Glu Mobile Inc. Q Earnings Call August 1, 2017

Transcription

1 Glu Mobile Inc. Q Earnings Call August 1, 2017

2 Safe Harbor Statement 2 This presentation contains "forward-looking" statements including: that Glu s strong Q demonstrates continued progress under its new product strategy; that our evergreen titles provide improved long-tail revenue and our growth titles provide repeatable, stackable revenue; the expected release of a mobile game featuring WWE content in 2018; our expected title release slate for 2017 and that we may release Car Town Racing and Last Day Alive in 2017 pending Beta results; that increased pipeline activity is leading to 3-4 expected launches in 2018; our strategy for achieving sustained profitability, including that we expected to achieve a slight loss on an Adjusted EBITDA basis by Q and sustained profitability on an Adjusted EBITDA basis from Q forward; that we expect to generate slight profitability on an Adjusted EBITDA basis in 2018 from our existing portfolio; that we expect to breakeven on our user acquisition spending for Design Home with approximately eight months; that we have a healthy balance sheet to support potential growth; our financial guidance for Q and FY-2017; our planned restructuring and operating expense reductions are expected to support 2018 profitability on an Adjusted EBITDA basis. 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: consumer demand for smartphones, tablets and nextgeneration 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 and tablets; the risk that we will be unable build successful growth titles that provide predictable bookings and year over year growth; the risk that we do not maintain our good relationships with Apple and Google; the risk that Glu does not realize the anticipated strategic benefits from its celebrity partnerships and strategic investments; the risk that our development expenses are greater than we anticipate or that we experience product delays; 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 social, free-to-play gaming, is smaller than anticipated; risks related to the restatement of certain of our historical financial statements and other risks detailed under the caption "Risk Factors" in our Form 10-Q filed with the Securities and Exchange Commission on May 8, 2017 and our other SEC filings. You can locate these reports through our website at These "forward-looking" statements are based on estimates and information available to us on August 1, 2017 and 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.

3 Use of Non-GAAP Financial Measures 3 Glu uses in this presentation 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 bookings, Adjusted platform commissions, Adjusted royalties, Adjusted research and development expense, Adjusted sales and marketing expense, Adjusted general and administrative expense and Adjusted operating expenses. These non-gaap financial measures exclude the following items from Glu's unaudited consolidated statements of operations: Change in deferred platform commissions Change in deferred royalties; Impairment and amortization of intangible assets; Non-cash warrant benefit/(expense); Stock-based compensation expense; Restructuring charges; and Transitional costs. Bookings do not reflect the deferral of certain game revenue that Glu recognizes over the estimated useful lives of paying users of Glu s games and excludes changes in deferred revenue and litigation settlement proceeds. Glu 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. For a reconciliation of these non-gaap financial measures to their most directly comparable GAAP financial measures, please refer to the tables at the end of this presentation.

4 Business Update 4 Nick Earl President & CEO

5 Q2 Operational and Financial Highlights 5 Strong quarter demonstrates continued progress under new product strategy Second largest bookings quarter ever exceeded guidance midpoint by 14% Growth titles MLB Tap Sports Baseball 2017 and Design Home perform better than expectations Evergreen titles outperformed forecast driven by regular updates and ongoing live operations Design Home UA investment drove $22.5M in bookings Average Bookings per DAU and MAU up sequentially and year over year

6 Product Portfolio Overview 6 Catalog Growth 60+ legacy games Legacy Evergreen Improved long-tail revenue Social Interaction, Live Events Incremental revenue and margin Repeatable, stackable revenue $50M (69.0% Total Rev) $19.1M (27.6% Total Rev)

7 Weekly Net Revenue MLB Tap Sports Baseball 17: LiveOps Strategy 7 Start of premium content rollout 1 st tower event New Tower Events and Premium Players rolled out Increased advertising revenue through better merchandising 4/2/17 4/9/17 4/16/17 4/23/17 4/30/17 5/7/17 5/14/17 5/21/17 5/28/17 6/4/17 6/11/17 6/18/17 6/25/1 Week

8 Product Portfolio Update 8 Evergreen Growth New Partnerships Solid performance; results ahead of forecast Kim Kardashian: Hollywood celebrated 3 rd anniversary Continued success with live-ops strategy MLB TSB 2017 and Design Home outperformed expectations Titles have responded well to liveoperations capabilities UA in Design Home drove engagement and conversions Extended partnership with Chef Gordon Ramsay for Restaurant DASH with Gordon Ramsay title Multi-year agreement with WWE to develop a mobile game for a 2018 release

9 Strong Product Roadmap 9 MLB Tap Sports Baseball 2017 Launched March 28, 2017 Taylor Swift Launching in 2017 Growth and Evergreen Games Continued Updates in 2017 Car Town Racing: Beta launched in June 2017; Results need significant improvement to launch globally Potential future launches pending Beta results Last Day Alive: Beta launched in July 2017; Potential 2017 global launch pending Beta results Increased Pipeline Activity Leading to 3-4 Launches Expected in 2018

10 Focused Growth Strategy: Three Pillars 10 Establish Creative Culture Rapid Prototyping of New Titles Cost Controls and Operating Leverage

11 Strategy to Achieve Sustained Profitability Q1-Q Q Q118 + Improved evergreen dynamics Design Home UA investment and bookings growth Expected slight loss on an Adjusted EBITDA* basis in Q Sustained profitability on an Adjusted EBITDA* basis starting in Q and moving forward Slight profitability on an Adjusted EBITDA* basis in 2018 off our existing portfolio (no new title launches)** 3-4 new titles in 2018, expected** Disciplined expense management & greenlighting approach *Adjusted EBITDA equals non-gaap operating income/(loss) excluding depreciation ** Tap Sports Baseball 2018 is included as part of our existing portfolio and is not considered to be a new 2018 title

12 Financial Update and Guidance 12 Eric R. Ludwig COO & CFO

13 Q2 Financial Highlights 13 (in Millions) 80.0 GAAP Revenue GAAP Revenue up 42% Y/Y to $68.7 Million Bookings up 62% Y/Y to $82.5 million Strong Bookings led to improved bottom line results Cash Balance of $68.1 Million as of 6/30/ Q116 Q216 Q316 Q416 Q117 Q217

14 Bookings Diversity 14 46% 7% 47% Q217 Bookings by Category Title Category Bookings $M Design Home Growth $22.5 TSB 2017 Growth 15.4 Covet Fashion Evergreen 10.7 Restaurant Dash with Gordon Ramsay Evergreen 7.0 Cooking Dash Evergreen 6.6 Kim Kardashian: Hollywood Evergreen 6.0 Deer Hunter 2017 Evergreen 3.9 Racing Rivals Evergreen 2.7 Deer Hunter Classic Evergreen 1.0 QuizUp Evergreen 0.6 Dino Hunter Evergreen 0.5 All Other Titles Catalog 5.6 Total Glu $82.5 Catalog Evergreen Growth Growth $37.9 Evergreen $39.0 Catalog $5.6 Total Bookings $82.5

15 Significant Performance Improvement in Q (In millions) Q216 Actual Q217 Actual Y/Y % Change Revenue $48.4 $ % A Bookings $50.9 $ % Cost of Goods Sold B Adjusted Platform Commissions $12.6 $ % C Adjusted Royalties $4.9 $ % D Hosting and Other Costs $1.5 $ % E Adjusted Operating Expenses $35.8 $ % F Depreciation Add Back $0.7 $ % Basic and Diluted Shares Outstanding % (A - B - C - D - E + F) = Management Reporting

16 Design Home: Q2 User Acquisition Dynamics 16 Q2 Design Home Bookings = $22.5M $13.9MM 3.7MM $3.74 UA Spend Paid Installs Average CPI 2+ Years ~8 months $7.8MM LTV Growth Curve for Covet Fashion Projecting Breakeven on Q2 Users Q2 bookings from Users Acquired in Same Quarter

17 Healthy Balance Sheet to Support Potential Growth 17 (In millions) Q216 Q117 Q217 Cash and cash equivalents $ $ 73.1 $ 68.1 Accounts receivable, net Prepaid expenses, royalties and other current assets Other assets Intangible assets & goodwill Total Assets $ $ $ Accounts payable and accrued liabilities Accrued expenses, royalties and other liabilities Deferred revenue Common stock/paid in capital Accumulated deficit & other comprehensive income (278.4) (361.1) (384.7) Total Liabilities and Stockholders' Equity $ $ $ 320.1

18 Condensed Cash Flow 18 (In millions) Q116 Q216 Q316 Q416 Q117 Q217 Cash and cash equivalents at beginning of period $ $ $ $ $ $ 73.2 Other cash generated from/(used in) operations (2.0) (14.9) (0.5) Cash paid for royalty advances (9.8) (1.1) (10.8) (4.1) (14.2) (2.9) Net cash generated from/(used in) operating activities (11.8) 2.0 (9.8) (0.2) (29.0) (3.4) Net cash used in investing activities (10.1) (2.5) (1.2) (37.8) (0.3) (0.7) Net cash provided by (used in) financing activities 0.6 (0.6) 0.6 (7.3) 0.4 (0.9) Effect of exchange rate changes on cash and cash equivalents 0.1 (0.2) (0.2) (0.1) (0.1) (0.1) Net decrease in cash and cash equivalents $ (21.2) $ (1.3) $ (10.6) $ (45.4) $ (29.0) $ (5.1) Cash and cash equivalents at end of period $ $ $ $ $ 73.2 $ 68.1

19 Q Non-GAAP Guidance 19 (In millions) Low High A Bookings $82.5 $78.0 $80.0 Cost of Goods Sold Q217 Actual Q317 Guidance B Adjusted Platform Commissions $21.2 $20.1 $20.7 C Adjusted Royalties $6.5 $5.9 $6.0 D Hosting and Other Costs $1.7 $2.4 $2.4 E Adjusted Operating Expenses $58.1 $55.3 $55.6 F Depreciation Add Back $0.8 $0.7 $0.7 Basic and Diluted Shares Outstanding (A - B - C - D - E + F) = Management Reporting

20 Updated FY 2017 Non-GAAP Guidance 20 (In millions) (A - B - C - D - E + F) = Management Reporting Low High A Bookings $214.0 $307.0 $312.0 Cost of Goods Sold FY2016 Actual B Adjusted Platform Commissions $53.3 $79.0 $80.3 C Adjusted Royalties $50.6 $23.8 $24.1 D Hosting and Other Costs $6.0 $8.7 $8.9 E Adjusted Operating Expenses $146.1 $211.2 $212.4 F Depreciation Add Back $2.9 $3.2 $3.2 Basic and Diluted Shares Outstanding Cash and ST Investments Balance $102.1 FY2017 Guidance At least $60m

21 Financial and Operational Summary 21 Restructuring and Planned Operating Expense Reductions Expected to support 2018 profitability on an Adjusted EBITDA basis* Three Phases Accelerated Adjusted EBITDA* profitability now expected in Q Strong First Half Performance Growth and Evergreen titles outperformed forecast Realized Strong Margin Contribution Flow Through Upside original IP revenue had high contribution flow through *Adjusted EBITDA equals non-gaap operating income/(loss) excluding depreciation

22 Q&A 22

23 Non-GAAP Reconciliations & Other Operating Metrics

24 GAAP to Adjusted Results Reconciliation 24 Glu Mobile Inc. GAAP to Adjusted Results Reconciliation (in millions) (unaudited) For the Three Months Ended March 31, June 30, September 30, December 31, March 31, June 30, GAAP platform commissions $ 13,374 $ 11,974 $ 12,681 $ 11,381 $ 14,307 $ 17,595 Change in deferred platform commissions (96) 3,126 3,479 3,583 Adjusted platform commissions $ 13,652 $ 12,562 $ 12,585 $ 14,507 $ 17,786 $ 21,178 GAAP royalties (including impairment of royalties and minimum guarantees) $ 5,184 $ 5,163 $ 34,796 $ 4,844 $ 5,489 $ 5,468 Change in deferred royalties 398 (240) (145) 1,032 Adjusted royalties $ 5,582 $ 4,923 $ 35,090 $ 5,044 $ 5,344 $ 6,500 GAAP operating expense $ 41,026 $ 40,868 $ 37,252 $ 43,287 $ 54,528 $ 64,545 Stock-based compensation (3,545) (2,961) (3,090) (3,667) (3,541) (3,523) Transitional costs (802) (1,582) (1,924) Restructuring charge (106) (2,116) (57) - (3,712) (926) Adjusted operating expense $ 37,375 $ 35,791 $ 34,105 $ 38,818 $ 45,693 $ 58,172 GAAP research and development expense $ 20,312 $ 20,721 $ 20,080 $ 20,766 $ 25,032 $ 23,989 Transitional costs (83) (1,115) (1,821) Stock-based compensation (1,194) (837) (1,135) (1,401) (1,441) (1,558) Adjusted research and development expense $ 19,118 $ 19,884 $ 18,945 $ 19,282 $ 22,476 $ 20,610 GAAP sales and marketing expense $ 12,624 $ 10,935 $ 10,104 $ 14,387 $ 17,287 $ 30,952 Transitional costs (39) (53) 53 Stock-based compensation (292) (191) (263) (344) (362) (178) Adjusted sales and marketing expense $ 12,332 $ 10,744 $ 9,841 $ 14,004 $ 16,872 $ 30,827 GAAP general & administrative expense $ 7,984 $ 7,096 $ 7,011 $ 8,134 $ 8,497 $ 8,678 Transitional costs (680) (414) (156) Stock-based compensation (2,059) (1,933) (1,692) (1,922) (1,738) (1,787) Adjusted general and administrative expense $ 5,925 $ 5,163 $ 5,319 $ 5,532 $ 6,345 $ 6,735 Other supplemental financial information Depreciation $ 656 $ 720 $ 768 $ 804 $ 790 $ 830 Foreign currency exchange (gain)/loss (148) (182) 1, (48) Loss/(income) from change in fair value of strategic investments (300) 4, (255) - - Income tax provision/(benefit) (166) (280) (12) (177) Interest and other (income)/expense (21) (25) (12) 74 (7) (13)

25 GAAP to Adjusted Results Reconciliation 25 Glu Mobile Inc. Additional Financial Information (in $ millions) (unaudited) For the Three Months Ended March 31, June 30, September 30, December 31, March 31, June 30, A Bookings Cost of Goods Sold B Adjusted Platform Commissions C Adjusted Royaties D Hosting and Other Costs E Adjusted Operating Expenses F Depreciation Add Back Basic and Diluted Shares Outstanding A-B-C-D-E+F = Management Reporting

26 Key Operating Metrics 26 Actual Actual Actual Actual Actual Actual Q116 Q216 Q316 Q416 Q117 Q217 Total Bookings (in millions) $54.0 $50.9 $51.3 $57.8 $69.0 $82.5 Total Bookings Growth Q/Q (7%) (6%) 1% 13% 19% 20% Total Bookings Growth Y/Y (14%) (11%) (20%) (0%) 28% 62% Original IP % of Total Bookings 43% 37% 33% 50% 65% 57% Adjusted Operating Expenses (in millions) $37.4 $35.8 $34.1 $38.8 $45.7 $58.2 Marketing Expense (in millions) Marketing as % of Total Bookings 19% 17% 15% 20% 20% 33% Headcount** (at quarter-end) Daily Active Users (DAU)* (in millions) Monthly Active Users (MAU)* (in millions) Installs (in millions) Cumulative Installs (in millions) 1, , , , , , In-App Purchase Billable Transactions (in millions)*** Average Bookings per Billable Transaction*** $9.15 $9.61 $9.08 $8.30 $7.81 $7.95 *DAU & MAU reflects the DAU & MAU figures for the last month of the quarter **FTE only, excludes contractors, temporary employees and consultants ***Q416 in-app purchase billable transactions and average bookings per billable transaction include the impact of Crowdstar activity after its acquisition on November 2, 2016

27 Appendix

28 DAU and MAU Trends 28 (in Millions) 6.0 DAU (in Millions) MAU Q116 Q216 Q316 Q416 Q117 Q Q116 Q216 Q316 Q416 Q117 Q217 Aggregate DAU and MAU for each period presented represents the aggregate metric for the last month of the period. An individual who plays two different games in the same month is counted as two active users for that month when we aggregate DAU and MAU across games. In addition, an individual who plays the same game on two different devices during the same month (e.g., an iphone and an ipad) is also counted as two active users for each such month when we average or aggregate DAU and MAU over time. Our methodology for calculating DAU and MAU may differ from the methodology used by other companies to calculate similar metrics.

29 ABPDAU and ABPMAU Trends 29 $0.20 $0.18 $0.16 $0.14 $0.12 $0.10 $0.08 $0.06 $0.12 $0.14 ABPDAU $0.16 $0.14 $0.18 $0.18 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.42 $0.47 ABPMAU $0.58 $0.54 $0.70 $0.84 $0.04 $0.20 $0.02 $0.10 $0.00 Q116 Q216 Q316 Q416 Q117 Q217 $0.00 Q116 Q216 Q316 Q416 Q117 Q217 Average bookings per DAU ( ABPDAU ) is computed as our total bookings in a given period, divided by the number of days in that period, divided by the DAU during the period. Average bookings per MAU ( ABPMAU ) is computed as our total bookings in a given period, divided by the number of months in that period, divided by the MAU during the period. Aggregate DAU and MAU for each period presented represents the aggregate metric for the last month of the period.

30 Q217 Bookings by Geography 30 (in Millions) $90.0 $82.5 7% $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $54.0 $50.9 $ $ $ % 82% $0.0 Q Q Q Q Q Q NA APAC ROW NA APAC ROW

31 Bookings Mix 31

32 Advertising Bookings 32 % of Total Bookings