RealNetworks Announces Fourth Quarter and Full-Year 2011 Results

Feb 15, 2012, 16:00 ET from RealNetworks, Inc.

SEATTLE, Feb. 15, 2012 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended Dec. 31, 2011.

Quarterly Highlights:

  • Revenue of $80.2 million
  • Net loss of $(2.8) million or $(0.08) per share
  • Adjusted EBITDA of $3.8 million
  • Operating cash flow of $6.7 million

Full Year Highlights:

  • Revenue of $335.7 million
  • Net loss of $(27.1) million or $(0.79) per share
  • Adjusted EBITDA of $17.7 million
  • Cash and short term investments of $185.1 million as of Dec. 31, 2011

"We are clearly not satisfied with the company's 2011 performance and, as a result, we have an increased sense of urgency to refocus RealNetworks for growth and profitability," said Thomas Nielsen, President and CEO of RealNetworks. "We are already taking steps to simplify our existing businesses, restructure our company and unlock shareholder value. At the same time, we are developing and will acquire businesses that target large and fast growing addressable markets."

Fourth Quarter Results

For the fourth quarter of 2011, revenue was $80.2 million, a sequential decrease of 5% from the third quarter, and a decrease of 18% compared with the fourth quarter of 2010. Foreign currency exchange rate fluctuations positively affected 2011 fourth quarter revenue by approximately $0.3 million compared with the year-ago quarter. Revenue trends in each of RealNetworks' businesses in the fourth quarter of 2011 compared with the year-earlier quarter were: a 5% decrease in Emerging Products revenue to $12.0 million, a 20% decrease in Core Products revenue to $46.7 million and a 21% decrease in Games revenue to $21.6 million.  

Net loss for the fourth quarter of 2011 was $(2.8) million, or $(0.08) per share, compared with net income of $3.2 million, or $0.09 per share, in the fourth quarter of 2010. The loss for the quarter was affected by a $20.0 million impairment for deferred SaaS costs and a tax benefit of $22.7 million resulting from an expectation that we will generate taxable income in 2012 as a result of the sale of patents and other assets we announced in January 2012.  

Adjusted EBITDA for the fourth quarter of 2011 was $3.8 million, compared with $13.3 million for the fourth quarter of 2010.  A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of Dec. 31, 2011, RealNetworks had $185.1 million in unrestricted cash, cash equivalents and short-term investments compared with $334.3 million at Dec. 31, 2010, of which approximately $48.9 million is held in foreign jurisdictions.  The decline in cash was largely due to a $136.8 million special dividend paid to shareholders in August 2011.  In addition, RealNetworks had $47.4 million in restricted cash and available-for-sale securities at the end of the year.

Segment Operating Results

2011

2011

2010

Sequential

Yr/Yr

Q4

Q3

Q4

Change

Change

(in thousands)

Revenue

Core Products

$  46,693

$ 50,705

$ 58,030

-8%

-20%

Emerging Products

11,974

10,764

12,558

11%

-5%

Games

21,552

22,945

27,229

-6%

-21%

Corporate

-

-

-

Total  

$  80,219

$ 84,414

$ 97,817

-5%

-18%

Operating Income (loss)

Core Products

$ (10,733)

$   8,815

$ 12,500

-222%

-186%

Emerging Products

26

(2,033)

4,020

-101%

-99%

Games

228

1,589

1,788

-86%

-87%

Corporate

(13,198)

(11,854)

(12,329)

11%

7%

Total  

$ (23,677)

$ (3,483)

$   5,979

580%

-496%

Adjusted EBITDA

Core Products

$  11,382

$ 11,617

$ 15,523

-2%

-27%

Emerging Products

986

(1,711)

4,109

-158%

-76%

Games

883

2,275

2,452

-61%

-64%

Corporate

(9,411)

(8,094)

(8,811)

16%

7%

Total  

$    3,840

$   4,087

$ 13,273

-6%

-71%

Full Year Results

For 2011, revenue from RealNetworks' Core Products, Emerging Products and Games businesses was $335.7 million, a decrease of 8% compared with $366.0 million for 2010.  Total revenue for 2010 was $401.7 million, including first-quarter revenue from RealNetworks' music business of $35.7 million. Beginning in the second quarter of 2010, revenue and other operating results of RealNetworks' music business from its Rhapsody joint venture are not consolidated in RealNetworks' financial statements as a result of the restructuring of Rhapsody completed on March 31, 2010.  Foreign currency exchange rate fluctuations positively affected 2011 revenue by approximately $8.0 million compared with 2010.  Revenue trends in each of RealNetworks' businesses for the full year 2011 compared with 2010 were: a 12% increase in Emerging Products revenue to $46.6 million, a 10% decrease in Core Products revenue to $191.2 million and a 12% decrease in Games revenue to $97.9 million.

Net loss for the year was $(27.1) million, or $(0.79) per share, compared with net income of $5.0 million, or $0.26 per share, in 2010.  Net loss in 2011 included restructuring charges of $(8.0) million, the $(20.0) million impairment for deferred SaaS costs in the fourth quarter and an income tax benefit of $17.3 million.  Net income in 2010 included a gain from the deconsolidation of Rhapsody of $10.9 million, an income tax benefit of $36.5 million resulting primarily from a $30.0 million cash refund from the IRS and restructuring charges of $(19.8) million.

In 2011, adjusted EBITDA was $17.7 million compared with $25.3 million in 2010.  A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

Business Outlook

For the first quarter of 2012, RealNetworks expects revenue of $65 million to $68 million. The company expects revenue from each of its current segments to decline sequentially and year-over-year. As a result of the decline in revenue, and a seasonal first-quarter sequential increase in expenses, RealNetworks expects adjusted EBITDA for the quarter to be negative, excluding the net effect of the sale of patent and other assets to Intel Corp. The company expects the patent sale to generate $120 million of cash and to close in the first quarter.  

Anticipating significant restructuring activities in 2012, which we expect will include acquisitions and divestitures as well as changes in RealNetworks' operating segments, RealNetworks is not providing full-year guidance for 2012.

The foregoing forward-looking statements reflect RealNetworks' expectations as of Feb. 15, 2012.  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 fourth quarter at 5:00 p.m. ET on Feb. 15.  The Webcast will be available at:  http://investor.realnetworks.com

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details 5:00 p.m. ET / 2:00 p.m. PT Dial in: 888-323-9869 Domestic 517-308-9139 International Passcode: Fourth Quarter Earnings Leader: Thomas Nielsen

Telephonic replay will be available until 8 p.m. ET, Feb. 29, 2012. Replay dial in: 866-415-8412 Domestic 203-369-0705 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' condensed consolidated financial statements 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 reporting 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 reporting segment.

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 RealNetworks' current expectations for future revenue, adjusted EBITDA, plans to undertake, as well as results and benefits from its business restructuring activities, future acquisitions and strategic initiatives, and the completion and financial impacts of the sale of patents and other assets to Intel Corp., which is subject to customary regulatory approval and satisfaction of closing conditions.  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 December 31,

Years Ended December 31,

2011

2010

2011

2010

(in thousands, except per share data)

Net revenue

$               80,219

$                 97,817

$             335,686

$               401,733

Cost of revenue

32,089

35,705

126,637

144,723

Impairment of deferred costs

19,962

-

19,962

-

Gross profit

28,168

62,112

189,087

257,010

Operating expenses:

Research and development

16,012

19,180

70,212

100,955

Sales and marketing

25,342

27,013

111,300

118,543

Advertising with related party (A)

-

-

-

1,065

General and administrative

10,163

9,066

37,181

51,217

Restructuring and other charges

800

874

8,650

12,361

Loss (gain) on excess office facilities

(472)

-

(646)

7,396

Total operating expenses

51,845

56,133

226,697

291,537

Operating income (loss)

(23,677)

5,979

(37,610)

(34,527)

Other income (expenses):

Interest income, net

190

412

1,552

2,417

Equity in net loss of Rhapsody and other equity method investments (B)

(2,159)

(2,595)

(7,898)

(14,164)

Gain (loss) on sale of equity investments, net

-

41

-

(9)

Gain on deconsolidation of Rhapsody  

-

-

-

10,929

Other income (expense), net

188

144

(473)

1,031

Total other income (expense), net

(1,781)

(1,998)

(6,819)

204

Income (loss) before income taxes

(25,458)

3,981

(44,429)

(34,323)

Income tax (expense) benefit  

22,694

(787)

17,329

36,451

Net income (loss)

(2,764)

3,194

(27,100)

2,128

Net loss attributable to the noncontrolling interest in Rhapsody (C)

-

-

-

2,910

Net income (loss) attributable to common shareholders

$               (2,764)

$                   3,194

$             (27,100)

$                   5,038

Basic net income (loss) per share available to common shareholders

$                 (0.08)

$                     0.09

$                 (0.79)

$                     0.26

Diluted net income (loss) per share available to common shareholders

$                 (0.08)

$                     0.09

$                 (0.79)

$                     0.26

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

34,258

33,963

34,185

33,894

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

34,258

34,033

34,185

34,013

(A) Consists of advertising purchased by Rhapsody from MTV Networks (MTVN).  MTVN had a 49% ownership interest in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.  See note (B) for more details regarding the restructuring and the related deconsolidation.

(B) On March 31, 2010, we completed the restructuring of Rhapsody which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody and no longer having operating control.  Since the restructuring was completed on the last day of the quarter ended March 31, 2010, our statement of operations for the first quarter of 2010 includes results from Rhapsody's operations. Beginning with the quarter ended June 30, 2010, Rhapsody's revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody's income or losses as "Equity in net loss of Rhapsody and other equity method investments" in "Other income (expenses)".

(C) Net loss attributable to the noncontrolling interest in Rhapsody reflects MTVN's 49% ownership share in the losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

December 31,

December 31,

2011

2010

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents  

$                         106,333

$                         236,018

Short-term investments

78,739

98,303

Trade accounts receivable, net

41,165

48,324

Deferred costs, current portion

1,424

9,173

Related party receivable - Rhapsody (A)

-

351

Prepaid expenses and other current assets

21,902

30,441

Total current assets

249,563

422,610

Equipment, software, and leasehold improvements, at cost:

Equipment and software

104,352

144,623

Leasehold improvements

25,947

25,367

Total equipment, software, and leasehold improvements

130,299

169,990

Less accumulated depreciation and amortization

92,825

126,619

Net equipment, software, and leasehold improvements

37,474

43,371

Restricted cash equivalents and investments

10,168

10,000

Equity method investments

7,798

15,486

Available for sale securities

37,204

27,541

Other assets

2,954

3,316

Deferred costs, non-current portion

843

18,401

Deferred tax assets, net, non-current portion

18,419

12,805

Other intangible assets, net

7,169

6,952

Goodwill

6,198

4,960

Total assets

$                         377,790

$                         565,442

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$                           17,151

$                           30,413

Accrued and other liabilities

59,194

85,702

Deferred revenue, current portion

11,835

19,036

Accrued loss on excess office facilities, current portion

596

1,144

Total current liabilities

88,776

136,295

Deferred revenue, non-current portion

195

460

Accrued loss on excess office facilities, non-current portion

2,151

3,380

Deferred rent

2,944

3,514

Deferred tax liabilities, net, non-current portion

1,443

1,049

Other long-term liabilities

10,994

7,999

Total liabilities

106,503

152,697

Shareholders' equity

271,287

412,745

Total liabilities and shareholders' equity  

$                         377,790

$                         565,442

(A) Related party receivable reflects amounts Rhapsody International, formed on March 31, 2010, owed RealNetworks.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Years Ended December 31,

2011

2010

(in thousands)

Cash flows from operating activities:

Net income (loss)

$       (27,100)

$     2,128

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

Depreciation and amortization

16,895

23,401

Stock-based compensation

11,747

12,203

Loss (gain) on disposal of equipment, software, and leasehold improvements

(62)

(41)

Equity in net loss of Rhapsody and other equity method investments

7,898

14,164

Gain on deconsolidation of Rhapsody  

-

(10,929)

Excess tax benefit from stock option exercises

(74)

(48)

Accrued loss (gain) on excess office facilities

(646)

5,670

Deferred income taxes, net

(23,985)

622

Other

114

460

Net change in certain operating assets and liabilities, net of acquisitions, disposals and deconsolidation of Rhapsody

14,505

(78,752)

Net cash used in operating activities

(708)

(31,122)

Cash flows from investing activities:

Purchases of equipment, software, and leasehold improvements

(9,873)

(12,904)

Purchases of short-term investments

(96,841)

(116,831)

Proceeds from sales and maturities of short-term investments

116,405

126,398

Payment of acquisition costs, net of cash acquired

(2,888)

(5,806)

Sale of Exomi, net of cash received

-

49

Payment in connection with the restructuring of Rhapsody

-

(18,000)

Repayment of temporary funding on deconsolidation of Rhapsody

-

5,869

Decrease (increase) in restricted cash equivalents and investments, net

(179)

3,700

Net cash provided by (used in) investing activities

6,624

(17,525)

Cash flows from financing activities:

Net proceeds from sales of common stock under employee stock purchase

plan and exercise of stock options

3,177

2,678

Net proceeds from sales of interest in Rhapsody

-

1,213

Excess tax benefit from stock option exercises

74

48

Payment of common stock cash dividend

(136,793)

-

Net cash (used in) provided by financing activities

(133,542)

3,939

Effect of exchange rate changes on cash and cash equivalents

(2,059)

3,696

Net increase (decrease) in cash and cash equivalents

(129,685)

(41,012)

Cash and cash equivalents, beginning of period

236,018

277,030

Cash and cash equivalents, end of period

$      106,333

$ 236,018

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2011

YTD

Q4

Q3

Q2

Q1

(in thousands)

Net Revenue by Line of Business:

Core Products (A)

$ 191,240

$ 46,693

$ 50,705

$ 45,735

$   48,107

Emerging Products (B)

46,590

11,974

10,764

12,717

11,135

Games (C)  

97,856

21,552

22,945

25,300

28,059

Total net revenue excluding music

335,686

80,219

84,414

83,752

87,301

Music  (D)

-

-

-

-

-

 Total net revenue including music

$ 335,686

$ 80,219

$ 84,414

$ 83,752

$   87,301

Core Products Revenue by Product:

SaaS (E)

$ 119,378

$ 28,255

$ 30,381

$ 30,216

$   30,526

Systems Integrations / Professional Services (F)

6,843

771

3,844

388

1,840

Technology Licensing (G)

28,429

9,246

6,250

6,508

6,425

Consumer Subscriptions (H)

36,590

8,421

10,230

8,623

9,316

Total Core Products net revenue

$ 191,240

$ 46,693

$ 50,705

$ 45,735

$   48,107

Net Revenue by Geography:

United States

$ 162,720

$ 37,298

$ 38,969

$ 41,984

$   44,469

Rest of world

172,966

42,921

45,445

41,768

42,832

Total net revenue

$ 335,686

$ 80,219

$ 84,414

$ 83,752

$   87,301

Product Metrics (subscribers and ICM presented as greater than):

Addressable subscribers of mobile operators under contract (I)

725,000

700,000

775,000

775,000

SaaS subscribers (J)

30,050

34,000

34,550

35,900

Monthly SaaS ARPU (in cents) (K)

$     0.19

$     0.17

$     0.18

$       0.18

ICM delivered in billions (L)

165

162

157

151

Consumer subscribers(M)

425

500

475

500

2010

YTD

Q4

Q3

Q2

Q1

(in thousands)

Net Revenue by Line of Business:

Core Products (A)

$ 212,845

$ 58,030

$ 51,870

$ 51,742

$   51,203

Emerging Products (B)

41,761

12,558

8,778

8,997

11,428

Games (C)  

111,394

27,229

25,784

28,145

30,236

Total net revenue excluding music

366,000

97,817

86,432

88,884

92,867

Music  (D)

35,733

-

-

-

35,733

 Total net revenue including music

$ 401,733

$ 97,817

$ 86,432

$ 88,884

$ 128,600

Core Products Revenue by Product:

SaaS (E)

$ 133,543

$ 35,656

$ 31,885

$ 32,388

$   33,614

Systems Integrations / Professional Services (F)

6,706

4,388

953

998

367

Technology Licensing (G)

30,751

7,632

7,473

7,736

7,910

Consumer Subscriptions (H)

41,845

10,354

11,559

10,620

9,312

Total Core Products net revenue

$ 212,845

$ 58,030

$ 51,870

$ 51,742

$   51,203

Net Revenue by Geography:

United States

$ 227,823

$ 48,048

$ 46,874

$ 48,351

$   84,550

Rest of world

173,910

49,769

39,558

40,533

44,050

Total net revenue

$ 401,733

$ 97,817

$ 86,432

$ 88,884

$ 128,600

Product Metrics (subscribers and ICM presented as greater than):

Addressable subscribers of mobile operators under contract (I)

700,000

700,000

675,000

650,000

SaaS subscribers (J)

36,700

37,500

37,600

37,950

Monthly SaaS ARPU (in cents) (K)

$     0.20

$     0.16

$     0.16

$       0.16

ICM delivered in billions (L)

136

134

128

120

Consumer subscribers(M)

550

600

600

575

Net Revenue by Line of Business:

(A)  The Core Products segment primarily includes revenue from SaaS services, system integration and professional services to carriers and mobile handset companies, sales of technology licenses of our software products such as Helix for handsets, consumer subscriptions such as SuperPass and our international radio subscription services.

(B)  The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as the distribution of third party software products, advertising on RealPlayer websites and sales of RealPlayerPlus software licenses to consumers.

(C)  The Games segment primarily includes revenue from sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, microtransactions from online and social games and sales of mobile games.

(D)  On March 31, 2010, we completed the restructuring of Rhapsody, which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody and our loss of operating control over Rhapsody.  Beginning with the quarter ended June 30, 2010, Rhapsody's revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment.  We now report our share of Rhapsody's income or losses as "Equity in net loss of Rhapsody and other equity method investments" in "Other income (expense)".

Core Products Revenue by Product:

(E)  Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers, who are largely mobile phone networks.

(F)  Systems Integrations / Professional Services revenue includes professional services, other than those associated with software sales, provided to mobile carriers and handset manufacturers.

(G)  Technology Licensing includes revenue from sales of software and other intellectual property licenses such as Helix server licenses and Helix software licenses for handsets.

(H)  Consumer Subscriptions includes revenue from SuperPass as well as our international radio subscription services.

Product Metrics:

(I)  Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our SaaS services, other than intercarrier messaging services, to their customers.

(J)  SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter.

(K)  Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end of the quarter, and dividing the resulting quotient by three.

(L)  ICM (Intercarrier message) represents the total number of messages delivered across our messaging platform during the quarter.

(M)  Consumer subscribers primarily includes our SuperPass and GamePass products. We repurchased our international radio subscription services from Rhapsody as part of the restructuring that occurred on March 31, 2010, and as a result, subscribers to our international radio services are included beginning in the quarter ended June 30, 2010.

RealNetworks, Inc. and Subsidiaries

Segment Results of Operations

(Unaudited)

2011

2010

2011

2010

Q4

Q3

Q4

YTD

YTD

(in thousands)

Core Products

Net revenue

$          46,693

$          50,705

$          58,030

$     191,240

$     212,845

Cost of revenue

20,867

22,492

25,679

83,696

83,733

Impairment of Def Costs

19,329

-

-

19,329

-

Gross profit

6,497

28,213

32,351

88,215

129,112

Gross margin

14%

56%

56%

46%

61%

Operating expenses

17,230

19,398

19,851

75,188

86,217

Operating income (loss)  

$        (10,733)

$            8,815

$          12,500

$       13,027

$       42,895

Adjusted EBITDA  

$          11,382

$          11,617

$          15,523

$       43,159

$       56,306

Emerging Products

Net revenue

$          11,974

$          10,764

$          12,558

$       46,590

$       41,761

Cost of revenue

3,448

3,913

1,179

11,879

7,123

Impairment of Def Costs

633

-

-

633

-

Gross profit

7,893

6,851

11,379

34,078

34,638

Gross margin

66%

64%

91%

73%

83%

Operating expenses

7,867

8,884

7,359

36,011

28,053

Operating income (loss)  

$                 26

$          (2,033)

$            4,020

$       (1,933)

$         6,585

Adjusted EBITDA  

$               986

$          (1,711)

$            4,109

$          (206)

$         7,157

Games

Net revenue

$          21,552

$          22,945

$          27,229

$       97,856

$     111,394

Cost of revenue

6,875

7,197

7,861

30,646

29,071

Gross profit

14,677

15,748

19,368

67,210

82,323

Gross margin

68%

69%

71%

69%

74%

Operating expenses

14,449

14,159

17,580

60,633

78,275

Operating income (loss)  

$               228

$            1,589

$            1,788

$         6,577

$         4,048

Adjusted EBITDA  

$               883

$            2,275

$            2,452

$         9,246

$         8,970

Music

Net revenue

$                  -

$                  -

$                  -

$              -

$       35,733

Cost of revenue

-

-

-

-

21,864

Gross profit

-

-

-

-

13,869

Gross margin

N/A

N/A

N/A

N/A

39%

Operating expenses

-

-

-

-

13,911

Operating income (loss)  

$                  -

$                  -

$                  -

$              -

$            (42)

Adjusted EBITDA  

$                  -

$                  -

$                  -

$              -

$         4,214

Corporate

Net revenue

$                  -

$                  -

$                  -

$              -

$               -

Cost of revenue

899

(1,786)

986

416

2,932

Gross profit

(899)

1,786

(986)

(416)

(2,932)

Gross margin

N/A

N/A

N/A

N/A

N/A

Operating expenses

12,299

13,640

11,343

54,865

85,081

Operating income (loss)  

$        (13,198)

$        (11,854)

$        (12,329)

$     (55,281)

$     (88,013)

Adjusted EBITDA  

$          (9,411)

$          (8,094)

$          (8,811)

$     (34,508)

$     (51,345)

Total

Net revenue

$          80,219

$          84,414

$          97,817

$     335,686

$     401,733

Cost of revenue

32,089

31,816

35,705

126,637

144,723

Impairment of Def Costs

19,962

-

-

19,962

-

Gross profit

28,168

52,598

62,112

189,087

257,010

Gross margin

35%

62%

63%

56%

64%

Operating expenses

51,845

56,081

56,133

226,697

291,537

Operating income (loss)  

$        (23,677)

$          (3,483)

$            5,979

$     (37,610)

$     (34,527)

Adjusted EBITDA  

$            3,840

$            4,087

$          13,273

$       17,691

$       25,302

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2011

2010

2011

2010

Q4

Q3

Q4

YTD

YTD

(in thousands)

Core Products

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

Operating income (loss)

$           (10,733)

$               8,815

$         12,500

$           13,027

$       42,895

Acquisitions related intangible asset amortization

789

833

705

2,806

3,991

Depreciation and amortization

1,997

1,969

2,318

7,997

9,420

Impairment of deferred costs

19,329

-

-

19,329

-

Adjusted EBITDA  

$             11,382

$             11,617

$         15,523

$           43,159

$       56,306

Emerging Products

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

Operating income (loss)  

$                    26

$             (2,033)

$           4,020

$           (1,933)

$         6,585

Acquisitions related intangible asset amortization

79

79

-

211

-

Depreciation and amortization

248

243

89

883

572

Impairment of deferred costs

633

-

-

633

-

Adjusted EBITDA  

$                  986

$             (1,711)

$           4,109

$              (206)

$         7,157

Games

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

Operating income (loss)  

$                  228

$               1,589

$           1,788

$             6,577

$         4,048

Acquisitions related intangible asset amortization

229

257

263

996

510

Depreciation and amortization

426

429

401

1,673

4,412

Adjusted EBITDA  

$                  883

$               2,275

$           2,452

$             9,246

$         8,970

Music

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

Operating income (loss)  

$                     -

$                     -

$                -

$                  -

$            (42)

Net loss attributable to noncontrolling interest in Rhapsody

-

-

-

-

2,910

Acquisitions related intangible asset amortization (A)

-

-

-

-

58

Depreciation and amortization (A)

-

-

-

-

690

Pro forma gain on sale of interest in Rhapsody America

-

-

-

-

598

Adjusted EBITDA  

$                     -

$                     -

$                -

$                  -

$         4,214

Corporate

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

Operating income (loss)  

$           (13,198)

$           (11,854)

$       (12,329)

$         (55,281)

$     (88,013)

Other income (expense), net

188

(228)

144

(473)

1,031

Depreciation and amortization

608

593

577

2,329

3,677

Restructuring and other charges

800

438

874

8,650

12,361

Stock-based compensation

2,663

2,957

1,923

10,913

12,203

Loss (gain) on excess office facilities

(472)

-

-

(646)

7,396

Adjusted EBITDA  

$             (9,411)

$             (8,094)

$         (8,811)

$         (34,508)

$     (51,345)

Total  

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

Operating income (loss)  

$           (23,677)

$             (3,483)

$           5,979

$         (37,610)

$     (34,527)

Net loss attributable to noncontrolling interest in Rhapsody

-

-

-

-

2,910

Other income (expense), net

188

(228)

144

(473)

1,031

Acquisitions related intangible asset amortization (A)

1,097

1,169

968

4,013

4,559

Depreciation and amortization (A)

3,279

3,234

3,385

12,882

18,771

Loss (gain) on excess office facilities

(472)

-

-

(646)

7,396

Pro forma gain on sale of interest in Rhapsody America

-

-

-

-

598

Restructuring and other charges

800

438

874

8,650

12,361

Stock-based compensation

2,663

2,957

1,923

10,913

12,203

Impairment of deferred costs

19,962

-

-

19,962

-

Adjusted EBITDA  

$               3,840

$               4,087

$         13,273

$           17,691

$       25,302

(A)  Net of noncontrolling interest effect.

RealNetworks, Inc. and Subsidiaries

Earnings Per Share Reconciliation

(Unaudited)

Quarters Ended December 31,

Years Ended December 31,

2011

2010

2011

2010

(in thousands, except per share data)

Net income (loss) attributable to common shareholders

$              (2,764)

$                3,194

$               (27,100)

$                5,038

Less termination of MTVN's preferred return in Rhapsody  

-

-

-

3,700

Net income (loss) available to common shareholders

$              (2,764)

$                3,194

$               (27,100)

$                8,738

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

34,258

33,963

34,185

33,894

Dilutive stock options and restricted stock  

-

70

-

119

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

34,258

34,033

34,185

34,013

Basic net income (loss) per share available to common shareholders

$                (0.08)

$                  0.09

$                   (0.79)

$                  0.26

Diluted net income (loss) per share available to common shareholders

$                (0.08)

$                  0.09

$                   (0.79)

$                  0.26

SOURCE RealNetworks, Inc.



RELATED LINKS

http://www.realnetworks.com