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May 6, 2015 4:13 PM EDT


________________________________________________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K 
__________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 6, 2015 
__________________________
RealNetworks, Inc.
(Exact name of registrant as specified in its charter) 
__________________________
 
WASHINGTON
 
0-23137
 
91-1628146
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
1501 First Avenue South, Suite 600
Seattle, Washington 98134
(Address of principal executive offices) (Zip code)
(206) 674-2700
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address if changed since last report) 
__________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
___________________________________________________________________________________________________________________

 




 Item 2.02.     Results of Operations and Financial Condition.
On May 6, 2015, RealNetworks, Inc. announced its financial results for the first quarter ended March 31, 2015. The full text of the press release is furnished as Exhibit 99.1 hereto.
Furnished as Exhibit 99.2 hereto is additional information regarding non-GAAP financial measures included in certain public disclosures of RealNetworks, including its first quarter 2015 financial results press release.
The information set forth in this Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


Item  9.01.
Financial Statements and Exhibits.
(d) Exhibits.
Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.
 
 
 
Exhibit
No.
 
Description
 
 
 
99.1
Earnings Release of RealNetworks, Inc. dated May 6, 2015
 
 
99.2
Information Regarding Non-GAAP Financial Measures
 
 

2


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
REALNETWORKS, INC.
 
 
By:
 
/ S /    Marjorie Thomas      
 
 
Marjorie Thomas
 
 
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)


Dated: May 6, 2015

3


EXHIBIT INDEX
 
 
 
Exhibit
Number
 
Description
 
 
 
99.1
Earnings Release of RealNetworks, Inc. dated May 6, 2015
 
 
99.2
Information Regarding Non-GAAP Financial Measures
 
 


4


Exhibit 99.1
REALNETWORKS ANNOUNCES FIRST QUARTER 2015 RESULTS
•
Continued growth in RealPlayer Cloud user base, with over 11.5 million accounts
•
Continued subscriber and revenue growth for Rhapsody, with over 2.5 million paying subscribers
•
Cash and short-term investments of $134.4 million

SEATTLE - May 6, 2015 - RealNetworks, Inc. (Nasdaq: RNWK), a leader in personal digital entertainment, today announced results for the first quarter ended March 31, 2015.
For the first quarter of 2015, revenue was $30.6 million, compared to $35.5 million in the previous quarter and $45.7 million in the first quarter of 2014.
"RealPlayer Cloud’s user base has grown to over 11.5 million users, up from just 2 million a year ago,” said Rob Glaser, Chairman and CEO of RealNetworks. “We believe that by combining RealPlayer Cloud’s growing popularity with some exciting innovations we are getting ready to bring to market, we’re setting Real up for the next great chapter in our history.”
“We also continue to be encouraged by the subscriber and revenue growth at the Rhapsody music service, in which we play a significant role and have a large ownership stake.”
GAAP net loss for the first quarter of 2015 was $(24.5) million or $(0.68) per diluted share, compared to $(7.8) million or $(0.22) per diluted share in the first quarter of 2014. Adjusted EBITDA for the first quarter of 2015 was a loss of $(14.2) million, compared to $(13.9) million for the first quarter of 2014. A reconciliation of GAAP operating income (loss) to adjusted EBITDA is provided in the financial tables that accompany this release.
As of March 31, 2015, the company had $134.4 million in unrestricted cash, cash equivalents and short-term investments, compared to $161.7 million as of December 31, 2014.

Business Outlook

For the second quarter of 2015, RealNetworks expects total revenue in the range of $30.0 million to $33.0 million. We expect adjusted EBITDA for the quarter to be a loss in the range of $(18.0) million to $(21.0) million.

Webcast and Conference Call Information

The company will host a conference call today to review results and discuss the company’s performance at 5 p.m. ET/2 p.m. PT. You may join the conference call by calling 888-790-3440 or +1-517-308-9350 (Passcode: First Quarter Earnings). A live webcast of the call will be available at http://investor.realnetworks.com/ and an on-demand webcast will be available approximately one hour following the conclusion of the conference call. A telephonic replay will be available until 11:59 p.m. PT, May 27, 2015 by calling 800-839-2808 or +1- 203-369-3625 (Passcode: 562015).












For More Information

Michael Newman, StreetConnect
Investor Relations for RealNetworks
+1-206-729-3625

RNWK-F


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 www.realnetworks.com/about-us.

RealNetworks, RealPlayer and Slingo 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.


About Non-GAAP Financial Measures
To supplement RealNetworks' consolidated financial information 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 reportable 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 reportable segment.
The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the quarterly 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' current expectations regarding future revenue and adjusted EBITDA, our future growth, profitability, and market position, our strategic focus and initiatives, and the growth and future prospects relating to our Rhapsody affiliate. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements. These statements reflect RealNetworks’ expectations as of today, and 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 growth plan, strategic initiatives, and restructuring efforts; the emergence of new entrants and competition in the market for digital media products and services; other competitive risks, including the 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; 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; fluctuations in foreign c




urrencies; 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 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, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

 
 
Quarters Ended
March 31,
 
 

 
2015
 
2014
 
 
 (in thousands, except per share data)
 
 
 
 
 
 Net revenue
 
$
30,597

 
$
45,724

 Cost of revenue
 
16,547

 
18,786

 Extinguishment of liability
 
—

 
(10,580
)
           Gross profit
 
14,050

 
37,518

 
 
 
 
 
 Operating expenses:
 
 
 


       Research and development
 
12,379

 
14,059

       Sales and marketing
 
12,837

 
21,723

       General and administrative
 
7,283

 
9,317

       Restructuring and other charges
 
485

 
1,216

       Lease exit and related charges
 
78

 
79

 
 
 
 
 
           Total operating expenses
 
33,062

 
46,394

 
 
 
 
 
 Operating income (loss)
 
(19,012
)
 
(8,876
)
 
 
 
 
 
 Other income (expenses):
 
 
 
 
       Interest income, net
 
200

 
136

       Gain (loss) on sale of available for sale securities, net
 
299

 
2,371

       Equity in net loss of Rhapsody
 
(6,180
)
 
(838
)
       Other income (expense), net
 
443

 
(77
)
 
 
 
 
 
           Total other income (expense), net
 
(5,238
)
 
1,592

 
 
 
 
 
 Income (loss) before income taxes
 
(24,250
)
 
(7,284
)
 Income tax expense (benefit)
 
219

 
486

 
 
 
 
 
 Net income (loss)
 
$
(24,469
)
 
$
(7,770
)
 
 
 
 
 
 Basic net income (loss) per share
 
$
(0.68
)
 
$
(0.22
)
 Diluted net income (loss) per share
 
$
(0.68
)
 
$
(0.22
)
 
 
 
 
 
 Shares used to compute basic net income (loss) per share
 
36,104

 
35,840

 Shares used to compute diluted net income (loss) per share
 
36,104

 
35,840

 
 
 
 
 
 
 
 
 
 





RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
March 31,
2015
 
December 31,
2014
 
 (in thousands)
ASSETS
 Current assets:
 
 
 
 Cash and cash equivalents
$
102,994

 
$
103,253

 Short-term investments
31,394

 
58,453

 Trade accounts receivable, net
15,510

 
15,257

 Deferred costs, current portion
314

 
702

 Deferred tax assets, current
651

 
652

 Prepaid expenses and other current assets
8,278

 
8,980

 Total current assets
159,141

 
187,297

 
 
 
 
Equipment, software, and leasehold improvements, at cost:
 
 
 
 Equipment and software
71,840

 
74,100

 Leasehold improvements
3,395

 
3,590

 Total equipment, software, and leasehold improvements
75,235

 
77,690

 Less accumulated depreciation and amortization
60,610

 
61,442

 Net equipment, software, and leasehold improvements
14,625

 
16,248

 
 
 
 
 Restricted cash equivalents and investments
3,000

 
3,000

 Investment in and advances to Rhapsody
10,743

 
10,000

 Available for sale securities
2,648

 
2,676

 Other assets
3,761

 
2,299

 Deferred costs, non-current portion
263

 
316

 Deferred tax assets, net, non-current portion
899

 
999

 Other intangible assets, net
9,700

 
10,109

 Goodwill
16,839

 
17,355

 
 
 
 
 Total assets
$
221,619

 
$
250,299

 
 
 
 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 Current liabilities:
 
 
 
 Accounts payable
$
18,315

 
$
18,653

 Accrued and other current liabilities
22,052

 
25,286

 Deferred tax liabilities, net, current portion
1,576

 
1,628

 Deferred revenue, current portion
3,857

 
5,301

 Total current liabilities
45,800

 
50,868

 
 
 
 
 Deferred revenue, non-current portion
173

 
235

 Deferred rent
1,207

 
1,215

 Deferred tax liabilities, net, non-current portion
690

 
702

 Other long-term liabilities
448

 
81

 
 
 
 
 Total liabilities
48,318

 
53,101

 
 
 
 
 
 
 
 
 Shareholders' equity
173,301

 
197,198

 
 
 
 
 Total liabilities and shareholders' equity
$
221,619

 
$
250,299







RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Quarters Ended
March 31,
 
2015
 
2014
 
 (in thousands)
 
 Cash flows from operating activities:
 
 
 
 Net income (loss)
$
(24,469
)
 
$
(7,770
)
 Adjustments to reconcile net income (loss) to net cash used in operating activities:
 Depreciation and amortization
2,503

 
2,983

 Stock-based compensation
1,329

 
1,337

 Extinguishment of liability
—

 
(10,580
)
 Equity in net loss of Rhapsody
6,180

 
838

 Deferred income taxes, net
(77
)
 
10

 Gain on sale of available for sale securities
(299
)
 
(2,371
)
 Realized translation gain
—

 
(48
)
 Fair value of warrants received
(1,155
)
 
—

 Net change in certain operating assets and liabilities
(4,106
)
 
(2,909
)
  Net cash provided by (used in) operating activities
(20,094
)
 
(18,510
)
 Cash flows from investing activities:
 
 
 
 Purchases of equipment, software, and leasehold improvements
(306
)
 
(998
)
 Proceeds from sale of available for sale securities
352

 
2,754

 Purchases of short-term investments
(6,018
)
 
(29,030
)
 Proceeds from sales and maturities of short-term investments
33,077

 
25,589

 Advance to Rhapsody
(5,000
)
 
—

 Net cash provided by (used in) investing activities
22,105

 
(1,685
)
 Cash flows from financing activities:
 
 
 
 Proceeds from issuance of common stock (stock options and stock purchase plan)
6

 
210

 Tax payments from shares withheld upon vesting of restricted stock
(7
)
 
(60
)
 Net cash provided by (used in) financing activities
(1
)
 
150

 Effect of exchange rate changes on cash and cash equivalents
(2,269
)
 
86

 Net increase (decrease) in cash and cash equivalents
(259
)
 
(19,959
)
 Cash and cash equivalents, beginning of period
103,253

 
151,235

 Cash and cash equivalents, end of period
$
102,994

 
$
131,276










RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
 
2015
 
2014
 
Q1
 
 Q4
 
 Q3
 
 Q2
 
 Q1
 
 (in thousands)
Net Revenue by Line of Business
 
 
 
 
 
 
 
 
 
RealPlayer Group (A)
$
8,013

 
$
8,865

 
$
6,565

 
$
8,556

 
$
15,215

Mobile Entertainment (B)
14,480

 
17,616

 
19,190

 
23,182

 
19,913

Games (C)
8,104

 
9,025

 
8,402

 
9,087

 
10,596

     Total net revenue
$
30,597

 
$
35,506

 
$
34,157

 
$
40,825

 
$
45,724

 
 
 
 
 
 
 
 
 
 
Net Revenue by Product
 
 
 
 
 
 
 
 
 
RealPlayer Group
 
 
 
 
 
 
 
 
 
- License (D)
$
4,672

 
$
4,496

 
$
3,255

 
$
3,273

 
$
5,018

- Subscriptions (E)
2,408

 
2,691

 
2,680

 
2,569

 
2,777

- Media Properties (F)
933

 
1,678

 
630

 
2,714

 
7,420

 
 
 
 
 
 
 
 
 
 
Mobile Entertainment
 
 
 
 
 
 
 
 
 
- SaaS (G)
13,298

 
16,727

 
17,919

 
20,175

 
18,463

- Technology License & Other (H)
1,182

 
889

 
1,271

 
3,007

 
1,450

 
 
 
 
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
- License (I)
3,835

 
3,854

 
2,988

 
3,399

 
3,849

- Subscriptions (J)
3,570

 
3,947

 
4,320

 
4,440

 
5,241

- Media Properties (K)
699

 
1,224

 
1,094

 
1,248

 
1,506

 
 
 
 
 
 
 
 
 
 
     Total net revenue
$
30,597

 
$
35,506

 
$
34,157

 
$
40,825

 
$
45,724

 
 
 
 
 
 
 
 
 
 
Net Revenue by Geography
 
 
 
 
 
 
 
 
 
United States
$
12,349

 
$
13,860

 
$
12,280

 
$
15,092

 
$
20,428

Rest of world
18,248

 
21,646

 
21,877

 
25,733

 
25,296

     Total net revenue
$
30,597

 
$
35,506

 
$
34,157

 
$
40,825

 
$
45,724

 
 
 
 
 
 
 
 
 
 
Net Revenue by Line of Business
 
 
 
 
 
 
 
 
 
(A) The RealPlayer Group primarily includes revenue from RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, and sales of RealPlayer Plus software licenses to consumers, sales of intellectual property licenses, and consumer subscriptions such as our RealPlayer Cloud service and SuperPass.
(B) The Mobile Entertainment division primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.
(C) The Games division primarily includes revenue from sales of games licenses, online games subscription services, advertising on games sites and social network sites, microtransactions from online and social games, and sales of mobile games.
Net Revenue by Product
 
 
 
 
 
 
 
 
 
(D) Licensing revenue within the RealPlayer Group includes sales of RealPlayer Plus software licenses to consumers and sales of intellectual property licenses.
(E) Subscriptions revenue within the RealPlayer Group includes revenue from subscriptions such as our RealPlayer Cloud service and SuperPass.
(F) Media Properties revenue within the RealPlayer Group includes distribution of third-party software products and advertising on RealPlayer websites.
(G) SaaS revenue within Mobile Entertainment includes revenue from music on demand, ringback tones, intercarrier messaging services provided to network services providers who are largely mobile phone networks, and our LISTEN product.
(H) Technology licensing and other revenue within Mobile Entertainment includes revenue from professional services provided to mobile carriers.
(I) Licensing revenue within Games includes retail games-related revenue, microtransactions from online and social games and sales of mobile games.
(J) Subscriptions revenue within Games includes revenue from online games subscriptions.
(K) Media Properties revenue within Games includes distribution of third-party software products and advertising on games sites and social network sites.




RealNetworks, Inc. and Subsidiaries
Segment Results of Operations
(Unaudited)
 
2015
 
2014
 
Q1
 
Q4
 
Q1
 
 (in thousands)
RealPlayer Group
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
8,013

 
$
8,865

 
$
15,215

Cost of revenue
4,112

 
3,804

 
3,518

Gross profit
3,901

 
5,061

 
11,697

 
 
 
 
 
 
   Gross margin
49
%
 
57
%
 
77
%
 
 
 
 
 
 
Operating expenses
12,375

 
13,074

 
17,787

Operating income (loss)
$
(8,474
)
 
$
(8,013
)
 
$
(6,090
)
 
 
 
 
 
 
  Adjusted EBITDA
$
(7,875
)
 
$
(7,320
)
 
$
(5,491
)
 
 
 
 
 
 
Mobile Entertainment
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
14,480

 
$
17,616

 
$
19,913

Cost of revenue
9,506

 
11,525

 
11,950

Gross profit
4,974

 
6,091

 
7,963

 
 
 
 
 
 
   Gross margin
34
%
 
35
%
 
40
%
 
 
 
 
 
 
Operating expenses
5,633

 
7,199

 
9,616

Operating income (loss)
$
(659
)
 
$
(1,108
)
 
$
(1,653
)
 
 
 
 
 
 
  Adjusted EBITDA
$
225

 
$
24

 
$
(339
)
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
8,104

 
$
9,025

 
$
10,596

Cost of revenue
2,794

 
2,655

 
3,129

Gross profit
5,310

 
6,370

 
7,467

 
 
 
 
 
 
   Gross margin
66
%
 
71
%
 
70
%
 
 
 
 
 
 
Operating expenses
8,683

 
9,977

 
9,766

Operating income (loss)
$
(3,373
)
 
$
(3,607
)
 
$
(2,299
)
 
 
 
 
 
 
   Adjusted EBITDA
$
(2,783
)
 
$
(3,024
)
 
$
(1,674
)
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
—

 
$
—

 
$
—

Cost of revenue
135

 
(103
)
 
189

Extinguishment of liability
—

 
—

 
(10,580
)
Gross profit
(135
)
 
103

 
10,391

 
 
 
 
 
 
   Gross margin
N/A

 
N/A

 
 N/A

 
 
 
 
 
 
Operating expenses
6,371

 
8,057

 
9,225

Operating income (loss)
$
(6,506
)
 
$
(7,954
)
 
$
1,166

 
 
 
 
 
 
   Adjusted EBITDA
$
(3,741
)
 
$
(4,879
)
 
$
(6,414
)
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
30,597

 
$
35,506

 
$
45,724

Cost of revenue
16,547

 
17,881

 
18,786

Extinguishment of liability
—

 
—

 
(10,580
)
Gross profit
14,050

 
17,625

 
37,518

 
 
 
 
 
 
   Gross margin
46
%
 
50
%
 
82
%
 
 
 
 
 
 
Operating expenses
33,062

 
38,307

 
46,394

Operating income (loss)
$
(19,012
)
 
$
(20,682
)
 
$
(8,876
)
 
 
 
 
 
 
   Adjusted EBITDA
$
(14,174
)
 
$
(15,199
)
 
$
(13,918
)











RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment
(Unaudited)
 
2015
 
2014
 
 Q1
 
 Q4
 
 Q1
 
 (in thousands)
RealPlayer Group
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
(8,474
)
 
$
(8,013
)
 
$
(6,090
)
Acquisitions related intangible asset amortization
88

 
96

 
60

Depreciation and amortization
511

 
597

 
539

   Adjusted EBITDA
$
(7,875
)
 
$
(7,320
)
 
$
(5,491
)
 
 
 
 
 
 
Mobile Entertainment
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
(659
)
 
$
(1,108
)
 
$
(1,653
)
Acquisitions related intangible asset amortization
304

 
271

 
607

Depreciation and amortization
580

 
861

 
707

   Adjusted EBITDA
$
225

 
$
24

 
$
(339
)
 
 
 
 
 
 
Games
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
(3,373
)
 
$
(3,607
)
 
$
(2,299
)
Acquisitions related intangible asset amortization
293

 
314

 
314

Depreciation and amortization
297

 
269

 
311

   Adjusted EBITDA
$
(2,783
)
 
$
(3,024
)
 
$
(1,674
)
 
 
 
 
 
 
Corporate
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by segment:
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
(6,506
)
 
$
(7,954
)
 
$
1,166

Other income (expense), net
443

 
(10
)
 
(77
)
Depreciation and amortization
430

 
675

 
445

Lease exit and related charges
78

 
177

 
79

Restructuring and other charges
485

 
1,187

 
1,216

Stock-based compensation
1,329

 
1,046

 
1,337

Extinguishment of liability
—

 
—

 
(10,580
)
   Adjusted EBITDA
$
(3,741
)
 
$
(4,879
)
 
$
(6,414
)
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of GAAP operating income (loss) to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$
(19,012
)
 
$
(20,682
)
 
$
(8,876
)
Other income (expense), net
443

 
(10
)
 
(77
)
Acquisitions related intangible asset amortization
685

 
681

 
981

Depreciation and amortization
1,818

 
2,402

 
2,002

Lease exit and related charges
78

 
177

 
79

Restructuring and other charges
485

 
1,187

 
1,216

Stock-based compensation
1,329

 
1,046

 
1,337

Extinguishment of liability
—

 
—

 
(10,580
)
   Adjusted EBITDA
$
(14,174
)
 
$
(15,199
)
 
$
(13,918
)




EXHIBIT 99.2
About Non-GAAP Financial Measures
To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA by reportable segment. Adjusted EBITDA and adjusted EBITDA by reportable segment consist of operating income (loss) and includes other income (expense) net, but excludes the impact of the following: depreciation and amortization; acquisitions related intangible asset amortization; stock-based compensation; restructuring and other charges; lease exit and related charges; and extinguishment of liability.
RealNetworks believes that the presentation of adjusted EBITDA and adjusted EBITDA by reportable segment provide important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management has historically used these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past, present and future operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.
Internally, adjusted EBITDA and adjusted EBITDA by reportable segment are significant measures used by management for purposes of:
•
supplementing the financial results and forecasts reported to the Company’s board of directors;
•
evaluating the operating performance of RealNetworks, which includes direct and incrementally controllable revenue and costs of operations but excludes items considered by management to be non-cash or non-operating such as interest income and expense, stock-based compensation, tax expense, depreciation and amortization, impairment of deferred costs and long-lived assets, and other items that are not within management’s control;
•
managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers;
•
establishing internal operating budgets; and
•
evaluating and valuing potential acquisition candidates.
Adjusted EBITDA and adjusted EBITDA by reportable segment are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are that adjusted EBITDA and adjusted EBITDA by reportable segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s operating income (loss). The Company compensates for these limitations by prominently disclosing GAAP operating income (loss), which the Company believes is the most directly comparable GAAP measure, and providing investors with reconciliations from GAAP operating income (loss) to adjusted EBITDA and to adjusted EBITDA by reportable segment.
RealNetworks has included reconciliations of GAAP operating income (loss) to adjusted EBITDA and GAAP operating income (loss) by reportable segment to adjusted EBITDA by reportable segment for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.





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