Wed, 05/03/2017

RealNetworks Announces First Quarter 2017 Results

SEATTLE, May 3, 2017 /PRNewswire/ --

  • Revenue stability, with year-over-year revenue growth for first quarter;
  • Reduced year-over-year operating expenses by $6.5 million in first quarter; and
  • Investing in key growth initiatives

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the first quarter ended March 31, 2017.

For the first quarter of 2017, revenue was $30.6 million, up from $28.2 million in the first quarter of 2016. For the first quarter of 2017, the Company reduced its operating expenses by $6.5 million or 23% from the same period in 2016.

Net loss for the first quarter of 2017 was $(9.4) million or $(0.25) per share, compared to $(15.2) million or $(0.42) per share in the first quarter of 2016. Adjusted EBITDA for the first quarter of 2017 was a loss of $(4.4) million, compared to a loss of $(8.1) million in the first quarter of 2016. A reconciliation of GAAP net income (loss) to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.

"In Q1, we achieved our financial objectives while also investing in our key growth initiatives," said Rob Glaser, Chairman and CEO of RealNetworks. "We achieved stable revenue while also reducing our operating expenses by 23% from a year ago. At the same time, we're growing our mobile games business, developing new Mobile Service offerings, and continuing to build partnerships and seed the ecosystem for our new RealMedia HD codec."

As of March 31, 2017, the Company had $66.3 million in unrestricted cash, cash equivalents and short-term investments, compared to $77.1 million as of December 31, 2016.

Business Outlook

For the second quarter of 2017, RealNetworks expects total revenue in the range of $28 million to $31 million and an adjusted EBITDA loss for the second 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 888-831-6080 or +1-210-234-0017 (Passcode: 1ST 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, May 24, 2017 by calling 866-453-2318 or +1-203-369-1226 (Passcode: 532017).

For More Information

Investor Relations for RealNetworks
+1-206-674-2700
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
March 31,




2017

2016


 (in thousands, except per
share data)





 Net revenue

$

30,576

$

28,230

 Cost of revenue

17,293

15,172

           Gross profit

13,283

13,058





 Operating expenses:



       Research and development

7,349

9,319

       Sales and marketing

7,155

9,225

       General and administrative

5,303

8,077

       Restructuring and other charges

1,564

385

       Lease exit and related charges

—

831





           Total operating expenses

21,371

27,837





 Operating income (loss)

(8,088)

(14,779)





 Other income (expenses):



       Interest income, net

128

117

       Gain (loss) on investments, net

—

3

       Equity in net loss of Rhapsody

(748)

—

       Other income (expense), net

(226)

(287)





           Total other income (expense), net

(846)

(167)





 Income (loss) before income taxes

(8,934)

(14,946)

 Income tax expense (benefit)

490

225





 Net income (loss)

$

(9,424)

$

(15,171)





 Basic net income (loss) per share

$

(0.25)

$

(0.42)

 Diluted net income (loss) per share

$

(0.25)

$

(0.42)





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

37,030

36,520

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

37,030

36,520










 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)





March 31,
 2017

December 31,
 2016

 (in thousands)

ASSETS

 Current assets:


 Cash and cash equivalents

$

38,498

$

33,721

 Short-term investments

27,778

43,331

 Trade accounts receivable, net

26,833

22,162

 Deferred costs, current portion

541

760

 Prepaid expenses and other current assets

4,843

4,910

    Total current assets

98,493

104,884




 Equipment and software

44,640

46,231

 Leasehold improvements

3,330

3,317

    Total equipment, software, and leasehold improvements

47,970

49,548

 Less accumulated depreciation and amortization

43,181

44,294

    Net equipment, software, and leasehold improvements

4,789

5,254




 Restricted cash equivalents and investments

2,700

2,700

 Other assets

2,412

1,742

 Deferred costs, non-current portion

1,071

1,246

 Deferred tax assets, net

836

816

 Other intangible assets, net

729

938

 Goodwill

12,915

12,857




    Total assets

$

123,945

$

130,437




 LIABILITIES AND SHAREHOLDERS' EQUITY




 Current liabilities:


 Accounts payable

$

19,432

$

18,225

 Accrued and other current liabilities

15,425

15,425

 Commitment to Rhapsody

—

1,500

 Deferred revenue, current portion

3,918

3,430

    Total current liabilities

38,775

38,580




 Deferred revenue, non-current portion

724

240

 Deferred rent

679

748

 Deferred tax liabilities, net

87

87

 Other long-term liabilities

1,890

2,201




    Total liabilities

42,155

41,856








 Shareholders' equity

81,790

88,581




 Total liabilities and shareholders' equity

$

123,945

$

130,437

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Quarter ended March 31,

2017

2016

 (in thousands)

 Cash flows from operating activities:


 Net income (loss)

$

(9,424)

$

(15,171)

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

  Depreciation and amortization

921

2,598

  Stock-based compensation

1,434

3,171

  Equity in net loss of Rhapsody

748

—

  Deferred income taxes, net

(20)

(128)

  Loss (gain) on investments, net

—

(3)

  Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016

(471)

44

  Net change in certain operating assets and liabilities

(2,598)

(1,722)

      Net cash provided by (used in) operating activities

(9,410)

(11,211)

 Cash flows from investing activities:


 Purchases of equipment, software, and leasehold improvements

(207)

(828)

 Purchases of short-term investments

(6,142)

(17,876)

 Proceeds from sales and maturities of short-term investments

21,695

23,401

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

—

(210)

 Advance to Rhapsody

(1,500)

—

   Net cash provided by (used in) investing activities

13,846

4,487

 Cash flows from financing activities:


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

34

16

Tax payments from shares withheld upon vesting of restricted stock

(181)

(787)

   Net cash provided by (used in) financing activities

(147)

(771)

 Effect of exchange rate changes on cash and cash equivalents

488

719

   Net increase (decrease) in cash and cash equivalents

4,777

(6,776)

 Cash and cash equivalents, beginning of year

33,721

47,315

 Cash and cash equivalents, end of year

$

38,498

$

40,539


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)





2017

2016

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Line of Business








Consumer Media (A)

$

5,669

$

6,443

$

6,482

$

6,400

$

5,726

Mobile Services (B)

19,084

18,833

17,683

17,297

16,465

Games (C)

5,823

6,177

6,886

6,037

6,039

     Total net revenue

$

30,576

$

31,453

$

31,051

$

29,734

$

28,230










Net Revenue by Product








Consumer Media








- License (D)

$

3,672

$

4,252

$

4,136

$

3,914

$

3,104

- Subscriptions (E)

1,564

1,671

1,931

1,871

1,975

- Media Properties (F)

433

520

415

615

647










Mobile Services








- SaaS (G)

18,987

18,726

17,141

17,208

16,220

- Technology License & Other (H)

97

107

542

89

245










Games








- License (I)

2,862

3,178

3,683

2,793

2,761

- Subscriptions (J)

2,828

2,836

3,005

3,024

3,029

- Media Properties (K)

133

163

198

220

249










     Total net revenue

$

30,576

$

31,453

$

31,051

$

29,734

$

28,230










Net Revenue by Geography








United States

$

9,740

$

10,125

$

10,642

$

10,355

$

10,383

Rest of world

20,836

21,328

20,409

19,379

17,847

     Total net revenue

$

30,576

$

31,453

$

31,051

$

29,734

$

28,230




















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 mobile games, sales of games licenses, online games subscription services, advertising on games sites and social network sites, and microtransactions from online 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 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)







2017

2016


Q1

Q4

Q1


 (in thousands)

Consumer Media












Net revenue

$

5,669

$

6,443

$

5,726

Cost of revenue

1,405

1,589

2,417

   Gross profit

4,264

4,854

3,309







   Gross margin

75

%

75

%

58

%







Operating expenses

4,010

4,459

5,376

Operating income (loss), a GAAP measure

$

254

$

395

$

(2,067)

Depreciation and amortization

167

239

1,303







  Contribution margin, a non-GAAP measure

$

421

$

634

$

(764)







Mobile Services












Net revenue

$

19,084

$

18,833

$

16,465

Cost of revenue

13,914

13,679

10,917

   Gross profit

5,170

5,154

5,548







   Gross margin

27

%

27

%

34

%







Operating expenses

8,119

7,786

9,794

Operating income (loss), a GAAP measure

$

(2,949)

$

(2,632)

$

(4,246)

Acquisitions related intangible asset amortization

196

198

308

Depreciation and amortization

203

290

422







Contribution margin, a non-GAAP measure

$

(2,550)

$

(2,144)

$

(3,516)







Games












Net revenue

$

5,823

$

6,177

$

6,039

Cost of revenue

1,937

2,054

1,845

   Gross profit

3,886

4,123

4,194







   Gross margin

67

%

67

%

69

%







Operating expenses

4,947

4,975

5,295

Operating income (loss), a GAAP measure

$

(1,061)

$

(852)

$

(1,101)

Acquisitions related intangible asset amortization

27

27

25

Depreciation and amortization

141

146

179







   Contribution margin, a non-GAAP measure

$

(893)

$

(679)

$

(897)







Corporate












Cost of revenue

$

37

$

36

$

(7)

   Gross profit

(37)

(36)

7







   Gross margin

N/A

N/A

N/A







Operating expenses

4,295

3,244

7,372

Operating income (loss), a GAAP measure

$

(4,332)

$

(3,280)

$

(7,365)

Other income (expense), net

(226)

(128)

(287)

Depreciation and amortization

187

260

361

Restructuring and other charges

1,564

192

385

Stock-based compensation

1,434

867

3,171

Lease exit and related charges

—

48

831







   Contribution margin, a non-GAAP measure

$

(1,373)

$

(2,041)

$

(2,904)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)







2017

2016


 Q1

 Q4

 Q1


 (in thousands)







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










Net income (loss)

$

(9,424)

$

(9,976)

$

(15,171)

Income tax expense (benefit)

490

203

225

Interest income, net

(128)

(133)

(117)

Gain (loss) on investments, net

—

(2,495)

(3)

Equity in net loss of Rhapsody

748

5,904

—

Acquisitions related intangible asset amortization

223

225

333

Depreciation and amortization

698

935

2,265

Restructuring and other charges

1,564

192

385

Stock-based compensation

1,434

867

3,171

Lease exit and related charges

—

48

831

   Adjusted EBITDA, a non-GAAP measure

$

(4,395)

$

(4,230)

$

(8,081)

 

SOURCE RealNetworks, Inc.