Q1 2020 Earnings Call
Thank you and welcome to think as first quarter 2020 earnings call on the calls me today, our French both our Chief Executive Officer, and Jerre Griffin, our Chief Financial Officer.
Shortly we will open up the call for life questions.
Before we cover the Safe Harbor. Please note that an effort to keep our team members safe each member on the call is dialed in remotely. We appreciate your understanding as we work through the call and hope everyone is seeing safe and healthy during this time.
During the course of today's call, we will make forward looking statements related to our business plan strategy as well as expectations for future performance.
Actual results may differ materially from the results predicted.
Please review the risk factors in our most recently filed form 10-K as well as elsewhere in our SEC filings for further clarification.
In addition, we will also discuss non-GAAP financial measures.
Our earnings Lennar earnings slides and when filed our 10-Q will include reconciliations of our GAAP and non-GAAP financial measures.
Please be sure to look at these reconciliations as the non-GAAP measures are not intended to be a substitute for or superior to our GAAP results.
This conference call is being webcast and will be available for audio replay on our Investor Relations website in a few hours.
Now I'll turn the call over to Frank for his opening remarks.
Thank you Rebecca.
Good afternoon, everyone and thank you for joining our Q1 earnings call.
The human costs of the coded 19 pandemic had been extraordinary straining global capabilities enforcing massive societal change.
Admits this global crisis, which has done so much to separate us from colleagues friends and family Zyngas founding mission to connect the world through games has never been more vital.
We've been humbled to see millions of people turning to our deeply social game experiences for entertainment in a sense of community and continuity.
Today, all the employees are working from home a transition we executed without any material disruptions to our operations.
Our global workforce has rallied adapting quickly to keep pace with the increasing demand for innovative bowlby, while also making strong progress on our new game pipeline.
We've also been grateful for the opportunity to serve our community. During this time and are collaborating with the world Health organization and more than 55 other gain companies on the play a part together campaign to promote physical distancing through special endgame events.
Content and giveaways.
Zyngas collaborative culture has never been stronger and while the duration of shelter in place rules is uncertain, we're confident in our ability to effectively operate our business remotely for as long as as necessary.
In Q1, we delivered our best first quarter revenue and bookings and Zynga history, driven by our lives services, which performed well throughout the quarter.
We achieved revenue of $404 million up 52% year over year and bookings of 425 million up 18% year over year.
Our topline performance was above guidance driven by broad based strength across our portfolio, especially by a record quarter from empire than puzzles and a great start to the year from merged Dragons.
Additionally, the new titles, we launched in 2019 merge magic and game of Thrones slots casino are doing well and were meaningful year over year contributors.
Given our Q1 be and strong Q2 outlook, we're raising our full year 2020 revenue and bookings guidance, which Jeff will discuss later in the call.
We continue to expect live services anchored by our forever franchises to drive the vast majority of our 2020 performance.
Our new game pipeline is on schedule and we expect to release new titles worldwide in the second half of the year.
In March Harry Potter puzzles, and spell joined puzzle combat and Farmville three in soft launch and all three games are progressing well in test markets.
We also continue to see opportunities to acquire talented teams and franchising around the world to further accelerate our growth.
While there is uncertainty around the full impact and duration of the coded 19 pandemic. There are several factors that speak to the strength and resiliency of our business.
First our mission to connect the road three games has never been more relevant as more people are turning to our titles for entertainment and to socialize with friends and family.
Second we have a highly diversified portfolio of lives services anchored by our forever franchises, which has entertain players for years.
Third our games are free to play and highly accessible as we operate on the largest and fastest growing gaming platform in the world mobile.
Last our mobile games are built in a flexible development environment, allowing our team to continue to create new compelling content, while working remotely.
As a result of these factors and our strong balance sheet, we're confident in our ability to navigate the current environment and remain well positioned for growth over the long term.
With that I would now like to turn the call over to Jerre to discuss our Q1 results in further detail as well as our outlook for the year.
Thank you Frank.
I had a strong start to 2020, delivering our best Q1 revenue and bookings and Sangha history.
Strength across our lives services delivered I better than expected topline and resulting operating leverage.
While we are operating and unprecedented times based on our anticipated performance for the first half the year, we're raising our full year outlook for revenue and bookings, but first let's discuss Q1 results.
Revenue was 404 million comprise the bookings of 425 million offset by a net increase in deferred revenue of 21 million.
Revenue was 90 million ahead of our guidance driven by and 25 million bookings be offset partially by 6 million higher than expected increase in deferred revenue.
Our topline beat was driven by broad strength across our lives services, especially a record quarter for MPAR, some puzzles and our social crops portfolio.
As well as a grant starts the year promotes dragons.
Stronger user pay performance was the primary source of our topline b what advertising largely in line what our expectations.
Revenue was up 138 million, our 52% year over year, driven by bookings growth of $65 million are 18% year over year.
And I 73 million lower increase in deferred revenue.
Our year over year bookings growth was driven by our mobile live services, including empires imposed on merged Dragons on a full quarter contribution from gamma trunk slots casino on March metric.
The net increase in deferred revenue of 21 million was driven primarily by bookings from Empress and puzzles and merge metric.
While the release of this cap deferral, we'll have a positive impact on revenue and profitability in future periods and represented a 21 million reduction in revenue gross profit net income and adjusted EBITDA in Q1.
On a year over year basis, and represented a 73 million increase in the year over year change in revenue gross profit net income and adjusted EBITDA.
We ended Q warm weather deferred revenue balance of 453 million versus 287 million a year ago.
Turning to Q1 operating expenses.
GAAP operating expenses were 349 million up 64 million or 22% year over year.
This was primarily driven by higher contingent consideration expense and increased marketing investments versus the prior year.
Given the strength and engagement and monetization and person puzzles merge Dragons and merge magic our acquisitions of small giant games and Graham games continue to perform ahead of our expectations, resulting in a 120 million contingent consideration expense up 35 million year over year, and 95 million ahead of our guidance.
The increase in marketing was primarily due to investments against our lives services in particular merge magic words with friends Gamma Tron slots casino and March Dragons.
Year over year, GAAP operating expenses decreased from 108% to 86% of revenue.
This was a function of the lower net increase in deferred revenue, partially offset by the increases and contingent consideration expense on marketing investments.
Non-GAAP operating expenses were 200 million up 25 million or 14% year over year, primarily due to the increase in marketing investments.
Non-GAAP operating expenses represented 49% of bookings down from 51% of bookings in the prior year.
This was primarily due to improved operating leverage in R&D.
We reported a net loss of 104 million 78 million below our guidance and an improvement of $25 million versus our net loss of 129 million a year ago.
The variance the guidance was driven primarily by the higher level of contingent consideration expense and higher net increase in deferred revenue, partially offset by the burden expected operating performance.
The variance to prior year is heavily influenced by the lower net increase in deferred revenue our improved operating performance, partially offset by the increase in contingent consideration expense.
Our adjusted EBITDA was 68 million 11 million better than our guidance and an improvement of 87 million forces are negative adjusted EBITDA of 19 million in the prior year.
The variance the guidance was driven by better than expected operating performance, partially offset by the higher in that build in deferred revenue.
The variance to prior year was driven by the lower than that build and deferred revenue as well as our improved operating performance.
We had a net operating cash outflow of 35 million versus a net operating cash inflow of 2 million in the prior year quarter.
In Q1 2020, we executed the first of three annual installments to acquire the remaining 20% share interest in small giant games paying 122 million for an additional 6.7% interest.
74 million of this cash investment was classified as a use of operating cash flow and 48 million as net cash used in financing activities.
We expect to acquire the remaining shares Ratably in Q1, 2021 and in Q1 2022.
As of March 31st we had approximately 1.43 billion of cash and investments, which we expect to use primarily to fund future acquisitions to further accelerate our growth and the payment of existing contingent consideration obligations.
We also had a $150 million available under our credit facility, which had no amounts outstanding as of March 30 Onest.
Turning to guidance.
We are living an unprecedented times with the carpet 19 pandemic already having a profound impact on how we live for compliance.
In this environment, we have developed our Q2 and full year 2020 guidance based on the information available to US as of today may six twentytwenty and using similar methodologies to prior quarters.
Given the higher level of uncertainty around the cobot 19 crisis. There is the potential for a wider range of outcomes, both positive and negative as it relates to our ultimate business results.
That said, let's discuss our Q2 and 2020 guidance.
Guidance for Q2 is as follows revenue of 400 million up 94 million, our 31% year over year.
And that increase in deferred revenue of $60 million bookings of 460 million up 84 million R. 22% year over year and net loss of 60 million versus 56 million in the prior year quarter.
Adjusted EBITDA of 32 million versus 3 million in the prior year quarter.
Some factors to consider in assessing our Q2 guidance include.
Our lives services will drive our topline performance that buyer forever franchise as well as year over year additions of merge magic and gamma Tron slots casino.
This overall momentum will be partially offset by the year over year declines and older mobile and web titles.
We expect that user pay will be the driver of growth with advertising down year over year as we continue to lap prior year advertising network optimizations and shoe to the recent pressure on advertising yields.
Our topline guidance does not assume the launch of any new titles. In Q2, we are experiencing elevated levels of engagement across our lives service portfolio as people continue to shelter in place.
In the current environment. It is hard to protect how events will unfold, but as shelter in place rules begins to be lifted we expect trends to normalize.
Our guidance assumes that this normalization will begin in the second half of Q2, we expect a net increase in deferred revenue of 60 million in Q2 2020 versus a net increase of 70 million in Q2 2019.
The year over year change in this gap deferral represents a 10 million year over year increase in revenue gross profit net income and adjusted EBITDA.
We expect gross margins to be up year over year, primarily due to the lower net increase in deferred revenue in Q2 2020 versus Q2 2019, partially offset by the dilutive impact of the stronger user Pemex and Q2 2020 versus Q2 2019.
Given the strong anticipate growth in revenue, we expect our GAAP operating expenses as a percentage of revenue to significantly increase year over year.
Outside of these factors, we expect modest year over year improvements in operating leverage and R&D, Angie in a which should be more than offset by higher sales and marketing specifically in Q2, we are seeing unique opportunities to acquire audiences and are wrapping our marketing investments across our lives service portfolio and our games and test markets.
Turning to 2020, our revised guidance is as follows revenue of 1.65 billion up 328 million are 25% year over year and up 50 million versus our prior guidance.
And that increase in deferred revenue of 150 million down $92 million or 38% year over year and inline with our prior guidance bookings of 1.8 billion up 236 million or 15% year over year and up $50 million versus our prior guidance.
And that loss of 245 million versus net income of 42 million in 2019, and an increase of 115 million versus our prior guidance.
Please note that our net income in 2019 included a onetime gain on the sale of our San Francisco building of 314 million.
Adjusted EBITDA of 210 million up 123 million are 141% year over year and up $10 million versus our prior guidance.
Our guidance assumes that live services will drive the vast majority of our topline performance as we expect our forever franchises to collectively scale throughout 2020 and anticipate initial contributions from new games that are targeted to launch in the second half of the year.
In 2020, we also expect year over year user pegaworld, two more than offset the modest declines in advertising due to the recent pressure on advertising yields.
We continue to expect and that increase in deferred revenue of 150 million in 2020 versus a net increase of 242 million in 2019.
The year over year change in this gap deferral represents a 92 million year over year increase in revenue gross profit net income and adjusted EBITDA.
The ultimate outcome for our net increase in deferred revenue in 2020 will be a function of the mix of live services bookings growth as well as the timing and scale of bookings contributions from our new game launches in the second half of the year.
For the full year, we anticipate slight pressure on our gross margins due to a higher mix of user pay versus advertising.
Operating leverage on a GAAP basis will be highly influenced by the net increase in deferred revenue and the level of contingent consideration expense.
On a non-GAAP basis, we expect to see modest improvement in operating leverage from R&D and gene, a which should be more than offset by increased marketing investments on both our live services and new game launches.
Operating leverage will ultimately be a function of our lives services performance.
User pay versus advertising mix timing of our new game launches and the level of marketing invested in scaling our lives services and new titles.
In addition, while we anticipate strong performance in the first half of 2020. It is uncertain how the current cobot 19 crisis will progress as well as how it will affect our business for the remainder of the year.
In 2020, we expect a net loss of 245 million, which includes 200 million of contingent consideration expense and a 150 million net increase in deferred revenue.
Collectively these will more than offset the strong improvement in operating performance year over year.
The increase in expect to contingent consideration expense for the year is the primary driver of the increase in our net loss versus our prior guidance.
Sure. Our recent acquisitions continue to perform ahead of our expectations. We may see further increases in the cumulative contingent consideration accrual.
We are raising our adjusted EBITDA guidance to 210 million, representing an increase of 123 million year over year, primarily due to the lower net increase in deferred revenue and stronger operating performance year over year, and an increase of 10 million versus our prior guidance driven by a flow through of the increase in our topline guidance in summary.
While we are operating an unprecedented times, we remained focus on entertaining and connecting our players through our games.
Our business fundamentals are strong and we're continuing to execute our multiyear growth strategy.
With that we would now like to open up the call for live questions.
That's all my notes asked a question you will need to press Star wondering you telephone to withdraw your question passed a turnkey.
We ask that you please limit yourself to one question and one follow up.
Please stand by what we composite kuni roster.
Our first question comes from Matthew Thornton of Suntrust. Your line is open.
Hey, good afternoon, everyone. Thanks for taking the other question.
The in the prepared remarks, you guys talk a little bit about seeing some opportunity to invest or increase investment user acquisition here I'm just curious how that investment that you talked about in the second quarter kind of plays into it flows through the guidance for the back half the year.
Then just secondarily.
When we think about the the sheltering in place any impact on the business I'm just curious if there's any differences or comparing and contrasting you could do in terms of what titles are John Roes are seeing impact or what regions are seeing impact is it more us first international work there were fairly balanced any color you can provide there thanks everyone.
Hi, Matt. Thanks for your question. This is Frank and I will start with the second question first and then hand off to Jerre for the first one.
In terms of.
The quarter Q1 was a fairly normal quarter for us in terms of the performance. The the change in dynamics related to Kobin shelter in place really started to show up in that second half of March a pretty late nights carry through into April and what we've seen is frankly, a broad base increase engage.
You mean.
Audience growth.
There are folks are playing longer sessions more sessions nine interestingly, while we've seen new players come into our platform it into our games.
We're seeing a tremendous number of reactivations. So when you have brands as as old as Zynga Poker and words with friends 10, 10 years, plus you're seeing a lot of folks while they're sheltering in place I'd go to to trusted brands are brands that they know I in any case awards as friends are we seeing very.
Very positive audience trends overall, it's a it's a game that is highly social in nature.
And were really grateful to see how people are engaging with the gaming connecting with friends and loved ones. During this time, but in addition to that we're also seeing social casino do well CSR, our Graham and small giant gains. So it really is a.
A case, where the entire portfolio since late March has seen the audience and engagement gain so now I'll hand off to Jerre for the first first what are your question about you wait flow through.
Yeah, Matt as as we as we said in our prepared remarks and in our letter our guidance is.
Predicated on we've given flow through in our guidance for what we see as performance through the first half of the year. We are investing obviously in the first half and and cohorts of audiences that will monetize engage monetize in the second half.
But as it relates to our guidance the guidance is predicated based on what we've seen through the first six months as we get through Q2, obviously, we'll be giving you guys are more informed position and how we see the second half.
As as I as I noted in my prepared remarks, Theres a lot of variability at the moment and while we feel confident in our core business and how our games our operating.
We're going to give better color on the second half as we as it becomes for Q2.
Thank you. Our next question comes on re social with consumer Edge Research. Your line is open.
Great. Thanks for taking my question on advertising bookings I would love if you could give any incremental details on.
Number one is there any sort of way that we can think about how you are running too cute date, or but advertising bookings might look like in the second quarter, there anyway to quantify the gross margin impact from advertising headwinds and then the last one with the last one would be is there anyway to quantify what portion of your advertising bookings.
It's from third party games or other products that are fairly well position in this stay at home environment. Thanks.
Great. Thanks for your question in terms of you think about it from a gross margin perspective.
I would I would look at our gross margin profile. This time last year on now and what you'll see in the gross margin is there is essentially a point of pressure.
Which is most that is down to the mix of user pay and.
And advertising.
As it relates to advertising overall, you know we indicated in our in our and our notes that we expect to see advertising down modestly.
So that's in the sort of I would say the low to mid single digits.
And in terms of the profile, we don't comment on the overall profile, but as you would expect.
There is in mobile gaming in particular, there is a strong waiting of.
Obviously other entertainment companies and gaming companies advertising in our space, given Thats, where gamers are.
What we've seen in Q1.
Is that that side of the businesses continue into two obviously performance. It's one of the reasons why we as a gaming company are seeing unique opportunities to on the other side to invest in user acquisition.
Where we've seen weakness, which actually our advertisers with stronger yield is on the brand side, it's a smaller part of our business, but it is definitely a.
A challenging area at the moment, given where were the world is.
Great. Thanks, so much.
Youre welcome.
Our next question comes from that the cost with Morgan Stanley. Your line is open.
Hi, guys. Thanks for taking the question I hope everyone well see you mentioned in EMEA in the press release that you're seeing positive results from empires and puzzles and Asia. Obviously, you have a couple of games.
Those regions are a little bit ahead of the you asked in terms of like the timeline of coded 19. So there any learnings that you've seen from your games overseas, whether that's in Europe, where some countries are ahead of the U.S. or Asia, you know that you're factoring into where or thinking about when you when your.
Forecasting to the United States portfolio broadly and then just second.
On the on the AD revenue side, just a quick follow up to what you were discussing when you think about sort of those modest decline. It does seem like games like worth of words with friends for example, as seen in a big pickup and downloads. The path. There too. So is it really you know there's impression growth, but the declines are driven by those tpms going.
Down or what are the puts and takes that thanks so much.
Good.
Thank you Matt on the.
Other than dynamic that we see internationally with countries that are coming out of shelter in place quicker than and perhaps some of the countries in western Europe in North America, we have been observing trends there across our portfolio I'd say, it's a little early right now to really trended out as as something definitive there's some new.
Ladies and the data in terms of local conditions are or particular dynamics.
You've seen some countries where engagement levels have I've held any and in fact increase and then some there's there's been a bit of a dip. So I think it it's too early to tell but but we are closely watching that the key if it is indicative of what potentially might occur in some of the other countries that are still currently in shelter in place or just coming.
Now.
In terms of your second question about AD revenue.
When you look at the dynamic inside words with friends.
The compression that you've seen in CPM starting in late March.
One of the reasons why were down less than the rest of the category in terms of advertising is because the audience gains engagement gains we've been able to create more opportunities to advertise inside the game because engagement rates are higher theres more impressions generated and therefore, we will offset some of that decline in cpms in.
The early stages here and as we headed into into April.
Great. Thanks.
Thank you. Our next question comes from Mario Lu with Barclays. Your line is open.
Great. Thanks for taking my question and congrats on the records, but this quarter.
As a question on impacting puzzles and a follow up.
I understand the recording has changed regarding.
Bookings by franchise, but any color you can provide regarding how impactful to launch of season three in the past the dollar had.
Sequential bookings growth.
Thank you Mario the.
The product.
In a terrific quarter. It was a record quarter coming off of the holiday, which was particularly strong for us a we had a very very aggressive bold be calendar in the in this quarter This last quarter.
Driven by the long anticipated release of season three.
And then the introduction of valor path as well as.
You know the the different events that we won related to the wardrobes on so you had multiple things happening in the quarter that really benefited the product and drove another record quarter for MP in terms of teasing out which element was the most impactful honestly they all really contributed in and set off of each other.
And so from our perspective, when we look forward into the bowlby calendar for N.P. the rest the year.
The team in Helsinki is really developed very ambitious calendar, we're obviously into the second season the dollar pass.
You're starting to see some of the heroes come back like Rademaker. This week and so we're seeing a we're still continuing to see very good results in the product as we head into Q2.
And just.
A high level follow up on what was Shelton in place so being second in most of the wells and given during his willingness to develop gas when you platforms, just sat snapshot and Facebook instant games is there opportunity to leverage then goes expertise and social gaming to partner in developed with teleconferencing platforms such as Jim.
Thank you for the question, we're definitely looking at a new platforms in terms of development.
Beyond just snap.
No. We are very active in new game development right now one of the one of the benefits of mobile development is that is extremely flexible and once we were able to redeploy into work from home setting and everybody was safe our productivity was very strong we made some adjustments and a couple of areas where we saw.
Some challenges, but in general we're actively developing games for.
Mobile, we're actually looking at chat platforms and we are considering.
Video based social platforms as well in terms of places for us.
To build games in our mission is where the first social game company. Our mission is to connect the world through games and one of the key pillars of what we've been trying to do it. They recently is to be platform agnostic to really go where the audiences and and we have a lot of great brands that we believe could or could be a benefit there.
Thank you. Our next question comes from Doug trades with Cowen mm.
Yeah, you guys have a sort of a uniquely broad game portfolio.
I'm wondering if if the positive impact you've seen from seltzer in place if you're noticing any interesting.
Variances across genre or across demographics with already that are that are performing exceptionally strongly. Thank you.
Hey, Doug the.
Again, I'll emphasize the point I might have made a little bit earlier in the call which is in the rate Reactivations is where we're seeing it and it it's not really franchise or or our demographic based but we're seeing a lot of players that had been away from a franchise for a year or more come back in to a game and whats.
What's really cool to see is the fact that the gains have changed a lot since they potentially lapsed part of the benefit of continually updating the games and putting out a lot of both beats is if you left words with friends two years ago and came into the game now it's much improved it's evolved theres a lot of you features in a lot of new content to engage in a in so.
Whether its csrtwo, which is more of a male oriented game or words with friends, which is is definitely a majority of the players are women.
We're seeing that reactivation element has been the most interesting and thing that we've been compelled by.
We do see additionally to that people coming in the mobile games for the first time.
And when we talked a little bit earlier about unique opportunities to acquire audiences in this environment.
Yes, that's some of the things that we're starting to look at where we see the opportunity to acquire new players we're definitely investing.
And we believe that for the long term, we'll be able to grow the audience as for our games and it engagement curves hold or even.
Slightly diminished based on this period of time on the overall business is going to it'd be in a very good decision.
Okay. Thank you.
Our next question comes from Mike Hickey with Benchmark Company. Your line is open.
Hey, Thanks to our hope you guys are good.
First question just on the buyer saw this is.
In a bit booz, John engagement, and probably a lot of other metrics you look at how do you sort of.
Pack that coolants I guess when you evaluate the performance of your games beta.
On the second question it looks like you.
Accessibly here I've got everybody working from home doesn't sound like productivity.
The issue it seems like you should be motivated.
Accelerate some of that new gains or the games per second half.
Market sooner.
The audience sort of captive and looking for new experiences.
Also as you said have a little below you exited sort of how you think about Medicaid we came down a little bit faster.
Hi, Mike the.
Question as it relate to test market data pre and post shelter in place. It is definitely something that we're looking at so that we understand if theres any potential wrong read that you might make because people are in a in a an a novel situation, where they're at home and they have the ability to play games.
More often so it's definitely something that we're considering the gains have been in.
Test launch before.
Late March time period I highlighted so we are looking at the data before and after in normalizing and looking at whether or not that's an impact.
So far you know, we do continue to see very positive.
Test result on farm three on puzzle and also with the with Harry Potter coming so the data is positive and we're constantly iterating and adjusting to get the game that the position so that they deliver long term engagement and can be forever franchises square for us for many years.
It is a it did a great point about acceleration in trying to bring the gains into worldwide sooner Amit is something that we've looked at but we're also staying very patient where if we rush the gains and and we don't believe that the long term engagement systems are in place.
It's a situation where it won't pay out to the positive so.
Great points on we're definitely considering them.
And we're we're making adjustments accordingly, but right now we feel good about our stance and our timelines.
Thanks, guys best of luck.
Thank you.
Our next question comes from Jeff Cohen with Stephens, Inc. Your line is open.
Hey, guys. Thanks for taking the question.
Can you talk about how the current operating environment impacting your ability to do something strategic on the M&A side.
I'd say, it's hard to get deal going when you can't meet people in person.
But I imagine the economic environment second half of the year might accelerate the number of private companies looking for a stable home within the Singapore folio any thoughts on that.
This is right the the M&A environment. It is still very dynamic if you look at the number of deals that have been done since January.
It's been a pretty active marketplace.
And when we think about the types of deals that zynga looks that.
Again, we try and build relationships.
Very early on and keep coming back to them. So as we moved into a shelter in place environment, where we've had to do things more via zoom or hang out on the fact that we actually spent that tying together earlier in the industry or no folks earlier as really benefited us.
We continue to be active in discussions and evaluations.
We're obviously not forecasting any deals at this point in time.
But we feel very confident that we will be able to continue to grow the company through M&A activity the balance sheets in good shape.
And as the as the year unfolds.
In the second half and we believe that theres the potential for that that M&A activity inside the industry to continue.
And we'll continue to look for great teams, great franchises opportunities and strategic fit.
And Zynga continues to be a place I think that is appealing fourq for teams out there to join so.
Yes kind of a situation, where we feel very good about our positions and we'll continue to stay active.
Thank you. Our next question comes from drew Crum with Stifel. Your line is open.
Okay. Thanks, guys good afternoon.
Some of your competitors to discuss the various challenges developing games remotely curious as to what your experience because then.
How does it impact the production and delivery of gold beat.
And your preamble you described the new game pipeline is on schedule I presume Thats 20 only.
If prolonged this in any way impact the 21 slate. Thanks.
Thanks for the question one of the benefits of mobile game development is that the engines the tools processes.
They're very well understood, we're not waiting on new hardware to come out.
We're not looking for component that flows coming in from China in terms with the supplies are going to be you know, we're very much working in unreal and working on immunity. We're working on our own engines were using tools that we have already built or are off the shelf and very well understood.
Our production process and and systems that we use.
Have translated very well to the so the home.
Look at some of the disciplines that are important in in the games that we built in the both beats that we're building things like environmental artist Modelers data scientists product managers. They can do their jobs very effectively in a remote setting and in fact, a in some of our studios are black commute time is one of those things that as.
Really driven some of the the folks have higher job satisfaction. They don't have a two hour commute if in London. For example, so our teams are able to collaborate effectively right now our bold beats for Q2 are on schedule the ones that we've been delivering in these in the last month in the next couple of months, we feel very good about.
And again, if you look at public combat or farm Bill three.
Other teams that are very experienced live work together very well so the the transition from being in a in a collaborative space to having to collaborate from home.
Hasn't been having been a challenge honestly, we were very paranoid about it we watched every every part of the production process early on we ran into some challenges as it related to Q way in customer service as an example, none but we made adjustments very quickly to make sure that we were increasing our two way coverage because one of the things you didnt.
Want to do was induce a bug into allied service at a time, where it could be very hard to fix.
So in the areas, where we want to take extra care I in customer service to way checking in code. Our teams are really resin to the challenge and the fact that we're operating off with more knows then unknowns in terms the development environment in terms of the platforms.
In terms of our processes has allowed us to make the transition.
In terms of the titles that we're working on beyond 2020.
The same thing I think thing holds those game teams are on known tech, they're working on ideas and intellectual properties that are well understood and given where they are in their production schedules that are actually in some cases.
Being very very productive in terms of the experimentation that they're doing the testing as well as development of core assets. So.
As I said in our remarks.
This is a situation where where zyngas deployment into work from home has gone very well it feels like it's something that we can sustain.
And you know in terms of going back into the offices.
We're going be very careful and employee safety and team safety as number one so we're going to take our time in terms of how we get back to that because honestly.
Our businesses it is in pretty good shape in terms of being able to continue to operate in this configuration.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one our next question comes from Alex Channel with Jefferies. Your line is open.
Okay. Thanks for taking the question hope everyone is doing well Frank can you just maybe provide a more detailed update on puzzle calm that I know, there's no scientific approach to how long a game remains a soft launch, but it seems as if that one is taking a bit longer than than others, and then Jay or just.
On the guidance looks like the full year EBITDA guide increased by less than the magnitude of the one cubic feet.
Is that mainly driven by the headwinds in AD revenue and how that kind of flows through from a profitability standpoint.
Or is there anything else to call out there. Thank you guys.
Yeah, Alex so on public combat we are we're in soft launch where in.
And expanded test market position right now the data that we're getting is very informative and were iterative. Accordingly, that's kind of the standard stuff that we would say I think the thing to think about is.
You know small giant has created a game and empires and puzzles that has done extraordinarily well it's in the it's in the top of the charts, it's a bit it's a very high performance game.
And if you think about public combat coming out we have very high expectations for that title.
And so to small giant and so we're very much taking our time to make sure that the polishes there that the systems and long term engagement are there because as a follow on title to empires and puzzles that wants to live alongside that game.
It's got to have a very high level of quality.
And we want to understand how engages with lots of different cohorts and how it scales overtime.
And so so the guys in Helsinki are going that extra mile over there over this spring time period, where we're putting the game through tests on on Android extensively in North America. We're looking at a lot of other markets. We're running a lot of different experiments to see how the title response, but it led lots to do the fact that Empire.
As an puzzles is so it's such a terrific gain.
That we want to be able to me to meet those expectations in terms of a follow on game.
Hey, it's chair in terms of the full year guide.
Yes. It was it was basically as binary is taking the 50 million of flowing through a 20%.
That's how we sort of talk started through in terms of just upgrading the full year.
So you're correct in saying that we held on to some of the EBITDA and we'll see we'll see how we flowed that through as we get for Q2.
Okay. Thank you both.
Thank you. Our next question comes from Michael Kim with Goldman Sachs. Your line is open.
Great. Thank you very much for the question I hope everybody as well just have to my first question is on some prepared remarks that you made in the letter you guys talked about assuming a normalization in the second half of two Q I can you just clarify what does that mean are you assuming some of the titles are turned.
To February bookings levels and is there anything that you're seeing in the marketplace today that would suggest that normalization or is that just.
Simply conservatism and then my second question is just on new games in the guidance.
You guys said there were some new game contributions to the 2020 guidance.
How many of the three soft launch gains are you assuming get launched.
In the second half and if you could just quantify what the contribution from new lives. Thank you.
Hey, Mike et cetera.
So with the second part first because it's a fairly straight forward. We historically, we've set a rough year on 5% of our overall guidance, it's still broadly speaking 5%.
As I've said in the past.
If that doesn't really give you an indication of went into second half our how many games will turn up what it does tell you is right we set up our guide.
For the year and work, we're continuing to hold that guide given what I've said previously about the second half to be primarily alive service delivery.
With new games in the second half starting to turn up.
In terms of the Q2 guide normalization.
Yes, as we said in the letter we started to see the.
The the uptick in engagement in our games coming coming into March just like a lot of our peers and we've continued to see that as as we go true.
Hey approach and into them until May.
It's it's debatable when it's actually going to normalize, but our guidance was was predicated on it.
Normalizing in the second half quarter.
On to your point, that's going back to sort of.
Pre covert level. So you are talking sort of the February timeframe.
The other thing.
Yes, as it relates to normalization.
We're also obviously watching.
How the channels, our operating from a user acquisition perspective.
As we've said in the past, we've seen unique opportunities to invest against our audiences, but as you also know.
We've got a very talented data science and you wait team.
That continually monitor the.
The value of those channels and the courts coming in in terms lifetime value and depending in the house Cpis evolve.
Over the quarter, we'll we'll obviously course correct, our our strategy around that.
Great. Thank you for the culture much appreciated.
Sure.
Thank you. Our next question comes from the lines you with Bank of America. Your line is open.
Yes, hi, good afternoon. Thanks for taking the question I guess, a solid for Frank you mentioned, a couple of times on the call strong reactivation.
Looking at the mobile da use those are up only about a million quarter over quarter. I believe so just a 21 million da you metric maybe not tell the whole story about reactivation.
Is there another metric we should be looking at to see how the the audience is tracking maybe in April.
As a better gauge of the uplift.
Your player base.
Yeah as they thanks for the question in Q1 that 21 million quarter over quarter list in terms of Dia, you and any use.
It really doesn't reflect.
Much of the shelter in place at all again like I said before the last two weeks 10 days of March so you're really going to see that impact and momentum as more so in our Q2 results later this summer so.
As you as you think about the broad based lift across the portfolio anticipate that that impact starts really taking hold in April.
Thank you. Our next question comes from David Deckelbaum Danbury Capital. Your line is open.
Hi, Thanks, so much of the question appreciate it.
Two questions if I could first one being.
Maybe it's a little bit early but have you seen any.
Signals about retention impaired conversion rates that perhaps differ from what you're normally used to since the end of March and related Lee is there any reason to believe that since a lot of your new year's who is our reactivations that they wouldn't be more likely to stick around than a typical new player and then secondly.
Kind of a broad based question, but I was hoping you could just comment on the potential effects of a recession.
It's economic activity is sharply down, but there are lot of stimulus payments hitting the market if that were to recede and.
Customer spend sort of way do you expect that to affect your business in any meaningful way. Thanks.
Thank you David in terms of our retention and player conversion rates are we at you know again, we mentioned that there have been a lot of reactivations of players that probably understates. The fact that a lot of the current players are playing more and we're seeing all new players come in it's it's a situation where we'll see rates.
Mentioned the earliest retention data, we're getting now as measured in just a couple of weeks really if you think about the a shelter in place effect is starting to occur in late March.
So I think over time, we'll get a much better read on on the retention data. The park that we're optimistic about is that a lot of the reactivations are coming into games that have improved a lot since the last time they were in and so there's a lot of new things for them to do and a lot of new content for them to consume so we're optimistic about that component.
And in terms of of in terms of ARPDAU was or player conversion pair conversions, we have seen improvements in some franchises and that's been very encouraging some of its related to bold beat releases, though it's a little noisy right now to trended across the entire portfolio, but again, we're looking at this.
Data on a daily basis, and trying to look forward to see if we've seen a structural shift.
In the player dynamics or if things will revert back to a normal level later in the quarter like we've included in our guidance. So it's an exciting time to kind of being able to go through and understand how these segments performing in terms of the second question.
When you go back and look at a recessionary times in the video game industry. Some of this predates free to play mobile.
But video games Interactive Entertainment is is a very appealing and very efficient way to entertain yourself in a time of economic downturn.
If you look at the number of hours that you can play the amount of money that you would spend relative to other things like going to movies.
Going out to a ball game or other types of discretionary income.
You find yourself in a position where games.
Proved to be Relet relatively resilient as you look back at 2008 2001.
And then some of those periods of times or even smaller country level recessions. The interesting dynamic now is with a with a platform that is ubiquitous as mobile and a free to play business model with highly accessible IP.
Yes, if you're in a if it if the economy does have an extended downturn free to play mobile games are going to be a pretty efficient wait for a person to entertain themselves.
To engage with family and friends when times are tough.
And so versus other categories of entertainment.
Or higher priced ticket items inside the entertainment space.
I think that free to play mobile games, especially ones that are AD driven.
Our in a position to be able to reach audiences.
In a period that that could could see that type of dynamic.
Great. Thanks, so much.
Thank you our last question comes from lines Fitzgerald at Wells Fargo. Your line is open.
Thanks, guys lot of questions answered appreciate that maybe I'll try a couple of any evidence of a substitution impact not no cannibalization, but substitution as hardcore gamers. They have a robust experiencing from them in terms of a PC or console. So they are leaning forward to those.
And expecting a bounce back when we get back to norm.
And there is an offsetting trend there I'm I'm trying to figure out and whether or not that's that's offset by just the general acceleration of expansion of demos from away from hardcore gamers. So so that was the first question and then maybe a follow up to that last question are you answered for I guess thats.
Any potential impacts on eco system from the lengthening or the delaying of hardware or handsets not not the stuff you guys used, but hey, I'm not buying a new handset because I'm squeeze.
And so maybe I'm not is prone to expand my games over my gaming endeavors.
So those those are two questions. Thanks.
Great in terms of your first question.
Most of the people who played think again don't identify as gamers anyway, they're busy adults who are looking for ways to entertain cells.
You can play anytime anywhere you can it's highly social so from the standpoint of switching costs are substitution impact from piecing console, we don't see that the really at play here.
We have an audience in the demographic that is is somewhat counter to that.
We have some players that are that the do lot of cross platform play, especially in some of our natural motion titles, you see a little bit of with DMP, but in general.
The bounce back to normalization is probably going to impact us less than than console and PC in terms of handset generating are driving additional volume inside mobile games. You know look the release of a new iPhone or a new device from Google or Android lease.
Is that night affect inside the marketplace, but nowhere near.
As impactful led the release of the new console or or our new set of Gpus for PC games.
It you know your phones are pretty high performance right now.
And so if they carry on a few months longer on entered elevens or on their pixels.
It doesn't really that make that big a difference to our overall business.
There is a nice promotional window when you do see new hardware come out and kind of it a refresh in a replacement business in the west certainly but from our perspective, it's not a if not a big tailwind or headwind at all.
Got it appreciate it.
Yes.
Thank you and I'm showing no further questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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