Realnetworks (RNWK) 7 Aug 212021 Q2 Earnings call transcript

Greetings. And welcome to the RealNetworks Incorporated Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. to Orlando, conference ADDO like host to now Kim today, Investor would turn over the your I Relations. Please proceed.

Thank RealNetworks’ conference you. second quarter XXXX to And financial call. welcome results

some statements regarding invest future and future I’d remind like as profitability to in Before adjusted condition. Other forward-looking expenses include prospects implement profitability, and its growth RealNetworks’ plans efforts, today affecting well activities. we the including you for strategy, benefits as revenue, begin, products trends liquidity well that financial and these forward-looking, restructuring its are the statements initiatives, matters and and to EBITDA, operating and and as discussed company’s from businesses as its expected other growth,

and forward-looking of materially website. in these risks including the SEC reports. in number obtained statements Form that activities. of the Napster forward-looking XXXX filings, financing our Investor disclosure that all as filings from from forward-looking from risks in of discontinued historical most growth are the We the and In and could to A our addition, Inc., forth other relate in and than and Relations Group for and to statements today’s to can presentation. belief reports and other uncertainties of accounting differ SEC that Scener actual to Rhapsody business its as Inc., to Statements of other facts including call as presented sale involve those a which to recent does describe MelodyVR that relate and this certain Form of periods third a PLC set future section comparable the statements and December conform corporate statements factors Effective contains profitability our XXXX purposes, been XX-K historical be cause on these International our and forward-looking results is risk copy statements. express or and recast operation and Napster of XX-Q have expectations certain quarter

RealNetwork’s X, future any update Forward-looking of revise reason. information, made company this of today result August new or as duty a to statements any undertakes during forward-looking as statements events reflect call, today, or made whether The other expectations XXXX. no

addition, certain measures will be non-GAAP this In call Regulation on we the present G. will financial SEC’s that considered under

and are For directly comparable financial the measure, reconciliations dated to to information under most on refer in Senior in today, Chambers, Financials X-K, our submitted the the Form company’s both hand discuss will tab. the of more found pleased update COO; will Mike and conclude our that during made over quarter today’s questions. will review financial President, be strategy the will company on Rob Rob, After of Rob. detailed the businesses. CFO prepared AI second remarks, Treasurer. Christine will investor.realnetworks.com please With CEO; and Vice to to provide answer With at each financial XXXX. detailed non-GAAP press And call corporate that, our and the Real’s a of a measure Ensing, Mike me and progress Chairman of and can included and Christine results. release which the website to and our with more Christine be SEC Mike I GAAP today Rob then President Glaser,

center thanks and Good on My main joining everyone, for will afternoon, Kim. Thanks, us. topics. three remarks today

and AI-centric as growth highlight company. an I’ll our progress First,

learning-based than XXXX. products In QX further I strength will our growth. AI and AI we provide And of QX, of centered continued and our and company more services. progress we to how context for third, discuss QX continued operations I’ll revenue Second, results. a business In becoming our streamlining our machine on Real doubled position QX, towards sheet our future balance compared and on

is pace transformation language growth. of KONTXT and together AI-based with into to in computer processing this of QX our our will now few products progress and from SAFR XX% SAFR XX% SAFR up year-over-year. in platform. KONTXT. second revenue our to vision XXX% AI our KONTXT, reminder, revenue continue Mike both services, centered natural number go be QX. XX% SAFR, In blended total XX% with results car a a regarding KONTXT a This services, average platform on increasing progress depth two greater increasing and represent our As minutes, year-over-year. steady in and continue and from XXXX QX, Ensing XXXX of in XXX%

to for Real growth. depth we’ve businesses, as in AI those and discuss resource taken therefore, focus Real to like and I’d whole QX Next, a

you recall, proceed net we offering. through a $XX.X raised April, public in likely As million in

proceeds these has watched money is make independently raised amount taken financially. over meaningful AI-based Scener. XXX in as with Scener a using million we’ve second A support growth investments consumers Scener’s of company. conditions. primarily our progression a We’re independent to to is substitution targeted In an Real month now using Moreover, of step and video QX, minutes

while Real’s for company. XX% finally, million, to to context. quarter with of balance on Mike have us, or As ahead prior seniors And approximately longer was down $XX.X overall successes Ensing. to and capital the forward the the an a time Total Real which Board will and important look in benefit next over as into providing compared Scener, shareholders investments sheet going upcoming This part operations. of no expect along a I of of grow go Factoring result, with with step great opportunity and put believe independence X% own phase We our was that results now, opportunities revenue prior the down an to better of Scener we quarter Scener Scener. has let’s a serve Real from the to moved through forward continue June also compared our is year. thrive. XXth, needs them Scener XX% second to and QX it aligns consolidated growth as independent results

games as sequentially grew, both our success. for businesses is above, business AI retooling mentioned games declined QX free-to-play year-over-year, in our our and the team as future I While

expect games games. hit We air to resume an into this games our are up we pocket, quarter. While I’m working set growth team issues driven by the these businesses free-to-play games that address and the for disappointed to hard going

the On we in had mixed results bottomline, the aggregate.

prior GAAP $X.XX share EPS of to of quarter per period. Our and share per compared was the loss a in of diluted $X.XX $X.XX previous share, a a loss loss the year per in

when negative XXXX. ahead. of judicious off includes in in $X.X loss cost believe a increases Scener AI in negative in which approximately reflect growth $X.X Our compared in growth XXXX million of Scener and businesses, This loss which adjusted QX EBITDA loss a These of million of form excluding operating to $XXX,XXX, million. investments in $X.X we quarters the results continued the negative will pay QX

not in a will in As revenue our discuss also but AI AI continued that, to Mike and achieve our now call to detail. XXXX growth growth over further turn businesses result, will businesses, double-digit XXXX. we we only expect I the to that continue consolidated Mike? with And in

elaborate Rob. during will two The businesses, we our be to quarter have on the focus progress and Thank the AI-based of in KONTXT. remarks SAFR made my today you,

advancements. again in Federal the driven once with we by a and U.S. commercial both in global investment delivered success along highlighted, several Rob strong markets, -- As quarter SAFR, product

global year-over-year. we significantly grew On commercial front, the revenue

nationwide we Japan’s NTT utilize network growth, mobile to NTT a to and facial XG this with SAFR’s operator. leading security signed leverages its to DoCoMo addition revenue reseller DoCoMo, DoCoMo to recognition enhance expand In in SAFR Japan. further agreement artificial platform intelligence. NTT Well, include safety already will

U.S. a partner within look We engineering resources are to year-over-year. to strategy. DoCoMo commercial NTT over benefit We NTT to sales revenues Federal dedicate business, benefiting forward key both technology several grew SAFR companies implement to XG the network. significant it as that the to its -- partnership. from thrilled Similar also chose the DoCoMo competitors drive significantly expect SAFR and our

the R&D current quarter we a against on base, During and focused customer larger deployments. our built opportunities and two full significant previously announced SBIRs SBIRs executed additional beyond pipeline

which product Version during new X.X control SAFR, side, anti-spoofing access we passive for key On security made the released In we to liveness quarter. and enhance applications. the advancements features several detection introduced April,

on server-based solution. and IoT platform customers. smart as can SAFR device, Testing vision of of to allows computer analysis which as will the will edge take forensic enabling cost to the run This advanced In of our the further smart capabilities. edge we attain existing be the searching our to This algorithms investigative users addition, software Further, we enhance advancement SAFR-embedded feature, the porting our released full a to SOC’s. conduct new the ownership the on driving enables our our shown cost within same popular that down run hardware solution the post-event solution SAFR and two to total edge a our for devices. accuracy has

natural a Next, discussion processing language platform. our I’ll turn to KONTXT, of

and KONTXT facilitate tools our long-term develop Our relationships, to focused products telecom with experience team has intently along enhanced been filtering processed and services our X leveraging for billion messages daily, services at AI-based been customers. robust the industry to deliver SMS our continuing plus help improved MMS for By on to we customers. we’ve able AI-based messaging-based to deliver

in the development execution both evident customers. of In we continued development pleased the on transformation future and to We AI-centric growth innovate SAFR look in earnings the will of this on optimistic to remain prospects greater over an of turn KONTXT to to and forward results last It’s to quarter to are to the products for With KONTXT. call the across discuss working on next-generation that largely new Christine? both and communicate markets, our financial benefits company the now the further and space the Christine underway is the look commercial and SAFR outlined for in XXXX and that, Voice federal second platform come. KONTXT our against business quarters continue I our forward enhance as detail. both We the call. to current strategy to summary, with we like

followed afternoon, good as business and comparisons more first quarter sequential everyone. of always year-over-year discussion note review fluctuate are Mike, a segment I my second consolidated will our can remarks by of quarter-to-quarter. apples-to-apples, detailed that and Please our certain not results, Thanks, In our businesses performance. today,

of the Napster has purposes. disclosure financial been discontinued addition, for our XXXX, Scener which XX, the presented to continue XX, operations In to not of as results, in December completed relate our today as we of being a second June quarter deconsolidation but Further, are of RealNetworks, and Napster. treated XXXX, and related operation accounting included Scener going and such, forward. exclude Therefore, costs will as deconsolidated results continuing as it’s XXXX

by offset our quarter Similar period. games year and to quarter in was AI more to $XX.X our turning businesses. revenue Total declines growth the compared to in quarter, the $XX.X last results. million businesses the in was prior million, in than $XX.X Now foundation for our prior and second million strong

greater revenues decreases Federal both by Consumer million was renewals On markets. Revenue biggest contract $XXX,XXX largely free-to-play these and tone inter-carrier SAFR and second were businesses, prior was was was Federal multiyear Mobile at both sequential $X.X sequential our $XXX,XXX World down the prior as due $XX quarter Delicious towards quarter and reinvigorating Delicious The and messaging Breakfast. sequentially sales SAFR revenue year-over-year Consolidated higher & year $XXX,XXX down to messaging down commercial was was our year-over-year. and results primarily timing sequentially a result by Looking detail, basis down prior revenue, sequential down $X.X the our to continues and highest quarter two in in This IP business. was free-to-play revenue decrease and revenue within respectively. ringback decline our gross period, lower deals, year-over-year. million the to profit both as compared year-over-year the due Bed segment in prior due to $X.X U.S. the inter-carrier the offset period. in by Media for driven and Services from to global was team and legacy million, Games up the our work from compared $X.X from increase second primarily million down the partially year-over-year. of of codec in on and revenue growth the commercial space. the global offset titles lower and year U.S. in looked decrease partially Year-over-year quarter The games down sequential a million the $X.X million business, a and for basis, revenue to

and increase XX%, of When million an million expenses of was and $X.X a including the the adjustments value consideration for As prior quarter a These in non-core prior because $X.X percentage to XX% fair flat items. of restructuring costs margin purchase the $XX.X gross the XXXX on of compared contingent they revenue, the from the from compared for second certain normalizing Napster. year. prior prior can decrease quarter numbers and Total items to the was fluctuate quarter million, include from period. year January liability non-core operating

net compared the Second of prior $X.X compared approved second related the up to per RealNetworks as quarter a gain including on or one=time forgiveness of Paycheck costs was and XXXK Scener. that attributable quarter million prior to per Program a the $X.X period, operating growth the a to to of operations Included million was year the from prior raise or to and XXXK net share in compared to $XX.X deconsolidation million or XXXX a Scener costs the in minus of loss a $X.X loss in diluted million was Net net businesses. for EBITDA capital million, diluted was result related quarter loan period. periods. to and to focused diluted during the million Protection share, second AI million the prior Scener the million expenses of in drive $X.X of loss our excluding loss of the of $X.XX loss the continuing or X% RealNetworks of on prior per in a investments compared $X.X $X.X of the and of prior the of $XXX,XXX our X% quarter, $X.X in Adjusted relating of one-time and operating million year $X or were EBITDA, in operating were $X.XX a loss down in attributable by interest quarter million. the gain quarter loss to April loss principal driven to year of share $X.XX Adjusted from a debt was the $X.X quarter a

$X.X decrease in $XXX,XXX KONTXT. partially of in primarily The in sequential and our $XXX,XXX and Media a our Services Consumer a loss in they XX and and the AI codec addition sequential the of growth our the liability higher purchase contract compared was of Scener. revenue prior and value period, of items. from compared down booked to loss and in to contribution due result more compared of our on unallocated SAFR of up the a to contribution a increase in unallocated in adjustments Napster, prior a as year initiatives, and business in our quarter quarter $XXX,XXX $XXX,XXX, was a year segment numbers year-over-year to can Games At was and to were These from sequential the $XXX,XXX, decreased quarter year-over-year the to revenue On margin in quarter $XXX,XXX to non-core million due by of timing compared margin year include by SAFR were contingent period. costs compared the loss the XX-Q. to quarter a of of capital period. prior results level, $XXX,XXX investments of respectively, lines including period. expenses in corporate offset and January renewals by in a increased non-core a $X.X games. expenses of year certain for normalizing gain our expenses, prior $X.X can to due related items, the period, second the was was SAFR information deals segment lower IP prior On because prior quarter was prior a of basis to segment the fair multiyear the compared consideration a year primarily fluctuate corporate prior legacy million segment found million When turning business focused corporate free-to-play to to $XXX,XXX restructuring to in expenses basis, to loss quarter in of higher due KONTXT. to period. On year-over-year revenue improvement result the year be prior a loss investments in investments and and related by $XXX,XXX second prior compared margin the the and driven the prior was in raise April. Now the operating the basis, detail. and gain $X.X a quarter, million, as Further the contribution $XXX,XXX loss basis, a Mobile decrease mostly from prior

closing our Now in at sheet, XXXX. XX, June March XXXX on cash had XX million, and company part The borrowings no net operating offset turning to million and XXXX, we XX, driven from offering public the was December outstanding revolving by in debt compared the XX, and cash that XX, of an $XX our had resulted $XX.X balance at unrestricted at used by credit April $XX.X increase $XX.X to underwritten XXXX, million equivalents, in June facility. on to approximately proceeds March in cash primarily XX, no we At million XXXX, activities.

quarter the million to for closing sale our transferred at our cash XX million XX.X Napster shares contingent of of $X.X Napster. Napster ordinary settle of consideration the purchase we January During liability use December date XXXX also and valued

gain Scener’s sheet we of $X the balance of during removal strengthened approximately in which addition, through second resulted associated the our a million In liabilities, non-cash quarter.

outlook. our to turning Now

we Scener, third $X.X the adjusted to of million, deconsolidated excluding XX, been For $XX.X quarter currently June as to $X XX, million total ending in million loss $XX.X in to EBITDA of million has expect range be and XXXX. which XXXX, revenue the September of the range

flat XXXX a with investment now be in continue XXXX in expect and to we levels, total softness to an primarily Games slightly ending the year reigniting business. will For year growth focus be XXXX, revenue on relatively from overall topline due our beyond. XXXX full down XX, to December will

full we products, our we was We XXXX. XXXX our we for manifest questions. now -- call see greater double-digit such, forward the XXXX, As it XXXX Operator? a adjusted that, to growth look by to be as as in meaningful expect AI-focused of SAFR expect will well to loss to driven investments than begin open the in benefits and With our games. when year KONTXT, EBIT revenue free-to-play and seeing

Our [Operator first Instructions] Lake Street you. proceed. Argento Please comes Thank Mark from with question Capital.

a Thanks guys. with afternoon, Got here, Hi. Good questions. my taking for different SAFR. start few ones

Just us contract could NTT of the will How existing kind deal, DoCoMo that, opportunity that interesting. their if understand walk a through to size sounds relationships, you they maybe you and up kind product into wondering reselling are contract very to scale like the primarily into channel, could trying dig through deploying it a of that? of like the DoCoMo better

Yeah.

for So, thanks Mark. question, the

they then -- yeah, is both So, and customers. us an sell are their fees and approximately part of as established there two-year within will to channel existing agreement. the agreement It additional fees license

resell Okay. And is that corporations, selling to or corporate solutions -- they’re that… is so goods, they’re solutions effectively

Yeah.

on target markets? the …

Yes. It’s Yeah. focus. Yeah. enterprise

Helpful. in out of educate could -- in market the and own or they force up they quickly get Got period for terms it. of scale implementation… terms how then And start long in sales selling

No. Yeah.

pretty can Mark. they scale here, think I quickly up

questions then, on just a turning All right. And couple just Scener the -- business.

that the financial are numbers what of at now deconsolidation you precipitated be assuming the statements? guys in that’s XX% the roughly a ownership or I’m will shortly So

Rob. whole is the Well, this -- calculation

from boat Board. in team of and Board of on of company how understand Scener been leadership independent to on you deconsolidated direction boat is to But us detail a independently, of equation, legal suffice generalize finance in is painstaking legal finance -- June it some a by I has when There’s a team. characterize offshore, teams, can as I number we learned that, scrutinized is developing something to an not kind have are our the this the a to that and our is a carefully I this from certain consider consolidation how we going apparently try get so factors -- set think, for learned majority a But different team. context of I’ve For would purposes. and independent gets the for business I these And it the and way. things. but Mike this are you the as amount Board. sales it’s say has shore the and of It they things, a far company -- multivariate XX, generalizable the and

Great.

invest you so that is there? us, And or into guys, guys originally little history a came of remind out business, RealNetworks give us it technology did the you

Yeah.

what And couple usage. friends. great point, time, just wanting how of not incubator and their up called who business. to for the the hit to Originally, helpful and kind to but independent Launch, technology, of the And to at he connected locked in sort and a very was somebody actually grew as then We’d history usage who I their well doing they So the was the home, still as it was Scener it became -- the were their it that the path. right the working as incubated sort I -- that product, XXXX terms to of his best independent just as set catalytic sort platform on entrepreneur, independent but right to the he idea. of with idea blew him worked joined few idea started He’s how grew was quarters, entrepreneurial think, It us core in years that of clear was he acquired the exploded, And a other was said team. place, now and develops, created intrapreneur, previous learn this was company at pretty of down, a thinker. ran at some pandemic RealPlayer And which more sort became of the before. Real. one opportunity stay people be with close a team everyone was an over

about had it this advantage now to Netflix going things people well of that that supports any dozen exciting service the it was wave. would a a to the its might is, be on old people one temporary was wide allowed way of continued, which that have with range their a of and one something be -- would thought over take things. of do hasn’t, positioned doing go So started to back to parties And Scener, phenomenon, a watch

lot it’s in So He things changed I Pandemic other like communicating. the pandemic. has of methods a think has of patterns. new introduced

just this going will to team to about not they’ll house or the modality calls, back, for like, think, Scener to positioned shows But but similarly, trends. are watch meetings doing like a meetings is I print, think to their go And stop people how people Zoom their of that face-to-face will into really can friend’s it’s watch yes, well theaters. come by friends movie over shows Zoom and and fundamental is alike. new people go with

we glad it. we’re incubated So

world, of there’s services, We’re needs. of out. it. of a think mode liked sort an team monetize if the has the Facebook’s ways audience very years ones spin or then certain of bunch as in model, several the the independent the to you’re size, audience world, et a you’re cetera, glad we this of any Twitter’s consumer it gets Basically you investment We free to for an capital the once Instagrams, of believe the opportunity. much. It and scaling the big We these the like

run and Real. has within profile it investment we a businesses than kinds different So build of that the

both sense have well will we it to and done I out just it us for spin serve believe Scener made us it that. So and

there Great. I’ll a watch can be maybe well. valuable asset progress as interesting and to hopefully guys the economically you for become

you strategy, the on there? sales So just in hires, to little kind I bit go-to-market some you’re the AI, maybe your team think, made team in right a terms about a now? of Mike, where go-to-market -- little bit back get and maybe SAFR you the talk can general. sitting of

Mark. Yeah,

have some strengthen made hires to contract that leadership we So space. actually in

very globally, leveraging our global still focused sales are team. We

we’re there. continued sales see you in resources our good and and the talk very then, segment. And about Japan within to strength actually results, As our APAC we build Federal the and strength force in

All right.

I does it. appreciate guys. that I think it me. for Thanks,

you. Thank

Mark. Thanks,

[Operator Instructions]

to just This is Chambers, like would yep, would I Christine like to I -- correct…

Yeah, Christine.

statement loss XXXX. loss our $X.X just EBITDA compares approximately QX was that that loss in Scener this excluding of of XXXX a and adjusted And Scener operating million. costs earlier QX $X.X $X.X we $XXX,XXX million and a made million, of excluding to …one in when

At this the for comments. I time, to back like call Robert over you. closing Mr. would turn to Thank Glaser

Operator. you, sometimes comes Thank I all everyone and in thank is that staying comment call this you joining we question thing for Well, going not well summer hope did us One today. healthy. and everyone’s on is in in is, safety the running we’re careful in how all safe be the trying health our businesses necessary observing progressing of and and of the context state we’re precautions the while we’re to pandemic, and business. all still the

all other complex current during But that are for world safe are plans with to on and we things there we parts on and back we’ll able to a specific spite continuing we’ve healthy while, of get uncertainty call continuing with business, any know the As in you been associated path. forward things if in even to if that. of moving future our quarters and move predicated do this aspects so. or the need glitches get a And in many we the you it world to let business, know changes to we but and forward be stay see, vaccinated feel pandemic, any early healthy complex in from will our of we period hopefully able didn’t other everyone’s the are

that, the with team doing the Real in forward. thank touch and for want joining soon. for at is to listening today our Thank be everybody partners everything I move So the will we to our and us today. Thank team business audience

Thank gentlemen. conclude This does you, today’s ladies teleconference. and

great your for a thank time and disconnect your at have may lines You participation day. this and you