RealNetworks Announces First Quarter 2015 Results

RealNetworks Announces First Quarter 2015 Results

- Continued growth in RealPlayer Cloud user base, with over 11.5 million accounts

- Continued subscriber and revenue growth for Rhapsody, with over 2.5 million paying subscribers

- Cash and short-term investments of $134.4 million



SEATTLE, May 6, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2015.

For the first quarter of 2015, revenue was $30.6 million, compared to $35.5 million in the previous quarter and $45.7 million in the first quarter of 2014.

"RealPlayer Cloud's user base has grown to over 11.5 million users, up from just 2 million a year ago," said Rob Glaser, Chairman and CEO of RealNetworks. "We believe that by combining RealPlayer Cloud's growing popularity with some exciting innovations we are getting ready to bring to market, we're setting Real up for the next great chapter in our history."

"We also continue to be encouraged by the subscriber and revenue growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake."

GAAP net loss for the first quarter of 2015 was $(24.5) million or $(0.68) per diluted share, compared to $(7.8) million or $(0.22) per diluted share in the first quarter of 2014. Adjusted EBITDA for the first quarter of 2015 was a loss of $(14.2) million, compared to $(13.9) million for the first quarter of 2014. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2015, the company had $134.4 million in unrestricted cash, cash equivalents and short-term investments, compared to $161.7 million as of December 31, 2014.

Business Outlook

For the second quarter of 2015, RealNetworks expects total revenue in the range of $30.0 million to $33.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(18.0) million to $(21.0) 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. You may join the conference call by calling 888-790-3440 or +1-517-308-9350 (Passcode: First 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 11:59 p.m. PT, May 27, 2015 by calling 800-839-2808 or +1- 203-369-3625 (Passcode: 562015).

For More Information

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

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 Slingo 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 quarterly 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, and market position, our strategic focus and initiatives, and the growth and future prospects relating to our Rhapsody affiliate. 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 March 31,
------------------------


2015 2014
---- ----

(in thousands, except per share data)


Net revenue $30,597 $45,724

Cost of revenue 16,547 18,786

Extinguishment of liability - (10,580)

Gross profit 14,050 37,518
------ ------


Operating expenses:

Research and development 12,379 14,059

Sales and marketing 12,837 21,723

General and administrative 7,283 9,317

Restructuring and other
charges 485 1,216

Lease exit and related
charges 78 79
--- ---


Total operating expenses 33,062 46,394
------ ------


Operating income (loss) (19,012) (8,876)
------- ------


Other income (expenses):

Interest income, net 200 136

Gain (loss) on sale of
available for sale
securities, net 299 2,371

Equity in net loss of
Rhapsody (6,180) (838)

Other income (expense), net 443 (77)
--- ---


Total other income (expense),
net (5,238) 1,592
------ -----


Income (loss) before income
taxes (24,250) (7,284)

Income tax expense (benefit) 219 486
--- ---


Net income (loss) $(24,469) $(7,770)
======== =======


Basic net income (loss) per
share $(0.68) $(0.22)

Diluted net income (loss) per
share $(0.68) $(0.22)


Shares used to compute basic
net income (loss) per share 36,104 35,840

Shares used to compute
diluted net income (loss)
per share 36,104 35,840





RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


March 31, 2015 December 31,
2014
-------------- -------------

(in thousands)

ASSETS

Current assets:

Cash and
cash
equivalents $102,994 $103,253

Short-
term
investments 31,394 58,453

Trade
accounts
receivable,
net 15,510 15,257

Deferred
costs,
current
portion 314 702

Deferred
tax
assets,
current 651 652

Prepaid
expenses
and other
current
assets 8,278 8,980
----- -----

Total
current
assets 159,141 187,297
------- -------


Equipment, software, and
leasehold improvements,
at cost:

Equipment
and
software 71,840 74,100

Leasehold
improvements 3,395 3,590
----- -----

Total
equipment,
software,
and
leasehold
improvements 75,235 77,690

Less
accumulated
depreciation
and
amortization 60,610 61,442
------ ------

Net
equipment,
software,
and
leasehold
improvements 14,625 16,248


Restricted
cash
equivalents
and
investments 3,000 3,000

Investment
in and
advances
to
Rhapsody 10,743 10,000

Available
for sale
securities 2,648 2,676

Other
assets 3,761 2,299

Deferred
costs,
non-
current
portion 263 316

Deferred
tax
assets,
net, non-
current
portion 899 999

Other
intangible
assets,
net 9,700 10,109

Goodwill 16,839 17,355
------ ------


Total
assets $221,619 $250,299
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $18,315 $18,653

Accrued
and other
current
liabilities 22,052 25,286

Deferred
tax
liabilities,
net,
current
portion 1,576 1,628

Deferred
revenue,
current
portion 3,857 5,301
----- -----

Total
current
liabilities 45,800 50,868


Deferred
revenue,
non-
current
portion 173 235

Deferred
rent 1,207 1,215

Deferred
tax
liabilities,
net, non-
current
portion 690 702

Other
long-
term
liabilities 448 81
--- ---


Total
liabilities 48,318 53,101
------ ------



Shareholders'
equity 173,301 197,198
------- -------


Total
liabilities
and
shareholders'
equity $221,619 $250,299
======== ========



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


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

2015 2014
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(24,469) $(7,770)

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

Depreciation and
amortization 2,503 2,983

Stock-based compensation 1,329 1,337

Extinguishment of
liability - (10,580)

Equity in net loss of
Rhapsody 6,180 838

Deferred income taxes, net (77) 10

Gain on sale of available
for sale securities (299) (2,371)

Realized translation gain - (48)

Fair value of warrants
received (1,155) -

Net change in certain
operating assets and
liabilities (4,106) (2,909)
------ ------

Net cash provided by (used
in) operating activities (20,094) (18,510)
------- -------

Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (306) (998)

Proceeds from sale of
available for sale
securities 352 2,754

Purchases of short-term
investments (6,018) (29,030)

Proceeds from sales and
maturities of short-term
investments 33,077 25,589

Advance to Rhapsody (5,000) -
------ ---

Net cash provided by (used
in) investing activities 22,105 (1,685)
------ ------

Cash flows from financing activities:

Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 6 210

Tax payments from shares
withheld upon vesting of
restricted stock (7) (60)

Net cash provided by (used
in) financing activities (1) 150
--- ---

Effect of exchange rate
changes on cash and cash
equivalents (2,269) 86
------ ---

Net increase (decrease) in
cash and cash equivalents (259) (19,959)

Cash and cash equivalents,
beginning of period 103,253 151,235
------- -------

Cash and cash equivalents,
end of period $102,994 $131,276
======== ========



RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2015 2014
---- ----

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

(in thousands)

Net Revenue by Line of Business

RealPlayer Group
(A) $8,013 $8,865 $6,565 $8,556 $15,215

Mobile
Entertainment (B) 14,480 17,616 19,190 23,182 19,913

Games (C) 8,104 9,025 8,402 9,087 10,596

Total net revenue $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= =======


Net Revenue by Product

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

- License (D) $4,672 $4,496 $3,255 $3,273 $5,018

- Subscriptions (E) 2,408 2,691 2,680 2,569 2,777

-Media Properties
(F) 933 1,678 630 2,714 7,420


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

- SaaS (G) 13,298 16,727 17,919 20,175 18,463

-Technology
License & Other
(H) 1,182 889 1,271 3,007 1,450


Games
-----

- License (I) 3,835 3,854 2,988 3,399 3,849

- Subscriptions (J) 3,570 3,947 4,320 4,440 5,241

-Media Properties
(K) 699 1,224 1,094 1,248 1,506
--- ----- ----- ----- -----


Total net revenue $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= =======


Net Revenue by Geography

United States $12,349 $13,860 $12,280 $15,092 $20,428

Rest of world 18,248 21,646 21,877 25,733 25,296
------ ------ ------ ------ ------

Total net revenue $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= =======



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
our RealPlayer Cloud service and SuperPass.

(B) The Mobile Entertainment division primarily includes revenue from
SaaS services and sales of professional services provided to mobile
carriers.

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

(H) Technology licensing and other revenue within Mobile
Entertainment includes revenue from 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)


2015 2014
---- ----

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

(in thousands)

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


Net revenue $8,013 $8,865 $15,215

Cost of revenue 4,112 3,804 3,518

Gross profit 3,901 5,061 11,697


Gross margin 49% 57% 77%


Operating expenses 12,375 13,074 17,787

Operating income (loss) $(8,474) $(8,013) $(6,090)


Adjusted EBITDA $(7,875) $(7,320) $(5,491)


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


Net revenue $14,480 $17,616 $19,913

Cost of revenue 9,506 11,525 11,950

Gross profit 4,974 6,091 7,963


Gross margin 34% 35% 40%


Operating expenses 5,633 7,199 9,616

Operating income (loss) $(659) $(1,108) $(1,653)


Adjusted EBITDA $225 $24 $(339)


Games
-----


Net revenue $8,104 $9,025 $10,596

Cost of revenue 2,794 2,655 3,129

Gross profit 5,310 6,370 7,467


Gross margin 66% 71% 70%


Operating expenses 8,683 9,977 9,766

Operating income (loss) $(3,373) $(3,607) $(2,299)


Adjusted EBITDA $(2,783) $(3,024) $(1,674)


Corporate
---------


Net revenue $ - $ - $ -

Cost of revenue 135 (103) 189

Extinguishment of
liability - - (10,580)

Gross profit (135) 103 10,391


Gross margin N/A N/A N/A


Operating expenses 6,371 8,057 9,225

Operating income (loss) $(6,506) $(7,954) $1,166


Adjusted EBITDA $(3,741) $(4,879) $(6,414)


Total
-----


Net revenue $30,597 $35,506 $45,724

Cost of revenue 16,547 17,881 18,786

Extinguishment of
liability - - (10,580)

Gross profit 14,050 17,625 37,518


Gross margin 46% 50% 82%


Operating expenses 33,062 38,307 46,394

Operating income (loss) $(19,012) $(20,682) $(8,876)


Adjusted EBITDA $(14,174) $(15,199) $(13,918)



RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


2015 2014
---- ----

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

(in thousands)

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


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


Operating income (loss) $(8,474) $(8,013) $(6,090)

Acquisitions related
intangible asset
amortization 88 96 60

Depreciation and
amortization 511 597 539

Adjusted EBITDA $(7,875) $(7,320) $(5,491)


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


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


Operating income (loss) $(659) $(1,108) $(1,653)

Acquisitions related
intangible asset
amortization 304 271 607

Depreciation and
amortization 580 861 707

Adjusted EBITDA $225 $24 $(339)


Games
-----


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


Operating income (loss) $(3,373) $(3,607) $(2,299)

Acquisitions related
intangible asset
amortization 293 314 314

Depreciation and
amortization 297 269 311
--- --- ---

Adjusted EBITDA $(2,783) $(3,024) $(1,674)


Corporate
---------


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


Operating income (loss) $(6,506) $(7,954) $1,166

Other income (expense),
net 443 (10) (77)

Depreciation and
amortization 430 675 445

Lease exit and related
charges 78 177 79

Restructuring and other
charges 485 1,187 1,216

Stock-based compensation 1,329 1,046 1,337

Extinguishment of
liability - - (10,580)

Adjusted EBITDA $(3,741) $(4,879) $(6,414)


Total
-----


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


Operating income (loss) $(19,012) $(20,682) $(8,876)

Other income (expense),
net 443 (10) (77)

Acquisitions related
intangible asset
amortization 685 681 981

Depreciation and
amortization 1,818 2,402 2,002

Lease exit and related
charges 78 177 79

Restructuring and other
charges 485 1,187 1,216

Stock-based compensation 1,329 1,046 1,337

Extinguishment of
liability - - (10,580)

Adjusted EBITDA $(14,174) $(15,199) $(13,918)


SOURCE RealNetworks, Inc.

RealNetworks, Inc.

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


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