Realnetworks (RNWK) 10 May 202020 Q1 Earnings call transcript

Greetings, and welcome to the Realnetworks, Inc.

First Quarter 2020 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host. begin. may you Orlando, Kim

Thank you, Financial First XXXX the welcome Conference Call. to Results RealNetworks Quarter and

Before growth, I'd liquidity regarding discussed affecting to initiatives invest and today expected on we profitability, some consolidated its are that begin, strategy, products and a for and implement forward-looking, like businesses to and and as including future and condition. statements basis, efforts RealNetworks' prospects expenses profitability in you forward-looking well operating include trends remind growth statements from Other financial benefits its and the plans as restructuring these company's other its the activities. matters

In Inc., addition, relate International which that does statements business contains today's certain as forward-looking Rhapsody to XX% owned Napster. call

We in of be in from XX-K filings, all facts our risks Form results of and that risk the and or in other the and Investor on A reports. statements statements in our set can with recent with and risks describe forth forward-looking Statements cause Napster. that and from expectations than our including factors these combining are financial our number including Form of and our website. statements, the express from Relations XX-Q SEC historical involve those and most these filings copy corporate other a other uncertainties differ reports materially actual of could risks our SEC beliefs to and obtained consolidating associated forward-looking statements implications business and section

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

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

submitted website each investor.realnetworks.com Form refer press to measure, of and included directly in Financials X-K non-GAAP release and our GAAP under the be the most to which found both today, to at our financial of the please our comparable dated reconciliations can measure corporate the information SEC For financial in on tab.

Glaser, strategy Judd are and Rob our company's CFO. provide today discuss company I CFO; the quarter will to made review Mike pleased more prepared remarks, the the XXXX. Rob. quarter Ensing, the Judd today's the Judd then Rob questions. progress will With XXXX. will call me the first that, and outgoing Lee, a With detailed Vice and hand over of and interim financial Chairman After and President during Senior first to will Rob, of Mike of be answer CEO;

Thank you, I'll Kim, at and good has results. since thanks comments yours on afternoon, with healthy doing quarter are a okay. provide I months just update ago. Then last our for joining X the you and summary I'll today. begin changed few and everyone, first how a much and Real's us world hope least of

I'll now discuss Real to changed the which operating. the Finally, forward the well of environment, economic as opportunities going address world needs and how we're as changing we're

goal the safety mourning a upon. pandemic and new lives. world, start, doing our to to COVID-XX. daily massively that the around communities world to as the million our employees, our the The we're continues and most mindful their country, be is completely for very due builds off including customers everything home We're also our of knows. disruptive of loss The is families, unexpected to that decade well-being foundational our a X.XX of everyone people We're

digital a same a many This years. we had facility we tools and tools out the different very interactions the has physically face-to-face have fundamentally our We're number company who now world and our run around development combination and At way We've of businesses. of a than Real in run a been for before. of of beginning, the products the had global company people time, operating now worked build changed. from have the to a group core generally and same used teams

mid-March moved work-from-home the sold operating in to services very rest vast can the Asia in purely Starting products and industries, companies the digital we've developed, fortunate out almost world, business of an in model. other offer report of we've to that in be distributed that this majority happen. we and and other January Like marketed I'm pleased the and this we're who've Unlike everyone staff situation, digital on focus quickly. the our maintained appreciative in I'm our successfully, operational and very and clarity, transition up stepped make made to we global we've in companies manner. made excellence. very transition to and

to Now on into the quarter, vision during SAFR, QX, except generated of which $XX.X expectations January. guidance consolidated We Most to our in million our businesses our we ahead platform. slightly provided largely computer line minor performed going COVID-XX, related revenue of of impacts was our in with from QX financial the results. for

more QX line $X.X was which in with was few EBITDA through in will adjusted our quarter. in a in our negative minutes. the into detail going financials expectations Our go million, Judd

in the before Our one, to we financial had services, and we in first as them Three, our or the and change effectively. customer beginning following workflow, late pandemic; impact and significant We've deliver in month started QX support. to consumers third change except for things continued we quarter, performance most where instance, the was enterprises of so Asia, products digitally to worldwide of engineering had quickly January. the our was factors: for to in solid, reflecting most done two, the

partners for began new business by Revenue quarter SONOS Games Five, Breakfast. and improved transitional businesses and the finally, COVID-XX free-to-play was impacted performing Delicious quarter launch service. strongest XXXX. minimally by extent, its large new again QX and were carrier by -- crisis. the Bed shipping our world. Powered the once marked music of Delicious in for Napster-based X QX Four, major our So DXC Napster mobile games, to a first by a SONOS co-manufacturer & shipped the Napster into a year-over-year top-X our line Napster. was And led World XX% Radio,

than was throughout part quarter the in offset Games games more and legacy success in business. our solid free-to-play of the Our declines

me look Let to forward future. now the

Given the world, I in be explain forward we want guidance, why. will we're to providing the but and doing what extraordinary do not financial uncertainty

the tightened First, We we've macro the a world economy changes belt we're making. persist recession into will time. financially. period believe headed of a is that significant that Accordingly, steep our for

executive frozen XXXX payable personally off employee Specifically, declined XXXX. we've been to a in have program. Also, members furloughed reduced staff more XXXX which expenses, about would dozen laid about XX our worldwide, salaries, and bonus I modified the bonus, accept half internal

in now, company's That personal strengthened promising lies what contributed know Second, funds the I the January said, of from RealNetworks. we've did business million significantly sheet. for it. ahead $XX I my that hit I balance this happy knowing belief my because I into that did globally. I'm before pandemic future the own very the in

and well. have customers the Napster bring In customers even from PPP addition, undertaking, we in with several provision that the sooner both million payroll received Paycheck just Protection to supporting important of from Separately, would the furlough ensure our are and additional million receive measures will are note current funds other under PPP the soon and program, those as staff address promissory under able to signed expect grateful to have Program products we're serve and $X.XX employees and us services, newly they funding funds related -- loan The CARES our members help our the digital we than otherwise. to will continue a enhancing the Act. for societal enable to back needs. $X.X has to to also PPP Combined

Third remain initiatives, growth main We games focused X and new topic. SAFR. on our free-to-play

businesses legacy At Ringback on legacy Tone Real business, stable. talk about I China appear to relatively messaging, be IP player our business. elaborate and me business, which our business. after general, Let In our the first them includes these

significant may global term, well pandemic. very impacted impact by recession these the they a the in been medium businesses not, in negatively general, have While

some cases, as In such seen increases. messaging, fact, we've in volume

to promising our mobile Second, a very represent continue free-to-play growth games casual initiative.

monetize job contributed our delivering low-cost story-based this games in excellent Bed of & through of entertainment drive an Delicious then Breakfast done a progress consumers Delicious and has that team and regard. well. form have GameHouse casual love to could Our free-to-play World

any top line drive puts of and sort are downturn, any associated continue about there remain And games while economic with with we to takes free-to-play growth. optimistic business, we prospects. As believe future our their

We're an opportunity a way. Third, new pivoting health believe SAFR. And to continue public can we of are new in pivoting SAFR platform our to era. and different this think exists a intersection there the significant safety that customers safety. to serve on the become public contributor public and to in it We focus

promising seeing been have pandemic, during engineers early work we're hard at results. and the Our

mid-XXXX expect newly We begin the new work you back numbers. this beginning coming and needs We're identified to be in people our in front updating that to quarters. SAFR-based address on as the rolling to to products for progress larger will market enhanced of forward go out looking public on safety in

that the team very months of complicated will particular, to very I'm innovation ahead. visible wider continued under summary, proud the our circumstances. grateful and become of to work In their weeks in for members I'm the world spirit our excellent in team,

very assumed serve great well Chief broad Before Judd RealNetworks. to CFO, closely a this role welcome strategic thank Financial that the during I throughout important our assumed and and adjacent of conclude, and to our like Senior work Mike President growth I'd this initiatives. to set of in to recently complex of Ensing, for our his experiences period. extend April. perspective, working leadership who role Interim Real areas Lee, I'd for Judd also Judd's like This will warm Vice include Officer time.

numbers Judd the Judd? through to I'll in go over now call the turn detail. to

good and his help would during just my to joined upon Real a period. experience Mike draw I And at I positions excited be in of contributions Rob. Ensing the in strategic leadership team drive interim also late for growth Thanks, March, like longer-term am this financial everyone. thank prior and RealNetworks. leadership to and afternoon, to part Having

we including a fluctuate continue of performance. you part on results, discussion will sequential detailed Certain variability note Consumer Please licensing and But today, are IP update remarks always within that comparisons segment timing will my first business followed to of mobile our their consolidated year-over-year Games not the more implications. in games our In of business our can business quarter-to-quarter. due I periodic first our revenues. businesses, and and these to the review our quarter apples-to-apples by impacts our Media

year prior Napster million compared Now first to turning results. prior for $XX.X was in and $XX.X $XX.X the quarter million quarter $XX.X Total to our prior for revenue the quarter million period. year quarter compared in $XX.X the prior and million million in period. the $XX.X million revenue accounted to our first the of in

you quarter recall, a revenue As of Napster, period X When Napster just revenue not company the months January XXXX. prior revenue year-over-year growth. following year marked may from over the of acquisition first the our included including XX, quarter on consecutive of interest third our of majority

$XXX,XXX the detail. down at year-over-year. $X Looking due results Media Consumer driven was these and sequentially payments. the our the sequential business of shipments PC was products. greater shipments primarily and Revenue decline primarily up in in our to partially was timing segment within were increase and IP of The the million by by which renewals Year-over-year, continuing codec declines offset timing legacy of

in $XXX,XXX Kontxt product. on was offset sales legacy basis. due decline Year-over-year, SAFR sequential by in The and $XXX,XXX declines a Tones primarily our Ringback higher the to improvement and was in partially and by SAFR. in basis offset was year-over-year products, revenue legacy sequential on declines was up partially down our Kontxt and sales primarily by services driven Mobile higher a

games, by the quarter strong business. PC increase for and basis, sequentially free-to-play up revenue fewer game in subscription mobile sequential and of $XXX,XXX On year-over-year. driven offset up Games performance by launches premium first was year-over-year a and decline was a legacy $XXX,XXX the our continued partially

services of termination was related revenue, was was contract due up increase increase a primarily Finally, of year million The termination declining This fee an and sequentially reduction fee customer to an also months accounting. the revenue to to increase X by sequential year the partially prior The prior of $XXX,XXX in period. in quarter declining just a partially purchase addition in the Year-over-year, the early offset in Napster mainly subscribers. by offset contribution $XXX,XXX revenue and was full included period from of year-over-year. revenue compared early inclusion subscribers. a platform up $X revenue to over

year $XXX,XXX the for was prior million, up gross Consolidated profit period. prior first compared to the quarter the quarter $X.X $XX million compared up and to

to consistent compared and XX% margin year As quarter a in the revenue, was period. in RealNetworks' XX%, percentage margin prior from prior Napster XX% XX% an gross was with the gross and increase the without of in prior prior XX% quarter period. the year

quarter decrease to year of were in the Total $XX.X million, quarter in first $XXX,XXX year operating in Total and related period. the in expenses included quarters million a $XXX,XXX of $XX.X prior first for of the prior period. from the compared the operating million to $XX.X prior the Napster costs transaction expenses acquisition XXXX

Adjusted first for the was a period. the $X.X a of year in compared EBITDA $X.X loss quarter million million quarter loss in of prior a to prior loss of the million $X.X and

first EBITDA consecutive loss. adjusted third improvement The in our quarter quarter reflected year-over-year of

or diluted income compared prior to share net loss million to the a of of shares. attributable $X.X a first million from Net included net gain $XX.X and or year per RealNetworks per $X.X of the in share minus million in prior in loss Net income was acquisition $X.X the of $X.XX $X.XX of XXXX the period. $X.XX diluted quarter per million diluted quarter or Napster share

million year Turning the revenues. our Media the and revenues a as million to sequential Consumer loss prior contribution management. expense period. result prior a in quarter is operating lower segment higher to $XXX,XXX decreased of a $X.X the basis, first ongoing in in to expenses quarter decrease improvement margin the a basis, $X.X segment more year-over-year detail. was On due compared and our of reflects On results

higher legacy products, in primarily decline our of the with to to due margin quarter primarily of operating a in improvement million The compared lower investments and period. $X.X in the loss was was Services by the revenues, revenues partially higher prior increased to Year-over-year, loss a in Mobile offset operating segment sequential million due along $X.X SAFR. loss expenses. $X.X our was related slightly year prior of contribution contribution a to margin million expenses,

of segment prior Games quarter margin due in prior was and The games. performance margin investments the loss mobile strong to was mobile in sequential The the compared of a was decrease On free-to-play a period. contribution improvement the continued year $XXX,XXX games. to contribution to basis, year-over-year $XXX,XXX in primarily $XXX,XXX due

to a to million loss in revenue. higher was margin and $XXX,XXX contribution prior period. $XXX,XXX improvements compared due Napster's the of $X.X primarily the in The year sequential and prior year-over-year quarter were

and costs. corporate operating unallocated the prior to at primarily by the $X.X million lower period. the sequential And decreased compared of due compared $X.X decreases by million and level, The expenses, year to decreased corporate expenses people-related $XXX,XXX were prior quarter year-over-year reduced to from

corporate also Our quarter first in $XXX,XXX the prior expenses the the $XXX,XXX restructuring quarter prior operating period. at in included of to compared year and $XXX,XXX level costs

to were net capital. March partially balance loss and our from December proceeds million cash timing Now Rob we cash working CEO, had to due The recent $XX to by proceeds sale in offset sheet. turning of received our At $XX B to the was cash cash Series compared our in preferred at Glaser. The equivalents million XXXX, stock XX, XX, of our and unrestricted million increase XXXX. $XX.X the we

COVID-XX. long-term the stemming was XX $X.X million of also credit total uncertainty given in borrowing had that like facility. macroeconomic I'd reiterate available million, for and are at from cash focused this current Our highly on high environment, we preservation on debt $X.X March we to level the revolving

provision week, last of under announced in Protection As million the RealNetworks the received Act. funding Paycheck $X.X Program CARES

has promissory fund just CARES to soon. of a million to Napster Act addition, the and receive expects In note related $X.X signed the

bring which to furlough. we be several in current us as back loan mentioned, annum, deferment be are cover our disbursement. The will anniversary per the well this interest costs has staff from as on program rent rate an and to we able also Rob at staff It enable keep The be assistance helps to to used payroll utilities will with a X% and matures of period proceeds ensure grateful levels. accordance guidelines. X-year numbers will receiving X-month As of very

overall of visibility quarter be second company, given of guidance not its and the providing during the XXXX. we unprecedented ahead, lack impact on this will for Looking the pandemic

strong our in of revenue our quarter quarter and financial managing summary, Napster; adjusted In delivered third excluding strong finally, growth, margin by we expansion gross our margin profit third loss secondly, results, our our consecutive year-over-year with XX%; EBITDA year-over-year of of our characterized first year-over-year carefully costs. quarter to consecutive to due improvement commitment

social We second costs While success. our our make position better the future to the uncertainty pivoting SAFR quarter our XXXX. COVID-XX, us brings balance way and stronger quarter for more our us to we of work, was first manage minimally strategy current address impacted in by progress changing and challenges related the pandemic to believe will and

for to to health We that, safe now the all Operator? Thanks their call will workplace. keeping ongoing we to of RealNetworks questions. our good productive employees and wish And all. with commitment a open for

Therefore, there for And this Glaser no Instructions]. over [Operator closing at are I questions remarks. turn back Rob the to call will time.

Again, our as you safety I of time well. and everyone, and back continued separately I want our their being focus with to their if world call on Thanks, to Thanks, safe as us for this X we joining thank, operator. don't after for all sooner. everybody Look with said, this excellent staff next in chatting healthy again wishing today. and our investors to talk quarterly wish and forward months for for call and for customers a period around all work members during the

disconnect today's your participation. your Thank This time. for lines you you may conference, concludes and this at