Glu Reports Second Quarter 2013 Financial Results; Changes to Gross Accounting for Revenues and Cost

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Glu Reports Second Quarter 2013 Financial Results; Changes to Gross Accounting for Revenues and Cost of Revenues

  • Q2 2013 financial results at high-end of previously announced guidance
  • Restatement of prior financial statements results in an increase of revenues and equal increase of cost of revenues
  • Restatement has no impact on gross profit, operating income/(loss), net income/(loss) or per share amounts, Adjusted EBITDA or cash flows
  • Provides updated full-year outlook for 2013

SAN FRANCISCO--(BUSINESS WIRE)-- Glu Mobile Inc. (NAS: GLUU) , a leading global developer and publisher of free-to-play games for smartphone and tablet devices, today announced financial results for its second quarter ended June 30, 2013. The company also announced that as a result of discussions between management and its independent registered public accounting firm, Glu has concluded that smartphone revenues and cost of revenues for sales to end customers through digital storefronts need to be restated to a gross accounting basis, rather than the net basis previously applied.

The company is revising its financial statements for the year ended December 31, 2010 and restating its financial statements for the years ended December 31, 2011 to 2012 and the first quarter of 2013. The revision and restatements increase GAAP and non-GAAP revenues with a corresponding identical increase to GAAP and non-GAAP cost of revenues. As a result, gross profit, operating income/(loss), net income/(loss), per share amounts, Adjusted EBITDA and cash flows during the affected periods were unchanged. Below is a summary of the impact of the revision and restatements on a GAAP and non-GAAP basis:

 
(in thousands, except percentage and per share data)
(unaudited)
 GAAP
Revised
 GAAP
Restated
 GAAP
Restated
 GAAP
Restated
 Non-GAAP
Revised
 Non-GAAP
Restated
 Non-GAAP
Restated
 Non-GAAP
Restated
 2010   2011   2012  Q113 2010   2011   2012  Q113
      
As Reported:
Featurephone$54,475$31,091$13,135$1,856$54,052$31,007$13,141$1,885
Smartphone 9,870   35,094   74,358   17,275  10,221   41,904   74,615   17,138 
Total Revenues64,34566,18587,49319,13164,27372,91187,75619,023
Cost of Revenues21,53218,36712,7233,06217,14212,9658,9641,907
Gross Profit42,81347,81874,77016,06947,13159,94678,79217,116
Gross Margin67%72%85%84%73%82%90%90%
 
Net Loss$(13,423)$(21,101)$(20,459)$(5,497)$(3,004)$(4,036)$(5,057)$(2,299)
Net Loss Per Share(0.38)(0.37)(0.32)(0.08)(0.08)(0.07)(0.08)(0.03)
Adjusted EBITDA----255(1,534)(2,274)(1,436)
 
Adjustments:
Featurephone$-$-$-$-$-$-$-$-
Smartphone 2,459   7,840   20,690   5,474  2,610   9,745   21,166   5,693 
Total Revenues2,4597,84020,6905,4742,6109,74521,1665,693
Cost of Revenues2,4597,84020,6905,4742,6109,74521,1665,693
Gross Profit--------
 
Revised/Restated:
Featurephone$54,475$31,091$13,135$1,856$54,052$31,007$13,141$1,885
Smartphone 12,329   42,934   95,048   22,749  12,831   51,649   95,781   22,831 
Total Revenues66,80474,025108,18324,60566,88382,656108,92224,716
Cost of Revenues23,99126,20733,4138,53619,75222,71030,1307,600
Gross Profit42,81347,81874,77016,06947,13159,94678,79217,116
Gross Margin64%65%69%65%70%73%72%69%
 
Net Loss$(13,423)$(21,101)$(20,459)$(5,497)$(3,004)$(4,036)$(5,057)$(2,299)
Net Loss Per Share(0.38)(0.37)(0.32)(0.08)(0.08)(0.07)(0.08)(0.03)
Adjusted EBITDA  -   -   -   -   255   (1,534)  (2,274)  (1,436)

Please see the Form 8-K that Glu filed today for further details regarding the restatement and revision of its historical financial statements described above. All financial information presented in this press release for historical periods, including Q2 2013, and for future periods reflects the recognition on a gross basis of smartphone revenues attributable to sales to end customers through digital storefronts.

The company expects to file on a timely basis its Form 10-Q for the second quarter of 2013, together with an amended Form 10-K for the year ended December 31, 2012, which will include the revised audited consolidated financial statements for 2010 and the restated audited consolidated financial statements for 2011 and 2012, and an amended Form 10-Q for the first quarter of 2013. Until Glu files its amended and restated Form 10-K for the year ended December 31, 2012 and its amended and restated Form 10-Q for the first quarter of 2013, the expected effects of the restatement or revision, as applicable, are subject to change.

"The second quarter demonstrated strengthening monetization trends as we successfully utilized our live-ops, direct marketing and advertising strategies," stated Niccolo de Masi, Chief Executive Officer of Glu. "By year-end we are on track to launch new installments of the Deer Hunter, Eternity Warriors, and Frontline Commando franchises, as well as an exciting new IP in the motocross genre. All four of these titles will take advantage of our central GluOn games-as-a-service technology platform which supports online-only gameplay. GluOn features are expected to facilitate enhancements in monetization and retention across all Glu studios worldwide beginning in Q4 2013."

De Masi continued, "We remain highly optimistic on the global potential of Glu Publishing, which released its first game in early July, and we expect to launch five additional titles by the end of the year. The combination of improving monetization and retention, strong upcoming GluOn-enabled launches, and traction with 3rd party publishing positions Glu to return to growth in Q4 and beyond."

Second Quarter 2013 Financial Highlights:

As discussed above, all financial information in this press release for Q2 2013 reflects the recognition on a gross basis of smartphone revenues attributable to sales to end customers through third party digital storefronts.

  • Revenues: Total GAAP revenues were $24.4 million in the second quarter of 2013 compared to $29.3 million in the second quarter of 2012. Total non-GAAP revenues were $23.2 million in the second quarter of 2013 compared to $29.8 million in the second quarter of 2012. Non-GAAP revenues exclude changes in deferred revenues.
  • Gross Margin: GAAP gross margin was 64% in the second quarter of 2013 compared to 70% in the second quarter of 2012. Non-GAAP gross margin was 69% in the second quarter of 2013 compared to 74% in the second quarter of 2012. Non-GAAP gross margin excludes changes in deferred revenues and cost of revenues and amortization of intangible assets.
  • GAAP Operating Loss: GAAP operating loss was $(6.0) million in the second quarter of 2013 compared to a $(5.2) million loss in the second quarter of 2012.
  • Non-GAAP Operating Loss: Non-GAAP operating loss was $(3.6) million in the second quarter of 2013 compared to a profit of $602,000 during the second quarter of 2012. Non-GAAP operating income/(loss) excludes changes in deferred revenues and deferred cost of revenues, stock-based compensation expense, amortization of intangible assets, restructuring charges, change in fair value of the Blammo earnout, transitional costs and impairment of goodwill.
  • Adjusted EBITDA: Adjusted EBITDA was a $(2.9) million loss for the second quarter of 2013 compared to a $1.2 million profit during the second quarter of 2012. Adjusted EBITDA is defined as non-GAAP operating income/(loss) less depreciation.
  • GAAP Net Loss and EPS: GAAP net losswas $(2.9) million for the second quarter of 2013 compared to a GAAP net loss of $(3.0) million for the second quarter of 2012. GAAP EPS was a loss of $(0.04) for the second quarter of 2013, based on 69.8 million weighted-average basic shares outstanding, compared to a loss of $(0.05) for the second quarter of 2012, based on 63.8 million weighted-average basic shares outstanding.
  • Non-GAAP Net Loss and EPS: Non-GAAP net loss was $(3.8) million for the second quarter of 2013 compared to a profit of $199,000 for the second quarter of 2012. Non-GAAP EPS was a loss of $(0.05) for the second quarter of 2013 based on 69.8 million weighted-average basic shares outstanding, compared to a breakeven EPS for the second quarter of 2012 based on 63.8 million weighted-average basic shares outstanding.
  • Cash Flows Used in Operations: Cash flows used in operations were $(1.9) million for the second quarter of 2013 compared to cash flows generated in operations of $1.6 million for the second quarter of 2012.

A reconciliation of GAAP to non-GAAP results has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Selected Second Quarter of 2013 Operating Highlights and Metrics:

  • Our total GAAP smartphone revenues for the second quarter of 2013 were $23.0 million and comprised 94% of total GAAP revenue.
  • Our non-GAAP smartphone revenues for the second quarter of 2013 were $21.8 million and comprised 94% of total non-GAAP revenue.
  • Our non-GAAP freemium revenues (micro-transactions, in-game advertising and offers) for the second quarter of 2013 were $20.4 million or 94% of non-GAAP smartphone revenue.

Recent Developments and Strategic Initiatives:

  • During July we announced the availability of Black Gate: Inferno, the first game released by Glu's publishing organization and in August launched our second 3rd party title, Odyssey: Age of Gods.
  • We released two first party titles during July: Tons of Guns and Zombies Ate My Friends.
  • We entered into distribution relationships with two of Korea's largest mobile platforms, Kakao and SK Planet.
  • We announced support for Google Play game services, a cross-platform game service enabling new in-game features and cross screen gaming.
  • In July we issued a warrant to MGM which has vesting based upon our release of future games based on MGM intellectual property.
  • We established a local office in Korea, and are in the process of establishing a local office in Japan, to support our growth in these territories.
  • We announced a partnership with Qihoo 360 to support our continued strong growth in China.

"Our second quarter results were primarily driven by the continuing traction with our strong Q1 launches, specifically Frontline Commando: D-Day and Heroes of Destiny. We experienced an improvement in overall monetization and retention rates on these two titles during the second quarter, which was the result of updated content and live ops events," stated Eric R. Ludwig, Glu's Chief Financial Officer. "Our updated guidance reflects an adjusted launch schedule as we continue to invest in improving expected lifetime value of our games prior to launch. With over $19 million in cash at the end of Q2, Glu remains well positioned to execute its games-as-a-service growth strategy."

Business Outlook as of August 6, 2013:

The following forward-looking statements reflect expectations as of August 6, 2013. Results may be materially different and are affected by many factors, such as: consumer demand for mobile entertainment and specifically Glu's products; consumer demand for smartphones, tablets and next-generation platforms; our ability to improve the monetization of our titles and evolve our studio and begin to launch true games-as-a-service; development delays on Glu's products; continued uncertainty in the global economic environment; competition in the industry; storefront featuring; changes in foreign exchange rates; Glu's effective tax rate and other factors detailed in this release and in Glu's SEC filings.

Third Quarter Expectations - Quarter Ending September 30, 2013:

As discussed above, all financial information in this press release for future periods reflects the recognition on a gross basis of smartphone revenues attributable to sales to end customers through digital storefronts.

  • Non-GAAP revenues are expected to be between $19.6 million and $21.0 million and Non-GAAP smartphone revenues are expected to be between $18.8 million and $20.2 million.
  • Non-GAAP gross margin is expected to be approximately 67%.
  • Non-GAAP operating expenses are expected to be approximately $20.8 million.
  • Adjusted EBITDA, defined as Non-GAAP operating loss excluding depreciation of approximately $700,000, is expected to range from a loss of $(6.0) million to a loss of $(6.8) million.
  • Income tax expense is expected to be $(120,000).
  • Non-GAAP net loss is expected to be a loss of between $(6.8) million and $(7.7) million, or a net loss of between $(0.10) to $(0.11) per weighted-average basic shares outstanding.
  • Weighted-average common shares outstanding are expected to be approximately 70.4 million basic and 72.1 million diluted.

2013 Expectations - Full Year Ending December 31, 2013:

As discussed above, all financial information in this press release for future periods reflects the recognition on a gross basis of smartphone revenues attributable to sales to end customers through digital storefronts.

  • Non-GAAP revenues are expected to be between $96.8 million and $98.9 million and Non-GAAP smartphone revenues are expected to be between $92.3 million and $94.4 million.
  • Non-GAAP gross margin is expected to be approximately 68%.
  • Adjusted EBITDA is expected to range from a loss of between $(11.6) million to $(12.9) million.
  • Non-GAAP net loss is expected to be a loss between $(15.0) million and $(16.4) million, or a net loss of $(0.22) to $(0.24) per weighted-average basic shares outstanding.
  • Weighted-average common shares outstanding are expected to be approximately 69.4 million basic and 71.8 million diluted.
  • We expect to have a cash balance on December 31, 2013 of over $9.0 million with no debt.

Quarterly Conference Call

Glu will discuss its quarterly results via teleconference today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). Please dial (855) 234-9973, or if outside the U.S., (678) 971-2051, with conference ID # 15544913 to access the conference call at least five minutes prior to the 1:30 p.m. Pacific Time start time. A live webcast and replay of the call will also be available on the investor relations portion of the company's website at www.glu.com/investors. An audio replay will be available between 4:30 p.m. Pacific Time, August 6, 2013, and 8:59 p.m. Pacific Time, August 13, 2013, by calling (855) 859-2056, or (404) 537-3406, with conference ID # 15544913.

Disclosure Using Social Media Channels

Glu currently announces material information to its investors using SEC filings, press releases, public conference calls and webcasts. Glu uses these channels as well as social media channels to announce information about the company, games, employees and other issues. Given the recent SEC guidance regarding the use of social media channels to announce material information to investors, Glu is notifying investors, the media, its players and others interested in the company that in the future, it might choose to communicate material information via social media channels or, it is possible that information it discloses through social media channels may be deemed to be material. Therefore, Glu encourages investors, the media, players and others interested in Glu to review the information posted on the company forum (http://ggnbb.glu.com/forum.php) and the company Facebook site (https://www.facebook.com/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 non-GAAP revenues, non-GAAP smartphone revenues, non-GAAP cost of revenues, non-GAAP operating expenses, non-GAAP gross profit, 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 deferred cost of revenues;
  • Amortization of intangible assets;
  • Stock-based compensation expense;
  • Restructuring charges;
  • Change in fair value of Blammo earnout;
  • Transitional costs;
  • Impairment of goodwill;
  • Release of tax liabilities; and
  • Foreign currency exchange gains and losses primarily related to the revaluation of assets and liabilities.

In addition, Glu has included in this release "Adjusted EBITDA" figures which are used to evaluate Glu's operating performance and is defined as non-GAAP operating income/(loss) excluding depreciation.

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