Digimarc Reports First Quarter 2024 Financial Results

About this update from Digimarc Corporation

Annual Recurring Revenue(1) Increases 85% Subscription Gross Profit Margin(2) Expands to 87% BEAVERTON, Ore. --(BUSINESS WIRE)-- Digimarc Corporation reported financial results for the first quarter ended March 31, 2024 . “Q1 was another strong quarter for Digimarc . Compared to the first quarter of 2023, we grew quarter-ending Annual Recurring Revenue (ARR) 85%, grew commercial subscription revenue 52%, and expanded subscription gross profit margin 7.5 percentage points to 87.0%,” said Digimarc CEO Riley McCormack . “We are focused on positioning ourselves to convert our large Total Addressable Market (TAM) into substantial free cash flow by delivering high and long-lasting growth at world class operating margins. Q1 provided multiple tangible examples of our progress against this focus.” First Quarter Financial Results Subscription revenue for the first quarter of 2024 increased to $5.8 million compared to $3.9 million for the first quarter of 2023, primarily reflecting higher subscription revenue from new and existing commercial contracts. Service revenue for the first quarter of 2024 increased to $4.2 million compared to $4.0 million for the first quarter of 2023, primarily reflecting the timing of government program work. Total revenue for the first quarter of 2024 increased to $9.9 million compared to $7.8 million for the first quarter of 2023. Gross profit margin for the first quarter of 2024 increased to 63% compared to 54% for the first quarter of 2023. Excluding amortization expense on acquired intangible assets, subscription gross profit margin increased to 87% from 80% while service gross profit margin slightly decreased to 56% from 57% for the first quarter of 2024 compared to the first quarter of 2023. Non-GAAP gross profit margin for the first quarter of 2024 increased to 78% compared to 73% for the first quarter of 2023. Operating expenses for the first quarter of 2024 decreased to $17.1 million compared to $19.0 million for the first quarter of 2023. Non-GAAP operating expenses for the first quarter of 2024 decreased to $13.8 million compared to $15.5 million for the first quarter of 2023. Net loss for the first quarter of 2024 was $10.3 million or ( $0.50 ) per share compared to $14.0 million or ( $0.70 ) per share for the first quarter of 2023. Non-GAAP net loss for the first quarter of 2024 was $5.5 million or ( $0.27 ) per share compared to $9.0 million or ( $0.45 ) per share for the first quarter of 2023. At March 31, 2024 , cash, cash equivalents and marketable securities totaled $48.9 million compared to $27.2 million at December 31, 2023 . _______________ (1) Annual Recurring Revenue (ARR) is a company performance metric calculated as the aggregation of annualized subscription fees from all of our commercial contracts as of the measurement date. (2) Subscription Gross Profit Margin excludes amortization expense on acquired intangible assets. Conference Call Digimarc will hold a conference call today ( Thursday, May 2, 2024 ) to discuss these financial results and to provide a business update. CEO Riley McCormack , CFO Charles Beck and CLO George Karamanos 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 number: 13743902 About Digimarc Digimarc Corporation (NASDAQ: DMRC) is the pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed at a massive scale for the identification and the authentication of physical and digital items. A notable example is our partnership with a consortium of the world’s central banks to deter counterfeiting of global currency. Digimarc is also instrumental in supporting global industry standards efforts spanning both the physical and digital worlds. In 2023, Digimarc was named to the Fortune 2023 Change the World list and honored as a 2023 Fast Company World Changing Ideas finalist. Learn 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, 2023 , 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 March 31 , 2024 2023 Revenue: Subscription $ 5,762 $ 3,885 Service 4,176 3,958 Total revenue 9,938 7,843 Cost of revenue: Subscription (1) 747 795 Service (1) 1,839 1,715 Amortization expense on acquired intangible assets 1,140 1,089 Total cost of revenue 3,726 3,599 Gross profit Subscription (1) 5,015 3,090 Service (1) 2,337 2,243 Amortization expense on acquired intangible assets (1,140 ) (1,089 ) Total gross profit 6,212 4,244 Gross profit margin: Subscription (1) 87 % 80 % Service (1) 56 % 57 % Total 63 % 54 % Operating expenses: Sales and marketing 5,536 6,298 Research, development and engineering 6,741 7,826 General and administrative 4,520 4,627 Amortization expense on acquired intangible assets 272 260 Total operating expenses 17,069 19,011 Operating loss (10,857 ) (14,767 ) Other income, net 528 745 Loss before income taxes (10,329 ) (14,022 ) Provision for income taxes (9 ) (18 ) Net loss $ (10,338 ) $ (14,040 ) Loss per share: Loss per share — basic $ (0.50 ) $ (0.70 ) Loss per share — diluted $ (0.50 ) $ (0.70 ) Weighted average shares outstanding — basic 20,730 20,093 Weighted average shares outstanding — diluted 20,730 20,093 ______________ (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 March 31 , 2024 2023 GAAP gross profit $ 6,212 $ 4,244 Amortization of acquired intangible assets 1,140 1,089 Amortization and write-off of other intangible assets 138 144 Stock-based compensation 253 238 Non-GAAP gross profit $ 7,743 $ 5,715 Non-GAAP gross profit margin 78 % 73 % GAAP operating expenses $ 17,069 $ 19,011 Depreciation and write-off of property and equipment (193 ) (428 ) Amortization of acquired intangible assets (272 ) (260 ) Amortization and write-off of other intangible assets (133 ) (39 ) Amortization of lease right of use assets under operating leases (87 ) (166 ) Stock-based compensation (2,578 ) (2,638 ) Non-GAAP operating expenses $ 13,806 $ 15,480 GAAP net loss $ (10,338 ) $ (14,040 ) Total adjustments to gross profit 1,531 1,471 Total adjustments to operating expenses 3,263 3,531 Non-GAAP net loss $ (5,544 ) $ (9,038 ) GAAP loss per share (diluted) $ (0.50 ) $ (0.70 ) Non-GAAP net loss $ (5,544 ) $ (9,038 ) Non-GAAP loss per share (diluted) $ (0.27 ) $ (0.45 ) Digimarc Corporation Consolidated Balance Sheet Information (in thousands) (Unaudited) March 31 , December 31 , 2024 2023 ASSETS Current assets: Cash and cash equivalents (1) $ 36,414 $ 21,456 Marketable securities (1) 12,511 5,726 Trade accounts receivable, net 5,215 5,813 Other current assets 3,802 4,085 Total current assets 57,942 37,080 Property and equipment, net 1,445 1,570 Intangibles, net 26,720 28,458 Goodwill 8,576 8,641 Lease right of use assets 3,930 4,017 Other assets 1,106 786 Total assets $ 99,719 $ 80,552 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and other accrued liabilities $ 4,100 $ 6,672 Deferred revenue 5,256 5,853 Total current liabilities 9,356 12,525 Long-term lease liabilities 5,812 5,994 Other long-term liabilities 80 106 Total liabilities 15,248 18,625 Shareholders’ equity: Preferred stock 50 50 Common stock 21 20 Additional paid-in capital 409,473 376,189 Accumulated deficit (322,106 ) (311,768 ) Accumulated other comprehensive loss (2,967 ) (2,564 ) Total shareholders’ equity 84,471 61,927 Total liabilities and shareholders’ equity $ 99,719 $ 80,552 _______________ (1) Aggregate cash, cash equivalents, and marketable securities was $48.9 million and $27.2 million at March 31, 2024 and December 31, 2023 , respectively. Digimarc Corporation Consolidated Cash Flow Information (in thousands) (Unaudited) Three Months Ended March 31 , 2024 2023 Cash flows from operating activities: Net loss $ (10,338 ) $ (14,040 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and write-off of property and equipment 193 428 Amortization of acquired intangible assets 1,412 1,349 Amortization and write-off of other intangible assets 271 183 Amortization of lease right of use assets under operating leases 87 166 Stock-based compensation 2,831 2,876 Decrease in allowance for doubtful accounts (17 ) — Changes in operating assets and liabilities: Trade accounts receivable 600 631 Other current assets 273 1,766 Other assets (323 ) (191 ) Accounts payable and other accrued liabilities (2,624 ) (910 ) Deferred revenue (600 ) (925 ) Lease liability and other long-term liabilities (187 ) (77 ) Net cash provided by (used in) operating activities (8,422 ) (8,744 ) Cash flows from investing activities: Purchase of property and equipment (106 ) (51 ) Capitalized patent costs (106 ) (112 ) Proceeds from maturities of marketable securities 3,501 10,247 Purchases of marketable securities (10,320 ) (1,975 ) Net cash provided by (used in) investing activities (7,031 ) 8,109 Cash flows from financing activities: Issuance of common stock, net of issuance costs 32,218 — Purchase of common stock (1,781 ) (656 ) Repayment of loans (15 ) (26 ) Net cash provided by (used in) financing activities 30,422 (682 ) Effect of exchange rate on cash (11 ) 20 Net increase (decrease) in cash and cash equivalents (2) $ 14,958 $ (1,297 ) Cash, cash equivalents and marketable securities at beginning of period 27,182 52,542 Cash, cash equivalents and marketable securities at end of period 48,925 43,025 (2) Net increase (decrease) in cash, cash equivalents and marketable securities $ 21,743 $ (9,517 ) View source version on businesswire.com : https://www.businesswire.com/news/home/20240502576461/en/ Charles Beck Chief Financial Officer [email protected] +1 503-469-4721 Source: Digimarc Corporation

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