APP - Earnings call 3 2023 | AppLovin Corporation

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David Hsiao

Welcome, everyone, to the AppLovin earning call for the third quarter ended September 30, 2023. I'm David Hsiao, Head of Investor Relations.

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

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

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

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

remarks, have through then take us turn moderator we'll and I'll Now over opening to the Q&A. it Adam some Herald for

Adam Foroughi

for you us joining today. Thank afternoon. Good

Our team has well. executed exceptionally

quarter's of success our to which and for to dedication would our hard performance and our AXON and yet outstanding their is once resolve expectations. I ago, new adjusted faltered. again This a X, enthusiasm testament year our to commend technology, significant revenue a moment challenges, A faced driven above teams has advertising never the we team record-breaking EBITDA take work. AI-based like

numerous growth with have enhancements only year is journey on expansion. The this stage horizon. efforts Our for long-term beginning have solidified the trajectory our not also short-term but sustained the X set with just AXON

our to its CTV the This quarter, scale quarters. in during we efforts are by made these subsequent initiative strides into phase, X up and AXON testing integrating we planning

fill superior see leading where a a to performance opportunity We marketing are solution. technologies we our the excited gap performance with television, about substantial introducing to

in potential the meaningful and magnitude CTV to and revenue. investing businesses have AXON our extending business, contributors we accelerate will be software because potential Array business. Considering the of we'll quarter, to that scale they to materially X we're expect annual platform believe Array our to it our this Additionally, the become

shareholders our long-term value to dedication is for steadfast. Our creating

We for our of our our team, our are potential quality capabilities of and confident products strength the of of innovation the position. the the in the technology, financial

for we next We your journey, chapter and innovation. grateful are and on support which embark promises of relentless the trust growth our as

like many during to for my I his has over gratitude support tenure CFO to contributions ambition a in excellence. express setting X the a years. for and course his strong functions would our as Herald on us concluding, operational Before to build been realized, foundation Herald's operational past

to for guidance it the will who team, to As provide invaluable me. I role we quarter. Thank continued your opportunities strategic will advisory support. in his his for now new you the highlights more of will Herald transition to turn financial again share offer continue Herald to

Herald Chen

for and kind the thanks Thanks, words. Adam,

$XXX since ] quarter-over-quarter QX, quarter-over-quarter As year-over-year $XXX ] [ adjusted past $X reaching EBITDA the performance In high million, the optimization posted and Adam our of end we discussed, growth, started rate. XX% total, strong the million, financial quarter. Apps fantastic [ achieved board with year-over-year year-over-year a this portfolio XX% growth billion platform first our software revenue incredible exceeding to execution led revenue generated we quarter across of program. In we up of both up XX% run guidance. year-over-year, up with of revenue

over of highest XX.X% quarter-over-quarter and our reached margins margin, X EBITDA of an business, margin higher improvement total XXX EBITDA at platform the points Given basis higher adjusted contribution in from software years XXX XXX basis note, QX benefit points from a basis points improvement from approximately past onetime Of QX this of nonrecurring cost top from coming quarter on benefits. did over improvement XXXX.

segment Turning to our reporting.

a double-digit reached returns reach, us. record spending revenue with our over advertising and increase software million, AI-driven their The consecutive and the the their quarter-over-quarter, XX% increase is partners expand see with are quarter third achieve which better to excited $XXX and technologies a prior quarter-over-quarter We increase our on platform help the platform growth. investments revenue software XX% year of to

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

Our we scale. as software flow-through to to demonstrate from high adjusted continues revenue platform EBITDA

generation, Given its extraordinary platform EBITDA total software company's of nearly growth XX% adjusted represents adjusted in cash flow our EBITDA. now

the we're we of both and this mentioned, Array. date been Adam business more As the pursuing have future, go hard and with our very we're software about within accomplishments team's core platform markets and where can even but in to new proud within initiatives work Wurl our excited

million, to $XX since adjusted the million, on quarter portfolio growth margin the XX%. our apps optimization started Moving segment, of App project. of X% a $XXX we first to Apps was sequentially grew revenue EBITDA

to With flow, than we in generated review QX. delay cash temporary we continuing focus portfolio in due million is and collections free performance in normal, $XXX lower EBITDA on free optimize and the a The value cash complete, adjusted certain reverse apps QX to to flow-through the of slightly flow to our major flow expect balancing portfolio. With our cash growth parts to enterprise are which will primarily in regard we itself financial from QX. of cash

regard XX.X% flow-through high timing we capital calls, continues mentioned time for QX are percentage between over flow in working flow to we any faster adjusted $XXX items margin another outlook Margin targeting a payments potential a pay apps. With $XXX $XXX typically loan. This an is benefit million quarter ended free in and down million business of cash revolver. as down have QX's in cash used million XX% our cash further from quarter to the driven previously platform we million sheet. XXXX, by grow on with of our we $XXX to movements. and cash $XXX and XX% converting adjusted QX stock software QX. From to tax term $XXX growth million offset back from should the revenue given cash on flow-through slightly and XXX run increase quarter, the guidance In and basis, to our than EBITDA for normalized of balance XX% and business to This point $XXX million, of in with XX%. million by the basis was rate EBITDA and noting approximately between particular drawn buy some As is $XXX the QX million in in typically between that the perspective, deviations investments onetime the

have at shareholder driving Regarding value. per consistent under through allocation the This A stock with of the Year-to-date, weighted buybacks. share. stock Class price asset end we third quarter, $XX of is long-term focus of common $X.X average our on our billion a and plan repurchased

stepped the principal Todd amount by term seasoned Sharma, XXXX, amended million our reducing recently Twitter. QX, side, most Instacart, COO improving maturity to we're the software to at a in of model the of On debt extending spread. With strength CFO Board. we Concurrently, strong our powerful Finance in from platform million executive quarter, credit pleased $XXX was the and Overall, at a Pinterest add business. and who Morgenfeld a to VP $XXX to showcases our our QX Asha underlying prior the Board, regard was and that, down portion loans, business our to performance

the forward so new on the can XXXX, advisory in as X role as Dimitri on in their team. to years, AppLovin am transition to Adam million rate growth, look a strategic earlier, to year roles. and January, I achieved one investigate joining track ] and some matters. rate adjusted I their company $X.X over role working Board. It EBITDA from continuing this hundred revenues adviser step from leadership, of new personal take past off of [ past multiplied Lastly, this run the has to success. Since very into to and of and a increasing be new time tremendous contributions, note, confident particular, and a well-deserved key has to couple today. will for extraordinary over I'm on truly leadership Further, and build CEO, and dollars at Come under I've much to with on team Adam's an to I In run decided the in excited work my and billion Matt and Xx my have end by as the getting the CFO mentioned the Based been full-time President my as Adam service privilege financial help AppLovin I Board serve their with record management opportunities.

thus supported have is a AppLovin our linear, the to including in being us thus forward because look very awesome far and the has While easy, with not team outstanding been always this customers, nor shareholders, the Thank steadfast who and and journey part AppLovin partners, executed my far. I the do expertise I it you much to role. performance. opportunity path lenders our team, along has of remained of ahead Board to new say drive all stakeholders,

Now the us will take Q&A. moderator through

Operator

Schackart to our is Ralph And question first Instructions] with William going [Operator from Blair. come

Ralph Schackart

it other on, follow-up, about doing could gaming, of could what's the overperformance anticipated. First on I than perspective kind just talked maybe question, kind it's of please. how historically, of of originally in the extended a beyond think, And you with some speak you in to quarter. the touch I you maybe then X perhaps have going of on the EXON verticals? some ramp And sort you better maybe Maybe

Adam Foroughi

improve models self-learning themselves. So quarter. These it's in rolled type partial as technology, This improve is last a prior X able was way about a And then we get technology. brand-new our scaled, also talked to the they is them. quarter, AI continuously continuously AXON out and team of

are or been on about So in delivers just it excited. The your better spending dollars first the is for seen compounds it seen output [ on our that business way category. in is us we've to that's our model new platform advertisers. that too one, seen a gets at itself. And material returns. game really gaming we've a agnostic And ] we've what technology of is that the the non-gaming, and more for a on better inning. results Advertisers And we're question talking changing of technology

led for what performance to And past of this both better majority much gaming. works the It so and that's non-gaming the quarter. vast over

Ralph Schackart

Adam about Array and to to point, then, business And some contribute prepared will the during remarks, Connected-TV then EXON X talked results. extending and at the

Just can sort perspective carry adding to kind start of it opinion, your overall, when some enterprise of, in results? the

Adam Foroughi

offerings they've deal, So is X.X on to phase marketing the of earnings lot on product for offering. available right? performance to that. just was gotten on We've World's we going start AXON been mean step I talked about years. of an platform buy we're to out World a I really Connected-TV, it last that migrating with April, and did ] Connected-TV last there's into us testing think the our it [ integrated, part model. And inventory the it's So we Yes. the good in it World teams built SSP now X over about call,

very excited also on that platform. as we're that, and has know really performance television, scaling that it's about the we devices. As on all on as anywhere much hasn't potential been start thing we been mobile desktop of or Obviously, marketing it near TV

And way. so We and Array, deal, big gets there. solution It truly on also and of our to being the presents be technology X to more able able is much Array consumer to in use that multiple is prospects ad extend business changing and to going platform new think for offerings the same into today intimate that opportunity. And presents is a game the both. devices then AXON a the very us Android being cutting-edge

Operator

Our from BTIG. with come will question Clark Lampen next

William Lampen

in sequential hoping unpack uplift maybe we of revenue. sort was software bit a of saw could I Adam, that we little the

World talked being MAX saw the there the million? also the testament key Or You remarks. your were driver other AXON of contributing? to that prepared to sort about or Was of we in at up $XXX like top lift X maybe businesses it a

Adam Foroughi

X business, vast the vast that's catalyst. AXON the key of software powers or App the is already X. platform majority but That AXON platform, and advertising that's Yes, majority the Discovery of

William Lampen

by of is just it. as guidance, flat. the expected to the X% at, improvements sort fourth sort XX% guess, to historically? look And still discussions apps effect mostly I to into driven Is software we if assume like seeing We're Got running app I you the business were talked of in about of be compounding forward uptick discovery, quarter. you've for AXON, sort of guess the revenue a that sake that that the

Herald Chen

see of Yes, we growing. the both sides business

the fourth optimization of the in will on quarter portfolio growth the vast the translation mentioned, come on as we software out quarter, since side, we've and fourth the in well started mentioned, majority we then additional software in EBITDA. EBITDA able side. investments the app first there's onetime app if business had translation quarter-over-quarter the to quarter. And as clearly, of our quarter were both some growth, growth we we items in the program. side But the growth some to that grow remain we are that As will third as considering

William Lampen

second, this we're mostly core quick step game that from were I'll seeing? really of uplift driving sort away that this quarter And seeing guys customers in Or was non-gaming you of but just improvement your base a developers sort the of was also? any most

Adam Foroughi

will business, regardless the grow can non-gaming so the part of of more substantially works material No, we're both become gaming out effectively of It a at and that of Obviously, Non-gaming is a what is much is sales on the very the gaming effort it seeing take non-gaming. growing faster to type much because success part cost, dealers. that app bigger smaller. starting number our a is materially business. but technology

Operator

[indiscernible] with next Wolf question. has the

Unknown Analyst

kind high-level advantage new following new and this we requirements release of like persist maybe the competitive changes catch of long guys? a far desire in in the should an think competitors expect ad you? we How very you X's that about AXON should drive when competitors? competitors on that, releases? becomes ahead does much versus, up? market And AXON How their What say, Just briefly is And pace How before against question. that how versus positioning X? improving the up new privacy for

Adam Foroughi

across bunch one the in technologies complicated. any questions think the Look, So market AI super seen. are AI ours of the of there. there's a implementations solutions in cutting these edge the leading we've is and of We

We evolve have it, on data. These deployment to a on basis. of amount power we've to ongoing large said, hardware a have what and they an of and material are self-learning. very themselves, software regular we're got basis systems we continuing And

to Every that of question -- where new to changes face all in something something X the in X together. but quarters we've adapt AXON AXON changes. And or quarters privacy to changed build at any We've and always coming as of here. over putting company, look regulators, together on catching isn't the we've we and go a up we stock, standard, leading really your with year changes there's we're We obviously to we core times executed multiple competition change set many you've and a what talking that to a rewritten at those hopefully our of years, the put a goes, time ago. coming perform on in are We're privacy look growth the of this going nimble So you lead XXXX. a well we've that since X. up. we're year of up. as AXON technology it dealt about platform platform. Look, X multiple on about and we AXON with will lot of We're not growth about able excitement kinds signaled from talking far probably

Operator

D.A. with from hear Granda And now Franco we Davidson. will

Franco Granda Penaherrera

on a post then think moving AXON investments areas Obviously, But these you should and year, ] some the question last magnitude this those CTV implementing Essentials planning can perhaps we suffered. in comment had I you're on that [ how of on were those and OEM. into and forward? investment around those you about put on now the categories, that investments

Adam Foroughi

CTV been excited that World couple growth I since signaled a Array. we've mean ago, think Yes. are couple launched, years on and I We think, I these to we a that the them we're about. about pause. put you We've we've really and talking ever of vectors all don't acquired of

run a rate. big. We're business, a really $X software Our billion year in obviously, is

a very and it, of the Array. new by it going The foundation a to takes accelerate this both really taking both. think real And able is numbers from market-leading there of on the to technology, businesses. debt numbers, to big CTV initiative, But put those about to So while. a have those it to excited we're applying be we on we're and scale type path

Franco Granda Penaherrera

that And from with the UA for on there? here technology of how and integration growth the that based business perhaps came then the just much quarter, apps your quickly Axon leveraging capabilities very growth on

Herald Chen

we Yes. rolling X obviously we AXON customer and to lot the we own of of a in performance, our our it's to We're UA, systems. saw when quarter. in a into we invested continue fourth customers do expect -- And like more big that

So that was growth. a big driver of

Operator

to And moving on Martin Yang OpCo. with

Martin Yang

And on A first apps? question AXON on then between did revenues the the from gaming non-gaming platform. share non-gaming the software to share the general contribution for trend and direction software you about of X non-gaming of talk platforms? help either Can revenue

Adam Foroughi

majority but of gaming. that Yes. is we've a referenced any technology well percentages, really about I mobile our talked this We application. don't the category is for down every kind, across business working then of of And break advertisers

we're across from quite growth of non-gaming but So place. bit smaller a a starts all, seeing

So we're actually seeing accelerated advertisers. growth on non-gaming

Operator

on to moving And Macquarie. Ross Compton with

Unknown Analyst

how last gross Looking expand at was was led in have XX%. could I you ] the in of here helps 'XX, we ] operating And wondering for Scale, us approached recently margin but course, on longly should about on this with understanding this XQ, any kind if billing XX%. a that would leverage the AXON, [ the be ceiling? of guys think and and at QX most processes year, then kind Is of into great. and the model XQ there technology you [ improve beyond?

Herald Chen

the I Is margin on year-over-year. breaking asking of and you're correct? question think gross improvement But the the up. some software Yes, that was just about

Unknown Analyst

Yes.

Herald Chen

then center had year that in about a all, needed first initial structure on you of start to won know, P&L. get report terms contract itself, in that related that revenue cost And amount it we of so that infrastructure we scale. [ ] the business Our almost software. A basis, big is we ago we lot directly initial on we at talked side, new the software a as net data of to the the that's of to level a

so utilizing And not the expand gross to way structure a through capacity now that. we're through on that say we fully I'd given able that's that had so contract all the relatively pace of on been really to some grow front. margin EBITDA to if cost growing we've And why very we've fixed much into on had R&D board. and the

Operator

next Morgan Stanley's Matt Cost question. the has

Matthew Cost

there your were would any back advertisers in September Or impact one I you business impact be, pulling you expect of competitors are the largest lines along guess the the do the of spend. in reports quarter? Did quarter? first one some third media and boycotting some your fourth just on -- material October any business see any in

Adam Foroughi

little was negligible maybe or a ours. noise a It It in of the to to September late pretty overblown media, X in market was negligible the impact. but week

Matthew Cost

can Great. we've software And thoughts very your platform then give just you is certainly been on very, business we're than because XX%, margins, a strong us the result. in guess while. flow-through at scale a that I latest on what potential higher the for

Herald Chen

we R&D software again, to relatively we some expand side. because to expect, to strong as grow net margin from well, up on be Yes. margin unlikely start revenue as Good CTV discovery looking data and is if grow contribution the the we'll that those stable we in particular there's app as businesses bigger that sorry, and discovery. scale and the need in app as do I fixed as OEM as But at are going businesses continue on can step also we scale to in teams, particular, is get cost, a that said, be function every hire those we -- high Array, to the some reason investments And longer business. Over rescaled cost, but side there's -- to more costs, scale question, time, but they center Worlds, as as Matt. likely there's of quarter, some incremental make run some fixed

Operator

Omar with from question BofA. And our final Dessouky come will

Omar Dessouky

their and shift but entirely website that recently demand. quarter out header notice first about bidding we'll that talked won't header They after partially October year. on bidding expect Google shift next do and XXX% you to happen to a bidding. how of So to XX, is shifting header they guys transition be demand going into to so put the

the wondering mediation so think has been your demand. for bidder you a So from And Google? real-time tended app of demand was could and mentioned long I to platform tax Google idea bidding real-time shift your doing core [ I been because that Google the to we business was real-time competition actually Google you long. on sector actually, Does competitive so has what bidding, for the discovery post about to what that ] but Google waterfall that given focus can tax bidder

Adam Foroughi

Yes.

of market effect cannibalization Google about close very as market network, bidding. full already around moves as grows. the a the above, be particular, overall of point, gain only and to goes bidding to tipping at going big so talking mediation taken that's share, slightly we're mediated one XX% the think, can going in to efficient, you're this gets So it I the to is to Google, once that pie share bidding bidding, We've network more to but bidder going every and way. On most possibly

platform. their and a user main more of acquisition where user efficient yields and into yields the the so And channels, was the seen of the We're And MAX an dollars benefiting the all obviously publisher now since most trend one the end more we bidding price and up grows. platform we've ad parties efficient they back that on publisher pie that's more. The and for X marketplace ecosystem, into launched the to so with put bring whole to spend go years state, usually, X MAX acquisition. these can serve way networks that's the them platform serve is you then objective an header our building point possible

Omar Dessouky

Okay.

the potentially will which the outweigh sounds a make then, spend. experience correctly, you potential bidding Google from market in to in yourself, is because I new if and that other than of ad to moving So real-time increases could competition like it any have technology benefit someone saying you're the bigger, entire understood industry

Adam Foroughi

It's look never at a game. zero-sum we Look, Yes. share. not

more, You That come swell, companies growth. to do user ecosystem need our the into all marketing the grow, well. space eyeballs up. been goes the That's helps always to consumption acquisition, dollars formula

And network the goes bigger, benefits bidding. all So we and become every that's dollars we look to what it dollars see a at time parties.

Operator

today's that you that, forward thank we care conclude attending, We you now does Take disconnect. time, all for to earnings. next with And and quarter. look next you until may seeing

AppLovin (APP) 8 Nov 232023 Q3 Earnings call transcript