RealNetworks Announces Third Quarter 2016 Results

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- Revenue of $31.1 million, up 4% from the prior quarter; - GAAP net loss and adjusted EBITDA improve by 86% and 59%, respectively, year over year; - Cash and short-term investments increases to $80.7 million; and - Operating results led by GameHouse's 14% growth from the prior quarter -- New game titles performing strongly

November 3, 2016 4:01 PM EDT

SEATTLE, Nov. 3, 2016 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the third quarter ended September 30, 2016.

For the third quarter of 2016, revenue was $31.1 million, up 4% from $29.7 million in the previous quarter and up 4% from $29.8 million in the third quarter of 2015, excluding revenue from the social casino games business, which was sold during the third quarter of 2015.

GAAP net loss for the third quarter of 2016 was $(3.1) million or $(0.08) per share, which improved by 86% compared to $(21.2) million or $(0.59) per share in the third quarter of 2015.  Adjusted EBITDA for the third quarter of 2016 was a loss of $(4.4) million, which improved by 59% compared to $(10.9) million for the third quarter of 2015, excluding the results in the prior period of the social casino games business. Adjusted EBITDA improved due to significant reductions in ongoing operating expenses. The GAAP results for the third quarter of 2016 also benefitted by $6.0 million of gain on payment received from the sale of the social casino games business and from the recent sale of another non-strategic asset. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"For 2016 we established three major financial goals. We're on course to achieve two of them," said Rob Glaser, Chairman and CEO of RealNetworks. "We've stabilized our businesses and have begun to see revenue growth.

"We're particularly pleased with the strong performance of our new first-party titles in our GameHouse unit, with sales up 14% sequentially, as we continue to ramp up production of high quality games. We're also continuing to roll out the integration of our mobile products with carriers like Vivo, Verizon, and Vodafone.

"Our third financial goal of the company was to return to profitability by the end of the year. While we have significantly reduced our costs, EBITDA loss and cash consumption - in fact in Q3 we increased our cash position by $2.0 million, we do not currently expect to return to EBITDA profitability in 2016. While we are not making this change lightly, we think we're making the right mid- to long-term tradeoff by making measured investments to drive our future growth and profitability."

As of September 30, 2016, the Company had $80.7 million in unrestricted cash, cash equivalents and short-term investments, up from $78.8 million as of June 30, 2016.

Business Outlook

For the fourth quarter of 2016, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the fourth 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 888-790-3440 or +1-517-308-9350 (Passcode: Third Quarter Earnings). 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 10:59 p.m. PT, November 24, 2016 by calling 866-509-6763 or +1-203-369-1928 (Passcode: 1132016).

For More Information

Investor Relations for RealNetworks  +1-206-729-3625  [email protected]

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)

Quarters Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

 (in thousands, except per share data)

 Net revenue

$

31,051

$

30,823

$

89,015

$

95,374

 Cost of revenue

16,740

18,090

47,610

54,469

           Gross profit

14,311

12,733

41,405

40,905

 Operating expenses:

       Research and development

6,699

10,501

23,185

34,681

       Sales and marketing

7,183

11,938

24,157

38,822

       General and administrative

7,086

7,021

21,380

21,312

       Restructuring and other charges

499

3,114

1,297

5,563

       Lease exit and related charges

1,233

2,121

2,191

2,208

           Total operating expenses

22,700

34,695

72,210

102,586

 Operating income (loss)

(8,389)

(21,962)

(30,805)

(61,681)

 Other income (expenses):

       Interest income, net

119

147

316

597

       Gain (loss) on investments, net

6,021

(615)

5,978

(222)

       Equity in net loss of Rhapsody

(233)

(735)

(629)

(13,831)

       Other income (expense), net

(243)

297

(515)

628

           Total other income (expense), net

5,664

(906)

5,150

(12,828)

 Income (loss) before income taxes

(2,725)

(22,868)

(25,655)

(74,509)

 Income tax expense (benefit)

331

(1,684)

919

(1,075)

 Net income (loss)

$

(3,056)

$

(21,184)

$

(26,574)

$

(73,434)

 Basic net income (loss) per share

$

(0.08)

$

(0.59)

$

(0.72)

$

(2.03)

 Diluted net income (loss) per share

$

(0.08)

$

(0.59)

$

(0.72)

$

(2.03)

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

36,805

36,191

36,693

36,134

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

36,805

36,191

36,693

36,134

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

September 30, 2016

December 31, 2015

 (in thousands)

ASSETS

 Current assets:

 Cash and cash equivalents

$

38,284

$

47,315

 Short-term investments

42,465

51,814

 Trade accounts receivable, net

25,287

22,511

 Deferred costs, current portion

852

460

 Prepaid expenses and other current assets

5,166

7,140

   Total current assets

112,054

129,240

 Equipment and software

57,014

66,702

 Leasehold improvements

3,204

3,122

   Total equipment, software, and leasehold improvements

60,218

69,824

 Less accumulated depreciation and amortization

54,339

61,024

   Net equipment, software, and leasehold improvements

5,879

8,800

 Restricted cash equivalents and investments

2,700

2,890

 Available for sale securities

2,041

1,721

 Other assets

1,908

2,307

 Deferred costs, non-current portion

1,236

212

 Deferred tax assets, net

1,015

957

 Other intangible assets, net

1,224

2,136

 Goodwill

12,974

13,080

  Total assets

$

141,031

$

161,343

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable

$

18,379

$

17,050

 Accrued and other current liabilities

16,547

17,320

 Deferred revenue, current portion

3,883

3,497

    Total current liabilities

38,809

37,867

 Deferred revenue, non-current portion

343

105

 Deferred rent

504

620

 Deferred tax liabilities, net

100

88

 Other long-term liabilities

1,935

1,980

  Total liabilities

41,691

40,660

 Shareholders' equity

99,340

120,683

 Total liabilities and shareholders' equity

$

141,031

$

161,343

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2016

2015

 (in thousands)

 Cash flows from operating activities:

 Net income (loss)

$

(26,574)

$

(73,434)

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

  Depreciation and amortization

5,897

7,952

  Stock-based compensation

4,557

3,761

  Equity in net loss of Rhapsody

629

13,831

  Deferred income taxes, net

(198)

(1,531)

  Loss (gain) on investments, net

(5,978)

222

  Realized translation loss (gain)

272

(264)

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

112

(1,078)

  Net change in certain operating assets and liabilities

(1,011)

(5,428)

    Net cash provided by (used in) operating activities

(22,294)

(55,969)

 Cash flows from investing activities:

  Purchases of equipment, software, and leasehold improvements

(2,009)

(1,110)

  Proceeds from sale of equity and other investments

2,110

459

  Purchases of short-term investments

(59,124)

(52,475)

  Proceeds from sales and maturities of short-term investments

68,473

60,516

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

190

—

  Acquisitions

(150)

(161)

  Advance to Rhapsody

—

(5,000)

  Receipt of payment from Rhapsody

—

5,000

  Proceeds from the sale of Slingo and social casino business

4,000

10,000

   Net cash provided by (used in) investing activities

13,490

17,229

 Cash flows from financing activities:

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

166

297

  Tax payments from shares withheld upon vesting of restricted stock

(843)

(69)

   Net cash provided by (used in) financing activities

(677)

228

 Effect of exchange rate changes on cash and cash equivalents

450

(2,910)

   Net increase (decrease) in cash and cash equivalents

(9,031)

(41,422)

 Cash and cash equivalents, beginning of period

47,315

103,253

 Cash and cash equivalents, end of period

$

38,284

$

61,831

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2016

2015

 Q3

 Q2

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Line of Business

Consumer Media (A)

$

6,482

$

6,400

$

5,726

$

6,848

$

6,495

$

7,281

$

7,989

Mobile Services (B)

17,683

17,297

16,465

16,369

16,484

18,578

14,504

Games (C)

6,886

6,037

6,039

6,705

7,844

8,095

8,104

     Total net revenue

$

31,051

$

29,734

$

28,230

$

29,922

$

30,823

$

33,954

$

30,597

Net Revenue by Product

Consumer Media

- License (D)

$

4,136

$

3,914

$

3,104

$

3,967

$

3,628

$

4,208

$

4,672

- Subscriptions (E)

1,931

1,871

1,975

2,054

2,147

2,372

2,384

- Media Properties (F)

415

615

647

827

720

701

933

Mobile Services

- SaaS (G)

17,141

17,208

16,220

16,157

16,217

18,218

13,322

- Technology License & Other (H)

542

89

245

212

267

360

1,182

Games

- License (I)

3,683

2,793

2,761

3,268

4,128

3,943

3,835

- Subscriptions (J)

3,005

3,024

3,029

3,126

3,231

3,373

3,570

- Media Properties (K)

198

220

249

311

485

779

699

     Total net revenue

$

31,051

$

29,734

$

28,230

$

29,922

$

30,823

$

33,954

$

30,597

Net Revenue by Geography

United States

$

10,642

$

10,355

$

10,383

$

10,781

$

11,460

$

12,303

$

12,349

Rest of world

20,409

19,379

17,847

19,141

19,363

21,651

18,248

     Total net revenue

$

31,051

$

29,734

$

28,230

$

29,922

$

30,823

$

33,954

$

30,597

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

2016

2015

2016

2015

Q3

Q2

Q3

YTD

YTD

 (in thousands)

Consumer Media

Net revenue

$

6,482

$

6,400

$

6,495

$

18,608

$

21,765

Cost of revenue

1,507

1,561

3,142

5,485

10,173

   Gross profit

4,975

4,839

3,353

13,123

11,592

   Gross margin

77

%

76

%

52

%

71

%

53

%

Operating expenses

4,271

4,293

6,421

13,940

19,882

Operating income (loss), a GAAP measure

$

704

$

546

$

(3,068)

$

(817)

$

(8,290)

Depreciation and amortization

295

375

519

1,973

1,508

  Contribution margin, a non-GAAP measure

$

999

$

921

$

(2,549)

$

1,156

$

(6,782)

Mobile Services

Net revenue

$

17,683

$

17,297

$

16,484

$

51,445

$

49,566

Cost of revenue

13,026

12,404

12,512

36,347

36,802

   Gross profit

4,657

4,893

3,972

15,098

12,764

   Gross margin

26

%

28

%

24

%

29

%

26

%

Operating expenses

8,075

8,784

11,093

26,653

35,153

Operating income (loss), a GAAP measure

$

(3,418)

$

(3,891)

$

(7,121)

$

(11,555)

$

(22,389)

Acquisitions related intangible asset amortization

208

209

389

725

1,165

Depreciation and amortization

403

608

493

1,433

1,652

Contribution margin, a non-GAAP measure

$

(2,807)

$

(3,074)

$

(6,239)

$

(9,397)

$

(19,572)

Games

Net revenue

$

6,886

$

6,037

$

7,844

$

18,962

$

24,043

Cost of revenue

2,203

1,817

2,513

5,865

7,593

   Gross profit

4,683

4,220

5,331

13,097

16,450

   Gross margin

68

%

70

%

68

%

69

%

68

%

Operating expenses

4,649

4,725

6,431

14,669

23,833

Operating income (loss), a GAAP measure

$

34

$

(505)

$

(1,100)

$

(1,572)

$

(7,383)

Acquisitions related intangible asset amortization

29

34

170

88

775

Depreciation and amortization

104

154

214

437

755

   Contribution margin, a non-GAAP measure

$

167

$

(317)

$

(716)

$

(1,047)

$

(5,853)

Corporate

Cost of revenue

$

4

$

(84)

$

(77)

$

(87)

$

(99)

   Gross profit

(4)

84

77

87

99

   Gross margin

N/A

N/A

N/A

N/A

N/A

Operating expenses

5,705

3,871

10,750

16,948

23,718

Operating income (loss), a GAAP measure

$

(5,709)

$

(3,787)

$

(10,673)

$

(16,861)

$

(23,619)

Other income (expense), net

(243)

15

297

(515)

628

Depreciation and amortization

634

246

1,273

1,241

2,097

Restructuring and other charges

499

413

3,114

1,297

5,563

Stock-based compensation

778

608

1,178

4,557

3,761

Lease exit and related charges

1,233

127

2,121

2,191

2,208

   Contribution margin, a non-GAAP measure

$

(2,808)

$

(2,378)

$

(2,690)

$

(8,090)

$

(9,362)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2016

2015

2016

2015

 Q3

 Q2

 Q3

 YTD

 YTD

 (in thousands)

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

Net income (loss)

$

(3,056)

$

(8,347)

$

(21,184)

$

(26,574)

$

(73,434)

Income tax expense (benefit)

331

363

(1,684)

919

(1,075)

Interest income, net

(119)

(80)

(147)

(316)

(597)

Gain (loss) on investments, net

(6,021)

46

615

(5,978)

222

Equity in net loss of Rhapsody

233

396

735

629

13,831

Acquisitions related intangible asset amortization

237

243

559

813

1,940

Depreciation and amortization

1,436

1,383

2,499

5,084

6,012

Restructuring and other charges

499

413

3,114

1,297

5,563

Stock-based compensation

778

608

1,178

4,557

3,761

Lease exit and related charges

1,233

127

2,121

2,191

2,208

   Adjusted EBITDA, a non-GAAP measure

$

(4,449)

$

(4,848)

$

(12,194)

$

(17,378)

$

(41,569)

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-third-quarter-2016-results-300357091.html

SOURCE RealNetworks, Inc.


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