0001046327-18-000003.txt : 20180207 0001046327-18-000003.hdr.sgml : 20180207 20180207160209 ACCESSION NUMBER: 0001046327-18-000003 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20180207 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers: Compensatory Arrangements of Certain Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180207 DATE AS OF CHANGE: 20180207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALNETWORKS INC CENTRAL INDEX KEY: 0001046327 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 911628146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37745 FILM NUMBER: 18581092 BUSINESS ADDRESS: STREET 1: 1501 FIRST AVENUE SOUTH STREET 2: SUITE 600 CITY: SEATTLE STATE: WA ZIP: 98134 BUSINESS PHONE: 2066742700 MAIL ADDRESS: STREET 1: 1501 FIRST AVENUE SOUTH STREET 2: SUITE 600 CITY: SEATTLE STATE: WA ZIP: 98134 8-K 1 er8-kshellq42017.htm 8-K SHELL Q4 2017 Document

________________________________________________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K 
__________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 7, 2018 
__________________________
RealNetworks, Inc.
(Exact name of registrant as specified in its charter) 
__________________________
 
WASHINGTON
 
0-23137
 
91-1628146
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
1501 First Avenue South, Suite 600
Seattle, Washington 98134
(Address of principal executive offices) (Zip code)
(206) 674-2700
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address if changed since last report) 
__________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
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))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 Emerging growth company
 o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 
___________________________________________________________________________________________________________________

 





 Item 2.02.     Results of Operations and Financial Condition.
On February 7, 2018, RealNetworks, Inc. announced its financial results for the fourth quarter ended December 31, 2017. The full text of the press release is furnished as Exhibit 99.1 hereto.
Furnished as Exhibit 99.2 hereto is additional information regarding non-GAAP financial measures included in certain public disclosures of RealNetworks, including its fourth quarter 2017 financial results press release.
Furnished as Exhibit 99.3 hereto is additional information regarding the presentation of discontinued operations in the fourth quarter of 2017. As a result, we have recast all our financial statements for fiscal years 2017 and 2016, including our supplementary financial information, to reflect the discontinued operations.
The information set forth in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


2


Item 5.02.     Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On February 7, 2018, RealNetworks, Inc. announced that William J. Patrizio, currently President of Consumer Media at RealNetworks, had been named President and Chief Executive Officer of Rhapsody International, Inc., d/b/a Napster, a position that he has held in an interim capacity since May 2017. In conjunction with his assumption of this role at Napster, Mr. Patrizio will relinquish his role at RealNetworks, with such transition to be effective March 1, 2018.
In connection with the departure of Mr. Patrizio, along with the growth strategy announced by RealNetworks today, Max Pellegrini has been named President of RealNetworks, effective March 1, 2018. Mr. Pellegrini currently serves as President of Mobile Services, and has served RealNetworks in various executive capacities since joining the company in February 2013.


3




Item  9.01.
Financial Statements and Exhibits.
(d) Exhibits.
Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.
 

4


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 8-K Report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
REALNETWORKS, INC.
 
 
By:
 
/ S /    Cary Baker      
 
 
Cary Baker
 
 
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)


Dated: February 7, 2018

5
 EX-99.1 2 exhibit991erq4-17.htm EXHIBIT 99.1 ER Q4-17 Exhibit


Exhibit 99.1
REALNETWORKS ANNOUNCES FOURTH QUARTER AND FULL YEAR 2017 RESULTS
SEATTLE - February 7, 2018 -

•
Significant progress with four key growth initiatives that are expected to contribute to revenue growth in 2018
•
Exited low margin business that is now presented as discontinued operations; gross margin from continuing operations of 71% highlights scalability of go-forward business
•
Reduced 2017 operating expenses by 18% year-over-year and reduced cash resources consumed in operations
•
Delivered positive net income and sequential increase in cash and short term investments in Q4 2017, benefiting from the gain and final receipt of cash from our 2015 sale of Slingo and social casino business

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, 2017.

Management Commentary
"2017 was a transformative year for RealNetworks. We advanced four key growth initiatives that are expected to contribute high margin revenue in 2018, while simultaneously improving our cost structure," said Rob Glaser, Chairman and CEO of RealNetworks. "We also exited from our low margin Korean music on demand business, increasing our gross margin to over 70%."

Glaser added, "We have set the stage for meaningful revenue growth in 2018, led by the anticipated contribution from new high margin products. We also expect to achieve adjusted EBITDA profitability during 2018."

Fourth Quarter 2017 Financial Highlights from Continuing Operations
•
Revenue was $18.9 million, up from $18.6 million in the prior quarter and down from $20.4 million in the prior year period.
•
Operating expenses increased $1.0 million, or 6%, from the prior quarter and decreased $1.8 million, or 9%, from the prior year period.
•
Net income was $0.4 million, or $0.01 per share, compared to a net loss of $(4.5) million or $(0.12) per share in the prior quarter and $(10.2) million, or $(0.28) per share in the prior year period. In the fourth quarter of 2017, net income included a one-time $4.5 million gain on the final receipt of cash from the 2015 sale of the Slingo and social casino business.
•
Adjusted EBITDA was a loss of $(3.6) million, compared to a loss of $(2.6) million in the prior quarter and $(4.5) million in the prior year period. A reconciliation of GAAP net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.

Full Year 2017 Financial Highlights from Continuing Operations
•
Revenue was $78.7 million, down from $81.5 million in the prior year.




•
Operating expenses declined by $16.5 million, or 18%, from the prior year.
•
Net loss was $(17.4) million, or $(0.47) per share, compared to $(37.8) million or $(1.02) per share in the prior year.
•
Adjusted EBITDA was a loss of $(12.0) million, compared to a loss of $(23.2) million in the prior year. A reconciliation of GAAP net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.
•
At December 31, 2017, the Company had $60.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $59.1 million at September 30, 2017 and $77.1 million at December 31, 2016.

Discontinued Operations
At December 31, 2017, the contract with RealNetworks' music on demand customer in Korea terminated. Operations associated with this contract are now presented as discontinued operations and prior periods have been recast to be comparable.

Revenue attributable to this contract was $12.2 million and $46.0 million for the three and twelve months ended December 31, 2017, respectively, with gross profit of $0.5 million and $1.4 million, respectively, for the same periods.

Consolidated Q4 & 2017 Financial Summary
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
(in millions)
Revenue from Continuing Operations
 
$
18.9

 
$
20.4

 
$
78.7

 
$
81.5

Revenue from Discontinued Operations
 
12.2

 
11.1

 
46.0

 
39.0

Revenue including Discontinued Operations
 
$
31.1

 
$
31.5

 
$
124.7

 
$
120.5

 
 
 
 
 
 
 
 
 
Gross Profit from Continuing Operations
 
$
13.9

 
$
13.8

 
$
55.6

 
$
53.9

Gross Profit from Discontinued Operations
 
0.5

 
0.3

 
1.4

 
1.6

Gross Profit including Discontinued Operations
 
$
14.4

 
$
14.1

 
$
57.0

 
$
55.5

 
 
 
 
 
 
 
 
 
Gross Margin from Continuing Operations
 
74
%
 
68
%
 
71
%
 
66
%
Gross Margin from Discontinued Operations
 
4
%
 
3
%
 
3
%
 
4
%
Gross Margin including Discontinued Operations
 
46
%
 
45
%
 
46
%
 
46
%

Business Outlook

For the first quarter of 2018, RealNetworks expects to achieve the following results:
•
Total revenue is expected to be in the range of $20 million to $22 million.
•
Adjusted EBITDA loss is expected to be in the range of $(1.0) million to $(3.0) million.

Conference Call and Webcast Information
The company will host a conference call today to review results and discuss the company's performance shortly after 4:30 p.m. ET/1:30 p.m. PT. You may join the conference call by calling 1-877-451-6152 or 1-201-389-0879. A telephonic replay of the call will also be available shortly after the completion of the call,




until 11:59 pm ET on Wednesday, February 28, 2018, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13675526.

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

For More Information

Investor Relations for RealNetworks
Laura Bainbridge, Addo IR
310-829-5400
IR@realnetworks.com
RNWK-F


About RealNetworks

RealNetworks creates innovative technology products and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category 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. Find RealNetworks’ corporate information at www.realnetworks.com.

RealNetworks® and the company’s respective logos are trademarks, registered trademarks, or service marks of RealNetworks, Inc. Other products and company names mentioned are the 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) from continuing operations 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 d/b/a Napster 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,
 
Twelve Months Ended
December 31,
 
 
 

 
2017
 
2016
 
2017
 
2016
 
 
 (in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 Net revenue
 
$
18,865

 
$
20,395

 
$
78,718

 
$
81,479

 Cost of revenue
 
4,965

 
6,591

 
23,164

 
27,548

           Gross profit
 
13,900

 
13,804

 
55,554

 
53,931

 
 
 
 
 
 
 
 
 
 Operating expenses:
 
 
 


 

 

       Research and development
 
7,625

 
6,738

 
29,710

 
29,923

       Sales and marketing
 
5,419

 
7,451

 
22,953

 
31,608

       General and administrative
 
5,358

 
6,035

 
20,996

 
27,415

       Restructuring and other charges
 
255

 
192

 
2,526

 
1,489

       Lease exit and related charges
 
—

 
48

 
—

 
2,239

 
 
 
 
 
 
 
 
 
           Total operating expenses
 
18,657

 
20,464

 
76,185

 
92,674

 
 
 
 
 
 
 
 
 
 Operating income (loss)
 
(4,757
)
 
(6,660
)
 
(20,631
)
 
(38,743
)
 
 
 
 
 
 
 
 
 
 Other income (expenses):
 
 
 
 
 
 
 
 
       Interest income, net
 
83

 
133

 
436

 
449

       Gain (loss) on investments, net
 
4,500

 
2,495

 
4,500

 
8,473

       Equity in net loss of Rhapsody
 
(2,894
)
 
(5,904
)
 
(3,991
)
 
(6,533
)
       Other income (expense), net
 
(217
)
 
(128
)
 
(506
)
 
(643
)
 
 
 
 
 
 
 
 
 
           Total other income (expense), net
 
1,472

 
(3,404
)
 
439

 
1,746

 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before income taxes
 
(3,285
)
 
(10,064
)
 
(20,192
)
 
(36,997
)
 Income tax expense (benefit)
 
(3,732
)
 
139

 
(2,778
)
 
776

 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
447

 
(10,203
)
 
(17,414
)
 
(37,773
)
Net income (loss) from discontinued operations, net of tax
 
392

 
227

 
1,109

 
1,223

 Net income (loss)
 
$
839

 
$
(9,976
)
 
$
(16,305
)
 
$
(36,550
)
 
 
 
 
 
 
 
 
 
Net income (loss) per share - Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
(0.28
)
 
$
(0.47
)
 
$
(1.02
)
Discontinued operations
 
0.01

 
0.01

 
0.03

 
0.03

Net income (loss) per share - Basic
 
$
0.02

 
$
(0.27
)
 
$
(0.44
)
 
$
(0.99
)
Net income (loss) per share - Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
(0.28
)
 
$
(0.47
)
 
$
(1.02
)
Discontinued operations
 
0.01

 
0.01

 
0.03

 
0.03

Net income (loss) per share - Diluted
 
$
0.02

 
$
(0.27
)
 
$
(0.44
)
 
$
(0.99
)
 
 
 
 
 
 
 
 
 
 Shares used to compute basic net income (loss) per share
 
37,315

 
37,042

 
37,163

 
36,781

 Shares used to compute diluted net income (loss) per share
 
37,383

 
37,042

 
37,163

 
36,781






RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
December 31,
2017
 
December 31,
2016
 
 (in thousands)
ASSETS
 Current assets:
 
 
 
 Cash and cash equivalents
$
51,196

 
$
33,721

 Short-term investments
8,779

 
43,331

 Trade accounts receivable, net
12,689

 
7,956

 Deferred costs, current portion
426

 
760

 Prepaid expenses and other current assets
3,715

 
4,910

Current assets of discontinued operations
17,456

 
14,206

 Total current assets
94,261

 
104,884

 
 
 
 
 Equipment and software
46,417

 
46,231

 Leasehold improvements
3,536

 
3,317

 Total equipment, software, and leasehold improvements
49,953

 
49,548

 Less accumulated depreciation and amortization
46,093

 
44,294

 Net equipment, software, and leasehold improvements
3,860

 
5,254

 
 
 
 
 Restricted cash equivalents and investments
2,400

 
2,700

 Other assets
5,588

 
1,742

 Deferred costs, non-current portion
955

 
1,246

 Deferred tax assets, net
1,047

 
816

 Other intangible assets, net
325

 
938

 Goodwill
13,060

 
12,857

 
 
 
 
 Total assets
$
121,496

 
$
130,437

 


 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 Current liabilities:
 
 
 
 Accounts payable
$
3,785

 
$
4,727

 Accrued and other current liabilities
12,365

 
14,382

 Commitment to Rhapsody
2,750

 
1,500

 Deferred revenue, current portion
3,097

 
3,430

Current liabilities of discontinued operations
17,107

 
14,541

 Total current liabilities
39,104

 
38,580

 
 
 
 
 Deferred revenue, non-current portion
443

 
240

 Deferred rent
982

 
748

 Deferred tax liabilities, net
19

 
87

 Other long-term liabilities
1,775

 
2,201

 
 
 
 
 Total liabilities
42,323

 
41,856

 
 
 
 
 
 
 
 
 Shareholders' equity
79,173

 
88,581

 
 
 
 
 Total liabilities and shareholders' equity
$
121,496

 
$
130,437







RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Twelve Months Ended
December 31,
 
2017
 
2016
 
 (in thousands)
 
 Cash flows from operating activities:
 
 
 
 Net income (loss)
$
(16,305
)
 
$
(36,550
)
 Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
2,936

 
7,057

Stock-based compensation
3,675

 
5,424

Equity in net loss of Rhapsody
3,991

 
6,533

Deferred income taxes, net
(3,871
)
 
130

Loss (gain) on investments, net
(4,500
)
 
(8,473
)
Realized translation loss (gain)
—

 
272

Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016
(216
)
 
280

Net change in certain operating assets and liabilities
(7,060
)
 
999

  Net cash provided by (used in) operating activities
(21,350
)
 
(24,328
)
 Cash flows from investing activities:


 
 
Purchases of equipment, software, and leasehold improvements
(734
)
 
(2,438
)
Proceeds from sale of equity and other investments
—

 
4,967

Purchases of short-term investments
(13,905
)
 
(75,766
)
Proceeds from sales and maturities of short-term investments
48,457

 
84,249

Decrease (increase) in restricted cash equivalents and investments, net
300

 
190

Acquisitions
—

 
(150
)
Advance to Rhapsody
(1,500
)
 
(3,500
)
Proceeds from the sale of Slingo and social casino business
4,500

 
4,000

 Net cash provided by (used in) investing activities
37,118

 
11,552

 Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock (stock options and stock purchase plan)
239

 
535

Tax payments from shares withheld upon vesting of restricted stock
(356
)
 
(880
)
 Net cash provided by (used in) financing activities
(117
)
 
(345
)
 Effect of exchange rate changes on cash and cash equivalents
1,824

 
(473
)
 Net increase (decrease) in cash and cash equivalents
17,475

 
(13,594
)
 Cash and cash equivalents, beginning of year
33,721

 
47,315

 Cash and cash equivalents, end of year
$
51,196

 
$
33,721










RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
 
2017
 
2016
 
 YTD
 
 Q4
 
 Q3
 
 Q2
 
Q1
 
 YTD
 
 Q4
 
 Q3
 
 Q2
 
 Q1
 
 (in thousands)
Net Revenue by Line of Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Media (A)
$
22,569

 
$
5,752

 
$
4,197

 
$
6,951

 
$
5,669

 
$
25,051

 
$
6,443

 
$
6,482

 
$
6,400

 
$
5,726

Mobile Services (B)
30,752

 
7,155

 
7,678

 
7,720

 
8,199

 
31,289

 
7,775

 
7,821

 
7,636

 
8,057

Games (C)
25,397

 
5,958

 
6,682

 
6,934

 
5,823

 
25,139

 
6,177

 
6,886

 
6,037

 
6,039

     Total net revenue
$
78,718

 
$
18,865

 
$
18,557

 
$
21,605

 
$
19,691

 
$
81,479

 
$
20,395

 
$
21,189

 
$
20,073

 
$
19,822

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenue by Product
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Media
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- License (D)
$
14,953

 
$
3,945

 
$
2,334

 
$
5,002

 
$
3,672

 
$
15,406

 
$
4,252

 
$
4,136

 
$
3,914

 
$
3,104

- Subscriptions (E)
5,891

 
1,362

 
1,434

 
1,531

 
1,564

 
7,448

 
1,671

 
1,931

 
1,871

 
1,975

- Media Properties (F)
1,725

 
445

 
429

 
418

 
433

 
2,197

 
520

 
415

 
615

 
647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mobile Services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- SaaS (G)
30,338

 
7,042

 
7,555

 
7,639

 
8,102

 
30,306

 
7,668

 
7,279

 
7,547

 
7,812

- Technology License & Other (H)
414

 
113

 
123

 
81

 
97

 
983

 
107

 
542

 
89

 
245

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- License (I)
13,806

 
3,086

 
3,851

 
4,007

 
2,862

 
12,415

 
3,178

 
3,683

 
2,793

 
2,761

- Subscriptions (J)
11,024

 
2,707

 
2,708

 
2,781

 
2,828

 
11,894

 
2,836

 
3,005

 
3,024

 
3,029

- Media Properties (K)
567

 
165

 
123

 
146

 
133

 
830

 
163

 
198

 
220

 
249

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Total net revenue
$
78,718

 
$
18,865

 
$
18,557

 
$
21,605

 
$
19,691

 
$
81,479

 
$
20,395

 
$
21,189

 
$
20,073

 
$
19,822

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenue by Geography
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
40,833

 
$
10,120


$
10,084


$
10,889


$
9,740

 
$
41,505

 
$
10,125


$
10,642


$
10,355


$
10,383

Rest of world
37,885

 
8,745


8,473


10,716


9,951

 
39,974

 
10,270


10,547


9,718


9,439

     Total net revenue
$
78,718

 
$
18,865

 
$
18,557

 
$
21,605

 
$
19,691

 
$
81,479

 
$
20,395

 
$
21,189

 
$
20,073

 
$
19,822

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 mobile games, sales of games licenses, online games subscription services, advertising on games sites and social network sites, and microtransactions from online 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 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 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)



 
2017
 
2016
 
2017
 
2016
 
Q4
 
Q3
 
Q4
 
YTD
 
YTD
 
 (in thousands)
Consumer Media
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
5,752

 
$
4,197

 
$
6,443

 
$
22,569

 
$
25,051

Cost of revenue
915

 
981

 
1,589

 
4,460

 
7,074

   Gross profit
4,837

 
3,216

 
4,854

 
18,109

 
17,977

 
 
 
 
 
 
 
 
 
 
   Gross margin
84
%
 
77
%
 
75
%
 
80
%
 
72
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
3,573

 
3,217

 
4,459

 
14,530

 
18,399

Operating income (loss), a GAAP measure
$
1,264

 
$
(1
)
 
$
395

 
$
3,579

 
$
(422
)
Depreciation and amortization
42


42

 
239

 
410

 
2,212

 
 
 
 
 
 
 
 
 
 
  Contribution margin, a non-GAAP measure
$
1,306


$
41

 
$
634

 
$
3,989

 
$
1,790

 
 
 
 
 
 
 
 
 
 
Mobile Services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
7,155

 
$
7,678

 
$
7,775

 
$
30,752

 
$
31,289

Cost of revenue
2,271

 
2,134

 
2,912

 
10,021

 
12,606

   Gross profit
4,884

 
5,544

 
4,863

 
20,731

 
18,683

 
 
 
 
 
 
 
 
 
 
   Gross margin
68
%
 
72
%
 
63
%
 
67
%
 
60
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
6,709

 
6,437

 
7,786

 
27,970

 
34,439

Operating income (loss), a GAAP measure
$
(1,825
)
 
$
(893
)
 
$
(2,923
)
 
$
(7,239
)
 
$
(15,756
)
Acquisitions related intangible asset amortization
89


88

 
198

 
574

 
923

Depreciation and amortization
174


180

 
290

 
732

 
1,723

 
 
 
 
 
 
 
 
 
 
Contribution margin, a non-GAAP measure
$
(1,562
)

$
(625
)
 
$
(2,435
)
 
$
(5,933
)
 
$
(13,110
)
 
 
 
 
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
5,958

 
$
6,682

 
$
6,177

 
$
25,397

 
$
25,139

Cost of revenue
1,868

 
2,226

 
2,054

 
8,710

 
7,919

   Gross profit
4,090

 
4,456

 
4,123

 
16,687

 
17,220

 
 
 
 
 
 
 
 
 
 
   Gross margin
69
%
 
67
%
 
67
%
 
66
%
 
68
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
5,293

 
5,071

 
4,975

 
20,401

 
19,644

Operating income (loss), a GAAP measure
$
(1,203
)
 
$
(615
)
 
$
(852
)
 
$
(3,714
)
 
$
(2,424
)
Acquisitions related intangible asset amortization
18

 
27

 
27

 
97


115

Depreciation and amortization
163

 
169

 
146

 
630


583

 
 
 
 
 
 
 
 
 
 
   Contribution margin, a non-GAAP measure
$
(1,022
)

$
(419
)
 
$
(679
)
 
$
(2,987
)

$
(1,726
)
 
 
 
 
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
$
(89
)
 
$
2

 
$
36

 
$
(27
)
 
$
(51
)
   Gross profit
89

 
(2
)
 
(36
)
 
27

 
51

 
 
 
 
 
 
 
 
 
 
   Gross margin
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
Operating expenses
3,082

 
2,948

 
3,244

 
13,284

 
20,192

Operating income (loss), a GAAP measure
$
(2,993
)
 
$
(2,950
)
 
$
(3,280
)
 
$
(13,257
)
 
$
(20,141
)
Other income (expense), net
(217
)

(50
)
 
(128
)
 
(506
)
 
(643
)
Depreciation and amortization
48


139

 
260

 
493

 
1,501

Restructuring and other charges
255


557

 
192

 
2,526

 
1,489

Stock-based compensation
630


748

 
867

 
3,675

 
5,424

Lease exit and related charges
—


—

 
48

 
—

 
2,239

 
 
 
 
 
 
 
 
 
 
   Contribution margin, a non-GAAP measure
$
(2,277
)

$
(1,556
)
 
$
(2,041
)
 
$
(7,069
)
 
$
(10,131
)
 
 
 
 
 
 
 
 
 
 











RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure
(Unaudited)
 
 
2017
 
2016
 
2017
 
2016
 
 
 Q4
 
 Q3
 
 Q4
 
 YTD
 
 YTD
 
 
 (in thousands)
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
447

 
$
(4,532
)
 
$
(10,203
)
 
$
(17,414
)
 
$
(37,773
)
Income tax expense (benefit)
 
(3,732
)
 
139

 
139

 
(2,778
)
 
776

Interest income, net
 
(83
)
 
(116
)
 
(133
)
 
(436
)
 
(449
)
(Gain) loss on investments, net
 
(4,500
)
 
—

 
(2,495
)
 
(4,500
)
 
(8,473
)
Equity in net loss of Rhapsody
 
2,894

 
—

 
5,904

 
3,991

 
6,533

Acquisitions related intangible asset amortization
 
107

 
115

 
225

 
671

 
1,038

Depreciation and amortization
 
427

 
530

 
935

 
2,265

 
6,019

Restructuring and other charges
 
255

 
557

 
192

 
2,526

 
1,489

Stock-based compensation
 
630

 
748

 
867

 
3,675

 
5,424

Lease exit and related charges
 
—

 
—

 
48

 
—

 
2,239

   Adjusted EBITDA, a non-GAAP measure
 
$
(3,555
)

$
(2,559
)

$
(4,521
)
 
$
(12,000
)
 
$
(23,177
)


 EX-99.2 3 exhibit992erq4-17.htm EXHIBIT 99.2 ER Q4-17 Exhibit


EXHIBIT 99.2
About Non-GAAP Financial Measures
To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment. Contribution margin by reportable segment consists of operating income (loss) and includes other income (expense) net, but excludes the impact of the following: depreciation and amortization; acquisitions related intangible asset amortization; stock-based compensation; restructuring and other charges; lease exit and related charges. Adjusted EBITDA consists of GAAP net income (loss) and excludes the impact of the following: interest income (loss), income tax expense, gain on investments, equity in net loss of Rhapsody, depreciation and amortization; acquisitions related intangible asset amortization; stock-based compensation; restructuring and other charges and lease exit and related charges.
RealNetworks believes that the presentation of adjusted EBITDA and contribution margin by reportable segment provide important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management uses these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.
Internally, adjusted EBITDA and contribution margin by reportable segment are significant measures used by management for purposes of:
•
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.
Adjusted EBITDA and contribution margin by reportable segment are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are that adjusted EBITDA and contribution margin by reportable segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s net income (loss) or operating income (loss) at the segment level. The Company compensates for these limitations by prominently disclosing GAAP net income (loss) and operating income (loss) by reportable segment, which the Company believes are the most directly comparable GAAP measures, and providing investors with reconciliations from GAAP net income (loss) to adjusted EBITDA and operating income (loss) to contribution margin by reportable segment.
RealNetworks has included reconciliations of GAAP net income (loss) to adjusted EBITDA and GAAP operating income (loss) by reportable segment to contribution margin by reportable segment for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.




EX-99.3 4 exhibit993erq4-17recast.htm EXHIBIT 99.3 Q4-17 RECAST Exhibit


Exhibit 99.3
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited) (Recast)
 
 
2017
 
 
Q4
 
Q3
 
Q2
 
Q1
 
 
 (in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 Net revenue
 
$
18,865

 
$
18,557

 
$
21,605

 
$
19,691

 Cost of revenue
 
4,965

 
5,343

 
6,287

 
6,569

           Gross profit
 
13,900

 
13,214

 
15,318

 
13,122

 
 
 
 
 
 
 
 
 
 Operating expenses:
 
 
 
 
 
 
 
 
       Research and development
 
7,625

 
7,152

 
7,584

 
7,349

       Sales and marketing
 
5,419

 
4,883

 
5,496

 
7,155

       General and administrative
 
5,358

 
5,081

 
5,254

 
5,303

       Restructuring and other charges
 
255

 
557

 
150

 
1,564

 
 
 
 
 
 
 
 
 
           Total operating expenses
 
18,657

 
17,673

 
18,484

 
21,371

 
 
 
 
 
 
 
 
 
 Operating income (loss)
 
(4,757
)
 
(4,459
)
 
(3,166
)
 
(8,249
)
 
 
 
 
 
 
 
 
 
 Other income (expenses):
 
 
 
 
 
 
 
 
       Interest income, net
 
83

 
116

 
109

 
128

       Gain (loss) on investments, net
 
4,500

 
—

 
—

 
—

       Equity in net loss of Rhapsody
 
(2,894
)
 
—

 
(349
)
 
(748
)
       Other income (expense), net
 
(217
)
 
(50
)
 
(13
)
 
(226
)
 
 
 
 
 
 
 
 
 
           Total other income (expense), net
 
1,472

 
66

 
(253
)
 
(846
)
 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before income taxes
 
(3,285
)
 
(4,393
)
 
(3,419
)
 
(9,095
)
 Income tax expense (benefit)
 
(3,732
)
 
139

 
360

 
455

 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
447

 
(4,532
)
 
(3,779
)
 
(9,550
)
Net income (loss) from discontinued operations, net of tax
 
392

 
198

 
393

 
126

 Net income (loss)
 
$
839

 
$
(4,334
)
 
$
(3,386
)
 
$
(9,424
)
 
 
 
 
 
 
 
 
 
Net income (loss) per share - Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
(0.12
)
 
$
(0.10
)
 
$
(0.26
)
Discontinued operations
 
0.01

 
—

 
0.01

 
0.01

Net income (loss) per share - Basic
 
$
0.02

 
$
(0.12
)
 
$
(0.09
)
 
$
(0.25
)
Net income (loss) per share - Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.01

 
$
(0.12
)
 
$
(0.10
)
 
$
(0.26
)
Discontinued operations
 
0.01

 
—

 
0.01

 
0.01

Net income (loss) per share - Diluted
 
$
0.02

 
$
(0.12
)
 
$
(0.09
)
 
$
(0.25
)
 
 
 
 
 
 
 
 
 
 Shares used to compute basic net income (loss) per share
 
37,315

 
37,200

 
37,103

 
37,030

 Shares used to compute diluted net income (loss) per share
 
37,383

 
37,200

 
37,103

 
37,030







RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited) (Recast)
 
 
2016
 
 
Q4
 
Q3
 
Q2
 
Q1
 
 
 (in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 Net revenue
 
$
20,395

 
$
21,189

 
$
20,073

 
$
19,822

 Cost of revenue
 
6,591

 
7,235

 
6,651

 
7,071

           Gross profit
 
13,804

 
13,954

 
13,422

 
12,751

 
 
 
 
 
 
 
 
 
 Operating expenses:
 
 
 
 
 
 
 
 
       Research and development
 
6,738

 
6,699

 
7,167

 
9,319

       Sales and marketing
 
7,451

 
7,183

 
7,749

 
9,225

       General and administrative
 
6,035

 
7,086

 
6,217

 
8,077

       Restructuring and other charges
 
192

 
499

 
413

 
385

       Lease exit and related charges
 
48

 
1,233

 
127

 
831

 
 
 
 
 
 
 
 
 
           Total operating expenses
 
20,464

 
22,700

 
21,673

 
27,837

 
 
 
 
 
 
 
 
 
 Operating income (loss)
 
(6,660
)
 
(8,746
)
 
(8,251
)
 
(15,086
)
 
 
 
 
 
 
 
 
 
 Other income (expenses):
 
 
 
 
 
 
 
 
       Interest income, net
 
133

 
119

 
80

 
117

       Gain (loss) on investments, net
 
2,495

 
6,021

 
(46
)
 
3

       Equity in net loss of Rhapsody
 
(5,904
)
 
(233
)
 
(396
)
 
—

       Other income (expense), net
 
(128
)
 
(243
)
 
15

 
(287
)
 
 
 
 
 
 
 
 
 
           Total other income (expense), net
 
(3,404
)
 
5,664

 
(347
)
 
(167
)
 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before income taxes
 
(10,064
)
 
(3,082
)
 
(8,598
)
 
(15,253
)
 Income tax expense (benefit)
 
139

 
252

 
228

 
157

 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
(10,203
)
 
(3,334
)
 
(8,826
)
 
(15,410
)
Net income (loss) from discontinued operations, net of tax
 
227

 
278

 
479

 
239

 Net income (loss)
 
$
(9,976
)
 
$
(3,056
)
 
$
(8,347
)
 
$
(15,171
)
 
 
 
 
 
 
 
 
 
Net income (loss) per share - Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.28
)
 
$
(0.09
)
 
$
(0.24
)
 
$
(0.42
)
Discontinued operations
 
0.01

 
0.01

 
0.01

 
—

Net income (loss) per share - Basic
 
$
(0.27
)
 
$
(0.08
)
 
$
(0.23
)
 
$
(0.42
)
Net income (loss) per share - Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.28
)
 
$
(0.09
)
 
$
(0.24
)
 
$
(0.42
)
Discontinued operations
 
0.01

 
0.01

 
0.01

 
—

Net income (loss) per share - Diluted
 
$
(0.27
)
 
$
(0.08
)
 
$
(0.23
)
 
$
(0.42
)
 
 
 
 
 
 
 
 
 
 Shares used to compute basic net income (loss) per share
 
37,042

 
36,805

 
36,755

 
36,520

 Shares used to compute diluted net income (loss) per share
 
37,042

 
36,805

 
36,755

 
36,520






RealNetworks, Inc. and Subsidiaries
Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin
(Unaudited)
 
 
2017
 
2016
 
 
 Q1
 
 Q2
 
 Q3
 
 Q4
 
 YTD
 
 Q1
 
 Q2
 
 Q3
 
 Q4
 
 YTD
 
 
 (in thousands)
 
 (in thousands)
Consumer Media
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
5,669

 
$
6,951

 
$
4,197

 
$
5,752

 
$
22,569

 
$
5,726

 
$
6,400

 
$
6,482

 
$
6,443

 
$
25,051

Cost of revenue
 
1,405

 
1,159

 
981

 
915

 
4,460

 
2,417

 
1,561

 
1,507

 
1,589

 
7,074

   Gross profit
 
4,264

 
5,792

 
3,216

 
4,837

 
18,109

 
3,309

 
4,839

 
4,975

 
4,854

 
17,977

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Gross margin
 
75
%
 
83
%
 
77
%
 
84
%
 
80
%
 
58
%
 
76
%
 
77
%
 
75
%
 
72
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
4,010

 
3,730

 
3,217

 
3,573

 
14,530

 
5,376

 
4,293

 
4,271

 
4,459

 
18,399

Operating income (loss), a GAAP measure
 
$
254


$
2,062


$
(1
)

$
1,264


$
3,579


$
(2,067
)

$
546


$
704


$
395


$
(422
)
Depreciation and amortization
 
167

 
159

 
42

 
42

 
410

 
1,303

 
375

 
295

 
239

 
2,212

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Contribution margin, a non-GAAP measure
 
$
421

 
$
2,221

 
$
41

 
$
1,306

 
$
3,989

 
$
(764
)
 
$
921

 
$
999

 
$
634

 
$
1,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mobile Services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
8,199

 
$
7,720

 
$
7,678

 
$
7,155

 
$
30,752

 
$
8,057

 
$
7,636

 
$
7,821

 
$
7,775

 
$
31,289

Cost of revenue
 
3,190

 
2,426

 
2,134

 
2,271

 
10,021

 
2,816

 
3,357

 
3,521

 
2,912

 
12,606

   Gross profit
 
5,009

 
5,294

 
5,544

 
4,884

 
20,731

 
5,241

 
4,279

 
4,300

 
4,863

 
18,683

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Gross margin
 
61
%
 
69
%
 
72
%
 
68
%
 
67
%
 
65
%
 
56
%
 
55
%
 
63
%
 
60
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
8,119

 
6,705

 
6,437

 
6,709

 
27,970

 
9,794

 
8,784

 
8,075

 
7,786

 
34,439

Operating income (loss), a GAAP measure
 
$
(3,110
)

$
(1,411
)

$
(893
)

$
(1,825
)

$
(7,239
)

$
(4,553
)

$
(4,505
)

$
(3,775
)

$
(2,923
)

$
(15,756
)
Acquisitions related intangible asset amortization
 
196

 
201

 
88

 
89

 
574

 
308

 
209

 
208

 
198

 
923

Depreciation and amortization
 
203

 
175

 
180

 
174

 
732

 
422

 
608

 
403

 
290

 
1,723

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Contribution margin, a non-GAAP measure
 
$
(2,711
)
 
$
(1,035
)
 
$
(625
)
 
$
(1,562
)
 
$
(5,933
)
 
$
(3,823
)
 
$
(3,688
)
 
$
(3,164
)
 
$
(2,435
)
 
$
(13,110
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
5,823

 
$
6,934

 
$
6,682

 
$
5,958

 
$
25,397

 
$
6,039

 
$
6,037

 
$
6,886

 
$
6,177

 
$
25,139

Cost of revenue
 
1,937

 
2,679

 
2,226

 
1,868

 
8,710

 
1,845

 
1,817

 
2,203

 
2,054

 
7,919

   Gross profit
 
3,886

 
4,255

 
4,456

 
4,090

 
16,687

 
4,194

 
4,220

 
4,683

 
4,123

 
17,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Gross margin
 
67
%
 
61
%
 
67
%
 
69
%
 
66
%
 
69
%
 
70
%
 
68
%
 
67
%
 
68
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
4,947

 
5,090

 
5,071

 
5,293

 
20,401

 
5,295

 
4,725

 
4,649

 
4,975

 
19,644

Operating income (loss), a GAAP measure
 
$
(1,061
)
 
$
(835
)
 
$
(615
)
 
$
(1,203
)
 
$
(3,714
)
 
$
(1,101
)
 
$
(505
)
 
$
34

 
$
(852
)
 
$
(2,424
)
Acquisitions related intangible asset amortization
 
27

 
25

 
27

 
18

 
97

 
25

 
34

 
29

 
27

 
115

Depreciation and amortization
 
141

 
157

 
169

 
163

 
630

 
179

 
154

 
104

 
146

 
583

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Contribution margin, a non-GAAP measure
 
$
(893
)
 
$
(653
)
 
$
(419
)
 
$
(1,022
)
 
$
(2,987
)
 
$
(897
)
 
$
(317
)
 
$
167

 
$
(679
)
 
$
(1,726
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
37

 
23

 
2

 
(89
)
 
(27
)
 
(7
)
 
(84
)
 
4

 
36

 
(51
)
   Gross profit
 
(37
)
 
(23
)
 
(2
)
 
89

 
27

 
7

 
84

 
(4
)
 
(36
)
 
51

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Gross margin
 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
4,295

 
2,959

 
2,948

 
3,082

 
13,284

 
7,372

 
3,871

 
5,705

 
3,244

 
20,192

Operating income (loss), a GAAP measure
 
$
(4,332
)
 
$
(2,982
)
 
$
(2,950
)
 
$
(2,993
)
 
$
(13,257
)
 
$
(7,365
)
 
$
(3,787
)
 
$
(5,709
)
 
$
(3,280
)
 
$
(20,141
)
Other income (expense), net
 
(226
)
 
(13
)
 
(50
)
 
(217
)
 
(506
)
 
(287
)
 
15

 
(243
)
 
(128
)
 
(643
)
Depreciation and amortization
 
187

 
119

 
139

 
48

 
493

 
361

 
246

 
634

 
260

 
1,501

Restructuring and other charges
 
1,564

 
150

 
557

 
255

 
2,526

 
385

 
413

 
499

 
192

 
1,489

Stock-based compensation
 
1,434

 
863

 
748

 
630

 
3,675

 
3,171

 
608

 
778

 
867

 
5,424

Lease exit and related charges
 
—

 
—

 
—

 
—

 
—

 
831

 
127

 
1,233

 
48

 
2,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Contribution margin, a non-GAAP measure
 
$
(1,373
)
 
$
(1,863
)
 
$
(1,556
)
 
$
(2,277
)
 
$
(7,069
)
 
$
(2,904
)
 
$
(2,378
)
 
$
(2,808
)
 
$
(2,041
)
 
$
(10,131
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure
(Unaudited)
 
 
 
2017
 
2016
 
 
 Q1
 
 Q2
 
 Q3
 
 Q4
 
 YTD
 
 Q1
 
 Q2
 
 Q3
 
 Q4
 
 YTD
 
 
 (in thousands)
 
 (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
(9,550
)
 
$
(3,779
)
 
$
(4,532
)
 
$
447

 
$
(17,414
)
 
$
(15,410
)
 
$
(8,826
)
 
$
(3,334
)
 
$
(10,203
)
 
$
(37,773
)
Income tax expense (benefit)
 
455

 
360

 
139

 
(3,732
)
 
(2,778
)
 
157

 
228

 
252

 
139

 
776

Interest income, net
 
(128
)
 
(109
)
 
(116
)
 
(83
)
 
(436
)
 
(117
)
 
(80
)
 
(119
)
 
(133
)
 
(449
)
(Gain) loss on investments, net
 
—

 
—

 
—

 
(4,500
)
 
(4,500
)
 
(3
)
 
46

 
(6,021
)
 
(2,495
)
 
(8,473
)
Equity in net loss of Rhapsody
 
748

 
349

 
—

 
2,894

 
3,991

 
—

 
396

 
233

 
5,904

 
6,533

Acquisitions related intangible asset amortization
 
223

 
226

 
115

 
107

 
671

 
333

 
243

 
237

 
225

 
1,038

Depreciation and amortization
 
698

 
610

 
530

 
427

 
2,265

 
2,265

 
1,383

 
1,436

 
935

 
6,019

Restructuring and other charges
 
1,564

 
150

 
557

 
255

 
2,526

 
385

 
413

 
499

 
192

 
1,489

Stock-based compensation
 
1,434

 
863

 
748

 
630

 
3,675

 
3,171

 
608

 
778

 
867

 
5,424

Lease exit and related charges, net of sublease income
 
—

 
—

 
—

 
—

 
—

 
831

 
127

 
1,233

 
48

 
2,239

 Adjusted EBITDA, a non-GAAP measure
 
$
(4,556
)

$
(1,330
)

$
(2,559
)

$
(3,555
)

$
(12,000
)

$
(8,388
)

$
(5,462
)

$
(4,806
)

$
(4,521
)

$
(23,177
)