RealNetworks, Inc.

Greetings, and welcome to the Real Networks, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-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 this conference over to your host, Mr. Brian Pronovo, Investor Relations. Thank you, sir. You may begin.

Thank you, Laura. and welcome to Real Network's fourth quarter and full year 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 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 Scenarank, including its future growth and profitability and financial activities. Effective in 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, 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 risks 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, February 9, 2022. 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 us 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 fourth 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 the 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. Good afternoon, everyone, and thank you for joining us today. My remarks will center on three topics. First, I'll discuss our 2021 results. Second, I'll discuss our games business and our plans to revitalize it. And third and finally, I'll share some overall thoughts about our AI-based initiatives, safer in context. I'll then pass the baton on to Mike Ensign, who will discuss the AI initiatives in more depth. And then after Mike, Christine Chambers will go through our detailed financials. First, 2021. As I typically do at the beginning of a new year, I'd like to look back at the previous year. I'll start by discussing how our 2021 results compared to what we hope to achieve going into the year, and then share my perspective on how 2021 set us up for 2022 and beyond. Our total revenue in 2021 was $58.2 million, down from $68.1 million in 2020. Inside of these results is a tale of three cities. Our 2021 growth city was our AI businesses, which grew meaningfully, Safer by 44% and Context by 14%. That said, this growth was not as fast as we'd hoped, especially for Safer. We'll talk about what we've learned and how we're applying those learnings in just a few minutes. Our reboot city was games. While games had grown in 2020 to $28.6 million, which was up 12% over 2019, in 2021, our games revenue was $24.1 million, down 16% compared to 2020. As 2021 unfolded, I determined that we needed to make a leadership change in games, which I'll discuss in a few minutes. Our legacy city is the home of the rest of our businesses, which declined as expected from $33 million to $26 million, but continued to contribute financially on the bottom line. Our EPS in continuing operations was a loss of 48% per diluted share compared to a loss of 13 cents per share in the previous year. 2021 adjusted EBITDA was a loss of $13.8 million compared to adjusted EBITDA loss of $8.6 million in the prior year. Christine will explain the bridge between net loss and EBITDA and will discuss some non-recurring elements that should be considered when comparing the two years. We continue to have a strong balance sheet with $27 million of cash available to us and no debt. We'll use these resources judiciously to set us up for future growth. Christine will discuss our results in much greater detail in a few minutes, as I mentioned. Stepping back from the financial details, our strategic focus continues to be our three big growth initiatives, Safer, Context, and Games. Concurrently, we will continue to manage the rest of the business for stability and profit. We remain very bullish on Real's prospects. Our lineup of current and new AI products is very strong, as is our sales pipeline. And our new games leadership team has put together an excellent plan that I believe will set games up for significant growth in 2023 and beyond. Taken together, we believe that in 2022, we will achieve double-digit overall growth, excluding games, and we expect games to be approximately flat. This segues into my second topic, which is games. As I mentioned, it became clear to me by mid-2021 that the games leadership team we had had taken the business as far as they could and that we would need to make a change. we started a rigorous search process and found a fantastic new leader, Simonetta Lully. We and Simonetta got to know each other through a strategy consulting assignment she did for us in the summer of 2021. Then in October, we appointed Simonetta to be our new head of games. Simonetta has hit the ground running and has put together a great plan that I strongly endorse. As it unfurls, we'll discuss it in more detail in the months ahead. The global market for gaming is huge, and it's one where female players are vitally important. According to a recent study by App Annie, 64% of players of the top 100 games in the U.S. are women. Similar stats for female gamers are reflected in Canada, France, Germany, and Australia. Compare that to the games themselves, where female protagonists are represented in less than 5% of games. This data suggests that a significantly untapped market exists where we can expand gaming options and increase interaction with the differentiated products created for and often by women. Game has already had a focus on female players before Simonetta arrived. She's doubling down on that focus while making significant operational and business changes that I believe will result in significant growth in 2023 and beyond. Now I move on to my final topic, a few words on our AI businesses, Safer and Context. As mentioned, Safer, our computer vision platform, grew 44% in 2021 over 2020. While this is significant growth, it's lower than we'd hoped for and was lumpy. We've learned a lot about where the Safer value proposition works well globally. namely in access control and authentication, and where it's a more selective fit, specifically in the safety and security or SNS market. We see great SNS opportunity in our U.S. federal business and in select other geographies. Accordingly, we have retooled both our product initiatives and our sales focus to focus on the areas with the greatest potential growth and the least friction. In a few minutes, Mike will discuss SAFER in more detail. A few words about context, our natural language processing business. It's 14% in growth in 2021, was close to our plan in total dollars. That said, we believe the progress we made in 2021, improving and maturing our context product line, sets us up for accelerated growth in 2022 and beyond, which Mike will discuss in more depth in a minute. Finally, a few closing words. 2021 was a challenging year for the world as a whole, as we've all had to slog through the second year of the pandemic. While vaccines are remarkable and have saved millions of lives, they have not yet put an end to the pandemic and to all the ways it's disrupted our lives. I'm deeply grateful to all of our stakeholders, employees, customers, and partners who have stayed focused and continue to work hard to achieve excellence in spite of the turbulence around us. I foresee brighter days ahead for us all. And with that, let me pass the mic to Mike.