Applovin Corporation

Welcome to Applovin's earnings call for the second quarter into June 30th, 2025. I'm David Zhao, Head of Investor Relations. Joining me today to discuss our results are Adam Ferughi, our Co-Founder, CEO, and Chairperson, and Matt Stumpf, our CFO. Please note, our SEC filings to date, as well as our financial update and press release discussing our second quarter performance are available at investors.applevin.com. During today's call, we will be making forward-looking statements, including but not limited to the future development and reach of our platform, including the expected timing of product launches, our expected growth opportunities, the efficiency of our operations, the expected future financial performance of the company, and other future events. These statements are based on our current assumptions and beliefs, and we assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors and are most recently filed Form 10-Q for the first quarter ended March 31, 2025. Additional information may also be found on our quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2025, which will be filed today. We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or substitute for our GAAP results. Please be sure to review the GAAP results and the reconciliation of our GAAP and non-GAAP financial measures in our earnings release and financial update, available on our investor relations site. This conference call is being recorded and a replay will be available for a period of time on our IRN website. Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q&A.

Thanks everyone for joining us today. We appreciate your time and interest. Q2 2025 was another great quarter, driven by continued strength in gaming advertising. Our growth comes from improved technology, increased demand, as well as from supply-side expansion. The Max Marketplace creates the supply that drives our growth as well as the growth in the market. As marketing technologies in the industry continue improving, we expect the supply will keep growing quickly. While we don't disclose Exact Max Marketplace growth rates, it has consistently been double digits, far outpacing growth in the in-app purchasing gaming market. The ongoing improvement in our models drives sustainable growth rates beyond the market growth rates while we continue to expand our dominant leadership position. Based on all the opportunity in front of us in our core market, we are confident we can sustain 20% to 30% year-over-year growth driven by just gaming. However, what gets us more excited now than ever in our history before is the opportunity to really expand outside our core market. Recently, we took the first step towards opening up our platform broadly, quietly launching our new Axon Ads Manager. Our self-service portal, which will serve as the foundation for our next decade of growth. Our ads manager has many benefits. It puts day-to-day controls directly in advertisers' hands, reducing friction. It enables credit card billing, eliminating the hassle of monthly invoicing. It provides the architecture for agents that can eventually automate every workflow. It establishes the framework for automatically generated ads. It simplifies onboarding through our recently launched Shopify app. It deepens integrations with attribution providers, giving customers more accurate reporting. With the rollout going smoothly, we're ready to widen access. On October 1st, 2025, we plan to open the Axon Ads Manager on a referral basis, perfectly timed for the holiday season. Feedback from these partners will guide our global public launch in the first half of 2026. To date, web advertising campaigns have been limited to the United States. On October 1st, we plan to open our platform to most major international markets. Now stepping back, we have spent the last decade assembling the pieces, reach of more than one billion users, best-in-class optimization, and now a self-service interface. Together, they position us to help any business of any size anywhere in the world grow profitably. That is good for our partners, it's good for economies around the world, and it's great for job creation. The opportunity is so big that we will be launching the platform under its own brand, Axon. Once Axon is fully open next year, we plan to begin paid marketing to recruit new advertisers, which will drive predictable, compounding growth. We have been building performance-driven advertising products longer and better than most anyone. Operating at our current scale with an incredibly small amount of advertiser relationships highlights the magnitude of the opportunity ahead. Our strategy is simple. Build world-class products, launch them when they meet our high bar, and compound from there. Patient discipline execution produces durable success, and we hope our track record gives you the same confidence we have in our future. We're incredibly excited about what's ahead. With that, I'll turn it over to Matt for a closer look at the numbers.

Thanks, Adam, and thanks to everyone for joining us today. Q2 was another exceptional quarter for AppLovin. At the end of the quarter, we closed the sale of our apps business to TripleDot Studios. This quarter, the financial results for the apps business are included within discontinued operations, and we will keep our commentary limited to the advertising business only. During the quarter, revenue increased by a very healthy 77% from last year to approximately $1,260,000,000, while adjusted EBITDA nearly doubled to an impressive $1,020,000,000, achieving an 81% adjusted EBITDA margin. The majority of our revenue growth in the quarter was driven by our core gaming business. While e-commerce continues to perform well, we limited onboarding of new customers to focus on the preparation for the self-serve launch in Q4. Quarter-per-quarter flow-through from revenue to adjusted EBITDA was a very strong 81%, illustrating our continued dedication to operating lean. At the end of the second quarter, we had $1.2 billion in cash and cash equivalents, which includes $425 million in net cash received from the sale of the apps business. In the second quarter, we generated $768 million in free cash flow, up a staggering 72% year-over-year. Our free cash flow was slightly lower than last quarter due to the timing of payments for interest on our bonds, which are semi-annual, and certain taxes associated with the prior year. This quarter, we repurchased and withheld approximately 900,000 shares for a total cost of $341 million funded through free cash flow. As a result of our ongoing strategic share management activities, we were able to reduce our weighted average diluted common shares outstanding this year from $346 million in the fourth quarter to $342 million this quarter. Finally, turning to our financial guidance for next quarter. In the third quarter of 2025, for the advertising business, we anticipate delivering between $1,320,000,000 and $1,340,000,000 in revenue. with adjusted EBITDA between $1.7 billion and $1.9 billion, targeting an adjusted EBITDA margin of 81%. We're confident these targets position us to continue driving strong growth and value for our partners and shareholders. Now with that, let's move to Q&A.