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:

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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.