Press Releases

RealNetworks Announces Fourth Quarter And Full Year 2016 Results

SEATTLE, Feb. 8, 2017 /PRNewswire/ --

  • Stabilized revenue in 2016 with quarter over quarter improvement;
  • Reduced year-over-year GAAP operating expenses by $31.5 million in 2016;
  • Strong shift to mobile games in 2016, driven by new products;
  • Continuing to roll out integration of new mobile products with carrier partners; and
  • Year ended with Cash and short-term investments of $77.1 million

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the fourth quarter and full year ended December 31, 2016.

For the fourth quarter of 2016, revenue was $31.5 million, up from $31.1 million in the previous quarter and up from $29.9 million in the fourth quarter of 2015. For the full year 2016, GAAP revenue was $120.5 million, compared to $125.3 million in 2015. Excluding 2015 revenue from the social casino games business that was sold during the third quarter of 2015, revenue in 2015 was $120.4 million.

The Company's GAAP operating expenses for the full year 2016 were down $31.5 million or 25% from the prior year. Excluding the 2015 operating expenses directly attributable to the social casino games business, operating expenses for the full year 2016 were down $20.9 million or 18% from the prior year.

GAAP net loss for the fourth quarter of 2016 was $(10.0) million or $(0.27) per share, compared to $(8.4) million or $(0.23) per share in the fourth quarter of 2015. GAAP net loss for 2016 was $(36.6) million or $(0.99) per share, compared to $(81.8) million or $(2.26) in 2015.

Adjusted EBITDA for the fourth quarter of 2016 was a loss of $(4.2) million, compared to $(4.4) million for the previous quarter and $(4.2) million for the fourth quarter of 2015. Adjusted EBITDA for the full year 2016 was a loss of $(21.6) million, compared to $(45.8) million for the prior year. Excluding the social casino games business sold in 2015, adjusted EBITDA for 2015 was $(38.6) million. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"During 2016, we achieved two of our three major financial goals," said Rob Glaser, Chairman and CEO of RealNetworks. "We stabilized our businesses and saw quarter over quarter overall revenue growth.

"We're continuing to roll out the integration of our Mobile Services products with carriers like Vivo, Verizon, and Vodafone. In our Games business, we scaled up our production of GameHouse Originals, leading to a 28% growth in mobile games revenue.

"While we did not return to profitability in 2016, we made significant progress. We enter 2017 with several new product initiatives well underway that we believe will build strong momentum towards a return to growth and profitability."

As of December 31, 2016, the Company had $77.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $80.7 million as of September 30, 2016.

Business Outlook

For the first quarter of 2017, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the first quarter in the range of $(4.0) million to $(6.0) million.

Webcast and Conference Call Information

The company will host a conference call today to review results and discuss the company's performance at 5 p.m. ET/2 p.m. PT. You may join the conference call by calling 888-790-3440 or +1-517-308-9350 (Passcode: 4TH QUARTER). A live webcast of the call will be available at http://investor.realnetworks.com/ and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 11:59 p.m. PT, February 28, 2017 by calling 800-813-5534 or +1-203-369-3348 (Passcode: 282017).

For More Information

Investor Relations for RealNetworks
+1-206-729-3625
IR@realnetworks.com

RNWK-F

About RealNetworks

RealNetworks creates innovative applications and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category in 1995 and continues to connect consumers with their digital media both directly and through partners, aiming to support every network, device, media type and social network. RealNetworks' corporate information is located at www.realnetworks.com/about-us.

RealNetworks and RealTimes are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

About Non-GAAP Financial Measures

To supplement RealNetworks' consolidated financial information presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) to adjusted EBITDA and operating income (loss) by reportable segment to contribution margin by reportable segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the quarterly earnings materials. Please refer to Exhibit 99.2 ("Information Regarding Non- GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to RealNetworks' current expectations regarding future revenue and adjusted EBITDA, our future growth, profitability, and market position, our strategic focus and initiatives, agreements with partners, and the growth and future prospects relating to our Rhapsody affiliate. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements reflect RealNetworks' expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: RealNetworks' ability to realize operating efficiencies, growth and other benefits from the implementation of its growth plan, strategic initiatives, and restructuring efforts; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on RealNetworks' business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; fluctuations in foreign currencies; and changes in RealNetworks' effective tax rate. More information about potential risk factors that could affect RealNetworks' business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks' financial statements and forward-looking financial guidance requires the company to make estimates and assumptions that affect the reported amount of assets and liabilities, and revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)




Quarter Ended
December 31,


Year ended
December 31,






2016


2015


2016


2015



 (in thousands, except per share data)










 Net revenue


$

31,453



$

29,922



$

120,468



$

125,296


 Cost of revenue


17,358



15,828



64,968



70,297


           Gross profit


14,095



14,094



55,500



54,999











 Operating expenses:









       Research and development


6,738



8,945



29,923



43,626


       Sales and marketing


7,451



9,409



31,608



48,231


       General and administrative


6,035



3,237



27,415



24,549


       Restructuring and other charges


192



(284)



1,489



5,279


       Lease exit and related charges


48



293



2,239



2,501











           Total operating expenses


20,464



21,600



92,674



124,186











 Operating income (loss)


(6,369)



(7,506)



(37,174)



(69,187)











 Other income (expenses):









       Interest income, net


133



83



449



680


       Gain (loss) on investments, net


2,495



63



8,473



(159)


       Equity in net loss of Rhapsody


(5,904)



(690)



(6,533)



(14,521)


       Other income (expense), net


(128)



(122)



(643)



506











           Total other income (expense), net


(3,404)



(666)



1,746



(13,494)











 Income (loss) before income taxes


(9,773)



(8,172)



(35,428)



(82,681)


 Income tax expense (benefit)


203



241



1,122



(834)











 Net income (loss)


$

(9,976)



$

(8,413)



$

(36,550)



$

(81,847)











 Basic net income (loss) per share


$

(0.27)



$

(0.23)



$

(0.99)



$

(2.26)


 Diluted net income (loss) per share


$

(0.27)



$

(0.23)



$

(0.99)



$

(2.26)











 Shares used to compute basic net income (loss) per share


37,042



36,257



36,781



36,165


 Shares used to compute diluted net income (loss) per share


37,042



36,257



36,781



36,165




















 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



December 31,
 2016


December 31,
 2015


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

33,721



$

47,315


 Short-term investments

43,331



51,814


 Trade accounts receivable, net

22,162



22,511


 Deferred costs, current portion

760



460


 Prepaid expenses and other current assets

4,910



7,140


   Total current assets

104,884



129,240






 Equipment and software

46,231



66,702


 Leasehold improvements

3,317



3,122


 Total equipment, software, and leasehold improvements

49,548



69,824


 Less accumulated depreciation and amortization

44,294



61,024


   Net equipment, software, and leasehold improvements

5,254



8,800






 Restricted cash equivalents and investments

2,700



2,890


 Available for sale securities



1,721


 Other assets

1,742



2,307


 Deferred costs, non-current portion

1,246



212


 Deferred tax assets, net

816



957


 Other intangible assets, net

938



2,136


 Goodwill

12,857



13,080






   Total assets

$

130,437



$

161,343






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

18,225



$

17,050


 Accrued and other current liabilities

15,425



17,320


 Commitment to Rhapsody

1,500




 Deferred revenue, current portion

3,430



3,497


   Total current liabilities

38,580



37,867






 Deferred revenue, non-current portion

240



105


 Deferred rent

748



620


 Deferred tax liabilities, net

87



88


 Other long-term liabilities

2,201



1,980






   Total liabilities

41,856



40,660










 Shareholders' equity

88,581



120,683






 Total liabilities and shareholders' equity

$

130,437



$

161,343


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Year ended
December 31,



2016


2015


 (in thousands)


 Cash flows from operating activities:




 Net income (loss)

$

(36,550)



$

(81,847)


 Adjustments to reconcile net income (loss) to net cash used in operating activities:

   Depreciation and amortization

7,057



10,410


   Stock-based compensation

5,424



4,698


   Equity in net loss of Rhapsody

6,533



14,521


   Deferred income taxes, net

130



(1,558)


   Loss (gain) on investments, net

(8,473)



159


   Realized translation loss (gain)

272



(264)


   Fair value of warrants granted in 2015, net of subsequent mark to market adjustments in 2016 and 2015

280



(1,053)


   Net change in certain operating assets and liabilities

999



(14,048)


      Net cash provided by (used in) operating activities

(24,328)



(68,982)


 Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(2,438)



(1,319)


  Proceeds from sale of equity and other investments

4,967



459


  Purchases of short-term investments

(75,766)



(72,136)


  Proceeds from sales and maturities of short-term investments

84,249



78,775


  Decrease (increase) in restricted cash equivalents and investments, net

190



110


  Acquisitions

(150)



(161)


  Advance to Rhapsody

(3,500)



(5,000)


  Receipt of payment from Rhapsody



5,000


  Proceeds from the sale of Slingo and social casino business

4,000



10,000


     Net cash provided by (used in) investing activities

11,552



15,728


 Cash flows from financing activities:




  Proceeds from issuance of common stock (stock options and stock purchase plan)

535



426


  Tax payments from shares withheld upon vesting of restricted stock

(880)



(85)


     Net cash provided by (used in) financing activities

(345)



341


 Effect of exchange rate changes on cash and cash equivalents

(473)



(3,025)


     Net increase (decrease) in cash and cash equivalents

(13,594)



(55,938)


 Cash and cash equivalents, beginning of year

47,315



103,253


 Cash and cash equivalents, end of year

$

33,721



$

47,315


 


RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)



2016


2015


 YTD


 Q4


 Q3


 Q2


Q1


 YTD


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue

by Line of Business




















Consumer Media (A)

$

25,051



$

6,443



$

6,482



$

6,400



$

5,726



$

28,613



$

6,848



$

6,495



$

7,281



$

7,989


Mobile Services (B)

70,278



18,833



17,683



17,297



16,465



65,935



16,369



16,484



18,578



14,504


Games (C)

25,139



6,177



6,886



6,037



6,039



30,748



6,705



7,844



8,095



8,104


     Total net revenue

$

120,468



$

31,453



$

31,051



$

29,734



$

28,230



$

125,296



$

29,922



$

30,823



$

33,954



$

30,597






















Net Revenue

by Product




















Consumer Media




















- License (D)

$

15,406



$

4,252



$

4,136



$

3,914



$

3,104



$

16,475



$

3,967



$

3,628



$

4,208



$

4,672


- Subscriptions (E)

7,448



1,671



1,931



1,871



1,975



8,957



2,054



2,147



2,372



2,384


- Media Properties (F)

2,197



520



415



615



647



3,181



827



720



701



933






















Mobile Services




















- SaaS (G)

69,295



18,726



17,141



17,208



16,220



63,914



16,157



16,217



18,218



13,322


- Technology License & Other (H)

983



107



542



89



245



2,021



212



267



360



1,182






















Games




















- License (I)

12,415



3,178



3,683



2,793



2,761



15,174



3,268



4,128



3,943



3,835


- Subscriptions (J)

11,894



2,836



3,005



3,024



3,029



13,300



3,126



3,231



3,373



3,570


- Media Properties (K)

830



163



198



220



249



2,274



311



485



779



699






















     Total net revenue

$

120,468



$

31,453



$

31,051



$

29,734



$

28,230



$

125,296



$

29,922



$

30,823



$

33,954



$

30,597






















Net Revenue

by Geography




















United States

$

41,505



$

10,125



$

10,642



$

10,355



$

10,383



$

46,893



$

10,781



$

11,460



$

12,303



$

12,349


Rest of world

78,963



21,328



20,409



19,379



17,847



78,403



19,141



19,363



21,651



18,248


     Total net revenue

$

120,468



$

31,453



$

31,051



$

29,734



$

28,230



$

125,296



$

29,922



$

30,823



$

33,954



$

30,597






















Net Revenue by Line of Business

(A) The Consumer Media division primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as RealPlayer Plus and SuperPass.

(B) The Mobile Services division primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.

(C) The Games division primarily includes revenue from sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.

Net Revenue by Product

(D) Licensing revenue within Consumer Media includes sales of intellectual property licenses and RealPlayer Plus software licenses to consumers.

(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.

(F) Media Properties revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.

(G) SaaS revenue within Mobile Services includes revenue from music on demand, ringback tones, intercarrier messaging services, and RealTimes.

(H) Technology licensing and other revenue within Mobile Services includes revenue from professional services provided to mobile carriers.

(I) Licensing revenue within Games includes retail games-related revenue and sales of mobile games.

(J) Subscriptions revenue within Games includes revenue from online games subscriptions as well as microtransactions from mobile and social games.

(K) Media Properties revenue within Games includes advertising on games sites and social network sites.

 

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin

(Unaudited)




2016


2015


2016


2015



Q4


Q3


Q4


YTD


YTD



 (in thousands)

Consumer Media






















Net revenue


$

6,443



$

6,482



$

6,848



$

25,051



$

28,613


Cost of revenue


1,589



1,507



3,084



7,074



13,257


   Gross profit


4,854



4,975



3,764



17,977



15,356













   Gross margin


75

%


77

%


55

%


72

%


54

%












Operating expenses


4,459



4,271



6,644



18,399



26,526


Operating income (loss), a GAAP measure


$

395



$

704



$

(2,880)



$

(422)



$

(11,170)


Depreciation and amortization


239



295



1,038



2,212



2,546













  Contribution margin, a non-GAAP measure


$

634



$

999



$

(1,842)



$

1,790



$

(8,624)













Mobile Services






















Net revenue


$

18,833



$

17,683



$

16,369



$

70,278



$

65,935


Cost of revenue


13,679



13,026



11,032



50,026



47,834


   Gross profit


5,154



4,657



5,337



20,252



18,101













   Gross margin


27

%


26

%


33

%


29

%


27

%












Operating expenses


7,786



8,075



9,158



34,439



44,311


Operating income (loss), a GAAP measure


$

(2,632)



$

(3,418)



$

(3,821)



$

(14,187)



$

(26,210)


Acquisitions related intangible asset amortization


198



208



379



923



1,544


Depreciation and amortization


290



403



484



1,723



2,136













Contribution margin, a non-GAAP measure


$

(2,144)



$

(2,807)



$

(2,958)



$

(11,541)



$

(22,530)













Games






















Net revenue


$

6,177



$

6,886



$

6,705



$

25,139



$

30,748


Cost of revenue


2,054



2,203



1,698



7,919



9,291


   Gross profit


4,123



4,683



5,007



17,220



21,457













   Gross margin


67

%


68

%


75

%


68

%


70

%












Operating expenses


4,975



4,649



5,253



19,644



29,086


Operating income (loss), a GAAP measure


$

(852)



$

34



$

(246)



$

(2,424)



$

(7,629)


Acquisitions related intangible asset amortization


27



29



24



115



799


Depreciation and amortization


146



104



197



583



952













   Contribution margin, a non-GAAP measure


$

(679)



$

167



$

(25)



$

(1,726)



$

(5,878)













Corporate






















Cost of revenue


$

36



$

4



$

14



$

(51)



$

(85)


   Gross profit


(36)



(4)



(14)



51



85













   Gross margin


N/A



N/A



N/A



N/A



N/A













Operating expenses


3,244



5,705



545



20,192



24,263


Operating income (loss), a GAAP measure


$

(3,280)



$

(5,709)



$

(559)



$

(20,141)



$

(24,178)


Other income (expense), net


(128)



(243)



(122)



(643)



506


Depreciation and amortization


260



634



336



1,501



2,433


Restructuring and other charges


192



499



(284)



1,489



5,279


Stock-based compensation


867



778



937



5,424



4,698


Lease exit and related charges


48



1,233



293



2,239



2,501













   Contribution margin, a non-GAAP measure


$

(2,041)



$

(2,808)



$

601



$

(10,131)



$

(8,761)













 

RealNetworks, Inc. and Subsidiaries

Reconciliation of Net income (loss) to adjusted EBITDA, a non-GAAP measure

(Unaudited)




2016


2015


2016


2015



 Q4


 Q3


 Q4


 YTD


 YTD



 (in thousands)












Reconciliation of GAAP Net income (loss) to adjusted EBITDA:












Net income (loss)


$

(9,976)



$

(3,056)



$

(8,413)



$

(36,550)



$

(81,847)


Income tax expense (benefit)


203



331



241



1,122



(834)


Interest income, net


(133)



(119)



(83)



(449)



(680)


Gain (loss) on investments, net


(2,495)



(6,021)



(63)



(8,473)



159


Equity in net loss of Rhapsody


5,904



233



690



6,533



14,521


Acquisitions related intangible asset amortization


225



237



403



1,038



2,343


Depreciation and amortization


935



1,436



2,055



6,019



8,067


Restructuring and other charges


192



499



(284)



1,489



5,279


Stock-based compensation


867



778



937



5,424



4,698


Lease exit and related charges


48



1,233



293



2,239



2,501


   Adjusted EBITDA, a non-GAAP measure


$

(4,230)



$

(4,449)



$

(4,224)



$

(21,608)



$

(45,793)


 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-fourth-quarter-and-full-year-2016-results-300404495.html

SOURCE RealNetworks, Inc.

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