Glu Mobile Inc
Q4 2014 Earnings Call Transcript

Published: 5 Feb 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Glu Fourth Quarter and Fiscal Year 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, this conference call is being recorded. I would like to introduce your host for today’s conference, Greg Cannon, VP of Finance, Investor Relations. You may begin.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile fourth 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 and COO and CFO, Eric Ludwig. During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Any forward-looking statements that we may make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and during this conference call. These risk factors are described more fully in our documents filed with the SEC, specifically the most recent reports on Form 10-K and Form 10-Q. During this call, unless otherwise stated, all financial results, metrics and guidance will be presented on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage investors to consider all measures before making an investment decision. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today’s press release regarding our fourth 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. Please also note that all references to EBITDA, our adjusted EBITDA calculations, which Glu defines as non-GAAP operating income or loss excluding depreciation. Finally, please note that during this call we will be providing information regarding the total number of social followers of certain celebrities. We calculate total social followers by aggregating the total volume of friends and followers a celebrity has on Facebook, Twitter, Instagram, Vine, Vivo and Tumblr. Please not that these numbers will contain some overlap of these social audiences between channels and celebrities. With that, I will turn the call over to Niccolo. Niccolo?

[Niccolo de Masi:]

Good afternoon and welcome to everyone joining us, as we discuss a fantastic quarter which Glu delivered well ahead of expectations. We outperformed the midpoint of our Q4 2014 revenue guidance by 22%. Q4 EBITDA came in ahead of guidance by 214%. Full year 2014 revenue of $242 million and EBITDA of $35 million both exceeded expectations. 2014 full year revenue represents a 4-year compounded annual growth rate of 37.9%. Due to our momentum exiting 2014, we are raising expectations for 2015 to record levels. Instead of $220 million to $260 million, our guidance for full year 2015 revenue is now $245 million to $275 million. Per last year, our full year guidance for 2015 does not assume any outsized hits. As such, there remains significant opportunity for upside in all financial metrics. I am delighted to announce that this morning we signed a 5-year exclusive mobile gaming partnership with Katy Perry. Katy has over 170 million total social followers. Her Super Bowl halftime performance this past Sunday was the most watched halftime show in Super Bowl history making Katy arguably the most recognized musician in America. Our Katy Perry game will launch in late fall this year. The signing of Katy Perry to Glu is part of our ongoing strategy to build the premier Hollywood and celebrity gaming platform. Our Q4 outperformance was underpinned by the continued success of our three largest titles, Kim Kardashian

[Eric Ludwig:]

Great. Thank you, Niccolo. I am extremely pleased with our strong execution during the fourth quarter as evidenced by our ability to significantly exceed expectations across all key metrics. Our key financial highlights for the fourth quarter of 2014 are total revenues were $76.2 million, a 78% year-over-year increase and above guidance. That strong growth came from both our accretive acquisitions as well as organic expansion from our core franchises and sequels. Our organic year-over-year revenue growth, excluding revenues from these acquisitions, was 36%. Included in the Q4 results was an aggregate of $18 million of revenue from the most recent acquisitions, PlayFirst, Cie Games and Pick 6. Adjusted EBITDA was $14.1 million and adjusted EBITDA margin was a record 18.5%, also above guidance. Our net income was $12.2 million or EPS of $0.11 per diluted share. And we generated a record $19.3 million in operating cash flow. The fourth quarter saw further diversification in our revenues from both the top five titles as well as from licensed IP. Our five largest titles during the fourth quarter represented 80% of total revenues, down from 84% last quarter. The largest titles were Kim Kardashian

[Operator:]

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

[Doug Creutz:]

Thank you. You talked in the call about that you are going to deemphasize growth through acquisition and I am just sort of curious as to the thinking of that given that thus far your growth through acquisition has been quite successful, is that more of a demand driven issue where you just feel like you are transitioning sort of your plan or is it more supply driven that you don’t see as many opportunities out there in the market? Thanks.

[Niccolo de Masi:]

Thanks Doug. Well, it’s sort of multifactorial, it’s a combination of all of that. I am saying deemphasize, not stopping entirely, but I think that you will note in the last five years we have never transacted when our stock price was not in a position where we felt we could do things accretively. At the same time, yes I think the sector is growing up and they are not necessarily as many high quality assets at the right price in the market at the moment. We also have tremendous opportunities internally. And frankly I decided to focus on our top team using our time on a daily basis to make sure those get executed well. So at the end of the day, there is a finite amount of energy that can go into call it Corp Dev, Biz Dev etcetera. I think the next six months or so, possibly longer than that there is a tremendous opportunity for us to lock up a multi-year roadmap of talent based games, and we intend to do that. And we see tremendous opportunities for us to leverage our management team in all of our locations to continue expanding our leadership in our four primary genres. We have eight franchises, we are obviously building up tremendous relationships not only with Hollywood studios, but of course across let’s call it the greater talent sector industry whether or not its films musicians, actors, etcetera. And all of that is really something which I feel can be done highly creatively for Glu on a much better risk reward profile than a number of the acquisitions that you tend to see in the market these days. There is still a bit of disjuncture between private and public valuations, believe it or not. And I think in the long-term Glu has its tremendous growth opportunity, but now that we have sufficient scale we are demonstrating operating leverage, we are generating infinite amounts of free cash flow. We have expanded our North American studio capacity now so that over half of our headcount is actually now in North America, that’s the first time that occurred in 2014, I believe in my tenure. And so the talent base is improving. We have a middle-management layer, which is stronger than ever. And that means that our ability to add on a very interesting risk reward profile basis. A team here, a team there while still growing revenue at quite a clip and keeping EBITDA margins in the double-digit is something which is frankly too attractive for us to pass upon. In the long-term, I do believe the space will consolidate and Glu might get consolidated or it might be consolidate for itself. It depends, what time horizon we are looking at. But it’s early days in mobile gaming right now. If you look Doug at our investor presentation, you can see that we have outlined for you year-on-year growth as well as what we are calling our average bat. And that’s grown really quite impressively over the last 5 years. And I think as you look at the number of new consumers coming into the market, you look at the number of games we are able to put down every year. And the fact that we are really just I think begin to hit our stride organically, we want to make sure that we stay focused on where we see the best risk-adjusted return. And right now that is organic expansion.

[Doug Creutz:]

Thanks for the color and congratulations.

[Niccolo de Masi:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Michael Olson of Piper Jaffray. Your line is now open.

[Michael Olson:]

Hey, good afternoon. Couple of quick ones here, so will the Katy Perry title be built off of the same stardom engine as Kim Kardashian and do you think that’s significantly lessens the risk around it. And then also just more broadly as you look at the ‘14 titles that you are planning to do this year, how many of those if any are used to new engine?

[Niccolo de Masi:]

So we outlined in our investor presentation the 8 franchises we have. They are in four genres. Ultimately the Katy Perry title and its specificities will be under wraps until it comes out. But I think it’s fair to say that it’s not going to be a shooter. If you look at our various options here, we are going to do something that’s appropriate to tell her story as well as to make sure that we are not taking risk in this particular case on something that won’t monetize. So we know that 170 million social followers is merely some kind of record for an individual, we want to of course make sure we're doing something critically successful that does justice to that and her brand and her willingness to work with us in quite a hands-on way. We also want to make sure it’s commercially successful and it works for gamers, it works for where her brand is today and where it’s going in the next five years. So we're going to be thinking long-term. We're going to be thinking about her journey and her ability to sort of story tell in a transmedia way and we’re not going to take monetization risk because we do want this game to be coming out of this out in the late fall this year. And we know that we have the opportunity for to – probably set new records for Glu, the same way we have now sequentially done with our Racing Rivals and Deer Hunter and Kim Kardashian

[Michael Olson:]

Okay. And then so you now have Kardashian, a musician, what other categories you see as likely celebrity brands in which you could build the new game?

[Niccolo de Masi:]

Well, sports is an obvious one and that’s something that we're going to look at. I think when I think about and talk about a celebrity and Hollywood gaming platform, I'm really looking at people who have name recognition, tremendous social following, as I said before also are willing to be hands-on in their approach with us to how we do something unique, something special. I think there's room for more than one player in the music business, there’s more than one, room for more than one in the sports sector as well. And so you'll see us over the next two years continue to announce partnerships as well as bring out innovative games and look to do something differentiating special for every single one of them. We’ve obviously pioneered this segment. We have industry-leading expertise and how to make the most of these partnerships. And that's something that I believe is increasingly respected in amongst the talent, the top talent community. Your question I believe also was looking at the 2015 roadmap, how many of these games are new versus existing engines. As I said last quarter this is a most scientific roadmap, we’ve constructed, it's one I’m tremendously proud of because we're bringing out new IP with existing engines, we’re bringing out new engines with existing IP, but we are not taking risks that should lead to the same level of underperformance as we possibly had in prior years. And we have a chart in our investor deck this year which shows you the percentage of our titles and the number of our titles in the last four or five years that have made into the top 100 grossing, top 50 grossing, top 25 grossing et cetera. And you can see that we made tremendous strides through 2013and 2014 in improving that batting average. It shows up in our numbers, it shows up in the percentages and we obviously want to build on that. And so the entire portfolio has been constructed with the studio expertise experience focus that I have talked about in the last couple of quarters. I consider this industry to be a very, very professional sports and what I mean by that is each one of our teams and studios knows they need to be not only they are most passionate about what they are building but also have experts and people have done it before any given genre and they need to be building studios and teams and technology around how they can make sure that all of the tools people, processes, middleware, et cetera is their supporting best-of-breed success, that is what it takes to ship a sustained top 10 grossing game in any genre. And I believe we’re going to see us do more of that this year than ever before.

[Michael Olson:]

Thank you.

[Operator:]

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

[Sean McGowan:]

Thank you. I also have a couple of questions. I hope one of your sports figures that you had lined up was not Super Bowl MVP Russ Wilson of the Seattle Seahawks. So, it actually underscores the question. How much risk you face with a celebrity suddenly doing something that makes that person most popular I mean is that - how do you wrestle with that question?

[Niccolo de Masi:]

Well we are pretty choosy, Sean. If you look at how long we have taken to announce the first one beyond the Kardashian title, I mean it's been nearly seven months since that game shipped. So we have a very high bar of who we work with. They have to fulfill a number of criteria not of course is one of the considerations. We’re thinking long-term. We’re thinking about who can grow popularity, their fan base, their brand on a global basis, on a long-term basis, near or five years and five quarters is how we're thinking. And you can be sure that, that’s part of the calculus. I think you can also acknowledge that there is - the differences between doing something new that might be creatively risky and doing something that might reduce someone’s social following those are very different types of activities. And so whilst we’re always going to be working with people who are trying to push pioneering creative boundaries, I think you can read between the lines that we're not doing things with people who run the risk of seeing those social following to cut in half.

[Sean McGowan:]

Right. Okay.

[Niccolo de Masi:]

Right.

[Sean McGowan:]

Couple of other questions. The $400 million sort of target I mean not $400 million, 400 million follower target that you had for social followers by the end of the year. Is there any component of that number relative to what you have with Katy and Kim, that is due to expected growth of their followers or is the entire increment to come from additional people?

[Niccolo de Masi:]

That number is by the way 400 million by the end of 2016 I said.

[Sean McGowan:]

Okay.

[Niccolo de Masi:]

Not 2015, in 2016.

[Sean McGowan:]

Same question.

[Niccolo de Masi:]

We always aim to meet or beat, Sean, needless to say. I think we would - I am guiding you on that conservatively the same way we tend to think about our numbers. So, no, we are not assuming growth organically in the existing celebrities and talent we have. So those will be new deals.

[Sean McGowan:]

Okay. And…

[Niccolo de Masi:]

Predominantly.

[Sean McGowan:]

When you give guidance on the gross margin that's obviously a function of mix to a large degree and that can shift. Can you, Eric, can you help us frame sort of the upside, downside range that we could see on gross margin in 2015 depending on whether the purely internal titles do better or worse or the license titles?

[Eric Ludwig:]

Yes, sure, Sean. So there is really three components to our gross margin. First our Apple and Google platform fees and the X factor there would be whether we improve or degrade in terms of ad revenue as we talked about before. Ad revenue has a 100%gross margin, Apple and Google in app purchases have, they’ve got 70% gross margins, this last quarter we had a 25.4% cost of sale from that. So you can see we are kind of pretty fairly balanced of this 15% of overall revenue coming from ad revenue. So that’s one item just to be watching for. We've said before that the more North American the revenue is, the more it’s going to be angled towards advertising, the more Asian it is, it’s going to be probably less targeted. So we’ve been two quarters of 15% with and 60%ish of revenue coming from North America. So that’s probably a pretty good number. So I wouldn’t see that percentage of revenue changing dramatically in 2015 given the titles we’re launching. So that’s kind of point number one. Point number two which is the easy one is hosting fees. We’ve been trending at 1.5 million to 1.8 million of hosting cost per quarter over the last few quarters. I don't anticipate that changing dramatically. But it won’t be going down but it will be going up as a slight cliff. So that’s kind of the point number two. The point number three is really the royalties you're talking about and this revolves around both product mix as well as if you have a title that’s a branded IP title that over performs then that could be either over under-indexing beyond that. So I don't have specific numbers that I can guide you on. But as you’ve seen in the last two quarters we've gone from 11.1% down to 10.5% and changed this last quarter in terms of royalties as a percentage of total revenue and so it really depends on that. But it’s going to be in the 8% to 14% of overall revenue assuming all things being equal.

[Sean McGowan:]

Okay. That’s helpful. And then the final question I had was - looking just in the first quarter at your guidance. Can you just give us some sense of what kind of decline if any in Kim Kardashian you're expecting to see in the first quarter, what’s baked into that guidance?

[Eric Ludwig:]

Yes. So I love to make your job super-easy. But we don’t - I think we don’t typically spell out specifically this amount revenue from this title for this quarter, given the various things that may happen with promotions et cetera. But you can bet that it’s forecasted to decline, not increase and not be flat, but that’s only the kind of that.

[Sean McGowan:]

I just – I think in the past you actually helped us by saying you expected a significant decline, does the fact that we didn’t see as much of a decline as maybe that meant, are you are you getting less sort of less conservative if you will about your expectations on that particular…?

[Eric Ludwig:]

It probably depends on how you define significant, but it’s definitely a decline, but I will just I will leave it at that.

[Sean McGowan:]

Okay. Thank you.

[Eric Ludwig:]

Thanks Sean.

[Operator:]

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

[Darren Aftahi:]

Hi, guys. Congrats and thanks for taking my question, just a few. I know you won’t give specific numbers, but can you talk about ballpark royalties of this new Katy Perry game, you really kind of be in the same field goal posters as the Kardashian game. And then think I think Niccolo you said in your remarks three more celebrity based teams on top of Kardashian, is this something where I think in your deck you said there are three games to be announced, is Katy Perry the only sort of celebrity genre game that could be launched in 2015 or is that safe or maybe a later date? Thanks.

[Eric Ludwig:]

Darren I will take the first one and Niccolo can probably chime on the second one. So Darren obviously we have never given the specific numbers for Kim Kardashian West, so I really can’t talk to Katy Perry even in relation to Kim Kardashian West. We have never said specific numbers. But what we have talked about as I just answered for Sean kind of the range of outcomes of overall royalty rates on our overall revenue basis both branded and original IP. And you could imagine we are working across the board with lots of celebrities trying to sign them up and the deals that we are signing are either – the market rate deals.

[Niccolo de Masi:]

Or better, I mean I think end of the day, you can rest assured all shareholders as well as analysts that we are the partner to work with, we have a proven track record. And as a result I think most people that we speak to in the top tier recognize that having possibly lower royalties, but a bigger pie does matter a lot to their next commercial outcome. So, ultimately there has not been that much of a change year-on-year in the gross margin despite the fact there is a number new partnerships coming out. And I can kind give you some guidance on how to model that. On your other questions Darren, it’s possible we have a second talent based partnership game come out this year. We haven’t announced one yet as I said we are in late stage discussions with a number of additional ones that is what gives me the confidence on the 400 million total social following number for 2016. It’s also what gives me confidence to begin forward investing and adding extra Hollywood teams. So there will be more news on specificities of who we are working with and timing between now and the Analyst Day. And certainly we will have something to report on the next earnings call.

[Darren Aftahi:]

And just one last quick follow-up, so you obviously had success with the team that made the Kardashian game, will you be you repurposing assets from that team to new celebrities or will you keep that intact and just start anew with other pods? Thanks.

[Niccolo de Masi:]

Well, we won’t be repurposing any assets. These games will look and play distinctively can there be learning, can the game be in the same genre, yes. I jokingly said on earlier question that Katy Perry is not going to be a shooter, it’s going to be an engine that is a proven monetizer. Something closer to a narrative based RPG makes a lot of sense than an action RPG for example. And we are also thinking about engines that work for the long-term. So I look at it this way, there is going to be a lot of shared learnings and a lot of integrated I would say proprietary expertise that Glu uniquely has that will be used for Katy Perry’s game, any subsequent partnership that we announce, because we want to make sure that we are of course differentiating experiences but not losing what has been a tremendous per user lifetime value monetizing game experience with a high conversion and good retention. So I will leave it at that, because this is obviously competitively sensitive. And I am sure there are people who are keeping a close eye amongst our competitors public and private and would like to move in on this segment. We are of course as I said focused on defending the segment through innovation and I mean all of the means. And we believe that we will be able to lead as we build-out what I consider very much a Hollywood and talent-based platform play over the next 5 years.

[Darren Aftahi:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Michael Graham of Cannacord. Your line is now open.

[Michael Graham:]

Thanks. Hey, guys. Congrats on the really good execution and if you need, I just want to say I will consider being the partner for your Analyst Rockstar game?

[Niccolo de Masi:]

It’s a big market there, Michael. It’s a mass business. How many social followers do you have?

[Michael Graham:]

I think I only have like 14.

[Niccolo de Masi:]

14 followers, but they are all analysts. That’s good.

[Michael Graham:]

Exactly. No, but I just wanted to ask two quick ones. One is the $20 million increase in guidance roughly, can you just talk about whether that is – how that’s weighted between new games, more confidence in new game launches versus more confidence in the ramp downward of your existing good games? And then secondly, Eric, could you give us any updated thoughts on what the structural margin should be for this business? You will exit 2015, it sounds like with a pretty solid EBITDA margin, I am just wondering how you think about it longer term?

[Eric Ludwig:]

Yes, sure. So, on the first question about how much of the $20 million uplift in guidance came from strength in the catalog versus new titles. I wouldn’t give a specific number, but we certainly outperformed in the fourth quarter due to holiday promotions, due to the Apple Red campaign for Kim Kardashian West title due to Deer Hunter outperformance. So, there is certainly a sizable percentage less than 50%, but more than 25% probably of that guidance uptick coming from just the strong catalog. But secondly, the balance of that came from the success of the title roadmap that we firmed up, including mainly due to Katy Perry. So, that’s probably how that looks. On the second question about structural margin, so obviously my guidance what I said was Q1 revenue of $50 million to $52 million with breakeven to a $2 million loss. Q2 I said will be flat revenue. So, you can probably assume that, that EBITDA margin is going to be similar in Q2, maybe slightly worse even given we are incrementally adding headcount. So, all of the $30 million to $35 million of EBITDA is in the back half of the year on much higher revenue, but yes, we are exiting 2015 at very, very nice EBITDA multiples and margins. And by that point, even two of the teams that were investing in, in those – in the OpEx and then the EBITDA on a loss basis will start generating titles in 2016, so even the full ramp of all those teams, aren’t even in those numbers as we exit 2015. But in terms of longer term structural margins, longer term growth rates, we did not spend airtime on this call in this IR deck, we will probably address that long-term margins and long-term growth rates at the Analyst Day.

[Michael Graham:]

Okay, well, thanks and congrats again guys.

[Niccolo de Masi:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Drew Crum, Stifel. Your line is now open.

[Drew Crum:]

Okay, thanks. Good afternoon, everyone. So, just going back to the Katy Perry game and I apologize if you guys addressed this, but is the game being developed by one of the new 6 studios that you will be opening this year? And then Niccolo, you suggested that the guidance for 2015 does not contemplate “hit,” but if you look at the social metrics you have provided in the slide deck, looks more compelling for Katy Perry versus the Kardashian franchise. So, is it just a sense of conservatism built into the guidance? Is the timing of the game release, how many things can be divided on that front? Thanks.

[Niccolo de Masi:]

Yes, so it’s both of those in fact. I mean, we have a tremendous track record I believe of the last 20 quarters of coming in ahead of expectations. On the top line and especially the bottom line, it is launching late in the year, I said late fall. So, there is not a lot of contribution. So, regardless of how big a game is, if it’s late in the year, it can only move the needle so much with a month or two of actual delivery. It will obviously be a big factor though in our confidence as we head into 2016. And one of the reasons I think you can sense the ebullience around the table today is that obviously there is a tremendous H2 roadmap for 2015, all of that will contribute well into 2016. And so we feel we are setting ourselves up here, not only for a record 2015, but hopefully another record year, even above that in 2016. In terms of which team is building it for competitive reasons, I am not going to get into which location specifically is working on anyone of our given titles. But I will say there will be veterans on this title. And that is obviously the case because of the importance we place on de-risking execution as well as what we see as a incredible upside opportunity not just for the tail end of this year, but into next year.

[Drew Crum:]

Okay. And then separately Niccolo can you just talk about the cadence or timing around your Deer Hunter sequel as well as the 007 game, which I presume is a shooter title, talk about potential cannibalization of the two titles against one another and how you address that with second half releases? Thanks.

[Niccolo de Masi:]

I mean if you look at our investor deck we have laid out a lot of the roadmap here. We haven’t given you the exact month of launch. And obviously for a company as large of ours that is putting out an extensive one title a month, you have to get comfortable as a company as well as the publishing function within our company that we are able to avoid cannibalization by staging and sequencing out launches. So we are not going to launch two shooters in the same month. We are not going to launch two games in the same genre in the same month. We try and space them out as much as possible subject to practicalities of the on ground execution. I would also point out that I have not specified what type of game, the 007 title will be. I said that it’s going to be innovative, but is also under wraps until much nearer its launch because we have been working on that for a considerable amount of time. We have been working with the Broccoli/Wilson family from inception and doing something special. And at this stage, we haven’t given more specificity other than saying both Deer Hunter and 007 are very much H2 games, not H1 games. So I would ask for your patience and more color at the Analyst Day, the next earnings call and it’s firmly to get close to the launch. What I will say I guess to wrap that up is that Deer Hunters is an established franchise, it’s been going 15 years. It is and I think the seventh, eight or nine iteration at Glu and probably the fourth or fifth free-to-play product we put out. That game is a lot more defined than something new such as the 007 game, which we have never launched and indeed is never existed. In free-to-play form it’s never existed on a mobile phone actually either. So Deer Hunter will be a similar mechanic, the rest of our roadmap does have pockets of pretty interesting innovation and room for Glu to potentially establish leadership in adjacent genres.

[Drew Crum:]

Okay, fair enough. And then last question for Eric can you provide a contribution to adjusted EBITDA in the fourth quarter from your acquisitions?

[Eric Ludwig:]

No, we don’t specifically breakout EBITDA from acquisitions.

[Drew Crum:]

But they were accretive, correct?

[Eric Ludwig:]

Yes, they definitely were accretive, absolutely. And just so everybody knows, we will be considering revenue from acquired companies for one year as acquired revenue. Then given what we do with game engines and reuses and new teams, etcetera, we will then call that organic revenue given that we typically do a sequel etcetera. So for example Pick6 studios in Q1 will drop into the organic bucket after this quarter. So just want everybody to know we laid out in the slide deck, but they are accretive, absolutely. We don’t breakdown the accretion from the studios for these EBITDA.

[Drew Crum:]

Thanks guys.

[Eric Ludwig:]

Thanks Drew.

[Operator:]

In queue our next question comes from the line of Mitch Bartlett of Craig-Hallum. Your line is now open. Again Mitch Bartlett of Craig-Hallum, your line is now open. Please check your mute button. Our next question comes from the line Mike Hickey of The Benchmark Company. Your line is now open.

[Mike Hickey:]

Hey guys, great quarter, congratulations to all of you. Just curious on your celebrity portfolio as you build it out and you look at the social media following I mean on the surface you have seen sort of the bigger the amount of followers the better, I am curious how you sort of factor maybe the willingness of that social following or maybe the underlying demographic of that celebrity both engage in a mobile game and ultimately pay for it?

[Niccolo de Masi:]

Yes, I mean it is a multifactorial analysis that we do on who we choose to work with here. As I said earlier on a previous question, we are choosy, we have a high bar. We have been carefully considering who has the following as well as the brand that resonates in the gaming segments who ultimately has a trajectory in their career that it is very much up into the right, especially as we are looking to invest in fewer, bigger, better partnerships over the next 3 to 5 years. And of course, we are thinking hard about whether or not the specific subgenre of any talent or personality is one that leads itself to something that can be gamified. It’s important that the gamification process obviously narrowly attaches or rather attaches tightly to what their brand and lifestyle is all about as well as how they see the relation between themselves and their audience. And so all of those things ultimately tied together when we think about is there a fit here, is this something that we both want to do, can we both collaborate to build something that is what I consider to be truly the first transmedia mobile app game experiences in the world. Kim Kardashian has done a remarkable job at storytelling in a three-dimensional way so far. And I think we have surprised the world and our ability to create and sustain not only a commercial success, but a critically acclaimed success. And so we are of course looking for people who can similarly tell transmedia stories, multi-channel stories, not only through what they do in the physical world, but what they do through social channels, digital channels, music video, lifestyle, print even novels in some cases. So, it’s a very exciting world. I think that we are part of the trend in the talent space of cutting out intermediaries. There is no labels. There is no other sort of layers involved in these experiences. And the exciting thing for each of our partners is that they are able to communicate directly with their fans through an app or game that is very much their own. And they are building long-term equity value goodwill etcetera in their own brand through something which we are integral part of. And I think that our ability to work well with people has absolutely been proven. It is a skill which we pioneer, one that we believe we are the leader in. And as you see in the next few years rollout, I think we will be rather impressed with our ability to sustain not only each one of these partnerships, but additional ones in various subgenres so that Glu can grow in line with the global smartphone penetration, which still has the doubling, if not a tripling that I believe will take place in the next half decade.

[Mike Hickey:]

Yes, thank you, Niccolo. You said global, it kind of makes me wonder about sort of the global potential of the celebrities that you choose. I mean, it seems like KK maybe global for the most part, the performance game appears to be sort of the domestic phenomena. At least the game seemed to be built for domestic audience and of course the storyline and everything else was an intricate part of that. When you think about Katy and maybe potential new celebrities, do you also consider the celebrity and the ultimate crapping I guess of that game to have both now domestic and international performance opportunity?

[Niccolo de Masi:]

Yes, I think it’s fair to say that the Katy Perry is more global than plenty of other talented musicians, actresses, etcetera in the world. We go through a careful analysis, not only of where they are big today, but where they are growing in the next 3 to 5 years. And as we look at that analysis and we know how much revenue we can generate per install, per country, it makes the prioritization of our partnership process pretty clear. I think that people like Kim and Katy are going to do very well for us in English-speaking markets than in frankly developed countries, but they are also going to be growing their brands overseas in developing and emerging markets. And that’s where we see a lot of the incremental growth coming in the mobile and tablet gaming space. So, we see lots of room as I have said for partnerships to grow, brands to grow and us to be integral part of that for them.

[Mike Hickey:]

Okay, thank you. Last question just real quick on Kim Kardashian, I think you guys have sort of mentioned it before that perhaps, there would be an extension or a new game of course moving the current one hasn’t deteriorated as fast as you thought, I am not sure if that’s true or not, but what are your plans for ‘15 in terms of something new from Kim or is it just more additional content sort of just continuing to hammer out what you have already?

[Niccolo de Masi:]

Well, we are focused as I said in my prepared remarks on building annuity-like experiences. So my top priority every day is how can we evolve a game with new features, new content, new transmedia ideas which can allow us to build out a community which is even stickier, retains even better. And of course if you have those two factors in place you then have elongated monetization opportunities. So there will be a lot of new stuff from Kim, not only this quarter, but this year and next year all the way through 2019 as we extended her relationship about a quarter ago or so. We are very confident in the ability of such a unique audience based brand as a real living, breathing, evolving person to be perfect for gameplay. And we are building, call it annuity like MMOs is how I think about each one of these. So it isn’t really something it’s top of my mind whether or not you are having to launch a second SKU or whether or not you are updating the current SKU of a game. My up case scenario as I have always said for five years at Glu is that everyone of our teams is so successful they are working on the same game year-after-year-after-year just like a League of Legends, a World of Warcraft, etcetera on the online MMO space. So that is the aspiration. We are just scratching the surface of the social monetization segmentation personalized merchandising and frankly incrementally interesting social features that can be created in these kinds of games. When you look at brands, Hollywood movies are brands, TV shows are brands. Some of these brands have Facebook followers. Some of them might even have 10 million Facebook followers. But in terms of longevity, you really can’t compete with the 10 million Facebook follower brand with something that’s living and breathing has 50 million or even 100 million or possibly 150 million social followers who are live tracking, seeing something new every day, seeing real world performances, seeing new call it physical content coming out and all that’s tied into the game. I mean it’s a remarkable experience incredibly with Kim. It’s one which we will be able to do analogously but in a very way with Katy. And I am exceptionally bullish that this might be a vein of gold which Glu can uniquely dominate in North America and then globally and one which enables us to build better sustained annuities than almost any other business model you can find precisely because of the tax rate and our engagement of the annuity like social firm. It’s really unique phenomenon in today’s modern world whereby you have such amazingly enormous social followings, attached to people actually tracking up to half a dozen channels on a daily basis. Those are perfect people to engage in a game. And it gives us an almost – an unlimited variety that we can then reflect in the game in an appropriate analogous way, but also in ways that go beyond their current interaction through just the social channel. So I view our games as another social channel for our talent partners and wonder it can be a lot more three-dimensional, a lot more interactive and ultimately a lot more extensible.

[Mike Hickey:]

That’s great, Niccolo. Thank you. Best of luck guys.

[Niccolo de Masi:]

Thanks Mike.

[Operator:]

Thank you. And our next question comes from the line of Mitch Bartlett of Craig-Hallum. Your line is now open.

[Mitch Bartlett:]

Sorry about that before I was on mute. Very simple quick last question here is you are focusing us on the social reach of the celebrities and obviously the connection that has to the game going viral and things like that, I am just wondering with Kim Kardashian obviously very successful especially in sustaining that brand, are you building expertise internally that helps you advise the celebrity in dealing with their social networks around game refresh and all the other things is that something that you get involved with their social networks?

[Niccolo de Masi:]

Well, look we have a lot of expertise in the social networking space because of course we have our own social channels and we treat each of our games as a social channel. There is a community around Racing Rivals, the substantial validates that likes to play every day and chat in game and race each other for pink slips and commensurate and gloat in the game on forms, etcetera. The same is true for Deer Hunter. The same is true of the Kim Kardashian

[Mitch Bartlett:]

That’s interesting. Thank you.

[Niccolo de Masi:]

Thanks, Mitch.

[Operator:]

Thank you. I am showing no further questions at this time. I would like to hand the call back over to management for any closing remarks.

[Niccolo de Masi:]

Thank you. Well, I want to close by thanking my colleagues for their efforts and our stockholders for their continued support. We are extremely pleased with our outperformance in Q4 and the unique Hollywood platform we are building at Glu. We look forward to 2015 and beyond with confidence. Thank you again for joining the call.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day everyone.