RealNetworks Announces Second Quarter 2015 Results

- Launched major new product RealTimes™, and signed up over 2 million users in first 2 months;

- Achieved continued growth at Rhapsody, which now has over 3 million paying subscribers;

- Announced sale of Slingo and social casino games for $18 million;

- Reducing operating expenses and cash burn; and

- Cash and short-term investments of $111.0 million

Aug 05, 2015, 16:01 ET from RealNetworks, Inc.

SEATTLE, Aug. 5, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the second quarter ended June 30, 2015.

For the second quarter of 2015, revenue was $34.0 million, compared to $30.6 million in the previous quarter and $40.8 million in the second quarter of 2014.

"During the quarter, we launched RealTimes, a breakthrough product which provides the fastest and easiest way for consumers to get the most out of their personal photos and videos," said Rob Glaser, Chairman and CEO of RealNetworks. "RealTimes, which automatically creates personalized stories that can be easily customized and shared, is off to a great start with over 2 million users in the first 2 months.

"We are also pleased to report continued strong growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake, which recently announced that it has surpassed 3 million paying subscribers.

"At the same time that we're investing in the roll out of RealTimes, we are also taking steps to focus RealNetworks on its best opportunities, generating cash from non-core assets and reducing operating expenses.  Our announced sale of our Slingo and social casino games business for $18 million is a significant step in support of these objectives."

GAAP net loss for the second quarter of 2015 was $(27.8) million or $(0.77) per diluted share, compared to $(21.0) million or $(0.59) per diluted share in the second quarter of 2014. GAAP results for the second quarter of 2015 include $2.0 million severance and restructuring related to the Company's ongoing cost reduction efforts.  Adjusted EBITDA for the second quarter of 2015 was a loss of $(15.2) million, compared to $(13.1) million for the second quarter of 2014. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2015, the company had $111.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $134.4 million as of March 31, 2015.

Business Outlook

For the third quarter of 2015, RealNetworks expects total revenue in the range of $29.0 million to $32.0 million and an adjusted EBITDA loss for the third quarter in the range of $(15.0) million to $(18.0) million, excluding the impact of the pending divestiture of the Slingo and social casino games business.  Including the impact of the pending sale, we expect total revenue in the range of $27.0 million to $30.0 million and an adjusted EBITDA loss in the range of $(14.0) million to $(17.0) 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: Second 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, August 26, 2015 by calling 866-431-7918 or +1-203-369-0978 (Passcode: 852015).

For More Information

Michael Newman, StreetConnect Investor Relations for RealNetworks +1-206-729-3625 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, RealPlayer, RealTimes and Slingo 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 (both with and without the impact of the pending games sale), our future growth, profitability, and market position, our strategic focus and initiatives, 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 June 30,

Six Months Ended June 30,

2015

2014

2015

2014

 (in thousands, except per share data)

 Net revenue

$

33,954

$

40,825

$

64,551

$

86,549

 Cost of revenue

19,832

20,786

36,379

39,572

 Extinguishment of liability

(10,580)

           Gross profit

14,122

20,039

28,172

57,557

 Operating expenses:

       Research and development

11,801

13,267

24,180

27,326

       Sales and marketing

14,047

16,016

26,884

37,739

       General and administrative

7,008

8,577

14,291

17,894

       Restructuring and other charges

1,964

541

2,449

1,757

       Lease exit and related charges

9

470

87

549

           Total operating expenses

34,829

38,871

67,891

85,265

 Operating income (loss)

(20,707)

(18,832)

(39,719)

(27,708)

 Other income (expenses):

       Interest income, net

250

180

450

316

       Gain (loss) on sale of available for sale securities, net

94

393

2,371

       Equity in net loss of Rhapsody

(6,916)

(1,802)

(13,096)

(2,640)

       Other income (expense), net

(112)

(95)

331

(172)

           Total other income (expense), net

(6,684)

(1,717)

(11,922)

(125)

 Income (loss) before income taxes

(27,391)

(20,549)

(51,641)

(27,833)

 Income tax expense (benefit)

390

480

609

966

 Net income (loss)

$

(27,781)

$

(21,029)

$

(52,250)

$

(28,799)

 Basic net income (loss) per share

$

(0.77)

$

(0.59)

$

(1.45)

$

(0.80)

 Diluted net income (loss) per share

$

(0.77)

$

(0.59)

$

(1.45)

$

(0.80)

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

36,106

35,890

36,105

35,865

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

36,106

35,890

36,105

35,865

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

June 30,  2015

December 31,  2014

 (in thousands)

ASSETS

 Current assets:

 Cash and cash equivalents

$

92,663

$

103,253

 Short-term investments

18,337

58,453

 Trade accounts receivable, net

21,922

15,257

 Deferred costs, current portion

305

702

 Deferred tax assets, current

645

652

 Prepaid expenses and other current assets

9,108

8,980

   Total current assets

142,980

187,297

Equipment, software, and leasehold improvements, at cost:

 Equipment and software

71,552

74,100

 Leasehold improvements

3,737

3,590

   Total equipment, software, and leasehold improvements

75,289

77,690

 Less accumulated depreciation and amortization

61,886

61,442

   Net equipment, software, and leasehold improvements

13,403

16,248

 Restricted cash equivalents and investments

3,000

3,000

 Investment in and advances to Rhapsody

5,121

10,000

 Available for sale securities

2,394

2,676

 Other assets

3,187

2,299

 Deferred costs, non-current portion

204

316

 Deferred tax assets, net, non-current portion

916

999

 Other intangible assets, net

9,181

10,109

 Goodwill

17,001

17,355

   Total assets

$

197,387

$

250,299

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable

$

18,241

$

18,653

 Accrued and other current liabilities

22,803

25,286

 Deferred tax liabilities, net, current portion

1,580

1,628

 Deferred revenue, current portion

3,637

5,301

   Total current liabilities

46,261

50,868

 Deferred revenue, non-current portion

124

235

 Deferred rent

1,240

1,215

 Deferred tax liabilities, net, non-current portion

693

702

 Other long-term liabilities

458

81

   Total liabilities

48,776

53,101

 Shareholders' equity

148,611

197,198

 Total liabilities and shareholders' equity

$

197,387

$

250,299

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

2015

2014

 (in thousands)

 Cash flows from operating activities:

 Net income (loss)

$

(52,250)

$

(28,799)

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

  Depreciation and amortization

4,894

6,145

  Stock-based compensation

2,583

3,010

  Extinguishment of liability

(10,580)

  Equity in net loss of Rhapsody

13,096

2,640

  Deferred income taxes, net

(23)

10

  Gain on sale of available for sale securities

(393)

(2,371)

  Realized translation gain

(48)

  Fair value of warrants, net of mark to market adjustments

(1,128)

  Interest receivable on advance to Rhapsody

(121)

   Net change in certain operating assets and liabilities

(10,230)

(785)

    Net cash provided by (used in) operating activities

(43,572)

(30,778)

 Cash flows from investing activities:

  Purchases of equipment, software, and leasehold improvements

(859)

(1,689)

  Proceeds from sale of available for sale securities

459

2,754

  Purchases of short-term investments

(8,514)

(48,326)

  Proceeds from sales and maturities of short-term investments

48,630

52,663

  Acquisitions, net of cash acquired

(161)

(733)

  Advance to Rhapsody

(5,000)

  Other

(467)

   Net cash provided by (used in) investing activities

34,555

4,202

 Cash flows from financing activities:

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

276

580

  Tax payments from shares withheld upon vesting of restricted stock

(10)

(307)

  Payment of contingent consideration

(696)

   Net cash provided by (used in) financing activities

266

(423)

 Effect of exchange rate changes on cash and cash equivalents

(1,839)

214

   Net increase (decrease) in cash and cash equivalents

(10,590)

(26,785)

 Cash and cash equivalents, beginning of period

103,253

151,235

 Cash and cash equivalents, end of period

$

92,663

$

124,450

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2015

2014

 Q2

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Line of Business

RealPlayer Group (A)

$

7,344

$

8,013

$

8,865

$

6,565

$

8,556

$

15,215

Mobile Entertainment (B)

18,515

14,480

17,616

19,190

23,182

19,913

Games (C)

8,095

8,104

9,025

8,402

9,087

10,596

     Total net revenue

$

33,954

$

30,597

$

35,506

$

34,157

$

40,825

$

45,724

Net Revenue by Product

RealPlayer Group

- License (D)

$

4,208

$

4,672

$

4,496

$

3,255

$

3,273

$

5,018

- Subscriptions (E)

2,435

2,408

2,691

2,680

2,569

2,777

- Media Properties (F)

701

933

1,678

630

2,714

7,420

Mobile Entertainment

- SaaS (G)

18,155

13,298

16,727

17,919

20,175

18,463

- Technology License & Other (H)

360

1,182

889

1,271

3,007

1,450

Games

- License (I)

3,943

3,835

3,854

2,988

3,399

3,849

- Subscriptions (J)

3,373

3,570

3,947

4,320

4,440

5,241

- Media Properties (K)

779

699

1,224

1,094

1,248

1,506

     Total net revenue

$

33,954

$

30,597

$

35,506

$

34,157

$

40,825

$

45,724

Net Revenue by Geography

United States

$

12,303

$

12,349

$

13,860

$

12,280

$

15,092

$

20,428

Rest of world

21,651

18,248

21,646

21,877

25,733

25,296

     Total net revenue

$

33,954

$

30,597

$

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 our RealPlayer Cloud and its successor application, 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

Q2

Q1

Q2

YTD

YTD

 (in thousands)

RealPlayer Group

Net revenue

$

7,344

$

8,013

$

8,556

$

15,357

$

23,771

Cost of revenue

4,317

4,112

3,620

8,429

7,138

Gross profit

3,027

3,901

4,936

6,928

16,633

   Gross margin

41

%

49

%

58

%

45

%

70

%

Operating expenses

13,001

12,375

12,489

25,376

30,276

Operating income (loss)

$

(9,974)

$

(8,474)

$

(7,553)

$

(18,448)

$

(13,643)

  Adjusted EBITDA

$

(9,411)

$

(7,875)

$

(6,893)

$

(17,286)

$

(12,384)

Mobile Entertainment

Net revenue

$

18,515

$

14,480

$

23,182

$

32,995

$

43,095

Cost of revenue

13,079

9,506

14,298

22,585

26,248

Gross profit

5,436

4,974

8,884

10,410

16,847

   Gross margin

29

%

34

%

38

%

32

%

39

%

Operating expenses

5,301

5,633

9,424

10,934

19,040

Operating income (loss)

$

135

$

(659)

$

(540)

$

(524)

$

(2,193)

  Adjusted EBITDA

$

1,013

$

225

$

808

$

1,238

$

469

Games

Net revenue

$

8,095

$

8,104

$

9,087

$

16,199

$

19,683

Cost of revenue

2,286

2,794

2,717

5,080

5,846

Gross profit

5,809

5,310

6,370

11,119

13,837

   Gross margin

72

%

66

%

70

%

69

%

70

%

Operating expenses

8,719

8,683

8,769

17,402

18,535

Operating income (loss)

$

(2,910)

$

(3,373)

$

(2,399)

$

(6,283)

$

(4,698)

   Adjusted EBITDA

$

(2,354)

$

(2,783)

$

(1,798)

$

(5,137)

$

(3,472)

Corporate

Net revenue

$

$

$

$

$

Cost of revenue

150

135

151

285

340

Extinguishment of liability

(10,580)

Gross profit

(150)

(135)

(151)

(285)

(10,240)

   Gross margin

N/A

N/A

 N/A

N/A

N/A

Operating expenses

7,808

6,371

8,189

14,179

17,414

Operating income (loss)

$

(7,958)

$

(6,506)

$

(8,340)

$

(14,464)

$

7,174

   Adjusted EBITDA

$

(4,449)

$

(3,741)

$

(5,198)

$

(8,190)

$

(11,612)

Total

Net revenue

$

33,954

$

30,597

$

40,825

$

64,551

$

86,549

Cost of revenue

19,832

16,547

20,786

36,379

39,572

Extinguishment of liability

(10,580)

Gross profit

14,122

14,050

20,039

28,172

57,557

   Gross margin

42

%

46

%

49

%

44

%

67

%

Operating expenses

34,829

33,062

38,871

67,891

85,265

Operating income (loss)

$

(20,707)

$

(19,012)

$

(18,832)

$

(39,719)

$

(27,708)

   Adjusted EBITDA

$

(15,201)

$

(14,174)

$

(13,081)

$

(29,375)

$

(26,999)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2015

2014

2015

2014

 Q2

 Q1

 Q2

 YTD

 YTD

 (in thousands)

RealPlayer Group

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

Operating income (loss)

$

(9,974)

$

(8,474)

$

(7,553)

$

(18,448)

$

(13,643)

Acquisitions related intangible asset amortization

85

88

125

173

185

Depreciation and amortization

478

511

535

989

1,074

   Adjusted EBITDA

$

(9,411)

$

(7,875)

$

(6,893)

$

(17,286)

$

(12,384)

Mobile Entertainment

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

Operating income (loss)

$

135

$

(659)

$

(540)

$

(524)

$

(2,193)

Acquisitions related intangible asset amortization

299

304

628

603

1,235

Depreciation and amortization

579

580

720

1,159

1,427

   Adjusted EBITDA

$

1,013

$

225

$

808

$

1,238

$

469

Games

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

Operating income (loss)

$

(2,910)

$

(3,373)

$

(2,399)

$

(6,283)

$

(4,698)

Acquisitions related intangible asset amortization

312

293

314

605

628

Depreciation and amortization

244

297

287

541

598

   Adjusted EBITDA

$

(2,354)

$

(2,783)

$

(1,798)

$

(5,137)

$

(3,472)

Corporate

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

Operating income (loss)

$

(7,958)

$

(6,506)

$

(8,340)

$

(14,464)

$

(7,174)

Other income (expense), net

(112)

443

(95)

331

(172)

Depreciation and amortization

394

430

553

824

998

Lease exit and related charges

9

78

470

87

549

Restructuring and other charges

1,964

485

541

2,449

1,757

Stock-based compensation

1,254

1,329

1,673

2,583

3,010

Extinguishment of liability

(10,580)

   Adjusted EBITDA

$

(4,449)

$

(3,741)

$

(5,198)

$

(8,190)

$

(11,612)

Total

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

Operating income (loss)

$

(20,707)

$

(19,012)

$

(18,832)

$

(39,719)

$

(27,708)

Other income (expense), net

(112)

443

(95)

331

(172)

Acquisitions related intangible asset amortization

696

685

1,067

1,381

2,048

Depreciation and amortization

1,695

1,818

2,095

3,513

4,097

Lease exit and related charges

9

78

470

87

549

Restructuring and other charges

1,964

485

541

2,449

1,757

Stock-based compensation

1,254

1,329

1,673

2,583

3,010

Extinguishment of liability

(10,580)

   Adjusted EBITDA

$

(15,201)

$

(14,174)

$

(13,081)

$

(29,375)

$

(26,999)

 

 

 

SOURCE RealNetworks, Inc.



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