Glu Mobile Inc
Q1 2016 Earnings Call Transcript

Published: 4 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the First Quarter 2016 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I’d now like to introduce your host for today’s conference Mr. Greg Cannon, VP of Finance and Investor Relations. Sir, you may begin.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile’s first quarter 2016 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have Chairman and CEO, Niccolo de Masi; 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, unless otherwise stated, all financial results, metrics and guidance will be presented on a non-GAAP basis. 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 today’s press release regarding our first quarter results, as well as the supplemental presentation accompanying today’s earnings call that can be accessed via our Investor Web site at www.glu.com/investors. Please also note that all references to EBITDA or adjusted EBITDA calculations, which Glu defines as non-GAAP operating income or loss excluding depreciation. Finally, please note that during this call, we will be providing information regarding the total number of social followers of certain celebrities. We calculate total social followers by aggregating the total volume of friends and followers that celebrity has on Facebook, Twitter, Instagram, and Vivo. Please not that these numbers will contain some overlap of these social audiences between channels and celebrities. With that, I’ll turn the call over to Niccolo.

[Niccolo de Masi:]

Good afternoon and welcome to everyone joining us as we discuss the opportunities in Glu’s business. I will begin today by outlining our first quarter results. We outperformed the midpoint of our Q1 revenue guidance by 14.9%. Q1 EBITDA came in ahead of the midpoint of guidance by $2.7 million. Our Kendall and Kylie game drew much of our topline outperformance as the title installed well out of the gates. Do not a hit of Kim Kardashian Hollywood proportions we are satisfied with this first launch in our five-year exclusive Kendall and Kylie gaming partnership. Tap Sports Baseball went into its third season this year with our 2016 launch in conjunction with MLB star player Kris Bryant. We're a learning organization as I’ve said before, and are on track to have the top grossing baseball games for the third year in a row. This season’s Tap Sports Baseball is positioned to be our highest grossing release in the franchise yet by quite some margin. Having seen EA’s success this year with Madden Mobile, we’re enthused about the upside potential of the Tap Sports Baseball franchise. We are in fact already planning how to further extend our dominance in the baseball genre for the 2017 season. I shall now outline updates in our studio organization. We believe much of the grossing prowess of Tap Sports Baseball 2016 derived from the enhanced social features we invested in over the past 12 months. This investment in guild, PvP, a next-generation social functionality is in fact the same across our portfolio and something you will see throughout the upcoming 2016 launches. Between now and our next earnings call, our slates includes Britney Spears American Dream, Gordon Ramsay Dash and our WeFire partnership with Tencent. Each of these titles brings next-generation social features to Glu, including some cases user generated content functionality. Our Britney Game is exhibiting solid beta metrics thus far and is expected to launch on May 19. Gordon Ramsay Dash is evidencing impressively stronger metrics and beta from the prior Cooking Dash title in the same territories. Cooking Dash was our second largest title in Q1 2016 and has grown quarter-on-quarter since global launch in June 2015. Cooking Dash is considerably more successful than the prior Diner Dash launch and is another good example of our studio learning year-on-year. Scheduled to launch in June 30, we are optimistic about our Gordon Ramsay games ability to make a material contribution to 2016 full-year outcome. Our newly created studio label system is coming together nicely under the leadership of Nick Earl and Tim Wilson, our Global President of Studios and CTO respectively. We are growing the bench strength of our product leadership, while driving technology synergies in each of our major casual and core divisions. Retention and its social underpinnings lie at the heart of our product strategy for this and the next cycle. Moving now to our action label, in beta thus far WeFire demonstrates considerably improved metrics as the population of synchronous PvP player’s increases and we continue to simplify the tutorial experience. In late summer we plan to launch WeFire simultaneously in all Western countries and languages we have rights to, North and South America, all of the EMEA, plus Australia and New Zealand. We thank Tencent for their support in optimizing this unique title for the West, which would be branded in our territories as Frontline Commando Rivals. In September 2013, we launched our highly successful Deer Hunter 2014 game, which is now been installed over 150 million times. As we’ve mentioned on prior calls, Deer Hunter 2016 and other 2015 shooter releases have experienced muted installs in revenue by comparison. As a result of this trend, as well as our belief that only highly social games will drive meaningful revenue, we’ve reduced the volume of shooters on our roadmap. As a final comment to our product pipeline, on our next earnings call we will provide an update on our racing label roadmap. At this time, I’ll say that we expect to meaningfully grow revenues for the genres starting in Q4 this year. I shall now detail our progress towards improving the long-term profitability profile of Glu. Each year we have shaped our product portfolio to make studio investments according to where we believe the greatest returns lie. Between late 2010 and mid 2014 these were in the action shooter genre with titles such as Gun Bros, Contract Killer, Frontline Commando and Deer Hunter. However, since mid 2014 we’ve seen a shift were by our strongest studio ROI has come from focusing on female gamers. We’ve rebalanced our internal studio resources accordingly. With our Tencent WeFire partnership underway, we've taken the opportunity to consolidate our internal shooter efforts in a single low-cost location. Thus far in 2016, we've experienced unanticipated softness in several catalog titles, as well as the tale on our Kendall and Kylie game being weaker than anticipated. Last quarter I talked about our long-term plan of bringing fixed OpEx into line with our more predictable catalog revenue. Doing so will ensure that new launches are all upside each year as opposed to requiring a fair level of success to cover annual fixed OpEx. As part of driving towards this objective by the end of 2017, we completed global restructuring program last month. Automation of various G&A functions is underway, as well as a 12 month drive to shift yet more fixed OpEx to lower cost locations. The combination of our shooter label restructuring and its efficiency drive means we’ve eliminated circle 100 full-time rolls over the past five months. As a result of our actions, we anticipate that by mid-2017 Glu’s annual revenue run rate threshold for EBITDA profitability will be reduce the circuit $225 million. This assumes the business mix and hence gross margin profile similar to the present. Our experience and track record working with celebrities now extends across a wide range of genres, from narrative games to shooters, sports, and time management. We believe we’re the best in the world that working with celebrities with large social audiences provide a permit marketing assets and contractual bear to entry for Glu. We anticipate that the long-term future of our celebrity partnerships will increasingly combine game mechanics and exclusive audiovisual content in new and compelling formats. Finally, now I shall cover development and the M&A landscape. We have continued working with our partner in Iceland, Plain Vanilla Corp., maker of QuizUp. Progress has been made leveraging our expertise to grow their ad monetization and rationalize a fixed overhead. We look forward to continuing to monitor the business including the anticipated impact of the potential NBC-TV show to determine whether to exercise our call option to acquire the company. As mentioned last quarter, our industry is in the process of what we believe will be 24 months of considerable consolidation. Venture capital for gaming startups has dried up, leaving a handful of larger operating companies including Glu as increasingly the only capital providers. As a result of this phenomenon, and we've been cautious about consummating large M&A opportunities in the short-term, as we believe the prices may come down further. In closing, I will say that layering celebrity social power on to already great games is a unifying rallying cry for our firm across all labels. The same pertains to our focus on enhancing retention across all products by the inclusion of meaningful social features. We are hard at work on the future of our product portfolio and I look forward to updating you in H2 on one or more of our self initiatives. I now hand you over to Eric Ludwig for details on our financial performance and guidance.

[Eric Ludwig:]

Great. Thank you, Niccolo. Overall, the first quarter results were ahead of our expectations. I’ll go through our Q1 results to conclude by providing our updated outlook for the second quarter and full-year 2016. Our key financial highlights for the first quarter are total revenue was $54 million, and above the high-end of our guidance range. Gross margin of 61.1% was also above our guidance. As a result, our EBITDA loss of $3.8 million and EPS loss of $0.03 per basic share were better than expectations. Our five largest titles during the first quarter represented 76% of total revenue, up slightly from last quarter. The largest title remain Kim Kardashian Hollywood generating $11.7 million or 22% of total revenue. Cooking Dash was $9 million, while Kendall and Kylie generated $8.6 million, Racing Rivals revenue was $6.9 million, while Deer Hunter 2016 rounded up at the top five $4.9 million. In the first quarter, 57% of total revenue came from titles where we paid a royalty of some kind to an external IP holder. Our gross margin of 61.1% was above our guidance primarily due to a strong performance of original IP games and savings at hosting costs. Total operating expenses were $37.4 million in the first quarter including $10 million for user acquisition. This was above the high-end of our guidance range of $35.4 million due primarily to increased user acquisition expenses related to the Kendall and Kylie launch. The combination of our better than expected revenue and gross margin more than offset the higher-than-expected operating expenses which resulted in EBITDA loss of $3.8 million. This was better than our guidance range of a loss of $6 million to $7 million. We reported a net loss of $4.2 million or EPS loss of $0.03 per basic share which was also above our guidance range of a loss of $0.05 to $0.06 per basic share. Now turning to the balance sheet, as of March 31, our cash and equivalents totaled $159.3 million, a decrease of $21.3 million from December 31. The declines in the first quarter was due to the combination of the operating loss for the quarter, $5 million for the Plain Vanilla investment, $2 million for the Dairy Free Games investments, and $9.8 million of royalty advances. Before turning to guidance, I wanted to mention that we issued an 8-K this afternoon outlining the restructuring associated with bringing our fixed OpEx more inline with our predictable catalog revenue. As Niccolo mentioned, we recently eliminated a number of studio positions, plan to automate various G&A functions, and shipped more fixed OpEx to lower cost locations. As a result, we will be recording a one-time restructuring charge of approximately $1.5 million during the second quarter related to severance. We also expect to incur lease restructuring related charges ranging from $750,000 to $1.5 million as we exit certain facilities before the end of the year. All restructuring charges will be excluded from our Q2 and full-year non-GAAP guidance and results once we complete the exit from these facilities. Now turning to guidance. For the second quarter, we currently expect our total revenues to be in the range of $46 million to $49 million. This reflects the launch of two titles during the second quarter, Britney Spears American Dream, which we respect to launch in mid-May and Gordon Ramsay Dash at the end of the quarter. Our costs of revenues is expected to consist of $12 million of platform fees, $3.5 million of royalties, and $1.7 million of hosting costs at the midpoint. This results in expected gross margin of 61.2%. Our OpEx for the second quarter is expected to be approximately $35.9 million at the midpoint. This assumes variable marketing as a percentage of revenue is consistent with last quarter. As a result, we expect to achieve an EBITDA loss between $5.5 million and $7 million. We expect net income to range from a loss of $6.7 million to $8.2 million or a loss of $0.05 to $0.06 per basic share, based on approximately 131.1 million weighted average shares. Regarding our full-year 2016, we’re lowering our guidance due to the combination of the softness on the tail of the Kendall and Kylie game, as well as lowering second half 2016 new title contribution. We are being cautious on the new title downloads and therefore revenues due to our experience, a weaker install for last few quarters. If new title downloads are better than the recent trends, our guidance could prove conservative. As a result, we now expect total revenue to be in the range of $215 million to $235 million compared to our prior guidance of $250 million to $275 million. We anticipate 2016 gross margin to be approximately 58.7% as all of our new titles in 2016 will leverage our brand. We expect operating expenses for 2016 to be in the range of approximately $147 million to $152 million, down from our prior guidance of $158 million to $164 million, reflecting the cost reductions we previously mentioned. In addition, we expect variable marketing to remain relatively consistent with Q1 at approximately 18% of the total revenues. EBITDA is now expected to be in the range of a loss of $12 million to $18 million. This reflects our lower topline expectations which is partially offset by our cost-reductions. Finally, we continue to expect to end 2016 with over $135 million in cash and no debt. We expect our cash balance to improve dramatically by mid 2017, virtually all of our royalty minimum guarantees to our celebrities, all of them paid by the end of 2016, and royalty expenses hitting the income statement will be predominantly deducted from these advances until fully recouped. As such, we anticipate cash by Q2 2017 being north of a $170 million due to this timing of royalty advances and recruitment. Our guidance for revenue, EBITDA, and ending cash balance assumes that we do not exercise our call option to purchase Plain Vanilla. Additionally, our cash guidance does not assume any purchases under our share repurchase program. If either occurs, we will provide a separate update to our guidance. So, in summary, while we’re working through the years in challenges, we believe we’re taking the right steps to improved execution and remain optimistic in our ability to resume growth longer term. With that, we will open the call for questions. Operator?

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Michael Graham of Cannacord Genuity. Your line is now open. Please go ahead.

[Michael Graham:]

Great. Thanks, guys. I'm just wondering on the -- you are cutting some development capacity and I’m wondering if that is part of the reason why you're lowering guidance? In other words, are we going to launch fewer games going forward, because of these capacity reductions? And then, I just was wondering if you’ve any insights, I mean, we noticed the same thing about the Kylie and Kendall game, it started off to a fast start and then faded a bit and I’m just wondering if you have any sort of diagnosis as to maybe why and can you learn anything from that in future games?

[Niccolo de Masi:]

Great. Hi, Mike. This is Niccolo. I will probably tackle both of those for you. The first one is relatively straightforward tackle which is that we cut nothing that was actually going to deliver in our mind certain revenue later this year. Almost all of the cuts were in the -- in terms of shooter capacity we’re in the shooter label buckets, and because of the fact that we’ve seen less traction in that category, we feel pretty good about the fact that the reductions we’ve made in this sort of concentration and consolidation of shooter titles in one location make a lot of sense is spaced out the release of shooters and also think hard about how we make them dramatically more social. We think that single player shooter games are -- have not gotten a lot of traction in the last 18 months. We think the WeFire style of synchronous PvP, Co-op, Clan, Guild War etcetera is very much the way that we can make that genre work. It’s a mixture of more time as well as fewer bigger bat [ph] there in the shooter space. So ultimately there might be some of the guidance reduction due to possibly some upside and stuff that could have launched very late in the year, but the reality is when we're talking about titles that are still nine months away from launching, or nearly nine months away from launching, there is a lot of uncertainty about the release schedule. So I’d say we’ve done a very good job of not only acting with these reductions on where we see the market going, but also driving through what we’ve seen the market do in the last 18 months where we see it today and making sure that we’re taking cost out, but not taking any highly certain or highly probable revenue -- revenue positive launches in the next 12 months actually. We haven't take anything really out of H1 ’17 or out of H2 ’16 of significance. On the Kylie and Kendall question, ultimately we don't have a precise diagnosis on why this title hasn’t been half to Kim, other than to say we have noticed slightly more, let’s say, traction and maintenance of revenues on the Kim title than we anticipated. So, the good news on the whole situation is that there hasn’t been really much cannibalization between the two titles, although because of the fact that Kendall and Kylie were already in Kim’s game, one could also argue that her audience already is supporting Kim’s game to some extend. I think we took some risk on the mechanics by making a portrait mode game. We've tried to enhance the social features in that title. I think it's fair to say the other hypothesis that we’ve got is that a younger demographic then Kim may not have as much as well [indiscernible] at their fingertips and that might lead to lower [indiscernible], lower lifetime value and hence ultimately to a smaller tail overall. I do actually think these titles have now settled into a place respectively where they can go the distance. We had, fully successful world -- worldwide -- World Wildlife Fund Green Day event with Apple in the last month that have both our Cooking Dash title and our Kendall and Kylie game promoted. So, I think it's as much a symptom of competitiveness in the top of the charts as anything specific in the Kylie and Kendall game per se.

[Michael Graham:]

Okay. Thanks a lot, Niccolo.

[Operator:]

Thank you. And our next question comes from the line of Mike Olson of Piper Jaffray. Your line is now open. Please go ahead.

[Mike Olson:]

Hi, good afternoon. This is probably somewhat repetitive. But I guess, what would you say more specifically changed in the last couple of months that’s impacting the revenue guidance by I guess, it looks like about $40 million for the year. So I heard you say that you’re expecting new titles to have lower downloads. Is that a function of basically the weaker tale for Kendall and Kylie? Is it a function of the kind of maybe shooters genre are not performing quite as well. Is it also certain titles that may have gotten pushed out of the year that you thought may fall this year, or could you just kind of more specifically run through that? Thanks.

[Eric Ludwig:]

Yes, sure, Mike. This is, Eric. I’d say probably the biggest thing was, this info graphic in the slide deck that we -- the IR slide deck which highlights the number of downloads, for example of Kendall and Kylie, that title in 45 days did about 10 million downloads. So, I think comparing that to other titles that we’ve launched and certainly some of the same download challenge that we’ve talked about the last two quarters, we took a more bottoms up approach to our forecast, and that’s per title basis on a per download basis, and that bit of caution caused us to be a little more conservative in our guidance, and that’s really the preponderance of the downgrade is around that. And as I mentioned in our prepared remarks, if we see a bucking with that trend these guidance could prove cautious, but we want to be as we get information, had that flowing through our results and in our forecasting.

[Niccolo de Masi:]

But remember that the Kim game was ultimately very successful over the first 18 months it was out. I don’t remember the exact revenue figure, but it was probably $120 million or more of revenue. When you look at these titles in beta they look a lot more similar in terms of beta on beta performance than we’ve seen in the worldwide wild for want of a better word. And when you have a title like Kendall and Kylie that’s out in February contributing to sort of 10 months plus of a forecast, it doesn’t take a large diminution and daily revenue delivery to actually have a meaningful impact on the year. So if you thought this title was going to do, half of Kim production Hollywood and it does instead of half of those 40% or something, it still has quite a material impact in the full year number.

[Mike Olson:]

Okay. And then maybe this is in the 8K regarding the cost reductions, but can you talk about what the cost reduction amount is expected to be or how much you’re expecting to take out of OpEx from these changes?

[Eric Ludwig:]

Yes. So what we said was, we’re doing a $1.5 million severance charges and then also that we’d be lowering our breakeven by the middle of next year to $225 million of revenue. So kind of that implies by the middle of next year about a $25 million per quarter OpEx profile excluding user acquisition.

[Mike Olson:]

Okay. Thanks very much.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from the line of Mitch Bartlett of Craig-Hallum. Your line is now open. Please go ahead.

[Mason Anderson:]

Hey, guys. This is Mason on for Mitch. Thanks for taking the question. First I’m hoping you can talk a little bit about your process for community feedback, whether it be bugs or suggestions for a new game -- new game content implementation?

[Niccolo de Masi:]

Sorry, can you repeat that again. So the new process for what, Mason?

[Mason Anderson:]

Not the new process, it’s your process for community feedback whether it be for bugs or new content for games?

[Niccolo de Masi:]

Sure, yes. So I mean, we captured data via multiple channels both in the forms of Apple and Google, forms and reviews as well as we’ve got helpdesk tickets that, when there is known bug or when users want to complaint, they’ll file on tickets. So there’s an aggregation by title that each of the product teams is able to summarize and review to understand what's happening real time whether it’s in beta or whether it’s in full live launch via multiple channels. So both channels that’s reported, self reported via the helpdesk ticket system as well as via the reviews on Apple and Google.

[Mason Anderson:]

Great. Thanks. And then, just looking at the Frontline Commando beta on App Annie. I’m hoping you can talk a little bit about that and exactly what's going on there. I know its pretty early days, but it just seems like there was kind of bits and starts in that. So any color you can give there would be great.

[Niccolo de Masi:]

Yes. So what I mentioned in my prepared remarks was that, as we put more users into the game you get nicely different what we call emergent gamier behavior. So as you can imagine any synchronous multiplayer PvP experience, there’s a vastly different spender pressure when you can find lots of your friends in the game whenever you’re online, and they’re all competing to attack your base, attack your team et cetera. So we see, it’s actually a non-linear ramp in terms of what the impact on average revenue per daily active user retention and LTV is as you load players into the game. Now we’re not at this stage able to predict with precision what this will look like in worldwide release in our western territories, because we never launched a title but to this, let’s call it social and competitive forward. What we do know is as you go from 1,000 of active users to 5,000 to 10,000 there are meaningfully different regimes of well lets call it social cohesion that actually take place in the product. So the reviews are obviously relatively positive, if not very positive, but people playing the game love the game. There are whales that we have typically not seeing the size of in single player shooter games we’ve launched in the past in beta. And this all boards well assuming that we can scale the CPI LTV equation. We don’t have a full handle yet on what the cost for install, what will be as we try and ramp up the user base. We also don’t yet have enough months of data on LTV to know how, that CPI LTV equation will balance out. But we are continuing to as I said reduce the tutorial complexity and also ensure we keep a healthy number of users in the game. And the fits and starts you can see from effectively when we drive more users into the game and the dial goes up, you get that long tail of matching of your player and their PvP rank against other similar players. When there is a lower dial base in the game, you don’t get that kind of spender pressure. You don’t get the guilds and the co-op and the PvP are working lets call it in harmony. The other thing that we’re obviously doing is westernizing the game with $0.10. So characters are going from where they were in China to pretty much the following commando style of western shooter, good guys and bad guys. There was no doubt that this title is focused on the social and PvP over graphics fidelity. So the bet here is very much on will the PvP and synchronous PvP be such a compelling social experience with your friends that you are not going to be looking to go back to your Call of Duty online experience on your console at home. We’re not going to be able to win against console shooters in terms of visual fidelity, but it will be we believe the most social and advanced social competitive shooter in the western word when it launches in the late summer.

[Mason Anderson:]

Great. Thanks for that color. That’s really helpful. And then, just one last quick one, I know you guys get asked about this relatively consistently. But is there any update or new progress on virtual reality the pipeline there, any new potential releases?

[Niccolo de Masi:]

So we continue to monitor our Deer Hunter ’14 Galaxy gear, Samsung Oculus gear to release -- that happened earlier this year. I think it’s fair to say that we have not yet seen the kind of reflection point they were looking for to pile more incremental investment into this, particularly when we’re trying to balance studio investments, shots on goal, the market moving where it’s moving in terms of higher LTV titles and mobile, we’re waiting to see close to secondary adopter/mass market potential fro mobile VR. We think that desktop VR is probably two to three years away from being a meaningful revenue event with the exception of obviously Sony has potentially [indiscernible] VR play for their console or a new console. But in terms of PC, desktop I think we’re sort of two years away or more, for mobile VR it’s further than that. So the actual hardware is not at the point whereby you can run an equivalent in my mind non-VR mobile experience with your Galaxy gear heads and et cetera and not burn out the battery after 20 or 30 minutes of game play. So, yes it can be more immersive, but right now you suffer from a deficit of control schemes and you suffer from firms that do not have the graphical rendering power, let alone CPUs that you need a [indiscernible] desktop to really make that sync. That having being said, we are close partners of obviously Facebook, Google, Apple. I think its sort of, you can take it as read that as these companies continue to invest in the space or rumor to be investing in this space, we will continue to look for ways to partner with them on a sensible ROI based time horizon. But I don’t think -- and it’s fair to say that this year will not be the year of mobile VR. 2016 is not the year of mobile VR for meaningful revenue that would move the needle for us, and I’m not sure 2017 is either. But we’ll see what gets announced in the summer with Google I/O, Apple’s WWDC conference et cetera.

[Mason Anderson:]

Awesome. That’s all for me. Thanks guys.

[Operator:]

Thank you. And our next question comes from the line of Drew Crum of Stifel. Your line is now open. Please go ahead.

[Drew Crum:]

Okay. Thanks guys. Good afternoon. So, Niccolo, if I heard you correctly, you said that the racing genre would contribute to growth in the second half for the fourth quarter. Could you just clarify that comment. And then I know you’re not ready to give us any updates in terms of the pipeline. But just your high level view of the racing category and Glu’s participation there going forward. Thanks.

[Niccolo de Masi:]

Sure. I mean Glu, consider themselves to still be number one or number two this years over last year of the sort of four or five genres that we invest in. So time management, celebrity game, shooter games, racing, baseball obviously were the clear number one. We still have the number one growth in racing game in the store. Racing Rivals is in its third year of operation. It’s the number one for the last two years on that front. We expect competition in the category late this year and certainly into next year I would expect from other franchises whether it’s the CSRs of the world, the Need for Speed, The Fast and Furious, all those sorts of brands I think will come to mobile or continue coming to mobile in most cases. But our strategy is, focus really on not only how can we strengthen our own Racing Rivals franchise as it goes into its fourth year of operation. So there are meaningful updates that are planned to the next six months to hopefully underscore that, and that was largely what I’m alluding to for growth from Q4 onwards in the racing genre. But needless to say we also have at least one project in development which we haven’t talked about externally which does buttress against the racing genre. So we haven’t announced if and when that is coming out. We are obviously rolling very differently this year with a new label structure, a new studio process. And ultimately we’ve gotten more conservative in how we think about guidance and timing of titles. We’re not going to get ahead of ourselves and announce stuff that’s sort of six months away with a precise date as we’ve typically found that at times you need more time to refine something. If the beta metrics aren’t there we will kill more titles later in development we have before. So a quarter from today we’ll have more information for you certainly on how precisely we think we can flatten/grow the Racing Rivals franchise as well as whether or not there is anything else for doing adjacent to or a hybrid with the racing space in a yet to be announced title.

[Drew Crum:]

Okay, very helpful. And then, I think you mentioned that the beta metrics for the Britney Spears title were tracking pretty good. Being just a couple of weeks away from that release, any way to compare the beta performance to some of your past celebrity titles?

[Niccolo de Masi:]

Yes, I mean, both Gordon Ramsay and Britney are in beta right now as WeFire. I think it’s fair to say we’ve been most impressed with the Gordon Ramsay dash performance at its very earliest stage of beta. So Gordon Ramsay is looking like really quite a strong title, probably the strongest dash franchise release we have ever put out assuming that its early New Zealand, Singapore, Switzerland and Sweden numbers translate as the beta characters grow and as we get to worldwide launch. Britney has shown conversion on par with earlier celebrity titles, Kendall and Kylie game et cetera. Retention is the area that we are still very much tuning, either said in my prepared remarks Britney and Gordon are both are most social celebrity games to date. And the way that we’re thinking about celebrity has obviously evolved in the last couple of quarters. Celebrity games for our starters and narrative only genre and now it’s very much broadening and we have a celebrity time management game, we’ve got Ramsay dash and I would argue that the significant component of the marketing around our baseball game is Chris Bryant and he being on the icon and so on. So we’re using the console of celebrity across genres and I think it’s hard to tell given what we’ve experienced in the past two to four quarters how beta metrics will exactly stack up worldwide release. Because what's obviously been happening to some extent is, baseball has done nicely, but its only doing nicely in kind of baseball playing countries, really the U.S. so it’s a very strong total in the U.S. top 30, 35 grossing, not top 35 grossing in my countries which obviously matters to revenue. Titles like Britney I think will have more global appeal than a Kendall and Kylie game and it might have more global appeal than a Kim Kardashian title. We like the fact that Britney’s audience is actually relatively mature compared to where certainly Kendall and Kylie are. I mean she’s been around for 17, 18 years at this point. A lot of her fan base, if you go to her Vegas Show is, 35 to 45 year old women, it’s not 15 to 25. And obviously we’re cautiously optimistic that, that demographic has disposable income as demonstrated not only in Kim Kardashian, but also demonstrated in things like the many successful slot games that are out in the market, and the farming games that you’ve seen on Facebook in the past, and to some extent on mobile. So everything to be played for on that tile. Although I think its fair to say that in light of how we’ve seen Kendall and Kylie tail off part of the reason that we’ve moved guidance to where it is in this call is, we want to be conservative in extrapolating enthusiasm and beta into worldwide as it seems that the market has gotten and more competitive in some places and title residence on a global basis has not always been the same as it has been in Canada or in English speaking beta territory. Hope that tackles most of what I can handle there for you.

[Drew Crum:]

Very helpful. I appreciate it. Thanks, Niccolo.

[Operator:]

Thank you. And I’m showing no further questions at this time. I would now like to turn the call over to management for closing remarks.

[Niccolo de Masi:]

Well, I’m going to close by thanking my colleagues for their efforts and our stockholders for their patience and support. We look forward to the launch of our Britney Spears game on May 19, and Gordon Ramsay title in June 30. Thank you again for joining the call.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.