Glu Mobile's (GLUU) CEO Niccolo de Masi on Q4 2015 Results - Earnings Call Transcript

| About: Glu Mobile (GLUU)

Glu Mobile Inc. (NASDAQ:GLUU)

Q4 2015 Results Earnings Conference Call

February 03, 2016 04:30 PM ET


Greg Cannon - VP, Finance and IR

Niccolo de Masi - Chairman and CEO

Eric Ludwig - COO and CFO


Darren Aftahi - Roth Capital Partners

Mike Olson - Piper Jaffray

Michael Graham - Canaccord


Good day, ladies and gentlemen, and welcome to the Q4 2015 Glu Mobile Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference Mr. Greg Cannon, Vice President of Finance and Investor Relations. Sir, you may begin.

Greg Cannon

Good afternoon, everyone and thank you for joining us on the Glu Mobile’s fourth quarter 2015 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have Chairman and CEO, Niccolo de Masi; and COO 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. 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. 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 during this conference call. These risk factors are described more fully in our documents filed with the SEC, specifically the most recent reports on Form 10-K and Form 10-Q.

During this call, unless otherwise stated, all financial results, metrics and guidance will be presented on a non-GAAP basis. The 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 material 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 results, as well as the supplemental presentation accompanying today’s earnings call that can be accessed via our Investor website at Please also note that all references to EBITDA are adjusted EBITDA calculations, which Glu defines as non-GAAP operating income or loss excluding depreciation.

Finally, please note that during this call, we will be providing information regarding the total number of social followers of certain celebrities. We calculate total social followers by aggregating the total volume of friends and followers that celebrity has on Facebook, Twitter, Instagram, Vine, Vivo and Tumblr. Please not that these numbers will contain some overlap of these social audiences between channels and celebrities.

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

Niccolo de Masi

Good afternoon and welcome to everyone joining us as we discuss the prior quarter and present opportunities in Glu’s business. Before discussing a number of strategic topics, I will first outline our fourth quarter results. We outperformed the midpoint of our Q4 2015 revenue guidance by 13.5%. Q4 EBITDA came in ahead of the midpoint of guidance by $5.3 million.

We are very pleased that this afternoon we announced a multiyear exclusive gaming partnership with Taylor Swift. Taylor is arguably the most popular person in the world with over 220 million social followers. She has sold over 40 million albums and there is uniquely strong interest in both her music and life from all demographics. Our Taylor game is expected to launch in the late December this year and has been built by our strongest and most proven celebrity studio.

Our partnership with Taylor Swift and recently announced partnership with Gordon Ramsay cements Glu’s position as the undisputed leader in celebrity gaming worldwide. By the end of 2017, we anticipate games being live, featuring celebrities with approximately 1.3 billion social followers. This aggregate figure has grown organically by over 200 million since our Analyst Day last May. Having now reached our targeted scale, we intend to considerably slow the signing of additional celebrity partnerships. We have one known musician male and one female celebrity signed that will be announced near their 2017 game launches.

Balancing creative innovation and market timing means that we of course do not expect every single celebrity game to be a hit. However, the portfolio our celebrity platform benefits from unique barriers to entry.

Relative to our expectations in the first half of 2015, Glu significantly underperformed in Q4. For my part, I was overly aggressive in pushing for the expansion of some of our most successful studios of H2 2014 and H1 2015. In our quest for growth, in one location I broke my own rule regarding Glu’s strategy of consistently specializing in a single genre under each GM. After a flat year-on-year performance, we are committed to forecasting new launch revenue conservatively in 2016 and beyond.

Last year, a perfect a storm of excessive optimism around engineering velocity, poor technical decisions and cascading resourcing impacts meant that one studio posted revenues approximately $50 million below our internal plan. Due to inadequate innovation oversights, two other studio locations contributed additional eight figure misses against our internal plan.

Glu is a company that has overcome execution, business model, platform transition, process and talent challenges throughout our 14-year history. We have and will continue to learn from the issues of last year and have taken steps to ensure such perfect storms do not reoccur.

Our second year of approximately $0.25 billion in smartphone revenues supported us attracting world-class senior technology and product development leadership. We hired Tim Wilson, as our new Global CTO last October. This has brought a heightened level of technical oversight as well as engineering planning rigor. We hired Nick Earl as our new President of Studios in November. Nick and Tim worked together for 13 years and shipped several hit mobile titles as leaders of EA’s mobile division.

In the past three months, we have restructured our studios in three important ways in order to create a strong foundation and avoid a repeat of 2015’s disappointing H2. First, we’ve created a strong multipronged central studio operations function, overseen by an SVP level executive. Central, technical and product oversight now comes via three upgraded mechanisms: Number one, a more rigorous green light process with an audit of complex engineering modules upfront; number two, a more rigorous fixed gauge [ph] milestone review system; number three, a Pixar inspired Brain Trust to provide critical and unbiased peer input. Having these enhanced central systems in place, moving forward should pay dividends with future releases.

We have further created four global studio labels, shooters, celebrity, sports and simulation. We’ve appointed one leader for each label responsible for the long-term signing of their overarching genre. Over the long-term this change will help ensure a more efficient use of resources across multiple locations. It will also promote the sharing of cutting-edge expertise, best practices as well as code reuse. Lastly, we conducted a restructuring, eliminating over 50 positions across three of our locations. This reduction will allow us to improve talent density and focus, while aligning OpEx with anticipated revenue trajectories.

We believe the studio evolution will dramatically improve our ability to deliver to date and quality. It underpins the 2016 and 2017 slate that is actually being worked on and we believe should offer a far more upside beta to downside disappointment.

I will now discuss two of our biggest disappointments of H2 2015, our Katy Perry and James Bond titles. In Katy Perry Pop, poor technical decisions coupled with the newly hired team led to all key metrics being below thresholds required for an ROI positive title. Additional development time was not provided due to contractual restrictions as well as the team’s mediocre trajectory. With James Bond World of Espionage, while monetization metrics were sound, retention and installs were weak.

We believe the prime cause [ph] to be creative decisions made in partnership with the licensers to avoid firearms and classic shooter mechanics. We are viewing through cautious ROI centric lens how to proceed in those partnerships. At this juncture, we believe instead of updating the current products, fresh created concepts with new dev teams will be most likely to bear fruit.

In stark contrast to these two titles, I am delighted to announce that our Kendall and Kylie Jenner game is performing very strongly in beta. Day one retention metrics are among the strongest we’ve ever seen at Glu. In Canada, approximately similar amounts of absolute revenue have been generated as our Kim Kardashian: Hollywood title at an analogous moment in development. While early indicators are that this title appears on track to be a hit, it is challenging to predict the precise magnitude and longevity of worldwide launch revenue from beta. As such, whilst our KKJ title was a number nine top free game and number 39 top grossing game yesterday in Canada, we do not know whether it will max KKH worldwide revenue until after release worldwide on February 18th.

A second title that we believe could drive upside in 2016 is our partnership with Tencent around WeFire. In late Q2, we will launch WeFire branded as Frontline Commando Rivals in North America, Australia and New Zealand; EMEA and South America will launch in Q3. WeFire has already performed strongly in China, Taiwan, Korea, Thailand and Vietnam, often holding a top 10 grossing position for months. We are excited about the prospect of launching what we hope to be the most social and highest LTV shooter in our core geographies. Our number one grossing baseball game, Tap Sports Baseball 2016 will launch in early spring. In addition to our Britney Spears, Nicki Minaj, Gordon Ramsay until the Switch titles, we have two additional games in development which may launch in H2 2016, if they pass through our new central milestone system.

Moving now onto strategic opportunities, I would like to discuss our deal with Iceland’s leading app company, Plain Vanilla Corporation. Plain Vanilla owns and operates QuizUp, a global trivia game with over 40 million installs to-date. QuizUp is in development with NBC Universal to create an innovative game show that would both drive installs and create new revenue streams. In addition, Glu has unique monetization and publishing expertise which we’re able to bring to bear in short order. These advantages plus our strong balance sheet and ability to move swiftly enable us to create and secure a new type of strategic transaction for Glu.

In exchange for a convertible 15-month senior secured loan of initially $5 million, Glu has a 15-month option to acquire Plain Vanilla at a fixed price in cash. Currently QuizUp revenues are de minimis though solid engagements are considerable. Prior to this transaction, Plain Vanilla focused on retention and creating an interest based social network, rather than advertising or in app [ph] purchase monetization. As part of the deal, Glu has one seat on Plain Vanilla’s Board of Directors and has already begun advising the company on how to reach profitability.

So QuizUp’s fundamental performance enable an accretive transaction during the next 15 months, then Glu will look to enact our call option. We are pleased with the exceptional risk reward profile of this judicious use of capital. As our industry continues to consolidate, we remain on a look out for accretive inorganic opportunities. Our innovative QuizUp transaction structure as a template, we believe we’re using in the right situation.

The second strategic opportunity is around advertising revenues. With as much as 30% of revenue coming from advertising on certain Glu titles, we believe we are the scaled mobile gaming player, most able to benefit from growth and platform demand. We are taking steps to capture more ad revenue as brands continue to migrate budgets from web to mobile, particularly in titles that are later in their lifecycle.

The third and final strategic opportunity is around reducing our long-term risk profile as a business overall. As our industry has become ever more competitive, we have seen existing hit titles able to remain top grossing for longer. We also recognize that while our visibility on the revenue curve of live titles is excellent, forecasting performance of new launches is likely to remain challenging. As such, our goal over the coming three years is to systemically support exiting titles for longer and commensurately reduce the percentage of revenue each year from new launches.

Between 2016 and 2018, we’re aiming to approximately have the reliance on new launched revenues as a percentage of our total revenues, those in our internal plan and external guidance. By 2018, we plan to ensure that our fixed OpEx is at least covered by the revenue from catalogue titles only. This will result in a considerably more predictable revenue base with new launch revenue falling strongly to the bottom line.

In closing, I will say that while H2 2015 was extremely humbling, we have and will continue to learn from the issues of this past year and have taken definitive steps to ensure they don’t reoccur. We remain the global leader in all four our labels shooter, celebrity, sports and simulation.

Hits are harder to come by our evolving market landscape. However, when they do breakthrough, typically they last longer. We have 2016 roadmap which we believe has strong prospects on it for one or more homeruns and new studio leadership able to make the most of our singles and doubles. As more of our resources become focused on supporting existing successes, the predictability of our business will improve dramatically.

Over the last six years of my tenure, the free to play mobile gaming industry has moved from early adopter to become a mass market phenomenon. New company formation has slowed dramatically as venture capital has dried up. I believe that we will look back on this period two years from now and recognize that our industry was at effectively steep competition. Over the next 24 months, I anticipate significant consolidation and the emergence of fewer bigger, stronger global firms. With this industry evolution will naturally come more predictable revenue streams and greater profit margins.

I now hand you over to Eric Ludwig for details on our financial performance and guidance.

Eric Ludwig

Great. Thank you, Niccolo. Overall, the fourth quarter results were ahead of our expectations. I will go through our Q4 and full year 2015 results and conclude by providing our updated outlook for the first quarter and full year 2016.

Our key financial highlights for the fourth quarter of 2015 are total revenues of $57.9 million, EBITDA was $2.8 million, our net income was $2.3 million or EPS of $0.02 per diluted share, and all these results were above our guidance for the quarter.

During the fourth quarter, we continued our diversification in our revenues from both the top five titles and licensed IP. Our top -- our five largest titles during the fourth quarter represented 71% of total revenue, down slightly from 74% last quarter. The largest title remains Kim Kardashian: Hollywood, generating $13.6 million or 24% of revenue, Cooking Dash was $8.6 million while Deer Hunter 2016 generated $8 million, Racing Rivals of $7.8 million while Deer Hunter of 2014 rounded up the top five with $3.1 million.

In the fourth quarter, 50% of total revenue came from titles where we paid a royalty of some kind of some to an external IP holder. As such, our gross margin was 62.5% and was in line with our guidance.

Total operating expenses were $34.1 million in the fourth quarter, including $8 million for user acquisition. This is slightly below the low end of our guidance of $35.1 million due to overall cost controls as well as a decrease in marketing spend compared to prior quarters.

The combination of better than expected revenue and better expense management resulted in positive EBITDA of $2.8 million or 5% of revenue. This was above our guidance range of a loss of $2 million to a loss of $3 million. And we reported net income of $2.3 million or EPS of $0.02 per diluted share which was also above the guidance range of a loss of $0.02 to $0.03 per basic share.

Let me take a moment to walk through our summary of the 2015 full year results. Total revenue was $242.2 million, gross margins were 61.6%, EBITDA was $16.8 million, and our net income was $13.8 million or EPS of $0.11 per diluted share.

During 2015, our five largest titles represented 70% of total revenue. We have provided a detailed slide in our IR deck but the biggest notables were Kim Kardashian: Hollywood generating $71.8 million or 30% of total revenue, Racing Rivals generated $40 million and Deer Hunter 2014 came in at $23.8 million.

Now turning to the balance sheet, as of December 31st, our cash and equivalents totaled $180.5 million, a decrease of $1.8 million over September 30th. During the fourth quarter, we generated $10 million in free cash flow from operations before accounting for $10 million in royalty advances. This is better than our expectations due to strong collection of receivables during the quarter.

For the full year, the Company generated $21.3 million in operating cash flow before accounting for $35.2 million in royalty advances. This had a net effect of using $13.9 million in cash from operations. Virtually all of the royalty advances are recoupable against future royalties, thus future cash from operations will be benefited from such prepayment. And as we have for the last five years, Glu continues to carry no debt at all.

Before discussing guidance, I’d like to review our capital allocation strategy which we believe will allow us to maximize shareholder value. We have a three-pronged approach to leveraging our balance sheet: The first is via minority investments with either publishing rights or an option to buy the investee companies outright over time; the second is outright acquisitions; and the third is a stock buyback program. The recent announcement of our investment in QuizUp developer Plain Vanilla is a great example of the type of growth related investments we are trying to make.

QuizUp is a fantastic game with tremendous potential yet has virtually no revenue. Our cash investment will support Plain Vanilla’s focus on adding in-app purchases and advertising in the current quarter. This is being done in construction and consultation with Glu’s monetization and advertising teams. We structured the deal to provide very limited downside and potentially significant upside with an option to buy the company if the platform’s monetization potential comes to fruition. Another strategic investment we made during the quarter was in Dairy Free Games. We made a minority investment that includes exclusive publishing rights for the first game. This is another example of using our balance sheet to provide development funds which enables us to spend our list of titles by attaining exclusive publishing rights for the studio without an acquisition.

Both of these transactions could have been structured as an outright acquisition at the front end. We chose instead to be prudent with our capital allocation, seeking to maximize our upside potential while limiting Glu’s downside until further proof points are evident.

Last earnings call we publicly stated that we felt that using our cash to repurchase our own stock wasn’t the best use of proceeds at that time. When we analyzed the data in October 2015, we did not envision that our stock would trade below 0.4 times 2015 revenue on an enterprise value basis. We announced in early January 2016 that we would seek board approval on a share repurchase program. I am pleased to announce that Glu’s board has authorized a $50 million stock repurchase program. Glu will be entering into a Rule 10b5-1 plan in order to implement the stock repurchase program with purchases under the plan potentially occurring over a two-year period, once the plan becomes effective.

As Niccolo mentioned, 2015 was a challenging year for Glu. In December, we undertook a modest restructuring of three of our game studios. Our overall philosophy on our studios is that we strive to grow our studios with successful performance and we trim locations where future performance is uncertain.

We believe that we have made a number of positive organizational changes including our strengthened studio and technical leadership that will favorably impact our growth in the second half of this year and beyond. We believe that the investments we are making will provide a secure foundation for a more predictable and sustainably profitable operation.

Now turning to guidance. We are updating our 2016 guidance to reflect the poor performance of Katy Perry Pop. We expect revenues in the range of $250 million to $275 million, or $262.5 million at the midpoint. This reduction is solely due to the impact of the Katy Perry game. We expect to launch eight new games during the year including a game featuring Taylor Swift at the end of the year. The Taylor Swift title will contribute less than two weeks of revenue in 2016 and was previously included in our preliminary guidance last quarter. There are other games in development which might launch in 2016. However, we will wait to announce them once they have passed our more rigorous milestone process.

Our 2016 revenue guidance assumes typical degradation of our 2015 catalog titles as well as the addition of new titles set to be launched throughout the year. This includes the upcoming launch of Kendall and Kylie Jenner game on February 17th, which has performed very well in beta. To the extent we have hit titles in 2016, those hits will allow us to meet or exceed our guidance.

Similar to prior years, we expect the cadence of our 2016 quarterly results to be impacted by the timing of new title launches. As such, we expect Q1 2016 to be the smallest quarter and Q4 to the largest quarter of the year in terms of revenue and EBITDA.

We expect first half 2016 results to be below the first half of 2015 with stronger growth in the second half of the year. We expect 2016 gross margin to be approximately 56.2%, down from 61.6% in 2015 due to the fact that all of our new titles in 2016 will leverage our brand.

In regards to operating expenses, we continue to expect our overall headcount to increase in 2016 due to new teams that support the incremental celebrities and size. In addition, we expect variable marketing to remain relatively constant at 15% of total revenues. We expect 2016 EBITDA to be in the range of a loss of $7 million to $15 million. This is down from our prior guidance of single-digit million dollar EBITDA loss to the midpoint due to the Katy Perry Pop revenue performance as flow through.

Finally, we expect to end 2016 with over $140 million in cash and no debt. This cash guidance assumes a payment of various cash advances for our upcoming branded titles, the $7.5 million investment in Plain Vanilla and our $2 million investment in Dairy Free Games as well as funding the EBITDA loss for the year. Our guidance for revenue, EBITDA and ending cash balance does not assume we execute our call option to purchase Plain Vanilla. If and when we do so, we will provide a separate update to our guidance including revenue, EBITDA and cash.

Focusing our guidance for Q1 2016, we currently expect our total revenues to be in the range of $46 million to $48 million. This guidance reflects the launch of only Kendall and Kylie Jenner game in mid February. During the first quarter, we expect contribution from branded IP to increase to 57%.

Our costs of revenues are expected to consist of $11.6 million of platform fees, $5 million of royalties, and $2.3 million hosting cost at the midpoint. This results in expected gross margin of 59.9%. Our OpEx for the first quarter is expected to be approximately $35.3 million at the midpoint. This assumes variable marketing expenses as a percentage of revenue are consistent with prior quarters. As a result, we expect to achieve EBITDA between a loss of $6 million and $7 million. We expect net income to range from a loss of $6.8 million to $7.8 million or a loss of $0.05 to $0.06 per basic shares.

So in summary, despite the challenging year, we believe we are taking the right steps to improve our execution and remain very optimistic in our ability to redeem growth longer term.

With that, we will open the call for questions. Operator?

Question-and-Answer Session


[Operator Instructions] And our first question comes from Darren Aftahi from Roth Capital Partners. Your line is now open.

Darren Aftahi

Just a couple. Given how Katy Perry performed, sort of have two data points out there on the celebrity platform, what are you assumptions in your guidance for Kendall and Kylie? I know it’s doing well in beta in Canada and obviously there’s correlation there. But I am curious if you’re taking more of a conservative stance is kind of first question. Second question, given the performance of Katy Perry, I mean, is there still a relationship there and how do you kind of -- there is how do you kind of plan to kind of re-kindle that, that platform? And then third, looks like advertising revenue was particularly strong as a percentage of revenue, I am just kind of curious is there any kind of redo [ph] on that? Thanks.

Niccolo de Masi

Okay. I’ll take the second one first Darren and then I’ll hand this to Eric for other two. Ultimately a great hit, so to speak, happens only when the moons align around, monetization impact, strong retention because you have some mechanics which resonates and obviously we have brand or some sort of IP that’s installed. We certainly had a number of team execution issues on the Katy Perry game, but we take a lot of confidence from the fact that obviously the Kim game worked very well for us and the Kendall and Kylie Jenner other game is I think the strongest game we’ve had certainly in Canada for probably a year or so. And probably since the Kim game was in Canada, we haven’t had a title that strong in Canada.

No guarantees that translates worldwide and there is no doubt that Kim, Kendall and Kylie are English centric celebrities. But we absolutely think that the prospects of the celebrity label for us and platform performing as if not better than every other genre in are still intact.

Now, relationships with all the license partners are actually good and that’s the case for James Bond as it is for Katy Perry and her team. We make creative decisions in partnerships with our partners and sometimes those decisions come together well and they come together well technically and they resonate; sometimes just like with an album that doesn’t win a Grammy Award, doesn’t hit, sometimes it doesn’t come together well.

And I think our partners recognize and we do that everybody has made these decisions together in good faith because we thought and expected them to resonate. And if they don’t, we often if not invariably are going to try, try it again so to speak. But with plenty of additional learnings and plenty of additional I think sort of familiarity with how we work together and the kinds of things that we need to push harder on being more paranoid about and stay away from in some cases.

I think it’s fair to say that every Grammy Award winning musician probably has better albums and weaker albums. I think the same is true in the gaming space. We are hit driven as is the book business, the movie business, the TV business and the music business. And so, when we look at ourselves as a large publisher and a portfolio, I think the barriers to entry in celebrity business are interesting, we’re going to slowdown, as I said the signing of additional celebrities, but the right brand partners and creative partners we still believe across the business can be entirely additive.

So feeling positive about the future of celebrity in light of Kim plus Kendall and Kylie in beta, feeling positive about all licensing relationships actually at Glu across the board, and certainly feeling positive, Darren, about where ad revenues were and where we could take ad revenues to in light of a strategy to focus on driving them up in later stage titles and also a strategy of recognizing that we can be more aggressive in integration of ad units earlier in games and more thoroughly across even some of our bigger live titles. So, I am going to hand it over to Eric to talk about your guidance question.

Eric Ludwig

So, Kim Kardashian: Hollywood did $150 million in first 12 months and $43 million the first full quarter. We are absolutely not forecasting any of our celebrity titles at those levels. We’re taking substantial haircuts for Kendall and Kylie where we actually even have beta data. And there is a slide in the earnings deck that talks through what that beat data looks like. Secondly, titles that are further out in the year, we’ve taken an even further haircut from Kendall and Kylie. So, I think it’s safe to say we’ve learned our lesions in 2015. We’ve taken substantial haircuts for Kendall and Kylie, and even further haircuts for the other titles that have no beta data yet.


Our next question comes from Mike Olson from Piper Jaffray. Your line is now open.

Mike Olson

Maybe going one layer deeper, Eric, on the guidance there for 2016; could you give us a sense for how much of 2016 revenue guide is from new titles versus existing titles or sequels?

Eric Ludwig

So, we’ve not broken that out specifically. But we’ve looked at certainly our historical catalog trends and have modelled catalog trends similarly. One thing I will point out that we have just kicked off this year though is several of our old titles are now being live operations in a lower cost locations. We think that combination of having the core team building another title while our India team building and supporting live ops might be a good sense of helping us to extend the tails on these older titles. But we have modelled based on our historical trends for the catalog.

Mike Olson

You mentioned good trends with QuizUp, but minimal revenue at this point. What would you say is the timing of more potential, material revenue monetization on that front? And if there is monetization before you would you do an overall acquisition, would there be some rev share or would you not benefit until you would actually acquire the business?

Niccolo de Masi

So, it’s early days on implementation of our advice and consulting for QuizUp. I think there is no doubt that we wouldn’t be as bullish on the long-term prospects here, if we didn’t see quick wins, implementable wins, and something that we can make real progress on this year. I think it’s fair to say that we will know inside 12 months [indiscernible] 15, if what we are suggesting and pushing on is going to ultimately bear fruit. We might know even as quickly as six months. But on today’s call I think we’re going to ultimately not give a deadline on that yet as there is a fairly complex amount of work to be done on their side, not only to keep extending the roadmap of their own features but also to partner with NBC on development of this QuizUp TV show.

So, there is competing interest obviously from NBC, from us on the monetization side from the company and trying to balance those. I think all can happen this year and we could have a show on the air by the end of the year even which would be obviously a game changer and I think would give us more dough [ph], more engagement and potentially incremental revenue and profitability which would increase the prospects of enacting our call option. But so far, so good; we’re quite pleased with how things are working. Our investment is a senior secured convertible note and so we don’t have a portion of consolidation at this time.


And our next question comes from Michael Graham from Canaccord. Your line is now open.

Michael Graham

I just wanted to ask two things: One, on the beta data from the Jenner sisters game, do you have any sense from that if there is much overlap with the Kim Kardashian audience or player audience, I am just wondering if you’re able to tell that at this stage in the proceedings. And then I also just wanted to ask as you -- or maybe you can start there and then ask the follow-up. Thanks.

Greg Cannon

So, let me give an exact ratio on overlap. However, I will say that we’re pleased with the fact that the launch of the Kendall and Kylie game has not impacted the grossing position of Kim Kardashian: Hollywood in Canada. So that’s a -- as far as we can tell. So that’s a pretty good indication of the fact that these games can be complementary; they can be slightly different demographics. Kendall and Kylie are obviously younger than Kim’s demographic and the game is also significantly differentiated. So, you can extrapolate from there obviously across the rest of our celebrity platform and there will be some overlap. But we do believe we can differentiate the experience enough to cater for different demographics and different game play styles and allow more of these a little off side [ph] one another than you might otherwise think.

Mike Graham

And then the other one is just I was looking for a little more depth on why you think the Katy game didn’t take hold. Was it that it was a similar game play to the Kim Kardashian but the audience was looking for something different or just can you go into any more detail about sort of -- I mean you said you learned a lot about why it didn’t work it and I am sure that’s the case; and I am just wondering could you give us a little more color around what didn’t work?

Niccolo de Masi

Sure. So, I think the number one issue here has been internal technical engineering execution issues. We know that the game style based on what Kim and Kylie and Kendall was done. We know this narrative role-playing game mechanics can generate pretty healthy life and values. And we also have believe or not, indications potentially of information on a Britney Spears title which is now in beta in I believe couple of small countries in Europe and so on. So we know not only from our own titles but from the broader market. And you look at narrative games the last 10 years, there have been all sorts of ones. There has been high school story; there have been episodes, these are not blue titles. But they’re narrative role-playing games that work and drive pretty healthy monetization.

Due to our own challenges, we did not produce an engine that delivered I’d say top quartile monetization. And part of that was because of ambition around fully online only game, fully server-side game, which while its function has had challenges with bugs and challenges with decisions made early on a development that ultimately we believe we can avoid going forward, given our new CTO and process and systems, but would have been so expensive to redo that you’d be rebuilding the title once we discovered them.

Ultimately, you have a product which is buggier than it should be, less stable than it should be and not as responsive as it should be. And that means that you tend to have poor retention when players see that. And poor retention of course is actually the hardest thing to change in a game. Installs, monetization, you can push on. Retention is the metric that when you have it and it is strong like it is in our Kendall and Kylie game that’s great, that’s a wonderful indicator that you lot of to work with. When you don’t have it, it’s very hard to double as a metric in alpha and beta et cetera, and it’s multi-factorial.

So, I would say that for technical issues, bugs, service site decisions are probably in first place. You then have potentially the creative decisions we made. We chose to put things into the game like Katy Vision and various other core tier [ph] elements which we all thought were going to resonate well. They may not have and clearly I’d say based on the installs and so on didn’t resonate to the extent that we thought they would be. And that was same kind of situations that we had with our James Bond title. We were building and we have been building for quite some time the James Bond game that was going to be new innovative difference, not a shooter, turns out probably that most people still want and expect a shooter from the James Bond franchise, even though the movie franchise has become deeper, more narrative driven and a little more cerebral. That hasn’t worked translating that over to a strategy game in the Bond space for example.

So, as I said in my prepared remarks, Michael, there is going to be volatility and variability I think in every label, shooter; celebrity; sports; simulation. They’re not all going to work reliably. But if you can get 2 out of 3, 3 out of 4 for any label, if you can get to 2 out 3, 3 out 4 being singles, doubles, and you get the occasional hit; you have a pretty nice divisional business. And of course it all rolls up to an overall Glu portfolio that’s nicely diversified and hopefully becoming more predictable as we look to scale OpEx towards and underneath catalog revenues between 2016 and 2018.


And I am showing no further questions at this time, I’d now like to turn the call back over to management for any further remarks.

Niccolo de Masi

Allow me to close by thanking my colleagues for their efforts and our stockholders for their patients and support. We look forward to the launch of our Kendall and Kylie game on February 18th. Thank you again for joining the call.


Ladies and gentlemen, thank you for participating in today’s conference. You may all disconnect. Everyone have a great day.

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