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RealNetworks Announces Second Quarter 2020 Financial Results

August 05, 2020

SEATTLE, Aug. 5, 2020 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the second quarter ended June 30, 2020.

  • Consolidated revenue of $40.4 million; core revenue without Napster of $17.1 million, up 9% year-over-year
  • Games revenue up 23% year-over-year and 12% quarter-over-quarter driven by success of free-to-play strategy
  • Introduced two innovative new AI-powered consumer PC software products: RealPlayer® 20/20 and StarSearch™ by Real®
  • SAFR was awarded two Phase II Small Business Innovation Research (SBIR) contracts with the United States Air Force worth $1.9 million
  • The RealNetworks Foundation committed $1 million in 2020 grants to help address racial injustice and the COVID-19 Pandemic
  • Appointed Mike Ensing President and Chief Operating Officer, succeeding Max Pellegrini

Management Commentary
"In Q2 Real delivered solid results. We were very pleased with our strong operational execution in the first full quarter of living and working during the global pandemic," said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "We generated a 9% year-over-year increase in our core revenue when not including Napster. In addition, we narrowed our adjusted EBITDA loss, our fourth consecutive quarter of year-over-year improvement in this metric. We are putting an appropriate amount of fuel into our growth businesses while also closely managing our overall expenses."

Mr. Glaser continued, "We were excited to introduce two new consumer products in commemoration of the 25th anniversary of the streaming industry. RealPlayer® 20/20 and StarSearch™ by Real® utilize the power of AI and our SAFR computer vision platform to make streaming in today's world even better. In addition, we are continuing to enhance our world-class SAFR platform and service focused primarily on the traditional security and safety markets along with innovations focused on new needs at the intersection of public health and public safety. In particular, we were honored to be awarded two SBIR contracts by the U.S. Air Force.  These contracts both enable us to continue to enhance the SAFR platform and also support the important missions of our U.S. armed forces while enhancing their safety."

Second Quarter 2020 Financial Highlights

  • Revenue was $40.4 million compared to $43.1 million in the prior quarter and $44.2 million in the prior year period. RealNetworks' core revenue without Napster was $17.1 million, up 2% from $16.8 million in the prior quarter and up 9% from $15.7 million in the prior year period.
  • Games revenue was $7.5 million, up 12% compared to $6.6 million in the prior quarter and up 23% compared to $6.0 million in the prior year period.
  • Gross profit margin was 43%, down from 44% in the prior quarter and up from 38% in the prior year period. RealNetworks' core gross profit margin without Napster was 75%, down from 76% in the prior quarter and up from 73% in the prior year period.
  • Operating expenses decreased $1.8 million, or 7%, from the prior quarter and decreased $4.1 million, or 15%, from the prior year period.
  • Net loss attributable to RealNetworks was $(5.1) million, or $(0.13) per diluted share, compared to a net loss of $(4.6) million, or $(0.12) per diluted share, in the prior quarter and a net loss of $(9.2) million, or $(0.24) per diluted share, in the prior year period.
  • Adjusted EBITDA was a loss of $(2.2) million compared to a loss of $(3.3) million in the prior quarter and a loss of $(6.3) million in the prior year period.
  • At June 30, 2020, the Company had $19.7 million in unrestricted cash and cash equivalents compared to $19.0 million at March 31, 2020.

Corporate Developments

  • On June 1, 2020, the Company received a second letter from Nasdaq Staff indicating that the Company had regained compliance with Nasdaq Listing Rule 5450(a)(1). Nasdaq Staff further indicated that the matter is now closed.
  • On July 9, 2020, The RealNetworks Foundation, a philanthropic arm of RealNetworks, Inc., allocated an additional $1 million in grants for 2020 to help address the immediate needs stemming from racial injustice and COVID-19, two historic challenges that have disproportionally impacted communities of color. The RealNetworks Foundation has directed $500,000 to each cause, applying the funds to both local and national recipients. More information on the RealNetworks Foundation can be found at https://www.realnetworks.com/realnetworks-foundation.
  • On August 4, 2020, the Company announced the appointment of Mike Ensing to the position of President and Chief Operating Officer, succeeding Max Pellegrini. Mr. Ensing previously served as interim CFO and as a strategic advisor to the Company from early January to early May of this year. Mr. Ensing will assume worldwide responsibility for the operations of Real's core businesses and will help guide strategic decision-making.

Business Outlook

Given the ongoing uncertainty surrounding the global economy and the future impact of COVID-19, RealNetworks is not providing guidance for the third quarter ending September 30, 2020.

Conference Call and Webcast Information

RealNetworks will host a conference call today to review its results and discuss its performance at approximately 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-855-327-6837 (United States) or 1-631-891-4304 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Wednesday, August 26, 2020, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 10010362.

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

About RealNetworks

Building on a legacy of digital media expertise and innovation, RealNetworks has created a new generation of products that employ best-in-class artificial intelligence and machine learning to enhance and secure our daily lives. SAFR (www.safr.com) is the world's premier facial recognition platform for live video. Leading in real-world performance and accuracy as evidenced in testing by NIST, SAFR enables new applications for security, convenience, and analytics. For information about our other products, visit www.realnetworks.com.

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) including noncontrolling interests 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 our current expectations regarding our future growth, profitability, and market position, our financial condition and liquidity, our strategic focus and initiatives, product plans, agreements with partners, use of loan proceeds, our ability to maintain compliance with Nasdaq listing standards, and the growth and future prospects relating to our Napster segment. 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 our expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results for RealNetworks, on a consolidated basis, to differ from the results predicted include: our ability to realize operating efficiencies, growth and other benefits from the implementation of our growth initiatives and restructuring efforts; cash usage and conservation, and the pursuit of additional funding sources; successful monetization of our products and services; competitive risks, including the emergence or growth of competing technologies, products and services; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets, including changes in consumer spending and impacts to credit availability; fluctuations in foreign currencies; and unique risk factors that relate to our Napster segment, such as risks stemming from its streaming music service and related music royalties. More information about potential risk factors that could affect our business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, 2019, 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 our financial statements and forward-looking financial guidance requires us 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. RealNetworks assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

For More Information:
Investor Relations for RealNetworks
Kimberly Orlando, Addo Investor Relations
310-829-5400
IR@realnetworks.com 
RNWK-F

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



Quarter Ended
June 30,


Six Months Ended
June 30,




2020


2019


2020


2019










 (in thousands, except per share data)









 Net revenue

$

40,424



$

44,248



$

83,569



$

83,720


 Cost of revenue

23,033



27,282



47,209



52,152


           Gross profit

17,391



16,966



36,360



31,568










 Operating expenses:








       Research and development

7,802



8,876



16,420



17,709


       Sales and marketing

6,927



8,360



15,044



16,502


       General and administrative

6,680



8,392



13,793



16,756


       Restructuring and other charges

881



729



1,090



896










           Total operating expenses

22,290



26,357



46,347



51,863










 Operating loss

(4,899)



(9,391)



(9,987)



(20,295)










 Other income (expenses):








       Interest expense

(278)



(43)



(540)



(209)


       Interest income

23



40



28



117


       Gain (loss) on equity investments, net

(53)





(53)



12,338


       Other income (expenses), net

(134)



183



661



310










           Total other income (expenses), net

(442)



180



96



12,556










 Income (loss) before income taxes

(5,341)



(9,211)



(9,891)



(7,739)


 Income tax expense

213



244



352



502










Net income (loss) including noncontrolling interests

(5,554)



(9,455)



(10,243)



(8,241)


Net income (loss) attributable to noncontrolling interests

(442)



(253)



(489)



(572)


Net income (loss) attributable to RealNetworks

$

(5,112)



$

(9,202)



$

(9,754)



$

(7,669)










Net income (loss) per share attributable to RealNetworks- Basic:

$

(0.13)



$

(0.24)



$

(0.26)



$

(0.20)


Net income (loss) per share attributable to RealNetworks- Diluted:

$

(0.13)



$

(0.24)



$

(0.26)



$

(0.20)










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

38,243



37,948



38,236



37,885


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

38,243



37,948



38,236



37,885


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



June 30,
2020


December 31,
2019


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

19,688



$

16,805


 Trade accounts receivable, net

28,289



29,507


 Deferred costs, current portion

743



823


 Prepaid expenses and other current assets

5,688



7,445


   Total current assets

54,408



54,580






 Equipment and software

30,862



32,167


 Leasehold improvements

2,916



3,311


   Total equipment, software, and leasehold improvements

33,778



35,478


 Less accumulated depreciation and amortization

31,297



32,657


   Net equipment, software, and leasehold improvements

2,481



2,821






 Operating lease assets

10,058



11,592


 Restricted cash equivalents

5,374



5,374


 Other assets

992



1,891


 Deferred costs, non-current portion

1,004



1,021


 Deferred tax assets, net

756



761


 Other intangible assets, net

16,931



19,286


 Goodwill

62,336



62,428






   Total assets

$

154,340



$

159,754






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

4,125



$

4,927


 Accrued royalties, fulfillment and other current liabilities

75,865



77,303


 Deferred revenue, current portion

6,181



6,620


 Notes payable

4,495



7,331


   Total current liabilities

90,666



96,181






 Deferred revenue, non-current portion

396



96


 Deferred tax liabilities, net

1,122



1,172


 Long-term lease liabilities

7,088



8,466


 Long-term debt

8,495



3,900


 Other long-term liabilities

8,232



11,666






   Total liabilities

115,999



121,481






   Total shareholders' equity

39,332



38,775






Noncontrolling interests

(991)



(502)






   Total equity

38,341



38,273






   Total liabilities and equity

$

154,340



$

159,754


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Six Months Ended
June 30,


2020


2019


 (in thousands)


 Cash flows from operating activities:




Net income (loss) including noncontrolling interests

$

(10,243)



$

(8,241)


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




Depreciation and amortization

2,832



2,959


Stock-based compensation

703



1,917


(Gain) loss on equity investments, net

53



(12,338)


Foreign currency (gain) loss

(612)



(315)


Fair value adjustments to contingent consideration liability

(200)



300


Net change in certain operating assets and liabilities

(1,110)



(381)


  Net cash used in operating activities

(8,577)



(16,099)


 Cash flows from investing activities:




Purchases of equipment, software, and leasehold improvements

(326)



(873)


Proceeds from sales and maturities of short-term investments



24


Acquisition, net of cash acquired



12,260






 Net cash (used in) provided by investing activities

(326)



11,411






 Cash flows from financing activities:




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



144


Proceeds from issuance of preferred stock

10,000




Tax payments from shares withheld upon vesting of restricted stock

(5)



(287)


Proceeds from notes payable and long-term debt

18,776



19,760


Repayments of notes payable and long-term debt

(16,889)



(24,018)


Other financing activities



450


 Net cash provided by (used in) financing activities

11,882



(3,951)


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

(96)



(89)


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

2,883



(8,728)


 Cash, cash equivalents and restricted cash, beginning of period

22,179



37,191


 Cash, cash equivalents and restricted cash, end of period

$

25,062



$

28,463


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)



2020


2019


 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Segment












Consumer Media (A)

$

3,159



$

3,495



$

4,432



$

3,632



$

2,620



$

2,486


Mobile Services (B)

6,461



6,690



6,312



6,895



6,997



6,939


Games (C)

7,465



6,637



6,567



7,164



6,048



5,710


Napster (D)

23,339



26,323



26,089



27,302



28,583



24,337


     Total net revenue

$

40,424



$

43,145



$

43,400



$

44,993



$

44,248



$

39,472














Net Revenue by Product












Consumer Media












- Software License (E)

$

1,702



$

2,020



$

2,856



$

1,987



$

944



$

735


- Subscription Services (F)

898



929



992



1,028



1,040



1,088


- Product Sales (G)

261



222



193



207



206



219


- Advertising & Other (H)

298



324



391



410



430



444














Mobile Services












- Software License (I)

972



831



657



888



957



599


- Subscription Services (J)

5,489



5,859



5,655



6,007



6,040



6,340














Games












- Subscription Services (K)

2,730



2,770



3,007



3,056



3,073



2,985


- Product Sales (L)

3,712



2,978



2,580



3,078



2,177



1,988


- Advertising & Other (M)

1,023



889



980



1,030



798



737














Napster












- Subscription Services (N)

23,339



26,323



26,089



27,302



28,583



24,337














     Total net revenue

$

40,424



$

43,145



$

43,400



$

44,993



$

44,248



$

39,472














Net Revenue by Geography












United States

$

20,785



$

22,420



$

21,053



$

22,015



$

21,322



$

18,970


Rest of world

19,639



20,725



22,347



22,978



22,926



20,502


     Total net revenue

$

40,424



$

43,145



$

43,400



$

44,993



$

44,248



$

39,472














Net Revenue by Segment












(A) The Consumer Media segment 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 segment primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.

(C) The Games segment primarily includes revenue from player purchases of in-game virtual goods within our free-to-play games, mobile and PC games, online games subscription services, and advertising on games sites and social network sites.

(D) The Napster segment primarily includes revenue from subscription music offerings from on-demand streaming services and conditional downloads. Napster revenues are included in our consolidated results from the January 18, 2019 acquisition date forward.

Net Revenue by Product












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

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

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

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

(I) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform and our facial recognition platform, SAFR.

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

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

(L) Product sales revenue within Games includes revenue from player purchases of in-game virtual goods, retail and wholesale games-related revenue, sales of mobile games.

(M) Advertising & other revenue within Games includes advertising on games sites and social network sites.

(N) Subscription services revenue within Napster includes music tracks by way of on-demand streaming and conditional downloads offered directly to end consumers and distribution partners.

 

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin

(Unaudited)



2020


2019

2020


2019


Q2


Q1


Q2


YTD


YTD


 (in thousands)

Consumer Media




















Net revenue

$

3,159



$

3,495



$

2,620



$

6,654



$

5,106


Cost of revenue

519



611



803



1,130



1,636


Gross profit

2,640



2,884



1,817



5,524



3,470












Gross margin

84

%


83

%


69

%


83

%


68

%











Operating expenses

2,204



2,458



2,877



4,662



5,996


Operating income (loss), a GAAP measure

$

436



$

426



$

(1,060)



$

862



$

(2,526)


Depreciation and amortization

15



13



56



28



110












Contribution margin, a non-GAAP measure

$

451



$

439



$

(1,004)



$

890



$

(2,416)












Mobile Services




















Net revenue

$

6,461



$

6,690



$

6,997



$

13,151



$

13,936


Cost of revenue

1,782



1,696



1,865



3,478



3,913


Gross profit

4,679



4,994



5,132



9,673



10,023












Gross margin

72

%


75

%


73

%


74

%


72

%











Operating expenses

5,682



7,588



7,438



13,270



14,999


Operating income (loss), a GAAP measure

$

(1,003)



$

(2,594)



$

(2,306)



$

(3,597)



$

(4,976)


Depreciation and amortization

102



98



106



200



337












Contribution margin, a non-GAAP measure

$

(901)



$

(2,496)



$

(2,200)



$

(3,397)



$

(4,639)












Games




















Net revenue

$

7,465



$

6,637



$

6,048



$

14,102



$

11,758


Cost of revenue

1,958



1,794



1,655



3,752



3,325


Gross profit

5,507



4,843



4,393



10,350



8,433












Gross margin

74

%


73

%


73

%


73

%


72

%











Operating expenses

4,976



4,923



5,288



9,899



10,325


Operating income (loss), a GAAP measure

$

531



$

(80)



$

(895)



$

451



$

(1,892)


Acquisitions related intangible asset amortization









23


Depreciation and amortization

66



138



84



204



167












Contribution margin, a non-GAAP measure

$

597



$

58



$

(811)



$

655



$

(1,702)












Napster




















Net revenue

$

23,339



$

26,323



$

28,583



$

49,662



$

52,920


Cost of revenue

18,770



20,072



23,026



38,842



43,422


Gross profit

4,569



6,251



5,557



10,820



9,498












Gross margin

20

%


24

%


19

%


22

%


18

%











Operating expenses

6,609



6,461



6,638



13,070



12,170


Operating income (loss), a GAAP measure

$

(2,040)



$

(210)



$

(1,081)



$

(2,250)



$

(2,672)


Acquisitions related intangible asset amortization

1,124



1,125



1,129



2,249



2,072


Depreciation and amortization

59



32



69



91



184


Restructuring and other charges

177



122





299














Contribution margin, a non-GAAP measure

$

(680)



$

1,069



$

117



$

389



$

(416)












Corporate




















Cost of revenue

$

4



$

3



$

(67)



$

7



$

(144)


Gross profit

(4)



(3)



67



(7)



144












Gross margin

N/A



N/A



N/A



N/A



N/A












Operating expenses

2,819



2,627



4,116



5,446



8,373


Operating income (loss), a GAAP measure

$

(2,823)



$

(2,630)



$

(4,049)



$

(5,453)



$

(8,229)


Other income (expense), net

(134)



795



183



661



310


Foreign currency (gain) loss

155



(767)



(164)



(612)



(315)


Depreciation and amortization

30



30



33



60



66


Fair value adjustments to contingent consideration liability

100



(300)



300



(200)



300


Restructuring and other charges

704



87



729



791



896


Stock-based compensation

323



380



533



703



1,917












Contribution margin, a non-GAAP measure

$

(1,645)



$

(2,405)



$

(2,435)



$

(4,050)



$

(5,055)


 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)



2020


2019

2020


2019


Q2


 Q1


 Q2


 YTD


 YTD


(in thousands)











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

















Net income (loss) including noncontrolling interests

$

(5,554)



$

(4,689)



$

(9,455)



$

(10,243)



$

(8,241)


Income tax expense (benefit)

213



139



244



352



502


Interest expense

278



262



43



540



209


Interest income

(23)



(5)



(40)



(28)



(117)


(Gain) loss on equity investments, net

53







53



(12,338)


Foreign currency (gain) loss

155



(767)



(164)



(612)



(315)


Acquisitions related intangible asset amortization

1,124



1,125



1,129



2,249



2,095


Depreciation and amortization

272



311



348



583



864


Fair value adjustments to contingent consideration liability

100



(300)



300



(200)



300


Restructuring and other charges

881



209



729



1,090



896


Stock-based compensation

323



380



533



703



1,917


   Adjusted EBITDA, a non-GAAP measure

$

(2,178)



$

(3,335)



$

(6,333)



$

(5,513)



$

(14,228)


 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/realnetworks-announces-second-quarter-2020-financial-results-301106894.html

SOURCE RealNetworks, Inc.

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