Item 1. Condensed Consolidated Financial Statements

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Item 1. Condensed Consolidated Financial Statements

AppLovin Corporation

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share data)



	September 30, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	943,508	$	1,520,504
Restricted cash equivalents	—		1,050,000
Accounts receivable, net	665,462		514,520
Prepaid expenses and other current assets	215,279		150,040
Total current assets	1,824,249		3,235,064
Property and equipment, net	71,345		63,608
Operating lease right-of-use assets	59,471		70,975
Goodwill	1,763,170		966,427
Intangible assets, net	1,889,163		1,709,347
Other assets	198,000		118,158
Total assets	$	5,805,398	$	6,163,579
Liabilities, redeemable noncontrolling interest, and stockholders’ equity
Current liabilities:
Accounts payable	$	261,515	$	258,220
Accrued liabilities	137,277		133,770
Licensed asset obligation	6,790		17,374
Short-term debt	33,310		25,810
Deferred revenue	65,433		78,930
Operating lease liabilities	13,587		18,392
Deferred acquisition costs, current	25,721		107,601
Total current liabilities	543,633		640,097
Long-term debt	3,184,221		3,201,834
Operating lease liabilities, non-current	54,151		62,498
Licensed asset obligation, non-current	—		8,039
Other non-current liabilities	141,491		112,820
Total liabilities	3,923,496		4,025,288
Commitments and contingencies (Note 6)
Redeemable noncontrolling interest	—		201
Stockholders’ equity:
Convertible preferred stock,100,000,000 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	—		—
Class A and Class B Common Stock, $0.00003 par value—1,700,000,000 (Class A 1,500,000,000 and Class B 200,000,000) shares authorized, 371,649,578 (Class A 292,986,956 and Class B 78,662,622) and 375,089,360 (Class A 296,426,738 and Class B 78,662,622) shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	11		11
Additional paid-in capital	3,112,224		3,160,487
Accumulated other comprehensive loss	(140,145)		(45,454)
Accumulated deficit	(1,090,188)		(976,954)
Total stockholders’ equity	1,881,902		2,138,090
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity	$	5,805,398	$	6,163,579

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Condensed Consolidated Statements of Operations

(in thousands, except for per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	713,099	$	726,951	$	2,114,751	$	1,999,634
Costs and expenses:
Cost of revenue	300,988		254,052		886,697		722,966
Sales and marketing	196,785		285,224		719,014		816,200
Research and development	122,059		108,523		389,417		246,861
General and administrative	44,000		34,104		144,988		122,116
Total costs and expenses	663,832		681,903		2,140,116		1,908,143
Income (loss) from operations	49,267		45,048		(25,365)		91,491
Other income (expense):
Interest expense and loss on settlement of debt	(48,627)		(18,756)		(117,141)		(72,796)
Other income (expense), net	969		(9,217)		3,501		(997)
Total other expense	(47,658)		(27,973)		(113,640)		(73,793)
Income (loss) before income taxes	1,609		17,075		(139,005)		17,698
Provision for (benefit from) income taxes	(22,053)		16,933		(25,570)		13,767
Net income (loss)	23,662		142		(113,435)		3,931
Add: Net loss attributable to noncontrolling interest	109		36		201		149
Net income (loss) attributable to AppLovin	23,771		178		(113,234)		4,080
Less: Net income attributable to participating securities	(122)		(1)		—		(568)
Net income (loss) attributable to common stock—Basic	$	23,649	$	177	$	(113,234)	$	3,512
Net income (loss) attributable to common stock—Diluted	$	23,653	$	177	$	(113,234)	$	3,539
Net income (loss) per share attributable to common stock:
Basic	$	0.06	$	0.00	$	(0.30)	$	0.01
Diluted	$	0.06	$	0.00	$	(0.30)	$	0.01
Weighted average common shares used to compute net income (loss) per share attributable to common stock:
Basic	369,389,170		368,427,532		371,736,763		309,353,304
Diluted	378,462,207		384,324,785		371,736,763		327,426,792

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	23,662	$	142	$	(113,435)	$	3,931
Other comprehensive loss:
Foreign currency translation loss, net of tax	(11,794)		(18,255)		(94,691)		(28,164)
Total other comprehensive loss	(11,794)		(18,255)		(94,691)		(28,164)
Add: Net loss attributable to noncontrolling interest	109		36		201		149
Total comprehensive income (loss) attributable to AppLovin	$	11,977	$	(18,077)	$	(207,925)	$	(24,084)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)


	Redeemable Noncontrolling Interest		Convertible Preferred Stock					Class A and Class B Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount	Shares			Amount
Balance as of December 31, 2021	$	201	—		$	—		375,089,360	$	11	$	3,160,487	$	(45,454)	$	(976,954)	$	2,138,090
Stock issued in connection with equity awards	—		—		—			1,179,554	—		6,541		—		—		6,541
Shares withheld related to net share settlement	—		—		—			(89,319)	—		(4,227)		—		—		(4,227)
Repurchases of stock - repurchase program	—		—		—			(893,556)	—		(43,697)		—		—		(43,697)
Stock-based compensation	—		—		—			—	—		44,377		—		—		44,377
Other comprehensive loss, net	—		—		—			—	—		—		(13,532)		—		(13,532)
Net loss	(41)		—		—			—	—		—		—		(115,257)		(115,257)
Balance as of March 31, 2022	$	160	—		$	—		375,286,039	$	11	$	3,163,481	$	(58,986)	$	(1,092,211)	$	2,012,295
Stock issued in connection with equity awards	—		—		—			1,194,805	—		8,267		—		—		8,267
Shares withheld related to net share settlement	—		—		—			(234,412)	—		(9,384)		—		—		(9,384)
Repurchases of stock - repurchase program	—		—		—			(5,749,856)	—		(210,830)		—		—		(210,830)
Issuance of Class A common stock in connection with acquisitions	—		—		—			2,579,692	—		137,422		—		—		137,422
Issuance of common stock under employee stock purchase plan	—		—		—			107,781	—		3,663		—		—		3,663
Stock-based compensation	—		—		—			—	—		56,855		—		—		56,855
Other comprehensive loss, net	—		—		—			—	—		—		(69,365)		—		(69,365)
Net loss	(51)		—		—			—	—		—		—		(21,748)		(21,748)
Balance as of June 30, 2022	$	109	—		$	—		373,184,049	$	11	$	3,149,474	$	(128,351)	$	(1,113,959)	$	1,907,175
Stock issued in connection with equity awards	—		—		—			1,360,814	—		6,293		—		—		6,293
Shares withheld related to net share settlement	—		—		—			(149,015)	—		(3,996)		—		—		(3,996)
Repurchases of stock	—		—		—			(2,746,270)	—		(84,353)		—		—		(84,353)
Stock-based compensation	—		—		—			—	—		44,806		—		—		44,806
Other comprehensive loss, net	—		—		—			—	—		—		(11,794)		—		(11,794)
Net income	(109)		—		—			—	—		—		—		23,771		23,771
Balance as of September 30, 2022	$	—	—		$	—		371,649,578	$	11	$	3,112,224	$	(140,145)	$	(1,090,188)	$	1,881,902

The accompanying notes are an integral part of these condensed consolidated financial statements

AppLovin Corporation

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)


	Redeemable Noncontrolling Interest			Convertible Preferred Stock					Class A, Class B and Class F Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
			Shares		Amount			Shares		Amount
Balance as of December 31, 2020	$	309		109,090,908		$	399,589		226,364,401		$	7	$	453,655	$	604	$	(1,012,400)	$	(158,545)
Stock issued in connection with equity awards	—			—		—			1,232,156		—		10,143		—		—		10,143
Repurchases of stock	—			—		—			(214,509)		—		—		—		—		—
Stock-based compensation	—			—		—			—		—		29,667		—		—		29,667
Other comprehensive loss, net	—			—		—			—		—		—		(721)		—		(721)
Net loss	(54)			—		—			—		—		—		—		(10,521)		(10,521)
Balance as of March 31, 2021	$	255		109,090,908		$	399,589		227,382,048		$	7	$	493,465	$	(117)	$	(1,022,921)	$	(129,977)
Exercises and vesting of early exercised Class A common stock options	—			—		—			1,020,588		—		5,190		—		—		5,190
Exercise of warrants, net of shares withheld	—			—		—			6,229,081		—		—		—		—		—
Issuance of Class A common stock in connection with acquisitions	—			—		—			6,320,688		—		342,170		—		—		342,170
Issuance of Class A common stock	—			—		—			12,006		—		—		—		—		—
Issuance of Class A common stock in connection with initial public offering, net of issuance costs as adjusted for cost reimbursement	—			—		—			22,500,000		1		1,747,970		—		—		1,747,971
Conversion of preferred stock to common stock in connection with initial public offering	—			(109,090,908)		(399,589)			109,090,908		3		399,586		—		—		—
Repurchases of stock	—			—		—			(390,000)		—		—		—		—		—
Stock-based compensation	—			—		—			—		—		26,852		—		—		26,852
Total other comprehensive loss, net	—			—		—			—		—		—		(9,188)		—		(9,188)
Net income	(59)			—		—			—		—		—		—		14,423		14,423
Balance as of June 30, 2021	$	196		—		$	—		372,165,319		$	11	$	3,015,233	$	(9,305)	$	(1,008,498)	$	1,997,441
Exercises and vesting of early exercised Class A common stock equity grants	—			—		—			991,787		—		7,782		—		—		7,782
Issuance of Class A common stock in connection with acquisitions	—			—		—			405,205		—		25,000		—		—		25,000
Issuance of Class A common stock	—			—		—			78,824		—		2,503		—		—		2,503
Stock-based compensation	—			—		—			—		—		34,410		—		—		34,410
Total other comprehensive loss, net	—			—		—			—		—		—		(18,255)		—		(18,255)
Net Income	(36)			—		—			—		—		—		—		178		178
Balance as of September 30, 2021	$	160		—		$	—		373,641,135		$	11	$	3,084,928	$	(27,560)	$	(1,008,320)	$	2,049,059

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Operating Activities
Net income (loss)	$	(113,435)	$	3,931
Adjustments to reconcile net income (loss) to operating activities:
Amortization, depreciation and write-offs	445,507		315,409
Amortization of debt issuance costs and discount	9,685		8,980
Stock-based compensation	143,943		91,828
Change in operating right-of-use asset	13,725		18,199
Other	2,133		3,237
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	(139,350)		(99,999)
Prepaid expenses and other current assets	(70,242)		(107,461)
Other assets	(4,616)		7,729
Accounts payable	(7,881)		49,345
Operating lease liabilities	(15,345)		(18,270)
Accrued and other liabilities	(2,645)		11,211
Deferred revenue	(11,905)		(7,303)
Net cash provided by operating activities	249,574		276,836
Investing Activities
Purchase of property and equipment	(621)		(962)
Acquisitions, net of cash acquired	(1,335,698)		(1,198,789)
Purchase of non-marketable investments and other	(56,546)		(15,000)
Proceeds from other investing activities	3,657		11,358
Capitalized software development costs	(4,546)		(2,859)
Net cash used in investing activities	(1,393,754)		(1,206,252)
Financing Activities
Proceeds from issuance of common stock in initial public offering, including cost reimbursement	—		1,745,228
Proceeds from debt issuance, net of issuance costs	—		844,729
Payments of debt principal	(17,482)		(711,482)
Payments of finance leases	(18,099)		(9,690)
Proceeds from exercise of stock options	21,733		25,486
Proceeds from the issuance of common stock under the Employee Stock Purchase Plan	3,663		—
Payments of deferred acquisition costs	(104,998)		(231,664)
Payments of licensed asset obligation	(17,374)		—
Repurchases of stock	(338,880)		—
Net cash provided by (used in) financing activities	(471,437)		1,662,607
Effect of foreign exchange rate on cash and cash equivalents	(11,379)		(809)
Net increase (decrease) in cash and cash equivalents	(1,626,996)		732,382
Cash, cash equivalents and restricted cash equivalents at beginning of the period	2,570,504		317,235
Cash and cash equivalents at end of the period	$	943,508	$	1,049,617

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Supplemental non-cash investing and financing activities disclosures:
Issuance of common stock in connection with an acquisition	$	137,422	$	—
Acquisitions not yet paid	$	40,791	$	74,347
Settlement of convertible security through issuance of common stock	$	—	$	25,000
Assets acquired under finance leases	$	37,433	$	12,584
Right of use assets acquired under operating leases	$	3,400	$	3,508
Settlement of bonus compensation through issuance of common stock	$	—	$	2,503
Issuance of convertible security related to acquisitions	$	—	$	342,170
Supplemental disclosure of cash flow information:
Cash paid for interest on debt	$	107,650	$	47,021
Cash paid for income taxes, net of refunds	$	58,770	$	72,182

The accompanying notes are an integral part of these condensed consolidated financial statements.

AppLovin Corporation

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Basis of Presentation

Description of Business

AppLovin Corporation (the “Company” or “AppLovin”) was incorporated in the state of Delaware on July 18, 2011. The Company is a leader in the mobile app industry with a focus on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. The Company also has a globally diversified portfolio of apps—free-to-play mobile games that it operates through its own or partner studios.

The Company is headquartered in Palo Alto, California, and has several operating locations in the U.S. as well as various international office locations in North America, South America, Asia, and Europe.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2022. The condensed consolidated balance sheet data as of December 31, 2021 was derived from the audited consolidated financial statements at that date but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of the Company’s financial position, results of operations, cash flows and stockholders’ equity for the interim periods presented. The results of operations for the three and nine months ended September 30, 2022 shown in this report are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other period.

Segments

Effective May 2022, the Company revised the presentation of segment information to reflect changes in the way the Company manages and evaluates the business. As such, the Company now reports operating results through two reportable segments: Software Platform and Apps, as further discussed in Note 4. Accordingly, segment information for the comparable prior year period has been revised.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with GAAP. Consolidated financial statements include accounts and operations of the Company and its subsidiaries in which the Company has a controlling financial interest. In accordance with the provisions of Accounting Standards Codifications ("ASC") 810, the Company consolidates any variable interest entities ("VIE") where it is the primary beneficiary. The Company engages in business relationships with certain entities in the ordinary course of business to develop game Apps. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE when the Company is not the primary beneficiary. The Company evaluates its relationships with all VIEs on an ongoing basis. All intercompany transactions and balances have been eliminated upon consolidation.

Revenue from Contracts with Customers

The Company generates Software Platform and Apps revenue. Software Platform revenue is generated from fees paid by advertisers who use the Software Platform. The Company generates Apps revenue from both consumers and business clients. Consumer revenue is generated from in-app purchases (“IAPs”) made by users within the Company’s apps (“Apps”). Business revenue is generated from advertisers that purchase ad inventory from Apps.

Software Platform Revenue

The Software Platform provides the technology to match advertisers and third-party owners of digital advertising inventory (“Publishers”) via auctions at large scale and microsecond-level speeds. The pricing and terms for all mobile advertising arrangements are governed by the Company’s terms and conditions and generally stipulate payment terms of 30 days subsequent to the end of the month. The contract is fully cancellable at any time.

Software Platform Revenue is generated by placing ads on mobile applications owned by Publishers. The Company’s performance obligation is to provide an advertiser with access to the Software Platform, which facilitates the advertiser’s purchase of ad inventory from Publishers. The Company does not control the ad inventory prior to its transfer to the advertiser, the Company’s customer, because the Company does not have the substantive ability to direct the use of nor obtain substantially all of the remaining benefits from the ad inventory. The Company is not primarily responsible for fulfillment and does not have any inventory risk. The Company is an agent as it relates to the sale of third-party advertising inventory and presents revenue on a net basis. The transaction price is the product of either the number of completions of agreed upon actions or advertisements displayed and the contractually agreed upon price per advertising unit with the advertiser less consideration paid or payable to Publishers. The Company recognizes Software Platform Revenue when the agreed upon action is completed or when the ad is displayed to users. The number of advertisements delivered and completions of agreed upon actions is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period.

Apps Revenue

Consumer Revenue

Consumer Revenue includes fees collected from users to purchase virtual goods to enhance their gameplay experience. The identified performance obligation is to provide users with the ability to acquire, use, and hold virtual items over the estimated period of time the virtual items are available to the user or until the virtual item is consumed. Payment is required at the time of purchase, and the purchase price is a fixed amount.

Users make IAPs through the Company’s distribution partners. The transaction price is equal to the gross amount charged to users because the Company is the principal in the transaction. IAPs fees are non-refundable. Such payments are initially recorded as deferred revenue. The Company categorizes virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action in gameplay; accordingly, the Company recognizes revenue from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the user over an extended period of time; accordingly, the Company recognizes revenue from the sale of durable virtual goods ratably over the period of time the goods are available to the user, which is generally the estimated average user life (“EAUL”).

The EAUL represents the Company’s best estimate of the expected life of paying users for the applicable game. The EAUL begins when a user makes the first purchase of durable virtual goods and ends when a user is determined to be inactive. The Company determines the EAUL on a game-by-game basis. For a newly launched game with limited playing data, the Company determines the EAUL based on the EAUL of a game with sufficiently similar characteristics.

The Company determines the EAUL on a quarterly basis and applies such calculated EAUL to all bookings in the respective quarter. Determining the EAUL is subjective and requires management’s judgment. Future playing patterns may differ from historical playing patterns, and therefore the EAUL may change in the future. The EAULs are generally between six and nine months.

Business Revenue

Business Revenue is generated by selling ad inventory on the Company's Apps to third-party advertisers. Advertisers purchase ad inventory either through the Software Platform or through third-party advertising networks (“Ad Networks”). Revenue from the sale of ad inventory through Ad Networks is recognized net of the amounts retained by Ad Networks as the Company is unable to determine the gross amount paid by the advertisers to Ad Networks. The Company recognizes revenue when the ad is displayed to users.

Asset Acquisitions and Business Combinations

The Company performs an initial test to determine whether substantially all of the fair value of the gross assets transferred are concentrated in a single identifiable asset or a group of similar identifiable assets, such that the acquisition would not represent a business. If that test suggests that the set of assets and activities is a business, the Company then performs a second test to evaluate whether the assets and activities transferred include inputs and substantive processes that together, significantly contribute to the ability to create outputs, which would constitute a business. If the result of the second test suggests that the acquired assets and activities constitute a business, the Company accounts for the transaction as a business combination.

For transactions accounted for as business combinations, the Company allocates the fair value of acquisition consideration to the assets acquired and liabilities assumed based on their estimated fair values. Acquisition consideration includes the fair value of any promised contingent consideration. The excess of the fair value of acquisition consideration over the fair value of acquired identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions and subject to revision when the Company receives final information, including appraisals and other analyses. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Contingent consideration is remeasured to the fair value of each reporting period with changes in the fair value of contingent consideration recorded in general and administrative expenses. Acquisition-related costs are expensed as incurred.

For transactions accounted for as asset acquisitions, the cost, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The Company generally includes contingent consideration in the cost of the assets acquired only when the uncertainty is resolved. The Company recognizes contingent consideration adjustments to the cost of the acquired assets prospectively using the straight-line method over the remaining useful life of the assets. No goodwill is recognized in asset acquisitions.

Services and Development Agreements

The Company enters into strategic agreements with mobile gaming studios (“Partner Studios”). The Company has historically allowed these Partner Studios to continue their operations with a significant degree of autonomy. In some cases, the Company bought Apps from Partner Studios and entered into service and development agreements whereby Partner Studios provide support in improving existing Apps and developing new Apps. The substantial majority of payments associated with service agreements for existing Apps are expensed to research and development when the services are rendered as the payments primarily relate to developing enhancements for the Apps. Payments for new Apps associated with development agreements are generally made in connection with the development of a particular App, and therefore, the Company is subject to development risk prior to the release of the App. Accordingly, payments that are due prior to completion of an App are generally expensed to research and development over the development period as the services are incurred. Payments due after completion of an App are generally capitalized and expensed as cost of revenue. See Note 7, “Acquisitions” for additional information.

Recent Accounting Pronouncements (Issued and Not Yet Adopted)

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires specific disclosures for equity securities subject to contractual sale restrictions. These changes will become effective for the Company on January 1, 2024. The Company is currently evaluating the potential impact of these changes.

Recent Accounting Pronouncements (Issued and Adopted)

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit; and simplifies classification of debt on the balance sheet and earnings per share calculation. The Company adopted this ASU on January 1, 2022 with no material impact on the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. The Company adopted this ASU on January 1, 2022 with no material impact on the consolidated financial statements.

3. Revenue

Disaggregation of Revenue

The following table presents revenue disaggregated by segment and type (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Software Platform Revenue	$	306,592	$	193,307	$	742,972	$	427,390
Consumer Revenue	272,437		377,436		915,177		1,096,850
Business Revenue	134,070		156,208		456,602		475,394
Apps Revenue	406,507		533,644		1,371,779		1,572,244
Total Revenue	$	713,099	$	726,951	$	2,114,751	$	1,999,634

Revenue disaggregated by geography, based on user location, consists of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
United States	$	437,679	$	437,501	$	1,299,624	$	1,209,846
Rest of the World	275,420		289,450		815,127		789,788
Total Revenue	$	713,099	$	726,951	$	2,114,751	$	1,999,634

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of the satisfaction of performance obligations. During the three months ended September 30, 2022 and 2021, the Company recognized $48.4 million and $63.1 million of revenue that was included in deferred revenue as of June 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized $78.1 million and $86.9 million of revenue that was included in deferred revenue as of December 31, 2021 and 2020, respectively.

Unsatisfied Performance Obligations

All of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less.

Publisher Bonuses

During the three months ended March 31, 2022, the Company paid or promised to pay a total of $209.6 million in bonuses to publishers consisting primarily of non-recurring bonuses to migrate publishers to MAX, the Company's own in-app mediation platform. The Company accounted for such publisher bonuses as a reduction to revenue since the publishers receiving such bonuses are also customers of the Company. Publisher bonuses were not material for the three months ended June 30, 2022 and September 30, 2022.

4. Segments

During the second quarter of 2022, the Company revised the presentation of segment information to align with changes to how the Company's chief operating decision maker (“CODM”) manages the business, allocates resources and assesses operating performance. The CODM is the Company's Chief Executive Officer. Prior to the second quarter of 2022, the Company had a single operating and reportable segment. Beginning in the second quarter of 2022, the Company reports operating results based on two reportable segments: Software Platform and Apps. As of September 30, 2022, the Company's operating segments are the same as the reportable segments, which are as follows:

Software Platform*:* Software Platform generates revenue primarily from fees paid by advertisers for the placement of ads on mobile applications owned by Publishers.
Apps*:* Apps generates revenue when a user of one of the Apps makes an in-app purchase ("Consumer Revenue") and when clients purchase the digital advertising inventory of the Company's portfolio of Apps ("Business Revenue").

The CODM evaluates the performance of each operating segment using revenue and segment adjusted EBITDA. The Company defines segment adjusted EBITDA as revenue less expenses, excluding depreciation and amortization and certain items that the Company does not believe are reflective of the operating segments’ core operations. Expenses include indirect costs that are allocated to operating segments based on a reasonable allocation methodology, which are generally related to sales and marketing activities and general and administrative overhead. Revenue and expenses exclude transactions between the Company's operating segments.

The following table provides information about the Company's reportable segments and a reconciliation of the total segment adjusted EBITDA to consolidated income (loss) before income taxes (in thousands). For comparative purposes, amounts in prior periods have been recast:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Software Platform	$	306,592	$	193,307	$	742,972	$	427,390
Apps	406,507		533,644		1,371,779		1,572,244
Total Revenue	$	713,099	$	726,951	$	2,114,751	$	1,999,634

Segment Adjusted EBITDA:
Software Platform	$	190,256	$	130,663	$	622,555	$	281,904
Apps	67,381		60,033		181,055		223,586
Total Segment Adjusted EBITDA	$	257,637	$	190,696	$	803,610	$	505,490

Interest expense and loss on settlement of debt, net	$	(48,627)	$	(18,756)	$	(117,141)	$	(72,796)
Other income (expense), net	3,604		(103)		8,473		6,852
Amortization, depreciation and write-offs	(163,830)		(119,436)		(445,507)		(315,409)
Non-operating foreign exchange gain	406		235		1,683		1,510
Stock-based compensation	(42,147)		(34,725)		(143,943)		(94,119)
Acquisition-related expense and transaction bonus	(4,317)		(1,066)		(21,052)		(14,060)
Publisher bonuses	—		—		(209,635)		—
MoPub acquisition transition services	—		—		(6,999)		—
Restructuring costs	(1,117)		—		(8,494)		—
Change in fair value of contingent consideration	—		230		—		230
Income (loss) before provision for tax	$	1,609	$	17,075	$	(139,005)	$	17,698

The CODM does not evaluate operating segments using asset information and, accordingly, the Company does not report asset information by segment.

5. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. At September 30, 2022 and December 31, 2021, the carrying amount of cash and cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued and other current liabilities approximated their estimated fair value due to their relatively short maturities. The carrying amounts of borrowings under a certain credit agreement approximate fair value as interest rates on these instruments are variable and approximate current market rates. The following table sets forth the Company’s financial instruments that were measured at fair value by level within the fair value hierarchy on a recurring basis as of the dates indicated (in thousands):


				As of September 30, 2022
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Unrestricted Balances
Money market funds(1)	Cash and cash equivalents	$	723,394	$	723,394	$	—	$	—
Total financial assets		$	723,394	$	723,394	$	—	$	—


				As of December 31, 2021
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Unrestricted Balances
Money market funds(1)	Cash and cash equivalents	$	1,070,979	$	1,070,979	$	—	$	—
Marketable equity securities	Prepaid expenses and other current assets	$	2,532	$	2,532	$	—	$	—
Restricted Balances
Money market funds	Restricted cash equivalents	$	1,050,000	$	1,050,000	—		—
Total financial assets		$	2,123,511	$	2,123,511	$	—	$	—

(1) Includes balances in money market deposit accounts of $535.4 million and $921.0 million as of September 30, 2022 and December 31, 2021, respectively.

Non-Marketable Equity Securities Measured at Net Asset Value

The Company held equity interests in certain private equity funds of $20.6 million and $3.2 million as of September 30, 2022 and December 31, 2021, respectively, which are measured using the net asset value practical expedient. Under the net asset value practical expedient, the Company records investments based on the proportionate share of the underlying funds’ net asset value as of the Company's reporting date. These investments are included in other assets in the Company’s condensed consolidated balance sheets.

These funds vary in investment strategies and generally have an initial term of 7 to 10 years, which may be extended for 2 to 3 additional years with the applicable approval. These investments are subject to certain restrictions regarding transfers and withdrawals and generally cannot be redeemed with the funds. Distributions from the funds will be received as the underlying investments are liquidated. The Company’s maximum exposure to loss is limited to the carrying value of these investments of $20.6 million and the unfunded commitments of $36.1 million as of September 30, 2022.

During the three and nine months ended September 30, 2022, the Company made total capital contributions of $0.1 million and $18.6 million related to these investments. The Company recorded an unrealized gain of $0.8 million related to these investments in other income, net in the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2022. The unrealized loss of these investments for the three months ended September 30, 2022 was immaterial. The Company had no such investments in 2021.

Non-Marketable Equity Securities Measured at Fair Value on a Non-Recurring Basis

During the second quarter of 2022, the Company purchased certain non-marketable equity securities for total proceeds of $38.0 million. Non-marketable equity securities are investments in privately held companies without readily determinable fair values. The Company elected the measurement alternative to account for these investments. Under the measurement alternative, the carrying value of the non-marketable equity securities are adjusted based on price changes from observable transactions of identical or similar securities of the same issuer or for impairment. Any changes in carrying value are recorded within other income (expense), net in the Company's condensed consolidated statement of operations. There was no change in the carrying value of the non-marketable equity securities since their acquisitions. These investments are included in other assets in the Company’s condensed consolidated balance sheets. The Company had no such investments in 2021.

6. Commitments and Contingencies

Commitments

As of September 30, 2022, the Company's non-cancelable minimum purchase commitments comprised primarily of a certain arrangement related to cloud platform services. In May 2022, the Company amended the arrangement to increase the aggregate spend commitment from $300.0 million to $550.0 million through May 2025. As of September 30, 2022, the Company had paid $44.8 million towards this commitment. In addition, the Company had total unfunded commitments of $36.1 million related to investments in certain private equity funds (see Note 5).

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

Letters of Credit

As of September 30, 2022 and December 31, 2021, the Company had outstanding letters of credit in the aggregate amount of $11.1 million, which were issued as security for certain leased office facilities under the credit agreement. These letters of credit have never been drawn upon.

Legal Proceedings

The Company is involved from time to time in litigation, claims, and proceedings. The outcomes of the Company’s legal proceedings are inherently unpredictable and subject to significant uncertainty.

The Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. If it is determined that a loss is reasonably possible and the loss or range of loss can be estimated, the reasonably possible loss is disclosed. The Company evaluates developments in legal matters that could affect the amount of liability that has been previously accrued, and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine the likelihood of matters and the estimated amount of losses related to such matters. To date, losses in connection with legal proceedings have not been material.

The Company expenses legal fees in the period in which they are incurred.

Indemnifications

The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including certain customers, business partners, investors, contractors and the Company’s officers, directors and certain employees. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material. As of September 30, 2022, the Company did not have any material indemnification claims that were probable or reasonably possible.

Non-income Taxes

The Company may be subject to audit by various tax authorities with regard to non-income tax matters. The subject matter of non-income tax audits primarily arises from different interpretations on tax treatment and tax rates applied. The Company accrues liabilities for non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss.

7. Acquisitions and Dispositions

2022 Acquisitions

Business Combinations

Wurl—On April 1, 2022, the Company completed the acquisition of all of the equity interests of Wurl, Inc. ("Wurl"), a connected TV software platform, for a total purchase price of $378.2 million, consisting of $219.3 million in cash, 2,579,692 shares of the Company's Class A common stock valued at $137.4 million and a deferred payment of $21.5 million relating to an indemnity holdback amount to be paid in 18 months following the transaction close date. The transaction is expected to enable the Company to expand into the connected TV market. The Company accounted for the acquisition as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $1.9 million.

The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents	$	400
Accounts receivable and other current assets	15,194
Intangible assets
Customer Relationships—estimated useful life of 15 years	41,000
Developed Technology—estimated useful life of 6 years	60,500
Tradename—estimated useful life of 10 years	14,700
Goodwill	261,945
Property and equipment, net	363
Other assets	159
Accounts payable, accrued liabilities and other current liabilities	(12,854)
Deferred revenue	(209)
Deferred income tax liability	(3,031)
Total purchase consideration	$	378,167

The above allocation of the purchase price is still provisional and subject to change within the measurement period, including potential adjustments to deferred tax balances. The final allocation of the purchase price is expected to be completed as soon as practicable, but no later than one year from the date of the acquisition close.

The income approach was used to determine the preliminary fair value of the customer relationships, developed technology, and tradename. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired and liabilities assumed at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, no tax deductible goodwill was generated as a result of this acquisition.

Contemporaneously with entering into the definitive agreement, the Company also adopted a multi-year performance-based incentive plan for certain key employees of Wurl, under which the key employees may earn up to a total of $600.0 million in additional shares of the Company's Class A common stock through 2025, contingent upon the achievement of certain revenue and other performance targets by the acquired business and the continued employment of such key employees between 2023 and 2025. Such plan became effective at the closing of the transaction.

The Company’s condensed consolidated statement of operations for the nine months ended September 30, 2022, includes Wurl's revenue of $22.7 million and pre-tax loss of $8.7 million for the period from the acquisition date of April 1, 2022 to September 30, 2022.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

MoPub—On January 1, 2022, the Company completed the acquisition from Twitter, Inc. of certain assets that comprised of the MoPub business for a total purchase price of $1.03 billion in cash. The acquisition allows the Company to integrate certain product features of the MoPub platform into MAX, the Company's own in-app mediation platform, and migrate publishers and demand partners from the MoPub platform to MAX. The Company accounted for the acquisition as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $14.4 million.

The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired (in thousands):


Intangible assets
Advertiser Relationships—estimated useful life of 9 years	$	212,700
Publisher Relationships—estimated useful life of 9 years	123,300
Developed Technology—estimated useful life of 5 years	61,800
Tradename—estimated useful life of 3 months	60
Goodwill	632,472
Total purchase consideration	$	1,030,332

The fair values assigned to the assets acquired are based on the Company's best estimates and assumptions as of the reporting date. No liabilities were assumed in the transaction. The Company has completed a preliminary valuation and expects to finalize it as soon as practical, but no later than one year from the acquisition date.

The income approach was used to determine the preliminary fair value of the advertiser relationships, publisher relationships, developed technology and tradename. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, an estimated tax deductible goodwill of $694.5 million was generated as a result of this acquisition.

Contemporaneously with the signing of the asset purchase agreement, the Company entered into an agreement for Twitter, Inc. to provide certain transitional services to facilitate the migration of publishers and demand partners to MAX during a three-month transitional period following the closing of the transaction (the "TSA"). The Company accounted for the TSA as a transaction separate from the business combination since it was negotiated primarily for the benefit of the Company. During the nine months ended September 30, 2022, the Company recognized total expense of $7.0 million related to the transitional services, which was included primarily in cost of revenue in the Company's condensed consolidated statement of operations.

Due to the significant integration of the MoPub business with MAX, it was impractical to determine the impact of the acquired business on revenue or earnings.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

Asset Acquisitions

During the three and nine months ended September 30, 2022, the Company recognized total earn-out costs of $23.2 million and $98.7 million, respectively, related to asset acquisitions closed in 2021 and prior. No other asset acquisition was completed during the three and nine-month period ended September 30, 2022.

2021 Acquisitions

Business Combinations

On April 20, 2021, the Company acquired adjust GmbH (“Adjust”), a mobile application tracking and analytics company. The Company purchased all of the outstanding shares of the capital stock of Adjust and settled all of Adjust’s debt for the stated purchase price of $980.0 million, which was composed of a $352.0 million stated value of convertible securities convertible into a variable number of shares of the Company's Class A common stock at a variable conversion price, $50.0 million of cash holdback, and remaining amount of $578.0 million in cash consideration. The fair value of the convertible securities and fair value of the cash holdback are estimated to be $342.2 million and $47.6 million, respectively. As such, the fair value of the acquisition consideration is determined to be $967.8 million. The transaction is expected to expand the Company’s Software Platform solutions and has been accounted for as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $3.1 million.

The following table summarizes the fair value of the assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents	$	12,155
Accounts receivable and other current assets	21,840
Intangible assets
Customer Relationships—estimated useful life of 12 years	155,000
Developed Technology—estimated useful life of 6 years	77,000
Tradename—estimated useful life of 5 years	8,000
Goodwill	776,147
Operating lease right-of-use assets	8,130
Property and equipment, net	1,897
Finance lease right-of-use assets	43,156
Other assets	3,191
Accounts payable, accrued liabilities and other current liabilities	(15,540)
Deferred revenue	(5,600)
Operating lease liabilities	(8,130)
Finance lease liabilities	(43,156)
Deferred income tax liability	(66,273)
Total purchase consideration	$	967,817

The income approach was used to determine the fair value of the customer relationships, developed technology, and tradename. Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, a tax deductible goodwill of $692.5 million was generated as a result of this acquisition.

The Company’s condensed consolidated statement of operations for the nine months ended September 30, 2021 includes Adjust’s revenue of $49.4 million and pretax loss of $29.6 million for the period from the acquisition date of April 20, 2021 to September 30, 2021.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

Asset Acquisitions

In April 2021, the Company completed two separate transactions to acquire certain mobile Apps from two foreign-based independent mobile game developers in exchange for an aggregate upfront cash consideration of $300.0 million and potential future earn-out payments. The Company incurred a total transaction cost of $6.0 million related to these transactions. Both transactions were accounted for as asset acquisitions with $306.0 million allocated to the acquired mobile Apps, which will be amortized over approximately eight years. Concurrent with the closings of these transactions, the Company entered into a development services agreement with each of the independent mobile game developers to support the acquired mobile Apps, as well as to develop new mobile Apps during the four-year term of the agreement. With respect to the first transaction, the potential future earn-out payments are contingent on the revenue generated by the acquired mobile Apps exceeding a certain revenue threshold, which will be measured and payable (if applicable) each year for four years from the date of the transaction. With respect to the second transaction, the potential future earn-out payments will be determined in a manner similar to the first transaction, in addition to a potential one-time earn-out payment of $50.0 million contingent on the achievement of a certain monthly revenue milestone within the four years following the date of the transaction.

In June 2021, the Company acquired certain mobile Apps from a foreign-based independent mobile game developer in exchange for an upfront cash consideration of $130.0 million and future earn-out payments. The Company incurred a total transaction cost of $4.0 million related to the transaction. The transaction was accounted for as an asset acquisition with $134.0 million allocated to the acquired mobile Apps, which will be amortized over nine years. Concurrent with the closing of the transaction, the Company entered into a development services agreement with the independent mobile game developer to support the acquired mobile Apps, as well as to develop new mobile Apps during the four-year term of the agreement. With respect to all initially acquired mobile Apps, the potential future earn-out payments are contingent on the revenue and/or earnings before interest, taxes, depreciation, and amortization ("EBITDA") generated by the acquired Apps exceeding certain thresholds.

In August 2021, the Company acquired certain mobile Apps from a foreign-based independent mobile game developer in exchange for a total cash consideration of $150.0 million. The transaction was accounted for as an asset acquisition with $150.0 million allocated to the acquired mobile Apps, which will be amortized over 6 years.

During the three and nine months ended September 30, 2021, the Company also acquired certain mobile Apps for upfront cash consideration of $28.8 million and $36.8 million, respectively, as well as potential future earn-out payments that were contingent on the revenue and/or profit generated by the acquired mobile Apps.

During the three and nine months ended September 30, 2021, the Company recognized total earn-out costs of $9.9 million and $97.5 million, respectively, related to previously closed asset acquisitions. These earn-out costs increased the book value of the acquired mobile Apps, and are amortized over the remaining useful life of the originally acquired mobile Apps.

Supplemental Pro Forma Information

The unaudited supplemental pro forma information below presents the combined historical results of operations of the Company, Adjust, the MoPub business, and Wurl for each of the periods presented as if Adjust had been acquired as of January 1, 2020, and the MoPub business and Wurl had been acquired as of January 1, 2021 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	713,099	$	780,122	$	2,123,783	$	2,178,004
Net income (loss)	$	23,662	$	5,338	$	(104,775)	$	(13,542)

The unaudited supplemental pro forma information above includes the following adjustments to net income (loss) in the appropriate pro forma periods (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
An (increase) in amortization expense related to the fair value of acquired identifiable intangible assets, net of the amortization expense already reflected in actual historical results	$	—	$	(16,434)	$	(3,512)	$	(56,687)
A decrease (increase) in expenses related to the TSA	$	—	$	—	$	7,000	$	(7,000)
An increase in revenue related to fair value adjustment	$	—	$	682	$	—	$	1,220
An (increase) due to replacement stock awards	$	—	$	(2,657)	$	(1,221)	$	(8,816)
An (increase) in interest expense related to new debt financing, net of interest expense related to pre-existing debt settled as part of the acquisitions	$	—	$	—	$	—	$	(2,641)
A decrease (increase) in expenses related to transaction costs	$	—	$	—	$	16,899	$	(8,429)
A decrease in expenses related to transaction bonuses	$	—	$	483	$	1,101	$	8,899
A decrease (increase) in income tax provision	$	—	$	4,090	$	(4,625)	$	16,761

Assets Held for Sale

As of September 30, 2022, the Company classified certain assets within the Apps segment as assets held for sale and recorded an impairment charge of $27.7 million in cost of revenue in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 to measure such assets at fair value less costs to sell. As of September 30, 2022, the carrying value of such assets was immaterial. The sale was subsequently closed in the fourth quarter of 2022.

8. Goodwill and Intangible Assets

As described in Note 4, during the second quarter of 2022, the Company revised the presentation of segment information to reflect changes in the way the Company manages and evaluates the business. As a result, beginning in the second quarter of 2022, the Company reports operating results based on two reportable segments—Software Platform and Apps. This change also resulted in a change in reporting units to coincide with the new operating segments. Given the change in reporting units, the Company performed a relative fair value calculation to allocate historical goodwill of $1.8 billion between the two new reporting units, with $1.5 billion and $0.3 billion of goodwill allocated to Software Platform and Apps, respectively. The Company also performed a qualitative impairment test immediately before and after the change in reporting units and determined that it is not more likely than not that the fair value of the reporting units is less than their carrying amounts, including goodwill. Accordingly, the Company concluded that the goodwill relating to those reporting units was not impaired and further quantitative impairment test was not necessary.

The following table presents the changes in the carrying amount of goodwill (in thousands):



December 31, 2021	$	966,427
Goodwill acquired	894,463
Foreign currency translation	(97,720)
September 30, 2022	$	1,763,170

Intangible assets, net consisted of the following (in thousands):


	Weighted- Average Remaining Useful Life (Years)		As of September 30, 2022							As of December 31, 2021
	Gross Carrying Value	Accumulated Amortization	Net Book Value				Gross Carrying Value		Accumulated Amortization	Net Book Value


Long-lived intangible assets:
Apps	4.6		$	1,965,752	$	(779,027)	$	1,186,725		$	1,939,180	$	(529,012)	$	1,410,168
Customer relationships	9.4		503,195		(44,557)		458,638			145,870		(8,442)		137,428
User base	3.5		68,817		(34,684)		34,133			68,817		(27,369)		41,448
License asset	0.8		25,640		(12,820)		12,820			25,640		—		25,640
Developed technology	4.9		200,751		(44,098)		156,653			87,851		(21,435)		66,416
Other	6.3		51,137		(10,943)		40,194			34,895		(6,648)		28,247
Total long-lived intangible assets			2,815,292		(926,129)		1,889,163			2,302,253		(592,906)		1,709,347
Short-lived intangible assets:
Apps	0.3		46,189		(44,753)		1,436			40,348		(38,724)		1,624
Total intangible assets			$	2,861,481	$	(970,882)	$	1,890,599		$	2,342,601	$	(631,630)	$	1,710,971

As of September 30, 2022 and December 31, 2021, short-lived mobile Apps were included in prepaid expenses and other current assets.

The Company recorded amortization expenses related to acquired intangible assets as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of revenue	$	111,259	$	96,059	$	342,115	$	273,444
Sales and marketing	16,619		6,765		49,543		16,008
Total	$	127,878	$	102,824	$	391,658	$	289,452

9. Common Stock

In February 2022, the Company's Board authorized the repurchase of up to $750.0 million of the Company’s Class A common stock. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company may also, from time to time, enter into Rule 10b-5 trading plans, under the Exchange Act, to facilitate repurchases of shares. The repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, has no expiration date and may be modified, suspended, or terminated at any time at the Company's discretion. As of September 30, 2022, the Company repurchased 9,042,407 shares of outstanding Class A common stock for an aggregate amount of $338.8 million.

10. Stock-based Compensation

The Company maintains the 2021 Equity Incentive Plan, the 2021 Partner Studio Incentive Plan, and the 2021 Employee Stock Purchase Plan, all of which were adopted by the Board and approved by stockholders.

2021 Equity Incentive Plan

The 2021 Equity Incentive Plan (the “2021 Plan”) provides for the grant of restricted stock units ("RSUs"), incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), restricted stock, stock appreciation rights ("SARs"), performance units, and performance shares to the Company’s employees, directors, consultants, and other service providers. The total shares of the Company’s Class A common stock that were initially reserved for issuance under the 2021 Plan was 39,000,000, and provides for an annual increase of shares equal to the least of (a) 39,000,000 shares, (b) five percent (5%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s Board may determine. During the nine months ended September 30, 2022, the Board decreased the number of shares of Class A common stock reserved for issuance under the 2021 Plan by 2,000,000 shares.

In the three and nine months ended September 30, 2022, the Company granted 777,333 and 4,070,650 RSUs to certain employees under the 2021 Plan at the weighted average grant date fair value of $29.86 and $45.85 per RSU, respectively. The RSUs generally vest over an approximate period of four to five years of continuous service from their respective vesting commencement dates.

2021 Partner Studio Incentive Plan

The 2021 Partner Studio Incentive Plan (the “2021 Partner Plan”) provides for the grant of RSUs, ISOs, NSOs, SARs, performance units, and performance shares to individuals or entities engaged by the Company or a parent or subsidiary of the Company to render bona fide services to the party engaging such individual or entity. A total of 390,000 shares of the Company’s Class A common stock are reserved for issuance pursuant to the 2021 Partner Plan. During the nine months ended September 30, 2022, the Board reserved an additional 2,000,000 shares of Class A common stock for issuance under the 2021 Partner Plan.

In the nine months ended September 30, 2022, the Company granted 577,772 RSUs under the 2021 Partner Plan at the weighted average grant date fair value of $47.05 per RSU. The Company did not grant RSUs under the 2021 Partner Plan during the three months ended September 30, 2022. The RSUs generally vest over an approximate period of four to five years of continuous service.

2021 Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (the "ESPP") permits participants to purchase shares of the Company’s Class A common stock through contributions of up to 15% of their eligible compensation. The ESPP provides for consecutive, overlapping 24-month offering periods, during which the contributed amount by the participant will be used to purchase shares of the Company’s Class A common stock at the end of each 6-month purchase period with the purchase price of the shares being 85% of the lower of the fair market value of the Company’s Class A common stock on the first day of an offering period or on the exercise date. A participant may purchase a maximum of 590 shares of the Company’s Class A common stock during a purchase period. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with the Company.

A total of 7,800,000 shares of the Company’s Class A common stock are available for sale under the ESPP and provides for an annual increase of shares equal to the least of: (a) 7,800,000 shares, (b) one percent (1%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors may determine. During the nine months ended September 30, 2022, 107,781 shares were purchased under the ESPP.

The Company recognized stock-based compensation expense for the periods indicated as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of revenue	$	1,230	$	922	$	4,988	$	1,504
Sales and marketing	10,035		4,774		30,386		8,814
Research and development	21,569		20,110		68,088		40,148
General and administrative	9,313		8,919		40,481		41,362
Total	$	42,147	$	34,725	$	143,943	$	91,828

For the three and nine months ended September 30, 2021, total stock-based compensation expense included $0.3 million and $0.9 million associated with certain liability classified awards that may be settled in stock of one of the Company’s subsidiaries, respectively. For the three and nine months ended September 30, 2022, the Company recorded credits of $2.7 million and $2.1 million to stock-based compensation expense associated with such awards, respectively.

Early Exercise of Stock Options—As of September 30, 2022 and December 31, 2021, the Company had 191,748 and 486,999 shares of Class A common stock subject to repurchase in connection with early exercised stock options, respectively. The liability for the shares subject to repurchase as of September 30, 2022 and December 31, 2021 was $0.5 million and $1.4 million, respectively, which was included in accrued liabilities in the Company’s condensed consolidated balance sheets.

During 2020 and 2019, the Company provided financing to certain employees in the form of promissory notes to early exercise stock options. These promissory notes are partially collateralized by shares and, for accounting purposes, in-substance nonrecourse. For accounting purposes, exercised options via nonrecourse promissory notes are not substantive and are continued to be treated as options. In February 2021, promissory notes issued to executive officers in the amount of $20.9 million were settled through either share repurchase, in the amount of $17.2 million, or cash payment, in the amount of $3.7 million. In connection with the repurchase of shares, the Company accelerated vesting of 60,968 shares of Class A common stock for one of the Company’s officers. The acceleration of vesting was accounted as an option modification with an immaterial impact to the stock-based compensation expense. As of September 30, 2022 and December 31, 2021, the Company had 1,399,999 and 2,884,999 shares of Class A common stock options, respectively, that were exercised via nonrecourse promissory notes, of which 58,543 and 663,856 shares, were unvested and subject to repurchase, respectively. The principal balances of nonrecourse promissory notes outstanding amounted to $5.0 million and $15.1 million as of September 30, 2022 and December 31, 2021, respectively.

11. Earnings Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stockholders (in thousands, except share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic EPS
Numerator:
Net income (loss) attributable to AppLovin	$	23,771	$	178	$	(113,234)	$	4,080
Less:
Income attributable to convertible preferred stock	—		—		—		(499)
Income attributable to options exercised by promissory notes	(102)		(1)		—		(49)
Income attributable to unvested early exercised options	(18)		—		—		(13)
Income attributable to unvested RSA’s	(2)		—		—		(7)
Net income (loss) attributable to common stock	$	23,649	$	177	$	(113,234)	$	3,512
Denominator:
Weighted average common shares used to compute net income (loss) per share attributable to common stock, basic	369,389,170		368,427,532		371,736,763		309,353,304
Net income (loss) per share attributable to common stock, basic	$	0.06	$	0.00	$	(0.30)	$	0.01
Diluted EPS
Numerator:
Net income (loss) attributable to AppLovin	$	23,771	$	178	$	(113,234)	$	4,080
Less:
Income attributable to convertible preferred stock	—		—		—		(475)
Income attributable to options exercises by promissory notes	(99)		(1)		—		(47)
Income attributable to unvested early exercised options	(17)		—		—		(12)
Income attributable to unvested RSA's	(2)		—		—		(7)
Net income (loss) attributable to common stock	$	23,653	$	177	$	(113,234)	$	3,539
Denominator:
Weighted-average shares used in computing net income (loss) per share: basic	369,389,170		368,427,532		371,736,763		309,353,304
Weighted-average dilutive stock options, RSUs, and convertible security	9,073,037		15,897,253		—		18,073,488
Weighted-average shares used in computing net income (loss) per share: diluted	378,462,207		384,324,785		371,736,763		327,426,792
Net income (loss) per share attributable to common stock: diluted	$	0.06	$	0.00	$	(0.30)	$	0.01

The following table presents the forms of antidilutive potential common shares:


	As of September 30,
	2022	2021
Stock options exercised for promissory notes	1,399,999	2,884,999
Shares issuable upon conversion of Athena convertible security	—	334,946
Early exercised stock options	191,748	879,600
Unvested RSAs	—	242,316
Stock options	12,168,796	23,736
Unvested RSUs	9,318,132	2,828
ESPP	413,829	223,448
Total antidilutive potential common shares	23,492,504	4,591,873

12. Income Taxes

The Company is subject to income taxes in the U.S. and in foreign jurisdictions. The Company bases the interim tax accruals on an estimated annual effective tax rate applied to year-to-date income and records the discrete tax items in the period to which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the tax provision as necessary. The Company’s calendar year 2022 annual effective tax rate differs from the U.S. statutory rate primarily due to stock-based compensation expense, foreign derived intangible income deduction, global intangible low-taxed income, and valuation allowance against losses which are not more likely than not to be realized.

During the nine months ended September 30, 2022, there were no material changes to the Company's unrecognized tax benefits, and the Company does not expect material changes in unrecognized tax benefits within the next twelve months.

13. Related Party Transactions

On February 12, 2021, the Company amended the credit agreement that provides for senior secured credit consisting of term loans and a revolving credit facility, with varying maturity dates through 2028. In connection with this amendment, the Company paid $0.8 million in fees to KKR Capital Markets LLC, which is affiliated with KKR Denali Holdings L.P. ("KKR Denali"), one of the Company’s principal stockholders.

On March 31, 2021, the Company drew down an additional $250.0 million from the Company’s $600.0 million revolving credit facility. A lender under the revolving credit facility is an affiliate of KKR Denali, a principal stockholder of the Company.

The Company had no other material related party transactions for the three and nine months ended September 30, 2022 and 2021.

14. Restructuring

In June 2022, the Company announced a workforce reduction which affected approximately 12% of the Company’s employees. As a result, the Company recognized a total restructuring charge of $7.4 million comprising primarily of one-time termination benefits in the Company’s condensed consolidated statement of operations for the three months ended June 30, 2022. Additionally, the Company had an insignificant reduction in workforce in the Apps segment during the three months ended September 30, 2022. As of September 30, 2022, an immaterial amount of these restructuring costs remain unpaid and are included in accrued liabilities on the Company's condensed consolidated balance sheet.

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