Glu Mobile Inc
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q1 2017 Glu Mobile Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference Greg Cannon. You may begin.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile's first quarter 2017 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have President and CEO, Nick Earl; and COO and CFO, Eric Ludwig. During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Any forward-looking statements that we may make today are based on assumptions that we believe 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 risk 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 Form 10-K and Form 10-Q. During this call we will present both GAAP and non-GAAP financial measures. The non-GAAP 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 at www.glu.com/investors. In order to comply with SEC guidance on the use of non-GAAP financial measures, we have changed the way we present and discuss certain non-GAAP financial measures. Specifically we will no longer adjust for the change in deferred revenue when arriving at our non-GAAP measures. However, we will provide the change in deferred revenue and deferred cost of revenue information so that investors can calculate our non-GAAP results based on the same methodology we have used in prior quarters. Lastly, our supplemental presentation that can be accessed via investor website has been updated to meet [ph] the order of our prepared remarks. We encourage investors to follow along with the slides during this earnings call. With that I will turn the call over to Nick. Nick?

[Nick Earl:]

Thanks, Greg. Thank you all for joining today’s call. I would like to welcome everyone as we discussed the prior quarter results as well as opportunities ahead this year and beyond. We had a very strong quarter that provided an early glimpse of how we are pivoting our product strategy as part of our efforts to transform Glu. These results also paved the way for potentially outstanding year ahead and as a result, I am very pleased to say that we will be increasing our annual guidance from the midpoint of $220 million to a range of $280 million to $290 million. Eric will cover these details in a few minutes. Q1 bookings were $69 million which is approximately 28% above the midpoint of guidance. This bookings outperformance led to our bottom line results significantly exceeding our expectations. These results were driven by the strong performance from the titles we acquired through the Crowdstar acquisition, in particular Design Home, and better than expected results from Evergreen Catalog titles as we’ve implemented our new strategy. Please note that Q1 results include minimal impact from our latest launch MLB Tap Sports Baseball 2017, which launched worldwide at the end of the quarter. This is our first offering in the Tap Sports Baseball franchise to feature content for Major League Baseball which is helped this title became the number one free game in the U.S. app store for iPhone for six days which is a rare feat. Let’s dive deeper on Q1 drivers and update on activities with some of our key titles, then I’d like to refresh and connect [ph] everyone on the new strategic direction. Let me start with a few words on how we think about our games and manage them. We think of our games in two buckets. The first thing growth games, which we formally call platform, the second being Catalog games. Our Catalog titles include two categories, which we call Legacy, and Evergreen games. Legacy consists of about 80 titles that are sitting in the app stores but not being actively refreshed and have very low cost associated with them. In totality, these games are important to our business as they continue to contribute revenue without requiring headcount to support them. As for Evergreen games, Glu had 60 titles, which our existing games that we’ve continued applying renewed live operations efforts to with a focus on lengthening and boosting their revenue tail. These titles are COVET FASHION, DEER HUNTER 2017 b KIM KARDASHIAN HOLLYWOOD, COOKING DASH 2017, GORDON RAMSAY and RACING RIVALS. We began this initiative roughly six months ago and we believe these efforts are playing a role in Q1’s positive results and we hope to extend these trends going forward. Finally and most importantly, as we move forward with our pivot to creative centric strategy, we are focussed on developing a new generation of growth games which we believe will position the company for enhanced performance longer term. I will give details on these in a few minutes. First, I’d like to update you on quarterly activity with our portfolio of focused on Crowdstar and our Evergreen titles. An early glimpse of a new strategic direction we are heading in could be seen with our recently acquired Crowdstar studio which is also a major contributor to our Q1 outperformance. As you sit here today six months post the Crowdstar acquisition, we view the strategy was adding tremendous value to Glu mobile and it’s played an important part in this in our decision today to raise our financial outlook for 2017. Both COVET FASHION and Design Home are responding well to user acquisition strategies we have been applying to the studio and the studio is becoming more deeply integrated into the operations of Glu every day. Design Home has been key bookings contributor for us peaking at number 28 and sitting today at number 36 top grossing game on the US iPhone charts. Based on what we’ve seen from these games performance we believe the Design Home to be a large contributor of bookings growth this year and well into 2018. We’ve analyzed the data from this game closely and believe there are significant ROI opportunity from further investment and user acquisition this year. Eric will provide more details. We also saw solid performance from our Evergreen titles as we began investing in live operations. This new approach delivered the results that exceeded our forecast. Since last August we have seen many of our Evergreens deliver flat to growing performance not easy to do in our business. Importantly this effort is one of our crucial – is one very crucial outcome of our partnership with Tencent. We have learnt a great deal from the strategies they have shared with us and are continuing to leverage their knowledge to help us grow our other titles. Let me share a few updates on our key Evergreen titles. DEER HUNTER 16 which has been rebranded DEER HUNTER 17 lives [ph] in underwater hunting update in Q1 which has increased its revenue run rate. This update also drove significant improvement to paid acquisition, ROI which allowed us to profitably spend on the title. We are optimistic that this franchise can continue to grow as new content modes were introduced. KIM KARDASHIAN HOLLYWOOD, we released a significant update in December with a new look to provide a bump in bookings and was followed with solid performance in Q1. We saw approximately flat bookings in this title from Q4, 2016 to Q1, 2017 the first time that this has happened in its history. We will continue to invest in new features and the hopes continued improvement including subscriptions that were introduced in Q1 and planned summer updates to celebrate the third anniversary of the game. Kim herself returned to the social media early this year including worked with us on updates and to help promote the game. The Dash franchise, COOKING DASH and GORDON RAMSAY Dash continue to deliver consistent revenues. The teams will be releasing a big 2.0 updates this year and we expect good things to follow. And finally Racing Rivals. We completed the transfer from the franchise; the transfer of the franchise from our Long Beach offices to a very talented Studio led by former EA and Zynga Executive, Travis Boatman. Given the teams experience in running live games like Mad and Mobile, we believe they are uniquely positioned to take the franchise to new heights. In addition, Carbonated in collaboration with Universal Studios just released its 6.2 update featuring content from the blockbuster smash “The Fate of the Furious” propelling it back into the U.S. 100 top grossing growth [ph] games in iOS. Now let’s move to our longer term view and how we are implementing a creative driven strategy that we believe will drive better growth and profit performance overtime. Our mission at Glu is to create top ten grossing games and apps that stack revenues year-over-year while better managing strategic Evergreen titles in a Catalog to drive a baseline level of revenue and profit on which to grow. To execute this mission, we have shifted to a product centric strategy and culture. Our objective is to be more stable, profitably growing the company overtime driven by smart bats [ph] on head supported by strategically managed Evergreen games that generate more annuity like economics. Our strategy to make stock smart investments on potential new blockbusters is based on our creative driven approach, where we empower proven leaders and their teams to pursue their creative passion. It’s a fundamental change in the way we develop product and our intent is deliver games that grow year-over-year versus the painful shocked -- results that our industry so commonly delivers. Moving to a model that features steadier bookings growth overtime, we expect it will supply us with more predictable, repeatable bookings. We believe these new growth games will come to define Glu in time, we are putting a design construct in place that applies our collective learning over our history of launching and running more than 80 games. We expect that future titles in Glu will include the following. First, highly social element that are designed to foster higher engagement, retention and monetization, features like guilds [ph] chat, gifting, tournaments and live dating. Second, much deeper meta-game that are designed to create deeper engagement in monetization really the macro reason for coming back and playing. Three, deeper older games what the player does to experience, what the player does deepen the experience months after they start playing. Four, deeper monetization, we built a playbook that all of our debt teams are using to create deeper spending features. Five, more live events synchronized with targeted UA to create more qualified installs and therefore more monetization. And six, more and better content update that are designed to create stronger engagement. We intend to greenlight only those games that deliver this design going forward. That positions us for consistent hit generation we have implemented a pre greenlight process focussed on rapid prototyping with very small agile and muscular teams. To fail [ph] fast, succeed fast approach that keeps us focussed and disciplined. Once greenlight, we will commit investment and move to a larger team structure. The games that do get built will be supported by Glu infrastructure, our solid balance sheet and a systems and analytics we have invested in to drive user acquisition and grow ad revenue. This approach is also fuelled by our new scale studio model to give our teams what they need to do their best work we are building creative centers to better faster innovation and still a prototyping philosophy. The continuous innovation approach to both creating blockbuster growth game concepts and enhancing our Evergreen titles. Teams are charged to developing Glu watching game concepts using the design treatment I’ve outlined. As for existing Evergreen games, our teams are employing dedicated approaches to prototyping including game jams to create new LTV driving features, modes and systems that will release the uptakes. These innovations are designed to refresh our games, keep the Catalog vibrant, enhance retention, engagement and monetization. In my experience it takes a creative focus strategy to drive great products and more lasting value in the business. Now was the right time for Glu to move in this direction. We believe this is an opportune moment in the industry to build on our leadership position. At a time when investment and game development is challenged we are working to build a power house development and publishing house where talent wants to work. This is evident not just in our recent hires, but in an energy and enthusiasm we are seeing across the global organization. At our Annual Glu University event last month, we had more than 100 of our studio developers share ideas and best practises generating a learning for all of our teams to move further and faster. Our current roster of five creative leaders has proven winners across a number of gaming categories. RPG, Simulation, Sports narrative casual and lifestyle. Mike Olsen our U.S. creative leader hirer and a creative leader behind Tiger Woods PGA and Star Wars Galaxy of Heroes has in just a few weeks put his core team in place and demonstrated across the company what a rapid prototyping looks like. We are very excited about the other work from Mike’s team which we expect will lead to a new title in 2018. We expect it would bring additional creative leaders and teams on board over that time to broaden Glu’s array of game expertise and deepen our pipeline. Looking forward to the rest of 2017 in addition to Taylor Swift launch, there will be two other titles that we’ll put into Beta testing that are potential launchers this year. First an update on Taylor Swift. Our Toronto studio where we developed and run KIM KARDASHIAN HOLLYWOOD has been working closely with Taylor and her team. What we are building has the potential to redefine the traditional Sluburdy [ph] based game and while we don’t anticipate being as focussed on celebrity vehicles under our new strategy we do see strong potential with Taylor. We expect the launch to be later this later, we will be providing a full update on the games innovative design and launch plans on our next earnings call. As mentioned, we also have two new games that will be launched into Beta this year. Launch decisions and timing will be based on the Beta results of each game. The first, car town racing is expected to go into Beta before the end of Q2 and if it performs well will likely be released worldwide in Q4. This is an accessible driving game with a simple yet additive core loop and a deep RPG base meta games. More on car town racing once we have the Beta data in hand. The other title we are putting into Beta in the second half of 2017 is a Zombie based shooter from our Moscow studio. The city has done excellent work refreshing DEER HUNTER 17, a great example of a near post Evergreens and we are very optimistic about this new shooter. More on this as Beta data becomes available as well. The final topic I would like to address is around cost structure. Now that we have defined our new strategy the gun making progress in improving the performance of Evergreen titles added another growth game in integrated Crowdstar, and we are we returning my attention to how we control the lower or operating expenses in order to improve our bottom line results. \ This will be the core focus for Eric and me in the month of May and we will outline details in the next call. We will invest in Content and UA acquisition in an effort to drive bookings from Evergreen and growth titles; however we will also look to control and reduce expenses that are not directly related to growing our topline. Our user acquisition and content investments will be data driven and based on a thorough review and analysis of the expect to return, to build meaningful bookings overtime. Both Eric and I are committed to redefine the way that Glu operates, and that includes ensuring that we are focused on running in an optimal way in order to drive our profitability. I will now pass it over to Eric to cover financials and I’ll come back at the end for final comments.

[Eric Ludwig:]

Great, thank you Nick, and good afternoon to all joining our call. I will provide further details to the fact behind our strong financial results for the first quarter of 2017 and then discuss our second quarter and full year guidance. Consistent with our financial presentation and for all information besides from bookings or otherwise stated below, we will discuss this also on a GAAP basis and be free to change in deferred the deferred cost of revenue and the non-GAAP operating expense total and our financial tables. This data will provide a GAAP to non-GAAP reconciliation of the quarters financial results based on the same methodology we used in prior quarters. As Nick said we significantly exceeded our Q1 guidance and we are off to a terrific start for the full year. We continue to view 2017 as a transition and investment year that we believe will position us for sustainable bookings growth and profitability in the long term. Revenue was $56.8 million for the quarter up 4% in the prior year’s first quarter with our five largest titles representing 58% of the total. 48% of total revenue came from titles where we paid a royalty and we ended the quarter with $73.2 million in cash. Bookings were $69 million, a 28% increase over last years’ first quarter and $15 million above the midpoint of our guidance. The quarters booking increased which included the first full quarter of Crowdstar was driven by continued strong momentum for Design Home an outperformance from key Evergreen titles. This outperformance in Design Homes speaks to the power of combining a great IP with Glu’s scaled operations, user acquisition function and our in-game ad revenue capabilities. We are expecting to see modest declines in our Evergreen games and are pleased to report that our key Evergreen titles outperformed our expectation, demonstrating early success in our efforts to increase focus on daily game operations to re-energize these titles. And looking more closely at bookings, the biggest contributor was Design Home at $14.9 million with COVET FASHION at $11.5 million. Ramsay Dash was $7.9 million; COOKING DASH was $7.1 million while KIM KARDASHIAN HOLLYWOOD was at $6.9 million and DEER HUNTER 2017 was $5.3 million. And DEER HUNTER 2017 bookings were up over $1.5 million sequentially from Q4 and it’s a great example of the effective live operations from our Evergreen strategy. Bookings generated from ads and other offer was 14% of total bookings. This is how it reflected from the fourth quarter due to the first quarter being seasonally why that ads. Additionally, Crowdstar began their implementation of ad Q1, so they did not have a full quarter of contribution. Turning to the expense side, adjusted platform commissions were $17.8 million, adjusted royalties came in at $5.3 million and hosting cost were $1.8 million. Total adjusted operating expenses were $45.7 million an increase over the first quarter primarily due to added user occupation cost which helped drive the strong topline results. Additionally first quarter results also included $3.7 million pre-tax restructuring charge related to the severance and lease termination cost. Turning to the balance sheet, we ended the first quarter with a cash balance of $73.2 million. This was a decrease of $28 million over the prior quarter due to $15 million of cash used in operations. On the cash inflows during the quarter, Apple only made two payments in the first quarter given the timing of their calendar. Cash outflows during the quarter excluding prepaid royalties which I will talk about next included annual bonus payouts for our successful studios last year as well as severance and lease restructuring payments that we talked about last quarter. Additionally we paid $14.2 million in previously signed royalty minimum guarantees. These outflows were as expected and we highlight them on the February earnings call. I’d like to provide a brief update on our restructuring plan, which included both the headcount reduction, facilities consolidation and a new corporate headquarters. Consistent with our plan and maintain appropriate SG&A expense levels; we reduced headcount by a net 55 employees and ended the first quarter with a workforce of 699 employees. We also made progress in churns of eliminate facilities in Washington and Oregon, and we are also very close to signing a lease on our new headquarters in San Francisco which will help be our greater skills faced that Nick’s talked about. Now turning to guidance. For the second quarter and full year of 2017, I am pleased to say that the strong performance that we reported in bookings in the first quarter has thus far continued in the current quarter and we are increasing our bookings guidance significantly for the full year. This will [Indiscernible] by our ability to provide frequent updates, live operations, tournaments and events the Evergreen titles and the continued strong contribution from our growth games, namely Design Home, COVET FASHION and MLB Tap Sports Baseball 2017. The investments we have made in attracting proven industry talent revitalising our Evergreen titles and improving our operating efficiencies support a decision to raise our bookings guidance for the full year. Our goal remains to produce top 10 grossing games at stack revenue and generate profitable growth longer term. This is supported by active management of our Evergreen title to enhance our booking potential. As Nick mentioned on the heels of our successful MLB Tap Sports Baseball 2017 launch in March, we expect to launch our Taylor Swift Game by the end of the year. Baseball is off to a good start and we factored it into our expected performance in our 2017 guidance. For the second quarter we expect bookings to increase sequentially and be in a range of $71 million to $73 million. This guidance assumes seasonality for our female centric titles COVET FASHION, GORDON RAMSAY DASH, COOKING DASH, and KIM KARDASHIAN HOLLYWOOD as well as continuing contribution in Design Home and MLB. Adjusted platform commissions are expected to be $17.9 million to $18.3 million, adjusted royalties in the range of $5.6 million to $5.8 million, and hosting of $.7 million. Adjusted operating expense is slightly between $58.7 million and $59.1 million. We just seem marketing to be approximately 36.4% of bookings for the quarter. Now let me talk about that. Starting with the second quarter, we are significantly increasing our user acquisition investment on Design Home. 2017 as I said is about investing in content and creative leaders We believe the Design Home is in a unique place of its life cycle where forward investments and user acquisition will benefit bookings growth this year and next year. We’ll also provide increase in contribution margin in 2018. This decision is based on our internal quantitative analysis on the recent actually lifetime value of Design Home paying users and our projected total bookings from these paying players. Based on our internal ROI analysis we believe it is a right time to make these investments to support what we believe will be stronger growth in the long term. We believe the Design Home user acquisition spent today has an expected pay back within approximately nine months and will be comfortably ROI positive over 24 months of expected revenue regeneration. A portion of our significant bookings upgrade going today is due to this investment. We expect the second quarter to be the peak quarter in terms of UA spent in investment for the year, and we intent to dial back this marketing investment. Modestly and Design Home in the third quarter and then significantly again in the fourth quarter. And looking at the full year we’re increasing our bookings guidance to be in the range of $280 million to $$290 million, representing a significant increase at the midpoint over last year’s $240 million. Keep in mind as you model the second half of the year, that we would anticipate our usual booking seasonality with Q4 expected to be our strongest quarter. Adjusted platform commissions are expected to be $70.7 million to $73.2 million, Adjusted royalties in the range of the full year of 22.5 to 23.3, and hosting cost is $7.2 to $7.5. And our adjusted operating expenses expected to be between $203.4 million to $207.8 million. We just seems that marketing to be a approximately 28% of bookings for the year, To quantify our investment in UA over the next three quarters, we intend to invest approximately incrementally $30 million over Q2 to Q4, if you compare our Q1 UA as a percentage booking to the remainder of the year. This additional increase in UA investment will not reduce our prior guidance of ending 2017 of cash of at least $60 million. Due to the Q1 be coupled with the payback time horizon of this UA investment. And thinking about our guidance for the quarter for full year, our long term trajectory we believe it’s useful to think about Glu’s transformation in three phases. Phase one is Q1 of this year to Q3 of this year, where we are seeing strong bookings performance and obviously upgraded because of that and we expect that our t UA investment we’ve outlined will keep us in a last position through the third quarter. Phase two is from the fourth quarter of this year through the first half of 2018. We’re currently anticipating being breakeven or better cumulatively during this phase with some quarter to quarter variability based on seasonality and bookings performance as events unfold. And then, if we hit the midpoint of 2018, we anticipate moving to Phase three where we begin to see the froes of our creative leader investments which we expect will position Glu to deliver more single booking growth and profitability on a go forward basis. Now we are mindful of the fact that our investment in Design Home UA is expected to generate losses at bookings level we have previously stated would be breakeven or better. We believe this is a right time for this level investment, plus as Nick mentioned earlier we will continue to look at all expenses to make sure that all headcount in spend is supporting bookings generating activities and we will continuously assess all expenses. So, before wrapping up, I want to mention a Greg Cannon our Vice President of Finance and IR will be leaving Glu effective May 2015. Greg spent with Glu for 10.5 years is that my trusted right hand man the entire time. Greg will be taking a leadership role at a private company closer to home, so they can spend more with the family. In filling Greg’s role, I’ve split the role into two, accounting and financing IR. I’ve recently hired Gordon Lee as our VP of Accounting reporting to me. Gordon joined Glu last month in Twitter where he was Worldwide Corporate Controller and he previously worked with PriceWaterhouseCoopers. So, I’ll like to thank Greg for his hard work, loyalty and wish him the best. So in conclusion we are excited about the growth opportunities in front of us and believe we’ve made significant progress reaching our goal of generating strong bookings growth that will translate in the more predictable, steady profitability which we believe we’ll enhance stock of the value over the long term. With that, we’ll open up the call for questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from Doug Creutz of Cowen. Your line is open.

[Doug Creutz:]

Hi. Your comment about UA for Design Home, do you look here to represent a pretty significant philosophical shift in the company in terms of what you willing to spend to user and does may well been overview, but as you’re looking forward is there something you expect to be further consistent across all your growth change where you spending higher UA initially, or there’s something really specific to design home?

[Eric Ludwig:]

Yes. Great question, Doug. So Design Home is a title that had a larger day 120 LTV that we’ve ever seen. We are also comparing and looking at the comparisons between Design Home and COVET, it’s just a title. COVET has a very, very long two year curve, lifetime value curve, whereas Glu’s other titles, typically have some of the 90 to 120 day growth curve and then really flatten out and that’s kind of been why our useful life of paying customers, we said about 90 days in Glu’s historical products. So we are believing that Design Home is unique versus other titles that Glu has. Yes, in the future we had another title that had a similar profile where LTV is expected to be much bigger than the CPI, you could envision us spending similar amounts and having a similar approach. But as mentioned Doug in my prepared remarks, we’re anticipating that the payback, so the amount – the CPI acquire versus the breakeven payback of that CPI is approximate about nine months for this Design Home title and we think generate revenue – tailing revenue, but over 24 period. So, if that sort of setup happens again, we will most likely continue to sort of engagements behaviour, but the historical profile we’ve had has not have that profile before.

[Nick Earl:]

Doug, let me just add a couple of comments because I think this is just really important point for where we are right now and this is one of those extraordinary opportunities that you know that I have been lucky to been a part of other companies to have something that has – the feeling that we don’t understand just yet but we feel it’s very high, certainly relative everything else we’ve got. So this is just one of these moments where we can really get behind. We’ve got a very sophisticate user acquisitions machine in process here and we can cut it off at any time if we feel like this is not going in the right direction or maybe going below our ROI hurdle rate, it’s very easy that we can literally cut it off that day, but we want to – we really want to sort of draw line in sand and investing this in a big way, because this has such enormous potential and we feel like this is a perfect time and this is a perfect product in which to invest seriously like this.

[Doug Creutz:]

Thanks a lot, Nick.

[Nick Earl:]

Thanks Doug.

[Operator:]

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

[Unidentified Analyst:]

Hi. This is [Indiscernible] in for Darren. Thanks for taking my questions. First of all, I have question relates to operating expenses and how much of that is related to maybe mostly marketing expense and how variable are those expenses relative to revenue? And then I have a few follow-ups if I may.

[Eric Ludwig:]

So, our guidance for the full year of 280 and 290 has assumption of 28% of full year UA as a percentage of booking. So it’s about $77 million to $80 million is coming from that level. So if you kind of go back and prepare our full year guide last quarter to our full year guide this quarter, virtually all of the increase in our OpEx is coming UA spend and this has been the topic du jour of this exact earnings call is that really why would we and why we believe this is a right time to do that. And why it sets us up ticket to phase 2 and phase 3 of Nick strategy – Nick and my strategy.

[Unidentified Analyst:]

Thank you. And then how about going forward if you sort of back out the San Francisco office spend what sort of the normalized number they are related to OpEx?

[Eric Ludwig:]

Yes. We are yet doing the final lease for the San Francisco office lease. So this guidance here has limited amount from the office itself for the full year. We expect to move in maybe in the November timeframe into our office. We’ll have some CapEx in the third quarter probably $4 million, $5 million of CapEx for build out. So from a cash perspective my $60 million minimum cash threshold balance already assumes about $5 million of cash being deployed in the third quarter. But from an OpEx perspective very, very limited, if fact that will be next year, you will see an uptick in cost from that.

[Unidentified Analyst:]

Thank you. And one more if I may. On the royalty payments that are going to celebrities. Is there any way to look at this going forward? Any sort of trend rate that we’ll see with the expenses there?

[Eric Ludwig:]

Yes. I guess what I’ll do there. I would point you to our new IR. We’ve started about last quarter breaking out, this is something cash outflow side as opposed to the PNL but on the cash outflow side we started to breakout our cash from operations in to two line items. One is cash user generate from operations, excluding the prepayments of royalties, and then the next one year the cash advance for royalty event. So the point here as we deployed a lot of capital over the last two years or sign the lot of licenses, some of those still had some payment obligations of prepayment that were coming due this year. And what we wanted to give is visibility around those isolated payments, because here will be less being on a go forward basis. As Nick talked about the last three earnings calls we’re dialling back from new big minimum guarantee celebrity licenses, but we still as we entered this year had about $26 million of obligations that have been signed up for in the past that had yet to be paid. And so that’s why on the condensed cash flow statement, we’re now isolating that line item, so you can see it. So that’s where we want to highlight the cash outflow on licenses, but in terms of royalties we’ll always talk about royalties on the earnings calls and our guidance this year that we would have about $22 million of royalty expense that when we hitting P&L, so 22 million on the $280 million of home [ph], so about 10% effective blended royalty rate around these licenses.

[Unidentified Analyst:]

Thank you. And congrats on the quarter, guys.

[Eric Ludwig:]

Thank you.

[Operator:]

And next question comes from San Phan of Mizuho. Your line is open.

[San Phan:]

Hi. What the greatest focus on evergreen property versus new titles that vacates in the past. Can you give us in context enough magnitude for the UA differences for life service content drop versus new games and the new scenario that you described for Design Home?

[Eric Ludwig:]

Yes. Sure. So, I’d say historically we have spent roughly 15% to 20% of Glu’s bookings expense on user requisite spend. You would see that whether we had launched the title in the quarter, it may have trended to the higher level, the 20% maybe in the quarter of a launch. So our historical spend in total was about that level. And this is as talk before most of even our evergreen titles to-date, KIM KARDASHIAN and COOKING DASH, RAMSAY DASH, DEER HUNTER, these are predominantly single player games that have relatively quick playing lives within the game, and then higher it go relatively quick payback curves and lower lifetime values. And so, we kind to spent in that 14% to 20% of revenue levels. On a go forward basis as we launched titles that are growth titles, if that all of our growth titles as Nick talked about will have many elements that should have much longer utilized much more player engagement etc cetera. So I would expect that those games would have longer life, higher LTVs and have the ability for us to do different spend horizons, spend dollar amount. Now over time, we still are very, very rigid as Nick mentioned on our ROI. We have rigid ROI categories that we go after for each of these titles. But each one of them is title by title dependent. Its dependent upon the title CPI, the cost per install as well as the lifetime value expected for that title, so every title has its own ROI curve, ROI investment decisions.

[San Phan:]

Okay, great. And then we’ve also noticed for the several past quarters android has historically been underperforming against iOS and we kind of saw that flip this quarter. Was there anything specific on games not related to platforms or things that maybe missing?

[Eric Ludwig:]

Yes. I’d say this example this quarter was directly related to Design Home, that title has a higher LTV on android than an iOS which is very surprising. We’ve seen that maybe one of the time before and here go the revenue mix for that title is more favored toward android versus other games, so that shifted the overall bookings as a percentage for android versus iOS will increase.

[San Phan:]

Thank you.

[Eric Ludwig:]

Thanks, San.

[Operator:]

Our next question comes from Michael Graham of Cannacord. Your line is open.

[Michael Graham:]

Thanks a lot. Congrats on the good performance guys. Just a couple on, I guess, first Eric, can you just refresh us on differences between revenue and bookings this quarter because there’s much spread there. I also wanted to ask about what color you could give us around. What assumption you’re making for Taylor Swift in your guidance. You’re not so much in terms of like dollars but just performance wise like relative to Kim Kardashian, relative to anything else. How you sort of forecasting Taylor Swift when give your guidance for the year? Thanks.

[Eric Ludwig:]

Yes. Great. I’ll tackle those questions. Maybe Nick can try on Taylor as well. So just our nomenclature definition, for us bookings is the revenue generated in a given calendar month, so if I’m a user I spend $10 in Design Home in the month of May, I will count that as booking in the Month of May that will be a Q2 bookings item. This last quarter in Q1, we had $69 million of January 1st to March 31st bookings revenue. Then there is GAAP revenue or what we call revenue and our GAAP revenue we differ the revenue recognize from the durable goods and games over the expected useful of life the paying players. So each of our games has a different paying player life, so most of our games historically had roughly a 90-day paying player life and so we would recognize that bookings if I spend a $100 in January I recognize that $33 of January, 33 in February, 33 in March and that would be my GAAP revenue, my revenue. I saw the disparity this quarter on bookings of 69 million to revenue of 56 million is we have a high spike in bookings this quarter, we’ll recognize in that over anywhere from three to seven months. Some of are more social games have longer paying player life and that’s why you’ll see this disparity and on the non-GAAP reconciliation or the GAAP to non-GAAP reconciliation. You’ll see $12.2 million of change in deferred revenue as well as change in deferred connection. And then in terms of Taylor Swift yes.

[Nick Earl:]

Michael, let me still jump in there. We recognize that there is tremendous thirst and hungered to understand more about Taylor in terms of timing and what the game is. And as I mentioned on my scripted part we’re just not ready to talk about it yet, and we will however go into excruciating detail on the next earnings call. We really look forward to that. What I can’t say is that it is truly innovative design that we think really define the way that we all look and it is celebrity based games. And given that this is the biggest -- one of the biggest launches that we’ve got going forward in this celebrity space. We are putting everything we can possible put behind this. What I learn DDA [ph] is that you want to make sure, you got to be impactful launch and impactful announcement on any big game and so we just want all the elements to come together so that’s the reason why we’re waiting on this, but it would be latter this year and we think this could really sort of redefine this space.

[Michael Graham:]

Okay. It sounds good. Thank you.

[Eric Ludwig:]

Thank you.

[Operator:]

Our next question comes from Mike Hickey of Benchmark Company. Your line is open.

[Mike Hickey:]

Hey, Nick, Eric, Thanks for taking my question. Congrats on the quarter. Good luck. Nice working throughout the years. I guess my first question is just on obviously strong sequential bookings year-over-year bookings growth but sort of curious why you’re saying, your MAUs, your player metrics, your MAUs and DAUs actually decline sequential and year-over-year actually part of our relationship between bookings growth I guess and the decline in those parametrics? That would be helpful. Thank you.

[Eric Ludwig:]

Yes, sure. I’ll take that. Looking at slide 23 at the investor deck you see a slight decline in MAU and DAU or DAU to DAU in Q1 relatively flat from Q4. On a year-over-year basis its down from 4.9 million, I would say the Q this is more about a Q1, 2016 fast title that came in we had Frontline Commando and Kendall and Kylie in install that in the DOW, that in the MOU in Q1 of last year, as you see the revenue from those title this quarter with all the list for my Commando and Kendall and Kylie may not be on the pie chart either. So the year-over-year comparison is really comparing to some of our older celebrity gains, that were unsuccessful, that are not really persisting and pertaining, retaining and I would say really bookings at the trends from Q3, of 2016 till now you’re starting to see that evergreen strategy paying off coupled with the platform strategy or the growth title strategy of COVET, Design Home and you see growth from Q3 are 3.5 DAU up to the 4.2 million we had in Q1. So I think it’s really a tail of two viewpoints and high horizons,

[Mike Hickey:]

Understand. Thanks Eric. Next question. I guess on Design Home, this is what you call still a fairly new game.

[Nick Earl:]

Yes.

[Mike Hickey:]

Albeit you’re confident you’re showing that through plan spend and user acquisitions. So maybe you can provide as much evidence as you can to why you fill the Tencent drive long term player retention or engagement which obviously this is important piece of the puzzle, especially the second half of the year?

[Eric Ludwig:]

Yes. Good question because you’re right. It’s a Central to this year and 2018, and we have spend in no amount of time really deeply analyzing all of the KPIs, really understanding the player base, understanding what the future updates look like, the user behaviour especially they start to get into the other experience where we’re about six months in for this game, And we’re seeing KPIs an evidence that we just don’t see another games that actually sought went through with some of the hits that I’ve been involved within in previous companies, its really that number announces more than a gut feeling of course that is really still defining our confidence in how we going to spend. And then this is add that to the fact that our ROI just looks really good on user acquisition spend basis. As mentioned we’ve got really specific to say some, we can dial it up very quickly as in you know like minutes or we can dial it back or we can shut it off. So we have sort of supreme flexibility with our system, the intention we wanted to layout today is to really go after this because you just and this industry don’t have a lot of opportunities like just those kind of magical moments. So we really didn’t want laid out something we’re going after, but we will watch it very closely, just that everything we’re seeing right now with the way to retention and monetization of conversion, the engagement factor and the number of what we stars which are sort of our terminology for ways inside of the Crowdstar games are incredibly healthy and so the more users we can get onto this game the better that we’re going to do, we’re trying to define where that feeling is.

[Mike Hickey:]

Okay. Thanks. Last from me. Appreciate you guys time. Maybe this what naïve at my part, but I’m curious on design home and maybe broadly speaking to rest of year portfolio when you think about consent, strategic relationship with you how we should about the opportunity of your games and China in that region in the future, obviously its a big mobile market now, so I get the geographies that underrepresented in the portfolio? Thank you, guys.

[Eric Ludwig:]

Yes. Thanks for that Mike. It just a great question and it bring up to point, we haven’t really talked about, but we are incredibly aware that the U.S. is in overall sort of shares drop, it’s kind of sort of surprising number, I think you know 20, 25, 30% of the global market and we are not to your point and sort of the big one of China right now. We continue to talk to Tencent about the opportunity there. And I think that’s certainly an opportunity and a potential path in the future of how we can take our experiences and use the incredible capabilities that Tencent have especially with their distribution platform in China and Asia in general, so we would never rule that out. We are not focussed on it right now because frankly we think there is a lot we can address in the western markets. And then when it comes to Tencent the most value we are getting from and then we think this is just an enormous amount of value, is they are teaching us how to operate live services and given that we’ve got so many games that are on the app store, and six or seven that we can really put efforts again. Right now, we can apply those learnings and we have applied those learnings and they have just been incredibly generous, I mean just unbelievably generous in sharing their techniques and you know their learnings on how to operate these live services. They have been doing it for as long as anyone in the industry and it has been welcome information for us. So that really is the crux of our sort of learnings and partnership with Tencent right now. In the future we will see if their games come our way and our games go their way, that’s to be determined.

[Mike Hickey:]

Thanks guys. Good luck.

[Nick Earl:]

Thanks Mike.

[Mike Hickey:]

Thanks.

[Operator:]

There are no further questions. I’d like to turn the call back over to CEO Nick Earl for any closing remarks.

[Nick Earl:]

Great. Thank you. [Indiscernible] and our CEOs is running at a high level as we increased our focus on Evergreen titles and accelerate the prototyping process for growth games that should begin hitting in the second half of 2018. We think our strategic approach can reshape the investment profile of Glu over the next few years by launching three to four growth games each year on top of our existing Catalog, we believe we can create dependable, predictable, profitable growth in bookings. And combined with more disciplined management around the game investment and development we are aiming to make Glu more consistently profitable. Thanks again for joining us and we hope -- wish you all a good day. Thank you.

[Operator:]

Ladies and gentlemen thank you for your participating in today’s conference. This does conclude the program. And you all disconnect. Everyone have a great day.