Wed, 02/08/2017

RealNetworks Announces Fourth Quarter And Full Year 2016 Results

SEATTLE, Feb. 8, 2017 /PRNewswire/ --

  • Stabilized revenue in 2016 with quarter over quarter improvement;
  • Reduced year-over-year GAAP operating expenses by $31.5 million in 2016;
  • Strong shift to mobile games in 2016, driven by new products;
  • Continuing to roll out integration of new mobile products with carrier partners; and
  • Year ended with Cash and short-term investments of $77.1 million

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced results for the fourth quarter and full year ended December 31, 2016.

For the fourth quarter of 2016, revenue was $31.5 million, up from $31.1 million in the previous quarter and up from $29.9 million in the fourth quarter of 2015. For the full year 2016, GAAP revenue was $120.5 million, compared to $125.3 million in 2015. Excluding 2015 revenue from the social casino games business that was sold during the third quarter of 2015, revenue in 2015 was $120.4 million.

The Company's GAAP operating expenses for the full year 2016 were down $31.5 million or 25% from the prior year. Excluding the 2015 operating expenses directly attributable to the social casino games business, operating expenses for the full year 2016 were down $20.9 million or 18% from the prior year.

GAAP net loss for the fourth quarter of 2016 was $(10.0) million or $(0.27) per share, compared to $(8.4) million or $(0.23) per share in the fourth quarter of 2015. GAAP net loss for 2016 was $(36.6) million or $(0.99) per share, compared to $(81.8) million or $(2.26) in 2015.

Adjusted EBITDA for the fourth quarter of 2016 was a loss of $(4.2) million, compared to $(4.4) million for the previous quarter and $(4.2) million for the fourth quarter of 2015. Adjusted EBITDA for the full year 2016 was a loss of $(21.6) million, compared to $(45.8) million for the prior year. Excluding the social casino games business sold in 2015, adjusted EBITDA for 2015 was $(38.6) million. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"During 2016, we achieved two of our three major financial goals," said Rob Glaser, Chairman and CEO of RealNetworks. "We stabilized our businesses and saw quarter over quarter overall revenue growth.

"We're continuing to roll out the integration of our Mobile Services products with carriers like Vivo, Verizon, and Vodafone. In our Games business, we scaled up our production of GameHouse Originals, leading to a 28% growth in mobile games revenue.

"While we did not return to profitability in 2016, we made significant progress. We enter 2017 with several new product initiatives well underway that we believe will build strong momentum towards a return to growth and profitability."

As of December 31, 2016, the Company had $77.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $80.7 million as of September 30, 2016.

Business Outlook

For the first quarter of 2017, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the first quarter in the range of $(4.0) million to $(6.0) 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: 4TH 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, February 28, 2017 by calling 800-813-5534 or +1-203-369-3348 (Passcode: 282017).

For More Information

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 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
December 31,

  

Year ended
December 31,
     
   

2016

  

2015

  

2016

  

2015
   

 (in thousands, except per share data)
                 

 Net revenue

  

$

31,453

    

$

29,922

    

$

120,468

    

$

125,296

  

 Cost of revenue

  

17,358

    

15,828

    

64,968

    

70,297

  

           Gross profit

  

14,095

    

14,094

    

55,500

    

54,999

  
                 

 Operating expenses:

                

       Research and development

  

6,738

    

8,945

    

29,923

    

43,626

  

       Sales and marketing

  

7,451

    

9,409

    

31,608

    

48,231

  

       General and administrative

  

6,035

    

3,237

    

27,415

    

24,549

  

       Restructuring and other charges

  

192

    

(284)

    

1,489

    

5,279

  

       Lease exit and related charges

  

48

    

293

    

2,239

    

2,501

  
                 

           Total operating expenses

  

20,464

    

21,600

    

92,674

    

124,186

  
                 

 Operating income (loss)

  

(6,369)

    

(7,506)

    

(37,174)

    

(69,187)

  
                 

 Other income (expenses):

                

       Interest income, net

  

133

    

83

    

449

    

680

  

       Gain (loss) on investments, net

  

2,495

    

63

    

8,473

    

(159)

  

       Equity in net loss of Rhapsody

  

(5,904)

    

(690)

    

(6,533)

    

(14,521)

  

       Other income (expense), net

  

(128)

    

(122)

    

(643)

    

506

  
                 

           Total other income (expense), net

  

(3,404)

    

(666)

    

1,746

    

(13,494)

  
                 

 Income (loss) before income taxes

  

(9,773)

    

(8,172)

    

(35,428)

    

(82,681)

  

 Income tax expense (benefit)

  

203

    

241

    

1,122

    

(834)

  
                 

 Net income (loss)

  

$

(9,976)

    

$

(8,413)

    

$

(36,550)

    

$

(81,847)

  
                 

 Basic net income (loss) per share

  

$

(0.27)

    

$

(0.23)

    

$

(0.99)

    

$

(2.26)

  

 Diluted net income (loss) per share

  

$

(0.27)

    

$

(0.23)

    

$

(0.99)

    

$

(2.26)

  
                 

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

  

37,042

    

36,257

    

36,781

    

36,165

  

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

  

37,042

    

36,257

    

36,781

    

36,165

  
                 
                 

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)
 
 

December 31,
 2016

  

December 31,
 2015
 

 (in thousands)

ASSETS

 Current assets:

      

 Cash and cash equivalents

$

33,721

    

$

47,315

  

 Short-term investments

43,331

    

51,814

  

 Trade accounts receivable, net

22,162

    

22,511

  

 Deferred costs, current portion

760

    

460

  

 Prepaid expenses and other current assets

4,910

    

7,140

  

   Total current assets

104,884

    

129,240

  
       

 Equipment and software

46,231

    

66,702

  

 Leasehold improvements

3,317

    

3,122

  

 Total equipment, software, and leasehold improvements

49,548

    

69,824

  

 Less accumulated depreciation and amortization

44,294

    

61,024

  

   Net equipment, software, and leasehold improvements

5,254

    

8,800

  
       

 Restricted cash equivalents and investments

2,700

    

2,890

  

 Available for sale securities

—

    

1,721

  

 Other assets

1,742

    

2,307

  

 Deferred costs, non-current portion

1,246

    

212

  

 Deferred tax assets, net

816

    

957

  

 Other intangible assets, net

938

    

2,136

  

 Goodwill

12,857

    

13,080

  
       

   Total assets

$

130,437

    

$

161,343

  
       

 LIABILITIES AND SHAREHOLDERS' EQUITY
       

 Current liabilities:

      

 Accounts payable

$

18,225

    

$

17,050

  

 Accrued and other current liabilities

15,425

    

17,320

  

 Commitment to Rhapsody

1,500

    

—

  

 Deferred revenue, current portion

3,430

    

3,497

  

   Total current liabilities

38,580

    

37,867

  
       

 Deferred revenue, non-current portion

240

    

105

  

 Deferred rent

748

    

620

  

 Deferred tax liabilities, net

87

    

88

  

 Other long-term liabilities

2,201

    

1,980

  
       

   Total liabilities

41,856

    

40,660

  
       
       

 Shareholders' equity

88,581

    

120,683

  
       

 Total liabilities and shareholders' equity

$

130,437

    

$

161,343

  

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)
 
 

Year ended
December 31,
 
 

2016

  

2015
 

 (in thousands)
 

 Cash flows from operating activities:

      

 Net income (loss)

$

(36,550)

    

$

(81,847)

  

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

   Depreciation and amortization

7,057

    

10,410

  

   Stock-based compensation

5,424

    

4,698

  

   Equity in net loss of Rhapsody

6,533

    

14,521

  

   Deferred income taxes, net

130

    

(1,558)

  

   Loss (gain) on investments, net

(8,473)

    

159

  

   Realized translation loss (gain)

272

    

(264)

  

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

280

    

(1,053)

  

   Net change in certain operating assets and liabilities

999

    

(14,048)

  

      Net cash provided by (used in) operating activities

(24,328)

    

(68,982)

  

 Cash flows from investing activities:

      

  Purchases of equipment, software, and leasehold improvements

(2,438)

    

(1,319)

  

  Proceeds from sale of equity and other investments

4,967

    

459

  

  Purchases of short-term investments

(75,766)

    

(72,136)

  

  Proceeds from sales and maturities of short-term investments

84,249

    

78,775

  

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

190

    

110

  

  Acquisitions

(150)

    

(161)

  

  Advance to Rhapsody

(3,500)

    

(5,000)

  

  Receipt of payment from Rhapsody

—

    

5,000

  

  Proceeds from the sale of Slingo and social casino business

4,000

    

10,000

  

     Net cash provided by (used in) investing activities

11,552

    

15,728

  

 Cash flows from financing activities:

      

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

535

    

426

  

  Tax payments from shares withheld upon vesting of restricted stock

(880)

    

(85)

  

     Net cash provided by (used in) financing activities

(345)

    

341

  

 Effect of exchange rate changes on cash and cash equivalents

(473)

    

(3,025)

  

     Net increase (decrease) in cash and cash equivalents

(13,594)

    

(55,938)

  

 Cash and cash equivalents, beginning of year

47,315

    

103,253

  

 Cash and cash equivalents, end of year

$

33,721

    

$

47,315

  

 

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)
 
 

2016

  

2015
 

 YTD

  

 Q4

  

 Q3

  

 Q2

  

Q1

  

 YTD

  

 Q4

  

 Q3

  

 Q2

  

 Q1
 

 (in thousands)

Net Revenue

by Line of Business

                                      

Consumer Media (A)

$

25,051

    

$

6,443

    

$

6,482

    

$

6,400

    

$

5,726

    

$

28,613

    

$

6,848

    

$

6,495

    

$

7,281

    

$

7,989

  

Mobile Services (B)

70,278

    

18,833

    

17,683

    

17,297

    

16,465

    

65,935

    

16,369

    

16,484

    

18,578

    

14,504

  

Games (C)

25,139

    

6,177

    

6,886

    

6,037

    

6,039

    

30,748

    

6,705

    

7,844

    

8,095

    

8,104

  

     Total net revenue

$

120,468

    

$

31,453

    

$

31,051

    

$

29,734

    

$

28,230

    

$

125,296

    

$

29,922

    

$

30,823

    

$

33,954

    

$

30,597

  
                                       

Net Revenue

by Product

                                      

Consumer Media

                                      

- License (D)

$

15,406

    

$

4,252

    

$

4,136

    

$

3,914

    

$

3,104

    

$

16,475

    

$

3,967

    

$

3,628

    

$

4,208

    

$

4,672

  

- Subscriptions (E)

7,448

    

1,671

    

1,931

    

1,871

    

1,975

    

8,957

    

2,054

    

2,147

    

2,372

    

2,384

  

- Media Properties (F)

2,197

    

520

    

415

    

615

    

647

    

3,181

    

827

    

720

    

701

    

933

  
                                       

Mobile Services

                                      

- SaaS (G)

69,295

    

18,726

    

17,141

    

17,208

    

16,220

    

63,914

    

16,157

    

16,217

    

18,218

    

13,322

  

- Technology License & Other (H)

983

    

107

    

542

    

89

    

245

    

2,021

    

212

    

267

    

360

    

1,182

  
                                       

Games

                                      

- License (I)

12,415

    

3,178

    

3,683

    

2,793

    

2,761

    

15,174

    

3,268

    

4,128

    

3,943

    

3,835

  

- Subscriptions (J)

11,894

    

2,836

    

3,005

    

3,024

    

3,029

    

13,300

    

3,126

    

3,231

    

3,373

    

3,570

  

- Media Properties (K)

830

    

163

    

198

    

220

    

249

    

2,274

    

311

    

485

    

779

    

699

  
                                       

     Total net revenue

$

120,468

    

$

31,453

    

$

31,051

    

$

29,734

    

$

28,230

    

$

125,296

    

$

29,922

    

$

30,823

    

$

33,954

    

$

30,597

  
                                       

Net Revenue

by Geography

                                      

United States

$

41,505

    

$

10,125

    

$

10,642

    

$

10,355

    

$

10,383

    

$

46,893

    

$

10,781

    

$

11,460

    

$

12,303

    

$

12,349

  

Rest of world

78,963

    

21,328

    

20,409

    

19,379

    

17,847

    

78,403

    

19,141

    

19,363

    

21,651

    

18,248

  

     Total net revenue

$

120,468

    

$

31,453

    

$

31,051

    

$

29,734

    

$

28,230

    

$

125,296

    

$

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 and Reconciliation to non-GAAP Contribution Margin

(Unaudited)
 
   

2016

  

2015

  

2016

  

2015
   

Q4

  

Q3

  

Q4

  

YTD

  

YTD
   

 (in thousands)

Consumer Media

                    
                     

Net revenue

  

$

6,443

    

$

6,482

    

$

6,848

    

$

25,051

    

$

28,613

  

Cost of revenue

  

1,589

    

1,507

    

3,084

    

7,074

    

13,257

  

   Gross profit

  

4,854

    

4,975

    

3,764

    

17,977

    

15,356

  
                     

   Gross margin

  

75

%

  

77

%

  

55

%

  

72

%

  

54

%
                     

Operating expenses

  

4,459

    

4,271

    

6,644

    

18,399

    

26,526

  

Operating income (loss), a GAAP measure

  

$

395

    

$

704

    

$

(2,880)

    

$

(422)

    

$

(11,170)

  

Depreciation and amortization

  

239

    

295

    

1,038

    

2,212

    

2,546

  
                     

  Contribution margin, a non-GAAP measure

  

$

634

    

$

999

    

$

(1,842)

    

$

1,790

    

$

(8,624)

  
                     

Mobile Services

                    
                     

Net revenue

  

$

18,833

    

$

17,683

    

$

16,369

    

$

70,278

    

$

65,935

  

Cost of revenue

  

13,679

    

13,026

    

11,032

    

50,026

    

47,834

  

   Gross profit

  

5,154

    

4,657

    

5,337

    

20,252

    

18,101

  
                     

   Gross margin

  

27

%

  

26

%

  

33

%

  

29

%

  

27

%
                     

Operating expenses

  

7,786

    

8,075

    

9,158

    

34,439

    

44,311

  

Operating income (loss), a GAAP measure

  

$

(2,632)

    

$

(3,418)

    

$

(3,821)

    

$

(14,187)

    

$

(26,210)

  

Acquisitions related intangible asset amortization

  

198

    

208

    

379

    

923

    

1,544

  

Depreciation and amortization

  

290

    

403

    

484

    

1,723

    

2,136

  
                     

Contribution margin, a non-GAAP measure

  

$

(2,144)

    

$

(2,807)

    

$

(2,958)

    

$

(11,541)

    

$

(22,530)

  
                     

Games

                    
                     

Net revenue

  

$

6,177

    

$

6,886

    

$

6,705

    

$

25,139

    

$

30,748

  

Cost of revenue

  

2,054

    

2,203

    

1,698

    

7,919

    

9,291

  

   Gross profit

  

4,123

    

4,683

    

5,007

    

17,220

    

21,457

  
                     

   Gross margin

  

67

%

  

68

%

  

75

%

  

68

%

  

70

%
                     

Operating expenses

  

4,975

    

4,649

    

5,253

    

19,644

    

29,086

  

Operating income (loss), a GAAP measure

  

$

(852)

    

$

34

    

$

(246)

    

$

(2,424)

    

$

(7,629)

  

Acquisitions related intangible asset amortization

  

27

    

29

    

24

    

115

    

799

  

Depreciation and amortization

  

146

    

104

    

197

    

583

    

952

  
                     

   Contribution margin, a non-GAAP measure

  

$

(679)

    

$

167

    

$

(25)

    

$

(1,726)

    

$

(5,878)

  
                     

Corporate

                    
                     

Cost of revenue

  

$

36

    

$

4

    

$

14

    

$

(51)

    

$

(85)

  

   Gross profit

  

(36)

    

(4)

    

(14)

    

51

    

85

  
                     

   Gross margin

  

N/A

    

N/A

    

N/A

    

N/A

    

N/A

  
                     

Operating expenses

  

3,244

    

5,705

    

545

    

20,192

    

24,263

  

Operating income (loss), a GAAP measure

  

$

(3,280)

    

$

(5,709)

    

$

(559)

    

$

(20,141)

    

$

(24,178)

  

Other income (expense), net

  

(128)

    

(243)

    

(122)

    

(643)

    

506

  

Depreciation and amortization

  

260

    

634

    

336

    

1,501

    

2,433

  

Restructuring and other charges

  

192

    

499

    

(284)

    

1,489

    

5,279

  

Stock-based compensation

  

867

    

778

    

937

    

5,424

    

4,698

  

Lease exit and related charges

  

48

    

1,233

    

293

    

2,239

    

2,501

  
                     

   Contribution margin, a non-GAAP measure

  

$

(2,041)

    

$

(2,808)

    

$

601

    

$

(10,131)

    

$

(8,761)

  
                     

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)
 
   

2016

  

2015

  

2016

  

2015
   

 Q4

  

 Q3

  

 Q4

  

 YTD

  

 YTD
   

 (in thousands)
                     

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

Net income (loss)

  

$

(9,976)

    

$

(3,056)

    

$

(8,413)

    

$

(36,550)

    

$

(81,847)

  

Income tax expense (benefit)

  

203

    

331

    

241

    

1,122

    

(834)

  

Interest income, net

  

(133)

    

(119)

    

(83)

    

(449)

    

(680)

  

Gain (loss) on investments, net

  

(2,495)

    

(6,021)

    

(63)

    

(8,473)

    

159

  

Equity in net loss of Rhapsody

  

5,904

    

233

    

690

    

6,533

    

14,521

  

Acquisitions related intangible asset amortization

  

225

    

237

    

403

    

1,038

    

2,343

  

Depreciation and amortization

  

935

    

1,436

    

2,055

    

6,019

    

8,067

  

Restructuring and other charges

  

192

    

499

    

(284)

    

1,489

    

5,279

  

Stock-based compensation

  

867

    

778

    

937

    

5,424

    

4,698

  

Lease exit and related charges

  

48

    

1,233

    

293

    

2,239

    

2,501

  

   Adjusted EBITDA, a non-GAAP measure

  

$

(4,230)

    

$

(4,449)

    

$

(4,224)

    

$

(21,608)

    

$

(45,793)

  

 

SOURCE RealNetworks, Inc.