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As filed with the Securities and Exchange Commission on July 28, 2021.

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ironSource Ltd.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

State of Israel   7374   Not Applicable
 

(State or Other Jurisdiction of Incorporation or Organization)

(Primary Standard Industrial Classification Code Number)

 

ironSource Ltd.

121 Menachem Begin Street

Tel Aviv 6701203, Israel

+972-747990001

(I.R.S. Employer Identification No.)

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Cogency Global Inc.

122 East 42nd Street,

18th Floor

New York, New York 10168

Tel: (800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all correspondence to:

 

Joshua G. Kiernan

Marc D. Jaffe

Eyal Orgad

Latham & Watkins LLP

99 Bishopsgate London

EC2M 3XF United Kingdom

Tel: (+44) (20) 7710-1000

 

Ryan J. Maierson

Latham & Watkins LLP

811 Main Street,

Suite 3700

Houston, Texas 77002

Tel: (713) 546-5400

 

Dan Shamgar

Shachar Hadar

Talya Gerstler

Jonathan M. Nathan

Meitar | Law Offices

16 Abba Hillel Road

Ramat Gan, 5250608, Israel

Tel: +972 (3) 610-3100

  

Dalia Litay

ironSource Ltd.

121 Menachem Begin Street

Tel Aviv 6701203, Israel

Tel: +972 (74) 799-0001

 

 

Approximate date of commencement of proposed sale to the public:

From time to time after the effectiveness of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class

of Securities to be Registered

  Amount to be
Registered(1)(2)
  Proposed Maximum
Offering Price per
Security(3)
  Proposed Maximum
Aggregate Offering
Price
 

Amount of

Registration Fee

Class A ordinary shares, no par value

  133,254,045   $8.99   $1,197,953,864.55   $130,697

 

 

 

(1)

Represents 133,254,045 Class A ordinary shares, no par value (“Class A ordinary shares”), of ironSource Ltd. (“ironSource”) offered by the selling securityholders identified in this registration statement. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Pursuant to Rule 416(a), there are also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.

(3)

Calculated in accordance with Rule 457(c), based on the average of the high ($9.25) and low ($8.73) prices of the Class A ordinary shares on the New York Stock Exchange (“NYSE”) on July 23, 2021.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated July 28, 2021.

PRELIMINARY PROSPECTUS

 

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ironSource Ltd.

133,254,045 CLASS A ORDINARY SHARES

 

 

This prospectus relates to the resale, from time to time, by the selling shareholders named herein (the “Selling Securityholders”), or their pledgees, donees, transferees, or other successors in interest, of up to 133,254,045 of our Class A ordinary shares, no par value per share, (the “Class A ordinary shares”) issued to certain of the Selling Securityholders, as described below.

We are registering the offer and sale of these securities to satisfy certain registration rights we have granted. The Selling Securityholders may offer all or part of the securities for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. These securities are being registered to permit the Selling Securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The Selling Securityholders may sell these securities through ordinary brokerage transactions, directly to market makers of our shares or through any other means described in the section entitled “Plan of Distribution” herein. In connection with any sales of ordinary shares offered hereunder, the Selling Securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act.

We are registering these securities for resale by the Selling Securityholders named in this prospectus, or their transferees, pledgees, donees or assignees or other successors-in-interest that receive any of the shares as a gift, distribution, or other non-sale related transfer.

The Selling Securityholders may offer and sell any of the securities from time to time at fixed prices, at market prices or at negotiated prices, and may engage a broker, dealer or underwriter to sell the securities. In connection with any sales of securities offered hereunder, the Selling Securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act. For additional information on the possible methods of sale that may be used by the Selling Securityholders, you should refer to the section entitled “Plan of Distribution” elsewhere in this prospectus. We do not know when or in what amounts the Selling Securityholders may offer the securities for sale. The Selling Securityholders may sell any, all or none of the securities offered by this prospectus. All of the ordinary shares offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts.

We will not receive any proceeds from the sale of any securities by the Selling Securityholders. We will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section entitled “Plan of Distribution.”

Our Class A ordinary shares are listed on the New York Stock Exchange under the symbol “IS.”

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company disclosure and reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

 

 

See “Risk Factors” beginning on page [30] to read about factors you should consider before buying any of our Class A ordinary shares.

 

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page [] of this prospectus and other risk factors contained in the documents incorporated by reference herein for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission, the Israeli Securities Authority nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Prospectus dated                     , 2021


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

The Offering

     21  

Summary Consolidated Financial Data

     22  

Summary Unaudited Pro Forma Condensed Combined Financial Information Comparative Per Share Data

     27  

Risk Factors

     30  

Cautionary Note Regarding Forward-Looking Statements

     78  

Market, Industry and Other Data

     80  

Trademarks, Trade Names and Service Marks

     82  

Use of Proceeds

     83  

Dividend Policy

     84  

Capitalization

     85  

Unaudited Pro Forma Condensed Combined Financial Information

     86  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     106  

Business

     133  

Management

     174  

Principal Shareholders

     199  

Selling Securityholders

     202  

Certain Relationships and Related Party Transactions

     209  

Description of Share Capital and Articles of Association

     215  

Transfer Agent and Registrar

     225  

Listing

     226  

Shares Eligible For Future Sale

     227  

Taxation and Government Programs

     230  

Certain U.S. Federal Income Tax Considerations

     237  

Plan of Distribution

     245  

Expenses of the Offering

     247  

Legal Matters

     248  

Experts

     248  

Where You Can Find Additional Information

     249  

Enforceability of Civil Liabilities

     250  

Index to Consolidated Financial Statements

     F-1  

You should rely only on the information contained or incorporated by reference in this prospectus or any supplement. Neither we nor the Selling Securityholders have authorized anyone else to provide you with different information. The securities offered by this prospectus are being offered only in jurisdictions where the offer is permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of each document. Our business, financial condition, results of operations and prospects may have changed since that date.

Except as otherwise set forth in this prospectus, neither we nor the Selling Securityholders have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form F-1 filed with the Securities Exchange Commission, or the SEC. The Selling Securityholders named in this prospectus may, from time to time, sell the securities described in this prospectus in one or more offerings. This prospectus and the documents incorporated by reference herein include important information about us, the ordinary shares being issued by us, the securities being offered by the Selling Securityholders and other information you should know before investing. Any prospectus supplement may also add, update, or change information in this prospectus. If there is any inconsistency between the information contained in this prospectus and any prospectus supplement, you should rely on the information contained in that particular prospectus supplement. This prospectus does not contain all of the information provided in the registration statement that we filed with the SEC. You should read this prospectus together with the additional information about us described in the section below entitled “Where You Can Find More Information; Incorporation of Information by Reference.” You should rely only on information contained in, or incorporated by reference into, this prospectus. We have not, and the Selling Securityholders have not, authorized anyone to provide you with information different from that contained in, or incorporated by reference into, this prospectus. The information contained in this prospectus is accurate only as of the date on the front cover of the prospectus and information we have incorporated by reference in this prospectus is accurate only as of the date of the document incorporated by reference. You should not assume that the information contained in, or incorporated by reference into, this prospectus is accurate as of any other date.

We and the Selling Securityholders may offer and sell the securities directly to purchasers, through agents selected by us and/or the Selling Securityholders, or to or through underwriters or dealers. A prospectus supplement, if required, may describe the terms of the plan of distribution and set forth the names of any agents, underwriters or dealers involved in the sale of securities. See “Plan of Distribution.”

Unless otherwise indicated, all historical share-based information in this prospectus has been adjusted to give retroactive effect to the Class A Renaming, Class B Distribution and Stock Split described in the “Description of Share Capital and Articles of Association” section below.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our Class A ordinary shares. You should read the entire prospectus carefully, including the “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our audited consolidated financial statements and our unaudited consolidated financial statements and notes to those audited consolidated financial statements and unaudited consolidated financial statements before making an investment decision. Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” the “Company,” “ironSource” and similar terms refer to ironSource Ltd. and its consolidated subsidiaries. Revenue shown throughout this prospectus is revenue from continuing operations unless otherwise stated.

Overview

ironSource is a leading business platform that enables mobile content creators to prosper within the app economy. Before founding ironSource, our founders built consumer web apps. While the apps they built resonated with users, they struggled to efficiently scale their user bases and grow revenue. In building tools to help solve those challenges, our founders identified a much larger opportunity and founded ironSource in 2010 with a clear mission: to help developers turn their apps into scalable, successful businesses.

In the years since our founding, mobile app creation has become easier, but app commercialization has become increasingly difficult. The ironSource platform is designed to enable any app or game developer to turn their app into a scalable, successful business by helping them to monetize and analyze their app and grow and engage their users through multiple channels, including unique on-device distribution through partnerships with leading telecom operators and OEMs such as Orange and Samsung. Our solutions allow our customers to focus on what they do best—creating great apps and user experiences—while we provide the infrastructure for their business expansion in one of the largest and fastest growing markets today: the app economy.

Mobile devices are now ubiquitous, with over 6.7 billion globally in 2020, and have become the de facto standard for communication and media consumption. In addition, apps have now become the primary means for user engagement within the mobile ecosystem. In 2020, the average adult spent 4.3 hours a day consuming media on mobile devices, with 83% of that time spent in apps, according to eMarketer. The number of available apps has also increased significantly, with over 1.8 million apps available worldwide on the Apple App Store alone as of January 2021.

In this mobile app economy, games are the leading category of apps, accounting for the majority of apps in the Apple App Store in 2020 according to Statista. As the mobile gaming category has grown, a new generation of technology platforms has emerged to enable and fuel this growth. We have established a strong leadership position within this category, focusing our product development and innovation on building core infrastructure serving mobile game developers.

The abundance of apps and games in the mobile ecosystem, and the ease with which they can be created, has made business success increasingly dependent on developers’ ability to differentiate their apps, reach the most relevant users, expand their audience cost-efficiently and rapidly commercialize their businesses. These dynamics have created a need for a business platform capable of enabling app discovery, user growth, user engagement and content monetization for game and app


 

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developers. We identified this need nearly a decade ago and built a global platform to serve app developers, and eventually telecom operators, who collectively act as the backbone of the app economy.

Our platform consists of two solution suites: ironSource Sonic (“Sonic”) and ironSource Aura (“Aura”). Our Sonic solution suite supports developers as they launch, monetize and scale their apps and games, by providing solutions for app discovery, user growth, content monetization, analytics and publishing. Our Aura solution suite allows telecom operators to enrich the device experience by creating new engagement touchpoints that deliver relevant content for their users across the entire lifecycle of the device—from first setup, to in-life engagement and through the replacement cycle. This creates a unique on-device distribution channel for developers to promote their apps as a native part of the device experience. We believe the comprehensive nature of each solution suite, coupled with our combination into one platform, drives a unique competitive advantage in the market. As of March 31, 2021, we had over 4,000 customers around the world using its comprehensive set of solutions, with a combined reach of over 2.5 billion monthly active users.

We are a market leader for each of our solution suites, highlighting the business-critical role we play for mobile game and app developers. Our Sonic solutions were ranked third after Google and Facebook in AppsFlyer’s “Power Ranking” from June 2020 (for more information on Power Rankings, see “Market, Industry and Other Data—Other Data”). In March 2021, 89% of the top 100 mobile games by downloads on the Apple App Store used our platform. In addition, our Sonic publishing solution, Supersonic Studios (“Supersonic”), which we launched in February 2020, has already been used to publish 25 games which had over 13 million daily active users as of March 31, 2021. In addition, 18 out of the 25 published games using our Supersonic solution were ranked in the top 10 most downloaded on either the Apple App Store or Google Play Store during 2020 or 2021. One of Supersonic’s games—Join Clash—was among the top 10 most-downloaded games for the year ended 2020 according to Apptopia and was the most downloaded game in the world in the first quarter of 2021 according to Sensor Tower and App Annie. Lastly, our Aura solutions are used by some of the world’s leading telecom operators and connected device original equipment manufacturers (“OEMs”), including Boost, Orange, Samsung and Vodafone, and reached over 130 million daily active users as of March 31, 2021.

Our customers range from large global enterprises to small and mid-sized businesses across the app economy, including mobile game and app developers, advertising networks, telecom operators and OEMs. We define a customer as an individual or entity that generated revenue for us during a certain period of time. A single organization with multiple divisions, segments or subsidiaries is counted as a single customer, even though we may enter into commercial agreements with multiple parties within that organization.

The nature of our business model closely aligns our success with that of our customers. As a result, we build strong, long-standing partnerships with our customers and expand their use of our solutions over time. As of March 31, 2021, we had a dollar-based net expansion rate of 176% across all customers over the trailing 12-month period and had a gross retention rate of 99% for our customers who generated over $100,000 revenue over the trailing 12-month period. As of March 31, 2021, we had 292 customers who generated over $100,000 revenue over the trailing 12-month period, collectively accounting for 94% of our revenue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics and Non-GAAP Financial Metrics.” Our solutions can be used individually or in combination. We have seen that as customers benefit from using our platform, they increase their usage of existing and additional solutions, which in turn, further accelerates their growth. For the year ended December 31, 2020, 69% of our Sonic customers who


 

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contributed over $100,000 of annual revenue used both our user growth and our monetization solutions, and 13% distributed their apps through on-device placements, benefiting from the inventory generated by our Aura solutions. By reinvesting revenue generated through our monetization solutions into user growth, many of our customers benefit from a growth cycle that enables accelerated user and revenue growth.

Our leadership position in the app economy is enhanced by our scaled, broad and deep dataset built with advanced privacy controls. Sonic’s ad interaction and contextual data and Aura’s user provided data and contextual data are each utilized to deliver highly relevant experiences to users, while respecting privacy restrictions and data separation across our solutions. We use this data, together with our proprietary, advanced machine learning technology to enable developers to effectively acquire users who generate greater revenue and return on user growth spend.

Our revenue grew from $181.1 million in 2019 to $331.5 million in 2020, representing year-over-year growth of 83%. Our revenue grew from $61.2 million in the three months ended March 31, 2020 to $119.7 million in the three months ended March 31, 2021, representing year-over-year growth of 96%. Our net income from continuing operations grew from $32.7 million in 2019 to $58.8 million in 2020, representing year-over-year growth of 80%. In the three months ended March 31, 2021 and 2020, our income from continuing operations, net of income taxes was $10.2 million and $10.9 million, respectively. Further, we generated Adjusted EBITDA of $74.5 million in 2019 and $103.5 million in 2020, representing year-over-year growth of 39%. We generated Adjusted EBITDA of $39.5 million in the three months ended March 31, 2021 representing year-over-year growth of 93% from our Adjusted EBITDA of $20.5 million for the three months ended March 31, 2020.

The mailing address of our principal executive office is 121 Menachem Begin Street, Tel Aviv 6701203, Israel and our telephone number is +972-747990001.

Industry Background

Mobile proliferation has led to a flourishing app economy

Faster, cheaper and higher powered smartphones have precipitated the significant growth in the number of smartphone users over the last decade, and today, smartphones are the primary devices for consumer and social interaction globally. Smartphone users are increasingly relying on their devices to do more, with the average U.S. user spending 4.3 hours per day on mobile devices in 2020, up from 3.9 hours in 2019, according to eMarketer. According to data from SensorTower and eMarketer, over 140 billion apps are expected to be downloaded in 2020, up from 115 billion in 2019, and the average smartphone user in the U.S. spends 83% of their time on mobile devices in apps. The scale of the gaming market is also substantial. As of 2020, there are an estimated 2.6 billion mobile gamers worldwide in a segment estimated at $76 billion.

This growth in usage has attracted developers who create apps and content for the mobile ecosystem and doing so has become easier and more accessible than ever. App creation has been democratized, as easily-accessible content creation software has enabled developers to create complex and diverse mobile apps rapidly, at scale, and at low cost. As of January 2021, there were over 1.8 million apps on the Apple App Store, available to billions of users worldwide. Advertisers have taken notice and entered this market at scale, with mobile advertising comprising 72% of all digital advertising spend globally in 2020, up from 69% in 2019 according to eMarketer.


 

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Gaming drives the app economy

According to Sensor Tower, in the second quarter of 2020, users downloaded over 15 billion mobile games, representing 40% of all app downloads, greater than entertainment, social and video apps combined, and growing 32% from the second quarter of 2019. In this crowded market for user attention, interactive and social content have emerged as the key differentiators necessary for apps to attract users and generate engagement. Gaming apps have been at the forefront of the mobile app economy, leveraging their interactive and social nature to become the world’s most popular category of apps, and investing heavily in user growth and monetization technologies, ahead of other categories of apps.

The rise of gaming has been fueled by the rise of technology and platforms specifically built for game developers as mapped by research firm Newzoo in their Gametech Ecosystem Map in June 2020. In addition, by increasingly leveraging both in-app advertising and in-app purchases to drive revenue and then reinvesting that revenue into cost-efficient user growth, game developers have unlocked a flywheel that can drive continuous growth and be analyzed and optimized for profitability. Further, the advertising experience in games also differs from that of other app categories—most notably, in game developers’ use of user-initiated ads, where a user can choose to engage with a variety of ad experiences in exchange for in-app rewards. Unlike traditional banner or interstitial ads, user-initiated ads, such as rewarded video and offerwall, are entirely native and function as micropayment mechanisms within game environments.

App Store Downloads by Category 1

 

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1 Includes Apple App Store and Google Play Store

The rise of user-initiated ads has fueled the expansion of the mobile game category, allowing developers to more effectively generate revenue from their games by not only enabling monetization across paying users but also across non-paying users as well. In-game advertising unlocks additional revenue for game developers, which can be spent on user growth and therefore, drives the expansion of the entire category.

The global gaming market in 2020 is estimated to be $164 billion by Newzoo. While the games market as a whole has grown rapidly, Newzoo reports that the mobile segment of this market is expected to outpace PC and console growth in 2021 by 14% and 5%, respectively. Gaming appeals to a diverse population across genders, income levels and age groups. The ease and accessibility of smartphones has expanded gaming’s penetration across demographics to billions of consumers


 

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globally. According to Newzoo Research, there were over 2.6 billion mobile gamers in 2020, and mobile games was a $76 billion market, or 46% of total gaming, having grown at a compound annual growth rate (“CAGR”) of 12% since 2018.

Rapid growth creates complexities for game and app developers and telecom operators

The rapid growth in new apps, including mobile games, has expanded user choice and presents a challenge for developers trying to differentiate their offering and reach a scaled audience. With millions of apps now available across app stores, app discovery has become critical for developers. In addition, users increasingly expect interactive and personalized experiences in the games and apps they use, from entertainment to e-commerce. They demand tailored recommendations and content, seamless in-app purchases and relevant promotions. Managing user growth, engagement and monetization in this competitive environment has become a critical challenge for a developer’s long-term success.

Against this backdrop, telecom operators are focused on driving net subscriber additions and profitability in highly competitive markets, where data is becoming increasingly commoditized. Despite providing infrastructure for the mobile app economy to flourish, telecom operators have largely been unable to actively participate in its financial success. Achieving digital transformation and engaging their users by creating on-device services and experiences have become critical for telecom operators looking to drive continued revenue growth in a competitive environment, where focus historically centered on monetizing a user’s device at the point of sale.

App developers and telecom operators need a business platform tailored for the app economy

Effective distribution and monetization of apps requires constant innovation in an ever-evolving landscape of platforms, devices, channels, ad formats and consumer preferences. Significant time, resources and expertise are needed to build technology and data models that can deliver automated, world-class user growth and monetization, while meeting user expectations for tailored experiences and relevant advertising. Developers need a platform to provide the core infrastructure for their commercial expansion, so they can focus on creating great apps and delivering the best user experience.

Telecom operators’ historical focus has been on providing wireless service through major infrastructure and hardware investments. This network focus has resulted in a limited focus on software solutions designed to engage and monetize users beyond the sale of traditional device offerings and communication services. Network and infrastructure investment dominates telecom operator research and development spending, and is expected to continue to do so with the roll-out of expensive 5G infrastructure. This leaves limited resources for telecom operators to develop data-driven user engagement and monetization software, which is required to meet user expectations for high-quality mobile experiences, and to create stickier and more profitable user relationships.

Our Market Opportunity

We believe that the total market opportunity for ironSource was $17 billion as of 2020. Furthermore, we believe that our total market opportunity will grow to $41 billion by 2025. Of this $41 billion, approximately $30 billion will come from our existing markets, with the remainder expected to come from adjacencies to our existing markets. Our market opportunity is based on a 2021 study we commissioned by a third-party strategy consulting firm, Altman Solon.

The principal areas of growth within our market opportunity are:

Growth in gaming: We believe that we can continue to expand our customer base in gaming and increase the use of additional solutions within our platform by existing customers. In addition, we believe we can expand our leadership in game publishing to increase revenue from published games.


 

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Growth in apps beyond gaming: We believe there is a significant opportunity to increase adoption of our platform among apps in categories outside of gaming, in particular driving use of our monetization and user growth solutions.

Expanding our platform offering for apps beyond games: By leveraging our deep expertise in the app economy we believe we will be able to expand our platform by developing additional solutions uniquely tailored to drive business success for apps in categories outside of games.

App placement, device management and news content service: We believe we will deepen the on-device engagement experience by expanding to additional touchpoints and solutions that will enable us to promote more third party apps and content, and telco-branded services, natively on the device.

Expansion to devices beyond mobile: We believe we will leverage our expertise in the app economy and on mobile to develop new solutions and expand the use of our existing solutions on connected devices beyond mobile.

Our Platform

The ironSource platform offers a comprehensive set of solutions for key constituents of the global mobile app economy, primarily app developers and telecom operators. Our platform, which consists of our Sonic solution suite for game and app developers, and our Aura solution suite for telecom operators, is designed primarily to help game and app developers maximize the acquisition, engagement and monetization of users. Sonic enables developers to grow their apps into scaled businesses by improving their monetization and enabling cost efficient user growth. Aura enables app developers to connect with users through a unique channel that offers on-device app discovery, while allowing telecom operators to better engage and monetize their users throughout the device lifecycle. The combination of the two solution suites represents a unique value proposition to app developers struggling with app commercialization today.

 

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We serve customers of all sizes and maturity, from large enterprises such as leading mobile game companies with dozens of titles, to major mobile carriers with millions of users, to small customers such as indie game developers with a single app. As of March 31, 2021, we had over 4,000 customers, of which 292 customers generated over $100,000 in revenue over the trailing 12-month period and accounted for 94% of our revenue.


 

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Sonic—The app growth cycle

Our Sonic solution suite enables developers to grow their apps into scaled businesses by providing solutions across the entire app growth cycle, from ideation to scaled, profitable growth. By connecting user growth and monetization through robust data and analytics, Sonic is able to create a virtuous cycle of growth which generates revenue that can be reinvested in scaling user growth to ultimately drive profitability. Our Sonic solution suite is used by a number of recognizable game developers including Aristocrat, Activision, Gameloft, Playrix, Zynga, King, Jam City and Sybo along with app developers including Weatherbug, Audiomack and Calm.

Customers can begin using a Sonic solution at any point during the lifecycle of their app, and will often expand to using other solutions over time. Many customers start by using our Sonic monetization solution to drive revenue, and as their revenue increases, they may spend a portion of those earnings to scale their app’s revenue-generating potential through our Sonic user growth solution, leveraging our creative management solution to gain an edge in their user growth campaigns. Further, as their user base scales, they may leverage our Sonic analytics solution to further optimize user acquisition and monetization. Some developers, especially small studios and independent developers who require expertise in publishing their apps, may start using Sonic earlier in their journey. These developers may leverage Supersonic, our publishing solution, to launch their apps, maximize their commercial success, and reduce costs. In this respect, our interconnected Sonic solution suite powers a profitable and scalable cycle of app growth for developers.

Aura—The device lifecycle

Our Aura solution suite allows telecom operators to enrich the device experience by creating new engagement touchpoints, which deliver relevant content for their users across the entire lifecycle of the device, from first setup, to in-life engagement and through the replacement cycle. These touchpoints create a unique on-device distribution channel for our app developers to promote their apps as a native part of the device experience. Telecom operators can also promote their own content and services to their users through Aura on device and out of the store. By incorporating relevant app and service recommendations into the device experience, Aura allows telecom operators to provide more value to their users, thereby increasing brand loyalty, reducing churn and driving incremental revenue. Aura’s analytics solution further allows telecom operators to better understand how users are interacting with content on their devices, which they can then leverage to drive further engagement and optimize revenue.

As a full stack solution for managing user experience through the entire device lifecycle, Aura facilitates the expansion or customization of promotions within existing engagement touchpoints, such as promoting telecom operator-branded device insurance, a personalized data package, or other telecom operator-owned and operated services. As Aura is integrated as a system-level application on the device, telecom operators are able to quickly and easily deploy new touchpoints or promotions to engage their users with more relevant content and services.

Our goal, once we onboard a new customer, is for them to adopt an increasing range of our products. Further, as our customers experience success and engage with a broader range of our solutions, we become increasingly integrated in their businesses, creating even greater stickiness in our customer relationships. This drives our strong growth and customer retention. As developers and telecom operators grow their revenue using our solutions, additional developers and telecom operators are attracted to our platform, contributing to our continued growth. Our scale provides us with significant data to help us create better solutions and a more effective platform for our customers’ benefit. This leads to greater success for our customers, driving yet more customer growth for our platform.


 

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Core Solutions of Our Platform

Our customers use our platform for a number of business-critical functions, including user growth, monetization, analytics, creative management and publishing.

User Growth

Our user growth solution enables game and app developers to create, monitor, and optimize user acquisition campaigns through multiple channels, including unique on-device placements through our integrations with Aura’s telecom operator customers. This solution includes a number of products, including a campaign management product to enable custom campaign creation; a ROAS optimizer, which enables the automation of smart bidding to maximize positive return on user growth spend; and a cross promotion tool to allow developers to maximize value by efficiently promoting existing apps to users of other apps in their portfolio. These capabilities enable developers to continue growing and scaling their businesses over time.

In addition, our Aura solution suite provides an incremental distribution channel for app developers to connect with potential users. A significant portion of app installs on a device occur when the device is newly opened. By partnering with some of the leading telecom operators to power their device experiences, from device setup to in-life engagement, we are able to create unique touchpoints to promote apps during high-engagement moments throughout a user’s device lifecycle. App developers are able to leverage these on-device placements to connect with potential users at times when their likelihood of installing specific apps is at its highest.

We are a market leader in user growth solutions, as evidenced by the fact that we were ranked fourth globally after Google, Facebook and Unity on AppsFlyer’s Performance Index for Volume Ranking as of June 2020. Similarly, ironSource was ranked third after Google and Facebook in AppsFlyer’s Power Rankings as of June 2020. Our leadership among mobile user growth solutions stems from an early focus on developing solutions for mobile games, the most downloaded category of apps. As of March 2021, 89% of the top 100 most downloaded mobile games on the Apple App Store used our user growth solution. Leveraging our expertise in mobile games, we have begun offering our user growth solution to apps outside of the game category, and as of March 31, 2021, over 17% of our customers with over $100,000 in trailing 12-month revenue came from industries beyond gaming.

 

LOGO

Our leadership position in the app economy is enhanced by our scaled, broad and deep dataset built with advanced privacy controls. Sonic’s ad interaction and contextual data, and Aura’s user provided data and contextual data, are utilized to deliver highly relevant experiences to users, while


 

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respecting privacy restrictions and data separation across our solutions. We use this data, together with our proprietary, advanced machine learning technology to enable our developers to effectively acquire users who generate greater revenue and return on user growth spend.

Monetization

Our Sonic monetization solution enables app developers to monetize in-app content through technologies designed to maximize revenue generation while preserving a rich and enjoyable user experience. For example, our mediation product allows developers to maximize yield by offering a single point of access to premium advertiser demand from major advertising networks, including the ironSource network, and those from Facebook, Google, Snap, TikTok and Unity. Our in-app bidding technology enables a real-time auction between these different demand sources, ensuring that developers are able to maximize revenue from each ad impression. In addition, we enable developers to monetize their apps and games through a wide variety of in-app placements, including user-initiated ads where a user can choose to engage with a variety of ad experiences in exchange for in-app rewards. These in-app ad placements not only drive revenue for developers but, if implemented correctly, can also often serve to increase user retention and app usage.

We leverage big data technologies and machine learning algorithms to continuously optimize our platform to ensure users are always seeing the most relevant content, which in turn drives greater monetization for our customers. The quality of our Sonic monetization solution has helped us acquire our large market share in several of its products. Developers typically use only one mediation platform per app, and onboarding them through our mediation product creates a sticky relationship that then drives the use of incremental solutions. According to AppAnnie, 21% of the top 100 mobile games by downloads on the Apple App Store and Google Play Store as of December 31, 2020 used our mediation product.

Our Aura solution suite offers unique on-device engagement touchpoints for telecom operators to drive additional incremental revenue from their users throughout the lifecycle of the device, from first setup, to in-life engagement and through the replacement cycle. Aura reached over 130 million daily active users as of March 31, 2021 and is used by some of the world’s leading telecom operators and OEMs such as Boost, Orange, Samsung and Vodafone. These touchpoints allow telecom operators to offer app and service recommendations that enrich the user’s device experience with relevant and valuable content and enhance their brand loyalty to the telecom operator. The sponsored content shown to users promotes both telecom operator-branded apps and services, and third-party apps and services, enabling our telecom operator customers to engage their users through a wide variety of relevant apps, to expand adoption of and cross-sell their own products, and to drive additional revenue from promoting third-party content. App and content recommendations are driven by user provided data, contextual data sets and user preferences, and optimized through our extensive A/B testing capabilities.

Analytics

We provide analytics solutions for our customers, enabling them to better understand their users and business health, access actionable insights, and drive better decisions to grow their businesses. These products are used by multiple constituents across the mobile ecosystem, from developers creating apps and games to telecom operators providing networks for content delivery. Insights are made available through easily digestible user interfaces that simplify data review and enable effective business decision making.

For developers, our solution offers visibility on critical app performance, user growth, engagement and retention metrics, as well as user cohort analysis and multivariate reports. In addition, we help developers identify patterns and trends to help enhance their games. Moreover, our creative analytics product allows developers to access granular performance and user engagement data for each


 

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interactive advertising experience, which further drives increased optimization. Finally, our ad quality product gives developers increased visibility into ads running on their inventory from multiple ad networks, giving them more control over their ad monetization and user experience.

For telecom operators, our solution provides increased visibility into user engagement with content, apps and services on their mobile devices, broken down by geography, device, age and gender. This data can be incorporated directly into a telecom operator’s existing data infrastructure, enriching their data with valuable device and user insights to drive growth and mitigate churn. By collecting data through multiple touchpoints in a user’s app and device lifecycle, we enable the creation of rich datasets that power higher-quality user experiences. This allows our customers to better acquire and retain users.

Creative Management

Our creative management solution democratizes ad creative production, making it accessible to any developer and giving them a significant edge when it comes to running high-performance and cost-efficient user growth campaigns. As user growth technology becomes increasingly automated, and competition for user attention grows, interactive advertising experiences have become a critical lever available to developers to differentiate campaigns and maximize both user engagement and performance. We offer automated creative production tools, which allow developers to quickly and easily create video and interactive playable ads based on their existing game assets. These creatives can then be deployed across multiple advertising networks, and their performance can be tracked on a granular level, allowing for deep optimization to drive increased user engagement.

Publishing

In February 2020, we launched our mobile game publishing solution, Supersonic, to provide game developers with the infrastructure and know-how to launch and scale their mobile games. Supersonic offers marketability testing tools that enable developers to identify the effectiveness of their content and its market value prior to publishing. In addition, developers working with Supersonic receive support in game design best practices and in optimizing the implementation of their commercial model, primarily through in-app advertising. Our creative automation and user acquisition management tools enable automated creation and deployment of effective user acquisition campaigns.

Sonic aims to publish the best mobile games. The 25 games published using our Supersonic solution had over 13 million daily active users as of March 31, 2021. In addition, 18 out of the 25 published games using our Supersonic solution were ranked in the top 10 most downloaded games on either the Apple App Store or Google Play Store during 2020 or 2021. The insights gleaned from our publishing solutions optimize the overall Sonic solution suite by providing us with direct, unmediated experience of the challenges faced by our customers.

Our Competitive Strengths

Our core market opportunity is large and global with strong secular trends that support long-term sustainable growth. Our competitive strengths underpin our market leadership and position us for continued growth. They include:

Comprehensive platform serving the full growth cycle of an app through multiple channels

Our Sonic solution suite is comprehensive and supports the full growth cycle of an app, from marketability testing and publishing, to initial user acquisition, monetization set-up, data-driven and


 

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optimized user growth, creative management and analytics-driven and optimized monetization. By enabling a data feedback loop between our user growth and monetization solutions, app developers can grow their businesses with greater profitability.

Additionally, the combination of our Sonic and Aura solution suites is unique in the mobile ecosystem and offers customers multiple channels to acquire and engage users. Not only do we provide solutions to enable developers to scale their mobile apps into businesses, but we also create an additional source of discovery for those apps at the device level through our telecom operator relationships, and facilitate engagement and content delivery between telecom operators and their user bases.

Our scale and data across the mobile ecosystem drives a significant advantage

Our scaled base of over 4,000 customers globally provides us with an extensive contextual dataset and a holistic view of the mobile ecosystem, which drives a significant advantage. More data drives better targeting, and our customers provide us with data across over 2.5 billion monthly active users. In our Sonic solution suite, we leverage ad interaction and contextual data, which is built with advanced privacy controls while delivering highly-relevant experiences to our customers. We use this data, together with our proprietary, advanced machine learning technology to enable our customers to effectively acquire users who generate greater revenue and return on user growth spend. In addition, the use of our Aura solution suite across devices reaching over 130 million daily active users as of March 31, 2021 allows us to collect user provided data together with contextual datasets and user preferences to continuously improve our Aura solution suite, enabling two key advantages. First, more data creates a more relevant and personalized content experience for users, and therefore better conversion for telecom operators to drive incremental revenue. Second, understanding user preferences enables us to allow telecom operators to better understand and serve their users. The scale and depth of our data footprint is difficult to replicate and has been built over a decade by investing deeply in our technology and customer relationships.

Enterprise-grade integrations drive long-term customer relationships and stickiness

A developer can only use one mediation product to manage an app’s monetization across multiple advertising networks, and a telecom operator can only integrate one device experience management solution at the system-level into its smartphone network. Switching solution providers not only causes customers to incur switching costs, but also to forego the data insights they would receive while using the platform. Further, with the ironSource platform, customers who onboard a solution from either the Sonic or Aura solution suites tend to onboard additional, complementary solutions over time. For example, of our Sonic customers who contributed over $100,000 in annual revenue in 2020, 69% used both our user growth and monetization solutions. Further, 13% distributed their apps through on-device placements, benefiting from the inventory generated by our Aura solutions, and these customers generated 29% of our revenue for 2020.

Performance-based business model highly aligned with customer success

Our performance-based business model is highly aligned with our customers’ growth, making it intuitive for customers to start working with us and driving long-term customer relationships. Customers rely on our solution suites to power and grow their businesses, as evidenced by our gross retention rate of 99% for our customers who generated over $100,000 revenue over the trailing 12-month period as of March 31, 2021. The products and solutions we provide correlate directly to our customers’ revenue and user engagement, hence the deeply integrated and sticky nature of our customer relationships.


 

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Operational excellence and proven track record of organic and profitable growth

We have a strong track record of successfully identifying multiple opportunities in the app economy and leveraging our core capabilities around user growth, content monetization and data to execute on them to build successful, profitable solutions. While our end-markets and customers have evolved, our primary focus has always been to provide user growth, engagement and monetization solutions to our customers. Our expertise across these areas constitute a set of core capabilities which we are able to bring to multiple different business cases within the mobile app economy, in order to execute and capitalize on new opportunities rapidly, and to a high degree of success. This is reflected by the scale of our revenue, which was $331.5 million in 2020, with year-over-year revenue growth of 83% in 2020, our income from continuing operations, net of income taxes grew from $32.7 million in 2019 to $58.8 million in 2020 and our Adjusted EBITDA year-over-year growth of 39% to $103.5 million in 2020 as well as our $119.7 million of revenue, 96% growth year-over-year, $39.5 million of Adjusted EBITDA and $10.2 million of income from continuing operations, net of income taxes, 33% Adjusted EBITDA Margin and 9% income from continuing operations, net of income tax margin in the three months ended March 31, 2021. Our ability to quickly identify key industry trends and efficiently develop solutions and products in response has driven our ability to meet our customers’ rapidly evolving needs and to expand to new customer bases. Further, we have a proven track record of allocating capital to support this innovation and our continued growth. We have invested approximately $89.1 million in research and development in the past two fiscal years, and as of December 31, 2020, over 50% of our employees worked in research and development and related activities globally.

Powerful combination of platform and publisher insights across in-game ecosystem

We launched Supersonic in February 2020 as a way to supplement our broader platform with proprietary publishing capabilities that offer developers a wider array of options to work with us, and which generate extensive first-party data. As of March 31, 2021, we had published 25 games through Supersonic, with an average of over 13 million daily active users. We believe that the combination of Supersonic with our broader Sonic solution suite provides us with a competitive advantage, allowing us to use our published apps to quickly and effectively deploy new features and user experiences, benefiting our wider Sonic solutions, as well as developers using Supersonic to publish their games. This allows us to continuously and directly learn, and thereby improve our solutions and products for our wider customer base. For example, we leveraged our published apps to test new capabilities in our cross promotion product, which we believe have significantly improved their efficacy over time, enabling us to hone our product roadmap and better prioritize development decisions that impact customers who use our wider Sonic solutions.

Proven ability to successfully execute and integrate strategic M&A in a rapidly evolving landscape

As we have continued to scale, we have augmented our growth with strategic M&A focused on acquiring both technology and innovators to further grow our comprehensive solution suites and enable us to serve more customer needs. Our acquisitions have added to the capabilities and scope of our platform, and we have successfully integrated and transformed the growth and profitability profiles of our acquired companies. For example, in 2015 we acquired SupersonicAds, which formed the basis of our mediation product, and as of December 2020, this was embedded in 21% of the top 100 downloaded games on the Apple App and Google Play Stores, according to AppAnnie. Our acquisitions have added to the capability and scope of our platform. We intend to continue to adapt our strategy in response to our ever-evolving industry, including emphasizing or deemphasizing product lines where applicable, as well as investing or divesting as business conditions warrant.


 

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Founder-led management team with a unique culture of growth through profitable innovation

We have developed a unique, founder-led culture of leadership. We started with four founders, and through our strategic acquisitions, we have added an additional four founders, creating a strong and lasting base of executive leadership. The discrete capabilities of each of those leaders is reflected in their day-to-day roles. Half of our founders come from a technical background and half from a business management background, driving a balanced perspective among our executive leadership team, and enabling us to deliver excellence both in product innovation and business execution. The strong entrepreneurial background inherent in our executive leadership team enables us to be agile, identify new opportunities, build successful business models and grow them into scaled businesses. ironSource’s strong founder-led corporate culture empowers and rewards initiative-taking and encourages the surfacing of new ideas and their actualization into actionable growth drivers.

 

 

LOGO

Our Growth Strategies

Our growth strategies include growing and diversifying our customer base, leveraging customer relationships to cross-sell our solutions, extending the use of our business platform to industries beyond gaming, growing Aura beyond app discovery, expanding in game publishing, investing in technology and innovation to create new solutions for our customers, and extending our business platform to devices beyond mobile. We intend to pursue these growth strategies organically as well as leverage our proven ability to execute and integrate strategic M&A as described previously, which will help us continue to gain market share in the markets we serve.


 

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Continue to grow our customer base

As of March 31, 2021 we had over 4,000 customers, and generated 94% of our revenue from 292 customers who contributed over $100,000 in revenue over the trailing 12-month period. We see a significant opportunity to grow our customer base by introducing new developers to our Sonic solution suite, with a focus on attracting emerging, independent developers who we believe have room to grow and become large revenue contributors over time. We intend to attract these developers with our best-in-class platform capabilities and customer support, and by leveraging our industry expertise and reputation for helping businesses scale their apps and games. Our platform supports these smaller, independent businesses as a growth engine throughout their life cycle, enabling them to become much larger partners over time.

We also focus on continuing to attract major global telecom operators to Aura. Telecom operators globally are facing increasing competition in their network markets and are looking for meaningful ways to better differentiate their product offerings to subscribers. Our Aura solution suite supports telecom operators of all sizes across a wide variety of engagement and monetization use-cases, providing us with a significant, continued growth opportunity. We seek to attract these telecom operators by leveraging our long track-record of successful user engagement and monetization as compelling proof points of our ability to enable our customers’ growth.

Leverage customer relationships to cross-sell our solutions

We look to build strong, long-standing relationships with our customers and deliver increasing value to them over time. A major contributor to our efforts in expanding revenue generated by our customers is our focus on cross-selling our solutions. We have seen that customers typically expand their usage of our platform and adopt more of our solutions over time, which is exemplified by our dollar-based net expansion rate, which is calculated based on the trailing 12 months for each quarter, averaging 153% across all customers for the eight quarters ending March 31, 2021. We have seen measurable success in cross-selling our broader Sonic solution suite to customers, who, for example, will on-board our Sonic monetization solution through our mediation product to enable monetization of their apps, and then, over time, adopt our user growth solution through our campaign management product to engage in user acquisition. We also see a sizable opportunity to cross-sell our Sonic customers user growth products on Aura-powered inventory, where they can access an additional distribution channel for their apps and games.

Extend our business platform to apps beyond gaming

We intend to broaden our customer base by continuing to expand the use of our Sonic solution suite beyond mobile games to the wider app economy. Much of what makes us successful in games is transferable to other consumer applications, specifically, those that require efficient user acquisition, analytics, and a deep understanding of how to monetize content. Apps outside of the gaming category today typically do not maximize their use of ad monetization or paid user acquisition with the same frequency as games, and we see a growing opportunity to expand the adoption of our solutions to drive improved placement revenues, high-quality user acquisition capabilities and overall business growth for developers of apps in other categories. Further, we see an additional opportunity in extending our publishing capabilities to app categories beyond games, to enable more app developers to launch and scale their apps. As of March 31, 2021, over 17% of our customers with over $100,000 in revenue over the trailing 12-month period came from industries beyond gaming.


 

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Increase telecom operators’ use of Aura to promote their own services

We also see significant growth opportunities within Aura. Our Aura telecom operator customers often initially leverage our device experience management solution to drive user engagement and monetization during device setup, before expanding to additional engagement touchpoints, or incorporating promotion of their own apps and services. Examples of additional touchpoints include smart notifications, device update, and device replacement. Examples of additional promotions include sale of device insurance, personalized data packages, and other telecom-branded content and services. Moving forward, we will continue adding incremental services to our customers that create additional monetization opportunities over time.

Once Aura is integrated as a system-level application on a device, telecom operators can easily expand to additional touchpoints or promotions as they look to deepen and enrich their user offering. Telecom operators have traditionally outsourced device experience management to multiple external partners, but with Aura, the system-level integration creates a relationship that is not only sticky for telecom operators but also a natural gateway to cross selling and growth. As customers use more of our solutions, our platform becomes more integrated with their businesses, contributing to platform stickiness.

Further expand in game publishing

We launched Supersonic, our game publishing solution in February 2020 and have experienced significant early success in growing our publishing scale. Our solution has been used to publish 25 games that had over 13 million daily active users as of March 31, 2021. We intend to continue to invest in scaling Supersonic, our Sonic publishing solution, to serve more developers and increase the usage of our platform. We aim to productize the publishing process, differentiating our offering by enabling developers to leverage an automated path to greater scale and profitability for their apps and driving scale for our solution. We intend to develop new publishing products for our customers and grow our first-party development capabilities to publish our own content on top of the largely third-party developed mobile games we currently publish. We see publishing as a sizable potential contributor to our revenue over time.

Invest in technology and innovation to create new solutions for our customers

The mobile and connected device end-markets our customers serve are highly competitive and continuously evolving. Our customers need solutions that help them deliver superior user acquisition, engagement and monetization to succeed. Our revenue grows in line with our customers’ success, and the evolving needs of our customers create new opportunities for us to deliver value to them as we serve more of their needs. We have a history of being first-to-market with automation and optimization solutions that are later adopted or replicated by industry participants. For example, in 2018 we were the first to market with an ad revenue measurement tool allowing developers to connect ad revenue generated by acquired users with the channels they were acquired on, enabling complete optimization of user growth spend. We intend to continue to leverage our research and development capabilities to create new solutions for our customers, which we believe will contribute to their greater business success, and therefore to our continued growth.

Extend our business platform to devices beyond mobile

We have experienced significant success in providing solutions for the mobile ecosystem. However, we see a significant opportunity to leverage our user growth, engagement and monetization


 

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expertise in building and offering solutions to customers for connected devices beyond mobile. For example, we are extending our Aura device experience management solution to smart TVs allowing us to grow our user engagement touchpoints beyond mobile. We intend to leverage our Aura brand and technology leadership with telecom operators and OEMs to facilitate expansion into these additional connected devices by designing relevant solutions and leveraging existing enterprise relationships to gain market share.

Growth through strategic M&A

Since our founding, we have acquired several companies to complement and augment our business platform. Many of the founders of these businesses have stayed on with us after the acquisition of their companies and form a substantial part of our leadership. The managerial experience and entrepreneurial drive of these founders who have stayed with our business helps drive our pace of innovation and reinforces our playbook of discovering and scaling new lines of business.

Beyond our research and development efforts, we have built a track-record of talent acquisition and strategic M&A, which has helped us grow our technological capabilities and industry expertise. Many of the solutions we provide today have been the result of strategic business combinations since our founding. For example, our acquisition of SupersonicAds in 2015 formed the basis of our mediation product, and we expect our recent acquisitions of both Soomla and Luna Labs to enable us to provide app and game developers with more tools to effectively create and manage the advertising inside of their apps, and increase the performance and efficiency of their user growth campaigns. In addition, in April 2021, we entered into an agreement to invest an amount of $20 million for 10% of MCE-SYS Ltd., a device management solutions provider to telecom operators and retailers. The investment closed in the second fiscal quarter of 2021. We will continue to add products, where appropriate, to continue to deliver a business platform offering a comprehensive set of growth, monetization and analytics solutions to our customers.

Recent Developments

On June 28, 2021 (the “Closing Date”), we consummated the previously announced business combination (the “Business Combination”) pursuant to the Agreement and Plan of Merger, dated March 20, 2021, by and among the Company, Thoma Bravo Advantage, a Cayman Islands exempted company (“TBA”), Showtime Cayman, a wholly-owned subsidiary of the Company (“Merger Sub”), and Showtime Cayman II, a Cayman Islands exempted company and wholly-owned subsidiary of the Company (“Merger Sub II”) (the “Business Combination”).

On the Closing Date, the following transactions occurred pursuant to the terms of the Merger Agreement:

 

   

we adopted our Amended and Restated Articles of Association;

 

   

we renamed each issued and outstanding ordinary share, including the 2019 ordinary shares issued in connection with the CVC Investment (as defined herein) (the “2019 Ordinary Shares” and, together with the ordinary shares, the “ironSource Ordinary Shares”), an ironSource Class A Ordinary Share, no par value (“ironSource Class A ordinary share”), followed immediately by the distribution of one Class B ordinary share of ironSource, no par value per share (“ironSource Class B ordinary share”) to the holders of each such issued and outstanding ironSource Class A ordinary share;

 

   

we effected a stock split of each ironSource Class A ordinary share and each ironSource Class B ordinary share into such number of ironSource Class A ordinary shares and


 

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ironSource Class B ordinary shares, respectively, in each case, calculated in accordance with the terms of the Merger Agreement, such that each ironSource Class A ordinary share and each ironSource Class B ordinary share have a value of $10.00 per share after giving effect to such stock split (the “Stock Split”);

 

   

Merger Sub merged with and into TBA (the “First Merger”), with TBA surviving the First Merger as a wholly-owned subsidiary of ironSource (such company, as the surviving entity of the First Merger, the “Surviving Entity”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the Surviving Entity merged with and into Merger Sub II (the “Second Merger,” and together with the First Merger, the “Mergers”), with Merger Sub II surviving the Second Merger as a wholly-owned subsidiary of ironSource (such company, as the surviving entity of the Second Merger, the “Surviving Company”) (all the transactions together, the “Business Combination”);

 

   

as a result of the Business Combination and the other transactions contemplated by the Merger Agreement, Merger Sub II became a wholly owned subsidiary of the Company, with the shareholders of TBA becoming shareholders of the Company.

 

   

at the effective time of the Business Combination (the “Effective Time”), (a) each Class B ordinary share of TBA, par value $0.0001 per share (“TBA Class B Share”), outstanding immediately prior to the Effective Time automatically converted into one Class A ordinary share of TBA, par value $0.0001 per share (“TBA Class A Share,” together with the TBA Class B Shares, the “TBA Ordinary Shares”); and

 

   

each TBA Class A Share issued and outstanding immediately prior to the Effective Time, including shares issued upon the automatic conversion of TBA Class B Shares described above, converted into one ironSource Class A ordinary share.

Our Class A ordinary shares began trading on The New York Stock Exchange on June 29, 2021 under the symbol “IS.”

PIPE Investment

On March 20, 2021, we entered into Investment Agreements (each, an “Investment Agreement”) with certain investors (each, a “PIPE Investor” and collectively, the “PIPE Investors”) pursuant to which, among other things, the PIPE Investors agreed to purchase on the Closing Date an aggregate of 130 million ironSource Class A ordinary shares at a price equal to $10.00 per share on the terms and subject to the conditions set forth therein for gross proceeds of $1.3 billion (the “PIPE Financing”). In accordance with the Support Agreement, dated March 20, 2021 between ironSource and Thoma Bravo Advantage Sponsor, LLC, an affiliate of TBA (the “Sponsor”), as a result of redemptions by stockholders of TBA, the Sponsor entered into a similar Investment Agreement with respect to an amount of approximately $32.5 million. The PIPE Financing closed concurrently with the Business Combination. On the Closing Date the existing shareholders of ironSource effected a secondary sale of 1.4 million ironSource Class A ordinary shares and/or ironSource Class B ordinary shares to the PIPE Investors (including the Sponsor), for a total purchase price of $1.4 billion, and including a secondary sale in an amount of approximately $67.5 million to TBA, which was funded from TBA’s trust account. Under the Company’s Amended and Restated Articles of Association, each share sold on a secondary basis was a Class A ordinary share upon purchase by a PIPE Investor.

Risk Factors Summary

Investing in our Class A ordinary shares involves substantial risks, and our ability to successfully operate our business and execute our growth plan is subject to numerous risks. You should carefully


 

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consider the risks described in “Risk Factors” before making a decision to invest in our Class A ordinary shares. If any of these risks actually occurs, our business, financial condition and results of operations could be adversely affected. In such case, the trading price of our Class A ordinary shares would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

 

   

our markets are rapidly evolving and may decline or experience limited growth;

 

   

our reliance on operating system providers and app stores to support our platform;

 

   

our ability to compete effectively in the markets in which we operate;

 

   

our quarterly results of operations may fluctuate for a variety of reasons;

 

   

failure to maintain and enhance our brand;

 

   

our dependence on our ability to retain and expand our existing customer relationships and attract new customers;

 

   

our reliance on our customers that contribute more than $100,000 of annual revenue;

 

   

our ability to successfully and efficiently manage our current and potential future growth;

 

   

our dependence upon the continued growth of the app economy and the increased usage of smartphones, tablets and other connected devices;

 

   

our dependence upon the success of the gaming and mobile app ecosystem and the risks generally associated with the gaming industry;

 

   

our, and our competitors’, ability to detect or prevent fraud on our platforms;

 

   

failure to prevent security breaches or unauthorized access to our or our third-party service providers data;

 

   

the global scope of our operations, which are subject to laws and regulations worldwide, many of which are unsettled and still developing;

 

   

the rapidly changing and increasingly stringent laws, contractual obligations and industry standards relating to privacy, data protection, data security and the protection of children;

 

   

the effects of health epidemics, including the COVID-19 pandemic;

 

   

sales of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing Securityholders; and

 

   

the other matters described in the section titled “Risk Factors” beginning on page [30].

Corporate Information

We founded our business in 2010 and were incorporated as IronSource Israel (2011) Ltd. in Israel in 2011 under the Israeli Companies Law, 5759-1999 (the “Companies Law”). In 2014, we changed our name to IronSource Technologies Ltd., and then to our current name, ironSource Ltd. in the same year. On December 31, 2020, we completed the spin-off of the assets of our Desktop business (the “Spin-Off”) to TypeA Holdings Ltd. (“TypeA”), a newly formed company incorporated under the laws of Israel, which was owned by our shareholders on a pro rata basis as of the date of the Spin-Off. See Note 4 to our audited consolidated financial statements included elsewhere in this prospectus. Our principal executive offices are located at 121 Menachem Begin Street, Tel Aviv 6701203, Israel. Our website address is https://www.is.com/, and our telephone number is


 

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+972-747990001. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. We have included our website address in this prospectus solely for informational purposes. Our agent for service of process in the United States is Cogency Global Inc.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to U.S. public companies. These provisions include:

 

   

an exemption that allows the inclusion in an initial public offering registration statement of only two years of audited financial statements and selected financial data and only two years of related disclosure;

 

   

reduced executive compensation disclosure;

 

   

exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved;

 

   

an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements; and

 

   

an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) in the assessment of the emerging growth company’s internal control over financial reporting.

The JOBS Act also permits an emerging growth company such as us to delay adopting new or revised accounting standards until such time as those standards are applicable to private companies. We have elected to use this extended transition period to enable us to comply with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to take advantage of some but not all of these reduced reporting burdens.

We will remain an emerging growth company until the earliest of:

 

   

the last day of our fiscal year during which we have total annual revenue of at least $1.07 billion;

 

   

the last day of our fiscal year following the fifth anniversary of the closing of the Business Combination;

 

   

the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or

 

   

the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.


 

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In addition, we report under the Exchange Act as a “foreign private issuer.” As a foreign private issuer, we may take advantage of certain provisions under the rules that allow us to follow Israeli law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers.

Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:

 

   

the majority of our executive officers or directors are U.S. citizens or residents;

 

   

more than 50% of our assets are located in the United States; or

 

   

our business is administered principally in the United States.


 

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THE OFFERING

 

Class A ordinary shares offered by the Selling Securityholders

133,254,045

 

Use of proceeds

All of the Class A ordinary shares offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any proceeds from the sale of the Class A ordinary shares to be offered by the Selling Securityholders.

 

Dividend policy

We do not currently intend to pay cash dividends on our Class A ordinary shares for the foreseeable future. Our board of directors has sole discretion regarding the declaration and payment of dividends. See “Dividend Policy.”

 

Risk factors

Investing in our Class A ordinary shares involves a high degree or risk. See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A ordinary shares.

 

Market for our Class A ordinary shares

Our Class A ordinary shares are listed on the NYSE under the symbol “IS.”

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

Summary Financial Information of ironSource

The following tables present our summary consolidated financial data. We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The summary historical consolidated statement of operations for the years ended December 31, 2020 and 2019 and the summary consolidated balance sheet information as of December 31, 2020 and 2019 have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The summary historical consolidated statement of operations for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet information as of March 31, 2021 have been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. Our unaudited consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for the fair statement of the financial information set forth in those statements, except for the effects of the Recapitalization discussed in Note 2(e) to our unaudited consolidated financial statements. Our historical results for any prior period are not necessarily indicative of results expected in any future period and the results for the three months ended March 31, 2021 or any other interim period are not necessarily indicative of results to be expected for the full year ending December 31, 2021 or any other period.

On December 31, 2020, we completed the Spin-Off of the assets of our Desktop business. The Desktop business is reported in this prospectus as discontinued operations in accordance with Accounting Standards Codification (“ASC”) 205-20 “Presentation of financial statements—Discontinued operations.” See Note 4 to our audited consolidated financial statements included elsewhere in this prospectus.

On June 28, 2021, we consummated the Recapitalization with TBA, resulting in TBA becoming a wholly-owned subsidiary of the Company. As a result, all ordinary shares, restricted share units, options for ordinary shares, exercise price and income per share amounts have been adjusted, on a retroactive basis, for all periods presented in these consolidated financial statements, to reflect both the distribution of Class B ordinary shares and the Stock Split, together representing a ratio of 9.98 of each share. See Note 2(ab) to our audited consolidated financial statements included elsewhere in this prospectus.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.


 

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Consolidated Statements of Operations Data

 

     Three Months Ended
March 31
     Year Ended
December 31,
 
     2021      2020      2020      2019  
     (in thousands)  

Revenue

   $ 119,713      $ 61,206      $ 331,519      $ 181,107  

Cost of Revenue

     20,140        11,547        57,825        34,651  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

     99,573        49,659        273,694        146,456  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses:

           

Research and development

     20,410        10,129        51,600        37,547  

Sales and marketing

     48,721        19,172        119,262        37,155  

General and administrative

     15,547        6,702        28,746        28,452  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     84,678        36,003        199,608        103,154  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     14,895        13,656        74,086        43,302  

Financial expenses, net

     1,029        972        4,381        2,741  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations before income taxes

     13,866        12,684        69,705        40,561  

Income taxes

     3,622        1,794        10,896        7,843  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations, net of income taxes

     10,244        10,890        58,809        32,718  

Income from discontinued operations, net of income taxes

     —          12,301        36,480        51,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 10,244      $ 23,191      $ 95,289      $ 83,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to non-controlling interest (related to discontinued operations)

     —          —          —          67  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to ironSource Ltd. shareholders

     10,244        23,191        95,289        83,895  

Basic net income per ordinary share, attributable to ironSource Ltd. shareholders*:

           

Continuing operations

     0.01        0.01        0.07        0.04  

Discontinued operations

     —          0.01        0.04        0.06  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic net income per ordinary share, attributable to ironSource Ltd. shareholders*

   $ 0.01      $ 0.02      $ 0.11      $ 0.1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average ordinary shares outstanding – basic*

     645,295,222        633,813,050        636,450,643        730,245,143  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per ordinary share, attributable to ironSource Ltd. shareholders*:

           

Continuing operations

     0.01        0.01        0.06        0.03  

Discontinued operations

     —          0.01        0.04        0.06  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per ordinary share, attributable to ironSource Ltd. shareholders*

   $ 0.01      $ 0.02      $ 0.1      $ 0.09  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average ordinary shares outstanding – diluted*

     711,685,249        668,333,274        681,900,332        764,181,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Shares and per share data are presented on a retroactive basis to reflect the Recapitalization on June 28, 2021.


 

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Consolidated Balance Sheet Data

 

     As of
March 31,
     As of December 31,  
     2021      2020      2019  
     (in thousands)  

Cash and cash equivalents

   $ 127,535      $ 200,672      $ 86,083  

Total Assets

     617,658        535,836        408,764  

Total Liabilities

     312,734        316,390        245,498  

Total Shareholders’ Equity

   $ 304,924      $ 219,446      $ 163,266  

Other Financial Data(1)

 

     Three months ended
March 31,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands, except percentages)  

Income from continuing operations, net of income taxes

   $ 10,244     $ 10,890     $ 58,809     $ 32,718  

Adjusted EBITDA(3)

   $ 39,547     $ 20,489     $ 103,540     $ 74,454  

Income from continuing operations, net of income taxes margin(2)

     9     18     18     18

Adjusted EBITDA Margin(3)

     33     33     31     41

 

(1)

See the definitions of non-GAAP financial metrics in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics and Non-GAAP Financial Metrics.

(2)

Calculated as income from continuing operations, net of income taxes divided by revenue.

(3)

We define Adjusted EBITDA as income from continuing operations, net of income taxes, as adjusted for income taxes, financial expenses, net and depreciation and amortization, further adjusted for assets impairment, share-based compensation expense, fair value adjustment related to contingent consideration, acquisition-related costs and initial public offering costs. We define Adjusted EBITDA Margin as Adjusted EBITDA calculated as a percentage of revenue. Adjusted EBITDA and Adjusted EBITDA Margin are included in this prospectus because they are key metrics used by management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA Margin are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Management believes that Adjusted EBITDA and Adjusted EBITDA Margin are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate directly to the performance of the underlying business.

Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance or liquidity and should not be considered as alternatives to net loss as a measure of financial performance, as alternatives to cash flows from operations as a measure of liquidity, or as alternatives to any other performance measure derived in accordance with GAAP. Neither Adjusted EBITDA nor Adjusted EBITDA Margin should be construed as an inference that our future results will be unaffected by unusual or other items. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect our tax payments and certain other cash costs that may recur in the future, including, among other things, cash requirements for costs to replace assets being depreciated and amortized. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA and Adjusted EBITDA Margin as supplemental measures. Our measures of Adjusted EBITDA and Adjusted EBITDA Margin are not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.


 

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The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures, which are income from continuing operations, net of income taxes and income from continuing operations, net of income taxes margin, respectively:

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands, except percentages)  

Income from continuing operations, net of income taxes

   $ 10,244     $ 10,890     $ 58,809     $ 32,718  

Financial expense, net

     1,029       972       4,381       2,741  

Income taxes

     3,622       1,794       10,896       7,843  

Depreciation and amortization(a)

     5,343       4,001       16,858       17,172  

Assets impairment(b)

     —         —         —         121  

Share-based compensation expense(c)

     15,559       2,832       12,596       15,329  

Fair value adjustment of a contingent consideration(d)

     —         —         —         (1,470

Acquisition-related costs(e)

     2,291       —         —         —    

Initial public offering costs

     1,459       —         —         —    

Adjusted EBITDA

   $ 39,547     $ 20,489     $ 103,540     $ 74,454  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

   $ 119,713     $ 61,206     $ 331,519     $ 181,107  

Income from continuing operations, net of income taxes margin(f)

     9     18     18     18

Adjusted EBITDA Margin

     33     33     31     41
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)

Represents $1,159, $597, $2,387 and $3,112 in intangible assets amortization, $2,375, $2,049, $8,961 and $8,043 in capitalized software amortization and $349, $349, $1,446 and $1,307 in fixed assets depreciation for the three months ended March 31, 2021 and 2020 and the years ended December 31, 2020 and 2019, respectively. In addition, we adjusted for $1,460 and $1,006, for the three months ended March 31, 2021 and 2020, respectively, and $4,064 and $4,710 for the years ended December 31, 2020 and 2019, respectively, of amortization of certain incentive payments to customers, which we amortize contra revenue over the term we expect to provide services to these customers.

  (b)

Represents impaired capitalized software costs no longer in use.

  (c)

Represents non-cash share-based compensation expenses.

  (d)

Represents fair value adjustment to contingent consideration liability related to acquisitions.

  (e)

Represents costs in connection with the acquisition of Soomla Inc. in January 2021 and Luna Labs Limited in February 2021. These costs include compensation subject to continuing employment and other acquisition-related costs.

  (f)

Represents income from continuing operations, net of income taxes divided by revenue.


 

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Summary Financial Information of TBA

The following tables present TBA’s summary financial data. TBA prepares its financial statements in accordance with GAAP. The summary historical consolidated statement of operations for the period from November 6, 2020 (inception) through December 31, 2020 and the summary balance sheet information as of December 31, 2020 have been derived from TBA’s audited financial statements, which are included elsewhere in this prospectus. TBA’s historical results for any prior period are not necessarily indicative of results expected in any future period. The summary historical consolidated statement of operations for the three months ended March 31, 2021 and the summary balance sheet information as of March 31, 2021 have been derived from TBA’s unaudited financial statements, which are included elsewhere in this prospectus. TBA’s unaudited financial statements were prepared on a basis consistent with its audited financial statements and include, in TBA’s opinion, all adjustments, consisting only of normal recurring adjustments, that TBA considers necessary for the fair statement of the financial information set forth in those statements. TBA’s historical results for any prior period are not necessarily indicative of results expected in any future period and the results for the three months ended March 31, 2021 or any other interim period are not necessarily indicative of results to be expected for the full year ending December 31, 2021 or any other period.

The financial data set forth below should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and TBA’s financial statements and notes thereto included elsewhere in this prospectus.

Statements of Operations Data

 

     For the three
months ended
March 31, 2021
    For the Period from
November 6, 2020
(Inception) through
December 31, 2020
 

General and administrative expenses

   $ 3,322,721     $ 25,208  
  

 

 

   

 

 

 

Interest earned on investments held in Trust Account

     11,490       —    
  

 

 

   

 

 

 

Net loss

     (3,311,231     (25,208
  

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding of Class A and Class B non-redeemable ordinary shares(1)(2)

     26,365,556       22,500,000  
  

 

 

   

 

 

 

Basic and diluted net loss per ordinary share

   $ (0.13   $ (0.00
  

 

 

   

 

 

 

Balance Sheet Data

 

     As of
March 31, 2021
     As of
December 31, 2020
 

Total assets(3)

   $ 1,004,218,419      $ 1,165,929  

Total liabilities

     38,059,286        1,166,137  

Total shareholders’ equity

     5,000,003        (208

 

(1)

The figure for the period from November 6, 2020 through December 31, 2020 excludes up to 2,500,000 Class B Shares subject to forfeiture if the over-allotment option in connection with the TBA IPO was not exercised in full or in part by the underwriters. The underwriters fully exercised the over-allotment option on January 20, 2021; thus, these 2,500,000 Class B ordinary shares are no longer subject to forfeiture.

(2)

Shares and the associated amounts have been retroactively restated to reflect: (i) the surrender of 25,875,000 Class B Shares to TBA for no consideration on November 18, 2020; and (ii) the share capitalization of 22,125,000 Class B Shares on December 22, 2020, resulting in 25,000.000 Class B Shares outstanding.

(3)

Comprised of deferred offering costs associated with the TBA IPO.


 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL

INFORMATION COMPARATIVE PER SHARE DATA

The following tables set forth the per share data of each of ironSource and TBA on a stand-alone basis and the unaudited pro forma combined per share data for the three months ended March 31, 2021 and the year ended December 31, 2020 after giving effect to the Business Combination and the issuance of shares to the PIPE Investors and reflects that 18,254,045 public shareholders of TBA exercised redemption rights with respect to their public shares for a pro rata share of the funds in TBA’s trust account and reflects (i) an aggregate of $67.5 million of the Trust Account Excess Cash funds (as such term is defined in the Business Combination Agreement) was used by TBA to acquire shares from certain of ironSource’s shareholders prior to the Business Combination, (ii) in accordance with the Support Agreement, dated March 20, 2021 (the “Support Agreement”) between ironSource and Thoma Bravo Advantage Sponsor, LLC, an affiliate of TBA (the “Sponsor”), as a result of redemptions by stockholders of TBA, the Sponsor entered into a similar Investment Agreement with respect to an amount of approximately $32.5 million and (iii) all funds raised in the PIPE are used for secondary acquisition from ironSource shareholders.:

The pro forma earnings information for the three months ended March 31, 2021 and for the year ended December 31, 2020 were computed as if the Business Combination and the issuance of shares to the PIPE Investors had been consummated on January 1, 2020, the beginning of the earliest period presented.

The historical book value per share is computed by dividing total shareholders’ equity (deficit), including shares that were subject to possible redemption, by the number of shares of TBA’s Class A ordinary shares outstanding at the end of the period. The pro forma combined book value per share of our Class A ordinary shares is computed by dividing total pro forma shareholders’ equity by the pro forma number of ironSource, Ltd. ordinary shares outstanding at the end of the period on a fully diluted net exercise basis. The pro forma earnings per share of the combined company is computed by dividing the pro forma net profit available to the combined company’s shareholders by the pro forma weighted-average number of shares of ironSource Ltd. Class A ordinary shares outstanding over the period on a fully diluted net exercise basis.

You should read the information in the following table in conjunction with the selected historical financial information summary included elsewhere in this prospectus, and the historical financial statements of ironSource and TBA and related notes that are included elsewhere in this prospectus. The unaudited ironSource and TBA pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this prospectus. See “Unaudited Pro Forma Condensed Combined Financial Information.”


 

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     Three Months Ended March 31, 2021  
     TBA (Historical)     ironSource (Historical)      Pro Forma Combined  

Book value per share(3)

   $ 0.04     $ 0.34      $ 1.00  

Weighted average number of ironSource shares outstanding – basic

       645,295,222        997,341,021  

Weighted average number of ironSource shares outstanding – diluted

       711,685,249        1,063,731,048  

Basic net income per ironSource share

     $ 0.01      $ 0.01  

Diluted net income per ironSource share

     $ 0.01      $ 0.01  

Weighted average number of TBA redeemable shares outstanding – basic & diluted

     100,000,000       

Weighted average number of TBA non-redeemable shares outstanding – basic & diluted

     26,365,556       

Basic & diluted net income per TBA redeemable share

   $ 0.00       

Basic & diluted net loss per TBA non-redeemable share

   $ (0.13     

 

(1)

In order to conform the presentation of the figures above to TBA’s and the post merger figures, the amount of share and the per share data reflect the Class A Renaming and Class B Distribution (effective bonus share distribution, as defined below) and the Stock Split of 1:4.99. In addition, the ironSource number of shares under the pro forma combined scenarios assumes the conversion of the 2019 Ordinary Shares on January 1, 2020.

(2)

Refer to Note 5 for adjustments made to the weighted average number of shares outstanding, under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

(3)

Calculated based on total shareholder’s equity including shares subject to possible redemption divided by total shares outstanding as of March 31, 2021, assuming that the ironSource 2019 Ordinary Shares are converted to Ordinary shares.


 

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     Year Ended December 31, 2020  
     TBA (Historical)     ironSource (Historical)      Pro Forma Combined  

Book value per share(3)

   $ (0.00   $ 0.25      $ 0.92  

Weighted average number of ironSource shares outstanding – basic

       636,450,643        988,496,442  

Weighted average number of ironSource shares outstanding – diluted

       681,900,332        1,033,946,131  

Basic net income per ironSource share

     $ 0.07      $ 0.06  

Diluted net income per ironSource share

     $ 0.06      $ 0.06  

Weighted average number of TBA redeemable shares outstanding – basic & diluted

     —         

Weighted average number of TBA non-redeemable shares outstanding – basic & diluted

     22,500,000       

Basic & diluted net income per TBA redeemable share

     —         

Basic & diluted net loss per TBA non-redeemable share

   $ (0.00     

 

(1)

In order to conform the presentation of the figures above to TBA’s and the post merger figures, the amount of share and the per share data reflect the Class A Renaming and Class B Distribution (effective bonus share distribution, as defined below) and Stock Split of 1:4.99. In addition, the ironSource number of shares under the pro forma combined scenarios assumes the conversion of the 2019 Ordinary Shares on January 1, 2020.

(2)

Refer to Note 5 for adjustments made to the weighted average number of shares outstanding, under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

(3)

Calculated based on total shareholder’s equity divided by total shares outstanding as of December 31, 2020, assuming that the ironSource 2019 Ordinary Shares are converted to Ordinary shares


 

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our Class A ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

The markets for our solution suites are rapidly evolving and may decline or experience limited growth.

The industry in which we operate is characterized by rapid technological change, new features, tools, solutions and strategies, evolving legal and regulatory requirements, changing customer needs and a dynamic competitive market. Our future success will depend in large part on the continued growth of our markets and our ability to improve and expand our solutions to respond quickly and effectively to this growth.

The opportunities provided by apps, mobile gaming, mobile advertising and other engagement touchpoints in mobile devices are still relatively new, and our customers, who include mobile game and app developers, advertising networks, telecom operators and OEMs, may not recognize the need for, or benefits of, some or all of our solution suites. Moreover, they may decide to adopt alternative products and services to satisfy some portion of their business needs.

If we fail to deliver timely releases of our products that are ready for use, release a new version, service, tool or update, or respond to new offerings by our competitors, or if new technologies emerge that are able to deliver competitive products more efficiently, more conveniently or more securely than our products, then our position in our markets could be harmed, and we could lose customers, which would adversely affect our business and results of operations.

Further, we must be able to keep pace with rapid regulatory changes in order to compete successfully in our markets. Our revenue growth depends on our ability to respond to frequently changing data protection regulations, policies and user demands and expectations, which will require us to incur additional costs to implement. The regulatory landscape in this industry is rapidly shifting, and we may become subject to new regulations that restrict our operations or materially and adversely affect our business, financial condition, and results of operations. For more information on our risks related to regulatory changes, see “—Risks Related to Regulation—We are subject to rapidly changing and increasingly stringent laws, contractual obligations and industry standards relating to privacy, data protection, data security and the protection of children. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business.”

Our ability to succeed within the markets that our solution suites address and continue to be profitable in the future depends upon a number of factors, including the cost, performance and perceived value associated with our individual products and solutions. Significant time, resources and expertise are required in order to build the technology that can deliver automated, high-quality user growth and monetization, while meeting user expectations for tailored experiences and relevant advertising. The trust and reputation we have built with our customers, who leverage our business platform to better scale and monetize their apps and further engage with their users, must constantly

 

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be maintained with technological improvements, operational excellence and the ability to predict and adapt to the needs of our customers. If we fail to maintain that trust and reputation, our ability to grow our business may be materially and adversely impacted.

The markets for our solution suites could fail to grow significantly or there could be a reduction in demand for our products or solutions as a result of a lack of customer acceptance, technological challenges, competing products and services, decreases in spending by current and prospective customers, weakening economic conditions and other causes. If our markets do not continue to experience growth or if the demand for our products and solutions decreases, then we may not be as profitable as we have been in the past, and our business, financial condition and results of operations could be materially and adversely affected.

We rely on operating system providers and app stores to support our platform, and any disruption, deterioration or change in their services, policies, practices, guidelines and/or terms of service could have a material adverse effect on our reputation, business, financial condition and results of operations.

The success of our platform depends upon the effective operation of certain mobile operating systems, networks and standards that are run by operating system providers and app stores (which we collectively refer to as “Providers”). We do not control these Providers and as a result, we are subject to risks and uncertainties related to the actions taken, or not taken, by these Providers. We largely utilize Android-based and iOS-based technology, and in some cases, these Providers include companies that we also regard as our competitors.

The Providers that control these operating systems frequently introduce new technology, and from time to time, they may introduce new operating systems or modify existing ones. Further, we and our customers are also subject to the policies, practices, guidelines, certifications and terms of service of Providers’ platforms on which we and our customers create, run and monetize applications and content. These policies, guidelines and terms of service govern the promotion, distribution, content and operation generally of applications and content available through such Providers. Each Provider has broad discretion to change and interpret its terms of service, guidelines and policies, and those changes may have an adverse effect on us or our customers’ ability to use our platform. A Provider may also change its fee structure, add fees associated with access to and use of its platform or app store, alter how customers are able to advertise and monetize on their platform, change how the personal or other information of its users is made available to application developers on their platform, limit the use of personal information and other data for advertising purposes or restrict how users can share information on their platform or across other platforms. If we or our customers were to violate a Provider’s terms of service, guidelines, certifications or policies, or if a Provider believes that we or our customers have violated, its terms of service, guidelines, certifications or policies, then that Provider could limit or discontinue our or our customers’ access to its platform or app store. In some cases, these requirements may not be clear and our interpretation of the requirements may not align with the interpretation of the Provider, which could lead to inconsistent enforcement of these terms of service or policies against us or our customers and could also result in the Provider limiting or discontinuing access to its platform or app store. If our platform was unable to work effectively on these operating systems, either because of technological constraints or because the Provider impairs our ability to operate on their platform, this would have a material adverse effect on our business, financial condition and results of operations.

We also utilize operating systems from Providers to enable certain of our business operations, including our organization email services, and we expect that we will continue to rely on these systems going forward. Our reliance on operating systems reduces our control over quality of service and exposes us to potential service outages. If any problems occur with these operating systems, it may

 

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cause errors or poor quality communications with our platform, and we could encounter difficulty identifying the source of the problems. The occurrence of errors or poor quality communications with our platform, whether caused by our platform or an operating system platform, may result in the loss of our existing customers or the delay of adoption of our products by potential customers and may materially and adversely affect our business, financial condition and results of operations.

Providers, such as Apple or Google, could also change their technical requirements, guidelines or policies in a manner that materially and adversely impacts the way in which we or our customers collect, use and share data from user devices, including restricting our ability to use or read device identifiers, other tracking features or other device data. Our ability to provide our customers with our user growth and monetization solutions relies on access to and collection of certain data, including resettable device identifiers and interactions with advertisements served by our monetization solutions for purposes such as serving advertisements, limiting the number of advertisements served to a specific device, detecting and preventing advertisement fraud, creating reports for customers, providing support to customers and measuring the effectiveness of advertisements. Without such data, we may not be able to serve such advertisements effectively, provide our products and solutions to customers, improve our products and solutions and remain competitive. There also is the risk that a Provider could limit or discontinue our access to its platform or app store if it establishes more favorable relationships with one or more of our competitors or it determines that it is in their business interests to do so, and we would have no recourse against any such Provider, which could have a material adverse effect on our business, financial condition and results of operations.

Further, at any time, these Providers can change their policies on how our customers or we operate on their platform or in their app stores by, for example, applying content moderation for apps and advertising or imposing technical or code requirements. Actions by Providers may affect the manner in which we or our customers collect, use and share data from user devices, which could have a material adverse effect on our and our customers’ businesses. In addition, if any of our customers have apps removed from app stores as a result of their use of our products, we may be forced to change our individual products, solution suites, practices or business, and we could be exposed to legal risk and lose customers.

For example, from April 26, 2021, Apple requires apps using its mobile operating system, iOS, to affirmatively (on an opt-in basis) obtain a user’s permission to “track them across apps or websites owned by other companies,” including for accessing their device’s advertising identifier. In June 2020, Apple announced that these changes would occur, and it was expected they would occur on or about this time. In anticipation of these changes, we invested resources, and may be required to invest additional resources, in order to implement certain changes in our data collection and use practices. The effect of these changes will depend on various factors, including our ability to measure the effectiveness of ads, and the reaction by the industry to these changes, and may result in a material adverse effect on our business, financial condition and results of operations. We will have no recourse against Apple if these changes negatively impact our business, and we can provide no reassurance that other Providers, such as Google, which uses a similar advertising identifier, will not adopt similar measures in the future. Sonic’s publishing solution, which relies on a number of networks in addition to Sonic’s network, may be more affected by these changes when working with networks that are dependent on more personalized targeting.

If any Providers, including either Android or iOS stop providing us with access to their platform or infrastructure, fail to provide reliable access, cease operations, modify or introduce new systems or otherwise terminate services, the delay caused by qualifying and switching to other operating systems could be time consuming and costly and could materially and adversely affect our business, financial condition and results of operations. Any limitation on or discontinuation of our or our customers’ access to any Provider’s platform or app store could materially and adversely affect our business, financial condition, results of operations or otherwise require us to change the way we conduct our business.

 

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The markets in which we operate are competitive, and if we do not compete effectively, our business, financial condition and results of operations could be harmed.

The markets in which we operate are highly competitive. A significant number of companies have developed or are developing products and solutions that currently, or in the future may, compete with some or all of our individual products or solution suites. As we look to market and sell our solution suites and individual products to potential customers who use our existing products, we must convince their internal stakeholders that our solution suites are superior and/or more cost-effective to their current products and solutions.

We primarily compete with other technology platforms and digital content monetization services. Broadly, our competitors include well-established technology platforms that vary in size and compete with us primarily with their mobile monetization, growth and user acquisition solutions and services. These competitors include Google Admob, Facebook Audience Network, Unity Software, MoPub by Twitter, AppLovin and Digital Turbine. We believe that our ability to compete effectively for customers depends upon many factors, including, but not limited to: providing a comprehensive set of solutions; increasing the volume depth of and ability to leverage data and analytics, while respecting privacy restrictions; the pace and quality of innovation; providing high-quality solution capabilities, including performance, scalability, security and reliability; effective advertising solutions; ability to drive business value for customers; strong brand reputation and recognition; ease of deployment, implementation and use of solutions; optimized price-performance benefits; and the quality of service and customer satisfaction. Our inability to compete favorably with respect to these factors could materially and adversely impact our business.

Our competitors vary in size and in the breadth and scope of the products or services offered. Some of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets and greater financial and operational resources than we do. Further, other potential competitors not currently offering competing products or services may expand their offerings to compete with our products or solution suites or enter the markets through acquisitions, partnerships or strategic relationships. Certain competitors may choose to limit working with us, or cease working with us completely with respect to certain products or solution suites that we offer now or in the future, if such competitors provide competing products or solutions. In addition, our current and potential competitors may establish, or may have already established, cooperative relationships among themselves or with our customers or other third parties that may further enhance their resources and offerings in our addressable markets. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. An existing competitor or new entrant could introduce new technology that is perceived to be easier to use or otherwise favorable to ours, which could reduce demand for our solution suites or individual products.

Further, some of our competitors may be acquired by other larger enterprises and or may make acquisitions, or enter into partnerships or other strategic relationships, that may provide more comprehensive offerings than they individually had offered, or may achieve greater economies of scale than us.

In addition to platform and technology competition, we face pricing competition. Some of our competitors offer competing products, which may be on more favorable terms, and has resulted in, and may continue to result in, pricing pressures. In addition, some of our competitors may offer more favorable payment terms to our customers compared to what we currently offer. We cannot assure you that we will not be forced to engage in price-cutting or revenue limiting initiatives, change payment terms or increase our advertising and other expenses to attract and retain customers in response to competitive pressures.

 

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For all of these reasons, we may not be able to compete successfully against our current or future competitors, which could result in the failure of our solutions to continue to achieve or maintain customer and market acceptance, which would harm our business, financial condition and results of operations.

Our quarterly results of operations may fluctuate for a variety of reasons, and these fluctuations make it difficult for us to forecast our future results of operations and could result in our failure to meet our operating plan or the expectations of investors or analysts for any period.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In particular, our sales cycle can last several months for certain clients, and this sales cycle can be even longer, less predictable and more resource-intensive for larger enterprise customers. As a result, the timing of individual sales can be difficult to predict. In some cases, sales have occurred in a quarter subsequent to those we anticipated, or have not occurred at all, which can significantly impact our quarterly results and make it more difficult to meet market expectations.

In addition, our results of operations will continue to vary as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

 

   

our ability to attract new customers and retain existing customers;

 

   

changes in the mix of solutions we sell to current customers;

 

   

our ability to price our solutions effectively;

 

   

the timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape, including consolidation among our customers or competitors;

 

   

fluctuations in the demand for our gaming customers’ products and their ability to monetize those products, particularly given the relative uncertain in consumer behavior during and after the COVID-19 pandemic;

 

   

unpredictability related to the costs that we incur in order to comply with rapidly changing regulatory or legal requirements, especially with respect to privacy and security matters;

 

   

changes in customers’ budgets and in the timing of their budget cycles;

 

   

our ability to successfully expand our business globally or into nongaming advertising;

 

   

seasonality;

 

   

changes in our pricing policies or those of our competitors;

 

   

investments in new features and functionality of our solutions;

 

   

general economic conditions in our markets;

 

   

future accounting pronouncements or changes in our accounting policies or practices;

 

   

the amount and timing of our operating costs, including amount and timing of costs associated with recruiting, training and integrating new employees and retaining and motivating existing employees;

 

   

significant security breaches of, technical difficulties with or interruptions to the delivery and use of our solution suites;

 

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changes in the competitive dynamics of our markets, including consolidation among competitors or customers;

 

   

timing of acquisitions and costs associated with integrating acquired companies; and

 

   

increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates.

Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our financial and other operating results from period to period. These fluctuations make it difficult for us to forecast our future results of operations and could result in our failure to meet our operating plan or the expectations of investors or analysts for any period. As a result, you should not rely on our results or growth for any prior quarterly or annual periods as any indication of our future results or growth, and you should consider and evaluate our prospects in light of the risks and uncertainties frequently encountered by growing companies in rapidly evolving markets. If we fail to meet such expectations for these or other reasons, the market price of our ordinary shares could fall substantially, and we could face costly lawsuits, including securities class action suits.

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired, and our business, financial condition and results of operations may suffer.

We believe that maintaining and enhancing our brand reputation is important to expand sales of our products and solution suites to new and existing customers. We also believe that the importance of brand recognition will increase as competition in our markets increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to offer reliable products that continue to meet the needs and preferences of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality to address a wide variety of customers’ needs and our ability to successfully differentiate our products from those of our competitors. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand.

Our brand and reputation could also be impacted by the types of content that developers publish using our platform. While we have processes in place to review the content that is published by developers, there can be no assurance that the content posted will follow the rules and not be deemed offensive or controversial, which could adversely affect our brand and reputation if the content was associated with us and our platform. We also rely on Providers, such as Google and Apple, to conduct reviews of the apps that are published on their respective app stores in accordance with the terms of use for their stores. If we or any such Provider fail to prevent any such offensive content, or if the content conflicts with our company values, our reputation may be negatively impacted.

Further, our brand may be impacted by things that are outside of our control, such as the actions taken by others in our industry or by independent third-parties, such as researchers, journalists, self-regulatory bodies and consumer groups, that could impact our industry as a whole. Researchers or consumer groups might undertake studies that cover our industry or our activity, as has occurred in the past, and such studies may result in negative publicity, or other actions taken by third parties that could damage our reputation or brand. Further, we conducted the Spin-Off (as defined below) of the assets of our Desktop business, and there can be no assurance that our brand would not suffer harm as a result of any claims that may arise in connection with the business that was spun off. If we fail to successfully promote and maintain our brand, our business, financial condition and results of operations may suffer.

 

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Our business depends on our ability to retain and expand our existing customer relationships and attract new customers.

An important component of our future success is to retain and expand our relationships with existing customers and attract new customers. In order for us to maintain or improve our results of operations, it is important that we maintain positive relationships with our existing customers and that they are satisfied with the products and services we provide. We invest in targeted sales and account-based marketing efforts to identify opportunities to grow the use of our solution suites and products within and across our customer base, and we implement customer service strategies to identify opportunities to increase and sustain our customer base. We currently have a strong customer base within the mobile gaming markets, but are aiming to expand in both our current markets and new markets and there can be no assurance that our efforts will be successful. Further, there is ongoing customer consolidation and concentration within our markets, which could impair our ability to expand the customer base of our platform.

Our customer retention rates may decline or fluctuate as a result of a number of factors, some of which may be outside our control, such as the performance and perceived value associated with our platform, including their perception of our continued development of products that are important to them, the business strength or weakness of our customers, the success of our customers’ games and apps and their ability to monetize, the entry and success of competitive products and overall general economic conditions in the geographic regions in which we operate. However, our efforts may not be successful despite the resources we devote to them, and our customers may choose to switch to one of our competitors or choose to replace our products with similar technology that the customer creates internally.

Our telecom operator customers use our Aura solution suite to manage the device experience for their users, which helps them to manage both third-party and owned and operated services. To perform these services, we rely on the policies and procedures of telecom operators and OEMs and should those change, there could be an adverse impact on our products. For example, certain device OEMs have started to move towards issuing a single SKU, which may limit the functionality or create technical limitations on preloaded software or customizable features on such devices, based on criteria determined by the OEM. For instance, if an OEM determines that it will only support the installation of preloads following the completion of a device’s initial setup, we would only be able to provide the onboarding experience after the initial setup experience was completed and not as an integral part of the setup experience, resulting in less installs, which would affect our revenues. There can be no assurance that if more device OEMs choose to issue single SKUs in their devices, that we will be able to maintain the functionality that we provide to our Aura customers, which could adversely affect our business, financial condition and results of operations.

Similarly, our sales efforts could be adversely impacted if customers and their users perceive that features incorporated into competitive platforms or their own technologies reduce the relevance or attractiveness of our solution suites. Gaming companies may choose to invest significant efforts in their own internally-generated technologies and replace certain of our products with their own technologies unless they perceive our solution suites as offering significant incremental long-term benefits. Any decrease in user satisfaction with our platform or customer support would also harm our brand and word-of-mouth referrals, which, in turn, would hamper our ability to attract new customers. It is also an important part of our strategy to expand our customers’ use of our platform by cross-selling our products and solution suites. While we believe there are significant cross-selling opportunities between our solution suites and products, we cannot be sure that our efforts will be successful.

Our customers range from large global enterprises to mid-sized, small and independent businesses and individuals, and as such, our agreements with each customer type vary in length and

 

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terms. Many of our agreements allow customers to terminate the agreement at their convenience and do not provide for minimum usage or guaranteed scale. There can be no assurance that we will be able to successfully negotiate new agreements with these customers when the existing agreements end.

If we do not retain our existing customers, attract new customers or if our customers do not expand their use of our platform and purchase additional solutions from us, our revenue may not increase or may decline and our business, financial condition and results of operations may be harmed.

We rely on our customers that contribute more than $100,000 of annual revenue, and sales to these customers require a stronger sales team as compared to other customers.

One of the factors affecting our growth and financial performance is the continued use of our solution suites by customers contributing more than $100,000 of annual revenue. As of March 31, 2021, these 292 customers represented 94% of our total revenue. While we believe that our relationships with these customers are strong, there can be no assurance that we will be able to maintain or expand these existing relationships, which could have a material adverse effect on our business, financial condition and results of operations.

In order to increase the adoption of our products and solution suites by customers that we believe can contribute more than $100,000 of revenue over a 12-month period and to expand into new industries where potential customers are typically large organizations, we rely on our direct sales team. Although our direct sales team is working to expand into industries beyond gaming we have relatively limited experience selling our solutions in industries outside gaming apps, and there can be no assurance that our direct sales team will be effective in attracting customers in industries beyond gaming in line with our growth strategies.

In addition, sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller customers, such as longer sales cycles that average between four and six months but can extend up to twelve months for certain of our customers, more complex customer requirements, substantial upfront sales costs and less predictability in completing some of our sales. For example, large customers may require considerable time to evaluate and test our solutions and those of our competitors prior to making a decision or may have specific compliance and product requirements that we may not meet. A number of factors influence the length and variability of our sales cycle, including the competitive nature of evaluation and approval processes, extensive tests and review of our technology capabilities, examination of our data security measurements and adherence with security requirements. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large customers typically taking longer to complete. Moreover, larger customers often begin to deploy our solution suites on a limited basis, but nevertheless may demand development and integration services, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our solutions widely enough across their organization to justify our substantial upfront investment. If we fail to increase adoption of our solutions by larger customers, our growth could be impaired.

If we do not successfully and efficiently manage our current and potential future growth, our business, financial condition and results of operations could be harmed.

In recent years, we have significantly grown the scale of our business, and the growth and expansion of our business places significant strain on our management and our operational and financial resources. As usage of our platform grows, we will need to devote additional resources to

 

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improving its capabilities, features and functionality, and scaling our business, IT, financial, operating and administrative systems. There can be no assurance that we will appropriately allocate our resources in a manner that results in increased revenue or other growth in our business. Any failure of or delay in these efforts could result in impaired performance and reduced customer satisfaction, resulting in decreased sales to new customers or lower dollar-based net expansion rates (as defined in “ironSource’s Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics and Non-GAAP Financial Metrics”), which would hurt our revenue growth and our reputation. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. Even if we are successful in our expansion efforts, they will be expensive and complex and require the dedication of significant management time and attention. We may also suffer inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion of and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could harm our business, financial condition and results of operations.

Our business growth is dependent upon the continued growth of the app economy and the increased usage of smartphones, tablets and other connected devices.

Our business growth depends on the continued proliferation of mobile connected devices, such as smartphones and tablets, which can connect to the Internet over a cellular, wireless or other network, as well as the increased consumption of content through those devices. Consumer usage of these mobile connected devices may be inhibited for a number of reasons, such as:

 

   

inadequate network infrastructure to support advanced features beyond just mobile web access;

 

   

users’ concerns about the security of these devices;

 

   

inconsistent quality of cellular or wireless connections;

 

   

unavailability of cost-effective, high-speed Internet services;

 

   

changes in network carrier pricing plans that charge device users based on the amount of data consumed; and

 

   

new technology which is not compatible with our platform.

In particular, the increased usage of smartphones, tablets and other mobile connected devices is dependent upon user sentiment and the increased availability of such devices. Public opinion towards mobile connected devices and other similar technological advancements is rapidly evolving, and as such, our industries have faced criticism in the past. We cannot be certain that the public will continue to support new technologies, such as app-based gaming and advertising. If we lose public interest and support for mobile gaming and apps, it could have a material adverse effect on our business, financial condition and results of operation.

We saw a moderate increase in demand for certain of our products and solution suites following the implementation of shelter-in-place orders, as we believe these restrictions provided individuals more time to spend online and higher levels of user engagement within the mobile ecosystem. Although we are seeing an increase in time that users spend playing games, which results in more engagement with ads and has led to an increase in the use of our platform, there can be no assurance that this increase will continue once global shelter-in-place restrictions are lifted and the COVID-19 pandemic has subsided. Furthermore, while our financial condition and results of operations were not negatively impacted by the COVID-19 pandemic, its impact on our future growth and our results of operations is unknown, and we are unable to accurately predict any future impacts. There can be no assurance that the increases we have seen this year will continue over time whether during or after the COVID-19 pandemic.

 

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In addition, the Internet infrastructure that we and our customers rely on in any particular geographic area may be unable to support the demands placed upon it, which could interfere with the speed and availability of our platform. As a result, we could lose customers if the infrastructure is unable to support our platform or solution suites, which could have a material adverse effect on our business, financial condition and results of operations.

For any of these reasons, users of mobile connected devices may limit the amount of time they spend on these devices and the number of applications or amount of content they download on these devices. If user adoption of mobile connected devices and user consumption of content on those devices do not continue to grow, our total addressable market size may be significantly limited, which could compromise our ability to increase our revenue and our ability to become profitable.

If we are unable to further expand into the wider app economy or if our solutions for industries beyond gaming fail to achieve market acceptance, our growth and operating results could be adversely affected, and we may be required to reconsider our growth strategy.

Our growth strategy is based, in part, on expanding into industries that go beyond mobile gaming apps into the broader app economy. These industries are still in the early stages of development, and it is uncertain whether these types of apps will provide the opportunities for expansion that we currently expect, as well as how rapidly these opportunities may materialize, if at all.

Our success in expanding into these industries will depend, to a substantial extent, on our ability to scale our business to tailor our existing solution suites and products to these different types of apps, provide new and improve existing products to our new and existing customers and enable these customers to further monetize their apps across the ecosystem. Market acceptance of our solution suites and products for new customers outside of mobile gaming may not grow as we expect as a result of a number of factors, including the cost, performance and perceived value associated with our products and our ability to adapt to the differing sales and marketing requirements appropriate to most effectively address these industries. In addition, our ability to achieve widespread adoption of our products by new customers in industries beyond gaming may be affected by the entry and success of competitive products, including from larger competitors with greater resources that have historically addressed these industries with legacy products, and accordingly, have more brand recognition in these industries. If our products do not achieve widespread adoption in these other markets, our ability to grow our revenue may suffer.

We are dependent on the success of the gaming and mobile app ecosystem. Adverse events relating to this ecosystem, including events related to our customers or their apps, could have a negative impact on our business.

We are dependent on the success of the gaming and mobile app ecosystems to sustain and increase our business, including the success of our customers and their apps. Our customers are game and app developers, advertising networks, telecom operators, OEMs and others who use our solution suites to control their advertisements, publish their apps and games and monetize and generate growth of use of their apps and increase engagement with their users. As a result, our success depends in part on the gaming and mobile app ecosystem, which includes our current and potential new customers creating new apps and then using our products to market, sell and scale their apps, and then continue to use our products to further grow and monetize their apps as their apps continue to gain popularity. If a significant amount of our customers’ marketing and advertising efforts are unsuccessful or if a large amount of our customers experience a decrease in demand for their apps, our revenue could be reduced. The gaming and mobile app ecosystem is characterized by intense competition, rapid technological change and economic uncertainty and, as such, there is no guarantee that any of our customers’ apps will gain any meaningful traction with users. In addition,

 

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some of our solution suites are more reliant on certain customers and their ability to continue to use our solutions to engage with their users. While our large and diverse customer portfolio has helped to reduce the fluctuations in our revenue as a whole, we cannot assure you that the size and diversification of our customer portfolio will sufficiently mitigate this risk. If our customers fail to market and monetize their apps or devices using our solutions, and we are not able to maintain a diversified portfolio of customers, our business, financial condition and results of operations may be materially and adversely affected.

Our business is subject to risks generally associated with the mobile gaming industry.

81.6% of our 2020 revenue was derived from customers in the mobile gaming industry, and we rely to a significant extent on the health of the mobile gaming industry and the success of our customers’ games to maintain and increase our revenue. Accordingly, we are especially susceptible to market conditions and risks associated with the mobile gaming industry, including the popularity, price and timing of release of games, changes in consumer demographics, the availability and popularity of other forms of entertainment and public tastes and preferences, all of which are difficult to predict and are beyond our control. In order to be successful, our customers must also develop effective marketing strategies for games; expand and enhance games after their initial release; attract experienced game designers, product managers and engineers; and adapt to an increasingly diverse set of mobile devices, including various operating systems and specifications, limited bandwidth, and varying processing power and screen sizes.

In addition, users may view games as a discretionary purchase. Although in periods of economic downturn time spent on gaming typically increases, if we experience a prolonged downturn as a result of the effects of COVID-19 or otherwise, users may reduce their discretionary spending on games, and our customers, in turn, may see an adverse effect on their business and reduce their usage of or lower their spending on our solution suites, which would adversely impact our revenue and financial condition. Economic conditions that negatively impact discretionary consumer spending, including inflation, slower growth, unemployment levels, tax rates, interest rates, energy prices, declining consumer confidence, recession and other macroeconomic conditions, including those resulting from COVID-19 and from geopolitical issues and uncertainty, could have a material adverse impact on our business, financial condition and results of operations.

If we or our competitors fail to detect or prevent fraud on our respective platforms, or malware intrusion into the systems or devices of customers and their users, customers could lose confidence in our or our competitors’ platforms, and we could face legal claims that could materially and adversely affect our reputation, business, financial condition and results of operations.

We and our competitors may be subject to fraudulent or malicious activities undertaken by persons or third parties seeking to use our or our competitors’ platforms for improper purposes. For example, someone may attempt to divert or artificially inflate mobile apps users’ actions recorded in our platform or to disrupt or manipulate the operation of the systems and devices of our customers and their users in order to misappropriate information, generate fraudulent billings or stage cyberattacks or for other illicit purposes. Bad actors may also introduce malware through our or our competitors’ platforms in order to commandeer or gain access to information of our customers or partners. For example, sophisticated bot-nets and other complex forms of “click fraud” might be used to generate fraudulent impressions and divert advertising revenue from the legitimate apps of our customers.

We may also be subject to fraud and other types of malicious activity by competitors for the purpose of manipulating the allocation of advertising budgets across our, or our competitors’ platforms. If we fail to detect such activity, this could divert advertising revenue from us to our competitors. We

 

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use third-party tools and proprietary technology to identify non-human traffic and malware, and we may reduce or terminate relationships with customers or partners that we find to be engaging in any such activities, which could adversely affect our revenue and harm our relationships with our other customers or partners. Although we continuously assess the quality and performance of advertising on customers’ digital media properties, it may be difficult to detect fraudulent or malicious activity, and we rely on our own and third-party tools, as well as the controls of our customers. Further, perpetrators of fraudulent impressions and malware frequently change their tactics and may become more sophisticated over time, requiring both us and our competitors or others in our industry to improve processes for assessing the quality of customers’ inventory and controlling fraudulent activity. If we or our competitors fail to detect or prevent fraudulent or malicious activity of this sort, our reputation, or the broader reputation of our industry, could be damaged, and our customers may contest payment, demand refunds or fail to give us future business, or we could face legal claims from our customers. Even if we are not directly involved in fraud or malicious activity, any sustained failures of others in our industry to adequately detect and prevent fraud could materially and adversely affect the industry and its reputation, which would have a material adverse effect on our business, financial condition and results of operations.

If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data or our platform, then our platform may be perceived as not secure, and our reputation may be harmed, our business operations may be disrupted, demand for our solution suites may be reduced and we may incur significant liabilities.

Operating our business platform involves the collection, storage and transmission of proprietary and confidential information, including personal information of our employees, customers and users of our customers’ products, our proprietary and confidential information and the confidential information we receive from our partners, customers and users. Our internal computer systems and those of our current and any future strategic collaborators, vendors and other contractors or consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, cybersecurity threats, terrorism, war, telecommunication, and electrical failures. The security measures we take to protect this information may be breached as a result of cyber-attacks, computer malware, viruses, unauthorized access, natural disasters, cybersecurity threats, terrorism, war, telecommunication, electrical failures, social engineering (including, but not limited to, spear phishing and ransomware attacks), hacking and other efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, organized crime, other criminal enterprises, individual actors and/or advanced persistent threat groups. In addition, we may experience intrusions on our physical premises by any of these threat actors.

Cyber incidents have become more prevalent in recent years and been increasing in sophistication and frequency. Incidents may include third parties attempting to gain access to employee or customer data using stolen or inferred credentials, computer malware, viruses, spamming, phishing attacks, ransomware, card skimming code and other deliberate attacks and attempts to gain unauthorized access. Because the techniques used by computer programmers who may attempt to penetrate and sabotage our network security or our website change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques.

For example, attempts by malicious actors to frequently induce our personnel into disclosing usernames, passwords or other information that can be used to access our systems have increased and could be successful. Our security measures could also be compromised by personnel, theft or errors or be insufficient to prevent harm resulting from security vulnerabilities in software or systems on which we rely. Such incidents may occur in the future, resulting in unauthorized, unlawful or inappropriate access to, inability to access, disclosure of or loss of the sensitive, proprietary and

 

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confidential information that we handle. Security incidents could also damage our IT systems and our ability to make the financial reports and other public disclosures required of public companies.

We rely on third-party service providers to provide critical services that help us maintain, develop and deliver our solutions and operate our business. In the course of providing their services, these providers may support or operate critical business systems for us or store or process personal information and any of the same proprietary and confidential information that we handle. These service providers may not have adequate security measures and could experience a security incident that compromises the confidentiality, integrity or availability of the systems they operate for us or the information they process on our behalf. Such occurrences could materially and adversely affect our business to the same degree as if we had experienced these occurrences directly, and we may not have recourse, or have limited recourse, from the responsible third-party service providers for the resulting liability we incur.

Because there are many different cybercrime and hacking techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches, react in a timely manner or implement adequate preventative measures. While we have developed and implemented systems and processes designed to protect the integrity, confidentiality and security of our customers’ and their users’ confidential and personal information under our control, we cannot guarantee that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. A security breach or other security incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage to our reputation and brand, loss or unavailability of data which we may not be able to effectively restore, reduce demand for our products, disrupt normal business operations, require us to incur material costs to investigate and remedy the incident, recover data if possible, and prevent recurrence, expose us to litigation, regulatory enforcement action, fines, penalties and damages and materially and adversely affect our business, financial condition and results of operations. These risks are likely to increase as we continue to grow and process, store and transmit an increasingly large volume of data.

We have contractual and legal obligations to notify relevant stakeholders of security breaches. Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities and others of security breaches involving certain types of data. In addition, our agreements with certain customers and third-party partners may require us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity and may cause our customers to lose confidence in the effectiveness of our security measures.

A security breach could lead to claims by our customers, their users or other relevant parties that we have failed to comply with contractual obligations to implement specified security measures. As a result, we could be subject to legal action or our customers could end their relationships with us. We cannot assure you that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages. Pursuant to the California Consumer Privacy Act (the “CCPA”) (and the forthcoming California Privacy Rights Act (the “CPRA”)), if we experience a security breach, California consumers could bring a private right of action claiming the breach was the result of our violation of the duty to implement and maintain reasonable security procedures and practices, which could be costly and cause reputational harm. Similarly, there is an increasing risk of class actions in the United Kingdom and Europe. Security breaches could also result in enforcement actions by government or regulatory authorities alleging that we have violated laws that require us to maintain reasonable security measures and comply with mandatory disclosure requirements.

While we do have coverage for cybersecurity attacks, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification

 

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claims against us relating to any incident, will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition and results of operations.

In addition, we continue to expend significant costs to seek to protect our platform and to introduce additional security features for our customers, and we expect to continue to have to expend significant costs in the future. For example, some of our products are SOC 2 compliant, in order to meet the standards that our telecom operator customers require to prevent a security breach, and we may be requested by clients in the future to obtain SOC 2 compliance for additional products. Any increase in these costs will adversely affect our business, financial condition and results of operations.

Interruptions, performance problems or defects associated with our platform could diminish our brand, subject us to liability and may materially and adversely affect our business, financial condition and results of operations.

Our reputation and ability to attract and retain customers and grow our business depends in part on our ability to operate our platform at high levels of reliability, scalability and performance, including the ability of our existing and potential customers to access our platform at any time and within an acceptable amount of time. Interruptions in the performance of our solution suites or any of our individual products, whether due to system failures, computer viruses or physical or electronic break-ins, could affect the availability of our solution suites, our data or any of our individual products. We may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of customers accessing our platform simultaneously, denial of service attacks or other security-related incidents.

It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our customer base grows and our platform becomes more complex. If our platform is unavailable or if our customers are unable to access our products within a reasonable amount of time or at all, we may experience a loss of customers, lost or delayed market acceptance of our solution suites, delays in payment to us by customers, injury to our reputation and brand, legal claims against us, significant costs of remedying these problems, significant costs of compensating customers to maintain our relationships and the diversion of our resources. In particular, certain of our customers, such as our telecom operator customers, rely on our platform to provide services to their users, and if there was any interruption, disruption, security breach or similar event, this could have a negative effect on our telecom operator customers’ reputations with their users, which would materially harm our relationships with these customers and could lead to us losing some, or all, of these customers, which would have a material adverse effect on our business, financial condition and results of operations. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations, as well as our reputation, may be materially and adversely affected.

Further, the technology underlying our platform is inherently complex and may contain material defects or errors, particularly when new products are first introduced or when new features or capabilities are released. We have from time to time found defects or errors in our platform, and new defects or errors in our existing products or new products may be detected in the future by us or our users. We cannot assure you that our existing products and new products will not contain defects. Any such defects could result in loss of revenue and loss of customer confidence in our platform, even if

 

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only one of our products contained defects. Any real or perceived errors, failures, vulnerabilities or bugs in our solution suites or individual products could result in negative publicity or lead to data security, access, retention or other performance issues, all of which could harm our business. The costs incurred in correcting such defects or errors may be substantial and could harm our business. Moreover, the harm to our reputation and legal liability related to such defects or errors may be substantial and could similarly harm our business. If any of the foregoing occurred, it could have a material adverse effect on our business, financial condition and results of operations.

We rely on the performance of, and we face stark competition for, highly skilled personnel, including our management, other key employees and qualified employees, and the loss of one or more of such personnel or of a significant number of our team members or the inability to attract and retain executives and qualified employees we need to support our operations and growth, could harm our business.

Our success and future growth depend upon the continued services of our management team and other key employees. In particular, the founders who are members of our leadership team are critical to our overall management, as well as the continued development of our solutions, our culture and our strategic direction. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. We also are dependent on the continued service of our existing engineering team because of the complexity of our platform. We may terminate any employee’s employment at any time, with or without cause, and any employee may resign at any time, with or without cause, subject only to the notice periods prescribed by their respective agreements if done without cause. The loss of one or more members of our senior management or key employees could harm our business, and we may not be able to find adequate replacements. We cannot ensure that we will be able to retain the services of any members of our senior management or key employees.

In addition, to execute our growth plan, we must attract and retain highly qualified personnel. We have had difficulty quickly filling certain open positions in the past, and we expect to have significant future hiring needs. Competition is intense, particularly in Israel and other areas in which we have offices, for data scientists, engineers experienced in designing and developing cloud-based platform products, research and development specialists and experienced sales professionals. In order to continue to access top talent, we will likely continue to grow our footprint of office locations, which may add to the complexity and costs of our business operations. From time to time, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, experiences significant volatility or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.

We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work, and it may be difficult for us to restrict our competitors from benefiting from the expertise our former employees developed while working for us. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former

 

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employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property.

Our corporate culture has contributed to our success and, if we are unable to maintain it as we grow, our business, financial condition and results of operations could be harmed.

We have experienced and may continue to experience rapid expansion in the number of our employees. We believe our corporate culture has been a key element of our success. However, as our organization grows, it may be difficult to maintain our culture, which could reduce our ability to innovate and operate effectively. The failure to maintain the key aspects of our culture as our organization grows could result in decreased employee satisfaction, increased difficulty in attracting top talent, increased turnover and could compromise the quality of our customer service, all of which are important to our success and to the effective execution of our business strategy. In the event we are unable to maintain our corporate culture as we grow to scale, our business, financial condition and results of operations could be materially and adversely affected.

We rely upon third-party data centers and providers of cloud-based infrastructure to host our platform. Any disruption in the operations of these third-party providers, limitations on capacity or interference with our use could materially and adversely affect our business, financial condition and results of operations.

We currently serve our customers from data centers in the United States and Ireland and other locations worldwide, which are operated by a third-party cloud hosting provider. We use various third-party cloud hosting providers, such as Amazon Web Services (“AWS”), to provide cloud infrastructure for our platform. Our platform relies on the operations of this infrastructure. Customers need to be able to access, send requests and receive communication from our platform at any time, without interruption or degradation of performance, and we provide some customers with service-level commitments with respect to uptime. In addition, our platform depends on the ability of these data centers and cloud infrastructure to allow for our customers’ configuration, architecture, features and interconnection specifications and to secure the information stored in these data centers. Any limitation on the capacity of our data centers or cloud infrastructure could impede our ability to onboard new customers or expand the usage of our existing customers, host our platform or serve our customers, which could materially and adversely affect our business, financial condition and results of operations. In addition, any incident affecting our data centers or cloud infrastructure that may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, outbreaks of contagious diseases, telecommunications failures, terrorist or other attacks and other similar events beyond our control could negatively affect the cloud-based portion of our platform. A prolonged service disruption affecting our data centers or cloud-based services for any of the foregoing reasons would negatively impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or incur additional costs under our customer and partner agreements or otherwise harm our business. We may also incur significant costs for using alternative providers or taking other actions in preparation for, or in response to, events that damage the third-party hosting services we use.

In the event that our service agreements relating to our data centers or cloud infrastructure are terminated or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platform, loss of revenue from revenue-share and usage-based solutions, as well as significant delays and additional expense in arranging or creating new facilities and services or re-architecting our platform for deployment on a different data center provider or cloud infrastructure service provider, which could materially and adversely affect our business, financial condition and results of operations.

 

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Health epidemics, including the current COVID-19 pandemic, could in the future have an adverse impact on our business, operations and the markets and communities in which we, our partners and customers operate.

Our business and operations could be materially and adversely affected by health epidemics, including the current COVID-19 pandemic, impacting the markets and communities in which we and our customers operate. The COVID-19 pandemic has caused, and continues to cause, significant business and financial markets disruption worldwide, and there is significant uncertainty around the duration of this disruption on a global level, as well as the ongoing effects on our business.

We saw a moderate increase in demand for certain of our products and solution suites following the implementation of shelter-in-place orders. There can be no assurance that this increase will continue over time whether during or after the COVID-19 pandemic. While our financial condition and results of operations were not negatively impacted by the COVID-19 pandemic, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, and we may be unable to accurately forecast our revenue or financial results.

Further, as certain of our customers experience downturns or uncertainty in their own business operations or revenue resulting from the spread of COVID-19, they may decrease or delay their spending, request pricing concessions or seek renegotiations of their contracts and decrease their use of our products, any of which could have a material adverse effect on us. The COVID-19 pandemic has resulted in a dramatic increase in unemployment that could lead to users having less discretionary income to spend on games, which could have a negative impact on the mobile app industry. In addition, we may experience customer losses, including due to bankruptcy or our customers ceasing operations, which may result in an inability to collect receivables from these parties. A decline in revenue or the collectability of our receivables could harm our business.

In addition, as the Israeli and other governments around the world imposed shelter-in-place and other restrictive measures, we transitioned many of our employees to remote working arrangements and temporarily closed our offices in Israel, the United States, China and other jurisdictions as required by applicable local authorities from time to time. We have gradually reopened certain of our offices in accordance with the lifting of certain shelter-in-place measures and in accordance with measures that provide additional safeguards that we believe are in the best interests of our employees and customers. While our employees have been gradually allowed to return to our offices in accordance with the applicable local laws, we also have provided the flexibility to our employees to continue to work remotely as the COVID-19 pandemic wears on. We implemented further safeguards in the interest of the health and safety of our employees and customers, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and partners. Although our employees have continued to perform well despite working remotely, there is no guarantee that we will continue to be as effective while working remotely because our team is dispersed, employees may have less capacity to work due to increased personal obligations (such as childcare, eldercare or caring for family members who become sick), may become sick themselves and be unable to work or may be otherwise negatively affected, mentally or physically, by the COVID-19 pandemic and prolonged social distancing. Decreased effectiveness and availability of our team could adversely affect our results due to slowdowns in our sales cycles and recruiting efforts, delays in our entry into customer contracts, delays in addressing performance issues, delays in product development, delays and inefficiencies among various operational aspects of our business, including our financial organization, or other decreases in productivity that could seriously harm our business.

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ability to attract and retain customers and our rate of innovation, either of which could harm our business. In addition, our facilities’ needs could evolve based on continuing changes and impact on work environments as a result of the COVID-19 pandemic, and we may not be able to alter our contractual commitments to accommodate such changes, which could cause us to incur additional costs or otherwise harm our business. More generally, the COVID-19 pandemic has materially and adversely affected economies and financial markets globally, which could decrease technology spending and materially and adversely affect demand for our platform.

The global impact of the COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business, operations or the global economy as a whole, particularly if the COVID-19 pandemic and related public health measures persist for an extended period of time. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows or financial condition. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could harm our business.

If our customers do not obtain necessary and requisite consents from users for us to process their personal data, we could be subject to fines and liability.

Because we do not have direct relationships with users of some of our products, we rely on our customers to obtain the consent of the user on our behalf to process their data, and to implement any notice or choice mechanisms required under applicable laws, but if our customers do not follow this process (and in any event, as the legal requirements in this area continue to evolve and develop), we could be subject to fines and liability. We may not have adequate insurance or contractual indemnity arrangements to protect us against any such claims and losses.

The estimates of our market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at a similar rate, if at all.

The estimates of our market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate. Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that affect the calculation of our market opportunity are also subject to change over time.

Our expectations regarding potential future market opportunities are subject to even greater uncertainty. For example, our expectations regarding future market opportunities depend, among other things, on the extent to which we are able to develop new products and features that expand the applicability of our individual products and/or our solution suites. In addition, our expectations regarding future market opportunities are subject to uncertainties. Our ability to address those opportunities will depend on our developing solutions that are responsive to those particular industries’ and customers’ needs.

In addition, any expansion in our markets depends on a number of factors, including the cost, performance and perceived value associated with our products and those of our competitors. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to achieve a substantial share of these markets or grow at a similar rate, if at all. Our growth is subject to many risks and uncertainties. Accordingly, the estimates of market opportunity or forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

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The recent Spin-Off of the assets of our Desktop business from ironSource Ltd. may give rise to potential liabilities for us in the event of a breach of our or our shareholders’ obligations under the agreements related to the Spin-Off or tax liabilities caused by the Spin-Off.

On December 31, 2020, we completed the spin-off of the assets of our Desktop business to TypeA Holdings Ltd., a newly formed company incorporated under the laws of Israel, (the “Spin-Off”) which is owned by our shareholders on a pro rata basis as of the date of the Spin-Off. The Spin-Off was effected through an asset transfer agreement in which each party undertook certain obligations with respect to tax caused by the Spin-Off and other liabilities of the other party. In connection with the Spin-Off, we obtained a ruling from the Israeli Tax Authority in accordance with Section 104B(f) of the Israeli Income Tax Ordinance (New Version), 5721 – 1961 (the “Ordinance”), in which the Israeli Tax Authority agreed that the transfer of the assets of our Desktop business to TypeA is not taxable to us as of the date of transfer (collectively, the “Spin-Off Ruling”). The Spin-Off Ruling is subject to our and our shareholders’ compliance with Section 104B(f) of the Ordinance, which includes a requirement that shareholders of ironSource Ltd. as of the date of the Spin-Off continue to hold at least 25% of the share capital of each of ironSource Ltd. and TypeA until December 31, 2022 (the “25% Requirement”). The 25% Requirement may be breached if, either as a result of transfers of shares by our shareholders of record as of the Spin-Off, or as a result of issuances of new shares by ironSource Ltd. or TypeA, our shareholders of record as of the spin-off hold less than 25% of our or TypeA’s share capital. Certain of our shareholders holding together approximately 81.7% of our ordinary shares pre-Business Combination (based on our outstanding share capital immediately prior to the Business Combination) entered into a lock-up agreement restricting each such shareholder from transferring more than 50% of its shares in ironSource Ltd. or TypeA immediately after the Spin-Off until December 31, 2022 (the “Spin-Off Lockup”).

Under the terms of the Spin-Off Lockup, our shareholders that entered into the Spin-Off Lockup are permitted to transfer shares that exceed the 50% restriction contained in the Spin-Off Lockup in ironSource Ltd. or TypeA if they receive written consent from Tomer Bar-Zeev, in his capacity as a shareholder, and App Investments S.á.r.l. (the “CVC Vehicle”). Since we are not a party to the Spin-Off Lockup, we would not be able to prevent our shareholders from violating the terms of the 25% Requirement if they received consent to transfer their shares in excess of the 50% restriction. Should any shareholder obtain consent to transfer shares that exceed the 50% restriction, this could violate the terms of the 25% Requirement and subject us and our shareholders of record as of the date of the Spin-Off to a significant tax liability.

We cannot be certain that the applicable shareholders will comply with the Spin-Off Lockup or that the 25% Requirement will be otherwise complied with. In the event that either we or our shareholders of record as of the Spin-Off fail to comply with the Spin-Off Ruling, including the 25% Requirement, we may be subject to a significant tax liability arising from the Spin-Off, which would adversely affect our results of operations. Similarly, despite the Spin-Off, we may still be liable for events and circumstances occurring prior to the Spin-Off, which may have an adverse impact on our business, financial condition and results of operations.

Indemnity provisions in various agreements to which we are a party potentially expose us to substantial liability for infringement, misappropriation or other violation of intellectual property rights, data protection and other losses.

Our agreements with our customers and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights, data protection or other data rights, damages caused by us to property or persons, or other liabilities relating to or arising from our software, technology, platform, our acts or omissions under

 

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such agreements or other contractual obligations. Some of our agreements, and renewals of such agreements, provide for uncapped liability or incorporate carve outs for certain obligations and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments would harm our business, financial condition and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, in some cases, the liability is not limited given other strategic facets of the relationship and we may still incur substantial liability related to such agreements, and we may be required to cease providing certain functions or features on our platform as a result of any such claims. Even if we succeed in contractually limiting our liability, such limitations may not always be enforceable. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party and other existing or prospective customers, reduce demand for our platform and materially and adversely affect our business, financial condition and results of operations. In addition, although we carry general liability insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed on us or otherwise protect us from liabilities or damages with respect to claims, including clams on such matters as alleged compromises of customer data, which may be substantial. Any such coverage may not continue to be available to us on acceptable terms or at all.

Acquisitions, strategic investments, partnerships and alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute shareholder value and adversely affect our business, financial condition and results of operations.

We operate in a highly competitive environment for mergers and acquisitions. We have in the past, and may in the future, seek to acquire or invest in businesses, joint ventures or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. Although the significant majority of our revenue growth has been organic, we have completed several acquisitions since the year ended December 31, 2011, including the acquisition of Soomla Inc. in January 2021, and the acquisition of Luna Labs Limited in February 2021, among others, to further our goal of expanding our platform and abilities. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, data, solutions, personnel or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us or face cultural challenges integrating with our company, or if their software or technology is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise.

We could also face risks related to liability for activities of the acquired company as conducted before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities and litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, users, former shareholders or other third parties, and our efforts to limit such liabilities could be unsuccessful. These transactions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for development of our existing business. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into an agreement with any particular strategic partner. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the impairment of goodwill, any of which could materially and adversely affect our results of operations.

 

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Any such dilutive issuances of equity securities may also draw us closer to violating the 25% Requirement for us or our shareholders as of the Spin-Off under the Spin-Off Ruling (see “—The recent Spin-Off of the assets of our Desktop business from ironSource Ltd. may give rise to potential liabilities for us in the event of a breach of our or our shareholders’ obligations under the agreements related to the Spin-Off or tax liabilities caused by the Spin-Off.”). In addition, if the resulting business from such a transaction fails to meet our expectations, our business, financial condition and results of operations may be materially and adversely affected or we may be exposed to unknown risks or liabilities.

Our operations are global in scope, creating a variety of operational and regulatory challenges.

Our operations are global in scope, with operations in Israel, the United States, the United Kingdom, China, South Korea, Japan, and India, in addition to a sales presence and customers in multiple other countries. We are continuing to adapt to and develop strategies to address global markets, but we cannot assure you that such efforts will be successful. We expect that our global activities will continue to grow for the foreseeable future as we continue to pursue opportunities in existing and new global industries, which will require the dedication of management attention and financial resources.

Our current and future global business and operations involve a variety of risks, including:

 

   

slower than anticipated availability and adoption of our solutions by content creators, developers and telecom operators outside our core markets;

 

   

changes or instability in a specific country’s or region’s political, social or economic conditions, including in the United Kingdom as a result of its exit from the European Union;

 

   

the need to adapt and localize our platform for specific countries;

 

   

maintaining our company culture across all of our offices globally;

 

   

greater difficulty collecting accounts receivable and potential for longer payment cycles;

 

   

burdens of complying with a variety of foreign laws, including costs associated with legal structures, accounting, statutory filings and tax liabilities;

 

   

differing and potentially more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information;

 

   

differing and potentially more onerous labor regulations and practices, especially in Europe and Israel, where labor laws are generally more advantageous to employees as compared to the United States including deemed hourly wage and overtime regulations in these locations or the existence of workers’ councils and labor unions;

 

   

challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, statutory equity requirements and compliance programs that are specific to each jurisdiction;

 

   

unexpected changes in trade relations, regulations, laws or enforcement;

 

   

difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;

 

   

increased travel, real estate, infrastructure and legal compliance costs associated with multiple global locations and subsidiaries;

 

   

currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

 

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higher levels of credit risk and payment fraud;

 

   

restrictions on the transfer of funds, such as limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

 

   

enhanced difficulties of integrating any foreign acquisitions;

 

   

laws and business practices favoring local competitors or general market preferences for local vendors;

 

   

reduced or uncertain intellectual property protection or difficulties obtaining, maintaining, protecting or enforcing our intellectual property rights, including our trademarks and patents;

 

   

foreign government interference with our intellectual property that resides outside of Israel or the United States, such as the risk of changes in foreign laws that could restrict our ability to use our intellectual property outside of the foreign jurisdiction in which we developed it;

 

   

political instability, hostilities, war or terrorist activities;

 

   

exposure to liabilities under anti-corruption and anti-money laundering laws in the jurisdictions in which we operate; and

 

   

adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

If we invest substantial time and resources to further expand our operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer.

We rely on our current understanding of regional regulatory requirements pertaining to the marketing, advertising and promotion of our solution suites, and any material change in such regulations, or a finding that we did not properly understand such regulations, may materially and adversely impact our business, financial condition and results of operations.

Some portions of our business rely extensively on marketing, advertising and promoting our individual products and solution suites requiring us to have an understanding of the local laws and regulations governing our business. In the event that we have relied on inaccurate information or advice, and engage in marketing, advertising or promotional activities that are not permitted, we may be subject to penalties, restricted from engaging in further activities or altogether prohibited from offering our solutions in a particular territory, all or any of which will adversely impact our business, financial condition and results of operations.

We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.

While we have been profitable in the past, we cannot be certain that our operations will continue to generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure, expand globally and acquire complementary businesses and technologies. Additional financing may not be available on terms favorable to us, if at all. In particular, the current COVID-19 pandemic has caused disruption in the global financial markets, which may reduce our ability to access capital and negatively affect our liquidity in the future. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, financial condition and results or operations. We have entered into a credit facility with Silicon Valley Bank (the “Credit Agreement”) as the issuing lender together with other lenders, and these lenders’ rights will be senior to the rights of our shareholders. If

 

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we incur any additional debt, the debt holders would have rights senior to holders of shares to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our shares. Furthermore, if we issue additional equity securities, our shareholders will experience dilution, and the new equity securities could have rights senior to those of our Class A ordinary shares. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future issuances of debt or equity securities. As a result, our shareholders bear the risk that future issuances of debt or equity securities may reduce the value of our Class A ordinary shares and dilute their interests. Our inability to obtain adequate financing on terms satisfactory to us when we require it could significantly limit our ability to continue to support our business growth, respond to business challenges, expand our operations or otherwise capitalize on our business opportunities due to lack of sufficient capital. Even if we are able to raise such capital, we cannot assure you that it will enable us to achieve better operating results or grow our business.

Fluctuations in currency exchange rates could harm our operating results and financial condition.

We offer our solution suites to customers globally and have operations in Israel, the United States, the United Kingdom, China, South Korea, Japan and India. Although the majority of our cash generated from revenue is denominated in U.S. dollars, most of our operating expenses are incurred in Israel and denominated in Israeli New Shekels (“NIS”). As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as our operating expenses are translated from NIS into U.S. dollars. In particular, for the last two years ended December 31, 2020, there has been a significant decrease in the value of the U.S. dollar relative to the NIS, with the representative exchange rate having dropped from NIS 3.748 per U.S. dollar on December 31, 2018 to NIS 3.456 per U.S. dollar on December 31, 2019 to NIS 3.215 per U.S. dollar on December 31, 2020. If this trend continues, it could increase the U.S. dollar amount of our operating expenses significantly. Our financial results are also subject to changes in exchange rates that impact the settlement of transactions in non-local currencies. Because we conduct business in currencies other than U.S. dollars but report our results of operations in U.S. dollars, we also face remeasurement exposure to fluctuations in currency exchange rates, which could hinder our ability to predict our future results and earnings and could materially and adversely impact our financial condition and results of operations. To date, we have not engaged in currency hedging activities to limit the risk of exchange fluctuations and, as a result, our business, financial condition and results of operations could be materially and adversely affected by such fluctuations.

Seasonality may cause fluctuations in our sales and results of operations.

Our quarterly results of operations may vary significantly as a result of seasonal fluctuations during periods such as holidays, during which users spend increased time on entertainment, including games and mobile applications, which increases our customers’ usage of our advertising network and other solutions and may impact our revenue. We may also experience fluctuations due to factors that may be outside of our control that drive usage up or down. While we believe that this seasonality has affected and will continue to affect our quarterly results, our rapid growth has largely masked seasonal trends to date.

Our insurance may not provide adequate levels of coverage against claims or we may be unable to find insurance with sufficient coverage at a reasonable cost.

We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, if we do not make policy payments on a timely basis, we

 

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could lose our insurance coverage, or if a loss is incurred that exceeds policy limits, our insurance provider could refuse to cover our claims, which could result in increased costs. If we are unable to make claims on our insurance, then we may be liable for any such claims, which could cause us to incur significant liabilities.

Further, insurance has become more expensive and difficult to find due to changes in the insurance market as well as the COVID-19 pandemic. Although we believe that we have adequate coverage, if we lose our insurance coverage and are unable to find similar coverage elsewhere or if rates continue to increase, it may have an adverse impact on our business, financial condition and results of operations.

Any legal proceedings, investigations or claims against us could be costly and time-consuming to defend and could harm our reputation regardless of the outcome.

We are and may in the future become subject to legal proceedings, investigations and claims, including claims that arise in the ordinary course of business, such as claims brought by our customers or partners in connection with commercial disputes, claims by users, claims or investigations brought by regulators or employment claims made by our current or former employees.

We are not currently a party to any pending or, to our knowledge, threatened litigation that will have a significant effect on our financial position or profitability. Any litigation, investigation or claim, whether meritorious or not, could harm our reputation, will increase our costs and may divert management’s attention, time and resources, which may in turn harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations.

Our business could be disrupted by catastrophic events.

Occurrence of any catastrophic event, including a global pandemic like the ongoing COVID-19 pandemic, earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunction, cyber-attack, war or terrorist attack, explosion or pandemic could impact our business. Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. If any disaster were to occur, our ability to operate our business at our facilities could be impaired and we could incur significant losses, require substantial recovery time and experience significant expenditures in order to resume operations. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business would be harmed.

Our global operations may subject us to potential adverse tax consequences.

Our corporate structure and associated transfer pricing policies contemplate future growth in global markets, and consider the functions, risks and assets of the various entities involved in intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including Israel and the United States, to our global business activities, changes in tax rates, new or revised interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. New or revised tax laws may also impact the amount of taxes we pay in different jurisdictions; for example, possible new standards could be introduced by authorities in the countries in which we operate that place greater emphasis on customer or end-user locations or

 

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markets, may potentially result in increased tax liabilities. Furthermore, the tax authorities of jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions or disagree with our determinations as to the income or expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements may fail to reflect adequate reserves to cover such a contingency.

Our Credit Agreement contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.

The terms of our Credit Agreement include a number of covenants that limit our ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate with other companies or sell substantially all of our assets, pay dividends and make certain distributions, each subject to important and significant exceptions and limitations. On June 29, 2021, the Company, as borrower, and certain of its subsidiaries, as guarantors, entered into a Credit Agreement (the “Credit Agreement”) with certain lenders from time party thereto (the “Lenders”) and Silicon Valley Bank, as administrative agent (the “Agent”) and L/C issuer, pursuant to which the Lenders extended to the Company a five-year senior secured revolving credit facility in an initial aggregate principal amount of up to $350.0 million, with the right, subject to certain conditions, to incur additional revolving commitments and/or incremental term loans in an amount not to exceed the sum of (i) $150.0 million plus (ii) additional amounts so long as the consolidated secured leverage ratio, on a pro forma basis after giving effect to such increase or incurrence, is no greater than or equal to 2.25:1.00.

The Credit Agreement will be secured by, substantially all of the assets of the Company and its material subsidiaries, and the equity interests therein. The terms of the Credit Agreement may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies which are not subject to such restrictions.

A failure by us to comply with the covenants specified in the Credit Agreement, could result in an event of default under the agreement, which would give the lenders the right to terminate their commitments to provide additional loans under our revolving credit facility and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. If the debt under our the Credit Agreement, were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our business, cash flows, results of operations and financial condition.

RISKS RELATED TO REGULATION

We are subject to rapidly changing and increasingly stringent laws, contractual obligations and industry standards relating to privacy, data protection, data security and the protection of children. The restrictions and costs imposed by these requirements, or our actual or perceived failure to comply with them, could harm our business.

Our platform relies on our ability to collect, use and share information of customers, users and others. These activities are regulated by a variety of federal, state, local and international privacy, data protection and data security laws and regulations, which have become increasingly stringent in recent years.

 

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Most jurisdictions in which we or our customers operate have adopted, or are in the process of adopting, privacy, data protection and data security laws. In this regard, it is important to highlight the General Data Protection Regulation 2016/679 (“GDPR”), which went into effect in May 2018. The GDPR regulates the collection, control, processing, sharing, disclosure and other use of data relating to personal data. Further to the UK’s exit from the EU on January 31, 2020, the GDPR ceased to apply in the UK at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the UK’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020, but subject to certain UK specific amendments) into UK law (referred to as the “UK GDPR”). The UK GDPR and the UK Data Protection Act 2018 set out the UK’s data protection regime, which is independent from but aligned to the GDPR. The GDPR, UK GDPR and national implementing legislation in European Economic Area (“EEA”) member states and the UK, impose a strict data protection compliance regime including:

 

   

providing detailed disclosure about how personal data is collected and processed and how data subjects can exercise their rights (in a concise, intelligible and easily accessible form);

 

   

demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities;

 

   

granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing current rights such as data subject access requests;

 

   

introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of personal data breaches that is likely to result in a risk to the rights and freedoms of individuals;

 

   

defining for the first time pseudonymized (key-coded) data;

 

   

imposing limitations on retention of personal data;

 

   

maintaining a record of data processing;

 

   

requiring appropriate technical and organizational measures to be implemented to ensure a level of security appropriate to the level of risk;

 

   

restricting transfers of personal data outside the EEA and UK unless an adequate transfer mechanism has been implemented to legitimize such transfers; and

 

   

complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.

We are subject to the supervision of local data protection authorities in those EEA and UK jurisdictions where we are established or otherwise subject to the GDPR and the UK GDPR. Fines for certain breaches of the GDPR are significant, including fines up to the greater of 20 million or 4% of global turnover. In addition to the foregoing, a breach of the GDPR and the UK GDPR could result in regulatory investigations, reputational damage, orders to cease or change our processing of data, enforcement notices or assessment notices for a compulsory audit. We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.

The UK GDPR mirrors the fines under the GDPR including fines up to the greater of 20 million (£17.5 million) or 4% of global turnover. These changes will lead to additional costs and increase our overall risk exposure.

As described in “—Risks Related to Regulation—We are subject to laws and regulations worldwide, many of which are unsettled and still developing and which could increase our costs or

 

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materially and adversely affect our business.” recent decisions by the Court of Justice of the European Union, recent guidance from European data protection authorities and a new proposed ePrivacy Regulation, may further restrict our use of online tracking technologies which our solutions rely on. We have, at times, been subject to enquiries about our compliance with the GDPR, and we may also be subject to such enquiries and complaints in the future.

U.S. privacy and data security laws are also complex and changing rapidly. Many states have enacted laws regulating the online collection, use and disclosure of personal information and requiring companies implement reasonable data security measures. Laws in all states and U.S. territories also require businesses to notify affected individuals, governmental entities and/or credit reporting agencies of the occurrence of certain security breaches affecting personal information. These laws are not consistent, and compliance with them in the event of a widespread data breach is complex and costly.

States have also begun to introduce more comprehensive privacy legislation. For example, California enacted the CCPA, which took effect on January 1, 2020 and became enforceable by the California Attorney General on July 1, 2020. The CCPA creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of sale of their personal information, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with data breach litigation. In addition to increasing our compliance costs and potential liability, the CCPA created restrictions on “sales” of personal information that may restrict the disclosure of personal information for advertising purposes. Our advertising business relies, in part, on such disclosure and could be materially and adversely affected by the CCPA’s restrictions.

We will also be subject to the forthcoming CPRA, which was passed into law on November 3, 2020 but will not take substantial effect until January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information, such as increasing regulation on online advertising and particularly cross-context behavioral advertising. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The CPRA potentially results in further uncertainty and requires us to incur additional costs and expenses in an effort to comply.

Certain other state laws impose similar privacy obligations. We also expect that more states may enact legislation similar to the CCPA, which provides consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers. The CCPA has prompted a number of proposals for a new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

Data privacy legislation restricts the cross-border transfer of personal data and some countries introduced data localization into their laws. Specifically, the GDPR, the UK GDPR and other European and UK data protection laws generally prohibit the transfer of personal data from the EEA, the UK and Switzerland, to the United States and most other countries unless the transfer is to an entity established in a country deemed to be provide adequate protection (such as Israel) or the parties to the transfer have implemented specific safeguards to protect the transferred personal data. Where we transfer personal data outside the EEA or the UK to a country that is not deemed to be “adequate,” we

 

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ensure we comply with applicable laws including where we can rely on derogations (e.g. where the transfer is necessary for the performance of a contract) or we may put in place standard contractual clauses. We have previously also relied on relevant third parties’ Privacy Shield certifications.

Recent legal developments in the EU have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. Most recently, on July 16, 2020, in a case known as Schrems II, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield Framework (“Privacy Shield”) under which personal data could be transferred from the EEA to U.S. entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer.

In response to this decision, the data protection authority in Berlin, Germany has encouraged companies under its supervision to stop transfers of personal data to the United States and switch to service providers based in the European Union or other countries providing adequate data protection. Authorities in the United Kingdom and Switzerland may similarly issue guidance that precludes or complicates our lawful use of the Standard Contractual Clauses. There are few viable alternatives to the Standard Contractual Clauses, and the law in this area remains dynamic. These recent developments will require us to review and may require us to amend the legal mechanisms by which we make and/or receive personal data transfers to/in the United States. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our solutions, the geographical location or segregation of our relevant systems and operations, may reduce demand for our solutions from companies subject to EU data protection laws and could materially and adversely affect our financial results.

Additionally, other countries outside of the EU have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our solutions and operating our business.

In addition, we are also subject to the Israeli Privacy Protection Law 5741-1981 (the “PPL”), and its regulations, including the Israeli Privacy Protection Regulations (Data Security) 2017 (the “Data Security Regulations”), which came into effect in Israel in May 2018 and impose obligations with respect to the manner personal data is processed, maintained, transferred, disclosed, accessed and secured, as well as the guidelines of the Israeli Privacy Protection Authority. In this respect, the Data Security Regulations may require us to adjust our data protection and data security practices, information security measures, certain organizational procedures, applicable positions (such as an information security manager) and other technical and organizational security measures. Failure to comply with the PPL, its regulations and guidelines issued by the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including class actions) and in certain cases criminal liability. Current pending legislation may result in a change of the current enforcement

 

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measures and sanctions. The Israeli Privacy Protection Authority may initiate administrative inspection proceedings from time to time without any suspicion of any particular breach of the PPL, as the Israeli Privacy Protection Authority has done in the past with respect to dozens of Israeli companies in various business sectors. In addition, to the extent that any administrative supervision procedure is initiated by the Israeli Privacy Protection Authority that reveals certain irregularities with respect to our compliance with the PPL, we may need to take certain remedial actions to rectify such irregularities, which may increase our costs, but may also be exposed to administrative fines, civil claims (including class actions) and in certain cases, criminal liability.

Children’s privacy has been a focus of recent enforcement activity under longstanding privacy laws as well as privacy and data protection laws enacted in recent years. EU and UK regulators focus, among other things, on the processing of personal data relating to children, with increased enforcement pending as well as additional guidance. The Federal Trade Commission and state attorneys general have, in recent years, increased enforcement of the Children’s Online Privacy Protection Act (“COPPA”), which requires companies to obtain parental consent before collecting personal information from children under the age of 13 for purposes not permitted by COPPA. COPPA also sets forth, among other things, a number of restrictions related to what information may be collected with respect to children under the age of 13. In addition, the GDPR and UK GDPR address the processing of children’s personal data, and specifically require that if processing of personal data of individuals is based on such individuals’ consent, and such individuals are children under the age of 13 to 16 (depending on the specific legislation of the UK or each EU member state), parental consent must be obtained. In addition, the CCPA requires companies to obtain the consent of children in California under 16 (or parental consent for children under 13) before selling their personal information. We have been subject to claims related to the privacy of minors predicated on COPPA and other privacy laws, and we may in the future face claims under COPPA, the GDPR, the UK GDPR, the CCPA or other laws relating to children’s privacy.

Apart from the requirements of privacy, data protection and data security laws, we have obligations relating to privacy, data protection and data security under our published policies and documentation, contracts and applicable industry standards. Although we endeavor to comply with these obligations, we may have failed to do so in the past and may be subject to allegations that we have failed to do so or have otherwise processed data improperly. We could be subject to enforcement action or litigation alleging that our methods of data collection or our other data processing practices violate our published policies, federal or state laws prohibiting unfair or deceptive business practices or other privacy laws.

In response to the increasing restrictions of global privacy and data security laws, our customers have sought and may continue to seek increasingly stringent contractual assurances regarding our handling of personal information, and may adopt internal policies that limit their use of our platform. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards upon which we may be legally or contractually bound. If we fail to comply with these contractual obligations or standards, we may face substantial contractual liability or fines.

Various jurisdictions around the world continue to propose new laws that regulate the privacy and/or security of certain types of personal data. Complying with these laws, if enacted, would require significant resources and leave us vulnerable to possible fines and penalties if we are unable to comply. Our obligations under privacy and data security laws, our contracts and applicable industry standards (including requirements by operating system platforms or app stores) are increasing, becoming more complex and changing rapidly, which has increased and may continue to increase the cost and effort required to comply with them. The privacy and data security compliance challenges we and our customers face in the EU, the UK, the United States and other jurisdictions may also limit our

 

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ability to operate, or offer certain product features, in those jurisdictions, which could reduce demand for our solutions from customers subject to their laws. We may also be required to adapt our solutions in order to comply with changing regulations. Despite our efforts, we may not be successful in achieving compliance with these rapidly evolving requirements. We could be perceived to be in non-compliance with applicable privacy laws, especially when acquiring new companies and before we have completed our gap analysis and remediation. Any actual or perceived non-compliance could result in litigation and proceedings against us by governmental entities, customers, individuals or others; fines and civil, criminal or administrative penalties for us or company officials; obligations to cease offering or to substantially modify our solutions in ways that make them less effective in certain jurisdictions; negative publicity; harm to our brand and reputation and reduced overall demand for our solutions or reduced revenue. Such occurrences could materially and adversely affect our business, financial condition and results of operations.

We are subject to laws and regulations worldwide, many of which are unsettled and still developing and which could increase our costs or materially and adversely affect our business.

We are subject to a variety of laws internationally that affect our business, including laws regarding consumer protection, advertising, electronic marketing, protection of minors, data protection and privacy, data localization requirements, online services, anti-competition, labor, real estate, taxation, intellectual property ownership and infringement, tax, export and national security, tariffs, anti-corruption and telecommunications, all of which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting and compliance with laws, regulations and similar requirements may be burdensome and expensive. Laws and regulations may be inconsistent from jurisdiction to jurisdiction, which may increase the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could make any of our solutions less attractive to our customers or cause us to change or limit our ability to sell our solutions. We have policies and procedures designed to ensure compliance with applicable laws and regulations, but we cannot assure you that our employees, contractors or agents will not violate such laws and regulations or our policies and procedures.

In particular, as a result of the global and advertising technology focused nature of our business, we are potentially subject to a number of laws and regulations that affect the offering of certain types of content, such as that which depicts violence, many of which are ambiguous, still evolving and could be interpreted in ways that could harm our business or expose us to liability. In addition, there are ongoing academic, political and regulatory discussions in the United States, the EU, the UK, Australia and other jurisdictions regarding whether certain game mechanisms, such as “loot boxes,” and game genres should be subject to a higher level or different type of regulation than other game genres or mechanics to protect consumers, in particular minors and persons susceptible to addiction, and, if so, what such regulation should include. For example, in December 2017, Apple updated its terms of service to require publishers of applications that include loot boxes to disclose the odds of receiving each type of item within each loot box to customers prior to purchase. Google similarly updated its terms of service in May 2019. In the event that Apple, Google, or any other Provider changes its developer terms of service to include more onerous requirements or if any Provider were to prohibit the use of loot boxes, or similar monetization products, in games distributed in apps, our customers would be required to redesign the economies of their affected games, which would harm our customers and could negatively impact our revenue.

Further, new regulation by the U.S. federal government and its agencies, such as the Federal Trade Commission, U.S. states and state agencies or foreign jurisdictions, interpretations of such regulations and enforcement actions by federal and state agencies which may vary significantly across jurisdictions, could require that certain game content, including advertising, be modified or removed

 

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from games, increase the costs of operating our solutions or our customer’s games and apps, impact user engagement and thus the functionality and effectiveness of our solutions or otherwise harm our business performance.

It is difficult to predict how existing or new laws may be applied. If we become liable, directly or indirectly, under these laws or regulations, we could be harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our solutions, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business, financial condition or results of operations.

In addition, in the EU, Directive 2002/58/EC (as amended by Directive 2009/136/EC), commonly referred to as the ePrivacy Directive, directs EU member states to ensure that accessing information stored on an Internet user’s computer or device, such as device identifiers and other similar technologies, is allowed only if the user has been informed about such access and, depending on the nature of the technology, given his or her consent. The ePrivacy Directive has generally been given effect to by national laws in the EU (“EU ePrivacy Laws”). A recent ruling by the CJEU clarified that such consent must be reflected by an affirmative act of the user, and EU and UK regulators are increasingly focusing on compliance with requirements in the online digital advertising ecosystem, as evidenced by recent announcements of significant fines relating to the use of cookies. The GDPR also imposes further conditions on obtaining valid consent, which applies to the processing of personal data. A replacement for the ePrivacy Directive is currently under discussion by EU member states to complement and bring electronic communication services in line with the GDPR and force a harmonized approach across EU member states. Like the GDPR, the proposed ePrivacy Regulation has extra-territorial application as it applies to businesses established outside the EU who provide publicly available electronic communications services to, or gather data from the devices of, users in the EU. Though still subject to debate, the proposed ePrivacy Regulation may further raise the bar for the collection of device identifiers, and the fines and penalties for breach may be significant. We may be required to, or otherwise may determine that it is advisable to, make significant changes in our business operations and platform to obtain user opt-in for the collection of device identifiers or develop or obtain additional tools and technologies to compensate for a lack of device identifiers, in compliance with the ePrivacy Directive. In addition, further to the UK’s exit from the EU on December 31, 2021, access to a user’s technical information (as described above in this paragraph) will be subject to local UK laws (i.e. The Privacy and Electronic Communications Regulations 2003 (“PECR”)). Also, the UK has implemented laws around the collection of user technical information under the UK GDPR which are closely aligned with EU privacy laws.

As the collection and use of data for digital advertising has received media attention over the past several years, some government regulators, such as the U.S. Federal Trade Commission, and privacy advocates have suggested creating a “Do Not Track” standard that would allow Internet users to express a preference, independent of cookie settings in their browser, not to have their online browsing activities tracked. “Do Not Track” has seen renewed emphasis since passage of the CCPA as its regulations contemplate browser-based or similar “Do Not Sell” signals. If a “Do Not Track,” “Do Not Sell” or similar control is adopted by many Internet users or if a “Do Not Track” standard is imposed by state, federal or foreign legislation, or is agreed upon by standard setting groups, we may have to change our business practices, our clients may reduce their use of our platform, and our business, financial condition and results of operations could be materially and adversely affected. Additionally, once the CPRA is in effect, if consumers increase their usage of “Do Not Sell” signals, this would reduce our ability to use their data for certain advertising purposes, and as a result our clients may

 

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reduce their use of our platform, and our business, financial condition and results of operations could be materially and adversely affected.

Increased transparency into the collection and use of data for digital advertising introduced both through features in devices and regulatory requirements, such as the GDPR, UK GDPR, the CCPA and EU ePrivacy laws and the UK’s PECR, as well as compliance with such requirements, may create operational burdens to implement and may lead more users to block the collection and use of data about them.

It is also possible that a number of laws and regulations may be adopted or construed to apply to us or our customers in the United States and elsewhere that could restrict the online and mobile industries, including user privacy, advertising, taxation, content suitability, copyright, distribution and antitrust, and our solutions or components thereof may be deemed or perceived illegal or unfair practices. Furthermore, the growth and development of in-app advertisement and mobile monetization strategies may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as us and our customers conducting business through the Internet and mobile devices. We anticipate that scrutiny and regulation of our industry will increase and we will be required to devote legal and other resources to addressing such regulation. For example, existing laws or new laws regarding the marketing of in-app purchases, labeling of free-to-play games or regulation of currency, banking institutions, unclaimed property or money transmission may be interpreted to cover games made with, or utilizing, our solutions and the revenue that we receive from our solutions. If that were to occur, we may be required to seek licenses, authorizations or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements, and we may be subject to additional regulation and oversight, all of which could significantly increase our operating costs.

In addition, any failure or perceived failure by us to comply with any laws, regulatory requirements, legal obligations, or policies relating to privacy, data protection, data security, or consumer protection may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups, or others, and could result in significant liability and otherwise materially and adversely affect our reputation and business. The cost of compliance with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the demand for, our solutions. Additionally, if third parties we work with violate applicable laws, regulations or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.

Further, governmental agencies in any of the countries in which we, our customers or users are located, such as China, could choose to block access to or require a license for our platform, any of our solutions, our website, our customers’ mobile applications, third-party operating system platforms and app stores that we depend upon to operate our solutions or the Internet generally for a number of reasons, including security, confidentiality or regulatory concerns. Users generally need to access the Internet and also platforms, such as the Apple App Store and the Google Play Store, to play games published or operated using our solutions. In addition, companies may adopt policies that prohibit their

 

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employees from accessing our solutions that users need in order to play games created or operated using our platform. If companies or governmental entities block, limit or otherwise restrict customers from accessing our solutions or users from playing games published or advertised on our platform, our business could be negatively impacted, our customers’ users could decline or grow more slowly, and our financial condition and results of operations could be materially and adversely affected.

Adapting to these and similar changes has in the past and may in the future require significant time, resources and expense, which may lessen the growth of mobile apps and gaming, as well as increase our costs of operation or limit our ability to operate or expand our business. Failure to comply with the applicable regulatory requirements could also result in regulatory investigations, reputational damage, orders to cease or change our processing of data, enforcement notices or assessment notices for a compulsory audit. We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources and reputational harm, any of which could materially and adversely affect our business, financial condition and results of operations.

We are subject to anti-corruption, anti-bribery, anti-money laundering, economic and trade sanctions and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.

We may be subject to certain economic and trade sanctions laws and regulations, export control and import laws and regulations, including those that are administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council and other relevant governmental authorities.

We are also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the United Kingdom Bribery Act 2010, Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 57373-1977, the Israeli Prohibition on Money Laundering Law, 5760-2000 and other anti-bribery laws in countries in which we conduct our activities. These laws generally prohibit companies, their employees and third-party intermediaries from authorizing, promising, offering, providing, soliciting or accepting, directly or indirectly, improper payments or benefits to or from any person whether in the public or private sector. In addition, the FCPA’s accounting provisions require us to maintain accurate books and records and a system of internal accounting controls. We have policies, procedures, systems, and controls designed to promote compliance with applicable anti-corruption laws.

As we increase our global sales and business, we may engage with business partners and third-party intermediaries to market our solutions and obtain necessary permits, licenses and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners and agents, even if we do not authorize such activities.

Our customers may have users in countries that are subject to U.S. economic sanctions laws and regulations administered by OFAC, the Israeli Trade with the Enemy Ordinance, 1939 and sanction laws of the EU and other applicable jurisdictions, which may prohibit the sale of products or provision of services to embargoed jurisdictions (“Sanctioned Countries”) or sanctioned parties. We have taken steps to avoid having customers in Sanctioned Countries and have implemented various control mechanisms designed to prevent unauthorized dealings with Sanctioned Countries or sanctioned parties going forward. Although we have taken precautions to prevent our solutions from being

 

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provided, deployed or used in violation of sanctions laws, due to the remote nature of our solutions and the potential for manipulation using VPNs, we cannot assure you that our policies and procedures relating to sanctions compliance will prevent any violations in the future. If we are found to be in violation of any applicable sanctions regulations, it can result in significant fines or penalties and possible incarceration for responsible employees and managers, as well as reputational harm and loss of business.

Despite our compliance efforts and activities, there can be no assurance that our employees or representatives will comply with the relevant laws and we may be held responsible. Non-compliance with anti-corruption, anti-money laundering, export control, economic and trade sanctions and other trade laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. If any subpoenas or investigations are initiated, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially harmed. Responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. In addition, regulatory authorities may seek to hold us liable for successor liability for violations committed by companies in which we invest or that we acquire. As a general matter, enforcement actions and sanctions could harm our business, financial condition and results of operations.

Our amended and restated articles of association provide that unless we consent to an alternate forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any claims arising under the Securities Act, which may limit the ability of our shareholders to initiate litigation against us or increase the cost thereof.

Our amended and restated articles of association provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any claims arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions, and accordingly, both state and federal courts have jurisdiction to entertain such claims. While the federal forum provision in our amended and restated articles does not restrict the ability of our shareholders to bring claims under the Securities Act, we recognize that it may limit shareholders’ ability to bring a claim in the judicial forum that they find favorable and may increase certain litigation costs, which may discourage the filing of claims under the Securities Act against the Company, its directors and officers. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provisions in our amended and restated articles of association. If a court were to find the choice of forum provision contained in our amended and restated articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.

 

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RISKS RELATED TO INTELLECTUAL PROPERTY MATTERS

If we fail to adequately maintain, protect or enforce our intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue, and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our intellectual property rights, including those in our proprietary know-how and technology. We rely on a combination of copyrights, trade secret and other intellectual property laws as well as contractual restrictions to establish and protect our intellectual property rights. While it is our policy to protect and defend our rights to our intellectual property, we cannot predict whether steps taken by us will be adequate to prevent infringement, misappropriation or other violation of our intellectual property rights.

While software and other of our proprietary works may be protected under copyright law, we have not registered any copyrights in these works, and instead, primarily rely on protecting our software as a trade secret. In order to bring a copyright infringement lawsuit in the United States, the copyright must be registered. Accordingly, the remedies and damages available to us for unauthorized use of our software may be limited.

Policing unauthorized use of our know-how, technology and intellectual property is difficult, costly, time-consuming and may not be effective. Third parties may knowingly or unknowingly infringe our proprietary rights. In addition, third parties may challenge proprietary rights held by us, and our pending and future trademark and patent applications may not be approved. These claims may result in restrictions on our use of our intellectual property or the conduct of our business. In any of these cases, we may be required to expend significant time and expense to prevent infringement or to enforce our rights.

Although we attempt to protect our intellectual property, technology and confidential information by entering into confidentiality and invention assignment agreements with our employees and consultants and entering into confidentiality agreements with the parties with whom we share our confidential information, these agreements may not effectively grant all necessary rights to any inventions that may have been developed by the employees or consultants party thereto, and may not be effective in controlling access to and distribution of our solutions or technology, and our confidential information or provide an adequate remedy in the event of unauthorized use of our solutions or technology or unauthorized access, use or disclosure of our confidential information. Some of the provisions of our agreements that protect us against unauthorized use, copying, transfer, and disclosure of our solutions, may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to ours. We cannot guarantee that others will not independently develop technology with the same or similar functions to any proprietary technology we rely on to conduct our business and differentiate ourselves from our competitors. Unauthorized parties may also attempt to copy or obtain and use our technology to develop applications with the same functionality as our solutions. Any unauthorized disclosure or use of our trade secrets or other confidential proprietary information could make it more expensive to do business, thereby harming our operating results.

Circumstances outside our control could also pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries from which our product offerings or platforms are accessible. Changes in the law or adverse court rulings may also negatively affect our ability to prevent others from using our technology. In addition, changes in the law or adverse court rulings in countries where we have outsourced research and development centers may affect our intellectual property rights, including with respect to ownership, distribution and use of such intellectual property.

 

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Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Furthermore, if we are unable to protect our proprietary rights or prevent unauthorized use, infringement or misappropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our offerings and service. We may be required to incur significant expenses in registering, monitoring and protecting our intellectual property rights. Any litigation could result in significant expense to us, including the diversion of management’s time, and may not ultimately be resolved in our favor. Any of these events could seriously harm our business.

We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.

There is considerable intellectual property development and enforcement activity in our industry. We expect that app developers in our industry will increasingly be subject to infringement claims as the number of competitors grows and the functionality of platforms, products and services in different industries overlap. Our future success depends in part on not infringing upon or misappropriating the intellectual property rights of others. There is a risk that our operations, platform or individual solutions, whether created in-house or purchased from time to time through mergers or acquisitions, may infringe or otherwise violate, or be alleged to infringe or otherwise violate, the intellectual property rights of third parties. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could:

 

   

require costly litigation to resolve and the payment of substantial royalty or license fees, lost profits or other damages;

 

   

require and divert significant management time;

 

   

cause us to enter into unfavorable royalty or license agreements;

 

   

require us to discontinue some or all of the features, integrations, capabilities or games available on our platform;

 

   

require us to indemnify our merchants or third-party service providers; and/or

 

   

require us to expend additional development resources to redesign our platform or individual solutions.

Any of the foregoing could materially and adversely affect our business, prospects, financial condition and results of operations.

Our platform contains third-party open source software components, which may pose particular risks to our proprietary software, technologies and solutions in a manner that could negatively affect our business.

Our platform contains software modules by third-party authors that are publicly available under “open source” licenses, and we expect to use open source software in the future. We have engaged a third-party software solution to assist with managing our use of open source software, including tracking the use of open source in our platform, monitoring license compliance and compliance with our open source policy. However, we could still be subjected to claims of infringement and other possible action. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. To the extent that our platform depends upon the successful operation of open source software, any undetected errors or defects in this open source software could prevent the deployment or impair the functionality of our platform, delay introductions of new solutions, result in a failure of any of our

 

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solutions and injure our reputation. For example, undetected errors or defects in open source software could render it vulnerable to breaches or security attacks, and, in conjunction, make our systems more vulnerable to data breaches. In addition, the public availability of such software may make it easier for others to compromise our platform.

Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use, or grant other licenses to our intellectual property. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. While our open source policy and third-party software solution are meant to prevent such misuse, there can be no assurance that such incidents would not occur. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software.

Although we monitor our use of open source software to avoid subjecting our platform to conditions we do not intend, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our solutions. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products or platforms. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Moreover, we cannot assure you that our processes for controlling our use of open source software in our platform will be effective. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties to continue providing our solutions on terms that are not economically feasible, to re-engineer our solutions, to discontinue or delay the provision of our solutions if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could materially and adversely affect our business, financial condition and results of operations.

RISKS RELATED TO OUR CLASS A ORDINARY SHARES AND THIS OFFERING

Sales of a substantial number of our securities in the public market by the Selling Securityholders and/or by our existing securityholders could cause the price of our ordinary shares to fall.

The Selling Securityholders can sell, under this prospectus, up to 133,254,045 Class A ordinary shares constituting approximately 13.16% of our issued and outstanding ordinary shares. Sales of a substantial number of Class A ordinary shares in the public market by the Selling Securityholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A ordinary shares. 

The price of our Class A ordinary shares may be volatile, and the value of our Class A ordinary shares may decline.

We cannot predict the prices at which our Class A ordinary shares will trade. The market price of our Class A ordinary shares may fluctuate substantially and may be lower than the current market price. In addition, the trading price of our Class A ordinary shares is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These

 

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fluctuations could cause you to lose all or part of your investment in our Class A ordinary shares as you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our Class A ordinary shares include the following:

 

   

actual or anticipated fluctuations in our financial condition or results of operations;

 

   

variance in our financial performance from expectations of securities analysts;

 

   

changes in the pricing of our solutions;

 

   

changes in our projected operating and financial results;

 

   

changes in laws or regulations applicable to our platform;

 

   

announcements by us or our competitors of significant business developments, acquisitions or new offerings;

 

   

sales of our Class A ordinary shares by us or our shareholders, including any sales of Class B ordinary shares, which will automatically convert into Class A ordinary shares upon transfer;

 

   

significant data breaches, disruptions to or other incidents involving our platform;

 

   

our involvement in litigation;

 

   

conditions or developments affecting the gaming industry;

 

   

future sales of our Class A ordinary shares by us or our shareholders, as well as the anticipation of lock-up releases;

 

   

changes in senior management or key personnel;

 

   

the trading volume of Class A our ordinary shares;

 

   

changes in the anticipated future size and growth rate of our markets;

 

   

publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

   

general economic and market conditions; and

 

   

other events or factors, including those resulting from war, incidents of terrorism, global pandemics or responses to these events.

Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may also negatively impact the market price of our Class A ordinary shares. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies who have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.

An active public trading market may not develop or be sustained for our Class A ordinary shares.

An active public trading market for our Class A ordinary shares may not develop or, if developed, it may not be sustained. The lack of an active market may impair your ability to sell your Class A ordinary shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your Class A ordinary shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling Class A ordinary shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

 

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The dual class structure of our ordinary shares may adversely affect the trading market for our Class A ordinary shares.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A ordinary shares or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual class or multi-class share structures in certain of their indexes. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual class capital structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our Class A ordinary shares. These policies are still fairly new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A ordinary shares less attractive to investors and, as a result, the market price of our Class A ordinary shares could be adversely affected.

The dual class structure of our ordinary shares has the effect of concentrating voting power with our management and other pre-listing shareholders, which will limit your ability to influence the outcome of important transactions, including a change in control.

Our Class B ordinary shares have five votes per share, and our Class A ordinary shares have one vote per share. Members of our management collectively hold approximately 28% of the voting power of our outstanding ordinary shares, and our other shareholders that pre-existed the public listing (“pre-listing shareholders”) collectively hold approximately 62% of the voting power of our outstanding ordinary shares. Accordingly, although there are no voting agreements among members of our management or between them and other shareholders, our management and other pre-listing shareholders together hold all of our issued and outstanding Class B ordinary shares and therefore, individually or together, are able to significantly influence matters submitted to our shareholders for approval, including the election of directors, amendments of our organizational documents and any merger or other major corporate transactions that require shareholder approval. Our management and other pre-listing shareholders, individually or together, may vote in a way with which you disagree and which may be adverse to your interests. This concentrated voting power may have the effect of delaying, preventing or deterring a change in control of our Company, could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might ultimately adversely affect the market price of our Class A ordinary shares. Future transfers by the holders of Class B ordinary shares will result in those shares converting into Class A ordinary shares, subject to limited exceptions. For information about our dual class structure, see “Description of Share Capital and Articles of Association.”

 

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If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our Class A ordinary shares, the price of our Class A ordinary shares could decline.

The trading market for our Class A ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, the price of our Class A ordinary shares could decline. Moreover, the price of our Class A ordinary shares could decline if one or more securities analysts downgrade our Class A ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Our issuance of additional share capital in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders.

We expect to issue additional share capital in the future that will result in dilution to all other shareholders. We expect to grant equity awards to employees and directors under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in companies, solutions or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional share capital may cause shareholders to experience significant dilution of their ownership interests and the per share value of our Class A ordinary shares to decline.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A ordinary shares.

We do not intend to pay any cash dividends in the foreseeable future, and any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, you may need to rely on sales of our Class A ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on your investment.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period to enable us to comply with certain new or revised accounting standards.

We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of the closing of the Business Combination; (2) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates.

 

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We cannot predict if investors will find our Class A ordinary shares less attractive if we choose to rely on these exemptions. If some investors find our Class A ordinary shares less attractive as a result, there may be a less active trading market for our Class A ordinary shares, and our share price may be more volatile.

We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, although we are subject to Israeli laws and regulations with regard to certain of these matters and intend to furnish certain comparable quarterly information on Form 6-K. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2021. In the future, we would lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of the NYSE. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.

 

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As we are a “foreign private issuer” and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.

As a foreign private issuer, we have the option to follow certain home country corporate governance practices rather than those of NYSE, provided that we disclose the requirements we are not following and describe the home country practices we are following. We intend to rely on this “foreign private issuer exemption” with respect to NYSE rules for shareholder meeting quorums and shareholder approval requirements. We may in the future elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel are not experienced in managing a public company and will be required to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.

As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A ordinary shares.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of our second annual report on Form 20-F. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.”

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could materially and adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.

 

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During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A ordinary shares could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

The growth and expansion of our business places a continuous, significant strain on our operational and financial resources. Further growth of our operations to support our customer base, our platform, solutions and our internal controls and procedures may not be adequate to support our operations. As we continue to grow, we may not be able to successfully implement requisite improvements to these systems, controls and processes, such as system access and change. The growth and expansion of our business places a continuous, significant strain on our operational and financial resources. Further growth of our operations to support our customer base, our information technology systems and our internal controls and procedures may not be adequate to support our operations. As we continue to grow, we may not be able to successfully implement requisite improvements to these systems, controls and processes, such as system access and change management controls, in a timely or efficient manner. Our failure to improve our systems and processes, or their failure to operate in the intended manner, whether as a result of the growth of our business or otherwise, may result in our inability to accurately forecast our revenue and expenses, or to prevent certain losses. Moreover, the failure of our systems and processes could undermine our ability to provide accurate, timely and reliable reports on our financial and operating results and could impact the effectiveness of our internal control over financial reporting. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud.

If a United States person is treated as owning at least 10% by vote or value of our shares, such holder may be subject to adverse U.S. federal income tax consequences.

Because our group consists of one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries will be treated as “controlled foreign corporations,” (“CFCs”) as such term is defined in Section 957 of the Code, regardless of whether or not we are treated as a CFC. If a United States person (as defined in Section 7701(a)(30) of the Code) is treated as owning (directly, indirectly, or constructively) at least 10% of the total combined voting power of all classes of our shares entitled to vote or at least 10% of the total value of shares of all classes of our shares, such person may be treated as a “United States shareholder” with respect to each CFC in our group (if any), which may subject such person to adverse U.S. federal income tax consequences. Specifically, a United States shareholder of a CFC may be required to annually report and include in its U.S. taxable income its pro rata share of such CFC’s “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property, whether or not we make any distributions of profits or income of such CFC to such United States shareholder. If you are treated as a United States shareholder of a CFC, failure to comply with applicable reporting obligations may subject you to significant monetary penalties and may extend the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due. Additionally a United States shareholder of a CFC that is an individual would generally be denied certain tax deductions or foreign tax credits in respect of its income that may otherwise be allowable to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will

 

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assist holders of our shares in determining whether we or any of our non-U.S. subsidiaries are treated as CFCs or whether any holder of the Class A ordinary shares is treated as a United States shareholder with respect to any such CFC, nor do we expect to furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The U.S. Internal Revenue Service has provided limited guidance regarding the circumstances in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our Class A ordinary shares.

If we or any of our subsidiaries are characterized as a PFIC for U.S. federal income tax purposes, U.S. Holders may suffer adverse U.S. federal income tax consequences.

A non-U.S. corporation generally will be treated as a PFIC for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the 2020 composition of the income, assets and operations of us and our subsidiaries, we do not believe we will be treated as a PFIC for the current taxable year, however there can be no assurances in this regard or any assurances that we will not be treated as a PFIC in any future taxable year. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.

Whether we or any of our subsidiaries are a PFIC for any taxable year is a factual determination that depends on, among other things, the composition of our income and assets, our market value and the market value of our subsidiaries’ shares and assets. Changes in our composition, the composition of our income or the composition of any of our subsidiaries assets may cause us to be or become a PFIC for the current or subsequent taxable years. Whether we are treated as a PFIC for U.S. federal income tax purposes is a factual determination that must be made annually at the close of each taxable year and, thus, is subject to significant uncertainty.

If we are a PFIC for any taxable year, a U.S. Holder of our ordinary shares may be subject to adverse tax consequences and may incur certain information reporting obligations. For a further discussion, see “Certain Material U.S. Federal Income Tax Considerations—U.S. Holders—Passive Foreign Investment Company Rules.” U.S. Holders of our ordinary shares are strongly encouraged to consult their own advisors regarding the potential application of these rules to us and the ownership of our ordinary shares.

RISKS RELATED TO OUR INCORPORATION AND LOCATION IN ISRAEL

Conditions in Israel could materially and adversely affect our business.

Many of our employees, including our founders and certain members of our management team, operate from our headquarters that is located in Tel Aviv, Israel. In addition, a number of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Recently, there has been an unprecedented degree of political instability in Israel, with four sets of elections for the Israeli parliament, or Knesset, in a two-year period. While a new government was formed in June 2021, there is no guarantee that it will last for a significant portion of its full four-year term and provide political stability. On the military front, in recent years, Israel has been engaged in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist

 

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group that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Some of these hostilities were accompanied by missiles being fired from the Gaza Strip, Lebanon and Syria against civilian targets in various parts of Israel, including areas in which our employees are located, which negatively affected business conditions in Israel. Any hostilities involving Israel, regional political instability or the interruption or curtailment of trade between Israel and its trading partners could materially and adversely affect our operations and results of operations.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of property damage and certain direct and indirect damages that are caused by terrorist attacks or acts of war, such coverage would likely be limited, may not be applicable to our business (either due to the geographic location of our offices or the type of business that we operate) and may not reinstate our loss of revenue or economic losses more generally. Furthermore, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on the expansion of our business, financial condition and/or our results of operations. In addition, a campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also materially and adversely impact our business.

In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, particularly if such call-ups include the call-up of members of our management. Such disruption could materially and adversely affect our business, financial condition and results of operations.

The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

We believe that we are eligible for certain tax benefits provided to a “Preferred Technological Enterprise” under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”). In order to remain eligible for the tax benefits provided to a “Preferred Technological Enterprise” we must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended. If these tax benefits are reduced, cancelled or discontinued, our Israeli taxable income from the Preferred Technological Enterprise would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies has been 23% since 2018. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See “Certain Material Israeli Tax Considerations—Israeli Tax Considerations.”

 

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Our amended and restated articles of association contain a forum selection clause for substantially all disputes between us and our shareholders under the Companies Law and the Israeli Securities Law, which could limit our shareholders’ ability to bring claims and proceedings against us, our directors, officers and other employees. Enforcement of a U.S. judgment against us or our officers and directors in Israel or the United States, or assertion of a U.S. securities laws claim in Israel or serving process on our officers and directors, may also be difficult.

Under our amended and restated articles of association, the competent courts of Tel Aviv, Israel are the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Israeli Companies Law, 5759-1999 (the “Companies Law”), or the Israeli Securities Law, 1968 (the “Israeli Securities Law”). This exclusive forum provision is intended to apply to claims arising under Israeli law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision in our amended and restated articles of association will not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us, our directors, officers and employees.

Another obstacle towards assertion of claims against us or our directors or officers is the fact that most of them are not residents of the United States and most of their and our assets are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may therefore be difficult to effect within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters.

Additionally, Israeli courts might not enforce judgments obtained in the United States against us or our non-U.S. directors and executive officers, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors. An Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought. For more information, see “Enforceability of Civil Liability.”

 

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Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.

We are incorporated under Israeli law. The rights and responsibilities of holders of our Class A and Class B ordinary shares are governed by our amended and restated articles of association and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to the Companies Law each shareholder of an Israeli company has to act in good faith and in a customary manner in exercising his, her or its rights and fulfilling his, her or its obligations toward the Company and other shareholders and to refrain from abusing his, her or its power in the Company, including, among other things, in voting at the general meeting of shareholders on amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and certain transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the Company or has other powers toward the Company has a duty of fairness toward the Company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.

Provisions of Israeli law and our amended and restated articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.

Provisions of Israeli law and our amended and restated articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third-party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for our Class A ordinary shares. Among other things:

 

   

the Companies Law regulates the methods and processes by which mergers and acquisitions may be consummated and requires tender offers for acquisitions of shares (or separate classes of shares) or voting rights above a specified threshold percentage of shares in a company (subject to certain conditions);

 

   

the Companies Law requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions;

 

   

the Companies Law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;

 

   

our amended and restated articles of association divide our directors into three classes, each of which is elected once every three years;

 

   

our amended and restated articles of association generally require a vote of the holders of a majority of our outstanding ordinary shares entitled

 

   

to vote present and voting on the subject matter at a general meeting of shareholders (referred to as simple majority), and the amendment of a limited number of provisions, such as the provision dividing our directors into three classes, requires a vote of the holders of at least 65% of the total voting power of our shareholders;

 

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our dual class ordinary share structure, which provides our management and our existing shareholders, individually or together, with the ability to significantly influence the outcome of matters requiring shareholder approval, even if they own significantly less than a majority of our outstanding Class A ordinary shares and Class B ordinary shares;

 

   

our amended and restated articles of association do not permit a director to be removed except by a vote of the holders of at least 65% of the total voting power of our shareholders and any amendment to such provision shall require the approval of at least 65% of the total voting power of our shareholders; and

 

   

our amended and restated articles of association provide that director vacancies may be filled by our board of directors.

Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a restrictive period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if the shares have not been disposed.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains estimated and forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the offering and guidance for 2021 as described under the headings “Summary,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” liquidity, growth and profitability strategies and factors and trends affecting our business are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.

Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:

 

   

our markets are rapidly evolving and may decline or experience limited growth;

 

   

our reliance on operating system providers and app stores to support our platform;

 

   

our ability to compete effectively in the markets in which we operate;

 

   

our quarterly results of operations may fluctuate for a variety of reasons;

 

   

failure to maintain and enhance our brand;

 

   

our dependence on our ability to retain and expand our existing customer relationships and attract new customers;

 

   

our reliance on our customers that contribute more than $100,000 of annual revenue;

 

   

our ability to successfully and efficiently manage our current and potential future growth;

 

   

our dependence upon the continued growth of the app economy and the increased usage of smartphones, tablets and other connected devices;

 

   

our dependence upon the success of the gaming and mobile app ecosystem and the risks generally associated with the gaming industry;

 

   

our, and our competitors’, ability to detect or prevent fraud on our platforms;

 

   

failure to prevent security breaches or unauthorized access to our or our third-party service providers data;

 

   

the global scope of our operations, which are subject to laws and regulations worldwide, many of which are unsettled and still developing;

 

   

the rapidly changing and increasingly stringent laws, contractual obligations and industry standards relating to privacy, data protection, data security and the protection of children;

 

   

the effects of health epidemics, including the COVID-19 pandemic; and

 

   

the other matters described in the section titled “Risk Factors” beginning on page [30].

We caution you against placing undue reliance on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this prospectus. We undertake no obligation to revise forward-looking statements to reflect future events,

 

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changes in circumstances, or changes in beliefs. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear in our public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult. For additional information, please see the section titled “Where You Can Find Additional Information” beginning on page [249].

Market, ranking and industry data used throughout this prospectus, including statements regarding market size and technology adoption rates, is based on the good faith estimates of our management, which in turn are based upon our management’s review of internal surveys, independent industry surveys and publications, including reports by App Annie, AppsFlyer, Apptopia, Altman Solon, eMarketer, Newzoo, Omdia, Statista and Sensor Tower and other third party research and publicly available information. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we are not aware of any misstatements regarding the industry data presented herein, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains estimates, projections and other information concerning our industry, including market size and growth of the markets in which we participate, that are based on industry publications and reports and forecasts prepared by our management. In some cases, we do not expressly refer to the sources from which these estimates and information are derived. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.

The sources of certain statistical data, estimates, and forecasts contained in this prospectus include independent industry reports from App Annie, AppsFlyer, Apptopia, Altman Solon, eMarketer, Newzoo, Omdia, Statista and Sensor Tower.

Certain estimates of market opportunity, including internal estimates of the addressable market for the Company and forecasts of market growth included in this prospectus may prove inaccurate. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. The estimates and forecasts in this prospectus relating to the size of our target market, market demand and adoption, capacity to address this demand, and pricing may prove to be inaccurate. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates in this prospectus, our business could fail to successfully address or compete in such markets, if at all.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Certain other amounts that appear in this prospectus may not sum due to rounding. Revenue shown throughout this prospectus is revenue from continuing operations unless otherwise stated.

Other Data

We define the ironSource platform as our one comprehensive platform that is the foundation for our Aura and Sonic suites of solutions.

We define ironSource Aura (“Aura”) as our suite of solutions that we provide to our telecom operators and original equipment manufacturer customers. The solutions that we provide to our telecom operators are device experience management, user engagement and analytics.

We define ironSource Sonic (“Sonic”) as our suite of solutions that we provide to our customers. The solutions that we provide to our developer customers are user growth, monetization, creative management, analytics and publishing.

We define a customer as an individual or entity that generated revenue during a certain period of time. A single organization with multiple divisions, segments or subsidiaries is treated as a single customer, even though we may enter into commercial agreements with multiple parties within that organization.

We define customers contributing more than $100,000 of annual revenue as customers that have contributed more than $100,000 of our revenue in the trailing 12 months. We monitor these customers as they represent the majority of our revenue, generate valuable data for us and generally have higher retention rates.

 

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We define dollar-based net expansion rate as revenue for a certain period of time from a set of customers for that same period divided by revenue from a prior period for the same set of customers.

We define AppsFlyer’s Power Ranking (“Power Ranking”) as the ranking contained within the AppsFlyer Performance Index that normalizes and combines the number of non-fraudulent installs, the number of apps running with each media source, and a weighted retention score, before factoring in an additional fraud penalty based on the network’s overall fraud rate for the region in question.

 

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TRADEMARKS, TRADE NAMES AND SERVICE MARKS

We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, any other parties.

 

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USE OF PROCEEDS

All of the Class A ordinary shares offered pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any proceeds from the sale of the Class A ordinary shares to be offered by the Selling Securityholders.

 

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DIVIDEND POLICY

We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant.

For the year ended December 31, 2020, we did not pay any dividends. For the years ended December 31, 2019 and 2018, we paid dividends of $100 million and $135 million, respectively.

The Companies Law imposes restrictions on our ability to declare and pay dividends. See “Description of Share Capital and Articles of Association—Dividend and Liquidation Rights” for additional information. Our ability to pay dividends is also restricted by the terms of our credit agreement, as described further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement,” and may be restricted by any agreements we may enter into in the future. See also “Risk Factors—Risks Related to Our Class A Ordinary Shares—We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A ordinary shares.”

Payment of dividends may be subject to Israeli withholding taxes. See “Taxation and Government Programs—Israeli Tax Considerations” for additional information.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and total capitalization as of March 31, 2021:

 

   

on an actual basis for ironSource ; and

 

   

on a pro forma basis, giving effect to the Business Combination and the related transactions.

You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

 

     As of March 31, 2021  
     Actual      Pro Forma  

Cash and cash equivalents

   $ 127,535        912,261  
  

 

 

    

 

 

 

Long-term loan

     72,248        72,248  

ironSource Class A ordinary shares, no par value; 10,000,000,000 shares authorized; 325,259,289 issued and outstanding;*

     —          —    

ironSource Class B ordinary shares, no par value; 1,500,000,000 shares authorized; 325,259,289 issued and outstanding;*

     —          —    

2019 ordinary shares, par value NIS 0.01, 25,006,298 authorized, issued and outstanding

     72        —    

Additional paid-in capital*

     227,485        922,645  

Retained earnings

     77,367        77,367  
  

 

 

    

 

 

 

Total shareholders’ equity

     304,924        1,000,012  
  

 

 

    

 

 

 

Total capitalization

   $ 377,172        1,072,260  
  

 

 

    

 

 

 

 

*

Shares and per share data are presented on a retroactive basis to reflect the Recapitalization on June 28, 2021.

Prior to the closing, 18,254,045 TBA Class A ordinary shares were redeemed by the holders for an aggregate redemption payment of approximately $182.54 million.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Defined terms included below have the same meaning as terms defined and included elsewhere in this prospectus.

The following unaudited pro forma condensed combined financial statements present the combination of the financial information of ironSource and TBA, adjusted to give effect to the Business Combination and related transactions and has been prepared for informational purposes only.

The following unaudited pro forma condensed combined balance sheet as of March 31, 2021 combines the unaudited historical balance sheet of TBA as of March 31, 2021 with the unaudited historical balance sheet of ironSource as of March 31, 2021, giving effect to the Business Combination and the issuance of shares to the PIPE Investors, as if they had been consummated as of that date. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 give effect to the Business Combination and the issuance of shares to the PIPE Investors, as if they had been completed on January 1, 2020, the beginning of the earliest period presented.

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect for transaction accounting adjustments for the merger.

The unaudited pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. The unaudited pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

This information should be read together with the accompanying notes to the unaudited pro forma condensed combined financial statements, ironSource’s audited financial statements and related notes, TBA’s audited financial statements and related notes, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this prospectus.

The unaudited pro forma condensed combined financial information has been prepared using the assumptions below:

 

   

This presentation reflects that 18,254,045 public shareholders of TBA exercised redemption rights with respect to their public shares for a pro rata share of the funds in TBA’s trust account and reflects (i) an aggregate of $67.5 million of the Trust Account Excess Cash funds (as such term is defined in the Business Combination Agreement) was used by TBA to acquire shares from certain of ironSource’s shareholders prior to the Business Combination, (ii) in accordance with the Support Agreement, dated March 20, 2021 (the “Support Agreement”) between ironSource and Thoma Bravo Advantage Sponsor, LLC, an affiliate of TBA (the “Sponsor”), as a result of redemptions by stockholders of TBA, the Sponsor entered into a similar Investment Agreement with respect to an amount of approximately $32.5 million and (iii) all funds raised in the PIPE are used for secondary acquisition from ironSource shareholders.

 

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IRONSOURCE

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

March 31, 2021

(in thousands)

 

                Reflecting Actual Redemptions upon the Closing of the
Business Combination on June 28, 2021
 
    ironSource
(Historical)
    TBA
(Historical)
    Transaction
Accounting
Adjustments
    Adjustments
Notes
  Pro Forma
Combined
 

Cash and cash equivalents

    127,535       2,186       782,540     (A)     912,261  

Accounts receivable, net

    148,829       —         —           148,829  

Other current assets

    31,192       2,021       —           33,213  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    307,556       4,207       782,540         1,094,303  

Long-term restricted cash

    2,332       —         —           2,332  

Deferred tax assets

    828       —         —           828  

Operating lease right-of-use asset

    35,139       —         —           35,139  

Property, equipment and software, net

    24,358       —         —           24,358  

Goodwill

    205,842       —         —           205,842  

Intangible assets, net

    33,010       —         —           33,010  

Cash held in Trust Account

    —         1,000,011       (1,000,011   (B)     —    

Other non-current assets

    8,593       —         (6,700   (G)     1,893  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

    617,658       1,004,218       (224,171       1,397,705  
 

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities and shareholders’ equity

         

Accounts payable

    148,419       3,059       —           151,478  

Current maturities of long-term loan

    9,731       —         —           9,731  

Operating lease liabilities

    7,221       —         —           7,221  

Other current liabilities

    39,175       —         81,900     (D)     121,075  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    204,546       3,059       81,900         289,505  

Long-term loan, net of current maturities

    72,248       —         —           72,248  

Deferred tax liabilities

    3,582       —         —           3,582  

Long-term operating lease liabliities

    31,035       —         —           31,035  

Deferred underwriting commissions

    —         35,000       (35,000   (F)     —    

Other non-current liabilities

    1,323       —         —           1,323  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    312,734       38,059       46,900         397,693  

Commitments and Contingencies

         

Class A ordinary shares subject to possible redemption

    —         961,159       (961,159   (H)     —    

ironSource Class A ordinary shares

    —         —         —           —    

ironSource Class B ordinary shares

    —         —         —           —    

2019 ordinary shares

    72       —         (72   (K)     —    

Preference shares

    —         —         —           —    

TBA Class A ordinary shares

    —         1       (1   (L)     —    

TBA Class B ordinary shares

    —         3       (3   (L)     —    

Additional paid-in capital

    227,485       8,332       686,828     (I)     922,645  

Retained earnings (accumulated deficit)

    77,367       (3,336     3,336     (J)     77,367  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total shareholders’ equity

    304,924       5,000       690,088         1,000,012  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and shareholders’ equity

    617,658       1,004,218       (224,171       1,397,705  
 

 

 

   

 

 

   

 

 

     

 

 

 

 

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IRONSOURCE

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED

March 31, 2021

(in thousands)

 

                Reflecting Actual Redemptions upon the Closing of the
Business Combination on June 28, 2021
 
    ironSource
(Historical)
    TBA
(Historical)
    Transaction
Accounting
     Adjustments     
    Adjustments
Notes
  Pro Forma
Combined
 

Revenue

    119,713       —             119,713  

Cost of revenue

    20,140       —             20,140  
 

 

 

   

 

 

   

 

 

     

 

 

 

Gross Profit

    99,573             99,573  

Operating expenses

         

Research and development

    20,410       —             20,410  

Sales and marketing

    48,721       —             48,721  

General and administrative

    15,547       3,323           18,870  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total Operating Expenses

    84,678       3,323           88,001  

Income (loss) from operations

    14,895       (3,323         11,572  

Financial expenses (income), net

    1,029       (11     11     (AAA)     1,029  
 

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from continuing operations before income taxes

    13,866       (3,312     (11       10,543  

Income taxes

    3,622       —             3,622  

Income from continuing operations, net of income taxes

    10,244       (3,312     (11       6,921  
 

 

 

   

 

 

   

 

 

     

 

 

 

Basic net income (loss) per share:

         

Weighted average of ironSource shares outstanding – basic

    645,295,222         352,045,799         997,341,021  

Weighted average of ironSource shares outstanding – diluted

    711,685,249         352,045,799         1,063,731,048  

Basic net income per ironSource share

  $ 0.01       $ (0.00     $ 0.01  

Diluted net income per ironSource share

  $ 0.01       $ (0.00     $ 0.01  

Weighted average number of TBA redeemable shares outstanding – basic & diluted

      100,000,000        

Weighted average number of TBA non-redeemable shares outstanding – basic & diluted

      26,365,556        

Basic & diluted net income per TBA redeemable share

    $ 0.00        

Basic & diluted net loss per TBA non-redeemable share

    $ (0.13      

Refer to Note 5 below “Pro forma Share and Earning per share information

 

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IRONSOURCE

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED

December 31, 2020

(in thousands)

 

                Reflecting Actual Redemptions upon the Closing of the
Business Combination on June 28, 2021
 
    ironSource
(Historical)
    TBA
(Historical)
    Transaction
Accounting
     Adjustments     
    Adjustments
Notes
    Pro Forma
Combined
 

Revenue

    331,519       —             331,519  

Cost of revenue

    57,825       —             57,825  
 

 

 

   

 

 

   

 

 

     

 

 

 

Gross profit

    273,694       —         —           273,694  

Operating expenses

         

Research and development

    51,600       —             51,600  

Sales and marketing

    119,262       —             119,262  

General and administrative

    28,746       25           28,771  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total Operating Expenses

    199,608       25       —           199,633  

Income (loss) from operations

    74,086       (25     —           74,061  

Financial expenses (income), net

    4,381       —             4,381  
 

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from continuing operations before income taxes

    69,705       (25     —           69,680  

Income taxes

    10,896       —             10,896  

Income from continuing operations, net of income taxes

    58,809       (25     —           58,784  
 

 

 

   

 

 

   

 

 

     

 

 

 

Basic net income (loss) per share:

         

Weighted average of ironSource shares outstanding - basic

    636,450,643         352,045,799         988,496,442  

Weighted average of ironSource shares outstanding - diluted

    681,900,332         352,045,799         1,033,946,131  

Basic net income per ironSource share

  $ 0.07       $ (0.01     $ 0.06  

Diluted net income per ironSource share

  $ 0.06       $ (0.00     $ 0.06  

Weighted average number of TBA redeemable shares outstanding – basic & diluted

      —          

Weighted average number of TBA non-redeemable shares outstanding – basic & diluted

      22,500,000        

Basic & diluted net income per TBA redeemable share

      —          

Basic & diluted net loss per TBA non-redeemable share

    $ (0.00      

Refer to Note 5 below “Pro forma Share and Earning per share information

 

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Note 1—Description of the Business Combination

On June 28, 2021 (the “Closing Date”), we consummated the previously announced business combination (the “Business Combination”) pursuant to the Agreement and Plan of Merger, dated March 20, 2021, by and among the Company, Thoma Bravo Advantage, a Cayman Islands exempted company (“TBA”), Showtime Cayman, a wholly-owned subsidiary of the Company (“Merger Sub”), and Showtime Cayman II, a Cayman Islands exempted company and wholly-owned subsidiary of the Company (“Merger Sub II”) (the “Business Combination”).

On the Closing Date, the following transactions occurred pursuant to the terms of the Merger Agreement

 

   

we adopted our Amended and Restated Articles of Association;

 

   

we renamed each issued and outstanding ordinary share, including the 2019 ordinary shares issued in connection with the CVC Investment (as defined herein) (the “2019 Ordinary Shares” and, together with the ordinary shares, the “ironSource Ordinary Shares”), an ironSource Class A Ordinary Share, no par value (“ironSource Class A ordinary share”), followed immediately by the distribution of one Class B ordinary share of ironSource, no par value per share (“ironSource Class B ordinary share”) to the holders of each such issued and outstanding ironSource Class A ordinary share.

 

   

we effected a stock split of each ironSource Class A ordinary share and each ironSource Class B ordinary share into such number of ironSource Class A ordinary shares and ironSource Class B ordinary shares, respectively, in each case, calculated in accordance with the terms of the Merger Agreement, such that each ironSource Class A ordinary share and each ironSource Class B ordinary share have a value of $10.00 per share after giving effect to such stock split (the “Stock Split”).

 

   

Merger Sub merged with and into TBA (the “First Merger”), with TBA surviving the First Merger as a wholly-owned subsidiary of ironSource (such company, as the surviving entity of the First Merger, the “Surviving Entity”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the Surviving Entity merged with and into Merger Sub II (the “Second Merger,” and together with the First Merger, the “Mergers”), with Merger Sub II surviving the Second Merger as a wholly-owned subsidiary of ironSource (such company, as the surviving entity of the Second Merger, the “Surviving Company”) (all the transactions together, the “Business Combination”).

 

   

as a result of the Business Combination and the other transactions contemplated by the Merger Agreement, Merger Sub II became a wholly owned subsidiary of the Company, with the shareholders of TBA becoming shareholders of the Company.

 

   

at the effective time of the Business Combination (the “Effective Time”), (a) each Class B ordinary share of TBA, par value $0.0001 per share (“TBA Class B Share”), outstanding immediately prior to the Effective Time automatically converted into one Class A ordinary share of TBA, par value $0.0001 per share (“TBA Class A Share,” together with the TBA Class B Shares, the “TBA Ordinary Shares”); and

 

   

each TBA Class A Share issued and outstanding immediately prior to the Effective Time, including shares issued upon the automatic conversion of TBA Class B Shares described above, converted into one ironSource Class A ordinary share.

Our Class A ordinary shares began trading on The New York Stock Exchange on June 29, 2021 under the symbol “IS.”

 

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PIPE Investment

On March 20, 2021, we entered into Investment Agreements (each, an “Investment Agreement”) with certain investors (each, a “PIPE Investor” and collectively, the “PIPE Investors”) pursuant to which, among other things, the PIPE Investors agreed to purchase on the Closing Date an aggregate of 130 million ironSource Class A ordinary shares at a price equal to $10.00 per share on the terms and subject to the conditions set forth therein for gross proceeds of $1.3 billion (the “PIPE Financing”). In accordance with the Support Agreement, as a result of redemptions by stockholders of TBA, the Sponsor entered into a similar Investment Agreement with respect to an amount of approximately $32.5 million. The PIPE Financing closed concurrently with the Business Combination. On the Closing Date the existing shareholders of ironSource effected a secondary sale of 1.4 million ironSource Class A ordinary shares and/or ironSource Class B ordinary shares to the PIPE Investors (including the Sponsor), for a total purchase price of $1.4 billion, and including a secondary sale in an amount of approximately $67.5 million to TBA, which was funded from TBA’s trust account. Under our Amended and Restated Articles of Association, each share sold on a secondary basis was a Class A ordinary share upon purchase by a PIPE Investor.

Consideration

The following represents the aggregate merger consideration (excluding any secondary acquisition of shares):

 

     Reflecting Actual Redemptions upon the Closing of the Business Combination
on June 28,  2021
 
                 Purchase Price                              Shares Issued              

Share consideration to TBA(a)

   $ 10        109,145,955  

PIPE subscription(a)

   $ 10        —    
  

 

 

    

 

 

 

 

(a)

The value of ordinary shares is reflected at $10.00 per share, reflecting the Class A Renaming and Class B Distribution (as defined below) and the Stock Split (with a ratio of 1:4.99).

The following summarizes the unaudited pro forma ordinary shares outstanding, after giving effect to the transactions that occurred on the Closing Date:

Ownership

 

     Reflecting Actual Redemptions upon the Closing of the Business Combination
on June 28, 2021
 
     ironSource
Class A Ordinary
Shares
    ironSource
Class B Ordinary
Shares
     % Outstanding     % Voting
Power(1)(2)
 

TBA Shareholders

     109,145,955       0        10.78     4.27

Existing ironSource Shareholders

     385,108,621       385,108,621        76.06     90.51

PIPE Investors

     133,254,045       0        13.16     5.22

Total shares Outstanding at Closing

     627,508,621     385,108,621        100     100

 

(1)

Percentage voting power was calculated based on a ratio of five votes per Class B ordinary share to one vote per Class A ordinary share. Only existing ironSource shareholders held Class B ordinary shares (subject to the proportional sale of some of those Class B ordinary shares together with Class A ordinary shares in secondary sales pursuant to the PIPE and to TBA pursuant to the Merger Agreement, which will result in the automatic conversion of those Class B

 

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  ordinary shares into Class A ordinary shares upon those sales, as described in the assumptions set forth below).
(2)

Holders of ironSource’s Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders except under certain circumstances under which holders of Class B ordinary shares will vote as a separate class, including:

 

   

a proposal to convert the entire class of those shares into Class A ordinary shares on a one-for-one basis, which requires the affirmative vote of the holders of at least 65% of the outstanding Class B ordinary shares for approval;

 

   

amendment of the rights of the Class B ordinary shares;

 

   

disproportionate distributions or recapitalizations that adversely impact the Class B ordinary shares; or

 

   

differing treatment to the Class B ordinary shares in a merger or similar transaction.

Each Class B ordinary share will convert automatically on a one-for-one basis into a Class A ordinary share upon sale or transfer (other than transfers to certain permitted transferees).

(*) Excluding 6,745,955 treasury shares purchased by TBA.

The above share amounts and ownership percentages have been calculated based on the following assumptions:

 

   

Each pre-Business Combination ironSource ordinary share was renamed a Class A ordinary share and received one is Class B ordinary share via distribution (referred to as the Class A Renaming and Class B Distribution).

 

   

Each ironSource Class A ordinary share and each ironSource Class B ordinary share outstanding following the Class A Renaming and Class B Distribution underwent a 1:4.99 stock split, such that for each such share outstanding pre-stock split, there are 4.99 such shares outstanding post-stock split.

 

   

Secondary shares sold in the PIPE consist equally of ironSource Class A ordinary shares and ironSource Class B ordinary shares. Upon sale, the PIPE investors receive all ironSource Class A ordinary shares only (since ironSource Class B ordinary shares convert automatically into Class A ordinary shares upon sale).

 

   

All holders of ironSource options exercise their options on a cashless basis and sell the full pro rata amount (equally from ironSource Class A ordinary shares and ironSource Class B ordinary shares issuable upon exercise) that they can sell in the secondary offering to the PIPE investors (subject to the limit that they can actually sell only the total amount which will be vested and released from the two year lock-up under Section 102 of the Israeli Tax Ordinance as of June 1, 2021).

Each of the share amounts and ownership percentages reflected in the above table has furthermore been calculated based on certain additional assumptions, which are described below in “Note 2. Basis of Presentation”.

Note 2—Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Transaction and has been prepared for informational purposes only.

 

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The following unaudited pro forma condensed combined balance sheet as of March 31, 2021 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 are based on the historical financial statements of ironSource and TBA. The transaction accounting adjustments for the transaction consist of those necessary to account for the transaction.

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures about Acquired and Disposed Businesses, as adopted by the SEC in May 2020 (“Article 11”). The amended Article 11 is effective on January 1, 2021. The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.

ironSource and TBA did not have any historical relationship prior to the Transaction. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

The unaudited pro forma condensed combined balance sheet as of March 31, 2021, assumes that the Business Combination and related transactions occurred on March 31, 2021. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2021 and the year ended December 31, 2020, presents pro forma effect to the Business Combination and related transactions as if they had been completed on January 1, 2020, the beginning of the earliest period presented.

The unaudited pro forma condensed combined balance sheet as of March 31, 2021 has been prepared using, and should be read in conjunction with, the following:

 

   

TBA’s unaudited balance sheet as of March 31, 2021, and the related notes for the three months ended March 31, 2021, included elsewhere in this prospectus; and

 

   

ironSource unaudited consolidated balance sheet as of March 31, 2021, and the related notes for the three months ended March 31, 2021 included elsewhere in this prospectus.

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2021 has been prepared using, and should be read in conjunction with, the following:

 

   

TBA’s unaudited statement of operations for the three months ended March 31, 2021 and the related notes included elsewhere in this prospectus; and

 

   

ironSource unaudited consolidated statements of operations for the three months ended March 31, 2021 and the related notes included elsewhere in this prospectus.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 has been prepared using, and should be read in conjunction with, the following:

 

   

TBA’s audited statement of operations for the year ended December 31, 2020 and the related notes included elsewhere in this prospectus; and

 

   

ironSource audited consolidated statements of operations for the year ended December 31, 2020 and the related notes included elsewhere in this prospectus.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

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The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination and related transactions.

The pro forma adjustments reflecting the consummation of the Business Combination are based on certain currently available information and certain assumptions and methodologies that ironSource believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. ironSource believes that these assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

 

   

This presentation reflects that 18,254,045 public shareholders of TBA exercised redemption rights with respect to their public shares for a pro rata share of the funds in TBA’s trust account and reflects (i) an aggregate of $67.5 million of the Trust Account Excess Cash funds (as such term is defined in the Business Combination Agreement) was used by TBA to acquire shares from certain of ironSource’s shareholders prior to the Business Combination, (ii) in accordance with the Support Agreement, as a result of redemptions by stockholders of TBA, the Sponsor entered into a similar Investment Agreement with respect to an amount of approximately $32.5 million and (iii) all funds raised in the PIPE are used for secondary acquisition from ironSource shareholders.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company. They should be read in conjunction with the historical financial statements and notes thereto of ironSource and TBA.

Note 3—Accounting Policies

Upon consummation of the recapitalization, management will perform a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the Post-Combination Company. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

Note 4—Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect for transaction accounting adjustments for the merger.

The unaudited pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had the Post-Combination Company filed consolidated income tax returns during the periods presented.

 

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The unaudited pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of TBA Ordinary Shares outstanding, assuming the Business Combination occurred on January 1, 2020.

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The adjustments included in the unaudited pro forma condensed combined balance sheet as of March 31, 2021 are as follows:

Represents pro forma adjustments to the cash balance to reflect the actual Redemptions upon the Closing of the Business Combination on June 28, 2021:

Note (A)

 

Reclassification of Cash held in Trust Account

     1,000,000     (B)

Redemptions

     (182,540   (H)

Additional Shares Issued to Sponsor

     32,540     (H)

Shares acquired by TBA from certain of ironSource’s shareholders and option holders

     (67,460   (C)
  

 

 

   

 

Total

     782,540     (A)

 

Note (B)

Reflects the reclassification of approximately $1 billion of Cash held in Trust Account that becomes available following the Business Combination and redemption.

 

Note (C)

Represent the $67.5 million acquisition of shares from the ironSource shareholders. These acquired shares will be held by the Surviving Company accounted for as treasury shares post merger.

 

Note (D)

Represents estimated transaction costs of approximately $81.9 million dollars consisting of $46.9 million (see E) incurred by Legacy ironSource in consummating the transaction and approximately $35 million of Deferred underwriting commissions (see F) classified to short term liability.

 

Note (E)

Represents transaction costs of approximately $46.9 million incurred by Legacy ironSource in consummating the transaction.

 

Note (F)

Represents the re classification of $35.0 million of Deferred Underwriting Fee Payable (see D) to short term liability.

 

Note (G)

Reflects the reclassification of $6.7 million of transaction costs accrued by Legacy ironSource. The transaction costs are recorded as a reduction of the net assets and offset against additional paid-in capital.

 

Note (H)

The aggregate value of the shares of TBA ordinary shares subject to redemption recorded on TBA’s balance sheet was $961.2 million. Of this amount, the aggregate value of shares of TBA ordinary shares redeemed in connection with the Business Combination was $182.54 million. The additional Shares Issued to Sponsor were in the amount of $32.54 million.

 

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Note (I)

 

   Represents pro forma adjustments to additional paid-in capital to reflect in case of the actual Redemptions upon the Closing of the Business Combination on June 28, 2021:     
  

Payment of transaction fees for Legacy ironSource . . .

     (53,600   Note (E), (G)
   Reclassification of ordinary shares subject to redemption      961,159     Note (H)
  

Redemptions

     (182,540   Note (H)
  

Additional Shares Issued to Sponsor

     32,540     Note (H)
  

Secondary acquisition of shares

     (67,460   Note (C)
  

Reclassification of Thoma Bravo Advantage accumulated deficit

     (3,347   Note (J), (AAA)
  

Recapitalization of ordinary shares

     72     Note (K)
  

Adjustment of Par value of shares

     4     Note (L)
     

 

 

   
        686,828    

Note (J)

   Represents the amount of the formation and operating costs      (3,336  

Note (K)

   Represents the recapitalization of ordinary shares between ironSource 2019 ordinary shares and Thoma Bravo Advantage shares      72    

Note (L)

   Represents the recapitalization of Thoma Bravo Advantage shares into no-par-value Class A ordinary shares and Class B ordinary shares      4    

Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

Note (AAA) Represents $11 thousand of interest earned on money in trust account that has been cancelled.

Note 5—Pro forma Share and Earning per share information

In order to conform the presentation of the figures above to TBA’s and the post merger figures, the amount of share and the per share data reflect the Class A Renaming and Class B Distribution (effective bonus share distribution) and the following the Stock Split of 1:4.99. In addition, the ironSource number of shares under the pro forma combined scenarios assumes the conversion of the 2019 Ordinary Shares on January 1, 2020.

Adjustments made to weighted average number of outstanding ironSource shares for pro forma net income per share of the three months ended March 31, 2021:

 

     Reflecting Actual Redemptions
upon the Closing of the
Business Combination on
June 28, 2021
 

Historical

     645,295,222  

Assumed conversion of 2019 Ordinary Shares

     249,645,799  

Share Issuance to TBA Shareholders

     109,145,955  

Treasury shares purchased by TBA

     (6,745,955
  

 

 

 

Weighted average number of outstanding ironSource shares – basic

     997,341,021  

Dilutive effect of options and RSUs

     66,390,027  
  

 

 

 

Weighted average number of outstanding ironSource shares – diluted

     1,063,731,048  

 

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Adjustments made to weighted average number of outstanding ironSource shares for pro forma net income per share of the year ended December 31, 2020.

 

     Reflecting Actual Redemptions
upon the Closing of the
Business Combination on
June 28, 2021
 

Historical

     636,450,643  

Assumed conversion of 2019 Ordinary Shares

     249,645,799  

Share Issuance to TBA Shareholders

     109,145,955  

Treasury shares purchased by TBA

     (6,745,955
  

 

 

 

Weighted average number of outstanding ironSource shares - basic

     988,496,442  

Dilutive effect of options and RSUs

     45,449,689  
  

 

 

 

Weighted average number of outstanding ironSource shares - diluted

     1,033,946,131  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus. On December 31, 2020, we completed the spin-off of the assets of our Desktop business, or the Spin-Off, into a new, independent company. The results of the operations of the Desktop business are presented as discontinued operations in the consolidated statements of operations for all periods presented. See Note 4 to our audited consolidated financial statements and Note 4 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our planned investments in our research and development, sales and marketing, and general and administrative functions, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Statement Regarding Forward-Looking Statements; Market, Ranking and Other Industry Data” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

ironSource is a leading business platform that enables mobile content creators to prosper within the app economy. Before founding ironSource, our founders built consumer web apps. While the apps they built resonated with users, they struggled to efficiently scale their user bases and grow revenue. In building tools to help solve those challenges, our founders identified a much larger opportunity and founded ironSource in 2010 with a clear mission: to help developers turn their apps into scalable, successful businesses.

In the years since our founding, mobile app creation has become easier, but app commercialization has become increasingly difficult. The ironSource platform is designed to enable any app or game developer to turn their app into a scalable, successful business by helping them to monetize and analyze their app and grow and engage their users through multiple channels, including unique on-device distribution through partnerships with leading telecom operators and OEMs such as Orange and Samsung. Our solutions allow our customers to focus on what they do best—creating great apps and user experiences—while we provide the infrastructure for their business expansion in one of the largest and fastest growing markets today: the app economy.

Mobile devices are now ubiquitous, with over 6.7 billion globally in 2020, and they have become the de facto standard for communication and media consumption. In addition, apps have now become the primary means for user engagement in the mobile ecosystem. In 2020, 4.3 hours were spent consuming media on mobile devices by the average U.S. adult, with 83% of that time spent in apps, according to eMarketer. The number of available apps has also increased significantly, with over 1.8 million apps available worldwide on the Apple’s App Store alone as of January 2021.

In this mobile app economy, games are the leading category of apps, accounting for the majority of apps in the Apple App Store in 2020 according to Statista. As the mobile gaming category grew significantly, a new generation of technology platforms has emerged to enable and fuel this growth. We have established a strong leadership position within this category, focusing our product development and innovation on building core infrastructure serving mobile game developers.

The abundance of apps and games in the mobile ecosystem, and the ease with which they can be created has made business success increasingly dependent on developers’ ability to differentiate their apps, reach the most relevant users, expand their audience cost-efficiently, and rapidly commercialize their businesses. These dynamics have created a need for a business platform capable of enabling app

 

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discovery, user growth, user engagement and content monetization for game and app developers. We identified this need nearly a decade ago and built a global platform to serve app developers, and eventually telecom operators, who collectively act as the backbone of the app economy.

Our platform consists of two solution suites: Sonic and Aura. Our Sonic solution suite supports developers as they launch, monetize and scale their apps and games, by providing solutions for app discovery, user growth, content monetization, analytics and publishing. Our Aura solution suite allows telecom operators to enrich the device experience by creating new engagement touchpoints that deliver relevant content for their users across the entire lifecycle of the device, from first setup, to in-life engagement and through the replacement cycle. This creates a unique on-device distribution channel for developers to promote their apps as a native part of the device experience. We believe the comprehensive nature of each solution suite, coupled with their combination into one platform, drives a unique competitive advantage in the market. As of March 31, 2021, we had over 4,000 customers around the world using our comprehensive set of solutions, with a combined reach of over 2.5 billion monthly active users.

We are a market leader for each of our solution suites, highlighting the business-critical role we play for mobile game and app developers. The ironSource platform is used by 80% of the top 20 most downloaded games in the United States from the Apple App Store as of March 2021 and 89% of the top 100 most downloaded games as of March 2021. Our Sonic solutions were ranked third after Google and Facebook in AppsFlyer’s “Power Ranking” from June 2020. In December 2020, 80% of the top 100 mobile games by downloads on the Apple App Store and Google Play Store used our platform. In addition, our Sonic publishing solution, Supersonic Studios (“Supersonic” or “Sonic publishing solution”), which we launched in February 2020, has already been used to publish 25 games, which had over 13 million daily active users as of March 31, 2021. In addition, 18 out of the 25 published games using our Supersonic solution were ranked in the top 10 most downloaded on either the Apple App Store or Google Play Store during 2020 or 2021. One of Supersonic’s games—Join Clash—was among the top 10 most-downloaded games for the year ended 2020 according to Apptopia and was the most downloaded game in the world in first quarter of 2021 according to Sensor Tower and App Annie. Lastly, our Aura solutions are used by some of the world’s leading telecom operators and OEMs, including Boost, Orange, Samsung and Vodafone, and reached over 130 million daily active users as of March 31, 2021.

Our customers range from large global enterprises to small and mid-sized businesses across the app economy, including mobile game and app developers, advertising networks, telecom operators and OEMs. We define a customer as an entity that generated revenue for us during a certain period of time. A single organization with multiple divisions, segments or subsidiaries is counted as a single customer, even though we may enter into commercial agreements with multiple parties within that organization.

A substantial majority of our revenue is currently generated under a revenue-share model with our customers, whereby we take a percentage of revenue earned by them for serving in-app advertising placements in their apps and games, or through on-device placements. The remainder consists of usage-based fees, in-app advertising revenue, and to a small extent, in-app purchase revenue.

The nature of our business model closely aligns our success with that of our customers. As a result, we build strong, long-standing partnerships with our customers and expand their use of our solutions over time. As of March 31, 2021, we had a dollar-based net expansion rate of 176% across all customers over the trailing 12-month period and had a gross retention rate of 99% for our customers who generated over $100,000 revenue over the trailing 12-month period. As of March 31, 2021, we had 292 customers who generated over $100,000 revenue over the trailing 12-month period, collectively accounting for 94% of our revenue. Our solutions can be used individually or in combination. We have seen that as customers benefit from using our platform, they increase their use of existing and additional solutions, which in turn, further accelerates their growth. For the year ended December 31, 2020, 69% of our Sonic customers who contributed over $100,000 of annual revenue used both our user growth and monetization solutions. By reinvesting revenue generated through our monetization solutions into user growth, many of our customers benefit from a growth cycle that enables accelerated user and revenue growth.

 

 

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Our leadership position in the app economy is enhanced by our scaled, broad and deep dataset, built with advanced privacy controls. Sonic’s ad interaction and contextual data, and Aura’s user provided data and contextual data, are utilized to deliver highly relevant experiences to users, while respecting privacy restrictions and data separation across our solutions. We use this data, together with our proprietary, advanced machine learning technology to enable developers to effectively acquire users who generate greater revenue and return on user growth spend.

Our revenue grew from $181.1 million in 2019 to $331.5 million in 2020, representing year-over-year growth of 83%. Our revenue grew from $61.2 million in the three months ended March 31, 2020 to $119.7 million in the three months ended March 31, 2021, representing year-over-year growth of 96%. Our net income from continuing operations grew from $32.7 million in 2019 to $58.8 million in 2020, representing year-over year growth of 80%. In the three months ended March 31, 2021 and 2020, ironSource’s income from continuing operations, net of income taxes was $10.2 million and $10.9 million, respectively. Further, we generated Adjusted EBITDA of $74.5 million in 2019 and $103.5 million in 2020, representing year-over-year growth of 39%. We generated Adjusted EBITDA of $39.5 million in the three months ended March 31, 2021 representing year-over-year growth of 93% from our Adjusted EBITDA of $20.5 million for the three months ended March 31, 2020.

Our History

We founded ironSource in 2010 with a clear mission: to help developers turn their apps into scalable, successful businesses. Over the past few years, we have stayed true to that mission, serving developers where their users are in the mobile app economy. In the app economy, mobile games are the leading category of apps, and we have established a strong leadership position in providing technology and business infrastructure to fuel the growth of this category.

Over time, we have invested in identifying multiple additional opportunities within the app economy, leveraging a set of highly transferable core capabilities around user growth, monetization and data to develop solutions to address them. In debuting our Aura solution suite in 2016, we became the only platform in the market to offer app developers both in-app and native on-device placements, driving a unique competitive advantage through a multi-channel offering, while expanding our customer base to telecom operators and OEMs. Further, by launching our publishing solution in February 2020, we have been able to expand our addressable customer base as well as create a way to quickly and effectively deploy new features and user experiences on our published apps, ultimately serving to improve our overall Sonic solution suite. This ability to apply our core capabilities to a multitude of business opportunities across the mobile app economy enables us to quickly capitalize on new market opportunities with a high degree of success.

Across the solutions we have developed, we have continuously focused on innovating for our customers by investing heavily in research and development. We regularly create new products to enable us to grow in scale and advance our market leadership. We have been first-to-market with multiple automation and optimization products which have established themselves as the de-facto industry-standard—from ad revenue measurement tools, which connect in-app advertising revenue to marketing spend at a granular level, to a data-science driven cross-promotion tool, which allows developers to leverage their existing users to promote new content and grow engagement across their portfolio of apps.

We have a track record of making successful acquisitions and subsequently scaling those businesses over time. Since our founding, we have acquired several companies to complement and augment our business platform. Four of our co-founders joined ironSource following our acquisition of their businesses in 2011 and 2013 and have remained as core members of our management team.

 

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This serves as a testament to our ability to successfully integrate companies we acquire. The managerial experience and entrepreneurial drive of these co-founders helps drive our pace of innovation and reinforces our playbook of discovering and scaling new lines of business.

 

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Our Business Model

A substantial majority of our revenue is currently generated under a revenue-share model with our customers, whereby we take a percentage of revenue earned by them for serving in-app advertising placements in their apps and games, or through on-device placements. The remainder consists of usage-based fees, in-app advertising revenue, and to a small extent, in-app purchase revenue. As such, our ability to increase our revenue is highly aligned with our customers’ success. As our customers see greater benefit from our solutions, they increase their usage and adopt additional solutions that accelerate their growth. In many cases, our customers adopt our solutions at an early stage of their business development and scale their usage in conjunction with their growth. For example, a customer may start using our monetization solution before going on to use our user growth solution to scale their user base.

Sonic

Our Sonic solution suite enables developers to grow their apps into scaled businesses by powering their ability to publish apps, monetize content, and cost-effectively acquire users. Our Sonic business model is outlined below:

 

   

Developers use our user growth solutions to acquire new users mainly on a pay-for-performance basis and, to a lesser extent, on a pay-for-impression basis.

 

   

Developers use our monetization solutions to generate revenue by selling advertising inventory from their mobile applications to advertisers, of which we retain a share.

 

   

We also generate revenue through usage-based fees charged for use of our products, such as in-app bidding, cross-promotion and creative management.

 

   

Our analytics solution is typically included within commercial arrangements for our Sonic solution suite, except specific cases such as our ad quality product where we charge a usage-based fee.

 

   

Our Supersonic publishing solutions generate revenue primarily through in-app advertising and a small portion through in-app purchases in our published games.

Aura

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the entire device lifecycle, from the time a user first sets up a new device, until they trade in for a new device. This engagement creates a unique on-device distribution channel for our app developers to promote their apps as a native part of the device experience and for telecom operators to cross-sell and expand adoption of their own apps and services.

Aura revenue is primarily generated under a revenue-share model with our customers, whereby we take a percentage of revenue earned through on-device app and service recommendations. The contractual arrangements with customers may vary depending on whether the promoted app or service is owned by the customer or a third-party. These contracts are billed on a monthly basis. Recommendations in the Aura environment are based on user provided data, contextual datasets and user preferences. This ensures that the promotions are relevant to users and improves conversions and overall revenue generated for the telecom operator customers.

For both Sonic and Aura customers, we generally invoice advertisers at the end of each month. Accounts receivable are recorded at the gross amount collectible from customers before revenue share, and accounts payable are recorded at the net amount payable to customers. Revenue generated by a specific customer’s use of our Sonic solutions may vary within a period and from period to period depending on, among other things, the launch timing and popularity of a customer’s apps and their usage of our various solutions.

Our Go-to-Market Approach

Our performance-based business model is highly aligned with our customers’ growth, making it intuitive for our customers to start working with us. By providing simple and powerful tools, and a revenue-share model, we have become a platform of choice for app developers to monetize their content and grow their users, and for telecom operators to create and manage a rich device experience.

Our customers range from independent developers and small game studios to large global enterprises. The strength of our brand, our reputation in scaling the apps of larger enterprises, and our deep domain expertise in the app economy generate significant word-of-mouth awareness for our solutions, which helps drive adoption of our platform both through self-service channels for customers at an earlier stage of their app development cycle, and in the sales cycle of larger enterprises.

We combine a direct sales approach for larger customers, with a strong marketing focus on building our brand equity to help drive organic adoption of our platform by smaller customers, and create credibility with larger customers. This enables us to efficiently market our platform to a wide range of customers.

Once a customer has started using our platform, they will typically increase their use of our solutions and adopt additional solutions over time. In addition, our global growth team works to increase the value our platform delivers to our customers’ businesses, driving our expansion within organizations by helping customers find the solutions to their business problems on our platform. Our Sonic solutions such as user growth, monetization or publishing can be used individually or in combination, but many of our customers adopt multiple solutions over a period of time. For the year ended December 31, 2020, 69% of our Sonic customers contributing over $100,000 in annual revenue used both our user growth and monetization solutions.

By reinvesting revenue generated through our monetization solutions into user growth, many of our customers benefit from a growth cycle that enables accelerated user and revenue growth. Our ability to cross-sell solutions for revenue expansion across this growth cycle is critical to our growth and success. Similarly, many of our telecom customers initially use Aura to engage their users during the device setup, and then broaden their use of the platform to expand to additional engagement touchpoints, as well as promote their proprietary products and services.

 

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We also see meaningful customer overlap between Sonic and Aura. As of December 31, 2020, 13% of Sonic customers generating over $100,000 distributed their apps through on-device placements, benefiting from the inventory generated by our Aura solutions. Together, these customers that use both of our Sonic and Aura solution suites accounted for 29% of total 2020 revenue, and we see a substantial opportunity to grow this revenue through further cross-selling.

The success of our business model depends on our ability to efficiently attract new customers to our platform across all our solutions, retain them, and expand their use of our platform through adoption of additional solutions over time. Our deep impact on our customers’ success is evident in our gross customer retention rate of 95% and 99% for customers who contributed over $100,000 annual revenue as of March 31, 2020 and 2021, respectively. The success our customers experience using our solutions provides significant incentive for new customers to engage with our platform and use more of our solutions over time.

In addition, we are building our direct sales and marketing efforts to onboard customers in app categories beyond gaming. App categories beyond gaming have yet to adopt in-app monetization or user growth solutions to the same degree as those in gaming, and thus represent a significant long-term opportunity for us.

Customers in industries beyond gaming represented 17% of our 292 customers with more than $100,000 in trailing 12-month revenue as of March 31, 2021. While this represents a minority of our revenue, a significant portion of our sales and customer onboarding personnel are focused on industries beyond gaming, highlighting the importance of this opportunity. With our investments in research and development and go-to-market, we expect to see significant growth in the share of our revenue generated by customers in industries beyond gaming.

Key Metrics and Non-GAAP Financial Metrics

We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.

Key Metrics

Customers Contributing More Than $100,000 of Revenue

Our larger customer relationships drive scale, improved unit economics and operating leverage in our business model, which improves our solutions and thereby increases our value proposition to all of our customers. To measure our ability to scale with our customers and attract large enterprises to our platform, we count the number of customers that contributed more than $100,000 in revenue in the trailing 12 months. As of December 31, 2019 and 2020 and March 31, 2021, we had 189, 291 and 292 of these customers, respectively, and we focus on them as they represent the majority of our revenue, the largest component of our dataset, and our strongest retention cohort. These customers have grown from representing 91% of our revenue in the trailing 12 months as of December 31, 2019 to 94% in the trailing 12 months as of March 31, 2021 due to their increasing usage of our solutions, our ability to cross-sell a greater proportion of our solutions to them, as well as general growth in the number of new customers that contributed more than $100,000 of revenue. Our sizable base of customers in this group helps diversify our revenue base and offers greater revenue visibility given the sticky nature of our relationships with these customers, as evidenced by their 95% and 99% gross retention rate as of March 31, 2020 and 2021 respectively. Our gross customer retention rate is calculated by comparing two twelve month periods to see how many customers in the previous period remain active customers in the current period. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs and other market activity.

 

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The charts below illustrate the growth in our customers contributing more than $100,000 of annual revenue, and the percentage of annual revenue represented by such customers, as of the end of each of the last eight quarters. Both of these metrics have increased sequentially in each quarter over this period.

Number of Customers Contributing More Than $100,000 of Revenue

 

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Dollar-Based Net Expansion Rate

We believe the growth in the use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We monitor our performance in this area using an indicator we refer to as dollar-based net expansion rate.

We calculate our dollar-based net expansion rate for a period by dividing current period revenue from a set of customers by prior period revenue of the same set of customers. Prior period revenue is the trailing 12-month revenue measured as of such prior period end. Current period revenue is the trailing 12-month revenue from the same customers as of the current period end. Our calculation of our dollar-based net expansion rate includes the effect of any customer renewals, expansion, contraction and churn, but excludes revenue from new customers. The following chart presents our dollar-based net expansion rate for the periods listed below.

Dollar-Based Net Expansion Rate (%)

 

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For the 12 months ended December 31, 2019 and 2020, our dollar-based net expansion rate was 149% and 149%, respectively. For the 12 months ended March 31, 2020 and 2021, our dollar-based net expansion rate was 145% and 176%, respectively. These expansions were primarily driven by the increased usage of our solutions by our existing customers, as well as our increasing focus on cross-selling to large customers.

Our dollar-based net expansion rate may fluctuate for several reasons, including launch of new solutions on our platform, new user growth campaigns or new monetized apps from customers; performance of our customers’ applications; and general industry trends, such as the COVID-19 pandemic’s impact on the gaming industry. We expect this measure to rise in the short term before eventually normalizing as customers that have used our platform for an extended period of time become a larger portion of both our overall customer base and our trailing 12-month total revenue.

Non-GAAP Financial Metrics

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as income from continuing operations, net of income taxes as adjusted for income taxes, financial expenses, net and depreciation and amortization, further adjusted for assets impairment, share-based compensation expense, fair value adjustment related to contingent consideration, acquisition-related costs and initial public offering costs. We define Adjusted EBITDA Margin as Adjusted EBITDA calculated as a percentage of revenue. Adjusted EBITDA and Adjusted EBITDA Margin are included in this prospectus because they are key metrics used by management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA Margin are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Management believes that Adjusted EBITDA and Adjusted EBITDA Margin are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate directly to the performance of the underlying business.

Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance or liquidity and should not be considered as alternatives to net loss as a measure of financial performance, as alternatives to cash flows from operations as a measure of liquidity, or as alternatives to any other performance measure derived in accordance with GAAP. Neither Adjusted EBITDA nor Adjusted EBITDA Margin should be construed as an inference that our future results will be unaffected by unusual or other items. Additionally, Adjusted EBITDA and Adjusted EBITDA Margin are not intended to be measures of free cash flow for management’s discretionary use, as they do not reflect our tax payments and certain other cash costs that may recur in the future, including, among other things, cash requirements for costs to replace assets being depreciated and amortized. Management compensates for these limitations by relying on our GAAP results in addition to using Adjusted EBITDA and Adjusted EBITDA Margin as supplemental measures. Our measures of Adjusted EBITDA and Adjusted EBITDA Margin are not necessarily comparable to similarly titled captions of other companies due to different methods of calculation.

 

     Three months ended
March 31,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands, except percentages)  

Income from continuing operations, net of income taxes

   $ 10,244     $ 10,890     $ 58,809     $ 32,718  

Adjusted EBITDA

   $ 39,547     $ 20,489     $ 103,540     $ 74,454  

Income from continuing operations, net of income taxes margin(1)

     9     18     18     18

Adjusted EBITDA Margin

     33     33     31     41

 

(1)

Calculated as income from continuing operations, net of income taxes divided by revenue.

 

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Our Adjusted EBITDA increased during the three months ended March 31, 2021 primarily as a result of revenue growth across all our solutions. Our Adjusted EBITDA Margin was 33% in the three months ended March 31, 2021 and 2020.

Our Adjusted EBITDA increased from 2019 to 2020 primarily as a result of revenue growth across all of our solutions. Our Adjusted EBITDA Margin decrease from 2019 to 2020 was principally driven by the launch of our Sonic publishing solution in February 2020, which has contributed significantly to our revenue growth, but has yet to fully contribute to the growth of our Adjusted EBITDA.

The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable GAAP financial performance measures, which are income from continuing operations, net of income taxes and Income from continuing operations, net of income taxes margin, respectively:

 

     Three Months Ended
March 31,
    Year Ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands, except percentages)  

Income from continuing operations, net of income taxes

   $ 10,244     $ 10,890     $ 58,809     $ 32,718  

Financial expense, net

     1,029       972       4,381       2,741  

Income taxes

     3,622       1,794       10,896       7,843  

Depreciation and amortization(a)

     5,343       4,001       16,858       17,172  

Assets impairment(b)

                       121  

Share-based compensation expense(c)

     15,559       2,832       12,596       15,329  

Fair value adjustment of a contingent consideration(d)

                       (1,470

Acquisition-related costs(e)

     2,291                    

Initial public offering costs

     1,459                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 39,547     $ 20,489     $ 103,540     $ 74,454  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

   $ 119,713     $ 61,206     $ 331,519     $ 181,107  

Income from continuing operations, net of income taxes margin(f)

     9     18     18     18

Adjusted EBITDA Margin

     33     33     31     41
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents $1,159, $597, $2,387 and $3,112 in intangible assets amortization, $2,375, $2,049, $8,961 and $8,043 in capitalized software amortization and $349, $349, $1,446 and $1,307 in fixed assets depreciation for the three months ended March 31, 2021 and 2020 and the years ended December 31, 2020 and 2019, respectively. In addition, we adjusted for $1,460 and $1,006, for the three months ended March 31, 2021 and 2020, respectively, and $4,064 and $4,710 for the years ended December 31, 2020 and 2019, respectively, of amortization of certain incentive payments to customers, which we amortize contra revenue over the term we expect to provide services to these customers.

(b)

Represents impaired capitalized software costs no longer in use.

(c)

Represents non-cash share-based compensation expenses.

(d)

Represents fair value adjustment to contingent consideration liability related to acquisitions.

(e)

Represents costs in connection with the acquisition of Soomla Inc. in January 2021 and Luna Labs Limited in February 2021. These costs include compensation subject to continuing employment and other acquisition-related costs.

(f)

Represents income from continuing operations, net of income taxes divided by revenue.

 

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Key Factors Affecting Our Performance

Retention and expansion of existing customers

Our revenue growth depends on our ability to retain our existing customers and to expand their use of our solutions.

We continuously seek to develop and reinforce strong, long-standing relationships with our customers by delivering increasing value to them and driving greater use of our solutions. Our dollar-based net expansion rate of 145% and 176% as of March 31, 2020 and 2021, respectively, are a testament to our ability to drive expansion of existing customers by increasing their use of our platform and cross-selling additional solutions. Our solutions can be used individually or in combination, but many of our customers adopt more than one solution over a period of time. We have seen significant success in cross-selling incremental capabilities to existing customers during our operating history. For the year ended December 31, 2020, 69% of our Sonic customers who contributed over $100,000 of annual revenue used both our user growth and monetization solutions. These customers also represented 59% of our revenue for 2020.

Measuring the development of spend over time for a given set of customers, driven by the increase in retention and expansion from these existing clients, is another approach to analyze the intrinsic growth of our business. We measure annual revenue for a set of clients, or cohort, that commenced using our solutions in a specific year relative to subsequent periods. The chart below illustrates our successful historical customer expansion by analyzing the revenue from customers over the last four years. For example, the 2018 cohort includes all customers that commenced using our solutions between January 1, 2018 and December 31, 2018. Trailing 12-month revenue contribution from the 2018 cohort increased from $7.9 million as of December 31, 2018 to $38 million as of December 31, 2020, representing an increase of 380%. Similarly, the revenue from each of our cohorts has increased over time.

Cohort Analysis 1

 

LOGO

 

1 Measured based on all customers.

2 Cohort expansion is calculated as the last trailing 12-month revenue contribution, divided by the first available 12-month revenue contribution.

 

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As customers increase the usage and adoption of our solutions, we become more deeply integrated with their business, thereby increasing our customer retention. We achieved a high gross retention rate of 95% and 99% as of March 31, 2020 and 2021, respectively, for customers who generated over $100,000 revenue over the trailing 12 months. We rely on our growth team to deliver customer satisfaction and help increase the value our solutions create for our customers, helping them further scale their businesses. Our increasingly large base of customers represents a significant opportunity for further growth and adoption of our platform. While we have seen a rapid increase in the number of customers that have contributed more than $100,000 revenue in the trailing 12 months, we believe that there is a substantial opportunity to continue growing this category of customers further. We plan to continue investing in growing our deep partnerships with our customers and providing new solutions to increase our share of wallet. We also intend to expand our global growth team, with a focus on increasing the penetration and usage of all our solutions in customer accounts.

In any given period, our customers’ use of our platform may fluctuate, which could cause fluctuations in our revenue and results of operations. Our ability to increase the use of our platform by and to sell additional solutions to our existing customers, particularly our large enterprise customers, will depend on a number of factors, including our customers’ satisfaction with our platform, the offerings of our competition, the strength of our network, pricing, overall changes in our customers’ spending levels, the effectiveness of our efforts to help our customers realize the benefits of our platform and the extent to which the app economy continues to grow.

Attracting new customers across gaming and app developers

The majority of our growth comes from existing customers who are using more of our products, but our ability to attract new customers to adopt our Sonic solutions is also critical to our future growth. Our solutions provide app developers with easy access to the technology that underlies core business operations, enabling us to attract a wide range of new customers with varying business needs, in both gaming and app categories beyond gaming.

For Sonic, we see an opportunity to increase our engagement with smaller, independent game developers who are large in number but small in revenue contribution, and who we believe could become large revenue contributors over time. Developers benefit significantly by using Sonic solutions earlier in the app development life-cycle to quickly monetize their content and cost-effectively accelerate the growth cycle of reinvestment to reach more users and expand their footprint across the mobile ecosystem. We seek to attract these developers with best-in-class products and by leveraging our industry expertise and reputation in scaling the apps of larger enterprises. For example, through our publishing solution, Supersonic, we offer marketability tools that enable early-stage developers to identify the product-market fit of their content and market value prior to publishing. We launched Supersonic in February 2020 and the 25 games published using our Supersonic solution have reached an average of 13 million daily active users as of March 31, 2021. We plan to develop additional publishing features and capabilities to increase the integration and retention of early-stage developers on our platform, enabling them to grow their business within our ecosystem, and to eventually benefit from all our solutions.

In addition, we see a significant opportunity to grow our penetration among customers in industries beyond gaming. These customers represented 17% of our 292 customers with more than $100,000 in trailing 12-month revenue as of March 31, 2021, and we expect this to be a significant growth driver over time.

We plan to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including our success in recruiting and scaling our sales and marketing organization as well as the competitive dynamics and continued success of our gaming and non-gaming target markets.

 

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Adoption of our solutions by telecom operators and OEMs

Our ability to grow our revenue is in part dependent on our ability to continue to attract major global telecom operators and OEMs to adopt our Aura solution suite. Telecom operators globally are facing an increasing commoditization of data and telephony services, and are looking for ways to better differentiate themselves with subscribers. Creating a more engaging device experience will also allow telecom operators and OEMs to drive incremental revenue with their users past the point of device sale and subscription plans.

We believe that our Aura solutions are attractive for telecom operators and OEMs globally, as the solution suite can be customized to natively support a wide variety of engagement and monetization use-cases. We plan to leverage our track-record of customer success with Aura as a compelling proof point to attract other major telecom operators and OEMs worldwide who do not currently use our Aura solutions. We also intend to introduce new touchpoints, solutions and products to our Aura customers to enable richer and more engaging user experiences by investing in our Aura technology, which will enable our customers to engage with more users and better monetize the devices in their network.

We have experienced significant success in providing solutions for the mobile ecosystem. However, we see a significant opportunity to leverage our user growth, engagement and monetization expertise in building and offering solutions to customers for other connected devices, such as extending our device experience management solution to smart TVs, allowing us to increase integrated engagement touchpoints with various device users. We intend to leverage our Aura brand and technology leadership with telecom operators and OEMs to facilitate expansion into these additional connected devices by designing relevant solutions and leveraging existing enterprise relationships to gain market share. We are investing in product development and other capabilities to achieve this expansion, which may reduce our profitability as we seek further scale.

Continued innovation of our solutions and technology

Our ability to increase the size and engagement of our customer base and increase our revenue depends, in part, on our ability to maintain and enhance our platform’s innovation, features and functionality, and to successfully develop or acquire new capabilities. We constantly improve our solutions to deliver better results to our customers, as well as develop new features and use cases for our solutions. We plan to continue to make significant investments in research and development to ensure that we offer best-in-class solutions and that we are first to market with new solutions that cement our industry leadership. This also includes exploring different areas or domains, such as expanding our Sonic platform to customers in apps beyond gaming, and Aura to non-mobile devices such as smart TVs. These investments in our future growth may reduce our profitability in the near-term.

In addition to our ongoing investment in research and development, we regularly evaluate acquisitions of companies, products, teams and technologies that complement and expand our current solutions, support our industry leadership by gaining access to new customers or markets, or add to our technology expertise. As our historical track record of acquisitions demonstrates, we have managed to execute business integrations to drive and enhance our technological capabilities, business performance and unique culture. We believe both organic development and acquisitions are core competencies for us, and we intend to use both to drive increased value for our customers and improvements to our results of operations.

Ability to attract and retain talent

Our employees drive our innovation, and are therefore the foundational asset for our company. Our business depends on our ability to attract and retain talent to drive innovation and enhance our product development, marketing efforts and management. As of March 31, 2021, we had 859 full-time

 

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employees, an increase of 32% compared to March 31, 2020. Our brand, scale, track record of success and culture of innovation have established us as an employer of choice. In 2020, we were recognized by Dun & Bradstreet Israel as among the top three best tech companies to work for in Israel, alongside Google and Microsoft. We expect to continue to hire talented employees and to provide competitive compensation to our employees, and to grow our headcount in the foreseeable future to drive our growth and market leadership. We will also continue to evaluate strategic acquisitions to enhance our talent-base, particularly in new growth areas for our business.

Impact of COVID-19

While the global crisis resulting from the spread of COVID-19 has not had a negative impact on our business and results of operations so far, the COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, and we continue to closely monitor how the COVID-19 pandemic is impacting our business. As the Israeli and other governments around the world imposed shelter-in-place and other restrictive measures, we transitioned many of our employees to remote working arrangements and temporarily closed our offices in Israel, the United States, China and other jurisdictions as required by applicable local authorities from time to time. We have gradually reopened certain of our offices in accordance with the lifting of certain shelter-in-place measures and in accordance with measures that provide additional safeguards that we believe are in the best interests of our employees and customers. We believe the global shelter-in-place restrictions provided individuals more time to spend online and higher levels of end-user engagement within the mobile ecosystem. We have seen an increase in the amount of time spent playing games, as well as more engagement with ads. These trends have already resulted in an increase in use of our platform. While our financial condition and results of operations were not negatively impacted by the COVID-19 pandemic, the impact of the pandemic on our future growth and our results of operations is unknown, and we are unable to accurately predict the future impact. There can be no assurance that the increase will continue over time whether during or after the COVID-19 pandemic. Further, as certain of our customers or partners experience downturns or uncertainty in their own business operations or revenue resulting from the spread of COVID-19, they may decrease or delay their spending on existing solutions, defer adoption of our new solutions, or seek renegotiations of their contracts, any of which may result in decreased revenue for us. See “Risk Factors” for further discussion of the impacts of the COVID-19 pandemic on our business.

Components of Results of Operations

Revenue Our primary sources of revenue are derived from our Sonic and Aura solution suites. Our Sonic solution suite enables mobile game and app developers (which we collectively refer to here as “developers”) to grow their apps into scaled businesses by providing solutions to monetize content, acquire users and publish apps. A developer uses our monetization solution to generate revenue by selling his or her in-app placements inventory to advertisers within the developer’s games and apps. Developers may also use our publishing solution, focused on smaller, third-party game developers, to publish their mobile games. We generate revenue through in-app advertising, and through in-app purchases generated from third-party developed games we publish. Third-party developers that contract with us enjoy a revenue-share model where they receive a share of the monetization that we create.

Our Aura solution suite enables our telecom operator and OEM customers to engage with their users beyond the purchase of devices and service plans, by providing them device experiences such as personalized device setup, service promotions and app promotions. We generate revenue when a user (device owner) accepts a service or installs a promoted app. We retain a share of the revenue that is generated based on our revenue-share arrangement with the customer.

 

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Cost of revenue. Cost of revenue consists primarily of expenses associated with the delivery of our platform, including server expenses, personnel-related expenses, including salaries, benefits and share-based compensation for employees on our operations teams and allocated overhead costs. Cost of revenue also includes amounts paid to developers who use our publishing solutions as well as amortization of acquired technology and capitalized software costs.

Research and development. Research and development expenses primarily comprise costs associated with the maintenance and ongoing development of our platform and technology including personnel, allocated costs, allocated overhead and other development-related expenses. Research and development costs are expensed as incurred. We expect these costs to increase as we continue to hire new employees in order to support our anticipated growth. We believe continued investments in research and development are important to attain our strategic objectives and expect research and development costs to increase in absolute dollars, but this expense is expected to decrease as a percentage of total revenue.

Sales and marketing. Sales and marketing expenses primarily comprise costs of our marketing personnel including allocated overhead costs, branding costs, amortization of customer relationships, user acquisition costs and other advertising costs. Sales and marketing expenses are expensed as incurred. We intend to continue to invest in our sales and marketing capabilities in the future to continue to increase our brand awareness and expect these costs to increase on an absolute dollar basis as we grow our business. Sales and marketing expenses in absolute dollars and as a percentage of total revenue may fluctuate from period-to-period based on total revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over future periods.

General and administrative. General and administrative expenses primarily comprise costs of personnel-related costs for our executive, finance, legal and other administrative personnel, professional fees for external legal, accounting and other professional services, initial public offering costs and allocated overhead costs. General and administrative expenses are expensed as incurred. We expect that our general and administrative expenses will increase in absolute dollars for the foreseeable future as we grow our business, as well as to cover the additional cost and expenses associated with maintaining a publicly listed company.

Financial expenses, net. Financial expenses, net includes interest earned on cash equivalents and deposits, gains and losses arising from foreign exchange fluctuations and other financial expenses in connection with bank charges and our long-term loan.

Taxes on income. We account for taxes on income in accordance with ASC 740, “Income Taxes.” We are eligible for certain tax benefits in Israel under the Law for the Encouragement of Capital Investments, 1959, or the Investment Law at a reduced tax rate of 12%. Accordingly, as we generate taxable income in Israel, our effective tax rate is lower than the standard corporate tax rate for Israeli companies, which is 23%. Our taxable income generated outside of Israel or derived from other sources in Israel which is not eligible for tax benefits will be subject to the regular corporate tax rate. For more information about the tax benefits available to us as a Beneficiary Enterprise, see “Certain Material Israeli Tax Considerations.”

Income from discontinued operations, net of income taxes. Income from discontinued operations, net of income taxes consisted of revenue generated from the Desktop business, the assets of which were spun off from our business on December 31, 2020. Please see “Certain Relationships and Related Party Transactions—Spin-Off of Desktop Business” for more information.

Net income attributable to non-controlling interest (related to discontinued operations). Net income attributable to non-controlling interest (related to discontinued operations) was $67 thousand for the year ended December 31, 2019.

 

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Results of Operations

The following tables set forth our results of operations in dollars and as a percentage of revenue for the periods indicated:

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2021

 

     Three Months Ended March 31,  
     2021     2020  
     (in
thousands)
     (as % of
revenue)
    (in
thousands)
     (as % of
revenue)
 

Revenue

   $ 119,713        100   $ 61,206        100

Cost of revenue

     20,140        16.8       11,547        18.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     99,573        83.2       49,659        81.1  

Operating expenses:

          

Research and development

     20,410        17.0       10,129        16.6  

Sales and marketing

     48,721        40.7       19,172        31.3  

General and administrative

     15,547        13.0       6,702        10.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

     84,678        70.7       36,003        58.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     14,895        12.5       13,656        22.3  

Financial expenses, net

     1,029        0.9       972        1.6  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations before income taxes

     13,866        11.6       12,684        20.7  

Income taxes

     3,622        3.0       1,794        2.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations, net of income taxes

     10,244        8.6     10,890        17.8

Income from discontinued operations, net of income taxes

     —          —         12,301        20.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 10,244        8.6   $ 23,191        37.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenue

Revenue increased by $58.5 million, or 96%, to $119.7 million for the three months ended March 31, 2021 from $61.2 million for the three months ended March 31, 2020. The increase was mainly due to increased revenue from existing customers, which accounted for approximately $44.8 million, or 76.6%, of the total increase in revenue, and revenue from new customers, which accounted for approximately $13.7 million, or 23.4%, of the total increase in revenue. The growth of our total revenue was driven by enhancements made to our platform, the increased use of our existing solutions by our new and existing customers, the increase of the revenue of our Sonic publishing solution, which accounted for $39.7 million and $4.8 million of our revenue for the three months ended March 31, 2021 and March 31, 2020, respectively, as well as general growth in our industry resulting from the increase in time spent and engagement of users with mobile games and apps due to the COVID-19 pandemic.

Cost of revenue

Cost of revenue increased by $8.6 million, or 74%, to $20.1 million for the three months ended March 31, 2021 from $11.5 million for the three months ended March 31, 2020. The increase was mainly due to an increase of $4.9 million in payouts to developers who use our publishing solutions, $1.6 million in hosting and services fees, $0.9 million in employee-related costs and a $0.8 million increase in depreciation and amortization related to technology.

Research and development

Research and development costs increased by $10.3 million to $20.4 million for the three months ended March 31, 2021 from $10.1 million for the three months ended March 31, 2020. The increase was mainly due to an increase of $9.3 million in employee-related costs, mostly driven by an increase in headcount and share-based compensation expense.

 

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Sales and marketing

Sales and marketing costs increased by $29.5 million, to $48.7 million for the three months ended March 31, 2021 from $19.2 million for the three months ended March 31, 2020. The increase was mainly due to an increase in user acquisition costs of our Sonic publishing solution and an increase of $5.4 million in employee-related costs, mostly driven by an increase in headcount and increase in share-based compensation expense.

General and administrative

General and administrative costs increased by $8.8 million, to $15.5 million for the three months ended March 31, 2021 from $6.7 million for the three months ended March 31, 2020. The increase was primarily as a result of an increase of $7.2 million in employee-related costs, mostly driven by an increase in headcount and increase in share-based compensation expense and transaction costs of approximately $1.5 million (mainly legal and accounting fees), related to our original initial public offering.

Financial expenses, net

Financial expenses, net increased by $0.1 million, or 11%, to $1.0 million for the three months ended March 31, 2021 from $0.9 million for the three months ended March 31, 2020. The increase was mainly due to losses of $0.5 million on foreign exchange fluctuations that were partially offset by a decrease in interest expenses charged for our long-term loan of $0.4 million.

Taxes on income

Taxes on income increased by $1.8 million, to $3.6 million for the three months ended March 31, 2021 from $1.8 million for the three months ended March 31, 2020. The increase was mainly due to the increase in taxable income on our operations globally.

 

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Year Ended December 31, 2019 Compared to Year Ended December 31, 2020

 

     Year Ended December 31,  
     2020     2019  
     (in
thousands)
     (as % of
revenue)
    (in
thousands)
     (as % of
revenue)
 

Revenue

   $ 331,519        100   $ 181,107        100

Cost of revenue

     57,825        17.4       34,651        19.1  

Gross profit

     273,694        82.6       146,456        81.0  

Operating expenses:

          

Research and development

     51,600        15.6       37,547        20.7  

Sales and marketing

     119,262        36.0       37,155        20.5  

General and administrative

     28,746        8.7       28,452        15.7  

Total operating expenses

     199,608        60.2       103,154        57.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations

     74,086        22.3       43,302        23.9  

Financial expenses, net

     4,381        1.3       2,741        1.5  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations before income taxes

     69,705        21.0       40,561        22.4  

Income taxes

     10,896        3.3       7,843        4.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations, net of income taxes

     58,809        17.7       32,718        18.1  

Income from discontinued operations, net of income taxes

     36,480        11.0       51,244        28.3  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     95,289        28.7     83,962        46.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to non-controlling interest (related to discontinued operations)

     —          —         67        —    
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to ironSource Ltd. shareholders

   $ 95,289        28.7   $ 83,895        46.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Revenue

Revenue increased by $150.4 million, or 83%, to $331.5 million for the year ended December 31, 2020 from $181.1 million for the year ended December 31, 2019. The increase was mainly due to increased revenue from existing customers, which accounted for approximately $89.9 million, or 59.8%, of the total increase in revenue, and revenue from new customers, which accounted for approximately $60.5 million, or 40.2%, of the total increase in revenue. The growth of our total revenue was driven by enhancements made to our platform, the increased use of our existing solutions by our new and existing customers and the launch of our new Sonic publishing solution which accounted for $74.6 million of our 2020 revenue, as well as general growth in our industry resulting from the increase in time spent and engagement of users with mobile games and apps due to the COVID-19 pandemic.

Cost of revenue

Cost of revenue increased by $23.1 million, or 67%, to $57.8 million for the year ended December 31, 2020 from $34.7 million for the year ended December 31, 2019. The increase was primarily due to increases of $11.8 million in payouts to developers who use our publishing solutions, $9.1 million in hosting and services fees and $1.6 million in employee-related costs.

Research and development

Research and development costs increased by $14.1 million, or 38%, to $51.6 million for the year ended December 31, 2020 from $37.5 million for the year ended December 31, 2019. This increase was primarily driven by increases of $9.5 million in employee-related costs, including hiring costs and

 

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salaries, and $3.8 million in production services related to ongoing development and maintenance of our platform and technology.

Sales and marketing

Sales and marketing costs increased by $82.1 million to $119.3 million for the year ended December 31, 2020 from $37.2 million for the year ended December 31, 2019. The increase was mainly due to the recent launch of our Sonic publishing solution and an increase of $7.8 million in employee-related costs.

General and administrative

General and administrative costs increased by $0.2 million, or 1%, to $28.7 million for the year ended December 31, 2020 from $28.5 million for the year ended December 31, 2019. The increase was primarily as a result of an increase of $2.6 million in employee-related costs, $1.9 million in legal, finance and professional services expenses and a $0.6 million increase in bad debt expenses, which was partially offset by $2.2 million in savings due to COVID-19, such as a decrease in costs related to travel and events and $2.9 million in savings on shared based payment expenses.

Financial expenses, net

Financial expenses, net increased by $1.7 million, or 63%, to $4.4 million for the year ended December 31, 2020 from $2.7 million for the year ended December 31, 2019. The increase was mainly due to losses of $2.7 million on foreign exchange fluctuations, which were primarily due to the revaluation of our operating lease liabilities pursuant to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), but this was offset by decreases in interest expenses charged for our long-term loan and interest earned on cash equivalents and deposits of $1.1 million.

Taxes on income

Taxes on income increased by $3.1 million, or 40%, to $10.9 million for the year ended December 31, 2020 from $7.8 million for the year ended December 31, 2019. The increase was mainly due to the increase in taxable income on our operations globally.

Income from discontinued operations, net of income taxes

Income from discontinued operations, net of income taxes decreased to $36.5 million for the year ended December 31, 2020 from $51.2 million for the year ended December 31, 2019.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through growth in our operations. We have also funded our recent acquisitions with cash on hand. Our cash, cash equivalents and restricted cash were $129.9 million as of March 31, 2021 compared to $203.1 million as of December 31, 2020 and $91.2 million as of December 31, 2019.

Our primary requirements for liquidity and capital resources are to finance working capital, capital expenditures and general corporate purposes. We believe that our sources of liquidity and capital resources will be sufficient to meet our business needs for the foreseeable future.

Our capital expenditures consist primarily of internal-use software costs, computers and peripheral equipment and leasehold improvements. In the three months ended March 31, 2021, we completed a number of business acquisitions, which reduced our cash balance as of March 31, 2021 by $90.2 million.

 

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We assess our liquidity, in part, through an analysis of our working capital, together with other sources of liquidity. We had working capital of $103.0 million as of March 31, 2021, compared to $178.9 million as of December 31, 2020 and $93.3 million as of December 31, 2019. The decrease from December 2020 to March 2021 was mainly due to cash used for business acquisitions, and the increase from December 2019 to December 2020 was mainly due to $114.6 million of cash received in connection with our operations.

The following table presents the summary consolidated cash flow information for the periods presented:

 

     Three months ended
March 31,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     (in thousands)  

Net cash provided by continuing operating activities

   $ 11,997     $ 17,269     $ 91,656     $ 66,165  

Net cash used in continuing investing activities

     (78,032     (369     (22,563     (11,403

Net cash used in continuing financing activities

     (3,263     (861     (6,309     (104,333

Net Cash Provided by Continuing Operating Activities

During the three months ended March 31, 2021, net cash provided by continuing operating activities was approximately $12.0 million, consisting of net income from continuing operations of approximately $10.2 million, adjusted by non-cash charges of 20.4 million and net cash outflows from the change in net operating assets and liabilities of $18.6 million. The non-cash charges were primarily comprised of depreciation and amortization of $5.3 million and share-based compensation expenses of $16.8 million. The net cash outflows from the change in net operating assets and liabilities were primarily comprised of an increase in other current assets of $14.7 million, a decrease in accounts payables of $6.7 million, an increase in other non-current assets of $3.3 million and an increase in other current liabilities of $5.9 million.

During the three months ended March 31, 2020, net cash provided by continuing operating activities was approximately $17.3 million, consisting of net income from continuing operations of approximately $10.9 million, adjusted by non-cash charges of $8.2 million and net cash outflows from the change in net operating assets and liabilities of $1.8 million. The non-cash charges were primarily comprised of depreciation and amortization of $4.0 million and share-based compensation expenses of $2.8 million. The net cash outflows from the change in net operating assets and liabilities were primarily comprised of an increase in other current assets of $1.9 million, an increase in accounts payables of $2.9 million, a decrease in accounts receivable of $3.1 million and a decrease in other current liabilities of $6.0 million.

Net cash provided by operating activities increased by $25.5 million, or 39%, to $91.7 million for the year ended December 31, 2020 from $66.2 million for the year ended December 31, 2019. The increase was mainly due to growth of our operations.

Net Cash Used in Continuing Investing Activities

During the three months ended March 31, 2021, net cash used in continuing investing activities was $78.0 million, primarily consisting of cash used in acquisitions of $90.2 million partially offset by maturities of short-term deposits of $17.6 million.

During the three months ended March 31, 2020, net cash used in continuing investing activities was $0.4 million, primarily consisting of investments in short-term deposits of $5.0 million and purchase of property, plant and equipment and capitalized software development costs of $3.5 million partially offset by maturities of short-term deposits of $8.1 million.

 

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Net cash used in investing activities increased by $11.2 million, or 98%, to $22.6 million for the year ended December 31, 2020 from $11.4 million for the year ended December 31, 2019. The increase was primarily the result of additional investment in short-term deposits.

Net Cash Used in Continuing Financing Activities

During the three months ended March 31, 2021, net cash used in continuing financing activities was $3.3 million, primarily consisting of repayment of long-term loan of $2.5 million.

During the three months ended March 31, 2020, net cash used in continuing financing activities was $0.9 million, primarily consisting of repayment of long-term loan of $1.25 million.

Net cash used in financing activities decreased by $98.0 million to $6.3 million for the year ended December 31, 2020 from $104.3 million for the year ended December 31, 2019. The decrease was primarily due to dividends paid to shareholders in the amount of $100 million in 2019.

SVB Credit Agreement

On March 29, 2018, we entered into a credit agreement (the “SVB Credit Agreement”) with Silicon Valley Bank, a syndicate of banks and certain other lenders. The Credit Agreement provides for a $100 million term loan (the “Term Loan”), which matures on March 28, 2023 (the “Maturity Date”) and bears interest at a LIBOR base rate plus a spread of 2.50% to 3.25%. Interest is payable on a monthly basis. In addition, the Credit Agreement provides a revolving credit line of $50 million (the “Revolver”). The Revolver can be accessed at any time at our discretion and borrowings under the Revolver may be used, repaid and reborrowed in different amounts and at different intervals. The Revolver expires on the Maturity Date, and we are required to pay a commitment fee at a rate of 0.30% to 0.45% per annum, based on the average daily non-use of available funds. ironSource Ltd. and certain other subsidiaries of ironSource Ltd. provided guarantees in connection with the SVB Credit Agreement, which is secured by all of the property owned at the time of the SVB Credit Agreement of, and thereafter acquired by, ironSource Ltd. and these certain subsidiaries of ironSource pursuant to a separate guarantee and collateral agreement entered into simultaneously with the SVB Credit Agreement. As more fully described below, on May 4, 2021, we and certain of our subsidiaries entered into an Escrow Agreement with lenders from time to time party thereto, Silicon Valley Bank, as administrative agent and Morrison & Foerster LLP, as escrow agent, pursuant to which we deposited a revolving facility credit agreement (the “RCF”), providing for a $350.0 million revolving commitment and related loan documents into escrow, to be released upon the consummation of the Business Combination, payment of fees under the RCF, and the completion of certain ministerial closing conditions. As a condition to the effectiveness of the RCF, the Company will repay the obligations owed under the SVB Credit Agreement.

There were no outstanding borrowings under the Revolver as of March 31, 2021, December 31, 2020 and 2019. On the Closing Date, in connection with the closing of the Business Combination the Company repaid all outstanding amounts under the SVB Credit Agreement.

New SVB Revolving Credit Facility

On June 29, 2021, the conditions to releasing the RCF under the Escrow Agreement were met and we, as borrower, and certain of our subsidiaries, as guarantors, entered into a Credit Agreement (the “Credit Agreement”) with certain lenders from time party thereto (the “Lenders”) and Silicon Valley Bank, as administrative agent (the “Agent”) and L/C issuer, pursuant to which the Lenders extended to the Company a five-year senior secured revolving credit facility in an initial aggregate principal amount of up to $350.0 million, with the right, subject to certain conditions, to incur additional revolving commitments and/or incremental term loans in an amount not to exceed the sum of (i) $150.0 million

 

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plus (ii) additional amounts so long as the consolidated secured leverage ratio, on a pro forma basis after giving effect to such increase or incurrence, is no greater than or equal to 2.25:1.00.

Revolving loans under the Credit Agreement bear interest through maturity at a variable rate based upon, at the Company’s option, either the Eurodollar rate or the base rate (which is the highest of (x) the federal funds rate plus 0.50%, (y) the prime rate published in The Wall Street Journal or any successor publication thereto, and (z) 1.00% in excess of the one-month Eurodollar rate), plus, in each case, an applicable margin. The applicable margin for Eurodollar rate revolving loans ranges, based on the applicable consolidated net leverage ratio, from 1.25% to 1.75% per annum and the applicable margin for base rate loans ranges, based on the applicable consolidated net leverage ratio, from 0.25% to 0.75% per annum. Revolving loans may be prepaid, and revolving loan commitments may be permanently reduced by us, in each case, at any time, in whole or in part, without penalty or premium.

In addition to paying interest on outstanding principal under the Credit Agreement, the Company will be required to pay an unused line fee on a quarterly basis with respect to the unutilized commitments under the Credit Agreement from 0.20% to 0.30% per annum, depending on the consolidated net leverage ratio. The Company will also be required to pay customary letter of credit fees, as necessary, and agent and lender fees customary for credit facilities of this size and type.

The Company’s obligations under the Credit Agreement will be guaranteed by the majority of its subsidiaries, subject to certain exceptions (the “Guarantors”). The obligations under the Credit Agreement and the guarantees are secured by a lien on substantially all of the Company’s (including all of the Guarantors’) tangible and intangible personal property, and by a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of the Company’s subsidiaries, subject to limited exceptions.

The Credit Agreement contains a number of covenants and restrictions that, among other things, require the Company to maintain (i) a maximum ratio of consolidated funded indebtedness (as defined in the Credit Agreement and net of unrestricted cash and cash equivalents, in an amount not to exceed 50% of consolidated EBITDA (as defined in the Credit Agreement)) to consolidated EBITDA of 4.00:1.00, subject to a step down to 3.75:1.00 after four full fiscal quarters, which ratio will, in either case, be increased by 0.50:1.00 following a Qualified Acquisition (as defined in the Credit Agreement) and (ii) a ratio of consolidated EBITDA to consolidated interest charges (as defined in the credit agreement) of less than 3.00:1.00. The Credit Agreement also contains customary representations, warranties, and covenants, including covenants that restrict the Company’s and its subsidiaries’ ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase the Company’s stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of the Company’s business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the revolving loans becoming immediately due and payable.

The Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement.

 

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Contractual Obligations

Our significant contractual obligations as of December 31, 2020 are summarized in the following table:

 

     Payments Due by Period(1)  
     Total      2021      2022      2023      2024      Thereafter  
     (in thousands)  

Long-term debt(2)

   $ 85,000      $ 10,000      $ 10,000      $ 65,000        —          —    

Operating lease obligations(3)

   $ 42,108      $ 6,025      $ 7,296      $ 6,397      $ 6,397      $ 15,993  

Other contractual commitments(4)

   $ 58,872      $ 16,204      $ 15,313      $ 15,000      $ 12,355        —    

 

(1)

Does not include short-term obligations that accrue monthly.

(2)

Consists of the SVB Credit Agreement, as described above.

(3)

Consists of future lease payments for our rented office facilities.

(4)

Substantial majority of our other contractual commitments are related to agreements with our servers and hosting services providers.

Off-Balance Sheet Arrangements

During the periods presented, we did not engage in any off-balance sheet financing activities other than those reflected in the notes to our consolidated financial statements included elsewhere in this prospectus.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our audited consolidated financial statements and Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

Application of Critical Accounting Policies and Estimates

Our significant accounting policies and their effect on our financial condition and results of operations are more fully described in our audited consolidated financial statements included elsewhere in this prospectus. We have prepared our financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates are prepared using our best judgment, after considering past and current events and economic conditions. While management believes the factors evaluated provide a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third-parties. Actual results may differ from these estimates. See “Risk Factors” for a discussion of the possible risks that may affect these estimates.

We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate and (2) changes in the estimate could have a material impact on our financial condition or results of operations.

 

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Revenue recognition

We recognize revenue in accordance with Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) when, or as, control of the promised goods or services is transferred to the customer, and in an amount that reflects the consideration we are expected to receive in exchange for those services or goods. We follow five steps to record revenue under Topic 606: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy its performance obligations.

Our platform consists of revenue from two solution suites: Sonic and Aura. Sonic for game and app developers, and Aura for telecom operators and OEMs.

For both Sonic and Aura, we evaluate whether we act as the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). The evaluation to present revenue on a gross versus net basis requires significant judgment. We have concluded that for Sonic monetization solutions and for Aura solutions, we are the agent in facilitating the fulfillment of our customers’ access to the different advertisers.

This conclusion is primarily based on the fact that we do not have control over the bid price from the advertisement nor the promotion. Additionally, we do not control the in-app placements inventory nor the on-device placements inventory prior to the placement of an advertisement or the promotion, therefore bearing no inventory risk. Further, we do not promise our customers any results. Based on these factors, we determined that we are acting as an agent, and, therefore, report revenue based on the net amount retained from the transaction, which is our revenue share.

As to our Sonic publishing solutions, we