Press Releases

RealNetworks Announces Second Quarter 2016 Results

- Revenue of $29.7 million as GAAP net loss and adjusted EBITDA improve by over 60%;
- Stabilizing revenue, significantly reducing losses and making strides toward returning to revenue growth and profitability in 2016;
- Expanding in Latin America with two new deals with Telefonica Vivo, Brazil's largest mobile carrier;
- Launched two new first party titles in Games and both off to successful starts;
- Rebranded Rhapsody as Napster in North America; and
- Cash and short-term investments of $78.8 million

SEATTLE, Aug. 3, 2016 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the second quarter ended June 30, 2016.

For the second quarter of 2016, revenue was $29.7 million, compared to $28.2 million in the previous quarter and $31.8 million in the second quarter of 2015, excluding revenue from the Slingo and social casino games business, which was sold during the third quarter of 2015.

GAAP net loss for the second quarter of 2016 was $(8.3) million or $(0.23) per share, improved by 70% compared to $(27.8) million or $(0.77) per share in the second quarter of 2015.  Adjusted EBITDA for the second quarter of 2016 was a loss of $(4.8) million, which improved by 61% compared to $(12.5) million for the second quarter of 2015, excluding the results of the Slingo and social casino games business, which was sold in August 2015. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"In the second quarter of 2016, we continued to make progress in stabilizing revenue, reducing costs and positioning the company for growth and a return to profitability by the end of 2016," said Rob Glaser, Chairman and CEO of RealNetworks. "We are also excited that Telefonica Vivo, Brazil's largest carrier, has chosen to launch products based on both our Ringback Tone and RealTimes platforms. These two new design wins complement other recent progress we've made in our Mobile Services business with carriers such as Vodafone, KDDI, and Verizon."

The Company's GameHouse unit launched two new, first-party titles in the second quarter: Heart's Medicine - Time to Heal, and Fabulous - Angela's Fashion Fever. Both titles are off to strong starts, demonstrating that Real has been able to maintain high games quality while ramping up title production.

In addition to its progress with new product roll-outs, Real also made significant strides in lowering its operating costs.  The Company's operating expenses in the second quarter of 2016 were down 25% from the same period in 2015, excluding stock compensation, restructuring charges, and expenses from the Slingo and social casino games business.

As of June 30, 2016, the Company had $78.8 million in unrestricted cash, cash equivalents and short-term investments, compared to $86.8 million as of March 31, 2016.

Business Outlook

For the third quarter of 2016, RealNetworks expects total revenue in the range of $28 million to $30 million and an adjusted EBITDA loss for the third quarter in the range of $(5.0) million to $(7.0) 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: Second 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, August 24, 2016 by calling 866-441-1045 or +1-203-369-1053 (Passcode: 832016).

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)








Quarters Ended

June 30,


Six Months Ended

June 30,






2016


2015


2016


2015



 (in thousands, except per share data)










 Net revenue


$

29,734



$

33,954



$

57,964



$

64,551


 Cost of revenue


15,698



19,832



30,870



36,379


           Gross profit


14,036



14,122



27,094



28,172











 Operating expenses:









       Research and development


7,167



11,801



16,486



24,180


       Sales and marketing


7,749



14,047



16,974



26,884


       General and administrative


6,217



7,008



14,294



14,291


       Restructuring and other charges


413



1,964



798



2,449


       Lease exit and related charges


127



9



958



87











           Total operating expenses


21,673



34,829



49,510



67,891











 Operating income (loss)


(7,637)



(20,707)



(22,416)



(39,719)











 Other income (expenses):









       Interest income, net


80



250



197



450


       Gain (loss) on investments, net


(46)



94



(43)



393


       Equity in net loss of Rhapsody


(396)



(6,916)



(396)



(13,096)


       Other income (expense), net


15



(112)



(272)



331











           Total other income (expense), net


(347)



(6,684)



(514)



(11,922)











 Income (loss) before income taxes


(7,984)



(27,391)



(22,930)



(51,641)


 Income tax expense (benefit)


363



390



588



609











 Net income (loss)


$

(8,347)



$

(27,781)



$

(23,518)



$

(52,250)











 Basic net income (loss) per share


$

(0.23)



$

(0.77)



$

(0.64)



$

(1.45)


 Diluted net income (loss) per share


$

(0.23)



$

(0.77)



$

(0.64)



$

(1.45)











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


36,755



36,106



36,637



36,105


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


36,755



36,106



36,637



36,105


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)






June 30,

 2016


December 31,

 2015


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

36,133



$

47,315


 Short-term investments

42,656



51,814


 Trade accounts receivable, net

24,617



22,511


 Deferred costs, current portion

889



460


 Prepaid expenses and other current assets

4,716



7,140


   Total current assets

109,011



129,240






 Equipment and software

60,383



66,702


 Leasehold improvements

3,607



3,122


   Total equipment, software, and leasehold improvements

63,990



69,824


 Less accumulated depreciation and amortization

56,887



61,024


   Net equipment, software, and leasehold improvements

7,103



8,800






 Restricted cash equivalents and investments

3,000



2,890


 Available for sale securities

1,920



1,721


 Other assets

2,243



2,307


 Deferred costs, non-current portion

1,136



212


 Deferred tax assets, net

1,006



957


 Other intangible assets, net

1,545



2,136


 Goodwill

12,973



13,080






   Total assets

$

139,937



$

161,343






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

17,442



$

17,050


 Accrued and other current liabilities

15,566



17,320


 Deferred revenue, current portion

3,278



3,497


   Total current liabilities

36,286



37,867






 Deferred revenue, non-current portion

466



105


 Deferred rent

665



620


 Deferred tax liabilities, net

89



88


 Other long-term liabilities

1,511



1,980






   Total liabilities

39,017



40,660










 Shareholders' equity

100,920



120,683






 Total liabilities and shareholders' equity

$

139,937



$

161,343


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)




Six Months Ended

June 30,



2016


2015


 (in thousands)


 Cash flows from operating activities:




 Net income (loss)

$

(23,518)



$

(52,250)


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

   Depreciation and amortization

4,224



4,894


   Stock-based compensation

3,779



2,583


   Equity in net loss of Rhapsody

396



13,096


   Deferred income taxes, net

(148)



(23)


   Loss (gain) on investments, net

43



(393)


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

82



(1,128)


   Interest receivable on advance to Rhapsody



(121)


   Net change in certain operating assets and liabilities

(3,209)



(10,230)


      Net cash provided by (used in) operating activities

(18,351)



(43,572)


 Cash flows from investing activities:




 Purchases of equipment, software, and leasehold improvements

(1,512)



(859)


 Proceeds from sale of available for sale securities



459


 Purchases of short-term investments

(33,359)



(8,514)


 Proceeds from sales and maturities of short-term investments

42,517



48,630


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

(110)




 Acquisitions

(150)



(161)


 Advance to Rhapsody



(5,000)


   Net cash provided by (used in) investing activities

7,386



34,555


 Cash flows from financing activities:




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

166



276


 Tax payments from shares withheld upon vesting of restricted stock

(808)



(10)


     Net cash provided by (used in) financing activities

(642)



266


 Effect of exchange rate changes on cash and cash equivalents

425



(1,839)


     Net increase (decrease) in cash and cash equivalents

(11,182)



(10,590)


 Cash and cash equivalents, beginning of period

47,315



103,253


 Cash and cash equivalents, end of period

$

36,133



$

92,663


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)







2016



2015



 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business













Consumer Media (A)


$

6,400



$

5,726



$

6,848



$

6,495



$

7,281



$

7,989


Mobile Services (B)


17,297



16,465



16,369



16,484



18,578



14,504


Games (C)


6,037



6,039



6,705



7,844



8,095



8,104


     Total net revenue


$

29,734



$

28,230



$

29,922



$

30,823



$

33,954



$

30,597















Net Revenue by Product













Consumer Media













- License (D)


$

3,914



$

3,104



$

3,967



$

3,628



$

4,208



$

4,672


-Subscriptions (E)


1,871



1,975



2,054



2,147



2,372



2,384


- Media Properties (F)


615



647



827



720



701



933















Mobile Services













- SaaS (G)


17,208



16,220



16,157



16,217



18,218



13,322


- Technology License & Other (H)


89



245



212



267



360



1,182















Games













- License (I)


2,793



2,761



3,268



4,128



3,943



3,835


- Subscriptions (J)


3,024



3,029



3,126



3,231



3,373



3,570


- Media Properties (K)


220



249



311



485



779



699















     Total net revenue


$

29,734



$

28,230



$

29,922



$

30,823



$

33,954



$

30,597















Net Revenue by Geography













United States


$

10,355



$

10,383



$

10,781



$

11,460



$

12,303



$

12,349


Rest of world


19,379



17,847



19,141



19,363



21,651



18,248


     Total net revenue


$

29,734



$

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 and Reconciliation to non-GAAP Contribution Margin

(Unaudited)












2016


2015


2016


2015



Q2


Q1


Q2


YTD


YTD



 (in thousands)

Consumer Media






















Net revenue


$

6,400



$

5,726



$

7,281



$

12,126



$

15,270


Cost of revenue


1,561



2,417



3,567



3,978



7,031


   Gross profit


4,839



3,309



3,714



8,148



8,239













   Gross margin


76

%


58

%


51

%


67

%


54

%












Operating expenses


4,293



5,376



6,867



9,669



13,461


Operating income (loss), a GAAP measure


$

546



$

(2,067)



$

(3,153)



$

(1,521)



$

(5,222)


Depreciation and amortization


375



1,303



478



1,678



989













  Contribution margin, a non-GAAP measure


$

921



$

(764)



$

(2,675)



$

157



$

(4,233)













Mobile Services






















Net revenue


$

17,297



$

16,465



$

18,578



$

33,762



$

33,082


Cost of revenue


12,404



10,917



13,982



23,321



24,290


   Gross profit


4,893



5,548



4,596



10,441



8,792













   Gross margin


28

%


34

%


25

%


31

%


27

%












Operating expenses


8,784



9,794



12,099



18,578



24,060


Operating income (loss), a GAAP measure


$

(3,891)



$

(4,246)



$

(7,503)



$

(8,137)



$

(15,268)


Acquisitions related intangible asset amortization


209



308



384



517



776


Depreciation and amortization


608



422



579



1,030



1,159













Contribution margin, a non-GAAP measure


$

(3,074)



$

(3,516)



$

(6,540)



$

(6,590)



$

(13,333)













Games






















Net revenue


$

6,037



$

6,039



$

8,095



$

12,076



$

16,199


Cost of revenue


1,817



1,845



2,286



3,662



5,080


   Gross profit


4,220



4,194



5,809



8,414



11,119













   Gross margin


70

%


69

%


72

%


70

%


69

%












Operating expenses


4,725



5,295



8,719



10,020



17,402


Operating income (loss), a GAAP measure


$

(505)



$

(1,101)



$

(2,910)



$

(1,606)



$

(6,283)


Acquisitions related intangible asset amortization


34



25



312



59



605


Depreciation and amortization


154



179



244



333



541













   Contribution margin, a non-GAAP measure


$

(317)



$

(897)



$

(2,354)



$

(1,214)



$

(5,137)













Corporate






















Cost of revenue


$

(84)



$

(7)



$

(3)



$

(91)



$

(22)


   Gross profit


84



7



3



91



22













   Gross margin


N/A


N/A


N/A


N/A


N/A












Operating expenses


3,871



7,372



7,144



11,243



12,968


Operating income (loss), a GAAP measure


$

(3,787)



$

(7,365)



$

(7,141)



$

(11,152)



$

(12,946)


Other income (expense), net


15



(287)



(112)



(272)



331


Depreciation and amortization


246



361



394



607



824


Restructuring and other charges


413



385



1,964



798



2,449


Stock-based compensation


608



3,171



1,254



3,779



2,583


Lease exit and related charges


127



831



9



958



87













   Contribution margin, a non-GAAP measure


$

(2,378)



$

(2,904)



$

(3,632)



$

(5,282)



$

(6,672)


 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)











2016


2015


2016


2015



 Q2


 Q1


 Q2


 YTD


 YTD



 (in thousands)























Net income (loss)


$

(8,347)



$

(15,171)



$

(27,781)



$

(23,518)



$

(52,250)


Income tax expense (benefit)


363



225



390



588



609


Interest income, net 


(80)



(117)



(250)



(197)



(450)


Gain (loss) on investments, net


46



(3)



(94)



43



(393)


Equity in net loss of Rhapsody


396





6,916



396



13,096


Acquisitions related intangible asset amortization


243



333



696



576



1,381


Depreciation and amortization


1,383



2,265



1,695



3,648



3,513


Restructuring and other charges


413



385



1,964



798



2,449


Stock-based compensation


608



3,171



1,254



3,779



2,583


Lease exit and related charges


127



831



9



958



87


   Adjusted EBITDA, a non-GAAP measure


$

(4,848)



$

(8,081)



$

(15,201)



$

(12,929)



$

(29,375)


 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-second-quarter-2016-results-300308717.html

SOURCE RealNetworks, Inc.

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