WASHINGTON | 001-37745 | 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)) |
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 9.01. | Financial Statements and Exhibits. |
Exhibit No. | Description |
99.1 | |
99.2 |
REALNETWORKS, INC. | ||
By: | / S / Cary Baker | |
Cary Baker | ||
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
• | Revenue of $17.6 million compared to $15.7 million in the prior quarter and $18.6 million in the prior year period |
• | Significant progress with roll-out of our SAFR facial recognition platform through two new partnerships with systems integrators |
• | Launched Scener, an innovative social platform that synchronizes premium streaming shows with commentary videos |
• | Revenue was $17.6 million compared to $15.7 million in the prior quarter and $18.6 million in the prior year period. |
• | Gross margin from continuing operations was 76%, up from 71% in the prior quarter and 71% in the prior year period. |
• | Operating expenses increased $0.3 million, or 1.9%, from the prior quarter and increased $0.6 million, or 3.4%, from the prior year period. |
• | Net loss was $(6.0) million, or $(0.16) per share, compared to net loss of $(6.9) million, or $(0.18) per share, in the prior quarter and a net loss of $(4.5) million, or $(0.12) per share, in the prior year period. |
• | Adjusted EBITDA was a loss of $(3.4) million compared to a loss of $(5.7) million in the prior quarter and a loss of $(2.6) million in the prior year period. A reconciliation of GAAP net income (loss) to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release. |
• | At September 30, 2018, the Company had $39.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $42.1 million at June 30, 2018. |
• | Total revenue is expected to be in the range of $17.5 million to $19.5 million. |
• | Adjusted EBITDA loss is expected to be in the range of $(2.0) million to $(4.0) million. |
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net revenue | $ | 17,579 | $ | 18,557 | $ | 52,953 | $ | 59,853 | ||||||||
Cost of revenue | 4,239 | 5,343 | 14,000 | 18,199 | ||||||||||||
Gross profit | 13,340 | 13,214 | 38,953 | 41,654 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 8,052 | 7,152 | 23,398 | 22,085 | ||||||||||||
Sales and marketing | 4,998 | 4,883 | 15,878 | 17,534 | ||||||||||||
General and administrative | 4,586 | 5,081 | 15,526 | 15,638 | ||||||||||||
Restructuring and other charges | 632 | 557 | 1,320 | 2,271 | ||||||||||||
Lease exit and related benefit | — | — | (454 | ) | — | |||||||||||
Total operating expenses | 18,268 | 17,673 | 55,668 | 57,528 | ||||||||||||
Operating loss | (4,928 | ) | (4,459 | ) | (16,715 | ) | (15,874 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Interest income, net | 72 | 116 | 270 | 353 | ||||||||||||
Equity in net loss of Napster | (737 | ) | — | (737 | ) | (1,097 | ) | |||||||||
Other income (expense), net | (112 | ) | (50 | ) | (195 | ) | (289 | ) | ||||||||
Total other income (expense), net | (777 | ) | 66 | (662 | ) | (1,033 | ) | |||||||||
Loss from continuing operations before income taxes | (5,705 | ) | (4,393 | ) | (17,377 | ) | (16,907 | ) | ||||||||
Income tax expense | 272 | 139 | 708 | 954 | ||||||||||||
Loss from continuing operations | (5,977 | ) | (4,532 | ) | (18,085 | ) | (17,861 | ) | ||||||||
Net income from discontinued operations, net of tax | — | 198 | — | 717 | ||||||||||||
Net loss | $ | (5,977 | ) | $ | (4,334 | ) | $ | (18,085 | ) | $ | (17,144 | ) | ||||
Net income (loss) per share - Basic: | ||||||||||||||||
Continuing operations | $ | (0.16 | ) | $ | (0.12 | ) | $ | (0.48 | ) | $ | (0.48 | ) | ||||
Discontinued operations | — | — | — | 0.02 | ||||||||||||
Net loss per share - Basic | $ | (0.16 | ) | $ | (0.12 | ) | $ | (0.48 | ) | $ | (0.46 | ) | ||||
Net income (loss) per share - Diluted: | ||||||||||||||||
Continuing operations | $ | (0.16 | ) | $ | (0.12 | ) | $ | (0.48 | ) | $ | (0.48 | ) | ||||
Discontinued operations | — | — | — | 0.02 | ||||||||||||
Net loss per share - Diluted | $ | (0.16 | ) | $ | (0.12 | ) | $ | (0.48 | ) | $ | (0.46 | ) | ||||
Shares used to compute basic net income (loss) per share | 37,618 | 37,200 | 37,549 | 37,112 | ||||||||||||
Shares used to compute diluted net income (loss) per share | 37,618 | 37,200 | 37,549 | 37,112 |
September 30, 2018 | December 31, 2017 | ||||||
(in thousands) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 37,964 | $ | 51,196 | |||
Short-term investments | 1,172 | 8,779 | |||||
Trade accounts receivable, net | 13,090 | 12,689 | |||||
Deferred costs, current portion | 365 | 426 | |||||
Prepaid expenses and other current assets | 4,719 | 3,715 | |||||
Current assets of discontinued operations | — | 17,456 | |||||
Total current assets | 57,310 | 94,261 | |||||
Equipment and software | 40,016 | 46,417 | |||||
Leasehold improvements | 3,431 | 3,536 | |||||
Total equipment, software, and leasehold improvements | 43,447 | 49,953 | |||||
Less accumulated depreciation and amortization | 40,531 | 46,093 | |||||
Net equipment, software, and leasehold improvements | 2,916 | 3,860 | |||||
Restricted cash equivalents | 1,630 | 2,400 | |||||
Other assets | 5,723 | 5,588 | |||||
Deferred costs, non-current portion | 593 | 955 | |||||
Deferred tax assets, net | 1,019 | 1,047 | |||||
Other intangible assets, net | 120 | 325 | |||||
Goodwill | 17,060 | 13,060 | |||||
Total assets | $ | 86,371 | $ | 121,496 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,914 | $ | 3,785 | |||
Accrued and other current liabilities | 11,916 | 12,365 | |||||
Commitment to Napster | 2,750 | 2,750 | |||||
Deferred revenue, current portion | 1,969 | 3,097 | |||||
Current liabilities of discontinued operations | — | 17,107 | |||||
Total current liabilities | 20,549 | 39,104 | |||||
Deferred revenue, non-current portion | 312 | 443 | |||||
Deferred rent | 953 | 982 | |||||
Deferred tax liabilities, net | 170 | 19 | |||||
Other long-term liabilities | 1,082 | 1,775 | |||||
Total liabilities | 23,066 | 42,323 | |||||
Shareholders' equity | 63,305 | 79,173 | |||||
Total liabilities and shareholders' equity | $ | 86,371 | $ | 121,496 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
(in thousands) | |||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (18,085 | ) | $ | (17,144 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 1,738 | 2,402 | |||||
Stock-based compensation | 2,113 | 3,045 | |||||
Equity in net loss of Napster | 737 | 1,097 | |||||
Deferred income taxes, net | 5 | (55 | ) | ||||
Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2018 and 2017 | 78 | (367 | ) | ||||
Net change in certain operating assets and liabilities | (2,214 | ) | (6,521 | ) | |||
Net cash used in operating activities | (15,628 | ) | (17,543 | ) | |||
Cash flows from investing activities: | |||||||
Purchases of equipment, software, and leasehold improvements | (698 | ) | (541 | ) | |||
Purchases of short-term investments | — | (13,905 | ) | ||||
Proceeds from sales and maturities of short-term investments | 7,607 | 43,754 | |||||
Acquisition, net of cash acquired | (4,192 | ) | — | ||||
Advance to Napster | — | (1,500 | ) | ||||
Net cash provided by investing activities | 2,717 | 27,808 | |||||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock (stock options and stock purchase plan) | 114 | 130 | |||||
Tax payments from shares withheld upon vesting of restricted stock | (243 | ) | (338 | ) | |||
Net cash used in financing activities | (129 | ) | (208 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (962 | ) | 1,519 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (14,002 | ) | 11,576 | ||||
Cash, cash equivalents and restricted cash, beginning of period | 53,596 | 36,421 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 39,594 | $ | 47,997 |
2018 | 2017 | ||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Net Revenue by Line of Business | |||||||||||||||||||||||||||
Consumer Media (A) | $ | 4,733 | $ | 3,884 | $ | 5,483 | $ | 5,752 | $ | 4,197 | $ | 6,951 | $ | 5,669 | |||||||||||||
Mobile Services (B) | 7,348 | 6,719 | 8,704 | 7,155 | 7,678 | 7,720 | 8,199 | ||||||||||||||||||||
Games (C) | 5,498 | 5,121 | 5,463 | 5,958 | 6,682 | 6,934 | 5,823 | ||||||||||||||||||||
Total net revenue | $ | 17,579 | $ | 15,724 | $ | 19,650 | $ | 18,865 | $ | 18,557 | $ | 21,605 | $ | 19,691 | |||||||||||||
Net Revenue by Product | |||||||||||||||||||||||||||
Consumer Media | |||||||||||||||||||||||||||
- Software License (D) | $ | 2,746 | $ | 1,808 | $ | 3,337 | $ | 3,595 | $ | 2,012 | $ | 4,741 | $ | 3,295 | |||||||||||||
- Subscription Services (E) | 1,232 | 1,225 | 1,285 | 1,362 | 1,434 | 1,531 | 1,564 | ||||||||||||||||||||
- Product Sales (F) | 281 | 299 | 340 | 350 | 322 | 261 | 377 | ||||||||||||||||||||
- Advertising & Other (G) | 474 | 552 | 521 | 445 | 429 | 418 | 433 | ||||||||||||||||||||
Mobile Services | |||||||||||||||||||||||||||
- Software License (H) | 520 | 469 | 1,335 | 388 | 688 | 642 | 619 | ||||||||||||||||||||
- Subscription Services (I) | 6,828 | 6,250 | 7,369 | 6,767 | 6,990 | 7,078 | 7,580 | ||||||||||||||||||||
Games | |||||||||||||||||||||||||||
- Subscription Services (J) | 2,745 | 2,689 | 2,693 | 2,707 | 2,708 | 2,781 | 2,828 | ||||||||||||||||||||
- Product Sales (K) | 2,279 | 1,953 | 2,402 | 3,086 | 3,851 | 4,007 | 2,862 | ||||||||||||||||||||
- Advertising & Other (L) | 474 | 479 | 368 | 165 | 123 | 146 | 133 | ||||||||||||||||||||
Total net revenue | $ | 17,579 | $ | 15,724 | $ | 19,650 | $ | 18,865 | $ | 18,557 | $ | 21,605 | $ | 19,691 | |||||||||||||
Net Revenue by Geography | |||||||||||||||||||||||||||
United States | $ | 9,026 | $ | 7,646 | $ | 11,434 | $ | 10,120 | $ | 10,084 | $ | 10,889 | $ | 9,740 | |||||||||||||
Rest of world | 8,553 | 8,078 | 8,216 | 8,745 | 8,473 | 10,716 | 9,951 | ||||||||||||||||||||
Total net revenue | $ | 17,579 | $ | 15,724 | $ | 19,650 | $ | 18,865 | $ | 18,557 | $ | 21,605 | $ | 19,691 | |||||||||||||
Net Revenue by Line of Business | |||||||||||||||||||||||||||
(A) The Consumer Media division 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 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 and PC games, online games subscription services, and advertising on games sites and social network sites. | |||||||||||||||||||||||||||
Net Revenue by Product | |||||||||||||||||||||||||||
(D) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies. | |||||||||||||||||||||||||||
(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings. | |||||||||||||||||||||||||||
(F) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers. | |||||||||||||||||||||||||||
(G) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites. | |||||||||||||||||||||||||||
(H) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform. | |||||||||||||||||||||||||||
(I) Subscription services revenue within Mobile Services includes revenue from ringback tones and our intercarrier messaging services, as well as from related professional services provided to mobile carriers. | |||||||||||||||||||||||||||
(J) Subscription services revenue within Games includes revenue from online games subscriptions. | |||||||||||||||||||||||||||
(K) Product sales revenue within Games includes revenue from retail and wholesale games-related revenue and sales of mobile games. | |||||||||||||||||||||||||||
(L) Advertising & other revenue within Games includes advertising on games sites and social network sites. |
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Q3 | Q2 | Q3 | YTD | YTD | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consumer Media | ||||||||||||||||||||
Net revenue | $ | 4,733 | $ | 3,884 | $ | 4,197 | $ | 14,100 | $ | 16,817 | ||||||||||
Cost of revenue | 955 | 1,028 | 981 | 2,976 | 3,545 | |||||||||||||||
Gross profit | 3,778 | 2,856 | 3,216 | 11,124 | 13,272 | |||||||||||||||
Gross margin | 80 | % | 74 | % | 77 | % | 79 | % | 79 | % | ||||||||||
Operating expenses | 3,448 | 3,439 | 3,217 | 10,805 | 10,957 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | 330 | $ | (583 | ) | $ | (1 | ) | $ | 319 | $ | 2,315 | ||||||||
Depreciation and amortization | 49 | 51 | 42 | 146 | 368 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | 379 | $ | (532 | ) | $ | 41 | $ | 465 | $ | 2,683 | |||||||||
Mobile Services | ||||||||||||||||||||
Net revenue | $ | 7,348 | $ | 6,719 | $ | 7,678 | $ | 22,771 | $ | 23,597 | ||||||||||
Cost of revenue | 2,052 | 2,134 | 2,134 | 6,502 | 7,750 | |||||||||||||||
Gross profit | 5,296 | 4,585 | 5,544 | 16,269 | 15,847 | |||||||||||||||
Gross margin | 72 | % | 68 | % | 72 | % | 71 | % | 67 | % | ||||||||||
Operating expenses | 6,825 | 6,969 | 6,437 | 21,160 | 21,261 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | (1,529 | ) | $ | (2,384 | ) | $ | (893 | ) | $ | (4,891 | ) | $ | (5,414 | ) | |||||
Acquisitions related intangible asset amortization | 70 | 91 | 88 | 253 | 485 | |||||||||||||||
Depreciation and amortization | 165 | 155 | 180 | 500 | 558 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | (1,294 | ) | $ | (2,138 | ) | $ | (625 | ) | $ | (4,138 | ) | $ | (4,371 | ) | |||||
Games | ||||||||||||||||||||
Net revenue | $ | 5,498 | $ | 5,121 | $ | 6,682 | $ | 16,082 | $ | 19,439 | ||||||||||
Cost of revenue | 1,228 | 1,456 | 2,226 | 4,501 | 6,842 | |||||||||||||||
Gross profit | 4,270 | 3,665 | 4,456 | 11,581 | 12,597 | |||||||||||||||
Gross margin | 78 | % | 72 | % | 67 | % | 72 | % | 65 | % | ||||||||||
Operating expenses | 5,447 | 5,095 | 5,071 | 15,459 | 15,108 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | (1,177 | ) | $ | (1,430 | ) | $ | (615 | ) | $ | (3,878 | ) | $ | (2,511 | ) | |||||
Acquisitions related intangible asset amortization | 23 | 20 | 27 | 43 | 79 | |||||||||||||||
Depreciation and amortization | 91 | 146 | 169 | 402 | 467 | |||||||||||||||
Contribution margin, a non-GAAP measure | $ | (1,063 | ) | $ | (1,264 | ) | $ | (419 | ) | $ | (3,433 | ) | $ | (1,965 | ) | |||||
Corporate | ||||||||||||||||||||
Cost of revenue | $ | 4 | $ | 7 | $ | 2 | $ | 21 | $ | 62 | ||||||||||
Gross profit | (4 | ) | (7 | ) | (2 | ) | (21 | ) | (62 | ) | ||||||||||
Gross margin | N/A | N/A | N/A | N/A | N/A | |||||||||||||||
Operating expenses | 2,548 | 2,429 | 2,948 | 8,244 | 10,202 | |||||||||||||||
Operating income (loss), a GAAP measure | $ | (2,552 | ) | $ | (2,436 | ) | $ | (2,950 | ) | $ | (8,265 | ) | $ | (10,264 | ) | |||||
Other income (expense), net | (112 | ) | (42 | ) | (50 | ) | (195 | ) | (289 | ) | ||||||||||
Depreciation and amortization | 109 | 148 | 139 | 394 | 445 | |||||||||||||||
Restructuring and other charges | 632 | 187 | 557 | 1,320 | 2,271 | |||||||||||||||
Stock-based compensation | 499 | 457 | 748 | 2,113 | 3,045 | |||||||||||||||
Lease exit and related benefit | — | (129 | ) | — | (454 | ) | — | |||||||||||||
Contribution margin, a non-GAAP measure | $ | (1,424 | ) | $ | (1,815 | ) | $ | (1,556 | ) | $ | (5,087 | ) | $ | (4,792 | ) | |||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Q3 | Q2 | Q3 | YTD | YTD | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA: | ||||||||||||||||||||
Net income (loss) from continuing operations | $ | (5,977 | ) | $ | (6,930 | ) | $ | (4,532 | ) | $ | (18,085 | ) | $ | (17,861 | ) | |||||
Income tax expense (benefit) | 272 | 166 | 139 | 708 | 954 | |||||||||||||||
Interest income, net | (72 | ) | (111 | ) | (116 | ) | (270 | ) | (353 | ) | ||||||||||
Equity in net loss of Napster | 737 | — | — | 737 | 1,097 | |||||||||||||||
Acquisitions related intangible asset amortization | 93 | 111 | 115 | 296 | 564 | |||||||||||||||
Depreciation and amortization | 414 | 500 | 530 | 1,442 | 1,838 | |||||||||||||||
Restructuring and other charges | 632 | 187 | 557 | 1,320 | 2,271 | |||||||||||||||
Stock-based compensation | 499 | 457 | 748 | 2,113 | 3,045 | |||||||||||||||
Lease exit and related benefit | — | (129 | ) | — | (454 | ) | — | |||||||||||||
Adjusted EBITDA, a non-GAAP measure | $ | (3,402 | ) | $ | (5,749 | ) | $ | (2,559 | ) | $ | (12,193 | ) | $ | (8,445 | ) |
• | 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. |