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 June 30, 2024, our revenue increased 44% year-over-year to $1.08 billion, from $750.2 million in the three months ended June 30, 2023. We generated net income of $310.0 million and $80.4 million for the three months ended June 30, 2024 and 2023, respectively. We generated Adjusted EBITDA of $601.2 million and $333.5 million for the three months ended June 30, 2024 and 2023, respectively. Additionally, our net cash provided by operating activities was $847.3 million and $518.5 million in the six months ended June 30, 2024 and 2023, respectively. We generated Free Cash Flow of $833.1 million and $503.7 million for the six months ended June 30, 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 June 30, 2024, Software Platform Revenue represented 66% of total revenue and Apps Revenue represented 34% of total revenue.

We report our operating results through two reportable segments: Software Platform and Apps.

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 real-time bidding, 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 connected TV ("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 June 30, 2024.

During the three months ended June 30, 2024, we had an average of 1.6 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of $52. 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 June 30, 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. We estimate that our counted MAPs generated substantially all of our IAP Revenue during the three months ended June 30, 2024, and as such, management believes that MAPs is 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 June 30, 2024 and 2023.

			Three Months Ended June 30,
			2024						2023
Monthly Active Payers (millions)			1.6						1.7
Average Revenue Per Monthly Active Payer			$	52					$	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 before interest expense, other income, net (excluding certain recurring items), provision for income taxes, amortization, depreciation and write-offs and as further adjusted for stock-based compensation expense, transaction-related expense and transaction bonus, publisher bonuses, MoPub acquisition transition services, restructuring costs, impairment and (gain) loss in connection with the disposal 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 and six months ended June 30, 2024 and 2023, and a reconciliation of net income to Adjusted EBITDA:

			Three Months Ended June 30,												Six Months Ended June 30,
			2024						2023						2024						2023
			(in thousands. except percentages)												(in thousands. except percentages)
Revenue			$	1,080,119					$	750,165					$	2,138,234					$	1,465,570
Net income			$	309,969					$	80,357					$	546,152					$	75,839
Net Margin			28.7%						10.7%						25.5%						5.2%
Adjusted as follows:
Interest expense			74,666						50,987						148,848						125,498
Other income, net			(9,241)						(15,817)						(12,638)						(25,588)
Provision for income taxes			15,298						15,445						47,060						16,610
Amortization, depreciation and write-offs			108,541						119,892						221,208						248,100
Loss on disposal of long lived assets			—						—						1,646						—
Non-operating foreign exchange (gain) loss			(330)						126						(224)						(546)
Stock-based compensation			98,724						81,253						193,977						164,219
Transaction-related expense			485						247						854						764
Restructuring costs			3,082						1,024						3,082						2,316
Adjusted EBITDA			$	601,194					$	333,514					$	1,149,965					$	607,212
Adjusted EBITDA Margin			55.7		%				44.5		%				53.8		%				41.4		%

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 six months ended June 30, 2024 and 2023, and a reconciliation of net cash provided by operating activities to Free Cash Flow:

			Six Months Ended June 30,
			2024						2023
			(in thousands)
Net cash provided by operating activities			$	847,306					$	518,456
Less:
Purchase of property and equipment			(4,155)						(3,819)
Principal payments of finance leases			(10,048)						(10,915)
Free Cash Flow			$	833,103					$	503,722
Net cash used in investing activities			$	(99,991)					$	(55,192)
Net cash used in financing activities			$	(785,612)					$	(668,113)

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. In addition, we plan to continue to invest in the self-learning capabilities of AXON. Our investments will also allow us to enter new verticals outside of gaming, such as eCommerce, CTV, original equipment manufacturer ("OEM"), and carrier-related markets. 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 June 30, 2024, 43% 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 and partnerships opportunistically. From the beginning of 2018 through June 30, 2024, we have invested approximately $4.1 billion in 33 strategic acquisitions and partnerships with mobile app developers and for technologies or relationships 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, which limits cross-site tracking. 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 transaction-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 June 30,												Six Months Ended June 30,
			2024						2023						2024						2023
			(in thousands)
Revenue			$	1,080,119					$	750,165					$	2,138,234					$	1,465,570
Costs and expenses:
Cost of revenue(1)(2)			282,547						258,575						576,695						520,535
Sales and marketing(1)(2)			202,107						192,427						428,794						395,403
Research and development(1)			163,896						137,424						319,219						282,275
General and administrative(1)			40,583						30,411						82,981						74,982
Total costs and expenses			689,133						618,837						1,407,689						1,273,195
Income from operations			390,986						131,328						730,545						192,375
Other income (expense):
Interest expense			(74,666)						(50,987)						(148,848)						(125,498)
Other income, net			8,947						15,461						11,515						25,572
Total other expense, net			(65,719)						(35,526)						(137,333)						(99,926)
Income before income taxes			325,267						95,802						593,212						92,449
Provision for income taxes			15,298						15,445						47,060						16,610
Net income			$	309,969					$	80,357					$	546,152					$	75,839

__________________

(1) Includes stock-based compensation expense as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2024						2023						2024						2023
			(in thousands)
Cost of revenue			$	1,322					$	1,317					$	2,790					$	2,633
Sales and marketing			23,485						19,413						45,448						36,096
Research and development			61,819						55,946						121,265						105,875
General and administrative			12,098						4,577						24,474						19,615
Total stock-based compensation			$	98,724					$	81,253					$	193,977					$	164,219

(2) Includes amortization expense related to acquired intangibles as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2024						2023						2024						2023
			(in thousands)
Cost of revenue			$	83,672					$	96,138					$	171,814					$	194,782
Sales and marketing			16,802						16,780						33,621						33,568
Total amortization expense related to acquired intangibles			$	100,474					$	112,918					$	205,435					$	228,350

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 June 30,												Six Months Ended June 30,
			2024						2023						2024						2023
Revenue			100		%				100		%				100		%				100		%
Costs and expenses:
Cost of revenue			26		%				34		%				27		%				36		%
Sales and marketing			19		%				26		%				20		%				27		%
Research and development			15		%				18		%				15		%				19		%
General and administrative			4		%				4		%				4		%				5		%
Total costs and expenses			64		%				82		%				66		%				87		%
Income from operations			36		%				18		%				34		%				13		%
Other income (expense):
Interest expense			(7)		%				(7)		%				(7)		%				(9)		%
Other income, net			1		%				2		%				1		%				2		%
Total other expense, net			(6)		%				(5)		%				(6)		%				(7)		%
Income before income taxes			30		%				13		%				28		%				6		%
Provision for income taxes			1		%				2		%				2		%				1		%
Net income			29		%				11		%				26		%				5		%

---

(1) Totals of percentages of revenue may not foot due to rounding.

Comparison of Our Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Revenue

			Three Months Ended June 30,												2023 to 2024 % change						Six Months Ended June 30,												2023 to 2024 % change
			2024						2023									2024						2023
			(in thousands, except percentages)
Software Platform Revenue			$	711,015					$	406,063					75		%				$	1,389,385					$	760,821					83		%
In-App Purchases Revenue			250,570						233,625						7		%				509,766						484,953						5		%
In-App Advertising Revenue			118,534						110,477						7		%				239,083						219,796						9		%
Total Apps Revenue			369,104						344,102						7		%				748,849						704,749						6		%
Total Revenue			$	1,080,119					$	750,165					44		%				$	2,138,234					$	1,465,570					46		%

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

For the three months ended June 30, 2024, our Software Platform Revenue increased by $305.0 million, or 75%, compared to the same period in the prior year primarily due to improved AppDiscovery performance, where net revenue per installation increased 7% and the volume of installations increased 77%. We do not recognize Software Platform Revenue from transactions with our studios.

For the three months ended June 30, 2024, our Apps Revenue increased by $25.0 million, or 7%, from the prior year period, of which, our IAP Revenue from Apps increased by $16.9 million, or 7%, due primarily to a 3% increase in the volume of in-app purchases and a 4% increase in price per in-app purchase, and our IAA Revenue from Apps increased by $8.1 million, or 7%, due primarily to a 56% increase in the volume of advertising impressions, partially offset by a 31% decrease in price per advertising impression.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

For the six months ended June 30, 2024, our Software Platform Revenue increased by $628.6 million, or 83%, compared to the same period in the prior year, due to improved AppDiscovery performance, where net revenue per installation increased 6% and the volume of installations increased 82%. We do not recognize Software Platform Revenue from transactions with our studios.

For the six months ended June 30, 2024, our Apps Revenue increased by $44.1 million, or 6%, from the prior year period, of which, our IAP Revenue from Apps increased by $24.8 million, or 5%, primarily due to a 4% increase in the volume of in-app purchases and a 1% increase in price per in-app purchase, and our IAA Revenue from Apps increased by $19.3 million, or 9%, due primarily to an 81% increase in the volume of advertising impressions, partially offset by a 40% decrease in price per advertising impression.

Cost of revenue

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % change
			2024						2023									2024						2023
			(in thousands, except percentages)
Cost of revenue			$	282,547					$	258,575					9		%				$	576,695					$	520,535					11		%
Percentage of revenue			26		%				34		%										27		%				36		%

Cost of revenue in the three months ended June 30, 2024 increased by $24.0 million, or 9%, compared to the same period in the prior year, due primarily to an increase of $35.2 million in expenses associated with operating our network infrastructure driven by the growth in our Software Platform operations, offset by a decrease of $12.1 million in amortization of intangible assets resulting from the end of the useful life of certain intangible assets.

Cost of revenue in the six months ended June 30, 2024 increased by $56.2 million, or 11%, compared to the same period in the prior year, due primarily to an increase of $70.6 million in expenses associated with operating our network infrastructure driven by the growth in our Software Platform operations, offset by a decrease of $20.7 million in amortization of intangible assets resulting from the end of the useful life of certain intangible assets.

Sales and marketing

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % change
			2024						2023									2024						2023
			(in thousands, except percentages)
Sales and marketing			$	202,107					$	192,427					5		%				$	428,794					$	395,403					8		%
Percentage of revenue			19		%				26		%										20		%				27		%

Sales and marketing expenses in the three months ended June 30, 2024 increased by $9.7 million, or 5%, compared to the same period in the prior year, due primarily to an increase of $12.4 million in personnel-related expenses primarily related to an increase in stock-based compensation expense and related payroll costs, partially offset by a decrease in user acquisition costs of $6.2 million.

Sales and marketing expenses in the six months ended June 30, 2024 increased by $33.4 million, or 8%, compared to the same period in the prior year, due primarily to an increase of $15.4 million in personnel-related expenses primarily related to an increase in stock-based compensation expense and related payroll costs, and an increase in user acquisition costs of $10.9 million.

Research and development

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % change
			2024						2023									2024						2023
			(in thousands, except percentages)
Research and development			$	163,896					$	137,424					19		%				$	319,219					$	282,275					13		%
Percentage of revenue			15		%				18		%										15		%				19		%

Research and development expenses in the three months ended June 30, 2024 increased by $26.5 million, or 19%, compared to the same period in the prior year, due primarily to an increase of $20.3 million in personnel-related expenses related to an increase in stock-based compensation expense and related payroll costs, and an increase of $5.4 million in professional services costs related to development of new games by third parties.

Research and development expenses in the six months ended June 30, 2024 increased by $36.9 million, or 13%, compared to the same period in the prior year, primarily due to an increase of $38.3 million in personnel-related expenses primarily related to an increase in stock-based compensation expense and related payroll costs.

General and administrative

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % change
			2024						2023									2024						2023
			(in thousands, except percentages)
General and administrative			$	40,583					$	30,411					33		%				$	82,981					$	74,982					11		%
Percentage of revenue			4		%				4		%										4		%				5		%

General and administrative expenses in the three months ended June 30, 2024 increased by $10.2 million, or 33%, compared to the same period in the prior year, due primarily to an increase of $10.1 million in personnel-related expenses related to an increase in stock-based compensation expense.

General and administrative expenses in the six months ended June 30, 2024 increased by $8.0 million, or 11%, compared to the same period in the prior year, due primarily to an increase of $7.5 million in personnel-related expenses related to an increase in stock-based compensation expense.

Interest expense

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % Change
			2024						2023									2024						2023
			(in thousands, except percentages)
Interest expense			$	(74,666)					$	(50,987)					46		%				$	(148,848)					$	(125,498)					19		%
Percentage of revenue			(7)		%				(7)		%										(7)		%				(9)		%

In the three months ended June 30, 2024, interest expense increased by $23.7 million compared to the same period in the prior year, due primarily to a net gain of $21.4 million related to interest rate swaps in the prior year period.

In the six months ended June 30, 2024, interest expense increased by $23.4 million compared to the same period in the prior year, due primarily to a net gain of $15.7 million related to interest rate swaps in the prior year period, with the remaining increase driven primarily by an increase in debt outstanding.

Other income, net

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % Change
			2024						2023									2024						2023
			(in thousands, except percentages)
Other income, net			$	8,947					$	15,461					(42)		%				$	11,515					$	25,572					(55)		%
Percentage of revenue			1		%				2		%										1		%				2		%

In the three months ended June 30, 2024, other income, net decreased by $6.5 million, or 42%, compared to the same period in the prior year. The decrease was primarily due to a decrease in interest income of $6.0 million due to a reduction in cash and cash equivalents.

In the six months ended June 30, 2024, other income, net decreased by $14.1 million, or 55%, compared to the same period in the prior year. The decrease was primarily due to a decrease in interest income of $10.5 million due to a reduction in cash and cash equivalents and third-party costs of $6.7 million related to the modification of debt, offset by a prior year period impairment of non-marketable equity securities of $5.0 million.

Provision for Income Taxes

			Three Months Ended June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % Change
			2024						2023									2024						2023
			(in thousands, except percentages)
Provision for income taxes			$	15,298					$	15,445					**						$	47,060					$	16,610					183		%
Percentage of revenue			1		%				2		%										2		%				1		%

** Not meaningful

In the three months ended June 30, 2024, the provision for income taxes decreased by $0.1 million compared to the same period in the prior year. The decrease was primarily driven by higher stock-based compensation benefit, higher foreign tax credits generated, and foreign income taxed at different rates, partially offset by higher pre-tax income from business operations, higher global intangible low-taxed income, and lower foreign-derived intangible income deduction during the three months ended June 30, 2024.

In the six months ended June 30, 2024, the provision for income taxes increased by $30.5 million compared to the same period in the prior year. The increase was primarily driven by higher pre-tax income from business operations 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 during the six months ended June 30, 2024.

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 June 30,												2023 to 2024 % Change						Six Months Ended June 30,												2023 to 2024 % Change
			2024						2023									2024						2023
			(in thousands, except percentages)
Software Platform Adjusted EBITDA			$	520,482					$	272,886					91		%				$	1,012,502					$	491,580					106		%
Apps Adjusted EBITDA			$	80,712					$	60,628					33		%				$	137,463					$	115,632					19		%

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The $247.6 million, or 91%, increase in Software Platform Adjusted EBITDA for the three months ended June 30, 2024 was primarily driven by an increase in Software Platform revenue of $305.0 million, partially offset by an increase of $34.8 million in expenses associated with operating our network infrastructure driven by the growth in our operations and an increase of $16.1 million in personnel-related expenses.

The $20.1 million, or 33%, increase in Apps Adjusted EBITDA for the three months ended June 30, 2024 was primarily driven by an increase in Apps Revenue of $25.0 million and a decrease of $6.2 million in user acquisition costs, offset by an increase of $5.4 million in professional services costs related to development of new games by third parties.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The $520.9 million, or 106%, increase in Software Platform Adjusted EBITDA for the six months ended June 30, 2024 was primarily driven by an increase in Software Platform revenue of $628.6 million, partially offset by an increase of $70.4 million in expenses associated with operating our network infrastructure driven by the growth in our operations and an increase of $18.2 million in personnel-related expenses.

The $21.8 million, or 19%, increase in Apps Adjusted EBITDA for the six months ended June 30, 2024 was primarily driven by an increase in Apps Revenue of $44.1 million, partially offset by an increase of $10.9 million in user acquisition costs, an increase of $5.4 million in personnel-related costs, and an increase of $3.3 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, advertising on our Apps, from IAPs from our Apps, 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 June 30, 2024, we had cash and cash equivalents of $460.4 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:

			Six Months Ended June 30,
			2024						2023
			(in thousands)
Net cash provided by operating activities			$	847,306					$	518,456
Net cash used in investing activities			$	(99,991)					$	(55,192)
Net cash used in financing activities			$	(785,612)					$	(668,113)

Operating Activities

Net cash provided by operating activities was $847.3 million for the six months ended June 30, 2024, primarily consisting of $546.2 million of net income, adjusted for certain non-cash items, which included $221.2 million of amortization, depreciation, and write-offs and $194.0 million of stock-based compensation expense, partially offset by a net increase in operating assets and liabilities of $124.3 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 $518.5 million for the six months ended June 30, 2023, primarily consisting of $75.8 million of net income, adjusted for certain non-cash items, which included $248.1 million of amortization, depreciation, and write-offs, $164.2 million of stock-based compensation expense, $6.9 million of change in operating right of use assets, and $6.6 million of amortization of debt issuance costs and discount, partially offset by a net decrease in operating assets and liabilities of $17.8 million. The net decrease in the operating assets and liabilities was primarily driven by a decrease in accounts receivable and deferred revenue, offset by lower accounts payable and operating lease liabilities.

Investing Activities

Net cash used in investing activities was $100.0 million for the six months ended June 30, 2024, primarily consisting of $76.3 million in purchases of non-marketable equity securities and $15.1 million related to earn-out payments for acquisitions of intangible assets.

Net cash used in investing activities was $55.2 million for the six months ended June 30, 2023, primarily consisting of $38.4 million related to earn-out payments associated with asset acquisitions and $16.8 million in purchases of non-marketable equity securities, partially offset by $8.3 million in proceeds from the sale of assets.

Financing Activities

Net cash used in financing activities was $785.6 million for the six months ended June 30, 2024, primarily consisting of repurchases of stock under our share repurchase program of $752.2 million, principal repayments of debt of $677.9 million, and payments for withholding taxes related to the net share settlement of equity awards of $436.5 million, partially offset by proceeds from issuance of debt of $1,072.3 million and $19.1 million in proceeds from the exercise of stock options and purchase of ESPP shares.

Net cash used in financing activities was $668.1 million for the six months ended June 30, 2023, primarily consisting of repurchases of stock under the repurchase program of $572.1 million, payments for withholding taxes related to the net share settlement of equity awards of $56.6 million, repayments of debt principal of $16.7 million,

payments for license asset obligations of $15.3 million, and principal payments on finance leases of $10.9 million, partially offset by $8.6 million in proceeds from the exercise of stock options and purchase of ESPP shares.

Share Repurchase Program

During the six months ended June 30, 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.

There were no other material changes to our debt and the related Credit Agreement since December 31, 2023.

Contractual Obligations

Except for scheduled payments from the ongoing business, there were no 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 June 30, 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.