RealNetworks Announces Second Quarter 2019 Financial Results
SEATTLE, Aug. 1, 2019 /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, 2019.
-- Second quarter revenue of $44.2 million
-- Strong early success with SAFR(TM)
-- Successful worldwide roll-out of 2(nd) free-to-play game, Delicious
World
-- Remain committed to proactive expense management
Management Commentary
"In the second quarter, we achieved solid results overall with two particularly strong areas: our SAFR Facial Recognition platform and our free-to-play casual mobile games," said Rob Glaser, Chairman and CEO of RealNetworks. "SAFR bookings were up significantly quarter-over-quarter. SAFR also continued to shine technically, retaining its position in the NIST ratings as the fastest and smallest of the most accurate Facial Recognition Systems."
Mr. Glaser added, "We also demonstrated solid traction in free-to-play casual mobile games. Our second free-to-play title, Delicious World, launched at the end of the second quarter and is off to a terrific start."
Second Quarter 2019 Financial Highlights
-- Revenue was $44.2 million (inclusive of $28.6 million from Napster)
compared to $39.5 million (inclusive of $24.3 million from Napster) in
the prior quarter and $15.7 million in the prior year period. The second
quarter of 2019 reflects the first full quarter consolidation of
Napster's financial statements.
-- Gross profit margin was 38%, up from 37% in the prior quarter and down
from 71% in the prior year period. Napster's gross profit margin for the
second quarter of 2019 was 19%, while RealNetworks' gross profit margin
without Napster was 73%.
-- Operating expenses increased $0.9 million, or 3%, from the prior quarter
and increased $8.4 million, or 47%, from the prior year period.
Napster's operating expenses were $6.6 million for the second quarter of
2019. Included in the second quarter of 2019 total operating expenses
were $0.4 million of transaction costs related to the acquisition of
Napster and $0.3 million of expenses recorded for the change in fair
value of the contingent consideration liability related to the
acquisition of Napster.
-- Net loss attributable to RealNetworks was $(9.2) million, or $(0.24) per
share, compared to net income of $1.5 million, or $0.04 per share, in
the prior quarter and a net loss of $(6.9) million, or $(0.18) per
share, in the prior year period. Net income attributable to RealNetworks
in the first quarter of 2019 included a gain of $12.3 million related to
the acquisition of Napster.
-- Adjusted EBITDA was a loss of $(6.3) million compared to a loss of
$(7.9) million in the prior quarter and a loss of $(5.8) million in the
prior year period. A reconciliation of GAAP net income (loss) including
noncontrolling interests to adjusted EBITDA, a non-GAAP measure, is
provided in the financial tables that accompany this release.
-- At June 30, 2019, the Company had $26.3 million in unrestricted cash and
cash equivalents compared to $36.9 million at March 31, 2019.
Business Outlook
For the third quarter of 2019, RealNetworks expects to achieve the following results including noncontrolling interests:
-- Total revenue is expected to be in the range of $43.0 million to $46.0
million.
-- Adjusted EBITDA loss is expected to be in the range of $(2.5) million to
$(5.5) million.
Conference Call and Webcast Information
The Company will host a conference call today to review results and discuss its performance shortly after 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-451-6152 (United States) or 1-201-389-0879 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Thursday, August 22, 2019, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13692194.
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. Kontxt (www.kontxt.com) is the foremost platform for categorizing A2P messages to help mobile carriers build customer loyalty and drive new revenue through text message classification and antispam. 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 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 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; 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; 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, 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
Six Months Ended
June 30, June 30,
---
2019 2018 2019 2018
---
(in thousands, except per share data)
Net revenue $
44,248 $
15,724 $
83,720 $
35,374
Cost of revenue 27,282 4,625 52,152 9,761
Gross profit 16,966 11,099 31,568 25,613
Operating expenses:
Research and
development 8,876 7,652 17,709 15,346
Sales and marketing 8,360 4,883 16,502 10,880
General and
administrative 8,392 5,339 16,756 10,940
Restructuring and
other charges 729 187 896 688
Lease exit and
related benefit - (129) (454)
Total operating
expenses 26,357 17,932 51,863 37,400
Operating loss (9,391) (6,833) (20,295) (11,787)
Other income (expenses):
Interest expense (43) (209)
Interest income 40 111 117 198
Gain (loss) on equity
investment, net - 12,338
Other income
(expenses), net 183 (42) 310 (83)
Total other income
(expenses), net 180 69 12,556 115
Income (loss) before
income taxes (9,211) (6,764) (7,739) (11,672)
Income tax expense 244 166 502 436
Net income (loss)
including
noncontrolling
interests (9,455) (6,930) (8,241) (12,108)
Net income (loss)
attributable to
noncontrolling
interests (253) (572)
Net income (loss)
attributable to
RealNetworks $
(9,202) $
(6,930) $
(7,669) $
(12,108)
Net income (loss) per
share attributable
to RealNetworks-
Basic: $
(0.24) $
(0.18) $
(0.20) $
(0.32)
Net income (loss) per
share attributable
to RealNetworks-
Diluted: $
(0.24) $
(0.18) $
(0.20) $
(0.32)
Shares used to
compute basic net
income (loss) per
share 37,948 37,577 37,885 37,514
Shares used to
compute diluted net
income (loss) per
share 37,948 37,577 37,885 37,514
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2019 2018
---
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $
26,339 $
35,561
Short-term investments - 24
Trade accounts
receivable, net 31,957 11,751
Deferred costs, current
portion 465 331
Prepaid expenses and
other current assets 20,382 5,911
Total current assets 79,143 53,578
Equipment and software 32,079 37,458
Leasehold improvements 3,319 3,292
Total equipment,
software, and leasehold
improvements 35,398 40,750
Less accumulated
depreciation and
amortization 32,268 37,996
Net equipment, software,
and leasehold
improvements 3,130 2,754
Operating lease assets 13,672
Restricted cash
equivalents 2,124 1,630
Other assets 2,739 3,997
Deferred costs, non-
current portion 797 528
Deferred tax assets, net 854 851
Other intangible assets,
net 21,616 26
Goodwill 65,395 16,955
Total assets $
189,470 $
80,319
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
5,224 $
3,910
Accrued royalties,
fulfillment and other
current liabilities 97,951 11,312
Commitment to Napster - 2,750
Deferred revenue, current
portion 6,054 2,125
Notes payable 7,878
Total current liabilities 117,107 20,097
Deferred revenue, non-
current portion 179 268
Deferred rent - 986
Deferred tax liabilities,
net 1,262 1,168
Long-term lease
liabilities 10,384
Other long-term
liabilities 11,070 960
Total liabilities 140,002 23,479
Total shareholders'
equity 49,382 56,840
Noncontrolling interests 86
Total equity 49,468 56,840
Total liabilities and
equity $
189,470 $
80,319
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2019 2018
---
(in thousands)
Cash flows from operating activities:
Net income (loss)
including noncontrolling
interests $
(8,241) $
(12,108)
Adjustments to reconcile net income
(loss) including noncontrolling
interests to net cash used in operating
activities:
Depreciation and
amortization 2,959 1,231
Stock-based compensation 1,917 1,614
Deferred income taxes,
net - (12)
(Gain) loss on equity
investment, net (12,338)
Foreign currency (gain)
loss (315)
Fair value adjustments to
contingent consideration
liability 300
Mark to market adjustment
of warrants - 50
Net change in certain
operating assets and
liabilities (381) (3,505)
Net cash used in
operating activities (16,099) (12,730)
Cash flows from investing activities:
Purchases of equipment,
software, and leasehold
improvements (873) (580)
Proceeds from sales and
maturities of short-
term investments 24 5,726
Acquisition, net of cash
acquired 12,260 (4,192)
Net cash provided by
investing activities 11,411 954
Cash flows from financing activities:
Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 144 114
Tax payments from shares
withheld upon vesting of
restricted stock (287) (243)
Proceeds from notes
payable 19,760
Repayments of notes
payable (24,018)
Other financing
activities 450
Net cash provided by
(used in) financing
activities (3,951) (129)
Effect of exchange rate
changes on cash, cash
equivalents and
restricted cash (89) (731)
Net increase (decrease)
in cash, cash
equivalents and
restricted cash (8,728) (12,636)
Cash, cash equivalents
and restricted cash,
beginning of period 37,191 53,596
Cash, cash equivalents
and restricted cash, end
of period $
28,463 $
40,960
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2019 2018
Q2 Q1 Q4 Q3 Q2 Q1
---
(in thousands)
Net Revenue by Segment
Consumer Media
(A) $
2,620 $
2,486 $
4,068 $
4,733 $
3,884 $
5,483
Mobile Services
(B) 6,997 6,939 6,899 7,348 6,719 8,704
Games (C) 6,048 5,710 5,590 5,498 5,121 5,463
Napster (D) 28,583 24,337
Total net
revenue $
44,248 $
39,472 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Product
Consumer Media
---
-Software
License (E) $
944 $
735 $
2,049 $
2,746 $
1,808 $
3,337
-Subscription
Services (F) 1,040 1,088 1,153 1,232 1,225 1,285
-Product Sales
(G) 206 219 257 281 299 340
-Advertising &
Other (H) 430 444 609 474 552 521
Mobile Services
---
-Software
License (I) 957 599 514 520 469 1,335
-Subscription
Services (J) 6,040 6,340 6,385 6,828 6,250 7,369
Games
---
-Subscription
Services (K) 3,073 2,985 3,014 2,745 2,689 2,693
-Product Sales
(L) 2,177 1,988 2,013 2,279 1,953 2,402
-Advertising &
Other (M) 798 737 563 474 479 368
Napster
---
-Subscription
Services (N) 28,583 24,337
Total net
revenue $
44,248 $
39,472 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Geography
United States $
21,322 $
18,970 $
7,697 $
9,026 $
7,646 $
11,434
Rest of world 22,926 20,502 8,860 8,553 8,078 8,216
Total net
revenue $
44,248 $
39,472 $
16,557 $
17,579 $
15,724 $
19,650
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 sales of
mobile and PC games, online games subscription services, player
purchases of in-game virtual goods, 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.
(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 retail
and wholesale games-related revenue, sales of mobile games, and
player purchases of in-game virtual goods.
(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)
2019 2018 2019 2018
Q2 Q1 Q2 YTD YTD
---
(in thousands)
Consumer Media
---
Net revenue $
2,620 $
2,486 $
3,884 $
5,106 $
9,367
Cost of revenue 803 833 1,028 1,636 2,021
Gross profit 1,817 1,653 2,856 3,470 7,346
Gross margin 69
% 66
% 74
% 68
% 78
%
Operating expenses 2,877 3,119 3,439 5,996 7,357
Operating income
(loss), a GAAP
measure $
(1,060) $
(1,466) $
(583) $
(2,526) $
(11)
Depreciation and
amortization 56 54 51 110 97
Contribution margin,
a non-GAAP measure $
(1,004) $
(1,412) $
(532) $
(2,416) $
86
Mobile Services
---
Net revenue $
6,997 $
6,939 $
6,719 $
13,936 $
15,423
Cost of revenue 1,865 2,048 2,134 3,913 4,450
Gross profit 5,132 4,891 4,585 10,023 10,973
Gross margin 73
% 70
% 68
% 72
% 71
%
Operating expenses 7,438 7,561 6,969 14,999 14,335
Operating income
(loss), a GAAP
measure $
(2,306) $
(2,670) $
(2,384) $
(4,976) $
(3,362)
Acquisitions related
intangible asset
amortization - 91 183
Depreciation and
amortization 106 231 155 337 335
Contribution margin,
a non-GAAP measure $
(2,200) $
(2,439) $
(2,138) $
(4,639) $
(2,844)
Games
---
Net revenue $
6,048 $
5,710 $
5,121 $
11,758 $
10,584
Cost of revenue 1,655 1,670 1,456 3,325 3,273
Gross profit 4,393 4,040 3,665 8,433 7,311
Gross margin 73
% 71
% 72
% 72
% 69
%
Operating expenses 5,288 5,037 5,095 10,325 10,012
Operating income
(loss), a GAAP
measure $
(895) $
(997) $
(1,430) $
(1,892) $
(2,701)
Acquisitions related
intangible asset
amortization - 23 20 23 20
Depreciation and
amortization 84 83 146 167 311
Contribution margin,
a non-GAAP measure $
(811) $
(891) $
(1,264) $
(1,702) $
(2,370)
Napster
---
Net revenue $
28,583 $
24,337
$ $
52,920
$
Cost of revenue 23,026 20,396 43,422
Gross profit 5,557 3,941 9,498
Gross margin 19
% 16
% % 18
% %
Operating expenses 6,638 5,532 12,170
Operating income
(loss), a GAAP
measure $
(1,081) $
(1,591)
$ $
(2,672)
$
Acquisitions related
intangible asset
amortization 1,129 943 2,072
Depreciation and
amortization 69 115 184
Contribution margin,
a non-GAAP measure $
117 $
(533)
$ $
(416)
$
Corporate
---
Cost of revenue $
(67) $
(77) $
7 $
(144) $
17
Gross profit 67 77 (7) 144 (17)
Gross margin N/A N/A N/A N/A N/A
Operating expenses 4,116 4,257 2,429 8,373 5,696
Operating income
(loss), a GAAP
measure $
(4,049) $
(4,180) $
(2,436) $
(8,229) $
(5,713)
Other income
(expense), net 183 127 (42) 310 (83)
Foreign currency
(gain) loss (164) (151) (2) (315) 20
Depreciation and
amortization 33 33 148 66 285
Fair value
adjustments to
contingent
consideration
liability 300 300
Restructuring and
other charges 729 167 187 896 688
Stock-based
compensation 533 1,384 457 1,917 1,614
Lease exit and
related benefit - (129) (454)
Contribution margin,
a non-GAAP measure
(1) $
(2,435) $
(2,620) $
(1,817) $
(5,055) $
(3,643)
(1)2018 Corporate contribution
margin was revised to exclude
the impact of realized and
unrealized foreign currency
(gain) loss incurred in each
respective period. Foreign
currency (gain) loss is reported
in Other income (expense), net,
in our consolidated statement of
operations.
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) including noncontrolling interests to adjusted EBITDA, a non-GAAP measure
(Unaudited)
2019 2018 2019 2018
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 $
(9,455) $
1,214 $
(6,930) $
(8,241) $
(12,108)
Income tax expense
(benefit) 244 258 166 502 436
Interest expense 43 166 209
Interest income (40) (77) (111) (117) (198)
(Gain) loss on
equity investment,
net - (12,338) (12,338)
Foreign currency
(gain) loss (164) (151) (2) (315) 20
Acquisitions related
intangible asset
amortization 1,129 966 111 2,095 203
Depreciation and
amortization 348 516 500 864 1,028
Fair value
adjustments to
contingent
consideration
liability 300 300
Restructuring and
other charges 729 167 187 896 688
Stock-based
compensation 533 1,384 457 1,917 1,614
Lease exit and
related benefit - (129) (454)
Adjusted EBITDA, a
non-GAAP measure
(1) $
(6,333) $
(7,895) $
(5,751) $
(14,228) $
(8,771)
(1)2018 adjusted EBITDA was
revised to exclude the impact
of realized and unrealized
foreign currency (gain) loss
incurred in each respective
period. Foreign currency (gain)
loss is reported in Other
income (expense), net, in our
consolidated statement of
operations.
View original content to download multimedia:http://www.prnewswire.com/news-releases/realnetworks-announces-second-quarter-2019-financial-results-300895266.html
SOURCE RealNetworks, Inc.
