Glu Mobile Inc
Q1 2011 Earnings Call Transcript

Published: 4 May 2011

[Operator:]

Good afternoon. My name is Celina and I will be your conference operator today. At this time I would like to welcome everyone to the Glu Mobile first quarter 2011 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I will now turn today's conference call over to the VP of Finance, Mr. Greg Cannon. Please go ahead, sir.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile first quarter 2011 financial results conference call. This is Greg Cannon, VP Finance from Glu Mobile. On the call today, we have CEO, Niccolo de Masi, 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. Generally, these statements are identified by the use of the words such as expect, believe, anticipate, intend and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that can cause actual results to differ materially from those in the forward-looking statements. 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 in this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors in the Form 10-K filed with the Securities and Exchange Commission on March 21, 2011. During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude the change in deferred revenues and royalties, amortization of intangibles, stock-based compensation charges, restructuring charges, and foreign currency gains and losses primarily related to the revaluation of assets and liabilities. These 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 taking an investment decision. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures, a quantitative reconciliation of those figures, please refer to today's press release regarding our first quarter results. The press release also has been furnished to the SEC as a part of the Form 8-K. In addition, please note that the date of this conference call is May 3, 2011, and 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. Lastly, this conference call is the property of Glu Mobile and any recording, reproduction or rebroadcast of this conference call without the expressed written permission of Glu is strictly prohibited. With that, I'll turn the call over to Niccolo. Niccolo?

[Niccolo de Masi:]

Good afternoon and thank you everyone for joining us today. I am pleased to report that in Q1 we advanced our early momentum in 3D social mobile gaming. Six freemium titles went live in the first four months of the year, four of which have seen significant success. In addition, we were successful in maintaining Gun Bros performance through significant and monthly updates. Finally, we demonstrated the persistent traction of a number of our freemium titles and launched our most successful casual-themed property to date. During the first quarter, our total non-non-GAAP smartphone revenues grew by 98% between Q4 2010 and Q1 2011 to reach $6.7 million. Non-GAAP operating loss was $0.1 million resulting in a closing cash balance of $24.4 million which is above our expectations. Our ability to attract and retain talent continues to improve. It is by our clear ability to capitalize on our 3D expertise and early leadership of the freemium action adventure genres. The casual genre, we received meaningful promotion by Apple for a Bug Village title and it is already performing well. We believe Bug Village to be the first 3D resource management title on smartphones and tablets. Both Contract Killer and Big Time Gangsta have been strong titles and added to the action adventure following. Amongst consumers, we began to build last quarter with Gun Bros and Deer Hunter Challenge. Contract Killer reached top three in the free apps chart and top 13 grossing, a stronger relative performance than Gun Bros achieved after its release in Q4. Big Time Gangsta continues to consolidate and improve its position in top 3 and top grossing. Finally, Men VS Machines went live a couple of weeks ago, has been featured by and Apple is on track to be a solid performer. We believe the tangible acceleration in hardware power, following Moore's Law pretty much favors Glu with our ability to deliver on ever higher 3D production values. The iPad 2’s new chipset and next generation of the iPhone will allow Glu to work with Apple to continue to deliver differentiated titles. Our relationships with the [Android] ecosystem have been invigorated to the quality of our Q4 2010 and Q1 2011 titles. As an example of this, Gun Bros has been a marquee worldwide partner for Sony Ericsson’s Xperia Play nicknamed the playstation phone by the press and running on Android. You can enjoy one of the Xperia’s TV advertising spot featuring Gun Bros at glu.com/investors. Moving on to Android, Glu’s relationship with Google has strengthened significantly in Q1. We were responsible for three of the first six titles with in-app purchase functionality at launch in late March along with supporting Honeycomb, Android’s operating system for it tablets. Glu has also had almost all of our Android titles featured on more than one occasion, in occasion of Gun Bros. Glu also had a large market share at the launch of Amazon’s new Android ecommerce site, was currently still trilling iOS in total revenue, the Android ecosystem has made significant strides to begin closing this gap. Our Glu Partners program which we kicked off last quarter has progressed to plan and today we discuss two very significant deals. The first was with celebrated author James Frey and his publishing company Full Fathom Five. Mr. Frey’s firm has been at the forefront of digital publishing. As a Glu partner, he will be collaborating with us to co-create and jointly exploit four transmedia properties over the next 24 months. We believe that Glu and Full Fathom Five will be the first companies collaborating to engender fresh titles for simultaneous release as both 3D social mobile games and novels. All four collaborations will be designed with the long-term potential for film and television exploitation. Success which, Mr. Frey has already had with one of his first Full Fathom Five novels, I Am Number Four. Our second (inaudible) Glu Partners deal is with Christopher Locke and his new studio Blammo Games. Many of you will not know Mr. Locke by name, however he was one of the creators as well as producer of several recent freemium top ten grossing iOS titles, including Smurfs’ Village and Zombie Café. Glu and Blammo Games will partner to bring two titles to market over the next 12 months. We are very excited to be working with both Mr. Locke and Mr. Frey and look forward to the positive impacts these partnerships will bring to Glu over the longer term. In addition to supporting growing Gun Bros, Contract Killer, Big Time Gangsta and Bug Village, entree of the spring and summer period will be approximately seven new titles. The first five of which we are pleased to announce today as Star Blitz, Eternity Warriors, Space City. We will also be releasing Contract Killer, Big Time Gangsta and Bug Village, on Android throughout the month of May. Overtime as we create improved our franchises ever larger portion of our resources will be devoted to retaining and building each franchise audience, retention, [loyalty] and monetization. And for the retention and depth of social functionality in both existing and new titles our key objectives for us throughout the reminder of the year. Apple to App store ranking algorithm and Alpha monetization have both recently been the on line press. We were with active dialogue with Apple and full support their efforts to evolve iOS ecosystem to promote as long-term success for both consumers and developers. Our guidance for Q2 reflects our most up-to-date information on any impact from the3 evolution of Apple's policies. As you will hear our guidance is conservative, this is due to the continued run off of the future phone business as well as present uncertainty around offer monetization which may constrain near-term growth and iOS revenues. The Glu team continues to pick up momentum and we have made good progress in the first quarter towards our primary 2011goals. We remain on track for our smartphone revenues to overtake future phone revenues this year. I thank my colleagues for their efforts and shareholders for their support as we together execute our vision to become the world's leading 3D social mobile games company. I will now hand you over to Eric Ludwig for more analysis on our financial results and operating metrics.

[Eric Ludwig:]

Great. Thank you Niccolo. I am pleased to report that we had a strong start to the year achieving impressive results during the first quarter of 2011, which exceeded our expectations across all operating metrics. First let me summarize some of our key financial highlights for Q1. Total non-GAAP smartphone revenue of $6.7 million was up 98% quarter-over-quarter. Non-GAAP premium smartphone revenue, which consists of micro transactions, in game ads and offers accounted for 69% of our total non-GAAP smartphone revenue up from 38% in the fourth quarter 2010. Original IP accounted for 35% of overall non-GAAP revenues, which resulted in improved gross margins. In addition original IP represented 48% of our total non-GAAP smartphone revenues and reflects our shift to original (inaudible). Cash burn from operation of $2.1 million was better than expectations. Our growth in smartphone revenues reflects the overall strength of our premium strategy including continued traction from Gun Bros and Deer Hunter Challenge and the launch of Contract Killer and Big Time Gangsta at the end of the quarter. We are very pleased with our ability to execute our business plan and before I go into other financial details I would like to take a moment to drill down on our first quarter revenues and highlight how we delivered against our guidance. Total non-GAAP revenue for the first quarter was $17.2 million, which is above guidance of $14 million to $14.5 million, up 11% on a quarter-over-quarter basis and down slightly from a year ago quarter. Non-GAAP smartphone revenues grew 98% quarter-over-quarter to $6.7 million which was above our guidance of $4 million to $4.4 million. I am very encouraged by the growth trends in our non-GAAP smartphone revenue and such revenue is a percent of total non-GAAP revenue increased to 39% in the first quarter 2011 sequentially up from 22% in the fourth quarter, 2010 and up from 12% in the year-ago quarter. Our non-GAAP, premium smartphone revenues increased 263% on a quarter-over-quarter basis and 3,092% on year-over-year basis. Freemium revenue accounted for 69% of our total non-GAAP smartphone revenues in the first quarter of 2011. Included in our non-GAAP results are $2.3 million of revenues from offers on the Apple platform, which Niccolo mentioned has been a subject of some uncertainty in recent weeks. As a result, we still would have exceeded the high-end of our non-GAAP smartphone guidance even excluding such offer revenues altogether from our results. I was also very pleased with the performance on Gun Bros this quarter as it was our) overall number one title generating $2.3 million in non-GAAP revenues or 30% of the total. This title was launched at the end of October 2010 and generated $610,000 of non-GAAP revenues in that two-month time period which equated to approximately $0.06 per daily active user per day. During the first quarter of 2011, we were able to increase monetization to $0.12 per daily active user, on the 215,000 daily active Gun Bros users for the first quarter. I believe this data highlights with the revenue curve and life cycle looks like for successful freemium title. In addition, original IP titles accounted to 35% of non-GAAP revenues, up from 26% in the first quarter of 2010 and 20% during the same period last year. The significant increase reflects the impact of new original freemium titles, continued soft performance from existing titles, along with the ongoing de-emphasis on the future phone business. We expect this increasing trend in original IP to continue as over 80% of our anticipated title launches in 2011 are original IP. In regards to new and total installs of our titles, as of March 31, 2011, we had the $70.2 million total cumulative installs in the Apple and Android platforms and social networking websites including Facebook and this sequentially increased by 20 million new installs during the first quarter. The increase is due to the continued popularity of Gun Bros, WSOP and Deer Hunter Challenge in addition to the late March launch of the Contract Killer and Big Time Gangsta. During the first quarter of 2011, we had 755,000 in app purchase billable events, which was an increase from 715,000 in the fourth quarter of 2010 and the averaged revenue in app purchase transaction increased by $1.80 to $2.31 due mainly the higher price points for our virtual goods. In our last earnings call, we mentioned that we had some loss elucidated in the December 2010 due to the certain [skewing issues in our infrastructure which we believed suppress our December 2010 MAU and DAU by potentially up to 15%. At the end of March, 2011, we launched Contract Killer and Big Time Gangsta and these successful launches generated more product event data than our systems can collect. As a result, we experienced a simple issue of loss data in regards to MAU and DAU. The MAU and DAU that we reported for March, 2011 are a combination of our own data for legacy titles plus for the new titles where the [actual] SDK was implemented we are utilizing that information. Loss of the MAU and DAU for March, 2011 also includes information for our Gun Bros, Facebook title as reported by appdata.com. On a go-forward basis we are adding additional computing capacity to process a larger volume of data we’ve been experiencing as well as additionally implementing a third-party [analyst] tracking tool in our new title starting with the current quarter. Looking at our MAU and DAU for this month of March, 2011 we had $11.9 million MAU, down slightly from the just December, 2010 MAU of $12 million. Our daily active users for the month of March, 2011 was $953,000 across Apple and Android and Facebook, essentially flat from the updated December 2010 figure of 944,000. It is also surprising that our MAU and DAU were essentially flat given that our first quarter internal launches did not occurred till the end of March 2011 and do not contribute substantially to these figures. In addition, we remind you that we experienced loss data in both December 2010 and March 2011 which impacts the precision of this data. Turning to our feature phone business. Somewhere in the fourth quarter of 2010 this business performed better than we expected despite declining 14% over the prior quarter and 32% over the first quarter a year ago both on a non-GAAP basis. We anticipate the year-over-year rate of decline to accelerate as we focus on resources solely on smartphones and I’ll provide additional details while discussing our second quarter guidance in a moment. I will now walk you to our operating results for the first quarter 2011 followed by a review of our outlook for the second quarter ended June 30, 2011. During the first quarter of 2011, our non-GAAP gross margin was 78% which is up from 72% a year ago and up slightly from 77% non-GAAP gross margin in the fourth quarter of 2010. The growth in revenues that we generated from original IP and a $300,000 reversal of previously impaired royalties led to the increase in our non-GAAP gross margins. Total non-GAAP operating expenses for the first quarter of 2011 were $13.5 million, up a little over 1% from $13.3 million during the fourth quarter of 2010. This was lower than our guidance to $14.2 million primarily due to the combination of delayed hiring and other cost savings during the quarter. The combination of the better than expected revenues and OpEx coming in lower than expected resulted in a non-GAAP loss from operations for the quarter of $106,000 which was well above our guidance of a loss of between $3.1 million and $3.5 million. Our non-GAAP net loss of $898,000 or a loss of $0.02 per basic share exceeded our guidance of a loss of $0.07 per basic share. A full reconciliation of GAAP to non-GAAP financial measures was included in the press release we issued today. Now turning to the balance sheet. Cash and cash equivalents were $24.4 million as of March 31, 2011, up from $12.9 million at December 31, 2010. During Q1, we used $2.1 million of cash from operations, used $478,000 for CapEx, repaid the remaining $2.3 million on our line of credit and paid $698,000 in taxes on January 1st related in the promissory notes held by the former MIG shareholders that were repaid in the fourth quarter of 2010. These cash outflows were offset by the $15.9 million in net proceeds received from the January 2001 common stock offering and $1.1 million in warrant and option exercises and ESPP purchases. So in summary, the first quarter was a strong start of the year for Glu. We are pleased with our execution which has enabled us to exceed expectations across all of our operating metrics, but we are not satisfied as work still remains. Now let's review our guidance. For the second quarter of 2011, we currently expect non-GAAP revenue to be in the range of $15 million to $16.5 million which includes $7.25 million to $8.25 million in non-GAAP smartphone revenues or a sequential increase of 7% at the low end of smartphone guidance to 22% growth at the high end. Two items I would like to point out with regards to our guidance being down on a quarter-over-quarter non-GAAP basis. First that we are forecasting an aggressive sequential decline in feature phone revenues due to a lack of [eventual files] being shift to this channel. Secondly, despite the sequential smartphone revenue growth embedded into our guidance, I would point out that the smartphone revenue guidance reflects the conservative view of the unfolding situation in the Apple Ecosystem in regards to offer revenue. Specifically, included in our Q2, 2011 guidance is approximately $2.8 million of offer revenue over half of which has already been transacted as of this date and the balance will be recognized over the next two months of the quarter though at smaller levels due to the changes we are expecting on this modernization channel. I would point out that at the low end of the guidance feature phone revenues are larger than smartphone revenue. At the high end, we are forecasting that they each represent 50% of the total. We aren't providing guidance for the second half of 2011 at this point, but I will mention that an iOS we may need to replace the offer related revenues with potentially lower performing advertising inventory. Depending on how this industry evolves this can constrain iOS revenue growth in the second half of the year. We expect non-GAAP gross margin to be approximately 80% and our non-GAAP OpEx for Q2, 2011 to be approximately $14.5 million which is up sequentially by approximately $1 million as we are increasing our spending on external development projects under our Glu partners program. Non-GAAP operating loss is expected to range from a loss of $1.3 million to $2.5 million. We expect income tax for the second quarter of 2011 to be approximately $600,000 and non-GAAP net loss is expected to be a loss of between $1.9 million to $2.1 million or a loss of between $0.04 to $0.06 per basic share. Starting this quarter we are not going to specifically provide revenue and EPS guidance on a GAAP basis; excluded from our non-GAAP figures that I just provided our $661,000 of amortization of tangibles in cost of sales and $559,000 of stock based compensation. Weighted average common shares outstanding for the second quarter of 2011 are expected to be approximately 53.9 million basic and 60.8 million diluted which are up from Q1 due to the fourth quarter effective to January 2011 fund raise, the exercise of 500,000 warrant shares in March and the further dilutive effect on the remaining warrants and options due to the higher stock price since last quarter. We now anticipate and in 2011 with over $18 million of net cash up from last quarter's guidance of $15 million, which includes the lower cash burn in Q1. With that, let me turn the call over to the operator for any questions. Operator?

[Operator:]

(Operator Instructions) Your first question comes from Darren Aftahi.

[Darren Aftahi:]

Hi, guys. Nice quarter. Just a couple of things, Niccolo, when you were reading out the Q2 titles, your voice was in and out, if you can repeat that, the number, the names of the titles, I think it will be helpful for everybody on the call? And then maybe, if could you talk a little bit in terms of, you know, what you kind of see long-term with this Legend potential issue and it looks like that was 46%, 47% of revenue in 1Q. It looks like you‘re guiding to much lower and conservatively 2Q. Just give us some color in terms of what you think the breakdown of virtual goods in advertising is kind of longer-term and how critical of an issues offers are kind cross-sell on your platform?

[Niccolo de Masi:]

Sure. So, on the titles we said there were approximately seven coming in the spring and summer timer period. The names of them were Star Blitz, Circuit City, Eternity Warriors, Space City and Africa. So, it's again a mix of casual and more action adventure themes. A much more of time down as we alluded to is going to increasingly extend, increasing debt of existing franchises and you’ll see that as during it seemed for us as we look to support the most persistent title. On the offer front, as you call it Legend, we are certainly a company which is awesomely positioned regardless of where the Apple policies will ever evolve to. We’re not only well-positioned because we of course have the opportunity as well as options of moving resources onto platform such as Android and Windows Phone 7, but mostly because of our scale. And it allows us, not only more flexibility with regards to what kinds of advertising units that we hook in with, but also of course what kinds of advertising networks and partners we work with. Aside from of course the fact that we have a lot of our own internal cross promotion opportunities given the audience we’ve been building and programs like the Glu Games Network which we launched on last quarter’s earnings call. So situation is still unfolding, there is not a perfect clarity on where a line is or is in with regards to offer-based monetization and advertising mechanisms. The one thing however that Glu is very confident on is that chances of, there’s always been a new ad unit which steps into the fold is very, very high. There’s no doubt that Apple’s been a leader with regards to freemium monetization. They were the first company that allowed in-app purchase and they were also the first company allowing CPI-based Cost-Per-Install advertising. And there’s a myriad of innovators in and around the space looking to of course have a chance to build their own ad unit into some sort of level of success. As with Glu in 2011, we continue to experiment with monetization models, in the long run I’ve always said that I expect CPM-based models, Cost-Per-Impression to be something becomes larger, larger fraction of revenues source and I think that what we are going to see unfold frankly year-after-year will be continued maturation of how direct and incentivized or not advertising can be. There’s been experiments around everything from video pre-rolls through to engagement-based models over the past years and I think you will see different weightings of these mechanisms into the future, but nevertheless we are extremely confident that advertising in one mechanism or another is going to be as if not a larger component of freemium revenues over the long term.

[Darren Aftahi:]

Great. And then just one follow-up, I don’t know if you gave it. Of the call roughly 2.5 million in [non-offer], non-GAAP smartphone revenue, freemium revenue, what was the breakdown between advertising and in-app purchase?

[Eric Ludwig:]

It's virtually all from in-app purchases.

[Operator:]

Your next question is from Adam Krejcik of Roth Capital Partners.

[Adam Krejcik:]

Hi, guys good afternoon. Thanks for taking my call. Just a follow up on the incentivization, I guess just can you kind of fill in any reason or kind of insight on why Apple might be going down this path, is it because there has to do with the ranking in the chart system and trying to make it more democratic or just curious what your thoughts are there and then how you guys in fact since this has been announced try to -- I mean how you have been able to release any new updates to your existing games with, that still use the offer or incentivization scheme?

[Niccolo de Masi:]

Okay. So let me take the first part of that to begin with, Apple has, I think is very much still working through precisely which elements they have issues with, also monetization as it pertains to potentially impacting rankings or manipulating rankings I believe is the clause that has been cited in the online press. That's obviously a broad, probably a broad clause with regards to ranking manipulation. It has been previously enacted and applied, to things like, I think some publishers manufacturing rating for the title. So the spirit of that clause obviously includes things like extensive influence over the ranking system, which as far as most of us are aware is still based largely on download numbers. As such any mechanism which impinges on that in large volume to the extent that you are able to actually rank an application by virtue of the direct marketing per se, this is something which they are taking a look at. So, I would expect that to be constantly evolving sort of line, so to speak between what is an advertising mechanism, which is too aggressive and/or allows developers to rank something too easily based on advertising as opposed to product quality alone. That having been said Glu is very pleased with the fact that this of course will put more distance between companies such as ourselves that focus on the quality over companies who produce lower production value titles but been turning their dollars more towards marketing as opposed to increasing the consumer's experience and engagement. So I mean Glu is focused on 3D, focused on higher production values, all plays well to our ability to do well as we always have in the charts, based on product quality alone. So our perspective on this is of course really more longer-term good news than neutral news with regards to our ranking position and ranking ability. With regards to monetization I expect that we will see that offers will certainly be a lower fraction of the overall ad mix whether or not that actual fraction needs to be replaced entirely or replaced substantively is certainly not perfectly clear at the moment, although I think we believe that certainly it makes sense for us and other publishers to be looking for ad mechanisms, which have much less or no frankly reliance around incentivizing and so. As that seems to be wrapped up in this policy application, which they are obviously having a look at over the past few weeks and indeed probably will continue to do so over the coming few weeks. On your last question, which was around Glu having more titles come out with offers and/or updates; we certainly are working closely with Apple on submissions and at the moment we have a number of things that are actually in the queue but we haven't had something come out yet that has the same level of offer incentivize advertising as we've had in previous months. So I think what we are likely to be doing is working through how the ad units need to be repurposed. That’s of course something which our ad partners are doing anyway. And at the same time, we are in a close dialogue with Apple around needs to be changed to pass the review book. So, I think you can be confident that Glu is a very nimble business or pretty entrepreneurial, pretty flexible with regards to how we maximize our revenue opportunities. And we’ve made substantial progress in the past couple weeks, thinking through and working through how we want to proceed in order to make sure that revenues from advertising are obviously flat and growing and we are going to continue to do our best to optimize as information unfolds.

[Adam Krejcik:]

Okay. Thanks for the detailed responses. And just so, I had in my notes correctly, you said in this current quarter, was it $2.2 million of the non-GAAP smartphone revenue was from offers?

[Eric Ludwig:]

Yes. And this is Eric. So in Q1, we had $2.2 million of offer revenue on the Apple platform and then our guidance for Q2 has embedded $2.8 million of offer revenue on the Apple platform. But over half of that is already transacted as of today and the smaller balance will be over the next two months on a winding down or up on a lesser basis.

[Adam Krejcik:]

Got it. And then just switching subjects if I may, some of these partnerships that you have announced the last few days, how should we think about the way your yield book is going to be a rev-share agreement? Will you consolidate all the revenues or you know a portion and a sense of the margins as well? How will these games look like when they actually launch the games?

[Eric Ludwig:]

Okay. So, Glu is the publisher for all these games so we are going to be especially accounting for all of the revenue. The two deals that we announced today and yesterday one was with the James Ryan and his firm which is to collaborate around creating new properties jointly which are going to be published as digital games and digital book and not physical books. That particular deal is structured so that Glu effectively is sharing in non-mobile revenues so we’d be receiving the royalty for non-mobile exploitation of the properties we jointly create. And similarly at a certain tier, seven-five James Ryan’s publishing organization would receive a royalty from us for the mobile or other digital games we produced one sort threshold across, so that would also be straightforward. With regard to the Blammo Games deal, Glu is the publisher; it’s a very straightforward frankly a third-party developer partnership or by via recouping revenues to a certain level and then paying a rev-share to them once that recoups.

[Operator:]

Your next question comes from the line of Tavis McCourt with Morgan Keegan.

[Tavis McCourt:]

Just a couple of questions follow-up on the issue with iOS and offers; Niccolo, why don’t you just give us an example of how you guys were defining an offer that potentially would be at risk at this point? And then I saw you gave the revenue number from that for Q1 and guide for Q2, did you give the Q4 revenues from offers or there is some kind of estimate you can give us?

[Eric Ludwig:]

On the last question, Tavis this is Eric, for Q4, 2010, it was de minimis revenue from offers; so offers really kicking the year in the first quarter this year. And then the…

[Niccolo de Masi:]

Yes, Tavis, the application of Apples causes around manipulating charts doesn’t lead to a clear prescription as of yet on types of ad mechanisms which are definitely not going to be allowed going forward versus ones that are definitely allowed. However I think it's looking increasing apparent that they are keen on discouraging straight out incentivized installs, I am not saying eliminating, but discouraging sure incentivization of install. So an advertising unit whereby, we or another developer would give away virtual currency in return for a user installing another developers application and this is a mechanism by the way that’s been used you know by everyone from ourselves to Microsoft to Google, Facebook, you name it, everybody uses this advertising form. And it's been pretty effective because it fills inventory well. But I think Apple’s concern on that one of course is that there are charts in some ways, to some extent we are getting impacted by people who like an incentive rather like the underlying application and that obviously is potentially something which they are looking at trying to sort of tighten up the situation around. So I expect that that will be modified by advertising networks and because we integrate with a number of third-party ad networks, we effectively use whatever monetizes well for us. Relatively quickly over the coming months, Glu’s shift of the advertising will be shifting away from that and that’s not even something we have to necessarily worry about particularly consciously ourselves because of the fact that ad networks will naturally adjust and look to sell different kinds of ad units, so instead of may be an incentive for installing application, may be there is an incentive for watching a video download of an application or engaging with an application in someway. There is a number of course variations on the theme which we believe can be successful ad units, but will not impact Apple's rankings as directly as incentivized install path.

[Tavis McCourt:]

And I was wondering if you could talk a little bit, I know it’s been not that long since in-app purchasing on the Android App store began, but talk a little bit about your experience there, vis-à-vis iOS kind of the level of growth, obviously the numbers must be much smaller, just given the volume of devices out there, but should we expect that to be meaningful relative to iOS by the end of the year or is it more 2012 or does it happen sooner than that?

[Niccolo de Masi:]

Well, I will pass you to Eric in a second, but I think it is fair to say that Google is kind of a yearish behind Apple. I mean Apple started that purchasing, I think it was late '09 or early 2010. So they are probably and Eric will (inaudible) and/or probably making some similarish numbers and you should think of them probably as of all being the same way albeit that their installed base is a little ahead of where Apple was at time. So they are both racing away and everyone reads the same (inaudible) around, how many daily units are being installed of Android and iOS devices, but certainly at the current place and time, we are expecting Apple to be the larger platform revenue generator for certainly the rest of 2011.

[Eric Ludwig:]

And Tavis, this is Eric. So right now we are seeing Android monetizing at about 1/8th to 1/10th of what iOS monetizes, in-app purchases just went live obviously at the end of March and our plan for delivery of products through the interim platform as titles are successful first on iPhone, then we bring a month or so later to the Android platform .So the unsuccessful titles we don't bring, we typically lag by about a month. So you will be seeing a couple of titles coming that were just launched, Big Time Gangsta, Contract Killer, Bug Village in Q2 that we launched on iOS at the end of March or early April 2011.

[Tavis McCourt:]

And when you say monetize one-eighth to one-tenth Eric, is that on a user-by-user basis or just one-eighth or one-tenth fewer downloads because there are fewer devices out there?

[Eric Ludwig:]

Yes, in terms of revenue.

[Operator:]

(Operator Instructions) Year next question will come from the line of Mark Argento from Craig Hallum Capital.

[Mark Argento:]

When you are thinking about, I know you guys said at the start, it looks like you’re in-out purchases kind of revenue per transaction went up pretty materially from $1.80 to over $2.30, I think in the quarter. Can you talk a little bit about, are you fine-tuning kind of your offers and maybe moving price points up or what the dynamic at work is there?

[Eric Ludwig:]

Yeah, sure Mark, so that in-out purchase that I mentioned does not include offers so that was completely in-out purchases on Apple and Android combined and what we really saw in the quarter in Q4, we had a lower price point in-out purchase items such as a $1 rebuy, World Series of Poker and [smaller chip] counts in the first quarter as we launched Gun Bros with moving our purchase items and really increase the game play. We saw users gravitating up towards higher price point titles, $50 packs and $100 packs on certain titles and $5 to $10 packs that when you factor it across the entire number of transactions, which was still skewed by things like World Series of Poker we saw the price point overall increase somewhat substantially from $1.80 to $2.31.

[Mark Argento:]

So you think you have some more room there and ship the last, just so that continue to offer higher price point type of products and at decent take rates?

[Eric Ludwig:]

Well, I mean, we are certainly have doubt on certain of these platforms. I mean they are $50 to $100. So, there is no price points above 99.99 on any of the platforms. It's certainly going to being skewed by the denominator. I mean, we still have substantial volumes of transaction on World Series of Poker. That are $1 price points. So, I wouldn’t expect to see this number overall increasing significantly given the volume of the denominator. But we are encouraging and pushing higher price points in our purchases to our games.

[Mark Argento:]

Sure. And when you guys launch a new game, are you doing a lot of cross promotion within your network? Maybe you can talk a little bit more about how – for your phone, in terms of success; what you need to do to successfully launch a game and kind of get it, out there in the purview of the community. So, you get some decent ranks and see some uptake. Can you talk a little bit about, what you do and how you are starting the cross market in to you own kind of audience now, with your Glu games network?

[Niccolo de Masi:]

Sure. So, our standard launch program, and this is all that’s everything from direct marketing to the extent that it is permitted. And that has been with the advertisers in the past doing things like CPI. It also involves CPM and CPA techniques. So, Glu also often will advertise with effectively banners in a number of discovery applications in the App store and/or in traditional brand advertising which maybe on the web. We also have our own Twitter, Facebook and often I called the micro sites really for our titles which are on the web or on Facebook. And those have obviously overtime the more ardent fans tend to gravitate towards those. With regards to the latest programs, Apple has been looking to do more with its own social networking outreach actually and so you’ll see in a more partnering with some of the store front owners as well as from the OEM owners where that’s relevant to get effectively free cross-collateralization of ramps and marketing. So things like the Sony Xperia device which we have been a strong supporter of an Android, and had Gun Brothers and all of its global advertising, because the title was supporting that handset at launches as well as Honeycomb and the latest version of Android and it fit that device exceptionally well. So we look for almost every exposure opportunity there is from our partner as well as our own effectively I would say multimedia channels. At the same time, within our own audience, we are seeing certainly a great propensity to be able to incentivize installs between our games. However, in light of Apple’s policies that will probably turn into non-incentivized install programs very soon i.e. we’ll be looking to do a more banner advertising probably between our games. To the extent if that that works well and or other advertising techniques between our games that Apple doesn’t believe has any impact on the ranking system. So we have seen it successful, we believe that as a user-base keep scaling, it is a highly cost effective mechanism, because remember we’re not leaking any of the third-party advertising rev-share whenever we’re cross promoting. But of course, one must also remember that the cost promoting does have opportunity cost. We are effectively using real estates from our own products which could otherwise be used to you know some other add or some other monetization mechanisms. And that’s something we’re always finally balancing; in the past few months we have found however that we can get the balance pretty well optimized so that we are minimizing hard dollars marketing spend by making our audience effectively look at new titles we’ve launched, as well as new titles we’ve launched there of course in the best demographic for existing users. So as we built up more and more of an action adventure following it's been high effective to get people playing Gun Bros to play Contract Killer or Big Time Gangsta etcetera.

[Mark Argento:]

Last question, in terms of the competitive environment out there what do you guys seeing; are you seeing a lot more titles come into markets; fewer titles, bigger developers you know jumping in. How would say the markets is going to shaken up from a publisher perspective?

[Niccolo de Masi:]

It's only consolidating Mark, I mean you probably saw EA environment this morning you know Ngmoco had been acquired open thing Twingo. And so I think you know all pieces are alone that usually are in great position given the fact that it’s the largest independent a developer-publisher is very much coming through. I mean we are down to EA’s obviously a quite some larger [Technical Difficulty] So I am expecting overtime our strategy really prove this out, because of the fact that we are able to both build a brand quickly by virtue of the million (inaudible) and installs we get and also because of the fact that we are building that enduring audience assets. And enduring assets really just beginning to work for us, but for the longer-term I think will become bigger and bigger feature of what we are about. So I think in summary then Mark, the landscape is consolidating, but I think its names you know, we are not trying being that they are brand new players in the market who are having success or certainly narrowing any gaps between smaller players and ourself.

[Operator:]

Thank you. We currently reached the allotted time for questions. Gentlemen do you have any further remarks.

[Niccolo de Masi:]

Absolutely. I wanted to thank everybody for joining us. We have an Analyst Day coming up on May 26th. The event will be webcasted and we will be updating everyone who attends or listens in on our initiatives then. So once again that's Analyst Day, May 26th. Thank you again for joining the call.

[Eric Ludwig:]

Great, thanks a lot.

[Operator:]

Thank you. This will conclude today's conference call. You may now disconnect your lines.