REALNETWORKS, INC. SEATTLE, Nov. 1, 2017 /PRNewswire/ --
-- Revenue of $30.0 million
-- Reduced operating expenses by $5.0 million, or 22% year-over-year
-- Continued progress in key growth initiatives as evidenced by strategic
alliance with CIBN Oriental Network
RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the third quarter ended September 30, 2017.
Management Commentary
"Overall our third quarter results were solid operationally and great strategically," said Rob Glaser, Chairman and CEO of RealNetworks. "Of particular note is our strategic alliance with CIBN in China around our RealMedia HD next generation video codec platform."
Third Quarter 2017 Financial Highlights
-- Revenue was $30.0 million, down from $33.1 million in the prior quarter
and $31.1 million in the prior year period.
-- Operating expenses declined by $0.8 million, or 4%, from the prior
quarter and by $5.0 million, or 22%, from the same period in 2016.
-- Net loss was $(4.3) million or $(0.12) per share, compared to $(3.4)
million or $(0.09) per share in the prior quarter and $(3.1) million or
$(0.08) per share in the third quarter of 2016.
-- Adjusted EBITDA was a loss of $(2.3) million compared to a loss of
$(0.8) million in the prior quarter and $(4.4) million in the third
quarter of 2016. A reconciliation of GAAP net income (loss) to adjusted
EBITDA, a non-GAAP measure, is provided in the financial tables that
accompany this release.
-- As of September 30, 2017, the Company had $59.1 million in unrestricted
cash, cash equivalents and short-term investments, compared to $62.5
million as of June 30, 2017.
Business Outlook
For the fourth quarter of 2017, RealNetworks expects to achieve the following results:
-- Total revenue is expected to be in the range of $29 million to $31
million.
-- Adjusted EBITDA loss is expected to be in the range of $(2.0) million to
$(4.0) million.
Included in our guidance for the fourth quarter of 2017 is revenue from our music on demand customer in Korea. The nature of our relationship with this customer has evolved over time. Over the course of the relationship, profitability has declined meaningfully and currently delivers less than 3% gross margin on contracted revenues. The contract is set to expire at the end of 2017 and we do not anticipate renewal.
Revenue attributable to this contract was $11.4 million and $33.8 million for the three and nine months ended September 30, 2017, respectively. For the three and nine months ended September 30, 2017, gross profit attributable to this contract was $250 thousand and $900 thousand, respectively.
If the contract is not renewed, for periods after 2017, we would expect minimal impact to our consolidated gross profit, despite a material decline in consolidated revenue.
Conference Call and Webcast Information
The company will host a conference call today to review results and discuss the company's performance shortly after 4:30 p.m. ET/1:30 p.m. PT. You may join the conference call by calling 1-877-451-6152 or 1-201-389-0879. 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 22, 2017, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13671750.
A live webcast will be available on RealNetworks' Investor Relations site under Events at http://investor.realnetworks.com and will be archived online upon completion of the conference call.
For More Information
Investor Relations for RealNetworks
Laura Bainbridge, Addo IR
310-829-5400
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 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. Find RealNetworks' corporate information at www.realnetworks.com.
RealNetworks® and the company's respective logos are trademarks, registered trademarks, or service marks of RealNetworks, Inc. Other products and company names mentioned are the 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, gross profit 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)
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except per share data)
Net revenue $30,002 $31,051 $93,689 $89,015
Cost of revenue 16,534 16,740 51,117 47,610
Gross profit 13,468 14,311 42,572 41,405
------ ------ ------ ------
Operating expenses:
Research and development 7,152 6,699 22,085 23,185
Sales and marketing 4,883 7,183 17,534 24,157
General and administrative 5,081 7,086 15,638 21,380
Restructuring and other
charges 557 499 2,271 1,297
Lease exit and related
charges - 1,233 - 2,191
--- ----- --- -----
Total operating expenses 17,673 22,700 57,528 72,210
------ ------ ------ ------
Operating income (loss) (4,205) (8,389) (14,956) (30,805)
------ ------ ------- -------
Other income (expenses):
Interest income, net 116 119 353 316
Gain (loss) on investments,
net - 6,021 - 5,978
Equity in net loss of
Rhapsody - (233) (1,097) (629)
Other income (expense), net (50) (243) (288) (515)
--- ---- ---- ----
Total other income (expense),
net 66 5,664 (1,032) 5,150
--- ----- ------ -----
Income (loss) before income
taxes (4,139) (2,725) (15,988) (25,655)
Income tax expense (benefit) 195 331 1,156 919
--- --- ----- ---
Net income (loss) $(4,334) $(3,056) $(17,144) $(26,574)
======= ======= ======== ========
Basic net income (loss) per
share $(0.12) $(0.08) $(0.46) $(0.72)
Diluted net income (loss) per
share $(0.12) $(0.08) $(0.46) $(0.72)
Shares used to compute basic
net income (loss) per share 37,200 36,805 37,112 36,693
Shares used to compute
diluted net income (loss)
per share 37,200 36,805 37,112 36,693
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2017 2016
---- ----
(in thousands)
ASSETS
Current assets:
Cash and
cash
equivalents $45,597 $33,721
Short-
term
investments 13,482 43,331
Trade
accounts
receivable,
net 26,651 22,162
Deferred
costs,
current
portion 508 760
Prepaid
expenses
and
other
current
assets 4,558 4,910
----- -----
Total
current
assets 90,796 104,884
------ -------
Equipment
and
software 45,557 46,231
Leasehold
improvements 3,464 3,317
----- -----
Total
equipment,
software,
and
leasehold
improvements 49,021 49,548
Less
accumulated
depreciation
and
amortization 44,962 44,294
------ ------
Net
equipment,
software,
and
leasehold
improvements 4,059 5,254
Restricted
cash
equivalents
and
investments 2,400 2,700
Other
assets 2,177 1,742
Deferred
costs,
non-
current
portion 1,010 1,246
Deferred
tax
assets,
net 871 816
Other
intangible
assets,
net 429 938
Goodwill 13,042 12,857
------ ------
Total
assets $114,784 $130,437
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts
payable $18,560 $18,225
Accrued
and
other
current
liabilities 12,933 15,425
Commitment
to
Rhapsody - 1,500
Deferred
revenue,
current
portion 3,008 3,430
----- -----
Total
current
liabilities 34,501 38,580
Deferred
revenue,
non-
current
portion 553 240
Deferred
rent 798 748
Deferred
tax
liabilities,
net 98 87
Other
long-
term
liabilities 1,651 2,201
----- -----
Total
liabilities 37,601 41,856
------ ------
Shareholders'
equity 77,183 88,581
------ ------
Total
liabilities
and
shareholders'
equity $114,784 $130,437
======== ========
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2017 2016
---- ----
(in thousands)
Cash flows from operating activities:
Net income (loss) $(17,144) $(26,574)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and
amortization 2,402 5,897
Stock-based compensation 3,045 4,557
Equity in net loss of
Rhapsody 1,097 629
Deferred income taxes,
net (55) (198)
Loss (gain) on
investments, net - (5,978)
Realized translation loss
(gain) - 272
Fair value of warrants
granted in 2015 and
2017, net of subsequent
mark to market
adjustments in 2017 and
2016 (367) 112
Net change in certain
operating assets and
liabilities (6,521) (1,011)
------
Net cash provided by
(used in) operating
activities (17,543) (22,294)
------- -------
Cash flows from investing activities:
Purchases of equipment,
software, and leasehold
improvements (541) (2,009)
Proceeds from sale of
equity and other
investments - 2,110
Purchases of short-term
investments (13,905) (59,124)
Proceeds from sales and
maturities of short-
term investments 43,754 68,473
Decrease (increase) in
restricted cash
equivalents and
investments, net 300 190
Acquisitions - (150)
Advance to Rhapsody (1,500) -
Proceeds from the sale of
Slingo and social casino
business - 4,000
Net cash provided by
(used in) investing
activities 28,108 13,490
------ ------
Cash flows from financing activities:
Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 130 166
Tax payments from shares
withheld upon vesting of
restricted stock (338) (843)
Net cash provided by
(used in) financing
activities (208) (677)
---- ----
Effect of exchange rate
changes on cash and cash
equivalents 1,519 450
----- ---
Net increase (decrease)
in cash and cash
equivalents 11,876 (9,031)
Cash and cash
equivalents, beginning
of year 33,721 47,315
------ ------
Cash and cash
equivalents, end of year $45,597 $38,284
======= =======
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2017 2016
----
Q3 Q2 Q1 Q4 Q3 Q2 Q1
--- --- --- --- --- --- ---
(in thousands)
Net Revenue by Line of
Business
Consumer Media (A) $4,197 $6,951 $5,669 $6,443 $6,482 $6,400 $5,726
Mobile Services (B) 19,123 19,227 19,084 18,833 17,683 17,297 16,465
Games (C) 6,682 6,934 5,823 6,177 6,886 6,037 6,039
Total net revenue $30,002 $33,112 $30,576 $31,453 $31,051 $29,734 $28,230
======= ======= ======= ======= ======= ======= =======
Net Revenue by Product
Consumer Media
--------------
- License (D) $2,334 $5,002 $3,672 $4,252 $4,136 $3,914 $3,104
- Subscriptions (E) 1,434 1,531 1,564 1,671 1,931 1,871 1,975
- Media Properties (F) 429 418 433 520 415 615 647
Mobile Services
---------------
- SaaS (G) 19,000 19,146 18,987 18,726 17,141 17,208 16,220
-Technology License &
Other (H) 123 81 97 107 542 89 245
Games
-----
- License (I) 3,851 4,007 2,862 3,178 3,683 2,793 2,761
- Subscriptions (J) 2,708 2,781 2,828 2,836 3,005 3,024 3,029
- Media Properties (K) 123 146 133 163 198 220 249
--- --- --- --- --- --- ---
Total net revenue $30,002 $33,112 $30,576 $31,453 $31,051 $29,734 $28,230
======= ======= ======= ======= ======= ======= =======
Net Revenue by Geography
United States $10,084 $10,889 $9,740 $10,125 $10,642 $10,355 $10,383
Rest of world 19,918 22,223 20,836 21,328 20,409 19,379 17,847
------ ------ ------ ------ ------ ------ ------
Total net revenue $30,002 $33,112 $30,576 $31,453 $31,051 $29,734 $28,230
======= ======= ======= ======= ======= ======= =======
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 mobile games, sales
of games licenses, online games
subscription services, advertising on
games sites and social network sites, and
microtransactions from online 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 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)
2017 2016 2017 2016
---- ---- ---- ----
Q3 Q2 Q3 YTD YTD
--- --- --- --- ---
(in thousands)
Consumer Media
--------------
Net revenue $4,197 $6,951 $6,482 $16,817 $18,608
Cost of revenue 981 1,159 1,507 3,545 5,485
Gross profit 3,216 5,792 4,975 13,272 13,123
Gross margin 77% 83% 77% 79% 71%
Operating expenses 3,217 3,730 4,271 10,957 13,940
Operating income
(loss), a GAAP
measure $(1) $2,062 $704 $2,315 $(817)
Depreciation and
amortization 42 159 295 368 1,973
--- ---
Contribution margin,
a non-GAAP measure $41 $2,221 $999 $2,683 $1,156
--- ------ ---- ------ ------
Mobile Services
---------------
Net revenue $19,123 $19,227 $17,683 $57,434 $51,445
Cost of revenue 13,325 13,429 13,026 40,668 36,347
Gross profit 5,798 5,798 4,657 16,766 15,098
Gross margin 30% 30% 26% 29% 29%
Operating expenses 6,437 6,705 8,075 21,261 26,653
Operating income
(loss), a GAAP
measure $(639) $(907) $(3,418) $(4,495) $(11,555)
Acquisitions related
intangible asset
amortization 88 201 208 485 725
Depreciation and
amortization 180 175 403 558 1,433
--- --- --- --- -----
Contribution margin,
a non-GAAP measure $(371) $(531) $(2,807) $(3,452) $(9,397)
----- ----- ------- ------- -------
Games
-----
Net revenue $6,682 $6,934 $6,886 $19,439 $18,962
Cost of revenue 2,226 2,679 2,203 6,842 5,865
Gross profit 4,456 4,255 4,683 12,597 13,097
Gross margin 67% 61% 68% 65% 69%
Operating expenses 5,071 5,090 4,649 15,108 14,669
Operating income
(loss), a GAAP
measure $(615) $(835) $34 $(2,511) $(1,572)
Acquisitions related
intangible asset
amortization 27 25 29 79 88
Depreciation and
amortization 169 157 104 467 437
--- --- --- --- ---
Contribution margin,
a non-GAAP measure $(419) $(653) $167 $(1,965) $(1,047)
----- ----- ---- ------- -------
Corporate
---------
Cost of revenue $2 $23 $4 $62 $(87)
Gross profit (2) (23) (4) (62) 87
Gross margin N/A N/A N/A N/A N/A
Operating expenses 2,948 2,959 5,705 10,202 16,948
Operating income
(loss), a GAAP
measure $(2,950) $(2,982) $(5,709) $(10,264) $(16,861)
Other income
(expense), net (50) (13) (243) (289) (515)
Depreciation and
amortization 139 119 634 445 1,241
Restructuring and
other charges 557 150 499 2,271 1,297
Stock-based
compensation 748 863 778 3,045 4,557
Lease exit and related charges - 1,233 - 2,191
--- ----- --- -----
Contribution margin,
a non-GAAP measure $(1,556) $(1,863) $(2,808) $(4,792) $(8,090)
------- ------- ------- ------- -------
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) to adjusted EBITDA, a non-GAAP measure
(Unaudited)
2017 2016 2017 2016
---- ---- ----
Q3 Q2 Q3 YTD YTD
--- --- --- --- ---
(in thousands)
Reconciliation of GAAP Net income (loss) to adjusted EBITDA:
Net income (loss) $(4,334) $(3,386) $(3,056) $(17,144) $(26,574)
Income tax expense (benefit) 195 471 331 1,156 919
Interest income, net (116) (109) (119) (353) (316)
Gain (loss) on investments,
net - - (6,021) - (5,978)
Equity in net loss of
Rhapsody - 349 233 1,097 629
Acquisitions related
intangible asset
amortization 115 226 237 564 813
Depreciation and amortization 530 610 1,436 1,838 5,084
Restructuring and other
charges 557 150 499 2,271 1,297
Stock-based compensation 748 863 778 3,045 4,557
Lease exit and related
charges - - 1,233 - 2,191
Adjusted EBITDA, a non-GAAP
measure $(2,305) $(826) $(4,449) $(7,526) $(17,378)
------- ----- ------- ------- --------
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SOURCE RealNetworks, Inc.
