Press Releases

RealNetworks Announces Third Quarter 2016 Results

- Revenue of $31.1 million, up 4% from the prior quarter;
- GAAP net loss and adjusted EBITDA improve by 86% and 59%, respectively, year over year;
- Cash and short-term investments increases to $80.7 million; and
- Operating results led by GameHouse's 14% growth from the prior quarter -- New game titles performing strongly

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

For the third quarter of 2016, revenue was $31.1 million, up 4% from $29.7 million in the previous quarter and up 4% from $29.8 million in the third quarter of 2015, excluding revenue from the social casino games business, which was sold during the third quarter of 2015.

GAAP net loss for the third quarter of 2016 was $(3.1) million or $(0.08) per share, which improved by 86% compared to $(21.2) million or $(0.59) per share in the third quarter of 2015.  Adjusted EBITDA for the third quarter of 2016 was a loss of $(4.4) million, which improved by 59% compared to $(10.9) million for the third quarter of 2015, excluding the results in the prior period of the social casino games business. Adjusted EBITDA improved due to significant reductions in ongoing operating expenses. The GAAP results for the third quarter of 2016 also benefitted by $6.0 million of gain on payment received from the sale of the social casino games business and from the recent sale of another non-strategic asset. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"For 2016 we established three major financial goals. We're on course to achieve two of them," said Rob Glaser, Chairman and CEO of RealNetworks. "We've stabilized our businesses and have begun to see revenue growth.

"We're particularly pleased with the strong performance of our new first-party titles in our GameHouse unit, with sales up 14% sequentially, as we continue to ramp up production of high quality games. We're also continuing to roll out the integration of our mobile products with carriers like Vivo, Verizon, and Vodafone.

"Our third financial goal of the company was to return to profitability by the end of the year. While we have significantly reduced our costs, EBITDA loss and cash consumption - in fact in Q3 we increased our cash position by $2.0 million, we do not currently expect to return to EBITDA profitability in 2016. While we are not making this change lightly, we think we're making the right mid- to long-term tradeoff by making measured investments to drive our future growth and profitability."

As of September 30, 2016, the Company had $80.7 million in unrestricted cash, cash equivalents and short-term investments, up from $78.8 million as of June 30, 2016.

Business Outlook

For the fourth quarter of 2016, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the fourth quarter in the range of $(3.0) million to $(5.0) 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: Third 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 10:59 p.m. PT, November 24, 2016 by calling 866-509-6763 or +1-203-369-1928 (Passcode: 1132016).

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
September 30,


Nine Months Ended
September 30,






2016


2015


2016


2015



 (in thousands, except per share data)










 Net revenue


$

31,051



$

30,823



$

89,015



$

95,374


 Cost of revenue


16,740



18,090



47,610



54,469


           Gross profit


14,311



12,733



41,405



40,905











 Operating expenses:









       Research and development


6,699



10,501



23,185



34,681


       Sales and marketing


7,183



11,938



24,157



38,822


       General and administrative


7,086



7,021



21,380



21,312


       Restructuring and other charges


499



3,114



1,297



5,563


       Lease exit and related charges


1,233



2,121



2,191



2,208











           Total operating expenses


22,700



34,695



72,210



102,586











 Operating income (loss)


(8,389)



(21,962)



(30,805)



(61,681)











 Other income (expenses):









       Interest income, net


119



147



316



597


       Gain (loss) on investments, net


6,021



(615)



5,978



(222)


       Equity in net loss of Rhapsody


(233)



(735)



(629)



(13,831)


       Other income (expense), net


(243)



297



(515)



628











           Total other income (expense), net


5,664



(906)



5,150



(12,828)











 Income (loss) before income taxes


(2,725)



(22,868)



(25,655)



(74,509)


 Income tax expense (benefit)


331



(1,684)



919



(1,075)











 Net income (loss)


$

(3,056)



$

(21,184)



$

(26,574)



$

(73,434)











 Basic net income (loss) per share


$

(0.08)



$

(0.59)



$

(0.72)



$

(2.03)


 Diluted net income (loss) per share


$

(0.08)



$

(0.59)



$

(0.72)



$

(2.03)











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


36,805



36,191



36,693



36,134


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


36,805



36,191



36,693



36,134











 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



September 30,
2016


December 31,
 2015


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

38,284



$

47,315


 Short-term investments

42,465



51,814


 Trade accounts receivable, net

25,287



22,511


 Deferred costs, current portion

852



460


 Prepaid expenses and other current assets

5,166



7,140


   Total current assets

112,054



129,240






 Equipment and software

57,014



66,702


 Leasehold improvements

3,204



3,122


   Total equipment, software, and leasehold improvements

60,218



69,824


 Less accumulated depreciation and amortization

54,339



61,024


   Net equipment, software, and leasehold improvements

5,879



8,800






 Restricted cash equivalents and investments

2,700



2,890


 Available for sale securities

2,041



1,721


 Other assets

1,908



2,307


 Deferred costs, non-current portion

1,236



212


 Deferred tax assets, net

1,015



957


 Other intangible assets, net

1,224



2,136


 Goodwill

12,974



13,080






  Total assets

$

141,031



$

161,343






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

18,379



$

17,050


 Accrued and other current liabilities

16,547



17,320


 Deferred revenue, current portion

3,883



3,497


    Total current liabilities

38,809



37,867






 Deferred revenue, non-current portion

343



105


 Deferred rent

504



620


 Deferred tax liabilities, net

100



88


 Other long-term liabilities

1,935



1,980






  Total liabilities

41,691



40,660










 Shareholders' equity

99,340



120,683






 Total liabilities and shareholders' equity

$

141,031



$

161,343


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Nine Months Ended
September 30,



2016


2015


 (in thousands)


 Cash flows from operating activities:




 Net income (loss)

$

(26,574)



$

(73,434)


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

  Depreciation and amortization

5,897



7,952


  Stock-based compensation

4,557



3,761


  Equity in net loss of Rhapsody

629



13,831


  Deferred income taxes, net

(198)



(1,531)


  Loss (gain) on investments, net

(5,978)



222


  Realized translation loss (gain)

272



(264)


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

112



(1,078)


  Net change in certain operating assets and liabilities

(1,011)



(5,428)


    Net cash provided by (used in) operating activities

(22,294)



(55,969)


 Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(2,009)



(1,110)


  Proceeds from sale of equity and other investments

2,110



459


  Purchases of short-term investments

(59,124)



(52,475)


  Proceeds from sales and maturities of short-term investments

68,473



60,516


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

190




  Acquisitions

(150)



(161)


  Advance to Rhapsody



(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

13,490



17,229


 Cash flows from financing activities:




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

166



297


  Tax payments from shares withheld upon vesting of restricted stock

(843)



(69)


   Net cash provided by (used in) financing activities

(677)



228


 Effect of exchange rate changes on cash and cash equivalents

450



(2,910)


   Net increase (decrease) in cash and cash equivalents

(9,031)



(41,422)


 Cash and cash equivalents, beginning of period

47,315



103,253


 Cash and cash equivalents, end of period

$

38,284



$

61,831


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)



2016


2015



 Q3


 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business















Consumer Media (A)


$

6,482



$

6,400



$

5,726



$

6,848



$

6,495



$

7,281



$

7,989


Mobile Services (B)


17,683



17,297



16,465



16,369



16,484



18,578



14,504


Games (C)


6,886



6,037



6,039



6,705



7,844



8,095



8,104


     Total net revenue


$

31,051



$

29,734



$

28,230



$

29,922



$

30,823



$

33,954



$

30,597

















Net Revenue by Product















Consumer Media















- License (D)


$

4,136



$

3,914



$

3,104



$

3,967



$

3,628



$

4,208



$

4,672


- Subscriptions (E)


1,931



1,871



1,975



2,054



2,147



2,372



2,384


- Media Properties (F)


415



615



647



827



720



701



933

















Mobile Services















- SaaS (G)


17,141



17,208



16,220



16,157



16,217



18,218



13,322


- Technology License & Other (H)


542



89



245



212



267



360



1,182

















Games















- License (I)


3,683



2,793



2,761



3,268



4,128



3,943



3,835


- Subscriptions (J)


3,005



3,024



3,029



3,126



3,231



3,373



3,570


- Media Properties (K)


198



220



249



311



485



779



699

















     Total net revenue


$

31,051



$

29,734



$

28,230



$

29,922



$

30,823



$

33,954



$

30,597

















Net Revenue by Geography















United States


$

10,642



$

10,355



$

10,383



$

10,781



$

11,460



$

12,303



$

12,349


Rest of world


20,409



19,379



17,847



19,141



19,363



21,651



18,248


     Total net revenue


$

31,051



$

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



Q3


Q2


Q3


YTD


YTD



 (in thousands)

Consumer Media






















Net revenue


$

6,482



$

6,400



$

6,495



$

18,608



$

21,765


Cost of revenue


1,507



1,561



3,142



5,485



10,173


   Gross profit


4,975



4,839



3,353



13,123



11,592













   Gross margin


77

%


76

%


52

%


71

%


53

%












Operating expenses


4,271



4,293



6,421



13,940



19,882


Operating income (loss), a GAAP measure


$

704



$

546



$

(3,068)



$

(817)



$

(8,290)


Depreciation and amortization


295



375



519



1,973



1,508













  Contribution margin, a non-GAAP measure


$

999



$

921



$

(2,549)



$

1,156



$

(6,782)













Mobile Services






















Net revenue


$

17,683



$

17,297



$

16,484



$

51,445



$

49,566


Cost of revenue


13,026



12,404



12,512



36,347



36,802


   Gross profit


4,657



4,893



3,972



15,098



12,764













   Gross margin


26

%


28

%


24

%


29

%


26

%












Operating expenses


8,075



8,784



11,093



26,653



35,153


Operating income (loss), a GAAP measure


$

(3,418)



$

(3,891)



$

(7,121)



$

(11,555)



$

(22,389)


Acquisitions related intangible asset amortization


208



209



389



725



1,165


Depreciation and amortization


403



608



493



1,433



1,652













Contribution margin, a non-GAAP measure


$

(2,807)



$

(3,074)



$

(6,239)



$

(9,397)



$

(19,572)













Games






















Net revenue


$

6,886



$

6,037



$

7,844



$

18,962



$

24,043


Cost of revenue


2,203



1,817



2,513



5,865



7,593


   Gross profit


4,683



4,220



5,331



13,097



16,450













   Gross margin


68

%


70

%


68

%


69

%


68

%












Operating expenses


4,649



4,725



6,431



14,669



23,833


Operating income (loss), a GAAP measure


$

34



$

(505)



$

(1,100)



$

(1,572)



$

(7,383)


Acquisitions related intangible asset amortization


29



34



170



88



775


Depreciation and amortization


104



154



214



437



755













   Contribution margin, a non-GAAP measure


$

167



$

(317)



$

(716)



$

(1,047)



$

(5,853)













Corporate






















Cost of revenue


$

4



$

(84)



$

(77)



$

(87)



$

(99)


   Gross profit


(4)



84



77



87



99













   Gross margin


N/A



N/A



N/A



N/A



N/A













Operating expenses


5,705



3,871



10,750



16,948



23,718


Operating income (loss), a GAAP measure


$

(5,709)



$

(3,787)



$

(10,673)



$

(16,861)



$

(23,619)


Other income (expense), net


(243)



15



297



(515)



628


Depreciation and amortization


634



246



1,273



1,241



2,097


Restructuring and other charges


499



413



3,114



1,297



5,563


Stock-based compensation


778



608



1,178



4,557



3,761


Lease exit and related charges


1,233



127



2,121



2,191



2,208













   Contribution margin, a non-GAAP measure


$

(2,808)



$

(2,378)



$

(2,690)



$

(8,090)



$

(9,362)













 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)




2016


2015


2016


2015



 Q3


 Q2


 Q3


 YTD


 YTD



 (in thousands)












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


















Net income (loss)


$

(3,056)



$

(8,347)



$

(21,184)



$

(26,574)



$

(73,434)


Income tax expense (benefit)


331



363



(1,684)



919



(1,075)


Interest income, net


(119)



(80)



(147)



(316)



(597)


Gain (loss) on investments, net


(6,021)



46



615



(5,978)



222


Equity in net loss of Rhapsody


233



396



735



629



13,831


Acquisitions related intangible asset amortization


237



243



559



813



1,940


Depreciation and amortization


1,436



1,383



2,499



5,084



6,012


Restructuring and other charges


499



413



3,114



1,297



5,563


Stock-based compensation


778



608



1,178



4,557



3,761


Lease exit and related charges


1,233



127



2,121



2,191



2,208


   Adjusted EBITDA, a non-GAAP measure


$

(4,449)



$

(4,848)



$

(12,194)



$

(17,378)



$

(41,569)


 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-third-quarter-2016-results-300357091.html

SOURCE RealNetworks, Inc.

News Provided by Acquire Media

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