Exhibit 99.1
FOR IMMEDIATE RELEASE
RealNetworks Announces Record Revenue for 2004
34% Revenue Growth in Q4 Fuels Return to Profitability (excluding Antitrust Litigation expenses)
SEATTLE, January 26, 2005 – RealNetworks®, Inc. (Nasdaq: RNWK), the leading creator of digital media services and software, today announced results for the quarter and year ended December 31st, 2004.
Highlights
• | Real is reporting record revenues for the fourth quarter and full year for 2004. | |||
• | The fourth quarter represents Real’s tenth consecutive quarter of revenue growth. | |||
• | Real achieved its goal of profitability excluding antitrust litigation expenses for the fourth quarter of 2004. |
For the fourth quarter of 2004, revenue was $72.5 million, up 34% from $54.1 million in the fourth quarter of 2003. The GAAP net loss for the fourth quarter was $1.0 million, or a loss per share of $0.01, compared to a net loss of $5.3 million, or a loss per share $0.03, in the fourth quarter of 2003. Included in the GAAP net loss for the fourth quarter of 2004 is $3.0 million, or $0.02 per share, in expenses related to antitrust litigation. Excluding the antitrust litigation expenses, the net income for the fourth quarter was $2.0 million, or $0.01 per share. EBITDA, excluding antitrust litigation expenses, was $4.4 million for the fourth quarter of 2004.
“We are pleased to report another quarter of record revenue, driven by rapid growth in our Consumer Business, particularly games and music,” said Rob Glaser, CEO of RealNetworks. “We also accomplished an important 2004 goal: to achieve profitability in the fourth quarter excluding antitrust litigation expenses. Significantly, the success of our Consumer Business has enabled us to begin to leverage our increased scale. We look forward to producing continued revenue growth and increasing profitability in 2005.”
For 2004, revenue was $266.7 million, up 32% from $202.4 million in 2003. The GAAP net loss for 2004 was $23.0 million, or a loss per share of $0.14, compared to a net loss of $21.5 million, or a loss per share of $0.13 in 2003. Included in the GAAP net loss for 2004 is $11.0 million, or $0.07 per share, in expenses related to antitrust litigation. Excluding the antitrust litigation expenses, the net loss for 2004 was $11.9 million, or a loss per share of $0.07. EBITDA, excluding antitrust litigation expenses and loss on content agreement, was $4.4 million for 2004.
Financial Discussion
In 2004, the company focused on expanding its products and services sold directly to consumers over the Internet, such as downloadable games and music subscriptions. Fourth quarter revenue from consumer products and services grew 47% to $60.8 million, from $41.2 million in the fourth quarter of 2003. Music revenue grew 172% to $21.6 million from $7.9 million in the fourth quarter of 2003. Revenue from Games sales and subscriptions grew 156% to $10.1 million from $3.9 million in the fourth quarter of 2003. Video, consumer software and other revenue was down slightly to $29.1 million compared to $29.3 million in the
fourth quarter of 2003. Revenue from business products and services was $11.8 million, down 8% from $12.8 million in the fourth quarter of 2003.
The gross margin was 67% in the fourth quarter compared to 62% in the fourth quarter of the prior year primarily as a result of lower content costs in Real’s consumer business. Operating expenses, including antitrust litigation, were $50.7 million for the fourth quarter compared to $38.6 million in the fourth quarter of 2003. As of December 31, 2004, RealNetworks had approximately $364 million in cash, cash equivalents and short-term investments, which includes the proceeds from $100 million of convertible debt.
In the fourth quarter, Real continued to build on its success in consumer services, and at December 31, 2004, had over 1.55 million paying subscribers, up from over 1.3 million at the end of 2003. Paying subscribers to Rhapsody and premium radio services increased to over 700,000 from over 625,000 at the end of the third quarter of 2004. At the beginning of 2004, Real’s music services had more than 350,000 paying subscribers. In addition, Real’s consumer revenue for 2004 included $19.1 million of revenue from Real’s ad-supported web services, up 132% from $8.2 million in 2003.
Foreign currency exchange rate fluctuations positively impacted 2004 fourth quarter revenue by approximately $1 million compared to the prior year’s fourth quarter revenue. For the full year, foreign currency exchange rate fluctuations positively impacted 2004 revenue by approximately $4 million compared to 2003 revenue.
Forward Looking Guidance
For the first quarter of 2005, Real expects to report net revenues of $73 million to $74.5 million. On a GAAP basis, which includes an estimated $3.75 million expense relating to antitrust litigation, Real expects a net loss per share of ($0.02) to ($0.01). Excluding the antitrust litigation expenses, earnings per share for the first quarter are expected to be $0.00 to $0.01. Real expects EBITDA before antitrust litigation expenses to be flat to slightly down in the first quarter as compared to the fourth quarter of 2004.
For the full year, Real expects 2005 revenue to grow 16% to 20% over 2004 results, which represents expected revenue of $310 million to $320 million for the year. Real estimates that it will spend approximately $15 million on antitrust litigation expenses during the year, which includes expenses for both domestic and international antitrust activities.
Regarding net income for 2005, Real expects that an increasing percentage of its revenue growth will drop to the bottom line. Over the course of 2005, Real expects approximately 35% of each incremental revenue dollar will go to cost of revenue, approximately 35%-40% will go to increased operating expenses and approximately 25-30% will go to operating income. As a result, Real expects to maintain quarterly profitability excluding antitrust litigation expenses in 2005. Real expects full year EBITDA excluding antitrust litigation to be between $20 million and $25 million. Real’s forward guidance for 2005 excludes the impact of accounting changes relating to stock compensation, which are currently scheduled to be effective in the third quarter, any gains or losses related to minority investments and any potential future acquisitions.
Webcast Information
The company will host a web cast and conference call today at 5:00 pm EST/ 2:00 pm (PST). The live webcast, featuring slides and audio, will be available at http://www.realnetworks.com/company/investor/earnings.html . Listeners will require RealPlayer® to listen to the conference call, which can be downloaded for free at www.real.com. The on-demand webcast will be available approximately two hours following the conclusion of the live webcast. Participants may access the conference call by dialing 1-800-857-5305 (773-681-5857 for international callers). The passcode is “Fourth Quarter” and the leader is Rob Glaser. A telephonic replay will be available until 8 pm (Eastern), January 29th, and may be accessed by dialing 1-866-424-7873; (1-203-369-0863 for international callers).
For More Information Contact
Press:Scott Sutherland, SutherlandGold Communications, (866) 262-7373 ext 101, scott@sutherlandgold.com
Financial:Roy Goodman, RealNetworks, (206) 892-6841, rgoodman@real.com
About RealNetworks
RealNetworks, Inc. is the leading creator of digital media services and software including the award-winning Rhapsody® Internet jukebox service and RealPlayer 10, the first product to integrate finding, organizing, buying, playing and managing digital audio and video in a single product. Consumers can access and experience audio/video programming and download RealNetworks’ consumer software at http://www.real.com. Broadcasters, network operators, media companies and enterprises use RealNetworks’ products and services to create and deliver digital media to PCs, mobile phones and consumer electronics devices. RealNetworks’ corporate information is located at http://www.realnetworks.com.
FORWARD LOOKING STATEMENTS:This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to: Real’s future revenues, expenses, margins, profitability and net income. Actual results may differ materially from the results predicted. Factors that could cause actual results to differ from the results predicted include: development and consumer acceptance of legal online music distribution services; risks associated with the sustained adoption and use of RealNetworks’ services by customers, including the uncertainty of whether consumers will continue to pay for subscription content over the Internet, which is a relatively new and unproven business model; the potential that we will be unable to continue to enter into commercially attractive agreements with third parties for the provision of compelling content for our subscription service offerings; the risk that the costs of our antitrust litigation will be greater than we anticipate; the emergence of new entrants and competition in the market for digital media subscription offerings and on-line music sales; the impact on our gross margins from content costs and from the mix of subscribers to subscription offerings with higher content costs than others; competitive risks, including competing technologies, products and services, and the competitive activities of our larger competitors, some of which have strong ties to streaming media users through other products; risks relating to the timely development, production, marketing and acceptance of the products, services and technologies contemplated by the GameHouse acquisition; potential funding decisions by companies in which we have a significant equity position; and RealNetworks’ independent decisions, from time to time, based on all factors it deems relevant, whether to repurchase shares under its stock buyback program. 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 year ended December 31, 2003, and its quarterly reports on Form 10-Q and from time to time in other reports filed by RealNetworks with the Securities and Exchange Commission.
RealNetworks, RealAudio, RealVideo, Helix, Rhapsody, RealArcade, GameHouse and RealPlayer are trademarks or registered trademarks of RealNetworks, Inc. 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 December 31, | Years Ended December 31, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net revenue | $ | 72,546 | 54,056 | 266,719 | 202,377 | |||||||||||
Cost of revenue | 23,925 | 20,780 | 92,207 | 68,343 | ||||||||||||
Loss on content agreement | — | — | 4,938 | — | ||||||||||||
Gross profit | 48,621 | 33,276 | 169,574 | 134,034 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 13,091 | 11,922 | 51,607 | 46,763 | ||||||||||||
Sales and marketing | 26,608 | 20,638 | 96,779 | 77,335 | ||||||||||||
General and administrative | 7,914 | 4,186 | 31,302 | 21,007 | ||||||||||||
Loss on excess office facilities (A) | — | — | 866 | 7,098 | ||||||||||||
Antitrust litigation (B) | 2,997 | 1,574 | 11,048 | 1,574 | ||||||||||||
Stock-based compensation | 71 | 260 | 695 | 1,120 | ||||||||||||
Total operating expenses | 50,681 | 38,580 | 192,297 | 154,897 | ||||||||||||
Operating loss | (2,060 | ) | (5,304 | ) | (22,723 | ) | (20,863 | ) | ||||||||
Other income (expense), net: | ||||||||||||||||
Interest income, net | 1,602 | 878 | 4,452 | 4,251 | ||||||||||||
Equity in net loss of MusicNet | (955 | ) | (1,104 | ) | (4,351 | ) | (5,378 | ) | ||||||||
Impairment of equity investments (C) | — | — | (450 | ) | (424 | ) | ||||||||||
Other, net | 606 | 219 | 597 | 1,107 | ||||||||||||
Other income (expense), net | 1,253 | (7 | ) | 248 | (444 | ) | ||||||||||
Loss before income taxes | (807 | ) | (5,311 | ) | (22,475 | ) | (21,307 | ) | ||||||||
Income tax provision | (165 | ) | (16 | ) | (522 | ) | (144 | ) | ||||||||
Net loss | $ | (972 | ) | (5,327 | ) | (22,997 | ) | (21,451 | ) | |||||||
Basic and diluted net loss per share | $ | (0.01 | ) | (0.03 | ) | (0.14 | ) | (0.13 | ) | |||||||
Shares used to compute basic and diluted net loss per share | 170,039 | 163,755 | 168,907 | 160,309 |
(A) | The loss on unoccupied excess office facilities represents the loss from rent payments, net of sublease income, over the remaining life of the lease and amounts related to the write-off of certain leasehold improvements. | |
(B) | Consists of legal fees, personnel costs, public relations and other professional service fees incurred related to antitrust complaints against Microsoft, including proceedings in the European Union. | |
(C) | Relates to other-than-temporary declines in the value of certain equity investments. These charges were recorded to reflect these investments at their estimated fair value. |
RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, | December 31, | |||||||
2004 | 2003 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash, cash equivalents and short-term investments | $ | 363,621 | 373,593 | |||||
Trade accounts receivable, net of allowances for doubtful accounts and sales returns | 14,501 | 10,618 | ||||||
Prepaid expenses and other current assets | 8,196 | 8,879 | ||||||
Total current assets | 386,318 | 393,090 | ||||||
Equipment and leasehold improvements, at cost: | ||||||||
Equipment and software | 45,324 | 37,110 | ||||||
Leasehold improvements | 25,015 | 26,085 | ||||||
Total equipment and leasehold improvements | 70,339 | 63,195 | ||||||
Less accumulated depreciation and amortization | 41,508 | 33,258 | ||||||
Net equipment and leasehold improvements | 28,831 | 29,937 | ||||||
Restricted cash equivalents | 20,151 | 19,953 | ||||||
Investments | 36,588 | 34,577 | ||||||
Goodwill, net | 119,217 | 97,477 | ||||||
Other intangible assets, net | 8,383 | 1,065 | ||||||
Other | 3,014 | 4,840 | ||||||
Total assets | $ | 602,502 | 580,939 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 10,219 | 6,865 | |||||
Accrued and other liabilities | 50,033 | 39,400 | ||||||
Deferred revenue, excluding non-current portion | 30,307 | 31,186 | ||||||
Accrued loss on excess office facilities and content agreement, excluding non-current portion | 8,160 | 4,960 | ||||||
Total current liabilities | 98,719 | 82,411 | ||||||
Deferred revenue, excluding current portion | 548 | 4,561 | ||||||
Accrued loss on excess office facilities and content agreement, excluding current portion | 19,017 | 24,099 | ||||||
Deferred rent | 3,413 | 3,382 | ||||||
Convertible debt | 100,000 | 100,000 | ||||||
Total shareholders’ equity | 380,805 | 366,486 | ||||||
Total liabilities and shareholders’ equity | $ | 602,502 | 580,939 | |||||
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
2004 | 2003 | |||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Net Revenue by Line of Business: | ||||||||||||||||||||||||||||||||
Consumer products and services (A) | $ | 60,782 | 55,382 | 53,061 | 46,514 | 41,214 | 36,377 | 33,172 | 32,886 | |||||||||||||||||||||||
Business products and services (B) | 11,764 | 12,928 | 12,412 | 13,876 | 12,842 | 15,432 | 16,474 | 13,980 | ||||||||||||||||||||||||
Total net revenue | $ | 72,546 | 68,310 | 65,473 | 60,390 | 54,056 | 51,809 | 49,646 | 46,866 | |||||||||||||||||||||||
Consumer Products and Services: | ||||||||||||||||||||||||||||||||
Subscriptions (C) | $ | 41,963 | 37,734 | 34,777 | 31,562 | 30,075 | 27,909 | 25,470 | 23,639 | |||||||||||||||||||||||
E-commerce and other (D) | 18,819 | 17,648 | 18,284 | 14,952 | 11,139 | 8,468 | 7,702 | 9,247 | ||||||||||||||||||||||||
Total consumer products and services revenue | $ | 60,782 | 55,382 | 53,061 | 46,514 | 41,214 | 36,377 | 33,172 | 32,886 | |||||||||||||||||||||||
Consumer Products and Services: | ||||||||||||||||||||||||||||||||
Video, consumer software and other (E) | $ | 29,147 | 27,497 | 29,129 | 27,494 | 29,347 | 28,572 | 28,830 | 29,645 | |||||||||||||||||||||||
Music (F) | 21,558 | 18,787 | 15,580 | 12,265 | 7,937 | 4,655 | 1,670 | 831 | ||||||||||||||||||||||||
Games (G) | 10,077 | 9,098 | 8,352 | 6,755 | 3,930 | 3,150 | 2,672 | 2,410 | ||||||||||||||||||||||||
Total consumer products and services revenue | $ | 60,782 | 55,382 | 53,061 | 46,514 | 41,214 | 36,377 | 33,172 | 32,886 | |||||||||||||||||||||||
Net Revenue by Geography: | ||||||||||||||||||||||||||||||||
United States | $ | 55,608 | 52,054 | 50,949 | 43,963 | 40,175 | 37,660 | 36,009 | 33,769 | |||||||||||||||||||||||
Rest of world | 16,938 | 16,256 | 14,524 | 16,427 | 13,881 | 14,149 | 13,637 | 13,097 | ||||||||||||||||||||||||
Total net revenue | $ | 72,546 | 68,310 | 65,473 | 60,390 | 54,056 | 51,809 | 49,646 | 46,866 | |||||||||||||||||||||||
Gross Margin by Line of Business: * | ||||||||||||||||||||||||||||||||
Consumer products and services | 64 | % | 59 | % | 63 | % | 58 | % | 55 | % | 54 | % | 61 | % | 63 | % | ||||||||||||||||
Business products and services | 83 | % | 84 | % | 84 | % | 84 | % | 83 | % | 87 | % | 88 | % | 89 | % | ||||||||||||||||
Total gross margin | 67 | % | 64 | % | 67 | % | 64 | % | 62 | % | 64 | % | 70 | % | 71 | % | ||||||||||||||||
Subscribers (presented as greater than) | ||||||||||||||||||||||||||||||||
Total ** | 1,550 | 1,550 | 1,400 | 1,300 | 1,300 | 1,150 | 1,000 | 1,000 | ||||||||||||||||||||||||
Music | 700 | 625 | 550 | 450 | 350 | 250 | 150 | 100 |
* | For the quarter ended March 31, 2004, total gross margin excludes loss on content agreement of $4.9 million. Including the loss on content agreement, total gross margin is 56% | |
** | Total subscribers as of March 31, 2004 reflect the removal of approximately 142,000 subscribers resulting from the non-renewal of the MLB contract | |
(A) | Revenue is derived from consumer digital media subscription services, RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music, and advertising | |
(B) | Revenue is derived from media delivery system software, support and maintenance services, broadcast hosting services and consulting services | |
(C) | Revenue is derived from consumer digital media subscription services including: SuperPass, RadioPass, Rhapsody, GamePass and stand-alone subscriptions | |
(D) | Revenue is derived from RealPlayer Plus and related products, sales and distribution of third party software products, content such as games and music, and advertising | |
(E) | Revenue is derived from RealOne SuperPass subscriptions, RealPlayer Plus and related products, stand-alone subscription services and sales and distribution of third party software products and non-game and non-music related advertising | |
(F) | Revenue is derived from RadioPass and Rhapsody subscription services, sales of music content and advertising from our music-related Web sites | |
(G) | Revenue is derived from the GamePass subscription service, sales of games and advertising generated from our games and game-related Web sites |
RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
A reconciliation of Generally Accepted Accounting Principles (“GAAP”) net loss to income (loss) before interest, taxes, depreciation, amortization and stock compensation (“EBITDA”) and EBITDA excluding antitrust litigation and loss on content agreement is as follows:
Quarters Ended | Years Ended | |||||||||||||||||||||||
December 31, | September 30, | June 30, | March 31, | December 31, | December 31, | |||||||||||||||||||
2004 | 2004 | 2004 | 2004 | 2004 | 2003 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Net loss in accordance with GAAP | $ | (972 | ) | (6,969 | ) | (4,618 | ) | (10,438 | ) | (22,997 | ) | (21,451 | ) | |||||||||||
Interest income, net | (1,602 | ) | (1,190 | ) | (800 | ) | (860 | ) | (4,452 | ) | (4,251 | ) | ||||||||||||
Taxes | 165 | 142 | 113 | 102 | 522 | 144 | ||||||||||||||||||
Depreciation, amortization and stock compensation | 3,791 | 4,089 | 3,810 | 3,648 | 15,338 | 12,370 | ||||||||||||||||||
EBITDA | 1,382 | (3,928 | ) | (1,495 | ) | (7,548 | ) | (11,589 | ) | (13,188 | ) | |||||||||||||
Antitrust litigation | 2,997 | 2,974 | 2,756 | 2,321 | 11,048 | 1,574 | ||||||||||||||||||
Loss on content agreement | — | — | — | 4,938 | 4,938 | — | ||||||||||||||||||
EBITDA excluding antitrust litigation and loss on content agreement | $ | 4,379 | (954 | ) | 1,261 | (289 | ) | 4,397 | (11,614 | ) | ||||||||||||||
This reconciliation has been provided as a performance measure, as the Company uses EBITDA and EBITDA excluding antitrust litigation expense on an ongoing basis to track and assess its financial performance. The Company has calculated EBITDA excluding loss on content agreement because it believes that the loss on content agreement is an item that does not reflect the ongoing financial operations of the Company’s business.