Glu Mobile (NASDAQ:GLUU)
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Glu Mobile Inc. (NASDAQ:GLUU) today announced financial results for the
first quarter ended March 31, 2008. Glu reported first quarter
consolidated revenue of $20.6 million, compared to $15.7 million in the
first quarter of 2007. The GAAP net loss in the first quarter of 2008
was $(6.0) million, or $(0.21) per basic share, compared to a GAAP net
loss of $(764,000), or $(0.12) per basic share in the first quarter of
2007.
First quarter 2008 non-GAAP net loss was $(42,000), or $0.00 per basic
share, which excludes amortization of intangible assets of $1.8 million,
stock-based compensation charges of $2.0 million, the non-equity
component of the MIG earnout of $622,000, an impairment of investments
in auction-rate securities of $235,000, transitional expenses of
$240,000, restructuring charges of approximately $75,000 and a $1.0
million charge related to acquired in-process research and development
for the acquisition of Superscape. This compares to a non-GAAP net loss
of $(577,000), or $(0.09) per basic share, in the first quarter of 2007
which excludes amortization of intangible assets of $619,000,
stock-based compensation charges of $608,000 and a $1.0 million gain on
sale of assets.
“Strong sales in the U.S. and China, as well
as a rebound in the European market, contributed to a better than
expected quarter for us,” said Greg Ballard,
president and chief executive officer, Glu. “The
integration of MIG and Superscape, our title plan roadmap for the
remainder of 2008 and our continued operational discipline position us
to increase significantly our global market share in the coming months
and quarters.”
A reconciliation of the GAAP net loss and EPS to net loss and EPS on a
non-GAAP basis is provided in the GAAP to non-GAAP reconciliations
following the Consolidated Statements of Operations.
Glu's top ten titles represented approximately 43 percent of revenue in
the first quarter of 2008, which was down from approximately 57 percent
of revenue in the first quarter a year ago. The average revenue per top
ten title was $886,000, roughly equal to the first quarter of last year.
New titles released in the first quarter of 2008 included Age of Empires
III, based on the best selling Microsoft strategy franchise, Solitaire
Pop from PlayFirst, as well as key original titles from Glu such as
Space Monkey and CrossPix.
"The depth and breadth of our title portfolio drove our record revenue
in the quarter, as no title represented more than 10% of revenue and our
geographic mix was nicely balanced as well," said Eric R. Ludwig, Glu's
senior vice president and interim chief financial officer. "We are in
the advanced stages of integrating our recent acquisitions and we are
already reaping the benefits of our MIG acquisition with strong results
in China in the first quarter. As a result of our solid first quarter
results, we are increasing our guidance for revenue and non-GAAP EPS for
the 2008 fiscal year."
Business Outlook
The following forward-looking statements reflect expectations as of May
13, 2008. Results may be materially different and are affected by many
factors, such as: consumer demand for mobile entertainment; carriers'
and distributors' marketing to consumers; carriers' maintaining their
networks and provisioning systems to enable consumer purchases;
development delays on Glu's products; competition in the industry;
changes in foreign exchange rates; the value of Glu’s
auction-rate securities; Glu's effective tax rate and other factors
detailed in this release and in Glu's SEC filings.
Second Quarter Expectations - Ending June 30, 2008:
GAAP revenue is expected to be between $23.5 million and $24.0 million
Gross margin, excluding amortization, is expected to be approximately
74 percent
Income taxes are expected to be between $700,000 and $900,000
GAAP net loss is expected to be between $(6.5) million and $(7.0)
million, or $(0.22) and $(0.24) per basic share; weighted average
common shares outstanding for the second quarter of 2008 are expected
to be approximately 29.5 million basic and 30.5 million diluted
Non-GAAP net loss is expected to be between $(400,000) and breakeven,
or between a loss of $(0.01) and $(0.00) per basic share, which
excludes $3.2 million for amortization of intangibles, approximately
$2.7 million of anticipated stock-based compensation and MIG earnout
expense and approximately $650,000 of anticipated restructuring and
transitional expenses
Full Year Expectations - Year Ending December 31, 2008:
GAAP revenue is expected to be between $96.5 million and $100.0 million
GAAP net loss is expected to be between $(18.1) million and $(19.2)
million, or between $(0.61) to $(0.65) per basic share; weighted
average common shares outstanding for the calendar year 2008 are
expected to be approximately 29.5 million basic and 31.0 million
diluted
Non-GAAP net income is expected to be between $5.9 million and $7.0
million, or between $0.19 and $0.23 per diluted share, which excludes
$11.5 million for amortization of intangibles, approximately $11.2
million of anticipated stock-based compensation and MIG earnout
expense, $1.0 million of acquired in process research and development,
$235,000 impairment of auction-rate securities and approximately $1.1
million of combined restructuring and transitional expenses
Quarterly Conference Call
Glu will discuss its quarterly results via teleconference at 11:00 a.m.
(ET) today, May 13, 2008. To access the call, please dial (888)
803-5681, or if outside the U.S., (706) 643-8823 to access the
conference call at least five minutes prior to the 11:00 a.m. (ET) start
time. A live webcast and replay of the call will also be available at http://www.glu.com/corp/Pages/investors.aspx
under the Investor Calendar and Webcasts menu. An audio replay will be
available between 11:00 a.m. (PT), May 13, 2008, and 8:59 p.m. (PT), May
27, 2008, by calling (800) 642-1687, or (706) 645-9291, with conference
ID # 44837307.
Use of Non-GAAP Financial Measures
To supplement Glu's unaudited condensed consolidated financial
statements 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 non-GAAP gross profit, non-GAAP operating income (loss),
non-GAAP net income (loss) and historical and estimated non-GAAP basic
and diluted earnings (loss) per share. These non-GAAP financial measures
exclude the following items from Glu's statement of operations:
Acquired in-process technology
Amortization of intangibles
Stock-based compensation
Gain on sale of assets
Impairment of auction-rate securities
Restructuring
MIG earnout
Transitional expenses
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. Non-GAAP financial measures should not be considered in
isolation or as a substitute for operating results prepared in
accordance with GAAP.
Cautions Regarding Forward Looking Statements
This news release contains forward-looking statements, including those
regarding Glu's "Business Outlook" ("Second Quarter Expectations -
Ending June 30, 2008" and "Full Year Expectations - Year Ending December
31, 2008") and our belief that the integration of MIG and Superscape,
our title plan roadmap for the remainder of 2008 and our continued
operational discipline position us to increase significantly our global
market share in the coming months and quarters. 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";
the risk that we are unable to complete successfully the integrations of
MIG and Superscape, the risk that our title plan roadmap for the
remainder of 2008 is not as successful as we anticipate, the risk that
growth of next generation handsets and advanced networks is lower than
anticipated; the risk that the company's recently and newly launched
games are less popular than anticipated; the risk that our newly
released games of a quality less than desired by reviewers and
consumers; the risk that mobile game market is smaller than anticipated;
and other risks detailed under the caption "Risk Factors" in the Form
10-K filed with the Securities and Exchange Commission on March 31,
2008. Glu is under no obligation, and expressly disclaims any
obligation, to update or alter its forward-looking statements whether as
a result of new information, future events or otherwise.
About Glu Mobile
Glu (NASDAQ:GLUU) is a leading global publisher of mobile games. Its
portfolio of top-rated games includes original titles Super K.O.
Boxing!, Stranded and Brain Genius, and titles based on major brands
from partners including Atari, Activision, Konami, Harrah's, Hasbro,
Warner Bros., Microsoft, PlayFirst, PopCap Games, SEGA and Sony. Founded
in 2001, Glu is based in San Mateo, Calif. and has offices in London,
France, Germany, Spain, Italy, Sweden, Poland, Russia, Hong Kong, China,
Brazil, Chile, Canada and San Clemente, Calif. Consumers can find
high-quality, fresh entertainment created exclusively for their mobile
phones wherever they see the 'g' character logo or at www.glu.com.
GLU MOBILE, GLU, SUPER K.O. BOXING!, STRANDED, BRAIN GENIUS and the 'g'
character logo are trademarks of Glu Mobile.
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,
2008
2007
ASSETS
Cash and cash equivalents
$
29,523
$
57,816
Short-term investments
1,759
1,994
Accounts receivable, net
22,810
18,369
Prepaid royalties
13,264
10,643
Prepaid expenses and other current assets
3,140
2,589
Total current assets
70,496
91,411
Property and equipment, net
6,194
3,817
Prepaid royalties
7,272
2,825
Other long-term assets
1,165
1,593
Intangible assets, net
29,242
14,597
Goodwill
60,102
47,262
Total assets
$
174,471
$
161,505
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
$
11,061
$
6,427
Accrued liabilities
503
217
Accrued compensation
3,329
2,322
Accrued royalties
14,354
12,759
Accrued restructuring
2,502
-
Deferred revenues
494
640
Total current liabilities
32,243
22,365
Other long term liabilities
14,379
9,679
Total liabilities
46,622
32,044
Minority interest in consolidated subsidiaries
975
-
Common stock
3
3
Additional paid-in capital
182,650
179,924
Deferred stock-based compensation
(79
)
(113
)
Accumulated other comprehensive income
2,735
2,080
Accumulated deficit
(58,435
)
(52,433
)
Total stockholders' equity
126,874
129,461
Total liabilities and stockholders' equity
$
174,471
$
161,505
Glu Mobile Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
March 31,
2008
2007
Revenues
$
20,592
$
15,698
Cost of revenues:
Royalties
5,488
4,292
Amortization of intangible assets
1,708
552
Total cost of revenues
7,196
4,844
Gross profit
13,396
10,854
Operating expenses:
Research and development
6,520
4,713
Sales and marketing
5,782
3,075
General and administrative
5,395
4,009
Amortization of intangible assets
68
67
Restructuring charge
75
-
Acquired in-process research and development
1,039
-
Gain on sale of assets
-
(1,040
)
Total operating expenses
18,879
10,824
Income (loss) from operations
(5,483
)
30
Interest and other income/(expense), net:
Interest income
527
166
Interest expense
(10
)
(847
)
Other income, net
91
159
Interest and other income/(expense), net
608
(522
)
Loss before income taxes and minority interest
(4,875
)
(492
)
Income tax (provision)
(1,130
)
(272
)
Minority interest in consolidated subsidiaries
3
-
Net loss
(6,002
)
(764
)
Accretion to preferred stock
-
(17
)
Deemed dividend
-
(3,130
)
Net loss attributable to common stockholders
$
(6,002
)
$
(3,911
)
Net loss per share attributable to common stockholders - basic
and diluted:
Net loss
(0.21
)
(0.12
)
Accretion to preferred stock
-
-
Deemed dividend
-
(0.47
)
Net loss per share attributable to common stockholders - basic and
diluted
$
(0.21
)
$
(0.59
)
Weighted average common shares outstanding - basic and diluted
29,146
6,682
Stock-based compensation expense included in:
Research and development
$
77
$
95
Sales and marketing
1,301
97
General and administrative
594
416
Total stock-based compensation expense
$
1,972
$
608
Glu Mobile Inc.
Three Months Ended
GAAP to Non-GAAP Reconciliation
March 31, 2008
(in thousands, except per share data)
(unaudited)
GAAP
Adjustments
Non-GAAP
Amortization of intangible assets
1,708
(1,708
)
-
Total cost of revenues
7,196
(1,708
)
5,488
Gross profit
13,396
1,708
15,104
Research and development
6,520
(127
)
a
6,393
Sales and marketing
5,782
(1,959
)
a
3,823
General and administrative
5,395
(749
)
a
4,646
Amortization of intangible assets
68
(68
)
-
Restructuring charge
75
(75
)
-
Acquired in-process research and development
1,039
(1,039
)
-
Total operating expenses
18,879
(4,017
)
14,862
Income/(loss) from operations
(5,483
)
5,725
242
Interest and other income, net
608
235
b
843
Income/(loss) before income taxes and minority interest
(4,875
)
5,960
1,085
Net loss
(6,002
)
5,960
(42
)
Net loss attributable to common stockholders
$
(6,002
)
$
5,960
$
(42
)
Reconciliation of net loss and net loss per share:
Non-GAAP net loss per share - basic and diluted
$
(0.21
)
$
0.21
$
-
Shares used in computing basic and diluted net loss per share
29,146
29,146
a - Excluded amount represents stock-based compensation expense,
Superscape and MIG transitional expenses and MIG earnout expenses
b - Excluded amount represents impairment of auction-rate securities
Glu Mobile Inc.
Three Months Ended
GAAP to Non-GAAP Reconciliation
March 31, 2007
(in thousands, except per share data)
(unaudited)
GAAP
Adjustments
Non-GAAP
Amortization of intangible assets
552
(552
)
-
Total cost of revenues
4,844
(552
)
4,292
Gross profit
10,854
552
11,406
Research and development
4,713
(95
)
a
4,618
Sales and marketing
3,075
(97
)
a
2,978
General and administrative
4,009
(416
)
a
3,593
Amortization of intangible assets
67
(67
)
-
Gain on sale of assets
(1,040
)
1,040
-
Total operating expenses
10,824
365
11,189
Income from operations
30
187
217
Net loss
(764
)
187
(577
)
Net loss attributable to common stockholders
$
(3,911
)
$
187
$
(3,724
)
Reconciliation of net loss and net loss per share:
Non-GAAP net loss per share - basic and diluted
$
(0.12
)
$
0.03
$
(0.09
)
Shares used in computing basic and diluted net loss per share
6,682
6,682
a - Excluded amount represents stock-based compensation expense
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:
Acquired in-process technology. Glu recorded charges for acquired
in-process research and development (“IPR&D”),
included in its GAAP presentation of operating expense, in connection
with the acquisition of iFone and MIG. These amounts were expensed on
the acquisition date as the acquired technology had not yet reached
technological feasibility and had no future alternative uses. There can
be no assurance that acquisition of business, products or technologies
in the future will not result in substantial charges for acquired IPR&D.
Accordingly, acquired IPR&D are non-recurring and generally
unpredictable. Glu believes it is useful to provide, as a supplement to
its GAAP operating results, a non-GAAP financial measure that excludes
acquired IPR&D.
Amortization of Intangibles. 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. Glu adopted SFAS 123R, "Share-Based Payment"
beginning with its fiscal year 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 shareholder 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 SFAS 123R, "Share-Based Payment" beginning with its fiscal year 2006,
Glu believes that a non-GAAP financial measure that excludes stock-based
compensation will facilitate the comparison of its year-over-year
results.
Gain on Sale of Assets. Glu recognized a gain on sale of assets related
to the sale of its ProvisionX software. Under the terms of the
agreement, Glu will co-own the intellectual property rights to the
ProvisionX software, excluding any alterations or modifications
following completion of the sale, by the third party. As this gain is
non-recurring, Glu believes it does not reflect Glu’s
ongoing operations and that investors benefit from a supplemental
non-GAAP financial measure that excludes this gain.
Impairment of Auction-Rate Securities. Glu recorded impairment charges
related to its two remaining auction-rate securities (“ARS”)
that were deemed to have an other-than-temporary decrease in fair value
based on third-party valuation models and other indicative factors. The
ARS held by the company are private placement securities with long-term
nominal maturities for which the interest rates are reset through a
Dutch auction each month. The monthly auctions historically have
provided a liquid market for these securities.
If uncertainties in the credit and capital markets continue, these
markets deteriorate further or the company experiences additional rating
downgrades on its ARS investments in its portfolio, Glu may incur
additional impairments which could negatively affect the company's
financial condition, cash flow and reported earnings. Glu believes that
the impairments of these investments do not reflect Glu’s
ongoing operations and that investors benefit from a supplemental
non-GAAP financial measure that excludes these impairments.
Restructuring. Glu undertook a restructuring activity to relocate its
France operations from Nice to Paris. The resulting restructuring charge
principally consisted of costs associated with employee termination
benefits. Glu recorded these 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 in order to earn the termination benefits. Glu believes
that the restructuring charge does not reflect the Company’s
ongoing operations and that investors benefit from a supplemental
non-GAAP financial measure that excludes these charges.
MIG earnout. As part of the acquisition of MIG, Glu committed to pay
additional consideration in the form of cash and stock to the MIG
shareholders and bonus payments in the form of stock to two officers of
MIG, who are also shareholders. The Company will record the estimated
contingent consideration and bonuses earned by the two officers as
stock-based and non-equity compensation over the two year vesting period
ending December 31, 2009. Glu believes that these earnout expenses
affect comparability from period to period and that investors benefit
from a supplemental non-GAAP financial measure that excludes these
charges.
Transitional Costs. Glu has incurred various costs related to the
transition and integration of Superscape and MIG into Glu’s
operations. Glu recorded these non-recurring costs as operating expenses
when they were incurred. Glu believes that these transitional costs
affect comparability from period to period and that investors benefit
from a supplemental non-GAAP financial measure that excludes these
expenses.