RealNetworks Announces Fourth Quarter And Year End 2013 Results

RealNetworks Announces Fourth Quarter And Year End 2013 Results

- RealPlayer Cloud - new cross-platform, cloud-based, integrated video service - gaining traction;

- Mobile entertainment business strengthened with new products;

- Continued progress in long term strategic transition and growth strategy; and

- Cash and short-term investments of $226.2 million



SEATTLE, Feb. 5, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the fourth quarter and year ended December 31, 2013.

For the fourth quarter of 2013, revenue was $50.6 million, compared to $49.0 million in the previous quarter and $67.3 million in the fourth quarter of 2012. For the full year 2013, revenue was $206.2 million, compared to $258.8 million for 2012.

"During the fourth quarter of 2013, we continued to make progress in our long term strategic transition to revitalize RealNetworks," said Rob Glaser, Chairman and interim CEO of RealNetworks. "Our new RealPlayer Cloud, our groundbreaking, cloud-based video service that makes it easy to watch, save and share video across every popular digital device, is gaining good initial traction in the marketplace, with over 500,000 accounts created since launch.

"In our Mobile Entertainment business, we completed our acquisition of Muzicall and launched LISTEN(TM) to strengthen our leadership in the ringback tones market and to bring ringback tones directly to consumers. We also continue to tighten our strategic focus to better capitalize on the most promising opportunities in our Games business. Throughout 2013, we've continued to streamline our company, invest in our core business segments and focus on building a stronger foundation for future growth and profitability."

GAAP net income for the fourth quarter of 2013 was $4.1 million or $0.12 per diluted share, compared to $3.1 million or $0.09 per diluted share in the fourth quarter of 2012. The increase primarily reflects a net gain of $21.4 million from the sale of its investment in LoEn in the fourth quarter of 2013. For the full year 2013, GAAP net loss was $(57.4) million or $(1.61) per diluted share, compared to net income of $44.8 million or $1.28 per diluted share in 2012.

Adjusted EBITDA for the fourth quarter of 2013 was a loss of $(6.6) million, compared to adjusted EBITDA income of $3.3 million for the fourth quarter of 2012. For the full year 2013, adjusted EBITDA was a loss of $(23.7) million, compared to a loss $(16.7) million for 2012. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of December 31, 2013, the company had $226.2 million in unrestricted cash, cash equivalents and short-term investments, up from $218.4 million as of September 30, 2013.

Business Outlook

For the first quarter of 2014, RealNetworks expects total revenue in the range of $43.0 million to $46.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(9.0) million to $(12.0) million.

Webcast and Conference Call Information

The company will host a conference call today to review results and discuss the company's performance at 5 p.m. ET/2 p.m. PT by calling 800-857-9789 or +1-210-234-0007 (Passcode: Fourth Quarter Earnings). A live webcast of the call will be available at http://investor.realnetworks.com and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 11 p.m. CT, February 26, 2014 by calling 888-568-0623 or +1-203-369-3199 (Passcode: 9977)

RNWK-F

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 www.realnetworks.com/about-us.

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.

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 fourth 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 regarding future revenue and adjusted EBITDA, our future growth, profitability, market position, and marketing approach, and our strategic focus and initiatives. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements reflect RealNetworks' expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: RealNetworks' ability to realize operating efficiencies, growth and other benefits from the implementation of its growth plan, strategic initiatives, and restructuring efforts; 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; fluctuations in foreign currencies; 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 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, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


Quarters
Ended Years Ended

December 31, December 31,
------------ ------------


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

(in thousands, except per
share data)


Net revenue $50,595 $67,264 $206,196 $258,842


Cost of
revenue 20,076 25,098 79,091 103,731
------ ------ ------ -------


Gross
profit 30,519 42,166 127,105 155,111
------ ------ ------- -------


Sale of
patents
and other
technology
assets,
net of
costs (A) - - - 116,353
--- --- --- -------


Operating
expenses:

Research
and
development 14,929 14,027 60,880 63,194

Sales and
marketing 20,181 21,839 80,011 90,301

General and
administrative 8,137 8,788 36,643 43,891

Restructuring
and other
charges 1,690 1,353 5,765 15,225

Lease exit
and
related
charges 23 3,047 3,089 3,290

Loss on
litigation
settlements - - 11,525 -
--- --- ------ ---


Total
operating
expenses 44,960 49,054 197,913 215,901
------ ------ ------- -------


Operating
income
(loss) (14,441) (6,888) (70,808) 55,563
------ ------ ------- ------


Other
income
(expenses):

Interest
income,
net 141 159 1,133 1,192

Gain (loss)
on sale of
equity and
other
investments,
net 21,389 (216) 21,389 5,072

Equity in
net loss
of
Rhapsody
investment (59) (1,614) (6,268) (5,709)

Other
income
(expense),
net 613 (433) 467 1,241
--- ---- --- -----


Total other
income
(expense),
net 22,084 (2,104) 16,721 1,796
------ ------ ------ -----


Income
(loss)
before
income
taxes 7,643 (8,992) (54,087) 57,359

Income tax
expense
(benefit) 3,504 (12,065) 3,294 12,518
----- ------ ----- ------


Net income
(loss) $4,139 $3,073 $(57,381) $44,841
====== ====== ====== =======


Basic net
income
(loss) per
share $0.12 $0.09 $(1.61) $1.29

Diluted net
income
(loss) per
share $0.12 $0.09 $(1.61) $1.28


Shares used
to compute
basic net
income
(loss) per
share 35,738 35,250 35,553 34,873

Shares used
to compute
diluted
net income
(loss) per
share 35,906 35,450 35,553 35,122



(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.



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


December December
31, 31,
2013 2012
---- ----

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents $151,235 $163,198

Short-term investments 74,920 108,216

Trade accounts receivable,
net 26,222 30,754

Deferred costs, current
portion 1,601 825

Deferred tax assets -
current 306 2,869

Prepaid expenses and other
current assets 9,124 17,002
----- ------

Total current assets 263,408 322,864
------- -------


Equipment, software, and leasehold
improvements, at cost:

Equipment and software 86,721 98,041

Leasehold improvements 3,482 22,767
----- ------

Total equipment, software,
and leasehold improvements 90,203 120,808

Less accumulated
depreciation and
amortization 67,031 91,492
------ ------

Net equipment, software, and
leasehold improvements 23,172 29,316


Restricted cash equivalents
and investments 3,000 10,000

Equity method investment 12,473 19,204

Available for sale
securities 7,181 34,334

Other assets 2,332 3,153

Deferred costs, non-current
portion 946 531

Deferred tax assets, net,
non-current portion 1,409 4,911

Other intangible assets, net 12,993 3,275

Goodwill 17,476 6,309
------ -----


Total assets $344,390 $433,897
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts payable $19,987 $19,013

Accrued and other current
liabilities 42,788 57,530

Deferred revenue, current
portion 7,498 8,675
----- -----

Total current liabilities 70,273 85,218


Deferred revenue, non-
current portion 166 169

Deferred rent 1,318 2,250

Deferred tax liabilities,
net, non-current portion 1,560 432

Other long-term liabilities 483 3,100
--- -----


Total liabilities 73,800 91,169
------ ------



Shareholders' equity 270,590 342,728
------- -------


Total liabilities and
shareholders' equity $344,390 $433,897
======== ========



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


Years Ended
December 31,
------------

2013 2012
---- ----

(in thousands)


Cash flows from operating
activities:

Net income (loss) $(57,381) $44,841

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

Depreciation and
amortization 18,748 16,959

Stock-based compensation 7,468 8,123

Loss on asset disposal - 2,509

Equity in net loss of
Rhapsody 6,268 5,709

Lease exit and related
charges 1,421 3,290

Deferred income taxes, net 676 20,324

Gain on sale of patent and
other technology assets,
net of costs - (116,353)

Gain on sale of equity and
other investments, net (21,389) (5,072)

Realized translation gain (571) (1,966)

Other 51 -

Net change in certain
operating assets and
liabilities (5,261) (11,677)
------ -------

Net cash provided by (used
in) operating activities (49,970) (33,313)
------- -------

Cash flows from investing
activities:

Purchases of equipment,
software, and leasehold
improvements (7,636) (7,170)

Proceeds from sale of
patents and other
technology assets, net of
costs - 116,353

Proceeds from sale of
equity and other
investments 29,153 7,261

Purchases of short-term
investments (131,690) (116,963)

Proceeds from sales and
maturities of short-term
investments 164,986 87,487

Decrease in restricted
cash equivalents and
investments 10,000 167

Increase in restricted
cash equivalents and
investments (3,000) -

Acquisitions of
businesses, net of cash
acquired (22,480) -

Net cash provided by (used
in) investing activities 39,333 87,135
------ ------

Cash flows from financing
activities:

Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 594 3,802

Tax payments from shares
withheld upon vesting of
restricted stock (1,201) (995)

Payment of contingent
consideration (828) -

Net cash provided by (used
in) financing activities (1,435) 2,807
------ -----

Effect of exchange rate
changes on cash and cash
equivalents 109 236
--- ---

Net increase (decrease) in
cash and cash equivalents (11,963) 56,865

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

Cash and cash equivalents,
end of period $151,235 $163,198
====== ======



RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2013 2012
---- ----

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

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A) $75,206 $16,799 $17,641 $18,383 $22,383 $91,469 $25,838 $21,392 $22,158 $22,081

Mobile Entertainment (B) 81,181 22,146 19,948 18,592 20,495 100,318 25,718 22,820 26,005 25,775

Games (C) 49,809 11,650 11,369 12,875 13,915 67,055 15,708 14,876 17,363 19,108

Total net revenue $206,196 $50,595 $48,958 $49,850 $56,793 $258,842 $67,264 $59,088 $65,526 $66,964
====== ===== ===== ===== ===== ====== ===== ===== ===== =====


Net Revenue by Product

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

- License (D) $29,507 $7,128 $7,281 $6,766 $8,332 $33,780 $10,956 $6,757 $8,334 $7,733

- Subscriptions (E) 15,850 3,118 3,615 4,193 4,924 27,659 6,192 7,056 6,810 7,601

- Media Properties (F) 29,849 6,553 6,745 7,424 9,127 30,030 8,690 7,579 7,014 6,747


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

- SaaS (G) 74,238 20,406 18,156 17,002 18,674 90,239 22,793 20,696 23,286 23,464

- Technology License & 6,943 1,740 1,792 1,590 1,821 10,079 2,925 2,124 2,719 2,311

Other (H)


Games
-----

- License (I) 16,270 3,511 3,421 4,089 5,249 23,998 5,222 5,136 6,053 7,587

- Subscriptions (J) 23,713 5,688 5,733 5,980 6,312 29,534 6,876 6,952 7,536 8,170

- Media Properties (K) 9,826 2,451 2,215 2,806 2,354 13,523 3,610 2,788 3,774 3,351


Total net revenue $206,196 $50,595 $48,958 $49,850 $56,793 $258,842 $67,264 $59,088 $65,526 $66,964
====== ===== ===== ===== ===== ====== ===== ===== ===== =====


Net Revenue by Geography

United States $90,250 $19,724 $21,039 $21,463 $28,024 $117,844 $28,315 $29,101 $28,614 $31,814

Rest of world 115,946 30,871 27,919 28,387 28,769 140,998 38,949 29,987 36,912 35,150

Total net revenue $206,196 $50,595 $48,958 $49,850 $56,793 $258,842 $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) Licensing and other revenue within Mobile Entertainment includes revenue from Helix-related products and professional services provided to mobile carriers.

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

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

(K) 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 2013 2012
---- ---- ---- ----

Q4 Q3 Q4 YTD YTD
--- --- --- --- ---

(in thousands)

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


Net
revenue $16,799 $17,641 $25,838 $75,206 $91,469

Cost of
revenue 3,236 3,264 5,518 16,220 21,544

Gross
profit 13,563 14,377 20,320 58,986 69,925


Gross
margin 81% 81% 79% 78% 76%


Operating
expenses 15,828 14,449 13,374 60,484 55,223

Operating
income
(loss) $(2,265) $(72) $6,946 $(1,498) $14,702


Adjusted
EBITDA $(1,474) $624 $7,620 $951 $16,967


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


Net
revenue $22,146 $19,948 $25,718 $81,181 $100,318

Cost of
revenue 13,634 11,972 14,577 47,608 57,670

Gross
profit 8,512 7,976 11,141 33,573 42,648


Gross
margin 38% 40% 43% 41% 43%


Operating
expenses 8,863 9,453 12,023 35,839 52,614

Operating
income
(loss) $(351) $(1,477) $(882) $(2,266) $(9,966)


Adjusted
EBITDA $1,251 $503 $1,687 $5,830 $(458)


Games
-----


Net
revenue $11,650 $11,369 $15,708 $49,809 $67,055

Cost of
revenue 2,962 3,216 4,496 13,359 21,828

Gross
profit 8,688 8,153 11,212 36,450 45,227


Gross
margin 75% 72% 71% 73% 67%


Operating
expenses 12,057 11,513 11,928 47,177 51,890

Operating
income
(loss) $(3,369) $(3,360) $(716) $(10,727) $(6,663)


Adjusted
EBITDA $(2,724) $(2,704) $(71) $(7,897) $(3,861)


Corporate
---------


Net
revenue $ - $ - $ - $ - $ -

Cost of
revenue 244 538 507 1,904 2,689

Gross
profit (244) (538) (507) (1,904) (2,689)


Gross
margin N/A N/A N/A N/A N/A


Gain on
sale
of
patents
and
other
technology
assets,
net of
costs - - - - 116,353

Operating
expenses 8,212 22,990 11,729 54,413 56,174

Operating
income
(loss) $(8,456) $(23,528) $(12,236) $(56,317) $57,490


Adjusted
EBITDA $(3,668) $(6,792) $(5,972) $(22,630) $(29,352)


Total
-----


Net
revenue $50,595 $48,958 $67,264 $206,196 $258,842

Cost of
revenue 20,076 18,990 25,098 79,091 103,731

Gross
profit 30,519 29,968 42,166 127,105 155,111


Gross
margin 60% 61% 63% 62% 60%


Gain on
sale
of
patents
and
other
technology
assets,
net of
costs - - - - 116,353

Operating
expenses 44,960 58,405 49,054 197,913 215,901
------

Operating
income
(loss) $(14,441) $(28,437) $(6,888) $(70,808) $55,563


Adjusted
EBITDA $(6,615) $(8,369) $3,264 $(23,746) $(16,704)



RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


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

Q4 Q3 Q4 YTD YTD
--- --- --- --- ---

(in thousands)

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


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


Operating
income
(loss) $(2,265) $(72) $6,946 $(1,498) $14,702

Acquisitions
related
intangible
asset
amortization 60 60 62 249 282

Depreciation
and
amortization 731 636 612 2,200 1,983

Adjusted
EBITDA $(1,474) $624 $7,620 $951 $16,967


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


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


Operating
income
(loss) $(351) $(1,477) $(882) $(2,266) $(9,966)

Acquisitions
related
intangible
asset
amortization 781 1,055 809 3,287 3,193

Depreciation
and
amortization 821 925 1,760 4,809 6,315

Adjusted
EBITDA $1,251 $503 $1,687 $5,830 $(458)


Games
-----


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


Operating
income
(loss) $(3,369) $(3,360) $(716) $(10,727) $(6,663)

Acquisitions
related
intangible
asset
amortization 314 314 - 879 587

Depreciation
and
amortization 331 342 645 1,951 2,215

Adjusted
EBITDA $(2,724) $(2,704) $(71) $(7,897) $(3,861)


Corporate
---------


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


Operating
income
(loss) $(8,456) $(23,528) $(12,236) $(56,317) $57,490

Other
income
(expense),
net 613 (118) (433) 467 1,241

Depreciation
and
amortization 665 1,839 593 5,373 2,384

Lease exit
and
related
charges 23 - 3,047 3,089 3,290

Loss on
litigation
settlements - 11,525 - 11,525 -

Restructuring
and other
charges 1,690 1,877 1,353 5,765 15,225

Stock-
based
compensation 1,797 1,613 1,704 7,468 7,371

Gain on
sale of
patents
and other
technology
assets,
net of
costs - - - - (116,353)

Adjusted
EBITDA $(3,668) $(6,792) $(5,972) $(22,630) $(29,352)


Total
-----


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


Operating
income
(loss) $(14,441) $(28,437) $(6,888) $(70,808) $55,563

Other
income
(expense),
net 613 (118) (433) 467 1,241

Acquisitions
related
intangible
asset
amortization 1,155 1,429 871 4,415 4,062

Depreciation
and
amortization 2,548 3,742 3,610 14,333 12,897

Lease exit
and
related
charges 23 - 3,047 3,089 3,290

Loss on
litigation
settlements - 11,525 - 11,525 -

Restructuring
and other
charges 1,690 1,877 1,353 5,765 15,225

Stock-
based
compensation 1,797 1,613 1,704 7,468 7,371

Gain on
sale of
patents
and other
technology
assets,
net of
costs - - - - (116,353)

Adjusted
EBITDA $(6,615) $(8,369) $3,264 $(23,746) $(16,704)


SOURCE RealNetworks, Inc.

RealNetworks, Inc.

CONTACT: Michael Newman, StreetConnect, Investor Relations for RealNetworks, +1-206-729-3625, IR@realnetworks.com

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


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