filings.toolsAppLovin 10-Q 2024-03-31
Filed 2024-05-08. 8 sections, 347K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40325
AppLovin Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 45-3264542 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1100 Page Mill Road
Palo Alto, California 94304
(Address of registrant’s principal executive offices, including zip code)
(800) 839-9646
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Class A common stock, par value $0.00003 per share | APP | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 3, 2024, the number of shares of the registrant’s Class A common stock outstanding was 273,970,847 and the number of shares of the registrant’s Class B common stock outstanding was 55,042,821.
Table of Contents
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include statements about:
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our future financial performance, including our expectations regarding our revenue, cost of revenue, and operating expenses, and our ability to achieve or maintain future profitability;
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the sufficiency of our cash and cash equivalents to meet our liquidity needs;
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our ability to maintain the security and availability of our AppLovin Software Platform and AppLovin Apps;
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our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation and privacy and data protection;
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our ability to attract and retain employees and key personnel;
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our expectations regarding the macroeconomic environment, inflation and high interest rates, uncertainty in the global banking and financial services markets, political uncertainty and international conflicts around the world;
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our ability to maintain, protect and enhance our intellectual property;
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our ability to manage risk associated with our business;
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the demand for our AppLovin Software Platform and AppLovin Apps;
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our expectations concerning relationships with third parties;
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our ability to attract and retain clients and users;
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our ability to develop new products, features, and enhancements for our AppLovin Software Platform and to launch or acquire new AppLovin Apps and successfully monetize them;
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our ability to compete with existing and new competitors in existing and new markets and offerings;
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our ability to successfully acquire and integrate companies and assets and to expand and diversify our operations through strategic acquisitions and partnerships;
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our expectations regarding new and evolving markets;
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our expectations and management of future growth;
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our expectations regarding our share repurchase program; and
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our ability to develop and protect our brand.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, partnerships, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1. Condensed Consolidated Financial Statements
AppLovin Corporation
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share data)
(unaudited)
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 436,336 | $ | 502,152 | |||||||
| Accounts receivable, net | 1,035,372 | 953,810 | |||||||||
| Prepaid expenses and other current assets | 136,180 | 160,201 | |||||||||
| Total current assets | 1,607,888 | 1,616,163 | |||||||||
| Property and equipment, net | 172,994 | 173,331 | |||||||||
| Goodwill | 1,827,197 | 1,842,850 | |||||||||
| Intangible assets, net | 1,198,122 | 1,292,635 | |||||||||
| Other assets | 456,316 | 434,208 | |||||||||
| Total assets | $ | 5,262,517 | $ | 5,359,187 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 390,079 | $ | 371,702 | |||||||
| Accrued and other current liabilities | 256,402 | 278,861 | |||||||||
| Short-term debt | 35,563 | 215,000 | |||||||||
| Deferred revenue | 80,480 | 78,559 | |||||||||
| Total current liabilities | 762,524 | 944,122 | |||||||||
| Long-term debt | 3,489,891 | 2,905,906 | |||||||||
| Other non-current liabilities | 249,898 | 252,830 | |||||||||
| Total liabilities | 4,502,313 | 4,102,858 | |||||||||
| Commitments and contingencies (Note 4) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.00003 par value—100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2024 and December 31, 2023 | — | — | |||||||||
| 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, 328,958,886 (Class A 273,916,065 and Class B 55,042,821) and 339,886,712 (Class A 268,774,090 and Class B 71,112,622) shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | 11 | 11 | |||||||||
| Additional paid-in capital | 1,420,895 | 2,134,581 | |||||||||
| Accumulated other comprehensive loss | (83,896) | (65,274) | |||||||||
| Accumulated deficit | (576,806) | (812,989) | |||||||||
| Total stockholders’ equity | 760,204 | 1,256,329 | |||||||||
| Total liabilities and stockholders’ equity | $ | 5,262,517 | $ | 5,359,187 |
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 March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue | $ | 1,058,115 | $ | 715,405 | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 294,148 | 261,960 | |||||||||
| Sales and marketing | 226,687 | 202,976 | |||||||||
| Research and development | 155,323 | 144,851 | |||||||||
| General and administrative | 42,398 | 44,571 | |||||||||
| Total costs and expenses | 718,556 | 654,358 | |||||||||
| Income from operations | 339,559 | 61,047 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense | (74,182) | (74,511) | |||||||||
| Other income, net | 2,568 | 10,111 | |||||||||
| Total other expense, net | (71,614) | (64,400) | |||||||||
| Income (loss) before income taxes | 267,945 | (3,353) | |||||||||
| Provision for income taxes | 31,762 | 1,165 | |||||||||
| Net income (loss) | 236,183 | (4,518) | |||||||||
| Less: Net income attributable to participating securities | $ | 1,451 | $ | — | |||||||
| Net income (loss) attributable to common stock—Basic | $ | 234,732 | $ | (4,518) | |||||||
| Net income (loss) attributable to common stock—Diluted | $ | 234,784 | $ | (4,518) | |||||||
| Net income (loss) per share attributable to Class A and Class B common stockholders: | |||||||||||
| Basic | $ | 0.70 | $ | (0.01) | |||||||
| Diluted | $ | 0.67 | $ | (0.01) | |||||||
| Weighted average common shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders: | |||||||||||
| Basic | 335,794,739 | 373,160,029 | |||||||||
| Diluted | 348,596,295 | 373,160,029 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AppLovin Corporation
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income (loss) | $ | 236,183 | $ | (4,518) | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment, net of tax | (18,622) | 10,006 | |||||||||
| Other comprehensive income (loss), net of tax | (18,622) | 10,006 | |||||||||
| Comprehensive income | 217,561 | 5,488 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AppLovin Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Class A and Class B Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 339,886,712 | $ | 11 | $ | 2,134,581 | $ | (65,274) | $ | (812,989) | $ | 1,256,329 | ||||||||||||||||||||||||
| Stock issued in connection with equity awards | 3,936,518 | — | 23,429 | — | — | 23,429 | |||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | (1,397,947) | — | (80,144) | — | — | (80,144) | |||||||||||||||||||||||||||||
| Repurchase of Class A common stock | (13,466,397) | — | (752,224) | — | — | (752,224) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 95,253 | — | — | 95,253 | |||||||||||||||||||||||||||||
| Total other comprehensive loss, net of tax | — | — | — | (18,622) | — | (18,622) | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | 236,183 | 236,183 | |||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | 328,958,886 | $ | 11 | $ | 1,420,895 | $ | (83,896) | $ | (576,806) | $ | 760,204 |
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Class A and Class B Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Par Value | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 373,873,683 | $ | 11 | $ | 3,155,748 | $ | (83,382) | $ | (1,169,700) | $ | 1,902,677 | ||||||||||||||||||||||||
| Stock issued in connection with equity awards | 4,061,015 | — | 2,974 | — | — | 2,974 | |||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | (1,281,849) | — | (19,167) | — | — | (19,167) | |||||||||||||||||||||||||||||
| Repurchase of Class A common stock | (5,396,617) | — | (76,358) | — | — | (76,358) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 82,966 | — | — | 82,966 | |||||||||||||||||||||||||||||
| Total other comprehensive income, net of tax | — | — | — | 10,006 | — | 10,006 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (4,518) | (4,518) | |||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 371,256,232 | $ | 11 | $ | 3,146,163 | $ | (73,376) | $ | (1,174,218) | $ | 1,898,580 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AppLovin Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
| Net income (loss) | $ | 236,183 | $ | (4,518) | |||||||
| Adjustments to reconcile net income (loss) to operating activities: | |||||||||||
| Amortization, depreciation and write-offs | 112,667 | 128,208 | |||||||||
| Stock-based compensation | 95,253 | 82,966 | |||||||||
| Other | 8,540 | 9,139 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (84,836) | 65,614 | |||||||||
| Prepaid expenses and other assets | 26,813 | (17,549) | |||||||||
| Accounts payable | 18,056 | 9,722 | |||||||||
| Accrued and other liabilities | (19,897) | 15,080 | |||||||||
| Net cash provided by operating activities | 392,779 | 288,662 | |||||||||
| Investing Activities | |||||||||||
| Purchase of non-marketable equity securities | (28,333) | (16,834) | |||||||||
| Other investing activities | (3,302) | 3,859 | |||||||||
| Net cash used in investing activities | (31,635) | (12,975) | |||||||||
| Financing Activities | |||||||||||
| Repurchases of stock | (752,224) | (64,897) | |||||||||
| Principal repayments of debt | (668,972) | (8,327) | |||||||||
| Payment of withholding taxes related to net share settlement | (80,144) | (19,167) | |||||||||
| Payments of licensed asset obligation | — | (15,254) | |||||||||
| Proceeds from issuance of debt | 1,072,330 | — | |||||||||
| Proceeds from exercise of stock options | 9,782 | 2,906 | |||||||||
| Other financing activities | (5,384) | (6,676) | |||||||||
| Net cash used in financing activities | (424,612) | (111,415) | |||||||||
| Effect of foreign exchange rate on cash and cash equivalents | (2,348) | 1,137 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (65,816) | 165,409 | |||||||||
| Cash and cash equivalents at beginning of the period | 502,152 | 1,080,484 | |||||||||
| Cash and cash equivalents at end of the period | $ | 436,336 | $ | 1,245,893 |
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)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Supplemental non-cash investing and financing activities disclosures: | |||||||||||
| Right-of-use assets acquired under finance leases | $ | 9,942 | $ | 45,318 | |||||||
| Acquisitions not yet paid | $ | 13,088 | $ | 12,969 | |||||||
| Repurchase of common stock included in accrued liabilities | $ | — | $ | 11,461 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest, net | $ | 71,189 | $ | 67,006 | |||||||
| Cash paid for income taxes, net of refunds | $ | 3,578 | $ | 1,816 |
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 Summary of Significant Accounting Policies
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 advertising ecosystem providing an end-to-end software platform that allows businesses to reach, monetize and grow their global audiences. The Company also has a globally diversified portfolio of apps—free-to-play mobile games that it operates through its 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, 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 February 26, 2024. The condensed consolidated balance sheet data as of December 31, 2023 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 months ended March 31, 2024 shown in this report are not necessarily indicative of the results to be expected for the full year ending December 31, 2024 or any other period.
Basis of Consolidation
The Company's condensed consolidated financial statements include accounts of the Company and its wholly-owned and majority-owned subsidiaries, and the ownership interest of minority investors is recorded as noncontrolling interest. In accordance with the provisions of Accounting Standards Codification ("ASC") 810, Consolidation, the Company is also required to consolidate any variable interest entities ("VIE") when it is the primary beneficiary. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and 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 evaluates its relationships with all VIEs on an ongoing basis. All intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to fair values of assets and liabilities acquired through acquisitions, useful lives of intangible assets and property and equipment, expected period of consumption of virtual goods, income and indirect taxes, contingent liabilities, evaluation of recoverability of intangible assets and long-lived assets, goodwill impairment, stock-based compensation, fair value of derivatives and other financial instruments. These estimates are inherently subject to judgment and actual results could differ materially from those estimates.
Recent Accounting Pronouncements (Issued Not Yet Adopted)
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. The amendments will be effective for fiscal
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments must be applied retrospectively, and early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments will be effective for annual periods beginning after December 15, 2024. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
2. Revenue
Revenue from Contracts with Customers
The Company generates Software Platform and Apps revenue. Software Platform revenue is generated primarily from fees collected from advertisers and advertising networks who use the Software Platform. Apps revenue consists of in-app purchase ("IAP") revenue generated from in-app purchases made by users within the Company’s apps (“Apps”), and in-app advertising ("IAA") revenue generated from advertisers that purchase ad inventory from Apps.
Software Platform Revenue
The vast majority of the Software Platform Revenue is generated through AppDiscovery and MAX, which provide the technology to match advertisers and owners of digital advertising inventory (“Publishers”) via auctions at large scale and microsecond-level speeds. The 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. Substantially all of the Company's contracts with customers are fully cancellable at any time or upon short notice.
The Company’s performance obligation is to provide customers 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, 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.
Software Platform Revenue also includes revenue generated from Adjust's measurement and analytics marketing platform that is recognized ratably over the subscription period, generally up to twelve months. Revenue from other services within the Software Platform was not material.
Apps Revenue
In-App Purchase Revenue
IAP 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. IAP fees are non-refundable. Such payments are initially recorded as deferred revenue. The Company categorizes its 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 its 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 five and ten months.
In-App Advertising Revenue
IAA 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.
The Company presents taxes collected from customers and remitted to governmental authorities on a net basis.
Disaggregation of Revenue
The following table presents revenue disaggregated by segment and type (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Software Platform Revenue | $ | 678,370 | $ | 354,758 | |||||||
| In-App Purchase Revenue | 259,196 | 251,328 | |||||||||
| In-App Advertising Revenue | 120,549 | 109,319 | |||||||||
| Total Apps Revenue | 379,745 | 360,647 | |||||||||
| Total Revenue | $ | 1,058,115 | $ | 715,405 |
Revenue disaggregated by geography, based on user location, consists of the following (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| United States | $ | 634,604 | $ | 439,319 | |||||||
| Rest of the World | 423,511 | 276,086 | |||||||||
| Total Revenue | $ | 1,058,115 | $ | 715,405 |
Contract Balances
Contract liabilities consist of deferred revenue, which are recorded for payments received in advance of the satisfaction of performance obligations. During the three months ended March 31, 2024 and 2023, the Company recognized $53.0 million and $47.6 million of revenue that was included in deferred revenue as of December 31, 2023 and 2022, respectively.
Unsatisfied Performance Obligations
Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less.
3. Financial Instruments and Fair Value Measurements
The following table sets forth the Company’s financial instruments that are measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
| As of March 31, 2024 | ||||||||||||||||||||||||||||||||
| Balance Sheet Location | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Money market deposit accounts | Cash and cash equivalents | $ | 1,370 | $ | 1,370 | $ | — | $ | — | |||||||||||||||||||||||
| Total financial assets | $ | 1,370 | $ | 1,370 | $ | — | $ | — |
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||
| Balance Sheet Location | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Money market deposit accounts | Cash and cash equivalents | $ | 1,352 | $ | 1,352 | $ | — | $ | — | |||||||||||||||||||||||
| Total financial assets | $ | 1,352 | $ | 1,352 | $ | — | $ | — |
Derivatives Not Designated as Hedging Instruments
In October 2022 and March 2023, the Company entered into multiple pay-fixed receive-variable interest rate swaps as part of its interest rate risk management strategy in connection with the term loans under a certain credit agreement (see Note 11 - Credit Agreement). The Company elected to not designate the interest rate swaps as hedging instruments for accounting purposes and recorded both realized and unrealized gains and losses associated with the interest rate swaps immediately through earnings in interest expense in the Company's condensed consolidated statement of operations. The fair value of the interest rate swaps are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of the interest rate swaps. The Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. During the three months ended March 31, 2023, the Company recorded a net loss of $5.6 million. Cash paid for or received from the settlement of the interest rate swaps are presented in net cash provided by operating activities and the supplemental disclosure of cash paid for interest, net in the Company's condensed consolidated statement of cash flows. All interest rate swaps were settled during 2023.
Non-Marketable Equity Securities Measured at Net Asset Value
The Company held equity interests in certain private equity funds of $75.1 million and $56.7 million as of March 31, 2024 and December 31, 2023, 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 $75.1 million and the unfunded commitments of $22.3 million as of March 31, 2024.
During the three months ended March 31, 2024, the Company made total capital contributions of $18.3 million related to these investments. The unrealized gains related to these investments were not material for the three months ended March 31, 2024 and 2023.
Non-Marketable Equity Securities Measured at Fair Value on a Non-Recurring Basis
The Company's 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, net in the Company's condensed consolidated statement of operations.
In February 2024, the Company entered into an agreement to invest $50.0 million in the Series C preferred stock financing of Humans, Inc., the developer of the Flip Shop social shopping app ("Flip Shop"). The first financing tranche closed in February 2024, in which the Company invested $10.0 million. The closing of the second tranche was contingent upon certain conditions, which were satisfied as of March 31, 2024. The second tranche closed on April 1, 2024, with the Company investing the remaining $40.0 million. In February 2024, the Company also entered into an arm's length commercial agreement with Flip Shop related to its use of the Company's AXON technology under a revenue share model.
As of March 31, 2024 and December 31, 2023, the carrying amounts of the Company's non-marketable equity securities were $20.1 million and $10.1 million, respectively, and are included in other assets in the Company’s condensed consolidated balance sheets.
4. Commitments and Contingencies
Commitments
As of March 31, 2024, the Company's non-cancelable minimum purchase commitments consisted primarily of a certain arrangement related to cloud platform services. In May 2022, the Company entered into a new order form under an existing master agreement that required the Company to purchase a minimum of $550.0 million of cloud services through May 2025. During the three months ended March 31, 2024, the Company made payments of $88.1 million under this arrangement, with a remaining unpaid commitment of $135.3 million as of March 31, 2024. In addition, the Company had total unfunded commitments of $22.3 million related to investments in certain private equity funds and a commitment to participate in the second tranche of the Series C preferred stock financing of Humans, Inc. for $40.0 million. For additional information, see Note 3 – Financial Instruments and Fair Value Measurements.
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 March 31, 2024 and December 31, 2023, the Company had outstanding letters of credit in the aggregate amount of $6.3 million and $6.3 million, respectively, 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 a loss 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 March 31, 2024, 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.
5. Goodwill and Intangible Assets
The following table presents the changes in the carrying amount of goodwill by reporting unit (in thousands):
| Software Platform | Apps | Total | |||||||||
| December 31, 2023 | $ | 1,497,109 | $ | 345,741 | $ | 1,842,850 | |||||
| Foreign currency translation | (15,653) | — | (15,653) | ||||||||
| March 31, 2024 | $ | 1,481,456 | $ | 345,741 | $ | 1,827,197 |
Intangible assets, net consisted of the following (in thousands):
| Weighted- Average Remaining Useful Life (Years) | As of March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||
| Gross Carrying Value | Accumulated Amortization | Net Book Value | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||||
| Apps | 3.6 | $ | 1,828,387 | $ | (1,225,576) | $ | 602,811 | $ | 1,818,907 | $ | (1,152,611) | $ | 666,296 | ||||||||||||||||
| Customer relationships | 7.9 | 516,021 | (123,578) | 392,443 | 519,175 | (111,374) | 407,801 | ||||||||||||||||||||||
| User base | 2.0 | 68,817 | (49,312) | 19,505 | 68,817 | (46,874) | 21,943 | ||||||||||||||||||||||
| License asset | 1.8 | 59,207 | (34,529) | 24,678 | 59,207 | (31,003) | 28,204 | ||||||||||||||||||||||
| Developed technology | 3.3 | 206,481 | (96,599) | 109,882 | 207,900 | (88,716) | 119,184 | ||||||||||||||||||||||
| Other | 3.5 | 73,102 | (24,299) | 48,803 | 71,196 | (21,989) | 49,207 | ||||||||||||||||||||||
| Total intangible assets | $ | 2,752,015 | $ | (1,553,893) | $ | 1,198,122 | $ | 2,745,202 | $ | (1,452,567) | $ | 1,292,635 |
The Company recorded amortization expenses related to acquired intangible assets as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cost of revenue | $ | 88,142 | $ | 98,644 | |||||||
| Sales and marketing | 16,819 | 16,788 | |||||||||
| Total | $ | 104,961 | $ | 115,432 |
6. Equity
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, to facilitate repurchases of shares. In May and August 2023, the Company's Board authorized increases to the repurchase program of $296.0 million and $447.6 million, respectively. In February 2024, the Company's Board authorized an increase of $1.25 billion to the repurchase program.
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. The Company retires its Class A common stock upon repurchase, and records any excess of the cost of the repurchased shares over their par value as a reduction to additional paid-in capital, or in the absence of additional paid-in capital, to accumulated deficit. During the three months ended March 31, 2024 and 2023, the Company repurchased 13,466,397 and 5,396,617 shares of Class A common stock for an aggregate amount, including commissions and fees, of $752.2 million and $76.4 million, respectively. As of March 31, 2024, $500.0 million remains available of the authorized amount under the repurchase program.
During the three months ended March 31,2024, 16,069,801 shares of Class B common stock were converted to Class A common stock.
7. Stock-based Compensation
The Company maintains three equity compensation plans that provide for the issuance of shares of its common stock to the Company’s employees, directors, consultants and other service providers: the 2021 Equity Incentive Plan (the "2021 Plan"), the 2021 Partner Studio Incentive Plan, and the 2021 Employee Stock Purchase
Plan (the "ESPP").
In February 2024, the Company settled the liability of $15.7 million related to certain Wurl performance-based incentive plan through the issuance of 346,836 shares of the Company's Class A common stock and $2.1 million in cash.
In March 2024, 3,416,490 performance-based restricted stock units ("PSUs") vested under the terms of the respective PSU agreements upon the achievement of the stock price target of $46.75 per share, resulting in a stock-based compensation expense of $17.9 million recorded for such PSUs during the three months ended March 31, 2024.
During the three months ended March 31, 2024, the Company granted 103,671 restricted stock units ("RSUs") to certain employees under the 2021 Plan at the weighted average grant date fair value of $49.57 per RSU. These awards vest based on a service condition that is satisfied generally over one year.
Stock-based compensation expense is attributed to the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cost of revenue | $ | 1,468 | $ | 1,316 | |||||||
| Sales and marketing | 21,963 | 16,683 | |||||||||
| Research and development | 59,446 | 49,929 | |||||||||
| General and administrative | 12,376 | 15,038 | |||||||||
| Total | $ | 95,253 | $ | 82,966 |
8. 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 March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Basic EPS | |||||||||||
| Numerator: | |||||||||||
| Net income (loss) | $ | 236,183 | $ | (4,518) | |||||||
| Less: | |||||||||||
| Income attributable to options exercises by promissory notes | (726) | — | |||||||||
| Income attributable to common stock subject to share repurchase agreements | (724) | — | |||||||||
| Income attributable to unvested early exercised options | (1) | — | |||||||||
| Net income (loss) attributable to Class A and Class B common stockholders—Basic | $ | 234,732 | $ | (4,518) | |||||||
| Denominator: | |||||||||||
| Weighted-average shares used in computing net income (loss) per share—Basic | 335,794,739 | 373,160,029 | |||||||||
| Net income (loss) per share attributable to common stock—Basic | $ | 0.70 | $ | (0.01) | |||||||
| Diluted EPS | |||||||||||
| Numerator: | |||||||||||
| Net income (loss) attributable to AppLovin | 236,183 | (4,518) | |||||||||
| Less: | |||||||||||
| Income attributable to options exercises by promissory notes | (700) | — | |||||||||
| Income attributable to common stock subject to share repurchase agreements | (698) | — | |||||||||
| Income attributable to unvested early exercised options | (1) | — | |||||||||
| Net income (loss) attributable to Class A and Class B common stockholders—Diluted | $ | 234,784 | $ | (4,518) | |||||||
| Denominator: | |||||||||||
| Weighted-average shares used in computing net income (loss) per share—Basic | 335,794,739 | 373,160,029 | |||||||||
| Weighted-average dilutive stock awards | 12,801,556 | — | |||||||||
| Weighted-average shares used in computing net income (loss) per share—Diluted | 348,596,295 | 373,160,029 | |||||||||
| Net income (loss) per share attributable to common stock—Diluted | $ | 0.67 | $ | (0.01) |
The following table presents the forms of antidilutive potential common shares:
| As of March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Stock options exercised for promissory notes | 85,000 | 1,399,999 | |||||||||
| Early exercised stock options | 559 | 38,250 | |||||||||
| Stock options | 12,265 | 10,582,241 | |||||||||
| Unvested RSUs | 2,006,934 | 16,195,182 | |||||||||
| ESPP | — | 842,419 | |||||||||
| Total antidilutive potential common shares | 2,104,758 | 29,058,091 |
The table above excludes any unvested PSUs since the related market conditions had not been met as of March 31, 2024.
9. 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 2024 annual effective tax rate differs from the U.S. statutory rate primarily due to jurisdictional mix of earnings, stock-based compensation expense, foreign tax credits, foreign derived intangible income deduction, and global intangible low-taxed income.
During the three months ended March 31, 2024, 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.
10. Segments
The Company determines its operating segments based on how its chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company's two operating and reportable segments 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 and when an advertiser purchases the digital advertising inventory of the Company's portfolio of Apps.
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 CODM does not evaluate operating segments using asset information, and, accordingly, the Company does not report asset information by segment.
The following table provides information about the Company's reportable segments and a reconciliation of the total segment adjusted EBITDA to income (loss) before income taxes (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue: | |||||||||||
| Software Platform | $ | 678,370 | $ | 354,758 | |||||||
| Apps | 379,745 | 360,647 | |||||||||
| Total Revenue | $ | 1,058,115 | $ | 715,405 | |||||||
| Segment Adjusted EBITDA: | |||||||||||
| Software Platform | $ | 492,020 | $ | 218,694 | |||||||
| Apps | 56,751 | 55,004 | |||||||||
| Total Segment Adjusted EBITDA | $ | 548,771 | $ | 273,698 | |||||||
| Interest expense | $ | (74,182) | $ | (74,511) | |||||||
| Other income, net | 3,397 | 9,771 | |||||||||
| Amortization, depreciation and write-offs | (112,667) | (128,208) | |||||||||
| Loss on disposal of long lived assets | (1,646) | — | |||||||||
| Non-operating foreign exchange gain (loss) | (106) | 672 | |||||||||
| Stock-based compensation | (95,253) | (82,966) | |||||||||
| Acquisition-related expense | (369) | (517) | |||||||||
| Restructuring costs | — | (1,292) | |||||||||
| Income (loss) before income taxes | $ | 267,945 | $ | (3,353) |
11. Credit Agreement
The Company is a party to a certain credit agreement (the “Credit Agreement”), which provides for a senior secured term loan maturing in October 2028 (“2028 Term Loan"), a senior secured term loan maturing in August 2030 (“2030 Term Loan”), and a revolving credit facility.
In March 2024, the Company entered into Amendment No. 10 to the Credit Agreement which reduces the interest rate margin from 3.1% to 2.5% with respect to SOFR loans (or from 2.0% to 1.5% with respect to base rate loans). In connection with the amendment, the Company increased the aggregate principal amount of the 2030 Term Loan to $2.09 billion and reduced the aggregate principal amount of the 2028 Term Loan to $1.46 billion. The other material terms of the Credit Agreement remain unchanged.
The transaction was assessed at the syndicated lender level and was accounted for primarily as a debt modification. The Company expensed $6.2 million of third-party costs incurred with the amendment in other income, net in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2024. Fees paid to the lenders in connection with the amendment were recorded as an additional debt discount and will be amortized to interest expense over the remaining term, together with unamortized original debt issuance costs and discount, using the effective interest method.
In March 2024, the Company drew down an additional $418.7 million from the revolving credit facility to fund certain repurchases under the Company's share repurchase program. As of March 31, 2024, the entire outstanding amount under the revolving credit facility of $603.7 million was repaid in full. KKR Corporate Lending (CA) LLC, an affiliate of KKR Denali Holdings L.P. (“KKR Denali”) which owns more than 10% of the Company's voting interests, has provided revolving credit commitments in the amount of $15.0 million under the revolving credit facility.
12. Related Party Transactions
On February 29, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with KKR Denali, and BofA Securities, Inc., acting for themselves and as representative of other underwriters (collectively, the “Underwriters”), in connection with a secondary public offering (the “Offering”) of 19,866,397 shares of the Company's Class A common stock by KKR Denali. Pursuant to the Underwriting Agreement, on March 6, 2024, the Company repurchased from the Underwriters 10,466,397 shares of Class A common stock sold to the Underwriters by KKR Denali in the Offering at a price per share of $54.46, the same per share price paid by the Underwriters to KKR Denali in the Offering. In connection with the Offering, KKR Denali converted 16,000,000 shares of Class B common stock to Class A common stock. See Note 6 – Equity for additional information on the share repurchase program.
On March 8, 2019, the Company entered into a promissory note with Rafael Vivas, the brother of Eduardo Vivas, a member of the Company's Board of Directors, for the purpose of advancing him funds to allow him to early exercise his stock options (“Vivas Note”). The Vivas Note was issued in the amount of $2.3 million at an interest rate of 2.59%, and later amended on August 7, 2020 to lower the interest rate on the outstanding balance of such note to the then applicable IRS annual mid-term rate of 0.41%. On March 8, 2024, the principal amount due under the Vivas Note plus accrued interest, or $2.3 million, was repaid in full to the Company and the Vivas Note was extinguished.
In February 2024, the Company entered into certain investment and arm's length commercial agreements with Humans, Inc. See Note 3 - Financial Instruments and Fair Value Measurements for additional information. Eduardo Vivas, a member the Company's Board of Directors, serves as the Chief Operating Officer of Humans, Inc., and a member of its board of directors.
The Company had no other material related party transactions for the three months ended March 31, 2024 and 2023.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other parts of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Our mission is to create meaningful connections between companies and their ideal customers. We provide end-to-end software and AI-powered solutions for businesses to reach, monetize and grow their global audience. We also operate a portfolio of owned mobile apps and accelerated our market penetration through an active acquisition and partnership strategy. Our scaled business model sits at the nexus of the advertising ecosystem, which creates a durable competitive advantage that has fueled our clients’ success and our strong growth.
Since our founding in 2011, we have been focused on building a software-based platform for advertisers to improve the marketing and monetization of their content. Our founders, who are mobile app developers themselves, quickly realized the real impediment to success and growth in the advertising ecosystem was a discovery and monetization problem—breaking through the congested app stores to efficiently find users and successfully grow their business. Their first-hand experience with these challenges led to the development of our infrastructure and Software Platform. We capitalized on our success and understanding of the mobile app ecosystem by entering into the mobile game apps industry in 2018. Our global diversified portfolio of apps now consists of over 200 free-to-play mobile games across five genres, run by ten studios.
For the three months ended March 31, 2024, our revenue increased 48% year-over-year to $1.06 billion, from $715.4 million in the three months ended March 31, 2023. We generated net income of $236.2 million for the three months ended March 31, 2024 and net loss of $4.5 million in the comparative period in 2023. We generated Adjusted EBITDA of $548.8 million and $273.7 million for the three months ended March 31, 2024 and 2023, respectively. Additionally, our net cash provided by operating activities was $392.8 million and $288.7 million in the three months ended March 31, 2024 and 2023, respectively. We generated Free Cash Flow of $387.6 million and $283.1 million for the three months ended March 31, 2024 and 2023, respectively. Given our strong financial position, we have been able to reinvest in our expansion and growth, and repurchase shares of our Class A common stock. See the section titled “Non-GAAP Financial Measures” below for definitions of our non-GAAP financial measures and reconciliations of the most directly comparable financial measures calculated in accordance with GAAP to these measures.
Our Business Model
We collect revenue from our Software Platform and our Apps. During the three months ended March 31, 2024, Software Platform Revenue represented 64% of total revenue and Apps Revenue represented 36% of total revenue.
We report our operating results through two reportable segments: Software Platform and Apps. Prior to the second quarter of 2022, we had a single operating and reportable segment.
Our CODM, the Chief Executive Officer, evaluates performance of each segment based on several factors, of which the financial measures are segment revenue and segment adjusted EBITDA, as defined in Note 10 to our condensed consolidated financial statements.
The Software Platform and Apps segments provide a view into the organization of our business and generate revenue as follows:
Software Platform Revenue
We primarily generate Software Platform Revenue from fees paid by advertisers who use our Software Platform to grow and monetize their content. We are able to grow our Software Platform Revenue by improving our various software technologies.
Software Platform clients include a wide variety of advertisers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google. We see multiple opportunities to gain new
Software Platform clients, and to increase spend from existing clients, as we help them grow their businesses and make them more successful.
Our Software Platform includes AppDiscovery, MAX, Adjust, and Wurl. Clients use AppDiscovery to automate, optimize, and manage their user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spend in an effort to achieve their return on advertising spend targets and other marketing objectives. AppDiscovery comprises the vast majority of revenue from our Software Platform. Revenue is generated from our advertisers, typically on a performance basis, and shared with our advertising publishers, typically on a cost per impression model.
Software Platform clients use MAX to optimize purchases of app advertising inventory. The MAX tool provides insights to manage against key performance indicators, understand the long-term value of users, and help manage profitability. Revenue from MAX is generated based on a percentage of client spend. As more advertising networks move to in-app bidding monetization, we expect growth in the adoption of, and revenue from, MAX.
Software Platform clients use Adjust's measurement and analytics marketing platform to better understand their users' journey while allowing marketers to make smarter decisions through measurement, attribution and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee.
Software Platform clients use Wurl's CTV platform to distribute streaming video, maximize advertising revenue, and acquire and retain viewers or subscribers. Revenue from Wurl is primarily generated from content companies, typically on a usage-based model.
Apps Revenue
Apps Revenue is generated when a user of one of our Apps makes an in-app purchase ("IAP") and when clients purchase the digital advertising inventory of our portfolio of Apps ("IAA"). We are able to grow our Apps Revenue by adding more apps to our Apps portfolio and increasing engagement on our existing Apps.
Our Apps are generally free-to-play mobile games and generate IAP Revenue through IAPs. IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from our Apps. The vast majority of our IAP revenue flows through two app stores, Apple App Store and Google Play, which charge us a standard commission on IAPs. IAP Revenue represented 68% of total Apps Revenue for the three months ended March 31, 2024.
During the three months ended March 31, 2024, we had an average of 1.8 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of $48. See “Key Metrics” below for additional information on how we calculate MAPs and ARPMAP.
IAA clients that purchase advertising inventory from our Apps are able to target highly relevant users from our diverse and global portfolio of over 200 mobile games. Our clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video, and are able to match these ads with relevant users resulting in a better return on their advertising spend. By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, we are able to increase our revenue from IAA clients that purchase advertising inventory from our Apps. IAA Revenue represented 32% of total Apps Revenue for the three months ended March 31, 2024.
Key Metrics
We review the following key metrics on a regular basis in order to evaluate the health of our business, identify trends affecting our performance, prepare financial projections, and make strategic decisions.
Monthly Active Payers ("MAPs"). We define a MAP as a unique mobile device active on one of our Apps in a month that completed at least one IAP during that time period. A consumer who makes IAPs within two separate Apps on the same mobile device in a monthly period will be counted as two MAPs. MAPs for a particular time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution partners. Some of our Apps do not utilize such third-party attribution partners, and therefore our MAPs figure for any period does not capture every user that completed an IAP on our Apps. We estimate that our counted MAPs generated approximately 99% of our IAP Revenue during the three months ended March 31, 2024, and as such, management believes that MAPs is still a useful metric to measure the engagement and monetization potential of our games.
Average Revenue Per Monthly Active Payer ("ARPMAP"). We define ARPMAP as (i) the total IAP Revenue derived from our Apps in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a
particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP.
The following table shows our Monthly Active Payers and Average Revenue Per Monthly Active Payer for the three months ended March 31, 2024 and 2023.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Monthly Active Payers (millions) | 1.8 | 1.8 | |||||||||
| Average Revenue Per Monthly Active Payer | $ | 48 | $ | 46 |
Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate MAPs and ARPMAP are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA for a particular period as net income (loss) before interest expense, other income, net (excluding certain recurring items), provision for (benefit from) income taxes, amortization, depreciation and write-offs and as further adjusted for stock-based compensation expense, acquisition-related expense and transaction bonus, publisher bonuses, MoPub acquisition transition services, restructuring costs, impairment and loss in connection with the sale of long-lived assets, non-operating foreign exchange (gain) losses, and change in the fair value of contingent consideration. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the same period.
Adjusted EBITDA and Adjusted EBITDA margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our Adjusted EBITDA and Adjusted EBITDA margin should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended March 31, 2024 and 2023, and a reconciliation of net income (loss) to Adjusted EBITDA:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands, except percentages) | |||||||||||
| Revenue | $ | 1,058,115 | $ | 715,405 | |||||||
| Net income (loss) | $ | 236,183 | $ | (4,518) | |||||||
| Net Margin | 22.3% | (0.6)% | |||||||||
| Adjusted as follows: | |||||||||||
| Interest expense | 74,182 | 74,511 | |||||||||
| Other (income), net | (3,397) | (9,771) | |||||||||
| Provision for income taxes | 31,762 | 1,165 | |||||||||
| Amortization, depreciation and write-offs | 112,667 | 128,208 | |||||||||
| Loss on disposal of long lived assets | 1,646 | — | |||||||||
| Non-operating foreign exchange (gain) loss | 106 | (672) | |||||||||
| Stock-based compensation | 95,253 | 82,966 | |||||||||
| Acquisition-related expense | 369 | 517 | |||||||||
| Restructuring costs | — | 1,292 | |||||||||
| Adjusted EBITDA | $ | 548,771 | $ | 273,698 | |||||||
| Adjusted EBITDA Margin | 51.9 | % | 38.3 | % |
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less purchases of property and equipment and principal payments of finance leases. We use Free Cash Flow to help manage the health of our business, prepare budgets and for capital allocation purposes. We believe Free Cash Flow provides useful supplemental information to help investors understand underlying trends in our business and our liquidity. Free cash flow has certain limitations, including that it does not reflect our future contractual commitments. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish Free Cash Flow or similar metrics. Thus, our Free Cash Flow should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
The following table provides our Free Cash Flow for the three months ended March 31, 2024 and 2023, and a reconciliation of net cash provided by operating activities to Free Cash Flow:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 392,779 | $ | 288,662 | |||||||
| Less: | |||||||||||
| Purchase of property and equipment | (227) | (70) | |||||||||
| Principal payments of finance leases | (4,959) | (5,447) | |||||||||
| Free Cash Flow | $ | 387,593 | $ | 283,145 | |||||||
| Net cash used in investing activities | $ | (31,635) | $ | (12,975) | |||||||
| Net cash used in financing activities | $ | (424,612) | $ | (111,415) |
Factors Affecting Our Performance
We believe that the future success of our business depends on many factors, including the factors described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to continue to grow profitably while maintaining strong cash flow.
Continue to invest in innovation
We have made, and intend to continue to make, significant investments in our Software Platform to enhance its effectiveness and value proposition for our clients. We expect that these investments will require spending on research and development, and acquisitions and partnerships related to technology components and products. We believe investments in our software, including our AI-powered advertising engine AXON, AppDiscovery, Adjust, and
MAX, will further improve effectiveness for advertisers. Our investments will also allow us to enter new verticals outside of gaming. While our investments in research and development and acquisitions and partnerships may not result in revenue in the near term, we believe these investments position us to increase our revenue over time.
Retain and grow existing clients
We rely on existing clients for a significant portion of our revenue. As we improve our Software Platform and Apps, we can attract additional spend from these clients. Our clients include indie studio developers and some of the largest advertising platforms in the world. We believe there is significant room for us to further expand our relationships with these clients and increase their usage of our Software Platform. We have invested in targeted sales and account-based marketing efforts to identify and showcase opportunities to clients and plan to continue to do so in the future.
In the past, our clients have generally increased their usage of our Software Platform, and as a result, growth from existing clients has been a primary driver of our revenue growth. We must continue to retain our existing clients and expand their spend with us over time to continue to grow our revenue, increase profitability and drive greater cash flow.
Add new clients globally
Our future success depends in part on our ability to acquire new clients. During the three months ended March 31, 2024, 41% of our revenue from Software Platform and IAA Revenue clients was generated from outside of the United States. We believe that the global opportunity is significant and will continue to expand as developers and advertisers outside the United States adopt our Software Platform and advertise on our Apps. We also see opportunities to acquire new clients outside of mobile gaming, as the capabilities of our Software Platform are relevant to the broader advertising ecosystem. We are investing in direct sales, product development, education, and other capabilities to drive increased awareness and adoption of our Software Platform and Apps, which investments may impact our profitability in the near term as we seek further scale.
Continued execution of strategic partnerships
We continue to explore strategic partnership opportunities related to our Software Platform, and the expansion of the markets it serves and we may from time to time evaluate strategic acquisitions opportunistically. From the beginning of 2018 through March 31, 2024, we have invested approximately $4.1 billion in 33 strategic acquisitions and partnerships with mobile app developers and for technologies to enhance our Software Platform including the acquisition of MAX in 2018, Adjust in April 2021, MoPub in January 2022, and Wurl in April 2022. We believe our future results of operations will be affected by our ability to continue to identify and execute such transactions that are accretive to our growth and profitability.
Growth and structure of the mobile app and advertising ecosystems
Our business and results of operations will be impacted by industry factors that drive the overall performance of the mobile app and advertising ecosystems. Mobile app developers, including AppLovin, rely on third-party platforms, such as the Apple App Store and Google Play Store, among others, to distribute games, collect payments made for IAPs, and target users with relevant advertising. We expect this to continue for the foreseeable future. These third-party platforms have significant market power and discretion to set platform fees, select which apps to promote, and decide how much consumer information to provide to advertising networks that enable our Software Platform to target users with personalized and relevant advertising and allocate marketing campaigns in an efficient and cost-effective manner. Any changes made in the policies of third-party platforms could drive rapid change across the mobile app and advertising ecosystems. For example, in April 2021, Apple started implementing its application tracking transparency framework that, among other things, requires users' opt-in consent for certain types of tracking. While this transparency framework has not had a significant impact on our overall business, it may do so in the future, including with respect to the effectiveness of our advertising practices and/or our ability to efficiently generate revenue for our Apps. We rely in part on Identifier for Advertisers ("IDFA") to provide us with data that helps our Software Platform better market and monetize Apps. In light of the IDFA and transparency changes, we made changes to our data collection practices. To the extent we are unable to utilize IDFA or a similar offering, or if the transparency changes and any related opt-in or other requirements result in decreases in the availability or utility of data relating to Apps, our Software Platform may not be as effective, we may not be able to continue to efficiently generate revenue for our Apps, and our revenue and results of operations may be harmed. Additionally, Apple implemented new requirements for consumer disclosures regarding privacy and data processing practices in December 2020, which has resulted in increased compliance requirements and could result in decreased usage of our Apps. Apple incorporated new SDK privacy controls into iOS 17, which was released in September 2023, including privacy manifests and signatures designed to allow app developers to outline the data practices for SDKs
embedded in their apps, manage tracking domains within SDKs, and curb device fingerprinting by requiring app developers to select allowed reasons for using data received through certain APIs. In February 2022, Google announced its Privacy Sandbox initiative for Android, a multi-year effort expected to restrict tracking activity and limit advertisers' ability to collect app and user data across Android devices. In January 2024, Google commenced rolling out a Chrome feature, called Tracking Protection, that limits cross-site tracking by restricting website access to third-party cookies by default and has announced its plans to phase out support for third-party cookies. In May 2023, Google announced new consent management platform ("CMP") requirements for ads served in the European Economic Area (EEA) and UK, which requires, as of January 2024, publishers using Google AdSense, Ad Manager, or AdMob to use a CMP that has been certified by Google and has integrated with the Interactive Advertising Bureau’s (“IAB”) Transparency and Consent Framework when serving ads to users in the EEA or the UK. While to date these third-party platform privacy changes have had some impact on the discoverability of apps across these platforms and have had a relatively muted aggregate impact on our results of operations, the ultimate impact of these or any similar or future changes to the policies of Apple or Google could adversely affect our business, financial condition, and results of operations.
New tools for developers, industry standards, and platforms may emerge in the future. We believe our focus on the advertising ecosystem has allowed us to understand the needs of our clients and our relentless innovation has enabled us to quickly adapt to changes in the industry and pioneer new solutions. We must continue to innovate and stay ahead of developments in the advertising and mobile app ecosystems in order for our business to succeed and our results of operations to continue to improve.
Current Economic Conditions
We are subject to risks and uncertainties caused by global economic conditions and events with significant macroeconomic impacts, including, but not limited to, international conflicts in Ukraine and the Middle East and actions taken to counter inflation. Inflation, rising interest rates and reduced consumer confidence have caused and may continue to cause our clients to be cautious in their spending. The full impact of these macroeconomic events and the extent to which these macro factors may impact our business, financial condition, and results of operations in the future remains uncertain. The risks related to our business are further described in the section titled “Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenue
We generate Software Platform Revenue primarily from fees collected from advertisers spending on AppDiscovery, typically on a performance basis, then shared with our advertising publishers, typically on a cost per impression basis. Software Platform Revenue also includes fees generated based on a percentage of client spend through MAX and subscription fees for Adjust's measurement and analytics marketing platform. Revenue from other services within the Software Platform was not material.
We generate Apps Revenue from IAPs made by the users within our Apps and from IAA generated from advertisers that purchase advertising inventory from our diverse portfolio of Apps.
Cost of Revenue and Operating Expenses
Cost of revenue. Cost of revenue consists primarily of third-party payment processing fees for distribution partners, amortization of acquired technology-related intangible assets, amortization of finance lease right-of-use assets related to certain servers and networking equipment and costs for third-party cloud service providers. Third-party payment processing fees relate to IAP Revenue. The fees for IAPs are processed and collected by third-party distribution partners. We expect our cost of revenue to increase in absolute dollars over the long term as our business and revenue continue to grow. We also expect our cost of revenue as a percentage of revenue to fluctuate period-over-period.
Sales and marketing. Sales and marketing expenses consist primarily of user acquisition costs, marketing programs and other advertising expenses, professional services costs related to the marketing of apps by third parties, personnel-related expenses including salaries, employee benefits, and stock-based compensation for employees engaged in sales and marketing activities, amortization of acquired user-related intangible assets, travel and allocated facilities and information technology costs.
We plan to continue to invest in sales and marketing to grow our Software Platform customer base and increase brand awareness. We also plan to continue to invest in new App launches to the extent we see opportunities for cost-effective growth. We expect sales and marketing expenses to fluctuate period-over-period as we launch new games. We also expect our sales and marketing expenses as a percentage of revenue to fluctuate
period- over-period in the near term as we invest to grow our customer base and increase brand awareness, and to decrease over the long term as we benefit from greater scale.
Research and development. Research and development expenses consist primarily of product development costs, including personnel-related expenses such as salaries, employee benefits, and stock-based compensation for employees engaged in research and development activities, professional services costs related to development of new apps by third parties, consulting costs, regulatory compliance costs, and allocated facilities and information technology costs.
We plan to continue to invest in research and development to continue to enhance our Software Platform and to improve existing games and develop new games. We expect our research and development expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to enhance our Software Platform and improve our existing Apps and develop new Apps, and to decrease over the long term as we benefit from greater scale.
General and administrative. General and administrative expenses consist primarily of costs incurred to support our business, including personnel-related expenses such as salaries, employee benefits, and stock-based compensation for employees engaged in finance, accounting, legal, human resources and administration, professional services fees for legal, accounting, recruiting, and administrative services (including acquisition-related expenses), insurance, travel, and allocated facilities and information technology costs.
We plan to continue to invest in our general and administrative function to support the growth of our business. We expect our general and administrative expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to support the growth of our business, and to decrease over the long term as we benefit from greater scale.
Other Income and Expenses
Interest expense. Interest expense consists primarily of interest expense associated with our outstanding debt, including accretion of debt discount, and gains and losses of interest rate swap related to the variable interest payments associated with our outstanding debt.
Other income, net. Other income, net, primarily includes interest earned on our cash and cash equivalents, fair value adjustments relating to our non-marketable equity securities, and foreign currency gains and losses.
Provision for income taxes. We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have different statutory tax rates than those in the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, impacts from acquisition restructuring, deduction benefits related to foreign-derived intangible income, future changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. Additionally, our effective tax rate can vary based on the amount of pre-tax income or loss.
Results of Operations
The following table summarizes our historical condensed consolidated statements of operations data:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
| Revenue | $ | 1,058,115 | $ | 715,405 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Cost of revenue(1)(2) | 294,148 | 261,960 | ||||||||||||
| Sales and marketing(1)(2) | 226,687 | 202,976 | ||||||||||||
| Research and development(1) | 155,323 | 144,851 | ||||||||||||
| General and administrative(1) | 42,398 | 44,571 | ||||||||||||
| Total costs and expenses | 718,556 | 654,358 | ||||||||||||
| Income from operations | 339,559 | 61,047 | ||||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense and loss on settlement of debt | (74,182) | (74,511) | ||||||||||||
| Other income, net | 2,568 | 10,111 | ||||||||||||
| Total other expense, net | (71,614) | (64,400) | ||||||||||||
| Income (loss) before income taxes | 267,945 | (3,353) | ||||||||||||
| Provision for income taxes | 31,762 | 1,165 | ||||||||||||
| Net income (loss) | $ | 236,183 | $ | (4,518) |
__________________
(1) Includes stock-based compensation expense as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cost of revenue | $ | 1,468 | $ | 1,316 | ||||||||||
| Sales and marketing | 21,963 | 16,683 | ||||||||||||
| Research and development | 59,446 | 49,929 | ||||||||||||
| General and administrative | 12,376 | 15,038 | ||||||||||||
| Total stock-based compensation | $ | 95,253 | $ | 82,966 |
(2) Includes amortization expense related to acquired intangibles as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cost of revenue | $ | 88,142 | $ | 98,644 | ||||||||||
| Sales and marketing | 16,819 | 16,788 | ||||||||||||
| Total amortization expense related to acquired intangibles | $ | 104,961 | $ | 115,432 |
The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented as a percentage of revenue(1):
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue | 100 | % | 100 | % | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 28 | % | 37 | % | |||||||
| Sales and marketing | 21 | % | 28 | % | |||||||
| Research and development | 15 | % | 20 | % | |||||||
| General and administrative | 4 | % | 6 | % | |||||||
| Total costs and expenses | 68 | % | 91 | % | |||||||
| Income from operations | 32 | % | 9 | % | |||||||
| Other income (expense): | |||||||||||
| Interest expense and settlement of debt | (7) | % | (10) | % | |||||||
| Other income, net | 0 | % | 1 | % | |||||||
| Total other expense, net | (7) | % | (9) | % | |||||||
| Income (loss) before income taxes | 25 | % | — | % | |||||||
| Provision for income taxes | 3 | % | 0 | % | |||||||
| Net income (loss) | 22 | % | (1) | % |
(1) Totals of percentages of revenue may not foot due to rounding.
Comparison of Our Results of Operations for the Three Months Ended March 31, 2024 and 2023
Revenue
| Three Months Ended March 31, | 2023 to 2024 % change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Software Platform Revenue | $ | 678,370 | $ | 354,758 | 91 | % | ||||||||||||||
| In-App Purchases Revenue | 259,196 | 251,328 | 3 | % | ||||||||||||||||
| In-App Advertising Revenue | 120,549 | 109,319 | 10 | % | ||||||||||||||||
| Total Apps Revenue | 379,745 | 360,647 | 5 | % | ||||||||||||||||
| Total Revenue | $ | 1,058,115 | $ | 715,405 | 48 | % |
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
For the three months ended March 31, 2024, our Software Platform Revenue increased by $323.6 million, or 91%, compared to the same period in the prior year primarily due to improved AppDiscovery performance, where net revenue per installation increased 5% and the volume of installations increased 87%. We do not recognize Software Platform Revenue from transactions with our Owned Studios and Partner Studios.
For the three months ended March 31, 2024, our Apps Revenue increased by $19.1 million, or 5%, from the prior year period. For the three months ended March 31, 2024, our IAP Revenue from Apps increased by $7.9 million, or 3%, from the prior year period, due primarily to a 4% increase in the volume of in-app purchases, partially offset by a 1% decrease in price per in-app purchase. Our IAA Revenue from Apps increased by $11.2 million, or 10%, from the prior year period, due primarily to a 113% increase in the volume of advertising impressions, partially offset by a 48% decrease in price per advertising impression.
Cost of revenue
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Cost of revenue | $ | 294,148 | $ | 261,960 | 12 | % | ||||||||||||||
| Percentage of revenue | 28 | % | 37 | % |
Cost of revenue in the three months ended March 31, 2024 increased by $32.2 million, or 12%, compared to the same period in the prior year, due primarily to an increase of $35.5 million in expenses associated with operating our network infrastructure driven by the growth in our Software Platform operations, offset by a decrease of $8.6 million in amortization of intangible assets resulting from the end of the useful life of certain intangible assets.
Sales and marketing
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Sales and marketing | $ | 226,687 | $ | 202,976 | 12 | % | ||||||||||||||
| Percentage of revenue | 21 | % | 28 | % |
Sales and marketing expenses in the three months ended March 31, 2024 increased by $23.7 million, or 12%, compared to the same period in the prior year, due primarily to an increase in user acquisition costs of $17.1 million and an increase of $3.0 million in personnel-related expenses related to an increase in stock-based compensation expense.
Research and development
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Research and development | $ | 155,323 | $ | 144,851 | 7 | % | ||||||||||||||
| Percentage of revenue | 15 | % | 20 | % |
Research and development expenses in the three months ended March 31, 2024 increased by $10.5 million, or 7%, compared to the same period in the prior year, primarily due to an increase of $18.0 million in personnel-related expenses primarily related to an increase in stock-based compensation expense, partially offset by a decrease of $6.0 million due to the disposal of certain assets within our Apps segment in the prior year period.
General and administrative
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| General and administrative | $ | 42,398 | $ | 44,571 | (5) | % | ||||||||||||||
| Percentage of revenue | 4 | % | 6 | % |
General and administrative expenses in the three months ended March 31, 2024 decreased by $2.2 million, or 5%, compared to the same period in the prior year, due primarily to a decrease of $2.6 million in personnel-related expenses primarily related to a prior year restructuring and a decrease of $1.3 million in acquisition-related expenses.
Interest expense
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Interest expense | $ | (74,182) | $ | (74,511) | — | % | ||||||||||||||
| Percentage of revenue | (7) | % | (10) | % |
In the three months ended March 31, 2024, interest expense decreased by $0.3 million compared to the same period in the prior year, due primarily to a lower interest rate resulting from debt refinancing transactions subsequent to the first quarter of 2023, offset by additional interest expense due to an increase in debt.
Other income, net
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Other income, net | $ | 2,568 | $ | 10,111 | (75) | % | ||||||||||||||
| Percentage of revenue | — | % | 1 | % |
In the three months ended March 31, 2024, other income, net decreased by $7.5 million, or 75%, compared to the same period in the prior year. The decrease was primarily due to third-party costs of $6.2 million related to the modification of debt and a decrease in interest income of $4.4 million due to a reduced cash and cash equivalents balance, offset by a prior year period impairment of non-marketable equity securities of $5.0 million.
Provision for Income Taxes
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Provision for income taxes | $ | 31,762 | $ | 1,165 | ** | |||||||||||||||
| Percentage of revenue | 3 | % | — | % |
| ** Not meaningful |
In the three months ended March 31, 2024, the provision for income taxes increased by $30.6 million compared to the same period in the prior year. The increase was primarily driven by higher pre-tax income from business operations during the three months ended March 31, 2024, and higher global intangible low-taxed income, partially offset by foreign income taxed at different rates, higher foreign tax credits generated, higher foreign-derived intangible income deduction, and higher stock-based compensation benefit.
Comparison of our Segment Results of Operations
The following table presents the results for our Software Platform and Apps segment adjusted EBITDA for the periods indicated:
| Three Months Ended March 31, | 2023 to 2024 % Change | |||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Software Platform Adjusted EBITDA | $ | 492,020 | $ | 218,694 | 125 | % | ||||||||||||||
| Apps Adjusted EBITDA | $ | 56,751 | $ | 55,004 | 3 | % |
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
The $273.3 million, or 125%, increase in Software Platform Adjusted EBITDA for the three months ended March 31, 2024 was primarily driven by an increase in Software Platform revenue of $323.6 million, partially offset by an increase of $35.5 million in expenses associated with operating our network infrastructure driven by the growth in our operations.
The $1.7 million, or 3%, increase in Apps Adjusted EBITDA for the three months ended March 31, 2024 was primarily driven by an increase in Apps Revenue of $19.1 million, partially offset by an increase of $17.1 million in user acquisition costs and an increase of $2.6 million in third-party payment processing fees related to in-app purchases.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through payments received from clients using our Software Platform and advertising on our Apps, and from user IAPs from our Apps, and through net proceeds we received from the sales of our convertible preferred stock, Class A common stock in our initial public offering, and debt borrowings, including borrowings made under our credit agreement. As of March 31, 2024, we had cash and cash equivalents of $436.3 million.
We believe that our cash and cash equivalents would be sufficient to satisfy our anticipated working capital and capital expenditures needs for at least the next 12 months. Our future capital requirements, however, will depend on many factors, including our growth rate; sales and marketing activities; timing and extent of spending to support our research and development efforts; and our continued need to invest in our IT infrastructure to support our growth. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may be required to seek additional equity or debt financing sooner than we currently anticipate. If additional financing from outside sources is required, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be adversely affected.
The following table summarizes our cash flows for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 392,779 | $ | 288,662 | |||||||
| Net cash used in investing activities | $ | (31,635) | $ | (12,975) | |||||||
| Net cash used in financing activities | $ | (424,612) | $ | (111,415) |
Operating Activities
Net cash provided by operating activities was $392.8 million for the three months ended March 31, 2024, primarily consisting of $236.2 million of net income, adjusted for certain non-cash items, which included $112.7 million of amortization, depreciation, and write-offs and $95.3 million of stock-based compensation expense, partially offset by a net increase in operating assets and liabilities of $59.9 million. The net increase in the operating assets and liabilities was primarily driven by an increase in accounts receivable and a decrease in accrued liabilities, partially offset by higher accounts payable and lower prepaid expenses and other assets.
Net cash provided by operating activities was $288.7 million for the three months ended March 31, 2023, primarily consisting of a $4.5 million net loss, adjusted for certain non-cash items, which included $128.2 million of amortization, depreciation, and write-offs, $83.0 million of stock-based compensation expense, $3.5 million of change in operating right of use assets, $3.3 million of amortization of debt issuance costs and discount, and $2.3 million of net unrealized losses from fair value remeasurements, partially offset by a net increase in operating assets and liabilities of $72.9 million. The net increase in the operating assets and liabilities was primarily driven by a decrease in accounts receivable and increases in accounts payable, accrued and other liabilities and deferred revenue.
Investing Activities
Net cash used in investing activities was $31.6 million for the three months ended March 31, 2024, primarily consisting of $28.3 million in purchases of non-marketable equity securities and $2.5 million in capitalized software development costs.
Net cash used in investing activities was $13.0 million for the three months ended March 31, 2023, primarily consisting of $16.8 million in purchases of non-marketable equity securities, and $2.2 million related to asset acquisitions, partially offset by $8.3 million in proceeds from the sale of assets.
Financing Activities
Net cash used in financing activities was $424.6 million for the three months ended March 31, 2024, primarily consisting of repurchases of stock under our share repurchase program of $752.2 million and payments for withholding taxes related to the net share settlement of restricted stock units of $80.1 million, partially offset by proceeds from issuance of debt of $1,072.3 million net of principal repayments of debt of $669.0 million and $9.8 million in proceeds from the exercise of stock options.
Net cash used in financing activities was $111.4 million for the three months ended March 31, 2023, primarily consisting of repurchases of stock under the repurchase program of $64.9 million, payments for withholding taxes related to the net share settlement of restricted stock units of $19.2 million, payments for license asset obligations of $15.3 million, repayments of debt principal of $8.3 million, principal payments on finance leases of $5.4 million, and payments for deferred acquisition costs of $1.2 million, partially offset by $2.9 million proceeds from the exercise of stock options.
Share Repurchase Program
During the three months ended March 31, 2024, we repurchased 13,466,397 shares of Class A common stock for an aggregate amount, including commissions and fees, of $752.2 million. For additional information, see Note 6 – Equity and Note 12 – Related Party Transactions of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Credit Agreement
We are party to a credit agreement (the “Credit Agreement”), which provides for senior secured term loans and a revolving credit facility.
In March 2024, we entered into Amendment No. 10 to the Credit Agreement which reduces the interest rate margin from 3.1% to 2.5% with respect to SOFR loans (or from 2.0% to 1.5% with respect to base rate loans). In connection with the amendment, we increased the aggregate principal amount of the 2030 Term Loan to $2.09 billion and reduced the aggregate principal amount of the 2028 Term Loan to $1.46 billion. The other material terms of the Credit Agreement remain unchanged.
In March 2024, we drew down an additional $418.7 million from the revolving credit facility to fund certain repurchases under the Company's share repurchase program. As of March 31, 2024, the entire outstanding amount under the revolving credit facility of $603.7 million was repaid in full. KKR Corporate Lending (CA) LLC, an affiliate of KKR Denali Holdings L.P. (“KKR Denali”) which owns more than 10% of the Company's voting interests, has provided revolving credit commitments in the amount of $15.0 million under our revolving credit facility.
There were no other material changes to our debt and the related Credit Agreement since December 31, 2023.
Contractual Obligations
In February 2024, we entered into an agreement to invest $50.0 million in the Series C preferred stock financing of Humans, Inc., the developer of the Flip Shop. The first financing tranche closed in February 2024, in which we invested $10.0 million. The closing of the second tranche was contingent upon certain conditions, which were satisfied as of March 31, 2024. As a result, we had a commitment to participate in the second tranche of the Series C preferred stock financing of Humans, Inc. for $40.0 million as of March 31, 2024.
Except for the transaction described above and scheduled payments from the ongoing business, there were no other material changes to our commitments under contractual obligations since December 31, 2023.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2024, as compared to those disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
See Note 1, “Description of Business and Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information presented in Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024.
Changes in Internal Control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their desired objectives. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions, and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business, as well as governmental and other regulatory investigations and proceedings. In addition, third parties may from time to time assert claims against us in the form of letters and other communications. We are not currently a party to any legal proceedings that, if determined adversely to us, would, in our opinion, have a material adverse effect on our business, financial condition, results of operations, or cash flows. Future litigation may be necessary to defend ourselves and our business partners and to determine the scope, enforceability, and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and the related notes, before making a decision to invest in our Class A common stock. Our business, financial condition, results of operations, or prospects could also be adversely affected by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose all or part of your investment.
Risk Factor Summary
Investing in our Class A common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as further described below. The principal factors and uncertainties that make investing in our Class A common stock subject to risk include, among other things:
Business, Operational, and Industry Factors
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the fluctuation in our results of operations;
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security breaches, improper access to or disclosure of data, or other cyber incidents;
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our reliance on third-party platforms to distribute our AppLovin Apps and collect revenue;
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our reliance on certain key employees and our ability to attract, retain, and motivate key personnel;
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our ability to attract new clients, the loss of clients, or reduction in spend by clients;
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competition in our industry and our ability to adapt to technological change;
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our ability to address or mitigate technical limitations in our systems and to maintain and scale our technical infrastructure;
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the impact of macroeconomic conditions and the geopolitical climate;
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risks related to the expansion and diversification of our operations, in the United States and globally, and possibly through future strategic acquisitions and partnerships;
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risks related to our international operations;
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risks related to our strategic acquisitions and partnerships, including integration, managing growth and tax risks;
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our ability to realize the value of our Apps portfolio;
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our ability to maintain relationships with our partner studios;
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our ability to launch or acquire new AppLovin Apps and successfully monetize or improve them and existing Apps;
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our ability to retain existing users or add new users cost-effectively, or if users decrease their level of engagement;
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concentration of our revenue sources;
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our recent rapid growth, and ability to manage growth;
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our ability to increase in-app purchases ("IAPs"), respond to changes with respect to IAPs, and manage the economies in our AppLovin Apps;
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our ability to achieve or maintain profitability with increasing operating expenses;
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risks related to not having long-term agreements with our clients;
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AppLovin apps not meeting user expectations;
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our ability to maintain our culture and brand awareness;
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our ability to maintain a customer support ecosystem amongst the proliferation of “cheating” programs and scam offers seeking to exploit our mobile games and users;
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our reliance on third parties complying with their obligations;
Legal and Regulatory Matters
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changes in laws and regulations concerning privacy, information security, data protection, consumer protection, AI, advertising, tracking, targeting, and protection of minors;
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changes in U.S. and foreign laws, many of which are unsettled and still developing;
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the development and use of AI in our offerings and business;
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compliance with governmental anti-bribery, export controls and economic sanctions laws;
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changes in tax laws or tax rulings or exposure to greater than anticipated tax liabilities;
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assertions by taxing authorities that we should have collected or in the future should collect sales and use, value added, or similar taxes;
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our ability to realize tax savings from our international structure;
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liability for content that is distributed through our advertising that is served through our Software Platform or Apps;
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expenses related to legal or regulatory proceedings and settlements or laws and regulations affecting public companies;
Intellectual Property Factors
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our ability to protect or enforce our proprietary and intellectual property rights or the costs involved in such enforcement;
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our involvement in intellectual property disputes;
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our use of and compliance with open source software;
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our ability to acquire and maintain licenses to intellectual property;
Financial and Accounting Matters
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our ability to maintain an effective system of disclosure controls and internal control over financial reporting;
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our reliance on assumptions and estimates to calculate certain of our key metrics;
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the possibility that we may be required to record a significant charge to earnings if our goodwill becomes impaired;
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substantial indebtedness under our senior secured credit facilities;
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our ability to generate sufficient cash flow to satisfy our significant debt service obligations;
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the availability of additional capital on acceptable terms;
Ownership of our Class A common stock and Governance
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the multi-class structure of our common stock and the Voting Agreement among the Voting Agreement Parties;
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our status as a “controlled company” within the meaning of the Nasdaq corporate governance requirements;
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volatility of the market price of our Class A common stock;
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the possibility that we may not realize the anticipated long-term stockholder value of our share repurchase programs;
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the issuance of additional stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise;
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provisions of Delaware law, the Voting Agreement, our amended and restated certificate of incorporation, and our amended and restated bylaws could make a merger, tender offer, or proxy contest difficult; and
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exclusive forum provisions in our amended and restated bylaws.
Risks Related to Our Business and Industry
Our results of operations are likely to fluctuate from period-to-period, which could cause the market price of our Class A common stock to decline.
Our results of operations have fluctuated in the past and are likely to fluctuate significantly from quarter-to-quarter and year-to-year in the future for a variety of reasons, many of which are outside of our control and difficult to predict. As a result, you should not rely upon our historical results of operations as indicators of future performance. Numerous factors can influence our results of operations, including:
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our ability to maintain and grow our client and user bases;
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changes to our Software Platform, Apps, or other offerings, or the development and introduction of new software or development of new mobile apps by our studios or our competitors;
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changes to the policies or practices of companies or governmental agencies that determine access to third-party platforms, such as the Apple App Store and the Google Play Store, or to our Software Platform, Apps, website, or the internet generally;
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changes to the policies or practices of third-party platforms, such as the Apple App Store and the Google Play Store, including with respect to Apple’s Identifier for Advertisers ("IDFA"), which helps advertisers assess the effectiveness of their advertising efforts, and with respect to transparency regarding data processing;
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the diversification and growth of revenue sources beyond our current Software Platform and Apps;
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our ability to achieve the anticipated synergies from our strategic acquisitions and effectively integrate new assets and businesses acquired by us;
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the success of our strate
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Item 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During our last fiscal quarter, the following directors and officers, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, as follows:
On March 14, 2024, Alyssa Harvey Dawson, a member of our Board of Directors, entered into a Rule 10b5-1 trading plan providing for the potential sale of up to an aggregate of 8,871 shares of our Class A common stock. The trading plan is scheduled to be effective until May 31, 2025, or earlier if all transactions under the trading plan are completed. The trading plan is intended to satisfy the affirmative defense in Rule 10b5-1(c).
On March 14, 2024, Eduardo Vivas, a member of our Board of Directors, Vivas Family Trust U/A/D 10/26/2020, Arutyunyan Family Trust U/A/D 12/1/20 and La Familia VI, entered into a Rule 10b5-1 trading plan providing for the potential sale of up to an aggregate of (i) 1,875,000 shares of our Class A common stock held by Mr. Vivas personally, (ii) 31,875 shares of our Class A common stock held by Vivas Family Trust U/A/D 10/26/2020, (iii) 27,188 shares of our Class A common stock held by Arutyunyan Family Trust U/A/D 12/1/20, and (iv) 5,625 shares of our Class A common stock held by La Familia V. The trading plan is scheduled to be effective until June 13, 2025, or earlier if all transactions under the trading plan are completed. The trading plan is intended to satisfy the affirmative defense in Rule 10b5-1(c).
On March 14, 2024, Victoria Valenzuela, our Chief Legal Officer, entered into a Rule 10b5-1 trading plan providing for the potential sale of up to an aggregate of 200,000 shares of our Class A common stock held by Ms. Valenzuela and up to 110,029 additional shares of our Class A common stock issuable upon vesting and settlement of RSUs granted to Ms. Valenzuela, net of shares withheld for taxes. The trading plan is scheduled to be effective until December 31, 2024, or earlier if all transactions under the trading plan are completed. The trading plan is intended to satisfy the affirmative defense in Rule 10b5-1(c). A prior disclosure reported that Ms. Valenzuela entered into a Rule 10b5-1 trading plan on September 11, 2023. That disclosure mistakenly reported that the scheduled plan end date of the September 11, 2023 trading plan was May 31, 2025. By its terms the September 11, 2023 trading plan has an end date of May 31, 2024.
No other officers or directors, as defined in Rule 16a-1(f), adopted and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the last fiscal quarter.
Item 6. EXHIBITS
We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.
EXHIBIT INDEX
- Refiling to correct Schedule 1 attached to the document previously filed as Exhibit 10.1 to the Form 8-K filed by the Company with Securities and Exchange Commission on March 14, 2024.
†The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of AppLovin Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| APPLOVIN CORPORATION | ||||||||
| Date: May 8, 2024 | By: | /s/ Adam Foroughi | ||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) |
| Date: May 8, 2024 | By: | /s/ Matthew A. Stumpf | ||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) |