RealNetworks Announces Second Quarter 2020 Financial Results

Rhea-AI Summary

RealNetworks, Inc. (RNWK) reported Q2 2020 results with consolidated revenue of $40.4 million, down from $44.2 million year-over-year. Core revenue, excluding Napster, was $17.1 million, a 9% increase year-over-year. Games revenue rose 23% year-over-year, reaching $7.5 million. Despite a net loss of $(5.1) million, the adjusted EBITDA improved to $(2.2) million, narrowing losses for the fourth consecutive quarter. The U.S. Air Force awarded the company $1.9 million in SBIR contracts. RealNetworks did not provide Q3 guidance due to COVID-19 uncertainties.

Positive

• Core revenue (excluding Napster) increased 9% year-over-year.
• Games revenue grew 23% year-over-year to $7.5 million.
• Adjusted EBITDA loss narrowed for the fourth straight quarter.

Negative

• Consolidated revenue declined from $44.2 million in Q2 2019 to $40.4 million.
• Net loss attributable to RealNetworks was $(5.1) million.

SEATTLE, Aug. 5, 2020 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the second quarter ended June 30, 2020.

• Consolidated revenue of $40.4 million; core revenue without Napster of $17.1 million, up 9% year-over-year
• Games revenue up 23% year-over-year and 12% quarter-over-quarter driven by success of free-to-play strategy
• Introduced two innovative new AI-powered consumer PC software products: RealPlayer® 20/20 and StarSearch™ by Real®
• SAFR was awarded two Phase II Small Business Innovation Research (SBIR) contracts with the United States Air Force worth $1.9 million
• The RealNetworks Foundation committed $1 million in 2020 grants to help address racial injustice and the COVID-19 Pandemic
• Appointed Mike Ensing President and Chief Operating Officer, succeeding Max Pellegrini

Management Commentary
"In Q2 Real delivered solid results. We were very pleased with our strong operational execution in the first full quarter of living and working during the global pandemic," said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "We generated a 9% year-over-year increase in our core revenue when not including Napster. In addition, we narrowed our adjusted EBITDA loss, our fourth consecutive quarter of year-over-year improvement in this metric. We are putting an appropriate amount of fuel into our growth businesses while also closely managing our overall expenses."

Mr. Glaser continued, "We were excited to introduce two new consumer products in commemoration of the 25^th anniversary of the streaming industry. RealPlayer® 20/20 and StarSearch™ by Real® utilize the power of AI and our SAFR computer vision platform to make streaming in today's world even better. In addition, we are continuing to enhance our world-class SAFR platform and service focused primarily on the traditional security and safety markets along with innovations focused on new needs at the intersection of public health and public safety. In particular, we were honored to be awarded two SBIR contracts by the U.S. Air Force.  These contracts both enable us to continue to enhance the SAFR platform and also support the important missions of our U.S. armed forces while enhancing their safety."

Second Quarter 2020 Financial Highlights

• Revenue was $40.4 million compared to $43.1 million in the prior quarter and $44.2 million in the prior year period. RealNetworks' core revenue without Napster was $17.1 million, up 2% from $16.8 million in the prior quarter and up 9% from $15.7 million in the prior year period.
• Games revenue was $7.5 million, up 12% compared to $6.6 million in the prior quarter and up 23% compared to $6.0 million in the prior year period.
• Gross profit margin was 43%, down from 44% in the prior quarter and up from 38% in the prior year period. RealNetworks' core gross profit margin without Napster was 75%, down from 76% in the prior quarter and up from 73% in the prior year period.
• Operating expenses decreased $1.8 million, or 7%, from the prior quarter and decreased $4.1 million, or 15%, from the prior year period.
• Net loss attributable to RealNetworks was $(5.1) million, or $(0.13) per diluted share, compared to a net loss of $(4.6) million, or $(0.12) per diluted share, in the prior quarter and a net loss of $(9.2) million, or $(0.24) per diluted share, in the prior year period.
• Adjusted EBITDA was a loss of $(2.2) million compared to a loss of $(3.3) million in the prior quarter and a loss of $(6.3) million in the prior year period.
• At June 30, 2020, the Company had $19.7 million in unrestricted cash and cash equivalents compared to $19.0 million at March 31, 2020.

Corporate Developments

• On June 1, 2020, the Company received a second letter from Nasdaq Staff indicating that the Company had regained compliance with Nasdaq Listing Rule 5450(a)(1). Nasdaq Staff further indicated that the matter is now closed.
• On July 9, 2020, The RealNetworks Foundation, a philanthropic arm of RealNetworks, Inc., allocated an additional $1 million in grants for 2020 to help address the immediate needs stemming from racial injustice and COVID-19, two historic challenges that have disproportionally impacted communities of color. The RealNetworks Foundation has directed $500,000 to each cause, applying the funds to both local and national recipients. More information on the RealNetworks Foundation can be found at https://www.realnetworks.com/realnetworks-foundation.
• On August 4, 2020, the Company announced the appointment of Mike Ensing to the position of President and Chief Operating Officer, succeeding Max Pellegrini. Mr. Ensing previously served as interim CFO and as a strategic advisor to the Company from early January to early May of this year. Mr. Ensing will assume worldwide responsibility for the operations of Real's core businesses and will help guide strategic decision-making.

Business Outlook

Given the ongoing uncertainty surrounding the global economy and the future impact of COVID-19, RealNetworks is not providing guidance for the third quarter ending September 30, 2020.

Conference Call and Webcast Information

RealNetworks will host a conference call today to review its results and discuss its performance at approximately 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-855-327-6837 (United States) or 1-631-891-4304 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Wednesday, August 26, 2020, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 10010362.

A live webcast will be available on RealNetworks' Investor Relations site under the Events & Presentations section at http://investor.realnetworks.com and will be archived online upon completion of the conference call.

About RealNetworks

Building on a legacy of digital media expertise and innovation, RealNetworks has created a new generation of products that employ best-in-class artificial intelligence and machine learning to enhance and secure our daily lives. SAFR (www.safr.com) is the world's premier facial recognition platform for live video. Leading in real-world performance and accuracy as evidenced in testing by NIST, SAFR enables new applications for security, convenience, and analytics. For information about our other products, visit www.realnetworks.com.

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) including noncontrolling interests 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 our current expectations regarding our future growth, profitability, and market position, our financial condition and liquidity, our strategic focus and initiatives, product plans, agreements with partners, use of loan proceeds, our ability to maintain compliance with Nasdaq listing standards, and the growth and future prospects relating to our Napster segment. 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 our expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results for RealNetworks, on a consolidated basis, to differ from the results predicted include: our ability to realize operating efficiencies, growth and other benefits from the implementation of our growth initiatives and restructuring efforts; cash usage and conservation, and the pursuit of additional funding sources; successful monetization of our products and services; competitive risks, including the emergence or growth of competing technologies, products and services; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets, including changes in consumer spending and impacts to credit availability; fluctuations in foreign currencies; and unique risk factors that relate to our Napster segment, such as risks stemming from its streaming music service and related music royalties. More information about potential risk factors that could affect our business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, 2019, 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 our financial statements and forward-looking financial guidance requires us 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. RealNetworks assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

For More Information:
Investor Relations for RealNetworks
Kimberly Orlando, Addo Investor Relations
310-829-5400
IR@realnetworks.com 
RNWK-F

 

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
	Quarter Ended June 30,								Six Months Ended June 30,
	2020				2019				2020				2019
	(in thousands, except per share data)
Net revenue	$	40,424			$	44,248			$	83,569			$	83,720
Cost of revenue	23,033				27,282				47,209				52,152
Gross profit	17,391				16,966				36,360				31,568
Operating expenses:
Research and development	7,802				8,876				16,420				17,709
Sales and marketing	6,927				8,360				15,044				16,502
General and administrative	6,680				8,392				13,793				16,756
Restructuring and other charges	881				729				1,090				896
Total operating expenses	22,290				26,357				46,347				51,863
Operating loss	(4,899)				(9,391)				(9,987)				(20,295)
Other income (expenses):
Interest expense	(278)				(43)				(540)				(209)
Interest income	23				40				28				117
Gain (loss) on equity investments, net	(53)				—				(53)				12,338
Other income (expenses), net	(134)				183				661				310
Total other income (expenses), net	(442)				180				96				12,556
Income (loss) before income taxes	(5,341)				(9,211)				(9,891)				(7,739)
Income tax expense	213				244				352				502
Net income (loss) including noncontrolling interests	(5,554)				(9,455)				(10,243)				(8,241)
Net income (loss) attributable to noncontrolling interests	(442)				(253)				(489)				(572)
Net income (loss) attributable to RealNetworks	$	(5,112)			$	(9,202)			$	(9,754)			$	(7,669)
Net income (loss) per share attributable to RealNetworks- Basic:	$	(0.13)			$	(0.24)			$	(0.26)			$	(0.20)
Net income (loss) per share attributable to RealNetworks- Diluted:	$	(0.13)			$	(0.24)			$	(0.26)			$	(0.20)
Shares used to compute basic net income (loss) per share	38,243				37,948				38,236				37,885
Shares used to compute diluted net income (loss) per share	38,243				37,948				38,236				37,885

 

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)
	June 30, 2020				December 31, 2019
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	19,688			$	16,805
Trade accounts receivable, net	28,289				29,507
Deferred costs, current portion	743				823
Prepaid expenses and other current assets	5,688				7,445
Total current assets	54,408				54,580
Equipment and software	30,862				32,167
Leasehold improvements	2,916				3,311
Total equipment, software, and leasehold improvements	33,778				35,478
Less accumulated depreciation and amortization	31,297				32,657
Net equipment, software, and leasehold improvements	2,481				2,821
Operating lease assets	10,058				11,592
Restricted cash equivalents	5,374				5,374
Other assets	992				1,891
Deferred costs, non-current portion	1,004				1,021
Deferred tax assets, net	756				761
Other intangible assets, net	16,931				19,286
Goodwill	62,336				62,428
Total assets	$	154,340			$	159,754
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,125			$	4,927
Accrued royalties, fulfillment and other current liabilities	75,865				77,303
Deferred revenue, current portion	6,181				6,620
Notes payable	4,495				7,331
Total current liabilities	90,666				96,181
Deferred revenue, non-current portion	396				96
Deferred tax liabilities, net	1,122				1,172
Long-term lease liabilities	7,088				8,466
Long-term debt	8,495				3,900
Other long-term liabilities	8,232				11,666
Total liabilities	115,999				121,481
Total shareholders' equity	39,332				38,775
Noncontrolling interests	(991)				(502)
Total equity	38,341				38,273
Total liabilities and equity	$	154,340			$	159,754

 

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended June 30,
	2020				2019
	(in thousands)
Cash flows from operating activities:
Net income (loss) including noncontrolling interests	$	(10,243)			$	(8,241)
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash used in operating activities:
Depreciation and amortization	2,832				2,959
Stock-based compensation	703				1,917
(Gain) loss on equity investments, net	53				(12,338)
Foreign currency (gain) loss	(612)				(315)
Fair value adjustments to contingent consideration liability	(200)				300
Net change in certain operating assets and liabilities	(1,110)				(381)
Net cash used in operating activities	(8,577)				(16,099)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(326)				(873)
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	(326)				11,411
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)	—				144
Proceeds from issuance of preferred stock	10,000				—
Tax payments from shares withheld upon vesting of restricted stock	(5)				(287)
Proceeds from notes payable and long-term debt	18,776				19,760
Repayments of notes payable and long-term debt	(16,889)				(24,018)
Other financing activities	—				450
Net cash provided by (used in) financing activities	11,882				(3,951)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(96)				(89)
Net increase (decrease) in cash, cash equivalents and restricted cash	2,883				(8,728)
Cash, cash equivalents and restricted cash, beginning of period	22,179				37,191
Cash, cash equivalents and restricted cash, end of period	$	25,062			$	28,463

 

RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited)
	2020								2019
	Q2				Q1				Q4				Q3				Q2				Q1
	(in thousands)
Net Revenue by Segment
Consumer Media (A)	$	3,159			$	3,495			$	4,432			$	3,632			$	2,620			$	2,486
Mobile Services (B)	6,461				6,690				6,312				6,895				6,997				6,939
Games (C)	7,465				6,637				6,567				7,164				6,048				5,710
Napster (D)	23,339				26,323				26,089				27,302				28,583				24,337
Total net revenue	$	40,424			$	43,145			$	43,400			$	44,993			$	44,248			$	39,472
Net Revenue by Product
Consumer Media
- Software License (E)	$	1,702			$	2,020			$	2,856			$	1,987			$	944			$	735
- Subscription Services (F)	898				929				992				1,028				1,040				1,088
- Product Sales (G)	261				222				193				207				206				219
- Advertising & Other (H)	298				324				391				410				430				444
Mobile Services
- Software License (I)	972				831				657				888				957				599
- Subscription Services (J)	5,489				5,859				5,655				6,007				6,040				6,340
Games
- Subscription Services (K)	2,730				2,770				3,007				3,056				3,073				2,985
- Product Sales (L)	3,712				2,978				2,580				3,078				2,177				1,988
- Advertising & Other (M)	1,023				889				980				1,030				798				737
Napster
- Subscription Services (N)	23,339				26,323				26,089				27,302				28,583				24,337
Total net revenue	$	40,424			$	43,145			$	43,400			$	44,993			$	44,248			$	39,472
Net Revenue by Geography
United States	$	20,785			$	22,420			$	21,053			$	22,015			$	21,322			$	18,970
Rest of world	19,639				20,725				22,347				22,978				22,926				20,502
Total net revenue	$	40,424			$	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 player purchases of in-game virtual goods within our free-to-play games, mobile and PC games, online games subscription services, 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 player purchases of in-game virtual goods, retail and wholesale games-related revenue, sales of mobile games.
(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				2020				2019
	Q2				Q1				Q2				YTD				YTD
	(in thousands)
Consumer Media
Net revenue	$	3,159			$	3,495			$	2,620			$	6,654			$	5,106
Cost of revenue	519				611				803				1,130				1,636
Gross profit	2,640				2,884				1,817				5,524				3,470
Gross margin	84		%		83		%		69		%		83		%		68		%
Operating expenses	2,204				2,458				2,877				4,662				5,996
Operating income (loss), a GAAP measure	$	436			$	426			$	(1,060)			$	862			$	(2,526)
Depreciation and amortization	15				13				56				28				110
Contribution margin, a non-GAAP measure	$	451			$	439			$	(1,004)			$	890			$	(2,416)
Mobile Services
Net revenue	$	6,461			$	6,690			$	6,997			$	13,151			$	13,936
Cost of revenue	1,782				1,696				1,865				3,478				3,913
Gross profit	4,679				4,994				5,132				9,673				10,023
Gross margin	72		%		75		%		73		%		74		%		72		%
Operating expenses	5,682				7,588				7,438				13,270				14,999
Operating income (loss), a GAAP measure	$	(1,003)			$	(2,594)			$	(2,306)			$	(3,597)			$	(4,976)
Depreciation and amortization	102				98				106				200				337
Contribution margin, a non-GAAP measure	$	(901)			$	(2,496)			$	(2,200)			$	(3,397)			$	(4,639)
Games
Net revenue	$	7,465			$	6,637			$	6,048			$	14,102			$	11,758
Cost of revenue	1,958				1,794				1,655				3,752				3,325
Gross profit	5,507				4,843				4,393				10,350				8,433
Gross margin	74		%		73		%		73		%		73		%		72		%
Operating expenses	4,976				4,923				5,288				9,899				10,325
Operating income (loss), a GAAP measure	$	531			$	(80)			$	(895)			$	451			$	(1,892)
Acquisitions related intangible asset amortization	—				—				—				—				23
Depreciation and amortization	66				138				84				204				167
Contribution margin, a non-GAAP measure	$	597			$	58			$	(811)			$	655			$	(1,702)
Napster
Net revenue	$	23,339			$	26,323			$	28,583			$	49,662			$	52,920
Cost of revenue	18,770				20,072				23,026				38,842				43,422
Gross profit	4,569				6,251				5,557				10,820				9,498
Gross margin	20		%		24		%		19		%		22		%		18		%
Operating expenses	6,609				6,461				6,638				13,070				12,170
Operating income (loss), a GAAP measure	$	(2,040)			$	(210)			$	(1,081)			$	(2,250)			$	(2,672)
Acquisitions related intangible asset amortization	1,124				1,125				1,129				2,249				2,072
Depreciation and amortization	59				32				69				91				184
Restructuring and other charges	177				122				—				299				—
Contribution margin, a non-GAAP measure	$	(680)			$	1,069			$	117			$	389			$	(416)
Corporate
Cost of revenue	$	4			$	3			$	(67)			$	7			$	(144)
Gross profit	(4)				(3)				67				(7)				144
Gross margin	N/A				N/A				N/A				N/A				N/A
Operating expenses	2,819				2,627				4,116				5,446				8,373
Operating income (loss), a GAAP measure	$	(2,823)			$	(2,630)			$	(4,049)			$	(5,453)			$	(8,229)
Other income (expense), net	(134)				795				183				661				310
Foreign currency (gain) loss	155				(767)				(164)				(612)				(315)
Depreciation and amortization	30				30				33				60				66
Fair value adjustments to contingent consideration liability	100				(300)				300				(200)				300
Restructuring and other charges	704				87				729				791				896
Stock-based compensation	323				380				533				703				1,917
Contribution margin, a non-GAAP measure	$	(1,645)			$	(2,405)			$	(2,435)			$	(4,050)			$	(5,055)

 

RealNetworks, Inc. and Subsidiaries Reconciliation of Net income (loss) including noncontrolling interests to adjusted EBITDA, a non-GAAP measure (Unaudited)
	2020								2019				2020				2019
	Q2				Q1				Q2				YTD				YTD
	(in thousands)
Reconciliation of GAAP Net income (loss) including noncontrolling interests to adjusted EBITDA:
Net income (loss) including noncontrolling interests	$	(5,554)			$	(4,689)			$	(9,455)			$	(10,243)			$	(8,241)
Income tax expense (benefit)	213				139				244				352				502
Interest expense	278				262				43				540				209
Interest income	(23)				(5)				(40)				(28)				(117)
(Gain) loss on equity investments, net	53				—				—				53				(12,338)
Foreign currency (gain) loss	155				(767)				(164)				(612)				(315)
Acquisitions related intangible asset amortization	1,124				1,125				1,129				2,249				2,095
Depreciation and amortization	272				311				348				583				864
Fair value adjustments to contingent consideration liability	100				(300)				300				(200)				300
Restructuring and other charges	881				209				729				1,090				896
Stock-based compensation	323				380				533				703				1,917
Adjusted EBITDA, a non-GAAP measure	$	(2,178)			$	(3,335)			$	(6,333)			$	(5,513)			$	(14,228)

 

 

View original content to download multimedia:http://www.prnewswire.com/news-releases/realnetworks-announces-second-quarter-2020-financial-results-301106894.html

SOURCE RealNetworks, Inc.

FAQ

What are RealNetworks' Q2 2020 financial results?

RealNetworks reported Q2 2020 revenue of $40.4 million, with a net loss of $(5.1) million.

How did RealNetworks' core revenue perform in Q2 2020?

Core revenue, excluding Napster, was $17.1 million, representing a 9% increase year-over-year.

What was the impact of the COVID-19 pandemic on RealNetworks?

RealNetworks did not provide guidance for Q3 due to the ongoing uncertainty from COVID-19.

What significant contracts did RealNetworks secure in Q2 2020?

RealNetworks was awarded two Phase II SBIR contracts worth $1.9 million from the U.S. Air Force.

What is the outlook for RealNetworks following Q2 results?

The outlook remains uncertain due to the COVID-19 pandemic, and no Q3 guidance was provided.