Tue, 11/03/2020

RealNetworks Announces Third Quarter 2020 Financial Results

SEATTLE, Nov. 3, 2020 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the third quarter ended September 30, 2020. This release refers to "continuing" and "discontinued" operations due to the pending sale of Napster, RealNetworks' 84%-owned subsidiary, to MelodyVR Group PLC, which is expected to close in the fourth quarter of 2020. Effective as of the signing date, August 25, 2020, Napster is treated as a discontinued operation for accounting and disclosure purposes; therefore, unless otherwise noted, results presented in this release relate to the continuing operations of RealNetworks, which exclude Napster.

  • Revenue from continuing operations of $16.6 million and net loss of $(3.2) million
    • Games revenue was up 6% year-over-year and 2% quarter-over-quarter driven by success of free-to-play strategy, which grew 60% year-over-year
    • Adjusted EBITDA loss of $(1.9) million, our 5th consecutive quarter of year-over-year improvement
  • Significant progress with SAFR initiative
    • Appointed Brad Donaldson as Vice President, Computer Vision to lead the strategic development and market expansion of SAFR
    • Launched SAFR Version 3.0 featuring enhanced COVID-19 response features and a new high-sensitivity face detector
    • Awarded contract for SAFR with Tijuana International Airport's Cross Border Xpress™ (CBX)
  • Progress with monetizing and scaling assets
    • Sale of Napster to MelodyVR expected to close in Q4 2020 in a transaction valued at approximately $70 million, which includes the assumption of approximately $44 million in Napster liabilities and $26.3 million in a mix of cash and equity consideration
    • Spun-out and raised $2.1 million in external funding for Scener after incubating the RealNetworks' startup for two years

Management Commentary

"In Q3 we continued to make solid progress on several fronts" said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "Our commitment to improving business performance led to our fifth consecutive quarter of year-over-year improvement in our adjusted EBITDA loss. Our two largest growth opportunities remain our free-to-play Games, which grew 60% year-over-year, and the SAFR platform. We also made great progress in streamlining, optimizing and monetizing other parts of Real, as demonstrated by the pending sale of Napster to MelodyVR and the successful capital raise for Scener. Finally, we also significantly strengthened our management team by bringing in Mike Ensing as President and COO, and Brad Donaldson as VP, Computer Vision to lead the strategic development and market expansion of SAFR."

Third Quarter 2020 Financial Highlights from Continuing Operations

  • Revenue was $16.6 million compared to $17.1 million in the prior quarter and $17.7 million in the prior year period.
  • Games revenue was $7.6 million, up 2% compared to $7.5 million in the prior quarter and up 6% compared to $7.2 million in the prior year period.
  • Gross profit margin was 75%, unchanged from 75% in the prior quarter and down from 76% in the prior year period.
  • Operating expenses decreased $0.3 million, or 2%, from the prior quarter and decreased $3.2 million, or 17%, from the prior year period.
  • Net loss attributable to RealNetworks was $(3.2) million, or $(0.08) per diluted share, compared to a net loss of $(3.1) million, or $(0.08) per diluted share, in the prior quarter and a net loss of $(5.2) million, or $(0.14) per diluted share, in the prior year period.
  • Adjusted EBITDA was a loss of $(1.9) million compared to a loss of $(1.4) million in the prior quarter and a loss of $(3.2) million in the prior year period.
  • At September 30, 2020, the Company had $13.2 million in unrestricted cash and cash equivalents compared to $14.4 million at June 30, 2020 and $8.5 million at December 31, 2019.

Corporate Developments

  • On August 25, 2020, Napster signed a definitive agreement to be sold to MelodyVR, subject to closing conditions, with a total transaction value of approximately $70 million. Terms of the merger require payment by MelodyVR of $26.3 million in combined cash and MelodyVR stock at closing, and MelodyVR will assume approximately $44 million in Napster liabilities. The final value to RealNetworks from the transaction is subject to several factors including deal costs, Napster's repayment of $3.9 million in debt, an escrow of $3.0 million, the mix of cash and MelodyVR stock and the market value of that stock, and payment by RealNetworks to Columbus Nova for the January 2019 acquisition of its interest in Napster. The transaction is expected to close in the fourth quarter of 2020, at which point RealNetworks will provide further details.
  • On September 18, 2020, the Company announced the appointment of Brad Donaldson as Vice President, Computer Vision to lead the strategic development and market expansion of the SAFR product line.

Business Outlook

Given the ongoing uncertainty surrounding the global economy and the future impact of COVID-19, RealNetworks is not providing guidance for the fourth quarter ending December 31, 2020.

Conference Call and Webcast Information

RealNetworks will host a conference call today to review its results and discuss its performance at approximately 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-451-6152 (United States) or 1-201-389-0879 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Tuesday, November 24, 2020, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13711759.

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

About RealNetworks

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

About Non-GAAP Financial Measures

To supplement RealNetworks' consolidated financial information presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) 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 our current expectations regarding our future growth, profitability, and market position, our financial condition and liquidity, our strategic focus and initiatives, product plans, agreements with partners, and expectations and contingencies relating to the sale of Napster. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements.  These statements reflect our expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results for RealNetworks, on a consolidated basis, to differ from the results predicted include: our ability to realize operating efficiencies, growth and other benefits from the implementation of our growth initiatives and restructuring efforts; cash usage and conservation, and the pursuit of additional funding sources; successful monetization of our products and services; competitive risks, including the emergence or growth of competing technologies, products and services; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets, including changes in consumer spending and impacts to credit availability; fluctuations in foreign currencies; and unique risk factors that relate to our Napster segment, such as risks stemming from its streaming music service and related music royalties. More information about potential risk factors that could affect our business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, 2019, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of our financial statements and forward-looking financial guidance requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. RealNetworks assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

For More Information:

Investor Relations for RealNetworks

Kimberly Orlando, Addo Investor Relations