Glu Mobile Inc. : Glu Reports First Quarter 2012 Financial Results
05/02/2012| 04:15pm US/Eastern
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192% GAAP and 158% non-GAAP quarterly smartphone revenue growth
year over year
Continued original IP success drove non-GAAP gross margins to 88%
in Q1 2012
Adjusted EBITDA of $539,000 in Q1 2012
Glu raises its non-GAAP revenue guidance for fiscal year 2012 and
increases its expected number of new title launches for fiscal year
2012 to 23
Anticipated cash flow break-even from operations and sustainably
Adjusted EBITDA profitable in Q4 2012
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 first quarter ended March 31, 2012.
"The first quarter was a strong start to the year for Glu," stated
Niccolo de Masi, Chief Executive Officer of Glu. "We are very pleased
with our sixth consecutive quarter of freemium smartphone revenue
growth. This quarter's continued momentum from both existing and new
title launches drove total GAAP smartphone revenues up 192% year over
year. We believe that our investments to expand studio capacity, as well
as our recent acquisition of the Deer Hunter ® brand assets, position
Glu for significant growth in the second half of 2012."
First Quarter 2012 Financial Highlights:
Revenue: Total GAAP revenue was $21.5 million in the first
quarter of 2012 compared to $16.4 million in the first quarter of
2011. Total non-GAAP revenue was $21.6 million in the first quarter of
2012 compared to $17.2 million in the first quarter of 2011. Non-GAAP
revenue excludes changes in deferred revenue.
GAAP Operating Loss: GAAP operating loss was $(6.0) million in
the first quarter of 2012 compared to a $(2.6) million loss in the
first quarter of 2011.
Non-GAAP Operating Loss: Non-GAAP operating loss was $(23,000)
in the first quarter of 2012 compared to a loss of $(106,000) during
the first quarter of 2011. Non-GAAP operating loss 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 $539,000 in the first
quarter of 2012 compared to $321,000 during the first quarter of 2011.
Adjusted EBITDA is defined as non-GAAP operating loss excluding
depreciation.
GAAP Loss and EPS: GAAP net losswas $(6.8) million in
the first quarter of 2012 compared to a GAAP net loss of $(3.2)
million in the first quarter of 2011. GAAP EPS was a loss of $(0.11)
in the first quarter of 2012, based on 63.2 million weighted-average
basic shares outstanding, compared to a loss of $(0.06) in the first
quarter of 2011, based on 52.0 million weighted-average basic shares
outstanding.
Non-GAAP Net Loss and EPS: Non-GAAP net loss was $(0.5) million
in the first quarter of 2012 compared to $(0.9) million in the first
quarter of 2011. Non-GAAP EPS loss was $(0.01) in the first quarter of
2012 based on 63.2 million weighted-average basic shares outstanding,
compared to a loss of $(0.02) in the first quarter of 2011 based on
52.0 million weighted-average basic shares outstanding.
Cash Flows Used in Operations: Cash flows used in operations
were $(4.1) million in the first quarter of 2012 compared to cash
flows used in operations of $(2.1) million in the first quarter of
2011.
Selected First Quarter of 2012 Operating
Highlights and Metrics:
We launched three new freemium titles.
Our total GAAP smartphone revenues of $17.4 million grew 192% from Q1
2011 and comprised 81% of total GAAP revenues.
Our non-GAAP smartphone revenues of $17.4 million grew 158% from Q1
2011 and were 81% of total non-GAAP revenues.
Our non-GAAP freemium revenue (micro-transactions, in-game advertising
and offers) grew 242% to $16.0 million compared to $4.7 million in Q1
2011.
Recent Developments and Strategic Initiatives:
Glu completed the acquisition of the Deer Hunter® trademark and
associated domain names from Atari and took an exclusive, irrevocable,
worldwide, long-term license to the other intellectual property
associated with the Deer Hunter brand. We launched Deer Hunter
Reloaded on the Apple App store and Google Play store, reaching #1 in
Top Free Apps and #10 in Top Grossing Apps on the Apple App Store.
We launched Samurai vs. Zombies Defense and Small Street on the Apple
App store and Google Play store with strong rankings in the Top
Grossing charts on both platforms.
We announced the availability of the company's popular Blood & Glory
game on the Mac App Store.
We launched Blood & Glory and Frontline Commando on the Amazon App
Store. Both titles reached the Top 25 Free Apps during the quarter due
to their popularity on the Kindle Fire.
We announced the addition of the Android APK Expansion File technology
to Bug Village, one of Glu's most popular titles.
We announced that Gun Bros Multiplayer offers Google's Android Beam
technology on Ice Cream Sandwich devices.
A reconciliation of GAAP to non-GAAP results has been provided in the
financial statement tables included in this press release. An
explanation of these measures is also included below under the heading
"Non-GAAP Financial Measures."
"We had a very strong first quarter with non-GAAP smartphone revenues
growing primarily due to the strength of our Q4 launches and successful
launches of Samurai vs. Zombies Defense and Small Street," stated Eric
R. Ludwig, Glu's Chief Financial Officer. "The combination of our strong
balance sheet and the out-performance of our first quarter allowed Glu
to acquire the Deer Hunter brand assets from Atari with cash. We are
confident that we will reach sustainable Adjusted EBITDA profitability
by the fourth quarter of 2012 without needing to raise capital and
without taking on debt. In addition, we anticipate being cash flow
break-even from operations in the fourth quarter of 2012 and expect to
end the year with over $18.0 million of cash."
Business Outlook as of May 2, 2012:
The following forward-looking statements reflect expectations as of May
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.
Second Quarter Expectations - Quarter Ending June 30, 2012:
Non-GAAP revenue is expected to be between $20.5 million and $21.5
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 88%.
Non-GAAP operating expenses are expected to be approximately $21.5
million.
Adjusted EBITDA loss, defined as non-GAAP operating loss excluding
depreciation of approximately $575,000, is expected to range from a
loss of $(2.0) million to a loss of $(2.9) million.
Income tax expense is expected to be $(0.2) million, which excludes a
one-time, non-cash income tax benefit of $2.4 million resulting from
the release of MIG pre-acquisition tax liabilities upon the expiration
of the statute of limitations.
Non-GAAP net loss is expected to be between $(2.7) million and $(3.6)
million, or a net loss of $(0.04) to $(0.06) per weighted-average
basic share.
Weighted average common shares outstanding for the second quarter of
2012 are expected to be approximately 63.7 million basic and 70.7
million diluted.
Glu's cash balance at June 30, 2012 is expected to be approximately
$22.0 million, which reflects the $5.0 million cash payment made to
Atari for the Deer Hunter brand assets in April 2012.
2012 Expectations - Full Year Ending December 31, 2012:
Non-GAAP revenue is expected to be between $86.7 million and $91.7
million and non-GAAP smartphone revenue is expected to be between
$76.5 million and $81.5 million.
We expect to achieve break-even non-GAAP operating income and
break-even cash flows from operations in the fourth quarter of 2012.
We expect to achieve positive Adjusted EBITDA in the fourth quarter of
2012.
Glu's cash balance at December 31 is expected to be over $18.0 million.
We expect to launch 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 (877) 593-1988,
or if outside the U.S., (678) 905-9423, with conference ID # 69735893 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 at 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 2,
2012, and 8:59 p.m. Pacific Time, May 9, 2012, by calling (855)
859-2056, or (404) 537-3406, with conference ID # 69735893.
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 MIG pre-acquisition 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 other 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 2, 2012" ("Second Quarter
Expectations - Quarter Ending June 30, 2012" and "2012 Expectations -
Full Year Ending December 31, 2012"); and the statements that we believe
that our investments to expand studio capacity, as well as our recent
acquisition of the Deer Hunter brand assets, position Glu for
significant growth in the second half of 2012; that we are confident
that we will reach sustainable Adjusted EBITDA profitability by the
fourth quarter of 2012 without needing to raise capital and without
taking on debt; and that we anticipate being cash flow break-even from
operations in the fourth quarter of 2012 and expect to end the year with
over $18.0 million of 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 May 2, 2012"; the risk
that Glu will be unable to successfully integrate both Griptonite and
Blammo and its employees and achieve expected synergies, the risk that
Glu will have difficulty retaining key employees of 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-K filed with the Securities and Exchange
Commission on March 14, 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.
BLOOD & GLORY, BUG VILLAGE, DEER HUNTER, FRONTLINE COMMANDO, GUN BROS,
SAMURAI VS ZOMBIES DEFENSE, SMALL STREET, GLU, GLU MOBILE and the 'g'
character logo are trademarks of Glu Mobile Inc.
In the financial tables below, Glu has provided a reconciliation of the
most comparable GAAP financial measure to each of the historical
non-GAAP financial measures used in this press release.
Glu Mobile Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
March 31,
December 31,
2012
2011
ASSETS
Cash and cash equivalents
$
28,942
$
32,212
Accounts receivable, net
14,187
11,821
Prepaid royalties
404
483
Prepaid expenses and other current assets
1,828
1,881
Total current assets
45,361
46,397
Property and equipment, net
3,697
3,934
Other long-term assets
404
404
Intangible assets, net
8,853
10,078
Goodwill
22,026
21,991
Total assets
$
80,341
$
82,804
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
$
5,770
$
6,894
Accrued liabilities
2,262
939
Accrued compensation
4,487
5,404
Accrued royalties
3,388
3,865
Accrued restructuring
626
887
Deferred revenues
7,188
7,139
Total current liabilities
23,721
25,128
Other long-term liabilities
11,998
8,503
Total liabilities
35,719
33,631
Common stock
6
6
Additional paid-in capital
262,873
260,744
Accumulated other comprehensive income
427
266
Accumulated deficit
(218,684
)
(211,843
)
Stockholders' equity
44,622
49,173
Total liabilities and stockholders' equity
$
80,341
$
82,804
Glu Mobile Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
March 31,
2012
2011
Revenues
$
21,544
$
16,426
Cost of revenues:
Royalties and other cost of revenues
2,557
3,840
Amortization of intangible assets
753
817
Total cost of revenues
3,310
4,657
Gross profit
18,234
11,769
Operating expenses:
Research and development
15,033
7,166
Sales and marketing
4,375
3,757
General and administrative
4,366
2,934
Amortization of intangible assets
495
-
Restructuring charge
-
490
Total operating expenses
24,269
14,347
Loss from operations
(6,035
)
(2,578
)
Interest and other income/(expense), net:
Interest income
11
22
Interest expense
(4
)
(40
)
Other income/(expense), net
(373
)
198
Interest and other income/(expense), net
(366
)
180
Loss before income taxes
(6,401
)
(2,398
)
Income tax provision
(440
)
(774
)
Net loss
$
(6,841
)
$
(3,172
)
Net loss per share - basic and diluted
$
(0.11
)
$
(0.06
)
Weighted average common shares outstanding - basic and diluted
63,229
52,048
Stock-based compensation expense included in:
Research and development
$
3,260
$
100
Sales and marketing
115
66
General and administrative
461
231
Total stock-based compensation expense
$
3,836
$
397
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,
2011
2011
2011
2011
2012
GAAP revenues
Featurephone
$
10,478
$
8,253
$
7,248
$
5,112
$
4,165
Smartphone
5,948
9,427
9,657
10,062
17,379
Total GAAP revenues
16,426
17,680
16,905
15,174
21,544
Change in deferred revenues and amortization of in- process
development contracts
Featurephone change in deferred revenue
(63
)
(6
)
5
(20
)
(7
)
Smartphone change in deferred revenue and amortization of in- process
development contracts
798
240
875
4,897
57
Total change in deferred revenues and amortization of in- process
development contracts
735
234
880
4,877
50
Non-GAAP Revenues
Featurephone
10,415
8,247
7,253
5,092
4,158
Smartphone
6,746
9,667
10,532
14,959
17,436
Total non-GAAP Revenues
17,161
17,914
17,785
20,051
21,594
GAAP gross profit
11,769
13,856
11,147
11,046
18,234
Change in deferred revenues and amortization of in- process
development contracts
735
234
880
4,877
50
Amortization of intangible assets
817
703
2,375
1,552
753
Change in deferred royalty expense
33
20
1
(99
)
60
Non-GAAP gross profit
13,354
14,813
14,403
17,376
19,097
GAAP operating expense
14,347
15,436
18,462
20,807
24,269
Stock-based compensation
(397
)
(505
)
(838
)
(1,370
)
(3,836
)
Amortization of intangible assets
-
-
(330
)
(495
)
(495
)
Transitional costs
-
-
(981
)
(326
)
(173
)
Change in fair value of Blammo earnout
-
-
178
(117
)
(645
)
Restructuring charge
(490
)
(147
)
-
92
-
Non-GAAP operating expense
13,460
14,784
16,491
18,591
19,120
GAAP operating loss
(2,578
)
(1,580
)
(7,315
)
(9,761
)
(6,035
)
Change in deferred revenues and amortization of in- process
development contracts
735
234
880
4,877
50
Non-GAAP cost of revenues adjustment
850
723
2,376
1,453
813
Stock-based compensation
397
505
838
1,370
3,836
Amortization of intangible assets
-
-
330
495
495
Transitional costs
-
-
981
326
173
Change in fair value of Blammo earnout
-
-
(178
)
117
645
Restructuring charge
490
147
-
(92
)
-
Non-GAAP operating income/(loss)
(106
)
29
(2,088
)
(1,215
)
(23
)
GAAP net loss
(3,172
)
(1,752
)
(6,158
)
(10,019
)
(6,841
)
Change in deferred revenues and amortization of in- process
development contracts
735
234
880
4,877
50
Non-GAAP cost of revenues adjustment
850
723
2,376
1,453
813
Non-GAAP operating expense adjustment
887
652
1,971
2,216
5,149
Foreign currency exchange loss/(gain)
(198
)
(363
)
(344
)
116
373
Non-GAAP net loss
$
(898
)
$
(506
)
$
(1,275
)
$
(1,357
)
$
(456
)
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
)
Non-GAAP net loss per share - basic and diluted
$
(0.02
)
$
(0.01
)
$
(0.02
)
$
(0.02
)
$
(0.01
)
Shares used in computing basic and diluted net loss per share
52,048
54,587
60,461
62,973
63,229
Non-GAAP operating expense break-out:
GAAP research and development expense
$
7,166
$
8,439
$
10,808
$
12,660
$
15,033
Transitional costs
-
-
(219
)
(23
)
(68
)
Stock-based compensation
(100
)
(131
)
(356
)
(800
)
(3,260
)
Non-GAAP research and development expense
7,066
8,308
10,233
11,837
11,705
GAAP sales and marketing expense
3,757
3,344
3,576
3,930
4,375
Transitional costs
-
-
(2
)
(5
)
-
Stock-based compensation
(66
)
(94
)
(96
)
(95
)
(115
)
Non-GAAP sales and marketing expense
3,691
3,250
3,478
3,830
4,260
GAAP general & administrative expense
2,934
3,506
3,748
3,814
4,366
Transitional costs
-
-
(760
)
(298
)
(105
)
Change in fair value of Blammo earnout
-
-
178
(117
)
(645
)
Stock-based compensation
(231
)
(280
)
(386
)
(475
)
(461
)
Non-GAAP general and administrative expense
$
2,703
$
3,226
$
2,780
$
2,924
$
3,155
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,
2011
2011
2011
2011
2012
GAAP net loss
$
(3,172
)
$
(1,752
)
$
(6,158
)
$
(10,019
)
$
(6,841
)
Change in deferred revenues and amortization of in-process development
contracts
735
234
880
4,877
50
Change in deferred royalty expense
33
20
1
(99
)
60
Amortization of intangible assets
817
703
2,705
2,047
1,248
Depreciation
427
406
470
543
562
Stock-based compensation
397
505
838
1,370
3,836
Change in fair value of Blammo earnout
-
-
(178
)
117
645
Transitional costs
-
-
981
326
173
Restructuring charge
490
147
-
(92
)
-
Foreign currency exchange loss/(gain)
(198
)
(363
)
(344
)
116
373
Interest (income)/expense, net
18
25
(4
)
(10
)
(7
)
Other non operating expense
-
9
4
-
-
Income tax provision/(benefit)
774
501
(813
)
152
440
Total Non-GAAP Adjusted EBITDA
$
321
$
435
$
(1,618
)
$
(672
)
$
539
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 account for
the sale of the software product as a multiple element arrangement and
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.
In addition, in accordance with GAAP, Glu generally recognizes expenses
for internally-developed intangible assets as they are incurred until
technological feasibility is reached, notwithstanding the potential
future benefit such assets may provide. Unlike internally-developed
intangible assets, however, and also in accordance with GAAP, Glu
generally capitalizes the cost of acquired intangible assets and
recognizes that cost as an expense over the useful lives of the assets
acquired (other than goodwill, which is not amortized, and acquired
in-process technology, which is expensed immediately, as required under
GAAP). As a result of their GAAP treatment, there is an inherent lack of
comparability between the financial performance of internally-developed
intangible assets and acquired intangible assets. Accordingly, Glu
believes it is useful to provide, as a supplement to its GAAP operating
results, a non-GAAP financial measure that excludes the amortization of
acquired intangibles.
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 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 and Russia 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 MIG pre-acquisition tax liabilities. In the second
quarter of 2012 Glu will record a one-time, non-cash income tax benefit
related to the release of certain MIG pre-acquisition income tax
liabilities upon the expiration of the statute of limitations. These
uncertain tax position liabilities were initially recorded in purchase
accounting as part of the MIG acquisition in 2007. 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
)
FY 2012
$
(373
)
Media & Investor Relations: ICR Seth Potter, 646-277-1230 ir@glu.com
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