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Executives

Greg Cannon – VP of Finance, Corporate Controller

Niccolo de Masi – President and CEO

Eric Ludwig – EVP and CFO

Analysts

Darren Aftahi – Northland Securities

Atul Bagga – Lazard Capital

Adam Krejcik – Roth Capital Partners

Mark Argento – Craig Hallum Capital

Scott Searle – B. Riley & Company

Glu Mobile, Inc. (GLUU) Q4 2011 Earnings Call February 7, 2012 4:30 PM ET

Operator

Good afternoon. My name is Nisti and I will be your conference operator today. At this time I would like to welcome everyone to the Glu Fourth Quarter and Full Year 2011 Earnings Results Conference Call. [Operator Instructions] Thank you. Mr. Greg Cannon, Vice President of Finance, you may begin your conference, sir.

Greg Cannon

Good afternoon everyone and thank you for joining us on the Glu Mobile fourth quarter and full year 2011 financial results conference call. This is Greg Cannon, VP, Finance from Glu Mobile. On the call today, we have CEO, Niccolo de Masi 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 statements.

We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and in this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors in the Form 10-Q filed with the Securities and Exchange Commission on November 14th, 2011.

During this call, we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude the change in deferred revenues and royalties, amortization of in-process development contracts, amortization of intangibles, stock-based compensation charges, restructuring charges, changes in the fair value of the Blammo earnout, transitional costs, and foreign currency gains and losses, primarily related to revaluation of assets and liabilities.

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 fourth quarter and full year results.

The press release has also been furnished to the SEC as part of a Form 8-K. In addition, please note that the date of this conference call is February 7th, 2012 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 a property of Glu Mobile and any recording, reproduction or rebroadcast of this conference call without the expressed written permission of Glu is strictly prohibited.

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

Niccolo de Masi

Good afternoon and a warm 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 accessed via our Investor website, glu.com/investors.

For the first time we have included ARPDAU information on two of our largest titles.

In addition to the presentation, you will find video demos of our Q1 2012 titles. I'm delighted to announce that in Q4 2011 we delivered $15 million of non-GAAP smartphone revenues. This was substantially ahead of expectations representing 340% growth from the same period last year and 42% growth quarter-on-quarter. Having crossed over and become a majority smartphone revenue business in Q2’11 I am pleased to report that our progress accelerated in Q4’11 with 75% of total non-GAAP revenues being derived from smartphones.

Underpinning these strong results is holiday seasonality and extra week of Apple calendar revenue and a number of successful new title launches. Contract Killer: Zombies, Blood and Glory, Frontline Commando, and Stardom.

We finished 2011 with 20 new titles launched, eight of which we consider successful. Strong holiday seasonality and advertising revenues as well as a Glu record for new title launches in a single quarter posted Q4 non-GAAP smartphone revenues. We are pleased with Stardom which is the first title from our newly acquired Blammo game studio, launched ahead of plan and is performing on expectations. We anticipate the first titles from our Griptonite acquisition to be live a few weeks ahead of plan in March.

Our progress in Q4 has validated our product strategy and highlighted the barriers to entry around our business. We believe Glu has established a clear lead in combining freemium social accessibility with console quality game play and production values.

Android revenues grew in line with total smartphone revenues to remain approximately 30% of total freemium revenues in Q4. Glu is arguably the leading gaming company on the Android market with typically six to eight titles in the top 100 grossing on any given day. Android devices are now being activated at a higher average daily rate than iOS. Whilst increasing fragmentation we believe Glu to benefit long term from initiative such as Icecream Sandwich and Amazon’s Kindle Fire.

Despite launching our Q4 products simultaneously on Android and iOS we still foresee the majority of the 2012 smartphone revenues coming from the iOS ecosystem which is now expanding aggressively in Asia. We also do not see our percentage of smartphone revenues derived from Android increasing significantly in the medium term.

In addition to supporting our persistent success in 2011, in 2012 we expect to launch in excess of 20 new titles. To this end our Q1 lineup includes Rogue Racing, Lil’ Dungeon, Deer Hunter Reloaded, Small Street, and Samurai Vs. Zombies.

We are of course aiming to increase our batting percentage in 2012. However, we have noticed with increasing competition in the Apple App store, the periods of time during which titles maintain their peak revenue are beginning to shorten. We expect this trend to increase Glu scale and production value advantages over the long term. However, it may dampen near term growth.

A significant portion of our poorest performing 2011 titles were from our G Partners Program. To allow us to raise our quality bars still higher in X2 2012 and to avoid educating potential competition. We’ve scaled back our G Partners Program and focused our best talent fully on internal studio projects. As with Blammo Games we leave the door open to exceptional partnership opportunities with potential to become strategic.

We finished 2011 debt free with a net cash balance of over $32 million. We continue to be comfortable that our strong balance sheet provides us with headroom to forward invest in iOS and Android with our expanded product capacity.

We anticipate this allowing us to deliver 70% non-GAAP smartphone revenue growth from full year 2011 to full year 2012. This equates to delivering over $70 million in non-GAAP smartphone revenues this year.

Glu expects to breakeven on an adjusted EBITDA basis once the new product cycle from our acquisitions is fully active in Q4 2012. We anticipate reaching profitability without needing to access additional capital and with a net cash balance in the double digit millions.

Q4 2011 capped off the fifth quarter of strong smartphone revenue growth, transforming Glu substantively year-on-year. We believe that our strategy is clearly succeeding as we deliver at 86% of Q4’11 smart phone revenues through Glu original IP. 2011 is indeed our first full year with the majority of Glu revenues derived from smartphones. We believe the continual rapid evolution in mobile hardware power will only increase consumer demand for Glu’s differentiated thick client gaming approach. We consider ourselves uniquely well positioned as these trends accelerate in 2012.

I will now hand you over to Eric Ludwig for analysis of our financial results and operating metrics.

Eric Ludwig

Great, thank you, Niccolo. I'm very pleased with the results for the fourth quarter of 2011 which were ahead of our expectations and represented a strong finish to the year. I will first provide some details on the company’s financial results for the fourth quarter as well as certain operating metrics. I will conclude by reviewing our outlook for the first quarter and full year 2012.

Our financial outperformance in the fourth quarter was driven by the combination of several successful new title launches as well as continued strong performance from our existing titles. In tandem this led to 66% quarter-over-quarter growth in non-GAAP freemium smartphone revenues. Summarizing some of our key financial highlights for the fourth quarter 2011, total non-GAAP smartphone revenue of $15 million was up 340% on a year-over-year basis and exceeding our guidance range of $11.5 million to $12 million. As a result non-GAAP accounted for 75% of total non-GAAP revenues up from 59% in the prior quarter.

Original IP accounted for 68% of our total non-GAAP revenues, up from 53% in the third quarter of 2011, and 26% in the fourth quarter of last year, reflecting a continuing shift to original contents. More importantly, original IP was 86% of non-GAAP smartphone revenues in the fourth quarter due to all but one title in 2011 being original IP titles.

Our daily active users in the month of December 2011 were 2.9 million users while our monthly activities in December 2011 were $31.4 million. The growth in MAU and DAU is due to 44.7 million downloads of our titles on Apple, Android, and other platforms during the fourth quarter and our cumulative downloads are now at 176.1 million.

Q4 non-GAAP operating expenses of 18.6 million were favorable as compared to our guidance. Our non-GAAP operating loss for the fourth quarter was $1.2 million significantly lower than our guidance of a loss of $5.7 million to $6.6 million and non-GAAP loss of $0.02 per basic share was favorable to our guidance at a loss of $0.10 or $0.12 per basic share.

Lastly, we ended 2011 with $32.2 million in cash on our balance which is above our expectation of approximately $29 million. The over performance was due to our strong Q4 results.

I would like to take a moment to drill down on our fourth quarter revenues and highlight how we delivered against our guidance. During the fourth quarter total non-GAAP revenue was $20.1 million which exceeded our guidance range of $16 million to $17 million and was up 29% from the same period last year. The growth was driven by the increase in non-GAAP smartphone revenues which accrued 340% year-over-year to $15 million and was above the high end guidance of $12 million.

The strong year-over-year and sequential growth in smartphone revenues reflects the success of our fourth quarter releases specifically Contract Killer: Zombies, Blood and Glory and Frontline Commando and Stardom which launched at varying times throughout the quarter. CKZ was launched in the middle of October, Blood and Glory, the middle of November, and Frontline Commando and Stardom had a much smaller contribution as they were launched in the middle of December.

We were also supported by our most successful persistent catalog titles with Gun Bros, Contract Killer, Big Time Gangsta, Eternity Warriors, and Bug Village, all contributing materially as well.

I am continually asked by investors and analysts for data about the useful lives and revenue of a successful persistent premium mobile game. Given that our first premium title Gun Bros was launched at the very end of October 2010, would you not have multi years of history, however to help frame this I want to provide a few data points on several of our successful titles.

The five most successful titles we launched pre-Q4 2011 collectively accounted for $6.2 million or 42% of our Q4 2011 non-GAAP smart phone revenues not highly into persistent nature of our original IP titles. Specifically, Gun Bros is our longest running freemium title and our most successful on the lifetime to-date basis. This title has generated $7.9 million since launch and more impressively continues to generate meaningful revenue even 14 months later.

In Q3 2011, Gun Bros generated $1.5 million and in the fourth quarter 2011 it generated $1.4 million. In the fourth quarter the other pre-Q4 2011 persistent titles also contributed the strong results as Contract Killer generated $1.9 million, $1.2 million for Big Time Gangsta, $1 million for Eternity Warriors, and approximately $700,000 for Bug Village.

In addition, our fourth quarter new title launches collectively generated $6.1 million or 41% of our fourth quarter non-GAAP smartphone revenue. Our successful titles are monetizing at rate a $0.04 to $0.05 per daily active user per day or ARPDAU, our supplemental presentation as Niccolo mentioned provides some details on two specific titles. Having reviewed smart phone revenue trends and fundamental I will now provide additional segmental data on our non-GAAP smartphone revenue.

Our non-GAAP smartphone revenue by platform for the fourth quarter 2011 was 65% on the Apple platform up from 47% in the third quarter and 62% in the fourth quarter 2010. Revenue on Android was 29% down from 34% in the quarter, but up approximately $700,000 in absolute dollars. On a year-over-year basis Android has grown significantly from approximately $200,000 in revenue in the fourth quarter of 2010 to $4.3 million in the fourth quarter of 2011.

Our fourth quarter revenues benefitted from an additional $660,000 associated with a longer Apple reporting calendar. This was a one off item. It will not repeat itself for any of the quarters of 2012.

Our non-GAAP freemium smart phone revenues increased to $13.5 million in Q4 2011 from $8.1 million in Q3 2011 and $1.3 million in Q4 last year. Non-GAAP freemium smart phone revenues accounted for 90% of our total non-GAAP smart phone revenue during Q4, up from 77% in Q3 and 38% in the fourth quarter of last year.

During the fourth quarter of 2011 we had 1,522,000 in-app purchase billable transactions which was an increase from 866,000 in the third quarter of this year. The average revenue for in-app purchase transaction decreased from $6.40 in Q3 to $5.79 in Q4. This is due mainly to special promotions for our virtual goods which increased the volume of purchases and overall revenue, but at a slightly lower ASP.

Our legacy feature phone business declined 30% quarter-over-quarter and 58% over the fourth quarter a year ago both on non-GAAP basis and consistent with our guidance. Our feature phone revenues now accounts for only 25% of total non-GAAP revenue. The $2.2 million quarter-to-quarter decline was not surprising. It reflects the combination of fewer feature phone shipments in North America and EMEA, as well as our specific vital focus on games for these devices.

Our legacy feature phone business which has been in decline as expected is dominated by branded IP titles. Our freemium smartphone titles have virtually all been original IP titles. During the fourth quarter of 2011 the contributions of original IP to revenue continue to expand as the percentage increased to 68% on total non-GAAP revenues. This is up from 53% in the third quarter and 26% in the same period last year. More importantly and ahead of our guidance 86% of our non-GAAP smartphone revenue during the fourth quarter of 2011 was from original IP content.

Because of the increased revenue from original IP, our non-GAAP gross margin was 86.7% up 568 basis points quarter-to-quarter and up 965 basis points from 77% during the same period last year. As a reminder we included two additional cost of sales. The first is royalties, the third party license holders, which have been and will continue to decline, and the second is hosting cost for our freemium games which are increasing each quarter on an absolute basis due to the increase in our DAU and MAU.

I’ll now offer you some additional operating results for our fourth quarter 2011. Total non-GAAP operating expenses in the fourth quarter were $18.6 million up 13% and 16.5% during the third quarter this year, but the lower guidance of $20 million. The quarter-over-quarter increase reflects the increase in expense related to Griptonite and Blammo as our Q3 results only include two months of expense from those acquisitions.

The combination of the better-than-expected Revenues and OpEx coming in lower than forecasted resulted in our ability to report a non-GAAP loss from operations of $1.2 million during the fourth quarter compared to our guidance of a loss between $5.7 million and $6.6 million. Our income tax expense from the fourth quarter was $152,000 and our non-GAAP net loss was $1.4 million or a loss of $0.02 per basic share also exceeded our guidance of a loss between $6.3 million to $7.2 million where a loss of $0.10 to $0.12 per basic share. It should be noted that we ended fourth quarter with 63 million basic shares and 67.3 million diluted shares.

I’ll now quickly highlight our full year results. Total non-GAAP revenue came in at $72.9 million in 2011 which is up 13% compared to 2010. The growth was driven by the increase in non-GAAP smartphone revenues which grew 310% year-over-year to $41.9 million driven by a 1360% increase of our non-GAAP freemium revenues to $34 million.

The growth in non-GAAP smart phone revenues was offset by the 43% decline in feature phone revenues to $31 million. Non-GAAP operating loss for the full year total $3.1 million compared to the loss of $1.7 million during 2010. Non-GAAP net loss for 2011 totaled $4 million compared to a loss of $3 million in 2010. Non-GAAP net loss was $0.07 per share on 57.5 million basic shares outstanding compared to a net loss per share of $0.08 based on 35.4 million basic shares outstanding during 2010.

I would point out that our 2011 results included five months of operating expenses from Griptonite and Blammo games with only a modest amount of revenues. During 2011 we generated $125.8 million downloads of our games on the Apple and Android and other platforms, and ended the year with a 176 million total downloads. A full reconciliation of GAAP to non-GAAP financial measures was included in the press release we issued today.

There are two items that I wanted to point out on the GAAP income statement. The first is that our deferred revenues increased $4.7 million in the fourth quarter, $2.6 million was due to the growth in non-GAAP smart phone revenues from the third quarter representing a very strong December month, and an additional $2.1 million was due to a refinement in our revenue recognition calculation for our virtual currency.

Secondly, we incurred an incremental $561,000 of fair value adjustments related to the earn out from the Blammo games acquisition. I spoke extensively last quarter about the complexity in forecasting this GAAP expense line item. Given that one of the variables is the end of the quarter stock price we do not have the ability to provide guidance on this item.

Now, turning to the balance sheet, as of December 31st, 2011 our cash and equivalence balance was $32.2 million which was down from $36.9 million at September 30th, 2011, but above our expectations of approximately $29 million. The better than expected ending cash balance was primarily due to strong top line results and lower operating expenses during the quarter.

During Q4 we use $4.3 million in cash and operating activities and $736,000 on CapEx which was partially offset by $260,000 in cash received from stock option exercises.

Now, turning the guidance. For the first quarter of 2012, we currently expect non-GAAP revenue to be in the range of $17.5 million to $18.5 million which includes $14 million to $15 million in non-GAAP smartphone revenues. Our first quarter non-GAAP smart phone revenue guidance implies a 122% year-over-year growth at the high-end of the range and is essentially flat with Q4 2011.

The flat quarter-to-quarter guidance behind the range is due to three things, one is the additional week of Apple revenue in Q4, second is a reduced title of lease writing Q1 and then lastly a general slowdown in CPX advertising in the first quarter following the seasonally strong fourth quarter.

In addition total non-GAAP revenues are down quarter-to-quarter at the high-end of the range due to the continued decrease in the feature phone business. We expect non-GAAP gross margin to be approximately 84%. This is down slightly quarter-to-quarter due to the planned launch of Deer Hunter Reloaded in the first quarter, one of the few branded IP freemium titles we launched this year.

Our non-GAAP OpEx for the first quarter is expected to be approximately $20 million which reflects increased hiring and marketing expenses. Starting in the first quarter of 2012 we will be replacing our prior emphasis on non-GAAP operating margin to instead focus on adjusted EBITDA. The change to adjusted EBITDA removes depreciation from the prior non-GAAP operating margin measure and provided consistent reporting measures.

Adjusted EBITDA loss defined as non-GAAP operating loss less depreciation of approximately $600,000, is expected to range from a loss of $3.9 million to $4.7 million. We expect income tax expense for the first quarter 2012 to be approximately $550,000 and non-GAAP net loss expected to be a loss between $5 million to $5.8 million or a loss between $0.08 and $0.09 per basic share.

Excluding from our guidance for Q1 2012 from the non-GAAP figures that I just provided are $721,000 of amortization of intangibles in cost of sales, $495,000 of amortization of intangibles in OpEx, $43,000 of transitional and restructuring cost, and $941,000 of stock-based compensation. The $941,000 stock based compensation excludes any fair value adjustments when we use Blammo earnout for which we are not providing an estimate due to the issue that previously discussed.

Weighted average common shares outstanding for the first quarter of 2012 are expected to be approximately 63.3 million basic and 68.2 million diluted. In regards to the full year 2012, we currently expect non-GAAP smart phone revenues to be between $71 million and $75 million or up 69% to 79% compared to last year and feature phone revenues are between $8.5 and $10.5 million.

Given our outperformance in the fourth quarter 2011 and our guidance for Q1 2012 smart phone revenue, the full year 2012 smart phone revenue guidance will be less backend loaded. We expect to finish Q4 2012 with a slight non-GAAP operating loss and expect it to be breakeven on an adjusted EBITDA basis.

For the full year 2012 we expect 64.1 million basic shares and 70.4 million diluted shares. We continue to expect to burn cash throughout 2012, bill at declining rates each quarter until we hit cash or breakeven in early 2013. And we expect to end 2012 with double digit millions in cash equivalents, and as Niccolo mentioned we anticipate reaching profitability without needing to access the capital markets without taking on any debt.

I will close by saying that we are very pleased with our robust Q4 momentum we have going in 2012. We expect the combination of our growing installed base along with our strong balance sheet, and this includes remain a leader in the freemium social mobile gaming space.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Darren Aftahi with Northland Securities.

Darren Aftahi – Northland Securities

Hi guys, thanks for taking my questions and congratulations. Just three quick ones and then a housekeeping. I think your R&D number was $12.7 million in the quarter that tells us you are going to be the biggest cost traffic going forward. I mean how do you feel about that as a line item going forward as you grow your business. Is that something that’s going to grow dramatically or steady state, at $13 million something you can get leverage off on the revenue line.

Second question on Stardom, when do you plan to launch that on Android. And then third, as it pertains to China, how much of that is baked into your guidance for Apple? Thanks.

Eric Ludwig

Well, I will take the first and the third, thank you Darren Aftahi. So R&D line which was roughly $12 million this quarter, it is going to uptick small amount every quarter, getting to roughly kind of $13.25 million, $13.5 million by year end, but it’s not significant increases. This is more incremental hiring with some incremental effects for raises in cost with any adjustments. So we definitely will start to yield the leverage of the model as we mentioned by getting to adjusted EBITDA breakeven by the fourth quarter.

And then China being baked in the numbers, obviously our guidance on total smart phone revenue assumes all the different channels and territories. So, not exactly specifically sure the question was, but all revenues from all regions and all channels is baked into this guidance that we just provided.

Then Stardom coming on the Android, it will be coming towards the end of this first quarter.

Darren Aftahi – Northland Securities

Okay, just one follow-up, I just want to make sure because you ravel off a ton of numbers. In-app purchases in the quarter $1.25 million, is that correct?

Eric Ludwig

$1,522,000 transaction.

Darren Aftahi – Northland Securities

Perfect, thanks. I appreciate it.

Operator

Your next question comes from the line of Atul Bagga with Lazard Capital.

Atul Bagga – Lazard Capital

Hey you guys. Thanks for taking my question and congratulations on the great quarter.

Niccolo de Masi

Thanks Atul.

Atul Bagga – Lazard Capital

I have a handful of questions for you guys. I think you touched upon the non-incented ad and incented ad. Is it all seasonality or is something else going on in the space now?

Niccolo de Masi

You know, I put it pretty much all down to seasonality. As you can imagine pretty much every advertiser saves their bullets so to speak for the holiday season, and that’s true for publishers through to car companies. So from all we’ve seen and I'm sure you’ve kept tabs on what's going on in the press and blogosphere, ecosystems been pretty stable for the past six months otherwise.

Atul Bagga – Lazard Capital

Are you seeing any more willingness by the advertisers to use mobile as a channel. I think the continual quarter-on-quarter signs that the mass of advertisers whether it’s a P&G or something else from the consumer product space, is constantly looking and probing at a scale of this ecosystem, but supply is growing quickly in the mobile space, so to push up ECPMs you need advertiser demand to grow faster than supply, and so far I think, so you get the impression that they are kind of keeping in log step at the moment.

Atul Bagga – Lazard Capital

The second question I had is, there were a couple of things from Apple, not directly from Apple but what we have heard about, Apple has taken out some of the applications from app store and also there have been some things about the downloads. I just wanted to see your comments, how does that affect you guys?

Niccolo de Masi

Well, net-net we obviously partner really closely with Apple, Google, Microsoft, and we believe these three companies will be the winners of the smartphone platform space, and probably over the next five plus years you’ll see those three companies make inroads far beyond mobile only. So most of our titles get featured. We support all of these companies, new technology initiatives, and as you can imagine we are only hit pains to ensure that we are following exactly the kinds of behavior that they would look for in order to get that support. So, net-net tools on any of these store fronts we are probably a beneficiary of anything that reduces the ability of clones and copycats and other types of developer behavior to put out at times products that can clutter these stores.

Atul Bagga – Lazard Capital

In the past mode, I mean more specifically have any of these issues really affected your numbers?

Niccolo de Masi

Well, in the [indiscernible] market place there were certainly a huge amount of piracy and cloning going on, say 12 to 18 months ago, and Google made a big effort in consultation with developers such as ourselves, to climb down on that. So a lot of the growth that you seen in Android this year came from them reducing the ability of other developers to pirate whether Glu Games and Nintendo games and bunk them up in Android market, and they’ve also been better at curetting the store. They have also added things like in-app purchase and carrier billing and all of these things in tandem have obviously led to a tremendous boost particularly in the start of the year and in the middle year in Android revenues. So, yes, I thinks it’s undeniably a helpful trend for Glu when a eco systems savor investments in original high quality content over anything else.

Atul Bagga – Lazard Capital

Last question and I will get back in the queue. Japan, can you talk about what your strategy might be for Japan? Is this something which will be one of the focus area for you in 2012 or is it still… thank you.

Niccolo de Masi

So Apples and the Microsoft are obviously taking their stores to every country they can, and we are going to partner closely with them in doing that. Localizing content is something that obviously we are already doing with the Chinese markets and we are going look at other markets whether it’s Japan or Korea that we think offer great lifetime values, and you are undoubtedly going to see us exposed to that growth. We haven’t yet unveiled any more specific than that but I wouldn’t rule out us working through partners where it makes sense for channels that we don’t have an on the ground presence for, for channels that we don’t think fit with the rest of the global distribution strategy.

But our overall strategy is to remain integrated with publisher/developer business.

Atul Bagga – Lazard Capital

This is just to clarify the announcement we heard from Mobage. I think with Mobage, are you guys partnering with them, and that’s only for the western market not for the Japanese market.

Niccolo de Masi

We haven’t provided hugely more details on that tool, but you can imagine that given that we proved in the Android market place directly and the Apple market place directly these sorts of partnerships will be for channels that we don’t do a lot on. So, it’s most likely going to for Japanese carriers and that kind of thing.

Atul Bagga – Lazard Capital

Okay thank you, I will get back in the queue

Operator

Your next question comes from the line of Adam Krejcik from Roth Capital Partners.

Adam Krejcik – Roth Capital Partners

Hey guys good afternoon, couple of questions first on Stardom. Just wondering if you could talk a little bit about the customer demographic for this game? How it’s monetizing compared to some of your other games developed? And kind of your vision for the lifecycle of this game and where it can progress to – I guess what are your expectations?

Niccolo de Masi

This is I think by every measure the most successful casual game that Glu has developed and published. By successful I mean it’s held the highest top slot, and [indiscernible] clearly. I mean life time value in this product is significantly higher than it has been in any other casual title. You can see that when you look at the top three and top grossing charts you can see the Stardom always sits quite high up in the top grossing charts almost irrespective of where it is in the top three, and that’s because the users are highly engaged, they stick around a long time and over time they spend.

So we expect this product to have similar if not better lifecycle characteristics. It will be updated the same way that we update all of our titles. Where it is an ROI we’ll make the investment. Over time you will expect and you will come to a point where as with every title this one will be better served with a derivative or follow on product and simply perennially updating the same title, but still we are looking forward to getting this to Android and potentially other platforms, and you’ve obviously seen that the Valentines update already has made a positive impact in the past week or so. So there’s good legs and I expect to still be talking about this at next quarter’s earnings call with as much details.

Adam Krejcik – Roth Capital Partners

Okay, and how much of this game are you guys kind of banking in for your guidance? I mean is this kind of the potential upside drivers if you guys come in well ahead of your guidance again in Q1 like you did this past quarter.

Eric Ludwig

Well, I mean I'm not going to talk about exactly where the upside would be, but and we have got a light release this quarter with a lot of back end components to that release slide. So really the strength of our guidance in Q1 usually coming off the catalogue of titles that we have in the fourth quarter, you’ve met titles staying in the top grossing, you can probably assume this good amount of assumption that we have are precious in nature of titles both from last year and fourth quarter driving our Q1 growth or driving the Q1 smartphone revenue.

Adam Krejcik – Roth Capital Partners

Got it, and then this team Blammo, are they working on anything else or can you kind of give us a sense? I mean are they going to be focused on this entirely? It seems like they have a pretty good track record so far, so just trying to get a sense for – are there other projects they are working on or what?

Niccolo de Masi

Well, there is clearly a wonderful core competence that’s why we were pleased to make the investment ultimately to structure an acquisition, and we are going to invest in growing that location with the core competence that this clearly established. You will see games that are mass market games that appeal to male and female pretty nicely, actually when started it was pretty nicely balanced we believe between male and female, and so I think this will be seeing more of that in future new titles as well as obviously looking at whether or not there is derivatives of things like Stardom that can be maybe reutilized some of the engine components. So there is not going to be some wearing off to have Blammo focus on trying to make Blood and Glory II or something.

Adam Krejcik – Roth Capital Partners

Okay. And then lastly Niccolo I think you mentioned on Android you expected it to slow down over the near or midterm or maybe I missed that, just could you kind of expand on your commentary about the growth of the Android market and your guys exposure to it.

Niccolo de Masi

Well, we think we are most exposed company, we think we are the leading Android freemium games company overall globally. What I said was I didn’t expect the percentage of smartphone revenues from Android to be expanding significantly in the medium term. In the long term they probably will. In the medium term what you have seen with Q4 is that Apple still is doing an outstanding job putting out record breaking smartphone shipment of 4S. If they continue to do that you are going to see the iOS continues to grow at the same rate that Android is growing. So this is really good news for Glu overall, right, because it means that both Android and iOS are keeping a good clip up as we see the year and out.

Eric Ludwig

But Adam, I mean our guidance year-over-year for full year to full year was 75% in the midpoint growth in smartphone revenues, so despite the percentage not changing on the Android you could expect the Android as a percent of revenue to grow at least by 75% in absolute dollars year-over-year.

Adam Krejcik – Roth Capital Partners

Got it. Thanks guys.

Operator

Your next question comes from the line of Mark Argento with Craig Hallum Capital.

Mark Argento – Craig Hallum Capital

Good afternoon guys. Just a question around number of titles, I think you mentioned you guys published 28 games in 2011, you are hoping 20 plus in 2012. Could you fine tune that number maybe a little bit for us and just trying to get a better idea of what you are thinking about in terms of revenue per game, should it clearly pace ahead of what you are guiding the smartphone revenues at 75 plus percent at midpoint for the year. But trying to better understand kind of what you are looking at and how you are thinking about modeling or the kind of the number of games that you are going to put out.

And then my second question would be you know thinking about kind of your mix of casual games versus kind of more of the action/adventure games that you’ve had success. Do you see just skewing a little bit more towards the action adventure where you’ve had the access and kind of the Hitch you had looked like most of all those were in that genre just trying to better understand fine tuning the kind of the model I'm thinking about the mix of games.

Niccolo de Masi

Okay. So we said last quarter that we expected about 75% of titles to be in the action/adventure space and that’s still where we are. We do have obviously one or two good casual teams, but out of Glu’s total 20 plus teams the vast majority clearly have action/adventure affinity and we want to build on that. In building on that you are going to see us support not only titles that have gone out late last year, and that’s the Q4 successes, you see us supporting those through this year, but you also investing in bigger follow on and derivative products as well as bigger, higher quality action/adventure titles in the second half of this year that are new.

If you look at that kind of those statements and submission you can garner that we have a fixed number of teams, some of them supporting Q4 successes, some of them are going to roll off 2011 products and reload to build another title. But if we are trying to up the bar with production values over time we expect revenue per title to grow, but we always said that we were going to put out fewer and fewer titles the more successful we get, because teams will get more consumed supporting big user bases and big revenues.

We also realize that there is an advantage to Glu in making investments for longer going bigger with higher production values or titles, because it cuts through that clutter and it’s an absolute differentiator. So that will be the philosophy that we carry through the rest of 2012. You know build on the success and the flaws of 2011, obviously invest in the new found success, Blammo Games in casual, but there is not going to be a departure from those sorts of philosophies in the next 12 months.

Mark Argento – Craig Hallum Capital

How many games did you have that were active I guess at the end of the year?

Eric Ludwig

Active, the titles that Niccolo and I talked about, we launched four various successful titles in Q4, and we had five other persistent titles. All nine of those titles were active in the sense that we had development teams still continuing to add content and provide updates. So that would be probably a real active title definition. The other titles are still generating revenue, even the Men versus Machines, and other titles have, the team has moved on. There is still – those are still live titles that are still generating revenues though at a much less meaningful click.

Mark Argento – Craig Hallum Capital

Once you have Griptonite fully up and going in terms of production how many total teams you guys have?

Niccolo de Masi

Well, we always said the Griptonite has got about 10 or 11, and we had about 10 or 11 at Glu prior to these acquisitions. So, you should think of the whole company as 22, 23 something like that.

Mark Argento – Craig Hallum Capital

All right. And then, any major change, I know it sounds like – with the success or at least initial success you’ve had with the Blammo guys around Stardom, hopefully reloading a couple of titles behind that. From a talent perspective, are you comfortable with where you are now in terms of that DNA or are you, you know, could we see you guys make some more acquisitions out there in the mobile space in terms of some casual gaming talent.

Niccolo de Masi

We are pretty comfortable with the approximate 600 people we have now. We feel we have got enough location with talent pool that we can grow each of them organically. There is a continual pruning exercise every quarter, growing teams, shrinking teams, growing location, shrinking locations, subject to success. So we never think we have reached the finishing line with regards to improved ability of talent base, talent teams, studio locations, and of course driving those synergies between all of these teams and locations, which we are spending – we’ve always invested in, we’ve always run a Glu university program that gets those synergies driven out for the past year or two, but we are getting better at this. I mean we are getting better at everything Mark. So, I think you are going to see us slowly but surely continue to grow not only the size of the operation, but the quality quarter-on-quarter here at Glu.

Mark Argento – Craig Hallum Capital

Then last question. Eric, I know you had mentioned that in the quarter that there was an adjustment for the way you guys were recognized in some deferred revenue. I just wanted to see if you could give me a two liner on that to better understand it.

Eric Ludwig

Yeah. So, in the fourth quarter we were finding a policy on virtual currency. Previously we were recognizing over three months and we have added an incremental deferral of 15 days to go to a mid quarter convention versus a beginning of quarter convention for each of the months of revenue.

Mark Argento – Craig Hallum Capital

Great. Thanks guys.

Operator

Your next question comes from the line of Scott Searle with B. Riley & Company.

Scott Searle – B. Riley & Company

Good afternoon. Thanks for taking my questions. Eric, I apologize if you covered this earlier, but did you give a number for China in terms of your feature phone revenue, and also in terms of the dollars per the average micro transaction during the quarter.

Eric Ludwig

The first one you are talking about is $5.79 down from $6.40 the prior quarter and the number of in-app purchase billable transactions went up to $1,522,000. So, overall, revenue grew significantly in in-app purchasing. Slight mix shift down in terms of pricing. That was just due to more programs that we ran. Then China we did not break our feature phone. Our feature business is now only 25% of the total revenue, and in terms of overall revenue feature phone legacy China is a very small number.

Scott Searle – B. Riley & Company

Got you, and then just in terms of monetization of the different platforms you indicated that Android was doing very well. I'm not sure if you gave any numbers on that front. I was wondering Niccolo if you could provide a little bit more color just in terms of how that’s monetizing versus iOS. And may be also give us some idea how tablets are monetizing versus smartphones right now to give us some sort of an idea of how that’s progressing.

Niccolo de Masi

Well, we break out the percentage of total smart phone revenues that come from Android and we said that was approximately 30% for the quarter of the $15 million, and that’s across all Android. So you know the Android market that Google operates is the largest and most successful channel for Android games by a long margin. But there are other places. I mean carrier stores are allowing Android content, there is a couple of third party providers. Amazon of course has their own store and their own device, and there is numerous other channels that we take advantage of once we’ve made an Android title.

We’ve seen that overall on a per user basis nothing has matched or surpassed the average revenue per user that iOS generates and that’s true for both phones and tablets. Generally speaking, we believe that tablet users are probably the kind of demographic and the kind of device that will generate more annual revenue per user than you will find on something with a smaller foam factor. But we don’t have particularly, I would say tight statistics on how tablet users compare by manufacturer for Android or how they compare from things like the Amazon Kindle Fire versus an iOS tablet. We just know that they are significant and they are not cannibalizing phones which is really good news for Glu. Because mobile devices are cannibalizing non-mobile devices as entertainment medium, and all of that benefits Glu in terms of overall aggregate gaming ecosystem.

Over time I expect it to reach parity, so I would expect – I don’t know if it’s in a year or two years, but the fact that Android market place is using carrier billing means that I think as emerging markets gravitate towards Android phones and they are able to transact and pay for goods without a credit card you are going to see that the average revenue, and certainly total revenue from Android will catch up to iOS. That’s all very good news for Glu because we are uniquely able to make our content work on hundreds of Android devices very, very efficiently. We are long term builds on anything Android. That’s for sure.

Scott Searle – B. Riley & Company

And lastly, in terms of the new title slate, did you give approximate dates about when we should see some of the new titles hitting in, and also just Eric in term of R&D bumping up a little bit as we go forward here, is that related to increasing cost per title or is it really just a little bit more aggressive in terms of the number of titles you would expect in the current quarter but really gearing up over the course of 2012.

Eric Ludwig

Yeah, sure Scott, thanks for the questions. In terms of the title releases we just released Rouge Racing about a week ago. So that is the first of the five titles in the second and first quarter and the other titles will be coming out king of between now and middle to end of March so, at the end of March they work backwards, the other titles will be releasing kind of backwards from there to mid February.

And then in terms of R&D the small uptick in R&D kind of quarter to quarter to quarter, there are still some continual hiring that we have, one to round out some of the current dev teams. And then towards the end of the year, we do have some additional development teams that we’re adding on board on some location. So part of it is filling in the teams, another part is adding a couple of teams in the back half of the year.

And then just a classic April race is that we have for employees globally, so there is some uptick from that as well.

Scott Searle – B. Riley & Company

Thanks, nice quarter.

Eric Ludwig

Thanks Scott.

Operator

Your next question comes from the line of Dan Cheney [ph] with Morgan Keegan.

Unidentified Analyst

Hi, guys thanks for taking my question. This is [indiscernible]. Just wondered if you could go over again your dial and mail metrics for Q4 and then talk about what you see for them over the next year?

Eric Ludwig

Yes, thanks for the call. Yes, we have 2.9 million daily activities in the month of December, 31.4 million monthly activity in the month of December, both of those were up nicely quarter to quarter. Downloads in the fourth quarter 2011, we had 44.7 million downloads of our titles on Apple, Android, and other platforms for our year ending cumulative of 176.1 million.

In terms of what that trend looks like quarter to quarter, year-over-year in the forecast, we don’t really provide forecast on what that is just given it is dependent upon title release dates and times except the title themselves, monetization of titles, so titles are starting to monetize better, so you can have a different revenue factor with different titles. So we’re not trying to give guidance on those metrics.

Unidentified Analyst

Okay, thanks you.

Operator

[Operator Instructions] You have a follow-up question from the line of Atul Bagga with Lazard Capital.

Atul Bagga – Lazard Capital

Hi guys, thanks for taking my call again. I was wondering, you talked about your total number of installs 176, can you just share with us what the total number or unique UDIDs that you have?

Eric Ludwig

Yes, that's something that we are breaking out right now.

Atul Bagga – Lazard Capital

Okay, fair enough. And then I think on tablets, any kind of tablets iPad, Android or Kindle, can you talk about what percentage of revenue is coming from tablets versus smartphones now, and what’s the growth trajectory on tablets versus smartphones?

Eric Ludwig

Yes, so we’re also breaking that out though I think the metrics out there almost Apple and the Android, I think the Apple iPads are 15ish to 20ish percent of the overall installed base. Those devices do monetize better, so whatever that install base would be certainly on iOS, you can expect the number in terms of revenue would be that number or above in terms of percentage of revenues. They do monetize better. But we don’t have – we’re not providing any more granularity on that metric.

Atul Bagga – Lazard Capital

Okay, and the last one, you mentioned for 2012 you can expect to see 20 plus games, can you talk about what percentage of these games would be coming from your own studio versus Blammo versus Griptonite? Thank you.

Eric Ludwig

Yes, sure. Thanks as well. So yes, we’ve said 20 plus games. What we have said publicly Griptonite, there will be at least 11 games coming from Griptonite from these 10 to 11 teams that Niccolo mentioned. Blammo we’ve said had started in Q4 this past year, there was an additional title coming in the second quarter from Blammo, and most likely an incremental title towards the second half of the year. That’s really what we’ve said publicly about the acquisitions and the number of titles coming from them.

As Niccolo mentioned depending on upon how successful the other launches are if the titles persists and the teams persists you may have the smaller number of titles launched in for the rest of the year, just given the successful titles have persistence in them.

Atul Bagga – Lazard Capital

Just so I understand this, can you talk about a little bit about let's say title can Contract Killer, in terms of when the title was in development stage what was the team size and now what might be the team size for that title?

Eric Ludwig

Yes, so that title Contract Killer, the original that was launched at the end of March 2011 had about a 10 to 12 person development team, about six to seven month development cycle, and that title today still has about the same team size roughly dedicated to it.

Atul Bagga – Lazard Capital

Perfect, thank you so much.

Eric Ludwig

Thanks Atul.

Operator

You have a follow-up question from the line of Darren Aftahi with Northland Securities.

Eric Ludwig

Hi Darren.

Darren Aftahi – Northland Securities

Hi Eric, hypothetically if Apple was to introduce device for the living room like a television, can you talk a little bit about timeframes and incremental costs to port your current applications to a larger screen? Thanks.

Niccolo de Masi

Sure. The good news for Glu is that we already invest in big canvas sizes and high resolution art for all of our Q4 2011 titles onwards. So games like Blood & Glory and Frontline Commando, it would also not only hypothetically work well if Apple introduced something for a living room, but it would work well if taken in places like the Mac store which has even bigger screens than tablets. So, we are thinking of course about long-term futures where Apple, Google, Microsoft, as I said in earlier questions, do play a bigger role in gaming generally and it’s not just on the phone, I think PCs and living room. I think all three of these companies over the next five plus years have to have a convert strategy, and so will by the way other companies like Sony and Samsung, all five of these can stitch together call it a quadruple play of tablets and phones and laptops in living room.

Good news for Glu is, I expect all of these players to want to run semi-curated or curated store front experiences. So, the kinds of relationships we have, the way we work, the kinds of games we build, showing off the hardware this whole philosophy is going to stand us good stead with all five of these companies over the next few years.

Darren Aftahi – Northland Securities

Great, thank you

Operator

At this time there are no further questions. Gentlemen, are there any closing remarks.

Niccolo de Masi

Okay. Well, we thank you all for attending. We would also like to thank my colleagues and our shareholders for the support, as we continue to build momentum we become the world’s leading freemium mobile gaming company. Thank you again for joining the call and we’ll speak to you next quarter.

Eric Ludwig

Thanks a lot.’

Operator

This concludes today’s Glu fourth quarter and full year 2011 earnings results conference call. You may now disconnect.

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