美商藝電 (EA) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the JamDat Mobile first quarter fiscal 2005 Earnings Conference Call. [Operator Instructions]

It's now my pleasure to turn the floor over to your host, Mr. Andrew Greenebaum of Integrated Corporate Relations.

Thank you.

Good afternoon, ladies and gentlemen.

Thank you for joining us today to discuss JamDat Global's first quarter earnings results.

On the call today with me, accompanying are Mr. Mitch Lasky, Chief Executive officer, Michael Marchetti, Chief Financial Officer.

By now, everyone should have accessed the press release which went out today at 1 PM, Pacific time, 4 PM Eastern time.

If you've not received your release, it's available on the investor relations portion of JamDat's website www.JamDat.com.

Before we begin today, we'd like to remind everyone of the Safe Harbor statement, under the Private Securities Litigation Reform Act of 1995.

The following prepared remarks contain forward looking statements and management may take addition -- make additional forward-looking statements in response to your questions.

These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them.

For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements, we refer you to JamDat's filings with the Securities and Exchange Commission including its most recent annual report filed on form 10-K, as well as current reports filed on form SE-K.

With that, I'd like to turn the call over to Mitch.

Thank you Andrew, and welcome to JamDat's first quarter 2005 conference call.

Today I want to discuss our record first quarter financial results, but more importantly I want talk about how our financial performance, our acquisition of Blue Lava, and other strategic moves we've made, have positioned JamDat to continue delivering industry leading results in 2005 and beyond.

First, JamDat delivered strong financial results in the first quarter.

Revenues increased to $15.1 million, up 115% from the first quarter last year, and up 31% sequentially over Q4, 2004.

This was our best sequential growth rate in the last year, and demonstrates the continued importance of the first calendar quarter, when many wireless subscribers with new handsets proceed to download our games.

Our profitability also increased remarkably in the quarter.

GAAP net income was $2.7 million or $0.13 per diluted share, well ahead of our previous guidance of $0.08 per share.

Adjusted net income, which excludes amortizaton of stock compensation and other intangibles, and which we believe to be a relevant measure of our operating performance, increased to $3.6 million or $0.17 per diluted share, well ahead of our previous guidance of $0.12 per share.

We were up sharply across all of our channels of distribution in Q1.

Of particular note was the excellent performance of Sprint PCS.

We believe that Sprint is reaping the rewards of their decision to aggressively manage their deck, limit the number of publishing partners they work with, and offer subscription billing.

Our performance on Cingular and Verizon was also excellent.

In Q1, we completed our initial Cingular deployment and delivered strong sequential growth.

We believe that Cingular continues to benefit from the popular handset mix anchored by the Motorola Razr.

Verizon began distributing CDMA EV-DO handsets in the second half of the quarter, which are capable of displaying 3D graphics and full motion video.

We launched JamDat Bowling 3D and Tony Hawk's Pro Skater 3D to take advantage of these handsets, and are very excited about the prospect of more 3D capable handsets in the market in 2005.

Q1 was also our first full quarter of revenue from our acquisition of Downtown Wireless.

Downtown's hit product Texas Hold'em performed very well on BREW Carriers, holding down the number 2 sales position behind Tetris on Verizon in Q1.

We are in the process of deploying Downtown Texas Hold'em to Java Carriers, like Sprint PCS and Cingular and expect to see the game well deployed on those and other carriers in Q2.

In Q1, we launched the 2005 edition of our JamDat Sports MLB Baseball Game, and extended our relationship with Major League Baseball.

JamDat is now the exclusive licensee of Major League Baseball for wireless simulation games for the next 3 years.

Sales of MLB 2005 have exceeded our expectations, and we expect MLB 2005 to be our best selling league sports product to date.

We posted our casual slate in Q1, with the launch of a significantly upgraded version of our popular YAHTZEE Games, YAHTZEE DELUXE.

As I mentioned earlier, we released a 3D version of our bestselling JamDat bowling title for Verizon's EV-DO handsets.

All-in-all, we released 13 new products in Q1, and now have approximately 110 products generating revenue for us around the world.

In addition, on April 20th, we completed our acquisition of Blue Lava Wireless.

Along with that acquisition, we acquired a 15-year, worldwide, exclusive license for Tetris from Global Telephony Devices.

Tetris is one of the most popular video games of all time, and the mobile version of Tetris is a top-seller in almost every territory where it is distributed.

We believe that our 31% sequential quarterly revenue growth, the $15.1 million in Q1 revenue and our record profit margins, put considerable distance between JamDat and our competition.

We believe that the addition of Tetris and the other Blue Lava properties to our existing intellectual property portfolio will increase our market share worldwide, and solidify our leadership position in the industry.

We have been very aggressive about assembling a world-class intellectual property portfolio.

The results were impressive.

We currently published hit puzzle games like Tetris, Bejeweled, and Collapse.

Card and Casino games like Downtown Texas Hold'em, JamDat Solitaire, and JamDat Casino.

Casual sport games like JamDat Bowling, Golf, and Pool.

Board and strategy games like Scrabble, Bobble, YAHTZEE and Lemonade Tycoon.

Official league sport titles like MLB, NFL, NBA and NHL, and action games like Tony Hawk's Pro Skater 3D and Lord of the Rings.

We believe we are the most diversified and recognized gaming slate in the industry.

We have a lot of great products in the pipeline for Q2.

Some of the games we intend to release in the quarter include a version of the classic war game Bobble, specifically designed for Mobile, Samurai an original action game, JamDat Mini Golf, and LMA Football Manager in Europe.

The strength of our slate and the continued ability of our studio, deployment and sales teams to execute, has given us a powerful and predictable engine of growth.

Michael will provide us updated guidance for 2005 and 2006 in a moment.

However, I will say that we anticipate revenues for 2005 of approximately $80 million, up approximately 120% from last year, and revenues for 2006 of approximately $120 million, up approximately 50% over our 2005 estimates.

We've built an efficient and scalable distribution channel over the last 4 years in order to create maximum synergy from the addition of hit products like Downtown Texas Hold'em and Tetris to our product offering.

We expect to see the benefit of this distribution synergy in 2005 and 2006.

Our existing businesses in the U.S., Europe, Japan and India, our relationship with C-Valley in China, our partnership with Radio Shack in North America, and our own proprietary technology platform that permits direct sales from our website should all see the scale advantage created by the addition of Tetris and other hit properties to our slate.

And, the availability of Tetris will make it available for us to aggressively expand our distribution and market share in even more international territories.

Our predictable revenue base, from our proven hit titles also gives us the ability to diversify our entertainment offerings by investing in 3D products, next generation multi-player and social games, and other categories of entertainment content.

We will also continue to seek out high quality acquisition opportunities.

As we have said in the past, we continue to look at companies that own intellectual property, that own key technologies, or they have unique distribution strength.

With our current and future scale, we believe we can continue to make accretive, highly strategic acquisitions as such opportunities arise.

Before I conclude my comments and turn it over to Michael, I wanted to address the concept of the Mobile Media company.

I've been hearing more and more from Mobile content publishers and particularly from aggregators, that mobile entertainment is moving beyond games and that we will see the rise in the future of a new category of company in mobile entertainment, a mobile media company.

We agree that there is an opportunity to create a mobile media company, but we believe that company will be centered around mobile gaming.

And we believe JamDat is that mobile media company.

The creation and control of intellectual properties, and the broad distribution of entertainment products based on those properties, is the essence of what a media company is, and does.

We are focused on mobile gaming, because we believe that mobile gaming, unlike music, screensavers, information services, or video offers a unique opportunity to a new company like JamDat to build the brand, create new wholly owned intellectual properties, and add significant value to select licensed intellectual properties.

While there will be roles for distribution middlemen, and service providers to assist existing content owners and traditional media companies in repurposing their content to Mobile.

These are not roles we have chosen to play.

All roles we can create long term value or defensibility.

JamDat is executing the classic strategy of a media company; investing in intellectual property, product development and distribution.

This strategy has produced the record results we've announced today, and it is the strategy that supports our forecast for a strong 2005 and 2006.

We intend to continue to build and to diversify JamDat into a mobile media company that can create long term shareholder value.

And now, Michael Marchetti our Chief Financial Officer, will take us through the numbers.

Michael.

Thanks Mitch.

And good afternoon.

I will first discuss our Q1 2005 results, including a breakdown of revenue by carrier, product, and geography, followed by operating expenses and income.

I will conclude with a discussion of guidance for 2005 and our preliminary thoughts on 2006.

Revenue.

Before getting into the detail, I want to reiterate that we currently book net revenues, and over 99% of our revenues are from mobile game publishing.

We think it is important to keep this in mind, when comparing JamDat to other mobile content companies that are booking either gross revenues, a combination of net and gross revenues, or in some instances, performing work for hire development.

JamDat's Q1 revenue of 15.1 million, were up 115% over Q1 of 2004, and up 31% sequentially, over our traditionally strong Q4 of 2004.

Our better than expected Q1 results, were due to the strength throughout our distribution channel, particularly in the U.S., and continued strong sale or our top selling products, including bowling, Bejeweled, and Downtown Texas Hold'em.

Revenue by Carrier.

We continue to see strong growth from all the U.S. carriers.

The following carriers, represented greater than 10% of revenues for the reported period.

Verizon.

Verizon continues to be our top carrier by revenue, accounting for 31% of Q1 revenues, down from 35% in Q4.

Verizon has been our top carrier for 13 straight quarters since Q1 of 2002.

We look forward to continued strong results on Verizon, especially as they launch an expanded line up of high performance EV-DO handsets throughout 2005.

Cingular.

As we indicated on our last call, Cingular now accounts for the second largest percentage of our revenue; 26%, up from 17% in Q4.

Cingular revenue had grown over 100% sequentially, for each of the last 2 quarters.

This spike in growth was the result of the deployment of Cingular's new content delivery platform, a unified marketing message, and the launch of exciting new handsets in Q4 and Q1.

While we expect to continue see strong results in Cingular, we do not expect to see 100% sequential growth rate as we have in previous quarters, now that we are fully deployed.

Sprint.

Sprint accounted for 13% of Q1 revenues, and showed strong sequential growth, up over 25% from Q4.

This is remarkable, given that this is our 11th straight quarter selling Java games with Sprint.

Sprint's disciplined approach to quality and content management, combined with their strong handset lineup, has proven to be a successful strategy for Sprint and JamDat.

Now revenue by geography.

We continue to see the strongest growth in the U.S. market.

The U.S. accounted for 86% of our revenues in Q1, up from 82% in Q4.

This is due to the addition of Downtown Texas Hold'em, which sold exclusively in the U.S. in Q1, as well as extended strength of the U.S. mobile gaming market overall.

Q1 U.S. revenues were up a 138% year-over-year.

Q1 international revenues were up 45% year-over-year.

We believe the addition of Blue Lava and Tetris will enable us to increase our international revenue substantially throughout the back half of 2005 and beyond.

Subscription based transactions accounted for 24% of Q1 revenue, down from 29% of Q4 2004 revenue.

This decrease as a percentage of revenue, is primarily due to the rapid growth in Cingular, where we currently do not have subscription pricing.

We are currently offering subscription based products on 13 carriers, none in Europe, up from 11 carriers at the end of 2004.

Revenues by product.

We had 110 products generate revenue during Q1 2005.

We released 13 new products in Q1 included JAMDAT Bowling 3D, 'TOCA Race Driver 2 and NBA Three-Point Shootout, JamDat Hearts, MLB 2005, Yatzhee Deluxe, Expo 2005 in Japan and the Downtown products.

Tony Hawk 3D which we'd hoped to release in March was released in April.

JamDat branded applications accounted for 43% of revenue for Q1 up to 42% of revenue in Q4.

Applications endorsed by major sports league, the MLB, NBA, NFL and the NHL, accounted for 9% of Q1 revenues, up from 8% in Q4.

These applications are not included in JamDat branded category.

We continue to diversify revenue across our product portfolio.

Only 2 products accounted for 10% or more of our revenues in Q1, JamDat Bowling and Bejeweled.

Gross margin, our gross margin was 77% for Q1, identical to our 77% growth margin in Q4.

License amortization cost was 792,000 for 5% of sales in Q1.

Amortization of intangibles, which is included in cost of revenue but excluded from adjusted net income was 290,000 in Q1, approximately 2% of sales.

The increase in intangible amortization resulted from the Downtown acquisition.

We expect intangible amortization to increase substantially as a result of the Blue Lava acquisition.

Operating expenses.

Total operating expenses for the first quarter was 9.1 million or 60% of revenues versus 8.4 million or 75% of revenues for Q4.

Operating expenses were broken out as follows. 4.2 million or 28% of revenue on research and development, which is down from 35% revenue Q4. 1.7 million or 11% of revenue on selling and marketing, which is down from 16% of revenue in Q4. 2.7 million or 18% of revenues on G&A, which is down from 19% of revenue in Q4. $357,000 of non-cash stock compensation expense. which is down from $536,000 in Q4.

And $250,000 of in-process R&D expense as a result of the Downtown acquisition.

Our full time headcount, at the end of Q1 was approximately 200 employees, roughly flat at the end of Q3, 2004, despite having increased revenues by 59% over that period.

Income and earnings, as you can see from our results, we beat revenue expectations and held expenses in line with our guidance.

As a result, a high percentage of the incremental revenue dropped to the bottom line.

This demonstrates the inherent scalability of JamDat business model.

Pretax income from operations was $2.6 million or 17% of revenues, up from 200,000 or 2% of revenue in Q4.

Net income was $2.7 million or $0.13 per diluted share, and 18% net income margin, compared to net income of 599,000 or $0.03 per diluted share, a 5% margin in Q4.

Adjusted net income, which excludes amortization of stock compensation and other intangibles and which we believe is a relevant measurement of our business and operations was $3.6 million for Q1 or $0.17 per diluted share, a 24% margin compared to adjusted net income of 1.2 million or $0.06 per diluted share, a 10% margin in Q4.

We currently have approximately $16 million in cash and cash equivalents and $20 million in accounts receivable on our balance sheet.

We have access to up to $10 million of additional borrowings under a $25 million credit facility.

In Q1, we generated approximately $2.3 million in cash from operations.

With the addition of Blue Lava Wireless we expect to continue generating strong cash flow from operation.

We believe our current balance sheet and cash from operations will be sufficient to meet our strategic and operational needs.

Since our inception, our strategy at JamDat has been to grow revenues consistently and profitably.

We are extremely proud of our financial performance in Q1 and look forward to continued strong results, fueled by our hit products like Bowling, Bejeweled, Downtown Texas Hold'em and now Tetris -- four of the best selling products in the United States.

And now turning to guidance.

We are going to provide full year revenue and adjusted earnings guidance as well as preliminary 2006 revenue and adjusted earnings guidance.

We will also provide preliminary GAAP earnings on this guidance as well.

However please note that the purchase accounting for Blue Lava and the required allocation of purchase price among goodwill, intangibles and in process R&D has not been finalized.

The Blue Lava purchase price allocation will be finalized prior to the end of Q2.

The amortization cost associated with the Blue Lava acquisition, will be run through cost of good sold, thereby decreasing our gross margins.

However this will be offset by increased revenue and lower operating costs as a percentage of sales.

Our long-term adjusted net margin target of approximately 20% remains unchanged.

Q2 2005.

We are focused on integrating Blue Lava and aligning resources and optimizing our product and deployment priorities to execute on our full year and a longer term business plan.

We expect this integration in transition to be largely complete by the end of Q2.

Based on the strength of our existing business, and our expectations for Blue Lava's contribution in the U.S. for May and June, we expect Q2 revenues of approximately $19 million, up over 25% sequentially, and 125% year-over-year.

On a preliminary basis we expect GAAP earnings per diluted to be $0.12, with adjusted earnings per diluted share of $0.18, on approximately 24.9 million shares.

We are forecasting strong margins despite integrating Blue Lava mid-quarter, a testament to the strength of our management team, and the platform we have created.

Full-year 2005, we expect full-year 2005 revenue of approximately $80 million, with adjusted earnings for diluted share of $0.76 by approximately 25.6 million shares outstanding.

On a preliminary basis we expect GAAP earnings per diluted share to be $0.55.

Due to the increase in our profitability as a result of the Blue Lava transaction, we expect our earnings to be burdened by income taxes in Q4 and estimate a 39% tax rate.

We will use the same tax rate on all calculation of adjusted earnings.

Full year 2006.

Because 2006 will be the first full year for which we have complete access to worldwide Tetris rights, we wanted to provide our preliminary thoughts on 2006 now.

We expect revenues to be approximately $120 million, adjusted earnings per share of $1.05 and GAAP earnings per share $0.75, on approximately 26.5 million shares outstanding.

We expect that earnings will be fully burdened by income tax in 2006 at an estimated effective tax rate of 39%.

This guidance does not include the impact of expensing stock awards under FAS 123R I will now turn the call back over to Mitch for some final comments

Thanks Michael.

As you can see from our results and from our guidance, JamDat is firing on all cylinders we just completed one of the largest acquisitions in the mobile games business to date.

As the result of the strength of our management team and our efficient execution-oriented staff, we believe we will be able to integrate Blue Lava into our existing infrastructure, by the end of this quarter while continuing to deliver industry leading revenue and earnings growth.

We will now turn the call back to the Operator at this point to take some questions.

Thank you. [Operator Instructions]

We'll take our first question from Jason Brueschke at Pacific Growth Equities.

Thank you, first of all congratulations, on a fantastic quarter guys.

Thank you.

Let me start, because I'm limited to 2, I'll just take this one first.

Could you maybe hive us a little bit more detail on for the 3 major U.S. carriers, where they are with their next generation handset roll out and what you guys expect maybe in the next quarter in the second half of the year, the number of handsets that are probably rolling out, thanks.

I can think the first question we think that obviously Verizon is a little bit out in front with the launch of the EV-DO handsets in the first quarter.

There are 3 EV-DO handsets currently in the marketplace and it is our expectation that they will add additional handsets with those characteristics, the ability to play real time video, 3D games and to use the higher speed bandwidth networks over the course of, over the balance of this year.

With regard to Sprint and Cingular, we fully expect that they will be out with in the case of Cingular UMTS handsets, in the case of Sprint with CDMA-EV-DO handsets very shortly.

We can't comment on the exact specifics of it.

I think that's a question better left to them, the carriers themselves.

But we are -- we expect all 3 of the major carriers to have such handsets in the marketplace by Christmas.

By Christmas.

OK, I guess I'll just take my second question.

Your preliminary '06 guidance, is that assuming the additional acquisitions for the remainder of 2005 or any other first 3 or 4 quarters of '06.

Or is that an indication of what you expect the organic growth from your current portfolio, of games that you currently have?

Yes, the latter, we are not factoring in any additional acquisitions for that guidance.

That's based on our current projections, for our existing portfolio and the combined assets of the Tetris company, the Tetris licenses.

Great - that.

Thank you.

We'll go next to Mark Argento at ThinkEquity Partners.

Good afternoon, just a couple of quick ones.

In terms of, this is clearly in the mobile business, in particular the game businesses this particularly reaching mass media here and the numbers are starting to make sense to start spending more money on the marketing side of the equation.

I know there is a discussion before when it makes sense to turn that marketing spending on when you can get that ROI?

Are you expecting that you are going to be footing more of the bill, in terms of the marketing dollars -- to what extent is that baked into these -- into the new guidance, obviously that's for the first one?

Yes, it's a great question.

And in fact yes, we do believe that we will be assuming more of the burden for marketing as the year progresses, and particularly in 2006.

As you correctly pointed out, the business reach is mass market status and we are able to reach a broad audience, the mass consumer audience for products.

We have baked that into our guidance, and we are fully assuming our run up in marketing expenditures, particularly in 2006.

And just quickly on good housekeeping -- but on the -- just understanding the share count a little bit better for fiscal '05, I think you said in the release and a kind of, fully diluted average for the year, 25.6 million.

For the June quarter the 24 in change, is that the full share account for -- is the full shares in there for the Blue Lava acquisition.

And if so, what you have to wrap the shares pretty hard to get an average of kind of, 25.6 for the year?

What are you thinking in the back part of the year for the shares?

Yes that's the weighted average for the Blue Lava acquisition, that's not the full amount in Q2

Thank you.

And then content exclusivity, we are expecting to see in some of these new emerging content categories exclusivity, satellite radio we started to see that.

So you see more exclusivity in traditional video games.

And you guys cut a deal with MLB.

Is this going to be the trend in long term?

Do you think -- are the margins so sustainable?

I mean, how much can impact a business going forward?

Well, we do believe that it is a trend only in the cases like Major with Baseball what you saw happen with the NFL in the traditional video game business, they were offered with exclusivity where such offers had never been available before.

So I can expect that those were available and in case of Major League Baseball, in a context where it really made sense for our business -- we knew strength of Baseball to category in wireless, when we made that investment.

I'm not sure that I would look at it as having a broad impact across our business, and across licensing costs in our business, but again where there is a strategic reason to do it, I think we would certainly expect it to be at the table.

[Operator Instructions]

We will go next to James Lee (ph) at Decision Economic Investments.

Congratulations on a very good number, guys.

Thank you.

Can we -- can you clarify the 2005 guidance a little bit 18 million, how much of that is coming from organic, and how much of that is coming from the Blue Lava acquisition?

Yes we are not going to give product guidance ahead of time.

But if you just look at sort of where our existing guidance was, it was about $62 million.

We beat the Q1 number by about $1 million more from where we obviously were, so that is a $70 million increase, I won't say that is not all form Blue Lava.

So we know it's a strength across the Board.

OK, and in terms of gross margin assumptions going forward, is that pretty much the same as you talk it about before Mike, what you expect -- and talk about it to maybe into 2006, talk about between gross margins of 75% to 77% or has that changed?

That will change once the purchase price allocation of Blue Lava happens to be -- the accounting for that will affect gross margin,.

And so I have not given that detail yet, because we don't have the finalized numbers.

So I assume that will create some downward pressure on the gross margins side?

Yes.

OK, great thanks.

We'll go next to Jeff Kvaal at Lehman Brothers.

Yes, thank you both very much, I was wondering Mitch, if you could give us an update on when we should be talking about Radio Shack hitting OpEx or the revenue line?

Yes, in terms of -- we'll see -- the beginnings of the impact of Radio Shack in the third quarter, doubt we will see much of that in the second quarter.

But I think we will start to roll out in selected stores in the third quarter.

The expectation is to be rolled out much more broadly in the fourth quarter this year and obviously significantly more broadly in 2006.

In terms of its impact on the OpEx -- it's first of all, incorporated into the guidance that we give but in addition its not going to make a significant or meaningful impact on our numbers, certainly not in Q3.

I think we will begin to see Q4 and as we've discussed before we were talking about marketing broadly.

We are very excited about the way that Radio Shack is going on and we've got a lot of great ideas I think for merchandising and retail.

Great, and Michael, for you, I was wondering if you could comment a little bit about the your issuance of the 2006 guidance.

Your visibility coming from -- you feel like the product pipeline in 2006 is solid enough to be offering guidance or how should we think about that?

: Yes, come 2 issues, one, the visibility.

Obviously we been sort of, forecasting this business now for 5 years.

So we have a lot of good data to see what's going on, on a handset by handset basis.

And second because the right package of Tetris is coming back next year we thought it made sense to give an indication of when we think the impact of Tetris is going to be felt it is a more so in 2006.

So, yes, a combination of having visibility and the Tetris acquisition.

OK, perfect.

Thank you very much

: Thank you.

We will go next to Mark May (ph) at Needham and Company.

Mr. May, your line is open.

Yes can you hear me?

Yes thanks, Mark.

Ok, thank you, my question, most of my questions have been answered you made a comment in your statements regarding additional acquisitions.

But I believe you will end second quarter with a small net debt balance at the end of the quarter.

Can you talk about your thoughts in terms of funding additional acquisitions, thanks a lot?

We have nothing queued up at the moment so nothing specific that we can to talk about.

Obviously any acquisitions will be consistent with the philosophy we've laid on the path that would be accretive (inaudible) intellectual property or distribution standpoint.

So there is really not a lot to comment on at this point in terms of acquisition strategy

And we'll go next to Jason Brueschke at Pacific Growth Equities

Great guys, just want to get back in queue and ask a couple of follow-ons..

First of all, could you may be give us your views on 2 issues.

One, the seasonality of the business, I know a lot of investors I've talked to, since I launched were concerned about what happened at Infospace with them claiming seasonality was part of the impact on their wireless business.

And then secondly the we had an announcement at the last week or so from ElectronicArts that they are going to be going out with 15 or 20 games out by end of the year.

Could you tell us what you guys are thinking about changes in the competitive landscape with guys coming from the video gaming side of the world.

Yes, I'll take them in reverse order.

You are commenting on EA first.

We are actually really proud that EA has decided to enter the mobile game business and compete with us.

They have a really good track record for picking growth opportunities.

And we feel that their entry is really going to help to validate the space in a significant way.

I think we said before when asked and we continue to maintain that EA's entry will be felt more strongly by the companies that are currently publishing mobile games, as a side business or some of the smaller, weaker players and less by the established publishers like us.

And you know, I would just say -- when you still think that we represent an excellent and unique investment opportunity on the profitable pure play wireless publisher leading market share and concentrating all the strategies on wireless gaming.

And so that's our comment on EA's introduction.

And I think with regard to the seasonality in the business with caveat that we have long maintained that Q4 and Q1 are excellent quarters.

They are quarters in which carriers sell a lot of handsets.

And as we have been seeing, as you guys listened to us, handsets sales are really important driver of our ability to sell games.

So I wouldn't say that Infospace is wrong, and that there is no seasonality.

However I will say that we are seeing in the recent -- in the game space very strong growth continue across our business, quarter over quarter.

And so I don't think we are seeing necessarily the same kind of seasonality that perhaps they, were talking about in their call.

Great.

And maybe I can have one last follow-up.

Poker seems to be a very strong phenomenon in the United States and has been for the last a couple of years.

Most of your revenues to date have come from the United States.

The question I guess is, do you think that there is a market for Texas Hold'em worldwide?

And if not, is there -- could you maybe just comment on whether you have or your plan to put out a game that or games that tap into mankind's desire to gamble.

And it seems like 3D wireless is a perfect way to spend idle time doing that.

Thanks.

Yes, I'm not sure if I will be able to comment on mankind's desire to gamble, but I will say that yes, we intend to put Texas Hold'em out as broadly as possible in many territories as possible.

And I think we will see if the market for it.

We think that -- we have seen some strong indication about the European market and certainly the Asian markets that there may be an appetite for poker.

Currently, probably more than appetite that we might have originally thought.

And so, I think, we have a lot of high hopes for our ability to drive revenue from Texas Hold'em worldwide.

I think the other things to think about is Tetris, in that regard.

We will be obviously advocating the worldwide Tetris throughout the remainder of the year.

And by January 2006 we will be publishing that product on a world wide basis.

We've got a version of Tetris battle Tetris that allows competition cross carriers, across territory with real people around the world.

And we think that that might create some real interesting opportunities for perhaps not gambling but certainly a community in competition across territories.

We'll go next to Kevin Dede at Merriman.

Hey Mitch, Michael, great job in the quarter

Thanks Kevin

Two questions, really they center on Tetris and China, can you give us an update on where you are with C-Valley and the relationship Tetris has with Unicom and Mobile and how you think you can leverage that relationship with to produce some of your own content especially at Mobile?

Yes, at C-Valley, it's too immature in terms of generating revenue at this point in place.

We have just launched Lord of the Rings over there last month.

We have not seen the results of that yet.

And in terms of how we launch Tetris into China that is not a decision we have made yet, or anything that we sort of communicated.

So we are still working on that.

Again that won't happen until Q4 or Q1 at the earliest.

What are the other questions Kevin?

I apologize.

Kevin, please press *1 again.

Please go ahead, Mr. Dede.

OK, thank you, I'm sorry about that.

Could you just give us a rundown on where the licenses are held and how they gradually fall into your hand between now and January '06?

We really can't comment on that.

I think that if you did a little digging you could probably figure it out.

There are 3 licensees in addition to currently JamDat and Blue Lava, the combined entity.

And those are products as we said will come back piecemeal through the balance of this year, some in the summer, some later in the fall.

As we have said, by late Q4, we will have all those rights back in our possession.

And we intend to have products in the market on a worldwide basis in 2006.

We'll go next to Mr. Jeff Kvaal of Lehman Brothers.

Hi, Mitch, I wondered if you could give us an update on incremental OpEx for the fourth quarter that was going to improve positioning in Europe in the mid-year timeframe.

How is that faring -- and in Japan for that matter?

Yes, in both instances, it was really related to the developments of products specifically to those markets.

So for example, the launch of the Expert 2005 product in Japan in Q1 was the result of that R&D investment in Q4.

The launch of LMA Manager in Europe in Q2, as I announced earlier in my comments, again is the product in the R&D investment we made in Europe, specifically for Europe, in those territories.

So we are just starting to get those products into the marketplace.

The fruits essentially of that investment that we made in Q4.

So I can't report on the result at this point.

But that was really the strategy and those are the results of that strategy, which is specifically European and Asian specific products for those markets.

OK, great, thank you.

Due to time constraints, this concludes today's Question and Answer Session, gentleman I like to turn the conference back over to you for an additional or closing remarks.

We would like to thank everyone for joining us on the conference call and we will see you again in the quarter, thank you very much.

This concludes today's conference, we do thank you for your participation and you may disconnect at this time.