Press Releases

RealNetworks Announces First Quarter 2011 Results

 

SEATTLE - May 5, 2011 - Digital media software and services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the first quarter ended March 31, 2011.

Quarterly Highlights:

  • Revenue of $87.3 million
  • Net loss of $(12.3) million or $(0.09) per share
  • Adjusted EBITDA of $7.5 million
  • Cash and short term investments of $331.5 million as of March 31, 2011

"These results reflect revenue and EBITDA performances above our expectations for the quarter, and demonstrate the hard work we have done to simplify and restructure our business and reduce our operating expenses," said Mike Lunsford, interim CEO of Real. "I believe we have created a stable and efficient structure on which we can implement our growth strategies."

First Quarter Results
For the first quarter of 2011, revenue from Real's Core Products, Emerging Products and Games businesses was $87.3 million, a decrease of 6% compared with the first quarter of 2010 and a sequential decline of 11% from the fourth quarter. Revenue from Real's music business was $35.7 million in the first quarter of 2010, and total revenue, including music, in the first quarter of 2010 was $128.6 million. Beginning in the second quarter of 2010, revenue and other operating results of Real's music business from its Rhapsody joint venture have not been consolidated in Real's financial statements as a result of the restructuring of Rhapsody completed on March 31, 2010. Foreign currency exchange rate fluctuations did not significantly affect 2011 first quarter revenue comparison with the year ago quarter. Revenue trends in each of Real's businesses in the first quarter of 2011 compared with the year-earlier quarter were: a 3% decrease in Emerging Products revenue to $11.1 million, a 6% decrease in Core Products revenue to $48.1 million, and a 7% decrease in Games revenue to $28.1 million.

Net loss for the first quarter of 2011 was $(12.3) million, or $(0.09) per share, compared with net income of $3.2 million, or $0.05 per share, in the first quarter of 2010. First quarter 2011 results include a reduction in operating expense of $6.4 million due to an insurance reimbursement relating to previously settled litigation, and results from the first quarter of last year include a $10.9 million gain on the deconsolidation of Rhapsody. The most recent quarter also included restructuring charges of $6.9 million, compared with restructuring charges in the year-ago quarter of $5.6 million. Adjusted EBITDA for the first quarter of 2011 was $7.5 million, compared with $5.7 million for the first quarter of 2010. Adjusted EBITDA for this quarter included the insurance reimbursement, and the year-ago quarter's adjusted EBITDA included a contribution of $4.2 million from the music segment. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of March 31, 2011, Real had $331.5 million in unrestricted cash, cash equivalents and short-term investments compared with $334.3 million at Dec. 31, 2010. In addition, Real had $42.7 million in restricted cash and equity investments, including its equity interest in the Rhapsody joint venture, at March 31, 2011.

Business Outlook
For the second quarter of 2011, Real expects total revenue to decline slightly both sequentially and year-over-year. Real expects revenue will increase in Emerging Products, and will decline slightly in Games and Core Products sequentially and year-over-year. Real expects adjusted EBITDA for the second quarter to decline sequentially, primarily due to the insurance reimbursement in the first quarter, but to increase over the adjusted EBITDA reported in the second quarter of 2010.

Real's outlook for the year anticipates seasonality in revenue and adjusted EBITDA, which typically declines from the fourth quarter to the first quarter, and increases through the year. Real has generated more than 70% of its annual adjusted EBITDA in the second half of the year in each of the past two years. Real expects to see similar seasonal patterns for both revenue and adjusted EBITDA in 2011.

For the full year, Real is not changing the guidance given in February. Real expects a small decline in 2011 revenue compared with 2010, excluding Music, due in part to the elimination or de-emphasis of products and services that generate low-profit or unprofitable revenue. Excluding the revenue from these products and services, Real expects 2011 revenue to be essentially flat compared with 2010, excluding Music. Real expects 2011 adjusted EBITDA and adjusted EBITDA margin to increase over 2010 due in large part to the restructuring, which has lowered the company's overall cost structure.

The foregoing forward-looking statements reflect Real's expectations as of May 5, 2011. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.

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 first quarter at 5:00 p.m. ET on May 5. 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:
First Quarter Earnings

Leader:
Mike Lunsford

Telephonic replay will be available until 8:00 p.m. (Eastern), May 19, 2011.

Replay dial in:
866-489-3785 Domestic
203-369-1665 International

For More Information

Financial
Marj Charlier
(206) 892-6718
mcharlier@real.com

Elizabeth Pheasant
(206) 674-2330
epheasant@real.com

Press Only
Melissa Hackett

(206) 892-6432
mhackett@real.com

About RealNetworks
Real creates innovative applications and services that make it easy to connect with and enjoy digital media. Real 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. Real's 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 EBITDA and adjusted EBITDA by reporting 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 reporting segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the first 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 and future growth. 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: 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 introduction and 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; fluctuations in foreign currencies; 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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