RealNetworks Announces Fourth Quarter And Full Year 2014 Results

RealNetworks Announces Fourth Quarter And Full Year 2014 Results

- Continued strong growth in RealPlayer Cloud user base, with over 10 million accounts;

- Rhapsody year over year subscriber growth above 60%;

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

- Cash and short-term investments of $161.7 million





SEATTLE, Feb. 4, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the fourth quarter and full year ended December 31, 2014.

For the fourth quarter of 2014, revenue was $35.5 million, compared to $34.2 million in the previous quarter and $50.6 million in the fourth quarter of 2013. For the full year 2014, revenue was $156.2 million, compared to $206.2 million in 2013.

"During 2014, we continued to make progress in our strategic transition to new mobile-centric, cloud-based products and services," said Rob Glaser, Chairman and CEO of RealNetworks. "RealPlayer Cloud now has over 10 million users worldwide, up from 500,000 a year ago. We are continuing to build on our early momentum with RealPlayer Cloud by investing to broaden and deepen the product. We are also working to bring in additional marketing and distribution partners to drive even more consumer adoption.

"We're also encouraged by the worldwide launch of our new Slingo Adventure and Emily's New Beginning games, as well as the continued subscriber and revenue growth at the Rhapsody music service in which we play a significant role and have a large stake."

GAAP net loss for the fourth quarter of 2014 was $(20.8) million or $(0.58) per diluted share, compared to GAAP net income of $2.5 million or $0.07 per diluted share in the fourth quarter of 2013. GAAP results for the fourth quarter of 2013 income included a pre-tax net gain of $21.4 million from the sale of our investment in LoEn. For the full year 2014, GAAP net loss was $(71.8) million or $(2.00) per diluted share, compared to $(59.0) million or $(1.66) per diluted share in 2013.

Adjusted EBITDA for the fourth quarter of 2014 was a loss of $(15.2) million compared to $(6.6) million for the fourth quarter of 2013. For the full year 2014, adjusted EBITDA was a loss of $(56.6) million, compared to a loss of $(23.7) million for 2013. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of December 31, 2014, the company had $161.7 million in unrestricted cash, cash equivalents and short-term investments, compared to $178.0 million as of September 30, 2014.

Business Outlook

For the first quarter of 2015, RealNetworks expects total revenue in the range of $30.0 million to $33.0 million and adjusted EBITDA for the quarter to be a loss in the range of $(18.0) million to $(21.0) 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: Fourth 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 11:59 p.m. PT, February 26, 2015 by calling 866-426-7248 or +1-203-369-0887 (Passcode: 020415).

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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 Slingo 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 Years Ended
December 31, December 31,
------------ ------------


2014 2013 2014 2013
---- ---- ---- ----

(in thousands, except per share data)


Net revenue $35,506 $50,595 $156,212 $206,196


Cost of revenue 17,881 20,076 76,381 79,091


Extinguishment of liability - - (10,580) -

Gross profit 17,625 30,519 90,411 127,105
------ ------ ------ -------


Operating expenses:

Research and development 12,655 14,929 52,765 60,880

Sales and marketing 15,904 20,181 66,926 80,011

General and administrative 8,384 8,137 34,001 36,643

Restructuring and other charges 1,187 1,690 4,992 5,765

Lease exit and related charges 177 23 880 3,089

Loss on litigation settlements - - - 11,525
--- --- --- ------


Total operating expenses 38,307 44,960 159,564 197,913
------ ------ ------- -------


Operating income (loss) (20,682) (14,441) (69,153) (70,808)
------- ------- ------- -------


Other income (expenses):

Interest income, net 160 141 556 1,133

Gain (loss) on sale of
available for sale securities,
net - 21,389 2,371 21,389

Equity in net loss of Rhapsody
investment (282) (59) (4,452) (6,268)

Other income (expense), net (10) 613 143 467
--- --- --- ---


Total other income (expense),
net (132) 22,084 (1,382) 16,721
---- ------ ------ ------


Income (loss) before income
taxes (20,814) 7,643 (70,535) (54,087)

Income tax expense (benefit) 24 5,113 1,280 4,903
--- ----- ----- -----


Net income (loss) $(20,838) $2,530 $(71,815) $(58,990)
======== ====== ======== ========


Basic net income (loss) per
share $(0.58) $0.07 $(2.00) $(1.66)

Diluted net income (loss) per
share $(0.58) $0.07 $(2.00) $(1.66)


Shares used to compute basic
net income (loss) per share 36,052 35,738 35,947 35,553

Shares used to compute diluted
net income (loss) per share 36,052 35,906 35,947 35,553







RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


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

(in thousands)

ASSETS

Current assets:

Cash and cash
equivalents $103,253 $151,235

Short-term
investments 58,453 74,920

Trade
accounts
receivable,
net 15,257 24,613

Deferred
costs,
current
portion 702 1,601

Deferred tax
assets,
current 652 306

Prepaid
expenses and
other
current
assets 8,980 9,124
----- -----

Total current
assets 187,297 261,799
------- -------


Equipment, software, and
leasehold improvements, at
cost:

Equipment and
software 74,100 86,721

Leasehold
improvements 3,590 3,482
----- -----

Total
equipment,
software,
and
leasehold
improvements 77,690 90,203

Less
accumulated
depreciation
and
amortization 61,442 67,031
------ ------

Net
equipment,
software,
and
leasehold
improvements 16,248 23,172


Restricted
cash
equivalents
and
investments 3,000 3,000

Equity method
investment 10,000 12,473

Available for
sale
securities 2,676 7,181

Other assets 2,299 2,332

Deferred
costs, non-
current
portion 316 946

Deferred tax
assets, net,
non-current
portion 999 1,409

Other
intangible
assets, net 10,109 12,993

Goodwill 17,355 17,476
------ ------


Total assets $250,299 $342,781
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $18,653 $19,987

Accrued and
other
current
liabilities 25,286 41,893

Deferred tax
liabilities,
net, current
portion 1,628 899

Deferred
revenue,
current
portion 5,301 7,498
----- -----

Total current
liabilities 50,868 70,277


Deferred
revenue,
non-current
portion 235 166

Deferred rent 1,215 1,318

Deferred tax
liabilities,
net, non-
current
portion 702 1,556

Other long-
term
liabilities 81 483
--- ---


Total
liabilities 53,101 73,800
------ ------



Shareholders'
equity 197,198 268,981
------- -------


Total
liabilities
and
shareholders'
equity $250,299 $342,781
======== ========





RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


Years ended December 31,
------------------------

2014 2013
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(71,815) $(58,990)

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

Depreciation and amortization 11,959 18,748

Stock-based compensation 5,204 7,468

Extinguishment of liability (10,580) -

Equity in net loss of
Rhapsody 4,452 6,268

Lease exit and related
charges 668 1,421

Deferred income taxes, net (237) 676

Gain on sale of available for
sale securities (2,371) (21,389)

Realized translation gain (48) (571)

Other - 51

Net change in certain
operating assets and
liabilities 2,524 (3,561)
----- ------

Net cash provided by (used
in) operating activities (60,244) (49,879)
------- -------

Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (2,460) (7,727)

Proceeds from sale of
available for sale
securities 2,754 29,153

Purchases of short-term
investments (81,216) (131,690)

Proceeds from sales and
maturities of short-term
investments 97,683 164,986

Decrease in restricted cash
equivalents and investments - 10,000

Increase in restricted cash
equivalents and investments - (3,000)

Acquisitions of businesses,
net of cash acquired (733) (22,480)

Other (467) -
---- ---

Net cash provided by (used
in) investing activities 15,561 39,242
------ ------

Cash flows from financing activities:

Proceeds from issuance of
common stock (stock options
and stock purchase plan) 812 594

Tax payments from shares
withheld upon vesting of
restricted stock (407) (1,201)

Payment of contingent
consideration (1,042) (828)

Net cash provided by (used
in) financing activities (637) (1,435)
---- ------

Effect of exchange rate
changes on cash and cash
equivalents (2,662) 109
------ ---

Net increase (decrease) in
cash and cash equivalents (47,982) (11,963)

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

Cash and cash equivalents,
end of period $103,253 $151,235
======== ========





RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2014 2013
---- ----

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

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A) $39,201 $8,865 $6,565 $8,556 $15,215 $75,206 $16,799 $17,641 $18,383 $22,383

Mobile Entertainment (B) 79,901 17,616 19,190 23,182 19,913 81,181 22,146 19,948 18,592 20,495

Games (C) 37,110 9,025 8,402 9,087 10,596 49,809 11,650 11,369 12,875 13,915

Total net revenue $156,212 $35,506 $34,157 $40,825 $45,724 $206,196 $50,595 $48,958 $49,850 $56,793
======== ======= ======= ======= ======= ======== ======= ======= ======= =======


Net Revenue by Product

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

- License (D) $16,042 $4,496 $3,255 $3,273 $5,018 $29,507 $7,128 $7,281 $6,766 $8,332

- Subscriptions (E) 10,717 2,691 2,680 2,569 2,777 15,850 3,118 3,615 4,193 4,924

- Media Properties (F) 12,442 1,678 630 2,714 7,420 29,849 6,553 6,745 7,424 9,127


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

- SaaS (G) 73,284 16,727 17,919 20,175 18,463 74,238 20,406 18,156 17,002 18,674

- Technology License & Other (H) 6,617 889 1,271 3,007 1,450 6,943 1,740 1,792 1,590 1,821


Games
-----

- License (I) 14,090 3,854 2,988 3,399 3,849 16,270 3,511 3,421 4,089 5,249

- Subscriptions (J) 17,948 3,947 4,320 4,440 5,241 23,713 5,688 5,733 5,980 6,312

- Media Properties (K) 5,072 1,224 1,094 1,248 1,506 9,826 2,451 2,215 2,806 2,354


Total net revenue $156,212 $35,506 $34,157 $40,825 $45,724 $206,196 $50,595 $48,958 $49,850 $56,793
======== ======= ======= ======= ======= ======== ======= ======= ======= =======


Net Revenue by Geography

United States $61,660 $13,860 $12,280 $15,092 $20,428 $90,250 $19,724 $21,039 $21,463 $28,024

Rest of world 94,552 21,646 21,877 25,733 25,296 115,946 30,871 27,919 28,387 28,769


Total net revenue $156,212 $35,506 $34,157 $40,825 $45,724 $206,196 $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 as our RealPlayer Cloud service and 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 our RealPlayer Cloud service and 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, ringback tones, intercarrier messaging services provided to network services providers who are largely mobile phone networks, and our 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 2014 2013
---- ---- ---- ----

Q4 Q3 Q4 YTD YTD
--- --- --- --- ---

(in thousands)

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


Net revenue $8,865 $6,565 $16,799 $39,201 $75,206

Cost of revenue 3,804 3,566 3,236 14,508 16,220

Gross profit 5,061 2,999 13,563 24,693 58,986


Gross margin 57% 46% 81% 63% 78%


Operating expenses 13,074 12,392 15,828 55,742 60,484

Operating income (loss) $(8,013) $(9,393) $(2,265) $(31,049) $(1,498)


Adjusted EBITDA $(7,320) $(8,770) $(1,474) $(28,474) $951


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


Net revenue $17,616 $19,190 $22,146 $79,901 $81,181

Cost of revenue 11,525 12,626 13,634 50,399 47,608

Gross profit 6,091 6,564 8,512 29,502 33,573


Gross margin 35% 34% 38% 37% 41%


Operating expenses 7,199 7,086 8,863 33,325 35,839

Operating income (loss) $(1,108) $(522) $(351) $(3,823) $(2,266)


Adjusted EBITDA $24 $447 $1,251 $940 $5,830


Games
-----


Net revenue $9,025 $8,402 $11,650 $37,110 $49,809

Cost of revenue 2,655 2,573 2,962 11,074 13,359

Gross profit 6,370 5,829 8,688 26,036 36,450


Gross margin 71% 69% 75% 70% 73%


Operating expenses 9,977 8,658 12,057 37,170 47,177

Operating income (loss) $(3,607) $(2,829) $(3,369) $(11,134) $(10,727)


Adjusted EBITDA $(3,024) $(2,246) $(2,724) $(8,742) $(7,897)


Corporate
---------


Net revenue $ - $ - $ - $ - $ -

Cost of revenue (103) 163 244 400 1,904

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

Gross profit 103 (163) (244) 10,180 (1,904)


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


Operating expenses 8,057 7,856 8,212 33,327 54,413

Operating income (loss) $(7,954) $(8,019) $(8,456) $(23,147) $(56,317)


Adjusted EBITDA $(4,879) $(3,788) $(3,668) $(20,279) $(22,630)


Total
-----


Net revenue $35,506 $34,157 $50,595 $156,212 $206,196

Cost of revenue 17,881 18,928 20,076 76,381 79,091

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

Gross profit 17,625 15,229 30,519 90,411 127,105


Gross margin 50% 45% 60% 58% 62%


Operating expenses 38,307 35,992 44,960 159,564 197,913
------

Operating income (loss) $(20,682) $(20,763) $(14,441) $(69,153) $(70,808)


Adjusted EBITDA $(15,199) $(14,357) $(6,615) $(56,555) $(23,746)





RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


2014 2013 2014 2013

Q4 Q3 Q4 YTD YTD
--- --- --- --- ---

(in thousands)

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


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


Operating income (loss) $(8,013) $(9,393) $(2,265) $(31,049) $(1,498)

Acquisitions related intangible
asset amortization 96 103 60 384 249

Depreciation and amortization 597 520 731 2,191 2,200

Adjusted EBITDA $(7,320) $(8,770) $(1,474) $(28,474) $951


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


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


Operating income (loss) $(1,108) $(522) $(351) $(3,823) $(2,266)

Acquisitions related intangible
asset amortization 271 287 781 1,793 3,287

Depreciation and amortization 861 682 821 2,970 4,809

Adjusted EBITDA $24 $447 $1,251 $940 $5,830


Games
-----


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


Operating income (loss) $(3,607) $(2,829) $(3,369) $(11,134) $(10,727)

Acquisitions related intangible
asset amortization 314 314 314 1,256 879

Depreciation and amortization 269 269 331 1,136 1,951

Adjusted EBITDA $(3,024) $(2,246) $(2,724) $(8,742) $(7,897)


Corporate
---------


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


Operating income (loss) $(7,954) $(8,019) $(8,456) $(23,147) $(56,317)

Other income (expense), net (10) 325 613 143 467

Depreciation and amortization 675 556 665 2,229 5,373

Lease exit and related charges 177 154 23 880 3,089

Loss (gain) on litigation
settlements - - - - 11,525

Restructuring and other charges 1,187 2,048 1,690 4,992 5,765

Stock-based compensation 1,046 1,148 1,797 5,204 7,468

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

Adjusted EBITDA $(4,879) $(3,788) $(3,668) $(20,279) $(22,630)


Total
-----


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


Operating income (loss) $(20,682) $(20,763) $(14,441) $(69,153) $(70,808)

Other income (expense), net (10) 325 613 143 467

Acquisitions related intangible
asset amortization 681 704 1,155 3,433 4,415

Depreciation and amortization 2,402 2,027 2,548 8,526 14,333

Lease exit and related charges 177 154 23 880 3,089

Loss (gain) on litigation
settlements - - - - 11,525

Restructuring and other charges 1,187 2,048 1,690 4,992 5,765

Stock-based compensation 1,046 1,148 1,797 5,204 7,468

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

Adjusted EBITDA $(15,199) $(14,357) $(6,615) $(56,555) $(23,746)


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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