- Q1 non-GAAP revenue of $54.0 million
and Q1 GAAP revenue of $54.5 million
- Tap Sports Baseball 2016
poised to be the top grossing baseball game on U.S. App Store
for iPhone for third year in a row
- Kendall and Kylie peaks at #7
top grossing app on U.S. App Store for iPhone shortly after
worldwide launch
Glu Mobile Inc. (NASDAQ:GLUU), a leading global developer and
publisher of free-to-play games for smartphone and tablet devices,
today announced financial results for its first quarter ended March
31, 2016.
“Our first quarter guidance outperformance was primarily due to
the strong Kendall and Kylie launch as well as the ongoing success
of Kim Kardashian: Hollywood and Cooking Dash,” stated Niccolo de
Masi, Chairman and Chief Executive Officer of Glu. “We are
delighted with the traction of our Tap Sports Baseball 2016 title
which is currently the top grossing baseball game on the U.S. App
Store for iPhone and has positioned us to grow revenues from this
franchise for the third year in a row.”
De Masi continues, “During the quarter, our new studio
leadership team implemented a number of operational improvements
which we expect to enhance our product delivery as well as to
reduce the run-rate revenue required for Glu to breakeven. The
combination of the new studio label system, along with a strong
line-up of new titles, including Britney Spears: American Dream and
Gordon Ramsay: Dash, positions Glu for growth during the second
half of 2016 and beyond.”
First Quarter 2016 Financial
Highlights:
- Revenue: Total GAAP revenue was
$54.5 million in the first quarter of 2016 compared to $69.5
million in the first quarter of 2015. Total non-GAAP revenue was
$54.0 million in the first quarter of 2016, compared to $62.4
million in the first quarter of 2015. Non-GAAP revenue excludes
changes in deferred revenue and litigation settlement
proceeds.
- Gross Margin: GAAP gross margin
was 58% in the first quarter of 2016 compared to 59% in the first
quarter of 2015. Non-GAAP gross margin was 61% in the first quarter
of 2016 compared to 63% in the first quarter of 2015. 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 $(9.2) million in the first quarter of 2016
compared to income of $2.5 million in the first quarter of
2015.
- Non-GAAP Operating
Income/(Loss): Non-GAAP operating loss was $(4.4) million in
the first quarter of 2016 compared to income of $3.2 million during
the first quarter of 2015. Non-GAAP operating income/(loss)
excludes changes in deferred revenue and deferred cost of revenue,
amortization of intangible assets, non-cash warrant expense,
stock-based compensation expense, restructuring charges,
transitional costs and litigation costs and settlement
proceeds.
- Adjusted EBITDA: Adjusted EBITDA
was a $(3.8) million loss for the first quarter of 2016 compared to
a $3.9 million profit during the first quarter of 2015. Adjusted
EBITDA is defined as non-GAAP operating income/(loss) excluding
depreciation.
- GAAP Net Income/(Loss) and EPS:
GAAP net loss was $(8.6) million for the first quarter of 2016
compared to net income of $1.1 million for the first quarter of
2015. GAAP EPS loss was $(0.07) for the first quarter of 2016,
based on 129.2 million weighted-average basic and diluted shares
outstanding, compared to a GAAP diluted EPS of $0.01 for the first
quarter of 2015, based on 107.9 million weighted-average diluted
shares outstanding.
- Non-GAAP Net Income/(Loss) and
EPS: Non-GAAP net loss was $(4.2) million for the first quarter
of 2016 compared to income of $2.1 million for the first quarter of
2015. Non-GAAP EPS loss was $(0.03) for the first quarter of 2016
based on 129.2 million weighted-average basic and diluted shares
outstanding, compared to non-GAAP diluted EPS of $0.02 for the
first quarter of 2015 based on 107.9 million weighted-average
diluted shares outstanding.
- Cash and Cash Flows: As of
March 31, 2016, Glu had cash and cash equivalents of $159.3 million
and no debt. Cash flows used from operations were $(11.8)
million for the first quarter of 2016 compared to $(5.1) million
used for the first quarter of 2015.
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:
- In April, we implemented a
restructuring plan designed to align our operations with evolving
business needs and reduce fixed operating costs.
- In March, we announced the availability
of Tap Sports Baseball 2016.
- In February, we announced the
availability of Kendall and Kylie.
“We were pleased with our first quarter execution as we exceeded
expectations across all key metrics,” stated Eric R. Ludwig, Chief
Operating Officer and Chief Financial Officer. “The combination of
Glu’s strong balance sheet, robust line up of new titles and
reduced fixed cost structure positions the company to enhance
stockholder value longer-term.”
Business Outlook as of May 3, 2016:
The following forward-looking statements reflect expectations as
of May 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.
Second Quarter Expectations – Quarter Ending June 30,
2016:
- Non-GAAP revenue is expected to be
between $46.0 million and $49.0 million.
- Non-GAAP gross margin is expected to be
approximately 61.2%.
- Non-GAAP operating expenses are
expected to be between $35.7 million and $36.1 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 $(5.5) million to
$(7.0) million.
- Income tax is expected to be an expense
of approximately $0.6 million.
- Non-GAAP net loss is expected to be
between $(6.7) million and $(8.2) million, or between $(0.05) and
$(0.06) per weighted-average basic share outstanding, which
excludes approximately $3.2 million of anticipated stock-based
compensation expense, approximately $2.0 million of restructuring
charges, $2.3 million for amortization of intangibles and any
change in fair value of strategic investments.
- Weighted-average common shares
outstanding are expected to be approximately 131.1 million basic
and 131.5 million diluted.
2016 Expectations – Full Year Ending December 31,
2016:
- Non-GAAP revenue is expected to be
between $215.0 million and $235.0 million.
- Non-GAAP gross margin is expected to be
approximately 58.7%.
- Adjusted EBITDA is expected to range
from a loss of $(12.0) million to $(18.0) million.
- Non-GAAP net loss is expected to be
between a loss of $(14.9) million and $(20.9) million, or between
$(0.11) and $(0.16) per weighted-average basic share outstanding,
which excludes approximately $14.0 million of anticipated
stock-based compensation expense, approximately $2.6 million of
restructuring charges, $10.1 million for amortization of
intangibles and any change in fair value of strategic
investments.
- Weighted-average common shares
outstanding are expected to be approximately 131.8 million basic
and 132.8 million diluted.
- We expect to have cash and short-term
investments at December 31, 2016 of at least $135.0 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 # 88381392 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, May 3, 2016, and 8:59 p.m. Pacific Time,
May 10, 2016, by calling (855) 859-2056, or (404) 537-3406, with
conference ID # 88381392.
Disclosure Using Social Media Channels
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.
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;
- Litigation settlement proceeds and
costs;
- Transitional costs;
- Change in fair value of strategic
investments; 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 May 3, 2016” (“Second
Quarter Expectations – Quarter Ending June 30, 2016” and “2016
Expectations – Full Year Ending December 31, 2016”), and the
statements regarding that Tap Sports Baseball 2016 is poised to be
the top grossing baseball game on U.S. App Store for iPhone for
third year in a row and has positioned us to grow revenues from
this franchise for the third year in a row; we expect the
operational improvements implemented by our new studio leadership
team to enhance our product delivery as well as to reduce the
run-rate revenue required for Glu to breakeven; the combination of
the new studio label system, along with a strong line-up of new
titles, including Britney Spears: American Dream and Gordon Ramsay:
Dash, positions Glu for growth during the second half of 2016 and
beyond; and the combination of Glu’s strong balance sheet, robust
line up of new titles and reduced fixed cost structure positions
the company to enhance stockholder value longer-term. 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 May 3, 2016"; the risk
that Glu does not realize the anticipated strategic benefits from
our celebrity partnerships; 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; and other
risks detailed under the caption "Risk Factors" in our Form 10-K
filed with the Securities and Exchange Commission on March 4, 2016
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 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 KENDALL & KYLIE, KIM KARDASHIAN:
HOLLYWOOD, 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 U.S. offices outside Seattle, San Mateo, Portland,
and 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) March
31, December 31, 2016 2015
ASSETS Cash and cash equivalents $ 159,283 $ 180,542
Accounts receivable, net 16,745 17,956 Prepaid royalties 30,412
23,715 Prepaid expenses and other current assets 15,205
14,841
Total current assets 221,645
237,054 Property and equipment, net 5,282 5,447 Restricted
cash 1,498 1,498 Long-term prepaid royalties 46,017 46,944 Other
long-term assets 9,317 1,386 Intangible assets, net 20,442 22,767
Goodwill 87,899 87,890
Total
assets $ 392,100 $ 402,986
LIABILITIES
AND STOCKHOLDERS' EQUITY Accounts payable $ 9,055 $ 9,386
Accrued liabilities 1,752 1,996 Accrued compensation 4,504 7,100
Accrued royalties and license fees 14,140 21,032 Deferred revenue
30,750 31,112
Total current
liabilities 60,201 70,626 Long-term accrued royalties 28,193
24,347 Other long-term liabilities 1,397 1,585
Total liabilities 89,791 96,558
Common stock 13 13 Additional paid-in capital 562,373
557,748 Accumulated other comprehensive loss (279 ) (85 )
Accumulated deficit (259,798 ) (251,248 )
Stockholders' equity 302,309 306,428
Total liabilities and stockholders' equity $ 392,100
$ 402,986
Glu Mobile Inc.
Condensed Consolidated Statements of Operations (in
thousands, except per share data) (unaudited) Three
Months Ended March 31, March 31, 2016
2015 Revenue $ 54,528 $
69,470 Cost of revenue: Platform commissions,
royalties and other 20,363 26,310 Amortization of intangible assets
2,324 2,434
Total cost of
revenue 22,687 28,744
Gross profit 31,841
40,726 Operating expenses: Research and
development 20,312 18,243 Sales and marketing 12,624 12,438 General
and administrative 7,984 7,406 Amortization of intangible assets -
127 Restructuring charge 106 -
Total
operating expenses 41,026
38,214 Income/(loss) from operations
(9,185 ) 2,512 Interest and other
income/(expense), net: Interest income 21 6 Other
income/(expense) 448 (290 ) Interest and other
income/(expense), net
469 (284
) Income/(loss) before income taxes
(8,716 ) 2,228 Income tax benefit/(provision)
166 (1,104 )
Net income/(loss) $
(8,550 ) $ 1,124 Net
income/(loss) per share: Basic
$ (0.07 )
$ 0.01 Diluted
$ (0.07 )
$ 0.01 Weighted average common shares
outstanding Basic
129,171 103,869 Diluted
129,171 107,851 Stock-based compensation
expense included in: Research and development $ 1,194 $ 760
Sales and marketing 292 218 General and administrative 2,059
1,151
Total stock-based compensation
expense $ 3,545 $ 2,129
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, 2015 2015 2015
2015 2016 GAAP revenue $
69,470 $ 56,150 $ 63,250
$ 61,030 $ 54,528 Change in deferred
revenue and litigation settlement proceeds (7,023 )
1,329 1,174 (3,135 ) (530 )
Non-GAAP revenue 62,447
57,479 64,424
57,895 53,998 GAAP
gross profit 40,726 32,396 33,445
35,596 31,841 Change in deferred revenue and
litigation settlement proceeds (7,023 ) 1,329 1,174 (3,135 ) (530 )
Amortization of intangible assets 2,434 2,434 2,360 2,325 2,324
Non-cash warrant benefit /(expense) 93 135 1,896 (116 ) 9 Change in
deferred platform commissions and royalty expense 2,819
(321 ) (780 ) 1,497 (676
)
Non-GAAP gross profit 39,049
35,973 38,095
36,167 32,968 GAAP
operating expense 38,214 38,540 33,056
38,654 41,026 Stock-based compensation (2,129 )
(3,032 ) (3,056 ) (3,469 ) (3,545 ) Amortization of intangible
assets (127 ) (32 ) (31 ) (11 ) - Litigation costs and settlement
proceeds - (476 ) 390 - - Transitional costs (72 ) - - - -
Restructuring charge - - -
(1,075 ) (106 )
Non-GAAP operating
expense 35,886 35,000
30,359 34,099
37,375 GAAP operating income/(loss)
2,512 (6,144 ) 389 (3,058
) (9,185 ) Change in deferred revenue and
litigation settlement proceeds (7,023 ) 1,329 1,174 (3,135 ) (530 )
Non-GAAP cost of revenue adjustment 5,346 2,248 3,476 3,706 1,657
Stock-based compensation 2,129 3,032 3,056 3,469 3,545 Amortization
of intangible assets 127 32 31 11 - Transitional costs 72 - - - -
Litigation costs and settlement proceeds - 476 (390 ) - -
Restructuring charge - - -
1,075 106
Non-GAAP operating
income/(loss) 3,163 973
7,736 2,068
(4,407 ) GAAP net income/(loss)
1,124 (5,509 ) 158 (2,958
) (8,550 ) Change in deferred revenue and
litigation settlement proceeds (7,023 ) 1,329 1,174 (3,135 ) (530 )
Non-GAAP cost of revenue adjustment 5,346 2,248 3,476 3,706 1,657
Non-GAAP operating expense adjustment 2,328 3,540 2,697 4,555 3,651
Change in fair value of strategic investments - - - - (300 )
Foreign currency exchange (gain)/loss 290 186
167 149 (148 )
Non-GAAP net income/(loss) $ 2,065
$ 1,794 $ 7,672 $
2,317 $ (4,220 )
Reconciliation of net income/(loss) and net income/(loss) per
share: GAAP net income/(loss) per share - basic $ 0.01 $ (0.05
) $ 0.00 $ (0.02 ) $ (0.07 ) GAAP net income/(loss) per share -
diluted $ 0.01 $ (0.05 ) $ 0.00 $ (0.02 ) $ (0.07 ) Non-GAAP net
income/(loss) per share - basic $ 0.02 $ 0.02 $ 0.06 $ 0.02 $ (0.03
) Non-GAAP net income/(loss) per share - diluted $ 0.02 $ 0.01 $
0.06 $ 0.02 $ (0.03 ) Shares used in computing Non-GAAP basic net
income/(loss) per share 103,869 116,169 127,287 127,775 129,171
Shares used in computing Non-GAAP diluted net income/(loss) per
share 107,851 122,538 131,486 129,381 129,171
Non-GAAP
operating expense break-out: GAAP research and development
expense $ 18,243 $ 18,308 $
16,304 $ 20,001 $ 20,312
Stock-based compensation (760 ) (836 ) (868 )
(1,099 ) (1,194 )
Non-GAAP research and
development expense 17,483
17,472 15,436
18,902 19,118 GAAP
sales and marketing expense 12,438 12,771
12,302 10,729 12,624 Stock-based compensation
(218 ) (282 ) (277 ) (305 ) (292
)
Non-GAAP sales and marketing expense 12,220
12,489 12,025
10,424 12,332
GAAP general & administrative expense 7,406
7,429 4,419 6,838 7,984 Transitional
costs (72 ) - - - - Stock-based compensation (1,151 ) (1,914 )
(1,911 ) (2,065 ) (2,059 ) Litigation costs -
(476 ) 390 - -
Non-GAAP general and administrative expense $
6,183 $ 5,039 $
2,898 $ 4,773 $
5,925
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, 2015 2015 2015
2015 2016 GAAP net income/(loss)
$ 1,124 $ (5,509 ) $
158 $ (2,958 ) $ (8,550
) Change in deferred revenue and litigation settlement
proceeds (7,023 ) 1,329 1,174 (3,135 ) (530 ) Change in deferred
platform commissions and royalty expense 2,819 (321 ) (780 ) 1,497
(676 ) Non-cash warrant expense 93 135 1,896 (116 ) 9 Amortization
of intangible assets 2,561 2,466 2,391 2,336 2,324 Depreciation 706
732 718 706 656 Stock-based compensation 2,129 3,032 3,056 3,469
3,545 Transitional costs 72 - - - - Litigation costs and settlement
proceeds - 476 (390 ) - - Restructuring charge - - - 1,075 106
Foreign currency exchange (gain)/loss 290 186 167 149 (148 ) Change
in fair value of strategic investments - - - - (300 ) Interest and
other expense (6 ) (12 ) (15 ) (15 ) (21 ) Income tax
provision/(benefit) 1,104 (809 ) 79
(234 ) (166 )
Total Non-GAAP Adjusted
EBITDA $ 3,869 $ 1,705
$ 8,454 $ 2,774
$ (3,751 )
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 first quarter of 2016 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 third 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. Glu's management team excludes stock-based
compensation expense from its short and long-term operating plans.
In contrast, Glu's management team is held accountable for
cash-based compensation and such amounts are included in its
operating plans. Further, when considering the impact of equity
award grants, Glu places a greater emphasis on overall stockholder
dilution rather than the accounting charges associated with such
grants. Glu believes it is useful to provide a non-GAAP financial
measure that excludes stock-based compensation in order to better
understand the long-term performance of its business.
Restructuring Charges. Glu undertook restructuring activities in
the first quarter of 2016 and the fourth quarter of 2015 and
recorded cash restructuring charges due to the termination of
certain employees in its China and certain 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.
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.
Change in Fair Value of Strategic Investments. From time to
time, the Company makes strategic investments. The Company’s
management excludes the impact of any losses and gains on such
investments when evaluating the Company's operating performance,
when planning, forecasting and analyzing future periods, and when
assessing the performance of its management team. In addition, the
Company believes that excluding the impact of such losses and gains
on these investments from its operating results is important to
facilitate comparisons to prior periods.
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 gains/(losses) recognized during 2015 and the
first quarter of 2016 were as follows (in thousands):
March 31, 2015 $ (290 ) June 30, 2015 (186 ) September 30,
2015 (167 ) December 31, 2015 (149 )
FY 2015 $
(792 ) March 31, 2016 $ 148
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version on businesswire.com: http://www.businesswire.com/news/home/20160503007007/en/
Investor Relations:ICR, Inc.Seth Potter,
646-277-1230ir@glu.com
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