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Glu Mobile Takes Significant Steps to Improve Liquidity Position

^{Published on 2008-12-30 04:06:08, Last Modified on 2008-12-30 04:09:01 - Market Wire}
 

SAN MATEO, Calif.--([ BUSINESS WIRE ])--Glu Mobile Inc. (NASDAQ:GLUU) today announced that it has restructured the earnout and bonus obligations for its MIG acquisition by converting the entire $25 million of payments to cash and deferring $11 million of the payments to 2010. The Company also announced that Silicon Valley Bank has entered into a new credit facility with the Company that extends the Company's $8 million line of credit through December 2010. Today's announcements, combined with the Company's previously announced cost reduction initiatives, provide additional working capital flexibility and significantly improves the Company's liquidity position, while eliminating a significant source of potential dilution to stockholders.

Under the terms of the revised agreement with MIG, there will be no stock issued. All of the $25 million in earnout consideration and bonus obligations will be payable in cash on the following schedule: $14 million will be payable in 2009 in three installments, with $6 million payable on January 15,2009, $3 million payable on April 1, 2009 and $5 million payable on July 1, 2009. The remaining $11 million will be payable in 2010 in four equal quarterly installments of $2.75 million. The Company issued to the former MIG shareholders secured promissory notes covering these payments, bearing interest at 7% per annum.

The new agreement with Silicon Valley Bank extends the Company's line of credit, which was originally due to expire in February 2009, through December 2010. The line of credit is subject to a borrowing base equal to 80% of eligible accounts receivable and will bear interest at the rate of Prime plus one percent with a minimum interest rate of five percent.

"The restructuring of the MIG payments and line of credit extension substantially improves Glu's liquidity. The restructuring of the MIG agreement is a testament to the MIG founders' commitment to contributing to Glu's long-term success," said Greg Ballard, chief executive officer. "With these developments, we can now focus on increasing shareholder value by improving our existing carrier business and building our presence on new high end handsets and platforms that are gaining traction in the mobile market."

"We are very pleased with the spirit of cooperation from the former MIG shareholders and Silicon Valley Bank," said Eric R. Ludwig, senior vice president and chief financial officer. "Combined with our previously announced cost reduction efforts, which will reduce our total non-GAAP operating expenses by approximately 19% from second quarter 2008 levels, we believe that we have the necessary working capital in place to focus on executing our business plan and driving Glu toward positive cash flows from operations in 2009.

The Company also provided preliminary guidance for 2009. As previously reported, the Company expects to be cash flow positive from operations for the year with total operating expenses expected to be approximately $57 million. Revenue for 2009 is expected to be down between 10 and 15 percent from 2008 revenue, primarily due to continuing declines in foreign exchange rates and increasing economic headwinds.

Mr. Ballard commented, "By taking our time to evaluate the emerging platforms and realign our resources, we've developed a sound strategy that builds on our approach of launching games in a globally coordinated cross-platform effort. We have already shifted more of our resources to higher end platforms such as iPhone, Android, nGage and Blackberry, which have demonstrated better game adoption rates than the traditional non-smartphone market."

Mr. Ludwig added, "We have continued to experience declines in foreign exchange rates, which have further impacted the fourth quarter of 2008 and will continue to be a factor in 2009. We also expect to record an incremental tax provision of approximately $250,000 in the fourth quarter of 2008 related to repatriating cash from China. That said, as we look out to our 2009 plan, we believe that our title releases on new platforms will drive increasing revenue from those handsets. We are focused on executing well through these economic and market headwinds and managing our total operating expenses to deliver positive cash flow in 2009."

Conference Call Details

Glu will hold a conference call via teleconference today at 7:00 a.m. Pacific Time (10:00 a.m. Eastern Time). Please dial (888) 803-5681, or if outside the U.S., (706) 643-8823, with conference ID # 79623146, to access the conference call at least five minutes prior to the 7:00 a.m. PT start time. A live webcast and replay of the call will also be available at [ http://www.glu.com/corp/Pages/investors.aspx ] under the Investor Calendar and Webcasts menu. An audio replay will be available between 9:00 a.m. PT, December 30, 2008, and 8:00 a.m. PT, January 13, 2009, by calling (800) 642-1687, or (706) 645-9291, with conference ID # 79623146.

Use of Non-GAAP Financial Measures

To supplement Glu's unaudited condensed consolidated financial statements presented in accordance with GAAP, Glu uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Glu's results of operations as determined in accordance with GAAP. The non-GAAP financial measures used by Glu include non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP net income (loss) and historical and estimated non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude the following items from Glu's consolidated statements of operations:

• Acquired in-process technology
• Amortization of intangibles
• Stock-based compensation
• Gain on sale of assets
• Impairment of auction-rate securities
• Restructuring
• MIG earnout and bonus payments
• Transitional expenses
• Impairment of goodwill

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.

For complete information regarding our non-GAAP financial information, please refer to Glu's November 4, 2008 press release regarding its third quarter financial results and certain non-GAAP financial information available in the Investor Relations section of Glu's website, [ www.glu.com ].

Cautions Regarding Forward-Looking Statements

This news release contains forward-looking statements, including those regarding our expectation that our restructuring of the MIG earnout, combined with our previously announced cost reduction initiatives, will provide additional working capital flexibility and significantly improve our liquidity position, while eliminating a significant source of potential dilution to stockholders; our expectation that we can now focus on increasing stockholder value by improving our existing carrier business and building our presence on new high end handsets and platforms that are gaining traction in the mobile market; our expectation that the MIG restructuring, combined with our previously announced cost reduction efforts, will reduce our total non-GAAP operating expenses by approximately 19% from second quarter 2008 levels; our belief that we have the necessary working capital in place to focus on executing our business plan and driving us toward positive cash flows from operations in 2009; all of the statements regarding our preliminary guidance for fiscal 2009; our expectation that we will record an incremental tax provision of approximately $250,000 in the fourth quarter related to repatriating cash from China; our belief that our 2009 title releases on new platforms will drive increasing revenue from those handsets; and our expectation that we will deliver positive cash flow in 2009. 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 risk that our restructuring of the MIG earnout, combined with our previously announced cost reduction initiatives, will not provide the level of additional working capital or improve our liquidity position at levels we currently anticipate or at all; the risk that we will be unable to increase stockholder value by improving our existing carrier business and building our presence on new high end handsets and platforms; the risk that the MIG restructuring, combined with previously announced cost reduction efforts, will not reduce our non-GAAP operating expenses to the levels we currently anticipate or will not provide the necessary working capital to allow us to focus on executing our business plan and driving us toward cash flow positive performance in 2009; the risk that foreign exchange rates may decline further than we currently anticipate; the risk that the costs associated with our repatriating cash from China will result in higher taxes or other costs than we currently anticipate; the risk that the global economy and sales of mobile handsets will continue to deteriorate and adversely impact sales of our games; the risk that our title plan roadmap for 2009, including for high-end platforms, such as the iPhone, Android, N-Gage and Blackberry, may be less successful than we anticipate or that we will not release the titles on the schedules that we currently anticipate or at all; the risk that we may have insufficient working capital to effectively execute our business strategy, including exploitation of the new high-end platforms while continuing to address the traditional mobile phone market; the risk that we may lose a key intellectual property license; the risk that growth of next generation handsets and advanced networks does not grow as significantly in 2009 as we anticipate; the risk that our development expenses for games for high-end handsets are greater than we anticipate; the risk that our recently and newly launched games are less popular than anticipated; the risk that changes in wireless carrier plans with their customers may adversely impact sales of our games; the risk that sales of our original IP titles will not continue to favorably impact product mix; the risk that our newly released games will be of a quality less than desired by reviewers and consumers; the risk that mobile games market 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 14, 2008 and our other SEC filings. You can locate these reports through our website at [ http://www.glu.com/corp/Pages.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

Glu (NASDAQ:GLUU) is a leading global publisher of mobile games. Its portfolio of top-rated games includes original titles Super K.O. Boxing!, Stranded and Brain Genius, and titles based on major brands from partners including Atari, Activision, Konami, Harrah's, Hasbro, Warner Bros., Microsoft, PlayFirst, PopCap Games, SEGA and Sony. Founded in 2001, Glu is based in San Mateo, Calif. and has offices in London, France, Germany, Spain, Italy, Sweden, Poland, Russia, China, Brazil, Chile, Canada and Mexico. Consumers can find high-quality, fresh entertainment created exclusively for their mobile phones wherever they see the 'g' character logo or at [ www.glu.com ].

GLU MOBILE, GLU, SUPER K.O. BOXING!, STRANDED, BRAIN GENIUS and the 'g' character logo are trademarks of Glu Mobile Inc.