WASHINGTON | 0-23137 | 91-1628146 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01. | Financial Statements and Exhibits. |
Exhibit No. | Description |
99.1 | Earnings Release of RealNetworks, Inc. dated November 3, 2016 |
99.2 | Information Regarding Non-GAAP Financial Measures |
REALNETWORKS, INC. | ||
By: | / S / Marjorie Thomas | |
Marjorie Thomas | ||
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
Exhibit Number | Description |
99.1 | Earnings Release of RealNetworks, Inc. dated November 3, 2016 |
99.2 | Information Regarding Non-GAAP Financial Measures |
• | Revenue of $31.1 million, up 4% from the prior quarter; |
• | GAAP net loss and adjusted EBITDA improve by 86% and 59%, respectively, year over year; |
• | Cash and short-term investments increases to $80.7 million; and |
• | Operating results led by GameHouse's 14% growth from the prior quarter -- New game titles performing strongly |
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net revenue | $ | 31,051 | $ | 30,823 | $ | 89,015 | $ | 95,374 | ||||||||
Cost of revenue | 16,740 | 18,090 | 47,610 | 54,469 | ||||||||||||
Gross profit | 14,311 | 12,733 | 41,405 | 40,905 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 6,699 | 10,501 | 23,185 | 34,681 | ||||||||||||
Sales and marketing | 7,183 | 11,938 | 24,157 | 38,822 | ||||||||||||
General and administrative | 7,086 | 7,021 | 21,380 | 21,312 | ||||||||||||
Restructuring and other charges | 499 | 3,114 | 1,297 | 5,563 | ||||||||||||
Lease exit and related charges | 1,233 | 2,121 | 2,191 | 2,208 | ||||||||||||
Total operating expenses | 22,700 | 34,695 | 72,210 | 102,586 | ||||||||||||
Operating income (loss) | (8,389 | ) | (21,962 | ) | (30,805 | ) | (61,681 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Interest income, net | 119 | 147 | 316 | 597 | ||||||||||||
Gain (loss) on investments, net | 6,021 | (615 | ) | 5,978 | (222 | ) | ||||||||||
Equity in net loss of Rhapsody | (233 | ) | (735 | ) | (629 | ) | (13,831 | ) | ||||||||
Other income (expense), net | (243 | ) | 297 | (515 | ) | 628 | ||||||||||
Total other income (expense), net | 5,664 | (906 | ) | 5,150 | (12,828 | ) | ||||||||||
Income (loss) before income taxes | (2,725 | ) | (22,868 | ) | (25,655 | ) | (74,509 | ) | ||||||||
Income tax expense (benefit) | 331 | (1,684 | ) | 919 | (1,075 | ) | ||||||||||
Net income (loss) | $ | (3,056 | ) | $ | (21,184 | ) | $ | (26,574 | ) | $ | (73,434 | ) | ||||
Basic net income (loss) per share | $ | (0.08 | ) | $ | (0.59 | ) | $ | (0.72 | ) | $ | (2.03 | ) | ||||
Diluted net income (loss) per share | $ | (0.08 | ) | $ | (0.59 | ) | $ | (0.72 | ) | $ | (2.03 | ) | ||||
Shares used to compute basic net income (loss) per share | 36,805 | 36,191 | 36,693 | 36,134 | ||||||||||||
Shares used to compute diluted net income (loss) per share | 36,805 | 36,191 | 36,693 | 36,134 | ||||||||||||
September 30, 2016 | December 31, 2015 | ||||||
(in thousands) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 38,284 | $ | 47,315 | |||
Short-term investments | 42,465 | 51,814 | |||||
Trade accounts receivable, net | 25,287 | 22,511 | |||||
Deferred costs, current portion | 852 | 460 | |||||
Prepaid expenses and other current assets | 5,166 | 7,140 | |||||
Total current assets | 112,054 | 129,240 | |||||
Equipment and software | 57,014 | 66,702 | |||||
Leasehold improvements | 3,204 | 3,122 | |||||
Total equipment, software, and leasehold improvements | 60,218 | 69,824 | |||||
Less accumulated depreciation and amortization | 54,339 | 61,024 | |||||
Net equipment, software, and leasehold improvements | 5,879 | 8,800 | |||||
Restricted cash equivalents and investments | 2,700 | 2,890 | |||||
Available for sale securities | 2,041 | 1,721 | |||||
Other assets | 1,908 | 2,307 | |||||
Deferred costs, non-current portion | 1,236 | 212 | |||||
Deferred tax assets, net | 1,015 | 957 | |||||
Other intangible assets, net | 1,224 | 2,136 | |||||
Goodwill | 12,974 | 13,080 | |||||
Total assets | $ | 141,031 | $ | 161,343 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 18,379 | $ | 17,050 | |||
Accrued and other current liabilities | 16,547 | 17,320 | |||||
Deferred revenue, current portion | 3,883 | 3,497 | |||||
Total current liabilities | 38,809 | 37,867 | |||||
Deferred revenue, non-current portion | 343 | 105 | |||||
Deferred rent | 504 | 620 | |||||
Deferred tax liabilities, net | 100 | 88 | |||||
Other long-term liabilities | 1,935 | 1,980 | |||||
Total liabilities | 41,691 | 40,660 | |||||
Shareholders' equity | 99,340 | 120,683 | |||||
Total liabilities and shareholders' equity | $ | 141,031 | $ | 161,343 |
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
(in thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (26,574 | ) | $ | (73,434 | ) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation and amortization | 5,897 | 7,952 | |||||
Stock-based compensation | 4,557 | 3,761 | |||||
Equity in net loss of Rhapsody | 629 | 13,831 | |||||
Deferred income taxes, net | (198 | ) | (1,531 | ) | |||
Loss (gain) on investments, net | (5,978 | ) | 222 | ||||
Realized translation loss (gain) | 272 | (264 | ) | ||||
Fair value of warrants granted in 2015, net of subsequent mark to market adjustments in 2016 and 2015 | 112 | (1,078 | ) | ||||
Net change in certain operating assets and liabilities | (1,011 | ) | (5,428 | ) | |||
Net cash provided by (used in) operating activities | (22,294 | ) | (55,969 | ) | |||
Cash flows from investing activities: | |||||||
Purchases of equipment, software, and leasehold improvements | (2,009 | ) | (1,110 | ) | |||
Proceeds from sale of equity and other investments | 2,110 | 459 | |||||
Purchases of short-term investments | (59,124 | ) | (52,475 | ) | |||
Proceeds from sales and maturities of short-term investments | 68,473 | 60,516 | |||||
Decrease (increase) in restricted cash equivalents and investments, net | 190 | — | |||||
Acquisitions | (150 | ) | (161 | ) | |||
Advance to Rhapsody | — | (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 | 13,490 | 17,229 | |||||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock (stock options and stock purchase plan) | 166 | 297 | |||||
Tax payments from shares withheld upon vesting of restricted stock | (843 | ) | (69 | ) | |||
Net cash provided by (used in) financing activities | (677 | ) | 228 | ||||
Effect of exchange rate changes on cash and cash equivalents | 450 | (2,910 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (9,031 | ) | (41,422 | ) | |||
Cash and cash equivalents, beginning of period | 47,315 | 103,253 | |||||
Cash and cash equivalents, end of period | $ | 38,284 | $ | 61,831 |
2016 | 2015 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Net Revenue by Line of Business | ||||||||||||||||||||||||||||
Consumer Media (A) | $ | 6,482 | $ | 6,400 | $ | 5,726 | $ | 6,848 | $ | 6,495 | $ | 7,281 | $ | 7,989 | ||||||||||||||
Mobile Services (B) | 17,683 | 17,297 | 16,465 | 16,369 | 16,484 | 18,578 | 14,504 | |||||||||||||||||||||
Games (C) | 6,886 | 6,037 | 6,039 | 6,705 | 7,844 | 8,095 | 8,104 | |||||||||||||||||||||
Total net revenue | $ | 31,051 | $ | 29,734 | $ | 28,230 | $ | 29,922 | $ | 30,823 | $ | 33,954 | $ | 30,597 | ||||||||||||||
Net Revenue by Product | ||||||||||||||||||||||||||||
Consumer Media | ||||||||||||||||||||||||||||
- License (D) | $ | 4,136 | $ | 3,914 | $ | 3,104 | $ | 3,967 | $ | 3,628 | $ | 4,208 | $ | 4,672 | ||||||||||||||
- Subscriptions (E) | 1,931 | 1,871 | 1,975 | 2,054 | 2,147 | 2,372 | 2,384 | |||||||||||||||||||||
- Media Properties (F) | 415 | 615 | 647 | 827 | 720 | 701 | 933 | |||||||||||||||||||||
Mobile Services | ||||||||||||||||||||||||||||
- SaaS (G) | 17,141 | 17,208 | 16,220 | 16,157 | 16,217 | 18,218 | 13,322 | |||||||||||||||||||||
- Technology License & Other (H) | 542 | 89 | 245 | 212 | 267 | 360 | 1,182 | |||||||||||||||||||||
Games | ||||||||||||||||||||||||||||
- License (I) | 3,683 | 2,793 | 2,761 | 3,268 | 4,128 | 3,943 | 3,835 | |||||||||||||||||||||
- Subscriptions (J) | 3,005 | 3,024 | 3,029 | 3,126 | 3,231 | 3,373 | 3,570 | |||||||||||||||||||||
- Media Properties (K) | 198 | 220 | 249 | 311 | 485 | 779 | 699 | |||||||||||||||||||||
Total net revenue | $ | 31,051 | $ | 29,734 | $ | 28,230 | $ | 29,922 | $ | 30,823 | $ | 33,954 | $ | 30,597 | ||||||||||||||
Net Revenue by Geography | ||||||||||||||||||||||||||||
United States | $ | 10,642 | $ | 10,355 | $ | 10,383 | $ | 10,781 | $ | 11,460 | $ | 12,303 | $ | 12,349 | ||||||||||||||
Rest of world | 20,409 | 19,379 | 17,847 | 19,141 | 19,363 | 21,651 | 18,248 | |||||||||||||||||||||
Total net revenue | $ | 31,051 | $ | 29,734 | $ | 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. |
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Q3 | Q2 | Q3 | YTD | YTD | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consumer Media | ||||||||||||||||||||
Net revenue | $ | 6,482 | $ | 6,400 | $ | 6,495 | $ | 18,608 | $ | 21,765 | ||||||||||
Cost of revenue | 1,507 | 1,561 | 3,142 | 5,485 | 10,173 | |||||||||||||||
Gross profit | 4,975 | 4,839 | 3,353 | 13,123 | 11,592 | |||||||||||||||
Gross margin | 77 | % | 76 | % | 52 | % | 71 | % | 53 | % | ||||||||||
Operating expenses | 4,271 | 4,293 | 6,421 | 13,940 | 19,882 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | 704 | $ | 546 | $ | (3,068 | ) | $ | (817 | ) | $ | (8,290 | ) | |||||||
Depreciation and amortization | 295 | 375 | 519 | 1,973 | 1,508 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | 999 | $ | 921 | $ | (2,549 | ) | $ | 1,156 | $ | (6,782 | ) | ||||||||
Mobile Services | ||||||||||||||||||||
Net revenue | $ | 17,683 | $ | 17,297 | $ | 16,484 | $ | 51,445 | $ | 49,566 | ||||||||||
Cost of revenue | 13,026 | 12,404 | 12,512 | 36,347 | 36,802 | |||||||||||||||
Gross profit | 4,657 | 4,893 | 3,972 | 15,098 | 12,764 | |||||||||||||||
Gross margin | 26 | % | 28 | % | 24 | % | 29 | % | 26 | % | ||||||||||
Operating expenses | 8,075 | 8,784 | 11,093 | 26,653 | 35,153 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | (3,418 | ) | $ | (3,891 | ) | $ | (7,121 | ) | $ | (11,555 | ) | $ | (22,389 | ) | |||||
Acquisitions related intangible asset amortization | 208 | 209 | 389 | 725 | 1,165 | |||||||||||||||
Depreciation and amortization | 403 | 608 | 493 | 1,433 | 1,652 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | (2,807 | ) | $ | (3,074 | ) | $ | (6,239 | ) | $ | (9,397 | ) | $ | (19,572 | ) | |||||
Games | ||||||||||||||||||||
Net revenue | $ | 6,886 | $ | 6,037 | $ | 7,844 | $ | 18,962 | $ | 24,043 | ||||||||||
Cost of revenue | 2,203 | 1,817 | 2,513 | 5,865 | 7,593 | |||||||||||||||
Gross profit | 4,683 | 4,220 | 5,331 | 13,097 | 16,450 | |||||||||||||||
Gross margin | 68 | % | 70 | % | 68 | % | 69 | % | 68 | % | ||||||||||
Operating expenses | 4,649 | 4,725 | 6,431 | 14,669 | 23,833 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | 34 | $ | (505 | ) | $ | (1,100 | ) | $ | (1,572 | ) | $ | (7,383 | ) | ||||||
Acquisitions related intangible asset amortization | 29 | 34 | 170 | 88 | 775 | |||||||||||||||
Depreciation and amortization | 104 | 154 | 214 | 437 | 755 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | 167 | $ | (317 | ) | $ | (716 | ) | $ | (1,047 | ) | $ | (5,853 | ) | ||||||
Corporate | ||||||||||||||||||||
Cost of revenue | $ | 4 | $ | (84 | ) | $ | (77 | ) | $ | (87 | ) | $ | (99 | ) | ||||||
Gross profit | (4 | ) | 84 | 77 | 87 | 99 | ||||||||||||||
Gross margin | N/A | N/A | N/A | N/A | N/A | |||||||||||||||
Operating expenses | 5,705 | 3,871 | 10,750 | 16,948 | 23,718 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | (5,709 | ) | $ | (3,787 | ) | $ | (10,673 | ) | $ | (16,861 | ) | $ | (23,619 | ) | |||||
Other income (expense), net | (243 | ) | 15 | 297 | (515 | ) | 628 | |||||||||||||
Depreciation and amortization | 634 | 246 | 1,273 | 1,241 | 2,097 | |||||||||||||||
Restructuring and other charges | 499 | 413 | 3,114 | 1,297 | 5,563 | |||||||||||||||
Stock-based compensation | 778 | 608 | 1,178 | 4,557 | 3,761 | |||||||||||||||
Lease exit and related charges | 1,233 | 127 | 2,121 | 2,191 | 2,208 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | (2,808 | ) | $ | (2,378 | ) | $ | (2,690 | ) | $ | (8,090 | ) | $ | (9,362 | ) | |||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Q3 | Q2 | Q3 | YTD | YTD | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Reconciliation of GAAP operating income (loss) to adjusted EBITDA: | ||||||||||||||||||||
Net income (loss) | $ | (3,056 | ) | $ | (8,347 | ) | $ | (21,184 | ) | $ | (26,574 | ) | $ | (73,434 | ) | |||||
Income tax expense (benefit) | 331 | 363 | (1,684 | ) | 919 | (1,075 | ) | |||||||||||||
Interest income, net | (119 | ) | (80 | ) | (147 | ) | (316 | ) | (597 | ) | ||||||||||
Gain (loss) on investments, net | (6,021 | ) | 46 | 615 | (5,978 | ) | 222 | |||||||||||||
Equity in net loss of Rhapsody | 233 | 396 | 735 | 629 | 13,831 | |||||||||||||||
Acquisitions related intangible asset amortization | 237 | 243 | 559 | 813 | 1,940 | |||||||||||||||
Depreciation and amortization | 1,436 | 1,383 | 2,499 | 5,084 | 6,012 | |||||||||||||||
Restructuring and other charges | 499 | 413 | 3,114 | 1,297 | 5,563 | |||||||||||||||
Stock-based compensation | 778 | 608 | 1,178 | 4,557 | 3,761 | |||||||||||||||
Lease exit and related charges | 1,233 | 127 | 2,121 | 2,191 | 2,208 | |||||||||||||||
Adjusted EBITDA, a non-GAAP measure | $ | (4,449 | ) | $ | (4,848 | ) | $ | (12,194 | ) | $ | (17,378 | ) | $ | (41,569 | ) |
• | supplementing the financial results and forecasts reported to the Company’s board of directors; |
• | evaluating the operating performance of RealNetworks, which includes direct and incrementally controllable revenue and costs of operations but excludes items considered by management to be non-cash or non-operating such as interest income and expense, stock-based compensation, tax expense, depreciation and amortization, impairment of deferred costs and long-lived assets, and other items that are not within management’s control; |
• | managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers; |
• | establishing internal operating budgets; and |
• | evaluating and valuing potential acquisition candidates. |