RealNetworks Announces Fourth Quarter And Year End 2013 Results

- RealPlayer Cloud - new cross-platform, cloud-based, integrated video service - gaining traction;

- Mobile entertainment business strengthened with new products;

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

- Cash and short-term investments of $226.2 million

Feb 05, 2014, 16:00 ET from RealNetworks, Inc.

SEATTLE, Feb. 5, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the fourth quarter and year ended December 31, 2013.

For the fourth quarter of 2013, revenue was $50.6 million, compared to $49.0 million in the previous quarter and $67.3 million in the fourth quarter of 2012. For the full year 2013, revenue was $206.2 million, compared to $258.8 million for 2012.

"During the fourth quarter of 2013, we continued to make progress in our long term strategic transition to revitalize RealNetworks," said Rob Glaser, Chairman and interim CEO of RealNetworks. "Our new RealPlayer Cloud, our groundbreaking, cloud-based video service that makes it easy to watch, save and share video across every popular digital device, is gaining good initial traction in the marketplace, with over 500,000 accounts created since launch.

"In our Mobile Entertainment business, we completed our acquisition of Muzicall and launched LISTEN™ to strengthen our leadership in the ringback tones market and to bring ringback tones directly to consumers. We also continue to tighten our strategic focus to better capitalize on the most promising opportunities in our Games business. Throughout 2013, we've continued to streamline our company, invest in our core business segments and focus on building a stronger foundation for future growth and profitability."

GAAP net income for the fourth quarter of 2013 was $4.1 million or $0.12 per diluted share, compared to $3.1 million or $0.09 per diluted share in the fourth quarter of 2012. The increase primarily reflects a net gain of $21.4 million from the sale of its investment in LoEn in the fourth quarter of 2013. For the full year 2013, GAAP net loss was $(57.4) million or $(1.61) per diluted share, compared to net income of $44.8 million or $1.28 per diluted share in 2012.

Adjusted EBITDA for the fourth quarter of 2013 was a loss of $(6.6) million, compared to adjusted EBITDA income of $3.3 million for the fourth quarter of 2012. For the full year 2013, adjusted EBITDA was a loss of $(23.7) million, compared to a loss $(16.7) million for 2012. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of December 31, 2013, the company had $226.2 million in unrestricted cash, cash equivalents and short-term investments, up from $218.4 million as of September 30, 2013.

Business Outlook

For the first quarter of 2014, RealNetworks expects total revenue in the range of $43.0 million to $46.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(9.0) million to $(12.0) 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 800-857-9789 or +1-210-234-0007 (Passcode: Fourth Quarter Earnings). A live webcast of the call will be available at http://investor.realnetworks.com and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 11 p.m. CT, February 26, 2014 by calling 888-568-0623 or +1-203-369-3199 (Passcode: 9977)

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 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 regarding future revenue and adjusted EBITDA, our future growth, profitability, market position, and marketing approach, and our 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: RealNetworks' ability to realize operating efficiencies, growth and other benefits from the implementation of its growth plan, strategic initiatives, and restructuring efforts; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on RealNetworks' business, prospects, financial condition or results of operations; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; changes in consumer and advertising spending in response to disruptions in the global financial markets; fluctuations in foreign currencies; and changes in RealNetworks' effective tax rate. More information about potential risk factors that could affect RealNetworks' business and financial results is included in RealNetworks' annual report on Form 10-K for the most recent year ended December 31, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of RealNetworks' financial statements and forward-looking financial guidance requires the company to make estimates and assumptions that affect the reported amount of assets and liabilities, and revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

Quarters Ended

December 31,

Years Ended

December 31,

2013

2012

2013

2012

(in thousands, except per share data)

Net revenue

$

50,595

$

67,264

$

206,196

$

258,842

Cost of revenue

20,076

25,098

79,091

103,731

  Gross profit

30,519

42,166

127,105

155,111

Sale of patents and other technology assets, net of costs (A)

116,353

Operating expenses:

  Research and development

14,929

14,027

60,880

63,194

  Sales and marketing

20,181

21,839

80,011

90,301

  General and administrative

8,137

8,788

36,643

43,891

  Restructuring and other charges

1,690

1,353

5,765

15,225

  Lease exit and related charges

23

3,047

3,089

3,290

  Loss on litigation settlements

11,525

    Total operating expenses

44,960

49,054

197,913

215,901

Operating income (loss)

(14,441)

(6,888)

(70,808)

55,563

Other income (expenses):

  Interest income, net

141

159

1,133

1,192

  Gain (loss) on sale of equity and other investments, net

21,389

(216)

21,389

5,072

  Equity in net loss of Rhapsody investment

(59)

(1,614)

(6,268)

(5,709)

  Other income (expense), net

613

(433)

467

1,241

    Total other income (expense), net

22,084

(2,104)

16,721

1,796

Income (loss) before income taxes

7,643

(8,992)

(54,087)

57,359

Income tax expense (benefit)

3,504

(12,065)

3,294

12,518

Net income (loss)

$

4,139

$

3,073

$

(57,381)

$

44,841

Basic net income (loss) per share

$

0.12

$

0.09

$

(1.61)

$

1.29

Diluted net income (loss) per share

$

0.12

$

0.09

$

(1.61)

$

1.28

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

35,738

35,250

35,553

34,873

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

35,906

35,450

35,553

35,122

(A) On April 5, 2012, RealNetworks completed the sale of certain patents and other technology assets to Intel for a cash purchase of $120.0 million.

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

December 31, 2013

December 31, 2012

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents

$

151,235

$

163,198

Short-term investments

74,920

108,216

Trade accounts receivable, net

26,222

30,754

Deferred costs, current portion

1,601

825

Deferred tax assets - current

306

2,869

Prepaid expenses and other current assets

9,124

17,002

  Total current assets

263,408

322,864

Equipment, software, and leasehold improvements, at cost:

Equipment and software

86,721

98,041

Leasehold improvements

3,482

22,767

  Total equipment, software, and leasehold improvements

90,203

120,808

Less accumulated depreciation and amortization

67,031

91,492

  Net equipment, software, and leasehold improvements

23,172

29,316

Restricted cash equivalents and investments

3,000

10,000

Equity method investment

12,473

19,204

Available for sale securities

7,181

34,334

Other assets

2,332

3,153

Deferred costs, non-current portion

946

531

Deferred tax assets, net, non-current portion

1,409

4,911

Other intangible assets, net

12,993

3,275

Goodwill

17,476

6,309

Total assets

$

344,390

$

433,897

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

 Accounts payable

$

19,987

$

19,013

 Accrued and other current liabilities

42,788

57,530

 Deferred revenue, current portion

7,498

8,675

  Total current liabilities

70,273

85,218

Deferred revenue, non-current portion

166

169

Deferred rent

1,318

2,250

Deferred tax liabilities, net, non-current portion

1,560

432

Other long-term liabilities

483

3,100

 Total liabilities

73,800

91,169

Shareholders' equity

270,590

342,728

Total liabilities and shareholders' equity

$

344,390

$

433,897

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Years Ended December 31,

2013

2012

(in thousands)

Cash flows from operating activities:

Net income (loss)

$

(57,381)

$

44,841

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

Depreciation and amortization

18,748

16,959

Stock-based compensation

7,468

8,123

Loss on asset disposal

2,509

Equity in net loss of Rhapsody

6,268

5,709

Lease exit and related charges

1,421

3,290

Deferred income taxes, net

676

20,324

Gain on sale of patent and other technology assets, net of costs

(116,353)

Gain on sale of equity and other investments, net

(21,389)

(5,072)

Realized translation gain

(571)

(1,966)

Other

51

Net change in certain operating assets and liabilities

(5,261)

(11,677)

  Net cash provided by (used in) operating activities

(49,970)

(33,313)

Cash flows from investing activities:

Purchases of equipment, software, and leasehold improvements

(7,636)

(7,170)

Proceeds from sale of patents and other technology assets, net of costs

116,353

Proceeds from sale of equity and other investments

29,153

7,261

Purchases of short-term investments

(131,690)

(116,963)

Proceeds from sales and maturities of short-term investments

164,986

87,487

Decrease in restricted cash equivalents and investments

10,000

167

Increase in restricted cash equivalents and investments

(3,000)

Acquisitions of businesses, net of cash acquired

(22,480)

  Net cash provided by (used in) investing activities

39,333

87,135

Cash flows from financing activities:

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

594

3,802

Tax payments from shares withheld upon vesting of restricted stock

(1,201)

(995)

Payment of contingent consideration

(828)

  Net cash provided by (used in) financing activities

(1,435)

2,807

Effect of exchange rate changes on cash and cash equivalents

109

236

  Net increase (decrease) in cash and cash equivalents

(11,963)

56,865

Cash and cash equivalents, beginning of period

163,198

106,333

Cash and cash equivalents, end of period

$

151,235

$

163,198

 

RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)

2013

2012

YTD

Q4

Q3

Q2

Q1

YTD

Q4

Q3

Q2

Q1

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A)

$

75,206

$

16,799

$

17,641

$

18,383

$

22,383

$

91,469

$

25,838

$

21,392

$

22,158

$

22,081

Mobile Entertainment (B)

81,181

22,146

19,948

18,592

20,495

100,318

25,718

22,820

26,005

25,775

Games (C)

49,809

11,650

11,369

12,875

13,915

67,055

15,708

14,876

17,363

19,108

    Total net revenue

$

206,196

$

50,595

$

48,958

$

49,850

$

56,793

$

258,842

$

67,264

$

59,088

$

65,526

$

66,964

Net Revenue by Product

RealPlayer Group

- License (D)

$

29,507

$

7,128

$

7,281

$

6,766

$

8,332

$

33,780

$

10,956

$

6,757

$

8,334

$

7,733

- Subscriptions (E)

15,850

3,118

3,615

4,193

4,924

27,659

6,192

7,056

6,810

7,601

- Media Properties (F)

29,849

6,553

6,745

7,424

9,127

30,030

8,690

7,579

7,014

6,747

Mobile Entertainment

- SaaS (G)

74,238

20,406

18,156

17,002

18,674

90,239

22,793

20,696

23,286

23,464

- Technology License &

Other (H)

6,943

1,740

1,792

1,590

1,821

10,079

2,925

2,124

2,719

2,311

Games

- License (I)

16,270

3,511

3,421

4,089

5,249

23,998

5,222

5,136

6,053

7,587

- Subscriptions (J)

23,713

5,688

5,733

5,980

6,312

29,534

6,876

6,952

7,536

8,170

- Media Properties (K)

9,826

2,451

2,215

2,806

2,354

13,523

3,610

2,788

3,774

3,351

    Total net revenue

$

206,196

$

50,595

$

48,958

$

49,850

$

56,793

$

258,842

$

67,264

$

59,088

$

65,526

$

66,964

Net Revenue by Geography

United States

$

90,250

$

19,724

$

21,039

$

21,463

$

28,024

$

117,844

$

28,315

$

29,101

$

28,614

$

31,814

Rest of world

115,946

30,871

27,919

28,387

28,769

140,998

38,949

29,987

36,912

35,150

    Total net revenue

$

206,196

$

50,595

$

48,958

$

49,850

$

56,793

$

258,842

$

67,264

$

59,088

$

65,526

$

66,964

Net Revenue by Line of Business

(A) The RealPlayer Group primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as SuperPass.

(B) The Mobile Entertainment division primarily includes revenue from SaaS services, system integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix.

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

Net Revenue by Product

(D) Licensing revenue within the RealPlayer Group includes sales of RealPlayer Plus software licenses to consumers and sales of intellectual property licenses.

(E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as SuperPass.

(F) Media Properties revenue within the RealPlayer Group includes distribution of third-party software products and advertising on RealPlayer websites.

(G) SaaS revenue within Mobile Entertainment includes revenue from music on demand, video on demand, ringtones, ringback tones, and intercarrier messaging services provided to network services providers who are largely mobile phone networks.

(H) 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)

2013

2012

2013

2012

Q4

Q3

Q4

YTD

YTD

(in thousands)

RealPlayer Group

Net revenue

$

16,799

$

17,641

$

25,838

$

75,206

$

91,469

Cost of revenue

3,236

3,264

5,518

16,220

21,544

Gross profit

13,563

14,377

20,320

58,986

69,925

Gross margin

81%

81%

79%

78%

76%

Operating expenses

15,828

14,449

13,374

60,484

55,223

Operating income (loss)

$

(2,265)

$

(72)

$

6,946

$

(1,498)

$

14,702

 Adjusted EBITDA

$

(1,474)

$

624

$

7,620

$

951

$

16,967

Mobile Entertainment

Net revenue

$

22,146

$

19,948

$

25,718

$

81,181

$

100,318

Cost of revenue

13,634

11,972

14,577

47,608

57,670

Gross profit

8,512

7,976

11,141

33,573

42,648

Gross margin

38%

40%

43%

41%

43%

Operating expenses

8,863

9,453

12,023

35,839

52,614

Operating income (loss)

$

(351)

$

(1,477)

$

(882)

$

(2,266)

$

(9,966)

 Adjusted EBITDA

$

1,251

$

503

$

1,687

$

5,830

$

(458)

Games

Net revenue

$

11,650

$

11,369

$

15,708

$

49,809

$

67,055

Cost of revenue

2,962

3,216

4,496

13,359

21,828

Gross profit

8,688

8,153

11,212

36,450

45,227

Gross margin

75%

72%

71%

73%

67%

Operating expenses

12,057

11,513

11,928

47,177

51,890

Operating income (loss)

$

(3,369)

$

(3,360)

$

(716)

$

(10,727)

$

(6,663)

 Adjusted EBITDA

$

(2,724)

$

(2,704)

$

(71)

$

(7,897)

$

(3,861)

Corporate

Net revenue

$

$

$

$

$

Cost of revenue

244

538

507

1,904

2,689

Gross profit

(244)

(538)

(507)

(1,904)

(2,689)

Gross margin

N/A

N/A

N/A

N/A

N/A

Gain on sale of patents and other technology assets, net of costs

116,353

Operating expenses

8,212

22,990

11,729

54,413

56,174

Operating income (loss)

$

(8,456)

$

(23,528)

$

(12,236)

$

(56,317)

$

57,490

 Adjusted EBITDA

$

(3,668)

$

(6,792)

$

(5,972)

$

(22,630)

$

(29,352)

Total

Net revenue

$

50,595

$

48,958

$

67,264

$

206,196

$

258,842

Cost of revenue

20,076

18,990

25,098

79,091

103,731

Gross profit

30,519

29,968

42,166

127,105

155,111

Gross margin

60%

61%

63%

62%

60%

Gain on sale of patents and other technology assets, net of costs

116,353

Operating expenses

44,960

58,405

49,054

197,913

215,901

Operating income (loss)

$

(14,441)

$

(28,437)

$

(6,888)

$

(70,808)

$

55,563

 Adjusted EBITDA

$

(6,615)

$

(8,369)

$

3,264

$

(23,746)

$

(16,704)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)

2013

2012

2013

2012

Q4

Q3

Q4

YTD

YTD

(in thousands)

RealPlayer Group

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

Operating income (loss)

$

(2,265)

$

(72)

$

6,946

$

(1,498)

$

14,702

Acquisitions related intangible asset amortization

60

60

62

249

282

Depreciation and amortization

731

636

612

2,200

1,983

 Adjusted EBITDA

$

(1,474)

$

624

$

7,620

$

951

$

16,967

Mobile Entertainment

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

Operating income (loss)

$

(351)

$

(1,477)

$

(882)

$

(2,266)

$

(9,966)

Acquisitions related intangible asset amortization

781

1,055

809

3,287

3,193

Depreciation and amortization

821

925

1,760

4,809

6,315

 Adjusted EBITDA

$

1,251

$

503

$

1,687

$

5,830

$

(458)

Games

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

Operating income (loss)

$

(3,369)

$

(3,360)

$

(716)

$

(10,727)

$

(6,663)

Acquisitions related intangible asset amortization

314

314

879

587

Depreciation and amortization

331

342

645

1,951

2,215

 Adjusted EBITDA

$

(2,724)

$

(2,704)

$

(71)

$

(7,897)

$

(3,861)

Corporate

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

Operating income (loss)

$

(8,456)

$

(23,528)

$

(12,236)

$

(56,317)

$

57,490

Other income (expense), net

613

(118)

(433)

467

1,241

Depreciation and amortization

665

1,839

593

5,373

2,384

Lease exit and related charges

23

3,047

3,089

3,290

Loss on litigation settlements

11,525

11,525

Restructuring and other charges

1,690

1,877

1,353

5,765

15,225

Stock-based compensation

1,797

1,613

1,704

7,468

7,371

Gain on sale of patents and other technology assets, net of costs

(116,353)

 Adjusted EBITDA

$

(3,668)

$

(6,792)

$

(5,972)

$

(22,630)

$

(29,352)

Total

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

Operating income (loss)

$

(14,441)

$

(28,437)

$

(6,888)

$

(70,808)

$

55,563

Other income (expense), net

613

(118)

(433)

467

1,241

Acquisitions related intangible asset amortization

1,155

1,429

871

4,415

4,062

Depreciation and amortization

2,548

3,742

3,610

14,333

12,897

Lease exit and related charges

23

3,047

3,089

3,290

Loss on litigation settlements

11,525

11,525

Restructuring and other charges

1,690

1,877

1,353

5,765

15,225

Stock-based compensation

1,797

1,613

1,704

7,468

7,371

Gain on sale of patents and other technology assets, net of costs

(116,353)

 Adjusted EBITDA

$

(6,615)

$

(8,369)

$

3,264

$

(23,746)

$

(16,704)

 

SOURCE RealNetworks, Inc.



RELATED LINKS

http://www.realnetworks.com