SEATTLE, Oct. 29 /PRNewswire-FirstCall/ --
Digital entertainment services company RealNetworks®, Inc. (NASDAQ:RNWK) today announced results for the third quarter ended Sept. 30, 2009.
Quarterly Highlights:
-- Revenue of $140.3 million
-- Net income attributable to common shareholders of $1.5 million
-- Adjusted EBITDA of $16.1 million
-- Cash and short term investments of $373.2 million as of Sept. 30, 2009
"In the third quarter, we achieved two key financial objectives: we returned to sequential revenue growth and we reduced our operating costs. As a result we significantly increased our EBITDA," said Rob Glaser, RealNetworks' Chairman and CEO. "In the quarter, we also made significant progress delivering great new products and services that support two major fundamental platforms, Facebook and the iPhone/iPod Touch."
Third Quarter Results
For the third quarter of 2009, revenue was $140.3 million, a decrease of 8%, compared with $152.0 million in the third quarter of 2008. Foreign currency exchange rate fluctuations negatively affected 2009 third quarter revenue by approximately $3.6 million compared with the year-ago quarter. Excluding the effects of these foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real's businesses in the third quarter of 2009, including the effects of foreign currency exchange rate changes, compared with the year-earlier quarter were: a slight increase in Media Software and Services revenue to $24.6 million, offset by a 7% decrease in Music revenue to $38.8 million, an 8% decrease in Technology Products and Solutions revenue to $47.4 million, and a 14% decrease in Games revenue to $29.5 million.
Net income attributable to common shareholders for the third quarter of 2009 was $1.5 million, or less than $.01 per share, compared with a net loss of $(4.5) million, or $(0.03) per share, in the third quarter of 2008. Adjusted EBITDA for the third quarter of 2009 was $16.1 million compared with $11.4 million in the third quarter of 2008. In the third quarter of 2009, RealNetworks received insurance payments to reimburse litigation-defense costs that reduced G&A expense and increased EBITDA by approximately $3.9 million. A reconciliation of GAAP net income to adjusted EBITDA is provided in the financial tables that accompany this release.
Gross margin was 62% in the third quarter of 2009 compared with 59% in the third quarter of 2008. Income tax provision was $(0.7) million in the third quarter of 2009, unchanged from the year-earlier period. Interest income in the third quarter of 2009 was $1.3 million compared with $2.9 million in the year-earlier period.
As of Sept. 30, 2009, Real had approximately $373.2 million in unrestricted cash, cash equivalents and short-term investments, of which nearly 90% is located in the U.S. In addition, Real had approximately $35.5 million in restricted cash and equity investments at Sept. 30, 2009.
Business Outlook
For the fourth quarter of 2009, Real expects overall revenue to increase sequentially but to decline year-over-year. Sequentially, the company expects revenue to increase in Games and Technology Products and Solutions, to be flat in Music, and to decline in Media Software and Services. Compared with the year-ago fourth quarter, the company expects fourth-quarter Media Software and Services and Technology Products and Solutions revenue to be flat, and expects revenue in Music and Games to decline.
The foregoing forward-looking statements reflect Real's expectations as of Oct. 29, 2009. It is not Real's general practice to update these forward-looking statements until its next quarterly results announcement.
Webcast and Conference Call Information
The company will host a webcast and conference call today at 5:00pm (Eastern)/ 2:00pm (Pacific). The live webcast featuring slides and audio will be available at http://investor.realnetworks.com/. Listeners must use RealPlayer® to listen to the conference call, which can be downloaded for free at http://www.real.com/. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast.
Conference Call Details
5:00 p.m. (Eastern) / 2:00 p.m. (Pacific)
Dial in:
800-857-5305 Domestic
773-681-5857 International
Passcode: Third Quarter Earnings
Leader: Rob Glaser
Telephonic replay will be available until 8:00 p.m. (Eastern),
November 12, 2009.
Replay dial in:
866-873-2049 Domestic
402-220-5369 International
RNWK-F
About Real Networks
RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer®, the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody® digital music service, which delivers more than 1 billion songs per year; RealArcade®, one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world. RealNetworks' corporate information is located at http://investor.realnetworks.com/.
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 revenue, adjusted EBITDA excluding impairments, adjusted EBITDA, adjusted EBITDA by reporting segment, adjusted cost of revenue and adjusted operating expenses, 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) to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA by reporting segment; GAAP cost of revenue to adjusted cost of revenue; and GAAP operating expenses to adjusted operating expenses for the relevant periods.
The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the third quarter earnings materials, available in Exhibit 99.2 ("Information Regarding Non-GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.
Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real's current expectations for future revenue and other financial results. 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; development and consumer acceptance of legal online music distribution services generally and RealNetworks' content services in particular because these are relatively new and unproven business models and markets; the potential that Real will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for its subscription service offerings and the distribution of Real's carrier application services; the emergence of new entrants and competition in the market for digital media subscription offerings, online music sales and downloadable casual games; competitive risks, including the emergence or growth of competing technologies, products and services; the potential outcomes and effects of claims and legal proceedings on Real's business, prospects, financial condition or results of operations; risks associated with 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; risks inherent in strategic relationships, especially with competitors, and with respect to technology and service integration efforts; and risks relating to the ability of Real's strategic partners to generate subscribers for Real's digital content services. 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, Rhapsody, RealPlayer and RealArcade 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.
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
-------------- --------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net revenue $140,264 $151,955 $416,762 $452,166
Cost of revenue 53,686 62,164 165,321 173,202
------ ------ ------- -------
Gross profit 86,578 89,791 251,441 278,964
------ ------ ------- -------
Operating expenses:
Research and
development 29,425 31,076 86,907 85,147
Sales and
marketing 39,573 55,080 125,531 161,730
Advertising with
related party (A) 7,941 15,153 22,229 31,733
General and
administrative 13,039 15,453 55,208 50,874
Impairment of
goodwill - - 175,583 -
Restructuring and
other charges 877 - 1,671 686
--- --- ----- ---
Total operating
expenses 90,855 116,762 467,129 330,170
------ ------- ------- -------
Operating loss (4,277) (26,971) (215,688) (51,206)
------ ------- -------- -------
Other income (expenses):
Interest income, net 1,253 2,865 3,190 11,198
Equity in net loss
of investments (273) (226) (1,197) (424)
Gain on sale
of equity
investments, net 604 - 809 222
Gain on sale of
interest in
Rhapsody America (B) - 7,405 - 14,502
Other income
(expense), net (888) 818 (482) 1,636
---- --- ---- -----
Total other income
(expense), net 696 10,862 2,320 27,134
--- ------ ----- ------
Loss before income
taxes (3,581) (16,109) (213,368) (24,072)
Income taxes (686) (728) (3,445) (8,436)
---- ---- ------ ------
Net loss (4,267) (16,837) (216,813) (32,508)
Net loss Attributable
to the noncontrolling
interest in
Rhapsody America (C) 5,787 12,337 17,868 29,129
----- ------ ------ ------
Net income (loss)
attributable to
common shareholders $1,520 $(4,500) $(198,945) $(3,379)
====== ======= ========= =======
Basic net income
(loss) per share
available to common
shareholders $0.00 $(0.03) $(1.50) $(0.02)
Diluted net income
(loss) per share
available to common
shareholders $0.00 $(0.03) $(1.50) $(0.02)
Shares used to
compute basic net
income (loss) per
share available to
common shareholders 134,793 141,975 134,531 142,611
Shares used to
compute diluted net
income (loss) per
share available to
common shareholders 134,978 141,975 134,531 142,611
(A) Consists of advertising purchased by Rhapsody America from MTV
Networks (MTVN). MTVN has a 49% ownership interest in Rhapsody
America.
(B) Consists of gains realized from MTVN's note payments to Rhapsody
America. Effective January 1, 2009, the Company adopted SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements, an
amendment to ARB No. 51 (SFAS 160) which requires the appreciation
of gains on the sale of noncontrolling interest to be recorded as an
equity transaction.
(C) Noncontrolling interest in Rhapsody America reflects MTVN's 49%
ownership share in the losses of Rhapsody America.
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2009 2008
---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $204,777 $232,968
Short-term investments 168,420 137,766
Trade accounts receivable, net 67,060 70,201
Deferred costs, current portion 5,383 4,026
Prepaid expenses and other current assets 31,388 34,599
------ ------
Total current assets 477,028 479,560
------- -------
Equipment, software, and leasehold
improvements, at cost:
Equipment and software 147,430 135,788
Leasehold improvements 31,003 30,719
------ ------
Total equipment, software, and leasehold
improvements 178,433 166,507
Less accumulated depreciation and
amortization 119,903 103,500
------- -------
Net equipment, software, and leasehold
improvements 58,530 63,007
Restricted cash equivalents and investments 13,700 14,742
Equity investments 21,768 18,582
Other assets 4,180 3,775
Deferred costs, non-current portion 8,945 6,120
Deferred tax assets, net, non-current
portion 9,867 9,236
Other intangible assets, net 12,761 18,727
Goodwill - 175,264
--- -------
Total assets $606,779 $789,013
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $39,264 $36,575
Accrued and other liabilities 111,295 118,688
Deferred revenue, current portion 35,812 39,835
Related party payable (A) 8,007 13,155
Accrued loss on excess office facilities,
current portion 4,338 4,317
----- -----
Total current liabilities 198,716 212,570
------- -------
Deferred revenue, non-current portion 1,933 1,961
Accrued loss on excess office facilities,
non-current portion - 2,893
Deferred rent 4,534 4,614
Deferred tax liabilities, net, non-current
portion 859 1,379
Other long-term liabilities 11,027 11,660
------ ------
Total liabilities 217,069 235,077
------- -------
Noncontrolling interest in
Rhapsody America (B) 5,440 378
Shareholders' equity 384,270 553,558
------- -------
Total liabilities and shareholders'
equity $606,779 $789,013
======== ========
(A) Related party payable reflects amounts owed to MTVN.
(B) Noncontrolling interest in Rhapsody America reflects MTVN's 49%
ownership interest in the net assets of Rhapsody America.
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
------------------
2009 2008
---- ----
(in thousands)
Cash flows from operating activities:
Net loss $(216,813) $(32,508)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 22,881 38,032
Stock-based compensation 15,545 17,475
Loss on disposal of equipment, software, and
leasehold improvements 302 157
Equity in net loss of investments 1,197 198
Gain on sale of equity investment, net (809) (222)
Excess tax benefit from stock option exercises (9) (108)
Impairment of goodwill 175,583 -
Accrued restructuring and other charges (3,786) -
Accrued loss on excess office facilities (2,872) (2,537)
Deferred income taxes, net 545 2,640
Gain on sale of interest in Rhapsody America - (14,502)
Other 39 111
Net change in certain operating assets and
liabilities, net of acquisitions (8,295) (29,750)
------ -------
Net cash used in operating activities (16,492) (21,014)
------- -------
Cash flows from investing activities:
Purchases of equipment, software, and leasehold
improvements (11,445) (24,807)
Purchases of short-term investments (124,043) (151,378)
Proceeds from sales and maturities
of short-term investments 93,389 130,136
Purchases of intangible assets - (1,808)
Proceeds from the sales of equity investments 1,014 1,225
Purchases of equity investments (2,000) (4,500)
Payment of acquisition costs, net of cash
acquired (3,324) (10,192)
Decrease in restricted cash equivalents and
investments, net 1,042 776
----- ---
Net cash used in investing activities (45,367) (60,548)
------- -------
Cash flows from financing activities:
Net proceeds from sales of common stock
under employee stock purchase plan
and exercise of stock options 819 8,834
Payments of convertible debt obligations - (100,000)
Net proceeds from sales of interest in Rhapsody
America 26,912 31,640
Excess tax benefit from stock option exercises 9 108
Repurchases of common stock - (23,062)
--- -------
Net cash provided by (used in) financing
activities 27,740 (82,480)
------ -------
Effect of exchange rate changes on cash and cash
equivalents 5,928 (7,512)
----- ------
Net decrease in cash and cash equivalents (28,191) (171,554)
Cash and cash equivalents, beginning of period 232,968 476,697
------- -------
Cash and cash equivalents, end of period $204,777 $305,143
======== ========
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2009
------------------------
Q3 Q2 Q1
------ ------ ------
(in thousands)
Net Revenue by Line of Business:
Consumer products and services (A) $92,836 $89,517 $97,194
Technology products and solutions (B) 47,428 46,208 43,579
------ ------ ------
Total net revenue $140,264 $135,725 $140,773
======== ======== ========
Consumer Products and Services:
Subscriptions (C) $52,401 $54,446 $59,052
Media properties (D) 21,001 14,753 15,536
E-commerce and other (E) 19,434 20,318 22,606
------ ------ ------
Total consumer products
and services revenue $92,836 $89,517 $97,194
======= ======= =======
Consumer Products and Services:
Music (F) $38,765 $40,452 $44,053
Media software and services (G) 24,580 19,291 20,318
Games (H) 29,491 29,774 32,823
------ ------ ------
Total consumer products
and services revenue $92,836 $89,517 $97,194
======= ======= =======
Net Revenue by Geography:
United States $95,758 $90,685 $96,666
Rest of world 44,506 45,040 44,107
------ ------ ------
Total net revenue $140,264 $135,725 $140,773
======== ======== ========
Subscribers (presented as greater
than) *:
Total subscribers (I) 38,950 37,700 36,450
Technology products and solutions
application services subscribers (J) 37,500 36,300 33,850
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers 700 750 800
Radio subscribers 75 75 1,200
--- --- -----
Total consumer music subscribers 775 825 2,000
Technology products and solutions
application services music
subscribers (K) 1,075 975 900
----- --- ---
Total Music Subscribers** 1,850 1,800 2,900
2008
---------------------------------
Q4 Q3 Q2 Q1
------ ------ ------ ------
(in thousands)
Net Revenue by Line of Business:
Consumer products and
services (A) $100,282 $100,322 $101,353 $96,286
Technology products and
solutions (B) 52,362 51,633 51,295 51,277
------ ------ ------ ------
Total net revenue $152,644 $151,955 $152,648 $147,563
======== ======== ======== ========
Consumer Products and Services:
Subscriptions (C) $57,853 $57,776 $55,658 $55,193
Media properties (D) 18,337 19,946 23,472 18,702
E-commerce and other (E) 24,092 22,600 22,223 22,391
------ ------ ------ ------
Total consumer products
and services revenue $100,282 $100,322 $101,353 $96,286
======== ======== ======== =======
Consumer Products and Services:
Music (F) $43,882 $41,591 $37,170 $38,079
Media software and
services (G) 22,695 24,531 29,238 26,409
Games (H) 33,705 34,200 34,945 31,798
------ ------ ------ ------
Total consumer products
and services revenue $100,282 $100,322 $101,353 $96,286
======== ======== ======== =======
Net Revenue by Geography:
United States $101,369 $102,363 $100,898 $99,169
Rest of world 51,275 49,592 51,750 48,394
------ ------ ------ ------
Total net revenue $152,644 $151,955 $152,648 $147,563
======== ======== ======== ========
Subscribers (presented as
greater than) *:
Total subscribers (I) 34,100 32,650 35,000 32,200
Technology products
and solutions application
services subscribers (J) 31,500 29,950 32,450 29,500
Music subscribers:
Consumer music subscribers:
Rhapsody subscribers 775 750 600 600
Radio subscribers 1,225 1,250 1,225 1,275
----- ----- ----- -----
Total consumer
music subscribers 2,000 2,000 1,825 1,875
Technology products
and solutions application
services music subscribers (K) 875 850 800 800
--- --- --- ---
Total Music Subscribers** 2,875 2,850 2,625 2,675
* Total music subscribers includes subscribers from our technology
products and solutions application subscription services, such as
music-on-demand, as well as our consumer music services, such as
Rhapsody and Premium Radio. Although music-on-demand subscribers are
included in the technology products and solutions application
services subscribers and total music subscribers, these subscribers
are only counted once as part of our total subscribers.
** Prior periods have been changed to reflect current period
presentation. Totals may not equal due to rounding convention.
(A) Revenue is derived from consumer digital media subscription
services, RealPlayer Plus and related products, sales and
distribution of third party software products, content such as games
and music and advertising.
(B) The Technology Products and Solutions (TPS) segment includes
revenue and related costs from: sales of ringback tones, music-on-
demand, video-on-demand, messaging, and information services; sales
of media delivery system software, including Helix system software
and related authoring and publishing tools, both directly to
customers and indirectly through original equipment manufacturer
channels; support and maintenance services sold to customers who
purchase software products; broadcast hosting services; and
consulting and professional services that are offered to customers.
(C) Revenue is derived from consumer digital media subscription
services including: SuperPass, RadioPass, Rhapsody, GamePass and
FunPass.
(D) Revenue is derived from advertising and through the distribution
of third party products.
(E) Revenue is derived from RealPlayer Plus and related products,
sales of third party software products, and content such as games and
music.
(F) The Music segment primarily includes revenue and related costs
from: Rhapsody America's Rhapsody and RadioPass subscription
services; sales of digital music content through the Rhapsody service
and the RealPlayer music store; and advertising from music websites.
(G) The Media Software and Services (MSS) segment primarily includes
revenue and related costs from: the SuperPass premium subscription
service; RealPlayer Plus and related products; sales and distribution
of third-party software products; and all advertising other than that
related directly to our Music and Games businesses.
(H) The Games segment primarily includes revenue and related costs
from: the sale of individual games on our websites RealArcade.com,
GameHouse.com and Zylom.com; the sales of games subscription
services; advertising through our games websites; the sale of games
through the syndication on partner sites, and sales of games through
wireless carriers.
(I) Total subscribers include technology products and solutions
application services and consumer subscription services including:
ringback tones, music-on-demand, video-on-demand, Rhapsody, Rhapsody-
to-Go, RadioPass, SuperPass, and GamePass.
(J) Technology products and solutions application service
subscribers include: ringback tones, music-on-demand and video-on-
demand.
(K) Technology products and solutions application services music
subscribers include music-on-demand.
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
Reconciliation of GAAP net income (loss) attributable to common
shareholders to adjusted EBITDA excluding impairments and
adjusted EBITDA is as follows:
Quarters ended
---------------------------------
September 30, June 30, March 31,
2009 2009 2009
---- ---- ----
(in thousands)
Net income (loss) attributable
to common shareholders $1,520 $(188,329) $(12,136)
Interest income, net (1,253) (754) (1,183)
Stock-based compensation 4,727 5,596 5,222
Loss (gain) on equity
investments, net (604) (68) (137)
Conversion of WiderThan stock
options to a cash equivalent 1 3 17
Depreciation and amortization
(net of noncontrolling interest
effect) 5,432 5,815 5,726
Acquisitions related intangible
asset amortization (net of
noncontrolling interest effect) 1,784 1,649 1,768
Impairment of goodwill and
long-lived assets - 175,583 -
Impairment of deferred costs
and prepaid royalties - - -
Restructuring and other charges 877 - 794
Pro forma gain on sale of
interest in Rhapsody America 3,839 3,444 4,010
Expenses related to antitrust
litigation - - -
Income taxes 686 1,210 1,549
--- ----- -----
Adjusted EBITDA excluding
impairments $17,009 $4,149 $5,630
------- ------ ------
Impairments:
Impairment of deferred
costs and prepaid royalties - - -
Restructuring and other
charges (877) - (794)
---- --- ----
Adjusted EBITDA $16,132 $4,149 $4,836
======= ====== ======
Quarters ended
December 31, September 30, June 30, March 31
2008 2008 2008 2008
---- ---- ---- ----
(in thousands)
Net income (loss)
attributable
to common shareholders $(240,499) $(4,500) $(1,305) $2,426
Interest income, net (2,255) (2,865) (3,375) (4,958)
Stock-based compensation 6,056 5,955 6,031 5,489
Loss (gain) on equity
investments, net 12 - (222) -
Conversion of WiderThan
stock options to a
cash equivalent 11 16 26 89
Depreciation and amortization
(net of noncontrolling
interest effect) 5,784 6,165 6,186 6,282
Acquisitions related
intangible asset
amortization (net of
noncontrolling interest
effect) 1,872 5,752 6,171 6,315
Impairment of goodwill
and long-lived assets 190,347 - - -
Impairment of deferred
costs and prepaid
royalties 19,666 - - -
Restructuring and other
charges 6,147 - - 686
Pro forma gain on sale of
interest in Rhapsody
America 6,568 - - -
Expenses related to
antitrust litigation 179 174 202 202
Income taxes 17,392 728 3,700 4,008
------ --- ----- -----
Adjusted EBITDA
excluding
impairments $11,280 $11,425 $17,414 $20,539
------- ------- ------- -------
Impairments:
Impairment of deferred
costs and prepaid
royalties (19,666) - - -
Restructuring and
other charges (6,147) - - (686)
------ - - ----
Adjusted EBITDA $(14,533) $11,425 $17,414 $19,853
========= ======= ======= =======
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)
Quarter Ended September 30, 2009
Music (A) MSS (B) Games(C) TPS (D) Other Grand Total
--------- ------- -------- ------- ----- -----------
(in thousands)
Net revenue $38,765 $24,580 $29,491 $47,428 $- $140,264
Cost of revenue 23,720 4,090 7,728 18,148 - 53,686
------ ----- ----- ------ --- ------
Gross profit 15,045 20,490 21,763 29,280 - 86,578
------ ------ ------ ------ --- ------
Gross margin 39% 83% 74% 62% - 62%
Operating expenses:
Advertising
with related
party 7,941 - - - - 7,941
Restructuring
and other
charges 312 139 258 168 - 877
Other
operating
expenses 16,897 13,110 26,823 25,367 (160) 82,037
------ ------ ------ ------ ---- ------
Total
operating
expenses 25,150 13,249 27,081 25,535 (160) 90,855
------ ------ ------ ------ ---- ------
Income (loss)
from operations (10,105) 7,241 (5,318) 3,745 160 (4,277)
------- ----- ------ ----- --- ------
Other income
(expenses):
Interest
income, net - - - - 1,253 1,253
Equity in net
loss of
investments - - - - (273) (273)
Gain on sale
of equity
investments, net - - - - 604 604
Other income
(expenses), net - - - - (888) (888)
--- --- --- --- ---- ----
Total other
income
(expenses), net - - - - 696 696
--- --- --- --- --- ---
Income (loss)
before income
taxes (10,105) 7,241 (5,318) 3,745 856 (3,581)
Income taxes - - - - (686) (686)
--- --- --- --- ---- ----
Net income
(loss) (10,105) 7,241 (5,318) 3,745 170 (4,267)
Net income
(loss)
attributable to
noncontrolling
interest in
Rhapsody
America 5,787 - - - - 5,787
----- --- --- --- --- -----
Net income
(loss)
attributable to
common
shareholders $(4,318) $7,241 $(5,318) $3,745 $170 $1,520
======= ====== ======= ====== ==== ======
Reconciliation of segment GAAP net income (loss) attributable to common
shareholders to segment adjusted EBITDA is as follows:
Net income
(loss)
attributable
to common
shareholders $(4,318) $7,241 $(5,318) $3,745 $170 $1,520
Income taxes - - - - 686 686
Interest
income, net - - - - (1,253) (1,253)
Stock-based
compensation 560 732 1,361 2,074 - 4,727
Conversion of
WiderThan
stock options
to a cash
equivalent - - - 1 - 1
Acquisitions
related
intangible
asset
amortization (F) 278 8 70 1,428 - 1,784
Pro forma
gain on sale
of interest
in Rhapsody
America 3,839 - - - - 3,839
Gain on sale
of equity
investments, net - - - - (604) (604)
Depreciation
and
amortization (F) 893 668 1,150 2,721 - 5,432
--- --- ----- ----- --- -----
Adjusted
EBITDA
$1,252 $8,649 $(2,737) $9,969 $(1,001) $16,132
====== ====== ======= ====== ======= =======
Quarter Ended September 30, 2008
Music (A) MSS (B) Games(C) TPS (D) Other Grand Total
--------- ------- -------- ------- ----- -----------
(in thousands)
Net revenue $41,591 $24,531 $34,200 $51,633 - $151,955
Cost of revenue 23,787 4,539 10,251 23,587 - 62,164
------ ----- ------ ------ --- ------
Gross profit 17,804 19,992 23,949 28,046 - 89,791
------ ------ ------ ------ --- ------
Gross margin 43% 81% 70% 54% - 59%
Operating expenses:
Advertising
with related
party 15,153 - - - - 15,153
Other
operating
expenses 27,202 16,064 28,412 29,719 212 101,609
------ ------ ------ ------ --- -------
Total
operating
expenses 42,355 16,064 28,412 29,719 212 116,762
------ ------ ------ ------ --- -------
Income (loss)
from operations (24,551) 3,928 (4,463) (1,673) (212) (26,971)
------- ----- ------ ------ ---- -------
Other income
(expenses):
Interest
income, net - - - - 2,865 2,865
Equity in net
loss of
investments - - - - (226) (226)
Gain on sale
of interest
in Rhapsody
America (E) 7,405 - - - - 7,405
Other income
(expenses), net - - - - 818 818
--- --- --- --- --- ---
Total other
income
(expenses),
net 7,405 - - - 3,457 10,862
----- --- --- --- ----- ------
Income (loss)
before income
taxes (17,146) 3,928 (4,463) (1,673) 3,245 (16,109)
Income taxes - - - - (728) (728)
--- --- --- --- ---- ----
Net income
(loss) (17,146) 3,928 (4,463) (1,673) 2,517 (16,837)
Net income
(loss)
attributable to
noncontrolling
interest in
Rhapsody
America 12,337 - - - - 12,337
------ --- --- --- --- ------
Net income
(loss)
attributable to
common
shareholders $(4,809) $3,928 $(4,463) $(1,673) $2,517 $(4,500)
======= ====== ======= ======= ====== =======
Reconciliation of segment GAAP net income (loss) attributable to common
shareholders to segment adjusted EBITDA is as follows:
Net income
(loss)
attributable
to common
shareholders $(4,809) $3,928 $(4,463) $(1,673) $2,517 $(4,500)
Income taxes - - - - 728 728
Interest
income, net - - - - (2,865) (2,865)
Stock-based
compensation 1,005 786 1,552 2,612 - 5,955
Conversion of
WiderThan
stock options
to a cash
equivalent - - - 16 - 16
Acquisitions
related
intangible
asset
amortization (F) 422 - 611 4,719 - 5,752
Depreciation
and
amortization (F) 1,206 893 923 3,143 - 6,165
Expenses
related to
antitrust
litigation - - - - 174 174
--- --- --- --- --- ---
Adjusted
EBITDA
$(2,176) $5,607 $(1,377) $8,817 $554 $11,425
======= ====== ======= ====== ==== =======
Note: Cost of revenue and operating expenses of the segments shown above
include costs directly attributable to those segments and an allocation of
general and administrative and other common or shared costs.
(A) The Music segment primarily includes revenue and related costs from:
Rhapsody America's Rhapsody and RadioPass subscription services; sales
of digital music content through the Rhapsody service and the
RealPlayer music store; and advertising from music websites.
(B) The Media Software and Services (MSS) segment primarily includes
revenue and related costs from: the SuperPass premium subscription
service; RealPlayer Plus and related products; sales and distribution
of third-party software products; and all advertising other than that
related directly to our Music and Games businesses.
(C) The Games segment primarily includes revenue and related costs from:
the sale of individual games on our websites RealArcade.com,
GameHouse.com and Zylom.com; the sales of games subscription services;
advertising through our games websites; the sale of games through the
syndication on partner sites, and sales of games through wireless
carriers.
(D) The Technology Products and Solutions (TPS) segment includes revenue
and related costs from: sales of ringback tones, music-on-demand,
video-on-demand, messaging, and information services; sales of media
delivery system software, including Helix system software and related
authoring and publishing tools, both directly to customers and
indirectly through original equipment manufacturer channels; support
and maintenance services sold to customers who purchase software
products; broadcast hosting services; and consulting and professional
services that are offered to customers.
(E) Comprises gains realized from MTVN's note payments to Rhapsody
America. Effective January 1, 2009, the Company adopted SFAS 160
which requires the appreciation of gains on the sale of non
controlling interest to be recorded as an equity transaction.
(F) Net of noncontrolling interest effect.
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
Quarter Ended September 30, 2009
----------------------------------
Acquis- WiderThan
itions Options
Related Converted Anti-
Stock- Intangible to a trust
Based Asset Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- ------ ---------- ----- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $53,686 $(309) $(540) $- $- $52,837
Operating
expenses:
Research and
development $29,425 $(1,788) $- $- $- $27,637
Sales and
marketing 39,573 (1,099) (1,244) 1 - 37,231
General and
administrative 13,039 (1,531) - - - 11,508
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $82,037 $(4,418) $(1,244) $1 $- $76,376
======= ======= ======= === === =======
Quarter Ended September 30, 2008
----------------------------------
Acquis- WiderThan
itions Options
Related Converted Anti-
Stock- Intangible to a trust
Based Asset Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- ------ ---------- ----- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $62,164 $(696) $(1,995) $(1) $- $59,472
Operating
expenses:
Research and
development $31,076 $(2,247) $- $- $- $28,829
Sales and
marketing 55,080 (1,458) (3,757) (3) - 49,862
General and
administrative 15,453 (1,554) - (12) (174) 13,713
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $101,609 $(5,259) $(3,757) $(15) $(174) $92,404
======== ======= ======= ==== ===== =======
Nine Months Ended September 30, 2009
------------------------------------
Acquis- WiderThan
itions Options
Related Converted Anti-
Stock- Intangible to a trust
Based Asset Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- ------ ---------- ----- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $165,321 $(1,302) $(1,639) $(1) $- $162,379
Operating
expenses:
Research and
development $86,907 $(5,846) $- $(8) $- $81,053
Sales and
marketing 125,531 (3,364) (3,562) (12) - 118,593
General and
administrative 55,208 (5,034) - - - 50,174
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $267,646 $(14,244) $(3,562) $(20) $- $249,820
======== ======== ======= ==== === ========
Nine Months Ended September 30, 2008
------------------------------------
Acquis- WiderThan
itions Options
Related Converted Anti-
Stock- Intangible to a trust
Based Asset Cash Litiga-
As Compen- Amorti- Equiv- tion
Reported sation zation (A) alent Related Adjusted
-------- ------ ---------- ----- ------- --------
(in thousands)
Expenses in
accordance
with GAAP
Cost
of revenue $173,202 $(1,592) $(6,592) $(24) $- $164,994
Operating
expenses:
Research and
development $85,147 $(6,307) $- $(9) $- $78,831
Sales and
marketing 161,730 (4,798) (11,646) (31) - 145,255
General and
administrative 50,874 (4,778) - (67) (578) 45,451
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $297,751 $(15,883) $(11,646) $(107) $(578) $269,537
======== ======== ======== ===== ===== ========
(A) - Net of noncontrolling interest effect.
RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net income (loss)
attributable to common
shareholders $1,520 $(4,500) $(198,945) $(3,379)
Less accretion of
MTVN's preferred return
in Rhapsody America (925) - (2,775) -
---- --- ------ ---
Net income (loss)
available to common
shareholders $595 $(4,500) $(201,720) $(3,379)
==== ======= ========= =======
Shares used to compute
basic net income (loss)
per share available to
common shareholders 134,793 141,975 134,531 142,611
Dilutive potential
common shares:
Stock options and
restricted stock 185 - - -
Convertible debt - - - -
--- --- --- ---
Shares used to
compute diluted net
income (loss) per
share available to
common shareholders
134,978 141,975 134,531 142,611
Basic net income (loss)
per share available to
common shareholders $0.00 $(0.03) $(1.50) $(0.02)
Diluted net income
(loss) per share
available to common
shareholders $0.00 $(0.03) $(1.50) $(0.02)
DATASOURCE: RealNetworks, Inc.
CONTACT: Press, Bill Hankes, +1-206-892-6614, , or
Financial, Marj Charlier, +1-206-892-6718,
Web Site: http://www.realnetworks.com/