RealNetworks Announces First Quarter 2014 Results - WRCBtv.com | Chattanooga News, Weather & Sports

RealNetworks Announces First Quarter 2014 Results

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SOURCE RealNetworks, Inc.

- RealPlayer Cloud continues to gain traction with over 2 million accounts;

- Mobile Entertainment business launches new LISTEN™ app in US with T-Mobile Partnership;

- Continued progress in long term strategic transition and growth strategy; and

- Cash and short-term investments of $209.6 million

SEATTLE, May 7, 2014 /PRNewswire/ -- RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2014.

For the first quarter of 2014, revenue was $45.7 million, compared to $50.6 million in the previous quarter and $56.8 million in the first quarter of 2013.

"During the first quarter of 2014, we continued to invest in laying the foundation for our future growth and profitability," said Rob Glaser, Chairman and interim CEO of RealNetworks. "We began to roll out our new RealPlayer Cloud product globally and we now have over 2 million users. RealPlayer Cloud makes it easy to watch, save and share video across every type of popular digital device.

"Our Mobile Entertainment business brought our new LISTEN™ application, our innovative ringback tone experience for iPhone and Android users, to the U.S. via a new partnership with T-Mobile. We also hired a new leader for our Games business, Atul Bali, who brings over 20 years of experience in land-based and digital gaming."

GAAP net loss for the first quarter of 2014 was $(7.8) million or $(0.22) per diluted share, compared to $(11.7) million or $(0.33) per diluted share in the first quarter of 2013. Adjusted EBITDA for the first quarter of 2014 was a loss of $(13.9) million, compared to $(3.0) million for the first 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 March 31, 2014, the company had $209.6 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the second quarter of 2014, RealNetworks expects total revenue in the range of $38.0 million to $41.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(13.0) million to $(16.0) 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: First 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 9 p.m. PT, May 28, 2014 by calling 800-754-7907 or +1-203-369-3824 (Passcode: 1280865)

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

March 31,



2014


2013


(in thousands, except per share data)





Net revenue

$

45,724



$

56,793






Cost of revenue

18,786



20,506






Extinguishment of liability

(10,580)



-






        Gross profit

37,518



36,287






Operating expenses:




     Research and development

14,059



15,251


     Sales and marketing

21,723



21,134


     General and administrative

9,317



9,946


     Restructuring and other charges

1,216



1,382


     Lease exit and related charges

79



-






        Total operating expenses

46,394



47,713






Operating income (loss)

(8,876)



(11,426)






Other income (expenses):




     Interest income, net

136



647


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

2,371



-


     Equity in net loss of Rhapsody investment

(838)



(2,233)


     Other income (expense), net

(77)



109






        Total other income (expense), net

1,592



(1,477)






Income (loss) before income taxes

(7,284)



(12,903)


Income tax expense (benefit)

486



(1,229)






Net income (loss)

$

(7,770)



$

(11,674)






Basic net income (loss) per share

$

(0.22)



$

(0.33)


Diluted net income (loss) per share

$

(0.22)



$

(0.33)






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

35,840



35,343


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

35,840



35,343










 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)










March 31,
2014


December 31,
2013


(in thousands)

ASSETS

Current assets:




Cash and cash equivalents

$

131,276



$

151,235


Short-term investments

78,361



74,920


Trade accounts receivable, net

25,404



24,613


Deferred costs, current portion

1,629



1,601


Deferred tax assets, current

308



306


Prepaid expenses and other current assets

10,322



9,124


  Total current assets

247,300



261,799






Equipment, software, and leasehold improvements, at cost:




Equipment and software

86,585



86,721


Leasehold improvements

3,889



3,482


  Total equipment, software, and leasehold improvements

90,474



90,203


Less accumulated depreciation and amortization

68,452



67,031


  Net equipment, software, and leasehold improvements

22,022



23,172






Restricted cash equivalents and investments

3,000



3,000


Equity method investment

11,704



12,473


Available for sale securities

3,212



7,181


Other assets

2,517



2,332


Deferred costs, non-current portion

1,040



946


Deferred tax assets, net, non-current portion

1,408



1,409


Other intangible assets, net

12,045



12,993


Goodwill

17,336



17,476






  Total assets

$

321,584



$

342,781






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:




Accounts payable

$

21,402



$

19,987


Accrued and other current liabilities

27,704



41,893


Deferred tax liabilities, net, current portion

909



899


Deferred revenue, current portion

8,718



7,498


  Total current liabilities

58,733



70,277






Deferred revenue, non-current portion

155



166


Deferred rent

1,378



1,318


Deferred tax liabilities, net, non-current portion

1,556



1,556


Other long-term liabilities

595



483






  Total liabilities

62,417



73,800










Shareholders' equity

259,167



268,981






Total liabilities and shareholders' equity

$

321,584



$

342,781


 

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)










Quarters Ended March 31,


2014


2013


(in thousands)


Cash flows from operating activities:




  Net income (loss)

$

(7,770)



$

(11,674)


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

    Depreciation and amortization

2,983



4,888


    Stock-based compensation

1,337



2,038


    Equity in net loss of Rhapsody

838



2,233


    Deferred income taxes, net

10



(1,559)


    Gain on sale of available for sale securities

(2,371)



-


    Realized translation gain

(48)



-


    Extinguishment of liability

(10,580)



-


    Other

-



(75)


    Net change in certain operating assets and liabilities

(2,909)



(2,584)


      Net cash provided by (used in) operating activities

(18,510)



(6,733)


Cash flows from investing activities:




  Purchases of equipment, software, and leasehold improvements

(998)



(1,194)


  Proceeds from sale of available for sale securities

2,754



-


  Purchases of short-term investments

(29,030)



(43,318)


  Proceeds from sales and maturities of short-term investments

25,589



27,640


  Acquisitions of businesses, net of cash acquired

-



(700)


    Net cash provided by (used in) investing activities

(1,685)



(17,572)


Cash flows from financing activities:




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

210



20


  Tax payments from shares withheld upon vesting of restricted stock

(60)



(166)


  Payment of contingent consideration

-



(828)


    Net cash provided by (used in) financing activities

150



(974)


Effect of exchange rate changes on cash and cash equivalents

86



(1,225)


    Net increase (decrease) in cash and cash equivalents

(19,959)



(26,504)


Cash and cash equivalents, beginning of period

151,235



163,198


Cash and cash equivalents, end of period

$

131,276



$

136,694


 


RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)






















2014


2013


Q1


Q4


Q3


Q2


Q1


(in thousands)

Net Revenue by Line of Business










RealPlayer Group (A)

$

15,215



$

16,799



$

17,641



$

18,383



$

22,383


Mobile Entertainment (B)

19,913



22,146



19,948



18,592



20,495


Games (C)

10,596



11,650



11,369



12,875



13,915


    Total net revenue

$

45,724



$

50,595



$

48,958



$

49,850



$

56,793












Net Revenue by Product










RealPlayer Group










- License (D)

$

5,018



$

7,128



$

7,281



$

6,766



$

8,332


- Subscriptions (E)

2,777



3,118



3,615



4,193



4,924


- Media Properties (F)

7,420



6,553



6,745



7,424



9,127












Mobile Entertainment










- SaaS (G)

18,463



20,406



18,156



17,002



18,674


- Technology License & Other (H)

1,450



1,740



1,792



1,590



1,821












Games










- License (I)

3,849



3,511



3,421



4,089



5,249


- Subscriptions (J)

5,241



5,688



5,733



5,980



6,312


- Media Properties (K)

1,506



2,451



2,215



2,806



2,354












    Total net revenue

$

45,724



$

50,595



$

48,958



$

49,850



$

56,793












Net Revenue by Geography










United States

$

20,428



$

19,724



$

21,039



$

21,463



$

28,024


Rest of world

25,296



30,871



27,919



28,387



28,769


     Total net revenue

$

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


Q1


Q4


Q1


(in thousands)

RealPlayer Group












Net revenue

$

15,215



$

16,799



$

22,383


Cost of revenue

3,518



3,236



5,311


Gross profit

11,697



13,563



17,072








   Gross margin

77%



81%



76%








Operating expenses

17,787



15,828



16,206


Operating income (loss)

$

(6,090)



$

(2,265)



$

866








  Adjusted EBITDA

$

(5,491)



$

(1,474)



$

1,331








Mobile Entertainment












Net revenue

$

19,913



$

22,146



$

20,495


Cost of revenue

11,950



13,634



10,832


Gross profit

7,963



8,512



9,663








   Gross margin

40%



38%



47%








Operating expenses

9,616



8,863



9,111


Operating income (loss)

$

(1,653)



$

(351)



$

552








  Adjusted EBITDA

$

(339)



$

1,251



$

3,382








Games












Net revenue

$

10,596



$

11,650



$

13,915


Cost of revenue

3,129



2,962



3,800


Gross profit

7,467



8,688



10,115








   Gross margin

70%



75%



73%








Operating expenses

9,766



12,057



11,852


Operating income (loss)

$

(2,299)



$

(3,369)



$

(1,737)








  Adjusted EBITDA

$

(1,674)



$

(2,724)



$

(1,154)








Corporate












Net revenue

$

-



$

-



$

-


Cost of revenue

189



244



563


Extinguishment of liability

(10,580)



-



-


Gross profit

10,391



(244)



(563)








Gross margin

N/A



N/A



N/A








Operating expenses

9,225



8,212



10,544


Operating income (loss)

$

1,166



$

(8,456)



$

(11,107)








Adjusted EBITDA

$

(6,414)



$

(3,668)



$

(6,568)








Total












Net revenue

$

45,724



$

50,595



$

56,793


Cost of revenue

18,786



20,076



20,506


Extinguishment of liability

(10,580)



-



-


Gross profit

37,518



30,519



36,287








   Gross margin

82%



60%



64%








Operating expenses

46,394



44,960



47,713


Operating income (loss)

$

(8,876)



$

(14,441)



$

(11,426)








  Adjusted EBITDA

$

(13,918)



$

(6,615)



$

(3,009)


 

RealNetworks, Inc. and Subsidiaries

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

(Unaudited)
















2014


2013



Q1


Q4


Q1



(in thousands)

RealPlayer Group














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












Operating income (loss)


$

(6,090)



$

(2,265)



$

866


Acquisitions related intangible asset amortization


60



60



67


Depreciation and amortization


539



731



398


   Adjusted EBITDA


$

(5,491)



$

(1,474)



$

1,331









Mobile Entertainment














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












Operating income (loss)


$

(1,653)



$

(351)



$

552


Acquisitions related intangible asset amortization


607



781



813


Depreciation and amortization


707



821



2,017


   Adjusted EBITDA


$

(339)



$

1,251



$

3,382









Games














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












Operating income (loss)


$

(2,299)



$

(3,369)



$

(1,737)


Acquisitions related intangible asset amortization


314



314



21


Depreciation and amortization


311



331



562


   Adjusted EBITDA


$

(1,674)



$

(2,724)



$

(1,154)









Corporate














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












Operating income (loss)


$

1,166



$

(8,456)



$

(11,107)


Other income (expense), net


(77)



613



109


Depreciation and amortization


445



665



1,010


Lease exit and related charges


79



23



-


Restructuring and other charges


1,216



1,690



1,382


Stock-based compensation


1,337



1,797



2,038


Extinguishment of liability


(10,580)



-



-


   Adjusted EBITDA


$

(6,414)



$

(3,668)



$

(6,568)









Total














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












Operating income (loss)


$

(8,876)



$

(14,441)



$

(11,426)


Other income (expense), net


(77)



613



109


Acquisitions related intangible asset amortization


981



1,155



901


Depreciation and amortization


2,002



2,548



3,987


Lease exit and related charges


79



23



-


Restructuring and other charges


1,216



1,690



1,382


Stock-based compensation


1,337



1,797



2,038


Extinguishment of liability


(10,580)



-



-


   Adjusted EBITDA


$

(13,918)



$

(6,615)



$

(3,009)


 

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