RealNetworks Announces Second Quarter 2009 Results
SEATTLE, July 30 -- Digital entertainment services company RealNetworks , Inc. (NASDAQ:RNWK)
today announced results for the second quarter ended June 30, 2009.
Quarterly Highlights:
-- Revenue of $135.7 million
-- Net loss of $(188.3) million or $(1.40) per share
-- Adjusted EBITDA of $4.1 million
-- Cash and short term investments of $362.8 million as of June 30, 2009
"In spite of a difficult consumer environment, our business remained relatively stable in the second quarter," said Rob Glaser, RealNetworks' Chairman and CEO. "Looking forward, even though we expect the economy to remain weak, we expect to show sequential improvement in the second half of the year, based in part on new products such as our innovative RealPlayer SP."
Second Quarter Results
For the second quarter of 2009, revenue was $135.7 million, a decrease of 11%, compared with $152.6 million in the second quarter of 2008. Foreign currency exchange rate fluctuations negatively affected 2009 second quarter revenue by approximately $6.3 million compared with the year-ago quarter. Excluding the effects of these foreign exchange rate changes, revenue declined 7% year over year. Revenue trends in each of Real's businesses in the second quarter of 2009, including the effects of foreign currency exchange rate changes, compared with the year-earlier quarter were: a 9% increase in Music revenue to $40.5 million, offset by a 10% decrease in Technology Products and Solutions revenue to $46.2 million, a 15% decrease in Games revenue to $29.8 million, and a 34% decrease in Media Software and Services revenue to $19.3 million.
Net loss for the second quarter of 2009 was $(188.3) million, or $(1.40) per share, compared with a net loss of $(1.3) million, or $(0.01) per share, in the second quarter of 2008. Included in the second quarter 2009 net loss were non-cash goodwill impairment charges of $175.6 million. Adjusted EBITDA for the second quarter of 2009 was $4.1 million compared with $17.4 million in the second quarter of 2008. A reconciliation of GAAP net income to adjusted EBITDA is provided in the financial tables that accompany this release.
Gross margin was 59% in the second quarter of 2009 compared with 64% in the second quarter of 2008. Income tax provision was $(1.2) million in the second quarter of 2009, compared with $(3.7) million in the year-earlier period. Interest income in the second quarter of 2009 was $754,000 compared with $3.4 million in the year-earlier period.
As of June 30, 2009, Real had approximately $362.8 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 $37 million in restricted cash and equity investments at June 30, 2009.
Business Outlook
Due to the high level of uncertainty regarding consumer spending, global economic trends, foreign currency exchange rate fluctuations and credit markets, RealNetworks is not providing quantitative guidance. The company expects 2009 to continue to be a challenging year for consumer spending, online advertising and corporate infrastructure spending.
For the third quarter of 2009, Real expects overall revenue to increase sequentially but to decline year-over-year. Sequentially, the company expects revenue to be flat or increase in each of our segments. Compared with the year-ago third quarter, Real expects third-quarter Media Software and Services revenue to be flat, and revenue in Music, Games and Technology Products and Solutions to decline.
The foregoing forward-looking statements reflect Real's expectations as of July 30, 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 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: Second Quarter Earnings
Leader: Rob Glaser
Telephonic replay will be available until 8:00 p.m. (Eastern), Aug. 13,
2009.
Dial In:
866-873-2049 Domestic
402-220-5369 International
RNWK-F
For More Information Contact
Press: Bill Hankes, (206) 892-6614, bhankes at real.com
Financial: Marj Charlier, (206) 892-6718, mcharlier at real.com
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 second 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, future success of Real's new products, continued weakness of the economy, and future trends in consumer and corporate infrastructure spending and online advertising. 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; the potential outcomes and effects of claims and legal proceedings, including those relating to Real DVD and the ongoing VeriSign arbitration, on Real's business prospects, financial condition or results of operations; 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; 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 Six Months Ended
June 30, June 30,
-------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net revenue $135,725 $152,648 $276,498 $300,211
Cost of revenue 55,614 55,645 111,635 111,038
------ ------ ------- -------
Gross profit 80,111 97,003 164,863 189,173
------ ------ ------- -------
Operating expenses:
Research and
development 28,923 29,065 57,482 54,071
Sales and marketing 42,273 53,054 85,958 106,650
Advertising with
related party (A) 6,865 9,240 14,288 16,580
General and
administrative 19,338 18,337 42,169 35,421
Impairment of
goodwill 175,583 - 175,583 -
Restructuring and
other charges - - 794 686
--- --- --- ---
Total operating
expenses 272,982 109,696 376,274 213,408
------- ------- ------- -------
Operating loss (192,871) (12,693) (211,411) (24,235)
-------- ------- -------- -------
Other income (expenses):
Interest income, net 754 3,375 1,937 8,333
Equity in net loss of
investments (269) (107) (924) (198)
Gain on sale of equity
investments, net 68 222 205 222
Gain on sale of
interest in Rhapsody
America (B) - 3,371 - 7,097
Other income
(expense), net (449) 50 406 818
---- --- --- ---
Total other income
(expense), net 104 6,911 1,624 16,272
--- ----- ----- ------
Loss before income
taxes (192,767) (5,782) (209,787) (7,963)
Income taxes (1,210) (3,700) (2,759) (7,708)
------ ------ ------ ------
Net loss (193,977) (9,482) (212,546) (15,671)
Net loss attributable
to the noncontrolling
interest in Rhapsody
America ( C ) 5,648 8,177 12,081 16,792
----- ----- ------ ------
Net income (loss)
attributable to common
shareholders $(188,329) $(1,305) $(200,465) $1,121
========= ======= ========= ======
Basic net income (loss)
per share available to
common shareholders $(1.40) $(0.01) $(1.51) $0.01
Diluted net income
(loss) per share
available to common
shareholders $(1.40) $(0.01) $(1.51) $0.01
Shares used to compute
basic net income (loss)
per share available to
common shareholders 134,420 142,905 134,394 142,946
Shares used to compute
diluted net income
(loss) per share
available to common
shareholders 134,420 142,905 134,394 156,000
(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
Non-controlling Interests in Consolidated Financial Statements, an
amendment to ARB No. 51 (SFAS 160) which requires the appreciation
of gains on the sale of non-controlling 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)
June 30, December 31,
2009 2008
---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $197,492 $232,968
Short-term investments 165,266 137,766
Trade accounts receivable, net 64,413 70,201
Deferred costs, current portion 6,111 4,026
Prepaid expenses and other current assets 36,699 34,599
------ ------
Total current assets 469,981 479,560
------- -------
Equipment, software, and leasehold
improvements, at cost:
Equipment and software 143,374 135,788
Leasehold improvements 30,954 30,719
------ ------
Total equipment, software, and leasehold
improvements 174,328 166,507
Less accumulated depreciation and amortization 114,109 103,500
------- -------
Net equipment, software, and leasehold
improvements 60,219 63,007
Restricted cash equivalents and investments 14,600 14,742
Equity investments 22,384 18,582
Other assets 3,782 3,775
Deferred costs, non-current portion 6,980 6,120
Deferred tax assets, net, non-current portion 9,442 9,236
Other intangible assets, net 14,268 18,727
Goodwill - 175,264
--- -------
Total assets $601,656 $789,013
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $34,666 $36,575
Accrued and other liabilities 117,445 118,688
Deferred revenue, current portion 39,816 39,835
Related party payable (A) 6,930 13,155
Accrued loss on excess office facilities,
current portion 4,214 4,317
----- -----
Total current liabilities 203,071 212,570
------- -------
Deferred revenue, non-current portion 2,003 1,961
Accrued loss on excess office facilities, non-
current portion 1,010 2,893
Deferred rent 4,564 4,614
Deferred tax liabilities, net, non-current
portion 811 1,379
Other long-term liabilities 11,475 11,660
------ ------
Total liabilities 222,934 235,077
------- -------
Noncontrolling interest in Rhapsody America (B) 3,627 378
Shareholders' equity 375,095 553,558
------- -------
Total liabilities and shareholders' equity $601,656 $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)
Six Months Ended
June 30,
-----------------
2009 2008
---- ----
(in thousands)
Cash flows from operating activities:
Net loss $(212,546) $(15,671)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 15,522 25,701
Stock-based compensation 10,818 11,520
(Gain) loss on disposal of equipment,
software, and leasehold improvements (34) 182
Equity in net loss of investments 924 198
Gain on sale of equity investment, net (205) (222)
Excess tax benefit from stock option
exercises (9) (88)
Impairment of goodwill 175,583 -
Accrued restructuring and other charges (3,675) -
Accrued loss on excess office facilities (1,986) (1,592)
Deferred income taxes, net (682) (2,138)
Gain on sale of interest in Rhapsody
America - (7,097)
Other 24 89
Net change in certain operating assets
and liabilities, net of acquisitions (1,975) (39,160)
------ -------
Net cash used in operating activities (18,241) (28,278)
------- -------
Cash flows from investing activities:
Purchases of equipment, software, and
leasehold improvements (7,608) (15,231)
Purchases of short-term investments (66,192) (95,671)
Proceeds from sales and maturities of short-
term investments 38,692 68,741
Proceeds from the sales of equity
investments 205 1,225
Purchases of equity investments (2,000) -
Payment of acquisition costs, net of cash
acquired (3,154) (10,164)
Decrease in restricted cash equivalents and
investments, net 141 839
--- ---
Net cash used in investing activities (39,916) (50,261)
------- -------
Cash flows from financing activities:
Net proceeds from sales of common stock under
employee stock purchase plan and exercise of
stock options 819 6,041
Net proceeds from sales of interest in
Rhapsody America 19,537 14,607
Excess tax benefit from stock option
exercises 9 88
Repurchases of common stock - (681)
--- ----
Net cash provided by financing
activities 20,365 20,055
------ ------
Effect of exchange rate changes on cash and
cash equivalents 2,316 (2,408)
----- ------
Net increase (decrease) in cash and cash
equivalents (35,476) (60,892)
Cash and cash equivalents, beginning of
period 232,968 476,697
------- -------
Cash and cash equivalents, end of period $197,492 $415,805
======== ========
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2009 2008
---- ----
Q2 Q1 Q4 Q3 Q2 Q1
---- ---- ---- ---- ---- ----
(in thousands)
Net Revenue by Line of Business:
Consumer products
and services
(A) $89,517 $97,194 $100,282 $100,322 $101,353 $96,286
Technology
products and
solutions (B) 46,208 43,579 52,362 51,633 51,295 51,277
------ ------ ------ ------ ------ ------
Total net
revenue $135,725 $140,773 $152,644 $151,955 $152,648 $147,563
======== ======== ======== ======== ======== ========
Consumer Products
and Services:
Subscriptions( C ) $54,446 $59,052 $57,853 $57,776 $55,658 $55,193
Media
properties (D) 14,753 15,536 18,337 19,946 23,472 18,702
E-commerce and
other (E) 20,318 22,606 24,092 22,600 22,223 22,391
------ ------ ------ ------ ------ ------
Total consumer
products and
services
revenue $89,517 $97,194 $100,282 $100,322 $101,353 $96,286
======= ======= ======== ======== ======== =======
Consumer Products
and Services:
Music (F) $40,452 $44,053 $43,882 $41,591 $37,170 $38,079
Media software
and services (G) 19,291 20,318 22,695 24,531 29,238 26,409
Games (H) 29,774 32,823 33,705 34,200 34,945 31,798
------ ------ ------ ------ ------ ------
Total consumer
products and
services
revenue $89,517 $97,194 $100,282 $100,322 $101,353 $96,286
======= ======= ======== ======== ======== =======
Net Revenue by
Geography:
United States $90,685 $96,666 $101,369 $102,363 $100,898 $99,169
Rest of world 45,040 44,107 51,275 49,592 51,750 48,394
------ ------ ------ ------ ------ ------
Total net
revenue $135,725 $140,773 $152,644 $151,955 $152,648 $147,563
======== ======== ======== ======== ======== ========
Subscribers (presented
as greater than) *:
Total
subscribers (I) 37,700 36,450 34,100 32,650 35,000 32,200
Technology
products and
solutions
application
services
subscribers (J) 36,300 33,850 31,500 29,950 32,450 29,500
Music subscribers:
Consumer music
subscribers:
Rhapsody
subscribers 750 800 775 750 600 600
Radio
subscribers 75 1,200 1,225 1,250 1,225 1,275
-- ----- ----- ----- ----- -----
Total
consumer
music
subscribers 825 2,000 2,000 2,000 1,825 1,875
Technology
products and
solutions
application
services music
subscribers (K) 975 900 875 850 800 800
--- --- --- --- --- ---
Total Music
Subscribers** 1,800 2,900 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
----------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2009 2009 2008 2008 2008 2008
---- ---- ---- ---- ---- ----
(in thousands)
Net income (loss)
attributable to
common
shareholders $(188,329) $(12,136) $(240,499) $(4,500) $(1,305) $2,426
Interest
income,
net (754) (1,183) (2,255) (2,865) (3,375) (4,958)
Stock-based
compensation 5,596 5,222 6,056 5,955 6,031 5,489
Loss (gain) on
equity
investments, net (68) (137) 12 - (222) -
Conversion of
WiderThan stock
options to a cash
equivalent 3 17 11 16 26 89
Depreciation and
amortization (net
of noncontrolling
interest effect) 5,815 5,726 5,784 6,165 6,186 6,282
Acquisitions
related intangible
asset amortization
(net of
noncontrolling
interest
effect) 1,649 1,768 1,872 5,752 6,171 6,315
Impairment of
goodwill and
long-lived
assets 175,583 - 190,347 - - -
Impairment of
deferred costs and
prepaid
royalties - - 19,666 - - -
Restructuring and
other charges - 794 6,147 - - 686
Pro forma gain on
sale of interest
in Rhapsody
America 3,444 4,010 6,568 - - -
Expenses related
to antitrust
litigation - - 179 174 202 202
Income taxes 1,210 1,549 17,392 728 3,700 4,008
----- ----- ------ --- ----- -----
Adjusted
EBITDA
excluding
impairments $4,149 $5,630 $11,280 $11,425 $17,414 $20,539
------ ------ ------- ------- ------- -------
Impairments:
Impairment of
deferred costs
and prepaid
royalties - - (19,666) - - -
Restructuring
and other
charges - (794) (6,147) - - (686)
--- ---- ------ --- --- ---
Adjusted
EBITDA $4,149 $4,836 $(14,533) $11,425 $17,414 $19,853
====== ====== ======== ======= ======= =======
RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)
Quarter Ended June 30, 2009
---------------------------
Grand
Music (A) MSS (B) Games( C ) TPS (D) Other Total
--------- ------- -------- ------- ----- ------
(in thousands)
Net revenue $40,452 $19,291 $29,774 $46,208 $- $135,725
Cost of revenue 24,945 2,590 8,801 19,278 - 55,614
------ ----- ----- ------ --- ------
Gross profit 15,507 16,701 20,973 26,930 - 80,111
------ ------ ------ ------ --- ------
Gross margin 38% 87% 70% 58% - 59%
Operating expenses:
Advertising
with related
party 6,865 - - - - 6,865
Impairment of
goodwill 37,029 46,776 41,247 50,531 - 175,583
Other operating
expenses 19,808 18,417 26,761 25,512 36 90,534
------ ------ ------ ------ --- ------
Total
operating
expenses 63,702 65,193 68,008 76,043 36 272,982
------ ------ ------ ------ --- -------
Income (loss)
from
operations (48,195) (48,492) (47,035) (49,113) (36) (192,871)
------- ------- ------- ------- --- --------
Other income (expenses):
Interest
income, net - - - - 754 754
Equity in net
loss of
investments - - - - (269) (269)
Gain on sale of
equity
investments,
net - - - - 68 68
Other income
(expenses),
net - - - - (449) (449)
--- --- --- --- ---- ----
Total other
income
(expenses),
net - - - - 104 104
--- --- --- --- --- ---
Income (loss)
before income
taxes (48,195) (48,492) (47,035) (49,113) 68 (192,767)
Income taxes - - - - (1,210) (1,210)
--- --- --- --- ------ ------
Net income
(loss) (48,195) (48,492) (47,035) (49,113) (1,142) (193,977)
Net income (loss)
attributable to
noncontrolling
interest in
Rhapsody
America 5,648 - - - - 5,648
----- --- --- --- --- -----
Net income (loss)
attributable to
common
shareholders $(42,547) $(48,492) $(47,035) $(49,113) $(1,142) $(188,329)
======== ======== ======== ======== ======= =========
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 $(42,547) $(48,492) $(47,035) $(49,113) $(1,142) $(188,329)
Income taxes - - - - 1,210 1,210
Interest
income, net - - - - (754) (754)
Stock-based
compensation 738 798 1,596 2,464 - 5,596
Conversion of
WiderThan stock
options to a
cash equivalent - - - 3 - 3
Acquisitions
related
intangible
asset
amortization
(F) 278 - 101 1,270 - 1,649
Pro forma gain
on sale of
interest in
Rhapsody
America 3,444 - - - - 3,444
Impairment of
goodwill 37,029 46,776 41,247 50,531 - 175,583
Gain on
sale of
equity
investments,
net - - - - (68) (68)
Depreciation
and
amortization
(F) 1,071 856 1,041 2,847 - 5,815
----- --- ----- ----- --- -----
Adjusted
EBITDA $13 $(62) $(3,050) $8,002 $(754) $4,149
=== ==== ======= ====== ===== ======
Quarter Ended June 30, 2008
---------------------------
Grand
Music (A) MSS (B) Games( C ) TPS (D) Other Total
--------- ------- -------- ------- ----- ------
(in thousands)
Net revenue $37,170 $29,238 $34,945 $51,295 - $152,648
Cost of revenue 20,693 3,707 10,655 20,590 - 55,645
------ ----- ------ ------ --- ------
Gross profit 16,477 25,531 24,290 30,705 - 97,003
------ ------ ------ ------ --- ------
Gross margin 44% 87% 70% 60% - 64%
Operating expenses:
Advertising
with related
party 9,240 - - - - 9,240
Other operating
expenses 23,412 15,605 28,424 32,778 237 100,456
------ ------ ------ ------ --- -------
Total
operating
expenses 32,652 15,605 28,424 32,778 237 109,696
------ ------ ------ ------ --- -------
Income (loss)
from
operations (16,175) 9,926 (4,134) (2,073) (237) (12,693)
------- ----- ------ ------ ---- -------
Other income
(expenses):
Interest
income, net - - - - 3,375 3,375
Equity in net
loss of
investments - - - - (107) (107)
Gain on sale of
equity
investments,
net - - - - 222 222
Gain on sale of
interest in
Rhapsody
America (E) 3,371 - - - - 3,371
Other income
(expenses),
net - - - - 50 50
--- --- --- --- --- ---
Total other
income
(expenses),
net 3,371 - - - 3,540 6,911
----- --- --- --- ----- -----
Income (loss)
before income
taxes (12,804) 9,926 (4,134) (2,073) 3,303 (5,782)
Income taxes - - - - (3,700) (3,700)
--- --- --- --- ------ ------
Net income
(loss) (12,804) 9,926 (4,134) (2,073) (397) (9,482)
Net income (loss)
attributable to
noncontrolling
interest in
Rhapsody
America 8,177 - - - - 8,177
----- --- --- --- --- -----
Net income (loss)
attributable to
common
shareholders $(4,627) $9,926 $(4,134) $(2,073) $(397) $(1,305)
======= ====== ======= ======= ===== =======
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 $(4,627) $9,926 $(4,134) $(2,073) $(397) $(1,305)
Income taxes - - - - 3,700 3,700
Interest
income, net - - - - (3,375) (3,375)
Stock-based
compensation 1,089 801 1,530 2,611 - 6,031
Conversion of
WiderThan stock
options to a
cash equivalent - - - 26 - 26
Acquisitions
related
intangible
asset
amortization
(F) 384 - 914 4,873 - 6,171
Gain on sale of
equity
investments,
net - - - - (222) (222)
Depreciation
and
amortization
(F) 1,262 897 918 3,109 - 6,186
Expenses
(benefit)
related to
antitrust
litigation:
Income - - - - - -
Expenses - - - - 202 202
Charitable
contributions - - - - - -
--- --- --- --- --- ---
Adjusted
EBITDA $(1,892) $11,624 $(772) $8,546 $(92) $17,414
======= ======= ===== ====== ==== =======
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 June 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 $55,614 $(363) $(553) $- $- $54,698
Operating
expenses:
Research and
development $28,923 $(2,234) $- $(3) $- $26,686
Sales and
marketing 42,273 (1,199) (1,096) - - 39,978
General and
administrative 19,338 (1,800) - - - 17,538
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $90,534 $(5,233) $(1,096) $(3) $- $84,202
======= ======= ======= === === =======
Quarter Ended June 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 $55,645 $(662) $(2,282) $(1) $- $52,700
Operating
expenses:
Research and
development $29,065 $(2,146) $- $- $- $26,919
Sales and
marketing 53,054 (1,433) (3,889) (7) - 47,725
General and
administrative 18,337 (1,790) - (18) (202) 16,327
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $100,456 $(5,369) $(3,889) $(25) $(202) $90,971
======== ======= ======= ==== ===== =======
Six Months Ended June 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 $111,635 $(993) $(1,099) $(1) $- $109,542
Operating expenses:
Research and
development $57,482 $(4,058) $- $(8) $- $53,416
Sales and
marketing 85,958 (2,265) (2,318) (11) - 81,364
General and
administrative 42,169 (3,502) - - - 38,667
------ ------ --- --- --- ------
Adjusted
operating
expenses,
net $185,609 $(9,825) $(2,318) $(19) $- $173,447
======== ======= ======= ==== === ========
Six Months Ended June 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 $111,038 $(896) $(4,597) $(22) $- $105,523
Operating expenses:
Research and
development $54,071 $(4,059) $- $(46) $- $49,966
Sales and
marketing 106,650 (3,341) (7,889) (29) - 95,391
General and
administrative 35,421 (3,224) - (18) (404) 31,775
------ ------ --- --- ---- ------
Adjusted
operating
expenses,
net $196,142 $(10,624) $(7,889) $(93) $(404) $177,132
======== ======= ======= ==== ===== ========
(A) - Net of noncontrolling interest effect.
RealNetworks, Inc. and Subsidiaries
Earnings Per Share Reconciliation
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
--------------- ----------------
2009 2008 2009 2008
---- ---- ---- ----
(in thousands, except per share data)
Net income (loss)
attributable to common
shareholders $(188,329) $(1,305) $(200,465) $1,121
Less accretion of MTVN's
preferred return in Rhapsody
America (416) - (1,850) -
---- --- ------ ---
Net income (loss) available
to common shareholders $(188,745) $(1,305) $(202,315) $1,121
========= ======= ========= ======
Shares used to compute basic
net income (loss) per share
available to common
shareholders 134,420 142,905 134,394 142,946
Dilutive potential common shares:
Stock options and
restricted stock - - - 2,304
Convertible debt - - - 10,750
--- --- --- ------
Shares used to compute
diluted net income (loss)
per share available to
common shareholders 134,420 142,905 134,394 156,000
Basic net income (loss) per
share available to common
shareholders $(1.40) $(0.01) $(1.51) $0.01
Diluted net income (loss) per
share available to common
shareholders $(1.40) $(0.01) $(1.51) $0.01
