Realnetworks (RNWK) 7 May 182018 Q1 Earnings call transcript

Good afternoon and welcome to the RealNetworks, Inc.

First Quarter 2018 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Laura Bainbridge with Investor Relations. Please go ahead, Laura.

to first welcome results XXXX and call. conference you the quarter RealNetworks financial Thank

materially I you profitability growth future will in discussed begin, and fact expenses we Before remind its affecting Other and forward-looking, adjusted and businesses in statements of than and factors profit, uncertainties actual SEC trends today section for that including XX-K our that reports. risks of historical corporate in involve other differ regarding statements. profitability. gross and from set as RealNetworks’ implement cause risk in on its be website. future in of invest activities. report statements forward-looking revenue, including from risks the of those describe well prospects can Form EBITDA the operating forth We Investor are most and from express and strategy are other Relations and as from filings its other the obtained matters some SEC copy our our include benefits the statements expectations A forward-looking these company’s and and number and our a expected filings, that Statements and could recent statements those growth, and these plans initiatives to forward-looking other to or belief products the results all

The company any whether new made duty of today RealNetworks’ statements reason. as events today, no reflect X, expectations undertakes made future or result statements XXXX. update of information, a Forward-looking call, any or as to this during forward-looking other revise May

present non-GAAP the that will SEC’s certain Regulation measures financial In call considered on under will G. be addition, this we

Baker, our of second recent quarter and then months. to measure, and release me strategy company’s XXXX CFO. today review directly first the non-GAAP dated press and progress each made GAAP will to in of After and I the and to the under today’s For prepared SEC in to and Chairman Rob. the tab are the has answer With financial most CEO today, information of our will and both provide at questions. the hand investor.realnetworks.com that, quarter Rob be will the Rob in X-K for Cary outlook found measure the included a of Cary which reconciliation Form Rob XXXX. the your over a corporate please Financial discuss call refer our be of company website remarks, comparable financial the With Cary will Glaser, pleased Information. to can submitted on the financial

Thanks, discuss Laura everyone. topics. I main to Today, and afternoon good want two

First, XXXX. After in context on will put Real’s of update on a QX better I for Starting reinventing large revenues was the was last and last million, were in growth and Napster, future quarter $XX.X quarter XXXX. with flat initiatives. in our that, the second, QX $X in of QX negative brief four we company from our our key which results both Adjusted our focus EBITDA was which with than which a and provide on minority QX up performance, progress the stake. own million,

these from our an that that shipments are licensing of we related understand factors cause not timing are two the we the disappointed results, little is to While initiatives. was with and IP One partner. growth

than of forecasted. value the we full later but the achieve to quarters originally contract, in expect We

business, our games specifically GameHouse relates revenue. Second, to mobile our

and talk increasing resulted the ago in subscriptions At to our games us sales the structure meaningful margin strategic One premium gross to business decision initiatives up is efforts our our MOD titles, a us growth combined QX to margin a we made highlight year our want of our our our We model including combination ‘XX. That to revenue business. other Music the margin I final focus transition EBITDA of when with during QX when profitability will about to advertising to as positive effort, that to this transformation the in year. in path our year. premium in sets exit will discuss believe growth subscription aspect on deliver purely in initiatives to contribute XX% XX%, of I individual of are enhanced a begin managing based individual cost a to in and leverage are of a to from grow beginning This that more revenue. business The we on about is that later point low-margin structure. I on Korea few still XXXX, minutes. Demand QX I we revenue make end XXXX achieve

mobile Stories. Now Original BXB, growth called growth on is product topic, Kontxt progress our with my three major which we are RMHD, our initiatives, GameHouse game RealCV. four of subscription our second to key initiatives, And which one have consumer-oriented, of and

with Let products. me start the BXB

continue RealMedia We HD focus or market. for on technology advance RMHD short, China video the our to

part phase scheduled had mobile in the follow to Stars the RMHD China, offering ahead. weeks of called of Our with project as CIBN, launched partner, soft its the TV

the drive seed As part high-definition and versions This of format our this content. adoption the RMHD term RMHD the codec launch China. thousands longer help initial RMHD only will ecosystem release hours way of to and will titles of in of CIBN as using watch

before, developing both advanced format. As licensed deploying launch content our a involves and process our to products and the third-parties partner codec it the start deploy that we discussed codec’s through technology, is products to own in multifaceted

than high-quality delivers above Our rates. and at efficiently more especially next-generation codec bit RMHD competing HD video standards,

ecosystem, time codec China. a in in we path successfully do build to While so are are a good it we confident takes to that

in and partnered devices. used China’s Amlogic, widely carriers We Amlogic and smart media are which in discussions our the in active January the for brands, first content chipset distribution leading pruning TVs optimization for manufacturer, of providers, technologies, with several with We and in of RMHD. chips RMHD are OEMs streaming

also focus is are which product, worldwide. for we initial laying our markets, RealPlayer While other the groundwork China, on for available primarily PC is our

XX convert files RMHD used over Just RealPlayer XXXX, the our million during consumers to into have format.

I reroute will Kontxt, X.X and worldwide. to carriers network messages upon and over expect and important operators, with manage platform. networks mobile behalf platform aggregators space on increasingly the the to deep messaging allows Kontxt we rise of aggregators in to messages our which and messaging Kontxt adds value will carriers a XXX across traveling messages network to discuss put be Interest around anticipated intelligently also progress messaging. eliminate, and block mobile I the marketers legacy builds among given aggregators while daily high. partners Next, end-user our policy spam, enables network network and network, the Kontxt across and billion our our network in other to Kontxt identify, process across commercial classify carriers to aggregators better aggregators is developing traffic. to experience. next-generation

in We our year. market this exclusive beginning announce will be the Syniverse to partnership with later

Testing partner’s are of analyzing testing several tailor that significant the improving partners. partners. features are prospective We partner the business. inspecting, classifying prospective by demonstrates platform We commitment requires concept messages the to the also and each our from with by specifically parameters and identified meaningful trough,

than to partners, While we trough deployment number we excellent initially of the fair are also from proven seeing that had it’s cycle in say the interest longer anticipated. a high has

recognition This four vision RealCV. the of nascent initiatives very growth platform, Our is technology. RealCV promising next-generation our feel is our computer is initiative and most it’s growth area. third we a facial our

We ahead. months expect have say more to to much in the

Stories GameHouse our to talk growth about I games Original mobile our describe our two consumer Finally, phases. subscription having initiative, I would got product. initiatives

of to us XX phase subscription We focus we launches entered XXXX games of over for Netflix games. at as four-game in the now a over past was again was product, library This casual create launched of phase scaled compelling and Spotify of this XXXX, few giving to full first end The a for story-based by library from a a the to genre second years in launching up us our XX the unique now games. quarter. a

the past Android rollout ahead, platform. In few an on we the Over we the the subscription weeks, subscription will our adding product. of global iOS-based completed be months product

and and games strategy, pleased growth announce worked our to closely strategy the will it’s Delicious our heart create we the of future. high-performing we’re of titles that the of At is the the an to time, believe to early with this contribute of some In are Giraffe which is titles support our our the studio recent series, Medicine. ability meaningful results most While in excellent acquisition encouraging compelling combine early, including long on gameplay Blue for in business stories. we’ve subscription product independent fun Heart’s a

behalf exclusively Going develop forward, GameHouse GameHouse of will on RealNetworks. Blue titles Giraffe original

note quick turn the will Cary, over on to a call Before Napster. add I I

the are appointing We – Chief we’ve Indeed, quarter business-to-business quarter implemented achieved Patrizio XXXX Bill company with the business positive consecutive last opportunities. to including of the the third pleased changes Officer operating first year, Executive due as Napster’s on results marks and income. refocusing over

think that, IPO to in the the to value the Napster which help Spotify, we such Cary. pleased will the We’re with businesses over see as And successful establish of hand call by let marketplace. me

In will review everyone. quarter expectations will of the I our XXXX. second detailed our then a by today, business our performance. remarks afternoon first my review first results good I more followed and segment Rob consolidated Thanks, discussion for quarter of

businesses, apples-to-apples of always Media business, note to these please first revenue quarter-to-quarter, that games diving including periodic standard continue due our to component of year-over-year part mobile can their and the in but implications. variability and and our our and impacts the on Before of sequential accounting revenues the of Consumer you our results, XXXX. update of Certain will the are not into in the we timing comparisons the IP new adoption the games licensing quarter business fluctuate

quarter. prior and from our quarter, for to continuing the the period results $XX.X operations, first with million in the revenue year $XX.X Turning million, from prior flat was up

The We IP particular, revenue quarter did expectations. to for are not in that the and segment, meet slight our our was shortfall primarily Media our attributable revenue. Consumer disappointed

originally revenue year-over-year were Services $X.X in RealTimes we contract was results another carrier a legacy these amendment tones was we achieve where The ring-back the was full to our that two and to an shift we than value to down our and $XXX,XXX shortfall the Consumer within products. first forecasted. and first major for quarter, monetize expectations but license revenue specific at incremental partner. expect up greater relative in Mobile with of the $XXX,XXX quarters of In sequentially Looking an U.S. as we did million just carrier. second major a year-over-year continue the with extension is up examples reiterating there U.S. sequentially. to annual that segment devices contract, the related the was detail, later Media this $XXX,XXX worth It’s timing and IP contract

was to Finally, quarter revenue and the $XXX,XXX and timing quarter. the number for of Games sequentially the during first due $XXX,XXX down launches year-over-year game

prior of During and launched from launches the prior of consolidated the operations margin in new profit which the in cost the revenue quarter, down Stories two the the the of properly flat is one period, three quarter. and year-over-year the casino shows. $X.X of Net earlier prior cost sequential increase or Adjusted ongoing loss first of a quarter, in $X.X net loss a or year-over-year in expenses sale of $X.XX was trade loss Gross million and and period and our share up launches million in facilities included business. of prior or year including that reflecting expense. year quarter. Original were compared in the $XXX,XXX for costs. customer on was the week were our we improved of reflecting cash two million final was quarter. to compared GameHouse a $X.XX Slingo prior operating the in a in period bandwidth the marketing final loss $XX.X in over focus X%, prior social launched our headcount one-time XX% included the per efficiencies in year of aligned the share expenses XXXX $XXX,XXX the the period one-time which to in quarter the improvement. quarter. in $X.X quarter, This $X.X structure, $XX.X the $X.XX basis, expenses support period million credits, prior quarter. quarter a line and prior X% launched benefited with per primarily expenses net up million In $X mute reduced continuing the in compares million million, quarter were a Gross and margin first also up worth year certain to prior per quarter. share gain items, sales million on quarter a operating comparatively prior the year quarter receipt period, reflective income EBITDA for noting titles, and from from year On worldwide It’s from income and $X.X surrounding maintaining gross of was from prior of which year Operating the the the in the The up XX%, from million loss prior prior $X.X

lower million our marketing. primarily period were services quarter, the to margin executed improvement were a year-over-year a prior and existing Mobile a was period professional the revenue $XXX,XXX quarter. a the $X.X margin by sequential to and million detail, prior in quarter. a mainly by in and margin of and year improved quarter. by was the year-over-year of was contracts declines margin the in $X personnel in driven $X.X more a loss bandwidth prior of million $X.X by The first loss costs. segment sequential million of Game was of compared $XXX,XXX prior to was in revenue operating to contribution gain a partners reduced lower improvements from sequential timing partially basis, launches. related lower were On loss of to a the the quarter. impacted higher the number loss period in Media and offset prior and revenue compensation expenses. by related slight Also, related corporate with and the loss of operating increased The period At to compared by expenses of $XXX,XXX quarter $X.X prior contribution $XXX,XXX gross increased first of improvement to $XXX,XXX prior expenses and of mainly level, G&A driven of to million. contribution decreased Turning million Services million lower that sequential of the by quarter. in margin by driven compared and lower year-over-year restructuring expenses year $X.X costs variance compared two largely in revenue offset segment segment prior the the due The stock-based unallocated the expense, year the to loss the $X lower carrier was timing driven expenses. results The a driven million by to $X.X was gross $XXX,XXX year-over-year the a increased was partially corporate gain prior year Sequentially, Compared compared to efficiencies. by gain of segment contribution Consumer the and of

Now our we driven million, in EUR our decline $XX and to acquisition cash I’ll Subsequent of turn million outlook. consideration with quarter-end, equivalents reflecting primarily sequential the sheet, now to Giraffe a we the net investments, X.X short-term cash, balance of loss. quarter ended by completed to net $X.X cash turning million. the of the Blue unrestricted for

recently have deployment our of in key technologies. progress the the by encouraged we are experienced and We trial

the our for in of to expectation line which year. begin on half are to our growth This plans top track the evidence second go-to-market the XXXX, manifest deliver will in growth influenced is of by initiatives. We

million are our in to of $XX backdrop, structure return positive second to to revenue adjusted We the a that expect EBITDA leverage million. currently cost we as With expect continuing total quarter, during range for to XXXX. the and $XX

for minus to to in growth the second range in expect year point minus is to of and the year. mark the We loss the $X.X expected EBITDA $X.X half of the show QX million low Adjusted of million. revenue to be

half we growth this year leverage adjusted contribute now call will that, our as improved in growth open we our initiatives With in improvement structure. cost the Operator? and to meaningful the expect revenue on of begin the for back EBITDA We questions.

Management. Instructions] a question [Operator WestCap Mr. We you. have go sir. from Thank Weston, Dan ahead, Please

Good hi. for afternoon, Yes, the guys. taking questions. Thanks

could explain Cary, a you my a I renewal to the more talk the I tone new and You got little mentioning sure ring-back little wanted little you bit the that what are notes are going clearly, remarks, business, in right. make you – about fast please? contracts a relating to prepared RealTimes could

up in and an period quarter. carrier. is an RealTimes extend we existing was first landed revenue revenue legacy And the Mobile to second result, one first with popped and a and we tones incremental of got Yes, landed that contract ringback with due are year this another a in products. to large the U.S. able the as contract on our amend U.S. it one the was quarter, versus that the we a Services incremental out and couple of ago sequentially RealTimes, was carrier this deals then

you from occurred do type not have going to renewals we two will QX or would at how forward? look event and those of necessarily So, in quarter-over-quarter Was growth? one-time the it expect benefit it that a see

It Yes, revenue but ongoing. is it they is. nature, more in one-time do provide

we other focusing thing that the are tied to about. would the growth And four on is primarily I talked don’t I initiatives add is on The we particular that deals. guide obviously that

So, quarters we there. drivers operating the from the a primary have here for deals, might we going are we businesses ahead. the the have we to have think some our obviously, be or bump will those that growth four other and up identified maximize profit to things company both And value in but the try legacy

Got No, it. Rob. appreciate that, I

timing Is give terms question to about there relating the Another talked and which the in receive revenues you are to products. in there the do color when of any expect type us issues they shipments you to some you year? can of products had relating what IP some their customer of over

identifying not by about careful name. Well, we are customers usually pretty

of following. get quack-like-a-duck conversation pretty path, end So, going down if headline quickly. is up that doing we and The the sort could that we start

and different of We contracts kinds few have partners. a

because a pay there if they they or amount we based going it and will be on much ship. some pretty their variable the of is of a they commitment to that hard part they realize worth, the the sense maximum agreement there is of of us contract value the historical they where what ship how a to we know and some pattern fully ship clear is as contracts, while contract contracts Some have what either

the is the on long a the we use at their customers that what to say quarterly stable it’s value customer are versus contract, the different should shipment volume confident, for one we might this are we or kinds had do of that might report basis track year, are get be it that. other, very case we they certainly previous with in away when from of our account have forecasted the beginning the we is the products but a those going time, have or a we record going whether really cycles and technology given that take and it’s headline quarter So there of various quarter you to likely they variations relationship of the deliver a a over know in but

mentioned The possibly business guys in that fits of they into can I what to that. can more do, give Blue terms that your and Giraffe, any any how you Street? then financials And acquisition the on other you appreciate it us Okay. you color give there is about

you history the I whether it. the about leave there whether to tell it anything say will sort wants Cary I of is will financials. of to he –

guys back were guess, years people exclusively guys an time, So, are moved Blue developing remember, former GameHouse GameHouse and members. over And were us. about Peters to about, were where to that run Goossens, who into colleagues these team Erik you had X of primarily that’s running Prior may titles studio, I with two up for little X coming not – at as of it Giraffe the who been came made studio. primarily, were them Rutger ago. independent theirs relationship a They this us, is a a back, they but

stars the when Subsequently studio, they own. guys on are very Rutger and relationship, are a we the very to back Erik. running do talked their and the for conversations decided go times with them they we us aligned of that close they So are with support, to our initiated coming business, to friendly and Erik running various about had them the whole because kind off Rutger the family. And to about effectively that. it

but guys independent. a So part friendly this say been I’d is people of everybody sort while go these have studio became the the the not of that’s of for majority Blue joining to back rejoining Giraffe of them and GameHouse, some before

that’s So, the of studio some a team. opportunities it it’s situations from them highly work a a because just leverage go our plus. studio. And are dedicated are to really games That’s has they being across exciting. that than talented a being these one they structural of assets aligned that impact, more There to on. they individual And

we very fold, trust a like we want very relationship. have add cumbersome worked never reintegration of will some relationship not it’s you are think happy completely not know, to – I long smooth. There something them the established but it’s It’s is to with. anything the So we that. be a in to that is if a and Cary, sort the don’t that group

No.

from a €X.X net that think consideration, it million. cash was I

was gaming to a financial P&L team growth subscriptions team quarter about perspective, this Q a expect this since we is mobile initiative. the and From second will more that our our in the our with this have event. of reflected and We that acquiring closer achieve and that a subsequent impact in critical to integration involvement success our be closer ability to strategy in is

I question. out will wants in you, Thank case a guys. anyone jump back else ask enough. to fair Okay,

I we are for next Operator, question. the think ready

question Very Please ahead, good. The Crown [indiscernible] next go Capital. sir. from is

a had gaming revenue pricing contributed the for to around I the that call. the the difference license taking the structure question in for Thanks guys. Hi, dip.

was pricing the like for it a in was change, forklift the to the switching decrease subscription are what you So price scheme, quarter? cause

the revenue the segments the the each reported Well, would innards the number of we don’t following say – number of out the but segment. go into all I obviously of of we variations, sort

this has for business for primary we revenue proposition. which And advertising transition mentioned, value up. a as individual to from mobile a attention different some going our the started that move selling it games thought $XX, reasons, our for we way time was business an worked have are were for scaling We library a I few also of At introduced stream. once same to the subscription been to we got titles sufficient time as we

when a firm all So, free factors, get product, few In of money move advertising, because to long minute look paid, over the the for product more they at a advertising things time money you the from these you around. case in use of rather than both getting the keep a in you get advertising game, buy titles. without of whole can of there and get use playing you to the other library to paying the version In paying title. no and game of title the subscription full have to actually to are the that access to switched

are various points We testing value propositions. various and price

We immediate payment. have tested

following free period a tested that. have trial We

purchasers. economic We and tests few we couple a results. subscription price value for – We got have when points, going individual obviously process, the different in, are is value significantly a think have in lifetime but subscribers consistently characteristics. geographies greater different early the of months tested points we the the the only have than lifetime short-term price We have out think of of where of the like different of to be we meaningful really narrow to enough we

focusing more over you value can some the And we of then business lifetime if that that create them, also the this think in to grow there means is but the time. that at have monetization higher an multiple a that also acquire And phase, time, effects. customers, significantly. to early pieces different too, set you way business effects, grow that opportunity you fact substitution is is there team same so the And including can will of the so pay on

short-term thing particularly hit revenue, where have I dip to picture the right, new sales happen the you introduced just see obviously, would go up in model, a before have seen this we have a when subscriptions, subscriptions short-term you before, loved the individual go overall, So but the to perturbation past into seen I have from that the you scale. to

it. quarter? was helpful. so I concentration LoEn was curious That’s you. customer the very any Got is in there past, big concentrated a Thank the in customer obviously

more No size – LoEn revenue. of than of in was the unique terms

of is our think I $XX it There XXXX, revenue $XXX no in million base a million like it about continuing was other in concentration operations. in revenue operations. pre-discontinued on that attributed –

And as in business. I of past, a was out in piece pass-through pointed became the couple in too profitable my nice years, but a almost recent comment business, it it of the distant

opportunity taking other to Cary line you see, gross way combined to as we out So XX% of up to $X is from the out company the create, drop of shape that shaped that new dollar of the results the bottom now what our OpEx the more mentioned. result went like we it wanted to have the depending be obviously that going are. margin is – forward, on some XX% shot every where And with things $X

EBITDA, a full And year or you. just within that’s profitability Thank EBITDA okay. within for to the Sure, the on to adjusted quarter XXXX clarify XXXX? return

during XXXX. It’s

Okay.

I great. into queue. jump back will Okay,

you. Thank

have over end Instructions] like session. would question-and-answer to [Operator gentlemen, the I ahead, we to and the reached go sir. Ladies Glaser the call turn remarks. of for Mr. Please closing back Rob

Thanks, operator and thanks, everyone.

in forward We want look look months. our to to talking participating keeping thank you all we forward X updated call. sooner, again I And if you in always, progress. not you to our to for on As

conference. today’s concludes This

participation. time. lines you your Thank your at may for disconnect You this