Glu Mobile Inc
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, ladies and gentlemen and welcome to the Glu Mobile Third Quarter 2014 Earnings Results 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, today’s program is being recorded. I would now like to introduce your host for today’s program Mr. Greg Cannon, VP of Finance. Please go ahead.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile third quarter 2014 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have CEO, Niccolo de Masi; CFO and COO, 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 could 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-Q filed with the Securities and Exchange Commission on August 11, 2014. During this call, we will present both GAAP and non-GAAP financial measures. 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 a complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and the quantitative reconciliation of those figures, please refer to today’s press release regarding our third quarter results as well as the supplemental presentation accompanying today’s earnings call that can be accessed via our Investor website at www.glu.com/investors. The press release and the supplementation presentation also have been furnished to the SEC as part of our Form 8-K. Please also note that in addition to the presentation, you will also find on our Investor website demo videos of titles that we expect to launch in the coming months. Given SEC guidance regarding the use of social media channels to announce material information to investors, we are notifying investors, the media, our players and others interested in the Company, that in the future we might choose to communicate material information via social media channels or it is possible that information we disclose through social media channels maybe deemed to be immaterial. Therefore, we encourage investors, the media players and others interested in Glu to review the information posted on in Company’s forum, the Company’s Facebook page and the Company’s Twitter account and Niccolo’s Twitter account. Any updates to the list of social media channels we will use to announce material information will be posted on the Investor Relations page of our website. In addition, please note that the date of this conference call is October 29, 2014 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 de Masi:]

Good afternoon and welcome to everyone joining us as we discuss a very successful quarter and a number of new milestones Glu has reached. I’m extremely pleased to report today that Glu has delivered the most financially robust quarter in our company’s history. On our last call we guided Q3 to be our biggest top and bottom line fundamental performance ever. I’m delighted to say that we outperformed profitability guidance significantly to achieve an 18.4% EBITDA margin, a $15.4 million on $83.6 million of revenue. All of the Q3 beat is being added to full year expectations. Front and center is a tremendous performance of Kim Kardashian Hollywood, which continues to be the top grossing game in our portfolio. A full content pipeline has enabled fans of KKH to stay in sync with Kim’s World and movements whether she is in Australia, the UK or celebrating a holiday or special occasion. I believe that we are just scratching the surface on what we can do in partnership with Miss Kardashian-West and we have extended our exclusive partnership out until 2019. Our intention is to continue or update cadence with special events, new characters and locations on a by-weekly basis. Another bright spots in Q3 was the launch of our first sports title Tap Sports Baseball. TSB is currently the number one grossing Baseball game in the Apple app store. This title has grown out of a team we aqua-hired in 2013 which has proven to be highly efficient. We intend to continue growing capacity here and look forward to launching a football base title in 2015. Integration of our Cie Games acquisition in Long Beach has occurred precisely as we envisaged. We are proud of the new colleagues we have gained as well as the continued leadership in the racing genre by the robust community driven sync PVP game play in Racing Rivals. Our Long Beach Studio will release two games next year, another sync PVP title for hardcore racing fans and Car Town III for the casual car enthusiast. The first free-to-play Diner Dash title ever released two weeks ago globally other than China. It has broken the top 100 gross in the U.S., has strong retention and we will launch and optimized version in China near Thanks Giving. We look forward to learning from this launch and improving monetization for another Dash release in H2 next year. We are also pleased with the continued catalog performance of Deer Hunter 2014. Now over 12.5 months old it has generated over $70 million in revenue thus far and is a testament to our live operations capabilities, the strong response to new contents, as well as our monetization expertise that we are still able to grow average lifetime value across such a mature player base. We paid $5 million for the Deer Hunter IP back in March 2012 and have delivered a tremendous return on our investment. On today’s call, I would like to spend a few minutes outlining why I believe Glu’s strategy is unique in the mobile gaming space and how it has allowed me to successfully turn around and then grow Glu over the past four and half years. I and our entire leadership team are focused on continually stacking probabilities of accretion in our favor. Our priorities for each Glu projects that we undertake are always centered on identifying and nurturing upside while simultaneously working to minimize downside probability and magnitude. This patient and analytical approach has enabled Glu to grow Smartphone revenues 19x between 2010 and 2014, be at organic studio expansion and aqua-hire, four out lied acquisition, we are always looking for potentially outside reward situations with a disproportionately small amounts of downside, consistently accumulating advantages for the past 19-quarters has allowed to grow Smartphone revenues from $12 million in 2010 to our guidance midpoint of $228 million in 2014. Over the past few years the top-25 grossing apps each year have grown faster than more modestly grossing titles, this is because of a tendency for the network effects for the hit to take share from the long tail of 100 to 1000s of other apps, because of this phenomenon there is a clear reward premium to having strong IP married to the right engine to intern dramatically increase the probability of winning in any given genre. Glu’s product strategy is designed around building studios that are laser focused on being the best in the world at their chosen genre. Team, talent, product, studio alignment is at the core my management philosophy with a leadership organization designed to support significantly growing our company year-on-year. We have a diverse portfolio, eight engines in four genres; action, casual, racing and sports. And we in fact have five games at the moment in the top-100 grossing iOS apps in the U.S. Leveraging our engines in IP to improve predictability and grow faster than the overall market is central to Glu’s consistently successful strategy in our fast-paced sector, Q4 is shaping up is guided on our last call. Contract Killer

[Eric Ludwig:]

Great. Thank you, Niccolo. I’m very pleased with our ongoing strong execution during the third quarter as we have achieved record non-GAAP revenue and adjusted EBITDA profitability. I will first detail our Q3 results and then conclude by providing our updated outlook for the fourth quarter and full year along with initial thoughts in 2015. Summarizing the key financial highlights of the third quarter total non-GAAP revenues were a record $83.6 million a 270% year-over-year and 138% quarter-over-quarter increase. Non-GAAP gross margin was 59.6% exceeding guidance. Adjusted EBITDA was a record $15.4 million significantly exceeding guidance. Our non-GAAP net income was $17.5 million or EPS of $0.17 per diluted share. We generated $2.5 million of operating cash flow, we had a $107.7 million downloads of our titles during the third quarter. Our daily active use in the month of September were 7.2 million while our monthly active users for September were 60.3. Summarizing the full results for the third quarter, total non-GAAP revenue was $82.6 million which is above the midpoint of our guidance range of $80 million to $85 million. Included in the Q3 results was an aggregate of $9 million of revenues from the most recent acquisitions Pick 6 Studios, PlayFirst and Cie Games. Pick 6 is a studio that create a Tap Sports

[Operator:]

(Operator Instructions) Our first question comes from the line of Doug Creutz from Cowen. Your question please.

[Doug Creutz:]

Yes, thanks. Part of the success you guys have Deer Hunter was really driven by you ability to monetize it through advertising. I was just wondering with Kim if you could give any color about relatively your success there, obviously it’s a bigger game on DeNA [ph] purchase side, but sort of how that squeezed advertising compared to Deer Hunter? Thanks.

[Niccolo de Masi:]

Hi Doug, it’s Niccolo. You can see the percentage of advertising revenues in our supplemental presentation every quarter. We are not seeing or reporting certainly a vast move in that percentage quarter-on-quarter. So it’s approximately in line with other titles and obviously given that the bigger titles have a disproportion impact on the quarter, you can estimate and gestimate that where Deer Hunter is, is not far off of our Kim’s title is in terms of ad. Now that’s at the moment, so going forward we’ve obviously extended our partnership with her by number of years and we are pretty optimistic on not only we can do with the current game, but obviously other opportunities in the mobile and gaming space to be honest. We are of course going to fully explore in the long-term how to make the most of this partnership on all fronts. Advertising is still early days as is frankly the overall Kim Kardashian Hollywood game and franchise. So we expect over the next few years to be not only deepening monetization, but obviously improving absolute numbers from the ad space and the sponsorship space, but it isn’t something which we’re guiding to make some say quantum report in the next quarter. I takes time and there is obviously a number of ad partners that she has in the physical world that we have to make sure that we are sort of looping in and circumventing in come cases otherwise being sensitive to where she has exclusive another platforms et cetera, et cetera. Is that probably what you are looking for here?

[Doug Creutz:]

Yes, just another housekeeping question, you guys guided 220 to 260 organic revenue in 2015. I assume by organic you simply mean existing businesses before acquisitions in 2015, correct?

[Eric Ludwig:]

That’s correct, yes. That includes everything we have today, but not any future acquisitions from here.

[Doug Creutz:]

Okay, perfect. Thank you.

[Niccolo de Masi:]

Thanks Doug.

[Operator:]

Thank you. Our next question comes from the line of Sean McGowan from Needham & Company. Your question please.

[Sean McGowan:]

Hi, can you hear me okay?

[Eric Ludwig:]

Yes.

[Sean McGowan:]

Okay, great. Thanks, a couple of questions. Follow-up on Doug’s question I think you said on the last conference call that the advertising as a percentage of total revenue was actually helped significantly by the nature of popularity of Kim and that whole title. So I am little surprised to see that number down, I appreciate what you just said about the goals and targets, but what would you say is the reason that it didn’t perform or not perform. Why is that percentage not comparable to what we saw in the last quarter?

[Eric Ludwig:]

Yes, Sean this is Eric. So we saw absolute dollars increasing from $7 million to $12 million in advertising quarter-to-quarter. So it was strong revenue growth, but as a percentage of revenue went down from 20 to 16.

[Sean McGowan:]

Okay. All right thanks.

[Niccolo de Masi:]

And to be honest Sean on that one, as we've said on the last say 19 quarters of calls, we are in the business of maximizing total revenue. Okay, and with Kim’s game you know we have a very good retention situation with a very good conversion metric on average there, its actually higher conversion in this title than more or less every other title we have. And when you see higher conversion you automatically want to bias yourself towards taking advantage of that which obviously is on the – in a purchase spot. So thus far we've maximized total revenues by making IPs more prominent in the way the game works than advertising. We will adjust as and when we see the advertising demand moves, but it would be folly for us to not be constantly sort of seeking a maximization of the daily revenues of entire game. And fortunately her user base not only stays and plays but they also pay. And this has been really sort of the fundamental ingredients that have enabled us to generate quite meaningful quarterly revenue and monthly, daily revenue from – if you look at this supplemental presentation, its relatively modest installed numbers form the Kim Kardashian Hollywood game relative to Deer Hunter thus far and so you can see there is really a long way to run with regards to expanding out that demographics provided we can hold lifetime value approximately where it is today.

[Sean McGowan:]

Exactly. So contrary to perhaps popular belief installs is not necessarily an indication of revenue. I’m just referring just…

[Eric Ludwig:]

I mean it never is, but you can always sort of estimate what lifetime value is by looking at revenue installs. Kim’s game has a very healthy retention, very healthy conversion, very healthy average lifetime value of paying users and hence overall yes the users that are playing that game generate more revenue per dial [ph] so to speak than in many other Glu titles.

[Sean McGowan:]

Given where I think in the title is actually holding up pretty well, we're almost through the first month of the fourth quarter, so similar to the question we have here on the last call. What kind of degradation or decay are you looking for – from here or now I mean looking for to sort of glide down over the course of amount of next two months or plunge and then find a levels, help us with what you expect to be the performance of that title throughout the fourth quarter.

[Eric Ludwig:]

Yes, I mean we don’t typically talk about what the specific top grossing expectation is for a given title, though we do expected to decline in as I mentioned on the last call. I expected Kim to decline and it didn’t down to number eight or nine top grossing to number five top grossing back in the last earnings call. So I would be renaissance to say that it can hold that these levels especially as we enter the fourth quarter which is the -competitive quarter typically of it stronger, but also a lot more competition from other titles and seasonal holiday component, so I definitely expecting some degradation for sure.

[Niccolo de Masi:]

Well Sean I mean obviously we are not looking for any declines so to speak we are in the business of doing all we can and our power to keep the title where it is in the grossing chart and keep extending its popularity we have been successful so far. And that’s been really through a mixture of content updates every two weeks or so, but also weekly events celebrating things that Kim celebrates in her life, whether its Halloween this week, Thanks Giving, Christmas, New Years all those are significant holidays typically in her calendar and her life. And the game is unique as you know and that it mirrors a lot of what’s happening in the real word in the virtual space. So you know I would highlight the fact that we’ve been successful past four months and keeping the title where it is we’ve extended the contract in another three years or four years we are highly optimistic, that we are – yes we are uncharted territory for this title. But if you look at other top 10 grossing games they’ve been able to persist with successful content updates for much longer than originally forecast. And obviously our extension of the contract with Kim highlights that. It’s also I think unique to have a brand that’s also innovating with us in the gaming space. So we have the first mobile game that does this mechanic in this way with the real role person. And yes the holidays are competitive and they will be every year. But in a competitive world the brand power and social channel power Kim has is the all more relevant. In a cluttered world add Christmas to the holidays, Thanks Giving, New Year and et cetera. I am confident that we will be effectively seeing lower CPI costs than any paid marketing that we spend around KKH. And we will continue to benefit from higher levels of organics than competitor titles have and this will be true every year. I think we are much just getting started and what we can to do continue to differentiate this experience.

[Sean McGowan:]

Okay. Well, your comments on the persistent of top 10 titles leads to my final question and I can’t believe the number of times Kim Kardashian’s name has come up in any conference call related to this business. But in terms of 2015 your preliminary guidance, can you share with us some degree of expectations for how much this particular title will contribute. I’m not taking about additional sequels or additional celebrity titles, but what’s your expectation for this particular title embedded in that 240 midpoint number for next year.

[Niccolo De Masi:]

Yes, it’s probably still too early to talk about specific numbers or specific titles. I think once we get through the fourth quarter and have six months under our belt with the Kim title. And as we get into the cadence of both the quarterly revenues amongst the quarter’s as well as the other titles layering in we’ll be able to provide some more context there Sean.

[Sean McGowan:]

No matter, well, I mean is it safe to say you are at least expecting our progressive decline?

[Eric Ludwig:]

Certainly we’ll have some kind of declines, because this title is not a player versus player title it’s still as a more of a single player game and those are driven by incremental downloads, retention, and lifetime value not by heavily engaging user base amongst themselves. So those single player like titles typically have an S curve that it goes down over a time for sure.

[Niccolo de Masi:]

And look it declines from the peak obviously not declines necessarily year-on-year, other thing I would say about that the guidance range Sean is this year we started the year with very conservative expectations and we said that 2014 could be a lot bigger if something hit. In late 2013, we had Deer Hunter hit, in the middle of 2014 we had KKH hit and we are guiding 2015 with the same philosophy. If something hits as both I and Eric have said in a last few minutes, opportunities for outperforming the upper end of guidance are high. If nothing hits, we think we’ll be in that range.

[Sean McGowan:]

Great.

[Niccolo De Masi:]

And obviously if something doesn’t work we’ll be in the lower end of the range rather than the upper end of the range. But this is a business which statistically speaking I believe Glu has been highly adopt in the last 19 quarters, stacking probabilities of more upside then flops consistently. And that’s exactly the same philosophy we have going into 2015. The only difference between 2013, 2014 and 2015 quite honestly is we have more franchise power, more brand power, more proven engines and a leadership team which has proven that we can make this portfolio strategy successful every time we release the title. So we are looking to grow every single new franchise release next year on the prior one. That’s true for the next Deer Hunter title as well as anything else as the franchise release and so we of course hope as the year progress we’ll be able to look back and say we’re as conservative as we’ve started 2015 as we’re started in 2014.

[Sean McGowan:]

Great. Thank you very much.

[Niccolo De Masi:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Michael Graham from Cannacord. Your question please.

[Michael Graham:]

Hey, thanks guys. So I have a couple, one is can you just clarify that the $10.7 million you called our for royalties was that basically Kim Kardashian and related to that when you do more celebrity games next year hopefully, should we expect a royalty level similar to what you are paying on this game. So that’s the first one and then I’ll ask my next one?

[Eric Ludwig:]

Yes, sure Mike, this is Eric. No that is not all Kim in which is why by preamble had the list of titles that have royalties barring on them and you’ve got Tap Sports Baseball with royalties the NOV, you’ve got Racing Rivals that have royalties back to numerous different car manufacturers, you’ve got Hercules and Robocop of royalties back MGM, you also have Miss Kardashian-West that also gets a royalty as well. So that the point here is the overall absolute number contrary to other articles and what not is – not as biggest people may think, when you look at above on overall revenue as well as revenue that are royalty barring. I think that’s the point why we are trying to give more clarity this call around both on the platform fees and royalties in the hosting distribution. And then on a prospective basis typically deals that we do be at Hollywood movies, other partnerships with other celebrities or other, sometimes that will have a lower entry point that maybe getting to a stage here, but what I can say is my guidance for Q4 has these stay the highest stage tears for the biggest titles that will have a stage tear. So my guidance for Q4 which actually shows overall royalty expense as a percentage of total revenue going down, but that does have the higher setup levels.

[Michael Graham:]

Okay. All right, thanks that’s helpful. And then the second one is I am just looking back at Contract Killer the last release and look like it peeked in Q3 of last year at about $24,000 a day in bookings and you’ve got a bigger engine now and I am just wondering should a game like – should a sequel to a game like that fundamentally monetize at a much higher rate now or just how should we think about that. And then I have a one more after that.

[Eric Ludwig:]

Yes, so I don’t have the data in front of me it actually validate the number you just quoted. So I’m assuming you are pulling up either from our pie chart from last quarter the number for that title, but I don’t recall us launching Contract Killer last Q3 as being either the launch of the peak number. So I think that number maybe incorrect, that being said we certainly are very excited about the Contract Killer 3 title in terms of the evolution from [indiscernible] mentioned that we had before adding PVP elements into that game as well. As Niccolo mentioned in his scripts we’re pretty pleased with some of the beta and data from that title that’s been lie for about 10-days now.

[Niccolo de Masi:]

So Mike we haven’t launched a new Contract Killer main lets call main franchise release, since I believe Q4 2012 so that was Contract Killer 2. We are on Contract Killer effectively three which we’re calling Contract Killer

[Michael Graham:]

Okay thanks and then last quick one. I’m just wondering for next year, you gave us a good baseline for organic growth and you are somewhat acquisitive the last couple of years, but are you seeing conditions in the private market such that you think you can step up our acquisition activity materially next year or just you know any clues you can give us as to how intensively you’re thinking about that as a strategic prong. Thanks.

[Eric Ludwig:]

So we obviously have the wonderful backdrop now of generating cash, a first full year of profitability, step one for Glu is growing the organic business, delivering not only the top end of guidance but of course hopefully smashing through that’s on delivering our operating leverage next year. As we do that and as we gain confidence in our ability to do that the next party for us is expanding and leveraging all of the IPN engine that we have. So more use of our celebrity engine is of course fine everyone is fabulist, maintaining a high quality bar there means that we won’t be flooding the market with titles and nothing will of course be even more remotely competitive on Kim’s title, but there is other genres is that we think that we can obviously deliver meaningful success on there, and same with the Deer Hunter, Contract Killer, Eternity Warriors, Racing Rivals. There is now eight franchises in the Glu that have an inbuilt fan base, have IP that works and having engine monetizes. We are moving all that forward and when you keep moving that forward on the usual cadence of sequels that we’ve done in the last few years, which is about every 18 to 24 months we launch a meaningful franchise extension. Once we get through those to two levels of thinking. Yes I think you are right; there are certainly more realistic expectation from a valuation perspective in the private markets now then I have seen in my tenure. So in 2010, the private markets were looking at quite remarkably high multiples of revenue to run profitable businesses with very little track records for little team, let’s say coalescence and little operating history. Today and starting in 2014 as we – you seeing with our Cie Games transaction, there has obviously been harmonization between where the public markets are and where the private markets are. And that means that our opportunities on average have expanded to finding deals that are accretive in the first quarter. And ultimately, we think that whilst we’ll never lower our bar for making an acquisition. When you have a bigger chance of fundamental of that accretion that makes a lot easier for you to get comfortable that you can do a lot better than initial earnings accretion through off course integration management, better marketing, better publishing, expansion and leverage of what Glu has and what our target brings. So I spent sometime on my prepared remarks laying out the team talent studio product alignment that we look for in every new studio we could possibly acquire. I’m not going to give a sort of volumetric approach to potential targets, but I will say that Glu increasingly has capital it can be deployed in a number of ways. It is more likely we deploy that in accretive acquisitions then in – then alternative potential distributions of that capital. We think that we have winning formula and we have a platform now of 680 people that can run faster, make frankly bigger upside moves with less downside when we find the right transaction. We are all professional managers, so we have a high bar around retaining new employees and that being one of the lenses that we use whenever we look at a new acquisition, people matter that’s all we have here in the long term. So we’re going to be mostly like North American based in that scout, scouting range so to speak. But I won’t be able to say whether or not we’re looking at one deal a year, one every six months. It’s a very high bar as we said repeatedly. We do not have external or internal corporate development team we do these deals ourselves, which means the Cie suite conviction for myself our CFO, our President of Publishing, our Senior Leadership has to be high to progress anything little unconsummated and we believe this is the fundamental reason why our MA record is so strong. We don’t have any write-downs across the history of my time in Glu we have built substantial value in everything from buying a Deer Hunter brand through to our Racing Rivals transaction. And we are willing to get into additional genres if the moon is the line. We will not get into new genres whether is not frankly opportunity differentiates and ramp a note around our business. But as you’ve seen in our supplemental presentation we’ve expanded a number of genres Glu has strengthened now from just the action space to casual, sports and racing. And all that has really happened since we launch the last Contract Killer game, so the last 18-months/24-months. We are building out and diversifying we’re improving catalog revenues it means in the long-term we have more visibility more affectability that something everyone in this call I’m sure as well relishing.

[Michael Graham:]

Okay thanks a lot.

[Operator:]

Thank you. Our next question comes from the line of Darren Aftahi from Northland Securities. Your question please.

[Darren Aftahi:]

Hey, guys thanks for taking my questions, just a few. Could you talk about potential timing on localization for the Kardashian game going forward?

[Niccolo de Masi:]

Sure, haven’t given exempt guidance on that Darren the – I would say constructing growth opportunities for Kim are tremendous. So there is of course room for additional locations, holiday themes, events there is also room for new characters and new narratives. We are exploring everything from an ROI perspective. So we look at what is going to deliver us the highest return tunes [ph] and what is most predictable. And we chased after that first given that we all are always in the resource optimization and deployment business fundamentally. Localizing a game that has as much tax in her game as it does isn’t tribule, it’s certainly not tribule to do so and maintain phase with an update coming out every couple weeks. So this is progressing let’s say more conservatively than it might other titles such as Contractor Killer which have very little text then they have a lot of action. This game is all about the narrative tell about the story line its all about getting the nuance of the humor rights. The game gets a lot of five star reviews more than most other games in the entire store because of the total humor a progressive political agenda in some ways or tone, and I think most people have been delighted to play that game by the depth and quality of the story line. We are keen to make sure that keeps going in English first of all, a lot of Kim’s fans are English speaking, her show is syndicated and I think 120 countries, but many of those fans are of course decent English followers. So I can’t give you precise day today, but we’re likely to try out one language first and it’s most likely to be Spanish. Before we jump into 10 languages and that’s simply in ROI assessment, it’s also an assessment where her fan base is. Kim is big in many countries, but she is biggest in English speaking countries. She is not a tremendous presence in China yet, but she is growing in places like the Middle East in India. We are going to think hard as we look to localize at where the lifetime value opportunity is. So India is a big and growing market, but its growing from a very small base and so the iOS revenue opportunity for example in the UAE or India is a lot smaller than it is in some place like Australia which we already have covered believe it or not for her fan base. So its always considerations in total, I think you are Darren in the long-term over the next four years or five years of our partnership there is a lot of room to explore international growth, our approach is to remain long step with her fan base and so we’re going to be monitoring the success of her other channels, her other activities particularly the TV series, and particularly obviously you know print and make sure that we are prioritizing accordingly.

[Darren Aftahi:]

Great. Just a couple more if I may. On your launch of Diner Dash, in reading a lot of the reviews it seems there is sort of a headwind or pave all with the energy issue if you kind of know what I’m referring to, any sort of commentary about calling an audible on that on the development side in terms of getting people to potentially play the game longer. It seems like there is some adverse kind of commentary about that. And then last one, did you kind of articulate that you will be leveraging kind of the celebrity platform and music and sports and actually launching the game in 2015, did I hear it that correctly or any commentary about that would be helpful thanks.

[Eric Ludwig:]

Okay, if that was on order, so the Diner Dash is off to a fundamentally strong launch from a retention perspective as well as obviously a top grossing perspective, sure I'll always take higher in the grossing chart, but this title may well be the most successful dash title ever launched as we had hoped from a revenue perspective, an absolute revenue perspective. I would say this Darren with regard to the feedback Kim’s game also has people to complain about buying effectively energy or stamina. It’s the number one complaint that you get in the free-to-play space particularly when you take a brand like frankly the Deer Hunter brand, the Diner Dash brand which originally and for trust let’s say 10 years of existence was a pay upfront model. Deer Hunter was going between 1997 and actually December 2010, January 2011 right it was going 13, 14 years as a pay upfront product, pay first. Now we move that model successfully over the past three or four years towards free-to-play top grossing hit. The first Deer Hunter title that we launched was late 2010 and early 2011, that was successful, but it was surely not top 10 grossing, it was probably not even top 50 grossing. It was in a similar state to where Diner Dash is today in that evolution. The next time we’ll launch a Dash title as with the Deer Hunter 2012 and Deer Hunter 2014 launches, we not only learn from the final launches. I’d have to move those fundamental up, but we also benefit from an audience space which expands and is more expecting of the way the mechanics work. All the metrics are let’s say reasonable to strong in Diner Dash free-to-play 1.0. As we update the game we’ll be tightening up the monetization curves will be learning from this for additional Dash releases. And I think the fans fundamentally will find that the new model as has been the case for every other paid to premium transition in the past five years is ultimately a beneficial one for the fan base. More people are playing this game everyday they can play a paid product. There are probably some hardcore fans have been playing that game for 10 years didn’t want even to change, but the exciting thing about that Darren is there are hardcore fans with a real passion. And we always knew we are buying a brand with real passion it had 500 million installs of the past decade across many platforms. We are very much the leader in the time management genre, PlayFirst, the company required was the inventor of that genre. And we will continue to refine how that mechanic and brand grows in a free-to-play world. So in summary it’s early, it’s performing with an expectations, it’s obviously not a hit, but as the Deer Hunter on the titles we believe often when we persist and learn we can very much improve from the initial pay to premium transition. And we’ve done the same thing with Contract Killer, Eternity Warriors, Frontline Commando you name it. And your other question with regards to another celebrity title, yes. As I said in my prepared remarks it is a priority for me and for us to leverage the celebrity engine as well as to leverage our leadership and genre we created. We are not going to do things in the reality space because I’ll be competing with our KKH title, but we do believe others genres, whether a music or sports or acting, modeling all of those avenues can be explored. But we are not rushing because we believe in quality over quantity in the genre. There is not going to be 10 games in the top ten grossing all with the same engine on the same genre, we know that. And so making Kim’s title stay in the charts is the number one priority as in the prior call. We’ve extended and deepened our partnership to make sure that happens and we’re prioritizing main ends of a top 10 grossing team in the top 10 grossing before we start thinking about how we bring all the titles that will necessarily grow higher even as high. But yes, we’re in active negotiations with number of the people. We’re going to be choosy, but we believe that we can expand this Hollywood franchise or the celebrity franchise as per any other Glu franchise we have in the portfolio. So you should expect a release per year would hopefully be a fair minimum when you stand back and look everything we are doing.

[Darren Aftahi:]

Great. Thank you.

[Operator:]

Thank you. (Operator Instructions) Our next question comes from the line of Mitch Bartlett from Craig-Hallum Capital. Your question please.

[George Kelly:]

Hi, guys this is George on for Mitch. Just a few questions, first, do you still expect to launch a Bond game in 2015?

[Niccolo de Masi:]

Yes, we absolutely do. We expect to launch a Terminator game and we expect to launch of Bond game in 2015 and we may launch one more celebrity games. That will be the majority of the non-original IP in terms of new launches. The rest of portfolio is super majority original IP as we have these eight franchises, engines and four categories that we’re going to expand in. I’ve talked about in my prepared remarks, the fact there is going to be another sync PVP racing game coming for hardcore players, there is going to be a casual car enthusiast game called car town, there is going to be another sports title in the football genre and not the baseball genre. And of course we’ll continue updating everything else we are doing here. So if you look at the supplemental presentation, we have a slide showing you all the franchise and how they grow, pretty much across the board we are showing you on that slide what will come in 2015. So there will be another Frontline Commando game next year, there will be another Eternity Warriors game and another Deer Hunter game as well.

[George Kelly:]

Gotcha. And then as you’re talking to other celebrities, does it seem like since the success of here Kardashian game is it getting more competitive, say it in another way do you expect the royalty rate to change?

[Niccolo de Masi:]

I don’t because we are the pioneer, we are the leader and so right now we’ve a meaningful amount of power in the marketplace. If you want to work with the best we are it. We are the leader in delivering free-to-play shooter games, we done it four years in a row, we’ve invented and we are now leading in the celebrity partnership model as well. There will be imitators just like their imitators of our shooters, but every year we aspire to continue to move the market forward at a cadence that allows our user base to follow along with us, but one that is not complacent. We are always trying to deepen monetization, delight our fans and make sure that we are the top of their playing priorities every time they sit down and think about what game would sort of fill the snack of time or this. Let’s say even longer then a snack amount of time that they might look for entertainment experience, particularly on a mobile device. So I am not worried actually from a competitive position about pricing, we have many, many more opportunities then I have studio capacity. So when I stress the quality metric I am very much talking about the fact that there is only so many people they know how to make this game tick, we have all those people at Glu. We are expanding the number of teams we have in the celebrities space, but we are it doing it slowly and with quality and with maintenance of the Kim success as top of our priority list. I could probably take down 10 times of deals as we can actually build on and we want to make sure that we are always in walk step of innovating the space, building out adjacent celebrity genres and making sure that we are the go to destination for anyone in the world Hollywood, Bollywood you name it that wants to do something financially successfully and critically claimed, we are the only person delivering both.

[George Kelly:]

Okay, and then last one for me is you talked a lot about acquisitions and wondering if there has been any kind of shift in strategy there if you would be comfortable making that just smaller kind of IP acquisition, if you would be more comfortable buying a more substantial – doing a more substantial transaction. And then if so how do you think you are generating more free cash flow now would you be comfortable even taking on that to do something like that.

[Niccolo de Masi:]

I try to cover a lot of the M&A question upfront preciously, so that you had a lot of information on that as the call went on, but those are nuance question, so let me tackle and turn. Cie Games was a substantial acquisition for us, it was the largest transaction of this company’s ever consummated in our history, largest since IPO. And it was very near to the 19.9% sort of let say NASDAQ rules shareholder approval threshold. We consummated on very good terms and we pass on many more transitions then we close on mostly because of our high bar on price on professional management, retention employees and this team talent studio product alignment. We don’t chase prices up, we pass some things all the time because we think that they’re not going to be accretive and they won. Ultimately I do think the NASDAQ rules have a point which is that digestibility is probably around that same line, 20% of a company value is a pretty meaningful bite to take on these transaction size. It’s meaningful in terms of needle moving in the same time it’s something which you know you can integrate. It doesn’t stretch any of your system processes or leadership team to able to take that on. So we want to, we want only first focus on meaningful transaction, we’re going to do only aqua hires where there is tremendous efficiency, operating efficiency as well as team track record. And that was the case with the team that has built our Tap Sports Baseball game and will be expanding to build Football game next year. Other than that we want that sweet spot between needle moving and making sure that we are not taking existential risks. I talked a lot on my prepared remarks about the fact that we are a probability stacking management team so opposite it looks that as much upside is possible, the risk is possible and obviously size the potential risk is one of the first things you look at there. I have been very anti-leverage throughout my tenure predominantly\ because of the company’s history part in my arrival as well as the volatility. Right now Glu has healthy balance sheet, our primary use of capital would likely be accretive acquisitions. We do not have anything like a large balance sheet compared to a King, Zynga and EA and Activision, [indiscernible] agree, I mean we’re competing increasingly because of our success with global giants. When I started Glu, we were a much smaller business by every metric. We have made a lot of progress in the past four and a half years. Four and a half years from today, I expect that we’ve made even more progress. We have the healthiest balance sheet, we’ve had since IPO. The IPO balance sheet looked healthy, was not deployed well, we obviously intend to deploy our capital as expertly in the next four and half years as we have in the past four and half and acquisitions as well as going to support our existing success on the organic leverage of our eight engines, four genres all the IP we have are what we are going to prioritize there.

[George Kelly:]

All right that’s very helpful thank you.

[Operator:]

Thank you, our next question comes from the line of Adam Krejcik from Eilers. Your question please.

[Adam Krejcik:]

Yes hi guys thanks. I'll try to be quick here. First Eric, just on that amendment filing for Cie Games, does that mean the 10 million share lockup none of those have been sold yet.

[Eric Ludwig:]

That’s correct.

[Adam Krejcik:]

Okay. And then number two, I see some of your guys games now are on Facebook on the desktop platform there. Is that a meaningful amount of revenue yet, is that worse breaking out or kind of how do you think about business. I know its obviously just extending the brand and that platform is kind of in a secular decline versus mobile, but just kind of curious what kind of traction you are getting maybe with the Kardashian game. Thanks.

[Eric Ludwig:]

That would be – Adam well thanks for that question, we are seeing meaningful revenue, but not percentages of overall revenue coming from Facebook as a platform, so once we start seeing that platform being multi percentage points of overall revenue and then I’m sure we will just start breaking it out, but right now we view that as more of an experiment or an extension for the mobile titles are rolling it into the overall revenues.

[Adam Krejcik:]

Great. Thanks.

[Niccolo de Masi:]

Obviously Adam look, I mean in the history of the free-to-play space in western markets, this whole business got started with Facebook all right. Social gaming was in 2008, 2009 and 2010 about building game online that was light simple usually not action based you could get the response times, it was about typically resource management. Look at where the space has come in the past four or five-years. Mobile computing and rise of all computing has meant that whether you are Facebook and their revenues of course now driven by mobile platforms, or whether you are gaming the majority of interaction and monetization come in on the mobile side. However, Facebook has been a very successful partner for gaming companies, we're proud to work with them and I think you are right there is probably opportunities to grow in the online space incrementally beyond what we ‘re doing in the mobile space as Facebook it is to grow out their effectiveness and efficiency as a partner for gaming companies. We look to continue to working with them closely both in the mobile side and the online side.

[Adam Krejcik:]

Great thanks a lot.

[Operator:]

Thank you. Our next question comes from the line of Mike Hickey from Benchmark Company. Your question please. Michael Hickey – Benchmark Company, LLC Hey, guys thanks for taking my questions. And thanks Eric for giving us look here at 2015, obviously where ways away and there is lot variability there, realizing I necessary want to speak per title, but can you give us at least an impression of what you think catalog sales would be in 2015 versus new title releases.

[Eric Ludwig:]

Yes, I mean you’ve almost answered my question probably by saying is probably two early to talk about that. I think on the next call when we have a full six months that Kim Kardashian and we have bit of more clarity on what the tail looks like then in for titles that are live in 2014 we’ll be able to properly look at the successful Deer Hunters and Kardashians and make expectation on what that catalog it looks like for 2015. As well as we will be able to give you the breakdown of which of our 12 to 14 titles are coming in which quarters and which upgraded versus original IP. So I think that the key point there is it will look probably a lot like prior years in terms of catalog versus new title. I mean that those things if you have the same cadence of launches at the same times of the year that balance have new revenue versus catalog will look relatively similar. But we haven’t yet talking about that cadence yet and once we do we can help filing those gaps.

[Niccolo de Masi:]

I think what’s important here Mike if you look at the slide in our supplemental deck that shows you our engine franchises. We’re effectively showing you eight titles that are launching next. And I have said a few minutes ago that also of those launching in 2015. I’ve also said that we are still launching a Terminator and a Bond title as well. So you have basically 10 titles there where we haven’t given you is the precise quarter which they are coming in, we will tightened that up by the January, February call what’s important now to takeaway from that is the fact that predictability has sky rocketed at Glu. All right, four years ago we had no franchises nothing we launch Gun Brothers, I’m going to launch a Gun Brother sequel, but Deer Hunter became our biggest franchise really in 2012 and Kim’s become our biggest one since Deer Hunter 2014 launch in last year. We bought a Racing Rivals the number one Racing Game. We were done it our franchise now and we have nurtured the Contract Killer, Frontline Commando and Eternity Warriors franchises plus just launched a Tap Sports

[Eric Ludwig:]

Well, I think you should think about our partnership with Kim, as not necessarily one title, we are in the revenue maximization business. There was an earlier question I think from Sean McGowan around ad revenues and I said we are in the revenue maximization business. So we will maximize revenues in this title looking at IPs and advertising, we will maximize revenues on the Kim Kardashian Hollywood game engine and franchise, firstly by updating this title as aggressively as we have inter perpetuity. Secondly there is of course opportunities for sequels, thirdly there is of course other new game and possibly even at off shoot that we can have in partnership with her and we've an exclusive gaming partnership. So very excited about where we could take this, her brand is still growing not only in English speaking countries, but particularly international markets, she is just getting started there, she has I would argue one of the most tech savy fan basis in the world and she is one of then most tech savy celebrities in the world. So it’s been a great working relationship, you are right that she is indeed heavily involved and its what makes the partnership unique, she is the rightful to work with, tension and [ph] detail is high, authenticity is unparalleled not only for iterating on what’s in the game, how it looks, how it feels, how we update it with the narrative is who else we could possibly bring into the game with her help, but also tension detail of course and the promotional authenticity of how she use this social channels and the fact that she does it all herself. She doesn’t outsource anything, she is really the person in our office on the phone over e-mail with me going through the next update and where we can take the franchise. And similarly with her fans knows that she is one of the few people in the world who is constantly keeping in touch with them with her devices that she is very much taking the photos, doing the post all of herself. And so you have this wonderfully authentic game experience, uniquely tied to a real celebrity who is deeply involved in bringing the two worlds together. And that’s not going to shrink or diminish in any way, I think that we will continue to find ways to delight her fans plus the broader demographic. So people playing her game are not only Kim fans, there is also a big chunk of players that want to be in the Hollywood phenomenon and they want to know what its like to work your way through Hollywood. And there are other people who are just young adults and like being able to make their own adult decisions who they are going to work with, who they are going to date. So [indiscernible] sort of tapped into three let’s call it [indiscernible] phenomena here which I believe are very, very much perennial of this digital generation of all ages ultimately or I might take that there. Michael Hickey – Benchmark Company, LLC That’s good.

[Niccolo de Masi:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible]. Your question please.

[Unidentified Analyst:]

Thanks guys for taking the question. It’s actually been asked and answered appreciate it.

[Niccolo de Masi:]

Okay.

[Operator:]

Thank you. This does conclude the question-and-answer session of today’s program. I would like to hand the program back to management for any closing remarks.

[Niccolo de Masi:]

Well, I’m going to close by thanking my collogues for their efforts and our stockholders for their continued support. We are pleased with their out performance in Q3 and look forward to Q4 and 2015 with confidence. Thank you again for joining the call.

[Operator:]

Thank you. Ladies and gentlemen for participating in today’s conference. This does conclude the program. You may now disconnect. Good day.