AppLovin Corporation: Q1 2021 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; financial statements are unaudited and prepared under U.S. GAAP. AppLovin operates a software platform for mobile-app marketing and monetization and a portfolio of more than 200 free-to-play mobile games.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $603.9 million | $260.2 million | +132% |
| Business revenue | $245.4 million | $146.3 million | +68% |
| Consumer revenue | $358.5 million | $113.9 million | +215% |
| Income from operations | $11.5 million | $25.1 million | Down |
| Net income (loss) | $(10.6) million | $4.7 million | Turned to loss |
| Adjusted EBITDA | $131.1 million | $62.4 million | +110% |
| Adjusted EBITDA margin | 21.7% | 24.0% | Down 2.3 points |
| Operating cash flow | $61.8 million | $45.7 million | +35% |
- Revenue growth was driven by a 90% increase in Software Platform revenue, a 57% increase in Apps advertising revenue, and a 215% increase in Consumer revenue.
- Cost of revenue increased 192% to $223.1 million, or 37% of revenue versus 29% in the prior-year quarter, primarily due to higher payment-processing fees, acquired-intangible amortization, and network costs.
- Sales and marketing increased 106% to $265.5 million, including a $130.7 million increase in user-acquisition costs. Research and development increased 219% to $60.9 million, and general and administrative expense increased 297% to $43.0 million.
- Operating margin declined to approximately 2% from 10%. The GAAP net loss included $85.4 million of acquired-intangible amortization, $30.0 million of stock-based compensation, and $16.9 million of debt-extinguishment loss.
- Other income included a $6.6 million gain on a term-loan embedded derivative and a $5.4 million unrealized gain on marketable equity securities, partially offset by $2.9 million of debt-amendment costs.
Balance sheet, cash flow, debt, and liquidity
- Cash and cash equivalents were $761.1 million at March 31, 2021, up from $317.2 million at December 31, 2020. Accounts receivable were $340.9 million.
- Total debt under the credit agreement was approximately $2.19 billion, comprising $1.79 billion of term loans and $400.0 million drawn under the revolving facility. Total balance-sheet debt, including current and non-current amounts, was approximately $2.16 billion.
- Operating cash flow of $61.8 million was supported by significant non-cash amortization and stock-based compensation but reduced by approximately $60.8 million of working-capital use.
- Investing cash outflow was $18.3 million, including $14.0 million for non-marketable investments and $4.2 million for acquisitions. Financing cash inflow was $400.4 million, primarily from debt issuance net of principal repayments.
- Management stated that existing cash and cash equivalents were sufficient for anticipated working-capital and capital-expenditure needs for at least the next 12 months, while noting that future acquisitions, growth investments, and financing conditions could require additional capital.
Material changes and subsequent events
- In February 2021, AppLovin added $597.8 million of term-loan capacity, repaid $298.2 million of earlier term loans, and increased its revolving facility. The company recorded a $16.9 million debt-extinguishment loss.
- On April 19, 2021, after quarter end, AppLovin completed its IPO, selling 22.5 million Class A shares at $80 per share and receiving net proceeds of approximately $1.75 billion. Approximately $400 million was used to repay the revolving facility in full.
- On April 20, 2021, AppLovin completed the acquisition of Adjust GmbH for $598 million in cash, convertible securities with an aggregate reference value of $352 million, and assumed debt and related obligations of up to $40 million. Purchase accounting was not finalized when the financial statements were issued.
- In April 2021, the company completed two additional mobile-game acquisitions for aggregate upfront cash consideration of $300 million, plus potential earn-outs, with valuation and accounting still being finalized.
- In May 2021, AppLovin granted 6.0 million restricted stock units and increased a cloud-service spending commitment from $130 million to $300 million through May 2026.
Guidance, outlook, and principal risks
The filing does not provide explicit quarterly or full-year revenue or earnings guidance. Management expects continued investment in the Software Platform, Apps, user acquisition, research and development, international expansion, and strategic acquisitions. Management also expects public-company compliance costs and general and administrative expenses to increase.
- Apple’s application-tracking-transparency changes and broader privacy regulation may reduce access to user data, impair advertising targeting and measurement, and increase compliance costs.
- Revenue is concentrated in mobile gaming, third-party distribution platforms, and a limited number of Apps; Matchington Mansion and Wordscapes together represented approximately 25% of trailing-twelve-month revenue.
- The business faces intense competition, volatile user engagement, rising user-acquisition costs, uncertain game launches, and dependence on successful acquisitions and integration.
- Substantial secured debt creates interest-rate, covenant, refinancing, and debt-service risks. The company noted that LIBOR changes or discontinuation could increase borrowing costs.
- Other risks include cybersecurity and privacy incidents, regulatory actions, third-party platform policy changes, COVID-19 effects, foreign-exchange exposure, impairment of goodwill or acquired intangibles, and dilution from equity-linked acquisition consideration.
- Outstanding letters of credit totaled $11.1 million and had never been drawn. The company reported no material legal proceedings or material indemnification claims and stated that it was in compliance with debt covenants at March 31, 2021.
Investor verification checklist
- Reconcile Adjusted EBITDA to GAAP results and assess the effect of amortization, stock-based compensation, acquisition costs, and other adjustments on reported profitability.
- Monitor post-IPO leverage after repayment of the revolving facility and the cash funding of Adjust and the additional game acquisitions.
- Verify the final number of shares issued upon conversion of the $352 million Adjust-related convertible securities and the resulting dilution.
- Evaluate whether growth in Consumer revenue, Monthly Active Payers, and Average Revenue Per Monthly Active Payer is sustainable after changes to Apple’s tracking policies.
- Review the purchase-accounting conclusions, earn-outs, goodwill, acquired-intangible valuations, and impairment exposure for Adjust and the April 2021 acquisitions.
- Track revenue concentration, user-acquisition return on investment, platform fees, third-party distribution dependence, and the effect of privacy and data-protection regulation.