Glu Mobile Inc
Q2 2020 Earnings Call Transcript

Published: 5 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Second Quarter 2020 Glu Mobile Earnings Call. At this time, app participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker Harman Singh. Please go ahead.

[Harman Singh:]

Thank you, operator. Good afternoon, everyone, and thank you for joining us on Glu Mobile's second quarter 2020 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 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 of the information aside from bookings, whereas 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 the non-GAAP operating expense 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 conference call. And, with that, I would like to turn the call over to Nick.

[Nick Earl:]

Thanks, Harman. Good afternoon everyone and thanks for joining. On today's call, I will provide highlights of our strong second quarter results and an update on our game development progress and growth strategy. Eric will then go into more detail on our financial results and outlook for 2020. The second quarter financial results were the best in Glu's history. Bookings grew nearly 80% year-over-year to $182 million, easily beating our upwardly revised guidance. This exceptional growth was driven by great execution of live ops and continued shelter in place mandates, leading to record quarterly bookings in all three of our growth games. We also benefited from the continued resurgence of Kim Kardashian

[Eric Ludwig:]

Thanks, Nick. And good afternoon to everyone on the call. I will provide an update on how we are managing our business during the COVID-19 pandemic, review our phenomenal second quarter financial results, and then walk through our plans and guidance for the second half and full year 2020. Regarding the COVID-19 pandemic these continue to be unprecedented times and thus far we have been effectively managing in a work-from-home environment as evidenced by our strong first half results and the successful launches of Tap Sport Baseball 2020 and Disney Sorcerer's Arena. Over the last 4.5 months we have recruited hired and effectively onboarded dozens of new hires all remotely and without any in-person interactions. I am very proud of our Glu employee base for having navigated us through a great quarter in a challenging environment. In the second quarter, we significantly exceeded our bookings and bottom line compared to the increased guidance we provided on May 28. Revenue was $133.3 million. Bookings reached an all-time quarterly record of $182 million, a 79% increase over last year's second quarter. The stronger than expected performance was driven by a continuation of strong player engagement increased organic installs and our significant investment in user acquisition in light of the favorable CPI environment. Royalty free Glu IP titles generated 57% of bookings. This is a quarter-over-quarter reduction due to the launches of Disney Sorcerer's Arena, Tap Sports Baseball 2020 as well as the resurgence of Kim Kardashian Hollywood. Ad bookings were $16.4 million or 9% of total bookings, representing a 27% year-over-year increase. Our three growth games grew 41.5% year-over-year and contributed 66% of total bookings. And looking at our growth gains on a year-over-year basis, Design Home hit a new quarterly record of $62.3 million, representing 47.4% growth. Covet Fashion reported its biggest quarter ever growing 66.8% to $24.1 million. The Tap Sports Baseball franchise increased 19.8% to $33.6 million, an all-time quarterly record despite the delay to the start of the MLB season. In regards to our three potential growth games, Disney Sorcerer's Arena, which launched in late Q1 had bookings of $22.1 million. Kim Kardashian Hollywood continued its strong momentum and recorded bookings of $20.1 million, representing its highest bookings quarter in five years and 320% growth year-over-year, and Diner Dash Adventure was up 54.7% from the first quarter of $11.6 million in bookings. Underpinning these great results was a significant increase in our daily active user base and an increase in our monetization. On a year-over-year basis our daily active user base grew 17% from $3.2 million to $3.8 million. This reflects the addition of Disney Sorcerer's Arena coupled with an overall increase in users from our ramp UA campaigns and organic discovery from shelter-in-place. In tandem with the increase in users in the second quarter we also saw our monetization improved dramatically as evidenced by our average bookings per daily active user increasing 51% year-over-year to $0.53. Breaking this monetization growth is two subcomponents. Our three growth games plus Disney and Diner Dash as a group grew monetization 33% year-over-year to $0.61 per daily active user. Our catalog titles as a whole saw tremendous growth in monetization in the second quarter, increasing 107% year-over-year to $0.29 per daily active user due to Kim Kardashian Hollywood, which leveraged the game merchandising and live ops. On the expense side, adjusted platform commissions were $49.6 million. Adjusted royalties were $14 million and hosting costs were $2.1 million. UA and marketing spend was $57 million or 31.3% of bookings, compared to $30.1 million in last year's second quarter. Operating expenses excluding UA and marketing were $35.9 million, compared with $28 million last year. On a GAAP basis the net loss was $8.6 million, due mainly to the fact that the increased bookings will be recognized over six months on average while a significant ramp in UA costs or expense as incurred during the second quarter. We had a cash balance of $283.1 million at the end of the quarter, which includes the 158 – $151.8 million of net proceeds from our capital raise in June. In looking at the third quarter, we expect bookings in the range of $130 million to $135 million, representing a 10% increase at the midpoint over last year's third quarter. Our bookings guidance for the third and fourth quarters remained significantly higher than the implied guidance for second half of 2020 that we provided in February pre-shelter-in-place. Additionally on a year-over-year basis our bookings guidance is higher than our prior quarterly record from the third quarter of 2019. Now on a quarter-over-quarter basis, we are expecting a reduction in bookings across most of our titles due to the record results we saw in the second quarter. Specifically we expect Design Home to Covet Fashion Q3 and Q4 bookings to be down as compared to the second quarter numbers, but at record levels when excluding the all-time high second quarter results. Tap Sports Baseball 2020 bookings will be flat to slightly down as compared to the second quarter. Kim Kardashian Hollywood and Diner Dash Adventures bookings should be comfortably above their first quarter numbers and down for the second quarter. And Disney Sorcerer's Arena's bookings will be down from Q2, as we transition this title from Phase 1 to Phase 2 on its expected pathway to profitability, as we are dialing back UA spend to focus on breakeven margins as a stand-alone title. But overall, our DAU and our MAU in the third quarter should be higher than the first quarter of 2020 pre shelter-in-place mandates, as well as higher than Q3 of 2019. This reflects the long-term benefits of growing our user base in the record second quarter. As it relates to investments and profitability, I want to provide some context on how we are modeling the third and fourth quarters. In late March and April, we leaned heavily into the substantial decrease in CPIs and ramped UA spend. We also saw a significant number of organic downloads and increased user engagement and monetization during the second quarter. We substantially outperformed on the bottom line in the second quarter from our May earnings call guidance and the updated mid-quarter guidance, due to the high marginal flow through on that top line beat. The second quarter top line outperformance has a flow-through effect to the second half of 2020, as the increased DAU base continues to play in May. We are increasing our bookings guidance for the second half of 2020 by $21 million or almost 9% from $238.5 million to $259.5 million for the second half of the year. I would point out that our second half of 2020 UA guidance was originally given back in February, before shelter in place started. With the lower CPIs in July that we are seeing as compared to January and February, we are maintaining our implying EBITDA guidance for the full year and flowing through the Q2 beat to fund additional UA in Q3 and Q4. We expect that the incremental UA will be ROI positive over a 12- to 24-month time horizon, as we have leaned into the start of the MLB season in July, coupled with what we believe to be favorable ROI opportunities, we are seeing in our growth games and our potential growth games. We still expect to achieve adjusted EBITDA margins in the fourth quarter that are within our target range of at least 15%. On the expense side at the midpoint of our bookings guidance, we expect adjusted platform commissions of $36.3 million, adjusted royalties of $9.2 million and hosting costs of $2.2 million. UA costs will be approximately $37.4 million, up approximately $10 million from our prior implied guidance, as I just discussed reflecting our investment in TSB 2020, as well as our other growth games and potential growth games. And all other adjusted operating expenses are expected to be $39 million. This results in expected quarter-over-quarter reduction on the bottom line due to the lower bookings and increased UA spend. For the full year of 2020, we expect bookings in the range of $538 million to $548 million. At the midpoint, this would represent a 28.3% increase over last year's bookings. We have added the second quarter beat of $14.5 million behind of the guidance and raised the full year by $21 million, reflecting our increased confidence in the back half of 2020. On the expense side for the full year of 2020 at the midpoint of our bookings guidance, we expect adjusted platform commissions of $147.7 million, adjusted royalties of $36.4 million and hosting costs of $7.9 million. UA costs will be approximately $151 million, reflecting 27.8% of bookings. All other adjusted operating expenses are forecasted to be $151.8 million. Our UA guidance has increased in both the third and fourth quarters but with spending in the third quarter expected to be greater than the fourth quarter. This will result in profitability decreasing to the second to third quarter but then increasing from the third to the fourth quarter. I want to now discuss our free cash flow. Generally, last quarter's EBITDA is converted 90% into free cash flow the following quarter, as we are a CapEx-light business with $2 million to $4 million of annual CapEx. For 2020, we expect to generate approximately $40 million of free cash flow and end the year with approximately $325 million in cash and no debt. I'm extremely pleased with our outstanding performance in the second quarter, as well as the increased outlook for the third and fourth quarters. The strategic investments we made in the first half of 2020 with increased UA to acquire a larger user base will benefit us in the second half of 2020 and beyond. Additionally, the increased average bookings per daily active user is reflective of an environment where consumers have more time for gaming and we believe will provide for higher lifetime values and more predictable profitability. As I look to the second half of 2020 and beyond, I am very excited on our progress towards stacking bookings and profits from our three growth games via our continued investment in live operations and competitive social game play. We continue to believe that Disney Sorcerer's Arena, Diner DASH Adventures and Kim Kardashian

[Operator:]

And our first question comes from Eric Sheridan with UBS. Your line is open.

[Eric Sheridan:]

Two if I can. Just one on the game pushing out to '21. Just want to understand what you saw there that you wanted some time on the development side to sort of take your time get the game right and how you think that positions the game into '21. Just wanted a little bit more clarity there? And second on the user acquisition front just want to make sure we're clear on the messaging. Do you expect the same ROIs you were seeing this year or still very constructive ROIs but obviously not as little as CPI environment that you found earlier in the year? And how do some of the changes Apple are making in the back part of the year with iOS 14 maybe factor in to the user acquisition? Thank you so much.

[Nick Earl:]

Hi, Eric. Good to have you on board. Yes, I'll take the first one and then Eric can do the second. I'll probably add some thoughts. So yes so Deer Hunter World, we've been developing that game for a little over a year, almost two years now and have been making strong success. We've also been really investing into the PVP which really not been a part of the experience over its many year history. The more we spent on that -- the more time we spent on that the more we saw it the more we realize that we really want to build it out and really flesh it out. And given that we just exist and live and I guess play in such a competitive market, we really want to come out with the game at launch with full features tremendous depth and really a very played out or mature social or social competitive part of the elder game which is the PVP. So on balance we just felt that while we could get it out this year it was just better to take a few more months really invest in that side of the game and with those extra few months potentially allow us to have this game be a serious contributor for many years. So that was the thinking there.

[Eric Sheridan:]

Yes. And Eric on the UA front, so we saw fantastic CPIs in late March, April and they started to go up from those bottoms in May and June and in July. However, in July, we're still seeing CPIs that are below the January and February time horizons. And the only time we gave guidance for the back half of the year was back in February. We increased guidance in the month of May and then our prior mid-quarter guidance on May 28. We really touched the second quarter. And so we really had not touched UA in a post shelter-in-place environment. And so really this updated guidance really reflects the lower CPIs we're seeing. And yes, the ROIs were fantastic in April slightly less fantastic in May and fantastic in June but they are still at elevated levels from January, February and prior to last year. So we just believe that this is the right thing to be doing to be building that user base. We effectively were able to beat EBITDA in the second quarter and have funded that EBITDA by maintaining the overall guidance for the year by funding that into the third and fourth quarters with increasing our UA.

[Nick Earl:]

Yes I'll just add one thought on the upcoming imminent changes with iOS 14. So we view that as pretty serious. However, we do think it's a potential opportunity. We have our entire UA and marketing team looking at this very, very closely working on technology process our org structure anything that will give us an opportunity to take this change and come out stronger on the other side. We do feel that it is probably something that will benefit more scaled, publishers and developers in the marketplace given that we have the opportunity to kind of really throw some technology at it. But it's still very early in terms of exactly what it means. We're just taking it seriously and we believe we'll be ready on the other side to be as effective if not more on the UA.

[Eric Sheridan:]

Great. Thanks so much for the color and hope everyone well and safe.

[Nick Earl:]

Thanks, Eric.

[Operator:]

Thank you. Our next question comes from Doug Creutz with Cowen.

[Doug Creutz:]

Yes. Just to get a clarification. You talked about 15% EBITDA margins being the baseline as your business matures. Just to be clear that's - we should think of that as a floor and not necessarily the EBITDA margin you expect correct?

[Eric Ludwig:]

That is correct, yes the floor. And what I said was it's a floor kind of in quarters when we are not launching a title or kind of in that Phase 1 where I talked about kind of the first three months to - five or six months of launch when we kind of forward spend kind of getting escape velocity. Once we get into the breakeven Phase 2 then if we have titles in that stage I would expect us to be at that 15% floor. But yes that's a floor number for sure.

[Doug Creutz:]

Yes. Okay. And then if I can ask one more you mentioned you're moving resources from originals to Kim. Should I take that to mean that originals is now out of the pipeline? Or are you just moving part of the team over?

[Nick Earl:]

Yes. It's - we haven't made a final decision on that. We will make that shortly. We just looked at how originals is doing. It does very well the early part of the game, but the elder KPIs are just still not there. We've got such an extraordinary opportunity with Kim. And as you know they're both developed in the same studio in Toronto. So we just felt the right thing to do was to move resources from originals to Kim where we've had significant growth over the last few quarters especially in Q2. Just given that there's just such a stronger return there, we'll make a final decision on originals shortly and we'll be certain to update. But as you know it's not in our numbers for the year.

[Doug Creutz:]

Yes. Okay. Thank you.

[Nick Earl:]

All right. Thanks, Doug.

[Operator:]

Thank you. Our next question comes from Tyler Parker with KeyBanc Capital Market. Your line is open.

[Unidentified Analyst:]

Hi, guys. This is Ashley on for Tyler. Just a couple of questions. So first given the MLB season started just a few weeks ago is there any update you can give us as to what you're seeing with engagement in Tap Sports baseball since it started or how is it tracking compared to the same time last year? And then also are there any learnings from the cohorts of new and relapsed users that you guys have gained since March? Are they acting similar to old cohorts? Or is there anything to note there? Thanks.

[Nick Earl:]

Yes. Great. Ashley thanks for those questions. So yes on MLB, we have seen an uptick in organic downloads since the season launched back kind of July 25-ish time frame as well as engagement and monetization. So it's been a good outcome. It's probably a little too early to see given some of the COVID-19 that's kind of ravaging some of the teams as to whether the season will be a full season or it will be a partial season. So I would be a little cautious on that being too over my skis on the numbers. That's why I said that Q3 would be kind of flat to slightly down just on the backs of what we're seeing with the Marlin organization and some of the games being canceled with the teams being overrun with COVID. In regards to kind of the cohorts we talked about in my prepared remarks about how monetization and Dow our engagement are up significantly in the second quarter. So we obviously saw cohorts that were behaving a lot alike, but spending even more with shelter-in-place. I would expect that in the third quarter that the engagement and monetization will go down from those record second quarters. The way I would think about the second quarter is we did two things. We outperformed our core business just organically. And then we had a COVID bump -- a COVID shelter-in-place bump on top of that. I would view Q2 as kind of an anomalistic quarter. It did help us build a really big user base that we are able to parlay into Q3, Q4 and into 2020. So very - it's not a new base camp. The year-over-year comps in a year from now will be hard because it was such an anomalistic quarter. But the way I think about it is we forward spend on UA with a low CPI environment to build a big user base and that was a strategic defense that we did to leverage that time horizon.

[Eric Ludwig:]

Yes. And I'll just add a couple more thoughts on TSP because it's pretty extraordinary that this game in its sixth year is growing as much as it has given that there has not been a season until just recently. Regardless of whether that - the season really flourishes or just doesn't really take hold what's amazing is just that the VIP and the spenders are all way up from where they've been in the past. So, every time and every year, we sort of feel like we've hit the ceiling. It continues to surprise us so much so that this year we saw 20% growth over last year Q2-to-Q2 based on the backs of these VIPs and the spenders. So, it's just a - it's really a testament to just how deep this game is, how strong the live ops team is and what they run even in absence of real day-to-day game. So, regardless of what happens for the rest of the season, we still think we're in really good shape and very grateful to have that in our portfolio.

[Unidentified Analyst:]

Awesome. Thanks, guys.

[Eric Ludwig:]

Thank you.

[Nick Earl:]

Thanks, Ashley.

[Operator:]

Thank you. And our next question comes from the line of Matthew Thornton with SunTrust Securities. Your line is open.

[Matthew Thornton:]

Hey, Nick, Eric. I hope everyone's well. Maybe a question and two quick follow-ups if I could. First question, I think you touched on -- and you touched on P3, I'm just curious in maybe relative to what your thoughts are [indiscernible] And then just to clarification, Deer Hunter being pushed a couple of -- in 2021, it sounds like it hasn't changed from our long-term outlook in terms of opportunity. I just want to make sure that that is in fact the case. And then certainly with IDFA, coming into September, can you think about kind of -- are you thinking that is a headwind? Are you thinking that's neutral? Is it too early to realize with a right message there. Thanks, guys.

[Nick Earl:]

Yes. Hey, Matt. It was a little difficult to hear you. So hopefully, I got all the questions. But I'll talk a little bit about the pipeline, and then we'll talk a little bit about IDFA and hopefully we'll cover what you asked. So, yes, Deer Hunter World, we are very bullish on it. We're also as we get kind of further into the - where we are in the cycle in the industry, we just realized it's just harder and harder to launch a game that is going to be in the top 20, top 50, even top 100. Any advantage you can bring as part of the experience, we feel like we should really pay on or two and flesh out, and that's what we've seen with PVP. So, we want to take a little more time just to get that right. There's been a very kind of minor PVP feature set in Deer Hunter 2018, but it's never really been connected to the core loop, and it's never really been fleshed out in either asynchronous or synchronous mode, especially as part of kind of the socio-competitive layer that we just believe is so important in all games, especially sports games and like this outdoor game. So our view is that we have as big, if not bigger opportunity going forward. We just want to move it a few months and just signal that now so we get the -- the team gets the extra time to work on really deepening that feature as well as others that are going into the elder game and continued refinement of the core loop and the core mechanic. So, lots happening there, but we feel great about that for 2021 and beyond. In terms of fishing, also same story, lots of work going into creating depth there. We feel really good about the mechanic, which has gone through a lot of changes over the last few months, but we've finally settled on the core loop and the core mechanic there. So now the focus is really around social meta and PVP, very much on track for next year. We're not going to give tighter time frame than that, but we feel really good about what its future looks like. And then P3, another one that we feel good about and that really is standing on the shoulders of Giants with Covet and Design Home, it's learned a lot and we think that this is a really good fit that sits right alongside as a vertical to those two, but squarely in this lifestyle type of genre or category. And we think this is going to be a big pillar to the Crowdstar strategy and Crowdstar brand. So, excited about what that shows us next year. And then switching to IDFA, yes, I think it's too early to know whether it's going to be a net gain or setback or is it neutral. I think from our perspective, we think across the industry, it maybe a real challenge at the macro level, but I think for companies that are scaled that have good tech and really understand the depth of user acquisition this may be an opportunity. We don't know for sure, but we think may be an opportunity to really refine our user acquisition and marketing process. We are going to spend more effort in traditional marketing, which we've been doing for the last year, especially around Disney branding and such. So, we think that's an offset. We think the hyper-casual suite of games that we're building and potentially bringing to market in the Crowdstar world could be a good offset there and could really help us in aggregating and building installs. So yes, we feel like this is probably going to be a brave new world as we get into next year. But we are taking it very seriously. We've got a lot of cycles against it. And we do think that, this hopefully will be a net positive for us if we navigate it well over the next three, six months.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Drew Crum with Stifel. Your line is open.

[Drew Crum:]

Okay. Thanks. Hey, guys. Good morning. So Eric at the end of your prepared remarks you made a comment that the company is set up to grow at or above the western mobile market. Can you just clarify does that include new games you intend to launch next year? Does that include any acquisition? And as it relates to M&A, Nick I think you said that you're looking at early-stage opportunities. What is your tolerance for dilution on something that you purchased? Thanks.

[Eric Ludwig:]

Sure. I'll answer the first part and then Nick can answer the M&A part. So that includes core business and new titles does not include M&A.

[Nick Earl:]

Yes. And on the M&A question so we were initially – we've talked about this a lot over the last few calls about, how we were kind of I would say more focused on the low end of the market. Given the capital raise of $152 million in June, it's really opened up the door for us to look at the much higher end of the range. So something that really could be transformative we look back at Crowdstar. Even though that wasn't a hefty price tag it was absolutely a profoundly transformative for the company incredibly accretive and just such a great fit for us. So there may not be another Crowdstar out there, but we're certainly looking for it or something that's close. And now we feel like we can shop both at the lower middle and now for the first time at the high end of the range. In terms of dilution, I don't really have a number I can give you, but I think anything we do will either be accretive out of the gate or very, very accretive longer term. If it's something that we're going to have to invest and build using our central infrastructure and our knowledge and know-how as well as any sort of efficiencies and synergies we can drive with other studios. So time will tell as we get closer to signing a deal, but we've got a lot of activity a lot of energy going into this. And hopefully, we'll have something not too soon that we can talk about.

[Drew Crum:]

Great. Okay. Thanks, guys.

[Nick Earl:]

Thanks, Drew.

[Operator:]

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

[Matthew Cost:]

Hi, guys. Thanks for taking the question. I'm just wondering, now that you're a couple of months into the renegotiated license behind Kim Kardashian, how has that changed your experience of that game? And do you think that there's like a real change in terms of like the growth opportunity and sort of what you can do with that name now that you can net out the user acquisition expenses? Thanks.

[Nick Earl:]

Yes. Hi, Matt, yes. So this was a deal for those who didn't hear last time that we did earlier in the year that allowed us to net out marketing costs before we paid royalties. And we all felt that this was a much better strategy to really get behind and grow the title, turned out to be perfect timing, because as we got into Q2 with shelter-in-place mandates it allowed us to spend much more liberally and thoughtfully with much greater return. So it's one of the reasons why we see such enormous growth in that franchise. And yes, I would point to the deal as being absolutely crucial and an integral reason as to why we've been able to invest. I think that without a doubt, we would have had growth regardless of I think the new deal. But it certainly gives us a lot of opportunity to really spend more. And yes, we just feel very bullish about this title going forward. We've got more resources on it. We've got more UA that we can spend around. We've got a much more interesting yield curve that we look at on a daily basis. The game itself has got new customization features going on, new merchandising, a much deeper elder game that's being built out over time, especially with systems as well as content. And with the sixth anniversary event, we just had in June, there's just a lot of momentum around the title. So we're very happy to have it in the mix.

[Eric Ludwig:]

Yes. And Matt if you just look at the effective royalty rate on the overall portfolio. So we had in the second quarter 43% of our revenue came from license IP, including baseball Disney and Kim Kardashian and that was an effective royalty rate of 17.9%, which was down quarter-to-quarter from 21.4%. So that really reflects even though it's a much higher dollars for royalties the effective royalty rate went down by 350 basis points on the overall bucket of license titles.

[Matthew Cost:]

Great. Thank you.

[Operator:]

Thank you. And our next question comes from Darren Aftahi with ROTH Capital. Your line is open.

[Darren Aftahi:]

Hi, guys. Thanks for taking my question. Two if I may. Nick you mentioned an e-commerce store something about launching in the fourth quarter. I'm just kind of curious with the pull forward with e-commerce in general probably several years. You've talked in the past about e-commerce in Design Home, I'm kind of curious how that strategy kind of fits in there. And then on M&A just in light of what's going on in the second quarter with just kind of the rise of the app store popularity of games and people spending more time with their phones, what type of games if you look around kind of fit the model for what you think Glu can effectively take in-house and then scale on an M&A basis? Thanks.

[Nick Earl:]

Yes sure. Hi, Darren. So, yes, the e-commerce and design has been an interesting journey for us. We initiated something about 1.5 years ago. And I know we talked a lot about it in the calls over 2019 maybe even at the end of 2018. But the first effort just didn't really pan out for a variety of reasons. However, we had enough good feedback and enough good KPIs to make us feel like there was absolutely something there, especially keeping in mind the Design Home is more than a game. It's really gamified lifestyle experience where shopping is not only in the core loop, but it's just really kind of built into the fabric of the experience. And so we persevered, we've changed partners. And now we feel like we're in a much better place in terms of how this is being built out and the logistics, all the logistics work. It's also positive in that the experience of buying something ties into the core loop, because you get game currency when you buy something. And we are very close to launching this in the U.S. We've got a small beta going on right now and continue to get really important KPIs and data and results that allow us to fine-tune the experience. But if it continues the way it is then the intention would be to launch in the fourth quarter for U.S. only and then we'll look at other territories as that kind of plays out. And then with regards to the M&A question, yes, it's something that we talk about a lot. Are we purposely going after a type of game a sector or category genre. The answer is not really. There's a few that we're going to stay away from. We just don't have the expertise. So I would say that social casino would be a good example of that. But we're really open-minded about anything that looks interesting that's a good logistical fit that comes with a team that's a good cultural fit for us, which is incredibly important. And like I said earlier on another answer, that is either accretive out of the gate or very accretive long term. And that can take the form of many genres and many types of games and many sizes of companies. So really the landscape is open for us and we're just really looking for something that's a good fit for the portfolio. And given that we have a wide portfolio we think we're capable of bringing anything in the mix.

[Darren Aftahi:]

Thank you.

[Nick Earl:]

Thanks, Darren.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a good day.