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.