SEATTLE, Aug. 3, 2017 /PRNewswire/ --
-- Revenue of $33.1 million grew 11% year-over-year and 8% sequentially -- Reduced year-over-year operating expenses by $3.2 million -- Continued investments in key growth initiatives
RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the second quarter ended June 30, 2017.
Management Commentary
"We are pleased with our second quarter results, which saw solid performance in all three of our divisions," said Rob Glaser, Chairman and CEO of RealNetworks. "We also made good progress in lowering our cost structure and realigning our resources to support a few key growth initiatives. We believe these growth initiatives, the first of which will come to market later this year, will deliver meaningful revenue contributions in 2018 and beyond."
Second Quarter 2017 Financial Highlights
-- Revenue was $33.1 million, up from $30.6 million in the prior quarter and up from $29.7 million in the second quarter of 2016. -- Operating expenses declined by $2.9 million, or 14%, from the prior quarter and by $3.2 million, or 15%, from the same period in 2016. -- Net loss was $(3.4) million or $(0.09) per share, compared to $(9.4) million or $(0.25) per share in the prior quarter and $(8.3) million or $(0.23) per share in the second quarter of 2016. -- Adjusted EBITDA was a loss of $(0.8) million, compared to a loss of $(4.4) million in the prior quarter and $(4.8) million in the second 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 June 30, 2017, the Company had $62.5 million in unrestricted cash, cash equivalents and short-term investments, compared to $66.3 million as of March 31, 2017.
Business Outlook
For the third 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.
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 888-831-6080 or +1-210-234-0017 (Passcode: 2ND QUARTER). 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 24, 2017 by calling 800-388-4923 or +1-203-369-3800 (Passcode: 832017).
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 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) Quarter Ended Six Months Ended June 30, June 30, -------- -------- 2017 2016 2017 2016 ---- ---- ---- ---- (in thousands, except per share data) Net revenue $33,112 $29,734 $63,687 $57,964 Cost of revenue 17,290 15,698 34,583 30,870 Gross profit 15,822 14,036 29,104 27,094 ------ ------ ------ ------ Operating expenses: Research and development 7,584 7,167 14,933 16,486 Sales and marketing 5,496 7,749 12,651 16,974 General and administrative 5,254 6,217 10,557 14,294 Restructuring and other charges 150 413 1,714 798 Lease exit and related charges - 127 - 958 --- --- --- --- Total operating expenses 18,484 21,673 39,855 49,510 ------ ------ ------ ------ Operating income (loss) (2,662) (7,637) (10,751) (22,416) ------ ------ ------- ------- Other income (expenses): Interest income, net 109 80 237 197 Gain (loss) on investments, net - (46) - (43) Equity in net loss of Rhapsody (349) (396) (1,097) (396) Other income (expense), net (13) 15 (238) (272) --- --- ---- ---- Total other income (expense), net (253) (347) (1,098) (514) ---- ---- ------ ---- Income (loss) before income taxes (2,915) (7,984) (11,849) (22,930) Income tax expense (benefit) 471 363 961 588 --- --- --- --- Net income (loss) $(3,386) $(8,347) $(12,810) $(23,518) ======= ======= ======== ======== Basic net income (loss) per share $(0.09) $(0.23) $(0.35) $(0.64) Diluted net income (loss) per share $(0.09) $(0.23) $(0.35) $(0.64) Shares used to compute basic net income (loss) per share 37,103 36,755 37,067 36,637 Shares used to compute diluted net income (loss) per share 37,103 36,755 37,067 36,637
RealNetworks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) June 30, December 31, 2017 2016 ---- ---- (in thousands) ASSETS Current assets: Cash and cash equivalents $37,855 $33,721 Short-term investments 24,619 43,331 Trade accounts receivable, net 27,354 22,162 Deferred costs, current portion 525 760 Prepaid expenses and other current assets 4,798 4,910 ----- ----- Total current assets 95,151 104,884 ------ ------- Equipment and software 45,259 46,231 Leasehold improvements 3,405 3,317 ----- ----- Total equipment, software, and leasehold improvements 48,664 49,548 Less accumulated depreciation and amortization 44,262 44,294 ------ ------ Net equipment, software, and leasehold improvements 4,402 5,254 Restricted cash equivalents and investments 2,700 2,700 Other assets 2,277 1,742 Deferred costs, non- current portion 1,020 1,246 Deferred tax assets, net 857 816 Other intangible assets, net 527 938 Goodwill 12,985 12,857 ------ ------ Total assets $119,919 $130,437 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $18,603 $18,225 Accrued and other current liabilities 14,133 15,425 Commitment to Rhapsody - 1,500 Deferred revenue, current portion 3,560 3,430 ----- ----- Total current liabilities 36,296 38,580 Deferred revenue, non- current portion 710 240 Deferred rent 702 748 Deferred tax liabilities, net 87 87 Other long- term liabilities 1,771 2,201 ----- ----- Total liabilities 39,566 41,856 ------ ------ Shareholders' equity 80,353 88,581 ------ ------ Total liabilities and shareholders' equity $119,919 $130,437 ======== ========
RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, -------- 2017 2016 ---- ---- (in thousands) Cash flows from operating activities: (23,518) Net income (loss) $(12,810) $ Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,757 4,224 Stock-based compensation 2,297 3,779 Equity in net loss of Rhapsody 1,097 396 Deferred income taxes, net (40) (148) Loss (gain) on investments, net - 43 Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016 (417) 82 Net change in certain operating assets and liabilities (5,830) (3,209) ------ Net cash provided by (used in) operating activities (13,946) (18,351) ------- ------- Cash flows from investing activities: Purchases of equipment, software, and leasehold improvements (417) (1,512) Purchases of short-term investments (13,905) (33,359) Proceeds from sales and maturities of short-term investments 32,617 42,517 Decrease (increase) in restricted cash equivalents and investments, net - (110) Acquisitions - (150) Advance to Rhapsody (1,500) - Net cash provided by (used in) investing activities 16,795 7,386 ------ ----- 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 (192) (808) Net cash provided by (used in) financing activities (62) (642) --- ---- Effect of exchange rate changes on cash and cash equivalents 1,347 425 ----- --- Net increase (decrease) in cash and cash equivalents 4,134 (11,182) Cash and cash equivalents, beginning of year 33,721 47,315 ------ ------ 36,133 Cash and cash equivalents, end of year $37,855 $ ======= ===
RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited) 2017 2016 Q2 Q1 Q4 Q3 Q2 Q1 --- --- --- --- --- --- (in thousands) Net Revenue by Line of Business Consumer Media (A) $6,951 $5,669 $6,443 $6,482 $6,400 $5,726 Mobile Services (B) 19,227 19,084 18,833 17,683 17,297 16,465 Games (C) 6,934 5,823 6,177 6,886 6,037 6,039 Total net revenue $33,112 $30,576 $31,453 $31,051 $29,734 $28,230 ======= ======= ======= ======= ======= ======= Net Revenue by Product Consumer Media -------------- - License (D) $5,002 $3,672 $4,252 $4,136 $3,914 $3,104 - Subscriptions (E) 1,531 1,564 1,671 1,931 1,871 1,975 - Media Properties (F) 418 433 520 415 615 647 Mobile Services --------------- - SaaS (G) 19,146 18,987 18,726 17,141 17,208 16,220 -Technology License & Other (H) 81 97 107 542 89 245 Games ----- - License (I) 4,007 2,862 3,178 3,683 2,793 2,761 - Subscriptions (J) 2,781 2,828 2,836 3,005 3,024 3,029 - Media Properties (K) 146 133 163 198 220 249 --- --- --- --- --- --- Total net revenue $33,112 $30,576 $31,453 $31,051 $29,734 $28,230 ======= ======= ======= ======= ======= ======= Net Revenue by Geography United States $10,889 $9,740 $10,125 $10,642 $10,355 $10,383 Rest of world 22,223 20,836 21,328 20,409 19,379 17,847 ------ ------ ------ ------ ------ ------ Total net revenue $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 ---- ---- ---- ---- Q2 Q1 Q2 YTD YTD --- --- --- --- --- (in thousands) Consumer Media -------------- Net revenue $6,951 $5,669 $6,400 $12,620 $12,126 Cost of revenue 1,159 1,405 1,561 2,564 3,978 Gross profit 5,792 4,264 4,839 10,056 8,148 Gross margin 83% 75% 76% 80% 67% Operating expenses 3,730 4,010 4,293 7,740 9,669 ----- Operating income (loss), a GAAP measure $2,062 $254 $546 $2,316 $(1,521) Depreciation and amortization 159 167 375 326 1,678 Contribution margin, a non- GAAP measure $2,221 $421 $921 $2,642 $157 ------ ---- ---- ------ ---- Mobile Services --------------- Net revenue $19,227 $19,084 $17,297 $38,311 $33,762 Cost of revenue 13,429 13,914 12,404 27,343 23,321 Gross profit 5,798 5,170 4,893 10,968 10,441 Gross margin 30% 27% 28% 29% 31% Operating expenses 6,705 8,119 8,784 14,824 18,578 ------ Operating income (loss), a GAAP measure $(907) $(2,949) $(3,891) $(3,856) $(8,137) Acquisitions related intangible asset amortization 201 196 209 397 517 Depreciation and amortization 175 203 608 378 1,030 --- --- --- --- ----- Contribution margin, a non- GAAP measure $(531) $(2,550) $(3,074) $(3,081) $(6,590) ----- ------- ------- ------- ------- Games ----- Net revenue $6,934 $5,823 $6,037 $12,757 $12,076 Cost of revenue 2,679 1,937 1,817 4,616 3,662 Gross profit 4,255 3,886 4,220 8,141 8,414 Gross margin 61% 67% 70% 64% 70% Operating expenses 5,090 4,947 4,725 10,037 10,020 ------ Operating income (loss), a GAAP measure $(835) $(1,061) $(505) $(1,896) $(1,606) Acquisitions related intangible asset amortization 25 27 34 52 59 Depreciation and amortization 157 141 154 298 333 --- --- --- --- --- Contribution margin, a non- GAAP measure $(653) $(893) $(317) $(1,546) $(1,214) ----- ----- ----- ------- ------- Corporate --------- Cost of revenue $23 $37 $(84) $60 $(91) Gross profit (23) (37) 84 (60) 91 Gross margin N/A N/A N/A N/A N/A Operating expenses 2,959 4,295 3,871 7,254 11,243 Operating income (loss), a GAAP measure $(2,982) $(4,332) $(3,787) $(7,314) $(11,152) Other income (expense), net (13) (226) 15 (239) (272) Depreciation and amortization 119 187 246 306 607 Restructuring and other charges 150 1,564 413 1,714 798 Stock-based compensation 863 1,434 608 2,297 3,779 Lease exit and related charges - - 127 - 958 --- --- --- --- --- Contribution margin, a non- GAAP measure $(1,863) $(1,373) $(2,378) $(3,236) $(5,282) ------- ------- ------- ------- -------
RealNetworks, Inc. and Subsidiaries Reconciliation of Net income (loss) to adjusted EBITDA, a non-GAAP measure (Unaudited) 2017 2016 2017 2016 Q2 Q1 Q2 YTD YTD --- --- --- --- --- (in thousands) Reconciliation of GAAP Net income (loss) to adjusted EBITDA: Net income (loss) $(3,386) $(9,424) $(8,347) $(12,810) $(23,518) Income tax expense (benefit) 471 490 363 961 588 Interest income, net (109) (128) (80) (237) (197) Gain (loss) on investments, net - - 46 - 43 Equity in net loss of Rhapsody 349 748 396 1,097 396 Acquisitions related intangible asset amortization 226 223 243 449 576 Depreciation and amortization 610 698 1,383 1,308 3,648 Restructuring and other charges 150 1,564 413 1,714 798 Stock-based compensation 863 1,434 608 2,297 3,779 Lease exit and related charges - - 127 - 958 Adjusted EBITDA, a non-GAAP measure $(826) $(4,395) $(4,848) $(5,221) $(12,929) ----- ------- ------- ------- --------
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