RealNetworks Announces Third Quarter 2019 Financial Results
SEATTLE, Oct. 30, 2019 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the third quarter ended September 30, 2019.
-- Third quarter revenue of $45.0 million compared to $44.2 million in the
prior quarter; significant adjusted EBITDA loss improvement over the
prior quarter
-- Expanded reach of SAFR(TM )through broadening network of partners,
including NVIDIA
-- Games revenue up 30% year-over-year with a return to positive operating
income driven by success of free-to-play casual mobile games,
particularly Delicious World
Management Commentary
"In the third quarter, we continued to make solid progress with two key growth initiatives: our SAFR facial and object recognition platform and free-to-play casual mobile games," said Rob Glaser, Chairman and CEO of RealNetworks. "For SAFR, we entered into new verticals through partnerships with systems integrators and GPU market leader, NVIDIA. We also gained traction in our commercialization efforts through collaborations with leading Video Management Systems."
Mr. Glaser added, "In Games, our free-to-play casual mobile games continued to perform well and scale up. This is particularly true with Delicious World, which is on track to become our most successful casual game ever in terms of revenue and engagement even though it's only been in global release for six months. These successes, along with our ongoing commitment to carefully manage our costs, have resulted in a significant improvement on the bottom line."
Third Quarter 2019 Financial Highlights
-- Revenue was $45.0 million (inclusive of $27.3 million from Napster)
compared to $44.2 million (inclusive of $28.6 million from Napster) in
the prior quarter and $17.6 million in the prior year period.
-- Games revenue was $7.2 million, up 18% compared to $6.0 million in the
prior quarter and up 30% compared to $5.5 million in the prior year
period.
-- Gross profit margin was 42%, up from 38% in the prior quarter and down
from 76% in the prior year period. Napster's gross profit margin for the
third quarter of 2019 was 19%, while RealNetworks' gross profit margin
without Napster was 76%.
-- Operating expenses decreased $1.4 million, or 5%, from the prior quarter
and increased $6.7 million, or 37%, from the prior year period.
Napster's operating expenses were $6.5 million for the third quarter of
2019.
-- Net loss attributable to RealNetworks was $(6.0) million, or $(0.16) per
share, compared to net loss of $(9.2) million, or $(0.24) per share, in
the prior quarter and a net loss of $(6.0) million, or $(0.16) per
share, in the prior year period.
-- Adjusted EBITDA was a loss of $(3.2) million compared to a loss of
$(6.3) million in the prior quarter and a loss of $(3.3) 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 September 30, 2019, the Company had $18.1 million in unrestricted
cash and cash equivalents compared to $26.3 million at June 30, 2019.
-- In August 2019, RealNetworks and Napster entered into a loan agreement
for a revolving line of credit for a maximum of $10.0 million to be used
for working capital and general corporate purposes. As of September 30,
2019, $6.1 million remained available for borrowing.
Business Outlook
For the fourth quarter of 2019, RealNetworks expects to achieve the following results including noncontrolling interests:
-- Total revenue is expected to be in the range of $40.0 million to $43.0
million.
-- Adjusted EBITDA loss is expected to be in the range of $(2.0) million to
$(5.0) 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 Wednesday, November 20, 2019, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13694934.
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 financial condition and liquidity, 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 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; 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
Nine Months Ended
September 30, September 30,
---
2019 2018 2019 2018
---
(in thousands, except per share data)
Net revenue $
44,993 $
17,579 $
128,713 $
52,953
Cost of revenue 26,278 4,239 78,430 14,000
Gross profit 18,715 13,340 50,283 38,953
Operating expenses:
Research and
development 8,687 8,052 26,396 23,398
Sales and marketing 8,470 4,998 24,972 15,878
General and
administrative 7,132 4,586 23,888 15,526
Restructuring and
other charges 691 632 1,587 1,320
Lease exit and
related benefit - (454)
Total operating
expenses 24,980 18,268 76,843 55,668
Operating loss (6,265) (4,928) (26,560) (16,715)
Other income (expenses):
Interest expense (220) (429)
Interest income - 72 117 270
Gain (loss) on equity
investment, net - 12,338
Equity in net loss of
Napster - (737) (737)
Other income
(expenses), net 541 (112) 851 (195)
Total other income
(expenses), net 321 (777) 12,877 (662)
Income (loss) before
income taxes (5,944) (5,705) (13,683) (17,377)
Income tax expense 310 272 812 708
Net income (loss)
including
noncontrolling
interests (6,254) (5,977) (14,495) (18,085)
Net income (loss)
attributable to
noncontrolling
interests (286) (858)
Net income (loss)
attributable to
RealNetworks $
(5,968) $
(5,977) $
(13,637) $
(18,085)
Net income (loss) per
share attributable
to RealNetworks-
Basic: $
(0.16) $
(0.16) $
(0.36) $
(0.48)
Net income (loss) per
share attributable
to RealNetworks-
Diluted: $
(0.16) $
(0.16) $
(0.36) $
(0.48)
Shares used to
compute basic net
income (loss) per
share 38,062 37,618 37,944 37,549
Shares used to
compute diluted net
income (loss) per
share 38,062 37,618 37,944 37,549
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2019 2018
---
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $
18,101 $
35,561
Short-term investments - 24
Trade accounts
receivable, net 27,947 11,751
Deferred costs, current
portion 950 331
Prepaid expenses and
other current assets 18,931 5,911
Total current assets 65,929 53,578
Equipment and software 31,853 37,458
Leasehold improvements 3,255 3,292
Total equipment,
software, and leasehold
improvements 35,108 40,750
Less accumulated
depreciation and
amortization 32,171 37,996
Net equipment, software,
and leasehold
improvements 2,937 2,754
Operating lease assets 12,499
Restricted cash
equivalents 5,374 1,630
Other assets 2,842 3,997
Deferred costs, non-
current portion 957 528
Deferred tax assets, net 831 851
Other intangible assets,
net 20,309 26
Goodwill 65,154 16,955
Total assets $
176,832 $
80,319
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
4,692 $
3,910
Accrued royalties,
fulfillment and other
current liabilities 92,529 11,312
Commitment to Napster - 2,750
Deferred revenue, current
portion 6,134 2,125
Notes payable 3,599
Total current liabilities 106,954 20,097
Deferred revenue, non-
current portion 139 268
Deferred rent - 986
Deferred tax liabilities,
net 1,225 1,168
Long-term lease
liabilities 9,486
Long-term debt 3,900
Other long-term
liabilities 11,195 960
Total liabilities 132,899 23,479
Total shareholders'
equity 44,036 56,840
Noncontrolling interests (103)
Total equity 43,933 56,840
Total liabilities and
equity $
176,832 $
80,319
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2019 2018
---
(in thousands)
Cash flows from operating activities:
Net income (loss)
including noncontrolling
interests $
(14,495) $
(18,085)
Adjustments to reconcile net income (loss)
including noncontrolling interests to net
cash used in operating activities:
Depreciation and
amortization 4,397 1,738
Stock-based compensation 2,420 2,113
Equity in net loss of
Napster - 737
Deferred income taxes,
net - 5
(Gain) loss on equity
investment, net (12,338)
Foreign currency (gain)
loss (804)
Fair value adjustments to
contingent consideration
liability 700
Mark to market adjustment
of warrants - 78
Net change in certain
operating assets and
liabilities (177) (2,214)
Net cash used in
operating activities (20,297) (15,628)
Cash flows from investing activities:
Purchases of equipment,
software, and leasehold
improvements (1,068) (698)
Proceeds from sales and
maturities of short-
term investments 24 7,607
Acquisition, net of cash
acquired 12,260 (4,192)
Net cash provided by
investing activities 11,216 2,717
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 (289) (243)
Proceeds from notes
payable and revolving
credit facility 31,337
Repayments of notes
payable and revolving
credit facility (35,768)
Payment of financing fees (569)
Other financing
activities 900
Net cash used in
financing activities (4,245) (129)
Effect of exchange rate
changes on cash, cash
equivalents and
restricted cash (390) (962)
Net increase (decrease)
in cash, cash
equivalents and
restricted cash (13,716) (14,002)
Cash, cash equivalents
and restricted cash,
beginning of period 37,191 53,596
Cash, cash equivalents
and restricted cash, end
of period $
23,475 $
39,594
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2019 2018
Q3 Q2 Q1 Q4 Q3 Q2 Q1
---
(in thousands)
Net Revenue by Segment
Consumer Media
(A) $
3,632 $
2,620 $
2,486 $
4,068 $
4,733 $
3,884 $
5,483
Mobile Services
(B) 6,895 6,997 6,939 6,899 7,348 6,719 8,704
Games (C) 7,164 6,048 5,710 5,590 5,498 5,121 5,463
Napster (D) 27,302 28,583 24,337
Total net revenue $
44,993 $
44,248 $
39,472 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Product
Consumer Media
---
-Software
License (E) $
1,987 $
944 $
735 $
2,049 $
2,746 $
1,808 $
3,337
-Subscription
Services (F) 1,028 1,040 1,088 1,153 1,232 1,225 1,285
-Product Sales
(G) 207 206 219 257 281 299 340
-Advertising &
Other (H) 410 430 444 609 474 552 521
Mobile Services
---
-Software
License (I) 888 957 599 514 520 469 1,335
-Subscription
Services (J) 6,007 6,040 6,340 6,385 6,828 6,250 7,369
Games
---
-Subscription
Services (K) 3,056 3,073 2,985 3,014 2,745 2,689 2,693
-Product Sales
(L) 3,078 2,177 1,988 2,013 2,279 1,953 2,402
-Advertising &
Other (M) 1,030 798 737 563 474 479 368
Napster
---
-Subscription
Services (N) 27,302 28,583 24,337
Total net revenue $
44,993 $
44,248 $
39,472 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Geography
United States $
22,015 $
21,322 $
18,970 $
7,697 $
9,026 $
7,646 $
11,434
Rest of world 22,978 22,926 20,502 8,860 8,553 8,078 8,216
Total net revenue $
44,993 $
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 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 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
Q3 Q2 Q3 YTD YTD
---
(in thousands)
Consumer Media
---
Net revenue $
3,632 $
2,620 $
4,733 $
8,738 $
14,100
Cost of revenue 705 803 955 2,341 2,976
Gross profit 2,927 1,817 3,778 6,397 11,124
Gross margin 81
% 69
% 80
% 73
% 79
%
Operating expenses 2,692 2,877 3,448 8,688 10,805
Operating income
(loss), a GAAP
measure $
235 $
(1,060) $
330 $
(2,291) $
319
Depreciation and
amortization 34 56 49 144 146
Contribution margin,
a non-GAAP measure $
269 $
(1,004) $
379 $
(2,147) $
465
Mobile Services
---
Net revenue $
6,895 $
6,997 $
7,348 $
20,831 $
22,771
Cost of revenue 1,721 1,865 2,052 5,634 6,502
Gross profit 5,174 5,132 5,296 15,197 16,269
Gross margin 75
% 73
% 72
% 73
% 71
%
Operating expenses 7,143 7,438 6,825 22,142 21,160
Operating income
(loss), a GAAP
measure $
(1,969) $
(2,306) $
(1,529) $
(6,945) $
(4,891)
Acquisitions related
intangible asset
amortization - 70 253
Depreciation and
amortization 81 106 165 418 500
Contribution margin,
a non-GAAP measure $
(1,888) $
(2,200) $
(1,294) $
(6,527) $
(4,138)
Games
---
Net revenue $
7,164 $
6,048 $
5,498 $
18,922 $
16,082
Cost of revenue 1,934 1,655 1,228 5,259 4,501
Gross profit 5,230 4,393 4,270 13,663 11,581
Gross margin 73
% 73
% 78
% 72
% 72
%
Operating expenses 5,151 5,288 5,447 15,476 15,459
Operating income
(loss), a GAAP
measure $
79 $
(895) $
(1,177) $
(1,813) $
(3,878)
Acquisitions related
intangible asset
amortization 4 23 27 43
Depreciation and
amortization 89 84 91 256 402
Contribution margin,
a non-GAAP measure $
172 $
(811) $
(1,063) $
(1,530) $
(3,433)
Napster
---
Net revenue $
27,302 $
28,583
$ $
80,222
$
Cost of revenue 21,986 23,026 65,408
Gross profit 5,316 5,557 14,814
Gross margin 19
% 19
% % 18
% %
Operating expenses 6,472 6,638 18,642
Operating income
(loss), a GAAP
measure $
(1,156) $
(1,081)
$ $
(3,828)
$
Acquisitions related
intangible asset
amortization 1,126 1,129 3,198
Depreciation and
amortization 72 69 256
Contribution margin,
a non-GAAP measure $
42 $
117
$ $
(374)
$
Corporate
---
Cost of revenue $
(68) $
(67) $
4 $
(212) $
21
Gross profit 68 67 (4) 212 (21)
Gross margin N/A N/A N/A N/A N/A
Operating expenses 3,522 4,116 2,548 11,895 8,244
Operating income
(loss), a GAAP
measure $
(3,454) $
(4,049) $
(2,552) $
(11,683) $
(8,265)
Other income
(expense), net 541 183 (112) 851 (195)
Foreign currency
(gain) loss (489) (164) 78 (804) 98
Depreciation and
amortization 32 33 109 98 394
Fair value
adjustments to
contingent
consideration
liability 400 300 700
Restructuring and
other charges 691 729 632 1,587 1,320
Stock-based
compensation 503 533 499 2,420 2,113
Lease exit and
related benefit - (454)
Contribution margin,
a non-GAAP measure
(1) $
(1,776) $
(2,435) $
(1,346) $
(6,831) $
(4,989)
(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
Q3 Q2 Q3 YTD YTD
---
(in thousands)
Reconciliation of GAAP Net income (loss) including noncontrolling interests to adjusted EBITDA:
Net income (loss)
including
noncontrolling
interests $
(6,254) $
(9,455) $
(5,977) $
(14,495) $
(18,085)
Income tax expense
(benefit) 310 244 272 812 708
Interest expense 220 43 429
Interest income - (40) (72) (117) (270)
(Gain) loss on
equity investment,
net - (12,338)
Foreign currency
(gain) loss (489) (164) 78 (804) 98
Equity in net loss
of Napster - 737 737
Acquisitions related
intangible asset
amortization 1,130 1,129 93 3,225 296
Depreciation and
amortization 308 348 414 1,172 1,442
Fair value
adjustments to
contingent
consideration
liability 400 300 700
Restructuring and
other charges 691 729 632 1,587 1,320
Stock-based
compensation 503 533 499 2,420 2,113
Lease exit and
related benefit - (454)
Adjusted EBITDA, a
non-GAAP measure
(1) $
(3,181) $
(6,333) $
(3,324) $
(17,409) $
(12,095)
(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.
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