RealNetworks Announces Third Quarter 2015 Results

RealNetworks Announces Third Quarter 2015 Results

- New Verizon collaboration brings RealTimes® to millions of mobile cloud subscribers;

- Casual Games business grows 15% sequentially, driven by Delicious(TM) franchise;

- Completed sale of Slingo and social casino games for $18 million;

- Significantly reducing operating expenses and cash burn; and

- Cash and short-term investments of $112.2 million

SEATTLE, Nov. 9, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the third quarter ended September 30, 2015.

For the third quarter of 2015, revenue was $30.8 million. Excluding revenue from the Slingo and social casino games business, which was sold during the third quarter of 2015, revenue was $29.8 million, compared to $31.8 million in the previous quarter and $32.7 million in the third quarter of 2014.

"Our RealTimes go-to-market strategy to leverage mobile carriers and other partners is gaining traction," said Rob Glaser, Chairman and CEO of RealNetworks. "Our new collaboration with Verizon, the largest mobile service provider in North America, is a major step forward that will drive both revenue and distribution for RealTimes."

"At the same time, we're taking steps to cut costs and rebalance our resources to focus on our best and most leveraged opportunities. During the third quarter, we completed the sale of the Slingo and social casino games business. Last week, we implemented a plan to significantly reduce operating expenses and cash burn by moving off of legacy e-commerce platforms, and we're taking other steps to refocus the RealPlayer and RealTimes teams going forward."

"Additionally, we will continue to reinvest in our Casual Games business, which grew 15% sequentially, driven by the success of our Delicious franchise. We are also pleased with continued growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake."

GAAP net loss for the third quarter of 2015 was $(21.2) million or $(0.59) per diluted share, compared to $(22.2) million or $(0.62) per diluted share in the third quarter of 2014. GAAP results for the third quarter of 2015 include $5.2 million severance, restructuring and lease exit charges related to the Company's ongoing cost reduction efforts. Adjusted EBITDA for the third quarter of 2015 was a loss of $(12.2) million, compared to $(14.4) million for the third 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 September 30, 2015, the company had $112.2 million in unrestricted cash, cash equivalents and short-term investments, comparable to its position as of June 30, 2015. During the third quarter, the Company received $10.0 million from the sale of the Slingo and social casino games business, with the remaining $8.0 million due in coming years. The Company also received $5.2 million from Rhapsody for the full repayment of a loan, plus interest.

Business Outlook

For the fourth quarter of 2015, RealNetworks expects total revenue in the range of $26 million to $29 million and an adjusted EBITDA loss for the fourth quarter in the range of $(5.0) million to $(8.0) 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: Third 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, November 30, 2015 by calling 866-375-1051 or +1-203-369-0291 (Passcode: 1192015).

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 and RealTimes 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, agreements with partners, 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 Nine Months Ended
September 30, September 30,
------------- -------------


2015 2014 2015 2014
---- ---- ---- ----

(in thousands, except per share data)


Net revenue $30,823 $34,157 $95,374 $120,706

Cost of revenue 18,090 18,928 54,469 58,500

Extinguishment of
liability - - - (10,580)

Gross profit 12,733 15,229 40,905 72,786
------ ------ ------ ------


Operating expenses:

Research and
development 10,501 12,784 34,681 40,110

Sales and marketing 11,938 13,283 38,822 51,022

General and
administrative 7,021 7,723 21,312 25,617

Restructuring and
other charges 3,114 2,048 5,563 3,805

Lease exit and related
charges 2,121 154 2,208 703
----- --- ----- ---


Total operating
expenses 34,695 35,992 102,586 121,257
------ ------ ------- -------


Operating income
(loss) (21,962) (20,763) (61,681) (48,471)
------- ------- ------- -------


Other income
(expenses):

Interest income, net 147 80 597 396

Gain (loss) on
investments, net (615) - (222) 2,371

Equity in net loss of
Rhapsody (735) (1,530) (13,831) (4,170)

Other income
(expense), net 297 325 628 153
--- --- --- ---


Total other income
(expense), net (906) (1,125) (12,828) (1,250)
---- ------ ------- ------


Income (loss) before
income taxes (22,868) (21,888) (74,509) (49,721)

Income tax expense
(benefit) (1,684) 290 (1,075) 1,256
------ --- ------ -----


Net income (loss) $(21,184) $(22,178) $(73,434) $(50,977)
======== ======== ======== ========


Basic net income
(loss) per share $(0.59) $(0.62) $(2.03) $(1.42)

Diluted net income
(loss) per share $(0.59) $(0.62) $(2.03) $(1.42)


Shares used to compute
basic net income
(loss) per share 36,191 36,003 36,134 35,912

Shares used to compute
diluted net income
(loss) per share 36,191 36,003 36,134 35,912



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


September 30, December 31,
2015 2014
-------------- -------------

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents $61,831 $103,253

Short-term investments 50,412 58,453

Trade accounts receivable,
net 20,534 15,257

Deferred costs, current
portion 324 702

Deferred tax assets, current 640 652

Prepaid expenses and other
current assets 5,953 8,980
----- -----

Total current assets 139,694 187,297
------- -------


Equipment, software, and
leasehold improvements, at
cost:

Equipment and software 69,437 74,100

Leasehold improvements 3,592 3,590
----- -----

Total equipment, software,
and leasehold improvements 73,029 77,690

Less accumulated
depreciation and
amortization 62,353 61,442
------ ------

Net equipment, software, and
leasehold improvements 10,676 16,248


Restricted cash equivalents
and investments 3,000 3,000

Investment in and advances
to Rhapsody - 10,000

Available for sale
securities 1,756 2,676

Other assets 2,520 2,299

Deferred costs, non-current
portion 145 316

Deferred tax assets, net,
non-current portion 1,959 999

Other intangible assets, net 2,813 10,109

Goodwill 13,101 17,355
------ ------

250,299
Total assets $175,664 $
======== ===


LIABILITIES AND
SHAREHOLDERS' EQUITY


Current liabilities:

Accounts payable $15,853 $18,653

Accrued and other current
liabilities 23,890 25,286

Deferred tax liabilities,
net, current portion 1,602 1,628

Deferred revenue, current
portion 3,638 5,301
----- -----

Total current liabilities 44,983 50,868


Deferred revenue, non-
current portion 98 235

Deferred rent 637 1,215

Deferred tax liabilities,
net, non-current portion 156 702

Other long-term liabilities 2,228 81
----- ---


Total liabilities 48,102 53,101
------ ------



Shareholders' equity 127,562 197,198
------- -------

250,299
Total liabilities and
shareholders' equity $175,664 $
======== ===



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


Nine Months Ended September 30,
-------------------------------

2015 2014
---- ----

(in thousands)

Cash flows from operating
activities:
(50,977)
Net income (loss) $(73,434) $

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

Depreciation and
amortization 7,952 8,876

Stock-based compensation 3,761 4,158

Extinguishment of
liability - (10,580)

Equity in net loss of
Rhapsody 13,831 4,170

Accrued loss (gain) on
excess office facilities 2,208 480

Deferred income taxes, net (1,531) (64)

Loss (gain) on
investments, net 222 (2,371)

Realized translation gain (264) (48)

Fair value of warrants,
net of mark to market
adjustments (1,078) -

Net change in certain
operating assets and
liabilities (7,636) 714
------ ---

Net cash provided by (used
in) operating activities (55,969) (45,642)
------- -------

Cash flows from investing
activities:

Purchases of equipment,
software, and leasehold
improvements (1,110) (2,054)

Proceeds from sale of
available for sale
securities 459 2,754

Purchases of short-term
investments (52,475) (63,574)

Proceeds from sales and
maturities of short-term
investments 60,516 74,546

Acquisitions, net of cash
acquired (161) (733)

Advance to Rhapsody (5,000) -

Receipt of payment from
Rhapsody 5,000 -

Proceeds from the sale of
Slingo and Social Casino
business 10,000 -

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

Net cash provided by (used
in) investing activities 17,229 10,472
------ ------

Cash flows from financing
activities:

Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 297 641

Tax payments from shares
withheld upon vesting of
restricted stock (69) (403)

Payment of contingent
consideration - (696)

Net cash provided by (used
in) financing activities 228 (458)
--- ----

Effect of exchange rate
changes on cash and cash
equivalents (2,910) (1,534)
------ ------

Net increase (decrease) in
cash and cash equivalents (41,422) (37,162)

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

Cash and cash equivalents,
end of period $61,831 $114,073
======= ========






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


2015 2014
---- ----

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

(in thousands)

Net Revenue by Line of
Business

RealPlayer Group (A) $6,565 $7,344 $8,013 $8,865 $6,565 $8,556 $15,215

Mobile Entertainment (B) 16,414 18,515 14,480 17,616 19,190 23,182 19,913

Games (C) 7,844 8,095 8,104 9,025 8,402 9,087 10,596

Total net revenue $30,823 $33,954 $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= ======= ======= =======


Net Revenue by Product

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

- License (D) $3,628 $4,208 $4,672 $4,496 $3,255 $3,273 $5,018

- Subscriptions (E) 2,217 2,435 2,408 2,691 2,680 2,569 2,777

- Media Properties (F) 720 701 933 1,678 630 2,714 7,420


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

- SaaS (G) 16,147 18,155 13,298 16,727 17,919 20,175 18,463

-Technology License &
Other (H) 267 360 1,182 889 1,271 3,007 1,450


Games
-----

- License (I) 4,128 3,943 3,835 3,854 2,988 3,399 3,849

- Subscriptions (J) 3,231 3,373 3,570 3,947 4,320 4,440 5,241

- Media Properties (K) 485 779 699 1,224 1,094 1,248 1,506
--- --- --- ----- ----- ----- -----


Total net revenue $30,823 $33,954 $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= ======= ======= =======


Net Revenue by Geography

United States $11,460 $12,303 $12,349 $13,860 $12,280 $15,092 $20,428

Rest of world 19,363 21,651 18,248 21,646 21,877 25,733 25,296
------ ------ ------ ------ ------ ------ ------

Total net revenue $30,823 $33,954 $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 RealPlayer Cloud, RealTimesTM, 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 intellectual property licenses and RealPlayer Plus
software licenses to consumers.

(E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as our RealPlayer Cloud,
RealTimes and SuperPass offerings.

(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.

(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 and sales of mobile games.

(J) Subscriptions revenue within Games includes revenue from online games subscriptions as well as microtransactions from
mobile and social games.

(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 2015 2014
---- ---- ---- ----

Q3 Q2 Q3 YTD YTD
--- --- --- --- ---

(in thousands)

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


Net revenue $6,565 $7,344 $6,565 $21,922 $30,336

Cost of revenue 3,902 4,317 3,566 12,331 10,704

Gross profit 2,663 3,027 2,999 9,591 19,632


Gross margin 41% 41% 46% 44% 65%


Operating expenses 11,492 13,001 12,392 36,868 42,668
------

Operating income (loss) $(8,829) $(9,974) $(9,393) $(27,277) $(23,036)


Adjusted EBITDA $(8,224) $(9,411) $(8,770) $(25,510) $(21,154)


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


Net revenue $16,414 $18,515 $19,190 $49,409 $62,285

Cost of revenue 11,518 13,079 12,626 34,103 38,874

Gross profit 4,896 5,436 6,564 15,306 23,411


Gross margin 30% 29% 34% 31% 38%


Operating expenses 5,219 5,301 7,086 16,153 26,126
------

Operating income (loss) $(323) $135 $(522) $(847) $(2,715)


Adjusted EBITDA $473 $1,013 $447 $1,711 $916


Games
-----


Net revenue $7,844 $8,095 $8,402 $24,043 $28,085

Cost of revenue 2,513 2,286 2,573 7,593 8,419

Gross profit 5,331 5,809 5,829 16,450 19,666


Gross margin 68% 72% 69% 68% 70%


Operating expenses 6,431 8,719 8,658 23,833 27,193
------

Operating income (loss) $(1,100) $(2,910) $(2,829) $(7,383) $(7,527)


Adjusted EBITDA $(716) $(2,354) $(2,246) $(5,853) $(5,718)


Corporate
---------


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

Cost of revenue 157 150 163 442 503

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

Gross profit (157) (150) (163) (442) 10,077


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


Operating expenses 11,553 7,808 7,856 25,732 25,270

Operating income (loss) $(11,710) $(7,958) $(8,019) $(26,174) $(15,193)


Adjusted EBITDA $(3,727) $(4,449) $(3,788) $(11,917) $(15,400)


Total
-----


Net revenue $30,823 $33,954 $34,157 $95,374 $120,706

Cost of revenue 18,090 19,832 18,928 54,469 58,500

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

Gross profit 12,733 14,122 15,229 40,905 72,786


Gross margin 41% 42% 45% 43% 60%


Operating expenses 34,695 34,829 35,992 102,586 121,257

Operating income (loss) $(21,962) $(20,707) $(20,763) $(61,681) $(48,471)


Adjusted EBITDA $(12,194) $(15,201) $(14,357) $(41,569) $(41,356)





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


2015 2014 2015 2014
---- ---- ---- ----

Q3 Q2 Q3 YTD YTD
--- --- --- --- ---

(in thousands)

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


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


Operating income (loss) $(8,829) $(9,974) $(9,393) $(27,277) $(23,036)

Acquisitions related
intangible asset
amortization 86 85 103 259 288

Depreciation and
amortization 519 478 520 1,508 1,594

Adjusted EBITDA $(8,224) $(9,411) $(8,770) $(25,510) $(21,154)


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


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


Operating income (loss) $(323) $135 $(522) $(847) $(2,715)

Acquisitions related
intangible asset
amortization 303 299 287 906 1,522

Depreciation and
amortization 493 579 682 1,652 2,109

Adjusted EBITDA $473 $1,013 $447 $1,711 $916


Games
-----


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


Operating income (loss) $(1,100) $(2,910) $(2,829) $(7,383) $(7,527)

Acquisitions related
intangible asset
amortization 170 312 314 775 942

Depreciation and
amortization 214 244 269 755 867
--- --- --- --- ---

Adjusted EBITDA $(716) $(2,354) $(2,246) $(5,853) $(5,718)


Corporate
---------


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


Operating income (loss) $(11,710) $(7,958) $(8,019) $(26,174) $(15,193)

Other income (expense),
net 297 (112) 325 628 153

Depreciation and
amortization 1,273 394 556 2,097 1,554

Lease exit and related
charges 2,121 9 154 2,208 703

Restructuring and other
charges 3,114 1,964 2,048 5,563 3,805

Stock-based compensation 1,178 1,254 1,148 3,761 4,158

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

Adjusted EBITDA $(3,727) $(4,449) $(3,788) $(11,917) $(15,400)


Total
-----


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


Operating income (loss) $(21,962) $(20,707) $(20,763) $(61,681) $(48,471)

Other income (expense),
net 297 (112) 325 628 153

Acquisitions related
intangible asset
amortization 559 696 704 1,940 2,752

Depreciation and
amortization 2,499 1,695 2,027 6,012 6,124

Lease exit and related
charges 2,121 9 154 2,208 703

Restructuring and other
charges 3,114 1,964 2,048 5,563 3,805

Stock-based compensation 1,178 1,254 1,148 3,761 4,158

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

Adjusted EBITDA $(12,194) $(15,201) $(14,357) $(41,569) $(41,356)






SOURCE RealNetworks, Inc.

RealNetworks, Inc.

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


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