RealNetworks, Inc.

Good day and welcome to the Real Networks, Inc. First Quarter 2022 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Pernalbo, Investor Relations. Please go ahead, sir.

Thank you, Cody, and welcome to Real Networks' First Quarter 2022 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 Networks' future revenue and 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, 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. 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 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 4, 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, 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, Chief Financial Officer, and Treasurer. Rob will discuss the company's strategy and the progress the company made during the first quarter of 2022. Mike will then provide a more detailed update on Rio'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. Rob, I'll turn the call over to you.

Thanks, Brian. Good afternoon, everyone, and thanks for joining us. My remarks today will focus on our three main growth initiatives and the steps we've taken to set each of them up for success and long-term profit. After I conclude, Mike Ensign will discuss our context and safer initiatives in more detail. Then after Mike, Christine Chambers will discuss our detailed financial results. Let me first start with a high-level overview of our quarterly results. Our total revenue in the quarter was $13.3 million, down from $15.9 million in the first quarter of 2021, and essentially from flat compared with Q4 of 2021. Our earnings per diluted share was a loss of 11 cents compared to a loss of 27 cents per diluted share in the prior period. First quarter adjusted EBITDA was a loss of $3.8 million compared to an adjusted EBITDA loss of $3 million in the prior year period. We continue to have a solid balance sheet with $22 million of cash available to us and no debt. Next, I want to talk about our AI-based growth initiative, Safer in Context. In the first quarter, revenue in the Safer business increased by 22% compared to the first quarter of 2021. Revenue from the context business increased by 10% compared to last year's first quarter. On a sequential basis, revenue was down 8% for Safer and down 6% for Context. In both cases, we see the need to turbocharge our growth and are taking significant steps to make that happen. The main way we're moving to turbocharge Safer is to sharpen our focus on delivering complete Safer-based products rather than purely relying on licensing the Safer software. The main initiative that embodies this change is Safer Scan, which is the first built-from-scratch combination hardware software product in real history. We announced SaferScan in March at ISC West, which is the U.S. securities industry's biggest trade show. SaferScan is a touchless biometric access control door station targeted at commercial markets. While SaferScan isn't the first door station to use computer vision and facial recognition technology, we think it's the first such product that can bring FR into the mainstream. This is because SaferScan is fast and highly accurate and delivers excellent results at less than half the price of previous products. Our secret sauce that enables us to do this is our Safer technology itself. Because it is fast and compact, Safer can run well on much lower cost hardware than competing FR algorithms. Building SaferScan as a complete hardware software product enables us to deliver a highly differentiated product that we think has excellent prospects. SaferScan begins shipping at the end of May. The initial reception from the industry has been very encouraging. We're in the process of building out the sales channels and partnerships necessary to create successful customer deployments. With SaferScan about to launch, we will be refocusing a lot of our Safer team towards SaferScan and concurrently narrowing our commercial licensing initiatives. We will continue to license the Safer software platform to commercial and federal customers, but we'll focus on that work on the biggest and most leveraged opportunities. Mike Ensign will share additional details on our Safer plan in a few minutes. Let me now turn to our messaging business. Now that we think we have a mature core product, our main focus is to scale up our sales and marketing effort with context. Last month, we announced the appointment of Mike Cooley to the newly created position of President for Context, Messaging, and Telecom. Mike has over 20 years of experience leading and delivering business growth in the mobile market, and I'm confident that he's the right leader to drive a significant scale-up of Context in our messaging business. Mike Ensign will provide additional information and perspective on Context and messaging in a few minutes. In the games business, as you know, about six months ago, we brought in our new leader, Shumanet Toluli. Because the changes that Shumanet is making involve retooling our current games portfolio, the changes will take time to drive significant commercial results. That said, Simonette is off to an excellent start, and I'm highly confident that she's setting up games for significant growth in 2023 and beyond. In sum, we're squarely in the sausage-making phase of these growth initiatives. Our current and short-term financial results reflect this reality. As we go through these transitions, we will manage our resources carefully and wisely and make clear and sometimes hard trade-offs when we need to. While I'm disappointed that this transition will be bumpier than we'd expected, I remain very optimistic about Real's long-term prospects. And with that, let me pass the mic to Mike.