Q1 2022 Applovin Corp Earnings Call
Okay. Good afternoon, everyone, let's get started welcome to epilepsy <unk> earnings call for the quarter ended March 31, 2021, I'm Ryan She head of Investor Relations and strategic finance at Apple oven and joining me to discuss the results of our co founder CEO and chair person out of <unk>, and our president and Chief Financial Officer.
Chen.
Please note our SEC filings earnings release and shareholder letter discussing our first quarter performance are available at investors start up 11 Dot com.
We also posted a short slide presentation that Harold 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 our company. These statements are based on our current assumptions and beliefs, we assume no obligation to update them, except as required by law.
Actual results may differ materially from the results predicted.
To review the risk factors in our most recently filed Form 10-K and in 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 and 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 reconciliation of 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.
We will be hosting a Q&A session. After our prepared remarks, but first I would like to turn it over to Adam and Harold.
Please go ahead.
This past quarter, where you see many key milestones for Atwood, we celebrated our 10 year anniversary as a business our one year anniversary as a public company and we cleared over 10 billion App installs discovery through a marketing platform.
We can celebrate these milestones because of the hard work and value driven culture that we have at that level.
We've hired great people from diverse backgrounds, we give them an environment to thrive and always trying to ensure each person has room to develop their professional and personal skills here more than anywhere else.
Second we are entrepreneurial and we never so we now live in a competitive and challenging market complacency, we'd still failure.
Third we maintain focus we aim to do these things, but all of our decisions are tied to our core goals continuing to expand our footprint is it marketing and monetization platform a vertical hours.
It was accretive and the team that we maintain these core principles as we entered a new public chapter for our company.
Obviously, we've done just that.
This can be demonstrated in our first quarter.
Further our software platform business has continued to expand by adding new clients and increasing the amounts of existing clients are spending. This strong performance led to a record of EBITDA in Q1 of $276 million.
Most software businesses lose money, while growing we're growing quickly and just cleared at 1 billion EBITDA run rate.
We successfully completed migrating workloads into our Max platform unifying the two wireless mediation solutions in the mobile App market.
Not only have to execute quickly on our side to accomplish this we all know how publishers the integrated our platform into their apps and Jonathan 90 days or risk, losing their AD revenues a.
A couple of things to call out specifically here.
Historically, we grew masks to become the leading solution in the market by offering the best technology Nobody paying bonuses. This is exactly that 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 towards unified platform. We made the decision to pay out $210 million in onetime publisher bonuses when accounting for these bonuses as contra revenue and Harold will give you the accounting details shortly.
We see the opportunity to own the largest marketplace in the.
Advertising ecosystem is strategically valuable long term and therefore this was a decision that was an easy one to make because of the health insurer continuity with the publishers coming over from <unk>.
Switching to monetization platforms is a big undertaking and we are proud that over 90% of the local publisher who moved over to Max.
As a result, we now have a significant share of the market using our solution. So much so that the success of our platform will directly influence growth in the total addressable market and the success of all major parties in the ecosystem.
Strong position of being in a responsibility and we will be proud of them.
Finally, we acquired World a leader in empowering streaming TV.
Together, we will partner to great performance marketing to CTV.
It is clear to us how quickly we pushed 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.
That time to discuss just how important the first party data that those gains provided was to our software platform success. Today are software platform business was growing at a significant rate much faster than we expected while our apps business has leveled off and faster software business in Q1 'twenty. Two is four times larger than it was in Q1 'twenty one.
And in Q1 software contributed over 80% of our EBITDA.
For the last several quarters, we've talked about how the apps business is not as strategic as it once was with the continued scaling of our software platform. We have proven that the two businesses can operate independently from one another.
More directly given the success of our software platform, we will no longer lottery games as a cost center. This means who exploring how to structure, our das business run more efficiently as its own Standalone business unit.
Exploration May result, in operational changes and possibly plans to sell or spin off some of the studios.
Among them are nearly 20 very capable game studios, they're founders and their teams we will operate the studio 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 features value and the scale of audience data suggests a vacation. This led to operating at around breakeven, while typically gaming companies operate at 20% or higher EBITDA margins, which we will now aim to reach over time.
Mobile App discovery and monitor this critical profit developers now more than ever with Mcafee as a market leading modernization solutions.
This company is about this early user acquisition channel for developers today.
With customers paying us for performance were shielded against macroeconomic volatility.
Powerful machine learning engine that is only 18 months old and we will continue to improve.
<unk> allows us to serve up to the 700 million daily active users we help monetize.
We haven't seen season in navigating a complex ecosystem of any dynamic privacy landscape.
With the growth opportunities across our software business and future initiatives in the high cash flow our business generates even today, we're very excited about our future.
Now I'll turn it over to Harold to outline the details of our Q1 financials and our outlook.
Thanks, very much for that I mentioned and with the growth in margins from 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.
Tell me about our understanding that thesis going forward, we'll be providing greater insights into the economic drivers of our two businesses and regarding the overall cash generation of our company for a quick preview of one of them are described in more detail shortly our guidance for the software platform business seems to generate over $1 billion of revenue in the second through fourth quarter.
This year.
Based on an estimated margins of that business was 70% and a flow through to cash from another estimated 70% that business alone will generate over half putting dollars of unlevered free cash flow in the next three quarters alone.
So let's get back on the quarter and I think in Q1, and we made some key decisions and good progress to your goals I'll highlight a few in detail a few in detail before we take your questions.
The first topic is our overall strong trending in margins, we had a strong quarter over quarter and year over year growth on both the top and bottom lines when adjusting for the $210 million of Contra revenue. We booked in Q1 when were the bonuses paid to publishers related to the transaction.
Our growth in Q1 was driven by the growth in our software platform revenue more than making up for a modest decline in our apps 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 paid these Tony in bonuses to our vendors that are currently or may become future customer of ours and since GAAP requires the offsetting revenue for fees you pay the customers or potential customers. These publisher migration bonuses of 210 billion are accounted for as Contra revenue.
Second half of these are nonrecurring.
All from their mobile club transaction.
Historically, we did not incur these fees of any significant size.
When you shut down one of the largest players in the mediation and after publishers to move over 90 days, those publishers and Kirkman car real revenue loss and cost to migrate.
Going forward, we do not see publisher bonuses are significant costs for a normal business and we do not we do not have looking before in Oklahoma, Norway project anything significant going forward.
Because of the mobile related fees are non occurring we added back to adjusted EBITDA and.
And any non comp related publisher bonuses, we would see after Q1, we will not be added back to adjusted EBITDA.
Our board has turned to a one time occurrence in this quarter this past quarter.
For reporting purposes on the revenue side, we cannot add back the contra revenue, but for internal purposes of course, we combine the two numbers, which adds up to about 38% greater than our Q4 number.
Overall, if you consider the current $10 billion of Contra revenue as part of our 1.05 billion purchase price for both of them.
Core price for that acquisition was $1 two six going in and that's a very attractive price for such a strategic and financially accretive asset.
On the cash flow side, Adam mentioned, we had record $276 million of 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 points increased 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 outfits or reduction in apps revenue was in large are offset by a user acquisition spend but we're still dilutive to our overall margin.
Okay got it and in our shareholder letter. We currently estimate that 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, the faster growth of softer relative apps drives margin expansion.
We will be providing more details on this in our Q2 earnings report, where we will be providing segment financials for the first time.
Our strong outlook for software platform value and margin plus operating cost management allows us to raise our EBITDA guidance for this year and we will talk about further in a minute.
Of note that our current operating scale.
Able to translate the significant percentage of our EBITDA to Unlevered free cash flow given our low capex working capital requirements and moderate tax rate, we estimate that the normalized run rate as a percentage of adjusted EBITDA translating to unlevered free cash flow to be around 65% to 75%.
Yeah.
The next slide we wanted to make sure. He is talking about our software expansion for the quarter. So we heard a few times from out of India. We believe with a software platform growth is key to 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 the <unk> you can see all of the one time Contra revenue is taken I guess our software revenue.
When added to GAAP revenue of $119 million totaled 329 million for Q1.
That represents a 33% quarter over quarter over quarter growth rates on top of a strong quarter over quarter growth over the prior three quarters.
We saw all saw strong customer adoption across all of our solutions, including Apple Scullery outflow in exchange adjusts the Max.
It turned out we pick up revenue from the integrated mill customers.
Our customers continue to find successful our solutions are growing their business and in terms of spending more on us.
Of note in Q1, we received approximately $40 million of revenue from both on Twitter and expect 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 now.
But if it did I think fully integrated into maps.
Across the board on our software Cape York very.
Very solid performance when normalized for the Contra revenue impact we had 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 are normalized spec count reached 519 and increase over 58 customers, where 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 mobile as well as for new customers from our discovery and the trust.
On top of the more customers. We saw the average revenue increase on average from all of our specs, reaching normalized $603000 and steady increase over the past three quarters.
I would note that we're making with $210 million of contrary to our company's metrics, we still were able to grow net dollar based retention and the total number of specs.
Yeah.
For the third topic.
Wanted to provide you an update on our guidance, we're increasing our 22 adjusted EBITDA target.
For turning to our operating outlook for the software platform remains the same as previously given.
However, we are adjusting our formal guidance, but a $210 million in contra revenue to GAAP revenue guidance of $1, one 4 billion to $1 two 9 billion.
We are continuing to expect $2 billion in software platform revenue in 2023, which would be a 10 times increase from 2020, and a 65% increase over the midpoint of our revised software platform guidance in 'twenty two.
We believe we'll be able to market solutions technology and team for each cycle.
Further given our scalable cost structure, which we articulated earlier, we believe the cash flow from a $2 billion revenue software platform business would be substantial.
Switching to the outside of that I mentioned, the scale of our software platform to manage future mass solution means we are much less reliant on the data from our apps drives financial performance for our clients.
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.
The near medium term that may include lowering our investments in user acquisition will drive up which will drive up margins, but lower overall growth.
We will also do a review of our App portfolio, which could lead to a widespread of insured transactions or no change at all.
Based on this new approach, we are lowering our revenue guidance by $200 million and now we're going to a range of $2 billion to $2 one $5 billion in revenue from apps in 'twenty two.
The combination of our changes in software and apps got complete story I pull our guidance of $3. One 4 billion to $3 four 4 billion on a GAAP basis.
With regard to adjusted EBITDA from our record performance and strong margins, we're raising adjusted EBITDA guidance to the midpoint target of $1 2 billion.
This target again represents a 65% increase over prior year. This was also an increase from our previous guidance of high 20% margins against the total revenue forecast at the midpoint of $3 7 billion, which equated to just over $1 billion.
Okay.
Key drivers of this increase in EBITDA residential at a much higher growth of our software platform business, which as I've said, there's much higher margin profile.
Lower investment requirements than originally earmarked for new initiatives.
The higher margin expected from our our students as we optimize it.
Yeah.
From an overall margin perspective, this equates to a 36% from 22 adjusted EBIT margin at midpoint of revenue guidance and a 34% adjusted EBITDA margin when excluding the cost of revenue.
Therefore, the 34% targets as a run rate 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 forward capital allocation perspective.
As previously stated we're not focused on M&A actually outside of the business.
He will offer new and we'll opportunistically look on our software side, although apparently that we've assembled many of the key assets. We wanted over the past 18 months.
Then with regard to the stock buyback side, we do have our $750 million authorized program.
You suggested 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 your color markets are highly volatile and difficult to predict.
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 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 cross questions Brian .
Okay.
Thanks, Daryl so yes at this time, we'll open the call up.
Any questions from our participants if you'd like to ask a question. Please use the raise hand, a function on the zoom client and we'll try and get to as many as we can.
Once I call. Your name do you remember that you need to unused yourself when prompted by zoom before speaking.
So, let's pause a second and.
Pilot roster.
Yeah.
Alright.
Youssef your first in line. Please make sure that you do select on mute.
To ask a question go ahead, you said.
Excellent can you hear me.
We can hear you.
Beautiful. Thank you Hey, guys. So just a couple of questions for me, maybe just at a high level.
Yeah.
How long do you think this this review of the apps business will last in the meantime.
What kind of performance do you expect for me and I think it was down $40 million sequentially. That's one and then to a question we often get from investors is around just the shifting.
Shifting strategy.
Way from the apps historically, you guys have positioning yourself says.
Strategically leveraging the apps to you is.
Just for <unk>.
First party data or lumpy, so maybe just refresh us as to why is that not as important anymore.
And you said it.
The two questions are all tied together and really what we're focused on with the games business system is today. It's operated Additionally, we've got about 20 of them are subsidy is distributed all over the world. Some are run very well to generate a good amount of profitability. Some are generating losses, and where do you go through the portfolio to ensure that every single one.
One of them is held to the standard the same way any independent getting a company would be and what gives us confidence in that is that our software business is frankly growing 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 and software for the entire year. This year.
And we're now talking about over double that amount in around half that amount in the first quarter. It has quadrupled in the last 12 months and so when we see that are scalable. What we know is that we had to really become a market solution and we've got a lot more software platform enterprise clients to come to use our platform. We've got a lot more scale.
With the Max and most of that marketplace now and that gives us the confidence that R&D is there only a small percentage of that software business. The other data point, that's really important at that point you out to us for four quarters in a row our games business has been fairly flat in both audience and revenue, whereas our software.
Business has gone through.
That gives us a lot of confidence in the trajectory of the software business and we want to focus entirely on running that achievement in a couple of billion dollars that we put out as a goal next year.
Okay. Thank you.
Okay.
Next up is Eric Sheridan at Goldman Sachs, Eric guidance, and make sure you're on mute, but pushed out.
Yeah.
Yeah.
Can you guys hear me now.
Go ahead, Eric Great Hope everyone's well on the team I wanted to come back to some of the acquisitions you've done it and talk more broadly there.
You finished Moe PA, 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, but love to get as much color as you kind of about that.
Thanks.
Great question and mobile were really confident with our position we've got the largest marketplace.
Axon or machine learning technology that is only 18 months old it's going to continue to improve that's how these things go and then we have a performance model. So.
We're not looking to take budget from others. We're looking we can give our advertisers results that are measurable and within their financial goals that unlocks a limited budget and so as we think about how to increase our market overtime and create growth vectors for many years to come we really think about fighting for consumers that we know how to serve us well with recommended offerings across.
Other access points and that's what it may be connected T be interesting for us will be one of the leading software solutions to bring content online and connected TV for a lot of the brands that have content, we distribute it through a channel.
In that context, I'm immensely reach will be very valuable on a full screen and we think it presents a really large performance model on TV and we're going to focus on continuing to expand the software business and pushing our machine learning software.
Many places as we can go.
Yeah.
Yeah.
Okay.
Okay great.
Thanks, Eric next we'll go to Steve.
Stephen Ju at.
At Credit Suisse go ahead Stephen.
Alright, great. Thanks can you hear me, we can go out some alright, great. So.
Reading between the lines are very shareholder letter.
It seems like Now's the time to go after those larger ad market.
As opposed to just the spend from the mobile game sector. So with more pub now in the house is there any sort of directional 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.
It is now and where that could be.
<unk>.
Yes.
And Max together, we sit on top of 700 million daily active as around the world.
These consumers in large part on our platform. They are playing games, but I can assure you. They don't just play games as the only thing we are doing there lag. So theyre very good audience at that level of scale to monetize out of both cadence and nine names. We traditionally focus our solutions for the game developer and really built a lot of performance technology their mobile or abroad.
Access to the local marketplace and that's how they can monetize their eyeballs and the marketplace itself. The way. It has direct access for companies like the trade desk, which we announced the partnership with last quarter to buy into our exchange. So as we continue to integrate.
Push forward after the smell of a transaction.
Types of relationships, we're going to see more and more monetization potential with this very large audience from non gaming customers to augment the current and market leading solution that we have in the mobile gaming category.
Yeah.
Thank you.
Yeah.
Okay next we'll.
We'll go to Clark <unk> Clark go ahead, and just remembered on mute your line.
Hey can you guys hear me.
We can go ahead, Claire often maybe I'll follow up on Stephen's question, there for a moment because.
Adam you mentioned the trade desk onboarding in prior quarters, we have seen in the shareholder letter that theres really been a spike in sort of customers coming on platform, So with Alex and Max now kind of under the App Love an 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 was any sort of.
Backlog or just sort of qualitative read on demand.
And then Harold I think if I understand this right as we look at the 22 EBITDA guidance. Most of the adjustment here is really you know sort of change of plan around apps and maybe at that Saddam adjustments, but given what you've talked about with strategy.
This change your sort of willingness to move potentially into new spaces like OEM sort of blockchain in ftes and some of the things you talked about last quarter.
Yes.
Yes, so as we think about it like that.
The reason that we just did we put together the largest really open marketplace and mobile apps is ever exist over 700 million daily active users and one exchange is a very large amount. So we've heard really positive feedback from the customers coming over where they were.
Traditional ESP is buying automobiles thinking that most of it was the biggest solution and by coming into this unified solution Theyre getting over two times the amount of scale for their business. That's obviously made the reception really strong in oncology side.
Able to out without much scale and one software solution. This creates a lot more liquidity.
Tire objective with the 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, our publisher is going to go invest in user acquisition and that's what you're seeing really a fuel our growth and youre seeing the increase in spots, where we've almost tripled in the last 12 months you've seen that's all.
The retention I think it was around 265% just this past quarter. These are the same customers a year ago spending nearly triple on our platform today and that's because of the efficiencies that we're bringing to the market is enabling them to do that and grow their businesses faster than the markets grow.
Thanks for the question. The other question you had was just around margins and investment in new initiatives I think last quarter, you talked about hitting the high points gross margins. This.
This year and there are three big investments needed to make one would be infrastructure growth of software partners fastest youre going through particularly given.
The second was the investment in new initiatives, and we put a micro site not knowing exactly what that would look like and then the third.
We had a lot of new and new.
New apps and studios, we offer it to grow investments behind that.
I think very simply the first of them were still doing it actually over time, that's a place where we've onboard with the vast majority of what we wanted to do on mobile that mixed with an infrastructure in place and now it's continuing to grow with mobile and a software platform to us. So it's really I think the other two pieces you have changes to them on the new initiatives side, where we're assuming the NRT blockchain.
OEM strategies and I'll touch on that second we're still bullish as we were in the first quarter are out there that we just don't think it takes as much dollars. Just this year is investing behind them to go to achieve that and then we've talked about the outside which is a very different approach.
The investment there.
Also before the M&A dollars would not be allocated there and now we're telling you that.
Importantly, though we're running at that low single digit margins and they really should be in the twenty's 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 new CTV with world being one OEM. Another and then the NFC blockchain and we would expect for the next.
12 months.
<expletive> sooner to be coming back to you and describe some of the progress we're making on all those fronts.
Thanks, a lot I appreciate it.
Okay.
Okay. We will go next to Matt.
<unk> cost at Morgan Stanley Go ahead, Matt.
Yeah.
Right.
Everyone. Thanks for taking the question I guess, just looking at the AD network revenue in the quarter.
Very strong it looks like revenue per stack, if I have this right without being at an all time high so I guess, what what are the sources.
Strength in <unk>, particularly while youre going through the transition of more pub into Max that you would call out.
And within that could you could you talk to the contribution from some low pub in the quarter and then just secondly kind of more philosophically I guess historically the way that Ah I certainly thought about what need.
Your AD network unique was that you had a flywheel between the data that came from the apps business and then fed the algorithms and the AD network and in the future where the apps could be spun or sold the very smaller in scale relative to the scale of the AD network you know, what what differentiate Apple oven Dad network now.
As you sort of drive the next leg of growth. If it's not just running the same playbook that got you from from where you started to where you are right.
Yes, great question and it really it's all interrelated again, if you look at the business the inflection point on it what is the release of exon 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 and the machine learning the systems, just got better they get more data.
Now what's interesting about that deteriorate question is that when we started it with I saw on the only data. We had were around games that was the entire reason, we got into games and we wouldn't want a public a year ago, our own games made up 35% or 40% of the software business and we reported that to you in T. A C. D. Now that number continues to shrink.
That's because we are just seeing tremendous adoption of the technology, we're seeing customers come online. We're certainly more as we're getting a bigger feedbacks from doing all of those things and we are seeing in machine learning continue to improve without a necessity for any games to be fueling the data and that's what gives us the confidence to go let's just run on both of these businesses the most.
<unk> that will maximize shareholder value and allow us to continue to grow the software business that generate actual real margin for the games business at the same time.
Great and then just on the on the AD network side, if you wouldn't mind.
Yes.
The contribution was from both of them in the quarter and I was just sort of a $40 million specifically in because we know that number because Twitter was still running that business for us in the quarter.
Subsequent to my gallery of integrated entirely to Maximo pub as everyone knows was completely shut down March 31 of this year and so it's fully integrated into our numbers for like Florida. So we won't be able to parse it out because all the public data and consumer customers.
But we expect to increase that number quarter over quarter.
Sean ultimately and our software drag for the year.
Great. Thank you.
Okay. Thanks, Matt.
We'll go next to David <unk>.
At Jpmorgan David go ahead.
Alright. Thank you just one on the <unk> integration I know, it's early but for the publishers that have migrated over can you maybe say how much traction you're seeing in pushing these clients towards <unk> and then how do you think about cross selling some of these new relationships into your App discovery products or anything else you offer. Thanks.
Yeah. The amount of solution itself really we built have pushed the market, they're not bidding and us and.
And in partnership with Facebook really where the first two big bidders in the marketplace.
Clients that are coming over to <unk> not being out of the box, but we haven't seen it. This strong performance for the publishers that have come over and frankly, just because of the scale. We've got soldiers liquidity on the platform. It allows us to get more differentiator the demand and the technology was built much later than the other solutions and that's what we've got.
Such a strong trajectory to Max before mobile and why we continue to expect it to be the leading solution in the marketplace.
Thank you.
Yeah.
Yeah.
Okay right.
Yeah. Thanks, David So we'll go next to us.
Tim Nolan at Macquarie.
Macquarie go ahead Tim.
Okay, great. Thanks.
Couple of questions related to the.
The Contra revenue because I guess I had thought of the $200 million ish number that you'd mentioned before as being more of a cost.
If it's a contra revenue item just to make sure that is not just.
No pub.
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 I want to make sure I understand that because the $40 million versus the $210 million number I just want 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, you know most of this is behind you and the other 10 are going to come or what happens to that other tests. Thanks, yes.
Thanks, Tim for the question do you have to start with just sort of clarification.
The revenue side I mean, it takes our software business, specifically coming out of Ohio customers with a $40 billion to $210 million of referring to is the fees that we pay to our vendors for our publishers to move their inventory on their backs right. So those are not necessarily customer of ours, but vendor.
So I would put inventory, where we're monetizing their inventory.
And the Italian Canyon, because many of those publishers are our customers as well would you then you have to have it as contra revenue against the revenue to contribute to us and there are many of them are publishers, who are our customers we want them to meet our customers and therefore accounting says to also charged up to contra revenue. So they are two different numbers.
To consumer populations at this point, but we're hopeful that those publishers will become our customers are on our our discovery platform and then in terms of the migration of can we do it with a preponderance of 90 over 90% plus of the publishers now on our platform.
That will take time for them to fully scale out of the platform.
<unk>, sorry to catch up I think the remaining 10% of our certainly other.
Riders out there one of our growth some don't but we got all the key vendors that we wanted to go and published on our platform. We feel very good about that it exceeded our expectations. So overview.
Okay. So if we wanted to get any color on organic revenue growth number that would be then I guess what was it 835 is that the total minus the 40 that would be Europe organic growth exactly exactly that's exactly right.
Yeah.
Okay. Thanks, Tim.
Okay.
We'll go next to.
David Pang.
David go ahead.
Okay.
Great can you hear me.
We can only do it right.
Alright, thanks so.
Given the challenges of one of your key competitors.
How are you ensuring that axon won't face similar challenging is learning on clinical good data.
Yeah, Hello machine learning, obviously opera.
Opportunity and the sensitivities and really doesn't require a good data fees.
A lot of it just comes down to execution, we're focused on our own execution.
There's around us are doing and really the key with US has always been we felt like we got data.
<unk> got the playground to be able to raise the models, we have the technological capacity and infrastructure to build very substantial machine learning technology, we did adjust that and you've seen now for the past few quarters.
Growth has really outpaced the market, we're very confident in their own the platform's ability to just be stable and continue to lead to growth going forward.
Alright. Thanks.
Okay.
Yeah.
Okay skipping ahead here, we'll go to.
Well go to Franco Granda.
Franco go ahead.
Hi, and good afternoon, everyone can hear me okay.
Okay.
Alright.
Despite the fishing out of ideas and $14 five.
It appears that probabilistic attributions still very prevalent across the industry.
And there are rumors that.
<unk> might be cracking down on that.
And yet this is thought that using private real a similar to google's because.
Plans Apple would be able to do this in a non disruptive way. So it's I guess two questions on that.
First just how big of a task for Noncompliant AD tech businesses to move away from fingerprinting and.
And then two if it changes like this were to happen, but there should be an opportunity for you to gain share in similar ways.
When AT&T was enacted.
Yes.
I think they're really like it could go up a level in the market like these financing changes have continued to come over the last few years <unk> done with the idea that there was frankly was the biggest and know what our apples are that in the future. While we can't predict exactly what's going to change in the market. There's a couple of certainties. One is people are going to play games on their mobile devices that we know of course.
The others are needed we have a very large scale platform $700 million plus daily active users on it that we're monetizing.
The third is that our technology and she is really nimble. We can move quickly whenever these market shifts happen you always expect to see winners and losers. It. It's just the way it always shakes out and why we've been able to succeed so far over the last decade is that we moved 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 chips.
Thanks.
Okay.
Okay and we'll.
We'll take our last question here from from Martin Yang at Oppenheimer.
Go ahead Martin.
Yeah.
Okay.
Hey, right can you hear me.
We can hear you go ahead Martin.
So my question is about the first quarter suffer platform revenues.
Even back into a ballpark, that's very strong seasonally and also net net expansion rate.
Quite extraordinary what is that a surprise to you.
Okay.
We've run out of guidance into next year of the software business from just four years ago right for a business with this level of scale. We're reporting on net revenue and we've not talked about 65% to 70% EBITDA margins out of this business to be able to do that you have done a lot of confidence in your business. So even though I think we survived that.
<unk> will talk about the trajectory of the growth became we're not surprised with our ability to execute and continue to grow this business going forward.
Let me be more explicit or do you feel you're benefiting from some of the hiccups trying your competitor in the first quarter.
Okay. So the way these markets work.
It's not a zero sum, but on the flip side, if one competitor and decaying and performance. Another one does it just increase because the reality is we can be effectively we have models that are trying to match up idle without our leather offers juvenile trading well and driving the performance of the advertiser wants to go cheap.
It really been bidding against others, where we're taking a we're getting we need to make sure that the matchmaking is accurate and we're driving the value to the other advertisers are buying on our platform. So the impact from one that doesn't impact us that decided long term we want to make sure. We really do a strong job of this on the Max platform that every Martin.
Getting the platform in the market is performing well the better the marketing solutions are in the industry. The bigger the market is going to become the faster the growth more audience discovery and more consumers will be playing more games, which is going to fuel our growth in the ecosystems grow. So that's why I referenced in my talk track.
We have so much of the market on our honor ecosystem. The nice platform now so we're really the success of our platform is going to direct the increase in term of the entire sector.
Got it thank you.
Okay.
Theres no more questions in the queue I'd like to turn it back to the guys and thank you all for joining US today do you guys have any closing remarks I'd like to say.
Perfect. Thanks for joining us we know there's a lot of the letter to cover we appreciate people take them apart because it's volatile markets. Thanks very much thanks, everyone.
Yeah.