RealNetworks Announces Fourth Quarter and Full Year 2009 Results
SEATTLE, Feb. 11 /PRNewswire-FirstCall/ -- Digital entertainment services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended December 31, 2009.
Quarterly Highlights:
- Revenue of $145.5 million
- Net loss attributable to common shareholders of $(13.3) million or $(0.11) per share
- Adjusted EBITDA excluding impairments of $12.9 million
Full Year Highlights:
- Revenue of $562.3 million
- Net loss attributable to common shareholders of $(212.3) million or $(1.60) per share
- Adjusted EBITDA excluding impairments of $39.7 million
- Cash and short term investments of $384.9 million as of December 31, 2009
“The severe recession in 2009 hurt both our revenue and profitability for the year,” said Bob Kimball, president and acting CEO of RealNetworks. “While we don’t expect that overall trend to change in the first quarter, we are aggressively moving to transform RealNetworks into a more simple and focused company that delivers value to its shareholders. The first step in Real’s simplification was announced this week with the separation of our Rhapsody music business into an independent company.”
Mr. Kimball was named president and appointed to Real’s Board of Directors on January 12, when he was also named acting CEO.
Fourth Quarter Results
For the fourth quarter of 2009, revenue declined 5% to $145.5 million compared with $152.6 million for the fourth quarter of 2008. Foreign currency exchange rate fluctuations positively affected 2009 fourth quarter revenue by approximately $4.5 million compared with the year-ago quarter. Excluding the effects of foreign exchange rate changes, revenue declined 8% year over year. Revenue trends in each of Real’s businesses in the fourth quarter of 2009 compared with the year-earlier quarter were: a 4% increase in Technology Products and Solutions revenue to $54.3 million, a 1% increase in Media Software and Services revenue to $22.9 million, a 9% decrease in Games revenue to $30.7 million, and a 14% decrease in Music revenue to $37.6 million.
Net loss attributable to common shareholders for the fourth quarter of 2009 was $(13.3) million, or $(0.11) per share, compared with net loss of $(240.5) million, or $(1.78) per share, in the fourth quarter of 2008. The net loss for the fourth quarter of 2009 included impairment and restructuring charges of $(7.4) million, or $(0.05) per share. Included in the fourth quarter 2008 net loss were impairment charges, net of tax benefit, totaling $(240.7) million, or $(1.78) per share. Adjusted EBITDA excluding impairments for the fourth quarter of 2009 was $12.9 million, compared with $11.3 million for the fourth quarter of 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.
As of December 31, 2009, Real had approximately $384.9 million in unrestricted cash, cash equivalents and short-term investments, an increase of $14 million from the prior year. In addition, Real has approximately $33.3 million in restricted cash and equity investments at December 31, 2009.
Gross margin in the fourth quarter was 61%, compared with 48% for the fourth quarter a year earlier. Excluding the effect of a $19.7 million charge to reflect the impairment of deferred project costs and prepaid royalties, gross margin was 61% in the fourth quarter of 2008.
Income tax provision was a benefit of $124,000, compared with $(17.4) million in the year-earlier period. Interest income in the fourth quarter of 2009 was $779,000 compared with $2.3 million in the year-earlier period.
Full Year Results
For 2009, revenue declined 7% to $562.3 million compared with $604.8 million in 2008. Foreign currency exchange rate fluctuations negatively affected 2009 revenue by approximately $14 million compared with 2008. Excluding the effects of foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real’s businesses for the full year 2009 compared with 2008 were: a slight increase in Music revenue to $160.9 million, a 7% decrease in Technology Products and Solutions revenue to $191.5 million, a 9% decrease in Games revenue to $122.8 million, and a decrease of 15% in Media Software and Services to $87.1 million.
Net loss attributable to common shareholders for the year was $(212.3) million, or $(1.60) per share, compared with a net loss of $(243.9) million, or $(1.74) per share, in 2008. The net loss for the most recent year included impairments of $(184.6) million, or $(1.37) per share. The net loss in 2008 included impairments of $(241.4) million, or $(1.72) per share.
In 2009, adjusted EBITDA excluding impairments was $39.7 million compared with $60.7 million in 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.
Business Outlook
The following business outlook for the first quarter of 2010 assumes Rhapsody America’s financial results are consolidated in Real’s financial results for the entire first quarter. For the first quarter of 2010, Real expects overall revenue to decline by up to 12% year-over-year and up to 15% sequentially. As a result of the decline in revenue, Real expects adjusted EBITDA excluding impairments for the first quarter of 2010 to be below the first quarter of 2009. Compared with the year-earlier quarter, the company expects first-quarter revenue for Music, Media Software and Services, Games and Technology Products and Solutions to decline. Sequentially, the company expects revenue to be flat in Games, and to decline in Music, Media Software and Services and Technology Products and Solutions, with the largest decline in Technology Products and Solutions, primarily as a result of fourth quarter business seasonality.
Approximately 25% of Real’s revenue is denominated in currencies other than the U.S. dollar, most notably the euro and Korean won. Based on current currency rates, Real expects reported revenues to be affected by foreign currency trends.
The foregoing forward-looking statements reflect Real’s expectations as of February 11, 2010. It is not Real’s general practice to update these forward-looking statements until its next quarterly results announcement.
Webcast and Conference Call Information
The company will host a webcast and conference call today at 5:00pm (Eastern)/ 2:00pm (Pacific). The live webcast will be available at http://investor.realnetworks.com. Listeners must use RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast.
Conference Call Details
5:00 p.m. (Eastern) / 2:00 p.m. (Pacific)
Dial in:
800-857-5305 Domestic
773-681-5857 International
Passcode: Fourth Quarter Earnings
Leader: Bob Kimball
Telephonic replay will be available until 8:00 p.m. (Eastern), February 25, 2010.
Replay dial in:
888-277-5024 Domestic
203-369-3021 International
RNWK-F
About RealNetworks
RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer®, the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody® digital music service, which delivers more than 1 billion songs per year; RealArcade®, one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://investor.realnetworks.com.
About Non-GAAP Financial Measures
To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA excluding impairments, adjusted EBITDA, adjusted EBITDA excluding impairments by reporting segment, adjusted cost of revenue and adjusted operating expenses, which management believes provide investors with useful information.
In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) attributable to common shareholders to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA excluding impairments by reporting segment; GAAP cost of revenue to adjusted cost of revenue; and GAAP operating expenses to adjusted operating expenses for the relevant periods.
The rationale for management’s use of non-GAAP measures is included in the supplementary materials presented with the fourth 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 Real’s current expectations for future revenue, adjusted EBITDA excluding impairments and the impact of foreign currency rates. 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; changes in Real’s GAAP tax rate; the potential gain or loss and other potential accounting consequences from the anticipated restructuring of Rhapsody America; development and consumer acceptance of legal online music distribution services generally and RealNetworks’ content services in particular because these are relatively new and unproven business models and markets; risks associated with the operation of Rhapsody America and with the ability of Real and Rhapsody America to realize financial benefits from the anticipated restructuring of Rhapsody America; Real’s ability to realize operating efficiencies and other benefits from the implementation of its strategic initiatives; the potential that Real will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for its subscription service offerings and the distribution of Real’s carrier application services; the emergence of new entrants and competition in the market for digital media subscription offerings, online music sales and downloadable casual games; the impact on Real’s gross margin from content costs and the mix of subscription offerings sold to Real’s customers; competitive risks, including the emergence or growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real’s business, prospects, financial condition or results of operations; risks associated with strategic relationships, business acquisitions and the introduction of new products and services; and changes in consumer and advertising spending in response to disruptions in the global financial markets. 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, Rhapsody, RealPlayer and RealArcade 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 Years Ended
December 31, December 31,
-------------- ------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net revenue $145,502 $152,644 $562,264 $604,810
Cost of revenue 56,821 60,042 222,142 233,244
Impairment of deferred costs
and prepaid royalties - 19,666 - 19,666
--- ------ --- ------
Gross profit 88,681 72,936 340,122 351,900
------ ------ ------- -------
Operating expenses:
Research and development 32,541 28,533 119,448 113,680
Sales and marketing 40,325 50,192 165,856 211,922
Advertising with related
party (A) 11,063 12,480 33,292 44,213
General and administrative 19,456 19,107 74,664 69,981
Impairment of goodwill and
long-lived assets - 192,676 175,583 192,676
Restructuring and other
charges 2,346 6,147 4,017 6,833
----- ----- ----- -----
Total operating
expenses 105,731 309,135 572,860 639,305
------- ------- ------- -------
Operating loss (17,050) (236,199) (232,738) (287,405)
------- -------- -------- --------
Other income (expenses):
Interest income, net 779 2,255 3,969 13,453
Equity in net loss of
investments (116) (271) (1,313) (695)
Gain (loss) on sale of
equity investments, net (121) (12) 688 210
Impairment of equity
investments (5,020) - (5,020) -
Gain on sale of interest in
Rhapsody America (B) - - - 14,502
Other income (expense),
net (312) (1,306) (794) 330
---- ------ ---- ---
Total other income
(expense), net (4,790) 666 (2,470) 27,800
------ --- ------ ------
Loss before income taxes (21,840) (235,533) (235,208) (259,605)
Income tax benefit (expense) 124 (17,392) (3,321) (25,828)
--- ------- ------ -------
Net loss (21,716) (252,925) (238,529) (285,433)
Net loss attributable to
the noncontrolling interest
in Rhapsody America (C) 8,397 12,426 26,265 41,555
----- ------ ------ ------
Net loss attributable to
common shareholders $(13,319) $(240,499) $(212,264) $(243,878)
======== ========= ========= =========
Basic net loss per share
available to common
shareholders $(0.11) $(1.78) $(1.60) $(1.74)
Diluted net loss per share
available to common
shareholders $(0.11) $(1.78) $(1.60) $(1.74)
Shares used to compute basic
net loss per share available
to common shareholders 134,844 135,402 134,612 140,432
Shares used to compute
diluted net loss per share
available to common
shareholders 134,844 135,402 134,612 140,432
(A) Consists of advertising purchased by Rhapsody America from MTV
Networks (MTVN). MTVN has a 49% ownership interest in Rhapsody America.
(B) Consists of gains realized from MTVN's note payments to Rhapsody
America. Effective January 1, 2009, the Company adopted SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements, an
amendment to ARB No. 51 (SFAS 160) which requires the appreciation of
gains on the sale of noncontrolling interest to be recorded as an equity
transaction.
(C) Noncontrolling interest in Rhapsody America reflects MTVN's 49%
ownership share in the losses of Rhapsody America.
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, December 31,
2009 2008
------------ ------------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $277,030 $232,968
Short-term investments 107,870 137,766
Trade accounts receivable, net 60,937 70,201
Deferred costs, current portion 5,192 4,026
Prepaid expenses and other current assets 30,624 34,599
------ ------
Total current assets 481,653 479,560
------- -------
Equipment, software, and leasehold improvements,
at cost:
Equipment and software 151,951 135,788
Leasehold improvements 31,041 30,719
------ ------
Total equipment, software, and leasehold
improvements 182,992 166,507
Less accumulated depreciation and
amortization 125,878 103,500
------- -------
Net equipment, software, and leasehold
improvements 57,114 63,007
Restricted cash equivalents and investments 13,700 14,742
Equity investments 19,553 18,582
Other assets 4,030 3,775
Deferred costs, non-current portion 10,182 6,120
Deferred tax assets, net, non-current portion 10,001 9,236
Other intangible assets, net 10,650 18,727
Goodwill - 175,264
--- -------
Total assets $606,883 $789,013
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $32,703 $36,575
Accrued and other liabilities 120,434 118,688
Deferred revenue, current portion 31,374 39,835
Related party payable (A) 11,216 13,155
Accrued loss on excess office facilities,
current portion 3,228 4,317
----- -----
Total current liabilities 198,955 212,570
------- -------
Deferred revenue, non-current portion 1,933 1,961
Accrued loss on excess office facilities, non-
current portion - 2,893
Deferred rent 4,464 4,614
Deferred tax liabilities, net, non-current
portion 961 1,379
Other long-term liabilities 13,006 11,660
------ ------
Total liabilities 219,319 235,077
------- -------
Noncontrolling interest in Rhapsody
America (B) 7,253 378
Shareholders' equity 380,311 553,558
------- -------
Total liabilities and shareholders'
equity $606,883 $789,013
======== ========
(A) Related party payable reflects amounts owed to MTVN.
(B) Noncontrolling interest in Rhapsody America reflects MTVN's 49%
ownership interest in the net assets of Rhapsody America.
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Years Ended
December 31,
----------------
2009 2008
---- ----
(in thousands)
Cash flows from operating activities:
Net loss $(238,529) $(285,433)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 31,454 45,968
Stock-based compensation 21,460 23,531
Loss on disposal of equipment, software, and
leasehold improvements 502 10
Equity in net loss of investments 1,313 695
Gain on sale of equity investment, net (688) (210)
Impairment of equity investments 5,020 -
Excess tax benefit from stock option
exercises (15) (127)
Impairment of goodwill and long-lived assets 175,583 192,676
Accrued restructuring and other charges (2,773) 5,524
Accrued loss on excess office facilities (3,982) (3,490)
Deferred income taxes, net 4,255 11,583
Gain on sale of interest in Rhapsody America - (14,502)
Other 48 111
Net change in certain operating assets and
liabilities, net of acquisitions (2,952) (5,622)
------ ------
Net cash used in operating activities (9,304) (29,286)
------ -------
Cash flows from investing activities:
Purchases of equipment, software, and leasehold
improvements (16,807) (29,530)
Purchases of short-term investments (143,273) (251,887)
Proceeds from sales and maturities of short-term
investments 173,169 194,053
Purchases of intangible assets - (2,839)
Proceeds from the sales of equity investments 1,014 1,140
Purchases of equity investments (2,000) (14,731)
Payment of acquisition costs, net of cash
acquired (3,324) (10,192)
Decrease in restricted cash equivalents and
investments, net 1,042 768
----- ---
Net cash used in investing activities 9,821 (113,218)
----- --------
Cash flows from financing activities:
Net proceeds from sales of common stock under
employee stock purchase plan and exercise of
stock options 1,455 9,570
Payments of convertible debt obligations - (100,000)
Net proceeds from sales of interest in Rhapsody
America 38,022 44,640
Excess tax benefit from stock option exercises 15 127
Repurchases of common stock - (50,199)
--- -------
Net cash provided by (used in) financing
activities 39,492 (95,862)
------ -------
Effect of exchange rate changes on cash and cash
equivalents 4,053 (5,363)
----- ------
Net decrease in cash and cash equivalents 44,062 (243,729)
Cash and cash equivalents, beginning of period 232,968 476,697
------- -------
Cash and cash equivalents, end of period $277,030 $232,968
======== ========
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2009
----
Q4 Q3 Q2 Q1
------ ------ ------ ------
(in thousands)
Net Revenue by Line of Business:
Consumer products and
services (A) $91,233 $92,836 $89,517 $97,194
Technology products and
solutions (B) 54,269 47,428 46,208 43,579
------ ------ ------ ------
Total net revenue $145,502 $140,264 $135,725 $140,773
======== ======== ======== ========
Consumer Products and Services:
Subscriptions (C) $50,492 $52,401 $54,446 $59,052
Media properties (D) 20,327 21,001 14,753 15,536
E-commerce and other (E) 20,414 19,434 20,318 22,606
------ ------ ------ ------
Total consumer products and
services revenue $91,233 $92,836 $89,517 $97,194
======= ======= ======= =======
Consumer Products and Services:
Music (F) $37,598 $38,765 $40,452 $44,053
Media software and services (G) 22,899 24,580 19,291 20,318
Games (H) 30,736 29,491 29,774 32,823
------ ------ ------ ------
Total consumer products and
services revenue $91,233 $92,836 $89,517 $97,194
======= ======= ======= =======
Net Revenue by Geography:
United States $91,175 $95,758 $90,685 $96,666
Rest of world 54,327 44,506 45,040 44,107
------ ------ ------ ------
Total net revenue $145,502 $140,264 $135,725 $140,773
======== ======== ======== ========
Subscribers (presented as greater than)*:
Total subscribers (I) 40,250 38,950 37,700 36,450
Technology products and solutions
application
services subscribers (J) 38,850 37,500 36,300 33,850
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers 675 700 750 800
Radio subscribers 75 75 75 1,200
--- --- --- -----
Total consumer music
subscribers 750 775 825 2,000
Technology products and solutions
application
services music subscribers (K) 1,150 1,075 975 900
----- ----- --- ---
Total Music Subscribers** 1,900 1,850 1,800 2,900
2008
----
Q4 Q3 Q2 Q1
------ ------ ------ ------
(in thousands)
Net Revenue by Line of Business:
Consumer products and services
(A) $100,282 $100,322 $101,353 $96,286
Technology products and solutions
(B) 52,362 51,633 51,295 51,277
------ ------ ------ ------
Total net revenue $152,644 $151,955 $152,648 $147,563
======== ======== ======== ========
Consumer Products and Services:
Subscriptions (C) $57,853 $57,776 $55,658 $55,193
Media properties (D) 18,337 19,946 23,472 18,702
E-commerce and other (E) 24,092 22,600 22,223 22,391
------ ------ ------ ------
Total consumer products and
services revenue $100,282 $100,322 $101,353 $96,286
======== ======== ======== =======
Consumer Products and Services:
Music (F) $43,882 $41,591 $37,170 $38,079
Media software and services (G) 22,695 24,531 29,238 26,409
Games (H) 33,705 34,200 34,945 31,798
------ ------ ------ ------
Total consumer products and
services revenue $100,282 $100,322 $101,353 $96,286
======== ======== ======== =======
Net Revenue by Geography:
United States $101,369 $102,363 $100,898 $99,169
Rest of world 51,275 49,592 51,750 48,394
------ ------ ------ ------
Total net revenue $152,644 $151,955 $152,648 $147,563
======== ======== ======== ========
Subscribers (presented as greater than)*:
Total subscribers (I) 34,100 32,650 35,000 32,200
Technology products and solutions
application
services subscribers (J) 31,500 29,950 32,450 29,500
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers 775 750 600 600
Radio subscribers 1,225 1,250 1,225 1,275
----- ----- ----- -----
Total consumer music
subscribers 2,000 2,000 1,825 1,875
Technology products and solutions
application
services music subscribers (K) 875 850 800 800
--- --- --- ---
Total Music Subscribers** 2,875 2,850 2,625 2,675
* Total music subscribers includes subscribers from our technology
products and solutions application subscription services, such as music-
on-demand, as well as our consumer music services, such as Rhapsody and
Premium Radio. Although music-on-demand subscribers are included in the
technology products and solutions application services subscribers and
total music subscribers, these subscribers are only counted once as
part of our total subscribers.
** Prior periods have been changed to reflect current period
presentation. Totals may not equal due to rounding convention.
(A) Revenue is derived from consumer digital media subscription
services, RealPlayer Plus and related products, sales and distribution
of third party software products, content such as games and music and
advertising.
(B) The Technology Products and Solutions (TPS) segment includes
revenue and related costs from: sales of ringback tones, music-on-
demand, video-on-demand, messaging, and information services; sales of
media delivery system software, including Helix system software and
related authoring and publishing tools, both directly to customers and
indirectly through original equipment manufacturer channels; support
and maintenance services sold to customers who purchase software
products; broadcast hosting services; and consulting and professional
services that are offered to customers.
(C) Revenue is derived from consumer digital media subscription
services including: SuperPass, RadioPass, Rhapsody, GamePass and
FunPass.
(D) Revenue is derived from advertising and through the distribution
of third party products.
(E) Revenue is derived from RealPlayer Plus and related products,
sales of third party software products, and content such as games and
music.
(F) The Music segment primarily includes revenue and related costs
from: Rhapsody America’s Rhapsody and RadioPass subscription services;
sales of digital music content through the Rhapsody service and the
RealPlayer music store; and advertising from music websites.
(G) The Media Software and Services (MSS) segment primarily includes
revenue and related costs from: the SuperPass premium subscription
service; RealPlayer Plus and related products; sales and distribution
of third-party software products; and all advertising other than that
related directly to our Music and Games businesses.
(H) The Games segment primarily includes revenue and related costs
from: the sale of individual games on our websites RealArcade.com,
GameHouse.com and Zylom.com; the sales of games subscription services;
advertising through our games websites; the sale of games through the
syndication on partner sites, and sales of games through wireless
carriers.
(I) Total subscribers include technology products and solutions
application services and consumer subscription services including:
ringback tones, music-on-demand, video-on-demand, Rhapsody, Rhapsody-to-
Go, RadioPass, SuperPass, and GamePass.
(J) Technology products and solutions application service subscribers
include: ringback tones, music-on-demand and video-on-demand.
(K) Technology products and solutions application services music
subscribers include music-on-demand.
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
Reconciliation of GAAP net income (loss) attributable to common
shareholders to adjusted EBITDA and adjusted
EBITDA excluding impairments is as follows:
Year
Ended Quarters Ended
------ ----------------
December December September June March
31, 2009 31, 2009 30, 2009 30, 2009 31, 2009
--------- --------- --------- --------- ---------
(in thousands)
Net income (loss)
attributable to
common
shareholders $(212,264) $(13,319) $1,520 $(188,329) $(12,136)
Interest income,
net (3,969) (779) (1,253) (754) (1,183)
Stock-based
compensation 21,460 5,915 4,727 5,596 5,222
Loss (gain) on sale
of equity
investments, net (688) 121 (604) (68) (137)
Impairment of
equity
investments 5,020 5,020 - - -
Conversion of
WiderThan stock
options to a cash
equivalent 21 - 1 3 17
Depreciation and
amortization (net
of noncontrolling
interest effect) 23,328 6,355 5,432 5,815 5,726
Acquisitions
related intangible
asset amortization
(net of
noncontrolling
interest effect) 6,998 1,797 1,784 1,649 1,768
Impairment of
goodwill and long-
lived assets 175,583 - - 175,583 -
Pro forma gain on
sale of interest in
Rhapsody America 16,870 5,577 3,839 3,444 4,010
Income taxes 3,321 (124) 686 1,210 1,549
----- ---- --- ----- -----
Adjusted
EBITDA $35,680 $10,563 $16,132 $4,149 $4,836
------- ------- ------- ------ ------
Impairments:
Impairment of
deferred costs
and prepaid
royalties - - - - -
Restructuring
and other
charges 4,017 2,346 877 - 794
----- ----- --- --- ---
Adjusted
EBITDA
excluding
impairments $39,697 $12,909 $17,009 $4,149 $5,630
======= ======= ======= ====== ======
Year
Ended Quarters Ended
------ ----------------
December December September June March
31, 2008 31, 2008 30, 2008 30, 2008 31, 2008
--------- --------- --------- --------- ---------
(in thousands)
Net income (loss)
attributable to
common
shareholders $(243,878) $(240,499) $(4,500) $(1,305) $2,426
Interest income,
net (13,453) (2,255) (2,865) (3,375) (4,958)
Stock-based
compensation 23,531 6,056 5,955 6,031 5,489
Loss (gain) on sale
of equity
investments, net (210) 12 - (222) -
Conversion of
WiderThan stock
options to a cash
equivalent 142 11 16 26 89
Depreciation and
amortization (net
of noncontrolling
interest effect) 24,417 5,784 6,165 6,186 6,282
Acquisitions
related intangible
asset amortization
(net of
noncontrolling
interest effect) 20,110 1,872 5,752 6,171 6,315
Impairment of
goodwill and long-
lived assets (net
of noncontrolling
interest effect) 190,347 190,347 - - -
Pro forma gain on
sale of interest in
Rhapsody America 6,568 6,568 - - -
Expenses related to
antitrust
litigation 757 179 174 202 202
Income taxes 25,828 17,392 728 3,700 4,008
------ ------ --- ----- -----
Adjusted
EBITDA $34,159 $(14,533) $11,425 $17,414 $19,853
------- -------- ------- ------- -------
Impairments:
Impairment of
deferred costs
and prepaid
royalties 19,666 19,666 - - -
Restructuring
and other
charges 6,833 6,147 - - 686
----- ----- --- --- ---
Adjusted
EBITDA
excluding
impairments $60,658 $11,280 $11,425 $17,414 $20,539
======= ======= ======= ======= =======
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)
Quarter Ended December 31, 2009
-------------------------------
Music (A) MSS (B) Games(C) TPS (D) Other Grand Total
--------- ------- -------- ------- ----- -----------
(in thousands)
Net revenue $37,598 $22,899 $30,736 $54,269 $- $145,502
Cost of revenue 22,692 3,719 8,399 22,011 - 56,821
------ ----- ----- ------ --- ------
Gross profit 14,906 19,180 22,337 32,258 - 88,681
------ ------ ------ ------ --- ------
Gross margin 40% 84% 73% 59% - 61%
Operating expenses:
Advertising with
related party 11,063 - - - - 11,063
Restructuring
and other
charges 376 556 549 865 - 2,346
Other operating
expenses 20,507 16,835 29,007 25,964 9 92,322
------ ------ ------ ------ --- ------
Total
operating
expenses 31,946 17,391 29,556 26,829 9 105,731
------ ------ ------ ------ --- -------
Income (loss)
from
operations (17,040) 1,789 (7,219) 5,429 (9) (17,050)
------- ----- ------ ----- --- -------
Other income
(expenses):
Interest income,
net - - - - 779 779
Equity in net
loss of
investments - - - - (116) (116)
Loss on sale of
equity
investments, net
- - - - (121) (121)
Impairment of
equity
investments - - - - (5,020) (5,020)
Other income
(expenses), net - - - - (312) (312)
--- --- --- --- ---- ----
Total other
income
(expenses),
net - - - - (4,790) (4,790)
--- --- --- --- ------ ------
Income (loss)
before income
taxes (17,040) 1,789 (7,219) 5,429 (4,799) (21,840)
Income taxes - - - - 124 124
--- --- --- --- --- ---
Net income(loss) (17,040) 1,789 (7,219) 5,429 (4,675) (21,716)
Net income (loss)
attributable to
noncontrolling
interest in
Rhapsody America 8,397 - - - - 8,397
----- --- --- --- --- -----
Net income (loss)
attributable to
common
shareholders $(8,643) $1,789 $(7,219) $5,429 $(4,675) $(13,319)
======= ====== ======= ====== ======= ========
Reconciliation of segment GAAP net income (loss) attributable to common
shareholders to segment adjusted EBITDA excluding impairments is as follows:
Net income
(loss)
attributable to
common
shareholders $(8,643) $1,789 $(7,219) $5,429 $(4,675) $(13,319)
Income taxes - - - - (124) (124)
Interest income,
net - - - - (779) (779)
Stock-based
compensation 926 822 1,606 2,561 - 5,915
Conversion of
WiderThan stock
options to a
cash equivalent - - - - - -
Acquisitions
related
intangible asset
amortization
(E) 279 25 95 1,398 - 1,797
Pro forma gain
on sale of
interest in
Rhapsody America
5,577 - - - - 5,577
Loss on sale of
equity
investments, net
- - - - 121 121
Impairment of
equity
investments - - - - 5,020 5,020
Restructuring
and other
charges 376 556 549 865 - 2,346
Depreciation and
amortization
(E) 890 552 2,151 2,762 - 6,355
--- --- ----- ----- --- -----
Adjusted
EBITDA
excluding
impairments $(595) $3,744 $(2,818) $13,015 $(437) $12,909
===== ====== ======= ======= ===== =======
Quarter Ended December 31, 2008
-------------------------------
Music (A) MSS (B) Games(C) TPS (D) Other Grand Total
--------- ------- -------- ------- ----- -----------
(in thousands)
Net revenue $43,882 $22,695 $33,705 $52,362 $- $152,644
Cost of revenue 25,068 4,199 10,387 20,388 - 60,042
Impairment of
deferred costs and
prepaid royalties 1,000 - 7,829 10,837 - 19,666
----- --- ----- ------ --- ------
Gross profit 17,814 18,496 15,489 21,137 - 72,936
------ ------ ------ ------ --- ------
Gross margin 41% 81% 46% 40% - 48%
Operating expenses:
Advertising with
related party 12,480 - - - - 12,480
Impairment of
goodwill and
long-lived
assets 4,753 167 45,889 141,867 - 192,676
Restructuring
and other
charges 681 1,134 1,898 2,434 - 6,147
Other operating
expenses 24,777 15,818 28,196 28,823 218 97,832
------ ------ ------ ------ --- ------
Total
operating
expenses 42,691 17,119 75,983 173,124 218 309,135
------ ------ ------ ------- --- -------
Income (loss)
from
operations (24,877) 1,377 (60,494) (151,987) (218) (236,199)
------- ----- ------- -------- ---- --------
Other income
(expenses):
Interest income,
net - - - - 2,255 2,255
Equity in net
loss of
investments - - - - (271) (271)
Loss on sale of
equity
investments, net
- - - - (12) (12)
Other income
(expenses), net - - - - (1,306) (1,306)
--- --- --- --- ------ ------
Total other
income
(expenses),
net - - - - 666 666
--- --- --- --- --- ---
Income (loss)
before income
taxes (24,877) 1,377 (60,494) (151,987) 448 (235,533)
Income taxes - - - - (17,392) (17,392)
--- --- --- --- ------- -------
Net income(loss) (24,877) 1,377 (60,494) (151,987) (16,944) (252,925)
Net income (loss)
attributable to
noncontrolling
interest in
Rhapsody America 12,426 - - - - 12,426
------ --- --- --- --- ------
Net income (loss)
attributable to
common
shareholders $(12,451) $1,377 $(60,494) $(151,987) $(16,944) $(240,499)
======== ====== ======== ========= ======== =========
Reconciliation of segment GAAP net income (loss) attributable to common
shareholders to segment adjusted EBITDA excluding impairments is as follows:
Net income
(loss)
attributable to
common
shareholders $(12,451) $1,377 $(60,494) $(151,987) $(16,944) $(240,499)
Income taxes - - - - 17,392 17,392
Interest income,
net - - - - (2,255) (2,255)
Stock-based
compensation 1,058 765 1,632 2,601 - 6,056
Conversion of
WiderThan stock
options to a
cash equivalent - - - 11 - 11
Acquisitions
related
intangible asset
amortization
(E) 278 - 273 1,321 - 1,872
Pro forma gain
on sale of
interest in
Rhapsody America
6,568 - - - - 6,568
Impairment of
goodwill and
long-lived
assets (E) 2,424 167 45,889 141,867 - 190,347
Loss on sale of
equity
investments, net
- - - - 12 12
Impairment of
deferred costs
and prepaid
royalties 1,000 - 7,829 10,837 - 19,666
Restructuring
and other
charges 681 1,134 1,898 2,434 - 6,147
Depreciation and
amortization
(F) 1,127 804 957 2,896 - 5,784
Expenses related
to antitrust
litigation - - - - 179 179
--- --- --- --- --- ---
Adjusted
EBITDA
excluding
impairments $685 $4,247 $(2,016) $9,980 $(1,616) $11,280
==== ====== ======= ====== ======= =======
Note: Cost of revenue and operating expenses of the segments shown above
include costs directly attributable to those segments and an allocation
of general and administrative and other common or shared costs.
(A) The Music segment primarily includes revenue and related costs from:
Rhapsody America’s Rhapsody and RadioPass subscription services; sales of
digital music content through the Rhapsody service and the RealPlayer
music store; and advertising from music websites.
(B) The Media Software and Services (MSS) segment primarily includes
revenue and related costs from: the SuperPass premium subscription
service; RealPlayer Plus and related products; sales and distribution of
third-party software products; and all advertising other than that
related directly to our Music and Games businesses.
(C) The Games segment primarily includes revenue and related costs from:
the sale of individual games on our websites RealArcade.com,
GameHouse.com and Zylom.com; the sales of games subscription services;
advertising through our games websites; the sale of games through the
syndication on partner sites, and sales of games through wireless
carriers.
(D) The Technology Products and Solutions (TPS) segment includes revenue
and related costs from: sales of ringback tones, music-on-demand,
video-on-demand, messaging, and information services; sales of media
delivery system software, including Helix system software and related
authoring and publishing tools, both directly to customers and indirectly
through original equipment manufacturer channels; support and maintenance
services sold to customers who purchase software products; broadcast
hosting services; and consulting and professional services that are
offered to customers.
(E) Net of noncontrolling interest effect.
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
Quarter Ended December 31, 2009
---------------------------------
Acquis-
itions WiderThan
Related Options Anti-
Stock- Intangible Converted trust
Based Asset to a Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- -------- ---------- ------- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $56,821 $(351) $(537) $- $- $55,933
Operating
expenses:
Research and
development $32,541 $(2,481) $- $- $- $30,060
Sales and
marketing 40,325 (1,467) (1,260) - - 37,598
General and
administrative 19,456 (1,616) - - - 17,840
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $92,322 $(5,564) $(1,260) $- $- $85,498
======= ======= ======= === === =======
Quarter Ended December 31, 2008
---------------------------------
Acquis-
itions WiderThan
Related Options Anti-
Stock- Intangible Converted trust
Based Asset to a Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- -------- ---------- ------- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $60,042 $(607) $(596) $(2) $- $58,837
Operating
expenses:
Research and
development $28,533 $(2,103) $- $- $- $26,430
Sales and
marketing 50,192 (1,433) (1,276) (5) - 47,478
General and
administrative 19,107 (1,913) - (4) (179) 17,011
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $97,832 $(5,449) $(1,276) $(9) $(179) $90,919
======= ======= ======= === ===== =======
Year Ended December 31, 2009
------------------------------
Acquis-
itions WiderThan
Related Options Anti-
Stock- Intangible Converted trust
Based Asset to a Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- -------- ---------- ------- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $222,142 $(1,653) $(2,176) $(1) $- $218,312
Operating
expenses:
Research and
development $119,448 $(8,327) $- $(8) $- $111,113
Sales and
marketing 165,856 (4,830) (4,822) (12) - 156,192
General and
administrative 74,664 (6,650) - - - 68,014
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $359,968 $(19,807) $(4,822) $(20) $- $335,319
======== ======== ======= ==== === ========
Year Ended December 31, 2008
------------------------------
Acquis-
itions WiderThan
Related Options Anti-
Stock- Intangible Converted trust
Based Asset to a Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- -------- ---------- ------- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $233,244 $(2,570) $(7,188) $(26) $- $223,460
Operating
expenses:
Research and
development $113,680 $(8,410) $- $(9) $- $105,261
Sales and
marketing 211,922 (5,860) (12,922) (36) - 193,104
General and
administrative 69,981 (6,691) - (71) (757) 62,462
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $395,583 $(20,961) $(12,922) $(116) $(757) $360,827
======== ======== ======== ===== ===== ========
(A) - Net of noncontrolling interest effect.
RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)
Quarters Ended Year Ended
December 31, December 31,
-------------- ------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net loss attributable to
common shareholders $(13,319) $(240,499) $(212,264) $(243,878)
Less accretion of MTVN's
preferred return in Rhapsody
America (925) - (3,700) -
---- --- ------ ---
Net loss available to common
shareholders $(14,244) $(240,499) $(215,964) $(243,878)
======== ========= ========= =========
Shares used to compute basic
net loss per share available
to common shareholders 134,844 135,402 134,612 140,432
Dilutive potential common
shares:
Stock options and restricted
stock - - - -
Convertible debt - - - -
--- --- --- ---
Shares used to compute
diluted net loss per share
available to common
shareholders 134,844 135,402 134,612 140,432
Basic net loss per share
available to common
shareholders $(0.11) $(1.78) $(1.60) $(1.74)
Diluted net loss per share
available to common
shareholders $(0.11) $(1.78) $(1.60) $(1.74)
SOURCE RealNetworks, Inc.
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