Press Releases

RealNetworks Announces First Quarter 2018 Results

SEATTLE, May 3, 2018 /PRNewswire/ --

  • Revenue of $19.7 million, similar to the prior year period and up from $18.9 million in the prior quarter
  • Gross margin from continuing operations increased to 74% from 67% in the prior year period
  • Adjusted EBITDA from continuing operations improved $1.5 million year-over-year to a loss of $(3.0) million
  • Focused on four key growth initiatives: RMHD, Kontxt, RealCV and mobile game subscriptions; these initiatives are expected to drive revenue growth in 2018 and beyond

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the first quarter ended March 31, 2018.

Management Commentary

"In the first quarter of 2018 we made significant progress on all four of our key growth initiatives," said Rob Glaser, Chairman and CEO of RealNetworks. "We did so while maintaining financial discipline and keeping our core business stable."

First Quarter 2018 Financial Highlights from Continuing Operations

  • Revenue was $19.7 million, up from $18.9 million in the prior quarter and flat with $19.7 million in the prior year period.
  • Operating expenses increased $0.8 million, or 4%, from the prior quarter and decreased $1.9 million, or 9%, from the prior year period.
  • Net loss was $(5.2) million, or $(0.14) per share, compared to net income of $0.4 million or $0.01 per share in the prior quarter and a net loss of $(9.6) million, or $(0.26) per share in the prior year period.
  • Adjusted EBITDA was a loss of $(3.0) million, compared to a loss of $(3.6) million in the prior quarter and $(4.6) million in the prior year period. A reconciliation of GAAP net income (loss) to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.
  • At March 31, 2018, the Company had $54.3 million in unrestricted cash, cash equivalents and short-term investments, compared to $60.0 million at December 31, 2017.

Business Outlook

For the second quarter of 2018, RealNetworks expects to achieve the following results:

  • Total revenue is expected to be in the range of $16 million to $18 million.
  • Adjusted EBITDA loss is expected to be in the range of $(3.5) million to $(5.5) million.

New Revenue Recognition Accounting Standard

As of January 1, 2018, we adopted Accounting Standards Codification 606 (Topic 606), Revenue from Contracts with Customers, which affects the accounting for our revenue. We adopted Topic 606 using the modified retrospective transition method, under which the prior periods presented have not been recast to reflect adoption of the new standard.

For additional details on the impact of the standard, see our Annual Report on Form 10-K for the year ended December 31, 2017, and our forthcoming Quarterly Report on Form 10-Q for the first quarter of 2018.

Conference Call and Webcast Information

The company will host a conference call today to review results and discuss the company's performance shortly after 4:30 p.m. ET/1:30 p.m. PT. You may join the conference call by calling 1-877-451-6152 (United States) or 1-201-389-0879 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Thursday, May 24, 2018, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13678426.

A live webcast will be available on RealNetworks' Investor Relations site under Events at http://investor.realnetworks.com and will be archived online upon completion of the conference call.

For More Information
Investor Relations for RealNetworks
Laura Bainbridge, Addo IR
310-829-5400
IR@realnetworks.com

RNWK-F

About RealNetworks
RealNetworks creates innovative technology products and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category 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. Find RealNetworks' corporate information at www.realnetworks.com.

RealNetworks® and the company's respective logos are trademarks, registered trademarks, or service marks of RealNetworks, Inc. Other products and company names mentioned are the 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) from continuing operations 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 d/b/a Napster 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
March 31,





2018


2017



 (in thousands, except per share data)






 Net revenue


$

19,650



$

19,691


 Cost of revenue


5,136



6,569


           Gross profit


14,514



13,122







 Operating expenses:





       Research and development


7,694



7,349


       Sales and marketing


5,997



7,155


       General and administrative


5,601



5,303


       Restructuring and other charges


501



1,564


       Lease exit and related benefit


(325)









           Total operating expenses


19,468



21,371







 Operating loss


(4,954)



(8,249)







 Other income (expenses):





       Interest income, net


87



128


       Equity in net loss of Napster




(748)


       Other income (expense), net


(41)



(226)







           Total other income (expense), net


46



(846)







 Loss from continuing operations before income taxes


(4,908)



(9,095)


 Income tax expense


270



455







Loss from continuing operations


(5,178)



(9,550)


Net income from discontinued operations, net of tax




126


 Net loss


$

(5,178)



$

(9,424)







Net income (loss) per share - Basic:





Continuing operations


$

(0.14)



$

(0.26)


Discontinued operations




0.01


Net loss per share - Basic


$

(0.14)



$

(0.25)


Net income (loss) per share - Diluted:





Continuing operations


$

(0.14)



$

(0.26)


Discontinued operations




0.01


Net loss per share - Diluted


$

(0.14)



$

(0.25)







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


37,449



37,030


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


37,449



37,030


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



March 31,
2018


December 31,
2017


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

49,785



$

51,196


 Short-term investments

4,548



8,779


 Trade accounts receivable, net

13,740



12,689


 Deferred costs, current portion

444



426


 Prepaid expenses and other current assets

4,420



3,715


  Current assets of discontinued operations

5,500



17,456


    Total current assets

78,437



94,261






 Equipment and software

43,881



46,417


 Leasehold improvements

3,619



3,536


   Total equipment, software, and leasehold improvements

47,500



49,953


 Less accumulated depreciation and amortization

43,848



46,093


   Net equipment, software, and leasehold improvements

3,652



3,860






 Restricted cash equivalents

2,400



2,400


 Other assets

6,049



5,588


 Deferred costs, non-current portion

800



955


 Deferred tax assets, net

1,087



1,047


 Other intangible assets, net

243



325


 Goodwill

13,106



13,060






 Total assets

$

105,774



$

121,496






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

3,640



$

3,785


 Accrued and other current liabilities

12,806



12,365


 Commitment to Napster

2,750



2,750


 Deferred revenue, current portion

2,142



3,097


Current liabilities of discontinued operations

5,373



17,107


 Total current liabilities

26,711



39,104






 Deferred revenue, non-current portion

397



443


 Deferred rent

1,009



982


 Deferred tax liabilities, net

20



19


 Other long-term liabilities

1,295



1,775






 Total liabilities

29,432



42,323










 Shareholders' equity

76,342



79,173






 Total liabilities and shareholders' equity

$

105,774



$

121,496


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Three Months Ended
March 31,


2018


2017


 (in thousands)


 Cash flows from operating activities:




 Net loss

$

(5,178)



$

(9,424)


 Adjustments to reconcile net loss to net cash used in operating activities:

  Depreciation and amortization

620



921


  Stock-based compensation

1,157



1,434


  Equity in net loss of Napster



748


  Deferred income taxes, net

(40)



(20)


  Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2018 and 2017

21



(471)


  Net change in certain operating assets and liabilities

(2,005)



(2,598)


     Net cash used in operating activities

(5,425)



(9,410)


 Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(316)



(207)


  Purchases of short-term investments



(6,142)


  Proceeds from sales and maturities of short-term investments

4,231



21,695


  Advance to Napster



(1,500)


  Net cash provided by investing activities

3,915



13,846


 Cash flows from financing activities:




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



34


  Tax payments from shares withheld upon vesting of restricted stock

(232)



(181)


   Net cash used in financing activities

(232)



(147)


 Effect of exchange rate changes on cash, cash equivalents and restricted cash

331



488


 Net increase (decrease) in cash, cash equivalents and restricted cash

(1,411)



4,777


 Cash, cash equivalents and restricted cash, beginning of period

53,596



36,421


 Cash, cash equivalents and restricted cash, end of period

$

52,185



$

41,198


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)




2018


2017



Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business











Consumer Media (A)


$

5,483



$

5,752



$

4,197



$

6,951



$

5,669


Mobile Services (B)


8,704



7,155



7,678



7,720



8,199


Games (C)


5,463



5,958



6,682



6,934



5,823


     Total net revenue


$

19,650



$

18,865



$

18,557



$

21,605



$

19,691













Net Revenue by Product











Consumer Media











- Software License (D)


$

3,337



$

3,595



$

2,012



$

4,741



$

3,295


- Subscription Services (E)


1,285



1,362



1,434



1,531



1,564


- Product Sales (F)


340



350



322



261



377


- Advertising & Other (G)


521



445



429



418



433













Mobile Services











- Software License (H)


1,335



388



688



642



619


- Subscription Services (I)


7,369



6,767



6,990



7,078



7,580













Games











- Subscription Services (J)


2,693



2,707



2,708



2,781



2,828


- Product Sales (K)


2,402



3,086



3,851



4,007



2,862


- Advertising & Other (L)


368



165



123



146



133













     Total net revenue


$

19,650



$

18,865



$

18,557



$

21,605



$

19,691













Net Revenue by Geography











United States


$

11,434



$

10,120



$

10,084



$

10,889



$

9,740


Rest of world


8,216



8,745



8,473



10,716



9,951


     Total net revenue


$

19,650



$

18,865



$

18,557



$

21,605



$

19,691



Net Revenue by Line of Business

(A) The Consumer Media division primarily includes revenue from the licensing of our portfolio of video codec technologies. Also included is RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software to consumers, 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 and PC games, online games subscription services, and advertising on games sites and social network sites.

Net Revenue by Product











(D) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies.

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

(F) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers.

(G) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.

(H) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform.

(I) Subscription services revenue within Mobile Services includes revenue from ringback tones and our intercarrier messaging services, as well as from related professional services provided to mobile carriers.

(J) Subscription services revenue within Games includes revenue from online games subscriptions.

(K) Product sales revenue within Games includes revenue from retail and wholesale games-related revenue and sales of mobile games.

(L) Advertising & other 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)



2018


2017


Q1


Q4


Q1


 (in thousands)

Consumer Media












Net revenue

$

5,483



$

5,752



$

5,669


Cost of revenue

993



915



1,405


   Gross profit

4,490



4,837



4,264








   Gross margin

82

%


84

%


75

%







Operating expenses

3,918



3,573



4,010


Operating income (loss), a GAAP measure

$

572



$

1,264



$

254


Depreciation and amortization

46



42



167








  Contribution margin, a non-GAAP measure

$

618



$

1,306



$

421








Mobile Services












Net revenue

$

8,704



$

7,155



$

8,199


Cost of revenue

2,316



2,271



3,190


   Gross profit

6,388



4,884



5,009








   Gross margin

73

%


68

%


61

%







Operating expenses

7,366



6,709



8,119


Operating income (loss), a GAAP measure

$

(978)



$

(1,825)



$

(3,110)


Acquisitions related intangible asset amortization

92



89



196


Depreciation and amortization

180



174



203








Contribution margin, a non-GAAP measure

$

(706)



$

(1,562)



$

(2,711)








Games












Net revenue

$

5,463



$

5,958



$

5,823


Cost of revenue

1,817



1,868



1,937


   Gross profit

3,646



4,090



3,886








   Gross margin

67

%


69

%


67

%







Operating expenses

4,917



5,293



4,947


Operating income (loss), a GAAP measure

$

(1,271)



$

(1,203)



$

(1,061)


Acquisitions related intangible asset amortization



18



27


Depreciation and amortization

165



163



141








   Contribution margin, a non-GAAP measure

$

(1,106)



$

(1,022)



$

(893)








Corporate












Cost of revenue

$

10



$

(89)



$

37


   Gross profit

(10)



89



(37)








   Gross margin

N/A



N/A



N/A








Operating expenses

3,267



3,082



4,295


Operating income (loss), a GAAP measure

$

(3,277)



$

(2,993)



$

(4,332)


Other income (expense), net

(41)



(217)



(226)


Depreciation and amortization

137



48



187


Restructuring and other charges

501



255



1,564


Stock-based compensation

1,157



630



1,434


Lease exit and related benefit

(325)












   Contribution margin, a non-GAAP measure

$

(1,848)



$

(2,277)



$

(1,373)








 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)




2018


2017



 Q1


 Q4


 Q1



 (in thousands)








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












Net income (loss) from continuing operations


$

(5,178)



$

447



$

(9,550)


Income tax expense (benefit)


270



(3,732)



455


Interest income, net


(87)



(83)



(128)


(Gain) loss on investments, net




(4,500)




Equity in net loss of Napster




2,894



748


Acquisitions related intangible asset amortization


92



107



223


Depreciation and amortization


528



427



698


Restructuring and other charges


501



255



1,564


Stock-based compensation


1,157



630



1,434


Lease exit and related benefit


(325)






   Adjusted EBITDA, a non-GAAP measure


$

(3,042)



$

(3,555)



$

(4,556)


 

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