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 loss
was $(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-processdevelopment 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 )
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