SEATTLE, Nov. 8, 2022 /PRNewswire/ -- RealNetworks, Inc. (NASDAQ:RNWK), an emerging leader in AI-based software and solutions, today announced its financial results for the third quarter ended September 30, 2022.

Revenue was $11.7 million, net loss of $(6.7) million and Adjusted EBITDA loss of $(5.8) million
SAFR Scan received its first large order and smaller orders are creating a sales opportunity pipeline
Pending merger process continues and the company is managing its resources responsibly through the process

Management Commentary

"In the third quarter we continued to manage our business rigorously while Real's transition moves forward. Shareholders will be asked to vote on the Merger Agreement and approval of the merger at a shareholder meeting which we expect to take place December 14, 2022," said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. "Our financial results showed stable revenue sequentially, while our bottom line was negatively impacted by costs associated with the potential go private transaction. We will continue to manage our resources responsibly through the transition."

Mr. Glaser continued: "SAFR Scan has been receiving encouraging feedback from initial clients, and during the quarter we closed our first large SAFR Scan customer as well as a pipeline of sales opportunities for this exciting new product."

Third Quarter 2022 Financial Results

Revenue was $11.7 million, compared to $11.9 million in the prior quarter and $14.3 million in the prior year period.
Net loss attributable to RealNetworks was ($6.7) million, or $(0.14) per diluted share, compared to a net loss of ($5.1) million, or $(0.11) per diluted share, in the prior quarter and a net loss of ($7.7) million, or ($0.16) per diluted share, in the prior year period.
Adjusted EBITDA was a loss of $(5.8) million compared to Adjusted EBITDA loss of $(4.2) million in the prior quarter and Adjusted EBITDA loss of $(2.7) million in the prior year period.

Corporate Developments

During the quarter, it was announced that RealNetworks and Founder, Chairman and CEO Rob Glaser entered into a definitive merger agreement pursuant to which the company will merge with and into Greater Heights LLC, an affiliate of Mr. Glaser, and each outstanding share of common stock of the Company will be converted into the right to receive cash consideration of $0.73 per share. The Company's shareholders will be asked to vote upon the adoption of the Merger Agreement and approval of the merger at a shareholder meeting on December 14, 2022. The transaction is expected to close in the fourth quarter of 2022.

Given the pending merger, the Company will not be providing any forward-looking guidance, and is withdrawing any previously provided goals and outlook.

Conference Call and Webcast Information

RealNetworks will host a conference call today to review its results and discuss its performance at approximately 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-550-1707 (United States) or 1-848-488-9020 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on November 22, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 11152769.

A live webcast will be available on RealNetworks's Investor Relations site under the Events & Presentations section at http://investor.realnetworks.com and will be archived online upon completion of the conference call.

About RealNetworks

Building on a rich history of digital media expertise and innovation, RealNetworks has created a new generation of products that employ best-in-class artificial intelligence and machine learning to enhance and secure our daily lives. Real's portfolio includes SAFR, the world's premier computer vision platform for live video; KONTXT, an industry leading NLP (Natural Language Processing) platform for text and multi-media analysis; and leveraging its digital media expertise, a mobile games business focused on the large free-to-play segment. For information about all of our products, visit www.realnetworks.com.

About Non-GAAP Financial Measures

To supplement RealNetworks's consolidated financial information presented in accordance with GAAP in this press release, the company also discloses certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment, which management believes provide investors with useful information.

In the financial tables of our earnings press release, RealNetworks has included reconciliations of GAAP net income (loss) from continuing operations to adjusted EBITDA and operating income (loss) by reportable segment to contribution margin by reportable segment.

The rationale for management's use of non-GAAP measures is included in the supplementary materials presented with the quarterly earnings materials. Please refer to Exhibit 99.2 ("Information Regarding Non- GAAP Financial Measures") to the company's report on Form 8-K, which is being submitted today to the SEC.

Additional Information and Where to Find It

RealNetworks, its directors and certain executive officers are participants in the solicitation of proxies from shareholders in connection with the pending merger of RealNetworks (the "Transaction"). RealNetworks has filed a definitive proxy statement (the "Transaction Proxy Statement") with the Securities and Exchange Commission (the "SEC") in connection with the solicitation of proxies to approve the Transaction. Additional information regarding such participants, including their direct or indirect interests, by security holdings or otherwise, is included in the Transaction Proxy Statement and other relevant documents to be filed with the SEC in connection with the Transaction. To the extent that holdings of RealNetworks's securities have changed since the amounts printed in the Transaction Proxy Statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Prior to the special meeting to consider the Transaction, RealNetworks will furnish a Transaction Proxy Statement to is shareholders, together with a proxy card. SHAREHOLDERS ARE URGED TO READ THE TRANSACTION PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT REALNETWORKS WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain, free of charge, the preliminary and definitive versions of the Transaction Proxy Statement, any amendments or supplements thereto, and any other relevant documents filed by RealNetworks with the SEC in connection with the Transaction at the SEC's website (http://www.sec.gov). Copies of RealNetworks's Transaction Proxy Statement, any amendments or supplements thereto, and any other relevant documents filed by RealNetworks with the SEC in connection with the Transaction will also be available, free of charge, from RealNetworks's website at www.realnetworks.com.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements relating to our current expectations regarding our future growth, profitability, and market position, the anticipated closing of the merger, expectations following the closing of the merger, our financial condition and liquidity, our strategic focus and initiatives, product plans, and agreements with partners. All statements contained in this press release that do not relate to matters of historical fact should be considered forward- looking statements. These statements reflect our expectations as of today, and actual results may differ materially from the results predicted. Factors that could cause actual results for RealNetworks, on a consolidated basis, to differ from the results predicted include: the possibility that the conditions to the closing of the merger are not satisfied, including the risk that required shareholder approval for the merger is not obtained; potential litigation relating to the merger; uncertainties as to the timing of the consummation of the merger; the ability of each party to consummate the merger; risks relating to the substantial costs and diversion of personnel's attention and resources due to the merger; our ability to realize operating efficiencies, growth and other benefits from the implementation of our growth initiatives and restructuring efforts; cash usage and conservation, and the pursuit of additional funding sources; successful monetization of our products and services; competitive risks, including the emergence or growth of competing technologies, products and services; issues with the use of AI; potential outcomes and effects of claims and legal proceedings; risks associated with key customer or strategic relationships and business acquisitions and dispositions; challenges caused by the COVID-19 pandemic; disruptions in the global financial markets, including changes in consumer spending and impacts to credit availability, and fluctuations in foreign currencies; volatility of our stock price; material asset impairment; continued declines in subscription revenue; difficulty recruiting and retaining key personnel; regulatory, tax, accounting, and cross-border risks; and risks related to our governance structure. More information about potential risk factors that could affect our business and financial results is included in RealNetworks's latest annual report on Form 10-K for year ended December 31, 2021, its quarterly reports on Form 10-Q and in other reports and documents filed by RealNetworks from time to time with the Securities and Exchange Commission. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, and revenues and expenses during the reported period. Actual results may differ materially from these estimates under different assumptions or conditions. RealNetworks assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates.

For More Information:

Investor Relations for RealNetworks

Brian M. Prenoveau, CFA

MZ North America

561-489-5315

IR@realnetworks.com

RNWK-F

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)

	Quarter Ended September 30,		Nine Months Ended September 30,
	Quarter Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021

	(in thousands, except per share data)

Net revenue	$ 11,708	$ 14,332	$ 36,840	$ 44,781
Cost of revenue	2,787	3,119	8,228	10,370
Gross profit	8,921	11,213	28,612	34,411

Operating expenses:
Research and development	4,870	5,250	16,000	17,818
Sales and marketing	4,726	7,177	13,810	17,573
General and administrative	6,020	4,228	14,918	13,502
Fair value adjustments to contingent consideration liability	—	—	—	(1,040)
Restructuring and other charges	118	1,017	573	4,906

Total operating expenses	15,734	17,672	45,301	52,759

Operating loss	(6,813)	(6,459)	(16,689)	(18,348)

Other income (expenses):
Interest expense	(3)	(27)	(47)	(146)
Interest income	7	7	21	27
Gain on forgiveness of Paycheck Protection Program loan	—	—	—	2,897
Loss on equity and other investments, net	(207)	(1,229)	(806)	(6,070)
Other income, net	364	46	651	2,066

Total other income (expenses), net	161	(1,203)	(181)	(1,226)

Loss before income taxes	(6,652)	(7,662)	(16,870)	(19,574)
Income tax expense	16	6	159	133

Net loss	(6,668)	(7,668)	(17,029)	(19,707)
Net loss attributable to noncontrolling interests	—	—	—	(244)
Net loss attributable to RealNetworks	$ (6,668)	$ (7,668)	$ (17,029)	$ (19,463)

Net loss per share attributable to RealNetworks- Basic	$ (0.14)	$ (0.16)	$ (0.36)	$ (0.45)

Net loss per share attributable to RealNetworks- Diluted	$ (0.14)	$ (0.16)	$ (0.36)	$ (0.45)

Shares used to compute basic net loss per share	47,506	47,055	47,367	43,312
Shares used to compute diluted net loss per share	47,506	47,055	47,367	43,312

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)

	September 30, 2022	December 31, 2021
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$ 9,156	$ 27,109
Trade accounts receivable, net	8,659	9,556
Deferred costs, current portion	45	49
Investments	—	1,755
Prepaid expenses and other current assets	4,179	3,166
Total current assets	22,039	41,635

Equipment and software	22,086	29,464
Leasehold improvements	1,678	2,750
Total equipment, software, and leasehold improvements	23,764	32,214
Less accumulated depreciation and amortization	22,700	30,744
Net equipment, software, and leasehold improvements	1,064	1,470

Operating lease assets	3,092	3,992
Restricted cash equivalents	1,500	1,630
Other assets	2,680	2,878
Deferred tax assets, net	517	727
Goodwill	16,116	16,976

Total assets	$ 47,008	$ 69,308

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$ 1,951	$ 2,578
Accrued and other current liabilities	11,637	13,286
Deferred revenue, current portion	2,245	2,614
Total current liabilities	15,833	18,478

Deferred revenue, non-current portion	60	183
Deferred tax liabilities, net	995	1,132
Long-term lease liabilities	1,703	2,300
Other long-term liabilities	10	1,142

Total liabilities	18,601	23,235


Total equity	28,407	46,073

Total liabilities and equity	$ 47,008	$ 69,308

RealNetworks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2022	2021
	(in thousands)

Cash flows from operating activities:
Net loss	$ (17,029)	$ (19,707)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	530	600
Stock-based compensation	1,789	3,789
Loss on equity and other investments, net	806	6,070
Loss on impairment of operating lease assets	—	2,461
Deferred income taxes, net	93	—
Foreign currency gain	(624)	(62)
Fair value adjustments to contingent consideration liability	—	(1,040)
Gain on deconsolidation of subsidiary	—	(1,961)
Gain on forgiveness of Paycheck Protection Program loan	—	(2,897)
Net change in certain operating assets and liabilities	(1,928)	1,331
Net cash used in operating activities	(16,363)	(11,416)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(211)	(280)
Deconsolidation of subsidiary, net	—	(836)
Other	(595)	—
Net cash used in investing activities	(806)	(1,116)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options)	—	534
Proceeds from equity offering, net of costs	—	20,114
Tax payments from shares withheld upon vesting of restricted stock	(102)	(186)
Payment of contingent consideration liability	—	(2,500)
Net cash provided by (used in) financing activities	(102)	17,962
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(812)	(380)
Net decrease in cash, cash equivalents and restricted cash	(18,083)	5,050
Cash, cash equivalents, and restricted cash, beginning of period	28,739	25,570
Cash, cash equivalents, and restricted cash, end of period	$ 10,656	$ 30,620

RealNetworks, Inc. and Subsidiaries Supplemental Financial Information (Unaudited)

	2022				2021
		Q3	Q2	Q1	Q4	Q3	Q2	Q1
	(in thousands)
Net Revenue by Segment
Consumer Media (A)		$ 1,415	$ 2,499	$ 2,111	$ 2,168	$ 2,763	$ 2,061	$ 3,309
Mobile Services (B)		5,226	4,457	5,640	5,680	5,772	6,356	5,980
Games (C)		5,067	4,900	5,525	5,554	5,797	6,144	6,599
Total net revenue		$ 11,708	$ 11,856	$ 13,276	$ 13,402	$ 14,332	$ 14,561	$ 15,888

Net Revenue by Product
Consumer Media
- Software License (D)		$ 248	$ 1,393	$ 987	$ 854	$ 1,506	$ 841	$ 1,875
- Subscription Services (E)		682	710	742	768	779	793	818
- Product Sales (F)		280	144	163	268	270	330	438
- Advertising & Other (G)		205	252	219	278	208	97	178

Mobile Services
- Software License (H)		2,005	879	1,531	1,616	1,459	1,931	1,391
- Subscription Services (I)		3,221	3,578	4,109	4,064	4,313	4,425	4,589

Games
- Subscription Services (J)		2,052	2,116	2,219	2,286	2,361	2,431	2,528
- Product Sales (K)		2,090	1,986	2,377	2,453	2,612	2,830	3,163
- Advertising & Other (L)		925	798	929	815	824	883	908


Total net revenue		$ 11,708	$ 11,856	$ 13,276	$ 13,402	$ 14,332	$ 14,561	$ 15,888

Net Revenue by Geography
United States		$ 7,004	$ 8,237	$ 8,187	$ 8,126	$ 9,227	$ 9,209	$ 9,932
Rest of world		4,704	3,619	5,089	5,276	5,105	5,352	5,956
Total net revenue		$ 11,708	$ 11,856	$ 13,276	$ 13,402	$ 14,332	$ 14,561	$ 15,888

Net Revenue by Segment

(A) The Consumer Media segment primarily includes revenue from the licensing of our portfolio of video codec technologies. Also included is RealPlayer and related products, such as the distribution of third-party software products, advertising on RealPlayer websites, sales of RealPlayer Plus software to consumers, and consumer subscriptions such as RealPlayer Plus and SuperPass.

(B) The Mobile Services segment primarily includes revenue from SaaS services and sales of professional services provided to mobile carriers.

(C) The Games segment primarily includes revenue from player purchases of in-game virtual goods within our free-to-play games, mobile and PC games, online games subscription services, and advertising on games sites and social network sites.

Net Revenue by Product

(D) Software licensing revenue within Consumer Media includes revenues from licenses of our video codec technologies.

(E) Subscriptions revenue within Consumer Media includes revenue from subscriptions such as our RealPlayer Plus and SuperPass offerings.

(F) Product sales within Consumer Media includes sales of RealPlayer Plus software to consumers.

(G) Advertising & other revenue within Consumer Media includes distribution of third-party software products and advertising on RealPlayer websites.

(H) Software license revenue within Mobile Services includes revenue from our facial recognition platform, SAFR, and our integrated RealTimes platform.

(I) Subscription services revenue within Mobile Services includes revenue from our messaging products, including Metcalf intercarrier messaging services and KONTXT, as well as ringback tones and related professional services provided to mobile carriers.

(J) Subscription services revenue within Games includes revenue from online games subscriptions.

(K) Product sales revenue within Games includes revenue from player purchases of in-game virtual goods, retail and wholesale games-related revenue, as well as sales of mobile games.

(L) Advertising & other revenue within Games includes advertising on games sites and social network sites.

RealNetworks, Inc. and Subsidiaries Segment Results of Operations and Reconciliation to non-GAAP Contribution Margin (Unaudited)

	2022		2021	2022	2021
	Q3	Q2	Q3	YTD	YTD
	(in thousands)
Consumer Media

Net revenue	$ 1,415	$ 2,499	$ 2,763	$ 6,025	$ 8,133
Cost of revenue	374	432	418	1,194	1,393
Gross profit	1,041	2,067	2,345	4,831	6,740

Gross margin	74 %	83 %	85 %	80 %	83 %

Operating expenses	1,371	1,397	1,495	4,240	6,028
Operating income (loss), a GAAP measure	$ (330)	$ 670	$ 850	$ 591	$ 712
Depreciation and amortization	13	14	16	43	37

Contribution margin, a non-GAAP measure	$ (317)	$ 684	$ 866	$ 634	$ 749

Mobile Services

Net revenue	$ 5,226	$ 4,457	$ 5,772	$ 15,323	$ 18,108
Cost of revenue	1,116	965	1,282	3,126	4,291
Gross profit	4,110	3,492	4,490	12,197	13,817

Gross margin	79 %	78 %	78 %	80 %	76 %

Operating expenses	5,950	6,510	5,890	19,126	18,367
Operating loss, a GAAP measure	$ (1,840)	$ (3,018)	$ (1,400)	$ (6,929)	$ (4,550)
Depreciation and amortization	77	104	80	265	243

Contribution margin, a non-GAAP measure	$ (1,763)	$ (2,914)	$ (1,320)	$ (6,664)	$ (4,307)

Games

Net revenue	$ 5,067	$ 4,900	$ 5,797	$ 15,492	$ 18,540
Cost of revenue	1,288	1,300	1,414	3,883	4,671
Gross profit	3,779	3,600	4,383	11,609	13,869

Gross margin	75 %	73 %	76 %	75 %	75 %

Operating expenses	3,648	3,826	4,844	11,473	14,791
Operating income (loss), a GAAP measure	$ 131	$ (226)	$ (461)	$ 136	$ (922)
Depreciation and amortization	18	61	78	140	235

Contribution margin, a non-GAAP measure	$ 149	$ (165)	$ (383)	$ 276	$ (687)

Corporate

Cost of revenue	$ 9	$ 8	$ 5	$ 25	$ 15
Gross profit	(9)	(8)	(5)	(25)	(15)

Gross margin	N/A	N/A	N/A	N/A	N/A

Operating expenses	4,765	2,337	5,443	10,462	13,573
Operating loss, a GAAP measure	$ (4,774)	$ (2,345)	$ (5,448)	$ (10,487)	$ (13,588)
Other income (expense), net	364	268	46	651	105
Foreign currency (gain) loss	(349)	(272)	(47)	(624)	(62)
Depreciation and amortization	28	25	29	82	85
Fair value adjustments to contingent consideration liability	—	—	—	—	(1,040)
Restructuring and other charges	118	165	1,017	573	4,906
Stock-based compensation	727	367	2,518	1,789	3,789

Contribution margin, a non-GAAP measure	$ (3,886)	$ (1,792)	$ (1,885)	$ (8,016)	$ (5,805)

RealNetworks, Inc. and Subsidiaries Reconciliation of Net loss to adjusted EBITDA, a non-GAAP measure (Unaudited)

	2022		2021	2022	2021
	Q3	Q2	Q3	YTD	YTD
	(in thousands)

Reconciliation of GAAP Net loss to adjusted EBITDA:

Net loss	$ (6,668)	$ (5,136)	$ (7,668)	$ (17,029)	$ (19,707)
Income tax expense	16	60	6	159	133
Interest expense	3	22	27	47	146
Interest income	(7)	(7)	(7)	(21)	(27)
Loss on equity and other investments, net	207	410	1,229	806	6,070
Foreign currency (gain) loss	(349)	(272)	(47)	(624)	(62)
Depreciation and amortization	136	204	203	530	600
Fair value adjustments to contingent consideration liability	—	—	—	—	(1,040)
Gain on forgiveness of Paycheck Protection Program loan	—	—	—	—	(2,897)
Gain on deconsolidation of subsidiary	—	—	—	—	(1,961)
Restructuring and other charges	118	165	1,017	573	4,906
Stock-based compensation	727	367	2,518	1,789	3,789
Adjusted EBITDA, a non-GAAP measure	$ (5,817)	$ (4,187)	$ (2,722)	$ (13,770)	$ (10,050)

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SOURCE RealNetworks, Inc.

REALNETWORKS ANNOUNCES THIRD QUARTER 2022 FINANCIAL RESULTS