King Digital Entertainment Plc (KING) Riccardo Zacconi on Q2 2015 Results - Earnings Call Transcript

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King Digital Entertainment Plc (BATS:KING) Q2 2015 Earnings Call August 13, 2015 4:30 PM ET

Executives

Alice Ryder - Vice President-Investor Relations

Riccardo Zacconi - Chief Executive Officer & Executive Director

Stéphane Kurgan - Chief Operating Officer & Executive Director

Hope F. Cochran - Chief Financial Officer

Analysts

Dean J. Prissman - Morgan Stanley & Co. LLC

Douglas T. Anmuth - JPMorgan Securities LLC

Stephen D. Ju - Credit Suisse Securities (USA) LLC (Broker)

Dylan Haber - RBC Capital Markets LLC

Deepak Mathivanan - Deutsche Bank Securities, Inc.

Mike J. Olson - Piper Jaffray & Co (Broker)

Ryan Gee - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Chris Merwin - Barclays Capital, Inc.

Operator

Hello, everyone, and welcome to King's Second Quarter 2015 Earnings Conference Call. My name is Ian, and I'll be your conference operator today. At this time, all participant lines are in a listen-only mode and will be opened up for the question-and-answer session.

At this time, I'd like to introduce Alice Ryder, Vice President of Investor Relations. You may begin.

Alice Ryder - Vice President-Investor Relations

Thank you, Ian. Hello and welcome to King's Second Quarter 2015 Earnings Conference Call. Joining me today to talk about our results are Riccardo Zacconi, our Chief Executive Officer; Stéphane Kurgan, our Chief Operating Officer; and Hope Cochran, our Chief Financial Officer.

The format for today's call will be as follows. Riccardo will lead off with an overview, Stéphane will update you on our operations, and Hope will discuss our financial results and outlook. We will then move to a question-and-answer session.

Before we get started, I would like to remind you that our remarks today will include forward-looking statements, and actual results may differ materially. Factors that could cause these results to differ materially from those contemplated by our forward-looking statements are set forth in today's press release and our Form 20-F filed with the SEC on February 13, 2015, and our Form 6-K we expect to file on August 14, 2015. Any forward-looking statements that we make on this call are based on assumptions as of today. And we undertake no obligation to update these statements as a result of new information or future events.

During this call, we will also present both IFRS and non-GAAP financial measures. A reconciliation of IFRS to non-GAAP measures is included in today's earnings press release. In addition, all mentions of EBITDA and EBITDA margin during this call refer to adjusted EBITDA and adjusted EBITDA margin respectively. The press release and an accompanying investor presentation are available on our website at investor.king.com, where our webcast replay of this call will also be available.

And now, I would like to turn the call over to Riccardo.

Riccardo Zacconi - Chief Executive Officer & Executive Director

Thank you, Alice, and thanks to all of you on the call for joining us today. I'm pleased to report our second quarter 2015 results and the progress we are making on our strategic objectives.

We continue to prove the strength and profitability of our business. In Q2, gross bookings of $529 million, exceeded the high-end of our guidance, on the back of strong performance from our global franchises. We continue to operate the business profitably, generating $207 million of EBITDA and EBITDA margin was greater than 40% for the eighth consecutive quarter.

We're also executing on our strategy, strengthening our leadership in casual games, leveraging our massive network and marketing capabilities to enter new genres beyond casual, and expanding our reach to new geographies and platforms.

First, I want to talk about how we have been strengthening our leadership in casual games and leveraging our franchises for this purpose. We have made significant strides, executing on our franchise strategy by adding new content, expanding the use of live ops, releasing a new extension in Candy Crush Saga, and developing the next generation of franchise titles for each of our four franchises.

The actions we have taken to extend the lives of our franchises and strength of their brands are reflected in our Q2 gross bookings and are also evident in our Q2 app store rankings. Candy Crush Saga, Candy Crush Soda Saga and Farm Heroes Saga again were top 10 grossing games in the U.S. on iOS and Google Play for Q2, making it the sixth consecutive quarter we have had at least three titles in the top 10 grossing game charts in one or both stores.

We have also delivered on our plan to launch high-quality games in new sub-genres of casual. In June, we launched our first word game, AlphaBetty Saga, on mobile, which not only became the number one download in the game category in the U.S. on iOS and Google Play, but is also the top grossing word game worldwide. In addition, yesterday we launched Scrubby Dubby Saga on Facebook, our first game with a slider mechanics, and look forward to launching it for our mobile players very soon.

At King, we are focused on building a portfolio of games for our network of players, and with this latest launch, we now offer our players 13 titles in eight different game categories, including switcher, clicker, bubble shooter, physics, card, word, and now slider. As a result of expanding our portfolio to offer our players a broader and more diverse selection of games over the past year, and putting our marketing capabilities behind these games, MAUs, DAUs and average daily game plays increased year-over-year. And we continue to maintain a massive player base with 340 million MUUs in Q2, which provides us with a key strategic advantage in cross-promoting our new games as they launch.

Turning to our second strategic objective, leveraging our massive network and marketing capabilities to expand beyond casual games, in addition to the seven game categories I mentioned, we also recently launched our first resource management game. We are thrilled to have launched Paradise Bay, our first non-casual game and first title from our Seattle studio.

Paradise Bay has an immersive story line in a lush tropical island setting with captivating graphics. The game incorporates a rich and strategic game play, which the team has been working with thoughtfully and analytically to fine-tune in order to meet the high standards our players have come to expect from King games.

As a result, when the game launched on the Apple App Store last Thursday, it was featured as one of the best new games and has already become the number one game download on iPad in several key markets, including the U.S., U.K., France, Germany, Italy, Japan and Brazil. We look forward to the second phase of the mobile launch when we release the game on Google Play soon and to reporting the game's progress next quarter.

Before I hand it over to Stéphane, I'd also like to update you on our third and final strategic objective for 2015, which is to expand our reach in new geographies and platforms. During Q2, we expanded the catalogue of games we offer on our newer mobile platforms, with the releases of Candy Crush Soda, AlphaBetty and Bubble Witch 2 for Amazon's app store. In addition, we launched our first game for Windows 10 in conjunction with its worldwide launch on July 29. As a result, Candy Crush Saga is now available to all Windows 10 players.

With respect to new geographies, in line with our global strategy of expanding our portfolio of games in order to attract and retain players, we continue to expand our catalogue of localized games in key Asian markets. We launched Pet Rescue in Korea and on iOS in China. Candy Crush Soda was also launched on iOS in China, and Pyramid Solitaire was launched for Japan. In addition, we released Paradise Bay worldwide last week. We simultaneously launched localized versions of the game in these three Asian markets, achieving this milestone for the first time.

And with that, I'd like to turn it over to Stéphane for a discussion of our operations.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Thank you, Riccardo.

In Q2, we executed on our strategy for our four franchises. As a result, our Q2 gross bookings exceeded the high-end of our guidance range, and we saw double-digit year-over-year growth in our mobile DAUs, MAUs and MUUs. As discussed before, we have a four-pillar operating framework for our franchises: content, live ops, extensions and new titles.

On content, we continue to release high-quality new content in our existing franchise titles, while optimizing existing content for the evolving cohorts of players progressing through our games. We passed a big milestone, as both Candy Crush Saga and Farm Heroes Saga now offer players more than 1,000 levels to enjoy. Live ops are time-based events, which we run in our games. In the past quarter, we've widened the deployment, increased their frequency and introduced many fresh formats. Live ops have become a key feature of our franchises, and you're going to see much more activity in that space, including greater localization of events.

The third pillar of our franchise operating model is to deploy at least one extension per year for each franchise. In May, we released the Sugar Track extension for Candy Crush Saga, which enables players to earn boosters by collecting special sugar drop candies on certain levels. We were pleased to see that Sugar Track drove engagement, retention, and monetization.

An important aspect of live ops and extensions is that they offer fresh content and missions to all our players, regardless of the level they have reached within our games. As a result, these features are very complementary to our content releases that target a minority of highly engaged players at the end of our games.

The final and key pillar of our multi-year franchise operating framework is the development and launch of sequels, or sister titles similar to Candy Crush Soda and Bubble Witch 2. All of our four franchises now have their next title in production, and we expect to release at least three of them by the end of 2016. Planning further ahead, three of our franchise teams are also prototyping the following generation of titles for 2017 and beyond.

Now let's talk about our other casual games. We launched AlphaBetty Saga in June on mobile, and it became the number one game download on both the Apple App Store and the Google Play Store in the U.S. within three days of launch, demonstrating the power of our cross-promotion energy. AlphaBetty also met our goal of having the number one game within each of our key casual sub-genres by becoming the top grossing word game globally on iOS and Google Play within two weeks after its launch.

You should know that, as expected from a game in the word sub-genre, monetization has been softer than our other games. However, AlphaBetty contributes squarely to our strategy of maintaining our massive player network by leading its sub-genre, attracting new-to-network players, and helping to foster loyalty among our existing players who also enjoy word games.

Yesterday, we also launched our second casual game of the year, Scrubby Dubby Saga on Facebook. Scrubby is our first game using the slider mechanic, and we are excited to introduce this new game mechanic to our players and look forward to launching it on mobile soon.

Turning to our strategy of launching games beyond casual puzzle categories, last week we launched Paradise Bay, our first resource management game on iOS. When we enter new categories we do it with a deep commitment to succeed. As such, we did launch the game later than we had initially anticipated. As we felt, we could improve the player experience with more polishing and tuning.

So we were delighted when Paradise Bay received Apple's App Store Editor's Choice featuring in 85 countries and countless more features in the rest of the world. We are pleased so far with the launch, and the game has received an outstanding reception from our players. While it is still early, Paradise Bay has already reached the iOS top-10 grossing list for games in France, Germany and Italy and we look forward to learning more about how the performance of our first game in that category will shape up over the medium to long-term.

We plan to launch the Android version on Google Play soon and we'll keep ramping up our marketing campaigns accordingly. From our experience with Paradise Bay, we've learned that the tuning and polishing of our non-Saga games might take more time. So as we look at our mid-core development efforts, we have accordingly allowed more time for these processes and are now expecting to launch our first mid-core game next year.

That said, with the three new titles we've launched year-to-date, we're starting to see the payoff from our sustained investment in our studio infrastructure. Our studios are working on numerous titles across several categories, which are at various stages of development. We are on track to launch another two to three mobile titles in 2015, including Scrubby Dubby, which is in line with our 2015 target of one to two mobile titles per quarter from Q2 onwards. Looking forward to 2016 and beyond, we continue to target one to two mobile launches per quarter and expect the 2016 roadmap to include more franchise titles than 2015.

From a platform perspective, Web gross bookings continued to decrease, reflecting the secular decline of fewer players playing games on desktop which we have discussed before. On the other hand, our mobile players continue to demonstrate year-over-year growth in Q2, and mobile represented 81% of total gross bookings for the period. We, therefore, expect our future growth to come from mobile and are focusing our development resources on games for this platform.

I will now turn the call over to Hope to discuss our financial results and outlook.

Hope F. Cochran - Chief Financial Officer

Thank you, Stéphane.

In Q2, we beat the top end of our gross bookings guidance range by $9 million and exceeded on our EBITDA margin at 41%. Gross bookings were $529 million above the high-end of our guidance range of $490 million to $520 million. Our EBITDA was $207 million, resulting in our eighth consecutive quarter with over 40% EBITDA margins.

As we discussed last quarter, our Q2 outlook took into account four factors: release schedules, seasonal patterns, FX fluctuations and reduced players on the Web platform. Our Q2 over-performance was primarily due to our increased efforts in the franchises, including high-quality new content, more frequents and new formats of live op events, and our release of the Sugar Track extension in Candy Crush. As a result, once again in Q2, we had three franchise games in the top 10 grossing games on iOS and Google Play in the U.S. Our results highlight the longevity of our franchises, the strength of our brand and the effectiveness in executing on our franchise strategies.

Currency fluctuations do continue to impact our business. FX had a smaller sequential impact this quarter than in previous quarters, but the fluctuations over the past year will continue to impact our year-over-year comparison throughout 2015. As we have said before, our largely European operations create a natural hedge in our expense base that partially offsets the FX impact to our top line. Taking into account the FX shift from Q1 to Q2, Q2 2015 gross bookings would have been $9 million higher, and EBITDA would have been $4 million higher on a constant currency basis. Comparing year-over-year on a constant currency basis, Q2 2015 gross bookings would have been $47 million higher, and EBITDA would have been $18 million higher.

As noted, we also continued to see declines in our web bookings, which were down 35% compared to Q2 2014. Our mobile gross bookings were $430 million, representing 81% of total gross bookings in Q2, up from 75% a year ago. And on a constant currency basis, mobile gross bookings would have increased slightly year-over-year.

Q2 revenue and adjusted revenue were $490 million and $500 million respectively; the difference primarily being deferred revenue. We also had $7 million of other income from partner-funded development projects.

Next, I'll discuss our network metrics. Our user reach remained massive, even after sequential declines, which were in line with those of gross bookings. In Q2, we had 340 million monthly unique users, down 1% year-over-year; 501 million monthly active users, up 3% year-over-year; and 142 million daily active users, up 3% year-over-year. Q2 average daily game plays were approximately 1.4 billion, up 8% year-over-year. As Stéphane mentioned, our mobile DAUs, MAUs and MUUs all had double-digit year-over-year growth.

With respect to monetization, Q2 monthly gross average bookings per paying user, was relatively stable compared to Q1 at $23.26. Monthly unique payers were 7.6 million in Q2, representing a sequential decrease of 11% from Q1. Similar to our past experience, the decrease was driven by a decline in the payers who only pay in one game, primarily Candy Crush. We believe the decline in payers also reflects the trends that we have been experiencing in Web business and was impacted by the amount of time between our new game launches.

Now, turning to the bottom line. In Q2, we once again demonstrated the strong profitability and cash generation of our business. Q2 EBITDA was $207 million, and our EBITDA margin of 41% remains among the highest in the industry and continues to demonstrate our highly variable cost structure. And as a reminder, our margins are based on adjusted revenue, which we book gross before platform partner fees. In Q2, we exceeded our EBITDA margin target, primarily due to the variable nature of the expense structure and the nonrecurring other partner income, but also because launches were moved to later in the year, shifting the corresponding marketing expenses.

We generated profit of $119 million and adjusted profit of $155 million in the quarter. Diluted and adjusted earnings per share were $0.38 and $0.49 respectively. We generated $151 million of net cash from operating activities and had modest CapEx of $13 million to end the quarter with $786 million of cash and cash equivalents. Finally, in Q2, we repurchased approximately 900,000 shares for $15 million under our open market buy-back program, bringing the aggregate repurchases under the program to $126 million or 8.2 million shares.

Now, let's turn to our outlook. As we look at Q3, we are looking forward to seeing continued benefits from the investments in our franchises. We are also excited about our recent launches of Paradise Bay and Scrubby Dubby Saga. These games have both been launched mid-Q3 and are each currently available on only one platform. We are looking forward to releasing these new titles on additional platforms soon.

Our outlook for Q3 takes into account the fact that we launched games later than we had anticipated, as well as the current trends, including the secular decline in Web, which we have discussed previously. As a result, we expect Q3 gross bookings to be between $460 million and $485 million. We anticipate EBITDA margins in the mid-30s% for the quarter, reflecting increased marketing investments for the new game launches.

Looking towards the remainder of the year, we expect solid performance from our franchises. As you know just in the past week, we've launched two new games, one in a new genre. We are excited about the market's initial response, but recognize that our data on their long-term performance is limited. In addition as discussed earlier, we now expect our debut into the mid-core category to shift into 2016.

Taking all these factors into account, we currently expect Q4 gross bookings to be in line with Q3, and we'll have a more informed basis to update our view when we report next quarter. We expect our EBITDA margins will continue to be strong but fluctuate with game launches. For the year, we expect it to be just a few points lower from 2014 due to the VAT changes, investments in R&D, and marketing.

I will now turn the call back over to Riccardo for some closing comments.

Riccardo Zacconi - Chief Executive Officer & Executive Director

Thank you, Hope. I want to summarize with some key points on our strategy and the future. We believe in our strategy, and we are well positioned to deliver on it. Our business is very strong and profitable with industry-leading EBITDA margins and very healthy cash generation.

We have several global franchises. The strength of our brands and longevity of our franchises is evident with three top-10 grossing games in the U.S. on one or both of the Apple and Google Play stores in the past six quarters. We believe we are the number one mobile games developer in the Western world by reach and can leverage our network and the strength of our marketing capabilities to introduce new and existing players to our high-quality games.

We have great studios around the world with proven teams who are focused on creating games that define their category. And I'm excited about the games we have in the pipeline. We are focused on extending our leadership position in casual, as well as expanding into new genres and geographies, where we see attractive opportunities. In summary, we are confident that with our significant assets and strategic focus, we are well positioned to continue to succeed in the mobile games industry, and I look forward to updating you on our progress in the next quarter.

And with that, I'd like to open up the call for questions.

Question-and-Answer Session

Operator

At this time, we will be opening the queues for our Q&A session. Your first question comes from the line of Dean Prissman with Morgan Stanley. Your line is open.

Dean J. Prissman - Morgan Stanley & Co. LLC

Good afternoon. Thank you for taking my questions. Hope, as it relates to your 3Q bookings guidance and 4Q commentary, can you discuss either quantitatively or qualitatively your expectations for Paradise Bay? And then as a follow-up, what percentage of your head count is dedicated to games in development versus games that are currently in the market right now? Thank you.

Hope F. Cochran - Chief Financial Officer

Thank you, Dean, it's great to have you on the call. Paradise Bay, we are very excited to have it out in the market. As you know, we released it last Thursday, and we are thrilled with the initial reaction that we are receiving in the market as we've seen it go to the top charts quite quickly. We do have to recognize that we've launched it on iOS only, and it's relatively new, and as well as a new genre for us. So we're learning about the pattern of the game and the longevity of the game. I can't specifically quantify for you the amount of impact in Q4 as we're still monitoring that. But overall, we've been very pleased with the trajectory that it is taking place currently. In regards to the development size of our head count, I'll turn that over to Stéphane.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Yes. Thank you, Hope. So taking into account the recent launch of Paradise Bay and Scrubby, we have more than a majority of the head count which is working on games under development right now. So we probably – we're at about 60/40, so 60% working on games under development versus 40% on live games, and I think we're probably around 55% to 45% right now.

Operator

Our next question comes from the line of Douglas Anmuth with JPMorgan. Your line is open.

Douglas T. Anmuth - JPMorgan Securities LLC

Thanks for taking the question. First, I just want to ask on the two to three more mobile games this year, and each one of them including Scrubby. Could you just give any color on what kind of games those are, in particular, now that we know that the mid-core has moved into 2016? That's my first question. And then second, Stéphane, if you could just talk to us about how Paradise Bay might be marketed differently than the Saga games given kind of the differences in terms of resource management and everything? How has that changed your approach to the games? Thanks.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Sure. So thanks, Doug. As to the first question, you know I think we've announced that we would be diversifying beyond our core casual puzzle game genre with resource management and mid-core. We've just launched resource management, and we've just shared with you that our first mid-core launch would take place next year. And so, obviously, what's left is our games in our core casual puzzle genre.

As to the second question, as you know we think one of the big factors behind those success is the fact that we've been very disciplined in our marketing execution. We've been very fast at experimenting with new channels. We've been big users of Facebook, very early users of all the mobile advertising networks and the first truly (27:17) mobile gaming company to go back to TV, but we've always done that with a very disciplined framework, focusing on return on investments, looking at every dollar we spend to make sure that we get the right return on every dollar being spent.

Now as we look at moving into other genres, we think we can apply that methodology and that framework to scale in new genres as we have been scaling in our core-casual genres. So we're going to be looking at the same mix of channels and the blend or the weight of the various channels might be first subject to what we see in terms of performance, but we will be looking at using the same set of rules and the same parameters to generate returns and shareholder value.

Operator

Our next question comes from the line of Stephen Ju with Credit Suisse. Your line is open.

Stephen D. Ju - Credit Suisse Securities (USA) LLC (Broker)

Okay. Thanks. So Hope or Riccardo, any color you can share in terms of how much of your mobile bookings are coming from the App Store versus Google Play at this point? And Stéphane, sort of directionally as you launch more mid-core titles next year, would you expect your paying conversion rate and MGABPPU to trend relatively higher, but have a more muted impact on the MAUs? Thanks.

Hope F. Cochran - Chief Financial Officer

Thanks, Dean (sic) [Steve] (28:40). I appreciate the question. You know clearly as we look at our $529 million in gross bookings this quarter, 81% of them came from the mobile platform. So you're right to point that out. And when we look at the breakdown between Apple and Google, we don't break it down specifically; but we have always said that Apple does tend to monetize at a higher rate, and I think a lot of that is just due to the selection of devices that are utilized with that App Store, meaning they're high-end devices. What we find is that the high-end devices for Google tend to monetize at the same level as the high-end devices for Apple, it's just that there's more devices in the Google inventory so it monetizes slightly less.

And in regards to your second question, as we try and estimate what will happen with the mid-core genre, we're really trying to look at that and understand it ourselves. I would anticipate that you'll have a narrower play base, a higher MGABPPU, and that's something that we're going to see play out as we learn more about the genre.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Yeah. Building on that, Hope, I think what we've said is we have this massive player network and we are in – we are leading in the category or a category that probably monetizes less than other categories. And the plan has always been to use that massive player network as a platform to move into categories where monetization is higher. So that's what we expect from resource management and that's what we expect from mid-core going forward.

Operator

And our next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is open.

Dylan Haber - RBC Capital Markets LLC

Hi. This is Dylan on behalf of Mark. I just wanted to ask, can you provide more color on where you expect the mix of Candy Crush versus non-Candy Crush bookings to trend going forward? Additionally can you provide any detail on how much of non-Candy Crush bookings came from Candy Crush Soda in the quarter? Thank you very much.

Hope F. Cochran - Chief Financial Officer

Thanks, Dylan. We've been really pleased with the diversification that we've experienced over the last year. As you look at the mix coming from Candy Crush Saga and specifically it was about 38% this quarter in regards to our bookings mix. That differs from about a year-ago when it was in the 70s% or so. So it really has come down, we've definitely de-risked the portfolio by having a lot more games available and so as we look at the diversification I think we've been really pleased with how much we've accomplished there.

Operator

And our next question comes from the line of Lloyd Walmsley with Deutsche Bank. Your line is open.

Deepak Mathivanan - Deutsche Bank Securities, Inc.

Thanks, guys. This is Deepak on behalf of Lloyd. Just two questions on the new games. When you look at some of the new games like AlphaBetty and Paradise Bay, how much of the customer acquisition there is coming from cross-sell from existing games? I know it's still an early stage but maybe some initial color on that. How do you guys cross-sell into the – how do the cross-sell in these games compare to the prior games? And then in terms of monetization you mentioned that it's softer for AlphaBetty, do you expect it to ramp up and what do you expect the trajectory to look like compared to your older games? Thanks.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Sure. Thank you for very interesting questions. So in answer to the first question, the trend hasn't changed. The vast, vast majority of our installs are – come for free so we only pay or we buy a minority of installs. And given the fact that we have a huge network of highly engaged casual players, cross promotion plays a very large part in the volume of installs, especially at launch and then in the weeks that will follow launch. So you've seen the product of that with AlphaBetty, AlphaBetty got to the top of the download charts on both platforms and stayed there for a while. And AlphaBetty also benefits from the fact that it's a Saga game, and we're using the – and so it belongs to the Saga family of games and there is obviously a brand recognition with the Saga suffix.

Now, what you see now with Paradise Bay is that massive player network and our ability to cross-promote also has worked quite powerfully. We've managed to take the game to the top of the download charts on iPad in a very large number of countries and most of the top Western markets, but in Japan as well. And on iPhone, it got to the top five or the top three in most of the markets. So it's truly a highly valuable and critical asset.

In terms of the monetization for AlphaBetty, it is softer. Like for all our games, we have a team working on the game with a business performance unit, and they will work on optimizing the game, but what we've experienced in the past is that we don't see massive step changes in monetization post-launch for our Saga games family, because the envelope is fairly mature, we have a lot of experience. We think we have a pretty good grip on how these games perform, and so we will keep, of course, feeding it with content and optimizing it, but we will not be expecting a major change.

Operator

And our next question comes from the line of Mike Olson from Piper Jaffray. Your line is open.

Mike J. Olson - Piper Jaffray & Co (Broker)

Hey. Good afternoon. Do you feel like your ability to cross-promote your new games that are non-casual will be similar to the ability that you've had to cross-promote new casual games previously? In other words, is the player overlap between casual and non-casual as strong as it has been with the cross-sell opportunity with casual in the past? Thanks.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Yeah. Hi, Mike. Thank you for the question. Well, I think the launch of Paradise Bay, which we've just had somehow, has answered the question in the sense that we had a highly successful launch. The game made it to the top of the download charts on iPad in most major markets, including Japan. It got to the top of the markets in iPhone. We were expecting a very similar demographic to our core audience with a lot of overlap, and therefore, we were expecting to see a very good reception from the players in terms of click to install and conversion, and that's what we've seen.

I think going forward, as we move into mid-core which is a genre where the audience overlap might be somehow different, we're going to need to figure out what the impact is. But as you know, if you look at – our network is so massive that the gender mix has evolved from being very female when we were on Facebook to a much more balanced mix between male and female. And so a very large share of our audience today is male as well, which is obviously the core audience for mid-core games.

Operator

And our next question comes from Ryan Gee with Bank of America. Your line is open.

Ryan Gee - Merrill Lynch, Pierce, Fenner & Smith, Inc.

Hi, everyone. Thanks for taking my question. If you could real quick, can you just remind us where you are in terms of your expansion plans in China? Which games are over there already, and which ones could you potentially launch and how meaningful that opportunity is? And then a second, when you look out to 2016 in the mid-core games, how does the marketing strategy change in terms of getting those users? Is it still going to be the traditional channels that you use for some of your Saga titles? Thanks.

Stéphane Kurgan - Chief Operating Officer & Executive Director

Maybe I can take the second part of the question, and then Riccardo can answer the first part.

Riccardo Zacconi - Chief Executive Officer & Executive Director

Sure.

Stéphane Kurgan - Chief Operating Officer & Executive Director

So China is a long-term engagement. We launched so far Candy Crush. We launched now recently Candy Crush Soda and Pet Rescue, and we launched Candy Crush Soda and Pet Rescue on iOS-only. And what we are doing in China is we are learning how to market ourselves – our games.

So we have seen success with this strategy in Japan. We have in Japan and in Korea local marketing teams and we do TV. And now we managed in Japan to become the number-one game developer by reach. And so we are transferring these learnings and are building a local marketing team in China as we speak. But it's a long-term engagement. We have not cracked China yet. We are working on it.

Stéphane Kurgan - Chief Operating Officer & Executive Director

And so as regards mid-core, first I want to make one thing clear, which is we've been announcing in the past that we were expecting to launch a mid-core title in 2015, but we've said now that because we want to allocate more time for polishing and tuning, we would be launching it in 2016. I think at this stage, we're still talking about one title, because I heard the plural in some questions today.

In terms of the marketing strategy, we only enter a game category with a very deep commitment to succeed and to be a leader in that category. Now if you look at mid-core, there are many sub-categories of mid-core. What we've learned in the past is that if you pick your sub-category and you build a very high-quality game, you can lead and own that category for a long time. That's what we've seen in the top-grossing charts on mobile for several years now. So that's the kind of strategy and the kind of commitment we have to the genre.

And in terms of marketing strategy, as we discussed before, we will be using the same return on investment framework to make sure that we deliver value to our shareholders, and we will be using the same marketing mix. But we've been spending a lot of time already trying to figure out how we can deploy our marketing campaigns in genres that are outside casual, and we are confident that we will be able to very successfully market games in new genres. We've just proven this with resource management, and we will be proving the same thing with mid-core going forward.

Riccardo Zacconi - Chief Executive Officer & Executive Director

I would like to add one more thing, Ryan, sorry. In China, we also launched last week, also Paradise Bay and Paradise was our first global launch, meaning a simultaneous launch in all the countries including China on iOS. Thank you.

Operator

We have time for one more question. The final question is from Chris Merwin with Barclays. Please go ahead.

Chris Merwin - Barclays Capital, Inc.

Great. Thanks for taking my question. So it looks like MGABPPU was down sequentially just slightly for the first time, I think, in a little while. I know now you're lapping the impact of the Gold Bar transition, so how should we be thinking about that metric and payers in the context of your guidance for the back half of the year?

And then just secondly in terms of capital allocation, Hope, if you wouldn't mind just talking about your priorities from here. Looks like you bought back a little bit of stock in the quarter and I know you recently acquired a couple of studios, so should we see more M&A from here? And if so, what types of genres are interesting to you strategically?

Hope F. Cochran - Chief Financial Officer

Yeah. Thanks, Chris. Appreciate the question. As we look at the MGABPPU from Q1 to Q2, you're right to point out that it's really the first period where we didn't have a Gold Bar transition, let's say, and so we saw throughout 2014 that particular metric rise every quarter. And this particular quarter, we saw it stabilize out more. I would anticipate that level for the year as we think about it. Now we have been doing a lot more activities in our games such as promos, live ops and extensions, as the team mentioned earlier, and that does tend to generate higher purchasing a little bit, and so we could see that tick up slightly, but basically be relatively stable throughout the year.

From a payer perspective, we did see the payer number come down this quarter, and that really is in line with the fact that our gross bookings number came down, so the overall decline in activity. And that payer base is really impacted by the fact that we didn't have a launch for several months, and then we did launch a game at the end of the quarter. And in this particular quarter, as we've indicated, we've launched two games just this past week, but again just on one platform. I would expect just due to averages that I would see the payer number decline again here in this Q3 timeframe just due to the fact that it's an average throughout the quarter.

In regards to capital allocation, as we look at the cash balance, we're again really pleased to see the cash balance so strong, $786 million. We generated $151 million in cash this particular quarter and we do anticipate that we'll continue to generate healthy cash going forward. As we look at our cash balance and our strategies there, we did do the open market buyback program. We have, as you indicated, purchased $15 million this quarter that's a total of cumulatively 8.2 million shares in the marketplace that we've brought in and we felt that that was a very good use of our cash.

As we look forward, we'll continue to evaluate what's best for shareholders. We've returned cash to shareholders in the past through dividends, we did the open market buyback. And you're right to point out that we are always looking at strategic opportunities for the company as well, whether that be acqui-hires or adding to our development resources by purchasing really great talented teams as we've done in the past. So we'll continue to evaluate the best place for our capital and make sure that it's the best choice for our shareholders.

Alice Ryder - Vice President-Investor Relations

And with that, I want to thank you all for joining us today. We appreciate your interest in King and look forward to speaking with you again.

Operator

Thank you. This concludes today's conference call. You may now disconnect. Have a good day.

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