ironSource Ltd. Class A Ordinary Shares

Hello everyone and welcome to the IronSource Q3 earnings call. My name is Daisy and I'll be coordinating today's call. You will have the opportunity to ask a question at the end of the presentation. If you would like to register a question, please press star flipped by one on your telephone keypad. I'll now hand over to your host, Daniel Amir, Head of Investor Relations at IronSource. Daniel, please go ahead.

Good morning everyone and welcome to IronSource's third quarter fiscal 2021 earnings conference call. My name is Daniel Amir, VP of Investor Relations. With me today, we have Tomer Barzaev, Chief Executive Officer, Asaf Ben Ami, Chief Financial Officer, Arnon Harish, President, and Omar Kaplan, Chief Revenue Officer. Before handing the call over to Tomer, let me remind you that this call is being recorded. A replay of this recording will be made available on our website shortly after the call. We have posted the earnings release and the accompanying slide presentation on our investor relations webpage at investors.is.com. Elements of this presentation, as well as statements we may make on this call, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and these statements are based on current expectations and assumptions. please consider the risk factors included in our public filings with the SEC that could cause our actual results to differ materially from these forward-looking statements. For more detailed information, please see disclaimers in the earnings material relating to forward-looking statements that involve risks, uncertainties, and assumptions. For our discussion of some of these risks, uncertainties, and assumptions, please refer to IronSource's SEC reports. Other than as required by law, we assume no obligation and do not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in IronSource's other SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year-to-year comparisons with the corresponding prior year period. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information other than with respect to adjusted EBITDA guidance for which we have not provided a reconciliation because certain items that impact adjusted EBITDA are out of the company's control and or cannot be reasonably predicted and according to a reconciliation is not available without unreasonable effort. Please refer to the tables and slide presentation accompanying today's earnings release for these reconciliations. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. With that, I'd like to turn it over to Tomer.

Thank you, Daniel. Hi, everyone, and thank you for joining us today for our Q3 earnings call. It's been another great quarter for IronSource, not only from a financial perspective, but also in terms of the meaningful expansion of our platform offering and the value we deliver to customers. We also recently announced two strategic acquisitions, which we are very excited about, and which, once closed, will serve to deepen our platform offering further, as well as increase our scale in the market across both apps and games. We've maintained our leadership position in the app economy with some of the largest app, games, and telcos using our platform to grow their business. Last quarter, 86% of the top 100 most downloaded games across both the app and Play stores used our platform to grow their business. We've signed a strategic partnership with one of Europe's leading telecom operators, Vodafone. Before I dive into the platform and business highlights in more detail, I'd like to share a few quick financial highlights. In the third quarter, we achieved record results with total revenues of $140 million, up 60% year-over-year. This was primarily driven by continued momentum across both the Sonic and Aura solution suites and market share gains as we've seen an increase in the use of our platform by both existing and new customers. For the third quarter, adjusted EBITDA was $51 million. up 70% year-over-year in the same quarter last year. And that's consistent with our long history of providing profitable revenue growth while benefiting from operating leverage. Finally, we saw further evidence of the stickiness of our platform and the value it provides to our customers with a dollar-based net expansion rate for the quarter of 170%. As a quick reminder, the iOS platform is designed to serve the two core constituents of the app economy, app developers and telecom operators. It's made up of two solution suites, Sonic, which empowers app developers who create the content of the app economy to turn that content into a business, And Aura, which enables telecom operators who provide the infrastructure that content runs on to create a richer device experience to drive more value and differentiation with end consumers. Together, these two solution suites make IslandSource the most comprehensive platform providing business creation software for the app economy. And as we'll see in the next few minutes, we've recently made meaningful addition to that platform offering, making it even more comprehensive. A key element in the success of our platform is the strength of our data. This is driven by two main factors. First, our scale. Today, the majority of the leading mobile game developers are using our SDK. And our Aura solution suite is integrated on more than 160 million active devices. Second, the comprehensiveness of our platform means we provide multiple solutions for every stage of the app growth lifecycle. This means we are integrated at multiple touchpoints within the customer's business, and we're able to get visibility across the entire app lifecycle. As part of our growth strategy, we recently announced two acquisitions which have deepened and expanded our platform offering, while also strengthening our data advantage by increasing our market scale and penetration in app categories outside of games. First, let me talk about Tapjoy. In October, we announced the acquisition of Tapjoy, a leading mobile advertising and app monetization company for $400 million in cash. TabJoy has a strong, well-known brand in the app economy and brings to influencers an experienced management team with a large U.S. presence. Let me highlight a few of the reasons for the acquisition. First, complementary technology enabling the optimization of in-game and in-app economy. Second, an expanded customer base beyond gaming. Since a significant percentage of Tapjoy's revenues come from non-gaming apps, an area of strategic importance for us. Third, additional market scale and increased SDK footprint. Given that the Tapjoy SDK is integrated on a wide range of apps, this further bolsters our scale and data advantage. And finally, attractive financial metrics, which includes expected revenues of $81 million in 2021 and accretion to Amazon's financials in 2022. We believe that the acquisition of a fast-growing, highly profitable, and strategically complementary business in a financially accretive manner is illustrative of our ongoing M&A strategy and opportunity ahead. Our second acquisition was Bidalgo, a marketing software company focusing on data-driven optimization tools for mobile marketers. Today, app developers need to be able to run and optimize marketing campaigns across multiple channels in order to grow at scale. With Bidalgo, we're able to offer cross-channel management and optimization for every element of marketing activity throughout the IronSource platform. The Bidalgo acquisition, together with our creative management solutions, Luna Labs, expands our cross-channel capabilities on the marketing side of the growth cycle, increasing value add and stickiness with app developers. Like the TapShare acquisition, acquiring Bidalgo will also deepen our market presence across the entire app economy, giving Bidalgo's customer base in app categories beyond games. It's interesting to note that many of our existing customers use both Vidalgo and TabJoy in addition to multiple of our current solutions on the Allen Soles platform. This not only highlights the value of the combined offering and expected increased stickiness with customers, but it's also a testament to our platform-based approach to the app economy. We're looking forward to closing these transactions in the coming months. subject to regulatory approvals, and believe these acquisitions will accelerate our growth going forward. This quarter also saw the launch of products and partnerships designed to increase our value proposition to our customers and drive further growth. Let's look at Sonic first. As a reminder, our Sonic solution suite provides app developers with everything they need to grow their business. from expanding their user base cost-efficiently, to monetizing their apps and generating revenues from it, to analyzing their business and optimizing it for profitable future growth. Put simply, our platform allows developers to focus on creating great apps and content while we provide the infrastructure for their business expansion. This quarter, we announced the launch of two products that support app developers in the revolving landscape on iOS. One that allows app developers to evaluate the quality of an acquired user, and another which gives them critical transparency on their user acquisition performance across all networks. Both these tools are designed to empower developers to continue growing their app businesses in a cost-efficient and profitable way as the industry evolves. Now, let's move to Aura. As a reminder, Aura enables Telcom operators to enrich the device experience by creating new engagement touchpoints that deliver relevant content to their users. These not only increase an on-device distribution channel for app developers, it also gives Telcom operators a way to increase adoption of their own and operated content and services, We've seen another successful quarter with the announcement of our partnership with Vodafone, one of Europe's leading telecom operators. The partnership includes integrating the Amazon Aura solution suite on Vodafone devices across Europe, including in the UK, Germany, Spain, and Italy. This follows the announcement last quarter of the exclusive deal to power Samsung's open market phones in Europe. increasing our scale in the European market and our value proposition for app developers looking to reach users on devices in that market. These partnerships are a testament of the unique value proposition of our solution suite, which goes far beyond app promotions. By providing a solution for managing the entire device experience, we were able to continually expand to new touchpoints, giving telcos additional opportunities to engage their users, provide value, and drive incremental revenue. Since Aura is integrated at the device level, it's very easy to add additional in-life touchpoints, such as news, entertainment, or gaming hubs. which encourages users to engage with their devices and the telcos brands more often. This has been a great quarter on all fronts. From our financial performance to strategic M&A and important product update and partnership agreements, we are continuing to fulfill our goal of providing the most comprehensive business platform for the app economy. More importantly, we're providing value to our customers and helping create more app businesses. With that, I will turn the call over to Assas to provide you with details of our financial performance and guidance for the quarter.

Thank you, Thomas. We are excited to deliver another quarter of excellent results. Before diving into the results, I wanted to start with a brief reminder about our business model. Our revenue consists of three main drivers, revenue share, usage-based, and D&F monetization. A majority of our revenue is currently generated under the revenue share model, where we retain a share of the revenue our customers generate using our platform. Our ability to increase our revenue is highly aligned with our customer success. As our customers see greater benefit from our platform, they increase their usage and adopt additional solutions that, in turn, further accelerate their growth. This strategy has resulted in a high net expansion rate, which has averaged 157% in the past 10 quarters. Our customers range from large global enterprises to small independent developers. As of the end of Q3, we surpassed 5,000 customers for the first time using our platform. This compares to less than 4,000 customers in a year ago period. As Tomer mentioned, Q3 2021 was a record quarter, both top line and bottom line, and higher than our guidance. We are pleased to report that we generated $140 million of revenue. compared to $88 million in Q3 2020, representing year-over-year growth of 60%. For the quarter, Sonic was 87% of our total revenue and Dora was 13%. The growth in the quarter was fueled mainly by the expansion of Sonic and Aura solution suites within our platform. Our revenue is driven mainly by our large customers, We define large as those that generate over 100K in the last trailing 12 months. This group grew 332 customers in Q3 2021, up from 269 in Q3 last year, representing year-over-year growth of 23%. These numbers were achieved while maintaining a very high growth retention rate of 98% in Q3, These large customers represent 95% of our total revenue in the trailing 12 months of Q3 2021. Due to the increased usage of our solutions, we are able to cross-sell and up-sell a greater portion of our solutions to them, as well as general growth in the number of new customers that contributed more than 100K of revenue. These large customers are a very important source of stability and predictability in our financial model. Our dollar-based net expansion rate for Q3 remains exceptionally high at 170% compared to an average of 157% in the last 10 quarters. This high rate is driven by products and solutions launched over the course of 2020 that drove significant growth and align with our business model, which is focused on customer success. Although we expect our dollar-based net expansion rate to remain very healthy, we anticipate that it will vary from quarter to quarter and will normalize at our historical level over the next couple quarters. We had another strong profitable quarter. We prioritize growth and investment, but we believe in profitability and healthy margins. We generated adjusted EBITDA of $51 million in Q3 2021, representing year-over-year growth of 70% from our adjusted EBITDA of $30 million in Q3 of last year. This growth was driven mainly by revenue growth across all of our solutions. Our non-GAAP diluted EPS for the quarter was $0.04, and our net cash position was $788 million. Now, let me turn to guidance. Our guidance takes into consideration the following factors. The recent Q3 results, the momentum across our platform, the near-term potential impact of IBFA, and it also does not include any revenue from our recently announced acquisitions. For the fourth quarter of 2021, total revenue is expected to be in the range of $140 to $145 million, representing 32% growth on a yearly basis at the midpoint. Adjusted EBITDA is expected to be in the range of $50 to $52 million, representing 57% growth on a yearly basis at the midpoint. We expect our fully diluted shares count to be approximately 1.1 billion shares for the full year 2021. We are raising our full year 2021 guidance for the third time this year, Total revenue is expected to be in the range of $535 to $540 million compared to $510 to $520 million previously, representing 62% growth at the midpoint. Adjusted EBITDA is expected to be in the range of $186 to $188 million compared to $173 to $178 million previously.

representing 81 growth at the midpoint we will now open the call to questions operator please go ahead thank you very much if anyone would like to register a question please press star followed by one on your telephone keypad if you would like to withdraw your question please press star followed by two When preparing to ask your question, please ensure you are unmuted locally. So that's star one on your telephone keypad to register a question. Our first question is from Colin Sebastian from Baird. Colin, your line is open. Please go ahead.

Thanks very much. Good morning and good afternoon, everyone. I guess first, Tomé, with the consolidation of game development and advertising, kind of changing the competitive environment. Is this an area where you're able to capitalize from these trends from a business development perspective? And then secondly, would you say at this point that the iOS IDFA issues are a net positive to the platform as developers have to broaden out their customer acquisition and monetization efforts? Is that fair? Thank you.

Hi Colin, great to hear from you again and thank you for joining today. So briefly on both points, so indeed we've seen a lot of consolidation in the ecosystem, both around the game developers among them and also the different platforms adding additional solutions to their stack. IslandSource, we announced two acquisitions, Tabja and Hidalgo, which goes very much in line with our strategy of growing both organic and non-organic. And I do believe we will continue to see further consolidation with two main narratives expanding. We would see game developers acquiring other game developers to expand their offering, their portfolio of games. We would see some casual developers going into hyper-casual. We will see the other way around, hyper-casual maybe growing into casual. And we will see more of those. And I believe we will continue to see the platforms growing also non-organically, adding additional solutions. As for IslandSource, we repeatedly said that we, as a platform, as a business platform for the app economy, are going to continue focusing on expanding the platform, expanding the solutions we add to the different solutions which we have within the IslandSource platform so we can better serve our customers, helping them concentrate on creating great content, great apps, and relying on us to grow their business. And I believe we will continue to see that in quarters ahead. As for IDFA, as I've also repeatedly said in previous calls, we continue to pay close attention to every development in that area, in the ecosystem. I think it becomes clearer and clearer today that some companies are net beneficiaries of the changes, some are a bit less. And, again, as I previously said, we, so far, thus far, we've seen IDFA being a net positive solar iron source. Still a bit difficult to quantify exactly. And we... When we look at guidance that we continue giving and when we contemplate into the future, we are still taking into account potentially short-term negative effects of IDFA, although we still haven't seen them for the last three quarters or so. So we are still budgeting those. IDFA is still not completely over, but it's even clearer than ever before that in the long term, island service, as we already stated, is going to be one of the platforms clearly beneficiary from IDFA. Okay. Thank you, Tomer.

Thank you very much. Our next question comes from Bernie McTernan from Needham & Company. Bernie, your line is open. Please go ahead.

Thanks for taking the questions. You highlighted in the slide deck your work with Saibo on subway surfers with in-app bidding driving greater efficiency for the customer. Can you talk through how unique and differentiated your product is for in-app bidding relative to peers? And then just to follow up on Vodafone, I appreciate the commentary that you provide and the prepared remarks, but how should we be thinking about this revenue stream starting off and growing over time, and how big of an opportunity can it be?

Sure. Hi, Bernie, and thank you for joining as well. Omer, I would like you to address the first part of the question, and Arnon, you can address the second part on Vodafone. Sure.

Sure. Hi, Bernie. So regarding in a bidding, so we've also spoke about it in our previous earning call. We today now in our mediation have basically completed the migration to primarily work on in a bidding or to allow our customers to use our mediation. and to work with in a bidding with all of their relevant network partners and it gives several advantages right so in addition to increasing the overall revenue in ecpm like you've stated in the subway cell for example and we've also seen a very big increase in efficiency right so when you're using in a bidding it really really save some of the manual work um that that in the past developers needed to do to manage their monetization So that's a great value. It's definitely something that we've led the market in that migration, and we're happy to be one of the platforms that are really leading this and having the majority of everything done in our mediation working through in a bidding.

Hi, Bernie. Regarding Vodafone, again, Vodafone is one of the largest telcos in Europe, and we are obviously starting the partnership with them. It's going to fully materialize. In 2022, we're going to integrate more and more solutions into their devices, and obviously it's going to be meaningful. We're continuing to add additional products, both that are current in the market and ones that we are developing to our kind of platform, allowing us to do more and more with each and every user that we have in our platform. Thank you.

Thank you very much. Our next question comes from Clark Lampin. Your line is open. Please go ahead.

Good morning. I have two, please. The first is on Sonic Publishing. I understand you guys don't want to provide a formal revenue breakdown, but I'm curious if you could maybe update us on the number of submissions, games that you've partnered with year to date, and then also the performance of some of those titles. Second question is on Apple and Epic. Apple's request for stay was denied recently. I'm curious if you guys might share with us what you expect the impact to be, if anything, on the gaming space and your customers' ad budgets. Do you envision that in a scenario where gross profits are up, that most of those would be, you know, read applied on marketing and on your platform as well?

Sure. Hi, Clark. This is Tomer. I will start with your second question, and Omer, you can probably give a bit more stats on the publishing solution. I think we've been asked about this question about Apple and Epic, and our approach here is, of course, we are all for full democratization of the app economy. So we believe developers should have a choice who they want to work with and how. And more choice is always better and will offer competition. This is part of the values of the AvonSource platform, right? The full democratization of content creation. And so we very much believe in that. As for how I think this might evolve into practically what it means in terms of numbers and who would benefit from that. at the end of the day there is one basic truth which is whenever developers can generate higher revenues or whenever their lifetime value the lifetime value of a user is higher which this is what potentially can happen here uh developers will be able to spend more into user acquisition, right? Because each user will potentially generate more revenue since they will be gaining more revenue. They will be able to spend that in our platform and others. So clearly, this one way or the other, right? Either if we'll see more competition or we will see Apple reducing the different fees that they charge, this delta, these additional revenues will flow back into the app economy, usually in the form of additional user acquisition because all of a sudden a user will be worth more for those game developers and they will be able to spend more within the platform. So I think that's a clear assumption that I believe we will see. Omar, you want to comment on publishing?

Yeah, sure. So just on our publishing product, we launched our publishing product in February 2020, and we've seen great success with it so far. And up until the end of Q3, we've launched 35... We've published 35 games. 25 of them reached the top 10 most downloaded games in the store. Our vision around our publishing product is really to completely automate the process, to completely productize publishing and allow indie developers who can't use the other elements of our software independently to use our publishing product and in that way to automate the entire process with them. And we are continuing to see great success with that product.

Very helpful. Thanks.

Our next question is from Mike Ng from Goldman Sachs. Mike, your line is open. Please go ahead.

Great. Thank you for the question. I just have two. First, I was just wondering if you could talk a little bit more about the non-gaming mobile ad ecosystem and some of the differences between you know, gaming-based apps in terms of modernization and ecosystem. So, for instance, do non-gaming advertisers utilize different ad formats or work with a different set of ad publishers? Are you seeing them advertise on gaming? And then second, I was just wondering if you could talk a little bit more about the fourth quarter revenue guidance. You know, do you see a typical seasonal uplist and is the guidance burden by IDFA headwinds, and if you could quantify what assumption you're making there, that'd be great. Thank you.

Sure. Hi, Mike. I will start, Omer and Asaf, if you would like to add, please feel free. So, look, I often describe gaming as the canary in the mine for other types of verticals within the economy. Very often, games are really leading the way, and then the rest of the verticals will follow. We've seen that multiple times in the past, and I think this is what's happening at the moment. Our non-gaming revenues are growing fast, very fast, By the way, the two acquisitions that we made, Tapjoy and Vidalgo, both companies generate significant revenues from non-gaming apps. And that's an area of strategic importance for us because we've always said that we want houses to be competitive. the business platform for the app economy not just the game economy granted gaming is the biggest part of our platform today and will continue in the near future to be that but we are focusing very much also on growing outside of games and eventually we believe that there is a need for one platform providing an end-to-end solution for the app economy so of course non-games are very important now I think different ad formats and different characteristics vary between the different verticals in the app economy. But eventually, I believe that they will pretty much all look the same in terms of what type of ads and what type of formats work there. It's a matter of evolution, which eventually I believe also other verticals will catch up with games. As for Q4, look, so we started the year with, I think it was 37% year-over-year growth. We're now at 62% year-over-year. So evidently, we've increased our guidance. As we see, when we started the year, there were some unknowns, I would say, mostly around IDFA. How will that roll out? And so we wanted to be conservative and prudent in the way we budget and the way we guide. As it's becoming clearer and clearer, quarter after quarter, that as originally assumed by us, we're net beneficiaries of this post-IDF era. We feel more comfortable increasing guidance, as we've also done this time. For three consecutive quarters, we've increased guidance Twice by $30 million, now by $25 million. So we feel very strong with our ability to continue performing and also looking beyond that. We feel very strong with the growth drivers of the business across the different activities, the different solutions to it. I think, as mentioned, we feel very bullish about our ability to continue growing now that IDFA mostly is, I think, behind us.

Great. Thank you for the thoughts. That was very helpful.

Thank you very much, Mike. Our next question comes from Jason Bazanet from Citi. Jason, your line is open. Please go ahead.

Thanks so much. You know, if I decompose your revenue growth between growth in large customers year over year as opposed to growth in revenue per customer, it seems like – Jason, I'm sorry.

I can hardly hear you. Jason, if you – I can hardly hear you. Sorry. Thank you.

I'll try and speak up. Is that better? Yeah?

Yeah, yeah. Thank you.

Okay. Okay. So if I try and decompose your revenue between growth in the number of large customers as opposed to growth in revenue per customer, it feels like back in 19 and 2020, most of your growth is coming from an increase in customers, and this year it's been more about revenue growth per customer driving this sort of top line. Given that you're moving more into non-gaming but you're also – doing acquisitions to broaden your portfolio. How do you anticipate that mix changing in 22, 23, 24? Is it growth in customers or growth in revenue per customer as the main driver? Thanks.

Sure. Hi, Jason. Now I could hear you well. And thank you for joining today. So, look, if you analyze different KPIs, and I do think it's important to analyze different KPIs we provide to understand the way we run and manage and operate the business, right? So I think the triangulation between our net dollar-based expansion rates our gross retention rate, and also, for example, we said that in this quarter, I think the number is 86% of the top 100 games are using our platform, at least one product within our platform. So our model, the way and the unique way we run IslandSource as a platform for the app economy, the land and expense is really a main focus for us. Because the flywheel effect, we're here. Remember that we have a full alignment between us and the customers we serve. We're here to help them concentrate on creating great content while we help them expand our business into a scalable, successful business. So what we want is for them to continuously adopt more and more products within the platform because that will eventually make them a better business and they will be able – to expand their business also with us. And this is the reason we keep adding additional solutions to the platform, which we also plan to continue doing that, both organically and non-organically, because, again, this flywheel effect is key for the app economy, in general, of course, our platform. So very much focused on growing the business with our current customers, as well as adding additional customers, but Adding, expanding the business with customers, I would say, is our top priority. As you can see from our net dollar-based expansion rate, this quarter of 170%, I believe it's the best in our peer group. So we're very much focusing on that, and that's the whole idea of the overall end-to-end platform for those developers.

Thank you.

Thank you very much. Our next question comes from Bhavan Suri from William Blair. Bhavan, your line is open. Please go ahead.

Hey, team. Nice job there. Really, really solid quarter. I guess I want to touch it at a high level, Tomar, just about this ability of developers. If they're able to circumvent potentially app stores, leverage third-party payment providers, I'd love to learn a little more about the potential for iron source here. I guess, A, do users take advantage of it, which I think developers will, But two, what adjacent areas could, you know, you and our interest enable is with, like, is payment integration just a natural adjacency? How should we think about the adjacencies to the app ecosystem that you would do hypothetically if we could circumvent the app stores and leverage third-party payment providers directly?

Yeah, so thanks for the question. I think it's important to first understand that if, of course, the payment to the app stores will eventually be lower, then the app developers will have more money to invest in doing marketing. And that, of course, will make us and other platforms net beneficiaries of that and improve the entire ability of app developers to scale. I think that it's a bit too early to predict what's going to happen, but our mission is to provide a comprehensive business platform for web developers for everything they need to turn their app into a business. So we definitely might look at helping them also with finding relative alternatives there. It's something that we are, of course, following closely, and it's a potential future opportunity.

Yeah, yeah, unfair. It's too early to predict. And then I want to ask a second follow up just on the ad creatives marketing teams. I'd love to dig into the opportunity that you know, you obviously acquired a company in the space. But as you see budgets spread out across more networks, more campaigns, etc. And then there's limitations right and the number of potential campaign IDs to analyze How should we think about that? How should we think about the budget spend given some of the acquisitions you've made? And you've moved in sort of this, not just mediation, but the marketing and the communications piece of reaching developers and developers users. I'd love to understand sort of how you've seen budgets expand or the potential for the addressable budget that you have access to expand within your customers.

Yeah, so I assume you're referring to the Dalgo acquisition, that it's a marketing software that allows developers to basically manage their creative and their user acquisition across multiple channels. So, yeah, what it does is it gives us the ability to increase the depth of solution that we give also from the marketing side and really be this, one-stop shop to the management console of everything they need around the UA. It also adds roughly an incremental TAM of $7 to $10 billion, because we're looking here at really all of the performance budget that apps are spending on all of the relevant channels. And again, it really sits with our mission. to continue and expand our business platform and to give our app developers more and more tools across the entire lifecycle and their entire set of needs in order to turn their apps into businesses.

Yeah, I think that makes sense. I guess the question was sort of also additionally, there must be a data piece that flows into sort of the data you have. So just think about contextual data. the ability to understand sort of the response rate, how does that add to the data moat you have today? Thank you.

Yeah, it's a great question. Thank you. So in general, one of our main advantages on the ability to target in an effective way is our close relationship and partnerships with all of our customers that really generates really deep data integrations. So we have data flowing from from many, many of our customers. And, of course, when we add more solutions and we have a wider view in the market, of course, that also helps and gives us more data flowing into our systems. And then, of course... We've invested heavily, and we continue to invest in our machine learning capabilities and to really have the best data science team out there and to be able to get all of this data coming from all of the sources out there and to improve our targeting and machine learning capabilities.

Superb. Thanks, guys.

Thank you. Our next question comes from Tim Nolan from Macquarie. Tim, your line is open. Please go ahead.

Well, thanks very much. A couple of questions on the ad mediation side, please. Just a bit more on Tapjoy, if you wouldn't mind. First off, there's been a bit more consolidation in the space. I know you're already quite large there. Just how important is scale there, and what more really does Tapjoy bring you on the ad mediation side? And then secondly, I saw your announcement about the custom adapters, you know, giving customers more, I guess, flexibility, more options in who they work with within the SDK network. Could you just explain a bit more what's new about this, what this offers to customers that's new and different from what you or anybody else offers?

Yeah, so I'll take it. We didn't identify before, so it's Omer taking the question. Thank you for the question. So I'll start with the second part regarding the custom adapters. So the change there is that before we release this new capability, the customers who are using our mediation could only work with networks that our mediation certified, and it was a group that was of existing network partners and limited to that group that was certified and maintained by our mediation. When we've launched our customer adapters, it means that basically any network out there, that of course follows our protocol and guidance, but any network out there basically can work with our customers who are using our mediation through adapters that they can build in order to support these connections. So now all of the customers using our mediation can basically work with any network that they want through custom adapters and not only with the existing certified networks that are operating in our mediation. So that's regarding that. Regarding your question about tap joy, so of course this acquisition really reflects our platform-based approach to the economy, and they really add important solutions to our platform that increase our total value add. and sticking with our customers. It's also an extremely seasoned and great executive team, primarily U.S.-based, but globally. And like Tomer said, both Tapjoy and Bidalgo gives us additional customers, additional know-how, additional technology around also helping app developers grow. And not only game developers, which is something that we are scaling as well, but with them, it's something that will help us to generate that growth even faster and allow us to scale our activity with app developers in addition to helping game developers.

Got it. Thank you.

Thank you. Our next question comes from Brent Phil from Jefferies. Please go ahead. Your line is open.

Thanks. Tomer, as we look into 2022, maybe if you could share your top two strategic drivers or areas that you're most excited about as we head into the new year.

Hi, Brent. Indeed, very much looking forward to 2022. I think with the current growth of the platform and new additions, we're really best geared to continue capturing and expanding our leadership in the app economy. So I think in 2022, what we will see for IronSource specifically, we're going to see expansion within games. If you remember, typically IronSource was very strong, still very, very strong with the AAA gaming companies. And with us automating the publishing solution, we are expanding also to the longer tail of the category with a clear ambition to fully democratize content creation. I think we've added a lot of products to the Sonic Solution Suite. that will accelerate that growth. And of course, the recent addition of Luna Labs, which we announced last quarter to help developers with everything around creatives. And now with the addition of Tapjoy and Vidalgo, also together with Luna Labs, which we did before, I expect that to really help us grow across the category. And of course, growing faster with other verticals outside of games. I remind you all that most of what we do in Aura is non-games, and already around 10, probably a bit more than 10% of Sonic is non-games, and we expect to grow that. Similarly to the way we've led the gaming category and the democratization of content in the gaming category, we expect to do that beyond games, and it's going to be a very strong area of focus for us in 2022.

And real quick on TapJoy, the integration of this asset, can you speak to how quickly you can get to market? Is there a considerable amount of heavy lift on the back end to get this integrated, or is this – I know these aren't easy to do, but is it a slightly easier integration from your perspective?

So, look, the additional color that at the moment I can add to that is, as I stated before – a very big part of our current customers using both TabJoy and Bidalgo, in addition to at least a few of the products within the IronSource platform itself. So we know these customers very well, and they know Islanders and, of course, Bidalgo and TabJoy. So to that extent, it's being very well received because all they care and all we care is, again, the flywheel effect of how we can help them become a better business. So it's still a bit early to say, you know, how the full PMI will look like or how there but we know those businesses very very well and of course we know very intimately the customers of those businesses as well because there are also also customers today so the barriers uh and and and i hope i'm right but the barriers to those pmis in the market as well as uh integrating the platforms without those platforms i do expect that to be and i hope to be even easier than previous acquisitions we've made reminding you all that Answers is a fairly acquisitive company, so we have experience with that. For us, transactions surely of this type are very, very much related to how impressed we are. In this case, we are deeply, deeply impressed with the quality of the management teams and the overall teams in both companies. And we feel a full fit to our DNA that we'll be able to unlock really significant value for the app economy going forward, and I'll be happy to update on how the PMI is going in future calls.

Thank you, Taylor.

Thank you. Our next question comes from Martin Yang from Oppenheimer. Martin, your line is open. Please go ahead.

Thank you for taking my question, and good afternoon. My first question is on your total customer count of over 100K in revenues. The total net ads in this quarter seems to have accelerated. Can you maybe break down what was driving that? Was it existing customers growing much bigger, or are you seeing maybe more customers moving from other platforms over to yours?

Hi, Martin. I don't have the breakdown, the exact breakdown, but I would assume, maybe Asaf, you can elaborate, but I would assume both contributed to the addition of the new customers, expanding more than 100K, but maybe Asaf, you have some color on this?

Yeah, sure. So, of course, it's both. Remember that we counted more than 100K for the last 12 months. So customers that joined a few quarters ago, they will get to the above of 100K after a few months at least. So this is one. Just to mention that the 332 or the 23% increase from last quarter, last year, it's after about... 40 customers that merge with other large customers because of a lot of mergers in under in our industry so basically this is also why the the value per large customer is increasing because we when two customers are merging or two large customers are merging we are counting only one we're counting on the parent company and so this is the reason and and again both new customers that are increasing the usage of the platform with the land and expense approach, and they become large customers. And of course, the large customers continue to grow in the platform.

Thank you. My second question is on the M&A landscape. Maybe can you update us on what you see in the M&A environment, whether you feel that you have a good pipeline

that that will continue to provide you with more services to add on to your platform sure yeah so so very consistent with our growth growth uh strategy the fact that we operate uh answers as as a platform as a business platform for the app economy with two solution suites right sonic for app developers and aura for telco operators And because of the size of the platform and adoptance of the platform within the different customers we serve, we are very, very, very, this is our main focus, adding additional solutions to the platforms to increase the stickiness, to increase the level of service we provide to the customers we serve, and we plan to continue growing that. And by doing that, we focus on doing that both organically and non-organically, Since we went public, we've done four acquisitions, and we have a very healthy pipeline of different companies that we're looking at, potential targets. And, as I said, Allen Social is a very acquisitive company. We see, for a company of our size and a platform of our size in the app economy, we see all or most of the deal flow out there, and we know what makes sense to our platform. For example, as I said, with TapJoin Vidalgo, two acquisitions we announced now, our customers are already working with both companies, so it really makes sense to make it one, make it a part of the platform so that the flywheel effect can increase, can expedite, and so we can better serve our customers. This was part of the main reason to go public at the moment. We're very much focusing on growing also through M&As and, of course, also organically, and I expect our ability to continue being the the consolidators in the market to remain as uh as we've uh as we've shown today or even increase got it thank you very much thank you our next question comes from stephen ju from credit suites steven your line is open please go ahead

Okay, great. Thank you so much. So I was wondering if you can talk about what percent of advertisers are buying into both Sonic and Aura inventory. And are there any impediments longer term to driving that adoption higher over time? And especially as you're set to onboard, I guess, more users and inventory with the Vodafone partnerships. And... Second, from definitely more of a bigger picture perspective, there's a lot of acquisitions and initiatives that you've announced between Capture, Garago, and Vodafone. So what do you think your global user reach will be when everything is integrated and rolled out, especially as you think about becoming, I guess, a more attractive destination for ad budgets, particularly for those marketers that are outside the games industry? Thank you.

Hi, Stephen. I'm not sure I got a second question, but let me start with the first one and see how much time we have left. So as I said, we operate one platform with two solution suites. I think that the number of customers, around 16% of the large customers are using both solution suites. And we plan to actually increase that, as also Sonic will take a bigger part in the non-gaming category. When that happens, or when that continues to happen at a larger scale, we expect to see more correlation between Sonic and Aura, which at the moment is around 16%. I'm sorry I didn't understand the second part of the question, or the second question, if you can please repeat.

I mean, you've done a lot of, you know, you've announced a couple of acquisitions and you now have the Vodafone partnership. So, you know, these are all designed to bring on additional supply and demand to your platform. So when everything is integrated and rolled out, I'm just wondering, you know, how many users do you think you'll have exposure to across the globe? Because, you know, some of them, you're trying to become the more attractive destination for ad budgets. So there has to be A consideration there for marketers outside the games industry because they're going to be looking for reach in some cases in addition to, I guess, the direct performance type ads.

Right, of course. Look, so as a whole, DialogSource platforms see billions of unique users a month, right, billions of unique users. And on the Aura side, we have 160 million daily devices that are connected to the platform. That, of course, that's a very, very unique supply source. So, of course, with the addition of Vodafone and current and future operators that we will add to Aura, that number will increase and we'll create a very premium, very high premium, very special supply source that, of course, will help advertisers target users in a more efficient way, in a more scalable way. So we very much look forward to expanding those numbers and the daily active users and monthly active users.

This is all the questions we have time for today. I will now hand back over to Daniel for any closing remarks.

Great. Thank you for dialing in today. We look forward to connecting with you over the coming weeks in investor conferences and hope everyone continues to stay safe and healthy during these times. Thank you very much.

Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.