RNWK - Earnings call transcript Q3 2017

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Operator

Greetings, and welcome to the RealNetworks’ Third Quarter 2017 Earnings Call. At this time, all participants are in a 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, Investor Relations. you. Thank

begin. may You

Laura Bainbridge

to third Welcome results XXXX conference call. the you. quarter RealNetworks’ financial Thank

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

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 November

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

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

Rob Glaser

pleased Thanks, Laura. highlights, recap and performance initiatives and that Good on are traction third particular, key significant second, thanks afternoon quarter with In they in for for I’ll Revenue lead pass Overall, prior modestly with the lower we when to detail. million, by our us will and to $XXX I go period. results. meaningful ongoing for I’ll promote long discuss focusing Starting financial Then were On everyone us. revenue. see for financial to Cary areas; how first, our our to on the to call, primary when our compared it growth our year to with and two performance. initiatives. stability; financial joining numbers actions today's was X% will two

growth investments period. prior previously the in in our customer mentioned the versus we business shipments, expected in in receive to improved the of EBITDA improvement as third this our Adjusted of timing view million light revenue due year initiatives. that the second particularly by to $X.X fourth quarters. and quarter notable We we As IP key QX, ongoing in receives

important portfolio respected growth. XX% in prospects. line objectives; concurrently diversity rightsizing with stability, our of creating down Our year-over-year. our two financial expenses also line Within The top position we’re the for growth Company us and were businesses, our operating aligning while to helps

Our games real decline in offset in growth business. is our the continues legacy to games mobile a example, great business PC subscription

Our as Stories. a to mobile ongoing ago, GameHouse We XX% for in title the Emily's app benefiting next Delicious new our Original very the during of games in compared quarter, investment in year third released grew titles quarter franchise, business two including popular Life. the Miracle

new last we've XX the This period. most months, is by Stories. Over XX prolific launched GameHouse our far Original

Indeed we includes right. GameHouse the over Original title XX own of have in portfolio to license. now cases, we Stories, which Our exclusive that most

quarters my in full portfolio our technology initiatives. ways RMHD I’ll our that topic, critical leverage noteworthy RealMedia to months Most now name RealMedia with reaching and ahead. move our and or product. is growth with traction we progress the second mass, it HD HD new Now with expect to key

you when next advantages significant As the generation codec it's HCVC/H.XXX. to next superior and to a but compared then is far know, H.XXX as incumbent, generation codecs, current such also a RMHD other

QX Internet faster, the the is RMHD networks televisions through enjoy of cable, our more By users Internet of strategic reliable CIBN And the is storage providers one satellites. and over technology, seven streaming quality of Chinese the with or alliance few Internet and over market OTT in data cost CIBN, Internet with Our of higher or our CIBN’s largest China; in to of leveraging market. growing will the OTT, fastest license delivery the that the distribute most Chinese instead of event video of announcement only significant with one the reduced over one RMHD top, media cost. the broadcast the has to in over parts of

format, come parties, the hours demand our two among from other with titles play current in drive our Either to codec China, technologies into of to will product these, licensing devices thousands IP and for revenue business, content streaming encode case carriers their providers, will to CIBN RMHD enable OEMs. encoded our as expect third content. our expect which we We technology such and

way RMHD believe by Once CIBN. for in China, done adoption of codec We rollout and eventually significant RMHD we so, of our our the have work will do to successful worldwide. pave to much we've ensure this

The progressing product business. new initiatives well that’s second is from growth messaging the our

we last at with beginning the a entered bring our product QX, of contract we highlighted to this non-exclusive call, on Syniverse to As market. into

We expect say believe and more in generation where line the stability initiatives, generate product that about while that the managing costs with before drive a prudently in in top our XXXX. come. financial profitable deliver will foundation years revenue our revenue we're in we'll messaging to year-end, it summary, also from pleased meaningful to investing This carefully. creates now we think progress new next our in suite laying to have In we're to

of discuss to provide Rhapsody and for more the this in that, unable third updates financial results time. over at the in with are active remain hand strategic to we detail. evaluation Cary. quarter to our I'll alternatives Cary call further Finally, And

Cary Baker

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

down a the margin rev prior largely times grew the revenue was were And in XXX,XXX prior reflecting basis, based ringback and partially year from down of growth our $X.X in our million our reflecting as the on-demand tones anticipated, music low $XX in Korean from declines services $X.X product. media revenues million down million Korean real by tiny Mobile and revenue million our consolidated our contact revenues. revenues codec quarter, and X% growth in On inter-carrier offset was of legacy revenue Consumer IP lower from sequentially, million businesses, technologies sequential period IT $XX.X decline reflecting businesses. X% quarter. timing messaging year-over-year, variability year-over-year, contract For on-demand $XX.X ongoing also and business. in reflects music in the from PC

segment by expenses games. from in quarter, In third efforts We legacy the key the year-over-year realigning our were initiatives. maintain offset growth Operating our of our on sales reallocating the focus we was structure prior quarter we PC margins prior line XXX,XXX our down with sequentially. current more down our $XX.X period and believe games undertook a year prior XXX,XXX prior in benefited resources to was towards cost quarter, and subscription quarter. and in and profitability. that and revenue is business, X% will Adjusted loss the million, of a EBITDA mostly declines result XX% a $X.X of $X.X increases compared the period the of mobile loss and down loss quarter in quarter a for from to year, quarter. restructuring million Finally, and decrease Compared was down year our third in $XXX,XXX in million last the second the third

from X% our XXXX in up sequentially. by Now, Mobile was margin X% in Korea, on-demand $XX.X year quarter music period driven growth largely Entertainment. look by Year-over-year, revenue and the prior for at performance results third Lowen greater down million, was detail. let's services segment customer low our

we low gross rest it the and the as the representative today's margin portfolio. margin, this in because and not we set evolved release, our press have its to relationship value. contract end for expire As believe has of referred time, not to this at over of customer is year revenue largely We've noted nature often anticipate The this we of we renewal. of maximized is with profile our do the

has less Over to relationship, more X% the course declined of currently. margin from gross our levels than meaningful

and gross we nine music months So contract in of $XX.X and nine and and three to $XX.X while for XXXX million on impact profit demand month XX, gross amounted to To same accounted do million $XXX,XXX point, profit this periods, as consider illustrate significant. for respectively, revenue the for not respectively. three Lowen the September ended the $XXX,XXX this

resources higher and is to As over strategy focus are scalable on Rob our deliver time. our previously products noted, that margins

investing driven our of same the million the we products segment in loss business to to RMHD was last codec, reflecting of Contribution services of in We and for a prior $X.X third profitable $XXX,XXX year-over-year and new a largely consumer the quarter. that will $XXX,XXX to sequential sequentially. RealPlayer the The loss the manage combines a expect decline quarter was improvement by million margin including XX% media the was measures. a restructuring In quarter, the revenue technology, which in compared initiatives year-over-year loss our will XX% and revenue. year, of in our IP codec contribute and while for segment, efficiency, mobile period in continue $X.X

compares. of sequential the and business a the this revenue from decline product in And mentioned As in in in margin legacy the quarter. the the $XX,XXX when timing of with $X.X was segment previously, gain million prior our decline. of $X codec year-over-year explains a year, compared the compared gain million same last IP our gain Contribution impacted PC period to segment a of

of segment, quarter licensing in down revenue was gross margin we higher the business. legacy the as prior not games. games for margin codec offset quarter by year down in the led impacted contribution continued X% over games PC was Games expected, received In quarter two of prior was XX% prior third IP the quarter. the experience benefit release we million, did mobile from $X.X Mobile XXXX As grew by subscription our the X% about as and revenue from quarter growth the our new in decline

now one launched in fewer have compared quarter. revenue the launch in XXXX. to by titles new impacted seven We as was Sequentially, the quarter second third

and Third in Original quarter On the in last from this to future Mobile of which basis, same of was a segment. year-over-year $XXX,XXX increase a compared investment product continued margin our quarter. contribution shift Sequentially, of prior our business, contribution the games the titles. $XXX,XXX games decline mobile a margins GameHouse benefitted gain mix a to within in Games year, a reflects allow should in segment productions the $XXX,XXX of loss period our us loss

reflecting flat, focus at unrestricted level third to had our corporate right reduction Sequentially, corporate of Unallocated the cash, short year $XX.X XX% investments well end as relatively by million declined by Turning back level. in restructuring this headcount facilities We to maintaining growth. the million expense on for of expense, support the cost. period, prior cash lower operating a was corporate and expense and quarter. of $X.X driven the in the term expense as our was equivalents unallocated

the million. $X.X now of fourth the our During quarter. our to turn loss consumption for impacted EBITDA quarter, cash by was our I'll outlook

revenue our in our periodic the strategic pleased As and evidenced revenues. evident stability. our drive variable ability to in profitable expense we maintain our Nevertheless, top believe track, noted, are not efficiencies by sequential to due the and to With the our operational total quarters, our a these to year-over-year of the and and minus in backdrop, remain an the currently We initiatives comparisons we to from expected the that, minus with from are $X results. to financial $XX our range operating line in the growth be approach to Operator? fourth now of that fourth quarter, expect apples-to-apples Please always on disciplined for with adaptability as note is variability the million guidance demand in contribution questions. customer range the Korea. With EBITDA for million million million. music adjusted that $XX loss quarter $X for includes call will on open we

Operator

At you. conducting a we'll question-and-answer [Operator Thank Instructions]. this session time, be

question William Our Asset first with Management. your comes Miller question. with from Please Meyers proceed

William Meyers

profits. Your Korea agreement going correct? in a end that that but in year, QX understood Is this and revenue, if at to beginning statement, of that’s in I to Korea the you're not going end major correctly, drop main the a drop

Rob Glaser

exactly Almost correct.

thinks obviously for long We renew, we have that have highly consummated likely process the not that to We a or formally end with. customers is it's on history matter a either won’t a guess, both contract street makes sense of us. I on I course for about renewal economic present care a I that us, would parties, say but have that for we

in we rather any given it's profile than business, it. mention the the to context have likely wanted by to and proceed the price specific that of recent that So not that of we’re

we If and years, essentially six at of gross we got used we business, variety have a it get line piece to cost. any profitability profit. historically, reasonable to associated five, run, source reasons, cost a of gross before And below before a the obviously, of business for for business of with amount two. our back used going you mean the to look breakeven become, cost the be our It's we slightly or to four, profit it

invest net of where profit. and significant talked technology wanted our messaging for have games, opportunity growth looked to both effort, we we gross made video So profit, I when we we few future which at a businesses portfolio where and of series of our a and and RMHD about, see investments, profit

line. little very So that it. we now associated has something tends 'XX, can a have top It and that priority given you it, you notable if of as And to eventually revenue amount wanted gross here lay for a to given that when it do in people get be into has gross say, didn’t surprised they in we so wouldn’t the profit lower with of forecast there. that see follow QX

William Meyers

us something question. bit I that on you're Network little timeline another I CIBN more upfront revenue? of have Is doing they’re generator and become one a that appreciate using and Oriental the Is of a just video Can give deal. when might that actually you that -- a material codec something that now?

Rob Glaser

I system to about of they’re Well, of the I We're in deploy know when product. process specified -- partner, careful have usage. very the the that don’t because to actively it's going deployment. have be with setting engaged I what say up a have to I for they be them their

the we’re video we almost getting time the XXXX. of I by money with not the way technology licensing Generally the relevant end from consume getting In speaking, XXXX by fees make period revenue, connecting at but content. from back play that is fees the think from broadcasters, it's the content, the which terms devices of is in since

essentially, lots next content getting involves So create the this of in generation up the people of business format. setting to

previous works. format the demand the and that's devices of the that's And it as created set that for way business So support in basically you we for the and the playback that generally up it content what the generation in how still the there with format. get happens drives in content

this without the further guess, commenting do timeframe we you the rather indirect that, So economic than will from for an for the And catalyst say I could think on direct. important be most relationship, it's of benefits business.

William Meyers

follow-up, sure one understand. And I just to make

to don't In someone anything that be that. you the correct? have if to the it converted do -- terms media you I create into algorithm in can the presume it’s putting Is that and codec the of new codec. to that can codec, wants an

Rob Glaser

scenario scenario. down but broadcast two then broadcaster is I a out where more The one get Typically, highest original format would transcoded format, there's efficient. use the that's high they right. case quality, that coded format much into and scenario broadcaster That's that's consumer one is typically and mean, very a in more a scenarios the of start it

case, starting we you would or relevant to compressing but really of but So be add like which might allows CIBN A HVAC and transcoding in transcoding in software our that that. relevant use less when it a XXX full-on content like in with case, loss file HD a a use probably also say XK value the there's already then and even cases, you're that's down. to format, be essentially it’s second

So format our to essentially, we convert it from format. that

when where the the where XXX is they it original might the do something comparisons so or transfer or file like files converts would instance and if phone we they big or that in video And they do case that both would in from size XXX, then that had over, and that that versus cases, captured be they it size comparisons wanted you the work you be from consumer to HVAC their XXX transcoding are to have RMHD. file of the those which in RMHD in sizes, directly have were HVAC a compare you for camcorder that

highest it’s material. usually source So broadcasters start use quality both the with for cases, the but

William Meyers

you. Okay, that detail. all I thank appreciate

Rob Glaser

the long the Great. answers. I you I'm question, ready next don't Operator, Cary going for next answer to so give make question.

Operator

Management. with with question. proceed from Our Dan your Westcap comes Please next question Weston

Dan Weston

idea give us line sense. Maybe CIBN, the subscribers has currently? some CIBN can get questioning just kind a on how many you continue so just of an of on of Oriental we Can that I

Rob Glaser

affiliates numbers their million publicly $XXX users the they’ve that in are various that quoted China. think and have I

number the if please contradict -- have are wrong, I it's To there they But a clear, that all right products. users not those me. and saw have they think free latest I paid they that are Cary have now. sounds products, product, that sounds be fewer

million products to massive. is People on products. and equivalent the something Comcast have of subscribers, But China, think bit this is products some number, free the this of So or it’s the I have so of don’t that. premium like tier number a paid range they consume stuff like of all like scale a NBC's it’s some equivalent $XXX devices, it's little but because their more pretty

Dan Weston

the And to umbrella can on as as organization But we there's Are obviously of initiatives, well, we today? in speak part codec No, our larger clearly you which the Huawei memories. understood. you devices three different get later. refresh could

Rob Glaser

done, a than the on more model, constantly And our either technology with mobile is getting catalyst is clear, high in them. and implementation to be on think that implementation, we're be not of on will of getting always there's we set pure hardware few on it a chip a software. an to important an that the our of chips the product or of that for the just implementation where in with their of phone, because have one, talking they software about a designed to box the Huawei and different roadmap. deployed part implications; so strategic minute maybe made. We partnership evolving get we software has those timeframe or implementations; like be as was be a implementation currently tablet, of process partners a There're mobile is a devices a with I the very be people they're a basically deliver in it to software CIBN ship PC, because chip volume the as case RMHD But important would Antenna it phones. can we a we're chips television, within whom part chips would chip, typically shipping, top have deploy could implemented implemented embedded the

greater that's video and chips so a But we’ve the people chips, you both of is decompression RMVB nature in the as software business experimented of codec previous Our as that both available those. get and implementation as as rather a device set like be And television speaking, more the than generally or software the the interest box, a having the appliance, in on chip a running choice. top CPU.

Dan Weston

appreciate I clarification the there. No,

any hitting chips with sense when do codec? the So RHMD have start the will on you market

Rob Glaser

against we obviously I priority certainly good something to we and when that. don't commenting going -- but we when important have publicly And think we're we’re it think publicly. announce, have that's very we're that, a to making announce progress

that in least So general to we at announce so events the in availability. far for have chosen not the or of advance date

Dan Weston

And sales And did announcement you’ve like on with noticed then that lastly have discussions competitors made When may codec. all? overall I'm that a maybe close started CIBN Huawei loop that China. vis-à-vis CIBN, headway the got your let's and the you to lot wondering increase it of it you and in with seemed say to activity

Rob Glaser

the that Morris of with Morris is of Our weeks. get few and week in to that for going two. China, General a that out announcement. came team Seattle Manager, meet very A my happy a colleagues back here will with Zhang announcement. in from momentum Morrison there or in was the couple I are

So the positive more we'll thing momentum itself. has be get activity more Yes, deployed. the we'll been and is we're it between impact those once guessing, the But obviously, a positive fulsome pipeline frankly, I'm on on even update. builds positive. a interactions,

then announcement momentum. deployment, momentum the source is think we be the and of the both So commercial will also a of source

Dan Weston

to Just decline little a others, business consumer clarity -- I may. wanted a the and just there. if you give get couple on you I maybe can more Cary, media

degradation the in like there, You give contributed player in also that reasons little real But may or we've obviously in media more it any events quarter color? QX. legacy more offset be Was those one-time seems than there for had a QX decline very that the talked serious occurred a about. stellar

Cary Baker

recognized we degradation over to a of timing that QX. our that get was the QX, in you products. thought QX we QX, we saw the and in have we What is were no chunk There legacy IP revenue codec going variability In business.

mentioned And quarter, is pulled forward all QX. difficult the last way the then discussed this given be comparisons certain are that going revenue we we on and contracts. as sequential into recognized quarter to those that So revenue

Dan Weston

because say per I is quarter, business you you then between posted almost six look this, over trailing to and of say and four in Yes, five, the tracking back somewhere $X and at $X outside million let's then QX quarters four in million that QX. if last mean six, QX down let's

So in revenue that was you delta, million generating QX roughly hit or right, the didn’t I'm it that reading the you're codecs from $X.X if in will, of QX? licensing that continue pull through,

Cary Baker

don’t expected. Well, specifics haven't the perform so. as out we broken to IP of I What the say we is and continues contracts this. to intent do would The

revenues have lumpiness which the see. of some and those recognize that’s in troughs We that in creating and spikes some way you

in are continued historical at our recent media rate. that to products consumer segment legacy Our have also perform

So is performing we of that just It's thought. the business is of where revenue. the what lumpiness you see manifestation

Dan Weston

a bit had your minimal on margin. profit mentioned impact what the you Korean impact little have very a And margin? it that you then would on it an gross on elaborate operating your business, Can on of type

Cary Baker

is product Well, operating up we rolled margin our down at a mobile and services into don’t break level segment. this all

gross is to impact have the a to metric doesn’t focus I on and gross a overall our profit or that fact meaningful the important most on it think profit. meaningful

Rob Glaser

that. we gain with Anytime we ourselves say efficiency, where we I it's But costs. avail opportunity we've is look you to Rob. an have more have at our done what situation fairly to think when This manage to

partner, gross run when in their it's report, margin in the on the I renew X% to a of out gross we’ve lot things and we’ve that the to got if got we directions course. company. go So to back And conversations of say start in this is whole, fair that sector business division profile and assuming out profitability. division see its gross a in fuel I significantly. and don’t The shoot you’ll and up amount that margin the whole -- obviously create as to the can the for 'XX, at that looking absolute for a you a margins as much for company is going of you if is profit of use gross adding I what for we up, in not much, to profit, but of signaled with bit. keep itself. care situation and we that lot higher to higher. it's take of that going this in look with which customer doesn’t opportunity the of, gross sub long down to they’ve the value of go time businesses mean, and And be at sometimes then value is we But think rest a little fit analyzing going think the profit do relationship percentage gross And

Dan Weston

your you the it or for it? that No, leave question appreciate winded Rob. guess that I divested impact short division long asked is to I income would I guess, on a I operating when in way. be, it going have positive a

Rob Glaser

going business to scale the a obviously have has a positive when up, speakers]. And that [multiple we in effect It's effect. ways, minimal other

managing cost So includes indirect and there's and direct bandwidth. opportunity indirect and

Dan Weston

think you QX? lastly, casino that sale we're No, Cary, in the still cash a in fair million enough pursuant and it's fair payment. Do occur expect $X And I games, the social past of expecting to comment. to your

Cary Baker

to occur it expect we in QX. Yes,

Dan Weston

Very good, appreciate alright you guys, it. thank very much

Cary Baker

Thanks Dan.

Rob Glaser

Operator, are question. we we any set or do have last

Operator

time, remarks. Glaser, questions. further At back have turn Rob CEO I'll now for this to closing it we no

Rob Glaser

talking thanks Take And if three and you today's not updated for operator. in continued sooner. on RealNetworks. call. keep time, to our months you, interest appreciate everybody. progress in thank everyone your joining forward We care you look to Well, We

Operator

This conference. concludes today's

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

Realnetworks (RNWK) 1 Nov 172017 Q3 Earnings call transcript