Thank you, and welcome to the AppLovin earnings call for the quarter ended March 31, 2021. Joining me today to discuss AppLovin's results and key business initiatives are Co-Founder, CEO and Chairperson, Adam Foroughi; and President and Chief Financial Officer, Herald Chen. Before we begin, I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements, including statements related to the expected performance of our business, future financial results and guidance, strategy, long-term growth and margin targets and overall future prospects, the expected benefits of our acquisition of Adjust as well as the impact of the COVID-19 pandemic and Apple's iOS 14.5 rollout. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those we projected or implied during this call, in particular, those described in our risk factors included in our final prospectus related to our initial public offering filed on April 15, 2021 and in our Form 10-Q for the first quarter of 2021 that will be filed following this call as well as the current uncertainty and unpredictability in our business, the markets and economy in general. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and AppLovin disclaims any obligation to update any forward-looking statement, except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our shareholder letter, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website at investors.applovin.com. Finally, a recording of this conference call will also be available on our Investor Relations website shortly after this call has ended. And now I'll turn it over to Adam.

Thank you for joining us today for our first public company earnings call. I want to begin by thanking our amazing teammates around the world who continue to push relentlessly to execute on our vision. Of course, we wouldn't be here without our partners who trust us as an integral part of their growth and monetization strategy. And thank you for the support from our new investors. We are very much focused on the long term and appreciate that you recognize our competitive advantages and long-term opportunities. We are looking forward to sharing details about AppLovin's first quarter results. While I don't want to steal Herald's thunder by covering financial metrics, I do want to say that we are very proud of our record first quarter, growing revenue and EBITDA over 100% year-over-year. I also want to highlight the 3 primary objectives that we focus on in driving long-term growth. We review each objective in detail in our shareholder letter on the website, but I want to touch on each at a high level here. First, we're a marketing software company that helps mobile app developers attract new users and grow their businesses. Our most important objective is to focus on growing our software platform, and our key business decisions always link back to this objective. We accelerated to 90% growth year-over-year in Q1 in our Business Software segment. Unlike many tech companies, the pandemic had negligible impact on our business since our audiences play casual games on the go. Our growth in the last 2 quarters was primarily driven by technological improvements from our machine learning engine, AXON, which we launched late in 2020 and continues to improve dramatically. These improvements helped us significantly grow our customer base and average revenue per customer. We're also excited about closing the Adjust acquisition in April. The acquisition provides us access to their leading attribution analytics products, over 2,000 potential clients and a sales force for the first time in our company's history. With these new Adjust assets under AppLovin, we are excited to grow both their solutions and our AXON-powered software. Our second objective is to continue to expand our portfolio of apps to generate more first-party data for AXON. Since 2018, we built a high-growth, diversified portfolio. Our combined business apps and consumer apps include over 200 games and nearly 40 million daily active users. We work with 15 studios around the globe that have a workforce of approximately 2,000 game creators. Today, our apps are some of the world's most popular mobile games, including Project Makeover, Wordscapes, Matchington Mansion, Clockmaker, Bingo Story, Final Fantasy 15 and many others. We're able to grow these games because of our seasoned team, accretive M&A and, most importantly, our marketing expertise and cost synergies we get from marketing our apps on our software platform. Our scaled first-party data advantage feeds our software engine and also insulates our business model from privacy changes relative to peers. We've already seen over 10% of iOS users update to iOS 14.5 or later, and within that audience, we're not seeing any material impact to our business. Our third business objective as a platform business with high margins is to create shareholder value through long-term growth and increasing cash flows. We believe predictable growth and cash flow is the ultimate determinant of shareholder value. The combination of our machine learning software, our first-party data advantage and our massive TAM gives us confidence in our long-term annual cash flow growth target of over 30%. We've made great progress in Q1 but believe we're just getting started. At AppLovin, we built market-leading tools that help our customers grow their businesses. We recently put all the pieces together in our business model that has evolved over a decade of investment. As you evaluate our results, we believe you will see the strength of our platform and why we're excited about our path of growth for years to come. With that, I'll now turn the call over to Herald.

Thanks, Adam, and thanks, everyone, for taking the time to join us. As Adam mentioned, we appreciate that our business model is a bit nuanced. What we hope through this call, our shareholder letter, our first quarter results, our guidance and our financial performance over time is that you come to appreciate that our integrated model is the reason for our strong Q1 and for our confidence in our long-term growth prospects. Before we get to your questions, I want to briefly highlight a few topics. We did have a very strong first quarter with 132% and 110% year-over-year revenue and EBITDA growth, respectively. For those wanting to understand our mix of organic versus inorganic growth, our organic growth was a robust 89%. Next, I want to discuss our software business, which falls under our business revenue. We wanted to provide you additional metrics regarding just our software business to help you understand the scale and growth drivers of that business. The first is total software transaction value, a new metric for us. It measures and helps dimensionalize the scale of our software business. Our software is used by our first-party apps and third-party clients. However, we can't report our own spend on our own software under GAAP rules. So we measure TSTV, or total software transaction value, as the total net value transacted from all clients as if our own studios were stand-alone businesses. In Q1, this TST measure increased by 155% year-over-year to $148 million to nearly a $600 million run rate. That illustrates both the scale and rapid growth of our software platforms. The second new metric is software platform enterprise clients. While we already report business enterprise clients' APIs on an annual basis, we think it would be helpful for investors to have price times quantity metrics for just the software business on a quarterly basis. Specs is the number of third-party software clients who, in a quarter, spend an annualized run rate revenue of over $125,000. We had 193 specs in the first quarter versus 130 in the first quarter of 2020, a 48% year-over-year increase with the average value per customer rising 32%. We grew both price and quantity primarily because of the improvements in AXON, which, in turn, increased the efficacy of our software. On the content side, I'd summarize that we do have many structural and financial advantages on marketing spend, which simply lets us invest more in effective user acquisition spend than the market. Since in the mobile app market marketing dollars drive mobile app growth, we were able to rapidly grow our apps. With respect to Adam's comment regarding long-term cash flow growth, we believe our strong rule-out performance ultimately will translate into long-term cash flow growth. We are targeting at 30-plus percent. In the letter, we have provided you with descriptions of our operating cost structures so you're better able to appreciate our ability to grow cash flows over time, in particular, as our software business continues to expand. Turning to guidance. For full year 2021, we expect revenues to grow approximately 85% to between $2.65 billion to $2.70 billion. For the full year 2021, we are guiding to adjusted EBITDA in the range of $680 million to $700 million, representing a doubling from the prior year. Our policy will be to provide you with fiscal year guidance for both revenue and adjusted EBITDA updating it quarterly. With that, we're happy to answer your questions.

Okay. So Adam, I think it's only been about 9 short months since you switched over from contextual ads to AXON. And it seems like the benefits you get from ML and particularly as you keep feeding it more first-party data should continue to accrete over time. So what inning do you think you are in terms of the overall value you think you can extract? And secondarily, just wondering what the M&A pipeline may look like at this point. Are deals getting more contested now? Or are the private market valuations unclear about where they are?

Thanks, Stephen, for the questions. And taking the first one. Really, ML, if you look at the success of all the biggest companies in the world today, whether it's Google or Facebook, you can tie their success over the years back to the inflection point where they really executed on putting ML into the core of their platforms and then growing off of it. These systems are built so that as they get bigger, more data feeds into them, more clients come in and the system becomes more and more accurate. Our AXON engine is trying to predict what a consumer will download and engage with in the future, and it does it with exceptionally high accuracy, that every day we go forward, that accuracy improves. And really, when we executed on it, we were trying to execute on the vision of expanding our first-party data, which was speeding it and then unlocking the power of that data with the machine learning engine so as that first-party data continues to grow, that engine will only get better. I would say, really, what inning are we in, it's 6 months in, so we think we're very early in it. Tying into Adjust, too, we're just thrilled to bring that team on. They have great products. But the reality is the strategic benefit for us with that deal that can unlock the most cash flow for us going forward was that to date, we haven't had a sales force. We haven't been selling our product to the marketplace. It's working exceptionally well. And as you look at the growth of both the third-party clients and the TSTV stat, growth rate is second to none in the marketplace, and our enterprise clients are still under 200. The market has over 10,000 potential enterprise clients, and we're excited about Adjust sales force coming in and really help us deliver on more clients into the system, which will continue to help it grow. On the second question around M&A. Our pipeline is always robust because our approach is just different when it comes to the content side of M&A. We're working with our own clients to bring them into effectively our walled garden and help facilitate more growth off of their business that they've built. Almost every single one of our transactions in the past have been client first outside of banker-run processes early in their evolution, companies that we were able to acquire and then accelerate their growth thereof. And then we just announced 2 deals that we executed on in April for 2 more early but top grossing games that we think we can go quite materially from here: one, West Game; and two, a slots game that brings the first slots game into our portfolio. These 2 games are at a run rate of $200 million a year revenue, and we paid upfront $300 million for them with some contingent payments that will follow as they grow their businesses with our platform.

I just have two questions as well. One, can you discuss the integration of Machine Zone so far and the learnings from operating in the mid-core space? And then with West Game, this does look like you're moving deeper into the space. I guess do you expect synergies you realize in casual can be applied to other genres like mid-core and casino? And then my second question is just if you could maybe elaborate on the full year revenue guide of what your assumption is in that guide for organic growth.

Thanks, Alexia. I'll respond to the first question about the Machine Zone transaction, which we closed almost a year ago. Our integration with content studios has been quite straightforward. Our goal is to let them focus on creating while our platform acts as an accelerator for their growth, establishing an ideal environment to harness their creative talent. The Machine Zone transaction was particularly noteworthy for two reasons. Firstly, they have a highly skilled team experienced in building core games, and we believe they can unlock value through future games. More importantly, they possess the largest pool of first-party data from consumers who have engaged with their games, particularly those interested in male-centric strategy games, an audience that holds significant value for advertising. Our primary motivation for entering the content space was to enhance our advertising ecosystem, platform, and software with first-party data. Machine Zone provided us with unmatched scaled data. Regarding West Game, we're eager to expand this title because it is much earlier in its lifecycle compared to Machine Zone games. We have the necessary data to implement machine learning strategies to grow it using our platform. Thus, we anticipate substantial growth for this game, which is already among the top 100 grossing games worldwide. Herald, would you like to address the forecast?

Yes. Thanks for the question. In terms of the guidance we've given for the full year, it really takes into consideration just the tremendous opportunities we're seeing across all of our assets. And you can see in our strong first quarter here where we had growth in each one of the businesses, and we also had very, very robust organic growth. And so we see that continuing in our 2021 full year guidance where the majority of it will continue to be from organic measures as well as we will augment that with M&A. As you just mentioned, we just did 2 acquisitions that run at about $200 million, which will be included in our guidance. But we still see opportunities for M&A on top of that. But in terms of guidance, our policy is really not to include any additional meaningful M&A, nor do we include any large, new hits from our studios, both of which are very hard to predict. We're certainly pursuing both those things, but notwithstanding, it's hard to project those 2 things.

I have two. First one on the software side. AXON has been a big success. Curious to hear about other areas where you see low-hanging fruit improvements to make to that product, to continue to competitively differentiate and win even more market share and just kind of get beyond the AXON lapping. And then secondly, on the first-party consumer business, can you give us examples where are you using any machine learning on that side yet? Or is that sort of something you're still thinking about doing over time to improve the overall algorithms on the consumer side?

Thanks, Brian, for the questions. On the first point, really, when it comes to machine learning, one, you have to have a data advantage to be able to execute on machine learning at this level. And we had the data advantage. We executed on getting the machine learning to market. We also had invested over the last decade in building our large-scale data infrastructure, which is a key component of machine learning. Now where it is today, once you put these software programs out, there's a couple of areas where you get leverage to grow them. One is just getting more clients into our platform will continue to expand the business model. Two is the first-party data continuing to scale, giving us that exclusive data will continue to power that machine learning to become more accurate and allow us to get more growth in that business model. And then the third is, of course, we've got data scientists and machine learning engineers working on improving the algorithms all the time. Those three pieces are all really early stages. So we see a lot of upside in that technology. And then you brought up taking market share. We don't look at the ecosystem as we're executing on AXON, and we're taking market share from peers. As you know, a couple of our direct peers have been in the public markets recently and just reported their first quarter earnings. We're all doing very well. The way this ecosystem works is when something like AXON happens, we're driving more value to our clients. And as our clients grow, and as our own studios grow, the TAM just grows with it. And all of the companies in the ecosystem have different models, different algorithms and different data, and all of us end up growing with that. And that's what makes this market so exciting. On the other question around applying AXON or machine learning specifically to games, it's a great point. And frankly, we started our games business 3 years ago. We're really new into content. And the intent of that games business was to get first-party data at scale to power our advertising business. We've been busy building AXON and applying it to the advertising side, so we haven't had the time yet to go apply it to the game side of the business. We think that presents us an immense opportunity for growth as we go forward, and it's work that we're actively working on today.

You guys have been pretty consistent in your messaging about wanting to do M&A, and you've done some more today. But I guess my longer-term question is do you feel like it's mostly done on the ad tech side, and more of what you're going to do is more about buying apps or games? Is that the way to think about it? Or do you still think there are other pieces of the puzzle on the tech side?

We view the content side as a natural fit. When we have clients on the platform, whether they are in gaming or not, if they have content and need a growth partner, we can engage in acquisitions to help drive their growth and assist in our goal of gathering more first-party data into our system. On the software side, our approach is more opportunistic. The three deals we have executed—MAX, SafeDK, and Adjust—were all aimed at acquiring software that our studios use or that our platform can leverage to enhance our market offerings. We will continue to seek opportunities that allow us to acquire and enrich our offerings in the marketplace.

Two, if I may. I think the consumer business is very strong, accelerating to over 3x year-over-year, well ahead of our expectations. I think the complacent investor might view that as just a gaming company benefiting from the pandemic. But is there a way that you can maybe tie in how the strength there is actually a direct reflection of the power of your platform to drive monetization and discovery for your first-party apps? And then secondly, just on the outlook real quick. It seems like that was also well ahead of what we were expecting in absolute terms, but regarding the profit margin of the business, can you talk about the factors influencing the year-over-year trends there in margins? How much of this is evolving revenue mix versus incremental investments to grow software or grow apps?

Thanks, Ryan. I'll jump on the first, and I'll let Herald handle the second. On the first point, really, of course, we know the pandemic was beneficial for many gaming companies. But I think there's a little bit of a disconnect on the types of games that benefited. Our games are predominantly casual mobile games. If you look at some of the oldest titles in our library that we own, a game like Wordscapes, that game is played on the go. And when we have the pandemic hit, we're all sitting at home, we had plenty more time on our hands. Console gaming really benefited the most. And then the second benefit was to be deeply engaging metaverse-type games on mobile. The casual games didn't see much of an uptick. If you look back at the growth of our content, you could see a direct correlation to when we launched AXON, and we gave you that TSTV stat, too. You can see the acceleration and the difference between the total TSTV and the third-party clients on our platform. That difference is us spending on our own platform to grow our apps. Pre-AXON, frankly, we just weren't as successful at growing our own apps because we didn't have that software at the level of efficiency that it is today. Now, today, with that software running at the capacity it's running at, we're accelerating every part of our business. The content grows because we're able to grow the spend through our own platform and through other channels utilizing our software. And then that content and feedback data, which makes the software more accurate, and then the software grows the content. So we've really unlocked that flywheel effect that we highlighted in our S-1 only dating back 6 months ago, and that's what we're so excited about looking forward.

Yes. Again, in terms of the guidance and the margin structure and how that progresses, we're confident in our top line growth rates across the board. As we mentioned, again, we show that in this quarter with 90% on software, 57% on business apps and 215% growth on consumer apps. And so as we build out the year, we see each one of those businesses continuing to grow. And as we're able to grow and scale over our cost structure, our margins do expand. And so composition is important to follow as well, and certainly, in this first quarter, with Project Makeover, we had more, as you noted, more consumer app revenue, which did increase that side and also increased cost of goods sold on that piece of revenue. So we see for our full year guidance, at 26% margin, we do see our software business accelerating relative to the other businesses, as you also saw in the first quarter and I think relative to most of your models that you published earlier this week. And so we're confident in the top line, just given all the aspects of the business that we're executing against and then having margins expand as we continue to scale over our cost structure as well as the mix of the business continues to accelerate on the software side.

Great. Congratulations on your first earnings call. I have two questions. First, for the games you acquire, can you discuss the typical growth in their revenues and how long it takes to reach peak performance? I understand it might be too early to determine this for most games, but what can you tell us about those that may have had a peak, and what does the decline curve look like for some of the earlier games? We've received this question from several investors earlier this week. Second, could you talk about the nongaming opportunity, particularly now that you own Adjust? How quickly do you plan to move in that direction, and are there specific verticals that you find most exciting?

Thanks, Youssef. On the acquisition side, we put in the S-1 data around the acquisitions that we had for over a year. But we are just so fresh in the strategy. So we haven't had a lot of time with a lot of the games in the portfolio. We typically, in the first 12 months, when we measure it on average, grow these businesses over 100% once they come onto the platform. Now there's something interesting about our acquisition strategy is that we don't buy to sit on top of the EBITDA that they previously had. Most gaming companies don't operate in an aggressive marketing fashion because they're sensitive to generating cash flow. Our objective with the content business is not to generate cash flow or material cash flow from the content business yet. The objective from the content business is to grow the games to as large as possible to get as much transactional data that we can get from the customers playing our games and use that data in a behavioral and privacy-safe manner in our ad algorithm, which accelerates our business and has exceptionally high software margins. And so we operate that way. We're going to be going these games through their lifecycle where when they're early, they can grow to a ceiling in revenue. Eventually, the cohorts that you're accumulating stack up on top of each other, and the games become cash flow businesses. So over time, as our game business continues to become bigger and bigger, we will get to a point where it will also become a high contributor of margin to the business. But right now, we're focused on growth, and we've been able to execute on that strategy across almost every single one of the acquisitions we've made. On the second question, when it comes to nongaming, of course, exclusively, for most of the company's history, we've been focused on gaming companies. That's not because our technology was specifically geared towards gaming. It's also not because our data or machine learning is geared towards gaming. The data that we have in our business is built on top of this casual audience that we have across all of our games and then also that male-centric strategy player, which is a very high-value category of consumer for many advertisers outside gaming. But the nongaming businesses require companies to sell into them, to explain to them that there's an opportunity on our platform for them to go execute a growth strategy. To date, we've never had a sales force, and Adjust brings us 300 seasoned salespeople who know how to sell software in the ecosystem. They have over 3,000 clients, and 40% of those enterprise clients are nongaming companies. We're already executing on the strategy there of being able to bring nongaming companies onto our platform. It's the fastest-growing category of company that's coming on to the platform today. And just to give you a sense of one case study of why we were really excited about the Adjust transaction and the potentially leveraged financial profile that we can build off of that sales force cross-selling our product against their clients, when we went and assessed that transaction, we did one case to really build the case internally on why this is potentially so valuable. We took a health and fitness subscription app and took that, put it on our platform. The company is paying Adjust today $3,000 a month. They went live on our platform about 90 days ago, and they're now yielding us close to $500,000 a year or $40,000 a month. We're not to say that every one of Adjust's clients that amount to over $100 million a year SaaS business are going to convert at 13x revenue dollars to our platform, but we're very excited about the cross-sell opportunity, especially when it comes to nongaming.

Youssef, to address your question about the game segment and the decline rate, we have observed that once we launch casual games, we tend to grow them effectively. After ownership and launching new games, they reach peak performance but eventually plateau at a certain level. However, they have a long lifespan. Our Q1 letter indicates that existing studios from Q1 of 2020 to Q1 of 2021 achieved a growth rate of 91%. Even after a year, they continue to grow thanks to our software and marketing expertise. We are actively working to build these cohorts. As Adam mentioned, we are only three years into this process, and we are layering annual cohorts that contribute to overall growth. Additionally, the content business begins to produce higher margins since we do not need to invest significantly in acquiring that revenue stream, which is already established. Overall, the games business grew by 141% across those two areas. While the new acquisitions contributed to this growth, existing games experienced a 91% growth rate. We believe this layering approach will enable us to sustain compounded growth in the content area.

My first question is on your acquisition targets. When you think about the content you're going to acquire and how that aligns with your first-party data strategy, do you intentionally pick out the missing genres or trying to fill out the full spectrum of the most popular genres for mobile games?

Martin, yes, that's a good point and a good catch. If you look at our acquisition strategy historically, we've targeted a whole bunch of different genres, and that wasn't by coincidence. Fundamentally, we want content that's appealing to every single one of the 400 million-plus daily active users we see on the platform so that we can build first-party data relationships with those consumers. And we've been able to execute on that strategy really efficiently. We're at a point now where we've got content for everyone. And so now the strategy is just scaling that content. The bigger we get on the content side, the better our software gets. The better our software gets, the more growth we get on the content side. And so we're really excited about getting to this point where now we've got titles across every single major genre in mobile gaming.

Got it. So related to that question, do you apply the same strategy with maybe different geographies? Because in my understanding, some player behavior might differ a little bit in between different regions.

Yes. That's for sure true. International is actually one of our big growth vectors. So far, the U.S. has made up a majority of our revenue. Tier 1 English-speaking markets is the focus. Japan is actually our second biggest market. And to your point, some games will overlap with the Japanese audience, but culturally, there are some games that are specific to it. And then China is a whole other vector that's just unique to itself, half the world's gaming audience an opportunity but contained within the country. We think these international expansion points present a big opportunity for growth in the future for us.

One more question, if I may. Can you maybe comment on the user acquisition environment in the first quarter, whether you see anything unique or different than usual as most publishers are preparing for the IDFA impact?

We haven't seen any changing trends. If you look at our TSTV stat, you'll see a lot of our user acquisition does flow through our own platform. So that does make us a little bit unique in terms of having this perspective, but we do spend a lot on other channels as well. I would say the marketplace itself continues to expand in potential applications that can market on marketing platforms. And this is why we're really excited about potentially new clients and new categories on our software platform. Things like fintech have been exploding in competitiveness in ad auctions with crypto-based apps spending a lot of money. And these are just all new concepts to us in our software platform. We haven't gone out and sold these companies to buy with us yet, but we're actively executing on that strategy when it comes to our platform.

On the Consumer business, which overall was much stronger than expected, in particular, at least relative to our model, you had a very strong MAP number. Just curious how much of that might have been driven by Project Makeover versus just the broader portfolio set of games performing well versus, perhaps, any improvements that you had in the software platform.

Yes, I can address that. If Herald has the specific breakdown, he can share it with you. Generally, we assess our content portfolio by focusing on newer, fresher content to drive growth. Project Makeover launched in November and has since become a top 15 grossing game. This title attracts many consumers who are making transactions through our systems. It launched about three months after AXON, and its growth is largely attributed to the performance of our software, which feeds back into the system. We're particularly excited to see the growth in our MAP number. It's crucial for the success of ad algorithms to gather extensive transactional data. By understanding what consumers are interested in buying, we can offer more relevant advertising. When consumers make purchases in Project Makeover, we can anonymize that MAP data and utilize the behavioral signals in our ad algorithm, which fuels further expansion. This is a key reason why our business is experiencing rapid growth in Q1.

Yes, Project Makeover significantly contributed to our consumer revenue in the first quarter. However, even when we exclude Project Makeover from the consumer figures for the quarter, we still experienced very high growth rates, almost reaching triple digits—actually slightly above that for other areas. This growth is largely due to the overall improvements on our platform, which Adam mentioned, particularly with the launch of AXON that supports much of our marketing expenditure. Additionally, we increased our spending percentage on our platform. This enhancement benefits our overall consumer base, and having Project Makeover included certainly helped us achieve over 200% growth.

We just wanted to thank everyone for spending time with us and really getting to know our business, and we'll look forward to talking to you all more on callbacks and at next quarter's earnings call. We are thrilled with where our business is at. We don't know of many other companies in this environment that are growing revenue and EBITDA triple digits this Q1 versus last year's Q1. We're executing on all cylinders, and we see a roadmap to growth for many years to come, and we're excited for you all to learn more about our business as we go forward.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.