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 second quarter ended June
30, 2012.
“We are very pleased with our strong execution during the second
quarter,” stated Niccolo de Masi, Chief Executive Officer of Glu.
“Our ability to grow our quarterly smartphone revenues by 111% year
over year was driven by our strength in freemium, male-oriented
games such as Deer Hunter Reloaded and Frontline Commando across
iOS, Android, and Amazon. We remain excited about our strong slate
of sequel and new franchise titles that will launch primarily
between September and December. We believe that Glu is well
positioned for strength in Q4 and beyond.
De Masi continued, “In addition, we are excited to have
completed the acquisition of GameSpy, formerly a subsidiary of IGN
Entertainment, Inc., which brings Glu industry-recognized
leadership in online, cross-platform technology infrastructure.
GameSpy’s battle-tested team will enable Glu’s product roadmap to
include robust and highly scalable multiplayer and social
functionality. We expect that GameSpy will be earnings neutral in
the near term; however, the acquisition of GameSpy is expected to
help us drive higher monetization and lifetime value in Glu’s
titles from 2013 on.”
Second Quarter 2012 Financial
Highlights:
- Revenue: Total GAAP revenue was
$23.6 million in the second quarter of 2012 compared to $17.7
million in the second quarter of 2011. Total non-GAAP revenue was
$24.2 million in the second quarter of 2012 compared to $17.9
million in the second quarter of 2011. Non-GAAP revenue excludes
changes in deferred revenue.
- Gross Margin: GAAP gross margin
was 87% in the second quarter of 2012 compared to 78% in the second
quarter of 2011. Non-GAAP gross margin was 91% in the second
quarter of 2012 compared to 83% in the second 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 $(5.2) million in the second quarter of 2012
compared to a $(1.6) million loss in the second quarter of
2011.
- Non-GAAP Operating Income:
Non-GAAP operating income was $602,000 in the second quarter of
2012 compared to $29,000 during the second quarter of 2011.
Non-GAAP operating income excludes changes in deferred revenue and
deferred royalty expense, stock-based compensation expense,
amortization of intangible assets, restructuring charges, change in
fair value of the Blammo earnout and transitional costs.
- Adjusted EBITDA: Adjusted EBITDA
was $1.2 million for the second quarter of 2012 compared to
$435,000 during the second quarter of 2011. Adjusted EBITDA is
defined as non-GAAP operating income less depreciation.
- GAAP Net Loss and EPS: GAAP net
loss was $(3.0) million for the second quarter of 2012 compared to
a GAAP net loss of $(1.8) million for the second quarter of 2011.
GAAP EPS was a loss of $(0.05) for the second quarter of 2012,
based on 63.8 million weighted-average basic shares outstanding,
compared to a loss of $(0.03) for the second quarter of 2011, based
on 54.6 million weighted-average basic shares outstanding.
- Non-GAAP Net Income/(Loss) and
EPS: Non-GAAP net income was $199,000 for the second quarter of
2012 compared to a loss of $(506,000) for the second quarter of
2011. Non-GAAP EPS was break even for the second quarter of 2012
based on 63.8 million weighted-average basic shares outstanding,
compared to a loss of $(0.01) for the second quarter of 2011 based
on 54.6 million weighted-average basic shares outstanding.
- Cash Flows Generated/ (Used) in
Operations: Cash flows generated from operations were $1.6
million for the second quarter of 2012 compared to cash flows used
in operations of $(457,000) for the second quarter of 2011.
Selected Second Quarter of 2012
Operating Highlights and Metrics:
- We launched two new freemium titles –
Lil’ Kingdom and Deer Hunter Reloaded.
- Our total GAAP smartphone revenues of
$19.9 million grew 111% from Q2 2011 and comprised 84% of total
GAAP revenues.
- Our non-GAAP smartphone revenues of
$20.4 million grew 111% from Q2 2011 and were 85% of total non-GAAP
revenues.
- Our non-GAAP freemium revenue
(micro-transactions, in-game advertising and offers) grew 151% to
$19.2 million compared to $7.7 million in Q2 2011.
Recent Developments and Strategic
Initiatives:
- We completed the acquisition of
GameSpy.
- We launched two new freemium games,
Gears & Guts and Mutant Roadkill, on the Apple App Store and
Google Play.
- We released two of our top freemium
games, Gun Bros and Contract Killer, for Xbox LIVE® for Windows
Phone.
- We announced that we were the first
third-party developer to leverage in-app purchasing on the Windows
Phone platform.
- We announced the availability of
Frontline Commando on the Mac App Store.
- We announced the availability of Deer
Hunter Reloaded, Frontline Commando, Samurai vs. Zombies Defense,
and Lil’ Kingdom on the new Nexus 7, powered by Google Android 4.1
Jelly Bean.
- We announced the availability of
Contract Killer, Gun Bros, Big Time Gangsta, Bug Village, and
Stardom: The A-List on the new Facebook App Center.
- We launched Glu Credits, the first
universal currency on the GooglePlay store which allows users
interoperability with virtual currency purchases across a growing
list of Glu titles.
- We launched Glu VIP Club, our new
Android subscription service allowing users to receive significant
bonus Glu Credit value as part of a monthly membership fee.
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.”
“Our strong second quarter results were driven by the success of
games such as Deer Hunter Reloaded, Frontline Commando and Samurai
vs. Zombies Defense,” stated Eric R. Ludwig, Glu’s Chief Financial
Officer. “We also benefitted from the timely acquisition of the
Deer Hunter brand, which resulted in our ability to achieve record
gross margins during the quarter. The combination of our better
than expected second quarter performance and increased expectation
for the year will result in our ability to end the year with more
than $21.0 million in cash.”
Business Outlook as of August 2, 2012:
The following forward-looking statements reflect expectations as
of August 2, 2012. Results may be materially different and are
affected by many factors, such as: consumer demand for mobile
entertainment and specifically Glu’s mobile products; consumer
demand for mobile handsets, including 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 and premium deck
placement; 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.
Third Quarter Expectations – Quarter Ending September 30,
2012:
- Non-GAAP revenue is expected to be
between $20.25 million and $21.25 million and non-GAAP smartphone
revenue is expected to be between $17.5 million and $18.5
million.
- Non-GAAP gross margin is expected to be
approximately 89%.
- Non-GAAP operating expenses are
expected to be approximately $22.6 million.
- Adjusted EBITDA loss, defined as
non-GAAP operating loss excluding depreciation of approximately
$600,000, is expected to range from a loss of $(3.1) million to a
loss of $(4.0) million.
- Income tax expense is expected to be
$(0.2) million.
- Non-GAAP net loss is expected to be
between $(3.9) million and $(4.8) million, or a net loss of $(0.06)
to $(0.07) per weighted-average basic share.
- Weighted average common shares
outstanding for the third quarter of 2012 are expected to be
approximately 64.5 million basic and 70.8 million diluted.
- Glu’s cash balance at September 30,
2012 is expected to be approximately $21.0 million.
2012 Expectations – Full Year Ending December 31,
2012:
- Non-GAAP revenue is expected to be
between $94.4 million and $96.4 million and non-GAAP smartphone
revenue is expected to be between $81.9 million and $83.9
million.
- We expect to achieve profitability for
non-GAAP operating income and generate cash flows from operations
in the fourth quarter of 2012.
- We expect to achieve better than break
even Adjusted EBITDA for the full year in fiscal 2012.
- Glu’s cash balance at December 31, 2012
is expected to be more than $21.5 million with no debt and we will
not need to raise debt or issue equity to support our operations in
2012.
- We expect to launch a total of 23
titles in fiscal 2012.
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
(888) 634-0559, or if outside the U.S., (817) 385-9380, with
conference ID # 10555321 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
3:10 p.m. Pacific Time, August 2, 2012, and 8:59 p.m. Pacific Time,
August 9, 2012, by calling (855) 859-2056, or (404) 537-3406, with
conference ID # 10555321.
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
freemium 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;
- 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.
2008 Equity Inducement Plan
In connection with the GameSpy acquisition, Glu issued stock
options to purchase a total of 115,500 shares of its common stock
to 13 non-executive employees of GameSpy from Glu’s 2008 Equity
Inducement Plan. The stock options have a six-year term, vest on a
four-year schedule (25% of the underlying shares vest on the first
anniversary of the employee's hire date and 2.083% of the
underlying shares vest monthly thereafter), and have an exercise
price equal to the closing price of Glu's common stock on the
NASDAQ Global Market on August 2, 2012.
Glu’s Board of Directors adopted the 2008 Equity Inducement Plan
to facilitate the granting of stock options as an inducement to new
employees to join Glu. In accordance with NASDAQ Marketplace Rule
5635(c)(iv), these awards were made under a stock incentive plan
that has not received stockholder approval. NASDAQ rules require a
public announcement of equity awards made under this type of
plan.
Cautions Regarding Forward-Looking Statements
This news release contains forward-looking statements, including
those regarding our "Business Outlook as of August 2, 2012" ("Third
Quarter Expectations – Quarter Ending September 30, 2012" and “2012
Expectations – Full Year Ending December 31, 2012”); and the
statements that GameSpy’s battle-tested team will enable Glu’s
product roadmap to include robust and highly scalable multiplayer
and social functionality; we expect that GameSpy will be earnings
neutral in the near term; the acquisition of GameSpy is expected to
help us drive higher monetization and lifetime value in Glu’s
titles from 2013 on; and the combination of our better than
expected second quarter performance and increased expectation for
the year will result in our ability to end the year with more than
$21.0 million in cash. 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 August 2, 2012";
the risk that Glu will be unable to successfully integrate GameSpy,
Griptonite and Blammo and its employees and achieve expected
synergies, the risk that Glu will have difficulty retaining key
employees of GameSpy, Griptonite and Blammo; 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 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 May 10,
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.
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 major offices outside Seattle,
and overseas in Brazil, Canada, China and Russia. Consumers can
find high-quality entertainment created exclusively for their
mobile devices 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.
BIG TIME GANGSTA, BLOOD & GLORY, BUG VILLAGE, DEER HUNTER,
FRONTLINE COMMANDO, GEARS & GUTS, GUN BROS, LIL’ KINGDOM,
MUTANT ROADKILL, SAMURAI VS ZOMBIES DEFENSE, STARDOM: THE A LIST,
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) June
30, December 31, 2012 2011
ASSETS Cash and cash equivalents $ 24,532 $ 32,212 Accounts
receivable, net 14,009 11,821 Prepaid royalties 176 483 Prepaid
expenses and other current assets 2,107 1,881
Total current assets 40,824 46,397 Property
and equipment, net 3,920 3,934 Other long-term assets 612 404
Intangible assets, net 12,427 10,078 Goodwill 22,030
21,991
Total assets $ 79,813 $ 82,804
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts
payable $ 6,165 $ 6,894 Accrued liabilities 2,174 939 Accrued
compensation 9,639 5,404 Accrued royalties 3,285 3,865 Accrued
restructuring 541 887 Deferred revenues 7,740
7,139
Total current liabilities 29,544 25,128 Other
long-term liabilities 7,736 8,503
Total liabilities 37,280 33,631
Common stock 6 6 Additional paid-in capital 264,229 260,744
Accumulated other comprehensive income (30 ) 266 Accumulated
deficit (221,672 ) (211,843 )
Stockholders'
equity 42,533 49,173
Total
liabilities and stockholders' equity $ 79,813 $ 82,804
Glu Mobile Inc. Consolidated Statements of
Operations (in thousands, except per share data)
(unaudited) Three Months Ended Six Months
Ended June 30, June 30, June 30, June
30, 2012 2011 2012 2011
Revenues $ 23,621 $ 17,680
$ 45,165 $ 34,106 Cost of
revenues: Royalties and other cost of revenues 2,137 3,121
4,694 6,961 Amortization of intangible assets 932
703 1,685 1,520
Total
cost of revenues 3,069 3,824
6,379 8,481
Gross profit 20,552
13,856 38,786
25,625 Operating expenses: Research and
development 15,697 8,439 30,730 15,605 Sales and marketing 4,701
3,344 9,076 7,101 General and administrative 4,556 3,506 8,922
6,440 Amortization of intangible assets 495 - 990 - Restructuring
charge 320 147 320
637
Total operating expenses 25,769
15,436 50,038
29,783 Loss from operations
(5,217 ) (1,580 ) (11,252
) (4,158 ) Interest and other
income/(expense), net: Interest income 10 7 21 29 Interest
expense (5 ) (32 ) (9 ) (72 ) Other income/(expense), net
205 354 (168 ) 552
Interest and other income/(expense), net
210
329 (156 )
509 Loss before income taxes
(5,007 ) (1,251 ) (11,408
) (3,649 ) Income tax benefit/(provision)
2,019 (501 ) 1,579 (1,275
)
Net loss $ (2,988 ) $
(1,752 ) $ (9,829 ) $
(4,924 ) Net loss per share - basic and
diluted $ (0.05 ) $ (0.03
) $ (0.15 ) $ (0.09
) Weighted average common shares outstanding -
basic and diluted 63,802 54,587 63,516
53,318 Stock-based compensation expense included
in: Research and development $ 2,396 $ 131 $ 5,656 $ 231 Sales
and marketing 155 94 270 160 General and administrative 487
280 948 511
Total stock-based compensation expense $ 3,038 $ 505
$ 6,874 $ 902
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, 2011
2011 2011 2011
2012 2012 GAAP
revenues Featurephone $ 10,478 $ 8,253 $ 7,248 $ 5,112 $ 4,165
$ 3,710 Smartphone 5,948 9,427
9,657
10,062 17,379
19,911
Total GAAP revenues
16,426 17,680
16,905
15,174 21,544
23,621 Change in
deferred revenues and amortization of in-process development
contracts Featurephone change in deferred revenue (63 ) (6 ) 5
(20 ) (7 ) 17 Smartphone change in deferred revenue and
amortization of in-process development contracts 798
240 875
4,897 57
534
Total change in deferred
revenues and amortization of in-process development contracts
735 234
880
4,877 50
551 Non-GAAP Revenues
Featurephone 10,415 8,247 7,253 5,092 4,158 3,727 Smartphone
6,746 9,667
10,532 14,959
17,436 20,445
Total
non-GAAP Revenues 17,161
17,914 17,785
20,051
21,594 24,172
GAAP gross profit 11,769 13,856
11,147 11,046 18,234 20,552 Change in
deferred revenues and amortization of in-process development
contracts 735 234 880 4,877 50 551 Amortization of intangible
assets 817 703 2,375 1,552 753 932 Change in deferred royalty
expense 33 20
1 (99 )
60 67
Non-GAAP gross
profit 13,354
14,813 14,403
17,376
19,097 22,102
GAAP operating expense 14,347 15,436
18,462 20,807 24,269 25,769 Stock-based
compensation (397 ) (505 ) (838 ) (1,370 ) (3,836 ) (3,038 )
Amortization of intangible assets - - (330 ) (495 ) (495 ) (495 )
Transitional costs - - (981 ) (326 ) (173 ) (30 ) Change in fair
value of Blammo earnout - - 178 (117 ) (645 ) (386 ) Restructuring
charge (490 ) (147 )
- 92
- (320 )
Non-GAAP operating
expense 13,460
14,784 16,491
18,591
19,120 21,500
GAAP operating loss (2,578 )
(1,580 ) (7,315 ) (9,761
) (6,035 ) (5,217 ) Change in
deferred revenues and amortization of in-process development
contracts 735 234 880 4,877 50 551 Non-GAAP cost of revenues
adjustment 850 723 2,376 1,453 813 999 Stock-based compensation 397
505 838 1,370 3,836 3,038 Amortization of intangible assets - - 330
495 495 495 Transitional costs - - 981 326 173 30 Change in fair
value of Blammo earnout - - (178 ) 117 645 386 Restructuring charge
490 147
- (92 ) -
320
Non-GAAP operating
income/(loss) (106 )
29 (2,088 )
(1,215 )
(23 ) 602
GAAP net loss (3,172 ) (1,752
) (6,158 ) (10,019 )
(6,841 ) (2,988 ) Change in deferred
revenues and amortization of in-process development contracts 735
234 880 4,877 50 551 Non-GAAP cost of revenues adjustment 850 723
2,376 1,453 813 999 Non-GAAP operating expense adjustment 887 652
1,971 2,216 5,149 4,269 Foreign currency exchange loss/(gain) (198
) (363 ) (344 ) 116 373 (205 ) Release of tax liabilities -
- -
- -
(2,427 )
Non-GAAP net income/(loss)
$ (898 ) $ (506
) $ (1,275 )
$ (1,357 ) $
(456 ) $ 199
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 ) Non-GAAP net
income/(loss) per share - basic and diluted $ (0.02 ) $ (0.01 ) $
(0.02 ) $ (0.02 ) $ (0.01 ) $ 0.00 Shares used in computing
Non-GAAP basic net income/(loss) per share 52,048 54,587 60,461
62,973 63,229 63,802 Shares used in computing Non-GAAP diluted net
income/(loss) per share 52,048 54,587 60,461 62,973 63,229 69,490
Non-GAAP operating expense break-out: GAAP
research and development expense $ 7,166 $
8,439 $ 10,808 $ 12,660 $
15,033 $ 15,697 Transitional costs - - (219 )
(23 ) (68 ) (1 ) Stock-based compensation (100 )
(131 ) (356 )
(800 ) (3,260 )
(2,396 )
Non-GAAP research and development expense
7,066 8,308
10,233
11,837 11,705
13,300 GAAP sales and
marketing expense 3,757 3,344 3,576
3,930 4,375 4,701 Transitional costs - - (2 )
(5 ) - - Stock-based compensation (66 )
(94 ) (96 ) (95 )
(115 ) (155 )
Non-GAAP sales
and marketing expense 3,691
3,250 3,478
3,830
4,260 4,546
GAAP general & administrative expense 2,934
3,506 3,748 3,814 4,366 4,556
Transitional costs - - (760 ) (298 ) (105 ) (29 ) Change in fair
value of Blammo earnout - - 178 (117 ) (645 ) (386 ) Stock-based
compensation (231 ) (280 )
(386 ) (475 )
(461 ) (487 )
Non-GAAP general and
administrative expense $ 2,703
$ 3,226 $
2,780 $ 2,924
$ 3,155 $
3,654
Glu Mobile
Inc. Non-GAAP Adjusted EBITDA (in thousands, except
per share data) (unaudited) For the Three Months
Ended March 31, June 30, September 30,
December 31, March 31, June 30, 2011
2011 2011 2011 2012 2012
GAAP net loss $ (3,172 ) $
(1,752 ) $ (6,158 ) $
(10,019 ) $ (6,841 ) $
(2,988 ) Change in deferred revenues and amortization
of in-process development contracts 735 234 880 4,877 50 551 Change
in deferred royalty expense 33 20 1 (99 ) 60 67 Amortization of
intangible assets 817 703 2,705 2,047 1,248 1,427 Depreciation 427
406 470 543 562 556 Stock-based compensation 397 505 838 1,370
3,836 3,038 Change in fair value of Blammo earnout - - (178 ) 117
645 386 Transitional costs - - 981 326 173 30 Restructuring charge
490 147 - (92 ) - 320 Foreign currency exchange loss/(gain) (198 )
(363 ) (344 ) 116 373 (205 ) Interest (income)/expense, net 18 25
(4 ) (10 ) (7 ) (5 ) Other non operating expense - 9 4 - - - Income
tax provision/(benefit) 774 501
(813 ) 152
440 (2,019 )
Total Non-GAAP Adjusted EBITDA $ 321
$ 435 $
(1,618 ) $ (672 )
$ 539 $
1,158
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. 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. In addition,
given Glu's adoption of ASC 718 beginning with its fiscal year
ended December 31, 2006, Glu believes that a non-GAAP financial
measure that excludes stock-based compensation will facilitate the
comparison of its year-over-year results.
Restructuring Charges. Glu undertook restructuring activities in
the first, second and fourth quarters of 2011 and the second
quarter 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 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.
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
FY 2012 $
(168)
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