RNWK - Earnings call transcript Q1 2019

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Operator

Greetings, and welcome to the RealNetworks, Inc.

First Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with Investor Relations. Thank you, Ms. begin. may you Orlando

Kim Orlando

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

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

which In our these recent addition, an in additional forward-looking statements corporate most call than Inc, Napster. actual our of consolidating website. and and certain form reports. Relations involve or and stake and that acquisitions number combining business including that risks are our SEC the filings, implications Statements with our that be set statements does described expectations factors financial and statements relate belief and forth in as our risk obtained the associated to of express in of A and these all contain results of other to SEC Napster. in differ statements, business recent XX-K copy from can Investor other filings equity could our historical in facts risks International, from these with section and forward-looking including statements today's Rhapsody from of forward-looking uncertainties cause risks a other materially We our the

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

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

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

Bob Glaser

good our of comments, of of Napster SAFR few strategy a results and everyone, I remainder into a by additional some Kim, growth the on then In other summary into dive XXXX. joining with close I first thanks and the for discussion then of for today. and go-forward will a initiatives. updates will afternoon, Napster, our quarterly our I deeper followed Thanks, take will summarize us today's

our is reporting this with QX. that the results Note QX. partial on First, quarter first time Napster's

guidance. in Napster of X quarter a relative bit full were first reasons for QX. came will There be this. to Our light QX little revenue

explain. $XXX,XXX The that Cary due we first accounting of purchase count couldn't to is will Napster revenue rules that

in at our to large, and also high it RMVB line. bottom our came margin, very legacy that had top doesn't around did gain but which because business our and line, This a is or bad RMHD expectations. affect affect By China codec, quarter. second continuing next our of The generation is traction, every business it's

On generated associated with net the $X.X the helped accounting of income by Napster transaction. bottom line, we positive million

on go we came range within January. Cary the a will few minutes. in through EBITDA more these adjusted Our guided detail numbers in in

a pushing We technologically, SAFR SAFR. strategically good to very operationally and had forward. quarter turning Now

We the and single forward of believe biggest is us, to SAFR opportunity continue front that accordingly. moving in we're

a utilizes stands recognition for SAFR, we Secure, From deliver a As technical world-class to platform. reminder, machine Accurate which to shine. standpoint, learning Recognition Facial AI-based facial continue

result faces up compact now XXXX XX the most algorithms security. announced way Institute the April providers, in security, UMass, to compact ever for is the security real-time situational From the and the Compared it many size SAFR a integrations market gives market-leading tested thousands. for And fastest on for as security that is frames and for we standpoint, be the Genetec, than video as are labeled accuracy among both our them average SAFR visibility Our new are leaders including results, SAFR based than test, best NIST Concurrent or most by product Technology, management create by better edge means far strategies professionals. Systems monitoring, and with jobs awareness of Digifort. our in deployments. solution to and hundreds algorithm. other algorithms. initiative across market Standards accuracy, SAFR This and or VMS in to security such launch and developed size the independent the faster a the do second XX% most Milestone of several their our National the dozens, how integrates great SAFR even embedded algorithm we the XX% XX.XX% the professionals a makes SAFR best a the and enhanced month in second. significant last they're cameras for video of This small cameras best solution much solution we launch of the with with for ever. at which providing smaller wild systems test of accuracy, smallest is the to In recent bursts speed that per are us out also which combination tops recognizing accurate

expected solutions in beginning We to integrated delivering be end QX. to customers

a as to Computer For an Chief for of is operational Officer In Vision. in standpoint, leadership global start-ups RealNetworks after forward. assets RealNetworks' Revenue Burrell in Jay's lot and in and a represents we both pleased very SAFR, and sum, opportunity fit SAFR excited are tremendous with start-up SAFR, leveraging perfect think we're for which while the background of strengths for we're Jay a going positions a enterprise. extensive all, welcome ahead QX us, is have enterprises work our delighted progress a about of

Napster. our some Let about me starting talk now of with other initiatives

a its we as Napster's the in Napster Music an reporting one purchasing of owner music Aficionado. Chief with as Napster's popular owned provide significant, lot Commercial of market directly had of for worldwide. is BXB We should Gambino to such of it other and and We primarily while became America, underlying XX% In deals stake trends streaming and the by the formerly based Napster its trends. of to and expansion opportunities recently of music The with CEO, As on in powerful a market over this Napster. Nova. partnerships. QX, point streaming platform music decade RIAA, rapid a Napster's Napster until by the opportunity this a is in Univision reach with the service been the decline focus service partners delivery think return the front macro platform belief category. Angel deals, Napster you January, the did aligned to NXX pipeline solid potential has competitive market new with to has a announced growth Industry basis inflection fundamentally the According ongoing may the appointed for Patrizio. BXB Officer the on recall, Bill Recording compelling of in recording a Association it, X of XXXX on following creating the in Columbus environment flow

to Next, and and year. I to messaging mobile appropriately briefly networks uses with phishing the prioritize, operators long-standing want of Kontxt classify messages. origin This identify late went information and Kontxt intercarrier and intent anti-spam on route messages. classification spam to Kontxt, our next-generation learning Syniverse, block touch aggregators, machine to allows and partner price and network last platform. messaging and our live

customers, Kontxt into in commercial currently later and trial be year. is going this will second deployment OpenMarket, Our

We up significantly. take scale and the time GameHouse last deployments The division. Kontxt they're going, have but initiative want can learned sticky once to I it is new get our on touch

primarily on free-to-play Over the X, to platform HMX. on game, our global, QX up deployment as past premium HMX is full games quarter its ramp mobile year, continue its forecast has focusing of a to nicely. or games. Medicine Heart's exceeded our strategy pivoted mobile first dual free-to-play GameHouse it from of focusing

for XX in performing live this World, as and Our release global well second iOS tune we now game, free-to-play and Delicious on year. it Android is is later countries

We in also pipeline. other have a the games free-to-play few promising

I'll largest results it's free-to-play discuss we early prospects. we'll some this to we to put and XXXX of are While financial To single major great X terms product With opportunities continue Cary? investments our revenue, in new that, investment optimistic and about better are came is significant in continue the Kontxt points to XXXX success. we detail. SAFR bullish any games demonstrate well. turn our very feel recap, focus position to strategic the first we quarter most they are on that XXXX, other to and start SAFR single initiatives In in potentially Napster, and business scale on our will on than it a line to as make over results and our case. in largest will have board. I in path beyond, for we're since a why summary, top times Cary and think as and to yet, we greater in our our very areas be growth back continue strategic these will success

Cary Baker

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

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

Napster in for Napster's January acquisition financial statements, Additionally, quarter. a the partial consolidation of effective XX of resulted

our to Turning results.

a to quarter, result revenue in compared first accounting. line of million as quarter $XX.X was in $XX.X with guidance million for Revenue operationally came to year. below the of Napster's the quarter reduction first accounted million $XXX,XXX range Napster expectations, million For our the a to purchase just primarily our prior revenue. in $XX.X in being $XX.X prior despite and due revenue

We expect an accounting year. additional $XXX,XXX purchase the reduction remainder for the of revenue of similar

and results as in Looking China codec legacy in and Media at business, was to sequential million and of our growth a up IP the the up RMVB services well these particularly Ringback in down down year, first prior mobile RealTimes. of revenue lower on slightly primarily decrease decrease our sequentially products. for timing basis, million segment game reflects was of million Games Tone in The business, sequential quarter within as $X particularly by revenue driven sequentially greater the business our the Mobile both Consumer our onetime due and from advertising. $XXX,XXX from revenue year-over-year as was success games declines the year-over-year. legacy basis was free-to-play from up a initial basis the Compared sequential revenues and well the the and first in-game $X.X on detail, from contracts $XXX,XXX in declines was subscription signed $X.X a XXXX as year-over-year. revenue our first down revenues our to quarter largely On revenue year-over-year. in year-over-year improvement

quarter. launched year X in Stories in launches Original in quarter X GameHouse the to the new first period we and prior Additionally, the titles launches prior compared X

was was a $XX.X half million, the Finally, of half and partners. other approximately distribution Napster from direct-to-consumer which revenue

year. our primary first quarter the forward. be $XX.X quarter profit As million of in Consolidated the in million Napster going BXB prior to prior $XX.X was $XX.X and Rob the focus discussed, the will compared market million gross in

estimates due of of a in margin XXXX was decrease basis to both XX%. year. the was margin royalties judgments, and with and significant compared consolidated As quarter our year-over-year paid. period-to-period XX% of and The consolidation in at for the sequential in worldwide revenue, These quarter costs to the can prior of due the assumptions XX% XX% to percentage primarily gross and gross on music margin first Napster's Napster's Napster, primarily The publisher prior from its be reflects services. gross a the reduction for amount vary label to

Napster, the in to were the million were from and revenue lower or million the impact period. year prior to prior in margin. to contributed prior included $XX.X RealNetworks first Net and the year. per for first of share compared gross accounting related the of of per $X.X that prior to also to Napster. Operating Included expenses adjusted and million million net of for to included in or share XXXX. gain of the loss $X.XX of loss expenses of transaction-related $X.X Napster's attributable in the year-over-year Excluding quarter important cost the million from our was note XXXX $X.XX $X in reduction in the for Consumer license revenue was of million million $XXX,XXX a IP $XX.X period. within Media EBITDA $X.XX compared the was a quarter in range share to million prior quarter the the a Total in acquisition quarter per XXXX a compared $X.X purchase EBITDA loss $X.X quarter of decline year loss of the quarter, net It's $XX.X to quarter $XXX,XXX Napster. or expenses the income transaction prior first $X.X a Napster's operating acquisition in quarter the million $X.X of of cost. loss quarter from million at and first million net income a Adjusted operating $XXX,XXX of a guidance of in $XX.X

of the the to by XXXX. Included to sequential was year expenses of to of segment was businesses the was a stock-based prior the to quarter first Turning period, quarter a and $X due Napster. corporate Compared decline revenue quarter compared and higher loss the prior year prior additional of acquisition. interest reflects in decline decline loss the to our a primarily to acquisition in margin a of fees reflects reflects for increase accounting prior more a prior a related of majority quarter mainly to games. million legacy revenue segment prior margin prior period. period. the quarter detail. expense period, year $X.X contribution in in to lower prior $X.X the segment in of largely related compared and our Napster's and loss million $X.X was million business. the first quarter services and margin million loss the fees year professional in to the contribution the in period. and results the related the related purchase IP prior was Consumer loss compared increased and Media $XXX,XXX $XXX,XXX timing of quarter primarily of lower revenue a to in loss mobile contribution year licensing gain a to The million due Compared million in related in prior $XXX,XXX $XXX,XXX quarter, increase prior Compared segment loss period, our a million of to to to year year quarter contribution and reduction Mobile compared of prior the our compared to costs. was loss contribution was Napster spend investments additional $XXX,XXX $X.X margin of of $X.X and period. $XXX,XXX transaction At the the $X.X of the prior loss in to Games the initiatives. professional our a $XXX,XXX margin level, a the prior primarily the unallocated the compensation Napster growth to corporate $XXX,XXX Compared of to

beginning in during we cash turning million of by our sheet. the first the $XX.X unrestricted XXXX, business equivalents second cash statements had the of million balance to balance date January consolidated included financial the Now The for note an to in offset operating the our was million XX, to Napster XXXX. XX, in at compared used as At that acquisition Napster's cash prior XXXX, activities cash of segment $XX.X quarter and quarter. quarter. $XX.X of the March quarter in our I'll from Please in turn time acquisition. additional now the outlook we

have in minus regarding to range we $XX of of the for and and One such, $XX million. in to guidance, to million, be expected the accounted minus the As final Napster be noncontrolling is to including interest million expected point quarter which follows: deal-related our is $X.X is in as expenses $X.X guidance. million EBITDA loss second adjusted range revenue total

we in have and we in is would believe remain transaction the to cost, implementation this our new in the product the with sales disciplined cash, less half significantly year. growth strategy second cash the growth we the absence expect technologies key In operations revenue, approach drive don't deployment to cycles. deliver We investments made use guide progressing, and our starting we by While top our of longer-than-anticipated of progress to to of initiatives. trial summary, the our to with the and and although line encouraged

growth now across recognize in us scale additional cost related We to open our and positions that, initiatives structure expect our better the revenue to With for organization. expect improved XXXX call we will questions. to our revenue Operator?

Operator

anyone gentlemen, I'm closing to Ladies apologize. I back and The look I'd from has doesn't for wait, question, is question Rob Oh polled P.J. floor have comments. to like Glaser the [Operator over for one like we questions. it Instructions] turn sorry,

Potomac. Solit,

P.J. Solit

me ago. from and far breakeven we've a which Let company question. added back how wasn't can help you got second in I look the I EBITDA. is that? a the understand investment big-picture that you we projection meaningful a And still guess Or guess a in, on payback that? how profitable, SAFR? quarter should look should we at too pretty just negative quarters all few for Napster me We've you that at ask was had in

Bob Glaser

Rob. This is

I So phenomena, different related, slight or was tip numbers, that the taking underlying in in something they issues. the Napster's to that's do ways. them, I'll actually One, aren't not, a few down a there's we accounting regards see, Napster if and but profitability you the the create that change Cary with to few becomes break not some profitable dynamics an it breakeven cash think way and described business, optics sort that's of that some those unprofitable some where a revenues just but of out like, that's slightly a accounting

more SAFR So when we're front time. X think say, in you loaded as we period the that sensibly, the strip One, would of kind expenses the believe, back, that on. talk the about and views significantly, very making rest will I in and I and investments the are away, that's Real, pay over and are say, phased you more going are benefits you period are we interim the of where appropriately

at and part particularly the any of particular if company, the and you very and that pipeline has him that on of but have I've Burrell that I robust the aren't of we pipeline Jay in Jay things best about to the that our has and terms that far since that Jay's look it back guiding said of publicly obviously, go pipeline the of feel background, have robust bringing days We it, a you early business but business. optimistic in past. scale as diversely business, we any the business revenues, whole the look the we of of opportunity of built into streaming. been built translates leadership job

of of sense it and think ambition our a our level of optimism. I the scope gives you

merited previously a the joined decided both since somebody with having and stakeholder. known levels fact, really been good In in guy. while the saw optimism that feet. of us, he's He's him been as jumping a it a he situation who But was, we've Jay's it not for

a the touched margin The other also will our than RMVB we touched is ended revenue more of is codec, historical or up having video and and on thing significant that pullback business, That which business, on thought. that's legacy Cary a in I the high particularly one business.

in legacy you'd see sensitivity So down terms of profitability a the going have that revenues business, would portfolio significant on in overall. impact impact any

purchase Napster. offset it's say those an X And guide So we in I anything glad that the don't businesses, contributing not owner on touched we I'd QX. that? and meaningful the and dynamics want onetime did end some Napster sub don't Cary dynamics on And cost beyond the think of we're to accounting very as you factors. while up the XX% EBITDA while Cary, dynamics well. both of what add are are onetime,

Cary Baker

segment report release covers that No, in Napster I that that down earnings it. P.J, see now our the break you'll think on. segments. we is a

you Napster So partial this see at can from quarter. for least the contribution

P.J. Solit

that. I there's of much guess that. huge opportunity for include to didn't I on I follow up that a the such too because thesis value my some even think you mean investment of love value just guys especially SAFR, sort in parts

is I you go that So will get it from confidence? where it's a What that's take the of few play it to that and some to a years platform want burn though breakeven? kind that you're profitability time. giving out going us you share hope just a to you at point a got right. or customers with just changes meaningfully And can at to it Or you slow one

Bob Glaser

the way Well, added our report segment, so it we've mean business. in not a didn't meta that's the I'll I obviously change the change split but at decided kind but of a thing, we we the rest Media answer XXXX. thought to We've mobile about the of Consumer services of segments separate level. XXXX Napster

added unchanged, that X are is other there's unchanged. Napster sectors Game and So is

that, Frankly, the that not time separate significant we will I in that see with yet, out make on disclose XXXX. until We've how XXXX, it's a to SAFR decision SAFR to very, business we've There there, market. report engagement done, the business. the had level we'll customers there there, we're the So in a want we would at I would But say. a and we're conversation partners. about by start no-brainer we're very competitors XXXX. during guess I we many beginning would you get separate that impact don't won't suggest a of end hope obviously until but and It's I otherwise, seeing of as to are XXXX,

now was are I of along show vibrant with in for North a in in SAFR for XX which market a weren't West, We solid called show the Other with in several partners. very just that security view competitors, to I clear. seen facial our must their is largest booths were booths have XX that attendance, entering a U.S. team These and to of recognition level one members the, literally as America. security. I attributes. be booth, And personally We're facial had of addition available. a has were with think high ISC recognition. interest our which We very readiness a the was technologies number of at

it's of a segment was interest segment. us, recognition huge market one the opportunity in So facial only market is there significant for level us. That market within for not a that

But to of company will startup. that's company happen with most be so we that at start-ups facial like if do, these pure will it partners really less the that. typically, about involved get and calls, we early we would mid-late you So we'll why in an other of you at we saw information for providing 'XXs and level what a and previously, going. transparent But big feel technologies trend, way customers and in is to as we to highlight early out of provide give for of associate SAFR build And in that and you be sure progress more great And of future position we're cases. streaming the the would stable how a segments. you a investor and one investing horizontal opportunities where if might greater do market, exact of we hard, product, with you you it's a in run break we at talk see. the obviously some mosaic I'm what or the is use right so than quarters a It's on fundamental we you hopefully, recognition public can a public these business. will evaluate each then and than perhaps tell it specifically the point that then are, trying senses, some details the scale, unusual who's the

P.J. Solit

then $XX.X the do you do as Or assets? And in view this Okay. to given that some possibly I monetizing million, envision you balance, get you need other cash where you business? to value go to sufficient relating and share that, much SAFR a giving that or repurchase on not answer couple for your market other affect clearly does view if the you is how a a yes, in that's of things? guess

Bob Glaser

publicly or super are not creating answer lot we of shareholder would me expect to there businesses let in sell the We're program or terms whether on focused would just we not have you of say and repurchase whether us a share questions value. you But asked not. that Well, a that following.

business games heard business, for a obviously, believe single reason. I talking our business. say signs seeing might we're that this, focus level And would Napster from or today, a what had talking the emerge. clear opportunities, in we're the have about thought prior under We we to on largest opportunities We opportunities most be of Kontxt. come buy is SAFR, sort particularly heard believe early and our than opportunity doubled opportunity, our circumstances to is We you public us to bullishness back the longer-time who a I I'm of is believe you've down of that We in the we believe although But which we since focused than at down we markets. the in X in horizon opportunity associated somebody the free-to-play double calls, stake. least, about one don't to us with one think talk if emerging, perhaps previous X is I SAFR. listened you've that known with in the on about where ever where that think I one and we're

fully of about So understanding Cary, isn't us next to every question. seems to somebody engagement if would anything on. like add that that's who we're I in doing, appropriate satisfying engage context, level wants say, public but market the what the probably we And of you go for before of transparency, would level

Cary Baker

No.

think fine. that's That's an answer. I appropriate

Operator

next [Erik The question ACME. Slate] [Operator Instructions] is from

Unidentified Analyst

confused. A Yes. little

So companies, how the merger you X sheet? on cash the with the have do much balance of

Cary Baker

Eric. million, $XX.X

Unidentified Analyst

got how much confused how And with merger it I I Because many read right, quarter-to-quarter? million you was Okay. burned did the, burned? the of

Cary Baker

Yes.

we on $XX.X picked million we part in as sheet. acquisition, balance Napster's included up is million cash that of the $XX.X So we, of

So our little from that bit burn was less quarter-to-quarter than $XX.X go to million. a

Bob Glaser

no that. But phenomenon unusual with there [indiscernible] were associated onetime

Unidentified Analyst

Okay.

line guiding reading. So million, trying I'm $X like guide $X the million, was how next much read I this, are assimilate $X.X million for think. you If I to, just next And was what to I you bottom a loss in quarter, quarter?

Cary Baker

$X.X EBITDA of loss million. million to $X.X

Unidentified Analyst

million, of look So that next the how will thing. type million that $XX quarter, would at we the in impact $XX

Cary Baker

incorporate else. capital we the designed Well, proxy but to EBITDA we a changes be cash. business, guide use don't or it anything Adjusted in to working doesn't it is in as for what

Operator

for I'd at There time, closing are the no like turn this back to Glaser Rob over floor to further comments. questions

Bob Glaser

today. We operator, us thanks, and thank you, joining for everyone

in some with being care in the you Now and interim forward to is for X look we're you look an talking and take sooner. we what our don't, on doing to back those regularly in company and not exciting again and months, if forward you of time for us all updating to

Operator

today's teleconference. concludes This

and Thank You have a you disconnect at participation for your may time. lines this day. nice your

Realnetworks (RNWK) 5 May 192019 Q1 Earnings call transcript