Applovin Corp

NASDAQ:APP

Earnings Call Transcript 2022-Q1

[Ryan Gee, Head of Investor Relations]

Good afternoon, everyone. Let’s get stated. Welcome to AppLovin's earnings call for the quarter ended March 31, 2021. I’m Ryan Gee, Head of Investor Relations and Strategic Finance at AppLovin. And joining me today to discuss our results are our Co-Founder, CEO, and Chairperson, Adam Foroughi; and our President, Chief Financial Officer, Herald Chen. Please note our SEC filings, earnings release and shareholder letter discussing our first quarter performance are available at investors.applovin.com. We also posted a short slide presentation that Herald will reference later in this call, if you’d like to follow along. During today's call, we may be making forward-looking statements regarding future events and the future financial performance of the company.

These statements are based on assumptions and beliefs, and we assume no obligation to update them except as required by law. Actual results may differ materially from those results predicted. Please review the risk factors in our most recently filed Form 10-K and our Form 10-Q to be filed shortly after this call for additional information. We will also be discussing non-GAAP financial measures. Reconciliations of our GAAP to non-GAAP financial measures are included in our shareholder letter available on our IR website. Please be sure to review the GAAP measures and a reconciliations as non-GAAP measures are not intended to be a substitute for or superior to our GAAP results. This conference call is being recorded, and a replay will be available shortly. And we will be hosting a Q&A session after our prepared. But first I'd like to turn it over to Adam and Herald. Adam, please go ahead.

[Adam Foroughi, Co Founder and Chief Executive Officer]

This past quarter we achieved many key milestones for AppLovin. We celebrated our 10 year anniversary in the business or one year anniversary as a public company. And we cleared over 10 billion app installs just covered through our marketing platform. We can celebrate this milestone because of the hard work and value and culture that we have in AppLovin. First, we hire and work with great people from diverse backgrounds. We give them an environment to thrive in, always trying to ensure each person has room to develop their professional and personal skills here more than anywhere else.

Second, we are an entrepreneurial and we never sell. We know that in a competitive and challenging market complacency leads to failure. And third, we maintain focus, we aim to do big things. But all of our decisions are tied to our core goals continuing to expand our footprint as a marketing and monetization platform for developers.

It was key to the team that we maintain these core principles as we entered a new public chapter for our company. I'm very proud to say we've done just that. [Indiscernible] demonstrated in our first quarter. Further our software platform business will continue to expand by adding new clients and increasing the amounts that existing clients are spending. The strong performance allowed to record EBITDA in Q1 of $276 million. Most software businesses lose money while growing. We're growing quickly and just clear to the $1 billion EBITDA run rate. Next, we successfully completed migrating MoPub into our MAX platform, unifying the two wireless mediation solutions in the mobile app market, we not only had to execute quickly on our side to accomplish this, we also ask publishers to integrate our platform into their app in just 90 days or risk losing their ad revenue.

A couple things to call out specifically here. Historically we grew MAX to become the leading solution in the market by offering the best technology, not by paying bonuses. This is exactly how it will run our business going forward, focusing on continuing to deliver the best solution in the market. Given the short window of time to move toward a unified platform, we made the decision to payout $210 million in onetime publisher bonuses. We count into these bonuses as contra revenue. And Herald will give you the accounting details shortly. We see the opportunity to own the largest marketplace in app advertising ecosystem is strategically valuable long term. And therefore this was a decision that was an easy one to make because it helps ensure continuity with the publishers coming over from MOBA. Pushing monetization platform to the big undertaking, and we are proud that over 90% of the most of our publishers moved over to MAX.

As a result, we now have a significant share in the market using our solution so much so that the success of our platform will directly influence growth in the total addressable market and success to all major parties in the ecosystem. That's a strong position to be in and a responsibility we will be proud of them. And finally, we acquired Wurl, a leader empowering streaming TV. Together, we will partner to great performance marketing the CTV. It is cleared just how quickly we push forward on items to make the biggest impact to our business when we look back just one year to the IPO and see that software was only 14% of our revenue versus 40% now. At that time, we discussed just how important the first party data that those games provided was to our software platform success. Today our software platform businesses are growing at a significant rate much faster than we expected. While there hasn't been [Indiscernible] leveled off. In fact, our software business in Q1 ‘22 is four times larger than it was in Q1 ‘21. And in Q1, software contributed over 80% of our EBITDA.

For the last several quarters, we talked about how the app business is not as strategic as One Plus, with the continued scaling of our software platform, we proven that the two businesses can operate independently from one another. More directly, given the success of our software platform, we will no longer run our game as a cost center. That means we will be exploring how to structure our app business so that it is run more efficiently as its owned standalone business unit. This exploration may result in operational changes and possibly make the seller spin off from the studios. Among them are nearly 20 very [Indiscernible] gaming videos their founders and their team. We will operate the studios with a more profitable spend on user acquisition, which we already started to do in late Q1.

Traditionally, we were willing to spend more on new users valuing the scale, audiences’ data as a justification. This was operating it around breakeven while typically gaming companies operate at 20% or higher EBITDA margins, which we will now aim to reach over time. Mobile AppDiscovery discovery and monetization are critical for app developers now more than ever, with MAX we are the marketing leading monetization solution. AppDiscovery is the fastest early user acquisition channel for developers today, with customers paying us for performance were shielded against macroeconomic volatility. We have a powerful machine learning engine that is only 18-month old and will continue to improve. MAX allows us to serve ads to the 700 million daily active users we help monetize. We have been seasoned and navigating in complex ecosystem in a dynamic privacy landscape. With the growth opportunities across our software business and feature initiatives and the highest cash flow of our business generates even today, we're very excited about our future.

Now I'll turn it over to Herald Chen to outline the details of Q1 financials and our outlook.

[Herald Chen, President and Chief Financial Officer]

Thanks very much. As Adam mentioned, with the growth environment for our software platform, plus a new operating approach for our apps portfolio, we're excited about our near and long term growth prospects and cash flow outlook. Don't you better understand that thesis going forward, we'll be providing greater insights to the economic drivers of our two businesses. And regarding the overall cash generation of our company, for a quick preview what Adam just described in more detail shortly. Our guidance for the software platform business is to generate over $1 billion of revenue in a second through fourth quarter this year. Based on an estimated margin for that business was 70% and a flow through the cash of another estimated 70% that business alone will generate over $0.5 billion of unlevered free cash flow in the next three quarters alone.

Now let's get back to the quarter and it’s in the Q1 we make some key decisions and good progress to our goals. I'll highlight a few in detail before we take your questions. The first topic is our overall strong spending in margins. We have strong quarter-over-quarter and year-over-year growth on both the top and bottom line when adjusting for the $210 million of contra revenue we booked in Q1 which were the bonuses paid to publishers related to the MoPub transaction. Our burst in Q1 was driven by the growth in our software platform revenue more than making up for a modest decline in our app revenue. But let me spend a few minutes on the contra revenue so you can appreciate the growth and margin expansion that we saw in the quarter. First of all, just the accounting of contra revenue. We pay these publisher bonuses to our vendors that are currently or may become future customer of ours. And since GAAP requires offsetting revenue for fees you pay to customers or potential customers, these publisher migration bonuses have $210 million are accounted for as contra revenue.

Second, these are non-recurring and a result from the MoPub transaction. Historically, we did not incur these fees in any significant size. But when you shut down one of the largest players in mediation and ask their publishers to move over in 90 days, those publishers incur real revenue loss and cost to migrate. Going forward we deny these publisher bonuses as a significant cost to our normal business and we did not have them before MoPub nor we project anything significant going forward. Because the MoPub related fees are non-recurring, we add it back to adjusted EBITDA and any non MoPub related publisher bonuses as we would see after Q1 we will not be adding back to adjusted EBITDA, so therefore, it is just a onetime occurrence in this quarter, in this past quarter. For reporting purposes, on the revenue side, we cannot add back the contra revenue. But for internal purposes, of course, we combined the two numbers, which adds up to around 38% greater than ourQ4 number.

Overall, we continue to return $210 million of contra revenue as part of our $1.05 billion purchase rights for MoPub, the total price for that edition was 1.26 grand. And that's a very attractive price for such a strategic and financially accretive asset. On a cash flow side, Adam mentioned, we had good record of $276 million in EBITDA with a reported margin of 44%. When normalizing revenue for the publisher bonuses, our adjusted EBITDA margin was 33%, which you can see in purple here that we think is the normal run rate of the business. And that is a 500 basis point increase over 28% in the fourth quarter of 2021. This margin expansion was entirely driven by the strong growth of our high margin software business. And in fact, the margin was slightly reduced by our assets where the reduction in apps revenue was in large are offset by user acquisition spending, but was still related to our overall margin.

As we mentioned in shareholder letter, we currently got to make our software platform business currently runs at a normalized EBITDA margin of 65% to 70%. And our apps business at an estimated EBITDA margin of 5% to 10%. Therefore faster growth of software related apps tries margin expansion. We will be providing more details on this in our Q2 earnings report where we will be providing segmented financials for the first time. Our strong [Indiscernible] for software platform revenue and margin plus operating costs management allows us to raise our EBITDA guidance for this year and we'll talk about further in a minute. Of note at our current operating scale, we're able to translate a significant percentage of our EBITDA to unlevered free cash flow given our low CapEx, working capital requirements and moderate tax rate.

We estimate that normalized run rate percentage of adjusted EBITDA translating to unlevered free cash flow to around 65% and 75%. The next slide we want to show you or talk about our software expansion for the quarter. So we’ve heard now a few times from Adam and me we believe that software platform growth is key for our long-term growth and cash flow. So let's take a deeper look at our Q1 software performance. First of all, as noted in purple, you can see all of the onetime contra revenue is taken against our software revenue. But when added to GAAP revenue of $119 million, the total is $329 million for Q1 that represents 33% quarter-over-quarter growth rate on top of strong third quarter growth over our prior three quarters. We saw strong customer adoption across all of our solutions including AppDiscovery, AppLovin Exchange, Adjust and MAX. As we started to pick up revenue from the integrated MoPub customers.

Our customers continue to find success with our solutions are growing their business and in turn spending more on us. Of note in Q1, we received approximately $40 million of revenue from both our Twitter and expect the revenue from the acquisition to grow over the course of the year. However, going forward, it will be difficult to discern what revenue comes explicitly from MoPub now that it is fully integrated into MAX. Across the board on software KPIs, we had a very solid performance normalized for the contra revenue impact. We have 258% net dollar based revenue retention in the quarter over prior year showing the resiliency of our customers and continued increase in the use of our software solutions. We also had a solid increase in the number of new customers. Our normalized SPEC count reached 519, an increase over 58 customers, but we still believe that a small percentage of customers available to us in the marketplace. The additions were across the business including from new additions from customers migrating from MoPub as well as for new customers from AppDiscovery and Adjust. On top of the more customers we saw the average revenue increase on average from all of our SPECs reaching normalized $603,000, a steady increase over the past three quarters. Of note, when we are taking the $210 million of contra revenue out of this metrics, we still were able to grow net dollar base retention and the total number of SPECs.

For the third topic, we wanted to provide you an update on our guidance where we're increasing our ’22 adjusted EBITDA target. For ’22, our operating outlook for the software platform remains the same as previously given. However, we're adjusting our formal guidance by the $210 million in contra revenue to GAAP revenue guidance of $1.14 billion to $1.29 billion. We're continuing to expect $2 billion in software platform revenue in 2023, which will be a 10x increase from 2020 and a 65% increase over the midpoint of a revised software platform guidance in ‘22. We believe we have the market solutions technology and team to reach that goal. Further, given our scalable cost structure, which we articulated earlier, we believe that cash flow from a $2 billion revenue software business would be substantial. Switching to the app side investment, as Adam mentioned, our software platform and immense feature of MAX solution means we are much less reliant on the data from our apps to drive financial performance for our clients. Therefore, we're planning to manage that business to optimize for operating and financial efficiency, with a perspective on how to best drive cash flow from that business over the long term.

In the near and medium term, that may include lowering our investment and user acquisition will drive up -- which will drive up margins for lower overall growth. We will also do a review of our app portfolio which could lead to a wide array of transactions or no change at all. Based on this new approach, we're lowering our revenue guidance by $200 million. And now targeting a range of $2 billion to $2.15 billion in revenue from apps in ‘22. The combination of our changes in software and app guidance leads to our revised total guidance of $3.14 billion to $3.44 billion on a GAAP basis. With regard to adjusted EBITDA, given a record performance and strong margins, we're raising adjusted EBITDA guidance to midpoint target of $1.2 billion. This target again represents a 65% increase over the prior year. This is also an increase from our previous guidance of high 20% margin against the total revenue forecast at midpoint for $3.7 billion, which equated to just over $1 billion. Key drivers in the same region EBITDA guidance for the much higher growth for our software platform business, which as I said, has a much higher margin profile. We have lower investment requirements than originally earmarked for new initiatives. And we now have a higher margin expected from our apps business as we optimize it.

From an overall margin perspective, this equates with 36% ‘22 adjusted EBITDA margin at midpoint of GAAP revenue guidance, and a 34% of adjusted EBITDA margin when excluding the contra revenue. Therefore, the 34% target is our runway margin to focus on which would be an 800 basis point increase over the prior year. Since we do generate a good amount of cash flow, I wanted to touch briefly on our go for capital allocation perspectives. Previously stated we're not focused on M&A for the apps parts of the business, we will -- and we'll opportunistically look on the software side. Although there too we've assembled many of the key assets we wanted to look at 18-months. Then with regard to the stock buyback side, we do have our $750 million authorized program, and we use just over $45 million thus far. We are planning to use that authorization when appropriate and are open to doing so given the right opportunity. We appreciate the public markets are highly volatile and difficult to predict. In these markets, we believe cash is king and cash flow growth is king and queen. That's exactly where our team is focused. We believe in our strategic position growth and cash generation potential. And we will work hard at quarter after quarter to post the numbers that will earn your trust. Thank you for taking the time to get an update on our business. And with that, we'll open the call for questions. Ryan?

[Operator Instructions]

[Ryan Gee, Head of Investor Relations]

Yousuf. Please make sure that you do select unmute to ask your question. Go ahead, Yousuf.

[Unidentified Analyst]

Excellent. Can you hear me? Beautiful. Thank you. Hey, guys. So just a couple of questions for me, maybe just at a high level. How long do you think this review of the apps business will last? In the meantime, what kind of performance do you expect from it? I think it was down $40 million sequentially. That's one and then to a question we often get from investors is round just this shift in strategy away from the apps historically you guys have positioned yourself as strategically leveraging the apps to as a source of first party data or 1P. So maybe just refresh us, why is that not as important anymore? Thank you.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Hey, Yousuf. I think the two questions are well tied together. And really what we're focused on with the games business, as it is today, is operated efficiently. We've got 20 or so studios, distributed all over the world, some are run very well, they generate good amount of profitability, some are generating losses. And we're going to go through the portfolio and ensure that every single one of them is held to the standards the same way any independent gaming company would be. And what gives us confidence in that is that our software business is frankly grown so much faster, and so much larger than what we thought when we first went public a year ago, we were talking about $650 million of revenue in software for the entire year this year. And we're now talking about over double that amount, around half that amount in the first quarter is quadrupled in the last four months. And so when we see that scale, what we know is that we have really become a market solution. And we've gotten a lot more software platform enterprise clients to come use our platform, we've gotten a lot more scale with the MAX and MoPub marketplace now. And that gives us the confidence that our games are only a small percentage of that software business. The other data points it's really important to point you out too is for four quarters in a row our games business has been fairly flat in both audience and revenue, whereas our software business has grown immensely. That gives us a lot of confidence in the trajectory of the software business. And we want to focus entirely on running that and achieving a couple of billion that we put out as a goal next year.

[Ryan Gee, Head of Investor Relations]

Next up is Eric Sheridan at Goldman Sachs.

[Eric Sheridan, Goldman Sachs]

Okay, can you guys hear me now? Great. Hope everyone's well on the team. I want to come back to some of the acquisitions you've done and talk more broadly there. You finished MoPub obviously, there's Connected-TV with world. Where do you see now the collection of assets you have in terms of positioning yourself for compounded growth, different verticals on the advertiser side, potential budget unlock, not only in 2022 but as we look beyond 2022 over the next couple of years. I'd love to get as much color as we can about that. Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Great question. In mobile, we're really confident with our position, we've got the largest marketplace, we've got act on machine learning technology that's only 18-month old, and it's going to continue to improve. That's how these things go. And then we know performance model. So we're not looking to take advice from others, we are looking to give our advertisers results that are measurable and within their financial goals. That unlocked unlimited budget. And so as we think about how to increase our market over time, and create growth factors for many years to come, we really think about finding the consumers that we know how to serve as well with recommended offerings across other access points, and that’s what may be Connected-TV interesting for us, we're all being one of the leading software solutions to bring content online and Connected-TV for a lot of the brands that have content needed distributed through a channel, we advertise in that content will have immense reach, be very valuable under full train. And we think it present a really large performance model on television. And we're going to focus on continuing expanding the software business and putting our machine learning software in as many places as we can go.

[Ryan Gee, Head of Investor Relations]

We'll go to Stephen Ju at Credit Suisse.

[Stephen Ju, Credit Suisse]

Hi, great. Thanks. Can you hear me? Awesome. All right, great. So, Adam, reading between the lines of your shareholder letter seems like now's the time to go after the larger ad market, as opposed to just a spin from the mobile game sector. So with MoPub now in the house, is there any sort of direction or update you can give us in terms of the mix of ad revenue now coming from non-gaming clients and what the relative growth between gaming versus non-gaming is now and where that could be? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

So MoPub and MAX together is on top of 700 million daily active users around the world, and these consumers in large part on our platform, they're playing games, but I can assure you they don't just play games, the only thing they do in their life, so they're very good audience that level of scale to monetize on both games and non-games, we traditionally focus our solutions for the game developer and really built a lot of performance technology there, MoPub products access to the MoPub marketplace. And that's how they monetize their eyeballs. And the marketplace itself is directly access for companies like the Trade Desk, which we announced a partnership with last court to buy into our exchange. So as we continue to integrate, and push forward after this month of transaction, those types of relationships we're going to see more and more monetization potential is very large audience from non-gaming customers to augment the credit and market leading solution, we have at mobile gaming category.

[Ryan Gee, Head of Investor Relations]

Next, we'll go to Clark Lampen at BTIG.

[Clark Lampen, BTIG]

Okay, can you guys hear me? Awesome. Maybe I'll follow up on Stevens question there for a moment. Because, Adam, you mentioned the Trade Desk onboarding. In prior quarters, we've seen in the shareholder letter that there's really been a spike in sort of customers coming on platform. So with ALX and MAX now kind of under the AppLovin umbrella for the first full quarter, could you give us a sense of customer response to the unified platform or maybe if it's possible, if there's any sort of backlog or just sort of qualitative read on demand. And then Herald, I think, if I understood this, right, as we look at the ’22 EBITDA guidance, most of the adjustment years really sort of change a plan around apps and maybe it's asset adjustments. But given what you've talked about with strategy, does this change your sort of willingness to move potentially into new spaces, like, OEM, sort of block chain and NFT's and some of the things you talked about last quarter? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, so as we think about like the integration that we just did, we put together the largest really open marketplace and mobile apps is average of just over 700 million daily active users in one exchange is a very large amount. So we've heard really positive feedback from the customers coming over. They were traditional DSP buying on MoPub, thinking that MoPub was the biggest solution. And by coming into this unified solution, they're getting over two times the amount of scale for their business, that's obviously made the reception really strong. And on the publisher side, it's being able to have that much scale in one software solution does creates a lot more liquidity, our entire objective with MAX was to drive up competition in the marketplace, so that we can increase the amount of money that the publisher earns, and know that on the other hand, that publisher is going to go invest in user acquisition. And that's what you're seeing really fuel our growth, you're seeing the increase in size where we've almost tripled them in the last 12- month. You're seeing that net dollar retention. I mean, I think it was around 265%, just this past quarter. These are the same customers a year ago, spending nearly tripled on our platform today. And that's because the efficiencies that we're bringing to the market is enabling them to do that and grow their businesses faster than the markets growth.

[Herald Chen, President and Chief Financial Officer]

And Clark, thanks for the question. The other question you had was around margins and invest in a new initiative. I think last year, we talked about being the highest 20 so margins this year, and there are three big investments we needed to make. One was the infrastructure to grow the software platform as fast as if you are going to particular given MoPub. The second was the investment in new initiatives. And we put bucket aside, not knowing exactly what that would look like. And then the third one was realized new apps with studios, we on boarded to go invest behind that. I think very simply the first one we're still doing it or actually have done that's in place. We're on board due to the vast majority of what we wanted to do on MoPub and because of that infrastructure in place, and now we'll get to continue to grow as MoPub and the software platform that does grow. I think the other big pieces, do you have changes to them. On the new initiatives side, we're pursuing the NFT block chain as well as the OEM strategies, and I'll touch on that in a second. We're still as bullish as we were in the first quarter of out there that we just don't think it takes as much dollars this year is investing behind it to go to achieve that. And then we talked about the app side, which is a very different approach in terms of the investment there. We told you before that the M&A dollars would not be allocated there. And now we're telling you that importantly though we're running at low single digit margins, and they really should be in their 20s margins. And so there's a lot of room for us to improve that from an OpEx standpoint. So we're -- we still remain extremely excited about the new initiatives. We talked about UCTV with world being one OEM another and then the NFT block chain and we would expect in the next couple of 12-month, if not sooner be coming back to you to describe some of the progress we're making on all these fronts.

[Ryan Gee, Head of Investor Relations]

We'll go next to Matt Cost at Morgan Stanley.

[Matt Cost, Morgan Stanley]

Hey, everyone, thanks for taking the question. I guess just looking at the ad network revenue in the quarter, very strong, it looks like revenue perspective, I have this right within as an all-time high. So I guess what are the sources of strength in 1Q, particularly while you're going through the transition of MoPub into MAX that you would call out? And within that could you talk to the contribution from MoPub in the quarter? And then just Secondly, kind of more philosophically, I guess, historically, the way that I certainly thought about what made your ad network unique was that you had a flywheel between the data that came from the apps business, and then you said, the algorithms in the ad network. So I guess in the future where the apps could be spun or sold at the very least smaller in scale relative to the scale of the ad network. What differentiates AppLovin’s ad network now, as you sort of drive to the next leg of growth, if it's not just running the same playbook that got you from where you started to where you are? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, great question. And when I look at, it really, it's all interrelated. Again, if you look at our ad business, the inflection point on it was the release of AXON 18 months ago, and the continued expansion of dollars that are invested by our own customers over the last year is coming from the efficiencies in the machine learning, these systems just get better as they get more data. Now, what's interesting about that your data question is that when we started it was the AXON, the only data we had were on games does the entire region we got into games. And when we went public a year ago, our own games made up 35% or 40%, of the software business. And we reported that to you in [Indiscernible]. Now that number continues to shrink. And that's because we've been seeing immense adoption of the technology, we're seeing customers come online, we're serving more ads, we're getting a bigger feedback loop from doing all of those things. And we're seeing the machine learning continue to improve without a necessity for our own games to be feeling the data. And that's what gives us the confidence to go, let's just run both these businesses the most efficiently that'll maximize shareholder value, and allow us to continue to grow the software business to generate actual real margin from the games business at the same time.

[Matt Cost, Morgan Stanley]

Thanks, then, just on the ad network side, if you wouldn’t mind.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, I think you asked the contribution was from MoPub in the quarter and it was just over $40 million, specifically. And we can -- we know that number, because Twitter was still running that business for us in the quarter, subsequently valued integrated entirely in the MAX, MoPub as everyone knows, was completely shut down March 31 of this year, and so it's fully integrated in our numbers rolling forwards, we won't be able to parse it out, because all the data and the consumer customers are all integrated. But we expect to increase that number quarter-over-quarter, as we've shown ultimately, in our software guide for the year.

[Ryan Gee, Head of Investor Relations]

We go next to David at JPMorgan.

[David Karnovsky, J.P. Morgan]

Thank you, just one on MoPub integration. I know it's early. But for the publishers that have migrated over, can you maybe say how much traction you're seeing and pushing these kinds toward in updating? And then how do you think about cross-selling from these new relationships in your AppDiscovery products or anything else you offer? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, the MAX solution itself, really, we built and push the markets and I think and up and partnership with Facebook really were the first two big bidders in the marketplace. And clients are coming over to MAX's yet we're not bidding out of the box, what we have seen is strong performance for the publishers that have come over. And frankly, just because of the scale, we've got some liquidity on the platform. It allows us to get more differentiated demand, and the technology was built much later than the other mediation solutions. And that's why we've had such a strong trajectory to Max before MoPub and why we continue to expect it to be the leading solution in the marketplace.

[Ryan Gee, Head of Investor Relations]

We'll go next to Tim Nollen at Macquarie.

[Tim Nollen, Macquarie Group]

Okay, great, thanks. I've got a couple of questions related to the contra revenue because I guess I had thought of the $200 million as number that you've mentioned before as being more of a cost. If it's a contra revenue item just to make sure that is not just MoPub customer revenue that's being shifted over to MAX, but there must be some other revenue in your system that's also being moved over to MAX, just want to make sure I understand that because the $40 million versus the $210 million number, just to make sure I understand what that difference is. And then relatedly, if you've got 90%, I think you said of customers moved over to MAX, does that mean most of this is behind you and the other 10% are going to come? Or what happens to that other 10%? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, thanks, Tim, for the questions. Yes, sorry, this would require clarifications, on the revenue side that we take to our software business, specifically coming out of MoPub customers with the $40 million, the $210 million we are referring to is the fees that we paid to our vendors, or our publishers to move their inventory on the MAX , right. So those are not necessarily customer of ours, but vendors put inventory where we're monetizing their inventory. And the accounting [Indiscernible] given of that, because many of the publishers are our customers as well. But then you have to have a contra revenue against the revenue they contribute to us. And then many of them are publishers who aren't our customers, we want them to be our customers. And therefore accounting system also charges that to contra revenue. So there are two different numbers, two different populations at this point. But we're hopeful that those publishers will become customers on our AppDiscovery platform. And then in terms of the migration, we do have to provide the value of 900% for the publishers now on our platform, by the way, that'll take time for them to fully scale out of the platform. And then the demand side to catch up. I think the remaining 10% are certainly other providers out there, some, one of does, some don't. But we got all the key vendors that we wanted and publisher on our platform feel very good about that exceeded our expectations. So what we'll be able to do.

[Tim Nollen, Macquarie Group]

Okay, so if we wanted to get an organic revenue growth number that would be then I guess it was at 835 is that the total minus to 40 that would be your organic growth.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Exactly. That’s exactly right.

[Ryan Gee, Head of Investor Relations]

We'll go next to David Pang.

[David Pang, Stifel Financial Corp.]

Great, can you hear me? Right. Thanks. So given the challenges of one of your key competitors, how are you ensuring that AXON won't face a similar challenge and is learning on quote unquote, good data?

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, I mean, like machine learning, obviously had an opportunity and sensitivities, and really doesn't require a good data team. And a lot of that just comes down to execution. We're focused on our own execution, not let others around us are doing and really the key with us, though, is have been, we felt like if we got data and got a playground to be able to raise the models, we have the technological capacity and the infrastructure to build very substantial machine learning technologies. We did just that. And you see now for the past few quarters, growth is just really outpaced the market. We're very confident in our own the platform's ability to be stable and continue to lead to growth going forward.

[Ryan Gee, Head of Investor Relations]

We'll go to Franco Granda.

[Franco Granda, D.A. Davidson]

Hi, good afternoon, everyone, could you hear me, okay? Perfect. So despite the phasing out of IDFA and 14.5, it appears that probabilistic attribution still very prevalent across the industry. And there are rumors that Tyra 16 might be cracking down on this. And, yes, this is thought that using private relay, similar to Google's plans, Apple would be able to do this in a non-disruptive way. So I guess two questions on this. First, just how big of a task is it for non-compliant ad tech businesses to move away from fingerprinting, then two, if a change like this were to happen, would this be an opportunity for you to gain share in a similar way that when HAC was enacted? Thanks.

[Adam Foroughi, Co Founder and Chief Executive Officer]

Yes, look, I think they're really like if you go up a level in the marketplace, this privacy changes have continued to come over the last few years. Part of the GDP, I don’t , yes, there was frankly, was the biggest and now what Wurl does in the future, but we can't predict exactly what's going to change in the market. There's a couple of certainties. One is people can play games on their mobile devices that we know for certain, these are needed. We have a very large scale platform 700 million plus daily active users on it. So we're monetizing. And the third is that our technology and team is really nimble, we can move quickly. Whenever these market shifts happen, you always expect to see winners and losers. It's just the way it always shapes out. And why we've been able to succeed so far in the last decade is that we move faster than everyone else. And we pride ourselves on being able to do that. So while these changes can be disruptive to businesses, we look forward to change.

[Ryan Gee, Head of Investor Relations]

We'll take our last question here from Martin Yang at Oppenheimer.

[Martin Yang, Oppenheimer and Company]

Hey, Ryan, can you hear me? Thank you. So my question is about the first quarter software platform revenues. Even back in MoPub is very strong, seasonally, and also net expansion rate quite extraordinary. Was that a surprise to you?

[Adam Foroughi, Co Founder and Chief Executive Officer]

I mean, look, when we put out a guidance into next year, 10x of the software business from just four years ago, right for a business at this level of scale, reporting on net revenue, and we've now talked about 65% to 70% EBITDA margin out of this business, to be able to do that you got a lot of confidence in your business. So even though I think we surprised ourselves with how fast this trajectory of growth became, we're not surprised on our ability to execute and continue to grow this business going forward.

[Martin Yang, Oppenheimer and Company]

Let me be more explicit are, do you feel you benefited from some of the hiccups from your competitor in the first quarter?

[Herald Chen, President and Chief Financial Officer]

Okay, so the way this markets work is on zero sum. But on the flip side is one competitor ends up decaying in performance. Another one doesn't just increase, because the reality is we effectively we have models that are trying to match up idle without the latter offers, do matchmaking well and rise to the performance of the advertiser who wants to go cheap. We're not really bidding against others, what we're taking or we are getting, we need to make sure that the matchmaking is accurate, and we're driving the value to the other advertisers that are buying on our platform. So the impact from one doesn't impact us. That said the long term we want to make sure and we really do a strong job of this on the MAX platform that every marketing platform on the market is performing well. The better the marketing solutions are in the industry, the bigger the market is going to become the faster that grows more audience discovery, and more consumers will be playing more games, which is going to appeal to our growth and the ecosystem’s growth. And that's why I referenced in my pie chart that we have so much of the market on our ecosystem on the MAX’s platform now that we're really the success of our platform is going to direct the increase in hands on the entire sector.

[Ryan Gee, Head of Investor Relations]

Okay, and there's no more questions in the queue. Like to turn it back to the guys and thank you all for joining us today. Do you guys have any closing remarks you'd like to say?

[Adam Foroughi, Co Founder and Chief Executive Officer]

Thanks for joining us. We notice a lot in letter and cover. We appreciate people taking the time, taking look into this volatile markets. Thanks so much.

[Herald Chen, President and Chief Financial Officer]

Thanks everyone.