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.