Glu Mobile Inc. Q118 Earnings Call May 1, 2018
Safe Harbor Statement This presentation contains "forward-looking" statements including those regarding our Q2 2018 and FY 2018 non-gaap guidance and statements including words such as anticipate, believe, estimate, expect, may, will, plan, intend, could, continue, remain, "potential" and similar expressions or variations, as well as statements in the future tense. 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 next-generation platforms does not grow as significantly as we anticipate or that we will be unable to capitalize on any such growth; the risk that we do not realize a sufficient return on our investment with respect to our efforts to develop free-to-play games for smartphones 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 license agreements 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; and other risks detailed under the caption "Risk Factors" in our Form 10-K filed with the Securities and Exchange Commission on March 9, 2018 and our other SEC filings. You can locate these reports through our website at http://www.glu.com/investors. These "forward-looking" statements are based on estimates and information available to us on May 1, 2018 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. Glu Mobile Inc., Private & Confidential 2
Use of Non-GAAP Financial Measures 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; 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. Glu Mobile Inc., Private & Confidential 3
Business Update Nick Earl President & CEO 4
Q1 Operational and Financial Highlights Q1 revenue of $81.4m up 43% YoY Q1 Bookings of $86.3m up 25% YoY Strong top line performance from our Growth titles -- Design Home and Covet Fashion Outstanding execution within our Evergreen portfolio -- another quarter of growth for Kim Kardashian: Hollywood Generated increased Adjusted EBITDA profitability Raised Bookings guidance for the full year 2018 by $35m to a range of $360m - $370m Glu Mobile Inc., Private & Confidential 5
Q1 Title Highlights Design Home Bookings grew 14% QoQ Merchandising efforts included launch of 6 th daily event and 2-item bundle pack sale which led to monetization and retention improvements Roadmap to implement localization, AR and deeper meta Covet Fashion Bookings grew 22% QoQ Successfully improved new user flow Tap Sports Baseball Launched TSB 18 and early results are fantastic New features with improved meta and engine Optimized gameplay driving bookings Kim Kardashian: Hollywood Third straight quarter of bookings growth QoQ Improved meta and elder game experience Glu Mobile Inc., Private & Confidential 6
Strong 2018 Product Roadmap and Pipeline TSB 18 RR 7.0 WWE: Universe Titan World Dash Town Q118 Expected in 2018 Continued updates to current Growth and Evergreen games Glu Mobile Inc., Private & Confidential 7
Progress on Growth Strategy: Three Pillars Cultivate Creative Culture Live Ops and Rapid Game Prototyping Simplify Operations & Disciplined Financial Management Glu Mobile Inc., Private & Confidential 8
Financial Update and Guidance Eric R. Ludwig COO & CFO 9
Q1 Financial Highlights Q1 revenue up 43% Y/Y to $81.4m Q1 bookings up 25% Y/Y to $86.3m Strong bookings led to improved bottom line results Glu Mobile Inc., Private & Confidential 10
Q118 Bookings Diversity Bookings (in millions) Title Category Q417 Q118 QoQ % Design Home Growth $ 30.1 $ 34.3 14.0% Covet Fashion Growth 10.0 12.2 22.0% TSB Franchise Growth 12.5 9.0 (28.0%) Kim Kardashian Hollywood Evergreen 8.0 10.5 32.2% Cooking Dash Evergreen 6.5 6.8 5.6% Restaurant Dash Evergreen 5.0 4.5 (11.0%) Deer Hunter 2018 Evergreen 3.6 2.9 (21.2%) Racing Rivals Evergreen 2.4 1.3 (42.9%) Deer Hunter Classic Evergreen 1.2 0.8 (34.2%) QuizUp Evergreen 0.4 0.4 (4.3%) Dino Hunter Evergreen 0.4 0.4 (8.9%) Catalog Catalog 3.1 3.2 3.7% Total $ 83.2 $ 86.3 3.8% Glu Mobile Inc., Private & Confidential 11
Strong Performance in Q118 (In millions) Q117 Q118 Y/Y % Actual Actual Change Revenue $56.8 $81.4 43.4% A Bookings $69.0 $86.3 25.1% Cost of Goods Sold B Adjusted Platform Commissions $17.8 $23.2 30.5% C Adjusted Royalties 5.3 5.5 3.3% D Hosting and Other Costs 1.8 1.8 (0.6%) Adjusted Operating Expenses: E User Acquisition and Marketing Expenses 14.1 22.2 58.0% F Adjusted Other Operating Expenses 31.6 28.0 (11.6%) G Depreciation Add Back $0.8 $1.0 23.5% Basic and Diluted Shares Outstanding 134.3 139.1 3.6% (A - B - C - D - E - F + G) = Adjusted EBITDA Glu Mobile Inc., Private & Confidential 12
Healthy Balance Sheet to Support Expected Growth (In millions) Q117 Q417 Q118 Cash and cash equivalents $ 73.2 $ 63.8 $ 48.3 Accounts receivable, net 27.0 34.7 34.4 Prepaid expenses, royalties and other current assets 35.6 39.1 36.8 Other assets 42.1 27.2 26.3 Intangible assets & goodwill 139.5 134.5 133.0 Total Assets $ 317.4 $ 299.3 $ 278.8 Accounts payable and accrued liabilities $ 16.8 $ 22.4 $ 15.8 Accrued expenses, royalties and other liabilities 30.0 45.7 28.0 Deferred revenue 56.6 77.4 72.6 Common stock/paid in capital 575.1 589.9 596.9 Accumulated deficit & other comprehensive income (361.1) (436.1) (434.5) Total Liabilities and Stockholders' Equity $ 317.4 $ 299.3 $ 278.8 Glu Mobile Inc., Private & Confidential 13
Condensed Cash Flow (In millions) Q416 Q117 Q217 Q317 Q417 Q118 Cash and cash equivalents at beginning of the period $ 147.5 $ 102.1 $ 73.1 $ 68.1 $ 62.9 $ 63.8 Other cash generated from/(used in) operations 3.9 (14.8) (0.5) 3.0 8.5 (12.4) Cash paid for royalty advances (4.1) (14.2) (2.9) (3.9) (3.4) (4.1) Net cash generated from/(used in) operations (0.2) (29.0) (3.4) (0.9) 5.1 (16.5) Net cash provided by/(used in) investing activities (37.8) (0.3) (0.7) (4.4) (8.3) 0.7 Net cash provided by/(used in) financing activities (7.3) 0.4 (0.9) 0.2 4.0 0.3 Effect of exchange rate changes on cash and cash equivalents (0.1) (0.1) 0.0 (0.1) 0.1 0.0 Net increase / (decrease) in cash and cash equivalents $ (45.4) $ (29.0) $ (5.0) $ (5.2) $ 0.9 $ (15.5) Cash and cash equivalents at end of period $ 102.1 $ 73.1 $ 68.1 $ 62.9 $ 63.8 $ 48.3 Glu Mobile Inc., Private & Confidential 14
Q2 2018 Non-GAAP Guidance (In millions) Q118 Q218 Actual Guidance Low High A Bookings $86.3 $90.0 $92.0 Cost of Goods Sold B Adjusted Platform Commissions 23.2 23.9 24.5 C Adjusted Royalties 5.5 6.8 6.9 D Hosting and Other Costs 1.8 1.7 1.7 Adjusted Operating Expenses: E User Acquisition and Marketing Expenses 22.2 21.6 21.9 F Adjusted Other Operating Expenses 28.0 29.5 29.5 G Depreciation Add Back $1.0 $1.0 $1.0 Basic Shares Outstanding 139.1 140.1 140.1 Diluted Shares Outstanding 139.1 147.5 147.5 (A - B - C - D - E - F + G) = Adjusted EBITDA Glu Mobile Inc., Private & Confidential 15
FY 2018 Non-GAAP Guidance (In millions) FY 2017 FY 2018 Actual Guidance Low High A Bookings $320.4 $360.0 $370.0 Cost of Goods Sold B Adjusted Platform Commissions 82.7 95.4 98.1 C Adjusted Royalties 49.8 27.0 27.8 D Hosting and Other Costs 7.6 6.8 7.0 Adjusted Operating Expenses: E User Acquisition and Marketing Expenses 88.8 84.6 87.1 F Adjusted Other Operating Expenses 123.0 118.2 120.0 G Depreciation Add Back $3.2 $4.0 $4.0 Basic Shares Outstanding 135.7 140.5 140.5 Diluted Shares Outstanding 135.7 147.5 147.5 Cash and ST Investments Balance $63.8 $85.0 (A - B - C - D - E - F + G) = Adjusted EBITDA Glu Mobile Inc., Private & Confidential 16
Three-Year Strategic Plan 2017 2018 2019 Investment Year Studio Consolidation Near Breakeven* Building Pipeline Key Launches Profitability* Scale to the Next Level Margins Improve Free Cash Flow Positive *On an Adjusted EBITDA basis excluding royalty impairments Glu Mobile Inc., Private & Confidential 17
Long-Term Margin Targets Longer term the Company believes the following Adjusted EBITDA margins are achievable: $500M Bookings* = 15% to 20% Adjusted EBITDA $750M+ Bookings* = Additional margin improvement *These bookings figures are being used to illustrate potential long-term margin targets and should not be treated as forecasts or projections of our bookings. We cannot assure you that we will achieve any particular growth rate and our bookings may not grow at all. Our performance is subject to many material risks and uncertainties that could cause our actual performance to fall short of these goals, including the risks discussed in our Annual Report on Form 10-K filed with the SEC on March 9, 2018 and our other SEC filings. Glu Mobile Inc., Private & Confidential 18
Q&A Glu Mobile Inc., Private & Confidential 19
Non-GAAP Reconciliations & Other Operating Metrics 20
GAAP to Adjusted Results Reconciliation Glu Mobile Inc. GAAP to Adjusted Results Reconciliation (in thousands) (unaudited) December 31, March 31, June 30, September 30, December 31, March 31, 2016 2017 2017 2017 2017 2018 GAAP platform commissions $ 11,381 $ 14,307 $ 17,595 $ 21,063 $ 20,787 $ 21,729 Change in deferred platform commissions 3,126 3,479 3,583 1,107 707 1,477 Adjusted platform commissions $ 14,507 $ 17,786 $ 21,178 $ 22,170 $ 21,494 $ 23,206 GAAP royalties (including impairment of royalties and minimum guarantees) $ 4,844 $ 5,489 $ 5,468 $ 6,473 $ 31,311 $ 5,506 Change in deferred royalties 200 (145) 1,032 (153) 355 15 Adjusted royalties $ 5,044 $ 5,344 $ 6,500 $ 6,320 $ 31,666 $ 5,521 GAAP operating expense $ 43,287 $ 54,528 $ 64,545 $ 61,880 $ 56,267 $ 57,490 Stock-based compensation (3,667) (3,541) (3,523) (3,575) (4,424) (6,308) Transitional costs (802) (1,582) (1,924) (506) (336) (919) Restructuring charge - (3,712) (926) (1,402) 21 (80) Adjusted operating expense $ 38,818 $ 45,693 $ 58,172 $ 56,397 $ 51,528 $ 50,183 GAAP research and development expense $ 20,766 $ 25,032 $ 23,989 $ 22,004 $ 21,395 $ 22,710 Transitional costs (83) (1,115) (1,821) (90) (179) (860) Stock-based compensation (1,401) (1,441) (1,558) (1,521) (1,940) (3,199) Adjusted research and development expense $ 19,282 $ 22,476 $ 20,610 $ 20,393 $ 19,276 $ 18,651 GAAP sales and marketing expense $ 14,387 $ 17,287 $ 30,952 $ 29,776 $ 26,341 $ 26,810 Transitional costs (39) (53) 53 - - - Stock-based compensation (344) (362) (178) (283) (466) (653) Adjusted sales and marketing expense $ 14,004 $ 16,872 $ 30,827 $ 29,493 $ 25,875 $ 26,157 GAAP general & administrative expense $ 8,134 $ 8,497 $ 8,678 $ 8,698 $ 8,552 $ 7,890 Transitional costs (680) (414) (156) (417) (157) (59) Stock-based compensation (1,922) (1,738) (1,787) (1,771) (2,018) (2,456) Adjusted general and administrative expense $ 5,532 $ 6,345 $ 6,735 $ 6,510 $ 6,377 $ 5,375 Other supplemental financial information Depreciation $ 804 $ 790 $ 830 $ 827 $ 747 $ 976 Foreign currency exchange (gain)/loss 294 129 (48) (78) 17 86 Income from change in fair value of strategic investments (255) - - - - - Income tax provision/(benefit) (280) (12) (177) (1,057) 420 175 Glu Mobile Inc., Private & Confidential 21
GAAP to Adjusted Results Reconciliation Glu Mobile Inc. Additional Financial Information (in millions) (unaudited) For the Three Months Ended September December 31, March 31, June 30, 30, December 31, March 31, 2016 2017 2017 2017 2017 2018 A Bookings $ 57.8 $ 69.0 $ 82.5 $ 85.7 $ 83.2 $ 86.3 Cost of Goods Sold B Adjusted Platform Commissions 14.5 17.8 21.2 22.2 21.5 23.2 C Adjusted Royaties 5.0 5.3 6.5 6.3 31.7 5.5 D Hosting and Other Costs 1.4 1.8 1.7 1.8 2.3 1.8 Adjusted Operating Expenses E User Acquisition and Marketing Expenses 11.3 14.1 27.2 25.7 21.8 22.2 F Adjusted Other Operating Expenses 27.5 31.6 31.0 30.7 29.7 28.0 G Depreciation Add Back 0.8 0.8 0.8 0.8 0.8 1.0 Basic and Diluted Shares Outstanding 133.7 134.3 135.1 135.7 137.7 139.1 A-B-C-D-E-F+G = Adjusted EBITDA Glu Mobile Inc., Private & Confidential 22
Key Operating Metrics Actual Actual Actual Actual Actual Actual Q416 Q117 Q217 Q317 Q417 Q118 Total Bookings (in millions) $57.8 $69.0 $82.5 $85.7 $83.2 $86.3 Total Bookings Growth Q/Q 13% 19% 20% 4% (3%) 4% Total Bookings Growth Y/Y (0%) 28% 62% 67% 44% 25% Original IP % of Total Bookings 50% 65% 59% 63% 65% 69% Adjusted Operating Expenses (in millions) $38.8 $45.7 $58.2 $56.4 $51.5 $50.2 User Acquisition and Marketing Expense (in millions) 11.3 14.1 27.2 25.7 21.8 22.2 Adjusted Other Operating Expenses (in millions) 27.5 31.6 31.0 30.7 29.7 28.0 User Acquisition and Marketing Expenses as % of Total Bookings 20% 20% 33% 30% 26% 26% Adjusted Other Operating Expenses as % of Total Bookings 48% 46% 38% 36% 36% 32% Headcount** (at quarter-end) 754 699 692 662 548 588 Daily Active Users (DAU)* (in millions) 4.4 4.1 4.6 3.9 3.8 3.6 Monthly Active Users (MAU)* (in millions) 35.9 32.5 32.2 27.6 28.6 24.8 Installs (in millions) 60.4 61.2 54.6 47.6 41.7 37.2 Cumulative Installs (in millions) 1,537.3 1,598.5 1,653.2 1,700.8 1,742.5 1,779.7 In-App Purchase Billable Transactions (in millions)*** 5.8 7.6 8.8 9.5 9.4 10.5 Average Bookings per Billable Transaction*** $8.30 $7.81 $7.95 $7.69 $7.54 $7.33 *DAU & MAU reflects the DAU & MAU figures for the last month of the quarter **FTE only, excludes contractors, temporary employees and consultants. Q417 excludes headcount related to the Moscow sale. ***Q416 in-app purchase billable transactions and average booking per billable transaction include the impact of Crowdstar activity after its acquisition on November 2, 2016 Glu Mobile Inc., Private & Confidential 23
Appendix 24
DAU and MAU Trends 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. Glu Mobile Inc., Private & Confidential 25
ABPDAU and ABPMAU Trends 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. Glu Mobile Inc., Private & Confidential 26
Q118 Bookings by Geography Glu Mobile Inc., Private & Confidential 27
Bookings Mix Glu Mobile Inc., Private & Confidential 28
Advertising Bookings Glu Mobile Inc., Private & Confidential 29