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