Q2 2020 Glu Mobile Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the second quarter 2020, Glu Mobile earnings call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session last good question. During this session. Please press star one of your telephone.
Please be advised today's conference is being recorded if you require any further assistance. Please press star zero I'd now like to hand, the conference over to your Speaker Harnessing. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us on Glu mobile second quarter 2020 earnings Conference call.
On the call today, our nickel, President and Chief Executive Officer, Eric Ludwig CFO, and Chief Financial Officer.
During this call we will be making forward looking statements regarding future events in the future financial performance on comedy.
Any forward looking statements that we make today are based on assumptions that the company believes to be reasonable as of this date, we undertake no obligation to update these statements as a result, a future events because you need to consider the important factors that could cause actual results could differ materially.
Those in the forward looking statements in the press release during this conference call. This factors are described more fully.
In our documents filed with the FCC specifically the most recent reports on form 10-K intend to during this call. He will present, both GAAP and non-GAAP financial measures.
So measures.
Should be considered in isolation from a substitute for or superior to our GAAP results and we encourage investors to consider all measured before making an investment decision for complete information regarding our non-GAAP financial information the most directly comparable GAAP measures in a quantitative reconciliations of those figures please refer to.
The supplemental presentation accompanying todays earnings call that can be accessed by or investor website.
Www Dot green Dot com forward slash investors.
A reminder, consistent with our financial presentation people all the information aside from bookings was otherwise stated below we will discuss results on a GAAP basis for you to changes hurt revenue with the for cost of revenue and the non-GAAP operating expenses total in our financial tables.
I will provide a GAAP to non-GAAP reconciliation of the first financial results based on the same methodology. We've used in prior quarters. We are also provide a supplementary actual file our web sites and what easily even this reconciliation with the Powerpoint and that's all power now accessible on the website.
We encourage you to follow along with the slides during this conference call.
With that I would like to turn the call over to mix.
Thanks Arvind.
Good afternoon, everyone and thanks for joining on today's call I will provide highlights super strong second quarter results in an update on our game development progress in growth strategy. Eric will then go into more detail on our financial results and outlook for 2020.
The second quarter financial results were the best includes history bookings grew nearly 80% year over year to 182 million easily beating our upward Lee revise guidance is exceptional growth is driven by great execution of why Bops and continued shelter replace mandates leading to record quarterly bookings and all three of our growth games. We also benefited Ben.
That said it from the continued resurgence of Kim Kardashian Hollywood and the first full quarter Disney Sorcerers Arena, our bottom line flow through was much better than expected, even while making significant investments in user acquisition for future growth.
Our strategy is clear, we're focused on creating nurturing and acquiring Petrobras games. They can stack bookings scale and increased margin overtime. Our objective is to continue driving strong growth game performance developing a robust pipeline of new titles and strategically layering on accretive acquisitions are successful.
Capital raise in June significantly expands the universe, the potential acquisition opportunities and puts us in a great position to add to organic growth this year and into the future.
Looking at her life title performance for the second quarter design Heim design home grew 47% year over year and crossed a milestone with over half a billion dollars and lifetime bookings. The quarter's outperformance was driven by the teams phenomenal live ops execution, particularly of record performing series in each month of the quarter covet fashion.
These bookings by 67% year over year and launched the summer season, along with several other successful live ops events. Despite the delay on the MLB season Tap Sports baseball grew 20% over last year continuing to show an amazing ability to stack bookings year. After year strong performance was driven by robust event scheduling daily MVP leader.
Or boards and the addition of World rankings.
We also continue develop opportunities you cross prop one play connected.
[noise] connected play by extending tap sports baseball and design home to the P.C. Web browser. This initiative is consistent with our strategy to expand our audience increase accessibility and deepen connections with our players.
Our latest launched Disney sources arena generated over 22 million in bookings and while still early is showing signs of growth game potential and the quarter. We saw success from our live ops built around Disney Pixar, IP, which helped to drive engagement and monetization.
[laughter] last quarter, we discuss two titles come crashing Hollywood and diner Dash adventures that have the potential transition to growth game status and the second quarter game, Kim with 300% year over year grew over 300% year over year reported its highest bookings quarter since the first quarter 2015, showing the pay off in investing in.
Bops and the incredible resiliency of this title given the softness an elder retention, we have seen to date in beta with originals, we've decided to reallocate resources, you Kim Kardashian, Hollywood, which offers a more compelling growth opportunity.
Diner Dash debentures also had a strong quarter growing bookings, 55% from the first quarter based on an updated core Lou and an enhanced programmable monthly event calendar.
As we have discussed on previous calls our intention is to build umbrella brands that maintain and expand our leadership position and lifestyle in sports lifestyle category design home and covet fashion, our proven leaders and we believe we can leverage our expertise and add to this lead with Crowdstar P., three which continues to show promise and closed beta.
Over the last two years, we have globally launched three glued developed games two of which have the potential to drive long term growth and profitability. We also recognized at the bar is much higher in today's competitive mobile market, where successive device defined by differentiation and very deep feature sets to keep players entertain any gauge for years as work continues on different.
The World, we have decided to extend development into 2021 to allow the team to add a much more robust player versus player experience that is fully connected to the core Luke for the first time and the franchise history. We continue to see immense potential in this would this IP and wonder insured. This game has the best chance of lead in its category for many years there.
Inspired design home tap sports baseball, we believe that adding depth like social competitive game play will allow for this.
As a reminder, our guidance philosophy, you philosophy is to exclude any contribution for new titles until the quarter. After they are launched given the record performance. So far in 2020, we expect to show strong year over year growth without the benefit of any new launches in the balance of the year.
We are accelerating or investment into Clos are crowdstar lifestyle, gaining ground by focusing on three key areas product services and network on product, we tested a petri prototype in market seeing encouraging early retention. The team is now working towards a beta launch targeting the end of this fiscal year.
On services, we relaunched we relaunched relaunched our E commerce initiatives into a 20000 person beta and are seeing compelling metrics. These positive indicators continue to hold we will launch a U.S. ecommerce store in the fourth quarter.
Network, we have been actively investing an additional drivers for installs, including web GL and a hyper casual games initiatives that have the potential to become a user acquisition network to drive users into our lifestyle suite of design home covet fashion and the forthcoming pithree.
Given the evolution of potential changes to the you wait ecosystem across the industry. We believe it is critical for us to invest in expanding our user base. We have very strong momentum with the crowds star studio and are excited to drive more depth and extensions with this brand.
Lastly, I want to touch on our M&A focus and strategy. The good team has a proven track record of identifying exceptional studios and games are three growth games, along with diner Dash Cam were all developed out about acquisitions, we have successfully scaled each of those titles due to our live ops expertise and a robust central infrastructure we are.
Looking across the mobile spectrum of early stage to establish studios that would be the right fit from a cultural and financial perspective. The recent capital raise allows us to expand the size and range of potential opportunities. We can now pursuing puts us in a position to acquire a transformative asset.
In summary, we reported the best quarter and Blues history, while investing in the business to support long term growth. We saw continued opportunity from shelter in place mandates, which we believe has created a long term lift in the business in the first half of the year, we're able to build a larger user base with higher engagement across the portfolio.
Looking ahead, we think the pieces are in place to continue to show strong year over year growth in our core business, while developing new titles that will meaningfully contribute to strong performance next year and beyond we've also added firepower to pursue growth opportunities through M&A, which is an important part of overall long term growth strategy. We believe we are an excellent position to scale our business.
By stacking bookings driving margin expansion and increasing shareholder value I'll now turn of the Eric will go into more details on our financial results in our outlook there.
Thanks, Nick Good afternoon, everyone on the call I will provide an update on how we're managing our business. During the couple of 19 Pandemics review, our phenomenal second quarter financial results and then walk through our plans in guidance for the second half and full year 2020.
Regarding the cobot banking pandemic. These continue to be unprecedented times and thus far we had been effectively managing in a work from home environment as evidenced by our strong first half results and the successful wants to tap sports baseball 2020 and disease Sourcers Arena.
Over the last four and a half months, we've recruited hired and effectively onboard and dozens of new hires all remotely and without any in person interactions I'm very proud of our glu employee base for having navigated as three great quarter in a challenging environments.
In the second quarter, we significantly exceeded our bookings and bottom line compared to the increased guidance provided on May 28 revenue was $133.3 million bookings reached an all time quarterly record of $182 million, a 79% increase over last year's second quarter.
The stronger than expected performance was driven by a continuation of strong player engagement increased organic installs and our significant investment and user acquisition in light of the favorable CVI environments.
Royalty free grew IP titles generated 57% of bookings this is a quarter over quarter reduction due launches a busy sources arena tap sports baseball 2020, as well as the resurgence of Kim Carnation Hollywood.
Bookings were $16.4 million or 9% of total bookings, representing a 27% year over year increase.
Our three growth games grew 41.5% year over year and contributed 66% of total bookings.
And looking at our growth games on a year over year basis design home hitting new quarterly record of $62.3 million, representing 47.4% growth covet fashion reported its biggest quarter ever growing 66.8% to 24.1 million its efforts before franchise increased 19.8% to $33.6 million and.
All time quarterly record despite the delay to the start of the it'll be season.
In regard to our three potential growth games Disney sources Arena, which launched in late Q1 had bookings of $22.1 million Kimco National Haldeman continued its strong momentum every quarter bookings of 20.1 million, representing its highest bookings quarter in five years, and 320% growth year over year and diner dash inventions up 50.
4.7% from the first quarter was $11.6 million in bookings.
Underpinning these great results was a significant increase in our daily active user base and an increase in or monetization.
On a year over year basis, our daily active user base grew 17% from 3.2 million to 3.8 million. This reflects the addition of disease Sourcers arena, coupled with an overall increase in users from a ramp you wait campaigns and organic discovery from shelter in place.
In tandem with the increase in uses in the second quarter, we also saw or monetization improve dramatically as evidenced by our average bookings per daily active user increasing 51% year over year to 53 cents breaking this monetization growth. It is to some components are three girls games, plus Disney and diner Dash as a group grew.
Monetization, 33% year over year to 61 cents per daily active user.
Our catalog titles as a whole saw tremendous growth in monetization in the second quarter, increasing 107% year over year to 29 cents per daily active user due to Kim Kardashian, Hollywood, which leverage the game merchandising and my boss.
The expense trying to just supply from commissions were $49.6 million adjusted royalties were 14 million and hosting cost for 2.1 million.
Okay, and marketing spend was $57 million or 31.3% of bookings compared to 30.1 million last year's second quarter.
Operating expenses, excluding you a marketing were 35.9 million compared to 28 million last year.
On a GAAP basis, the net losses $8.6 million due mainly to the fact that the increased bookings will be recognized over six months on average wireless significant ramping you a cost for expensed as incurred during the second quarter.
We had a cash balance of $283.1 billion. The ended the quarter, which includes the 158 $181.8 million net proceeds from a capital raise in June.
And looking at the third quarter respect bookings in the range of 130 to 135 million, representing a 10% increase the midpoint over last year's third quarter, our bookings guidance for the third and fourth quarters would be significantly higher than the implied guidance for second half 2020 that we provided in February pre shot to replace additionally, on a year over year basis.
Our bookings guidance is higher than our prior quarterly record from the third quarter 2019.
Now on a quarter over quarter basis, we are expecting reduction in bookings across most of our titles through the record results. We saw in the second quarter, specifically, we expect insight on that kind of fashion Q3 in Q4 bookings to be down as compared to the second quarter numbers, but at record levels. When excluding the all time high second quarter results Tap sports baseball.
2020 bookings will be flat to slightly down as compared to the second quarter.
Kim Kardashian, Hollywood and diner Dash adventures bookings should be comfortably above their first quarter numbers and down from the second quarter.
And just resources Rias bookings will be down from Q2, as we transition as title from phase one to face you want as expected pathway to profitability as we're dialing back you ate spend to focus on breakeven margins as a standalone title.
Overall, our Dow and are now in the third quarter should be higher than the first quarter 2023 shelter in place mandates as well as higher than Q3 at 29 team.
This reflects the long term benefits are growing our user base in the record second quarter.
As a replacement investments in profitability I want to provide some context and how we are modeling the third and fourth quarters.
In late March and April we leaned heavily into the substantial decrease in Cpis ramp you waste that.
We also saw a significant number of organic downloads and increase user engagement and monetization during the second quarter.
We substantially outperformed on the bottom line in the second quarter more may earnings call guidance and the updated mid quarter guidance, there's a high marginal flow through on that topline beat.
The second quarter topline outperformance has a flow through effects to the second half to 2020 as the increased Dow base continues to play in pay.
We are increasing our bookings guidance for the second half a 2020, my $21 million or almost 9% from 238 and a half million dollars to 259 definitely dollars for the second half of the or.
I would point out that our second half of 2020, you wait guidance was originally given back in February before shelter in place started.
The lower Cpis in July that we're seeing as compared to January and February we're maintaining our implied EBITDA guidance for the full year and flowing through the Q2 beat to fund additional you weigh in Q3 in Q4.
We expect to the incremental you will be ROI positive over a 12 to 24 month time horizon as we have leaned into the start of the MLB season than July coupled with what we believed to be favorable ROI opportunities. We are seeing in our growth games and our concession bookings.
We still expect to achieve adjusted EBITDA margins in the fourth quarter that are within our target range of at least 15%.
On the expense side at the midpoint of our bookings guidance, we expect to just supply from conditions, a 36.3 million adjusted royalties at 9.2 million and hosting costs of 2.2 million.
You would cost will be approximately 37.4 million up approximately $10 million from our prior implied guidance as I just discussed reflecting our investment in TSP 2020, as well as we're all our other growth games, a potential growth games and all other adjusted operating expenses are expected to be $39 million.
This resulted in a second quarter over quarter reduction on the bottom line due to lower bookings increase you anything.
The full year 2020, we expect bookings in the range of 538 million to 540.
At the midpoint this would represent a 28.3% increase over last years bookings.
We've added a second quarter beat a 14 and a half million dollars behind the guidance and raise the full year by $21 million, reflecting our increased confidence in the back half of 2020.
On the expense side for the full year 2020 at the midpoint of guidance, we expect adjusted flat from commissions of 147.7 million.
Adjusted royalties of 36.4 million and hosting costs of 7.99.
You may cost would be approximately $151 million, reflecting 27.8% of bookings Oliver just all other adjusted operating expenses are forecast to be 151.8 billion.
Are you a guidance has increased in both the third and fourth quarters public spending in the third quarter expected to be greater than the fourth quarter.
Excellent profitability decreasing from the second to third quarter offend increasing from the third to fourth quarter.
[noise] I want to discuss our free cash flow generally last quarter's EBITDA is converted 90% into free cash flow. The following quarter. As we are a capex light business with $2 million to $4 million of annual Capex for 2020, we expect to generate approximately $40 million free cash flow and end the year with approximately.
325 million in cash and no debt.
I'm extremely pleased with our outstanding performance in the second quarter as well as the increase outlook for the third and fourth quarters.
The strategic investments we made in the first half in 2020 would increase the way to acquire a larger user base will benefit us in the second half of 2020 and beyond.
Additionally, the increased average bookings per daily active user is reflective of an environment, where consumers are more time for gaming and we believe will provide for higher lifetime values and more predictable profitability.
As I look to the second half of 2020 and beyond I'm very excited on our progress toward snacks and bookings and profits from our three growth games VR continued investment in light of operations and competitive social game play.
We continue to believe that Disney sources Arena that international ventures, and Kincardine National Hollywood, our potential growth games. In 2021, we also have a robust new title roadmap to add on top of this growing core business.
With our recent fundraise, we are focusing on acquiring game to the studios and pulled into our Glu studio footprint as we provide any capital infrastructure and know how to nurture and grow their top and bottom lines.
We believe the 15% plus the adjusted EBITDA margins, we sector realized in the fourth quarter is a good baseline in quarters, where we're not in phase one of the new titles being launch and reflects our skilled core business. It's too early to provide a specific 2021 bookings growth figure, but we believe that we will be set up to grow at or higher than the western mobile market.
I look forward to making strong progress on our long term targets as we seek to scale the business this year that into 2021.
Ill now turn the call to the operator for questions operator.
Ladies and gentlemen, if you have a question at this time please press the star and the number one key on your telephone.
Your question please press the pound.
Once again at Star one asked the question and our first question comes from <unk>. Your line is open.
So much you too if I can be one on the game pushing up to 21, just wanted to understand what you saw there that you wanted some time from a development side just sort of take your time get the game right. How you picked up positions are the game will to 21, just wanted a little bit more clarity Gary second abuse requisition front, just want to make sure we're keen on.
The messaging you expect to see moral lodge, which seamless youre still very constructive on a wise, but obviously not as as little as PPI environment as.
Are we were out of some of the chip just Apple we're making in the back part of your retire was 14, maybe start to room.
Acquisition. Thanks, so much.
Hi, Eric good good heavy on board ill take the first one on that Eric can do the second I'll, probably add some thoughts so yet so deer Hunter world. We've been developing that game you know for a little over year illness, almost two years now and have been making strong success. We've also been really investing into the PBP.
Which is really not been a part of the experience over its many your history.
The more we spent on that the more time. He spent on that the more we saw the more realized that we really want to build it out and really flush it out.
And given that we just exist and live in and.
Guess play in such a competitive market, we really want to come out with the game at launch with full features.
Tremendous depth and really a very played out or mature from social economic or social competitive part of the elder game, which is the PBP. So on balance we just felt that while we could get it out. This year was just better to take a few more months really invest in that side of the.
Aim and.
You know would those extra few months potentially allow us to have this game be a serious contributor for many years. So that was the thinking there yeah and Eric on the way front so.
We saw fantastic Cpis in late March April and they started to go up from those bottoms in May and June and July. However in July we're still seeing cpis at or below the January and February time Horizons and the only time, we gave guidance for the back half of the year was back in February when we.
Increased guidance in the month of a may and then our prior mid quarter guidance and I May 28, we really touched the second quarter in so we really had not touched you weigh in a post shelter in place environments and so really this updated guidance really refreshed reflects the lower cpis, we're seeing and yes. The ROI is.
We are fantastic in April slightly less fantastic in May and fantastic in June but they are still at elevated levels from January February and prior to last year. So we just believe that this is the right thing to be doing to be building that user base, we effectively we're able to beat EBITDA in the second quarter and a funded that EBITDA by maintaining the old.
Overall guidance for the year by funding that into the third and fourth quarters with increasing our you and.
I'll just add a one thought on the upcoming imminent changes with iOS 14. So so we view that as pretty serious. However, we do think its potential opportunity. We have our entire you weigh in marketing team looking at this very very closely working on technology process, our org structure anything that will give us an.
Opportunity to take this to take this change and come out stronger on the other side, we do feel bad.
It is probably something that will benefit more scale publishers and developers in the marketplace.
Given that we have the opportunity to kind of really frozen technology out it but it's still very early in terms of exactly what it means we're just taking it seriously and we believe we'll be ready on the other side to be as effective if not more on the you wait.
Great. Thanks, so much for the color in the whole bodes well and say okay.
Thanks, Eric Thanks.
Thank you. Our next question comes from Doug.
Cowen Your line is open.
Yes, just to get a clarification you talked about 15% EBITDA margins being the baseline is your business matures this to be clear that's.
That's what we think that has a floor and not necessarily the EBITDA margin you're stuck correct.
Thats correct, yes, the floor and unless there was a floor kinda in quarters. When we are not launching a title or kind of in that phase one right talking about some of the first three to five or six months of launch when we kind of forward spend kind of getting escape velocity once we get into the breakeven phase two.
Then if we have titles not stage I would expect just to be that 15% floor, but yes, that's a floor number for sure.
Okay, and then if I got one for you mentioned, you're moving resources from original for Kim.
Should I take that to me that originals is now out of the pipeline or where you just moving part of the people over.
Yeah. It's it so we haven't made a final decision on that where we will make that shortly we just looked at how originals is doing it just it does very well with the early part of the game, but the elder KP either just still not there we've got such an extraordinary opportunity with Kim and as you know the both developed in the same study.
In Toronto. So we just felt the right thing to do was to move resources from originals to Cam, where we've had significant growth over the last few quarters, especially in Q2, just given that this just such a stronger return there what will make it will make it as a final decision on original shortly and will be certain to update but as you know.
It's not in our numbers for the for the year.
Okay. Thank you.
All right. Thanks, Doug.
Thank you. Our next question comes from Tyler Parker with Keybanc capital markets. Your line is open.
Hi, guys. This is actually on for Tyler on just a couple of question. So first given that and I'll be season started just a few weeks ago.
Any update you can give us as to what you're seeing with engagement and tap sports baseball since it started or has it tracking compared to the same time last year.
Then also are there any learnings from the cohorts of noon or lapsed users that you guys have gains since March and acting similar to all dcor cohorts or is there anything to note there. Thanks.
Yes, great Ashley. Thanks, Thanks supposed to questions. So yes on MLB, we have seen an up tick in organic downloads since the season launched a back.
On July 25th ish timeframe as well as engagement and monetization. So it's been a good outcome, it's probably a little too early to see given some of the the Cobas 19, that's kinda ravaging somebody the teams as to whether the season will be a full season, a full parcel season or will it will be a partial partial season.
So I would be a little cautious I'm not being too over my skis on the numbers. That's why I said that Q3 would be kind of flat to slightly down just on the backs of what we're seeing with the Marlin organization and some of the games being canceled was that the team is being overwhelmed with cobot in regard said it kind of the cohorts we talked about.
In my prepared remarks about monetization and Dow our engagement are up significantly in the second quarter. So we obviously saw cohorts that we are behaving.
A lot of like but spending even more of a shelter in place I would expect that in the third quarter that the engagement and monetization will go down from those records second quarters. The way I was thinking about second quarters. We just did two things we outperformed our core business just organically and then we had a cobot bump cobot children placed on top of that.
I would view Q2 as kind of anomalistic quarter. It did help us build a really big user base that we are able to parlay into Q3 Q4 and into 2020. So very good it's not it's not a new base camp the year over year comps on a year from now will be well be hard because it was such an anomalous a quarter, but the way I think about it as we.
Forward spent on you way with a little sheep CPI environment to build a big user base and that was a strategic defence that we did to leverage that time horizon ill just just at a couple more thoughts on TSB, because it's pretty extraordinary that this game and its six year is growing as much as it has given that there has not been a season. So just.
Recently, regardless of whether that season really flourishes or.
Just doesn't really tell.
Take hold.
What's what's amazing is just that the the VIP and the spenders.
Our all way up from where they have been in the past. So every time and every year, we sort of feel like we've hit the ceiling. It continues to surprise us. So much. So that this year, we saw 20% growth over over last year Q2 to Q2 based on the back to these VIP isn't the spenders. So it's just it's really testament to just how deep. This game is how soon.
From the the live ops team is and what they run even in absence of real day to day game, So regardless of what happens for the rest of the season, we still think we're in really good shape and very grateful to have that in our portfolio.
Awesome. Thanks, guys.
Thank you Ashley.
Thank you and then next question comes from the line of Matthew Thornton Trust Securities. Your line is open.
Hey, Nick Eric.
As well.
A question or two quick follow ups, if I correct.
I think you touched on hard.
Your Hunter and you've talked a lot.
He didn't touch on costs have some extremes I'm just curious on pricing maybe relative to what your thoughts.
And then just a clarification deer hunter.
Being pushed back a couple of 2021.
Sounds like it hasn't changed.
Her outlook.
Oh, yes, I make sure that saw them, but that is in fact, the case and then certainly within I would say it's coming here in September.
Okay and are you thinking you know that is a headwind that's neutral is it too early.
Okay, Great right now.
Stars.
Yes, Hey, Matt there's little difficulty hearing so hopefully hopefully I got all the questions, but I'll talk a little bit about the pipeline then we'll talk a little bit idea fan hopefully it will cover what you asked so yes deer Hunter World. We are very bullish on it. We're also as you know as we get kind of further into.
The where we are in the cycle in the industry. We just realize it's just harder and harder to launch a game that is going to be in the top 20 top 50, even top hundred any any advantage you can bring as part of the experience we feel like we should really pay on or two and flesh out and that's what we've seen.
And with Pvp. So we went take a little more time just to get that right theres been a very kind of minor pvp feature set and deer Hunter 18, but it's never really been connected to the core loop and as I've never really been flushed out and either asynchronous or synchronoss mode, especially as part of kind of the socio competitive layer that we just believe is so.
So important in all games, especially sports games and you know like this outdoor game.
So our view is that we have as big if not bigger opportunity going forward, we just want to move it ever move in a few months and just signal that now so we get that the team gets the extra time to work on really deepening that that feature as well as others that are going into the elder game and continued refinement of the of.
Core looping the core mechanic, so what's happening there, but we feel great about that for 21 and beyond in terms of fishing also same story lots of work going into creating depth. There. We feel really good about mechanic, which has gone through a lot of changes over the last few months, but we finally settled on the core looping the core mechanic there so now the.
Focus is really around social Mehta, and Pvp very much on track for next year, we're not going to give tighter timeframe than that but we feel really good about what its future looks like and then pay three another one that we feel good about and that really is standing on the on the shoulders of Giants with the covered and design home.
Learnt a lot and we think that this is a really good fit that sits right alongside as a vertical to those two but squarely in this lifestyle.
Type of genre or category and we think this is going to be a big pillar to the crowds star strategy and crowds star brand. So excited about what that shows US next year and then switching idea say, yes, I think it's too early to know whether it's going to be at net net gain or set back or is it neutral.
I think from our perspective, we think across the industry is it may be a.
A real challenge at the macro level, but I think for companies that are scaled that have good tech and and really understand the depth of user acquisition. This may be an opportunity. We don't know for sure, but we think maybe an opportunity to really refine our user acquisition and marketing process, we're going to spend more effort in traditional.
Marketing, which we've been doing for the last year, especially around Disney.
And again, such so we think that's an offset we think the hyper casual suite of games that we're building, a and potentially bringing to market in the crowds star world could be a good offset there and could really help us in aggregating and building in installs.
Yes, we feel like there is probably going to be brave new world as we get into next year, but we are taking a very seriously we've got a lot of cycles against it and we do think that.
This hopefully will be a net positive for us if we navigated well over the next three six months.
Thank you and once again, ladies and gentlemen, if he has a question at this time. Please press the star and the number one.
Once again, so I wanted to ask a question.
Yes.
With Stifel Your line.
Okay. Thanks, guys good afternoon.
So Eric at the end of your prepared remarks, you made a comment to the company's set up to grow at or above the western mobile market can you. Just clarify does that include new games you intend to launch next year does that include any acquisition and as it relates to M&A. Nick I think you said that you're looking at early stage opera.
Synergies what does your tolerance for dilution and something that you purchase thanks.
Sure I'll answer the first part and then Nick can answer the M&A parts.
So that includes core business and new titles does not include M&A.
Yeah and on the M&A question. So we were initially we've talked about this lot over the last few calls about how we were kind of a I would say more focused on the low end of the market given the capital raise of 152 million in June it's really open up the door for us to look at the much higher.
End of the range, so something that really could be transformative we look back at crowdstar, even though that wasn't a hefty price tag it was absolutely and profoundly transformative for the company.
Incredibly accretive and just such such a great fit for us. So there may not be another crowdstar out there, but we're certainly looking for it or something that's that's close and now we feel like we can shop, both at the lower middle and and now.
For the first time the at the high end of the range.
In terms of dilution I didn't really havent number I can give you, but but I think anything we do well either be accretive out of the gate.
Or very very accretive longer term, if it's something that we're going to have to invest and build using our central infrastructure and our knowledge and know how as well as you know any sort of efficiencies and synergies. We can drive with other studios. So time will tell as we as we get closer to signing a deal, but we've got a lot of activity a lot of.
Energy going into this and hopefully we'll have something not to spend that we can we can talk about.
Okay. Thanks, guys.
Hey, Thanks drew.
Thank you and our next question comes from Matthew costs with Morgan Stanley. Your line is open.
Hi, guys. Thanks for taking the question I'm, just wondering now that you're a couple of months into the renegotiated license behind compared to last year.
How has that changed your experiences that came in and do you think that there's like a real change in terms of like the growth opportunity in sort of what you can do a decade now that.
That out user acquisition expenses. Thanks.
Yes, Hi, Matt Yes. So this this was a deal for those who.
Uhhuh Didnt hear last time that we did earlier in the year that allowed us to not out marketing costs before we paid royalties and we all felt that this was a a much better strategy to really get behind and grow the title turned out to be perfect timing because as we got into Q2 was shelter in place mandates it allowed us to span much.
More liberally and thoughtfully with much greater return. So it's one of the reasons why we see such enormous growth in that franchise and yeah, I would point to the deal as being absolutely crucial and day, an intra goal reason as to why we've been able to invest I think that.
Without doubt, we would've had growth regardless of of thinking that the the new deal, but it's certainly give us a lot of opportunity to really spend more and yeah. We just we just feel very bullish about this title going forward. We've got more resources on it we've got more you way that we can spend around spend.
Around we've got a much more interesting yield curve.
We look out on a on a daily basis that the game itself has gotten you customization features going on new merchandising a much deeper elder game, that's being built out over time, especially with systems as well as content.
And with the six anniversary event, we just had in June Theres, just a lot of momentum around the title. So we're very happy to have it in the in the mix, Yes, Matt. If you just look at the effective royalty rate on the overall portfolio. So we had in the second quarter, 43% of our revenue came from license IP, including baseball Disney.
In court action.
And that was a effective royalty rate of 17.9%, which was down quarter to quarter from 21.4% not really reflect even though it's a a much higher dollars for royalties. The effective royalty rate went down by 350 basis points on the overall bucket of licensed titles.
Great. Thank you.
Thank you and our next question comes from <unk>.
<unk>.
Capital Your line is open.
Hi, guys. Thanks, taking my question two if I may make you mentioned, an ecommerce store something about launching in the fourth quarter I'm, just kind of curious with the pull forward with with E Commerce in general probably several years.
No I talked in the past.
Commerce.
In design home up kind of curious how that strategy kind of fits in there.
And then all M&A just in light of what's going on in the second quarter with just the rise of the App store.
Popularity of games and people spending more time with their phones.
What type of games, if you look around kind of fit the model for what you think gluten effectively take in house and scale in our M&A basis. Thanks.
Yes, sure hated aren't so yeah, the ecommerce and design, who has been interesting journey for us.
We initiated something about a year and a half ago and I know, we talked a lot about it in the calls over over 2019, maybe even at the end of 2018, but the the first effort just didnt really pan out for a variety of reasons.
However, we had enough good feedback and enough good capesize to make us feel like there was absolutely something there, especially keeping in mind that the design home is more than a game, it's really gamified lifestyle experience, where where shopping is not only in the core loop, but it's just really kind of built into the phase.
Because of the experience and so we persevered, we've changed partners and now we feel like we're at a much better place in terms of how this is being built out and the logistics all logistics work.
It's also positive and that the experience of buying something ties into the core loop because you get game currency when you buy something and we are very close to launching this in the U.S.. We've got a small beta going on right now and continue to get really important capesize and data and results.
That allow us to fine tune the experience but.
Can use the way it is than the intention to be launch in the fourth quarter. It for U.S. only and then we'll look at other territories as you know as as that kind of plays out.
And then with regards to the M&A question, Yes, it's something that we talk about a lot or we are we purposely going after a type of game a sector or categories. Sciandra. The answer is not really there's a few that we're going to stay away from we just don't have the expertise.
So I would I would say that social casino would be a good example of that but we're really open minded about or anything that that looks interesting. That's a good logistical fit that.
You know comes with the team that's a good cultural fit for US, which is incredibly important and like I said earlier on a another answer that is either creative out of the gate or very accretive long term and that can take the form of many is on rwas and many types of games in many sizes of companies so really really the the.
The landscape is open for us and we're just really looking for something Thats a good fit for the portfolio and given that we have a wide portfolio. We think we're capable of bring anything in the mix.
Thank you.
Thanks Aaron.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a good day.
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