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 RealNetworks Announces Fourth Quarter And Full Year 2014 Results
   Wednesday, February 04, 2015 4:01:00 PM ET

RealNetworks, Inc. (RNWK ), a leader in personal digital entertainment, today announced results for the fourth quarter and full year ended December 31, 2014.

For the fourth quarter of 2014, revenue was $35.5 million, compared to $34.2 million in the previous quarter and $50.6 million in the fourth quarter of 2013. For the full year 2014, revenue was $156.2 million, compared to $206.2 million in 2013.

"During 2014, we continued to make progress in our strategic transition to new mobile-centric, cloud-based products and services," said Rob Glaser, Chairman and CEO of RealNetworks. "RealPlayer Cloud now has over 10 million users worldwide, up from 500,000 a year ago. We are continuing to build on our early momentum with RealPlayer Cloud by investing to broaden and deepen the product. We are also working to bring in additional marketing and distribution partners to drive even more consumer adoption.

"We’re also encouraged by the worldwide launch of our new Slingo Adventure and Emily’s New Beginning games, as well as the continued subscriber and revenue growth at the Rhapsody music service in which we play a significant role and have a large stake."

GAAP net loss for the fourth quarter of 2014 was $(20.8) million or $(0.58) per diluted share, compared to GAAP net income of $2.5 million or $0.07 per diluted share in the fourth quarter of 2013. GAAP results for the fourth quarter of 2013 income included a pre-tax net gain of $21.4 million from the sale of our investment in LoEn. For the full year 2014, GAAP net loss was $(71.8) million or $(2.00) per diluted share, compared to $(59.0) million or $(1.66) per diluted share in 2013.

Adjusted EBITDA for the fourth quarter of 2014 was a loss of $(15.2) million compared to $(6.6) million for the fourth quarter of 2013. For the full year 2014, adjusted EBITDA was a loss of $(56.6) million, compared to a loss of $(23.7) million for 2013. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of December 31, 2014, the company had $161.7 million in unrestricted cash, cash equivalents and short-term investments, compared to $178.0 million as of September 30, 2014.

Business Outlook

For the first quarter of 2015, RealNetworks expects total revenue in the range of $30.0 million to $33.0 million and adjusted EBITDA for the quarter to be a loss in the range of $(18.0) million to $(21.0) 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: Fourth 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 11:59 p.m. PT, February 26, 2015 by calling 866-426-7248 or +1-203-369-0887 (Passcode: 020415).

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 Slingo 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                Years Ended
                                                            December 31,                  December 31,
                                                            2014            2013          2014            2013
                                                            (in thousands, except per share data)
Net revenue                                                 $    35,506     $    50,595   $    156,212    $    206,196
Cost of revenue                                             17,881          20,076        76,381          79,091
Extinguishment of liability                                 --              --            (10,580)        --
Gross profit                                                17,625          30,519        90,411          127,105
Operating expenses:
Research and development                                    12,655          14,929        52,765          60,880
Sales and marketing                                         15,904          20,181        66,926          80,011
General and administrative                                  8,384           8,137         34,001          36,643
Restructuring and other charges                             1,187           1,690         4,992           5,765
Lease exit and related charges                              177             23            880             3,089
Loss on litigation settlements                              --              --            --              11,525
Total operating expenses                                    38,307          44,960        159,564         197,913
Operating income (loss)                                     (20,682)        (14,441)      (69,153)        (70,808)
Other income (expenses):
Interest income, net                                        160             141           556             1,133
Gain (loss) on sale of available for sale securities, net   --              21,389        2,371           21,389
Equity in net loss of Rhapsody investment                   (282)           (59)          (4,452)         (6,268)
Other income (expense), net                                 (10)            613           143             467
Total other income (expense), net                           (132)           22,084        (1,382)         16,721
Income (loss) before income taxes                           (20,814)        7,643         (70,535)        (54,087)
Income tax expense (benefit)                                24              5,113         1,280           4,903
Net income (loss)                                           $    (20,838)   $    2,530    $    (71,815)   $    (58,990)
Basic net income (loss) per share                           $    (0.58)     $    0.07     $    (2.00)     $    (1.66)
Diluted net income (loss) per share                         $    (0.58)     $    0.07     $    (2.00)     $    (1.66)
Shares used to compute basic net income (loss) per share    36,052          35,738        35,947          35,553
Shares used to compute diluted net income (loss) per share  36,052          35,906        35,947          35,553
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                          December 31,   December 31,
                                                          2014           2013
                                                          (in thousands)
ASSETS
Current assets:
Cash and cash equivalents                                 $    103,253   $    151,235
Short-term investments                                    58,453         74,920
Trade accounts receivable, net                            15,257         24,613
Deferred costs, current portion                           702            1,601
Deferred tax assets, current                              652            306
Prepaid expenses and other current assets                 8,980          9,124
Total current assets                                      187,297        261,799
Equipment, software, and leasehold improvements, at cost:
Equipment and software                                    74,100         86,721
Leasehold improvements                                    3,590          3,482
Total equipment, software, and leasehold improvements     77,690         90,203
Less accumulated depreciation and amortization            61,442         67,031
Net equipment, software, and leasehold improvements       16,248         23,172
Restricted cash equivalents and investments               3,000          3,000
Equity method investment                                  10,000         12,473
Available for sale securities                             2,676          7,181
Other assets                                              2,299          2,332
Deferred costs, non-current portion                       316            946
Deferred tax assets, net, non-current portion             999            1,409
Other intangible assets, net                              10,109         12,993
Goodwill                                                  17,355         17,476
Total assets                                              $    250,299   $    342,781
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                          $    18,653    $    19,987
Accrued and other current liabilities                     25,286         41,893
Deferred tax liabilities, net, current portion            1,628          899
Deferred revenue, current portion                         5,301          7,498
Total current liabilities                                 50,868         70,277
Deferred revenue, non-current portion                     235            166
Deferred rent                                             1,215          1,318
Deferred tax liabilities, net, non-current portion        702            1,556
Other long-term liabilities                               81             483
Total liabilities                                         53,101         73,800
Shareholders’ equity                                      197,198        268,981
Total liabilities and shareholders’ equity                $    250,299   $    342,781
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                                               Years ended December 31,
                                                                               2014                    2013
                                                                               (in thousands)
Cash flows from operating activities:
Net income (loss)                                                              $          (71,815)     $          (58,990)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization                                                  11,959                  18,748
Stock-based compensation                                                       5,204                   7,468
Extinguishment of liability                                                    (10,580)                --
Equity in net loss of Rhapsody                                                 4,452                   6,268
Lease exit and related charges                                                 668                     1,421
Deferred income taxes, net                                                     (237)                   676
Gain on sale of available for sale securities                                  (2,371)                 (21,389)
Realized translation gain                                                      (48)                    (571)
Other                                                                          --                      51
Net change in certain operating assets and liabilities                         2,524                   (3,561)
Net cash provided by (used in) operating activities                            (60,244)                (49,879)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements                   (2,460)                 (7,727)
Proceeds from sale of available for sale securities                            2,754                   29,153
Purchases of short-term investments                                            (81,216)                (131,690)
Proceeds from sales and maturities of short-term investments                   97,683                  164,986
Decrease in restricted cash equivalents and investments                        --                      10,000
Increase in restricted cash equivalents and investments                        --                      (3,000)
Acquisitions of businesses, net of cash acquired                               (733)                   (22,480)
Other                                                                          (467)                   --
Net cash provided by (used in) investing activities                            15,561                  39,242
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan) 812                     594
Tax payments from shares withheld upon vesting of restricted stock             (407)                   (1,201)
Payment of contingent consideration                                            (1,042)                 (828)
Net cash provided by (used in) financing activities                            (637)                   (1,435)
Effect of exchange rate changes on cash and cash equivalents                   (2,662)                 109
Net increase (decrease) in cash and cash equivalents                           (47,982)                (11,963)
Cash and cash equivalents, beginning of period                                 151,235                 163,198
Cash and cash equivalents, end of period                                       $          103,253      $          151,235
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
                                                       2014                                                                                                          2013
                                 YTD                   Q4                    Q3                    Q2                    Q1                    YTD                   Q4                    Q3                    Q2                    Q1
                                 (in thousands)
Net Revenue by Line of Business
RealPlayer Group (A)             $         39,201      $         8,865       $         6,565       $         8,556       $         15,215      $         75,206      $         16,799      $         17,641      $         18,383      $         22,383
Mobile Entertainment (B)         79,901                17,616                19,190                23,182                19,913                81,181                22,146                19,948                18,592                20,495
Games (C)                        37,110                9,025                 8,402                 9,087                 10,596                49,809                11,650                11,369                12,875                13,915
Total net revenue                $         156,212     $         35,506      $         34,157      $         40,825      $         45,724      $         206,196     $         50,595      $         48,958      $         49,850      $         56,793
Net Revenue by Product
RealPlayer Group
- License (D)                    $         16,042      $         4,496       $         3,255       $         3,273       $         5,018       $         29,507      $         7,128       $         7,281       $         6,766       $         8,332
- Subscriptions (E)              10,717                2,691                 2,680                 2,569                 2,777                 15,850                3,118                 3,615                 4,193                 4,924
- Media Properties (F)           12,442                1,678                 630                   2,714                 7,420                 29,849                6,553                 6,745                 7,424                 9,127
Mobile Entertainment
- SaaS (G)                       73,284                16,727                17,919                20,175                18,463                74,238                20,406                18,156                17,002                18,674
- Technology License & Other (H) 6,617                 889                   1,271                 3,007                 1,450                 6,943                 1,740                 1,792                 1,590                 1,821
Games
- License (I)                    14,090                3,854                 2,988                 3,399                 3,849                 16,270                3,511                 3,421                 4,089                 5,249
- Subscriptions (J)              17,948                3,947                 4,320                 4,440                 5,241                 23,713                5,688                 5,733                 5,980                 6,312
- Media Properties (K)           5,072                 1,224                 1,094                 1,248                 1,506                 9,826                 2,451                 2,215                 2,806                 2,354
Total net revenue                $         156,212     $         35,506      $         34,157      $         40,825      $         45,724      $         206,196     $         50,595      $         48,958      $         49,850      $         56,793
Net Revenue by Geography
United States                    $         61,660      $         13,860      $         12,280      $         15,092      $         20,428      $         90,250      $         19,724      $         21,039      $         21,463      $         28,024
Rest of world                    94,552                21,646                21,877                25,733                25,296                115,946               30,871                27,919                28,387                28,769
Total net revenue                $         156,212     $         35,506      $         34,157      $         40,825      $         45,724      $         206,196     $         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 our RealPlayer Cloud service and SuperPass.
(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 our RealPlayer Cloud service and SuperPass.
(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 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
                             Q4              Q3              Q4              YTD              YTD
                             (in thousands)
RealPlayer Group
Net revenue                  $   8,865       $   6,565       $   16,799      $    39,201      $   75,206
Cost of revenue              3,804           3,566           3,236           14,508           16,220
Gross profit                 5,061           2,999           13,563          24,693           58,986
Gross margin                 57           %  46           %  81           %  63            %  78           %
Operating expenses           13,074          12,392          15,828          55,742           60,484
Operating income (loss)      $   (8,013)     $   (9,393)     $   (2,265)     $    (31,049)    $   (1,498)
Adjusted EBITDA              $   (7,320)     $   (8,770)     $   (1,474)     $    (28,474)    $   951
Mobile Entertainment
Net revenue                  $   17,616      $   19,190      $   22,146      $    79,901      $   81,181
Cost of revenue              11,525          12,626          13,634          50,399           47,608
Gross profit                 6,091           6,564           8,512           29,502           33,573
Gross margin                 35           %  34           %  38           %  37            %  41           %
Operating expenses           7,199           7,086           8,863           33,325           35,839
Operating income (loss)      $   (1,108)     $   (522)       $   (351)       $    (3,823)     $   (2,266)
Adjusted EBITDA              $   24          $   447         $   1,251       $    940         $   5,830
Games
Net revenue                  $   9,025       $   8,402       $   11,650      $    37,110      $   49,809
Cost of revenue              2,655           2,573           2,962           11,074           13,359
Gross profit                 6,370           5,829           8,688           26,036           36,450
Gross margin                 71           %  69           %  75           %  70            %  73           %
Operating expenses           9,977           8,658           12,057          37,170           47,177
Operating income (loss)      $   (3,607)     $   (2,829)     $   (3,369)     $    (11,134)    $   (10,727)
Adjusted EBITDA              $   (3,024)     $   (2,246)     $   (2,724)     $    (8,742)     $   (7,897)
Corporate
Net revenue                  $   --          $   --          $   --          $    --          $   --
Cost of revenue              (103)           163             244             400              1,904
Extinguishment of liability  --              --              --              (10,580)         --
Gross profit                 103             (163)           (244)           10,180           (1,904)
Gross margin                 N/A             N/A             N/A             N/A              N/A
Operating expenses           8,057           7,856           8,212           33,327           54,413
Operating income (loss)      $   (7,954)     $   (8,019)     $   (8,456)     $    (23,147)    $   (56,317)
Adjusted EBITDA              $   (4,879)     $   (3,788)     $   (3,668)     $    (20,279)    $   (22,630)
Total
Net revenue                  $   35,506      $   34,157      $   50,595      $    156,212     $   206,196
Cost of revenue              17,881          18,928          20,076          76,381           79,091
Extinguishment of liability  --              --              --              (10,580)         --
Gross profit                 17,625          15,229          30,519          90,411           127,105
Gross margin                 50           %  45           %  60           %  58            %  62           %
Operating expenses           38,307          35,992          44,960          159,564          197,913
Operating income (loss)      $   (20,682)    $   (20,763)    $   (14,441)    $    (69,153)    $   (70,808)
Adjusted EBITDA              $   (15,199)    $   (14,357)    $   (6,615)     $    (56,555)    $   (23,746)
RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment
(Unaudited)
                                                    2014                              2013             2014             2013
                                                    Q4               Q3               Q4               YTD              YTD
                                                    (in thousands)
RealPlayer Group
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
Operating income (loss)                             $     (8,013)    $     (9,393)    $     (2,265)    $     (31,049)   $    (1,498)
Acquisitions related intangible asset amortization  96               103              60               384              249
Depreciation and amortization                       597              520              731              2,191            2,200
Adjusted EBITDA                                     $     (7,320)    $     (8,770)    $     (1,474)    $     (28,474)   $    951
Mobile Entertainment
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
Operating income (loss)                             $     (1,108)    $     (522)      $     (351)      $     (3,823)    $    (2,266)
Acquisitions related intangible asset amortization  271              287              781              1,793            3,287
Depreciation and amortization                       861              682              821              2,970            4,809
Adjusted EBITDA                                     $     24         $     447        $     1,251      $     940        $    5,830
Games
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
Operating income (loss)                             $     (3,607)    $     (2,829)    $     (3,369)    $     (11,134)   $    (10,727)
Acquisitions related intangible asset amortization  314              314              314              1,256            879
Depreciation and amortization                       269              269              331              1,136            1,951
Adjusted EBITDA                                     $     (3,024)    $     (2,246)    $     (2,724)    $     (8,742)    $    (7,897)
Corporate
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
Operating income (loss)                             $     (7,954)    $     (8,019)    $     (8,456)    $     (23,147)   $    (56,317)
Other income (expense), net                         (10)             325              613              143              467
Depreciation and amortization                       675              556              665              2,229            5,373
Lease exit and related charges                      177              154              23               880              3,089
Loss (gain) on litigation settlements               --               --               --               --               11,525
Restructuring and other charges                     1,187            2,048            1,690            4,992            5,765
Stock-based compensation                            1,046            1,148            1,797            5,204            7,468
Extinguishment of liability                         --               --               --               (10,580)         --
Adjusted EBITDA                                     $     (4,879)    $     (3,788)    $     (3,668)    $     (20,279)   $    (22,630)
Total
Reconciliation of GAAP operating income (loss) to adjusted EBITDA:
Operating income (loss)                             $     (20,682)   $     (20,763)   $     (14,441)   $     (69,153)   $    (70,808)
Other income (expense), net                         (10)             325              613              143              467
Acquisitions related intangible asset amortization  681              704              1,155            3,433            4,415
Depreciation and amortization                       2,402            2,027            2,548            8,526            14,333
Lease exit and related charges                      177              154              23               880              3,089
Loss (gain) on litigation settlements               --               --               --               --               11,525
Restructuring and other charges                     1,187            2,048            1,690            4,992            5,765
Stock-based compensation                            1,046            1,148            1,797            5,204            7,468
Extinguishment of liability                         --               --               --               (10,580)         --
Adjusted EBITDA                                     $     (15,199)   $     (14,357)   $     (6,615)    $     (56,555)   $    (23,746)

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realnetworks-announces-fourth-quarter-and-full-year-2014-results-300030931.html

SOURCE RealNetworks, Inc.

http://rt.prnewswire.com/rt.gif?NewsItemId=SF22456&Transmission_Id=201502041601PR_NEWS_USPR_____SF22456&DateId=20150204



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