RealNetworks Announces Second Quarter 2015 Results

RealNetworks Announces Second Quarter 2015 Results

- Launched major new product RealTimes(TM), and signed up over 2 million users in first 2 months;

- Achieved continued growth at Rhapsody, which now has over 3 million paying subscribers;

- Announced sale of Slingo and social casino games for $18 million;

- Reducing operating expenses and cash burn; and

- Cash and short-term investments of $111.0 million

SEATTLE, Aug. 5, 2015 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the second quarter ended June 30, 2015.

For the second quarter of 2015, revenue was $34.0 million, compared to $30.6 million in the previous quarter and $40.8 million in the second quarter of 2014.

"During the quarter, we launched RealTimes(TM), a breakthrough product which provides the fastest and easiest way for consumers to get the most out of their personal photos and videos," said Rob Glaser, Chairman and CEO of RealNetworks. "RealTimes, which automatically creates personalized stories that can be easily customized and shared, is off to a great start with over 2 million users in the first 2 months.

"We are also pleased to report continued strong growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake, which recently announced that it has surpassed 3 million paying subscribers.

"At the same time that we're investing in the roll out of RealTimes, we are also taking steps to focus RealNetworks on its best opportunities, generating cash from non-core assets and reducing operating expenses. Our announced sale of our Slingo and social casino games business for $18 million is a significant step in support of these objectives."

GAAP net loss for the second quarter of 2015 was $(27.8) million or $(0.77) per diluted share, compared to $(21.0) million or $(0.59) per diluted share in the second quarter of 2014. GAAP results for the second quarter of 2015 include $2.0 million severance and restructuring related to the Company's ongoing cost reduction efforts. Adjusted EBITDA for the second quarter of 2015 was a loss of $(15.2) million, compared to $(13.1) million for the second quarter of 2014. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2015, the company had $111.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $134.4 million as of March 31, 2015.

Business Outlook

For the third quarter of 2015, RealNetworks expects total revenue in the range of $29.0 million to $32.0 million and an adjusted EBITDA loss for the third quarter in the range of $(15.0) million to $(18.0) million, excluding the impact of the pending divestiture of the Slingo and social casino games business. Including the impact of the pending sale, we expect total revenue in the range of $27.0 million to $30.0 million and an adjusted EBITDA loss in the range of $(14.0) million to $(17.0) 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. You may join the conference call by calling 888-790-3440 or +1-517-308-9350 (Passcode: Second 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, August 26, 2015 by calling 866-431-7918 or +1-203-369-0978 (Passcode: 852015).

For More Information

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


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, RealTimes 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 quarterly 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 (both with and without the impact of the pending games sale), our future growth, profitability, and market position, our strategic focus and initiatives, and the growth and future prospects relating to our Rhapsody affiliate. 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: 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,
-------- --------


2015 2014 2015 2014
---- ---- ---- ----

(in thousands, except per share data)


Net revenue $33,954 $40,825 $64,551 $86,549

Cost of revenue 19,832 20,786 36,379 39,572

Extinguishment of liability - - - (10,580)

Gross profit 14,122 20,039 28,172 57,557
------ ------ ------ ------


Operating expenses:

Research and development 11,801 13,267 24,180 27,326

Sales and marketing 14,047 16,016 26,884 37,739

General and administrative 7,008 8,577 14,291 17,894

Restructuring and other charges 1,964 541 2,449 1,757

Lease exit and related charges 9 470 87 549
--- --- --- ---


Total operating expenses 34,829 38,871 67,891 85,265
------ ------ ------ ------


Operating income (loss) (20,707) (18,832) (39,719) (27,708)
------- ------- ------- -------


Other income (expenses):

Interest income, net 250 180 450 316

Gain (loss) on sale of available
for sale securities, net 94 - 393 2,371

Equity in net loss of Rhapsody (6,916) (1,802) (13,096) (2,640)

Other income (expense), net (112) (95) 331 (172)
---- --- --- ----


Total other income (expense),
net (6,684) (1,717) (11,922) (125)
------ ------ ------- ----


Income (loss) before income
taxes (27,391) (20,549) (51,641) (27,833)

Income tax expense (benefit) 390 480 609 966
--- --- --- ---


Net income (loss) $(27,781) $(21,029) $(52,250) $(28,799)
======== ======== ======== ========


Basic net income (loss) per
share $(0.77) $(0.59) $(1.45) $(0.80)

Diluted net income (loss) per
share $(0.77) $(0.59) $(1.45) $(0.80)


Shares used to compute basic net
income (loss) per share 36,106 35,890 36,105 35,865

Shares used to compute diluted
net income (loss) per share 36,106 35,890 36,105 35,865



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


June 30, December 31,
2015 2014
---- ----

(in thousands)

ASSETS

Current assets:

Cash and
cash
equivalents $92,663 $103,253

Short-term
investments 18,337 58,453

Trade
accounts
receivable,
net 21,922 15,257

Deferred
costs,
current
portion 305 702

Deferred tax
assets,
current 645 652

Prepaid
expenses
and other
current
assets 9,108 8,980
----- -----

Total
current
assets 142,980 187,297
------- -------


Equipment, software, and
leasehold improvements, at
cost:

Equipment
and
software 71,552 74,100

Leasehold
improvements 3,737 3,590
----- -----

Total
equipment,
software,
and
leasehold
improvements 75,289 77,690

Less
accumulated
depreciation
and
amortization 61,886 61,442
------ ------

Net
equipment,
software,
and
leasehold
improvements 13,403 16,248


Restricted
cash
equivalents
and
investments 3,000 3,000

Investment
in and
advances to
Rhapsody 5,121 10,000

Available
for sale
securities 2,394 2,676

Other assets 3,187 2,299

Deferred
costs, non-
current
portion 204 316

Deferred tax
assets,
net, non-
current
portion 916 999

Other
intangible
assets, net 9,181 10,109

Goodwill 17,001 17,355
------ ------


Total assets $197,387 $250,299
======== ========


LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:

Accounts
payable $18,241 $18,653

Accrued and
other
current
liabilities 22,803 25,286

Deferred tax
liabilities,
net,
current
portion 1,580 1,628

Deferred
revenue,
current
portion 3,637 5,301
----- -----

Total
current
liabilities 46,261 50,868


Deferred
revenue,
non-
current
portion 124 235

Deferred
rent 1,240 1,215

Deferred tax
liabilities,
net, non-
current
portion 693 702

Other long-
term
liabilities 458 81
--- ---


Total
liabilities 48,776 53,101
------ ------



Shareholders'
equity 148,611 197,198
------- -------


Total
liabilities
and
shareholders'
equity $197,387 $250,299
======== ========



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


Six Months Ended
June 30,
--------

2015 2014
---- ----

(in thousands)


Cash flows from operating activities:

Net income (loss) $(52,250) $(28,799)

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

Depreciation and
amortization 4,894 6,145

Stock-based compensation 2,583 3,010

Extinguishment of
liability - (10,580)

Equity in net loss of
Rhapsody 13,096 2,640

Deferred income taxes, net (23) 10

Gain on sale of available
for sale securities (393) (2,371)

Realized translation gain - (48)

Fair value of warrants,
net of mark to market
adjustments (1,128) -

Interest receivable on
advance to Rhapsody (121) -

Net change in certain
operating assets and
liabilities (10,230) (785)
------- ----

Net cash provided by (used
in) operating activities (43,572) (30,778)
------- -------

Cash flows from investing activities:

Purchases of equipment,
software, and leasehold
improvements (859) (1,689)

Proceeds from sale of
available for sale
securities 459 2,754

Purchases of short-term
investments (8,514) (48,326)

Proceeds from sales and
maturities of short-term
investments 48,630 52,663

Acquisitions, net of cash
acquired (161) (733)

Advance to Rhapsody (5,000) -

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

Net cash provided by (used
in) investing activities 34,555 4,202
------ -----

Cash flows from financing activities:

Proceeds from issuance of
common stock (stock
options and stock
purchase plan) 276 580

Tax payments from shares
withheld upon vesting of
restricted stock (10) (307)

Payment of contingent
consideration - (696)

Net cash provided by (used
in) financing activities 266 (423)
--- ----

Effect of exchange rate
changes on cash and cash
equivalents (1,839) 214
------ ---

Net increase (decrease) in
cash and cash equivalents (10,590) (26,785)

Cash and cash equivalents,
beginning of period 103,253 151,235
------- -------

Cash and cash equivalents,
end of period $92,663 $124,450
======= ========






RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)


2015 2014
---- ----

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

(in thousands)

Net Revenue by Line of Business

RealPlayer Group (A) $7,344 $8,013 $8,865 $6,565 $8,556 $15,215

Mobile Entertainment (B) 18,515 14,480 17,616 19,190 23,182 19,913

Games (C) 8,095 8,104 9,025 8,402 9,087 10,596

Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= ======= =======


Net Revenue by Product

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

- License (D) $4,208 $4,672 $4,496 $3,255 $3,273 $5,018

- Subscriptions (E) 2,435 2,408 2,691 2,680 2,569 2,777

- Media Properties (F) 701 933 1,678 630 2,714 7,420


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

- SaaS (G) 18,155 13,298 16,727 17,919 20,175 18,463

-Technology License &
Other (H) 360 1,182 889 1,271 3,007 1,450


Games
-----

- License (I) 3,943 3,835 3,854 2,988 3,399 3,849

- Subscriptions (J) 3,373 3,570 3,947 4,320 4,440 5,241

- Media Properties (K) 779 699 1,224 1,094 1,248 1,506
--- --- ----- ----- ----- -----


Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= ======= =======


Net Revenue by Geography

United States $12,303 $12,349 $13,860 $12,280 $15,092 $20,428

Rest of world 21,651 18,248 21,646 21,877 25,733 25,296
------ ------ ------ ------ ------ ------

Total net revenue $33,954 $30,597 $35,506 $34,157 $40,825 $45,724
======= ======= ======= ======= ======= =======


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 and its successor application, RealTimesTM, and SuperPass.

(B) The Mobile Entertainment division primarily includes revenue from SaaS services and sales of
professional services provided to mobile carriers.

(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 intellectual property licenses and
RealPlayer Plus software licenses to consumers.

(E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as our
RealPlayer Cloud, RealTimes and SuperPass offerings.

(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.

(H) Technology licensing and other revenue within Mobile Entertainment includes revenue from professional
services provided to mobile carriers.

(I) Licensing revenue within Games includes retail games-related revenue and sales of mobile games.

(J) Subscriptions revenue within Games includes revenue from online games subscriptions as well as
microtransactions from mobile and social games.

(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)


2015 2014 2015 2014
---- ---- ---- ----

Q2 Q1 Q2 YTD YTD
--- --- --- --- ---

(in thousands)

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


Net revenue $7,344 $8,013 $8,556 $15,357 $23,771

Cost of revenue 4,317 4,112 3,620 8,429 7,138

Gross profit 3,027 3,901 4,936 6,928 16,633


Gross margin 41% 49% 58% 45% 70%


Operating expenses 13,001 12,375 12,489 25,376 30,276
------

Operating income (loss) $(9,974) $(8,474) $(7,553) $(18,448) $(13,643)


Adjusted EBITDA $(9,411) $(7,875) $(6,893) $(17,286) $(12,384)


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


Net revenue $18,515 $14,480 $23,182 $32,995 $43,095

Cost of revenue 13,079 9,506 14,298 22,585 26,248

Gross profit 5,436 4,974 8,884 10,410 16,847


Gross margin 29% 34% 38% 32% 39%


Operating expenses 5,301 5,633 9,424 10,934 19,040
------

Operating income (loss) $135 $(659) $(540) $(524) $(2,193)


Adjusted EBITDA $1,013 $225 $808 $1,238 $469


Games
-----


Net revenue $8,095 $8,104 $9,087 $16,199 $19,683

Cost of revenue 2,286 2,794 2,717 5,080 5,846

Gross profit 5,809 5,310 6,370 11,119 13,837


Gross margin 72% 66% 70% 69% 70%


Operating expenses 8,719 8,683 8,769 17,402 18,535
------

Operating income (loss) $(2,910) $(3,373) $(2,399) $(6,283) $(4,698)


Adjusted EBITDA $(2,354) $(2,783) $(1,798) $(5,137) $(3,472)


Corporate
---------


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

Cost of revenue 150 135 151 285 340

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

Gross profit (150) (135) (151) (285) (10,240)


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


Operating expenses 7,808 6,371 8,189 14,179 17,414

Operating income (loss) $(7,958) $(6,506) $(8,340) $(14,464) $7,174


Adjusted EBITDA $(4,449) $(3,741) $(5,198) $(8,190) $(11,612)


Total
-----


Net revenue $33,954 $30,597 $40,825 $64,551 $86,549

Cost of revenue 19,832 16,547 20,786 36,379 39,572

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

Gross profit 14,122 14,050 20,039 28,172 57,557


Gross margin 42% 46% 49% 44% 67%


Operating expenses 34,829 33,062 38,871 67,891 85,265

Operating income (loss) $(20,707) $(19,012) $(18,832) $(39,719) $(27,708)


Adjusted EBITDA $(15,201) $(14,174) $(13,081) $(29,375) $(26,999)







RealNetworks, Inc. and Subsidiaries

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

(Unaudited)


2015 2014 2015 2014
---- ---- ---- ----

Q2 Q1 Q2 YTD YTD
--- --- --- --- ---

(in thousands)

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


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


Operating income (loss) $(9,974) $(8,474) $(7,553) $(18,448) $(13,643)

Acquisitions related intangible
asset amortization 85 88 125 173 185

Depreciation and amortization 478 511 535 989 1,074

Adjusted EBITDA $(9,411) $(7,875) $(6,893) $(17,286) $(12,384)


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


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


Operating income (loss) $135 $(659) $(540) $(524) $(2,193)

Acquisitions related intangible
asset amortization 299 304 628 603 1,235

Depreciation and amortization 579 580 720 1,159 1,427

Adjusted EBITDA $1,013 $225 $808 $1,238 $469


Games
-----


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


Operating income (loss) $(2,910) $(3,373) $(2,399) $(6,283) $(4,698)

Acquisitions related intangible
asset amortization 312 293 314 605 628

Depreciation and amortization 244 297 287 541 598
--- --- --- --- ---

Adjusted EBITDA $(2,354) $(2,783) $(1,798) $(5,137) $(3,472)


Corporate
---------


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


Operating income (loss) $(7,958) $(6,506) $(8,340) $(14,464) $(7,174)

Other income (expense), net (112) 443 (95) 331 (172)

Depreciation and amortization 394 430 553 824 998

Lease exit and related charges 9 78 470 87 549

Restructuring and other charges 1,964 485 541 2,449 1,757

Stock-based compensation 1,254 1,329 1,673 2,583 3,010

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

Adjusted EBITDA $(4,449) $(3,741) $(5,198) $(8,190) $(11,612)


Total
-----


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


Operating income (loss) $(20,707) $(19,012) $(18,832) $(39,719) $(27,708)

Other income (expense), net (112) 443 (95) 331 (172)

Acquisitions related intangible
asset amortization 696 685 1,067 1,381 2,048

Depreciation and amortization 1,695 1,818 2,095 3,513 4,097

Lease exit and related charges 9 78 470 87 549

Restructuring and other charges 1,964 485 541 2,449 1,757

Stock-based compensation 1,254 1,329 1,673 2,583 3,010

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

Adjusted EBITDA $(15,201) $(14,174) $(13,081) $(29,375) $(26,999)






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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