Yahoo Finance AppLovin Corporation (NASDAQ:APP) Q1 2024 Earnings Call Transcript
AppLovin Corporation (NASDAQ:APP) Q1 2024 Earnings Call Transcript May 8, 2024
AppLovin Corporation beats earnings expectations. Reported EPS is $0.678, expectations were $0.57. AppLovin Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
David Hsiao: Welcome everyone to the AppLovin Earnings Call for the First Quarter Ended March 31, 2024. I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Foroughi, our Co-Founder, CEO and Chairperson; and Matt Stumpf, our CFO. Please note our SEC filings to date, as well as our shareholder letter and press release discussing our first quarter are available at investors.applovin.com. During today's call, we will be making forward-looking statements regarding our products and services, market expectations, the expected future financial performance of the company and other future events. These statements are based on our current assumptions and beliefs, and we assume no obligation to update them, except as required by law.
Our actual results may differ materially from the results predicted. We encourage you to review the risk factors in our most recently filed Form 10-K for the fiscal year ended December 31, 2023. Additional information may also be found in our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2024, which will be filed on or before May 10, 2024. We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for or superior to our GAAP results. Please be sure to review the reconciliations of our GAAP and non-GAAP financial measures in our earnings release and shareholder letter available on our Investor Relations site. This conference call is being recorded and a replay will be available for a period of time on our IR website.
Now, I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q&A.
Adam Foroughi: Welcome, everyone and thank you for joining us. We're thrilled to report another record quarter in Q1, continuing our pattern of delivering strong financial results. With AXON 2 turning one year old and achieving nearly a full recovery in our share price after a very difficult 2022, I wanted to reflect on some key themes that we've consistently stated and now actively proven out. We believe our culture is unique. By staying lean and retaining key contributors, we have built an exceptionally high performing team of subject matter experts capable of innovating faster and more effectively than those at other companies. We believe our business is not limited by the size of the mobile gaming market, but rather that our business can drive market growth.
Advertisers have increased their spend on our platform as a result of the improved performance from AXON. And now, we're seeing the industry return to growth. We stated the operating leverage of our software platform business is as good as any technology company in the world. In one year, our quarterly software business revenue grew from $355 million to $678 million. Of this incremental $323 million of revenue, 84% or $273 million flowed through to adjusted EBITDA. Now, two more themes that are important to understand as our business goes forward. First, a key driver of our growth will be the ongoing improvements to AXON. Our models are still in an early stage and will continue to improve themselves, but more importantly, our teams are still finding ways to materially improve these algorithms.
While these gains may not be predictable, they may sometimes lead to quarters like Q1 where we far exceed expectations. Second, there is nothing that limits our models to just gaming. By expanding into web based marketing and e-commerce, we expect our AI models to improve with added demand diversity. As we continue to execute on the previously discussed themes, we expect to see further growth in our business. While our early days in the public markets were volatile since we started this company 12 years ago, our business has consistently remained strong and we hope over time, all of our shareholders and prospective investors will gain the same confidence in our business and vision that we have always had. I can promise you that we've never been more excited about our prospects.
With that, I'll hand it off to Matt to run you through the financial highlights.
Matt Stumpf: Thanks, Adam, and good afternoon. I'm happy to share we had another quarter of exceptional financial results, generating total revenue of $1.06 billion and adjusted EBITDA of $549 million, which is a 52% margin. Our revenue grew nearly 50% from the same period last year, while adjusted EBITDA has doubled. During the first quarter, we generated $388 million in free cash flow, that's an incredible 71% flow through from adjusted EBITDA. Our software platform also had another excellent quarter, with revenue of $678 million and adjusted EBITDA of $492 million, retaining our 73% margin and more than doubling our adjusted EBITDA from the same period last year. This represents a 71% flow through of revenue from the prior quarter.
While we remain diligent about cost discipline, we did have a slight step function increase in our cloud data center costs at the end of Q4 to reserve GPU capacity to support future growth. We saw the full impact of the cost increase during this quarter and expect future flow through to improve. Our business was reinforced by strong market conditions, including expansion in the mobile advertising market and continued adoption of real-time bidding. Our software platform also benefited from technology improvements, including ongoing self-learning, additional data and enhancements by our engineering team. We continue to be optimistic about our ability to drive compounding efficiencies, leading to improved performance for our advertising partners.
Our apps portfolio remained stable from last quarter, maintaining 15% adjusted EBITDA margin. Turning to our capital structure. During the quarter, we amended our term loans, capitalizing on favorable market conditions to further reduce interest expense, while at the same time amending our loans to include outstanding revolver borrowings previously used for share repurchases. Continuing our commitment to share management, in Q1, we repurchased and withheld a total of 14.9 million shares of our stock. Net of issuances during the quarter, we reduced our total shares outstanding by approximately 3%. Since we began our share management activities in early 2022, we have spent nearly $2.6 billion to repurchase and withhold a combined 79 million shares, that's a remarkable 20% pro forma reduction in our total shares outstanding.
Turning to our second quarter guidance. We expect to deliver between $1.06 billion and $1.08 billion in revenue. Adjusted EBITDA is expected to be within the range of $550 million and $570 million, that represents an adjusted EBITDA margin between 52% and 53%. In conclusion, we continue to have confidence on our ability to drive growth from our core business, while we work to expand our long-term opportunities. Now with that, we'll move on to Q&A.
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