EX-99.1 2 exhibit991erq3-22.htm EX-99.1 Document

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,
2022202120222021
 (in thousands, except per share data)
 Net revenue$11,708 $14,332 $36,840 $44,781 
 Cost of revenue2,787 3,119 8,228 10,370 
           Gross profit8,921 11,213 28,612 34,411 
 Operating expenses:
       Research and development4,870 5,250 16,000 17,818 
       Sales and marketing4,726 7,177 13,810 17,573 
       General and administrative6,020 4,228 14,918 13,502 
Fair value adjustments to contingent consideration liability— — — (1,040)
       Restructuring and other charges118 1,017 573 4,906 
           Total operating expenses15,734 17,672 45,301 52,759 
 Operating loss(6,813)(6,459)(16,689)(18,348)
 Other income (expenses):
       Interest expense(3)(27)(47)(146)
       Interest income7 7 21 27 
       Gain on forgiveness of Paycheck Protection Program loan— — — 2,897 
       Loss on equity and other investments, net(207)(1,229)(806)(6,070)
       Other income, net364 46 651 2,066 
           Total other income (expenses), net161 (1,203)(181)(1,226)
Loss before income taxes(6,652)(7,662)(16,870)(19,574)
Income tax expense16 6 159 133 
Net loss(6,668)(7,668)(17,029)(19,707)
Net loss attributable to noncontrolling interests— — — (244)
Net loss attributable to RealNetworks$(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 share47,506 47,055 47,367 43,312 
 Shares used to compute diluted net loss per share47,506 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, net8,659 9,556 
 Deferred costs, current portion45 49 
 Investments— 1,755 
 Prepaid expenses and other current assets4,179 3,166 
 Total current assets22,039 41,635 
 Equipment and software22,086 29,464 
 Leasehold improvements1,678 2,750 
 Total equipment, software, and leasehold improvements23,764 32,214 
 Less accumulated depreciation and amortization22,700 30,744 
 Net equipment, software, and leasehold improvements1,064 1,470 
 Operating lease assets 3,092 3,992 
 Restricted cash equivalents 1,500 1,630 
 Other assets2,680 2,878 
 Deferred tax assets, net517 727 
 Goodwill16,116 16,976 
 Total assets$47,008 $69,308 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
 Accounts payable$1,951 $2,578 
 Accrued and other current liabilities11,637 13,286 
 Deferred revenue, current portion2,245 2,614 
 Total current liabilities15,833 18,478 
 Deferred revenue, non-current portion60 183 
 Deferred tax liabilities, net995 1,132 
 Long-term lease liabilities1,703 2,300 
 Other long-term liabilities10 1,142 
 Total liabilities18,601 23,235 
 Total equity28,407 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,
20222021
 (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 amortization530 600 
Stock-based compensation1,789 3,789 
Loss on equity and other investments, net806 6,070 
Loss on impairment of operating lease assets— 2,461 
Deferred income taxes, net93 — 
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 period28,739 25,570 
Cash, cash equivalents, and restricted cash, end of period$10,656 $30,620 



RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
20222021
 Q3 Q2Q1 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 world4,704 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)
2022202120222021
Q3Q2Q3YTDYTD
 (in thousands)
Consumer Media
Net revenue$1,415 $2,499 $2,763 $6,025 $8,133 
Cost of revenue374 432 418 1,194 1,393 
Gross profit1,041 2,067 2,345 4,831 6,740 
Gross margin74 %83 %85 %80 %83 %
Operating expenses1,371 1,397 1,495 4,240 6,028 
Operating income (loss), a GAAP measure$(330)$670 $850 $591 $712 
Depreciation and amortization13 14 16 43 37 
Contribution margin, a non-GAAP measure$(317)$684 $866 $634 $749 
Mobile Services
Net revenue$5,226 $4,457 $5,772 $15,323 $18,108 
Cost of revenue1,116 965 1,282 3,126 4,291 
Gross profit4,110 3,492 4,490 12,197 13,817 
Gross margin79 %78 %78 %80 %76 %
Operating expenses5,950 6,510 5,890 19,126 18,367 
Operating loss, a GAAP measure$(1,840)$(3,018)$(1,400)$(6,929)$(4,550)
Depreciation and amortization77 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 revenue1,288 1,300 1,414 3,883 4,671 
Gross profit3,779 3,600 4,383 11,609 13,869 
Gross margin75 %73 %76 %75 %75 %
Operating expenses3,648 3,826 4,844 11,473 14,791 
Operating income (loss), a GAAP measure$131 $(226)$(461)$136 $(922)
Depreciation and amortization18 61 78 140 235 
Contribution margin, a non-GAAP measure$149 $(165)$(383)$276 $(687)
Corporate
Cost of revenue$9 $8 $5 $25 $15 
Gross profit(9)(8)(5)(25)(15)
Gross marginN/AN/AN/AN/AN/A
Operating expenses4,765 2,337 5,443 10,462 13,573 
Operating loss, a GAAP measure$(4,774)$(2,345)$(5,448)$(10,487)$(13,588)
Other income (expense), net364 268 46 651 105 
Foreign currency (gain) loss(349)(272)(47)(624)(62)
Depreciation and amortization28 25 29 82 85 
Fair value adjustments to contingent consideration liability— — — — (1,040)
Restructuring and other charges118 165 1,017 573 4,906 
Stock-based compensation727 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)
2022202120222021
Q3Q2Q3 YTD YTD
(in thousands)
Reconciliation of GAAP Net loss to adjusted EBITDA:
Net loss$(6,668)$(5,136)$(7,668)$(17,029)$(19,707)
Income tax expense16 60 6 159 133 
Interest expense3 22 27 47 146 
Interest income(7)(7)(7)(21)(27)
Loss on equity and other investments, net207 410 1,229 806 6,070 
Foreign currency (gain) loss(349)(272)(47)(624)(62)
Depreciation and amortization136 204 203 530 600 
Fair value adjustments to contingent consideration liability— — — — (1,040)
Gain on forgiveness of Paycheck Protection Program loan— — — — (2,897)
Gain on deconsolidation of subsidiary— — — — (1,961)
Restructuring and other charges118 165 1,017 573 4,906 
Stock-based compensation727 367 2,518 1,789 3,789 
   Adjusted EBITDA, a non-GAAP measure$(5,817)$(4,187)$(2,722)$(13,770)$(10,050)