Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - REALNETWORKS INC | d299777d8k.htm |
| EX-99.2 - INFORMATION REGARDING NON-GAAP FINANCIAL MEASURES - REALNETWORKS INC | d299777dex992.htm |
Exhibit 99.1
REALNETWORKS ANNOUNCES FOURTH QUARTER AND FULL-YEAR 2011
RESULTS
SEATTLE – Feb. 15, 2012 –RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended Dec. 31, 2011.
Quarterly Highlights:
| • | Revenue of $80.2 million |
| • | Net loss of $(2.8) million or $(0.08) per share |
| • | Adjusted EBITDA of $3.8 million |
| • | Operating cash flow of $6.7 million |
Full Year Highlights:
| • | Revenue of $335.7 million |
| • | Net loss of $(27.1) million or $(0.79) per share |
| • | Adjusted EBITDA of $17.7 million |
| • | Cash and short term investments of $185.1 million as of Dec. 31, 2011 |
“We are clearly not satisfied with the company’s 2011 performance and, as a result, we have an increased sense of urgency to refocus RealNetworks for growth and profitability,” said Thomas Nielsen, President and CEO of RealNetworks. “We are already taking steps to simplify our existing businesses, restructure our company and unlock shareholder value. At the same time, we are developing and will acquire businesses that target large and fast growing addressable markets.”
Fourth Quarter Results
For the fourth quarter of 2011, revenue was $80.2 million, a sequential decrease of 5% from the third quarter, and a decrease of 18% compared with the fourth quarter of 2010. Foreign currency exchange rate fluctuations positively affected 2011 fourth quarter revenue by approximately $0.3 million compared with the year-ago quarter. Revenue trends in each of RealNetworks’ businesses in the fourth quarter of 2011 compared with the year-earlier quarter were: a 5% decrease in Emerging Products revenue to $12.0 million, a 20% decrease in Core Products revenue to $46.7 million and a 21% decrease in Games revenue to $21.6 million.
Net loss for the fourth quarter of 2011 was $(2.8) million, or $(0.08) per share, compared with net income of $3.2 million, or $0.09 per share, in the fourth quarter of 2010. The loss for the quarter was affected by a $20.0 million impairment for deferred SaaS costs and a tax benefit of $22.7 million resulting from an expectation that we will generate taxable income in 2012 as a result of the sale of patents and other assets we announced in January 2012.
1
Adjusted EBITDA for the fourth quarter of 2011 was $3.8 million, compared with $13.3 million for the fourth quarter of 2010. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.
As of Dec. 31, 2011, RealNetworks had $185.1 million in unrestricted cash, cash equivalents and short-term investments compared with $334.3 million at Dec. 31, 2010, of which approximately $48.9 million is held in foreign jurisdictions. The decline in cash was largely due to a $136.8 million special dividend paid to shareholders in August 2011. In addition, RealNetworks had $47.4 million in restricted cash and available-for-sale securities at the end of the year.
Segment Operating Results
| 2011 | 2011 | 2010 | Sequential | Yr/Yr | ||||||||||||||||
| Q4 | Q3 | Q4 | Change | Change | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue |
||||||||||||||||||||
| Core Products |
$ | 46,693 | $ | 50,705 | $ | 58,030 | -8 | % | -20 | % | ||||||||||
| Emerging Products |
11,974 | 10,764 | 12,558 | 11 | % | -5 | % | |||||||||||||
| Games |
21,552 | 22,945 | 27,229 | -6 | % | -21 | % | |||||||||||||
| Corporate |
— | — | — | |||||||||||||||||
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| Total |
$ | 80,219 | $ | 84,414 | $ | 97,817 | -5 | % | -18 | % | ||||||||||
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| Operating Income (loss) |
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| Core Products |
$ | (10,733 | ) | $ | 8,815 | $ | 12,500 | -222 | % | -186 | % | |||||||||
| Emerging Products |
26 | (2,033 | ) | 4,020 | -101 | % | -99 | % | ||||||||||||
| Games |
228 | 1,589 | 1,788 | -86 | % | -87 | % | |||||||||||||
| Corporate |
(13,198 | ) | (11,854 | ) | (12,329 | ) | 11 | % | 7 | % | ||||||||||
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| Total |
$ | (23,677 | ) | $ | (3,483 | ) | $ | 5,979 | 580 | % | -496 | % | ||||||||
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| Adjusted EBITDA |
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| Core Products |
$ | 11,382 | $ | 11,617 | $ | 15,523 | -2 | % | -27 | % | ||||||||||
| Emerging Products |
986 | (1,711 | ) | 4,109 | -158 | % | -76 | % | ||||||||||||
| Games |
883 | 2,275 | 2,452 | -61 | % | -64 | % | |||||||||||||
| Corporate |
(9,411 | ) | (8,094 | ) | (8,811 | ) | 16 | % | 7 | % | ||||||||||
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| Total |
$ | 3,840 | $ | 4,087 | $ | 13,273 | -6 | % | -71 | % | ||||||||||
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Full Year Results
For 2011, revenue from RealNetworks’ Core Products, Emerging Products and Games businesses was $335.7 million, a decrease of 8% compared with $366.0 million for 2010. Total revenue for 2010 was $401.7 million, including first-quarter revenue from RealNetworks’ music business of $35.7 million. Beginning in the second quarter of 2010, revenue and other operating results of RealNetworks’ music business from its Rhapsody joint venture are not consolidated in RealNetworks’ financial statements as a result of the restructuring of Rhapsody completed on March 31, 2010. Foreign currency exchange rate fluctuations positively affected 2011 revenue by approximately $8.0 million compared with 2010. Revenue trends in each of RealNetworks’ businesses for the full year 2011 compared with 2010 were: a 12% increase in Emerging Products revenue to $46.6 million, a 10% decrease in Core Products revenue to $191.2 million and a 12% decrease in Games revenue to $97.9 million.
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Net loss for the year was $(27.1) million, or $(0.79) per share, compared with net income of $5.0 million, or $0.26 per share, in 2010. Net loss in 2011 included restructuring charges of $(8.0) million, the $(20.0) million impairment for deferred SaaS costs in the fourth quarter and an income tax benefit of $17.3 million. Net income in 2010 included a gain from the deconsolidation of Rhapsody of $10.9 million, an income tax benefit of $36.5 million resulting primarily from a $30.0 million cash refund from the IRS and restructuring charges of $(19.8) million.
In 2011, adjusted EBITDA was $17.7 million compared with $25.3 million in 2010. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.
Business Outlook
For the first quarter of 2012, RealNetworks expects revenue of $65 million to $68 million. The company expects revenue from each of its current segments to decline sequentially and year-over-year. As a result of the decline in revenue, and a seasonal first-quarter sequential increase in expenses, RealNetworks expects adjusted EBITDA for the quarter to be negative, excluding the net effect of the sale of patent and other assets to Intel Corp. The company expects the patent sale to generate $120 million of cash and to close in the first quarter.
Anticipating significant restructuring activities in 2012, which we expect will include acquisitions and divestitures as well as changes in RealNetworks’ operating segments, RealNetworks is not providing full-year guidance for 2012.
The foregoing forward-looking statements reflect RealNetworks’ expectations as of Feb. 15, 2012. It is not RealNetworks’ 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 fourth quarter at 5:00 p.m. ET on Feb. 15. 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:
888-323-9869 Domestic
517-308-9139 International
Passcode: Fourth Quarter Earnings
Leader: Thomas Nielsen
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Telephonic replay will be available until 8 p.m. ET, Feb. 29, 2012.
Replay dial in:
866-415-8412 Domestic
203-369-0705 International
For More Information:
Marj Charlier, Investor Relations at RealNetworks, Inc.
206-892-6785 or mcharlier@real.com
Press Only:
Barbara Krause, Krause Taylor Associates for RealNetworks, Inc.
408-981-2429 or barbara@krause-taylor.com.
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 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 fourth 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 RealNetworks’ current expectations for future revenue, adjusted EBITDA, plans to undertake, as well as results and benefits from its business restructuring activities, future acquisitions and strategic initiatives, and the completion and financial impacts of the sale of patents and other assets to Intel Corp., which is subject to customary regulatory approval and satisfaction of closing conditions. 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: fluctuations in foreign currencies; RealNetworks’ ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and
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competition in the market for digital media products and services; other competitive risks, including the growth of competing technologies, products and services; 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; 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 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, 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.
5
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Quarters Ended December 31, |
Years Ended December 31, |
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| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Net revenue |
$ | 80,219 | $ | 97,817 | $ | 335,686 | $ | 401,733 | ||||||||
| Cost of revenue |
32,089 | 35,705 | 126,637 | 144,723 | ||||||||||||
| Impairment of deferred costs |
19,962 | — | 19,962 | — | ||||||||||||
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| Gross profit |
28,168 | 62,112 | 189,087 | 257,010 | ||||||||||||
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| Operating expenses: |
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| Research and development |
16,012 | 19,180 | 70,212 | 100,955 | ||||||||||||
| Sales and marketing |
25,342 | 27,013 | 111,300 | 118,543 | ||||||||||||
| Advertising with related party (A) |
— | — | — | 1,065 | ||||||||||||
| General and administrative |
10,163 | 9,066 | 37,181 | 51,217 | ||||||||||||
| Restructuring and other charges |
800 | 874 | 8,650 | 12,361 | ||||||||||||
| Loss (gain) on excess office facilities |
(472 | ) | — | (646 | ) | 7,396 | ||||||||||
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| Total operating expenses |
51,845 | 56,133 | 226,697 | 291,537 | ||||||||||||
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| Operating income (loss) |
(23,677 | ) | 5,979 | (37,610 | ) | (34,527 | ) | |||||||||
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| Other income (expenses): |
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| Interest income, net |
190 | 412 | 1,552 | 2,417 | ||||||||||||
| Equity in net loss of Rhapsody and other equity method investments (B) |
(2,159 | ) | (2,595 | ) | (7,898 | ) | (14,164 | ) | ||||||||
| Gain (loss) on sale of equity investments, net |
— | 41 | — | (9 | ) | |||||||||||
| Gain on deconsolidation of Rhapsody |
— | — | — | 10,929 | ||||||||||||
| Other income (expense), net |
188 | 144 | (473 | ) | 1,031 | |||||||||||
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| Total other income (expense), net |
(1,781 | ) | (1,998 | ) | (6,819 | ) | 204 | |||||||||
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| Income (loss) before income taxes |
(25,458 | ) | 3,981 | (44,429 | ) | (34,323 | ) | |||||||||
| Income tax (expense) benefit |
22,694 | (787 | ) | 17,329 | 36,451 | |||||||||||
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| Net income (loss) |
(2,764 | ) | 3,194 | (27,100 | ) | 2,128 | ||||||||||
| Net loss attributable to the noncontrolling interest in Rhapsody (C) |
— | — | — | 2,910 | ||||||||||||
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| Net income (loss) attributable to common shareholders |
$ | (2,764 | ) | $ | 3,194 | $ | (27,100 | ) | $ | 5,038 | ||||||
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| Basic net income (loss) per share available to common shareholders |
$ | (0.08 | ) | $ | 0.09 | $ | (0.79 | ) | $ | 0.26 | ||||||
| Diluted net income (loss) per share available to common shareholders |
$ | (0.08 | ) | $ | 0.09 | $ | (0.79 | ) | $ | 0.26 | ||||||
| Shares used to compute basic net income (loss) per share available to common shareholders |
34,258 | 33,963 | 34,185 | 33,894 | ||||||||||||
| Shares used to compute diluted net income (loss) per share available to common shareholders |
34,258 | 34,033 | 34,185 | 34,013 | ||||||||||||
| (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)
| December 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 106,333 | $ | 236,018 | ||||
| Short-term investments |
78,739 | 98,303 | ||||||
| Trade accounts receivable, net |
41,165 | 48,324 | ||||||
| Deferred costs, current portion |
1,424 | 9,173 | ||||||
| Related party receivable - Rhapsody (A) |
— | 351 | ||||||
| Prepaid expenses and other current assets |
21,902 | 30,441 | ||||||
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| Total current assets |
249,563 | 422,610 | ||||||
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| Equipment, software, and leasehold improvements, at cost: |
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| Equipment and software |
104,352 | 144,623 | ||||||
| Leasehold improvements |
25,947 | 25,367 | ||||||
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| Total equipment, software, and leasehold improvements |
130,299 | 169,990 | ||||||
| Less accumulated depreciation and amortization |
92,825 | 126,619 | ||||||
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| Net equipment, software, and leasehold improvements |
37,474 | 43,371 | ||||||
| Restricted cash equivalents and investments |
10,168 | 10,000 | ||||||
| Equity method investments |
7,798 | 15,486 | ||||||
| Available for sale securities |
37,204 | 27,541 | ||||||
| Other assets |
2,954 | 3,316 | ||||||
| Deferred costs, non-current portion |
843 | 18,401 | ||||||
| Deferred tax assets, net, non-current portion |
18,419 | 12,805 | ||||||
| Other intangible assets, net |
7,169 | 6,952 | ||||||
| Goodwill |
6,198 | 4,960 | ||||||
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| Total assets |
$ | 377,790 | $ | 565,442 | ||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
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| Accounts payable |
$ | 17,151 | $ | 30,413 | ||||
| Accrued and other liabilities |
59,194 | 85,702 | ||||||
| Deferred revenue, current portion |
11,835 | 19,036 | ||||||
| Accrued loss on excess office facilities, current portion |
596 | 1,144 | ||||||
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| Total current liabilities |
88,776 | 136,295 | ||||||
| Deferred revenue, non-current portion |
195 | 460 | ||||||
| Accrued loss on excess office facilities, non-current portion |
2,151 | 3,380 | ||||||
| Deferred rent |
2,944 | 3,514 | ||||||
| Deferred tax liabilities, net, non-current portion |
1,443 | 1,049 | ||||||
| Other long-term liabilities |
10,994 | 7,999 | ||||||
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| Total liabilities |
106,503 | 152,697 | ||||||
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| Shareholders’ equity |
271,287 | 412,745 | ||||||
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| Total liabilities and shareholders’ equity |
$ | 377,790 | $ | 565,442 | ||||
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| (A) | Related party receivable reflects amounts Rhapsody International, formed on March 31, 2010, owed RealNetworks. |
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Years Ended December 31, |
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| 2011 | 2010 | |||||||
| (in thousands) | ||||||||
| Cash flows from operating activities: |
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| Net income (loss) |
$ | (27,100 | ) | $ | 2,128 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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| Depreciation and amortization |
16,895 | 23,401 | ||||||
| Stock-based compensation |
11,747 | 12,203 | ||||||
| Loss (gain) on disposal of equipment, software, and leasehold improvements |
(62 | ) | (41 | ) | ||||
| Equity in net loss of Rhapsody and other equity method investments |
7,898 | 14,164 | ||||||
| Gain on deconsolidation of Rhapsody |
— | (10,929 | ) | |||||
| Excess tax benefit from stock option exercises |
(74 | ) | (48 | ) | ||||
| Accrued loss (gain) on excess office facilities |
(646 | ) | 5,670 | |||||
| Deferred income taxes, net |
(23,985 | ) | 622 | |||||
| Other |
114 | 460 | ||||||
| Net change in certain operating assets and liabilities, net of acquisitions, disposals and deconsolidation of Rhapsody |
14,505 | (78,752 | ) | |||||
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| Net cash used in operating activities |
(708 | ) | (31,122 | ) | ||||
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| Cash flows from investing activities: |
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| Purchases of equipment, software, and leasehold improvements |
(9,873 | ) | (12,904 | ) | ||||
| Purchases of short-term investments |
(96,841 | ) | (116,831 | ) | ||||
| Proceeds from sales and maturities of short-term investments |
116,405 | 126,398 | ||||||
| Payment of acquisition costs, net of cash acquired |
(2,888 | ) | (5,806 | ) | ||||
| Sale of Exomi, net of cash received |
— | 49 | ||||||
| Payment in connection with the restructuring of Rhapsody |
— | (18,000 | ) | |||||
| Repayment of temporary funding on deconsolidation of Rhapsody |
— | 5,869 | ||||||
| Decrease (increase) in restricted cash equivalents and investments, net |
(179 | ) | 3,700 | |||||
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| Net cash provided by (used in) investing activities |
6,624 | (17,525 | ) | |||||
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| Cash flows from financing activities: |
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| Net proceeds from sales of common stock under employee stock purchase plan and exercise of stock options |
3,177 | 2,678 | ||||||
| Net proceeds from sales of interest in Rhapsody |
— | 1,213 | ||||||
| Excess tax benefit from stock option exercises |
74 | 48 | ||||||
| Payment of common stock cash dividend |
(136,793 | ) | — | |||||
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| Net cash (used in) provided by financing activities |
(133,542 | ) | 3,939 | |||||
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| Effect of exchange rate changes on cash and cash equivalents |
(2,059 | ) | 3,696 | |||||
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| Net increase (decrease) in cash and cash equivalents |
(129,685 | ) | (41,012 | ) | ||||
| Cash and cash equivalents, beginning of period |
236,018 | 277,030 | ||||||
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| Cash and cash equivalents, end of period |
$ | 106,333 | $ | 236,018 | ||||
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RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
| 2011 | ||||||||||||||||||||
| YTD | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net Revenue by Line of Business: |
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| Core Products (A) |
$ | 191,240 | $ | 46,693 | $ | 50,705 | $ | 45,735 | $ | 48,107 | ||||||||||
| Emerging Products (B) |
46,590 | 11,974 | 10,764 | 12,717 | 11,135 | |||||||||||||||
| Games (C) |
97,856 | 21,552 | 22,945 | 25,300 | 28,059 | |||||||||||||||
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| Total net revenue excluding music |
335,686 | 80,219 | 84,414 | 83,752 | 87,301 | |||||||||||||||
| Music (D) |
— | — | — | — | — | |||||||||||||||
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| Total net revenue including music |
$ | 335,686 | $ | 80,219 | $ | 84,414 | $ | 83,752 | $ | 87,301 | ||||||||||
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| Core Products Revenue by Product: |
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| SaaS (E) |
$ | 119,378 | $ | 28,255 | $ | 30,381 | $ | 30,216 | $ | 30,526 | ||||||||||
| Systems Integrations / Professional Services (F) |
6,843 | 771 | 3,844 | 388 | 1,840 | |||||||||||||||
| Technology Licensing (G) |
28,429 | 9,246 | 6,250 | 6,508 | 6,425 | |||||||||||||||
| Consumer Subscriptions (H) |
36,590 | 8,421 | 10,230 | 8,623 | 9,316 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Core Products net revenue |
$ | 191,240 | $ | 46,693 | $ | 50,705 | $ | 45,735 | $ | 48,107 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Revenue by Geography: |
||||||||||||||||||||
| United States |
$ | 162,720 | $ | 37,298 | $ | 38,969 | $ | 41,984 | $ | 44,469 | ||||||||||
| Rest of world |
172,966 | 42,921 | 45,445 | 41,768 | 42,832 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total net revenue |
$ | 335,686 | $ | 80,219 | $ | 84,414 | $ | 83,752 | $ | 87,301 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Product Metrics (subscribers and ICM presented as greater than): |
||||||||||||||||||||
| Addressable subscribers of mobile operators under contract (I) |
725,000 | 700,000 | 775,000 | 775,000 | ||||||||||||||||
| SaaS subscribers (J) |
30,050 | 34,000 | 34,550 | 35,900 | ||||||||||||||||
| Monthly SaaS ARPU (in cents) (K) |
$ | 0.19 | $ | 0.17 | $ | 0.18 | $ | 0.18 | ||||||||||||
| ICM delivered in billions (L) |
165 | 162 | 157 | 151 | ||||||||||||||||
| Consumer subscribers(M) |
425 | 500 | 475 | 500 | ||||||||||||||||
| 2010 | ||||||||||||||||||||
| YTD | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net Revenue by Line of Business: |
||||||||||||||||||||
| Core Products (A) |
$ | 212,845 | $ | 58,030 | $ | 51,870 | $ | 51,742 | $ | 51,203 | ||||||||||
| Emerging Products (B) |
41,761 | 12,558 | 8,778 | 8,997 | 11,428 | |||||||||||||||
| Games (C) |
111,394 | 27,229 | 25,784 | 28,145 | 30,236 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total net revenue excluding music |
366,000 | 97,817 | 86,432 | 88,884 | 92,867 | |||||||||||||||
| Music (D) |
35,733 | — | — | — | 35,733 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total net revenue including music |
$ | 401,733 | $ | 97,817 | $ | 86,432 | $ | 88,884 | $ | 128,600 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Core Products Revenue by Product: |
||||||||||||||||||||
| SaaS (E) |
$ | 133,543 | $ | 35,656 | $ | 31,885 | $ | 32,388 | $ | 33,614 | ||||||||||
| Systems Integrations / Professional Services (F) |
6,706 | 4,388 | 953 | 998 | 367 | |||||||||||||||
| Technology Licensing (G) |
30,751 | 7,632 | 7,473 | 7,736 | 7,910 | |||||||||||||||
| Consumer Subscriptions (H) |
41,845 | 10,354 | 11,559 | 10,620 | 9,312 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Core Products net revenue |
$ | 212,845 | $ | 58,030 | $ | 51,870 | $ | 51,742 | $ | 51,203 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net Revenue by Geography: |
||||||||||||||||||||
| United States |
$ | 227,823 | $ | 48,048 | $ | 46,874 | $ | 48,351 | $ | 84,550 | ||||||||||
| Rest of world |
173,910 | 49,769 | 39,558 | 40,533 | 44,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total net revenue |
$ | 401,733 | $ | 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) |
700,000 | 700,000 | 675,000 | 650,000 | ||||||||||||||||
| SaaS subscribers (J) |
36,700 | 37,500 | 37,600 | 37,950 | ||||||||||||||||
| Monthly SaaS ARPU (in cents) (K) |
$ | 0.20 | $ | 0.16 | $ | 0.16 | $ | 0.16 | ||||||||||||
| ICM delivered in billions (L) |
136 | 134 | 128 | 120 | ||||||||||||||||
| Consumer subscribers(M) |
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, 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 the 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 | 2011 | 2010 | |||||||||||||||||
| Q4 | Q3 | Q4 | YTD | YTD | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Core Products |
||||||||||||||||||||
| Net revenue |
$ | 46,693 | $ | 50,705 | $ | 58,030 | $ | 191,240 | $ | 212,845 | ||||||||||
| Cost of revenue |
20,867 | 22,492 | 25,679 | 83,696 | 83,733 | |||||||||||||||
| Impairment of Def Costs |
19,329 | — | — | 19,329 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
6,497 | 28,213 | 32,351 | 88,215 | 129,112 | |||||||||||||||
| Gross margin |
14 | % | 56 | % | 56 | % | 46 | % | 61 | % | ||||||||||
| Operating expenses |
17,230 | 19,398 | 19,851 | 75,188 | 86,217 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | (10,733 | ) | $ | 8,815 | $ | 12,500 | $ | 13,027 | $ | 42,895 | |||||||||
| Adjusted EBITDA |
$ | 11,382 | $ | 11,617 | $ | 15,523 | $ | 43,159 | $ | 56,306 | ||||||||||
| Emerging Products |
||||||||||||||||||||
| Net revenue |
$ | 11,974 | $ | 10,764 | $ | 12,558 | $ | 46,590 | $ | 41,761 | ||||||||||
| Cost of revenue |
3,448 | 3,913 | 1,179 | 11,879 | 7,123 | |||||||||||||||
| Impairment of Def Costs |
633 | — | — | 633 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
7,893 | 6,851 | 11,379 | 34,078 | 34,638 | |||||||||||||||
| Gross margin |
66 | % | 64 | % | 91 | % | 73 | % | 83 | % | ||||||||||
| Operating expenses |
7,867 | 8,884 | 7,359 | 36,011 | 28,053 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | 26 | $ | (2,033 | ) | $ | 4,020 | $ | (1,933 | ) | $ | 6,585 | ||||||||
| Adjusted EBITDA |
$ | 986 | $ | (1,711 | ) | $ | 4,109 | $ | (206 | ) | $ | 7,157 | ||||||||
| Games |
||||||||||||||||||||
| Net revenue |
$ | 21,552 | $ | 22,945 | $ | 27,229 | $ | 97,856 | $ | 111,394 | ||||||||||
| Cost of revenue |
6,875 | 7,197 | 7,861 | 30,646 | 29,071 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
14,677 | 15,748 | 19,368 | 67,210 | 82,323 | |||||||||||||||
| Gross margin |
68 | % | 69 | % | 71 | % | 69 | % | 74 | % | ||||||||||
| Operating expenses |
14,449 | 14,159 | 17,580 | 60,633 | 78,275 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | 228 | $ | 1,589 | $ | 1,788 | $ | 6,577 | $ | 4,048 | ||||||||||
| Adjusted EBITDA |
$ | 883 | $ | 2,275 | $ | 2,452 | $ | 9,246 | $ | 8,970 | ||||||||||
| Music |
||||||||||||||||||||
| Net revenue |
$ | — | $ | — | $ | — | $ | — | $ | 35,733 | ||||||||||
| Cost of revenue |
— | — | — | — | 21,864 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
— | — | — | — | 13,869 | |||||||||||||||
| Gross margin |
N/A | N/A | N/A | N/A | 39 | % | ||||||||||||||
| Operating expenses |
— | — | — | — | 13,911 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | — | $ | — | $ | — | $ | — | $ | (42 | ) | |||||||||
| Adjusted EBITDA |
$ | — | $ | — | $ | — | $ | — | $ | 4,214 | ||||||||||
| Corporate |
||||||||||||||||||||
| Net revenue |
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Cost of revenue |
899 | (1,786 | ) | 986 | 416 | 2,932 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
(899 | ) | 1,786 | (986 | ) | (416 | ) | (2,932 | ) | |||||||||||
| Gross margin |
N/A | N/A | N/A | N/A | N/A | |||||||||||||||
| Operating expenses |
12,299 | 13,640 | 11,343 | 54,865 | 85,081 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | (13,198 | ) | $ | (11,854 | ) | $ | (12,329 | ) | $ | (55,281 | ) | $ | (88,013 | ) | |||||
| Adjusted EBITDA |
$ | (9,411 | ) | $ | (8,094 | ) | $ | (8,811 | ) | $ | (34,508 | ) | $ | (51,345 | ) | |||||
| Total |
||||||||||||||||||||
| Net revenue |
$ | 80,219 | $ | 84,414 | $ | 97,817 | $ | 335,686 | $ | 401,733 | ||||||||||
| Cost of revenue |
32,089 | 31,816 | 35,705 | 126,637 | 144,723 | |||||||||||||||
| Impairment of Def Costs |
19,962 | — | — | 19,962 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
28,168 | 52,598 | 62,112 | 189,087 | 257,010 | |||||||||||||||
| Gross margin |
35 | % | 62 | % | 63 | % | 56 | % | 64 | % | ||||||||||
| Operating expenses |
51,845 | 56,081 | 56,133 | 226,697 | 291,537 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
$ | (23,677 | ) | $ | (3,483 | ) | $ | 5,979 | $ | (37,610 | ) | $ | (34,527 | ) | ||||||
| Adjusted EBITDA |
$ | 3,840 | $ | 4,087 | $ | 13,273 | $ | 17,691 | $ | 25,302 | ||||||||||
RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment
(Unaudited)
| 2011 | 2010 | 2011 | 2010 | |||||||||||||||||
| Q4 | Q3 | Q4 | YTD | YTD | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Core Products | ||||||||||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||||||||||
| Operating income (loss) |
$ | (10,733 | ) | $ | 8,815 | $ | 12,500 | $ | 13,027 | $ | 42,895 | |||||||||
| Acquisitions related intangible asset amortization |
789 | 833 | 705 | 2,806 | 3,991 | |||||||||||||||
| Depreciation and amortization |
1,997 | 1,969 | 2,318 | 7,997 | 9,420 | |||||||||||||||
| Impairment of deferred costs |
19,329 | — | — | 19,329 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | 11,382 | $ | 11,617 | $ | 15,523 | $ | 43,159 | $ | 56,306 | ||||||||||
| Emerging Products | ||||||||||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||||||||||
| Operating income (loss) |
$ | 26 | $ | (2,033 | ) | $ | 4,020 | $ | (1,933 | ) | $ | 6,585 | ||||||||
| Acquisitions related intangible asset amortization |
79 | 79 | — | 211 | — | |||||||||||||||
| Depreciation and amortization |
248 | 243 | 89 | 883 | 572 | |||||||||||||||
| Impairment of deferred costs |
633 | — | — | 633 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | 986 | $ | (1,711 | ) | $ | 4,109 | $ | (206 | ) | $ | 7,157 | ||||||||
| Games | ||||||||||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||||||||||
| Operating income (loss) |
$ | 228 | $ | 1,589 | $ | 1,788 | $ | 6,577 | $ | 4,048 | ||||||||||
| Acquisitions related intangible asset amortization |
229 | 257 | 263 | 996 | 510 | |||||||||||||||
| Depreciation and amortization |
426 | 429 | 401 | 1,673 | 4,412 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | 883 | $ | 2,275 | $ | 2,452 | $ | 9,246 | $ | 8,970 | ||||||||||
| 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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | — | $ | — | $ | — | $ | — | $ | 4,214 | ||||||||||
| Corporate | ||||||||||||||||||||
| Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment: |
| |||||||||||||||||||
| Operating income (loss) |
$ | (13,198 | ) | $ | (11,854 | ) | $ | (12,329 | ) | $ | (55,281 | ) | $ | (88,013 | ) | |||||
| Other income (expense), net |
188 | (228 | ) | 144 | (473 | ) | 1,031 | |||||||||||||
| Depreciation and amortization |
608 | 593 | 577 | 2,329 | 3,677 | |||||||||||||||
| Restructuring and other charges |
800 | 438 | 874 | 8,650 | 12,361 | |||||||||||||||
| Stock-based compensation |
2,663 | 2,957 | 1,923 | 10,913 | 12,203 | |||||||||||||||
| Loss (gain) on excess office facilities |
(472 | ) | — | — | (646 | ) | 7,396 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | (9,411 | ) | $ | (8,094 | ) | $ | (8,811 | ) | $ | (34,508 | ) | $ | (51,345 | ) | |||||
| Total | ||||||||||||||||||||
| Reconciliation of GAAP operating income (loss) to adjusted EBITDA: |
| |||||||||||||||||||
| Operating income (loss) |
$ | (23,677 | ) | $ | (3,483 | ) | $ | 5,979 | $ | (37,610 | ) | $ | (34,527 | ) | ||||||
| Net loss attributable to noncontrolling interest in Rhapsody |
— | — | — | — | 2,910 | |||||||||||||||
| Other income (expense), net |
188 | (228 | ) | 144 | (473 | ) | 1,031 | |||||||||||||
| Acquisitions related intangible asset amortization (A) |
1,097 | 1,169 | 968 | 4,013 | 4,559 | |||||||||||||||
| Depreciation and amortization (A) |
3,279 | 3,234 | 3,385 | 12,882 | 18,771 | |||||||||||||||
| Loss (gain) on excess office facilities |
(472 | ) | — | — | (646 | ) | 7,396 | |||||||||||||
| Pro forma gain on sale of interest in Rhapsody America |
— | — | — | — | 598 | |||||||||||||||
| Restructuring and other charges |
800 | 438 | 874 | 8,650 | 12,361 | |||||||||||||||
| Stock-based compensation |
2,663 | 2,957 | 1,923 | 10,913 | 12,203 | |||||||||||||||
| Impairment of deferred costs |
19,962 | — | — | 19,962 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Adjusted EBITDA |
$ | 3,840 | $ | 4,087 | $ | 13,273 | $ | 17,691 | $ | 25,302 | ||||||||||
| (A) | Net of noncontrolling interest effect. |
RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)
| Quarters Ended December 31, |
Years Ended December 31, |
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Net income (loss) attributable to common shareholders |
$ | (2,764 | ) | $ | 3,194 | $ | (27,100 | ) | $ | 5,038 | ||||||
| Less termination of MTVN’s preferred return in Rhapsody |
— | — | — | 3,700 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) available to common shareholders |
$ | (2,764 | ) | $ | 3,194 | $ | (27,100 | ) | $ | 8,738 | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares used to compute basic net income (loss) per share available to common shareholders |
34,258 | 33,963 | 34,185 | 33,894 | ||||||||||||
| Dilutive stock options and restricted stock |
— | 70 | — | 119 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Shares used to compute diluted net income (loss) per share available to common shareholders |
34,258 | 34,033 | 34,185 | 34,013 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Basic net income (loss) per share available to common shareholders |
$ | (0.08 | ) | $ | 0.09 | $ | (0.79 | ) | $ | 0.26 | ||||||
| Diluted net income (loss) per share available to common shareholders |
$ | (0.08 | ) | $ | 0.09 | $ | (0.79 | ) | $ | 0.26 | ||||||