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. We have also rapidly scaled a diversified portfolio of owned mobile apps and accelerated our market penetration through an active acquisition and partnership strategy. Our scaled 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 sixteen studios. For the three months endedSeptember 30, 2022 , our revenue declined 2% year-over-year, from$727.0 million in the three months endedSeptember 30, 2021 to$713.1 million in the comparative period in 2022. We generated net income of$23.7 million for the three months endedSeptember 30, 2022 , and net income of$0.1 million in the comparative period in 2021. We generated Adjusted EBITDA of$257.6 million and$190.7 million for the three months endedSeptember 30, 2022 and 2021, respectively. Additionally, our net cash provided by operating activities was$249.6 million and$276.8 million in the nine months endedSeptember 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 endedSeptember 30, 2022 , Software Platform Revenue represented 43% of total revenue and Apps Revenue represented 57% of total revenue. In the second quarter of 2022, we revised the presentation of segment information to align with changes to how our chief operating decision maker ("CODM"), which as ofSeptember 30, 2022 , was our Chief Executive Officer, allocates resources and assesses performance. Beginning in the second quarter of 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.
27--------------------------------------------------------------------------------
Table of contents
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 ofSeptember 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 166% for the twelve months endedSeptember 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 andSeptember 30, 2022 . During the three months endedSeptember 30, 2022 , we had an average of 2.2 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of$41 . 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 33% of total Apps Revenue in the three months endedSeptember 30, 2022 . __________________ 1 We measure Net Dollar-Based Retention Rate for the twelve months endedSeptember 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 endedSeptember 30, 2021 from our Software Platform Enterprise Clients as ofSeptember 30, 2021 . Current period revenue is revenue for the twelve months endedSeptember 30, 2022 from Software Platform Enterprise Clients as ofSeptember 30, 2021 . See the section titled "Key Metrics" below. 28
--------------------------------------------------------------------------------
Table of contents
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.
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.
The following table shows our SPEC and Revenue per SPEC as of September 30, 2022
and 2021.
Twelve Months Ended September 30,
2022 2021
SPEC (trailing 12 months) 538 292
Revenue per SPEC (trailing 12 months) (in thousands) $
1,903
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 September 30,
2022 2021
Total Software Transaction Value $ 341,710 $
275,619
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 98% of our Consumer Revenue during the
three months ended September 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.
29--------------------------------------------------------------------------------
Table of contents
The following table shows our Monthly Active Payers and Average Revenue Per Monthly Active Payer for the three months endedSeptember 30, 2022 and 2021. Three Months Ended September 30, 2022 2021 Monthly Active Payers (millions) 2.2 2.9 Average Revenue Per Monthly Active Payer $
41
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.
30--------------------------------------------------------------------------------
Table of contents
The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for
the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands. except percentages) (in thousands. except percentages)
Revenue $ 713,099 $ 726,951 $ 2,114,751 $ 1,999,634
Net income (loss) $ 23,662 $ 142 $ (113,435) $ 3,931
Net Margin 3.3% -% (5.4)% 0.2%
Adjusted as follows:
Interest expense and loss on settlement of
debt, net 48,627 18,756 117,141 72,796
Other (income) expense, net1 (3,604) 103 (8,473) (6,852)
Provision for (benefit from) income taxes (22,053) 16,933 (25,570) 13,767
Amortization, depreciation and write-offs 163,830 119,436 445,507 315,409
Non-operating foreign exchange loss (gain) (406) (235) (1,683) (1,510)
Stock-based compensation2 42,147 34,725 143,943 94,119
Acquisition-related expense and transaction
bonus 4,317 1,066 21,052 14,060
Publisher bonuses3 - - 209,635 -
MoPub acquisition transition services4 - - 6,999 -
Restructuring costs 1,117 - 8,494 -
Change in fair value of contingent
consideration - (230) - (230)
Adjusted EBITDA $ 257,637 $ 190,696 $ 803,610 $ 505,490
Adjusted EBITDA Margin 36.1 % 26.2 % 38.0 % 25.3 %
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 nine months ended
31--------------------------------------------------------------------------------
Table of contents
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 endedSeptember 30, 2022 , only 41% 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. For example, we have reduced our user acquisition spend for our portfolio of Apps as we increased our desired return goals, which has led to improved App segment Adjusted EBITDA margin, but also contributed to a decline in MAPs. Our strategic review is ongoing and may result in the retention, restructure, or sale of certain assets, or no change to certain of our Apps assets. We may also choose to make further 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 throughSeptember 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 been affected by the recent economic uncertainty, including by advertisers
more closely managing budgets and reducing overall spend, which has resulted in
slowed growth for our Software Platform in recent quarters. We expect that any
further slowing, or acceleration, of our 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.
32
--------------------------------------------------------------------------------
Table of contents
Mobile app developers, including AppLovin , rely on third-party platforms, such
as the Apple App Store and Google 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, in April 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 in December 2020 , which has resulted in increased compliance
requirements and could result in decreased usage of our Apps. In February 2022 ,
Google announced its Privacy Sandbox initiative for Android, expecting to
restrict tracking activity and limit advertisers' ability to collect app and
user data across Android devices by Q3, 2023. These or any similar changes to
the policies of Apple or Google may materially and adversely affect our
business, financial condition, and results of operations. To date, these data
privacy changes have had some impact on the discoverability of apps across these
platforms, though they have had a relatively muted aggregate impact on our
overall results of operations.
New tools for developers, industry standards, and platforms may emerge in the
future. We believe our focus on the mobile app ecosystem has allowed us to
understand the needs of our clients and our relentless innovation has enabled us
to quickly adapt to changes in the industry and pioneer new solutions. We must
continue to innovate and stay ahead of developments in the mobile app ecosystem
in order for our business to succeed and our results of operations to continue
to improve.
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 have caused and may continue to 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 steps to comply with applicable domestic and international regulatory restrictions on international trade and financial transactions. In connection with our compliance efforts, we have identified active clients and vendors insideRussia andBelarus that are subject to evolving sanctions imposed bythe United States and/or theEuropean Union and have terminated or suspended our contracts with them. 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 clients and vendors that are subject to duly authorized sanctions will not have a material impact on our business or other client relationships. Management and our 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. 33
--------------------------------------------------------------------------------
Table of contents
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 33% of total Apps Revenue for the three months endedSeptember 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 Software
Platform customer base and increase brand awareness. We also plan to continue to
invest in new App launches to the extent we see opportunities for cost-effective
growth. As a result, we expect sales and marketing expenses to increase in
absolute dollars over the long-term, though they may fluctuate
period-over-period in the near term as we reduce our user acquisition spend for
our portfolio of Apps. 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 over the long term, though they may fluctuate
period-over-period in the near term as we reassess in which areas to focus our
investment. 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.
34--------------------------------------------------------------------------------
Table of contents
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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Revenue $ 713,099 $ 726,951 $ 2,114,751 $ 1,999,634
Costs and expenses:
Cost of revenue(1)(2) 300,988 254,052 886,697 722,966
Sales and marketing(1)(2) 196,785 285,224 719,014 816,200
Research and development(1) 122,059 108,523 389,417 246,861
General and administrative(1) 44,000 34,104 144,988 122,116
Total costs and expenses 663,832 681,903 2,140,116 1,908,143
Income (loss) from operations 49,267 45,048 (25,365) 91,491
Other income (expense):
Interest expense and loss on settlement of
debt (48,627) (18,756) (117,141) (72,796)
Other income (expense), net 969 (9,217) 3,501 (997)
Total other expense (47,658) (27,973) (113,640) (73,793)
Income (loss) before income taxes 1,609 17,075 (139,005) 17,698
Provision for (benefit from) income taxes (22,053) 16,933 (25,570) 13,767
Net income (loss) $ 23,662 $ 142 $ (113,435) $ 3,931
__________________
(1) Includes stock-based compensation expense as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Cost of revenue $ 1,230 $ 922 $ 4,988 $ 1,504
Sales and marketing 10,035 4,774 30,386 8,814
Research and development 21,569 20,110 68,088 40,148
General and administrative 9,313 8,919 40,481 41,362
Total stock-based compensation $ 42,147 $
34,725
35--------------------------------------------------------------------------------
Table of contents
(2) Includes amortization expense related to acquired intangibles as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Cost of revenue $ 111,259 $ 96,059 $ 342,115 $ 273,444
Sales and marketing 16,619 6,765 49,543 16,008
Total amortization expense related to
acquired intangibles $ 127,878 $ 102,824 $ 391,658 $ 289,452
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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Costs and expenses:
Cost of revenue 42 % 35 % 42 % 36 %
Sales and marketing 28 % 39 % 34 % 41 %
Research and development 17 % 15 % 18 % 12 %
General and administrative 6 % 5 % 7 % 6 %
Total costs and expenses 93 % 94 % 101 % 95 %
Income (loss) from operations 7 % 6 % (1) % 5 %
Other income (expense):
Interest expense and loss on settlement of
debt (7) % (3) % (6) % (4) %
Other income (expense), net 0 % (1) % 0 % 0 %
Total other expense (7) % (4) % (5) % (4) %
Income (loss) before income taxes - % 2 % (7) % 1 %
Provision for (benefit from) income taxes (3) % 2 % (1) % 1 %
Net income (loss) 3 % - % (5) % - %
_________________
(1) Totals of percentages of revenue may not foot due to rounding.
36--------------------------------------------------------------------------------
Table of contents
Comparison of Our Results of Operations for the Three and Nine Months EndedSeptember 30, 2022 and 2021 Revenue Three Months Ended September 30, 2021 to Nine Months Ended September 30, 2021 to 2022 2022 2022 2021 % change 2022 2021 % change (in thousands, except percentages) (in thousands, except percentages) Software Platform Revenue$ 306,592 $ 193,307 59 % $ 742,972$ 427,390 74 % Consumer Revenue 272,437 377,436 (28) % 915,177 1,096,850 (17) % Business Revenue 134,070 156,208 (14) % 456,602 475,394 (4) % Apps Revenue 406,507 533,644 (24) % 1,371,779 1,572,244 (13) % Total Revenue$ 713,099 $ 726,951 (2) %$ 2,114,751 $ 1,999,634 6 %
Three Months Ended
For the three months endedSeptember 30, 2022 , our Software Platform Revenue increased by$113.3 million , or 59%, from the prior year period primarily due to AppDiscovery where installations increased 19% and price per installation increased 33% compared to the prior year period, as well as the contribution from Wurl and continued growth of MAX. We do not recognize Software Platform Revenue from transactions with ourOwned Studios andPartner Studios . For the three months endedSeptember 30, 2022 , our Apps Revenue decreased by$127.1 million , or 24%, from the prior year period. For the three months endedSeptember 30, 2022 , our Consumer Revenue from Apps decreased by$105.0 million from the prior year period, primarily due to a 28% decrease in the volume of in-app purchases, while the price per in-app purchase remained stable. Consumer Revenue from existing and newly developed Apps by ourOwned Studios andPartner Studios decreased$108.7 million primarily due to decreases in revenue from our Project Makeover andMatchington Mansion apps, while Apps acquired sinceSeptember 30, 2021 generated a partially offsetting Consumer Revenue increase of$3.7 million . The decrease in our Business Revenue from Apps of$22.1 million was primarily a result of existing and newly developed Apps by ourOwned Studios andPartner Studios , which decreased$30.3 million , while Apps acquired sinceSeptember 30, 2021 generated a partially offsetting increase of$8.2 million . Our Business Revenue from Apps declined due to a 14% decrease in price per advertising impression compared to the prior year period, while the volume of advertising impressions remained flat.
Nine Months Ended
For the nine months endedSeptember 30, 2022 , our Software Platform Revenue increased by$315.6 million , or 74%, from the prior year period primarily due to AppDiscovery where installations increased 36% and price per installation increased 59% 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. We do not recognize Software Platform Revenue from transactions with ourOwned Studios andPartner Studios . For the nine months endedSeptember 30, 2022 , our Apps Revenue decreased by$200.5 million , or 13%, from the prior year period. For the nine months endedSeptember 30, 2022 , our Consumer Revenue from Apps decreased by$181.7 million , or 17%, from the prior year period, primarily due to a 20% decrease in the volume of in-app purchases, partially offset by a 4% increase in price per in-app purchase. Our Business Revenue from Apps declined$18.8 million , or 4%, due to an 11% decrease in price per advertising impression partially offset by an 8% increase in the volume of advertising impressions compared to the prior year period. We do not recognize Apps Business Revenue from transactions with ourOwned Studios andPartner Studios . 37
--------------------------------------------------------------------------------
Table of contents
Cost of revenue
Three Months Ended September 30, 2021 to Nine Months Ended September 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Cost of revenue $ 300,988 $ 254,052 18 % $ 886,697 $ 722,966 23 %
Percentage of revenue 42 % 35 % 42 % 36 %
Cost of revenue in the three months ended September 30, 2022 increased by $46.9
million , or 18%, compared to the same period in the prior year. The increase in
the three months ended September 30, 2022 was primarily due to an increase of
$31.8 million in expenses associated with operating our network infrastructure
driven by the growth in our operations, and an increase of $44.7 million in
depreciation and amortization of acquired-technology driven by an increase in
acquisition activity subsequent to the prior year period and impairment charges,
partially offset by a decrease of $31.7 million in third-party payment
processing fees paid associated with in-app purchases.
Cost of revenue in the nine months ended September 30, 2022 increased by $163.7
million , or 23%, compared to the same period in the prior year. The increase in
the nine months ended September 30, 2022 was primarily due to an increase of
$95.5 million in expenses associated with operating our network infrastructure
driven by the growth in our operations, an increase of $105.1 million in
depreciation and amortization of acquired-technology driven by an increase in
acquisition activity subsequent to the prior year period and impairment charges,
offset by a decrease of $59.7 million in third-party payment processing fees
paid associated with in-app purchases.
Sales and marketing
Three Months Ended September 30, 2021 to Nine Months Ended September 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Sales and marketing $ 196,785 $ 285,224 (31) % $ 719,014 $ 816,200 (12) %
Percentage of revenue 28 % 39 % 34 % 41 %
Sales and marketing expenses in the three months ended September 30, 2022
decreased by $88.4 million , or 31%, compared to the same period in the prior
year primarily due to a $106.5 million decrease in user acquisition costs,
offset by an increase of $10.4 million in personnel-related expenses related to
an increase in stock-based compensation as a result of an increase in headcount
and an increase of $9.7 million in depreciation and amortization of intangible
assets driven by an increase in acquisition activity.
Sales and marketing expenses in the nine months ended September 30, 2022
decreased by $97.2 million , or 12%, compared to the same period in the prior
year primarily due to a $190.0 million decrease in user acquisition costs,
offset by an increase of $44.8 million in personnel-related expenses related to
an increase in stock-based compensation as a result of an increase in headcount
and an increase of $33.3 million in depreciation and amortization of intangible
assets driven by an increase in acquisition activity.
Research and development
Three Months Ended September 30, 2021 to Nine Months Ended September 30, 2021 to
2022 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Research and development $ 122,059 $ 108,523 12 % $ 389,417 $ 246,861 58 %
Percentage of revenue 17 % 15 % 18 % 12 %
Research and development expenses in the three months ended September 30, 2022
increased by $13.5 million , or 12%, compared to the same period in the prior
year. This increase was primarily due to an increase of $7.9 million in
professional services costs related to development of new apps by third parties
and an increase of $5.5 million in personnel-related expenses primarily related
to an increase in stock-based compensation as a result of an increase in
headcount.
38--------------------------------------------------------------------------------
Table of contents
Research and development expenses in the nine months endedSeptember 30, 2022 increased by$142.6 million , or 58%, compared to the same period in the prior year. This increase was primarily due to an increase of$80.5 million in professional services costs related to development of new apps by third parties and an increase of$58.2 million in personnel-related expenses primarily related to an increase in stock-based compensation as a result of an increase in headcount.
General and administrative
Three Months Ended September 2021 to 2021 to
30, 2022 Nine Months Ended September 30, 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
General and administrative $ 44,000 $ 34,104 29 % $ 144,988 $ 122,116 19 %
Percentage of revenue 6 % 5 % 7 % 6 %
General and administrative expenses in the three months ended September 30, 2022
increased by $9.9 million , or 29%, compared to the same period in the prior
year. This increase was primarily due to an increase of $3.8 million in
professional services costs primarily associated with acquisition-related costs
and audit, tax and legal support and an increase of $3.6 million in payroll and
related costs as a result of an increase in headcount.
General and administrative expenses in the nine months ended September 30, 2022
increased by $22.9 million , or 19%, compared to the same period in the prior
year. This increase was primarily due to an increase of $12.7 million in
acquisition-related stamp duty taxes.
Interest expense and loss on settlement of debt
Three Months Ended September 30, 2021 to Nine Months Ended September 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 $ (48,627) $ (18,756) 159 % $ (117,141) $ (72,796) 61 %
Percentage of revenue (7) % (3) % (6) % (4) %
In the three months ended September 30, 2022 , interest expense and loss on
settlement of debt increased by $29.9 million , or 159%, compared to the same
period in the prior year. This increase was primarily due to an increase of
$29.1 million in interest expense related to an increase in LIBOR during the
period.
In the nine months ended September 30, 2022 , interest expense and loss on
settlement of debt increased by $44.3 million , or 61%, compared to the same
period in the prior year. This increase was primary due to an increase of $57.9
million in interest expense related to an increase in the term loan balance and
increase in LIBOR during the period, partially offset by a loss on the
settlement of term loans of $16.9 million during the prior year period.
39--------------------------------------------------------------------------------
Table of contents
Other income (expense), net
Three Months Ended September 30, 2021 to Nine Months Ended September 30,
2022 2021 to 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Other income (expense), net $ 969 $ (9,217) 111 % $ 3,501 $ (997) *
Percentage of revenue - % (1) % - % - %
_________________
*Percentage not meaningful
In the three months ended September 30, 2022 , other income (expense), net
increased by $10.2 million , or 111%, compared to the same period in the prior
year. The increase was primarily due to a write-off of an investment in
non-marketable securities of $10.0 million in the prior year period, partially
offset by an increase in foreign exchange losses of $3.5 million .
In the nine months ended September 30, 2022 , other income (expense), net
increased by $4.5 million compared to the same period in the prior year. The
increase was primarily due to an increase in interest earned of $6.2 million , 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 write-off of an investment in non-marketable securities of
$10.0 million in the prior year period, and partially offset by foreign exchange
losses of $7.1 million .
Provision for (benefit from) Income Taxes
Three Months Ended September 30, 2021 to 2022 Nine Months Ended September 30, 2021 to 2022
2022 2021 % Change 2022 2021 % Change
(in thousands, except percentages) (in thousands, except percentages)
Provision for (benefit from)
Income Taxes $ (22,053) $ 16,933 * $ (25,570) $ 13,767 *
Percentage of revenue (3) % 2 % (1) % 1 %
_________________
*Percentage not meaningful
In the three months ended September 30, 2022 , benefit from income taxes
increased by $39.0 million compared to the same period in the prior year. The
increase in tax benefit was driven by increases in tax benefit of $36.9 million
due to stock-based compensation expense, $34.9 million due to global intangible
low-taxed income, $24.3 million due to foreign tax rate differential, $16.3
million due to valuation allowance, and $9.3 million due to higher pre-tax loss,
partially offset by decreases of tax benefit of $67.7 million due to foreign
derived intangible income deduction, $15.8 million due to research and
development credit, and $5.2 million due to foreign income inclusion.
In the nine months ended September 30, 2022 , benefit from income taxes increased
by $39.3 million compared to the same period in the prior year. The increase in
tax benefit was driven by increases in tax benefit of $38.2 million due to
higher pre-tax loss, $25.2 million due to foreign tax rate differential, $11.5
million due to foreign derived intangible income deduction, and $4.8 million due
to research and development credit, partially offset by decreases in tax benefit
of $15.0 million due to valuation allowance, $13.7 million due to global
intangible low-taxed income, $10.4 million due to non-deductible stock-based
compensation expense, and $5.7 million due to foreign income inclusion.
40--------------------------------------------------------------------------------
Table of contents
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 September 30, 2021 to Nine Months Ended September 30, 2021 to
2022 2022
2022 2021 % change 2022 2021 % change
(in thousands, except percentages) (in thousands, except percentages)
Software Platform Adjusted
EBITDA 190,256 130,663 46 % 622,555 281,904 121 %
Apps Adjusted EBITDA 67,381 60,033 12 % 181,055 223,586 (19) %
Three Months Ended
The$59.6 million , or 46%, increase in Software Platform Adjusted EBITDA for the three months endedSeptember 30, 2022 was primarily driven by an increase in Software Platform revenue of$113.3 million , partially offset by an increase of$30.6 million in expenses associated with our network infrastructure and an increase of$14.6 million in personnel-related expenses related to an increase in headcount primarily due to the acquisitions of Adjust and Wurl. The$7.3 million , or 12%, increase in Apps Adjusted EBITDA for the three months endedSeptember 30, 2022 was primarily driven by a$106.4 million decrease in user acquisition costs and a decrease of$31.7 million in third-party payment processing fees paid associated with in-app purchases, partially offset by a decrease in Apps Revenue of$127.1 million .
Nine Months Ended
The$340.7 million , or 121%, increase in Software Platform Adjusted EBITDA for the nine months endedSeptember 30 , was primarily driven by an increase in Software Platform revenue of$315.6 million , partially offset by an increase of$93.5 million in expenses associated with our network infrastructure and an increase of$61.2 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 nine months endedSeptember 30 , has been adjusted to exclude one-time publisher bonuses of$209.6 million for the nine months endedSeptember 30, 2022 . The$42.5 million , or 19%, decrease in Apps Adjusted EBITDA for the nine months endedSeptember 30 , was primarily driven by a decrease in Apps Revenue of$200.5 million and a$81.0 million increase in professional services costs related to development of new apps by third parties, partially offset by a$190.0 million decrease in user acquisition costs, and a$59.7 million decrease in third-party payment processing fees paid associated with in-app purchases.
Liquidity and Capital Resources
Since inception, we have 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 capital stock and borrowings made under our Credit Agreement, as defined below. As ofSeptember 30, 2022 , we had cash and cash equivalents of$943.5 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; 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. 41
--------------------------------------------------------------------------------
Table of contents
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30,
2022 2021
(in thousands)
Net cash provided by operating activities $ 249,574 $ 276,836
Net cash used in investing activities$ (1,393,754) $
(1,206,252)
Net cash provided by (used in) financing activities
Operating Activities Net cash provided by operating activities was$249.6 million for the nine months endedSeptember 30, 2022 , primarily consisting of$113.4 million of net loss, adjusted for certain non-cash items, which included$445.5 million of amortization, depreciation, and write-offs,$143.9 million of stock-based compensation expense,$13.7 million of change in operating right of use asset,$9.7 million of amortization of debt issuance costs and discount, and$2.3 million of net unrealized losses on fair value remeasurements, partially offset by a net increase in operating assets and liabilities of$252.0 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 accounts payable, operating lease liabilities and deferred revenue, and accrued and other liabilities. Net cash provided by operating activities was$276.8 million for the nine months endedSeptember 30, 2021 , primarily consisting of$3.9 million of net loss, adjusted for certain non-cash items, which included$315.4 million of amortization, depreciation, and write-offs,$91.8 million of stock-based compensation expense,$16.9 million of loss on settlement of debt,$9.3 million of net unrealized gains on fair value remeasurements,$18.2 million of change in operating right of use asset, and$9.0 million of amortization of debt issuance costs and discount, partially offset by a net increase in the operating assets and liabilities of$164.7 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
Net cash used in investing activities was$1.2 billion for the nine months endedSeptember 30, 2021 , primarily consisting of$1.2 billion related to acquisitions and$15.0 million in purchases of non-marketable investments and other, partially offset by$11.4 million in proceeds from other investing activity.
Financing Activities
Net cash used in financing activities was$471.4 million for the nine months endedSeptember 30, 2022 , primarily consisting of repurchases of stock under the repurchase program of$338.9 million , payments for deferred acquisition costs of$105.0 million , payments for finance leases of$18.1 million , repayments of debt principal of$17.5 million , and payments for license asset obligations of$17.4 million , partially offset by$21.7 million proceeds from exercise of stock options. Net cash provided by financing activities was$1.7 billion for the nine months endedSeptember 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$25.5 million of proceeds from exercise of stock awards, partially offset by payments of debt principal of$711.5 million , deferred acquisition costs of$231.7 million , and finance leases of$9.7 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 ofSeptember 30, 2022 , our total outstanding indebtedness under the Credit Agreement was$3.25 billion , consisting of outstanding term loans. 42
--------------------------------------------------------------------------------
Table of contents
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$21.8 million representing the present value of an indemnity holdback amount of$22.7 million , less any eligible claims against Wurl paid byAppLovin , to be paid inOctober 2023 , 18-months following the closing of the transaction. Eligible claims charged against the deferred payment were not material for the nine months endedSeptember 30, 2022 . 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 nine months ended
As ofSeptember 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 ofSeptember 30, 2022 , we have paid$44.8 million 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 nine months endedSeptember 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.
43--------------------------------------------------------------------------------
Table of contents
© Edgar Online, source
