RealNetworks Announces Second Quarter 2011 Results


SEATTLE – July 28, 2011 – RealNetworks, Inc. (Nasdaq: RNWK) today announced results for the second quarter ended June 30, 2011.

Quarterly Highlights:

  • Revenue of $83.8 million
  • Net loss of $(6.8) million or $(0.05) per share
  • Adjusted EBITDA of $2.2 million
  • Cash and short term investments of $327.9 million as of June 30, 2011
  • Board declares a special dividend of $1.00 per share and 1-for-4 reverse stock split

"While our overall financial results for the quarter were not up to our expectations, we delivered against several of our key milestones for the year, including the launch of Unifi with Vodafone-Germany, the relaunch of GameHouse.com and a successful update campaign for RealPlayer," said Mike Lunsford, interim CEO of RealNetworks.

"As we continue with the strategic review of our business, we have determined that we have more cash than we anticipate needing for our future operations or strategic initiatives," Mr. Lunsford continued.  "Therefore, we are declaring a special dividend to shareholders of $1.00 per share."

Second Quarter Results

For the second quarter of 2011, revenue was $83.8 million, a decrease of 6% compared with the second quarter of 2010 and a sequential decline of 4% from the first quarter. Foreign currency exchange rate fluctuations positively affected second quarter revenue by $2.9 million compared with the year-earlier quarter. Revenue trends in each of RealNetworks' businesses in the second quarter of 2011 compared with the year-earlier quarter were: a 41% increase in Emerging Products revenue to $12.7 million, a 12% decrease in Core Products revenue to $45.7 million, and a 10% decrease in Games revenue to $25.3 million.

Net loss for the second quarter of 2011 was $(6.8) million, or $(0.05) per share, compared with a net loss of $(25.9) million, or $(0.19) per share, in the second quarter of 2010. Second quarter 2010 results included $11.9 million in restructuring charges and loss on excess office facilities. Adjusted EBITDA for the second quarter of 2011 was $2.2 million, compared with $604,000 for the second quarter of 2010.  A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.

As of June 30, 2011, RealNetworks had $327.9 million in unrestricted cash, cash equivalents and short-term investments compared with $334.3 million at Dec. 31, 2010. In addition, RealNetworks had $47.7 million in restricted cash and equity investments, including its equity interest in the Rhapsody joint venture, at June 30, 2011.

Segment Operating Results

July 2011 Table  

Business Outlook

For the third quarter of 2011, Real expects total revenue to be consistent with year-ago revenue and to increase sequentially. Real expects revenue in Emerging Products will increase year-over-year and be flat sequentially; revenue in Core Products will decline year-over-year and increase sequentially; and revenue in Games will decline year-over-year and sequentially. Real expects adjusted EBITDA for the third quarter to decline compared with the year-ago quarter and to increase sequentially.

For the full year, Real is not changing the guidance given in February. Real expects a small decline in 2011 revenue compared with 2010, excluding Music, due in part to the elimination or de-emphasis of products and services that generate low-profit or unprofitable revenue. Excluding the revenue from these products and services, Real expects 2011 revenue to be essentially flat compared with 2010, excluding Music. Real expects 2011 adjusted EBITDA and adjusted EBITDA margin to increase over 2010 due in large part to the restructuring, which has lowered the company's overall cost structure.

Real's outlook for the year anticipates seasonality in revenue and adjusted EBITDA, which typically declines from the fourth quarter to the first quarter, and increases through the year. Real has generated more than 70% of its annual adjusted EBITDA in the second half of the year in each of the past two years.  Real expects to see similar seasonal patterns for both revenue and adjusted EBITDA in 2011.

The foregoing forward-looking statements reflect Real's expectations as of July 28, 2011. It is not RealNetworks' general practice to update these forward-looking statements until its next quarterly results announcement.

Dividend and Reverse Stock Split

In a separate release, RealNetworks also announced today that its Board of Directors declared a special dividend of $1.00 per share of its common stock, payable on Aug. 23, 2011, to holders of record as of the close of business Aug. 9, 2011. The cash dividend will total approximately $136.8 million.

The board also approved a one-for-four reverse stock split of RealNetworks common stock, which it expects to implement at the close of business on Aug. 30, 2011. The company expects to have approximately 34.2 million shares outstanding after the reverse split, compared with 136.8 million as of June 30, 2011.

Webcast and Conference Call Information

The company will host an audio Webcast conference call to review results and discuss the company's operations for the second quarter at 5:00 p.m. ET on July 28. The Webcast will be available at: http://investor.realnetworks.com

Webcast participants will need RealPlayer® to hear the webcast, which can be downloaded at www.real.com.

The on-demand Webcast will be available beginning approximately two hours following the conclusion of the live Webcast.

Conference Call Details

5:00 p.m. ET / 2:00 p.m. PT

Dial in:
800-857-5305 Domestic
773-681-5857 International

Passcode:
Second Quarter Earnings

Leader:
Mike Lunsford

Telephonic replay will be available until 8 p.m. ET, August 11, 2011.

Replay dial in:
866-395-9179 Domestic
203-369-0503 International

For More Information

Financial
Marj Charlier
RealNetworks
206-892-6718
mcharlier@real.com

Press Only
Barbara Krause
Krause Taylor Associates
408-981-2429
barbara@krause-taylor.com

About RealNetworks

RealNetworks creates innovative applications and services that make it easy to connect with and enjoy digital media. RealNetworks invented the streaming media category in 1995 and continues to connect consumers with their digital media both directly and through partners, aiming to support every network, device, media type and social network. RealNetworks' corporate information is located at http://www.realnetworks.com/about-us

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 EBITDA and adjusted EBITDA by reporting segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reporting segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the second 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 RealNetworks' plan to pay a special dividend, to effect a reverse stock split, and its current expectations for future revenue, adjusted EBITDA, adjusted EBITDA margin, seasonality of financial results and future growth and the assumptions relating to such statements.  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: RealNetworks' ability to realize operating efficiencies, growth and other benefits from the implementation of its strategic initiatives; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the introduction and 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; fluctuations in foreign currencies; 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; 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 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, RealPlayer and GameHouse 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.