International Entertainment News: RealNetworks Announces Third Quarter 2011 Results

RealNetworks Announces Third Quarter 2011 Results

SEATTLE, Nov. 3, 2011 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the third quarter ended Sept. 30, 2011.

Quarterly Highlights:

-- Revenue of $84.4 million
-- Net loss of $(5.2) million or $(0.15) per share
-- Adjusted EBITDA of $4.1 million
-- Cash and short term investments of $183.1 million as of Sept. 30, 2011
-- Dividend of $1.00 per share and 1-for-4 reverse stock split in third
quarter

"During the quarter, we made progress on our key initiatives, including developing new products and renewing contracts for our SaaS business with mobile carriers, building our social games business and getting ready to launch a new version of RealPlayer in mid-November," said Mike Lunsford, interim CEO of RealNetworks.

"As we announced earlier this week, Thomas Nielsen will be joining us as CEO next week. I look forward to assisting him in the coming months as he implements the new strategy and vision for the company," Lunsford continued.

Third Quarter Results

For the third quarter of 2011, revenue was $84.4 million, a decrease of 2% compared with the third quarter of 2010 and a sequential increase of less than 1% from the second quarter. Foreign currency exchange rate fluctuations positively affected third quarter revenue by about $4.4 million compared with the year-earlier quarter. Revenue trends in each of RealNetworks' businesses in the third quarter of 2011 compared with the year-earlier quarter were: a 23% increase in Emerging Products revenue to $10.8 million, a 2% decrease in Core Products revenue to $50.7 million, and an 11% decrease in Games revenue to $22.9 million.

Net loss for the third quarter of 2011 was $(5.2) million, or $(0.15) per share, compared with net income of $24.5 million, or $0.72 per share, in the third quarter of 2010. Third quarter 2011 results included a $4.2 million benefit from a change in estimates in accrued royalties. Net income for the third quarter of 2010 included an income tax benefit of $33.9 million resulting primarily from a $30 million cash refund from the IRS. Adjusted EBITDA for the third quarter of 2011 was $4.1 million, compared with $5.7 million for the third quarter of 2010. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of Sept 30, 2011, RealNetworks had $183.1 million in unrestricted cash, cash equivalents and short-term investments compared with $327.9 million at June 30, 2011. RealNetworks paid a special dividend of $1.00 per share, or a total of approximately $137 million, to shareholders in August of 2011. In addition, RealNetworks had $48.8 million in restricted cash and available-for-sale securities, not including its equity interest in the Rhapsody joint venture, at Sept. 30, 2011.

Segment Operating Results

2011 2011 2010 Sequential Yr/Yr
---- ----
Q3 Q2 Q3 Change Change
--- --- -- ------ ------
(in thousands)
Revenue
Core Products $50,705 $45,735 $51,870 11% -2%
Emerging Products 10,764 12,717 8,778 -15% 23%
Games 22,945 25,300 25,784 -9% -11%
Corporate - - -
--- --- ---
Total $84,414 $83,752 $86,432 1% -2%
----- ------- ------- ------- --- ---

Operating Income (loss)
Core Products $8,815 $7,208 $9,868 22% -11%
Emerging Products (2,033) 370 1,643 -649% -224%
Games 1,589 2,049 2,413 -22% -34%
Corporate (11,854) (14,411) (18,074) -18% -34%
------- ------- -------
Total $(3,483) $(4,784) $(4,150) -27% -16%
----- ------- ------- ------- --- ---

Adjusted EBITDA
Core Products $11,617 $9,900 $13,309 17% -13%
Emerging Products (1,711) 707 1,771 -342% -197%
Games 2,275 2,748 2,885 -17% -21%
Corporate (8,094) (11,133) (12,265) -27% -34%
------ ------- -------
Total $4,087 $2,222 $5,700 84% -28%
----- ------ ------ ------ --- ---

Business Outlook

For the fourth quarter of 2011, RealNetworks expects total revenue to decline sequentially and year-over-year. RealNetworks expects revenue in Emerging Products to increase sequentially and be flat year-over-year; revenue in Core Products will decline sequentially and year-over-year; revenue in Games will be flat sequentially and decline year-over-year. RealNetworks expects adjusted EBITDA for the fourth quarter to be positive but decline sequentially, which indicates a significant decline compared with year-ago fourth-quarter adjusted EBITDA.

For the full year, excluding Music, RealNetworks expects an approximate 9% decline in 2011 revenue compared with 2010, approximately one-third of which is due to the elimination or de-emphasis of products and services that generate low-profit or unprofitable revenue. RealNetworks expects 2011 adjusted EBITDA and adjusted EBITDA margin to decline compared with 2010, in spite of cost savings from restructuring efforts, due largely to the projected revenue decline.

The foregoing forward-looking statements reflect RealNetworks' expectations as of Nov. 3, 2011. 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 at5:00 p.m. ET on Nov. 3. The Webcast will be available at: http://investor.realnetworks.com

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details
5:00 p.m. ET / 2:00 p.m. PT
Dial in:
800-857-5305 Domestic
773-681-5857 International
Passcode: Third Quarter
Leader: Mike Lunsford

Telephonic replay will be available until 8 p.m. ET, Nov. 17, 2011.
Replay dial in:
800-945-5760 Domestic
402-220-3547 International

For More Information:
Marj Charlier, RealNetworks, 206-892-6718 or mcharlier@real.com

About RealNetworks

RealNetworks creates innovative applications and services that make it easy for people to connect with and enjoy digital media. RealNetworks invented the streaming media category 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. Find RealNetworks corporate information atwww.realnetworks.com/about-us.

About Non-GAAP Financial Measures

To supplement RealNetworks' condensed consolidated financial statements 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 reporting 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 reporting 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' expectations for future revenue, adjusted EBITDA and adjusted EBITDA margin. 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 strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the introduction and 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; fluctuations in foreign currencies; 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; 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 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.

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.

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

Quarters Ended Nine Months Ended
September 30, September 30,
------------- -------------
2011 2010 2011 2010
---- ---- ---- ----
(in thousands, except per share data)

Net revenue $84,414 $86,432 $255,467 $303,916

Cost of revenue 31,816 30,710 94,548 109,018
------ ------ ------ -------

Gross profit 52,598 55,722 160,919 194,898
------ ------ ------- -------

Operating expenses:
Research and development 16,496 19,517 54,200 81,775
Sales and marketing 28,625 26,321 85,958 91,530
Advertising with related party (A) - - - 1,065
General and administrative 10,522 12,640 27,018 42,151
Restructuring and other charges 438 1,080 7,850 11,487
Loss (gain) on excess office facilities - 314 (174) 7,396
--- --- ---- -----

Total operating expenses 56,081 59,872 174,852 235,404
------ ------ ------- -------

Operating income (loss) (3,483) (4,150) (13,933) (40,506)
------ ------ ------- -------

Other income (expenses):
Interest income, net 672 1,074 1,362 2,005
Equity in net loss of Rhapsody and other
equity method investments (B) (1,440) (6,142) (5,739) (11,569)
Loss on sale of equity investments, net - - - (50)
Gain on deconsolidation of Rhapsody - - - 10,929
Other income (expense), net (228) (206) (661) 887
---- ---- ---- ---

Total other income (expense), net (996) (5,274) (5,038) 2,202
---- ------ ------ -----

Income (loss) before income taxes (4,479) (9,424) (18,971) (38,304)
Income tax (expense) benefit (703) 33,947 (5,365) 37,238
---- ------ ------ ------

Net income (loss) (5,182) 24,523 (24,336) (1,066)
Net loss attributable to the
noncontrolling interest in Rhapsody (C) - - - 2,910
--- --- --- -----
Net income (loss) attributable to common
shareholders $(5,182) $24,523 $(24,336) $1,844
======= ======= ======== ======

Basic net income (loss) per share
available to common shareholders $(0.15) $0.72 $(0.71) $0.16
Diluted net income (loss) per share
available to common shareholders $(0.15) $0.71 $(0.71) $0.16

Shares used to compute basic net income
(loss) per share available to common
shareholders 34,199 33,905 34,081 33,826
Shares used to compute diluted net income
(loss) per share available to common
shareholders 34,199 34,442 34,081 34,558

(A) Consists of advertising purchased by Rhapsody from MTV Networks (MTVN). MTVN had a 49% ownership interest
in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010. See note (B) for more
details regarding the restructuring and the related deconsolidation.

(B) On March 31, 2010, we completed the restructuring of Rhapsody which resulted in our ownership decreasing to
approximately 47% of the outstanding equity in Rhapsody and no longer having operating control. Since the
restructuring was completed on the last day of the quarter ended March 31, 2010, our statement of operations
for the first quarter of 2010 includes results from Rhapsody's operations. Beginning with the quarter ended
June 30, 2010, Rhapsody's revenue or other operating results are no longer consolidated within our financial
statements and we are not recording any operating or other financial results for our Music segment. We now
report our share of Rhapsody's income or losses as "Equity in net loss of Rhapsody and other equity method
investments" in "Other income (expenses)".

(C) Net loss attributable to the noncontrolling interest in Rhapsody reflects MTVN's 49% ownership share in the
losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.

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

September 30, December 31,
2011 2010
---- ----
(in thousands)
ASSETS

Current assets:
Cash and cash equivalents $102,811 $236,018
Short-term investments 80,277 98,303
Trade accounts receivable, net 38,725 48,324
Deferred costs, current
portion 6,948 9,173
Related party receivable -
Rhapsody (A) 392 351
Prepaid expenses and other
current assets 24,702 30,441
------ ------

Total current assets 253,855 422,610
------- -------

Equipment, software, and leasehold
improvements, at cost:
Equipment and software 146,902 144,623
Leasehold improvements 25,534 25,367
------ ------
Total equipment, software, and
leasehold improvements 172,436 169,990
Less accumulated depreciation
and amortization 132,321 126,619
------- -------

Net equipment, software, and
leasehold improvements 40,115 43,371

Restricted cash equivalents
and investments 10,130 10,000
Equity method investments 9,956 15,486
Available for sale securities 38,667 27,541
Other assets 2,981 3,316
Deferred costs, non-current
portion 15,018 18,401
Deferred tax assets, net, non-
current portion 10,775 12,805
Other intangible assets, net 8,049 6,952
Goodwill 6,060 4,960
----- -----

Total assets $395,606 $565,442
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $18,214 $30,413
Accrued and other liabilities 70,107 85,702
Deferred revenue, current
portion 14,724 19,036
Accrued loss on excess office
facilities, current portion 1,053 1,144
----- -----

Total current liabilities 104,098 136,295

Deferred revenue, non-current
portion 398 460
Accrued loss on excess office
facilities, non-current
portion 2,458 3,380
Deferred rent 2,961 3,514
Deferred tax liabilities, net,
non-current portion 1,790 1,049
Other long-term liabilities 10,813 7,999
------ -----

Total liabilities 122,518 152,697
------- -------

Shareholders' equity 273,088 412,745
------- -------

Total liabilities and
shareholders' equity $395,606 $565,442
======== ========

(A) Related party receivable reflects amounts Rhapsody
International, formed on March 31, 2010, owes RealNetworks.

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

Nine Months Ended
September 30,
------------------
2011 2010
---- ----
(in thousands)

Cash flows from operating activities:
Net income (loss) $(24,336) $(1,066)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 12,519 19,047
Stock-based compensation 9,086 10,280
Loss (gain) on disposal of equipment, software, and leasehold
improvements 81 155
Equity in net loss of Rhapsody and other equity method
investments 5,739 11,569
Loss on sale of equity investment, net - 50
Gain on deconsolidation of Rhapsody (10,929)
Excess tax benefit from stock option exercises (57) (48)
Accrued restructuring and other charges - 997
Accrued loss (gain) on excess office facilities (174) 6,108
Deferred income taxes, net (429) 80
Other (19) 153
Net change in certain operating assets and liabilities, net of
acquisitions, disposals and deconsolidation of Rhapsody (9,786) (72,874)
------ -------

Net cash used in operating activities (7,376) (36,478)
------ -------

Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements (6,013) (11,415)
Purchases of short-term investments (77,078) (102,486)
Proceeds from sales and maturities of short-term investments 95,104 96,026
Payment of acquisition costs, net of cash acquired (2,888) (5,760)
Payment in connection with the restructuring of Rhapsody - (18,000)
Repayment of temporary funding on deconsolidation of Rhapsody - 5,869
Decrease (increase) in restricted cash equivalents and
investments, net (141) 3,700
---- -----

Net cash provided by (used in) investing activities 8,984 (32,066)
----- -------

Cash flows from financing activities:
Net proceeds from sales of common stock under employee stock
purchase
plan and exercise of stock options 1,940 1,378
Net proceeds from sales of interest in Rhapsody - 1,213
Excess tax benefit from stock option exercises 57 48
Common Stock cash dividend paid (136,793) -
-------- ---

Net cash (used in) provided by financing activities (134,796) 2,639
-------- -----

Effect of exchange rate changes on cash and cash equivalents (19) 3,770
--- -----

Net increase (decrease) in cash and cash equivalents (133,207) (62,135)

Cash and cash equivalents, beginning of period 236,018 277,030
------- -------

Cash and cash equivalents, end of period $102,811 $214,895
======== ========

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

2011 2010
---- ----
Q3 Q2 Q1 Q4 Q3 Q2 Q1
--- --- --- --- --- --- ---
(in
thousands)
Net Revenue by Line of
Business:
Core Products (A) $50,705 $45,735 $48,107 $58,030 $51,870 $51,742 $51,203
Emerging Products (B) 10,764 12,717 11,135 12,558 8,778 8,997 11,428
Games (C) 22,945 25,300 28,059 27,229 25,784 28,145 30,236
------ ------ ------ ------ ------ ------ ------
Total net revenue
excluding music 84,414 83,752 87,301 97,817 86,432 88,884 92,867
Music (D) - - - - - - 35,733
--- --- --- --- --- --- ------
Total net revenue
including music $84,414 $83,752 $87,301 $97,817 $86,432 $88,884 $128,600
======= ======= ======= ======= ======= ======= ========

Core Products Revenue by
Product:
SaaS (E) $30,381 $30,216 $30,526 $35,656 $31,885 $32,388 $33,614
Systems Integrations
/Professional
Services (F) 3,844 388 1,840 4,388 953 998 367
Technology Licensing
(G) 6,250 6,508 6,425 7,632 7,473 7,736 7,910
Consumer
Subscriptions (H) 10,230 8,623 9,316 10,354 11,559 10,620 9,312
Total Core Products
net revenue $50,705 $45,735 $48,107 $58,030 $51,870 $51,742 $51,203
======= ======= ======= ======= ======= ======= =======

Net Revenue by Geography:
United States $38,969 $41,984 $44,469 $48,048 $46,874 $48,351 $84,550
Rest of world 45,445 41,768 42,832 49,769 39,558 40,533 44,050
------ ------ ------ ------ ------ ------ ------

Total net revenue $84,414 $83,752 $87,301 $97,817 $86,432 $88,884 $128,600
======= ======= ======= ======= ======= ======= ========

Product Metrics (subscribers and
ICM presented as greater than):
Addressable
subscribers of
mobile operators 700,000 775,000 775,000 700,000 700,000 675,000 650,000
under contract (I)
SaaS subscribers (J) 34,000 34,550 35,900 36,700 37,500 37,600 37,950
Monthly SaaS ARPU (in
cents) (K) $0.17 $0.18 $0.18 $0.20 $0.16 $0.16 $0.16
ICM delivered in
billions (L) 162 157 151 136 134 128 120
Consumer
subscribers(M) 500 475 500 550 600 600 575

Net Revenue by Line of
Business:
(A) The Core Products segment primarily includes revenue from SaaS services, system integration and
professional services to carriers and mobile handset companies, sales of technology licenses of our
software products such as Helix for handsets, and consumer subscriptions such as SuperPass and our
international radio subscription services.

(B) The Emerging Products segment primarily includes revenue from RealPlayer and related products, such
as the distribution of third party software products, advertising on RealPlayer websites and sales of
RealPlayerPlus software licenses to consumers.

(C) The Games segment primarily includes revenue from sales of games licenses, online games subscription
services, advertising on game sites and social network sites, games syndication services,
microtransactions from online and social games and sales of mobile games.

(D) On March 31, 2010, we completed the restructuring of Rhapsody, which resulted in our ownership
decreasing to approximately 47% of the outstanding equity in Rhapsody, and our loss of operating control
over Rhapsody. Beginning with the quarter ended June 30, 2010, Rhapsody's revenue or other operating
results are no longer consolidated within our financial statements and we are not recording any
operating or other financial results for our Music segment. We now report our share of Rhapsody's
income or losses as "Equity in net loss of Rhapsody and other equity method investments" in "Other
income (expense)".

Core Products Revenue by
Product:
(E) Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand
(VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service
providers, who are largely mobile phone networks.

(F) Systems Integrations /Professional Services revenue includes professional services, other than
those associated with software sales, provided to mobile carriers and handset manufacturers.

(G) Technology Licensing includes revenue from sales of software and other intellectual property
licenses such as Helix server licenses and Helix software licenses for handsets.

(H) Consumer Subscriptions includes revenue from SuperPass, as well as our international radio
subscription services.

Product Metrics:
(I) Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of
our SaaS services, other than intercarrier messaging services, to their customers.

(J) SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter.

(K) Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly
revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers
at the end of the quarter, and dividing the resulting quotient by three.

(L) ICM (Intercarrier message) represents the total number of messages delivered across our messaging
platform during the quarter.

(M) Consumer subscribers primarily includes our SuperPass and GamePass products. We repurchased our
international radio subscription services from Rhapsody as part of the restructuring that occurred on
March 31, 2010, and as a result, subscribers to our international radio services are included beginning
in the quarter ended June 30, 2010.

RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)

2011 2010 2011 2010
---- ---- ---- ----
Q3 Q2 Q3 YTD YTD
--- --- --- --- ---
(in thousands)
--------------
Core
Products
---------

Net
revenue $50,705 $45,735 $51,870 $144,547 $154,815
Cost
of
revenue 22,492 19,353 22,230 62,829 58,054
------ ------ ------ ------ ------
Gross
profit 28,213 26,382 29,640 81,718 96,761

Gross
margin 56% 58% 57% 57% 63%

Operating
expenses 19,398 19,174 19,772 57,958 66,366
------ ------ ------ ------ ------
Operating
income
(loss) $8,815 $7,208 $9,868 $23,760 $30,395

Adjusted
EBITDA $11,617 $9,900 $13,309 $31,777 $40,783

Emerging
Products
--------

Net
revenue $10,764 $12,717 $8,778 $34,616 $29,203
Cost
of
revenue 3,913 2,978 1,076 8,431 5,944
----- ----- ----- ----- -----
Gross
profit 6,851 9,739 7,702 26,185 23,259

Gross
margin 64% 77% 88% 76% 80%

Operating
expenses 8,884 9,369 6,059 28,144 20,694
----- ----- ----- ------ ------
Operating
income
(loss) $(2,033) $370 $1,643 $(1,959) $2,565

Adjusted
EBITDA $(1,711) $707 $1,771 $(1,192) $3,048

Games
-----

Net
revenue $22,945 $25,300 $25,784 $76,304 $84,165
Cost
of
revenue 7,197 8,040 6,279 23,771 21,210
----- ----- ----- ------ ------
Gross
profit 15,748 17,260 19,505 52,533 62,955

Gross
margin 69% 68% 76% 69% 75%

Operating
expenses 14,159 15,211 17,092 46,184 60,695
------ ------ ------ ------ ------
Operating
income
(loss) $1,589 $2,049 $2,413 $6,349 $2,260

Adjusted
EBITDA $2,275 $2,748 $2,885 $8,363 $6,518

Music
-----

Net
revenue $- $- $- $- $35,733
Cost
of
revenue - - - - 21,864
--- --- --- --- ------
Gross
profit - - - - 13,869

Gross
margin N/A N/A N/A N/A 39%

Operating
expenses - - - - 13,911
--- --- --- --- ------
Operating
income
(loss) $- $- $- $- $(42)

Adjusted
EBITDA $- $- $- $- $4,214

Corporate
---------

Net
revenue $- $- $- $- $-
Cost
of
revenue (1,786) 295 1,125 (483) 1,946
------ --- ----- ---- -----
Gross
profit 1,786 (295) (1,125) 483 (1,946)

Gross
margin N/A N/A N/A N/A N/A

Operating
expenses 13,640 14,116 16,949 42,566 73,738
------ ------ ------ ------ ------
Operating
income
(loss) $(11,854) $(14,411) $(18,074) $(42,083) $(75,684)

Adjusted
EBITDA $(8,094) $(11,133) $(12,265) $(25,097) $(42,534)

Total
-----

Net
revenue $84,414 $83,752 $86,432 $255,467 $303,916
Cost
of
revenue 31,816 30,666 30,710 94,548 109,018
------ ------ ------ ------ -------
Gross
profit 52,598 53,086 55,722 160,919 194,898

Gross
margin 62% 63% 64% 63% 64%

Operating
expenses 56,081 57,870 59,872 174,852 235,404
------ ------ ------ ------- -------
Operating
income
(loss) $(3,483) $(4,784) $(4,150) $(13,933) $(40,506)

Adjusted
EBITDA $4,087 $2,222 $5,700 $13,851 $12,029

RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment
(Unaudited)

2011 2010 2011 2010
--- ---- ---- ----
Q3 Q2 Q3 YTD YTD
-- -- -- --- ---

Core Products
-------------