Zynga Inc.
Q2 2017 Earnings Call Transcript

Published: 3 Aug 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zynga Second Quarter 2017 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 follow at that time. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Rebecca Lau, Manager, Investor Relations and Corporate Finance. Please go ahead.

[Rebecca Lau:]

Thank you, and welcome to Zynga's second quarter earnings call. On the call with me today are Frank Gibeau, our Chief Executive Officer; and Ger Griffin, our Chief Financial Officer. Shortly, we will open up the call for live questions. During the course of today's call, we will make forward-looking statements related to our business plan and strategy, as well as expectations for our future performance. Actual results may differ materially from the results predicted. Factors that could cause or contribute to such differences are detailed in our earnings materials under the caption Risk Factors in our 10-K and when filed our 10-Q, as well as elsewhere in our SEC filings. In addition, we will also discuss non-GAAP financial measures. Our earnings letter, earnings slides and when filed our 10-Q will include reconciliations of our GAAP and non-GAAP financial measures. Please be sure to look at these reconciliations as the non-GAAP measures are not intended to be a substitute for our GAAP results. This conference call is being webcasted and will be available for audio replay on our Investor Relations website in a few hours. Now, I'll turn the call over to Frank for his opening remarks.

[Frank D. Gibeau:]

Thanks, Rebecca. Good afternoon, and thank you for joining our call. We're pleased with our performance in the first half of the year. As we progress through our turnaround, our focus on innovating and growing our existing live services and sharpening our operating model continues to deliver encouraging results. This past quarter, revenue was $209.2 million, up 15% year-over-year and bookings were $209.2 million, up 20% year-over-year. This growth was driven by record mobile revenue in bookings performance, with mobile revenue up 30% and mobile bookings up 33% year-over-year. We had net income of $5.1 million, better than our guidance of $11.1 million, and an improvement of $9.5 million year-over-year. We delivered operating cash flows of $37.8 million, our best quarterly performance in five years. There were three key highlights to our Q2 performance. First, our mobile momentum; second, our CSR2 success and a new forever franchise; and third, our improved operational efficiency. Starting with mobile momentum, in addition to our record-breaking revenue in bookings, our mobile audience grew 28% year-over-year to 19 million average DAUs, the highest year-over-year growth we've seen in more than two years. 90% of our audience now comes from mobile compared to 82% a year ago. This past quarter, we also hit a record high in mobile user pay revenue in bookings, which were up 39% and 45% year-over-year respectively. Another encouraging trend is payer conversion, which was up 28% year-over-year, largely driven by CSR2 and Zynga Poker. We're pleased to now have 86% of our revenue and 87% of our bookings coming from mobile. Second, CSR had a standout quarter as one of our top performing live services. The game showed strong results in Q2, up 14% in mobile revenue and up 18% in mobile bookings sequentially. CSR2 also achieved impressive gains in audience with average mobile DAUs up 9% this quarter. CSR2's strong performance was due to the steady cadence of exclusive events and bold beats featuring world-class partners such as Lamborghini and Universal's Fast & Furious. The gain has maintained its position as the number one Top Grossing Racing Game in the U.S. App Store and has more than 1.1 million 5-star player reviews in the App Store and Google Play combined, a testament to its high quality player experience. Turning to operational efficiency, we've seen a marked improvement year-over-year in profitability, cash flow, revenue and bookings as we continue to sharpen our operating model. In Q2, GAAP operating expenses were 67% of revenue, down from 73% a year ago. Non-GAAP operating expenses were 58% of bookings, down from 68% a year ago. We improved efficiency in R&D by implementing a more effective greenlight process, reducing head count, driving down the use of outside services and shifting resources to lower-cost geographies. Other examples of how we're driving operational efficiency is with our stock-based compensation and in our facilities management. Our stock-based compensation declined 40% year-over-year to $16 million, reflecting our continued focus on reducing the cost structure. Regarding our facilities, as we noted in our earnings letter, we're excited to announce that we've entered into a nine-year lease with Airbnb as an anchor tenant in our San Francisco headquarters. Starting in Q1 2018, Airbnb will begin a multi-phased plan to lease approximately 287,000 square feet in our building's east tower. Going forward, we'll continue to optimize our footprint within the building and pursue additional leasing opportunities. As we enter the second half of the year, growing our live services continues to be a top priority. Today, we have the strongest mobile portfolio in company history, achieving new highs in revenue and bookings. Across all our forever franchises, we're focused on delivering quality and innovation for our players. We believe there is still more growth possible in our live services and as a result, we're aggressively investing in bold beat roadmaps for 2017 and 2018. Another component to our growth strategy is the successful introduction of new mobile titles, which plays an important role in our company. We have multiple new games in development in key strategic categories, such as Casual, Invest Express, Action Strategy and on emerging chat platforms. Zynga's studios around the world including Finland, India, the U.K. and the U.S. are working on these games and we expect to launch them in 2018 and beyond. As we move to our turnaround, our goal is to create a more efficient and effective organization while innovating and delivering the highest quality games. We'll continue to sharpen our operating model and believe we'll exit 2017 with a strong foundation balanced on those principles. We remain focused on delivering our improved margin goals by the end of 2018, and achieving margins more in-line with our peers over the long-term. With that, I'd like to turn the call over to Ger so that he can further discuss Q2 and our Q3 guide.

[Gerard Griffin:]

Thanks, Frank. We delivered another excellent quarter in Q2 driven by the continued strong top line performance and effective cost management. Our revenue and bookings, both exceeded our guidance. Revenue, which is comprised of the change in deferred revenue and bookings was $209.2 million, $9.2 million ahead of our guidance and up 15% year-over-year. The net change in deferred revenue was a decrease of $0.1 million versus our guidance of a net increase of $5 million. Bookings were $209.2 million, $4.2 million ahead of our guidance and up 20% year-over-year. Our delivery in the quarter was driven primarily by our mobile live services, which more than offset the continued softness in advertising bookings. Our operating expenses were slightly below our expectations. GAAP operating expenses were $139.4 million, up 5% year-over-year, representing 67% of revenue, down from 73% of revenue in the prior-year quarter. Stock-based compensation was down 40% year-over-year, representing 8% of revenue, down from 15% of revenue in the prior quarter. I would like to also call out that our GAAP operating expenses in Q2 FY 2016 benefited from a credit for contingent consideration of $14.4 million. Non-GAAP operating expenses were $121.5 million, up 3% year-over-year, representing 58% of our bookings and down from 68% in the prior-year quarter. The increase in non-GAAP operating expenses was driven by higher marketing against our live services, partially offset by lower spend in R&D and G&A. All of this contributed to a net income of $5.1 million, $11.1 million better than our guidance and an improvement of $9.5 million over our net loss of $4.4 million in Q2 FY 2016. Our adjusted EBITDA, which includes the $0.1 million net decrease in deferred revenue, was $29.9 million. This is above our guidance by $10.9 million and up $11.3 million year-over-year. As we progress through our turnaround, we are pleased with the improvements we are making in sharpening our operating model. We expect to end 2017 with a stronger foundation for the future, and more competitive live services. We remain focused on delivering our improved margin goals by the end of 2018 and achieving margins more in line with our peers over the long-term. Looking to our balance sheet, we ended the quarter with cash of $739 million, up from $720 million at the end of March. The sequential increase in cash was principally due to the $37.8 million we generated in operating cash flow, partially offset by the cash used in financing activities during the quarter. Turning to guidance. Our guidance for Q3 is as follows

[Operator:]

Thank you. And our first question comes from Eric Sheridan of UBS. Your line is now open.

[Eric J. Sheridan:]

Thanks, for taking the question. Maybe, two. One on the live services side. Wondering if we could get a little more color there, what are some of the key investments whether they be on the product side or the customer acquisition side that might need to be done between now and the end of the year, to keep the momentum going on the live services side? And second, with respect to the Airbnb lease, if you're not going to give it out tonight in terms of the economics or something like that, would that be something that might be included as we look out towards the 2018 guidance? Thanks so much guys.

[Frank D. Gibeau:]

I'll take the first question, Eric, and Ger can talk to the lease with Airbnb. Keeping the live services going is a combination of investment in product, new bold beats, much like what you saw with CSR this last quarter by adding the Universal Fast & Furious and the Lamborghini. We go into each quarter looking at each of our franchises, whether it's Words With Friends or Poker or CSR2 in that case or Social Casino. And we start by identifying key features that will increase engagements amongst players or give them a new way to play the product against each other. So, for the second half of the year, we are investing in new features across all of our major live franchises. In addition to that, the publishing organization is working on new ways to attract audience through merchandising opportunities with our partners at Apple and Google in addition to executing paid acquisition campaign. So, it's a multidimensional approach and it covers all of the different aspects of how you would go to market and reach players.

[Gerard Griffin:]

Thanks, Frank. Eric, as it relates to the lease, there will be some further details in our 10-Q. So you'll be able to pick-up from that as filed. From an economic perspective, obviously, it kicks-in in 2018 and we'll give more color as we look to guide on 2018 later.

[Eric J. Sheridan:]

Great. Thank you.

[Operator:]

Thank you. And our next question comes from Brian Nowak of Morgan Stanley. Your line is now open.

[Brian Nowak:]

Thanks for taking my questions. I have two. The MAU and DAU growth were particularly strong. Just curious if you could talk to any specific titles, live services or advertising strategy that really led to the strength. And then, at a high level, can you just still talk about areas for further improved marketing efficiency or improved advertising strategy as we go into the back half to continue to drive faster MAU and DAU growth? And then the second one, I think you mentioned no new titles for the third quarter. Are you expecting any new titles to come out in the fourth quarter of the year? Thanks.

[Frank D. Gibeau:]

Yeah. I'll start, CSR2 and Poker were big drivers of audience in terms of the year-over-year performance. I'm very pleased with how they generated audience and we're able to retain them through new feature development and the engagement numbers were quite strong, we're very pleased with those. When you look at the marketing efficiencies and how we're going to market, we've been aggressively staffing new capabilities in teams and leadership there over the last couple of quarters. And we have an entirely new approach for how we're managing our UA spending, as well as how we're starting to look at things like cross promotion and creating network effects across our products. So, look to see us continuously improve there. I'm very pleased with the performance that we've seen, but if you talk to those teams and you look at what we have in front of us, we think that there is a lot of capability still to be added there. I'm excited about the opportunities that we have in place with Google and Apple in terms of the merchandising that we have there. Lot of the bold beat features that we do there allow us to get re-featured and that's something that we're going to continue to stay focused on. In terms of the question related to sorry – the new launches in Q4, we haven't announced anything for Q4. If you recall in 2016, we did launch 10 titles and we mentioned and have been consistent with that, 2017 was going to be a year of live operations where our intent and focus was to grow those products through live ops and investment throughout this year and that continues to be our primary focus. We'll start to see new products into the portfolio in 2018 and beyond.

[Brian Nowak:]

Great. Thanks.

[Operator:]

Thank you. And our next question comes from Douglas Anmuth of JPMorgan. Your line is now open.

[Douglas T. Anmuth:]

Thanks for taking the question. First, just wanted to hit on the deferred revenues. Just to understand they were down just a little bit in 2Q and below the $5 million expected increase. So, just trying to understand is that an impact of trajectory during the quarter or just a change in how people are purchasing and using currency here. And then also what does that mean in 3Q given that your revenue is greater than bookings. So, how do we think about that going forward? And then just following up on the engagement question, MAUs are up nicely. Just trying to understand MAUs being down sequentially. Is it just fewer people playing more games basically, more games per person, if you could help with that? Thanks.

[Gerard Griffin:]

Yeah, this is Ger. As it relates to Q2, when we were setting our guidance, the expectation is we would see a – even though they were small, more of a contribution from our new releases Crosswords and Boggle, those delivered less than we expected so that, obviously, played into the build of preferred revenues, you normally expect that from your newer games. There was also – you mentioned it yourself, Doug, there was a little bit of a mix in terms of the actual booking. So that ultimately – you're dealing with a $5 million number, it sort of evaporated it down to the $100,000 we referred to. Looking into Q3, you're seeing a different complexion in terms of the profile of our bookings, where the 2016 launches, which would have been the ones that we're building up on our deferred revenue over time are now starting to deliver back some of that deferred revenue. We're also seeing a reduction in the weighted average durable life, which means that, you're having an acceleration of the releases of deferred revenue, which is also playing into the Q3 dynamic.

[Frank D. Gibeau:]

On the question, as it relates to MAU and MUU, it's a little nuanced, but essentially, the traffic that we generate on our investments in the new Messenger games is showing up in MAU and on MUU. It's not deduped. So there's just a little bit of noise in there. As you see us invest more development in creating games on Messenger and on chat, there'll be a little bit of noise at that level.

[Douglas T. Anmuth:]

Okay. Great. Thank you, guys.

[Operator:]

Thank you. And our next question comes from Justin Post of Merrill Lynch. Your line is now open.

[Justin Post:]

Great. A few questions. First, maybe you can walk us through the CSR improvement a little more in detail. Kind of what events happened, and can you duplicate that in Q3 and Q4? Then a couple of other questions just on the lease. Was the square feet that you're leasing, the 287,000 square feet, were those empty before and so it's all new or is some of that replacement? And then finally, any acquisition benefit in the 3Q guidance? Thank you.

[Frank D. Gibeau:]

I'll take the first one, Justin. The – in terms of CSR, that really generated – the quarter recorded sequential growth was from the investment in new content like Fast & Furious and Lamborghini. And you're going to see us continue to add new cars, new ways to play, new modes. We believe that, CSR2 is in a position where you can continue to grow through that investment. And so you have a steady set of new beats coming for the game in the second half of 2017 and onward into 2018. I mean, it's something that we review frequently. We're talking to the team about all the time and reviewing how features are doing. We are talking to the user base, getting a sense of what they love, what they'd like to see more off. And I'll hand off to Ger for the question about the lease.

[Gerard Griffin:]

Yeah. In terms of the square footage, we've been optimizing our footprint in the building over the last year. So a lot of the space now is vacant, although there is some space that it will evolve over time, but for the most part, it's now free space that, obviously, needs some tenant improvements and then Airbnb would be coming in early Q1 2018. Sorry, what was your final question, and could you just clarify that one?

[Justin Post:]

Yeah. Was there any benefit year-over-year from acquisitions in the third quarter outlook or just revenues in the third quarter outlook?

[Gerard Griffin:]

Well, in terms of – the only acquisition we've made in FY 2017 is Solitaire. So, you would have had benefits from Solitaire in the quarter.

[Justin Post:]

Okay. So, both Q2 and Q3?

[Gerard Griffin:]

Yes. We acquired Solitaire in Q1.

[Justin Post:]

Okay. Thank you.

[Operator:]

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

[Michael J. Olson:]

Hey, good afternoon. You previously mentioned that you're not looking to push into other games genres with any new titles that you developed, is that still how you're thinking about it for some of the titles that might be coming in 2018? And also how are you thinking about moving forward or cancelling certain projects like we saw with Mafia Wars? What ultimately leads to a decision to drop a title like that? Thanks.

[Frank D. Gibeau:]

Thanks, Mike. In terms of the slate in front of us that we were talking about, the categories that I highlighted were Casual, Action Strategy, Invest Express. Those are genres where we have strong positions and strong audience, which should allow us to be able to introduce the products in a way that lowers the risk overall. So in terms of the Villes or in terms of Magic Match, those businesses are at scale and you'll be able to see us do more there. In terms of the Mafia Wars decision, I'd like to maybe spend a little bit of time on that one. It's a brand that has been a part of Zynga for a very long time. It's a very popular brand. We made the decision to cease development on the game after a period of time in soft launch. One of the advantages of publishing games on mobile is that you can actually get the game into the hands of players, and you can see what's working and what's not. You can get a much better sense what the ultimate appeal is the product's going to be. So after a period of soft launch, we came to the conclusion that Mafia Wars was not going to be in a position where it was going to be able to compete with some very intense competition in that 4x MMO category. And the capital investment required from a marketing standpoint, from a long-term development standpoint was going to be such that we looked at the rest of the portfolio and we saw the opportunity for those folks that are on the team as well as those dollars to generate more leverage in other parts of Zynga. So making a decision to cease a game is always a tough one, but the best thing that you can do is you do it as early as you can and you do it in a way that allows you to maximize the benefit of the development that you've done. There are at least three or four different technologies that we built for Mafia Wars that will be harvested and used in other games at Zynga, and we're going to move forward from there. We don't think that we could have changed the equation, if we continued development in soft launch for another six months or nine months and we want to make sure that we get the game into civilians' hands, but we can't have prolonged soft launches like we saw with Dawn of Titans. Some of the key learnings and looking at that wave of products has really led us to get much sharper earlier on in terms of how we test, how we evaluate, and then how we ultimately decide whether to proceed with development or not. Some of the best mobile game companies in the world have gone into soft launching and cancelled games, and in fact, it's a testament to the strength of the company if you're able to make that tough call to move away from development, as opposed to try and hold on to something for too long or push it into a place where it's ultimately not going to realize your goals because we're frankly in the business of building forever franchises. We want these games to last for years like Words With Friends is on year 8, Poker is on year 10, CSR2 is in its sixth year if you include the earlier versions of it. So, that's the kind of business we want to be in long-term. And if we don't think, we can get there, it's better to cease development as soon as you realize that.

[Michael J. Olson:]

Thank you.

[Operator:]

Thank you. And our next question comes from Tim O'Shea of Jefferies. Your line is now open.

[Timothy O'Shea:]

Yes, hi. Thank you, for taking my question. On the last call, you spoke about the goal to achieve 20% EBITDA margin at some point in 2018. So, as we think about the path to achieve these margins, what are the OpEx lines, where you think that we should see the most leverage? And it's our view that you do not need a breakout hit to achieve that 20% margin. I'm just curious if you would agree with that statement. And then just looking at the ad business, it looks like it rebounded a bit this quarter, just hoping for an update. And on the partnership with Unity, what kind of tools does Unity provide? And how could they impact that ad business going forward? Thank you.

[Frank D. Gibeau:]

Yeah. In terms of breaking into the EBITDA of 20%, that's excluding the impact of deferred revenue. We're going to continue to execute against all of the levers. We still think there is opportunity to sharpen the operating model across R&D, marketing and sales and G&A. Obviously, the marketing and sales line is the one that will flex most with bookings. But we continue to look to see can we get efficiency on a percentage basis, understanding it will go up in absolute terms with bookings. When we look at our live services, we're very happy with the progress to-date, but some of you that I've talked to, I'm very much keen on the focus on engagement, the monetization. So getting that deeper engagement with our bold beats, looking to drive that payer conversion and the average revenue per user, paying user. And so as we look at that, that's the next level we'll continue to focus on, the stronger bold beats, both marketing and content and to drive those live services that we have in the marketplace today to a stronger level. In terms of new, obviously, we're going to look to bring some new games out in 2018. So we hope that will contribute. Your point about breakout hits, we're not relying on a breakout hit, but if one turns up, I'll say thank you very much.

[Gerard Griffin:]

Ads. Yes. Ads, as I look at advertising, last quarter I said, we expect it still to be up marginally year-on-year, based on the inclusion of Solitaire. We have seen a continued weakness in the web side of our business and a little bit of competition on mobile, but mobile is still strong for us, it's still growing year-on-year. Where we see opportunity in the future is looking into areas like video, where you see a higher value add in terms of the actual revenue we can generate from those areas. And we're also obviously looking to enhance the ad capability in our current games, where it makes sense. In terms of Unity, Frank, do you want to take the Unity?

[Frank D. Gibeau:]

Sure. Yeah, in fact, the Unity deal is focusing on driving efficiency and effectiveness in high value vehicles and products like watch-to-earn videos, giving us the tools to work together on how to drive those more efficiently and more effectively. So yeah, we're committed to the ad business and we like what's going on in our mobile side of it right now. We're offsetting some headwinds in web. And partnerships like Unity gives us an opportunity to really drive more of the mobile side of our advertising business.

[Timothy O'Shea:]

Thank you.

[Operator:]

Thank you. And our next question comes from San Phan of Mizuho. Your line is now open.

[San Q. Phan:]

Hi, thanks. Looking ahead to 2018, is there a targeted range of new titles you think is optimal for the company to go after on an annual basis?

[Frank D. Gibeau:]

We don't really think about it that way. What I'm really looking at from the perspective of how we go to market with a new game is understanding the impact that it's going to have on the player base, how can we get to quality, what's the long-term retention look like. So we came off a year in 2016 where we had a slate of 10 games that we committed to and we delivered. I want to take a little bit more of an approach of looking at each individual game, making sure that they have the potential to be a forever franchise and approaching it that way as opposed to trying to bottoms-up, a model that says we need eight games to accomplish X. Frankly, if one game breaks out, it can do the work of eight. And so from our perspective that's more the approach that we're taking.

[San Q. Phan:]

Okay. Great. And then can you tell us a bit more about how you view the roadmap for in chat gaming, how – what that looks like over the next few years and how much support the platform owners are giving you, if any?

[Frank D. Gibeau:]

Yeah, I think – look, I think the most social part of the phone is on chat and the folks that make those applications are adding more and more capabilities to those applications that are allowing us to entertain folks. We're in the very early days of that process. And so, the roadmap from Facebook, from Apple, from Google, they've, in their earnings calls, started to talk a little bit about that and I'll leave that to them to communicate. But as a company, Zynga is very much focused on how those develop. We believe that that can be a very exciting part of the mobile gaming ecosystem. Mobile is the largest gaming platform in the world. It's still got a lot of innovation available to it, not only just on chat, but in terms of AR, VR, business model innovation, geographic expansion. So we're very bullish on how that platform is going to continue to evolve. Chat being an area, in particular, that we like because it ties so much to our vision as a social gaming company, where being able to play with your friends and family in a way that is highly retentive and keeps you engaged, that's where we want to be. And we have some brands, we believe, that will work there very effectively.

[San Q. Phan:]

With Words With Friends specifically, do you see any differences in playing style from folks playing within chat versus in app?

[Frank D. Gibeau:]

I do. I think, there are some differences in how people interact in chat versus the time that they spend inside the application. And we're experimenting with session lengths, play modes, quicker ways to play, ways to play with more people but all of those are experiments right now. And as we learn more about the player behavior on chat, we'll optimize and make the right quality decisions for the games, but we have multiple brands, we think that can work there.

[San Q. Phan:]

Great. Thank you.

[Operator:]

Thank you. And our next question comes from Ben Schachter of Macquarie. Your line is now open. Benjamin Schachter - Macquarie Capital (USA), Inc. Hey, you mentioned it on the last answer, you mentioned AR. I'm just wondering, with the upcoming launch of the iPhone and Apple's bullish commentary on AR, any thoughts on how Zynga is thinking about the opportunities there? Are there any monetization changes that you could see happening there? And then separately, if other large competitors bring new types of mobile advertising units that are built specifically for mobile games, how do you think that might impact your business over time? Thanks.

[Frank D. Gibeau:]

Yeah. On the AR front, it's still very early days for that technology and there is some announcements potentially coming from hardware manufactures, that could be pretty exciting. We are absolutely watching those developments and thinking of ways to make sure that they can integrate in our games. The trick is to make sure that they're not gimmicks, that they actually have creative integrity and they lead to engagement. And so, I think we need to really understand how that's going to work before you can understand how the monetization might happen. Obviously AR and in advertising and in other types of applications creates monetization opportunities that would be new and interesting to gaming. And so we're excited about that. In terms of new ad units coming into mobile advertising, we're constantly looking for ways to innovate. And if a new ad unit does come into the ecosystem, it's something we would absolutely grab on to. Watch-to-earn was something that we were early adopters of and innovated on. And as that ecosystem evolves and new types of advertising appear, if it works it can help us grow, we'll be all over it.

[Operator:]

Thank you. And our next question comes from Mike Hickey of Benchmark Company. Your line is now open.

[Mike Hickey:]

Hey, Frank and Ger. Congrats on another great quarter. I guess, couple of questions, pretty deep in the Q here, but I know you touched on ad sales, obviously, you're cautious. But it looks like the quarter itself was up compared to the prior year. But you look at Words With Friends, and you're looking at which I believe is primarily an ad business, that game is down 16% year-over-year in bookings. So, just curious the disconnect between that game's performance and ad sales in the quarter, if that is the case, if I did my math right. And then it seems that (35

[Frank D. Gibeau:]

Yeah, I'll take – I'll start with the announcement with MGM and Burnett on Word With Friends as a game show. Again, we're looking to create opportunities for our fans to interact with our games in more media and in different formats. It's very early to be able to announce any dates for when the show potentially would go on air. We're in early stages of development, it was just announced. So, from that respect, we're excited about the potential, but as we learn more and as things solidify, we'll definitely announce how things are going. In terms of your second question, as it relates to Words With Friends, on advertising, let me talk a little bit about that brand right now. It's a – it's one of our forever franchises, it's entering its eight year. Player engagement has never been higher. We're seeing folks that continue to love the experience, are playing a lot of turns per week. And we're starting to add new features to the game, to increase engagement and to drive the quality of the game. It's an advertising-driven model and so, it is a bit at the – it does get impacted based on how the overall market is moving. So, if advertising is soft, it doesn't necessarily point to whether the game is softening in terms of its engagement, in fact engagement is strong and capable, it's more a function of the overall ad market with regards to its overall health.

[Gerard Griffin:]

Yeah. Mike, just overall our ad bookings for the quarter were – we were up like 6% quarter-on-quarter, but we were down 2% year-on-year. I think in terms of, as you look at it, the macro issue is we continue to see reduction in web. To your point Words With Friends was off a little bit in terms of advertising, and then the offset to that was obviously we had Solitaire coming to mitigate some of that decline.

[Mike Hickey:]

Great. Thank you, guys.

[Operator:]

Thank you. And our next question comes from Stephen Ju of Credit Suisse. Your line is now open. Stephen Ju - Credit Suisse Securities (USA) LLC Okay. Thank you. So, Frank, the majority of your revenue continue to be based in the U.S., which suggest that there remains what should be a pretty significant opportunity overseas, especially as you're not really encumbered by distribution headwind. So, how do you unlock that opportunity over the longer-term. And are some of the newer games like CSR more evenly distributed between the U.S. and international? Thanks.

[Frank D. Gibeau:]

Yeah, a great question. Overall, we're running about two-thirds North America, one-third international, and I'd like to see that in a much more balanced framework. One of the – a couple of challenges to think about in terms of our portfolio, as it exists today, is that slots-based entertainment tends to do better in English-speaking territories and Words With Friends being an English-based game, tends to skew us a little bit North America. But, if you look at games like CSR, Poker, very strong and very balanced from an international to U.S. audience and monetization level. The news games that we're contemplating in 2018 and beyond, we're definitely looking for them to be global products. We need to take advantage of the fact that the mobile gaming platform reaches almost every corner of the world, and we believe that our entertainment can be very appealing to all of those markets, whether it's in Invest Express or Action Strategy or in some of the card-based experiences. It's definitely a key growth goal for us is to expand internationally. Stephen Ju - Credit Suisse Securities (USA) LLC Thank you.

[Operator:]

Thank you. And our next question comes from Rich Greenfield of BTIG. Your line is now open.

[Brandon Ross:]

Hi. It's Brandon Ross. Thanks for taking the question. With the launch of iOS 11, Apple is revamping the App Store and separating out games from editorial, how do you see this affecting your player acquisition? And how do you plan to take advantage of the change? Thanks.

[Frank D. Gibeau:]

Great question, Brandon. Our team has been working very closely with Apple to understand all the changes and we've started to make adjustments in terms of how we would really get our products in our portfolio into position to be in the best possible merchandising role for when that occurs. I would not like to go into detail on it, because a lot of that is competitive and it's new, but I just know that our publishing team is very much in-depth with what's going to happen there. And there is, frankly, a lot of exciting new changes that I think players are going to find very innovative and it's going to help a lot of franchises. It, frankly, didn't get as much coverage in the old format, but it's going to take a little getting used by everybody, but I really like what they're doing.

[Brandon Ross:]

Great. Thank you.

[Operator:]

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Rebecca Lau for any closing remarks.

[Rebecca Lau:]

All right. We just wanted to thank everyone for joining the call today and we look forward to connecting with you folks over the coming months.

[Operator:]

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