ironSource Ltd. Class A Ordinary Shares

Hello, everyone, and welcome to the IronSource Limited Q1 2022 Earnings Conference Call. My name is Charlie, and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. And I'll hand the call over to your host, Daniel O'Neill, the VP of Investor Relations, to begin.

Daniel, please go ahead. Good morning, everyone, and welcome to IronSource's first quarter 2022 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 Omer 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 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 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 Tomel.

Thank you, Daniel, and thanks for joining us today. We're very pleased to start the year on a strong note, continuing to deliver highly profitable revenue growth. We're one of the few software companies that grew revenues more than 55%, while also achieving an adjusted EBITDA margin of more than 30%. Now more than ever, having a strong balance sheet of a net cash balance of $441 million and highly profitability is critical to succeed. As important, we are proud of how our solutions continue to serve the key constituents of the app economy, app developers, and telcos worldwide. So first, let's go over the key numbers. In the first quarter, we achieved record results with total revenues of $190 million, up 58% year-over-year. We also had adjusted EBITDA of $59 million, up 49% year-over-year. 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. our EBITDA margin was 31%, consistent with our long history of providing profitable revenue growth while also benefiting from operating leverage. We again saw the stickiness of our platform and the value it provides to our customers with a very high dollar-based net expansion rate, 153% for the quarter. During the quarter, we completed the integration of Tapjoy and Vidalgo and now have a global team of almost 1,400 employees with close to 50% of the headcount in R&D. This acquisition will help fuel our future growth and time expansion as we discussed last quarter. More broadly, as our results show, IslandSource serves as the gateway to the app economy. We help app developers turn their apps into successful businesses with our Sonic App Solution Suite and help carriers and OEMs engage with our customers with our Aura Telco Solution Suite. We strive to innovate and provide solutions that address our customers' needs, allow them to take advantage of new opportunities, and help our customers successfully weather changes in the industry. One of the key reasons our platform is able to drive value for customers is the unique combination of multiple data types and how we analyze them. The breadth of our solution means our users get app-centric data from a number of different sources on the platform. First-party data from Supersonic Publishing, third-party data from our SDK, which is widely integrated in our app partners, and on-device data from Aura. We funnel all this data through our machine learning algorithms, which were built predominantly on contextual models from day one. With a constant growth in data flowing in, we created a powerful flywheel of data advantage while prioritizing privacy, which is well positioned for the post-IDFA world and for future changes. This approach of analyzing app-centric data from multiple sources is a point of differentiation for our company. Now, I'd like to move to some of the key factors behind our strong quarter. I'll start with some of the larger trends and then cover products and partnership developments. First, our land and expand strategy. This is at the heart of our platform approach and continues to perform extremely well, as you can see by our 153% dollar-based net expansion rate. The breadth of our solution means that we have multiple points of entry to land with new customers and multiple potential avenues to expand with them. We see that more often than not, new customers will start using one solution and then expand to use additional solutions over time. A great example is HyperBeard, the largest mobile game developer and publisher in Mexico. HyperBeard started using Luna earlier this year, making it the fifth answer solution HyperBeard is using. HyperBeard started with level play mediation, then added bidding, then user acquisition and cross-promotion, all in the past couple of years. Second, our focus on app growth and marketing. In today's hyper-competitive market, incremental profitable app growth is critical to running a successful app business. Paid marketing across channels is a prerequisite to achieve this growth. This quarter, we continue to invest in solutions that help apps meet this growing challenge. First, we announced the launch of the new Luna platform, the only cross-channel marketing software that includes automated creative production and management. Luna closes the marketing loop across all channels so app marketers can build creative, deploy them across every major channel, and optimize to drive performance all in one unified platform. Luna helps customers like the leading dating app, Bumble, to grow at scale by analyzing and optimizing their marketing across channels to drive performance. As we mentioned last quarter, we believe that this marketing software increases our overall time as we're able to capitalize on significant additional streams of marketing spend in the app economy, increasing our share of wallet with customers. Second, we continue our product innovation around iOS ecosystem with tools to help customers grow their user base on iOS. After being first to market in Q4 with a product supporting Apple's custom product pages, this quarter we announced the general availability of Luna Search Ads. This product allows app marketers to better create, manage, and optimize campaigns on Apple Search Ads, a channel that has seen an increase in spend in the last year. The product allows app marketers to automate and streamline campaigns creation, keyword management and discovery, and data analysis. It also provides automated optimization all from within the same platform where app marketers manage campaigns on other channels. Essentially, marketers can now optimize their campaigns on Apple search ads while utilizing the cross-channel app marketing capabilities of IslandSource Luna. Both of these products constitute important added value and differentiation in the market by helping app marketers grow their user base profitability on iOS. Third, we launched a marketability testing tool for mobile gaming apps, which allows game developers to assess product market fit very early by evaluating whether a game can be marketed at scale. This tool is critical in a competitive industry where the cost of investing in the growth of a product that doesn't have the potential to scale can drive huge inefficiencies and wasted spend. This is a decision-making tool that offers a predictive sandbox matching the game to the audience. It results in a marketability score that gives the developer clarity on which titles to invest in and launch. It is the only tool in the market that addresses the question of game marketability together with a competitive analysis to support that decision. providing the app developers with a go-no-go conclusion. It allows developers to focus their time on those apps likely to be successful, while also not missing out on a potential hit. Finally, we're seeing growing interest in the unique on-device growth opportunity that Aura offers. Leading brands like Pinterest, Twitter, and United Airlines are leveraging Aura's native on-device inventory to connect with users as they're first setting up a new device and drive more app installs. This enhanced offering for app marketers is particularly important for apps in categories beyond games, who invest heavily in user growth and app marketing. The size of the mobile app ad install market is over $100 billion, and it is growing at a double-digit CAGR. We're also seeing a continuing trend of brands looking to connect with consumers in-app where they spend much of their time. For example, brands like Frito-Lay and Sparkling Eyes are using rich interactive in-app ads to build brand awareness with customers. We're also seeing Tier 1 big brand commerce apps leveraging unique in-app advertising experiences that enable a value exchange for users. In these instances, users playing a game can receive in-game currency in exchange for making a purchase in the app. This ad experience enables a win-win-win. The game app generates revenues from user engaging with an ad. The users opt in to an offer from an advertiser they find valuable, which results in better results for the advertiser. And the user is rewarded within the game app for engaging with an ad, receiving concrete in-game value in exchange. This ad functions more like a native in-app transaction engine, and we're seeing it get a lot of traction in apps outside of games, particularly in social, e-commerce, lifestyle, and utilities, providing our resource with a key differentiated offering to increase our market penetration in these segments. In addition, we're also continuing to see the power of our business platform for customers of all sizes. Many smaller, independent developers see IronSource as the platform of choice to publish their games using our supersonic publishing solution. We focus on productizing and automating the publishing process, creating a more effective, transparent, and seamless path to support the growth and profitability for published games. In Q1 2022, Color Match was the most downloaded hyper-casual game in the US. This follows highly successful games we saw in 2020 and 2021, like Joint Clash and Bridge Race. In addition, during the past couple of years, more than 30 games published by Supersonic reached the top 10 in the US. This is a strong testament of the robustness of our platform and how it helped developers of all sizes and stages achieve success. Now, let's move to Aura. As we discussed last quarter, the Aura solution, as of the end of 2021, had been installed cumulatively in over 1.1 billion devices, which reflects our strong leadership position in the market. In 2022, we are seeing a number of carriers ramping up their use of Aura. From partnership with Samsung and Vodafone that we announced in the second half of last year, to the two new customers that we announced last quarter from leading telecom operators in Europe and Asia. While it's difficult to predict the pace and timing of ramp-ups, we believe that in the coming quarters we will start to benefit from these partnerships' efforts. These partnerships are a testament of the unique value proposition of the Aura Solution Suite, which goes far beyond app promotion. By providing a solution for managing the entire device experience, we are able to continually expand to new touchpoints, giving telcos additional opportunities to engage with their users, providing value and drive incremental revenue. Since Aura is integrated at device level, it's very easy to add an additional in-life touchpoint, such as news, entertainment, or gaming hub, which encourages users to engage with their device the telcos brand more often to summarize this has been a good start of the year in a challenging macro environment with the launch of new products and the expansion of our partnerships we see the dials platforms continue to provide growing value to customers our results clearly validate our approach and prove that we are able to provide a robust and differentiated offering to the market We plan to continue build our platform offering throughout technological innovation and strategic M&As in order to increase the use of our platform by existing customers and gain market share with new customers. With that, I will turn the call over to Asaf to provide you with details on our financial performance and guidance for the quarter.