rnwk-20220728
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________________________________________________________________________________________________________________________________________________
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): July 28, 2022 
__________________________
RealNetworks, Inc.
(Exact name of registrant as specified in its charter) 
__________________________
 
Washington001-3774591-1628146
(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 ClassTrading Symbol (s)Name of Each Exchange on Which Registered
Common Stock, Par Value $0.001 per shareRNWKThe NASDAQ Stock Market
Preferred Share Purchase RightsRNWKThe 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 July 28, 2022, RealNetworks, Inc. announced its financial results for the six months ended June 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 six months ended June 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
99.2
104Cover 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 /    Christine Chambers
Christine Chambers
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)


Dated: July 28, 2022
3
Document

Exhibit 99.1
REALNETWORKS ANNOUNCES SECOND QUARTER 2022 FINANCIAL RESULTS

Company Announces Definitive Merger Agreement with CEO Rob Glaser, Subject to Shareholder Approval

SEATTLE — July 28, 2022 - RealNetworks, Inc. (Nasdaq: RNWK), an emerging leader in AI-based software and solutions, today announced its financial results for the second quarter ended June 30, 2022.

•Revenue was $11.9 million, net loss of $(5.1) million and Adjusted EBITDA loss of $(4.2) million
•Appointed Paul DiPeso to the newly created position of President, SAFR
•Announced CFO leadership transition; Brian McClain to serve as Interim CFO and Treasurer beginning on August 1st

Management Commentary
“The second quarter was a period of transition and transformation for Real. We brought in two new senior executives and are moving to a new decentralized structure with senior leaders running each of our businesses reporting directly to the CEO,” said Rob Glaser, Founder, Chairman, and Chief Executive Officer of RealNetworks. “We added Paul DiPeso, a proven leader in the access control industry to drive our SAFR business, and Brian McClain, a professional with over 25 years of financial and business leadership as interim CFO and Treasurer.”

Glaser continued: “While SAFR’s results were disappointing, we’ve received very positive feedback on SAFR SCAN, which began shipping in May. We are confident that under Paul’s leadership we can build a successful business.”

Second Quarter 2022 Financial Results
•Revenue was $11.9 million, compared to $13.3 million in the prior quarter and $14.6 million in the prior year period.
•Net loss attributable to RealNetworks was ($5.1) million, or $(0.11) per diluted share, compared to a net loss of ($5.2) million, or $(0.11) per diluted share, in the prior quarter and a net loss of ($1.3) million, or ($0.03) per diluted share, in the prior year period.
•Adjusted EBITDA was a loss of $(4.2) million compared to Adjusted EBITDA loss of $(3.8) million in the prior quarter and Adjusted EBITDA loss of $(4.3) million in the prior year period.

Corporate Developments
Earlier today, 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 shareholders meeting called for such purpose on a date to be announced. The transaction is expected to close in the fourth quarter of 2022.
Commenting on the announcement, Mr. Glaser said, “I believe that Machine Learning-based Artificial Intelligence represents a transformational opportunity, albeit one that will also take time and resources to fully realize. I’m happy that the RealNetworks Board and I could reach agreement on a path to pursue that transformation with focus, efficiency, and speed by turning Real back into a private company, and in a way that is fair to all shareholders.”
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 can access the conference call by dialing 1-877-451-6152 (United States) or 1-201-389-0879 (international). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 p.m. ET on Thursday, August 11, 2022, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (international) and entering the replay pin number: 13731696.

A live webcast will be available on RealNetworks’ 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' 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 stockholders in connection with the pending merger of RealNetworks (the “Transaction”). RealNetworks plans to file a 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, will be included in the Transaction Proxy Statement and other relevant documents to be filed with the SEC in connection with the Transaction. Information relating to the foregoing can also be found in RealNetworks’s definitive proxy statement for its 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”), which was filed with the SEC on October 29, 2021. To the extent that holdings of RealNetworks’s securities have changed since the amounts printed in the 2021 Proxy Statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Promptly after filing the definitive Transaction Proxy Statement with the SEC, RealNetworks will mail the definitive Transaction Proxy Statement to each stockholder entitled to vote at the special meeting to consider the Transaction. STOCKHOLDERS 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. Stockholders 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 definitive 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, agreements with partners, Scener’s current and future activities, and certain remaining contingencies relating to the sale of Napster. 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 stockholder 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' 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 June 30,Six Months Ended June 30,
2022202120222021
 (in thousands, except per share data)
 Net revenue$11,856 $14,561 $25,132 $30,449 
 Cost of revenue2,705 3,572 5,441 7,251 
           Gross profit9,151 10,989 19,691 23,198 
 Operating expenses:
       Research and development5,332 6,330 11,130 12,568 
       Sales and marketing4,502 5,259 9,084 10,396 
       General and administrative4,071 4,376 8,898 9,274 
Fair value adjustments to contingent consideration liability— — — (1,040)
       Restructuring and other charges165 718 455 3,889 
           Total operating expenses14,070 16,683 29,567 35,087 
 Operating loss(4,919)(5,694)(9,876)(11,889)
 Other income (expenses):
       Interest expense(22)(24)(44)(119)
       Interest income7 7 14 20 
       Gain on forgiveness of Paycheck Protection Program loan— 2,897 — 2,897 
       Loss on equity and other investments, net(410)(569)(599)(4,841)
       Other income, net268 1,916 287 2,020 
           Total other income (expenses), net(157)4,227 (342)(23)
Loss before income taxes(5,076)(1,467)(10,218)(11,912)
Income tax expense60 18 143 127 
Net loss(5,136)(1,485)(10,361)(12,039)
Net loss attributable to noncontrolling interests— (138)— (244)
Net loss attributable to RealNetworks$(5,136)$(1,347)$(10,361)$(11,795)
Net loss per share attributable to RealNetworks- Basic$(0.11)$(0.03)$(0.22)$(0.28)
Net loss per share attributable to RealNetworks- Diluted$(0.11)$(0.03)$(0.22)$(0.28)
 Shares used to compute basic net loss per share47,316 44,284 47,296 41,409 
 Shares used to compute diluted net loss per share47,316 44,284 47,296 41,409 



















RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
June 30,
2022		December 31,
2021
 (in thousands)
ASSETS
 Current assets:
 Cash and cash equivalents$14,352 $27,109 
 Trade accounts receivable, net8,283 9,556 
 Deferred costs, current portion7 49 
 Investments— 1,755 
 Prepaid expenses and other current assets4,229 3,166 
 Total current assets26,871 41,635 
 Equipment and software23,731 29,464 
 Leasehold improvements1,708 2,750 
 Total equipment, software, and leasehold improvements25,439 32,214 
 Less accumulated depreciation and amortization24,252 30,744 
 Net equipment, software, and leasehold improvements1,187 1,470 
 Operating lease assets 3,656 3,992 
 Restricted cash equivalents 1,630 1,630 
 Other assets2,940 2,878 
 Deferred tax assets, net652 727 
 Goodwill16,503 16,976 
 Total assets$53,439 $69,308 
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
 Accounts payable$1,591 $2,578 
 Accrued and other current liabilities10,929 13,286 
 Deferred revenue, current portion2,378 2,614 
 Total current liabilities14,898 18,478 
 Deferred revenue, non-current portion26 183 
 Deferred tax liabilities, net1,065 1,132 
 Long-term lease liabilities2,033 2,300 
 Other long-term liabilities7 1,142 
 Total liabilities18,029 23,235 
 Total equity35,410 46,073 
 Total liabilities and equity$53,439 $69,308 



RealNetworks, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
20222021
 (in thousands)
Cash flows from operating activities:
Net loss$(10,361)$(12,039)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization394 397 
Stock-based compensation1,062 1,271 
Loss on equity and other investments, net599 4,841 
Loss on impairment of operating lease assets— 2,461 
Foreign currency gain(275)(15)
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(2,839)(1,923)
Net cash used in operating activities(11,420)(10,905)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements(161)(131)
Deconsolidation of subsidiary, net— (836)
Other(595)— 
Net cash used in investing activities(756)(967)
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(22)(117)
Payment of contingent consideration liability— (2,500)
Net cash provided by (used in) financing activities(22)18,031 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(559)(239)
Net decrease in cash, cash equivalents and restricted cash(12,757)5,920 
Cash, cash equivalents, and restricted cash, beginning of period28,739 25,570 
Cash, cash equivalents, and restricted cash, end of period$15,982 $31,490 



RealNetworks, Inc. and Subsidiaries
Supplemental Financial Information
(Unaudited)
20222021
 Q2Q1 Q4 Q3 Q2 Q1
 (in thousands)
Net Revenue by Segment
Consumer Media (A)$2,499 $2,111 $2,168 $2,763 $2,061 $3,309 
Mobile Services (B)4,457 5,640 5,680 5,772 6,356 5,980 
Games (C)4,900 5,525 5,554 5,797 6,144 6,599 
     Total net revenue$11,856 $13,276 $13,402 $14,332 $14,561 $15,888 
Net Revenue by Product
Consumer Media
- Software License (D)$1,393 $987 $854 $1,506 $841 $1,875 
- Subscription Services (E)710 742 768 779 793 818 
- Product Sales (F)144 163 268 270 330 438 
- Advertising & Other (G)252 219 278 208 97 178 
Mobile Services
- Software License (H)879 1,531 1,616 1,459 1,931 1,391 
- Subscription Services (I)3,578 4,109 4,064 4,313 4,425 4,589 
Games
- Subscription Services (J)2,116 2,219 2,286 2,361 2,431 2,528 
- Product Sales (K)1,986 2,377 2,453 2,612 2,830 3,163 
- Advertising & Other (L)798 929 815 824 883 908 
     Total net revenue$11,856 $13,276 $13,402 $14,332 $14,561 $15,888 
Net Revenue by Geography
United States$8,237 $8,187 $8,126 $9,227 $9,209 $9,932 
Rest of world3,619 5,089 5,276 5,105 5,352 5,956 
     Total net revenue$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
Q2Q1Q2YTDYTD
 (in thousands)
Consumer Media
Net revenue$2,499 $2,111 $2,061 $4,610 $5,370 
Cost of revenue432 388 497 820 975 
Gross profit2,067 1,723 1,564 3,790 4,395 
Gross margin83 %82 %76 %82 %82 %
Operating expenses1,397 1,472 2,332 2,869 4,533 
Operating income, a GAAP measure$670 $251 $(768)$921 $(138)
Depreciation and amortization14 16 5 30 21 
Contribution margin, a non-GAAP measure$684 $267 $(763)$951 $(117)
Mobile Services
Net revenue$4,457 $5,640 $6,356 $10,097 $12,336 
Cost of revenue965 1,045 1,517 2,010 3,009 
Gross profit3,492 4,595 4,839 8,087 9,327 
Gross margin78 %81 %76 %80 %76 %
Operating expenses6,510 6,666 6,332 13,176 12,477 
Operating loss, a GAAP measure$(3,018)$(2,071)$(1,493)$(5,089)$(3,150)
Depreciation and amortization104 84 79 188 163 
Contribution margin, a non-GAAP measure$(2,914)$(1,987)$(1,414)$(4,901)$(2,987)
Games
Net revenue$4,900 $5,525 $6,144 $10,425 $12,743 
Cost of revenue1,300 1,295 1,552 2,595 3,257 
Gross profit3,600 4,230 4,592 7,830 9,486 
Gross margin73 %77 %75 %75 %74 %
Operating expenses3,826 3,999 4,849 7,825 9,947 
Operating income (loss), a GAAP measure$(226)$231 $(257)$5 $(461)
Depreciation and amortization61 61 81 122 157 
Contribution margin, a non-GAAP measure$(165)$292 $(176)$127 $(304)
Corporate
Cost of revenue$8 $8 $6 $16 $10 
Gross profit(8)(8)(6)(16)(10)
Gross marginN/AN/AN/AN/AN/A
Operating expenses2,337 3,360 3,170 5,697 8,130 
Operating loss, a GAAP measure$(2,345)$(3,368)$(3,176)$(5,713)$(8,140)
Other income (expense), net268 19 (45)287 59 
Foreign currency (gain) loss(272)(3)88 (275)(15)
Depreciation and amortization25 29 28 54 56 
Fair value adjustments to contingent consideration liability— — — — (1,040)
Restructuring and other charges165 290 718 455 3,889 
Stock-based compensation367 695 435 1,062 1,271 
Contribution margin, a non-GAAP measure$(1,792)$(2,338)$(1,952)$(4,130)$(3,920)




RealNetworks, Inc. and Subsidiaries
Reconciliation of Net loss to adjusted EBITDA, a non-GAAP measure
(Unaudited)
2022202120222021
Q2 Q1 Q2 YTD YTD
(in thousands)
Reconciliation of GAAP Net loss to adjusted EBITDA:
Net loss$(5,136)$(5,225)$(1,485)$(10,361)$(12,039)
Income tax expense60 83 18 143 127 
Interest expense22 22 24 44 119 
Interest income(7)(7)(7)(14)(20)
Loss on equity and other investments, net410 189 569 599 4,841 
Foreign currency (gain) loss(272)(3)88 (275)(15)
Depreciation and amortization204 190 193 394 397 
Fair value adjustments to contingent consideration liability— — — — (1,040)
Gain on forgiveness of Paycheck Protection Program loan— — (2,897)— (2,897)
Gain on deconsolidation of subsidiary— — (1,961)— (1,961)
Restructuring and other charges165 290 718 455 3,889 
Stock-based compensation367 695 435 1,062 1,271 
   Adjusted EBITDA, a non-GAAP measure$(4,187)$(3,766)$(4,305)$(7,953)$(7,328)


Document

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.