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SEATTLE, Nov. 8, 2022 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), an emerging leader in AI-based software and solutions, today announced its financial results for the third quarter ended September 30, 2022.
Management Commentary
"In the third quarter we continued to manage our business rigorously while Real's transition moves forward. Shareholders will be asked to vote on the Merger Agreement and approval of the merger at a shareholder meeting which we expect to take place December 14, 2022," said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "Our financial results showed stable revenue sequentially, while our bottom line was negatively impacted by costs associated with the potential go private transaction. We will continue to manage our resources responsibly through the transition."
Mr. Glaser continued: "SAFR Scan has been receiving encouraging feedback from initial clients, and during the quarter we closed our first large SAFR Scan customer as well as a pipeline of sales opportunities for this exciting new product."
Third Quarter 2022 Financial Results
Corporate Developments
During the quarter, it was announced that RealNetworks and Founder, Chairman and CEO Rob Glaser entered into a definitive merger agreement pursuant to which the company will merge with and into Greater Heights LLC, an affiliate of Mr. Glaser, and each outstanding share of common stock of the Company will be converted into the right to receive cash consideration of $0.73 per share. The Company's shareholders will be asked to vote upon the adoption of the Merger Agreement and approval of the merger at a shareholder meeting on December 14, 2022. The transaction is expected to close in the fourth quarter of 2022.
Given the pending merger, the Company will not be providing any forward-looking guidance, and is withdrawing any previously provided goals and outlook.
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 1-877-550-1707 (United States) or 1-848-488-9020 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on November 22, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 11152769.
A live webcast will be available on RealNetworks's 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 Non-GAAP Financial Measures
To supplement RealNetworks's 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.
Additional Information and Where to Find It
RealNetworks, its directors and certain executive officers are participants in the solicitation of proxies from shareholders in connection with the pending merger of RealNetworks (the "Transaction"). RealNetworks has filed a definitive proxy statement (the "Transaction Proxy Statement") with the Securities and Exchange Commission (the "SEC") in connection with the solicitation of proxies to approve the Transaction. Additional information regarding such participants, including their direct or indirect interests, by security holdings or otherwise, is included in the Transaction Proxy Statement and other relevant documents to be filed with the SEC in connection with the Transaction. To the extent that holdings of RealNetworks's securities have changed since the amounts printed in the Transaction Proxy Statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Prior to the special meeting to consider the Transaction, RealNetworks will furnish a Transaction Proxy Statement to is shareholders, together with a proxy card. SHAREHOLDERS ARE URGED TO READ THE TRANSACTION PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT REALNETWORKS WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain, free of charge, the preliminary and definitive versions of the Transaction Proxy Statement, any amendments or supplements thereto, and any other relevant documents filed by RealNetworks with the SEC in connection with the Transaction at the SEC's website ( http://www.sec.gov ). Copies of RealNetworks's Transaction Proxy Statement, any amendments or supplements thereto, and any other relevant documents filed by RealNetworks with the SEC in connection with the Transaction will also be available, free of charge, from RealNetworks's website at www.realnetworks.com.
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, the anticipated closing of the merger, expectations following the closing of the merger, our financial condition and liquidity, our strategic focus and initiatives, product plans, and agreements with partners. 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: the possibility that the conditions to the closing of the merger are not satisfied, including the risk that required shareholder approval for the merger is not obtained; potential litigation relating to the merger; uncertainties as to the timing of the consummation of the merger; the ability of each party to consummate the merger; risks relating to the substantial costs and diversion of personnel's attention and resources due to the merger; 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; 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, including changes in consumer spending and impacts to credit availability, and fluctuations in foreign currencies; 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's latest annual report on Form 10-K for year ended December 31, 2021, 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 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
Brian M. Prenoveau, CFA
MZ North America
561-489-5315
IR@realnetworks.com
RNWK-F
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
(in thousands, except per share data)
Net revenue
$ 11,708
$ 14,332
$ 36,840
$ 44,781
Cost of revenue
2,787
3,119
8,228
10,370
Gross profit
8,921
11,213
28,612
34,411
Operating expenses:
Research and development
4,870
5,250
16,000
17,818
Sales and marketing
4,726
7,177
13,810
17,573
General and administrative
6,020
4,228
14,918
13,502
Fair value adjustments to contingent consideration liability
—
—
—
(1,040)
Restructuring and other charges
118
1,017
573
4,906
Total operating expenses
15,734
17,672
45,301
52,759
Operating loss
(6,813)
(6,459)
(16,689)
(18,348)
Other income (expenses):
Interest expense
(3)
(27)
(47)
(146)
Interest income
7
7
21
27
Gain on forgiveness of Paycheck Protection Program loan
—
—
—
2,897
Loss on equity and other investments, net
(207)
(1,229)
(806)
(6,070)
Other income, net
364
46
651
2,066
Total other income (expenses), net
161
(1,203)
(181)
(1,226)
Loss before income taxes
(6,652)
(7,662)
(16,870)
(19,574)
Income tax expense
16
6
159
133
Net loss
(6,668)
(7,668)
(17,029)
(19,707)
Net loss attributable to noncontrolling interests
—
—
—
(244)
Net loss attributable to RealNetworks
$ (6,668)
$ (7,668)
$ (17,029)
$ (19,463)
Net loss per share attributable to RealNetworks- Basic
$ (0.14)
$ (0.16)
$ (0.36)
$ (0.45)
Net loss per share attributable to RealNetworks- Diluted
$ (0.14)
$ (0.16)
$ (0.36)
$ (0.45)
Shares used to compute basic net loss per share
47,506
47,055
47,367
43,312
Shares used to compute diluted net loss per share
47,506
47,055
47,367
43,312
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30,
2022
December 31,
2021
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
$ 9,156
$ 27,109
Trade accounts receivable, net
8,659
9,556
Deferred costs, current portion
45
49
Investments
—
1,755
Prepaid expenses and other current assets
4,179
3,166
Total current assets
22,039
41,635
Equipment and software
22,086
29,464
Leasehold improvements
1,678
2,750
Total equipment, software, and leasehold improvements
23,764
32,214
Less accumulated depreciation and amortization
22,700
30,744
Net equipment, software, and leasehold improvements
1,064
1,470
Operating lease assets
3,092
3,992
Restricted cash equivalents
1,500
1,630
Other assets
2,680
2,878
Deferred tax assets, net
517
727
Goodwill
16,116
16,976
Total assets
$ 47,008
$ 69,308
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 1,951
$ 2,578
Accrued and other current liabilities
11,637
13,286
Deferred revenue, current portion
2,245
2,614
Total current liabilities
15,833
18,478
Deferred revenue, non-current portion
60
183
Deferred tax liabilities, net
995
1,132
Long-term lease liabilities
1,703
2,300
Other long-term liabilities
10
1,142
Total liabilities
18,601
23,235
Total equity
28,407
46,073
Total liabilities and equity
$ 47,008
$ 69,308
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2022
2021
(in thousands)
Cash flows from operating activities:
Net loss
$ (17,029)
$ (19,707)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
530
600
Stock-based compensation
1,789
3,789
Loss on equity and other investments, net
806
6,070
Loss on impairment of operating lease assets
—
2,461
Deferred income taxes, net
93
—
Foreign currency gain
(624)
(62)
Fair value adjustments to contingent consideration liability
—
(1,040)
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
(1,928)
1,331
Net cash used in operating activities
(16,363)
(11,416)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements
(211)
(280)
Deconsolidation of subsidiary, net
—
(836)
Other
(595)
—
Net cash used in investing activities
(806)
(1,116)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options)
—
534
Proceeds from equity offering, net of costs
—
20,114
Tax payments from shares withheld upon vesting of restricted stock
(102)
(186)
Payment of contingent consideration liability
—
(2,500)
Net cash provided by (used in) financing activities
(102)
17,962
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(812)
(380)
Net decrease in cash, cash equivalents and restricted cash
(18,083)
5,050
Cash, cash equivalents, and restricted cash, beginning of period
28,739
25,570
Cash, cash equivalents, and restricted cash, end of period
$ 10,656
$ 30,620
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2022
2021
Q3
Q2
Q1
Q4
Q3
Q2
Q1
(in thousands)
Net Revenue by Segment
Consumer Media (A)
$ 1,415
$ 2,499
$ 2,111
$ 2,168
$ 2,763
$ 2,061
$ 3,309
Mobile Services (B)
5,226
4,457
5,640
5,680
5,772
6,356
5,980
Games (C)
5,067
4,900
5,525
5,554
5,797
6,144
6,599
Total net revenue
$ 11,708
$ 11,856
$ 13,276
$ 13,402
$ 14,332
$ 14,561
$ 15,888
Net Revenue by Product
Consumer Media
- Software License (D)
$ 248
$ 1,393
$ 987
$ 854
$ 1,506
$ 841
$ 1,875
- Subscription Services (E)
682
710
742
768
779
793
818
- Product Sales (F)
280
144
163
268
270
330
438
- Advertising & Other (G)
205
252
219
278
208
97
178
Mobile Services
- Software License (H)
2,005
879
1,531
1,616
1,459
1,931
1,391
- Subscription Services (I)
3,221
3,578
4,109
4,064
4,313
4,425
4,589
Games
- Subscription Services (J)
2,052
2,116
2,219
2,286
2,361
2,431
2,528
- Product Sales (K)
2,090
1,986
2,377
2,453
2,612
2,830
3,163
- Advertising & Other (L)
925
798
929
815
824
883
908
Total net revenue
$ 11,708
$ 11,856
$ 13,276
$ 13,402
$ 14,332
$ 14,561
$ 15,888
Net Revenue by Geography
United States
$ 7,004
$ 8,237
$ 8,187
$ 8,126
$ 9,227
$ 9,209
$ 9,932
Rest of world
4,704
3,619
5,089
5,276
5,105
5,352
5,956
Total net revenue
$ 11,708
$ 11,856
$ 13,276
$ 13,402
$ 14,332
$ 14,561
$ 15,888
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, as well as 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)
2022
2021
2022
2021
Q3
Q2
Q3
YTD
YTD
(in thousands)
Consumer Media
Net revenue
$ 1,415
$ 2,499
$ 2,763
$ 6,025
$ 8,133
Cost of revenue
374
432
418
1,194
1,393
Gross profit
1,041
2,067
2,345
4,831
6,740
Gross margin
74 %
83 %
85 %
80 %
83 %
Operating expenses
1,371
1,397
1,495
4,240
6,028
Operating income (loss), a GAAP measure
$ (330)
$ 670
$ 850
$ 591
$ 712
Depreciation and amortization
13
14
16
43
37
Contribution margin, a non-GAAP measure
$ (317)
$ 684
$ 866
$ 634
$ 749
Mobile Services
Net revenue
$ 5,226
$ 4,457
$ 5,772
$ 15,323
$ 18,108
Cost of revenue
1,116
965
1,282
3,126
4,291
Gross profit
4,110
3,492
4,490
12,197
13,817
Gross margin
79 %
78 %
78 %
80 %
76 %
Operating expenses
5,950
6,510
5,890
19,126
18,367
Operating loss, a GAAP measure
$ (1,840)
$ (3,018)
$ (1,400)
$ (6,929)
$ (4,550)
Depreciation and amortization
77
104
80
265
243
Contribution margin, a non-GAAP measure
$ (1,763)
$ (2,914)
$ (1,320)
$ (6,664)
$ (4,307)
Games
Net revenue
$ 5,067
$ 4,900
$ 5,797
$ 15,492
$ 18,540
Cost of revenue
1,288
1,300
1,414
3,883
4,671
Gross profit
3,779
3,600
4,383
11,609
13,869
Gross margin
75 %
73 %
76 %
75 %
75 %
Operating expenses
3,648
3,826
4,844
11,473
14,791
Operating income (loss), a GAAP measure
$ 131
$ (226)
$ (461)
$ 136
$ (922)
Depreciation and amortization
18
61
78
140
235
Contribution margin, a non-GAAP measure
$ 149
$ (165)
$ (383)
$ 276
$ (687)
Corporate
Cost of revenue
$ 9
$ 8
$ 5
$ 25
$ 15
Gross profit
(9)
(8)
(5)
(25)
(15)
Gross margin
N/A
N/A
N/A
N/A
N/A
Operating expenses
4,765
2,337
5,443
10,462
13,573
Operating loss, a GAAP measure
$ (4,774)
$ (2,345)
$ (5,448)
$ (10,487)
$ (13,588)
Other income (expense), net
364
268
46
651
105
Foreign currency (gain) loss
(349)
(272)
(47)
(624)
(62)
Depreciation and amortization
28
25
29
82
85
Fair value adjustments to contingent consideration liability
—
—
—
—
(1,040)
Restructuring and other charges
118
165
1,017
573
4,906
Stock-based compensation
727
367
2,518
1,789
3,789
Contribution margin, a non-GAAP measure
$ (3,886)
$ (1,792)
$ (1,885)
$ (8,016)
$ (5,805)
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net loss to adjusted EBITDA, a non-GAAP measure
(Unaudited)
2022
2021
2022
2021
Q3
Q2
Q3
YTD
YTD
(in thousands)
Reconciliation of GAAP Net loss to adjusted EBITDA:
Net loss
$ (6,668)
$ (5,136)
$ (7,668)
$ (17,029)
$ (19,707)
Income tax expense
16
60
6
159
133
Interest expense
3
22
27
47
146
Interest income
(7)
(7)
(7)
(21)
(27)
Loss on equity and other investments, net
207
410
1,229
806
6,070
Foreign currency (gain) loss
(349)
(272)
(47)
(624)
(62)
Depreciation and amortization
136
204
203
530
600
Fair value adjustments to contingent consideration liability
—
—
—
—
(1,040)
Gain on forgiveness of Paycheck Protection Program loan
—
—
—
—
(2,897)
Gain on deconsolidation of subsidiary
—
—
—
—
(1,961)
Restructuring and other charges
118
165
1,017
573
4,906
Stock-based compensation
727
367
2,518
1,789
3,789
Adjusted EBITDA, a non-GAAP measure
$ (5,817)
$ (4,187)
$ (2,722)
$ (13,770)
$ (10,050)
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SOURCE RealNetworks, Inc.