Glu's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Glu Mobile (GLUU)

Glu Mobile, Inc. (NASDAQ:GLUU)

Q3 2013 Results Earnings Call

October 30, 2013 4:30 PM ET


Greg Cannon - VP, Finance

Niccolo de Masi - Chief Executive Officer

Matt Ricchetti - President, Studios

Chris Akhavan - President, Publishing

Eric Ludwig - Chief Financial Officer


Sean McGowan - Needham & Company

Michael Graham - Canaccord

Doug Creutz - Cowen and Company

Mike Hickey - Benchmark

Darren Aftahi - Northland Securities

Adam Krejcik - Eilers Research


Good day, ladies and gentlemen. And welcome to the Glu Third Quarter 2013 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, today’s conference is being recorded. I would now like to turn the call over to Greg Cannon. Please go ahead, sir.

Greg Cannon

Good afternoon, everyone. And thank you for joining us on the Glu Mobile third quarter 2013 financial results conference call. This is Greg Cannon, VP, Finance for Glu Mobile. On the call today, we have CEO, Niccolo de Masi; President of Studios, Matt Ricchetti; President of Publishing, Chris Akhavan; and CFO, Eric Ludwig.

During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Generally, these statements are identified by the use of the words such as expect, believe, anticipate, intend and other words that denote future events.

These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statement.

We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and in this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors in the Form 10-Q filed with the SEC on August 9, 2013.

During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude the change in deferred revenues and deferred cost of revenues, amortization of intangibles, non-cash warrant expense, stock-based compensation charges, restructuring charges, changes in the fair value of the Blammo earnout, transitional cost, impairment of goodwill, release of tax liabilities and foreign currency gains and losses primarily related to revaluation of assets and liabilities.

Additionally, we will be discussing adjusted EBITDA, which is defined as non-GAAP operating income or loss, excluding depreciation. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results and we encourage investors to consider all measures before 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 third quarter results. The press release is also has been furnished to the SEC as part of our Form 8-K.

Given the rest -- recent SEC guidance regarding the use of social media channels to announce material information to investors, we are notifying investors, the media, our players and others interested in the company that in the future, we might choose to communicate material information via social media channels or it is possible that information we disclose through social media channels maybe deemed to be material.

Therefore, we encourage investors, the media players and others interested in Glu to review the information posted on the company forum, the company Facebook site and the company Twitter account. Any updates the list of social media channels we will use to announce material information will be posted on the Investor Relations pages of our website at

In addition, please note that the date of this conference call is October 30, 2013 and any forward-looking statements that we may make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events.

Lastly, this conference call is the property of Glu Mobile and any recording, reproduction or rebroadcast of this conference call without the express written permission of Glu is strictly prohibited.

With that, I’ll turn the call over to Niccolo. Niccolo?

Niccolo de Masi

Good afternoon and welcome to everyone joining us today. Before I begin, allow me to direct you to the supplemental presentation accompanying today's earnings. It can be access by our Investor website In addition to the presentation you will find demo videos of titles that we expect to launch in the coming months.

I am very pleased to announce that our 2013 strategic focus on quality and monetization is beginning to bear fruit. The breakout success of Deer Hunter 2014 has enabled us to beat the top end of revenue guidance in Q3 by over $1.6 million. As a number one free iOS in the U.S. in the first couple weeks post launch and a consistent top 10 grossing app.

Deer Hunter 2014 strong performance is allowing us to raise guidance for the full year. Eric will provide details in his remarks. I am pleased to say that our updated Q4 guidance as Glu achieving adjusted EBITDA profitability on record topline revenue.

Our focus continues to be on delivering strong long-term performance that maximizes shareholder value, even at the expense of some short-term volatility. Throughout my tenure we have consistently acted upon our belief that original IP brand power is a key driver of long-term equity value.

For the fourth year in a row, I would argue Glu has delivered the leading top grossing free-to-play action games for smartphones and tablets. In 2010, we innovated to Gun Bros, the first five profile free-to-play 3D action success. We follow this up in 2011 with the groundbreaking Contract Killer. In 2012, we believe Deer Hunter Reloaded was the biggest grossing free-to-play shooter of the year.

Our confidence in the shooter category has never wavered despite what seem at times to be a near global industry consensus there was no longer possible to build top 10 grossing action games.

We have proven once again that this is clearly not the case. Unparallel of execution and worldwide demand for what I’d like to call the world’s second oldest profession have powered Deer Hunter 2014 consistently into the top 10 grossing ranks on iOS and Android.

DH14 is on track to be Glu’s biggest cumulative revenue title thus far and as a testament to our new studio and publishing leadership. With the deepened monetization system, I am proud to say that DH14 has attracted a worldwide fan base substantially larger than any prior Glu title. We aim to keep our DH14 audience engaged through a regular cadence of exciting new regions and additional features.

Over the long-term, smartphone and tablet penetration is expected to approximately triple from present levels. We intend to continue investing in our leading action brands as we believe our global reach and strength in Asia provide a strong backdrop for year-on-year audience growth.

We've evidenced this through our ability to grow Deer Hunter franchise revenues very substantially since our first smartphone launch in 2009. At the present time, we anticipate Deer Hunter 2014 lifetime revenues to be an order of magnitude greater than those of our 2009 Deer Hunter release and significantly greater than those from our Deer Hunter release last year. As many of you will recall, 2012 Deer Hunter Reloaded title was previously our most successful title ever launched.

Moving now onto other areas of our business. In order to implement a number of proprietary insights that have been effective in DH14, we are electing to hold the release of Frontline Commando 2 and Motocross Meltdown until Q1 2014. Eternity Warriors 3 will still be launched before the end of 2013. And we are optimistic about its prospects based on the results from limited release data.

Our Q1 ‘14 lineup also has two other titles, RoboCop launching in tandem with the MGM theatrical release and a previously undisclosed tower defense title called the Defenders & Dragons. Our pipeline of third-party titles continues to build and we are on track to publish approximately five titles this year, with expectations of considerably larger volumes in 2014.

We continue to be long-term believers in the publishing model and are investing for scalable long-term traction. However third-party revenues are ramping more slowly than anticipated, predominantly due to longer origination to life cycle times as we formalized scalable processes, integrate new hires to the team. Chris Akhavan will provide a more detailed update in his prepared remarks.

Our progress of DH14 clearly demonstrates that operational momentum is building at Glu. More franchised sequels will be released in 2014 and our confidence continues to build with respect to our ability to deliver them as top grossing performers.

We believe that Glu is the outright market leader in the category that we believe has both significant barrier-to-entry and is dashed in for continued long-term growth, circa 50% of revenue on console is derived from action shooters. On smartphones and tablets, the equivalent figure is approximately a factor of 10 lower.

Over the coming decade, we anticipate these percentages will converge and the Glu uniquely possesses the expertise to grow, define and lead the category in a free-to-play world. We believe no other developer has as successfully been able to translate the biggest category in the living room to our mobile world.

I'm extremely pleased with our execution during the third quarter and our lineup of launches over the next six months.

I now hand you over to Matt Ricchetti for an update on our studio and portfolio.

Matt Ricchetti

Thanks Niccolo. Good afternoon everyone. In our last earnings call, I look back on our growing ability to optimize what I titled and forward to the launch of our GluOn platform and first party try first games-as-a-service titles. In today’s call, I’d like to share a bit more information on the success of Deer Hunter ‘14 and again look forward to your upcoming titles.

As Niccolo clearly detailed, Deer Hunter’s breakout success has brought significant momentum to Glu’s H2 ‘13. We’ve made many meaningful strides forward across our studio this year. And it is very validating to see these translate into concrete results.

In addition to the high rankings on the iOS and Android top three and top grossing charts, Deer Hunter 2014 has achieved a number of other important milestones for Glu. It’s on track to be both our highest downloading and highest revenue title ever.

It’s peak DAU is more than double that of the highest peak DAU of any previous Glu title. It has a higher ARPDAU and a higher per user LTV than last year’s successful Deer Hunter reloaded at the same point in time post-launch.

And lastly, both early and long-term retention in Deer Hunter 2014 are higher than Deer Hunter reloaded at the same time post launch. Deer Hunter 2014 is another example of our studios selecting a live optimization muffles. The team was able to make meaningful improvements to both, retention and monetization while the game was in its beta period, contributing to its strong launch.

And since launch, the team combination of content and feature updates have improved LTVs and maintained a stable revenue base. We actually saw our net revenue on Deer Hunter rise in its six weekend post launch compared with a prior weekend due to product update.

In addition to these operational improvements, Deer Hunter 2014 has been a success in other key areas as well. In terms of gameplay, the game has stayed true to the core hunting experience of previous Deer Hunter titles, resulting in its broad market appeal.

From a technical perspective, the team met and exceeded the level of visual fidelity delivered in the franchises’ last installment, Deer Hunter Reloaded. Both of these ingredients have contributed to Deer Hunter’s success.

Looking forward to Q4 and Q1 of next year, we plan to capitalize on the learnings from the success of Deer Hunter 2014. These learnings can be summarized as follows. One, focus our portfolio on the action and shooter genres and our bigger franchises. Two, ensure that each title monetizes better than its previous installment. Three, refine core gameplay to broaden market appeal without sacrificing visual fidelity. Four, add social features via the GluOn platform to deepen retention and five, release more frequent content and feature updates to extend their product lifecycles.

Our next title, Q4’s Eternity Warriors 3 is a great example of this strategy. An evolution of last year’s very successful Eternity Warriors 2, Eternity Warriors 3 refines and expands on its predecessors, compelling action/RPG gameplay while offering substantial new guest features like chat and guilt via GluOn.

Niccolo already mentioned that we have chosen to hold off on the releases of Motocross Meltdown and Frontline Commando 2 until Q1 of 2014. This is because, we believe both titles have significant potential and we want to do everything we can to ensure they deliver on the five learning I just covered. I’m excited for both titles to go live in the New Year.

I will spend more time reporting on Glu’s plans for next year on our Q4 earnings call. For now, let me say that our portfolio planning process for next year is well underway and we’ve built our 2014 line up around the learnings of Deer Hunter. In 2014, we expect to see Glu release a slate of titles that is focused on action-oriented gaming and leverages our top franchises.

We expected the 2014 titles will feature deeper economies, more appealing core gameplay -- more broadly appealing core gameplay and more social features via GluOn. Deer Hunter 2014 is the milestone we truly needed -- we needed to truly validate our strategy. Now it’s up to us to go out and execute against it. We're looking forward to a strong Q4 and an exciting 2014 for Glu.

I will now hand you over to our, President of Publishing, Chris Akhavan.

Chris Akhavan

Thank you, Matt and hi everyone. My top three priorities, when I joined Glu in April were to upgrade the company’s user acquisition capabilities, increase advertising base revenue and expand Glu’s presence across Asia. I'm very happy with the progress we’ve made in these areas.

Our user acquisition function has improved significantly, and we now believe it is industry-leading. We invested in both the right talent and the right tech to be able to execute a highly effective user acquisition campaign. Deer Hunter 2014 was the first major launch propelled by our new user acquisition capabilities and strategy. The game has downloaded at a rate of well over 2x its predecessor and has held top rankings on iOS and Android since launch.

Our new data-driven approach to user acquisition allows us to refine campaigns in real-time to acquire users that are most likely to retain and monetize. We look forward to deploying the same strategies on our upcoming launches, while continuing to promote DH14 and the rest of our catalog.

In parallel, we are focused on increasing the revenues we generate from in-game advertising by both optimizing existing channels as well as adding new sources of advertising into our games. Through the addition of new channels like high-quality video advertising, the percent of total revenue generated from ads has hit levels in Deer Hunter 2014 that our ad times multiple factors greater than in games Glu launched at the beginning of this year. We are absolutely thrilled with the progress we've made on this front and will continue to focus on driving further increases in advertising revenue.

As Niccolo mentioned, our third-party publishing program has moved slower than expected. It became clear in late Q3 that the program’s initial focus on China would not scale, as local market valuation and expectations are extremely high relative to the rest of the world.

In addition, Chinese local market sensibilities do not translates to other territories as well as gains from other markets such as Russia and Korea. As such, we have refined both our strategy and operations and plan to launch at least three third-party titles in Q4. Beyond that, we have a robust pipeline that could see us launching as many as 18 titles next year.

On the Asia front, we continued to invest in our growth in China and have made key hires in recently established entities in both, Japan and Korea. Our teams have been hard at work, establishing new distribution channels and strengthening platform partnership, while improving the quality of our in-game localization and market specific content. I have full confidence our teams will continued to build upon the impressive revenue growth the company has seen year-over-year across Asia and believe we are well-positioned for the launch of Eternity Warriors 3, our most popular franchise in the region this December.

I now hand you over to Eric to review financials and guidance.

Eric Ludwig

Great. Thank you, Chris. Overall, I'm very pleased with our ability to exceed expectations across all of our financial metrics during the third quarter. I’ll first detail our third quarter results and certain operating metrics. I’ll then conclude by providing our outlook for the fourth quarter and full year 2013, along with some initial thoughts on 2014.

As a reminder, last quarter we started reporting revenues and cost of revenues on a gross accounting basis and all numbers I will refer to you will be gross revenue accounting only.

On the second last slide of our supplemental presentation is our key operating metric slide, which includes the last seven quarters of metrics for the items I’ll refer to you during the call and as such I will reference every quarter-over-quarter and year-over-year number.

Summarizing our key financial highlights for the third quarter of 2013, total non-GAAP smartphone revenues of $21.3 million were above or high end of our guidance range, non-GAAP smartphone revenues accounting for 94% of total non-GAAP revenue.

New titles launched during the third quarter accounted for approximately 20% of non-GAAP smartphone revenue and doing the combination of better than expected revenue and our ongoing focus on credit controlling cost. We were able to report an adjusted EBITDA loss of $4.1 million, significantly leading our guidance. Lastly, our non-GAAP net loss was $4.7 million or a loss of $0.07 per basic share, which is also significantly above our guidance range.

We had 49.9 million downloads of our titles on all smartphone platforms during the third quarter and our accumulative downloads are now approximately 527 million. Our daily active users in the month of September increased to 4.3 million users, while our monthly active uses were up similarly to 45.2 million.

Summarizing the full key results for the third quarter, total non-GAAP revenue was $22.6 million, which was above our guidance range of $19.6 to $21 million. Non-GAAP feature phone revenue continued to decline, but less so than our guidance and was $1.3 million during the quarter.

The four first party titles launched during the third quarter of 2013 were Deer Hunter 2014, Zombies Ate My Friends, Tons of Guns and Gang Lords. These four titles accounted for 18% of our non-GAAP smartphone revenues during the quarter. And our five largest revenue generating titles during the third quarter represented a 54% of total non-GAAP revenue.

Deer Hunter accounted for $2.7 million or 12% of non-GAAP smartphone revenues. Deer Hunter 2014 generated approximately $240,000 during it data phase and $2.5 million during the quarter following its September 17th launch.

Our non-GAAP smartphone revenue by platform for the third quarter was 64% on the Apple platform, 31% on Android and 5% on other smartphone platforms.

And by geography, the Americas accounted for 51% of non-GAAP smartphone revenue, EMEA 20% and Asia-Pacific 29%. And these results were slight degradation of APAC Deer Hunter is more western hemisphere theme. Our non-GAAP premium smartphone revenues were (inaudible) and accounted for 94% of our total non-GAAP smartphone revenue.

During the third quarter, non-GAAP gross margin was 66%, down slightly from 69% during the second quarter and down slightly from our guidance. Total non-GAAP OpEx was $19.7 million in the third quarter, approximately $1.1 million lower than our guidance, reflecting our continued OpEx management during the quarter.

The combination is slightly higher than expected revenue along with management of OpEx resulted in EBITDA loss of $4.1 million during the quarter. This was significantly better than our guidance of a loss of between $6 million and $6.8 million.

As a result, we reported a non-GAAP net loss of $4.7 million on EPS loss of $0.07 per basic share, which also exceeded our guidance of a loss of $6.8 million to $7.7 million, or a loss of $0.10 to $0.11. We ended the third quarter with $71.5 million weighted average basic shares. I note that full reconciliation of GAAP to non-GAPP is included in the press release today.

Now turning to the balance sheet, as of September 30, 2013, our cash and equivalents totaled $27.7 million, which is up from $19.1 million at the end of the second quarter, primarily due to the approximately $40 million we raise via follow-on offering in September.

During Q3 we used $5.9 million of cash in operating activities and used $543,000 in investing activities and these were offset by $14.9 million received from the fund raise, proceeds from purchases under our ESPP and stock and warrant exercises.

Now let me finish with some thoughts regarding our financial outlook, starting with the guidance for the fourth quarter of 2013. We believe that we are position to experience significant growth of 44% at the high end of guidance during the fourth quarter of 2013. The primary drivers are the momentum from Deer Hunter 2014 and the launch of Eternity Warriors 3 before the end of the year.

During the fourth quarter we expect non-GAAP revenues to be in the range of $31.5 million to $32.5 million. This is an increase to our prior Q4 total non-GAAP revenue guidance of $29.7 million.

We currently expect Deer Hunter 2014 to account to close to half of the total non-GAAP revenues based on the performance to date. And I would point out that Deer Hunter Reloaded which launched in the second quarter of 2012 was our prior largest revenue generator in a quarter, where we realized $4.8 million of gross revenues. So you can see the magnitude of the hit that we have with Deer Hunter 2014.

We expect non-GAAP gross margin during the fourth quarter to be approximately 72%, which is high in the third quarter, primarily due to the strength of Deer Hunter and due to the fact that it is higher margin first-party title, as well as the higher percent of revenue coming from advertising and as we may recall last -- from last quarter, we do not grow sub revenues from ad networks.

Our non-GAAP OpEx for the fourth quarter is expect to be approximately $22.8 million at the mid-point, which is an increase from Q3, primarily due to the growth in variable marketing cost on the incremental revenue.

And we expect to achieve adjusted EBITDA profitability in the range of $750,000 to $1.25 million. As a result, non-GAAP net income including $150,000 tax expense will be between breakeven of $400,000 or breakeven to $0.01 per weighted average diluted share.

We are very pleased of our ability to achieve profitability in Q4, despite the two launches in the first quarter as it demonstrates to leverage the business as we continue to scale. And excluding from our guidance for Q4 to the non-GAAP figures are $1 million of amortization in COGS, $95,000 of amortization in OpEx and $1.3 million of stock-based comp. Finally, we expect our cash balance at the end of 2013 to be approximately $27.7 million or flat quarter-to-quarter.

Now turning to full year 2013 guidance, we now expect to launch 12 internal first-party titles during the year, 11 have already been released and as I just mentioned, the remaining game will launch by the end of the year. In addition, we expect to launch approximately three third-party publishing titles during the fourth quarter.

As a result of the better than expected performance during the third quarter and the increase outlook for Q4, we are increasing our 2013 full year non-GAAP revenue guidance. Full year revenue will be in the range of $102 million to $103 million and this compares to our prior guidance of $96.8 million to $98.9 million.

We now expect non-GAAP gross margin of approximately 69% for 2013, up from our prior guidance of 68%, due to the strength of our higher margin first-party titles during the second half of the year and non-GAAP OpEx for 2013 will be approximately $81.3 million, which is in line with prior guidance, as our own performance in Q3 will be offset by the increase in variable marketing in Q4.

Adjusted EBITDA loss is now expected to be in the range of $7.3 million to $7.8 million, compared to prior guidance of a loss of $11.6 million to $12.9 million. And as a result, we expect non-GAAP net loss to be in the range of $10.5 million to $11 million or an EPS loss of $0.15 per basic share, compared to the prior guidance of a loss of $15 million to $16.4 million or EPS loss of $0.22 to $0.24 per basic share.

Now we are in the early stages of our 2014 planning process and we have limited history on the staying power of Deer Hunter. We are comfortable today, however, providing an estimated initial total non-GAAP revenue growth rate of approximately 15% to 20% from full year 2013 guidance to 2014.

We believe this represent the strong growth outlook and reflect our capital enthusiasm for Deer Hunter, as well as our strong release line. I would point out that this ranges on top of the 2013 revenue guidance we are increasing today.

Note that we expect to increase OpEx in 2014 predominantly in variable marketing cost and third-party publishing and we plan on providing additional color on the Q4 call regarding our 2014 adjusted EBITDA expectations.

In summary, I’m very pleased with our execution in Q3 and the performance of Deer Hunter 2014, the strongest title out of the gate ever for Glu by a wide margin. We remain confident at our strategy to increase monetization and retention will continue to gain momentum and I look forward to updating you on our progress next quarter.

I’ll now turn the call over the operator for questions. Operator?

Question-and-Answer Session


(Operators Instructions) Our first question comes from Sean McGowan from Needham & Company.

Sean McGowan - Needham & Company

Hi, guys. Thank you. A couple of questions if I may, I haven’t done the math here, Eric, but, was the absolute dollars in Asia down or just the percent of total?

Eric Ludwig

Just a percent.

Sean McGowan - Needham & Company


Eric Ludwig

Slightly -- it was mainly due to zero.

Sean McGowan - Needham & Company


Eric Ludwig

Mix of western hemisphere.

Sean McGowan - Needham & Company

Right. Okay. Could you comment on a little bit more color on upcoming launches without certainly putting a release date on it but kind of obviously as far as you are comfortable for the rest of the fourth quarter and into the first quarter. I’m specifically wondering what’s going on with James Bond if anything?

Niccolo de Masi

Okay. So what we said in our prepare remarks is we’re prepared to go over again. So rest of ‘13 is going to see one more launch. It is Eternity Warriors 3 and Q1 has four launches. S there i Robocop which is theatrical associated release. There is a new tower defense title called Defenders & Dragons. There is Frontline Commando 2 and there is Motocross Meltdown but we -- we at this time do not have any more details to provide on this month, for example these four titles are each going live in.

Sean McGowan - Needham & Company

Okay. Thanks and then maybe a question for Matt, if you can. The shift of these titles out of fourth quarter into the first quarter, I’m wrestling a little bit with chicken and egg question here. Is this because you realized why these things, we could be doing different. I mean, I want them to succeed or is it because we have such success that we can afford to push them often and maybe smooth things out. So help me out which is driving that decision?

Matt Ricchetti

Thanks John. I mean it’s always a little bit of both but I think in the end as Niccolo have consistenly said on our earnings calls, quality is the most important things for us because we do -- we’re operating in a very hate-driven business and is more important to have games that like Deer Hunter, come out of the gates and do really strong, then to kind of.

We don’t have so many shots on goal for the year. So I think that’s kind of where we netted out with Motocross and Frontline Commando 2. As that we much rather see them do -- we think we understand how we can get them to a place where they can do very strong results in Q1 and we prefer that scenario over releasing that. But like you said, having the sort of -- the space do it is also important.

Sean McGowan - Needham & Company

Okay. Thank you.


The next question comes from Michael Graham from Canaccord.

Michael Graham - Canaccord

Hey, guys. Congratulations on the game. I'm not very good at it but I think it’s really great that is doing well. I just wanted to ask about Deer Hunter a couple of questions. One is can you give us any updated thoughts about what you expect the revenue curve to look like. In other words, should it peak earlier or later based on what you're seeing.

Should it have a longer tail or not in some of your previous games, that’s one. I also wanted to see if you could talk about any differences or things that worked really well and how you promoted the game. We’ve noticed some ads for -- in certain places. And just wondering how much of the success is related to just have your marketing spend or just can you talk that through. And then lastly how is the -- like how much social usage have you seen in the game. I know that’s a big part of the initiatives you put in place. So can you just talk about whether or not that seems to be working? Thanks.

Eric Ludwig

Great, Mike. So this is Eric. I’ll take the first one of the revenue curve. I’ll turn it over to Chris for the marketing question and then Matt for the social question. So obviously Deer Hunter has done better than any title we’ve ever launched both in terms of absolute revenue dollars. I think I mentioned roughly half of our guidance for this quarter is coming from Deer Hunter, which should be more than 3x what we prior did in this launch quarter. So clearly absolute dollars are higher but also the longevity that title have had, up in the charts has also mentioned that we never accomplish before as well it is today, now top five grossing in the U.S. as of today.

And then Matt and Chris can touch a little bit on what we’ve done there on the marketing side. But since the revenue curves are clearly longer on than title out of the gate. The big question in our guidance obviously factors that is going to be declined here, what goes up does ultimately come down. And this is the first time we’ve had a title that’s been there this long.

So I think we’re pretty cautious not to be letting this to be too high in our guidance in terms of our number. So we certainly have degradation assumed for this title but beyond that, we’re on unchartered territories is to what this thing can do in terms of persistence. And with that, I will turn it over to Chris on the marketing side.

Chris Akhavan

Yes. Michael, thanks for the question. So I really -- really attribute our success in promoting Deer Hunter 2, our new data-driven approach to user acquisition. So I think we’ve invested in both talent and technology to be able to collect data on all of our user acquisition campaign and optimizing in real time across both the ad trailers we’re using. They are targeting -- not only targeting people on their demographic but also their interest that they specify, for example, targeting people who have demonstrated some kind of interest in hunting.

And then we’re all doing it in very real time basis where the team is constantly evaluating the metrics and making real time adjustments to our campaign to derive better and better performance overtime. Michael, last thing I would say so just to follow on Eric’s comments. I think you hit the nail on their head. It’s our job to be financially conservative about the future because we want to make sure that we’re delivering on what we’re -- what we -- we’re in on unchartered territory where the game that’s this high grossing.

So we -- but at the same time, we’re doing everything we can to give it as long and sort of fat of tail as possible. So -- I mean just to illustrate that point, the game went live mid September since then we put out two content updates and a binary update and actually a third content update went out today for Halloween.

So in just over six weeks, we’ve already kind of updated the game three or four times. So that’s our approach with the title. We want to be aggressive and do everything we can to sustain it. On the social side, Deer Hunter does have a -- a social feature in the game in Club Hunt that is designed to kind of give serious players a little bit of extra fun with the game and deepen the kind of long-term retention.

So it does use GluOn but we’ve sort of said in previous calls, that would be the one-big GluOn feature in the game or the EW3 has kind of extensive use of the platform throughout the game.

Michael Graham - Canaccord

All right. Great. Thank you so much.


The next question comes from Doug Creutz from Cowen and Company.

Doug Creutz - Cowen and Company

Hey, thanks. I wondered you can maybe speak on Eternity Warriors 3 relative to Eternity Warriors 2. Was that a title that kind of steal revenue wise typical fear games or maybe was that -- did that steal more towards other geographies such as Asia? Thanks.

Niccolo de Masi

Yes. Doug, I’ll take that, yeah. EW 2 is substantially more Asia revenue generating title. China was the biggest country for that title. And I believe it is probably followed by U.S. and Korea. So the two of the top three countries have origin of revenue. We’re from Asia Pacific.

Doug Creutz - Cowen and Company

Terrific. Thank you.


Our next question comes from Mike Hickey from Benchmark.

Mike Hickey - Benchmark

Hey guys, thanks for taking my question and congratulations on our Deer Hunter success. Eric, I just hope, you could update us on head count. We expect that to be in the year and maybe where it’s tracking at ‘14?

Eric Ludwig

Sure. Yes, so we ended Q3 with about 521 head counts. End of the year, we have about 540. So it’s a small bit of head count growth. And that we’re still finishing the 2014 operating plans. So it will be a bit modest amount of head count growth but it is going to be very tempered in terms of -- on some of the content folks but probably less than 5% growth on a year-over-year basis.

Mike Hickey - Benchmark

Okay. Thank you. And then on DH14, just curious if you could share with us the up down on the game?

Niccolo de Masi

No, I mean, look Mike what we’ve said in Matt and my prepared remarks is that we have over double the audience space that we’ve had on our previous largest titles. What I think is really interesting about the game and that sort of goes to question -- couple of questions that we had from other analyst couple of minutes ago, the scale of the game is impressive. And our ability to move purchasing up even modestly in percentage terms is making obviously a significant difference in the grossing charts.

And that speaks to frankly scale. It also speaks to interest in engagement levels. I don’t think any of us thought on September 17 that this game would be peaking that five grossing six weeks after it launched. We’ve never achieved that before. And if you’re looking to kind of updates we are putting now, yes we are putting out new features. We’re also putting out additional regions and content and so on.

So you can probably back into some sort of range on these things but obviously we think that’s we’re going to be under significant competitive scrutiny, given the breakout success of this title and we’re trying to keep as much of this kind of information proprietary as possible.

Mike Hickey - Benchmark

Go it. No doubt. I understand. Thank you. And the last question, just on the publishing side, as it relates to ‘14, I think you’ve provided a range of 14 to 18 games and looks like you’re kind of resetting the direction of this geography where you’re looking to create partnerships. Is that a more accelerated pasting for a number of titles than you were originally were looking for, Niccolo and any changes maybe to the deal structure and how that relates to potential margin implications for ’14?

Eric Ludwig

Sure, I’ll hand over to Chris, as he has been running that for us a while and he can walk you through probably all three of those aspects.

Chris Akhavan

Sure. In terms of the velocity, I think we have picked up the pace of it and that also has to do with our focus for the program, so moving the program more towards, taking more shots on goal, obviously, still keeping a high bar on quality. But in general, we are focused on finding content where we are not taking much upfront risk and we are really honing in on the markets where we are finding both the good combination of high-quality content as well as frankly reasonable deal terms. And so we are finding that markets like Korea and Russia, as I mentioned before as well as in other markets and that’s going to continue to be our focus moving forward for the program.

Mike Hickey - Benchmark

Okay. Thanks, guys.

Eric Ludwig

Margin implications are not going to change dramatically in the long-term, but risk is improving from our perspective.

Mike Hickey - Benchmark

Okay. Thanks for the color.


(Operator Instructions) The next question comes from Darren Aftahi from Northland Securities.

Darren Aftahi - Northland Securities

Guys, thanks for taking my questions. I just have a couple. So looking at your breakdown of geographical contribution by revenue, is it fair to say that the $2.5 million from Deer Hundred ‘14 post data was in line with the kind of 50% from North America for the quarter?

Eric Ludwig

It was more heavily skewed in North America and actually probably even more heavily skewed to the states where you are from, the northern hemisphere of North America.

Darren Aftahi - Northland Securities

Got you. And then secondary on Deer Hunter, how would you attribute sort of the actual content vis-à-vis the Deer Hunter Reloaded versus impact that the GaaS platform is actually having a longevity of ranking sting, what seems like higher than they were with the predecessor?

Eric Ludwig

Okay. I will hand that to Matt. I think with the recap, the question is what are we prepared to talk about with regard to sort of changes we have made from 2012 to sort of 2013’s release, will cover what elements or sort of GaaS in that?

Matt Ricchetti

Yeah, I mean if you played both games, you can see that they are substantially different from each other. I would say that the thing that is most similar between them is the kind of core hunting experience, right. But on top of that Deer Hunter ’14 has a pretty different economy in a different overall progression through the content. So that’s kind of what I’m willing to talk about with regard to the game, but I think both of those things add up to better performance on the retention LTV as I mentioned in my remarks.

Darren Aftahi - Northland Securities

Great. And then just one last quick one. Have you guys talked about Google relative to Apple being sort of -- if I manage it rightly, one-eight to one-tenth sort of pre-carrier billing what’s kind of the relative ratio today at all sequels sort of Google versus Apple?

Eric Ludwig

We disclosed the percentage of our revenue that comes from the Android platform in totality versus the iOS one. For this Q3, it’s in the supplemental presentation which is on our website. You can look at our bar chart. Typically, we are making about twice as much money on iOS as Android approximately. And for the H’14, the titles performed exceptionally well on both stores and platforms, quite similarly actually which is also been nice to see.

Darren Aftahi - Northland Securities

Great. Thanks. Congrats on the quarter.

Eric Ludwig

Thanks, Darren.

Niccolo de Masi



The next question comes from Adam Krejcik from Eilers Research.

Adam Krejcik - Eilers Research

Hey, guys. Thanks for taking my question. My first few questions are also on Deer Hunter ’14. First off, just curious, this game seems to be doing a lot better on the iPhone versus the iPad this time around, just wondering if there is any explanation behind that phenomenon.

Eric Ludwig

Okay. So we will hand this to Chris Akhavan to maybe take the first part of that as there has been a marketing decision on some of that.

Chris Akhavan

Yeah. We found that our marketing spend has been performing much better on the iPhone and iPad touch devices. We have focused more there. I think also just the game itself really sets up well to playing on a smaller device. We are talking about short gameplay sessions, active but short gameplay. It’s the kind of game that you can play on the go, on a subway, in the line for a coffee and sets up much better to that kind of experience versus iPad experience tends to be much longer gameplay sessions where you are on your couch. So those are the two big factors that I see on the difference there.

Eric Ludwig

Probably the best part I think. Agree.

Adam Krejcik - Eilers Research

That’s interesting and helpful. And I know you don’t want to disclose too much, but in the past you have said the pay and player conversion rates on average has been I think around 0.5% to 1% for your games. Is it safe to assume that this is attracting a higher game player conversion rate then your historical average?

Chris Akhavan

It’s safe to say that it’s in that range generally.

Adam Krejcik - Eilers Research

Okay. And then, how about -- we have heard that getting a title from -- especially on iOS and into the top 10 and into the top 20 like you guys have with Deer Hunter is really the hard part. Just can you speak to what kind of sales and marketing is now involved in terms of retaining that position, kind of what is the data there? I mean, you mentioned the variable market spend is going to go up a little bit in Q4 which I think everyone can understand, but can you kind of walk us through how much additional you need to spend to keep this game a successful it has been by now?

Chris Akhavan

Well, the interesting thing about this game, frankly is compared to many other say top 20, 30, 40, 50 grossing games, the sheer fundamental demand for the title globally has been spectacular. So we have guided towards not crazily to similar percentage of revenue going on total marketing spend. We have also given you the approximate total of Q4 revenues that are being derived from DH14 and you can read into it that’s it probably proportionate.

So the really interesting thing about this title from a sales and marketing perspective is yes, the optimization and daily quality approach that Chris ran through are integral part of what we are doing and we are not going to go into more details beyond saying that on that front.

The scale of the title’s audience is something which is kind of a fundamental I would say almost primal demand on a global basis. For players on phone and tablets and is something which is allowing us to keep the percentage of revenues being spent on marketing lower than the majority of the top 25 to 50 grossing titles.

Adam Krejcik - Eilers Research

Got it. And then, Eric, did you guys recognized any third-party revenues in Q3 and does your Q4 guidance assume any third-party revenues?

Eric Ludwig

Yeah. So we recognized about $380,000 of revenue in the third quarter. It enters probably a similar amount in the fourth quarter assumed as well.

Adam Krejcik - Eilers Research

Okay. And then final question from me guys. Just with regards to some of your other ventures like real money gambling probability and your skill gaining partnership with Skill, is there any update to that or I assume you are not assuming anything in terms of revenue for this year, but is there anything picking up for 2014 and not that broad range you gave? And I guess also, are there any incremental expenses or resources being allocated to those ventures thing? Thanks.

Niccolo de Masi

No, nothing has moved from the last earning’s call to this one in terms of, we are early on gambling or skill gaming. We still think they are long way off from maturing. Very little resources have been put into both of those and we are in kind of wait and see mode for more data ultimately and within other landscape clarifies. Obviously, that was our position last quartet. I will say that a success like Deer Hunter, if anything greatly solidifies the confidence in that position given that we have obviously high ROI avenues for us to deploy time, energy and opportunity costs.

Adam Krejcik - Eilers Research

Got it. Thank you guys.


I’m showing no further questions. I would now like to turn the call back over to your presenters.

Niccolo de Masi

All right. While closing, I would like to thank my colleagues for their efforts, and our shareholders for their continued support. We are confident in the strength of the foundations we have laid and our ability to drive long-term robust sustainable growth. Thank you again for joining the call.


Ladies and Gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may now disconnect. Have a good day.

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