RealNetworks Announces Second Quarter 2013 Results

SEATTLE, Aug. 7, 2013 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the second quarter ended June 30, 2013.

Financial Summary

  • Revenue of $49.9 million
  • Net loss of $(18.5) million or $(0.52) per share
  • Adjusted EBITDA of $(5.8) million
  • Cash and short-term investments of $236.7 million as of June 30, 2013

Recent Announcements

  • On August 1, launched GameHouse Casino Plus, the first social casino game to use a sweepstakes offering U.S. consumers real cash prizes
  • Acquired iconic Slingo, Inc. for $15.6 million, creator of a highly popular social casino game that combines bingo and slots
  • Unveiled plans for a new Seattle headquarters facility, with expected annual cash savings of over $7.0 million as compared to current facility

"We are making good progress on our plan to revitalize RealNetworks," said Rob Glaser, Chairman and interim CEO of RealNetworks. "Last week's launch of GameHouse Casino Plus with the Golden Dreams Sweepstakes, the first social casino game to offer consumers a chance to win large cash prizes, was a major step forward in our program to introduce compelling and innovative new products and services. We think that Casino Plus, along with other new products that we will be rolling out this year, will set the stage to return RealNetworks to growth. There is still much work to be done and it will take time, but we will continue to push forward towards the goal of sustainable growth and profitability."

Second Quarter Results

For the second quarter of 2013, revenue was $49.9 million, a sequential decrease of 12% from the first quarter of 2013, and a decrease of 24% compared with the second quarter of 2012. Revenue trends in each of RealNetworks' businesses in the second quarter of 2013 compared with the year-earlier quarter were: a 17% decrease in RealPlayer Group revenue to $18.4 million, a 29% decrease in Mobile Entertainment revenue to $18.6 million and a 26% decrease in Games revenue to $12.9 million.

Net loss for the second quarter of 2013 was $(18.5) million, or $(0.52) per share, compared with net income of $81.0 million, or $2.32 per diluted share, in the second quarter of 2012, which included the net gain on the sale of patent assets to Intel Corp. of $117.9 million.

Adjusted EBITDA loss for the second quarter of 2013 was $(5.8) million, compared with an adjusted EBITDA loss of $(6.5) million for the second quarter of 2012. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2013, RealNetworks had $236.7 million in unrestricted cash, cash equivalents and short-term investments compared with $271.4 million as of December 31, 2012, of which approximately $42.3 million was held in foreign jurisdictions. In addition, RealNetworks had $46.2 million in restricted cash and available-for-sale securities as of June 30, 2013, compared with $44.3 million as of December 31, 2012.

Segment Operating Results


















2013


2013


2012




Q2


Q1


Q2




(in thousands)

Revenue







RealPlayer Group

$

18,383



$

22,383



$

22,158


Mobile Entertainment

18,592



20,495



26,005


Games

12,875



13,915



17,363


Corporate







Total

$

49,850



$

56,793



$

65,526









Operating Income (loss)







RealPlayer Group

$

(27)



$

866



$

4,639


Mobile Entertainment

(990)



552



(2,721)


Games

(2,261)



(1,737)



(2,068)


Corporate

(13,226)



(11,107)



104,318



Total

$

(16,504)



$

(11,426)



$

104,168









Adjusted EBITDA







RealPlayer Group

$

470



$

1,331



$

5,087


Mobile Entertainment

694



3,382



(409)


Games

(1,315)



(1,154)



(1,385)


Corporate

(5,602)



(6,568)



(9,802)



Total

$

(5,753)



$

(3,009)



$

(6,509)

Business Outlook

For the third quarter of 2013, RealNetworks expects total revenue of $47.0 million to $50.0 million, with all segments flat to declining sequentially and declining year over year. We expect adjusted EBITDA for the quarter to be a loss of $(8.0) million to $(11.0) million.

The foregoing forward-looking statements reflect RealNetworks' expectations as of August 7, 2013. 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 7. The Webcast will be available at: http://investor.realnetworks.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 21, 2013.
Replay dial in:
888-566-0411 Domestic
203-369-3041 International

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 http://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 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 regarding future revenue and adjusted EBITDA, its plans to attain growth and profitability and undertake certain strategic initiatives, and expected savings from its headquarters relocation. 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: 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

June 30,


Six Months Ended

June 30,








2013


2012


2013


2012




(in thousands, except per share data)











Net revenue



$

49,850



$

65,526



$

106,643



$

132,490











Cost of revenue



19,519



25,962



40,025



53,389











        Gross profit



30,331



39,564



66,618



79,101











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





117,933





116,353











Operating expenses:










    Research and development



14,993



16,028



30,244



33,846

    Sales and marketing



19,269



22,694



40,403



46,490

    General and administrative



8,691



13,068



18,637



26,344

    Restructuring and other charges



816



1,539



2,198



3,148

    Lease exit and related charges



3,066





3,066













        Total operating expenses



46,835



53,329



94,548



109,828











Operating income (loss)



(16,504)



104,168



(27,930)



85,626











Other income (expenses):










    Interest income, net



179



225



826



869

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





3,078





3,078

    Equity in net loss of Rhapsody investment



(1,347)



(2,114)



(3,580)



(2,482)

    Other income (expense), net



(137)



(49)



(28)



1,426











        Total other income (expense), net



(1,305)



1,140



(2,782)



2,891











Income (loss) before income taxes



(17,809)



105,308



(30,712)



88,517

Income tax expense (benefit)



662



24,311



(567)



24,535











Net income (loss)



$

(18,471)



$

80,997



$

(30,145)



$

63,982











Basic net income (loss) per share



$

(0.52)



$

2.33



$

(0.85)



$

1.85

Diluted net income (loss) per share



$

(0.52)



$

2.32



$

(0.85)



$

1.83











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



35,455



34,752



35,399



34,620

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



35,455



34,900



35,399



34,914





















(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,

2013


December 31,

2012


(in thousands)

ASSETS

Current assets:




Cash and cash equivalents

$

129,210



$

163,198

Short-term investments

107,536



108,216

Trade accounts receivable, net

25,700



30,754

Deferred costs, current portion

485



825

Deferred tax assets - current

3,845



2,869

Prepaid expenses and other current assets

9,452



17,002

Total current assets

276,228



322,864





Equipment, software, and leasehold improvements, at cost:




Equipment and software

94,231



98,041

Leasehold improvements

22,740



22,767

Total equipment, software, and leasehold improvements

116,971



120,808

Less accumulated depreciation and amortization

92,342



91,492

Net equipment, software, and leasehold improvements

24,629



29,316





Restricted cash equivalents and investments

10,000



10,000

Equity method investment

15,344



19,204

Available for sale securities

36,156



34,334

Other assets

3,262



3,153

Deferred costs, non-current portion

1,300



531

Deferred tax assets, net, non-current portion

1,534



4,911

Other intangible assets, net

9,783



3,275

Goodwill

15,984



6,309





Total assets

$

394,220



$

433,897





LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:




Accounts payable

$

18,600



$

19,013

Accrued and other current liabilities

47,972



57,530

Deferred revenue, current portion

7,987



8,675

Total current liabilities

74,559



85,218





Deferred revenue, non-current portion

191



169

Deferred rent

441



2,250

Deferred tax liabilities, net, non-current portion

3,194



432

Other long-term liabilities

492



3,100





Total liabilities

78,877



91,169









Shareholders' equity

315,343



342,728





Total liabilities and shareholders' equity

$

394,220



$

433,897

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)










Six Months Ended

June 30,


2013


2012


(in thousands)


Cash flows from operating activities:




Net income (loss)

$

(30,145)



$

63,982

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








  Depreciation and amortization

9,874



8,162

  Stock-based compensation

4,058



4,065

  Equity in net loss of Rhapsody

3,580



2,482

  Deferred income taxes, net

(1,668)



22,496

  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

(35)



(1,611)

  Other

51



(79)

  Net change in certain operating assets and liabilities

1,400



2,493

Net cash provided by (used in) operating activities

(12,885)



(17,441)





Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(3,181)



(4,989)

  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

(70,647)



(18,637)

  Proceeds from sales and maturities of short-term investments

71,327



13,970

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



(5)

  Acquisitions of businesses, net of cash acquired

(16,107)



    Net cash provided by (used in) investing activities

(18,608)



110,857

Cash flows from financing activities:




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

392



1,221

  Tax payments from shares withheld upon vesting of restricted stock

(800)



(884)

  Payment of contingent consideration

(828)



    Net cash provided by (used in) financing activities

(1,236)



337

Effect of exchange rate changes on cash and cash equivalents

(1,259)



(546)

    Net increase (decrease) in cash and cash equivalents

(33,988)



93,207

Cash and cash equivalents, beginning of period

163,198



106,333

Cash and cash equivalents, end of period

$

129,210



$

199,540

 


RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)




























2013


2012



Q2


Q1


Q4


Q3


Q2


Q1



(in thousands)

Net Revenue by Line of Business













RealPlayer Group (A)


$

18,383



$

22,383



$

25,838



$

21,392



$

22,158



$

22,081

Mobile Entertainment (B)


18,592



20,495



25,718



22,820



26,005



25,775

Games (C)


12,875



13,915



15,708



14,876



17,363



19,108

    Total net revenue


$

49,850



$

56,793



$

67,264



$

59,088



$

65,526



$

66,964














Net Revenue by Product













RealPlayer Group













- License (D)


$

6,766



$

8,332



$

10,956



$

6,757



$

8,334



$

7,733

- Subscriptions (E)


4,193



4,924



6,192



7,056



6,810



7,601

- Media Properties (F)


7,424



9,127



8,690



7,579



7,014



6,747














Mobile Entertainment













- SaaS (G)


17,002



18,674



22,793



20,696



23,286



23,464

- Systems Integration / Professional Services (H)


300



291



1,295



247



965



426

- Technology License & Other (I)


1,290



1,530



1,630



1,877



1,754



1,885














Games













- License (J)


4,089



5,249



5,222



5,136



6,053



7,587

- Subscriptions (K)


5,980



6,312



6,876



6,952



7,536



8,170

- Media Properties (L)


2,806



2,354



3,610



2,788



3,774



3,351














    Total net revenue


$

49,850



$

56,793



$

67,264



$

59,088



$

65,526



$

66,964














Net Revenue by Geography













United States


$

21,463



$

28,024



$

28,315



$

29,101



$

28,614



$

31,814

Rest of world


28,387



28,769



38,949



29,987



36,912



35,150

    Total net revenue


$

49,850



$

56,793



$

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) Systems Integration / Professional Services revenue within Mobile Entertainment includes professional services, other than those associated with software sales, provided to mobile carriers.

(I) Licensing revenue within Mobile Entertainment includes revenue from Helix-related products.

(J) Licensing revenue within Games includes retail games-related revenue, microtransactions from online and social games and sales of mobile games.

(K) Subscriptions revenue within Games includes revenue from online games subscriptions.

(L) 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



Q2


Q1


Q2


YTD


YTD



(in thousands)

RealPlayer Group






















Net revenue


$

18,383



$

22,383



$

22,158



$

40,766



$

44,239

Cost of revenue


4,409



5,311



4,727



9,720



9,291

Gross profit


13,974



17,072



17,431



31,046



34,948












Gross margin


76%



76%



79%



76%



79%












Operating expenses


14,001



16,206



12,792



30,207



28,767

Operating income (loss)


$

(27)



$

866



$

4,639



$

839



$

6,181












Adjusted EBITDA


$

470



$

1,331



$

5,087



$

1,801



$

7,072












Mobile Entertainment






















Net revenue


$

18,592



$

20,495



$

26,005



$

39,087



$

51,780

Cost of revenue


11,170



10,832



14,875



22,002



30,353

Gross profit


7,422



9,663



11,130



17,085



21,427












Gross margin


40%



47%



43%



44%



41%












Operating expenses


8,412



9,111



13,851



17,523



28,655

Operating income (loss)


$

(990)



$

552



$

(2,721)



$

(438)



$

(7,228)












Adjusted EBITDA


$

694



$

3,382



$

(409)



$

4,076



$

(2,486)












Games






















Net revenue


$

12,875



$

13,915



$

17,363



$

26,790



$

36,471

Cost of revenue


3,381



3,800



5,630



7,181



12,343

Gross profit


9,494



10,115



11,733



19,609



24,128












Gross margin


74%



73%



68%



73%



66%












Operating expenses


11,755



11,852



13,801



23,607



27,939

Operating income (loss)


$

(2,261)



$

(1,737)



$

(2,068)



$

(3,998)



$

(3,811)












Adjusted EBITDA


$

(1,315)



$

(1,154)



$

(1,385)



$

(2,469)



$

(2,469)












Corporate






















Net revenue


$



$



$



$



$

Cost of revenue


559



563



730



1,122



1,402

Gross profit


(559)



(563)



(730)



(1,122)



(1,402)












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





116,353

Operating expenses


12,667



10,544



12,885



23,211



24,467

Operating income (loss)


$

(13,226)



$

(11,107)



$

104,318



$

(24,333)



$

90,484












Adjusted EBITDA


$

(5,602)



$

(6,568)



$

(9,802)



$

(12,170)



$

(16,043)












Total






















Net revenue


$

49,850



$

56,793



$

65,526



$

106,643



$

132,490

Cost of revenue


19,519



20,506



25,962



40,025



53,389

Gross profit


30,331



36,287



39,564



66,618



79,101












Gross margin


61%



64%



60%



62%



60%












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






117,933





116,353

Operating expenses


46,835



47,713



53,329



94,548



109,828

Operating income (loss)


$

(16,504)



$

(11,426)



$

104,168



$

(27,930)



$

85,626












Adjusted EBITDA


$

(5,753)



$

(3,009)



$

(6,509)



$

(8,762)



$

(13,926)

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)
























2013


2012


2013


2012



Q2


Q1


Q2


YTD


YTD



(in thousands)

RealPlayer Group






















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


















Operating income (loss)


$

(27)



$

866



$

4,639



$

839



$

6,181

Acquisitions related intangible asset amortization


62



67



79



129



158

Depreciation and amortization


435



398



369



833



733

Adjusted EBITDA


$

470



$

1,331



$

5,087



$

1,801



$

7,072












Mobile Entertainment






















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


















Operating income (loss)


$

(990)



$

552



$

(2,721)



$

(438)



$

(7,228)

Acquisitions related intangible asset amortization


638



813



786



1,451



1,588

Depreciation and amortization


1,046



2,017



1,526



3,063



3,154

Adjusted EBITDA


$

694



$

3,382



$

(409)



$

4,076



$

(2,486)












Games






















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


















Operating income (loss)


$

(2,261)



$

(1,737)



$

(2,068)



$

(3,998)



$

(3,811)

Acquisitions related intangible asset amortization


230



21



207



251



416

Depreciation and amortization


716



562



476



1,278



926

Adjusted EBITDA


$

(1,315)



$

(1,154)



$

(1,385)



$

(2,469)



$

(2,469)












Corporate






















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


















Operating income (loss)


$

(13,226)



$

(11,107)



$

104,318



$

(24,333)



$

90,484

Other income (expense), net


(137)



109



(49)



(28)



1,426

Depreciation and amortization


1,859



1,010



601



2,869



1,187

Restructuring and other charges


816



1,382



1,539



2,198



3,148

Stock-based compensation


2,020



2,038



1,722



4,058



4,065

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






(117,933)





(116,353)

Lease exit and related charges


3,066







3,066



Adjusted EBITDA


$

(5,602)



$

(6,568)



$

(9,802)



$

(12,170)



$

(16,043)












Total






















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


















Operating income (loss)


$

(16,504)



$

(11,426)



$

104,168



$

(27,930)



$

85,626

Other income (expense), net


(137)



109



(49)



(28)



1,426

Acquisitions related intangible asset amortization


930



901



1,072



1,831



2,162

Depreciation and amortization


4,056



3,987



2,972



8,043



6,000

Lease exit and related charges


3,066







3,066



Restructuring and other charges


816



1,382



1,539



2,198



3,148

Stock-based compensation


2,020



2,038



1,722



4,058



4,065

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






(117,933)





(116,353)

Adjusted EBITDA


$

(5,753)



$

(3,009)



$

(6,509)



$

(8,762)



$

(13,926)

SOURCE RealNetworks, Inc.



RELATED LINKS
http://www.realnetworks.com

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