Realnetworks (RNWK) 4 Aug 182018 Q2 Earnings call transcript

Greeting and welcome to the RealNetworks, Incorporated Second Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laura Bainbridge with Investor Relations.

to second 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 these 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 August

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

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

and Laura state-of-the-art the SAFR. everyone. start I'll afternoon platform, discussing Today, Thanks, good by launch facial our of recognition

Next, specifically I'll RMHD, other you mobile games. our initiatives, progress growth on key and with Kontxt update

QX Finally, our I'll with the initiatives. in close of results growth a these of context discussion

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the about the K-XX above, the for mentioned SAFR platform As excited launch schools. and SAFR of very we're

markets, I'll opportunities intend providing highlight QX SAFR estate on and stadiums growth with the RealMedia with real My SAFR on such to ahead. CIBN's commercial platform. major China RMHD the three our update mobile platform June. on of venues, you in High offices is this commercial topic natural to RMHD, our deployment initiatives. months additional start our look updates and next SAFR. of in make was fall. as other each starts in beginning in Definition progress in healthcare with other available for Vertical brief and a are progress also We A We forward markets, for

probably one in video our As video took place CIBN you from late throughout and when CIBN providers in Beijing others is CTO, Chinese quarter Reza host in team three leaders top codec A OTT the level in ecosystem. the our China. and highlight top senior joined June, in of remember a securing of related I participation Rassool to technology summit, the

of ecosystem take platforms of us by the RMHD RMHD using release video commercial devices a before, As building codec codec. time. say CIBN heard such our ecosystem robust The and RMHD help of stimulate will creation for you've a will

We with to content providers, are chipset and committed to manufacturers companies this working happen. make electronics consumer

Kontxt, next-generation mobile and platform. with text Market progress our highlight classification I'll messaging in Kontxt interest spam our and remains Next, high.

of During trials, and our were in-depth the provide demonstration capabilities proof-of-concept major to aggregators. we platform of advanced to which in able commercial features quarter, an we carriers the and several with discussions

to mobile GameHouse be sales we're by While Original want is and than Stories. partner the to I the fourth games growth anticipated, initially turning evolution are encouraged we longer final subscription initiative on cycles out offering, our our touch discussions. of The

of price July, now we iOS of over During month. the on our U.S. the the Android's quarter, we products game $XX our In have subscription XX available starting Android Mexico platform, a about per the titles rollout our began subscribers and completed global monthly on and rollout the in to we at Netherlands,

be on We later to year. this deployed expect globally iOS

telecommunication reach our In original network carrier our as in roll company addition of relationships to expand with to app largest of game an our mobile starting under stores, the Vivo's We to partnered subscriptions. we're subscription mobile distribution offering recently to to brand. out the Brazil leverage Vivo, games

Vivo's are we're and demonstrating. the excited initial engagement While early users the it's days, uptake by

able one know, Blue you content. most studios. our to our at of the mobile of the is our games we creation strategy Giraffe, bring in house successful As of core of Through acquisition of compelling were

With even will the largely, more game and of track fun Blue complete, to and Giraffe integration strengthen original of creating others titles, the library make will our our as robust. engaging record of subscription offering we leverage now

will to into free-to-play their promising of games purchases. within talented the app bring team We or FTP leverage also GameHouse segment

Giraffe Stories, Medicine. Heart's most Blue One of our the from comes successful which GameHouse Original is

We We're than are Heart's free-to-play nature HMX Medicine launching FTP games of GameHouse of is that title. a the monetize the but freemium is in our X, optimistic first Original case is they Stories of that globally which process time over just will period the with now titles. do well, longer typically

release to final we negative discussion play, this the global originally the we topic, QX, our QX delayed had This results. shift of third segues broader a anticipated, With into later our revenue. until QX my games which effect than to on title and a free of

were we shortfall games shortfall, model be a would of we you of to it major the two guided even this decision drivers HMX change to free than to in largely quarter As for play. QX the There more a was from one business was that by I know, mentioned down driven and freemium expected. revenue, one

previously in to still revenue in anticipated. a was we related the second IP closing later of some anticipate than delay capturing with The key We our quarters deals. but both forecasted initiatives,

progress SAFR. above, to by subscriptions, the games As continue mobile market initiatives reaction our are make mentioned Kontxt and to with and we initial growth encouraged I RMHD,

implementation our we we year. by the be noted a XXXX QX become compared you detail longer on a track and revenue are that cycles as that, few in for are the will the QX for the expected the lower Having minutes. said results, both both add to lower and mean guidance that full I'll still we QX Cary increase and final and on expected Napster. revenue of expect which than Having end our of will We through Kontxt take note for see RMHD, QX above, company beginning games more cycles believe EBITDA year. said positive in for in to we're that, revenue QX. will and likely seeing year for sale to

income. Our BXB prove positive reporting fourth strategy its continues of quarter with operating to Napster consecutive successful

summary, of value and from mixed our aligned regarding bounce second growth weren't both quarter, will over initiatives for shareholders. will happy especially trends. quarter. with in and that half the While Cary. And confident we our call with we deliver our industry We a We're was revenue turn face me strategic the SAFR. for competition, lines top with with a Napster's and months important secular year our and financial back progress, and of let that, very benefiting lot bottom pleased In were consumers the QX that the but

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

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

our million, results $XX.X $XX.X was for continuing million in period, from XX% to from Turning operations, the the from down quarter. prior revenue quarter, the million and prior-year down in XX% $XX.X second

short that We our of slightly fell are disappointed revenue expectations.

attributed licensing free the Heart's was Medicine As variability and to shift to previously, to the X mainly revenue discussed our play. IP with Rob

to of down decline year-over-year related within than achieve detail, course decline partner. the first The full of sequential Tones services $X.X a is note revenue the revenue the million, down decline signed these codec nonrecurring the quarter. Looking RealTimes million, recognized of basis, results devices million reflects Media to Consumer shipped is an the expect contract at elements revenue year. devices later contracts was new million a revenue over On accounting The timing the revenue in It was sequentially. IP of timing in was quarters well to for year-over-year $X.X which related the the shipped year-over-year certain of segment technology the were this sequentially. was by primarily of last the the from revenue basis, license and important of and standard, related these revenue into year-over-year recognition by majority accelerated forecasted. timing to the the Ringback driven greater ratably the as down XXXX, of Previously, $X lower our as continue Mobile was On down sequential that $X contracts and to contracts recognition the value but decline the we that quarter. to RealTimes product. of of adoption originally in

million The quarter in quarter. Finally, of $X.X and Games decrease reflective revenue for highly $XXX,XXX of the a the launch down largely the year Heart's down is successful Medicine year-over-year sequentially. year-over-year prior second was

installment unfavorable comparisons last second Medicine was released. of the Heart's our During of XXXX, quarter This was launch year, has created successful franchise most of the to third this quarter. which our

for next this sequential was the by the in noted, reduced decline including year. title million of due Net or will Heart's period a mobile loss per $X.X in quarter, $X.X margin primarily, per year from globally XX% our million a of prior product the $X.X $X.XX prior structure, Consolidated within in marketing reflecting $X.X including a The to flat in prior prior down of million was free-to-play a by the year the share Rob reduced our quarter. year generation aligned second primarily of million advertising million offset $X.XX launches in As loss a a down period, compared Adjusted and reduced headcount initiatives, share as offset prior or share net $X.XX XX%, loss decline was over and from quarter. Medicine gross advertising per revenue. version down prior was from focus basis, were X%, million compared game in partially from half of partially the X% quarter. period in in down the expense. the loss on to loss the expenses Operating quarter. the was prior our the in maintaining million, Gross expenses. the for $X.X million million period facilities and new quarter down was individual $X second second expenses and sales of prior period the year-over-year sales the year the launch cost net revenue operating EBITDA were $X.X The from or quarter profit million from of first second and quarter games. $XX.X a $X.X prior and quarter to loss the a reflecting properly $XX.X On

a revenue period margin in segment $XXX,XXX was of and segment and the a a and to second $XXX,XXX a our $X.X loss margin to in to increased reflects prior unallocated gain the $X.X corporate Media's million sequential declines were a offset in of more of year-over-year by compared expenses. in was decline results related in year Turning level, Consumer decreased This lower personnel year-over-year a by to the the period, quarter technologies, prior the certain in from expenses prior revenue, margin corporate marketing Compared the the prior decline to by our quarter, revenue decline quarter. Compared $XXX,XXX loss in loss of the revenue loss headcount, a professional margin partially prior-year a quarter, as reflects offset expenses detail. $XXX,XXX The compared the expenses. $XXX,XXX contribution of million, to lower respective by efforts. reduced Services stock-based year loss a and prior and decreased prior gain lower in $X.X million period. $X by of our quarter. the a the launches year the cost to prior was in the was of loss facilities expenses. year contribution quarter. the of the compared decreased million million gross prior and segment for was lower the prior due to quarter. impacted reflects the expenses. Games operating business million compared quarter segment the previously, period, to variance in the headcount have contribution result as of the partially we quarter, $X.X year-over-year Mobile prior year by prior lumpier reduction due reduced compensation offset to Compared and partially ongoing The margin period, year $XXX,XXX which, was to prior to largely a quarter. At and IP to sequential performance by lower loss contract improved timing of expense year-over-year of and mentioned contribution basis, codec be $X.X our driven Sequentially, was service decline were in of game revenue of tends the nature. compared both in On the periods the

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

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

revenues beginning While recognize we initiatives to sales our year. longer expected full is anticipated for cycles of than be the revenue and to related XXXX, implementation are for our lower will on the we track growth expectation This likely growth the XXXX our by at year than initiatives. influenced in

We to $XX XXXX. questions. a adjusted to cost now we million, will third are Operator? that, and million to minus range in and adjusted expected for in the that quarter, loss continuing of the return be $XX EBITDA the we leverage With currently positive revenue expect to backdrop, expect $X.X for million. EBITDA $X.X to open minus structure total of range is call million as during the With our to

WestCap first Please Dan with question. from Weston, comes [Operator question proceed Instructions] your Our Management.

hi taking the for thanks questions. guys, Yes,

and expect Is year it assume the indicating just the revenue some happen the sometime simultaneously of uptake to to still relating material on projection your the reasonable profitability to degree assumes you in for year. that codec business? EBITDA Just the commentary this lower-than-expected outlook that

Well, you guide hey don't know, Dan, as segment. we by

fair that board that, good feel think revenue I in business look not it's QX, the and you continue hit in say you when we and about only of and I QX, carefully, to our aggregate a as cost that crossing across trend, point. growth said, of but pipeline at manage the you

leverage leverage goes that now XX% we revenue not margin model plus up our as but gross line, penny goes do that's obviously, don't business mix XX% up, of think, every terms what to we we bottom guide But the our company, as of across I of that. increase going segments, be we're business. - lot and a see margin So in gross get our to typically that the the significant would think grows - in we I on

any able and there then some of to be is or you Okay, revenue? us color the expect on give you in to can terms guidance Kontxt, when produce

that's longer don't I will but in start been already we have subscription assume say growth a little revenue. mobile from growing. we some now, in we're guiding case then, it particular that partners when so the the think is typical we bear which mean, I Again, games, to negotiations fruit. paid we think segments, that Kontxt, stage And do to significant the we I Once in and bit believe on have the initiatives start revenue out where recognize is business deployment. to keep deployed, really of we as going to get go they're with various

it. Got

Okay.

the suspect quarter of that Media, will on that was dig sold timing shipped the lower obviously codec on have the to revenue. devices relating that than are of pick some Is led you mentioned little Media devices If and half little the due back this being you gives that And last you to more me bit business of year that that one Consumer you expected, evidence lower don't that, to seen up? Consumer let a comfort a your by being into market one and mind, just customer? customers

Hi Dan, it's Cary.

- it's a that great question. So

based business did they think, of I that last is year in shipments full year. different for what is consumer the coming existing things, we're combination than on are in seeing rates media the previously, through a one contracts particularly a

quarters, went it in on whereas for shipments or this an of ratable through So seeing contract X basis. last quarter more year a we're a all annual couple year, of the much

country, We and are year. anticipated we're different seeing we when value going than get it's we different than shipments, that year, what that full just annual started are comfortable we the saw we last and of to the

piece - So cycle we to sales eludes then the sales. one on longer RMHD the and that's piece process sales sales anticipated and the on than new other RMHD

in generate process the We to initiatives the are year, we process anticipating growth starting first year in launched, that through revenue in end that's this back and sales the timing at have that we half, our just the really to go happen other the didn't taken much of given half of last and like cycle.

Very good.

have do Okay, line, expect you more, off couple filed? to Q I'll when the real a be talk we'll but fast,

Tomorrow, Dan.

good, Very right guys. thanks all

Thanks.

the gentlemen, I and end Rob remarks. to question-and-answer reached like the the have of back and would Ladies we call turn closing session to for Glaser

to I us everyone lot I and keeping forward today. got operator. quarterly talking for sooner. have as not again. updated to Thanks, all We've Thanks, our look you certainly you've you going joining to at if next call, a want on, heard. thank

concludes This conference. today's

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