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 third quarter ended
September 30, 2012.
“We are satisfied with our 73% year-over-year growth in non-GAAP
smartphone revenue. User reviews remained strong, with growth in
daily active users from July to September,” stated Niccolo de Masi,
Chief Executive Officer of Glu. “Q3 was underpinned by the strength
of newly launched Eternity Warriors 2 across iOS and Android and
the continued success of catalog titles Frontline Commando and Deer
Hunter Reloaded. As expected, both consumer adoption of new
hardware, and advertising demand, slowed over the summer in
anticipation of new device launches. These industry headwinds,
along with weaker-than-anticipated monetization from most new
launches during the quarter, resulted in a sequential decline in
smartphone revenue from Q2 2012.”
De Masi continued, “We are confident in Glu’s long-term ability
to drive higher monetization and lifetime value through the
inclusion of robust multiplayer and community functionality. The
acquisition of GameSpy and appointment of our first President of
Studios accelerate our ability to enhance average revenue per day
per daily active user. We anticipate Adjusted EBITDA improvement in
Q1 2013 from Q4 2012 guidance levels.”
Third Quarter 2012 Financial
Highlights:
- Revenue: Total GAAP revenue was
$21.3 million in the third quarter of 2012 compared to $16.9
million in the third quarter of 2011. Total non-GAAP revenue was
$21.2 million in the third quarter of 2012 compared to $17.8
million in the third 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 third quarter of 2012 compared to 66% in the third
quarter of 2011. Non-GAAP gross margin was 89% in the third quarter
of 2012 compared to 81% in the third 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 $(4.2) million in the third quarter of 2012
compared to a $(7.3) million loss in the third quarter of
2011.
- Non-GAAP Operating Loss:
Non-GAAP operating loss was $(2.7) million in the third quarter of
2012 compared to a loss of $(2.1) million during the third 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 $(2.1) million loss for the third quarter of 2012 compared to
a $(1.6) million loss during the third quarter of 2011. Adjusted
EBITDA is defined as non-GAAP operating income/(loss) less
depreciation.
- GAAP Net Loss and EPS: GAAP net
loss was $(3.6) million for the third quarter of 2012 compared to a
GAAP net loss of $(6.2) million for the third quarter of 2011. GAAP
EPS was a loss of $(0.06) for the third quarter of 2012, based on
64.6 million weighted-average basic shares outstanding, compared to
a loss of $(0.10) for the third quarter of 2011, based on 60.5
million weighted-average basic shares outstanding.
- Non-GAAP Net Loss and EPS:
Non-GAAP net loss was $(1.6) million for the third quarter of 2012
compared to a loss of $(1.3) million for the third quarter of 2011.
Non-GAAP EPS was a loss of $(0.03) for the third quarter of 2012
based on 64.6 million weighted-average basic shares outstanding,
compared to a loss of $(0.02) for the third quarter of 2011 based
on 60.5 million weighted-average basic shares outstanding.
- Cash Flows Used in Operations:
Cash flows used in operations were $(2.6) million for the third
quarter of 2012 compared to cash flows used in operations of
$(108,000) for the third quarter of 2011.
Selected Third Quarter of 2012
Operating Highlights and Metrics:
- We launched eleven new freemium games:
Blood & Glory: Legend, Bombshells: Hell’s Belles, Campers!,
Enchant U, Eternity Warriors 2, Gears & Guts, Ham on the Run!,
Indestructible, Mutant Roadkill, My Dragon and Tavern Quest.
- Our total GAAP smartphone revenue of
$18.4 million grew 91% from Q3 2011 and comprised 86% of total GAAP
revenue.
- Our non-GAAP smartphone revenue of
$18.3 million grew 73% from Q3 2011 and was 86% of total non-GAAP
revenue.
- Our non-GAAP freemium revenue
(micro-transactions, in-game advertising and offers) grew 103% to
$16.5 million compared to $8.1 million in Q3 2011.
Recent Developments and Strategic
Initiatives:
- We launched two new freemium games,
Contract Killer 2 and Death Dome, on the Apple App Store and Google
Play.
- We launched five freemium games,
Bombshells: Hell’s Belles, Deer Hunter Reloaded, Samurai vs.
Zombies Defense, Small Street and Stardom: The A-List, on the Mac
App Store.
- We partnered with Probability PLC for
mobile gambling, expanding our mobile portfolio to reach new
international audiences with Glu original IP-branded casino
games.
- We announced the optimization of our
leading freemium titles for the iPhone 5.
- We hired Matthew Ricchetti as our new
President of Studios.
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 results continue to be driven by the growth of freemium
revenue and original IP," stated Eric R. Ludwig, Glu’s Chief
Financial Officer. “Our fourth quarter is being impacted by the
combination of underperforming titles launched in Q3, Apple’s
prohibition of incentivized advertising for external HTML 5 sites
along with the reduction in the number of titles launched during
the quarter as we further optimize their monetization. With more
than $24 million in cash and no debt on our balance sheet, as well
as an ongoing focus on controlling costs, Glu remains well
positioned to execute its long-term monetization strategy.”
Business Outlook as of November 1, 2012:
The following forward-looking statements reflect expectations as
of November 1, 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 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.
Fourth Quarter Expectations – Quarter Ending December 31,
2012:
- Non-GAAP revenue is expected to be
between $19.5 million and $20.5 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 90%.
- Non-GAAP operating expenses are
expected to be approximately $22.2 million.
- Adjusted EBITDA, defined as non-GAAP
operating loss excluding depreciation of approximately $650,000, is
expected to range from $(4.0) million to $(3.1) million.
- Income tax expense is expected to be
$(0.5) million.
- Non-GAAP net loss is expected to be
between $(5.1) million and $(4.2) million, or a net loss of $(0.08)
to $(0.06) per weighted-average basic share.
- Weighted average common shares
outstanding for the fourth quarter of 2012 are expected to be
approximately 65.9 million basic and 69.9 million diluted.
- We expect to use cash in operations and
have a cash balance at December 31, 2012 of approximately $21.5
million with no debt.
2012 Expectations – Full Year Ending December 31,
2012:
- Non-GAAP revenue is expected to be
between $86.4 million and $87.4 million and non-GAAP smartphone
revenue is expected to be between $73.6 million and $74.6
million.
- Non-GAAP operating loss is expected to
range from $(6.8) million to $(5.9) million.
- Adjusted EBITDA is expected to range
from $(4.4) million to $(3.5) million.
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 # 38947409 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, November 1, 2012, and 8:59 p.m. Pacific
Time, November 8, 2012, by calling (855) 859-2056, or (404)
537-3406, with conference ID # 38947409.
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;
- 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 November 1, 2012"
("Fourth Quarter Expectations – Quarter Ending December 31, 2012"
and “2012 Expectations – Full Year Ending December 31, 2012”) and
the statements that: we are confident in Glu’s long-term ability to
drive higher monetization and lifetime value through the inclusion
of robust multiplayer and community functionality; the acquisition
of GameSpy and appointment of our first President of Studios will
accelerate our ability to enhance average revenue per day per daily
active user; we anticipate Adjusted EBITDA improvement in Q1 2013
from Q4 2012 guidance levels; and Glu remains well positioned to
execute its long-term monetization strategy. 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 November 1, 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, 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 August 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.
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 Brazil, 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.
BIG TIME GANGSTA, BLOOD & GLORY, BOMBSHELLS: HELL’S BELLES,
CAMPERS!, DEATH DOME, DEER HUNTER, ENCHANT U, ETERNITY WARRIORS,
FRONTLINE COMMANDO, GEARS & GUTS, GUN BROS, HAME ON THE RUN,
INDESTRUCTIBLE, MUTANT ROADKILL, MY DRAGON, SAMURAI VS ZOMBIES
DEFENSE, SMALL STREET, STARDOM: THE A LIST, TAVERN QUEST, 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) September
30,2012 December 31,2011
ASSETS Cash and cash equivalents $ 24,051 $ 32,212 Accounts
receivable, net 14,604 11,821 Prepaid royalties 29 483 Prepaid
expenses and other current assets 2,972 1,881
Total current assets 41,656 46,397 Property
and equipment, net 4,512 3,934 Other long-term assets 582 404
Intangible assets, net 12,451 10,078 Goodwill 19,276
21,991
Total assets $ 78,477 $ 82,804
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts
payable $ 6,903 $ 6,894 Accrued liabilities 2,468 939 Accrued
compensation 6,455 5,404 Accrued royalties 2,849 3,865 Accrued
restructuring 118 887 Deferred revenues 8,835
7,139
Total current liabilities 27,628 25,128 Other
long-term liabilities 5,920 8,503
Total liabilities 33,548 33,631
Common stock 6 6 Additional paid-in capital 269,752 260,744
Accumulated other comprehensive income 406 266 Accumulated deficit
(225,235 ) (211,843 )
Stockholders' equity
44,929 49,173
Total liabilities and
stockholders' equity $ 78,477 $ 82,804
Glu
Mobile Inc. Consolidated Statements of Operations (in
thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended
September 30,2012
September 30,2011 September 30,2012
September 30,2011 Revenues $
21,347 $ 16,905 $ 66,512
$ 51,011 Cost of revenues: Royalties
and other cost of revenues 2,194 3,383 6,888 10,344 Amortization of
intangible assets 1,025 2,375
2,710 3,895
Total cost of revenues
3,219 5,758
9,598 14,239 Gross profit
18,128 11,147
56,914 36,772
Operating expenses: Research and development 9,979 10,808
40,709 26,413 Sales and marketing 5,545 3,576 14,621 10,677 General
and administrative 2,466 3,748 11,388 10,188 Amortization of
intangible assets 495 330 1,485 330 Restructuring charge 213 - 533
637 Impairment of goodwill 3,613 -
3,613 -
Total operating expenses
22,311 18,462
72,349 48,245 Loss
from operations (4,183 ) (7,315 )
(15,435 ) (11,473 ) Interest
and other income/(expense), net: Interest income 7 4 28 33
Interest expense (2 ) - (11 ) (72 ) Other income/(expense), net
(460 ) 340 (628 ) 892
Interest and other income/(expense), net
(455
) 344 (611 )
853 Loss before income taxes
(4,638 ) (6,971 ) (16,046
) (10,620 ) Income tax benefit/(provision)
1,075 813 2,654
(462 )
Net loss $ (3,563 ) $
(6,158 ) $ (13,392 ) $
(11,082 ) Net loss per share - basic and
diluted $ (0.06 ) $ (0.10
) $ (0.21 ) $ (0.20
) Weighted average common shares outstanding -
basic and diluted 64,562 60,461 63,865
55,699 Stock-based compensation expense included
in: Research and development $ (3,388 ) $ 356 $ 2,268 $ 587
Sales and marketing 73 96 343 256 General and administrative
437 386 1,385 897
Total stock-based compensation expense $ (2,878 ) $ 838
$ 3,996 $ 1,740
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 GAAP
revenues Featurephone $ 10,478 $ 8,253 $ 7,248 $ 5,112 $ 4,165
$ 3,710 $ 2,924 Smartphone 5,948 9,427
9,657 10,062 17,379
19,911 18,423
Total GAAP
revenues 16,426 17,680
16,905 15,174
21,544 23,621
21,347
Change in deferred revenues and
amortization of in-processdevelopment contracts
Featurephone change in deferred revenue (63 ) (6 ) 5 (20 ) (7 ) 17
(21 )
Smartphone change in deferred revenue and
amortization of in-processdevelopment contracts
798 240 875 4,897
57 534 (167 )
Total change in deferred revenues and
amortization of in-process development contracts
735 234
880 4,877 50
551 (188 )
Non-GAAP Revenues Featurephone 10,415 8,247 7,253 5,092
4,158 3,727 2,903 Smartphone 6,746 9,667
10,532 14,959 17,436
20,445 18,256
Total non-GAAP
Revenues 17,161 17,914
17,785 20,051
21,594 24,172
21,159 GAAP gross profit 11,769
13,856 11,147 11,046 18,234
20,552 18,128
Change in deferred revenues and
amortization of in-process developmentcontracts
735 234 880 4,877 50 551 (188 ) Amortization of intangible assets
817 703 2,375 1,552 753 932 1,025 Change in deferred royalty
expense 33 20 1
(99 ) 60 67 (30 )
Non-GAAP
gross profit 13,354 14,813
14,403 17,376
19,097 22,102
18,935 GAAP operating expense
14,347 15,436 18,462 20,807
24,269 25,769 22,311 Stock-based compensation
(397 ) (505 ) (838 ) (1,370 ) (3,836 ) (3,038 ) 2,878 Amortization
of intangible assets - - (330 ) (495 ) (495 ) (495 ) (495 )
Transitional costs - - (981 ) (326 ) (173 ) (30 ) (192 ) Change in
fair value of Blammo earnout - - 178 (117 ) (645 ) (386 ) 954
Impairment of goodwill - - - - - - (3,613 ) Restructuring charge
(490 ) (147 ) - 92
- (320 ) (213 )
Non-GAAP operating
expense 13,460 14,784
16,491 18,591
19,120 21,500
21,630 GAAP operating loss
(2,578 ) (1,580 ) (7,315
) (9,761 ) (6,035 )
(5,217 ) (4,183 )
Change in deferred revenues and
amortization of in-process developmentcontracts
735 234 880 4,877 50 551 (188 ) Non-GAAP cost of revenues
adjustment 850 723 2,376 1,453 813 999 995 Stock-based compensation
397 505 838 1,370 3,836 3,038 (2,878 ) Amortization of intangible
assets - - 330 495 495 495 495 Transitional costs - - 981 326 173
30 192 Change in fair value of Blammo earnout - - (178 ) 117 645
386 (954 ) Impairment of goodwill - - - - - - 3,613 Restructuring
charge 490 147 -
(92 ) - 320 213
Non-GAAP operating income/(loss) (106 )
29 (2,088 )
(1,215 ) (23 ) 602
(2,695 ) GAAP net loss
(3,172 ) (1,752 ) (6,158
) (10,019 ) (6,841 )
(2,988 ) (3,563 )
Change in deferred revenues and
amortization of in-process developmentcontracts
735 234 880 4,877 50 551 (188 ) Non-GAAP cost of revenues
adjustment 850 723 2,376 1,453 813 999 995 Non-GAAP operating
expense adjustment 887 652 1,971 2,216 5,149 4,269 681 Foreign
currency exchange loss/(gain) (198 ) (363 ) (344 ) 116 373 (205 )
460 Release of tax liabilities - -
- - - (2,427 )
-
Non-GAAP net income/(loss) $
(898 ) $ (506 ) $
(1,275 ) $ (1,357 ) $
(456 ) $ 199 $
(1,615 ) 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 ) Non-GAAP net income/(loss) per share - basic and diluted
$ (0.02 ) $ (0.01 ) $ (0.02 ) $ (0.02 ) $ (0.01 ) $ 0.00 $ (0.03 )
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 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
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 Transitional costs - -
(219 ) (23 ) (68 ) (1 ) (45 ) Stock-based compensation (100
) (131 ) (356 ) (800 ) (3,260 )
(2,396 ) 3,388
Non-GAAP research and development
expense 7,066 8,308
10,233 11,837
11,705 13,300
13,322 GAAP sales and marketing expense
3,757 3,344 3,576 3,930 4,375
4,701 5,545 Transitional costs - - (2 ) (5 ) - - (15
) Stock-based compensation (66 ) (94 ) (96 )
(95 ) (115 ) (155 ) (73 )
Non-GAAP
sales and marketing expense 3,691
3,250 3,478 3,830
4,260 4,546
5,457 GAAP general & administrative
expense 2,934 3,506 3,748 3,814
4,366 4,556 2,466 Transitional costs - - (760
) (298 ) (105 ) (29 ) (132 ) Change in fair value of Blammo earnout
- - 178 (117 ) (645 ) (386 ) 954 Stock-based compensation
(231 ) (280 ) (386 ) (475 ) (461 )
(487 ) (437 )
Non-GAAP general and administrative
expense $ 2,703 $ 3,226
$ 2,780 $ 2,924
$ 3,155 $ 3,654 $
2,851
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
GAAP net loss $ (3,172 )
$ (1,752 ) $ (6,158 )
$ (10,019 ) $ (6,841 )
$ (2,988 ) $ (3,563 )
Change in deferred revenues and
amortization of in-processdevelopment contracts
735 234 880 4,877 50 551 (188 ) Change in deferred royalty expense
33 20 1 (99 ) 60 67 (30 ) Amortization of intangible assets 817 703
2,705 2,047 1,248 1,427 1,520 Depreciation 427 406 470 543 562 556
554 Stock-based compensation 397 505 838 1,370 3,836 3,038 (2,878 )
Change in fair value of Blammo earnout - - (178 ) 117 645 386 (954
) Transitional costs - - 981 326 173 30 192 Impairment of goodwill
- - - - - - 3,613 Restructuring charge 490 147 - (92 ) - 320 213
Foreign currency exchange loss/(gain) (198 ) (363 ) (344 ) 116 373
(205 ) 460 Interest (income)/expense, net 18 25 (4 ) (10 ) (7 ) (5
) (5 ) Other non operating expense - 9 4 - - - - Income tax
provision/(benefit) 774 501 (813
) 152 440 (2,019 ) (1,075
)
Total Non-GAAP Adjusted EBITDA $ 321
$ 435 $ (1,618 ) $
(672 ) $ 539 $
1,158 $ (2,141 )
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. 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 and
third 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 )
FY 2012 $
(628 )
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