulatory, and other factors. We cannot ensure that we will generate cash flow from operations, or that future borrowings or the capital markets will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital, or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. 58 -------------------------------------------------------------------------------- The Company believes it will generate sufficient cash flow from operations and has the liquidity and capital resources to meet its business requirements for at least twelve months from the filing date of this Annual Report on Form 10-K.
Outstanding Secured Indebtedness
The Company's outstanding secured indebtedness under the New Credit Agreement is
$524,134as of March 31, 2022. See "Recent Developments - Credit Agreement" for additional information on the New Credit Agreement. The Company's ability to borrow additional amounts under its New Credit Agreement could have significant negative consequences, including: •increasing the Company's vulnerability to general adverse economic and industry conditions; •limiting the Company's ability to obtain additional financing; •violating a financial covenant, potentially resulting in the indebtedness to be paid back immediately and thus negatively impacting our liquidity; •requiring additional financial covenant measurement consents or default waivers without enhanced financial performance in the short term; •requiring the use of a substantial portion of any cash flow from operations to service indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures; •limiting the Company's flexibility in planning for, or reacting to, changes in the Company's business and the industry in which it competes, including by virtue of the requirement that the Company remain in compliance with certain negative operating covenants included in the credit arrangements under which the Company will be obligated as well as meeting certain reporting requirements; and •placing the Company at a possible competitive disadvantage to less leveraged competitors that are larger and may have better access to capital resources. Our credit facility also contains a maximum consolidated secured net leverage ratio and minimum consolidated interest coverage ratio. There can be no assurance we will continue to satisfy these ratio covenants. 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 the Company. The collateral pledged to secure our secured debt, consisting of substantially all of our and 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.
Debt Assumed Through Fyber Acquisition
As a part of the Fyber Acquisition, the Company assumed
$25,789of debt previously held by Fyber. This debt was comprised of amounts drawn against three separate revolving lines of credit. The Company settled two of the three revolving lines of credit, resulting in payments of $13,289, during the year ended March 31, 2022. Details for the remaining line of credit can be found in Note 9, "Debt," of the consolidated financial statements. The remaining revolving line of credit from Bank Leumimatures on June 15, 2022. The balance of $12,500on this line of credit is classified as short-term debt on the consolidated balance sheet as of March 31, 2022.
Acquisition Purchase Price Liability
The Company recognized an acquisition purchase price liability of
$50,000on its consolidated balance sheet as of March 31, 2022, for the contingent earn-out consideration for the Fyber Acquisition. The Company settled the obligation through the issuance of approximately 1,200,000 shares of the Company's common stock subsequent to its fiscal year ended March 31, 2022.
The Company enters into hosting agreements with service providers and in some cases, those agreements include minimum commitments that require the Company 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
$212,572over the next five years. 59 --------------------------------------------------------------------------------
Cash Flow Summary ($ in thousands)
Year ended March 31, 2022 2021 % of Change (in thousands) Consolidated statements of cash flows data: Net cash provided by operating activities
$ 84,738 $ 62,79534.9 % Business acquisitions, net of cash acquired (148,722) (28,604) (419.9) % Capital expenditures (23,280) (9,204) (152.9) % Net cash used in investing activities (172,002) (37,808) (354.9) % Payment of contingent consideration - (16,956) 100.0 % Proceeds from borrowings 549,060 15,000 3,560.4 % Payment of debt issuance costs (4,064) (469) (766.5) % Payment of deferred business acquisition consideration (302,676) - (100.0) % Options and warrants exercised 4,300 7,209 (40.4) %
Payment of withholding taxes for net share settlement
of equity awards
(8,605) - (100.0) % Repayment of debt obligations (52,772) (20,000) (163.9) %
Net cash provided by / (used in) financing activities
$ (15,216)1,317.4 % Operating Activities Cash provided by operating activities was $84,738for the year ended March 31, 2022, compared to $62,795for the year ended March 31, 2021. The increase of $21,943was due to the following:
•$117,428 increase due to higher non-cash charges, primarily for depreciation
and amortization, change in fair value of contingent consideration, and
stock-based compensation expense. These increases were primarily due to the
impact of the
post-acquisition; partially offset by
•$76,170 decrease for changes in operating assets and liabilities, primarily due to higher net working capital to support the Company's growth, and the payout of compensation related to the
AdColonyand Fyber acquisitions and the Company's annual incentive plan; and a
•$19,315 decrease in net income.
For the year ended
March 31, 2022, net cash used in investing activities was approximately $172,002, comprised of cash expenditures for business acquisitions, net of cash acquired, of $148,722and capital expenditures related mostly to internally-developed software of $23,280. For the year ended March 31, 2021, net cash used in investing activities was approximately $37,808, comprised of cash expenditures for business acquisitions, net of cash acquired, of $28,604and capital expenditures related mostly to internally-developed software of $9,204. The $120,118increase in cash expenditures for business acquisitions was due to our acquisitions of AdColonyand Fyber during the year ended March 31, 2022, as compared to our acquisition of Mobile Posse, Inc., during the year ended March 31, 2021. The $14,076increase in capital expenditures was due to a combination of continued investments in product development for our legacy ODM business as well as development activities at our AdColonyand Fyber Acquisitions.
For the year ended
March 31, 2022, net cash provided by financing activities was approximately $185,243, comprised of proceeds from borrowings of $549,060primarily used for the acquisitions of AdColonyand Fyber, and options exercised of $4,300, partially offset by payment of deferred business acquisition consideration of $302,676, repayment of debt obligations of $52,772, payment of withholding taxes for net share settlement of equity awards of $8,605, and payment of debt issuance costs of $4,064. For the year ended March 31, 2021, net cash used in financing activities was approximately $15,216, comprised of payment of contingent consideration of $16,956related to the Mobile Posse acquisition and repayment of debt obligations of $20,000, offset by proceeds from borrowings of $15,000and proceeds from the exercise of stock options of $7,209. 60 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with
U.S.generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to contingencies, litigation, and goodwill and intangible assets acquired from our acquisitions. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
Revenue Recognition We generate revenue from transactions for the purchase and sale of digital advertising inventory through our various platforms and service offerings. Generally, our revenue is based on a percentage of the ad spend through our platforms, although for certain service offerings, we receive a fixed cost-per-thousand ("CPM") or cost-per-install ("CPI") for ad impressions sold or app installs completed. We recognize revenue upon fulfillment of our performance obligation to our customers, which generally occurs at the point in time when an ad is rendered or an end consumer action, such as an app install, is completed.
ODM – Carriers and OEMs
We enter contracts with carriers and OEMs for our ODM segment to help the customer control, manage, and monetize the mobile device through the marketing of application slots or advertisement space/inventory to advertisers and delivering the applications or advertisements to the mobile device. The Company generally offers these services under a revenue share model or, to a lesser extent, a customer contract per-device license fee model for a two-to-four-year software as a service ("SaaS") license agreement. These agreements typically include the following services: the access to a SaaS platform, hosting, solution features, and general support and maintenance. The Company has concluded that each promised service is delivered concurrently, interdependently, and continuously with all other promised services over the contract term and, as such, has concluded these promises are a single performance obligation that is delivered to the customer over a series of distinct service periods over the contract term. The Company meets the criteria for overtime recognition because the customer simultaneously receives and consumes the benefits provided by the Company's performance as the Company performs, and the same method would be used to measure progress over each distinct service period. The fees for such services are not known at contract inception but are measurable during each distinct service period. The Company's contracts do not include advance non-refundable fees. The Company's fees for these services are based upon a revenue-share arrangement with the carrier or OEM. Both parties have agreed to share the revenue earned from third-party advertisers, discussed below, for these services.
ODM – Third-Party Advertisers
The Company generally offers these services through cost-per-install ("CPI"), cost-per-placement ("CPP"), and/or cost-per-action ("CPA") arrangements with third-party advertisers, developers, agencies, and advertising aggregators, generally in the form of insertion orders. The insertion orders specify the type of arrangement and additional terms such as advertising campaign budgets and timelines as well as any constraints on advertising types. These customer contracts can be open ended with regard to length of time and can renew automatically unless terminated; however, specific advertising campaigns are generally short-term in nature. These agreements typically include the delivery of applications to home screens of mobile devices. Access to inventory of application slots is allocated by carriers or OEMs in the contracts identified above. The Company controls these application slots and markets it on behalf of the carriers and OEMs to the advertisers. The Company has concluded that the performance obligation within the contract is complete upon delivery of the application to the device. Revenue recognition related to CPI and CPA arrangements is dependent upon an action of the end user. As a result, the transaction price is variable and is fully constrained until an install or action occurs. 61 --------------------------------------------------------------------------------
The Company generally offers these services under CPM impression arrangements and page-view arrangements. Through its mobile phone first screen applications and mobile web portals, the Company markets ad space/inventory within its content products for display advertising. The ad space/inventory is allocated to the Company through arrangement with the carrier or OEM in the contracts discussed above. The Company controls this ad space/inventory and markets it on behalf of the carriers and OEMs to the advertisers. 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. When the bid is won, the ad will be received and placed on the mobile device by the Company. The entire process happens almost instantaneously 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. The Company has concluded that the performance obligation is satisfied at the point in time upon delivery of the advertisement to the device based on the impressions or page-view arrangement, as defined in the contract. Through its mobile phone first screen applications and mobile web portals, the Company's software platform also recommends sponsored content to mobile phone users and drives web traffic to a customer's website. The Company markets this content to content sponsors, such as Outbrain or
Taboola, similarly to the marketing of ad space/inventory. This sponsored content takes the form of articles, graphics, pictures, and similar content. The Company has concluded that the performance obligation within the contract is complete upon delivery of the content to the mobile device.
IAM-A and IAM-F – Marketplace
The Company, through its IAM-A and IAM-F segments, provides platforms that allow demand-side platforms ("DSPs") and publishers to buy and sell ad inventory, respectively, in a programmatic, real-time bidding ("RTB") auction. The Company generally contracts with DSPs through an RTB Ad Exchange Agreement ("Exchange Agreement"). It also separately contracts with publishers through an advertising insertion order or service order to provide access to its auction platform and the ad inventory available through the platform. The auction is held when ad inventory becomes available. The Company will send bid requests to various DSPs, which may choose to bid on the available ad inventory. Once a DSP wins an auction, it must deliver an ad, which is generally served through the Company's software development kits ("SDK"). The entire auction process is nearly instantaneous. The Company bills the DSPs based on the total number of impressions and the bid price. It then remits the payment to the publishers, net of a revenue share agreed with the publisher that is generally a percentage of the DSPs' total spending with the publisher through the platform.
IAM-A – Brand and Performance
The Company, through its IAM-A segment for its Brand and Performance offerings, contracts directly with advertisers or agencies. through insertion orders, that require the Company to fulfill advertising campaigns by identifying and purchasing targeted ad inventory and serving ads on behalf of the advertiser. The insertion orders or addendum communications provide advertising campaign details, such as campaign start and end date, target demographics, maximum budget, and rate. Rates are generally based on an end user action (CPI) or on a CPM basis. Revenue is recognized based on the rate and the number of impressions or end user actions at the time the ad is rendered, or when the end user action is completed. Principal vs Agent Reporting The determination of whether we act as a principal or as an agent in a transaction requires significant judgement and is based on our assessment of the terms of customer arrangements and the relevant accounting guidance. When we are the principal in a transaction, revenue is reported on a gross basis, which is the amount billed to DSPs, advertisers, and agencies. When we are an agent in a transaction, revenue is reported net of license fees and revenue share paid to app publishers or developers. 62 -------------------------------------------------------------------------------- The Company has determined that it is a principal for its advertiser services for application management and programmatic advertising and targeted media delivery when it controls the application slots or ad space/inventory. This is because it has been allocated such slots or space from the carrier or OEM and is responsible for marketing or monetizing the slots or space. The advertisers look to the Company to acquire such slots or space, and the Company's software is used to deliver the applications, ads or content to the mobile device. The Company also may manage application or ad campaigns of advertisers associated with these services. If the applications or advertisements are not delivered to the mobile device or the Company doesn't comply with certain policies of the advertiser, the Company would be responsible and would have to indemnify the customer for these issues. The Company also has discretion in setting the price of the slots or space based on market conditions, collects the transaction prices, and remits the revenue-share percentage of the transaction price to the carrier or OEM. The Company recognizes the transaction price received from advertisers, content providers, or websites gross and the carrier or OEM share of such transaction price as costs of revenue - license fees and revenue share - in the accompanying consolidated statements of operations and comprehensive income / (loss). The carrier or OEM may have the right to market and sell application slots or ad space to advertisers using the Company's software. The carrier or OEM will share revenue with the Company when it does so. The Company recognizes the revenue shared by the carrier or OEM on a net basis as the Company is not considered the primary obligor in these transactions. The Company has determined that it is a principal for its Brand and Performance offerings as the advertisers or agencies provide parameters for their target audiences, as well as a budget for ad campaigns. Once an advertiser or advertising agency provides its specifications, the Company has the discretion to fulfill the campaign by utilizing its data and proprietary technology. The Company controls the service because it has the ultimate discretion in purchasing ad inventory; and once an ad inventory slot is purchased, filling that ad inventory slot. As a result, the Company reports the revenue billed to advertisers and agencies on a gross basis and revenue shares paid to publishers as license fees and revenue share. The Company has determined that it is an agent in transactions on its Marketplace platforms. The Company acts as an intermediary between DSPs and publishers by providing access to a platform and the SDKs that allow both parties to transact in the buying and selling of ad inventory. The transaction price is determined through a real-time auction and the Company has no pricing discretion or obligation related to the fulfillment of the advertising delivery.
Software Development Costs
The Company applies the principles of FASB ASC 985-20, Accounting for the Costs of
Computer Softwareto 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 the 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 establish technological feasibility for its products. 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. 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 devices for which it develops products; the lack of pre-orders or sales history for its products; the uncertainty regarding a product'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 costs are
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 functions intended. 63 --------------------------------------------------------------------------------
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. The Company is required to evaluate its ability to realize its deferred tax assets using all available evidence, both positive and negative, and determine if a valuation allowance is needed. Further, ASC 740-10-30-18 outlines the four possible sources of taxable income that may be available to realize a tax benefit for deductible temporary differences and carry-forwards. The sources of taxable income are listed below from least to most subjective: •Future reversals of existing taxable temporary differences •Future taxable income exclusive of reversing temporary differences and carryforwards •Taxable income in prior carryback year(s) if carryback is permitted under the tax law •Tax-planning strategies that would, if necessary, be implemented to, for example: •Accelerate taxable amounts to utilize expiring carryforwards •Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss •Switch from tax-exempt to taxable investments 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. The Company's income is subject to taxation in both
the United Statesand foreign jurisdictions. Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. The Company establishes reserves for income tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when the Company believes that positions do not meet the more-likely-than-not recognition threshold. The Company adjusts uncertain tax 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.
We have applied FASB ASC 718, Share-Based Payment (“ASC 718”), and, accordingly,
we record stock-based compensation expense for all our stock-based awards.
Under ASC 718, we estimate the fair value of stock options granted using the Black-Scholes model. The fair value for awards that are expected to vest is 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 vest, based on 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 vest or are forfeited are recorded. The Black-Scholes 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 on our best estimates and judgments for the expenses recognized for stock-based compensation. The Company grants restricted stock units ("RSUs") subject to performance conditions that vest based on the satisfaction of the conditions of the award. The fair value of performance-based awards is determined using the market closing price on the grant date as well as the Company's judgment of likely future performance, which impacts the total number of RSUs that will be issued to the employees. 64 --------------------------------------------------------------------------------
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, estimated replacement costs and future expected cash flows from acquired users, acquired technology, acquired patents, and acquired trade names from a market participant perspective. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects Company amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwillrepresents the excess of acquisition cost over fair value of net assets of businesses acquired. In accordance with FASB ASC 350-20, Goodwilland Other Intangible Assets, the values assigned to goodwill and indefinite-lived intangible assets are not amortized to expense, but rather they are evaluated, at least on an annual basis, to determine if there are potential impairments. For goodwill and indefinite-lived intangible assets, we complete what is referred to as the "Step 0" analysis, which involves evaluating qualitative factors including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. If our "Step 0" analysis indicates it is more likely than not the fair value is less than the carrying amount, we would perform a quantitative two-step impairment test. The quantitative analysis compares the fair value of our reporting unit or indefinite-lived intangible assets to their carrying amounts and an impairment loss is recognized equivalent to the excess of the carrying amount over the fair value. 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. In the years ended March 31, 2022and 2021, the Company determined there were no indicators of impairment of goodwill. See Note 5, " Goodwilland Intangible Assets," to the Company's consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. In performing the related valuation analyses, the Company used various valuation methodologies including probability-weighted discounted cash flows, comparable transaction analysis, and market capitalization and comparable company multiple comparison.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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