Market Overview

Glu Reports Second Quarter 2018 Financial Results

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  • Revenue increased to $90.2 million from $68.7 million year-over-year
  • Record bookings increased 20% year-over-year and 15% sequentially to
    $99.4 million
  • Company raises 2018 full year bookings guidance to a range of $374.0
    million to $378.0 million, an $11.0 million increase at the midpoint
  • Design Home peaks at #7 top grossing game on U.S. App Store for
    iPhone

Glu Mobile Inc. (NASDAQ:GLUU), a leading global developer and publisher
of free-to-play mobile games, today announced financial results for its
second quarter ended June 30, 2018. The company also provided an outlook
for its financial performance in the third quarter and increased its
financial guidance for the full year 2018.

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20180731005846/en/

(Graphic: Business Wire)

(Graphic: Business Wire)

     

Second Quarter 2018 Financial Highlights:

 
Three Months Ended

in millions, except per share data

June 30, 2018     June 30, 2017
   
Revenue $90.2 $68.7
Gross margin 62.5% 59.3%
Net loss ($4.4) ($23.6)
Net loss per share – basic and diluted ($0.03) ($0.17)
Weighted-average common shares outstanding – basic and diluted

140.5

135.1

Cash (used in) / generated from operations excluding royalty advances $13.4 ($0.5)
Cash paid for royalty advances that are included in cash (used in) /
generated from operations
($1.1) ($2.9)
Cash, cash equivalents and restricted cash $61.6 $68.9

 

                 

Additional Financial Information

               
Three Months Ended

Guidance provided for
three months ended
June
30, 2018

June 30, 2018     June 30, 2017 Low     High
Bookings $99.4 $82.5 $90.0 $92.0
Platform commissions, excluding any impact of deferred platform
commissions*
$26.0 $21.2 $23.9 $24.5
Royalties, excluding any impact of deferred royalties* $7.4 $6.5 $6.8 $6.9
Hosting costs $1.7 $1.7 $1.7 $1.7
User acquisition and marketing expenses $25.3 $27.2 $21.6 $21.9
Adjusted other operating expenses* $29.5 $31.0 $29.5 $29.5
Depreciation $0.9 $0.8 $1.0 $1.0
* Platform commissions, excluding any impact of deferred platform
commissions, Royalties, excluding any impact of deferred royalties,
and Adjusted other operating expenses are non-GAAP financial
measures. These non-GAAP financial items should be considered in
addition to, but not as a substitute for, the information provided
in accordance with GAAP. Reconciliations for these non-GAAP
financial items to the most directly comparable financial items
based on GAAP are provided in GAAP to Adjusted results
reconciliation table.
 

Nick Earl, Chief Executive Officer, stated, "Glu generated strong
sequential and year over year growth in bookings, adjusted EBITDA and
adjusted EBITDA margin in the second quarter. Our focus remains on
monetizing our existing titles, while continuing to develop our pipeline
of new games that we believe will position us for strong bookings,
adjusted EBITDA margin, and free cash flow growth as we head into next
year.

"Given our record first half results, we have raised our full year
outlook based on the second quarter guidance outperformance and our
increased expectations for the remainder of the year," said Nick Earl.

Eric R. Ludwig, Chief Operating Officer and Chief Financial Officer,
said, "The better than expected top line performance, strong
profitability on an adjusted EBITDA basis, and significant free cash
flow generation reflect solid execution across Glu. Our Growth titles
drove the record bookings and our Evergreen titles continue to
contribute to our strong results as we optimize these titles with our
live operations and monetization strategies. Additionally, the guidance
we provided today is a testament to the core business we have built as
we plan to achieve record results in 2018 and carry that momentum into
2019."

Financial Outlook as of July 31, 2018:

Glu is providing its financial outlook for the third quarter of 2018 and
updating guidance for the full year 2018 as follows:

         

Third Quarter 2018 Guidance:

 
In millions Low     High
Bookings $94.0 $96.0
Platform commissions, excluding any impact of deferred platform
commissions
$23.9 $24.3
Royalties, excluding any impact of deferred royalties $6.9 $7.0
Hosting costs $1.8 $1.8
User acquisition and marketing expenses $22.9 $23.2
Adjusted other operating expenses $30.0 $30.2
Depreciation $1.0 $1.0
 
Supplemental information:
Income tax $0.2 $0.2
Stock-based compensation $6.0 $6.0
Amortization of intangible assets $1.5 $1.5
Weighted-average common shares outstanding – basic 141.5 141.5
Weighted-average common shares outstanding – diluted 151.9 151.9
 

         

Full Year 2018 Guidance:

 
In millions Low     High
Bookings $374.0 $378.0
Platform commissions, excluding any impact of deferred platform
commissions
$98.1 $98.7
Royalties, excluding any impact of deferred royalties $26.1 $26.4
Hosting costs $7.1 $7.1
User acquisition and marketing expenses $91.6 $92.3
Adjusted other operating expenses $119.1 $119.5
Depreciation $4.0 $4.0
 

Supplemental information:

Income tax $0.7 $0.7
Stock-based compensation $25.4 $25.4
Transitional costs $0.9 $0.9
Restructuring costs $0.1 $0.1
Amortization of intangible assets $5.9 $5.9
Weighted-average common shares outstanding – basic 141.0 141.0
Weighted-average common shares outstanding – diluted 149.8 149.8
Cash and cash equivalent balance $85.0+
 

Glu does not provide guidance on a GAAP basis primarily due to the fact
that Glu is unable to predict, with reasonable accuracy, future changes
in its deferred revenue and corresponding cost of revenue. The amount of
Glu's deferred revenue and cost of revenue for any given period is
difficult to predict due to differing estimated useful lives of paying
users across games, variability of monthly revenue, platform commissions
and royalties by game and unpredictability of revenue from new game
releases. Future changes in deferred revenue and deferred cost of
revenue are uncertain and could be material to Glu's results computed in
accordance with GAAP. Accordingly, Glu is unable to provide a
reconciliation of the non-GAAP financial measure guidance to the
corresponding GAAP measure without unreasonable effort.

Quarterly Conference Call Information:

Glu will discuss its quarterly results via teleconference today at 2:00
p.m. Pacific Time (5:00 p.m. Eastern Time). Please dial (866) 582-8907
(domestic), or (760) 298-5046 (international), with conference ID #
2791249 to access the conference call at least five minutes prior to the
2:00 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 5:00 p.m. Pacific Time, July
31, 2018, and 8:59 p.m. Pacific Time, August 7, 2018, by calling (855)
859-2056, or (404) 537-3406, with conference ID # 2791249.

Disclosure Using Social Media Channels

Glu currently announces material information to its investors using SEC
filings, press releases, public conference calls and webcasts. Glu uses
these channels as well as social media channels to announce information
about the company, games, employees and other issues. Given SEC guidance
regarding the use of social media channels to announce material
information to investors, Glu is notifying investors, the media, its
players and others interested in the company that in the future, it
might choose to communicate material information via social media
channels or, it is possible that information it discloses through social
media channels may be deemed to be material. Therefore, Glu encourages
investors, the media, players and others interested in Glu to review the
information posted on the company forum (http://ggnbb.glu.com/forum.php)
and the company Facebook site (https://www.facebook.com/glumobile)
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 bookings, platform commissions, excluding any
impact of deferred platform commissions, royalties, excluding any impact
of deferred royalties, and adjusted operating expenses. These non-GAAP
financial measures exclude the following items from Glu's unaudited
consolidated statements of operations:

  • Change in deferred platform commissions;
  • Change in deferred royalties;
  • Non-cash warrant benefit/(expense);
  • Impairment and amortization of intangible assets;
  • Stock-based compensation expense;
  • Restructuring charges; and
  • Transitional costs.

Bookings do not reflect the deferral of certain game revenue that Glu
recognizes over the estimated useful lives of paying users of Glu's
games and excludes changes in deferred revenue and litigation settlement
proceeds.

Glu may consider whether significant 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 "Financial Outlook as of July 31, 2018" ("Third Quarter
2018 Guidance" and "Full Year 2018 Guidance"), and the statements that
our focus remains on monetizing our existing titles, while continuing to
develop our pipeline of new games that we believe will position us for
strong bookings, adjusted EBITDA margin, and free cash flow growth as we
head into next year; we have increased expectations for the remainder of
the year; and we plan to achieve record results in 2018 and carry that
momentum into 2019. 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
risk that consumer demand for smartphones, tablets and next-generation
platforms does not grow as significantly as we anticipate or that we
will be unable to capitalize on any such growth; the risk that we do not
realize a sufficient return on our investment with respect to our
efforts to develop free-to-play games for smartphones, tablets and
next-generation platforms, the risk that we will be unable build
successful Growth titles that provide predictable bookings and year over
year growth; the risk that we will not be able to maintain our good
relationships with Apple and Google; the risk that our development
expenses for games for smartphones, tablets and next-generation
platforms are greater than we anticipate; the risk that our recently and
newly launched games are less popular than anticipated or decline in
popularity and monetization rate more quickly than we anticipate; the
risk that our newly released games will be of a quality less than
desired by reviewers and consumers; the risk that the mobile games
market, particularly with respect to free-to-play gaming, is smaller
than anticipated; the risk that we may lose a key intellectual property
license; the risk that we are unable to recruit and retain qualified
personnel for developing and maintaining the games in our product
pipeline resulting in reduced monetization of a game, product launch
delays or games being eliminated from our pipeline altogether; and other
risks detailed under the caption "Risk Factors" in our Form 10-Q filed
with the Securities and Exchange Commission on May 9, 2018 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
creator of mobile games. Founded in 2001, Glu is headquartered in San
Francisco with Bay Area studios in Burlingame and San Mateo, and
international locations in Toronto and Hyderabad. With a history
spanning over a decade, Glu's culture is rooted in taking smart risks
and fostering creativity to deliver world-class interactive experiences
for our players. Glu's diverse portfolio features top-grossing and
award-winning original and licensed IP titles including, Cooking DASH,
Covet Fashion, Deer Hunter, Design Home, MLB Tap
Sports Baseball
and Kim Kardashian: Hollywood available
worldwide on various platforms including the App Store and Google Play.
For more information, visit www.glu.com
or follow Glu on Twitter,
Facebook
and Instagram.

COOKING DASH, COVET FASHION, DEER HUNTER, DESIGN HOME, TAP SPORTS, GLU,
GLU MOBILE, and the 'g' character logo are trademarks of Glu Mobile Inc.

                 
Glu Mobile Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2018 2017 2018 2017
 
Revenue $ 90,193 $ 68,679 $ 171,636 $ 125,467
 
Cost of revenue:
Platform commissions, royalties and other 32,386 24,761 61,553 45,621
Impairment of prepaid royalties and minimum guarantees - - 99 792
Amortization of intangible assets   1,468     3,171     2,935     6,433  
Total cost of revenue   33,854     27,932     64,587     52,846  
Gross profit   56,339     40,747     107,049     72,621  
 
Operating expenses:
Research and development 22,832 23,989 45,542 49,022
Sales and marketing 29,741 30,952 56,551 48,240
General and administrative 7,608 8,678 15,498 17,175
Restructuring charge   -     926     80     4,638  
Total operating expenses   60,181     64,545     117,671     119,075  
 
Loss from operations (3,842 ) (23,798 ) (10,622 ) (46,454 )

Interest and other income/(expense), net

(366 ) 53 (617 ) (69 )
Loss before income taxes (4,208 ) (23,745 ) (11,239 ) (46,523 )
Income tax benefit/(provision)   (207 )   177     (382 )   189  
Net loss $ (4,415 ) $ (23,568 ) $ (11,621 ) $ (46,334 )
 
Net loss per common share - basic and diluted $ (0.03 ) $ (0.17 ) $ (0.08 ) $ (0.34 )
 
Weighted average common shares outstanding - basic and diluted 140,534 135,065

139,825

134,700
 

         
Glu Mobile Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
June 30, December 31,
2018 2017
 
ASSETS
Cash and cash equivalents $ 61,518 $ 63,764
Accounts receivable, net 38,012 34,673
Prepaid royalties 4,136 2,994
Deferred royalties 4,357 4,364
Deferred platform commission fees 24,690 20,446
Restricted Cash 110 602
Prepaid expenses and other current assets   7,436     10,733  
Total current assets 140,259 137,576
 
Property and equipment, net 13,461 14,630
Long-term prepaid royalties 6,685 9,302
Other long-term assets 3,156 3,299
Intangible assets, net 15,329 18,264
Goodwill   116,227     116,227  
Total assets $ 295,117   $ 299,298  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 16,744 $ 21,203
Accrued liabilities 1,097 1,154
Accrued compensation 10,554 20,603
Accrued royalties 10,115 11,782
Accrued restructuring 435 759
Deferred revenue   81,817     77,403  
Total current liabilities 120,762 132,904
Long-term accrued royalties 4,700 7,300
Other long-term liabilities   5,283     5,234  
Total liabilities   130,745     145,438  
 
Common stock 14 14
Additional paid-in capital 603,248 589,962
Accumulated other comprehensive income (loss) 15 (6 )
Accumulated deficit   (438,905 )   (436,110 )
Total stockholders' equity   164,372     153,860  
Total liabilities and stockholders' equity $ 295,117   $ 299,298  
 

                         
Glu Mobile Inc.
GAAP to Adjusted Results Reconciliation
(in thousands)
(unaudited)
Three Months Ended
March 31, June 30, September 30, December 31, March 31, June 30,
2017 2017 2017 2017 2018 2018
GAAP platform commissions $ 14,307 $ 17,595 $ 21,063 $ 20,787 $ 21,729 $ 23,250
Change in deferred platform commissions   3,479     3,583     1,107     707     1,477     2,768  
Platform Commissions, excluding any impact of deferred platform
commissions
$ 17,786   $ 21,178   $ 22,170   $ 21,494   $ 23,206   $ 26,018  
 
GAAP royalties (including impairment of royalties and minimum
guarantees)
$ 5,489 $ 5,468 $ 6,473 $ 31,311 $ 5,506 $ 6,631
Change in deferred royalties   (145 )   1,032     (153 )   355     15     767  
Royalties, excluding any impact of deferred royalties $ 5,344   $ 6,500   $ 6,320   $ 31,666   $ 5,521   $ 7,398  
 
GAAP other operating expenses (GAAP operating expenses excluding
user acquisition and marketing expenses)
$ 40,450 $ 37,341 $ 36,138 $ 34,516 $ 35,263 $ 34,929
Stock-based compensation (3,541 ) (3,523 ) (3,575 ) (4,424 ) (6,308 ) (5,343 )
Transitional costs (1,582 ) (1,924 ) (506 ) (336 ) (919 ) (13 )
Restructuring charge   (3,712 )   (926 )   (1,402 )   21     (80 )   -  
Adjusted other operating expenses $ 31,615   $ 30,968   $ 30,655   $ 29,777   $ 27,956   $ 29,573  
 

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 Platform Commissions and Deferred 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 any associated cost of revenue, including
platform commissions and royalties, on a straight-line basis over the
estimated life of the paying user. Internally, Glu's management excludes
the impact of the changes in deferred platform commissions and deferred
royalties related to its premium and free-to-play games in its non-GAAP
financial measures when evaluating the company's operating performance,
when planning, forecasting and analyzing future periods, and when
assessing the performance of its management team. Glu believes that
excluding the impact of the changes in deferred platform commissions and
deferred royalties from its operating results is important to facilitate
comparisons to prior periods and to understand Glu's operations.

Non-cash Warrant (benefit)/expense. Glu recorded non-cash charges
related to the warrants to purchase shares of common stock issued to
certain brand holders as part of third party licensing, development and
publishing arrangements. These charges were recorded in cost of revenue.
When evaluating the performance of its consolidated results, Glu does
not consider non-cash warrant charges as it places a greater emphasis on
overall stockholder dilution rather than the accounting charges
associated with any warrants. As the non-cash warrant expense impacts
comparability from period to period Glu believes that investors benefit
from a supplemental non-GAAP financial measure that excludes these
charges.

Impairment and amortization of Intangible Assets. When analyzing
the operating performance of an acquired entity or intangible asset,
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 applies the fair value
provisions of Accounting Standard Codification Topic 718,
Compensation-Stock Compensation ("ASC 718"). ASC 718 requires the
recognition of compensation expense, using a fair-value based method,
for costs related to all share-based payments. Glu's management team
excludes stock-based compensation expense from its short and long-term
operating plans. In contrast, Glu's management team is held accountable
for cash-based compensation and such amounts are included in its
operating plans. Further, when considering the impact of equity award
grants, Glu places a greater emphasis on overall stockholder dilution
rather than the accounting charges associated with such grants. Glu
believes it is useful to provide a non-GAAP financial measure that
excludes stock-based compensation in order to better understand the
long-term performance of its business.

Restructuring Charges. Glu undertook restructuring activities in
the first, second and third quarters of 2017 and recorded cash
restructuring charges due to the termination of certain employees in
Asia and certain U.S. offices. Glu recorded the severance costs as an
operating expense when it communicated the benefit arrangement to the
employee and no significant future services, other than a minimum
retention period, were required of the employee to earn the termination
benefits. Additionally, Glu recorded restructuring charges upon exiting
portions of certain facilities in Asia and the U.S. in 2017 and the
first quarter of 2018. 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.

Transitional Costs. GAAP requires expenses to be recognized for
various types of events associated with a business acquisition such as
legal, accounting and other deal related expenses. Glu incurred various
costs related to the divestiture of its Moscow studio and the
acquisition and integration of Crowdstar and Dairy Free Games into Glu's
operations. Glu recorded these 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.

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