RealNetworks, Inc.
Q1 2013 Earnings Call Transcript

Published: 1 May 2013

[Operator:]

Welcome and thank you for standing by. [Operator Instructions] And now I would like to turn the meeting over to Ms. Marj Charlier. Ma'am, you may begin.

[Marj Charlier:]

Thank you, Brandon, and welcome to the RealNetworks First Quarter 2013 Conference Call. Before we begin, I remind you that some matters discussed today are forward-looking, including statements regarding RealNetworks' future revenue, adjusted EBITDA, operating expenses, trends affecting its businesses and its prospects for future growth, cost reductions, and profitability. Other forward-looking statements include the company's plans to reduce expenses, implement its strategy, and simplify its businesses as well as the new products, value creation, and other benefits from those activities. All statements other than statements of historical facts are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. We describe these and other risks in our SEC filings. A copy of these filings can be obtained from the SEC or from the Investor Relations section of our corporate website. These forward-looking statements reflect RealNetworks' expectations as of May 1, 2013. The company undertakes no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events, or any other reasons. We will present certain financial measures on this call that can be considered non-GAAP under SEC Regulation G. For the reconciliation of each non-GAAP financial measures to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our Form 8-K dated and submitted to the SEC on May 1, 2013, both of which can be found at our corporate website at www.investor.realnetworks.com under the tab Financial Information. Here with me today are Rob Glaser, Interim CEO and Chairman; and Tim Wan, Chief Financial Officer. Tim will provide a financial review of the first quarter and the outlook for the second quarter, and Rob will discuss the progress that the company had made over the quarter. We will not be taking questions live on this call today. But I encourage you to call Tim or me, directly following the call, and we'll address whatever questions you have. Our phone numbers are on the press release we issued today. Now to get things started, I will turn this over to Tim. Tim?

[Tim M. Wan:]

Thank you, Marj. Earlier today, we released the financial results for the first quarter of 2013. We will file our 10-Q for the quarter soon and I encourage you to review other SEC filings for a more thorough discussion and disclosure of our results. Today, I will review our first quarter financial results in detail and give some guidance for the second quarter of 2013. Total first quarter revenue was $56.8 million, reflecting a sequential and year-over-year decrease of 15%. Our adjusted EBITDA loss in Q1 was $3 million versus a loss of $7.4 million in the year-earlier quarter and positive EBITDA of $3.3 million in the fourth quarter of 2012. Our revenue and our EBITDA exceeded expectations going into the quarter, largely due to better-than-expected revenue performance by a couple of our divisions, and our continued discipline in reducing cost. I will discuss the specifics of that over-performance as I continue through the numbers. While first quarter revenue exceeded our expectations, we still have not turned the quarter and revenue growth. Until new products and services, that we are currently working on, are launched and take hold in the market, we expect that the trends, that we have talked about before, will negatively affect our results. Those trends have been rising smartphone use and industry pricing trends affecting our Mobile Entertainment business, and the decline of PC-based casual games. In addition we have decided to minimize investment in, and to harvest our SuperPass business, so we expect that revenue in the RealPlayer Group will be affected by a decline in the business over the next year or 2. Our adjusted EBITDA loss in Q1 was $3 million, primarily reflecting the reduction in revenue, partially offset by continued effort in reducing cost, both in COGS and OpEx. Our quarterly expenses, including COGS, were about $9 million lower in the quarter than a year ago, including roughly similar restructuring charges in both quarters and adjusting for onetime items in Q1 of last year. Overall gross margins improved by 1 percentage point sequentially, to 64%, and improved 5 percentage points over the year-ago quarter, reflecting the belt tightening we had done in COGS. Before I go into detail about the results of each of our businesses, I'd like to explain the changes we have made in our segments, starting with the first quarter. In September 2012, we announced a corporate-level strategy to operate our 3 principal businesses as standalone business units, and to reallocate operating expenses to increase efficiency and accountability. Starting with the quarter we are reporting today, we are presenting our financial results in the following 3 segments

[Robert Glaser:]

Thanks, Tim. Good afternoon, everyone, and thanks for joining us. First, I'll make a few brief comments about Q1 2013, then I'll turn my focus to the rest of the year. Regarding Q1, I'm pleased that our results significantly exceeded the guidance we gave 3 months ago. We're continuing to work very hard at both managing cost aggressively, and driving forward the investments in new products and services necessary to return RealNetworks to growth and to sustainable profitability. Now, onto the rest of 2013. As I've mentioned, on each of the 3 earnings call I've been on since returning as interim CEO, our focus is on implementation of 4 objectives

[Tim M. Wan:]

Thank you, everyone, and thank you, operator.

[Operator:]

Thank you and this does conclude today's conference. You may disconnect at this time.