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RealNetworks Announces Third Quarter 2018 Results
[November 07, 2018]

RealNetworks Announces Third Quarter 2018 Results


SEATTLE, Nov. 7, 2018 /PRNewswire/ --

  • Revenue of $17.6 million compared to $15.7 million in the prior quarter and $18.6 million in the prior year period
  • Significant progress with roll-out of our SAFR facial recognition platform through two new partnerships with systems integrators
  • Launched Scener, an innovative social platform that synchronizes premium streaming shows with commentary videos

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the third quarter ended September 30, 2018.

Management Commentary

"We are encouraged by our performance in the third quarter, which marked a return to sequential revenue growth," said Rob Glaser, Chairman and Chief Executive Officer of RealNetworks. "We are very excited by the market's initial reaction to our SAFR facial recognition platform, which we announced on July 17th.  We have already signed partnerships with two major systems integrators: Net One Partners in Japan and Seventh in Brazil, with more on the way.  We also launched Scener in the third quarter. Scener is a new product and business that was incubated inside of RealNetworks to redefine the over-the-top video experience by integrating synchronized commentary directly with OTT video."

Third Quarter 2018 Financial Highlights from Continuing Operations

  • Revenue was $17.6 million compared to $15.7 million in the prior quarter and $18.6 million in the prior year period.
  • Gross margin from continuing operations was 76%, up from 71% in the prior quarter and 71% in the prior year period.
  • Operating expenses increased $0.3 million, or 1.9%, from the prior quarter and increased $0.6 million, or 3.4%, from the prior year period.
  • Net loss was $(6.0) million, or $(0.16) per share, compared to net loss of $(6.9) million, or $(0.18) per share, in the prior quarter and a net loss of $(4.5) million, or $(0.12) per share, in the prior year period.
  • Adjusted EBITDA was a loss of $(3.4) million compared to a loss of $(5.7) million in the prior quarter and a loss of $(2.6) million in the prior year period. A reconciliation of GAAP net income (loss) to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.
  • At September 30, 2018, the Company had $39.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $42.1 million at June 30, 2018.

Business Outlook

For the fourth quarter of 2018, RealNetworks expects to achieve the following results:

  • Total revenue is expected to be in the range of $17.5 million to $19.5 million
  • Adjusted EBITDA loss is expected to be in the range of $(2.0) million to $(4.0) million.

New Revenue Recognition Accounting Standard

As of January 1, 2018, we adopted Accounting Standards Codification 606 (Topic 606), Revenue from Contracts with Customers, which affects the accounting for our revenue. We adopted Topic 606 using the modified retrospective transition method, under which the prior periods presented have not been recast to reflect adoption of the new standard.

For additional details on the impact of the standard, see our Annual Report on Form 10-K for the year ended December 31, 2017, and our 2018 Quarterly Reports on Form 10-Q.

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 (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, November 28, 2018, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13683626.

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 technology products 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) from continuing operations 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 d/b/a Napster 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
September 30,


Nine Months Ended
September 30,






2018


2017


2018


2017



 (in thousands, except per share data)










 Net revenue


$

17,579



$

18,557



$

52,953



$

59,853


 Cost of revenue


4,239



5,343



14,000



18,199


           Gross profit


13,340



13,214



38,953



41,654











 Operating expenses:









       Research and development


8,052



7,152



23,398



22,085


       Sales and marketing


4,998



4,883



15,878



17,534


       General and administrative


4,586



5,081



15,526



15,638


       Restructuring and other charges


632



557



1,320



2,271


       Lease exit and related benefit






(454)













           Total operating expenses


18,268



17,673



55,668



57,528











 Operating loss


(4,928)



(4,459)



(16,715)



(15,874)











 Other income (expenses):









       Interest income, net


72



116



270



353


       Equity in net loss of Napster


(737)





(737)



(1,097)


       Other income (expense), net


(112)



(50)



(195)



(289)











           Total other income (expense), net


(777)



66



(662)



(1,033)











 Loss from continuing operations before income taxes


(5,705)



(4,393)



(17,377)



(16,907)


 Income tax expense


272



139



708



954











Loss from continuing operations


(5,977)



(4,532)



(18,085)



(17,861)


Net income from discontinued operations, net of tax




198





717


 Net loss


$

(5,977)



$

(4,334)



$

(18,085)



$

(17,144)











Net income (loss) per share - Basic:









Continuing operations


$

(0.16)



$

(0.12)



$

(0.48)



$

(0.48)


Discontinued operations








0.02


Net loss per share - Basic


$

(0.16)



$

(0.12)



$

(0.48)



$

(0.46)


Net income (loss) per share - Diluted:









Continuing operations


$

(0.16)



$

(0.12)



$

(0.48)



$

(0.48)


Discontinued operations








0.02


Net loss per share - Diluted


$

(0.16)



$

(0.12)



$

(0.48)



$

(0.46)











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


37,618



37,200



37,549



37,112


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


37,618



37,200



37,549



37,112



 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



September 30,
 2018


December 31,
 2017


 (in thousands)

ASSETS

 Current assets:




 Cash and cash equivalents

$

37,964



$

51,196


 Short-term investments

1,172



8,779


 Trade accounts receivable, net

13,090



12,689


 Deferred costs, current portion

365



426


 Prepaid expenses and other current assets

4,719



3,715


Current assets of discontinued operations



17,456


 Total current assets

57,310



94,261






 Equipment and software

40,016



46,417


 Leasehold improvements

3,431



3,536


 Total equipment, software, and leasehold improvements

43,447



49,953


 Less accumulated depreciation and amortization

40,531



46,093


 Net equipment, software, and leasehold improvements

2,916



3,860






 Restricted cash equivalents

1,630



2,400


 Other assets

5,723



5,588


 Deferred costs, non-current portion

593



955


 Deferred tax assets, net

1,019



1,047


 Other intangible assets, net

120



325


 Goodwill

17,060



13,060






 Total assets

$

86,371



$

121,496






 LIABILITIES AND SHAREHOLDERS' EQUITY





 Current liabilities:




 Accounts payable

$

3,914



$

3,785


 Accrued and other current liabilities

11,916



12,365


 Commitment to Napster

2,750



2,750


 Deferred revenue, current portion

1,969



3,097


Current liabilities of discontinued operations



17,107


 Total current liabilities

20,549



39,104






 Deferred revenue, non-current portion

312



443


 Deferred rent

953



982


 Deferred tax liabilities, net

170



19


 Other long-term liabilities

1,082



1,775






 Total liabilities

23,066



42,323










 Shareholders' equity

63,305



79,173






 Total liabilities and shareholders' equity

$

86,371



$

121,496


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Nine Months Ended
September 30,


2018


2017


 (in thousands)


 Cash flows from operating activities:




 Net loss

$

(18,085)



$

(17,144)


 Adjustments to reconcile net loss to net cash used in operating activities:

  Depreciation and amortization

1,738



2,402


  Stock-based compensation

2,113



3,045


  Equity in net loss of Napster

737



1,097


  Deferred income taxes, net

5



(55)


  Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2018 and 2017

78



(367)


  Net change in certain operating assets and liabilities

(2,214)



(6,521)


    Net cash used in operating activities

(15,628)



(17,543)


 Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(698)



(541)


  Purchases of short-term investments



(13,905)


  Proceeds from sales and maturities of short-term investments

7,607



43,754


  Acquisition, net of cash acquired

(4,192)




  Advance to Napster



(1,500)


   Net cash provided by investing activities

2,717



27,808


 Cash flows from financing activities:




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

114



130


Tax payments from shares withheld upon vesting of restricted stock

(243)



(338)


 Net cash used in financing activities

(129)



(208)


 Effect of exchange rate changes on cash, cash equivalents and restricted cash

(962)



1,519


 Net increase (decrease) in cash, cash equivalents and restricted cash

(14,002)



11,576


 Cash, cash equivalents and restricted cash, beginning of period

53,596



36,421


 Cash, cash equivalents and restricted cash, end of period

$

39,594



$

47,997


 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)



2018


2017


 Q3


 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business














Consumer Media (A)

$

4,733



$

3,884



$

5,483



$

5,752



$

4,197



$

6,951



$

5,669


Mobile Services (B)

7,348



6,719



8,704



7,155



7,678



7,720



8,199


Games (C)

5,498



5,121



5,463



5,958



6,682



6,934



5,823


     Total net revenue

$

17,579



$

15,724



$

19,650



$

18,865



$

18,557



$

21,605



$

19,691
















Net Revenue by Product














Consumer Media














- Software License (D)

$

2,746



$

1,808



$

3,337



$

3,595



$

2,012



$

4,741



$

3,295


- Subscription Services (E)

1,232



1,225



1,285



1,362



1,434



1,531



1,564


- Product Sales (F)

281



299



340



350



322



261



377


- Advertising & Other (G)

474



552



521



445



429



418



433
















Mobile Services














- Software License (H)

520



469



1,335



388



688



642



619


- Subscription Services (I)

6,828



6,250



7,369



6,767



6,990



7,078



7,580
















Games














- Subscription Services (J)

2,745



2,689



2,693



2,707



2,708



2,781



2,828


- Product Sales (K)

2,279



1,953



2,402



3,086



3,851



4,007



2,862


- Advertising & Other (L)

474



479



368



165



123



146



133
















     Total net revenue

$

17,579



$

15,724



$

19,650



$

18,865



$

18,557



$

21,605



$

19,691
















Net Revenue by Geography














United States

$

9,026



$

7,646



$

11,434



$

10,120



$

10,084



$

10,889



$

9,740


Rest of world

8,553



8,078



8,216



8,745



8,473



10,716



9,951


     Total net revenue

$

17,579



$

15,724



$

19,650



$

18,865



$

18,557



$

21,605



$

19,691

















Net Revenue by Line of Business

(A) The Consumer Media division 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 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 and PC games, online games subscription services, and advertising on games sites and social network sites.



Net Revenue by Product

(D) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies.

(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.

(F) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers.

(G) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.

(H) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform.

(I) Subscription services revenue within Mobile Services includes revenue from ringback tones and our intercarrier messaging services, as well as from related professional services provided to mobile carriers.

(J) Subscription services revenue within Games includes revenue from online games subscriptions.

(K) Product sales revenue within Games includes revenue from retail and wholesale games-related revenue and sales of mobile games.

(L) Advertising & other 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)




2018


2017


2018


2017



Q3


Q2


Q3


YTD


YTD



 (in thousands)

Consumer Media






















Net revenue


$

4,733



$

3,884



$

4,197



$

14,100



$

16,817


Cost of revenue


955



1,028



981



2,976



3,545


   Gross profit


3,778



2,856



3,216



11,124



13,272













   Gross margin


80

%


74

%


77

%


79

%


79

%












Operating expenses


3,448



3,439



3,217



10,805



10,957


Operating income (loss), a GAAP measure


$

330



$

(583)



$

(1)



$

319



$

2,315


Depreciation and amortization


49



51



42



146



368













  Contribution margin, a non-GAAP measure


$

379



$

(532)



$

41



$

465



$

2,683













Mobile Services






















Net revenue


$

7,348



$

6,719



$

7,678



$

22,771



$

23,597


Cost of revenue


2,052



2,134



2,134



6,502



7,750


   Gross profit


5,296



4,585



5,544



16,269



15,847













   Gross margin


72

%


68

%


72

%


71

%


67

%












Operating expenses


6,825



6,969



6,437



21,160



21,261


Operating income (loss), a GAAP measure


$

(1,529)



$

(2,384)



$

(893)



$

(4,891)



$

(5,414)


Acquisitions related intangible asset amortization


70



91



88



253



485


Depreciation and amortization


165



155



180



500



558













Contribution margin, a non-GAAP measure


$

(1,294)



$

(2,138)



$

(625)



$

(4,138)



$

(4,371)













Games






















Net revenue


$

5,498



$

5,121



$

6,682



$

16,082



$

19,439


Cost of revenue


1,228



1,456



2,226



4,501



6,842


   Gross profit


4,270



3,665



4,456



11,581



12,597













   Gross margin


78

%


72

%


67

%


72

%


65

%












Operating expenses


5,447



5,095



5,071



15,459



15,108


Operating income (loss), a GAAP measure


$

(1,177)



$

(1,430)



$

(615)



$

(3,878)



$

(2,511)


Acquisitions related intangible asset amortization


23



20



27



43



79


Depreciation and amortization


91



146



169



402



467













   Contribution margin, a non-GAAP measure


$

(1,063)



$

(1,264)



$

(419)



$

(3,433)



$

(1,965)













Corporate






















Cost of revenue


$

4



$

7



$

2



$

21



$

62


   Gross profit


(4)



(7)



(2)



(21)



(62)













   Gross margin


N/A


N/A


N/A


N/A


N/A












Operating expenses


2,548



2,429



2,948



8,244



10,202


Operating income (loss), a GAAP measure


$

(2,552)



$

(2,436)



$

(2,950)



$

(8,265)



$

(10,264)


Other income (expense), net


(112)



(42)



(50)



(195)



(289)


Depreciation and amortization


109



148



139



394



445


Restructuring and other charges


632



187



557



1,320



2,271


Stock-based compensation


499



457



748



2,113



3,045


Lease exit and related benefit




(129)





(454)















   Contribution margin, a non-GAAP measure


$

(1,424)



$

(1,815)



$

(1,556)



$

(5,087)



$

(4,792)













 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)




2018


2017


2018


2017



 Q3


 Q2


 Q3


 YTD


 YTD





(in thousands)












Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:


















Net income (loss) from continuing operations


$

(5,977)



$

(6,930)



$

(4,532)



$

(18,085)



$

(17,861)


Income tax expense (benefit)


272



166



139



708



954


Interest income, net


(72)



(111)



(116)



(270)



(353)


Equity in net loss of Napster


737







737



1,097


Acquisitions related intangible asset amortization


93



111



115



296



564


Depreciation and amortization


414



500



530



1,442



1,838


Restructuring and other charges


632



187



557



1,320



2,271


Stock-based compensation


499



457



748



2,113



3,045


Lease exit and related benefit




(129)





(454)




   Adjusted EBITDA, a non-GAAP measure


$

(3,402)



$

(5,749)



$

(2,559)



$

(12,193)



$

(8,445)


 

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Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/realnetworks-announces-third-quarter-2018-results-300745986.html

SOURCE RealNetworks, Inc.


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