Financial Data and Key Metrics - Total revenue reached $1.2 billion, a 39% increase YoY, with adjusted EBITDA of $722 million, achieving a 60% adjusted EBITDA margin [14] - Free cash flow grew to $545 million, up 182% YoY and 22% QoQ, with a 76% flow-through from adjusted EBITDA to free cash flow [15] - Software Platform revenue was $835 million, growing 66% YoY, with adjusted EBITDA of $653 million, achieving a 78% margin [16] - Apps revenue was $363 million, a 1% increase YoY, with adjusted EBITDA of $68 million, representing a 19% margin [19] Business Line Performance - The Software Platform segment saw significant growth driven by advancements in AXON technology, contributing to a 66% YoY revenue increase and 79% YoY adjusted EBITDA growth [16] - The Apps business remained stable, with a slight 1% YoY revenue increase, and is expected to continue this trend [19] Market Performance - The company's core advertising business, primarily focused on mobile gaming, continues to dominate, with the Software Platform representing substantially all of its revenue [18] - The e-commerce pilot showed promising results, with advertisers experiencing nearly 100% incrementality from AppLovin's traffic, indicating strong potential for future growth [11] Strategic Direction and Industry Competition - The company is shifting its focus from quarterly to annual shareholder letters to align with its long-term vision, while still providing quarterly financial results and guidance [12] - AppLovin is exploring new verticals, particularly e-commerce, with plans to launch a self-service platform in the coming quarters to expand global opportunities [11] - The company is investing in AI software development, with ongoing research advancements expected to drive further technological improvements [10] Management Commentary on Operating Environment and Future Outlook - Management remains confident in achieving 20% to 30% YoY growth for the foreseeable future, driven by self-learning and market growth, with occasional step changes from AXON enhancements [10] - The e-commerce vertical is expected to scale significantly in 2025, becoming a strong contributor to the company's growth [11] - The company is focused on organic growth, talent acquisition, and technology investment, while managing its capital structure through share repurchases and maintaining a net debt leverage ratio below 2x [20] Other Important Information - The company retired and withheld 5 million shares during the quarter, costing $437 million, and received Board approval to increase its share repurchase authorization by $2 billion [20] - AppLovin expects Q4 2024 revenue between $1.24 billion and $1.26 billion, with adjusted EBITDA between $740 million and $760 million, targeting a 60% adjusted EBITDA margin [21] Q&A Session Summary Question: E-commerce pilot revenue contribution and gaming vs. non-gaming performance [23] - E-commerce is still in pilot and has not yet made a material financial impact, with the step-up in performance this quarter driven entirely by the gaming side [24][25] - The company expects e-commerce to become financially impactful in 2025 and beyond [27] Question: Google Cloud capacity expansion and timing [23] - The renewal of the Google Cloud contract was slightly earlier than planned to support future growth, with the company investing in infrastructure ahead of current consumption needs [28][29] Question: E-commerce ramp and potential challenges [30] - E-commerce is a new category for AppLovin, and while brand awareness is needed, the company is taking a long-term approach, similar to its strategy in gaming [31] - Early data from the e-commerce pilot has been strong, with advertisers seeing significant returns, which could accelerate adoption [32] Question: Expansion beyond e-commerce using AXON technology [34] - The company believes its technology can eventually serve any transactional business, including e-commerce, gaming, and other verticals, with no limitations on the power of its algorithms [35] Question: Capital allocation and M&A strategy [36] - The company has no plans for M&A in the advertising business and remains focused on organic growth, while continuing to buy back shares despite the stock's strong performance [37][38] Question: E-commerce solution timing and go-to-market partners [40] - The e-commerce solution is on track for general availability next year, with early success from pilot advertisers generating significant social media buzz [41][42] Question: DSP ecosystem and arbitrage model [43] - AppLovin's business model focuses on delivering automated advertising to a revenue goal, taking on the risk of media spend, which differentiates it from percentage-of-spend models like Trade Desk [44] Question: E-commerce material contribution timeline [47] - The company expects e-commerce to start making a material contribution in 2025, though the exact timing and scale of the ramp remain uncertain [48][49] Question: AXON licensing and Flip app partnership [50] - AXON licensing remains a longer-term focus, with current resources prioritized for scaling the e-commerce opportunity [51] Question: 2025 growth outlook [53] - The company does not provide long-term annual guidance but expects growth to exceed 20% to 30% if it continues to deliver model enhancements, with e-commerce being an additive opportunity [54][55] Question: GenAI in advertising [56] - Generative AI is on the company's roadmap, with potential for personalized ad creatives to significantly improve response rates, though the timeline and impact remain uncertain [57] Question: Supply expansion beyond mobile games [60] - The company is exploring supply expansion, including CTV through its Wurl acquisition, with plans to tap into additional ad supply categories over the next five years [61] Question: Market share gains in mobile gaming [63] - AppLovin's growth in mobile gaming is driven by unlocking more user acquisition spend rather than market share gains, as the company has already captured a significant portion of the market [64][65] Question: AXON 2's application in e-commerce [67] - The e-commerce opportunity leverages AXON 2's technology with minor tweaks, allowing the company to enter a greenfield market with no direct competition in mobile gaming for non-gaming categories [68][69] Question: Customer response to AXON 2.0 improvements [71] - All advertisers on the platform have the capacity to increase spending in response to AXON 2.0 improvements, with the system being fully automated [71] Question: E-commerce investment and bottlenecks [72] - The company is heavily investing in e-commerce, with no significant bottlenecks other than the need for more human capital and automation to scale the platform [72] Question: Technical step function changes [73] - The frequent technical unlocks are driven by the company's exceptional engineering and research team, which continuously incorporates new research and advancements into the platform [73] Question: Probabilistic billing impact [74] - The switch to probabilistic billing on iOS had a nominal impact on the business, aligning more accurately with advertiser tracking [74]

Revenue Growth - Revenue increased 39% year-over-year to $1.20 billion for the three months ended September 30, 2024, compared to $864.3 million in the same period in 2023[68] - Total Revenue for Q3 2024 was $1.198 billion, a 39% increase compared to Q3 2023, with Software Platform Revenue contributing $835.2 million, up 66% year-over-year[101] - Revenue for the nine months ended September 30, 2024, was $3,336,469 thousand, compared to $2,329,826 thousand in the same period in 2023[96] - Total Revenue for the nine months ended September 30, 2024, was $3.336 billion, a 43% increase compared to the same period in 2023[101] Net Income and Profitability - Net income for the three months ended September 30, 2024, was $434.4 million, up from $108.6 million in the same period in 2023[68] - Net income for the nine months ended September 30, 2024, was $980,572 thousand, compared to $184,478 thousand in the same period in 2023[96] - Adjusted EBITDA for the three months ended September 30, 2024, was $721.6 million, compared to $419.3 million in the same period in 2023[68] - Adjusted EBITDA margin was 60.2% for the three months ended September 30, 2024, compared to 48.5% in the same period in 2023[79] - Software Platform Adjusted EBITDA increased by $289.3 million (79%) in the three months ended September 30, 2024, and $810.2 million (95%) in the nine months ended September 30, 2024, compared to the same periods in 2023, driven by higher revenue[114] - Apps Adjusted EBITDA increased by $13.0 million (24%) in the three months ended September 30, 2024, and $34.9 million (20%) in the nine months ended September 30, 2024, compared to the same periods in 2023, driven by higher revenue and lower user acquisition costs[114] Revenue Composition - Software Platform Revenue represented 70% of total revenue, while Apps Revenue accounted for 30% for the three months ended September 30, 2024[69] - In-app purchase (IAP) revenue represented 68% of total Apps Revenue, while in-app advertising (IAA) revenue accounted for 32% for the three months ended September 30, 2024[72] - 47% of revenue from Software Platform and IAA Revenue clients was generated from outside the United States during the three months ended September 30, 2024[86] - Software Platform Revenue increased by $330.7 million, or 66%, in Q3 2024 compared to Q3 2023, driven by improved AppDiscovery performance with a 22% increase in net revenue per installation and a 39% increase in installation volume[101] - Apps Revenue for Q3 2024 increased by $3.2 million compared to Q3 2023, with In-App Advertising Revenue up $4.2 million (4%) due to an 8% increase in advertising impressions[101] - Software Platform Revenue for the nine months ended September 30, 2024, increased by $959.3 million (76%) compared to the same period in 2023, driven by a 64% increase in installation volume and an 11% increase in net revenue per installation[101] - Apps Revenue for the nine months ended September 30, 2024, increased by $47.3 million (4%) compared to the same period in 2023, with In-App Advertising Revenue up $23.5 million (7%) due to a 53% increase in advertising impressions[102] User Metrics - The company had 1.6 million Monthly Active Payers (MAPs) with an Average Revenue Per Monthly Active Payer (ARPMAP) of $52 for the three months ended September 30, 2024[72] - The company's Software Platform provides access to over 1.4 billion daily active users[71] - The Software Platform provides advertisers with access to over 1.4 billion daily active users[85] Expenses and Costs - Cost of Revenue for Q3 2024 increased by $4.6 million (2%) compared to Q3 2023, primarily due to a $27.9 million increase in network infrastructure expenses, offset by a $23.4 million decrease in amortization of intangible assets[103] - Sales and Marketing expenses for Q3 2024 decreased by $6.6 million (3%) compared to Q3 2023, primarily due to a $9.7 million reduction in user acquisition costs[104] - Research and Development expenses for Q3 2024 decreased by $9.3 million (6%) compared to Q3 2023, driven by reduced stock-based compensation related to PSUs[105] - General and Administrative expenses for Q3 2024 decreased by $3.4 million (8%) compared to Q3 2023, primarily due to a $5.9 million reduction in bad debt expense[108] - Research and development expenses for the nine months ended September 30, 2024, were $469,209 thousand, compared to $441,563 thousand in the same period in 2023[96] - Sales and marketing expenses for the nine months ended September 30, 2024, were $634,547 thousand, compared to $607,755 thousand in the same period in 2023[96] - General and administrative expenses for the nine months ended September 30, 2024, were $120,880 thousand, compared to $116,231 thousand in the same period in 2023[96] Cash Flow and Financial Position - Free Cash Flow for the nine months ended September 30, 2024, was $1.38 billion, up from $697.3 million in the same period in 2023[80] - Net cash provided by operating activities for the nine months ended September 30, 2024, was $1,398,008 thousand, compared to $717,522 thousand in the same period in 2023[81] - Free Cash Flow for the nine months ended September 30, 2024, was $1,378,198 thousand, compared to $697,329 thousand in the same period in 2023[81] - Net cash provided by operating activities was $1,398.0 million for the nine months ended September 30, 2024, compared to $717.5 million in the same period in 2023, driven by higher net income and non-cash adjustments[118] Investments and Acquisitions - The company has invested approximately $4.1 billion in 33 strategic acquisitions and partnerships from the beginning of 2018 through September 30, 2024[87] - The company committed to spend a minimum of $1.26 billion over three years under an amended agreement with a cloud services provider as of September 30, 2024[124] Share Repurchases - The company repurchased 16,081,408 shares of Class A common stock for $981.3 million during the nine months ended September 30, 2024, and authorized an additional $2.0 billion share repurchase program in October 2024[122] Interest and Other Income - Interest expense decreased by $3.4 million (4%) in the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a $4.3 million loss on debt settlement in the prior year[109] - Interest expense increased by $20.0 million (10%) in the nine months ended September 30, 2024, compared to the same period in 2023, driven by a $15.8 million net gain from interest rate swaps in the prior year and increased debt outstanding[109] - Other income, net increased by $6.5 million in the three months ended September 30, 2024, compared to the same period in 2023, primarily due to third-party costs related to term loan refinancing in the prior year[110][111] - Other income, net decreased by $7.6 million (28%) in the nine months ended September 30, 2024, compared to the same period in 2023, driven by lower interest income due to reduced interest rates and cash balances[111] Taxes - Provision for income taxes increased by $32.7 million in the three months ended September 30, 2024, and $63.1 million (367%) in the nine months ended September 30, 2024, compared to the same periods in 2023, driven by higher pre-tax income and global intangible low-taxed income[113] Accounting and Financial Reporting - No material changes to critical accounting policies and estimates during the nine months ended September 30, 2024[125] - Financial statements prepared in accordance with GAAP, requiring estimates and assumptions affecting reported amounts[125] - Estimates based on historical experience and reasonable factors, evaluated on an ongoing basis[125] - No material changes in market risk from the information presented in the Annual Report for the year ended December 31, 2023[128] Apps Portfolio - The portfolio of Apps consists of over 200 free-to-play mobile games across five genres, run by ten studios[68]

Revenue Performance - Q3 revenue reached $1.20 billion, a 39% year-over-year increase[3] - Software Platform revenue increased 66% year-over-year to $835 million[4] - Apps revenue grew 1% year-over-year to $363 million, with Apps Adjusted EBITDA at $68 million and a 19% margin[9] - Total revenue for Q3 2024 was $1,198,235 thousand, up from $864,256 thousand in Q3 2023[35] - Revenue for 3Q24 was $1,198,235 thousand, a significant increase from $864,256 thousand in 3Q23[40] - Software Platform revenue for 3Q24 was $835,186 thousand, up from $504,452 thousand in 3Q23[42] - Apps revenue for 3Q24 was $363,049 thousand, slightly down from $359,804 thousand in 3Q23[42] Net Income and Profitability - Net income surged to $434 million, a 300% year-over-year growth with a net margin of 36%[3] - Net income for Q3 2024 was $434,420 thousand, compared to $108,639 thousand in Q3 2023[35] - Net income for 3Q24 was $434,420 thousand, compared to $108,639 thousand in 3Q23[40] Adjusted EBITDA Performance - Adjusted EBITDA grew 72% year-over-year to $722 million, with an Adjusted EBITDA margin of 60%[3] - Software Platform Adjusted EBITDA expanded 79% year-over-year to $653 million, with an Adjusted EBITDA margin of 78%[4] - Adjusted EBITDA and Adjusted EBITDA margin are key measures used to assess financial performance and for internal planning and forecasting[25] - Adjusted EBITDA for 3Q24 reached $721,616 thousand, with a margin of 60%[40] - Segment Adjusted EBITDA for Software Platform in 3Q24 was $653,396 thousand, up from $364,117 thousand in 3Q23[42] - Segment Adjusted EBITDA for Apps in 3Q24 was $68,220 thousand, up from $55,174 thousand in 3Q23[42] Share Repurchase and Capital Allocation - The company retired and withheld 5.0 million shares of Class A common stock for a total cost of $437 million[5] - The board increased the share repurchase authorization by an incremental $2.0 billion, bringing the total remaining authorization to $2.3 billion[5] Cash Flow and Financial Position - Cash and cash equivalents increased to $567,596 thousand as of September 30, 2024, from $502,152 thousand at the end of 2023[33] - Net cash provided by operating activities for the nine months ended September 30, 2024, was $1,398,008 thousand, up from $717,522 thousand in the same period of 2023[37] - Free Cash Flow for 3Q24 was $545,095 thousand, up from $193,607 thousand in 3Q23[38] - Net cash used in investing activities for 3Q24 was $6,396 thousand, down from $15,833 thousand in 3Q23[38] - Net cash used in financing activities for 3Q24 was $441,075 thousand, down from $724,154 thousand in 3Q23[38] Assets and Liabilities - Total assets as of September 30, 2024, were $5,442,484 thousand, up from $5,359,187 thousand at the end of 2023[33] - Total liabilities as of September 30, 2024, were $4,504,278 thousand, compared to $4,102,858 thousand at the end of 2023[32] User Metrics - Monthly Active Payers (MAPs) for Q3 2024 were 1.6 million, down from 1.8 million in Q3 2023[30] - Average Revenue per Monthly Active Payer (ARPMAP) increased to $52 in Q3 2024 from $46 in Q3 2023[30] Future Guidance - Q4 revenue guidance is projected to be between $1,240 to $1,260 million[8] - Q4 Adjusted EBITDA is expected to range from $740 to $760 million, with an Adjusted EBITDA margin of 60%[8]

AppLovin Corporation (NASDAQ:APP) Q2 2024 Earnings Conference Call August 7, 2024 5:00 PM ET Company Participants David Hsiao - Head of IR Adam Foroughi - Chairman, Co-Founder & CEO Matt Stumpf - CFO Conference Call Participants Jason Bazinet - Citi Clark Lampen - BTIG James Heaney - Jefferies Omar Dessouky - BofA Vasily Karasyov - Cannonball Matt Cost - Morgan Stanley Martin Yang - OpCo David Hsiao Welcome to the AppLovin Earnings Call for the Second Quarter Ended June 30, 2024. I'm David Hsiao, Head of In ...

Revenue and Financial Performance - Revenue increased 44% year-over-year to $1.08 billion for the three months ended June 30, 2024, compared to $750.2 million in the same period in 2023[85] - Net income for the three months ended June 30, 2024, was $310.0 million, up from $80.4 million in the same period in 2023[85] - Adjusted EBITDA for the three months ended June 30, 2024, was $601.2 million, compared to $333.5 million in the same period in 2023[85] - Free Cash Flow for the six months ended June 30, 2024, was $833.1 million, up from $503.7 million in the same period in 2023[85] - Revenue for the six months ended June 30, 2024, was $2.14 billion, compared to $1.47 billion in the same period in 2023[114] - Net income for the six months ended June 30, 2024, was $546.2 million, compared to $75.8 million in the same period in 2023[114] - Total Revenue for Q2 2024 reached $1,080.1 million, a 44% increase compared to Q2 2023, with Apps Revenue growing by $25.0 million (7%)[121] - Net income as a percentage of revenue improved to 29% in Q2 2024, up from 11% in Q2 2023[119] Revenue Breakdown and Composition - Software Platform Revenue represented 66% of total revenue, while Apps Revenue accounted for 34% for the three months ended June 30, 2024[86] - In-app purchase (IAP) revenue represented 68% of total Apps Revenue, while in-app advertising (IAA) revenue accounted for 32% for the three months ended June 30, 2024[89] - 43% of the company's revenue from Software Platform and IAA Revenue clients was generated from outside the United States during the three months ended June 30, 2024[103] - Software Platform Revenue increased by $305.0 million (75%) in Q2 2024 compared to Q2 2023, driven by improved AppDiscovery performance with a 7% increase in net revenue per installation and a 77% increase in installation volume[121] - In-App Advertising Revenue increased by $8.1 million (7%) in Q2 2024, driven by a 56% rise in advertising impressions, partially offset by a 31% decrease in price per impression[121] Expenses and Costs - The company's cost of revenue for the six months ended June 30, 2024, was $576.7 million, compared to $520.5 million in the same period in 2023[114] - The company's research and development expenses for the six months ended June 30, 2024, were $319.2 million, compared to $282.3 million in the same period in 2023[114] - Cost of revenue increased by $24.0 million (9%) in Q2 2024, primarily due to a $35.2 million rise in network infrastructure expenses, partially offset by a $12.1 million decrease in amortization of intangible assets[124] - Sales and marketing expenses rose by $9.7 million (5%) in Q2 2024, driven by a $12.4 million increase in personnel-related expenses, partially offset by a $6.2 million decrease in user acquisition costs[125] - Research and development expenses increased by $26.5 million (19%) in Q2 2024, primarily due to a $20.3 million rise in personnel-related expenses and a $5.4 million increase in professional services costs[126] - General and administrative expenses grew by $10.2 million (33%) in Q2 2024, mainly due to a $10.1 million increase in personnel-related expenses[127] - Total stock-based compensation for Q2 2024 was $98.7 million, up from $81.3 million in Q2 2023[115] - Total amortization expense related to acquired intangibles was $100.5 million in Q2 2024, down from $112.9 million in Q2 2023[116] - Provision for income taxes increased by $30.5 million (183%) in H1 2024 compared to H1 2023, driven by higher pre-tax income and global intangible low-taxed income[131] Cash Flow and Financial Position - Net cash provided by operating activities for the six months ended June 30, 2024, was $847.3 million, compared to $518.5 million in the same period in 2023[85] - Net cash provided by operating activities for the six months ended June 30, 2024, was $847.3 million, compared to $518.5 million in the same period in 2023[98] - Free Cash Flow for the six months ended June 30, 2024, was $833.1 million, compared to $503.7 million in the same period in 2023[98] - Net cash provided by operating activities was $847.3 million in H1 2024, a 63% increase compared to $518.5 million in H1 2023[136] - Net cash used in investing activities was $100.0 million in H1 2024, primarily consisting of $76.3 million in purchases of non-marketable equity securities[138] - Net cash used in financing activities was $785.6 million in H1 2024, primarily consisting of $752.2 million in share repurchases and $677.9 million in debt repayments[139] - The company repurchased 13,466,397 shares of Class A common stock for $752.2 million in H1 2024[141] - The company had $460.4 million in cash and cash equivalents as of June 30, 2024, sufficient to meet anticipated needs for the next 12 months[135] Adjusted EBITDA and Margins - Adjusted EBITDA margin for the three months ended June 30, 2024, was 55.7%, up from 44.5% in the same period in 2023[96] - Software Platform Adjusted EBITDA increased by $247.6 million (91%) in Q2 2024 compared to Q2 2023, driven by a $305.0 million increase in Software Platform revenue[133] - Apps Adjusted EBITDA increased by $20.1 million (33%) in Q2 2024 compared to Q2 2023, driven by a $25.0 million increase in Apps Revenue[133] User Metrics and Engagement - Monthly Active Payers (MAPs) averaged 1.6 million for the three months ended June 30, 2024, with an Average Revenue Per Monthly Active Payer (ARPMAP) of $52[89] Strategic Investments and Acquisitions - The company has invested approximately $4.1 billion in 33 strategic acquisitions and partnerships from the beginning of 2018 through June 30, 2024[104] - The company plans to continue investing in its AI-powered advertising engine AXON, AppDiscovery, Adjust, and MAX to improve effectiveness for advertisers[100][101] - The company expects to enter new verticals outside of gaming, such as eCommerce, CTV, OEM, and carrier-related markets[101] Interest and Other Financial Metrics - Interest expense increased by $23.7 million (46%) in Q2 2024 compared to Q2 2023, driven by a net gain of $21.4 million related to interest rate swaps in the prior year period[128] - Other income, net decreased by $6.5 million (42%) in Q2 2024 compared to Q2 2023, primarily due to a $6.0 million decrease in interest income[129] Market Risk and Portfolio - No material changes in market risk from the information presented in the Annual Report for the year ended December 31, 2023[147] - The company's portfolio of apps consists of over 200 free-to-play mobile games across five genres, run by ten studios[85]

| --- | --- | |-------|-------| | | | | | | To Our AppLovin Shareholders: 3Q24 Total Revenue $1,115 to $1,135 million Adjusted EBITDA $630 to $650 million Adjusted EBITDA Margin 57% In the second quarter of 2024, we celebrated the first anniversary of our enhanced AXON technology. Reflecting on the past year, we're thrilled by the significant growth AXON drove for our advertising partners. AXON enhancements through ongoing self-learning and our dedicated development efforts have fueled robust business perfo ...

Financial Data and Key Metrics Changes - The company reported total revenue of $1.06 billion, a nearly 50% increase from the same period last year, while adjusted EBITDA doubled to $549 million, representing a 52% margin [9][10] - Free cash flow generated during the first quarter was $388 million, reflecting a 71% flow-through from adjusted EBITDA [9] - The software platform revenue grew from $355 million to $678 million, with adjusted EBITDA of $492 million, maintaining a 73% margin [9][10] Business Line Data and Key Metrics Changes - The software platform had a significant performance, with revenue more than doubling from the previous year and adjusted EBITDA also more than doubling [9][10] - The apps portfolio maintained a stable adjusted EBITDA margin of 15% [10] Market Data and Key Metrics Changes - The mobile advertising market is experiencing expansion, contributing to the company's strong performance [10] - The company noted that the non-gaming app space is growing faster than the gaming app space on its platform [19] Company Strategy and Development Direction - The company aims to drive growth through ongoing improvements to its AXON platform and by expanding into web-based marketing and e-commerce [7][10] - The focus remains on performance-based advertising rather than brand advertising, leveraging measurable results to attract advertisers [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, highlighting the potential for continued growth driven by technology improvements and market expansion [8][10] - The company believes that its unique culture and lean structure enable it to innovate faster than competitors [5][6] Other Important Information - The company amended its term loans to reduce interest expenses and repurchased approximately 3% of its total shares outstanding [11] - Guidance for the second quarter includes expected revenue between $1.06 billion and $1.08 billion and adjusted EBITDA between $550 million and $570 million [11] Q&A Session Summary Question: Can you provide insights on the sources of outperformance this quarter? - Management indicated that growth vectors include adding more advertisers and improvements in core models, which are self-learning and continuously enhancing [14][15] Question: What is the status of efforts outside the gaming vertical? - Management confirmed ongoing success in non-gaming apps and plans to launch web advertising products this quarter [19][20] Question: How is the sales process evolving? - Management emphasized a product-first approach, noting that growth is largely driven by technology rather than a significant sales force [21][22] Question: What is the trajectory for header bidding revenue? - Management did not disclose specific revenue figures but noted a positive trend in header bidding adoption [26] Question: How does the company view competition? - Management believes that the complexity of their technology creates a significant barrier to entry for competitors, allowing them to maintain a leadership position [54][56] Question: Can you comment on the growth of the advertising market? - Management indicated that the MAX marketplace is growing significantly, serving as a good proxy for the mobile gaming advertising market [60][62] Question: What are the expectations for net revenue per install and installation volume? - Management noted an increase in both metrics, correlating with increased advertiser spend and improvements in technology [63][64]

Revenue Growth and Financial Performance - Revenue increased 48% year-over-year to $1.06 billion for the three months ended March 31, 2024, compared to $715.4 million in the same period in 2023[82] - Revenue for Q1 2024 was $1,058.1 million, a 48% increase from $715.4 million in Q1 2023[112] - Total Revenue increased by $342.7 million, or 48%, reaching $1,058.1 million, driven by growth in Software Platform Revenue and a 5% increase in Apps Revenue[119][120] - Net income for Q1 2024 was $236.2 million, compared to a net loss of $4.5 million in Q1 2023[82] - Net income for Q1 2024 was $236.2 million, compared to a net loss of $4.5 million in Q1 2023[112] - Income from operations for Q1 2024 was $339.6 million, a significant increase from $61.0 million in Q1 2023[112] - Adjusted EBITDA for Q1 2024 was $548.8 million, up from $273.7 million in Q1 2023, with an Adjusted EBITDA margin of 51.9%[82][94] - Free Cash Flow for Q1 2024 was $387.6 million, compared to $283.1 million in Q1 2023[82][96] - Software Platform Adjusted EBITDA increased by $273.3 million, or 125%, driven by higher Software Platform Revenue, partially offset by increased network infrastructure expenses[130] - Apps Adjusted EBITDA increased by $1.7 million, or 3%, due to higher Apps Revenue, partially offset by increased user acquisition costs and third-party payment processing fees[131] Software Platform and Apps Revenue - Software Platform Revenue accounted for 64% of total revenue in Q1 2024, while Apps Revenue represented 36%[83] - Software Platform Revenue increased by $323.6 million, or 91%, primarily due to improved AppDiscovery performance with a 5% increase in net revenue per installation and an 87% increase in installation volume[120] - In-app purchase (IAP) revenue represented 68% of total Apps Revenue in Q1 2024, while in-app advertising (IAA) revenue accounted for 32%[87] - In-App Purchases (IAP) Revenue increased by $7.9 million, or 3%, due to a 4% increase in purchase volume, partially offset by a 1% decrease in price per purchase[120] - In-App Advertising (IAA) Revenue increased by $11.2 million, or 10%, driven by a 113% increase in advertising impressions, partially offset by a 48% decrease in price per impression[120] User Metrics and Engagement - Average Monthly Active Payers (MAPs) remained stable at 1.8 million in Q1 2024, with an Average Revenue Per Monthly Active Payer (ARPMAP) of $48, up from $46 in Q1 2023[87][90] Cost and Expense Management - Cost of revenue for Q1 2024 was $294.1 million, representing 28% of revenue, down from 37% in Q1 2023[112][117] - Cost of Revenue increased by $32.2 million, or 12%, primarily due to a $35.5 million increase in network infrastructure expenses, offset by an $8.6 million decrease in amortization of intangible assets[122] - Research and development expenses for Q1 2024 were $155.3 million, representing 15% of revenue, down from 20% in Q1 2023[112][117] - Sales and marketing expenses for Q1 2024 were $226.7 million, representing 21% of revenue, down from 28% in Q1 2023[112][117] - General and administrative expenses for Q1 2024 were $42.4 million, representing 4% of revenue, down from 6% in Q1 2023[112][117] Investments and Acquisitions - $4.1 billion invested in 33 strategic acquisitions and partnerships from 2018 through March 31, 2024, including MAX, Adjust, MoPub, and Wurl[102] - Significant investments in the Software Platform, including AI-powered advertising engine AXON, AppDiscovery, Adjust, and MAX, to enhance effectiveness and enter new verticals outside of gaming[98][99] - The company invested $10.0 million in the first tranche of Series C preferred stock financing of Humans, Inc. in February 2024[139] - The company committed to invest an additional $40.0 million in the second tranche of Series C preferred stock financing of Humans, Inc. as of March 31, 2024[139] Shareholder Returns and Financial Position - The company repurchased shares of its Class A common stock, reflecting its strong financial position and commitment to shareholder returns[82] - The company repurchased 13,466,397 shares of Class A common stock for $752.2 million during the quarter[137] - Net cash provided by operating activities was $392.8 million, primarily consisting of $236.2 million of net income adjusted for non-cash items, including $112.7 million in amortization and depreciation[134] - Net cash used in financing activities was $424.6 million, primarily due to $752.2 million in stock repurchases, partially offset by $1,072.3 million in debt issuance proceeds[136] Debt and Credit Facilities - The company amended its Credit Agreement in March 2024, reducing the interest rate margin for SOFR loans from 3.1% to 2.5% and for base rate loans from 2.0% to 1.5%[138] - The company increased the aggregate principal amount of the 2030 Term Loan to $2.09 billion and reduced the 2028 Term Loan to $1.46 billion[138] - The company drew down an additional $418.7 million from the revolving credit facility in March 2024 to fund share repurchases[138] - The company repaid the entire outstanding amount under the revolving credit facility of $603.7 million by March 31, 2024[138] - KKR Corporate Lending (CA) LLC provided revolving credit commitments of $15.0 million under the company's revolving credit facility[138] International Revenue - 41% of revenue from Software Platform and IAA Revenue clients was generated from outside the United States in Q1 2024[101] Portfolio and Tools - The company's portfolio includes over 200 free-to-play mobile games across five genres, managed by ten studios[82] - Key software tools like AppDiscovery, MAX, Adjust, and Wurl drive revenue growth through user acquisition, ad optimization, and analytics[86] Accounting and Risk Management - The company's condensed consolidated financial statements are prepared in accordance with GAAP, requiring estimates and assumptions that affect reported amounts[140] - There were no material changes to the company's critical accounting policies and estimates during the three months ended March 31, 2024[141] - There were no material changes in market risk from the information presented in the Annual Report on Form 10-K for the year ended December 31, 2023[144]

| --- | --- | |-------|-------| | | | | | | To Our AppLovin Shareholders: The first quarter marked a strong start to 2024 with outstanding business performance driven by the continued improvement of our AXON technology. We were encouraged to see improvement in the app advertising market with another quarter of year-over-year market growth and a continued shift to real-time bidding. By continuing to innovate and improve our AXON technology, we remain committed to driving growth not just for our company, but ...

Financial Risks and Performance - The company faces significant risks including fluctuations in operational results and reliance on third-party platforms for app distribution and revenue collection[42]. - The company reported a concentration of revenue sources, which poses a risk to financial stability[42]. - Future performance may be impacted by the ability to attract and retain clients, as well as the potential loss of existing clients[42]. - There is a risk of substantial indebtedness under senior secured credit facilities, impacting cash flow and financial health[45]. - The overall macroeconomic conditions, including inflation and high interest rates, may adversely affect business performance[46]. - The company anticipates increased costs due to ongoing cybersecurity incidents and the need for enhanced security measures[49]. - The company may incur significant costs related to investigating and remediating cybersecurity incidents[49]. - The company may face challenges in generating sufficient cash flow to meet significant debt service obligations, which could adversely affect its financial condition[98]. - The company may require additional capital to support business growth and may engage in equity or debt financings, which could lead to significant dilution for existing stockholders[99]. Regulatory and Compliance Challenges - The company is subject to legal and regulatory changes, particularly concerning privacy and data protection, which could affect operations[43]. - Evolving privacy and data protection regulations, such as GDPR and CCPA, impose significant compliance burdens and potential monetary penalties, affecting the company's financial condition[74]. - The company is self-certified under the EU-U.S. Data Privacy Framework, but this framework may face legal challenges, impacting data transfer operations and associated costs[76]. - The potential for enforcement actions by data protection authorities regarding personal data transfers poses a risk to the company's financial condition and operational resources[76]. - The company is facing increased operational costs and legal expenses due to compliance with various privacy laws, including the CCPA and GDPR, which may adversely affect its financial condition[77]. - The company is subject to the Foreign Corrupt Practices Act and similar anti-corruption laws, with risks increasing as it expands internationally, which could lead to significant legal and financial repercussions[81]. Cybersecurity and Data Protection - Cybersecurity threats pose a significant risk, with potential impacts on reputation and operational integrity[46]. - Cyberattacks are evolving in sophistication, posing ongoing risks to the company's data security and user trust[49]. - The company has experienced increased scrutiny regarding its data security practices from partners and regulatory bodies[49]. - The company is investing in AI technologies, including the development of its AI-powered advertising engine, AXON, which may lead to increased regulatory scrutiny and operational risks[79]. Revenue Generation and Market Dynamics - A significant portion of revenue is derived from Software Platform Revenue and In-App Advertising (IAA) Revenue, primarily from AppDiscovery and performance-based advertising[53]. - The company faces intense competition in the advertising ecosystem and mobile gaming, with competitors including Facebook, Google, and Unity Software, which may impact market share[54]. - The company relies heavily on the continued popularity and functionality of third-party platforms, which can affect app discoverability and monetization[51]. - Changes in client advertising commitments and spending could significantly impact the company's financial condition and results of operations[53]. - The company experienced slowed growth in its Software Platform due to macroeconomic deterioration, with advertisers reducing overall spend[57]. Acquisitions and Strategic Growth - The company is focused on strategic acquisitions and partnerships to expand operations, which involves integration and management challenges[42]. - The company plans to continue expanding and diversifying operations through strategic acquisitions and partnerships, including past acquisitions of Adjust, MoPub, and Wurl[57]. - The company has made significant acquisitions, including Adjust GmbH, Twitter's MoPub business, and Wurl, Inc., to support its growth strategy[60]. - The company aims to optimize its Apps portfolio and maximize shareholder value through potential transactions and strategic alternatives, although no assurance of positive outcomes can be provided[62]. Financial Performance and Metrics - Total revenue for 2023 was $3,283,087, an increase of 16.5% from $2,817,058 in 2022[224]. - Net income for 2023 was $356,711, compared to a net loss of $192,947 in 2022, marking a significant turnaround[226]. - The company reported stock-based compensation of $363.1 million in 2023, up from $191.6 million in 2022[236]. - The company repurchased common stock totaling $1.15 billion in 2023, compared to $338.9 million in 2022[236]. - The company recognized total earn-out costs of $52.2 million related to asset acquisitions closed in 2021 and prior during the year ended December 31, 2023[265]. Operational Challenges - The company may face challenges in recruiting and retaining skilled employees in competitive fields such as game development and data science[51]. - The company relies on a highly technical Software Platform and Apps, which are vulnerable to errors, bugs, and vulnerabilities that could harm business operations[56]. - The company may face challenges in scaling its technical infrastructure to meet increasing demands, potentially affecting user engagement and revenue growth[56]. - Limited customer support operations could lead to decreased user satisfaction and engagement, potentially harming the company's reputation and financial performance[72]. Tax and Legal Considerations - The company is exposed to tax risks associated with its acquisitions and partnerships, which could complicate its international tax structure[63]. - The company may face increased tax liabilities due to aggressive interpretations of tax laws by various jurisdictions[84]. - The company is subject to various legal and regulatory proceedings that could result in significant costs and impact its operations[88].