SEATTLE, Aug. 5, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the second quarter ended June 30, 2015.
For the second quarter of 2015, revenue was $34.0 million, compared to $30.6 million in the previous quarter and $40.8 million in the second quarter of 2014.
"During the quarter, we launched RealTimes(TM), a breakthrough product which provides the fastest and easiest way for consumers to get the most out of their personal photos and videos," said Rob Glaser, Chairman and CEO of RealNetworks. "RealTimes, which automatically creates personalized stories that can be easily customized and shared, is off to a great start with over 2 million users in the first 2 months.
"We are also pleased to report continued strong growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake, which recently announced that it has surpassed 3 million paying subscribers.
"At the same time that we're investing in the roll out of RealTimes, we are also taking steps to focus RealNetworks on its best opportunities, generating cash from non-core assets and reducing operating expenses. Our announced sale of our Slingo and social casino games business for $18 million is a significant step in support of these objectives."
GAAP net loss for the second quarter of 2015 was $(27.8) million or $(0.77) per diluted share, compared to $(21.0) million or $(0.59) per diluted share in the second quarter of 2014. GAAP results for the second quarter of 2015 include $2.0 million severance and restructuring related to the Company's ongoing cost reduction efforts. Adjusted EBITDA for the second quarter of 2015 was a loss of $(15.2) million, compared to $(13.1) million for the second quarter of 2014. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.
As of June 30, 2015, the company had $111.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $134.4 million as of March 31, 2015.
Business Outlook
For the third quarter of 2015, RealNetworks expects total revenue in the range of $29.0 million to $32.0 million and an adjusted EBITDA loss for the third quarter in the range of $(15.0) million to $(18.0) million, excluding the impact of the pending divestiture of the Slingo and social casino games business. Including the impact of the pending sale, we expect total revenue in the range of $27.0 million to $30.0 million and an adjusted EBITDA loss in the range of $(14.0) million to $(17.0) 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: Second 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 11:59 p.m. PT, August 26, 2015 by calling 866-431-7918 or +1-203-369-0978 (Passcode: 852015).
For More Information
Michael Newman, StreetConnect
Investor Relations for RealNetworks
+1-206-729-3625
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, RealPlayer, RealTimes and Slingo 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 adjusted EBITDA 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 operating income (loss) to adjusted EBITDA and to adjusted EBITDA 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 (both with and without the impact of the pending games sale), our future growth, profitability, and market position, our strategic focus and initiatives, 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 Six Months Ended June 30, June 30, -------- -------- 2015 2014 2015 2014 ---- ---- ---- ---- (in thousands, except per share data) Net revenue $33,954 $40,825 $64,551 $86,549 Cost of revenue 19,832 20,786 36,379 39,572 Extinguishment of liability - - - (10,580) Gross profit 14,122 20,039 28,172 57,557 ------ ------ ------ ------ Operating expenses: Research and development 11,801 13,267 24,180 27,326 Sales and marketing 14,047 16,016 26,884 37,739 General and administrative 7,008 8,577 14,291 17,894 Restructuring and other charges 1,964 541 2,449 1,757 Lease exit and related charges 9 470 87 549 --- --- --- --- Total operating expenses 34,829 38,871 67,891 85,265 ------ ------ ------ ------ Operating income (loss) (20,707) (18,832) (39,719) (27,708) ------- ------- ------- ------- Other income (expenses): Interest income, net 250 180 450 316 Gain (loss) on sale of available for sale securities, net 94 - 393 2,371 Equity in net loss of Rhapsody (6,916) (1,802) (13,096) (2,640) Other income (expense), net (112) (95) 331 (172) ---- --- --- ---- Total other income (expense), net (6,684) (1,717) (11,922) (125) ------ ------ ------- ---- Income (loss) before income taxes (27,391) (20,549) (51,641) (27,833) Income tax expense (benefit) 390 480 609 966 --- --- --- --- Net income (loss) $(27,781) $(21,029) $(52,250) $(28,799) ======== ======== ======== ======== Basic net income (loss) per share $(0.77) $(0.59) $(1.45) $(0.80) Diluted net income (loss) per share $(0.77) $(0.59) $(1.45) $(0.80) Shares used to compute basic net income (loss) per share 36,106 35,890 36,105 35,865 Shares used to compute diluted net income (loss) per share 36,106 35,890 36,105 35,865
RealNetworks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) June 30, December 31, 2015 2014 ---- ---- (in thousands) ASSETS Current assets: Cash and cash equivalents $92,663 $103,253 Short-term investments 18,337 58,453 Trade accounts receivable, net 21,922 15,257 Deferred costs, current portion 305 702 Deferred tax assets, current 645 652 Prepaid expenses and other current assets 9,108 8,980 ----- ----- Total current assets 142,980 187,297 ------- ------- Equipment, software, and leasehold improvements, at cost: Equipment and software 71,552 74,100 Leasehold improvements 3,737 3,590 ----- ----- Total equipment, software, and leasehold improvements 75,289 77,690 Less accumulated depreciation and amortization 61,886 61,442 ------ ------ Net equipment, software, and leasehold improvements 13,403 16,248 Restricted cash equivalents and investments 3,000 3,000 Investment in and advances to Rhapsody 5,121 10,000 Available for sale securities 2,394 2,676 Other assets 3,187 2,299 Deferred costs, non- current portion 204 316 Deferred tax assets, net, non- current portion 916 999 Other intangible assets, net 9,181 10,109 Goodwill 17,001 17,355 ------ ------ Total assets $197,387 $250,299 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $18,241 $18,653 Accrued and other current liabilities 22,803 25,286 Deferred tax liabilities, net, current portion 1,580 1,628 Deferred revenue, current portion 3,637 5,301 ----- ----- Total current liabilities 46,261 50,868 Deferred revenue, non- current portion 124 235 Deferred rent 1,240 1,215 Deferred tax liabilities, net, non- current portion 693 702 Other long- term liabilities 458 81 --- --- Total liabilities 48,776 53,101 ------ ------ Shareholders' equity 148,611 197,198 ------- ------- Total liabilities and shareholders' equity $197,387 $250,299 ======== ========
RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, -------- 2015 2014 ---- ---- (in thousands) Cash flows from operating activities: Net income (loss) $(52,250) $(28,799) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 4,894 6,145 Stock-based compensation 2,583 3,010 Extinguishment of liability - (10,580) Equity in net loss of Rhapsody 13,096 2,640 Deferred income taxes, net (23) 10 Gain on sale of available for sale securities (393) (2,371) Realized translation gain - (48) Fair value of warrants, net of mark to market adjustments (1,128) - Interest receivable on advance to Rhapsody (121) - Net change in certain operating assets and liabilities (10,230) (785) ------- ---- Net cash provided by (used in) operating activities (43,572) (30,778) ------- ------- Cash flows from investing activities: Purchases of equipment, software, and leasehold improvements (859) (1,689) Proceeds from sale of available for sale securities 459 2,754 Purchases of short-term investments (8,514) (48,326) Proceeds from sales and maturities of short-term investments 48,630 52,663 Acquisitions, net of cash acquired (161) (733) Advance to Rhapsody (5,000) - Other - (467) --- ---- Net cash provided by (used in) investing activities 34,555 4,202 ------ ----- Cash flows from financing activities: Proceeds from issuance of common stock (stock options and stock purchase plan) 276 580 Tax payments from shares withheld upon vesting of restricted stock (10) (307) Payment of contingent consideration - (696) Net cash provided by (used in) financing activities 266 (423) --- ---- Effect of exchange rate changes on cash and cash equivalents (1,839) 214 ------ --- Net increase (decrease) in cash and cash equivalents (10,590) (26,785) Cash and cash equivalents, beginning of period 103,253 151,235 ------- ------- Cash and cash equivalents, end of period $92,663 $124,450 ======= ========
RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited) 2015 2014 ---- ---- Q2 Q1 Q4 Q3 Q2 Q1 --- --- --- --- --- --- (in thousands) Net Revenue by Line of Business RealPlayer Group (A) $7,344 $8,013 $8,865 $6,565 $8,556 $15,215 Mobile Entertainment (B) 18,515 14,480 17,616 19,190 23,182 19,913 Games (C) 8,095 8,104 9,025 8,402 9,087 10,596 Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724 ======= ======= ======= ======= ======= ======= Net Revenue by Product RealPlayer Group ---------------- - License (D) $4,208 $4,672 $4,496 $3,255 $3,273 $5,018 - Subscriptions (E) 2,435 2,408 2,691 2,680 2,569 2,777 - Media Properties (F) 701 933 1,678 630 2,714 7,420 Mobile Entertainment -------------------- - SaaS (G) 18,155 13,298 16,727 17,919 20,175 18,463 -Technology License & Other (H) 360 1,182 889 1,271 3,007 1,450 Games ----- - License (I) 3,943 3,835 3,854 2,988 3,399 3,849 - Subscriptions (J) 3,373 3,570 3,947 4,320 4,440 5,241 - Media Properties (K) 779 699 1,224 1,094 1,248 1,506 --- --- ----- ----- ----- ----- Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724 ======= ======= ======= ======= ======= ======= Net Revenue by Geography United States $12,303 $12,349 $13,860 $12,280 $15,092 $20,428 Rest of world 21,651 18,248 21,646 21,877 25,733 25,296 ------ ------ ------ ------ ------ ------ Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724 ======= ======= ======= ======= ======= =======
Net Revenue by Line of Business (A) The RealPlayer Group primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as our RealPlayer Cloud and its successor application, RealTimesTM, and SuperPass. (B) The Mobile Entertainment 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 the RealPlayer Group includes sales of intellectual property licenses and RealPlayer Plus software licenses to consumers. (E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as our RealPlayer Cloud, RealTimes and SuperPass offerings. (F) Media Properties revenue within the RealPlayer Group includes distribution of third-party software products and advertising on RealPlayer websites. (G) SaaS revenue within Mobile Entertainment includes revenue from music on demand, ringback tones, intercarrier messaging services provided to network services providers who are largely mobile phone networks. (H) Technology licensing and other revenue within Mobile Entertainment 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 distribution of third-party software products and advertising on games sites and social network sites.
RealNetworks, Inc. and Subsidiaries Segment Results of Operations (Unaudited) 2015 2014 2015 2014 ---- ---- ---- ---- Q2 Q1 Q2 YTD YTD --- --- --- --- --- (in thousands) RealPlayer Group ---------------- Net revenue $7,344 $8,013 $8,556 $15,357 $23,771 Cost of revenue 4,317 4,112 3,620 8,429 7,138 Gross profit 3,027 3,901 4,936 6,928 16,633 Gross margin 41% 49% 58% 45% 70% Operating expenses 13,001 12,375 12,489 25,376 30,276 ------ Operating income (loss) $(9,974) $(8,474) $(7,553) $(18,448) $(13,643) Adjusted EBITDA $(9,411) $(7,875) $(6,893) $(17,286) $(12,384) Mobile Entertainment -------------------- Net revenue $18,515 $14,480 $23,182 $32,995 $43,095 Cost of revenue 13,079 9,506 14,298 22,585 26,248 Gross profit 5,436 4,974 8,884 10,410 16,847 Gross margin 29% 34% 38% 32% 39% Operating expenses 5,301 5,633 9,424 10,934 19,040 ------ Operating income (loss) $135 $(659) $(540) $(524) $(2,193) Adjusted EBITDA $1,013 $225 $808 $1,238 $469 Games ----- Net revenue $8,095 $8,104 $9,087 $16,199 $19,683 Cost of revenue 2,286 2,794 2,717 5,080 5,846 Gross profit 5,809 5,310 6,370 11,119 13,837 Gross margin 72% 66% 70% 69% 70% Operating expenses 8,719 8,683 8,769 17,402 18,535 ------ Operating income (loss) $(2,910) $(3,373) $(2,399) $(6,283) $(4,698) Adjusted EBITDA $(2,354) $(2,783) $(1,798) $(5,137) $(3,472) Corporate --------- Net revenue $ - $ - $ - $ - $ - Cost of revenue 150 135 151 285 340 Extinguishment of liability - - - - (10,580) --- ------- Gross profit (150) (135) (151) (285) (10,240) Gross margin N/A N/A N/A N/A N/A Operating expenses 7,808 6,371 8,189 14,179 17,414 Operating income (loss) $(7,958) $(6,506) $(8,340) $(14,464) $7,174 Adjusted EBITDA $(4,449) $(3,741) $(5,198) $(8,190) $(11,612) Total ----- Net revenue $33,954 $30,597 $40,825 $64,551 $86,549 Cost of revenue 19,832 16,547 20,786 36,379 39,572 Extinguishment of liability - - - - (10,580) Gross profit 14,122 14,050 20,039 28,172 57,557 Gross margin 42% 46% 49% 44% 67% Operating expenses 34,829 33,062 38,871 67,891 85,265 Operating income (loss) $(20,707) $(19,012) $(18,832) $(39,719) $(27,708) Adjusted EBITDA $(15,201) $(14,174) $(13,081) $(29,375) $(26,999)
RealNetworks, Inc. and Subsidiaries Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment (Unaudited) 2015 2014 2015 2014 ---- ---- ---- ---- Q2 Q1 Q2 YTD YTD --- --- --- --- --- (in thousands) RealPlayer Group ---------------- Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment: Operating income (loss) $(9,974) $(8,474) $(7,553) $(18,448) $(13,643) Acquisitions related intangible asset amortization 85 88 125 173 185 Depreciation and amortization 478 511 535 989 1,074 Adjusted EBITDA $(9,411) $(7,875) $(6,893) $(17,286) $(12,384) Mobile Entertainment -------------------- Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment: Operating income (loss) $135 $(659) $(540) $(524) $(2,193) Acquisitions related intangible asset amortization 299 304 628 603 1,235 Depreciation and amortization 579 580 720 1,159 1,427 Adjusted EBITDA $1,013 $225 $808 $1,238 $469 Games ----- Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment: Operating income (loss) $(2,910) $(3,373) $(2,399) $(6,283) $(4,698) Acquisitions related intangible asset amortization 312 293 314 605 628 Depreciation and amortization 244 297 287 541 598 --- --- --- --- --- Adjusted EBITDA $(2,354) $(2,783) $(1,798) $(5,137) $(3,472) Corporate --------- Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment: Operating income (loss) $(7,958) $(6,506) $(8,340) $(14,464) $(7,174) Other income (expense), net (112) 443 (95) 331 (172) Depreciation and amortization 394 430 553 824 998 Lease exit and related charges 9 78 470 87 549 Restructuring and other charges 1,964 485 541 2,449 1,757 Stock-based compensation 1,254 1,329 1,673 2,583 3,010 Extinguishment of liability - - - - (10,580) Adjusted EBITDA $(4,449) $(3,741) $(5,198) $(8,190) $(11,612) Total ----- Reconciliation of GAAP operating income (loss) to adjusted EBITDA: Operating income (loss) $(20,707) $(19,012) $(18,832) $(39,719) $(27,708) Other income (expense), net (112) 443 (95) 331 (172) Acquisitions related intangible asset amortization 696 685 1,067 1,381 2,048 Depreciation and amortization 1,695 1,818 2,095 3,513 4,097 Lease exit and related charges 9 78 470 87 549 Restructuring and other charges 1,964 485 541 2,449 1,757 Stock-based compensation 1,254 1,329 1,673 2,583 3,010 Extinguishment of liability - - - - (10,580) Adjusted EBITDA $(15,201) $(14,174) $(13,081) $(29,375) $(26,999)
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SOURCE RealNetworks, Inc.