RealNetworks Announces Second Quarter 2013 Results

Aug 07, 2013, 16:00 ET from RealNetworks, Inc.

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