APPLOVIN CORPORATION 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Our mission is to grow the mobile app ecosystem by enabling the success of mobile app developers. Our software solutions provide advanced tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. Our software, coupled with our deep industry knowledge and expertise, has allowed us to rapidly scale a successful and diversified portfolio of owned mobile apps. We have also accelerated our market penetration through an active acquisition and partnership strategy. Our scaled and integrated business model sits at the nexus of the mobile app ecosystem, which creates a durable competitive advantage that has fueled our clients' success and our strong growth. Since our founding in 2011, we have been focused on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. Our founders, who are mobile app developers themselves, quickly realized the real impediment to success and growth in the mobile app ecosystem was a discovery and monetization problem-breaking through the congested app stores to efficiently find users and successfully grow their business. Their first-hand experience with these developer challenges led to the development of our infrastructure and software-AppLovin Core Technologies andAppLovin Software Platform. We capitalized on our success and understanding of the mobile app ecosystem by launching AppLovin Apps in 2018. Our Apps now consist of a globally diversified portfolio of over 350 free-to-play mobile games across five genres, run by nineteen studios. For the three months endedJune 30, 2022 , our revenue grew 16% year-over-year, from$668.8 million in the three months endedJune 30, 2021 to$776.2 million in the comparative period in 2022. We generated a net loss of$21.8 million for the three months endedJune 30, 2022 , and a net income of$14.4 million in the comparative period in 2021. We generated Adjusted EBITDA of$269.7 million , and$183.7 million for the three months endedJune 30, 2022 and 2021, respectively. Additionally, our net cash provided by operating activities was$75.1 million and$152.3 million in the six months endedJune 30, 2022 and 2021, respectively. See the section titled "Non-GAAP Financial Metrics" for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.
Our Business Model
We collect revenue from our Software Platform and our Apps. During the three months endedJune 30, 2022 , Software Platform Revenue represented 41% of total revenue and Apps Revenue represented 59% of total revenue. In 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"), which as ofJune 30, 2022 , was our Chief Executive Officer, allocates resources and assesses performance. EffectiveMay 2022 , we report our operating results through two reportable segments: Software Platform and Apps. Previously we had a single operating and reportable segment.
The CODM evaluates performance of each segment based on several factors, of which the financial measures are segment revenue and segment adjusted EBITDA, as defined in Note 4 to our financial statements.
The Software Platform and Apps segments provide a view into the organization of our business and generate revenue as follows.
Software Platform Revenue
We generate Software Platform Revenue from fees paid by mobile app advertisers
who use our Software Platform to grow and monetize their apps. We are able to
grow our Software Platform Revenue by improving our various software
technologies.
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Software Platform clients include a wide variety of advertisers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google. While we have thousands of clients as ofJune 30, 2022 , the vast majority of our revenue is derived from our Software Platform Enterprise Clients. See "Key Metrics" below for additional information on how we calculate Software Platform Enterprise Clients. We see multiple opportunities to gain new Software Platform clients, and to increase spend from existing clients, as we help them grow their businesses and make them more successful. Our Software Platform includes AppDiscovery, MAX, Adjust, and Wurl. Clients use AppDiscovery to automate, optimize, and manage their user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spend in an effort to achieve their return on advertising spend targets and other marketing objectives. AppDiscovery comprises the vast majority of revenue from our Software Platform. Revenue is generated from our advertisers, typically on a performance-based, cost-per-install basis, and shared with our advertising publishers, typically on a cost per impression model. Our Software Platform Enterprise Clients had a Net Dollar-Based Retention Rate of approximately 204% for the twelve months endedJune 30 , 2022.1 Software Platform clients use MAX to optimize purchases of app advertising inventory. The Compass Analytics tool within MAX provides insights to manage against key performance indicators, understand the long-term value of users, and help manage profitability. Revenue from MAX is generated based on a percentage of client spend. As more developers move to in-app bidding monetization, we expect growth in the adoption of, and revenue from, MAX. Software Platform clients use Adjust's SaaS mobile marketing platform to better understand their users' journey while allowing marketers to make smarter decisions through measurement, attribution and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee. Software Platform clients use Wurl's CTV platform to distribute streaming video, maximize advertising revenue, and acquire and retain viewers or subscribers. Revenue from Wurl is primarily generated from content companies, typically on a usage-based model. Apps Revenue Apps Revenue is generated when a user of one of our Apps makes an in-app purchase ("IAP") ("Consumer Revenue") and when clients purchase the digital advertising inventory of our portfolio of Apps ("Business Revenue"). We are able to grow our Apps Revenue by adding more apps to our Apps portfolio and increasing engagement on our existing Apps. Our Apps are generally free-to-play mobile games and generate Consumer Revenue through IAPs. IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from our Apps. The vast majority of our IAP revenue flows through two app stores,Apple App Store andJune 30, 2022 . During the three months endedJune 30, 2022 , we had an average of 2.3 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of$43 . Leveraging the benefit of our integrated Software Platform and Apps, we see opportunities to grow our App-related revenue streams by increasing MAPs and expanding ARPMAP within existing games and through new game development, acquisitions and partnerships. See "Key Metrics" below for additional information on how we calculate MAPs and ARPMAP. Business clients that purchase advertising inventory from our Apps are able to target highly relevant users from our diverse and global portfolio of over 350 mobile games. Our clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video, and are able to match these ads with relevant users resulting in a better return on their advertising spend. By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, we are able to increase our revenue from business clients that purchase advertising inventory from our Apps. Revenue from business clients related to our Apps is generated from ads purchased by advertisers, as well as from revenue-sharing agreements between some of our studios and a selection of third-party studios for which they publish and monetize games. Business Revenue represented 34% of total Apps Revenue in the three months endedJune 30, 2022 . __________________ 1 We measure Net Dollar-Based Retention Rate for the twelve months endedJune 30, 2022 for our Software Platform Enterprise Clients as current period revenue divided by prior period revenue. Prior period revenue is measured as revenue for the twelve months endedJune 30, 2021 from our Software Platform Enterprise Clients as ofJune 30, 2021 . Current period revenue is revenue for the twelve months endedJune 30, 2022 from Software Platform Enterprise Clients as ofJune 30, 2021 . See the section titled "Key Metrics" below. 27
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Key Metrics
We review the following key metrics on a regular basis in order to evaluate the health of our business, identify trends affecting our performance, prepare financial projections, and make strategic decisions.
Software Platform Enterprise Clients ("SPECs"). We focus on the number of
Software Platform Enterprise Clients, which are third-party clients from whom we
have collected greater than $125,000 of Software Platform Revenue in the
trailing twelve months to a given date. Software Platform Enterprise Clients
generate the vast majority of our Software Platform Revenue and Software
Platform Revenue growth. Beginning with the three months ended June 30, 2022 , we
updated how we calculate SPECs. Prior to this quarter, SPECs were third-party
clients who had more than $31,250 in Software Platform Revenue for the prior
three months.
Revenue Per Software Platform Enterprise Client ("Revenue per SPEC"). We define
Revenue per SPEC as (i) the total revenue derived from our Software Platform
Enterprise Clients in the trailing twelve months to a given period, divided by
(ii) Software Platform Enterprise Clients as of the end of that same period.
Revenue per SPEC shows how efficiently we are monetizing each SPEC. We expect to
increase Revenue per SPEC over time as we enhance our Software Platform and
Apps. Consistent with our changes to how we calculate SPECs, beginning with the
three months ended June 30, 2022 , our calculation of Revenue per SPEC evaluates
total revenue derived from SPECs in the trailing twelve months rather than the
prior three months.
The following table shows our SPEC and Revenue per SPEC as of
Twelve Months Ended June 30,
2022 2021
SPEC (trailing 12 months) 503 208
Revenue per SPEC (trailing 12 months) (in thousands) $
1,823
Total Software Transaction Value ("TSTV"). Software Platform Revenue is from
third-party clients using our Software Platform to find new customers. We do not
recognize revenue from our own spend on our Software Platform. Therefore, we use
TSTV to measure the scale and growth rates of our Software Platform, as it
reflects the total value on our Software Platform including our first-party
studios as though they were stand-alone businesses.
The following table shows our Total Software Transaction Value for the three
months ended
Three Months Ended June 30,
2022 2021
Total Software Transaction Value $ 363,282 $ 219,078
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 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 Consumer Revenue during the
three months ended June 30, 2022 , 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 Consumer 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.
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The following table shows our Monthly Active Payers and Average Revenue Per
Monthly Active Payer for the three months ended
Three Months Ended
2022 2021
Monthly Active Payers (millions) 2.3 2.7
Average Revenue Per Monthly Active Payer $
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 TSTV, MAP, 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.
Non-GAAP Financial Metrics
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA for a particular period as net income (loss) before
interest expense and loss on settlement of debt, other (income) expense, net
(excluding certain recurring items), provision for (benefit from) income taxes,
amortization, depreciation and write-offs and as further adjusted for
stock-based compensation expense, acquisition-related expense and transaction
bonus, publisher bonuses, MoPub acquisition transition services, restructuring
costs, loss (gain) on extinguishments of acquisition related continent
consideration, non-operating foreign exchange (gain) losses, 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.
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.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and
are presented for supplemental informational purposes only and should not be
considered as alternatives or substitutes to financial information presented in
accordance with GAAP. 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. Furthermore, these metrics 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. Thus, our Adjusted EBITDA and Adjusted EBITDA margin should be
considered in addition to, not as substitutes for, or in isolation from,
measures prepared in accordance with GAAP.
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The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for the three and six months endedJune 30, 2022 and 2021, and a reconciliation of net income (loss) to Adjusted EBITDA: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands. except percentages) (in thousands. except percentages) Revenue $ 776,231$ 668,806 $ 1,401,652$ 1,272,683 Net income (loss) $ (21,799)$ 14,364 $ (137,097) $ 3,789 Net Margin (2.8)% 2.1% (9.8)% 0.3% Adjusted as follows: Interest expense and loss on settlement of debt, net 36,505 19,030 68,514 54,040 Other (income) expense, net1 (2,452) 1,671 (4,869) (6,955) Provision for (benefit from) income taxes 39,167 14 (3,517) (3,166) Amortization, depreciation and write-offs 152,688 107,156 281,677 195,973 Non-operating foreign exchange loss (gain) (819) 6 (1,277) (1,275) Stock-based compensation2 57,156 29,435 101,796 59,394 Acquisition-related expense and transaction bonus 1,921 12,056 16,735 12,994 Publisher bonuses3 - - 209,635 - MoPub acquisition transition services4 - - 6,999 - Restructuring costs 7,377 - 7,377 - Adjusted EBITDA $ 269,744$ 183,732 $ 545,973$ 314,794 Adjusted EBITDA Margin 34.8 % 27.5 % 39.0 % 24.7 %
Factors Affecting Our Performance
We believe that the future success of our business depends on many factors, including the factors described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to continue to grow profitably while maintaining strong cash flow.
Continue to invest in innovation
We have made, and intend to continue to make, significant investments in our Core Technologies and Software Platform to enhance their effectiveness and value proposition for our clients. We expect that these investments will require spending on research and development, and acquisitions and partnerships related to technology components and products. We believe investments in our software, including our machine learning engine AXON, AppDiscovery, Adjust and MAX, will further improve effectiveness for developers. Our investments will also allow us to enter new mobile app sectors outside of gaming. While our investments in research and development and acquisitions and partnerships may not result in revenue in the near term, we believe these investments position us to increase our revenue over time.
Retain and grow existing clients
We rely on existing clients for a significant portion of our revenue. As we improve our Software Platform and Apps, we can attract additional spend from these clients. Our clients include indie studio developers and some of the largest mobile advertising platforms in the world. We believe there is significant room for us to further expand our relationships with these clients and increase their usage of our Software Platform. We have invested in targeted sales and account-based marketing efforts, including through Adjust's sales and marketing teams, to identify and showcase opportunities to clients and plan to continue to do so in the future. 1 Excludes recurring operational foreign exchange gains and losses. 2 The three and six months endedJune 30, 2021 includes$2.3 million of bonus compensation settled in stock outside of the scope of ASC 718. 3 In association with the MoPub acquisition, we incurred certain costs to incentivize publishers to migrate to our MAX mediation solution including existing publishers of MoPub as well as publishers on other competitor offerings, and to retain certain existing MAX publishers. These costs were reflected as a reduction to revenue in the period. We have not historically incurred significant publisher migration costs, nor do we currently intend to incur significant publisher migration costs in the future. As such, we have removed the impact of these costs from Adjusted EBITDA. 4 Reflects one-time transition services provided by Twitter toAppLovin . 30
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In the past, our clients have generally increased their usage of our Software Platform and Apps, and as a result, growth from existing clients has been a primary driver of our revenue growth. We must continue to retain our existing clients and expand their spend with us over time to continue to grow our revenue, increase profitability and drive greater cash flow.
Add new clients globally
Our future success depends in part on our ability to acquire new clients. We recently increased our focus on markets outsidethe United States to serve the needs of clients globally. During the three months endedJune 30, 2022 , only 40% of our revenue from Software Platform and Apps Business Revenue clients was generated from outside ofthe United States . We believe that the global opportunity is significant and will continue to expand as developers and advertisers outsidethe United States adopt our Software Platform and advertise on our Apps. We also see opportunities to acquire new clients outside of mobile gaming, as the capabilities of our Core Technologies and Software Platform are relevant to the broader mobile app ecosystem. We are investing in direct sales, product development, education, and other capabilities to drive increased awareness and adoption of our Software Platform and Apps, which investments may impact our profitability in the near term as we seek further scale. We must continue to acquire new clients to grow our revenue, increase profitability, and drive greater cash flow.
Review of our AppLovin Apps portfolio
Over the past several years, our Apps have been critical in providing first-party data and audiences for our Software Platform to enable us to test, design, and scale our technologies. Given the recent development of our technology, the current scale of our Software Platform, and the reach of our MAX solution, we believe we can reduce our reliance on the data from our Apps. Therefore, we are reviewing our Apps portfolio and its cost structure, focusing on how best to optimize each asset's contribution to our overall financial performance. This review is ongoing and may result in the retention, restructure, or sale of certain assets, or no change to our Apps portfolio. We may also choose to make certain changes to optimize the cost structure of certain Apps rather than continuing to invest in revenue growth. We believe that our execution of this review, and our ability to optimize the contribution of our Apps portfolio, will affect our revenue growth, profitability, and cash flow.
Continued execution of strategic acquisitions and partnerships
We intend to continue to make strategic acquisitions and enter into strategic partnerships to grow our business. From the beginning of 2018 throughJune 30, 2022 , we have invested nearly$4.0 billion in 29 strategic acquisitions and partnerships with mobile app developers and for technologies to enhance our Software Platform including the acquisition of MAX in 2018, Adjust inApril 2021 , MoPub inJanuary 2022 , and Wurl inApril 2022 .
While we have a strong pipeline of strategic acquisition and partnership opportunities, we believe our future results of operations will be affected by our ability to continue to identify and execute such transactions that are accretive to our growth and profitability.
Growth and structure of the mobile app ecosystem
Our business and results of operations will be impacted by industry factors that
drive overall performance of the mobile app ecosystem. The mobile app ecosystem
has grown rapidly in recent years. We expect that any acceleration, or slowing,
of this growth would affect our business and results of operations. In addition,
even if the mobile app ecosystem continues to grow at its current rate, our
ability to position ourselves within the market will impact our business and
results of operations.
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Mobile app developers, includingAppLovin , rely on third-party platforms, such as theApple App Store andGoogle Play Store , among others, to distribute games, collect payments made for IAPs, and target users with relevant advertising. We expect this to continue for the foreseeable future. These third-party platforms have significant market power and discretion to set platform fees, select which apps to promote, and decide how much consumer information to provide to advertising networks that enable our Core Technologies and Software Platform to target users with personalized and relevant advertising and allocate marketing campaigns in an efficient and cost-effective manner. Any changes made in the policies of third-party platforms could drive rapid change across the mobile app ecosystem. For example, inApril 2021 , Apple started implementing its application tracking transparency framework that, among other things, requires users' opt-in consent for certain types of tracking. While this transparency framework has not had a significant impact on our overall business, it may in the future, including with respect to the effectiveness of our advertising practices and/or our ability to efficiently generate revenue for our Apps. We rely in part on Identifier for Advertisers ("IDFA") to provide us with data that helps our Software Platform better market and monetize Apps. The IDFA and transparency changes may require us to engage in significant changes to our data collection practices, which may require our expenditure of substantial costs and resources, and to the extent we are unable to utilize IDFA or a similar offering, or if the transparency changes and any related opt-in or other requirements result in decreases in the availability or utility of data relating to Apps, our Software Platform may not be as effective, we may not be able to continue to efficiently generate revenue for our Apps, and our revenue and results of operations may be harmed. Additionally, Apple implemented new requirements for consumer disclosures regarding privacy and data processing practices inDecember 2020 , which has resulted in increased compliance requirements and could result in decreased usage of our Apps. InFebruary 2022 , Google announced it planned to adopt restrictions to restrict tracking activity across Android devices. These or any similar changes to the policies of Apple or
Current Economic Conditions and COVID-19
We are subject to risks and uncertainties caused by events with significant macroeconomic impacts, including but not limited to, the COVID-19 pandemic, the Russian invasion ofUkraine , and actions taken to counter inflation. Inflation, rising interest rates and reduced consumer confidence may cause our clients to be cautious in their spending. The full impact of these macroeconomic events and the extent to which these macro factors may impact our business, financial condition, and results of operations in the future remains uncertain. The risks related to our business are further described in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
As the Russian invasion ofUkraine continues to evolve, we are closely monitoring the current and potential impact on our business, our people, and our clients. We have taken the necessary steps to ensure compliance with applicable domestic and international regulatory restrictions on international trade and financial transactions. We have discontinued commercial operations and delivery of products and services to clients insideRussia andBelarus and have identified all active vendors and have terminated or suspended our contracts with them. We have suspended all new business and prospecting activities inRussia . Revenues associated with clients and vendors inRussia andBelarus are not material to our consolidated financial results, and we anticipate that the termination of Russian andBelarus vendors will not have a material impact on our business or client relationships. Management and the Board of Directors are monitoring the regional and global ramifications of the continuing events. Our cybersecurity teams are continually monitoring for any attacks that could cause disruption to our platform, systems, and networks, which could result in security breaches or data loss, damage to our brand, or reduce demand for our products and services. 32
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Components of Results of Operations
Revenue
We collect Software Platform Revenue from advertisers spending on our Software Platform. Software Platform Revenue is generated from our advertisers, typically on a performance-based, cost-per-install basis, then shared with our advertising publishers, typically on a cost per impression model. We generate Apps Revenue from both consumers and business clients. Consumer Revenue is from consumer IAPs made by users within our Apps. Business Revenue is generated from advertisers that purchase advertising inventory from our diverse portfolio of Apps. Business Revenue from our Apps was 34% of total Apps Revenue for the three months endedJune 30, 2022 .
Cost of Revenue and Operating Expenses
Cost of revenue. Cost of revenue consists primarily of third-party payment
processing fees for distribution partners, amortization of acquired
technology-related intangible assets, and expenses associated with operating our
network infrastructure. Third-party payment processing fees relate to Consumer
Revenue. The fees for IAPs are processed and collected by third-party
distribution partners. Network operating costs include bandwidth, energy, other
equipment costs related to our co-located data centers and costs for third-party
cloud service providers. We expect our cost of revenue to increase in absolute
dollars over the long term as our business and revenue continue to grow. We also
expect our cost of revenue as a percentage of revenue to fluctuate
period-over-period.
Sales and marketing. Sales and marketing expenses consist primarily of user
acquisition costs, other advertising expenses, personnel-related expenses for
salaries, employee benefits, and stock-based compensation for employees engaged
in sales and marketing, and amortization of acquired user-related intangible
assets, marketing programs, travel, customer service costs, and allocated
facilities and information technology costs.
We plan to continue to invest in sales and marketing to grow our customer base
and increase brand awareness. As a result, we expect sales and marketing
expenses to increase in absolute dollars. We also expect our sales and marketing
expenses as a percentage of revenue to fluctuate period-over-period in the near
term as we invest to grow our customer base and increase brand awareness, and to
decrease over the long term as we benefit from greater scale.
Research and development. Research and development expenses consist primarily of
product development costs, including personnel-related expenses for salaries,
employee benefits, and stock-based compensation for employees engaged in
research and development, professional services costs related to development of
new apps by third parties, consulting costs, regulatory compliance costs, and
allocated facilities and information technology costs.
We plan to continue to invest in research and development to continue to enhance
our Core Technologies and Software Platform, and to improve existing games and
develop new games. As a result, we expect research and development expenses to
increase in absolute dollars. We also expect our research and development
expenses as a percentage of revenue to fluctuate period-over-period in the near
term as we invest to enhance our Core Technologies and Software Platform and
improve our existing Apps and develop new Apps, and to decrease over the long
term as we benefit from greater scale.
General and administrative. General and administrative expenses consist
primarily of costs incurred to support our business, including personnel-related
expenses for salaries, employee benefits, and stock-based compensation for
employees engaged in finance, accounting, legal, human resources and
administration, professional services fees for legal, accounting, recruiting,
and administrative services (including acquisition-related expenses), insurance,
travel, and allocated facilities and information technology costs.
We plan to continue to invest in our general and administrative function to
support the growth of our business. In addition, we expect to incur additional
general and administrative expenses as a result of operating as a public
company, including expenses related to compliance and reporting obligations of a
public company, increased insurance and investor relations expenses, and
increased professional services fees (including acquisition-related expenses).
As a result, we expect general and administrative expenses to increase in
absolute dollars. We also expect our general and administrative expenses as a
percentage of revenue to fluctuate period-over-period in the near term as we
invest to support the growth of our business, and to decrease over the long term
as we benefit from greater scale.
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Other Income and Expenses
Interest expense and loss on settlement of debt. Interest expense and loss on settlement of debt consists primarily of loss related to debt extinguishment, interest expense associated with our outstanding debt, including accretion of debt discount, and changes in fair value of interest rate swap accounted for as a cash flow hedge related to the stream of variable interest payments associated with a portion of our outstanding debt. Other income (expense), net. Other income, net, includes interest earned on our cash and cash equivalents, gains and losses related to embedded derivatives and other financial instruments accounted for at fair value, and foreign currency exchange gains (losses), which consist primarily of remeasurement of transactions and monetary assets and liabilities denominated in currencies other than the functional currency at the end of the period. Provision for (benefit from) income taxes. We are subject to income taxes inthe United States and foreign jurisdictions in which we do business. These foreign jurisdictions have different statutory tax rates than those inthe United States . Additionally, certain of our foreign earnings may also be taxable inthe United States . Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, impacts from acquisition restructuring, deduction benefits related to foreign-derived intangible income, future changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. Additionally, our effective tax rate can vary based on the amount of pre-tax income or loss.
Results of Operations
The following table summarizes our historical condensed consolidated statements of operations data:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Revenue $ 776,231 $
668,806
303,929 245,853 585,709 468,914
Sales and marketing(1)(2) 232,096 265,463 522,229 530,976
Research and development(1) 141,108 77,462 267,358 138,338
General and administrative(1) 45,743 45,050 100,988 88,012
Total costs and expenses 722,876 633,828 1,476,284 1,226,240
Income (loss) from operations 53,355 34,978 (74,632) 46,443
Other income (expense):
Interest expense and loss on settlement of
debt (36,505) (19,030) (68,514) (54,040)
Other income (expense), net 518 (1,570) 2,532 8,220
Total other expense (35,987) (20,600) (65,982) (45,820)
Income (loss) before income taxes 17,368 14,378 (140,614) 623
Provision for (benefit from) income taxes 39,167 14 (3,517) (3,166)
Net income (loss) $ (21,799) $ 14,364 $ (137,097) $ 3,789
__________________
(1) Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Cost of revenue $ 2,706 $ 473 $ 3,758 $ 582
Sales and marketing 13,432 2,221 20,351 4,040
Research and development 25,890 13,573 46,519 20,038
General and administrative 15,128 10,877 31,168 32,443
Total stock-based compensation $ 57,156 $
27,144
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(2) Includes amortization expense related to acquired intangibles as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Cost of revenue $ 126,237 $ 95,200 $ 230,856 $ 177,385
Sales and marketing 16,532 6,034 32,924 9,243
Total amortization expense related to
acquired intangibles $ 142,769 $
101,234
The following table sets forth the components of our condensed consolidated
statements of operations for each of the periods presented as a percentage of
revenue(1):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Costs and expenses:
Cost of revenue 39 % 37 % 42 % 37 %
Sales and marketing 30 % 40 % 37 % 42 %
Research and development 18 % 12 % 19 % 11 %
General and administrative 6 % 7 % 7 % 7 %
Total costs and expenses 93 % 95 % 105 % 96 %
Income (loss) from operations 7 % 5 % (5) % 4 %
Other income (expense):
Interest expense and loss on settlement of
debt (5) % (3) % (5) % (4) %
Other income (expense), net 0 % 0 % 0 % 1 %
Total other expense (5) % (3) % (5) % (4) %
Income (loss) before income taxes 2 % 2 % (10) % - %
Provision for (benefit from) income taxes 5 % 0 % 0 % 0 %
Net income (loss) (3) % 2 % (10) % - %
_________________
(1) Totals of percentages of revenue may not foot due to rounding.
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Comparison of Our Results of Operations for the Three and Six Months EndedJune 30, 2022 and 2021 Revenue Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to 2022 2022 2022 2021 % change 2022 2021 % change (in thousands, except percentages) (in thousands, except percentages)
Software Platform Revenue
118 %$ 436,380 $ 234,083 86 % Consumer Revenue 303,268 360,919 (16) % 642,740 719,414 (11) % Business Revenue 155,423 162,223 (4) % 322,532 319,186 1 % Apps Revenue 458,691 523,142 (12) % 965,272 1,038,600 (7) % Total Revenue$ 776,231 $ 668,806 16 %$ 1,401,652 $ 1,272,683 10 %
Three Months Ended
For the three months endedJune 30, 2022 , our Software Platform Revenue increased by$171.9 million , or 118%, from the prior year period primarily due to AppDiscovery where installations increased 47% and price per installation increased 58% compared to the prior year period, as well as the contribution from Adjust and Wurl. Usage of advertising inventory by our studios that we own ("Owned Studios ") andPartner Studios represented 14% of installations during the three months endedJune 30, 2022 . We do not recognize Software Platform Revenue from transactions with ourOwned Studios andPartner Studios . For the three months endedJune 30, 2022 , our Apps Revenue decreased by$64.5 million , or 12%, from the prior year period. For the three months endedJune 30, 2022 , our Consumer Revenue from Apps decreased by$57.7 million from the prior year period, primarily due to a 19% decrease in the volume of in-app purchases, partially offset by a 4% increase in price per in-app purchase. Consumer Revenue from existing and newly developed Apps by ourOwned Studios andPartner Studios decreased$75.2 million , while Apps acquired sinceJune 30, 2021 generated a partially offsetting Consumer Revenue increase of$17.6 million . The decrease in our Business Revenue from Apps of$6.8 million was primarily a result of a net Business Revenue decrease of$26.7 million from existing and newly developed Apps by ourOwned Studios andPartner Studios , partially offset by a$19.9 million increase in advertising revenue. Our Business Revenue from Apps declined due to a 46% decrease in the volume of advertising impressions partially offset by a 78% increase in price per advertising impression compared to the prior year period. We do not recognize Business Revenue from transactions with ourOwned Studios andPartner Studios .
Six Months Ended
For the six months endedJune 30, 2022 , our Software Platform Revenue increased by$202.3 million , or 86%, from the prior year period primarily due to AppDiscovery where installations increased 46% and price per installation increased 81% compared to the prior year period, as well as the contribution from MoPub and Adjust, partially offset by one-time publisher bonuses of$209.6 million , which are accounted for as a reduction to revenue since the publishers receiving such bonuses are also our customers. Usage of advertising inventory by ourOwned Studios andPartner Studios represented 14% of installations during the six months endedJune 30, 2022 . We do not recognize Software Platform Revenue from transactions with ourOwned Studios andPartner Studios . For the six months endedJune 30, 2022 , our Apps Revenue decreased by$73.3 million , or 7%, from the prior year period. For the six months endedJune 30, 2022 , our Consumer Revenue from Apps decreased by$76.7 million , or 11%, from the prior year period, primarily due to a 15% decrease in the volume of in-app purchases, partially offset by a 6% increase in price per in-app purchase. Our Business Revenue from Apps declined$3.3 million , or 1%, due to a 28% decrease in the volume of advertising impressions partially offset by a 40% increase in price per advertising impression compared to the prior year period. We do not recognize Business Revenue from transactions with ourOwned Studios andPartner Studios . 36
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Cost of revenue
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Cost of revenue $ 303,929 $ 245,853 24 % $ 585,709 $ 468,914 25 %
Percentage of revenue 39 % 37 % 42 % 37 %
Cost of revenue in the three months ended June 30, 2022 increased by $58.1
million , or 24%, compared to the same period in the prior year. The increase in
the three months ended June 30, 2022 was primarily due to an increase of
$36.8 million in expenses associated with operating our network infrastructure
driven by the growth in our operations and an increase of $33.0 million in
depreciation and amortization of acquired-technology driven by an increase in
acquisition activity subsequent to the prior year period, partially offset by a
decrease of $19.0 million in third-party payment processing fees paid associated
with in-app purchases.
Cost of revenue in the six months ended June 30, 2022 increased by $116.8
million , or 25%, compared to the same period in the prior year. The increase in
the six months ended June 30, 2022 was primarily due to an increase of $63.8
million in expenses associated with operating our network infrastructure driven
by the growth in our operations, an increase of $60.3 million in depreciation
and amortization of acquired-technology driven by an increase in acquisition
activity subsequent to the prior year period, and an increase of $5.6 million in
professional services to support our network infrastructure, partially offset by
a decrease of $28.1 million in third-party payment processing fees paid
associated with in-app purchases.
Sales and marketing
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Sales and marketing $ 232,096 $ 265,463 (13) % $ 522,229 $ 530,976 (2) %
Percentage of revenue 30 % 40 % 37 % 42 %
Sales and marketing expenses in the three months ended June 30, 2022 decreased
by $33.4 million , or 13%, compared to the same period in the prior year
primarily due to a $67.7 million decrease in user acquisition costs, offset by
an increase of $19.2 million in personnel-related expenses related to an
increase in stock-based compensation as a result of higher grant date fair value
of our common stock and an increase in headcount, an increase of $10.4
million in depreciation and amortization of intangible assets driven by an
increase in acquisition activity, and an increase of $3.1 million in
professional services costs.
Sales and marketing expenses in the six months ended June 30, 2022 decreased by
$8.7 million , or 2%, compared to the same period in the prior year primarily due
to a $83.5 million decrease in user acquisition costs, offset by an increase of
$34.4 million in personnel-related expenses related to an increase in
stock-based compensation as a result of an increase in headcount, an increase of
$23.6 million in depreciation and amortization of intangible assets driven by an
increase in acquisition activity, and an increase of $12.4 million in
professional services costs.
Research and development
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Research and development $ 141,108 $ 77,462 82 % $ 267,358 $ 138,338 93 %
Percentage of revenue 18 % 12 % 19 % 11 %
Research and development expenses in the three months ended June 30, 2022
increased by $63.6 million , or 82%, compared to the same period in the prior
year. This increase was primarily due to an increase of $33.5 million in
professional services costs related to development of new apps by third parties
and an increase of $28.1 million in personnel-related expenses primarily related
to an increase in stock-based compensation as a result of an increase in
headcount.
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Research and development expenses in the six months endedJune 30, 2022 increased by$129.0 million , or 93%, compared to the same period in the prior year. This increase was primarily due to an increase of$72.5 million in professional services costs related to development of new apps by third parties and an increase of$52.7 million in personnel-related expenses primarily related to an increase in stock-based compensation as a result of higher grant date fair value of our common stock and an increase in headcount. General and administrative Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to 2022 2022 2022 2021 % Change 2022 2021 % Change (in thousands, except percentages) (in thousands, except percentages) General and administrative$ 45,743 $ 45,050 2 %$ 100,988 $ 88,012 15 % Percentage of revenue 6 % 7 % 7 % 7 % General and administrative expenses in the three months endedJune 30, 2022 increased by$0.7 million , or 2%, compared to the same period in the prior year. This increase was primarily due to an increase in equipment and software expenses of$0.8 million to support growth, offset by a decrease of$1.5 million in payroll and related costs associated with bonuses in the prior year, and$1.1 million in professional services costs primarily associated with audit, tax and legal support.
General and administrative expenses in the six months ended
Interest expense and loss on settlement of debt
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Interest expense and loss on
settlement of debt $ (36,505) $ (19,030) 92 % $ (68,514) $ (54,040) 27 %
Percentage of revenue (5) % (3) % (5) % (4) %
In the three months ended June 30, 2022 , interest expense and loss on settlement
of debt increased by $17.5 million , or 92%, compared to the same period in the
prior year. This increase was primarily due to an increase of $16.5 million in
interest expense related to an increase in LIBOR during the period.
In the six months ended June 30, 2022 , interest expense and loss on settlement
of debt increased by $14.5 million , or 27%, compared to the same period in the
prior year. This increase was primary due to an increase of $28.8 million in
interest expense related to an increase in the term loans balance, partially
offset by a loss on the settlement of term loans of $16.9 million during the
prior year period.
Other income (expense), net
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Other income (expense), net $ 518 $ (1,570) (133) % $ 2,532 $ 8,220 (69) %
Percentage of revenue - % - % - % 1 %
In the three months ended June 30, 2022 , other income (expense), net increased
by $2.1 million , or 133%, compared to the same period in the prior year. The
increase was primarily due to an increase in interest income of $1.8 million , a
fair value remeasurement loss of $1.8 million related to convertible securities
in the prior year period, an unrealized loss of $0.6 million related to
marketable equity securities in the prior year period, partially offset by an
increase in foreign exchange losses of $2.0 million .
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In the six months endedJune 30, 2022 , other income (expense), net decreased by$5.7 million , or 69%, compared to the same period in the prior year. The decrease was primarily due to a fair value remeasurement gain of$7.6 million related to term loan embedded derivatives in the prior year period,$3.4 million in debt issuance costs in the prior year period, a fair value remeasurement loss of$2.5 million related to convertible securities in the prior year period, and an increase in foreign exchange losses of$3.6 million .
Provision for (benefit from) Income Taxes
Three Months Ended June 30, Six Months Ended June 30, 2021 to
2021 to 2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Provision for (benefit from)
Income Taxes $ 39,167 $ 14 * $ (3,517) $ (3,166) 11 %
Percentage of revenue 5 % - % - % - %
_________________
*Percentage not meaningful
In the three months endedJune 30, 2022 , the provision for income taxes increased to$39.2 million from$0.01 million in the same period in the prior year. The increase in tax provision was driven by an increase of$69.9 million due to global intangible low-taxed income, an increase of$68.9 million due to nondeductible stock-based compensation expense, an increase of$49.3 million due to valuation allowance, and an increase of$6.0 million due to higher pre-tax income during the three months endedJune 30, 2022 , partially offset by an increase of$128.1 million due to foreign derived intangible income deduction, an increase of$29.7 million due to research and development credit, and an increase of$2.3 million due to foreign loss inclusion. In the six months endedJune 30, 2022 , benefit from income taxes increased by$0.4 million , or 11%, compared to the same period in the prior year. The increase in tax benefit was driven by an increase of$79.2 million due to foreign derived intangible income deduction, an increase of$29.8 million due to higher pre-tax loss during the six months endedJune 30, 3022 , an increase of$20.6 million due to research and development credit, and an increase of$0.4 million due to foreign loss inclusion, partially offset by an increase of$48.6 million due to global intangible low-taxed income, an increase of$47.3 million due to nondeductible stock-based compensation expense, an increase of$31.4 million due to valuation allowance, and an increase of$1.6 million due to nondeductible expenses. 39
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Comparison of our Segment Results of Operations
The following table presents the results for our Software Platform and Apps segment adjusted EBITDA for the periods indicated:
Three Months Ended June 30, 2021 to Six Months Ended June 30, 2021 to
2022 2022
2022 2021 % change 2022 2021 % change
(in thousands, except percentages) (in thousands, except percentages)
Software Platform Adjusted
EBITDA 196,744 91,850 114 % 432,299 151,240 186 %
Apps Adjusted EBITDA 73,000 91,882 (21) % 113,674 163,554 (30) %
Three Months Ended
The$104.9 million or 114% increase in Software Platform Adjusted EBITDA for the three months endedJune 30, 2022 was primarily driven by an increase in Software Platform revenue of$171.9 million , partially offset by an increase of$36.3 million in expenses associated with operating our network infrastructure and an increase of$21.6 million in personnel-related expenses related to an increase in headcount primarily due to the acquisitions of Adjust and Wurl. The$18.9 million , or 21%, decrease in Apps Adjusted EBITDA for the three months endedJune 30, 2022 was primarily driven by a decrease in Apps Revenue of$64.5 million and a$34.3 million increase in professional services costs related to development of new apps by third parties, partially offset by a$67.7 million decrease in user acquisition costs, and a decrease of$19.0 million in third-party payment processing fees paid associated with in-app purchases.
Six Months Ended
The$281.1 million , or 186%, increase in Software Platform Adjusted EBITDA for the six months endedJune 30, 2022 was primarily driven by an increase in Software Platform revenue of$202.3 million , partially offset by an increase of$62.9 million in expenses associated with operating our network infrastructure and an increase of$46.7 million in personnel-related expenses related to an increase in headcount primarily due to the acquisitions of Adjust and Wurl. In addition, Software Platform Adjusted EBITDA for the six months endedJune 30, 2022 has been adjusted to exclude one-time publisher bonuses of$209.6 million for the six months endedJune 30, 2022 . The$49.9 million , or 30%, decrease in Apps Adjusted EBITDA for the six months endedJune 30, 2022 was primarily driven by a decrease in Apps Revenue of$73.3 million and a$73.3 million increase in professional services costs related to development of new apps by third parties, partially offset by a$83.5 million decrease in user acquisition costs, and a$28.1 million decrease in third-party payment processing fees paid associated with in-app purchases.
Liquidity and Capital Resources
Since inception, we financed our operations primarily through payments received from clients using our Software Platform and advertising on our Apps, and from user IAPs from our Apps, and through net proceeds we received from the sales of our convertible preferred stock and borrowings made under our Credit Agreement, as defined below. As ofJune 30, 2022 , we had cash and cash equivalents of$951.6 million . We believe that our existing cash and cash equivalents would be sufficient to satisfy our anticipated working capital and capital expenditures needs for at least the next 12 months. Our future capital requirements, however, will depend on many factors, including our growth rate; expansion of sales and marketing activities; timing and extent of spending to support our research and development efforts; capital expenditures to purchase hardware and software; and our continued need to invest in our IT infrastructure to support our growth. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may be required to seek additional equity or debt financing sooner than we currently anticipate. If additional financing from outside sources is required, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be adversely affected. 40
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The following table summarizes our cash flows for the periods indicated:
Six Months Ended
June 30,
2022 2021
(in thousands)
Net cash provided by operating activities $ 75,092 $ 152,276
Net cash used in investing activities$ (1,351,744) $
(1,023,182)
Net cash provided by (used in) financing activities
Operating Activities Net cash provided by operating activities was$75.1 million for the six months endedJune 30, 2022 , primarily consisting of$137.1 million of net loss, adjusted for certain non-cash items, which included$281.7 million of amortization, depreciation, and write-offs,$101.8 million of stock-based compensation expense,$10.6 million of change in operating right of use asset,$6.8 million of amortization of debt issuance costs and discount, and$1.8 million of net unrealized losses on fair value remeasurements, partially offset by a net increase in operating assets and liabilities of$189.1 million . The net increase in the operating assets and liabilities was primarily driven by an increase in accounts receivable, prepaid expenses, and other current assets and decreases in operating lease liabilities and deferred revenue, partially offset by higher accounts payable and accrued and other liabilities. Net cash provided by operating activities was$152.3 million for the six months endedJune 30, 2021 , primarily consisting of$3.8 million of net loss, adjusted for certain non-cash items, which included$196.0 million of amortization, depreciation, and write-offs,$57.1 million of stock-based compensation expense,$16.9 million of loss on settlement of debt,$9.9 million of net unrealized gains on fair value remeasurements,$12.3 million of change in operating right of use asset, and$6.4 million of amortization of debt issuance costs and discount, partially offset by a net increase in the operating assets and liabilities of$131.2 million . The net increase in the operating assets and liabilities was primarily driven by an increase in accounts receivable, prepaid expenses and other current assets, and a decrease in operating lease liabilities partially offset by higher accounts payable.
Investing Activities
Net cash used in investing activities was$1.4 billion for the six months endedJune 30, 2022 , primarily consisting of$1.3 billion related to acquisitions and$56.5 million in purchases of non-marketable investments and other, partially offset by$2.2 million in proceeds from other investing activity. Net cash used in investing activities was$1.0 billion for the six months endedJune 30, 2021 , primarily consisting of$1.0 billion related to acquisitions and$14.0 million in purchases of non-marketable investments and other, partially offset by$10.0 million in proceeds from other investing activity.
Financing Activities
Net cash used in financing activities was$335.0 million for the six months endedJune 30, 2022 , primarily consisting of repurchases of stock under the repurchase program of$244.0 million , payments for license asset obligations of$17.4 million , payments for deferred acquisition costs of$71.7 million , payments for finance leases of$12.3 million , and repayments of debt principal of$9.2 million , partially offset by$15.9 million proceeds from exercise of stock options. Net cash provided by financing activities was$1.7 billion for the six months endedJune 30, 2021 , primarily consisting of$1.7 billion of proceeds from issuance of common stock in initial public offering, net of issuance costs as adjusted for cost reimbursement,$844.7 million of proceeds from debt issuance, and$17.9 million of proceeds from exercise of stock awards, partially offset by payments of debt principal of$706.9 million , deferred acquisition costs of$157.6 million , and finance leases of$4.6 million .
Credit Agreement
We are party to a credit agreement (the "Credit Agreement"), which provides for senior secured term loans and a revolving credit facility. As ofJune 30, 2022 , our total outstanding indebtedness under the Credit Agreement was$3.26 billion , consisting of outstanding term loans. 41
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Contractual Obligations
InApril 2022 , we completed our acquisition ofWurl, Inc. ("Wurl"), a software platform company in the Connected TV market. A portion of the$378.2 million total purchase price consisted of a deferred payment of$21.5 million representing the present value of an indemnity holdback amount of$23.0 million to be paid inOctober 2023 , 18-months following the closing of the transaction. In connection with the acquisition of Wurl, we 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 our 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. Such plan became effective at the closing of the transaction. In the six months endedJune 30, 2022 , we invested or committed to invest in certain private equity funds. As ofJune 30, 2022 these unfunded commitments were$38.0 million . As ofJune 30, 2022 , our non-cancelable minimum purchase commitments primarily consisted of certain cloud service arrangements. InMay 2022 , we amended these agreements to increase the aggregate spend commitment from$300.0 million to$550.0 million throughMay 2025 . As ofJune 30, 2022 , we have not yet made any payments towards this commitment. With the exception of the transactions described above and except for scheduled payments from the ongoing business, there were no material changes in our commitments under contractual obligations as ofDecember 31, 2021 as disclosed in our Annual Report on Form 10-K filed with theSEC .
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates during the six months endedJune 30, 2022 , as compared to those disclosed in our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K filed with theSEC .
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies" of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
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