RealNetworks Announces Third Quarter 2009 Results
RealNetworks Announces Third Quarter 2009 Results
SEATTLE, Oct. 29 /PRNewswire-FirstCall/ -- Digital entertainment services company RealNetworks®, Inc. (NASDAQ:RNWK) today announced results for the third quarter ended Sept. 30, 2009.
Quarterly Highlights: -- Revenue of $140.3 million -- Net income attributable to common shareholders of $1.5 million -- Adjusted EBITDA of $16.1 million -- Cash and short term investments of $373.2 million as of Sept. 30, 2009
"In the third quarter, we achieved two key financial objectives: we returned to sequential revenue growth and we reduced our operating costs. As a result we significantly increased our EBITDA," said Rob Glaser, RealNetworks' Chairman and CEO. "In the quarter, we also made significant progress delivering great new products and services that support two major fundamental platforms, Facebook and the iPhone/iPod Touch."
Third Quarter Results
For the third quarter of 2009, revenue was $140.3 million, a decrease of 8%, compared with $152.0 million in the third quarter of 2008. Foreign currency exchange rate fluctuations negatively affected 2009 third quarter revenue by approximately $3.6 million compared with the year-ago quarter. Excluding the effects of these foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real's businesses in the third quarter of 2009, including the effects of foreign currency exchange rate changes, compared with the year-earlier quarter were: a slight increase in Media Software and Services revenue to $24.6 million, offset by a 7% decrease in Music revenue to $38.8 million, an 8% decrease in Technology Products and Solutions revenue to $47.4 million, and a 14% decrease in Games revenue to $29.5 million.
Net income attributable to common shareholders for the third quarter of 2009 was $1.5 million, or less than $.01 per share, compared with a net loss of $(4.5) million, or $(0.03) per share, in the third quarter of 2008. Adjusted EBITDA for the third quarter of 2009 was $16.1 million compared with $11.4 million in the third quarter of 2008. In the third quarter of 2009, RealNetworks received insurance payments to reimburse litigation-defense costs that reduced G&A expense and increased EBITDA by approximately $3.9 million. A reconciliation of GAAP net income to adjusted EBITDA is provided in the financial tables that accompany this release.
Gross margin was 62% in the third quarter of 2009 compared with 59% in the third quarter of 2008. Income tax provision was $(0.7) million in the third quarter of 2009, unchanged from the year-earlier period. Interest income in the third quarter of 2009 was $1.3 million compared with $2.9 million in the year-earlier period.
As of Sept. 30, 2009, Real had approximately $373.2 million in unrestricted cash, cash equivalents and short-term investments, of which nearly 90% is located in the U.S. In addition, Real had approximately $35.5 million in restricted cash and equity investments at Sept. 30, 2009.
Business Outlook
For the fourth quarter of 2009, Real expects overall revenue to increase sequentially but to decline year-over-year. Sequentially, the company expects revenue to increase in Games and Technology Products and Solutions, to be flat in Music, and to decline in Media Software and Services. Compared with the year-ago fourth quarter, the company expects fourth-quarter Media Software and Services and Technology Products and Solutions revenue to be flat, and expects revenue in Music and Games to decline.
The foregoing forward-looking statements reflect Real's expectations as of Oct. 29, 2009. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.
Webcast and Conference Call Information
The company will host a webcast and conference call today at 5:00pm (Eastern)/ 2:00pm (Pacific). The live webcast featuring slides and audio will be available at http://investor.realnetworks.com/. Listeners must use RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast.
Conference Call Details 5:00 p.m. (Eastern) / 2:00 p.m. (Pacific) Dial in: 800-857-5305 Domestic 773-681-5857 International Passcode: Third Quarter Earnings Leader: Rob Glaser Telephonic replay will be available until 8:00 p.m. (Eastern), November 12, 2009. Replay dial in: 866-873-2049 Domestic 402-220-5369 International RNWK-F About Real Networks
RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer®, the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody® digital music service, which delivers more than 1 billion songs per year; RealArcade®, one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://investor.realnetworks.com/.
About Non-GAAP Financial Measures
To supplement RealNetworks' condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA excluding impairments, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses, which management believes provide investors with useful information.
In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA by reporting segment; GAAP cost of revenue to adjusted cost of revenue; and GAAP operating expenses to adjusted operating expenses for the relevant periods.
The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the third quarter earnings materials, available in Exhibit 99.2 ("Information Regarding Non-GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.
Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real's current expectations for future revenue and other financial results. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: fluctuations in foreign currencies; development and consumer acceptance of legal online music distribution services generally and RealNetworks' content services in particular because these are relatively new and unproven business models and markets; the potential that Real will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for its subscription service offerings and the distribution of Real's carrier application services; the emergence of new entrants and competition in the market for digital media subscription offerings, online music sales and downloadable casual games; competitive risks, including the emergence or growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real's business, prospects, financial condition or results of operations; risks associated with business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; risks inherent in strategic relationships, especially with competitors, and with respect to technology and service integration efforts; and risks relating to the ability of Real's strategic partners to generate subscribers for Real's digital content services. More information about potential risk factors that could affect RealNetworks' business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks' financial statements and forward-looking financial guidance requires the company to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.
RealNetworks, Rhapsody, RealPlayer and RealArcade are trademarks or registered trademarks of RealNetworks, Inc. or its subsidiaries. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.
RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Quarters Ended Nine Months Ended September 30, September 30, -------------- -------------- 2009 2008 2009 2008 ---- ---- ---- ---- (in thousands, except per share data) Net revenue $140,264 $151,955 $416,762 $452,166 Cost of revenue 53,686 62,164 165,321 173,202 ------ ------ ------- ------- Gross profit 86,578 89,791 251,441 278,964 ------ ------ ------- ------- Operating expenses: Research and development 29,425 31,076 86,907 85,147 Sales and marketing 39,573 55,080 125,531 161,730 Advertising with related party (A) 7,941 15,153 22,229 31,733 General and administrative 13,039 15,453 55,208 50,874 Impairment of goodwill - - 175,583 - Restructuring and other charges 877 - 1,671 686 --- --- ----- --- Total operating expenses 90,855 116,762 467,129 330,170 ------ ------- ------- ------- Operating loss (4,277) (26,971) (215,688) (51,206) ------ ------- -------- ------- Other income (expenses): Interest income, net 1,253 2,865 3,190 11,198 Equity in net loss of investments (273) (226) (1,197) (424) Gain on sale of equity investments, net 604 - 809 222 Gain on sale of interest in Rhapsody America (B) - 7,405 - 14,502 Other income (expense), net (888) 818 (482) 1,636 ---- --- ---- ----- Total other income (expense), net 696 10,862 2,320 27,134 --- ------ ----- ------ Loss before income taxes (3,581) (16,109) (213,368) (24,072) Income taxes (686) (728) (3,445) (8,436) ---- ---- ------ ------ Net loss (4,267) (16,837) (216,813) (32,508) Net loss Attributable to the noncontrolling interest in Rhapsody America (C) 5,787 12,337 17,868 29,129 ----- ------ ------ ------ Net income (loss) attributable to common shareholders $1,520 $(4,500) $(198,945) $(3,379) ====== ======= ========= ======= Basic net income (loss) per share available to common shareholders $0.00 $(0.03) $(1.50) $(0.02) Diluted net income (loss) per share available to common shareholders $0.00 $(0.03) $(1.50) $(0.02) Shares used to compute basic net income (loss) per share available to common shareholders 134,793 141,975 134,531 142,611 Shares used to compute diluted net income (loss) per share available to common shareholders 134,978 141,975 134,531 142,611 (A) Consists of advertising purchased by Rhapsody America from MTV Networks (MTVN). MTVN has a 49% ownership interest in Rhapsody America. (B) Consists of gains realized from MTVN's note payments to Rhapsody America. Effective January 1, 2009, the Company adopted SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51 (SFAS 160) which requires the appreciation of gains on the sale of noncontrolling interest to be recorded as an equity transaction. (C) Noncontrolling interest in Rhapsody America reflects MTVN's 49% ownership share in the losses of Rhapsody America. RealNetworks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) September 30, December 31, 2009 2008 ---- ---- (in thousands) ASSETS Current assets: Cash and cash equivalents $204,777 $232,968 Short-term investments 168,420 137,766 Trade accounts receivable, net 67,060 70,201 Deferred costs, current portion 5,383 4,026 Prepaid expenses and other current assets 31,388 34,599 ------ ------ Total current assets 477,028 479,560 ------- ------- Equipment, software, and leasehold improvements, at cost: Equipment and software 147,430 135,788 Leasehold improvements 31,003 30,719 ------ ------ Total equipment, software, and leasehold improvements 178,433 166,507 Less accumulated depreciation and amortization 119,903 103,500 ------- ------- Net equipment, software, and leasehold improvements 58,530 63,007 Restricted cash equivalents and investments 13,700 14,742 Equity investments 21,768 18,582 Other assets 4,180 3,775 Deferred costs, non-current portion 8,945 6,120 Deferred tax assets, net, non-current portion 9,867 9,236 Other intangible assets, net 12,761 18,727 Goodwill - 175,264 --- ------- Total assets $606,779 $789,013 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $39,264 $36,575 Accrued and other liabilities 111,295 118,688 Deferred revenue, current portion 35,812 39,835 Related party payable (A) 8,007 13,155 Accrued loss on excess office facilities, current portion 4,338 4,317 ----- ----- Total current liabilities 198,716 212,570 ------- ------- Deferred revenue, non-current portion 1,933 1,961 Accrued loss on excess office facilities, non-current portion - 2,893 Deferred rent 4,534 4,614 Deferred tax liabilities, net, non-current portion 859 1,379 Other long-term liabilities 11,027 11,660 ------ ------ Total liabilities 217,069 235,077 ------- ------- Noncontrolling interest in Rhapsody America (B) 5,440 378 Shareholders' equity 384,270 553,558 ------- ------- Total liabilities and shareholders' equity $606,779 $789,013 ======== ======== (A) Related party payable reflects amounts owed to MTVN. (B) Noncontrolling interest in Rhapsody America reflects MTVN's 49% ownership interest in the net assets of Rhapsody America. RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, ------------------ 2009 2008 ---- ---- (in thousands) Cash flows from operating activities: Net loss $(216,813) $(32,508) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 22,881 38,032 Stock-based compensation 15,545 17,475 Loss on disposal of equipment, software, and leasehold improvements 302 157 Equity in net loss of investments 1,197 198 Gain on sale of equity investment, net (809) (222) Excess tax benefit from stock option exercises (9) (108) Impairment of goodwill 175,583 - Accrued restructuring and other charges (3,786) - Accrued loss on excess office facilities (2,872) (2,537) Deferred income taxes, net 545 2,640 Gain on sale of interest in Rhapsody America - (14,502) Other 39 111 Net change in certain operating assets and liabilities, net of acquisitions (8,295) (29,750) ------ ------- Net cash used in operating activities (16,492) (21,014) ------- ------- Cash flows from investing activities: Purchases of equipment, software, and leasehold improvements (11,445) (24,807) Purchases of short-term investments (124,043) (151,378) Proceeds from sales and maturities of short-term investments 93,389 130,136 Purchases of intangible assets - (1,808) Proceeds from the sales of equity investments 1,014 1,225 Purchases of equity investments (2,000) (4,500) Payment of acquisition costs, net of cash acquired (3,324) (10,192) Decrease in restricted cash equivalents and investments, net 1,042 776 ----- --- Net cash used in investing activities (45,367) (60,548) ------- ------- Cash flows from financing activities: Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options 819 8,834 Payments of convertible debt obligations - (100,000) Net proceeds from sales of interest in Rhapsody America 26,912 31,640 Excess tax benefit from stock option exercises 9 108 Repurchases of common stock - (23,062) --- ------- Net cash provided by (used in) financing activities 27,740 (82,480) ------ ------- Effect of exchange rate changes on cash and cash equivalents 5,928 (7,512) ----- ------ Net decrease in cash and cash equivalents (28,191) (171,554) Cash and cash equivalents, beginning of period 232,968 476,697 ------- ------- Cash and cash equivalents, end of period $204,777 $305,143 ======== ======== RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited) 2009 ------------------------ Q3 Q2 Q1 ------ ------ ------ (in thousands) Net Revenue by Line of Business: Consumer products and services (A) $92,836 $89,517 $97,194 Technology products and solutions (B) 47,428 46,208 43,579 ------ ------ ------ Total net revenue $140,264 $135,725 $140,773 ======== ======== ======== Consumer Products and Services: Subscriptions (C) $52,401 $54,446 $59,052 Media properties (D) 21,001 14,753 15,536 E-commerce and other (E) 19,434 20,318 22,606 ------ ------ ------ Total consumer products and services revenue $92,836 $89,517 $97,194 ======= ======= ======= Consumer Products and Services: Music (F) $38,765 $40,452 $44,053 Media software and services (G) 24,580 19,291 20,318 Games (H) 29,491 29,774 32,823 ------ ------ ------ Total consumer products and services revenue $92,836 $89,517 $97,194 ======= ======= ======= Net Revenue by Geography: United States $95,758 $90,685 $96,666 Rest of world 44,506 45,040 44,107 ------ ------ ------ Total net revenue $140,264 $135,725 $140,773 ======== ======== ======== Subscribers (presented as greater than) *: Total subscribers (I) 38,950 37,700 36,450 Technology products and solutions application services subscribers (J) 37,500 36,300 33,850 Music subscribers: Consumer music subscribers: Rhapsody subscribers 700 750 800 Radio subscribers 75 75 1,200 --- --- ----- Total consumer music subscribers 775 825 2,000 Technology products and solutions application services music subscribers (K) 1,075 975 900 ----- --- --- Total Music Subscribers** 1,850 1,800 2,900 2008 --------------------------------- Q4 Q3 Q2 Q1 ------ ------ ------ ------ (in thousands) Net Revenue by Line of Business: Consumer products and services (A) $100,282 $100,322 $101,353 $96,286 Technology products and solutions (B) 52,362 51,633 51,295 51,277 ------ ------ ------ ------ Total net revenue $152,644 $151,955 $152,648 $147,563 ======== ======== ======== ======== Consumer Products and Services: Subscriptions (C) $57,853 $57,776 $55,658 $55,193 Media properties (D) 18,337 19,946 23,472 18,702 E-commerce and other (E) 24,092 22,600 22,223 22,391 ------ ------ ------ ------ Total consumer products and services revenue $100,282 $100,322 $101,353 $96,286 ======== ======== ======== ======= Consumer Products and Services: Music (F) $43,882 $41,591 $37,170 $38,079 Media software and services (G) 22,695 24,531 29,238 26,409 Games (H) 33,705 34,200 34,945 31,798 ------ ------ ------ ------ Total consumer products and services revenue $100,282 $100,322 $101,353 $96,286 ======== ======== ======== ======= Net Revenue by Geography: United States $101,369 $102,363 $100,898 $99,169 Rest of world 51,275 49,592 51,750 48,394 ------ ------ ------ ------ Total net revenue $152,644 $151,955 $152,648 $147,563 ======== ======== ======== ======== Subscribers (presented as greater than) *: Total subscribers (I) 34,100 32,650 35,000 32,200 Technology products and solutions application services subscribers (J) 31,500 29,950 32,450 29,500 Music subscribers: Consumer music subscribers: Rhapsody subscribers 775 750 600 600 Radio subscribers 1,225 1,250 1,225 1,275 ----- ----- ----- ----- Total consumer music subscribers 2,000 2,000 1,825 1,875 Technology products and solutions application services music subscribers (K) 875 850 800 800 --- --- --- --- Total Music Subscribers** 2,875 2,850 2,625 2,675 * Total music subscribers includes subscribers from our technology products and solutions application subscription services, such as music-on-demand, as well as our consumer music services, such as Rhapsody and Premium Radio. Although music-on-demand subscribers are included in the technology products and solutions application services subscribers and total music subscribers, these subscribers are only counted once as part of our total subscribers. ** Prior periods have been changed to reflect current period presentation. Totals may not equal due to rounding convention. (A) Revenue is derived from consumer digital media subscription services, RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music and advertising. (B) The Technology Products and Solutions (TPS) segment includes revenue and related costs from: sales of ringback tones, music-on- demand, video-on-demand, messaging, and information services; sales of media delivery system software, including Helix system software and related authoring and publishing tools, both directly to customers and indirectly through original equipment manufacturer channels; support and maintenance services sold to customers who purchase software products; broadcast hosting services; and consulting and professional services that are offered to customers. (C) Revenue is derived from consumer digital media subscription services including: SuperPass, RadioPass, Rhapsody, GamePass and FunPass. (D) Revenue is derived from advertising and through the distribution of third party products. (E) Revenue is derived from RealPlayer Plus and related products, sales of third party software products, and content such as games and music. (F) The Music segment primarily includes revenue and related costs from: Rhapsody America's Rhapsody and RadioPass subscription services; sales of digital music content through the Rhapsody service and the RealPlayer music store; and advertising from music websites. (G) The Media Software and Services (MSS) segment primarily includes revenue and related costs from: the SuperPass premium subscription service; RealPlayer Plus and related products; sales and distribution of third-party software products; and all advertising other than that related directly to our Music and Games businesses. (H) The Games segment primarily includes revenue and related costs from: the sale of individual games on our websites RealArcade.com, GameHouse.com and Zylom.com; the sales of games subscription services; advertising through our games websites; the sale of games through the syndication on partner sites, and sales of games through wireless carriers. (I) Total subscribers include technology products and solutions application services and consumer subscription services including: ringback tones, music-on-demand, video-on-demand, Rhapsody, Rhapsody- to-Go, RadioPass, SuperPass, and GamePass. (J) Technology products and solutions application service subscribers include: ringback tones, music-on-demand and video-on- demand. (K) Technology products and solutions application services music subscribers include music-on-demand. RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited) Reconciliation of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA excluding impairments and adjusted EBITDA is as follows: Quarters ended --------------------------------- September 30, June 30, March 31, 2009 2009 2009 ---- ---- ---- (in thousands) Net income (loss) attributable to common shareholders $1,520 $(188,329) $(12,136) Interest income, net (1,253) (754) (1,183) Stock-based compensation 4,727 5,596 5,222 Loss (gain) on equity investments, net (604) (68) (137) Conversion of WiderThan stock options to a cash equivalent 1 3 17 Depreciation and amortization (net of noncontrolling interest effect) 5,432 5,815 5,726 Acquisitions related intangible asset amortization (net of noncontrolling interest effect) 1,784 1,649 1,768 Impairment of goodwill and long-lived assets - 175,583 - Impairment of deferred costs and prepaid royalties - - - Restructuring and other charges 877 - 794 Pro forma gain on sale of interest in Rhapsody America 3,839 3,444 4,010 Expenses related to antitrust litigation - - - Income taxes 686 1,210 1,549 --- ----- ----- Adjusted EBITDA excluding impairments $17,009 $4,149 $5,630 ------- ------ ------ Impairments: Impairment of deferred costs and prepaid royalties - - - Restructuring and other charges (877) - (794) ---- --- ---- Adjusted EBITDA $16,132 $4,149 $4,836 ======= ====== ====== Quarters ended December 31, September 30, June 30, March 31 2008 2008 2008 2008 ---- ---- ---- ---- (in thousands) Net income (loss) attributable to common shareholders $(240,499) $(4,500) $(1,305) $2,426 Interest income, net (2,255) (2,865) (3,375) (4,958) Stock-based compensation 6,056 5,955 6,031 5,489 Loss (gain) on equity investments, net 12 - (222) - Conversion of WiderThan stock options to a cash equivalent 11 16 26 89 Depreciation and amortization (net of noncontrolling interest effect) 5,784 6,165 6,186 6,282 Acquisitions related intangible asset amortization (net of noncontrolling interest effect) 1,872 5,752 6,171 6,315 Impairment of goodwill and long-lived assets 190,347 - - - Impairment of deferred costs and prepaid royalties 19,666 - - - Restructuring and other charges 6,147 - - 686 Pro forma gain on sale of interest in Rhapsody America 6,568 - - - Expenses related to antitrust litigation 179 174 202 202 Income taxes 17,392 728 3,700 4,008 ------ --- ----- ----- Adjusted EBITDA excluding impairments $11,280 $11,425 $17,414 $20,539 ------- ------- ------- ------- Impairments: Impairment of deferred costs and prepaid royalties (19,666) - - - Restructuring and other charges (6,147) - - (686) ------ - - ---- Adjusted EBITDA $(14,533) $11,425 $17,414 $19,853 ========= ======= ======= ======= RealNetworks, Inc. and Subsidiaries Segment Results of Operations (Unaudited) Quarter Ended September 30, 2009 Music (A) MSS (B) Games(C) TPS (D) Other Grand Total --------- ------- -------- ------- ----- ----------- (in thousands) Net revenue $38,765 $24,580 $29,491 $47,428 $- $140,264 Cost of revenue 23,720 4,090 7,728 18,148 - 53,686 ------ ----- ----- ------ --- ------ Gross profit 15,045 20,490 21,763 29,280 - 86,578 ------ ------ ------ ------ --- ------ Gross margin 39% 83% 74% 62% - 62% Operating expenses: Advertising with related party 7,941 - - - - 7,941 Restructuring and other charges 312 139 258 168 - 877 Other operating expenses 16,897 13,110 26,823 25,367 (160) 82,037 ------ ------ ------ ------ ---- ------ Total operating expenses 25,150 13,249 27,081 25,535 (160) 90,855 ------ ------ ------ ------ ---- ------ Income (loss) from operations (10,105) 7,241 (5,318) 3,745 160 (4,277) ------- ----- ------ ----- --- ------ Other income (expenses): Interest income, net - - - - 1,253 1,253 Equity in net loss of investments - - - - (273) (273) Gain on sale of equity investments, net - - - - 604 604 Other income (expenses), net - - - - (888) (888) --- --- --- --- ---- ---- Total other income (expenses), net - - - - 696 696 --- --- --- --- --- --- Income (loss) before income taxes (10,105) 7,241 (5,318) 3,745 856 (3,581) Income taxes - - - - (686) (686) --- --- --- --- ---- ---- Net income (loss) (10,105) 7,241 (5,318) 3,745 170 (4,267) Net income (loss) attributable to noncontrolling interest in Rhapsody America 5,787 - - - - 5,787 ----- --- --- --- --- ----- Net income (loss) attributable to common shareholders $(4,318) $7,241 $(5,318) $3,745 $170 $1,520 ======= ====== ======= ====== ==== ====== Reconciliation of segment GAAP net income (loss) attributable to common shareholders to segment adjusted EBITDA is as follows: Net income (loss) attributable to common shareholders $(4,318) $7,241 $(5,318) $3,745 $170 $1,520 Income taxes - - - - 686 686 Interest income, net - - - - (1,253) (1,253) Stock-based compensation 560 732 1,361 2,074 - 4,727 Conversion of WiderThan stock options to a cash equivalent - - - 1 - 1 Acquisitions related intangible asset amortization (F) 278 8 70 1,428 - 1,784 Pro forma gain on sale of interest in Rhapsody America 3,839 - - - - 3,839 Gain on sale of equity investments, net - - - - (604) (604) Depreciation and amortization (F) 893 668 1,150 2,721 - 5,432 --- --- ----- ----- --- ----- Adjusted EBITDA $1,252 $8,649 $(2,737) $9,969 $(1,001) $16,132 ====== ====== ======= ====== ======= ======= Quarter Ended September 30, 2008 Music (A) MSS (B) Games(C) TPS (D) Other Grand Total --------- ------- -------- ------- ----- ----------- (in thousands) Net revenue $41,591 $24,531 $34,200 $51,633 - $151,955 Cost of revenue 23,787 4,539 10,251 23,587 - 62,164 ------ ----- ------ ------ --- ------ Gross profit 17,804 19,992 23,949 28,046 - 89,791 ------ ------ ------ ------ --- ------ Gross margin 43% 81% 70% 54% - 59% Operating expenses: Advertising with related party 15,153 - - - - 15,153 Other operating expenses 27,202 16,064 28,412 29,719 212 101,609 ------ ------ ------ ------ --- ------- Total operating expenses 42,355 16,064 28,412 29,719 212 116,762 ------ ------ ------ ------ --- ------- Income (loss) from operations (24,551) 3,928 (4,463) (1,673) (212) (26,971) ------- ----- ------ ------ ---- ------- Other income (expenses): Interest income, net - - - - 2,865 2,865 Equity in net loss of investments - - - - (226) (226) Gain on sale of interest in Rhapsody America (E) 7,405 - - - - 7,405 Other income (expenses), net - - - - 818 818 --- --- --- --- --- --- Total other income (expenses), net 7,405 - - - 3,457 10,862 ----- --- --- --- ----- ------ Income (loss) before income taxes (17,146) 3,928 (4,463) (1,673) 3,245 (16,109) Income taxes - - - - (728) (728) --- --- --- --- ---- ---- Net income (loss) (17,146) 3,928 (4,463) (1,673) 2,517 (16,837) Net income (loss) attributable to noncontrolling interest in Rhapsody America 12,337 - - - - 12,337 ------ --- --- --- --- ------ Net income (loss) attributable to common shareholders $(4,809) $3,928 $(4,463) $(1,673) $2,517 $(4,500) ======= ====== ======= ======= ====== ======= Reconciliation of segment GAAP net income (loss) attributable to common shareholders to segment adjusted EBITDA is as follows: Net income (loss) attributable to common shareholders $(4,809) $3,928 $(4,463) $(1,673) $2,517 $(4,500) Income taxes - - - - 728 728 Interest income, net - - - - (2,865) (2,865) Stock-based compensation 1,005 786 1,552 2,612 - 5,955 Conversion of WiderThan stock options to a cash equivalent - - - 16 - 16 Acquisitions related intangible asset amortization (F) 422 - 611 4,719 - 5,752 Depreciation and amortization (F) 1,206 893 923 3,143 - 6,165 Expenses related to antitrust litigation - - - - 174 174 --- --- --- --- --- --- Adjusted EBITDA $(2,176) $5,607 $(1,377) $8,817 $554 $11,425 ======= ====== ======= ====== ==== ======= Note: Cost of revenue and operating expenses of the segments shown above include costs directly attributable to those segments and an allocation of general and administrative and other common or shared costs. (A) The Music segment primarily includes revenue and related costs from: Rhapsody America's Rhapsody and RadioPass subscription services; sales of digital music content through the Rhapsody service and the RealPlayer music store; and advertising from music websites. (B) The Media Software and Services (MSS) segment primarily includes revenue and related costs from: the SuperPass premium subscription service; RealPlayer Plus and related products; sales and distribution of third-party software products; and all advertising other than that related directly to our Music and Games businesses. (C) The Games segment primarily includes revenue and related costs from: the sale of individual games on our websites RealArcade.com, GameHouse.com and Zylom.com; the sales of games subscription services; advertising through our games websites; the sale of games through the syndication on partner sites, and sales of games through wireless carriers. (D) The Technology Products and Solutions (TPS) segment includes revenue and related costs from: sales of ringback tones, music-on-demand, video-on-demand, messaging, and information services; sales of media delivery system software, including Helix system software and related authoring and publishing tools, both directly to customers and indirectly through original equipment manufacturer channels; support and maintenance services sold to customers who purchase software products; broadcast hosting services; and consulting and professional services that are offered to customers. (E) Comprises gains realized from MTVN's note payments to Rhapsody America. Effective January 1, 2009, the Company adopted SFAS 160 which requires the appreciation of gains on the sale of non controlling interest to be recorded as an equity transaction. (F) Net of noncontrolling interest effect. RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited) Quarter Ended September 30, 2009 ---------------------------------- Acquis- WiderThan itions Options Related Converted Anti- Stock- Intangible to a trust Based Asset Cash Litiga- As Compen- Amorti- Equiv- tion Reported sation zation (A) alent Related Adjusted -------- ------ ---------- ----- ------- -------- (in thousands) Expenses in accordance with GAAP Cost of revenue $53,686 $(309) $(540) $- $- $52,837 Operating expenses: Research and development $29,425 $(1,788) $- $- $- $27,637 Sales and marketing 39,573 (1,099) (1,244) 1 - 37,231 General and administrative 13,039 (1,531) - - - 11,508 ------ ------ --- --- --- ------ Adjusted operating expenses, net $82,037 $(4,418) $(1,244) $1 $- $76,376 ======= ======= ======= === === ======= Quarter Ended September 30, 2008 ---------------------------------- Acquis- WiderThan itions Options Related Converted Anti- Stock- Intangible to a trust Based Asset Cash Litiga- As Compen- Amorti- Equiv- tion Reported sation zation (A) alent Related Adjusted -------- ------ ---------- ----- ------- -------- (in thousands) Expenses in accordance with GAAP Cost of revenue $62,164 $(696) $(1,995) $(1) $- $59,472 Operating expenses: Research and development $31,076 $(2,247) $- $- $- $28,829 Sales and marketing 55,080 (1,458) (3,757) (3) - 49,862 General and administrative 15,453 (1,554) - (12) (174) 13,713 ------ ------ --- --- ---- ------ Adjusted operating expenses, net $101,609 $(5,259) $(3,757) $(15) $(174) $92,404 ======== ======= ======= ==== ===== ======= Nine Months Ended September 30, 2009 ------------------------------------ Acquis- WiderThan itions Options Related Converted Anti- Stock- Intangible to a trust Based Asset Cash Litiga- As Compen- Amorti- Equiv- tion Reported sation zation (A) alent Related Adjusted -------- ------ ---------- ----- ------- -------- (in thousands) Expenses in accordance with GAAP Cost of revenue $165,321 $(1,302) $(1,639) $(1) $- $162,379 Operating expenses: Research and development $86,907 $(5,846) $- $(8) $- $81,053 Sales and marketing 125,531 (3,364) (3,562) (12) - 118,593 General and administrative 55,208 (5,034) - - - 50,174 ------ ------ --- --- --- ------ Adjusted operating expenses, net $267,646 $(14,244) $(3,562) $(20) $- $249,820 ======== ======== ======= ==== === ======== Nine Months Ended September 30, 2008 ------------------------------------ Acquis- WiderThan itions Options Related Converted Anti- Stock- Intangible to a trust Based Asset Cash Litiga- As Compen- Amorti- Equiv- tion Reported sation zation (A) alent Related Adjusted -------- ------ ---------- ----- ------- -------- (in thousands) Expenses in accordance with GAAP Cost of revenue $173,202 $(1,592) $(6,592) $(24) $- $164,994 Operating expenses: Research and development $85,147 $(6,307) $- $(9) $- $78,831 Sales and marketing 161,730 (4,798) (11,646) (31) - 145,255 General and administrative 50,874 (4,778) - (67) (578) 45,451 ------ ------ --- --- ---- ------ Adjusted operating expenses, net $297,751 $(15,883) $(11,646) $(107) $(578) $269,537 ======== ======== ======== ===== ===== ======== (A) - Net of noncontrolling interest effect. RealNetworks, Inc. and Subsidiaries Earnings Per Share Reconciliation (Unaudited) Quarters Ended Nine Months Ended September 30, September 30, ----------------- ----------------- 2009 2008 2009 2008 ---- ---- ---- ---- (in thousands, except per share data) Net income (loss) attributable to common shareholders $1,520 $(4,500) $(198,945) $(3,379) Less accretion of MTVN's preferred return in Rhapsody America (925) - (2,775) - ---- --- ------ --- Net income (loss) available to common shareholders $595 $(4,500) $(201,720) $(3,379) ==== ======= ========= ======= Shares used to compute basic net income (loss) per share available to common shareholders 134,793 141,975 134,531 142,611 Dilutive potential common shares: Stock options and restricted stock 185 - - - Convertible debt - - - - --- --- --- --- Shares used to compute diluted net income (loss) per share available to common shareholders 134,978 141,975 134,531 142,611 Basic net income (loss) per share available to common shareholders $0.00 $(0.03) $(1.50) $(0.02) Diluted net income (loss) per share available to common shareholders $0.00 $(0.03) $(1.50) $(0.02)
First Call Analyst:
FCMN Contact:
Source: RealNetworks, Inc.
CONTACT: Press, Bill Hankes, +1-206-892-6614, bhankes@real.com, or
Financial, Marj Charlier, +1-206-892-6718, mcharlier@real.com
Web Site: http://www.realnetworks.com/
Profile: International Entertainment
posted by EntertainmentNews @ 1:09 PM
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