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Glu Reports First Quarter 2012 Financial Results
  • 192% GAAP and 158% non-GAAP quarterly smartphone revenue growth year over year
  • Continued original IP success drove non-GAAP gross margins to 88% in Q1 2012
  • Adjusted EBITDA of $539,000 in Q1 2012
  • Glu raises its non-GAAP revenue guidance for fiscal year 2012 and increases its expected number of new title launches for fiscal year 2012 to 23
  • Anticipated cash flow break-even from operations and sustainably Adjusted EBITDA profitable in Q4 2012

SAN FRANCISCO--(BUSINESS WIRE)--May. 2, 2012-- 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-process
development 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 )

Source: Glu Mobile Inc.

Media & Investor Relations:
ICR
Seth Potter, 646-277-1230
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