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RealNetworks Announces First Quarter 2014 Results

Companies mentioned in this article: RealNetworks, Inc.

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(TM) 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)

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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              December
                                       31,                 31,
                                       2014                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

    (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)

SOURCE RealNetworks, Inc.