RealNetworks Announces First Quarter 2020 Financial Results

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

Quarter Ended
March 31,

2020

2019

 (in thousands, except per share data)

 Net revenue

$

43,145

$

39,472

 Cost of revenue

24,176

24,870

           Gross profit

18,969

14,602

 Operating expenses:

       Research and development

8,618

8.833

       Sales and marketing

8,117

8,142

       General and administrative

7,113

8,364

       Restructuring and other charges

209

167

           Total operating expenses

24,057

25,506

 Operating loss

(5,088)

(10,904)

 Other income (expenses):

       Interest expense

(262)

(166)

       Interest income

5

77

       Gain (loss) on equity investment, net

—

12,338

       Other income (expenses), net

795

127

           Total other income (expenses), net

538

12,376

 Income (loss) before income taxes

(4,550)

1,472

 Income tax expense

139

258

Net income (loss) including noncontrolling interests

(4,689)

1,214

Net income (loss) attributable to noncontrolling interests

(47)

(319)

Net income (loss) attributable to RealNetworks

$

(4,642)

$

1,533

Net income (loss) per share attributable to RealNetworks- Basic:

$

(0.12)

$

0.04

Net income (loss) per share attributable to RealNetworks- Diluted:

$

(0.12)

$

0.04

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

38,229

37,820

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

38,229

37,912

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

March 31,
2020

December 31,
2019

 (in thousands)

ASSETS

 Current assets:

 Cash and cash equivalents

$

19,046

$

16,805

 Trade accounts receivable, net

26,991

29,507

 Deferred costs, current portion

865

823

 Prepaid expenses and other current assets

8,873

7,445

    Total current assets

55,775

54,580

 Equipment and software

30,419

32,167

 Leasehold improvements

2,903

3,311

    Total equipment, software, and leasehold improvements

33,322

35,478

 Less accumulated depreciation and amortization

30,801

32,657

    Net equipment, software, and leasehold improvements

2,521

2,821

 Operating lease assets

10,961

11,592

 Restricted cash equivalents

5,374

5,374

 Other assets

1,150

1,891

 Deferred costs, non-current portion

1,156

1,021

 Deferred tax assets, net

752

761

 Other intangible assets, net

18,016

19,286

 Goodwill

62,202

62,428

 Total assets

$

157,907

$

159,754

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable

$

4,996

$

4,927

 Accrued royalties, fulfillment and other current liabilities

77,127

77,303

 Deferred revenue, current portion

6,437

6,620

 Notes payable

4,797

7,331

    Total current liabilities

93,357

96,181

 Deferred revenue, non-current portion

287

96

 Deferred tax liabilities, net

1,116

1,172

 Long-term lease liabilities

7,770

8,466

 Long-term debt

3,900

3,900

 Other long-term liabilities

8,420

11,666

 Total liabilities

114,850

121,481

 Total shareholders' equity

43,606

38,775

Noncontrolling interests

(549)

(502)

 Total equity

43,057

38,273

 Total liabilities and equity

$

157,907

$

159,754

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended
March 31,

2020

2019

 (in thousands)

 Cash flows from operating activities:

Net income (loss) including noncontrolling interests

$

(4,689)

$

1,214

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

Depreciation and amortization

1,436

1,482

Stock-based compensation

380

1,384

(Gain) loss on equity investment, net

—

(12,338)

Foreign currency (gain) loss

(767)

(151)

Fair value adjustments to contingent consideration liability

(300)

—

Net change in certain operating assets and liabilities

(684)

(910)

  Net cash used in operating activities

(4,624)

(9,319)

 Cash flows from investing activities:

Purchases of equipment, software, and leasehold improvements

(94)

(482)

Proceeds from sales and maturities of short-term investments

—

24

Acquisition, net of cash acquired

—

12,260

 Net cash (used in) provided by investing activities

(94)

11,802

 Cash flows from financing activities:

Proceeds from issuance of preferred stock

10,000

—

Tax payments from shares withheld upon vesting of restricted stock

—

(271)

Proceeds from notes payable and revolving credit facility

8,768

9,733

Repayments of notes payable and revolving credit facility

(11,172)

(8,437)

Other financing activities

—

450

 Net cash provided by financing activities

7,596

1,475

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

(637)

(207)

 Net increase in cash, cash equivalents and restricted cash

2,241

3,751

 Cash, cash equivalents and restricted cash, beginning of period

22,179

37,191

 Cash, cash equivalents and restricted cash, end of period

$

24,420

$

40,942

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2020

2019

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Segment

Consumer Media (A)

$

3,495

$

4,432

$

3,632

$

2,620

$

2,486

Mobile Services (B)

6,690

6,312

6,895

6,997

6,939

Games (C)

6,637

6,567

7,164

6,048

5,710

Napster (D)

26,323

26,089

27,302

28,583

24,337

     Total net revenue

$

43,145

$

43,400

$

44,993

$

44,248

$

39,472

Net Revenue by Product

Consumer Media

- Software License (E)

$

2,020

$

2,856

$

1,987

$

944

$

735

- Subscription Services (F)

929

992

1,028

1,040

1,088

- Product Sales (G)

222

193

207

206

219

- Advertising & Other (H)

324

391

410

430

444

Mobile Services

- Software License (I)

831

657

888

957

599

- Subscription Services (J)

5,859

5,655

6,007

6,040

6,340

Games

- Subscription Services (K)

2,770

3,007

3,056

3,073

2,985

- Product Sales (L)

2,978

2,580

3,078

2,177

1,988

- Advertising & Other (M)

889

980

1,030

798

737

Napster

- Subscription Services (N)

26,323

26,089

27,302

28,583

24,337

     Total net revenue

$

43,145

$

43,400

$

44,993

$

44,248

$

39,472

Net Revenue by Geography

United States

$

22,420

$

21,053

$

22,015

$

21,322

$

18,970

Rest of world

20,725

22,347

22,978

22,926

20,502

     Total net revenue

$

43,145

$

43,400

$

44,993

$

44,248

$

39,472

Net Revenue by Segment

(A) The Consumer Media segment 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 segment primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.

(C) The Games segment primarily includes revenue from sales of mobile and PC games, online games subscription services, player purchases of in-game virtual goods, and advertising on games sites and social network sites.

(D) The Napster segment primarily includes revenue from subscription music offerings from on-demand streaming services and conditional downloads. Napster revenues are included in our consolidated results from the January 18, 2019 acquisition date forward.

Net Revenue by Product

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

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

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

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

(I) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform and our facial recognition platform, SAFR.

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

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

(L) Product sales revenue within Games includes revenue from retail and wholesale games-related revenue, sales of mobile games, and player purchases of in-game virtual goods.

(M) Advertising & other revenue within Games includes advertising on games sites and social network sites.

(N) Subscription services revenue within Napster includes music tracks by way of on-demand streaming and conditional downloads offered directly to end consumers and distribution partners.

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin

(Unaudited)

2020

2019

Q1

Q4

Q1

 (in thousands)

Consumer Media

Net revenue

$

3,495

$

4,432

$

2,486

Cost of revenue

611

690

833

Gross profit

2,884

3,742

1,653

Gross margin

83

%

84

%

66

%

Operating expenses

2,458

2,498

3,119

Operating income (loss), a GAAP measure

$

426

$

1,244

$

(1,466)

Depreciation and amortization

13

34

54

Contribution margin, a non-GAAP measure

$

439

$

1,278

$

(1,412)

Mobile Services

Net revenue

$

6,690

$

6,312

$

6,939

Cost of revenue

1,696

1,866

2,048

Gross profit

4,994

4,446

4,891

Gross margin

75

%

70

%

70

%

Operating expenses

7,588

7,198

7,561

Operating income (loss), a GAAP measure

$

(2,594)

$

(2,752)

$

(2,670)

Depreciation and amortization

98

100

231

Contribution margin, a non-GAAP measure

$

(2,496)

$

(2,652)

$

(2,439)

Games

Net revenue

$

6,637

$

6,567

$

5,710

Cost of revenue

1,794

1,716

1,670

Gross profit

4,843

4,851

4,040

Gross margin

73

%

74

%

71

%

Operating expenses

4,923

4,744

5,037

Operating income (loss), a GAAP measure

$

(80)

$

107

$

(997)

Acquisitions related intangible asset amortization

—

—

23

Depreciation and amortization

138

85

83

Contribution margin, a non-GAAP measure

$

58

$

192

$

(891)

Napster

Net revenue

$

26,323

$

26,089

$

24,337

Cost of revenue

20,072

20,493

20,396

Gross profit

6,251

5,596

3,941

Gross margin

24

%

21

%

16

%

Operating expenses

6,461

7,147

5,532

Operating income (loss), a GAAP measure

$

(210)

$

(1,551)

$

(1,591)

Acquisitions related intangible asset amortization

1,125

1,126

943

Depreciation and amortization

32

60

115

Restructuring and other charges

122

544

—

Contribution margin, a non-GAAP measure

$

1,069

$

179

$

(533)

Corporate

Cost of revenue

$

3

$

(68)

$

(77)

Gross profit

(3)

68

77

Gross margin

N/A

N/A

N/A

Operating expenses

2,627

2,999

4,257

Operating income (loss), a GAAP measure

$

(2,630)

$

(2,931)

$

(4,180)

Other income (expense), net

795

(431)

127

Foreign currency (gain) loss

(767)

494

(151)

Depreciation and amortization

30

32

33

Fair value adjustments to contingent consideration liability

(300)

300

—

Restructuring and other charges

87

367

167

Stock-based compensation

380

461

1,384

Contribution margin, a non-GAAP measure

$

(2,405)

$

(1,708)

$

(2,620)

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2020

2019

Q1

 Q4

 Q1

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

Net income (loss) including noncontrolling interests

$

(4,689)

$

(6,763)

$

1,214

Income tax expense (benefit)

139

256

258

Interest expense

262

207

166

Interest income

(5)

(14)

(77)

(Gain) loss on equity investment, net

—

—

(12,338)

Foreign currency (gain) loss

(767)

494

(151)

Acquisitions related intangible asset amortization

1,125

1,126

966

Depreciation and amortization

311

311

516

Fair value adjustments to contingent consideration liability

(300)

300

—

Restructuring and other charges

209

911

167

Stock-based compensation

380

461

1,384

   Adjusted EBITDA, a non-GAAP measure

$

(3,335)

$

(2,711)

$

(7,895)