8-K

________________________________________________________________________________________________________________________________________________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 8-K 

__________________________

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): November 8, 2022 

__________________________

RealNetworks, Inc.

(Exact name of registrant as specified in its charter) 

__________________________

 

Washington	001-37745	91-1628146
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1501 First Avenue South, Suite 600

Seattle, Washington 98134

(Address of principal executive offices) (Zip code)

(206) 674-2700

(Registrant’s telephone number, including area code)

__________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol (s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $0.001 per share	RNWK	The NASDAQ Stock Market
Preferred Share Purchase Rights	RNWK	The NASDAQ Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

____________________________________________________________________________________________________________

 Item 2.02.     Results of Operations and Financial Condition.

On November 8, 2022, RealNetworks, Inc. announced its financial results for the nine months ended September 30, 2022. The full text of the press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

Furnished as Exhibit 99.2 hereto is additional information regarding non-GAAP financial measures included in certain public disclosures of RealNetworks, including its financial results press release for the nine months ended September 30, 2022.

The information set forth in this Item 2.02 (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item  9.01.    Financial Statements and Exhibits.

(d) Exhibits.

Pursuant to the rules and regulations of the SEC, the attached exhibits are deemed to have been furnished to, but not filed with, the SEC.

 

Exhibit No.	Description
99.1	Earnings Release of RealNetworks, Inc. dated November 8, 2022
99.2	Information Regarding Non-GAAP Financial Measures
104	Cover Page Interactive Data File (formatted as inline XBRL)

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 8-K Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

REALNETWORKS, INC.
By:	/ S /    Brian McClain
	Brian McClain
	Interim Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: November 8, 2022

3

EX-99.1

Exhibit 99.1

REALNETWORKS ANNOUNCES THIRD QUARTER

2022 FINANCIAL RESULTS

SEATTLE — November 8, 2022 - 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,
	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)

EX-99.2

Exhibit 99.2

About Non-GAAP Financial Measures

To supplement RealNetworks’ condensed consolidated financial statements presented in accordance with GAAP, the Company presents investors with certain non-GAAP financial measures, including adjusted EBITDA and contribution margin by reportable segment. Contribution margin by reportable segment consists of operating income (loss) and includes other income (expense) net, but excludes the impact of the following: depreciation and amortization; fair value adjustments to contingent consideration liability; stock-based compensation; restructuring and other charges; and foreign currency (gain) loss. Adjusted EBITDA consists of GAAP net income (loss) including noncontrolling interests and excludes the impact of the following: interest income and interest expense; income tax expense; (gain) loss on equity and other investments, net; foreign currency (gain) loss; depreciation and amortization; fair value adjustments to contingent consideration liability; gain on forgiveness of Paycheck Protection Program loan; gain on deconsolidation of subsidiary; restructuring and other charges; and stock-based compensation.

RealNetworks believes that the presentation of adjusted EBITDA and contribution margin by reportable segment provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. Management believes that the use of these non-GAAP financial measures provides consistency and comparability with RealNetworks’ past financial reports, and also facilitates comparisons with other companies in the Company’s industry, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management uses these non-GAAP measures when evaluating operating performance because the inclusion or exclusion of the items described above provides additional useful measures of the Company’s operating results and facilitates comparisons of the Company’s core operating performance against prior periods and its business model objectives. The Company has chosen to provide this information to investors in order to enable them to perform additional analyses of past and present operating performance and forecasts of expected operating performance, to enable them to compare RealNetworks with other companies, and as a supplemental means to evaluate the Company’s ongoing operations. Externally, the Company believes that adjusted EBITDA is useful to investors in their assessment of RealNetworks’ operating performance and the valuation of the Company.

Internally, adjusted EBITDA and contribution margin by reportable segment are significant measures used by management for purposes of:

•supplementing the financial results and forecasts reported to the Company’s board of directors;

•evaluating the operating performance of RealNetworks, which includes direct and incrementally controllable revenue and costs of operations but excludes items considered by management to be non-cash or non-operating such as interest income and interest expense, stock-based compensation, tax expense, depreciation and amortization, fair value adjustments to contingent consideration liability, impairment of deferred costs and long-lived assets, (gain) loss on equity and other investments, net, foreign currency (gain) loss, deconsolidation of subsidiary, and other items that are not within management’s control;

•managing and comparing performance internally across the Company’s businesses and externally against the Company’s peers;

•establishing internal operating budgets; and

•evaluating and valuing potential acquisition candidates.

Adjusted EBITDA and contribution margin by reportable segment are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of RealNetworks’ business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of RealNetworks’ results as reported under GAAP. The Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from its non-GAAP financial measures should not be construed as an inference that these costs are unusual or infrequent. Some of the limitations in relying on the Company’s non-GAAP financial measures are that adjusted EBITDA and contribution margin by reportable segment are measures that the Company has defined for internal and investor purposes and are not in accordance with GAAP. A further limitation associated with these measures is that they do not include all costs and income that impact the Company’s net income (loss) or operating income (loss) at the segment level. The Company compensates for these limitations by prominently disclosing GAAP net income (loss) and operating income (loss) by reportable segment, which the Company believes are the most directly comparable GAAP measures, and providing investors with reconciliations from GAAP net income (loss) including noncontrolling interests to adjusted EBITDA and operating income (loss) to contribution margin by reportable segment.

RealNetworks has included reconciliations of GAAP net income (loss) including noncontrolling interests to adjusted EBITDA and GAAP operating income (loss) by reportable segment to contribution margin by reportable segment for the relevant periods in the financial tables of its earnings press release, which is included as Exhibit 99.1 to this report.

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Cover	Nov. 08, 2022	May 04, 2022
Entity Information [Line Items]
Document Type	8-K
Document Period End Date	Nov. 08, 2022
Entity Registrant Name	RealNetworks, Inc.
Entity Incorporation, State or Country Code	WA
Entity File Number	001-37745
Entity Tax Identification Number	91-1628146
Entity Address, Address Line One	1501 First Avenue South, Suite 600
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98134
City Area Code	(206)
Local Phone Number	674-2700
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Trading Symbol	RNWK
Security Exchange Name	NASDAQ
Entity Emerging Growth Company		false
Amendment Flag	false
Entity Central Index Key	0001046327
Common Stock
Entity Information [Line Items]
Title of 12(b) Security	Common Stock, Par Value $0.001 per share
Convertible Preferred Stock
Entity Information [Line Items]
Title of 12(b) Security	Preferred Share Purchase Rights