RealNetworks Announces Fourth Quarter And Full Year 2015 Results

- Revenue of $29.9 million for Fourth Quarter and $125.3 million for Full Year;

- EBITDA Loss improves to $(4.2) million for Fourth Quarter from $(12.2) million in Third Quarter;

- New mobile carrier partnerships for RealTimes with Verizon and KDDI;

- Rhapsody paid subscribers grew 45% in 2015; and

- Cash and short-term investments of $99.1 million

News provided by

RealNetworks, Inc.

Feb 09, 2016, 04:01 ET

SEATTLE, Feb. 9, 2016 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the fourth quarter ended December 31, 2015.

For the fourth quarter of 2015, revenue was $29.9 million compared to $30.8 million in the previous quarter and $35.5 million in the fourth quarter of 2014. Excluding revenue from the Slingo and social casino games business, which was sold during the third quarter of 2015, revenue for the previous quarter was $29.8 million and for the fourth quarter of 2014 was $33.7 million. For the full year 2015, revenue was $125.3 million, compared to $156.2 million in 2014. Excluding the Slingo and social casino games business, revenue for the full year 2015 was $120.4 million, compared to $149.4 million in 2014.

"2015 was an important transition year for RealNetworks, with significant successes," said Rob Glaser, Chairman and CEO of RealNetworks. "Our revenue is stabilizing and we've set the stage for growth in 2016.  By rationalizing our costs and cutting our losses significantly, we are also positioned for a return to profitability.

"We've signed up major new partners, such as KDDI and Verizon, and we're gaining traction with big tier 1 carriers around the world for our carrier-oriented products, such as RealTimes and Listen Ring Back Tones.  At the same time, we've simplified and focused our games business, going back to our roots in Casual Games and setting it up for sustained growth.

"We are also pleased with 45% subscriber growth in 2015 at the Rhapsody music service, in which we play a significant role and have a large ownership stake.

"While it's taken longer and required more capital to achieve these results than I had hoped when I came back to run RealNetworks three and a half years ago, I'm confident that we're on a path to succeed and create value in each of our businesses and for the company as a whole."

GAAP net loss for the fourth quarter of 2015 was $(8.4) million or $(0.23) per share, compared to $(20.8) million or $(0.58) per share in the fourth quarter of 2014. GAAP net loss for 2015 was $(81.8) million or $(2.26) per share, compared to $(71.8) million or $(2.00) in 2014.

Adjusted EBITDA for the fourth quarter of 2015 was a loss of $(4.2) million, compared to $(12.2) million for the previous quarter and $(15.2) million for the fourth quarter of 2014. Adjusted EBITDA for the full year 2015 was a loss of $(45.8) million, compared to $(56.6) million for the prior year. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of December 31, 2015, the company had $99.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $112.2 million as of September 30, 2015.

Business Outlook

For the first quarter of 2016, RealNetworks expects total revenue in the range of $26 million to $29 million and an adjusted EBITDA loss for the first quarter in the range of $(6.0) million to $(9.0) 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: Fourth 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, March 1, 2016 by calling 866-421-5931 or +1-203-369-0814 (Passcode: 2092016).

For More Information

Michael Newman, StreetConnect
Investor Relations for RealNetworks
+1-206-729-3625
[email protected]

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 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, 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)







Quarters Ended
December 31,

Year Ended
December 31,





2015

2014

2015

2014


 (in thousands, except per share data)









 Net revenue

$

29,922

$

35,506

$

125,296

$

156,212

 Cost of revenue

15,828

17,881

70,297

76,381

 Extinguishment of liability

—

—

—

(10,580)

           Gross profit

14,094

17,625

54,999

90,411









 Operating expenses:







       Research and development

8,945

12,655

43,626

52,765

       Sales and marketing

9,409

15,904

48,231

66,926

       General and administrative

3,237

8,384

24,549

34,001

       Restructuring and other charges

(284)

1,187

5,279

4,992

       Lease exit and related charges

293

177

2,501

880









           Total operating expenses

21,600

38,307

124,186

159,564









 Operating income (loss)

(7,506)

(20,682)

(69,187)

(69,153)









 Other income (expenses):







       Interest income, net

83

160

680

556

       Gain (loss) on investments, net

63

—

(159)

2,371

       Equity in net loss of Rhapsody

(690)

(282)

(14,521)

(4,452)

       Other income (expense), net

(122)

(10)

506

143









           Total other income (expense), net

(666)

(132)

(13,494)

(1,382)









 Income (loss) before income taxes

(8,172)

(20,814)

(82,681)

(70,535)

 Income tax expense (benefit)

241

24

(834)

1,280









 Net income (loss)

$

(8,413)

$

(20,838)

$

(81,847)

$

(71,815)









 Basic net income (loss) per share

$

(0.23)

$

(0.58)

$

(2.26)

$

(2.00)

 Diluted net income (loss) per share

$

(0.23)

$

(0.58)

$

(2.26)

$

(2.00)









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

36,257

36,052

36,165

35,947

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

36,257

36,052

36,165

35,947


















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





December 31,
2015

December 31,
2014

 (in thousands)

ASSETS

 Current assets:


 Cash and cash equivalents

$

47,315

$

103,253

 Short-term investments

51,814

58,453

 Trade accounts receivable, net

22,511

15,257

 Deferred costs, current portion

460

702

 Deferred tax assets, current

—

652

 Prepaid expenses and other current assets

7,140

8,980

    Total current assets

129,240

187,297




Equipment, software, and leasehold improvements, at cost:


 Equipment and software

66,702

74,100

 Leasehold improvements

3,122

3,590

    Total equipment, software, and leasehold improvements

69,824

77,690

 Less accumulated depreciation and amortization

61,024

61,442

    Net equipment, software, and leasehold improvements

8,800

16,248




 Restricted cash equivalents and investments

2,890

3,000

 Investment in and advances to Rhapsody

—

10,000

 Available for sale securities

1,721

2,676

 Other assets

2,307

2,299

 Deferred costs, non-current portion

212

316

 Deferred tax assets, net, non-current portion

957

999

 Other intangible assets, net

2,136

10,109

 Goodwill

13,080

17,355




    Total assets

$

161,343

$

250,299




 LIABILITIES AND SHAREHOLDERS' EQUITY




 Current liabilities:


 Accounts payable

$

17,050

$

18,653

 Accrued and other current liabilities

17,320

25,286

 Deferred tax liabilities, net, current portion

—

1,628

 Deferred revenue, current portion

3,497

5,301

    Total current liabilities

37,867

50,868




 Deferred revenue, non-current portion

105

235

 Deferred rent

620

1,215

 Deferred tax liabilities, net, non-current portion

88

702

 Other long-term liabilities

1,980

81




    Total liabilities

40,660

53,101








 Shareholders' equity

120,683

197,198




 Total liabilities and shareholders' equity

$

161,343

$

250,299

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



Year Ended

December 31,

2015

2014

 (in thousands)

 Cash flows from operating activities:


 Net income (loss)

$

(81,847)

$

(71,815)

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

  Depreciation and amortization

10,410

11,959

  Stock-based compensation

4,698

5,204

  Extinguishment of liability

—

(10,580)

  Equity in net loss of Rhapsody

14,521

4,452

  Accrued loss (gain) on excess office facilities

2,501

668

  Deferred income taxes, net

(1,558)

(237)

  Loss (gain) on investments, net

159

(2,371)

  Realized translation gain

(264)

(48)

  Fair value of warrants, net of mark to market adjustments

(1,053)

—

  Net change in certain operating assets and liabilities

(16,549)

2,524

    Net cash provided by (used in) operating activities

(68,982)

(60,244)

 Cash flows from investing activities:


Purchases of equipment, software, and leasehold improvements

(1,319)

(2,460)

  Proceeds from sale of available for sale securities

459

2,754

  Purchases of short-term investments

(72,136)

(81,216)

  Proceeds from sales and maturities of short-term investments

78,775

97,683

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

110

—

  Acquisitions, net of cash acquired

(161)

(733)

  Advance to Rhapsody

(5,000)

—

  Receipt of payment from Rhapsody

5,000

—

  Proceeds from the sale of Slingo and Social Casino business

10,000

—

  Other

—

(467)

   Net cash provided by (used in) investing activities

15,728

15,561

 Cash flows from financing activities:


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

426

812

  Tax payments from shares withheld upon vesting of restricted stock

(85)

(407)

  Payment of contingent consideration

—

(1,042)

   Net cash provided by (used in) financing activities

341

(637)

 Effect of exchange rate changes on cash and cash equivalents

(3,025)

(2,662)

   Net increase (decrease) in cash and cash equivalents

(55,938)

(47,982)

 Cash and cash equivalents, beginning of period

103,253

151,235

 Cash and cash equivalents, end of period

$

47,315

$

103,253

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











2015


2014

 YTD

 Q4

 Q3

 Q2

Q1

 YTD

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Line of Business


















RealPlayer Group (A)

$

29,141

$

7,219

$

6,565

$

7,344

$

8,013

$

39,201

$

8,865

$

6,565

$

8,556

$

15,215

Mobile Entertainment (B)

65,407

15,998

16,414

18,515

14,480

79,901

17,616

19,190

23,182

19,913

Games (C)

30,748

6,705

7,844

8,095

8,104

37,110

9,025

8,402

9,087

10,596

     Total net revenue

$

125,296

$

29,922

$

30,823

$

33,954

$

30,597

$

156,212

$

35,506

$

34,157

$

40,825

$

45,724




















Net Revenue by Product


















RealPlayer Group


















- License (D)

$

16,475

$

3,967

$

3,628

$

4,208

$

4,672

$

16,042

$

4,496

$

3,255

$

3,273

$

5,018

- Subscriptions (E)

9,485

2,425

2,217

2,435

2,408

10,717

2,691

2,680

2,569

2,777

- Media Properties (F)

3,181

827

720

701

933

12,442

1,678

630

2,714

7,420




















Mobile Entertainment


















- SaaS (G)

63,386

15,786

16,147

18,155

13,298

73,284

16,727

17,919

20,175

18,463

- Technology License & Other (H)

2,021

212

267

360

1,182

6,617

889

1,271

3,007

1,450




















Games


















- License (I)

15,174

3,268

4,128

3,943

3,835

14,090

3,854

2,988

3,399

3,849

- Subscriptions (J)

13,300

3,126

3,231

3,373

3,570

17,948

3,947

4,320

4,440

5,241

- Media Properties (K)

2,274

311

485

779

699

5,072

1,224

1,094

1,248

1,506




















     Total net revenue

$

125,296

$

29,922

$

30,823

$

33,954

$

30,597

$

156,212

$

35,506

$

34,157

$

40,825

$

45,724




















Net Revenue by Geography


















United States

$

46,893

$

10,781

$

11,460

$

12,303

$

12,349

$

61,660

$

13,860

$

12,280

$

15,092

$

20,428

Rest of world

78,403

19,141

19,363

21,651

18,248

94,552

21,646

21,877

25,733

25,296

     Total net revenue

$

125,296

$

29,922

$

30,823

$

33,954

$

30,597

$

156,212

$

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 RealPlayer Cloud, 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


Q4

Q3

Q4

YTD

YTD


 (in thousands)

RealPlayer Group




















Net revenue

$

7,219

$

6,565

$

8,865

$

29,141

$

39,201

Cost of revenue

3,840

3,902

3,804

16,171

14,508

Gross profit

3,379

2,663

5,061

12,970

24,693











   Gross margin

47

%

41

%

57

%

45

%

63

%











Operating expenses

10,281

11,492

13,074

47,149

55,742

Operating income (loss)

$

(6,902)

$

(8,829)

$

(8,013)

$

(34,179)

$

(31,049)











  Adjusted EBITDA

$

(5,780)

$

(8,224)

$

(7,320)

$

(31,290)

$

(28,474)











Mobile Entertainment




















Net revenue

$

15,998

$

16,414

$

17,616

$

65,407

$

79,901

Cost of revenue

10,109

11,518

11,525

44,212

50,399

Gross profit

5,889

4,896

6,091

21,195

29,502











   Gross margin

37

%

30

%

35

%

32

%

37

%











Operating expenses

4,103

5,219

7,199

20,256

33,325

Operating income (loss)

$

1,786

$

(323)

$

(1,108)

$

939

$

(3,823)











  Adjusted EBITDA

$

2,565

$

473

$

24

$

4,276

$

940











Games




















Net revenue

$

6,705

$

7,844

$

9,025

$

30,748

$

37,110

Cost of revenue

1,698

2,513

2,655

9,291

11,074

Gross profit

5,007

5,331

6,370

21,457

26,036











   Gross margin

75

%

68

%

71

%

70

%

70

%











Operating expenses

5,253

6,431

9,977

29,086

37,170

Operating income (loss)

$

(246)

$

(1,100)

$

(3,607)

$

(7,629)

$

(11,134)











   Adjusted EBITDA

$

(25)

$

(716)

$

(3,024)

$

(5,878)

$

(8,742)











Corporate




















Net revenue

$

—

$

—

$

—

$

—

$

—

Cost of revenue

181

157

(103)

623

400

Extinguishment of liability

—

—

—

—

(10,580)

Gross profit

(181)

(157)

103

(623)

10,180











   Gross margin

N/A

N/A

N/A

N/A

N/A











Operating expenses

1,963

11,553

8,057

27,695

33,327

Operating income (loss)

$

(2,144)

$

(11,710)

$

(7,954)

$

(28,318)

$

(23,147)











   Adjusted EBITDA

$

(984)

$

(3,727)

$

(4,879)

$

(12,901)

$

(20,279)











Total




















Net revenue

$

29,922

$

30,823

$

35,506

$

125,296

$

156,212

Cost of revenue

15,828

18,090

17,881

70,297

76,381

Extinguishment of liability

—

—

—

—

(10,580)

Gross profit

14,094

12,733

17,625

54,999

90,411











   Gross margin

47

%

41

%

50

%

44

%

58

%











Operating expenses

21,600

34,695

38,307

124,186

159,564

Operating income (loss)

$

(7,506)

$

(21,962)

$

(20,682)

$

(69,187)

$

(69,153)











   Adjusted EBITDA

$

(4,224)

$

(12,194)

$

(15,199)

$

(45,793)

$

(56,555)

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









2015

2014

2015

2014

 Q4

 Q3

 Q4

 YTD

 YTD

 (in thousands)

RealPlayer Group


















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














Operating income (loss)

$

(6,902)

$

(8,829)

$

(8,013)

$

(34,179)

$

(31,049)

Acquisitions related intangible asset amortization

84

86

96

343

384

Depreciation and amortization

1,038

519

597

2,546

2,191

   Adjusted EBITDA

$

(5,780)

$

(8,224)

$

(7,320)

$

(31,290)

$

(28,474)










Mobile Entertainment


















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














Operating income (loss)

$

1,786

$

(323)

$

(1,108)

$

939

$

(3,823)

Acquisitions related intangible asset amortization

295

303

271

1,201

1,793

Depreciation and amortization

484

493

861

2,136

2,970

   Adjusted EBITDA

$

2,565

$

473

$

24

$

4,276

$

940










Games


















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














Operating income (loss)

$

(246)

$

(1,100)

$

(3,607)

$

(7,629)

$

(11,134)

Acquisitions related intangible asset amortization

24

170

314

799

1,256

Depreciation and amortization

197

214

269

952

1,136

   Adjusted EBITDA

$

(25)

$

(716)

$

(3,024)

$

(5,878)

$

(8,742)










Corporate


















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














Operating income (loss)

$

(2,144)

$

(11,710)

$

(7,954)

$

(28,318)

$

(23,147)

Other income (expense), net

(122)

297

(10)

506

143

Depreciation and amortization

336

1,273

675

2,433

2,229

Lease exit and related charges

293

2,121

177

2,501

880

Restructuring and other charges

(284)

3,114

1,187

5,279

4,992

Stock-based compensation

937

1,178

1,046

4,698

5,204

Extinguishment of liability

—

—

—

—

(10,580)

   Adjusted EBITDA

$

(984)

$

(3,727)

$

(4,879)

$

(12,901)

$

(20,279)










Total


















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














Operating income (loss)

$

(7,506)

$

(21,962)

$

(20,682)

$

(69,187)

$

(69,153)

Other income (expense), net

(122)

297

(10)

506

143

Acquisitions related intangible asset amortization

403

559

681

2,343

3,433

Depreciation and amortization

2,055

2,499

2,402

8,067

8,526

Lease exit and related charges

293

2,121

177

2,501

880

Restructuring and other charges

(284)

3,114

1,187

5,279

4,992

Stock-based compensation

937

1,178

1,046

4,698

5,204

Extinguishment of liability

—

—

—

—

(10,580)

   Adjusted EBITDA

$

(4,224)

$

(12,194)

$

(15,199)

$

(45,793)

$

(56,555)

SOURCE RealNetworks, Inc.

Related Links

http://www.realnetworks.com

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