RealNetworks Announces Fourth Quarter and 2006 Financial Results

RealNetworks Announces Fourth Quarter and 2006 Financial Results

Record Annual and Quarterly Revenue of $395.3 million and $125.6 million

SEATTLE, Feb. 14 /PRNewswire-FirstCall/ -- RealNetworks(R), Inc. (NASDAQ:RNWK), the leading creator of digital media services and software, today announced results for the fourth quarter and fiscal year ended December 31, 2006.

Quarterly Highlights:
-- Record revenue of $125.6 million
-- Net income of $39.3 million
-- Earnings per diluted share of $0.22 and
-- adjusted earnings per diluted share of $0.05

Full Year Highlights:
-- Record revenue of $395.3 million
-- Net income of $145.2 million
-- Earnings per diluted share of $0.81 and
-- adjusted earnings per diluted share of $0.15

"2006 was a very successful year for RealNetworks," said Rob Glaser, Chairman and CEO of RealNetworks. "We are pleased to report another year of record revenue and strong profitability. In addition to the company's financial achievements, 2006 was a year of important strategic achievements for Real that set us up for our next phase of growth."

For the fourth quarter of 2006, revenue grew 50% to $125.6 million compared to $83.6 million for the fourth quarter of 2005. Fourth quarter 2006 revenue includes two months of revenue totaling $26.7 million from the acquisition of WiderThan. For the fourth quarter of 2006, revenue in the Consumer Products and Services segment was as follows: Games revenue was $23.9 million, a 52% increase over the fourth quarter of 2005; Music revenue was $33.6 million, a 21% increase over the fourth quarter of 2005; and Media Software and Services revenue was $30.5 million, a 2% increase over the fourth quarter of 2005. In the Technology Products and Solutions segment, revenue was $37.6 million, a 270% increase over the fourth quarter of 2005, and includes $26.7 million of revenue related to WiderThan. Foreign currency exchange rate fluctuations positively impacted 2006 fourth quarter revenue by approximately $1.1 million compared to the fourth quarter of 2005.

Net income for the fourth quarter of 2006 was $39.3 million or $0.22 per diluted share, compared to $295.6 million or $1.61 per diluted share in the fourth quarter of 2005. Both periods' results include payments related to Real's antitrust settlement and commercial agreements with Microsoft. Further information regarding these payments can be found in Real's SEC filings. Adjusted net income, described below in Real's description of non-GAAP measures, was $9.9 million or $0.05 per diluted share for the fourth quarter of 2006, compared to a loss of ($6.1) million or ($0.04) per share in the fourth quarter of 2005. Adjusted EBITDA for the fourth quarter of 2006 was $9.1 million compared to a loss of ($6.2) million in the fourth quarter of 2005. A reconciliation of GAAP net income to adjusted net income and adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin was 66% in the fourth quarter of 2006 compared to 71% in the fourth quarter of 2005. Operating expenses for the fourth quarter of 2006 were $31.1 million, compared to a benefit of $342.8 million in the prior year's quarter. Fourth quarter 2006 and 2005 operating expenses include benefits related to payments under Real's settlement and commercial agreements with Microsoft. Adjusted operating expenses in the fourth quarter of 2006 were $81.0 million compared to $70.1 million in the fourth quarter of 2005. A reconciliation of GAAP operating expenses to adjusted operating expenses is provided in the financial tables that accompany this release. For the fourth quarter of 2006, Real's effective tax rate was approximately 33% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

Fourth Quarter Acquisition of WiderThan

On October 31, 2006, Real acquired substantially all of the capital stock of WiderThan Co., Ltd. (NASDAQ:WTHN) through a cash tender offer. As a result of the tender offer, WiderThan became a majority-owned subsidiary of Real, and the financial results of WiderThan are included in Real's consolidated financial statements subsequent to the acquisition date. Real currently owns 99.7% of WiderThan shares, and to date has paid approximately $337 million for its purchase of these shares.

Full Year 2006 Results

For the full year, revenue grew 22% to $395.3 million from $325.1 million in 2005. For the full year, revenue in the Consumer Products and Services segment was as follows: Games revenue was $86.2 million, a 53% increase over 2005; Music revenue was $123.0 million, a 21% increase over 2005; and Media Software & Services revenue was $113.5 million, a decrease of 7% compared to 2005. In the Technology Products and Solutions segment, revenue was $72.5 million, an increase of 61% over 2005. Foreign currency exchange rate fluctuations negatively impacted 2006 revenue by approximately $0.7 million compared to 2005.

Net Income for 2006 was $145.2 million or $0.81 per diluted share compared to $312.3 million or $1.70 per diluted share in 2005. Net income for 2006 and 2005 include benefits related to the Microsoft settlement. Adjusted net income for 2006 was $26.8 million or $0.15 per diluted share compared to $6.6 million or $0.04 per diluted share in 2005. Adjusted EBITDA for 2006 was $20.7 million compared to $11.3 million for 2005.

Gross margin in 2006 was 69%, compared to 70% in the prior year. Operating expenses were $80.6 million in 2006, compared to a benefit of $170.6 million in 2005. Operating expenses in 2006 and 2005 were significantly impacted by the Microsoft settlement. For 2006, Real's effective tax rate was 36% which includes a $2.7 million benefit as a result of changes in deferred tax asset valuation allowances.

As of December 31, 2006, Real had approximately $679 million in unrestricted cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt. Further, Real received approximately $61 million in additional payments related to the Microsoft agreements during the first quarter of 2007.

Under Real's stock repurchase program, approximately 11.8 million shares were repurchased for $98.9 million during 2006. As of December 31, 2006, approximately $78.1 million remained available under the existing stock repurchase program.

As of December 31, 2006, Real had 1,594 full time employees.

Business Outlook

The following forward-looking statements reflect RealNetworks' expectations as of February 14, 2007. The Company currently does not intend to update these forward-looking statements until its next quarterly results announcement.

For the full year 2007, Real expects revenue in the range of $540 million to $560 million, which represents approximately 37% to 42% growth over 2006. As a result of purchase price adjustments related to the WiderThan acquisition, Real will recognize approximately $5 million less in 2007 revenue than if WiderThan had remained a stand-alone company. Real expects 2007 GAAP net income per diluted share of $0.18 to $0.23 and adjusted net income per diluted share of $0.19 to $0.23. Included in Real's GAAP guidance is approximately $21 million, or $0.11 per share, of acquisition costs related to WiderThan, including intangible asset amortization and stock options converted to cash rights, and $26 million to $30 million, or $0.14 to $0.16 per diluted share of non-cash stock based compensation expense. Stock based compensation expense is projected to be higher in 2007 than 2006 primarily due to options granted to employees who joined Real from WiderThan. In addition to the foregoing expenses, estimated adjusted net income in 2007 also excludes the effects from amortization of intangible assets of approximately $4 million, or $0.02 per share, from all previous acquisitions other than WiderThan. This guidance assumes an effective tax rate of approximately 41%, up from approximately 36% in 2006 due to certain non-deductible international expenses. See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

For the first quarter of 2007, Real expects revenue in the range of $122 million to $126 million, GAAP net income per diluted share of $0.16 to $0.18 and adjusted net income per diluted share of $0.02 to $0.04. This guidance assumes an effective tax rate of approximately 41%. See complete reconciliation of estimated GAAP net income per diluted share to adjusted net income per diluted share, provided in the financial tables that accompany this press release.

About Non-GAAP Financial Measures

To supplement the Company's consolidated financial results presented in accordance with GAAP, RealNetworks uses non-GAAP measures for certain components of financial performance. These non-GAAP measures include adjusted net income, adjusted net income per diluted share, adjusted EBITDA and adjusted operating expenses. For actual results presented through 2006, adjusted net income excludes the impact of the following: stock-based compensation expense; income and expenses including charitable contributions related to the Microsoft agreements; equity investment gains and losses from sale or impairments; acquisition costs related to the purchase of WiderThan, including amortization of intangible assets and expenses for employee stock options that were converted to cash rights; an estimate of the income taxes from the aforementioned items; and changes in deferred tax asset valuation allowances. Estimated 2007 adjusted net income excludes the impact of the items in Real's 2006 adjusted net income, listed above, in addition to amortization of intangible assets for all acquisitions. Adjusted EBITDA excludes the impact of the following: interest income, net; income taxes; depreciation; amortization; stock based compensation; expenses for employee stock options that were converted to cash rights; equity investment gains and losses from sale or impairments; and income and expenses including charitable contributions related to the Microsoft agreements. The presentation of these non-GAAP financial measures is not intended to be considered as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current and expected future financial performance. The Company believes these non-GAAP measures provide useful information to management and investors by excluding certain income, expenses and gains and losses that may not be indicative of its core operating and financial results. Management uses these measures on an ongoing basis to track and assess the Company's financial performance. The accompanying financial tables provide reconciliations to the nearest GAAP measure of all non-GAAP measures provided in this press release.

The Company will host a webcast and conference call today at 5:00 p.m. (Eastern)/2:00 p.m. (Pacific). The live webcast featuring slides and audio, will be available at http://investor.realnetworks.com/. Listeners will require RealPlayer(R) to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 800-857-5305 (773-681-5857 for international callers). The passcode is "Fourth Quarter Earnings," and the leader is Rob Glaser. A telephonic replay will be available until 8:00 p.m. (Eastern) on February 21, 2007 and may be accessed by dialing 800-813-5527 (203-369-3347 for international callers).

RNWK-F

ABOUT REALNETWORKS

RealNetworks, Inc. is a leading creator of digital media services and software including Rhapsody, RealPlayer(R) 10, and casual PC and mobile games. Broadcasters, network operators, media companies and enterprises use RealNetworks' products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. Consumers can access and experience audio/video programming and download RealNetworks' consumer software at http://www.real.com/. RealNetworks' corporate information is located at http://www.realnetworks.com/.

Forward Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: (a) Real's future revenue, GAAP and adjusted net income per diluted share, amortization of intangible assets, stock based compensation expense and income tax rate; (b) the continuing growth in demand for Real's consumer products and business technologies; and (c) expected future payments resulting from the Microsoft agreements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services generally and RealNetworks' content services in particular because these are relatively new and unproven business models and markets; risks associated with acquisitions generally, and the acquisition of WiderThan in particular, including the risks of integration, unknown liabilities and operations in new markets and geographies, as well as risks specifically associated with WiderThan's business; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks associated with the introduction of new products and services; risks inherent in strategic relationships, especially with competitors, and technology and service integration efforts; and risks relating to the ability of Real's strategic partners to generate subscribers for Real's digital content services. 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, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission. The preparation of our financial statements and forward looking financial guidance requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. The Company assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

NOTE: RealNetworks, Rhapsody and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Quarters Ended Years Ended
December 31, December 31,
2006 2005 2006 2005
(in thousands, except per share data)

Net revenue $125,574 $83,568 $395,261 $325,059

Cost of revenue 42,320 23,976 124,108 98,249

Gross profit 83,254 59,592 271,153 226,810

Operating expenses:
Research and
development 22,259 25,351 77,386 70,731
Sales and marketing 53,998 36,709 165,602 130,515
General and
administrative 15,746 29,573 57,332 50,697
Loss on excess office
facilities (A) -- -- 738 --
Subtotal operating
expenses 92,003 91,633 301,058 251,943

Antitrust litigation
benefit, net (B) (60,856) (434,425) (220,410) (422,500)
Total operating
expenses, net 31,147 (342,792) 80,648 (170,557)

Operating income 52,107 402,384 190,505 397,367

Other income (expense), net:
Interest income, net 9,644 7,012 37,622 14,511
Equity in net income
(loss) of equity
method investments 326 -- 326 (1,068)
Impairment of equity
investments (3,116) (266) (3,116) (266)
Gain on sales of
equity investments -- -- 2,286 19,330
Other, net (302) (55) 130 (331)
Other income, net 6,552 6,691 37,248 32,176

Income before income
taxes 58,659 409,075 227,753 429,543
Income tax provision (19,357) (113,435) (82,537) (117,198)

Net income $39,302 $295,640 $145,216 $312,345

Net income per
basic share $0.24 $1.76 $0.90 $1.84
Net income per
diluted share $0.22 $1.61 $0.81 $1.70

Shares used to compute
net income per
basic share 162,130 167,573 160,973 169,986
Shares used to compute
net income per
diluted share 180,919 183,728 179,281 184,161

(A) The loss on unoccupied excess office facilities represents an
increase in the estimate of the loss from building operating costs
not expected to be recovered.
(B) Consists of amounts received under the Settlement and Commercial
agreements with Microsoft, net of certain legal fees, personnel
costs, public relations and other professional service fees incurred
related to antitrust complaints against Microsoft, including
proceedings in the European Union.

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

December 31, December 31,
2006 2005
(in thousands)
ASSETS

Current assets:
Cash and cash equivalents $525,232 $651,971
Short-term investments 153,688 129,356
Trade accounts receivable, net 65,751 16,721
Deferred tax assets, net, current portion 892 54,204
Prepaid expenses and other current assets 23,632 11,933
Total current assets 769,195 864,185

Equipment, software and leasehold
improvements, at cost:
Equipment and software 83,587 56,402
Leasehold improvements 29,665 27,964
Total equipment, software and
leasehold improvements 113,252 84,366
Less accumulated depreciation
and amortization 65,509 51,228
Net equipment, software and
leasehold improvements 47,743 33,138

Restricted cash equivalents 17,300 17,300
Equity investments 22,649 46,163
Other assets 5,148 2,397
Deferred tax assets, net, non-current portion 27,150 19,147
Goodwill 309,122 123,330
Other intangible assets, net 105,109 7,337

Total assets $1,303,416 $1,112,997

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $52,097 $11,397
Accrued and other liabilities 104,328 112,340
Deferred revenue, current portion 24,137 25,021
Accrued loss on excess office facilities,
current portion 4,508 4,623
Total current liabilities 185,070 153,381

Deferred revenue, non-current portion 3,440 276
Accrued loss on excess office facilities,
non-current portion 9,993 13,393
Deferred rent 4,331 4,018
Convertible debt 100,000 100,000
Deferred tax liabilities, net,
non-current portion 27,076 --
Other long-term liabilities 3,740 196

Total liabilities 333,650 271,264

Total shareholders' equity 969,766 841,733

Total liabilities and
shareholders' equity $1,303,416 $1,112,997

RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Years Ended December 31,
2006 2005
(in thousands)

Cash flows from operating activities:
Net income $145,216 $312,345
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,980 16,243
Stock-based compensation 18,151 128
Equity in net losses of equity
method investments -- 1,068
Impairment of equity investments 3,116 266
Gain on sales of equity investments (2,286) (19,330)
Changes in accrued loss on excess office
facilities and content agreement (3,516) (9,161)
Loss on disposal of equipment 276 --
Deferred income taxes 64,645 107,208
Other 97 804
Excess tax benefit from stock
option exercises (4,966) --
Net change in certain operating assets
and liabilities, net of balances
from businesses acquired during the year (37,886) 51,182
Net cash provided by operating activities 203,827 460,753

Cash flows from investing activities:
Purchases of equipment, software and
leasehold improvements (13,808) (13,782)
Purchases of intangible assets -- (1,125)
Purchases of short-term investments (204,841) (153,491)
Proceeds from sales and maturities of
short-term investments 180,973 168,358
Decrease in restricted cash equivalents -- 2,851
Proceeds from sales of equity investments 2,286 19,530
Purchases of cost based investments (834) (647)
Payment of acquisition costs,
net of cash acquired (257,841) (14,705)
Net cash provided by (used in)
investing activities (294,065) 6,989

Cash flows from financing activities:
Net proceeds from sale of common stock
under employee stock purchase plan and
exercise of stock options 54,929 20,361
Repayment of long-term note payable -- (648)
Excess tax benefit from stock option exercises 4,966 --
Repurchase of common stock (98,876) (54,321)
Net cash used in financing activities (38,981) (34,608)

Effect of exchange rate changes on cash
and cash equivalents 2,480 (589)
Net increase (decrease) in cash
and cash equivalents (126,739) 432,545
Cash and cash equivalents at beginning of year 651,971 219,426
Cash and cash equivalents at end of year $525,232 $651,971

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

2006
Q4 Q3 Q2 Q1
(in thousands)

Net Revenue by
Line of Business: *
Consumer products
and services (A) $88,022 $82,497 $77,442 $74,811
Technology products
and solutions (B) 37,552 11,179 11,967 11,791
Total net revenue $125,574 $93,676 $89,409 $86,602

Consumer Products
and Services: *
Subscriptions (C) $50,835 $50,878 $47,452 $47,832
Media properties (D) 18,815 13,883 11,546 9,484
E-commerce and
other (E) 18,372 17,736 18,444 17,495
Total consumer
products and
services revenue $88,022 $82,497 $77,442 $74,811

Consumer Products
and Services: *
Music (F) $33,623 $30,375 $30,118 $28,918
Media software and
services (G) 30,513 29,586 26,127 27,277
Games (H) 23,886 22,536 21,197 18,616
Total consumer
products and
services revenue $88,022 $82,497 $77,442 $74,811

Net Revenue by Geography:
United States $81,758 $69,433 $66,542 $65,700
Rest of world 43,816 24,243 22,867 20,902
Total net revenue $125,574 $93,676 $89,409 $86,602

Gross Margin by Line
of Business:
Consumer products
and services 70% 68% 68% 67%
Technology products
and solutions 58% 81% 81% 83%
Total gross margin 66% 70% 70% 69%

Subscribers (presented as
greater than) **
Total
Subscribers (I) 22,700 2,450 2,400 2,400
Technology Products
and Solutions
Application Services
Subscribers (J) 20,200
Total Music
Subscribers (K) 2,550 1,650 1,625 1,575

2005
Q4 Q3 Q2 Q1
(in thousands)

Net Revenue by
Line of Business: *
Consumer products
and services (A) $73,415 $71,750 $70,593 $64,206
Technology products
and solutions (B) 10,153 10,483 12,093 12,366
Total net revenue $83,568 $82,233 $82,686 $76,572

Consumer Products
and Services: *
Subscriptions (C) $47,508 $47,347 $47,821 $44,400
Media properties (D) 10,224 9,606 8,986 6,033
E-commerce and
other (E) 15,683 14,797 13,786 13,773
Total consumer
products and
services revenue $73,415 $71,750 $70,593 $64,206

Consumer Products
and Services: *
Music (F) $27,760 $26,193 $24,933 $22,883
Media software and
services (G) 29,914 30,858 32,012 29,134
Games (H) 15,741 14,699 13,648 12,189
Total consumer
products and
services revenue $73,415 $71,750 $70,593 $64,206

Net Revenue by Geography:
United States $65,177 $63,478 $63,443 $57,757
Rest of world 18,391 18,755 19,243 18,815
Total net revenue $83,568 $82,233 $82,686 $76,572

Gross Margin by Line
of Business:
Consumer products
and services 70% 68% 68% 65%
Technology products
and solutions 81% 82% 83% 82%
Total gross margin 71% 70% 70% 68%

Subscribers (presented as
greater than) **
Total
Subscribers (I) 2,250 2,200 2,000 1,850
Technology Products
and Solutions
Application Services
Subscribers (J)
Total Music
Subscribers (K) 1,425 1,300 1,150 975

* Reclassifications were made to the presentation of 2005 data to conform
to the presentation for 2006.
** Beginning the quarter ended December 31, 2006, total subscribers
reflect the inclusion of subscribers related to wireless carrier
application subscription services.
Total Music Subscribers includes subscribers from our Technology
Products and Solutions Application Subscription Service, such as
Music-on-Demand, as well as our Consumer Music Services, such as
Rhapsody and Premium Radio. Although Music-on-Demand subscribers are
included in the Technology Products and Solutions Applications
Services subscribers and Total Music subscribers, these subscribers
are only counted once as part of our Total Subscribers.

(A) Revenue is derived from consumer digital media subscription services,
RealPlayer Plus and related products, sales and distribution of third
party software products, content such as games and music, and
advertising
(B) Revenue is derived from carrier application services such as ringback
tones and music-on-demand, media delivery system software, support
and maintenance services, broadcast hosting services and consulting
services
(C) Revenue is derived from consumer digital media subscription services
including: SuperPass, RadioPass, Rhapsody, GamePass and stand-alone
subscriptions
(D) Revenue is derived from advertising and through the distribution of
third party products
(E) Revenue is derived from RealPlayer Plus and related products, sales
of third party software products, and content such as games and music
(F) Revenue is derived from Rhapsody and RadioPass subscription services
and sales of music content, advertising generated from our music and
music related websites and the distribution of third party products
(G) Revenue is derived from SuperPass subscriptions, RealPlayer Plus and
related products, stand-alone subscription services, sales and
distribution of third party software products and advertising related
to our non-game and non-music related web properties
(H) Revenue is derived from the GamePass subscription service, sales of
games, advertising generated from our games and game-related websites
and the distribution of third party products
(I) Total subscribers include Technology Products and Solutions
application services and consumer subscription services including:
Ringback Tones, Music-on-Demand, Video-on-Demand, Rhapsody,
Rhapsody-to-Go, RadioPass, SuperPass, GamePass and stand-alone
subscriptions
(J) Technology Products and Solutions application service subscribers
include: Ringback Tones, Music-on-Demand and Video-on-Demand
(K) Music subscribers represent an aggregate of all of our music services
and include both Technology Products and Solutions application
services subscribers and consumer subscription services. Music
Subscribers include: Rhapsody, Rhapsody-to-Go, premium radio and
Music-on-Demand. Revenue from Technology Products and Solutions
application services, including Music-on-Demand are included in our
Technology Products and Solutions revenue.

RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)

A reconciliation of net income
in accordance with GAAP to total
adjusted net income (loss) is as follows:

Year Ended Quarters Ended
Dec. 31, Dec. 31, Sept. 30, June 30, March 31,
2006 2006 2006 2006 2006
(in thousands, except per share data)

Net income in accordance
with GAAP $145,216 $39,302 $42,153 $38,878 $24,883
Stock based
compensation 18,151 5,819 5,021 3,673 3,638
Loss (gain) on
equity investments 830 3,116 -- (2,286) --

Conversion of WiderThan
stock options to a
cash equivalent 641 641 -- -- --
WiderThan acquisition
related intangible
asset amortization 3,056 3,056 -- -- --
Expenses (benefit)
related to antitrust
litigation:
Income (221,000) (61,000) (62,000) (58,000) (40,000)
Expenses 3,994 1,026 1,000 997 971
Charitable
contributions 6,928 2,009 1,889 1,805 1,225
Tax impact of above
proforma items 71,640 18,604 20,587 19,732 12,717
Income tax valuation
allowance changes (2,662) (2,662) -- -- --
Total adjusted
net income $26,794 $9,911 $8,650 $4,799 $3,434

GAAP net income
per basic share $0.90 $0.24 $0.26 $0.24 $ 0.15
GAAP net income
per diluted share $0.81 $0.22 $0.24 $0.22 $ 0.14

Adjusted basic net
income per share $0.17 $0.06 $0.05 $0.03 $ 0.02
Adjusted diluted net
income per share $0.15 $0.05 $0.05 $0.03 $ 0.02

Shares used to compute
net income per
basic share 160,973 162,130 160,578 159,938 160,887
Shares used to compute
net income per
diluted share 179,281 180,919 178,913 177,337 176,923

Year Ended Quarters Ended
Dec. 31, Dec. 31, Sept. 30, June 30, March 31,
2005* 2005* 2005 2005 2005
(in thousands, except per share data)

Net income in accordance
with GAAP $312,345 $295,640 $11,182 $4,709 $814
Stock based
compensation 128 19 25 48 36
Loss (gain) on
equity
investments (19,064) 266 (11,740) (7,590) --
Conversion of
WiderThan
stock options to
a cash equivalent -- -- -- -- --
WiderThan acquisition
related intangible
asset amortization -- -- -- -- --
Expenses (benefit)
related to antitrust
litigation:
Income (478,571) (478,571) -- -- --
Expenses 62,775 50,850 3,531 4,650 3,744
Charitable
contributions 14,786 14,786 -- -- --
Tax impact of above
proforma items 156,871 153,547 3,324 -- --

Income tax valuation
allowance changes (42,645) (42,645) -- -- --
Total adjusted net
income (loss) $6,625 $(6,108) $6,322 $1,817 $4,594

GAAP net income
per basic share $1.84 $1.76 $0.07 $0.03 $0.00
GAAP net income per
diluted share $1.70 $1.61 $0.06 $0.03 $0.00

Adjusted basic net
income (loss)
per share $0.04 $(0.04) $0.04 $0.01 $0.03
Adjusted diluted net
income per share $0.04 n/a $0.03 $0.01 $0.02

Shares used to compute
net income (loss)
per basic share 169,986 167,573 170,797 171,393 170,947
Shares used to compute
net income per
diluted share 184,161 183,728 184,180 184,816 184,686

* Fourth quarter and full year 2005 have been restated to conform to the
presentation for 2006
Due to the use of rounding convention for quarterly reporting, the sum of
quarters may not equal annual totals

A reconciliation of net income
in accordance with GAAP to total
adjusted EBITDA is as follows:

Year Ended Quarters Ended
Dec. 31, Dec. 31, Sept. 30, June 30, March 31,
2006 2006 2006 2006 2006
(in thousands)

Net income in
accordance
with GAAP $145,216 $39,302 $42,153 $38,878 $24,883
Interest income,
net (37,622) (9,644) (10,618) (9,381) (7,979)
Stock based
compensation 18,151 5,819 5,021 3,673 3,638
Conversion of
WiderThan
stock options to a
cash equivalent 641 641 -- -- --
Loss (gain) on
equity investments 830 3,116 -- (2,286) --
Depreciation and
amortization 20,980 8,500 4,261 3,967 4,252
Expenses (benefit)
related to antitrust
litigation:
Income (221,000) (61,000) (62,000) (58,000) (40,000)
Expenses 3,994 1,026 1,000 997 971
Charitable
contributions 6,928 2,009 1,889 1,805 1,225
Income taxes 82,537 19,357 25,908 22,521 14,751
Total adjusted
EBITDA $20,655 $9,126 $7,614 $ 2,174 $1,741

Year Ended Quarters Ended
Dec. 31, Dec. 31, Sept. 30, June 30, March 31,
2005 2005 2005 2005 2005
(in thousands)

Net income in
accordance
with GAAP $312,345 $295,640 $11,182 $4,709 $814
Interest income,
net (14,511) (7,012) (2,904) (2,579) (2,016)
Stock based
compensation 128 19 25 48 36
Conversion of
WiderThan
stock options to a
cash equivalent -- -- -- -- --
Loss (gain) on
equity
investments (19,064) 266 (11,740) (7,590) --
Depreciation and
amortization 16,243 4,374 4,195 4,044 3,630
Expenses (benefit)
related to antitrust
litigation:
Income (478,571) (478,571) -- -- --
Expenses 62,775 50,850 3,531 4,650 3,744
Charitable
contributions 14,786 14,786 -- -- --
Income taxes 117,198 113,435 3,457 162 144
Total adjusted
EBITDA $11,329 $(6,213) $7,746 $3,444 $6,352

A reconciliation of GAAP cost
of revenue and operating expenses
for the quarters and years ended
December 31, 2006 and 2005 to
adjusted cost of revenue and
operating expenses is as follows:

Quarter Ended December 31, 2006
As Stock- Antitrust WiderThan
Reported Based Litigation Acquisition
Compensation Related Related
Costs(1) Adjusted
(in thousands)

Expenses in accordance
with GAAP

Cost of revenue $42,320 $(108) $-- $(1,314) $40,898

Operating expenses:
Research and
development $22,259 $(1,946) $-- $(108) $20,205
Sales and marketing 53,998 (2,440) -- (2,131) 49,427
General and
administrative 15,746 (1,325) (2,891) (144) 11,386
Antitrust litigation
benefit, net (60,856) -- 60,856 --
Total adjusted
operating
expenses, net $31,147 $(5,711) $57,965 $(2,383) $81,018

Quarter Ended December 31, 2005
As Stock- Antitrust
Reported Based Litigation
Compensation Related Adjusted
(in thousands)

Expenses in accordance
with GAAP

Cost of revenue $23,976 $-- $-- $23,976

Operating expenses:
Research and
development $25,351 $(16) $-- $25,335
Sales and
marketing 36,709 -- -- 36,709
General and
administrative 29,573 (3) (21,490) 8,080
Antitrust litigation
benefit, net (434,425) -- 434,425 --
Total adjusted
operating
expenses, net $(342,792) $(19) $412,935 $70,124

Year Ended December 31, 2006
As Stock- Antitrust WiderThan
Reported Based Litigation Acquisition
Compensation Related Related
Costs(1) Adjusted
(in thousands)
Expenses in accordance
with GAAP

Cost of revenue $124,108 $(257) $-- $(1,314) $122,537

Operating expenses:
Research and
development $77,386 $(6,512) $-- $(108) $70,766
Sales and
marketing 165,602 (7,152) -- (2,131) 156,319
General and
administrative 57,332 (4,230) (10,332) (144) 42,626
Loss on excess
office facilities 738 738
Antitrust litigation
benefit, net (220,410) -- 220,410 --
Total adjusted
operating
expenses, net $80,648 $(17,894) $210,078 $(2,383) $270,449

Year Ended December 31, 2005
As Stock- Antitrust
Reported Based Litigation
Compensation Related Adjusted
(in thousands)
Expenses in accordance
with GAAP

Cost of revenue $98,249 $-- $-- $98,249

Operating expenses:
Research and
development $70,731 $(100) $-- $70,631
Sales and
marketing 130,515 -- -- 130,515
General and
administrative 50,697 (28) (21,490) 29,179
Antitrust litigation
benefit, net (422,500) -- 422,500 --
Total adjusted
operating
expenses, net $(170,557) $(128) $401,010 $230,325

(1) Includes acquisition related intangible amortization and the expense
related to the conversion of WiderThan outstanding stock options to
cash rights

Forward Looking Guidance

A reconciliation of GAAP net income per diluted share guidance for the
quarter ending March 31, 2007 and the full year ending December 31, 2007
to adjusted net income per diluted share guidance is as follows:

Quarter Ending Year Ending
March 31, 2007 December 31, 2007
Low High Low High

Net Income per diluted
share in accordance
with GAAP $0.16 $0.18 $0.18 $0.23
Stock-based compensation 0.03 0.03 0.16 0.14
Conversion of WiderThan
stock options to a
cash equivalent 0.00 0.00 0.01 0.01
Acquisition related
intangible asset
amortization 0.03 0.03 0.12 0.12
Net benefit related to
antitrust litigation: (0.32) (0.32) (0.32) (0.31)
Tax impact of above
proforma items 0.12 0.12 0.04 0.04
Total adjusted
net income $0.02 $0.04 $0.19 $0.23

FCMN Contact: meggers@real.com

Source: RealNetworks, Inc.

CONTACT: media, Bill Hankes, +1-206-892-6614, or bhankes@real.com, or
investors, Roy Goodman, +1-206-674-2330, or rgoodman@real.com, both of Real
Networks

Web site: http://www.realnetworks.com/

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