Digimarc Reports Second Quarter 2023 Financial Results

Subscription Revenue Increases 59% on Current Products

Subscription Gross Profit Margin Reaches 84%

BEAVERTON, Ore.--()--Digimarc Corporation (NASDAQ: DMRC) reported financial results for the second quarter ended June 30, 2023.

"Q2 was a strong quarter on many fronts, a testament to our focus on being easy to begin doing business with and excellent at guiding customers along their product digitization journey," said Digimarc CEO Riley McCormack. "A combination of our adding new customers as well as expanding our relationships with existing customers drove a 59% year-over-year increase in subscription revenue from current products, and that, along with our continuing platform unification work, drove a 1,100 basis point year-over-year increase in subscription gross profit margin to 84%. The results of our transformation are beginning to become obvious, and we are excited and energized by what's ahead."

Second Quarter 2023 Financial Results

Subscription revenue for the second quarter of 2023 increased 44% to $4.7 million compared to $3.2 million in the second quarter of 2022, primarily reflecting higher subscription revenue from new commercial contracts, partially offset by $0.3 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product last year.

Service revenue for the second quarter of 2023 decreased 10% to $4.1 million compared to $4.5 million in the second quarter of 2022, primarily reflecting $0.7 million of lower service revenue from HolyGrail recycling projects, partially offset by $0.3 million of higher service revenue from the Central Banks.

Total revenue for the second quarter of 2023 increased 13% to $8.7 million compared to $7.7 million in the second quarter of 2022.

Gross profit margin for the second quarter of 2023 increased to 56% compared to 52% in the second quarter of 2022. Excluding amortization expense on acquired intangible assets, subscription gross profit margin improved to 84% from 73% while service gross profit margin decreased to 51% from 61% in the second quarter of 2023 compared to the second quarter of 2022.

Non-GAAP gross profit margin for the second quarter of 2023 increased to 74% compared to 71% in the second quarter of 2022.

Operating expenses for the second quarter of 2023 decreased $2.8 million, or 15%, to $16.1 million compared to $18.9 million in the second quarter of 2022, primarily reflecting $2.3 million of lower compensation costs due to lower headcount, partially offset by annual compensation adjustments, and $0.5 million of lower contractor and consulting expenses.

Non-GAAP operating expenses for the second quarter of 2023 decreased $2.1 million, or 14%, to $12.9 million compared to $15.0 million in the second quarter of 2022.

Net loss for the second quarter of 2023 was $10.6 million or $(0.53) per share compared to $14.6 million or $(0.75) per share in the second quarter of 2022.

Non-GAAP net loss for the second quarter of 2023 was $5.8 million or $(0.29) per share compared to $9.2 million or $(0.47) per share in the second quarter of 2022.

At June 30, 2023, cash, cash equivalents and marketable securities totaled $34.5 million compared to $52.5 million at December 31, 2022.

Conference Call

Digimarc will hold a conference call today (Wednesday, August 2, 2023) to discuss these financial results and to provide a business update. CEO Riley McCormack, CFO Charles Beck and CLO Joel Meyer will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management’s prepared remarks.

The conference call will be broadcast live and available for replay here and in the investor section of the company's website. The conference call script will also be posted to the company's website shortly before the call.

For those who wish to call in via telephone to ask a question, please dial the number below at least five minutes before the scheduled start time:

Toll-Free Number: 877-407-0832
International Number: 201-689-8433
Conference ID: 13737194

About Digimarc

Digimarc Corporation (NASDAQ: DMRC) is a global leader in product digitization. A pioneer in digital watermarks, Digimarc connects every physical and digital item to a digital twin that captures product data, records events and interactions, and enables powerful new automations. Trusted to deter counterfeiting of global currency for more than 20 years, Digimarc is also recognized for ensuring product authenticity, improving plastics recycling, and more, with a commitment to promoting a prosperous, safer, and more sustainable world. See more at digimarc.com.

Forward-Looking Statements

Except for historical information contained in this release, the matters described in this release contain various “forward-looking statements.” These forward-looking statements include statements identified by terminology such as “will,” “should,” “expects,” “estimates,” “predicts” and “continue” or other derivations of these or other comparable terms. These forward-looking statements are statements of management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and regulatory factors. More detailed information about risk factors that may affect actual results are outlined in the company's Form 10-K for the year ended December 31, 2022, and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

Non-GAAP Financial Measures

This release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted). See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that affect comparability. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons.

Digimarc believes that providing these non-GAAP financial measures, together with the reconciliation to GAAP, helps management and investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules. These non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, investors should examine Digimarc’s non-GAAP financial measures in conjunction with its historical GAAP financial information, and investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results.

Digimarc Corporation

Consolidated Income Statement Information

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

2022

 

2023

 

2022

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

4,678

 

 

$

3,244

 

 

$

8,563

 

 

$

7,035

 

Service

 

 

4,052

 

 

 

4,503

 

 

 

8,010

 

 

 

8,123

 

Total revenue

 

 

8,730

 

 

 

7,747

 

 

 

16,573

 

 

 

15,158

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription (1)

 

 

771

 

 

 

886

 

 

 

1,566

 

 

 

1,928

 

Service (1)

 

 

1,968

 

 

 

1,744

 

 

 

3,683

 

 

 

3,575

 

Amortization expense on acquired intangible assets

 

 

1,122

 

 

 

1,120

 

 

 

2,211

 

 

 

2,314

 

Total cost of revenue

 

 

3,861

 

 

 

3,750

 

 

 

7,460

 

 

 

7,817

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription (1)

 

 

3,907

 

 

 

2,358

 

 

 

6,997

 

 

 

5,107

 

Service (1)

 

 

2,084

 

 

 

2,759

 

 

 

4,327

 

 

 

4,548

 

Amortization expense on acquired intangible assets

 

 

(1,122

)

 

 

(1,120

)

 

 

(2,211

)

 

 

(2,314

)

Total gross profit

 

 

4,869

 

 

 

3,997

 

 

 

9,113

 

 

 

7,341

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription (1)

 

 

84

%

 

 

73

%

 

 

82

%

 

 

73

%

Service (1)

 

 

51

%

 

 

61

%

 

 

54

%

 

 

56

%

Total gross profit margin

 

 

56

%

 

 

52

%

 

 

55

%

 

 

48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

5,106

 

 

 

8,073

 

 

 

11,404

 

 

 

16,018

 

Research, development and engineering

 

 

6,161

 

 

 

6,065

 

 

 

13,987

 

 

 

12,156

 

General and administrative

 

 

4,352

 

 

 

4,487

 

 

 

8,979

 

 

 

10,895

 

Amortization expense on acquired intangible assets

 

 

268

 

 

 

321

 

 

 

528

 

 

 

663

 

Impairment of lease right of use assets and leasehold improvements

 

 

250

 

 

 

-

 

 

 

250

 

 

 

574

 

Total operating expenses

 

 

16,137

 

 

 

18,946

 

 

 

35,148

 

 

 

40,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(11,268

)

 

 

(14,949

)

 

 

(26,035

)

 

 

(32,965

)

Other income, net

 

 

647

 

 

 

93

 

 

 

1,392

 

 

 

89

 

Loss before income taxes

 

 

(10,621

)

 

 

(14,856

)

 

 

(24,643

)

 

 

(32,876

)

(Provision) benefit for income taxes

 

 

(2

)

 

 

217

 

 

 

(20

)

 

 

456

 

Net loss

 

$

(10,623

)

 

$

(14,639

)

 

$

(24,663

)

 

$

(32,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share — basic

 

$

(0.53

)

 

$

(0.75

)

 

$

(1.23

)

 

$

(1.76

)

Loss per share — diluted

 

$

(0.53

)

 

$

(0.75

)

 

$

(1.23

)

 

$

(1.76

)

Weighted average shares outstanding — basic

 

 

20,162

 

 

 

19,539

 

 

 

20,128

 

 

 

18,448

 

Weighted average shares outstanding — diluted

 

 

20,162

 

 

 

19,539

 

 

 

20,128

 

 

 

18,448

 

(1)

Cost of revenue, Gross profit and Gross profit margin for Subscription and Service excludes amortization expense on acquired intangible assets.

Digimarc Corporation

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

2022

 

2023

 

2022

GAAP gross profit

 

$

4,869

 

 

$

3,997

 

 

$

9,113

 

 

$

7,341

 

Amortization of acquired intangible assets

 

 

1,122

 

 

 

1,120

 

 

 

2,211

 

 

 

2,314

 

Amortization and write-off of other intangible assets

 

 

146

 

 

 

144

 

 

 

290

 

 

 

285

 

Stock-based compensation

 

 

318

 

 

 

265

 

 

 

556

 

 

 

466

 

Non-GAAP gross profit

 

$

6,455

 

 

$

5,526

 

 

$

12,170

 

 

$

10,406

 

Non-GAAP gross profit margin

 

 

74

%

 

 

71

%

 

 

73

%

 

 

69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

 

$

16,137

 

 

$

18,946

 

 

$

35,148

 

 

$

40,306

 

Depreciation and write-off of property and equipment

 

 

(260

)

 

 

(330

)

 

 

(688

)

 

 

(720

)

Amortization of acquired intangible assets

 

 

(268

)

 

 

(321

)

 

 

(528

)

 

 

(663

)

Amortization and write-off of other intangible assets

 

 

(9

)

 

 

(29

)

 

 

(48

)

 

 

(59

)

Amortization of lease right of use assets under operating leases

 

 

(166

)

 

 

(249

)

 

 

(332

)

 

 

(520

)

Stock-based compensation

 

 

(2,260

)

 

 

(3,009

)

 

 

(4,898

)

 

 

(5,276

)

Impairment of lease right of use assets and leasehold improvements

 

 

(250

)

 

 

 

 

 

(250

)

 

 

(574

)

Acquisition-related expenses

 

 

 

 

 

(3

)

 

 

 

 

 

(447

)

Non-GAAP operating expenses

 

$

12,924

 

 

$

15,005

 

 

$

28,404

 

 

$

32,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss

 

$

(10,623

)

 

$

(14,639

)

 

$

(24,663

)

 

$

(32,420

)

Total adjustments to gross profit

 

 

1,586

 

 

 

1,529

 

 

 

3,057

 

 

 

3,065

 

Total adjustments to operating expenses

 

 

3,213

 

 

 

3,941

 

 

 

6,744

 

 

 

8,259

 

Non-GAAP net loss

 

$

(5,824

)

 

$

(9,169

)

 

$

(14,862

)

 

$

(21,096

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP loss per share (diluted)

 

$

(0.53

)

 

$

(0.75

)

 

$

(1.23

)

 

$

(1.76

)

Non-GAAP net loss

 

$

(5,824

)

 

$

(9,169

)

 

$

(14,862

)

 

$

(21,096

)

Non-GAAP loss per share (diluted)

 

$

(0.29

)

 

$

(0.47

)

 

$

(0.74

)

 

$

(1.14

)

Digimarc Corporation

Consolidated Balance Sheet Information

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2023

 

2022

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

26,825

 

 

$

33,598

 

Marketable securities (1)

 

 

7,717

 

 

 

18,944

 

Trade accounts receivable, net

 

 

11,981

 

 

 

5,427

 

Other current assets

 

 

4,445

 

 

 

6,172

 

Total current assets

 

 

50,968

 

 

 

64,141

 

Property and equipment, net

 

 

1,775

 

 

 

2,390

 

Intangibles, net

 

 

31,421

 

 

 

33,170

 

Goodwill

 

 

8,568

 

 

 

8,229

 

Lease right of use assets

 

 

4,202

 

 

 

4,720

 

Other assets

 

 

1,388

 

 

 

1,127

 

Total assets

 

$

98,322

 

 

$

113,777

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

5,162

 

 

$

5,989

 

Deferred revenue

 

 

8,101

 

 

 

4,145

 

Total current liabilities

 

 

13,263

 

 

 

10,134

 

Long-term lease liabilities

 

 

6,066

 

 

 

5,977

 

Other long-term liabilities

 

 

355

 

 

 

76

 

Total liabilities

 

 

19,684

 

 

 

16,187

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

50

 

 

 

50

 

Common stock

 

 

20

 

 

 

20

 

Additional paid-in capital

 

 

371,893

 

 

 

367,692

 

Accumulated deficit

 

 

(290,472

)

 

 

(265,809

)

Accumulated other comprehensive loss

 

 

(2,853

)

 

 

(4,363

)

Total shareholders’ equity

 

 

78,638

 

 

 

97,590

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

98,322

 

 

$

113,777

 

(1)

Aggregate cash, cash equivalents, and marketable securities was $34,542 and $52,542 at June 30, 2023 and December 31, 2022, respectively.

Digimarc Corporation

Consolidated Cash Flow Information

(in thousands)

(Unaudited)

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2023

 

2022

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,663

)

 

$

(32,420

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and write-off of property and equipment

 

 

688

 

 

 

720

 

Amortization of acquired intangible assets

 

 

2,739

 

 

 

2,977

 

Amortization and write-off of other intangible assets

 

 

338

 

 

 

344

 

Amortization of lease right of use assets under operating leases

 

 

332

 

 

 

520

 

Stock-based compensation

 

 

5,454

 

 

 

5,742

 

Impairment of lease right of use assets and leasehold improvements

 

 

250

 

 

 

574

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(6,492

)

 

 

1,776

 

Other current assets

 

 

1,827

 

 

 

(600

)

Other assets

 

 

(268

)

 

 

(568

)

Accounts payable and other accrued liabilities

 

 

(839

)

 

 

(2,881

)

Deferred revenue

 

 

4,106

 

 

 

(1,043

)

Lease liability and other long-term liabilities

 

 

38

 

 

 

(808

)

Net cash used in operating activities

 

 

(16,490

)

 

 

(25,667

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net cash paid for acquisition

 

 

 

 

 

(3,512

)

Purchase of property and equipment

 

 

(121

)

 

 

(716

)

Capitalized patent costs

 

 

(198

)

 

 

(271

)

Proceeds from maturities of marketable securities

 

 

19,984

 

 

 

11,148

 

Purchases of marketable securities

 

 

(8,664

)

 

 

(4,908

)

Net cash provided by investing activities

 

 

11,001

 

 

 

1,741

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

58,220

 

Purchase of common stock

 

 

(1,280

)

 

 

(974

)

Repayment of loans

 

 

(16

)

 

 

(17

)

Net cash (used in) provided by financing activities

 

 

(1,296

)

 

 

57,229

 

Effect of exchange rate on cash

 

 

12

 

 

 

(41

)

Net (decrease) increase in cash and cash equivalents (2)

 

$

(6,773

)

 

$

33,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities at beginning of period

 

 

52,542

 

 

 

41,618

 

Cash, cash equivalents and marketable securities at end of period

 

 

34,542

 

 

 

68,390

 

(2) Net (decrease) increase in cash, cash equivalents and marketable securities

 

$

(18,000

)

 

$

26,772

 

 

Contacts

Charles Beck
Chief Financial Officer
Charles.Beck@digimarc.com
+1 503-469-4721

Social Media Profiles

Contacts

Charles Beck
Chief Financial Officer
Charles.Beck@digimarc.com
+1 503-469-4721