RealNetworks Announces First Quarter 2014 Results

- RealPlayer Cloud continues to gain traction with over 2 million accounts;

- Mobile Entertainment business launches new LISTEN™ app in US with T-Mobile Partnership;

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

- Cash and short-term investments of $209.6 million

May 07, 2014, 16:01 ET from RealNetworks, Inc.

SEATTLE, May 7, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2014.

For the first quarter of 2014, revenue was $45.7 million, compared to $50.6 million in the previous quarter and $56.8 million in the first quarter of 2013.

"During the first quarter of 2014, we continued to invest in laying the foundation for our future growth and profitability," said Rob Glaser, Chairman and interim CEO of RealNetworks. "We began to roll out our new RealPlayer Cloud product globally and we now have over 2 million users. RealPlayer Cloud makes it easy to watch, save and share video across every type of popular digital device.

"Our Mobile Entertainment business brought our new LISTEN™ application, our innovative ringback tone experience for iPhone and Android users, to the U.S. via a new partnership with T-Mobile. We also hired a new leader for our Games business, Atul Bali, who brings over 20 years of experience in land-based and digital gaming."

GAAP net loss for the first quarter of 2014 was $(7.8) million or $(0.22) per diluted share, compared to $(11.7) million or $(0.33) per diluted share in the first quarter of 2013. Adjusted EBITDA for the first quarter of 2014 was a loss of $(13.9) million, compared to $(3.0) million for the first 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 March 31, 2014, the company had $209.6 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the second quarter of 2014, RealNetworks expects total revenue in the range of $38.0 million to $41.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(13.0) million to $(16.0) 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: 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 9 p.m. PT, May 28, 2014 by calling 800-754-7907 or +1-203-369-3824 (Passcode: 1280865)

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

March 31,

2014

2013

(in thousands, except per share data)

Net revenue

$

45,724

$

56,793

Cost of revenue

18,786

20,506

Extinguishment of liability

(10,580)

        Gross profit

37,518

36,287

Operating expenses:

     Research and development

14,059

15,251

     Sales and marketing

21,723

21,134

     General and administrative

9,317

9,946

     Restructuring and other charges

1,216

1,382

     Lease exit and related charges

79

        Total operating expenses

46,394

47,713

Operating income (loss)

(8,876)

(11,426)

Other income (expenses):

     Interest income, net

136

647

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

2,371

     Equity in net loss of Rhapsody investment

(838)

(2,233)

     Other income (expense), net

(77)

109

        Total other income (expense), net

1,592

(1,477)

Income (loss) before income taxes

(7,284)

(12,903)

Income tax expense (benefit)

486

(1,229)

Net income (loss)

$

(7,770)

$

(11,674)

Basic net income (loss) per share

$

(0.22)

$

(0.33)

Diluted net income (loss) per share

$

(0.22)

$

(0.33)

Shares used to compute basic net income (loss) per share

35,840

35,343

Shares used to compute diluted net income (loss) per share

35,840

35,343

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

March 31, 2014

December 31, 2013

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$

131,276

$

151,235

Short-term investments

78,361

74,920

Trade accounts receivable, net

25,404

24,613

Deferred costs, current portion

1,629

1,601

Deferred tax assets, current

308

306

Prepaid expenses and other current assets

10,322

9,124

  Total current assets

247,300

261,799

Equipment, software, and leasehold improvements, at cost:

Equipment and software

86,585

86,721

Leasehold improvements

3,889

3,482

  Total equipment, software, and leasehold improvements

90,474

90,203

Less accumulated depreciation and amortization

68,452

67,031

  Net equipment, software, and leasehold improvements

22,022

23,172

Restricted cash equivalents and investments

3,000

3,000

Equity method investment

11,704

12,473

Available for sale securities

3,212

7,181

Other assets

2,517

2,332

Deferred costs, non-current portion

1,040

946

Deferred tax assets, net, non-current portion

1,408

1,409

Other intangible assets, net

12,045

12,993

Goodwill

17,336

17,476

  Total assets

$

321,584

$

342,781

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

21,402

$

19,987

Accrued and other current liabilities

27,704

41,893

Deferred tax liabilities, net, current portion

909

899

Deferred revenue, current portion

8,718

7,498

  Total current liabilities

58,733

70,277

Deferred revenue, non-current portion

155

166

Deferred rent

1,378

1,318

Deferred tax liabilities, net, non-current portion

1,556

1,556

Other long-term liabilities

595

483

  Total liabilities

62,417

73,800

Shareholders' equity

259,167

268,981

Total liabilities and shareholders' equity

$

321,584

$

342,781

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Quarters Ended March 31,

2014

2013

(in thousands)

Cash flows from operating activities:

  Net income (loss)

$

(7,770)

$

(11,674)

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

    Depreciation and amortization

2,983

4,888

    Stock-based compensation

1,337

2,038

    Equity in net loss of Rhapsody

838

2,233

    Deferred income taxes, net

10

(1,559)

    Gain on sale of available for sale securities

(2,371)

    Realized translation gain

(48)

    Extinguishment of liability

(10,580)

    Other

(75)

    Net change in certain operating assets and liabilities

(2,909)

(2,584)

      Net cash provided by (used in) operating activities

(18,510)

(6,733)

Cash flows from investing activities:

  Purchases of equipment, software, and leasehold improvements

(998)

(1,194)

  Proceeds from sale of available for sale securities

2,754

  Purchases of short-term investments

(29,030)

(43,318)

  Proceeds from sales and maturities of short-term investments

25,589

27,640

  Acquisitions of businesses, net of cash acquired

(700)

    Net cash provided by (used in) investing activities

(1,685)

(17,572)

Cash flows from financing activities:

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

210

20

  Tax payments from shares withheld upon vesting of restricted stock

(60)

(166)

  Payment of contingent consideration

(828)

    Net cash provided by (used in) financing activities

150

(974)

Effect of exchange rate changes on cash and cash equivalents

86

(1,225)

    Net increase (decrease) in cash and cash equivalents

(19,959)

(26,504)

Cash and cash equivalents, beginning of period

151,235

163,198

Cash and cash equivalents, end of period

$

131,276

$

136,694

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2014

2013

Q1

Q4

Q3

Q2

Q1

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A)

$

15,215

$

16,799

$

17,641

$

18,383

$

22,383

Mobile Entertainment (B)

19,913

22,146

19,948

18,592

20,495

Games (C)

10,596

11,650

11,369

12,875

13,915

    Total net revenue

$

45,724

$

50,595

$

48,958

$

49,850

$

56,793

Net Revenue by Product

RealPlayer Group

- License (D)

$

5,018

$

7,128

$

7,281

$

6,766

$

8,332

- Subscriptions (E)

2,777

3,118

3,615

4,193

4,924

- Media Properties (F)

7,420

6,553

6,745

7,424

9,127

Mobile Entertainment

- SaaS (G)

18,463

20,406

18,156

17,002

18,674

- Technology License & Other (H)

1,450

1,740

1,792

1,590

1,821

Games

- License (I)

3,849

3,511

3,421

4,089

5,249

- Subscriptions (J)

5,241

5,688

5,733

5,980

6,312

- Media Properties (K)

1,506

2,451

2,215

2,806

2,354

    Total net revenue

$

45,724

$

50,595

$

48,958

$

49,850

$

56,793

Net Revenue by Geography

United States

$

20,428

$

19,724

$

21,039

$

21,463

$

28,024

Rest of world

25,296

30,871

27,919

28,387

28,769

     Total net revenue

$

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

Q1

Q4

Q1

(in thousands)

RealPlayer Group

Net revenue

$

15,215

$

16,799

$

22,383

Cost of revenue

3,518

3,236

5,311

Gross profit

11,697

13,563

17,072

   Gross margin

77%

81%

76%

Operating expenses

17,787

15,828

16,206

Operating income (loss)

$

(6,090)

$

(2,265)

$

866

  Adjusted EBITDA

$

(5,491)

$

(1,474)

$

1,331

Mobile Entertainment

Net revenue

$

19,913

$

22,146

$

20,495

Cost of revenue

11,950

13,634

10,832

Gross profit

7,963

8,512

9,663

   Gross margin

40%

38%

47%

Operating expenses

9,616

8,863

9,111

Operating income (loss)

$

(1,653)

$

(351)

$

552

  Adjusted EBITDA

$

(339)

$

1,251

$

3,382

Games

Net revenue

$

10,596

$

11,650

$

13,915

Cost of revenue

3,129

2,962

3,800

Gross profit

7,467

8,688

10,115

   Gross margin

70%

75%

73%

Operating expenses

9,766

12,057

11,852

Operating income (loss)

$

(2,299)

$

(3,369)

$

(1,737)

  Adjusted EBITDA

$

(1,674)

$

(2,724)

$

(1,154)

Corporate

Net revenue

$

$

$

Cost of revenue

189

244

563

Extinguishment of liability

(10,580)

Gross profit

10,391

(244)

(563)

Gross margin

N/A

N/A

N/A

Operating expenses

9,225

8,212

10,544

Operating income (loss)

$

1,166

$

(8,456)

$

(11,107)

Adjusted EBITDA

$

(6,414)

$

(3,668)

$

(6,568)

Total

Net revenue

$

45,724

$

50,595

$

56,793

Cost of revenue

18,786

20,076

20,506

Extinguishment of liability

(10,580)

Gross profit

37,518

30,519

36,287

   Gross margin

82%

60%

64%

Operating expenses

46,394

44,960

47,713

Operating income (loss)

$

(8,876)

$

(14,441)

$

(11,426)

  Adjusted EBITDA

$

(13,918)

$

(6,615)

$

(3,009)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2014

2013

Q1

Q4

Q1

(in thousands)

RealPlayer Group

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

Operating income (loss)

$

(6,090)

$

(2,265)

$

866

Acquisitions related intangible asset amortization

60

60

67

Depreciation and amortization

539

731

398

   Adjusted EBITDA

$

(5,491)

$

(1,474)

$

1,331

Mobile Entertainment

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

Operating income (loss)

$

(1,653)

$

(351)

$

552

Acquisitions related intangible asset amortization

607

781

813

Depreciation and amortization

707

821

2,017

   Adjusted EBITDA

$

(339)

$

1,251

$

3,382

Games

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

Operating income (loss)

$

(2,299)

$

(3,369)

$

(1,737)

Acquisitions related intangible asset amortization

314

314

21

Depreciation and amortization

311

331

562

   Adjusted EBITDA

$

(1,674)

$

(2,724)

$

(1,154)

Corporate

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

Operating income (loss)

$

1,166

$

(8,456)

$

(11,107)

Other income (expense), net

(77)

613

109

Depreciation and amortization

445

665

1,010

Lease exit and related charges

79

23

Restructuring and other charges

1,216

1,690

1,382

Stock-based compensation

1,337

1,797

2,038

Extinguishment of liability

(10,580)

   Adjusted EBITDA

$

(6,414)

$

(3,668)

$

(6,568)

Total

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

Operating income (loss)

$

(8,876)

$

(14,441)

$

(11,426)

Other income (expense), net

(77)

613

109

Acquisitions related intangible asset amortization

981

1,155

901

Depreciation and amortization

2,002

2,548

3,987

Lease exit and related charges

79

23

Restructuring and other charges

1,216

1,690

1,382

Stock-based compensation

1,337

1,797

2,038

Extinguishment of liability

(10,580)

   Adjusted EBITDA

$

(13,918)

$

(6,615)

$

(3,009)

 

SOURCE RealNetworks, Inc.



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