EX-99.2 4 d129117dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

APPLOVIN CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2020 is presented to give effect to AppLovin Corporation’s (“AppLovin” or the “Company”) acquisitions of (i) Machine Zone, Inc. (“Machine Zone”) (the “MZ Acquisition”) on May 19, 2020 (the “MZ Acquisition Date”) for the purchase consideration of $329 million, and (ii) adjust GmbH (“Adjust”) (the “Adjust Acquisition”) on April 20, 2021 (the “Adjust Acquisition Date”) for the purchase consideration of $968 million.

The unaudited pro forma condensed combined information was prepared based on the historical consolidated statements of operations of AppLovin, Machine Zone and Adjust after giving effect to the MZ Acquisition and Adjust Acquisition using the acquisition method of accounting, and after applying the assumptions, reclassifications, and adjustments described in the accompanying notes.

The unaudited pro forma condensed combined balance sheet as of December 31, 2020, combines the historical audited condensed balance sheets of AppLovin and Adjust as of December 31, 2020, on a pro forma basis as if the Adjust Acquisition had been consummated on December 31, 2020. The MZ Acquisition had been reflected in AppLovin’s historical audited consolidated balance sheet as of December 31, 2020, and, therefore, Machine Zone’s consolidated balance sheet as of December 31, 2020 has not been separately presented. For purposes of the unaudited pro forma condensed combined financial information, the audited consolidated statement of financial position of Adjust was translated from EUR to US dollars by using the December 31, 2020 exchange rate of approximately $1.23 and the audited consolidated statement of profit or loss and other comprehensive income of Adjust was translated from EUR to US dollars by using the average exchange rate for the year ended December 31, 2020 of approximately $1.14.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 combines the historical audited statement of operations of AppLovin for the year ended December 31, 2020, the historical unaudited consolidated statement of operations of Machine Zone for the period from January 1, 2020 through the MZ Acquisition Date, and the historical audited statement of operations of Adjust for the year ended December 31, 2020, on a pro forma basis as if both the MZ Acquisition and Adjust Acquisition had occurred on January 1, 2020, the first day of AppLovin’s most recently completed fiscal year.

The unaudited pro forma combined statement of operations was based on and should be read in conjunction with the following historical financial statements and accompanying notes:

 

  •  

Separate audited historical consolidated financial statements and accompanying notes of AppLovin as of and for the year ended December 31, 2020, included in AppLovin’s prospectus filed pursuant to Rule 424(b)(4) of the Securities Act of 1933, dated April 14, 2021 and filed with the SEC on April 15, 2021 (the “Prospectus”) and incorporated by reference.

 

  •  

Separate unaudited historical consolidated financial statements of Machine Zone as of and for the three months ended March 31, 2020, included in AppLovin’s Prospectus and incorporated by reference.

 

  •  

Separate audited historical consolidated financial statements of Adjust as of and for the year ended December 31, 2020, included as Exhibit 99.1 to this Form 8-K/A.

The unaudited pro forma condensed combined financial information has been prepared by AppLovin in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786, which is referred to herein as Article 11. The pro forma adjustments are described in the accompanying footnotes.

Adjustments included in the column under the heading “Transaction Accounting Adjustments” in the unaudited pro forma condensed combined balance sheet as of December 31, 2020, consist of those necessary to account for the Adjust Acquisition as if it took place on December 31, 2020. Adjustments included in the column under the heading “Transaction Accounting Adjustments” in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020, consist of those necessary to account for the MZ Acquisition and Adjust Acquisition as if they took place on January 1, 2020. Separately, AppLovin borrowed an additional $300 million in May 2020 under the Credit Agreement entered in August 2018 and amended several times through February 2021 (the “Amended Credit Agreement”) to fund the MZ Acquisition; and $550 million in March 2021 under the Amended Credit Agreement and the Revolving Credit Facility entered in August 2018 and amended several times through February 2021 (the “Revolving Credit Facility”) to fund the Adjust Acquisition. The adjustments related to these issuances of debt are reflected in separate columns as “Debt Financing Adjustments”. The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the combined financial statements that AppLovin would have reported had the MZ Acquisition and the Adjust Acquisition been completed as of the dates and for the periods presented and should not be taken as representative of AppLovin’s consolidated financial statements following the MZ Acquisition and Adjust Acquisition. In addition, the unaudited pro forma condensed combined financial information is not intended to be indicative of AppLovin’s financial position or results of operations for any future period.

 

II-1

The unaudited pro forma combined statement of operations does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the MZ Acquisition or Adjust Acquisition, costs necessary to achieve such measures, or costs to integrate the operations of the combined company.

 

II-2

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2020

(in thousands)

 

   

Applovin

    Adjust     Reclassification
adjustments 		           Transaction
Accounting
Adjustments
            Pro Forma
Combined 		    Debt
Financing
Adjustments
            Pro Forma
Combined
As Adjusted		  

ASSETS

                        

Current assets:

                        

Cash and cash equivalents

   317,235      15,181            (332,416 )      B        —         550,000       F        304,378  
                     (245,622 )      G     

Accounts receivable, net

   296,964      14,330                 311,294       —            311,294  

Prepaid expenses and other current assets

   48,795      6,238                 55,033            55,033  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total current assets

   662,994      35,749            (332,416 )         366,327       304,378          670,705  

Property and equipment, net

   28,587      2,206            38,903       D        69,696            69,696  

Operating lease right-of-use assets

   84,336             9,724       D        94,060            94,060  

Right-of-use assets

        46,218            (46,218 )      D        —              —    

Goodwill

   249,773        25,293       A        (2,409 )      D        1,025,390            1,025,390  
              796,702       B               —    
              (43,969 )      E            

Intangible assets, net

   1,086,332      33,385       (25,293 )      A        231,908       B        1,326,332            1,326,332  

Other assets

   42,571      1,671       661       A        352       B        45,255            45,255  

Deferred tax assets

        661       (661 )      A             —              —    
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total Assets

   2,154,593      119,890       —            652,577          2,927,060       304,378          3,231,438  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT

                        

Current liabilities:

                           —    

Accounts payable

   147,275      1,312                 148,587            148,587  

Accrued liabilities

   95,057        109,823       A        (90,990 )      C        359,512       (245,622 )      G        113,890  
              245,622       B            

Licensed asset obligation

   18,760                  18,760            18,760  

Short-term debt

   15,210      885                 16,095            16,095  

Deferred revenue

   86,886        6,257       A        (2,049 )      B        91,094            91,094  

Operating lease liabilities

   22,206             4,810       D        27,016            27,016  

Finance lease liabilities

          —            17,805       D        17,805            17,805  

Current lease liabilities

        22,615            (22,615 )      D        —              —    

Liabilities from share-based payments

        97,278       (97,278 )      A          A        —              —    

Provisions

        7,634       (7,634 )      A             —              —    

Other current liabilities

        10,999       (10,999 )      A             —              —    

Income tax payable

        169       (169 )      A             —              —    

Convertible security

               342,170       B        342,170            342,170  

Deferred acquisition costs, current

   212,658             47,608       B        260,266            260,266  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total current liabilities

   598,052      140,892       —            542,361          1,281,305       (245,622 )         1,035,683  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Long-term debt

   1,583,990      40,000            (40,000 )      C        1,583,990       550,000       F        2,133,990  

Operating lease liabilities, noncurrent

   71,755             4,913       D        76,668            76,668  

Finance lease liabilities, noncurrent

               21,099       D        21,099            21,099  

Noncurrent lease liabilities

        26,012            (26,012 )      D        —              —    

Deferred income tax liabilities

               63,195       B        63,195            63,195  

Other noncurrent liabilities

   59,032      7                 59,039            59,039  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total liabilities

   2,312,829      206,911       —            565,556          3,085,296       304,378          3,389,674  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Commitments and contingencies

                           —    

Redeemable noncontrolling interest

   309                  309            309  

Stockholders’ deficit:

        —                   —              —    

Convertible preferred stock, 109,090,908 shares authorized, issued,

                    —              —    

and outstanding at December 31, 2019 and 2020; respectively

   399,589      —                   399,589            399,589  

Common stock A and B, $0.00003 par value—360,000,000 and 386,400,000 shares

                    —              —    

authorized, 177,593,772 and 183,800,251 shares issued and outstanding

                    —              —    

at December 31, 2019 and 2020, respectively

   6                  6            6  

Common stock F, $0.00003 par value—43,200,000 shares authorized,

        —                   —              —    

42,564,150 shares issued and outstanding

                    —              —    

at December 31, 2019 and 2020, respectively

   1                  1            1  

Additional paid-in capital

   453,655                  453,655            453,655  

Accumulated deficit

   (1,012,400)      (152,033 )           152,033       E        (1,012,400 )           (1,012,400 ) 

Accumulated other comprehensive income

   604                  604            604  

Issued capital

        117            (117 )      E        —              —    

Other capital reserves

        64,479            130,990       C        —              —    
              (195,469 )      E            

Other components of equity

        416            (416 )      E        —              —    
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total stockholders’ deficit

   (158,545)      (87,021 )      —            87,021          (158,545 )      —            (158,545 ) 
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

   2,154,593      119,890       —            652,577          2,927,060       304,378          3,231,438  
 

 

   

 

 

    

 

 

       

 

 

       

 

 

    

 

 

       

 

 

  

 

II-3

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2020

(in thousands, except share and per share data)

 

     Historical     Transaction Accounting
Adjustments		                            
     Applovin     Machine Zone
(three months
ended March 31,
2020)		     Machine Zone
(for the period
from April 1,
2020 to
May 19, 2020)		     Reclassificati
on
Adjustments
for MZ (AA)		     Pro Forma
Adjustments
for MZ		     Note      Debt
Financing
Adjustments
for MZ		     Note      Applovin, MZ
Pro Forma
Combined		  

Revenue

      1,451,086       73,705       42,018       —         (3,261 )      BB        —            1,563,548  

Costs and expenses

                     

Cost of revenue

      555,578       34,798       18,789       9,990       23,087       CC        —            642,242  

Sales and marketing

      627,796       28,745       8,769       1,179       (3,261 )      BB        —            664,754  
             495       CC        —         
             1,031       DD        —         

Research and development

      180,652       25,157       13,000       6,144       —            —            224,953  

General and administrative

      66,431       10,224       18,007       560       3,164       DD        —            98,386  

Extinguishment of acquisition-related contingent consideration

      74,820       —         —         —         —            —            74,820  

Lease modification and abandonment of leasehold improvement

      7,851       —         —         —         —            —            7,851  

Depreciation and Amortization

      —         11,859       6,014       (17,873 )      —            —            —    

Other operating income

                     

Other operating expense

                     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Total cost and expenses

      1,513,128       110,783       64,579       —         24,516          —            1,713,006  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss from operations

      (62,042 )      (37,078 )      (22,561 )      —         (27,777 )         —            (149,458 ) 

Other income (expense):

                     

Interest expense and loss on settlement of debt

      (77,873 )      (73,461 )      (38,998 )      —         112,459       EE        (6,501 )      HH        (84,374 ) 

Finance costs

                     

Finance income

                     

Other income (expense), net

      4,209       1,753       352       —         (1,730 )      FF        —            4,584  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Total other income (expense)

      (73,664 )      (71,708 )      (38,646 )      —         110,729          (6,501 )         (79,790 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss before provision for income taxes

      (135,706 )      (108,786 )      (61,207 )      —         82,952          (6,501 )         (229,248 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Provision (benefit) for income taxes

      (9,772 )      36       15       —         19,029       GG        (1,491 )      II        7,817  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss

    $ (125,934 )    $ (108,822 )    $ (61,222 )      —         63,923          (5,010 )       $ (237,065 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss attributable to non-controlling interest

      747                       747  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss attributable to Applovin shareholders

      (125,187 )      (108,822 )      (61,222 )      —         63,923          (5,010 )         (236,318 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss attributable to common stock - basic and diluted

      (125,187 )      (108,822 )      (61,222 )      —         63,923          (5,010 )         (236,318 ) 

Net loss per share attributable to common stockholders:

                     

Basic and diluted

      (0.58 )                      (1.09 ) 

Weighted average common shares used to compute net loss per share attributable to common stockholders:

                     

Basic and diluted

      214,936,545             1,610,622       JJ             216,547,167  

 

II-4

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2020

(in thousands, except share and per share data)

(continued)

 

           Historical     Transaction Accounting
Adjustments Adjust		                            
     Applovin, MZ Pro
Forma
Combined		     Adjust     Reclassificati
on and IFRS
to GAAP
Adjustments
(KK)		     Pro Forma
Adjustments		     Note      Debt
Financing
Adjustments		     Note      Pro Forma
Combined		  

Revenue

      1,563,548       97,412       —         (268 )      LL        —            1,660,282  
           (410 )      MM          

Costs and expenses

                   

Cost of revenue

      642,242       32,388       (55 )      11,160       NN        —            685,467  
           (268 )      LL          

Sales and marketing

      664,754       60,580       221       12,689       OO        —            738,244  

Research and development

      224,953       48,109       (43 )      —            —            273,019  

General and administrative

      98,386       36,815       6,317       10,000       PP        —            153,164  
           1,646       QQ          

Extinguishment of acquisition-related contingent consideration

      74,820       —         —         —            —            74,820  

Lease modification and abandonment of leasehold improvement

      7,851       —         —         —            —            7,851  

Depreciation and Amortization

      —         —         —         —            —            —    

Other operating income

        (33 )      33       —            —            —    

Other operating expense

        5,890       (5,890 )      —            —            —    
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Total cost and expenses

      1,713,006       183,749       583       35,227          —            1,932,565  
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss from operations

      (149,458 )      (86,337 )      (583 )      (35,905 )         —            (272,283 ) 

Other income (expense):

                   

Interest expense and loss on settlement of debt

      (84,374 )      —         (6,177 )      4,273       RR        (16,775 )      TT        (103,053 ) 

Finance costs

        (9,297 )      9,297       —            —            —    

Finance income

        4,208       (4,208 )      —            —            —    

Other income (expense), net

      4,584       —         1,671       —            —            6,255  
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Total other income (expense)

      (79,790 )      (5,089 )      583       4,273          (16,775 )         (96,798 ) 
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss before provision for income taxes

      (229,248 )      (91,426 )      —         (31,632 )         (16,775 )         (369,081 ) 
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Provision (benefit) for income taxes

      7,817       502       —         (7,256 )      SS        (3,848 )      UU        (2,785 ) 
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss

    $ (237,065 )      (91,928 )      —         (24,376 )         (12,927 )         (366,296 ) 
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Loss attributable to non-controlling interest

      747       —         —         —            —            747  
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss attributable to Applovin shareholders

      (236,318 )      (91,928 )      —         (24,376 )         (12,927 )         (365,549 ) 
  

 

 

    

 

 

    

 

 

    

 

 

       

 

 

       

 

 

  

Net loss attributable to common stock - basic and diluted

      (236,318 )      (91,928 )      —         (24,376 )         (12,927 )         (365,549 ) 

Net loss per share attributable to common stockholders:

                   

Basic and diluted

      (1.09 )      —         —         —            —            (1.69 ) 

Weighted average common shares used to compute net loss per share attributable to common stockholders:

        —         —         —            —         

Basic and diluted

      216,547,167       —         —         —            —            216,547,167  

 

II-5

APPLOVIN CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

  1.

Description of the MZ Acquisition

On May 19, 2020, AppLovin acquired Machine Zone, a privately held company specializing in mobile gaming. The Company purchased all of the outstanding shares of the capital stock of Machine Zone and settled all Machine Zone debt for an aggregate acquisition price of $328.6 million comprising $287.1 million cash paid to Machine Zone lenders, common stock warrants issued to Machine Zone lenders and preferred stockholders with the aggregate fair value of $38.2 million and a settlement of the preexisting accounts receivable balance of $3.3 million. The transaction is expected to expand the Company’s Apps portfolio and has been accounted for as a business combination in accordance with ASC 805, Business Combinations. Transaction costs incurred by AppLovin in connection with the acquisition, including professional fees, were $2.8 million. The results of operations for Machine Zone are included in AppLovin’s consolidated financial statements from the acquisition date through December 31, 2020, accordingly.

For purposes of this pro forma analysis, the above total purchase price has been allocated as follows based on an estimate of the fair value of assets and liabilities acquired as of May 19, 2020 (in millions):

 

Cash

    $ 37.8  

Accounts receivable and other current assets

      27.3  

Intangible Assets

   

Tradename – estimated useful life of 10 years

      13.0  

Apps – estimated useful life of 3-5 years

      272.0  

IP license – estimated life of 2 years

      28.6  

Goodwill

      82.4  

Right-of-use assets under operating leases

      125.6  

Property, equipment and other tangible assets

      42.3  

Accounts payable, accrued liabilities and other liabilities

      (81.6 ) 

Deferred revenue

      (43.2 ) 

License obligations

      (35.7 ) 

Operating lease liabilities

      (139.9 ) 
  

 

 

  

Total purchase consideration

    $ 328.6  
  

 

 

  

This purchase price allocation has been used to prepare the transaction and other accounting adjustments in the unaudited pro forma combined statement of operations.

MZ Debt Financing:

In connection with the MZ Acquisition, in May 2020, AppLovin borrowed an additional $300.0 million under the Amended Credit Agreement (the “Debt Financing Adjustment for MZ” in our unaudited pro forma condensed combined statement of operations), on substantially the same terms applicable to the existing term loan, with the exception of 1) the quarterly payment, which is equal to 0.25% of the aggregate outstanding principal amount of the Debt Financing Adjustment for MZ, and 2) the applicable margin, which is equal to 4.00% in the case of LIBOR rate loans and 3.00% in the case of base rate loans. In connection with the Debt Financing Adjustment for MZ, AppLovin paid $1.5 million in fees to an affiliate of KKR Denali, a principal stockholder of the Company.

 

  2.

Description of the Adjust Acquisition

On April 20, 2021, AppLovin acquired Adjust, a mobile application tracking and analytics company. The Company purchased all of the outstanding shares of the capital stock of Adjust and settled all Adjust’s debt for the stated purchase consideration of $980 million which was comprised of $352 million stated value of Convertible Security convertible into a variable number shares of Applovin common stock at the variable conversion price, $50 million of the cash holdback amount.

 

II-6

and remaining amount in cash consideration. Fair value of the Convertible Security and of the cash holdback is estimated to be 342.2 million and $47.6 million, respectively. As such, the fair value of the acquisition consideration is determined to be $967.8 million. The transaction is expected to expand the Company’s Apps portfolio and has been accounted for as a business combination in accordance with ASC 805, Business Combinations. Transaction costs amounting $1.6 million were not part of the acquisition price and are expensed in the Company’s consolidated statement of operations on the Adjust Acquisition Date.

For purposes of this pro forma analysis, the above total purchase price has been allocated as follows based on an estimate of the fair value of assets and liabilities acquired as of April 20, 2021 (in millions):

 

Cash and cash equivalents

    $ 12.2  

Accounts receivable and other current assets

      21.8  

Intangible assets

   

Trade name

      8.0  

Customer relationships

      155.0  

Technology

      77.0  

Goodwill

      773.0  

Operating lease right-of-use assets

      8.1  

Property and equipment, net

      1.9  

Finance lease right-of-use assets

      43.2  

Other assets

      3.2  

Accounts payable and accrued liabilities

      (15.5 ) 

Deferred revenue

      (5.6 ) 

Operating lease liabilities

      (8.1 ) 

Finance lease liabilities

      (43.2 ) 

Deferred income tax liability

      (63.2 ) 

Total purchase consideration

    $ 967.8  

Adjust Debt Financing:

In connection with the Adjust acquisition, in March 2021, AppLovin borrowed an additional $300.0 million under the Amended Credit Agreement on substantially the same terms applicable to the existing term loan and $250.0 million under the Revolving Credit Facility (the “Debt Financing Adjustment” in our pro forma condensed combined balance sheet and our pro forma condensed combined statement of operations). In connection with the Debt Financing, AppLovin paid $0.8 million in fees to an affiliate of KKR Denali, a principal stockholder of the Company.

 

II-7

  3.

Pro forma adjustments

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Transaction and related transactions and has been prepared for informational purposes only. The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and reflects the adoption of Release No. 33-10786.

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2020, are as follows:

 

  (A)

Reflects reclassification of certain Adjust balances to comply with Applovin presentation.

 

  (B)

Reflects application of acquisition accounting for the Adjust Acquisition, including partial cash payment of the acquisition price, issuance of the Convertible Security, recognition of Adjust identifiable assets and deferred revenue at fair values and recognition of goodwill. The Convertible Security is recorded as liability due to its mandatory conversion feature into variable number of shares with predominantly fixed aggregated fair value on the conversion date.

 

  (C)

Represents settlement of Adjust debt and share-based payment liabilities included in the acquisition price.

 

  (D)

Reflects IFRS to GAAP conversion adjustment for Adjust leases.

 

  (E)

Represent elimination of Adjust equity balances.

 

  (F)

Reflects proceeds of $550.0 million from Applovin debt financing.

 

  (G)

Represent payment of a portion of Adjust acquisition price from the proceeds of Applovin debt financing.

Adjustments to Unaudited Pro Forma Condensed Statement of operations

The adjustments included in the unaudited pro forma condensed combined statement of operation for the year ended as of December 31, 2020, are as follows:

 

  (AA)

Represents reclassification of $17.9 million from separate MZ Depreciation and Amortization line to Cost of revenue, Sales and marketing, Research and development and to General and administrative.

 

  (BB)

Represents elimination of the intercompany revenues and expenses between AppLovin and Machine Zone during historical pre-acquisition period from January 1, 2020 to May 19, 2020.

 

  (CC)

Represents amortization expense of $23.6 million related to the fair value of acquired Machine Zone identifiable intangible assets, net of the amortization expense already reflected in actual historical results. While $23.1 million of amortization expense related to the acquired developed Apps intangible assets is recognized as Cost of revenue expense based on an estimated weighted average useful life of 4 years, the remaining $0.5 million amortization expense related to the acquired tradename intangible asset is recognized as Sales and marketing expense based on an estimated useful life of 10 years. The amortization of the intangible assets is based on a straight-line amortization method as this represents management’s best estimate of the pattern of utilization for the intangible assets.

 

  (DD)

Represents the impact of new compensation arrangements entered into contemporaneously with the MZ Acquisition on the pre-acquisition period results from January 1, 2020 to May 19, 2020.

 

  (EE)

Represents a decrease in interest expense (including amortization of debt related paid-in-kind interest, discounts and fees) of $112.5 million related to Machine Zone debt settled as part of the MZ Acquisition.

 

  (FF)

Represents a decrease in other income of $1.7 million to eliminate fair value adjustments related to Machine Zone’s liability classified warrants for the historical pre-acquisition period from January 1, 2020 to May 19, 2020.

 

  (GG)

Represents tax effect of the Transaction Accounting Adjustments above at the blended federal and state statutory rate of approximately 22.94%.

 

  (HH)

Represents an increase in interest expense (including amortization of debt related discounts and fees) of $6.5 million during the pre-acquisition period from January 1, 2020 to May 19, 2020 in connection with Applovin’s new debt financing effective January 1, 2020. A one-eighth percent change in the interest rate of the Applovin’s debt financing would result in an increase or a decrease in the pro forma interest expense by $0.4 million for the year ended December 31, 2020.

 

II-8

  (II)

Represents tax effect of the debt financing adjustment above at the blended federal and state statutory rate of approximately 22.94%.

 

  (JJ)

Represents the additional 4.2 million warrants with a nominal exercise price to purchase Applovin’s Class A common stock issued as part of the MZ Acquisition on May 19, 2020.

 

  (KK)

Reflects reclassification of certain Adjust expenses to comply with Applovin presentation.

 

  (LL)

Represents elimination of the intercompany revenues and expenses between AppLovin and Adjust.

 

  (MM)

Reflects impact of a decrease in Adjust deferred revenue balance due to its recognition at fair value in the acquisition accounting.

 

  (NN)

Represents an increase in amortization expense of 11.2 million related to the fair value of the acquired Adjust technology.

 

  (OO)

Represents an increase in amortization expense of $12.7 million related to the fair value of the acquired Adjust customer relationships and trade name.

 

  (PP)

Represents $10.0 million non-recurring payment to Adjust CEO in connection with the Adjust Acquisition.

 

  (QQ)

Represents transaction costs incurred by Applovin in connection with the Adjust Acquisition.

 

  (RR)

Reflects a decrease in interest expense of $4.3 million related to Adjust pre-acquisition debt since it was fully repaid as a result of the Adjust Acquisition.

 

  (SS)

Represents tax effect of the Transaction Accounting Adjustments LL through RR at the blended federal and state statutory rate of approximately 22.94%.

 

  (TT)

Reflects an increase in interest expense related to Applovin debt financing related to the Adjust Acquisition. A one-eighth percent change in the interest rate would result in an increase or a decrease in the pro forma interest expense by $0.7 million for the year ended December 31, 2020.

 

  (UU)

Represents tax effect of the debt financing adjustment above at the blended federal and state statutory rate of approximately 22.94%.

 

II-9