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Glu Reports First Quarter 2019 Financial Results

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SAN FRANCISCO–(BUSINESS WIRE)–Glu Mobile Inc. (NASDAQ: GLUU), a leading global developer and publisher of free-to-play mobile games, today announced financial results for its first quarter ended March 31, 2019. The company also provided an outlook for its financial performance in the second quarter and increased its financial guidance for the full year 2019.

Nick Earl, Chief Executive Officer, stated, “Glu had a strong start to the year with solid bookings growth and EBITDA profitability led by our three Growth Games. We are also excited to bring three creative and entertaining games to the market in the near term. WWE Universe, Diner DASH Adventures and Disney Sorcerer’s Arena are on track to launch in the May to August time frame. Looking ahead, we continue to bolster our pipeline with three original IP launches slated for 2020. The increase in our bookings guidance for 2019 reflects our confidence in our business.”

 

First Quarter 2019 Financial Highlights:

 
  Three Months Ended

in millions, except per share data

March 31, 2019

  March 31, 2018
 
Revenue $95.9 $81.4
Gross margin 64.0% 62.3%

Net income/(loss)

$0.7 ($7.2)

Net income/(loss) per share – basic and diluted

$0.00 ($0.05)
Weighted-average common shares outstanding – basic 144.4 139.1
Weighted-average common shares outstanding – diluted 159.4 139.1
Cash used in operations excluding royalty advances ($2.4) ($12.4)
Cash paid for royalty advances that are included in cash used in operations ($0.5) ($4.1)
Cash and cash equivalents $92.7 $48.3
 
Additional Financial Information        

Three Months Ended

Guidance provided for three months ended
March 31, 2019

March 31, 2019 March 31, 2018 Low High
Bookings $92.6 $86.3 $88.0 $90.0
Platform commissions, excluding any impact of deferred platform commissions * $24.0 $23.2 $23.1 $23.6
Royalties, excluding any impact of deferred royalties* $6.0 $5.5 $4.4 $4.5
Hosting costs $1.5 $1.8 $1.5 $1.5
User acquisition and marketing expenses $23.0 $22.2 $21.4 $21.7
Adjusted other operating expenses* $30.5 $28.0 $31.6 $31.7
Depreciation $1.1 $1.0 $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.
 

Eric R. Ludwig, Chief Operating Officer and Chief Financial Officer, said, “This is an exciting time for Glu and the mobile gaming industry at large. Over the next four months we are planning to launch the first three titles under our new development process. Our financial performance from our live Growth Games continues to be solid and our bookings will continue to benefit as we stack our new games on top of our Core Business throughout the year. We are pleased about our performance in Q1, what’s to come in 2019 and believe that we remain on track to reach our financial goals.”

Financial Outlook as of May 6, 2019:

Glu is providing its financial outlook for the second quarter of 2019 and updating guidance for the full year 2019 as follows:

   

Second Quarter 2019 Guidance:

 
in millions Low   High
Bookings $100.0 $102.0
Platform commissions, excluding any impact of deferred platform commissions $25.8 $26.3
Royalties, excluding any impact of deferred royalties $6.5 $6.6
Hosting costs $1.4 $1.4
User acquisition and marketing expenses $27.5 $27.8
Adjusted other operating expenses $32.8 $32.9
Depreciation $1.0 $1.0
 

Supplemental information:

Income tax ($0.2) ($0.2)
Stock-based compensation $6.2 $6.2
Amortization of intangible assets $1.1 $1.1
Weighted-average common shares outstanding – basic 145.7 145.7
Weighted-average common shares outstanding – diluted 161.9 161.9
 
   

Full Year 2019 Guidance:

 
in millions Low   High
Bookings $445.0 $455.0
Platform commissions, excluding any impact of deferred platform commissions $115.6 $118.2
Royalties, excluding any impact of deferred royalties $29.8 $30.5
Hosting costs $6.7 $6.8
User acquisition and marketing expenses $115.3 $117.0
Adjusted other operating expenses $126.7 $129.6
Depreciation $4.1 $4.1
 
Supplemental information:
Income tax $0.4 $0.4
Stock-based compensation $26.8 $26.8
Amortization of intangible assets 4.4 4.4
Weighted-average common shares outstanding – basic 146.2 146.2
Weighted-average common shares outstanding – diluted 162.6 162.6
Cash and cash equivalent balance At least $145.0M
 

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 # 2099286 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, May 6, 2019, and 8:59 p.m. Pacific Time, May 13, 2019, by calling (855) 859-2056, or (404) 537-3406, with conference ID # 2099286.

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 (https://communities.glu.com/home) 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:

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.

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 May 6, 2019” (“Second Quarter 2019 Guidance” and “Full Year 2019 Guidance”), and the statements that we expect our three new titles launching this year to be globally released in the May to August time frame; we continue to bolster our pipeline with three original IP launches slated for 2020; our financial performance from our live Growth Games continues to be solid and our bookings will continue to benefit as we stack our new games on top of our Core Business throughout the year; and that we believe that we remain on track to reach our financial goals. 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 Games 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-K filed with the Securities and Exchange Commission on February 28, 2019 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 additional locations in San Mateo, 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, DINER DASH, TAP SPORTS, GLU, GLU MOBILE, and the ‘g’ character logo are trademarks of Glu Mobile Inc.

   
Glu Mobile Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
  Three Months Ended
March 31, March 31,
2019 2018
 
Revenue $ 95,885 $ 81,443
 
Cost of revenue:
Platform commissions, royalties and other 32,813 29,167
Impairment of prepaid royalties and minimum guarantees 457 99
Impairment and amortization of intangible assets   1,252     1,467  
Total cost of revenue   34,522     30,733  
Gross profit   61,363     50,710  
 
Operating expenses:
Research and development 26,546 22,710
Sales and marketing 28,105 26,810
General and administrative 6,635 7,890
Restructuring charge   –     80  
Total operating expenses   61,286     57,490  
 
Income/(loss) from operations 77 (6,780 )
 
Interest and other income / (expense), net 764 (251 )
 
Income/(loss) before income taxes 841 (7,031 )
Income tax benefit/(provision)   (178 )   (175 )
Net income/(loss) $ 663   $ (7,206 )
 
Net income/(loss) per common share – basic $ 0.00 $ (0.05 )
Net income/(loss) per common share – diluted $ 0.00 $ (0.05 )
 
Weighted average common shares outstanding – basic 144,445 139,108
Weighted average common shares outstanding – diluted 159,423 139,108
 
   
Glu Mobile Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
 
March 31, December 31,
2019 2018
 
ASSETS
Cash and cash equivalents $ 92,673 $ 97,834
Accounts receivable, net 34,684 27,325
Prepaid royalties 9,284 8,520
Deferred royalties 3,813 4,410
Deferred platform commission fees 24,753 25,862
Restricted cash 110 110
Prepaid expenses and other current assets   5,463     6,940  
Total current assets 170,780 171,001
 
Property and equipment, net 13,427 13,888
Operating lease right of use assets 28,401 –
Long-term prepaid royalties 18,044 1,667
Other long-term assets 3,644 2,505
Intangible assets, net 7,893 9,145
Goodwill   116,227     116,227  
Total assets $ 358,416   $ 314,433  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 16,895 $ 10,480
Accrued liabilities 1,042 1,384
Accrued compensation 7,593 17,896
Accrued royalties 14,316 14,139
Accrued restructuring – 294
Short-term operating lease liabilities 3,997 –
Deferred revenue   82,440     85,736  
Total current liabilities 126,283 129,929
Long-term accrued royalties 18,021 1,649
Long-term operating lease liabilities 29,932 –
Other long-term liabilities   360     5,542  
Total liabilities   174,596     137,120  
 
Common stock 15 14
Additional paid-in capital 623,609 617,781
Accumulated other comprehensive income 16 1
Accumulated deficit   (439,820 )   (440,483 )
Total stockholders’ equity   183,820     177,313  
Total liabilities and stockholders’ equity $ 358,416   $ 314,433  
 
           
Glu Mobile Inc.
GAAP to Adjusted Results Reconciliation
(in thousands)

(unaudited)

 

Three Months Ended

December 31, March 31, June 30, September 30, December 31, March 31,
2017 2018 2018 2018 2018 2019
GAAP platform commissions $ 20,787 $ 21,729 $ 23,250 $ 25,650 $ 24,756 $ 25,148
Change in deferred platform commissions   707     1,477     2,768     413     760     (1,109 )
Platform Commissions, excluding any impact of deferred platform commissions $ 21,494   $ 23,206   $ 26,018   $ 26,063   $ 25,516   $ 24,039  
 
GAAP royalties (including impairment of royalties and minimum guarantees) $ 31,311 $ 5,506 $ 6,631 $ 7,141 $ 6,784 $ 6,605
Change in deferred royalties   355     15     767     (70 )   122     (596 )
Royalties, excluding any impact of deferred royalties $ 31,666   $ 5,521   $ 7,398   $ 7,071   $ 6,906   $ 6,009  
 
GAAP other operating expenses (GAAP operating expenses excluding user acquisition and marketing expenses) $ 34,516 $ 35,263 $ 34,929 $ 36,797 $ 38,695 $ 38,314
Stock-based compensation (4,424 ) (6,308 ) (5,343 ) (5,879 ) (7,062 ) (6,807 )
Transitional costs (336 ) (919 ) (13 ) – (598 )

(998

)
Restructuring charge 21 (80 ) – (160 ) – –
Litigation Costs   –     –     –     (717 )   (1,217 )  

(28

)

Adjusted other operating expenses $ 29,777   $ 27,956   $ 29,573   $ 30,041   $ 29,818   $ 30,481  
 

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 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 termination of certain game related contracts. Glu recorded these transitional 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.

Litigation costs. Glu incurred legal costs related to the complaint filed by the former Chief Executive Officer of Crowdstar in the Superior Court of the State of California for the County of Santa Clara against Glu, Time Warner Inc., Intel Capital Corporation, Middlefield Ventures Inc.

Contacts

Investor Relations Contact:
Bob Jones / Taylor Krafchik
Ellipsis
IR@glu.com
646-776-0886

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