Glu Mobile, Inc. Q3 2009 Earnings Call Transcript

Nov. 3.09 | About: Glu Mobile (GLUU)

Glu Mobile, Inc. (NASDAQ:GLUU)

Q3 2009 Earnings Call Transcript

November 03, 2009 at 4:30 pm ET


L. Gregory Ballard - Chief Executive Officer

Eric R. Ludwig, - Chief Financial Officer

Seth Potter - ICR - Investor Relations


Justin Patterson for Travis Mccourt - Keegan & Company, Inc.


Good afternoon. My name is Jenata and I will be your conference operator today. At this time, I would like to welcome everyone to the Glu Mobile Incorporated third quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you Mr. Potter, you may begin your conference.

Seth Potter

Good afternoon everyone and thank you for joining us on the Glu Mobile's third quarter 2009 financial results conference call. This is Seth Potter from ICR. On the call today, we have CEO, Greg Ballard, and the CFO, Eric Ludwig.

During the course of this call, we will make some forward-looking statements regarding the future events and 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 the actual results to differ materially from those in the forward-looking statements in the press release and in this conference call. These risk factors are described in our press release and are more fully detailed under the caption "Risk Factors'' in the Form 10-K filed with the Securities and Exchange Commission on 10 August 2009.

During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude acquired in-process, research and development, amortization of intangibles, stock-based compensation charges, gain or impairment of option rate securities, restructuring charges, goodwill impairment, non-equity component of the MIG earn out, transitional expenses and foreign currency gains and losses primarily related to the revaluation of assets and liabilities. These non-GAAP measures are not intended to be considered in isolation from, or a substitute for, or superior to our GAAP results and we encourage investors to consider all measures before taking 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 third quarter results. The press release has also been furnished to the SEC as part of our Form 8-K.

In addition, please note that the date of this conference call is 3 November 2009 and any forward-looking statements that we 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, Inc. and any recording, reproduction or rebroadcast of this conference call without the expressed written permission of Glu is strictly prohibited.

With that, I will turn the call to Greg Ballard.

L. Gregory Ballard

Thanks Seth and thanks to everyone joining us this afternoon for Glu Mobile’s Q3 2009 earnings call. We had another good quarter, with results better than the guidance we provided in the last quarter’s call. Sales were $19.6 million approximately $600,000 above the high-end of the guidance range, primarily due to stabilization in the traditional carrier business and improved traction on the iPhone for the end of the quarter.

We had positive operating income for the quarter of over $300,000, the third consecutive quarter that we produced non-GAAP profits from operations. Perhaps best of all, the Company generated our highest cash flow ever, $2.7 million of cash from operations in the quarter generating cash for the second quarter in a row and showing the rewards from both our cost controls and our focus on stabilizing our revenue. Overall we were quite pleased with the quarter.

In addition to solid financial results this quarter, Glu also improved its overall position in the marketplace. Our carrier-based business filled the vast majority of our revenues, showed continuing signs of stabilizing during the quarter. In addition we continue to release highly-rated games for the next generation platforms, particularly the iPhones. And the results are now reflected in the solid top 10 ranking and the market share on the iPhone for Q4 today. Finally we have launched our own effort in social games, distribute to various online social networks. Beginning with the Facebook and are excited about this area as a platform for future growth. We will discuss each of these topics in the next few minutes.

Our carrier business held up well in the third quarter, which was characterized by our relatively modest title release schedule. During the quarter our biggest title releases were Ice Age 3, our own Super KO Boxing 2, and a LooneyTunes game based on a Warner brand. Our lighter-than-usual schedule was primarily due to studio resources focusing on some of the bigger launches that are coming in this current quarter which I will review in the moment. Despite this, the carrier business performed well.

In North America we maintained our current business at relatively flat growth, despite the continued shift to consumers to the iPhone. The general weakness in the market was offset by steady gains in market share which in turn reflects to some degree the departure or weakness of several of our smaller competitors. In particular we increased the number of bestsellers on Verizon’s deck to between 7 and 8, up from 5 to 6 in Q2 demonstrating that our titles continue to have significant and lasting hit quality.

We are also particularly excited about the upcoming launch of the Verizon App store which we think will provide a great user experience for smart phone devices and I should add that a 70-30 split much better margins for publishers. We anticipate having a substantial number of our active catalog titles available at the launch of the store with perhaps as many as 30 titles available on the most popular handsets.

We also had a good quarter on other US carriers, including AT&T, Sprint and T-Mobile where our market share has held steady in the challenging economic and industry environment. Similarly we are seeing strong double-digit growth in Canada where we are now the number one game provider on nearly all of the carriers in that country.

We also had a strong quarter in APAC, where our Australian and New Zealand businesses experienced surprising double digit growth for the first time in many quarters on the back of both local management changes and strong title lineup for the region. China also did 24% quarter-over-quarter, in a market environment of increasing competition but also increasing opportunities on multiple fronts. Our business there continues to be a promising story of growth and high returns.

Latin America had a more measured quarter with some regions growing but others either declining or flat. We expect the region to begin to grow again this quarter however, and are particularly excited about the increasing success of several subscription offerings that we are making directly to consumers.

We have had less success in EMEA where market conditions continue to be challenging in many of the territories. This past quarter we reduced expenses in the region to compensate for this market erosion but we believe that Europe will be uneven for the next several quarters. And in some senses this erosion is continuation of the territory’s challenges that we have seen over several years. On the other hand, we know that several carriers have plans for extensive and innovative new programs in the games business. And we have some optimism that the market in Europe can therefore stabilize and eventually grow again.

We are well-positioned for the seasonally strong fourth quarter, with a title plan that we think is exceptional. On the carrier decks we will be releasing the biggest brands, more activation relationship including Tony [Huckberg], Call of Duty 4: Modern Warfare, Force Recon and Guitar Hero 5. We are also releasing some of our traditional big selling titles including Diner Dash: Flo on the Go, World Series of Poker: Hold’em Legend, and our own brand, Stranded: Mysteries of Time.

And at EMEA and APAC we will also be releasing Who Wants to be a Millionaire 2010. These titles were launched against the backdrop of an improving handset market that is beginning to show signs of life. We remain cautious about the market but we do believe that this quarter should be a solid quarter for the carrier business.

Of course, much of our internal focus on resources is allocated to the next generation platforms. In that segment we are now seeing some modest but encouraging signs that there is some improvement not only in our business on the iPhone but in the iPhone business as a whole. We have a reasonably good quarter on this platform in Q3 but we are still generating a relatively small percentage of our overall sale.

But in the first month of this quarter, we have seen several of our titles sell well at higher price points than before. We launched Family Guy, already a big success in the carriers on the iPhone at $4.99 and Super KO Boxing 2 the sequel to our own successful over-the-top boxing game also at $4.99. We are pleased to see both games make it to the top 20 and Family Guy peaked as a number 9 game in mid-October. Along with Deer Hunter 3D priced at $2.99 we have for a time in October the third highest number of titles in the top 50 and we are at that time, by our estimate, the third-ranking company in the iPhone and revenue market share.

Since then, these titles have all lost some of their ranking status and we have lowered our prices to re-energize their sales as well as launched free demo version. But these are the highest prices we have been able to sustain since the launch of the iPhone and suggest to us that the business could become more sustainable over time. We have several big title launches just ahead of us, including our long-awaited iPhone version of World Series of Poker which launched yesterday and the sequel to our first iPhone hit, Glider 2. We are also very excited about three original titles, Taxi Fight, which went live last week, Alligator, and the title that starting to get strong critical acclaim, Beat It. This lineup of titles makes us confident that we will at least double our iPhone revenues in the quarter and for the first time achieves greater than 5% of our revenue from this segment.

But this remain a central issue of the iPhone app store, can publishers maintain reasonable price levels and chart position for long enough to generate significant and scalable revenue? The good news is that we learned how to improve the marketing efforts of the Appstore which has led to a lengthening revenue tail on a number of games. In any event, we will continue to look for ways to exploit the device which is an obvious platform for growth and creativity.

We have also been active in sport and in the Android Platform .Android has been building momentum with three of the top four carriers in the US now supporting the operating system and with Verizon wireless the most recent one to announce their intention to introduce two Android handsets for the next month. We currently have announced two games for Android and expect to add to this in the coming months.

Even as we continue to focus on the carrier business and to improve our efforts in record on the iPhone business, we have also launched an initiative in a social games business. We have already released two early versions of two games in Facebook, Banzai Blast and My Hangman. Though neither title has generated significant traffic, it has served as a valuable test pad for experimentation and education.

This quarter we will launch two more titles and incorporate what we have learned so far. One of those titles Adam Blast was released in the public beta version just this last week. The other one will launch later in the quarter. Our expectation is that these two titles are modest, but we do believe we can incorporate the best of our game-making skills but the tech games are proving to be successful in this rapidly growing business segment.

The success of Playfish and Zynga has caught the attention of many in the industry; I think most observers would say that it is early enough that additional winners can still emerge in the space. The Glu is devoting significant resources into becoming one of those winners.

Indeed, this is the overall path to Glu and is assuming going into 2010. We continue to believe that the carrier business thus showing clear signs of maturity will provide Glu with the source of cash to fund initiatives and other related growth areas. We are currently pursuing are the iPhone and other merging next gens Smart Phone handsets and now social gaming.

We believe that we bring in the skill and resources to these market segments. We are committed not just providing a cash positive business in 2009 and in 2010, but discovering areas of potential growth for the business and the next several years as well.

Finally, I know many of you are wondering what is happening with our CEO Search. Obviously there is not much that I can share with you on the Search rather than that we are pleased with the progress and continue to expect a positive outcome.

We remain excited about the balance of 2009 and believe we are well positioned for 2010 and with that, let me turn the call over Eric.

Eric R. Ludwig

To reiterate your sentiment, we are pleased with the Company’s third quarter results which were highlighted by our second consecutive quarter generating positive cash flows from operations while also exceeding the height of our guidance.

Let me first review our third quarter results and I will go through our outlook. Starting with our third quarter income statement, total revenue for the quarter was $19.6 million which is above our guidance range of $18.7 million to $19 million and down compared to $19.9 million during the second quarter of 2009, and $22.9 million in the year ago quarter. The better than expected revenues as compared to the guidance was attributable to strengthening in the carrier business particularly in the Americas with the combinations of strong debt placement, top sellers, and the reduction in competition drove results above our guidance.

Revenues generated from Next Generation platforms continue to remain less than 5% of revenues and we expect to gain traction on the segment as we will go for higher price point iPhone games and launch two additional social games on Facebook before the end of the year.

Reviewing some of the revenue metrics our top ten titles represent 39% of revenue up from 37% in the prior quarter and 28% during the same quarter last year. The average revenue for top ten title is $766,000 in the third quarter of 2009 which is up from $734,000 in the second quarter of 2009 and up from $670,000 during the same period of last year. Our largest title is 6% of revenue up from 5% in both the second quarter of 2009 and the same period of last year. Revenue from new titles represents 54% of revenue in the third quarter of 2009 which is flat with the second quarter of 2009 and up from 48% last year.

The mix of revenue between licensed titles and the original IP was up sequentially with the original IP accounting for 22% of revenue in the third quarter of 2009 compared to 21% in the second quarter of 2009 and 28% last year. This continues to be in-line with our expectation of original IP as the percentage of revenue for the remainder of the year in the range of 20% to 25%. Our top four carriers represent approximately 42% of revenue in the third quarter of 2009 compared to 43% in the second quarter of 2009 and 44% in the third quarter of 2008.

We had two carriers in the third quarter of 2009 that represented 10% or more of revenue, Verizon at 20% and China Mobile at 10%. By geography our revenue mix for the third quarter of 2009 was 47% in North America, 26% in the EMEA and 27% in the rest of the world. Royalties in the current quarter was $5.8 million which represented 30% of revenue. A decrease compared to 31% for the second quarter of 2009 and 32% for the same period last year. Royalties during its third quarter included in the impairment of $513,000 related to the several EMEA distribution titles excluding the impairment, royalties would have been 27% of revenue during the quarter.

Turning to profitability, we will providing non-GAAP measures for each third quarter of 2009 expense category which exclude the amortization of tangibles, stock based compensation, the non-equity component [Inaudible], acquired IP R&D, gain and impairment of auction securities, impairment of goodwill, restructuring and traditional expenses, and foreign exchange revaluation of certain assets and liabilities. We believe that non-GAAP results most accurately reflect how the core business is performing; additionally its shows whether we are driving leverage for the long term target operating model and are a best measure for consistently evaluating how we remain in the business. All comparisons will be using the non-GAAP current period results.

Non-GAAP gross margin was 17.4% in the third quarter of 2009 which is up from 69% last quarter. The sequential increase in gross margin was due to a decline of impairments and an increase of revenue for original IP. Excluding the impairment non-GAAP gross margin would have been 72% during the quarter.

Total non-GAAP operating expense in the third quarter of 2009 was $13.5 million up from $13.1 million during the second quarter of 2009 and down 21% from $17.2 million during the same period of last year. On a quarter-over-quarter basis the entire $400,000 increase in operating expenses is related to increases in foreign exchange rates. The decrease in non-GAAP operating expenses on a year-over-year basis was primarily due to our continuing efforts to find additional operational efficiencies in our business.

During the third quarter our expense levels determined on a non-GAAP basis for [Inaudible]. R&D was $6.5 million or 32% of revenue up from 32% last quarter. Sales and marketing expense was $3.4 million or 17% of revenue up from 16% last quarter. G&A was $3.6 million or 19% of revenue for the quarter up from 18% last quarter.

Our non-GAAP income from operation for the third quarter is $300,000 exceeding our guidance of a loss of $100,000 to a loss of $300,000 and represented a non-GAAP operating margin of 1.5%. It should be noted that the $300,000 of operating margin was negatively impacted by the $513,000 royalty impairment.

In the third quarter of 2009, we invested over a $1 million of R&D expense on the Next Generation platforms including the iPhone and social gaming which had a less than 5% contribution of revenue in the quarter. This means that our carrier-based business had non-GAAP operating margins in the excess of the 1.5% overall operating margin which allows for internal funding investments over the Next Generation platforms while still generating operating profit and positive cash flows from operations this quarter.

Income tax expense during the quarter was comprised of $490,000 of total taxes and a net income tax expenses of $419,000 for a total expense $917,000. It should be noted that our third quarter tax expense was negatively impacted by $441,000 due to inter-quarter timing of our tax position. This is a timing issue only and we expect to see the entire $441,000 of tax expense from the third quarter reversed in the fourth quarter as an income tax benefit.

During the third quarter our non-GAAP net loss was $889,000 and that was impacted by the $513,000 royalty impairment and the $441,000 income tax expense which will reverse in the fourth quarter. Based on $29.9 million base of shares outstanding, non-GAAP loss per share was $0.03 per basic share equal to our guidance.

In our earning release today, there is a full reconciliation between our non-GAAP results and our GAAP results which include the amortization of intangibles, stock base compensation, the non-equip component [Inaudible], acquired IP R&D, gain and impairment of auction securities, impairment of goodwill, restructuring and transitional expenses and foreign exchange gains and losses primarily related to the evaluation of assets and liabilities.

Turning to our results on a GAAP basis which include $1.5 million related to the amortization of intangibles, $674,000 were the allocation of stock-based compensation, a $919,000 restructuring charge and a $28,000 FX gain.

The following were expense levels determined in accordance with GAAP, cost of revenue $7.2 million, R&D $6.7 million, sales and marketing $3.6 million and G&A $4 million. The restructuring charges we recorded this quarter of $919,000 relates to severance and separation costs from headcount reductions and our CEO transition.

For the third quarter, GAAP loss from operations was $2.8 million and net loss applicable to common share was $4 million. Based on 29.9 million basic shares outstanding, net loss applicable to common share was just $0.13 per basic share. As I mentioned earlier, reconciliation of non GAAP to GAAP expenses and from operations, a net loss can be found on our press release and current report on form 8-K filed with the SEC today.

Let me now turn to the balance sheet, cash and cash equivalents were $9.9 million as of September 30, 2009 compared to $12.8 million at the end of Q2. During the third quarter, the Company generated approximately $2.7 million from operations which includes $1.1 million worth of prepayments that we made in the third quarter. Additional uses of $194,000 go to the CapEx and experienced a $27,000 gain due to foreign exchange translations on foreign cash accounts.

During the third quarter, we repaid $462,000 on our line of credit. We repaid $5.2 million on the big shareholders and we had a net increase in cash of $198,000 from other financing activities including interest paid in the line of credit, offset by stock option exercises and ESPP contributions for a total net decrease in cash of $2.95 million. Accounts receivable at the end of the third quarter was $16.1 million down from $16.9 million at the end of the second quarter.

Let me now discuss additional details related to our capital structure, including a review of our obligations to the former MIG shareholders. We have successfully repaid our entire fiscal 2009 obligation of $14 million due to the MIG shareholders. The remaining $11 million of principal and $975,000 of accrued interest is due $2.438 million of principal and $665,000 of interests due on March 31, 2010, $2.430 million of principal and $150,000 of interests due on June 30, 2010 followed by payments of $3.62 million of principal and $106,000 interests due on September 30, 2010 and a final payment of $3.62 million of principal and $54,000 of interests due on December 31, 2010.

In addition, at the end of third quarter of 2009, we had $4.1 million outstanding on our line credit with Silicon Valley Bank and we were in compliance with all the financial covenants related to this facility. During the third quarter, we successfully amended the bank’s financial covenants, to factor in the restructuring charges we incurred in the third quarter and currently expect to incur in the fourth quarter and we continue to maintain a cushion with regards to our covenants since we exceeded our third quarter non GAAP operating income guidance.

Remember that the covenants remain in rolling six months covenant so the out performance in the third quarter is carried forward to the fourth quarter. During the third quarter of 2009 we achieved EBITDA as defined by our lender of $489,000 and when combined with our second quarter 2009 EBITDA of $1.004 million we reported $1.5 million of positive EBITDA from the sixth month starting April 1, 2009 and ending September 30, 2009.

This is continually above our revised covenant of EBITDA of $1 for the same six month period ending September 30, 2009. To help you reconcile our third quarter non-GAAP operating margin of $300,000 to the third quarter EBITDA as defined by our lender of $489,000 you need to add back $588,000 of depreciation expense, $513,000 of royalty impairment and $7,000 of interest income and subtract $919,000 of restructuring expense.

In regards to our EBITDA covenant for the sixth month, starting July 1, 2009 and ending December 31, 2009 the positive $489,000 reported during the third quarter will be applied in the sixth month revised covenant of $1 million. We currently expect to end 2009 with cash and equivalents of approximately $10 million which includes the company drawing down a total, $4.4 million on our line of credit facility, which includes a fourth quarter draw down of an additional $371,000.

This compares to our prior expectation of the last quarter of drawing down a total of $5 million as we are working to reduce our reliance on this line of credit facility. We also anticipate generating over $1 million of cash from operations for the full calendar year 2009 including the loss in Q1 2009. We are proud of our ability to meet our balance sheet and cash flow objectives during 2009 and we continue to focus on maintaining tight cost controls as we pursue our growth initiatives in the iPhone and social gains in Facebook and other platforms.

Turning out to guidance, for the fourth quarter of 2009 we currently expect the revenue to be in the range of $19.5 million to $20 million. This is up sequentially by approximately 1% and reflects continuous stabilization in the carrier business and traction on the iPhone. It should be noted that starting on the third quarter of 2009; we began deferring a portion of the revenues from the iPhone and will recognize such revenues over a number of months.

This is due to the fact that we have begun providing updates for our iPhone games after the initial launch and under U.S. accounting rules; we need to defer such revenue over the expected life of such updates.

Non GAAP operating income is forecasted to be in the range of $600,000 to $1 million. Our income tax expense for the fourth quarter is expected to be $92,000 and reflects withholding taxes of $532,000 and the income tax benefit of $441,000 I previously mentioned. Non GAAP net income for the fourth quarter is expected to be between $300,000 and $600,000 or income of $0.01 to $0.02 per diluted share.

The non-GAAP loss excludes $1.5 million for amortization of intangibles, approximately $650,000 of anticipated stock-based compensation and a restructuring charge of $300,000 related to our transition agreement with Greg Ballard and a building lease impairment charge related to our EMEA headquarters’ lease. Weighted average common shares outstanding for the fourth quarter of 2009 are expected to be approximately $30.4 million basic and $31.2 million diluted. GAAP net loss for the fourth quarter is expected to be between a loss of $1.8 million and a loss of $2.2 million or a loss of between $0.06 and $0.07 per basic share.

For the full year, we are reporting the revenue in non GAAP operating income forecast ranges to $79.8 million to $80.3 million in revenue and $2.8 million to $3.2 million in non GAAP operating income compared to our previous guidance ranges of $79.1 million in revenue to $80 million and $2 million to $4 million in non GAAP operating income. Our income tax for the full year is expected to be $2.6 million and includes $1.9 million related to form of withholding taxes, $200,000 of withholding tax resulting from our repatriation of cash from China in the second quarter and an income tax expense for the full year of $500,000.

We expect a non GAAP net loss for the full year between a loss of $600,000 and a loss of $900,000, where a loss of between $0.02 per basic share and a loss of $0.03 per basic share, which excludes $7.3 million for amortization of intangibles, approximate $3.7 million of stock-based compensation in the MIG earn out expense, a restructuring charge of $1.7 million and a gain of $300,000 related to unhedged foreign exchange on assets and liabilities.

On a GAAP basis, we expect a net loss for the full year between $13.1 million and $13.4 million or a loss of $0.44 to $0.45 per basic share. Weighted average shares, outstanding for the calendar year 2009 are expected to be approximately $29.9 million basic and $30.1 million diluted. We continue to be pleased with our abilities to exceed our guidance and place meaningful cash flows from operations. We are excited about our strong tighter lineup in the fourth quarter and the potential for new initiatives of social games and believe we remained well-positioned to take advantage of the mobile gaming opportunity.

With that, I will turn over to the operator for questions, operator.

Question-and-Answer Session


(Operator instructions) Your first audio question comes from the line of Travis Mccourt.

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

This is Justin Patterson in behalf of Travis. First, I was wondering if you could comment on Nokia’s recent decision to close the N-Gage service. What type of impact this may have on your revenues going forward?

L. Gregory Ballard

We were not entirely surprised to see that announcement. The Nokia folks had been pretty clear over the course of the last several months, if not quarters, the direction that they are going to go was away from N-Gage. We are disappointed in a sense that we always thought the service was a promising next generation service. It was frankly a part of our original forecast for 2009. But long ago I would say, several quarters ago, we realized that the promise of the N-Gage was not going to materialize. So, we had already moved resources away from it, had not published a game on it in quite some time. Our past our mourning stage, if you will on that service, I think there are a lot of other opportunities out there right now that are taking those same resources. I think giving us a higher return so we nod the Nokia for a well tried effort but it did not work out. It has not really had a material effect on us at all.

Justin Patterson for Travis Mccourt – Keegan & Company, Inc.

Okay. With respect to the Next Gen platforms then, I think you had commented earlier that you are expecting things to double to about 5% of revenues next quarter. Just off of that and looking at your guidance, can we presume that the current level there is about 500,000 in terms of the contribution from Next Gen platforms?

L. Gregory Ballard

It is pretty close. That is correct, that is across all platforms including the iPhone and N-Gage and Android.

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

Okay. And that will include social networks as well, correct?

L. Gregory Ballard

That will include social networks as well correct.

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

Okay. With respect to that aspect there is a lot of a different revenue models thus far for [Inaudible] networks. So we are looking primarily at just kind about pay download type of thing or will this be something where, say, the service is free and users can pay for additional content?

L. Gregory Ballard

Justin are you talking about social networks? Or are you talking about other not Next Gen platform?

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

Social networks, specifically.

L. Gregory Ballard

Well, I think in the social networks area we are principally focused right now on Facebook and eventually other platforms like it, and the models that seemed to be most prevalent and workable there really combine an advertising model including what is now turned out to be a fairly controversial approach which is the offers for surveys, et cetera, and also obviously micro-transactions for virtual good, and the games that we are planning on rolling out in social networking will be based around those same business files. They will be free and they will anticipate revenue coming from sources outside of the game download.

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

Ok, and with the respect to social networks, are there a lot of parallels, I guess in terms of investments for the next gen platforms, like iPhone, et cetera. What you are doing on Facebook, so you are getting some R&D synergies I guess, or should we think about this as a different investment stream entirely?

L. Gregory Ballard

I think it is actually a very good question, so in terms of the games that we are developing for social networking today, they tend to be fairly separate from what we have developed for our regular mobile platforms. If you remember, one of the things that we have consistently talked about is the advantage that Glu has, is the ability to support multiple platforms with the single game. So to some extent social network games, social games in general are a departure from that model for us.

However we do believe that there is going to be a synergy between the games that we launched on social platforms and our ability to connect those games back and forth to various mobile platforms and ultimately not just the iPhones, but to other platforms as well. So while today we see our social games as being somewhat separate from our mobile platforms in terms of the titles, et cetera, we do see over time that Glu will be able to assert one of its many advantages by being able to connect to mobile and social networks on the online world together, and that is a part of our evolving strategy in this area.

Justin Patterson for Travis Mccourt - Keegan & Company, Inc.

Great thank you.


(Operator Instructions)

At this time we have no further audio question.

L. Gregory Ballard

With that I take it we have answered all your questions in the script and we look forward to dialog with you all over the course of the quarter. Thank you for joining us and we look forward to future discussion.


We thank you for joining today’s conference call you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!