Applovin Corporation

Okay, good afternoon, everyone. Let's get started. Welcome to App11's earnings call for the quarter-ended March 31st, 2021. I'm Ryan Gee, Head of Investor Relations and Strategic Finance at App11, and joining me to discuss the results are our co-founder, CEO, and chairperson, Adam Farobi, and our President and Chief Financial Officer, Harold Chen. Please note our SEC filings, earnings release, and shareholder letter discussing our first quarter performance are available at investors.appleven.com. We also posted a short slide presentation that Harold will reference later in this call if you'd like to follow along. During today's call, we may be making forward-looking statements regarding future events and the future financial performance of our company. These statements are based on our current assumptions and beliefs. We assume no obligation to update them except as required by law. Actual results may differ materially from the results predicted. Please review the risk factors in our most recently filed Form 10-K and in our form 10Q to be filed shortly after this call for additional information. We will also be discussing non-GAAP financial measures. Reconciliations of our GAAP and non-GAAP financial measures are included in our shareholder letter available on our IR website. Please be sure to review the GAAP measures and the reconciliations as the non-GAAP measures are not intended to be a substitute for or superior to our GAAP results. This conference call is being recorded and a replay will be available shortly. We will be hosting a Q&A session after our prepared remarks. But first, I would like to turn it over to Adam and Harold. Adam, please go ahead.

This past quarter, we achieved many key milestones for AppLoad. We celebrated our 10-year anniversary as a business, our one-year anniversary as a public company, and we cleared over 10 billion app installs discovered through our marketing platform. We can celebrate these milestones because of the hard work and value-driven culture that we have at AppLoad. First, We hire and work with great people from diverse backgrounds. We give them an environment to thrive in, always trying to ensure each person has room to develop their professional and personal skills here more than anywhere else. Second, we are entrepreneurial and we never settle. We know that in a competitive and challenging market, complacency leads to failure. And third, we maintain focus. We aim to do big things. But all of our decisions are tied to our core goals, continuing to expand our footprint as a marketing and monetization platform for developers. It was key to the team that we maintain these core principles as we entered a new public chapter for our company. I'm very proud to say we've done just that. This can be demonstrated in our first quarter. First, our software platform business has continued to expand by adding new clients and increasing the amount that existing clients are spending. This strong performance has led to a record EBITDA in Q1 of $276 million. Most software businesses lose money while growing. We're growing quickly and just cleared a billion-dollar EBITDA run rate. Next, we successfully completed migrating Welcome into our Max platform, unifying the two largest mediation solutions in the mobile app market. We not only had to execute quickly on our side to accomplish this, we also asked publishers to integrate our platform into their apps in just 90 days or risk losing their ad revenues. A couple things to call out specifically here. Historically, we grew Max to become the leading solution in the market by offering the best technology, not by paying bonuses. This is exactly how we'll run our business going forward, focusing on continuing to deliver the best solution in the market. Given the short window of time to move to our unified platform, we made the decision to pay out $210 million in one-time publisher bonuses. We accounted for these bonuses as contra revenue, and Harold will give you the accounting details shortly. We see the opportunity to own the largest marketplace in the in-app advertising ecosystem as strategically valuable long-term. And therefore, this was a decision that was an easy one to make because it helps ensure continuity with the publishers coming over from MOBA. Switching modernization platforms is a big undertaking and we are proud that over 90% of the MoQuad publishers moved over to Max. As a result, we now have significant share in the market using our solutions so much so that the success of our platform will directly influence growth in the total addressable market and success of all major parties in the ecosystem. That's a strong position to be in and a responsibility we will be proud to own. And finally, we acquired Whirl. a leader in powering streaming TV. Together, we will partner to bring performance marketing to CTV. It is clear just how quickly we push forward on items that make the biggest impact to our business when we look back just one year to the IPO and see that software was only 14% of our revenue versus 40% now. At that time, we discussed just how important the first-party data that those games provided was to our software platform success. Today, our software platform business is growing at a significant rate much faster than we expected, while their apps business has leveled off. In fact, our software business in Q1 22 is four times larger than it was in Q1 21. And in Q1, software contributed over 80% of our EBITDA. For the last several quarters, we've talked about how the apps business is not as strategic as it once was. With the continued scaling of our software platform, we've proven that the two businesses can operate independently from one another. More directly, given the success of our software platform, we will no longer run our games as a cost center. This means we will be exploring how to structure our app's business so that it is run more efficiently as its own standalone business unit. This exploration may result in operational changes and possibly plans to sell or spin off some of the studios. Among them are nearly 20 very capable game studios, their founders, and their teams. We will operate the studios with a more profitable spend on user acquisition, which we already started to do in late Q1. Traditionally, we were willing to spend more on new users, valuing the scale, audience, and data as the justification. This led to operating it around break-even, while typically gaming companies operate at 20% or higher EBITDA margins, which we will now aim to reach over time. Mobile app discovery and modernization are critical for app developers now more than ever. With Max, we have the market's leading modernization solution. App discovery is the fastest growing user acquisition channel for developers today. With customers paying us for performance, we're shielded against macroeconomic volatility. We have a powerful machine learning engine that is only 18 months old and will continue to improve. Max allows us to serve ads to the 700 million daily active users we help monetize. We have a team seasoned in navigating a complex ecosystem and a dynamic privacy landscape. With the growth opportunities across our software business and future initiatives and the high cash flow our business generates even today, we're very excited about our future. Now I'll turn it over to Harold to outline the details of Q1 Financials and our outlook.

Thanks very much. As Adam mentioned, with the growth in margins for our software platform, plus a new operating approach for our apps portfolio, we're excited about our near and long-term growth prospects and cash flow outlook. To help you better understand that thesis, going forward, we'll be providing greater insights into the economic drivers of our two businesses and regarding the overall cash generation of our company. For a quick preview of what I'm going to describe in more detail shortly, Our guidance for a software platform business is to generate over $1 billion of revenue in the second through fourth quarter of this year. Based on an estimated margin for that business of 70% and a flow through the cash of another estimated 70%, that business alone will generate over half a billion dollars of unlevered free cash flow in the next three quarters alone. But let's get back to the quarter, and since in Q1 we made some key decisions and good progress to our goals, I'll highlight a few in details a few in detail before we take your questions. The first topic is our overall strong trending and margins. We have strong quarter over quarter and year over year growth on both the top and bottom lines when adjusting for the 210 million of contra revenue we booked in Q1, which were the bonuses paid to publishers related to the MoPub transaction. Our growth in Q1 was driven by the growth in our software platform revenue more than making up for a modest decline in our apps revenue. But let me spend a few minutes on the Contra revenue so you can appreciate the growth and margin expansion that we saw in the quarter. First of all, just the accounting of Contra revenue. We paid these publisher bonuses to our vendors that are currently or may become future customer owners. And since GAAP requires offsetting revenue for fees you pay to customers or potential customers, these publisher migration bonuses of $210 million are accounted for as Contra revenue. Second, these fees are non-recurring and result from the mobile product transaction. Historically, we did not incur these fees in any significant size. But when you shut down one of the largest players in mediation and ask their publishers to move over in 90 days, those publishers incur real revenue loss and cost to migrate. Going forward, we do not see publisher bonuses as a significant cost to our normal business, and we do not have them before Mopum, nor do we project anything significant going forward. Because the Mopum-related fees are not recurring, we add it back to adjusted EBITDA. And any non-public-related publisher bonuses we would see after Q1, we will not be adding back to adjusted EBITDA. So therefore, it is just a one-time occurrence in this quarter, in this past quarter. For reporting purposes, on the revenue side, we cannot add back the contra revenue. But for internal purposes, of course, we combine the two numbers, which adds up to an amount 38% greater than our Q4 number. Overall, if you consider the $210 million of contra revenue as part of our $1.05 billion purchase price for MoFa, the total price for that acquisition was $1.26 billion. And that's a very attractive price for such a strategic and financially accretive asset. On the cash flow side, Adam mentioned we had record $276 million in EBITDA with a reported margin of 44%. When normalizing revenue for the publisher bonuses, our adjusted EBITDA margin was 33%, which you can see in purple here. That, we think, is the normal run rate of the business, and that is a 500 basis point increase over 28% in the fourth quarter of 2021. This margin expansion was entirely driven by the strong growth of our high margin software business, And in fact, the margin was slightly reduced by our app business, where the reduction in app revenue was in large part offset by user acquisition spend, but was still diluted to our overall margin. As we mentioned in our shareable letter, we currently estimate that our software platform business currently runs at a normalized EBITDA margin of 65% to 70%, and our apps business at an estimated EBITDA margin of 5% to 10%. Therefore, faster growth of software-related apps drives margin expansions. We will be providing more details on this in our Q2 earnings report, where we will be providing segmented financials for the first time. Our strong outlook for software platform routing and margin plus operating cost management allows us to raise our EBITDA guidance for this year, and we'll talk about that further in a minute. Of note, at our current operating scale, we were able to translate a significant percentage of our EBITDA to unlimited free cashflow, given our low capex, working capital requirements, and moderate tax rate. We estimate that normalized run rate percentage of adjusted EBITDA translating to unlevered pre-cash flow to be around 65 to 75%. The next slide, we want to show you, talk about our software expansion for the quarter. So we heard now a few times from Adam and me, we believe that the software platform growth is key to our long-term growth and cash flow. So let's take a deeper look at our Q1 software performance. First of all, as noted in purple, you can see all of the one-time contract revenue is taken against our software revenue. When added to GAAP revenue of 119 million, the total is 329 million for Q1. That represents a 33% quarter growth rate on top of strong quarter-over-quarter growth over our prior three quarters. We saw strong customer adoption across all of our solutions, including App Discovery, App Loan Exchange, Adjust and Max, as we started to pick up revenue from the integrated Mopub customers. Our customers continue to find success with our solutions, are growing their business, and in turn, spending more on us. Of note, in Q1, we received approximately $40 million of revenue from Mopub Twitter and expect the revenue from the app position to grow over the course of the year. However, going forward, it will be difficult to discern what revenue comes explicitly from Mopub now that it has been fully integrated Across the board on software KPIs, we had very solid performance when normalized for the contra revenue impact. We had 258% net dollar-based revenue retention in the quarter over a prior year, showing the resiliency of our customers and continued increase in the use of our software solutions. We also had a solid increase in the number of new customers. Our normalized spec count reached 519, an increase over 58 customers, where we still believe that's a small percentage of the customers available to us in the marketplace. The additions were across the business, including from new additions from customers migrating from Mopa, as well as for new customers from App Discovery and Adjust. On top of more customers, we saw the average revenue increase on average from all of our specs to reaching normalized $603,000. a steady increase over the past three quarters. Of note, when taking the $210 million of contradicting out of these metrics, we still were able to grow net dollar-based retention and the total number of specs. For the third topic, we wanted to provide you an update on our guidance, where we're increasing our 22 adjusted EBITDA targets. For 22, our operating outlook for the software platform remains the same as previously given. However, we are adjusting our formal guidance by the 210 million in contra revenue to gap revenue guidance of 1.14 billion to 1.29 billion. We are continuing to expect $2 billion in software platform revenue in 2023, which will be a 10 times increase from 2020 and a 65% increase over the midpoint of a revised software platform guidance in 22. We believe we have the market, solutions, technology, and team to reach that goal. Further, given our scalable cost structure, which we articulated earlier, we believe the cash flow from a $2 billion revenue software platform business would be substantial. Switching to the app side, as Adam mentioned, the scale of our software platform in the men's future for max solution means we are much less reliant on the data from our apps to drive financial performance for our clients. Therefore, we're planning to manage that business to optimize for operating and financial efficiency with the perspective on how to best try to catch flow from that business over the long term. In the near and medium term, that may include lowering our investment in user acquisition, which will drive up margins but lower overall growth. We will also do a review of our app portfolio, which could lead to a wide variety of transactions or no change at all. Based on this new approach, we are lowering our revenue guidance by $200 million and now targeting a range of $2 billion to $2.15 billion in revenue from apps in 2022. The combination of our changes in software and apps guidance leads to a revised total guidance of $3.14 billion to $3.44 billion on a GAAP basis. With regard to adjusted EBITDA, given our record performance and strong margins, we're raising adjusted EBITDA guidance to a midpoint target of $1.2 billion. This target, again, represents a 65% increase over prior year. This is also an increase from our previous guidance of high 20% margins against a total revenue forecast at midpoint of $3.7 billion, which equated to just over $1 billion. Key drivers of this increase in EBITDA guidance are the much higher growth of our software platform business, which, as I said, has a much higher margin profile. We have lower investment requirements than originally earmarked for new initiatives, and we now have a higher margin expected from our house business as we optimize it. From an overall margin perspective, this equates to a 36% 22 adjusted EBITDA margin at midpoint of GAAP revenue guidance. and a 34% adjusted EBITDA margin when excluding the contra revenue. Therefore, the 34% target is our run rate margin to focus on, which would be an 800 basis point increase over the prior year. Since we do generate a significant amount of cash flow, I wanted to touch briefly on our go-forward capital allocation perspectives. As previously stated, we're not focused on M&A for the app side of the business. We will opportunistically look on the software side, although there too, we've assembled many of the key assets we wanted over the past 18 months. Then with regard to the stock buyback side, we do have our $750 million authorized program, and it will be used just over $45 million thus far. We are planning to use that authorization when appropriate and are open to doing so given the right opportunity. We appreciate the public markets are highly volatile and difficult to predict. In these markets, we believe cash is king and cash flow growth is king and queen. That's exactly where our team is focused. We believe in our strategic position, growth, and cash generation potential, and we will work hard quarter after quarter to post the numbers that will earn your trust. Thank you for taking the time to get an update on our business. And with that, we'll open the call for questions. Brian.

Thanks, Harold. So yeah, at this time, we'll open the call up to any questions from our participants. If you'd like to ask a question, please use the raise hand function on the Zoom client, and we'll try and get to as many as we can. Once I call your name, do remember that you need to unmute yourself when prompted to by Zoom before speaking. So let's pause a second and compile the roster. All right. Yousef, you're first in line. Please make sure that you do select unmute to ask your question. Go ahead, Yousef.

Excellent. Can you hear me?

We can hear you.

Beautiful. Thank you. Hey, guys. So just a couple of questions for me, maybe just at a high level. How long do you think this review of the apps business will last? In the meantime, what kind of performance do you expect from it? I think it was down 40 million sequentially. That's one. And then to a question we often get from investors is around just this Shifting strategy away from the apps. Historically, you guys have positioned yourselves as strategically leveraging the apps to, you know, as a source of first party data or 1P. So maybe just refresh us as to why is that not as important anymore?

Thank you. I think the two questions are well tied together. And really what we're focused on with the games business as it is today is operated efficiently. We've got 20 or so studios distributed all over the world. Some are run very well. They generate a good amount of profitability. Some are generating losses. And we're going to go through the portfolio and ensure that every single one of them is held to a standard the same way any independent gaming company would be. And what gives us confidence in that is that our software business has frankly grown so much faster and so much larger than what we thought when we first went public a year ago. We were talking about $650 million of revenue in software for the entire year this year. And we're now talking about over double that amount and around half that amount the first quarter. It's quadrupled in the last 12 months. And so when we see that scale, what we know is that we have to have really become a market solution. And we've got a lot more software platform enterprise clients to come use our platform. We've got a lot more scale with the Macs and MoPub marketplace now. And that gives us the confidence that our games are only a small percentage of that software business. The other data point that's really important to point you out to is for four quarters in a row, our games business has been fairly flat in both audience and revenue, whereas our software business has grown immensely. That gives us a lot of confidence in the trajectory of the software business, and we want to focus entirely on growing that and achieving the couple billion that we put out as a goal next year.

OK. Thank you.

OK. Next up is Eric Sheridan at Golden Saks. Eric, go ahead and make sure you unmute before you talk.

Okay, can you guys hear me now?

Go ahead, Eric.

Great. Hope everyone's well on the team. I want to come back to some of the acquisitions you've done and talk more broadly there. You know, you finished Mopub. Obviously, there's Connected TV with Whirl. Where do you see now the collection of assets you have in terms of positioning yourself for compounded growth, different verticals on the advertiser side, potential budget unlock, not only in 2022, but as we look beyond 2022 over the next couple of years? We'd love to get as much color as we can about that. Thanks. Great question.

In mobile, we're really confident with our position. We've got the largest marketplace. We've got X on our machine learning technology that's only 18 months old. It's going to continue to improve. That's how these things go. And then we have a performance model. So we're not looking to take budget from others. We're looking to give our advertisers results that are measurable and within their financial goals. That unlocks a limited budget. And so as we think about how to increase our market over time, and create growth factors for many years to come, we really think about finding the consumers that we know how to service well with recommended offerings across other access points. And that's what made Connected TV interesting for us. We're all being one of the leading software solutions to bring content online in Connected TV for a lot of the brands that have content and need to distribute it through channels. the ad slots in that content will have immense reach, will be very valuable on a full screen, and we think can present a really large performance model on television. And we're gonna be focused on continuing to expanding the software business and pushing our machine learning software in as many places as we can go.

Okay, great. Thanks, Eric. Next, we'll go to... Steven Ju at Credit Suisse. Go ahead, Steven.

All right, great. Thanks. Can you hear me?

We can.

Awesome. All right, great. So, you know, Adam, reading between the lines of your shareholder letter, it seems like now is the time to go after the larger ad market. as opposed to just a spend from the mobile game sector. So with MoPub now in the house, is there any sort of directional update you can give us in terms of the mix of ad revenue now coming from non-gaming clients and what the relative growth between gaming versus non-gaming is now and where that could be? Thanks.

Yeah, so Mova and Max together, we sit on top of 700 million daily actives around the world. And these consumers in large part on our platform, they're playing games. But I can assure you they don't just play games. It's the only thing they do in their life. So they're a very good audience at that level of scale to monetize in both games and non-games. We've traditionally focused our solutions for the game developer and really built a lot of performance technology there. MoPoP brought us access to the MoPoP marketplace, and that's how they monetize their eyeballs. And the marketplace itself is direct access for companies like the Trade Desk, which we announced a partnership with last quarter, to buy into our exchange. So as we continue to integrate and push forward after this MoPoP transaction, those types of relationships, we're going to see more and more monetization potential in this very large audience from non-gaming customers to augment the current and market-leading solution we have in the mobile gaming category.

Thank you.

Okay, next we'll go to Clark Lampin at BTIG. Clark, go ahead and just remember to unmute your line.

Okay, can you guys hear me?

We can go ahead.

Okay, awesome. Maybe I'll follow up on Stephen's question there for a moment because, you know, Adam, you mentioned the trade desk onboarding. In prior quarters, we've seen in the shareholder letter that there's really been a spike in sort of customers coming on platform. So, With ALX and Max now kind of under the app-loving umbrella for the first full quarter, could you give us a sense of customer response to the unified platform? Or maybe if it's possible, if there's any sort of backlog or just sort of qualitative read on demand? And then, Harold, I think if I understood this right, as we look at the 22 EBITDA guidance, most of the adjustment here is really, you know, sort of change of plan around apps and maybe it's S&M adjustments. But given, you know, what you've talked about with strategy changes. Does this change your sort of willingness to move potentially into new spaces like OEM, you know, sort of blockchain and NFTs and some of the things you talked about last quarter? Thanks.

Yeah, so as we think about like the integration that we just did, we put together the largest really open marketplace in mobile apps that's ever existed. Over 700 million daily active users in one exchange is a very large amount. So we've heard really positive feedback from the customers coming over. They were traditional DSPs buying on MoPub, thinking that MoPub was the biggest solution. And by coming into this unified solution, they're getting over two times the amount of scale for their business. That's obviously made the reception really strong. And on the publisher side, being able to have that much scale in one software solution just creates a lot more liquidity. Our entire objective with Max was to drive up competition in the marketplace and so that we can increase the amount of money that the publisher earns and know that on the other hand, that publisher is going to go invest in user acquisition. And that's what you're seeing really fuel our growth. You're seeing the increase in specs where we've almost tripled them in the last 12 months. You're seeing the net dollar retention, I think it was around 265% just this past quarter. These are the same customers a year ago spending nearly triple on our platform today. And that's because the efficiencies that we're bringing to the market is enabling them to do that and grow their businesses faster than the markets grow.

Yeah, Clark, thanks for the question. The other question you had was just around margins and investment in new initiatives. I think last quarter we talked about hitting the high 20s growth margin for this quarter. we needed to make. One was the infrastructure to really grow the software platform as fast as we were going to, particularly given MOPA. The second was the investment in new initiatives. And we put a bucket aside, not knowing exactly what that would look like. And then the third was we had a lot of new New apps that we had in studios, we onboarded to go invest behind that. I'd say very simply, the first one we're still doing and actually have done, that's in place. We've onboarded the vast majority of what we wanted to on MoFub, and we put that infrastructure in place. And that will continue to grow as MoFub and the software platform does grow. I think the other two pieces do have changes to them. On the new initiative side, we're pursuing the NFT blockchain as well as the OEM strategies, and I'll touch on that in a second. it takes as much dollars this year investing behind it to go achieve that. And then we've talked about the app side, which is a very different approach in terms of the investment there. We told you before that the M&A dollars would not be allocated there. And now we're telling you that in, margins than they really should be in the 20s margins. And so there's a lot of room for us to improve that from an OpEx standpoint. So we still remain extremely excited about the new initiatives we talked about, you know, CTV with Whirl being one and OEM another, and then the NFT blockchain. And we would expect in the next, you know, 12 months, if not sooner, to be coming back at you to describe some of the progress we're making on all those fronts.

Thanks a lot. Appreciate it.

okay we'll go next to uh matt cost at morgan stanley go ahead matt hey everyone uh thanks thanks for taking the question um i guess just looking at the ad network revenue in the quarter uh you know very strong it looks like revenue per sec if i have this right with that at an all-time high So I guess, what are the sources of strength in 1Q, particularly while you're going through the transition of MoPub into Max that you would call out? And within that, could you talk to the contribution from MoPub in the quarter? And then just definitely kind of more philosophically, I guess, historically, the way that I certainly thought about what made your ad network unique was that you had a flywheel between the data that came from the apps business and then fed, you know, the algorithms and the ad network. So I guess in the future where the apps could be spun or sold or the very least smaller in scale relative to the scale of the ad network, you know, what, what differentiates app love and dad network now, as you sort of drive to this next leg of growth, if it's not just running the same playbook that got you from, from where you started to where you are. Thanks.

Yeah, great questions. And I think it really, it's all interrelated again. If you look at the ad business, the inflection point on it was the release of Axon 18 months ago. And the continued expansion of dollars that are invested by our own customers over the last year is coming from efficiencies in the machine learning. These systems just get better as they get more data. Now, what's interesting about that tier data question is that when we started with Axon, the only data we had were our own games. That was the entire reason we got into games. And when we went public a year ago, our own games made up 35, 40% of the software business. And we reported that to you in TSTD. Now that number continues to shrink. And that's because we're just seeing immense adoption of the technology. We're seeing customers come online. We're serving more ads. We're getting a bigger feedback loop from doing all of those things. And we're seeing the machine learning continue to improve without a necessity for our own games to be fueling the data. And that's what gives us the confidence to go, let's just run both these businesses the most efficiently. That will maximize shareholder value and allow us to continue to grow the software business, but generate actual real margin from the games business at the same time.

Great. And then just on the ad network side, if you wouldn't mind.

Yeah, I think you asked about what the contribution was for Mopum in the core. still running that business for us in the quarter. Subsequently, now we've integrated entirely into Max. Mopub, as everyone knows, was completely shut down March 31st of this year. And so it's fully integrated in our numbers rolling forward. So we won't be able to parse it out because all the data and the customers are all integrated. But we expect to increase that number quarter over quarter as we've shown ultimately in our software guide for the year.

Great. Thank you. Okay, thanks, Matt. We'll go next to David at JP Morgan. David, go ahead.

Thank you. Just one on the MoPub integration. I know it's early, but for the publishers that have migrated over, can you maybe say how much traction you're seeing in pushing these clients toward in-app bidding? And then how do you think about cross-selling some of these new relationships into your app discovery products or anything else you offer? Thanks.

Yeah, the Max solution itself, really, we built to push the market to in-app bidding. And us in partnership with Facebook really were the first two big bidders in the marketplace. And clients that are coming over to Max just get in-app bidding out of the box. What we have seen is just a strong performance for the publishers that have come it allows us to get more differentiated demand. And the technology was built much later than the other mediation solutions. And that's why we had such a strong trajectory to Max before MoPub and why we continue to expect it to be the leading solution in the marketplace.

Thank you. Hey, Ryan, you might be on mute.

Hey, thanks, David. So we'll go next to... Tim Nolan at Macquarie. Go ahead, Tim.

Okay, great. Thanks. I got a couple of questions related to the contra revenue, because I guess I had thought of the $200 million-ish number that you'd mentioned before as being more of a cost. If it's a contra revenue item, just to make sure, that is not just MoPub customer revenue that's being shifted over to Max, but there must be some other revenue in your system that's also being moved over to Max. I just want to make sure I understand that, because the $40 million versus the $210 million number. I just want to make sure I understand what that difference is. And then relatedly, if you've got 90%, I think you said, of customers moved over to max, does that mean, you know, most of this is behind you and the other 10 are going to come or what happens to that other 10? Thanks.

Yeah, thanks, Tim, for the question. Yeah, sorry, just for the clarification. Yeah, on the revenue side that we take to our software business, specifically coming out of customers was the $40 million. The $210 million million dollars we're referring to is the fees that we pay to our vendors or our publishers to move their inventory on the max, right? So those are not necessarily customer to ours, but vendors to us to put inventory where we're monetizing their inventory. And the accounting treatment of that, because many of those publishers are our customers as well, then you have to have it as contra revenue against the revenue to contribute to us. And then many of those publishers who aren't our customers, we want them to be our customers accounting system also charges that to Contra Revenue. So there are two different numbers, two different populations at this point, but we're hopeful that those publishers will become customers on our app discovery platform. And then in terms of the migration, we do have the proponents at 90% plus of the publishers now on our platform. By the way, that'll take time for them to fully scale out of the platform and then for the demand side to catch up. I think the remaining 10%, there's certainly other providers out there you know some want to work with some don't but we we got all the key vendors that we wanted to and publishers on our platform and feel very good about that it exceeded our expectations of what we'd be able to do okay so if we wanted to get in call it an organic revenue growth number that would be then i guess what was it 835 is that the total minus the 40 that would be your organic growth exactly exactly that's exactly right

Okay, thanks, Tim. We'll go next to David Pang. David, go ahead.

Great, can you hear me? We can hear you, David. All right, thanks. So given the challenges of one of your key competitors, how are you ensuring that Axon won't face a similar challenge and is learning on quote unquote good data?

Yeah, I mean, look, machine learning obviously has opportunity and sensitivities and really does require a good data feed. And a lot of this just comes down to execution. We're focused on our own execution, not what others around us are doing. And really the key with us has always been, we felt like if we got data, and got a playground to be able to write the models, we have the technological capacity and the infrastructure to build very substantial machine learning technology. We did just that, and you see now for the past few quarters, growth has just really outpaced the market. We're very confident in our own platform's ability to just be stable and continue to lead to growth going forward.

Great, thanks.

Okay, skipping ahead here, we'll go to Franco Granda. Franco, go ahead.

Hi, good afternoon, everyone. Can you hear me okay?

We can.

Perfect. So despite the facing out of IDFA and 14.5, It appears that probabilistic attribution is still very prevalent across the industry. And there are rumors that iOS 16 might be cracking down on this. And this is thought that using private relay, similar to Google's plans, Apple would be able to do this in a non-disruptive way. So I guess two questions on this. First, just how big of a task is it for non-compliant ad tech businesses to move away from fingerprinting And then two, if a change like this were to happen, would this be an opportunity for you to again share in a similar way that when AT&T was enacted? Thanks.

Yeah, look, I think they're really like if you go up a level in the market, like these privacy changes have continued to come over the last few years, first with was the biggest. And now with what our Apple does in the future, while we can't predict exactly what's going to change in the market, there's a couple of certainties. One is people are going to play games on their mobile devices. That we know for certain. The other certainty is we have a very large scale platform, 700 million plus daily active users on it that we're monetizing. And the third is that our technology and team is really nimble. we can move quickly. Whenever these market shifts happen, you always expect to see winners and losers. It's just the way it always shakes out. And why we've been able to succeed so far in the last decade is that we move faster than everyone else, and we pride ourselves on being able to do that. So while these changes can be disruptive to businesses, we look forward to change.

Thanks. Okay, and we'll take our last question here from Martin Yang at Oppenheimer. Go ahead, Martin.

Hey, Ryan, can you hear me?

We can hear you. Go ahead, Martin.

Thank you. So my question is about the first quarter software platform revenues. Even back in our MoPOP, it's very strong seasonally and also net expansion rate quite extraordinary. Was that a surprise to you?

I mean, look, we put out a guidance to next year 10x of the software business from just four years ago, right? For a business of this level of scale, we're reporting on net revenue, and we've now talked about 65% to 70% EBITDA margins out of this business. To be able to do that, you have to have a lot of confidence in your business. So even though I think we surprised ourselves with how fast the trajectory of growth became, we are not surprised with our ability to execute and continue to grow this business going forward.

let me be more explicit. Do you feel you've benefited from some of the hiccups from your competitor in the first quarter?

Okay, so the way these markets work is that it's not zero-sum, but on the flip side, if one competitor ends up decaying in performance, another one doesn't just increase. Because the reality is, We effectively, we have models that are trying to match up eyeballs with advertiser offers, do the matchmaking well, and drive to the performance that the advertiser wants to go achieve. We're not really bidding against others for what we're taking or we're getting. We need to make sure that the matchmaking is accurate and we're driving the value to the other advertisers that are buying on our platform. So the impact from one doesn't impact us. That said, long-term, we wanna make sure, and we really do a strong job of this on the Max platform, that every marketing platform in the market is performing well. The better the marketing solutions are in the industry, the bigger the market's going to become, the faster the growth, more audience discovery, and more consumers will be playing more games, which is going to fuel our growth and the ecosystem's growth. And that's why I referenced in my talk track, we have so much in the market on our ecosystem, on the Max platform now, that really the success of our platform is going to direct the increase in TAM of the entire sector.

Got it.

Thank you, Adam.

Okay. And if there's no more questions in the queue, I'd like to turn it back to the guys and thank you all for joining us today. Do you guys have any closing remarks you'd like to say?

Thanks for joining us. We know there's a lot in the letter to cover. We appreciate people taking the time, particularly in these volatile markets. Thanks very much. Thanks, everyone.