RealNetworks Announces Second Quarter 2013 Results

RealNetworks Announces Second Quarter 2013 Results

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 at5:00 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 Six Months Ended

June 30, 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, December 31,

2013 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 plan)
issuance
of
common
stock
(stock
options
and
stock
purchase 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.

RealNetworks, Inc.

CONTACT: Tim Wan, 206-892-6604, or ir@realnetworks.com

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


-------
Profile: intent