RealNetworks Announces Fourth Quarter and Full Year 2009 Results
SEATTLE – February 11, 2010 – Digital entertainment services company RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the fourth quarter and fiscal year ended December 31, 2009.
Revenue of $145.5 million
Net loss attributable to common shareholders of $(13.3) million or $(0.11) per share
Adjusted EBITDA excluding impairments of $12.9 million
Full Year Highlights:
Revenue of $562.3 million
Net loss attributable to common shareholders of $(212.3) million or $(1.60) per share
Adjusted EBITDA excluding impairments of $39.7 million
Cash and short term investments of $384.9 million as of December 31, 2009
"The severe recession in 2009 hurt both our revenue and profitability for the year," said Bob Kimball, president and acting CEO of RealNetworks. "While we don't expect that overall trend to change in the first quarter, we are aggressively moving to transform RealNetworks into a more simple and focused company that delivers value to its shareholders. The first step in Real's simplification was announced this week with the separation of our Rhapsody music business into an independent company."
Mr. Kimball was named president and appointed to Real's Board of Directors on January 12, when he was also named acting CEO.
Fourth Quarter Results
For the fourth quarter of 2009, revenue declined 5% to $145.5 million compared with $152.6 million for the fourth quarter of 2008. Foreign currency exchange rate fluctuations positively affected 2009 fourth quarter revenue by approximately $4.5 million compared with the year-ago quarter. Excluding the effects of foreign exchange rate changes, revenue declined 8% year over year. Revenue trends in each of Real's businesses in the fourth quarter of 2009 compared with the year-earlier quarter were: a 4% increase in Technology Products and Solutions revenue to $54.3 million, a 1% increase in Media Software and Services revenue to $22.9 million, a 9% decrease in Games revenue to $30.7 million, and a 14% decrease in Music revenue to $37.6 million.
Net loss attributable to common shareholders for the fourth quarter of 2009 was $(13.3) million, or $(0.11) per share, compared with net loss of $(240.5) million, or $(1.78) per share, in the fourth quarter of 2008. The net loss for the fourth quarter of 2009 included impairment and restructuring charges of $(7.4) million, or $(0.05) per share. Included in the fourth quarter 2008 net loss were impairment charges, net of tax benefit, totaling $(240.7) million, or $(1.78) per share. Adjusted EBITDA excluding impairments for the fourth quarter of 2009 was $12.9 million, compared with $11.3 million for the fourth quarter of 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.
As of December 31, 2009, Real had approximately $384.9 million in unrestricted cash, cash equivalents and short-term investments, an increase of $14 million from the prior year. In addition, Real has approximately $33.3 million in restricted cash and equity investments at December 31, 2009.
Gross margin in the fourth quarter was 61%, compared with 48% for the fourth quarter a year earlier. Excluding the effect of a $19.7 million charge to reflect the impairment of deferred project costs and prepaid royalties, gross margin was 61% in the fourth quarter of 2008.
Income tax provision was a benefit of $124,000, compared with $(17.4) million in the year-earlier period. Interest income in the fourth quarter of 2009 was $779,000 compared with $2.3 million in the year-earlier period.
Full Year Results
For 2009, revenue declined 7% to $562.3 million compared with $604.8 million in 2008. Foreign currency exchange rate fluctuations negatively affected 2009 revenue by approximately $14 million compared with 2008. Excluding the effects of foreign exchange rate changes, revenue declined 5% year over year. Revenue trends in each of Real's businesses for the full year 2009 compared with 2008 were: a slight increase in Music revenue to $160.9 million, a 7% decrease in Technology Products and Solutions revenue to $191.5 million, a 9% decrease in Games revenue to $122.8 million, and a decrease of 15% in Media Software and Services to $87.1 million.
Net loss attributable to common shareholders for the year was $(212.3) million, or $(1.60) per share, compared with a net loss of $(243.9) million, or $(1.74) per share, in 2008. The net loss for the most recent year included impairments of $(184.6) million, or $(1.37) per share. The net loss in 2008 included impairments of $(241.4) million, or $(1.72) per share.
In 2009, adjusted EBITDA excluding impairments was $39.7 million compared with $60.7 million in 2008. A reconciliation of GAAP net loss attributable to common shareholders to adjusted EBITDA and adjusted EBITDA excluding impairments is provided in the financial tables that accompany this release.
The following business outlook for the first quarter of 2010 assumes Rhapsody America's financial results are consolidated in Real's financial results for the entire first quarter. For the first quarter of 2010, Real expects overall revenue to decline by up to 12% year-over-year and up to 15% sequentially. As a result of the decline in revenue, Real expects adjusted EBITDA excluding impairments for the first quarter of 2010 to be below the first quarter of 2009. Compared with the year-earlier quarter, the company expects first-quarter revenue for Music, Media Software and Services, Games and Technology Products and Solutions to decline. Sequentially, the company expects revenue to be flat in Games, and to decline in Music, Media Software and Services and Technology Products and Solutions, with the largest decline in Technology Products and Solutions, primarily as a result of fourth quarter business seasonality.
Approximately 25% of Real's revenue is denominated in currencies other than the U.S. dollar, most notably the euro and Korean won. Based on current currency rates, Real expects reported revenues to be affected by foreign currency trends.
The foregoing forward-looking statements reflect Real's expectations as of February 11, 2010. 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 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)
Fourth Quarter Earnings
Telephonic replay will be available until 8:00 p.m. (Eastern), February 25, 2010.
Replay dial in:
For More Information
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 excluding impairments 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) attributable to common shareholders to adjusted EBITDA, to adjusted EBITDA excluding impairments, and to adjusted EBITDA excluding impairments 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 fourth quarter earnings materials. Please refer to Exhibit 99.2 ("Information Regarding Non-GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.
Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to Real's current expectations for future revenue, adjusted EBITDA excluding impairments and the impact of foreign currency rates. 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; changes in Real's GAAP tax rate; the potential gain or loss and other potential accounting consequences from the anticipated restructuring of Rhapsody America; 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; risks associated with the operation of Rhapsody America and with the ability of Real and Rhapsody America to realize financial benefits from the anticipated restructuring of Rhapsody America; Real's ability to realize operating efficiencies and other benefits from the implementation of its strategic initiatives; 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; the impact on Real's gross margin from content costs and the mix of subscription offerings sold to Real's customers; 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 strategic relationships, business acquisitions and the introduction of new products and services; and changes in consumer and advertising spending in response to disruptions in the global financial markets. 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.