RealNetworks Announces Third Quarter 2021 Financial Results

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

Quarter Ended
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

 (in thousands, except per share data)

 Net revenue

$

14,332

$

16,554

$

44,781

$

50,461

 Cost of revenue

3,119

4,062

10,370

12,429

           Gross profit

11,213

12,492

34,411

38,032

 Operating expenses:

       Research and development

5,250

5,781

17,818

18,375

       Sales and marketing

7,177

5,130

17,573

15,969

       General and administrative

4,228

4,124

13,502

13,263

Fair value adjustments to contingent consideration liability

—

—

(1,040)

(200)

       Restructuring and other charges

1,017

307

4,906

1,097

           Total operating expenses

17,672

15,342

52,759

48,504

 Operating loss

(6,459)

(2,850)

(18,348)

(10,472)

 Other income (expenses):

       Interest expense

(27)

(7)

(146)

(12)

       Interest income

7

6

27

31

       Gain on forgiveness of Paycheck Protection Program loan

—

—

2,897

—

       Loss on equity and other investments, net

(1,229)

(37)

(6,070)

(90)

       Other income (expense), net

46

(104)

2,066

63

           Total other income (expenses), net

(1,203)

(142)

(1,226)

(8)

Loss from continuing operations before income taxes

(7,662)

(2,992)

(19,574)

(10,480)

 Income tax expense

6

316

133

606

Net loss from continuing operations

(7,668)

(3,308)

(19,707)

(11,086)

Net loss from discontinued operations, net of tax

—

(1)

—

(2,466)

Net loss

(7,668)

(3,309)

(19,707)

(13,552)

Net loss attributable to noncontrolling interests of continuing operations

—

(77)

(244)

(196)

Net income (loss) attributable to noncontrolling interests of discontinued operations

—

6

—

(364)

Net loss attributable to RealNetworks

$

(7,668)

$

(3,238)

$

(19,463)

$

(12,992)

Net loss from continuing operations attributable to RealNetworks

$

(7,668)

$

(3,231)

$

(19,463)

$

(10,890)

Net loss from discontinued operations attributable to RealNetworks

—

(7)

—

(2,102)

Net loss attributable to RealNetworks

$

(7,668)

$

(3,238)

$

(19,463)

$

(12,992)

Net loss per share attributable to RealNetworks- Basic:

       Continuing operations

$

(0.16)

$

(0.08)

$

(0.45)

$

(0.28)

       Discontinued operations

—

—

—

(0.06)

              Net loss per share attributable to RealNetworks- Basic

$

(0.16)

$

(0.08)

$

(0.45)

$

(0.34)

Net loss per share attributable to RealNetworks- Diluted:

       Continuing operations

$

(0.16)

$

(0.08)

$

(0.45)

$

(0.28)

       Discontinued operations

—

—

—

(0.06)

              Net loss per share attributable to RealNetworks- Diluted

$

(0.16)

$

(0.08)

$

(0.45)

$

(0.34)

 Shares used to compute basic net loss per share

47,055

38,270

43,312

38,247

 Shares used to compute diluted net loss per share

47,055

38,270

43,312

38,247

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

September 30,
2021

December 31,
2020

 (in thousands)

ASSETS

 Current assets:

 Cash and cash equivalents

$

28,990

$

23,940

 Trade accounts receivable, net

10,465

10,229

 Deferred costs, current portion

70

196

 Investments

2,758

9,965

 Prepaid expenses and other current assets

6,155

3,480

 Total current assets

48,438

47,810

 Equipment and software

29,634

30,726

 Leasehold improvements

2,757

2,776

 Total equipment, software, and leasehold improvements

32,391

33,502

 Less accumulated depreciation and amortization

30,937

31,631

 Net equipment, software, and leasehold improvements

1,454

1,871

 Operating lease assets

4,478

7,937

 Restricted cash equivalents

1,630

1,630

 Other assets

945

4,150

 Deferred costs, non-current portion

—

74

 Deferred tax assets, net

861

909

 Goodwill

17,073

17,375

 Total assets

$

74,879

$

81,756

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:

 Accounts payable

$

2,183

$

2,750

 Accrued and other current liabilities

14,214

17,850

 Deferred revenue, current portion

2,762

2,122

 Total current liabilities

19,159

22,722

 Deferred revenue, non-current portion

270

45

 Deferred tax liabilities, net

1,068

1,129

 Long-term lease liabilities

5,354

6,837

 Long-term debt

—

2,895

 Other long-term liabilities

718

2,241

 Total liabilities

26,569

35,869

 Total shareholders' equity

48,310

46,149

Noncontrolling interests

—

(262)

 Total equity

48,310

45,887

 Total liabilities and equity

$

74,879

$

81,756

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2021

2020

 (in thousands)

Cash flows from operating activities:

Net loss from continuing operations

$

(19,707)

$

(11,086)

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

Depreciation and amortization

600

697

Stock-based compensation

3,789

1,093

Loss on equity and other investments, net

6,070

90

Loss on impairment of operating lease assets

2,461

—

Foreign currency (gain) loss

(62)

25

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

1,331

(652)

Net cash used in operating activities - continuing operations

(11,416)

(10,033)

Net cash used in operating activities - discontinued operations

—

(4,086)

Net cash used in operating activities

(11,416)

(14,119)

Cash flows from investing activities:

Purchases of equipment, software, and leasehold improvements

(280)

(261)

Deconsolidation of subsidiary, net

(836)

—

Net cash used in investing activities - continuing operations

(1,116)

(261)

Net cash used in investing activities - discontinued operations

—

(192)

Net cash used in investing activities

(1,116)

(453)

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

(186)

(12)

Payment of contingent consideration liability

(2,500)

—

Proceeds from long-term debt

—

2,876

Other financing activities

—

2,106

Net cash provided by financing activities - continuing operations

17,962

14,970

Net cash provided by financing activities - discontinued operations

—

2,007

Net cash provided by financing activities

17,962

16,977

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

(380)

32

Net increase in cash, cash equivalents and restricted cash

5,050

2,437

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

25,570

22,179

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

30,620

24,616

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

—

6,741

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

$

30,620

$

17,875

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2021

2020

 Q3

 Q2

Q1

 Q4

 Q3

 Q2

 Q1

 (in thousands)

Net Revenue by Segment

Consumer Media (A)

$

2,763

$

2,061

$

3,309

$

3,384

$

2,543

$

3,159

$

3,495

Mobile Services (B)

5,772

6,356

5,980

7,338

6,400

6,461

6,690

Games (C)

5,797

6,144

6,599

6,879

7,611

7,465

6,637

     Total net revenue

$

14,332

$

14,561

$

15,888

$

17,601

$

16,554

$

17,085

$

16,822

Net Revenue by Product

Consumer Media

- Software License (D)

$

1,506

$

841

$

1,875

$

1,593

$

642

$

1,702

$

2,020

- Subscription Services (E)

779

793

818

867

892

898

929

- Product Sales (F)

270

330

438

625

193

261

222

- Advertising & Other (G)

208

97

178

299

816

298

324

Mobile Services

- Software License (H)

1,459

1,931

1,391

2,376

931

972

831

- Subscription Services (I)

4,313

4,425

4,589

4,962

5,469

5,489

5,859

Games

- Subscription Services (J)

2,361

2,431

2,528

2,589

2,705

2,730

2,770

- Product Sales (K)

2,612

2,830

3,163

3,315

3,874

3,712

2,978

- Advertising & Other (L)

824

883

908

975

1,032

1,023

889

     Total net revenue

$

14,332

$

14,561

$

15,888

$

17,601

$

16,554

$

17,085

$

16,822

Net Revenue by Geography

United States

$

9,227

$

9,209

$

9,932

$

10,893

$

11,855

$

10,742

$

10,214

Rest of world

5,105

5,352

5,956

6,708

4,699

6,343

6,608

     Total net revenue

$

14,332

$

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, 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)

2021

2020

2021

2020

Q3

Q2

Q3

YTD

YTD

 (in thousands)

Consumer Media

Net revenue

$

2,763

$

2,061

$

2,543

$

8,133

$

9,197

Cost of revenue

418

497

593

1,393

1,723

Gross profit

2,345

1,564

1,950

6,740

7,474

Gross margin

85

%

76

%

77

%

83

%

81

%

Operating expenses

1,495

2,332

2,092

6,028

6,754

Operating income (loss), a GAAP measure

$

850

$

(768)

$

(142)

$

712

$

720

Depreciation and amortization

16

5

17

37

45

Contribution margin, a non-GAAP measure

$

866

$

(763)

$

(125)

$

749

$

765

Mobile Services

Net revenue

$

5,772

$

6,356

$

6,400

$

18,108

$

19,551

Cost of revenue

1,282

1,517

1,511

4,291

4,989

Gross profit

4,490

4,839

4,889

13,817

14,562

Gross margin

78

%

76

%

76

%

76

%

74

%

Operating expenses

5,890

6,332

5,577

18,367

18,847

Operating loss, a GAAP measure

$

(1,400)

$

(1,493)

$

(688)

$

(4,550)

$

(4,285)

Depreciation and amortization

80

79

88

243

288

Contribution margin, a non-GAAP measure

$

(1,320)

$

(1,414)

$

(600)

$

(4,307)

$

(3,997)

Games

Net revenue

$

5,797

$

6,144

$

7,611

$

18,540

$

21,713

Cost of revenue

1,414

1,552

1,955

4,671

5,707

Gross profit

4,383

4,592

5,656

13,869

16,006

Gross margin

76

%

75

%

74

%

75

%

74

%

Operating expenses

4,844

4,849

5,152

14,791

15,051

Operating income (loss), a GAAP measure

$

(461)

$

(257)

$

504

$

(922)

$

955

Depreciation and amortization

78

81

71

235

275

Contribution margin, a non-GAAP measure

$

(383)

$

(176)

$

575

$

(687)

$

1,230

Corporate

Cost of revenue

$

5

$

6

$

3

$

15

$

10

Gross profit

(5)

(6)

(3)

(15)

(10)

Gross margin

N/A

N/A

N/A

N/A

N/A

Operating expenses

5,443

3,170

2,521

13,573

7,852

Operating loss, a GAAP measure

$

(5,448)

$

(3,176)

$

(2,524)

$

(13,588)

$

(7,862)

Other expense, net

46

(45)

(104)

105

63

Foreign currency (gain) loss

(47)

88

143

(62)

25

Depreciation and amortization

29

28

28

85

89

Fair value adjustments to contingent consideration liability

—

—

—

(1,040)

(200)

Restructuring and other charges

1,017

718

307

4,906

1,097

Stock-based compensation

2,518

435

390

3,789

1,093

Contribution margin, a non-GAAP measure

$

(1,885)

$

(1,952)

$

(1,760)

$

(5,805)

$

(5,695)

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2021

2020

2021

2020

Q3

Q2

Q3

 YTD

 YTD

(in thousands)

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

Net loss from continuing operations

$

(7,668)

$

(1,485)

$

(3,308)

$

(19,707)

$

(11,086)

Income tax expense

6

18

316

133

606

Interest expense

27

24

7

146

12

Interest income

(7)

(7)

(6)

(27)

(31)

Loss on equity and other investments, net

1,229

569

37

6,070

90

Foreign currency (gain) loss

(47)

88

143

(62)

25

Depreciation and amortization

203

193

204

600

697

Fair value adjustments to contingent consideration liability

—

—

—

(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

1,017

718

307

4,906

1,097

Stock-based compensation

2,518

435

390

3,789

1,093

   Adjusted EBITDA, a non-GAAP measure

$

(2,722)

$

(4,305)

$

(1,910)

$

(10,050)

$

(7,697)