RealNetworks Announces Second Quarter 2014 Results

RealNetworks Announces Second Quarter 2014 Results

- Rob Glaser named as permanent CEO;

- RealPlayer Cloud continues to gain traction with over 5 million accounts;

- Hired 2 new excellent senior executives, Mike Mulica and Atul Bali, and redeployed a 3rd, Max Pellegrini;

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

- Cash and short-term investments of $195.0 million

SEATTLE, July 30, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the second quarter ended June 30, 2014.

For the second quarter of 2014, revenue was $40.8 million, compared to $45.7 million in the previous quarter and $49.9 million in the second quarter of 2013.

"In the second quarter of 2014, we continued to make good progress in our transition into a being a multi-device, cloud-based products and services company," said Rob Glaser, Chairman and CEO of RealNetworks. "Of particular note is RealPlayer Cloud's rapid growth -- RealPlayer Cloud now has over 5 million users worldwide, up from over 2 million three months ago, and, in aggregate, our users are now uploading over 4.5 terabytes of video per day." RealPlayer Cloud is Real's next generation video product and service, which makes it easy to watch, save and share video across every type of popular digital device.

"During the second quarter, we brought in Mike Mulica to lead the integration of our worldwide sales efforts across our RealPlayer and Mobile Entertainment divisions in order to strengthen our focus on partnerships with global carriers. We also redeployed Max Pellegrini to run the combined product teams and all associated direct-to-consumer marketing. On the games front, we also strengthened our senior team by bringing in Atul Bali to run our overall Games business and by bringing back Rutger Peters and Erik Goossens, the co-founders of Zylom which we acquired in 2006, to run the Casual Games part of the business. We also just announced our new Slingo Adventure game, the first fruit of our Slingo acquisition a year ago. Finally, we also continue to be encouraged by the progress being made by Rhapsody (of which we own approximately 45%), which announced yesterday that it now has over 2 million subscribers."

The company also announced today that Rob Glaser has been named permanent CEO of RealNetworks. See announcement at http://www.realnetworks.com/press/releases/2014/Glaser-permanent-CEO.aspx.

"While our transition plan will take time to complete and will require more capital than originally anticipated, I'm very confident that we are on the right track and making progress that is setting us up for a return to long-term growth and profitability," said Glaser.

GAAP net loss for the second quarter of 2014 was $(21.0) million or $(0.59) per diluted share, compared to $(18.5) million or $(0.52) per diluted share in the second quarter of 2013. Adjusted EBITDA for the second quarter of 2014 was a loss of $(13.1) million, compared to $(5.8) million for the second quarter of 2013. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2014, the company had $195.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the third quarter of 2014, RealNetworks expects total revenue in the range of $33.0 million to $36.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(18.0) million to $(20.0) 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 888-790-3440 or +1-517-308-9350 (Passcode: Second 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 9 p.m. PT, August 20, 2014 by calling 888-566-0046 or +1-203-369-3677 (Passcode: 6895485)

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 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, 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: risks associated with the implementation of RealNetworks' growth plan, strategic initiatives, and restructuring efforts; its ability to successfully introduce and monetize new products and services; competitive risks, including the growth of competing technologies, products and services, and the emergence of new entrants and competition in the market; 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 Six Months Ended
June 30, June 30,
-------- --------


2014 2013 2014 2013
---- ---- ---- ----

(in thousands, except per share data)


Net revenue $40,825 $49,850 $86,549 $106,643


Cost of revenue 20,786 19,519 39,572 40,025


Extinguishment of liability - - (10,580) -
--- --- ------- ---


Gross profit 20,039 30,331 57,557 66,618
------ ------ ------ ------


Operating expenses:

Research and development 13,267 14,993 27,326 30,244

Sales and marketing 16,016 19,269 37,739 40,403

General and administrative 8,577 8,691 17,894 18,637

Restructuring and other charges 541 816 1,757 2,198

Lease exit and related charges 470 3,066 549 3,066

Total operating expenses 38,871 46,835 85,265 94,548
------ ------ ------ ------


Operating income (loss) (18,832) (16,504) (27,708) (27,930)
------- ------- ------- -------


Other income (expenses):

Interest income, net 180 179 316 826

Gain (loss) on sale of available
for sale securities, net - - 2,371 -

Equity in net loss of Rhapsody
investment (1,802) (1,347) (2,640) (3,580)

Other income (expense), net (95) (137) (172) (28)
--- ---- ---- ---


Total other income (expense),
net (1,717) (1,305) (125) (2,782)
------ ------ ---- ------


Income (loss) before income
taxes (20,549) (17,809) (27,833) (30,712)

Income tax expense (benefit) 480 662 966 (567)
--- --- --- ----


Net income (loss) $(21,029) $(18,471) $(28,799) $(30,145)
======== ======== ======== ========


Basic net income (loss) per
share $(0.59) $(0.52) $(0.80) $(0.85)

Diluted net income (loss) per
share $(0.59) $(0.52) $(0.80) $(0.85)


Shares used to compute basic net
income (loss) per share 35,890 35,455 35,865 35,399

Shares used to compute diluted
net income (loss) per share 35,890 35,455 35,865 35,399









RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


June 30, December 31,
2014 2013
---- ----

(in thousands)

ASSETS

Current assets:

Cash and cash
equivalents $124,450 $151,235

Short-term
investments 70,583 74,920

Trade accounts
receivable,
net 21,580 24,613

Deferred costs,
current
portion 992 1,601

Deferred tax
assets,
current 311 306

Prepaid
expenses and
other current
assets 9,910 9,124
----- -----

Total current
assets 227,826 261,799
------- -------


Equipment, software, and
leasehold improvements, at
cost:

Equipment and
software 86,755 86,721

Leasehold
improvements 3,915 3,482
----- -----

Total
equipment,
software, and
leasehold
improvements 90,670 90,203

Less
accumulated
depreciation
and
amortization 70,212 67,031
------ ------

Net equipment,
software, and
leasehold
improvements 20,458 23,172


Restricted cash
equivalents
and
investments 3,000 3,000

Equity method
investment 10,000 12,473

Available for
sale
securities 3,182 7,181

Other assets 3,073 2,332

Deferred costs,
non-current
portion 1,062 946

Deferred tax
assets, net,
non-current
portion 1,405 1,409

Other
intangible
assets, net 11,928 12,993

Goodwill 18,005 17,476
------ ------


Total assets $299,939 $342,781
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $20,363 $19,987

Accrued and
other current
liabilities 26,874 41,893

Deferred tax
liabilities,
net, current
portion 911 899

Deferred
revenue,
current
portion 7,835 7,498
----- -----

Total current
liabilities 55,983 70,277


Deferred
revenue, non-
current
portion 145 166

Deferred rent 1,269 1,318

Deferred tax
liabilities,
net, non-
current
portion 1,725 1,556

Other long-
term
liabilities 607 483
--- ---


Total
liabilities 59,729 73,800
------ ------



Shareholders'
equity 240,210 268,981
------- -------


Total
liabilities
and
shareholders'
equity $299,939 $342,781
======== ========







RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



Six Months Ended
June 30,
--------

2014 2013
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(28,799) $(30,145)

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

Depreciation and amortization 6,145 9,874

Stock-based compensation 3,010 4,058

Equity in net loss of
Rhapsody 2,640 3,580

Deferred income taxes, net 10 (1,668)

Gain on sale of available for
sale securities (2,371) -

Realized translation gain (48) (35)

Extinguishment of liability (10,580) -

Other - 51

Net change in certain
operating assets and
liabilities (785) 1,400
---- -----

Net cash provided by (used
in) operating activities (30,778) (12,885)
------- -------

Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (1,689) (3,181)

Proceeds from sale of
available for sale
securities 2,754 -

Purchases of short-term
investments (48,326) (70,647)

Proceeds from sales and
maturities of short-term
investments 52,663 71,327

Acquisitions of businesses,
net of cash acquired (733) (16,107)

Other (467) -
---- ---

Net cash provided by (used
in) investing activities 4,202 (18,608)
----- -------

Cash flows from financing activities:

Proceeds from issuance of
common stock (stock options
and stock purchase plan) 580 392

Tax payments from shares
withheld upon vesting of
restricted stock (307) (800)

Payment of contingent
consideration (696) (828)

Net cash provided by (used
in) financing activities (423) (1,236)
---- ------

Effect of exchange rate
changes on cash and cash
equivalents 214 (1,259)
--- ------

Net increase (decrease) in
cash and cash equivalents (26,785) (33,988)

Cash and cash equivalents,
beginning of period 151,235 163,198
------- -------

Cash and cash equivalents,
end of period $124,450 $129,210
======== ========







RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)




2014 2013
---- ----

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

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A) $8,556 $15,215 $16,799 $17,641 $18,383 $22,383

Mobile Entertainment
(B) 23,182 19,913 22,146 19,948 18,592 20,495

Games (C) 9,087 10,596 11,650 11,369 12,875 13,915

Total net revenue $40,825 $45,724 $50,595 $48,958 $49,850 $56,793
======= ======= ======= ======= ======= =======


Net Revenue by Product

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

- License (D) $3,273 $5,018 $7,128 $7,281 $6,766 $8,332

- Subscriptions (E) 2,569 2,777 3,118 3,615 4,193 4,924

-Media Properties
(F) 2,714 7,420 6,553 6,745 7,424 9,127


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

- SaaS (G) 20,175 18,463 20,406 18,156 17,002 18,674

-Technology License
& Other (H) 3,007 1,450 1,740 1,792 1,590 1,821


Games
-----

- License (I) 3,399 3,849 3,511 3,421 4,089 5,249

- Subscriptions (J) 4,440 5,241 5,688 5,733 5,980 6,312

-Media Properties
(K) 1,248 1,506 2,451 2,215 2,806 2,354


Total net revenue $40,825 $45,724 $50,595 $48,958 $49,850 $56,793
======= ======= ======= ======= ======= =======


Net Revenue by Geography

United States $15,092 $20,428 $19,724 $21,039 $21,463 $28,024

Rest of world 25,733 25,296 30,871 27,919 28,387 28,769

Total net revenue $40,825 $45,724 $50,595 $48,958 $49,850 $56,793
======= ======= ======= ======= ======= =======


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 and our recently launched
RealPlayer Cloud service.

(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 and our
recently launched RealPlayer Cloud service.

(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,
ringback tones, intercarrier messaging
services provided to network services
providers who are largely mobile phone
networks, and our recently launched LISTEN
product.

(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)



2014 2013 2014 2013
---- ---- ---- ----

Q2 Q1 Q2 YTD YTD
--- --- --- --- ---

(in thousands)

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


Net revenue $8,556 $15,215 $18,383 $23,771 $40,766

Cost of revenue 3,620 3,518 4,409 7,138 9,720

Gross profit 4,936 11,697 13,974 16,633 31,046


Gross margin 58% 77% 76% 70% 76%



Operating expenses 12,489 17,787 14,001 30,276 30,207

Operating income (loss) $(7,553) $(6,090) $(27) $(13,643) $839


Adjusted EBITDA $(6,893) $(5,491) $470 $(12,384) $1,801


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


Net revenue $23,182 $19,913 $18,592 $43,095 $39,087

Cost of revenue 14,298 11,950 11,170 26,248 22,002

Gross profit 8,884 7,963 7,422 16,847 17,085


Gross margin 38% 40% 40% 39% 44%


Operating expenses 9,424 9,616 8,412 19,040 17,523

Operating income (loss) $(540) $(1,653) $(990) $(2,193) $(438)


Adjusted EBITDA $808 $(339) $694 $469 $4,076


Games
-----


Net revenue $9,087 $10,596 $12,875 $19,683 $26,790

Cost of revenue 2,717 3,129 3,381 5,846 7,181

Gross profit 6,370 7,467 9,494 13,837 19,609


Gross margin 70% 70% 74% 70% 73%


Operating expenses 8,769 9,766 11,755 18,535 23,607

Operating income (loss) $(2,399) $(2,299) $(2,261) $(4,698) $(3,998)


Adjusted EBITDA $(1,798) $(1,674) $(1,315) $(3,472) $(2,469)


Corporate
---------


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

Cost of revenue 151 189 559 340 1,122

Extinguishment of liability - (10,580) - (10,580) -

Gross profit (151) 10,391 (559) 10,240 (1,122)


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


Operating expenses 8,189 9,225 12,667 17,414 23,211

Operating income (loss) $(8,340) $1,166 $(13,226) $(7,174) $(24,333)


Adjusted EBITDA $(5,198) $(6,414) $(5,602) $(11,612) $(12,170)


Total
-----


Net revenue $40,825 $45,724 $49,850 $86,549 $106,643

Cost of revenue 20,786 18,786 19,519 39,572 40,025

Extinguishment of liability - (10,580) - (10,580) -

Gross profit 20,039 37,518 30,331 57,557 66,618


Gross margin 49% 82% 61% 67% 62%


Operating expenses 38,871 46,394 46,835 85,265 94,548

Operating income (loss) $(18,832) $(8,876) $(16,504) $(27,708) $(27,930)


Adjusted EBITDA $(13,081) $(13,918) $(5,753) $(26,999) $(8,762)









RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


2014 2013 2014 2013
---- ---- ---- ----

Q2 Q1 Q2 YTD YTD
--- --- --- --- ---

(in thousands)

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


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


Operating income (loss) $(7,553) $(6,090) $(27) $(13,643) $839

Acquisitions related intangible
asset amortization 125 60 62 185 129

Depreciation and amortization 535 539 435 1,074 833

Adjusted EBITDA $(6,893) $(5,491) $470 $(12,384) $1,801


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


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


Operating income (loss) $(540) $(1,653) $(990) $(2,193) $(438)

Acquisitions related intangible
asset amortization 628 607 638 1,235 1,451

Depreciation and amortization 720 707 1,046 1,427 3,063

Adjusted EBITDA $808 $(339) $694 $469 $4,076


Games
-----


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


Operating income (loss) $(2,399) $(2,299) $(2,261) $(4,698) $(3,998)

Acquisitions related intangible
asset amortization 314 314 230 628 251

Depreciation and amortization 287 311 716 598 1,278

Adjusted EBITDA $(1,798) $(1,674) $(1,315) $(3,472) $(2,469)


Corporate
---------


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


Operating income (loss) $(8,340) $1,166 $(13,226) $(7,174) $(24,333)

Other income (expense), net (95) (77) (137) (172) (28)

Depreciation and amortization 553 445 1,859 998 2,869

Lease exit and related charges 470 79 3,066 549 3,066

Restructuring and other charges 541 1,216 816 1,757 2,198

Stock-based compensation 1,673 1,337 2,020 3,010 4,058

Extinguishment of liability - (10,580) - (10,580) -

Adjusted EBITDA $(5,198) $(6,414) $(5,602) $(11,612) $(12,170)


Total
-----


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


Operating income (loss) $(18,832) $(8,876) $(16,504) $(27,708) $(27,930)

Other income (expense), net (95) (77) (137) (172) (28)

Acquisitions related intangible
asset amortization 1,067 981 930 2,048 1,831

Depreciation and amortization 2,095 2,002 4,056 4,097 8,043

Lease exit and related charges 470 79 3,066 549 3,066

Restructuring and other charges 541 1,216 816 1,757 2,198

Stock-based compensation 1,673 1,337 2,020 3,010 4,058

Extinguishment of liability - (10,580) - (10,580) -

Adjusted EBITDA $(13,081) $(13,918) $(5,753) $(26,999) $(8,762)




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


-------
Profile: intent