RealNetworks Announces Third Quarter 2013 Results

Oct 30, 2013, 16:00 ET from RealNetworks, Inc.

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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http://www.realnetworks.com