Category: Uncategorised

Glu Reports Fourth Quarter and Full Year 2015 Financial Results

    Q4 non-GAAP revenue of $57.9 million and Q4 GAAP revenue of $61.0 million
    Q4 Adjusted EBITDA of $2.8 million
    Announced exclusive partnerships with Taylor Swift and Gordon Ramsay
    Approximately 1.3 billion total social followers* of celebrities with whom the company has exclusive partnerships; titles featuring these celebrities expected live by end of 2017
    Investment in and option to acquire Plain Vanilla Corp., developer of hit trivia game QuizUp
    Approved a stock repurchase program to potentially repurchase up to $50 million of Glu’s common stock

SAN FRANCISCO-- Glu Mobile Inc. (GLUU), a leading global developer and publisher of free-to-play games for smartphone and tablet devices, today announced financial results for its fourth quarter and full year ended December 31, 2015.

“Our ability to exceed revenue and EBITDA expectations in Q4 was driven by the ongoing traction of our catalog titles, including the continued solid performance of Kim Kardashian: Hollywood, Cooking Dash 2016, Racing Rivals and Deer Hunter 2016,” stated Niccolo de Masi, Chairman and Chief Executive Officer of Glu. “During the quarter we hired new studio leadership, with Tim Wilson joining as our Global CTO and Nick Earl as our President of Global Studios. Nick and Tim have hit the ground running and have already begun evolving our global studios. We anticipate that our global studio improvements will significantly enhance Glu’s product delivery on a go forward basis.”

de Masi continued, “I am pleased that Glu has extended our lead in building the premier celebrity gaming platform via a multi-year, exclusive gaming partnership with Taylor Swift. Swift is the most followed woman in the world with over 220 million social followers and a powerful addition to our celebrity gaming partnerships which now total approximately 1.3 billion social followers*. The strength of our catalog, new launch roadmap, and strong balance sheet, positions Glu for growth in 2016 and beyond.”

Fourth Quarter 2015 Financial Highlights:

  • Revenue: Total GAAP revenue was $61.0 million in the fourth quarter of 2015 compared to $72.9 million in the fourth quarter of 2014. Total non-GAAP revenue was $57.9 million in the fourth quarter of 2015, compared to $76.2 million in the fourth quarter of 2014. Non-GAAP revenue excludes changes in deferred revenue and litigation settlement proceeds.
  • Gross Margin: GAAP gross margin was 58% in the fourth quarter of 2015 compared to 56% in the fourth quarter of 2014. Non-GAAP gross margin was 63% in the fourth quarter of 2015 compared to 61% in the fourth quarter of 2014. Non-GAAP gross margin excludes changes in deferred revenue and litigation settlement proceeds, change in deferred cost of revenue, amortization of intangible assets and non-cash warrant expense.
  • GAAP Operating Income/(Loss): GAAP operating loss was $(3.1) million in the fourth quarter of 2015 compared to income of $5.1 million in the fourth quarter of 2014.
  • Non-GAAP Operating Income: Non-GAAP operating income was $2.1 million in the fourth quarter of 2015 compared to $13.5 million during the fourth quarter of 2014. Non-GAAP operating income excludes changes in deferred revenue and deferred cost of revenue, amortization of intangible assets, non-cash warrant expense, stock-based compensation expense, restructuring charges, change in fair value of the Blammo earnout, transitional costs and litigation costs and settlement proceeds.
  • Adjusted EBITDA: Adjusted EBITDA was $2.8 million for the fourth quarter of 2015, compared to $14.1 million during the fourth quarter of 2014. Adjusted EBITDA is defined as non-GAAP operating income excluding depreciation.
  • GAAP Net Income/(Loss) and EPS: GAAP net loss was $(3.0) million for the fourth quarter of 2015 compared to net income of $1.4 million for the fourth quarter of 2014. GAAP EPS loss was $(0.02) for the fourth quarter of 2015, based on 127.8 million weighted-average basic shares outstanding, compared to a GAAP diluted EPS of $0.01 for the fourth quarter of 2014, based on 107.0 million diluted weighted-average shares outstanding.
  • Non-GAAP Net Income and EPS: Non-GAAP net income was $2.3 million for the fourth quarter of 2015 compared to $12.2 million for the fourth quarter of 2014. Non-GAAP diluted EPS was $0.02 for the fourth quarter of 2015 based on 129.4 million weighted-average diluted shares outstanding, compared to non-GAAP diluted EPS of $0.11 for the fourth quarter of 2014 based on 107.0 million weighted-average diluted shares outstanding.
  • Cash and Cash Flows: As of December 31, 2015, Glu had cash and cash equivalents of $180.5 million compared to $182.3 million at the end of the prior quarter. The company continues to have no debt. Cash flows generated from operations were $139,000 for the fourth quarter of 2015 compared to $19.3 million for the fourth quarter of 2014.

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 “Use of Non-GAAP Financial Measures.”

Recent Developments and Strategic Initiatives:

  • Today, we announced a multi-year, exclusive mobile gaming partnership with Taylor Swift, an award-winning singer, musician and song writer.
  • In January 2016, we announced the exclusive partnership with award-winning chef Gordon Ramsay on the development of a new mobile game that is currently slated for global release during the summer of 2016.
  • In January 2016, we announced an investment in QuizUp developer Plain Vanilla Corp. We also have a call option to acquire Plain Vanilla Corp. for 15 months from the closing of the initial investment at a pre-agreed price.
  • In January 2016, we acquired a minority equity stake and entered into a publishing agreement with Dairy Free Games.

In addition, our Board of Directors has formally approved a stock repurchase program under which we may repurchase up to $50 million of our outstanding common stock. We currently intend to enter into a Rule 10b5-1 trading plan in order to facilitate this program, under which we may repurchase shares without suspension for trading blackout periods. The repurchase program may be suspended, discontinued or modified in compliance with applicable securities laws.

“Our solid fourth quarter results were highlighted by our ability to exceed our revenue expectations,” stated Eric R. Ludwig, Chief Operating Officer and Chief Financial Officer. “Glu remains committed to enhancing the long-term value of the company through the ongoing investment in internal and external opportunities supported by our strong balance sheet.”

Fiscal 2015 Financial Highlights:

  • Revenues: Total GAAP revenues were $249.9 million for the year ended December 31, 2015 compared to $223.1 million for the year ended December 31, 2014. Total non-GAAP revenues were $242.2 million for the year ended December 31, 2015 compared to $241.8 million for the year ended December 31, 2014.
  • Gross Margin: GAAP gross margin was 57% for the year ended December 31, 2015 compared to 62% for the year ended December 31, 2014. Non-GAAP gross margin was 62% for the year ended December 31, 2015 compared to 63% for the year ended December 31, 2014.
  • GAAP Operating Income/(Loss): GAAP operating loss was $(6.3) million for the year ended December 31, 2015 compared to operating income of $2.1 million for the year ended December 31, 2014.
  • Non-GAAP Operating Income: Non-GAAP operating income was $13.9 million for the year ended December 31, 2015 compared to $32.6 million for the year ended December 31, 2014.
  • Adjusted EBITDA: Adjusted EBITDA was $16.8 million for the year ended December 31, 2015 compared to $35.1 million for the year ended December 31, 2014.
  • GAAP Net Income/(Loss) and EPS: GAAP net loss was $(7.2) million for the year ended December 31, 2015 compared to net income of $8.1 million for the year ended December 31, 2014. GAAP EPS loss was $(0.06) for the year ended December 31, 2015, based on 118.8 million weighted-average basic shares outstanding, compared to $0.08 for the year ended December 31, 2014, based on 96.9 million weighted-average diluted shares outstanding.
  • Non-GAAP Net Income and EPS: Non-GAAP net income was $13.8 million for the year ended December 31, 2015 compared to $33.3 million for the year ended December 31, 2014. Non-GAAP EPS was $0.11 for the year ended December 31, 2015 based on 122.8 million weighted-average diluted shares outstanding, compared $0.34 for the year ended December 31, 2014 based on 96.9 million weighted-average diluted shares outstanding.
  • Cash Flows Generated/(Used) from Operations: Cash flows used in operations were $(14.0) million for the year ended December 31, 2015 compared to cash flows generated from operations of $30.6 million for the year ended December 31, 2014.

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.”

Business Outlook as of February 3, 2016:

The following forward-looking statements reflect expectations as of February 3, 2016. 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; our ability to improve the monetization of our titles and continue to successfully launch and update new games; development delays on Glu's products; continued uncertainty in the global economic environment; competition in the industry; storefront featuring; 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, 2016:

  • Non-GAAP revenue is expected to be between $46.0 million and $48.0 million.
  • Non-GAAP gross margin is expected to be approximately 59.9%.
  • Non-GAAP operating expenses are expected to be between $35.2 million and $35.4 million.
  • Adjusted EBITDA, defined as non-GAAP operating income/(loss) excluding depreciation of approximately $0.6 million, is expected to range from a loss of $(6.0) million to $(7.0) million.
  • Income tax is expected to be an expense of approximately $0.2 million.
  • Non-GAAP net income/(loss) is expected to be between $(6.8) million and $(7.8) million, or between $(0.05) and $(0.06) per weighted-average basic share outstanding, which excludes approximately $4.1 million of anticipated stock-based compensation expense and $2.4 million for amortization of intangibles.
  • Weighted-average common shares outstanding are expected to be approximately 129.5 million basic and 129.9 million diluted.

2016 Expectations – Full Year Ending December 31, 2016:

  • Non-GAAP revenue is expected to be between $250.0 million and $275.0 million.
  • Non-GAAP gross margin is expected to be approximately 56.2%.
  • Adjusted EBITDA is expected to range from a loss of $(7.0) million to $(15.0) million.
  • Non-GAAP net income/(loss) is expected to be between a loss of $(10.3) million and $(18.3) million, or between $(0.08) and $(0.14) per weighted-average basic share outstanding, which excludes approximately $17.7 million of anticipated stock-based compensation expense and $9.2 million for amortization of intangibles.
  • Weighted-average common shares outstanding are expected to be approximately 132.2 million basic and 134.7 million diluted.
  • We expect to have cash and short-term investments at December 31, 2016 of at least $140.0 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 (866) 582-8907, or if outside the U.S., (760) 298-5046, with conference ID # 22306718 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 3, 2016, and 8:59 p.m. Pacific Time, February 10, 2016, by calling (855) 859-2056, or (404) 537-3406, with conference ID # 22306718.

Disclosure Using Social Media Channels and Calculation of Social Followers

Glu currently announces material information to its investors using SEC filings, press releases, public conference calls and webcasts. Glu uses these channels as well as social media channels to announce information about the company, games, employees and other issues. Given SEC guidance regarding the use of social media channels to announce material information to investors, Glu is notifying investors, the media, its players and others interested in the company that in the future, it might choose to communicate material information via social media channels or, it is possible that information it discloses through social media channels may be deemed to be material. Therefore, Glu encourages investors, the media, players and others interested in Glu to review the information posted on the company forum (http://ggnbb.glu.com/forum.php) and the company Facebook site (https://www.facebook.com/glumobile), the company twitter account (https://twitter.com/glumobile) and Mr. de Masi’s twitter account (https://twitter.com/niccolodemasi). Investors, the media, players or other interested parties can subscribe to the company blog and twitter feed and Mr. de Masi’s twitter feed at the addresses listed above. Any updates to the list of social media channels Glu will use to announce material information will be posted on the Investor Relations page of the company's website at www.glu.com/investors.

*Glu calculates the aggregate number of social followers of a particular celebrity licensor by adding the total followers on Facebook, Twitter, Instagram, Vevo and Vine for such celebrity. There is fan overlap among these social channels and among Glu’s various celebrity licensors, and such aggregate numbers have not been deduplicated.

The approximately 1.3 billion total social followers supporting celebrity titles that Glu expects to be live by the end of 2017 is based on the combined Facebook, Twitter, Instagram, Vevo, and Vine audiences of Taylor Swift, Gordon Ramsay, Katy Perry, Kim Kardashian West, Kendall and Kylie Jenner, Britney Spears, Nicki Minaj, Jason Statham and additional yet-to-be announced celebrities as of February 3, 2016.

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 revenue, non-GAAP smartphone revenue, non-GAAP cost of revenue, non-GAAP operating expenses, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income/(loss), non-GAAP net income/(loss) and non-GAAP basic and diluted net income/(loss) per share. These non-GAAP financial measures exclude the following items from Glu's unaudited consolidated statements of operations:

  • Change in deferred revenue and deferred cost of revenue;
  • Amortization of intangible assets;
  • Non-cash warrant expense;
  • Stock-based compensation expense;
  • Restructuring charges;
  • Change in fair value of Blammo earnout;
  • Litigation settlement proceeds and costs;
  • Transitional costs;
  • Release of tax liabilities and valuation allowance; 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. Adjusted EBITDA is defined as non-GAAP operating income/(loss) excluding depreciation. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by non-GAAP revenue.

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 3, 2016” (“First Quarter Expectations – Quarter Ending March 31, 2016” and “2016 Expectations – Full Year Ending December 31, 2016”), and the statements regarding that we have exclusive partnerships with celebrities with approximately 1.3 billion social followers and expect games featuring these celebrities to be live by the end of 2017; that we anticipate that our global studio improvements will significantly enhance our ability to deliver product quality on a go forward basis; that we extended our lead in building the premier celebrity gaming platform via a multi-year exclusive gaming partnership with a new celebrity partner that is a powerful addition to our celebrity gaming partnerships; that the strength of our catalog, new launch roadmap, and strong balance sheet, positions us for growth in 2016 and beyond; the expected launch date of the game we are developing featuring Gordon Ramsay; our intention to implement a stock repurchase program and to enter into a Rule 10b5-1 trading plan as part of such efforts; and that we remain committed to enhancing the long-term value of the company through the ongoing investment in internal and external opportunities supported by our strong balance sheet. 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 3, 2016"; the risk that our global studio improvements will not improve our ability to deliver to date and quality; the risk that Glu does not realize the anticipated strategic benefits from our celebrity partnerships, including our partnerships with our newly announced celebrity partners; the risk that the number of social followers of our celebrity partners does not correlate to strong performance for our celebrity titles; 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 free-to-play 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 or decline in popularity and monetization rate more quickly than we anticipate; 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 free-to-play gaming, is smaller than anticipated; the risk that we may lose a key intellectual property license; the risk that we are unable to recruit and retain qualified personnel for developing and maintaining the games in our product pipeline resulting in reduced monetization of a game, product launch delays or games being eliminated from our pipeline altogether; the risk that the timing and amount of any shares repurchased by the company in its stock repurchase program will be determined by Glu’s management based on its evaluation of market conditions and other factors and, as a result, the company may determine to repurchase a smaller amount of shares than anticipated, or none at all; and other risks detailed under the caption "Risk Factors" in our Form 10-Q filed with the Securities and Exchange Commission on November 9, 2015 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.

About Glu Mobile

Glu Mobile (GLUU) is a leading global developer and publisher of free-to-play games for smartphone and tablet devices. Glu is focused on creating compelling original IP games such as CONTRACT KILLER, COOKING DASH, DEER HUNTER, DINER DASH, DINO HUNTER: DEADLY SHORES, ETERNITY WARRIORS, FRONTLINE COMMANDO, RACING RIVALS, TAP SPORTS BASEBALL, and TAP SPORTS FOOTBALL, and branded IP games including KIM KARDASHIAN: HOLLYWOOD, KATY PERRY POP, JAMES BOND: WORLD OF ESPIONAGE, MISSION IMPOSSIBLE: ROGUE NATION and SNIPER X WITH JASON STATHAM on the App Store, Google Play, Amazon Appstore, Facebook, Mac App Store, and Windows Phone. 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 major U.S. offices outside Seattle and in Long Beach, and international locations in Canada, China, India, Japan, Korea, 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.

CONTRACT KILLER, COOKING DASH, DEER HUNTER, DINER DASH, DINO HUNTER: DEADLY SHORES, ETERNITY WARRIORS, FRONTLINE COMMANDO, RACING RIVALS, TAP SPORTS BASEBALL, TAP SPORTS FOOTBALL, SNIPER X, GLU, GLU MOBILE, and the 'g' character logo are trademarks of Glu Mobile Inc.

           
Glu Mobile Inc.          
Consolidated Balance Sheets          
(in thousands)          
(unaudited)          
    December 31,   December 31,  
    2015   2014  
           
ASSETS          
Cash and cash equivalents   $ 180,542     $ 70,912    
Accounts receivable, net     17,956       32,231    
Prepaid royalties     28,715       864    
Prepaid expenses and other current assets     14,657       17,388    
Total current assets     241,870       121,395    
           
Property and equipment, net     5,447       6,116    
Restricted cash     1,498       1,990    
Long-term prepaid royalties     46,944       5,870    
Other long-term assets     1,386       804    
Intangible assets, net     17,767       27,524    
Goodwill     87,890       87,964    
Total assets   $ 402,802     $ 251,663    
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Accounts payable   $ 9,145     $ 11,685    
Accrued liabilities     1,654       3,812    
Accrued compensation     7,100       10,751    
Accrued royalties     21,032       12,440    
Accrued restructuring     342       -    
Deferred revenue     31,112       37,333    
Total current liabilities     70,385       76,021    
Long-term accrued royalties     24,347       870    
Other long-term liabilities     1,642       3,066    
Total liabilities     96,374       79,957    
           
Common stock     13       11    
Additional paid-in capital     557,748       415,766    
Accumulated other comprehensive loss     (85 )     (8 )  
Accumulated deficit     (251,248 )     (244,063 )  
Stockholders' equity     306,428       171,706    
Total liabilities and stockholders' equity   $ 402,802     $ 251,663    
                   
                   
Glu Mobile Inc.                  
Condensed Consolidated Statements of Operations                  
(in thousands, except per share data)                  
(unaudited)                  
    Three Months Ended   Twelve Months Ended  
    December 31,   December 31,   December 31,   December 31,  
    2015   2014   2015   2014  
                   
Revenue   $ 61,030     $ 72,865     $ 249,900     $ 223,146    
                   
Cost of revenue:                  
Platform commissions, royalties and other     23,109       29,625       98,184       80,992    
Amortization of intangible assets     2,325       2,434       9,553       4,767    
Total cost of revenue     25,434       32,059       107,737       85,759    
Gross profit     35,596       40,806       142,163       137,387    
                   
Operating expenses:                  
Research and development     20,001       16,053       72,856       64,284    
Sales and marketing     10,729       12,275       48,240       45,076    
General and administrative     6,838       7,154       26,092       25,019    
Amortization of intangible assets     11       127       201       508    
Restructuring charge     1,075       67       1,075       435    
Total operating expenses     38,654       35,676       148,464       135,322    
                   
Income/(loss) from operations     (3,058 )     5,130       (6,301 )     2,065    
                   
Interest income and other expense, net:                  
Interest income     15       10       49       30    
Other expense     (149 )     (988 )     (792 )     (1,502 )  
Interest income and other expense, net     (134 )     (978 )     (743 )     (1,472 )  
                   
Income/(loss) before income taxes     (3,192 )     4,152       (7,044 )     593    
Income tax benefit/(provision)     234       (2,773 )     (141 )     7,555    
Net income/(loss)   $ (2,958 )   $ 1,379     $ (7,185 )   $ 8,148    
                   
Net income/(loss) per share:                  
Basic   $ (0.02 )   $ 0.01     $ (0.06 )   $ 0.09    
Diluted   $ (0.02 )   $ 0.01     $ (0.06 )   $ 0.08    
                   
Weighted average common shares outstanding                  
Basic     127,775       103,406       118,775       91,826    
Diluted     127,775       106,954       118,775       96,922    
                   
Stock-based compensation expense included in:                  
Research and development   $ 1,099     $ 736     $ 3,563     $ 7,422    
Sales and marketing     305       209       1,082       701    
General and administrative     2,065       1,189       7,041       3,510    
Total stock-based compensation expense   $ 3,469     $ 2,134     $ 11,686     $ 11,633    
                                   
                                   
Glu Mobile Inc.                                  
GAAP to Non-GAAP Reconciliation                                  
(in thousands, except per share data)                                  
(unaudited)                                  
    For the Three Months Ended  
    March 31,   June 30,   September 30,   December 31,   March 31,   June 30,   September 30,   December 31,  
    2014   2014   2014   2014   2015   2015   2015   2015  
                                   
GAAP revenue   $ 44,580     $ 40,910     $ 64,791     $ 72,865     $ 69,470     $ 56,150     $ 63,250     $ 61,030    
Change in deferred revenue and litigation settlement proceeds     2,377       (5,874 )     18,762       3,363       (7,023 )     1,329       1,174       (3,135 )  
Non-GAAP revenue     46,957       35,036       83,553       76,228       62,447       57,479       64,424       57,895    
                                   
GAAP gross profit     30,824       28,037       37,720       40,806       40,726       32,396       33,445       35,596    
Change in deferred revenue and litigation settlement proceeds     2,377       (5,874 )     18,762       3,363       (7,023 )     1,329       1,174       (3,135 )  
Amortization of intangible assets     554       441       1,338       2,434       2,434       2,434       2,360       2,325    
Non-cash warrant expense     -       -       1,126       66       93       135       1,896       (116 )  
Change in deferred platform commissions and royalty expense     (1,209 )     1,527       (9,122 )     (108 )     2,819       (321 )     (780 )     1,497    
Non-GAAP gross profit     32,546       24,131       49,824       46,561       39,049       35,973       38,095       36,167    
                                   
GAAP operating expense     30,117       31,703       37,826       35,676       38,214       38,540       33,056       38,654    
Stock-based compensation     (2,979 )     (4,566 )     (1,954 )     (2,134 )     (2,129 )     (3,032 )     (3,056 )     (3,469 )  
Amortization of intangible assets     (127 )     (127 )     (127 )     (127 )     (127 )     (32 )     (31 )     (11 )  
Litigation costs and settlement proceeds     -       -       -       -       -       (476 )     390       -    
Transitional costs     -       (682 )     (493 )     (255 )     (72 )     -       -       -    
Change in fair value of Blammo earnout     (304 )     (531 )     -       -       -       -       -       -    
Restructuring charge     -       (159 )     (209 )     (67 )     -       -       -       (1,075 )  
Non-GAAP operating expense     26,707       25,638       35,043       33,093       35,886       35,000       30,359       34,099    
                                   
GAAP operating income/(loss)     707       (3,666 )     (106 )     5,130       2,512       (6,144 )     389       (3,058 )  
Change in deferred revenue and litigation settlement proceeds     2,377       (5,874 )     18,762       3,363       (7,023 )     1,329       1,174       (3,135 )  
Non-GAAP cost of revenue adjustment     (655 )     1,968       (6,658 )     2,392       5,346       2,248       3,476       3,706    
Stock-based compensation     2,979       4,566       1,954       2,134       2,129       3,032       3,056       3,469    
Amortization of intangible assets     127       127       127       127       127       32       31       11    
Transitional costs     -       682       493       255       72       -       -       -    
Change in fair value of Blammo earnout     304       531       -       -       -       -       -       -    
Litigation costs and settlement proceeds     -       -       -       -       -       476       (390 )     -    
Restructuring charge     -       159       209       67       -       -       -       1,075    
Non-GAAP operating income/(loss)     5,839       (1,507 )     14,781       13,468       3,163       973       7,736       2,068    
                                   
GAAP net income/(loss)     133       (3,768 )     10,404       1,379       1,124       (5,509 )     158       (2,958 )  
Change in deferred revenue and litigation settlement proceeds     2,377       (5,874 )     18,762       3,363       (7,023 )     1,329       1,174       (3,135 )  
Non-GAAP cost of revenue adjustment     (655 )     1,968       (6,658 )     2,392       5,346       2,248       3,476       3,706    
Non-GAAP operating expense adjustment     3,410       6,065       2,783       2,583       2,328       3,540       2,697       4,555    
Foreign currency exchange loss     136       31       347       981       290       186       167       149    
Release of tax liabilities and valuation allowance     -       -       (8,352 )     1,531       -       -       -       -    
Non-GAAP net income/(loss)   $ 5,401     $ (1,578 )   $ 17,286     $ 12,229     $ 2,065     $ 1,794     $ 7,672     $ 2,317    
                                   
Reconciliation of net income/(loss) and net income/(loss) per share:                          
GAAP net income/(loss) per share - basic   $ 0.00     $ (0.04 )   $ 0.11     $ 0.01     $ 0.01     $ (0.05 )   $ 0.00     $ (0.02 )  
GAAP net income/(loss) per share - diluted   $ 0.00     $ (0.04 )   $ 0.10     $ 0.01     $ 0.01     $ (0.05 )   $ 0.00     $ (0.02 )  
Non-GAAP net income/(loss) per share - basic   $ 0.07     $ (0.02 )   $ 0.18     $ 0.12     $ 0.02     $ 0.02     $ 0.06     $ 0.02    
Non-GAAP net income/(loss) per share - diluted   $ 0.06     $ (0.02 )   $ 0.16     $ 0.11     $ 0.02     $ 0.01     $ 0.06     $ 0.02    
Shares used in computing Non-GAAP basic net income/(loss) per share     79,719       85,549       98,628       103,406       103,869       116,169       127,287       127,775    
Shares used in computing Non-GAAP diluted net income/(loss) per share     85,398       85,549       105,438       106,954       107,851       122,538       131,486       129,381    
                                   
Non-GAAP operating expense break-out:                          
GAAP research and development expense   $ 15,579     $ 17,297     $ 15,355     $ 16,053     $ 18,243     $ 18,308     $ 16,304     $ 20,001    
Transitional costs     -       (20 )     -       -       -       -       -       -    
Stock-based compensation     (2,317 )     (3,605 )     (764 )     (736 )     (760 )     (836 )     (868 )     (1,099 )  
Non-GAAP research and development expense     13,262       13,672       14,591       15,317       17,483       17,472       15,436       18,902    
                                   
GAAP sales and marketing expense     9,485       7,989       15,327       12,275       12,438       12,771       12,302       10,729    
Stock-based compensation     (101 )     (190 )     (201 )     (209 )     (218 )     (282 )     (277 )     (305 )  
Non-GAAP sales and marketing expense     9,384       7,799       15,126       12,066       12,220       12,489       12,025       10,424    
                                   
GAAP general & administrative expense     4,926       6,131       6,808       7,154       7,406       7,429       4,419       6,838    
Transitional costs     -       (662 )     (493 )     (255 )     (72 )     -       -       -    
Change in fair value of Blammo earnout     (304 )     (531 )     -       -       -       -       -       -    
Stock-based compensation     (561 )     (771 )     (989 )     (1,189 )     (1,151 )     (1,914 )     (1,911 )     (2,065 )  
Litigation costs     -       -       -       -       -       (476 )     390       -    
Non-GAAP general and administrative expense   $ 4,061     $ 4,167     $ 5,326     $ 5,710     $ 6,183     $ 5,039     $ 2,898     $ 4,773    
                                                                   
                                   
Glu Mobile Inc.                                  
Non-GAAP Adjusted EBITDA                                  
(in thousands)                                  
(unaudited)                                  
   

For the Three Months Ended

 
    March 31,   June 30,   September 30,   December 31,   March 31,   June 30,   September 30,   December 31,  
    2014   2014   2014   2014   2015   2015   2015   2015  
                                   
                                   
GAAP net income/(loss)   $ 133     $ (3,768 )   $ 10,404     $ 1,379     $ 1,124     $ (5,509 )   $ 158     $ (2,958 )  
Change in deferred revenue and litigation settlement proceeds     2,377       (5,874 )     18,762       3,363       (7,023 )     1,329       1,174       (3,135 )  
Change in deferred platform commissions and royalty expense     (1,209 )     1,527       (9,122 )     (108 )     2,819       (321 )     (780 )     1,497    
Non-cash warrant expense     -       -       1,126       66       93       135       1,896       (116 )  
Amortization of intangible assets     681       568       1,465       2,561       2,561       2,466       2,391       2,336    
Depreciation     620       607       617       669       706       732       718       706    
Stock-based compensation     2,979       4,566       1,954       2,134       2,129       3,032       3,056       3,469    
Change in fair value of Blammo earnout     304       531       -       -       -       -       -       -    
Transitional costs     -       682       493       255       72       -       -       -    
Litigation costs and settlement proceeds     -       -       -       -       -       476       (390 )     -    
Restructuring charge     -       159       209       67       -       -       -       1,075    
Foreign currency exchange loss     136       31       347       981       290       186       167       149    
Interest income and other expense     (6 )     (7 )     (7 )     (3 )     (6 )     (12 )     (15 )     (15 )  
Income tax provision/(benefit)     444       78       (10,850 )     2,773       1,104       (809 )     79       (234 )  
Total Non-GAAP Adjusted EBITDA   $ 6,459     $ (900 )   $ 15,398     $ 14,137     $ 3,869     $ 1,705     $ 8,454     $ 2,774    
                                                                   

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 Deferred Cost of Revenue. 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 cost of revenue, including platform commissions and royalties, on a straight-line basis over the estimated life of the paying user. Internally, Glu’s management excludes the impact of the changes in deferred revenue and deferred cost of revenue related to its premium and free-to-play 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 deferred cost of revenue from its operating results is important to facilitate comparisons to prior periods and to understand Glu’s operations.

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.

Non-cash Warrant Expense. In the third and fourth quarters of 2014 and the full year of 2015, Glu recorded a non-cash charge related to the vesting of warrants to purchase shares of common stock issued to brand holders as part of fourth party licensing, development and publishing arrangements. These charges were computed using the Black-Scholes valuation model and were recorded in cost of revenue. When evaluating the performance of its consolidated results, Glu does not consider non-cash warrant expense as it places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with the vesting of any warrants. As the non-cash warrant expense impacts comparability from period to period Glu believes that investors benefit from a supplemental non-GAAP financial measure that excludes these charges.

Stock-Based Compensation Expense. The Company applies the fair value provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments. Included in the stock compensation expense was the contingent consideration that was subsequently issued to the Blammo employees who were former shareholders of Blammo, which was recorded as research and development expense over the term of the earn-out periods, since these employees were primarily employed in product development. Glu re-measured the fair value of the contingent consideration each reporting period and only recorded a compensation expense for the portion of the earn-out target which was achieved. 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 second, third and fourth quarters of 2014 and the fourth quarter of 2015 and recorded cash restructuring charges due to the termination of certain employees in its China, Europe and U.S. offices. 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 were achieved. Glu recorded the estimated contingent consideration liability at acquisition and adjusted 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.

Litigation Settlement Proceeds and Costs. These proceeds and expenses consist primarily of one-time settlement payments received from, and legal fees incurred in connection with, intellectual property infringement matters. The Company has treated the settlement proceeds as a multiple element arrangement and has allocated a significant portion of the proceeds to revenue as deemed royalty revenue for the settlement of past infringement. The residual proceeds have been allocated to contra general and administrative expenses and offset legal fees incurred. The Company excludes these proceeds and costs from its non-GAAP measures as these proceeds and costs are isolated, unpredictable and not expected to recur regularly, and the Company believes that these non-recurring proceeds and costs have no direct correlation to the operation of the Company’s ongoing core business.

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. Glu has incurred various costs related to the acquisition and integration of PlayFirst and Cie Games 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.

Release of tax liabilities and valuation allowance. In the third and fourth quarters of 2014 Glu adjusted a portion of its deferred tax asset valuation allowance as a result of the deferred tax liabilities recorded in connection with the Cie Games acquisition. Glu believes that these non-recurring, one-time tax adjustments do not reflect its ongoing operations and that investors benefit from a supplemental non-GAAP financial measure that excludes these adjustments.

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 excludes 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 losses recognized during 2014 and 2015 were as follows (in thousands):

     
March 31, 2014   $ (136)
June 30, 2014     (31)
September 30, 2014     (347)
December 31, 2014     (981)
FY 2014   $ (1,495)
     
     
March 31, 2015   $ (290)
June 30, 2015     (186)
September 30, 2015     (167)
December 31, 2015     (149)
FY 2015   $ (792)
       

 

Contact:
Investor Relations:
ICR, Inc.
Seth Potter, 646-277-1230
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