Earnings call transcript Q2 2023

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Operator

Please standby, we are about to begin.

David Hsiao

Welcome everyone to the AppLovin Earnings Call for the Second Quarter Ended June 30, 2023. I am David Hsiao, Head of Investor Relations.

Joining me today to discuss our results are Adam Foroughi, our Founder, CEO and Chairperson; and Herald Chen, our President and CFO. Please note our SEC filings to-date, as well as our shareholder letter discussing our second quarter performance are available at investors.applovin.com.

events. may market forward-looking performance expectations, company other we product regarding of call, and services, and the future today’s be statements making our the During future financial assumptions These and obligation statements update as except by them on are our to beliefs, we assume based and no law. required current

in for from XX, results factors recently most in We may Form the quarter you March encourage our XX-Q ended fiscal results and the file Actual which the to for differ XXXX our expect filed materially we predicted. later second review risk XX-Q Form the today. quarter, to

We the be our our measures. being a recorded These a reconciliations of will be website. our non-GAAP to site. available measures to our or non-GAAP on financial for Please on Relations and is intended to our superior not also be substitute GAAP available This GAAP IR discussing review measures non-GAAP to financial call results. be are shareholder letter conference will in replay sure Investor

I Herald Then for will for up some Adam Q&A. and to will open remarks. we opening it over turn

Adam Foroughi

benefits X. have executed EBITDA our afternoon, worked largely the have tirelessly expansion and Platform Good both dedicated long-term started achieve teams I talking We AXON AXON and you to algorithms to joining stellar adjusted second year to on you technology to advertising we us due by upgrade about we our short- X quarter, now am everyone, a surpassing for proud ago of and revenue it. our from upgrading and had of our We the our today. thank Software incredibly a business. guidance, who

we required growth. but with for for not did work, speed to time we additional has launch in technology that such spirit change as and many quarter, the and the private commitment future way of provides operate company. hours of same with us strong introduction significant hard our only result a testament is also true as in our a taken. a and efficiency risks opportunities The a The The innovation and demonstrates paved our

particularly makes edge me heart core what AI the we offering. is of have This with of our proud technologies cutting achieved. at what

our towards will extending to focus businesses. now enhancement shift Wurl advertiser of and continuous and expanding our AXON base our technology, X Our Array

optimistic are years growth We come. these measures that will for fuel to

value. In conclusion, shareholder we long-term committed remain providing to

We our team, our confident our and potential are and your strength. financial appreciate with innovation of and to and look support the of and products, growth our We technology forward you. we in our trust journey

to On our you Thank highlights. to Herald you. financial with provide

Herald Chen

good our year, afternoon. revenue, financially across efforts X.X Thanks, operating high flow. ultimately, impressive Adam, our the this cash from the and record Based AXON launch leading particular, Software of a had strong incredible we and margins, robust on leverage, with engine, free the Platform quarter Board, in team

strong Our working. articulated plan we about highly a in is the performance quarter ago focused illustrates the year that

against what the As can our execute that which we a That which take platforms cash simplify. core plan, on was excited do to we improve said optimize AI-based we drive and technology, flow team, Simplify, focus and free in our apps invested our business, reminder, and this best. we very about us. strategy working similar are and is where founded company are and fundamentals

our quarter. on the Touching highlights financial for

end EBITDA Our $XXX exceeding of million, guidance. of million, adjusted with total both reached high revenue our $XXX the

$XX have EBITDA was net had the are the margin for and we XX% income. Our million Further, highest five to margin in generated was quarter, pleased margin positive of EBITDA adjusted -- EBIT we have years.

over an consecutive the of Software two XX% increase mid-teens growth segment million, Our year. reached represents Platform record a which prior of with $XXX and revenue quarters

Platform million, to translating adjusted margin. a to $XXX EBITDA quarter-over-quarter and XX% XX% adjusted grew EBITDA Software XX% year-over-year

EBITDA. adjusted more represents company’s now EBITDA adjusted Platform XX% Software total our than of

the during revenue, we flow-through. amount equating to note, to over slightly increase adjusted the XXX% able quarter, in by EBITDA higher increase were than an Of

in it will the While the operating impressive future, fluctuate does our Software leverage highlight flow-through Platform from segment. our

Platform flow-through further this for improvements our high we and revenue to segment. expect grow, margin As Software continues

two segment Looking XX% growth representing Platform revenue increased period, same this Over a over years, XX% at the by times, CAGR. a our X past grew rate. annual X.X Software EBITDA adjusted that compounded times,

initiatives, opportunities remain We TV carrying our and well continue invest Platform technologies, to our as including AI-based continue our as segment Software to OEM. in optimistic about within improve the growth as we Connected

the App to segment. Turning

During on with balancing profitability the quarter, focus to we continued revenue.

a of QX, million of we margin of $XX For had $XXX Apps revenue XX%. adjusted and million EBITDA,

drive invest margin continue acquisition EBITDA range a marketing, for medium-term. new user overall also the managing while both topline game target through growth, adjusted over mid-teens We carefully to to development and margin,

consolidated to free are level, of had free flow $XXX cash XX% million pleased cash of QX, the report At in adjusted to flow. we we flow-through EBITDA a

first the billion flow. we For half over of cash XXXX, generated in free $X.X

XXXX, QX between and $XXX quarter performance. contribution another of X.X AXON to adjusted as between margin revenue $XXX are our growth, and XX% million, we revenue with With million $XXX between EBITDA as We from first well steadier anticipate $XXX the and of million regard quarter Apps guidance EBITDA adjusted see targeting continue for XX%. and driving growth, to million full

may run XX% flow to that adjusted rate approximately on a cash mentioned continue noting deviations of particular that our of As normalized previously on XX% to target in quarter. have a we basis, from calls, free we EBITDA

QX with balance a on of cash million sheet. the ended $XXX cash we perspective, From

million. million repurchased In common $XXX terms we of we through quarter A repurchased during of our Class stock the stock have year-to-date and X, buybacks, $XXX August

remaining under $XXX have carefully authorization be million markets. our watching will we the and We repurchase program of

we window, loan our the to reduce of real-time see structure. can extend, the markets lower our leveraged an cost are watching and/or to loans. optimize also we we see in quickly If move We term will if capital attractive

In strength of strong the and our conclusion, QX financially business an incredibly was exemplifies model.

technologies. core and our to and solutions Looking teams improving continue forward, focused execution on be our

excited are opportunities us. very we said, about of front Adam in the As

through And now take Q&A. the moderator will us

Operator

we so much, And is Matthew everyone. to Instructions] you will Matthew, Stanley’s like Great. Morgan go first [Operator Herald. Cost. audio-only Matthew looks on Thank

Just Matthew, second. go ahead.

you see I Matthew, unmuted. Okay,

Unidentified Analyst

me? you hear Can right. All sorry.

Operator

Yeah. go ahead. should ahead. We please Yeah. and Go

Unidentified Analyst

for Great. Thanks. [ph] It’s Matt Hi. Cost. Dave on

execution And ad the the strength you the quarter’s to your on so, few with an Are audio there earlier, color dialing of with quarter. attributable those portion of network the the execution us missed of this to I would results, to recovery I But here for pretty company’s were in some a the market? sorry in you that give perhaps the technical own able overall performance what if versus in. positively Thanks. difficulties think, speaks find

Adam Foroughi

question. we for about as of a have been Market Thanks, quarters Dave, been steady for talking couple the now. has

the from our in our the we core platform So attribute in growth really technology. XXX% advancements

allows advertisers for a The upgrade a platform more breadth our advertisers. of us more monetize really lot to made of accurate and

being on So business the this we to as grow quarter able do technology. half our things of rolled the both us to back enabled really out

we importantly, more are value And to better driving the advertisers.

So to the we have what but contribute short-term and this that the not expect excited. that’s long-term also growth only gets to the in really we us

Unidentified Analyst

Great. implies step view X.X? the should trajectory, and revenue do gains continues if year-over-year. Thanks. that Software gaming one similar to the could. guide XX% anticipate we you that in we If assume AXON I How growth And XX% the a along of the function follow-up, sustainability we maybe the just saw

Herald Chen

stability few view We App over business reaching side we year. past discussed that new this have the as of see the some of the quarters investing in second We that we the some do do and Yeah. half are games.

using we investing In which given are on a lot that the fact particular, user more We own efficacious. solutions there, become acquisition. more of our are has

to ability year. our second some see of half drive do the over we So growth the

terms quarter quarter, and improvement full relatively It was in we of rate and is for third this the into side, X.X AXON In new. our do Software see the this run growth that launched last guide built a is an quarter.

Unidentified Analyst

Thanks. Perfect.

Operator

from hear now Schackart Ralph will we And Blair. with William Great.

Ralph Schackart

Hey, Adam. Great. Hey, Herald.

that then should the margins model. new Just about, margin and have XX% that has XX% Historically, model or given forward? mid-XX%s, follow-up. a for I you think, this Software strong next for delivered think contemplated think, especially expectation margins quarter, improvement sort we going growth this and XX% And quarter. further XX% a low maybe baseline Is XX%, the I around really for looking I of to guiding at

Herald Chen

Yeah. Thanks, question. Ralph, the for

Software was margin great XX% On a a side, quarter. the

in did relative the we also EBITDA had the it’s revenue. As a to model introduction, we we high mentioned very doesn’t than more generated necessarily flow-through. flow-through very That there. actually forward, incremental but We high going continue

as not quarter-to-quarter, So to on we given are long-term, and margin will we timing. expand the maybe vagaries topline grow Software medium- due able to over to the that do believe the continue

at margin, quarter, XX%. mid-teens whereas said we on that we we target in the are App high-teens for side, And more range always past this EBITDA the in the have

As down grow bit into will games bring that margin on we the invest that UA a the mid-teens. the to more down probably side

grows So the margin margin on side, we up margins. the on end target. stability reaching at lower how a with potentially expands, That’s Software mid-XX%s slightly blended basis, as App

Ralph Schackart

Great. but be magnitude and results how Maybe sense great? the very quarter, X, obviously, it’s Thank your performing any maybe some to would AXON a color Adam. any maybe for to of there can compared question perspective, order X, strong you in get more Adam, expectations relative you. of of improvements

Adam Foroughi

Yeah.

were because going is signaled -- to quarter us platform dramatically we big as the I’d to for were much better using. knew into put available We year advertisers. sure. We the was in a technology We it than our power expectations. that it’s a it was at performing to ago and start seeing For we upgrade, that the that technologies performance better say the entire it immediate just something be

over have. get more and platform, spend willing investment than advertisers compound seeing be does spend our return platform on their and time, that more on base buys from is should ad the were better that are of on will because all our What start grow they time, over we on previously to they advertisers that to

can we that out if and to to exciting It’s should new more But really the implications the more going wider verticals years us for that fuel this on and even new is, and with work we be predictive, base, breadth that, to are for to able advertiser make advertisers much execute powerful, quarters are technology. a we our broaden much able service growth of more really come.

Ralph Schackart

Thanks, Adam. Thanks, Herald.

Operator

Franco will next question Our Granda with come D.A. from Davidson.

Franco Granda

ones. quick Thanks two I Good the here. for afternoon, guys. have Hi. question taking

positive either for the with you X.X next? such respective in any you maybe market? your where updated can category perhaps, the stabilizing talk portfolio then how your that the quarter, And platform yielding dollars or the across trends figure on, provide to market you about here, are outperformed Apps to you it so maybe any early one, surprised Thanks. think second you year ready transact many So this an on results AXON

Adam Foroughi

Yeah.

but that, have provided In advertising on typical XX% terms never basis that the of in the we of advertising and the platform, XX%s revenue talked industry we to somewhere in range. net business are scale known about the margins is have a the business

get to dollars, And of majority so million in a revenue reasonable that and you obviously, cleared quarter. advertising net marketplace guesstimate, of vast could Platform our in Software being billions networks the itself the the $XXX the is

a really if are all They ecosystem. you for we of ecosystem growth. are that just the customers. size almost lot large a the And app very player So we player our critical our on mobile for totality gaming understanding of in partners mobile are us customers, mobile the of depend app a against

our only invest us dollar that helps usually one is of not So our they gets are and are excited ecosystem three spending or customers our the channels in a growth, better platform on technology two we one or into. really top that upgrade their this fuel our thing in

our that So if are better them, dollar too. compound for on they platform, will spending a

return are And than hopefully as return forward, growing, back to go to this as grow. the start customers the seeing -- us we of materially itself a will and market whole working that category with so we helping market better

Herald Chen

for as for delivering our And Franco, Apps effective those we are and is and portfolio. on same performing advertising the second great our Platform are customers your doing tell well you delivering solutions question, thing so that’s we Software because

say acquisition able wouldn’t the for portfolio believe in drive in on for have user So quarter, own be year the second but we growth second additional Apps platforms, of as this we do we our invest should in half any more to those Apps. and I the that outperformance we more

Franco Granda

Great. Thank you.

Operator

Yang with to on Martin moving OpCo. And

Martin Yang

us Hi. a AXON has with expectation, results where Thanks the in in the your give can line performed If relative second for of question. quarter to came from you taking your sense guidance? outperformance

Adam Foroughi

We So technology second to our powerful. rolled measure new very, an quarter, entirely Relative to replace the technology thought be -- of a really of It the impact technology. hard right? right? to brand the we a very one, towards new was replace is it guidance, this to out the old is part going

short-term So impact. very we were with the pleased

over long-term of the it’s overall it’s going excited an a the again, is We infancy -- couple a business. are only more months about old It’s to implications stage. but our technology. And get on fuel lot to we growth are forward. We a to stronger that think of we this excited years, think our going and going time and be quarters to able we to looks like as it’s go for see what be

Martin Yang

may being from follow-up of across you rolled Axon is, a throughout, should come does quarter and mean the X implemented is algorithm will third inventories? continuous fully ad out, improvement my question performance being when more on instead expect And better AXON that throughout improvement we the say X

Adam Foroughi

Yeah.

As of that vectors. One a the level will transactions growth at we technology continue the drive a operate billions at, different forward, of scale of to fuel go is, couple year. we from we

We itself able to are self-improve. and -- the will learn technology

the team, of Our is the improving technology working obviously, step way. every on

of focus on So our engineering is that our obviously, stock. parallel, of part also in happens core this

we business. our interesting And in door channels, now all advertiser dynamic gaming a so gaming largest not it’s scale is got up of more more if opens for working of gaming. outside and the that that, our technology It largest, of auction, the the to which partners within the this possibility will and long-term create the of then one create the you more density if of good expansion, have are lot to

And your come well. inventory more then will point, to last online as

driver, in the operate app more in core really a but are We -- and we environment. MAX with mobile in broadly a a ecosystem being real-time

more inventory they will theory, this our transactions more are create over opportunity better and business. our If and and accurate get bigger be we all in our of able really for are excited will market systems much a were, compound will predict systems how to we than to time core about

Martin Yang

you. Thank

Operator

with McTernan Bernie next have the Needham We has question.

Bernie McTernan

Great. Thanks for taking questions. the

App terms on should just outside them discovery other clear of of about in, return successful in think you impactful? should process out spend mobile came pretty mobile that that that sales of to guys then the are most of with products, games. the guys, you On just are how advertiser the us which for they remind a process Monday be we platform? announcement It’s probably but those advertisers more new of you what’s more And or on going the increasing on as games, up getting can in new ad on spend for come to process signing

Adam Foroughi

Yeah.

broke question, really we and first release into the So with it automate fully technologies it sum not up But the what in on is whole components totality, down the part that In of new of marketing exciting there’s that’s all sub-vectors of power that to out. not, offering the down that and offering or of valuable problem one the to whole these it the value to we core so exciting the us. out. of rolled is of the rolled we product some AI more the all article broke

improvement it are on actually our years second platform, been automated will platform already have new, platform. in more. the achieve they That return invest sales gaming and non-gaming the our mostly spend customers and in our is that an ad is to for been On to on able today. see they buying as they slower question, on is than are live used for that have particular, ramping They cycle

for we really months only usually joining of well gaming because that seeing more this their lot are lot A there’s both now working is a developers, a peers. out, rolling platform to ramp platform, our App of takes the or couple amongst word two within up in already a a interest new and spreading mouth and quarter customer platform of into non

Bernie McTernan

Great. Thanks, Adam.

Operator

go hear we now go from a go Karnovsky do unmute for any want and and Vasily, go to ahead question. can getting ahead not you response ahead us. Vasily, JPMorgan. will turn from like David to with move you Karasyov Vasily, All to Well, ask we Cannonball. we And and with are on right. so -- and would Vasily your video

David Karnovsky

could Thanks. see or XX I execution just know, do point months go. Adam, incremental on expected your on you whether impact it, that any the Here on, we changes? the at next, six this Hey. call you just months of if all I update to to kind in don’t iOS expect from more might Android you wanted or see changes either privacy side

Adam Foroughi

Yeah.

the we we something we both this been operating regulators six-month been seven think you our that on to referenced operated what years. will have don’t constantly five a for amongst to to business be operate how see to level It’s privacy last I term the evolve. and the business. to that evolving that’s able we years be course, system We to would change of anything material mentioned going as in have this, think, continue that’s XX-month

and adapt guidelines that as always have company within thing since these culture is the company has really been changes, to startup to comes at we when the defined we and one it engineering of that is confidence. of team launched, able the a our our all us moved we and times to really strong, really core And gives operate operate boundaries a fast, so of the lot

work the future, we are we than able with. be are to offering to improve matter we continuously to going and be we the what going able are what No facing advertiser faster are peers we in move base to to

David Karnovsky

Thank you. Great. Okay.

Operator

Luke And Mott Wolfe come Research. our from next with question will

Luke Mott

Research. on Luke for Josh is Mott with Wolfe This Hi.

Operator

you. Thank Okay.

Luke Mott

Thanks. Great.

with one in of to update launch seeing you AXON Just any there Any or competitive X.X? the differences? mediation here. update Are or progress quick dynamics the a

Adam Foroughi

in the is mediation gaming the our in a product. of referenced market prior Really we things of couple mobile We happening. on mediation are believe a this majority call, MAX

nothing We there. changed have seen

company growth work our really than we utilizing peers the mediation that The on utilizing is side in sides our publishers market, the App on tool well together discovery for come both because side and better our both are so and mediation. are seeing products the set, our

we publisher of already that of much lot but amongst have we seen not so are strength base. a change, the market So continued because our

a is partner mediation as in coming Google We partner a ours. changes a product. other their Bidding for close of Google were launch Bidding. Google The partner is

the months, entirely in-app bidding few next shift traditional and they that Over methods. we expect will from to away more

That a MAX benefit and and auction. be benefit will of product be our the for that to should trueness publishers a

we scales will for be business. are as theirs that And all excited so of partners. up, big that Hopefully, and positive a our our

Luke Mott

Thanks. of AXON? Wurl, regards a in invest just And follow-up outside I if quick there In any had just some continue these update to Great. plan iteration to here. further Thank to continuing the core of you. focusing and on areas maybe you one of

Adam Foroughi

referenced go Yeah. to the landscape of strongly on really executing technology competency able and Totally, team just how get we not dissimilar built really Wurl that did really the be with we mobile that to were able there. to team about relationships expanding has the had mediate to in the the over and when and transaction, to they been be media talk we serve Axon And scale on companies were get Array. Wurl we that the track, X inventory, side, Connected into and inventory, the the and and excited to able Wurl TV I my Wurl the their

to about sell on that that strong a extend deliver X think platform. television we it’s very be years, able sort CTV, few to the as have to point there. people able advertisers media AXON talked over on performance something have but to we for Now companies is our any been buy solution And extension really of for

we is AXON as cutting-edge as the in there marketing far performance offering X as our potent And do know and is that technology goes. as

a So our to and business could extending our big channel very that pose growth TV it partners. for Connected of

Luke Mott

you. Thank

Operator

is question hear please please right, on with can’t that’s again, from are see -- have chance. time me, you I you phone, audio-only. one Omar unmuted BofA. All your giving for you you the currently. additional are sure Omar, I question. with can Omar, that to unmuted do as hear we you hear make am believe Dessouky one if well. Omar, ahead go And We he we And more if

me, hear you can ahead and your question. ask muted. are you If still Go

conclude our quarter. no thank Have for us With thank you joined response this so all and us who great to Adam question-and-answer and today. right. does joining We All afternoon. you from Harold, much Omar, a for everyone today. that

Adam Foroughi

Thanks, everyone.

AppLovin (APP) 9 Aug 232023 Q2 Earnings call transcript