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 RealNetworks Announces Fourth Quarter And Full Year 2016 Results
   Wednesday, February 08, 2017 4:01:00 PM ET

-- Stabilized revenue in 2016 with quarter over quarter improvement;

-- Reduced year-over-year GAAP operating expenses by $31.5 million in 2016;

-- Strong shift to mobile games in 2016, driven by new products;

-- Continuing to roll out integration of new mobile products with carrier partners; and

-- Year ended with Cash and short-term investments of $77.1 million

RealNetworks, Inc. (RNWK ), a leader in digital media software and services, today announced results for the fourth quarter and full year ended December 31, 2016.

For the fourth quarter of 2016, revenue was $31.5 million, up from $31.1 million in the previous quarter and up from $29.9 million in the fourth quarter of 2015. For the full year 2016, GAAP revenue was $120.5 million, compared to $125.3 million in 2015. Excluding 2015 revenue from the social casino games business that was sold during the third quarter of 2015, revenue in 2015 was $120.4 million.

The Company’s GAAP operating expenses for the full year 2016 were down $31.5 million or 25% from the prior year. Excluding the 2015 operating expenses directly attributable to the social casino games business, operating expenses for the full year 2016 were down $20.9 million or 18% from the prior year.

GAAP net loss for the fourth quarter of 2016 was $(10.0) million or $(0.27) per share, compared to $(8.4) million or $(0.23) per share in the fourth quarter of 2015. GAAP net loss for 2016 was $(36.6) million or $(0.99) per share, compared to $(81.8) million or $(2.26) in 2015.

Adjusted EBITDA for the fourth quarter of 2016 was a loss of $(4.2) million, compared to $(4.4) million for the previous quarter and $(4.2) million for the fourth quarter of 2015. Adjusted EBITDA for the full year 2016 was a loss of $(21.6) million, compared to $(45.8) million for the prior year. Excluding the social casino games business sold in 2015, adjusted EBITDA for 2015 was $(38.6) million. A reconciliation of GAAP net income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

"During 2016, we achieved two of our three major financial goals," said Rob Glaser, Chairman and CEO of RealNetworks. "We stabilized our businesses and saw quarter over quarter overall revenue growth.

"We’re continuing to roll out the integration of our Mobile Services products with carriers like Vivo, Verizon, and Vodafone. In our Games business, we scaled up our production of GameHouse Originals, leading to a 28% growth in mobile games revenue.

"While we did not return to profitability in 2016, we made significant progress. We enter 2017 with several new product initiatives well underway that we believe will build strong momentum towards a return to growth and profitability."

As of December 31, 2016, the Company had $77.1 million in unrestricted cash, cash equivalents and short-term investments, compared to $80.7 million as of September 30, 2016.

Business Outlook

For the first quarter of 2017, RealNetworks expects total revenue in the range of $29 million to $32 million and an adjusted EBITDA loss for the first quarter in the range of $(4.0) million to $(6.0) million.

Webcast and Conference Call Information

The company will host a conference call today to review results and discuss the company’s performance at 5 p.m. ET/2 p.m. PT. You may join the conference call by calling 888-790-3440 or +1-517-308-9350 (Passcode: 4TH QUARTER). A live webcast of the call will be available at http://investor.realnetworks.com/ and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 11:59 p.m. PT, February 28, 2017 by calling 800-813-5534 or +1-203-369-3348 (Passcode: 282017).

For More Information

Investor Relations for RealNetworks +1-206-729-3625 IR@realnetworks.com

RNWK-F

About RealNetworks

RealNetworks creates innovative applications and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category in 1995 and continues to connect consumers with their digital media both directly and through partners, aiming to support every network, device, media type and social network. RealNetworks’ corporate information is located at www.realnetworks.com/about-us.

RealNetworks and RealTimes are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

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) 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 RealNetworks’ current expectations regarding future revenue and adjusted EBITDA, our future growth, profitability, and market position, our strategic focus and initiatives, agreements with partners, and the growth and future prospects relating to our Rhapsody affiliate. 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 RealNetworks’ expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: RealNetworks’ ability to realize operating efficiencies, growth and other benefits from the implementation of its growth plan, strategic initiatives, and restructuring efforts; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on RealNetworks’ business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; fluctuations in foreign currencies; and changes in RealNetworks’ effective tax rate. More information about potential risk factors that could affect RealNetworks’ business and financial results is included in RealNetworks’ annual report on Form 10-K for the most recent year ended December 31, 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 RealNetworks’ financial statements and forward-looking financial guidance requires the company 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. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
                                                            Quarter Ended               Year ended
                                                            December 31,                December 31,
                                                            2016          2015          2016            2015
                                                            (in thousands, except per share data)
Net revenue                                                 $   31,453    $   29,922    $    120,468    $    125,296
Cost of revenue                                             17,358        15,828        64,968          70,297
Gross profit                                                14,095        14,094        55,500          54,999
Operating expenses:
Research and development                                    6,738         8,945         29,923          43,626
Sales and marketing                                         7,451         9,409         31,608          48,231
General and administrative                                  6,035         3,237         27,415          24,549
Restructuring and other charges                             192           (284)         1,489           5,279
Lease exit and related charges                              48            293           2,239           2,501
Total operating expenses                                    20,464        21,600        92,674          124,186
Operating income (loss)                                     (6,369)       (7,506)       (37,174)        (69,187)
Other income (expenses):
Interest income, net                                        133           83            449             680
Gain (loss) on investments, net                             2,495         63            8,473           (159)
Equity in net loss of Rhapsody                              (5,904)       (690)         (6,533)         (14,521)
Other income (expense), net                                 (128)         (122)         (643)           506
Total other income (expense), net                           (3,404)       (666)         1,746           (13,494)
Income (loss) before income taxes                           (9,773)       (8,172)       (35,428)        (82,681)
Income tax expense (benefit)                                203           241           1,122           (834)
Net income (loss)                                           $   (9,976)   $   (8,413)   $    (36,550)   $    (81,847)
Basic net income (loss) per share                           $   (0.27)    $   (0.23)    $    (0.99)     $    (2.26)
Diluted net income (loss) per share                         $   (0.27)    $   (0.23)    $    (0.99)     $    (2.26)
Shares used to compute basic net income (loss) per share    37,042        36,257        36,781          36,165
Shares used to compute diluted net income (loss) per share  37,042        36,257        36,781          36,165
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                      December 31,   December 31,
                                                      2016           2015
                                                      (in thousands)
ASSETS
Current assets:
Cash and cash equivalents                             $    33,721    $    47,315
Short-term investments                                43,331         51,814
Trade accounts receivable, net                        22,162         22,511
Deferred costs, current portion                       760            460
Prepaid expenses and other current assets             4,910          7,140
Total current assets                                  104,884        129,240
Equipment and software                                46,231         66,702
Leasehold improvements                                3,317          3,122
Total equipment, software, and leasehold improvements 49,548         69,824
Less accumulated depreciation and amortization        44,294         61,024
Net equipment, software, and leasehold improvements   5,254          8,800
Restricted cash equivalents and investments           2,700          2,890
Available for sale securities                         --             1,721
Other assets                                          1,742          2,307
Deferred costs, non-current portion                   1,246          212
Deferred tax assets, net                              816            957
Other intangible assets, net                          938            2,136
Goodwill                                              12,857         13,080
Total assets                                          $    130,437   $    161,343
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                      $    18,225    $    17,050
Accrued and other current liabilities                 15,425         17,320
Commitment to Rhapsody                                1,500          --
Deferred revenue, current portion                     3,430          3,497
Total current liabilities                             38,580         37,867
Deferred revenue, non-current portion                 240            105
Deferred rent                                         748            620
Deferred tax liabilities, net                         87             88
Other long-term liabilities                           2,201          1,980
Total liabilities                                     41,856         40,660
Shareholders’ equity                                  88,581         120,683
Total liabilities and shareholders’ equity            $    130,437   $    161,343
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                                                                      Year ended
                                                                                                      December 31,
                                                                                                      2016                    2015
                                                                                                      (in thousands)
Cash flows from operating activities:
Net income (loss)                                                                                     $          (36,550)     $          (81,847)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization                                                                         7,057                   10,410
Stock-based compensation                                                                              5,424                   4,698
Equity in net loss of Rhapsody                                                                        6,533                   14,521
Deferred income taxes, net                                                                            130                     (1,558)
Loss (gain) on investments, net                                                                       (8,473)                 159
Realized translation loss (gain)                                                                      272                     (264)
Fair value of warrants granted in 2015, net of subsequent mark to market adjustments in 2016 and 2015 280                     (1,053)
Net change in certain operating assets and liabilities                                                999                     (14,048)
Net cash provided by (used in) operating activities                                                   (24,328)                (68,982)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements                                          (2,438)                 (1,319)
Proceeds from sale of equity and other investments                                                    4,967                   459
Purchases of short-term investments                                                                   (75,766)                (72,136)
Proceeds from sales and maturities of short-term investments                                          84,249                  78,775
Decrease (increase) in restricted cash equivalents and investments, net                               190                     110
Acquisitions                                                                                          (150)                   (161)
Advance to Rhapsody                                                                                   (3,500)                 (5,000)
Receipt of payment from Rhapsody                                                                      --                      5,000
Proceeds from the sale of Slingo and social casino business                                           4,000                   10,000
Net cash provided by (used in) investing activities                                                   11,552                  15,728
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)                        535                     426
Tax payments from shares withheld upon vesting of restricted stock                                    (880)                   (85)
Net cash provided by (used in) financing activities                                                   (345)                   341
Effect of exchange rate changes on cash and cash equivalents                                          (473)                   (3,025)
Net increase (decrease) in cash and cash equivalents                                                  (13,594)                (55,938)
Cash and cash equivalents, beginning of year                                                          47,315                  103,253
Cash and cash equivalents, end of year                                                                $          33,721       $          47,315
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
                                 2016                                                              2015
                                 YTD           Q4           Q3           Q2           Q1           YTD           Q4           Q3           Q2           Q1
                                 (in thousands)
Net Revenue
by Line of Business
Consumer Media (A)               $   25,051    $   6,443    $   6,482    $   6,400    $   5,726    $   28,613    $   6,848    $   6,495    $   7,281    $   7,989
Mobile Services (B)              70,278        18,833       17,683       17,297       16,465       65,935        16,369       16,484       18,578       14,504
Games (C)                        25,139        6,177        6,886        6,037        6,039        30,748        6,705        7,844        8,095        8,104
Total net revenue                $   120,468   $   31,453   $   31,051   $   29,734   $   28,230   $   125,296   $   29,922   $   30,823   $   33,954   $   30,597
Net Revenue
by Product
Consumer Media
- License (D)                    $   15,406    $   4,252    $   4,136    $   3,914    $   3,104    $   16,475    $   3,967    $   3,628    $   4,208    $   4,672
- Subscriptions (E)              7,448         1,671        1,931        1,871        1,975        8,957         2,054        2,147        2,372        2,384
- Media Properties (F)           2,197         520          415          615          647          3,181         827          720          701          933
Mobile Services
- SaaS (G)                       69,295        18,726       17,141       17,208       16,220       63,914        16,157       16,217       18,218       13,322
- Technology License & Other (H) 983           107          542          89           245          2,021         212          267          360          1,182
Games
- License (I)                    12,415        3,178        3,683        2,793        2,761        15,174        3,268        4,128        3,943        3,835
- Subscriptions (J)              11,894        2,836        3,005        3,024        3,029        13,300        3,126        3,231        3,373        3,570
- Media Properties (K)           830           163          198          220          249          2,274         311          485          779          699
Total net revenue                $   120,468   $   31,453   $   31,051   $   29,734   $   28,230   $   125,296   $   29,922   $   30,823   $   33,954   $   30,597
Net Revenue
by Geography
United States                    $   41,505    $   10,125   $   10,642   $   10,355   $   10,383   $   46,893    $   10,781   $   11,460   $   12,303   $   12,349
Rest of world                    78,963        21,328       20,409       19,379       17,847       78,403        19,141       19,363       21,651       18,248
Total net revenue                $   120,468   $   31,453   $   31,051   $   29,734   $   28,230   $   125,296   $   29,922   $   30,823   $   33,954   $   30,597
Net Revenue by Line of Business
(A) The Consumer Media division primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as RealPlayer Plus and SuperPass.
(B) The Mobile Services division primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.
(C) The Games division primarily includes revenue from sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.
Net Revenue by Product
(D) Licensing revenue within Consumer Media includes sales of intellectual property licenses and RealPlayer Plus software licenses to consumers.
(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.
(F) Media Properties revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.
(G) SaaS revenue within Mobile Services includes revenue from music on demand, ringback tones, intercarrier messaging services, and RealTimes.
(H) Technology licensing and other revenue within Mobile Services includes revenue from professional services provided to mobile carriers.
(I) Licensing revenue within Games includes retail games-related revenue and sales of mobile games.
(J) Subscriptions revenue within Games includes revenue from online games subscriptions as well as microtransactions from mobile and social games.
(K) Media Properties 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)
                                                    2016                              2015             2016              2015
                                                    Q4               Q3               Q4               YTD               YTD
                                                    (in thousands)
Consumer Media
Net revenue                                         $   6,443        $   6,482        $   6,848        $   25,051        $   28,613
Cost of revenue                                     1,589            1,507            3,084            7,074             13,257
Gross profit                                        4,854            4,975            3,764            17,977            15,356
Gross margin                                        75          %    77          %    55          %    72           %    54           %
Operating expenses                                  4,459            4,271            6,644            18,399            26,526
Operating income (loss), a GAAP measure             $   395          $   704          $   (2,880)      $   (422)         $   (11,170)
Depreciation and amortization                       239              295              1,038            2,212             2,546
Contribution margin, a non-GAAP measure             $   634          $   999          $   (1,842)      $   1,790         $   (8,624)
Mobile Services
Net revenue                                         $   18,833       $   17,683       $   16,369       $   70,278        $   65,935
Cost of revenue                                     13,679           13,026           11,032           50,026            47,834
Gross profit                                        5,154            4,657            5,337            20,252            18,101
Gross margin                                        27          %    26          %    33          %    29           %    27           %
Operating expenses                                  7,786            8,075            9,158            34,439            44,311
Operating income (loss), a GAAP measure             $   (2,632)      $   (3,418)      $   (3,821)      $   (14,187)      $   (26,210)
Acquisitions related intangible asset amortization  198              208              379              923               1,544
Depreciation and amortization                       290              403              484              1,723             2,136
Contribution margin, a non-GAAP measure             $   (2,144)      $   (2,807)      $   (2,958)      $   (11,541)      $   (22,530)
Games
Net revenue                                         $   6,177        $   6,886        $   6,705        $   25,139        $   30,748
Cost of revenue                                     2,054            2,203            1,698            7,919             9,291
Gross profit                                        4,123            4,683            5,007            17,220            21,457
Gross margin                                        67          %    68          %    75          %    68           %    70           %
Operating expenses                                  4,975            4,649            5,253            19,644            29,086
Operating income (loss), a GAAP measure             $   (852)        $   34           $   (246)        $   (2,424)       $   (7,629)
Acquisitions related intangible asset amortization  27               29               24               115               799
Depreciation and amortization                       146              104              197              583               952
Contribution margin, a non-GAAP measure             $   (679)        $   167          $   (25)         $   (1,726)       $   (5,878)
Corporate
Cost of revenue                                     $   36           $   4            $   14           $   (51)          $   (85)
Gross profit                                        (36)             (4)              (14)             51                85
Gross margin                                        N/A              N/A              N/A              N/A               N/A
Operating expenses                                  3,244            5,705            545              20,192            24,263
Operating income (loss), a GAAP measure             $   (3,280)      $   (5,709)      $   (559)        $   (20,141)      $   (24,178)
Other income (expense), net                         (128)            (243)            (122)            (643)             506
Depreciation and amortization                       260              634              336              1,501             2,433
Restructuring and other charges                     192              499              (284)            1,489             5,279
Stock-based compensation                            867              778              937              5,424             4,698
Lease exit and related charges                      48               1,233            293              2,239             2,501
Contribution margin, a non-GAAP measure             $   (2,041)      $   (2,808)      $   601          $   (10,131)      $   (8,761)
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) to adjusted EBITDA, a non-GAAP measure
(Unaudited)
                                                    2016                        2015          2016           2015
                                                    Q4            Q3            Q4            YTD            YTD
                                                    (in thousands)
Reconciliation of GAAP Net income (loss) to adjusted EBITDA:
Net income (loss)                                   $   (9,976)   $   (3,056)   $   (8,413)   $   (36,550)   $   (81,847)
Income tax expense (benefit)                        203           331           241           1,122          (834)
Interest income, net                                (133)         (119)         (83)          (449)          (680)
Gain (loss) on investments, net                     (2,495)       (6,021)       (63)          (8,473)        159
Equity in net loss of Rhapsody                      5,904         233           690           6,533          14,521
Acquisitions related intangible asset amortization  225           237           403           1,038          2,343
Depreciation and amortization                       935           1,436         2,055         6,019          8,067
Restructuring and other charges                     192           499           (284)         1,489          5,279
Stock-based compensation                            867           778           937           5,424          4,698
Lease exit and related charges                      48            1,233         293           2,239          2,501
Adjusted EBITDA, a non-GAAP measure                 $   (4,230)   $   (4,449)   $   (4,224)   $   (21,608)   $   (45,793)

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-fourth-quarter-and-full-year-2016-results-300404495.html

SOURCE RealNetworks, Inc.

https://rt.prnewswire.com/rt.gif?NewsItemId=SF04382&Transmission_Id=201702081601PR_NEWS_USPR_____SF04382&DateId=20170208



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