Q1 2021 Zynga Inc Earnings Call

Ladies and gentlemen, and thank you for standing by and welcome to these Zynga first quarter 2021 results conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference is being rich.

<unk> do you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Rebecca Lau, Vice President Investor Relations and corporate Finance. Please go ahead.

Thank you, Josh and welcome everyone to think of US first quarter 2021 earnings call.

On the call with me today are French ball, our Chief Executive Officer, and Gerry Griffin, our Chief Financial Officer.

Shortly we will open up the call for live questions.

They called US before we cover the Safe Harbor. Please note that in an effort to keep our team members healthy each member on today's call is dialed in remotely.

We appreciate your understanding during the call and hope that everyone is staying safe during this time.

During the course of the call we will make forward looking statements related to our business plan and strategy as well as expectations for our future performance.

Actual results may differ materially from the results predicted.

To 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 letter earnings slides and when filed our 10-Q, one could reconciliations of our GAAP and non-GAAP financial measures.

Please be sure to look at these reconciliations as the non-GAAP financial measures are not intended to be a substitute for or superior to our GAAP results.

This conference call is being webcast and it won't 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.

We were off to an excellent start in 2021, delivering record Q1 results and generating strong momentum across all aspects of our growth strategy.

Today, we're also announcing our acquisition of chart foods, a leading advertising and monetization platform with a proven track record in innovation in the AD Tech industry.

We could not be more excited to bring this talented team to zynga and we will discuss the acquisition in more detail shortly.

Execution across our multiyear growth strategy has driven our tremendous results to date, while providing strong momentum for additional growth ahead.

In 2021 and beyond we are focused on continuing to drive recurring growth from our live services Foundation and launching new titles from our exciting new game pipeline.

In addition, we are investing in incremental growth initiatives, where we believe zynga is uniquely positioned to capitalize on several megatrends in interactive entertainment.

These new initiatives include hyper casual games cross platform play international expansion and advertising technologies, all of which have the ability to meaningfully increase zynga total addressable market and capabilities to further grow our business.

In Q1, we made significant progress against each of our growth initiatives for.

Strength across our live services drove record quarterly revenue of $680 million up 68% year over year and bookings of $720 million up 69% year over year.

While the majority of Zynga studios are continuing to operate in a work from home configuration. Our teams are performing incredibly well and remained focused on delivering highly engaging experiences for our players.

By delivering a steady cadence of bold beats, we are driving strong player engagement and monetization and are seeing these positive trends continue even as more countries begin to reopen.

In Q1, we saw strong performances across our live services portfolio with user pay revenue and bookings up 62% and 63% year over year.

Advertising revenue and bookings were also up 108% year over year.

During the quarter, our social slots portfolio delivered its best revenue in bookings led by a record performance from hit it rich slots more than seven years. After we launched the franchise in 2013.

Our bold beat strategy is paying off in tuned blast and toy Blessed with our recent feature and reductions of Coopers rally and hoops shop, driving strong player engagement in both titles.

Finally, puzzle empires, and puzzles words with friends CSR too in our casual cards portfolio, all achieved record Q1 revenue and bookings.

Second our recent game launches are off to great starts and we have more new releases planned for 2021.

Starting with Harry Potter puzzles and spells. This title continues to build momentum in as a meaningful driver of our year over year life services growth.

So further scaled the game in 2020, one and be on and we're continuing to invest in marketing and are introducing exciting new bold beats such as our magical mischief event, which encourages friendly competition between clubs with a new feature called Frank boxes.

In April we launched puzzle combat worldwide, a new mobile match three action RPG, where players recruit heroes build bases and compete in P. V P battles and a zombie themed setting.

Early player engagement is strong and gives us confidence in our ability to gradually scale the game over the coming quarters. The same strategy that we took with empires and puzzles.

Our next release will be Farmville. Three later this year as the game progresses through its final stages of soft launch testing, we're pleased to see players in engaging with its unique animal and Farhan features.

At a time when people around the world are gravitating towards and install Jake experiences that build community. We're excited to bring back the iconic and beloved Farmville brand to new and returning players.

Later this year, we also planned for launch our recently announced Star Wars Hunters game.

This is an ambitious project that will deliver on a number of firsts for zynga, including our first arena combat game. Our first cross platform play title in our first game built in the Star Wars Universe in collaboration with Lucas film and games.

Third hyper casual is building strong momentum and proving to be in important driver of growth for zynga.

ROIC is seamlessly integrated into our Zynga family of studios and in Q1 delivered its all time best revenue and bookings quarter. While also leading the category is one of the fastest growing hyper casual game companies in the world.

Year over year, Raleigh has more than tripled its quarterly installs and now stand as one of the top five hyper casual game publishers in the U S and top 10 in the world based on downloads in Q1.

This exciting growth was powered by <unk> unique publishing engine that Leverages and the network of first party and third party developers to successfully create and launch new hyper casual hits.

In Q1 high heels and blob runner three D reached the number one and number two top free downloaded game positions in the U S App store.

Launched in April relics, New game here challenge is off to a tremendous start reaching the number one top free downloaded game position in the U S App store.

Raleigh is also attracting new audience to Zynga network by creating universally fun games that are trending in pop culture, and on leading social platforms, including Tictoc.

Building on this momentum we are expanding Wallich's development talent and games portfolio be it incremental acquisitions, such as the <unk> studio.

Fourth we are making significant progress on our cross platform play growth initiatives initially anchored on the Star Wars brand.

In Q1, we announced that our first cross platform play titles Star Wars hunters will be coming to mobile and Nintendo switch players later in 2021.

In addition to providing a fresh new look into the Star Wars Universe. This fast paced arena combat game is actually designed for players who thrive on cross platform play and social competition.

During the quarter, we also welcomed extra games to Zynga. This talented team has already started working on a new action RPG game for Zynga, which leverages their decades of experience in this category as well as their proven cross platform development tools and technologies.

Fifth Asia is becoming a key contributor to our international growth.

In Q1, we delivered our best international revenue and bookings up 67% and 59% year over year.

Our recent acquisitions are tuned blast toy blast in Raleigh, as well as our launch of Harry Potter puzzles and spells have all been key drivers of our international growth.

Specifically audiences in China are responding to our hyper casual games with high heels and blob runner and three D. Both reaching the number one top free downloaded game position in the China App store.

While our president and presence in Asia is still in its early stages. It is great to see our content connect with audiences across the region and we are excited to build on this momentum in the future.

Finally, the acquisition of chart is dramatically accelerates the development of our advertising and monetization platform and greatly enhances the value of our first party data.

Chart Oops REIT, a massive global audience of more than 700 million monthly users and runs over 90 billion monthly advertising auctions.

Chartless unified advertising platform includes demand side mediation and supply side capabilities that are powered by proprietary technologies that optimize user acquisition and advertising yields.

<unk> has been a trusted partner in Zynga for many years in numerous campaigns that have contributed to the strength of our live services portfolio.

Together Zynga and chart boost because that's all the elements of a complete next generation platform like.

By combining zynga as high quality games portfolio with first party data and chart boosts proven advertising and monetization platform, we will create a new level of audience scale strengthen our ability to navigate upcoming privacy changes and meaningfully enhance our competitive advantage in the mobile ecosystem.

Following the anticipated close in this transaction in Q3 2021 chart boost is expected to be immediately accretive to zynga, while also unlocking growth opportunities and synergies for our company in 2020 two and beyond.

Today, we are raising our full year 2021 revenue and bookings guidance and over the coming years, we are confident in our ability to increase our total addressable market, while driving strong top line growth and margin expansion as we continue to execute on our growth initiatives.

With that I would now like to turn the call over to Gerry to discuss our Q1 results in more detail as well as our outlook for the coming year.

Thank you Frank.

We delivered record Q1 results ahead of our guidance and are off to a great start in 2020 one.

Our strong performance reflects momentum across all aspects of our growth strategy.

And the talent front I would like to Echo Frank and welcome to the recently acquired extra studio to Zynga.

This talented team brings extensive cross platform experience and will be developing and you yet to be announced cross platform play action role playing game.

As Frank noted today, we are also pleased to announce our acquisition of chart boost.

Later in this call I will outline some further details on this transformational acquisition.

Building on our strong execution to date and our roadmap for the balance of the year.

We are raising our full year 2021 revenue and bookings guidance, but.

But first let's discuss Q1 results.

Revenue was $680 million comprised of bookings of $720 million offset by a net increase in deferred revenue of $39 million.

Revenue was 45 million ahead of our guidance driven by a 40 million bookings beat and a 6 million Lord and expected net increase in deferred revenue.

Live services drove a record top line results with stronger than anticipated performance was from Rolex hyper casual portfolio tuned blast, Harry Potter puzzles and spells toy blast and broad based strength across the remainder of our live services.

Revenue was up $277 million or 68 per cent year over year, driven by bookings growth of 295 million up 16, 69% year over year, partially offset by an 18 million higher net increase in deferred revenue.

Our year over year bookings growth was driven by our mobile live services, including full quarter contributions from tune blast toy blast rollick hyper casual portfolio and Harry Potter puzzles and spells.

The net increase in deferred revenue of $39 million was primarily driven by bookings from Harry Potter Paulson from spells to blast and toy Blessed.

We ended Q1 would have deferred revenue balance of $780 million versus $453 million a year ago.

Turning to Q1 operating expenses.

GAAP operating expenses were $425 million up $76 million or 22% year over year, while non-GAAP operating expenses were $354 million up $145 million or 70% year over year.

The primary driver of the Europe year increase in GAAP and non-GAAP operating expenses was the step up driven by incremental expenses from our acquisitions in 2020 and in Q1 of 2021.

In particular, the increase was primarily attributable to marketing expenses from tuned blast toy blast and relics hyper casual portfolio.

Also outside of this step up for acquisitions and the other drivers were in increase in growth marketing in particular on Harry Potter puzzles, and spelt and a slight ramp in R&D investment in our new game pipeline, including cross platform play projects in development.

GAAP operating expenses significantly decreased to 62 per cent of revenue from 86% principally driven by the lower contingent consideration expense year over year.

Non-GAAP operating expenses represented 49% of bookings in line with the prior year with greater operating leverage in R&D, and G&A, largely offset by higher marketing investments year over year.

We reported a net loss of 23 million 27 million better in our guidance and an improvement of $81 million versus or a net loss of $104 million a year ago.

The variance to guidance was primarily driven by our stronger operating performance higher other income and Lord and expected net increase in deferred revenue.

Actually offset by higher than expected contingent consideration expense.

The variance to prior year is heavily influenced by the lower contingent consideration expense and our stronger operating performance, partially offset by a higher amortization of acquired intangibles net increase in deferred revenue and stock based compensation.

Our adjusted EBITDA was 123 million 23 million better than our guidance and an increase of $55 million versus the prior year.

The variance to guidance was primarily driven by our stronger operating performance and Lord and expected net increase in deferred revenue.

The variance to prior year was driven primarily by our improved operating performance and partially offset by a higher net increase in deferred revenue.

We had in operating net cash outflow of $164 million versus a net operating cash outflow of 35 million in the prior year quarter.

In the quarter, we executed the second of three annual installments to acquire the remaining 20 per cent sure interest and small giant games paying 240 million for an additional 6.7% interest.

$250 million of this cash investment was classified as a use of operating cash flow.

And $25 million as our net cash used in financing activities.

The final acquisition of installment will be executed in Q1 of 2020 two.

As of March 31, we had approximately 1.3 dollars 6 billion of cash and investments, which you expect to use primarily to fund additional growth through acquisitions, including sharpest and also payment of existing contingent consideration obligations.

We also have 425 million available under our credit facility.

Which had no amounts outstanding as of March 31st.

Now I without excuse me now I would like to outline some additional points related to our transformational acquisition of sharpest, a leading advertising and monetization platform.

The purchase consideration is $250 million in cash subject to customary closing adjustments.

This purchase price represents a high single digit net revenue multiple based on chart Bruce trailing 12 months performance.

And is compelling when compared to recent transaction multiples in the AD tech sector.

While we expect to close this transaction in Q3, 2021 subject to regulatory approvals are Q2 and updated full year 'twenty, one 2021 guidance, which I will outline shortly does not assume any contributions are benefits from this acquisition.

Once integrated we expect the acquisition will be immediately accretive contributing modestly to our topline and profitability for the second half for 2021.

In 2020, two and beyond we expect our combined capabilities will unlock additional growth in March and expansion opportunities.

As a starting point in 'twenty. Two this would this could deliver synergies and savings in the range of $20 million to $30 million.

Now turning to guidance.

We have developed our Q2 and full year 2021 guidance based on information available to US today may five 2021.

And using a similar methodology to previous quarters.

Given the higher level of volatility and uncertainty around the COVID-19 pandemic. There is the potential for a wider range of outcomes, both positive and negative as it relates to the ultimate business results.

That said, let's discuss our 2021 and Q2 guidance.

Our updated 2021 guidance is as follows.

Revenue of $2 7 billion up $725 million or 37% year over year, and an increase of 100 million versus our prior guidance.

And then increase in deferred revenue of $200 million down 95 million and a 32% year over year and in line with our prior guidance.

Bookings of $2 9 billion up $630 million or 28% year over year, and an increase of $100 million versus our prior guidance.

And net loss of $135 million versus a net loss of $429 million in the prior year and and improvement of $15 million versus our prior guidance.

Adjusted EBITDA of 450 million up a $184 million or 69% year over year and in line with our prior guidance.

Given our strong Q1 delivery and the momentum in our live services in particular in a hyper casual category, we are raising our full year revenue and bookings by $100 million.

We are maintaining our adjusted EBITDA in line with our prior guidance in order to invest further against growth initiatives.

Specifically, we are investing additional marketing to scale and new game launches as well as our hyper casual games portfolio.

We are also committing further resources to our new games pipeline with specific focus on incremental investments in our expanded portfolio of cross platform play projects.

We continue to expect live services to drive most of our top line performance.

Key drivers of the year over year growth will be full year contributions from two blast toy blast relics hyper casual portfolio and Harry Potter puzzles and spells as well as modest growth across across the remainder of our live service portfolio.

This will be partially offset by declines in older mobile and web titles.

Our guidance assumes modest initial top line contributions from our 2021 new game launches.

We are also factored into our guidance that Apple's recent changes to idea Fay will create some short term pressure on advertising yields primarily in Q2 and Q3.

However, our teams have multiple strategies in place that should more than offset this potential headwind include in yield optimizations and opportunities to expand our advertising inventory.

All in we expect to meaningfully grow our advertising revenue and bookings driven primarily by a full year contribution from Alex hyper casual portfolio as well as some growth across the rest of the portfolio.

We anticipate a modest increase in our gross margins due to a lower net increase in deferred revenue as well as a higher mix of advertising versus user pay partially offset by higher amortization expense from acquired intangible assets.

While we expect to deliver strong absolute year over year growth in profitability and expansion and GAAP operating margins, we anticipate some compression in non-GAAP operating margins as we continue to invest in our growth strategies in particular marketing for our new game pipeline launches hyper casual momentum as well as investment in.

And our new game pipeline in particular cross platform play game development.

That said, we continue to expect improvements in operating leverage in R&D, and G&A, which will be more than offset by higher marketing expenses.

Turning to Q2, our guidance is as follows.

Revenue of $675 million up $223 million or 49% year over year.

And net increase in deferred revenue of $35 million.

Bookings of $710 million up 192 million or 37% year over year.

Our net losses 30 million versus 150 million in the prior year quarter.

Adjusted EBITDA of $115 million versus $70 million in the prior year quarter.

Some factors to consider in assessing our Q2 guidance include.

Our top line performance will be driven by our live services, including year over year additions of tuned blast toy blast and Harry Potter puzzles and spells as well as existing and new hyper casual games from Rollick.

Our top line guidance assumes modest initial contributions from puzzle combat and does not assume the launch of any additional new titles in Q2.

Overall, we expect year over year growth drivers. These are excuse me overall, we expect these year over year growth drivers to be partially offset by the anticipated short term impact of average on advertising yields due to Apple's recent changes in idea Fay.

And declines in older mobile and web titles.

Please also note that in the prior year quarter, we experienced heightened levels of engagement and monetization as we all sheltered in place due to the COVID-19 pandemic.

We expect gross margins to be modestly up year over year, primarily due to a lower net increase in deferred revenue and stronger advertising mix, partially offset by higher amortization expense from acquired intangible assets.

Like Q1, we expect the primary drivers of the year over year increase in GAAP and non-GAAP operating expenses to be the step up for incremental expenses from our acquisitions in 2020 and 2020 excuse me in Q1, 2021.

Outside of this acquisition step up other drivers will be the increase in live service marketing in particular on Harry Potter puzzles and spells as well as initial launch marketing and puzzle combat.

We expect our GAAP operating expenses as a percentage of revenue to significantly improve year over year, primarily true to a lower contingent consideration expense, partially offset by higher stock based compensation.

Outside of these factors, we expect to see improvements in our year over year operating leverage in R&D and G&A.

It should be more than offset by higher marketing expenses.

In summary, we are pleased for our performance to date and the outlook for the balance of the year.

We also believe that the positive momentum across all aspects of our growth strategy physician zynga for multiple years of strong topline growth and further margin expansion.

With that we would like to open the call for your live questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.

Keith.

Please limit yourself to one question and one follow up for.

First question comes from Mike, New England Goldman Sachs. You May proceed with your question.

Hey, Thank you very much for the question and in time I really appreciate it and I was just wondering if you could talk a little bit about the acquisition of chart booths.

And perhaps compare it to some of the other AD network peers that it competes with.

And also will you be changing your user acquisition and strategy to direct more dollars towards chart boost.

Is that where you're getting a lot of the synergies.

And would love a little bit more detail there. Thank you.

Hi, Mike This is Frank the first question about chart Booth.

It's a really good one about our competitive positioning as we start to embrace and and enter into the AD Tech business and much more aggressive way chart boots is a full stack and to and complete platform and Hans demand side capabilities mediation as well as supply side. So on a on a capability standpoint.

It checked all the boxes from that perspective in terms of the scale.

700 million monthly users 90 billion auctions managed.

That puts it in the in the middle of the pack, it's got some growth or some networks that are larger but when.

When you start to think about bringing zynga in into combination with chart booths and the second part of your question is exactly right as we move more of our advertising business into chart boosts platform.

That'll that'll change the overall metrics in and relative positioning competitively. In addition, one of the things that is really exciting for us is not only just moving the dollars into their networks and starting to save on the fees that we pay other networks actually run those businesses, that's where a lot of the synergies will come from but a lot of the strategic benefits.

And I come from the fact that our first party data when combined with their capabilities will create a much more effective and in leveraged platform, we'll be able to hopefully increase yields draw.

Drive better monetization and in fill rates and frankly make the technology much more predictive about what will happen because we can see the full set of data with now with what happens when when people enter into the Zynga services. So it's a it's a very exciting acquisition, we expect to take.

The rest of 'twenty, one working with rich is though who's the CEO of chart boosts in integrating their platform. The SDK that USPS all of the different components into our business starting to flow more business. Their way and then also look to ways to continue to grow in the third party business that chart boost has I think that we can increase the valley.

<unk>.

And what they provide the partners and advertisers because of all the additional data and resources that will be providing to their teams. So it is a it is in a transformation of the company in many ways in terms of moving from a traditional developer and publisher of gains only to a developer and publisher of mobile games, but now with a platform and in and in an AD platform.

And that puts us into a market that is growing very rapidly and is in an extremely important part of the monetization and engagement that we run inside Zynga game. So a very exciting time for us.

Great. Thanks, Frank I appreciate all the thoughts.

Thank you and your next question comes from Matthew Thornton with True Securities. You May proceed with your question.

Hey, good afternoon, Frank and and Jeremy Thanks for taking the question maybe.

Maybe two quick ones, if I could I guess just first.

Obviously with things starting to open up here vaccines rolling out I'm, just curious kind of what youre seeing.

In the data and the trends kind of through April into May and if theres anything you can kind of compare and contrast markets that are maybe more open versus some that are still kind of shelter in just kind of any any learnings you might have on on that front and then just secondly.

Yeah, maybe Frank around Rowlock I'm curious now with two full quarters under the belt I'm curious kind of what youre seeing around again upsell and in the final to higher LTV kind of core Zynga games and and.

Maybe if you can speak to just whether what youre seeing is contributing to the strong <unk> and kind of raised outlook for the year. Just curious if that's already contributing or not any color there would be great as well thanks guys.

Sure I think what's interesting about what's going on in this transition period between you know pandemic and in post pandemic for a lot in different countries and states is is we're continuing to see engagement rise for our games when we look at our core products.

Each quarter and if in the last several quarters, we've seen a rise in core player engagement, which is what drives our business and.

That's for markets that are opening up where people are going back to school going back to work returning to their normal lives. It appears theyre, taking mobile games with them.

And that that experience that they had with him during shelter in place really opened up a lot in new markets a lot of new players and a lot of players that had been with us for a while and they just the value of the social connections. The entertainment the flexibility of a free to play mobile being able to do.

<unk> take it with you played anytime you want it and in.

And economically dislocated times, it's a very very efficient way to play games because.

You spend when you want to spend are you engaged with advertising. So I think we had the resiliency of what we build in and and offer and services.

And is in a position where as as things are kind of going back to normal months, where we're not seeing like step function drops and engagement, where we're actually seeing increases in engagement now that might not be true forever, but certainly up through Q1 that has been the case now your second part of your question about Raleigh.

And what what's really great about Raleigh.

They have a and approach to the business that is very fast very nimble. They they look at what's happening in pop culture. They are they and innovated some really new interesting techniques about how to partner with Tic Toc and bring to life their games, there and build audiences both organically and also through paid acquisition and so we're starting to.

See contributions from Rowlock to our other games, it's a little too early to kind of that kind of rules of thumb here, yet, but we are building a good cohorts in Harry Potter from from the rollout hyper casual games and we've.

<unk> seen a lot of new players coming into our network that have never played in Zynga game before and what's interesting is we're seeing that people play both hyper casual and the more traditional mainline mobile games they'll play bolt on.

And they are playing more games and that that's an exciting part of what we're seeing inside of our audience in terms of any uses up a 139% year over year, a lot and theres a lot of Rowlock contribution there advertising was up 108% year over year, there's a lot of contribution there as well.

So I think just two quarters in we're seeing very positive contributions from the team in and they're continuing to really.

Really embrace building out their development community to the point, where we're starting to acquire some of these developers and bring them in from a third party relationship into internal studios and that should continue to maintain growth for it so.

And on both fronts I feel like.

Q1 was a was a good quarter for the company on an engagement level for sure.

Thank you for our next question comes from David Karnofsky with Jpmorgan. You May proceed with your question.

Alright. Thanks for the question for Frank I was hoping you could maybe just discuss how apple's changes to its privacy framework.

And informed your decision to acquire sharp boost.

And then maybe can you discuss how any insights youll game from ownership of and AD network might play towards your M&A or new game strategy.

Yeah. It was it was a factor in and in the process of going out and thinking about how we build our platform. It wasn't a determinant variable, but it was certainly a factor I think one of the things that we thought about was the value of having first party data extend higher in the funnel through.

A lot a lot of the things that AD Tech companies do we have this great first party data around what our games and services do you know again some of these games have been around for 12 15 years. So we have really great rich behavioral day, but what people like what they don't like but it was a little opaque to us as we were doing third party handoffs into our first party in and post Ids.

A lot of that data handoff goes away.

But when you start to step into an opportunity like Zynga plus chart boost that data continues to flow all the way through because it's a first for first party solution from from demand all the way through in game and so from my perspective.

Very clear opportunity for us to vertically integrate into AD tech it would allow us to have a lot more information. So that we can make better product decisions that are service decisions better UA investment decisions and it also tell us at the top of the funnel, what's hot and what's not out there in terms of core trends in the marketplace long before you would start to appear.

And in the charts and so from our perspective, we look at you know the.

The point of view of how do we how do we maximize the combination of these two teams and what possible possibilities and open it up for traditional game development better investment decision, making.

And I think idea for a as a component of that and and as we've moved through these last year and a half or so the unfolding of GDP or in the California rules for privacy. We've embraced those are players care about privacy and and from our standpoint that the value of our company is that we also embraces and it changes the rules and how you operate we're making those adjustments.

So that we can do both and that's really.

It was a key part of the acquisition, but it it wasn't the reason we did it we had we had aspirations to increase the leverage and growth of our core advertising business, which was before this deal largely and optimization AD stack for engagement combined with our inventory.

Tori in our games and so now by vertically integrating into this we get a full view on it and I think just as importantly, we get a great engineering team from from chart boost of AD Tech Engineers and AD Tech leaders that will add a lot of a lot of new DNA to Zynga and gives us a lot of new points of view about how to grow in the mobile ecosystem.

Them over time and that the.

Exciting for us as well.

Great. Thank you.

Thank you and your next question comes from Eric Handler with MK and partners. You May proceed with your question.

Yes. Thank you very much for the question Frank you talked I believe I heard you say you were looking at other games that have cross platform capabilities and as you think about your business over the next couple of years, how many of your game that you launch or maybe for currently have.

And cross platform play or include Cross cross platform play at launch and.

Is it.

Second part to that how much.

Incremental development costs go into that if you add cross platform play.

Yeah, I think the way to think about it is probably a handful.

Yeah, as we said we were going to start by anchoring. This on the Star Wars brand and we've looked at our natural motion studio.

And in combination with edra as kind of the collection of developers that want to go. After this the very experienced in the category and in the design.

What what works really in our favor from from a cost and and effect in the standpoint is there's a lot of tools now that allow us to develop these where the marginal cost to complete other platforms is quite low because unreal and unity do a lot of the heavy lifting for you.

And when that combined with something like AWS.

AWS or is your and in the emerging <unk> networks, you can get to very high performance game.

That will be able to be completed in playable across platform simultaneously.

In a very efficient way now we have started to investment spend in R&D against this idea.

And I think that we're not going to go for a huge platform shift of every game from Zynga is cross play it's really focused on the game that make the most and the brands that might make the most and and that's where we're starting and as this unfolds over 'twenty one 'twenty two 'twenty three 'twenty for if this is really working then.

It is possible to do more but we feel very good about.

And increasing our total addressable market by going after this and I think that in addition to the tools and technologies, which and make this a reality for a company like ourselves.

We have a real advantage in and free to play and running live services, which if you look at the largest in the multibillion dollar franchises out there that are cross play they're free to play they run line services, they're really good at live ops and I think that that part of the equation for US is really important and we're very excited to kind of.

Go in there with production values that our console quality in and then start to bring together. These audiences across all of these different platforms and I think theres a lot of really beneficial things that we can do there.

Thank you very much.

Thank you. Our next question comes from Doug <unk> with.

You May proceed with your question.

Hey, thanks.

But the AD revenue being so strong in Q1, and I mean nursing was up sequentially from Q4, which is pretty rare can.

And can you give a sense of how much of that was driven by rollick success with some of their launches and in Q1 versus just overall Martin and conditions and anything else you may have been doing to help your AD pricing. Thanks.

Hey, Doug this is Jerry.

We obviously saw.

It was obviously a for full quarter contribution from <unk>, but we also saw a significant uplift in their performance given the title's day launched in and in the quarter so versus the market I think relic.

Was was really strong so when you think about Q1 advertising and actually as we look at the rest of the year. We believe that the momentum we have in our hyper casual businesses is going to be a very strong driver of our advertising growth.

Okay. Thanks.

Okay.

Thank you. Our next question comes from drew Crum with Stifel. You May proceed with your question.

Okay. Thanks, guys.

And in.

Frank you gave us a lot of detail and the various new growth initiatives you've embarked upon.

As you think about hyper casual cross platform AD Tech in international can you rank order in.

Importance of the 'twenty, one and how you see that evolving over the next couple of years and then separately for chair.

And you mentioned that the cash in the balance sheet earmarked for acquisitions, including outstanding and contingent consideration can you just remind us what that number is in and the timing of those payments.

Yes.

Yeah drew the the way to think about how the growth initiatives unfold is most of the growth. This year is going to be delivered from live our new game pipeline in it.

And in addition, hyper casual is obviously contributing.

And we will continue to contribute as we move through the rest of the year Cross platform really starts to happen towards the end of this year and starts to ramp over 22, and 'twenty three and that's where you'll start to see more of the games release more of the platforms.

Take hold in terms of more distribution there.

International is kind of happening now.

So that's a contributor and factor right now we're running.

About 60%, 40% international on on the business right now and we're seeing good growth in hyper casual already with regards to the.

And the final piece on AD Tech, we're going and we're gonna take the next six months or so of the year to kind of start to integrate our.

Our businesses together with chart boost and I think the synergies case starts to really take online interesting level in 'twenty, two and beyond but in 'twenty, one and we're gonna start to test.

And how we will operate together to what degree can our resources.

Leverage each other and and start to look at the data plans and that sort of thing so and when that deal closes we'll be in a much better chance to integrate but think about the AD tech platform really starting to take hold more in 'twenty two and beyond.

Hi, This is Jerry in terms of the contingent consideration that liability is obviously.

For for three parts, it's Graham small giant and Rollick and.

It's just just just over $330 million.

As of the end of the per quarter.

Got it okay. Thanks, guys.

Thank you. Our next question comes from Matthew Cross with.

Morgan Stanley net proceed with your question.

Hi, guys. Thanks for taking the questions.

So I guess uncharted and over the long term kind of when you get through this initial phase that you just mentioned about integrating the two businesses and in shifting some of what you do externally or with water currently third parties and to chart booth.

Over the longer term, how do you see the opportunity to basically serve yourselves as a publisher versus serving third parties and maybe growing and AD Tech software revenue line within Zynga for serving publisher developers and publishers that you don't own and then just a separate from that.

And you know obviously international has been a huge success story for you guys. You just mentioned 40 percentage of revenue coming from from that angle. It seems like China is something that is gaining steam now.

We've talked a lot in the past about Korea, and Japan and in your other markets in Asia that have done well, but has your view on the China opportunity changed at all following some of the success Youre seeing with the hyper casual games there. Thanks.

Yeah, I think on the first question.

We are looking at how we integrate.

First party and the third party opportunities in a way that because <unk> has a very vibrant and in great.

And third party business right now.

And in fact by bringing in our first party.

Data as well as other capabilities it should improve.

And they're standing in competitiveness as a network for other parties inside the mobile ecosystem. So long term. Our view is that chart in <unk> plus zynga creates a great platform.

And for advertising and monetization that serves not only zynga needs, but also the broader mobile ecosystem and companies that are in gaming or outside of gaming brand advertisers, especially we'll come to this network because we have a very unique set of audiences with with predominantly women busy adults are very diverse.

<unk> portfolio of games.

Combined with these capabilities that will improve over time as we as we bring the data together that from our perspective is really important how it how it is actually reported that we'll figure it out for another day, but in terms of our goals.

It is definitely about driving the advertising business and a component of that will be <unk>.

Advertising from assisting third parties and growing their businesses.

And I think as you as you look at the capabilities of what the platform hasn't chart boosts in what we can do with it going forward that will only increase in in value and in importance.

In terms of international success, China has.

<unk> always been and important market for us.

It's just been one of those markets that we take a very patient.

Approach to it.

And we've not necessarily rushing into China, we're releasing games are hyper casual games are doing very well, there and as we develop the market opportunity in.

And in Asia, the prioritization of Japan, and Korea, a little bit higher than that in China that could shift over time, it's just really making sure that we're not over investing too quickly and getting over our skis here, but it is exciting to see.

The audience is really start to build up which is the first thing that we want to make sure that our intellectual property really appeals to answer that audience and that we have the right type of life services model. So that we can continue to sustain those so.

There's going to be more about China as we grow our company, it's an important market for us long term and I.

And you start to see more of the PDP experiences that we're building that are cross platform. The PC market is very important in the Asian region, and so having PC plus mobile experiences that work together is going to be another advantage for us as we start to build up that marketplace.

Great. Thank you.

Thank you and our next question comes from David Beckel with Vanguard, Kevin in minutes markets. You May proceed with your question.

Great. Thanks, so much.

Just touching back on chart boost I was hoping we could dig in a little bit to the.

Expected revenue synergy I believe it was in 2020 two of $20 million to $30 million can.

Can you describe for us the mechanics of that is that primarily.

Serving ads through chart burst instead of a third party system, and thereby eliminating the 15% to 30% sort of fee that you've talked about in the past and what percentage of your inventory build through that channel does that assume.

And just in the second question.

And about well if you could talk a lot about the third party partners can you can you explain a little bit how the third party relationship works from a revenue monetization perspective, and what third party acquisition.

It means from a financial perspective in terms of outlay for these expensive acquisitions.

Hi, This is Jerry and in terms of the day.

The benefits, we outlined as it relates to post post integration and more importantly, what you are referring to 'twenty two.

The the largest the largest.

And element of that is actually related to where the user acquisition side of the equation and the demand side, where we.

We will we will look to flow a larger percentage of our user acquisition spend true or our own first party platform.

And obviously eliminate the.

And the fees, we pay to our other partners.

Yeah, we.

We don't intend to eliminate or other partners and they will continue to be trusted partners as we look to to acquire users, but we do anticipate putting.

Obviously more of our own spend true.

True the.

Our own DSP, and and and generate profitability. There. There is an element of of monetized AD monetization in the mix as well because obviously, we will get the benefit from the third party monetization, but initially we're focused more on the user acquisition side and ultimately, we'll we'll look for synergies a true true both sides.

We haven't indicated what the exact percentages, but you can assume it's going to be in and the sort of initially in the in.

And the sort of the.

In the low double digit range.

And sorry could you in terms of your the acquisitions can you can you repeat that part of the question Youre referring to relic.

Yes, sorry, just referring to rollout you mentioned a couple of studios and the recently acquired and what does the relationship with these third party partners are you currently monetizing them or do you have to acquire them to gain the benefits and those relationships.

No. These the studios the studios and the game set up actually.

Gone from <unk>.

And third party in the first place they were already partnerships, we already had and so the in terms of the economics.

In the normal economics and in a in a third party relationship is a profit share I E.

We as in Raleigh car platform, we republished the game, we drive the monetization through advertising.

And we execute the marketing against against these game so the.

The net of bookings and and marketing ultimately then gets shared with with with the with the actual developer of the actual game those percentages.

And can vary.

But in a situation, where we bring the the studio in house for the game in House.

The sort of quid pro quo as you buy the game or you acquired the studio and you eliminate that.

That profit share and so there's a stronger flow through for for ROIC and for Zynga.

And obviously developing and publishing its own games and that's the that's the core economics. The other the other obvious obvious benefit is you're enhancing the talent base of our own hyper hyper casual studios is as we think about new games going forward.

Perfect very helpful. Thanks.

Thank you. Our next question comes from Mario Lu with Barclays. You May proceed with your question.

Great. Thanks, a couple of questions.

First one and want to expand on a question earlier.

As mentioned most of the outperformance this quarter was from a recent acquisition and Harry Potter and was wondering if you could share what the organic growth was for our quarters and then get title or just.

And how does those are trending.

I think overall overall, our business group and it.

It was up it was up modestly in terms of if you were to pick out the Harry Potter, which we obviously believe it is in organic title in our live service portfolio, but collectively the.

Portfolio group, but the major drivers.

And in and in the quarter, while the year over year acquisitions.

Acquisitions, but you know empires and puzzles words with friends CSR to casual cards and they all day all had record Q1 in our revenue and bookings. So it was a there is strength across the portfolio but.

And I know I'm, stating the obvious it's in Irish thing.

The full year for the full quarter contributions from them.

From peak in Raleigh, and close the very strong performance from Harry Potter.

Helps us and improve the overall performance of life services.

Got it that makes sense and then just lastly on the synergies from your recent acquisition you mentioned Raleigh, you're already able to kind of cross promote.

And those titles with your other ones and kind of it.

In terms of P game.

Now you know iOS for at some 0.5 and IBSA outlier.

Is there and updated timeline on when and if we should expect advertising and be layered into both that toy and from black.

And we're not we're not going to disclose timing on that and it's something that the studio teams and in the advertising teams are obviously.

Working out in the end of the day.

And there is we do see and opportunity to deliver advertising from these games, but we're we're obviously working very patiently with.

And the studio and the advertising teams to make sure we do it in and in a very strong player first way.

Got it thank you.

Thank you. Our next question comes from Mike Hickey with the benchmark company and they proceed with your question.

Hey, Frank Chair, Rebecca Congrats on the quarter guys. Thanks for taking my questions I appreciate it.

And yes that double clicking on cross platform game opportunities and pads.

A few more months under development just sort of curious.

And if youre more or less and courage.

That you can be successful.

Successful or not and in this effort maybe.

I guess, the second part would be the challenges.

Lifting a new mobile game for <unk>.

<unk> play.

Versus existing mobile game.

Player things with already.

And monetize and I guess the.

The comp would be do you see a lot of successful mobile games are proven game IP and that sort of seats since being established relationship. It just seems like that extra headwind with a new game versus existing game try and go on the console and PC. Thanks guys.

Alright.

Hey, Mike Thanks for the question.

The early testing on hunters is very strong very positive in our testing with our consumers and play testing and in concept testing and we're very encouraged by the reception the game was built.

And with very high quality assets from the <unk>. So in terms of resolution of the of the models and in the textures and everything.

And it's using unreal allows it to kind of move across these plot.

Platforms at a very high level of performance in terms of how it looks and feels the frame rate etcetera etcetera. What I think is really interesting for us is because we are building it with <unk>.

On mobile simultaneously a lot of the decisions around how light services is going to work and the free to play model is already built in and we're not trying to basically downsized code to work from a high and console to work on mobile we're actually going the other direction. We were taking you know great production values rising.

Up increasing the performance on other devices. So we actually think.

By building to that in building in that manner, we're going to see some real benefits for how the games perform how they get adopted and the fact that there's a lag between when something happens in one on one platform and other we're going to get rid of that so it's really exciting to see the early reaction I'm in.

<unk> by the momentum that the teams have and where were we.

We spent a lot of time on this.

Project and a lot of the tab experience on consoles and Pcs I think that's why you see us reaching out in and partnering with a company like Edinburgh and having them join Zynga is.

And they just released games on multi platform they've done it.

In engine they've done they've run the service and so they've got had done it before and that really helps raise the level of the entire effort inside of zynga because of their experience.

So real in and it is and it's happened just recently so from my perspective that the.

The real positive and I and I think for US we're in.

We're going to see how this goes and we think that we have a lot of brands that will appeal across these platforms and in does open up new opportunities for us in Asia by having PC versions of these games.

Thanks, guys. Good luck.

Thank you and our last question comes from Brandon Ross with Light shed partners. You May proceed with your question.

Hi, Thanks for taking the questions.

Just in just one.

As you guys are entering the AD Tech world.

As chart boost the beginning of a multi part built by or should we just expect acquisitions from PURA and out to be back to you.

The tried and true.

Studio acquisitions that you've done in the past.

Yeah, I think where we're at right now as we're in we're very excited about chart boost and and integrating that team letting you know.

The market unfold a bit here over the summer in and see how things go with idea for a and and the other aspects of returning from from COVID-19. So true.

And to the shelter in place so were not in our business has a tremendous amount of organic growth opportunities and we've got excellent capabilities now with charters to help optimize and grow the business. So we're not in any hurry.

Or need to grow through additional M&A, having said that we're an acquisitive company. We are constantly looking at build versus buy options and I think giving us a little bit of time to integrate chart who's worked with their leadership team to understand what's possible in terms of what's next is certainly something that we don't rule out.

But at this point, we have nothing that we're thinking about as it relates to the overall M&A environment. It's a global talent base, there's great gains out there and in a great teams, obviously theres a lot of attention on acquisitions in AD Tech and games right now and.

That increased competition and is certainly clear and present, but at the same time, we like our positioning and we like our track record, we like our appeal as a destination for developers and and and the proposition that companies can join us and grow faster together is proven through multiple.

Examples now over these last few years so.

Dynamic time exciting time, we're in a great position.

And to make sure that we can grow the way we want to grow without getting forced into an acquisition. Because we think we have to do that I don't believe that we're in that position.

Thank you.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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