King Reports Second Quarter 2015 Results

LONDON and NEW YORK, Aug. 13, 2015 /PRNewswire/ -- King Digital Entertainment plc ("King" or the "Company") KING, a leading interactive entertainment company for the mobile world, today reported financial results for the second quarter ended June 30, 2015.

King CEO Riccardo Zacconi said, "Our second quarter 2015 gross bookings exceeded the high end of our guidance range and for the third consecutive quarter, Candy Crush Saga, Candy Crush Soda Saga and Farm Heroes Saga ranked within the top 10 grossing games in the Apple App Store and Google Play Store in the U.S.  These results reflect our execution on delivering new content and features in our franchise games and demonstrate the continued benefits from operating global mobile game franchises and the strength of their brands.  We are also pleased to have recently launched Paradise Bay, our first resource management game, and Scrubby Dubby Saga, our first game with a slider mechanic, and look forward to introducing these fresh games to our massive player base and to players around the globe."

 

Recent Highlights

• Three King games were top 10 grossing games on both the Apple App Store and Google Play Store in the U.S. for second quarter 2015, marking the Company's sixth consecutive quarter with at least three titles in the top 10 grossing games list on one or both of these major U.S. mobile platforms¹
• MAUs, DAUs and average daily game plays increased year over year in second quarter 2015 driven by growth on the mobile platform
• Gross bookings from non-Candy Crush Saga² titles increased 30% year over year to $324 million, or 61% of total gross bookings in second quarter 2015
• Launched Paradise Bay, King's first resource management game, on the Apple App Store and Scrubby Dubby Saga, our first slider mechanic game, on Facebook, expanding the global game portfolio to a total of 13 titles
• AlphaBetty Saga became the #1 download in the game category on both the Apple App Store and Google Play Store in the U.S. within three days of its June mobile launch
• Released "Sugar Track" extension in Candy Crush Saga, a feature which enables players to earn boosters by collecting special sugar drop candies on certain levels and ran live ops events in all franchises
• Broadened the game portfolio for the Amazon Appstore with launches of Bubble Witch 2 Saga, Candy Crush Soda Saga and AlphaBetty Saga
• Launched localized version of Paradise Bay in Japan, Korea and China simultaneously with the worldwide launch; launched localized versions of Pet Rescue Saga in Korea and China, and Pyramid Solitaire Saga in Japan
• Added 1,000^th level to both Candy Crush Saga and Farm Heroes Saga

Second Quarter 2015 Results Summary

Gross Bookings and Revenue

• Gross bookings were $529 million for second quarter 2015, representing a sequential decrease of $75 million, or 12%, and a year over year decrease of $82 million, or 13%. Excluding the impact of changes in foreign exchange rates, gross bookings would have decreased by approximately 11% sequentially, and by approximately 6% year over year.
• In second quarter 2015, 81% or $430 million of gross bookings, were derived from our mobile audience. This represented 12% sequential and 7% year over year decreases in mobile gross bookings. Gross bookings from web platforms were $98 million in second quarter 2015, representing 13% sequential and 35% year over year decreases.
• Gross bookings from games other than Candy Crush Saga² were $324 million for second quarter 2015, representing a sequential decrease of $51 million, or 14%, and a year over year increase of $74 million, or 30%.
• Revenue was $490 million for second quarter 2015, representing a sequential decrease of $80 million, or 14%, and a year over year decrease of $104 million, or 18%.
• The decreases in both gross bookings and revenue from first quarter 2015 to second quarter 2015 were primarily driven by our largest franchise, Candy Crush, as it continues to mature. The sequential decrease in revenue also reflects a higher change in deferred revenue resulting from an increase in the length of time our players retain virtual currency in our more mature games.
• The decreases in both gross bookings and revenue from second quarter 2014 to second quarter 2015 were primarily due to lower gross bookings from Candy Crush Saga and our other more mature games, partially offset by increased gross bookings from our newer games, in particular Candy Crush Soda Saga. In the first half of 2015, as compared to the same period in the prior year, we launched fewer franchise games, which tend to offset declines in our more mature games. The decrease in revenue also reflects a higher change in deferred revenue primarily due to the increased use of virtual currency in our mobile games as well as higher sales tax related to the new value added tax legislation in the European Union effective in 2015.

Adjusted EBITDA

• Second quarter 2015 adjusted EBITDA was $207 million, representing a decrease of $43 million, or 17%, compared to first quarter 2015, and a $41 million, or 16% decrease compared to second quarter 2014.  The sequential and year over year decreases were primarily due to lower gross bookings and revenue, which were partially offset by lower platform fees and marketing expenses.

Profit

• Profit was $119 million for second quarter 2015, decreasing by $45 million, or 27%, compared to first quarter 2015. The decrease was primarily due to lower adjusted EBITDA and higher change in deferred revenue and foreign exchange losses, which were partially offset by lower income tax, acquisition-related and share-based and other equity-related compensation expenses.
• Second quarter 2015 profit decreased by $46 million, or 28%, compared to second quarter 2014. The decrease was primarily due to lower adjusted EBITDA and higher change in deferred revenue and foreign exchange losses, which were partially offset by lower income tax and share-based and other equity-related compensation expenses.

Cash and Cash Equivalents

• Cash and cash equivalents were $786 million at June 30, 2015, up $125 million since March 31, 2015.

Network Reach

• MAUs were 501 million in second quarter 2015, down 49 million, or 9%, from first quarter 2015, and up 16 million, or 3%, from second quarter 2014.
• DAUs were 142 million in second quarter 2015, down 16 million, or 10%, from first quarter 2015, and up 4 million, or 3%, from second quarter 2014.
• The sequential decreases in MAUs and DAUs were due to a decrease in game activity, primarily in Candy Crush Saga, as well as in most of our other games. The decrease was reflected on both mobile and web with web declining at a faster rate, which we believe is due to a continuing decline in overall Facebook desktop users.
• The year over year increases in MAUs and DAUs primarily result from our introduction of new games, particularly Candy Crush Soda Saga, partially offset by a decline in Candy Crush Saga and other more mature games. The year over year increases also reflect growth in activity from our mobile players, partially offset by the continued decrease in activity from our Facebook players.
• MUUs were 340 million in second quarter 2015, down 24 million, or 7%, from first quarter 2015, and down 5 million, or 1%, from second quarter 2014.
• The sequential decrease in MUUs was reflected in both web and mobile, but at a greater rate of decline on web, which we believe is due to a continuing decline in overall Facebook desktop users. In addition, we observed that the sequential decline in overall MUUs was primarily from our less engaged players, which we define as players who play in only one game, most of whom played Candy Crush Saga. We believe the decrease in overall MUUs may have been further impacted by seasonal patterns we experience towards the middle of the year during which time players are less active.
• The year over year decrease in MUUs primarily reflects a decline in Facebook players, partially offset by an increase in mobile players.

Monetization

• Monthly Unique Payers (MUPs) in second quarter 2015 were 7.589 million, down 934,000, or 11%, from first quarter 2015, and down 2.834 million, or 27%, from second quarter 2014.
• The sequential and year over year decreases in MUPs are primarily related to the decrease in our mobile and web platforms, and a decrease in our less engaged payers, which we define as payers who pay in only one game, most of whom played Candy Crush Saga. The sequential decrease in MUPs also reflects the duration between our more recent game launches as we find that early cohorts in games have a higher propensity to pay than cohorts who install the same game later in its life cycle. The year over year decrease in MUPs also reflects our transition to virtual currency throughout 2014, which reduces the frequency of transactions due to purchases of larger packages of virtual currency, and was partially offset by growth in payers who pay in our newer games, primarily Candy Crush Soda Saga.
• Monthly Gross Average Bookings per Paying User (MGABPPU) decreased to $23.26 in second quarter 2015, down $0.38, or 2%, from first quarter 2015, and up $3.72, or 19%, from second quarter 2014.
• The relatively flat sequential MGABPPU reflects that a consistent proportion of our payers are paying in more than one game, as we have observed that payers who spend in more than one game tend to spend higher amounts than those who pay in only one game.
• The year over year increase in MGABPPU is due to a higher portion of our payers paying in more than one game, as well as our transition to virtual currency which enables players to transact at higher amounts.

Share Repurchase Program

During second quarter 2015, the Company repurchased approximately 900,000 shares through open market purchases utilizing $15 million of the $150 million share repurchase authorization approved by the Board of Directors on November 4, 2014 and by shareholders on January 29, 2015.  Through June 30, 2015 an aggregate of 8.2 million shares were repurchased under this program for $126 million.

Outlook

The following forward-looking statement reflects King's expectations as of August 13, 2015:

Based on the timing of our game releases and recent trends, we expect gross bookings of $460 million to $485 million in third quarter 2015. Taking these factors into account as we look toward the remainder of the year, we expect gross bookings in fourth quarter 2015 to be fairly consistent sequentially.

Conference Call Information

King will host a conference call today, August 13, 2015 at 4:30p.m. Eastern Time to discuss the Company's results as well as forward-looking information about King's business. Listeners may access the live conference call via a dial-in number or audio webcast.

Conference call details are:
U.S. callers: +1 877-201-0168
International callers: +1 647-788-4901
Conference ID: 75511993

The conference call will be simultaneously webcast at http://investor.king.com, where listeners can also access King's earnings press release and slide presentation.

Following the call, a replay of the webcast will be available at the same website. A telephonic replay will also be available for one week following the conference call at +1 855-859-2056 (U.S. callers), or +1 404-537-3406 (International callers), conference ID: 75511993.

About King

King Digital Entertainment plc KING is a leading interactive entertainment company for the mobile world. It has a network of 340 million monthly unique users as of second quarter 2015, has developed more than 200 exclusive games, and offers games in over 200 countries and regions through its king.com and royalgames.com websites, Facebook, and mobile distribution platforms such as the Apple App Store, Google Play Store and Amazon Appstore. King has game studios in Stockholm, Bucharest, Malmö, London, Barcelona, Berlin, Singapore, and Seattle, along with offices in San Francisco, Malta, Seoul, Tokyo and Shanghai.

Forward Looking Statements

All statements other than statements of historical fact contained in this release, including statements regarding future outlook and future game releases are forward-looking statements. King has based these forward-looking statements on its estimates and assumptions as of the date of this release. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: the fact that a relatively small number of games continue to account for a substantial majority of our revenue and gross bookings, and declines in popularity of these games could harm our financial results; our ability to develop new games and enhance existing games in a timely manner; delays to the launch of new games; our ability to effectively manage our growth; revenues and gross bookings from new games may not be sufficient to offset declines in revenues and gross bookings in more mature games; market acceptance of new games and enhancements to existing games; intense competition in our industry; our reliance on the casual game format and the success of our efforts to expand beyond the casual format; our need to anticipate and successfully develop games for new technologies, platforms and devices; challenges in measuring our key operating metrics, and real or perceived inaccuracies in such metrics; continued decline in our gross bookings levels and the levels of certain other financial and operating metrics levels and/or fluctuations in our quarterly operating results and other key metrics; reliance on various third-party platforms; reliance on key personnel; our share price and changing market conditions for our ordinary shares; acquisition-related risks, including our ability to integrate our recent acquisitions, the impact of unforeseen integration issues, our ability to retain the key personnel of the acquired businesses, and unknown liabilities; unforeseen difficulties in developing and introducing new games from acquired companies and customer acceptance of such games; general economic conditions, their impact on consumer spending and foreign currency exchange rates; the continued effectiveness of our marketing programs; risks associated with operating and offering games in multiple jurisdictions as well as those risks detailed from time to time under the caption "Risk Factors" and elsewhere in King's U.S. Securities and Exchange Commission filings and reports, including in the Form 20-F filed by the Company with the U.S. Securities and Exchange Commission on February 13, 2015, and all future filings and reports by the Company. In addition, King operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for King management to predict all risks, nor can King assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements that King may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this release are inherently uncertain and may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely upon forward-looking statements as predictions of future events. King does not undertake any obligation to update publicly or revise any forward-looking statements for any reason after the date of this release, nor to conform these statements to actual results, future events, or to changes in King's expectations.

Non-GAAP and Other Financial Measures

King uses International Financial Reporting Standards ("IFRS"). In addition to IFRS financials, this release includes certain financial measures not based on IFRS, including gross bookings, adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted profit and adjusted EPS, as well as certain gross bookings information presented on a constant currency basis. These non-GAAP measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with IFRS. The non-GAAP financial measures used by King may differ from the non-GAAP financial measures used by other companies, and are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS. Some limitations of the non-GAAP financial measures we use are listed below:

Gross Bookings: Gross bookings is a non-GAAP financial measure that is not calculated in accordance with IFRS. Gross bookings is the economic benefit collected from the sale of virtual items and for access to skill tournaments. The Company uses gross bookings to evaluate the results of operations, generate future operating plans and assess performance. While King believes that this non-GAAP financial measure provides a meaningful measurement of the business performance during a particular period because it measures the total cash spend by players in the period, this information should be considered as supplemental in nature and is not meant as a substitute for revenue recognized in accordance with IFRS. In addition, other companies, including companies within our industry, may calculate gross bookings differently or not at all, which reduces its usefulness as a comparative measure.

Adjusted Revenue: Adjusted revenue is a non-GAAP financial measure that is not calculated in accordance with IFRS. King defines adjusted revenue as revenue adjusted to include changes in deferred revenue. King believes that adjusted revenue is a useful metric for calculating adjusted EBITDA margin and understanding our operating results and ongoing profitability.

Adjusted EBITDA and Adjusted EBITDA Margin: Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that are not calculated in accordance with IFRS. King defines adjusted EBITDA as profit (loss), adjusted for income tax expense (credit), foreign currency exchange loss (gain), acquisition-related expense (including acquisition-related contingent consideration fair value adjustments and other acquisition-related adjustments), non-operating (income) expense, net finance (income) costs, depreciation, amortization, share-based and other equity-related compensation (including social security charges associated therewith) and changes in deferred revenue. King defines adjusted EBITDA margin as adjusted EBITDA as a percentage of adjusted revenue. King believes that adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors to understand and evaluate our operating results and ongoing profitability because they permit investors to evaluate our recurring profitability from our ongoing operating activities. King also uses these measures internally to establish forecasts, budgets and operational goals and to manage and monitor our business, as well as evaluating our ongoing and historical performance. Adjusted EBITDA and adjusted EBITDA margin have certain limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under IFRS. Other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, limiting its usefulness as a direct comparative measure.

Capital Expenditures: King defines capital expenditures as the amount paid in the period for the purchase of property, plant and equipment, and intangible assets. King monitors capital expenditures as a measure of the amount we have invested in maintaining or growing the scope of our business. Other companies, including companies in our industry, may calculate capital expenditures differently or not at all, limiting its usefulness as a direct comparative measure.

Adjusted Profit: Adjusted profit is a non-GAAP financial measure that is not calculated in accordance with IFRS. King defines adjusted profit as profit (loss), adjusted for share-based and other equity-related compensation (including social security charges associated therewith), changes in deferred revenue, acquisition-related (income) expense (including acquisition-related contingent consideration fair value adjustments and other acquisition-related adjustments) and amortization of acquired intangible assets. Other companies, including companies in our industry, may calculate adjusted profit differently or not at all, limiting its usefulness as a direct comparative measure.

Adjusted EPS: Adjusted EPS is a non-GAAP financial measure that is not calculated in accordance with IFRS. King defines adjusted EPS as adjusted profit divided by the diluted weighted average number of ordinary shares in issue during the period.

Foreign Exchange Effect on Gross Bookings: Certain gross bookings information in this release is presented on a constant currency basis. This information was calculated using exchange rates consistent with those in effect for the comparative periods. We believe the constant currency measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. Investors should be cautioned that the effect of changing foreign currency exchange rates has an actual effect on operating results.

Reconciliations of these non-GAAP measures to the most directly comparable IFRS measure are included in the accompanying tables.

For definitions of key performance indicators including MAUs, DAUs, MUUs, MUPs and MGABBPU please see "Key Operating Metrics" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 6-K filed by the Company with the U.S. Securities and Exchange Commission on our about the date of this announcement.

Certain figures in the release may not recalculate exactly due to rounding. This is because percentages and/or figures contained herein are calculated based on actual numbers and not the rounded numbers presented.

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SOURCE King Digital Entertainment plc