Press Releases

RealNetworks Announces Second Quarter 2017 Results

SEATTLE, Aug. 3, 2017 /PRNewswire/ --

  • Revenue of $33.1 million grew 11% year-over-year and 8% sequentially
  • Reduced year-over-year operating expenses by $3.2 million
  • Continued investments in key growth initiatives

RealNetworks Logo

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the second quarter ended June 30, 2017.

Management Commentary

"We are pleased with our second quarter results, which saw solid performance in all three of our divisions," said Rob Glaser, Chairman and CEO of RealNetworks. "We also made good progress in lowering our cost structure and realigning our resources to support a few key growth initiatives. We believe these growth initiatives, the first of which will come to market later this year, will deliver meaningful revenue contributions in 2018 and beyond."

Second Quarter 2017 Financial Highlights

  • Revenue was $33.1 million, up from $30.6 million in the prior quarter and up from $29.7 million in the second quarter of 2016.
  • Operating expenses declined by $2.9 million, or 14%, from the prior quarter and by $3.2 million, or 15%, from the same period in 2016.
  • Net loss was $(3.4) million or $(0.09) per share, compared to $(9.4) million or $(0.25) per share in the prior quarter and $(8.3) million or $(0.23) per share in the second quarter of 2016.
  • Adjusted EBITDA was a loss of $(0.8) million, compared to a loss of $(4.4) million in the prior quarter and $(4.8) million in the second quarter of 2016. A reconciliation of GAAP net income (loss) to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.
  • As of June 30, 2017, the Company had $62.5 million in unrestricted cash, cash equivalents and short-term investments, compared to $66.3 million as of March 31, 2017.

Business Outlook

For the third quarter of 2017, RealNetworks expects to achieve the following results:

  • Total revenue is expected to be in the range of $29 million to $31 million
  • Adjusted EBITDA loss is expected to be in the range of $(2.0) million to $(4.0) 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 888-831-6080 or +1-210-234-0017 (Passcode: 2ND 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, August 24, 2017 by calling 800-388-4923 or +1-203-369-3800 (Passcode: 832017).

For More Information

Investor Relations for RealNetworks
Laura Bainbridge, Addo IR
310-829-5400
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
June 30,


Six Months Ended
June 30,






2017


2016


2017


2016



 (in thousands, except per share data)










Net revenue


$

33,112



$

29,734



$

63,687



$

57,964


Cost of revenue


17,290



15,698



34,583



30,870


   Gross profit


15,822



14,036



29,104



27,094











Operating expenses:









   Research and development


7,584



7,167



14,933



16,486


   Sales and marketing


5,496



7,749



12,651



16,974


   General and administrative


5,254



6,217



10,557



14,294


   Restructuring and other charges


150



413



1,714



798


   Lease exit and related charges




127





958











      Total operating expenses


18,484



21,673



39,855



49,510











Operating income (loss)


(2,662)



(7,637)



(10,751)



(22,416)











Other income (expenses):









   Interest income, net


109



80



237



197


   Gain (loss) on investments, net




(46)





(43)


   Equity in net loss of Rhapsody


(349)



(396)



(1,097)



(396)


   Other income (expense), net


(13)



15



(238)



(272)











      Total other income (expense), net


(253)



(347)



(1,098)



(514)











Income (loss) before income taxes


(2,915)



(7,984)



(11,849)



(22,930)


Income tax expense (benefit)


471



363



961



588











Net income (loss)


$

(3,386)



$

(8,347)



$

(12,810)



$

(23,518)











Basic net income (loss) per share


$

(0.09)



$

(0.23)



$

(0.35)



$

(0.64)


Diluted net income (loss) per share


$

(0.09)



$

(0.23)



$

(0.35)



$

(0.64)











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


37,103



36,755



37,067



36,637


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


37,103



36,755



37,067



36,637


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



June 30,
 2017


December 31,
 2016


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

37,855



$

33,721


 Short-term investments

24,619



43,331


 Trade accounts receivable, net

27,354



22,162


 Deferred costs, current portion

525



760


 Prepaid expenses and other current assets

4,798



4,910


   Total current assets

95,151



104,884






 Equipment and software

45,259



46,231


 Leasehold improvements

3,405



3,317


   Total equipment, software, and leasehold improvements

48,664



49,548


 Less accumulated depreciation and amortization

44,262



44,294


   Net equipment, software, and leasehold improvements

4,402



5,254






 Restricted cash equivalents and investments

2,700



2,700


 Other assets

2,277



1,742


 Deferred costs, non-current portion

1,020



1,246


 Deferred tax assets, net

857



816


 Other intangible assets, net

527



938


 Goodwill

12,985



12,857






   Total assets

$

119,919



$

130,437







 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

18,603



$

18,225


 Accrued and other current liabilities

14,133



15,425


 Commitment to Rhapsody



1,500


 Deferred revenue, current portion

3,560



3,430


   Total current liabilities

36,296



38,580






 Deferred revenue, non-current portion

710



240


 Deferred rent

702



748


 Deferred tax liabilities, net

87



87


 Other long-term liabilities

1,771



2,201






   Total liabilities

39,566



41,856










 Shareholders' equity

80,353



88,581






 Total liabilities and shareholders' equity

$

119,919



$

130,437


 

RealNetworks, Inc. and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Six Months Ended
June 30,


2017


2016


 (in thousands)

 Cash flows from operating activities:


   Net income (loss)

$

(12,810)


$

(23,518)

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






         Depreciation and amortization

1,757


4,224

         Stock-based compensation

2,297


3,779

         Equity in net loss of Rhapsody

1,097


396

         Deferred income taxes, net

(40)


(148)

         Loss (gain) on investments, net


43

         Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016

(417)


82

         Net change in certain operating assets and liabilities

(5,830)


(3,209)

              Net cash provided by (used in) operating activities

(13,946)


(18,351)

 Cash flows from investing activities:




         Purchases of equipment, software, and leasehold improvements

(417)


(1,512)

         Purchases of short-term investments

(13,905)


(33,359)

         Proceeds from sales and maturities of short-term investments

32,617


42,517

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


(110)

         Acquisitions


(150)

         Advance to Rhapsody

(1,500)


              Net cash provided by (used in) investing activities

16,795


7,386

 Cash flows from financing activities:




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

130


166

         Tax payments from shares withheld upon vesting of restricted stock

(192)


(808)

              Net cash provided by (used in) financing activities

(62)


(642)

 Effect of exchange rate changes on cash and cash equivalents

1,347


425

              Net increase (decrease) in cash and cash equivalents

4,134


(11,182)

 Cash and cash equivalents, beginning of year

33,721


47,315

 Cash and cash equivalents, end of year

$

37,855


$

36,133

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)



2017


2016



 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business













Consumer Media (A)


$

6,951



$

5,669



$

6,443



$

6,482



$

6,400



$

5,726


Mobile Services (B)


19,227



19,084



18,833



17,683



17,297



16,465


Games (C)


6,934



5,823



6,177



6,886



6,037



6,039


     Total net revenue


$

33,112



$

30,576



$

31,453



$

31,051



$

29,734



$

28,230















Net Revenue by Product













Consumer Media













- License (D)


$

5,002



$

3,672



$

4,252



$

4,136



$

3,914



$

3,104


- Subscriptions (E)


1,531



1,564



1,671



1,931



1,871



1,975


- Media Properties (F)


418



433



520



415



615



647















Mobile Services













- SaaS (G)


19,146



18,987



18,726



17,141



17,208



16,220


- Technology License & Other (H)


81



97



107



542



89



245















Games













- License (I)


4,007



2,862



3,178



3,683



2,793



2,761


- Subscriptions (J)


2,781



2,828



2,836



3,005



3,024



3,029


- Media Properties (K)


146



133



163



198



220



249















     Total net revenue


$

33,112



$

30,576



$

31,453



$

31,051



$

29,734



$

28,230















Net Revenue by Geography













United States


$

10,889



$

9,740



$

10,125



$

10,642



$

10,355



$

10,383


Rest of world


22,223



20,836



21,328



20,409



19,379



17,847


     Total net revenue


$

33,112



$

30,576



$

31,453



$

31,051



$

29,734



$

28,230















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 mobile games, sales of games licenses, online games subscription services, advertising on games sites and social network sites, and microtransactions from online 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 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)




2017


2016


2017


2016



Q2


Q1


Q2


YTD


YTD


 (in thousands)

Consumer Media






















Net revenue


$

6,951



$

5,669



$

6,400



$

12,620



$

12,126


Cost of revenue


1,159



1,405



1,561



2,564



3,978


   Gross profit


5,792



4,264



4,839



10,056



8,148













   Gross margin


83

%


75

%


76

%


80

%


67

%












Operating expenses


3,730



4,010



4,293



7,740



9,669


Operating income (loss), a GAAP measure


$

2,062



$

254



$

546



$

2,316



$

(1,521)


Depreciation and amortization


159



167



375



326



1,678













  Contribution margin, a non-GAAP measure


$

2,221



$

421



$

921



$

2,642



$

157













Mobile Services






















Net revenue


$

19,227



$

19,084



$

17,297



$

38,311



$

33,762


Cost of revenue


13,429



13,914



12,404



27,343



23,321


   Gross profit


5,798



5,170



4,893



10,968



10,441













   Gross margin


30

%


27

%


28

%


29

%


31

%












Operating expenses


6,705



8,119



8,784



14,824



18,578


Operating income (loss), a GAAP measure


$

(907)



$

(2,949)



$

(3,891)



$

(3,856)



$

(8,137)


Acquisitions related intangible asset amortization


201



196



209



397



517


Depreciation and amortization


175



203



608



378



1,030













Contribution margin, a non-GAAP measure


$

(531)



$

(2,550)



$

(3,074)



$

(3,081)



$

(6,590)













Games






















Net revenue


$

6,934



$

5,823



$

6,037



$

12,757



$

12,076


Cost of revenue


2,679



1,937



1,817



4,616



3,662


   Gross profit


4,255



3,886



4,220



8,141



8,414













   Gross margin


61

%


67

%


70

%


64

%


70

%












Operating expenses


5,090



4,947



4,725



10,037



10,020


Operating income (loss), a GAAP measure


$

(835)



$

(1,061)



$

(505)



$

(1,896)



$

(1,606)


Acquisitions related intangible asset amortization


25



27



34



52



59


Depreciation and amortization


157



141



154



298



333













   Contribution margin, a non-GAAP measure


$

(653)



$

(893)



$

(317)



$

(1,546)



$

(1,214)













Corporate






















Cost of revenue


$

23



$

37



$

(84)



$

60



$

(91)


   Gross profit


(23)



(37)



84



(60)



91













   Gross margin


N/A


N/A


N/A


N/A


N/A












Operating expenses


2,959



4,295



3,871



7,254



11,243


Operating income (loss), a GAAP measure


$

(2,982)



$

(4,332)



$

(3,787)



$

(7,314)



$

(11,152)


Other income (expense), net


(13)



(226)



15



(239)



(272)


Depreciation and amortization


119



187



246



306



607


Restructuring and other charges


150



1,564



413



1,714



798


Stock-based compensation


863



1,434



608



2,297



3,779


Lease exit and related charges






127





958













   Contribution margin, a non-GAAP measure


$

(1,863)



$

(1,373)



$

(2,378)



$

(3,236)



$

(5,282)


 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)



2017


2016


2017


2016


 Q2


 Q1


 Q2


 YTD


 YTD


 (in thousands)











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

















Net income (loss)

$

(3,386)



$

(9,424)



$

(8,347)



$

(12,810)



$

(23,518)


Income tax expense (benefit)

471



490



363



961



588


Interest income, net

(109)



(128)



(80)



(237)



(197)


Gain (loss) on investments, net





46





43


Equity in net loss of Rhapsody

349



748



396



1,097



396


Acquisitions related intangible asset amortization

226



223



243



449



576


Depreciation and amortization

610



698



1,383



1,308



3,648


Restructuring and other charges

150



1,564



413



1,714



798


Stock-based compensation

863



1,434



608



2,297



3,779


Lease exit and related charges





127





958


   Adjusted EBITDA, a non-GAAP measure

$

(826)



$

(4,395)



$

(4,848)



$

(5,221)



$

(12,929)


 

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SOURCE RealNetworks, Inc.

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