RealNetworks Announces First Quarter 2012 Results

RealNetworks Announces First Quarter 2012 Results

SEATTLE, May 2, 2012 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the first quarter ended March 31, 2012.

Quarterly Summary:


-- Revenue of $67.0 million
-- Net loss of $(17.0) million or $(0.49) per share
-- Adjusted EBITDA of $(7.4) million
-- Cash and short term investments of $167.0 million as of March 31, 2012
-- Closed $120 million sale of patent assets to Intel on April 5, 2012
"In the first quarter, we made progress on our turn-around plan for RealNetworks," said Thomas Nielsen, President and CEO of RealNetworks. "While it will take a while for financial results to reflect the work we are doing, we are confident that we are on the right path in simplifying our company and developing a strategy for future growth."

First Quarter Results

For the first quarter of 2012, revenue was $67.0 million, a sequential decrease of 17% from the fourth quarter of 2011, and a decrease of 23% compared with the first quarter of 2011. Revenue trends in each of RealNetworks' businesses in the first quarter of 2012 compared with the year-earlier quarter were: a 9% decrease in Emerging Products revenue to $10.2 million, a 22% decrease in Core Products revenue to $37.7 million and a 32% decrease in Games revenue to $19.1 million.

Net loss for the first quarter of 2012 was $(17.0) million, or $(0.49) per share, compared with a net loss of $(12.3) million, or $(0.36) per share, in the first quarter of 2011. The loss for the most-recent quarter was affected primarily by the decline in revenue. The loss widened in spite of a decline in restructuring costs to $(1.6) million, compared with $(6.9) million in the first quarter of 2011; a decline in RealNetworks' share of Rhapsody losses to $(0.4) million in the first quarter of 2012 from $(3.3) million in the first quarter of 2011; and lower tax expense of $(0.2) million, compared with $(3.6) million in the year-ago quarter. The year-ago net loss reflected a $6.4 million insurance reimbursement for legal expenses.

Adjusted EBITDA for the first quarter was $(7.4) million, excluding costs related to the Intel transaction, compared with adjusted EBITDA of $7.5 million for the first quarter of 2011. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2012, RealNetworks had $167.0 million in unrestricted cash, cash equivalents and short-term investments, of which approximately $42.6 million is held in foreign jurisdictions, compared with cash of $185.1 million at Dec. 31, 2011. The $167.0 million at March 31, 2012, does not include the $120.0 million cash proceeds from the sale of patent assets to Intel, which closed on April 5, 2012. In addition, RealNetworks had $55.8 million in restricted cash and available-for-sale securities as of March 31, 2012, an increase of $8.4 million from Dec. 31, 2011.



Segment Operating Results




2012 2011 2011
---- ----
Q1 Q4 Q1
--- --- ---
(in thousands)
Revenue
Core
Products $37,697 $46,693 $48,107
Emerging
Products 10,159 11,974 11,135
Games 19,108 21,552 28,059
Corporate - - -
---------
Total $66,964 $80,219 $87,301
----- ------- ------- -------

Operating Income (loss)
Core
Products $1,801 $(10,733) $7,737
Emerging
Products 508 26 (296)
Games (983) 228 2,711
Corporate (19,868) (13,198) (15,818)
---------
Total $(18,542) $(23,677) $(5,666)
----- -------- -------- -------

Adjusted EBITDA
Core
Products $4,400 $11,382 $10,260
Emerging
Products 754 986 (188)
Games (324) 883 3,340
Corporate (12,247) (9,411) (5,870)
---------
Total $(7,417) $3,840 $7,542
----- ------- ------ ------


Business Outlook



For the second quarter of 2012, RealNetworks expects revenue of $66 million to $69 million. The company expects revenue from Core Products to increase sequentially and decline year-over-year, and revenue from Emerging Products to be flat sequentially and decline year-over-year. The company expects revenue in Games to decline sequentially and year-over-year. RealNetworks expects to report a second-quarter adjusted EBITDA loss similar to that of the first quarter.

Anticipating significant restructuring activities in 2012, which we expect will include acquisitions and divestitures as well as changes in RealNetworks' operating segments, RealNetworks is not providing full-year guidance for 2012.



The foregoing forward-looking statements reflect RealNetworks' expectations as of May 2, 2012. It is not RealNetworks' general practice to update these forward-looking statements until its next quarterly results announcement.



Webcast and Conference Call Information

The company will host an audio Webcast conference call to review results and discuss the company's operations for the first quarter at5:00 p.m. ET on May 2. The Webcast will be available at: http://investor.realnetworks.com


Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details
5:00 p.m. ET / 2:00 p.m. PT

Dial in:

888-323-9869 Domestic

517-308-9139 International

Passcode: First Quarter Earnings

Leader: Thomas Nielsen

Telephonic replay will be available until 8 p.m. ET, May 16, 2012.
Replay dial in:

800-944-8789 Domestic

402-220-3521 International



About RealNetworks:

RealNetworks creates innovative applications and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category in 1995 and continues to connect consumers with their digital media both directly and through partners, aiming to support every network, device, media type and social network. RealNetworks' corporate information is located at http://www.realnetworks.com/about-us

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 EBITDA and adjusted EBITDA by reporting segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the first quarter earnings materials. Please refer to 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 RealNetworks' current expectations for revenue, adjusted EBITDA, the development of its strategy for future growth, and plans to undertake restructuring activities, including acquisitions and divestitures. 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; RealNetworks' ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on RealNetworks' business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, 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; and changes in RealNetworks' effective tax rate. 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, RealPlayer and GameHouse 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
March 31,
---------

2012 2011
---- ----
(in thousands, except
per share data)

Net revenue $66,964 $87,301

Cost of
revenue 27,427 32,066

Gross profit 39,537 55,235
------ ------

Sale of
patents and
other
technology
assets, net
of costs
(A) (1,580) -

Operating
expenses:
Research and
development 17,818 19,895
Sales and
marketing 23,796 28,480
General and
administrative 13,276 5,622
Restructuring
and other
charges 1,609 6,904

Total
operating
expenses 56,499 60,901
------ ------

Operating
income
(loss) (18,542) (5,666)
------- ------

Other income
(expenses):
Interest
income, net 644 379
Equity in
net loss of
Rhapsody
investment (368) (3,281)
Other income
(expense),
net 1,475 (122)
----- ----

Total other
income
(expense),
net 1,751 (3,024)
----- ------

Income
(loss)
before
income
taxes (16,791) (8,690)
Income tax
(expense)
benefit (224) (3,615)
---- ------

Net income
(loss)
attributable
to common
shareholders $(17,015) $(12,305)
======== ========

Basic net
income
(loss) per
share $(0.49) $(0.36)
Diluted net
income
(loss) per
share $(0.49) $(0.36)

Shares used
to compute
basic net
income
(loss) per
share 34,488 34,066
Shares used
to compute
diluted net
income
(loss) per
share 34,488 34,066


(A) On April 5, 2012, RealNetworks
completed the sale of certain patents
and other technology assets to Intel
for a cash purchase of $120.0 million.
Because the transaction closed
subsequent to March 31, 2012, the gain
on the transaction will be reflected in
our financial statements for the second
quarter of 2012. For the first quarter
of 2012, $1.6 million of direct costs
of the transaction were incurred.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)


March 31, December 31,
2012 2011
---- ----
(in thousands)
ASSETS

Current assets:
Cash and cash
equivalents $83,332 $106,333
Short-term
investments 83,681 78,739
Trade accounts
receivable,
net 40,160 41,165
Deferred
costs,
current
portion 1,338 1,424
Prepaid
expenses and
other current
assets 24,984 21,902
------ ------

Total current
assets 233,495 249,563
------- -------

Equipment, software, and leasehold
improvements, at cost:
Equipment and
software 108,173 104,352
Leasehold
improvements 26,224 25,947
------ ------
Total
equipment,
software, and
leasehold
improvements 134,397 130,299
Less
accumulated
depreciation
and
amortization 95,672 92,825
------ ------

Net equipment,
software, and
leasehold
improvements 38,725 37,474

Restricted
cash
equivalents
and
investments 10,173 10,168
Equity method
investments 7,430 7,798
Available for
sale
securities 45,630 37,204
Other assets 2,960 2,954
Deferred
costs, non-
current
portion 691 843
Deferred tax
assets, net,
non-current
portion 18,320 18,419
Other
intangible
assets, net 6,177 7,169
Goodwill 6,297 6,198
----- -----

Total assets $369,898 $377,790
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts
payable $17,935 $17,151
Accrued and
other
liabilities 58,783 59,194
Deferred
revenue,
current
portion 11,270 11,835
Accrued loss
on excess
office
facilities,
current
portion 505 596
--- ---

Total current
liabilities 88,493 88,776

Deferred
revenue, non-
current
portion 220 195
Accrued loss
on excess
office
facilities,
non-current
portion 1,843 2,151
Deferred rent 2,867 2,944
Deferred tax
liabilities,
net, non-
current
portion 1,217 1,443
Other long-
term
liabilities 9,884 10,994
----- ------

Total
liabilities 104,524 106,503
------- -------


Shareholders'
equity 265,374 271,287
------- -------

Total
liabilities
and
shareholders'
equity $369,898 $377,790
======== ========

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Quarters Ended March 31,
------------------------
2012 2011
---- ----
(in thousands)

Cash flows from
operating activities:
Net income (loss) $(17,015) $(12,305)
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities:
Depreciation and
amortization 4,118 3,819
Stock-based
compensation 2,343 3,453
Equity in net loss of
Rhapsody investment 368 3,281
Excess tax benefit
from stock option
exercises - (26)
Deferred income taxes,
net (19) (161)
Realized translation
gain (1,611) -
Other (3) 105
Net change in certain
operating assets and
liabilities (5,423) (3,352)
------ ------

Net cash provided by
(used in) operating
activities (17,242) (5,186)
------- ------

Cash flows from
investing activities:
Purchases of
equipment, software,
and leasehold
improvements (2,798) (1,165)
Purchases of short-
term investments (9,969) (22,091)
Proceeds from sales
and maturities of
short-term
investments 5,027 38,020

Net cash provided by
(used in) investing
activities (7,740) 14,764
------ ------

Cash flows from
financing activities:
Proceeds from issuance
of common stock
(stock options and
stock purchase plan) 675 1,101
Excess tax benefit
from stock option
exercises - 26

Net cash provided by
(used in) financing
activities 675 1,127
--- -----

Effect of exchange
rate changes on cash
and cash equivalents 1,306 2,385
----- -----

Net increase
(decrease) in cash
and cash equivalents (23,001) 13,090

Cash and cash
equivalents,
beginning of period 106,333 236,018
------- -------

Cash and cash
equivalents, end of
period $83,332 $249,108
======= ========

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

2012 2011
---- ----
Q1 Q4 Q3 Q2 Q1
--- --- --- --- ---
(in thousands)
Net Revenue by Line
of Business:
Core Products (A) $37,697 $46,693 $50,705 $45,735 $48,107
Emerging Products (B) 10,159 11,974 10,764 12,717 11,135
Games (C) 19,108 21,552 22,945 25,300 28,059
------ ------ ------ ------ ------
Total net revenue $66,964 $80,219 $84,414 $83,752 $87,301
======= ======= ======= ======= =======

Core Products Revenue
by Product:
SaaS (D) $23,463 $28,255 $30,381 $30,216 $30,526
Systems Integration /
Professional
Services (E) 426 771 3,844 388 1,840
Technology Licensing
(F) 6,207 9,246 6,250 6,508 6,425
Consumer
Subscriptions (G) 7,601 8,421 10,230 8,623 9,316
Total Core Products
net revenue $37,697 $46,693 $50,705 $45,735 $48,107
======= ======= ======= ======= =======

Net Revenue by
Geography:
United States $31,814 $37,298 $38,969 $41,984 $44,469
Rest of world 35,150 42,921 45,445 41,768 42,832
------ ------ ------ ------ ------

Total net revenue $66,964 $80,219 $84,414 $83,752 $87,301
======= ======= ======= ======= =======

Product Metrics
(subscribers and ICM
presented as greater
than):
Addressable
subscribers of
mobile operators
under contract (H) 725,000 725,000 700,000 775,000 775,000
SaaS subscribers (I) 30,500 30,050 34,000 34,550 35,900
Monthly SaaS ARPU (in
cents) (J) $0.15 $0.19 $0.17 $0.18 $0.18
ICM delivered in
billions (K) 166 165 162 157 151
Consumer
subscribers(L) 400 425 500 475 500


Net Revenue by Line of
Business:
(A) The Core Products segment primarily includes revenue from SaaS services, system integration and
professional services to carriers and mobile handset companies, sales of technology licenses of our software
products such as Helix for handsets, consumer subscriptions such as SuperPass and our international radio
subscription services.

(B) The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as
the distribution of third party software products, advertising on RealPlayer websites and sales of
RealPlayerPlus software licenses to consumers.

(C) The Games segment primarily includes revenue from sales of games licenses, online games subscription
services, advertising on game sites and social network sites, games syndication services, microtransactions
from online and social games and sales of mobile games.

Core Products Revenue
by Product:
(D) Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD),
ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers,
who are largely mobile phone networks.

(E) Systems Integrations /Professional Services revenue includes professional services, other than those
associated with software sales, provided to mobile carriers and handset manufacturers.

(F) Technology Licensing includes revenue from sales of software and other intellectual property licenses
such as Helix server licenses and Helix software licenses for handsets.

(G) Consumer Subscriptions includes revenue from SuperPass as well as our international radio subscription
services.

Product Metrics:
(H) Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our
SaaS services, other than intercarrier messaging services, to their customers.

(I) SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter.

(J) Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue
from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end
of the quarter, and dividing the resulting quotient by three.

(K) ICM (Intercarrier message) represents the total number of messages delivered across our messaging
platform during the quarter.

(L) Consumer subscribers primarily includes our SuperPass and GamePass products.

RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)

2012 2011
---- ----
Q1 Q4 Q1
--- --- ---

Core Products
-------------

Net revenue $37,697 $46,693 $48,107
Cost of revenue 17,828 20,867 20,984
Impairment of deferred
costs - 19,329 -
--- ------ ---
Gross profit 19,869 6,497 27,123

Gross margin 53% 14% 56%

Operating expenses 18,068 17,230 19,386
------ ------ ------
Operating income
(loss) $1,801 $(10,733) $7,737

Adjusted EBITDA $4,400 $11,382 $10,260

Emerging Products
-----------------

Net revenue $10,159 $11,974 $11,135
Cost of revenue 2,105 3,448 1,540
Impairment of deferred
costs - 633 -
--- --- ---
Gross profit 8,054 7,893 9,595

Gross margin 79% 66% 86%

Operating expenses 7,546 7,867 9,891
----- ----- -----
Operating income
(loss) $508 $26 $(296)

Adjusted EBITDA $754 $986 $(188)

Games
-----

Net revenue $19,108 $21,552 $28,059
Cost of revenue 6,661 6,875 8,534
----- ----- -----
Gross profit 12,447 14,677 19,525

Gross margin 65% 68% 70%

Operating expenses 13,430 14,449 16,814
------ ------ ------
Operating income
(loss) $(983) $228 $2,711

Adjusted EBITDA $(324) $883 $3,340

Corporate
---------

Net revenue $ - $ - $ -
Cost of revenue 833 899 1,008
--- --- -----
Gross profit (833) (899) (1,008)

Gross margin N/A N/A N/A

Sale of patents and
other technology
assets, net of costs 1,580 - -
Operating expenses 17,455 12,299 14,810
------ ------ ------
Operating income
(loss) $(19,868) $(13,198) $(15,818)

Adjusted EBITDA $(12,247) $(9,411) $(5,870)

Total
-----

Net revenue $66,964 $80,219 $87,301
Cost of revenue 27,427 32,089 32,066
Impairment of deferred
costs - 19,962 -
--- ------ ---
Gross profit 39,537 28,168 55,235

Gross margin 59% 35% 63%

Sale of patents and
other technology
assets, net of costs 1,580 - -
Operating expenses 56,499 51,845 60,901
------ ------ ------
Operating income
(loss) $(18,542) $(23,677) $(5,666)

Adjusted EBITDA $(7,417) $3,840 $7,542

RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment
(Unaudited)

2012 2011
---- ----
Q1 Q4 Q1
--- --- ---

Core Products
-------------

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:

Operating income
(loss) $1,801 $(10,733) $7,737
Acquisitions
related intangible
asset amortization 802 789 474
Depreciation and
amortization 1,797 1,997 2,049
Impairment of
deferred costs - 19,329 -
--- ---
Adjusted EBITDA $4,400 $11,382 $10,260

Emerging Products
-----------------

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:

Operating income
(loss) $508 $26 $(296)
Acquisitions
related intangible
asset amortization 79 79 -
Depreciation and
amortization 167 248 108
Impairment of
deferred costs - 633 -
--- --- ---
Adjusted EBITDA $754 $986 $(188)

Games
-----

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:

Operating income
(loss) $(983) $228 $2,711
Acquisitions
related intangible
asset amortization 209 229 254
Depreciation and
amortization 450 426 375
Adjusted EBITDA $(324) $883 $3,340

Corporate
---------

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:

Operating income
(loss) $(19,868) $(13,198) $(15,818)
Other income
(expense), net 1,475 188 (122)
Depreciation and
amortization 614 608 559
Restructuring and
other charges 1,609 800 6,904
Stock-based
compensation 2,343 2,663 2,607
Sale of patents and
other technology
assets, net of
costs 1,580 - -
Gain on excess
office facilities - (472) -
--- ---- ---
Adjusted EBITDA $(12,247) $(9,411) $(5,870)

Total
-----

Reconciliation of GAAP operating income (loss) to
adjusted EBITDA:

Operating income
(loss) $(18,542) $(23,677) $(5,666)
Other income
(expense), net 1,475 188 (122)
Acquisitions
related intangible
asset amortization 1,090 1,097 728
Depreciation and
amortization 3,028 3,279 3,091
Gain on excess
office facilities - (472) -
Restructuring and
other charges 1,609 800 6,904
Stock-based
compensation 2,343 2,663 2,607
Impairment of
deferred costs - 19,962 -
Sale of patents and
other technology
assets, net of
costs 1,580 - -
----- --- ---
Adjusted EBITDA $(7,417) $3,840 $7,542
SOURCE RealNetworks, Inc.

RealNetworks, Inc.

CONTACT: Marj Charlier, Investor Relations at RealNetworks, Inc., 206-892-6785 or mcharlier@real.com; or Press, Barbara Krause, Krause Taylor Associates for RealNetworks, Inc., 408-981-2429 or barbara@krause-taylor.com.

Web Site: http://www.real.com


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