Press Releases

RealNetworks Announces Third Quarter 2014 Results

-- Continued strong growth in RealPlayer Cloud user base, with over 8 million accounts;
-- RealPlayer Cloud available on 12 platforms, including native Mac;
-- Successfully launched Slingo Adventure on Facebook, iOS and Android platforms; and
-- Cash and short-term investments of $178.0 million

SEATTLE, Nov.  3, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the third quarter ended September 30, 2014.

For the third quarter of 2014, revenue was $34.2 million, compared to $40.8 million in the previous quarter and $49.0 million in the third quarter of 2013.

"During the third quarter of 2014, we continued to make progress in our strategic transition to our new multi-device, multi-platform, cloud-based products and services, led by RealPlayer Cloud" said Rob Glaser, Chairman and CEO of RealNetworks. "Just over a year after its introduction, RealPlayer Cloud has over 8 million users worldwide, up from 5 million three months ago. RealPlayer Cloud makes it easy to watch, save and share video across every type of popular digital device."

"In addition, we're encouraged by our progress in our other businesses.  In our Games division, we successfully launched our Slingo Adventure game on Facebook during the third quarter, and on the iOS and Android platforms more recently. We also saw continued revenue growth for Rhapsody, of which we own approximately 45%.  At the same time, we continued to manage costs carefully, making cost reductions related to our legacy businesses of over $15 million annually."

GAAP net loss for the third quarter of 2014 was $(22.2) million or $(0.62) per diluted share, compared to $(31.4) million or $(0.88) per diluted share in the third quarter of 2013. Adjusted EBITDA for the third quarter of 2014 was a loss of $(14.4) million compared to $(8.4) million for the third quarter of 2013. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of September 30, 2014, the company had $178.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the fourth quarter of 2014, RealNetworks expects total revenue in the range of $33.0 million to $36.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(16.0) million to $(18.0) 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 by calling 888-790-3440 or +1-517-308-9350 (Passcode: Third 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, November 25, 2014 by calling 866-443-2932 or +1-203-369-1106 (Passcode: 110314).

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 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.

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 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, our future growth, profitability, strategic focus and initiatives. 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: risks associated with the implementation of RealNetworks' growth plan, strategic initiatives, and restructuring efforts; its ability to successfully introduce and monetize new products and services; competitive risks, including the growth of competing technologies, products and services, and the emergence of new entrants and competition in the market; 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
September 30,


Nine Months Ended
September 30,






2014


2013


2014


2013



 (in thousands, except per share data)














 Net revenue


$

34,157



$

48,958



$

120,706



$

155,601















 Cost of revenue


18,928



18,990



58,500



59,015















 Extinguishment of liability






(10,580)

















           Gross profit


15,229



29,968



72,786



96,586















 Operating expenses:













       Research and development


12,784



15,707



40,110



45,951


       Sales and marketing


13,283



19,427



51,022



59,830


       General and administrative


7,723



9,869



25,617



28,506


       Restructuring and other charges


2,048



1,877



3,805



4,075


       Lease exit and related charges


154





703



3,066


       Loss on litigation settlements




11,525





11,525















           Total operating expenses


35,992



58,405



121,257



152,953















 Operating income (loss)


(20,763)



(28,437)



(48,471)



(56,367)















 Other income (expenses):













       Interest income, net


80



166



396



992


       Gain (loss) on sale of available for sale securities, net






2,371




       Equity in net loss of Rhapsody investment


(1,530)



(2,629)



(4,170)



(6,209)


       Other income (expense), net


325



(118)



153



(146)















           Total other income (expense), net


(1,125)



(2,581)



(1,250)



(5,363)















 Income (loss) before income taxes


(21,888)



(31,018)



(49,721)



(61,730)


 Income tax expense (benefit)


290



357



1,256



(210)















 Net income (loss)


$

(22,178)



$

(31,375)



$

(50,977)



$

(61,520)















 Basic net income (loss) per share


$

(0.62)



$

(0.88)



$

(1.42)



$

(1.73)


 Diluted net income (loss) per share


$

(0.62)



$

(0.88)



$

(1.42)



$

(1.73)















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


36,003



35,670



35,912



35,490


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


36,003



35,670



35,912



35,490




























 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)






September 30,
 2014


December 31,
 2013


 (in thousands)

ASSETS

 Current assets:






 Cash and cash equivalents

$

114,073



$

151,235


 Short-term investments

63,948



74,920


 Trade accounts receivable, net

17,679



24,613


 Deferred costs, current portion

1,023



1,601


 Deferred tax assets, current

296



306


 Prepaid expenses and other current assets

8,382



9,124


   Total current assets

205,401



261,799








 Equipment, software, and leasehold improvements, at cost:






 Equipment and software

83,230



86,721


 Leasehold improvements

3,616



3,482


   Total equipment, software, and leasehold improvements

86,846



90,203


 Less accumulated depreciation and amortization

68,392



67,031


   Net equipment, software, and leasehold improvements

18,454



23,172








 Restricted cash equivalents and investments

3,000



3,000


 Equity method investment

10,000



12,473


 Available for sale securities

2,848



7,181


 Other assets

2,925



2,332


 Deferred costs, non-current portion

913



946


 Deferred tax assets, net, non-current portion

1,424



1,409


 Other intangible assets, net

10,954



12,993


 Goodwill

17,615



17,476








 Total assets

$

273,534



$

342,781








 LIABILITIES AND SHAREHOLDERS' EQUITY







 Current liabilities:






 Accounts payable

$

18,155



$

19,987


 Accrued and other current liabilities

25,885



41,893


 Deferred tax liabilities, net, current portion

768



899


 Deferred revenue, current portion

6,908



7,498


   Total current liabilities

51,716



70,277








 Deferred revenue, non-current portion

143



166


 Deferred rent

1,293



1,318


 Deferred tax liabilities, net, non-current portion

1,805



1,556


 Other long-term liabilities

563



483








 Total liabilities

55,520



73,800














 Shareholders' equity

218,014



268,981








 Total liabilities and shareholders' equity

$

273,534



$

342,781


 

 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)




Nine Months Ended
September 30,


2014


2013


 (in thousands)


 Cash flows from operating activities:






 Net income (loss)

$

(50,977)



$

(61,520)


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

   Depreciation and amortization

8,876



15,045


   Stock-based compensation

4,158



5,671


   Equity in net loss of Rhapsody

4,170



6,209


   Deferred income taxes, net

(64)



(1,238)


   Gain on sale of available for sale securities

(2,371)




   Realized translation gain

(48)



(35)


   Extinguishment of liability

(10,580)




   Other



51


   Net change in certain operating assets and liabilities

1,194



7,514


      Net cash provided by (used in) operating activities

(45,642)



(28,303)


 Cash flows from investing activities:






 Purchases of equipment, software, and leasehold improvements

(2,054)



(5,798)


 Proceeds from sale of available for sale securities

2,754




 Purchases of short-term investments

(63,574)



(85,670)


 Proceeds from sales and maturities of short-term investments

74,546



110,359


 Decrease in restricted cash equivalents and investments



5,000


 Acquisitions of businesses, net of cash acquired

(733)



(22,480)


 Other

(467)




   Net cash provided by (used in) investing activities

10,472



1,411


 Cash flows from financing activities:






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

641



408


 Tax payments from shares withheld upon vesting of restricted stock

(403)



(911)


 Payment of contingent consideration

(696)



(828)


   Net cash provided by (used in) financing activities

(458)



(1,331)


 Effect of exchange rate changes on cash and cash equivalents

(1,534)



(96)


   Net increase (decrease) in cash and cash equivalents

(37,162)



(28,319)


 Cash and cash equivalents, beginning of period

151,235



163,198


 Cash and cash equivalents, end of period

$

114,073



$

134,879


 

 


RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)






2014


2013


 Q3


 Q2


Q1


 Q4


 Q3


 Q2


 Q1


 (in thousands)

Net Revenue by Line of Business




















RealPlayer Group (A)

$

6,565



$

8,556



$

15,215



$

16,799



$

17,641



$

18,383



$

22,383


Mobile Entertainment (B)

19,190



23,182



19,913



22,146



19,948



18,592



20,495


Games (C)

8,402



9,087



10,596



11,650



11,369



12,875



13,915


     Total net revenue

$

34,157



$

40,825



$

45,724



$

50,595



$

48,958



$

49,850



$

56,793























Net Revenue by Product




















RealPlayer Group





















- License (D)

$

3,255



$

3,273



$

5,018



$

7,128



$

7,281



$

6,766



$

8,332


- Subscriptions (E)

2,680



2,569



2,777



3,118



3,615



4,193



4,924


- Media Properties (F)

630



2,714



7,420



6,553



6,745



7,424



9,127























Mobile Entertainment




















- SaaS (G)

17,919



20,175



18,463



20,406



18,156



17,002



18,674


- Technology License & Other (H)

1,271



3,007



1,450



1,740



1,792



1,590



1,821























Games





















- License (I)

2,988



3,399



3,849



3,511



3,421



4,089



5,249


- Subscriptions (J)

4,320



4,440



5,241



5,688



5,733



5,980



6,312


- Media Properties (K)

1,094



1,248



1,506



2,451



2,215



2,806



2,354























     Total net revenue

$

34,157



$

40,825



$

45,724



$

50,595



$

48,958



$

49,850



$

56,793























Net Revenue by Geography




















United States

$

12,280



$

15,092



$

20,428



$

19,724



$

21,039



$

21,463



$

28,024


Rest of world

21,877



25,733



25,296



30,871



27,919



28,387



28,769


     Total net revenue

$

34,157



$

40,825



$

45,724



$

50,595



$

48,958



$

49,850



$

56,793










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 SuperPass and our recently launched RealPlayer Cloud service.

(B) The Mobile Entertainment division primarily includes revenue from SaaS services, system integration, and professional services to mobile carriers, and sales of technology licenses of our software products such as Helix.

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

(E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as SuperPass and our recently launched RealPlayer Cloud service.

(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, and our recently launched LISTEN product.

(H) Licensing and other revenue within Mobile Entertainment includes revenue from Helix-related products and professional services provided to mobile carriers.

(I) Licensing revenue within Games includes retail games-related revenue, microtransactions from online and social games and sales of mobile games.

(J) Subscriptions revenue within Games includes revenue from online games subscriptions.

(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)















2014


2013


2014


2013



Q3


Q2


Q3


YTD


 YTD



 (in thousands)

RealPlayer Group






























Net revenue


$

6,565



$

8,556



$

17,641



$

30,336



$

58,407


Cost of revenue


3,566



3,620



3,264



10,704



12,984


Gross profit


2,999



4,936



14,377



19,632



45,423


















   Gross margin


46

%


58

%


81

%


65

%


78

%

















Operating expenses


12,392



12,489



14,449



42,668



44,656


Operating income (loss)


$

(9,393)



$

(7,553)



$

(72)



$

(23,036)



$

767


















  Adjusted EBITDA


$

(8,770)



$

(6,893)



$

624



$

(21,154)



$

2,425


















Mobile Entertainment





























Net revenue


$

19,190



$

23,182



$

19,948



$

62,285



$

59,035


Cost of revenue


12,626



14,298



11,972



38,874



33,974


Gross profit


6,564



8,884



7,976



23,411



25,061


















   Gross margin


34

%


38

%


40

%


38

%


42

%

















Operating expenses


7,086



9,424



9,453



26,126



26,976


Operating income (loss)


$

(522)



$

(540)



$

(1,477)



$

(2,715)



$

(1,915)


















   Adjusted EBITDA


$

447



$

808



$

503



$

916



$

4,579


















Games
































Net revenue


$

8,402



$

9,087



$

11,369



$

28,085



$

38,159


Cost of revenue


2,573



2,717



3,216



8,419



10,397


Gross profit


5,829



6,370



8,153



19,666



27,762


















   Gross margin


69

%


70

%


72

%


70

%


73

%

















Operating expenses


8,658



8,769



11,513



27,193



35,120


Operating income (loss)


$

(2,829)



$

(2,399)



$

(3,360)



$

(7,527)



$

(7,358)


















   Adjusted EBITDA


$

(2,246)



$

(1,798)



$

(2,704)



$

(5,718)



$

(5,173)


















Corporate
































Net revenue


$



$



$



$



$


Cost of revenue


163



151



538



503



1,660


Extinguishment of liability








(10,580)




Gross profit


(163)



(151)



(538)



10,077



(1,660)


















   Gross margin


 N/A


 N/A


 N/A


 N/A


 N/A

















Operating expenses


7,856



8,189



22,990



25,270



46,201


Operating income (loss)


$

(8,019)



$

(8,340)



$

(23,528)



$

(15,193)



$

(47,861)


















   Adjusted EBITDA


$

(3,788)



$

(5,198)



$

(6,792)



$

(15,400)



$

(18,962)


















Total
































Net revenue


$

34,157



$

40,825



$

48,958



$

120,706



$

155,601


Cost of revenue


18,928



20,786



18,990



58,500



59,015


Extinguishment of liability








(10,580)




Gross profit


15,229



20,039



29,968



72,786



96,586


















   Gross margin


45

%


49

%


61

%


60

%


62

%

















Operating expenses


35,992



38,871



58,405



121,257



152,953


Operating income (loss)


$

(20,763)



$

(18,832)



$

(28,437)



$

(48,471)



$

(56,367)


















   Adjusted EBITDA


$

(14,357)



$

(13,081)



$

(8,369)



$

(41,356)



$

(17,131)


 

 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)
















2014


2013



2014


2013



 Q3


 Q2


 Q3



 YTD


 YTD



 (in thousands)

RealPlayer Group
































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




























Operating income (loss)


$

(9,393)



$

(7,553)



$

(72)




$

(23,036)



$

767


Acquisitions related intangible asset amortization


103



125



60




288



189


Depreciation and amortization


520



535



636




1,594



1,469


   Adjusted EBITDA


$

(8,770)



$

(6,893)



$

624




$

(21,154)



$

2,425



















Mobile Entertainment
































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




























Operating income (loss)


$

(522)



$

(540)



$

(1,477)




$

(2,715)



$

(1,915)


Acquisitions related intangible asset amortization


287



628



1,055




1,522



2,506


Depreciation and amortization


682



720



925




2,109



3,988


   Adjusted EBITDA


$

447



$

808



$

503




$

916



$

4,579



















Games


































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




























Operating income (loss)


$

(2,829)



$

(2,399)



$

(3,360)




$

(7,527)



$

(7,358)


Acquisitions related intangible asset amortization


314



314



314




942



565


Depreciation and amortization


269



287



342




867



1,620


   Adjusted EBITDA


$

(2,246)



$

(1,798)



$

(2,704)




$

(5,718)



$

(5,173)



















Corporate


































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




























Operating income (loss)


$

(8,019)



$

(8,340)



$

(23,528)




$

(15,193)



$

(47,861)


Other income (expense), net


325



(95)



(118)




153



(146)


Depreciation and amortization


556



553



1,839




1,554



4,708


Lease exit and related charges


154



470






703



3,066


Loss (gain) on litigation settlements






11,525






11,525


Restructuring and other charges


2,048



541



1,877




3,805



4,075


Stock-based compensation


1,148



1,673



1,613




4,158



5,671


Extinguishment of liability









(10,580)




   Adjusted EBITDA


$

(3,788)



$

(5,198)



$

(6,792)




$

(15,400)



$

(18,962)



















Total


































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




























Operating income (loss)


$

(20,763)



$

(18,832)



$

(28,437)




$

(48,471)



$

(56,367)


Other income (expense), net


325



(95)



(118)




153



(146)


Acquisitions related intangible asset amortization


704



1,067



1,429




2,752



3,260


Depreciation and amortization


2,027



2,095



3,742




6,124



11,785


Lease exit and related charges


154



470






703



3,066


Loss (gain) on litigation settlements






11,525






11,525


Restructuring and other charges


2,048



541



1,877




3,805



4,075


Stock-based compensation


1,148



1,673



1,613




4,158



5,671


Extinguishment of liability









(10,580)




   Adjusted EBITDA


$

(14,357)



$

(13,081)



$

(8,369)




$

(41,356)



$

(17,131)


 

SOURCE RealNetworks, Inc.

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Stock price graph
(NASDAQ: RNWK)
Price:
$4.74
Change:
+ 0.07
Day High:
$4.74
Day Low:
$4.66
Volume:
27,922
4:00 PM ET on 09/22/2017

Delayed at least 20 minutes.
Provided by eSignal.


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