Applovin Corporation

Welcome to Applovin's earnings call for the first quarter and in March 31st, 2026. I'm David Chao, Head of Investor Relations. Joining me today to discuss our results are Adam Ferughi, our co-founder and CEO, and Matt Stump, our CFO. Please note, our SEC filings to date, as well as our financial update and press release discussing our first 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, 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-K for the year ended December 31st, 2025. Additional information may also be found in our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2026, 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 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 replay and transcript will be available for a period of time on our IR 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 this call a little bit differently than our last few. No preamble on stock price, no addressing short sellers, no reacting to noise. This quarter, the conversation is about us and our future. And from where we sit, the future has never looked better. We just delivered another quarter where we beat our own guidance. Again. We continue to grow this business very quickly, despite the numbers getting much bigger. And we are doing it while margins keep expanding. The rate of top-line growth, profitability, and free cash flow generation that we are delivering is exceptionally rare in public markets. and our team deserves all the credit for that. What I want to spend my time on today is the opportunity ahead. Because we are quickly moving through a lot of the goals we set for the businesses here, and we are now well on our way to opening up our platform to the public in June. That is a major milestone. For 14 years, we have been a closed platform. Come June, advertisers across the world will be able to sign up for Axon and start running campaigns. that changes the trajectory of this company in a very meaningful way. Let me start with gaming, because it remains the foundation of everything we do, and it is performing really well. A couple of weeks ago, we hosted our annual gaming CEO summit. We bring in the top executives from the biggest mobile gaming companies in the world. And the energy this year was unlike anything I've seen. These companies have been our closest partners for over a decade in many cases, and the excitement was strong. There is a real sense that we are entering a new phase of growth for the industry, and our platform is at the center of it. Here is what is driving that excitement. First, AI technologies are now enabling these studios to do things they could not do before. Incumbent gaming companies, the ones that already have successful titles, can now use AI tools to improve their current games faster and cheaper. More importantly, it is giving them the confidence to launch new games. The cost of experimentation has come down dramatically, and that is unleashing a wave of new content that is really healthy for our ecosystem. Second, we are seeing a meaningful shift in how these companies think about monetization. Games that historically only made money from purchases are now really focused on testing hybrid models where they also unlocked incremental revenue from ads. This is a big deal. For years, a lot of these IAP-only games would not run ads because they did not want to promote competing titles. But as we scale advertisers who are not gaming companies, whether apps or websites, e-commerce or other categories, which we now call our consumer vertical, those concerns go away. A cookware company or a fashion brand is not competition to a puzzle game. So we fully expect to see a lot of IAP-only games start monetizing with ads that will not be deemed competitive. That is going to be a strong tailwind for many quarters. Together, we and our gaming partners can acknowledge that our platform is driving the market's leading scale in return on ad spend and continues to help the industry grow faster than expected. The ad-supported part of the ecosystem continues to grow at really healthy rates, multiples faster than the growth of the more mature in-app purchasing categories. As we look forward, we expect to see much more high-quality content come to market that taps into both ads and in-app purchasing modernization, and that plays really well into our strengths. Now, that brings me to the consumer vertical, which is growing even faster than gaming. This is still only a year-and-a-half-old product. I want people to really internalize that. And it is scaling at a pace that gets us very excited. A couple weeks ago, we had another material model released, that improves scale and return on ad spend significantly for our consumer advertisers. These are the types of compounding improvements we have talked about on prior calls. The team improves the model, advertisers see better returns, and they put more budget into our system. It is a virtuous cycle and it is working. The consumer vertical exited the quarter very strong, with March growing roughly 25% more than the numbers we did in January, in April reaching a record month in advertiser spend, higher than any peak Q4 month. That kind of acceleration is exactly what you want to see from a product that is still early in its development curve. Advertisers are seeing real success on our platform and they are ramping aggressively. We are thrilled that this is happening and we are really excited about what comes next. When we open up our platform in June, and start pursuing our mission of helping all the businesses in the world add another material marketing channel to their set of opportunities, that is when this thing just continues to compound. We've always said we want to help the smaller businesses scale. Last quarter, I highlighted an Israeli cookware company that went from $4 million in revenue to $16 million to now projecting $80 million with the majority of their ad spend on our platform. That is the kind of story we want to replicate thousands of times over. As we look forward, one of the things that I'm most excited about is how advertisers will interact with our platform. We are already seeing advertisers use AI agents to manage their marketing spend, and we are building Axon to be natively accessible to those agents. Between self-serve access in June, our AI-powered ad creative tools, and agent-compatible infrastructure, we are building a system where an advertiser can onboard, generate high-performing ads, and scale campaigns profitably without ever needing to talk to a human. We're also showing up more, podcasts, sponsorships, a larger voice in the market. That visibility reflects a deeper conviction. Axon-powered growth isn't a niche phenomenon. It's a blueprint for transformation at a scale the world hasn't seen yet. Millions of businesses, that's the opportunity in front of us. Let me close with this. We're a focused company. more excited about our opportunities than at any point in our history. The gaming business is strong, our partners are energized, and we are helping the industry grow. The consumer vertical is scaling fast, and we are just getting started. Our platform opens to the world next month. We will continue to ignore noise, execute on our path forward, perform well, and drive value to our customers. We know that in turn, that will set us up for a much bigger future than where we are today. With that, I will turn the call over to Matt to walk through the financials.

Thanks, Adam, and thanks to everyone for joining us today. Q1 was another exceptional quarter. We exceeded the high end of our guidance on revenue and adjusted EBITDA, expanded margins to a new high, and continued our disciplined return of meaningful capital to shareholders. Revenue in the first quarter was $1.84 billion, up 59% year-over-year and 11% sequentially. driven by continued technology advancements across our core gaming business and our expanding consumer vertical. Adjusted EBITDA was $1.56 billion, up 66% year-over-year, representing an 85% margin. Margins expanded approximately 400 basis points from the same period last year. Quarter-per-quarter flow-through to adjusted EBITDA was 86%, again reflecting the operating leverage of our model. Free cash flow for the quarter was $1.29 billion, slightly elevated due to interest and tax payment timing. As cash tax payments are weighted toward the second and third quarters, free cash flow conversion is naturally lower in those periods and will normalize over the course of the year to approximately 75% of EBITDA for 2026. We ended the quarter with $2.76 billion in cash and cash equivalents. providing significant flexibility to continue funding both organic investment and capital returns. During the first quarter, we repurchased and withheld 2.23 million shares for $1 billion, ending the quarter with 336 million shares outstanding and approximately $2.3 billion remaining under our share repurchase authorization, a program that continues to reflect our conviction in the value and durability of our business. Turning to our outlook for the second quarter of 2026, we expect revenue between 1.915 and 1.945 billion, representing 52 to 55% year-over-year growth, or 4 to 6% sequentially. Adjusted EBITDA is expected to be between 1.615 and 1.645 billion, with an adjusted EBITDA margin of approximately 84 to 85%. To close, Q1 was a beat across every metric, with margins at a new high and significant cash return to shareholders. Our capital allocation priorities for the balance of the year are unchanged. Fund organic investment and return capital through buybacks, reflecting our continued commitment to driving shareholder value through disciplined capital deployment. With that, let's move to Q&A.