Published: 2023-02-28 00:00:00 ET

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AppLovin Corporation (the “Company” or “AppLovin”) was incorporated in the state of Delaware on July 18, 2011. The Company is a leader in the mobile app industry with a focus on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. The Company also has a globally diversified portfolio of apps—free-to-play mobile games that it operates through its own or partner studios.

The Company is headquartered in Palo Alto, California, and has several operating locations in the U.S. as well as various international office locations in North America, South America, Asia, and Europe.

Principles of Consolidation—The accompanying consolidated financial statements have been prepared in conformity with U.S generally accepted accounting principles ("GAAP"). Consolidated financial statements include accounts and operations of the Company and its subsidiaries in which the Company has a controlling financial interest. Consolidated financial statements include accounts and operations of the Company and its subsidiaries in which the Company has a controlling financial interest. In accordance with the provisions of Accounting Standards Codifications ("ASC") 810, the Company consolidates any variable interest entities ("VIE") where it is the primary beneficiary. The Company engages in business relationships with certain entities in the ordinary course of business to develop game Apps. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE when the Company is not considered the primary beneficiary. The Company evaluates its relationships with all VIEs on an ongoing basis. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. The Company bases its estimates on assumptions, both historical and forward-looking, that are believed to be reasonable. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to fair values of intangible assets and goodwill, useful lives of intangible assets and property and equipment, expected period of consumption of virtual goods, expected life of paying users, income and indirect taxes, contingent liabilities, evaluation of recoverability of intangible assets and long-lived assets, goodwill impairment, and fair value of derivatives and other financial instruments. These estimates are inherently subject to judgment and actual results could differ materially from those estimates.

Risk and Uncertainties—The Company is subject to risks and uncertainties, including, but not limited to, as a result of the warfare in Ukraine and related sanctions against Russia, as well as, the COVID-19 pandemic. As of the issuance date of these consolidated financial statements, the Company’s results of operations have not been materially impacted. However, the future impact of these events remains uncertain as the response to and information related to these events is rapidly evolving. Economies worldwide have been negatively impacted by the COVID-19 pandemic and the events in Ukraine and Russia are expected to have a further impact on the global economy. A weakened global economy may negatively impact in-app purchasing decisions and consumer buying decisions across the globe generally, which could adversely affect advertiser activity. The full impact of these events on the global economy and the extent to which these events may impact the Company’s business, financial condition, and results of operations in the future remains uncertain. The severity of the impact of the war in Ukraine, Russian sanctions and the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of these events and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms and uncertain demand.

Revenue from Contracts with Customers—The Company generates Software Platform and Apps revenue. Software Platform revenue is generated primarily from fees collected from advertisers and advertising networks who use the Software Platform. The Company generates Apps revenue from both consumers and business clients. IAP revenue is generated from in-app purchases (“IAPs”) made by users within the Company’s apps (“Apps”). IAA revenue is generated from advertisers that purchase ad inventory from Apps.

Software Platform Revenue

The vast majority of the Software Platform Revenue is generated through AppDiscovery and MAX, which provides the technology to match advertisers and owners of digital advertising inventory (“Publishers”) via auctions at large scale and microsecond-level speeds. The terms for all mobile advertising arrangements are governed by the Company’s terms and conditions and generally stipulate payment terms of up to 60 days subsequent to the end of the month. Substantially all of the Company's contracts with customers are fully cancellable at any time or upon a short notice.

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Software Platform Revenue is generated by placing ads on mobile applications owned by Publishers. The Company’s performance obligation is to provide customers with access to the Software Platform, which facilitates the advertiser’s purchase of ad inventory from Publishers. The Company does not control the ad inventory prior to its transfer to the advertiser, because the Company does not have the substantive ability to direct the use of nor obtain substantially all of the remaining benefits from the ad inventory. The Company is not primarily responsible for fulfillment and does not have any inventory risk. The Company is an agent as it relates to the sale of third-party advertising inventory and presents revenue on a net basis. The transaction price is the product of either the number of completions of agreed upon actions or advertisements displayed and the contractually agreed upon price per advertising unit with the advertiser less consideration paid or payable to Publishers. The Company recognizes Software Platform Revenue when the agreed upon action is completed or when the ad is displayed to users. The number of advertisements delivered and completions of agreed upon actions is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period.

Software Platform Revenue also includes revenue generated by the Company's mobile application tracking and attribution solutions that is recognized ratably over the subscription period generally up to twelve months.

Apps Revenue

IAP Revenue

IAP Revenue includes fees collected from users to purchase virtual goods to enhance their gameplay experience. The identified performance obligation is to provide users with the ability to acquire, use, and hold virtual items over the estimated period of time the virtual items are available to the user or until the virtual item is consumed. Payment is required at the time of purchase, and the purchase price is a fixed amount.

Users make IAPs through the Company’s distribution partners. The transaction price is equal to the gross amount charged to users because the Company is the principal in the transaction. IAPs fees are non-refundable. Such payments are initially recorded as deferred revenue. The Company categorizes its virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action in gameplay; accordingly, the Company recognizes revenue from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the user over an extended period of time; accordingly, the Company recognizes revenue from the sale of durable virtual goods ratably over the period of time the goods are available to the user, which is generally the estimated average user life (“EAUL”).

The EAUL represents the Company’s best estimate of the expected life of paying users for the applicable game. The EAUL begins when a user makes the first purchase of durable virtual goods and ends when a user is determined to be inactive. The Company determines the EAUL on a game-by-game basis. For a newly launched game with limited playing data, the Company determines its EAUL based on the EAUL of a game with sufficiently similar characteristics.

The Company determines the EAUL on a quarterly basis and applies such calculated EAUL to all bookings in the respective quarter. Determining the EAUL is subjective and requires management’s judgment. Future playing patterns may differ from historical playing patterns, and therefore the EAUL may change in the future. The EAULs are generally between 6 and 9 months.

IAA Revenue

IAA Revenue is generated by selling ad inventory on the Company's Apps to third-party advertisers. Advertisers purchase ad inventory either through the Software Platform or through third-party advertising networks (“Ad Networks”). Revenue from the sale of ad inventory through Ad Networks is recognized net of the amounts retained by Ad Networks as the Company is unable to determine the gross amount paid by the advertisers to Ad Networks. The Company recognizes revenue when the ad is displayed to users.

The Company presents taxes collected from customers and remitted to governmental authorities on a net basis.

Disaggregation of Revenue

The following table presents revenue disaggregated by segment and type (in thousands):

			Year Ended December 31,
			2022						2021						2020
Software Platform Revenue			$	1,049,167					$	673,952					$	207,285
In-App Purchases Revenue			1,179,133						1,458,595						739,934
In-App Advertising Revenue			588,758						660,557						503,867
Total Apps Revenue			1,767,891						2,119,152						1,243,801
Total Revenue			$	2,817,058					$	2,793,104					$	1,451,086

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Revenue disaggregated by geography, based on user location, consists of the following (in thousands):

			Year Ended December 31,
			2022						2021						2020
United States			$	1,728,958					$	1,687,080					$	895,987
Rest of the World			1,088,100						1,106,024						555,099
Total Revenue			$	2,817,058					$	2,793,104					$	1,451,086

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of the satisfaction of performance obligations. During the years ended December 31, 2022 and 2021, the Company recognized $78.6 million and $86.9 million of revenue that was included in deferred revenue as of December 31, 2021 and 2020, respectively.

Unsatisfied Performance Obligations

Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less.

Publisher Bonuses

In the first quarter of 2022, the Company paid or promised to pay a total of $209.6 million in bonuses to publishers consisting primarily of non-recurring bonuses to migrate publishers to MAX, the Company's own in-app mediation platform. The Company accounted for such publisher bonuses as a reduction to revenue since the publishers receiving such bonuses are also customers of the Company.

Cash and Cash Equivalents—Cash and cash equivalents primarily consist of cash on deposit with banks and investments in money market funds with maturities of 90 days or less from the date of purchase.

Restricted Cash Equivalents—The Company classifies cash equivalents that are legally or contractually restricted for withdrawal or usage as restricted cash equivalents. Restricted cash equivalents as of December 31, 2021 consisted of investments in certain money market fund of funds held in an escrow account related to the MoPub acquisition, which was closed in January 2022.

Non-Marketable Equity Investments—Non-marketable equity securities are investments without readily determinable fair values that are recorded using a measurement alternative measured at cost less any impairment, plus or minus changes resulting from qualifying observable price changes. An impairment loss is recorded when an event or circumstance indicates a decline in value has occurred. For certain of these securities, the Company has elected to apply the net asset value (NAV) practical expedient. The NAV is the estimated fair value of these investments. See Note 3, Fair Value Measurements for additional information.

Accounts Receivable, net—The Company records accounts receivable at the invoiced amount, maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables, and reviews accounts receivable periodically to identify specific customers with known disputes or collectability issues. As of December 31, 2022 and 2021, the allowance for doubtful accounts was not material.

Derivatives—The Company accounts for derivative instruments at fair value within its consolidated balance sheets, and the accounting treatment for each derivative is based on its hedge designation. The Company does not enter into derivative instruments for trading or speculative purposes. Changes in the fair value of derivatives that are designated as cash flow hedges are recorded within accumulated other comprehensive income (loss) until earnings are affected by the variability of cash flows. Changes in the fair value of non-designated derivatives are recorded immediately through earnings. The Company’s policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. For each of the three years ended December 31, 2022, 2021, and 2020, the derivative instruments, including their impact to the Company's consolidated statements of operations were not material. See Note 3, Fair Value Measurements for additional information.

Fair Value of Financial Instruments—The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.

Level 3—Unobservable inputs of which there is little or no market data, which require the Company to develop its own assumptions.

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Concentration of Credit Risk and Uncertainties—The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash equivalents and accounts receivable. The Company places its cash deposits with large, reputable financial institutions. As of December 31, 2022 and 2021, the Company maintained cash balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits. Cash equivalents consist of money market funds that are composed of U.S. Treasury and U.S. Government securities.

The Company’s accounts receivable balance is derived from both domestic and international sales. The Company reviews its exposure to accounts receivable credit risk and generally requires no collateral for its accounts receivable.

The Company uses various distribution partners to collect and remit payments from users of Apps for virtual goods. As of December 31, 2022, no distribution partners accounted for 10% of the accounts receivable, net. As of December 31, 2021, two distribution partners accounted for 10% and 10% of the accounts receivable, net.

The Company had one customer which accounted for 12% of the Company's accounts receivable, net as of December 31, 2022. The balance was collected in full during the first quarter of 2023. No individual customer accounted for 10% or more of the Company’s accounts receivable, net as of December 31, 2021.

No individual customer accounted for 10% or more of the Company’s revenue during the years ended December 31, 2022, 2021 and 2020.

Property and Equipment, net—Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is as follows:

			Useful Life
Computer equipment			3-5 years
Software and licenses			3 years
Furniture and fixtures			3-5 years
Leasehold improvements			Over the shorter of useful life (up to 10 years) or lease term

When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred.

Leases—Leases consist of real estate property, network and other equipment. The Company determines if an arrangement is or contains a lease at inception. Operating and finance lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist primarily of the fixed payments under the arrangement, less any lease incentives. The Company generally uses an incremental borrowing rate estimated based on the information available at the lease commencement date to determine the present value of lease payments unless the implicit rate is readily determinable. Operating lease costs are recognized on a straight-line basis over the lease terms. Finance lease assets are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease terms.

The Company accounts for lease and non-lease components as a single lease component of contracts for real estate property leases and does not recognize right-of-use assets and lease liabilities for leases with a term of 12 months or less. Generally, the lease term is based on non-cancelable lease term when determining the lease assets and liabilities. The lease terms may include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease right-of-use assets and liabilities. Variable lease payments are primarily comprised of real estate taxes, common area maintenance, and insurance.

Deferred Offering Costs—Deferred offering costs, which consist primarily of accounting, legal and other fees directly attributable to the Company’s initial public offering (“IPO”), were initially capitalized in other assets on the Company’s consolidated balance sheets. After the completion of the IPO, the Company presented deferred offering costs in stockholders’ equity as a reduction of the IPO proceeds.

Segment Reporting—The Company's chief operating decision maker (“CODM”) is the Chief Executive Officer who manages the business, allocates resources and assesses operating performance based on financial information presented for each of the two operating segments: Software Platform and Apps. Both operating segments are also individual reportable segments. For information regarding reportable segments, see Note 14 - Segments and Geographic Information.

Asset Acquisitions and Business Combinations—The Company performs an initial test to determine whether substantially all of the fair value of the gross assets transferred are concentrated in a single identifiable asset or a group of similar identifiable assets, such that the acquisition would not represent a business. If that test suggests that the set of assets and activities is a business, the Company then performs a second test to evaluate whether the assets and activities transferred include inputs and substantive processes that together, significantly contribute to the ability to create outputs, which would constitute a business. If the result of the second test suggests that the acquired assets and activities constitute a business, the Company accounts for the transaction as a business combination.

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For transactions accounted for as business combinations, the Company allocates the fair value of acquisition consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair value. Acquisition consideration includes the fair value of any promised contingent consideration. The excess of the fair value of acquisition consideration over the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill. Contingent consideration is remeasured to its fair value each reporting period with changes in the fair value of contingent consideration recorded in general and administrative expenses. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates and assumptions in valuing certain identifiable intangible assets include, but are not limited to, forecasted revenue and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions and subject to revision when the Company receives final information, including appraisals and other analyses. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related costs are expensed as incurred.

For transactions accounted for as asset acquisitions, the cost, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. The Company generally includes contingent consideration in the cost of the assets acquired only when the uncertainty is resolved. The Company recognizes contingent consideration adjustments to the cost of the acquired assets prospectively using the straight-line method over the remaining useful life of the assets. No goodwill is recognized in asset acquisitions.

Services and Development Agreements—The Company enters into strategic agreements with mobile gaming studios (“Partner Studios”). The Company has historically allowed these Partner Studios to continue their operations with a significant degree of autonomy. In some cases, the Company bought Apps from Partner Studios and entered into service and development agreements whereby Partner Studios provide support in improving existing Apps and developing new Apps. The substantial majority of payments associated with service agreements for existing Apps are expensed to research and development when the services are rendered as the payments primarily relate to developing enhancements for the Apps. Payments for new Apps associated with development agreements are generally made in connection with the development of a particular App, and therefore, the Company is subject to development risk prior to the release of the App. Accordingly, payments that are due prior to completion of an App are generally expensed to research and development over the development period as the services are incurred. Payments due after completion of an App are generally capitalized and expensed as cost of revenue. For additional information, see Note 6 - Acquisitions and Dispositions.

Software Development Costs—The Company incurs development costs related to internal-use software and the development of Apps. The Company reviews software development costs on a quarterly basis to determine if the costs qualify for capitalization. The Company typically follows an agile and iterative development process. As a result, the preliminary project stage remains ongoing until just prior to launch, at which time final feature selection occurs. As such, software development costs do not meet the criteria for capitalization and are expensed as incurred to research and development expenses. The software development costs the Company capitalized during the years ended December 31, 2022 and 2021 were insignificant. The Company did not capitalize any software development costs during the year ended December 31, 2020.

Goodwill—Goodwill is allocated to reporting units and tested for impairment on an annual basis during the fourth quarter, or more frequently if the Company believes indicators of impairment exist. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. When conducting quantitative annual goodwill impairment assessments, the Company compares the fair value of its reporting units to their carrying value. If the carrying value of a reporting unit exceeds its fair value, then the Company records a goodwill impairment. The lesser of (i) the entire amount by which the carrying value of a reporting unit exceeds its fair value or (ii) the carrying value of goodwill allocated to such reporting unit is recorded as an impairment to goodwill. As of December 31, 2022, 2021 and 2020, no impairment of goodwill has been identified.

Intangible Assets—This consists of identifiable intangible assets, primarily Apps, user base, developed technology, customer relationships and intellectual property licenses resulting from acquisitions. Acquired intangible assets are recorded at cost, net of accumulated amortization. The Company’s estimates of useful lives of intangible assets are based on cash flow forecasts which incorporate various assumptions, including forecasted user acquisition costs, user attrition rates and level of user engagement.

Intangible assets also include costs of intellectual property that the Company licenses from third parties for use of their content in the Company’s game. The licensing agreements include license payments, which are due over the terms of the agreements. The Company recognizes these license payments as a license asset and a license obligation at the fair value on the contract date, based on a discounted cash flow model. The amortization of the licensed asset is recorded in cost of revenue on a straight-line basis over the remaining license terms. The classification of the license obligations between current and long-term is based on the expected timing of the payments to the licensor.

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Impairment of Long-Lived Assets—The Company reviews long-lived assets that are held and used for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. If such circumstances are present, the Company assesses the recoverability of the long-lived assets by comparing the carrying value to the undiscounted future cash flows associated with the related assets. If the future net undiscounted cash flows are less than the carrying value of the assets, the assets are considered impaired and an expense equal to the amount required to reduce the carrying value of the assets to the estimated fair value is recorded as an impairment of intangible assets in the consolidated statements of operations. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and internal forecasts. For example, if future operating results do not meet current forecasts, the Company may be required to record future impairment charges for acquired intangible assets. Additional factors which significantly affect future cash flows related to long-lived assets include, but are not limited to, forecasted user acquisition costs, user attrition rates and level of user engagement. Significant changes in these factors may require the Company to reassess recoverability of long-lived assets and record impairment. Impairment charges could materially decrease future net income and result in lower asset values on the Company’s consolidated balance sheet. There were no material impairment charges related to long-lived assets that are held and used for the years ended December 31, 2022, 2021 and 2020.

The Company classifies an asset as held for sale when management commits to a formal plan to actively market the asset for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset and the transfer is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon classification as held for sale, the Company recognizes the asset at the lower of its carrying value or its estimated fair value, less costs to sell. In addition, the Company ceases to record depreciation or amortization for assets that are classified as held for sale. During the year ended December 31, 2022, the Company classified certain assets within the Apps reportable segment as held for sale and recognized a total impairment charge of $53.0 million, representing the excess of the assets' carrying value over their estimated fair value, less cost to sell, in cost of revenue in the Company's consolidated statements of operations. As of December 31, 2022, the carrying value of assets held for sale was not material. No assets were classified as held for sale in 2021 or 2020.

Cost of Revenue—Cost of revenue consists primarily of third-party payment processing fees related to IAP Revenue and paid to the Company’s distribution partners, amortization of intangible assets related to acquired technology and Apps, and expenses associated with operating network infrastructure which include bandwidth, energy, and other equipment costs related to the co-located data centers and costs for third-party cloud service providers.

Sales and Marketing—Sales and marketing expenses consist primarily of user acquisition costs, other advertising expenses, sales incentives, and amortization of acquired separately-identifiable user-related intangible assets. Related costs associated with these functions such as, marketing programs, travel, customer service costs as well as allocated facilities and information technology costs are also included in sales and marketing expenses. Costs for advertising are expensed as incurred. Advertising costs, which consist primarily of user acquisition costs, totaled $665.9 million, $983.7 million, and $550.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Research and Development—Research and development expenses include new product development costs such as salaries and employee benefits, consulting costs, stock-based compensation, regulatory compliance costs as well as allocated facilities and information technology costs.

General and Administrative—General and administrative expenses include costs associated with the Company’s finance, accounting, legal, human resources, and administrative personnel. Related costs associated with these functions, such as attorney and accounting fees, recruiting services, administrative services, insurance, travel, as well as allocated facilities and information technology costs are also included in general and administrative expenses.

Stock-Based Compensation—The Company accounts for stock-based compensation based on the fair value of awards as of the grant date. The Company recognizes stock-based compensation expense on the straight-line basis over the requisite service period and accounts for forfeitures as they occur.

Prior to IPO, the fair value of employee stock options were estimated using the Black-Scholes option-pricing model, which requires use of various assumptions including the expected term, the expected stock price volatility, and the risk- free interest rate. The Company estimated the expected term using the simplified method which was based on the mid-point between the weighted-average time to vesting and the contractual maturity. The Company estimated the volatility of its common stock on the date of grant based on the weighted average historical stock price volatility of comparable publicly-traded companies. The risk-free interest rate assumption was based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Following the IPO, the Company has only granted RSUs for which the fair value is established based on the closing price of the Company's publicly traded Class A common stock on the date of grant.

The Company recognizes stock-based compensation expense related to shares issued pursuant to the Employee Stock Purchase Plan ("ESPP") on a straight-line basis over the offering period, which is generally 24 months. The Company estimates the fair value of shares to be issued under the ESPP using the Black-Scholes option-pricing model.

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For the years ended 2021 and 2020, stock-based compensation expense also included liability classified options to employees that were subject to be settled in the stock of one of the Company’s subsidiaries. The Company did not incur stock based compensation expense related to liability classified options during the year ended 2022.

Income Taxes—The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax asset valuation allowance would be made to reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process in which determinations are made (1) whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position; and (2) for those tax positions that meet the more- likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with a tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets.

Foreign Currency Transactions—Generally, the functional currency of our international subsidiaries is the U.S. dollar. In cases where the functional currency is not the U.S. dollar, the Company translates the financial statements of these subsidiaries to U.S. dollars using the exchange rate at the prevailing consolidated balance sheet date for assets and liabilities, and average exchange rates during the period for revenue and costs and expenses. The Company records translation gains and losses in accumulated other comprehensive income (loss) as a component of stockholders’ equity. The Company reflects foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency, which includes gains and losses from the remeasurement of assets and liabilities, as a component of other income (expense), net.

Comprehensive Income (Loss)—Comprehensive income (loss) is composed of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of gains and losses on cash flow hedges and foreign currency translation adjustments.

Net Income (Loss) Per Share Attributable to Common Stockholders—Basic and diluted net income (loss) per share attributable to common stockholders is presented under the two-class method required for participating securities. The Company considers convertible preferred stock, options exercised in exchange for nonrecourse promissory notes, early exercised unvested stock options and unvested restricted stock awards to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to participating securities as the holders of these instruments do not have a contractual obligation to share in the Company’s losses. Net income is attributed to common stockholders and participating securities based on the respective participation rights. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the effect of potentially dilutive impact of securities.

Noncontrolling Interests and Redeemable Noncontrolling Interests—For less-than-wholly-owned consolidated subsidiaries, noncontrolling interest is the portion of equity not attributable, directly or indirectly, to AppLovin. The Company evaluates whether noncontrolling interests possess any redemption features outside of our control. If such features exist, the noncontrolling interests are presented outside of permanent equity on the consolidated balance sheets within redeemable noncontrolling interest. The Company report revenues, expenses and net income (loss) from less-than-wholly-owned consolidated subsidiaries at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests; the income or loss attributable to the noncontrolling interest holders is reflected in net income or loss attributable to noncontrolling interest on the consolidated statements of operation. Redeemable noncontrolling interests are adjusted to the greater of their fair value or carrying value as of each balance sheet date.

Recent Accounting Pronouncements (Issued and Not Yet Adopted)—In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires specific disclosures for equity securities subject to contractual sale restrictions. These changes will become effective for the Company on January 1, 2024. The Company is currently evaluating the potential impact of these changes.

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Recent Accounting Pronouncements (Issued and Adopted)—In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit; and simplifies classification of debt on the balance sheet and earnings per share calculation. The Company adopted this ASU on January 1, 2022 with no material impact on the consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). The Company adopted this ASU on January 1, 2022 with no material impact on the consolidated financial statements.

The following table sets forth the Company’s financial instruments that were measured at fair value by level within the fair value hierarchy on a recurring basis as of the dates indicated (in thousands):

															As of December 31, 2022
			Balance Sheet Location						Total						Level 1						Level 2						Level 3
Financial Assets:
Unrestricted Balances
Money market funds(1)			Cash and cash equivalents						$	604,399					$	604,399					$	—					$	—
Interest rate swap			Prepaid expenses and other current assets						$	7,319					$	—					$	7,319					$	—
Total financial assets									$	611,718					$	604,399					$	7,319					$	—

															As of December 31, 2021
			Balance Sheet Location						Total						Level 1						Level 2						Level 3
Financial Asset:
Unrestricted Balances
Money market funds(1)			Cash and cash equivalents						$	1,070,979					$	1,070,979					$	—					$	—
Marketable equity securities			Prepaid expenses and other current assets						$	2,532					$	2,532					$	—					$	—
Restricted Balances
Money market funds			Restricted cash equivalents						$	1,050,000					$	1,050,000					$	—					$	—
Total financial assets									$	2,123,511					$	2,123,511					$	—					$	—

(1) Includes balances in money market deposit accounts of $524 million and $921 million as of December 31, 2022 and December 31, 2021, respectively.

Interest Rate Swap

On October 3, 2022, the Company entered into an interest rate swap agreement as part of its interest rate risk management strategy in connection with the Initial Term Loans under the Amended Credit Agreement (see Note 9 - Credit Agreement). The swap was a receive-variable (one-month LIBOR) and pay-fixed (4.3923%) interest rate swap with settlement date commencing on the last calendar day of each month and reset date on first day of each month beginning November 30, 2022. The notional amount for the swap matches the amount of outstanding principal of the Initial Term Loans over the term of the swap. The Company did not designate the swap as a hedging instrument for accounting purposes and recorded unrealized gains and losses associated with the swap immediately through earnings in interest expense and loss on settlement of debt in the Company's statement of operations. The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of the interest rate swap. The Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swap fall within Level 2 of the fair value hierarchy. The Company recognized a $7.3 million unrealized gain on the swap during the year ended December 31, 2022.

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Non-Marketable Equity Securities Measured at Net Asset Value

The Company held equity interests in certain private equity funds of $32.3 million and $3.2 million as of December 31, 2022 and December 31, 2021, respectively, which are measured using the net asset value practical expedient. Under the net asset value practical expedient, the Company records investments based on the proportionate share of the underlying funds’ net asset value as of the Company's reporting date. These investments are included in other assets in the Company’s consolidated balance sheets.

These funds vary in investment strategies and generally have an initial term of 7 to 10 years, which may be extended for 2 to 3 additional years with the applicable approval. These investments are subject to certain restrictions regarding transfers and withdrawals and generally cannot be redeemed with the funds. Distributions from the funds will be received as the underlying investments are liquidated. The Company’s maximum exposure to loss is limited to the carrying value of these investments of $32.3 million and the unfunded commitments of $50.1 million as of December 31, 2022.

During the year ended December 31, 2022, the Company made total capital contributions of $28.4 million related to these investments. The Company recorded an immaterial unrealized gain related to these investments for each of years ended December 31, 2022 and December 31, 2021, respectively.

Non-Marketable Equity Securities Measured at Fair Value on a Non-Recurring Basis

During 2022, the Company purchased certain non-marketable equity securities for total proceeds of $38.0 million. Non-marketable equity securities are investments in privately held companies without readily determinable fair values. The Company elected the measurement alternative to account for these investments. Under the measurement alternative, the carrying value of the non-marketable equity securities are adjusted based on price changes from observable transactions of identical or similar securities of the same issuer or for impairment. Any changes in carrying value are recorded within other income (expense), net in the Company's consolidated statement of operations. There was no change in the carrying value of the non-marketable equity securities since their acquisitions. These investments are included in other assets in the Company’s consolidated balance sheets. The Company had no such investments as of December 31, 2021.

Property and equipment, net consists of the following (in thousands):

			December 31,
			2022						2021
Computer equipment			$	106,215					$	77,730
Leasehold improvements			17,380						18,640
Furniture and fixtures			3,650						3,686
Software and licenses			156						3,211
Total property and equipment			127,401						103,267
Less: accumulated depreciation			(48,858)						(39,659)
Total property and equipment, net			$	78,543					$	63,608

Depreciation expenses were $29.3 million, $25.6 million and $14.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Accrued liabilities consists of the following (in thousands):

			December 31,
			2022						2021
Tax accruals and withholdings			$	81,957					$	67,159
Compensation and related liabilities			24,302						32,862
Finance lease liabilities			22,304						21,999
Accrued expenses and other			19,238						11,750
Total accrued liabilities			$	147,801					$	133,770

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Commitments—As of December 31, 2022, the Company's non-cancelable minimum purchase commitments totaled $480.6 million, which consisted primarily of a certain arrangement related to cloud platform services. In May 2022, the Company entered into a new order form under an existing master agreement that required the Company to purchase at least $550.0 million of cloud services through May 2025. The Company made payments of $79.4 million and $55.0 million under this arrangement for the year ended December 31, 2022 and 2021, respectively. Purchases made under this arrangement were not material for the year ended December 31, 2020.

Future minimum payments under these non-cancelable purchase commitments with a remaining term in excess of one year were as follows (in thousands):

2023			$	210,687
2024			191,470
2025			78,253
2026			146
2027			—
Total non-cancelable purchase commitments			$	480,556

In addition, the Company had total unfunded commitments of $50.1 million related to investments in certain private equity funds. For additional information, see Note 3 - Fair Value Measurements.

Contingencies—From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

Letters of Credit—As of December 31, 2022 and 2021, the Company had outstanding letters of credit in the aggregate amount of $11.1 million, which were issued as security for certain leased office facilities under the Credit Agreement. These letters of credit have never been drawn upon. For additional information, see Note 9 - Credit Agreement.

Legal Proceedings—The Company is involved from time to time in litigation, claims, and proceedings. The outcomes of the Company’s legal proceedings are inherently unpredictable and subject to significant uncertainty.

The Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. If it is determined that a loss is reasonably possible and the loss or range of loss can be estimated, the reasonably possible loss is disclosed. The Company evaluates developments in legal matters that could affect the amount of liability that has been previously accrued, and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine the likelihood of matters and the estimated amount of a loss related to such matters. To date, losses in connection with legal proceedings have not been material.

The Company expenses legal fees in the period in which they are incurred.

Indemnifications—The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including certain customers, business partners, investors, contractors and the Company’s officers, directors and certain employees. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s consolidated statements of operations in connection with the indemnification provisions have not been material. As of December 31, 2022, the Company did not have any material indemnification claims that were probable or reasonably possible.

Non-income Taxes—The Company may be subject to audit by various tax authorities with regard to non-income tax matters. The subject matter of non-income tax audits primarily arises from different interpretations on tax treatment and tax rates applied. The Company accrues liabilities for non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss.

2022 Acquisitions

Business Combinations

Wurl—On April 1, 2022, the Company completed its acquisition of all of the equity interests of Wurl, Inc. ("Wurl"), a connected TV (CTV) software platform company, for a total purchase price of $378.2 million, consisting of $219.3 million in cash, 2,579,692 shares of the Company's Class A common stock valued at $137.4 million and a deferred payment of $22.7 million, with a present value of $21.5 million at the closing of the acquisition, relating to an indemnity holdback amount to be paid in 18 months following the transaction close date, less any eligible claims against Wurl paid by AppLovin. The transaction is expected to enable the Company to expand into the connected TV market. The Company accounted for the acquisition as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $1.9 million.

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The following table summarizes the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents			$	400
Accounts receivable and other current assets			15,194
Intangible assets
Customer Relationships—estimated useful life of 15 years			41,000
Developed Technology—estimated useful life of 6 years			60,500
Tradename—estimated useful life of 10 years			14,700
Goodwill			264,149
Property and equipment, net			363
Other assets			159
Accounts payable, accrued liabilities and other current liabilities			(12,854)
Deferred revenue			(209)
Deferred income tax liability			(5,235)
Total purchase consideration			$	378,167

The above allocation of the purchase price is still provisional and subject to change within the measurement period, including potential adjustments to deferred tax balances. The final allocation of the purchase price is expected to be completed as soon as practicable, but no later than one year from the date of the acquisition close. During the current year, the Company recognized an increase of $2.2 million of deferred tax liability related to measurement period adjustments, with a corresponding adjustment to goodwill. Such measurement period adjustments are reflected in the table above.

The income approach was used to determine the preliminary fair value of the customer relationships, developed technology, and tradename. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired and liabilities assumed at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, no tax deductible goodwill was generated as a result of this acquisition.

Contemporaneously with entering into the definitive agreement, the Company also adopted a multi-year performance-based incentive plan for certain key employees of Wurl, under which the key employees may earn up to a total of $600.0 million in additional shares of the Company's Class A common stock through 2025, contingent upon the achievement of certain revenue and other performance targets by the acquired business and the continued employment of such key employees between 2023 and 2025. Such plan became effective at the closing of the transaction.

The Company’s consolidated statement of operations as of December 31, 2022, includes Wurl's revenue of $35.0 million and pre-tax loss of $11.8 million for the period from the acquisition date of April 1, 2022 to December 31, 2022.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

MoPub—On January 1, 2022, the Company completed its acquisition from Twitter, Inc. of certain assets that comprised of its MoPub business for a total purchase price of $1.03 billion in cash. The acquisition allows the Company to integrate certain product features of the MoPub platform into MAX, the Company's own in-app mediation platform, and migrate publishers and demand partners from the MoPub platform to MAX. The Company accounted for the acquisition as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $14.4 million.

The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired (in thousands):

Intangible assets
Advertiser Relationships—estimated useful life of 9 years			$	212,700
Publisher Relationships—estimated useful life of 9 years			123,300
Developed Technology—estimated useful life of 5 years			61,800
Tradename—estimated useful life of 3 months			60
Goodwill			632,472
Total purchase consideration			$	1,030,332

The income approach was used to determine the fair value of the advertiser relationships, publisher relationships, developed technology and tradename. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, an estimated tax deductible goodwill of $694.5 million was generated as a result of this acquisition. No liabilities were assumed in the transaction.

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Contemporaneously with the signing of the asset purchase agreement, the Company entered into an agreement for Twitter, Inc. to provide certain transitional services to facilitate the migration of publishers and demand partners to MAX during a three-month transitional period following the closing of the transaction (the "TSA"). The Company accounted for the TSA as a transaction separate from the business combination since it was negotiated primarily for the benefit of the Company. In the first quarter of 2022, the Company recognized total expense of $ $7.0 million related to the transitional services, which was included primarily in cost of revenue in the Company's consolidated statement of operations.

Due to the significant integration of the MoPub business with MAX, it was impractical to determine the impact of the acquired business on revenue or earnings.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

Asset Acquisitions

During the year ended December 31, 2022, the Company recognized total earn-out costs of $104.2 million, related to asset acquisitions closed in 2021 and prior. No other asset acquisition was completed during 2022.

2021 Acquisitions

Business Combinations

On April 20, 2021, the Company acquired adjust GmbH (“Adjust”), a mobile application tracking and analytics company. The Company purchased all of the outstanding shares of the capital stock of Adjust and settled all of Adjust’s debt for the stated purchase consideration of $980.0 million, which was composed of $352.0 million stated value of convertible securities convertible into a variable number of shares of the Company's Class A common stock at a variable conversion price, $50.0 million of cash holdback, and remaining amount of $578.0 million in cash consideration. The fair value of the convertible securities and fair value of the cash holdback are estimated to be $342.2 million and $47.6 million, respectively. As such, the fair value of the acquisition consideration is determined to be $967.8 million. The transaction is expected to expand the Company’s Software solutions and has been accounted for as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $3.1 million.

The following table summarizes the allocation of the purchase consideration to the acquisition-date fair value of the assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents			$	12,155
Accounts receivable and other current assets			21,840
Intangible assets
Customer Relationships—estimated useful life of 12 years			155,000
Developed Technology—estimated useful life of 6 years			77,000
Tradename—estimated useful life of 5 years			8,000
Goodwill			776,147
Operating lease right-of-use assets			8,130
Property and equipment, net			1,897
Finance lease right-of-use assets			43,156
Other assets			3,191
Accounts payable, accrued liabilities and other current liabilities			(15,540)
Deferred revenue			(5,600)
Operating lease liabilities			(8,130)
Finance lease liabilities			(43,156)
Deferred income tax liability			(66,273)
Total purchase consideration			$	967,817

The income approach was used to determine the fair value of the customer relationships, developed technology and tradename. Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, an estimated tax deductible goodwill of $692.5 million was generated as a result of this acquisition.

The Company’s consolidated statement of operations for the year ended December 31, 2021 includes Adjust’s revenue of $77.9 million and pre-tax loss of $37.1 million for the period from the acquisition date of April 20, 2021 to December 31, 2021.

See Pro forma results of operations below under "Supplemental Pro Forma Information".

In May 2021, the convertible securities were converted into 6,320,688 shares of the Company's Class A common stock with a fair value of $342.2 million. As a result, the fair value of the convertible securities was reclassified into the stockholders' equity.

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Asset Acquisitions

In April 2021, the Company completed two separate transactions to acquire certain mobile Apps from two foreign-based independent mobile game developers in exchange for an aggregate upfront cash consideration of $300.0 million and potential future earn-out payments. The Company incurred a total transaction cost of $6.0 million related to these transactions. Both transactions were accounted for as asset acquisitions with $306.0 million allocated to the acquired mobile Apps, which will be amortized over approximately eight years. Concurrent with the closings of these transactions, the Company entered into a development services agreement with each of the independent mobile game developers to support the acquired mobile Apps, as well as to develop new mobile Apps during the four-year term of the agreement. With respect to the first transaction, the potential future earn-out payments are contingent on the revenue generated by the acquired mobile Apps exceeding a certain revenue threshold, which will be measured and payable (if applicable) each year for four years from the date of the transaction. With respect to the second transaction, the potential future earn-out payments will be determined in a manner similar to the first transaction, in addition to a potential one-time earn-out payment of $50.0 million contingent on the achievement of a certain monthly revenue milestone within the four years following the date of the transaction.

In June 2021, the Company acquired certain mobile Apps from a foreign-based independent mobile game developer in exchange for an upfront cash consideration of $130.0 million and future earn-out payments. The Company incurred a total transaction cost of $4.0 million related to the transaction. The transaction was accounted for as an asset acquisition with $134.0 million allocated to the acquired mobile Apps, which will be amortized over nine years. Concurrent with the closing of the transaction, the Company entered into a development services agreement with the independent mobile game developer to support the acquired mobile Apps, as well as to develop new mobile Apps during the four-year term of the agreement. With respect to all initially acquired mobile Apps, the potential future earn-out payments are contingent on the revenue and/or earnings before interest, taxes, depreciation and amortization ("EBITDA") generated by the acquired mobile Apps exceeding certain thresholds.

In August 2021, the Company acquired certain mobile Apps from a foreign-based independent mobile game developer in exchange for a total cash consideration of $150.0 million. The transaction was accounted for as an asset acquisition with $150.0 million allocated to the acquired mobile Apps, which will be amortized over six years.

During the year ended December 31, 2021, the Company also completed a number of other asset acquisitions for an aggregate cash consideration of $53.7 million, as well as potential future earn-out payments that are contingent on the revenue and/or profit generated by the acquired mobile Apps.

During the year ended December 31, 2021, the Company recognized total earn-out costs of $116.6 million, of which $77.1 million and $14.8 million related to asset acquisitions that were closed in 2020 and 2019, respectively. These earn-out costs increased the book value of the acquired mobile Apps, and are amortized over the remaining useful life of the originally acquired mobile Apps.

In January 2021, the Company paid $60.0 million to Recoded, an independent foreign-based mobile game developer, in relation to a new mobile App acquired in 2020. In February 2021, the Company paid an additional $90.0 million to Recoded related to deferred cash consideration for an asset acquisition closed in 2019.

Supplemental Pro Forma Information

The unaudited supplemental pro forma information below presents the combined historical results of operations of the Company, Adjust, the MoPub business, Wurl, and Machine Zone, an acquisition completed in May 2020, for each of the periods presented as if Wurl and the MoPub business had been acquired as of January 1, 2021, Adjust had been acquired as of January 1, 2020, and Machine Zone had been acquired on January 1, 2019 (in thousands):

			Year Ended December 31,
			2022						2021						2020
Revenue			$	2,826,090					$	3,036,661					$	1,625,476
Net income (loss)			(184,317)						25,940						(179,415)

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The unaudited supplemental pro forma information above includes the following adjustments to net income (loss) in the appropriate pro forma periods (in thousands):

			Year Ended December 31,
			2022						2021						2020
An (increase) in amortization expense related to the fair value of acquired identifiable intangible assets, net of the amortization expense already reflected in actual historical results			$	(3,512)					$	(73,121)					$	(48,006)
A decrease (increase) in expenses related to the TSA			$	7,000					$	(7,000)					$	—
A net increase in revenue related to fair value adjustment			$	—					$	1,902					$	54,126
A decrease (increase) in expenses related to transaction expenses			$	16,899					$	(7,341)					$	(2,327)
A decrease in interest expense related to new debt financing, net of interest expense related to pre-existing debt settled as part of the acquisitions			$	—					$	—					$	93,432
An (increase) in interest cost			$	—					$	(2,641)					$	—
A decrease in expenses related to transaction bonuses			$	1,101					$	8,899					$	—
An (increase) due to replacement stock awards			$	(1,221)					$	(10,145)					$	(1,730)
An (increase) decrease in income tax provision			$	(4,654)					$	20,535					$	(21,906)

The unaudited supplemental pro forma information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisitions taken place on the date indicated, or of the Company's future consolidated results of operations. The supplemental pro forma information presented above has been derived from the Company's historical consolidated financial statements and from the historical accounting records of Wurl, the MoPub business, Adjust, and Machine Zone.

Asset Dispositions

During the fourth quarter of 2022, the Company completed the sale of certain non-strategic assets for $44.0 million as part of its operational optimization of the Apps reportable segment. As a result of the sale, the Company recorded a total net loss of $74.9 million in cost of revenue in the Company's consolidated statements of operations.

During the second quarter of 2022, the Company revised the presentation of its segment information to reflect changes in the way the Company manages and evaluates the business. As a result, beginning in the second quarter of 2022, the Company reports operating results based on two reportable segments—Software Platform and Apps. This change also resulted in a change in reporting units to coincide with the new operating segments. Given the change in reporting units, the Company performed a relative fair value calculation to allocate historical goodwill of $1.8 billion between the two new reporting units, with $1.5 billion and $0.3 billion of goodwill allocated to Software Platform and Apps, respectively. The Company also performed a qualitative impairment test immediately before and after the change in reporting units and determined that it is not more likely than not that the fair value of the reporting units is less than their carrying amounts, including goodwill. Accordingly, the Company concluded that the goodwill relating to those reporting units was not impaired.

The following table presents goodwill activity (in thousands):

			Software Platform			Apps			Total
December 31, 2020									$	249,773
Goodwill acquired									762,553
Foreign currency translation									(45,899)
December 31, 2021									$	966,427
Goodwill acquired									891,387
Foreign currency translation									(38,710)
Segment allocation in the second quarter of 2022			1,473,474			345,630			1,819,104
Additions			5,281			—			5,281
Foreign currency translation			(519)			(111)			(630)
December 31, 2022			$	1,478,014		$	345,741		$	1,823,755

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Intangible assets, net consisted of the following (in thousands):

			Weighted- Average Remaining Useful Life (Years)						As of December 31, 2022																		As of December 31, 2021
									Gross Carrying Value						Accumulated Amortization						Net Book Value						Gross Carrying Value						Accumulated Amortization						Net Book Value
Long-lived intangible assets:
Apps			4.2						$	1,790,820					$	(836,375)					$	954,445					$	1,939,180					$	(529,012)					$	1,410,168
Customer relationships			9.2						515,084						(58,881)						456,203						145,870						(8,442)						137,428
User base			4.3						68,817						(37,122)						31,695						68,817						(27,369)						41,448
License asset			3.0						59,207						(16,901)						42,306						25,640						—						25,640
Developed technology			4.6						206,060						(53,879)						152,181						87,851						(21,435)						66,416
Other			5.8						53,933						(13,103)						40,830						34,895						(6,648)						28,247
Total long-lived intangible assets									2,693,921						(1,016,261)						1,677,660						2,302,253						(592,906)						1,709,347
Short-lived intangible assets:
Apps			0.2						45,791						(44,838)						953						40,348						(38,724)						1,624
Total intangible assets									$	2,739,712					$	(1,061,099)					$	1,678,613					$	2,342,601					$	(631,630)					$	1,710,971

As of December 31, 2022 and 2021, short-lived mobile Apps were included in prepaid expenses and other current assets.

The Company recorded amortization expenses related to acquired intangible assets as follows (in thousands):

			Year Ended December 31,
			2022						2021						2020
Cost of revenue			$	448,462					$	373,726					$	228,339
Sales and marketing			66,173						22,661						11,587
Total			$	514,635					$	396,387					$	239,926

As of December 31, 2022, the expected future amortization expense related to acquired intangible assets is estimated as follows (in thousands):

2023			$	339,773
2024			338,820
2025			338,820
2026			324,718
2027			122,490
Thereafter			213,992
Total			$	1,678,613

The Company leases real estate property under operating leases. The Company also leases networking equipment under arrangements with certain providers of IT infrastructure services which were accounted as finance leases or operating leases.

The Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company determines its incremental borrowing rate based on the rate of interest it would have to pay to borrow on a collateralized basis with an equal lease payment amount, over a similar term, and in a similar economic environment.

Operating Leases—The Company has entered into various non-cancelable operating leases primarily for its office facilities. The most significant leases are related to the Company's corporate headquarters in Palo Alto, California. As of December 31, 2022, the remaining lease terms varied from 1 to 7.2 years. For certain leases, the Company has an option to extend the lease term for periods varying from 2 to 5 years. These renewal options are not considered in the remaining lease term unless it is reasonably certain that the Company will exercise such options. For leases with an initial term greater than 12 months, the Company has recorded a right-of-use asset and lease liability representing the fixed component of the lease payments.

Further, the Company leases certain networking equipment, colocation space and office space under lease arrangements with terms 12 months or less, which are classified as short-term leases.

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The table below presents the operating lease-related assets and liabilities (in thousands):

			Year Ended December 31,
Balance Sheet Classification			2022						2021
Operating lease right-of-use assets			$	60,379					$	70,975
Current operating lease liabilities			$	14,334					$	18,392
Non-current operating lease liabilities			$	54,153					$	62,498
Weighted-average remaining term (years)			4.9						5.3
Weighted-average discount rate			5.1		%				5.0		%

The table below presents certain information related to the lease costs for operating leases which are allocated to cost of revenue, sales and marketing, research and development, and general and administrative expenses (in thousands):

			Year Ended December 31,
			2022						2021						2020
Operating lease cost			$	20,783					$	28,676					$	17,372
Short-term lease cost			1,272						9,683						8,196
Variable lease cost			1,419						7,862						2,147
Total lease cost			$	23,474					$	46,221					$	27,715

Cash paid for amounts included in the measurement of operating lease liabilities was $22.0 million, $25.5 million and $23.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. Right-of-use assets acquired under operating leases was $7.1 million, $6.1 million and $10.8 million for the years ended December 31, 2022 , 2021 and 2020, respectively.

Finance Leases—The Company has entered into various non-cancelable finance leases primarily for networking equipment with weighted average remaining lease term of approximately 3.4 years. The Company has recorded a right-of-use asset and lease liability representing the fixed component of the lease payments.

The table below presents the finance lease-related assets and liabilities (in thousands):

			Year Ended December 31,
			2022						2021			Balance Sheet Classification
Finance lease right-of-use assets			$	65,187					$	44,575		Property and equipment, net
Current finance lease liabilities			$	22,304					$	21,999		Accrued liabilities
Non-current finance lease liabilities			$	44,736					$	24,085		Other non-current liabilities
Weighted-average remaining term (years)			3.4						2.5
Weighted-average discount rate			5.0		%				5.0		%

The Company recognized depreciation expenses related to finance lease of networking equipment of $24.1 million, $17.8 million and $8.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company recognized interest expenses related to finance lease of networking equipment of $2.8 million, $1.5 million and $0.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of finance lease liabilities was $24.1 million, $15.3 million and $9.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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One of the Company’s 2020 acquired companies entered into a sublease agreement in 2017. This agreement is with an unrelated third party to occupy approximately 104,852 square feet of the Company’s office space. The Company recorded rent expense on a straight-line basis for the lease, net of sublease income. For the years ended December 31, 2022 and 2021, the Company has the following operating sublease information (in thousands):

			Year Ended December 31,
			2022						2021
Fixed sublease expense			$	4,736					$	9,524
Variable sublease expense			1,023						1,421
Sublease income			(5,334)						(9,421)
Variable sublease income			(1,023)						(1,407)
Net sublease (income) loss			$	(598)					$	117

Undiscounted cash flow—The tables below reconcile the undiscounted cash flows for each of the first five years and total of the remaining years to the operating and finance lease liabilities recorded in the consolidated balance sheets (in thousands):

			As of December 31, 2022
			Operating Leases						Finance Leases						Total
2023			17,289						25,019						42,308
2024			15,559						19,425						34,984
2025			14,535						15,868						30,403
2026			12,864						9,048						21,912
2027			11,247						3,471						14,718
Thereafter			5,495						—						5,495
Total lease payments			76,989						72,831						149,820
Less: amount representing interest			(8,502)						(5,791)						(14,293)
Present value of future lease payments			68,487						67,040						135,527
Less: current obligations under leases			14,334						22,304						36,638
Non-current lease obligations			$	54,153					$	44,736					$	98,889

In addition, the Company will receive $0.6 million of sublease income from its real estate leases in 2023.

As of December 31, 2022, the Company did not have any additional significant lease that had not yet commenced.

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On August 15, 2018, the Company entered into a credit agreement with the lenders party thereto and Bank of America, N.A., as administrative agent for the lenders, which has been amended multiple times (the “Credit Agreement”; as amended, the “Amended Credit Agreement”). The Amended Credit Agreement provides for senior secured credit facilities consisting of the Initial Term Loans, with an outstanding balance of $1.8 billion, the Sixth Amendment Term Loans, with an outstanding balance of $1.5 billion, (collectively, the “Term Loans”), and a Revolving Credit Facility, with a borrowing capacity of $600.0 million, as of December 31, 2022. There were no borrowings drawn from the Revolving Credit Facility as of December 31, 2022.

Under the Amended Credit Agreement, the Company is required to make equal quarterly repayments of (i) with respect to the Initial Term Loans, $4.6 million, and (ii) with respect to the Sixth Amendment Term Loans, 0.25% of the aggregate outstanding principal amount on the effective date of the Sixth Amendment or $3.8 million. The remaining principal amounts of the Initial Term Loans and the Sixth Amendment Term Loans are due on August 15, 2025 and October 25, 2028, respectively. The Revolving Credit Facility will mature on February 15, 2025.

Under the Amended Credit Agreement, the Initial Term Loans and the amounts outstanding under the Revolving Credit Facility bear interest due on a quarterly basis at a rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate equal to the highest of (i) the prime rate then in effect, (ii) the federal funds rate, plus 0.50% and (iii) the LIBOR rate, plus 1.0% (the “base rate”), or (b) an adjusted LIBOR rate (the “LIBOR rate”). The applicable margin with respect to the Initial Term Loans is equal to 3.25% in the case of LIBOR rate loans and 2.25% in the case of base rate loans. The applicable margin with respect to the amounts outstanding under the Revolving Credit Facility is equal to 2.25% in the case of LIBOR rate loans and 1.25% in the case of base rate loans. The applicable margins for the Initial Term Loans and the amounts outstanding under the Revolving Credit Facility are subject to a reduction of 0.25% based on the Company’s consolidated first lien secured debt to consolidated EBITDA ratio. The Sixth Amendment Term Loans bear interest at a floating rate equal to, at the Company's option, either (i) an adjusted LIBOR rate for a specified interest period plus an applicable margin of 3.00% or (ii) a base rate plus an applicable margin of 2.00%. The LIBOR rate applicable to the Sixth Amendment Term Loans is subject to a “floor” of 0.50%. In addition, the Company is required to pay a commitment fee of 0.50% per annum of unused commitments under the Revolving Credit Facility. The commitment fee is subject to reductions to 0.375% per annum and 0.25% per annum based on the Company’s consolidated first lien secured debt to consolidated EBITDA ratio.

At December 31, 2022, the interest rates on the Initial Term Loans and Sixth Amendment Term Loan were 7.32% and 6.67%, respectively. The fee for unused commitments under the Revolving Credit Facility was 0.25% per annum at December 31, 2022.

The Credit Agreement requires the Company to prepay, subject to certain exceptions, the term loan with:

•100% of net cash proceeds above a threshold amount of certain asset sales, certain debt incurrences and casualty events, subject to, in the case of asset sales, casualty events, and sale leasebacks, (i) step-downs to (x) 50% if the Company’s consolidated first lien secured debt to consolidated EBITDA ratio is less than or equal to 3.50 to 1.00, but greater than 2.50 to 1.00 and (y) 0% if the Company’s consolidated first lien secured debt to consolidated EBITDA ratio is less than or equal to 2.50 to 1.00, and (ii) reinvestment rights and certain other exceptions;

•50% of annual excess cash flow above a threshold amount, subject to (i) a step-down to 25% if the Company’s consolidated first lien secured debt to consolidated EBITDA ratio is less than or equal to 4.00 to 1.00, but greater than 3.50 to 1.00, and (ii) a step-down to 0% if the Company’s first lien net leverage ratio is less than or equal to 3.50 to 1.00; provided that such prepayment is required only in the amount (if any) by which such prepayment exceeds $10 million in such fiscal year. The amount of excess cash flow is subject to certain deductions and exceptions, including a dollar-for-dollar reduction based on the amount of voluntary prepayments of term loans and loans under the revolving credit facility (to the extent accompanied by a permanent commitment reduction); and

•100% of the net cash proceeds of certain other debt incurrences.

The Company is permitted to voluntarily prepay or repay outstanding loans under the Revolving Credit Facility or Term Loans at any time, in whole or in part, subject to prior written notice, minimum amount requirements, and customary “breakage” costs with respect to LIBOR rate loans. Amounts prepaid under the Revolving Credit Facility may subsequently be reborrowed.

The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of the Company and its domestic subsidiary guarantors (other than customarily excluded assets).

The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of AppLovin and its restricted subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental business changes, make investments, pay-out dividends to third parties, dispose of assets, and enter into transactions with affiliates, in each case, subject to limitations and exceptions set forth in the Credit Agreement. The Credit Agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, covenant defaults, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the lenders may require the immediate payment of all obligations under the Credit Agreement and may exercise certain other rights and remedies provided for under the Credit Agreement, the other loan documents and applicable law. As of December 31, 2022, the Company was in compliance with all of the covenants.

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During 2021, the Company entered into the fifth amendment to the Amended Credit Agreement to increase the Initial Term Loans by an aggregate principal amount of $597.8 million, on identical terms to the existing Initial Term Loans, and used a part of the proceeds to pay off an old term loan issued under the same Amended Credit Agreement, totaling $298.2 million. The Company accounted for the early repayment of the old term loan as a debt extinguishment. As a result, the Company recognized a loss on debt extinguishment of $16.9 million in 2021, which was recorded in interest expense and loss on extinguishment of debt on the Company’s consolidated statements of operations. The loss on debt extinguishment consisted primarily of the unamortized original issue discount and debt issuance cost.

The following table presents the amount of interest expense recognized relating to the contractual interest coupon, amortization of the debt discount and issuance costs, and loss on debt extinguishment with respect to the Company's Term Loans, for the years ended December 31, 2022, 2021, and 2020 (in thousands):

			Year Ended December 31,
			2022						2021						2020
Contractual interest coupon			$	162,150					$	70,882					$	58,810
Amortization of debt discount and issuance costs			9,887						7,442						7,319
Loss on debt extinguishment			—						16,852						—
Total interest expense from Term Loans			$	172,037					$	95,176					$	66,129

The aggregate future maturities of long-term debt as of December 31, 2022 are as follows (in thousands):

2023			$	33,310
2024			33,310
2025			1,736,094
2026			15,000
2027			15,000
Thereafter			1,413,750
Total outstanding term loan principal			$	3,246,464
Unaccreted discount and debt issuance costs			(34,742)
Total debt			$	3,211,722
Less: short-term debt			33,310
Long-term debt			$	3,178,412

Initial Public Offering and Capital Structure Change

The Company’s registration statement on Form S-1 (the “IPO Registration Statement”) related to its IPO was declared effective on April 14, 2021, and the Company’s Class A common stock began trading on the Nasdaq Global Select Market on April 15, 2021. On April 19, 2021, the Company completed its IPO, in which the Company sold 22,500,000 shares of Class A common stock at price to the public of $80.00 per share. The Company received aggregate net proceeds of $1.75 billion after deducting underwriting discounts and commissions of $47.2 million and offering expenses of $7.9 million subject to certain cost reimbursements. KKR Capital Markets LLC ("KKR Capital Markets") was an underwriter for the IPO and is an affiliate of KKR Denali Holdings L.P. (“KKR Denali”), who is a principal stockholder of the Company. The Company used $400.0 million of the net proceeds from the IPO to repay the entire outstanding amount under the revolving credit facility. KKR Capital Markets is a lender under the revolving credit facility and an affiliate of KKR Denali, a principal stockholder of the Company. For additional information, see Note 9 - Credit Agreement.

Following the effectiveness of the IPO Registration Statement, the Company filed the IPO Certificate. The IPO Certificate authorized a total of 1,500,000,000 shares of Class A common stock, 200,000,000 shares of Class B common stock, 150,000,000 shares of Class C common stock, and 100,000,000 shares of preferred stock. Upon the filing and effectiveness of the IPO Certificate, all shares of Class F common stock and Series A convertible preferred stock then outstanding automatically converted into the equivalent number of shares of Class A common stock, respectively (the “Capital Stock Conversions”). Following the Capital Stock Conversions and immediately prior to the completion of the IPO, a total of 150,307,622 shares of Class A common stock held by Adam Foroughi, the Company’s co-founder, CEO, and Chairperson; Herald Chen, the Company’s President, Chief Financial Officer, and a member of the Company’s board of directors; and KKR Denali (collectively with certain affiliates, the Class B Stockholders) were exchanged for an equivalent number of shares of Class B common stock pursuant to the terms of certain exchange agreements.

Preferred Stock

The preferred stock may be issued from time to time in one or more series. The Company's board of directors is authorized to determine the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.

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Common Stock

The rights of the holders of all classes of common stock pursuant to the IPO Certificate are as follows:

The rights of the holders of Class A common stock, Class B common stock, and Class C common stock (referred to together as the “common stock”) are identical, except with respect to voting and conversion.

Voting Rights

Holders of the Class A common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, holders of the Class B common stock are entitled to 20 votes for each share held on all matters submitted to a vote of stockholders, and holders of the Class C common stock are not entitled to vote on any matter that is submitted to a vote of stockholders, except as otherwise required by law. The holders of the Class A common stock and Class B common stock will vote together as a single class, unless otherwise required by law. Under the IPO Certificate, approval of the holders of at least a majority of the outstanding shares of the Class B common stock voting as a separate class will be required to increase the number of authorized shares of the Class B common stock. In addition, Delaware law could require either holders of the Class A common stock, the Class B common stock, or the Class C common stock to vote separately as a single class in the following circumstances:

•if the Company were to seek to amend the IPO Certificate to increase or decrease the par value of a class of stock, then that class would be required to vote separately to approve the proposed amendment; and

•if the Company were to seek to amend the IPO Certificate in a manner that alters or changes the powers, preferences or special rights of a class of stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.

Until the date on which the final conversion of all outstanding shares of Class B common stock pursuant to the terms of the IPO Certificate occurs, approval of at least two-thirds of the outstanding shares of the Company’s Class B common stock voting as a separate class will be required to amend or modify any provision of the IPO Certificate inconsistent with, or otherwise alter, any provision of the IPO Certificate to modify the voting, conversion, or other rights, powers, preferences, privileges, or restrictions of the Company’s Class B common stock.

Upon the closing of the IPO, the Class B Stockholders held all of the issued and outstanding shares of the Company’s Class B common stock. The Class B Stockholders have entered into a voting agreement (the “Voting Agreement”) whereby all Class B common stock held by the Class B Stockholders and their respective permitted entities and permitted transferees will be voted as determined by two of Mr. Foroughi, Mr. Chen, and KKR Denali (one of which must be Mr. Foroughi).

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive dividends out of funds legally available if the Company’s Board, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Company’s Board may determine.

No Preemptive or Similar Rights

The Company’s common stock will not be entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

If the Company becomes subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders would be distributable ratably among the holders of the Company’s common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Conversion of Class B Common Stock

Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. Following the closing of the IPO, shares of Class B common stock will automatically convert into shares of Class A common stock upon sale or transfer except for certain transfers described in the IPO Certificate, including transfers for estate planning, transfers among KKR Denali and its affiliates, or other transfers among the Class B Stockholders. Withdrawal from the Voting Agreement constitutes a transfer.

Each share of Class B common stock will convert automatically into one share of Class A common stock upon the date fixed by the Company’s Board that is no less than 61 days and no more than 180 days following the date on which (i) the Voting Agreement is terminated or (ii) Adam Foroughi is no longer involved with the Company as a member of the Board or as an executive officer.

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Conversion of Class C Common Stock

After the conversion or exchange of all outstanding shares of the Company’s Class B common stock into shares of Class A common stock, all outstanding shares of Class C common stock will convert automatically into Class A common stock, on a share-for-share basis, on the date or time specified by the holders of a majority of the outstanding shares of Class A common stock, voting as a separate class.

Stock Repurchase Program

In February 2022, the Company's Board authorized the repurchase of up to $750 million of the Company’s Class A common stock. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company may also, from time to time, enter into Rule 10b-5 trading plans to facilitate repurchases of shares. The repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, has no expiration date and may be modified, suspended, or terminated at any time at the Company's discretion. As of December 31, 2022, the Company repurchased 9,042,407 shares of outstanding Class A common stock for an aggregate amount of $338.8 million.

Following the effective date of the IPO Registration Statement, the Company maintains the 2021 Equity Incentive Plan, the 2021 Partner Studio Incentive Plan and the ESPP, all of which were adopted by the Board and approved by its stockholders.

2021 Equity Incentive Plan

The 2021 Equity Incentive Plan (the “2021 Plan”) provides for the grant of restricted stock units ("RSUs"), incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), restricted stock, stock appreciation rights ("SARs"), performance units, and performance shares to the Company’s employees, directors, consultants and other service providers. The total number of shares of the Company’s Class A common stock that were initially reserved for issuance under the 2021 Plan was 39,000,000, and provides for an annual increase of shares, equal to the least of (a) 39,000,000 shares, (b) five percent (5%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s Board may determine. During the year ended December 31, 2022, an additional 18,754,468 shares were reserved for issuance pursuant to this annual increase, and following this annual increase, the Board decreased the number of shares of Class A common stock reserved for issuance under the 2021 Plan by 2,000,000 shares.

Immediately prior to the effectiveness of the 2021 Plan, the Company's 2011 Equity Incentive Plan (the "2011 Plan") was terminated. All outstanding awards under the 2011 Plan continue to be governed by their existing terms, and options cancelled under the 2011 Plan are added to the option pool available under the 2021 Plan.

2021 Partner Studio Incentive Plan

The 2021 Partner Studio Incentive Plan (the “2021 Partner Plan”) provides for the grant of RSUs, ISOs, NSOs, SARs, performance units, and performance shares to individuals or entities engaged by the Company or a parent or subsidiary of the Company to render bona fide services to the party engaging such individual or entity. A total of 390,000 shares of the Company’s Class A common stock are reserved for issuance pursuant to the 2021 Partner Plan. During the year ended December 31, 2022, the Board reserved an additional 2,000,000 shares of Class A common stock for issuance under the 2021 Partner Plan.

Following the IPO, the Company has only granted RSUs under the 2021 Plan and 2021 Partner Plan. RSU grants included service-based vesting condition that generally approximates 4 years. A summary of RSUs activity is as follows: (in thousands, except share and per share data):

			Number of Restricted Stock Units						Weighted Average Grant Date Fair Value						Aggregate Intrinsic Value
Balances at December 31, 2021			7,323,404						$	60.15					$	690,304
Granted			13,253,080						23.08
Vested			(3,559,045)						56.59
Cancelled			(1,400,696)						57.64
Balances at December 31, 2022			15,616,743						$	29.87					$	164,444

As of December 31, 2022, there was $441.2 million of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.5 years. The fair value as of the respective vesting dates of RSUs that vested during the year ended December 31, 2022 was $88.0 million.

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Employee Stock Purchase Plan

The ESPP permits participants to purchase shares of the Company’s Class A common stock through contributions of up to 15% of their eligible compensation. The ESPP provides for consecutive, overlapping 24-month offering periods, during which the contributed amount by the participant will be used to purchase shares of the Company’s Class A common stock at the end of each 6-month purchase period with the purchase price of the shares being 85% of the lower of the fair market value of the Company’s Class A common stock on the first day of an offering period or on the exercise date. A participant may purchase a maximum of 590 shares of the Company’s Class A common stock during a purchase period. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with the Company.

A total of 7,800,000 shares of the Company’s Class A common stock are reserved for issuance under the ESPP. The number of shares of the Company’s Class A common stock that will be available for sale under the ESPP, and provides for an annual increase of shares, equal to the least of: (a) 7,800,000 shares, (b) one percent (1%) of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding fiscal year, or (c) such other amount as the Company’s board of directors may determine. The initial offering period is from April 15, 2021 through November 19, 2024. During the year ended December 31, 2022, an additional 3,750,894 shares were reserved for issuance pursuant to this annual increase. During the year ended December 31, 2022, 267,028 shares of Class A common stock have been purchased under the ESPP.

The weighted-average assumptions used to estimate the fair value of shares to be issued under the ESPP are as follows:

			Year Ended December 31,
			2022
Weighted-average expected term			1.25
Expected volatility			62		%
Risk-free interest rate			3.35		%
Dividend yield			0		%

As of December 31, 2022, total unrecognized compensation cost related to the ESPP was $6.4 million, which will be amortized over a weighted-average period of 0.9 years.

2011 Equity Incentive Plan

The Company’s 2011 Plan provides for the grant of stock options to employees, directors, consultants, and service providers of the Company. Options under the 2011 Plan may be granted for periods of up to 10 years and generally vest over four years. As noted above, immediately prior to the effectiveness of the 2021 Plan, the 2011 Plan was terminated, and no further awards were granted thereunder. All outstanding awards under the 2011 Plan continue to be governed by their existing terms, and options cancelled under the 2011 Plan are added to the option pool available under the 2021 Plan.

Stock Options—During the years ended December 31, 2021 and 2020, the Company granted stock options to purchase 263,200 and 13,158,430 shares of common stock, with a weighted-average grant date stock fair value of $48.14 and $15.94 per share, respectively. The Company did not grant stock options during the year ended December 31, 2022.

The weighted-average assumptions used to estimate the fair value of stock options granted are as follows:

			Year Ended December 31,
			2021						2020
Weighted-average expected term			5.21						5.94
Expected volatility			43		%				39		%
Risk-free interest rate			0.48		%				0.56		%
Dividend yield			0		%				0		%

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The Company’s stock options activity under the 2011 Plan was as follows:

			Number of Options						Weighted Average Exercise Price Per Share						Weighted Average Remaining Contractual Term (Years)
Balances at December 31, 2021			18,403,704						$	6.39					7.9
Granted			—						—
Exercised			(4,439,387)						6.17
Forfeited			(1,248,513)						7.37
Expired			—						—
Balances at December 31, 2022			12,715,804						$	6.38					6.8
Vested and exercisable at December 31, 2022			10,057,658						$	5.99					6.7
Vested and expected to vest at December 31, 2022			11,459,032						$	6.78					6.9

The aggregate intrinsic value of options outstanding as of December 31, 2022 and 2021, was $63.57 million and $1.62 billion, respectively. As of December 31, 2022 there was approximately $30.4 million of total unrecognized compensation costs related to unvested options granted, which is expected to be recognized over the weighted-average vesting period of 1.4 years. The total intrinsic value of share options exercised during the years ended December 31, 2022, 2021, and 2020 was $87.5 million, $622.1 million and $33.8 million, respectively.

Early Exercise of Stock Options—Subject to the Board’s approval, the Plan allows for the early exercise of options granted. Under the terms of the Plan, option holders, upon early exercise, must sign a restricted stock purchase agreement that gives the Company the right to repurchase any unvested shares, at the original exercise price, in the event the optionees’ employment terminates for any reason. The right to exercise options before they are vested does not change existing vesting schedules in any way and the early exercised options may not be sold or transferred before they are vested. The repurchase right lapses over time as the shares vest at the same rate as the original option vesting schedule. The cash amounts received in exchange for these early exercised shares are recorded as a liability on the accompanying balance sheets and reclassified into common stock and additional paid-in-capital as the shares vest. The Company’s right to repurchase these shares lapses by 1/4th of the shares on the 1-year anniversary of the vesting start date and ratably each month over the next 36-months.

The Company had 99,372 shares and 486,999 shares of Class A common stock subject to repurchase as of December 31, 2022 and 2021, respectively. The liability for the repurchase as of December 31, 2022 and 2021 included in accrued liabilities was $0.2 million and $1.4 million, respectively.

During the years ended December 31, 2021 and 2020, the Company provided financing to certain employees in the form of promissory notes to early exercise stock options. These promissory notes are partially collateralized by shares and in-substance are nonrecourse. For accounting purposes, exercised options via nonrecourse promissory notes are not substantive and are continued to be treated as options. In February 2021, promissory notes issued to executive officers in the amount of $20.9 million were settled through either share repurchase, in the amount of $17.2 million, or cash payment, in the amount of $3.7 million. In connection with the repurchase of shares, the Company accelerated vesting of 60,968 shares of Class A common stock for one of the Company’s officers. The acceleration of vesting was accounted as an option modification with an immaterial impact to the stock-based compensation expense. The Company did not provide this type of financing to employees during the year ended December 31, 2022.

As of December 31, 2022 and 2021, the Company had 1,399,999 and 2,884,999 shares of Class A common stock options, respectively, that were exercised via nonrecourse promissory notes of which 43,855 and 663,856 shares, respectively, were unvested and subject to repurchase. The principal balances of nonrecourse promissory notes outstanding amounted to $4.9 million and $15.1 million as of December 31, 2022 and 2021, respectively.

Restricted Stock—Restricted stock awards are classified as equity awards based on the requirements established by the applicable accounting rules for stock-based compensation. The fair value of the restricted stock awards was determined based on the price of the Company’s valuation on the date of grant as approved by the Company’s board of directors.

The Company has historically granted restricted stock awards to certain employees. Restricted stock award activity for the periods presented herein has not been material. As of December 31, 2022 all restricted stock awards have vested thus, there was no unrecognized compensation cost related to restricted stock awards expected to vest.

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The Company recognized stock-based compensation expense for all equity awards for the periods indicated as follows (in thousands):

			Year Ended December 31,
			2022						2021						2020
Cost of revenue			$	6,307					$	2,335					$	982
Sales and marketing			41,533						15,224						10,668
Research and development			94,319						63,344						36,852
General and administrative			49,453						52,274						13,885
Total stock-based compensation expense			$	191,612					$	133,177					$	62,387

For the year ended December 31, 2022, total stock-based compensation expense included a credit of $2.1 million associated with awards that may be settled with one of the Company’s subsidiaries. For the years ended December 31, 2021 and 2020 total stock-based compensation expense included $1.2 million and $0.9 million associated with such awards, respectively.

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stockholders for the years ended December 31, 2022, 2021 and 2020 (in thousands, except share and per share data):

			Year Ended December 31,
			2022						2021						2020
BASIC EPS
Numerator:
Net income (loss)			$	(192,746)					$	35,446					$	(125,187)
Less:
Income attributable to convertible preferred stock			—						(3,209)						—
Income attributable to options exercises by promissory notes			—						(387)						—
Income attributable to unvested early exercised options			—						(95)						—
Income attributable to unvested RSA's			—						(52)						—
Net income (loss) attributable to common stock			$	(192,746)					$	31,703					$	(125,187)
Denominator:
Weighted-average shares used in computing net income (loss) per share: Basic			371,568,011						324,836,076						214,936,545
Net income (loss) per share attributable to common stock: Basic			$	(0.52)					$	0.10					$	(0.58)
DILUTED EPS
Numerator:
Net income (loss)			$	(192,746)					$	35,446					$	(125,187)
Less:
Income attributable to convertible preferred stock			—						(3,058)						—
Income attributable to options exercises by promissory notes			—						(369)						—
Income attributable to unvested early exercised options			—						(91)						—
Income attributable to unvested RSA's			—						(49)						—
Net income (loss) attributable to common stock			$	(192,746)					$	31,879					$	(125,187)
Denominator:
Weighted-average shares used in computing net income (loss) per share: Basic			371,568,011						324,836,076						214,936,545
Weighted-average dilutive stock options, RSUs, and convertible security			—						17,927,556						—
Weighted-average shares used in computing net income (loss) per share: Diluted			371,568,011						342,763,632						214,936,545
Net income (loss) per share attributable to common stock: Diluted			$	(0.52)					$	0.09					$	(0.58)

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The following table presents the forms of antidilutive potential common shares:

			Year Ended December 31,
			2022						2021						2020
Convertible preferred stock			—						—						109,090,908
Stock options exercised for promissory notes			1,399,999						2,884,999						8,022,499
Early exercised stock options			99,372						487,000						19,800
Unvested RSAs			—						181,737						1,236,771
Stock options			11,315,805						—						20,754,985
Unvested RSU			15,616,743						291,093						—
ESPP			856,811						246,246						—
Total antidilutive potential common shares			29,288,730						4,091,075						139,124,963

Net income (loss) before income taxes for the years ended December 31, 2022, 2021 and 2020, includes the following components (in thousands):

			Year Ended December 31,
			2022						2021						2020
U.S.			$	8,660					$	193,161					$	(118,296)
Foreign			(213,837)						(146,850)						(17,410)
Net income (loss) before income taxes			$	(205,177)					$	46,311					$	(135,706)

Provision for (benefit from) income taxes for the years ended December 31, 2022, 2021 and 2020 consist of the following (in thousands):

			Year Ended December 31,
			2022						2021						2020
Current:
Federal			$	74,843					$	64,585					$	20,162
State			13,548						10,234						4,087
Foreign			1,548						1,914						4,027
			89,939						76,733						28,276
Deferred:
Federal			(74,588)						(52,162)						(29,235)
State			(6,718)						(2,394)						(4,800)
Foreign			(20,863)						(11,204)						(4,013)
			(102,169)						(65,760)						(38,048)
Total provision for (benefit from) income taxes.			$	(12,230)					$	10,973					$	(9,772)

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The reconciliation of federal statutory income tax rate to the effective income tax rate is as follows (in thousands):

			Year Ended December 31,
			2022						2021						2020
Tax provision (benefit) at U.S. federal statutory rate			$	(43,034)					$	9,725					$	(28,498)
State income taxes, net of federal benefit			(1,356)						1,866						(1,137)
Foreign income taxed at different rates			27,114						10,563						8,710
Change in foreign deferred tax rate			—						—						(6,038)
Global intangible low-taxed income			2,917						—						—
Stock-based compensation			22,064						(8,807)						10,347
Capital loss			(14,687)						—						—
Foreign-derived intangible income			(17,667)						(10,477)						(3,518)
Research and development credits			(11,803)						(6,193)						(2,561)
Extinguishments of acquisition-related contingent consideration			—						—						12,237
Foreign income inclusion			357						(2,622)						—
Change in valuation allowance			21,061						15,905						—
Other			2,804						1,013						686
Total provision for (benefit from) income taxes			$	(12,230)					$	10,973					$	(9,772)

The following summarizes the current and deferred tax assets and liabilities (in thousands):

			As of December 31,
			2022						2021
Deferred tax assets:
Accrued expenses and reserves			$	7,139					$	6,374
Stock-based compensation			7,439						14,651
Tax credit carryforwards			11,474						4,835
Net operating loss			30,144						12,042
Identified intangibles			2,820						—
Operating lease liability			13,884						16,622
Other comprehensive income			30,186						16,251
Foreign tax deduction			9,137						12,363
Capital loss			17,125						1,074
Other			—						1,173
Capitalized R&D expenses			78,315						—
Valuation allowance			(40,640)						(18,842)
Total deferred tax assets			167,023						66,543
Deferred tax liabilities:
Depreciation and amortization			(1,976)						(5,433)
Identified intangibles			—						(6,049)
Operating lease right-of-use assets			(14,107)						(16,622)
Other			(693)						—
Total deferred tax liabilities			(16,776)						(28,104)
Net deferred tax assets			$	150,247					$	38,439

As of December 31, 2022 and 2021, the Company has federal net operating loss carryforwards of $47.9 million and $13.7 million, respectively, to reduce future taxable income. The post-TCJA net operating losses are not subject to expiration. As of December 31, 2022 and 2021, the Company has federal tax credit carryforwards of $1.7 million and $0.9 million, respectively, to offset future tax liability. The credit carryforwards will begin to expire in 2039. As of December 31, 2022 and 2021, the Company has federal capital loss carryforward of $74.0 million and $4.7 million, respectively to reduce future capital gains. The capital loss carryforward will begin to expire in 2026.

As of December 31, 2022 and 2021, the Company has California net operating loss carryforwards of $11.1 million and $8.8 million, respectively, to reduce future taxable income. The net operating losses will begin to expire in 2037. As of December 31, 2022 and 2021, the Company has California tax credit carryforwards of $17.6 million and $9.5 million, respectively, to offset future tax liability. The credit carryforwards are not subject to expiration.

As of December 31, 2022 and 2021, the Company has Cyprus net operating loss carryforwards of $19.8 million and nil, respectively, to reduce future taxable income, which will begin to expire in 2026.

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As of December 31, 2022 and 2021, the Company has German net operating loss carryforwards of $80.8 million and $34.6 million, respectively, to reduce future taxable income. As of December 31, 2022 and 2021, the Company had Israeli net operating loss carryforwards of $18.8 million and $14.5 million, respectively, to reduce future taxable income.

The valuation allowance on the Company's net deferred tax assets increased by $21.8 million, $18.3 million and $0.5 million during the years ended December 31, 2022, 2021 and 2020, respectively.

In assessing the realizability of the Company’s deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management’s assessment is based on the weight of available evidence, including cumulative losses since inception and expected future losses and as such, management believes it is more likely than not that the deferred tax assets will be realized. As of December 31, 2022, 2021 and 2020, the Company maintained a valuation allowance with respect to certain of its deferred tax assets relating primarily to certain state tax credits, U.S. capital losses and operating losses in certain non-U.S. jurisdictions that we believe are not likely to be realized.

Internal Revenue Code (IRC) Section 382 places a limitation on the amount of taxable income that can be offset by net operating loss carryforwards and tax credits after a greater than 50% change in control in ownership; California has similar rules. The Company’s capitalization described herein may have resulted in such a change. Utilization of the net operating loss carryforwards may be subject to annual limitations under IRC Section 382 and similar state provisions. The annual limitation may result in the expiration of the net operating loss carryforwards before utilization.

The Company has not provided U.S. income or foreign withholding taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2022 and 2021, because it intends to permanently reinvest such earnings outside of the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability will be immaterial, due to the participation exemption put in place in the Tax Act.

Uncertain Tax Positions

The following table summarizes the activity related to the gross unrecognized tax benefits (in thousands):

			As of December 31,
			2022						2021						2020
Balance at beginning of year			$	18,456					$	14,401					$	6,646
Increases related to prior year positions			—						5,027						4,681
Decreases related to prior year positions			(2,837)						—						—
Increases related to current year positions			7,083						2,631						3,498
Decreases related to lapse of statutes			(758)						(172)						(424)
Decreases related to settlements			(2,892)						(3,431)						—
Balance at end of year			$	19,052					$	18,456					$	14,401

Of the unrecognized tax benefits, $12.9 million and $13.6 million represents the amount that if recognized, would favorably affect the effective income tax rate in 2022 and 2021, respectively. The Company does not expect a significant change to its unrecognized tax benefits or recorded liabilities over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.

The Company records interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2022, 2021 and 2020, the Company had approximately $2.6 million, $3.6 million, and $2.3 million of interest and penalties, respectively.

The tax return for years 2017 through 2022 remain open to examination for federal and other major domestic taxing jurisdictions and for years 2017 through 2022 for other major foreign jurisdictions.

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During the second quarter of 2022, the Company revised the presentation of segment information to align with changes to how the Company's chief operating decision maker (“CODM”) manages the business, allocates resources and assesses operating performance. The CODM is the Company's Chief Executive Officer. Prior to the second quarter of 2022, the Company had a single operating and reportable segment. Beginning in the second quarter of 2022, the Company reports operating results based on two reportable segments: Software Platform and Apps. As of December 31, 2022, the Company's operating segments are the same as the reportable segments, which are as follows:

•Software Platform: Software Platform generates revenue prim$arily from fees paid by advertisers for the placement of ads on mobile applications owned by Publishers.

•Apps: Apps generates revenue when a user of one of the Apps makes an in-app purchase ("IAP Revenue") and when clients purchase the digital advertising inventory of the Company's portfolio of Apps ("IAA Revenue").

The CODM evaluates the performance of each operating segment using revenue and segment adjusted EBITDA. The Company defines segment adjusted EBITDA as revenue less expenses, excluding depreciation and amortization and certain items that the Company does not believe are reflective of the operating segments’ core operations. Expenses include indirect costs that are allocated to operating segments based on a reasonable allocation methodology, which are generally related to sales and marketing activities and general and administrative overhead. Revenue and expenses exclude transactions between the Company's operating segments. The CODM does not evaluate operating segments using asset information.

The following table provides information about the Company's reportable segments and a reconciliation of the total segment adjusted EBITDA to consolidated income (loss) before income taxes (in thousands). For comparative purposes, amounts in prior periods have been recast:

			As of December 31,
			2022						2021						2020
Revenue:
Software Platform			$	1,049,167					$	673,952					$	207,285
Apps			1,767,891						2,119,152						1,243,801
Total Revenue			$	2,817,058					$	2,793,104					$	1,451,086
Segment Adjusted EBITDA:
Software Platform			$	808,415					$	457,302					$	121,114
Apps			254,795						269,512						224,381
Total Segment Adjusted EBITDA			$	1,063,210					$	726,814					$	345,495
Interest expense and loss on settlement of debt, net			$	(171,863)					$	(103,170)					$	(77,873)
Other income, net			18,647						7,545						6,183
Amortization, depreciation and write-offs			(547,084)						(431,063)						(254,951)
Impairment and loss on disposal of long-lived assets			(127,892)						—						—
Non-operating foreign exchange gain (loss)			164						1,537						(1,210)
Stock-based compensation			(191,612)						(135,468)						(62,387)
Acquisition-related expense and transaction bonus			(21,279)						(16,887)						(7,850)
Publisher bonuses			(209,635)						(3,227)						—
MoPub acquisition transition services			(6,999)						—						—
Restructuring costs			(10,834)						—						—
Extinguishments of acquisition-related contingent consideration			—						—						(74,820)
Loss from modification of leases			—						—						(7,851)
Change in fair value of contingent consideration			—						230						(442)
Income (loss) before provision for tax			$	(205,177)					$	46,311					$	(135,706)

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The following table presents long-lived assets by geographic area which consist of property and equipment, net (in thousands):

			As of December 31,
			2022						2021
United States			$	25,548					$	25,681
Germany			32,044						22,872
Netherlands			20,629						14,265
All other countries			322						790
Total property and equipment, net			$	78,543					$	63,608

KKR Capital Markets, an affiliate of KKR Denali, acted as a joint lead arranger and joint bookrunner for the Credit Agreement. KKR Denali is also one of the Company’s principal stockholders. In 2022, 2021 and 2020, the Company paid KKR Capital Markets fees of nil, $2.3 million, and $1.5 million, respectively, for services rendered in connection with the Credit Agreement.

In November 2020 and March 2021, the Company borrowed $150.0 million and $250.0 million under the Revolving Credit Facility, respectively (together, the "Revolving Credit Loans"). A lender of the Revolving Credit Loans is an affiliate of KKR Denali, a principal stockholder of the Company. The Company repaid such Revolving Credit Loans in full with the net proceeds from the IPO in April 2021.

In December 2021, the Company completed a secondary offering of 7,500,000 shares of its Class A common stock, at a price of $83.00 per share, with all shares offered by certain of the Company's stockholders, including KKR Denali. The Company made a payment of $5.0 million to KKR Capital Markets in connection with the secondary offering.

In December 2019, the Company purchased 2,475,000 shares and 300,000 shares of the Company’s Class A Common Stock from the Company’s chief executive officer and from the Company’s Board member, respectively. The chief executive officer is also the Company’s principal stockholder. The fair value of the purchased shares was $14.0 million. The purchase of shares was paid through the issuance of two unsecured 5-year promissory notes with the principal amount of $10.0 million and $1.2 million, respectively. The promissory notes are redeemable upon the earlier of maturity, (ii) immediately prior to an acquisition of the Company as defined in the Company’s 2011 Equity Incentive Plan, or (iii) immediately prior to the Company’s filing an S-1 with the Securities and Exchange Commission. The promissory notes bear interest at a rate of 2% per annum paid annually. Both promissory notes were recorded in other non-current liabilities at the aggregated initial fair value of $9.1 million representing a discount of 19% to its principal amount and resulting in a purchase of the Company’s common stock shares below its fair value. The discount is amortized over a period of five years under the effective interest method with amortization expense included in interest expense. The shares of the Company’s Class A Common Stock purchased in exchange for the issuance of the promissory note were added to the pool of shares available for the grant under the Company’s 2011 Equity Incentive Plan. The Company recorded the difference between fair value of the shares purchased and the fair value of promissory notes as an increase to additional paid-in capital. In December 2021, the Company repaid both promissory notes and recognized a loss on debt extinguishment of $1.4 million based on the difference between the $11.7 million repayment amount and the carrying value of such promissory notes on the settlement date. The interest expense recognized on this note was not material for the years ended December 31, 2021 and 2020.

The Company published a mobile game app developed by a mobile game developer owned by a member of the Company's Board under a game assignment and revenue share agreement entered into in October 2020. The Company made payments to the mobile game developer under this agreement of $0.7 million during the year ended December 31, 2021. Payments for the years ended December 31, 2020 and 2022 were not material.

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