RNWK - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to the RealNetWorks Inc.

Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

to with conference Investor like host, to now Orlando, Kim Relations. would turn over the your I Please go ahead.

Kim Orlando

Thank you results financial second quarter and welcome to conference the call. RealNetWorks' XXXX

discussed remind Before and future RealNetworks' prospects its and consolidated profit, operating growth that we basis like and gross forward-looking profitability. to for EBITDA on begin, some statements future I'd revenue, matters businesses expenses today adjusted regarding and are including affecting you a trends

invest to Other profitability products in forward-looking these and include its statements as and growth, from its plans initiatives, expected implement well company's benefits as activities. and strategy the the other

In of statements an forward-looking addition, business International that acquisition stake equity our does in Rhapsody recent contains today's additional call Inc. relate Napster. certain which to as

belief statements associated and expectations other materially to and consolidating our our statements from uncertainties financial risks forward-looking are results forward-looking and of risks our facts a could statements, all than with implications number involve of Napster. differ with statements and these that combining and and Statements business that actual historical cause express including

in reports. We those can recent SEC XX-K from or these be section our Form Form Relations from reports of risks in our Risk our forth website. of other and the on filings, including most and XX-Q the SEC and A Factors set copy described other in in obtained filings the Investor

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

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

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

of company's the With CFO. Rob the a and will as made strategy what's then Cary company review as be third provide CEO; remarks, After will Chairman outlook today's well second Cary questions. to the provide quarter come. quarter as discuss a more Rob the Glaser, are as and for of quarter of today and answer and progress XXXX well the pleased Baker, of financial XXXX. detailed prepared preview the to me the Rob will Cary during

the hand will to call I that, With Rob. over

Rob Glaser

expense solid for mobile businesses Facial casual mobile afternoon effective games. games, with and and start and our close us Kim, of performing we QX today. with overall with results traction In quarter, well: our joining Thanks two summary particularly context our achieved good our Thanks, results everyone. SAFR free-to-play growth by the second highlighting followed platform initiatives by SAFR, a of we'll the our and in I'll management. Recognition

believe is bookings QX customers. than our SAFR SAFR opportunity. a business. to more our to continue and very good doubled We that for was quarter we our of Compared number QX single-largest growth

breaking out yet revenue, business SAFR over become significant a While will SAFR a not it's Real optimistic early little time. still we're we're and that for

XX% since or market. Institute SAFR of and and by recognition world-class we size, with in in and compact NIST, us speed. improved combination quality, by significant Our shine. continues being evaluated latest provides facial results, the speed just U.S. National technical of to size, as April. the technology SAFR's accuracy this SAFR's recognition differentiation has In speed, Standards July SAFR Technology been

high in than cohort the second-smallest algorithms, that competitor the is XX% of other algorithms. accuracy to Compared as high-accuracy both twice and is as average SAFR fast the algorithm smaller

regardless is advantage that face of recognizing that appearance. any it's meaning bias-free, equally competitive accurate kind at of SAFR strong Another basically ethnicity is or

issue some this who read, of have as SAFR's are. unbiased up tripped aren't as As competitors you we rigorously has may

NIST result lack Labeled biased systems. than over times to bias, within What's terms independent of LFW, of the on improving less July average achieved in most of X the University more test test SAFR's at new our best based Faces the remarkable score Massachusetts' ever demonstrate our accurate cohort Wild continues of the we The systems XX.XX%. that's or in accuracy

market excellence as recognized is being Our in the well.

were part Just Recognition Facial XXXX of AI Breakthrough as last month, best-in-class Best technology awarded AI the our System June for we Awards.

the remain runway we days, long for have early still of believe us. it's growth while about and SAFR prospects very summarize, a To excited for we ahead

GameHouse initiative, to turn our Now our important me second let division. growth

on shifted to year As you focus strategic our recall, division has past free-to-play focus games. on casual a our GameHouse may over the mobile

our benefit X to performance of Medicine and iOS continue in game, in launched first QX. in from the QX Heart's solid Android free-to-play XXXX on We

Towards the QX, since a expectations exceeded our second release. free-to-play which of has Delicious end we introduced title World,

start. Delicious think World over success by revenue XX% both off year period, and of the games, due FTP will QX our is in now to that grew a both to terrific Games from from is emerging revenue the free-to-play quarter we globally and full primarily available on benefit titles. Android iOS QX in prior and a

and In year-over-year growth free-to-play in sum, we're early, our optimistic while growth it's games, top which still help sequential games. should the drive about line

Napster X. quarters talk businesses Absent now to impact largest revenue business, starting briefly the margin streak rest positive its Napster. of about accounting, purchase of our for contribution me with extended of the Let our consecutive

the stack the platform to to services leveraging full need provide for the We're who Platform-as-a-Service platform Napster content PaaS or menu a platform us. get not and from aka stage of may customers licenses in early to both

in strides details services. make be Napster-based launch a once QX, adding which as will forthcoming their partnerships PaaS new the provider customers new three of to continues Napster

from you in dealing year-over-year Huawei, ran unique revenue our Our that the its which, is issues. other significantly to delivered In related businesses largely some exception headwinds company that with line own business, of a to as macro the we issues with including China. in results business expectations into our IP region, unique lower with know,

expect scale. to business China for more kicks next-generation quarters struggle until IP RMHD a few our We in IP platform our at

our was free-to-play games, million range, guidance strength shortfalls our bolstered China and by Overall, of in IP within areas. small SAFR QX $XX.X few offset by in a and revenue

transition we committed to of driven set we in engines, to managing businesses. a growth remain costs, our especially carefully While these businesses by legacy our

strategic In our growth of summary, casual half in we both led free-to-play by SAFR and feel confident process direction the to games. and second mobile the the heading year

to over I'll to turn results call greater quarter discuss that, detail. With the in second our Cary? Cary

Cary Baker

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

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

of second XXXX our quarter Napster the of full Additionally, financial XX, consolidation quarter January of on acquisition is Napster's XXXX. first reflecting following statements our the

prior the million quarter. quarter compared Napster million $XX.X for results, to $XX.X $XX.X million second the $XX.X was our revenue in accounted year. million to quarter our in prior in the quarter revenue of for prior the second and to $XX.X million compared Turning

revenue a revenue of quarter $XXX,XXX In addition, accounting. Napster's purchase result included second reduction as our to

additional over to quarters reduction We remaining the expect an related $XXX,XXX of purchase in revenue XXXX accounting.

due increase results sequential down in Media primarily decline the was at $X.X business. The increased in the the to segment revenue these to year-over-year within $XXX,XXX sequentially China Looking of general revenue million underperformance our greater our revenues recognition largely year-over-year. codec reflects and timing detail, business in Consumer was IP up IP while attributable

by up and and year-over-year. up slightly and sequential basis for basis Tones sequential on both was growth product. legacy a partially $XXX,XXX revenue Ringback On Kontxt, the a decline SAFR revenue our services a in improvements reflect year-over-year offset Mobile

Games legacy the revenue our revenue business, On reflect mobile year-over-year the free-to-play a $XXX,XXX second offset up was sequential partially particularly and our PC growth decline subscription in games. basis the a $XXX,XXX improvements -- reflects revenue games in revenue and improvement business. of the success sequentially by year-over-year. The for up quarter were our

one we in three free-to-play launches the game GameHouse in launches to titles, and period launched prior the is year the two which prior our three compared new second During original stories quarter, of quarter.

million was the Napster half was million, approximately Consolidated $XX.X direct-to-consumer in was Finally, prior $XX.X prior half and period. the from quarter the year in second gross of for distribution partners. and to million million which revenue $XX.X was quarter $XX compared profit

QX. accounting As a percentage the was lower revenue, purchase prior the increase was compared quarter year. adjustment XX% sequential and to $XXX,XXX in XX% The a primarily and gross in to in $XXX,XXX margin of to XX% due prior compared of

margin second decline while with the due gross of Napster Napster's at of quarter basis XX%, XXXX year-over-year for margin a On primarily XX%. gross consolidation was without the the to profit Napster was RealNetworks'

a amounts our services. reflects As due be the vary significant to judgments, royalties label worldwide consolidated costs reminder, reduction gross from and to margin music assumptions, of in and These materially publisher period-to-period its for Napster's can estimates primarily the paid.

second of also of IP Napster, impact revenue lower the margin Media in XXXX. gross Excluding quarter impacted the license Consumer from

included in quarter expenses of in operating for of transaction $XXX,XXX prior the second quarter the increased and quarter costs to were to as compared prior of operating of quarter million for well expenses the second year. $X.X the costs. $XXX,XXX Napster million Total million acquisition XXXX Operating restructuring in Napster's $XX.X as $XX.X million expenses $XX.X the related the to of XXXX.

of purchase loss second in EBITDA the of Adjusted $X.X was year period. from to of loss prior and reduction accounting in a $XXX,XXX $X.X million EBITDA the quarter revenue for adjusted the in prior Included million the and a transaction-related million Napster's $XXX,XXX a to was loss quarter costs. the compared $X.X

Net million the or quarter in $X.X in per period. the and year of or of share per RealNetworks million prior net net $X.X or was to to share $X.XX compared share $X.XX $X.X income loss loss $X.XX prior per a attributable million

loss to Turning prior $X.X segment loss million of was quarter detail. a a to Media the year second $X of Consumer our margin contribution loss in in a period. of the in and prior compared quarter more $XXX,XXX segment million results

On and lower lower basis operating decline operating a expenses. expenses. by revenue decreased offset sequential the period revenue the reflects partially reflects higher improvement the to prior year Compared

in of the of compared a million quarter margin Services Mobile $X.X million prior and a segment year prior loss period. was a loss in $X.X loss contribution the million $X.X of to

revenue operating expenses. partially sequential expenses, SAFR Kontxt initiatives to year decline prior by the growth investments primarily cost to due were which primarily higher is in the revenue. to our operating period reflects increased The and and improvement offset in reductions Compared of related

margin contribution $XXX,XXX was $X.X a generated year and were the Games higher a quarter a contribution our The prior in which the sequential in to and revenue. a compared margin year-over-year prior free-to-play shift loss $XXX,XXX focus loss of in games of casual improvements to segment of loss million primarily of result period. mobile

contribution of which purchase was reduction quarter the $XXX,XXX the second revenue Napster's Included prior contribution Napster's of related accounting. margin to compares This quarter XXXX. to loss of revenue in related in was the gain margin a $XXX,XXX the to to reduction a to $XXX,XXX for $XXX,XXX accounting. included purchase

At and the quarter prior decreased $X.X of corporate million to the compared $XXX,XXX unallocated $X.X expenses level, by prior million decreased year corporate period. by the compared to

due prior was acquisition. professional The was to expense compensation to Napster related fees prior the primarily increase higher higher sequential period, primarily stock-based the year quarter. in due decline to the Compared the to

$XXX,XXX quarter of expenses corporate also included mentioned, our second As at operating restructuring costs. the level

balance our unrestricted net the we to June $XX.X primarily driven sheet. by XXXX. compared March was cash decrease million Now The to XX, million XX, turning cash in at loss. equivalents $XX.X and sequential At had XXXX,

$X.X during In addition, paid revolver loan quarter. of Napster million the off its

financial the turn to business included outlook XX, XXXX, quarter. our note I'll acquisition of consolidated first quarter in that in beginning as from the our segment an January date now for of XXXX. Please Napster the third we additional statements

our As expenses interest such, for Napster guidance non-controlling is fuel-related accounted have and follows. which including we the in as

of range be to $XX range adjusted expected third to million, $X.X loss in minus $XX million in the of to and revenue EBITDA quarter to is minus be Total million $X.X million. expected the is

continue guide second new of Lastly, our to our the significantly cash to majority with revenue expect in and transaction use do XXXX. cash of starting the less we not the will deliver the while we half operations us, Napster costs products behind

mobile summary, strategy In we gaining make to topline on and is as traction believe free-to-play specifically to key progress continue drive growth our our initiatives, we SAFR games.

In look to our our positions to our addition, come. well updating scale revenue across managing quarters the us approach our to forward organization. progress disciplined in structure cost you to We on

open Operator? now for will we the that, questions. With call

to like the would call for turn And Instructions] remarks. Glaser back closing [Operator I to Rob

Rob Glaser

on-demand. up and all in not Thank ahead you look again either you days afternoon. a sooner. for today certainly to our have and in or on Thanks forward the a if next us all talking call with following We quarter, live good joining everybody

Operator

today's concludes This conference.

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

Realnetworks (RNWK) 2 Aug 192019 Q2 Earnings call transcript