Applovin Corporation

Welcome to Applovin's earnings call for the fourth quarter and year ended December 31st, 2025. I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Ferughi, our co-founder, CEO, and shareperson, and Matt Stumpf, our CFO. Please note our SEC filings to date, as well as our financial update and press release discussing our fourth quarter and annual performance are available at investors.applovin.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, our expected growth opportunities, 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 in our most recently filed Form 10-Q for the third quarter until September 30, 2025. Additional information may also be found in our annual report on Form 10-K for the fiscal year ended December 31, 2025, which will be filed later this month. We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or a substitute for our GAAP results. Please be sure to review the GAAP results and the reconciliations 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 IRL 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. I want to start by addressing what's clearly on many people's minds. While I prefer to ignore short-term fluctuations in the stock price and focus on maximizing value over the long term, the recent volatility warrants addressing. For the past few weeks, there's been a lot of discussion about how AI and competition will challenge our business. But when I look at our internal dashboards, we're delivering the strongest operating performance in our history. What's fueling that growth is our own AI models. And as research in AI, both internal and external, continues to improve, our business will grow with it. There is a real disconnect between market sentiment and the reality of our business. Before I talk about the opportunity ahead, let me explain how we think about competition in AI. First on competition. Since day one, we've competed against many companies. We've never feared competition because it forces us to innovate to serve our gaming ecosystem even better. We operate a foundational piece of the ecosystem, the max auction. It's critical for the ecosystem that the max auction improves through more competition, which in turn helps publishers make more money, leading to more user acquisition. Now, in a typical zero-sum auction-based market, if one improves, another loses. In our case, as bid density goes up, the pie expands, and while our share of the auction may shrink, our economics actually grow. There are impressions our model understands extremely well and it values highly, and others where we have less signal and value them less. When competition wins an impression, it's very likely to be the one that we value less. This leads to the publisher making more, and in many cases we do as well, because instead of winning a low-value impression, we get to charge the winning bidder 5%. When you hear about a startup coming for our business, you should be asking how their value proposition can be stronger than ours. If our value proposition wasn't strong with our partners, we would have lost those relationships long ago. We have competed very well in mediation against giant companies. The network effects in this business are very real. We scaled our network by providing the best modernization and even more importantly, the best advertising tools to publishers. The combination is not something peers can overcome. Second, let's talk about AI and game creation. The bearish view assumes that if AI makes games easier to build, the value of our ecosystem declines. Well, we believe the exact opposite. AI will dramatically lower the cost of creation, which means content will explode. And when content becomes abundant, discovery becomes a scarce resource. Even in the past, as mobile games were built by human teams, the content was plentiful, and in many cases, commoditized. That is actually what allowed us to deliver such a strong value proposition through our advertising solutions. In a world where anyone can create an app or a game, millions of experiences will compete for attention. The winners will be the platforms that can efficiently match the right user to the right content at the right moment. That is exactly what our models are designed to do. We are not tied to any specific genre or format, casual, mid-core, or beyond. Our systems follow engagement, and AI only increases the potential of that capability. Furthermore, we don't see any evidence of a declining mobile gamer. Casual gaming serves a different human need than console, PC gaming, AAA games, or any other form of deeply immersive game experience. People will always look for entertainment that fits naturally into their day. What's changing is how well that attention can be monetized. Even today, we convert only a small portion of those impressions that we serve. We view that not as a limitation, but as a large, long-term opportunity as our models continue to improve. Now that brings me to what we control, performance and culture. On performance, our business is executing extremely well. We continue to grow very quickly, despite the numbers getting much bigger. We delivered strong growth in Q4, and despite typical seasonality where Q1 should be softer than Q4, we are guiding the meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers. On culture, we embrace being underestimated. A skeptical market sharpens our focus and pushes our teams to execute. Our revenue per employee remains among the highest in the world because we build the best and most scalable products in our category. If the market chooses to price our stock based on fear, while we continue to compound revenue, cash flow, and product capability, we'll stay focused on execution and let our results speak over time. From where we sit, we are still in the early innings of what this platform can be. With that, I'll turn it over to Matt to walk through the financials.

Thanks, Adam. Q4 marked what was not just a strong quarter, but the most exceptional year we've ever delivered, and one of the strongest performances in the public markets. At our scale, the combination of growth, profitability, free cash flow, and capital returns we're delivering is extraordinarily rare. Revenue in the fourth quarter was $1.66 billion, up 66% year over year, driven by continued technology advancements to our core mobile gaming business, seasonal strength, and the expanding impact of our e-commerce initiative. Adjusted EBITDA was $1.4 billion, up 82% year over year, representing an 84% margin. Margins expanded over 700 basis points from the same period last year, and quarter-over-quarter flow-through to adjusted EBITDA was approximately 95%, again demonstrating our relentless dedication to execution and how efficiently incremental revenue converts into earnings for our business. Investors often reference the rule of 40 in software. On that basis, our 66% revenue growth and 84% adjusted EBITDA margins translate to a score of 150. That level of profitability at this growth rate is almost unheard of and reflects the fundamental operating leverage of our model. Free cash flow for the quarter was $1.31 billion, an 88% increase year-over-year, growing our cash balance to $2.5 billion and reinforcing the strength of our balance sheet. This was a truly remarkable year for App11. Revenue reached $5.48 billion, growing 70% year-over-year. Adjusted EBITDA was $4.51 billion, up 87% year-over-year at an 82% adjusted EBITDA margin, a margin profile that very few companies ever achieve, let alone sustain at this scale. Free cash flow totaled $3.95 billion, up 91% year-over-year, underscoring not just growth, but the exceptional quality and durability of our earnings. Simply put, very few public companies are scaling faster, more profitably, and with greater cash generation than we are today. That strength directly translates into shareholder returns. During the quarter, we repurchased and withheld approximately 800,000 shares for $482 million. For the full year, we repurchased and withheld approximately 6.4 million shares for a total of $2.58 billion, funded entirely by free cash flow. As of the end of the year, we had a remaining share repurchase authorization of approximately $3.28 billion. Over the last four quarters, we reduced our weighted average diluted shares outstanding from 346 million to approximately 340 million, while simultaneously investing in organic growth and maintaining substantial liquidity. Our share repurchase program reflects our conviction in the value and durability of the business. Turning to our outlook for the first quarter of 2026. We expect revenue between $1.745 billion and $1.775 billion, representing 5% to 7% sequential growth. Adjusted EBITDA is expected to be between $1.465 billion and $1.495 billion, with an adjusted EBITDA margin of approximately 84%, maintaining best-in-class profitability as we continue to scale. To close, App 11 represents a combination that is exceedingly rare, sustained hyper-growth, exceptional margins, massive free cash flow generation, and disciplined capital returns. We believe this puts us in a category of our own and positions us to continue delivering outsized value for shareholders over the long term. Now with that, let's move to Q&A.