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RealNetworks Announces Second Quarter 2011 Results
Jul 28, 2011 (04:07 PM EDT)


SEATTLE, July 28, 2011 /PRNewswire/ -- 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




2011


2011


2010


Sequential  


Yr/Yr




Q2


Q1


Q2


Change


Change




(in thousands)

Revenue












Core Products

$                  45,735


$                  48,107


$                  51,742


-5%


-12%


Emerging Products

12,717


11,135


8,997


14%


41%


Games

25,300


28,059


28,145


-10%


-10%


Corporate

-


-


-







Total excluding Music

83,752


87,301


88,884


-4%


-6%


Music


-


-


-







Total  

$                  83,752


$                  87,301


$                  88,884


-4%


-6%













Operating Income (loss)











Core Products

$                    7,208


$                    7,737


$                  11,149


-7%


-35%


Emerging Products

370


(296)


(2,009)


-225%


-118%


Games

2,049


2,711


85


-24%


2311%


Corporate

(14,411)


(15,818)


(30,919)


-9%


-53%



Total excluding Music

(4,784)


(5,666)


(21,694)


-16%


-78%


Music


-


-


-







Total  

$                  (4,784)


$                  (5,666)


$                (21,694)


-16%


-78%













Adjusted EBITDA











Core Products

$                    9,900


$                  10,260


$                  14,675


-4%


-33%


Emerging Products

707


(188)


(1,732)


-476%


-141%


Games

2,748


3,340


1,948


-18%


41%


Corporate

(11,133)


(5,870)


(14,287)


90%


-22%



Total excluding Music

2,222


7,542


604


-71%


268%


Music


-


-


-







Total  

$                    2,222


$                    7,542


$                       604


-71%


268%



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



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.

RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)










Quarters Ended
June 30,


Six Months Ended
June 30,






2011


2010


2011


2010


(in thousands, except per share data)









Net revenue

$               83,752


$                 88,884


$             171,053


$               217,484









Cost of revenue

30,666


29,149


62,732


78,308









Gross profit

53,086


59,735


108,321


139,176









Operating expenses:








Research and development

17,809


27,583


37,704


62,258

Sales and marketing

28,853


27,382


57,333


65,209

Advertising with related party (A)

-


-


-


1,065

General and administrative

10,874


14,590


16,496


29,511

Restructuring and other charges

508


4,792


7,412


10,407

Loss (gain) on excess office facilities

(174)


7,082


(174)


7,082









Total operating expenses

57,870


81,429


118,771


175,532









Operating income (loss)

(4,784)


(21,694)


(10,450)


(36,356)









Other income (expenses):








Interest income, net

311


551


690


931

Equity in net loss of Rhapsody and other equity method investments (B)

(1,018)


(5,427)


(4,299)


(5,427)

Loss on sale of equity investments, net

-


(50)


-


(50)

Gain on deconsolidation of Rhapsody  

-


-


-


10,929

Other income (expense), net

(311)


994


(433)


1,093









Total other income (expense), net

(1,018)


(3,932)


(4,042)


7,476









Income (loss) before income taxes

(5,802)


(25,626)


(14,492)


(28,880)

Income tax (expense) benefit  

(1,047)


(281)


(4,662)


3,291









Net income (loss)

(6,849)


(25,907)


(19,154)


(25,589)

Net loss attributable to the noncontrolling interest in Rhapsody (C)

-


-


-


2,910

Net income (loss) attributable to common shareholders

$               (6,849)


$               (25,907)


$             (19,154)


$               (22,679)









Basic net income (loss) per share available to common shareholders

$                 (0.05)


$                   (0.19)


$                 (0.14)


$                   (0.14)

Diluted net income (loss) per share available to common shareholders

$                 (0.05)


$                   (0.19)


$                 (0.14)


$                   (0.14)









Shares used to compute basic net income (loss) per share available to common shareholders

136,539


135,277


136,266


135,209

Shares used to compute diluted net income (loss) per share available to common shareholders

136,539


135,277


136,266


135,209



(A) Consists of advertising purchased by Rhapsody from MTV Networks (MTVN).  MTVN had a 49% ownership interest in Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.  See note (B) for more details regarding the restructuring and the related deconsolidation.


(B) On March 31, 2010, we completed the restructuring of Rhapsody which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody and no longer having operating control.  Since the restructuring was completed on the last day of the quarter ended March 31, 2010, our statement of operations for the first quarter of 2010 includes results from Rhapsody’s operations. Beginning with the quarter ended June 30, 2010, Rhapsody’s revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment. We now report our share of Rhapsody’s income or losses as “Equity in net loss of Rhapsody and other equity method investments” in “Other income (expenses)”.


(C) Net loss attributable to the noncontrolling interest in Rhapsody reflects MTVN's 49% ownership share in the losses of Rhapsody prior to the restructuring transactions that occurred on March 31, 2010.



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)




June 30,


December 31,


2011


2010


(in thousands)

ASSETS





Current assets:




Cash and cash equivalents  

$                         236,730


$                         236,018

Short-term investments

91,142


98,303

Trade accounts receivable, net

46,011


48,324

Deferred costs, current portion

9,882


9,173

Related party receivable - Rhapsody (A)

527


351

Prepaid expenses and other current assets

24,845


30,441





Total current assets

409,137


422,610





Equipment, software, and leasehold improvements, at cost:




Equipment and software

146,744


144,623

Leasehold improvements

25,454


25,367

Total equipment, software, and leasehold improvements

172,198


169,990

Less accumulated depreciation and amortization

131,193


126,619





Net equipment, software, and leasehold improvements

41,005


43,371





Restricted cash equivalents and investments

10,141


10,000

Equity method investments

11,397


15,486

Available for sale securities

26,150


27,541

Other assets

3,064


3,316

Deferred costs, non-current portion

16,443


18,401

Deferred tax assets, net, non-current portion

12,943


12,805

Other intangible assets, net

9,837


6,952

Goodwill

6,502


4,960





Total assets

$                         546,619


$                         565,442





LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:




Accounts payable

$                           22,194


$                           30,413

Accrued and other liabilities

82,199


85,702

Deferred revenue, current portion

18,010


19,036

Accrued loss on excess office facilities, current portion

1,391


1,144





Total current liabilities

123,794


136,295





Deferred revenue, non-current portion

88


460

Accrued loss on excess office facilities, non-current portion

2,430


3,380

Deferred rent

3,032


3,514

Deferred tax liabilities, net, non-current portion

2,015


1,049

Other long-term liabilities

11,231


7,999





Total liabilities

142,590


152,697









Shareholders' equity

404,029


412,745





Total liabilities and shareholders' equity  

$                         546,619


$                         565,442





(A) Related party receivable reflects amounts Rhapsody International, formed on March 31, 2010, owes RealNetworks.



RealNetworks, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)






Six Month Ended June 30,  


2011


2010


(in thousands)





Cash flows from operating activities:




Net income (loss)

$                                 (19,154)


$                            (25,589)

Adjustments to reconcile net income (loss) to net cash used in operating activities:




Depreciation and amortization

8,116


13,973

Stock-based compensation

6,129


6,692

Loss (gain) on disposal of equipment, software, and leasehold improvements

85


(3)

Equity in net loss of Rhapsody and other equity method investments

4,299


5,427

Loss on sale of equity investment, net

-


50

Gain on deconsolidation of Rhapsody  

-


(10,929)

Excess tax benefit from stock option exercises

(57)


(18)

Accrued restructuring and other charges

131


3,581

Accrued loss (gain) on excess office facilities

(174)


6,470

Deferred income taxes, net

(351)


(1,609)

Other

62


22

Net change in certain operating assets and liabilities, net of acquisitions, disposals, and deconsolidation of Rhapsody

(4,576)


(54,404)





Net cash used in operating activities

(5,490)


(56,337)





Cash flows from investing activities:




Purchases of equipment, software, and leasehold improvements

(3,134)


(9,507)

Purchases of short-term investments

(54,844)


(65,754)

Proceeds from sales and maturities of short-term investments

62,005


16,559

Payment of acquisition costs, net of cash acquired

(2,888)


-

Payment in connection with the restructuring of Rhapsody

-


(18,000)

Repayment of temporary funding on deconsolidation of Rhapsody

-


5,869

Decrease (increase) in restricted cash equivalents and investments, net

(141)


3,700





Net cash provided by (used in) investing activities

998


(67,133)





Cash flows from financing activities:




Net proceeds from sales of common stock under employee stock purchase




plan and exercise of stock options

1,610


1,272

Net proceeds from sales of interest in Rhapsody

-


1,213

Excess tax benefit from stock option exercises

57


18





Net cash provided by financing activities

1,667


2,503





Effect of exchange rate changes on cash and cash equivalents

3,537


92





Net increase (decrease) in cash and cash equivalents

712


(120,875)





Cash and cash equivalents, beginning of period

236,018


277,030





Cash and cash equivalents, end of period

$                                 236,730


$                            156,155



RealNetworks, Inc. and Subsidiaries

Supplemental Financial Information

(Unaudited)
















2011


2010



Q2


Q1


Q4


Q3


Q2


Q1



(in thousands)

Net Revenue by Line of Business:













Core Products (A)


$               45,735


$               48,107


$               58,030


$               51,870


$               51,742


$               51,203

Emerging Products (B)


12,717


11,135


12,558


8,778


8,997


11,428

Games (C)  


25,300


28,059


27,229


25,784


28,145


30,236

Total net revenue excluding music


83,752


87,301


97,817


86,432


88,884


92,867

Music  (D)


-


-


-


-


-


35,733

 Total net revenue including music


$               83,752


$               87,301


$               97,817


$               86,432


$               88,884


$             128,600














Core Products Revenue by Product:













SaaS (E)


$               30,216


$               30,526


$               35,656


$               31,885


$               32,388


$               33,614

Systems Integrations / Professional Services (F)


388


1,840


4,388


953


998


367

Technology Licensing (G)


6,508


6,425


7,632


7,473


7,736


7,910

Consumer Subscriptions (H)


8,623


9,316


10,354


11,559


10,620


9,312

Total Core Products net revenue


$               45,735


$               48,107


$               58,030


$               51,870


$               51,742


$               51,203














Net Revenue by Geography:













United States


$               41,984


$               44,469


$               48,048


$               46,874


$               48,351


$               84,550

Rest of world


41,768


42,832


49,769


39,558


40,533


44,050














Total net revenue


$               83,752


$               87,301


$               97,817


$               86,432


$               88,884


$             128,600














Product Metrics (subscribers and ICM presented as greater than):











Addressable subscribers of mobile operators under contract (I)


775,000


775,000


700,000


700,000


675,000


650,000

SaaS subscribers (J)


34,550


35,900


36,700


37,500


37,600


37,950

Monthly SaaS ARPU (in cents) (K)


$                   0.18


$                   0.18


$                   0.20


$                   0.16


$                   0.16


$                   0.16

ICM delivered in billions (L)


157


151


136


134


128


120

Consumer subscribers(M)


475


500


550


600


600


575
















Net Revenue by Line of Business:

(A)  The Core Products segment primarily includes revenue from SaaS services, system integration and professional services to carriers and mobile handset companies, sales of technology licenses of our software products such as Helix for handsets, and consumer subscriptions such as SuperPass and our international radio subscription services.


(B)  The Emerging Products segment primarily includes revenue from RealPlayer and related products, such as the distribution of third party software products, advertising on RealPlayer websites and sales of RealPlayerPlus software licenses to consumers.


(C)  The Games segment primarily includes revenue from sales of games licenses, online games subscription services, advertising on game sites and social network sites, games syndication services, microtransactions from online and social games and sales of mobile games.


(D)  On March 31, 2010, we completed the restructuring of Rhapsody, which resulted in our ownership decreasing to approximately 47% of the outstanding equity in Rhapsody, and our loss of operating control over Rhapsody.  Beginning with the quarter ended June 30, 2010, Rhapsody's revenue or other operating results are no longer consolidated within our financial statements and we are not recording any operating or other financial results for our Music segment.  We now report our share of Rhapsody's income or losses as "Equity in net loss of Rhapsody and other equity method investments" in "Other income (expense)".


Core Products Revenue by Product:

(E)  Software as a Service (SaaS) revenue includes revenue from music on demand (MOD), video on demand (VOD), ringtones, ringback tones (RBT) and intercarrier messaging services provided to network service providers, who are largely mobile phone networks.


(F)  Systems Integrations / Professional Services revenue includes professional services, other than those associated with software sales, provided to mobile carriers and handset manufacturers.


(G)  Technology Licensing includes revenue from sales of software and other intellectual property licenses such as Helix server licenses and Helix software licenses for handsets.


(H)  Consumer Subscriptions includes revenue from SuperPass, as well as our international radio subscription services.


Product Metrics:

(I)  Total subscribers reported at the end of the quarter of mobile carriers that offer one or more of our SaaS services, other than intercarrier messaging services, to their customers.


(J)  SaaS subscribers include RBT, MOD and VOD services, measured at the end of the quarter.


(K)  Monthly SaaS ARPU (Average Revenue Per User) is calculated by dividing (a) the total quarterly revenue from SaaS subscription services, including RBT, MOD, VOD, by (b) the number of SaaS subscribers at the end of the quarter, and dividing the resulting quotient by three.


(L)  ICM (Intercarrier message) represents the total number of messages delivered across our messaging platform during the quarter.


(M)  Consumer subscribers primarily includes our SuperPass and GamePass products. We repurchased our international radio subscription services from Rhapsody as part of the restructuring that occurred on March 31, 2010, and as a result, subscribers to our international radio services are included beginning in the quarter ended June 30, 2010.



RealNetworks, Inc. and Subsidiaries

Segment Results of Operations

(Unaudited)














2011


2010


2011


2010



Q2


Q1


Q2


YTD


YTD



(in thousands)

Core Products






















Net revenue


$          45,735


$          48,107


$           51,742


$       93,842


$     102,945

Cost of revenue


19,353


20,984


18,085


40,337


35,824

Gross profit


26,382


27,123


33,657


53,505


67,121












Gross margin


58%


56%


65%


57%


65%












Operating expenses


19,174


19,386


22,508


38,560


46,594

Operating income (loss)  


$            7,208


$            7,737


$           11,149


$       14,945


$       20,527












Adjusted EBITDA  


$            9,900


$          10,260


$           14,675


$       20,160


$       27,474












Emerging Products






















Net revenue


$          12,717


$          11,135


$             8,997


$       23,852


$       20,425

Cost of revenue


2,978


1,540


3,404


4,518


4,868

Gross profit


9,739


9,595


5,593


19,334


15,557












Gross margin


77%


86%


62%


81%


76%












Operating expenses


9,369


9,891


7,602


19,260


14,635

Operating income (loss)  


$               370


$             (296)


$           (2,009)


$              74


$            922












Adjusted EBITDA  


$               707


$             (188)


$           (1,732)


$            519


$         1,277












Games






















Net revenue


$          25,300


$          28,059


$           28,145


$       53,359


$       58,381

Cost of revenue


8,040


8,534


7,228


16,574


14,931

Gross profit


17,260


19,525


20,917


36,785


43,450












Gross margin


68%


70%


74%


69%


74%












Operating expenses


15,211


16,814


20,832


32,025


43,603

Operating income (loss)  


$            2,049


$            2,711


$                  85


$         4,760


$          (153)












Adjusted EBITDA  


$            2,748


$            3,340


$             1,948


$         6,088


$         3,633












Music






















Net revenue


$                  -


$                  -


$                  -


$              -


$       35,733

Cost of revenue


-


-


-


-


21,864

Gross profit


-


-


-


-


13,869












Gross margin


N/A


N/A


N/A


N/A


39%












Operating expenses


-


-


-


-


13,911

Operating income (loss)  


$                  -


$                  -


$                  -


$              -


$            (42)












Adjusted EBITDA  


$                  -


$                  -


$                  -


$              -


$         4,214












Corporate






















Net revenue


$                  -


$                  -


$                  -


$              -


$               -

Cost of revenue


295


1,008


432


1,303


821

Gross profit


(295)


(1,008)


(432)


(1,303)


(821)












Gross margin


N/A


N/A


N/A


N/A


N/A












Operating expenses


14,116


14,810


30,487


28,926


56,789

Operating income (loss)  


$        (14,411)


$        (15,818)


$         (30,919)


$     (30,229)


$     (57,610)












Adjusted EBITDA  


$        (11,133)


$          (5,870)


$         (14,287)


$     (17,003)


$     (30,269)












Total






















Net revenue


$          83,752


$          87,301


$           88,884


$     171,053


$     217,484

Cost of revenue


30,666


32,066


29,149


62,732


78,308

Gross profit


53,086


55,235


59,735


108,321


139,176












Gross margin


63%


63%


67%


63%


64%












Operating expenses


57,870


60,901


81,429


118,771


175,532

Operating income (loss)  


$          (4,784)


$          (5,666)


$         (21,694)


$     (10,450)


$     (36,356)












Adjusted EBITDA  


$            2,222


$            7,542


$                604


$         9,764


$         6,329



RealNetworks, Inc. and Subsidiaries

Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment  

(Unaudited)














2011 


2010


2011


2010



Q2


Q1


Q2


YTD


YTD



(in thousands)

Core Products






















Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:




















Operating income (loss)


$               7,208


$               7,737


$        11,149


$           14,945


$       20,527

Acquisitions related intangible asset amortization


710


474


1,106


1,184


2,227

Depreciation and amortization


1,982


2,049


2,420


4,031


4,720

Impairment of goodwill


-


-


-


-


-

Adjusted EBITDA  


$               9,900


$             10,260


$        14,675


$           20,160


$       27,474












Emerging Products






















Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:




















Operating income (loss)  


$                  370


$                (296)


$         (2,009)


$                  74


$            922

Acquisitions related intangible asset amortization


53


-


-


53


-

Depreciation and amortization


284


108


277


392


355

Impairment of goodwill


-


-


-


-


-

Adjusted EBITDA  


$                  707


$                (188)


$         (1,732)


$                519


$         1,277












Games






















Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:




















Operating income (loss)  


$               2,049


$               2,711


$               85


$             4,760


$          (153)

Acquisitions related intangible asset amortization


256


254


61


510


121

Depreciation and amortization


443


375


1,802


818


3,665

Impairment of goodwill


-


-


-


-


-

Adjusted EBITDA  


$               2,748


$               3,340


$          1,948


$             6,088


$         3,633












Music






















Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:




















Operating income (loss)  


$                     -


$                     -


$                -


$                  -


$            (42)

Net loss attributable to noncontrolling interest in Rhapsody


-


-


-


-


2,910

Acquisitions related intangible asset amortization (A)


-


-


-


-


58

Depreciation and amortization (A)


-


-


-


-


690

Pro forma gain on sale of interest in Rhapsody America


-


-


-


-


598

Impairment of goodwill


-


-


-


-


-

Adjusted EBITDA  


$                     -


$                     -


$                -


$                  -


$         4,214












Corporate






















Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by reporting segment:




















Operating income (loss)  


$           (14,411)


$           (15,818)


$       (30,919)


$         (30,229)


$     (57,610)

Other income (expense), net


(311)


(122)


994


(433)


1,093

Depreciation and amortization


569


559


993


1,128


2,067

Restructuring and other charges


508


6,904


4,792


7,412


10,407

Stock-based compensation


2,686


2,607


2,771


5,293


6,692

Loss on excess office facilities


(174)


-


7,082


(174)


7,082

Adjusted EBITDA  


$           (11,133)


$             (5,870)


$       (14,287)


$         (17,003)


$     (30,269)












Total  






















Reconciliation of GAAP operating income (loss) to adjusted EBITDA:






















Operating income (loss)  


$             (4,784)


$             (5,666)


$       (21,694)


$         (10,450)


$     (36,356)

Net loss attributable to noncontrolling interest in Rhapsody


-


-


-


-


2,910

Other income (expense), net


(311)


(122)


994


(433)


1,093

Acquisitions related intangible asset amortization (A)


1,019


728


1,167


1,747


2,406

Depreciation and amortization (A)


3,278


3,091


5,492


6,369


11,497

Impairment of goodwill


-


-


-


-


-

Loss on excess office facilities


(174)


-


7,082


(174)


7,082

Pro forma gain on sale of interest in Rhapsody America


-


-


-


-


598

Restructuring and other charges


508


6,904


4,792


7,412


10,407

Stock-based compensation


2,686


2,607


2,771


5,293


6,692

Adjusted EBITDA  


$               2,222


$               7,542


$             604


$             9,764


$         6,329












(A)  Net of noncontrolling interest effect.







RealNetworks, Inc. and Subsidiaries

Earnings Per Share Reconciliation

(Unaudited)












Quarters Ended

June 30,


Six Months Ended

June 30,












2011


2010


2011


2010



(in thousands, except per share data)











Net income (loss) attributable to common shareholders

$              (6,849)


$            (25,907)


$            (19,154)


$            (22,679)


Less termination of MTVN's preferred return in Rhapsody  

-


-


-


3,700


Net income (loss) available to common shareholders

$              (6,849)


$            (25,907)


$            (19,154)


$            (18,979)




















Shares used to compute basic net income (loss) per share available to common shareholders

136,539


135,277


136,266


135,209


Dilutive stock options and restricted stock  

-


-


-


-


Shares used to compute diluted net income (loss) per share available to common shareholders

136,539


135,277


136,266


135,209











Basic net income (loss) per share available to common shareholders

$                (0.05)


$                (0.19)


$                (0.14)


$                (0.14)


Diluted net income (loss) per share available to common shareholders

$                (0.05)


$                (0.19)


$                (0.14)


$                (0.14)



SOURCE RealNetworks, Inc.