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 at 5:00 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.



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