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Share Name | Share Symbol | Market | Type |
---|---|---|---|
RealNetworks Inc | NASDAQ:RNWK | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.73 | 0.6552 | 0.73 | 0 | 01:00:00 |
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FORM 10-Q
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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RealNetworks, Inc.
|
|
||
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(Exact name of registrant as specified in its charter)
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|
||
Washington
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91-1628146
|
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(State of incorporation)
|
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(I.R.S. Employer
Identification Number)
|
||
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|
|
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1501 First Avenue South, Suite 600
Seattle, Washington
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98134
|
||
(Address of principal executive offices)
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(Zip Code)
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||
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(206) 674-2700
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||
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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¨
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Accelerated filer
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ý
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||
Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page
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Item 1.
|
Financial Statements
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
40,539
|
|
|
$
|
47,315
|
|
Short-term investments
|
46,289
|
|
|
51,814
|
|
||
Trade accounts receivable, net of allowances
|
23,527
|
|
|
22,511
|
|
||
Deferred costs, current portion
|
452
|
|
|
460
|
|
||
Prepaid expenses and other current assets
|
5,563
|
|
|
7,140
|
|
||
Total current assets
|
116,370
|
|
|
129,240
|
|
||
Equipment, software, and leasehold improvements, at cost:
|
|
|
|
||||
Equipment and software
|
61,330
|
|
|
66,702
|
|
||
Leasehold improvements
|
3,190
|
|
|
3,122
|
|
||
Total equipment, software, and leasehold improvements, at cost
|
64,520
|
|
|
69,824
|
|
||
Less accumulated depreciation and amortization
|
56,983
|
|
|
61,024
|
|
||
Net equipment, software, and leasehold improvements
|
7,537
|
|
|
8,800
|
|
||
Restricted cash equivalents and investments
|
3,100
|
|
|
2,890
|
|
||
Available for sale securities
|
1,910
|
|
|
1,721
|
|
||
Other assets
|
2,273
|
|
|
2,307
|
|
||
Deferred costs, non-current portion
|
660
|
|
|
212
|
|
||
Deferred tax assets, net
|
996
|
|
|
957
|
|
||
Other intangible assets, net
|
1,753
|
|
|
2,136
|
|
||
Goodwill
|
13,099
|
|
|
13,080
|
|
||
Total assets
|
$
|
147,698
|
|
|
$
|
161,343
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
15,368
|
|
|
$
|
17,050
|
|
Accrued and other current liabilities
|
17,110
|
|
|
17,320
|
|
||
Deferred revenue, current portion
|
3,537
|
|
|
3,497
|
|
||
Total current liabilities
|
36,015
|
|
|
37,867
|
|
||
Deferred revenue, non-current portion
|
583
|
|
|
105
|
|
||
Deferred rent
|
579
|
|
|
620
|
|
||
Deferred tax liabilities, net
|
90
|
|
|
88
|
|
||
Other long-term liabilities
|
1,668
|
|
|
1,980
|
|
||
Total liabilities
|
38,935
|
|
|
40,660
|
|
||
Commitments and contingencies
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.001 par value, no shares issued and outstanding:
|
|
|
|
||||
Series A: authorized 200 shares
|
—
|
|
|
—
|
|
||
Undesignated series: authorized 59,800 shares
|
—
|
|
|
—
|
|
||
Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 36,747 shares in 2016 and 36,298 shares in 2015
|
36
|
|
|
36
|
|
||
Additional paid-in capital
|
629,716
|
|
|
627,316
|
|
||
Accumulated other comprehensive loss
|
(58,629
|
)
|
|
(59,480
|
)
|
||
Retained deficit
|
(462,360
|
)
|
|
(447,189
|
)
|
||
Total shareholders’ equity
|
108,763
|
|
|
120,683
|
|
||
Total liabilities and shareholders’ equity
|
$
|
147,698
|
|
|
$
|
161,343
|
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Net revenue (A)
|
$
|
28,230
|
|
|
$
|
30,597
|
|
Cost of revenue (B)
|
15,172
|
|
|
16,547
|
|
||
Gross profit
|
13,058
|
|
|
14,050
|
|
||
Operating expenses:
|
|
|
|
||||
Research and development
|
9,319
|
|
|
12,379
|
|
||
Sales and marketing
|
9,225
|
|
|
12,837
|
|
||
General and administrative
|
8,077
|
|
|
7,283
|
|
||
Restructuring and other charges
|
385
|
|
|
485
|
|
||
Lease exit and related charges
|
831
|
|
|
78
|
|
||
Total operating expenses
|
27,837
|
|
|
33,062
|
|
||
Operating income (loss)
|
(14,779
|
)
|
|
(19,012
|
)
|
||
Other income (expenses):
|
|
|
|
||||
Interest income, net
|
117
|
|
|
200
|
|
||
Gain (loss) on investments, net
|
3
|
|
|
299
|
|
||
Equity in net loss of Rhapsody investment
|
—
|
|
|
(6,180
|
)
|
||
Other income (expense), net
|
(287
|
)
|
|
443
|
|
||
Total other income (expenses), net
|
(167
|
)
|
|
(5,238
|
)
|
||
Income (loss) before income taxes
|
(14,946
|
)
|
|
(24,250
|
)
|
||
Income tax expense (benefit)
|
225
|
|
|
219
|
|
||
Net income (loss)
|
$
|
(15,171
|
)
|
|
$
|
(24,469
|
)
|
|
|
|
|
||||
Basic net income (loss) per share
|
$
|
(0.42
|
)
|
|
$
|
(0.68
|
)
|
Diluted net income (loss) per share
|
$
|
(0.42
|
)
|
|
$
|
(0.68
|
)
|
Shares used to compute basic net income (loss) per share
|
36,520
|
|
|
36,104
|
|
||
Shares used to compute diluted net income (loss) per share
|
36,520
|
|
|
36,104
|
|
||
|
|
|
|
||||
Comprehensive income (loss):
|
|
|
|
||||
Unrealized investment holding gains (losses), net of reclassification adjustments
|
$
|
151
|
|
|
$
|
(94
|
)
|
Foreign currency translation adjustments, net of reclassification adjustments
|
700
|
|
|
(2,585
|
)
|
||
Total other comprehensive income (loss)
|
851
|
|
|
(2,679
|
)
|
||
Net income (loss)
|
(15,171
|
)
|
|
(24,469
|
)
|
||
Comprehensive income (loss)
|
$
|
(14,320
|
)
|
|
$
|
(27,148
|
)
|
|
|
|
|
||||
(A) Components of net revenue:
|
|
|
|
||||
License fees
|
$
|
5,777
|
|
|
$
|
7,289
|
|
Service revenue
|
22,453
|
|
|
23,308
|
|
||
|
$
|
28,230
|
|
|
$
|
30,597
|
|
(B) Components of cost of revenue:
|
|
|
|
||||
License fees
|
$
|
1,304
|
|
|
$
|
1,743
|
|
Service revenue
|
13,868
|
|
|
14,804
|
|
||
|
$
|
15,172
|
|
|
$
|
16,547
|
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
(15,171
|
)
|
|
$
|
(24,469
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
2,598
|
|
|
2,503
|
|
||
Stock-based compensation
|
3,171
|
|
|
1,329
|
|
||
Equity in net loss of Rhapsody
|
—
|
|
|
6,180
|
|
||
Deferred income taxes, net
|
(128
|
)
|
|
(77
|
)
|
||
Loss (gain) on investments, net
|
(3
|
)
|
|
(299
|
)
|
||
Fair value of warrants granted in 2015, net of subsequent mark to market adjustments in 2016 and 2015
|
44
|
|
|
(1,155
|
)
|
||
Trade accounts receivable
|
(487
|
)
|
|
(654
|
)
|
||
Prepaid expenses and other assets
|
1,322
|
|
|
621
|
|
||
Accounts payable
|
(2,106
|
)
|
|
(62
|
)
|
||
Accrued and other liabilities
|
(451
|
)
|
|
(4,011
|
)
|
||
Net cash provided by (used in) operating activities
|
(11,211
|
)
|
|
(20,094
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of equipment, software, and leasehold improvements
|
(828
|
)
|
|
(306
|
)
|
||
Proceeds from sale of available for sale securities
|
—
|
|
|
352
|
|
||
Purchases of short-term investments
|
(17,876
|
)
|
|
(6,018
|
)
|
||
Proceeds from sales and maturities of short-term investments
|
23,401
|
|
|
33,077
|
|
||
Decrease (increase) in restricted cash equivalents and investments, net
|
(210
|
)
|
|
—
|
|
||
Advance to Rhapsody
|
—
|
|
|
(5,000
|
)
|
||
Net cash provided by (used in) investing activities
|
4,487
|
|
|
22,105
|
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock (stock options and stock purchase plan)
|
16
|
|
|
6
|
|
||
Tax payments from shares withheld upon vesting of restricted stock
|
(787
|
)
|
|
(7
|
)
|
||
Net cash provided by (used in) financing activities
|
(771
|
)
|
|
(1
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
719
|
|
|
(2,269
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
(6,776
|
)
|
|
(259
|
)
|
||
Cash and cash equivalents, beginning of period
|
47,315
|
|
|
103,253
|
|
||
Cash and cash equivalents, end of period
|
$
|
40,539
|
|
|
$
|
102,994
|
|
|
|
|
|
||||
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash received from income tax refunds
|
$
|
389
|
|
|
$
|
229
|
|
Cash paid for income taxes
|
$
|
624
|
|
|
$
|
229
|
|
Non-cash investing activities:
|
|
|
|
||||
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements
|
$
|
44
|
|
|
$
|
49
|
|
Acquisition of intangible assets
|
$
|
—
|
|
|
$
|
473
|
|
Note 1
|
Description of Business and Summary of Significant Accounting Policies
|
Note 2
|
Recent Accounting Pronouncements
|
Note 3
|
Acquisitions & Disposals
|
Note 4
|
Stock-Based Compensation
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Total stock-based compensation expense
|
$
|
3,171
|
|
|
$
|
1,329
|
|
|
Quarters Ended
March 31, |
||||
|
2016
|
|
2015
|
||
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
Risk-free interest rate
|
1.54
|
%
|
|
1.20
|
%
|
Expected life (years)
|
5.5
|
|
|
4.2
|
|
Volatility
|
38
|
%
|
|
37
|
%
|
Note 5
|
Rhapsody Joint Venture
|
Note 6
|
Fair Value Measurements
|
|
Fair Value Measurements as of
|
|
Amortized Cost as of
|
||||||||||||||||
|
March 31, 2016
|
|
March 31, 2016
|
||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
||||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash
|
$
|
24,701
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,701
|
|
|
$
|
24,701
|
|
Money market funds
|
6,612
|
|
|
—
|
|
|
—
|
|
|
6,612
|
|
|
6,612
|
|
|||||
Corporate notes and bonds
|
—
|
|
|
9,226
|
|
|
—
|
|
|
9,226
|
|
|
9,226
|
|
|||||
Total cash and cash equivalents
|
31,313
|
|
|
9,226
|
|
|
—
|
|
|
40,539
|
|
|
40,539
|
|
|||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate notes and bonds
|
—
|
|
|
46,289
|
|
|
—
|
|
|
46,289
|
|
|
46,285
|
|
|||||
Total short-term investments
|
—
|
|
|
46,289
|
|
|
—
|
|
|
46,289
|
|
|
46,285
|
|
|||||
Restricted cash equivalents and investments
|
—
|
|
|
3,100
|
|
|
—
|
|
|
3,100
|
|
|
3,100
|
|
|||||
Equity investment in publicly traded securities
|
1,910
|
|
|
—
|
|
|
—
|
|
|
1,910
|
|
|
362
|
|
|||||
Warrant issued by Rhapsody (included in Other assets)
|
—
|
|
|
—
|
|
|
1,009
|
|
|
1,009
|
|
|
—
|
|
|||||
Total
|
$
|
33,223
|
|
|
$
|
58,615
|
|
|
$
|
1,009
|
|
|
$
|
92,847
|
|
|
$
|
90,286
|
|
|
Fair Value Measurements as of
|
|
Amortized Cost as of
|
||||||||||||||||
|
December 31, 2015
|
|
December 31, 2015
|
||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
||||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash
|
$
|
23,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,152
|
|
|
$
|
23,152
|
|
Money market funds
|
5,061
|
|
|
—
|
|
|
—
|
|
|
5,061
|
|
|
5,061
|
|
|||||
Corporate notes and bonds
|
—
|
|
|
19,102
|
|
|
—
|
|
|
19,102
|
|
|
19,102
|
|
|||||
Total cash and cash equivalents
|
28,213
|
|
|
19,102
|
|
|
—
|
|
|
47,315
|
|
|
47,315
|
|
|||||
Short-term investments:
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate notes and bonds
|
—
|
|
|
51,814
|
|
|
—
|
|
|
51,814
|
|
|
51,862
|
|
|||||
Total short-term investments
|
—
|
|
|
51,814
|
|
|
—
|
|
|
51,814
|
|
|
51,862
|
|
|||||
Restricted cash equivalents and investments
|
—
|
|
|
2,890
|
|
|
—
|
|
|
2,890
|
|
|
2,890
|
|
|||||
Equity investment in publicly traded securities
|
1,721
|
|
|
—
|
|
|
—
|
|
|
1,721
|
|
|
362
|
|
|||||
Warrant issued by Rhapsody (included in Other assets)
|
—
|
|
|
—
|
|
|
1,053
|
|
|
1,053
|
|
|
—
|
|
|||||
Total
|
$
|
29,934
|
|
|
$
|
73,806
|
|
|
$
|
1,053
|
|
|
$
|
104,793
|
|
|
$
|
102,429
|
|
|
Estimated
Fair Value
|
||
Within one year
|
$
|
42,584
|
|
Between one year and five years
|
3,705
|
|
|
Total short-term investments
|
$
|
46,289
|
|
Note 7
|
Allowance for Doubtful Accounts Receivable and Sales Returns
|
|
Allowance For
|
||||||
|
Doubtful
Accounts
Receivable
|
|
Sales
Returns
|
||||
Balances, December 31, 2015
|
$
|
765
|
|
|
$
|
158
|
|
Addition (reduction) to allowance
|
(20
|
)
|
|
20
|
|
||
Amounts written off
|
(3
|
)
|
|
(3
|
)
|
||
Foreign currency translation
|
39
|
|
|
—
|
|
||
Balances, March 31, 2016
|
$
|
781
|
|
|
$
|
175
|
|
Note 8
|
Other Intangible Assets
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
||||||||||||||||||||
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
||||||||||||
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Customer relationships
|
|
$
|
30,918
|
|
|
$
|
30,073
|
|
|
$
|
845
|
|
|
$
|
30,182
|
|
|
$
|
29,236
|
|
|
$
|
946
|
|
|
Developed technology
|
|
24,403
|
|
|
23,751
|
|
|
652
|
|
|
24,047
|
|
|
23,244
|
|
|
803
|
|
||||||
|
Patents, trademarks and tradenames
|
|
3,822
|
|
|
3,566
|
|
|
256
|
|
|
3,717
|
|
|
3,398
|
|
|
319
|
|
||||||
|
Service contracts
|
|
5,382
|
|
|
5,382
|
|
|
—
|
|
|
5,269
|
|
|
5,201
|
|
|
68
|
|
||||||
|
Total
|
|
$
|
64,525
|
|
|
$
|
62,772
|
|
|
$
|
1,753
|
|
|
$
|
63,215
|
|
|
$
|
61,079
|
|
|
$
|
2,136
|
|
Note 9
|
Goodwill
|
Balance, December 31, 2015
|
$
|
13,080
|
|
Effects of foreign currency translation
|
19
|
|
|
Balance, March 31, 2016
|
$
|
13,099
|
|
|
March 31,
2016 |
||
Consumer Media
|
$
|
580
|
|
Mobile Services
|
2,221
|
|
|
Games
|
10,298
|
|
|
Total goodwill
|
$
|
13,099
|
|
Note 10
|
Accrued and Other Current Liabilities
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Royalties and other fulfillment costs
|
$
|
2,592
|
|
|
$
|
3,094
|
|
Employee compensation, commissions and benefits
|
5,955
|
|
|
5,958
|
|
||
Sales, VAT and other taxes payable
|
3,006
|
|
|
2,976
|
|
||
Other
|
5,557
|
|
|
5,292
|
|
||
Total accrued and other current liabilities
|
$
|
17,110
|
|
|
$
|
17,320
|
|
Note 11
|
Restructuring Charges
|
|
Employee Separation Costs
|
||
Costs incurred and charged to expense for the three months ended March 31, 2016
|
$
|
385
|
|
Costs incurred and charged to expense for the three months ended March 31, 2015
|
$
|
485
|
|
|
Employee Separation Costs
|
||
Accrued liability at December 31, 2015
|
$
|
1,404
|
|
Costs incurred and charged to expense for the three months ended March 31, 2016
|
385
|
|
|
Cash payments
|
(820
|
)
|
|
Accrued liability at March 31, 2016
|
$
|
969
|
|
Note 12
|
Lease Exit and Related Charges
|
Accrued loss at December 31, 2015
|
$
|
2,595
|
|
Additions and adjustments to the lease loss accrual, including estimated sublease income
|
831
|
|
|
Less amounts paid, net of sublease amounts
|
(514
|
)
|
|
Accrued loss at March 31, 2016
|
2,912
|
|
|
Less current portion (included in Accrued and other current liabilities)
|
(1,454
|
)
|
|
Accrued loss, non-current portion (included in Other long term liabilities)
|
$
|
1,458
|
|
Note 13
|
Shareholders’ Equity
|
|
|
|
Quarters Ended
March 31, |
||||||
|
|
|
2016
|
|
2015
|
||||
Investments
|
|
|
|
|
|||||
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
1,297
|
|
|
$
|
2,252
|
|
|
Unrealized gains (losses), net of tax effects of
$90 and $116 in 2016 and 2015
|
|
151
|
|
|
205
|
|
||
|
Reclassification adjustments for losses (gains) included in other income (expense), net of tax effects of $0 and $(1) in 2016 and 2015
|
|
—
|
|
|
(299
|
)
|
||
|
Net current period other comprehensive income (loss)
|
|
151
|
|
|
(94
|
)
|
||
|
Accumulated other comprehensive income (loss) balance, end of period
|
|
$
|
1,448
|
|
|
$
|
2,158
|
|
Foreign currency translation
|
|
|
|
|
|||||
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
(60,777
|
)
|
|
$
|
(57,504
|
)
|
|
Translation adjustments
|
|
700
|
|
|
(2,585
|
)
|
||
|
Net current period other comprehensive income (loss)
|
|
700
|
|
|
(2,585
|
)
|
||
|
Accumulated other comprehensive income (loss) balance, end of period
|
|
$
|
(60,077
|
)
|
|
$
|
(60,089
|
)
|
Total accumulated other comprehensive income (loss), end of period
|
|
$
|
(58,629
|
)
|
|
$
|
(57,931
|
)
|
Note 14
|
Income Taxes
|
Note 15
|
Earnings (Loss) Per Share
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Net income (loss)
|
$
|
(15,171
|
)
|
|
$
|
(24,469
|
)
|
Weighted average common shares outstanding used to compute basic EPS
|
36,520
|
|
|
36,104
|
|
||
Dilutive effect of stock based awards
|
—
|
|
|
—
|
|
||
Weighted average common shares outstanding used to compute diluted EPS
|
36,520
|
|
|
36,104
|
|
||
|
|
|
|
||||
Basic EPS
|
$
|
(0.42
|
)
|
|
$
|
(0.68
|
)
|
Diluted EPS
|
$
|
(0.42
|
)
|
|
$
|
(0.68
|
)
|
Note 16
|
Commitments and Contingencies
|
Note 17
|
Guarantees
|
Note 18
|
Segment Information
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Revenue
|
$
|
5,726
|
|
|
$
|
7,989
|
|
Cost of revenue
|
2,417
|
|
|
3,464
|
|
||
Gross profit
|
3,309
|
|
|
4,525
|
|
||
Operating expenses
|
5,376
|
|
|
6,594
|
|
||
Operating income (loss)
|
$
|
(2,067
|
)
|
|
$
|
(2,069
|
)
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Revenue
|
$
|
16,465
|
|
|
$
|
14,504
|
|
Cost of revenue
|
10,917
|
|
|
10,308
|
|
||
Gross profit
|
5,548
|
|
|
4,196
|
|
||
Operating expenses
|
9,794
|
|
|
11,961
|
|
||
Operating income (loss)
|
$
|
(4,246
|
)
|
|
$
|
(7,765
|
)
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Revenue
|
$
|
6,039
|
|
|
$
|
8,104
|
|
Cost of revenue
|
1,845
|
|
|
2,794
|
|
||
Gross profit
|
4,194
|
|
|
5,310
|
|
||
Operating expenses
|
5,295
|
|
|
8,683
|
|
||
Operating income (loss)
|
$
|
(1,101
|
)
|
|
$
|
(3,373
|
)
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Cost of revenue
|
$
|
(7
|
)
|
|
$
|
(19
|
)
|
Operating expenses
|
7,372
|
|
|
5,824
|
|
||
Operating income (loss)
|
$
|
(7,365
|
)
|
|
$
|
(5,805
|
)
|
|
Quarters Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
United States
|
$
|
10,383
|
|
|
$
|
12,349
|
|
Europe
|
3,384
|
|
|
4,163
|
|
||
Republic of Korea
|
9,233
|
|
|
6,324
|
|
||
Rest of the World
|
5,230
|
|
|
7,761
|
|
||
Total net revenue
|
$
|
28,230
|
|
|
$
|
30,597
|
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
United States
|
$
|
15,012
|
|
|
$
|
16,821
|
|
Europe
|
4,544
|
|
|
4,898
|
|
||
Republic of Korea
|
268
|
|
|
282
|
|
||
Rest of the World
|
2,565
|
|
|
2,015
|
|
||
Total long-lived assets
|
$
|
22,389
|
|
|
$
|
24,016
|
|
Note 19
|
Related Party Transactions
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;
|
•
|
our expected introduction, distribution and monetization, of new and enhanced products, services and technologies across our businesses;
|
•
|
future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;
|
•
|
the effects of our past acquisitions and expectations for future acquisitions and divestitures;
|
•
|
plans, strategies and expected opportunities for future growth, increased profitability and innovation;
|
•
|
the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;
|
•
|
the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;
|
•
|
the continuation and expected nature of certain customer relationships;
|
•
|
impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;
|
•
|
our involvement in potential claims, legal proceedings and government investigations, and the potential outcomes and effects of such potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;
|
•
|
the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and
|
•
|
the effect of economic and market conditions on our business, prospects, financial condition or results of operations.
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Total revenue
|
$
|
28,230
|
|
|
$
|
30,597
|
|
|
$
|
(2,367
|
)
|
|
(8
|
)%
|
Cost of revenue
|
15,172
|
|
|
16,547
|
|
|
(1,375
|
)
|
|
(8
|
)%
|
|||
Gross profit
|
13,058
|
|
|
14,050
|
|
|
(992
|
)
|
|
(7
|
)%
|
|||
Gross margin
|
46
|
%
|
|
46
|
%
|
|
|
|
|
|||||
Operating expenses
|
27,837
|
|
|
33,062
|
|
|
(5,225
|
)
|
|
(16
|
)%
|
|||
Operating income (loss)
|
$
|
(14,779
|
)
|
|
$
|
(19,012
|
)
|
|
$
|
4,233
|
|
|
22
|
%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Revenue
|
$
|
5,726
|
|
|
$
|
7,989
|
|
|
$
|
(2,263
|
)
|
|
(28
|
)%
|
Cost of revenue
|
2,417
|
|
|
3,464
|
|
|
(1,047
|
)
|
|
(30
|
)%
|
|||
Gross profit
|
3,309
|
|
|
4,525
|
|
|
(1,216
|
)
|
|
(27
|
)%
|
|||
Gross margin
|
58
|
%
|
|
57
|
%
|
|
|
|
|
|||||
Operating expenses
|
5,376
|
|
|
6,594
|
|
|
(1,218
|
)
|
|
(18
|
)%
|
|||
Operating income (loss)
|
$
|
(2,067
|
)
|
|
$
|
(2,069
|
)
|
|
$
|
2
|
|
|
—
|
%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Revenue
|
$
|
16,465
|
|
|
$
|
14,504
|
|
|
$
|
1,961
|
|
|
14
|
%
|
Cost of revenue
|
10,917
|
|
|
10,308
|
|
|
609
|
|
|
6
|
%
|
|||
Gross profit
|
5,548
|
|
|
4,196
|
|
|
1,352
|
|
|
32
|
%
|
|||
Gross margin
|
34
|
%
|
|
29
|
%
|
|
|
|
|
|||||
Operating expenses
|
9,794
|
|
|
11,961
|
|
|
(2,167
|
)
|
|
(18
|
)%
|
|||
Operating income (loss)
|
$
|
(4,246
|
)
|
|
$
|
(7,765
|
)
|
|
$
|
3,519
|
|
|
45
|
%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Revenue
|
$
|
6,039
|
|
|
$
|
8,104
|
|
|
$
|
(2,065
|
)
|
|
(25
|
)%
|
Cost of revenue
|
1,845
|
|
|
2,794
|
|
|
(949
|
)
|
|
(34
|
)%
|
|||
Gross profit
|
4,194
|
|
|
5,310
|
|
|
(1,116
|
)
|
|
(21
|
)%
|
|||
Gross margin
|
69
|
%
|
|
66
|
%
|
|
|
|
|
|||||
Operating expenses
|
5,295
|
|
|
8,683
|
|
|
(3,388
|
)
|
|
(39
|
)%
|
|||
Operating income (loss)
|
$
|
(1,101
|
)
|
|
$
|
(3,373
|
)
|
|
$
|
2,272
|
|
|
67
|
%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Cost of revenue
|
$
|
(7
|
)
|
|
$
|
(19
|
)
|
|
$
|
12
|
|
|
63
|
%
|
Operating expenses
|
7,372
|
|
|
5,824
|
|
|
1,548
|
|
|
27
|
%
|
|||
Operating income (loss)
|
$
|
(7,365
|
)
|
|
$
|
(5,805
|
)
|
|
$
|
(1,560
|
)
|
|
(27
|
)%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Research and development
|
$
|
9,319
|
|
|
$
|
12,379
|
|
|
$
|
(3,060
|
)
|
|
(25
|
)%
|
Sales and marketing
|
9,225
|
|
|
12,837
|
|
|
(3,612
|
)
|
|
(28
|
)%
|
|||
General and administrative
|
8,077
|
|
|
7,283
|
|
|
794
|
|
|
11
|
%
|
|||
Restructuring and other charges
|
385
|
|
|
485
|
|
|
(100
|
)
|
|
(21
|
)%
|
|||
Lease exit and related charges
|
831
|
|
|
78
|
|
|
753
|
|
|
NM
|
||||
Total consolidated operating expenses
|
$
|
27,837
|
|
|
$
|
33,062
|
|
|
$
|
(5,225
|
)
|
|
(16
|
)%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
Interest income, net
|
$
|
117
|
|
|
$
|
200
|
|
|
$
|
(83
|
)
|
|
(42
|
)%
|
Gain (loss) on investments, net
|
3
|
|
|
299
|
|
|
(296
|
)
|
|
NM
|
||||
Equity in net loss of Rhapsody
|
—
|
|
|
(6,180
|
)
|
|
6,180
|
|
|
100
|
%
|
|||
Other income (expense), net
|
(287
|
)
|
|
443
|
|
|
(730
|
)
|
|
(165
|
)%
|
|||
Total other income (expense), net
|
$
|
(167
|
)
|
|
$
|
(5,238
|
)
|
|
$
|
5,071
|
|
|
97
|
%
|
|
Quarters ended March 31,
|
|||||||||||||
|
2016
|
|
2015
|
|
$ Change
|
|
% Change
|
|||||||
United States
|
$
|
10,383
|
|
|
$
|
12,349
|
|
|
$
|
(1,966
|
)
|
|
(16
|
)%
|
Europe
|
3,384
|
|
|
4,163
|
|
|
(779
|
)
|
|
(19
|
)%
|
|||
Republic of Korea
|
9,233
|
|
|
6,324
|
|
|
2,909
|
|
|
46
|
%
|
|||
Rest of world
|
5,230
|
|
|
7,761
|
|
|
(2,531
|
)
|
|
(33
|
)%
|
|||
Total net revenue
|
$
|
28,230
|
|
|
$
|
30,597
|
|
|
$
|
(2,367
|
)
|
|
(8
|
)%
|
|
March 31, 2016
|
|
December 31, 2015
|
||||
Working capital
|
$
|
80,355
|
|
|
$
|
91,373
|
|
Cash, cash equivalents, and short-term investments
|
86,828
|
|
|
99,129
|
|
||
Restricted cash equivalents and investments
|
3,100
|
|
|
2,890
|
|
|
Three months ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Cash provided by (used in) operating activities
|
$
|
(11,211
|
)
|
|
$
|
(20,094
|
)
|
Cash provided by (used in) investing activities
|
4,487
|
|
|
22,105
|
|
||
Cash provided by (used in) financing activities
|
(771
|
)
|
|
(1
|
)
|
•
|
Revenue recognition;
|
•
|
Estimating music publishing rights and music royalty accruals;
|
•
|
Estimating recoverability of deferred costs;
|
•
|
Estimating allowances for doubtful accounts and sales returns;
|
•
|
Estimating losses on excess office facilities;
|
•
|
Valuation of equity method investments;
|
•
|
Valuation of definite-lived assets;
|
•
|
Valuation of goodwill ;
|
•
|
Stock-based compensation; and
|
•
|
Accounting for income taxes.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
•
|
reduced prices or margins,
|
•
|
loss of current and potential customers, or partners and potential partners who distribute our products and services or who provide content that we distribute to our customers,
|
•
|
changes to our products, services, technologies, licenses or business practices or strategies,
|
•
|
lengthened sales cycles,
|
•
|
industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,
|
•
|
pressure to prematurely release products or product enhancements, or
|
•
|
degradation in our stature or reputation in the market.
|
•
|
difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;
|
•
|
retaining key management or employees of the acquired company;
|
•
|
entrance into unfamiliar markets, industry segments, or types of businesses;
|
•
|
operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;
|
•
|
diversion of management time and other resources from existing operations;
|
•
|
impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and
|
•
|
assumption of known and unknown liabilities of the acquired company, including intellectual property claims.
|
•
|
elect or defeat the election of our directors;
|
•
|
amend or prevent amendment of our articles of incorporation or bylaws;
|
•
|
effect or prevent a merger, sale of assets or other corporate transaction; and
|
•
|
control the outcome of any other matter submitted to the shareholders for vote.
|
•
|
adopt a plan of merger;
|
•
|
authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;
|
•
|
authorize our voluntary dissolution; or
|
•
|
take any action that has the effect of any of the above.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3.
|
Default Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
|
REALNETWORKS, INC.
|
||
|
|
|
|
|
By:
|
|
/s/ Marjorie Thomas
|
|
|
|
Marjorie Thomas
|
|
Title:
|
|
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|
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