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 RealNetworks Announces Fourth Quarter And Full Year 2017 Results
   Wednesday, February 07, 2018 4:01:00 PM ET

-- Significant progress with four key growth initiatives that are expected to contribute to revenue growth in 2018

-- Exited low margin business that is now presented as discontinued operations; gross margin from continuing operations of 71% highlights scalability of go-forward business

-- Reduced 2017 operating expenses by 18% year-over-year and reduced cash resources consumed in operations

-- Delivered positive net income and sequential increase in cash and short term investments in Q4 2017, benefiting from the gain and final receipt of cash from our 2015 sale of Slingo and social casino business

RealNetworks, Inc. (RNWK ), a leader in digital media software and services, today announced results for the fourth quarter and full year ended December 31, 2017.

Management Commentary

"2017 was a transformative year for RealNetworks. We advanced four key growth initiatives that are expected to contribute high margin revenue in 2018, while simultaneously improving our cost structure," said Rob Glaser, Chairman and CEO of RealNetworks. "We also exited from our low margin Korean music on demand business, increasing our gross margin to over 70%."

Glaser added, "We have set the stage for meaningful revenue growth in 2018, led by the anticipated contribution from new high margin products. We also expect to achieve adjusted EBITDA profitability during 2018."

Fourth Quarter 2017 Financial Highlights from Continuing Operations

-- Revenue was $18.9 million, up from $18.6 million in the prior quarter and down from $20.4 million in the prior year period.

-- Operating expenses increased $1.0 million, or 6%, from the prior quarter and decreased $1.8 million, or 9%, from the prior year period.

-- Net income was $0.4 million, or $0.01 per share, compared to a net loss of $(4.5) million or $(0.12) per share in the prior quarter and $(10.2) million, or $(0.28) per share in the prior year period. In the fourth quarter of 2017, net income included a one-time $4.5 million gain on the final receipt of cash from the 2015 sale of the Slingo and social casino business.

-- Adjusted EBITDA was a loss of $(3.6) million, compared to a loss of $(2.6) million in the prior quarter and $(4.5) million in the prior year period. A reconciliation of GAAP net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.

Full Year 2017 Financial Highlights from Continuing Operations

-- Revenue was $78.7 million, down from $81.5 million in the prior year.

-- Operating expenses declined by $16.5 million, or 18%, from the prior year.

-- Net loss was $(17.4) million, or $(0.47) per share, compared to $(37.8) million or $(1.02) per share in the prior year.

-- Adjusted EBITDA was a loss of $(12.0) million, compared to a loss of $(23.2) million in the prior year. A reconciliation of GAAP net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure, is provided in the financial tables that accompany this release.

-- At December 31, 2017, the Company had $60.0 million in unrestricted cash, cash equivalents and short-term investments, compared to $59.1 million at September 30, 2017 and $77.1 million at December 31, 2016.

Discontinued Operations

At December 31, 2017, the contract with RealNetworks’ music on demand customer in Korea terminated. Operations associated with this contract are now presented as discontinued operations and prior periods have been recast to be comparable.

Revenue attributable to this contract was $12.2 million and $46.0 million for the three and twelve months ended December 31, 2017, respectively, with gross profit of $0.5 million and $1.4 million, respectively, for the same periods.

Consolidated Q4 & 2017 Financial Summary

                                                Three Months Ended      Twelve Months Ended
                                                December 31,            December 31,
                                                2017        2016        2017         2016
                                                (in millions)
Revenue from Continuing Operations              $  18.9     $  20.4     $  78.7      $  81.5
Revenue from Discontinued Operations            12.2        11.1        46.0         39.0
Revenue including Discontinued Operations       $  31.1     $  31.5     $  124.7     $  120.5
Gross Profit from Continuing Operations         $  13.9     $  13.8     $  55.6      $  53.9
Gross Profit from Discontinued Operations       0.5         0.3         1.4          1.6
Gross Profit including Discontinued Operations  $  14.4     $  14.1     $  57.0      $  55.5
Gross Margin from Continuing Operations         74      %   68      %   71       %   66       %
Gross Margin from Discontinued Operations       4       %   3       %   3        %   4        %
Gross Margin including Discontinued Operations  46      %   45      %   46       %   46       %

Business Outlook

For the first quarter of 2018, RealNetworks expects to achieve the following results:

-- Total revenue is expected to be in the range of $20 million to $22 million.

-- Adjusted EBITDA loss is expected to be in the range of $(1.0) million to $(3.0) million.

Conference Call and Webcast Information

The company will host a conference call today to review results and discuss the company’s performance shortly after 4:30 p.m. ET/1:30 p.m. PT. You may join the conference call by calling 1-877-451-6152 or 1-201-389-0879. A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Wednesday, February 28, 2018, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13675526.

A live webcast will be available on RealNetworks’ Investor Relations site under Events at http://investor.realnetworks.com and will be archived online upon completion of the conference call.

For More Information

Investor Relations for RealNetworks Laura Bainbridge, Addo IR 310-829-5400 IR@realnetworks.com

RNWK-F

About RealNetworks

RealNetworks creates innovative technology products and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category 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. Find RealNetworks’ corporate information at www.realnetworks.com.

RealNetworks? and the company’s respective logos are trademarks, registered trademarks, or service marks of RealNetworks, Inc. Other products and company names mentioned are the 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 contribution margin 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 net income (loss) from continuing operations to adjusted EBITDA and operating income (loss) by reportable segment to contribution margin by reportable segment.

The rationale for management’s use of non-GAAP measures is included in the supplementary materials presented with the quarterly 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, and market position, our strategic focus and initiatives, agreements with partners, and the growth and future prospects relating to our Rhapsody d/b/a Napster affiliate. 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: RealNetworks’ ability to realize operating efficiencies, growth and other benefits from the implementation of its growth plan, strategic initiatives, and restructuring efforts; the emergence of new entrants and 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; 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)
                                                              Quarter Ended               Twelve Months Ended
                                                              December 31,                December 31,
                                                              2017         2016           2017            2016
                                                              (in thousands, except per share data)
Net revenue                                                   $   18,865   $    20,395    $    78,718     $    81,479
Cost of revenue                                               4,965        6,591          23,164          27,548
Gross profit                                                  13,900       13,804         55,554          53,931
Operating expenses:
Research and development                                      7,625        6,738          29,710          29,923
Sales and marketing                                           5,419        7,451          22,953          31,608
General and administrative                                    5,358        6,035          20,996          27,415
Restructuring and other charges                               255          192            2,526           1,489
Lease exit and related charges                                --           48             --              2,239
Total operating expenses                                      18,657       20,464         76,185          92,674
Operating income (loss)                                       (4,757)      (6,660)        (20,631)        (38,743)
Other income (expenses):
Interest income, net                                          83           133            436             449
Gain (loss) on investments, net                               4,500        2,495          4,500           8,473
Equity in net loss of Rhapsody                                (2,894)      (5,904)        (3,991)         (6,533)
Other income (expense), net                                   (217)        (128)          (506)           (643)
Total other income (expense), net                             1,472        (3,404)        439             1,746
Income (loss) from continuing operations before income taxes  (3,285)      (10,064)       (20,192)        (36,997)
Income tax expense (benefit)                                  (3,732)      139            (2,778)         776
Net income (loss) from continuing operations                  447          (10,203)       (17,414)        (37,773)
Net income (loss) from discontinued operations, net of tax    392          227            1,109           1,223
Net income (loss)                                             $   839      $    (9,976)   $    (16,305)   $    (36,550)
Net income (loss) per share - Basic:
Continuing operations                                         $   0.01     $    (0.28)    $    (0.47)     $    (1.02)
Discontinued operations                                       0.01         0.01           0.03            0.03
Net income (loss) per share - Basic                           $   0.02     $    (0.27)    $    (0.44)     $    (0.99)
Net income (loss) per share - Diluted:
Continuing operations                                         $   0.01     $    (0.28)    $    (0.47)     $    (1.02)
Discontinued operations                                       0.01         0.01                0.03            0.03
Net income (loss) per share - Diluted                         $   0.02     $    (0.27)    $    (0.44)     $    (0.99)
Shares used to compute basic net income (loss) per share      37,315       37,042         37,163          36,781
Shares used to compute diluted net income (loss) per share    37,383       37,042         37,163          36,781
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                      December 31,   December 31,
                                                      2017           2016
                                                      (in thousands)
ASSETS
Current assets:
Cash and cash equivalents                             $    51,196    $    33,721
Short-term investments                                8,779          43,331
Trade accounts receivable, net                        12,689         7,956
Deferred costs, current portion                       426            760
Prepaid expenses and other current assets             3,715          4,910
Current assets of discontinued operations             17,456         14,206
Total current assets                                  94,261         104,884
Equipment and software                                46,417         46,231
Leasehold improvements                                3,536          3,317
Total equipment, software, and leasehold improvements 49,953         49,548
Less accumulated depreciation and amortization        46,093         44,294
Net equipment, software, and leasehold improvements   3,860          5,254
Restricted cash equivalents and investments           2,400          2,700
Other assets                                          5,588          1,742
Deferred costs, non-current portion                   955            1,246
Deferred tax assets, net                              1,047          816
Other intangible assets, net                          325            938
Goodwill                                              13,060         12,857
Total assets                                          $    121,496   $    130,437
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                      $    3,785     $    4,727
Accrued and other current liabilities                 12,365         14,382
Commitment to Rhapsody                                2,750          1,500
Deferred revenue, current portion                     3,097          3,430
Current liabilities of discontinued operations        17,107         14,541
Total current liabilities                             39,104         38,580
Deferred revenue, non-current portion                 443            240
Deferred rent                                         982            748
Deferred tax liabilities, net                         19             87
Other long-term liabilities                           1,775          2,201
Total liabilities                                     42,323         41,856
Shareholders’ equity                                  79,173         88,581
Total liabilities and shareholders’ equity            $    121,496   $    130,437
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                                                                               Twelve Months Ended
                                                                                                               December 31,
                                                                                                               2017                    2016
                                                                                                               (in thousands)
Cash flows from operating activities:
Net income (loss)                                                                                              $          (16,305)     $          (36,550)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization                                                                                  2,936                   7,057
Stock-based compensation                                                                                       3,675                   5,424
Equity in net loss of Rhapsody                                                                                 3,991                   6,533
Deferred income taxes, net                                                                                     (3,871)                 130
Loss (gain) on investments, net                                                                                (4,500)                 (8,473)
Realized translation loss (gain)                                                                               --                      272
Fair value of warrants granted in 2015 and 2017, net of subsequent mark to market adjustments in 2017 and 2016 (216)                   280
Net change in certain operating assets and liabilities                                                         (7,060)                 999
Net cash provided by (used in) operating activities                                                            (21,350)                (24,328)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements                                                   (734)                   (2,438)
Proceeds from sale of equity and other investments                                                             --                      4,967
Purchases of short-term investments                                                                            (13,905)                (75,766)
Proceeds from sales and maturities of short-term investments                                                   48,457                  84,249
Decrease (increase) in restricted cash equivalents and investments, net                                        300                     190
Acquisitions                                                                                                   --                      (150)
Advance to Rhapsody                                                                                            (1,500)                 (3,500)
Proceeds from the sale of Slingo and social casino business                                                    4,500                   4,000
Net cash provided by (used in) investing activities                                                            37,118                  11,552
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options and stock purchase plan)                                 239                     535
Tax payments from shares withheld upon vesting of restricted stock                                             (356)                   (880)
Net cash provided by (used in) financing activities                                                            (117)                   (345)
Effect of exchange rate changes on cash and cash equivalents                                                   1,824                   (473)
Net increase (decrease) in cash and cash equivalents                                                           17,475                  (13,594)
Cash and cash equivalents, beginning of year                                                                   33,721                  47,315
Cash and cash equivalents, end of year                                                                         $          51,196       $          33,721
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
                                 2017                                                          2016
                                 YTD          Q4          Q3          Q2           Q1          YTD          Q4           Q3           Q2          Q1
                                 (in thousands)
Net Revenue by Line of Business
Consumer Media (A)               $   22,569   $  5,752    $  4,197    $   6,951    $  5,669    $   25,051   $   6,443    $   6,482    $  6,400    $  5,726
Mobile Services (B)              30,752       7,155       7,678       7,720        8,199       31,289       7,775        7,821        7,636       8,057
Games (C)                        25,397       5,958       6,682       6,934        5,823       25,139       6,177        6,886        6,037       6,039
Total net revenue                $   78,718   $  18,865   $  18,557   $   21,605   $  19,691   $   81,479   $   20,395   $   21,189   $  20,073   $  19,822
Net Revenue by Product
Consumer Media
- License (D)                    $   14,953   $  3,945    $  2,334    $   5,002    $  3,672    $   15,406   $   4,252    $   4,136    $  3,914    $  3,104
- Subscriptions (E)              5,891        1,362       1,434       1,531        1,564       7,448        1,671        1,931        1,871       1,975
- Media Properties (F)           1,725        445         429         418          433         2,197        520          415          615         647
Mobile Services
- SaaS (G)                       30,338       7,042       7,555       7,639        8,102       30,306       7,668        7,279        7,547       7,812
- Technology License & Other (H) 414          113         123         81           97          983          107          542          89          245
Games
- License (I)                    13,806       3,086       3,851       4,007        2,862       12,415       3,178        3,683        2,793       2,761
- Subscriptions (J)              11,024       2,707       2,708       2,781        2,828       11,894       2,836        3,005        3,024       3,029
- Media Properties (K)           567          165         123         146          133         830          163          198          220         249
Total net revenue                $   78,718   $  18,865   $  18,557   $   21,605   $  19,691   $   81,479   $   20,395   $   21,189   $  20,073   $  19,822
Net Revenue by Geography
United States                    $   40,833   $  10,120   $  10,084   $   10,889   $  9,740    $   41,505   $   10,125   $   10,642   $  10,355   $  10,383
Rest of world                    37,885       8,745       8,473       10,716       9,951       39,974       10,270       10,547       9,718       9,439
Total net revenue                $   78,718   $  18,865   $  18,557   $   21,605   $  19,691   $   81,479   $   20,395   $   21,189   $  20,073   $  19,822
Net Revenue by Line of Business
(A) The Consumer Media division primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as RealPlayer Plus and SuperPass.
(B) The Mobile Services division primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.
(C) The Games division primarily includes revenue from sales of mobile games, sales of games licenses, online games subscription services, advertising on games sites and social network sites, and microtransactions from online games.
Net Revenue by Product
(D) Licensing revenue within Consumer Media includes sales of intellectual property licenses and RealPlayer Plus software licenses to consumers.
(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.
(F) Media Properties revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.
(G) SaaS revenue within Mobile Services includes revenue from ringback tones, intercarrier messaging services, and RealTimes.
(H) Technology licensing and other revenue within Mobile Services includes revenue from professional services provided to mobile carriers.
(I) Licensing revenue within Games includes retail games-related revenue and sales of mobile games.
(J) Subscriptions revenue within Games includes revenue from online games subscriptions as well as microtransactions from mobile games.
(K) Media Properties revenue within Games includes advertising on games sites and social network sites.
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin
(Unaudited)
                                                   2017                                  2016               2017                2016
                                                   Q4                 Q3                 Q4                 YTD                 YTD
                                                   (in thousands)
Consumer Media
Net revenue                                        $    5,752         $    4,197         $    6,443         $    22,569         $    25,051
Cost of revenue                                    915                981                1,589              4,460               7,074
Gross profit                                       4,837              3,216              4,854              18,109              17,977
Gross margin                                       84           %     77           %     75           %     80            %     72            %
Operating expenses                                 3,573              3,217              4,459              14,530              18,399
Operating income (loss), a GAAP measure            $    1,264         $    (1)           $    395           $    3,579          $    (422)
Depreciation and amortization                      42                 42                 239                410                 2,212
Contribution margin, a non-GAAP measure            $    1,306         $    41            $    634           $    3,989          $    1,790
Mobile Services
Net revenue                                        $    7,155         $    7,678         $    7,775         $    30,752         $    31,289
Cost of revenue                                    2,271              2,134              2,912              10,021              12,606
Gross profit                                       4,884              5,544              4,863              20,731              18,683
Gross margin                                       68           %     72           %     63           %     67            %     60            %
Operating expenses                                 6,709              6,437              7,786              27,970              34,439
Operating income (loss), a GAAP measure            $    (1,825)       $    (893)         $    (2,923)       $    (7,239)        $    (15,756)
Acquisitions related intangible asset amortization 89                 88                 198                574                 923
Depreciation and amortization                      174                180                290                732                 1,723
Contribution margin, a non-GAAP measure            $    (1,562)       $    (625)         $    (2,435)       $    (5,933)        $    (13,110)
Games
Net revenue                                        $    5,958         $    6,682         $    6,177         $    25,397         $    25,139
Cost of revenue                                    1,868              2,226              2,054              8,710               7,919
Gross profit                                       4,090              4,456              4,123              16,687              17,220
Gross margin                                       69           %     67           %     67           %     66            %     68            %
Operating expenses                                 5,293              5,071              4,975              20,401              19,644
Operating income (loss), a GAAP measure            $    (1,203)       $    (615)         $    (852)         $    (3,714)        $    (2,424)
Acquisitions related intangible asset amortization 18                 27                 27                 97                  115
Depreciation and amortization                      163                169                146                630                 583
Contribution margin, a non-GAAP measure            $    (1,022)       $    (419)         $    (679)         $    (2,987)        $    (1,726)
Corporate
Cost of revenue                                    $    (89)          $    2             $    36            $    (27)           $    (51)
Gross profit                                       89                 (2)                (36)               27                  51
Gross margin                                       N/A                N/A                N/A                N/A                 N/A
Operating expenses                                 3,082              2,948              3,244              13,284              20,192
Operating income (loss), a GAAP measure            $    (2,993)       $    (2,950)       $    (3,280)       $    (13,257)       $    (20,141)
Other income (expense), net                        (217)              (50)               (128)              (506)               (643)
Depreciation and amortization                      48                 139                260                493                 1,501
Restructuring and other charges                    255                557                192                2,526               1,489
Stock-based compensation                           630                748                867                3,675               5,424
Lease exit and related charges                     --                 --                 48                 --                  2,239
Contribution margin, a non-GAAP measure            $    (2,277)       $    (1,556)       $    (2,041)       $    (7,069)        $    (10,131)
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure
(Unaudited)
                                                    2017                          2016            2017            2016
                                                    Q4             Q3             Q4              YTD             YTD
                                                    (in thousands)
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:
Net income (loss) from continuing operations        $    447       $    (4,532)   $    (10,203)   $    (17,414)   $    (37,773)
Income tax expense (benefit)                        (3,732)        139            139             (2,778)         776
Interest income, net                                (83)           (116)          (133)           (436)           (449)
(Gain) loss on investments, net                     (4,500)        --             (2,495)         (4,500)         (8,473)
Equity in net loss of Rhapsody                      2,894          --             5,904           3,991           6,533
Acquisitions related intangible asset amortization  107            115            225             671             1,038
Depreciation and amortization                       427            530            935             2,265           6,019
Restructuring and other charges                     255            557            192             2,526           1,489
Stock-based compensation                            630            748            867             3,675           5,424
Lease exit and related charges                      --             --             48              --              2,239
Adjusted EBITDA, a non-GAAP measure                 $    (3,555)   $    (2,559)   $    (4,521)    $    (12,000)   $    (23,177)
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited) (Recast)
                                                              2017
                                                              Q4           Q3            Q2            Q1
                                                              (in thousands, except per share data)
Net revenue                                                   $   18,865   $   18,557    $   21,605    $   19,691
Cost of revenue                                               4,965        5,343         6,287         6,569
Gross profit                                                  13,900       13,214        15,318        13,122
Operating expenses:
Research and development                                      7,625        7,152         7,584         7,349
Sales and marketing                                           5,419        4,883         5,496         7,155
General and administrative                                    5,358        5,081         5,254         5,303
Restructuring and other charges                               255          557           150           1,564
Total operating expenses                                      18,657       17,673        18,484        21,371
Operating income (loss)                                       (4,757)      (4,459)       (3,166)       (8,249)
Other income (expenses):
Interest income, net                                          83           116           109           128
Gain (loss) on investments, net                               4,500        --            --            --
Equity in net loss of Rhapsody                                (2,894)      --            (349)         (748)
Other income (expense), net                                   (217)        (50)          (13)          (226)
Total other income (expense), net                             1,472        66            (253)         (846)
Income (loss) from continuing operations before income taxes  (3,285)      (4,393)       (3,419)       (9,095)
Income tax expense (benefit)                                  (3,732)      139           360           455
Net income (loss) from continuing operations                  447          (4,532)       (3,779)       (9,550)
Net income (loss) from discontinued operations, net of tax    392          198           393           126
Net income (loss)                                             $   839      $   (4,334)   $   (3,386)   $   (9,424)
Net income (loss) per share - Basic:
Continuing operations                                         $   0.01     $   (0.12)    $   (0.10)    $   (0.26)
Discontinued operations                                       0.01         --            0.01          0.01
Net income (loss) per share - Basic                           $   0.02     $   (0.12)    $   (0.09)    $   (0.25)
Net income (loss) per share - Diluted:
Continuing operations                                         $   0.01     $   (0.12)    $   (0.10)    $   (0.26)
Discontinued operations                                       0.01         --            0.01          0.01
Net income (loss) per share - Diluted                         $   0.02     $   (0.12)    $   (0.09)    $   (0.25)
Shares used to compute basic net income (loss) per share      37,315       37,200        37,103        37,030
Shares used to compute diluted net income (loss) per share    37,383       37,200        37,103        37,030
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited) (Recast)
                                                              2016
                                                              Q4             Q3            Q2            Q1
                                                              (in thousands, except per share data)
Net revenue                                                   $    20,395    $   21,189    $   20,073    $    19,822
Cost of revenue                                               6,591          7,235         6,651         7,071
Gross profit                                                  13,804         13,954        13,422        12,751
Operating expenses:
Research and development                                      6,738          6,699         7,167         9,319
Sales and marketing                                           7,451          7,183         7,749         9,225
General and administrative                                    6,035          7,086         6,217         8,077
Restructuring and other charges                               192            499           413           385
Lease exit and related charges                                48             1,233         127           831
Total operating expenses                                      20,464         22,700        21,673        27,837
Operating income (loss)                                       (6,660)        (8,746)       (8,251)       (15,086)
Other income (expenses):
Interest income, net                                          133            119           80            117
Gain (loss) on investments, net                               2,495          6,021         (46)          3
Equity in net loss of Rhapsody                                (5,904)        (233)         (396)         --
Other income (expense), net                                   (128)          (243)         15            (287)
Total other income (expense), net                             (3,404)        5,664         (347)         (167)
Income (loss) from continuing operations before income taxes  (10,064)       (3,082)       (8,598)       (15,253)
Income tax expense (benefit)                                  139            252           228           157
Net income (loss) from continuing operations                  (10,203)       (3,334)       (8,826)       (15,410)
Net income (loss) from discontinued operations, net of tax    227            278           479           239
Net income (loss)                                             $    (9,976)   $   (3,056)   $   (8,347)   $    (15,171)
Net income (loss) per share - Basic:
Continuing operations                                         $    (0.28)    $   (0.09)    $   (0.24)    $    (0.42)
Discontinued operations                                       0.01           0.01          0.01          --
Net income (loss) per share - Basic                           $    (0.27)    $   (0.08)    $   (0.23)    $    (0.42)
Net income (loss) per share - Diluted:
Continuing operations                                         $    (0.28)    $   (0.09)    $   (0.24)    $    (0.42)
Discontinued operations                                       0.01           0.01          0.01          --
Net income (loss) per share - Diluted                         $    (0.27)    $   (0.08)    $   (0.23)    $    (0.42)
Shares used to compute basic net income (loss) per share      37,042         36,805        36,755        36,520
Shares used to compute diluted net income (loss) per share    37,042         36,805        36,755        36,520
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin
(Unaudited)
                                                    2017                                                                    2016
                                                    Q1            Q2            Q3            Q4            YTD             Q1            Q2            Q3            Q4            YTD
                                                    (in thousands)                                                          (in thousands)
Consumer Media
Net revenue                                         $  5,669      $  6,951      $  4,197      $  5,752      $   22,569      $  5,726      $  6,400      $  6,482      $  6,443      $   25,051
Cost of revenue                                     1,405         1,159         981           915           4,460           2,417         1,561         1,507         1,589         7,074
Gross profit                                        4,264         5,792         3,216         4,837         18,109          3,309         4,839         4,975         4,854         17,977
Gross margin                                        75         %  83         %  77         %  84         %  80           %  58         %  76         %  77         %  75         %  72           %
Operating expenses                                  4,010         3,730         3,217         3,573         14,530          5,376         4,293         4,271         4,459         18,399
Operating income (loss), a GAAP measure             $  254        $  2,062      $  (1)        $  1,264      $   3,579       $  (2,067)    $  546        $  704        $  395        $   (422)
Depreciation and amortization                       167           159           42            42            410             1,303         375           295           239           2,212
Contribution margin, a non-GAAP measure             $  421        $  2,221      $  41         $  1,306      $   3,989       $  (764)      $  921        $  999        $  634        $   1,790
Mobile Services
Net revenue                                         $  8,199      $  7,720      $  7,678      $  7,155      $   30,752      $  8,057      $  7,636      $  7,821      $  7,775      $   31,289
Cost of revenue                                     3,190         2,426         2,134         2,271         10,021          2,816         3,357         3,521         2,912         12,606
Gross profit                                        5,009         5,294         5,544         4,884         20,731          5,241         4,279         4,300         4,863         18,683
Gross margin                                        61         %  69         %  72         %  68         %  67           %  65         %  56         %  55         %  63         %  60           %
Operating expenses                                  8,119         6,705         6,437         6,709         27,970          9,794         8,784         8,075         7,786         34,439
Operating income (loss), a GAAP measure             $  (3,110)    $  (1,411)    $  (893)      $  (1,825)    $   (7,239)     $  (4,553)    $  (4,505)    $  (3,775)    $  (2,923)    $   (15,756)
Acquisitions related intangible asset amortization  196           201           88            89            574             308           209           208           198           923
Depreciation and amortization                       203           175           180           174           732             422           608           403           290           1,723
Contribution margin, a non-GAAP measure             $  (2,711)    $  (1,035)    $  (625)      $  (1,562)    $   (5,933)     $  (3,823)    $  (3,688)    $  (3,164)    $  (2,435)    $   (13,110)
Games
Net revenue                                         $  5,823      $  6,934      $  6,682      $  5,958      $   25,397      $  6,039      $  6,037      $  6,886      $  6,177      $   25,139
Cost of revenue                                     1,937         2,679         2,226         1,868         8,710           1,845         1,817         2,203         2,054         7,919
Gross profit                                        3,886         4,255         4,456         4,090         16,687          4,194         4,220         4,683         4,123         17,220
Gross margin                                        67         %  61         %  67         %  69         %  66           %  69         %  70         %  68         %  67         %  68           %
Operating expenses                                  4,947         5,090         5,071         5,293         20,401          5,295         4,725         4,649         4,975         19,644
Operating income (loss), a GAAP measure             $  (1,061)    $  (835)      $  (615)      $  (1,203)    $   (3,714)     $  (1,101)    $  (505)      $  34         $  (852)      $   (2,424)
Acquisitions related intangible asset amortization  27            25            27            18            97              25            34            29            27            115
Depreciation and amortization                       141           157           169           163           630             179           154           104           146           583
Contribution margin, a non-GAAP measure             $  (893)      $  (653)      $  (419)      $  (1,022)    $   (2,987)     $  (897)      $  (317)      $  167        $  (679)      $   (1,726)
Corporate
Cost of revenue                                     37            23            2             (89)          (27)            (7)           (84)          4             36            (51)
Gross profit                                        (37)          (23)          (2)           89            27              7             84            (4)           (36)          51
Gross margin                                        N/A           N/A           N/A           N/A           N/A             N/A           N/A           N/A           N/A           N/A
Operating expenses                                  4,295         2,959         2,948         3,082         13,284          7,372         3,871         5,705         3,244         20,192
Operating income (loss), a GAAP measure             $  (4,332)    $  (2,982)    $  (2,950)    $  (2,993)    $   (13,257)    $  (7,365)    $  (3,787)    $  (5,709)    $  (3,280)    $   (20,141)
Other income (expense), net                         (226)         (13)          (50)          (217)         (506)           (287)         15            (243)         (128)         (643)
Depreciation and amortization                       187           119           139           48            493             361           246           634           260           1,501
Restructuring and other charges                     1,564         150           557           255           2,526           385           413           499           192           1,489
Stock-based compensation                            1,434         863           748           630           3,675           3,171         608           778           867           5,424
Lease exit and related charges                      --            --            --            --            --              831           127           1,233         48            2,239
Contribution margin, a non-GAAP measure             $  (1,373)    $  (1,863)    $  (1,556)    $  (2,277)    $   (7,069)     $  (2,904)    $  (2,378)    $  (2,808)    $  (2,041)    $   (10,131)
RealNetworks, Inc. and Subsidiaries
Reconciliation of Net income (loss) from continuing operations to adjusted EBITDA, a non-GAAP measure
(Unaudited)
                                                        2017                                                                        2016
                                                        Q1             Q2             Q3             Q4             YTD             Q1            Q2           Q3            Q4             YTD
                                                        (in thousands)                                                              (in thousands)
Reconciliation of GAAP Net income (loss) from continuing operations to adjusted EBITDA:
Net income (loss) from continuing operations            $    (9,550)   $    (3,779)   $    (4,532)   $    447       $    (17,414)   $  (15,410)   $  (8,826)   $   (3,334)   $   (10,203)   $   (37,773)
Income tax expense (benefit)                            455            360            139            (3,732)        (2,778)         157           228          252           139            776
Interest income, net                                    (128)          (109)          (116)          (83)           (436)           (117)         (80)         (119)         (133)          (449)
(Gain) loss on investments, net                         --             --             --             (4,500)        (4,500)         (3)           46           (6,021)       (2,495)        (8,473)
Equity in net loss of Rhapsody                          748            349            --             2,894          3,991           --            396          233           5,904          6,533
Acquisitions related intangible asset amortization      223            226            115            107            671             333           243          237           225            1,038
Depreciation and amortization                           698            610            530            427            2,265           2,265         1,383        1,436         935            6,019
Restructuring and other charges                         1,564          150            557            255            2,526           385           413          499           192            1,489
Stock-based compensation                                1,434          863            748            630            3,675           3,171         608          778           867            5,424
Lease exit and related charges, net of sublease income  --             --             --             --             --              831           127          1,233         48             2,239
Adjusted EBITDA, a non-GAAP measure                     $    (4,556)   $    (1,330)   $    (2,559)   $    (3,555)   $    (12,000)   $  (8,388)    $  (5,462)   $   (4,806)   $   (4,521)    $   (23,177)

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