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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-40325

AppLovin Corporation

(Exact name of registrant as specified in its charter)

Delaware	45-3264542
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1100 Page Mill Road

Palo Alto, California 94304

(Address of registrant’s principal executive offices, including zip code)

(800) 839-9646

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.00003 per share	APP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, 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 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 3, 2023, the number of shares of the registrant’s Class A common stock outstanding was 293,315,143 and the number of shares of the registrant’s Class B common stock outstanding was 71,162,622.

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			Page
PART I		FINANCIAL INFORMATION (UNAUDITED)	3
	Item 1.	Condensed Consolidated Financial Statements	3
		Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022	4
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022	5
		Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	6
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	8
		Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	36
PART II		OTHER INFORMATION	37
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
	Item 6.	Exhibits	79
		Signatures	81

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include statements about:

•our future financial performance, including our expectations regarding our revenue, cost of revenue, and operating expenses, and our ability to achieve or maintain future profitability;

•the sufficiency of our cash and cash equivalents to meet our liquidity needs;

•the demand for our AppLovin Software Platform and AppLovin Apps;

•our ability to attract and retain clients and users;

•our ability to develop new products, features, and enhancements for our AppLovin Core Technologies and AppLovin Software Platform and to launch or acquire new AppLovin Apps and successfully monetize them;

•our ability to compete with existing and new competitors in existing and new markets and offerings;

•our ability to successfully acquire and integrate companies and assets and to expand and diversify our operations through strategic acquisitions and partnerships;

•our ability to maintain the security and availability of our AppLovin Core Technologies, AppLovin Software Platform, and AppLovin Apps;

•our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation and privacy and data protection;

•our ability to manage risk associated with our business;

•our expectations regarding new and evolving markets;

•our ability to develop and protect our brand;

•our expectations and management of future growth;

•our expectations concerning relationships with third parties;

•our ability to attract and retain employees and key personnel;

•our expectations regarding our share repurchase program;

•our expectations regarding the macroeconomic environment, including rising inflation and interest rates, uncertainty in the global banking and financial services markets, and the war in Ukraine;

•our ability to maintain, protect and enhance our intellectual property; and

•the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, partnerships, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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PART I – FINANCIAL INFORMATION (UNAUDITED)

Item 1. Condensed Consolidated Financial Statements

AppLovin Corporation

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share data)

(unaudited)

	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,245,893	$	1,080,484
Accounts receivable, net	637,605		702,814
Prepaid expenses and other current assets	164,859		155,785
Total current assets	2,048,357		1,939,083
Property and equipment, net	118,572		78,543
Operating lease right-of-use assets	59,982		60,379
Goodwill	1,833,699		1,823,755
Intangible assets, net	1,574,547		1,677,660
Other assets	280,683		268,426
Total assets	$	5,915,840	$	5,847,846
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	282,948	$	273,196
Accrued liabilities	165,584		147,801
Licensed asset obligation	14,993		15,254
Short-term debt	33,310		33,310
Deferred revenue	66,898		64,018
Operating lease liabilities	14,119		14,334
Deferred acquisition costs, current	41,718		31,045
Total current liabilities	619,570		578,958
Long-term debt	3,172,563		3,178,412
Operating lease liabilities, non-current	53,948		54,153
Licensed asset obligation, non-current	12,062		26,970
Other non-current liabilities	159,117		106,676
Total liabilities	4,017,260		3,945,169
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $0.00003 par value—100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Class A and Class B Common Stock, $0.00003 par value—1,700,000,000 (Class A 1,500,000,000 and Class B 200,000,000) shares authorized, 371,256,232 (Class A 300,093,610 and Class B 71,162,622) and 373,873,683 (Class A 302,711,061 and Class B 71,162,622) shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	11		11
Additional paid-in capital	3,146,163		3,155,748
Accumulated other comprehensive loss	(73,376)		(83,382)
Accumulated deficit	(1,174,218)		(1,169,700)
Total stockholders’ equity	1,898,580		1,902,677
Total liabilities and stockholders’ equity	$	5,915,840	$	5,847,846

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AppLovin Corporation

Condensed Consolidated Statements of Operations

(in thousands, except for per share data)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Revenue	$	715,405	$	625,421
Costs and expenses:
Cost of revenue	261,960		281,780
Sales and marketing	202,976		290,133
Research and development	144,851		126,250
General and administrative	44,571		55,245
Total costs and expenses	654,358		753,408
Income (loss) from operations	61,047		(127,987)
Other income (expense):
Interest expense	(74,511)		(32,009)
Interest income and other, net	10,111		2,014
Total other expense, net	(64,400)		(29,995)
Loss before income taxes	(3,353)		(157,982)
Provision for (benefit from) income taxes	1,165		(42,684)
Net loss	(4,518)		(115,298)
Less: Net loss attributable to noncontrolling interest	—		(41)
Net loss attributable to AppLovin	$	(4,518)	$	(115,257)
Net loss per share attributable to AppLovin common stockholders—Basic and diluted	$	(0.01)	$	(0.31)
Weighted average common shares used to compute net loss per share attributable to AppLovin common stockholders —Basic and diluted	373,160,029		371,967,881

The accompanying notes are an integral part of these condensed consolidated financial statements. 

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AppLovin Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Net loss	$	(4,518)	$	(115,298)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax	10,006		(13,532)
Total other comprehensive income (loss), net of tax	10,006		(13,532)
Comprehensive income (loss) including noncontrolling interest	5,488		(128,830)
Less: Comprehensive loss attributable to noncontrolling interest	—		(41)
Comprehensive income (loss) attributable to AppLovin	$	5,488	$	(128,789)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AppLovin Corporation

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity

(in thousands, except share data)

(unaudited)

	Redeemable Noncontrolling Interest		Class A and Class B Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Par Value
Balance as of December 31, 2022			373,873,683	$	11	$	3,155,748	$	(83,382)	$	(1,169,700)	$	1,902,677
Stock issued in connection with equity awards	—		4,061,015	—		2,974		—		—		2,974
Shares withheld related to net share settlement	—		(1,281,849)	—		(19,167)		—		—		(19,167)
Repurchase of Class A common stock	—		(5,396,617)	—		(76,358)		—		—		(76,358)
Stock-based compensation	—		—	—		82,966		—		—		82,966
Total other comprehensive income, net of tax	—		—	—		—		10,006		—		10,006
Net loss	—		—	—		—		—		(4,518)		(4,518)
Balance as of March 31, 2023	$	—	371,256,232	$	11	$	3,146,163	$	(73,376)	$	(1,174,218)	$	1,898,580

The accompanying notes are an integral part of these condensed consolidated financial statements

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AppLovin Corporation

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity

(in thousands, except share data)

(unaudited)

	Redeemable Noncontrolling Interest		Class A and Class B Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Par Value
Balance as of December 31, 2021	$	201	375,089,360	$	11	$	3,160,487	$	(45,454)	$	(976,954)	$	2,138,090
Stock issued in connection with equity awards	—		1,179,554	—		6,541		—		—		6,541
Shares withheld related to net share settlement	—		(89,319)	—		(4,227)		—		—		(4,227)
Repurchase of Class A common stock	—		(893,556)	—		(43,697)		—		—		(43,697)
Stock-based compensation	—		—	—		44,377		—		—		44,377
Total other comprehensive loss, net of tax	—		—	—		—		(13,532)		—		(13,532)
Net loss	(41)		—	—		—		—		(115,257)		(115,257)
Balance as of March 31, 2022	$	160	375,286,039	$	11	$	3,163,481	$	(58,986)	$	(1,092,211)	$	2,012,295

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AppLovin Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Operating Activities
Net loss	$	(4,518)	$	(115,298)
Adjustments to reconcile net loss to operating activities:
Amortization, depreciation and write-offs	128,208		128,989
Amortization of debt issuance costs and discount	3,250		3,246
Stock-based compensation	82,966		44,640
Change in operating right-of-use asset	3,460		5,751
Other	2,429		500
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	65,614		(170,250)
Prepaid expenses and other current assets	(16,413)		(54,461)
Other assets	(1,136)		1,098
Accounts payable	9,722		111,604
Operating lease liabilities	(3,487)		(6,046)
Accrued and other liabilities	15,994		21,138
Deferred revenue	2,573		(2,630)
Net cash provided by (used in) operating activities	288,662		(31,719)
Investing Activities
Purchase of property and equipment	(70)		(285)
Acquisitions, net of cash acquired	(2,194)		(1,045,816)
Purchase of non-marketable equity securities	(16,834)		(14,146)
Capitalized software development costs	(2,127)		(1,658)
Proceeds from sale of assets	8,250		2,162
Net cash used in investing activities	(12,975)		(1,059,743)
Financing Activities
Principal repayments of debt	(8,327)		(4,577)
Principal payments on finance leases	(5,447)		(6,176)
Payment of withholding taxes related to net share settlement of restricted stock units	(19,167)		—
Proceeds from exercise of stock options	2,906		8,110
Payments of deferred acquisition costs	(1,229)		(1,710)
Payments of licensed asset obligation	(15,254)		(17,374)
Repurchases of stock	(64,897)		(43,697)
Net cash used in financing activities	(111,415)		(65,424)
Effect of foreign exchange rate on cash and cash equivalents	1,137		(362)
Net increase (decrease) in cash and cash equivalents	165,409		(1,157,248)
Cash, cash equivalents and restricted cash equivalents at beginning of the period	1,080,484		2,570,504
Cash and cash equivalents at end of the period	$	1,245,893	$	1,413,256

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AppLovin Corporation

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Supplemental non-cash investing and financing activities disclosures:
Acquisitions not yet paid	$	12,969	$	28,995
Right-of-use assets acquired under finance leases	$	45,318	$	8,703
Right-of-use assets acquired under operating leases	$	2,968	$	—
Repurchases of common stock included in accrued liabilities	$	11,461	$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	67,006	$	28,865
Cash paid for income taxes, net of refunds	$	1,816	$	4,411

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AppLovin Corporation

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

AppLovin Corporation (the “Company” or “AppLovin”) was incorporated in the state of Delaware on July 18, 2011. The Company is a leader in the mobile app industry with a focus on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. The Company also has a globally diversified portfolio of apps—free-to-play mobile games that it operates through its own or partner studios.

The Company is headquartered in Palo Alto, California, and has several operating locations in the U.S. as well as various international office locations in North America, Asia, and Europe.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2023. The condensed consolidated balance sheet data as of December 31, 2022 was derived from the audited consolidated financial statements at that date but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of the Company’s financial position, results of operations, cash flows and stockholders’ equity for the interim periods presented. The results of operations for the three months ended March 31, 2023 shown in this report are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or any other period.

Basis of Consolidation

The Company's condensed consolidated financial statements include accounts and operations of the Company and the entities in which the Company has a controlling financial interest. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in variable interest entities ("VIE"), through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE when the Company is not deemed the primary beneficiary. The Company evaluates its relationships with all VIEs on an ongoing basis. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on assumptions, both historical and forward-looking, that are believed to be reasonable. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to fair values of intangible assets and goodwill, useful lives of intangible assets and property and equipment, expected period of consumption of virtual goods, expected life of paying users, income and indirect taxes, contingent liabilities, evaluation of recoverability of intangible assets and long-lived assets, goodwill impairment, and fair value of derivatives and other financial instruments. These estimates are inherently subject to judgment and actual results could differ materially from those estimates.

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Recent Accounting Pronouncements (Issued and Adopted)

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires specific disclosures for equity securities subject to contractual sale restrictions. The Company adopted this ASU on January 1, 2023 with no material impact on its condensed consolidated financial statements.

2. Revenue

Revenue from Contracts with Customers

The Company generates Software Platform and Apps revenue. Software Platform revenue is generated primarily from fees collected from advertisers and advertising networks who use the Software Platform. Apps revenue consists of in-app purchase ("IAP") revenue generated from in-app purchases made by users within the Company’s apps (“Apps”), and in-app advertising ("IAA") revenue generated from advertisers that purchase ad inventory from Apps.

Software Platform Revenue

The vast majority of the Software Platform Revenue is generated through AppDiscovery and MAX, which provide the technology to match advertisers and owners of digital advertising inventory (“Publishers”) via auctions at large scale and microsecond-level speeds. The terms for all mobile advertising arrangements are governed by the Company’s terms and conditions and generally stipulate payment terms of 30 days subsequent to the end of the month. Substantially all of the Company's contracts with customers are fully cancellable at any time or upon short notice.

Software Platform Revenue is generated by placing ads on mobile applications owned by Publishers. The Company’s performance obligation is to provide customers with access to the Software Platform, which facilitates the advertiser’s purchase of ad inventory from Publishers. The Company does not control the ad inventory prior to its transfer to the advertiser, because the Company does not have the substantive ability to direct the use of nor obtain substantially all of the remaining benefits from the ad inventory. The Company is not primarily responsible for fulfillment and does not have any inventory risk. The Company is an agent as it relates to the sale of third-party advertising inventory and presents revenue on a net basis. The transaction price is the product of either the number of completions of agreed upon actions or advertisements displayed and the contractually agreed upon price per advertising unit with the advertiser less consideration paid or payable to Publishers. The Company recognizes Software Platform Revenue when the agreed upon action is completed or when the ad is displayed to users. The number of advertisements delivered and completions of agreed upon actions is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period.

Software Platform Revenue also includes revenue generated by the Company's mobile application tracking and attribution solutions that is recognized ratably over the subscription period, generally up to twelve months.

Apps Revenue

In-app Purchase Revenue

IAP Revenue includes fees collected from users to purchase virtual goods to enhance their gameplay experience. The identified performance obligation is to provide users with the ability to acquire, use, and hold virtual items over the estimated period of time the virtual items are available to the user or until the virtual item is consumed. Payment is required at the time of purchase, and the purchase price is a fixed amount.

Users make IAPs through the Company’s distribution partners. The transaction price is equal to the gross amount charged to users because the Company is the principal in the transaction. IAP fees are non-refundable. Such payments are initially recorded as deferred revenue. The Company categorizes its virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action in gameplay; accordingly, the Company recognizes revenue from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the user over an extended period of time; accordingly, the Company recognizes revenue from the sale of durable virtual goods ratably over the period of time the goods are available to the user, which is generally the estimated average user life (“EAUL”).

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The EAUL represents the Company’s best estimate of the expected life of paying users for the applicable game. The EAUL begins when a user makes the first purchase of durable virtual goods and ends when a user is determined to be inactive. The Company determines the EAUL on a game-by-game basis. For a newly launched game with limited playing data, the Company determines its EAUL based on the EAUL of a game with sufficiently similar characteristics.

The Company determines the EAUL on a quarterly basis and applies such calculated EAUL to all bookings in the respective quarter. Determining the EAUL is subjective and requires management’s judgment. Future playing patterns may differ from historical playing patterns, and therefore the EAUL may change in the future. The EAULs are generally between five and nine months.

In-App Advertising Revenue

IAA Revenue is generated by selling ad inventory on the Company's Apps to third-party advertisers. Advertisers purchase ad inventory either through the Software Platform or through third-party advertising networks (“Ad Networks”). Revenue from the sale of ad inventory through Ad Networks is recognized net of the amounts retained by Ad Networks as the Company is unable to determine the gross amount paid by the advertisers to Ad Networks. The Company recognizes revenue when the ad is displayed to users.

The Company presents taxes collected from customers and remitted to governmental authorities on a net basis.

Disaggregation of Revenue

The following table presents revenue disaggregated by segment and type (in thousands):

	Three Months Ended March 31,
	2023		2022
Software Platform Revenue	$	354,758	$	118,840
In-App Purchase Revenue	251,328		339,472
In-App Advertising Revenue	109,319		167,109
Total Apps Revenue	360,647		506,581
Total Revenue	$	715,405	$	625,421

Revenue disaggregated by geography, based on user location, consists of the following (in thousands):

	Three Months Ended March 31,
	2023		2022
United States	$	439,319	$	380,567
Rest of the World	276,086		244,854
Total Revenue	$	715,405	$	625,421

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of the satisfaction of performance obligations. During the three months ended March 31, 2023 and 2022, the Company recognized $47.6 million and $55.8 million of revenue that was included in deferred revenue as of December 31, 2022 and 2021, respectively.

Unsatisfied Performance Obligations

Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of one year or less.

Publisher Bonuses

In the first quarter of 2022, the Company paid or promised to pay a total of $209.6 million in bonuses to publishers consisting primarily of non-recurring bonuses to migrate publishers to MAX, the Company's in-app mediation platform. The Company accounted for such publisher bonuses as a reduction to revenue since the publishers receiving such bonuses are also customers of the Company.

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3. Financial Instruments and Fair Value Measurements

The following table sets forth the Company’s financial instruments that are measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

				As of March 31, 2023
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds(1)	Cash and cash equivalents	$	910,521	$	910,521	$	—	$	—
Interest rate swaps	Prepaid expenses and other current assets	$	12,033	$	—	$	12,033	$	—
Total financial assets		$	922,554	$	910,521	$	12,033	$	—
Financial Liabilities:
Interest rate swaps	Other non-current liabilities	$	10,947	$	—	$	10,947	$	—

				As of December 31, 2022
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds(1)	Cash and cash equivalents	$	604,399	$	604,399	$	—	$	—
Interest rate swaps	Prepaid expenses and other current assets	$	7,319	$	—	$	7,319	$	—
Total financial assets		$	611,718	$	604,399	$	7,319	$	—

(1) Includes balances in money market deposit accounts of $780.2 million and $524.2 million as of March 31, 2023 and December 31, 2022, respectively.

Derivatives Not Designated as Hedging Instruments

In October 2022 and March 2023, the Company entered into multiple pay-fixed receive-variable interest rate swaps as part of its interest rate risk management strategy in connection with the term loans under certain credit agreement, which was originally entered in August 2018 and has been amended multiple times. As of March 31, 2023, the aggregate notional amount of the interest rate swaps matches the principal balance of the Company's outstanding term loans. The Company elected to not designate the interest rate swaps as hedging instruments for accounting purposes and recorded both realized and unrealized gains and losses associated with the interest rate swaps immediately through earnings in interest expense in the Company's condensed consolidated statement of operations. The fair value of the interest rate swaps are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of the interest rate swaps. The Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. During the three months ended March 31, 2023, the Company recorded a net unrealized loss of $6.2 million and net realized gain of $0.6 million.

Non-Marketable Equity Securities Measured at Net Asset Value

The Company held equity interests in certain private equity funds of $50.7 million and $32.3 million as of March 31, 2023 and December 31, 2022, respectively, which are measured using the net asset value practical expedient. Under the net asset value practical expedient, the Company records investments based on the proportionate share of the underlying funds’ net asset value as of the Company's reporting date. These investments are included in other assets in the Company’s condensed consolidated balance sheets.

These funds vary in investment strategies and generally have an initial term of 7 to 10 years, which may be extended for 2 to 3 additional years with the applicable approval. These investments are subject to certain restrictions regarding transfers and withdrawals and generally cannot be redeemed with the funds. Distributions from the funds will be received as the underlying investments are liquidated. The Company’s maximum exposure to loss is limited to the carrying value of these investments of $50.7 million and the unfunded commitments of $33.4 million as of March 31, 2023.

During the three months ended March 31, 2023, the Company made additional capital contributions of $16.8 million into these investments. The unrealized gains related to these investments were not material for the three months ended March 31, 2023 and 2022.

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Non-Marketable Equity Securities Measured at Fair Value on a Non-Recurring Basis

In the second quarter of 2022, the Company purchased certain non-marketable equity securities for total proceeds of $38.0 million. Non-marketable equity securities are investments in privately held companies without readily determinable fair values. The Company elected the measurement alternative to account for these investments. Under the measurement alternative, the carrying value of the non-marketable equity securities are adjusted based on price changes from observable transactions of identical or similar securities of the same issuer or for impairment. Any changes in carrying value are recorded within interest income and other, net in the Company's condensed consolidated statement of operations. During the three months ended March 31, 2023, the Company recorded an impairment charge of $5.0 million related to one of these investments. As of March 31, 2023, the carrying amount of these investments was $33.0 million, which was included in other assets in the Company’s condensed consolidated balance sheets.

4. Commitments and Contingencies

Commitments

As of March 31, 2023, the Company's non-cancelable minimum purchase commitments consisted primarily of a certain arrangement related to cloud platform services. In May 2022, the Company entered into a new order form under an existing master agreement that required the Company to purchase at least $550.0 million of cloud services through May 2025. During the three months ended March 31, 2023, the Company made payments of $54.5 million under this arrangement, with $398.4 million of this commitment unpaid as of March 31, 2023. In addition, the Company had total unfunded commitments of $33.4 million related to investments in certain private equity funds. For additional information see Note 3 – Financial Instruments and Fair Value Measurements.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.

Letters of Credit

As of March 31, 2023 and December 31, 2022, the Company had outstanding letters of credit in the aggregate amount of $11.1 million, which were issued as security for certain leased office facilities under the Credit Agreement. These letters of credit have never been drawn upon.

Legal Proceedings

The Company is involved from time to time in litigation, claims, and proceedings. The outcomes of the Company’s legal proceedings are inherently unpredictable and subject to significant uncertainty.

The Company records a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. If it is determined that a loss is reasonably possible and the loss or range of loss can be estimated, the reasonably possible loss is disclosed. The Company evaluates developments in legal matters that could affect the amount of liability that has been previously accrued, and related reasonably possible losses disclosed, and makes adjustments as appropriate. Significant judgment is required to determine the likelihood of matters and the estimated amount of a loss related to such matters. To date, losses in connection with legal proceedings have not been material.

The Company expenses legal fees in the period in which they are incurred.

Indemnifications

The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, including certain customers, business partners, investors, contractors and the Company’s officers, directors and certain employees. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in the Company’s condensed consolidated statements of operations in connection with the indemnification provisions have not been material. As of March 31, 2023, the Company did not have any material indemnification claims that were probable or reasonably possible.

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Non-income Taxes

The Company may be subject to audit by various tax authorities with regard to non-income tax matters. The subject matter of non-income tax audits primarily arises from different interpretations on tax treatment and tax rates applied. The Company accrues liabilities for non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss.

5. Acquisitions and Dispositions

2023 Acquisitions

During the three months ended March 31, 2023, the Company recognized total earn-out costs of $13.2 million related to asset acquisitions closed in 2021 and prior. No other acquisitions were completed during the three-month period ended March 31, 2023.

2022 Acquisitions

Business Combinations

MoPub—On January 1, 2022, the Company completed its acquisition from Twitter, Inc. of certain assets that comprised its MoPub business for a total purchase price of $1.03 billion in cash. The acquisition allowed the Company to integrate certain product features of the MoPub platform into MAX, the Company's in-app mediation platform, and migrate publishers and demand partners from the MoPub platform to MAX. The Company accounted for the acquisition as a business combination. Transaction costs incurred by the Company in connection with the acquisition, including professional fees, were $14.4 million.

The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired (in thousands):

Intangible assets
Advertiser Relationships—estimated useful life of 9 years	$	212,700
Publisher Relationships—estimated useful life of 9 years	123,300
Developed Technology—estimated useful life of 5 years	61,800
Tradename—estimated useful life of 3 months	60
Goodwill	632,472
Total purchase consideration	$	1,030,332

The income approach was used to determine the preliminary fair value of the advertiser relationships, publisher relationships, developed technology and tradename. Goodwill represents the excess of the purchase price over the preliminary fair value of identifiable assets acquired at the acquisition date and is primarily attributable to the assembled workforce and expected synergies at the time of the acquisition. For tax purposes, an estimated tax deductible goodwill of $694.5 million was generated as a result of this acquisition. No liabilities were assumed in the transaction.

Contemporaneously with the signing of the asset purchase agreement, the Company entered into an agreement for Twitter, Inc. to provide certain transitional services to facilitate the migration of publishers and demand partners to MAX during a three-month transitional period following the closing of the transaction (the "TSA"). The Company accounted for the TSA as a transaction separate from the business combination since it was negotiated primarily for the benefit of the Company. During the first quarter of 2022, the Company recognized total expense of $7.0 million related to the transitional services, which was included primarily in cost of revenue in the Company's condensed consolidated statement of operations.

The Company’s condensed consolidated statement of operations for the three months ended March 31, 2022 includes revenue generated from the MoPub business during the transitional period of $44.1 million. However, due to the significant integration of the MoPub business with MAX, it was impractical to determine the impact of the acquired business on earnings.

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The unaudited supplemental pro forma information below presents the combined historical results of operations of the Company and the MoPub business, as if the MoPub business had been acquired as of January 1, 2021 (in thousands):

	Three Months Ended March 31, 2022
Revenue	$	625,421
Net loss	(99,932)

The unaudited supplemental pro forma information above includes the following adjustments to net loss in the appropriate pro forma periods (in thousands):

	Three Months Ended March 31, 2022
A decrease in amortization expense related to the fair value of acquired identifiable intangible assets, net of the amortization expense already reflected in actual historical results	$	60
A decrease in expenses related to the TSA	$	7,000
A decrease in expenses related to transaction costs	$	12,848
An (increase) in income tax provision	$	(4,564)

Asset Acquisitions

During the three months ended March 31, 2022, the Company recognized total earn-out costs of $31.7 million related to asset acquisitions closed in 2021 and prior. These earn-out costs increased the book value of the acquired mobile Apps, and are amortized over the remaining useful life of the originally acquired mobile Apps. No other asset acquisitions were completed during the three-month period ended March 31, 2022.

6. Goodwill and Intangible Assets

The following table presents the changes in the carrying amount of goodwill by reporting unit (in thousands):

	Software Platform		Apps		Total
December 31, 2022	$	1,478,014	$	345,741	$	1,823,755
Goodwill acquired	—		—		—
Foreign currency translation	9,944		—		9,944
March 31, 2023	$	1,487,958	$	345,741	$	1,833,699

Intangible assets, net consisted of the following (in thousands):

	Weighted- Average Remaining Useful Life (Years)	As of March 31, 2023						As of December 31, 2022
		Gross Carrying Value		Accumulated Amortization		Net Book Value		Gross Carrying Value		Accumulated Amortization		Net Book Value
Long-lived intangible assets:
Apps	4.0	$	1,797,299	$	(921,441)	$	875,858	$	1,790,820	$	(836,375)	$	954,445
Customer relationships	9.0	517,189		(72,116)		445,073		515,084		(58,881)		456,203
User base	3.1	68,817		(39,560)		29,257		68,817		(37,122)		31,695
License asset	2.8	59,207		(20,427)		38,780		59,207		(16,901)		42,306
Developed technology	4.4	206,991		(62,683)		144,308		206,060		(53,879)		152,181
Other	5.3	56,319		(15,048)		41,271		53,933		(13,103)		40,830
Total long-lived intangible assets		2,705,822		(1,131,275)		1,574,547		2,693,921		(1,016,261)		1,677,660
Short-lived intangible assets:
Apps	0.2	46,529		(45,969)		560		45,791		(44,838)		953
Total intangible assets		$	2,752,351	$	(1,177,244)	$	1,575,107	$	2,739,712	$	(1,061,099)	$	1,678,613

As of March 31, 2023 and December 31, 2022, short-lived mobile Apps were included in prepaid expenses and other current assets.

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The Company recorded amortization expenses related to acquired intangible assets as follows (in thousands):

	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	98,644	$	104,619
Sales and marketing	16,788		16,392
Total	$	115,432	$	121,011

7. Equity

In February 2022, the Company's Board authorized the repurchase of up to $750.0 million of the Company’s Class A common stock. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company may also, from time to time, enter into Rule 10b-5 trading plans, to facilitate repurchases of shares. The repurchase program does not obligate the Company to acquire any particular amount of Class A common stock, has no expiration date and may be modified, suspended, or terminated at any time at the Company's discretion. Shares are retired immediately upon repurchase. During the three months ended March 31, 2023 and 2022, the Company repurchased 5,396,617 and 893,556 shares of Class A common stock for an aggregate amount, including commissions and fees, of $76.4 million and $43.7 million, respectively.

8. Stock-based Compensation

The Company maintains three equity compensation plans that provide for the issuance of shares of its common stock to the Company’s employees, directors, consultants and other service providers: the 2021 Equity Incentive Plan (the "2021 Plan"), the 2021 Partner Studio Incentive Plan, and the 2021 Employee Stock Purchase Plan.

In March 2023, the Company’s Board of Directors (the "Board"), upon recommendation of the Compensation Committee of the Board (the "Compensation Committee"), granted to each of Adam Foroughi, the Company’s CEO and Chairperson, and Vasily Shikin, the Company’s CTO, 6,902,000 performance-based RSUs (“PSUs”), and delegated authority to Mr. Foroughi to grant up to additional 3,451,000 PSUs to non-executive employees ("Additional Participants") in consultation with the chair of the Compensation Committee under the 2021 Plan. The PSUs are divided into five equal tranches that are eligible to vest based on the achievement of certain stock price targets (see below), measured based on the minimum closing price of the Company’s Class A common stock over a consecutive 30 trading day period during the five-year performance period beginning on the date of grant, subject to the recipient’s continued employment through the applicable vesting date. In the event of a change in control of the Company during the performance period, any unvested PSUs are eligible to vest a pro-rated amount if the per share transaction price in the change in control is between two stock price targets that have not previously been achieved, subject to the recipient’s continued employment through the date immediately prior to the change in control. PSUs for Mr. Foroughi and Mr. Shikin may continue to vest for up to one year after termination of employment if certain conditions are met. As of March 31, 2023, no PSUs had been granted to Additional Participants.

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The following table presents the number of PSUs that are eligible to vest based on the achievement of the respective stock price targets for each of Mr. Foroughi, Mr. Shikin and the Additional Participants (in aggregate):

		PSUs Eligible to Vest
Company Stock Price Target		Adam Foroughi	Vasily Shikin	Additional Participants (in aggregate)
$	36.00	1,380,400	1,380,400	690,200
$	46.75	1,380,400	1,380,400	690,200
$	57.50	1,380,400	1,380,400	690,200
$	68.25	1,380,400	1,380,400	690,200
$	79.00	1,380,400	1,380,400	690,200
		6,902,000	6,902,000	3,451,000

The weighted-average grant date fair value of the PSUs for Mr. Foroughi and Mr. Shikin was $7.60 and $6.03 per share, respectively. The Company used a Monte Carlo simulation model to calculate the grant date fair value of the PSUs and the derived service period for each of the five vesting tranches, which is the measure of the expected time to achieve the respective stock price target, as described above. The Monte Carlo simulation model incorporates the likelihood of achieving the stock price targets and requires the input of assumptions including the underlying stock price, expected volatility, expected term, risk-free rate and dividend yield. The Company also applied a discount for lack of marketability to the value of PSUs for employees other than the CEO as the shares issued for these awards are subject to a holding period of approximately one year.

The Company will recognize stock-based compensation expense over the derived service period of each of the five vesting tranches, ranging from 2.1 to 3.1 years, using the accelerated attribution method. If the stock price targets are met sooner than the derived service period, the Company will adjust its stock-based compensation expense to reflect the cumulative expense associated with the vested awards. Subject to continued employment of the recipients, the Company will recognize stock-based compensation expense over the derived service period, regardless of whether the stock price targets are achieved.

In March 2023, the Company also granted 4,070,469 restricted stock units ("RSUs") to certain employees under the 2021 Plan at the weighted average grant date fair value of $13.01 per RSU. These awards vest based on a service condition that becomes satisfied over generally one year.

Stock-based compensation expense is allocated based on the cost center to which the award holder belongs. The following table summarizes total stock-based compensation expense by function (in thousands):

	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	1,316	$	1,052
Sales and marketing	16,683		6,919
Research and development	49,929		20,629
General and administrative	15,038		16,040
Total	$	82,966	$	44,640

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9. Earnings Per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

	Three Months Ended March 31,
	2023		2022
Basic and Diluted EPS
Numerator:
Net loss attributable to AppLovin common stockholders	$	(4,518)	$	(115,257)
Denominator:
Weighted average common shares used to compute net loss per share attributable to AppLovin common stockholders, basic and diluted	373,160,029		371,967,881
Net loss per share attributable to AppLovin common stockholders, basic and diluted	$	(0.01)	$	(0.31)

The following table presents the forms of antidilutive potential common shares:

	As of March 31,
	2023	2022
Stock options exercised for promissory notes	1,399,999	2,434,999
Early exercised stock options	38,250	635,873
Unvested RSAs	—	121,158
Stock options	10,582,241	14,409,668
Unvested RSUs	16,195,182	7,628,274
ESPP	842,419	239,378
Total antidilutive potential common shares	29,058,091	25,469,350

The PSUs granted in the first quarter of 2023 were excluded from the above table because the respective stock price targets had not been met as of March 31, 2023.

10. Income Taxes

The Company is subject to income taxes in the U.S. and in foreign jurisdictions. The Company bases the interim tax accruals on an estimated annual effective tax rate applied to year-to-date income and records the discrete tax items in the period to which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the tax provision as necessary. The Company’s calendar year 2023 annual effective tax rate differs from the U.S. statutory rate primarily due to stock-based compensation expense, foreign derived intangible income deduction, global intangible low-taxed income, and valuation allowance against losses which are not more likely than not to be realized.

During the three months ended March 31, 2023, there were no material changes to the Company's unrecognized tax benefits, and the Company does not expect material changes in unrecognized tax benefits within the next twelve months.

11. Segments

The Company determines its operating segments based on how its chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company's two operating and reportable segments are as follows:

•Software Platform: Software Platform generates revenue primarily from fees paid by advertisers for the placement of ads on mobile applications owned by Publishers.

•Apps: Apps generates revenue when a user of one of the Apps makes an in-app purchase and when an advertiser purchases the digital advertising inventory of the Company's portfolio of Apps.

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The CODM evaluates the performance of each operating segment using revenue and segment adjusted EBITDA. The Company defines segment adjusted EBITDA as revenue less expenses, excluding depreciation and amortization and certain items that the Company does not believe are reflective of the operating segments’ core operations. Expenses include indirect costs that are allocated to operating segments based on a reasonable allocation methodology, which are generally related to sales and marketing activities and general and administrative overhead. Revenue and expenses exclude transactions between the Company's operating segments. The CODM does not evaluate operating segments using asset information, and, accordingly, the Company does not report asset information by segment.

The following table provides information about the Company's reportable segments and a reconciliation of the total segment adjusted EBITDA to loss before income taxes (in thousands). For comparative purposes, amounts in the prior period have been recast:

	Three Months Ended March 31,
	2023		2022
Revenue:
Software Platform	$	354,758	$	118,840
Apps	360,647		506,581
Total Revenue	$	715,405	$	625,421
Segment Adjusted EBITDA:
Software Platform	$	218,694	$	235,555
Apps	55,004		40,674
Total Segment Adjusted EBITDA	$	273,698	$	276,229
Interest expense	$	(74,511)	$	(32,009)
Interest income and other, net	9,771		2,417
Amortization, depreciation and write-offs	(128,208)		(128,989)
Non-operating foreign exchange gain	672		458
Stock-based compensation	(82,966)		(44,640)
Acquisition-related expense	(517)		(14,814)
Publisher bonuses	—		(209,635)
MoPub acquisition transition services	—		(6,999)
Restructuring costs	(1,292)		—
Loss before income taxes	$	(3,353)	$	(157,982)

12. Related Party Transactions

The Company had no material related party transactions for the three months ended March 31, 2023 and 2022.

13. Subsequent Events

From April 1, 2023 through May 8, 2023, the Company repurchased 7,684,860 shares of its Class A common stock for an aggregate amount, including commissions and fees, of $125.8 million pursuant to the Share Repurchase Program. Year-to-date through May 8th, the Company repurchased $202.2 million of its Class A common stock. As of May 8, 2023, $209.6 million of the $750.0 million authorized amount under the share repurchase program remains available.

In April 2023, Mr. Foroughi granted the remaining 3,451,000 PSUs at an estimated weighted average grant date fair value of $8.76 per share, pursuant to delegated authority from the Company's Board, to Additional Participants in consultation with the chair of our Compensation Committee. These PSUs are subject to the vesting conditions as described in Note 8 – Stock-based Compensation.

In April 2023, the Company amended the multi-year performance-based incentive plan established for certain key employees of Wurl (the “Wurl Plan”) at the time of the acquisition into a one-year plan for 2023, under which the Company may be obligated to issue up to a total of $90 million in additional shares of the Company's Class A common stock, contingent upon Wurl’s achievement of certain revenue and other performance targets and the continued employment of the key employees.

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ITEM 2. 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 our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other parts of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

Our mission is to help companies grow their apps and accelerate their business. Our full stack software solutions provide advanced tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. We also operate a portfolio of owned mobile apps and accelerated our market penetration through an active acquisition and partnership strategy. Our scaled business model sits at the nexus of the mobile app ecosystem, which creates a durable competitive advantage that has fueled our clients’ success and our strong growth.

Since our founding in 2011, we have been focused on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. Our founders, who are mobile app developers themselves, quickly realized the real impediment to success and growth in the mobile app ecosystem was a discovery and monetization problem—breaking through the congested app stores to efficiently find users and successfully grow their business. Their first-hand experience with these developer challenges led to the development of our infrastructure and software—AppLovin Core Technologies and AppLovin Software Platform. We capitalized on our success and understanding of the mobile app ecosystem by launching AppLovin Apps in 2018. Our Apps now consist of a globally diversified portfolio of over 300 free-to-play mobile games across five genres, run by eleven studios.

For the three months ended March 31, 2023, our revenue grew 14% year-over-year, from $625.4 million in the three months ended March 31, 2022 to $715.4 million in the comparative period in 2023. We generated a net loss of $4.5 million for the three months ended March 31, 2023, and a net loss of $115.3 million in the comparative period in 2022. We generated Adjusted EBITDA of $273.7 million and $276.2 million for the three months ended March 31, 2023 and 2022, respectively. Additionally, our net cash provided by (used in) operating activities was $288.7 million and $(31.7) million in the three months ended March 31, 2023 and 2022, respectively. We generated Free Cash Flow of $283.1 million and $(38.2) million for the three months ended March 31, 2023 and 2022, respectively. Given our strong financial position, we have been able to reinvest in our expansion and growth, and repurchase our Class A common stock. See the section titled “—Non-GAAP Financial Measures” for definitions of our non-GAAP financial measures and reconciliations of the most directly comparable financial measures calculated in accordance with GAAP to these measures.

Our Business Model

We collect revenue from our Software Platform and our Apps. During the three months ended March 31, 2023, Software Platform Revenue represented 50% of total revenue and Apps Revenue represented 50% of total revenue.

In the second quarter of 2022, we revised the presentation of segment information to align with changes to how our chief operating decision maker (“CODM”), the Chief Executive Officer, allocates resources and assesses performance. Effective in May 2022, we report our operating results through two reportable segments: Software Platform and Apps. Previously we had a single operating and reportable segment.

The CODM evaluates performance of each segment based on several factors, of which the financial measures are segment revenue and segment adjusted EBITDA, as defined in Note 11 to the Company's condensed consolidated financial statements.

The Software Platform and Apps segments provide a view into the organization of our business and generate revenue as follows:

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Software Platform Revenue

We primarily generate Software Platform Revenue from fees paid by mobile app advertisers who use our Software Platform to grow and monetize their apps. We are able to grow our Software Platform Revenue by improving our various software technologies.

Software Platform clients include a wide variety of advertisers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google. We see multiple opportunities to gain new Software Platform clients, and to increase spend from existing clients, as we help them grow their businesses and make them more successful.

Our Software Platform includes AppDiscovery, MAX, Adjust, and Wurl. Clients use AppDiscovery to automate, optimize, and manage their user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spend in an effort to achieve their return on advertising spend targets and other marketing objectives. AppDiscovery comprises the vast majority of revenue from our Software Platform. Revenue is generated from our advertisers, typically on a performance basis, and shared with our advertising publishers, typically on a cost per impression model.

Software Platform clients use MAX to optimize purchases of app advertising inventory. The Compass Analytics tool within MAX provides insights to manage against key performance indicators, understand the long-term value of users, and help manage profitability. Revenue from MAX is generated based on a percentage of client spend. As more developers move to in-app bidding monetization, we expect growth in the adoption of, and revenue from, MAX.

Software Platform clients use Adjust's SaaS mobile marketing platform to better understand their users' journey while allowing marketers to make smarter decisions through measurement, attribution and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee.

Software Platform clients use Wurl's CTV platform to distribute streaming video, maximize advertising revenue, and acquire and retain viewers or subscribers. Revenue from Wurl is primarily generated from content companies, typically on a usage-based model.

Apps Revenue

Apps Revenue is generated when a user of one of our Apps makes an in-app purchase and when clients purchase the digital advertising inventory of our portfolio of Apps (IAA). We are able to grow our Apps Revenue by adding more apps to our Apps portfolio and increasing engagement on our existing Apps.

Our Apps are generally free-to-play mobile games and generate IAP Revenue through IAPs. IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from our Apps. The vast majority of our IAP revenue flows through two app stores, Apple App Store and Google Play, which charge us a standard commission on IAPs. IAP Revenue represented 70% of total Apps Revenue in the three months ended March 31, 2023.

During the three months ended March 31, 2023, we had an average of 1.8 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of $46. See “Key Metrics” below for additional information on how we calculate MAPs and ARPMAP.

IAA clients that purchase advertising inventory from our Apps are able to target highly relevant users from our diverse and global portfolio of over 300 mobile games. Our clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video, and are able to match these ads with relevant users resulting in a better return on their advertising spend. By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, we are able to increase our revenue from IAA clients that purchase advertising inventory from our Apps. IAA Revenue represented 30% of total Apps Revenue in the three months ended March 31, 2023.

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Key Metrics

We review the following key metrics on a regular basis in order to evaluate the health of our business, identify trends affecting our performance, prepare financial projections, and make strategic decisions.

Monthly Active Payers ("MAPs"). We define a MAP as a unique mobile device active on one of our Apps in a month that completed at least one IAP during that time period. A consumer who makes IAPs within two separate Apps on the same mobile device in a monthly period will be counted as two MAPs. MAPs for a particular time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution partners. Some of our Apps do not utilize such third-party attribution partners, and therefore our MAPs figure for any period does not capture every user that completed an IAP on our Apps. We estimate that our counted MAPs generated approximately 99% of our IAP Revenue during the three months ended March 31, 2023, and as such, management believes that MAPs are still a useful metric to measure the engagement and monetization potential of our games.

Average Revenue Per Monthly Active Payer ("ARPMAP"). We define ARPMAP as (i) the total IAP Revenue derived from our Apps in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP.

The following table shows our Monthly Active Payers and Average Revenue Per Monthly Active Payer for the three months ended March 31, 2023 and 2022.

	Three Months Ended March 31,
	2023		2022
Monthly Active Payers (millions)	1.8		2.7
Average Revenue Per Monthly Active Payer	$	46	$	41

Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate MAPs and ARPMAP are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA for a particular period as net income (loss) before interest expense and loss on settlement of debt, other (income) expense, net (excluding certain recurring items), provision for (benefit from) income taxes, amortization, depreciation and write-offs and as further adjusted for stock-based compensation expense, acquisition-related expense and transaction bonus, publisher bonuses, MoPub acquisition transition services, restructuring costs, impairment and loss in connection with the sale of long-lived assets, loss (gain) on extinguishments of acquisition related contingent consideration, non-operating foreign exchange (gain) losses, lease modification and abandonment of leasehold improvements, and change in the fair value of contingent consideration. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the same period.

Adjusted EBITDA and Adjusted EBITDA margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance.

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Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our Adjusted EBITDA and Adjusted EBITDA margin should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended March 31, 2023 and 2022, and a reconciliation of net loss to Adjusted EBITDA:

	Three Months Ended March 31,
	2023			2022
	(in thousands. except percentages)
Revenue	$	715,405		$	625,421
Net loss	$	(4,518)		$	(115,298)
Net Margin	(0.6)%			(18.4)%
Adjusted as follows:
Interest expense	74,511			32,009
Interest income and other, net	(9,771)			(2,417)
Provision for (benefit from) income taxes	1,165			(42,684)
Amortization, depreciation and write-offs	128,208			128,989
Non-operating foreign exchange gain	(672)			(458)
Stock-based compensation	82,966			44,640
Acquisition-related expense	517			14,814
Publisher bonuses1	—			209,635
MoPub acquisition transition services2	—			6,999
Restructuring costs	1,292			—
Adjusted EBITDA	$	273,698		$	276,229
Adjusted EBITDA Margin	38.3		%	44.2		%

1 In association with the MoPub acquisition, we incurred certain costs to incentivize publishers to migrate to our MAX mediation solution including existing publishers of MoPub as well as publishers on other competitor offerings. We have not historically incurred significant publisher migration costs, nor do we currently intend to incur significant publisher migration costs in the future. As such, we have removed the impact of these costs from Adjusted EBITDA.

2 Reflects one-time transition services provided by Twitter to AppLovin.

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Free Cash Flow

We define Free Cash Flow as net cash provided by operating activities less purchases of property and equipment and principal payments on finance leases. We use Free Cash Flow to help manage the health of our business, prepare budgets and for capital allocation purposes. We believe Free Cash Flow provides useful supplemental information to help investors understand underlying trends in our business and our liquidity. Free cash flow has certain limitations, including that it does not reflect our future contractual commitments. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish Free Cash Flow or similar metrics. Thus, our Free Cash Flow should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

The following table provides our Free Cash Flow for the three months ended March 31, 2023 and March 31, 2022 and a reconciliation of net cash provided by operating activities to Free Cash Flow:

	Three Months Ended March 31,
	2023		2022
	(in thousands)
Net cash provided by (used in) operating activities	$	288,662	$	(31,719)
Less:
Purchase of property and equipment	(70)		(285)
Principal payments on finance leases	(5,447)		(6,176)
Free Cash Flow	$	283,145	$	(38,180)
Net cash used in investing activities	$	(12,975)	$	(1,059,743)
Net cash used in financing activities	$	(111,415)	$	(65,424)

Factors Affecting Our Performance

We believe that the future success of our business depends on many factors, including the factors described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to continue to grow profitably while maintaining strong cash flow.

Continue to invest in innovation

We have made, and intend to continue to make, significant investments in our Core Technologies and Software Platform to enhance their effectiveness and value proposition for our clients. We expect that these investments will require spending on research and development, and acquisitions and partnerships related to technology components and products. We believe investments in our software, including our machine learning engine AXON, AppDiscovery, Adjust, MAX and Wurl will further improve effectiveness for developers. Our investments will also allow us to enter new mobile app sectors outside of gaming. While our investments in research and development and acquisitions and partnerships may not result in revenue in the near term, we believe these investments position us to increase our revenue over time.

Retain and grow existing clients

We rely on existing clients for a significant portion of our revenue. As we improve our Software Platform and Apps, we can attract additional spend from these clients. Our clients include indie studio developers and some of the largest mobile advertising platforms in the world. We believe there is significant room for us to further expand our relationships with these clients and increase their usage of our Software Platform. We have invested in targeted sales and account-based marketing efforts, including through Adjust’s sales and marketing teams, to identify and showcase opportunities to clients and plan to continue to do so in the future.

In the past, our clients have generally increased their usage of our Software Platform and Apps, and as a result, growth from existing clients has been a primary driver of our revenue growth. We must continue to retain our existing clients and expand their spend with us over time to continue to grow our revenue, increase profitability and drive greater cash flow.

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Add new clients globally

Our future success depends in part on our ability to acquire new clients. We recently increased our focus on markets outside the United States to serve the needs of clients globally. During the three months ended March 31, 2023, only 41% of our revenue from Software Platform and IAA Revenue clients was generated from outside of the United States. We believe that the global opportunity is significant and will continue to expand as developers and advertisers outside the United States adopt our Software Platform and advertise on our Apps. We also see opportunities to acquire new clients outside of mobile gaming, as the capabilities of our Core Technologies and Software Platform are relevant to the broader mobile app ecosystem. We are investing in direct sales, product development, education, and other capabilities to drive increased awareness and adoption of our Software Platform and Apps, which investments may impact our profitability in the near term as we seek further scale. We must continue to acquire new clients to grow our revenue, increase profitability, and drive greater cash flow.

Review of our AppLovin Apps portfolio

Over the past several years, our Apps have been critical in providing first-party data and audiences for our Software Platform to enable us to test, design, and scale our technologies. Given the recent development of our technology, the current scale of our Software Platform, and the reach of our MAX solution, we believe we can reduce our reliance on the data from our Apps. Since the second quarter of 2022, we have been performing a strategic review and optimization of our Apps portfolio and its cost structure, focusing on how best to optimize each asset’s contribution to our overall financial performance. This review is substantially complete and has resulted in the divestiture or closure of certain studios, a reduction of headcount, restructuring of earn out arrangements, and other changes to our Apps portfolio, such as restructuring of certain assets or choosing to make changes to optimize the cost structure of certain Apps rather than investing in revenue growth. For example, we have reduced our user acquisition spend for our portfolio of Apps as we increased our desired return goals, which has led to improved App segment Adjusted EBITDA margin, but also contributed to a decline in revenue and MAPs. We may take similar actions in the future. We will continue to manage our Apps portfolio for financial return, including investing for growth through new game launches, while remaining open to evaluating opportunities for the retention, restructure, or sale of assets in the future. We believe that our ability to optimize the contribution of our Apps portfolio will continue to affect our revenue growth, profitability, and cash flow.

Continued execution of strategic acquisitions and partnerships

We intend to continue to make strategic acquisitions and enter into strategic partnerships to grow our business. From the beginning of 2018 through March 31, 2023, we have invested nearly $4.0 billion in 29 strategic acquisitions and partnerships with mobile app developers and for technologies to enhance our Software Platform including the acquisition of MAX in 2018, Adjust in April 2021, MoPub in January 2022, and Wurl in April 2022.

While we have a strong pipeline of strategic acquisition and partnership opportunities, we believe our future results of operations will be affected by our ability to continue to identify and execute such transactions that are accretive to our growth and profitability.

Growth and structure of the mobile app ecosystem

Our business and results of operations will be impacted by industry factors that drive overall performance of the mobile app ecosystem. The mobile app ecosystem has been affected by the recent economic uncertainty, including by advertisers more closely managing budgets and reducing overall spend, which has resulted in slowed growth for our Software Platform in recent quarters. We expect that any further slowing, or accelerations, of the mobile app ecosystem would affect our business and results of operations. In addition, even if the mobile app ecosystem continues to grow at its current rate, our ability to position ourselves within the market will impact our business and results of operations.

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Mobile app developers, including AppLovin, rely on third-party platforms, such as the Apple App Store and Google Play Store, among others, to distribute games, collect payments made for IAPs, and target users with relevant advertising. We expect this to continue for the foreseeable future. These third-party platforms have significant market power and discretion to set platform fees, select which apps to promote, and decide how much consumer information to provide to advertising networks that enable our Core Technologies and Software Platform to target users with personalized and relevant advertising and allocate marketing campaigns in an efficient and cost-effective manner. Any changes made in the policies of third-party platforms could drive rapid change across the mobile app ecosystem. For example, in April 2021, Apple started implementing its application tracking transparency framework that, among other things, requires users' opt-in consent for certain types of tracking. While this transparency framework has not had a significant impact on our overal