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FORM 10-Q
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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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RealNetworks, Inc.
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(Exact name of registrant as specified in its charter)
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Washington
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91-1628146
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(State of incorporation)
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(I.R.S. Employer
Identification Number)
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2601 Elliott Avenue, Suite 1000
Seattle, Washington
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98121
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(Address of principal executive offices)
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(Zip Code)
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(206) 674-2700
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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¨
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Accelerated filer
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ý
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page
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Item 1.
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Financial Statements
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March 31,
2013 |
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December 31,
2012 |
||||
ASSETS
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||||
Current assets:
|
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||||
Cash and cash equivalents
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$
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136,694
|
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$
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163,198
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Short-term investments
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123,894
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|
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108,216
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|
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Trade accounts receivable, net of allowances
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28,718
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30,754
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Deferred costs, current portion
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1,297
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|
|
825
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Deferred tax assets, current
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2,759
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|
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2,869
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Prepaid expenses and other current assets
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13,266
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17,002
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Total current assets
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306,628
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322,864
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Equipment, software, and leasehold improvements, at cost:
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||||
Equipment and software
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95,918
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98,041
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Leasehold improvements
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22,705
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22,767
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Total equipment, software, and leasehold improvements, at cost
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118,623
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120,808
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Less accumulated depreciation and amortization
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92,020
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91,492
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Net equipment, software, and leasehold improvements
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26,603
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29,316
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Restricted cash equivalents and investments
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10,000
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10,000
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Equity method investment
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16,710
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19,204
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Available for sale securities
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38,608
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34,334
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Other assets
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3,331
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3,153
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Deferred costs, non-current portion
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802
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531
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|
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Deferred tax assets, net, non-current portion
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4,803
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4,911
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Other intangible assets, net
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2,837
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3,275
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Goodwill
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6,410
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6,309
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Total assets
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$
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416,732
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$
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433,897
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
|
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||||
Accounts payable
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$
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16,910
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$
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19,013
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Accrued and other current liabilities
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51,847
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57,530
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Deferred revenue, current portion
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8,846
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8,675
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Total current liabilities
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77,603
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85,218
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Deferred revenue, non-current portion
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169
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|
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169
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Deferred rent
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2,026
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2,250
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Deferred tax liabilities, net, non-current portion
|
432
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432
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Other long-term liabilities
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2,417
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3,100
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Total liabilities
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82,647
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91,169
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Commitments and contingencies
|
|
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||||
Shareholders’ equity:
|
|
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|
||||
Preferred stock, $0.001 par value, no shares issued and outstanding:
|
|
|
|
||||
Series A: authorized 200 shares
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—
|
|
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—
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Undesignated series: authorized 59,800 shares
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—
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—
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Common stock, $0.001 par value authorized 250,000 shares; issued and outstanding 35,380 shares in 2013 and 35,324 shares in 2012
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35
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35
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Additional paid-in capital
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605,402
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603,770
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Accumulated other comprehensive loss
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(25,141
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)
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(26,540
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)
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Retained deficit
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(246,211
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)
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(234,537
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)
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Total shareholders’ equity
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334,085
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|
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342,728
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Total liabilities and shareholders’ equity
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$
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416,732
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$
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433,897
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Quarter Ended
March 31, |
||||||
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2013
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|
2012
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Net revenue (A)
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$
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56,793
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$
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66,964
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Cost of revenue (B)
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20,506
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27,427
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Gross profit
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36,287
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|
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39,537
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Sale of patents and other technology assets, net of costs (See Note 1)
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—
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(1,580
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)
|
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Operating expenses:
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Research and development
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15,251
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17,818
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Sales and marketing
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21,134
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23,796
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General and administrative
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9,946
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13,276
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Restructuring and other charges
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1,382
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1,609
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Total operating expenses
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47,713
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56,499
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Operating income (loss)
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(11,426
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)
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(18,542
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)
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Other income (expenses):
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Interest income, net
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647
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644
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Equity in net loss of Rhapsody investment
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(2,233
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)
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(368
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)
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Other income (expense), net
|
109
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|
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1,475
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Total other income (expenses), net
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(1,477
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)
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1,751
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Income (loss) before income taxes
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(12,903
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)
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(16,791
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)
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Income tax expense (benefit)
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(1,229
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)
|
|
224
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Net income (loss)
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$
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(11,674
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)
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$
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(17,015
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)
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Basic net income (loss) per share
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$
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(0.33
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)
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$
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(0.49
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)
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Diluted net income (loss) per share
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$
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(0.33
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)
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$
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(0.49
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)
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Shares used to compute basic net income (loss) per share
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35,343
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|
34,488
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Shares used to compute diluted net income (loss) per share
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35,343
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34,488
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Comprehensive income (loss):
|
|
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|
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Unrealized investment holding gains
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$
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2,637
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$
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8,494
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Foreign currency translation adjustments, net of reclassification adjustments
|
(1,238
|
)
|
|
(384
|
)
|
||
Total other comprehensive income (loss)
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1,399
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|
|
8,110
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Net income (loss)
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(11,674
|
)
|
|
(17,015
|
)
|
||
Comprehensive income (loss)
|
$
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(10,275
|
)
|
|
$
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(8,905
|
)
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(A) Components of net revenue:
|
|
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|
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License fees
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$
|
12,829
|
|
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$
|
14,956
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Service revenue
|
43,964
|
|
|
52,008
|
|
||
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$
|
56,793
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|
|
$
|
66,964
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|
(B) Components of cost of revenue:
|
|
|
|
||||
License fees
|
$
|
2,154
|
|
|
$
|
3,272
|
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Service revenue
|
18,352
|
|
|
24,155
|
|
||
|
$
|
20,506
|
|
|
$
|
27,427
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|
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Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
(11,674
|
)
|
|
$
|
(17,015
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)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
4,888
|
|
|
4,118
|
|
||
Stock-based compensation
|
2,038
|
|
|
2,343
|
|
||
Equity in net loss of Rhapsody
|
2,233
|
|
|
368
|
|
||
Deferred income taxes, net
|
(1,559
|
)
|
|
(19
|
)
|
||
Realized translation gain
|
—
|
|
|
(1,611
|
)
|
||
Other
|
(75
|
)
|
|
(3
|
)
|
||
Net change in certain operating assets and liabilities:
|
|
|
|
||||
Trade accounts receivable
|
1,554
|
|
|
1,394
|
|
||
Prepaid expenses and other assets
|
2,823
|
|
|
(2,738
|
)
|
||
Accounts payable
|
(1,784
|
)
|
|
(894
|
)
|
||
Accrued and other liabilities
|
(5,177
|
)
|
|
(3,185
|
)
|
||
Net cash provided by (used in) operating activities
|
(6,733
|
)
|
|
(17,242
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of equipment, software, and leasehold improvements
|
(1,194
|
)
|
|
(2,798
|
)
|
||
Purchases of short-term investments
|
(43,318
|
)
|
|
(9,969
|
)
|
||
Proceeds from sales and maturities of short-term investments
|
27,640
|
|
|
5,027
|
|
||
Acquisitions of businesses
|
(700
|
)
|
|
—
|
|
||
Net cash provided by (used in) investing activities
|
(17,572
|
)
|
|
(7,740
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock (stock options and stock purchase plan)
|
20
|
|
|
675
|
|
||
Tax payments from shares withheld upon vesting of restricted stock
|
(166
|
)
|
|
—
|
|
||
Payment of contingent consideration
|
(828
|
)
|
|
—
|
|
||
Net cash provided by (used in) financing activities
|
(974
|
)
|
|
675
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(1,225
|
)
|
|
1,306
|
|
||
Net increase (decrease) in cash and cash equivalents
|
(26,504
|
)
|
|
(23,001
|
)
|
||
Cash and cash equivalents, beginning of period
|
163,198
|
|
|
106,333
|
|
||
Cash and cash equivalents, end of period
|
$
|
136,694
|
|
|
$
|
83,332
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash received from income tax refunds
|
$
|
3,612
|
|
|
$
|
39
|
|
Cash paid for income taxes
|
$
|
725
|
|
|
$
|
517
|
|
Non-cash investing activities:
|
|
|
|
||||
Increase (decrease) in accrued purchases of equipment, software, and leasehold improvements
|
$
|
172
|
|
|
$
|
1,430
|
|
|
March 31,
2013 |
|
December 31,
2012 |
||||
Unrealized gains on investments, net of tax effects of $783 and $(846) at March 31, 2013 and December 31, 2012, respectively
|
$
|
29,322
|
|
|
$
|
26,685
|
|
Foreign currency translation adjustments
|
(54,463
|
)
|
|
(53,225
|
)
|
||
Accumulated other comprehensive income (loss)
|
$
|
(25,141
|
)
|
|
$
|
(26,540
|
)
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Total stock-based compensation expense
|
$
|
2,038
|
|
|
$
|
2,343
|
|
|
Quarter Ended
March 31, |
||||
|
2013
|
|
2012
|
||
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
Risk-free interest rate
|
0.57
|
%
|
|
0.69
|
%
|
Expected life (years)
|
3.7
|
|
|
3.8
|
|
Volatility
|
48
|
%
|
|
58
|
%
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Net revenue
|
$
|
33,962
|
|
|
$
|
35,170
|
|
Gross profit
|
7,845
|
|
|
9,612
|
|
||
Net loss
|
(4,816
|
)
|
|
(1,070
|
)
|
•
|
Level 1: Quoted prices in active markets for identical assets or liabilities
|
•
|
Level 2: Directly or indirectly observed inputs for the asset or liability, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active
|
•
|
Level 3: Significant unobservable inputs that reflect our own estimates of assumptions that market participants would use
|
|
Fair Value Measurements as of
|
||||||||||||||
|
March 31, 2013
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
6,978
|
|
|
$
|
3
|
|
|
$
|
6,975
|
|
|
$
|
—
|
|
Corporate notes and bonds
|
79,502
|
|
|
—
|
|
|
79,502
|
|
|
—
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
Corporate notes and bonds
|
88,766
|
|
|
—
|
|
|
88,766
|
|
|
—
|
|
||||
U.S. government agency securities
|
35,128
|
|
|
34,402
|
|
|
726
|
|
|
—
|
|
||||
Restricted cash equivalents and investments
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
||||
Equity investments in publicly traded securities
|
38,608
|
|
|
38,608
|
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
258,982
|
|
|
$
|
73,013
|
|
|
$
|
185,969
|
|
|
$
|
—
|
|
|
Fair Value Measurements as of
|
||||||||||||||
|
December 31, 2012
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
10,680
|
|
|
$
|
—
|
|
|
$
|
10,680
|
|
|
$
|
—
|
|
Corporate notes and bonds
|
81,235
|
|
|
—
|
|
|
81,235
|
|
|
—
|
|
||||
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
Corporate notes and bonds
|
65,502
|
|
|
—
|
|
|
65,502
|
|
|
—
|
|
||||
U.S. government agency securities
|
42,714
|
|
|
42,113
|
|
|
601
|
|
|
—
|
|
||||
Restricted cash equivalents and investments
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
—
|
|
||||
Equity investments in publicly traded securities
|
34,334
|
|
|
34,334
|
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
244,465
|
|
|
$
|
76,447
|
|
|
$
|
168,018
|
|
|
$
|
—
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
Cash and cash equivalents:
|
|
|
|
||||
Cash
|
$
|
50,214
|
|
|
$
|
50,214
|
|
Money market mutual funds
|
6,979
|
|
|
6,978
|
|
||
Corporate notes and bonds
|
79,505
|
|
|
79,502
|
|
||
Total cash and cash equivalents
|
136,698
|
|
|
136,694
|
|
||
Short-term investments:
|
|
|
|
||||
Corporate notes and bonds
|
88,693
|
|
|
88,766
|
|
||
U.S. government agency securities
|
35,111
|
|
|
35,128
|
|
||
Total short-term investments
|
123,804
|
|
|
123,894
|
|
||
Total cash, cash equivalents and short-term investments
|
$
|
260,502
|
|
|
$
|
260,588
|
|
Restricted cash equivalents and investments
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
||||
Cash and cash equivalents:
|
|
|
|
||||
Cash
|
$
|
71,283
|
|
|
$
|
71,283
|
|
Money market mutual funds
|
10,680
|
|
|
10,680
|
|
||
Corporate notes and bonds
|
81,237
|
|
|
81,235
|
|
||
Total cash and cash equivalents
|
163,200
|
|
|
163,198
|
|
Short-term investments:
|
|
|
|
||||
Corporate notes and bonds
|
65,426
|
|
|
65,502
|
|
||
U.S. Government agency securities
|
42,693
|
|
|
42,714
|
|
||
Total short-term investments
|
108,119
|
|
|
108,216
|
|
||
Total cash, cash equivalents, and short-term investments
|
$
|
271,319
|
|
|
$
|
271,414
|
|
Restricted cash equivalents and investments
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
Estimated
Fair Value
|
||
Within one year
|
$
|
99,791
|
|
Between one year and five years
|
24,103
|
|
|
Total short-term investments
|
$
|
123,894
|
|
|
Allowance For
|
||||||
|
Doubtful
Accounts
Receivable
|
|
Sales
Returns
|
||||
Balances, December 31, 2012
|
$
|
1,010
|
|
|
$
|
653
|
|
Addition (reduction) to allowance
|
89
|
|
|
(33
|
)
|
||
Amounts written off
|
(12
|
)
|
|
(8
|
)
|
||
Foreign currency translation
|
(25
|
)
|
|
—
|
|
||
Balances, March 31, 2013
|
$
|
1,062
|
|
|
$
|
612
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
|
||||||
Customer relationships
|
$
|
29,875
|
|
|
$
|
27,861
|
|
|
$
|
2,014
|
|
Developed technology
|
24,539
|
|
|
23,718
|
|
|
821
|
|
|||
Patents, trademarks and tradenames
|
3,439
|
|
|
3,439
|
|
|
—
|
|
|||
Service contracts and other
|
5,369
|
|
|
5,367
|
|
|
2
|
|
|||
Total other intangible assets, March 31, 2013
|
$
|
63,222
|
|
|
$
|
60,385
|
|
|
$
|
2,837
|
|
Balances, December 31, 2012
|
$
|
6,309
|
|
Increases due to current year acquisition
|
200
|
|
|
Effects of foreign currency translation
|
(99
|
)
|
|
Balances, March 31, 2013
|
$
|
6,410
|
|
|
March 31,
2013 |
||
RealPlayer Group
|
$
|
580
|
|
Mobile Entertainment
|
781
|
|
|
Games
|
5,049
|
|
|
Total goodwill
|
$
|
6,410
|
|
|
March 31, 2013
|
|
December 31, 2012
|
||||
Royalties and other fulfillment costs
|
$
|
18,165
|
|
|
$
|
19,435
|
|
Employee compensation, commissions and benefits
|
11,128
|
|
|
13,368
|
|
||
Sales, VAT and other taxes payable
|
9,936
|
|
|
10,959
|
|
||
Deferred tax liabilities—current
|
3,744
|
|
|
3,894
|
|
||
Accrued loss on excess office facilities
|
2,460
|
|
|
2,463
|
|
||
Other
|
6,414
|
|
|
7,411
|
|
||
Total accrued and other current liabilities
|
$
|
51,847
|
|
|
$
|
57,530
|
|
|
|
|
Employee Separation Costs
|
Costs incurred and charged to expense for the three months ended March 31, 2013
|
$1,382
|
Costs incurred and charged to expense for the three months ended March 31, 2012
|
$1,609
|
|
By Type of Cost
|
|
||||
|
Employee Separation Costs
|
Contract Assignment Costs
|
Total
|
|||
Accrued liability as of December 31, 2012
|
$731
|
$1,700
|
$2,431
|
|||
Costs incurred and charged to expense for the three months ended March 31, 2013
|
1,382
|
|
—
|
|
1,382
|
|
Cash payments
|
(1,199
|
)
|
—
|
|
(1,199
|
)
|
Accrued liability as of March 31, 2013
|
$914
|
$1,700
|
$2,614
|
Accrued loss December 31, 2012
|
$
|
4,213
|
|
Less amounts paid, net of sublease amounts
|
(642
|
)
|
|
Accrued loss March 31, 2013
|
3,571
|
|
|
Less current portion (included in Accrued and other current liabilities)
|
(2,460
|
)
|
|
Accrued loss, non-current portion (included in Other long term liabilities)
|
$
|
1,111
|
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Net income (loss) available to common shareholders
|
$
|
(11,674
|
)
|
|
$
|
(17,015
|
)
|
Weighted average common shares outstanding used to compute basic EPS
|
35,343
|
|
|
34,488
|
|
||
Dilutive effect of stock based awards
|
—
|
|
|
—
|
|
||
Weighted average common shares outstanding used to compute diluted EPS
|
35,343
|
|
|
34,488
|
|
||
Basic EPS
|
$
|
(0.33
|
)
|
|
$
|
(0.49
|
)
|
Diluted EPS
|
$
|
(0.33
|
)
|
|
$
|
(0.49
|
)
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Revenue
|
$
|
22,383
|
|
|
$
|
22,081
|
|
Cost of revenue
|
5,311
|
|
|
4,564
|
|
||
Gross profit
|
17,072
|
|
|
17,517
|
|
||
Operating expenses
|
16,206
|
|
|
15,975
|
|
||
Operating income (loss)
|
$
|
866
|
|
|
$
|
1,542
|
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Revenue
|
$
|
20,495
|
|
|
$
|
25,775
|
|
Cost of revenue
|
10,832
|
|
|
15,478
|
|
||
Gross profit
|
9,663
|
|
|
10,297
|
|
||
Operating expenses
|
9,111
|
|
|
14,804
|
|
||
Operating income (loss)
|
$
|
552
|
|
|
$
|
(4,507
|
)
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Revenue
|
$
|
13,915
|
|
|
$
|
19,108
|
|
Cost of revenue
|
3,800
|
|
|
6,713
|
|
||
Gross profit
|
10,115
|
|
|
12,395
|
|
||
Operating expenses
|
11,852
|
|
|
14,138
|
|
||
Operating income (loss)
|
$
|
(1,737
|
)
|
|
$
|
(1,743
|
)
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
Cost of revenue
|
$
|
563
|
|
|
$
|
672
|
|
Sale of patents and other technology assets, net of costs
|
—
|
|
|
(1,580
|
)
|
||
Operating expenses
|
10,544
|
|
|
11,582
|
|
||
Operating income (loss)
|
$
|
(11,107
|
)
|
|
$
|
(13,834
|
)
|
|
Quarter Ended
March 31, |
||||||
|
2013
|
|
2012
|
||||
United States
|
$
|
28,024
|
|
|
$
|
31,814
|
|
Europe
|
11,255
|
|
|
16,212
|
|
||
Rest of the world
|
17,514
|
|
|
18,938
|
|
||
Total net revenue
|
$
|
56,793
|
|
|
$
|
66,964
|
|
|
March 31,
2013 |
|
December 31,
2012 |
||||
United States
|
$
|
26,476
|
|
|
$
|
27,915
|
|
Europe
|
1,830
|
|
|
2,350
|
|
||
Rest of the world
|
7,544
|
|
|
8,635
|
|
||
Total long-lived assets
|
$
|
35,850
|
|
|
$
|
38,900
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;
|
•
|
the effects of our past acquisitions and expectations for future acquisitions and divestitures;
|
•
|
the effect on our businesses of the sale of certain patent assets and next generation codec assets to Intel Corporation;
|
•
|
plans, strategies and expected opportunities for future growth, increased profitability and innovation;
|
•
|
the prospects for creation and growth of strategic partnerships and the resulting financial benefits from such partnerships;
|
•
|
the expected financial position, performance, growth and profitability of, and investment in, our businesses and the availability of resources;
|
•
|
our involvement in potential claims, legal proceedings and government investigations, the expected course and costs of existing claims, legal proceedings and government investigations, and the potential outcomes and effects of both existing and potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;
|
•
|
the expected benefits and other consequences from the 2010 restructuring of Rhapsody and from our other strategic initiatives;
|
•
|
our expected introduction of new and enhanced products, services and technologies across our businesses;
|
•
|
the effects of legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;
|
•
|
the continuation and expected nature of certain customer relationships;
|
•
|
impacts of competition and certain customer relationships on the future financial performance and growth of our businesses;
|
•
|
the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and
|
•
|
the effect of economic and market conditions on our business, prospects, financial condition or results of operations.
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Total revenue
|
$
|
56,793
|
|
|
$
|
66,964
|
|
|
$
|
(10,171
|
)
|
|
(15
|
)%
|
Cost of revenue
|
20,506
|
|
|
27,427
|
|
|
(6,921
|
)
|
|
(25
|
)%
|
|||
Gross profit
|
36,287
|
|
|
39,537
|
|
|
(3,250
|
)
|
|
(8
|
)%
|
|||
Gross margin
|
64
|
%
|
|
59
|
%
|
|
|
|
|
|||||
Sale of patent assets and other technology assets, net of costs
|
—
|
|
|
(1,580
|
)
|
|
1,580
|
|
|
—
|
%
|
|||
Operating expenses
|
47,713
|
|
|
56,499
|
|
|
(8,786
|
)
|
|
(16
|
)%
|
|||
Operating income (loss)
|
$
|
(11,426
|
)
|
|
$
|
(18,542
|
)
|
|
$
|
7,116
|
|
|
38
|
%
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Revenue
|
$
|
22,383
|
|
|
$
|
22,081
|
|
|
$
|
302
|
|
|
1
|
%
|
Cost of revenue
|
5,311
|
|
|
4,564
|
|
|
747
|
|
|
16
|
%
|
|||
Gross profit
|
17,072
|
|
|
17,517
|
|
|
(445
|
)
|
|
(3
|
)%
|
|||
Gross margin
|
76
|
%
|
|
79
|
%
|
|
|
|
|
|||||
Operating expenses
|
16,206
|
|
|
15,975
|
|
|
231
|
|
|
1
|
%
|
|||
Operating income (loss)
|
$
|
866
|
|
|
$
|
1,542
|
|
|
$
|
(676
|
)
|
|
(44
|
)%
|
|
Quarter Ended March 31,
|
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|
|||||||
Revenue
|
$
|
20,495
|
|
|
$
|
25,775
|
|
|
$
|
(5,280
|
)
|
|
(20
|
)%
|
|
Cost of revenue
|
10,832
|
|
|
15,478
|
|
|
(4,646
|
)
|
|
(30
|
)%
|
|
|||
Gross profit
|
9,663
|
|
|
10,297
|
|
|
(634
|
)
|
|
(6
|
)%
|
|
|||
Gross margin
|
47
|
%
|
|
40
|
%
|
|
|
|
|
|
|||||
Operating expenses
|
9,111
|
|
|
14,804
|
|
|
(5,693
|
)
|
|
(38
|
)%
|
|
|||
Operating income (loss)
|
$
|
552
|
|
|
$
|
(4,507
|
)
|
|
$
|
5,059
|
|
|
112
|
%
|
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Revenue
|
$
|
13,915
|
|
|
$
|
19,108
|
|
|
$
|
(5,193
|
)
|
|
(27
|
)%
|
Cost of revenue
|
3,800
|
|
|
6,713
|
|
|
(2,913
|
)
|
|
(43
|
)%
|
|||
Gross profit
|
10,115
|
|
|
12,395
|
|
|
(2,280
|
)
|
|
(18
|
)%
|
|||
Gross margin
|
73
|
%
|
|
65
|
%
|
|
|
|
|
|||||
Operating expenses
|
11,852
|
|
|
14,138
|
|
|
(2,286
|
)
|
|
(16
|
)%
|
|||
Operating income (loss)
|
$
|
(1,737
|
)
|
|
$
|
(1,743
|
)
|
|
$
|
6
|
|
|
—
|
%
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Cost of revenue
|
$
|
563
|
|
|
$
|
672
|
|
|
$
|
(109
|
)
|
|
(16
|
)%
|
Sale of patent and other technology assets, net of costs
|
—
|
|
|
(1,580
|
)
|
|
1,580
|
|
|
—
|
%
|
|||
Operating expenses
|
10,544
|
|
|
11,582
|
|
|
(1,038
|
)
|
|
(9
|
)%
|
|||
Operating income (loss)
|
$
|
(11,107
|
)
|
|
$
|
(13,834
|
)
|
|
$
|
2,727
|
|
|
20
|
%
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Research and development
|
$
|
15,251
|
|
|
$
|
17,818
|
|
|
$
|
(2,567
|
)
|
|
(14
|
)%
|
Sales and marketing
|
21,134
|
|
|
23,796
|
|
|
(2,662
|
)
|
|
(11
|
)%
|
|||
General and administrative
|
9,946
|
|
|
13,276
|
|
|
(3,330
|
)
|
|
(25
|
)%
|
|||
Restructuring and other charges
|
1,382
|
|
|
1,609
|
|
|
(227
|
)
|
|
(14
|
)%
|
|||
Total consolidated operating expenses
|
$
|
47,713
|
|
|
$
|
56,499
|
|
|
$
|
(8,786
|
)
|
|
(16
|
)%
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
Interest income, net
|
$
|
647
|
|
|
$
|
644
|
|
|
$
|
3
|
|
|
—
|
%
|
Equity in net loss of Rhapsody
|
(2,233
|
)
|
|
(368
|
)
|
|
(1,865
|
)
|
|
(507
|
)%
|
|||
Other income (expense), net
|
109
|
|
|
1,475
|
|
|
(1,366
|
)
|
|
(93
|
)%
|
|||
Total other income (expense), net
|
$
|
(1,477
|
)
|
|
$
|
1,751
|
|
|
$
|
(3,228
|
)
|
|
NM
|
|
|
Quarter Ended March 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|||||||
United States
|
$
|
28,024
|
|
|
$
|
31,814
|
|
|
$
|
(3,790
|
)
|
|
(12
|
)%
|
Europe
|
11,255
|
|
|
16,212
|
|
|
(4,957
|
)
|
|
(31
|
)%
|
|||
Rest of world
|
17,514
|
|
|
18,938
|
|
|
(1,424
|
)
|
|
(8
|
)%
|
|||
Total net revenue
|
$
|
56,793
|
|
|
$
|
66,964
|
|
|
$
|
(10,171
|
)
|
|
(15
|
)%
|
|
March 31,
2013
|
|
December 31,
2012
|
||||
Working capital
|
$
|
229,025
|
|
|
$
|
237,646
|
|
Cash, cash equivalents, and short-term investments
|
260,588
|
|
|
271,414
|
|
||
Restricted cash equivalents and investments
|
10,000
|
|
|
10,000
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
Cash provided by (used in) operating activities
|
$
|
(6,733
|
)
|
|
$
|
(17,242
|
)
|
Cash provided by (used in) investing activities
|
(17,572
|
)
|
|
(7,740
|
)
|
||
Cash provided by (used in) financing activities
|
(974
|
)
|
|
675
|
|
•
|
Revenue recognition;
|
•
|
Estimating music publishing rights and music royalty accruals;
|
•
|
Estimating recoverability of deferred costs;
|
•
|
Estimating allowances for doubtful accounts and sales returns;
|
•
|
Estimating losses on excess office facilities;
|
•
|
Valuation of equity method investments;
|
•
|
Valuation of long-lived assets;
|
•
|
Valuation of goodwill;
|
•
|
Stock-based compensation; and
|
•
|
Accounting for income taxes.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
•
|
reduced prices or margins,
|
•
|
loss of current and potential customers, or partners and potential partners who provide content we distribute to our customers,
|
•
|
changes to our products, services, technologies, licenses or business practices or strategies,
|
•
|
lengthened sales cycles,
|
•
|
industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services,
|
•
|
pressure to prematurely release products or product enhancements, or
|
•
|
degradation in our stature or reputation in the market.
|
•
|
impairments of long-lived assets,
|
•
|
integrating and operating newly acquired businesses and assets, and
|
•
|
the general difficulty in forecasting our operating results and metrics, which could result in actual results that differ significantly from expected results.
|
•
|
difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;
|
•
|
retaining key management or employees of the acquired company;
|
•
|
entrance into unfamiliar markets, industry segments, or types of businesses;
|
•
|
operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;
|
•
|
diversion of management time and other resources from existing operations;
|
•
|
impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business; and
|
•
|
assumption of known and unknown liabilities of the acquired company, including intellectual property claims.
|
•
|
elect or defeat the election of our directors;
|
•
|
amend or prevent amendment of our articles of incorporation or bylaws;
|
•
|
effect or prevent a merger, sale of assets or other corporate transaction; and
|
•
|
control the outcome of any other matter submitted to the shareholders for vote.
|
•
|
adopt a plan of merger;
|
•
|
authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;
|
•
|
authorize our voluntary dissolution; or
|
•
|
take any action that has the effect of any of the above.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Item 3.
|
Default Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
|
REALNETWORKS, INC.
|
||
|
|
|
|
|
By:
|
|
/s/ Tim M. Wan
|
|
|
|
Tim M. Wan
|
|
Title:
|
|
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
Exhibit
Number
|
Description
|
|
|
10.1*
|
Offer Letter dated January 7, 2013 between RealNetworks, Inc. and Max Pellegrini
|
|
|
31.1
|
Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification of Robert Glaser, Chairman and interim Chief Executive Officer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certification of Tim M. Wan, Chief Financial Officer and Treasurer of RealNetworks, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS**
|
XBRL Instance Document
|
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
1.
|
I have reviewed this report on Form 10-Q of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 8, 2013
|
||
|
|||
/s/ Robert Glaser
|
|||
Robert Glaser
|
|||
Title:
|
Chairman and interim Chief Executive Officer
|
||
|
(Principal Executive Officer)
|
1.
|
I have reviewed this report on Form 10-Q of RealNetworks, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 8, 2013
|
||
|
|||
/s/ Tim M. Wan
|
|||
Tim M. Wan
|
|||
Title:
|
Chief Financial Officer and Treasurer
|
||
|
(Principal Financial and Accounting Officer)
|
Date:
|
May 8, 2013
|
||
|
|
||
By:
|
/s/ Robert Glaser
|
||
|
Name:
|
Robert Glaser
|
|
|
Title:
|
Chairman and interim Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
Date:
|
May 8, 2013
|
||
|
|
||
By:
|
/s/ Tim M. Wan
|
||
|
Name:
|
Tim M. Wan
|
|
|
Title:
|
Chief Financial Officer and Treasurer
|
|
|
|
|
(Principal Financial and Accounting Officer)
|