Glu Mobile Inc. Q417 Earnings Call February 8, 2018
Safe Harbor Statement This presentation contains "forward-looking" statements including those regarding our Q1 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-Q filed with the Securities and Exchange Commission on November 9, 2017 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 February 8, 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; 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. Glu Mobile Inc., Private & Confidential 3
Business Update Nick Earl President & CEO 4
Progress on Growth Strategy: Three Pillars Cultivate Creative Culture Rapid Game Prototyping Simplify Operations & Disciplined Financial Management Glu Mobile Inc., Private & Confidential 5
Highlights From a Successful 2017 Q4 profitability on an Adjusted EBITDA* basis excluding royalty impairments Grew bookings approximately 50% year over year Cultivated creative culture Successfully integrated Crowdstar Recruited experienced, creative studio leadership Revamped the game prototyping process Consolidated studio footprint and upgraded creative center in SF *Adjusted EBITDA equals non-gaap operating loss excluding depreciation and royalty impairment charges Glu Mobile Inc., Private & Confidential 6
Q4 Operational and Financial Highlights Q4 Adjusted EBITDA* profitability excluding royalty impairment charges Q4 bookings of $83.2 million Strong top line performance from our Growth titles -- Design Home in particular Successful execution of new, exciting live-ops features within our Evergreen portfolio *Adjusted EBITDA equals non-gaap operating loss excluding depreciation and royalty impairment charges Glu Mobile Inc., Private & Confidential 7
2018 Growth Initiatives Continue to build on solid foundation to support expected future sustained and predictable profitable growth Remain laser focused on creating new Growth games that have top 10 grossing potential Invest strategically in our Growth games, Design Home, Covet Fashion and Tap Sports Baseball Drive value from Evergreen titles with our live operations expertise Continue to recruit creative talent to lead our new and existing games Glu Mobile Inc., Private & Confidential 8
Strong 2018 Product Roadmap and Pipeline TSB 18 WWE: Universe Titan World Dash Town Social Casino Expected First Half of 2018 Expected Second Half of 2018 Continued updates to current Growth and Evergreen games Glu Mobile Inc., Private & Confidential 9
Financial Update and Guidance Eric R. Ludwig COO & CFO 10
Q4 and FY17 Financial Highlights Q4 revenue up 73% Y/Y to $80.2 million Q4 bookings up 44% Y/Y to $83.2 million 2017 bookings grew 50% YoY Strong bookings led to improved bottom line results excluding royalty impairments Cash balance of $63.8 million as of 12/31/17 GAAP Revenue (In millions) $90.0 $81.1 $80.2 $80.0 $68.7 $70.0 $60.0 $56.8 $51.4 $50.0 $46.3 $40.0 $30.0 $20.0 $10.0 $0.0 Q316 Q416 Q117 Q217 Q317 Q417 Glu Mobile Inc., Private & Confidential 11
Q4 and FY17 Bookings Diversity 63% Q417 Bookings 33% Bookings by Category Title Category Q417 Bookings $M FY17 Bookings $M Design Home Growth $30.1 $97.7 TSB 2017 Growth 12.1 42.1 Covet Fashion Growth 10.0 41.8 Kim Kardashian: Hollywood Evergreen 8.0 27.3 Cooking Dash Evergreen 6.5 26.8 Restaurant Dash Evergreen 5.0 26.4 Deer Hunter 2017 Evergreen 3.6 16.4 Racing Rivals Evergreen 2.4 10.4 Deer Hunter Classic Evergreen 1.2 4.4 Dino Hunter Evergreen 0.4 1.9 QuizUp Evergreen 0.4 2.4 All Other Titles Catalog 3.5 22.8 Total Glu $83.2 $320.4 4% Growth Evergreen Catalog Growth $52.2 $181.6 Evergreen 27.5 116.0 Catalog 3.5 22.8 Total Bookings $83.2 $320.4 Glu Mobile Inc., Private & Confidential 12
Strong Performance in Q417 (In millions) Q416 Q417 Y/Y % Actual Actual Change Revenue $46.3 $80.2 73.2% A Bookings $57.8 $83.2 44.0% Cost of Goods Sold B Adjusted Platform Commissions $14.5 $21.5 48.2% C Adjusted Royalties $5.0 $31.7 527.8% D Hosting and Other Costs $1.4 $2.3 70.9% Adjusted Operating Expenses E Marketing Expenses $11.3 $21.8 92.9% F Adjusted Other Operating Expenses $27.5 $29.7 8.1% G Depreciation Add Back $0.8 $0.8 (7.0%) Basic and Diluted Shares Outstanding 133.7 137.7 3.0% (A - B - C - D - E - F + G) = Management Reporting Glu Mobile Inc., Private & Confidential 13
Progress on Restructuring Initiatives Moscow Studio Divestiture: Sold Moscow studio and four mobile games developed by the Moscow studio (including Last Day Alive and a game featuring an unnamed male celebrity) Glu to receive a total of $3.2 million in cash and the acquirer assuming ($1.5) million license payment to the unnamed male celeb Glu to keep all other Moscow catalog titles (bookings, profits, and IP rights), including Deer Hunter 2017, and transfer them to India ($6.5) million non-cash loss from Moscow sale Studio Consolidation: Expanded North America and India locations Eliminated studios in Beijing, Bellevue, Portland, San Mateo, Long Beach, and Moscow Scaled creative center in San Francisco Non-Cash Royalty Impairments: Q417 non-cash royalty impairments totaled ($26.1) million Glu Mobile Inc., Private & Confidential 14
License Prepayments Still on the Balance Sheet $96.6 million of license prepayments from 2010-2017; $69.1 million written down/impaired Majority of impairments related to celebrity licenses Currently 3 licenses (Tap Sports Baseball, WWE and Disney Interactive) account for the substantial majority of $12.3 million of prepaid royalties on our balance sheet, a significant decrease from the past Only $4.7 million of minimum payments in 2018, compared to $50.2 million in 2016 & 2017 New prototype approach reduces risk and allows for better MG & royalty terms We believe this puts us in a position to be significantly free cash flow positive in 2018 Glu Mobile Inc., Private & Confidential 15
Condensed Cash Flow (In millions) Q316 Q416 Q117 Q217 Q317 Q417 Cash and cash equivalents at beginning of period $ 158.0 $ 147.5 $ 102.1 $ 73.1 $ 68.1 $ 62.9 Other cash generated from / (used) from operations 1.0 3.9 (14.8) (0.4) 3.0 8.5 Cash paid for royalty advances (10.8) (4.1) (14.2) (2.9) (3.9) (3.4) Net cash generated from / (used in) operating activities (9.8) (0.2) (29.0) (3.3) (0.9) 5.1 Net cash used in investing activities (1.2) (37.8) (0.3) (0.7) (4.4) (8.3) Net cash provided by / (used in) financing activities 0.6 (7.3) 0.4 (0.9) 0.2 4.0 Effect of exchange rate changes on cash and cash equivalents (0.1) (0.1) (0.1) (0.1) (0.1) 0.1 Net increase / (decrease) in cash and cash equivalents $ (10.5) $ (45.4) $ (29.0) $ (5.0) $ (5.2) $ 0.9 Cash and cash equivalents at end of period $ 147.5 $ 102.1 $ 73.1 $ 68.1 $ 62.9 $ 63.8 Glu Mobile Inc., Private & Confidential 16
Healthy Balance Sheet to Support Potential Growth (In millions) Q416 Q317 Q417 Cash and cash equivalents $ 102.1 $ 62.9 $ 63.8 Accounts receivable, net 21.5 34.2 34.7 Prepaid expenses, royalties and other current assets 31.5 40.6 39.1 Other assets 41.7 43.7 27.2 Intangible assets & goodwill 142.7 137.2 134.5 Total Assets $ 339.5 $ 318.6 $ 299.3 Accounts payable and accrued liabilities $ 18.1 $ 22.9 $ 22.4 Accrued expenses, royalties and other liabilities 43.7 36.5 45.7 Deferred revenue 44.9 74.4 77.4 Common stock/paid in capital 571.2 581.4 589.9 Accumulated deficit & other comprehensive income (338.4) (396.6) (436.1) Total Liabilities and Stockholders' Equity $ 339.5 $ 318.6 $ 299.3 Glu Mobile Inc., Private & Confidential 17
Q1 2018 Non-GAAP Guidance (In millions) Q417 Q118 Actual Guidance Low High A Bookings $83.2 $72.0 $74.0 Cost of Goods Sold B Adjusted Platform Commissions $21.5 $18.5 $19.1 C Adjusted Royalties $31.7 $4.7 $4.8 D Hosting and Other Costs $2.3 $1.9 $2.0 Adjusted Operating Expenses E Marketing Expenses $21.8 $17.7 $18.0 F Adjusted Other Operating Expenses $29.7 $28.1 $28.1 G Depreciation Add Back $0.8 $1.0 $1.0 Basic Shares Outstanding 137.7 138.9 138.9 Diluted Shares Outstanding 137.7 146.0 146.0 (A - B - C - D - E - F + G) = Management Reporting Glu Mobile Inc., Private & Confidential 18
FY 2018 Non-GAAP Guidance (In millions) FY 2017 FY 2018 Actual Guidance Low High A Bookings $320.4 $325.0 $335.0 Cost of Goods Sold B Adjusted Platform Commissions $82.7 $84.2 $86.8 C Adjusted Royalties $49.8 $24.2 $24.9 D Hosting and Other Costs $7.6 $7.4 $7.6 Adjusted Operating Expenses E Marketing Expenses $88.8 $76.0 $78.5 F Adjusted Other Operating Expenses $123.0 $119.0 $119.0 G Depreciation Add Back $3.2 $3.8 $3.8 Basic Shares Outstanding 135.7 140.3 140.3 Diluted Shares Outstanding 135.7 146.8 146.8 Cash and ST Investments Balance $63.8 $80m+ (A - B - C - D - E - F + G) = Management Reporting Glu Mobile Inc., Private & Confidential 19
Achieved Adjusted EBITDA Profitability* 1 2 3 1H 2017 Q317 Q417 + Improved Evergreen dynamics Design Home UA investment and bookings growth Slight loss on an Adjusted EBITDA* basis in Q3 2017 Sustained profitability on an Adjusted EBITDA* basis starting in Q4 2017 and moving forward (accelerated from Q1 2018) Expected slight profitability on an Adjusted EBITDA* basis in 2018 off our existing portfolio (no new title launches) ~4 new titles in 2018, expected Disciplined expense management & greenlighting approach *Adjusted EBITDA equals non-gaap operating loss excluding depreciation and royalty impairment charges Glu Mobile Inc., Private & Confidential 20
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 *Adjusted EBITDA equals non-gaap operating loss excluding depreciation **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 Quarterly Report on Form 10-Q filed with the SEC on November 9, 2017 and our other SEC filings. Glu Mobile Inc., Private & Confidential 21
Q&A Glu Mobile Inc., Private & Confidential 22
Non-GAAP Reconciliations & Other Operating Metrics 23
GAAP to Adjusted Results Reconciliation Glu Mobile Inc. GAAP to Adjusted Results Reconciliation (in millions) (unaudited) September 30, December 31, March 31, June 30, September 30, December 31, 2016 2016 2017 2017 2017 2017 GAAP platform commissions $ 12,681 $ 11,381 $ 14,307 $ 17,595 $ 21,063 $ 20,787 Change in deferred platform commissions (96) 3,126 3,479 3,583 1,107 707 Adjusted platform commissions $ 12,585 $ 14,507 $ 17,786 $ 21,178 $ 22,170 $ 21,494 GAAP royalties (including impairment of royalties and minimum guarantees) $ 34,796 $ 4,844 $ 5,489 $ 5,468 $ 6,473 $ 31,311 Change in deferred royalties 294 200 (145) 1,032 (153) 355 Adjusted royalties $ 35,090 $ 5,044 $ 5,344 $ 6,500 $ 6,320 $ 31,666 GAAP operating expense $ 37,252 $ 43,287 $ 54,528 $ 64,545 $ 61,880 $ 56,267 Stock-based compensation (3,090) (3,667) (3,541) (3,523) (3,575) (4,424) Transitional costs - (802) (1,582) (1,924) (506) (336) Restructuring charge (57) - (3,712) (926) (1,402) 21 Adjusted operating expense $ 34,105 $ 38,818 $ 45,693 $ 58,172 $ 56,397 $ 51,528 GAAP research and development expense $ 20,080 $ 20,766 $ 25,032 $ 23,989 $ 22,004 $ 21,395 Transitional costs - (83) (1,115) (1,821) (90) (179) Stock-based compensation (1,135) (1,401) (1,441) (1,558) (1,521) (1,940) Adjusted research and development expense $ 18,945 $ 19,282 $ 22,476 $ 20,610 $ 20,393 $ 19,276 GAAP sales and marketing expense $ 10,104 $ 14,387 $ 17,287 $ 30,952 $ 29,776 $ 26,341 Transitional costs - (39) (53) 53 - - Stock-based compensation (263) (344) (362) (178) (283) (466) Adjusted sales and marketing expense $ 9,841 $ 14,004 $ 16,872 $ 30,827 $ 29,493 $ 25,875 GAAP general & administrative expense $ 7,011 $ 8,134 $ 8,497 $ 8,678 $ 8,698 $ 8,552 Transitional costs - (680) (414) (156) (417) (157) Stock-based compensation (1,692) (1,922) (1,738) (1,787) (1,771) (2,018) Adjusted general and administrative expense $ 5,319 $ 5,532 $ 6,345 $ 6,735 $ 6,510 $ 6,377 Other supplemental financial information Depreciation $ 768 $ 804 $ 790 $ 830 $ 827 $ 747 Foreign currency exchange (gain)/loss 1,035 294 129 (48) (78) 17 Loss/(income) from change in fair value of strategic investments 630 (255) - - - - Income tax provision/(benefit) 129 (280) (12) (177) (1,057) 420 Interest (income)/expense (12) 74 (7) (13) (5) 16 Glu Mobile Inc., Private & Confidential 24
GAAP to Adjusted Results Reconciliation Glu Mobile Inc. Additional Financial Information (in $ millions) (unaudited) For the Three Months Ended September 30, December 31, March 31, June 30, September 30, December 31, 2016 2016 2017 2017 2017 2017 A Bookings 51.3 57.8 69 82.5 85.7 83.2 Cost of Goods Sold B Adjusted Platform Commissions 12.6 14.5 17.8 21.2 22.2 21.5 C Adjusted Royalties 35.1 5 5.3 6.5 6.3 31.7 D Hosting and Other Costs 1.3 1.4 1.8 1.7 1.8 2.3 Adjusted Operating Expenses E Marketing Expenses 7.5 11.3 14.1 27.2 25.7 21.8 F Adjusted Other Operating Expenses 26.6 27.5 31.6 31 30.7 29.7 G Depreciation Add Back 0.8 0.8 0.8 0.8 0.8 0.8 Basic and Diluted Shares Outstanding 133.1 133.7 134.3 135.1 135.7 137.7 A-B-C-D-E-F+G = Management Reporting Glu Mobile Inc., Private & Confidential 25
Key Operating Metrics Actual Actual Actual Actual Actual Actual Q316 Q416 Q117 Q217 Q317 Q417 Total Bookings (in millions) $51.3 $57.8 $69.0 $82.5 $85.7 $83.2 Total Bookings Growth Q/Q 1% 13% 19% 20% 4% (3%) Total Bookings Growth Y/Y (20%) (0%) 28% 62% 67% 44% Original IP % of Total Bookings 33% 50% 65% 59% 63% 65% Adjusted Operating Expenses (in millions) $34.1 $38.8 $45.7 $58.2 $56.4 $51.5 Marketing Expense (in millions) 7.5 11.3 14.1 27.2 25.7 21.8 Marketing as % of Total Bookings 15% 20% 20% 33% 30% 26% Headcount** (at quarter-end) 667 754 699 692 662 548 Daily Active Users (DAU)* (in millions) 3.5 4.4 4.1 4.6 3.9 3.8 Monthly Active Users (MAU)* (in millions) 29.6 35.9 32.5 32.2 27.6 28.6 Installs (in millions) 59.6 60.4 61.2 54.6 47.6 41.7 Cumulative Installs (in millions) 1,476.9 1,537.3 1,598.5 1,653.2 1,700.8 1,742.5 In-App Purchase Billable Transactions (in millions)*** 4.6 5.8 7.6 8.8 9.5 9.4 Average Bookings per Billable Transaction*** $9.08 $8.30 $7.81 $7.95 $7.69 $7.54 *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 26
Appendix 27
DAU and MAU Trends (In millions) DAU (In millions) MAU 5.0 4.5 4.0 3.5 3.0 3.5 4.4 4.1 4.6 3.9 3.8 40.0 35.0 30.0 25.0 29.6 35.9 32.5 32.2 27.6 28.6 2.5 20.0 2.0 15.0 1.5 1.0 0.5 0.0 Q316 Q416 Q117 Q217 Q317 Q417 10.0 5.0 0.0 Q316 Q416 Q117 Q217 Q317 Q417 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 28
ABPDAU and ABPMAU Trends (In millions) ABPDAU (In millions) ABPMAU $0.30 $0.25 $0.20 $0.15 $0.16 $0.14 $0.19 $0.20 $0.24 $0.24 $1.20 $1.00 $0.80 $0.60 $0.58 $0.54 $0.71 $0.85 $1.04 $0.97 $0.10 $0.40 $0.05 $0.20 $0.00 Q316 Q416 Q117 Q217 Q317 Q417 $0.00 Q316 Q416 Q117 Q217 Q317 Q417 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 29
Q417 Bookings by Geography (In millions) $100.0 12% $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $51.3 $57.8 5.7 5.0 4.6 2.4 40.6 42.8 $69.0 8.7 5.2 55.1 $82.5 $85.7 $83.2 8.6 9.9 9.8 5.9 6.4 5.7 68.0 69.4 67.7 7% 81% $10.0 - Q316 Q416 Q117 Q217 Q317 Q417 NA APAC ROW NA APAC ROW Glu Mobile Inc., Private & Confidential 30
Bookings Mix Glu Mobile Inc., Private & Confidential 31
Advertising Bookings (% of Bookings) 18% 16% 14% 16% 16% 14% 14% 14% 15% 12% 10% 8% 6% 4% 2% 0% Q316 Q416 Q117 Q217 Q317 Q417 Glu Mobile Inc., Private & Confidential 32