Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - REALNETWORKS INC | d8k.htm |
| EX-99.2 - INFORMATION REGARDING NON-GAAP FINANCIAL MEASURES - REALNETWORKS INC | dex992.htm |
Exhibit 99.1
REALNETWORKS ANNOUNCES FIRST QUARTER 2011 RESULTS
SEATTLE – May 5, 2011 –RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the first quarter ended March 31, 2011.
Quarterly Highlights:
| • | Revenue of $87.3 million |
| • | Net loss of $(12.3) million or $(0.09) per share |
| • | Adjusted EBITDA of $7.5 million |
| • | Cash and short term investments of $331.5 million as of March 31, 2011 |
“These results reflect revenue and EBITDA performances above our expectations for the quarter, and demonstrate the hard work we have done to simplify and restructure our business and reduce our operating expenses,” said Mike Lunsford, interim CEO of Real. “I believe we have created a stable and efficient structure on which we can implement our growth strategies.”
First Quarter Results
For the first quarter of 2011, revenue from Real’s Core Products, Emerging Products and Games businesses was $87.3 million, a decrease of 6% compared with the first quarter of 2010 and a sequential decline of 11% from the fourth quarter. Revenue from Real’s music business was $35.7 million in the first quarter of 2010, and total revenue, including music, in the first quarter of 2010 was $128.6 million. Beginning in the second quarter of 2010, revenue and other operating results of Real’s music business from its Rhapsody joint venture have not been consolidated in Real’s financial statements as a result of the restructuring of Rhapsody completed on March 31, 2010. Foreign currency exchange rate fluctuations did not significantly affect 2011 first quarter revenue comparison with the year ago quarter. Revenue trends in each of Real’s businesses in the first quarter of 2011 compared with the year-earlier quarter were: a 3% decrease in Emerging Products revenue to $11.1 million, a 6% decrease in Core Products revenue to $48.1 million, and a 7% decrease in Games revenue to $28.1 million.
Net loss for the first quarter of 2011 was $(12.3) million, or $(0.09) per share, compared with net income of $3.2 million, or $0.05 per share, in the first quarter of 2010. First quarter 2011 results include a reduction in operating expense of $6.4 million due to an insurance reimbursement relating to previously settled litigation, and results from the first quarter of last year include a $10.9 million gain on the deconsolidation of Rhapsody. The most recent quarter also included restructuring charges of $6.9 million, compared with restructuring charges in the year-ago quarter of $5.6 million. Adjusted EBITDA for the first quarter of 2011 was $7.5 million, compared with $5.7 million for the first quarter of 2010. Adjusted EBITDA for this quarter included the insurance reimbursement, and the year-ago quarter’s adjusted EBITDA included a contribution of $4.2 million from the music segment. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.
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As of March 31, 2011, Real had $331.5 million in unrestricted cash, cash equivalents and short-term investments compared with $334.3 million at Dec. 31, 2010. In addition, Real had $42.7 million in restricted cash and equity investments, including its equity interest in the Rhapsody joint venture, at March 31, 2011.
Segment Operating Results
| 2011 | 2010 | 2010 | Sequential Change |
Yr/Yr Change |
||||||||||||||||
| Q1 | Q4 | Q1 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue |
||||||||||||||||||||
| Core Products |
$ | 48,107 | $ | 58,030 | $ | 51,203 | -17 | % | -6 | % | ||||||||||
| Emerging Products |
11,135 | 12,558 | 11,428 | -11 | % | -3 | % | |||||||||||||
| Games |
28,059 | 27,229 | 30,236 | 3 | % | -7 | % | |||||||||||||
| Corporate |
— | — | — | |||||||||||||||||
| Total excluding Music |
87,301 | 97,817 | 92,867 | -11 | % | -6 | % | |||||||||||||
| Music |
— | — | 35,733 | NM | ||||||||||||||||
| Total |
$ | 87,301 | $ | 97,817 | $ | 128,600 | -11 | % | -32 | % | ||||||||||
| Operating Income (loss) |
||||||||||||||||||||
| Core Products |
$ | 7,737 | $ | 12,500 | $ | 9,378 | -38 | % | -17 | % | ||||||||||
| Emerging Products |
(296 | ) | 4,020 | 2,931 | -107 | % | -110 | % | ||||||||||||
| Games |
2,711 | 1,788 | (238 | ) | 52 | % | -1239 | % | ||||||||||||
| Corporate |
(15,818 | ) | (12,329 | ) | (26,691 | ) | 28 | % | -41 | % | ||||||||||
| Total excluding Music |
(5,666 | ) | 5,979 | (14,620 | ) | -195 | % | -61 | % | |||||||||||
| Music |
— | — | (42 | ) | NM | |||||||||||||||
| Total |
$ | (5,666 | ) | $ | 5,979 | $ | (14,662 | ) | -195 | % | -61 | % | ||||||||
| Adjusted EBITDA |
||||||||||||||||||||
| Core Products |
$ | 10,260 | $ | 15,523 | $ | 12,799 | -34 | % | -20 | % | ||||||||||
| Emerging Products |
(188 | ) | 4,109 | 3,009 | -105 | % | -106 | % | ||||||||||||
| Games |
3,340 | 2,452 | 1,685 | 36 | % | 98 | % | |||||||||||||
| Corporate |
(5,870 | ) | (8,811 | ) | (15,982 | ) | -33 | % | -63 | % | ||||||||||
| Total excluding Music |
7,542 | 13,273 | 1,511 | -43 | % | 399 | % | |||||||||||||
| Music |
— | — | 4,214 | NM | ||||||||||||||||
| Total |
$ | 7,542 | $ | 13,273 | $ | 5,725 | -43 | % | 32 | % | ||||||||||
Business Outlook
For the second quarter of 2011, Real expects total revenue to decline slightly both sequentially and year-over-year. Real expects revenue will increase in Emerging Products, and will decline slightly in Games and Core Products sequentially and year-over-year. Real expects adjusted EBITDA for the second quarter to decline sequentially, primarily due to the insurance reimbursement in the first quarter, but to increase over the adjusted EBITDA reported in the second quarter of 2010.
Real’s outlook for the year anticipates seasonality in revenue and adjusted EBITDA, which typically decline from the fourth quarter to the first quarter, and increase through the year. Real has generated more than 70% of its annual adjusted EBITDA in the second half of the year in each of the past two years. Real expects to see similar seasonal patterns for both revenue and adjusted EBITDA in 2011.
2
For the full year, Real is not changing the guidance given in February. Real expects a small decline in 2011 revenue compared with 2010, excluding Music, due in part to the elimination or de-emphasis of products and services that generate low-profit or unprofitable revenue. Excluding the revenue from these products and services, Real expects 2011 revenue to be essentially flat compared with 2010, excluding Music. Real expects 2011 adjusted EBITDA and adjusted EBITDA margin to increase over 2010 due in large part to the restructuring, which has lowered the company’s overall cost structure.
The foregoing forward-looking statements reflect Real’s expectations as of May 5, 2011. It is not Real’s general practice to update these forward-looking statements until its next quarterly results announcement.
Webcast and Conference Call Information
The company will host an audio Webcast conference call to review results and discuss the company’s operations for the first quarter at 5:00 p.m. ET on May 5. The Webcast will be available at: http://investor.realnetworks.com
Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.
The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.
Conference Call Details
5:00 p.m. ET / 2:00 p.m. PT
Dial in:
800-857-5305 Domestic
773-681-5857 International
Passcode: First Quarter Earnings
Leader: Mike Lunsford
Telephonic replay will be available until 8 p.m. ET, May 19, 2011.
Replay dial in:
866-489-3785 Domestic
203-369-1665 International
For More Information:
Marj Charlier, RealNetworks, 206-892-6718 or mcharlier@real.com
Elizabeth Pheasant, RealNetworks, 206-674-2330 or epheasant@real.com
Press Only:
Melissa Hackett, RealNetworks, 206-892-6432 or mhackett@real.com
About RealNetworks:
Real creates innovative applications and services that make it easy to connect with and enjoy digital media. Real 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
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network, device, media type and social network. Real’s corporate information is located at http://www.realnetworks.com/about-us
About Non-GAAP Financial Measures
To supplement RealNetworks’ condensed consolidated financial statements 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 reporting 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 reporting segment.
The rationale for management’s use of non-GAAP measures is included in the supplementary materials presented with the first quarter 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 Real’s current expectations for future revenue, adjusted EBITDA and future growth. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: Real’s ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the introduction and growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real’s business, prospects, financial condition or results of operations; fluctuations in foreign currencies; risks associated with key customer or strategic relationships, business acquisitions and the introduction of new products and services; and changes in Real’s 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 the reported amounts of 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 and RealPlayer 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.
4
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Quarters Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| (in thousands, except per share data) |
||||||||
| Net revenue |
$ | 87,301 | $ | 128,600 | ||||
| Cost of revenue |
32,066 | 49,159 | ||||||
| Gross profit |
55,235 | 79,441 | ||||||
| Operating expenses: |
||||||||
| Research and development |
19,895 | 34,675 | ||||||
| Sales and marketing |
28,480 | 37,827 | ||||||
| Advertising with related party (A) |
— | 1,065 | ||||||
| General and administrative |
5,622 | 14,921 | ||||||
| Restructuring and other charges |
6,904 | 5,615 | ||||||
| Total operating expenses |
60,901 | 94,103 | ||||||
| Operating income (loss) |
(5,666 | ) | (14,662 | ) | ||||
| Other income (expenses): |
||||||||
| Interest income, net |
379 | 380 | ||||||
| Equity in net loss of Rhapsody and other equity method investments (B) |
(3,281 | ) | — | |||||
| Gain on deconsolidation of Rhapsody |
— | 10,929 | ||||||
| Other income (expense), net |
(122 | ) | 99 | |||||
| Total other income (expense), net |
(3,024 | ) | 11,408 | |||||
| Income (loss) before income taxes |
(8,690 | ) | (3,254 | ) | ||||
| Income tax (expense) benefit |
(3,615 | ) | 3,572 | |||||
| Net income (loss) |
(12,305 | ) | 318 | |||||
| Net loss attributable to the noncontrolling interest in Rhapsody (C) |
— | 2,910 | ||||||
| Net income (loss) attributable to common shareholders |
$ | (12,305 | ) | $ | 3,228 | |||
| Basic net income (loss) per share available to common shareholders |
$ | (0.09 | ) | $ | 0.05 | |||
| Diluted net income (loss) per share available to common shareholders |
$ | (0.09 | ) | $ | 0.05 | |||
| Shares used to compute basic net income (loss) per share available to common shareholders |
136,264 | 135,130 | ||||||
| Shares used to compute diluted net income (loss) per share available to common shareholders |
136,264 | 139,573 | ||||||
| (A) | Consists of advertising purchased by Rhapsody from MTV Networks (MTVN). MTVN had a 49% ownership interest in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010. See note (B) for more details regarding the restructuring and the related deconsolidation. |
| (B) | On March 31, 2010, we completed the restructuring of Rhapsody which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody and no longer having operating control. Since the restructuring was completed on the last day of the quarter ended March 31, 2010, our statement of operations for the first quarter of 2010 includes results from Rhapsody’s operations. Beginning with the quarter ended June 30, 2010, Rhapsody’s revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody’s income or losses as “Equity in net loss of Rhapsody and other equity method investments” in “Other income (expenses)”. |
| (C) | Net loss attributable to the noncontrolling interest in Rhapsody reflects MTVN’s 49% ownership share in the losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010. |
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2011 |
December 31, 2010 |
|||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 249,108 | $ | 236,018 | ||||
| Short-term investments |
82,374 | 98,303 | ||||||
| Trade accounts receivable, net |
46,350 | 48,324 | ||||||
| Deferred costs, current portion |
8,883 | 9,173 | ||||||
| Related party receivable - Rhapsody (A) |
417 | 351 | ||||||
| Prepaid expenses and other current assets |
33,500 | 30,441 | ||||||
| Total current assets |
420,632 | 422,610 | ||||||
| Equipment, software, and leasehold improvements, at cost: |
||||||||
| Equipment and software |
145,691 | 144,623 | ||||||
| Leasehold improvements |
25,578 | 25,367 | ||||||
| Total equipment, software, and leasehold improvements |
171,269 | 169,990 | ||||||
| Less accumulated depreciation and amortization |
129,087 | 126,619 | ||||||
| Net equipment, software, and leasehold improvements |
42,182 | 43,371 | ||||||
| Restricted cash equivalents and investments |
10,000 | 10,000 | ||||||
| Equity method investments |
12,236 | 15,486 | ||||||
| Available for sale securities |
20,484 | 27,541 | ||||||
| Other assets |
3,424 | 3,316 | ||||||
| Deferred costs, non-current portion |
17,436 | 18,401 | ||||||
| Deferred tax assets, net, non-current portion |
12,901 | 12,805 | ||||||
| Other intangible assets, net |
6,324 | 6,952 | ||||||
| Goodwill |
5,078 | 4,960 | ||||||
| Total assets |
$ | 550,697 | $ | 565,442 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 24,695 | $ | 30,413 | ||||
| Accrued and other liabilities |
86,730 | 85,702 | ||||||
| Deferred revenue, current portion |
21,078 | 19,036 | ||||||
| Accrued loss on excess office facilities, current portion |
1,200 | 1,144 | ||||||
| Total current liabilities |
133,703 | 136,295 | ||||||
| Deferred revenue, non-current portion |
168 | 460 | ||||||
| Accrued loss on excess office facilities, non-current portion |
3,101 | 3,380 | ||||||
| Deferred rent |
3,268 | 3,514 | ||||||
| Deferred tax liabilities, net, non-current portion |
1,014 | 1,049 | ||||||
| Other long-term liabilities |
8,910 | 7,999 | ||||||
| Total liabilities |
150,164 | 152,697 | ||||||
| Shareholders’ equity |
400,533 | 412,745 | ||||||
| Total liabilities and shareholders’ equity |
$ | 550,697 | $ | 565,442 | ||||
| (A) | Related party receivable reflects amounts Rhapsody International, formed on March 31, 2010, owes RealNetworks. |
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Quarter Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| (in thousands) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (12,305 | ) | $ | 318 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
3,819 | 7,314 | ||||||
| Stock-based compensation |
3,453 | 3,921 | ||||||
| Gain on disposal of equipment, software, and leasehold improvements |
(28 | ) | (2 | ) | ||||
| Equity in net loss of Rhapsody and other equity method investments |
3,281 | — | ||||||
| Gain on deconsolidation of Rhapsody |
— | (10,929 | ) | |||||
| Excess tax benefit from stock option exercises |
(26 | ) | (29 | ) | ||||
| Accrued restructuring and other charges |
2,280 | 4,455 | ||||||
| Deferred income taxes, net |
(161 | ) | (1,359 | ) | ||||
| Other |
133 | — | ||||||
| Net change in certain operating assets and liabilities, net of acquisitions and disposals |
(5,632 | ) | (36,145 | ) | ||||
| Net cash used in operating activities |
(5,186 | ) | (32,456 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of equipment, software, and leasehold improvements |
(1,165 | ) | (4,692 | ) | ||||
| Purchases of short-term investments |
(22,091 | ) | (26,613 | ) | ||||
| Proceeds from sales and maturities of short-term investments |
38,020 | 1,872 | ||||||
| Payment in connection with the restructuring of Rhapsody |
— | (18,000 | ) | |||||
| Repayment of temporary funding on deconsolidation of Rhapsody |
— | 5,869 | ||||||
| Net cash provided by (used in) investing activities |
14,764 | (41,564 | ) | |||||
| Cash flows from financing activities: |
||||||||
| Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options |
1,101 | 341 | ||||||
| Payments received on MTVN note |
— | 1,213 | ||||||
| Excess tax benefit from stock option exercises |
26 | 29 | ||||||
| Net cash provided by financing activities |
1,127 | 1,583 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
2,385 | (1,988 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
13,090 | (74,425 | ) | |||||
| Cash and cash equivalents, beginning of period |
236,018 | 277,030 | ||||||
| Cash and cash equivalents, end of period |
$ | 249,108 | $ | 202,605 | ||||
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
| 2011 | 2010 | |||||||||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net Revenue by Line of Business: |
||||||||||||||||||||
| Core Products (A) |
$ | 48,107 | $ | 58,030 | $ | 51,870 | $ | 51,742 | $ | 51,203 | ||||||||||
| Emerging Products (B) |
11,135 | 12,558 | 8,778 | 8,997 | 11,428 | |||||||||||||||
| Games (C) |
28,059 | 27,229 | 25,784 | 28,145 | 30,236 | |||||||||||||||
| Total net revenue excluding music |
87,301 | 97,817 | 86,432 | 88,884 | 92,867 | |||||||||||||||
| Music (D) |
— | — | — | — | 35,733 | |||||||||||||||
| Total net revenue including music |
$ | 87,301 | $ | 97,817 | $ | 86,432 | $ | 88,884 | $ | 128,600 | ||||||||||
| Core Products Revenue by Product: |
||||||||||||||||||||
| SaaS (E) |
$ | 30,526 | $ | 35,656 | $ | 31,885 | $ | 32,388 | $ | 33,614 | ||||||||||
| Systems Integrations / Professional Services (F) |
1,840 | 4,388 | 953 | 998 | 367 | |||||||||||||||
| Technology Licensing (G) |
6,425 | 7,632 | 7,473 | 7,736 | 7,910 | |||||||||||||||
| Consumer subscriptions (H) |
9,316 | 10,354 | 11,559 | 10,620 | 9,312 | |||||||||||||||
| Total Core Products net revenue |
$ | 48,107 | $ | 58,030 | $ | 51,870 | $ | 51,742 | $ | 51,203 | ||||||||||
| Net Revenue by Geography: |
||||||||||||||||||||
| United States |
$ | 44,469 | $ | 48,048 | $ | 46,874 | $ | 48,351 | $ | 84,550 | ||||||||||
| Rest of world |
42,832 | 49,769 | 39,558 | 40,533 | 44,050 | |||||||||||||||
| Total net revenue |
$ | 87,301 | $ | 97,817 | $ | 86,432 | $ | 88,884 | $ | 128,600 | ||||||||||
| Product Metrics (subscribers and ICM presented as greater than): |
|
|||||||||||||||||||
| Addressable subscribers of mobile operators under contract (I) |
775,000 | 700,000 | 700,000 | 675,000 | 650,000 | |||||||||||||||
| SaaS subscribers (J) |
35,900 | 36,700 | 37,500 | 37,600 | 37,950 | |||||||||||||||
| Monthly SaaS ARPU (in cents) (K) |
$ | 0.18 | $ | 0.20 | $ | 0.16 | $ | 0.16 | $ | 0.16 | ||||||||||
| ICM delivered in billions (L) |
151 | 136 | 134 | 128 | 120 | |||||||||||||||
| Consumer subscribers(M) |
500 | 550 | 600 | 600 | 575 | |||||||||||||||
Net Revenue by Line of Business:
| (A) | The Core Products segment primarily includes revenue from SaaS services, system integration and professional services to carriers and mobile handset companies, sales of technology licenses of our software products such as Helix for handsets, and consumer subscriptions such as SuperPass and our international radio subscription services. |
| (B) | The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as revenue from distribution of third party software products, advertising on RealPlayer websites and sales of RealPlayerPlus software licenses to consumers. |
| (C) | The Games segment primarily includes revenue from sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, microtransactions from online and social games and sales of mobile games. |
| (D) | On March 31, 2010, we completed the restructuring of Rhapsody, which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody, and our loss of operating control over Rhapsody. Beginning with the quarter ended June 30, 2010, Rhapsody’s revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody’s income or losses as “Equity in net loss of Rhapsody and other equity method investments” in “Other income (expense)”. |
Core Products Revenue by Product:
| (E) | Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers, who are largely mobile phone networks. |
| (F) | Systems Integrations / Professional Services revenue includes professional services, other than those associated with software sales, provided to mobile carriers and handset manufacturers. |
| (G) | Technology Licensing includes revenue from sales of software and other intellectual property licenses such as Helix server licenses and Helix software licenses for handsets. |
| (H) | Consumer subscriptions includes revenue from SuperPass, as well as our international radio subscription services. |
Product Metrics:
| (I) | Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our SaaS services, other than intercarrier messaging services, to their customers. |
| (J) | SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter. |
| (K) | Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end of the quarter, and dividing the resulting quotient by three. |
| (L) | ICM (Intercarrier message) represents the total number of messages delivered across our messaging platform during the quarter. |
| (M) | Consumer subscribers primarily includes our SuperPass and GamePass products. We repurchased our international radio subscription services from Rhapsody as part of the restructuring that occurred on March 31, 2010, and as a result, subscribers to our international radio services are included beginning in the quarter ended June 30, 2010. |
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)
| 2011 | 2010 | |||||||||||
| Q1 | Q4 | Q1 | ||||||||||
| (in thousands) | ||||||||||||
| Core Products |
||||||||||||
| Net revenue |
$ | 48,107 | $ | 58,030 | $ | 51,203 | ||||||
| Cost of revenue |
20,984 | 25,679 | 17,739 | |||||||||
| Gross profit |
27,123 | 32,351 | 33,464 | |||||||||
| Gross margin |
56 | % | 56 | % | 65 | % | ||||||
| Operating expenses |
19,386 | 19,851 | 24,086 | |||||||||
| Operating income (loss) |
$ | 7,737 | $ | 12,500 | $ | 9,378 | ||||||
| Adjusted EBITDA |
$ | 10,260 | $ | 15,523 | $ | 12,799 | ||||||
| Emerging Products |
||||||||||||
| Net revenue |
$ | 11,135 | $ | 12,558 | $ | 11,428 | ||||||
| Cost of revenue |
1,540 | 1,179 | 1,464 | |||||||||
| Gross profit |
9,595 | 11,379 | 9,964 | |||||||||
| Gross margin |
86 | % | 91 | % | 87 | % | ||||||
| Operating expenses |
9,891 | 7,359 | 7,033 | |||||||||
| Operating income (loss) |
$ | (296 | ) | $ | 4,020 | $ | 2,931 | |||||
| Adjusted EBITDA |
$ | (188 | ) | $ | 4,109 | $ | 3,009 | |||||
| Games |
||||||||||||
| Net revenue |
$ | 28,059 | $ | 27,229 | $ | 30,236 | ||||||
| Cost of revenue |
8,534 | 7,861 | 7,703 | |||||||||
| Gross profit |
19,525 | 19,368 | 22,533 | |||||||||
| Gross margin |
70 | % | 71 | % | 75 | % | ||||||
| Operating expenses |
16,814 | 17,580 | 22,771 | |||||||||
| Operating income (loss) |
$ | 2,711 | $ | 1,788 | $ | (238 | ) | |||||
| Adjusted EBITDA |
$ | 3,340 | $ | 2,452 | $ | 1,685 | ||||||
| Music |
||||||||||||
| Net revenue |
$ | — | $ | — | $ | 35,733 | ||||||
| Cost of revenue |
— | — | 21,864 | |||||||||
| Gross profit |
— | — | 13,869 | |||||||||
| Gross margin |
N/A | N/A | 39 | % | ||||||||
| Operating expenses |
— | — | 13,911 | |||||||||
| Operating income (loss) |
$ | — | $ | — | $ | (42 | ) | |||||
| Adjusted EBITDA |
$ | — | $ | — | $ | 4,214 | ||||||
| Corporate |
||||||||||||
| Net revenue |
$ | — | $ | — | $ | — | ||||||
| Cost of revenue |
1,008 | 986 | 389 | |||||||||
| Gross profit |
(1,008 | ) | (986 | ) | (389 | ) | ||||||
| Gross margin |
N/A | N/A | N/A | |||||||||
| Operating expenses |
14,810 | 11,343 | 26,302 | |||||||||
| Operating income (loss) |
$ | (15,818 | ) | $ | (12,329 | ) | $ | (26,691 | ) | |||
| Adjusted EBITDA |
$ | (5,870 | ) | $ | (8,811 | ) | $ | (15,982 | ) | |||
| Total |
||||||||||||
| Net revenue |
$ | 87,301 | $ | 97,817 | $ | 128,600 | ||||||
| Cost of revenue |
32,066 | 35,705 | 49,159 | |||||||||
| Gross profit |
55,235 | 62,112 | 79,441 | |||||||||
| Gross margin |
63 | % | 63 | % | 62 | % | ||||||
| Operating expenses |
60,901 | 56,133 | 94,103 | |||||||||
| Operating income (loss) |
$ | (5,666 | ) | $ | 5,979 | $ | (14,662 | ) | ||||
| Adjusted EBITDA |
$ | 7,542 | $ | 13,273 | $ | 5,725 | ||||||
RealNetworks, Inc. and Subsidiaries
Reconciliation of segment operating income (loss) to adjusted EBITDA by reporting segment
(Unaudited)
| 2011 | 2010 | |||||||||||
| Q1 | Q4 | Q1 | ||||||||||
| (in thousands) | ||||||||||||
| Core Products | ||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||
| Operating income (loss) |
$ | 7,737 | $ | 12,500 | $ | 9,378 | ||||||
| Acquisitions related intangible asset amortization |
474 | 705 | 1,121 | |||||||||
| Depreciation and amortization |
2,049 | 2,318 | 2,300 | |||||||||
| Impairment of goodwill |
— | — | — | |||||||||
| Adjusted EBITDA |
$ | 10,260 | $ | 15,523 | $ | 12,799 | ||||||
| Emerging Products | ||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||
| Operating income (loss) |
$ | (296 | ) | $ | 4,020 | $ | 2,931 | |||||
| Acquisitions related intangible asset amortization |
— | — | — | |||||||||
| Depreciation and amortization |
108 | 89 | 78 | |||||||||
| Impairment of goodwill |
— | — | — | |||||||||
| Adjusted EBITDA |
$ | (188 | ) | $ | 4,109 | $ | 3,009 | |||||
| Games | ||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||
| Operating income (loss) |
$ | 2,711 | $ | 1,788 | $ | (238 | ) | |||||
| Acquisitions related intangible asset amortization |
254 | 263 | 60 | |||||||||
| Depreciation and amortization |
375 | 401 | 1,863 | |||||||||
| Impairment of goodwill |
— | — | — | |||||||||
| Adjusted EBITDA |
$ | 3,340 | $ | 2,452 | $ | 1,685 | ||||||
| Music | ||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||
| Operating income (loss) |
$ | — | $ | — | $ | (42 | ) | |||||
| Net loss attributable to noncontrolling interest in Rhapsody |
— | — | 2,910 | |||||||||
| Acquisitions related intangible asset amortization (A) |
— | — | 58 | |||||||||
| Depreciation and amortization (A) |
— | — | 690 | |||||||||
| Pro forma gain on sale of interest in Rhapsody America |
— | — | 598 | |||||||||
| Impairment of goodwill |
— | — | — | |||||||||
| Adjusted EBITDA |
$ | — | $ | — | $ | 4,214 | ||||||
| Corporate | ||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||
| Operating income (loss) |
$ | (15,818 | ) | $ | (12,329 | ) | $ | (26,691 | ) | |||
| Other income (expense), net |
(122 | ) | 144 | 99 | ||||||||
| Depreciation and amortization |
559 | 577 | 1,074 | |||||||||
| Restructuring and other charges |
6,904 | 874 | 5,615 | |||||||||
| Stock-based compensation |
2,607 | 1,923 | 3,921 | |||||||||
| Loss on excess office facilities |
— | — | — | |||||||||
| Adjusted EBITDA |
$ | (5,870 | ) | $ | (8,811 | ) | $ | (15,982 | ) | |||
| Total | ||||||||||||
| Reconciliation of GAAP operating income (loss) to adjusted EBITDA: |
| |||||||||||
| Operating income (loss) |
$ | (5,666 | ) | $ | 5,979 | $ | (14,662 | ) | ||||
| Net loss attributable to noncontrolling interest in Rhapsody |
— | — | 2,910 | |||||||||
| Other income (expense), net |
(122 | ) | 144 | 99 | ||||||||
| Acquisitions related intangible asset amortization (A) |
728 | 968 | 1,239 | |||||||||
| Depreciation and amortization (A) |
3,091 | 3,385 | 6,005 | |||||||||
| Impairment of goodwill |
— | — | — | |||||||||
| Loss on excess office facilities |
— | — | — | |||||||||
| Pro forma gain on sale of interest in Rhapsody America |
— | — | 598 | |||||||||
| Restructuring and other charges |
6,904 | 874 | 5,615 | |||||||||
| Stock-based compensation |
2,607 | 1,923 | 3,921 | |||||||||
| Adjusted EBITDA |
$ | 7,542 | $ | 13,273 | $ | 5,725 | ||||||
|
(A) Net of noncontrolling interest effect. |
||||||||||||
RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)
| Quarters Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| (in thousands, except per share data) | ||||||||
| Net income (loss) attributable to common shareholders |
$ | (12,305 | ) | $ | 3,228 | |||
| Less termination of MTVN’s preferred return in Rhapsody |
— | 3,700 | ||||||
| Net income (loss) available to common shareholders |
$ | (12,305 | ) | $ | 6,928 | |||
| Shares used to compute basic net income (loss) per share available to common shareholders |
136,264 | 135,130 | ||||||
| Dilutive stock options and restricted stock |
— | 4,443 | ||||||
| Shares used to compute diluted net income (loss) per share available to common shareholders |
136,264 | 139,573 | ||||||
| Basic net income (loss) per share available to common shareholders |
$ | (0.09 | ) | $ | 0.05 | |||
| Diluted net income (loss) per share available to common shareholders |
$ | (0.09 | ) | $ | 0.05 | |||