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Edited Transcript of GLUU earnings conference call or presentation 1-Aug-17 8:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 Glu Mobile Inc Earnings Call

SAN FRANCISCO Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Glu Mobile Inc earnings conference call or presentation Tuesday, August 1, 2017 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bob Jones

* Eric R. Ludwig

Glu Mobile Inc. - CFO, COO and EVP

* Nick Earl

Glu Mobile Inc. - CEO, President and Director

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Conference Call Participants

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* Darren Paul Aftahi

Roth Capital Partners, LLC, Research Division - Senior Research Analyst

* Douglas Lippl Creutz

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Michael Joseph Hickey

The Benchmark Company, LLC, Research Division - Research Analyst

* San Q. Phan

Mizuho Securities USA LLC, Research Division - Director of Americas Equity Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2017 Glu Mobile Earnings Conference Call. (Operator Instructions)

As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Bob Jones, Investor Relations. Please go ahead, sir.

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Bob Jones, [2]

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Thank you, Christie. Good afternoon, everyone, and thank you for joining us on the Glu Mobile Second Quarter 2017 Financial Results Conference Call.

On the call today are Nick Earl, President and Chief Executive Officer; and Eric Ludwig, COO and Chief Financial Officer.

During the course of this call, we will be making forward-looking statements regarding future events and the future financial performance of the company. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events. We caution you to consider the important 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, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial 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 the supplemental presentation accompanying today's earnings call that can be accessed via our investor website, www.glu.com/investors.

In order to comply with SEC guidance on the use of non-GAAP financial measures, we have changed the way we present and discuss certain non-GAAP financial measures. Specifically, we no longer adjust for the change in deferred revenue when arriving at our non-GAAP measures. However, we will provide the change in deferred revenue and deferred cost of revenue information so that investors can calculate our non-GAAP results based on the same methodology we have used in prior quarters.

Lastly, our supplemental presentation that can be accessed via our investor website has been updated to mirror the order of our prepared remarks. We encourage investors to follow along with the slides during this earnings call.

And with that, I'd now like to turn the call over to Glu's CEO, Nick Earl.

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [3]

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Thanks, Bob. Thank you all for joining today's call. I'd like to welcome everyone as we discuss the second quarter results as well as the opportunities ahead this year and beyond.

I'll start today's call by providing some of our high-level financial highlights from the quarter before diving into progress we've made on our product road map and growth strategy. Eric will then cover the financial results and guidance in more detail.

We had another very strong quarter of financial results, which exceeded guidance, further validating our new creative-centric strategy being the right direction as we transform Glu Mobile. And it's still early in the implementation of our new plan. But with a strong first half of 2017 and having just had our second largest bookings quarter ever, behind only Q3 of 2014 when we launched Kim Kardashian, momentum is building towards an improved financial outlook for the full year. As a result, I'm pleased to say that we are increasing our annual guidance from midpoint of $285 million to a range of $307 million to $312 million.

During the quarter, bookings grew from $82.5 million, which is $10.5 million over the midpoint of guidance and then nearly 20% sequential increase over Q1. The strong performance was driven primarily by Design Home, Covet Fashion and MLB Tap Sports Baseball '17 as well as better-than-expected results from evergreen catalog titles.

We mentioned last quarter that we would be increasing our investment in user acquisition for titles such as Design Home and other portfolio games. Those investments drove higher-than-expected bookings at costs that fell well within our target range.

Smart user acquisition spending, supported by regular product updates and our sophisticated live operations efforts, increased overall engagement and monetization. In fact, engagement metrics, average bookings per DAU, average bookings per MAU were all up both year-over-year and sequentially in the quarter. As a result, bottom line performance is better than expected, showing the inherent leverage in our model, producing strong contribution margin flow-through.

As a reminder, we think of our gains in 3 buckets: growth games, evergreens and legacy. Growth games are the ones we are most focused on as we expect that their bookings will increase year-over-year and that they will deliver a significant portion of our revenue.

Evergreens are existing games that have continued applying -- that we have continued applying renewed live operations efforts to with a focus on lengthening and boosting their revenue tail.

Finally, legacy consists of titles that are sitting in the app stores but not being actively refreshed and have low to no costs associated with them.

MLB Tap Sports Baseball '17 launched at the end of Q1 and had a very good start. Baseball is a seasonal game, so it's normal to see a drop off in interest during the summer. However, leveraging our live ops capability, we updated the game in real-time when we saw declining trends in bookings, engagement and user growth. In fact, in early May, we rolled out premium content in the title, which led to solid results and improved KPI trends. This is a key component of our live op strategy, and it's extremely encouraging to see early positive results as we execute successfully.

We are pleased to have this franchise continually -- continues to grow, especially with the great addition of the MLB license.

In executing on our evergreen strategy, we've continued to benefit from strategic input from our colleagues at Tencent. Their guidance helped drive -- helped us drive solid results from Covet Fashion, Kim Kardashian: Hollywood, Deer Hunter '17, Cooking Dash and Restaurant Dash with Gordon Ramsay in Q2. I'm delighted with the excellent working relationship we've been able to cultivate with them.

We also developed additional partnerships during the quarter, including a multiyear agreement with WWE to develop a mobile game for a planned 2018 release. This title will include simple, one-touch gameplay mechanics with deep meta-game features and will be developed by the same studio that has produced our very successful Tap Sports Baseball franchise. And the multiyear extension to our partnership with Gordon Ramsay for our Restaurant Dash with Gordon Ramsay title.

Providing update from our last earnings call. Car Town Racing is currently in beta testing. The early results indicated that we need to rework the first-time user experience, which the team is just finalizing. Once that is done, we will update the beta build and determine whether the results support a full worldwide launch.

We also have our zombie shooter title now called Last Day Alive that recently went into beta. We will need more time before we have a view on its future, and we'll report on its progress when we have additional information.

Our Taylor Swift app continues to progress nicely and is still on track to be a late 2017 launch. We are working closely with Taylor and her team to position this title to capitalize on its unique potential. I originally intended to provide launch details of the game on this call. However, in conversations with Taylor's team, we have decided to hold off until a full launch announcement given the potential impact of this title.

Looking ahead, we continue to focus on achieving sustained bookings growth and profitability. To do so, we focus our efforts around 3 pillars: establishing a vibrant, creative culture; rapid prototyping; and rigorous cost controls and executing our plan to drive operating leverage.

During Q2, we saw what a vibrant culture can do to foster the additions of innovative and new features, tools, live events and social systems to our titles. As we continue to invest in these areas, we expect to drive higher engagement and increase monetization. I view all of these game optimizations as being in the early stages and having the potential to drive strong profitability in the future.

The rapid prototyping culture we are building is in full swing, creating new systems and features not only for the evergreen games, but also whole new titles. As a result, our pipeline activity remains robust, and we continue to anticipate 3 to 4 launches in 2018, adding to the strong growth we anticipate from our current live games portfolio.

We are just about to officially greenlight the first game from Mike Olsen's team after 6 months of prototyping, and WWE is also officially moving into full production after incredibly efficient and productive prototyping in preproduction phase. These are the first 2 games that will be greenlit under our new strategy, and we cannot be more excited.

The third pillar to address is the cost controls and operating leverage we're focused on. As mentioned on the last call, we have turned our attention to lowering operating expenses to improve our bottom line results. We continue to invest in UA systems and content in an effort to drive profitability from evergreen and growth titles. However, we have a strong plan to control and reduce expenses in order to optimize profitability.

Our user acquisition and content investments will be data driven and based on a thorough review and analysis of the expected return to build meaningful bookings over time. We are committed to redefining the way Glu operates, and that includes ensuring that we are focused on running in an optimal way in order to drive sustained profitability.

I will now update our expectation of the 3 phases we presented in our last call. Phase 1 remains the same. As we discussed last quarter, we expected strong bookings growth Q1 to Q3 year-over-year and opportunistic investment in UA. Phase 2 includes continued progress on our evergreen and growth strategy while beginning to implement cost initiatives that will position us for renewed profitability. Based on our current outlook, the Phase 2 period will be largely complete by the time we exit this year, highlighted by just a slight loss in Q4 of '17.

Phase 3 now calls for sustained profitability on an adjusted EBITDA basis starting in Q1 '18 instead of Q3 '18, 6 months ahead of our original plan. We also believe we will be slightly profitable on an adjusted EBITDA basis in 2018 on our existing portfolio of live games due to evergreen momentum as well as the implementation of new cost controls.

Please note that the existing live game portfolio includes Tap Sports Baseball '18 as this is an annual release and not considered a new 2018 title. This is a significant goal that we set out to achieve 18 months ago, and I'm very pleased that we believe we will be achieving it on time. This should allow new successful titles to drive meaningful leverage to the business in 2018 and beyond.

Coming off a promising first half of 2017 and with the encouraging prospects with the remainder of the year, we are increasingly optimistic that we will meet our growth objectives and drive shareholder value. Mobile is the fastest-growing segment in the gaming industry, and we are well positioned to be a leader in this category. We view 2017 as a transformative year. And at the halfway point, we are significantly ahead of our plan. We have made tremendous progress in attracting top-quality creative talent that develops great content, and we are continuing to look to make strategic additions to our team.

We're also executing on planned cost reductions and a realignment that will create a more efficient studio infrastructure supporting a creative and active pipeline of potential hits. Our 3-phase plan to reach sustained profitability on an adjusted EBITDA basis is accelerating, and we are very excited about the path ahead.

Now I'd like to turn the call over to Eric who will walk you through the details of the quarter's financial results and guidance for Q3 and the full year, and then I'll come back again with a few final thoughts. Thanks.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [4]

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Great. Thank you, Nick, and good afternoon to everyone joining the call. I will provide further details for the factors behind our strong financial results for the second quarter of 2017 and then discuss our third quarter and full year guidance.

Consistent with our financial presentation and for all the information aside from bookings or as otherwise stated below, we will discuss results on a GAAP basis and refer you to changes in deferred revenue, the deferred cost of revenue and the non-GAAP operating expense total in our financial tables. This data will provide a GAAP to non-GAAP reconciliation of the quarter's financial results based on the same methodology we've used in prior quarters.

We are also providing a supplementary Excel file on our IR website to more easily aid in this reconciliation. Both the PowerPoint and the Excel file are on the website now.

As Nick said, we significantly exceeded our Q2 guidance, and we've had a great first half of 2017. We continue to view 2017 as a transition and investment year that we believe will position us well for year-over-year bookings growth and adjusted EBITDA profitability now starting in the first quarter of 2018.

Revenue was $68.7 million for the quarter, up 42% from the prior year second quarter, with our 5 largest titles representing 66%. 57% of total revenue came from original IP titles with no royalties due.

Bookings were $82.5 million, a 62% increase over last year's second quarter and approximately $10.5 million above the midpoint of our guidance. This quarter's bookings increase was driven by continued strong momentum for Design Home, the next iteration of the MLB Tap Sports Baseball franchise at the end of Q1 and the outperformance from key evergreen titles. The growth in Design Home speaks to the power of combining a great title with Glu's scaled operations, world-class user acquisition, our ramp in UA spend during the second quarter and our in-game ad capabilities.

Tap Sports Baseball 2017 generated $15.4 million in bookings in its first full quarter. On a year-over-year basis, this franchise has increased bookings by 36% over Tap Sports Baseball '16's Q2 2016 quarter or up from $11.3 million last year. This speaks to monetization and live ops improvements and explains why we view this franchise as a growth title.

We expected to see moderate declines in our evergreen games and are pleased to report that these titles outperformed our expectation and were only down modestly. 59% of total bookings came from original IP titles with no royalties due. Ads and offers was 15% of total bookings. This is up both as a percentage of bookings and in absolute dollars from the first quarter. The $2.7 million growth in absolute dollars was due to the first quarter being seasonally light on ads, coupled with a full quarter of contribution from Design Home and Covet this quarter.

Turning to the expense side. Adjusted platform commissions were $21.2 million. Adjusted royalties came in at $6.5 million and hosting costs were $1.7 million.

Total adjusted operating expenses were $58.2 million, an increase over the prior quarter, primarily due to the $13.1 million growth in user acquisition costs, which helped drive the strong top line results. Total variable marketing during Q2 was $27.2 million. The outperformance in the top line in Q2 had significant bottom line margin flow-through given the original IP nature of Design Home and tight cost controls we enacted starting Q2.

Last quarter, we ramped our user acquisition spending in Design Home, as we believed at that time that the title was in optimal place to leverage a low CPI. We spent $13.9 million in user acquisition during Q2 for Design Home. This UA spend was heavily weighted to May and June, with 71% being spent in those last 2 months of the quarter.

During the quarter, our average CPI was $3.74. And as such, we generated 3.7 million paid installs on that UA spend. Additionally, we realized 3.4 million organic downloads during the quarter from a combination of featuring, being in the top charts and cross-promotion. The 3.7 million paid installs that were acquired during the second quarter generated $7.8 million of bookings in the second quarter. We currently expect these paid users to be ROI positive within 8 months, which is favorable from our expectation last quarter of 9 months. This ROI calculation factors in recouping Apple and Google fees. We also believe that these acquired users will generate meaningful bookings over a 2 year-plus period.

We anticipate spending lower overall UA in the third quarter compared to the second quarter. However, for Design Home, we expect to spend a similar amount.

We expect elevated CPI cost in the fourth quarter due to holiday seasonality. And as such, we are modeling a reduction in UA spend in the fourth quarter.

We ended the second quarter with a cash balance of $68.1 million. This was a decrease of $5 million over the prior quarter. $3.4 million of which was used in operations. And of that, $2.9 million was related to previously signed royalty minimum guarantees.

Turning to guidance. For the third quarter, we expect bookings to increase year-over-year but be slightly down sequentially to a range of $78 million to $80 million. This guidance assumes a moderate decrease on Tap Sports Baseball as the second quarter has historically been this franchise's highest quarter and bookings typically decline after the All-Star Game in early July.

For Design Home, we are assuming approximately 20% growth quarter-over-quarter given the strong start to July we have seen for this title.

The balance of our evergreen titles have a modest decline assumed.

We are modeling 0 bookings for new titles in the third quarter.

Adjusted platform commissions are expected to be $20.1 million to $20.7 million, adjusted royalties within the range of $5.9 million to $6 million and hosting costs of $2.4 million.

Adjusted operating expense is expected to be between $55.3 million and $55.6 million, which assumes user acquisition spend to be approximately 30% of bookings for the quarter.

And looking at the full year, we are increasing our bookings guidance to a range of $307 million to $312 million, representing a significant increase at the midpoint over last year's $214 million.

We are adding the Q2 beat to the full year and increasing our prior guidance for the second half of 2017 to account for the strength we have seen.

We expect to launch both the Taylor Swift app and our zombie shooter title, Last Day Alive, by the end of the year. We are modestly forecasting for these 2 titles in our Q4 and full year numbers.

Car Town Racing will require significant improvements in beta for us to launch it globally. We have nothing modeled for guidance purposes.

Adjusted platform commissions are expected to be $79 million to $80.3 million, adjusted royalties in the range of $23.8 million to $24.1 million and hosting costs of $8.7 million to $8.9 million.

Adjusted operating expense is expected to be $211.2 million and $212.4 million, which assumes marketing to be approximately 27% of bookings for the year.

As Nick mentioned, our goal was to enter 2018 with a bookings base and cost structure that would allow us to be breakeven or better on adjusted EBITDA basis without relying upon new bookings from new titles in 2018. We have made significant progress on the bookings side of the equation through our 2 growth games, Design Home and MLB Tap Sports Baseball, and our evergreen strategy has allowed us to elongate the bookings tail from those 9 titles.

With a combination of already enacted restructurings and reductions that will be completed by the end of the year, we expect to be slightly profitable on an adjusted EBITDA basis without contribution from new titles in 2018. More importantly, this means that we believe our 3 phases to sustain profitability are significantly accelerated.

Phase 1 was 3 quarters of losses as we invest in our creative leaders and significantly increased Design Home UA through the favorable CPIs we were realizing. Phase 1 will finish this quarter but with a much lower cumulative loss than we had previously guided.

Phase 2 is now expected to be the fourth quarter of 2017 only, and we expect a very modest operating loss with possible upside to breakeven if we exceed guidance.

Phase 3 is now accelerated based on our recent EBITDA performance, and we now expect sustained adjusted EBITDA profitability to begin in Q1 2018.

We believe we will be slightly profitable in 2018 on an adjusted EBITDA basis from our current catalog of titles, including our expectations of bookings in 2018 from the next iteration of MLB Tap Sports Baseball. We expect our new 2018 title road map to be upside and fuel our projected adjusted EBITDA growth for next year.

I am very pleased with the progress that we have made on both the top and bottom lines. Our evergreen titles are showing great resiliency; and our growth titles, specifically Design Home and Baseball, are pushing our top line to near-record levels. Our relentless focus on operating costs is also setting up 2018 to return to expected adjusted EBITDA growth.

I look forward to updating you on our progress next quarter.

And with that, we'll now open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Doug Creutz of Cowen.

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Douglas Lippl Creutz, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [2]

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Yes. As I look at your slide deck, the thing that jumps out at me is that your MAUs were flat sequentially, but your DAUs were up almost 20%, which suggests pretty significantly increased engagement across your portfolio. Could you maybe talk about what's driving that? How much of that might be mix shift within your portfolio or towards higher engagement gains versus actual growth in engagement across portfolio and what you're doing to drive that?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [3]

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Doug, I'll take this, and Eric can jump in. I think it's kind of a combination of both the things you talked about. The big thing that's changing here for us is as I talked about the live ops improvements and sort of how we run events, that is just improving engagements, improving retention. It's also improving monetization. So we're just seeing -- we're seeing all of our KPI trends moving in the right direction because we just have a better handle on when to run event, how to run those events and the general live operations, which is driving our engagement, which is obviously driving our DAU. And I think that's why you're seeing the DAU over MAU ratio go up, which is obviously an indicator for engagement.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [4]

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I would also add, Doug, that as we pointed out in the footnotes of that slide, we historically report DAU and MAU at the last month of the quarter. And so it's not the average of the whole quarter. It's the last month. It's the month of June. And in the month of June, we had some pretty big campaigns around Design Home, around new outdoor living spaces coupled with the 3-year anniversary of the Kim Kardashian: Hollywood title. So it's also possible that the DAU increased around those 2 events for those 2 specific titles.

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Operator [5]

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And your next question is from Darren Aftahi of Roth Capital Partners.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [6]

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A couple, if I may. Can you talk on Design Home, just why you would not sort of let up on UA just given kind of some of the comments you made going forward? And then I'm just kind of curious, I think you introduced advertising into the game in the second quarter. What were the impacts of that? And then I've got a couple follow-ups.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [7]

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Yes, sure. On the first question, Design Home, why not let up? We certainly have ramped up user acquisition spend in the second quarter and are keeping Design Home UA spend consistent in the third quarter from those levels. As I mentioned in my prepared remarks, we do anticipate CPI costs to go up in the fourth quarter around holiday seasonality. And so I think we've modeled, for forecast purposes, dialing down overall UA spend in the fourth quarter. But depending upon the outcomes of what we see from Design Home and the LTV curves and the paybacks, we can always make an adjustment. We said last quarter that we're able to adjust. This is very variable spend, and we're able to adjust on the upside or downside if we don't like or if we like what we see. So if we like what we see, we may adjust that as well. And then I think the second question, if you can articulate the second sub-question, it would be great.

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Unidentified Company Representative, [8]

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Advertising in DH.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [9]

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Yes. So advertising in Design Home, we started that in the first quarter, and it started to ramp up for a full quarter in the second quarter. And it's not quite to our average of 15%, but I think we're right at about 10% levels for Design Home in terms of ad revenue from that game. And we're very pleased with what we've seen.

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [10]

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Yes. And one thing I'd add, Darren, is that given that it's a very targeted audience that is obviously real fans of that particular medium and that subject, we have some great upside opportunity. But we've just got to kind of mature our advertising capability inside of that title.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [11]

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That's helpful. Just 2 more, if I may. On EBITDA, so you're talking about that being sustainably, I guess, positive next year given kind of King's historically was around 40%. I think Zynga said -- they announced recently 20%. When you normalize sort of celebrity royalty payments and then kind of user acquisition costs return to normal levels, I mean, how do we kind of think about EBITDA margins for Glu?

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [12]

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Yes. So we'll be probably -- provide some updates either in November or February about actual long-term target margins. But what we've said in the past -- and obviously, King is at a $2.5 billion revenue level. So I won't be able to talk about market levels of that level until you're into the billions. But we certainly will be aspiring towards our peer competitors at certain revenue levels. And so we'll be targeting market levels of EBITDA margins when we do release numbers. But we are relentlessly focused right now on ensuring, one, that we can drive EBITDA at least for 2018 without reliance upon new titles. We spend a lot of time talking about that. And then even more importantly, new titles will be leverage and a fuel for that EBITDA growth in 2018. And that's been a combination of, one, figuring out the top line on the gross margin side; and secondly, doing the right things on the cost side. And we've been enacting program this past year and are finishing program this year around the cost side of the equation as well.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [13]

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And just last one for me. Maybe for Nick. So you have the Tap Sports team on WWE. I'm just sort of curious, you had a Tap Sports Football product. Why can't you parlay that platform into other sports?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [14]

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Yes, it's a good question, Darren. We do talk about the kind of natural sports -- the national team sports. We obviously didn't see great results with football. We've seen terrific results with baseball. We just think that kind of the natural and logical next step for that team is wrestling, even though it's not a sort of traditional sort of team sport. But it just fits perfectly with this construct, with their technology. It also turns out that they're just absolutely fanatics about this -- when I say "they" I mean the team and the whole studio -- about the sport of wrestling. So we're really trying to lean into what our teams want to do, where they're really passionate, where they feel a calling and really where they would see kind of the compass pointing to for their interests. And that drives into energy, which then we think drives to a great game. So we're really excited about WWE being their next title. And I think when you do see it, you'll realize that it's just like a perfect fitter for this tack, even though sort of at face value, it doesn't feel like it's very much like baseball. It just happens to sit right on top of this technology that they've got down at that studio.

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Operator [15]

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Our next question is from San Phan of Mizuho.

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San Q. Phan, Mizuho Securities USA LLC, Research Division - Director of Americas Equity Research [16]

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Can you provide some more specific examples on what drove the upside within Tap Baseball and Home Design? And then you also mentioned the fiscal year guide doesn't include bookings for Car Town Racing. But -- so can we assume that it -- if that also factors in anticipated cost savings from what you've mentioned earlier with the termination on some of studio's expenses?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [17]

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Yes. Let me take a stab at the first one, and Eric can jump in if he's got anything and he'll probably best answer the second. So yes, Design Home and Tap Sports were driven primarily by just the updates and content releases and live events that we executed over the quarter. None sort of jumped to mind specifically. I think you just have to look at kind of the body of the work over that 3 months. For example, Design Home has multiple events a day, and that really drives that engagement factor I was talking about earlier. It drives your sort of -- your spending velocity, which then leads to your strong LTV. I think that's sort of true with baseball, just like really strong updates. There were several big ones throughout the kind of the course of the quarter. But I wouldn't say anything would stand out as -- we're talking about individual. So I think you've got to look -- you really have to look at the body of work over the sort of the 12 weeks. Then maybe the one that stands out on baseball would be the Slugfest Tower Event. I can't remember exactly when that was, but that was sort of about halfway through the quarter.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [18]

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Yes, San. And then in terms of the cost savings and Car Town. So yes, I did mention that Car Town, our guidance excludes any revenue from Car Town. We specifically called that out. And then in terms of the cost savings, yes, our guidance reflects the cost savings. And when we get to 2018 and give guidance for 2018, you'll kind of see the step function kind of the clean cost profile in 2018 as all those costs are kind of saved out there.

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San Q. Phan, Mizuho Securities USA LLC, Research Division - Director of Americas Equity Research [19]

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Okay, great. And then thanks for the CPI figure for Design Home. Can you -- is it possible for you to give us -- maybe let us know how that compares to Q1 and there in the launch quarter?

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [20]

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I don't have that handy in front of me right now. But it was -- I certainly know that the LTV started to go up during the quarter, but I don't -- yes, I don't have that data in front of me handy.

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Operator [21]

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(Operator Instructions) Our next question is from Mike Hickey of Benchmark Company.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [22]

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Curious on Taylor Swift. I mean, we sort of run the course here, I guess, with celebrity IP, and obviously, Kim Kardashian was a hit. You've had some struggles after that. Gordon is probably semi-hit, you'd probably call out. But any reason to sort of get excited for this? I mean, obviously, we see the global (inaudible) huge following. Maybe walk us through what you've learned on the development side to sort of construct a game here with a star that could it be successful?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [23]

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Yes. Thanks, Mike. It's a great question. And I know it's very topical. And like I said, the intention was to do kind of the big launch on this call. And lots of discussions with the team. We opted to hold off and do a full stand-alone launch event. And that, I think, speaks to how we're excited about this, primarily because it is a different type of experience, and I've talked about that before, compared to kind of the previous attempts we've made in the celebrity space. We're really excited and really confident about what the team in Toronto has built. I think everyone will be pleasantly surprised about the sort of the construct and the structure of the game and find it a really rewarding experience. What we just don't get at this point to really understand is how many DAUs are really going to be interested. Is it 5 million DAUs? Or is it something less? And obviously, if we get to a scaled DAU base, we're going to have a very successful business and a really successful experience. If it doesn't scale up to the high DAU number, then we've got something less. I would say that I feel like we're pretty inoculated on the downside, and we purposely planned it that way because we just don't know. It's a really tough space to kind of navigate and to forecast. So we've been really thoughtful about that. And with that said, if it delivers to a scaled DAU base, we're going to be in a great place. So that's what we're working towards. It's going to be a very polished experience, and we will be -- I promise that we will be announcing the details shortly, and look forward to a full stand-alone announcement at that point.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [24]

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Is she motivated to make this game a success?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [25]

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She's extremely motivated. And one of the reasons why we're just sort of holding off on today and waiting for the prime moment is that we need to make sure we've got her completely captured here and her full attention. She's got a lot of stuff on, as you can well imagine. So that's why we're kind of waiting for this exact right moment to do this. But yes, she's very motivated. And I think just kind of from a business perspective, that should be obvious. But I think she views this as a tremendous opportunity and vehicle to speak to her audience on a daily basis. So that's the thing we're really excited about. That's what she's looking forward to and the whole team working on it.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [26]

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Good, all right, good. Cheers on the WWE. Obviously, that's a huge win for you guys. I'm not sure everyone always realize how global and big the audience is for that content. Is this going to be obviously a -- is this a global game? Nick, is this going to -- obviously, there's an audience in China, India, across the world for this content. What's your plans on geo launch on this?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [27]

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Yes, another great question, Mike. Absolutely. I mean, this is why we're so excited about this property going to this team. This team down -- that's working on -- that's been working on the -- I'm sorry, on the Tap Sports Baseball franchise has been working on a terrific game and really built something of substance. But it is limited territorially. It's a category and a product that really just performs in North America. So one of the reasons we're so excited about WWE is, to your point, it's a global phenomenon, I mean, has an enormous fan base in Europe. And we are absolutely going to go after that. We're still figuring out ways that we can directly tap into user acquisition around the globe, but we're very, very strong in North America, as you may know. So that's an area of growth and opportunity for us, and this is absolutely the right product and category to be in to expand that and make sure that we're really tapping into all of the potential markets. We don't have a formulated plan for Asia just yet in terms of -- sort of fully fleshed out, so we'll work on that. But there's enormous growth in Europe, and that's sort of double the size of where we are with baseball, which is sort of limited to North America, obviously the U.S. primarily. So yes, it's a really nice fit. It is really a perfect sort of property to sit on top of the design construct and the game that -- and the technology that the guys on the team have built. So we think this is like sort of one of those perfect marriages.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [28]

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Cool, good. Last one for me. The -- I believe that you guys kept the plot within Kim Kardashian, maybe that was a couple years ago. And I don't think you moved forward, maybe it was too disruptive to the player base of that game. But thinking about Kim and her audience, Design Home, maybe some of your other games as well, do you think about obviously the social casinos because it's a high pay conversion, high ARPDAU? Is there anything there for you guys in the future?

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [29]

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Yes, it's absolutely -- you're absolutely right. It is a great space to be in. It's hard to break in. The audience tends to be pretty sticky when they get attached to slots, and this goes for poker as well. We really respect our competitors who are strong in these categories. In fact, we respect them so much that we really sort of stayed on the sidelines. I wouldn't rule it out in the future. We've got nothing to announce today. And you're right, we sort of do have a celebrity angle that we think about, we talk about. But nothing announced just yet. I think it's fertile ground, but it requires really going after with sort of full attention and full respect of that market and the competitive structure out there. So yes, nothing announced today, but it's certainly fertile ground. I cannot agree with you more.

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Eric R. Ludwig, Glu Mobile Inc. - CFO, COO and EVP [30]

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And I just wanted to follow up to San's question about Design Home CPI for the first quarter. So San, we spent $5.9 million in the first quarter on Design Home UA. That generated 1.7 million installs for a simple CPI of $3.41. And so from Q1 to Q2, we ramped UA spend by 135% from $5.9 million in Q1 to $13.9 million. And CPI went up by 10% -- or 9.1%. So pretty happy with both our UA team's abilities to find users relatively inexpensively, and we are able to more than double the spend while only increasing CPI by less than 10%.

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Operator [31]

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That concludes our Q&A session for today. I'd like to turn the call back over to Mr. Nick Earl for any further remarks.

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Nick Earl, Glu Mobile Inc. - CEO, President and Director [32]

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Great, thanks. The transformation of Glu Mobile is gaining traction faster than our original plan. The evergreen initiative we started last October continues to benefit our financial trends and is helping accelerate our expected return to profitability. It also signals our ability to nurture and grow future games instead of facing the typical downward spiral we've witnessed in the past. Crowdstar has proven to be an enormously positive addition to our company, with Design Home possibly being in its early days of growth despite already being our #1 performing game.

Finally, the newly added culture of rapid prototyping promises to add value as we launch carefully constructed games and apps in fiscal '18 and beyond. We believe we are on a path to predictable, sustainable and profitable growth.

Thank you all again for joining us, and have a great day.

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Operator [33]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.