RealNetworks Gets Real: Fool by Numbers

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On May 2, digital-music maven RealNetworks (Nasdaq: RNWK) released first-quarter earnings for the period ended March 31.

• Net profit included a $60.7 million litigation benefit, courtesy of Microsoft (Nasdaq: MSFT), compared with $39.8 million of settlement gains a year ago. This is the final quarter of Redmond payments, though, so don't count on that revenue stream going forward.
  
  
• The owner earnings figure, a.k.a. structural free cash flow, backs out one-time items like that. On that count, Real still looks much better than it did a year ago.
  
  
• You'll find a clue to the company's improved performance in the fattened payables and receivables -- Real is simply doing a lot more business these days. Roughly 90% of its new subscribers signed up for wireless music services through carriers like Sprint Nextel (NYSE: S), Verizon (NYSE: VZ), and Cingular.

(Figures in millions, except per-share data)

Income Statement Highlights

	Q1 2007	Q1 2006	Change
Sales	$129.5	$86.6	49.5%
Net Profit	$40.0	$24.9	60.6%
EPS	$0.22	$0.14	57.1%
Diluted Shares	178.1	176.9	0.6%

Get back to basics with the income statement.

Margin Checkup

	Q1 2007	Q1 2006	Change*
Gross Margin	64.5%	69.2%	(4.7)
Operating Margin	41.5%	36.4%	5.1
Net Margin	30.9%	28.7%	2.1

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q1 2007	Q1 2006	Change
Cash + ST Invest.	$663.4	$701.2	(5.4%)
Accounts Rec.	$56.0	$19.8	183.1%

Liabilities	Q1 2007	Q1 2006	Change
Accounts Payable	$40.8	$12.3	232.6%
Long-Term Debt	$100.0	$100.0	0%

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q1 2007	Q1 2006	Change
Cash From Ops.	$62.1	($2.0)	N/A
Capital Expenditures	$3.8	$2.6	49.5%
Free Cash Flow	$58.3	($4.6)	N/A
Owner Earnings	$12.8	$1.9	561.7%

Free cash flow is a Fool's best friend.

Related Foolishness:

• RealNetworks' Grand Illusion
• More Ringtones to Go
• Foolish Fundamentals: The Cash Flow Statement

Microsoft is a Motley Fool Inside Value pick. Find out more with a free 30-day trial or two.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Fool contributor Anders Bylund had no position in any company mentioned. Fool rules are here.