RealNetworks Announces Second Quarter 2012 Results

08 Aug, 2012, 16:00 ET from RealNetworks, Inc.

SEATTLE, Aug. 8, 2012 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the second quarter ended June 30, 2012.

Quarterly Summary:

  • Revenue of $65.5 million
  • Net income of $81.0 million or $2.32 per diluted share 
  • Adjusted EBITDA of $(6.5) million 
  • Cash and short term investments of $282.9 million as of June 30, 2012
  • Results reflect $120.0 million sale of patent assets to Intel on April 5, 2012 

"It's clear that there's a lot of work to do to get RealNetworks back on track," said Rob Glaser, Chairman and interim CEO of RealNetworks. "We are moving quickly to put a plan in place to do so."

Second Quarter Results

For the second quarter of 2012, revenue was $65.5 million, a sequential decrease of 2% from the first quarter of 2012, and a decrease of 22% compared with the second quarter of 2011. Revenue trends in each of RealNetworks' businesses in the second quarter of 2012 compared with the year-earlier quarter were: a 22% decline in Emerging Products revenue to $9.9 million, a 16% decrease in Core Products revenue to $38.3 million, and a 31% decrease in Games revenue to $17.4 million.  

Net income for the second quarter of 2012 was $81.0 million, or $2.32 per diluted share, compared with a net loss of $(6.8) million, or $(0.20) per share, in the second quarter of 2011. Net income for the most-recent quarter included the net gain on the sale of patent assets to Intel Corp. of approximately $117.9 million, and $3.1 million in gains on the sale of other assets, including a portion of the company's investment in LoEn Entertainment, Inc.  RealNetworks' share of Rhapsody losses increased to $(2.1) million in the second quarter of 2012 from $(1.0) million in the second quarter of 2011.  Tax expense of $(24.3) million in the second quarter of 2012, compared with $(1.0) million in the year-ago quarter, included taxes associated with the gain from the sale of patent assets.  

Adjusted EBITDA loss for the second quarter was $(6.5) million, compared with adjusted EBITDA income of $2.2 million for the second quarter of 2011.  A reconciliation of GAAP operating income and loss to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2012, RealNetworks had $282.9 million in unrestricted cash, cash equivalents and short-term investments, of which approximately $37.8 million is held in foreign jurisdictions, compared with cash of $185.1 million at Dec. 31, 2011.  The increase in the cash balance reflects the proceeds from the sale of patent assets to Intel and other asset sales. In addition, RealNetworks had $42.5 million in restricted cash and available-for-sale securities as of June 30, 2012.

Segment Operating Results

2012

2012

2011

Q2

Q1

 Q2 

 (in thousands) 

Revenue 

Core Products

$        38,250

$        37,697

$        45,735

Emerging Products

9,913

10,159

12,717

Games

17,363

19,108

25,300

Corporate

-

-

-

Total   

$        65,526

$        66,964

$        83,752

Operating Income (loss)

Core Products

$          4,140

$          1,801

$          7,208

Emerging Products

1,021

508

370

Games

(1,302)

(983)

2,049

Corporate

100,309

(19,868)

(14,411)

Total   

$     104,168

$      (18,542)

$        (4,784)

Adjusted EBITDA

Core Products

$          6,628

$          4,400

$          9,900

Emerging Products

1,266

754

707

Games

(619)

(324)

2,748

Corporate

(13,784)

(12,247)

(11,133)

Total   

$        (6,509)

$        (7,417)

$          2,222

Business Outlook

For the third quarter of 2012, RealNetworks expects revenue of $59 million to $62 million. The company expects revenue from Games, Core Products and Emerging Products to decline sequentially and year over year. RealNetworks expects to report a third-quarter adjusted EBITDA loss of $(9) million to $(12) million.  

Anticipating significant restructuring activities in the second half of 2012, RealNetworks is not providing full-year guidance for 2012.

The foregoing forward-looking statements reflect RealNetworks' expectations as of August 8, 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 second quarter at 5:00 p.m. ET on August 8.  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 p.m. ET / 2 p.m. PT Dial in: 888-790-3162 Domestic 415-228-4854 International Passcode: Second Quarter Earnings Leader: Rob Glaser

Telephonic replay will be available until 8 p.m. ET, August 22, 2012. Replay dial in: 866-425-0182 Domestic 203-369-0874 International

For More Information: Marj Charlier, Investor Relations at RealNetworks, Inc. 206-892-6785 or mcharlier@realnetworks.com

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 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 second 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 revenue; adjusted EBITDA; the development of its business plans; and plans to undertake restructuring activities.  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 June 30, 

 Six Months Ended June 30, 

2012

2011

2012

2011

(in thousands, except per share data)

 Net revenue 

$

65,526

$

83,752

$

132,490

$

171,053

 Cost of revenue 

25,962

30,666

53,389

62,732

 Gross profit 

39,564

53,086

79,101

108,321

Sale of patents and other

technology assets, net of costs(A) 

117,933

-

116,353

-

Operating expenses: 

  Research and  development 

16,028

17,809

33,846

37,704

  Sales and marketing 

22,694

28,853

46,490

57,333

  General and administrative 

13,068

10,874

26,344

16,496

  Restructuring and other charges 

1,539

508

3,148

7,412

  Loss (gain) on excess office facilities 

-

(174)

-

(174)

 Total operating expenses 

53,329

57,870

109,828

118,771

Operating income (loss) 

104,168

(4,784)

85,626

(10,450)

Other income (expenses): 

  Interest income, net 

225

311

869

690

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

3,078

-

3,078

-

  Equity in net loss of Rhapsody investment 

(2,114)

(1,018)

(2,482)

(4,299)

  Other income (expense), net 

(49)

(311)

1,426

(433)

 Total other income (expense), net 

1,140

(1,018)

2,891

(4,042)

Income (loss) before income taxes 

105,308

(5,802)

88,517

(14,492)

Income tax (expense) benefit  

(24,311)

(1,047)

(24,535)

(4,662)

Net income (loss) 

$

80,997

$

(6,849)

$

63,982

$

(19,154)

Basic net income (loss) per share 

$

2.33

$

(0.20)

$

1.85

$

(0.56)

 Diluted net income (loss) per share 

$

2.32

$

(0.20)

$

1.83

$

(0.56)

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

34,752

34,135

34,620

34,067

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

34,900

34,135

34,914

34,067

(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) 

 June 30, 

 December 31, 

2012

2011

 (in thousands) 

 ASSETS 

 Current assets: 

 Cash and cash equivalents  

$

199,540

$

106,333

 Short-term investments 

83,406

78,739

 Trade accounts receivable, net 

38,512

41,165

 Deferred costs, current portion 

1,701

1,424

 Prepaid expenses and other current assets 

17,933

21,902

 Total current assets 

341,092

249,563

 Equipment, software, and leasehold improvements, at cost: 

 Equipment and software 

106,391

104,352

 Leasehold improvements 

26,130

25,947

 Total equipment, software, and leasehold improvements 

132,521

130,299

 Less accumulated depreciation and amortization 

94,975

92,825

 Net equipment, software, and leasehold improvements 

37,546

37,474

 Restricted cash equivalents and investments 

10,174

10,168

 Equity method investments 

5,316

7,798

 Available for sale securities 

32,296

37,204

 Other assets 

3,088

2,954

 Deferred costs, non-current portion 

276

843

 Deferred tax assets, net, non-current portion 

4,535

18,419

 Other intangible assets, net 

5,050

7,169

 Goodwill 

6,188

6,198

 Total assets 

$

445,561

$

377,790

 LIABILITIES AND SHAREHOLDERS' EQUITY 

 Current liabilities: 

  Accounts payable 

$

22,443

$

17,151

  Accrued and other liabilities 

63,053

59,194

  Deferred revenue, current portion 

10,187

11,835

  Accrued loss on excess office facilities, current portion 

593

596

 Total current liabilities 

96,276

88,776

 Deferred revenue, non-current portion 

185

195

 Accrued loss on excess office facilities, non-current portion 

1,536

2,151

 Deferred rent 

2,692

2,944

 Deferred tax liabilities, net, non-current portion 

1,132

1,443

 Other long-term liabilities 

9,871

10,994

 Total liabilities 

111,692

106,503

 Shareholders' equity 

333,869

271,287

 Total liabilities and shareholders' equity  

$

445,561

$

377,790

 

 RealNetworks, Inc. and Subsidiaries 

 Condensed Consolidated Statements of Cash Flows 

 (Unaudited) 

 Six Months Ended June 30,  

2012

2011

 (in thousands) 

 Cash flows from operating activities: 

 Net income (loss) 

$

63,982

$

(19,154)

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

 Depreciation and amortization 

8,162

8,116

 Stock-based compensation 

4,065

6,129

 Equity in net loss of Rhapsody investment 

2,482

4,299

 Excess tax benefit from stock option exercises 

-

(57)

 Deferred income taxes, net 

22,496

(351)

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

(116,353)

-

 Gain on sale of equity and other investments, net 

(3,078)

-

 Realized translation gain 

(1,611)

-

 Other 

(79)

147

 Net change in certain operating assets and liabilities 

2,493

(4,619)

 Net cash provided by (used in) operating activities 

(17,441)

(5,490)

 Cash flows from investing activities: 

 Purchases of equipment, software, and leasehold improvements 

(4,989)

(3,134)

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

116,353

-

 Proceeds from sale of equity and other investments 

4,165

-

 Purchases of short-term investments 

(18,637)

(54,844)

 Proceeds from sales and maturities of short-term investments 

13,970

62,005

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

(5)

(141)

 Payment of acquisition costs, net of cash acquired 

-

(2,888)

 Net cash provided by (used in) investing activities 

110,857

998

 Cash flows from financing activities: 

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

1,221

1,610

 Tax payments from shares withheld upon vesting of restricted stock 

(884)

-

 Excess tax benefit from stock option exercises 

-

57

 Net cash provided by (used in) financing activities 

337

1,667

 Effect of exchange rate changes on cash and cash equivalents 

(546)

3,537

 Net increase (decrease) in cash and cash equivalents 

93,207

712

 Cash and cash equivalents, beginning of period 

106,333

236,018

 Cash and cash equivalents, end of period 

$

199,540

$

236,730

 

 

 RealNetworks, Inc. and Subsidiaries 

 Supplemental Financial Information 

 (Unaudited) 

2012

2011

 Q2 

 Q1 

 Q4 

 Q3 

 Q2 

 Q1 

 (in thousands) 

 Net Revenue by Line of Business: 

 Core Products (A) 

$

38,250

$

37,697

$

46,693

$

50,705

$

45,735

$

48,107

 Emerging Products (B) 

9,913

10,159

11,974

10,764

12,717

11,135

 Games (C)  

17,363

19,108

21,552

22,945

25,300

28,059

  Total net revenue 

$

65,526

$

66,964

$

80,219

$

84,414

$

83,752

$

87,301

 Core Products Revenue by Product: 

 SaaS (D) 

$

23,286

$

23,463

$

28,255

$

30,381

$

30,216

$

30,526

 Systems Integration /

 Professional Services (E) 

965

426

771

3,844

388

1,840

 Technology Licensing (F) 

7,189

6,207

9,246

6,250

6,508

6,425

 Consumer Subscriptions (G) 

6,810

7,601

8,421

10,230

8,623

9,316

 Total Core Products net revenue 

$

38,250

$

37,697

$

46,693

$

50,705

$

45,735

$

48,107

 Net Revenue by Geography: 

 United States 

$

28,614

$

31,814

$

37,298

$

38,969

$

41,984

$

44,469

 Rest of world 

36,912

35,150

42,921

45,445

41,768

42,832

 Total net revenue 

$

65,526

$

66,964

$

80,219

$

84,414

$

83,752

$

87,301

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

Addressable subscribers of mobile operators under contract (H)

725,000

725,000

725,000

700,000

775,000

775,000

SaaS subscribers (I)

30,600

30,500

30,050

34,000

34,550

35,900

Monthly SaaS ARPU (in cents) (J)

$

0.16

$

0.15

$

0.19

$

0.17

$

0.18

$

0.18

ICM delivered in billions (K)

162

166

165

162

157

151

Consumer subscribers(L)

350

400

425

500

475

500

 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.

Core Products Revenue by Product:

(D) 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.

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

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

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

Product Metrics:

(H) 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.

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

(J) 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.

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

(L) Consumer subscribers primarily includes our SuperPass and GamePass products.

 

 

 RealNetworks, Inc. and Subsidiaries 

 Segment Results of Operations 

 (Unaudited) 

2012

2011

2012

2011

 Q2 

 Q1 

 Q2 

 YTD 

 YTD 

 (in thousands) 

Core Products

Net revenue

$     38,250

$     37,697

$      45,735

$   75,947

$   93,842

Cost of revenue

17,681

17,828

19,353

35,509

40,337

Gross profit

20,569

19,869

26,382

40,438

53,505

 Gross margin

54%

53%

58%

53%

57%

Operating expenses

16,429

18,068

19,174

34,497

38,560

Operating income (loss)  

$       4,140

$       1,801

$       7,208

$    5,941

$   14,945

 Adjusted EBITDA  

$       6,628

$       4,400

$       9,900

$   11,028

$   20,160

Emerging Products

Net revenue

$       9,913

$     10,159

$      12,717

$   20,072

$   23,852

Cost of revenue

1,800

2,105

2,978

3,905

4,518

Gross profit

8,113

8,054

9,739

16,167

19,334

 Gross margin

82%

79%

77%

81%

81%

Operating expenses

7,092

7,546

9,369

14,638

19,260

Operating income (loss)  

$       1,021

$          508

$          370

$    1,529

$         74

 Adjusted EBITDA  

$       1,266

$          754

$          707

$    2,020

$       519

Games 

Net revenue

$     17,363

$     19,108

$      25,300

$   36,471

$   53,359

Cost of revenue

5,572

6,661

8,040

12,233

16,574

Gross profit

11,791

12,447

17,260

24,238

36,785

 Gross margin

68%

65%

68%

66%

69%

Operating expenses

13,093

13,430

15,211

26,523

32,025

Operating income (loss)  

$      (1,302)

$         (983)

$       2,049

$   (2,285)

$     4,760

 Adjusted EBITDA  

$         (619)

$         (324)

$       2,748

$      (943)

$     6,088

Corporate

Net revenue

$            -

$            -

$            -

$         -

$          -

Cost of revenue

909

833

295

1,742

1,303

Gross profit

(909)

(833)

(295)

(1,742)

(1,303)

Gross margin

 N/A 

 N/A 

 N/A 

 N/A 

 N/A 

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

117,933

(1,580)

-

116,353

-

Operating expenses

16,715

17,455

14,116

34,170

28,926

Operating income (loss)  

$   100,309

$    (19,868)

$     (14,411)

$   80,441

$  (30,229)

 Adjusted EBITDA  

$    (13,784)

$    (12,247)

$     (11,133)

$  (26,031)

$  (17,003)

Total

Net revenue

$     65,526

$     66,964

$      83,752

$ 132,490

$ 171,053

Cost of revenue

25,962

27,427

30,666

53,389

62,732

Gross profit

39,564

39,537

53,086

79,101

108,321

 Gross margin

60%

59%

63%

60%

63%

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

117,933

(1,580)

-

116,353

-

Operating expenses

53,329

56,499

57,870

109,828

118,771

Operating income (loss)  

$   104,168

$    (18,542)

$      (4,784)

$   85,626

$  (10,450)

 Adjusted EBITDA  

$      (6,509)

$      (7,417)

$       2,222

$  (13,926)

$     9,764

 

 

 

 RealNetworks, Inc. and Subsidiaries 

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

 (Unaudited) 

2012

2011

2012

2011

 Q2 

 Q1 

 Q2 

 YTD 

 YTD 

 (in thousands) 

Core Products

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

Operating income (loss) 

$         4,140

$         1,801

$      7,208

$       5,941

$   14,945

Acquisitions related intangible asset amortization 

786

802

710

1,588

1,184

Depreciation and amortization 

1,702

1,797

1,982

3,499

4,031

 Adjusted EBITDA  

$         6,628

$         4,400

$      9,900

$      11,028

$   20,160

Emerging Products

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

Operating income (loss)  

$         1,021

$            508

$        370

$       1,529

$         74

Acquisitions related intangible asset amortization 

79

79

53

158

53

Depreciation and amortization 

166

167

284

333

392

 Adjusted EBITDA  

$         1,266

$            754

$        707

$       2,020

$       519

Games 

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

Operating income (loss)  

$        (1,302)

$           (983)

$      2,049

$      (2,285)

$    4,760

Acquisitions related intangible asset amortization 

207

209

256

416

510

Depreciation and amortization 

476

450

443

926

818

 Adjusted EBITDA  

$           (619)

$           (324)

$      2,748

$         (943)

$    6,088

Corporate

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

Operating income (loss)  

$      100,309

$      (19,868)

$   (14,411)

$      80,441

$  (30,229)

Other income (expense), net

(49)

1,475

(311)

1,426

(433)

Depreciation and amortization 

628

614

569

1,242

1,128

Restructuring and other charges

1,539

1,609

508

3,148

7,412

Stock-based compensation

1,722

2,343

2,686

4,065

5,293

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

(117,933)

1,580

-

(116,353)

-

Loss (Gain) on excess office facilities

-

-

(174)

-

(174)

 Adjusted EBITDA  

$      (13,784)

$      (12,247)

$   (11,133)

$     (26,031)

$  (17,003)

 Total  

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

Operating income (loss)  

$      104,168

$      (18,542)

$     (4,784)

$      85,626

$  (10,450)

Other income (expense), net

(49)

1,475

(311)

1,426

(433)

Acquisitions related intangible asset amortization

1,072

1,090

1,019

2,162

1,747

Depreciation and amortization

2,972

3,028

3,278

6,000

6,369

Loss (Gain) on excess office facilities

-

-

(174)

-

(174)

Restructuring and other charges

1,539

1,609

508

3,148

7,412

Stock-based compensation

1,722

2,343

2,686

4,065

5,293

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

(117,933)

1,580

-

(116,353)

-

 Adjusted EBITDA  

$        (6,509)

$        (7,417)

$      2,222

$     (13,926)

$    9,764

SOURCE RealNetworks, Inc.



RELATED LINKS

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