Wed, 02/08/2017
RealNetworks Announces Fourth Quarter And Full Year 2016 Results

SEATTLE, Feb. 8, 2017 /PRNewswire/ --

  • Stabilized revenue in 2016 with quarter over quarter improvement;
  • Reduced year-over-year GAAP operating expenses by $31.5 million in 2016;
  • Strong shift to mobile games in 2016, driven by new products;
  • Continuing to roll out integration of new mobile products with carrier partners; and
  • Year ended with Cash and short-term investments of $77.1 million

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the fourth quarter and full year ended December 31, 2016.

For the fourth quarter of 2016, revenue was $31.5 million, up from $31.1 million in the previous quarter and up from $29.9 million in the fourth quarter of 2015. For the full year 2016, GAAP revenue was $120.5 million, compared to $125.3 million in 2015. Excluding 2015 revenue from the social casino games business that was sold during the third quarter of 2015, revenue in 2015 was $120.4 million.

The Company's GAAP operating expenses for the full year 2016 were down $31.5 million or 25% from the prior year. Excluding the 2015 operating expenses directly attributable to the social casino games business, operating expenses for the full year 2016 were down $20.9 million or 18% from the prior year.

GAAP net loss for the fourth quarter of 2016 was $(10.0) million or $(0.27) per share, compared to $(8.4) million or $(0.23) per share in the fourth quarter of 2015. GAAP net loss for 2016 was $(36.6) million or $(0.99) per share, compared to $(81.8) million or $(2.26) in 2015.

Adjusted EBITDA for the fourth quarter of 2016 was a loss of $(4.2) million, compared to $(4.4) million for the previous quarter and $(4.2) million for the fourth quarter of 2015. Adjusted EBITDA for the full year 2016 was a loss of $(21.6) million, compared to $(45.8) million for the prior year. Excluding the social casino games business sold in 2015, adjusted EBITDA for 2015 was $(38.6) million. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"During 2016, we achieved two of our three major financial goals," said Rob Glaser, Chairman and CEO of RealNetworks. "We stabilized our businesses and saw quarter over quarter overall revenue growth.

"We're continuing to roll out the integration of our Mobile Services products with carriers like Vivo, Verizon, and Vodafone. In our Games business, we scaled up our production of GameHouse Originals, leading to a 28% growth in mobile games revenue.

"While we did not return to profitability in 2016, we made significant progress. We enter 2017 with several new product initiatives well underway that we believe will build strong momentum towards a return to growth and profitability."

As of December 31, 2016, the Company had $77.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $80.7 million as of September 30, 2016.

Business Outlook

For the first quarter of 2017, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the first quarter in the range of $(4.0) million to $(6.0) 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: 4TH QUARTER). 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, February 28, 2017 by calling 800-813-5534 or +1-203-369-3348 (Passcode: 282017).

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)

 
   

Quarter Ended
December 31,

 

Year ended
December 31,

     
   

2016

 

2015

 

2016

 

2015

   

 (in thousands, except per share data)

                 

 Net revenue

 

$

31,453

   

$

29,922

   

$

120,468

   

$

125,296

 

 Cost of revenue

 

17,358

   

15,828

   

64,968

   

70,297

 

           Gross profit

 

14,095

   

14,094

   

55,500

   

54,999

 
                 

 Operating expenses:

               

       Research and development

 

6,738

   

8,945

   

29,923

   

43,626

 

       Sales and marketing

 

7,451

   

9,409

   

31,608

   

48,231

 

       General and administrative

 

6,035

   

3,237

   

27,415

   

24,549

 

       Restructuring and other charges

 

192

   

(284)

   

1,489

   

5,279

 

       Lease exit and related charges

 

48

   

293

   

2,239

   

2,501

 
                 

           Total operating expenses

 

20,464

   

21,600

   

92,674

   

124,186

 
                 

 Operating income (loss)

 

(6,369)

   

(7,506)

   

(37,174)

   

(69,187)

 
                 

 Other income (expenses):

               

       Interest income, net

 

133

   

83

   

449

   

680

 

       Gain (loss) on investments, net

 

2,495

   

63

   

8,473

   

(159)

 

       Equity in net loss of Rhapsody

 

(5,904)

   

(690)

   

(6,533)

   

(14,521)

 

       Other income (expense), net

 

(128)

   

(122)

   

(643)

   

506

 
                 

           Total other income (expense), net

 

(3,404)

   

(666)

   

1,746

   

(13,494)

 
                 

 Income (loss) before income taxes

 

(9,773)

   

(8,172)

   

(35,428)

   

(82,681)

 

 Income tax expense (benefit)

 

203

   

241

   

1,122

   

(834)

 
                 

 Net income (loss)

 

$

(9,976)

   

$

(8,413)

   

$

(36,550)

   

$

(81,847)

 
                 

 Basic net income (loss) per share

 

$

(0.27)

   

$

(0.23)

   

$

(0.99)

   

$

(2.26)

 

 Diluted net income (loss) per share

 

$

(0.27)

   

$

(0.23)

   

$

(0.99)

   

$

(2.26)

 
                 

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

 

37,042

   

36,257

   

36,781

   

36,165

 

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

 

37,042

   

36,257

   

36,781

   

36,165

 
                 
                 

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 
 

December 31,
 2016

 

December 31,
 2015

 

 (in thousands)

ASSETS

 Current assets:

     

 Cash and cash equivalents

$

33,721

   

$

47,315

 

 Short-term investments

43,331

   

51,814

 

 Trade accounts receivable, net

22,162

   

22,511

 

 Deferred costs, current portion

760

   

460

 

 Prepaid expenses and other current assets

4,910

   

7,140

 

   Total current assets

104,884

   

129,240

 
       

 Equipment and software

46,231

   

66,702

 

 Leasehold improvements

3,317

   

3,122

 

 Total equipment, software, and leasehold improvements

49,548

   

69,824

 

 Less accumulated depreciation and amortization

44,294

   

61,024

 

   Net equipment, software, and leasehold improvements

5,254

   

8,800

 
       

 Restricted cash equivalents and investments

2,700

   

2,890

 

 Available for sale securities

   

1,721

 

 Other assets

1,742

   

2,307

 

 Deferred costs, non-current portion

1,246

   

212

 

 Deferred tax assets, net

816

   

957

 

 Other intangible assets, net

938

   

2,136

 

 Goodwill

12,857

   

13,080

 
       

   Total assets

$

130,437

   

$

161,343

 
       

 LIABILITIES AND SHAREHOLDERS' EQUITY

       

 Current liabilities:

     

 Accounts payable

$

18,225

   

$

17,050

 

 Accrued and other current liabilities

15,425

   

17,320

 

 Commitment to Rhapsody

1,500

   

 

 Deferred revenue, current portion

3,430

   

3,497

 

   Total current liabilities

38,580

   

37,867

 
       

 Deferred revenue, non-current portion

240

   

105

 

 Deferred rent

748

   

620

 

 Deferred tax liabilities, net

87

   

88

 

 Other long-term liabilities

2,201

   

1,980

 
       

   Total liabilities

41,856

   

40,660

 
       
       

 Shareholders' equity

88,581

   

120,683

 
       

 Total liabilities and shareholders' equity

$

130,437

   

$

161,343

 

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Year ended
December 31,

 
 

2016

 

2015

 

 (in thousands)

 

 Cash flows from operating activities:

     

 Net income (loss)

$

(36,550)

   

$

(81,847)

 

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

   Depreciation and amortization

7,057

   

10,410

 

   Stock-based compensation

5,424

   

4,698

 

   Equity in net loss of Rhapsody

6,533

   

14,521

 

   Deferred income taxes, net

130

   

(1,558)

 

   Loss (gain) on investments, net

(8,473)

   

159

 

   Realized translation loss (gain)

272

   

(264)

 

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

280

   

(1,053)

 

   Net change in certain operating assets and liabilities

999

   

(14,048)

 

      Net cash provided by (used in) operating activities

(24,328)

   

(68,982)

 

 Cash flows from investing activities:

     

  Purchases of equipment, software, and leasehold improvements

(2,438)

   

(1,319)

 

  Proceeds from sale of equity and other investments

4,967

   

459

 

  Purchases of short-term investments

(75,766)

   

(72,136)

 

  Proceeds from sales and maturities of short-term investments

84,249

   

78,775

 

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

190

   

110

 

  Acquisitions

(150)

   

(161)

 

  Advance to Rhapsody

(3,500)

   

(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

11,552

   

15,728

 

 Cash flows from financing activities:

     

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

535

   

426

 

  Tax payments from shares withheld upon vesting of restricted stock

(880)

   

(85)

 

     Net cash provided by (used in) financing activities

(345)

   

341

 

 Effect of exchange rate changes on cash and cash equivalents

(473)

   

(3,025)

 

     Net increase (decrease) in cash and cash equivalents

(13,594)

   

(55,938)

 

 Cash and cash equivalents, beginning of year

47,315

   

103,253

 

 Cash and cash equivalents, end of year

$

33,721

   

$

47,315

 

 

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

 
 

2016

 

2015

 

 YTD

 

 Q4

 

 Q3

 

 Q2

 

Q1

 

 YTD

 

 Q4

 

 Q3

 

 Q2

 

 Q1

 

 (in thousands)

Net Revenue

by Line of Business

                                     

Consumer Media (A)

$

25,051

   

$

6,443

   

$

6,482

   

$

6,400

   

$

5,726

   

$

28,613

   

$

6,848

   

$

6,495

   

$

7,281

   

$

7,989

 

Mobile Services (B)

70,278

   

18,833

   

17,683

   

17,297

   

16,465

   

65,935

   

16,369

   

16,484

   

18,578

   

14,504

 

Games (C)

25,139

   

6,177

   

6,886

   

6,037

   

6,039

   

30,748

   

6,705

   

7,844

   

8,095

   

8,104

 

     Total net revenue

$

120,468

   

$

31,453

   

$

31,051

   

$

29,734

   

$

28,230

   

$

125,296

   

$

29,922

   

$

30,823

   

$

33,954

   

$

30,597

 
                                       

Net Revenue

by Product

                                     

Consumer Media

                                     

- License (D)

$

15,406

   

$

4,252

   

$

4,136

   

$

3,914

   

$

3,104

   

$

16,475

   

$

3,967

   

$

3,628

   

$

4,208

   

$

4,672

 

- Subscriptions (E)

7,448

   

1,671

   

1,931

   

1,871

   

1,975

   

8,957

   

2,054

   

2,147

   

2,372

   

2,384

 

- Media Properties (F)

2,197

   

520

   

415

   

615

   

647

   

3,181

   

827

   

720

   

701

   

933

 
                                       

Mobile Services

                                     

- SaaS (G)

69,295

   

18,726

   

17,141

   

17,208

   

16,220

   

63,914

   

16,157

   

16,217

   

18,218

   

13,322

 

- Technology License & Other (H)

983

   

107

   

542

   

89

   

245

   

2,021

   

212

   

267

   

360

   

1,182

 
                                       

Games

                                     

- License (I)

12,415

   

3,178

   

3,683

   

2,793

   

2,761

   

15,174

   

3,268

   

4,128

   

3,943

   

3,835

 

- Subscriptions (J)

11,894

   

2,836

   

3,005

   

3,024

   

3,029

   

13,300

   

3,126

   

3,231

   

3,373

   

3,570

 

- Media Properties (K)

830

   

163

   

198

   

220

   

249

   

2,274

   

311

   

485

   

779

   

699

 
                                       

     Total net revenue

$

120,468

   

$

31,453

   

$

31,051

   

$

29,734

   

$

28,230

   

$

125,296

   

$

29,922

   

$

30,823

   

$

33,954

   

$

30,597

 
                                       

Net Revenue

by Geography

                                     

United States

$

41,505

   

$

10,125

   

$

10,642

   

$

10,355

   

$

10,383

   

$

46,893

   

$

10,781

   

$

11,460

   

$

12,303

   

$

12,349

 

Rest of world

78,963

   

21,328

   

20,409

   

19,379

   

17,847

   

78,403

   

19,141

   

19,363

   

21,651

   

18,248

 

     Total net revenue

$

120,468

   

$

31,453

   

$

31,051

   

$

29,734

   

$

28,230

   

$

125,296

   

$

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

   

Q4

 

Q3

 

Q4

 

YTD

 

YTD

   

 (in thousands)

Consumer Media

                   
                     

Net revenue

 

$

6,443

   

$

6,482

   

$

6,848

   

$

25,051

   

$

28,613

 

Cost of revenue

 

1,589

   

1,507

   

3,084

   

7,074

   

13,257

 

   Gross profit

 

4,854

   

4,975

   

3,764

   

17,977

   

15,356

 
                     

   Gross margin

 

75

%

 

77

%

 

55

%

 

72

%

 

54

%

                     

Operating expenses

 

4,459

   

4,271

   

6,644

   

18,399

   

26,526

 

Operating income (loss), a GAAP measure

 

$

395

   

$

704

   

$

(2,880)

   

$

(422)

   

$

(11,170)

 

Depreciation and amortization

 

239

   

295

   

1,038

   

2,212

   

2,546

 
                     

  Contribution margin, a non-GAAP measure

 

$

634

   

$

999

   

$

(1,842)

   

$

1,790

   

$

(8,624)

 
                     

Mobile Services

                   
                     

Net revenue

 

$

18,833

   

$

17,683

   

$

16,369

   

$

70,278

   

$

65,935

 

Cost of revenue

 

13,679

   

13,026

   

11,032

   

50,026

   

47,834

 

   Gross profit

 

5,154

   

4,657

   

5,337

   

20,252

   

18,101

 
                     

   Gross margin

 

27

%

 

26

%

 

33

%

 

29

%

 

27

%

                     

Operating expenses

 

7,786

   

8,075

   

9,158

   

34,439

   

44,311

 

Operating income (loss), a GAAP measure

 

$

(2,632)

   

$

(3,418)

   

$

(3,821)

   

$

(14,187)

   

$

(26,210)

 

Acquisitions related intangible asset amortization

 

198

   

208

   

379

   

923

   

1,544

 

Depreciation and amortization

 

290

   

403

   

484

   

1,723

   

2,136

 
                     

Contribution margin, a non-GAAP measure

 

$

(2,144)

   

$

(2,807)

   

$

(2,958)

   

$

(11,541)

   

$

(22,530)

 
                     

Games

                   
                     

Net revenue

 

$

6,177

   

$

6,886

   

$

6,705

   

$

25,139

   

$

30,748

 

Cost of revenue

 

2,054

   

2,203

   

1,698

   

7,919

   

9,291

 

   Gross profit

 

4,123

   

4,683

   

5,007

   

17,220

   

21,457

 
                     

   Gross margin

 

67

%

 

68

%

 

75

%

 

68

%

 

70

%

                     

Operating expenses

 

4,975

   

4,649

   

5,253

   

19,644

   

29,086

 

Operating income (loss), a GAAP measure

 

$

(852)

   

$

34

   

$

(246)

   

$

(2,424)

   

$

(7,629)

 

Acquisitions related intangible asset amortization

 

27

   

29

   

24

   

115

   

799

 

Depreciation and amortization

 

146

   

104

   

197

   

583

   

952

 
                     

   Contribution margin, a non-GAAP measure

 

$

(679)

   

$

167

   

$

(25)

   

$

(1,726)

   

$

(5,878)

 
                     

Corporate

                   
                     

Cost of revenue

 

$

36

   

$

4

   

$

14

   

$

(51)

   

$

(85)

 

   Gross profit

 

(36)

   

(4)

   

(14)

   

51

   

85

 
                     

   Gross margin

 

N/A

   

N/A

   

N/A

   

N/A

   

N/A

 
                     

Operating expenses

 

3,244

   

5,705

   

545

   

20,192

   

24,263

 

Operating income (loss), a GAAP measure

 

$

(3,280)

   

$

(5,709)

   

$

(559)

   

$

(20,141)

   

$

(24,178)

 

Other income (expense), net

 

(128)

   

(243)

   

(122)

   

(643)

   

506

 

Depreciation and amortization

 

260

   

634

   

336

   

1,501

   

2,433

 

Restructuring and other charges

 

192

   

499

   

(284)

   

1,489

   

5,279

 

Stock-based compensation

 

867

   

778

   

937

   

5,424

   

4,698

 

Lease exit and related charges

 

48

   

1,233

   

293

   

2,239

   

2,501

 
                     

   Contribution margin, a non-GAAP measure

 

$

(2,041)

   

$

(2,808)

   

$

601

   

$

(10,131)

   

$

(8,761)

 
                     

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

 
   

2016

 

2015

 

2016

 

2015

   

 Q4

 

 Q3

 

 Q4

 

 YTD

 

 YTD

   

 (in thousands)

                     

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

                     

Net income (loss)

 

$

(9,976)

   

$

(3,056)

   

$

(8,413)

   

$

(36,550)

   

$

(81,847)

 

Income tax expense (benefit)

 

203

   

331

   

241

   

1,122

   

(834)

 

Interest income, net

 

(133)

   

(119)

   

(83)

   

(449)

   

(680)

 

Gain (loss) on investments, net

 

(2,495)

   

(6,021)

   

(63)

   

(8,473)

   

159

 

Equity in net loss of Rhapsody

 

5,904

   

233

   

690

   

6,533

   

14,521

 

Acquisitions related intangible asset amortization

 

225

   

237

   

403

   

1,038

   

2,343

 

Depreciation and amortization

 

935

   

1,436

   

2,055

   

6,019

   

8,067

 

Restructuring and other charges

 

192

   

499

   

(284)

   

1,489

   

5,279

 

Stock-based compensation

 

867

   

778

   

937

   

5,424

   

4,698

 

Lease exit and related charges

 

48

   

1,233

   

293

   

2,239

   

2,501

 

   Adjusted EBITDA, a non-GAAP measure

 

$

(4,230)

   

$

(4,449)

   

$

(4,224)

   

$

(21,608)

   

$

(45,793)

 

 

SOURCE RealNetworks, Inc.