Press Releases

RealNetworks Announces First Quarter 2016 Results

- Continued progress in stabilizing revenue and setting the company up for a return to revenue growth and profitability in 2016;
- Realigned 2 of Real's 3 main operating divisions - Mobile Services and Consumer Media;
- Signed up Vodafone as our first European Carrier integrating RealTimes® into its offerings;
- Strengthened management by hiring Reza Rassool as CTO of RealNetworks, and Mike Davis as CEO of Rhapsody International; and
- Cash and short-term investments of $86.8 million

SEATTLE, May 5, 2016 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2016.

For the first quarter of 2016, revenue was $28.2 million compared to $29.9 million in the previous quarter and $28.8 million in the first quarter of 2015, excluding revenue from the Slingo and social casino games business, which was sold during the third quarter of 2015.

"In the first quarter of 2016, we continued to make progress in turning RealNetworks around and setting the company up for growth and a return to profitability in the quarters ahead," said Rob Glaser, Chairman and CEO of RealNetworks. "First, we realigned 2 of our divisions to focus our business on the best opportunities in front of us. Second, we hired Reza Rassool as CTO and helped bring in Mike Davis as CEO of our affiliate Rhapsody. Third, we continued to make progress on stabilizing the company's revenue while continuing to manage operating expenses carefully."

Pursuant to the realignment, the company re-segmented its first quarter 2016 and historical financial statements to reflect these changes and a change in the corporate expense allocation methodology reflected in the tables presented below.

The Company's operating expenses in the first quarter of 2016 were down 16% from the same period in 2015, excluding stock compensation, restructuring charges, expenses from the Slingo and social casino games business, and the impact of a non-cash warrant from Rhapsody.

GAAP net loss for the first quarter of 2016 was $(15.2) million or $(0.42) per share, compared to $(24.5) million or $(0.68) per share in the first quarter of 2015.  Adjusted EBITDA for the first quarter of 2016 was a loss of $(8.1) million, compared to $(4.2) million for the previous quarter and $(10.8) million for the first quarter of 2015, excluding the results of the Slingo and social casino games business, which was sold in August 2015. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2016, the company had $86.8 million in unrestricted cash, cash equivalents and short-term investments, compared to $99.1 million as of December 31, 2015.

Business Outlook

For the second quarter of 2016, RealNetworks expects total revenue in the range of $26 million to $29 million and an adjusted EBITDA loss for the second quarter in the range of $(6.0) million to $(9.0) 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: First quarter Earnings). 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, May 26, 2016 by calling 800-678-8548 or +1-402-220-6449 (Passcode: 5516).

For More Information

Michael Newman, StreetConnect
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 adjusted EBITDA 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 operating income (loss) to adjusted EBITDA and to adjusted EBITDA 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)




Quarters Ended
March 31,





2016


2015



 (in thousands, except per share data)






 Net revenue


$

28,230



$

30,597


 Cost of revenue


15,172



16,547


           Gross profit


13,058



14,050







 Operating expenses:





       Research and development


9,319



12,379


       Sales and marketing


9,225



12,837


       General and administrative


8,077



7,283


       Restructuring and other charges


385



485


       Lease exit and related charges


831



78







           Total operating expenses


27,837



33,062







 Operating income (loss)


(14,779)



(19,012)







 Other income (expenses):





       Interest income, net


117



200


       Gain (loss) on investments, net


3



299


       Equity in net loss of Rhapsody




(6,180)


       Other income (expense), net


(287)



443







           Total other income (expense), net


(167)



(5,238)







 Income (loss) before income taxes


(14,946)



(24,250)


 Income tax expense (benefit)


225



219







 Net income (loss)


$

(15,171)



$

(24,469)







 Basic net income (loss) per share


$

(0.42)



$

(0.68)


 Diluted net income (loss) per share


$

(0.42)



$

(0.68)







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


36,520



36,104


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


36,520



36,104












 

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)



March 31,
2016


December 31,
2015


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

40,539



$

47,315


 Short-term investments

46,289



51,814


 Trade accounts receivable, net

23,527



22,511


 Deferred costs, current portion

452



460


 Prepaid expenses and other current assets

5,563



7,140


   Total current assets

116,370



129,240






 Equipment and software

61,330



66,702


 Leasehold improvements

3,190



3,122


   Total equipment, software, and leasehold improvements

64,520



69,824


 Less accumulated depreciation and amortization

56,983



61,024


   Net equipment, software, and leasehold improvements

7,537



8,800






 Restricted cash equivalents and investments

3,100



2,890


 Available for sale securities

1,910



1,721


 Other assets

2,273



2,307


 Deferred costs, non-current portion

660



212


 Deferred tax assets, net

996



957


 Other intangible assets, net

1,753



2,136


 Goodwill

13,099



13,080






   Total assets

$

147,698



$

161,343






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

15,368



$

17,050


 Accrued and other current liabilities

17,110



17,320


 Deferred revenue, current portion

3,537



3,497


   Total current liabilities

36,015



37,867






 Deferred revenue, non-current portion

583



105


 Deferred rent

579



620


 Deferred tax liabilities, net

90



88


 Other long-term liabilities

1,668



1,980






   Total liabilities

38,935



40,660










 Shareholders' equity

108,763



120,683






 Total liabilities and shareholders' equity

$

147,698



$

161,343


 

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)



Quarters Ended
March 31,



2016


2015


 (in thousands)


 Cash flows from operating activities:




 Net income (loss)

$

(15,171)



$

(24,469)


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

    Depreciation and amortization

2,598



2,503


    Stock-based compensation

3,171



1,329


    Equity in net loss of Rhapsody



6,180


    Deferred income taxes, net

(128)



(77)


    Loss (gain) on investments, net

(3)



(299)


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

44



(1,155)


    Net change in certain operating assets and liabilities

(1,722)



(4,106)


      Net cash provided by (used in) operating activities

(11,211)



(20,094)


 Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(828)



(306)


  Proceeds from sale of available for sale securities



352


  Purchases of short-term investments

(17,876)



(6,018)


  Proceeds from sales and maturities of short-term investments

23,401



33,077


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

(210)




  Advance to Rhapsody



(5,000)


   Net cash provided by (used in) investing activities

4,487



22,105


 Cash flows from financing activities:




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

16



6


Tax payments from shares withheld upon vesting of restricted stock

(787)



(7)


   Net cash provided by (used in) financing activities

(771)



(1)


 Effect of exchange rate changes on cash and cash equivalents

719



(2,269)


   Net increase (decrease) in cash and cash equivalents

(6,776)



(259)


 Cash and cash equivalents, beginning of period

47,315



103,253


 Cash and cash equivalents, end of period

$

40,539



$

102,994


 


RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)



2016


2015


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business










Consumer Media (A)

$

5,726



$

6,848



$

6,495



$

7,281



$

7,989


Mobile Services (B)

16,465



16,369



16,484



18,578



14,504


Games (C)

6,039



6,705



7,844



8,095



8,104


     Total net revenue

$

28,230



$

29,922



$

30,823



$

33,954



$

30,597












Net Revenue by Product










Consumer Media










- License (D)

$

3,104



$

3,967



$

3,628



$

4,208



$

4,672


- Subscriptions (E)

1,975



2,054



2,147



2,372



2,384


- Media Properties (F)

647



827



720



701



933












Mobile Services










- SaaS (G)

16,220



16,157



16,217



18,218



13,322


- Technology License & Other (H)

245



212



267



360



1,182












Games










- License (I)

2,761



3,268



4,128



3,943



3,835


- Subscriptions (J)

3,029



3,126



3,231



3,373



3,570


- Media Properties (K)

249



311



485



779



699












     Total net revenue

$

28,230



$

29,922



$

30,823



$

33,954



$

30,597












Net Revenue by Geography










United States

$

10,383



$

10,781



$

11,460



$

12,303



$

12,349


Rest of world

17,847



19,141



19,363



21,651



18,248


     Total net revenue

$

28,230



$

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
(Unaudited)




2016


2015



Q1


Q4


Q1


 (in thousands)

Consumer Media














Net revenue


$

5,726



$

6,848



$

7,989


Cost of revenue


2,417



3,084



3,464


Gross profit


3,309



3,764



4,525









   Gross margin


58

%


55

%


57

%








Operating expenses


5,376



6,644



6,594


Operating income (loss)


$

(2,067)



$

(2,880)



$

(2,069)









  Adjusted EBITDA


$

(764)



$

(1,842)



$

(1,558)









Mobile Services














Net revenue


$

16,465



$

16,369



$

14,504


Cost of revenue


10,917



11,032



10,308


Gross profit


5,548



5,337



4,196









   Gross margin


34

%


33

%


29

%








Operating expenses


9,794



9,158



11,961


Operating income (loss)


$

(4,246)



$

(3,821)



$

(7,765)









  Adjusted EBITDA


$

(3,516)



$

(2,958)



$

(6,793)









Games














Net revenue


$

6,039



$

6,705



$

8,104


Cost of revenue


1,845



1,698



2,794


Gross profit


4,194



5,007



5,310









   Gross margin


69

%


75

%


66

%








Operating expenses


5,295



5,253



8,683


Operating income (loss)


$

(1,101)



$

(246)



$

(3,373)









   Adjusted EBITDA


$

(897)



$

(25)



$

(2,783)









Corporate














Cost of revenue


$

(7)



$

14



$

(19)


Gross profit


7



(14)



19









   Gross margin


N/A


N/A


N/A








Operating expenses


7,372



545



5,824


Operating income (loss)


$

(7,365)



$

(559)



$

(5,805)









   Adjusted EBITDA


$

(2,904)



$

601



$

(3,040)









Total














Net revenue


$

28,230



$

29,922



$

30,597


Cost of revenue


15,172



15,828



16,547


Gross profit


13,058



14,094



14,050









   Gross margin


46

%


47

%


46

%








Operating expenses


27,837



21,600



33,062


Operating income (loss)


$

(14,779)



$

(7,506)



$

(19,012)









   Adjusted EBITDA


$

(8,081)



$

(4,224)



$

(14,174)


 

RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment
(Unaudited)




2016


2015



 Q1


 Q4


 Q1



 (in thousands)

Consumer Media














Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:












Operating income (loss)


$

(2,067)



$

(2,880)



$

(2,069)


Depreciation and amortization


1,303



1,038



511


   Adjusted EBITDA


$

(764)



$

(1,842)



$

(1,558)









Mobile Services














Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:












Operating income (loss)


$

(4,246)



$

(3,821)



$

(7,765)


Acquisitions related intangible asset amortization


308



379



392


Depreciation and amortization


422



484



580


   Adjusted EBITDA


$

(3,516)



$

(2,958)



$

(6,793)









Games














Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:












Operating income (loss)


$

(1,101)



$

(246)



$

(3,373)


Acquisitions related intangible asset amortization


25



24



293


Depreciation and amortization


179



197



297


   Adjusted EBITDA


$

(897)



$

(25)



$

(2,783)









Corporate














Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:












Operating income (loss)


$

(7,365)



$

(559)



$

(5,805)


Other income (expense), net


(287)



(122)



443


Depreciation and amortization


361



336



430


Restructuring and other charges


385



(284)



485


Stock-based compensation


3,171



937



1,329


Lease exit and related charges


831



293



78


   Adjusted EBITDA


$

(2,904)



$

601



$

(3,040)









Total














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












Operating income (loss)


$

(14,779)



$

(7,506)



$

(19,012)


Other income (expense), net


(287)



(122)



443


Acquisitions related intangible asset amortization


333



403



685


Depreciation and amortization


2,265



2,055



1,818


Restructuring and other charges


385



(284)



485


Stock-based compensation


3,171



937



1,329


Lease exit and related charges


831



293



78


   Adjusted EBITDA


$

(8,081)



$

(4,224)



$

(14,174)


 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-first-quarter-2016-results-300263992.html

SOURCE RealNetworks, Inc.

News Provided by Acquire Media

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