RealNetworks Announces Second Quarter 2017 Results
SEATTLE, Aug. 3, 2017 /PRNewswire/ --
-- Revenue of $33.1 million grew 11% year-over-year and 8% sequentially
-- Reduced year-over-year operating expenses by $3.2 million
-- Continued investments in key growth initiatives
RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the second quarter ended June 30, 2017.
Management Commentary
"We are pleased with our second quarter results, which saw solid performance in all three of our divisions," said Rob Glaser, Chairman and CEO of RealNetworks. "We also made good progress in lowering our cost structure and realigning our resources to support a few key growth initiatives. We believe these growth initiatives, the first of which will come to market later this year, will deliver meaningful revenue contributions in 2018 and beyond."
Second Quarter 2017 Financial Highlights
-- Revenue was $33.1 million, up from $30.6 million in the prior quarter
and up from $29.7 million in the second quarter of 2016.
-- Operating expenses declined by $2.9 million, or 14%, from the prior
quarter and by $3.2 million, or 15%, from the same period in 2016.
-- Net loss was $(3.4) million or $(0.09) per share, compared to $(9.4)
million or $(0.25) per share in the prior quarter and $(8.3) million or
$(0.23) per share in the second quarter of 2016.
-- Adjusted EBITDA was a loss of $(0.8) million, compared to a loss of
$(4.4) million in the prior quarter and $(4.8) million in the second
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.
-- As of June 30, 2017, the Company had $62.5 million in unrestricted cash,
cash equivalents and short-term investments, compared to $66.3 million
as of March 31, 2017.
Business Outlook
For the third quarter of 2017, RealNetworks expects to achieve the following results:
-- Total revenue is expected to be in the range of $29 million to $31
million.
-- Adjusted EBITDA loss is expected to be in the range of $(2.0) million to
$(4.0) 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: 2ND 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, August 24, 2017 by calling 800-388-4923 or +1-203-369-3800 (Passcode: 832017).
For More Information
Investor Relations for RealNetworks
Laura Bainbridge, Addo IR
310-829-5400
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 Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except per share data)
Net revenue $33,112 $29,734 $63,687 $57,964
Cost of revenue 17,290 15,698 34,583 30,870
Gross profit 15,822 14,036 29,104 27,094
------ ------ ------ ------
Operating expenses:
Research and development 7,584 7,167 14,933 16,486
Sales and marketing 5,496 7,749 12,651 16,974
General and administrative 5,254 6,217 10,557 14,294
Restructuring and other
charges 150 413 1,714 798
Lease exit and related
charges - 127 - 958
--- --- --- ---
Total operating expenses 18,484 21,673 39,855 49,510
------ ------ ------ ------
Operating income (loss) (2,662) (7,637) (10,751) (22,416)
------ ------ ------- -------
Other income (expenses):
Interest income, net 109 80 237 197
Gain (loss) on investments,
net - (46) - (43)
Equity in net loss of
Rhapsody (349) (396) (1,097) (396)
Other income (expense), net (13) 15 (238) (272)
--- --- ---- ----
Total other income
(expense), net (253) (347) (1,098) (514)
---- ---- ------ ----
Income (loss) before income
taxes (2,915) (7,984) (11,849) (22,930)
Income tax expense (benefit) 471 363 961 588
--- --- --- ---
Net income (loss) $(3,386) $(8,347) $(12,810) $(23,518)
======= ======= ======== ========
Basic net income (loss) per
share $(0.09) $(0.23) $(0.35) $(0.64)
Diluted net income (loss)
per share $(0.09) $(0.23) $(0.35) $(0.64)
Shares used to compute basic
net income (loss) per share 37,103 36,755 37,067 36,637
Shares used to compute
diluted net income (loss)
per share 37,103 36,755 37,067 36,637
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2017 2016
---- ----
(in thousands)
ASSETS
Current assets:
Cash and
cash
equivalents $37,855 $33,721
Short-term
investments 24,619 43,331
Trade
accounts
receivable,
net 27,354 22,162
Deferred
costs,
current
portion 525 760
Prepaid
expenses
and other
current
assets 4,798 4,910
----- -----
Total
current
assets 95,151 104,884
------ -------
Equipment
and
software 45,259 46,231
Leasehold
improvements 3,405 3,317
----- -----
Total
equipment,
software,
and
leasehold
improvements 48,664 49,548
Less
accumulated
depreciation
and
amortization 44,262 44,294
------ ------
Net
equipment,
software,
and
leasehold
improvements 4,402 5,254
Restricted
cash
equivalents
and
investments 2,700 2,700
Other assets 2,277 1,742
Deferred
costs, non-
current
portion 1,020 1,246
Deferred tax
assets, net 857 816
Other
intangible
assets, net 527 938
Goodwill 12,985 12,857
------ ------
Total assets $119,919 $130,437
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts
payable $18,603 $18,225
Accrued and
other
current
liabilities 14,133 15,425
Commitment
to Rhapsody - 1,500
Deferred
revenue,
current
portion 3,560 3,430
----- -----
Total
current
liabilities 36,296 38,580
Deferred
revenue,
non-
current
portion 710 240
Deferred
rent 702 748
Deferred tax
liabilities,
net 87 87
Other long-
term
liabilities 1,771 2,201
----- -----
Total
liabilities 39,566 41,856
------ ------
Shareholders'
equity 80,353 88,581
------ ------
Total
liabilities
and
shareholders'
equity $119,919 $130,437
======== ========
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2017 2016
---- ----
(in thousands)
Cash flows from operating activities:
(23,518)
Net income
(loss) $(12,810) $
Adjustments to
reconcile net
income (loss) to
net cash used in
operating
activities:
Depreciation
and
amortization 1,757 4,224
Stock-based
compensation 2,297 3,779
Equity in net
loss of
Rhapsody 1,097 396
Deferred
income taxes,
net (40) (148)
Loss (gain) on
investments,
net - 43
Fair value of
warrants
granted in
2015 and
2017, net of
subsequent
mark to
market
adjustments
in 2017 and
2016 (417) 82
Net change in
certain
operating
assets and
liabilities (5,830) (3,209)
------
Net cash
provided by
(used in)
operating
activities (13,946) (18,351)
------- -------
Cash flows from investing
activities:
Purchases of
equipment,
software, and
leasehold
improvements (417) (1,512)
Purchases of
short-term
investments (13,905) (33,359)
Proceeds from
sales and
maturities of
short-term
investments 32,617 42,517
Decrease
(increase) in
restricted
cash
equivalents
and
investments,
net - (110)
Acquisitions - (150)
Advance to
Rhapsody (1,500) -
Net cash
provided by
(used in)
investing
activities 16,795 7,386
------ -----
Cash flows from financing
activities:
Proceeds from
issuance of
common stock
(stock
options and
stock
purchase
plan) 130 166
Tax payments
from shares
withheld upon
vesting of
restricted
stock (192) (808)
Net cash
provided by
(used in)
financing
activities (62) (642)
--- ----
Effect of
exchange rate
changes on
cash and cash
equivalents 1,347 425
----- ---
Net increase
(decrease) in
cash and cash
equivalents 4,134 (11,182)
Cash and cash
equivalents,
beginning of
year 33,721 47,315
------ ------
36,133
Cash and cash
equivalents,
end of year $37,855 $
======= ===
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2017 2016
Q2 Q1 Q4 Q3 Q2 Q1
--- --- --- --- --- ---
(in thousands)
Net Revenue by Line of
Business
Consumer Media (A) $6,951 $5,669 $6,443 $6,482 $6,400 $5,726
Mobile Services (B) 19,227 19,084 18,833 17,683 17,297 16,465
Games (C) 6,934 5,823 6,177 6,886 6,037 6,039
Total net revenue $33,112 $30,576 $31,453 $31,051 $29,734 $28,230
======= ======= ======= ======= ======= =======
Net Revenue by Product
Consumer Media
--------------
- License (D) $5,002 $3,672 $4,252 $4,136 $3,914 $3,104
- Subscriptions (E) 1,531 1,564 1,671 1,931 1,871 1,975
- Media Properties (F) 418 433 520 415 615 647
Mobile Services
---------------
- SaaS (G) 19,146 18,987 18,726 17,141 17,208 16,220
-Technology License &
Other (H) 81 97 107 542 89 245
Games
-----
- License (I) 4,007 2,862 3,178 3,683 2,793 2,761
- Subscriptions (J) 2,781 2,828 2,836 3,005 3,024 3,029
- Media Properties (K) 146 133 163 198 220 249
--- --- --- --- --- ---
Total net revenue $33,112 $30,576 $31,453 $31,051 $29,734 $28,230
======= ======= ======= ======= ======= =======
Net Revenue by Geography
United States $10,889 $9,740 $10,125 $10,642 $10,355 $10,383
Rest of world 22,223 20,836 21,328 20,409 19,379 17,847
------ ------ ------ ------ ------ ------
Total net revenue $33,112 $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 2017 2016
---- ---- ---- ----
Q2 Q1 Q2 YTD YTD
--- --- --- --- ---
(in thousands)
Consumer Media
--------------
Net revenue $6,951 $5,669 $6,400 $12,620 $12,126
Cost of revenue 1,159 1,405 1,561 2,564 3,978
Gross profit 5,792 4,264 4,839 10,056 8,148
Gross margin 83% 75% 76% 80% 67%
Operating expenses 3,730 4,010 4,293 7,740 9,669
-----
Operating income (loss), a
GAAP measure $2,062 $254 $546 $2,316 $(1,521)
Depreciation and
amortization 159 167 375 326 1,678
Contribution margin, a non-
GAAP measure $2,221 $421 $921 $2,642 $157
------ ---- ---- ------ ----
Mobile Services
---------------
Net revenue $19,227 $19,084 $17,297 $38,311 $33,762
Cost of revenue 13,429 13,914 12,404 27,343 23,321
Gross profit 5,798 5,170 4,893 10,968 10,441
Gross margin 30% 27% 28% 29% 31%
Operating expenses 6,705 8,119 8,784 14,824 18,578
------
Operating income (loss), a
GAAP measure $(907) $(2,949) $(3,891) $(3,856) $(8,137)
Acquisitions related
intangible asset
amortization 201 196 209 397 517
Depreciation and
amortization 175 203 608 378 1,030
--- --- --- --- -----
Contribution margin, a non-
GAAP measure $(531) $(2,550) $(3,074) $(3,081) $(6,590)
----- ------- ------- ------- -------
Games
-----
Net revenue $6,934 $5,823 $6,037 $12,757 $12,076
Cost of revenue 2,679 1,937 1,817 4,616 3,662
Gross profit 4,255 3,886 4,220 8,141 8,414
Gross margin 61% 67% 70% 64% 70%
Operating expenses 5,090 4,947 4,725 10,037 10,020
------
Operating income (loss), a
GAAP measure $(835) $(1,061) $(505) $(1,896) $(1,606)
Acquisitions related
intangible asset
amortization 25 27 34 52 59
Depreciation and
amortization 157 141 154 298 333
--- --- --- --- ---
Contribution margin, a non-
GAAP measure $(653) $(893) $(317) $(1,546) $(1,214)
----- ----- ----- ------- -------
Corporate
---------
Cost of revenue $23 $37 $(84) $60 $(91)
Gross profit (23) (37) 84 (60) 91
Gross margin N/A N/A N/A N/A N/A
Operating expenses 2,959 4,295 3,871 7,254 11,243
Operating income (loss), a
GAAP measure $(2,982) $(4,332) $(3,787) $(7,314) $(11,152)
Other income (expense), net (13) (226) 15 (239) (272)
Depreciation and
amortization 119 187 246 306 607
Restructuring and other
charges 150 1,564 413 1,714 798
Stock-based compensation 863 1,434 608 2,297 3,779
Lease exit and related
charges - - 127 - 958
--- --- --- --- ---
Contribution margin, a non-
GAAP measure $(1,863) $(1,373) $(2,378) $(3,236) $(5,282)
------- ------- ------- ------- -------
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) to adjusted EBITDA, a non-GAAP measure
(Unaudited)
2017 2016 2017 2016
Q2 Q1 Q2 YTD YTD
--- --- --- --- ---
(in thousands)
Reconciliation of GAAP Net income (loss) to adjusted EBITDA:
Net income (loss) $(3,386) $(9,424) $(8,347) $(12,810) $(23,518)
Income tax expense
(benefit) 471 490 363 961 588
Interest income,
net (109) (128) (80) (237) (197)
Gain (loss) on
investments, net - - 46 - 43
Equity in net loss
of Rhapsody 349 748 396 1,097 396
Acquisitions
related intangible
asset amortization 226 223 243 449 576
Depreciation and
amortization 610 698 1,383 1,308 3,648
Restructuring and
other charges 150 1,564 413 1,714 798
Stock-based
compensation 863 1,434 608 2,297 3,779
Lease exit and
related charges - - 127 - 958
Adjusted EBITDA, a
non-GAAP measure $(826) $(4,395) $(4,848) $(5,221) $(12,929)
----- ------- ------- ------- --------
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SOURCE RealNetworks, Inc.
