Investors

Segment Operating Results

2012

2012

2011

Q3

Q2

 Q3 

 (in thousands) 

Revenue 

Core Products

$  34,078

$   38,250

$ 50,705

Emerging Products

10,134

9,913

10,764

Games

14,876

17,363

22,945

Corporate

-

-

-

Total   

$  59,088

$   65,526

$ 84,414

Operating Income (loss)

Core Products

$    1,180

$     4,140

$   8,815

Emerging Products

(152)

1,021

(2,033)

Games

(1,708)

(1,302)

1,589

Corporate

(22,495)

100,309

(11,854)

Total   

$(23,175)

$ 104,168

$ (3,483)

Adjusted EBITDA

Core Products

$    3,736

$     6,628

$ 11,617

Emerging Products

158

1,266

(1,711)

Games

(894)

(619)

2,275

Corporate

(9,042)

(13,784)

(8,094)

Total   

$   (6,042)

$    (6,509)

$   4,087

 RealNetworks, Inc. and Subsidiaries 

 Condensed Consolidated Statements of Operations 

 (Unaudited) 

 Quarters Ended
September 30, 

 Nine Months Ended
September 30, 

2012

2011

2012

2011

 (in thousands, except per share data) 

 Net revenue 

$  59,088

$ 84,414

$ 191,578

$ 255,467

 Cost of revenue 

25,244

31,816

78,633

94,548

 Gross profit 

33,844

52,598

112,945

160,919

 Sale of patents and other technology assets, net of costs (A) 

-

-

116,353

-

 Operating expenses: 

 Research and development 

15,321

16,496

49,167

54,200

 Sales and marketing 

21,972

28,625

68,462

85,958

 General and administrative 

8,759

10,522

35,103

27,018

 Restructuring and other charges 

10,724

438

13,872

7,850

 Loss (gain) on excess office facilities 

243

-

243

(174)

 Total operating expenses 

57,019

56,081

166,847

174,852

 Operating income (loss) 

(23,175)

(3,483)

62,451

(13,933)

 Other income (expenses): 

 Interest income, net 

164

672

1,033

1,362

 Gain (loss) on sale of equity and other investments, net 

2,210

-

5,288

-

 Equity in net loss of Rhapsody investment 

(1,613)

(1,440)

(4,095)

(5,739)

 Other income (expense), net 

248

(228)

1,674

(661)

 Total other income (expense), net 

1,009

(996)

3,900

(5,038)

 Income (loss) before income taxes 

(22,166)

(4,479)

66,351

(18,971)

 Income tax (expense) benefit  

(48)

(703)

(24,583)

(5,365)

 Net income (loss) 

$(22,214)

$ (5,182)

$   41,768

$ (24,336)

 Basic net income (loss) per share 

$     (0.63)

$    (0.15)

$       1.20

$      (0.71)

 Diluted net income (loss) per share 

$     (0.63)

$    (0.15)

$       1.19

$      (0.71)

 Shares used to compute basic net income (loss) per share 

34,998

34,199

34,747

34,081

 Shares used to compute diluted net income (loss) per share 

34,998

34,199

35,000

34,081

(A) On April 5, 2012, RealNetworks completed the sale of certain patents and other technology assets to Intel for a cash purchase of $120.0 million.

 RealNetworks, Inc. and Subsidiaries 

 Condensed Consolidated Balance Sheets 

 (Unaudited) 

 September 30, 

 December 31, 

2012

2011

 (in thousands) 

 ASSETS 

 Current assets: 

 Cash and cash equivalents  

$            170,702

$           106,333

 Short-term investments 

103,046

78,739

 Trade accounts receivable, net 

35,716

41,165

 Deferred costs, current portion 

1,910

1,424

 Prepaid expenses and other current assets 

19,901

21,902

 Total current assets 

331,275

249,563

 Equipment, software, and leasehold improvements, at cost: 

 Equipment and software 

100,053

104,352

 Leasehold improvements 

26,184

25,947

 Total equipment, software, and leasehold improvements 

126,237

130,299

 Less accumulated depreciation and amortization 

93,287

92,825

 Net equipment, software, and leasehold improvements 

32,950

37,474

 Restricted cash equivalents and investments 

10,064

10,168

 Equity method investments 

3,703

7,798

 Available for sale securities 

36,819

37,204

 Other assets 

3,197

2,954

 Deferred costs, non-current portion 

170

843

 Deferred tax assets, net, non-current portion 

4,566

18,419

 Other intangible assets, net 

4,085

7,169

 Goodwill 

6,375

6,198

 Total assets 

$            433,204

$           377,790

 LIABILITIES AND SHAREHOLDERS' EQUITY 

 Current liabilities: 

 Accounts payable 

$              21,350

$             17,151

 Accrued and other liabilities 

62,215

59,194

 Deferred revenue, current portion 

11,558

11,835

 Accrued loss on excess office facilities, current portion 

747

596

 Total current liabilities 

95,870

88,776

 Deferred revenue, non-current portion 

159

195

 Accrued loss on excess office facilities, non-current portion 

1,229

2,151

 Deferred rent 

2,712

2,944

 Deferred tax liabilities, net, non-current portion 

1,085

1,443

 Other long-term liabilities 

10,290

10,994

 Total liabilities 

111,345

106,503

 Shareholders' equity 

321,859

271,287

 Total liabilities and shareholders' equity  

$            433,204

$           377,790

 RealNetworks, Inc. and Subsidiaries 

 Condensed Consolidated Statements of Cash Flows 

 (Unaudited) 

 Nine Months Ended September 30,  

2012

2011

 (in thousands) 

 Cash flows from operating activities: 

 Net income (loss) 

$        41,768

$   (24,336)

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

 Depreciation and amortization 

12,478

12,519

 Stock-based compensation 

6,419

9,086

 Loss (gain) on disposal of equipment, software, and leasehold improvements 

1,965

81

 Equity in net loss of Rhapsody investment 

4,095

5,739

 Excess tax benefit from stock option exercises 

-

(57)

 Deferred income taxes, net 

22,399

(429)

 Gain on sale of patent and other technology assets, net of costs 

(116,353)

-

 Gain on sale of equity and other investments, net 

(5,288)

-

 Realized translation gain 

(1,968)

-

 Other 

-

(19)

 Net change in certain operating assets and liabilities 

3,735

(9,960)

 Net cash provided by (used in) operating activities 

(30,750)

(7,376)

 Cash flows from investing activities: 

 Purchases of equipment, software, and leasehold improvements 

(6,478)

(6,013)

 Proceeds from sale of patents and other technology assets, net of costs 

116,353

-

 Proceeds from sale of equity and other investments 

7,244

-

 Purchases of short-term investments 

(76,191)

(77,078)

 Proceeds from sales and maturities of short-term investments 

51,885

95,104

 Decrease (increase) in restricted cash equivalents and investments, net 

103

(141)

 Payment of acquisition costs, net of cash acquired 

-

(2,888)

 Net cash provided by (used in) investing activities 

92,916

8,984

 Cash flows from financing activities: 

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

3,240

1,940

 Tax payments from shares withheld upon vesting of restricted stock 

(964)

-

 Excess tax benefit from stock option exercises 

-

57

 Payment of common stock cash dividend 

-

(136,793)

 Net cash provided by (used in) financing activities 

2,276

(134,796)

 Effect of exchange rate changes on cash and cash equivalents 

(73)

(19)

 Net increase (decrease) in cash and cash equivalents 

64,369

(133,207)

 Cash and cash equivalents, beginning of period 

106,333

236,018

 Cash and cash equivalents, end of period 

$      170,702

$  102,811

 RealNetworks, Inc. and Subsidiaries 

 Supplemental Financial Information 

 (Unaudited) 

2012

2011

 Q3 

 Q2 

 Q1 

 Q4 

 Q3 

 Q2 

 Q1 

 (in thousands) 

 Net Revenue by Line of Business: 

 Core Products (A) 

$34,078

$38,250

$37,697

$46,693

$50,705

$45,735

$48,107

 Emerging Products (B) 

10,134

9,913

10,159

11,974

10,764

12,717

11,135

 Games (C)  

14,876

17,363

19,108

21,552

22,945

25,300

28,059

  Total net revenue 

$59,088

$65,526

$66,964

$80,219

$84,414

$83,752

$87,301

 Core Products Revenue by Product: 

 SaaS (D) 

$20,697

$23,286

$23,463

$28,255

$30,381

$30,216

$30,526

 Systems Integration / Professional Services (E) 

247

965

426

771

3,844

388

1,840

 Technology Licensing (F) 

6,079

7,189

6,207

9,246

6,250

6,508

6,425

 Consumer Subscriptions (G) 

7,055

6,810

7,601

8,421

10,230

8,623

9,316

 Total Core Products net revenue 

$34,078

$38,250

$37,697

$46,693

$50,705

$45,735

$48,107

 Net Revenue by Geography: 

 United States 

$29,101

$28,614

$31,814

$37,298

$38,969

$41,984

$44,469

 Rest of world 

29,987

36,912

35,150

42,921

45,445

41,768

42,832

 Total net revenue 

$59,088

$65,526

$66,964

$80,219

$84,414

$83,752

$87,301

Product Metrics (subscribers and ICM presented as greater than):

Addressable subscribers of mobile operators under contract (H)

700,000

725,000

725,000

725,000

700,000

775,000

775,000

SaaS subscribers (I)

26,500

30,600

30,500

30,050

34,000

34,550

35,900

Monthly SaaS ARPU (in cents) (J)

$    0.17

$    0.16

$    0.15

$    0.19

$    0.17

$    0.18

$    0.18

ICM delivered in billions (K)

173

162

166

165

162

157

151

Consumer subscribers(L)

350

350

400

425

500

475

500

 Net Revenue by Line of Business: 

(A)  The Core Products segment primarily includes revenue from SaaS services, system integration and professional services to carriers and mobile handset companies, sales of technology licenses of our software products such as Helix for handsets, consumer subscriptions such as SuperPass and our international radio subscription services.

(B)  The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as the distribution of third party software products, advertising on RealPlayer websites and sales of RealPlayerPlus software licenses to consumers.

(C)  The Games segment primarily includes revenue from sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, microtransactions from online and social games and sales of mobile games.

 Core Products Revenue by Product: 

(D)  Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers, who are largely mobile phone networks.

(E)  Systems Integrations / Professional Services revenue includes professional services, other than those associated with software sales, provided to mobile carriers and handset manufacturers.

(F)  Technology Licensing includes revenue from sales of software and other intellectual property licenses such as Helix server licenses and Helix software licenses for handsets.

(G)  Consumer Subscriptions includes revenue from SuperPass as well as our international radio subscription services.

 Product Metrics: 

(H)  Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our SaaS services, other than intercarrier messaging services, to their customers.

(I)  SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter.

(J)  Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end of the quarter, and dividing the resulting quotient by three.

(K)  ICM (Intercarrier message) represents the total number of messages delivered across our messaging platform during the quarter.

(L)  Consumer subscribers primarily includes our SuperPass and GamePass products. 

 RealNetworks, Inc. and Subsidiaries 

 Segment Results of Operations 

 (Unaudited) 

2012

2011

2012

2011

Q3

Q2

Q3

YTD

YTD

 (in thousands) 

Core Products

Net revenue

$     34,078

$       38,250

$      50,705

$ 110,025

$ 144,547

Cost of revenue

17,323

17,681

22,492

52,832

62,829

Gross profit

16,755

20,569

28,213

57,193

81,718

Gross margin

49%

54%

56%

52%

57%

Operating expenses

15,575

16,429

19,398

50,072

57,958

Operating income (loss)  

$       1,180

$        4,140

$       8,815

$    7,121

$   23,760

 Adjusted EBITDA  

$       3,736

$        6,628

$      11,617

$   14,764

$   31,777

Emerging Products

Net revenue

$     10,134

$        9,913

$      10,764

$   30,206

$   34,616

Cost of revenue

2,041

1,800

3,913

5,946

8,431

Gross profit

8,093

8,113

6,851

24,260

26,185

Gross margin

80%

82%

64%

80%

76%

Operating expenses

8,245

7,092

8,884

22,883

28,144

Operating income (loss)  

$         (152)

$        1,021

$      (2,033)

$    1,377

$    (1,959)

 Adjusted EBITDA  

$          158

$        1,266

$      (1,711)

$    2,178

$    (1,192)

Games 

Net revenue

$     14,876

$       17,363

$      22,945

$   51,347

$   76,304

Cost of revenue

4,936

5,572

7,197

17,169

23,771

Gross profit

9,940

11,791

15,748

34,178

52,533

Gross margin

67%

68%

69%

67%

69%

Operating expenses

11,648

13,093

14,159

38,171

46,184

Operating income (loss)  

$      (1,708)

$       (1,302)

$       1,589

$   (3,993)

$     6,349

 Adjusted EBITDA  

$         (894)

$          (619)

$       2,275

$   (1,837)

$     8,363

Corporate

Net revenue

$            -

$             -

$            -

$         -

$          -

Cost of revenue

944

909

(1,786)

2,686

(483)

Gross profit

(944)

(909)

1,786

(2,686)

483

Gross margin

 N/A 

 N/A 

 N/A 

 N/A 

 N/A 

Gain on sale of patents and other technology assets, net of costs

-

117,933

-

116,353

-

Operating expenses

21,551

16,715

13,640

55,721

42,566

Operating income (loss)  

$    (22,495)

$     100,309

$     (11,854)

$   57,946

$  (42,083)

 Adjusted EBITDA  

$      (9,042)

$      (13,784)

$      (8,094)

$  (35,073)

$  (25,097)

Total

Net revenue

$     59,088

$       65,526

$      84,414

$ 191,578

$ 255,467

Cost of revenue

25,244

25,962

31,816

78,633

94,548

Gross profit

33,844

39,564

52,598

112,945

160,919

Gross margin

57%

60%

62%

59%

63%

Gain on sale of patents and other technology assets, net of costs

-

117,933

-

116,353

-

Operating expenses

57,019

53,329

56,081

166,847

174,852

Operating income (loss)  

$    (23,175)

$     104,168

$      (3,483)

$   62,451

$  (13,933)

 Adjusted EBITDA  

$      (6,042)

$       (6,509)

$       4,087

$  (19,968)

$   13,851

 RealNetworks, Inc. and Subsidiaries 

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

 (Unaudited) 

2012

2011

2012

2011

 Q3 

 Q2 

 Q3 

 YTD 

 YTD 

 (in thousands) 

Core Products

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

Operating income (loss) 

$         1,180

$         4,140

$      8,815

$       7,121

$   23,760

Acquisitions related intangible asset amortization 

796

786

833

2,384

2,017

Depreciation and amortization 

1,760

1,702

1,969

5,259

6,000

 Adjusted EBITDA  

$         3,736

$         6,628

$    11,617

$      14,764

$   31,777

Emerging Products

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

Operating income (loss)  

$           (152)

$         1,021

$     (2,033)

$       1,377

$   (1,959)

Acquisitions related intangible asset amortization 

62

79

79

220

132

Depreciation and amortization 

248

166

243

581

635

 Adjusted EBITDA  

$            158

$         1,266

$     (1,711)

$       2,178

$   (1,192)

Games 

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

Operating income (loss)  

$        (1,708)

$        (1,302)

$      1,589

$      (3,993)

$    6,349

Acquisitions related intangible asset amortization 

171

207

257

587

767

Depreciation and amortization 

643

476

429

1,569

1,247

 Adjusted EBITDA  

$           (894)

$           (619)

$      2,275

$      (1,837)

$    8,363

Corporate

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

Operating income (loss)  

$      (22,495)

$      100,309

$   (11,854)

$      57,946

$  (42,083)

Other income (expense), net

248

(49)

(228)

1,674

(661)

Depreciation and amortization 

636

628

593

1,878

1,721

Restructuring and other charges

10,724

1,539

438

13,872

7,850

Stock-based compensation

1,602

1,722

2,957

5,667

8,250

Gain on sale of patents and other technology assets, net of costs

-

(117,933)

-

(116,353)

-

Loss (Gain) on excess office facilities

243

-

-

243

(174)

 Adjusted EBITDA  

$        (9,042)

$      (13,784)

$     (8,094)

$     (35,073)

$  (25,097)

 Total  

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

Operating income (loss)  

$      (23,175)

$      104,168

$     (3,483)

$      62,451

$  (13,933)

Other income (expense), net

248

(49)

(228)

1,674

(661)

Acquisitions related intangible asset amortization

1,029

1,072

1,169

3,191

2,916

Depreciation and amortization

3,287

2,972

3,234

9,287

9,603

Loss (Gain) on excess office facilities

243

-

-

243

(174)

Restructuring and other charges

10,724

1,539

438

13,872

7,850

Stock-based compensation

1,602

1,722

2,957

5,667

8,250

Gain on sale of patents and other technology assets, net of costs

-

(117,933)

-

(116,353)

-

 Adjusted EBITDA  

$        (6,042)

$        (6,509)

$      4,087

$     (19,968)

$   13,851