RealNetworks Announces Third Quarter 2013 Results

SEATTLE, Oct. 30, 2013 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the third quarter ended September 30, 2013.

Financial Summary

  • Revenue of $49.0 million
  • Net loss of $(31.4) million or $(0.88) per share
  • Adjusted EBITDA loss of $(8.4) million
  • Cash and short-term investments of $218.4 million as of September 30, 2013

Recent Highlights

  • On September 24, launched RealPlayer Cloud, the first integrated video player and cloud service
  • Acquired Muzicall Limited, a leading service provider for mobile carriers and media companies in Europe, for $6.7 million
  • Settled our two most significant outstanding litigation matters for an aggregate of $11.5 million

"We are pleased with our continued progress towards revitalizing RealNetworks," said Rob Glaser, Chairman and interim CEO of RealNetworks. "Last month we launched RealPlayer Cloud, our breakthrough product that makes it easy to move, watch, save and share video across every popular digital device. The initial market response to RealPlayer Cloud has been excellent and we think lays the foundation for a great future."

Third Quarter Results

For the third quarter of 2013, revenue was $49.0 million, a sequential decrease of (2)% from the second quarter of 2013, and a decrease of (17)% compared with the third quarter of 2012. Revenue trends in each of RealNetworks' businesses in the third quarter of 2013 compared with the year-earlier quarter were: a (18)% decrease in RealPlayer Group revenue to $17.6 million, a (13)% decrease in Mobile Entertainment revenue to $19.9 million and a (24)% decrease in Games revenue to $11.4 million.

Net loss for the third quarter of 2013 was $(31.4) million, or $(0.88) per share, compared with net loss of $(22.2) million, or $(0.63) per share, in the third quarter of 2012.

Adjusted EBITDA loss for the third quarter of 2013 was $(8.4) million, compared with an adjusted EBITDA loss of $(6.0) million for the third 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 September 30, 2013, RealNetworks had $218.4 million in unrestricted cash, cash equivalents and short-term investments compared with $271.4 million as of December 31, 2012, of which approximately $37.5 million was held in foreign jurisdictions. In addition, RealNetworks had $39.5 million in restricted cash and available-for-sale securities as of September 30, 2013, compared with $44.3 million as of December 31, 2012.

Segment Operating Results




2013


2013


2012





Q3


Q2


Q3



(in thousands)


Revenue








RealPlayer Group

$

17,641



$

18,383



$

21,392



Mobile Entertainment

19,948



18,592



22,820



Games

11,369



12,875



14,876



Corporate








Total

$

48,958



$

49,850



$

59,088










Operating Income (loss)







RealPlayer Group

$

(72)



$

(27)



$

1,575



Mobile Entertainment

(1,477)



(990)



(1,856)



Games

(3,360)



(2,261)



(2,136)



Corporate

(23,528)



(13,226)



(20,758)




Total

$

(28,437)



$

(16,504)



$

(23,175)










Adjusted EBITDA







RealPlayer Group

$

624



$

470



$

2,275



Mobile Entertainment

503



694



341



Games

(2,704)



(1,315)



(1,321)



Corporate

(6,792)



(5,602)



(7,337)




Total

$

(8,369)



$

(5,753)



$

(6,042)



Business Outlook

For the fourth quarter of 2013, RealNetworks expects total revenue of $47.0 million to $50.0 million, with all segments declining year over year, and with Mobile Entertainment increasing, Games flat and RealPlayer Group declining sequentially. 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 October 30, 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 third quarter at 5:00 p.m. ET on October 30. 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: Third Quarter Earnings
Leader: Rob Glaser

Telephonic replay will be available until 8 p.m. ET, November 20, 2013.
Replay dial in:
800-568-9796 Domestic
203-369-3292 International
Passcode: 103013

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 third 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, future market performance, and its plans to attain growth and profitability and undertake certain strategic initiatives. 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

September 30,


Nine Months Ended

September 30,








2013


2012


2013


2012




(in thousands, except per share data)











Net revenue



$

48,958



$

59,088



$

155,601



$

191,578












Cost of revenue



18,990



25,244



59,015



78,633












      Gross profit



29,968



33,844



96,586



112,945












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









116,353












Operating expenses:










   Research and development



15,707



15,321



45,951



49,167


   Sales and marketing



19,427



21,972



59,830



68,462


   General and administrative



9,869



8,759



28,506



35,103


   Restructuring and other charges



1,877



10,724



4,075



13,872


   Lease exit and related charges





243



3,066



243


   Loss on litigation settlements



11,525





11,525














      Total operating expenses



58,405



57,019



152,953



166,847












Operating income (loss)



(28,437)



(23,175)



(56,367)



62,451












Other income (expenses):










   Interest income, net



166



164



992



1,033


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





2,210





5,288


   Equity in net loss of Rhapsody investment



(2,629)



(1,613)



(6,209)



(4,095)


   Other income (expense), net



(118)



248



(146)



1,674












      Total other income (expense), net



(2,581)



1,009



(5,363)



3,900












Income (loss) before income taxes



(31,018)



(22,166)



(61,730)



66,351


Income tax expense (benefit)



357



48



(210)



24,583












Net income (loss)



$

(31,375)



$

(22,214)



$

(61,520)



$

41,768












Basic net income (loss) per share



$

(0.88)



$

(0.63)



$

(1.73)



$

1.20


Diluted net income (loss) per share



$

(0.88)



$

(0.63)



$

(1.73)



$

1.19












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



35,670



34,998



35,490



34,747


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



35,670



34,998



35,490



35,000






















(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)










September 30,

2013


December 31,

2012


(in thousands)

ASSETS

Current assets:




Cash and cash equivalents

$

134,879



$

163,198


Short-term investments

83,527



108,216


Trade accounts receivable, net

26,494



30,754


Deferred costs, current portion

1,622



825


Deferred tax assets - current

3,942



2,869


Prepaid expenses and other current assets

12,152



17,002


Total current assets

262,616



322,864






Equipment, software, and leasehold improvements, at cost:




Equipment and software

94,054



98,041


Leasehold improvements

3,516



22,767


Total equipment, software, and leasehold improvements

97,570



120,808


Less accumulated depreciation and amortization

73,105



91,492


Net equipment, software, and leasehold improvements

24,465



29,316






Restricted cash equivalents and investments

5,000



10,000


Equity method investment

12,656



19,204


Available for sale securities

34,485



34,334


Other assets

2,844



3,153


Deferred costs, non-current portion

1,032



531


Deferred tax assets, net, non-current portion

1,576



4,911


Other intangible assets, net

14,051



3,275


Goodwill

17,518



6,309






Total assets

$

376,243



$

433,897






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:




Accounts payable

$

20,562



$

19,013


Accrued and other current liabilities

58,024



57,530


Deferred revenue, current portion

7,604



8,675


Total current liabilities

86,190



85,218






Deferred revenue, non-current portion

167



169


Deferred rent

613



2,250


Deferred tax liabilities, net, non-current portion

3,166



432


Other long-term liabilities

492



3,100






Total liabilities

90,628



91,169










Shareholders' equity

285,615



342,728






Total liabilities and shareholders' equity

$

376,243



$

433,897


 



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)










Nine Months Ended

September 30,


2013


2012


(in thousands)


Cash flows from operating activities:




Net income (loss)

$

(61,520)



$

41,768


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

   Depreciation and amortization

15,045



12,478


   Stock-based compensation

5,671



6,419


   Loss on asset disposal



1,965


   Equity in net loss of Rhapsody

6,209



4,095


   Deferred income taxes, net

(1,238)



22,399


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



(116,353)


   Gain on sale of equity and other investments, net



(5,288)


   Realized translation gain

(35)



(1,968)


   Other

51




   Net change in certain operating assets and liabilities

7,514



3,735


Net cash provided by (used in) operating activities

(28,303)



(30,750)






Cash flows from investing activities:




Purchases of equipment, software, and leasehold improvements

(5,798)



(6,478)


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



116,353


Proceeds from sale of equity and other investments



7,244


Purchases of short-term investments

(85,670)



(76,191)


Proceeds from sales and maturities of short-term investments

110,359



51,885


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

5,000



103


Acquisitions of businesses, net of cash acquired

(22,480)




   Net cash provided by (used in) investing activities

1,411



92,916


Cash flows from financing activities:




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

408



3,240


Tax payments from shares withheld upon vesting of restricted stock

(911)



(964)


Payment of contingent consideration

(828)




   Net cash provided by (used in) financing activities

(1,331)



2,276


Effect of exchange rate changes on cash and cash equivalents

(96)



(73)


   Net increase (decrease) in cash and cash equivalents

(28,319)



64,369


Cash and cash equivalents, beginning of period

163,198



106,333


Cash and cash equivalents, end of period

$

134,879



$

170,702


 




RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)
































2013


2012



Q3


Q2


Q1


Q4


Q3


Q2


Q1



(in thousands)

Net Revenue by Line of Business















RealPlayer Group (A)


$

17,641



$

18,383



$

22,383



$

25,838



$

21,392



$

22,158



$

22,081


Mobile Entertainment (B)


19,948



18,592



20,495



25,718



22,820



26,005



25,775


Games (C)


11,369



12,875



13,915



15,708



14,876



17,363



19,108


     Total net revenue


$

48,958



$

49,850



$

56,793



$

67,264



$

59,088



$

65,526



$

66,964

















Net Revenue by Product















RealPlayer Group















- License (D)


$

7,281



$

6,766



$

8,332



$

10,956



$

6,757



$

8,334



$

7,733


- Subscriptions (E)


3,616



4,193



4,924



6,192



7,056



6,810



7,601


- Media Properties (F)


6,745



7,424



9,127



8,690



7,579



7,014



6,747

















Mobile Entertainment















- SaaS (G)


18,155



17,002



18,674



22,793



20,696



23,286



23,464


- Systems Integration / Professional Services (H)


322



300



291



1,295



247



965



426


- Technology License & Other (I)


1,470



1,290



1,530



1,630



1,877



1,754



1,885

















Games















- License (J)


3,421



4,089



5,249



5,222



5,136



6,053



7,587


- Subscriptions (K)


5,733



5,980



6,312



6,876



6,952



7,536



8,170


- Media Properties (L)


2,215



2,806



2,354



3,610



2,788



3,774



3,351

















     Total net revenue


$

48,958



$

49,850



$

56,793



$

67,264



$

59,088



$

65,526



$

66,964

















Net Revenue by Geography















United States


$

21,039



$

21,463



$

28,024



$

28,315



$

29,101



$

28,614



$

31,814


Rest of world


27,919



28,387



28,769



38,949



29,987



36,912



35,150


     Total net revenue


$

48,958



$

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



Q3


Q2


Q3


YTD


YTD



(in thousands)

RealPlayer Group






















Net revenue


$

17,641



$

18,383



$

21,392



$

58,407



$

65,631


Cost of revenue


3,264



4,409



6,735



12,984



16,026


Gross profit


14,377



13,974



14,657



45,423



49,605













Gross margin


81

%


76

%


69

%


78

%


76

%












Operating expenses


14,449



14,001



13,082



44,656



41,849


Operating income (loss)


$

(72)



$

(27)



$

1,575



$

767



$

7,756













Adjusted EBITDA


$

624



$

470



$

2,275



$

2,425



$

9,347













Mobile Entertainment






















Net revenue


$

19,948



$

18,592



$

22,820



$

59,035



$

74,600


Cost of revenue


11,972



11,170



12,740



33,974



43,093


Gross profit


7,976



7,422



10,080



25,061



31,507













Gross margin


40

%


40

%


44

%


42

%


42

%












Operating expenses


9,453



8,412



11,936



26,976



40,591


Operating income (loss)


$

(1,477)



$

(990)



$

(1,856)



$

(1,915)



$

(9,084)













Adjusted EBITDA


$

503



$

694



$

341



$

4,579



$

(2,145)













Games






















Net revenue


$

11,369



$

12,875



$

14,876



$

38,159



$

51,347


Cost of revenue


3,216



3,381



4,989



10,397



17,332


Gross profit


8,153



9,494



9,887



27,762



34,015













Gross margin


72

%


74

%


66

%


73

%


66

%












Operating expenses


11,513



11,755



12,023



35,120



39,962


Operating income (loss)


$

(3,360)



$

(2,261)



$

(2,136)



$

(7,358)



$

(5,947)













Adjusted EBITDA


$

(2,704)



$

(1,315)



$

(1,321)



$

(5,173)



$

(3,790)













Corporate






















Net revenue


$



$



$



$



$


Cost of revenue


538



559



780



1,660



2,182


Gross profit


(538)



(559)



(780)



(1,660)



(2,182)













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


22,990



12,667



19,978



46,201



44,445


Operating income (loss)


$

(23,528)



$

(13,226)



$

(20,758)



$

(47,861)



$

69,726













Adjusted EBITDA


$

(6,792)



$

(5,602)



$

(7,337)



$

(18,962)



$

(23,380)













Total






















Net revenue


$

48,958



$

49,850



$

59,088



$

155,601



$

191,578


Cost of revenue


18,990



19,519



25,244



59,015



78,633


Gross profit


29,968



30,331



33,844



96,586



112,945













Gross margin


61

%


61

%


57

%


62

%


59

%












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










116,353


Operating expenses


58,405



46,835



57,019



152,953



166,847


Operating income (loss)


$

(28,437)



$

(16,504)



$

(23,175)



$

(56,367)



$

62,451













Adjusted EBITDA


$

(8,369)



$

(5,753)



$

(6,042)



$

(17,131)



$

(19,968)


 



RealNetworks, Inc. and Subsidiaries

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

(Unaudited)
























2013


2012


2013


2012



Q3


Q2


Q3


YTD


YTD



(in thousands)

RealPlayer Group






















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


















Operating income (loss)


$

(72)



$

(27)



$

1,575



$

767



$

7,756


Acquisitions related intangible asset amortization


60



62



62



189



220


Depreciation and amortization


636



435



638



1,469



1,371


Adjusted EBITDA


$

624



$

470



$

2,275



$

2,425



$

9,347













Mobile Entertainment






















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


















Operating income (loss)


$

(1,477)



$

(990)



$

(1,856)



$

(1,915)



$

(9,084)


Acquisitions related intangible asset amortization


1,055



638



796



2,506



2,384


Depreciation and amortization


925



1,046



1,401



3,988



4,555


Adjusted EBITDA


$

503



$

694



$

341



$

4,579



$

(2,145)













Games






















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


















Operating income (loss)


$

(3,360)



$

(2,261)



$

(2,136)



$

(7,358)



$

(5,947)


Acquisitions related intangible asset amortization


314



230



171



565



587


Depreciation and amortization


342



716



644



1,620



1,570


Adjusted EBITDA


$

(2,704)



$

(1,315)



$

(1,321)



$

(5,173)



$

(3,790)













Corporate






















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


















Operating income (loss)


$

(23,528)



$

(13,226)



$

(20,758)



$

(47,861)



$

69,726


Other income (expense), net


(118)



(137)



248



(146)



1,674


Depreciation and amortization


1,839



1,859



604



4,708



1,791


Restructuring and other charges


1,877



816



10,724



4,075



13,872


Stock-based compensation


1,613



2,020



1,602



5,671



5,667


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










(116,353)


Lease exit and related charges




3,066



243



3,066



243


Loss on litigation settlements


11,525







11,525




Adjusted EBITDA


$

(6,792)



$

(5,602)



$

(7,337)



$

(18,962)



$

(23,380)













Total






















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


















Operating income (loss)


$

(28,437)



$

(16,504)



$

(23,175)



$

(56,367)



$

62,451


Other income (expense), net


(118)



(137)



248



(146)



1,674


Acquisitions related intangible asset amortization


1,429



930



1,029



3,260



3,191


Depreciation and amortization


3,742



4,056



3,287



11,785



9,287


Lease exit and related charges




3,066



243



3,066



243


Loss on litigation settlements


11,525







11,525




Restructuring and other charges


1,877



816



10,724



4,075



13,872


Stock-based compensation


1,613



2,020



1,602



5,671



5,667


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










(116,353)


Adjusted EBITDA


$

(8,369)



$

(5,753)



$

(6,042)



$

(17,131)



$

(19,968)


 

 

 

SOURCE RealNetworks, Inc.



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