ironSource Ltd. Class A Ordinary Shares

Hello and welcome to today's IronSource Q4 Earnings Conference Call. My name is Elliot and I will be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one in your telephone keypad. I would now like to hand over to our host, Daniel Amir, VP of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to IronSource's fourth quarter and year-end 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 certain statements we 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 and are not guaranteed. 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. 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-over-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 most directly comparable GAAP measures. 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 accordingly, 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, and thanks for joining us today. We're very pleased to be reporting an excellent fourth quarter, which closes a fantastic year for IslandSource. We achieved record results with total revenues of $553 million, up 67% year-over-year, and adjusted EBITDA of $194 million, up 87% year-over-year. We are part of a small group of software companies that are delivering a unique combination of very high revenue growth and high profitability, with EBITDA margins higher than 30%. We are very pleased with this achievement and the business and financial flexibility it gives us. And we are proud to continue our strong leadership in the app economy with some of the largest apps, games, and telcos using our platform to fuel their growth. Today, we'll start with fourth quarter results. Then we'll go over some of the 2021 highlights and discuss our opportunities for 2022 and beyond. I will then turn it over to our CFO, Asaf Ben-Ami, to dive more deeply into the numbers. In the fourth quarter, we achieved record results with total revenues of $158 million, up 46% year-over-year, and is ahead of our guidance. Our success in the quarter was primarily driven by continued execution and performance and we saw market share gains in both existing and new customers. For the fourth quarter, adjusted EBITDA was $57 million, up 76% year-over-year. That's consistent with our long history of providing profitable revenue growth while also benefiting from operating leverage. We believe this gives us a unique advantage. since our profitability allows us to invest in innovating and maintaining an aggressive pace of product development and releases, which we believe is an important differentiator in our industry. This is critical in a customer-centric market where you need to execute quickly a new product, either organically or inorganically. Finally, we again saw the stickiness of our platform and the value it provides to our customers with a dollar-based next expansion rate of 154% for the quarter, which is above the industry average. Our results reflect the success of both Sonic, our app solution suite, and Aura, our telco solution suite, both of which had a strong quarter. On the Sonic front, we closed two acquisitions. Bidalgo, and Tapjoy in December and January, respectively, and launched several new products. To highlight just a few, we developed extensive tools to help developers succeed on iOS post-IDFA deprecation. And last quarter, we were first to market with support for Apple's customer product pages, a product that supports better optimization for user acquisition on iOS. This product is already in use by many AAA developers, including King, a leading mobile game developer and a company behind the hugely popular game Candy Crush. In addition, we launched App Analytics earlier this month. On the Aura front, in Q4, we started to see the ramp up of new devices from partnerships with Samsung and Vodafone that we announced last year. We also saw the addition of two new customers, both leading tier one telecom operators that should start ramping up in the first half of 2022. Our strong Q4 results are consistent with the great year we had in 2021, which was a banner year for IslandSource. As you know, we went public in June, which was an important validation of the strengths of our business and financials and our approach to growing the app economy. You may remember that when we started the IPO process early last year, we expected revenue growth for 2021 to be 37%. With 2021 now complete, we're very proud that we've achieved revenue growth of 67%, significantly above our initial expectations and much above the industry. All this while achieving EBITDA margins of 35%, which also beat our projections of 29% at the beginning of the year. This is a tremendous achievement, and I'd like to highlight five of the key factors that we think contributed to this very successful year. First, our success was driven by our land and expense strategy, which is at the heart of our platform approach. The breadth of the solution we offer means that we have multiple points of entry to land new customers and multiple potential avenues to expand with them. We see that, more often than not, new customers will start by using one solution and expand to additional solutions over time. More than 70% of our large customers use at least two solutions. And in Aura, we see customers often expand to additional on-device touchpoints. This drives both stickiness and retention, and is the reason for a high dollar-based net expansion rate. We believe that the more solutions customers use, the more they grow with us. And we ended Q4 with 358 large customers, compared to 291 at the end of Q4 of 2020. Importantly, this is supported by our ability to continue expanding our offering with new solutions. As I mentioned earlier, being highly profitable allow us to invest in innovation and product development and in strategic M&A to support this. The second key element in the success of our platform is the unique combination of multiple data types and how we analyze them. The breadth of our solution means analysts get app-centric data from a number of different sources on the platform. And we're able to see the entire app growth lifecycle. First, our SDK is widely used. And last quarter, 88 of the top 100 games in the US used the Amazon platform. Almost every major game developer uses our platform. Our Aura solution suite was integrated in over 1.1 billion devices globally, giving us significant device-level data. Third, we were able to leverage first-party data from our publishing software, which has generated more than 1.7 billion downloads to date. It's worth noting that in 2021, our publishing solution became the third largest in the U.S. in terms of downloads. It's also important to note that customers trust us with their data because of our clear focus on their business success. And our business model is one where we grow and succeed in line with our customers' success. We funnel all this data throughout our machine learning algorithms. which were built predominantly on contextual models from day one. With the constant growth in data flowing in, we created a powerful flywheel of data advantage while prioritizing privacy. This approach of collecting app-centric data from multiple sources is a point of differentiation for our company. It helped us achieve record revenue growth and profitability in 2021 despite the industry challenges around changes in IOS and IDSA. In fact, we're net beneficiaries from IDSA, which was important to our revenue growth in 2021. We believe that our data advantage is a key component for our future growth. The third key factor contributing to our success in 2021 is our ongoing innovation. During 2021, we launched a number of new products. These include further enhancement to our in-app bidding capabilities, customer adapters to support all available demand sources within our mediation, and tools to help developers effectively distribute on iOS post-IDFA deprecation. We also released a tool giving developers the ability to create rich, interactive ads at speed and scale. And we launched live games, which significantly further the automation of our publishing solution. In addition, we recently launched an analytics product, significantly increasing the value to customers by centralizing even more critical app businesses' functions in one platform. The IslandSource platform already included robust growth analytics around monetization and user acquisition. With this new product, we're providing complete app analytics so that developers can evaluate and optimize the entire app experience, as well as the growth and revenue operations. This expands the number of roles that our platform addresses within app-based businesses, from game designers to growth managers, monetization managers, and even the executive team. These products are only a snapshot of many other improvements and innovation that we brought to the platform this year. And we believe this space of product development is critical to our success. The fourth factor that contributed to the year's success was our M&A strategy as part of the industry consolidation. We completed four successful acquisitions, Luna, Sumla, Vidalgo, and Tapjoy. Together, they strengthened our overall portfolio, expanded our business opportunities and time, and increased the stickiness with our customers. These acquisitions of fast-growing and strategically complementary businesses are part of our strategy of investing in the business both organically and inorganically. Finally, I'd like to touch on our partnership. 2021 was a record year in terms of our new Aura customers. We also expanded our partnership with existing Aura customers, another good example of our lend and expand strategy in action. We launched Samsung devices beyond the APAC region and further expanded the partnership to cover all Samsung's open market phones in Europe. We are proud of our hard work with one of the fastest growing tier ones in the US, T-Mobile. The Aura platform has been on board with T-Mobile for a while, providing multiple touch points for user engagement. Recently, we added an additional touch point with T-Mobile. Our Aura new solution, which went live in late 2021, is off to an encouraging start as an indication of how our core product have continued to impress and improve performance to power additional revenue growth. This drives further value to users and therefore incremental monetization for our Telco customers. In addition, we announced a new partnership with Vodafone Europe. As of the end of 2021, Aura was installed in about 1.1 billion devices. We'll continue to expand our value proposition to telcos. As with Sonic, we continue to add more products to the Aura offering, which allows telcos to not only participate in the app economy, but also achieve digital transformation. All and Sonic together provide a powerful combination. In 2021, approximately 30% of our revenues came from customers using both our Sonic and Aura product suite, and we believe this number will continue to increase over time. This is proof of our platform approach, which is designed to serve the two core constituents of the app economy, the app developers and telecom operators, allowing them to grow and prosper. With the launch of new products and the expansion of our partnership, the IslandSource platform continues to provide additional value to customers. Our results clearly validate our approach and prove that we're able to provide a robust and differentiated offering to the market. We plan to continue to build out our platform offering throughout technological innovation and strategic M&A. In order to increase the use of our platform by existing customers, and gain market share with new customers. I'll now shift gears to talk about opportunities ahead. As we look into 2022 and beyond, we see exciting growth within a larger time. The acquisition of Sumla, Luna, Bidalgo, and Tapjoy significantly increases the products we can offer to our customers. This in turn increases the points of entry we have to land and expand and also the potential wallet share we can achieve with each customer. These activities will enable us to expand our long-term TAM to $50 billion compared to the previously discussed $41 billion. We are very excited about the large opportunity ahead. To double-click on the TAM expansion, the acquisition of Bidalgo, when combined with our Luna acquisition, has allowed us to create a truly comprehensive cross-channel solution for app marketers. Developers now have the technology giving them the visibility, control, and creative automation needed to drive incremental growth. This cross-channel marketing solution allows us to increase our share of wallets with customers. App developers need to be able to run and optimize marketing campaigns across multiple channels in order to grow at scale. This includes social and search channels like Facebook and Apple search ads. We are now allowing marketers to manage and optimize all their marketing across multiple channels, all in one platform. These allow us to capitalize on significant additional streams of marketing spend within the app economy. A good example is a product which allows app marketers to manage, optimize, and analyze their Apple Search ads campaign. We're one of the only seven official Apple Search ad partners, giving us leadership spot in the iOS ecosystem going forward. With Vidalgo and Luna together, we're able to offer a comprehensive marketing software solution that allows us to capitalize on the vast market of social and sales spend. In addition, we're seeing tremendous value in apps beyond games using our platform, both with existing products and when considering Vidalgo and Tapjoy. We're working with some of the leading app-based businesses out there. across every category, including dating, e-commerce, social media, lifestyle, and utilities. We're still in early stages of this opportunity. A helpful way to think about this is to look at where the game industry was five, six years ago, before ad monetization really took off, when developers started using ads that functioned like an integral part of their game experience. Almost like microtransactions, developers were able to generate meaningful additional revenue while delighting and rewarding users. Ad revenue became significant revenue stream, which ended up enabling the growth of the entire category by providing more funds to invest in user growth. We believe this evolution is going to happen in app categories outside of games as well. We're seeing that market players are starting to recognize that platforms like IslandSource can help drive app businesses' success. This is particularly relevant to transaction-based apps that can leverage ad-supported payments to create more value for users. We believe that the long-term time opportunity for Apps Beyond Games could be material. We're very excited about this opportunity And with Tapjoy and Vidalgo, we have further established ourselves as market leaders. Finally, in Aura, in the past 60 days, we've signed two additional partnerships that we expect to ramp up in the first half of 2022. The first is with a leading Asian Tier 1 telecom operator, and the second is with a leading European Tier 1 telecom operator. Our continued success in winning RFPs and signing new customers shows the strength of our Aura solution suite, its value for telcos, and its advantage over other solutions in the market. To summarize, this has been a great quarter and a great year on all fronts. We had very strong financial performance, including maintaining strong profitable growth. We grew our time by increasing the value we offer existing customers and growing in apps beyond games. And we continue to grow our technological advantage. Taking together these pillars allow us to maintain our leadership position and fulfill our goal of providing our customers with the most comprehensive business platform for the app economy. We look forward to a strong 2022. as we continue to grow and serve our customer base and innovate in new markets. I'd also like to take a moment to thank the incredible IronSource team who continue a long tradition of both excellence in execution and innovation. With that, I will turn the call over to Assas to provide you with details on our financial performance and guidance.

Thank you, Thomas. We are pleased to report strong results for Q4 and for the full year. Once again, we exceeded our guidance. We delivered record results for the fourth quarter with strong top-line growth and high profitability. For the quarter, revenue grew 46% year-over-year, and we achieved 36% adjusted EBITDA margins. Since day one, our strategy has been to prioritize growth and maintain profitability and healthy margins. We are proud of our ability to meet our commitments and to maintain a robust financial profile. Our strong growth and very high profitability is the result of our superior technology, data advantage, and our team's amazing execution. Our customers are using our platform more and more. They are adopting more solutions, and this translates to an increase in our revenue. By aligning our growth with our customer success, we see a high net expansion rate, which has averaged to 158% in the past 10 quarters. As I mentioned, Q4 and the full year 2021 were very strong, on both top line and the bottom line, and both were higher than our guidance. As Tomer mentioned, we started 2021 with a forecast of 37% year-over-year growth in revenue and 29% in adjusted EBITDA margins. we were able to outperform while increasing our guidance for three consecutive quarters. For Q4 2021, we are pleased to report that we generated $158 million of revenue compared to $108 million in Q4 2020, year-over-year growth of 46%. Revenue for the fiscal year 2021 was $553 million, compared to $332 million in 2020, year-over-year growth of 67%. These results include less than 1% from non-organic revenue sources. For the quarter and for the year, Sonic generated 88% of our total revenue and Aura generated 12%. Our revenue is driven mainly by our large customers. We define large customers as those who generate over 100K in the 12 months This group grew to 358 customers in Q4 2021, up from 291 in Q4 last year. This represents year-over-year growth of 23%. We achieved all this during unparalleled gaming industry consolidation. We continue to maintain a very high growth retention rate of 98% in Q4. These large customers represent 95% of our total revenue in the 12 months of Q4 2021. Due to their increasing 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. Our dollar-based net expansion rate for Q4 remains healthy at 154%. It is within the guidance provided last quarter and reflects our business model which is focused on customer success. As we communicated last quarter, we continue to expect our dollar-based expansion rate to remain very healthy. It will normalize at our historical level in 2022. As we highlighted, we had another strong and profitable quarter. We prioritized growth and investment, but we believe in profitability and healthy margins. We generated adjusted EBITDA of $57 million in Q4 2021. representing year-over-year growth of 76% from our adjusted EBITDA of $33 million in Q4 of last year. For the 2021 fiscal year, we generated adjusted EBITDA of $194 million, representing year-over-year growth of 87% from our adjusted EBITDA of $104 million in 2020. This was driven mainly by revenue growth across all of our solutions and revenue growing factored in expenses, Our non-GAAP diluted EPS for the quarter was $0.05. For the 2021 fiscal year, our non-GAAP diluted EPS was $0.70. And our year-end net cash position was $782 million. Now to guidance. Our guidance takes into consideration the following factors. The recent Q4 results, the momentum across our platform, and more normal operations and travel. Guidance is consistent with our strategy of prioritizing top-line growth as we continue to invest in our future. Our financial profile provides us with the flexibility to succeed and stand out in the software space. We will continue to build out our overall platform portfolio, which will further expand our time. We believe that through product innovation and our ongoing M&A strategy, we can further grow our platform for the long run. For the first quarter of 2022, total revenue is expected to be in the range of $180 to $185 million, representing 52% growth on an early basis at the midpoint. Adjusted EBITDA is expected to be in the range of $56 to $58 million, representing 44% growth on an early basis at the midpoint. We expect our fully diluted share count to be approximately $1.1 billion. For the full year 2022, we expect total revenue to be in the range of $790 to $820 million representing 45% growth at the midpoint. Adjusted EBITDA is expected to be in the range of $255 to $265 million representing 34% growth at the midpoint. In summary, This is our first year as a public company, and we are very pleased with our fourth quarter performance and fiscal year 2021 results. I'm very proud of what our team has accomplished. We successfully executed against the strategy we articulated when we went public to drive organic and inorganic growth and maintain a robust financial profile. And we look forward to delivering strong results in the year ahead as we continue to bolster our market leadership in the app economy. With that, I will turn the call back to Daniel.

Thank you, Asi. Before we open the call for questions, we'd like to share answers to three questions that we've gotten from analysts, which we think might be of interest. Afterwards, we will go to your live questions. The first question comes from Jason Bazinet at Citi. The question is, there is a lot of confusion about IDFA, given the divergent results from Facebook versus Snap. Can you please share your observations and what implication, if any, this has on your business? Tomel, this question is for you.

Thank you, Jason, for the question. The industry has gone through many changes in Apple's IDFA announcement in the second quarter of 2021. Three quarters later, we see that some companies have been able to adjust their algorithms to these changes better than others. We prepared for IDFA for a very long time, and when it finally happened, we were well positioned. We initially took a conservative approach, not knowing the full potential impact it could have on our overall industry and on us specifically. As you can now see, we're one of the platforms that benefited from the Apple changes. At this point, three quarters since the IDFA changes came into effect, We believe we're established a strong position in the market as net beneficiary of IDFA. It's important to note that the reason we've been successful is the advantage of our technology stack across Android and iOS. A key element in the success of our platform is our scale and combination of different solutions. RS would get upcentric data from a number of different sources on the platform. which is different from others in the industry. First, our SDK is widely used, and last quarter, 88 of the top 100 games in the U.S. used the iOS platform. Almost every major game developer uses our solution. Second, our Aura solution suite has been integrated in over 1.1 billion devices globally, giving us significant device-level data. Third, we're able to leverage first-party data from our publishing software, which has generated more than 1.7 billion downloads to date. We believe that our predominantly contextual-based model will give us a long-term advantage.

Thank you, Tomer. The next question comes from Clark Lampin from BTIG. The question is the following. How, if at all, do you expect consolidation in the gaming ecosystem to affect your business near and long term? It's early, but a focus on cross-platform play and efforts to bring spending and ad sales onto first-party platforms has so far seemed fairly unsuccessful. Do you see that as a potential risk to budget share over time? Thoma, this question is for you.

Thank you, Clark, for the question. There is a lot in this question, so let me break it down a bit. I will first talk about the consolidation and then address ad budgets. The recent consolidation in the gaming industry continues a trend we've seen in recent years, but at larger scale. Economies of scale in the gaming industry are critical, and that has been the driving force. As we look at the industry, we may also see new players entering this market and acquiring game developers to build franchises, which is a trend we have not seen much in the past. Our view on consolidation is that it will lead game developers to further focus on what they do best, which is to create great games. So further consolidation will only strengthen our position in the market, as we've seen over the past few years. More broadly, the industry is moving towards using platforms. Given our machine learning algorithms, scale, and breadth of available solutions, we continue to believe that Tier 1 gaming companies will increase businesses with us over time. As I mentioned earlier, last quarter, 88 of the top 100 games in the U.S. used the iOS platforms. One final point is that our revenue growth has been substantial in recent years, and that is happening at the same time as the consolidation in the industry, which reflects our strong market position. Now, let me address the second part of your question on the ad sales industry impact. We believe that the most effective way to distribute games is promoting them via other games, using a best-in-class targeting technology. In order to do this at scale and effectively, the distribution of games needs to be very wide and include all genres and types. This can't be based on a single closed platform or by migrating users from one platform to another. Finally, and this is a point I've made in the past, the full democratization of content in the app economy and its variety is what makes it so successful and we believe it will continue to grow.

Thank you, Tomer. The third question comes from Tim Nolan at Macquarie. The question is the following. Can you talk about growth beyond the gaming vertical? How important is it to expand the roster of clients, and how might you compete with omnichannel SSPs? Tomer, our CRO and co-founder will answer this question.

Thank you, Tim, for the question. We believe that games are leading the way and other verticals will follow, and we are starting to see it already. Our platform-based approach is relevant to the whole app economy, and many of our UAN monetization tools are relevant for apps beyond games as well. In terms of revenue, as we mentioned before, around 10% of our Sonic sales and almost all of our other sales come from apps beyond games. As Tomer mentioned, The way to think about this is to look at where the game industry was five, six years ago before ad monetization really took off. When developers started using ads that function like an integral part of the game experience, almost like microtransactions, developers were able to generate meaningful additional revenue while delighting and rewarding users. Ad revenue became a significant revenue stream which ended up enabling the growth of the entire category by providing more funds to invest in user growth. We believe that it's just a matter of time for this to occur in the world of apps beyond games as well. A significant portion of Tapjoy and Bidalgo's revenue came from apps beyond games, including social networks, e-commerce and dating, which we expect will deepen our market penetration in this category. Even though we are still in the early days, Apps beyond games are an important growth driver in an extended $50 billion long-term plan, which we discussed earlier. With regard to the second part of your question, on how we might compete with omni-channel SSPs, our mediation is designed for apps and their specific needs, including the unique support of ad types that are deeply embedded in the apps themselves and require different product and tech capabilities compared to web-based traditionalists. So we don't see IonSource competing all that much with traditional omnichannel SSDs. With that, we will now open the call to your questions. Operator, please open the call.

Thank you for our Q&A. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Baban Suri from William Blair. Baban, please go ahead.

Thank you for taking my question and congrats on a great year, great start as a public company and a great quarter. I wanted to follow up on one of the questions that was asked a little earlier around this concept of consolidation of studios impacting contextual capabilities. I guess scale obviously wins here, but I'd love to understand, Tomer, are you seeing any broader shift or emphasis from the studios here Is there a dynamic where data aggregation becomes more complex, which then places more emphasis on external sources, which then is a net benefit to you? Are you starting to see that trend as the aggregation plays out, or is it still too early to see that benefit you directly as the studios start to understand the value of the contextual data outside of first-party data? Help us think through that a little bit.

Hi, Bhavan. Thank you, and great to hear from you again. The way we look at it is, and I've referred to that in previous calls, it's not just about the amount of data you have, but also how diversified it is and from how many sources you can collect the data. As we said also in the script today, we... gathered data from our SDK, we gathered device-level data, we gathered first-party data, and eventually it breaks down to what you can do with all this data, how advanced your machine algorithms are, how you deal with this tremendous amount of data. So I think that today it's fair to say, given our results and how we've been growing and also the trajectory that we see ahead, that we know how to incorporate all this data coming from multiple sources and take advantage of that so that we can prepare the models and the machine learning to be best in class. I see the consolidation in the market today. I see the category growing all around. That will create an additional amount of data flowing in, both first-party data, third-party data, And I feel that our platform is very, very ready to outperform this environment that has so much data coming from so many different sources.

Got it. Got it. That's helpful. And then one quick follow-up on me on acquisitions and how they're layering into net dollar attention rates. You know, you have a really high net dollar attention rate. You've always said, you know, it's not sustainable because we're growing scale, et cetera, which makes sense. But as you look at the acquisitions, it'd be great to understand how the acquisition cross-sell might contribute to the NDRR momentum. Sort of, you know, how do we think about normalized ARR given acquisitions and cross-sell the acquisitions into the existing base? Some color there would be very helpful. Thank you.

Sure. I will start, Asaf, if you have anything to add, please feel free. We maintain consistent with our previous guidance that we believe our net dollar-based expansion rate will normalize eventually at the historical 150%. And additional acquisitions and additional products release might increase that in the future, but eventually we will stabilize at the 150%, which we've seen in the past.

Gotcha. Gotcha. Thanks, guys. Appreciate it. Thanks for taking my question.

Our next question comes from Colin Sebastian from Baird. Colin, please go ahead.

Thanks. Good morning, everybody. Good afternoon. Question on Supersonic. I guess just given the success you're having with game publishing, I mean, how important is that as part of a platform? And I think that could be a pretty significant growth. year, but going forward? And what's your capacity there to layer on additional growth? And then secondly, as Google now begins to move down the same or somewhat same privacy path as Apple did last year, do you see that as having a similar positive impact for ad networks and platforms like Guidance Sources? Thank you.

Yeah, so thank you for the question. This is Omer. I'll take that. So first of all, our publishing solution, Supersonic, is growing at a similar pace to the other Sonic solution in the platform and keeping the same proportion in terms of overall revenue contribution. We launched this activity in February 2020, and we've seen, like you said, great success with it. In 2021, 26 games were published using our product. 16 of them were in the top 10 most downloaded game list. And we were also the third biggest game publisher in the US, if you're looking at 2021 holistically. And since the inception of Supersonic, the games that... published using our product have seen around 1.7 billion downloads, which is obviously very strong and continue to grow. Regarding Google, so we are aware of it, of course. It's still early days. But we, in general, we support all privacy-related changes. We believe that similar to other privacy-related changes, like the deprecation of IDFA, like what we've seen even before, like GDPR and COPA, that will be net beneficiaries of changes like this. And this is primarily due to our targeting module and machine learning capabilities, which we discussed previously on our call.

Great. Thank you.

Our next question comes from Matthew Cost from Morgan Stanley. Matthew, your line is now open.

Hi, everyone. Thanks for taking the question. You talked a lot about how the integration of Tapjoy and Bidalgo are going. I guess when you look forward, are there any key capabilities for the ad network or on the telco side that you see that you need to build either organically and inorganically, and where are your top priorities on that front? Thanks.

Sure. Hi, Nati. Thanks for the question. So the way we run the business is very unique and it's our platform approach to the app economy. As you said, as you pointed out, our platform addresses the two core constituents, the app developers and the telcos with Sonic and Aura. And we intend to continue adding, as we've done in 2021, with both organically and non-organically, we plan to continue adding additional solutions to the platform to better serve the constituents of the platform. Those would be additional solutions to help app developers concentrate in creating great apps, great games, great content, while using apps to help them take that and transform it into a business, scalable, successful business. And of course, on the Aura side, we will continue to add additional solutions to the platform to better help telcom operators better engage with their users and be more successful in their digital transformation. So we're very focused organically and non-organically in adding those solutions. I cannot say that there is one solution or two solutions that are missing in the platform. We constantly keep evolving, we constantly keep tracking what are the key needs of those developers as they develop and as their market develops. And we're consistently going to add those solutions, again, organically and non-organically, and further consolidate the market around us in the two solution suites, Aura and Sonic.

Great. Thank you.

We now turn to Martin Yang from Oppenheimer. Martin, please go ahead.

Hi, good afternoon and good morning. Thank you for taking my question. My question is on the 2022 guidance. Can it maybe help us unpack the numbers a little bit? How much is contributed by TapJoy and some of the more recent acquisitions? And a follow up on that is, you know, what are the source of margin expansion between the first quarter of guidance and the rest of the year. Thank you.

Sure. Hi, Martin. Staff, I will start. Please add to my things if needed. So, Martin, as we previously said also, We measure and we run the company as the full platform. We do not break down the different elements of the platform simply because this is not the way we look at the business and not the way we look at the market. There is a flywheel effect. Every time we add an additional solution, it contributes to the revenues, to the impact all other solutions of the platform has because, as I said earlier, Typically, a customer will start working with us with one or two solutions, and over time, they will expand and use multiple solutions in the platform, both on the Sonic and the Aura side. So we cannot really measure the effect of one solution because, again, it's an holistic effect, and that's the nature of the platform approach that we take. We're very excited about the additional opportunities that Tapjoy and Bidalgo and a few other organic solutions that we added to the platform to continue accelerating our growth and our impact on the overall market. But we do not measure the solutions discreetly. That was for the first part. Martin, can you please remind me the second half of the question?

Sure. The driver for margin expansion, so you have a 32% EBITDA margin guidance for 1Q, but higher for the whole year, so what are the sources of our margin expansion for the year?

Asad, do you want to take that one?

Yeah, sure, I will take it. Yeah, at the midpoint, we're growing from 31% in the first quarter, and do we expect 32% the midpoint for the year? And Martin, we integrated four companies, new companies, that this will be the first year. And at the beginning, of course, they have a bit different financial problem, the iron source. It takes a bit of time to consolidate everything and to find the strategic synergies. And this is the main explanation for the increase. Thank you.

Our next question comes from Franco Granda from DA Davidson. Franco, please go ahead.

Good morning, everyone. Thanks for letting me ask your question here. I was hoping, Tomer, you could speak about the features that you added to Aura in 4Q and perhaps over the year. And I was hoping you could also give me your thoughts on what has been the main driver of competitive displacement of the RSI in the business. And then have a follow-up. Thanks.

Hi, Franco. Sure.

Hi, Franco. Arnon, I will let you take this one.

Yeah. Hi, Franco. This is Arnon. So you were asking about what drives the growth in terms of Aura? What kind of features and products are driving growth? That was the question?

Correct. Yeah, so if you could speak to the features that you added in the fourth quarter and then perhaps what your thoughts are on what the main drivers behind the competitive displacement that you've recently been seeing.

Again, I'm sorry, I apologize. What do you mean by competitive displacement? Meaning what makes customers work with us instead of our competitors?

Yeah, correct. So your customer wins against your competitors. Oh, sure. Yeah, yeah.

Yeah, okay. So again, like you said, we're constantly winning Telco's business. And again, this is because of our approach to solving Telco's, we think, main challenge in the app economy. And I want for a second to kind of zoom out and think about our mobile device experience, right? So if you look at our mobile device experience, obviously you need a device, right? And you have great device manufacturers building great devices. You need an operating system. We have Apple and Google that are providing... this operating system, and also providing the app stores. And then to have a mobile device experience, you also need the telcos that are providing this great value that is connectivity. But telcos do not have a single solution to help them really engage with users on device. And this is what we're building. This is what we're solving for telcos. Really, a platform approach for telcos, a single solution that allows them to engage with their users throughout the lifecycle of the device. And this is very unique and something that we're very proud of. And Tomer, I think, mentioned this. We're providing tools to help them promote applications. So we started with the out-of-the-box experience that when you first open the device, it allows you to install and engage with applications and services. We recently launched a new experience. This is one of our Q4 launches. A new experience that allows... Telcos users to engage with content, games, news, financial news, sports, et cetera, on device, again, through the solution that is provided through Aura. And we are starting to launch also products around digital transformation and really allowing Telcos to promote their owned and operated services on device through the Aura solution. And again, if you think about it, every digital transformation strategy needs an on-device touchpoint, and we plan for that to be an iron source Aura, really allowing telcos to do everything that they do in-store, on-device, through the Aura solution. So these are our kind of growth drivers for Q4, for 2021, and we'll continue to grow and drive more growth in 2022 and onwards. And I think this is also the main reason why we're consistently winning RFPs and adding additional customers. We just announced We can't say the names yet, but we won two tier one telcos and it's going to ramp up in Q2 and onwards. And I think we're going to also have additional announcements for additional customers.

I know. Thanks for all the details there. Then for my next one, it seems like your supersonic business continues to be on fire. You know, aside from grabbing revenues for you, you're also able to extract the first party data to benefit the broader sonic platform. So to that end, how much more granular is the data you're able to obtain and leverage from the apps you're publishing versus the apps that you only have SDK presence in?

Yeah, so I'll take it. Thank you for the question. When you're in SDK, right, you also have, and like Thomas said, we have multiple channels where we're getting our data from. We have the SDK, which is one of the most widely spread SDKs in the world. We have the device-level data from Aura, and we have, like you said, a first-party data from Supersonic. In general, it's the combination of the three that actually gives us a very strong data set that's flowing into our machine learning capabilities. I think it's when in your first-party data, you can understand how users are moving from one game to another, but it's really the combination. It's not about the specific value of first-party data. It's when you have that and you have the SDK and you have the device. This is what really gives us a two-edge when looking at our data capabilities and the data that's feeding our machine learning algorithms.

I appreciate all the callers. Thanks.

We now turn to Stephen Ju from Credit Suisse. Stephen, your line is now open.

All right. Thank you so much. So, Tomer, I think you raised a pretty interesting point on your prepared remarks in terms of historically, you know, advertising has always been a sort of a key source of revenue for game developers and that monetization tactic is now becoming more prevalent outside the mobile game sector. So as a follow-up to one of the earlier questions, can you talk about the relative level of difference you may be seeing in terms of advertising as a percentage of revenue for game developers versus others so we can get an idea of what the incremental opportunity could be for you? And from a practical product development point of view, how much heavy lifting do you think non-game developers need to do to incorporate a greater amount of advertising content into the overall app design philosophy. Thanks.

Yeah, so I'll start. It's Omer. So I think when you're looking at the opportunity of ads in apps beyond games, I think that you need to kind of define that into two different opportunities. The first one is, let's call it more of the traditional advertising. This is something that they're doing today where they're showing a display ad and it's a, I wouldn't say it's huge, but we don't have a formal estimation of the exact number, but it's a substantial part of their business of FZOnGames showing, let's call it more of an in-app traditional advertising and we see that as an opportunity as well, and on the product level, we support everything around that. Basically, we have it already. It's mainly around business execution, and it's already roughly around 10% of our Sonic revenue is already generated by FB on Games, and we think it's only the beginning. So that's one part. The other part, which is even more exciting, is really taking in the rewarded mechanism, right? The engine that was added into games several years ago, that it's not really like interaction with ads. It's more... I'm looking at ads and offering users basically an alternative payment model by interacting with a very relevant ad, right? You can think of it as kind of like nano transactions or micro transactions, right? Instead of now paying for a currency for something in the game, I'm interacting with a relevant ad and I'm getting that. So it's an alternative payment. And that's something that really disrupted the mobile games industry a few years ago and really fueled the growth that we're seeing. And that is really being rarely used today in apps beyond games. And we think that that's a huge opportunity because every transactional app out there can also offer that kind of module to the users, and it will be a win-win-win for everybody, right? And especially with Tapjoy and with our product, we think that we are really, really well positioned to be a leader in that, and look at this as a very exciting growth opportunity ahead.

Thank you.

We've come to the end of our Q&A. I want to hand back to Daniel Amir for any final remarks.

Thank you all for dialing in today. We're looking forward to being in touch with you and have a good day. Goodbye.

This concludes today's call. We thank you for joining. You may now disconnect your lines.