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RealNetworks Announces Second Quarter 2014 Results

Companies mentioned in this article: RealNetworks, Inc.

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

For the second quarter of 2014, revenue was $40.8 million, compared to $45.7 million in the previous quarter and $49.9 million in the second quarter of 2013.

"In the second quarter of 2014, we continued to make good progress in our transition into a being a multi-device, cloud-based products and services company," said Rob Glaser, Chairman and CEO of RealNetworks. "Of particular note is RealPlayer Cloud's rapid growth -- RealPlayer Cloud now has over 5 million users worldwide, up from over 2 million three months ago, and, in aggregate, our users are now uploading over 4.5 terabytes of video per day." RealPlayer Cloud is Real's next generation video product and service, which makes it easy to watch, save and share video across every type of popular digital device.

"During the second quarter, we brought in Mike Mulica to lead the integration of our worldwide sales efforts across our RealPlayer and Mobile Entertainment divisions in order to strengthen our focus on partnerships with global carriers. We also redeployed Max Pellegrini to run the combined product teams and all associated direct-to-consumer marketing. On the games front, we also strengthened our senior team by bringing in Atul Bali to run our overall Games business and by bringing back Rutger Peters and Erik Goossens, the co-founders of Zylom which we acquired in 2006, to run the Casual Games part of the business. We also just announced our new Slingo Adventure game, the first fruit of our Slingo acquisition a year ago. Finally, we also continue to be encouraged by the progress being made by Rhapsody (of which we own approximately 45%), which announced yesterday that it now has over 2 million subscribers."

The company also announced today that Rob Glaser has been named permanent CEO of RealNetworks. See announcement at http://www.realnetworks.com/press/releases/2014/Glaser-permanent-CEO.aspx.

"While our transition plan will take time to complete and will require more capital than originally anticipated, I'm very confident that we are on the right track and making progress that is setting us up for a return to long-term growth and profitability," said Glaser.

GAAP net loss for the second quarter of 2014 was $(21.0) million or $(0.59) per diluted share, compared to $(18.5) million or $(0.52) per diluted share in the second quarter of 2013. Adjusted EBITDA for the second quarter of 2014 was a loss of $(13.1) million, compared to $(5.8) million for the second 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 June 30, 2014, the company had $195.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $226.2 million as of December 31, 2013.

Business Outlook

For the third 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 $(18.0) million to $(20.0) 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: Second 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, August 20, 2014 by calling 888-566-0046 or +1-203-369-3677 (Passcode: 6895485)

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                              Six Months Ended
                                                    June 30,                                     June 30,
                                                  --------                                   --------


                                            2014                                            2013                                      2014               2013
                                            ----                                            ----                                      ----               ----

                                                   (in thousands, except per share data)


    Net revenue                                                    $40,825                                                          $49,850                       $86,549      $106,643


    Cost of revenue                       20,786                                            19,519                                                39,572            40,025


    Extinguishment of liability                -                                                -                                             (10,580)                -
                                             ---                                              ---                                              -------               ---


          Gross profit                    20,039                                            30,331                                                57,557            66,618
                                          ------                                            ------                                                ------            ------


    Operating expenses:

       Research and development           13,267                                            14,993                                                27,326            30,244

       Sales and marketing                16,016                                            19,269                                                37,739            40,403

       General and administrative          8,577                                             8,691                                                17,894            18,637

       Restructuring and other charges       541                                               816                                                 1,757             2,198

       Lease exit and related charges        470                                             3,066                                                   549             3,066

          Total operating expenses        38,871                                            46,835                                                85,265            94,548
                                          ------                                            ------                                                ------            ------


    Operating income (loss)             (18,832)                                         (16,504)                                              (27,708)         (27,930)
                                         -------                                           -------                                               -------           -------


    Other income (expenses):

       Interest income, net                  180                                               179                                                   316               826

       Gain (loss) on sale of available
        for sale securities, net               -                                                -                                                2,371                 -

       Equity in net loss of Rhapsody
        investment                       (1,802)                                          (1,347)                                              (2,640)          (3,580)

       Other income (expense), net          (95)                                            (137)                                                (172)             (28)
                                             ---                                              ----                                                  ----               ---


          Total other income (expense),
           net                           (1,717)                                          (1,305)                                                (125)          (2,782)
                                          ------                                            ------                                                  ----            ------


    Income (loss) before income
     taxes                              (20,549)                                         (17,809)                                              (27,833)         (30,712)

    Income tax expense (benefit)             480                                               662                                                   966             (567)
                                             ---                                               ---                                                   ---              ----


    Net income (loss)                                            $(21,029)                                                       $(18,471)                    $(28,799)    $(30,145)
                                                                  ========                                                         ========                      ========      ========


    Basic net income (loss) per
     share                                                         $(0.59)                                                         $(0.52)                      $(0.80)      $(0.85)

    Diluted net income (loss) per
     share                                                         $(0.59)                                                         $(0.52)                      $(0.80)      $(0.85)


    Shares used to compute basic net
     income (loss) per share              35,890                                            35,455                                                35,865            35,399

    Shares used to compute diluted
     net income (loss) per share          35,890                                            35,455                                                35,865            35,399


                                   RealNetworks, Inc. and Subsidiaries

                                  Condensed Consolidated Balance Sheets

                                               (Unaudited)


                                              June 30,                  December 31,
                                                   2014                          2013
                                                   ----                          ----

                                                        (in thousands)

                                               ASSETS

    Current assets:

    Cash and cash
     equivalents                                           $124,450                     $151,235

    Short-term
     investments                                 70,583                          74,920

    Trade accounts
     receivable,
     net                                         21,580                          24,613

    Deferred costs,
     current
     portion                                        992                           1,601

    Deferred tax
     assets,
     current                                        311                             306

    Prepaid
     expenses and
     other current
     assets                                       9,910                           9,124
                                                  -----                           -----

       Total current
        assets                                  227,826                         261,799
                                                -------                         -------


    Equipment, software, and
     leasehold improvements, at
     cost:

    Equipment and
     software                                    86,755                          86,721

    Leasehold
     improvements                                 3,915                           3,482
                                                  -----                           -----

      Total
       equipment,
       software, and
       leasehold
       improvements                              90,670                          90,203

    Less
     accumulated
     depreciation
     and
     amortization                                70,212                          67,031
                                                 ------                          ------

      Net equipment,
       software, and
       leasehold
       improvements                              20,458                          23,172


    Restricted cash
     equivalents
     and
     investments                                  3,000                           3,000

    Equity method
     investment                                  10,000                          12,473

    Available for
     sale
     securities                                   3,182                           7,181

    Other assets                                  3,073                           2,332

    Deferred costs,
     non-current
     portion                                      1,062                             946

    Deferred tax
     assets, net,
     non-current
     portion                                      1,405                           1,409

    Other
     intangible
     assets, net                                 11,928                          12,993

    Goodwill                                     18,005                          17,476
                                                 ------                          ------


      Total assets                                         $299,939                     $342,781
                                                           ========                     ========


                                LIABILITIES AND SHAREHOLDERS' EQUITY


    Current liabilities:

    Accounts
     payable                                                $20,363                      $19,987

    Accrued and
     other current
     liabilities                                 26,874                          41,893

    Deferred tax
     liabilities,
     net, current
     portion                                        911                             899

    Deferred
     revenue,
     current
     portion                                      7,835                           7,498
                                                  -----                           -----

      Total current
       liabilities                               55,983                          70,277


    Deferred
     revenue, non-
     current
     portion                                        145                             166

    Deferred rent                                 1,269                           1,318

    Deferred tax
     liabilities,
     net, non-
     current
     portion                                      1,725                           1,556

    Other long-
     term
     liabilities                                    607                             483
                                                    ---                             ---


      Total
       liabilities                               59,729                          73,800
                                                 ------                          ------



    Shareholders'
     equity                                     240,210                         268,981
                                                -------                         -------


    Total
     liabilities
     and
     shareholders'
     equity                                                $299,939                     $342,781
                                                           ========                     ========

                                            RealNetworks, Inc. and Subsidiaries

                                      Condensed Consolidated Statements of Cash Flows

                                                        (Unaudited)



                                                                  Six Months Ended
                                                                      June 30,
                                                                    --------

                                                          2014                              2013
                                                          ----                              ----

                                                                 (in thousands)


    Cash flows from operating activities:

    Net income (loss)                                             $(28,799)                        $(30,145)

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

    Depreciation and amortization                        6,145                               9,874

    Stock-based compensation                             3,010                               4,058

    Equity in net loss of
     Rhapsody                                            2,640                               3,580

    Deferred income taxes, net                              10                             (1,668)

    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                                         (785)                              1,400
                                                          ----                               -----

    Net cash provided by (used
     in) operating activities                         (30,778)                           (12,885)
                                                       -------                             -------

    Cash flows from investing activities:

    Purchases of equipment,
     software, and leasehold
     improvements                                      (1,689)                            (3,181)

    Proceeds from sale of
     available for sale
     securities                                          2,754                                   -

    Purchases of short-term
     investments                                      (48,326)                           (70,647)

    Proceeds from sales and
     maturities of short-term
     investments                                        52,663                              71,327

    Acquisitions of businesses,
     net of cash acquired                                (733)                           (16,107)

    Other                                                (467)                                  -
                                                          ----                                 ---

      Net cash provided by (used
       in) investing activities                          4,202                            (18,608)
                                                         -----                             -------

    Cash flows from financing activities:

    Proceeds from issuance of
     common stock (stock options
     and stock purchase plan)                              580                                 392

    Tax payments from shares
     withheld upon vesting of
     restricted stock                                    (307)                              (800)

    Payment of contingent
     consideration                                       (696)                              (828)

      Net cash provided by (used
       in) financing activities                          (423)                            (1,236)
                                                          ----                              ------

    Effect of exchange rate
     changes on cash and cash
     equivalents                                           214                             (1,259)
                                                           ---                              ------

      Net increase (decrease) in
       cash and cash equivalents                      (26,785)                           (33,988)

    Cash and cash equivalents,
     beginning of period                               151,235                             163,198
                                                       -------                             -------

    Cash and cash equivalents,
     end of period                                                 $124,450                          $129,210
                                                                   ========                          ========

                                                                               RealNetworks, Inc. and Subsidiaries

                                                                               Supplemental Financial Information

                                                                                           (Unaudited)




                                                      2014                                                              2013
                                                      ----                                                              ----

                                     Q2             Q1                Q4               Q3                       Q2            Q1
                                    ---            ---                ---             ---                       ---          ---

                                                                (in thousands)

    Net Revenue by Line of Business

    RealPlayer Group (A)                    $8,556                     $15,215                                 $16,799                  $17,641        $18,383 $22,383

    Mobile Entertainment
     (B)                            23,182               19,913                22,146                            19,948          18,592         20,495

    Games (C)                        9,087               10,596                11,650                            11,369          12,875         13,915

          Total net revenue                $40,825                     $45,724                                 $50,595                  $48,958        $49,850 $56,793
                                           =======                     =======                                 =======                  =======        ======= =======


    Net Revenue by Product

    RealPlayer Group
    ----------------

    - License (D)                           $3,273                      $5,018                                  $7,128                   $7,281         $6,766  $8,332

    - Subscriptions (E)              2,569                2,777                 3,118                             3,615           4,193          4,924

    -Media Properties
     (F)                             2,714                7,420                 6,553                             6,745           7,424          9,127


    Mobile Entertainment
    --------------------

    - SaaS (G)                      20,175               18,463                20,406                            18,156          17,002         18,674

    -Technology License
     & Other (H)                     3,007                1,450                 1,740                             1,792           1,590          1,821


    Games
    -----

    - License (I)                    3,399                3,849                 3,511                             3,421           4,089          5,249

    - Subscriptions (J)              4,440                5,241                 5,688                             5,733           5,980          6,312

    -Media Properties
     (K)                             1,248                1,506                 2,451                             2,215           2,806          2,354


          Total net revenue                $40,825                     $45,724                                 $50,595                  $48,958        $49,850 $56,793
                                           =======                     =======                                 =======                  =======        ======= =======


    Net Revenue by Geography

    United States                          $15,092                     $20,428                                 $19,724                  $21,039        $21,463 $28,024

    Rest of world                   25,733               25,296                30,871                            27,919          28,387         28,769

          Total net revenue                $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
                                                      ----                       ----                        ----           ----

                                Q2                 Q1                 Q2                       YTD                YTD
                                ---               ---                 ---                      ---                ---

                                                               (in thousands)

    RealPlayer Group
    ----------------


    Net revenue                            $8,556                                 $15,215                                   $18,383                 $23,771         $40,766

    Cost of revenue               3,620                   3,518                                    4,409                       7,138     9,720

    Gross profit                  4,936                  11,697                                   13,974                      16,633    31,046


       Gross margin                 58%                    77%                                     76%                        70%      76%



    Operating expenses           12,489                  17,787                                   14,001                      30,276    30,207

    Operating income (loss)              $(7,553)                               $(6,090)                                    $(27)              $(13,643)           $839


    Adjusted EBITDA                      $(6,893)                               $(5,491)                                     $470               $(12,384)         $1,801


    Mobile Entertainment
    --------------------


    Net revenue                           $23,182                                 $19,913                                   $18,592                 $43,095         $39,087

    Cost of revenue              14,298                  11,950                                   11,170                      26,248    22,002

    Gross profit                  8,884                   7,963                                    7,422                      16,847    17,085


       Gross margin                 38%                    40%                                     40%                        39%      44%


    Operating expenses            9,424                   9,616                                    8,412                      19,040    17,523

    Operating income (loss)                $(540)                               $(1,653)                                   $(990)               $(2,193)         $(438)


    Adjusted EBITDA                          $808                                  $(339)                                     $694                    $469          $4,076


    Games
    -----


    Net revenue                            $9,087                                 $10,596                                   $12,875                 $19,683         $26,790

    Cost of revenue               2,717                   3,129                                    3,381                       5,846     7,181

    Gross profit                  6,370                   7,467                                    9,494                      13,837    19,609


       Gross margin                 70%                    70%                                     74%                        70%      73%


    Operating expenses            8,769                   9,766                                   11,755                      18,535    23,607

    Operating income (loss)              $(2,399)                               $(2,299)                                 $(2,261)               $(4,698)       $(3,998)


    Adjusted EBITDA                      $(1,798)                               $(1,674)                                 $(1,315)               $(3,472)       $(2,469)


    Corporate
    ---------


    Net revenue                       $         -                           $          -                              $         -        $             -    $         -

    Cost of revenue                 151                     189                                      559                         340     1,122

    Extinguishment of liability       -               (10,580)                                       -                   (10,580)        -

    Gross profit                  (151)                 10,391                                    (559)                     10,240   (1,122)


       Gross margin                 N/A                    N/A                                     N/A                        N/A      N/A


    Operating expenses            8,189                   9,225                                   12,667                      17,414    23,211

    Operating income (loss)              $(8,340)                                 $1,166                                 $(13,226)               $(7,174)      $(24,333)


    Adjusted EBITDA                      $(5,198)                               $(6,414)                                 $(5,602)              $(11,612)      $(12,170)


    Total
    -----


    Net revenue                           $40,825                                 $45,724                                   $49,850                 $86,549        $106,643

    Cost of revenue              20,786                  18,786                                   19,519                      39,572    40,025

    Extinguishment of liability       -               (10,580)                                       -                   (10,580)        -

    Gross profit                 20,039                  37,518                                   30,331                      57,557    66,618


       Gross margin                 49%                    82%                                     61%                        67%      62%


    Operating expenses           38,871                  46,394                                   46,835                      85,265    94,548

    Operating income (loss)             $(18,832)                               $(8,876)                                $(16,504)              $(27,708)      $(27,930)


    Adjusted EBITDA                     $(13,081)                              $(13,918)                                 $(5,753)              $(26,999)       $(8,762)



                                                                                                                                        RealNetworks, Inc. and Subsidiaries

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

                                                                                                                                                    (Unaudited)


                                                                                       2014              2013                          2014                   2013
                                                                                       ----              ----                          ----                   ----

                                                           Q2                                     Q1                        Q2                            YTD                             YTD
                                                           ---                                    ---                      ---                            ---                             ---

                                                                                              (in thousands)

    RealPlayer Group
    ----------------


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


    Operating income (loss)                                                          $(7,553)                                      $(6,090)                                                          $(27)             $(13,643)        $839

    Acquisitions related intangible
     asset amortization                                       125                                            60                                        62                                                 185      129

    Depreciation and amortization                             535                                           539                                       435                                               1,074      833

       Adjusted EBITDA                                                               $(6,893)                                      $(5,491)                                                           $470              $(12,384)      $1,801


    Mobile Entertainment
    --------------------


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


    Operating income (loss)                                                            $(540)                                      $(1,653)                                                         $(990)              $(2,193)      $(438)

    Acquisitions related intangible
     asset amortization                                       628                                           607                                       638                                               1,235    1,451

    Depreciation and amortization                             720                                           707                                     1,046                                               1,427    3,063

       Adjusted EBITDA                                                                   $808                                         $(339)                                                           $694                   $469       $4,076


    Games
    -----


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


    Operating income (loss)                                                          $(2,399)                                      $(2,299)                                                       $(2,261)              $(4,698)    $(3,998)

    Acquisitions related intangible
     asset amortization                                       314                                           314                                       230                                                 628      251

    Depreciation and amortization                             287                                           311                                       716                                                 598    1,278

       Adjusted EBITDA                                                               $(1,798)                                      $(1,674)                                                       $(1,315)              $(3,472)    $(2,469)


    Corporate
    ---------


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


    Operating income (loss)                                                          $(8,340)                                        $1,166                                                       $(13,226)              $(7,174)   $(24,333)

    Other income (expense), net                              (95)                                         (77)                                    (137)                                              (172)    (28)

    Depreciation and amortization                             553                                           445                                     1,859                                                 998    2,869

    Lease exit and related charges                            470                                            79                                     3,066                                                 549    3,066

    Restructuring and other charges                           541                                         1,216                                       816                                               1,757    2,198

    Stock-based compensation                                1,673                                         1,337                                     2,020                                               3,010    4,058

    Extinguishment of liability                                 -                                     (10,580)                                         -                                           (10,580)       -

       Adjusted EBITDA                                                               $(5,198)                                      $(6,414)                                                       $(5,602)             $(11,612)   $(12,170)


    Total
    -----


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


    Operating income (loss)                                                         $(18,832)                                      $(8,876)                                                      $(16,504)             $(27,708)   $(27,930)

    Other income (expense), net                              (95)                                         (77)                                    (137)                                              (172)    (28)

    Acquisitions related intangible
     asset amortization                                     1,067                                           981                                       930                                               2,048    1,831

    Depreciation and amortization                           2,095                                         2,002                                     4,056                                               4,097    8,043

    Lease exit and related charges                            470                                            79                                     3,066                                                 549    3,066

    Restructuring and other charges                           541                                         1,216                                       816                                               1,757    2,198

    Stock-based compensation                                1,673                                         1,337                                     2,020                                               3,010    4,058

    Extinguishment of liability                                 -                                     (10,580)                                         -                                           (10,580)       -

       Adjusted EBITDA                                                              $(13,081)                                     $(13,918)                                                       $(5,753)             $(26,999)    $(8,762)

SOURCE RealNetworks, Inc.