RealNetworks, Inc.

Greetings and welcome to Real Networks Incorporated first quarter 2021 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to today's host, Kim Orlando with Addo Investor Relations. Please proceed.

Thank you, and welcome to Real Network's first quarter 2021 financial results conference call. Before we begin, I'd like to remind you that some matters discussed today are forward-looking, including statements regarding Real Network's future revenue, operating expenses, and adjusted EBITDA, as well as trends affecting its businesses and prospects for future growth and profitability, liquidity, and financial conditions. Other forward-looking statements include the company's plans to implement its strategy, invest in its products and initiatives, and restructuring efforts, as well as the expected growth, profitability, and other benefits from these activities. In addition, today's call contains certain forward-looking statements that relate to the December 2020 sale of Rhapsody International, Inc., which does business as Napster, to Melody VR Group, PLC. Effective as of the third quarter of 2020, NAFSA is presented as a discontinued operation for accounting and disclosure purposes, and comparable historical periods have been recast to conform to this presentation. Statements that express our beliefs and expectations in all statements other than statements of historical facts are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. We describe these and other risks in our SEC filings including in the risk factors set forth in our most recent report on Form 10-K and Form 10-Q and in other reports. A copy of those filings can be obtained from the SEC or from the Investor Relations section of our corporate website. Forward-looking statements made today reflect Real Network's expectations as of today, May 12, 2021. The company undertakes no duty to update or revise any forward-looking statements made during this call, whether as a result of new information, future events, or any other reason. In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's Regulation G. For reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our Form 8K dated and submitted to the SEC today, both of which are found on our corporate website at investor.realnetworks.com under the Financials tab. With me today are Rod Glazier, Chairman and CEO, Mike Ensign, President and COO, and Christine Chambers, Senior Vice President, CFO, and Treasurer. Rob will discuss the company's strategy and the progress the company made during the first quarter of 2021. Mike will then provide a more detailed update on Real's AI initiatives, Safer in Context. And Christine will conclude with a more detailed review of our financial results. After today's prepared remarks, Rob, Mike, and Christine will be pleased to answer questions. With that, I will hand the call over to Rob.

Thanks, Kim. Good afternoon, everyone, and thanks for joining us. The data plan to cover three topics. First, I'll discuss the status of real strategic transformation from a digital media technology company to an AI-based company. Next, I'll summarize our first quarter results in the context of the transition. And third, I'll discuss our recent successful fundraising initiative and other activities related to aligning our capital structure with our strategy. Q1 2021 was an important quarter in real strategic transformation to an ad-centric company. This transformation is centered around our QAI-based products and services, Safer, which is our computer vision platform, and Context, which is our natural language processing or NLP platform. Our traditional or foundation businesses will continue to be important to us in two ways. First, they will provide financial balance that will help us fund our AI initiatives, and second, they will contribute data that will help us improve and differentiate our AI products. During the first quarter, we achieved significant growth in Safer and Context. Revenue for Safer increased approximately 160% year-over-year, and Context increased 10% year-over-year. Safer and Context together grew to represent 29% of our mobile services segment revenue Q1, up from 23% in 2020. Mike will provide additional depth on our progress with Safer and Context in a few minutes. Second, let me summarize our financial results. Our first quarter revenue was $15.9 million, which was down 10% compared to the prior quarter, and down 6% compared to the prior year period. This decline was primarily due to the end of a few carrier contracts related to our ringback tone business. As I mentioned earlier, our year-over-year AI revenue growth in Q1 was strong. On the bottom line, our adjusted EBITDA loss was $3 million compared to a loss of $4.4 million in Q1 2020, excluding CNIR, which were in the process of spinning out, adjusted EBITDA was a loss of $2.4 million. And I'll discuss CNIR further in a few minutes. These results reflect continued discipline in how we manage costs in our foundation businesses to enable us to invest in our AI growth opportunities. A word about our games business. After excellent growth in free-to-play games in 2020, we were disappointed with games Q1 results for free-to-play games, which declined slightly compared to the prior quarter. The team is making some changes in order to reinvigorate growth in our two biggest free-to-play titles. We believe that the team will get back onto a growth trajectory, but that it will likely take a few quarters. Finally, before passing the mic to Mike, I'd like to talk about our recent progress and our balance sheet and capital structure. As you know, at the end of 2020, we sold Napster to Melody VR for a total of approximately $70.6 million, which included about $15 million of cash, $11.6 million of Melody VR stock, and the assumption of approximately $44 million by them of Napster's balance sheet liabilities. Last month, we closed out the final piece related to this transaction $4.8 million in consideration for their stake, which we bought in 2019. This disbursement consisted of $2.5 million of cash and the transfer of $2.3 million of Melody stock, as valued as of December 2020, NAFTA's sale closing date. Then, in April, we went out to the public market for the first time in an organized fashion to tell the story of our transition to an asset-centered company. As a result, we raised approximately $20.3 million in net proceeds which we will use to fuel our growth in 2022 and beyond. Indeed, in the context of that program, we told investors that, with those investments, we expect to achieve double-digit revenue growth in both 2022 and 2023. Our next step in simplifying and aligning our balance sheet for the growth opportunities in front of us is the completion of the spin-out of Senior. As you likely recall, Senior is a virtual movie theater service which allows consumers to watch shows virtually with their friends on about a dozen video services, including Netflix, Disney Plus, and HBO Max. Recently, I stepped down as chairman of CENAR, and we brought in an esteemed tech and entertainment industry executive and entrepreneur, Richard Wolpert, to be CENAR's executive chairman. Daniel Stickman remains CENAR's CEO. Richard, Daniel, and the rest of the CENAR team are doing an incredible job scaling up CENAR. CENAR has grown its audience by over 100 times, not 100%, 10,000% over the past year. Consumers are now using CENAR to watch over 100 million minutes of video each month. Given its rapid growth, Senior is in the process of raising additional expansion capital. I'll continue to serve on Senior's board, as will Mike Ensign. I believe Real has a great opportunity as a shareholder to participate in Senior's success. As I said earlier, I'm very pleased with and proud of the progress Real has made in setting our company up for success and in growing our AI business operationally. And with that, I may now pass the baton to Mike to discuss the progress in more detail.