RealNetworks Announces Fourth Quarter And Full Year 2019 Financial Results
SEATTLE, Feb. 5, 2020 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the fourth quarter and full year ended December 31, 2019.
-- 2019 revenue of $172.1 million
-- 2019 Games revenue up 18% year-over-year driven by success of
free-to-play strategy
-- Continued traction with SAFR(TM) with new customers and partners around
the world
Management Commentary
"Strategically, I consider 2019 to be a very successful year," said Rob Glaser, Chairman and CEO of RealNetworks. "We achieved significant traction on two of our key growth initiatives: free-to-play casual mobile games and SAFR. Our free-to-play strategy drove significant topline growth in our Games business. Delicious World is already our highest revenue generating game ever despite having launched globally in mid-2019. SAFR also remains a top growth focus of the Company. We continue to get good initial traction with customers and partners around the world."
Mr. Glaser added, "Our focus for 2020 will be to continue to drive these key initiatives forward while also running our operations efficiently. While we will make ongoing investments to support our key growth initiatives, we are committed to thoughtfully managing costs along the way as we did during 2019. Our progress in this regard can be seen in our significant improvement in adjusted EBITDA loss in the second half of 2019 as compared to the first half of 2019."
Full Year 2019 Financial Highlights
-- Revenue was $172.1 million (inclusive of $106.3 million from Napster)
compared to $69.5 million in 2018.
-- Games revenue was $25.5 million, up 18% compared to $21.7 million in
2018.
-- Operating expenses increased by $27.4 million, or 37%, from 2018.
Napster's operating expenses were $25.8 million in 2019.
-- Net loss attributable to RealNetworks was $(20.0) million, or $(0.53)
per diluted share, compared to net loss of $(25.0) million, or $(0.66)
per diluted share in 2018. Included in net income attributable to
RealNetworks was a gain of $12.3 million in the first quarter of 2019
related to the acquisition of Napster.
-- Adjusted EBITDA was a loss of $(20.1) million compared to a loss of
$(16.2) million in 2018. 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 December 31, 2019, the Company had $16.8 million in unrestricted cash
and cash equivalents compared to $18.1 million at September 30, 2019.
Fourth Quarter 2019 Financial Highlights
-- Revenue was $43.4 million (inclusive of $26.1 million from Napster)
compared to $45.0 million (inclusive of $27.3 million from Napster) in
the prior quarter and $16.6 million in the prior year period.
-- Games revenue was $6.6 million, down 8% compared to $7.2 million in the
prior quarter and up 17% compared to $5.6 million in the prior year
period.
-- Gross profit margin was 43%, up from 42% in the prior quarter and down
from 77% in the prior year period. Napster's gross profit margin for the
fourth quarter of 2019 was 21%, while RealNetworks' gross profit margin
without Napster was 76%.
-- Operating expenses decreased $0.4 million, or 2%, from the prior quarter
and increased $6.2 million, or 34%, from the prior year period.
Napster's operating expenses were $7.1 million for the fourth quarter of
2019.
-- Net loss attributable to RealNetworks was $(6.4) million, or $(0.17) per
diluted share, compared to net loss of $(6.0) million, or $(0.16) per
diluted share, in the prior quarter and a net loss of $(6.9) million, or
$(0.18) per diluted share, in the prior year period.
-- Adjusted EBITDA was a loss of $(2.7) million compared to a loss of
$(3.2) million in the prior quarter and a loss of $(4.1) million in the
prior year period.
Corporate Developments
-- On January 9, 2020, the Company announced the hiring of Mike Ensing as
interim Chief Financial Officer following Cary Baker's resignation to
pursue a new opportunity. Mr. Ensing joined RealNetworks as a full-time
strategic advisor on January 10, 2020 and will succeed Mr. Baker as
interim CFO on February 15, 2020. The Company has retained an executive
search firm and has commenced a formal search for a permanent CFO.
-- On December 3, 2019, the Company strengthened its Board of Directors
with the appointment of two new directors, Tim Wan and Erik Prusch. Mr.
Wan has 20 years of financial and business experience, including 15
years with RealNetworks, and is currently the Chief Financial Officer at
Asana, Inc., a privately held company that develops and offers a
SaaS-based work management platform. Mr. Prusch has over 25 years of
executive experience, having successfully led several technology and
consumer-facing businesses through periods of innovation and adaptation.
Business Outlook
For the first quarter ending March 31, 2020, 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 $(4.0) million to
$(1.0) million.
Conference Call and Webcast Information
The Company will host a conference call today to review its results and discuss its performance at approximately 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, February 26, 2020, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13697915.
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 Twelve Months Ended
December 31,
December 31,
2019 2018 2019 2018
(in thousands, except per share data)
Net revenue $
43,400 $
16,557 $
172,113 $
69,510
Cost of revenue 24,697 3,727 103,127 17,727
Gross profit 18,703 12,830 68,986 51,783
Operating expenses:
Research and
development 8,452 7,391 34,848 30,789
Sales and marketing 7,806 5,262 32,778 21,140
General and
administrative 7,417 5,180 31,305 20,706
Restructuring and
other charges 911 553 2,498 1,873
Lease exit and
related benefit - (454)
Total operating
expenses 24,586 18,386 101,429 74,054
Operating loss (5,883) (5,556) (32,443) (22,271)
Other income (expenses):
Interest expense (207) (636)
Interest income 14 74 131 344
Gain (loss) on equity
investment, net - 12,338
Equity in net loss of
Napster - (20) (757)
Other income
(expenses), net (431) 92 420 (103)
Total other income
(expenses), net (624) 146 12,253 (516)
Income (loss) before
income taxes (6,507) (5,410) (20,190) (22,787)
Income tax expense 256 1,494 1,068 2,202
Net income (loss)
including
noncontrolling
interests (6,763) (6,904) (21,258) (24,989)
Net income (loss)
attributable to
noncontrolling
interests (399) (1,257)
Net income (loss)
attributable to
RealNetworks $
(6,364) $
(6,904) $
(20,001) $
(24,989)
Net income (loss) per
share attributable
to RealNetworks-
Basic: $
(0.17) $
(0.18) $
(0.53) $
(0.66)
Net income (loss) per
share attributable
to RealNetworks-
Diluted: $
(0.17) $
(0.18) $
(0.53) $
(0.66)
Shares used to
compute basic net
income (loss) per
share 38,142 37,680 37,994 37,582
Shares used to
compute diluted net
income (loss) per
share 38,142 37,680 37,994 37,582
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, December 31,
2019 2018
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $
16,805 $
35,561
Short-term investments - 24
Trade accounts receivable, net 29,507 11,751
Deferred costs, current portion 823 331
Prepaid expenses and other current assets 7,445 5,911
Total current assets 54,580 53,578
Equipment and software 32,167 37,458
Leasehold improvements 3,311 3,292
Total equipment, software, and leasehold improvements 35,478 40,750
Less accumulated depreciation and amortization 32,657 37,996
Net equipment, software, and leasehold improvements 2,821 2,754
Operating lease assets 11,592
Restricted cash equivalents 5,374 1,630
Other assets 1,891 3,997
Deferred costs, non-current portion 1,021 528
Deferred tax assets, net 761 851
Other intangible assets, net 19,286 26
Goodwill 62,428 16,955
Total assets $
159,754 $
80,319
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $
4,927 $
3,910
Accrued royalties, fulfillment and other current liabilities 77,303 11,312
Commitment to Napster - 2,750
Deferred revenue, current portion 6,620 2,125
Notes payable 7,331
Total current liabilities 96,181 20,097
Deferred revenue, non-current portion 96 268
Deferred rent - 986
Deferred tax liabilities, net 1,172 1,168
Long-term lease liabilities 8,466
Long-term debt 3,900
Other long-term liabilities 11,666 960
Total liabilities 121,481 23,479
Total shareholders' equity 38,775 56,840
Noncontrolling interests (502)
Total equity 38,273 56,840
Total liabilities and equity $
159,754 $
80,319
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Twelve Months Ended
December 31,
2019 2018
(in thousands)
Cash flows from operating activities:
Net income (loss)
including noncontrolling
interests $
(21,258) $
(24,989)
Adjustments to reconcile net income (loss)
including noncontrolling interests to net
cash used in operating activities:
Depreciation and
amortization 5,834 2,135
Stock-based compensation 2,881 2,508
Equity in net loss of
Napster - 757
Deferred income taxes, net (6) 1,170
(Gain) loss on equity
investment, net (12,338)
Foreign currency (gain)
loss (310)
Fair value adjustments to
contingent consideration
liability 1,000
Mark to market adjustment
of warrants - 124
Net change in certain
operating assets and
liabilities (1,149) (926)
Net cash used in operating
activities (25,346) (19,221)
Cash flows from investing activities:
Purchases of equipment,
software, and leasehold
improvements (1,192) (765)
Proceeds from sales and
maturities of short-term
investments 24 8,755
Acquisition, net of cash
acquired 12,249 (4,192)
Net cash provided by
investing activities 11,081 3,798
Cash flows from financing activities:
Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 199 199
Tax payments from shares
withheld upon vesting of
restricted stock (309) (261)
Proceeds from notes
payable and revolving
credit facility 41,201
Repayments of notes
payable and revolving
credit facility (41,992)
Payment of financing fees (622)
Other financing activities 900
Net cash used in financing
activities (623) (62)
Effect of exchange rate
changes on cash, cash
equivalents and
restricted cash (124) (920)
Net increase (decrease) in
cash, cash equivalents
and restricted cash (15,012) (16,405)
Cash, cash equivalents and
restricted cash,
beginning of period 37,191 53,596
Cash, cash equivalents and
restricted cash, end of
period $
22,179 $
37,191
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2019 2018
YTD Q4 Q3 Q2 Q1 YTD Q4 Q3 Q2 Q1
(in thousands)
Net Revenue by Segment
Consumer Media
(A) $
13,170 $
4,432 $
3,632 $
2,620 $
2,486 $
18,168 $
4,068 $
4,733 $
3,884 $
5,483
Mobile Services
(B) 27,143 6,312 6,895 6,997 6,939 29,670 6,899 7,348 6,719 8,704
Games (C) 25,489 6,567 7,164 6,048 5,710 21,672 5,590 5,498 5,121 5,463
Napster (D) 106,311 26,089 27,302 28,583 24,337
Total net
revenue $
172,113 $
43,400 $
44,993 $
44,248 $
39,472 $
69,510 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Product
Consumer Media
---
-Software
License (E) $
6,522 $
2,856 $
1,987 $
944 $
735 $
9,940 $
2,049 $
2,746 $
1,808 $
3,337
-Subscription
Services (F) 4,148 992 1,028 1,040 1,088 4,895 1,153 1,232 1,225 1,285
-Product Sales
(G) 825 193 207 206 219 1,177 257 281 299 340
-Advertising &
Other (H) 1,675 391 410 430 444 2,156 609 474 552 521
Mobile Services
---
-Software
License (I) 3,101 657 888 957 599 2,838 514 520 469 1,335
-Subscription
Services (J) 24,042 5,655 6,007 6,040 6,340 26,832 6,385 6,828 6,250 7,369
Games
---
-Subscription
Services (K) 12,121 3,007 3,056 3,073 2,985 11,141 3,014 2,745 2,689 2,693
-Product Sales
(L) 9,823 2,580 3,078 2,177 1,988 8,647 2,013 2,279 1,953 2,402
-Advertising &
Other (M) 3,545 980 1,030 798 737 1,884 563 474 479 368
Napster
---
-Subscription
Services (N) 106,311 26,089 27,302 28,583 24,337
Total net
revenue $
172,113 $
43,400 $
44,993 $
44,248 $
39,472 $
69,510 $
16,557 $
17,579 $
15,724 $
19,650
Net Revenue by Geography
United States $
83,360 $
21,053 $
22,015 $
21,322 $
18,970 $
35,803 $
7,697 $
9,026 $
7,646 $
11,434
Rest of world 88,753 22,347 22,978 22,926 20,502 33,707 8,860 8,553 8,078 8,216
Total net
revenue $
172,113 $
43,400 $
44,993 $
44,248 $
39,472 $
69,510 $
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
Q4 Q3 Q4 YTD YTD
(in thousands)
Consumer Media
Net revenue $
4,432 $
3,632 $
4,068 $
13,170 $
18,168
Cost of revenue 690 705 882 3,031 3,858
Gross profit 3,742 2,927 3,186 10,139 14,310
Gross margin 84
% 81
% 78
% 77
% 79
%
Operating expenses 2,498 2,692 3,614 11,186 14,419
Operating income
(loss), a GAAP
measure $
1,244 $
235 $
(428) $
(1,047) $
(109)
Depreciation and
amortization 34 34 49 178 195
Contribution margin,
a non-GAAP measure $
1,278 $
269 $
(379) $
(869) $
86
Mobile Services
Net revenue $
6,312 $
6,895 $
6,899 $
27,143 $
29,670
Cost of revenue 1,866 1,721 2,121 7,500 8,623
Gross profit 4,446 5,174 4,778 19,643 21,047
Gross margin 70
% 75
% 69
% 72
% 71
%
Operating expenses 7,198 7,143 6,906 29,340 28,066
Operating income
(loss), a GAAP
measure $
(2,752) $
(1,969) $
(2,128) $
(9,697) $
(7,019)
Acquisitions related
intangible asset
amortization - 69 322
Depreciation and
amortization 100 81 116 518 616
Contribution margin,
a non-GAAP measure $
(2,652) $
(1,888) $
(1,943) $
(9,179) $
(6,081)
Games
Net revenue $
6,567 $
7,164 $
5,590 $
25,489 $
21,672
Cost of revenue 1,716 1,934 1,622 6,975 6,123
Gross profit 4,851 5,230 3,968 18,514 15,549
Gross margin 74
% 73
% 71
% 73
% 72
%
Operating expenses 4,744 5,151 4,865 20,220 20,324
Operating income
(loss), a GAAP
measure $
107 $
79 $
(897) $
(1,706) $
(4,775)
Acquisitions related
intangible asset
amortization - 4 23 27 66
Depreciation and
amortization 85 89 82 341 484
Contribution margin,
a non-GAAP measure $
192 $
172 $
(792) $
(1,338) $
(4,225)
Napster
Net revenue $
26,089 $
27,302
$ $
106,311
$
Cost of revenue 20,493 21,986 85,901
Gross profit 5,596 5,316 20,410
Gross margin 21
% 19
% % 19
% %
Operating expenses 7,147 6,472 25,789
Operating income
(loss), a GAAP
measure $
(1,551) $
(1,156)
$ $
(5,379)
$
Acquisitions related
intangible asset
amortization 1,126 1,126 4,324
Depreciation and
amortization 60 72 316
Restructuring and
other charges 544 544
Contribution margin,
a non-GAAP measure $
179 $
42
$ $
(195)
$
Corporate
Cost of revenue $
(68) $
(68) $
(898) $
(280) $
(877)
Gross profit 68 68 898 280 877
Gross margin N/A N/A N/A N/A N/A
Operating expenses 2,999 3,522 3,001 14,894 11,245
Operating income
(loss), a GAAP
measure $
(2,931) $
(3,454) $
(2,103) $
(14,614) $
(10,368)
Other income
(expense), net (431) 541 92 420 (103)
Foreign currency
(gain) loss 494 (489) (26) (310) 72
Depreciation and
amortization 32 32 58 130 452
Fair value
adjustments to
contingent
consideration
liability 300 400 1,000
Restructuring and
other charges 367 691 553 1,954 1,873
Stock-based
compensation 461 503 395 2,881 2,508
Lease exit and
related benefit - (454)
Contribution margin,
a non-GAAP measure
(1) $
(1,708) $
(1,776) $
(1,031) $
(8,539) $
(6,020)
(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
Q4 Q3 Q4 YTD YTD
(in thousands)
Reconciliation of GAAP Net income (loss) including noncontrolling interests to adjusted EBITDA:
Net income (loss)
including
noncontrolling
interests $
(6,763) $
(6,254) $
(6,904) $
(21,258) $
(24,989)
Income tax expense
(benefit) 256 310 1,494 1,068 2,202
Interest expense 207 220 636
Interest income (14) (74) (131) (344)
(Gain) loss on
equity investment,
net - (12,338)
Foreign currency
(gain) loss 494 (489) (26) (310) 72
Equity in net loss
of Napster - 20 757
Acquisitions related
intangible asset
amortization 1,126 1,130 92 4,351 388
Depreciation and
amortization 311 308 305 1,483 1,747
Fair value
adjustments to
contingent
consideration
liability 300 400 1,000
Restructuring and
other charges 911 691 553 2,498 1,873
Stock-based
compensation 461 503 395 2,881 2,508
Lease exit and
related benefit - (454)
Adjusted EBITDA, a
non-GAAP measure
(1) $
(2,711) $
(3,181) $
(4,145) $
(20,120) $
(16,240)
(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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SOURCE RealNetworks, Inc.
