Press Releases

RealNetworks Announces Third Quarter 2010 Results

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RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statement of Operations (.PDF)

SEATTLE – November 4, 2010 – Digital media software and services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the third quarter ended Sept. 30, 2010.

Quarterly Highlights:

  • Revenue of $86.4 million

  • Net income of $24.5 million or $0.18 per share

  • Adjusted EBITDA of $5.7 million

  • Cash and short term investments of $329.2 million as of September 30, 2010

"We've made great progress restructuring Real and we're starting to see the impact in our financial results this quarter," said Bob Kimball, CEO and President of Real.  "We generated positive free cash flow, reduced our operating expenses, and increased our cash and adjusted EBITDA sequentially. We expect revenue and adjusted EBITDA to increase sequentially again in the fourth quarter. With the bulk of our restructuring work behind us, we are now focusing on growth.

"Other key activities in the quarter included the acquisition of Backstage Technologies, a social-games company that we expect to help us accelerate socializing and monetizing our games business," Mr. Kimball added. "We also launched the new converged music and video storefront for MetroPCS on our new Media Entertainment Platform. We expect this expanded relationship to demonstrate the strength of our multi-client platform as a driver of new SaaS revenue in 2011."

Third Quarter Results

For the third quarter of 2010, revenue from Real's Core Products, Emerging Products and Games businesses was $86.4 million compared with $101.5 million for the third quarter of 2009. Revenue from Real's music business was $38.8 million in the third quarter of 2009, and total revenue in the third quarter of 2009 was $140.3 million.  Foreign currency exchange rate fluctuations negatively affected 2010 third quarter revenue by approximately $1.2 million compared with the year-ago quarter. Revenue trends in each of Real's businesses in the third quarter of 2010 compared with the year-earlier quarter were: an 11% decrease in Core Products revenue to $51.9 million, a 13% decrease in Games revenue to $25.8 million and a 37% decrease in Emerging Products revenue to $8.8 million.  

Net income for the third quarter of 2010 was $24.5 million, or $0.18 per share, compared with net income of $1.5 million, or less than one cent per share, in the third quarter of 2009.  Net income for the third quarter of 2010 included an income tax benefit of $33.9 million resulting primarily from a $30 million cash refund from the IRS, while net income in the year-ago quarter included an income tax expense of $(0.7) million. Adjusted EBITDA for the third quarter of 2010 was $5.7 million, compared with $17.3 million for the third quarter of 2009.  A reconciliation of GAAP operating income to adjusted EBITDA is provided in the financial tables that accompany this release.

Gross margin in the third quarter rose to 64%, compared with 62% for the third quarter a year earlier, primarily due to the deconsolidation of the lower-margin music business.  Interest income in the third quarter of 2010 was $1.1 million compared with $1.3 million in the year-earlier period.

As of Sept. 30, 2010, Real had $329.2 million in unrestricted cash, cash equivalents and short-term investments compared with $313.2 million at June 30, 2010.  The increase in cash in the quarter was primarily due to the $30 million tax refund, offset by $5.8 million to acquire Backstage Technologies Inc. and working capital changes, including the reduction of payables, in the normal course of business. In addition, Real had $47.7 million in restricted cash and equity investments, including its equity interest in the Rhapsody music business, at the end of the quarter. 

Segment Operating Results

Reorganization

Beginning with the third quarter, Real consolidated its Technology Products and Solutions and Media Software and Services business units and organized them into functional teams that represent product development, sales and marketing, and service delivery. Therefore, Real's third-quarter financial results reflect the new corporate reorganization with the following reporting segments: (1) Core products, which includes the SaaS services of ringback tones, music on demand, and intercarrier messaging; professional services and systems integration; Helix software and licenses for handsets; and SuperPass and international radio subscriptions; (2) Emerging products, which includes RealPlayer, including distribution of third-party products, and new products and services that will be introduced over time for consumers or businesses; and (3) Games, which is unchanged from previous quarters.  Real will continue to present financial results from its former Music segment on a historical basis only.

Beginning with the third quarter of 2010, Real also changed how it allocates corporate and shared overhead expenses.  Historically, common corporate overhead expenses, including finance, legal and headquarters facilities, were allocated to each business segment. Beginning in the third quarter ended September 30, 2010, these shared expenses, as well as stock compensation costs, are shown in the aggregate as Corporate expenses and are not reflected in segment results or included in adjusted EBITDA by reporting segment for the business segments described in the preceding paragraph. Real continues to utilize adjusted EBITDA by reporting segment as its primary profit measure for its business segments. Real provided six quarters of historical financial results and other information relating to the new segments in a report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2010.

Business Outlook

Beginning with the third quarter, Real consolidated its Technology Products and Solutions and Media Software and Services business units and organized them into functional teams that represent product development, sales and marketing, and service delivery. Therefore, Real's third-quarter financial results reflect the new corporate reorganization with the following reporting segments: (1) Core products, which includes the SaaS services of ringback tones, music on demand, and intercarrier messaging; professional services and systems integration; Helix software and licenses for handsets; and SuperPass and international radio subscriptions; (2) Emerging products, which includes RealPlayer, including distribution of third-party products, and new products and services that will be introduced over time for consumers or businesses; and (3) Games, which is unchanged from previous quarters.  Real will continue to present financial results from its former Music segment on a historical basis only.

Beginning with the third quarter of 2010, Real also changed how it allocates corporate and shared overhead expenses.  Historically, common corporate overhead expenses, including finance, legal and headquarters facilities, were allocated to each business segment. Beginning in the third quarter ended September 30, 2010, these shared expenses, as well as stock compensation costs, are shown in the aggregate as Corporate expenses and are not reflected in segment results or included in adjusted EBITDA by reporting segment for the business segments described in the preceding paragraph. Real continues to utilize adjusted EBITDA by reporting segment as its primary profit measure for its business segments. Real provided six quarters of historical financial results and other information relating to the new segments in a report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2010. 

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 third quarter at 5:00 p.m. ET on Nov. 4. The Webcast will be available at:  http://investor.realnetworks.com 

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details
5:00 p.m. (Eastern) / 2:00 p.m. (Pacific)

Dial in: 
800-857-5305 Domestic
773-681-5857 International

Passcode:
Third Quarter Earnings

Leader:
Bob Kimball

Telephonic replay will be available until 8:00 p.m. (Eastern), Nov. 18, 2010.

Replay dial in:
866-413-9103 Domestic
203-369-0665 International

RNWK-F

For More Information

Press
Piers Heaton-Armstrong
(206) 892-6571
pheaton-armstrong@real.com 

Financial
Marj Charlier

(206) 892-6718
mcharlier@real.com

About RealNetworks

RealNetworks, Inc. delivers digital entertainment services to consumers via PCs and mobile devices. Real® created the streaming media category in 1995 and continues to offer pioneering products and services, including: RealPlayer®, the first mainstream media player to enable downloading, recording, editing and sharing of digital video; GameHouse®, one of the largest casual games services on the Internet; and a variety of mobile entertainment services, such as ringback tones, music and video, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://www.realnetworks.com/about-us/ 

About Non-GAAP Financial Measures

To supplement RealNetworks' condensed consolidated financial statements presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted revenue, adjusted EBITDA, adjusted EBITDA by reporting segment and free cash flow, 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 reporting segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the third 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 Real's current expectations for future revenue, adjusted EBITDA, the completion of Real's restructuring activities and Real's ability to grow and monetize its businesses, including through leveraging its technology platforms.  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: fluctuations in foreign currencies; Real's ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; 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 Real's 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; and changes in Real's 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 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, 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.

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