Press Releases

RealNetworks Reports Record Quarterly Revenue And Announces New $100 Million Stock Buyback Program

Achieves More Than 2.4 Million Paid Subscribers

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SEATTLE, Washington — April 27, 2006 — RealNetworks®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the first quarter ended March 31, 2006.

"We are off to a strong start for 2006 with record revenue in the first quarter," said Rob Glaser, chairman and CEO of RealNetworks. "Real's tradition of innovation continues to bear fruit, most recently with the announcement of our Click-to-Stream patent that we believe positions Real's Helix Community at the center of the exploding digital media marketplace."

Quarterly Highlights

- Record revenue of $86.6 million
- Net income of $24.9 million
- More than 2.4 million total paid subscribers

For the first quarter of 2006, revenue grew 13% to $86.6 million compared to $76.6 million reported in the first quarter of 2005. First quarter results include revenue of approximately $2.0 million from the acquisition of Zylom Media Group BV in January 2006. For the first quarter, revenue in the Consumer Products and Services segment was as follows: Games revenue was $18.6 million, a 53% increase over the first quarter of 2005; Music revenue was $28.9 million, a 26% increase over the first quarter of 2005; and RealPlayer, Related Consumer Products and Other was $27.3 million, a decrease of 6% from the first quarter of 2005. In the Technology Products and Solutions segment, revenue was $11.8 million in the first quarter, a decrease of 5% from the first quarter of 2005. Foreign currency exchange rate fluctuations negatively impacted 2006 first quarter revenue by approximately $1.7 million compared to the first quarter of 2005.

Net income for the first quarter of 2006 was $24.9 million, or $0.14 per diluted share, compared to $0.8 million, or $0.00 per diluted share, in the first quarter of 2005. Adjusted net income, which excludes the impact of the Microsoft agreements and stock-based compensation expenses, was $3.4 million, or $0.02 per diluted share in the first quarter of 2006, compared to $4.6 million, or $0.02 per diluted share the same quarter of 2005. A reconciliation of GAAP net income to adjusted net income is provided in the financial tables that accompany this release.

Gross margin was 69% in the first quarter of 2006 compared to 68% in the prior year's quarter. Operating expenses for the first quarter of 2006 were $28.3 million compared to $51.6 million in the prior year's quarter. First quarter operating expenses include a benefit related to Microsoft's payment under the settlement and commercial agreements signed in the fourth quarter of 2005. Operating expenses also include non-cash, stock-based compensation expense related to our adoption of SFAS 123R. Excluding the impact from the Microsoft agreements and stock-based compensation expenses, adjusted operating expenses were $62.5 million compared to $47.9 million in the first quarter of 2005. A reconciliation of GAAP operating expenses to adjusted operating expenses is provided in the financial tables that accompany this release. For the first quarter of 2006, Real's effective tax rate was approximately 37%.

As of March 31, 2006, Real had approximately $701 million in unrestricted cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt. Further, the Company expects to receive up to approximately $243 million in additional payments related to the Microsoft agreements over the next four quarters. Microsoft can earn credits against its future payments as a result of delivering music users to Real through its promotional efforts.

The Company completed its $100 million stock repurchase program in the first quarter of 2006, repurchasing approximately 9.5 million shares for $77 million. Since the beginning of 2005, the Company has repurchased approximately 18.2 million shares, or approximately 10% of outstanding shares, through its repurchase programs for $131 million. Total shares outstanding at March 31, 2006 were 157.8 million.

Today, the Company also announced that its Board of Directors has approved an additional $100 million stock repurchase program. Under the program, Real is authorized to repurchase up to $100 million of outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements. Real may enter into a Rule 10(b)5-1 plan designed to facilitate the repurchase of all or a portion of the repurchase amount. Further, the repurchase program does not require RealNetworks to acquire a specific number of shares and may be terminated under certain conditions.

Business Outlook
The following forward-looking statements reflect RealNetworks' expectations as of April 27, 2006. The Company currently does not intend to update these forward-looking statements until the next quarterly results announcement.

For the second quarter of 2006, Real expects revenue in the range of $87 million to $90 million, GAAP net income per diluted share of $0.19 to $0.20 and adjusted net income per diluted share of $0.01 to $0.02. This guidance assumes a tax rate of approximately 37%.

For the full year of 2006, Real is reaffirming guidance of revenue in the range of $365 million to $380 million and earnings of $0.75 to $0.80 per diluted share. Additionally, Real expects adjusted net income per diluted share of $0.08 to $0.12 for the full year. This guidance assumes a tax rate of approximately 37%. However, actual federal income taxes paid are expected to be less than $10 million due to the utilization of deferred tax assets.

About Non-GAAP Financial Measures
To supplement the Company's consolidated financial results presented in accordance with GAAP, RealNetworks uses non-GAAP measures for certain components of financial performance. These non-GAAP measures include adjusted net income, adjusted net income per diluted share and adjusted operating expenses. Adjusted net income excludes the impact related to non-cash, stock-based compensation expense, income and expenses, including charitable contributions, related to the Microsoft Agreements, equity investment gains and losses and an estimate of the income taxes from the aforementioned items. The presentation of these non-GAAP financial measures is not intended to be considered as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the Company's current and expected future financial performance. The Company believes these non-GAAP measures provide useful information to management and investors by excluding certain income, expenses and gains and losses that may not be indicative of its core operating and financial results. Management uses these measures on an ongoing basis to track and assess the Company's financial performance. The accompanying financial tables provide reconciliations to the nearest GAAP measure of all non-GAAP measures provided in this press release.

The Company will host a webcast and conference call today at 5:00 pm (Eastern)/ 2:00 pm (Pacific). The live webcast, featuring slides and audio, will be available at http://www.realnetworks.com/company/investor/earnings.html. Listeners will require RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 800-857-5305 (773-681-5857 for international callers). The passcode is "First Quarter Earnings," and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), May 5th, and may be accessed by dialing 800-679-9662 (402-220-0283 for international callers).

For More Information Contact
Press: Maureen Farley, RealNetworks, (206) 892-6653, mfarley@real.com
Financial: Caroline Hughes, RealNetworks, (206) 892-6718, carolinehughes@real.com

ABOUT REALNETWORKS
RealNetworks, Inc. is a leading creator of digital media services and software including Rhapsody®, RealPlayer® 10 and casual PC and mobile games. Broadcasters, network operators, media companies and enterprises use RealNetworks' products and services to create and deliver digital media to PCs, mobile phones and consumer electronic devices. Consumers can access and experience audio/video programming and download RealNetworks' consumer software at www.real.com. RealNetworks' systems and corporate information are located at http://www.realnetworks.com.

Forward Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: (a) Real's future revenue, expenses, margins, profitability, net income, taxes, earnings per share, adjusted net income, adjusted net income per diluted share, adjusted operating expenses and other measures of results of operation; (b) Real's repurchase of up to $100 million of outstanding shares of common stock; and © Real's ability to capitalize on industry trends. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services generally and RealNetworks' content services in particular; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the risk that the collaborative agreements we have with Microsoft will be less successful than we anticipate; the emergence of new entrants and competition in the market for digital media subscription offerings and online music sales; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks associated with the introduction of new products and services; risks inherent in strategic relationships, especially with competitors, and technology and service integration efforts; risks relating to the ability of Real's strategic partners' to generate subscribers for Real's digital content services; and risks related to the Company's ability to fully utilize its deferred tax assets. 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, 2005 and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission. The preparation of our financial statements and forward-looking financial guidance requires us 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, Rhapsody and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. All other companies or products listed herein are trademarks or registered trademarks of their respective owners.

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