Q1 2022 RealNetworks Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the real Networks, Inc. First quarter 2022 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Brian <unk> Investor Relations. Please go ahead Sir.
Thank you Cody and welcome to real networks first quarter 2022 financial results conference call before we begin I'd like to remind you that some matters discussed today are forward looking including statements regarding real networks future revenue operating expenses and adjusted EBITDA as well as trends affecting its businesses in <unk>.
Aspects for future growth and profitability liquidity and financial condition.
Forward looking statements include the company's plans to implement its strategy invest in its products and initiatives and restructuring efforts as well actually the expected growth profitability and other benefits from these activities. In addition, today's call.
Call contains certain forward looking statements statements that express our belief and expectations and all statements other than statements of historical facts are forward looking and involve a number of risks and uncertainties that could cause actual results to differ materially from these forward looking statements. We describe these and other risks in our SEC filings.
Including in the risk factors set forth in our most recent reports on Form 10-K, and 10-Q and in other reports a copy of those filings can be obtained from the SEC or from the Investor Relations section of our corporate website.
Forward looking statements made today reflect real networks expectations as of today may 4th 2022.
<unk> undertakes no duty to update or revise any forward looking statements made during this call whether as a result of new information future events or any other reason.
In addition, we will present certain financial measures on this call that will be considered non-GAAP under the SEC's regulation G for reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure. Please refer to the information included in our press release and in our form 8-K dated and submitted to the SEC.
Both of which can be found on our corporate website at investor real networks Dot com under the financials tab with US today are Rob Glaser, Chairman and CEO , Mike Ensing, President and COO, and Christina Chambers, Senior Vice President Chief Financial Officer and Treasurer.
Rob will discuss the company's strategy and the progress the company made during the first quarter of 2022, Mike will then provide a more detailed update on <unk> AI businesses and Christine will conclude with a more detailed review of the financial results. After days. After today's prepared remarks, we will open the call to questions, Rob I will turn the call over to you.
Thanks, Brian and good afternoon, everyone and thanks for joining US my remarks today will focus on our three main growth initiatives and the steps we've taken to set each other up for success and long term profit.
After I conclude my cancer, who will discuss our context and safer initiatives in more detail after Mike Kristine Chamber, who will discuss our detailed financial results.
Let me first start with a high level overview of our quarterly results. Our total revenue in the quarter was $13 $3 million down from $15 9 million in the first quarter of 2021, and essentially flat compared with Q4 of 2021 earnings per diluted share was a loss of 11 cents compared to a loss of 27 cents per diluted share in the prior period first quarter adjusted <unk>.
EBITDA was a loss of $3 8 million compared to an adjusted EBITDA loss of $3 million in the prior year period will.
We continue to have a solid balance sheet with $22 million of cash available to us and no debt.
Next I want to talk about our AI based growth initiatives safer in context in the first quarter revenue the safer business increased by 22% compared to the first quarter of 2021 revenue for Cognex business increased by 10% compared to last year's first quarter.
Central basis revenue was down 8% for safer and down 6% for context in both cases, we see the need to turbocharge, our growth and are taking significant steps to make that happen.
The main way, we are moving to turbocharge safer is to sharpen our focus on delivering complete safer based products rather than purely relying on licensing to stay for software.
The main initiatives that our bodies. This changes say per scan, which is the first built from scratch combination of hardware software product real history.
We announced say per scan in March at ISC, West, which is the U S securities industry biggest tradeshow.
Safer scanner is a textbook biometric access control door station targeted at commercial markets.
<unk> status in the first door station huge computer vision facial recognition technology. We think this is the first such product that can bring fr into the mainstream this because safer scan as fast a highly accurate and delivered excellent results in less than half the price of the previous products.
Our secret sauce enables us to do this is our saber technology itself because it is faster and can pack safer can run well and much lower cost hardware than competing fr algorithms billings paper scan is a complete hardware software product enables us to deliver a highly differentiated product that we think has excellent prospects.
Safer scanner began shipping at the end of May the initial reception from the industry has been very encouraging we're in the process of building out the sales channels and partnerships necessary to create successful customer deployments.
With sabre scattered about to launch we will be refocusing a lot of our safety team towards safer scan and concurrently narrowing our commercial licensing initiatives. We will continue to license a safer software platform commercial and federal customers, but we'll focus on that work on the biggest and most leveraged opportunities Mike Ensing will share additional details of our separate plan in a few minutes.
Let me now turn to our messaging business now that we think we have mature core product our main focus to scale up our sales and marketing effort with context.
Last month, we are actually part of my quality to the newly created position of president for context messaging in telecom <unk> over 20 years of experience, leading and delivering business growth in the mobile market and are confident that he is the right leader to drive a significant scale up of context in our messaging business.
Against that will provide additional information with respect to our context and messaging in a few minutes.
In the gas business as you know about six months ago brought in a new leader assuming that <unk> because the changes in <unk> that is making involve retooling our current games portfolio. The changes will take time to drive significant commercial results.
That said <unk> is off to an excellent start and I'm highly confident that you're setting up games for significant growth in 2023 and beyond.
In sum we are squarely in the sausage, making phase of these growth initiatives. Our current short term financial results reflect this reality as you go through these transitions, we will manage our resources carefully and wisely and make clear that sometimes hard credits when we need to while disappointed that this transition will be bumpier than we'd expected I remain very optimistic about <unk>.
Terrific prospects and with that let me pass the mic to Mike.
Thanks, Rob I'd like to start today's discussion with context, and the appointment of Mike <unk> as president of context Telecom and messaging.
We are tremendously excited to have Mike onboard Mike spent most of his career at sprint Nextel, where he has held executive roles, leading the digital our new ventures group.
Led business development at Neustar and co founded and led digital and AD Tech startups, including sundial Dot com and insight media Mike.
Mike brings us great business sales and strategy acumen, and we'll be focused on scaling up our business and sales efforts for context, leveraging the great product suite, we have built.
Today context enables global mobile operators to secure and maximize their messaging capabilities through edge up interoperability AI machine learning and value added messaging services.
Contact is our patented NLP platform, which category <unk> and blocks over 20 million text messages images and voice calls per day we.
We help carriers build customer loyalty enhanced the customer experience and drive new revenue through text and voice message classified classification anti spam activity.
As I discussed on our last earnings call. Our focus remains on the needs of U S and international carriers, while broadening our efforts to include Ucas Unified communications as a service and <unk> color named providers.
Interest among these types of customers is building and in fact, it was recently announced that cloud communications, a leading ucas provider of voice data and messaging solutions launched its new call screener feature powered by context.
Context features a unique voice fingerprinting solution that combines audio spectrum analysis and speech patterns with natural language processing to help determine the intent of the color.
It is our goal to bridge the experience that we have an anti spam and anti fraud machine learning with proactive management of voice and text messages.
Now turning to safer.
During last quarters call, we discussed our plan to increase our focus on access control and authentic authentication use cases and that we would be launching a suite of products in the access control space.
<unk> a safer scan is the first step on delivering on that strategy.
We believe there is a large and growing market and demonstrated customer need for touchless biometric access controlled products. This space provides for a great application of real facial recognition algorithm.
Software is differentiated by being fast accurate and super compact, making it especially valuable for customers seeking to embed based recognition liveliness in spoofing detection and person centric analytics directly in devices operating at the edge.
We believe safer scan solves several security problems, while being an affordable option for businesses.
Currently badges are key cards are the dominant form of office place security, but do not represent real security contrary to badges and key cards facial recognition can eliminate tailgating monitor occupancy is touchless and can provide a thorough audit trail of usage, all while being an affordable option.
We estimate that key cards represent about 76% and fingerprint technology is about 13% of the approximate $1 $7 billion physical access control reader market.
At an approximate price point of $200 and with comparable products in the market today selling for anywhere between 25, and 5000 safer scan is an attractive and viable alternative to key cards and fingerprint providing access to a significant customer base.
As initial points of validation, we received substantial favorable feedback at our launch in a product launch at ISC West based on this feedback from Pacs systems integrators and end customers. We believe there is a strong product market fit for safer scan.
In addition, safer scan was recently awarded the platinum 2022 security today.
<unk> governance Security award in the biometric access control Division. This award for safer scan reinforces our confidence in the product.
From a strategic perspective, we believe that safer scan being a complete product versus a software technology provides a path to a scalable repeatable business for safer we are increasing our focus on safer scanned and access control and we will be shifting resources away from the safety and security space with the exception.
A key markets and the federal space.
We're optimistic about this pivot as potential and believe it will lead to substantial growth for safer.
With that I will now turn the call over to Christine to discuss our financial results in greater detail Christine.
Thanks, Mike and good afternoon, everyone. In my remarks today I will first review our consolidated first quarter results followed by a more detailed discussion of our segment business performance.
Total revenue for the first quarter was $13 3 million compared to $15 9 million in the prior year period safer.
<unk> revenue increased 22%, primarily due to safer sales in context revenue increased 10% year over year, driven primarily by image hashing feature we introduced in late 2021.
Consumer media revenue in the first quarter 2022 decreased $1 2 million year over year drill.
Driven primarily by our IP business.
Games revenue for the first quarter of 2022 was down approximately $1 1 million compared to the prior year essentially flat compared to the fourth quarter of 2021.
The decline in year over year revenue was primarily driven by in game purchases.
Consolidated gross profit in the first quarter was $10 5 million compared to $12 2 million in the prior year driven by lower revenue.
As a percentage of revenue gross margin was 779% up two percentage points compared to the first quarter last year.
Total operating expenses in the first quarter was $15 5 million compared to $18 4 million in the prior year. The decrease was primarily attributable to $3 2 million of restructuring charges taken in the first quarter of 2021 compared to three.
300, K in Q1 2022.
Net loss for the quarter attributable to rail networks was $5 2 million or <unk> 11 per diluted share compared to a net loss of $10 4 million or <unk> 27 per diluted share in the prior year period.
First quarter 2022, adjusted EBITDA was a loss of $3 8 million compared to adjusted EBITDA loss of $3 million in the prior year period.
Sequentially adjusted EBIT loss was essentially flat.
Now turning to our first quarter 2022 segment results in more detail.
Mobile services segment contribution margin was a loss of $2 million compared to a loss of $1 6 million in the prior year.
Year over year change was driven primarily by decreased revenue in our legacy businesses.
Consumer consumer media segment contribution margin was a gain of 300000 compared to approximately 600000 in the prior year period.
The decrease was primarily due to lower revenues and offset by expenses related to Sina that we no longer consolidate in our results.
Games segment contribution margin with a gain of 300000 compared to a loss of 100000 in the prior year period.
Revenue declines were offset by lower costs.
Turning to our balance sheet.
At March 31, 2022, we had $21 8 million in unrestricted cash and cash equivalents compared to $27 1 million.
And the 31st 2021.
We had no debt and no borrowings outstanding on our revolving credit facility.
As mentioned, we continue to focus our resources on our AI based growth initiatives and carefully manage our expenses.
We then ill save the business, we are intentionally investing and safest scan and optimizing our geographic footprint.
Now turning to our outlook.
For the second quarter ending June 30 of 2022, we currently expect total revenue to be in the range of 11 million to $12 5 million and adjusted EBITDA loss to be in the range of 6 million to $4 5 million.
Because we expect slower revenue growth and safer in 2022.
Than we previously expected, we now anticipate achieving single digit revenue growth in 2022, excluding the games business.
With that we'll now open the call for questions.
Operator.
Thank you if you'd like to ask a question. Please begin by pressing star one on your telephone keypad.
We're using a speaker phone. Please make sure your mute function is turned off to a signal to reach our equipment. Once again that is star one if you'd like to ask a question, we'll pause for just.
In a moment to allow everyone an opportunity to signal.
We will take our first question from Jacob stepping through Lake Street.
Capital markets. Please go ahead.
Hey, Thanks for taking my questions.
Solid quarter.
Just wanted to dig in more on.
The safer revenue growth.
What are the primary headwinds that youre seeing.
In that segment.
So.
The primary headwind, we're seeing actually is within the safety and security space.
And.
A large amount of projects.
Getting delayed.
Hi into further quarters.
And it's something that we.
We have seen and Thats part of the decision to focus more on safer scan and access control.
Okay.
Maybe just looking at gross margin next quarter.
It was up nicely this quarter year over year.
But.
Given that the revenue outlook has slightly decreased from where we had our numbers what do you think about.
Margins moving forward.
Hi, Christine.
Not guide to gross margin specifically.
We did see an improvement.
So from my head from my remarks and.
Year over year and.
Yes, like I said, we don't guide specifically to gross margin.
For the quarter.
But I have given EBITDA our expectations for Q2.
Okay.
Maybe just last one so.
Looking to get a little bit more information on the NTT docomo.
Deal.
Has that been ramping or where is that.
Yes, no that's a great question so.
Very significant amount of activity with projects and deployments across a very wide.
Set of use cases.
Those use cases include access control as a physical security actually workforce management as well.
And then also customer analytics. So we're actually very very pleased with the progress.
That we're making with Docomo.
Okay, great. Thanks for taking my questions.
Okay.
Thank you once again Thats star one if you'd like to ask a question.
Okay.
And that does conclude today's question and answer session I'd like to turn the conference back over to management for any additional or closing remarks.
Thanks. This is Rob I want to thank you everyone for joining US. This afternoon look forward to following up with the.
Those of you that we'd like to do so in the days ahead.
Until then take care I hope, everyone stays well and healthy and we will look forward to talking to you soon thank you operator.
Thank you and that does conclude today's conference. We do thank you all for your participation you may now disconnect.
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