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RealNetworks Announces Fourth Quarter And Year End 2013 Results

       RealNetworks Announces Fourth Quarter And Year End 2013 Results

- RealPlayer Cloud - new cross-platform, cloud-based, integrated video service
- gaining traction;

- Mobile entertainment business strengthened with new products;

- Continued progress in long term strategic transition and growth strategy;
and

- Cash and short-term investments of $226.2 million

PR Newswire

SEATTLE, Feb. 5, 2014

SEATTLE, Feb. 5, 2014 /PRNewswire/ --RealNetworks, Inc. (Nasdaq: RNWK), a
leader in personal digital entertainment, today announced results for the
fourth quarter and year ended December 31, 2013.

For the fourth quarter of 2013, revenue was $50.6 million, compared to $49.0
million in the previous quarter and $67.3 million in the fourth quarter of
2012. For the full year 2013, revenue was $206.2 million, compared to $258.8
million for 2012.

"During the fourth quarter of 2013, we continued to make progress in our long
term strategic transition to revitalize RealNetworks," said Rob Glaser,
Chairman and interim CEO of RealNetworks. "Our new RealPlayer Cloud, our
groundbreaking, cloud-based video service that makes it easy to watch, save
and share video across every popular digital device, is gaining good initial
traction in the marketplace, with over 500,000 accounts created since launch.

"In our Mobile Entertainment business, we completed our acquisition of
Muzicall and launched LISTEN™ to strengthen our leadership in the ringback
tones market and to bring ringback tones directly to consumers. We also
continue to tighten our strategic focus to better capitalize on the most
promising opportunities in our Games business. Throughout 2013, we've
continued to streamline our company, invest in our core business segments and
focus on building a stronger foundation for future growth and profitability."

GAAP net income for the fourth quarter of 2013 was $4.1 million or $0.12 per
diluted share, compared to $3.1 million or $0.09 per diluted share in the
fourth quarter of 2012. The increase primarily reflects a net gain of $21.4
million from the sale of its investment in LoEn in the fourth quarter of 2013.
For the full year 2013, GAAP net loss was $(57.4) million or $(1.61) per
diluted share, compared to net income of $44.8 million or $1.28 per diluted
share in 2012.

Adjusted EBITDA for the fourth quarter of 2013 was a loss of $(6.6) million,
compared to adjusted EBITDA income of $3.3 million for the fourth quarter of
2012. For the full year 2013, adjusted EBITDA was a loss of $(23.7) million,
compared to a loss $(16.7) million for 2012. A reconciliation of GAAP
operating income (loss) to adjusted EBITDA is provided in the financial tables
that accompany this release.

As of December 31, 2013, the company had $226.2 million in unrestricted cash,
cash equivalents and short-term investments, up from $218.4 million as of
September 30, 2013.

Business Outlook

For the first quarter of 2014, RealNetworks expects total revenue in the range
of $43.0 million to $46.0 million. We expect adjusted EBITDA for the quarter
to be a loss in the range of $(9.0) million to $(12.0) 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 by calling 800-857-9789 or
+1-210-234-0007 (Passcode: Fourth 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 p.m. CT,
February 26, 2014 by calling 888-568-0623 or +1-203-369-3199 (Passcode: 9977)

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 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.

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 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 RealNetworks' current
expectations regarding future revenue and adjusted EBITDA, our future growth,
profitability, market position, and marketing approach, and our strategic
focus and initiatives. 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 currencies; 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                Years Ended

                        December 31,                  December 31,
                        2013           2012           2013          2012
                        (in thousands, except per share data)
Net revenue             $  50,595      $  67,264      $  206,196    $ 258,842
Cost of revenue         20,076         25,098         79,091        103,731
 Gross profit          30,519         42,166         127,105       155,111
Sale of patents and
other technology        —              —              —             116,353
assets, net of
costs (A)
Operating expenses:
 Research and          14,929         14,027         60,880        63,194
development
 Sales and             20,181         21,839         80,011        90,301
marketing
 General and           8,137          8,788          36,643        43,891
administrative
 Restructuring and     1,690          1,353          5,765         15,225
other charges
 Lease exit and        23             3,047          3,089         3,290
related charges
 Loss on
litigation              —              —              11,525        —
settlements
 Total operating     44,960         49,054         197,913       215,901
expenses
Operating income        (14,441)       (6,888)        (70,808)      55,563
(loss)
Other income
(expenses):
 Interest income,      141            159            1,133         1,192
net
 Gain (loss) on
sale of equity and      21,389         (216)          21,389        5,072
other investments,
net
 Equity in net
loss of Rhapsody        (59)           (1,614)        (6,268)       (5,709)
investment
 Other income          613            (433)          467           1,241
(expense), net
 Total other
income (expense),       22,084         (2,104)        16,721        1,796
net
Income (loss)           7,643          (8,992)        (54,087)      57,359
before income taxes
Income tax expense      3,504          (12,065)       3,294         12,518
(benefit)
Net income (loss)       $  4,139       $  3,073       $  (57,381)   $ 44,841
Basic net income        $  0.12        $  0.09        $  (1.61)     $ 1.29
(loss) per share
Diluted net income      $  0.12        $  0.09        $  (1.61)     $ 1.28
(loss) per share
Shares used to
compute basic net       35,738         35,250         35,553        34,873
income (loss) per
share
Shares used to
compute diluted net     35,906         35,450         35,553        35,122
income (loss) per
share
(A) On April 5, 2012, RealNetworks completed the sale of certain patents and
other technology assets to Intel for a cash purchase of $120.0 million.



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                    December 31,  December 31,
                                                    2013          2012
                                                    (in thousands)
ASSETS
Current assets:
Cash and cash equivalents                           $  151,235    $  163,198
Short-term investments                              74,920        108,216
Trade accounts receivable, net                      26,222        30,754
Deferred costs, current portion                     1,601         825
Deferred tax assets - current                       306           2,869
Prepaid expenses and other current assets           9,124         17,002
 Total current assets                              263,408       322,864
Equipment, software, and leasehold improvements, at
cost:
Equipment and software                              86,721        98,041
Leasehold improvements                              3,482         22,767
 Total equipment, software, and leasehold          90,203        120,808
improvements
Less accumulated depreciation and amortization      67,031        91,492
 Net equipment, software, and leasehold            23,172        29,316
improvements
Restricted cash equivalents and investments         3,000         10,000
Equity method investment                            12,473        19,204
Available for sale securities                       7,181         34,334
Other assets                                        2,332         3,153
Deferred costs, non-current portion                 946           531
Deferred tax assets, net, non-current portion       1,409         4,911
Other intangible assets, net                        12,993        3,275
Goodwill                                            17,476        6,309
Total assets                                        $  344,390    $  433,897
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                   $  19,987     $  19,013
Accrued and other current liabilities              42,788        57,530
Deferred revenue, current portion                  7,498         8,675
 Total current liabilities                         70,273        85,218
Deferred revenue, non-current portion               166           169
Deferred rent                                       1,318         2,250
Deferred tax liabilities, net, non-current portion  1,560         432
Other long-term liabilities                         483           3,100
Total liabilities                                  73,800        91,169
Shareholders' equity                                270,590       342,728
Total liabilities and shareholders' equity          $  344,390    $  433,897



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                      Years Ended December 31,
                                                      2013          2012
                                                      (in thousands)
Cash flows from operating activities:
Net income (loss)                                     $  (57,381)   $ 44,841
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization                         18,748        16,959
Stock-based compensation                              7,468         8,123
Loss on asset disposal                                —             2,509
Equity in net loss of Rhapsody                        6,268         5,709
Lease exit and related charges                        1,421         3,290
Deferred income taxes, net                            676           20,324
Gain on sale of patent and other technology assets,   —             (116,353)
net of costs
Gain on sale of equity and other investments, net     (21,389)      (5,072)
Realized translation gain                             (571)         (1,966)
Other                                                 51            —
Net change in certain operating assets and            (5,261)       (11,677)
liabilities
Net cash provided by (used in) operating activities (49,970)      (33,313)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold       (7,636)       (7,170)
improvements
Proceeds from sale of patents and other technology    —             116,353
assets, net of costs
Proceeds from sale of equity and other investments    29,153        7,261
Purchases of short-term investments                   (131,690)     (116,963)
Proceeds from sales and maturities of short-term      164,986       87,487
investments
Decrease in restricted cash equivalents and           10,000        167
investments
Increase in restricted cash equivalents and           (3,000)       —
investments
Acquisitions of businesses, net of cash acquired      (22,480)      —
 Net cash provided by (used in) investing activities 39,333        87,135
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options 594           3,802
and stock purchase plan)
Tax payments from shares withheld upon vesting of     (1,201)       (995)
restricted stock
Payment of contingent consideration                   (828)         —
 Net cash provided by (used in) financing activities (1,435)       2,807
Effect of exchange rate changes on cash and cash      109           236
equivalents
 Net increase (decrease) in cash and cash            (11,963)      56,865
equivalents
Cash and cash equivalents, beginning of period        163,198       106,333
Cash and cash equivalents, end of period              $  151,235    $ 163,198



RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
                           2013                                                    2012
               YTD         Q4         Q3         Q2         Q1         YTD         Q4         Q3         Q2         Q1
               (in thousands)
Net Revenue by
Line of
Business
RealPlayer     $ 75,206    $ 16,799   $ 17,641   $ 18,383   $ 22,383   $ 91,469    $ 25,838   $ 21,392   $ 22,158   $ 22,081
Group (A)
Mobile
Entertainment  81,181      22,146     19,948     18,592     20,495     100,318     25,718     22,820     26,005     25,775
(B)
Games (C)      49,809      11,650     11,369     12,875     13,915     67,055      15,708     14,876     17,363     19,108
 Total net  $ 206,196   $ 50,595   $ 48,958   $ 49,850   $ 56,793   $ 258,842   $ 67,264   $ 59,088   $ 65,526   $ 66,964
revenue
Net Revenue
by Product
RealPlayer
Group
- License (D)  $ 29,507    $ 7,128    $ 7,281    $ 6,766    $ 8,332    $ 33,780    $ 10,956   $ 6,757    $ 8,334    $ 7,733
-
Subscriptions  15,850      3,118      3,615      4,193      4,924      27,659      6,192      7,056      6,810      7,601
(E)
- Media
Properties     29,849      6,553      6,745      7,424      9,127      30,030      8,690      7,579      7,014      6,747
(F)
Mobile
Entertainment
- SaaS (G)     74,238      20,406     18,156     17,002     18,674     90,239      22,793     20,696     23,286     23,464
- Technology
License &      6,943       1,740      1,792      1,590      1,821      10,079      2,925      2,124      2,719      2,311

Other (H)
Games
- License (I)  16,270      3,511      3,421      4,089      5,249      23,998      5,222      5,136      6,053      7,587
-
Subscriptions  23,713      5,688      5,733      5,980      6,312      29,534      6,876      6,952      7,536      8,170
(J)
- Media
Properties     9,826       2,451      2,215      2,806      2,354      13,523      3,610      2,788      3,774      3,351
(K)
 Total net  $ 206,196   $ 50,595   $ 48,958   $ 49,850   $ 56,793   $ 258,842   $ 67,264   $ 59,088   $ 65,526   $ 66,964
revenue
Net Revenue
by Geography
United States  $ 90,250    $ 19,724   $ 21,039   $ 21,463   $ 28,024   $ 117,844   $ 28,315   $ 29,101   $ 28,614   $ 31,814
Rest of world  115,946     30,871     27,919     28,387     28,769     140,998     38,949     29,987     36,912     35,150
 Total net  $ 206,196   $ 50,595   $ 48,958   $ 49,850   $ 56,793   $ 258,842   $ 67,264   $ 59,088   $ 65,526   $ 66,964
revenue
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 SuperPass.
(B) The Mobile Entertainment division primarily includes revenue from SaaS services, system integration, and professional
services to mobile carriers, and sales of technology licenses of our software products such as Helix.
(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 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, video on demand, ringtones, ringback
tones, and intercarrier messaging services provided to network services providers who are largely mobile phone networks.
(H) Licensing and other revenue within Mobile Entertainment includes revenue from Helix-related products and 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)
               2013                      2012         2013         2012
               Q4           Q3           Q4           YTD          YTD
               (in thousands)
RealPlayer Group
Net revenue    $ 16,799     $ 17,641     $ 25,838     $ 75,206     $ 91,469
Cost of        3,236        3,264        5,518        16,220       21,544
revenue
Gross profit   13,563       14,377       20,320       58,986       69,925
Gross margin   81%          81%          79%          78%          76%
Operating      15,828       14,449       13,374       60,484       55,223
expenses
Operating      $ (2,265)    $ (72)       $ 6,946      $ (1,498)    $ 14,702
income (loss)
Adjusted      $ (1,474)    $ 624        $ 7,620      $ 951        $ 16,967
EBITDA
Mobile Entertainment
Net revenue    $ 22,146     $ 19,948     $ 25,718     $ 81,181     $ 100,318
Cost of        13,634       11,972       14,577       47,608       57,670
revenue
Gross profit   8,512        7,976        11,141       33,573       42,648
Gross margin   38%          40%          43%          41%          43%
Operating      8,863        9,453        12,023       35,839       52,614
expenses
Operating      $ (351)      $ (1,477)    $ (882)      $ (2,266)    $ (9,966)
income (loss)
Adjusted      $ 1,251      $ 503        $ 1,687      $ 5,830      $ (458)
EBITDA
Games
Net revenue    $ 11,650     $ 11,369     $ 15,708     $ 49,809     $ 67,055
Cost of        2,962        3,216        4,496        13,359       21,828
revenue
Gross profit   8,688        8,153        11,212       36,450       45,227
Gross margin   75%          72%          71%          73%          67%
Operating      12,057       11,513       11,928       47,177       51,890
expenses
Operating      $ (3,369)    $ (3,360)    $ (716)      $ (10,727)   $ (6,663)
income (loss)
Adjusted      $ (2,724)    $ (2,704)    $ (71)       $ (7,897)    $ (3,861)
EBITDA
Corporate
Net revenue    $ —          $ —          $ —          $ —          $ —
Cost of        244          538          507          1,904        2,689
revenue
Gross profit   (244)        (538)        (507)        (1,904)      (2,689)
Gross margin   N/A          N/A          N/A          N/A          N/A
Gain on sale
of patents
and other      —            —            —            —            116,353
technology
assets, net
of costs
Operating      8,212        22,990       11,729       54,413       56,174
expenses
Operating      $ (8,456)    $ (23,528)   $ (12,236)   $ (56,317)   $ 57,490
income (loss)
Adjusted      $ (3,668)    $ (6,792)    $ (5,972)    $ (22,630)   $ (29,352)
EBITDA
Total
Net revenue    $ 50,595     $ 48,958     $ 67,264     $ 206,196    $ 258,842
Cost of        20,076       18,990       25,098       79,091       103,731
revenue
Gross profit   30,519       29,968       42,166       127,105      155,111
Gross margin   60%          61%          63%          62%          60%
Gain on sale
of patents
and other      —            —            —            —            116,353
technology
assets, net
of costs
Operating      44,960       58,405       49,054       197,913      215,901
expenses
Operating      $ (14,441)   $ (28,437)   $ (6,888)    $ (70,808)   $ 55,563
income (loss)
Adjusted      $ (6,615)    $ (8,369)    $ 3,264      $ (23,746)   $ (16,704)
EBITDA



RealNetworks, Inc. and Subsidiaries
Reconciliation of segment GAAP operating income (loss) to adjusted EBITDA by
segment
(Unaudited)
               2013                      2012         2013         2012
               Q4           Q3           Q4           YTD          YTD
               (in thousands)
RealPlayer Group
Reconciliation of segment GAAP operating income (loss) to
adjusted EBITDA by segment:
Operating      $ (2,265)    $ (72)       $ 6,946      $ (1,498)    $ 14,702
income (loss)
Acquisitions
related
intangible     60           60           62           249          282
asset
amortization
Depreciation
and            731          636          612          2,200        1,983
amortization
Adjusted      $ (1,474)    $ 624        $ 7,620      $ 951        $ 16,967
EBITDA
Mobile Entertainment
Reconciliation of segment GAAP operating income (loss) to
adjusted EBITDA by segment:
Operating      $ (351)      $ (1,477)    $ (882)      $ (2,266)    $ (9,966)
income (loss)
Acquisitions
related
intangible     781          1,055        809          3,287        3,193
asset
amortization
Depreciation
and            821          925          1,760        4,809        6,315
amortization
Adjusted      $ 1,251      $ 503        $ 1,687      $ 5,830      $ (458)
EBITDA
Games
Reconciliation of segment GAAP operating income (loss) to
adjusted EBITDA by segment:
Operating      $ (3,369)    $ (3,360)    $ (716)      $ (10,727)   $ (6,663)
income (loss)
Acquisitions
related
intangible     314          314          —            879          587
asset
amortization
Depreciation
and            331          342          645          1,951        2,215
amortization
Adjusted      $ (2,724)    $ (2,704)    $ (71)       $ (7,897)    $ (3,861)
EBITDA
Corporate
Reconciliation of segment GAAP operating income (loss) to
adjusted EBITDA by segment:
Operating      $ (8,456)    $ (23,528)   $ (12,236)   $ (56,317)   $ 57,490
income (loss)
Other income
(expense),     613          (118)        (433)        467          1,241
net
Depreciation
and            665          1,839        593          5,373        2,384
amortization
Lease exit
and related    23           —            3,047        3,089        3,290
charges
Loss on
litigation     —            11,525       —            11,525       —
settlements
Restructuring
and other      1,690        1,877        1,353        5,765        15,225
charges
Stock-based    1,797        1,613        1,704        7,468        7,371
compensation
Gain on sale
of patents
and other      —            —            —            —            (116,353)
technology
assets, net
of costs
Adjusted      $ (3,668)    $ (6,792)    $ (5,972)    $ (22,630)   $ (29,352)
EBITDA
Total
Reconciliation of GAAP operating income (loss) to
adjusted EBITDA:
Operating      $ (14,441)   $ (28,437)   $ (6,888)    $ (70,808)   $ 55,563
income (loss)
Other income
(expense),     613          (118)        (433)        467          1,241
net
Acquisitions
related
intangible     1,155        1,429        871          4,415        4,062
asset
amortization
Depreciation
and            2,548        3,742        3,610        14,333       12,897
amortization
Lease exit
and related    23           —            3,047        3,089        3,290
charges
Loss on
litigation     —            11,525       —            11,525       —
settlements
Restructuring
and other      1,690        1,877        1,353        5,765        15,225
charges
Stock-based    1,797        1,613        1,704        7,468        7,371
compensation
Gain on sale
of patents
and other      —            —            —            —            (116,353)
technology
assets, net
of costs
Adjusted      $ (6,615)    $ (8,369)    $ 3,264      $ (23,746)   $ (16,704)
EBITDA



SOURCE RealNetworks, Inc.

Website: http://www.realnetworks.com
Contact: Michael Newman, StreetConnect, Investor Relations for RealNetworks,
+1-206-729-3625, IR@realnetworks.com
 
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