RealNetworks Announces First Quarter 2016 Results

RealNetworks Announces First Quarter 2016 Results

- Continued progress in stabilizing revenue and setting the company up for a return to revenue growth and profitability in 2016;

- Realigned 2 of Real's 3 main operating divisions - Mobile Services and Consumer Media;

- Signed up Vodafone as our first European Carrier integrating RealTimes® into its offerings;

- Strengthened management by hiring Reza Rassool as CTO of RealNetworks, and Mike Davis as CEO of Rhapsody International; and

- Cash and short-term investments of $86.8 million

SEATTLE, May 5, 2016 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2016.

For the first quarter of 2016, revenue was $28.2 million compared to $29.9 million in the previous quarter and $28.8 million in the first quarter of 2015, excluding revenue from the Slingo and social casino games business, which was sold during the third quarter of 2015.

"In the first quarter of 2016, we continued to make progress in turning RealNetworks around and setting the company up for growth and a return to profitability in the quarters ahead," said Rob Glaser, Chairman and CEO of RealNetworks. "First, we realigned 2 of our divisions to focus our business on the best opportunities in front of us. Second, we hired Reza Rassool as CTO and helped bring in Mike Davis as CEO of our affiliate Rhapsody. Third, we continued to make progress on stabilizing the company's revenue while continuing to manage operating expenses carefully."

Pursuant to the realignment, the company re-segmented its first quarter 2016 and historical financial statements to reflect these changes and a change in the corporate expense allocation methodology reflected in the tables presented below.

The Company's operating expenses in the first quarter of 2016 were down 16% from the same period in 2015, excluding stock compensation, restructuring charges, expenses from the Slingo and social casino games business, and the impact of a non-cash warrant from Rhapsody.

GAAP net loss for the first quarter of 2016 was $(15.2) million or $(0.42) per share, compared to $(24.5) million or $(0.68) per share in the first quarter of 2015. Adjusted EBITDA for the first quarter of 2016 was a loss of $(8.1) million, compared to $(4.2) million for the previous quarter and $(10.8) million for the first quarter of 2015, excluding the results of the Slingo and social casino games business, which was sold in August 2015. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2016, the company had $86.8 million in unrestricted cash, cash equivalents and short-term investments, compared to $99.1 million as of December 31, 2015.

Business Outlook

For the second quarter of 2016, RealNetworks expects total revenue in the range of $26 million to $29 million and an adjusted EBITDA loss for the second 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: First 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, May 26, 2016 by calling 800-678-8548 or +1-402-220-6449 (Passcode: 5516).

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 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
March 31,
---------


2016 2015
---- ----

(in thousands, except per share data)


Net revenue $28,230 $30,597

Cost of revenue 15,172 16,547

Gross profit 13,058 14,050
------ ------


Operating expenses:

Research and development 9,319 12,379

Sales and marketing 9,225 12,837

General and administrative 8,077 7,283

Restructuring and other
charges 385 485

Lease exit and related
charges 831 78
--- ---


Total operating expenses 27,837 33,062
------ ------


Operating income (loss) (14,779) (19,012)
------- -------


Other income (expenses):

Interest income, net 117 200

Gain (loss) on investments,
net 3 299

Equity in net loss of
Rhapsody - (6,180)

Other income (expense), net (287) 443
---- ---


Total other income
(expense), net (167) (5,238)
---- ------


Income (loss) before income
taxes (14,946) (24,250)

Income tax expense
(benefit) 225 219
--- ---


Net income (loss) $(15,171) $(24,469)
======== ========


Basic net income (loss) per
share $(0.42) $(0.68)

Diluted net income (loss)
per share $(0.42) $(0.68)


Shares used to compute
basic net income (loss)
per share 36,520 36,104

Shares used to compute
diluted net income (loss)
per share 36,520 36,104





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


March 31, December 31,
2016 2015
---- ----

(in thousands)

ASSETS

Current assets:

Cash and cash
equivalents $40,539 $47,315

Short-term
investments 46,289 51,814

Trade
accounts
receivable,
net 23,527 22,511

Deferred
costs,
current
portion 452 460

Prepaid
expenses and
other
current
assets 5,563 7,140
----- -----

Total current
assets 116,370 129,240
------- -------


Equipment and
software 61,330 66,702

Leasehold
improvements 3,190 3,122
----- -----

Total
equipment,
software,
and
leasehold
improvements 64,520 69,824

Less
accumulated
depreciation
and
amortization 56,983 61,024
------ ------

Net
equipment,
software,
and
leasehold
improvements 7,537 8,800


Restricted
cash
equivalents
and
investments 3,100 2,890

Available for
sale
securities 1,910 1,721

Other assets 2,273 2,307

Deferred
costs, non-
current
portion 660 212

Deferred tax
assets, net 996 957

Other
intangible
assets, net 1,753 2,136

Goodwill 13,099 13,080
------ ------


Total assets $147,698 $161,343
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $15,368 $17,050

Accrued and
other
current
liabilities 17,110 17,320

Deferred
revenue,
current
portion 3,537 3,497
----- -----

Total current
liabilities 36,015 37,867


Deferred
revenue,
non-current
portion 583 105

Deferred rent 579 620

Deferred tax
liabilities,
net 90 88

Other long-
term
liabilities 1,668 1,980
----- -----


Total
liabilities 38,935 40,660
------ ------



Shareholders'
equity 108,763 120,683
------- -------


Total
liabilities
and
shareholders'
equity $147,698 $161,343
======== ========



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


Quarters Ended
March 31,
---------


2016 2015
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(15,171) $(24,469)

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

Depreciation and
amortization 2,598 2,503

Stock-based
compensation 3,171 1,329

Equity in net loss of
Rhapsody - 6,180

Deferred income taxes,
net (128) (77)

Loss (gain) on
investments, net (3) (299)

Fair value of warrants
granted in 2015, net of
subsequent mark to
market adjustments in
2016 and 2015 44 (1,155)

Net change in certain
operating assets and
liabilities (1,722) (4,106)
------

Net cash provided by
(used in) operating
activities (11,211) (20,094)
------- -------

Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (828) (306)

Proceeds from sale of
available for sale
securities - 352

Purchases of short-term
investments (17,876) (6,018)

Proceeds from sales and
maturities of short-
term investments 23,401 33,077

Decrease (increase) in
restricted cash
equivalents and
investments, net (210) -

Advance to Rhapsody - (5,000)

Net cash provided by
(used in) investing
activities 4,487 22,105
----- ------

Cash flows from financing activities:

Proceeds from issuance
of common stock (stock
options and stock
purchase plan) 16 6

Tax payments from shares
withheld upon vesting
of restricted stock (787) (7)

Net cash provided by
(used in) financing
activities (771) (1)
---- ---

Effect of exchange rate
changes on cash and
cash equivalents 719 (2,269)
--- ------

Net increase (decrease)
in cash and cash
equivalents (6,776) (259)

Cash and cash
equivalents, beginning
of period 47,315 103,253
------ -------

Cash and cash
equivalents, end of
period $40,539 $102,994
======= ========






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


2016 2015
---- ----

Q1 Q4 Q3 Q2 Q1
--- --- --- --- ---

(in thousands)

Net Revenue by Line of Business

Consumer Media (A) $5,726 $6,848 $6,495 $7,281 $7,989

Mobile Services (B) 16,465 16,369 16,484 18,578 14,504

Games (C) 6,039 6,705 7,844 8,095 8,104

Total net revenue $28,230 $29,922 $30,823 $33,954 $30,597
======= ======= ======= ======= =======


Net Revenue by Product

Consumer Media
--------------

- License (D) $3,104 $3,967 $3,628 $4,208 $4,672

- Subscriptions (E) 1,975 2,054 2,147 2,372 2,384

-Media Properties
(F) 647 827 720 701 933


Mobile Services
---------------

- SaaS (G) 16,220 16,157 16,217 18,218 13,322

-Technology
License & Other
(H) 245 212 267 360 1,182


Games
-----

- License (I) 2,761 3,268 4,128 3,943 3,835

- Subscriptions (J) 3,029 3,126 3,231 3,373 3,570

-Media Properties
(K) 249 311 485 779 699
--- --- --- --- ---


Total net revenue $28,230 $29,922 $30,823 $33,954 $30,597
======= ======= ======= ======= =======


Net Revenue by Geography

United States $10,383 $10,781 $11,460 $12,303 $12,349

Rest of world 17,847 19,141 19,363 21,651 18,248
------ ------ ------ ------ ------

Total net revenue $28,230 $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
(Unaudited)


2016 2015
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)

Consumer Media
--------------


Net revenue $5,726 $6,848 $7,989

Cost of revenue 2,417 3,084 3,464

Gross profit 3,309 3,764 4,525


Gross margin 58% 55% 57%


Operating expenses 5,376 6,644 6,594

Operating income (loss) $(2,067) $(2,880) $(2,069)


Adjusted EBITDA $(764) $(1,842) $(1,558)


Mobile Services
---------------


Net revenue $16,465 $16,369 $14,504

Cost of revenue 10,917 11,032 10,308

Gross profit 5,548 5,337 4,196


Gross margin 34% 33% 29%


Operating expenses 9,794 9,158 11,961

Operating income (loss) $(4,246) $(3,821) $(7,765)


Adjusted EBITDA $(3,516) $(2,958) $(6,793)


Games
-----


Net revenue $6,039 $6,705 $8,104

Cost of revenue 1,845 1,698 2,794

Gross profit 4,194 5,007 5,310


Gross margin 69% 75% 66%


Operating expenses 5,295 5,253 8,683

Operating income (loss) $(1,101) $(246) $(3,373)


Adjusted EBITDA $(897) $(25) $(2,783)


Corporate
---------


Cost of revenue $(7) $14 $(19)

Gross profit 7 (14) 19


Gross margin N/A N/A N/A


Operating expenses 7,372 545 5,824

Operating income (loss) $(7,365) $(559) $(5,805)


Adjusted EBITDA $(2,904) $601 $(3,040)


Total
-----


Net revenue $28,230 $29,922 $30,597

Cost of revenue 15,172 15,828 16,547

Gross profit 13,058 14,094 14,050


Gross margin 46% 47% 46%


Operating expenses 27,837 21,600 33,062

Operating income (loss) $(14,779) $(7,506) $(19,012)


Adjusted EBITDA $(8,081) $(4,224) $(14,174)



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


2016 2015
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)

Consumer Media
--------------


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


Operating income (loss) $(2,067) $(2,880) $(2,069)

Depreciation and
amortization 1,303 1,038 511

Adjusted EBITDA $(764) $(1,842) $(1,558)


Mobile Services
---------------


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


Operating income (loss) $(4,246) $(3,821) $(7,765)

Acquisitions related
intangible asset
amortization 308 379 392

Depreciation and
amortization 422 484 580

Adjusted EBITDA $(3,516) $(2,958) $(6,793)


Games
-----


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


Operating income (loss) $(1,101) $(246) $(3,373)

Acquisitions related
intangible asset
amortization 25 24 293

Depreciation and
amortization 179 197 297
--- --- ---

Adjusted EBITDA $(897) $(25) $(2,783)


Corporate
---------


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


Operating income (loss) $(7,365) $(559) $(5,805)

Other income (expense), net (287) (122) 443

Depreciation and
amortization 361 336 430

Restructuring and other
charges 385 (284) 485

Stock-based compensation 3,171 937 1,329

Lease exit and related
charges 831 293 78

Adjusted EBITDA $(2,904) $601 $(3,040)


Total
-----


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


Operating income (loss) $(14,779) $(7,506) $(19,012)

Other income (expense), net (287) (122) 443

Acquisitions related
intangible asset
amortization 333 403 685

Depreciation and
amortization 2,265 2,055 1,818

Restructuring and other
charges 385 (284) 485

Stock-based compensation 3,171 937 1,329

Lease exit and related
charges 831 293 78

Adjusted EBITDA $(8,081) $(4,224) $(14,174)


SOURCE RealNetworks, Inc.

RealNetworks, Inc.

Web Site: http://www.realnetworks.com


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