RealNetworks, Inc.

Greetings. Welcome to Real Network, the third quarter 2021 earnings call. At this time, all participants are in 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. Please note this conference is being recorded. I will now turn the conference over to Brian Pandova, Investor Relations. Thank you. You may begin.

Thank you, and welcome to Rio Network's third 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 Rio 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 condition. Other forward-looking statements include the company's plans to implement its strategy and 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 Senior Inc., including its future growth and profitability and financing activities. Effective as of the third quarter of 2020, NAPSTER has been 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 belief 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 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 Rio Network's expectation as of today, November 3, 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 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 the corporate website at investor.realnetworks.com under the Financials tab. With me today are Rob Glazer, 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 third 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, we will open the call to questions. With that, I will hand the call over to Rob.

Thanks, Brian, and welcome aboard. Good afternoon, everyone, and thanks for joining us. Our remarks today will first center on three topics, then I'll cover high-level financial results. First, I'll provide an update on our overall strategy. Second, I'll highlight our progress in real strategic transformation to an AI-centered company. And third, I'll discuss our games business and the new leadership that we've brought in to address that situation. First, the update on our overall strategy. Earlier this year, we told the public that it was our plan to pivot real to become an AI-centered company. We also described our growth plans and expectations for 2022 and 2023, which included our belief that our games business would again be a significant contributor to growth beginning in 2022. The core of the strategy hasn't changed. Our AI businesses, safer in context, are continuing to grow and believe that they will drive significant growth in the future. That said, issues with our games business, which I'll discuss shortly, now lead us to believe that games will likely not be a significant growth contributor in 2022 as we retool it for future success. As a result, while we're still putting our 2022 plan together, I think it's fair to say that while we believe we will have significant growth in 2022, you should view our expectations of double-digit growth as now excluding games from the calculations. Now, onto our AI businesses. We have two main AI products and services, Safer, which is our computer vision platform, and Context, which is our natural language processing platform. In Q3, we more than doubled Safer revenue compared to Q3 of 2022. Safer continues to be the biggest driver of growth in our AI businesses, with quarterly revenue increasing 124% year over year compared to 2020. Context, compared to its continued steady progress, increasing 12% year-over-year. Safer in context, Together and I represent 31% of our total mobile services segment revenue, compared to 37% in Q2 2021 and 19% in Q3 2020. While our AI businesses in aggregate were sequentially down from Q2 2021, we expect short-term fluctuations as we're building out our AI businesses, especially Safer. We remain bullish about the progress we're making. In April, we raised $20.1 million through a public offering, and are intent to use the proceeds to make targeted investments in our AI-based growth businesses. We believe the steps we're taking with Real's AI businesses will position Real for success and long-term growth. In a few minutes, Mike Hensing will go into greater detail regarding our progress with Safer in Context. Next, an update on our games business. After a promising start in free-to-play games, we've been disappointed by the stalled progress in recent quarters. We came to feel that we needed to make a leadership change, and undertook a rigorous assessment and search process. As a result of this process, we brought in an outstanding new leader, Simonetta Luli Gomez, as GameHouse's new CEO. We announced this change to the team a few weeks ago, and yesterday made the change public. Simonetta has a deep background and track record of success in the games industry and is passionate about GameHouse's mission of creating great games and experiences for female casual gamers. This demographic makes up over 60% of the total players from the top 100 games on the App Store. We believe there's a lot of opportunity and a lot of growth available to Rural Networks from continuing to own this business. Sumaneta is the right leader at the right time to reinvigorate the business and to lead it to significant growth and profit. We recognize that leadership changes involve a ramping up period, hence my earlier comments about our expectations for 2022. Finally, I'll turn briefly to our overall financials. Total revenue for the third quarter was $14.3 million, which was down 2% compared to the prior quarter, and 13% down compared to the prior year. While our AI businesses grew, our gains business declined both sequential and year-over-year, prompting the changes that I just discussed. On the bottom line, we had good results when you look through non-operating items. Our GAAP EPS was a loss of 16% per share compared to 3 cents per share loss in the previous quarter and 8 cents per share loss in the prior year period. Our adjusted EBITDA loss was negative $2.7 million. This compares to a loss of $4.7 million Q2 2021, and a loss of $1.9 million in Q3 of 2020. Christine will provide a bridge between the GAAP and EBITDA numbers in a few minutes. We continue to have a strong balance sheet with $29 million of cash available to us, which we will use judiciously to set us up for future growth. And with that, I'll now turn the call over to Mike Ensign to discuss our AI businesses in further detail. Mike?