RealNetworks Announces First Quarter 2014 Results

RealNetworks Announces First Quarter 2014 Results

- RealPlayer Cloud continues to gain traction with over 2 million accounts;

- Mobile Entertainment business launches new LISTEN(TM) app in US with T-Mobile Partnership;

- Continued progress in long term strategic transition and growth strategy; and

- Cash and short-term investments of $209.6 million



SEATTLE, May 7, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2014.

For the first quarter of 2014, revenue was $45.7 million, compared to $50.6 million in the previous quarter and $56.8 million in the first quarter of 2013.

"During the first quarter of 2014, we continued to invest in laying the foundation for our future growth and profitability," said Rob Glaser, Chairman and interim CEO of RealNetworks. "We began to roll out our new RealPlayer Cloud product globally and we now have over 2 million users. RealPlayer Cloud makes it easy to watch, save and share video across every type of popular digital device.

"Our Mobile Entertainment business brought our new LISTEN(TM) application, our innovative ringback tone experience for iPhone and Android users, to the U.S. via a new partnership with T-Mobile. We also hired a new leader for our Games business, Atul Bali, who brings over 20 years of experience in land-based and digital gaming."

GAAP net loss for the first quarter of 2014 was $(7.8) million or $(0.22) per diluted share, compared to $(11.7) million or $(0.33) per diluted share in the first quarter of 2013. Adjusted EBITDA for the first quarter of 2014 was a loss of $(13.9) million, compared to $(3.0) million for the first quarter of 2013. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2014, the company had $209.6 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the second quarter of 2014, RealNetworks expects total revenue in the range of $38.0 million to $41.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(13.0) million to $(16.0) million.

Webcast and Conference Call Information

The company will host a conference call today to review results and discuss the company's performance at 5 p.m. ET/2 p.m. PT by calling 888-790-3440 or +1-517-308-9350 (Passcode: First Quarter Earnings). A live webcast of the call will be available at http://investor.realnetworks.com and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 9 p.m. PT, May 28, 2014 by calling 800-754-7907 or +1-203-369-3824 (Passcode: 1280865)

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 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 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, our future growth, profitability, strategic focus and initiatives. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements reflect RealNetworks' expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: risks associated with the implementation of RealNetworks' growth plan, strategic initiatives, and restructuring efforts; its ability to successfully introduce and monetize new products and services; competitive risks, including the growth of competing technologies, products and services, and the emergence of new entrants and competition in the market; 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

March 31,
---------


2014 2013
---- ----

(in thousands,
except per
share data)


Net revenue $45,724 $56,793


Cost of revenue 18,786 20,506


Extinguishment of
liability (10,580) -
------ ---


Gross profit 37,518 36,287
------ ------


Operating expenses:

Research and
development 14,059 15,251

Sales and marketing 21,723 21,134

General and
administrative 9,317 9,946

Restructuring and
other charges 1,216 1,382

Lease exit and
related charges 79 -


Total operating
expenses 46,394 47,713
------ ------


Operating income
(loss) (8,876) (11,426)
------ -------


Other income (expenses):

Interest income,
net 136 647

Gain (loss) on sale
of available for
sale securities,
net 2,371 -

Equity in net loss
of Rhapsody
investment (838) (2,233)

Other income
(expense), net (77) 109
--- ---


Total other income
(expense), net 1,592 (1,477)
----- ------


Income (loss)
before income
taxes (7,284) (12,903)

Income tax expense
(benefit) 486 (1,229)
--- ------


Net income (loss) $(7,770) $(11,674)
===== ======


Basic net income
(loss) per share $(0.22) $(0.33)

Diluted net income
(loss) per share $(0.22) $(0.33)


Shares used to
compute basic net
income (loss) per
share 35,840 35,343

Shares used to
compute diluted
net income (loss)
per share 35,840 35,343







RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


March December
31, 31,
2014 2013
---- ----

(in thousands)

ASSETS

Current assets:

Cash and cash equivalents $131,276 $151,235

Short-term investments 78,361 74,920

Trade accounts receivable,
net 25,404 24,613

Deferred costs, current
portion 1,629 1,601

Deferred tax assets, current 308 306

Prepaid expenses and other
current assets 10,322 9,124
------ -----

Total current assets 247,300 261,799
------- -------


Equipment, software, and leasehold
improvements, at cost:

Equipment and software 86,585 86,721

Leasehold improvements 3,889 3,482
----- -----

Total equipment, software,
and leasehold improvements 90,474 90,203

Less accumulated
depreciation and
amortization 68,452 67,031
------ ------

Net equipment, software, and
leasehold improvements 22,022 23,172


Restricted cash equivalents
and investments 3,000 3,000

Equity method investment 11,704 12,473

Available for sale
securities 3,212 7,181

Other assets 2,517 2,332

Deferred costs, non-current
portion 1,040 946

Deferred tax assets, net,
non-current portion 1,408 1,409

Other intangible assets, net 12,045 12,993

Goodwill 17,336 17,476
------ ------


Total assets $321,584 $342,781
====== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts payable $21,402 $19,987

Accrued and other current
liabilities 27,704 41,893

Deferred tax liabilities,
net, current portion 909 899

Deferred revenue, current
portion 8,718 7,498
----- -----

Total current liabilities 58,733 70,277


Deferred revenue, non-
current portion 155 166

Deferred rent 1,378 1,318

Deferred tax liabilities,
net, non-current portion 1,556 1,556

Other long-term liabilities 595 483
--- ---


Total liabilities 62,417 73,800
------ ------



Shareholders' equity 259,167 268,981
------- -------


Total liabilities and
shareholders' equity $321,584 $342,781
====== ========





RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


Quarters Ended
March 31,
---------------

2014 2013
---- ----

(in thousands)


Cash flows from operating
activities:

Net income (loss) $(7,770) $(11,674)

Adjustments to reconcile net income (loss) to net cash used
in operating activities:

Depreciation and
amortization 2,983 4,888

Stock-based
compensation 1,337 2,038

Equity in net loss of
Rhapsody 838 2,233

Deferred income taxes,
net 10 (1,559)

Gain on sale of
available for sale
securities (2,371) -

Realized translation
gain (48) -

Extinguishment of
liability (10,580) -

Other - (75)

Net change in certain
operating assets and
liabilities (2,909) (2,584)
------ ------

Net cash provided by
(used in) operating
activities (18,510) (6,733)
------- ------

Cash flows from investing
activities:

Purchases of
equipment, software,
and leasehold
improvements (998) (1,194)

Proceeds from sale of
available for sale
securities 2,754 -

Purchases of short-
term investments (29,030) (43,318)

Proceeds from sales
and maturities of
short-term
investments 25,589 27,640

Acquisitions of
businesses, net of
cash acquired - (700)

Net cash provided by
(used in) investing
activities (1,685) (17,572)
------ -------

Cash flows from financing
activities:

Proceeds from issuance
of common stock
(stock options and
stock purchase plan) 210 20

Tax payments from
shares withheld upon
vesting of restricted
stock (60) (166)

Payment of contingent
consideration - (828)

Net cash provided by
(used in) financing
activities 150 (974)
--- ----

Effect of exchange
rate changes on cash
and cash equivalents 86 (1,225)
--- ------

Net increase
(decrease) in cash
and cash equivalents (19,959) (26,504)

Cash and cash
equivalents,
beginning of period 151,235 163,198
------- -------

Cash and cash
equivalents, end of
period $131,276 $136,694
====== ======








RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2014 2013
---- ----

Q1 Q4 Q3 Q2 Q1
--- --- --- --- ---

(in thousands)

Net Revenue by
Line of Business

RealPlayer
Group (A) $15,215 $16,799 $17,641 $18,383 $22,383

Mobile
Entertainment
(B) 19,913 22,146 19,948 18,592 20,495

Games (C) 10,596 11,650 11,369 12,875 13,915

Total net
revenue $45,724 $50,595 $48,958 $49,850 $56,793
===== ===== ===== ===== =====


Net Revenue by
Product

RealPlayer Group
----------------

-License
(D) $5,018 $7,128 $7,281 $6,766 $8,332

-
Subscriptions
(E) 2,777 3,118 3,615 4,193 4,924

-Media
Properties
(F) 7,420 6,553 6,745 7,424 9,127


Mobile
Entertainment
--------------

- SaaS (G) 18,463 20,406 18,156 17,002 18,674

-Technology
License &
Other (H) 1,450 1,740 1,792 1,590 1,821


Games
-----

-License
(I) 3,849 3,511 3,421 4,089 5,249

-
Subscriptions
(J) 5,241 5,688 5,733 5,980 6,312

-Media
Properties
(K) 1,506 2,451 2,215 2,806 2,354


Total net
revenue $45,724 $50,595 $48,958 $49,850 $56,793
===== ===== ===== ===== =====


Net Revenue by
Geography

United
States $20,428 $19,724 $21,039 $21,463 $28,024

Rest of
world 25,296 30,871 27,919 28,387 28,769

Total net
revenue $45,724 $50,595 $48,958 $49,850 $56,793
===== ===== ===== ===== =====


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

(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 and our recently
launched RealPlayer Cloud
service.

(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, ringback
tones, intercarrier messaging
services provided to network
services providers who are
largely mobile phone networks,
and our recently launched LISTEN
product.

(H) Licensing and other revenue
within Mobile Entertainment
includes revenue from Helix-
related products and
professional services provided
to mobile carriers.

(I) Licensing revenue within
Games includes retail games-
related revenue,
microtransactions from online
and social games and sales of
mobile games.

(J) Subscriptions revenue within
Games includes revenue from
online games subscriptions.

(K) 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)


2014 2013
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)

RealPlayer
Group
----------


Net
revenue $15,215 $16,799 $22,383

Cost
of
revenue 3,518 3,236 5,311

Gross
profit 11,697 13,563 17,072


Gross
margin 77% 81% 76%


Operating
expenses 17,787 15,828 16,206

Operating
income
(loss) $(6,090) $(2,265) $866


Adjusted
EBITDA $(5,491) $(1,474) $1,331


Mobile
Entertainment
--------------


Net
revenue $19,913 $22,146 $20,495

Cost
of
revenue 11,950 13,634 10,832

Gross
profit 7,963 8,512 9,663


Gross
margin 40% 38% 47%


Operating
expenses 9,616 8,863 9,111

Operating
income
(loss) $(1,653) $(351) $552


Adjusted
EBITDA $(339) $1,251 $3,382


Games
-----


Net
revenue $10,596 $11,650 $13,915

Cost
of
revenue 3,129 2,962 3,800

Gross
profit 7,467 8,688 10,115


Gross
margin 70% 75% 73%


Operating
expenses 9,766 12,057 11,852

Operating
income
(loss) $(2,299) $(3,369) $(1,737)


Adjusted
EBITDA $(1,674) $(2,724) $(1,154)


Corporate
---------


Net
revenue $ - $ - $ -

Cost
of
revenue 189 244 563

Extinguishment
of
liability (10,580) - -

Gross
profit 10,391 (244) (563)


Gross
margin N/A N/A N/A


Operating
expenses 9,225 8,212 10,544

Operating
income
(loss) $1,166 $(8,456) $(11,107)


Adjusted
EBITDA $(6,414) $(3,668) $(6,568)


Total
-----


Net
revenue $45,724 $50,595 $56,793

Cost
of
revenue 18,786 20,076 20,506

Extinguishment
of
liability (10,580) - -

Gross
profit 37,518 30,519 36,287


Gross
margin 82% 60% 64%


Operating
expenses 46,394 44,960 47,713

Operating
income
(loss) $(8,876) $(14,441) $(11,426)


Adjusted
EBITDA $(13,918) $(6,615) $(3,009)





RealNetworks, Inc. and Subsidiaries

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA
by segment

(Unaudited)




2014 2013
---- ----

Q1 Q4 Q1
--- --- ---

(in thousands)

RealPlayer Group
----------------


Reconciliation of segment GAAP
operating income (loss) to adjusted
EBITDA by segment:


Operating income
(loss) $(6,090) $(2,265) $866

Acquisitions
related
intangible asset
amortization 60 60 67

Depreciation and
amortization 539 731 398

Adjusted EBITDA $(5,491) $(1,474) $1,331


Mobile
Entertainment
--------------


Reconciliation of segment GAAP
operating income (loss) to adjusted
EBITDA by segment:


Operating income
(loss) $(1,653) $(351) $552

Acquisitions
related
intangible asset
amortization 607 781 813

Depreciation and
amortization 707 821 2,017

Adjusted EBITDA $(339) $1,251 $3,382


Games
-----


Reconciliation of segment GAAP
operating income (loss) to adjusted
EBITDA by segment:


Operating income
(loss) $(2,299) $(3,369) $(1,737)

Acquisitions
related
intangible asset
amortization 314 314 21

Depreciation and
amortization 311 331 562

Adjusted EBITDA $(1,674) $(2,724) $(1,154)


Corporate
---------


Reconciliation of segment GAAP
operating income (loss) to adjusted
EBITDA by segment:


Operating income
(loss) $1,166 $(8,456) $(11,107)

Other income
(expense), net (77) 613 109

Depreciation and
amortization 445 665 1,010

Lease exit and
related charges 79 23 -

Restructuring and
other charges 1,216 1,690 1,382

Stock-based
compensation 1,337 1,797 2,038

Extinguishment of
liability (10,580) - -

Adjusted EBITDA $(6,414) $(3,668) $(6,568)


Total
-----


Reconciliation of GAAP operating
income (loss) to adjusted EBITDA:


Operating income
(loss) $(8,876) $(14,441) $(11,426)

Other income
(expense), net (77) 613 109

Acquisitions
related
intangible asset
amortization 981 1,155 901

Depreciation and
amortization 2,002 2,548 3,987

Lease exit and
related charges 79 23 -

Restructuring and
other charges 1,216 1,690 1,382

Stock-based
compensation 1,337 1,797 2,038

Extinguishment of
liability (10,580) - -

Adjusted EBITDA $(13,918) $(6,615) $(3,009)


SOURCE RealNetworks, Inc.

RealNetworks, Inc.

CONTACT: Michael Newman, StreetConnect, Investor Relations for RealNetworks, +1-206-729-3625, IR@realnetworks.com

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


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