RealNetworks, Inc.

Greetings and welcome to Real Investor Incorporated second quarter 2021 earnings conference 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 your host today, Kim Orlando, Addo Investor Relations. Please proceed.

Thank you, and welcome to Real Network's second 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, and certain forward-looking statements that relate to CENAR, Inc., including its future growth and profitability and financing activities. Effective as of the third quarter of 2020, NAPSTER 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, and 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 reports 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, August 4th, 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 can be found on our corporate website at investor.realnetworks.com under the Financials tab. With me today are Rob Glazer, Chairman and CEO, Mike Ensing, 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 second quarter of 2021. Mike will then provide a more detailed update on Real's AI businesses, 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. My remarks today will center on three main topics. First, I'll highlight our progress and growth as an AI-centered company. Second, I'll discuss how our strength and balance sheet and continued streamlining of our operations position real for future growth. And third, I'll provide further context on our Q2 results. In Q2, we continued our progress towards becoming a company and business centered on machine learning-based AI products and services. In Q2, we more than doubled our AI revenue compared to Q2 of 2020. As a reminder, this transformation is centered on two AI-based products and services, Safer, our computer vision platform, and Context, our natural language processing platform. Safer continued to be our AI pace car, with revenue increasing 282% year-over-year. Context continued its steady progress, increasing 15% year-over-year. This results in a blended average of 101% growth. Safer and context together now represent 37% of our total mobile services segment revenue in Q2, up from 29% in Q1 2021, and from 18% in 2020 Q2. In a few minutes, Mike Ensign will go into greater depth regarding our progress with both Safer and context. Next, I'd like to discuss steps we've taken in Q2 to focus real and resource real ZI businesses, and therefore real as a whole, for growth. As you likely recall, in April we raised $20.1 million in net proceeds through a public offering. We're primarily using these proceeds to make targeted investments in our AI-based growth initiatives. A second step we've taken is to support Senor's progression as an independent company. In Q2, consumers watched over 100 million minutes a month of video using Senor. Moreover, Senor has raised a meaningful amount of money independently of Real and is now self-sufficient financially. As a result, As of June 30th, CENR has moved to its next phase of independence and is no longer part of our consolidated results or operations. Factoring in upcoming investments into CENR, we expect that going forward, Rio will own approximately 40% of CENR. This importance that better aligns our balance sheet with the growth opportunities ahead of us while also providing CENR with the capital it needs to grow and thrive. I look forward to continuing to serve on CENR's board, along with Mike Ensign. We believe Real shareholders have a great opportunity over time to benefit from senior success as an independent company. And now finally, let's go through Real's overall Q2 results and put them in context. Total revenue for the second quarter was $14.6 million, which was down 8% compared to the prior quarter and down 15% compared to the prior year. While our AI businesses grew, as I mentioned above, our game business in Q2 declined both sequentially and year over year as the team is retooling our free-to-play games for future success. While I'm disappointed that our games business has hit an air pocket, we expected this going into the quarter. We in the games team are working hard to address these issues to set games up for resumed growth driven by free-to-play games. On the bottom line, we had mixed results in the aggregate. Our GAAP EPS was a loss of $0.03 per diluted share compared to a loss of $0.27 per share in the previous quarter and a loss of $0.08 per share in the prior year period. are adjusted EBITDA loss when excluding senior operating cost of approximately $600,000, which is negative $3.7 million. This compares to a loss of negative $1.1 million, including senior in Q2 2020, and a loss of negative $1.4 million in Q2 2020. These results reflect judicious increases in investments in our ag growth businesses, which we believe will pay off in the form of continued growth in the quarters ahead. As a result, we continue to expect that we will achieve not only continued growth in our AI businesses, but also double-digit consolidated revenue growth in 2022 and 2023. And with that, I will now turn the call over to Mike to discuss our AI businesses in further detail. Mike?