PR Newswire | Aug 4, 2021 04:02PM EDT

08/04 15:01 CDT

RealNetworks Announces Second Quarter 2021 Financial Results SEATTLE, Aug. 4, 2021

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 OutlookFor 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 InformationRealNetworks 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 RealNetworksBuilding 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 StatementsThis 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 RealNetworksKimberly Orlando, Addo Investor Relations310-829-5400IR@realnetworks.comRNWK-F

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)



Six Months Ended June 30, Quarter 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, December 31, 2021 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 32,535 33,502 improvements

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 $31,490 $19,320 period

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)

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SOURCE RealNetworks, Inc.