Glu Reports Fourth Quarter and Full Year 2012 Financial Results

  • 112% GAAP and 78% non-GAAP smartphone revenue growth for the full year 2012
  • Original IP expansion drove GAAP gross margins of 85% and non-GAAP gross margins of 90% for the full year 2012 compared to 72% and 82%, respectively, last year

SAN FRANCISCO--()--Glu Mobile Inc. (NASDAQ:GLUU), a leading global developer and publisher of freemium games for smartphone and tablet devices, today announced financial results for its fourth quarter and full year ended December 31, 2012.

“First Quarter Expectations – Quarter Ending March 31, 2013”

“The fourth quarter came in at the high end of expectations across our key metrics,” stated Niccolo de Masi, Chief Executive Officer of Glu. “Consistent with our guidance, smartphone revenue was flat compared to Q3 due to the decision to delay the global launch of approximately half of our Q4 2012 titles. We anticipate seeing momentum accelerate as new titles launch incorporating our new monetization systems.”

De Masi continued, “Looking forward, we believe Glu is strongly positioned to lead in a Social Gaming 2.0 landscape. We will continue to deliver engaging core gameplay, industry leading production values, and outstanding global reach. Our new product roadmap emphasizes deeper and more immersive gameplay designed to drive higher monetization and lifetime value. Every game we release in 2013 is designed to have the potential to outperform our best titles of years past.”

Fourth Quarter 2012 Financial Highlights:

  • Revenue: Total GAAP revenue was $21.0 million in the fourth quarter of 2012 compared to $15.2 million in the fourth quarter of 2011. Total non-GAAP revenue was $20.8 million in the fourth quarter of 2012 compared to $20.1 million in the fourth quarter of 2011. Non-GAAP revenue excludes changes in deferred revenue and amortization of in-process development contracts.
  • Gross Margin: GAAP gross margin was 85% in the fourth quarter of 2012 compared to 73% in the fourth quarter of 2011. Non-GAAP gross margin was 90% in the fourth quarter of 2012 compared to 87% in the fourth quarter of 2011. Non-GAAP gross margin excludes changes in deferred revenue and royalties and amortization of intangible assets.
  • GAAP Operating Loss: GAAP operating loss was $(6.7) million in the fourth quarter of 2012 compared to a $(9.8) million loss in the fourth quarter of 2011.
  • Non-GAAP Operating Loss: Non-GAAP operating loss was $(2.5) million in the fourth quarter of 2012 compared to a loss of $(1.2) million during the fourth quarter of 2011. Non-GAAP operating loss excludes changes in deferred revenue and royalty expense, amortization of in-process development contracts, stock-based compensation expense, amortization of intangible assets, restructuring charges, change in fair value of the Blammo earnout, transitional costs and impairment of goodwill.
  • Adjusted EBITDA: Adjusted EBITDA was a $(1.8) million loss for the fourth quarter of 2012 compared to a $(0.7) million loss during the fourth quarter of 2011. Adjusted EBITDA is defined as non-GAAP operating income/(loss) less depreciation.
  • GAAP Net Loss and EPS: GAAP net loss was $(7.1) million for the fourth quarter of 2012 compared to a GAAP net loss of $(10.0) million for the fourth quarter of 2011. GAAP EPS was a loss of $(0.11) for the fourth quarter of 2012, based on 65.7 million weighted-average basic shares outstanding, compared to a loss of $(0.16) for the fourth quarter of 2011, based on 63.0 million weighted-average basic shares outstanding.
  • Non-GAAP Net Loss and EPS: Non-GAAP net loss was $(3.2) million for the fourth quarter of 2012 compared to a loss of $(1.4) million for the fourth quarter of 2011. Non-GAAP EPS was a loss of $(0.05) for the fourth quarter of 2012 based on 65.7 million weighted-average basic shares outstanding, compared to a loss of $(0.02) for the fourth quarter of 2011 based on 63.0 million weighted-average basic shares outstanding.
  • Cash Flows Used in Operations: Cash flows used in operations were $(1.6) million for the fourth quarter of 2012 compared to cash flows used in operations of $(4.3) million for the fourth quarter of 2011.

Selected Fourth Quarter and Full Year 2012 Operating Highlights and Metrics:

  • Our total GAAP smartphone revenue for the fourth quarter of 2012 of $18.6 million grew 85% from the fourth quarter of 2011 and comprised 89% of total GAAP revenue.
  • Our total GAAP smartphone revenue for 2012 of $74.4 million grew 112% from 2011 and was 85% of total GAAP revenue.
  • Our non-GAAP smartphone revenue for the fourth quarter of 2012 of $18.5 million grew 24% from the fourth quarter of 2011 and was 89% of total non-GAAP revenue.
  • Our non-GAAP smartphone revenue for 2012 of $74.6 million grew 78% from 2011 and was 85% of total non-GAAP revenue.

Fourth Quarter and Recent Developments and Strategic Initiatives:

  • We launched four new freemium games: Death Dome, Contract Killer 2, Dragon Slayer, and Contract Killer Zombies 2.
  • We announced the availability of our leading freemium titles for Google’s new Nexus devices and Android 4.2, Jelly Bean.
  • We announced the availability of Deer Hunter Reloaded, Small Street and Samurai vs. Zombies Defense for the Mac, all of which are fully optimized for new features on OS X Mountain Lion including full screen Retina display and support for in-app purchasing.
  • We hired Matthew Ricchetti as our President of Studios.
  • We partnered with Probability PLC to expand our mobile portfolio to include real-money gambling and reach new international audiences.
  • In January 2013, we invested in Bee Cave Games, a new company formed by industry veterans that is focused on developing social and mobile casino games.
  • We launched Glu Publishing and hired a VP of 3rd Party Development.

Fiscal 2012 Financial Highlights:

  • Revenue: Total GAAP revenue was $87.5 million for the year ended December 31, 2012 compared to $66.2 million for the year ended December 31, 2011. Total non-GAAP revenue was $87.8 million for the year ended December 31, 2012 compared to $72.9 million in the year ended December 31, 2011. Non-GAAP revenue excludes changes in deferred revenue and amortization of in-process development contracts.
  • Gross Margin: GAAP gross margin was 85% for the year ended December 31, 2012 compared to 72% for the year ended December 31, 2011. Non-GAAP gross margin was 90% for the year ended December 31, 2012 compared to 82% for the year ended December 31, 2011. Non-GAAP gross margin excludes changes in deferred revenue and royalties and amortization of intangible assets.
  • GAAP Operating Loss: GAAP operating loss was $(22.1) million for the year ended December 31, 2012 compared to a $(21.2) million loss for the year ended December 31, 2011.
  • Non-GAAP Operating Loss: Non-GAAP operating loss was $(4.6) million for the year ended December 31, 2012 compared to a loss of $(3.4) million during the year ended December 31, 2011. Non-GAAP operating loss excludes changes in deferred revenue and royalty expense, amortization of in-process development contracts, stock-based compensation expense, amortization of intangible assets, restructuring charges, change in fair value of the Blammo earnout, transitional costs and impairment of goodwill.
  • Adjusted EBITDA: Adjusted EBITDA was a $(2.3) million loss for the year ended December 31, 2012 compared to a $(1.5) million loss for the year ended December 31, 2011. Adjusted EBITDA is defined as non-GAAP operating income/(loss) less depreciation.
  • GAAP Net Loss and EPS: GAAP net loss was $(20.5) million for the year ended December 31, 2012 compared to a GAAP net loss of $(21.1) million for the year ended December 31, 2011. GAAP EPS was a loss of $(0.32) for the year ended December 31, 2012, based on 64.3 million weighted-average basic shares outstanding, compared to a loss of $(0.37) for the year ended December 31, 2011, based on 57.5 million weighted-average basic shares outstanding.
  • Non-GAAP Net Loss and EPS: Non-GAAP net loss was $(5.1) million for the year ended December 31, 2012 compared to a loss of $(4.0) million for the year ended December 31, 2011. Non-GAAP EPS was a loss of $(0.08) for the year ended December 31, 2012 based on 64.3 million weighted-average basic shares outstanding, compared to a loss of $(0.07) for the year ended December 31, 2011 based on 57.5 million weighted-average basic shares outstanding.
  • Cash Flows Used in Operations: Cash flows used in operations were $(6.7) million for the year ended December 31, 2012 compared to cash flows used in operations of $(6.7) million for the year ended December 31, 2011.

A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

“We had a solid fourth quarter performance with non-GAAP smartphone revenue growing primarily due to the strength of two of our new sequels Contract Killer 2 and Eternity Warriors 2,” stated Eric R. Ludwig, Glu’s Chief Financial Officer. “While we expect first quarter results to be impacted by a combination of seasonality and further delays in title launches, we remain in position to benefit from increasing monetization trends as we implement our new strategy. Given our on-going commitment to control costs, we are confident in our ability to end 2013 with approximately $14 million in cash and without the need to raise additional capital or incur debt.”

Business Outlook as of February 5, 2013:

The following forward-looking statements reflect expectations as of February 5, 2013. Results may be materially different and are affected by many factors, such as: consumer demand for mobile entertainment and specifically Glu’s products; consumer demand for smartphones, tablets and next-generation platforms; development delays on Glu's products; continued uncertainty in the global economic environment; competition in the industry; storefront featuring; smartphone storefronts, carriers and other distributors maintaining their networks and provisioning systems to enable consumer purchases; changes in foreign exchange rates; Glu's effective tax rate and other factors detailed in this release and in Glu's SEC filings.

First Quarter Expectations – Quarter Ending March 31, 2013:

  • Non-GAAP revenue is expected to be between $17.0 million and $18.5 million and non-GAAP smartphone revenue is expected to be between $16.0 million and $17.0 million.
  • Non-GAAP gross margin is expected to be between 89% and 90%.
  • Non-GAAP operating expenses are expected to be between $20.5 million and $20.7 million.
  • Adjusted EBITDA, defined as non-GAAP operating loss excluding depreciation of approximately $800,000, is expected to range from $(3.3) million to $(4.6) million.
  • Income tax expense is expected to be $(0.2) million.
  • Non-GAAP net loss is expected to be between $(4.3) million and $(5.6) million, or a net loss of $(0.06) to $(0.08) per weighted-average basic shares outstanding.
  • Weighted-average common shares outstanding are expected to be approximately 66.2 million basic and 70.8 million diluted.

2013 Expectations – Full Year Ending December 31, 2013:

  • Non-GAAP revenue is expected to be between $84.0 million and $92.0 million and non-GAAP smartphone revenue is expected to be between $80.0 million and $88.0 million.
  • Non-GAAP gross margin is expected to be approximately 91.5%.
  • Adjusted EBITDA is expected to range from $(1.8) million to $(7.5) million.
  • Non-GAAP net loss is expected to be between $(5.9) million and $(11.6) million, or a net loss of $(0.09) to $(0.17) per weighted-average basic shares outstanding.
  • Weighted-average common shares outstanding are expected to be approximately 67.3 million basic and 73.0 million diluted.
  • We expect to have a cash balance on December 31, 2013 of approximately $14.0 million with no debt.

Quarterly Conference Call

Glu will discuss its quarterly results via teleconference today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Please dial (877) 593-1988, or if outside the U.S., (678) 905-9423, with conference ID # 87391968 to access the conference call at least five minutes prior to the 1:30 p.m. Pacific Time start time. A live webcast and replay of the call will also be available on the investor relations portion of the company's website at www.glu.com/investors. An audio replay will be available between 4:30 p.m. Pacific Time, February 5, 2013, and 8:59 p.m. Pacific Time, February 12, 2013, by calling (855) 859-2056, or (404) 537-3406, with conference ID # 87391968.

Use of Non-GAAP Financial Measures

To supplement Glu's unaudited condensed consolidated financial data presented in accordance with GAAP, Glu uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Glu's results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Glu include historical and estimated non-GAAP revenues, non-GAAP smartphone revenues, non-GAAP operating expenses, non-GAAP gross margins, non-GAAP operating income/(loss), non-GAAP net loss and non-GAAP basic and diluted net loss per share. These non-GAAP financial measures exclude the following items from Glu's unaudited consolidated statements of operations:

  • Change in deferred revenues and royalties;
  • Amortization of in-process development contracts;
  • Amortization of intangible assets;
  • Stock-based compensation expense;
  • Restructuring charges;
  • Change in fair value of Blammo earnout;
  • Transitional costs;
  • Impairment of goodwill;
  • Release of tax liabilities; and
  • Foreign currency exchange gains and losses primarily related to the revaluation of assets and liabilities.

In addition, Glu has included in this release “Adjusted EBITDA” figures which are used to evaluate Glu’s operating performance and is defined as non-GAAP operating income/(loss) excluding depreciation.

Glu may consider whether significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

Glu believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding Glu's performance by excluding certain items that may not be indicative of Glu's core business, operating results or future outlook. Glu's management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing Glu's operating results, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of Glu's performance to prior periods.

Cautions Regarding Forward-Looking Statements

This news release contains forward-looking statements, including those regarding our "Business Outlook as of February 5, 2013" ("First Quarter Expectations – Quarter Ending March 31, 2013" and “2013 Expectations – Full Year Ending December 31, 2013”) and the statements that: we anticipate seeing momentum accelerate as new titles launch incorporating our new monetization systems; we believe Glu is strongly positioned to lead in a Social Gaming 2.0 landscape; we will continue to deliver engaging core gameplay, industry leading production values, and outstanding global reach; our new product roadmap is designed to drive higher monetization and lifetime value; every game we release in 2013 is designed to have the potential to outperform our best titles of years past; while we expect first quarter results to be impacted by a combination of seasonality and further delays in title launches, we remain in position to benefit from increasing monetization trends as we implement our new strategy; and that we are confident in our ability to end 2013 with approximately $14 million in cash and without the need to raise additional capital or incur debt. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Investors should consider important risk factors, which include: the risks identified under "Business Outlook as of February 5, 2013"; the risk that consumer demand for smartphones, tablets and next-generation platforms does not grow as significantly as we anticipate or that we will be unable to capitalize on any such growth; the risk that we do not realize a sufficient return on our investment with respect to our efforts to develop freemium games for smartphones, tablets and next-generation platforms, the risk that we will not be able to maintain our good relationships with Apple and Google; the risk that our development expenses for games for smartphones, tablets and next-generation platforms are greater than we anticipate; the risk that our recently and newly launched games are less popular than anticipated; the risk that our newly released games will be of a quality less than desired by reviewers and consumers; the risk that the mobile games market, particularly with respect to freemium gaming, is smaller than anticipated; and other risks detailed under the caption "Risk Factors" in our Form 10-Q filed with the Securities and Exchange Commission on November 9, 2012 and our other SEC filings. You can locate these reports through our website at http://www.glu.com/investors. We are under no obligation, and expressly disclaim any obligation, to update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

2008 Equity Inducement Plan

In connection with the hiring of our new VP of 3rd Party Development, Glu has agreed that its Compensation Committee will award our new VP of 3rd Party Development a non-qualified stock option to purchase 150,000 shares of Glu's common stock pursuant to Glu's 2008 Equity Inducement Plan. Glu's historical policy with respect to new hire stock option grants is to award a newly hired employee his or her stock option on the second Tuesday of the month following his or her employment start date; accordingly, the grant date for our new VP of 3rd Party Development’s option grant will be February 12, 2013. The stock option will have a six-year term, vest on a four-year schedule (25% of the underlying shares will vest on the first anniversary of our new VP of 3rd Party Development’s hire date, and 2.083% of the underlying shares will vest monthly thereafter), and have an exercise price equal to the closing price of Glu's common stock on the NASDAQ Global Market on the February 12, 2013 grant date.

Glu's Compensation Committee adopted the 2008 Equity Inducement Plan, which is a non-stockholder approved plan, to facilitate the granting of stock options as an inducement to new employees to join Glu. NASDAQ Marketplace Rule 5635(c)(iv) requires a public announcement of equity awards made under this type of plan.

About Glu Mobile

Glu Mobile (NASDAQ:GLUU) is a leading global developer and publisher of freemium games for smartphone and tablet devices. Glu is focused on creating compelling original IP games such as BLOOD & GLORY, DEER HUNTER, FRONTLINE COMMANDO, GUN BROS, and SAMURAI VS. ZOMBIES DEFENSE on a wide range of platforms including iOS, Android™, Windows Phone, Google Chrome and MAC OS. Glu’s unique technology platform enables its titles to be accessible to a broad audience of consumers globally. Founded in 2001, Glu is headquartered in San Francisco with a major office outside Seattle, and international locations in Canada, China and Russia. Consumers can find high-quality entertainment wherever they see the ‘g’ character logo or at www.glu.com. For live updates, please follow Glu via Twitter at www.twitter.com/glumobile or become a Glu fan at www.facebook.com/glumobile.

BLOOD & GLORY, CONTRACT KILLER, CONTRACT KILLER ZOMBIES, DEATH DOME, DEER HUNTER, DRAGON SLAYER, FRONTLINE COMMANDO, GUN BROS, SAMURAI VS ZOMBIES DEFENSE, SMALL STREET, GLU, GLU MOBILE and the 'g' character logo are trademarks of Glu Mobile Inc.

In the financial tables below, Glu has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.

     
 
Glu Mobile Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
 
December 31,
2012
December 31,
2011
 
ASSETS
Cash and cash equivalents $ 22,325 $ 32,212
Accounts receivable, net 11,881 11,821
Prepaid royalties - 483
Prepaid expenses and other current assets   2,487     1,881  
Total current assets 36,693 46,397
 
Property and equipment, net 5,026 3,934
Other long-term assets 227 404
Intangible assets, net 10,889 10,078
Goodwill   19,440     21,991  
Total assets $ 72,275   $ 82,804  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 7,785 $ 6,894
Accrued liabilities 2,410 939
Accrued compensation 5,989 5,404
Accrued royalties 2,781 3,865
Accrued restructuring 4 887
Deferred revenues   9,031     7,139  
Total current liabilities 28,000 25,128
Other long-term liabilities   5,388     8,503  
Total liabilities   33,388     33,631  
 
Common stock 6 6
Additional paid-in capital 271,016 260,744
Accumulated other comprehensive income 167 266
Accumulated deficit   (232,302 )   (211,843 )
Stockholders' equity   38,887     49,173  
Total liabilities and stockholders' equity $ 72,275   $ 82,804  

 
 
Glu Mobile Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
  Three Months Ended   Twelve Months Ended
December 31,
2012
  December 31,
2011
December 31,
2012
  December 31,
2011
 
Revenues $ 20,981 $ 15,174 $ 87,493 $ 66,185
 
Cost of revenues:
Royalties and other cost of revenues 2,052 2,576 8,940 12,920
Amortization of intangible assets   1,073     1,552     3,783     5,447  
Total cost of revenues   3,125     4,128     12,723     18,367  
Gross profit   17,856     11,046     74,770     47,818  
 
Operating expenses:
Research and development 13,566 12,660 54,275 39,073
Sales and marketing 6,272 3,930 20,893 14,607
General and administrative 3,356 3,814 14,744 14,002
Amortization of intangible assets 495 495 1,980 825
Restructuring charge 838 (92 ) 1,371 545
Impairment of goodwill   -     -     3,613     -  
Total operating expenses   24,527     20,807     96,876     69,052  
 
Loss from operations (6,671 ) (9,761 ) (22,106 ) (21,234 )
 
Interest and other income/(expense), net:
Interest income/(expense) 4 10 21 (29 )
Other income/(expense), net   260     (116 )   (368 )   776  
Interest and other income/(expense), net   264     (106 )   (347 )   747  
 
Loss before income taxes (6,407 ) (9,867 ) (22,453 ) (20,487 )
Income tax benefit/(provision)   (660 )   (152 )   1,994     (614 )
Net loss $ (7,067 ) $ (10,019 ) $ (20,459 ) $ (21,101 )
 
Net loss per share - basic and diluted $ (0.11 ) $ (0.16 ) $ (0.32 ) $ (0.37 )
 
Weighted average common shares outstanding - basic and diluted 65,678 62,973 64,318 57,518
 
Stock-based compensation expense included in:
Research and development $ 1,223 $ 800 $ 3,491 $ 1,387
Sales and marketing 43 95 386 351
General and administrative   560     475     1,945     1,372  
Total stock-based compensation expense $ 1,826   $ 1,370   $ 5,822   $ 3,110  

 
 
Glu Mobile Inc.
GAAP to Non-GAAP Reconciliation
(in thousands, except per share data)
(unaudited)
 

For the Three Months Ended

March 31,
2011
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
  June 30,
2012
  September 30,
2012
December 31,
2012
 
GAAP revenues
Featurephone $ 10,478 $ 8,253 $ 7,248 $ 5,112 $ 4,165 $ 3,710 $ 2,924 $ 2,336
Smartphone   5,948     9,427     9,657     10,062     17,379     19,911     18,423     18,645  
Total GAAP revenues   16,426     17,680     16,905     15,174     21,544     23,621     21,347     20,981  
 
Change in deferred revenues and amortization of in-process development contracts
Featurephone change in deferred revenue (63 ) (6 ) 5 (20 ) (7 ) 17 (21 ) 17
Smartphone change in deferred revenue and amortization of in-process development contracts   798     240     875     4,897     57     534     (167 )   (167 )
Total change in deferred revenues and amortization of in-process development contracts   735     234     880     4,877     50     551     (188 )   (150 )
 
Non-GAAP Revenues
Featurephone 10,415 8,247 7,253 5,092 4,158 3,727 2,903 2,353
Smartphone   6,746     9,667     10,532     14,959     17,436     20,445     18,256     18,478  
Total non-GAAP Revenues   17,161     17,914     17,785     20,051     21,594     24,172     21,159     20,831  
 
GAAP gross profit 11,769 13,856 11,147 11,046 18,234 20,552 18,128 17,856
Change in deferred revenues and amortization of in-process development contracts 735 234 880 4,877 50 551 (188 ) (150 )
Amortization of intangible assets 817 703 2,375 1,552 753 932 1,025 1,073
Change in deferred royalty expense   33     20     1     (99 )   60     67     (30 )   (121 )
Non-GAAP gross profit   13,354     14,813     14,403     17,376     19,097     22,102     18,935     18,658  
 
GAAP operating expense 14,347 15,436 18,462 20,807 24,269 25,769 22,311 24,527
Stock-based compensation (397 ) (505 ) (838 ) (1,370 ) (3,836 ) (3,038 ) 2,878 (1,826 )
Amortization of intangible assets - - (330 ) (495 ) (495 ) (495 ) (495 ) (495 )
Transitional costs - - (981 ) (326 ) (173 ) (30 ) (192 ) (94 )
Change in fair value of Blammo earnout - - 178 (117 ) (645 ) (386 ) 954 (90 )
Impairment of goodwill - - - - - - (3,613 ) -
Restructuring charge   (490 )   (147 )   -     92     -     (320 )   (213 )   (838 )
Non-GAAP operating expense   13,460     14,784     16,491     18,591     19,120     21,500     21,630     21,184  
 
GAAP operating loss (2,578 ) (1,580 ) (7,315 ) (9,761 ) (6,035 ) (5,217 ) (4,183 ) (6,671 )
Change in deferred revenues and amortization of in-process development contracts 735 234 880 4,877 50 551 (188 ) (150 )
Non-GAAP cost of revenues adjustment 850 723 2,376 1,453 813 999 995 952
Stock-based compensation 397 505 838 1,370 3,836 3,038 (2,878 ) 1,826
Amortization of intangible assets - - 330 495 495 495 495 495
Transitional costs - - 981 326 173 30 192 94
Change in fair value of Blammo earnout - - (178 ) 117 645 386 (954 ) 90
Impairment of goodwill - - - - - - 3,613 -
Restructuring charge   490     147     -     (92 )   -     320     213     838  
Non-GAAP operating income/(loss)   (106 )   29     (2,088 )   (1,215 )   (23 )   602     (2,695 )   (2,526 )
 
GAAP net loss (3,172 ) (1,752 ) (6,158 ) (10,019 ) (6,841 ) (2,988 ) (3,563 ) (7,067 )
Change in deferred revenues and amortization of in-process development contracts 735 234 880 4,877 50 551 (188 ) (150 )
Non-GAAP cost of revenues adjustment 850 723 2,376 1,453 813 999 995 952
Non-GAAP operating expense adjustment 887 652 1,971 2,216 5,149 4,269 681 3,343
Foreign currency exchange loss/(gain) (198 ) (363 ) (344 ) 116 373 (205 ) 460 (263 )
Release of tax liabilities   -     -     -     -     -     (2,427 )   -     -  
Non-GAAP net income/(loss) $ (898 ) $ (506 ) $ (1,275 ) $ (1,357 ) $ (456 ) $ 199   $ (1,615 ) $ (3,185 )
 
 
Reconciliation of net loss and net loss per share:
GAAP net loss per share - basic and diluted $ (0.06 ) $ (0.03 ) $ (0.10 ) $ (0.16 ) $ (0.11 ) $ (0.05 ) $ (0.06 ) $ (0.11 )
Non-GAAP net income/(loss) per share - basic and diluted $ (0.02 ) $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.01 ) $ 0.00 $ (0.03 ) $ (0.05 )
Shares used in computing Non-GAAP basic net income/(loss) per share 52,048 54,587 60,461 62,973 63,229 63,802 64,562 65,678
Shares used in computing Non-GAAP diluted net income/(loss) per share 52,048 54,587 60,461 62,973 63,229 69,490 64,562 65,678
 
Non-GAAP operating expense break-out:
GAAP research and development expense $ 7,166 $ 8,439 $ 10,808 $ 12,660 $ 15,033 $ 15,697 $ 9,979 $ 13,566
Transitional costs - - (219 ) (23 ) (68 ) (1 ) (45 ) (70 )
Stock-based compensation   (100 )   (131 )   (356 )   (800 )   (3,260 )   (2,396 )   3,388     (1,223 )
Non-GAAP research and development expense   7,066     8,308     10,233     11,837     11,705     13,300     13,322     12,273  
 
GAAP sales and marketing expense 3,757 3,344 3,576 3,930 4,375 4,701 5,545 6,272
Transitional costs - - (2 ) (5 ) - - (15 ) (24 )
Stock-based compensation   (66 )   (94 )   (96 )   (95 )   (115 )   (155 )   (73 )   (43 )
Non-GAAP sales and marketing expense   3,691     3,250     3,478     3,830     4,260     4,546     5,457     6,205  
 
GAAP general & administrative expense 2,934 3,506 3,748 3,814 4,366 4,556 2,466 3,356
Transitional costs - - (760 ) (298 ) (105 ) (29 ) (132 ) -
Change in fair value of Blammo earnout - - 178 (117 ) (645 ) (386 ) 954 (90 )
Stock-based compensation   (231 )   (280 )   (386 )   (475 )   (461 )   (487 )   (437 )   (560 )
Non-GAAP general and administrative expense $ 2,703   $ 3,226   $ 2,780   $ 2,924   $ 3,155   $ 3,654   $ 2,851   $ 2,706  

               
 
Glu Mobile Inc.
Non-GAAP Adjusted EBITDA
(in thousands, except per share data)
(unaudited)
For the Three Months Ended
March 31,
2011
June 30,
2011
September 30,
2011
December 31,
2011
March 31,
2012
June 30,
2012
September 30,
2012
December 31,
2012
 
GAAP net loss $ (3,172 ) $ (1,752 ) $ (6,158 ) $ (10,019 ) $ (6,841 ) $ (2,988 ) $ (3,563 ) $ (7,067 )
Change in deferred revenues and amortization of in-process development contracts 735 234 880 4,877 50 551 (188 ) (150 )
Change in deferred royalty expense 33 20 1 (99 ) 60 67 (30 ) (121 )
Amortization of intangible assets 817 703 2,705 2,047 1,248 1,427 1,520 1,568
Depreciation 427 406 470 543 562 556 554 696
Stock-based compensation 397 505 838 1,370 3,836 3,038 (2,878 ) 1,826
Change in fair value of Blammo earnout - - (178 ) 117 645 386 (954 ) 90
Transitional costs - - 981 326 173 30 192 94
Impairment of goodwill - - - - - - 3,613 -
Restructuring charge 490 147 - (92 ) - 320 213 838
Foreign currency exchange loss/(gain) (198 ) (363 ) (344 ) 116 373 (205 ) 460 (263 )
Interest and other (income)/expense, net 18 34 - (10 ) (7 ) (5 ) (5 ) (1 )
Income tax provision/(benefit)   774     501     (813 )   152     440     (2,019 )   (1,075 )   660  
Total Non-GAAP Adjusted EBITDA $ 321   $ 435   $ (1,618 ) $ (672 ) $ 539   $ 1,158   $ (2,141 ) $ (1,830 )

In addition to the reasons stated above, which are generally applicable to each of the items Glu excludes from its non-GAAP financial measures, Glu believes it is appropriate to exclude certain items for the following reasons:

Change in Deferred Revenue and Royalties. At the date we sell certain premium games and micro-transactions, Glu has an obligation to provide additional services and incremental unspecified digital content in the future without an additional fee. In these cases, we recognize the revenue and any associated royalty expense on a straight-line basis over the estimated life of the user. Internally, Glu’s management excludes the impact of the changes in deferred revenue and royalties related to its premium and freemium games in its non-GAAP financial measures when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Glu believes that excluding the impact of the changes in deferred revenue and royalties from its operating results is important to facilitate comparisons to prior periods during which Glu did not delay the recognition of significant amounts of revenue related to its games and to understand Glu’s operations.

Amortization of In-Process Development Contracts. In conjunction with the Griptonite acquisition, Glu assumed the remaining obligations to perform services under Griptonite’s development contracts. The estimated fair value of the future, excess profits from these contracts was recorded in purchase accounting and is amortized as a reduction to revenue as services are performed. When analyzing the operating performance of an acquired entity, Glu’s management focuses on the total return provided by the investment without taking into consideration any fair value adjustments made for accounting purposes. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both the consideration paid and to the intangible assets (including goodwill) acquired, when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of any adjustments to the fair value of these acquisition-related balances to its financial results. Glu believes that excluding the impact of the amortization of the customer contract value from its operating results is important as they do not reflect its ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes these charges.

Amortization of Intangible Assets. When analyzing the operating performance of an acquired entity, Glu's management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, Glu's management excludes the GAAP impact of acquired intangible assets to its financial results. Glu believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.

Stock-Based Compensation Expense. Glu adopted ASC 718, "Compensation – Stock Compensation" beginning in its fiscal year ended December 31, 2006. Included in the stock compensation expense is the contingent consideration potentially issuable to the Blammo employees who were former shareholders of Blammo, which is recorded as research and development expense over the term of the earn-out periods, since these employees are primarily employed in product development. Glu re-measures the fair value of the contingent consideration each reporting period and only records a compensation expense for the portion of the earn-out target which is likely to be achieved. In addition, Glu is exposed to potential continued fluctuations in the fair market value of the contingent consideration in each reporting period, since re-measurement is impacted by changes in Glu’s share price and the assumptions used by Glu. When evaluating the performance of its consolidated results, Glu does not consider stock-based compensation charges. Likewise, Glu's management team excludes stock-based compensation expense from its short and long-term operating plans. In contrast, Glu's management team is held accountable for cash-based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, Glu places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants. Glu believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its business.

Restructuring Charges. Glu undertook restructuring activities in the first, second and fourth quarters of 2011 and the second, third and fourth quarters of 2012 and recorded (1) a non-cash restructuring charge due to vacating a portion of its offices in Russia, (2) cash restructuring charges due to the termination of certain employees in its Brazil, China, Europe, Russia and U.S. offices and (3) non-cash adjustments related to initial, estimated restructuring payments no longer deemed payable. Glu recorded the severance costs as an operating expense when it communicated the benefit arrangement to the employee and no significant future services, other than a minimum retention period, were required of the employee to earn the termination benefits. Glu believes that these restructuring charges do not reflect its ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes these charges.

Change in Fair Value of Blammo Earnout. As part of the acquisition of Blammo, Glu committed to issue additional consideration in the form of Glu’s common stock to the former, non-employee Blammo shareholders if certain revenue targets are achieved. Glu recorded the estimated contingent consideration liability at acquisition and will adjust the fair value of the liability each reporting period. When analyzing the operating performance of an acquired entity, Glu’s management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid including the final amounts paid for contingent consideration) without taking into consideration any expenses recognized post-acquisition related to the change in fair value of the contingent consideration. Because the final purchase price paid for an acquisition necessarily reflects the accounting value assigned to both the consideration, including the contingent consideration, paid and to the intangible assets (including goodwill) acquired, when analyzing the operating performance of an acquisition in subsequent periods, the Company’s management excludes the GAAP impact of any adjustments to the fair value of these acquisition-related balances to its financial results. Glu believes that the fair value adjustments affect comparability from period to period and that investors benefit from a supplemental non-GAAP financial measure that excludes these charges.

Transitional Costs. GAAP requires expenses to be recognized for various types of events associated with a business acquisition such as legal, accounting and other deal related expenses. Additionally, Glu has incurred various costs related to the transition and integration of Blammo, GameSpy and Griptonite into Glu’s operations. Glu recorded these non-recurring acquisition and transitional costs as operating expenses when they were incurred. Glu believes that these acquisition and transitional costs affect comparability from period to period and that investors benefit from a supplemental non-GAAP financial measure that excludes these expenses.

Impairment of Goodwill. In accordance with ASC 350 “Goodwill and Other Intangible Assets” Glu performs its annual goodwill impairment test as of September 30. Glu recorded a goodwill impairment charge in the third quarter of 2012 as the fair value of one of its three reporting units was determined to be below its carrying value. As this impairment is non-recurring, Glu believes it does not reflect the Company’s ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes this impairment, enabling them to compare the Company’s core operating results in different periods without this variability.

Release of tax liabilities. In the second quarter of 2012, Glu recorded a one-time, non-cash income tax benefit related to the release of certain foreign income tax liabilities upon the expiration of the statute of limitations. Glu believes that this one-time tax benefit does not reflect its ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes this benefit.

Foreign currency exchange gains and losses. Foreign currency exchange gains and losses represent the net gain or loss that Glu has recorded for the impact of currency exchange rate movements on cash and other assets and liabilities denominated in foreign currencies related to the revaluation of assets and liabilities. Accordingly, foreign currency exchange gains and losses are generally unpredictable and can cause Glu’s reported results to vary significantly. Due to the unusual magnitude of these gains and losses, and the fact that Glu has not engaged in hedging or taken other actions to reduce the likelihood of incurring a sizeable net gain or loss in future periods, Glu began, with the quarter ended December 31, 2008, to present non-GAAP net loss and net loss per share excluding foreign exchange gains and losses for comparability purposes. Glu believes that these gains and losses do not reflect its ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes these items, enabling investors to compare Glu’s core operating results in different periods without this variability. Foreign exchange gains/(losses) recognized during 2011 and 2012 were as follows (in thousands):

March 31, 2011   $ 198
June 30, 2011 363
September 30, 2011 344
December 31, 2011   (116 )
FY 2011 $ 789
 
March 31, 2012 $ (373 )
June 30, 2012 $ 205
September 30, 2012 $ (460 )
December 31, 2012 $ 263  
FY 2012 $ (365 )

Contacts

Media & Investor Relations:
ICR, Inc.
Seth Potter, 646-277-1230
ir@glu.com

Recent Stories

RSS feed for Glu Mobile Inc.

Glu Mobile Inc.