Q2 2020 RealNetworks Inc Earnings Call
Our FTC filings, including in the risks factors set forth in our most recent reports on form 10-K, and form 10-Q and another report.
A copy of those filings can be obtained from the FCC or from the Investor Relations section of our corporate web site.
Forward looking statements made today reflects real networks expectations as of today August 2020.
The company undertakes no duty to update or revise any forward looking statements made during this call whether as a result, because new information future events or any other reason.
In addition, we will present certain financial measures on this call that won't be considered non-GAAP under the Fccs regulation G for reconciliations of each non-GAAP financial measure for the most directly comparable GAAP financial measures. Please refer to the information included in our press release and our form 8-K stated answer for that.
Said today.
Both of which can be found on our corporate web site at Investor got real networks dotcom under the financial tab.
With me today, our broad Glazer, chairman and CEO and deadly senior Vice President and CFO, Rob will discuss the company's strategy and the progress the company made during the second quarter of 2020, Doug will then provide a more detailed financial review of the second quarter of 2020.
After today's prepared remarks, Robin Jack will be pleased to answer your question.
With that I will hand, the call over to Rob.
Thanks, Kim good afternoon, everyone and thanks for joining us today I'll begin with assembly of reduced second quarter results, then I'll highlight progress on our primary growth initiatives, which are free to play casual mobile games and are safer facial recognition sector.
Next I will discuss how real is working to address both commercial interests idled needs in a present challenges in complex environment. Finally, I'll discuss some significant organizational changes do we announced yesterday.
Beginning with our second quarter results, we delivered solid financial performance, we're very pleased with our strong operational execution in the first full quarter of living and working during the global pandemic.
Our consolidated revenue was $40.4 million, we're not including Napster core revenue of 70.1 billion was up 9% year over year, marking our fourth consecutive quarter of year over year revenue growth in our core business overall, our businesses performed in line with our internal expectations going into the quarter.
Adjusted EBITDA loss in Q2 narrowed to 2.2 million negative, which is our fourth consecutive quarter of year over year improvement in our adjusted EBITDA.
We're putting an appropriate amount a few on her growth businesses will also closely managing overall expenses general go through the financials in more detail engine.
In addition, the second quarter commemorated the 20 Fiveth anniversary streaming since we first introduced Realaudio next 95 launch into commercial streaming industry.
In conjunction with this anniversary, we are excited and boost to new consumer products in June Realplayer 2020, and Star search repair 2020 provides one click video downloads and instantly spots and identifies people in videos. This change where they are tier and organizes media library by people. So you can search browse and easily find clips unchanged searches.
Roger extension that enables you to instantly identify celebrities and public figures in any video stream from popular sites, such as you tube and Netflix.
These products utilize the power of AI and are safer computer vision platform to make streaming in today's world even better.
Initial response to both products has been positive.
The rest of our business has performed as expected in the quarter, Joe will provide additional details in a few minutes.
I'll now turn to review our progress on our two primary growth initiatives, beating beginning with our casual games business, which operates under the game House brands Gamehouse, we continue to be our strongest performing segment with revenue growing 12% over the prior quarter and 23% over the year of a period.
Gamehouse. This growth continues to be driven by the success of our two main free to play games delicious World and delicious been breakfast, we continue to realign our resource investments to focus on are free to play games strategy, which we believe has the strongest growth potential we estimate today that more than 90% of revenue generated mobile gaming space comes from free to play games. So now.
Our business is strongly aligned with these industry trends.
Next I will turn to discussion of safer our computer vision platform in Q2, we pursue to traction safer first we're continuing to enhance our world class safer platform in service focused primarily on the traditional security and safety markets.
Second we've been creating innovations focused on new needs at the intersection of public health and public safety.
One Great example of our progress in the first trackers or June launch of safer inside a new low cost component that runs significant parts of safer directly inside smart cameras, we're delighted to announce integration of safer inside with the axis. Q 16, 15 axis is the leading manufacturer security cameras outside of China and safer is a first computer vision.
Platform to run directly inside of their customers.
We see significant opportunity to bring safer directly to edge devices, which simplifies use and lower total cost significantly.
The second Great example of our progress is our in our first safer mission is when we announced just earlier today, we're honored to announce it in June we were awarded to direct to phase two small business innovation research for Ciber contracts with the United States Air Force. The total value just contracts is almost $2 million, we will work hard to deliver full on these efforts, which.
Will advance the capabilities our commercial platform promote trees were proud of safe will support the important mission of our year some forces, while helping keeping them safer.
Regarding our emerging work at the intersection public health and public safety, we continue to move fast to addressing important and highly fluid situation.
In June as a chance to virtually tend to London based Cognex AI conference, where we demonstrated fits tapers basemat detection capability in public for the first time, we expect to end products to market near future that deliver that on other this and other important emerging needs tub society return to work and other activities as safely as possible during the ongoing pandemic.
Next I want to talk about a real is doing its part to address a complex circumstances in which we now live in the safety health and wellbeing of our ploys their families our customers and our communities remains of the utmost importance.
We continue to work virtually through the world in Q2, even though locations with a pandemic is relatively under control and new caseload or low we continue to support the vast majority of our staff as you work either primarily or exclusively from home our productivity continues to be strong and im grateful to all our team members who have adjusted so effectively to the delivered.
As you said previously in Q2, we are also grateful for US government PPP loan program and we use it to bring back several furloughed employees bring them back to work.
We're also dedicated to addressing to help addressing inequality and systemic racism into communities, which we're now working and living in service to these goals. We made a special grant a $1 billion through our philanthropic arm neural networks Foundation to help address both immediate need stemming from regional Justice and also the impact of covert 19.
Unfortunately data showing that these dual challenges are disproportionately impacted communities of color. Accordingly, our grants are particularly targeted at the needs of these communities. Our goal is to growth provide immediately health and also to support efforts to affect real long lasting change.
Finally, I'd like to touch on a very significant organizational change that we announced just yesterday.
Next Pelagreeny, who for seven years has been a key member of our leadership team. Most recently as our president COO will be leaving around September to move back to Italy and to take on any challenge.
Max has been a huge part of our successful effort to reinvent Rio going back to just after our return to real in 2014.
Im truly sorry to see Mexico, and also grateful for his leadership partnership and ongoing friendship.
Fortunately, we've been able to bring back in excellent person to step into Max's role I'm delighted that Mike Ensign will be returning to Rio to service, our new President zero Mica deep record in a wide range of business topics that will serve him and us well.
As you know Mike servers interim CFO for four months at beginning of the year and they're relatively short period of time my built to very strong foundation with the rest of the senior team Mike will review joining us in mid April or on a path to have a smooth transition between Max and Mike.
In closing I'd like to thank all of our team members for their continued hard work and dedication. This work led to solid financial and operational performance in Q2 and sets up well for the future.
I'll now turn the call over to just to go through the numbers in detail Jud.
Thanks, Rob and good afternoon, everyone. In my remarks today I will first review our consolidated second quarter results followed by a more detailed discussion of our segment business performance. Please note that year over year in sequential comparisons are not always apples to apples due to the periodic variability of our revenues certain of our businesses.
Clean IP licensing part of our consumer media business and mobile games within our games business can fluctuate quarter to quarter, but we will continue to update you on the timing impacts and their implications.
Now turning to our results total revenue for the second quarter was 40.4 million compared to 43.1 million in the prior quarter and 44.2 million in the prior year period.
Napster accounted for 23.3 million of our second quarter revenue compared to 26.3 million in the prior quarter and 20.6 million in the prior year period.
We're not including revenue from Napster second quarter revenue of 17.1 million improved 9% year over year.
Looking at these results in greater detail revenue within the consumer media segment was down 300000 sequentially and up 500000 year over year.
A sequential decline was primarily due to timing of shipments and payments.
Year over year. The increase is primarily driven by the timing of renewals and shipments in our IP coating business, which were partially offset by continuing declines in our legacy PC products.
Mobile services revenue was down 200000 on a sequential basis down 500000 on a year over year basis. The sequential decrease was primarily due to declines in our legacy products, particularly offset by higher sales and safer in context.
Year over year decreases primarily due to declines in our legacy products, partially offset by higher sales in context.
Games revenue for the second quarter was up $800000 sequentially and up 1.4 million year over year.
On a sequential and year over year basis increases driven by continued strong performance a free to play mobile games, partially offset by fewer premium game launches.
Finally, napster revenue was down 3 million sequentially and down 5.2 million year over year, both the sequential and year over year decreases were mainly due to declining subscribers consolidated gross profit for the second quarter was 17.4 million down 1.6 million compared to the prior quarter and up 400.
Thousand compared to prior year period, the sequential decline is primarily due to lower revenue from napster from an early termination fee received in the prior quarter.
Year over year, the improvement is primarily related to higher revenue in the games and consumer media segments, along with reduced head count, which was partially offset by lower revenue from napster.
As a percentage of revenue gross margin was 43% compared to 44% in the prior quarter and 13% in the prior year period.
Core gross profit margin without Napster was 75% down from 76% in the prior quarter and up from 73% in the prior year period.
Total operating expenses for second quarter were 22.3 million a decrease from 24.1 million in the prior quarter and 26.4 million in the prior year period.
Clinical and year over year decreases were primarily related to lower people related costs.
Adjusted EBITDA for the second quarter was a loss of 2.2 million compared to a loss of 3.3 million in the prior quarter loss of 6.3 million in the prior year period.
Net loss attributable to Realnetworks was 5.1 million or minus 13 cents per diluted share.
Compared to net loss of 4.6 million or minus 12 cents per diluted share in the prior quarter and a net loss of 9.2 million or minus 24 cents per diluted share in the prior year period.
Turning to our second quarter segment results in more detail.
Consumer media segment.
Contribution margin was $500000 relatively flat compared to prior quarter and a loss of 1 million in the prior year period.
The year over year improvement primarily reflects decreased operating expenses as a result of our ongoing expense management.
Mobile services segment contribution margin was a loss of 900000 compared to a loss of 2.5 million in the prior quarter and a loss of 2.2 million in the prior year period, the sequential and year over year contribution margin improvements were primarily related to lower people related cost and lower marketing expenses.
Games segment contribution margin was 600000 compared to 100000 in the prior quarter and a loss of 800000 in the prior year period, the sequential and year over year contribution margin improvements were primarily due to continued strong performance of free to play mobile games.
Natural contribution margin was a loss of 700000 compared to 1.1 million of gain in the prior quarter and a 100000 of gain in the prior year period, the sequential and year over year declines are primarily due to lower revenue.
At the corporate level unallocated corporate expense of 2.8 million increased by 200000 compared to prior quarter and decreased by 1.3 million compared to prior year period.
The sequential increase was primarily due to restructuring costs year over year decrease was primarily due to lower people costs.
Our second quarter operating expenses at the corporate level included 700000 of restructuring costs compared to 100000 in the prior quarter and 700000 in the prior year period.
Now turning to our balance sheet.
At June Thirtyth 2020, we had 19.7 million in unrestricted cash and cash equivalents compared to 19 million at March 30, Onest 2020.
The slight decrease was primarily related to the funding we see pursuant to the Paycheck protection program, which was partially offset by cash used to fund our operations. Our total long term debt at June Thirtyth was 8.5 million.
Looking ahead, given the broader lack of visibility, resulting from because that 19 pandemic its impact on the economy and its potential impact on our operations, we will not be providing guidance for the third quarter of 2020.
In summary.
We continue to press forward with our strategy, which resulted in strong traction on our key growth initiatives and solid second quarter financial results, including.
One our fourth quarter, our fourth consecutive quarter of year over year revenue growth in our core business without napster.
To our strong year over year margin expansion in our gross profit margin to 43% and 75% without napster.
And it's three our fourth consecutive quarter of year over year improvement in our adjusted EBITDA loss due to our ongoing commitment to expense management.
We believe our progress in changing the way, we work managing costs and pivoting our strategy with safer to address newly important suicidal needs will make a stronger and better position for future success.
Thanks to all of our employees for their ongoing commitment to keeping real networks, a safe productive and exciting case the work.
We wish bone health to all.
With that we'll now open for questions operator.
And the question answer session.
Yes.
Star then one on your telephone Keith.
Yes.
In Europe.
Gary.
Please.
That's helpful or pricing.
To withdraw your question. Please press Star then.
We will pause for a moment as callers joined.
Okay.
Once again.
Then.
How many questions.
We are showing no questions I would like to turn the conference over to Rob laser for any closing remarks.
Well. Thank you all for joining us today I hope that everyone is staying healthy and safe during their endemic I Hope you all continue to do so and look forward to talking to you in three months time, if not sooner. Thanks again.
That does conclude our conference for today. Thank you for participating you may now disconnect.
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