2Q23 Shareholder Letter
To Our AppLovin Shareholders: We had a strong second quarter, exceeding the high end of our revenue, Adjusted EBITDA and margin guidance. Outperformance was driven primarily by the successful roll-out of our latest AI- based advertising engine, AXON 2.0 which powers our AppDiscovery platform. The Software Platform business achieved record revenue, increasing a solid 14% from last quarter to $406 million, and record Adjusted EBITDA, increasing 25% from last quarter to $273 million, yielding a 67% Adjusted EBITDA margin and generating over 80% of total Adjusted EBITDA. Additionally, our Apps business continued to deliver stable Adjusted EBITDA during the quarter of $61 million with a healthy 18% Adjusted EBITDA margin. Total revenue for the second quarter was $750 million, our net income was $80 million at a net margin of 11%, and Adjusted EBITDA expanded to $334 million equal to a 44% Adjusted EBITDA margin. During the quarter, we generated $230 million of net cash from operating activities and $221 million of Free Cash Flow. At the end of the second quarter, we had $876 million of cash and cash equivalents and access to a $610 million revolving credit facility. Year-to-date through August 8th, we have repurchased $601 million of our Class A common stock and have $107 million of authorization remaining under our repurchase program. Looking ahead to the third quarter of 2023, we anticipate continuing growth led by our Software Platform. Our 3Q2023 outlook is as follows: Financial Guidance Summary1 3Q23 Total Revenue $780 to $800 million Adjusted EBITDA $340 to $360 million Adjusted EBITDA Margin 44% - 45% AppLovin Corporation / 2Q23 Shareholder Letter 2 1 We have not provided the forward-looking GAAP equivalents for forward-looking non-GAAP metrics, specifically Adjusted EBITDA and Adjusted EBITDA margin, or a GAAP reconciliation as a result of the uncertainty regarding, and the potential variability of, reconciling items such as stock-based compensation expense. Accordingly, a reconciliation of these non-GAAP guidance metrics to their corresponding GAAP equivalents is not available without unreasonable effort. However, it is important to note that material changes to reconciling items could have a significant effect on future GAAP results. We have provided historical reconciliations of GAAP to non-GAAP metrics in tables at the end of this letter.
$776 $713 $702 $715 $750 2Q22 3Q22 4Q22 1Q23 2Q23 Revenue ($ millions) $318 $307 $306 $355 $406 2Q22 3Q22 4Q22 1Q23 2Q23 Software Platform Revenue ($ millions) $197 $190 $186 $219 $273 62% 62% 61% 62% 67% 2Q22 3Q22 4Q22 1Q23 2Q23 Software Platform Adjusted EBITDA $(22) $24 $(80) $(5) $80 $270 $258 $260 $274 $334 2Q22 3Q22 4Q22 1Q23 2Q23 Net Income (Loss), Adjusted EBITDA ($ millions) Net Income (Loss) Adjusted EBITDA 35% 36% 37% 38% 44% -3% 3% -11% -1% 11% 2Q22 3Q22 4Q22 1Q23 2Q23 As % Revenue $155 $110 $303 $234 $459 $344 2Q22 2Q23 Apps Revenue ($ millions) In-App Advertising In-App Purchases 2Q23 Financial Overview ALL COMPARISONS ARE TO 2Q22 UNLESS OTHERWISE NOTED. Revenue was $750 million, a decrease of 3%. Software Platform revenue increased to 54% of total revenue compared to 41%. Software Platform revenue grew 28% to $406 million. Segment Adjusted EBITDA increased 39% to $273 million, a 67% margin. Net Income was $80 million, a net margin of 11% compared to net loss of $22 million and a net margin of (3)%. Apps revenue declined 25% to $344 million. Segment Adjusted EBITDA declined 17% to $61 million, an 18% margin. Adjusted EBITDA1 increased 24% to $334 million and Adjusted EBITDA margin increased to 44% from 35%. Cash Flow: We generated $230 million of net cash from operating activities and $221 million of Free Cash Flow1. Note: Totals may not sum due to rounding 1 Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow are non-GAAP measures. Please see “Non-GAAP Financial Measures” and the reconciliation from GAAP to non-GAAP measures in the Appendix.
Software Platform Update Given the success of our AI-related investments, our Software Platform revenue has grown 2.8x over the past two years (2Q21 to 2Q23), and thanks to the continued efficiency of this business, our Software Platform Adjusted EBITDA expanded 3.0x over the same period. This quarter, we achieved 67% Software Platform Adjusted EBITDA margin, and as our revenue continues to grow, we expect further margin improvement. In the second quarter, we once again achieved record quarterly Software Platform revenue at $406 million, growing 28% year-over-year and 14% from the first quarter. This increase was driven by the rollout of our AI advancements to AXON (read about it HERE), which drove higher installs and revenue per install from the first quarter, paired with improved returns for advertisers. Software Platform Adjusted EBITDA grew 39% year-over-year to $273 million at an Adjusted EBITDA margin of 67%. As we look forward, we are very excited about the increased efficiency and better return on ad spend our advertisers are seeing, and we believe this will lead to more opportunities and growth for our partners. $318 $307 $306 $355 $406 2Q22 3Q22 4Q22 1Q23 2Q23 Software Platform Revenue ($ millions) $197 $190 $186 $219 $273 62% 62% 61% 62% 67% 2Q22 3Q22 4Q22 1Q23 2Q23 Software Platform Adjusted EBITDA ($ millions, as % revenue) AppLovin Corporation / 2Q23 Shareholder Letter 4
Apps Update In the second quarter, we remained focused on the long-term financial return for our Apps segment, continuing to balance investment in the studio teams and marketing efforts with overall cash flow. Segment revenue declined 25% year-over-year to $344 million due primarily to a decline in In-App Purchase (IAP) revenue. Second quarter Apps Adjusted EBITDA was $61 million with Adjusted EBITDA margin improving to 18% due to a reduction in user acquisition spend and operating costs, and the sale of underperforming non-strategic assets as part of the optimization of the Apps segment, generating the fifth consecutive quarter of over 15% Adjusted EBITDA margin. $459 $407 $396 $361 $344 2Q22 3Q22 4Q22 1Q23 2Q23 Apps Revenue ($ millions) $73 $67 $74 $55 $61 16% 17% 19% 15% 18% 2Q22 3Q22 4Q22 1Q23 2Q23 Apps Adjusted EBITDA ($ millions, as % revenue) AppLovin Corporation / 2Q23 Shareholder Letter 5
Conclusion We are pleased with our team's outstanding performance this quarter, leading to our strong market position and financial performance. Our steady focus on execution, investment in our team, and the ongoing enhancement of our core technologies are driving consistent growth and opening new opportunities for expansion. As we look to the future, our strategy continues to center on improving our core technology, and expanding our Connected-TV (Wurl) and OEM & Carrier (Array) initiatives. These steps are essential to our plan for delivering long-term shareholder value. We believe in the potential of our team, our technology, and our products, and we're confident in our financial strength. We appreciate your trust and support, and we look forward to our journey of growth and innovation with you. Regards, Adam Foroughi, CEO Herald Chen, President & CFO AppLovin Corporation / 2Q23 Shareholder Letter 6
Appendix This shareholder letter contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “going to,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, priorities, plans, or intentions. Forward-looking statements in this letter to shareholders include, but are not limited to, statements regarding our future financial performance, including our expected financial results and guidance, and growth prospects; our expectations regarding the prospects and financial performance of each of our segments, including the impact of our advancements to AXON on advertiser spending; and our expectations regarding our future strategy and expansion in Connected-TV and OEM & Carrier. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties, including changes in our plans or assumptions, which could cause actual results to differ materially from those projected. These risks include our inability to forecast our business due to our limited operating history, the macroeconomic environment, fluctuations in our results of operations, our ability to execute on our operational and financial priorities, our ability to scale our Software Platform to support new users, the competitive mobile app ecosystem, our inability to adapt to emerging technologies and business models, and risks relating to our ongoing review of our Apps portfolio. The forward-looking statements contained in this letter are also subject to other risks and uncertainties, including those more fully described in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023. The forward-looking statements in this letter are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. AppLovin Corporation / 2Q23 Shareholder Letter 7
Non-GAAP Financial Metrics To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (“GAAP”), this shareholder letter includes certain financial measures that are not prepared in accordance with GAAP, including Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow. A reconciliation of each such non-GAAP financial measure to the most directly comparable GAAP measure can be found below. We define Adjusted EBITDA for a particular period as net income (loss) before interest expense and loss on settlement of debt, interest income and other, net (excluding certain recurring items), provision for (benefit from) income taxes, amortization, depreciation and write-offs and as further adjusted for non- operating foreign exchange (gains) losses, stock-based compensation expense, acquisition-related expense and transaction bonuses, publisher bonuses, MoPub acquisition transition services, restructuring costs, impairment and loss in connection with sale of long-lived assets, loss (gain) on extinguishments of acquisition-related contingent consideration, lease modification and abandonment of leasehold improvements, and change in the fair value of contingent consideration. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the same period. We believe that the presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations and operating performance, as they are similar to measures reported by our public competitors and are regularly used by securities analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. We define Free Cash Flow as net cash provided by operating activities less purchases of property and equipment and principal payments on finance leases. We subtract both purchases of property and equipment and payment of finance leases in our calculation of Free Cash Flow because we believe these items represent our ongoing requirements for property and equipment to support our business, regardless of whether we utilize a finance lease to obtain such property or equipment. Adjusted EBITDA and Adjusted EBITDA margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. We use Free Cash Flow in addition to GAAP measures to help manage our business and prepare budgets and annual planning, and we believe Free Cash Flow provides useful supplemental information to help investors understand underlying trends in our business and our liquidity. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP financial measures should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP. AppLovin Corporation / 2Q23 Shareholder Letter 8
Key Metrics We review the following key metrics on a regular basis to evaluate the health of our business, identify trends affecting our performance, prepare financial projections, and make strategic decisions. Quarterly Key Metrics Monthly Active Payers (MAPs). We define a MAP as a unique mobile device active on one of our apps in a month that completed at least one In-App Purchases (IAP) during that time period. A consumer who makes IAPs within two separate apps on the same mobile device in a monthly period will be counted as two MAPs. MAPs for a particular time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution partners. Some of our apps do not utilize such third-party attribution partners, and therefore, our MAPs figure for any period does not capture every user that completed an IAP on our apps. We estimate that our counted MAPs generated approximately 99% of our IAP revenue during the three months ending June 30, 2023, and as such, management believes that MAPs are still a useful metric to measure the engagement and monetization potential of our games. Average Revenue Per Monthly Active Payer (ARPMAP). We define ARPMAP as (i) the total IAP Revenue derived from our Apps in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP. 2Q 2023 2Q 2022 Monthly Active Payers (millions) 1.7 2.3 Average Revenue per Monthly Active Payer (ARPMAP) $46 $43 Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate MAPs and ARPMAP are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. AppLovin Corporation / 2Q23 Shareholder Letter 9
AppLovin Corporation Condensed Consolidated Balance Sheets (in thousands, except for share and per share data) (unaudited) June 30, December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 876,227 $ 1,080,484 Accounts receivable, net 669,785 702,814 Prepaid expenses and other current assets 150,256 155,785 Total current assets 1,696,268 1,939,083 Property and equipment, net 115,391 78,543 Operating lease right-of-use assets 57,390 60,379 Goodwill 1,830,710 1,823,755 Intangible assets, net 1,493,996 1,677,660 Other assets 288,365 268,426 Total assets $ 5,482,120 $ 5,847,846 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 260,847 $ 273,196 Accrued liabilities 159,157 147,801 Licensed asset obligation 13,819 15,254 Short-term debt 33,310 33,310 Deferred revenue 74,307 64,018 Operating lease liabilities 14,104 14,334 Deferred acquisition costs, current 36,396 31,045 Total current liabilities 591,940 578,958 Long-term debt 3,166,759 3,178,412 Operating lease liabilities, non-current 51,292 54,153 Licensed asset obligation, non-current 11,637 26,970 Other non-current liabilities 143,092 106,676 Total liabilities 3,964,720 3,945,169 Stockholders’ equity: Preferred stock, $0.00003 par value—100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022 — — Class A and Class B Common Stock, $0.00003 par value—1,700,000,000 (Class A 1,500,000,000 and Class B 200,000,000) shares authorized, 348,496,613 (Class A 277,333,991 and Class B 71,162,622) and 373,873,683 (Class A 302,711,061 and Class B 71,162,622) shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively 11 11 Additional paid-in capital 2,687,780 3,155,748 Accumulated other comprehensive loss (76,530) (83,382) Accumulated deficit (1,093,861) (1,169,700) Total stockholders’ equity 1,517,400 1,902,677 Total liabilities and stockholders’ equity $ 5,482,120 $ 5,847,846 AppLovin Corporation / 2Q23 Shareholder Letter 10
AppLovin Corporation Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenue $ 750,165 $ 776,231 $ 1,465,570 $ 1,401,652 Costs and expenses: Cost of revenue 258,575 303,929 520,535 585,709 Sales and marketing 192,427 232,096 395,403 522,229 Research and development 137,424 141,108 282,275 267,358 General and administrative 30,411 45,743 74,982 100,988 Total costs and expenses 618,837 722,876 1,273,195 1,476,284 Income (loss) from operations 131,328 53,355 192,375 (74,632) Other income (expense): Interest expense (50,987) (36,505) (125,498) (68,514) Interest income and other, net 15,461 518 25,572 2,532 Total other expense, net (35,526) (35,987) (99,926) (65,982) Income (loss) before income taxes 95,802 17,368 92,449 (140,614) Provision for (benefit from) income taxes 15,445 39,167 16,610 (3,517) Net income (loss) 80,357 (21,799) 75,839 (137,097) Less: Net loss attributable to noncontrolling interest — (51) — (92) Net income (loss) attributable to AppLovin $ 80,357 $ (21,748) $ 75,839 $ (137,005) Less: Net income attributable to participating securities (318) — (299) — Net income (loss) attributable to AppLovin common stockholders: Basic $ 80,039 $ (21,748) $ 75,540 $ (137,005) Diluted $ 80,047 $ (21,748) $ 75,547 $ (137,005) Net income (loss) per share attributable to AppLovin common stockholders: Basic $ 0.22 $ (0.06) $ 0.21 $ (0.37) Diluted $ 0.22 $ (0.06) $ 0.20 $ (0.37) Weighted average common shares used to compute net income (loss) per share attributable to AppLovin common stockholders: Basic 356,957,059 373,912,724 365,013,736 372,932,509 Diluted 366,340,275 373,912,724 373,022,200 372,932,509 AppLovin Corporation / 2Q23 Shareholder Letter 11
AppLovin Corporation Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended June 30, 2023 2022 Operating Activities Net income (loss) $ 75,839 $ (137,097) Adjustments to reconcile net income (loss) to operating activities: Amortization, depreciation and write-offs 248,100 281,677 Amortization of debt issuance costs and discount 6,583 6,820 Stock-based compensation 164,219 101,796 Change in operating right-of-use asset 6,893 10,558 Other (1,017) 478 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 33,271 (163,416) Prepaid expenses and other current assets (2,111) (28,993) Other assets (3,017) 3,033 Accounts payable (12,265) 13,773 Operating lease liabilities (7,104) (12,046) Accrued and other liabilities (1,033) 7,795 Deferred revenue 10,098 (9,286) Net cash provided by operating activities 518,456 75,092 Investing Activities Acquisitions, net of cash acquired (38,356) (1,294,352) Purchase of non-marketable equity securities (16,834) (56,546) Capitalized software development costs (4,433) (2,608) Purchase of property and equipment (3,819) (400) Proceeds from sale of assets 8,250 2,162 Net cash used in investing activities (55,192) (1,351,744) Financing Activities Repurchases of stock (572,101) (244,015) Payment of withholding taxes related to net share settlement (56,603) — Principal repayments of debt (16,656) (9,155) Payments of licensed asset obligation (15,254) (17,374) Principal payments on finance leases (10,915) (12,326) Payment of debt issuance cost (3,961) — Payments of deferred acquisition costs (1,229) (71,712) Proceeds from exercise of stock options 6,535 15,873 Proceeds from the issuance of common stock under the Employee Stock Purchase Plan 2,071 3,663 Net cash used in financing activities (668,113) (335,046) Effect of foreign exchange rate on cash and cash equivalents 592 (7,246) Net (decrease) in cash and cash equivalents (204,257) (1,618,944) Cash, cash equivalents and restricted cash equivalents at beginning of the period 1,080,484 2,570,504 Cash and cash equivalents at end of the period $ 876,227 $ 951,560 AppLovin Corporation / 2Q23 Shareholder Letter 12
AppLovin Corporation Reconciliation of Net Cash Provided By (Used In) Operating Activities to Free Cash Flow (in thousands) The following table provides a reconciliation of net cash provided by operating activities to free cash flow for the past eight quarters: Three Months Ended 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Net cash provided by (used in) operating activities 124,560 85,015 (31,719) 106,811 174,482 163,199 288,662 229,794 Less: Purchase of property and equipment (309) (428) (285) (115) (221) (41) (70) (3,749) Principal payments on finance leases (5,069) (5,581) (6,176) (6,150) (5,773) (5,984) (5,447) (5,468) Free Cash Flow $ 119,182 $ 79,006 $ (38,180) $ 100,546 $ 168,488 $ 157,174 $ 283,145 $ 220,577 Net cash provided by (used in) investing activities $ (183,070) $ (8,678) $ (1,059,743) $ (292,001) $ (42,010) $ 22,286 $ (12,975) $ (42,217) Net cash provided by (used in) financing activities $ (75,159) $ 1,446,939 $ (65,424) $ (269,622) $ (136,391) $ (55,411) $ (111,415) $ (556,698) AppLovin Corporation / 2Q23 Shareholder Letter 13
AppLovin Corporation Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) The following table provides our Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of Net Income (Loss) to Adjusted EBITDA for the periods presented: Three months ended 2Q22 3Q22 4Q22 1Q23 2Q23 Revenue $ 776,231 $ 713,099 $ 702,307 $ 715,405 $ 750,165 Net income (loss) $ (21,799) $ 23,662 $ (79,512) $ (4,518) $ 80,357 Net Margin (3) % 3 % (11) % (1) % 11 % Interest expense 36,505 48,627 54,722 74,511 50,987 Interest income and other, net (2,452) (3,604) (10,174) (9,771) (15,817) Provision for (benefit from) income taxes 39,167 (22,053) 13,340 1,165 15,445 Amortization, depreciation and write-offs 152,688 136,094 129,313 128,208 119,892 Impairment and loss in connection with sale of long-lived assets — 27,736 100,156 — — Non-operating foreign exchange loss (gain) (819) (406) 1,519 (672) 126 Stock-based compensation 57,156 42,147 47,669 82,966 81,253 Acquisition-related expense and transaction bonus 1,921 4,317 227 517 247 Restructuring costs 7,377 1,117 2,340 1,292 1,024 Total adjustments 291,543 233,975 339,112 278,216 253,157 Adjusted EBITDA $ 269,744 $ 257,637 $ 259,600 $ 273,698 $ 333,514 Adjusted EBITDA Margin 35 % 36 % 37 % 38 % 44 % AppLovin Corporation / 2Q23 Shareholder Letter 14
AppLovin Corporation Segment Information (in thousands) The following table provides selected financial data for our reportable segments for the periods indicated: 2Q22 3Q22 4Q22 1Q23 2Q23 Revenue: Software Platform $ 317,540 $ 306,592 $ 306,195 $ 354,758 $ 406,063 Apps 458,691 406,507 396,112 360,647 344,102 Total Revenue $ 776,231 $ 713,099 $ 702,307 $ 715,405 $ 750,165 Segment Adjusted EBITDA: Software Platform $ 196,744 $ 190,256 $ 185,860 $ 218,694 $ 272,886 Apps 73,000 67,381 73,740 55,004 60,628 Total Segment Adjusted EBITDA $ 269,744 $ 257,637 $ 259,600 $ 273,698 $ 333,514 Interest expense (36,505) (48,627) (54,722) (74,511) (50,987) Interest income and other, net 2,452 3,604 10,174 9,771 15,817 Amortization, depreciation and write- offs (152,688) (136,094) (129,313) (128,208) (119,892) Impairment and loss in connection with sale of long-lived assets — (27,736) (100,156) — — Non-operating foreign exchange gain (loss) 819 406 (1,519) 672 (126) Stock-based compensation (57,156) (42,147) (47,669) (82,966) (81,253) Acquisition-related expense and transaction bonus (1,921) (4,317) (227) (517) (247) Restructuring costs (7,377) (1,117) (2,340) (1,292) (1,024) Income (loss) before provision for tax $ 17,368 $ 1,609 $ (66,172) $ (3,353) $ 95,802 Segment Adjusted EBITDA Margin: Software Platform 62 % 62 % 61 % 62 % 67 % Apps 16 % 17 % 19 % 15 % 18 % AppLovin Corporation / 2Q23 Shareholder Letter 15
