Glu Mobile Inc
Q4 2019 Earnings Call Transcript

Published: 6 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Q4 2019 Glu Mobile Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mr. Harman Singh, Vice President of Finance. Thank you. Please go ahead.

[Harman Singh:]

Thank you, operator. Good afternoon everyone and thank you for joining us on Glu Mobile’s fourth quarter 2019 earnings conference call. On the call today are Nick Earl, President and Chief Executive Officer; and Eric Ludwig, COO and Chief Financial Officer.During this call, we will be making forward-looking statements regarding future events and the future financial performance of the Company. Any forward-looking statements that we make today are based on assumptions that the Company believes to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and during this conference call. These risk factors are described more fully in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q.During this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results, and we encourage investors to consider all measures before making an investment decision. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to the supplemental presentation accompanying today’s earnings call that can be accessed via our investor website, www.glu.com/investors.As a reminder, consistent with our financial presentation and for all the information aside from bookings or as otherwise stated below, we will discuss results on a GAAP basis and refer you to changes in deferred revenue, the deferred cost of revenue and non-GAAP operating expenses total in our financial tables. This data will provide a GAAP to non-GAAP reconciliation of the quarter’s financial results based on the same methodology we’ve used in prior quarters. We are also providing a supplementary Excel file on our IR website to more easily aid in this reconciliation. Both the PowerPoint and Excel file are now accessible on the website. We encourage you to follow along with the slides during this earnings conference call.And with that, I like to turn the call over to Nick.

[Nick Earl:]

Thanks, Harman. Hello, everyone and thank you for joining us today for Glu’s fourth quarter and full year 2019 earnings call. I will provide an overview and highlights of our results as well as our game development progress. Eric will then discuss our quarter’s financial results and our guidance in more detail.We went to 2019 on a high note beating top and bottom line financial expectations for both the fourth quarter and full year. A strong performance was driven by the second consecutive quarter of record bookings from Design Home and coverage fashion and the best fourth quarter in Tap Sports baseball's history.Overall, year-over-year, bookings were up 10% for both the fourth quarter and full year, reflecting the continued strength in our three growth games and the addition of Diner DASH Adventures. We've reached record adjusted EBITDA profitability for the full year and record GAAP profitability a major milestone for the Company. This financial outperformance combined with a significant progress in our pipeline supports our competence in 2020 and beyond.Turning to our life title, Design Home delivered another record quarter with 46.6 million in bookings, a 6% year-over-year increase. This game's continued strength is driven by a combination of event driven live ops and the addition of deeper meta features, including the launch of the mid-century modern and mountain homes.Covet fashion also delivered another record quarter with 17.7 million in bookings, up 19% from last year as comparable quarter. The strong growth is driven by our successful winter season launch, improved prop shop monetization and the addition of new merchandising through mega bundles.Covet grew 24% for the full year, demonstrating the team's ability to sack bookings of a title that is now finishing its seventh year. Tap Sports baseball recorded its best fourth quarter in the title's history with bookings of 19.4 million, driven by its most robust live ops off-season effort. This performance capped off the franchise's highest bookings year of all time the 21% growth over 2018.Looking ahead, we are set to release TSB 20 in March 17. We're excited to announce global territory expansion to over 100 additional countries as well as Aaron Judge is the new cover athlete.New features will include a new Home Run Derby Mod and the addition of all 30 MLB stadiums. Our most recent launch, Diner DASH Adventures had bookings of 8.8 million in the fourth quarter while still in an early stage, the game play and original Glu IP are resonating well with users and we believe this title will be a meaningful contributor in 2020.Moving to our pipeline. In last year's third quarter, we made a strategic decision to move the worldwide launch of Disney Sorcerer’s Arena to the first quarter of 2020. At December 13th, we released a major beta updates to the Canadian market with a significant changed turn-based core mechanic with expanded character rosters and an enhanced cinematic experience.We're pleased to report that the additional development time has yielded the intended results with notable improvements in both retention and monetization. We were excited by the recent bait progress and remain on track for global launch in late March.Originals, our interactive story platform entered beta in Canada on January 20th with encouraging early results. The Toronto studio continued to refine the speed and quality of content production, while directing creative efforts towards content that is resonating with our audience. We continue to plan on a mid 2020 global launch for Originals.Our new Deer Hunter game entered beta in the Philippines on December 13th, and our 7-year history of owning this IP, this franchise has launched two successful titles, reflecting its engaging game play and large number of organic downloads. Our Glue Sports Studio is building this title for the live options elder games era.While the initial beta period will focus on stability and retention, we will add social and deep meta to drive monetization in the coming months. We're excited about this title's potential and anticipated global launch in the second half of the year.Our social fishing game also entered bete in the Philippines in early January and we are pleased with its initial performance. The team's creative experience and ability to quickly integrate with Glues infrastructure have been the driving forces behind the strong progress we've made in developing this tile in a relatively short period of time.Next, I'd like to touch on two growth opportunities for 2020. First, we will be increasing our focus on M&A to complement our existing portfolio and growth game strategy. Glu has a strong track record of not only finding talented teams and studios, but also nurturing you titles with the critical resources and expertise necessary to achieve accelerated growth and profitability.Secondly, as the gaming landscape continues to evolve, we are focused on opportunities that will broaden our audience and deepen connections with our players through cross-platform connected play. To that end, we are exploring the extension of two key Glu franchises, Design Home and Tap Sports Baseball to the browser.We see multiple potential benefits from expanding our platform footprint and look forward to providing updates on this initiative in the coming quarters. 2019 has been a strong year for Glue highlighted by record bookings in our three growth games, the highest adjusted EBITDA profitability in our history and record GAAP profitability.This past year marked Glu's third straight year of double-digit year-over-year bookings growth, proving that the Company's foundation is strong and we believe that we have a sustainable operating model for long-term growth and profitability. We expect 2020 to be a transformational year for the Company as we look to continue to grow our core business and stack additional bookings from our new title launches.I'll now turn it over to Eric who will provide details on our financials and outlook.

[Eric Ludwig:]

Thanks, Nick, and good afternoon everyone on the call. I will provide a closer look at our financial results for the fourth quarter and full year 2019, and then I'll walk through our guidance for the first quarter and full year 2020.In Q4, we delivered strong top and bottom line results that beat our guidance. As Nick noted, these results are led by record bookings from Design Home and Covet Fashion as well as the best fourth quarter results in Tap Sports Baseball's history.Going through the details of the quarter, revenue was $112.9 million, bookings were $108.4 million, up 10% over last year fourth quarter. Royalty free Glu IP title generated 73% of bookings. Ad bookings were 12.4 million or 11% of total bookings. And on a GAAP basis, we generated an all-time record net income of $10.8 million or earnings of $0.07 per diluted share.Growth games grew 10% over the last year's comparable quarter and contributed 77% of total bookings. Design Home grew 6% to $46.6 million. The Tap Sports baseball franchise grew 13% to 19.4 million and Covet fashion was up 19% to $17.7 million. Diner DASH Adventures generated $8.8 million in bookings in the fourth quarter. This was due to the planned reduction in UA spend from Q3 to Q4 due to seasonally higher CPIs in the holiday quarter that we had guided both back in August and November.Diner DASH Adventures transition from having a negative studio margin in the third quarter to a slight profit in the fourth quarter. As the new title launches, we generally expect its profit life cycle to go through four phases with a goal of ultimately becoming a scaled profitable growth game within 12 to 24 months. The first phase is in the first quarter or two following global release where we lean heavily in the spending on launch UA.Although, the UA spending is expected to be ROI positive over the life of the users we acquire, the bookings generated in this phase are not enough to offset all the studio costs including UA. Thus, in this first phase, the title has a negative studio margin. This is what occurred with Diner DASH in the third quarter.In the second phase, we are focused on a new titles becoming adjusted EBITDA break even or bookings cover all studio costs including UA. This phase typically can last one to three quarters and Diner DASH hit this milestone in the fourth quarter. The third phase is where the title is scaling bookings and we are optimizing UA, live ops and events.A title in this third phase is expected to be halfway between adjusted EBITDA break even on all studio costs and the long-term studio margin targets that we expect from our growth games. Within 12 to 24 months from launch, our goal is for our growth gains to hit phase 4 where they're a media internal studio margin targets for the size of bookings they are generating.In all four phases I just described, when I refer to studio margin, I'm talking about all bookings and costs associated with the game. On the cost side this includes Apple and Google fees, royalties for licensed products, hosting costs, as well as studio headcount and accrued bonus costs plus allocated overhead and all product marketing and UA spend.Larger titles such as Design Home and Tap Sports Baseball have higher studio margins than Covet Fashion due to the booking scale and marginal flow through. Into comparing studio margins to Glu overall margins, the only items excluded are sales and marketing headcount costs allocated G&A and some central tech headcount costs.Kim Kardashian Hollywood saw bookings of $8.2 million in the fourth quarter. This was an 80% quarter over quarter increase. We ramp UA this quarter due to the high ROI yielding uses we were able to acquire with the launch of the new season of keeping up with the Kardashians on TV.On the expense side, adjusted platform commissions were $28.7 million. Adjusted royalties were 5.9 million and hosting costs for 1.9 million. UA and marketing spend was 24.7 million or 22.8% of bookings. This compares to 23.4 million in last year's fourth quarter and $40.2 million for this year third quarter. Operating expenses excluding UA and marketing were 33.4 million compared to $29.8 million last year's comparable quarter.Turning to the full year 2019, revenue was a record $411.4 million. Bookings reached an all-time high of $423.3 million, growing 10% over 2018. Royalty free Glu IP titles generated 70% of bookings and ad bookings were $50.7 million or 12% of total bookings. On a GAAP basis we generated a net income of $8.9 million, our largest GAAP profit ever. On GAAP basis, net income for 2019 was $0.06 cents per diluted share for the full year 2019.Growth games grew 16% on a year-over-year basis and contributed 79% of total bookings. Year-over-year, Design Home bookings grew 12% to $176.3 million and Tap Sports Baseball franchise increased 21% to $90.9 million and Covet Fashion grew 24% to $66.1 million.On the expenses side, adjusted platform commissions were $111.5 million. Adjusted royalties were $26.4 million and hosting costs were $7.2 million. UA and marketing spend was $118 million or 27.9% of bookings, this comparison $95.1 million last year. Operating expenses excluding UA and marketing were $122.6 million, compared with $117.3 million last year.We ended the year with a cash balance of $127.1 million and generated $29.9 million of free cash flow for the year. In the fourth quarter, we've received four monthly payments from Apple versus a typical quarter of three monthly payments. This happens every few years where Apple pays for 13 months in one year and 11 months in the following year. This had the effect of pulling into 2019 an extra $30 million in accounts receivable that typically would have been collected in January of 2020.Free cash flow for the first quarter of 2020 will be negative due to this timing of receiving only two monthly payments from Apple, coupled with the payment of our annual bonuses in February. As we discussed last quarter, our bookings guidance philosophy is to exclude any contribution from new title launches until the quarter after such title is launched.For the full year 2020 guidance, we said bookings from our core business in a range of $423 million to $433 million, representing a low single digit increase over 2019 is actual results of the midpoint. To provide a bit more color on the bookings guidance, the key components comprising this core business bookings guidance are as follows.Our three growth games Design Home, the Tap Sports Baseball franchise and Covet Fashion are expected to grow high single digits on a percentage basis year-over-year. Diner DASH Adventures full year of contribution in 2020 and our catalog will increase approximately $30 million on a year over year basis.The combination of these will result in a bookings range of $423 million to $433 million. Our $432 million high end guidance excludes any contribution from new titles, including Disney, Originals and Deer Hunter Next. For the sake of clarity, we will include bookings for Disney in our guidance for the first time on our May earnings call.On the expense side, and at the midpoint of our bookings guidance, we expect adjusted platform commissions of $112.6 million, adjusted royalties of $25.7 million and hosting costs of $7.3 million. UA cost will be approximately $109.6 million, reflecting 25.6% of UA spend as a percentage of our core business bookings.All other adjusted operating expenses are forecasted to be $136.2 million. In terms of profitability for the full year 2020, I wanted to reiterate the guidance that we laid out last quarter, specifically excluding bookings and variable costs from new titles, we expect adjusted EBITDA for 2020 be flat at the height of guidance in absolute dollars with the full year 2019 actual results.I would highlight the studio head costs for new titles have already been included in our operating expenses, in our adjusted EBITDA outlook and in 2020 this total over $24 million of expense in our core business adjusted EBITDA guidance. Our three growth gains are performing at scale and provide significant margin flow-through overall as well as in a marginal dollar basis.We believe that Disney Sorcerer’s Arena and Deer Hunter Next could overtime because scale growth gains which contribute meaningfully to our long-term margins. When looking at the new titles in 2020 and excluding the headcount costs, which are already expensed in the core business for adjustment EBITDA guidance versus we expected the first half of 2020 for new titles will be adjusted EBITDA losses while the second half of 2020 will be adjusted EBITDA profitable.Thus, we expect that 2020 new titles as a standalone group and for variable costs will be approximately adjusted EBITDA breakeven for the year. Given the expected timing and margin characteristics of our 2020 launches, when combining the core business with your titles, we anticipate a low single digit adjusted EBITDA loss in absolute dollars in the first half of 2020 and we believe that adjusted EBITDA will grows significantly throughout the second half of the year as new titles scale. And we expect to exit 2020 with adjusted EBITDA margins of at least 15% in the fourth quarter inclusive of new titles.For the first quarter of 2020 Glu expects its existing core business to generate bookings in the range of 93 million to 95 million representing a 1.5% increase over last year's first quarter at the midpoint. As a reminder, this excludes any bookings from Disney in the first quarter. On the expense side at the midpoint of the bookings guidance we expect adjusted platform commissions of $25 million, adjusted royalty, the 5.1 million and hosting costs of 1.8 million.UA cost will be approximately $30.9 million. I would point out that this UA guidance for the first quarter includes our launch UA assumptions for Disney Sorcerer's Arena for modeling purposes, but our times has no bookings contribution for Disney. All of our adjusted operating expenses are forecasted to be $33.9 million.In summary, we ended 2019 with record revenue, bookings, net income and adjusted EBITDA. We were excited about the recent improvements on Disney, on retention and monetization, and look forward to providing meaningful updates on the next earnings call regarding this title as well as the 2020 version of Tap Sports Baseball.We'll now open the call for questions. Operator.

[Operator:]

[Operator Instructions] Our first question comes from Mike Hickey with The Benchmark Company. Your line is now open.

[Mike Hickey:]

Congrats guys on strong quarter and strong year. Curious on your M&A commentary, Nick, I think that's a bit of a pivot from what you've been saying, in recent history. So, curious sort of your thoughts there and perhaps being more aggressive in M&A, what you're seeing in the market? What resources you're putting to finding deals? And what sort of deals you're looking for? Thank you.

[Nick Earl:]

So, we've really been focusing in the last couple of three years on building the internal studio infrastructure and making sure that we can get that up to speed and we've got the foundation underneath that to be able to create growth games. We think we are in a good place now and obviously this year is a big test for our creative and executional abilities. But we really want to kick this year-off also with spending more time and energy in bandwidth on the opportunity to find other studios via M&A and these would be anywhere from the Apple hires like we just did with our Fishing team right up to large ones that we've done in the past like Crowdstar.We have a good track record of integrating and leveraging the infrastructure, both on the creative side and the analytics as well as UA et cetera. So, we just think we're well-positioned for it now because we've got the bandwidth to be able to expand our focus across internal and acquisition opportunity and we just think this is a real great, great growth proposition for us going forward. So, we'll see how things play out. We've got more focus from our Head of Corp Dev, who's going to be spending more time in this then he was able to in the past, and I think it is just a great, uh, opportunity out there in the marketplace for buyers like us. So, we'll go after it and see how it plays out.

[Mike Hickey:]

Thanks, Nick. Last question from me on the Tap Sports Baseball. It seems like every quarter you drive an upside here. I guess, just even more insight into where the strength is coming from? How you think about '20? And then, your release date in Q1, is that earlier than normal? I didn't get a chance to compare it, but like maybe a little earlier than you normally come out. If there's any shift maybe from 2Q and the 1Q, if that's the case? Thank you.

[Nick Earl:]

Yes. We're continually surprised -- positively surprised at how well this franchise performs. It's really testament to the strength of that team and their capability on the live ops front. They've also been adding more systems and features in the elder game, which really drives monetization and engagement. We think the experience is far superior than what it was a couple of years ago. And what's really exciting is that there's a lot going into the game for 2020 that I think is going to continue to drive the growth. So, we are definitely bullish on this game.And then, the second part of your question was about the launch date. Yes, we're going to launch this on March 17th, which is earlier than we normally do. We've got, obviously, another launch for Disney. So, we're trying to space them out a little bit, but they'll both be in that latter part of March. And we've obviously got a lot of execution to do here with two big launches, but we think we're prepared for it, and definitely looking forward to the 2020 version of Baseball.

[Operator:]

Thank you. Our next question comes from Matthew Cost with Morgan Stanley. Your line is now open.

[Matthew Cost:]

Hi, guys. Congrats on the quarter. If you could -- two from me, if you could. If you could just go over your philosophy in terms of category mix, obviously, you're making a big push into RPG and strategy with Disney Sorcerer's Arena coming later this quarter. What are your thoughts in terms of allocating resources to different teams or obviously your expanded focus on M&A in terms of broadening away from lifestyle and sports and pushing into those other categories? And then, if you could, just a quick update on the Crowdstar title and sort of how you see it layering in with Design Home and Covet Fashion? Thank you.

[Nick Earl:]

Yes, I'll take both of those, and Eric can jump in if he's got any comments. So, from a category perspective, we're not purposely setting out to integrate or go after sectors or categories in particular. I think we're more driven by the intent and the kind of the creative interests that the teams have, and the team that's on the RPG game on Disney. This is really there in their wheelhouse and something they're very interested in. And when they came on board, we gave them you know pretty much a blank canvas on which to figure out what they wanted to do and they really wanted to go after this space. So it's a little less purposeful than what it may seem. I think we're looking at the opportunity to go after both, what we call umbrella brands and that really is the female lifestyle side and that's really the crowd star games.And then on the other you know pretty much the other side of the coin, the more male sports and the outdoor games and that's obviously baseball, but also deer hunter and fishing. So I look at it from those as being the kind of the big opportunities for us that I think will go, definitely continue to go deep on and then we'll add this RPG and see how this does for us and figure out where that takes us going forward.And then the second question was I think on, what we call P3, which is the third game from Crowdstar. We're not talking a lot about it just yet. We just wanted to make sure that our investors knew it was in motion. We will be getting that into beta sometime soon. But we were going to definitely take our time and get this one right. There's just a massive opportunity we believe with this third Crowdstar game. It'll feel like the other two but it is in a different vertical and that's what -- we'll leave it at that for now and have lot more to say for that over the course of 2020.

[Operator:]

Our next question comes from Darren Aftahi with Roth Capital Partners. Your line is now open.

[Darren Aftahi:]

So on your 2020 growth drivers, I think Eric you had said the gross gains high single digits. I'm just kind of curious like one with Design Home and then with Tap Sports Baseball. I think they can set a hundred new countries. Can you kind of give us a sense, because it looks design home only grew 6% in the fourth quarter, if my math is correct. What's kind of cadence between those two games? Question two, I think Q1 the implied EBITDA looks like a little bit of a loss. Is that driven mostly by the implied Disney UA spend. And then three maybe for Nick now with Disney and in beta for a while in Canada and maybe 45 days or less from formal launch. Like what are your kind of thoughts going into that? Thank you.

[Eric Ludwig:]

Yes, lots of impact there, Darren. So I mean first of all on the three growth games. So as we said in the past that our games have some kind of seasonality so baseball as always we've talked about have seasonality. So in the first quarter, we always see a degradation from the third to fourth, to first quarter for baseball and then it comes roaring back with growth in the second quarter and then typically plateaus in the third quarter. As Nick talked about in his prepared remarks, there is a ton going into this new baseball version.Everything from us doing a better job and bringing over the 2019 users into the 2020 version, we're also unlocking more user acquisition dollars by looking at it kind of cross year multiplier in terms of ROI that some analysis we've done coupled with unlocking a lot more countries, which we've never had access to, as well as having the stadiums and the homerun derby. So I think baseball, we think those are the opportunities for growth drivers. I think the year over year and the quarter over quarter growth will look the same as it has in the past year. As you see in the IR deck, we’ve had a seven year running growth with this title and this is the epitome of what we call a growth game.Talking about Design Home, yes we have kind of a year over year 6% growth. These titles get to plateau and then grow again and plateau and grow again. We've talked about that base camp philosophy before. I think we had kind of that base camp in the first half of this year around some UA pressure. So that was more externally generated plateauing. I know we had growth in the back half, to be very clear record growth both in the third quarter and then again a record growth in the fourth quarter.So I think we are looking at deepening more meta, as well as other monetization targets for Design Home. Covet Fashion had just a phenomenal year, growing 20% plus on a year-over-year basis on the back of Prop Shop and a lot of monetization technique. So I think we then hopefully can sort of within our guidance that the three growth schemes collectively will grow high single-digits, that was what our guidance was last November about 2020 and we've really been largely unchanged from what we said there to now and hopefully, that fruits conservative.Then going into the Q1 on EBITDA loss, it’s a small guidance of adjusted EBITDA loss of about $1.5 million EBITDA loss, really largely from a couple of reasons. One, we have that seasonal downtrend in terms of bookings from Q4 to Q1 on baseball and that just an overall reduction on the quarter-to-quarter bookings. Secondly, we also do see a pretty golden buying window opportunity, we've talked about this term before, typically in January and early February with the hangover that retailers will have in spending in the holiday seasons. We see CPIs come down from the November, December levels into January. So we lean heavy into that.And then thirdly, you definitely saw that in my guidance talked about and including in that guidance is zero revenue or bookings from Disney, but I do have my launch to marketing, both product marketing spend as I've used the term escape velocity spend, as well as the plus of UA spend that we have for the quarter as well. So that's what's driving that guidance on a quarter-to-quarter down based on EBITDA. And then the other one is -- over to Nick.

[Nick Earl:]

Just one comment before we get to Disney. As we go through the year and start to stack bookings, we do expect acceleration both on top and bottom line and the expectations that we will exit 2020 with about 50% margin, maybe a bit higher. So it does pick up as we go through the year. So Disney you asked about, yes, this was really interesting for us as we made that decision last year to move it out and the intent was to do a reboot of the core fighting mechanic, which we've done. The very good news at least what we're seeing in the KPIs in Canada is that, it is improved dramatically in retention, engagement and monetization, which was really nice to see. So that is really coming together.And we feel like the time that we took will be well worth it by the time we launch it. But yes, new fighting mechanics so really a new core loop and core mechanics expanded character roster, which is much more cinematic in nature. So you really show-off the heroic nature of the characters and really building out the social and live operations, continue to attune to economy and get this game for release at the end of the quarter, so, so far so good. We're not talking about KPIs just yet. We'll talk more in detail once we get through the launch. But we're very happy with the way things are going.We definitely have a challenge on installs that is not unique to Glue. Of course, that's industry-wide. We think we've got good execution plan there, but, I feel like the game unit economics are solid and trending in the right direction. We're just going to have to make sure we figure out how to get installs and a lot of that is going to be employing our strong UA capabilities, going after kind of the marketing side on the brand side and then of course, leaning into the strength of the Disney brands.

[Operator:]

Our next question comes from Matt Thornton with SunTrust. Your line is now open.

[Matt Thornton:]

I joined a little bit late, so I apologize if any of these have been asked. Maybe for starters, you talked a little bit about the EBITDA linear throughout the year starting out, you have the small loss in 1Q. But my question is how do we think about 2Q? Should 1Q kind of be peak loss? Should we think about 2Q as similar to 1Q and then ramping into the back half of year? Any color there would be helpful. And then just secondly on the fishing game, you know it would seem to me that the in game economy is an opportunity there it’s probably very similar to Deer Hunter. And my question is, is the game mechanic that dramatically different and any color there? And could this game conceivably kind of pulled into 2020 given kind of the familiarity and the fact that it's already kind of entering beta, any color there? Thanks guys.

[Eric Ludwig:]

I'll take the first one Matt and turn it over to Nick on the fishing topic. So in terms of EBITDA, I'd say what we talked about was the first half inclusive of new titles will be a slight single digit loss for the two quarters combined. So I think the midpoint guidance for Q1 is about 1.5. So you know it's going to be something a little bit bigger than that, but not massively bigger than that in the second quarter and that will really be that will have a full quarter of call it phase one spending on Disney. So I talked about these phases, so Matt, you may have missed it in my script I talked about four phases of a launch from new title. Phase one is where we're spending a lot, even though it's ROI positive but we’re forward spending with CPIs being low.So Q2 will be a full quarter of phase one spending on Disney and that will drive more and more EBITDA than the first quarter. We will also have Tap Sports Baseball, which comes out of the game rip roaring typically by April 1st and so I think that title will be offsetting probably properly, Tap Sports Baseball is profitable out of the gate literally on the first day, even though we are spending, so it's a little bit different. Baseball, call it it’s in the seventh year, it's already very mature at phase four, but those two things are going on in the second quarter. But then our Q3 and Q4 is where basically all of the EBITDA comes in and it's kind of out of the gate, pretty big in Q3 and just not bigger in Q4, but the combination of the small loss in the first half and then profit in the back half equals at the high end of guidance, the full year 2019 adjusted EBITDA that we just put up on the ticker.

[Nick Earl:]

So fishing, I think it's little too early to comment on launch timing. It's possible that it can make ‘20, but we want to give it its due course and make sure that we really prayed something that's enduring in long term. In terms of the structure of design and game play, it has elements of both Deer Hunter and a Tap Sports Baseball and is part of that studio group, so that kind of makes sense that it would be that way, little more likes deer hunter. So you've got a very compelling core mechanic that is both enjoyable but simple and then a very deep elder game that's built around social and upgrading, and really RPG style elder game.So I'll leave it at that for now. We'll be talking about this more over the course of the year and be sharing updates as we go ahead. But we've really liked the way the studio operates, they're incredibly agile, they've paired very well with our creative infrastructure, as well as the analytics and the other offerings that we've got as a scaled company, and they're a great cultural fit. So, so far so good with this group and very excited about the title. And like I said, we'll be talking a lot more about it, as we get through the year.

[Operator:]

Thank you. Our next question comes from Franco Grendan with D.A. Davidson. Your line is now open.

[Franco Grendan:]

Hi, guys. Good afternoon. Congrats on the results and thank you for letting me ask you a couple of questions. So the first really on the sports side of things. I know you kind of talked about it in first question. But right now you have MLB leading the charge and you're adding Deer Hunter and Tap Fishing. Do you think that the sports category will eventually get to the point where it could rival the lifestyle games?

[Nick Earl:]

I think it certainly has that potential, the lifestyle business for us is definitely bigger now, but we've got potentially two games that are coming in this year and next year that really can move the needle on sports. I really love the fact that we've got the balance of the female side of the business and the more of the male side of the business, and it gives us tremendous diversity as we think about how we market our games in terms of spending our UA dollars. But I also love the fact that we're driving these two umbrella brands that really could be bigger over the coming years and very meaningful for the company.So hard to know exactly what the absolute numbers are going to be relative to lifestyle. We take them both equally important and we view them that way and feel like there's tremendous opportunity to build these umbrella brands. So we'll see how the games go as we add more and we will be talking more about more at high level brands, as well as the individual games as we go forward.

[Eric Ludwig:]

And frankly, if I can add there and I'll use a little bit of a sports analogy here. We've been talking over the last six months and a couple of other settings to pull the webcast and events, using baseball in terms of where our game sit, singles, doubles, all the way to grand slams. And the industry has grand slams, I would call it grand slam a three-quarter of billion dollars a year or more revenue. There's about 5 to 10 of these titles. We don't have any of those. The margins are incredible. They persist and pertain sustain for long time. Home runs, I would call it a quarter billion a year to three quarters a billion a year, there's the multi handfuls of these titles, multi dozen handfuls of these titles that are out there and we don't have any of those. And the margins for those titles are also phenomenal.Then I would call a triple being where Design Home is. Triple being $150 million to a quarter billion dollars a year and growing, and Design Home has very, very good studio margins. I've talked a lot about studio margins in the mid-30s without allocations of SG&A costs. And in baseball as a double, call it double of $75 million to $150 million. Interestingly, our baseball title has margins of a triple even with the license fees of the MLB, because it seems small. We've been able to require users year-over-year over year. So it's in that mid-30 studio margins as well.And then a single call it game that's $25 million to $75 million a year, and we've got Covet Fashion that's at high end of that range. Diner Dash is at the lower end of that range. And as I think about the sports category that we're in, Nick has said in the past he feels that Deer Hunter as a category and game could be as big if not bigger than Baseball. Fishing is also a title that looks like other games out there that are in the sports category.So kind of answering that question, one, I want to make sure I address the singles, doubles, triples analogy, because we've never done this on a call and it's going to be something we'll talk about in the future. And I think it really also ties back to the four phases of profitability we get to. But yes, we're very excited about the sports category and think it could be -- will be when that’s growing for us in the years to come.

[Franco Grendan:]

And then one more if I may. It's exciting to see that you're sort of maximizing the growth from the growth games by bringing them to DC. Why did you choose the Design Home and MLB game, and then is there potential for more to join later on?

[Nick Earl:]

Those are two of our biggest games, actually our two biggest games, so just kind of make sense to look at expanding those. They've got big audiences. They've got really engaged audiences. And they both will benefit tremendously from being on the PC layout. If you think about a PC screen versus a mobile screen, there's a lot of information that needs to be delivered over mobile screen that can be better delivered on PC. So we just think they're just perfect fits. The teams have the capability and the bandwidth to explore these platforms. So really those are kind of the two key reasons.And if this works and we start to get some early signals from this thing and positive move, we'll certainly look at other options inside the portfolio, as well as the new games that we're bringing out. But for right now we think these are the best candidates and we'll have to see how this all plays out. This is a new business for us. So we'll be treading carefully as we get into it.

[Operator:]

And our next question comes from Jeff Cohen with Stephens. Your line is now open.

[Jeff Cohen:]

If I'm not mistaken, I think the Kim Kardashian license agreement is up fairly soon given that game is still producing pretty significant revenue for you guys. Can you talk maybe about whether there's a plan to renew the contract or how you think about selling the game?

[Nick Earl:]

I'll start and Eric could jump in. So we have 18 months left in that contract and we are incredibly happy with the way it's going, no comments yet on what's next or what happens after 18 months. We absolutely will update all investors and the street when the time is right. But we love working with her and her team. We respect the way they go about their business. And this audience is in a highly engaged one you saw by the results in Q4, just how much they actually love this experience. So it is going well. It continues to go well. We will update as we get towards any changes with regards to the contract.

[Operator:]

Thank you. And I'm showing no further questions in the queue at this time. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program. You may now disconnect.