RealNetworks Announces First Quarter 2016 Results

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Quarters Ended
March 31,

2016

2015

 (in thousands, except per share data)

 Net revenue

$

28,230

$

30,597

 Cost of revenue

15,172

16,547

           Gross profit

13,058

14,050

 Operating expenses:

       Research and development

9,319

12,379

       Sales and marketing

9,225

12,837

       General and administrative

8,077

7,283

       Restructuring and other charges

385

485

       Lease exit and related charges

831

78

           Total operating expenses

27,837

33,062

 Operating income (loss)

(14,779)

(19,012)

 Other income (expenses):

       Interest income, net

117

200

       Gain (loss) on investments, net

3

299

       Equity in net loss of Rhapsody

—

(6,180)

       Other income (expense), net

(287)

443

           Total other income (expense), net

(167)

(5,238)

 Income (loss) before income taxes

(14,946)

(24,250)

 Income tax expense (benefit)

225

219

 Net income (loss)

$

(15,171)

$

(24,469)

 Basic net income (loss) per share

$

(0.42)

$

(0.68)

 Diluted net income (loss) per share

$

(0.42)

$

(0.68)

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

36,520

36,104

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

36,520

36,104

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

March 31,
2016

December 31,
2015

 (in thousands)

ASSETS

 Current assets:

 Cash and cash equivalents

$

40,539

$

47,315

 Short-term investments

46,289

51,814

 Trade accounts receivable, net

23,527

22,511

 Deferred costs, current portion

452

460

 Prepaid expenses and other current assets

5,563

7,140

   Total current assets

116,370

129,240

 Equipment and software

61,330

66,702

 Leasehold improvements

3,190

3,122

   Total equipment, software, and leasehold improvements

64,520

69,824

 Less accumulated depreciation and amortization

56,983

61,024

   Net equipment, software, and leasehold improvements

7,537

8,800

 Restricted cash equivalents and investments

3,100

2,890

 Available for sale securities

1,910

1,721

 Other assets

2,273

2,307

 Deferred costs, non-current portion

660

212

 Deferred tax assets, net

996

957

 Other intangible assets, net

1,753

2,136

 Goodwill

13,099

13,080

   Total assets

$

147,698

$

161,343

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable

$

15,368

$

17,050

 Accrued and other current liabilities

17,110

17,320

 Deferred revenue, current portion

3,537

3,497

   Total current liabilities

36,015

37,867

 Deferred revenue, non-current portion

583

105

 Deferred rent

579

620

 Deferred tax liabilities, net

90

88

 Other long-term liabilities

1,668

1,980

   Total liabilities

38,935

40,660

 Shareholders' equity

108,763

120,683

 Total liabilities and shareholders' equity

$

147,698

$

161,343

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Quarters Ended
March 31,

2016

 (in thousands)

 Cash flows from operating activities:

 Net income (loss)

$

(15,171)

$

(24,469)

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

    Depreciation and amortization

2,598

2,503

    Stock-based compensation

3,171

1,329

    Equity in net loss of Rhapsody

—

6,180

    Deferred income taxes, net

(128)

(77)

    Loss (gain) on investments, net

(3)

(299)

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

44

(1,155)

    Net change in certain operating assets and liabilities

(1,722)

(4,106)

      Net cash provided by (used in) operating activities

(11,211)

(20,094)

 Cash flows from investing activities:

  Purchases of equipment, software, and leasehold improvements

(828)

(306)

  Proceeds from sale of available for sale securities

—

352

  Purchases of short-term investments

(17,876)

(6,018)

  Proceeds from sales and maturities of short-term investments

23,401

33,077

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

(210)

—

  Advance to Rhapsody

—

(5,000)

   Net cash provided by (used in) investing activities

4,487

22,105

 Cash flows from financing activities:

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

16

6

Tax payments from shares withheld upon vesting of restricted stock

(787)

(7)

   Net cash provided by (used in) financing activities

(771)

(1)

 Effect of exchange rate changes on cash and cash equivalents

719

(2,269)

   Net increase (decrease) in cash and cash equivalents

(6,776)

(259)

 Cash and cash equivalents, beginning of period

47,315

103,253

 Cash and cash equivalents, end of period

$

40,539

$

102,994

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

2016

2015

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Line of Business

Consumer Media (A)

$

5,726

$

6,848

$

6,495

$

7,281

$

7,989

Mobile Services (B)

16,465

16,369

16,484

18,578

14,504

Games (C)

6,039

6,705

7,844

8,095

8,104

     Total net revenue

$

28,230

$

29,922

$

30,823

$

33,954

$

30,597

Net Revenue by Product

Consumer Media

- License (D)

$

3,104

$

3,967

$

3,628

$

4,208

$

4,672

- Subscriptions (E)

1,975

2,054

2,147

2,372

2,384

- Media Properties (F)

647

827

720

701

933

Mobile Services

- SaaS (G)

16,220

16,157

16,217

18,218

13,322

- Technology License & Other (H)

245

212

267

360

1,182

Games

- License (I)

2,761

3,268

4,128

3,943

3,835

- Subscriptions (J)

3,029

3,126

3,231

3,373

3,570

- Media Properties (K)

249

311

485

779

699

     Total net revenue

$

28,230

$

29,922

$

30,823

$

33,954

$

30,597

Net Revenue by Geography

United States

$

10,383

$

10,781

$

11,460

$

12,303

$

12,349

Rest of world

17,847

19,141

19,363

21,651

18,248

     Total net revenue

$

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
(Unaudited)

2016

2015

Q1

Q4

Q1

 (in thousands)

Consumer Media

Net revenue

$

5,726

$

6,848

$

7,989

Cost of revenue

2,417

3,084

3,464

Gross profit

3,309

3,764

4,525

   Gross margin

58

%

55

%

57

%

Operating expenses

5,376

6,644

6,594

Operating income (loss)

$

(2,067)

$

(2,880)

$

(2,069)

  Adjusted EBITDA

$

(764)

$

(1,842)

$

(1,558)

Mobile Services

Net revenue

$

16,465

$

16,369

$

14,504

Cost of revenue

10,917

11,032

10,308

Gross profit

5,548

5,337

4,196

   Gross margin

34

%

33

%

29

%

Operating expenses

9,794

9,158

11,961

Operating income (loss)

$

(4,246)

$

(3,821)

$

(7,765)

  Adjusted EBITDA

$

(3,516)

$

(2,958)

$

(6,793)

Games

Net revenue

$

6,039

$

6,705

$

8,104

Cost of revenue

1,845

1,698

2,794

Gross profit

4,194

5,007

5,310

   Gross margin

69

%

75

%

66

%

Operating expenses

5,295

5,253

8,683

Operating income (loss)

$

(1,101)

$

(246)

$

(3,373)

   Adjusted EBITDA

$

(897)

$

(25)

$

(2,783)

Corporate

Cost of revenue

$

(7)

$

14

$

(19)

Gross profit

7

(14)

19

   Gross margin

N/A

N/A

N/A

Operating expenses

7,372

545

5,824

Operating income (loss)

$

(7,365)

$

(559)

$

(5,805)

   Adjusted EBITDA

$

(2,904)

$

601

$

(3,040)

Total

Net revenue

$

28,230

$

29,922

$

30,597

Cost of revenue

15,172

15,828

16,547

Gross profit

13,058

14,094

14,050

   Gross margin

46

%

47

%

46

%

Operating expenses

27,837

21,600

33,062

Operating income (loss)

$

(14,779)

$

(7,506)

$

(19,012)

   Adjusted EBITDA

$

(8,081)

$

(4,224)

$

(14,174)

RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment
(Unaudited)

2016

2015

 Q1

 Q4

 Q1

 (in thousands)

Consumer Media

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

Operating income (loss)

$

(2,067)

$

(2,880)

$

(2,069)

Depreciation and amortization

1,303

1,038

511

   Adjusted EBITDA

$

(764)

$

(1,842)

$

(1,558)

Mobile Services

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

Operating income (loss)

$

(4,246)

$

(3,821)

$

(7,765)

Acquisitions related intangible asset amortization

308

379

392

Depreciation and amortization

422

484

580

   Adjusted EBITDA

$

(3,516)

$

(2,958)

$

(6,793)

Games

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

Operating income (loss)

$

(1,101)

$

(246)

$

(3,373)

Acquisitions related intangible asset amortization

25

24

293

Depreciation and amortization

179

197

297

   Adjusted EBITDA

$

(897)

$

(25)

$

(2,783)

Corporate

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

Operating income (loss)

$

(7,365)

$

(559)

$

(5,805)

Other income (expense), net

(287)

(122)

443

Depreciation and amortization

361

336

430

Restructuring and other charges

385

(284)

485

Stock-based compensation

3,171

937

1,329

Lease exit and related charges

831

293

78

   Adjusted EBITDA

$

(2,904)

$

601

$

(3,040)

Total

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

Operating income (loss)

$

(14,779)

$

(7,506)

$

(19,012)

Other income (expense), net

(287)

(122)

443

Acquisitions related intangible asset amortization

333

403

685

Depreciation and amortization

2,265

2,055

1,818

Restructuring and other charges

385

(284)

485

Stock-based compensation

3,171

937

1,329

Lease exit and related charges

831

293

78

   Adjusted EBITDA

$

(8,081)

$

(4,224)

$

(14,174)