Applovin Corporation

Hello, good afternoon, everyone. Welcome to Applovin's earnings call for the third quarter ended September 30th, 2022. Joining me today to discuss our results are our co-founder, CEO, and chairperson, Adam Foroughi, and our president and chief financial officer, Harold Chen. Please note our SEC filings, as well as our shareholder letter discussing our third quarter performance are available at investors.applovin.com. During today's call, we may be making forward-looking statements regarding future events, expectations regarding the market, the future financial performance of the company, and our strategic review of our app's portfolio. These statements are based on our current assumptions and beliefs, and we assume no obligation to update them except as required by law. Actual results may differ materially from the results predicted. We encourage you to review the risk factors in our most recently filed Form 10-Q for the fiscal quarter ended June 30th, 2022, and in our form 10Q for the third quarter, which we expect to file later this week. 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 investor relations 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. We advise this conference call is being recorded and a replay will be available on our IR website. I'd now like to turn it over to Adam for some opening remarks, then we'll open it up for Q&A. Please go ahead, Adam.

Thanks all for joining us today. As this market continues to be difficult, it's easy to get disappointed. You're not going to hear any disappointment from me today. I've been building businesses for nearly two decades now. And one thing I know is it takes years, not quarters, to build a great business. We have several things to be excited about at Applovin today. First, in 22, we're going to generate over a billion dollars of EBITDA, growing nearly 50% over 21. We're going to convert a majority of this to cash. Our ability to generate so much cash allows us to patiently address our market and go after the business opportunities in front of us, even in a difficult market. Second, our business is incredibly stable. It's easy to look at our industry and realize how difficult it is right now, but it's really easy also to forget how big a sector we're in. Everyone's got a mobile device. Most people are playing mobile games. Many people are playing mobile games every single day. The size and stability of our category, as well as our market-leading technologies, give us a lot of confidence in our business long term. So what are we focused on at Applovin today that gives us a lot of confidence that as we go through this economic downturn and come out, we're going to be a stronger business for it? First, and most importantly, we're focused on retaining our core team. Many of our key contributors have been at the company for many years. I've had the pleasure of working with each and every one of you. We're going to continue to invest in Applovin and make it a great place to work at. Second, we're really focused on attracting new talent. Over the last decade, there's been a talent crunch in Silicon Valley. More recently, we're getting resumes from incredibly qualified individuals better than we've ever seen before. The opportunity to attract new talent and pair it with our existing and exceptional team gets us very excited. Third, we're working tirelessly to improve our core technologies. We see a path to doing so. And if we're successful, it'll allow us to create growth that we can control. Fourth, we're still investing in new initiatives and we're very excited about these. They utilize our core technologies and core competencies and will enable us to go into bigger market opportunities. If we're successful here, we'll create immense upside for both our shareholders and team. And lastly, we'll continue to be strategic with our cash. We'll look at share buybacks, We'll also use this moment in time to try to attract new investors, shareholders that are going to be focused on our long-term vision, just as we are. The market today presents a low multiple entry point into our company. What's interesting about that is we generate a ton of cash, so it gives us a good base, and we're also going after very, very big opportunities. If we're successful in executing around our vision over the coming years, we're going to create outsized returns, private market-like returns. That opportunity gets us really excited. In fact, we're working harder today at Oplevin than we've ever worked before because of that upside. I'll now hand you off to Harold.

Thanks, Adam. And as we outlined in our shareholder letter, given the challenging backdrop, we are very much focused on what we control. Firstly, bolstering our leadership positions in our core markets and our core products. And second, using this cash flow that Adam mentioned to really invest behind initiatives that are focused on increasing the durability of our business, ultimately leading to long-term growth. which will then lead to enterprise value creation. Shifting to the third quarter, starting with the software business, we grew that 59% year over year. And based on our guidance from the second quarter, as expected, it was generally flat to the third quarter. EBITDA grew 49% year over year and achieved a 62% margin in the third quarter. We had 538 specs, a record, in the quarter, and that also had an NDRR, a net dollar retention, revenue retention of 166%. On the app side, which is a midstream R change, operational changes, as we previously discussed, the revenue was down 24% year over year, but EBITDA, which is where we're focused, was up 12% to a 17% margin. So on a combined basis, the total revenue was down slightly year over year, But EBITDA was up 35% to $258 million, a billion-dollar run rate, and achieved an EBITDA margin of 36%. Then shifting to our outlook for Q4, we see Q4 coming in fairly similarly to what we achieved in Q3. And if that's the case, then the year will end up at $2.8 billion, with a margin structure around 37% to 38% adjusted EBITDA. The components of that we see would be software being over $1 billion in revenue with a mid 60s EBITDA margin. And on the application side, we would see a 1.7 plus billion dollar revenue stream with a margin structure in the mid teens. Of note, going forward, we will only be providing our forward quarter guidance and will not be providing a full year guidance in the future. We've been talking about cash flow in a little more detail. We do plan on generating a billion dollars of EBITDA this year. We also plan on finishing the year with over a billion dollars of cash in our balance sheet. And as you all know, we're able to convert a high percentage of the EBITDA to free cash flow given our very limited amount of CapEx. As Adam described, we're able to then reinvest those dollars and have the financial flexibility and the patience to invest in projects, not trying to chase quarter to quarter growth on things that don't yield long-term return, but really invest behind our team, our talent and our tech to ensure that we're in a great spot going forward. We also have $400 million of availability, over $400 million of availability on our stock repurchase plan. And given the stock market environment today and the re-rating of risk, as well as our highly leverageable operating structure where if we do have growth in our high margin, high cash flow business, we think the combination of today's stock valuations and stock multiples combined with the ability to have high operating levers when we return to growth, those dollars fall into the bottom line. We think for shareholders and for us in considering stock buybacks could be a very attractive return. And with that, I'll turn it back to Ryan to go through Q&A. Thank you.