EX-99.1 2 exhibit991erq1-20.htm EX-99.1 Document

Exhibit 99.1
REALNETWORKS ANNOUNCES FIRST QUARTER 2020 FINANCIAL RESULTS

SEATTLE — May 6, 2020 -

RealNetworks, Inc. (Nasdaq: RNWK), a leader in digital media software and services, today announced its financial results for the first quarter ended March 31, 2020.

•Generated consolidated revenue of $43.1 million
•Games revenue up 16% year-over-year driven by success of free-to-play strategy
•Pivoting SAFR strategy to focus on the intersection of public health and public safety
•CEO Rob Glaser invested $10.0 million into the Company
•Judd Lee Named Senior Vice President, Chief Financial Officer and Treasurer

Management Commentary
“The new decade is off to a completely unexpected start, as everyone knows. We mourn the loss of a quarter of a million people around the world due to COVID-19. We’re also very mindful that, for most of the world, including our home country, the pandemic continues to be massively disruptive to our daily lives,” said Rob Glaser, Chairman and CEO of RealNetworks.
Mr. Glaser continued, “In that context, at RealNetworks, we have four primary areas of focus:
(1)The safety and well-being of our employees and their families, our customers, and our communities;
(2)Running Real in a fundamentally different way than we have run the company before;
(3)Operating with mission, focus, and excellence; and
(4)Finding new ways for us to contribute with our products and services to the new challenges the world is facing.”
“I’m very impressed by how well our team is responding to these challenges with purpose, focus, clarity, and creativity. Our first quarter financial performance reflects this, especially in the third month of the quarter. I am grateful to our team members for their excellent work, and am hopeful that the impact of the team’s great work will become even more significant and impactful in the weeks and months ahead,” concluded Mr. Glaser.
First Quarter 2020 Financial Highlights
•Revenue was $43.1 million (inclusive of $26.3 million from Napster) compared to $43.4 million (inclusive of $26.1 million from Napster) in the prior quarter and $39.51 million (inclusive of $24.3 million from Napster) in the prior year period.
•Games revenue was $6.6 million, consistent with the prior quarter and up 16% compared to $5.7 million in the prior year period.
•Gross profit margin was 44%, up from 43% in the prior quarter and 37% in the prior year period.
•Operating expenses decreased $0.5 million, or 2%, from the prior quarter and decreased $1.4 million, or 6%, from the prior year period.
•Net loss attributable to RealNetworks was $(4.6) million, or $(0.12) per diluted share, compared to a net loss of $(6.4) million, or $(0.17) per diluted share, in the prior quarter and net income of $1.5 million, or $0.04 per diluted share, in the prior year period. Net income in the first quarter of 2019 included a $12.3 million gain from the acquisition of Napster.
•Adjusted EBITDA was a loss of $(3.3) million compared to a loss of $(2.7) million in the prior quarter and a loss of $(7.9) million in the prior year period.
•At March 31, 2020, the Company had $19.0 million in unrestricted cash and cash equivalents compared to $16.8 million at December 31, 2019.


1The first quarter of 2019 included a partial quarter of revenue from Napster following the acquisition by RealNetworks on January 18, 2019 of an additional 42% interest in Napster.
Corporate Developments
•On February 10, 2020, the Company entered into a purchase agreement with Rob Glaser, RealNetworks’ Founder, Chairman of the Board, Chief Executive Officer, and largest shareholder by which Mr. Glaser acquired approximately 8 million shares of RealNetworks Series B Preferred Stock, for aggregate gross proceeds to RealNetworks of approximately $10.0 million.
•As planned, on April 2020, Judd Lee succeeded Michael Ensing as Senior Vice President, Chief Financial Officer and Treasurer. Mr. Lee has served as Chief Financial Officer and in senior leadership roles for technology companies and investment firms for over two decades and brings to RealNetworks an extensive background in financial management, strategic planning, and operational accounting and finance.
•On April 24, 2020, RealNetworks received $2.9 million in funding pursuant to the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief, and Economic Security (or CARES) Act. RealNetworks intends to use the proceeds from the loan to cover payroll costs, rent and utilities, in accordance with program guidelines. In early May 2020, Napster expects to receive $1.7 million pursuant to the program.
•RealNetworks received a notification from The Nasdaq Stock Market that as of April 23, 2020, the company no longer meets Nasdaq's minimum bid price requirement. Amid the extreme market uncertainty, Nasdaq recently implemented a grace period through June 30, 2020 for compliance with its bid price rule, allowing companies to focus on managing their businesses through the challenges caused by the COVID-19 pandemic. RealNetworks has until December 28, 2020 to regain compliance with the minimum bid price requirement and expects to take action well before then to bring the company back into compliance.
Business Outlook
Given the ongoing uncertainty surrounding the global economy and the future impact of COVID-19, RealNetworks is not providing guidance for the second quarter ending June 30, 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 Wednesday, May 27, 2020, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13701794.
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. Kontxt (www.kontxt.com) is the foremost platform for categorizing A2P messages to help mobile carriers build customer loyalty and drive new revenue through text message classification and antispam. 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) including noncontrolling interests 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, use of loan proceeds, our ability to regain compliance with Nasdaq listing standards, and the growth and future prospects relating to our Napster segment. 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
310-829-5400
IR@realnetworks.com
RNWK-F



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Ended
March 31,
20202019
 (in thousands, except per share data)
 Net revenue$43,145  $39,472  
 Cost of revenue24,176  24,870  
           Gross profit18,969  14,602  
 Operating expenses:
       Research and development8,618  8.833  
       Sales and marketing8,117  8,142  
       General and administrative7,113  8,364  
       Restructuring and other charges209  167  
           Total operating expenses24,057  25,506  
 Operating loss(5,088) (10,904) 
 Other income (expenses):
       Interest expense(262) (166) 
       Interest income5  77  
       Gain (loss) on equity investment, net—  12,338  
       Other income (expenses), net795  127  
           Total other income (expenses), net538  12,376  
 Income (loss) before income taxes(4,550) 1,472  
 Income tax expense139  258  
Net income (loss) including noncontrolling interests(4,689) 1,214  
Net income (loss) attributable to noncontrolling interests(47) (319) 
Net income (loss) attributable to RealNetworks$(4,642) $1,533  
Net income (loss) per share attributable to RealNetworks- Basic:$(0.12) $0.04  
Net income (loss) per share attributable to RealNetworks- Diluted:$(0.12) $0.04  
 Shares used to compute basic net income (loss) per share38,229  37,820  
 Shares used to compute diluted net income (loss) per share38,229  37,912  



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31,
2020		December 31,
2019
 (in thousands)
ASSETS
 Current assets:
 Cash and cash equivalents$19,046  $16,805  
 Trade accounts receivable, net26,991  29,507  
 Deferred costs, current portion865  823  
 Prepaid expenses and other current assets8,873  7,445  
 Total current assets55,775  54,580  
 Equipment and software30,419  32,167  
 Leasehold improvements2,903  3,311  
 Total equipment, software, and leasehold improvements33,322  35,478  
 Less accumulated depreciation and amortization30,801  32,657  
 Net equipment, software, and leasehold improvements2,521  2,821  
 Operating lease assets 10,961  11,592  
 Restricted cash equivalents 5,374  5,374  
 Other assets1,150  1,891  
 Deferred costs, non-current portion1,156  1,021  
 Deferred tax assets, net752  761  
 Other intangible assets, net18,016  19,286  
 Goodwill62,202  62,428  
 Total assets$157,907  $159,754  
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
 Accounts payable$4,996  $4,927  
 Accrued royalties, fulfillment and other current liabilities77,127  77,303  
 Deferred revenue, current portion6,437  6,620  
 Notes payable4,797  7,331  
 Total current liabilities93,357  96,181  
 Deferred revenue, non-current portion287  96  
 Deferred tax liabilities, net1,116  1,172  
 Long-term lease liabilities7,770  8,466  
 Long-term debt3,900  3,900  
 Other long-term liabilities8,420  11,666  
 Total liabilities114,850  121,481  
 Total shareholders' equity43,606  38,775  
Noncontrolling interests(549) (502) 
 Total equity43,057  38,273  
 Total liabilities and equity$157,907  $159,754  



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
20202019
 (in thousands)
 Cash flows from operating activities:
 Net income (loss) including noncontrolling interests$(4,689) $1,214  
 Adjustments to reconcile net income (loss) including noncontrolling interests to net cash used in operating activities:
Depreciation and amortization1,436  1,482  
Stock-based compensation380  1,384  
(Gain) loss on equity investment, net—  (12,338) 
Foreign currency (gain) loss(767) (151) 
Fair value adjustments to contingent consideration liability(300) —  
Net change in certain operating assets and liabilities(684) (910) 
  Net cash used in operating activities(4,624) (9,319) 
 Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements(94) (482) 
Proceeds from sales and maturities of short-term investments—  24  
Acquisition, net of cash acquired—  12,260  
 Net cash (used in) provided by investing activities(94) 11,802  
 Cash flows from financing activities:
Proceeds from issuance of preferred stock10,000  —  
Tax payments from shares withheld upon vesting of restricted stock—  (271) 
Proceeds from notes payable and revolving credit facility8,768  9,733  
Repayments of notes payable and revolving credit facility(11,172) (8,437) 
Other financing activities—  450  
 Net cash provided by financing activities7,596  1,475  
 Effect of exchange rate changes on cash, cash equivalents and restricted cash(637) (207) 
 Net increase in cash, cash equivalents and restricted cash2,241  3,751  
 Cash, cash equivalents and restricted cash, beginning of period22,179  37,191  
 Cash, cash equivalents and restricted cash, end of period$24,420  $40,942  







RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
20202019
Q1 Q4 Q3 Q2 Q1
 (in thousands)
Net Revenue by Segment
Consumer Media (A)$3,495  $4,432  $3,632  $2,620  $2,486  
Mobile Services (B)6,690  6,312  6,895  6,997  6,939  
Games (C)6,637  6,567  7,164  6,048  5,710  
Napster (D)26,323  26,089  27,302  28,583  24,337  
     Total net revenue$43,145  $43,400  $44,993  $44,248  $39,472  
Net Revenue by Product
Consumer Media
- Software License (E)$2,020  $2,856  $1,987  $944  $735  
- Subscription Services (F)929  992  1,028  1,040  1,088  
- Product Sales (G)222  193  207  206  219  
- Advertising & Other (H)324  391  410  430  444  
Mobile Services
- Software License (I)831  657  888  957  599  
- Subscription Services (J)5,859  5,655  6,007  6,040  6,340  
Games
- Subscription Services (K)2,770  3,007  3,056  3,073  2,985  
- Product Sales (L)2,978  2,580  3,078  2,177  1,988  
- Advertising & Other (M)889  980  1,030  798  737  
Napster
- Subscription Services (N)26,323  26,089  27,302  28,583  24,337  
     Total net revenue$43,145  $43,400  $44,993  $44,248  $39,472  
Net Revenue by Geography
United States$22,420  $21,053  $22,015  $21,322  $18,970  
Rest of world20,725  22,347  22,978  22,926  20,502  
     Total net revenue$43,145  $43,400  $44,993  $44,248  $39,472  
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 sales of mobile and PC games, online games subscription services, player purchases of in-game virtual goods, and advertising on games sites and social network sites.
(D) The Napster segment primarily includes revenue from subscription music offerings from on-demand streaming services and conditional downloads. Napster revenues are included in our consolidated results from the January 18, 2019 acquisition date forward.
Net Revenue by Product
(E) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies.
(F) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.
(G) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers.
(H) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.
(I) Software license revenue within Mobile Services includes revenue from our integrated RealTimes platform and our facial recognition platform, SAFR.
(J) Subscription services revenue within Mobile Services includes revenue from ringback tones and our messaging platform services, as well as from related professional services provided to mobile carriers.
(K) Subscription services revenue within Games includes revenue from online games subscriptions.
(L) Product sales revenue within Games includes revenue from retail and wholesale games-related revenue, sales of mobile games, and player purchases of in-game virtual goods.
(M) Advertising & other revenue within Games includes advertising on games sites and social network sites.
(N) Subscription services revenue within Napster includes music tracks by way of on-demand streaming and conditional downloads offered directly to end consumers and distribution partners.



RealNetworks, Inc. and Subsidiaries
Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin
(Unaudited)

20202019
Q1Q4Q1
 (in thousands)
Consumer Media
Net revenue$3,495  $4,432  $2,486  
Cost of revenue611  690  833  
Gross profit2,884  3,742  1,653  
Gross margin83 %84 %66 %
Operating expenses2,458  2,498  3,119  
Operating income (loss), a GAAP measure$426  $1,244  $(1,466) 
Depreciation and amortization13  34  54  
Contribution margin, a non-GAAP measure$439  $1,278  $(1,412) 
Mobile Services
Net revenue$6,690  $6,312  $6,939  
Cost of revenue1,696  1,866  2,048  
Gross profit4,994  4,446  4,891  
Gross margin75 %70 %70 %
Operating expenses7,588  7,198  7,561  
Operating income (loss), a GAAP measure$(2,594) $(2,752) $(2,670) 
Depreciation and amortization98  100  231  
Contribution margin, a non-GAAP measure$(2,496) $(2,652) $(2,439) 
Games
Net revenue$6,637  $6,567  $5,710  
Cost of revenue1,794  1,716  1,670  
Gross profit4,843  4,851  4,040  
Gross margin73 %74 %71 %
Operating expenses4,923  4,744  5,037  
Operating income (loss), a GAAP measure$(80) $107  $(997) 
Acquisitions related intangible asset amortization—  —  23  
Depreciation and amortization138  85  83  
Contribution margin, a non-GAAP measure$58  $192  $(891) 
Napster
Net revenue$26,323  $26,089  $24,337  
Cost of revenue20,072  20,493  20,396  
Gross profit6,251  5,596  3,941  
Gross margin24 %21 %16 %
Operating expenses6,461  7,147  5,532  
Operating income (loss), a GAAP measure$(210) $(1,551) $(1,591) 
Acquisitions related intangible asset amortization1,125  1,126  943  
Depreciation and amortization32  60  115  
Restructuring and other charges122  544  —  
Contribution margin, a non-GAAP measure$1,069  $179  $(533) 
Corporate
Cost of revenue$3  $(68) $(77) 
Gross profit(3) 68  77  
Gross marginN/A  N/A  N/A  
Operating expenses2,627  2,999  4,257  
Operating income (loss), a GAAP measure$(2,630) $(2,931) $(4,180) 
Other income (expense), net795  (431) 127  
Foreign currency (gain) loss(767) 494  (151) 
Depreciation and amortization30  32  33  
Fair value adjustments to contingent consideration liability(300) 300  —  
Restructuring and other charges87  367  167  
Stock-based compensation380  461  1,384  
Contribution margin, a non-GAAP measure$(2,405) $(1,708) $(2,620) 




RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) including noncontrolling interests to adjusted EBITDA, a non-GAAP measure
(Unaudited)
20202019
 Q1 Q4 Q1
Reconciliation of GAAP Net income (loss) including noncontrolling interests to adjusted EBITDA:
Net income (loss) including noncontrolling interests$(4,689) $(6,763) $1,214  
Income tax expense (benefit)139  256  258  
Interest expense262  207  166  
Interest income(5) (14) (77) 
(Gain) loss on equity investment, net—  —  (12,338) 
Foreign currency (gain) loss(767) 494  (151) 
Acquisitions related intangible asset amortization1,125  1,126  966  
Depreciation and amortization311  311  516  
Fair value adjustments to contingent consideration liability(300) 300  —  
Restructuring and other charges209  911  167  
Stock-based compensation380  461  1,384  
   Adjusted EBITDA, a non-GAAP measure$(3,335) $(2,711) $(7,895)