RealNetworks Announces First Quarter 2013 Results

RealNetworks Announces First Quarter 2013 Results

SEATTLE, May 1, 2013 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the first quarter ended March 31, 2013.

Quarterly Summary:


-- Revenue of $56.8 million
-- Net loss of $(11.7) million or $(0.33) per share
-- Adjusted EBITDA of $(3.0) million
-- Cash and short-term investments of $260.6 million as of March 31, 2013
"We continue to execute our turnaround plans to put RealNetworks on a path to growth and sustainable profitability," said Rob Glaser, Chairman and interim CEO of RealNetworks.

First Quarter Results

For the first quarter of 2013, revenue was $56.8 million, a sequential decrease of 16% from the fourth quarter of 2012, and a decrease of 15% compared with the first quarter of 2012. Revenue trends in each of RealNetworks' businesses in the first quarter of 2013 compared with the year-earlier quarter were: a 1% increase in RealPlayer Group revenue to $22.4 million, a 20% decrease in Mobile Entertainment revenue to $20.5 million and a 27% decrease in Games revenue to $13.9 million.

Net loss for the first quarter of 2013 was $(11.7) million, or $(0.33) per share, compared with net loss of $(17.0) million, or $(0.49) per share, in the first quarter of 2012. Adjusted EBITDA loss for the first quarter of 2013 was $(3.0) million, compared with an adjusted EBITDA loss of $(7.4) million for the first quarter of 2012. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2013, RealNetworks had $260.6 million in unrestricted cash, cash equivalents and short-term investments compared with $271.4 million as of Dec. 31, 2012, of which approximately $39.4 million was held in foreign jurisdictions. In addition, RealNetworks had $48.6 million in restricted cash and available-for-sale securities as of March 31, 2013, compared with $44.3 million as of Dec. 31, 2012.

Segment Reorganization

Beginning with the first quarter of 2013, RealNetworks reorganized its financial reporting to reflect changes in how we manage the businesses and changed the way we allocate certain operating expenses within the company to increase efficiency and accountability for financial and operational performance within each business. RealNetworks' 2013 financial results now reflect the new corporate organization with the following reportable segments: (1) the RealPlayer Group, which includes RealPlayer, SuperPass and mobile IP sales; (2) Mobile Entertainment, which includes SaaS services of ringback tones, music on demand, and intercarrier messaging; professional services and systems integration; and Helix software; and (3) Games.

Additionally, more of RealNetworks' corporate costs - such as some of the costs of finance, HR, legal and facilities - are now assigned to each business unit, although certain costs are being retained at the corporate level. On April 22, 2013, RealNetworks filed a report on Form 8-K with a description of the new segments and historical results that reflect those new segments.

Segment Operating Results



2013 2012 2012
---- ---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)

Revenue

RealPlayer
Group $22,383 $25,838 $22,081

Mobile
Entertainment 20,495 25,718 25,775

Games 13,915 15,708 19,108

Corporate - - -
---------

Total $56,793 $67,264 $66,964
----- ------- ------- -------


Operating Income (loss)

RealPlayer
Group $866 $6,946 $1,542

Mobile
Entertainment 552 (882) (4,507)

Games (1,737) (716) (1,743)

Corporate (11,107) (12,236) (13,834)
---------

Total $(11,426) $(6,888) $(18,542)
----- -------- ------- --------


Adjusted EBITDA

RealPlayer
Group $1,331 $7,620 $1,985

Mobile
Entertainment 3,382 1,687 (2,077)

Games (1,154) (71) (1,084)

Corporate (6,568) (5,972) (6,241)
---------

Total $(3,009) $3,264 $(7,417)
----- ------- ------ -------
Business Outlook

For the second quarter of 2013, RealNetworks expects total revenue of $49 million to $52 million, with all segments declining sequentially and year over year. We expect adjusted EBITDA for the quarter to be a loss of $(7) million to $(10) million.

In the second quarter, we expect to finalize and announce plans to reduce our facilities costs by several millions of dollars per year. Our outlook for the second quarter does not include any cost reductions or one-time charges that could result from this change.

The foregoing forward-looking statements reflect RealNetworks' expectations as of May 1, 2013. 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 1. The Webcast will be available at: http://investor.realnetworks.com

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

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

Dial in:

888-790-3162 Domestic

415-228-4854 International

Passcode: First Quarter Earnings

Leader: Rob Glaser

Telephonic replay will be available until 8 p.m. ET, May 15, 2013.
Replay dial in:

888-566-0589 Domestic

402-998-0696 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' consolidated financial information 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 reportable 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 reportable 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 future revenue, adjusted EBITDA, plans to undertake, as well as results and benefits from its business restructuring activities, including anticipated changes in headquarters, and strategic initiatives. 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,
---------

2013 2012
---- ----

(in thousands, except
per share data)


Net revenue $56,793 $66,964


Cost of revenue 20,506 27,427


Gross profit 36,287 39,537
------ ------


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


Operating expenses:

Research and development 15,251 17,818

Sales and marketing 21,134 23,796

General and administrative 9,946 13,276

Restructuring and other charges 1,382 1,609


Total operating expenses 47,713 56,499
------ ------


Operating income (loss) (11,426) (18,542)
------- -------


Other income (expenses):

Interest income, net 647 644

Equity in net loss of Rhapsody
investment (2,233) (368)

Other income (expense), net 109 1,475
--- -----


Total other income (expense), net (1,477) 1,751
------ -----


Income (loss) before income taxes (12,903) (16,791)

Income tax expense (benefit) (1,229) 224
------ ---


Net income (loss) $(11,674) $(17,015)
======== ========


Basic net income (loss) per share $(0.33) $(0.49)

Diluted net income (loss) per share $(0.33) $(0.49)


Shares used to compute basic net income
(loss) per share 35,343 34,488

Shares used to compute diluted net
income (loss) per share 35,343 34,488


(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 was
reflected in our financial
statements in 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,

2013 2012
---- ----

(in thousands)

ASSETS


Current assets:

Cash and cash
equivalents $136,694 $163,198

Short-term
investments 123,894 108,216

Trade
accounts
receivable,
net 28,718 30,754

Deferred
costs,
current
portion 1,297 825

Deferred tax
assets -
current 2,759 2,869

Prepaid
expenses and
other
current
assets 13,266 17,002
------ ------


Total current
assets 306,628 322,864
------- -------


Equipment, software, and leasehold
improvements, at cost:

Equipment and
software 95,918 98,041

Leasehold
improvements 22,705 22,767
------ ------

Total
equipment,
software,
and
leasehold
improvements 118,623 120,808

Less
accumulated
depreciation
and
amortization (92,020) (91,492)
------- -------


Net
equipment,
software,
and
leasehold
improvements 26,603 29,316


Restricted
cash
equivalents
and
investments 10,000 10,000

Equity method
investment 16,710 19,204

Available for
sale
securities 38,608 34,334

Other assets 3,331 3,153

Deferred
costs, non-
current
portion 802 531

Deferred tax
assets, net,
non-current
portion 4,803 4,911

Other
intangible
assets, net 2,837 3,275

Goodwill 6,410 6,309
----- -----


Total assets $416,732 $433,897
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $16,910 $19,013

Accrued and
other
current
liabilities 51,847 57,530

Deferred
revenue,
current
portion 8,846 8,675
----- -----

Total current
liabilities 77,603 85,218


Deferred
revenue,
non-current
portion 169 169

Deferred rent 2,026 2,250

Deferred tax
liabilities,
net, non-
current
portion 432 432

Other long-
term
liabilities 2,417 3,100
----- -----


Total
liabilities 82,647 91,169
------ ------



Shareholders'
equity 334,085 342,728
------- -------


Total
liabilities
and
shareholders'
equity $416,732 $433,897
======== ========






RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


Quarters Ended March 31,
------------------------

2013 2012
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(11,674) $(17,015)

Adjustments to reconcile net income (loss) to net cash
used in operating activities:

Depreciation and
amortization 4,888 4,118

Stock-based compensation 2,038 2,343

Equity in net loss of
Rhapsody investment 2,233 368

Deferred income taxes, net (1,559) (19)

Realized translation gain - (1,611)

Other (75) (3)

Net change in certain
operating assets and
liabilities (2,584) (5,423)
------ ------


Net cash provided by (used
in) operating activities (6,733) (17,242)
------ -------


Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (1,194) (2,798)

Purchases of short-term
investments (43,318) (9,969)

Proceeds from sales and
maturities of short-term
investments 27,640 5,027

Acquisitions of businesses (700) -


Net cash provided by (used
in) investing activities (17,572) (7,740)
------- ------


Cash flows from financing activities:

Proceeds from issuance of
common stock (stock
options and stock purchase
plan) 20 675

Payment of contingent
consideration (828) -

Tax payments from shares
withheld upon vesting of
restricted stock (166) -


Net cash provided by (used
in) financing activities (974) 675
---- ---


Effect of exchange rate
changes on cash and cash
equivalents (1,225) 1,306
------ -----


Net increase (decrease) in
cash and cash equivalents (26,504) (23,001)


Cash and cash equivalents,
beginning of period 163,198 106,333
------- -------


Cash and cash equivalents,
end of period $136,694 $83,332
======== =======






RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2013 2012
---- ----

Q1 Q4 Q3 Q2 Q1
--- --- --- --- ---

(in thousands) (in thousands)

Net Revenue by Line of
Business:

RealPlayer Group (A) $22,383 $25,838 $21,392 $22,158 $22,081

Mobile Entertainment (B) 20,495 25,718 22,820 26,005 25,775

Games (C) 13,915 15,708 14,876 17,363 19,108
------ ------ ------ ------ ------

Total net revenue $56,793 $67,264 $59,088 $65,526 $66,964
======= ======= ======= ======= =======


Net Revenue by Product:

RealPlayer Group
----------------

- License (D) 8,332 10,956 6,757 8,334 7,733

- Subscriptions (E) 4,924 6,192 7,056 6,810 7,601

- Media Properties (F) 9,127 8,690 7,579 7,014 6,747


Mobile Entertainment
--------------------

- SaaS (G) 18,674 22,793 20,696 23,286 23,464

-Systems Integration /
Professional Services (H) 291 1,295 247 965 426

-Technology License &
Other (I) 1,530 1,630 1,877 1,754 1,885


Games
-----

- License (J) 5,249 5,222 5,136 6,053 7,587

- Subscriptions (K) 6,312 6,876 6,952 7,536 8,170

- Media Properties (L) 2,354 3,610 2,788 3,774 3,351


Total net revenue $56,793 $67,264 $59,088 $65,526 $66,964
======= ======= ======= ======= =======


Net Revenue by Geography:

United States $28,024 $28,315 $29,101 $28,614 $31,814

Rest of world 28,769 38,949 29,987 36,912 35,150
------ ------ ------ ------ ------

Total net revenue $56,793 $67,264 $59,088 $65,526 $66,964
======= ======= ======= ======= =======


Net Revenue by Line of Business:

(A) The RealPlayer Group primarily
includes revenue from RealPlayer and
related products, such as the
distribution of third party software
products, advertising on RealPlayer
websites, and sales of RealPlayer Plus
software licenses to consumers, sales of
intellectual property licenses, and
consumer subscriptions such as SuperPass.

(B) The Mobile Entertainment division
primarily includes revenue from SaaS
services, system integration, and
professional services to mobile carriers,
and sales of technology licenses of our
software products such as Helix.

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


Net Revenue by Product

(D) Licensing revenue within the
RealPlayer Group includes sales of
RealPlayer Plus software licenses to
consumers and sales of intellectual
property licenses.

(E) Subscriptions revenue within the
RealPlayer Group includes revenue from
subscriptions such as SuperPass.

(F) Media Properties revenue within the
RealPlayer Group includes distribution of
third party software products and
advertising on RealPlayer websites.

(G) SaaS revenue within Mobile
Entertainment includes revenue from music
on demand, video on demand, ringtones,
ringback tones, and intercarrier
messaging services provided to network
services providers who are largely mobile
phone networks.

(H) Systems Integration /Professional
Services revenue within Mobile
Entertainment includes professional
services, other than those associated
with software sales, provided to mobile
carriers.

(I) Licensing revenue within Mobile
Entertainment includes revenue from
Helix-related products.

(J) Licensing revenue within Games
includes retail games-related revenue,
microtransactions from online and social
games and sales of mobile games.

(K) Subscriptions revenue within Games
includes revenue from online games
subscriptions.

(L) Media Properties revenue within Games
includes distribution of third party
software products and advertising on
games sites and social network sites.






RealNetworks, Inc. and Subsidiaries

Segment Results of Operations

(Unaudited)


2013 2012
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)
-------------

RealPlayer Group
----------------


Net revenue $22,383 $25,838 $22,081

Cost of revenue 5,311 5,518 4,564
----- ----- -----

Gross profit 17,072 20,320 17,517


Gross margin 76% 79% 79%


Operating expenses 16,206 13,374 15,975
------ ------ ------

Operating income (loss) $866 $6,946 $1,542


Adjusted EBITDA $1,331 $7,620 $1,985


Mobile Entertainment
--------------------


Net revenue $20,495 $25,718 $25,775

Cost of revenue 10,832 14,577 15,478
------ ------ ------

Gross profit 9,663 11,141 10,297


Gross margin 47% 43% 40%


Operating expenses 9,111 12,023 14,804
----- ------ ------

Operating income (loss) $552 $(882) $(4,507)


Adjusted EBITDA $3,382 $1,687 $(2,077)


Games
-----


Net revenue $13,915 $15,708 $19,108

Cost of revenue 3,800 4,496 6,713
----- ----- -----

Gross profit 10,115 11,212 12,395


Gross margin 73% 71% 65%


Operating expenses 11,852 11,928 14,138
------ ------ ------

Operating income (loss) $(1,737) $(716) $(1,743)


Adjusted EBITDA $(1,154) $(71) $(1,084)


Corporate
---------


Net revenue $ - $ - $ -

Cost of revenue 563 507 672
--- --- ---

Gross profit (563) (507) (672)


Gross margin N/A N/A N/A


(Loss)/Gain on sale of patents and
other technology assets, net of
costs - - (1,580)

Operating expenses 10,544 11,729 11,582
------ ------ ------

Operating income (loss) $(11,107) $(12,236) $(13,834)


Adjusted EBITDA $(6,568) $(5,972) $(6,241)


Total
-----


Net revenue $56,793 $67,264 $66,964

Cost of revenue 20,506 25,098 27,427
------ ------ ------

Gross profit 36,287 42,166 39,537


Gross margin 64% 63% 59%


(Loss)/Gain on sale of patents and
other technology assets, net of
costs - - (1,580)

Operating expenses 47,713 49,054 56,499
------ ------ ------

Operating income (loss) $(11,426) $(6,888) $(18,542)


Adjusted EBITDA $(3,009) $3,264 $(7,417)






RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


2013 2012
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)
-------------

RealPlayer Group
----------------


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


Operating income (loss) $866 $6,946 $1,542

Acquisitions related intangible
asset amortization 67 62 79

Depreciation and amortization 398 612 364
--- --- ---

Adjusted EBITDA $1,331 $7,620 $1,985


Mobile Entertainment
--------------------


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


Operating income (loss) $552 $(882) $(4,507)

Acquisitions related intangible
asset amortization 813 809 802

Depreciation and amortization 2,017 1,760 1,628
----- ----- -----

Adjusted EBITDA $3,382 $1,687 $(2,077)


Games
-----


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


Operating income (loss) $(1,737) $(716) $(1,743)

Acquisitions related intangible
asset amortization 21 - 209

Depreciation and amortization 562 645 450

Adjusted EBITDA $(1,154) $(71) $(1,084)


Corporate
---------


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


Operating income (loss) $(11,107) $(12,236) $(13,834)

Other income (expense), net 109 (433) 1,475

Depreciation and amortization 1,010 593 586

Restructuring and other charges 1,382 1,353 1,609

Stock-based compensation 2,038 1,704 2,343

Loss (Gain) on sale of patents
and other technology assets,
net of costs - - 1,580

Loss (Gain) on excess office
facilities - 3,047 -
--- ----- ---

Adjusted EBITDA $(6,568) $(5,972) $(6,241)


Total
-----


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


Operating income (loss) $(11,426) $(6,888) $(18,542)

Other income (expense), net 109 (433) 1,475

Acquisitions related intangible
asset amortization 901 871 1,090

Depreciation and amortization 3,987 3,610 3,028

Loss (Gain) on excess office
facilities - 3,047 -

Restructuring and other charges 1,382 1,353 1,609

Stock-based compensation 2,038 1,704 2,343

Loss (Gain) on sale of patents
and other technology assets,
net of costs - - 1,580
--- --- -----

Adjusted EBITDA $(3,009) $3,264 $(7,417)






SOURCE RealNetworks, Inc.

RealNetworks, Inc.

CONTACT: Investors Only, Marj Charlier, 206-892-6718, or mcharlier@realnetworks.com, Tim Wan, 206-892-6604, or twan@realnetworks.com, Press Only, Michael Eggerling, RealNetworks, 206-832-6308 or meggerling@realnetworks.com

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


-------
Profile: intent