RealNetworks Logo

RealNetworks Logo

SEATTLE, Aug. 4, 2021 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), an emerging leader in AI-based software and solutions, today announced its financial results* for the second quarter ended June 30, 2021.

  • Revenue of $14.6 million and net loss attributable to RealNetworks of $(1.3) million
  • Doubled revenue year-over-year for the Company's AI-based businesses with 282% growth in SAFRTM and 15% growth in KONTXT
  • Strengthened balance sheet to position the Company for future growth; unrestricted cash and cash equivalents of $29.9 million and no debt as of June 30, 2021

Management Commentary

"In Q2 we continued to make great progress in our AI-based businesses, SAFR and KONTXT," said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "In the aggregate, our AI businesses grew 101% year over year – 282% for SAFR and 15% for KONTXT. Further, we strengthened our balance sheet by raising $20.1 million in net proceeds through a public offering during the quarter. This enables us to continue to scale our investments in our AI growth businesses."

Mr. Glaser continued, "We're also very pleased with the progress that Scener is making on its path as an independent company. Scener continues to grow rapidly with consumers using it to watch over 100 million minutes of video each month. Scener is now self-sufficient financially and has a very bright future." As a result of Scener's progress as an independent company, Real no longer consolidated Scener into its financial results as of June 30th.

Second Quarter 2021 Financial Highlights from Continuing Operations

  • Revenue was $14.6 million, down 8% compared to $15.9 million in the prior quarter and down 15% compared to $17.1 million in the prior year period.
  • Revenue from key growth initiatives, SAFR and KONTXT, increased 282% and 15%, respectively, compared to the prior year period. SAFR and KONTXT together grew to represent 37% of total Mobile Services revenue for the second quarter of 2021.
  • Operating expenses decreased $1.7 million, or 9%, from the prior quarter and increased $1.1 million, or 7%, from the prior year period. Normalizing for certain one-time and non-cash items including restructuring and fair value adjustments to the contingent consideration liability, operating expenses decreased $0.3 million, or 2%, compared to the prior quarter and increased $1.2 million, or 8%, from the prior year period.
  • Net loss from continuing operations attributable to RealNetworks was $(1.3) million, or $(0.03) per diluted share, compared to a net loss of $(10.4) million, or $(0.27) per diluted share, in the prior quarter and a net loss of $(3.1) million, or $(0.08) per diluted share, in the prior year period. Included in net loss attributable to RealNetworks in the second quarter of 2021 was a gain on forgiveness of debt of $2.9 million from the principal and interest on the Paycheck Protection Program ("PPP") loan and a gain of $2.0 million related to the deconsolidation of Scener.
  • Adjusted EBITDA, including $600,000 of operating costs related to Scener, was a loss of $(4.3) million compared to a loss of $(3.0) million in the prior quarter and a loss of $(1.4) million in the prior year period. Adjusted EBITDA, excluding the $600,000 of operating costs related to Scener, was a loss of $(3.7) million.
  • At June 30, 2021, the Company had $29.9 million in unrestricted cash and cash equivalents compared to $17.0 million at March 31, 2021 and $23.9 million at December 31, 2020. In April 2021, the Company strengthened its balance sheet with the closing of an underwritten public offering that resulted in net proceeds to the Company of approximately $20.1 million.

Corporate Developments

  • RealNetworks received notice from its participating bank that its request for forgiveness of the principal and interest on the PPP loan was approved. As a result, the Company recognized a $2.9 million gain on forgiveness of debt on the condensed consolidated statement of operations.
  • As of June 30, 2021, the Company deconsolidated Scener Inc., previously a consolidated subsidiary of RealNetworks, and recognized a non-cash gain of $2.0 million in other income (expense), net on the condensed consolidated statement of operations.
  • During the second quarter of 2021, the Company settled the contingent consideration liability for its January 2019 purchase of Napster through the use of $2.5 million of cash and the transfer of 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date.

Business Outlook

For the third quarter ending September 30, 2021, RealNetworks expects to achieve the following results from continuing operations:

  • Total revenue is expected to be in the range of $13.5 million to $15.5 million.
  • Adjusted EBITDA loss is expected to be in the range of $(5.0) million to $(3.5) million, excluding Scener (which has been deconsolidated as of June 30, 2021).

RealNetworks' management continues to expect 2021 will be an investment year that will position the Company for double-digit revenue growth in 2022 and 2023.

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 Wednesday, August 25, 2021, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13721303.

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 rich history 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. Real's portfolio includes SAFR, the world's premier computer vision platform for live video; KONTXT, an industry leading NLP (Natural Language Processing) platform for text and multi-media analysis; and leveraging its digital media expertise, a mobile games business focused on the large free-to-play segment. For information about all of our products, visit www.realnetworks.com.

About Continuing and Discontinued Operations and Non-GAAP Financial Measures

*This release refers to "continuing" and "discontinued" operations due to the completion of the sale of Napster, RealNetworks' 84%-owned subsidiary, to MelodyVR Group PLC, which closed on December 30, 2020. Effective as of the August 25, 2020 announcement date, Napster has been 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.

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, Scener's current and future activities, and certain remaining 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; issues with the use of AI; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions and dispositions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets; volatility of our stock price; material asset impairment; continued declines in subscription revenue; difficulty recruiting and retaining key personnel; regulatory, tax, accounting, and cross-border risks; and risks related to our governance structure. More information about potential risk factors that could affect our business and financial results is included in RealNetworks' latest annual report on Form 10-K for year ended December 31, 2020, 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

310-829-5400

IR@realnetworks.com

RNWK-F

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)





Quarter Ended June 30,



Six Months Ended June 30, 2020





2021



2020



2021



2020



















 (in thousands, except per share data)

















 Net revenue

$

14,561





$

17,085





$

30,449





$

33,907



 Cost of revenue

3,572





4,263





7,251





8,367



           Gross profit

10,989





12,822





23,198





25,540



















 Operating expenses:















       Research and development

6,330





5,988





12,568





12,594



       Sales and marketing

5,259





4,839





10,396





10,839



       General and administrative

4,376





3,978





9,274





9,139



Fair value adjustments to contingent consideration liability





100





(1,040)





(200)



       Restructuring and other charges

718





704





3,889





790



















           Total operating expenses

16,683





15,609





35,087





33,162



















 Operating loss

(5,694)





(2,787)





(11,889)





(7,622)



















 Other income (expenses):















       Interest expense

(24)





(5)





(119)





(5)



       Interest income

7





19





20





25



       Gain on forgiveness of Paycheck Protection Program loan

2,897









2,897







       Loss on equity and other investments, net

(569)





(53)





(4,841)





(53)



       Other income (expense), net

1,916





(71)





2,020





167



















           Total other income (expenses), net

4,227





(110)





(23)





134



















Loss from continuing operations before income taxes

(1,467)





(2,897)





(11,912)





(7,488)



 Income tax expense

18





265





127





290



















Net loss from continuing operations

(1,485)





(3,162)





(12,039)





(7,778)



Net loss from discontinued operations, net of tax





(2,392)









(2,465)



Net loss

(1,485)





(5,554)





(12,039)





(10,243)



Net loss attributable to noncontrolling interests of continuing operations

(138)





(66)





(244)





(119)



Net loss attributable to noncontrolling interests of discontinued operations





(376)









(370)



Net loss attributable to RealNetworks

$

(1,347)





$

(5,112)





$

(11,795)





$

(9,754)



















Net loss from continuing operations attributable to RealNetworks

$

(1,347)





$

(3,096)





$

(11,795)





$

(7,659)



Net loss from discontinued operations attributable to RealNetworks





(2,016)









(2,095)



Net loss attributable to RealNetworks

$

(1,347)





$

(5,112)





$

(11,795)





$

(9,754)



















Net loss per share attributable to RealNetworks- Basic:















       Continuing operations

$

(0.03)





$

(0.08)





$

(0.28)





$

(0.20)



       Discontinued operations





(0.05)









(0.06)



              Net loss per share attributable to RealNetworks- Basic

$

(0.03)





$

(0.13)





$

(0.28)





$

(0.26)



















Net loss per share attributable to RealNetworks- Diluted:















       Continuing operations

$

(0.03)





$

(0.08)





$

(0.28)





$

(0.20)



       Discontinued operations





(0.05)









(0.06)



              Net loss per share attributable to RealNetworks- Diluted

$

(0.03)





$

(0.13)





$

(0.28)





$

(0.26)



















 Shares used to compute basic net loss per share

44,284





38,243





41,409





38,236



 Shares used to compute diluted net loss per share

44,284





38,243





41,409





38,236



 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)





June 30,

2021



December 31,

2020



 (in thousands)

ASSETS

 Current assets:







 Cash and cash equivalents

$

29,860





$

23,940



 Trade accounts receivable, net

12,858





10,229



 Deferred costs, current portion

91





196



 Investments

3,973





9,965



 Prepaid expenses and other current assets

6,428





3,480



 Total current assets

53,210





47,810











 Equipment and software

29,790





30,726



 Leasehold improvements

2,745





2,776



 Total equipment, software, and leasehold improvements

32,535





33,502



 Less accumulated depreciation and amortization

30,998





31,631



 Net equipment, software, and leasehold improvements

1,537





1,871











 Operating lease assets

4,987





7,937



 Restricted cash equivalents

1,630





1,630



 Other assets

982





4,150



 Deferred costs, non-current portion





74



 Deferred tax assets, net

875





909



 Goodwill

17,229





17,375











 Total assets

$

80,450





$

81,756











 LIABILITIES AND SHAREHOLDERS' EQUITY









 Current liabilities:







 Accounts payable

$

2,932





$

2,750



 Accrued and other current liabilities

12,336





17,850



 Deferred revenue, current portion

2,281





2,122



 Total current liabilities

17,549





22,722











 Deferred revenue, non-current portion

27





45



 Deferred tax liabilities, net

1,100





1,129



 Long-term lease liabilities

5,896





6,837



 Long-term debt





2,895



 Other long-term liabilities

53





2,241











 Total liabilities

24,625





35,869











 Total shareholders' equity

55,825





46,149











Noncontrolling interests





(262)











 Total equity

55,825





45,887











 Total liabilities and equity

$

80,450





$

81,756



 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)





Six Months Ended June 30, 2020



2021



2020



 (in thousands)



Cash flows from operating activities:







Net loss from continuing operations

$

(12,039)





$

(7,778)



Adjustment to reconcile net loss from continuing operations to net cash used in operating

activities:







Depreciation and amortization

397





493



Stock-based compensation

1,271





703



Loss on equity and other investments, net

4,841





53



Loss on impairment of operating lease assets

2,461







Foreign currency gain

(15)





(118)



Fair value adjustments to contingent consideration liability

(1,040)





(200)



Gain on deconsolidation of subsidiary

(1,961)







Gain on forgiveness of Paycheck Protection Program loan

(2,897)







Net change in certain operating assets and liabilities

(1,923)





194



Net cash used in operating activities - continuing operations

(10,905)





(6,653)



Net cash provided in operating activities - discontinued operations





(1,924)



Net cash used in operating activities

(10,905)





(8,577)



Cash flows from investing activities:







Purchases of equipment, software, and leasehold improvements

(131)





(157)



Deconsolidation of subsidiary, net

(836)







Net cash used in investing activities - continuing operations

(967)





(157)



Net cash used in investing activities - discontinued operations





(169)



Net cash used in investing activities

(967)





(326)



Cash flows from financing activities:







Proceeds from issuance of common stock (stock options)

534







Proceeds from issuance of preferred stock





10,000



Proceeds from equity offering, net of costs

20,114







Tax payments from shares withheld upon vesting of restricted stock

(117)





(5)



Payment of contingent consideration liability

(2,500)







Proceeds from long-term debt





2,875



Net cash provided by financing activities - continuing operations

18,031





12,870



Net cash used in financing activities - discontinued operations





(988)



Net cash provided by financing activities

18,031





11,882



Effect of exchange rate changes on cash, cash equivalents and restricted cash

(239)





(96)



Net increase in cash, cash equivalents and restricted cash

5,920





2,883



Cash, cash equivalents, and restricted cash, beginning of period

25,570





22,179



Cash, cash equivalents, and restricted cash, end of period

31,490





25,062



Less: Cash, cash equivalents and restricted cash from discontinued operations





5,742



Cash, cash equivalents, and restricted cash from continuing operations, end of period

$

31,490





$

19,320



 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)







2021



2020





 Q2



Q1



 Q4



 Q3



 Q2



 Q1





 (in thousands)

Net Revenue by Segment























Consumer Media (A)



$

2,061





$

3,309





$

3,384





$

2,543





$

3,159





$

3,495



Mobile Services (B)



6,356





5,980





7,338





6,400





6,461





6,690



Games (C)



6,144





6,599





6,879





7,611





7,465





6,637



     Total net revenue



$

14,561





$

15,888





$

17,601





$

16,554





$

17,085





$

16,822





























Net Revenue by Product

























Consumer Media

























- Software License (D)



$

841





$

1,875





$

1,593





$

642





$

1,702





$

2,020



- Subscription Services (E)



793





818





867





892





898





929



- Product Sales (F)



330





438





625





193





261





222



- Advertising & Other (G)



97





178





299





816





298





324





























Mobile Services

























- Software License (H)



1,931





1,391





2,376





931





972





831



- Subscription Services (I)



4,425





4,589





4,962





5,469





5,489





5,859





























Games

























- Subscription Services (J)



2,431





2,528





2,589





2,705





2,730





2,770



- Product Sales (K)



2,830





3,163





3,315





3,874





3,712





2,978



- Advertising & Other (L)



883





908





975





1,032





1,023





889























































     Total net revenue



$

14,561





$

15,888





$

17,601





$

16,554





$

17,085





$

16,822





























Net Revenue by Geography

























United States



$

9,209





$

9,932





$

10,893





$

11,855





$

10,742





$

10,214



Rest of world



5,352





5,956





6,708





4,699





6,343





6,608



     Total net revenue



$

14,561





$

15,888





$

17,601





$

16,554





$

17,085





$

16,822





























Net Revenue by Segment























(A) The Consumer Media segment 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 segment primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.

(C) The Games segment primarily includes revenue from player purchases of in-game virtual goods within our free-to-play games, 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 facial recognition platform, SAFR and our integrated RealTimes platform.

(I) Subscription services revenue within Mobile Services includes revenue from our messaging products, including Metcalf intercarrier messaging services and Kontxt, as well as ringback tones and 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 player purchases of in-game virtual goods, retail and wholesale games-related revenue, sales of mobile games.

(L) Advertising & other 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)







2021



2020

2021



2020





Q2



Q1



Q2



YTD



YTD





 (in thousands)

Consumer Media











































Net revenue



$

2,061





$

3,309





$

3,159





$

5,370





$

6,654



Cost of revenue



497





478





519





975





1,130



Gross profit



1,564





2,831





2,640





4,395





5,524

























Gross margin



76

%



86

%



84

%



82

%



83

%























Operating expenses



2,332





2,201





2,204





4,533





4,662



Operating income (loss), a GAAP measure



$

(768)





$

630





$

436





$

(138)





$

862



Depreciation and amortization



5





16





15





21





28

























Contribution margin, a non-GAAP measure



$

(763)





$

646





$

451





$

(117)





$

890

























Mobile Services











































Net revenue



$

6,356





$

5,980





$

6,461





$

12,336





$

13,151



Cost of revenue



1,517





1,492





1,782





3,009





3,478



Gross profit



4,839





4,488





4,679





9,327





9,673

























Gross margin



76

%



75

%



72

%



76

%



74

%























Operating expenses



6,332





6,145





5,682





12,477





13,270



Operating income (loss), a GAAP measure



$

(1,493)





$

(1,657)





$

(1,003)





$

(3,150)





$

(3,597)



Depreciation and amortization



79





84





102





163





200

























Contribution margin, a non-GAAP measure



$

(1,414)





$

(1,573)





$

(901)





$

(2,987)





$

(3,397)

























Games











































Net revenue



$

6,144





$

6,599





$

7,465





$

12,743





$

14,102



Cost of revenue



1,552





1,705





1,958





3,257





3,752



Gross profit



4,592





4,894





5,507





9,486





10,350

























Gross margin



75

%



74

%



74

%



74

%



73

%























Operating expenses



4,849





5,098





4,976





9,947





9,899



Operating income (loss), a GAAP measure



$

(257)





$

(204)





$

531





$

(461)





$

451



Depreciation and amortization



81





76





66





157





204

























Contribution margin, a non-GAAP measure



$

(176)





$

(128)





$

597





$

(304)





$

655

























Corporate











































Cost of revenue



$

6





$

4





$

4





$

10





$

7



Gross profit



(6)





(4)





(4)





(10)





(7)

























Gross margin



N/A



N/A



N/A



N/A



N/A























Operating expenses



3,170





4,960





2,747





8,130





5,331



Operating income (loss), a GAAP measure



$

(3,176)





$

(4,964)





$

(2,751)





$

(8,140)





$

(5,338)



Other expense, net



(45)





104





(71)





59





167



Foreign currency (gain) loss



88





(103)





92





(15)





(118)



Depreciation and amortization



28





28





30





56





61



Fair value adjustments to contingent consideration liability







(1,040)





100





(1,040)





(200)



Restructuring and other charges



718





3,171





704





3,889





790



Stock-based compensation



435





836





323





1,271





703

























Contribution margin, a non-GAAP measure



$

(1,952)





$

(1,968)





$

(1,573)





$

(3,920)





$

(3,935)



 

RealNetworks, Inc. and Subsidiaries

Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure

(Unaudited)







2021



2020

2021



2020





Q2



 Q1



 Q2



 YTD



 YTD





(in thousands)























Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:











































Net loss from continuing operations



$

(1,485)





$

(10,554)





$

(3,162)





$

(12,039)





$

(7,778)



Income tax expense



18





109





265





127





290



Interest expense



24





95





5





119





5



Interest income



(7)





(13)





(19)





(20)





(25)



Loss on equity and other investments, net



569





4,272





53





4,841





53



Foreign currency (gain) loss



88





(103)





92





(15)





(118)



Depreciation and amortization



193





204





213





397





493



Fair value adjustments to contingent consideration liability







(1,040)





100





(1,040)





(200)



Gain on forgiveness of Paycheck Protection Program loan



(2,897)













(2,897)







Gain on deconsolidation of subsidiary



(1,961)













(1,961)







Restructuring and other charges



718





3,171





704





3,889





790



Stock-based compensation



435





836





323





1,271





703



   Adjusted EBITDA, a non-GAAP measure



$

(4,305)





$

(3,023)





$

(1,426)





$

(7,328)





$

(5,787)



 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/realnetworks-announces-second-quarter-2021-financial-results-301348587.html

SOURCE RealNetworks, Inc.

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