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, 2013.
“We were pleased with the monetization milestones delivered
during the quarter in a number of both new and existing titles,”
stated Niccolo de Masi, Chief Executive Officer of Glu. “We
anticipate further monetization and retention traction as we
continue to evolve our studio and begin to launch true
games-as-a-service."
De Masi continued, “We are delighted to appoint Chris Akhavan as
President of Publishing to focus on growing advertising revenues,
increase direct marketing efficiencies, and oversee our 3rd Party
Publishing. We remain excited by the potential of Glu Publishing
which signed three significant titles that we expect to launch by
the end of Q3. Glu remains committed to increasing ARPDAU and
positioning the company to lead in a Social Gaming 2.0 landscape.
We will continue to utilize our brand to extend our reach, as
evidenced by our growing relationship with Probability plc.”
First Quarter 2013 Financial
Highlights:
- Revenue: Total GAAP revenue was
$19.1 million in the first quarter of 2013 compared to $21.5
million in the first quarter of 2012. Total non-GAAP revenue was
$19.0 million in the first quarter of 2013 compared to $21.6
million in the first quarter of 2012. Non-GAAP revenue excludes
changes in deferred revenue.
- Gross Margin: GAAP gross margin
was 84% in the first quarter of 2013 compared to 85% in the first
quarter of 2012. Non-GAAP gross margin was 90% in the first quarter
of 2013 compared to 88% in the first quarter of 2012. Non-GAAP
gross margin excludes changes in deferred revenue and royalties and
amortization of intangible assets.
- GAAP Operating Loss: GAAP
operating loss was $(5.5) million in the first quarter of 2013
compared to a $(6.0) million loss in the first quarter of
2012.
- Non-GAAP Operating Loss:
Non-GAAP operating loss was $(2.2) million in the first quarter of
2013 compared to a loss of $(23,000) during the first quarter of
2012. Non-GAAP operating loss excludes changes in deferred revenue
and royalty expense, 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 $(1.4) million loss for the first quarter of 2013 compared to
a $539,000 profit during the first quarter of 2012. Adjusted EBITDA
is defined as non-GAAP operating income/(loss) less
depreciation.
- GAAP Net Loss and EPS: GAAP net
loss was $(5.5) million for the first quarter of 2013 compared to a
GAAP net loss of $(6.8) million for the first quarter of 2012. GAAP
EPS was a loss of $(0.08) for the first quarter of 2013, based on
66.4 million weighted-average basic shares outstanding, compared to
a loss of $(0.11) for the first quarter of 2012, based on 63.2
million weighted-average basic shares outstanding.
- Non-GAAP Net Loss and EPS:
Non-GAAP net loss was $(2.3) million for the first quarter of 2013
compared to a loss of $(0.5) million for the first quarter of 2012.
Non-GAAP EPS was a loss of $(0.03) for the first quarter of 2013
based on 66.4 million weighted-average basic shares outstanding,
compared to a loss of $(0.01) for the first quarter of 2012 based
on 63.2 million weighted-average basic shares outstanding.
- Cash Flows Used in Operations:
Cash flows used in operations were $(3.7) million for the first
quarter of 2013 compared to cash flows used in operations of $(4.1)
million for the first quarter of 2012.
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.”
Selected First Quarter of 2013
Operating Highlights and Metrics:
- We launched seven new freemium titles –
Dragon Storm, Stardom: Hollywood, Gun Bros 2, Small City, Samurai
vs. Zombies Defense 2, Heroes of Destiny, and Frontline Commando:
D-Day.
- Our total GAAP smartphone revenue for
the first quarter of 2013 was $17.3 million and comprised 90% of
total GAAP revenue.
- Our non-GAAP smartphone revenue for the
first quarter of 2013 was $17.1 million and comprised 90% of total
non-GAAP revenue.
- Our non-GAAP freemium revenue
(micro-transactions, in-game advertising and offers) for the first
quarter of 2013 was $15.2 million or 89% of non-GAAP smartphone
revenue.
Recent Developments and Strategic
Initiatives:
- We launched our first two real-money
gambling offerings with Probability plc –mobile slot games
available in the UK that features intellectual property from our
popular Samurai vs. Zombies Defense and Contract Killer games. We
have also begun development on Glu-IP-branded mobile casino suites
which we expect to be available to customers in the UK by Q3
2013.
- We announced the availability of
Samurai vs. Zombies Defense for Xbox Games for Windows 8, providing
full support for Windows 8 leaderboards, achievements, live tiles,
cloud storage, and the Xbox 360 controller.
- Lorne Abony joined the company’s Board
of Directors as Chairman of the newly-created Strategy
Committee.
- During the first quarter, the company
expanded its publishing team to focus on driving increased
monetization and new global partnerships by adding a President of
Publishing and a Vice President of 3rd Party Publishing and naming
a new Global CTO.
“We had a solid first quarter performance which was driven by
the combination of our new title launches and continuing traction
with our sequels,” stated Eric R. Ludwig, Glu’s Chief Financial
Officer. “While our second quarter guidance reflects a light title
launch schedule, we remain in position to benefit during the second
half of the year from new title launches, increasing monetization
trends and progress from Glu Publishing. We remain confident in our
ability to end 2013 with approximately $14 million in cash and
without the need to raise additional capital or incur debt.”
Business Outlook as of May 1, 2013:
The following forward-looking statements reflect expectations as
of May 1, 2013. 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 evolve our studio and
begin to launch true games-as-a-service; 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,
2013:
- Non-GAAP revenue is expected to be
between $16.5 million and $17.5 million and non-GAAP smartphone
revenue is expected to be between $15.2 million and $16.2
million.
- Non-GAAP gross margin is expected to be
approximately 90.5%.
- Non-GAAP operating expenses are
expected to be approximately $19.9 million.
- Adjusted EBITDA, defined as non-GAAP
operating loss excluding depreciation of approximately $600,000, is
expected to range from $(3.5) million to $(4.4) million.
- Income tax expense is expected to be
$(0.2) million, which excludes a one-time, non-cash income tax
benefit of $3.1 million resulting from the release of certain tax
liabilities upon the expiration of the statute of limitations.
- Non-GAAP net loss is expected to be
between $(4.2) million and $(5.1) million, or a net loss of $(0.06)
to $(0.07) per weighted-average basic shares outstanding.
- Weighted-average common shares
outstanding are expected to be approximately 69.0 million basic and
71.3 million diluted.
2013 Expectations – Full Year Ending December 31,
2013:
- Non-GAAP revenue is expected to be
between $84.0 million and $88.5 million and non-GAAP smartphone
revenue is expected to be between $80.0 million and $84.0
million.
- Non-GAAP gross margin is expected to be
approximately 88.0%.
- Adjusted EBITDA is expected to range
from $(4.7) million to $(6.2) million.
- Non-GAAP net loss is expected to be
between $(8.4) million and $(9.9) million, or a net loss of $(0.12)
to $(0.14) per weighted-average basic shares outstanding.
- Weighted-average common shares
outstanding are expected to be approximately 68.6 million basic and
71.8 million diluted.
- We expect to have a cash balance on
December 31, 2013 of approximately $14.0 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
(877) 593-1988, or if outside the U.S., (678) 905-9423, with
conference ID # 35641864 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 1, 2013, and 8:59 p.m. Pacific Time,
May 8, 2013, by calling (855) 859-2056, or (404) 537-3406, with
conference ID # 35641864.
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 the recent 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/glu.mobile) and the company
twitter account (https://twitter.com/glumobile). Investors,
the media, players or other interested parties can subscribe to the
company blog and 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 revenues, non-GAAP smartphone 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 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 May 1, 2013" ("Second
Quarter Expectations – Quarter Ending June 30, 2013" and “2013
Expectations – Full Year Ending December 31, 2013”) and the
statements that: we anticipate further monetization and retention
traction as we continue to evolve our studio and begin to launch
true games-as-a-service; we remain committed to increasing ARPDAU
and positioning the company to lead in a Social Gaming 2.0
landscape; we expect to launch three significant titles signed by
Glu Publishing by the end of Q3 2013; we will continue to utilize
our brand to extend our reach, as evidenced by our growing
relationship with Probability plc; we expect Glu-IP-branded mobile
casino suites to be available to customers in the UK by Q3 2013; we
remain in position to benefit during the second half of the year
from new titles launches, increasing monetization trends and
progress from Glu Publishing; and that we remain confident in our
ability to end 2013 with approximately $14 million in cash and
without the need to raise additional capital or incur debt. 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 1, 2013"; 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-K
filed with the Securities and Exchange Commission on March 15, 2013
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
CONTRACT KILLER, GUN BROS, DEER HUNTER, BLOOD & GLORY, 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 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.
CONTRACT KILLER, GUN BROS, DEER HUNTER, BLOOD & GLORY,
SAMURAI VS ZOMBIES DEFENSE, 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 31,2013 December
31,2012 ASSETS Cash and cash equivalents $
21,246 $ 22,325 Accounts receivable, net 12,358 11,881 Prepaid
royalties 100 - Prepaid expenses and other current assets
2,386 2,487
Total current assets 36,090
36,693 Property and equipment, net 4,620 5,026 Other
long-term assets 435 227 Intangible assets, net 9,328 10,889
Goodwill 19,448 19,440
Total
assets $ 69,921 $ 72,275
LIABILITIES
AND STOCKHOLDERS' EQUITY Accounts payable $ 7,685 $ 7,269
Accrued liabilities 1,988 2,124 Accrued compensation 3,056 5,989
Accrued royalties 2,368 2,781 Accrued restructuring 401 4 Deferred
revenues 8,693 9,031
Total current
liabilities 24,191 27,198 Other long-term liabilities
5,827 6,190
Total liabilities
30,018 33,388 Common stock 7 6
Additional paid-in capital 277,784 271,016
Accumulated other comprehensive
income/(loss)
(89 ) 167 Accumulated deficit (237,799 ) (232,302 )
Stockholders' equity 39,903 38,887
Total liabilities and stockholders' equity $ 69,921
$ 72,275
Glu
Mobile Inc.Consolidated Statements of Operations(in
thousands, except per share data)(unaudited) Three
Months Ended March 31,2013 March
31,2012 Revenues $ 19,131
$ 21,544 Cost of revenues: Royalties
and other cost of revenues 1,988 2,557 Amortization of intangible
assets 1,074 753
Total cost of
revenues 3,062 3,310
Gross profit 16,069
18,234 Operating expenses: Research and
development 11,630 15,033 Sales and marketing 5,008 4,375 General
and administrative 3,919 4,366 Amortization of intangible assets
495 495 Restructuring charge 511 -
Total operating expenses 21,563
24,269 Loss from operations
(5,494 ) (6,035 ) Interest
and other income/(expense), net: Interest income 3 7 Other
income/(expense), net 129 (373 ) Interest and
other income/(expense), net
132
(366 ) Loss before income taxes
(5,362 ) (6,401 ) Income tax provision
(135 ) (440 )
Net loss $ (5,497
) $ (6,841 ) Net loss per
share - basic and diluted $ (0.08 )
$ (0.11 ) Weighted average common
shares outstanding - basic and diluted 66,397
63,229 Stock-based compensation expense included
in: Research and development $ 668 $ 3,260 Sales and marketing
67 115 General and administrative 510 461
Total stock-based compensation expense $ 1,245
$ 3,836
Glu Mobile Inc.GAAP to
Non-GAAP Reconciliation(in thousands, except per share
data)(unaudited)
For the Three Months Ended
March 31,2012 June 30,2012
September 30,2012 December
31,2012 March 31,2013
GAAP revenues Featurephone $ 4,165 $ 3,710 $ 2,924 $ 2,336 $
1,856 Smartphone 17,379 19,911
18,423 18,645 17,275
Total
GAAP revenues 21,544 23,621
21,347 20,981
19,131 Change in deferred
revenues Featurephone change in deferred revenue (7 ) 17 (21 )
17 29 Smartphone change in deferred revenue 57
534 (167 ) (167 ) (137 )
Total
change in deferred revenues 50
551 (188 ) (150
) (108 ) Non-GAAP
Revenues Featurephone 4,158 3,727 2,903 2,353 1,885 Smartphone
17,436 20,445 18,256
18,478 17,138
Total non-GAAP
Revenues 21,594 24,172
21,159 20,831
19,023 GAAP gross profit
18,234 20,552 18,128 17,856
16,069 Change in deferred revenues 50 551 (188 ) (150 ) (108
) Amortization of intangible assets 753 932 1,025 1,073 1,074
Change in deferred royalty expense 60 67
(30 ) (121 ) 81
Non-GAAP
gross profit 19,097 22,102
18,935 18,658
17,116 GAAP operating expense
24,269 25,769 22,311 24,527
21,563 Stock-based compensation (3,836 ) (3,038 ) 2,878
(1,826 ) (1,245 ) Amortization of intangible assets (495 ) (495 )
(495 ) (495 ) (495 ) Transitional costs (173 ) (30 ) (192 ) (94 ) -
Change in fair value of Blammo earnout (645 ) (386 ) 954 (90 ) (29
) Impairment of goodwill - - (3,613 ) - - Restructuring charge
- (320 ) (213 ) (838 )
(511 )
Non-GAAP operating expense 19,120
21,500 21,630
21,184 19,283
GAAP operating loss (6,035 ) (5,217
) (4,183 ) (6,671 )
(5,494 ) Change in deferred revenues 50 551 (188 )
(150 ) (108 ) Non-GAAP cost of revenues adjustment 813 999 995 952
1,155 Stock-based compensation 3,836 3,038 (2,878 ) 1,826 1,245
Amortization of intangible assets 495 495 495 495 495 Transitional
costs 173 30 192 94 - Change in fair value of Blammo earnout 645
386 (954 ) 90 29 Impairment of goodwill - - 3,613 - - Restructuring
charge - 320 213
838 511
Non-GAAP operating
income/(loss) (23 ) 602
(2,695 ) (2,526 )
(2,167 ) GAAP net loss
(6,841 ) (2,988 ) (3,563
) (7,067 ) (5,497 ) Change in
deferred revenues 50 551 (188 ) (150 ) (108 ) Non-GAAP cost of
revenues adjustment 813 999 995 952 1,155 Non-GAAP operating
expense adjustment 5,149 4,269 681 3,343 2,280 Foreign currency
exchange loss/(gain) 373 (205 ) 460 (263 ) (129 ) Release of tax
liabilities - (2,427 ) -
- -
Non-GAAP net income/(loss) $
(456 ) $ 199 $
(1,615 ) $ (3,185 ) $
(2,299 ) Reconciliation of net loss
and net loss per share: GAAP net loss per share - basic and
diluted $ (0.11 ) $ (0.05 ) $ (0.06 ) $ (0.11 ) $ (0.08 ) Non-GAAP
net income/(loss) per share - basic and diluted $ (0.01 ) $ 0.00 $
(0.03 ) $ (0.05 ) $ (0.03 ) Shares used in computing Non-GAAP basic
net income/(loss) per share 63,229 63,802 64,562 65,678 66,397
Shares used in computing Non-GAAP diluted net income/(loss) per
share 63,229 69,490 64,562 65,678 66,397
Non-GAAP
operating expense break-out: GAAP research and development
expense $ 15,033 $ 15,697 $
9,979 $ 13,566 $ 11,630
Transitional costs (68 ) (1 ) (45 ) (70 ) - Stock-based
compensation (3,260 ) (2,396 ) 3,388
(1,223 ) (668 )
Non-GAAP research and development
expense 11,705 13,300
13,322 12,273
10,962 GAAP sales and marketing expense
4,375 4,701 5,545 6,272 5,008
Transitional costs - - (15 ) (24 ) - Stock-based compensation
(115 ) (155 ) (73 ) (43 ) (67 )
Non-GAAP sales and marketing expense 4,260
4,546 5,457
6,205 4,941 GAAP
general & administrative expense 4,366 4,556
2,466 3,356 3,919 Transitional costs (105 )
(29 ) (132 ) - - Change in fair value of Blammo earnout (645 ) (386
) 954 (90 ) (29 ) Stock-based compensation (461 )
(487 ) (437 ) (560 ) (510 )
Non-GAAP
general and administrative expense $ 3,155
$ 3,654 $ 2,851 $
2,706 $ 3,380
Glu Mobile Inc.Non-GAAP
Adjusted EBITDA(in thousands, except per share
data)(unaudited)
For the Three Months Ended
March 31,2012 June 30,2012 September
30,2012 December 31,2012 March
31,2013 GAAP net loss $
(6,841 ) $ (2,988 ) $
(3,563 ) $ (7,067 ) $
(5,497 ) Change in deferred revenues 50 551 (188 )
(150 ) (108 ) Change in deferred royalty expense 60 67 (30 ) (121 )
81 Amortization of intangible assets 1,248 1,427 1,520 1,568 1,569
Depreciation 562 556 554 696 731 Stock-based compensation 3,836
3,038 (2,878 ) 1,826 1,245 Change in fair value of Blammo earnout
645 386 (954 ) 90 29 Transitional costs 173 30 192 94 - Impairment
of goodwill - - 3,613 - - Restructuring charge - 320 213 838 511
Foreign currency exchange loss/(gain) 373 (205 ) 460 (263 ) (129 )
Interest and other (income)/expense, net (7 ) (5 ) (5 ) (1 ) (3 )
Income tax provision/(benefit) 440 (2,019 )
(1,075 ) 660 135
Total
Non-GAAP Adjusted EBITDA $ 539 $
1,158 $ (2,141 ) $
(1,830 ) $ (1,436 )
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 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.
Restructuring Charges. Glu undertook restructuring activities in
the second, third and fourth quarters of 2012 and the first quarter
of 2013 and recorded (1) a non-cash restructuring charge due to
vacating a portion of its offices in Washington and vacating its
Brazil office and (2) cash restructuring charges due to the
termination of certain employees in its Brazil, China, Europe and
U.S. offices. Glu recorded the severance costs as an operating
expense when it communicated the benefit arrangement to the
employee and no significant future services, other than a minimum
retention period, were required of the employee to earn the
termination benefits. Glu believes that these restructuring charges
do not reflect its ongoing operations and that investors benefit
from a supplemental non-GAAP financial measure that excludes these
charges.
Change in Fair Value of Blammo Earnout. As part of the
acquisition of Blammo, Glu committed to issue additional
consideration in the form of Glu’s common stock to the former,
non-employee Blammo shareholders if certain revenue targets 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 2012 and 2013 were as follows (in
thousands):
March 31, 2012 $ (373 ) June 30, 2012 205 September 30, 2012
(460 ) December 31, 2012 263
FY 2012 $
(365 ) March 31, 2013 $ 129
FY 2013 $ 129
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