Liftoff Mobile, Inc. (LFTO) Earnings Call Transcript

Thank you for standing by, and welcome to Liftoff's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Jenn Kettnich, Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. We're delighted to welcome you to Liftoff's first earnings call as a public company. Joining me today are Jeremy Bondy, Liftoff's Chief Executive Officer; and Tarek Kutrieh, Liftoff's President and Chief Financial Officer. Earlier this afternoon, we reported our financial results for the second quarter of 2026. Jeremy and Tarek will begin with prepared remarks covering our performance and business highlights before we open the call for your questions. [Operator Instructions] Today's discussion, along with our earnings release and accompanying slide presentation may include references to certain non-GAAP financial measures and key operating metrics, which are defined in the appendices to the earnings release and slide presentation. Our earnings release and slide presentation are available on our Investor Relations website at investors.liftoff.ai. Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures as well as information regarding our key performance indicators is included in those documents. Before we begin, I'd like to remind you that certain statements made during the call may include forward-looking statements related to our future financial and operating performance, business strategy and growth plans. Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements. We describe some of these uncertainties in the Risk Factors section of the prospectus included in our most recent registration statement on Form S-1, our most recent earnings release and slide presentation, and other filings we make with the SEC from time to time. Liftoff expressly disclaims any obligation to update forward-looking statements, except as required by law. Now I'd like to turn the call over to Jeremy.

Thanks, Jenn. Good afternoon, everyone, and thank you for joining Liftoff's first earnings call as a public company. For many of us, this call marks a milestone in a journey that began almost 15 years ago. That said, we believe we're still in the early innings of our long-term growth story. Q2 was a strong quarter, we achieved an 11th consecutive quarter of revenue growth, and we expanded our adjusted EBITDA margin. These results show our strategy in action. We use machine learning across an integrated platform to serve the entire app economy. The platform learns from advertiser outcomes and supply signals helping us value each ad opportunity more effectively. This quarter, market growth, Cortex self-learning and model breakthroughs all contributed to performance. Several of the app categories we serve converge around major cultural moments and global sporting events. For example, we saw increased demand during the World Cup in Q2, particularly across sports betting, live scoring apps and prediction markets. This activity contributed to our second quarter performance. The global sports calendar is one source of high attention moments across the broader app economy. As focus shifts from the World Cup to the NFL season, for example, our platform helps customers scale efficiently. We bring the same capability to cultural moments of all kinds across every vertical we serve worldwide, enabling customers to drive profitable user acquisition over time. Tarek will walk through the results and our outlook in more detail shortly, but since this is our first call together, I'll spend a few minutes on the market we operate in, what Liftoff does and where we go from here. Starting with the marketplace. The mobile app economy is massive and growing. More than 5 billion people around the world use smartphones, and they spend an average of about 3 hours a day inside apps. Liftoff operates in the third-party in-app advertising market, which is projected to grow at an 11% compound annual rate to $136 billion by 2030. Within that market, nongaming verticals are expanding even faster at 14%. And this is a marketplace that is structurally under monetized with third-party in-app advertising spend estimated at roughly 1/6 of TV on a per user hour basis. Perhaps put more simply, attention has already moved into apps. Ad dollars are still catching up. In a large, growing and fragmented app economy, our role is clear: help advertisers acquire customers and help app publishers monetize their audiences. The role is simple to describe but complex to execute at global scale. We built a fully integrated advertising platform to serve both sides across every vertical from gaming and shopping to finance and productivity tools. On the demand side, we help businesses find new users for their apps with our demand side platform. Our DSP is designed to find the right users at the right time and the right price to provide high ROI at scale. On the supply side, our SSP or supply side platform helps apps monetize their user base with ads via our software development kit, or SDK, which is integrated into close to 170,000 apps globally. A fully distributed SDK network takes years to build and is difficult to replicate given that publishers integrate only a limited number of SDKs into their apps, which makes comparable reach difficult to achieve. Our unified DSP and SSP provides direct user reach, data symmetry and economics that are more effective than either would be alone. At the center of the platform is Cortex, our proprietary AI-powered prediction engine. For each ad auction, Cortex estimates the probability of converting the user or device associated with that opportunity and what the conversion would be worth in return on ad spend. Cortex runs automatically with over 1 billion predictions every second. And Cortex is self-learning. To give you a sense of the pace of improvement, since Cortex launched in late 2023, the learning phase, which is the time it takes a new campaign to reach optimized performance, has gone from about 2 weeks to under 1 day. Self-learning sits at the heart of our business. The process starts with the outcome and advertiser values, whether that's a purchase or another measurable action. For each ad opportunity, Cortex evaluates the data signals available to Liftoff from both sides of the platform and estimates whether to bid and at what price. We compare those estimates with the outcomes we observe, retrain the models and apply what we learn to future decisions. Faster learning can improve performance. When performance improves, advertisers often increase spend with us, giving Cortex more outcomes to learn from. This feedback cycle is self-learning in practice. We believe the same cycle is a resilient source of growth even in a competitive marketplace. Growth comes primarily from existing customers increasing their business with us. We believe that Liftoff is mission critical to how our customers scale. And as a result, as performance improves, our customers are more likely to reinvest and grow with us. On competition, our market is elastic rather than a fixed pie. Better performance drives advertisers to reinvest their returns, which expands the addressable market itself rather than redistributing share among existing players. In fact, 87% of advertisers say they will scale spend with a partner that is hitting their KPIs. Liftoff competes for incremental ad budget in the broader third-party in-app ecosystem. This is not a zero-sum game. So what differentiates us in the mobile app ecosystem? First, the machine learning at the core of the platform. Cortex' prediction models allow us to price and target effectively across billions of auctions. Our models are continually improving, which we believe enables us to deliver better performance for our customers, expanding our market opportunity and strengthening our role in the app economy. Second, a unified architecture. Our fully integrated DSP and SSP with ubiquitous SDK distribution to reach users at scale serves as a technology moat. Each side of the platform makes the other smarter, and that unified view of supply and demand is very hard to replicate. Third, and where I think we're most distinct, vertical diversification. Liftoff was built from inception to serve the entire app economy, which increases our addressable market well beyond the gaming industry. On the demand side, over half of our demand comes from advertisers outside of gaming, and the supply side is over 1/3 non-gaming. The 3 capabilities reinforce one another. Together, they support durable growth over time, which brings me to how we grow from here. Market growth, ongoing self-learning and discrete model breakthroughs are the primary drivers behind our performance, and we're still early on all 3. The overall mobile app market keeps growing, and we've grown with it. This includes the high-growth verticals outside of gaming. When new app categories emerge, our vertical agnostic platform is built to capture them. Cortex continues to self-learn. The model is still very early in its growth trajectory and is designed to keep improving, more tests, more data, more continuous improvement. Model breakthroughs are discrete improvements in how well the model predicts and optimizes ad performance, resulting in lasting performance gains. They sit on top of self-learning. We saw examples in the past 2 quarters. We can't predict exactly when the next one lands or how large it will be, but we do expect breakthroughs to keep contributing to growth over time. Before Tarek takes you through the financial model results and outlook, I want to thank our customers, our team and our investors. To our customers, thank you for trusting us with your businesses. We do not take that responsibility lightly, and your success will continue to guide how we operate. To our team, this company got here because of you. Our culture is what built Liftoff, and it's what will carry us forward. And to our investors, we intend to earn credibility each quarter by being direct about our priorities, clear about what drove performance and consistent in how we explain this business over time. Thank you again for joining us today. With that, let me hand it over to Tarek to take you through the financial model, results and outlook.

Thank you, Jeremy, and good afternoon, everyone. Before discussing our results and outlook, I want to briefly explain how Liftoff's scalable business model drives strong financial performance. The financial model is straightforward. As Jeremy shared, Liftoff generates revenue by helping advertisers acquire ROI-positive users and by helping publishers monetize their user base. We grow as we improve outcomes for our customers. Revenue is presented net of amounts payable to publishers and supply partners. One metric we currently look at is core advertising revenue. We define this as revenue from our current advertising platforms, which are predominantly powered by Cortex-backed solutions. Core advertising revenue now comprises close to 100% of the total reported revenue on our income statement. The small amount of revenue outside core advertising comes from legacy platforms and other nonadvertising offerings. Market expansion in Cortex' self-learning capabilities drive our baseline growth. Model breakthroughs can create upside beyond that baseline. For context, historically, that baseline growth has averaged around 4% sequential growth on a daily average revenue basis. In addition, there has been periodic upside on top of that from specific Cortex model breakthroughs. However, growth rates will vary quarter-to-quarter. We, therefore, encourage you to focus on the trend over time rather than any single quarter. The other fundamental and structural feature of our financial model is operating leverage. Our incremental margin, as defined by adjusted EBITDA flow-through on revenue growth is very high as the top line scales faster than our cost base. These dynamics were on full display in the second quarter. We are pleased with our financial results in Q2 in regards to both revenue growth and adjusted EBITDA margin expansion. Revenue grew 7% quarter-over-quarter and 35% year-over-year to $220 million. As Jeremy noted, this marked our 11th consecutive quarter of revenue growth. Core advertising revenue was $219 million. Core advertising daily average revenue grew 6% sequentially, driven by growth from the market, Cortex self-learning, model breakthroughs and contribution from the World Cup, as Jeremy noted earlier. The majority of growth in the second quarter versus the prior year was driven by expanded spend from existing customers. This reflects increased customer spend as the market grew and performance improved through ongoing product enhancements driving higher revenue. We've also seen consistent growth in the number of customers contributing more than $100,000 in core advertising revenue on a trailing 12-month basis, 391 customers for Q2 2026, up from 341 for Q2 2025. Moving to profitability. Adjusted EBITDA for the second quarter was $132 million, representing an adjusted EBITDA margin of 60%. That represents margin expansion of approximately 2 percentage points sequentially and 8 percentage points year-over-year. This margin expansion is primarily driven by increased revenue, highlighting how scalable our business is. Our cost structure grew meaningfully slower than revenue, even while we continue to invest in R&D because our top line growth was enabled by technology and performance uplift. This operating leverage, combined with modest favorable changes in expense timing, delivered 82% incremental adjusted EBITDA margin on a year-over-year basis. Moving down the P&L. Our net loss of $4 million for the quarter is inclusive of $45 million of noncash expenses associated with the company's IPO and other capital markets activities. This amount is comprised primarily of 3 items: $20 million of IPO-related stock-based compensation expense, $18 million of contingent consideration revaluation and a $7 million loss on debt extinguishment. Our business is designed to convert growth into significant free cash flow. We generated $50 million of free cash flow in the second quarter compared to $15 million in the prior year. Trailing 12-month free cash flow was $184 million, up from $76 million in the corresponding period of the prior year. Our capital expenditures are largely limited to capitalized internally used software historically running in the mid- to high single-digit percent of revenue range. There's no heavy plant, no inventory and no physical infrastructure build-out behind this business. Simply put, this is a capital-light architecture built to convert growth into cash. Our balance sheet is strong. We ended the quarter with $305 million of cash after paying down $418 million of debt year-to-date. Net leverage at quarter end was 2.4x net debt to adjusted EBITDA on a last 12 months' basis. We generally aim to operate below 3x net leverage. The company ended Q2 with approximately 169 million shares outstanding, and diluted weighted average shares outstanding for the quarter were approximately 137 million. Our capital allocation priorities are simple and clear. First, reinvesting in the business. Our model is capital light, and we intend to continue to invest appropriately in R&D, new vertical expansion and other strategic priorities to drive growth. Second, maintaining a reasonable leverage position. As I mentioned, keeping net leverage below 3x remains a near-term priority. Third, return of capital. As leverage normalizes, we expect returning of capital to shareholders to become an increasingly attractive option. We have nothing new to announce on that front today but are excited at the potential over time to deliver tangible value back to our shareholders. And finally, we may look to M&A or other corporate development opportunities. This remains a tool, but we do not currently intend this to be a primary use of capital. We are disciplined, and we do not believe we need to be acquisitive to execute on our current growth plans and strategy. However, we also believe we have the flexibility to be strategic and opportunistic. Turning to our outlook. Revenue, adjusted EBITDA and adjusted EBITDA margin are the metrics we are guiding to at this time. For the third quarter of 2026, we expect revenue of $217 million to $222 million, representing growth of approximately 21% to 24% year-over-year. The guide reflects the fact that recent model breakthroughs drove incremental monetization sooner than expected during the year. We expect adjusted EBITDA of $124 million to $128 million in Q3, representing a margin of approximately 57% to 58%. As I mentioned previously, timing of certain expenses benefited Q2, and we expect there will be a corresponding adverse impact in Q3. We continue to expect significant margin expansion for the full year. For the full year 2026, we expect revenue of $870 million to $880 million, representing approximately 27% to 28% growth versus 2025. And we expect adjusted EBITDA of $510 million to $518 million, representing an adjusted EBITDA margin of approximately 59%, which is a roughly 4 percentage point expansion versus 2025. Before we open the line for questions, I want to close with our view of sustainable profitable growth. Our thesis is centered around long-term durability. We believe the combination of strong top line growth and our largely fixed cost base creates room for further margin expansion. At the same time, we have the flexibility to continue to invest in R&D, new verticals and other strategic priorities. We see a clear credible opportunity for ongoing profitable growth as the business continues to scale. We look forward to bringing you along on this journey. With that, thank you again for joining us today, and we would be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Eric Sheridan of Goldman Sachs.

Congrats on the inaugural earnings report. Looking across the broader app economy, can you talk about any differences you saw by verticals and either advertiser adoption or advertiser budget trends on your platform? And given that array of vertical exposure for the medium term, which verticals are you most excited about in terms of driving incremental growth when you look out over the medium term?

Thanks for the question, Eric. Let me unpack some of the pieces of the market that we looked at in Q2. As we discussed, the growth that we saw comes from the market pretty consistently. However, we did have some specific categories that contributed, the World Cup being a very notable moment in the quarter. It was our 11th consecutive quarter of growth overall, and so the pattern does clearly predate the tournament and the prediction markets and sports betting and live score app categories. However, that was a really good example in a microcosm of the overall app economy working to our benefit through the quarter. The -- as we look at the broader categories of applications that we've seen pick up momentum throughout the quarter, there are adjacent verticals to the ones that I mentioned, such as finance apps with embedded markets that participated in the World Cup and should certainly play a role in the coming quarters as well. Now events like this bring high-intent users into the ecosystem. And our platform is built to capture those moments for our customers and continue to engage those users. And so we do benefit twice from those moments in that customers acquire high-intent users, and we continue to work with those customers as they roll into the next moment. Now as we think about what's to come, Eric, I think that we all know that the NFL plays a big role and the NFL season is upon us shortly. That's just one example of a moment that I think you'll see a lot of corresponding verticals engage with as we look into Q3. But you certainly have back to school. You have holiday commerce. And so we benefit from our breadth across the app economy, not being exposed to any single event but participating in each and every one as we go through the calendar.

Our next question comes from the line of James Heaney of Jefferies.

Yes. Terrific. Could you just help us better understand what's factored into the Q3 revenue guide? I mean, I think it implies about flat sequential growth, which is quite a bit below your last couple of Q3s. Just trying to understand and parse out what's driving that slightly slower Q3. How much is conservatism versus just some of the onetime factors that you called out?

Thanks, James. Happy to take that one. So let me start with our guidance philosophy. And what I'd say is we take a realistic and prudent approach to setting expectations. So our philosophy is to guide to what we have strong visibility into. Our goal is to establish a track record of consistent execution against what we are messaging. And so for context, historically, our core average revenue, the DAR, baseline growth has averaged around 4% sequential with periodic upside on top of that from specific Cortex model breakthroughs. However, growth rates may vary quarter-to-quarter, and we'd encourage you to focus on the trend over time rather than any single quarter. The other thing I'd say is in -- we had some breakthroughs that -- from Q3 that manifested in Q2. And so that helped us have the strong performance in Q2. Those are durable, but that's also influencing the trend.

Our next question comes from the line of Matthew Cost of Morgan Stanley.

Maybe I can follow up on Eric's question kind of just about different verticals and the response you gave there, Jeremy. I guess how focused should we be on events like the World Cup? You called it out in the prepared remarks, is something that translates into revenue. Obviously, it's important for sports books and prediction markets. But are those things that are material catalysts? Was that a material driver of sequential growth in the quarter? And should we be tracking these sort of things on an ongoing basis? And then, Tarek, one for you just on OpEx. If you could just help us think through the step-up in sales and marketing and R&D in the quarter. Are there onetime costs baked in there? Or is there a step-up now that you're a public company that we should assume going forward as well?

Yes. Thanks for the questions, Matt. I'll take that first one, and then I'll let Tarek take the second one. Certainly, a worthy topic as we think about the verticals that we engage with across the app economy. I'll start with the fact that the business really looks like an index in that really any activity that's happening across the app economy that where an advertiser has an opportunity to acquire a user, whether it's a liquidity pocket available, if you will, we will be there to experience that moment and help that vertical acquire users. So we really don't end up looking like a business that has seasonality that drives the calendar, but rather the market growth in the corresponding verticals that are experiencing their moment, if you will, throughout the period, whether it be a quarter or a year, we'll be there for. Q2, a great example and a really prominent one with the World Cup, where I think you see the benefits of our business on display in that it's not simply the prediction market's apps but the OSBs as well as finance apps as well as travel apps and e-commerce apps that are benefiting from fanfare throughout the moment. We see that same activity or that same type of clustering in Q1 with the Super Bowl and in Q3 with the NFL season, but that's just really the sports of collection of verticals if you will. We see that same type of behavior across back to school, and then that trickles into the holiday season with e-commerce. And so if you think about how our business participates in each one of those moments, those are really microcosms of our overall participation in the market as an index. Now what I would think about as we look forward through the year, we talked about some of those big moments. I think that this business, you should expect this business to play a real role in helping each one of those verticals acquire users throughout those seasons. And we look at the market data overall with in-app advertising projected to grow at a double-digit CAGR asymmetrically outside of gaming where some of the innovation will accrue, we expect to really mirror that overall pattern. And I'll pass it over to Tarek to talk about some of the financials.

Yes. Thanks, Jeremy. So the Q2 had a number of noncash expenses related to the IPO, particularly around stock-based comp, that are reflected in the financials. And so there's some noise that you're going to see if you look at the GAAP P&L. What I'd say is that there was no step-up in OpEx on an operating basis. It's much more around these IPO-related expenses. And I would also say that you should expect to see the stock-based comp move around quite a bit over the coming quarters along with the capital events. But I would point to is our strong performance around operating leverage and our EBITDA margins. And you can see we have a history of driving incremental EBITDA margins over time. And even for this year, if you look at our guide, we're assuming 4 points of full year expansion on the EBITDA margin. So that's reflective of the operating leverage.

Our next question comes from the line of Ross Sandler of Barclays.

Just a high-level question and then maybe a more kind of targeted one. So high level, we're about 3 years into the Cortex modernization into deep learning, and clearly, you've had lots of success with kind of model updates and iteration. I guess just looking out over the next 3 years, could you just talk a little bit about your confidence around the duration of these model updates and sustaining above industry growth over the next 3? And then the more targeted one, so AppsFlyer just did this round and now is going to remain an independent measurement player in the space. Just curious to hear your take on whether that helps folks like you guys who rely on third-party measurement vendors like AppsFlyer, just curious your take on that trend in the industry.

Appreciate the questions, Ross. And I'll take both of these in order. Let's start with Cortex. I think the headline is that there are really good empirical evidence out there that would suggest that we're really early in the journey. We're certainly harvesting the benefits already, and I'll talk a little bit more about how we benefited in Q2. But it's very clear to us that there is a runway that is quite profound out there, and that can facilitate this business getting quite large just purely by executing against what's in front of us organically. So just taking a look a little bit at Cortex, the step function change that I know you're familiar with, but I'll talk about for a moment, best embodied by the speed of learning. It used to take us 2 weeks to get a campaign to a statistical significant data set where we could really confidently grow user acquisition for an advertiser. Now we can get to that significance within a day. We're also predicting impressions across the entire ecosystem at a rate of about 1 billion a second at this point. And so you think about how profound that is for a business like ours that came from linear regression. It is -- it gives us a much more effective prediction engine than we had before. Now in terms of executing against the road map, we -- in Q2, we had what was an innovation that I think is representative of the type of breakthrough that we could see throughout the year. I think the pace of innovation would suggest that we'll see more. What it looked like for us in this past quarter was the feature set that helped us underwrite the value of a particular impression was enriched. So if you think about the variables that we're able to look at to make a decision, that expanded, so we get to see more of a full story of the user's journey. And that certainly acts like a force multiplier in terms of our predictive power. We're able to roll it out across all of our user acquisition models in Q2, and so those gains are now embedded in the system. While the release is episodic in nature, the gains are durable, and that is a window into the benefits of Cortex. I think we're very excited about what the next few years hold. And there are some very well-known peers and businesses that are chronicling their journey through neural nets or what we call Cortex, and it's very exciting for us. Now the second question about AppsFlyer specifically and mobile measurement, as you mentioned, I'm happy to address that one directly. AppsFlyer has been a really clear partner to us for well over a decade as a mobile measurement partner, and the discussions that they've had about their investments have been well known to us. As you mentioned, they just entered into a minority nonexclusive investment with a cohort of investors across the space. Our access and our relationship with AppsFlyer has not changed. We're very supportive of them, and we continue to work closely together. Just a little bit more of a window into our logic on our decision. Our balance sheet and our cash generation, as Tarek has articulated, they give us flexibility, and we keep a very high bar. So what we're looking at is strategic fit, expected returns valuation and alternative uses of cash, whether we act. And for us, as we just talked through with Cortex, our first priority is funding organic growth while maintaining that strong balance sheet. We've delevered meaningfully this year, and when we look at the capability, we certainly have to map it against the capabilities that we're building against organically. And so M&A is not in our model, not required for our growth, but we maintain a deep connectedness to AppsFlyer and the broader ecosystem as it relates to strategic items.

Our next question comes from the line of Matt Swanson of RBC.

Tarek, it's kind of unique that you guys give annual guidance and based on your peer set. Could you just talk about the difference in philosophies between quarterly and annual guidance given the timing of model improvements and how that can be variable?

Yes. So I think at a high level, we would say that it's the same philosophy for both. It's the realistic and prudent approach to setting expectations. That being said, I think as you think about our visibility into model breakthroughs, the closer in those are, the more we can specifically identify those. And so the model, as we've guided to -- right now does not include any model breakthroughs. But if we saw one of those coming in the near term, we would include that in our guidance. But that's really the main difference, is that sort of time frame and visibility into the breakthroughs. The underlying philosophy is the same.

Our next question comes from the line of Stephen Ju of UBS.

This is Esha Vaish filling in for Stephen Ju. We wanted to ask, I mean, of course, it's difficult to predict where the next lift for models will be coming from. But can you talk to us a little bit about Cortex in its current form and work that you're doing to drive continuous improvement?