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Digimarc Reports First Quarter 2023 Financial Results

Digimarc Corporation (NASDAQ: DMRC) reported financial results for the first quarter ended March 31, 2023.

First Quarter 2023 Financial Results

Subscription revenue for the first quarter of 2023 increased 2% to $3.9 million compared to $3.8 million in the first quarter of 2022, primarily reflecting $1.0 million of higher subscription revenue from new commercial contracts, partially offset by $0.6 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022.

Service revenue for the first quarter of 2023 increased 9% to $4.0 million compared to $3.6 million in the first quarter of 2022, primarily reflecting the impact of a larger annual budget from the Central Banks for project work in 2023 than 2022, which includes both higher billing rates and project hours.

Total revenue for the first quarter of 2023 increased 6% to $7.8 million compared to $7.4 million in the first quarter of 2022.

Gross profit for the first quarter of 2023 increased $0.9 million, or 27%, to $4.2 million compared to $3.3 million in the first quarter of 2022, primarily reflecting $0.5 million of higher service gross profit contribution due to higher service revenue and lower professional services costs and $0.3 million of higher subscription gross profit contribution due to higher subscription revenue, a favorable mix of subscription revenue, and lower platform costs.

Gross profit margin for the first quarter of 2023 increased to 54%, compared to 45% in the first quarter of 2022. Excluding amortization expense on acquired intangible assets, subscription gross margins improved from 73% to 80% and service gross margins improved from 49% to 57% from the first quarter of 2022 to the first quarter of 2023.

Non-GAAP gross profit for the first quarter of 2023 increased $0.8 million, or 17%, to $5.7 million compared to $4.9 million in the first quarter of 2022.

Non-GAAP gross profit margin for the first quarter of 2023 increased to 73%, compared to 66% in the first quarter of 2022.

Operating expenses for the first quarter of 2023 decreased $2.3 million, or 11%, to $19.0 million compared to $21.4 million in the first quarter of 2022, primarily reflecting $1.3 million of lower compensation costs due to lower headcount partially offset by annual compensation adjustments, $0.8 million of lower legal, accounting, and tax costs, the impact of the $0.6 million impairment charge on lease right of use assets last year, $0.6 million of lower travel and conference costs, $0.6 million of lower consulting costs, and $0.4 million of lower recruiting costs, partially offset by $2.1 million of one-time severance costs incurred for organizational changes made in February 2023.

Non-GAAP operating expenses for the first quarter of 2023 decreased $1.6 million, or 9%, to $15.5 million compared to $17.0 million in the first quarter of 2022.

Net loss for the first quarter of 2023 was $14.0 million or $(0.70) loss per common share compared to $17.8 million or $(1.03) loss per common share in the first quarter of 2022.

Non-GAAP net loss for the first quarter of 2023 was $9.0 million or $(0.45) loss per common share compared to $11.9 million or $(0.69) loss per common share in the first quarter of 2022.

At March 31, 2023, cash, cash equivalents, short- and long-term marketable securities totaled $43.0 million compared to $52.5 million at December 31, 2022.

Conference call

Digimarc will hold a conference call today (Wednesday, May 10, 2023) to discuss these results and provide an update on market conditions and its execution of strategy. 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 presentation.

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: 888-645-4404

International Number: 862-298-0702

Conference ID: 13737177

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 enables products to inform, instruct, and act. 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 press 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 common 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,

 

2023

2022

Revenue:

 

 

 

 

 

 

Subscription

$

3,885

 

$

3,791

 

Service

 

3,958

 

 

3,620

 

Total revenue

 

7,843

 

 

7,411

 

Cost of revenue:

 

 

 

 

 

 

Subscription (1)

 

795

 

 

1,042

 

Service (1)

 

1,715

 

 

1,831

 

Amortization expense on acquired intangible assets

 

1,089

 

 

1,194

 

Total cost of revenue

 

3,599

 

 

4,067

 

Gross profit

 

 

 

 

 

 

Subscription (1)

 

3,090

 

 

2,749

 

Service (1)

 

2,243

 

 

1,789

 

Amortization expense on acquired intangible assets

 

(1,089

)

 

(1,194

)

Total gross profit

 

4,244

 

 

3,344

 

Gross profit margin:

 

 

 

 

 

 

Subscription (1)

 

80

%

 

73

%

Service (1)

 

57

%

 

49

%

Total

 

54

%

 

45

%

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

6,298

 

 

7,945

 

Research, development and engineering

 

7,826

 

 

6,091

 

General and administrative

 

4,627

 

 

6,408

 

Amortization expense on acquired intangible assets

 

260

 

 

342

 

Impairment of lease right of use assets and leasehold improvements

 

 

 

574

 

Total operating expenses

 

19,011

 

 

21,360

 

 

 

 

 

 

 

 

Operating loss

 

(14,767

)

 

(18,016

)

Other income (loss), net

 

745

 

 

(4

)

Loss before income taxes

 

(14,022

)

 

(18,020

)

(Provision) benefit for income taxes

 

(18

)

 

239

 

Net loss

$

(14,040

)

$

(17,781

)

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

Loss per common share — basic

$

(0.70

)

$

(1.03

)

Loss per common share — diluted

$

(0.70

)

$

(1.03

)

Weighted average common shares outstanding — basic

 

20,093

 

 

17,344

 

Weighted average common shares outstanding — diluted

 

20,093

 

 

17,344

 

________

(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,

 

2023

2022

GAAP gross profit

$

4,244

 

$

3,344

 

Amortization of acquired intangible assets

 

1,089

 

 

1,194

 

Amortization and write-off of other intangible assets

 

144

 

 

141

 

Stock-based compensation

 

238

 

 

201

 

Non-GAAP gross profit

$

5,715

 

$

4,880

 

Non-GAAP gross profit margin

 

73

%

 

66

%

 

 

 

 

 

 

 

GAAP operating expenses

$

19,011

 

$

21,360

 

Depreciation and write-off of property and equipment

 

(428

)

 

(390

)

Amortization of acquired intangible assets

 

(260

)

 

(342

)

Amortization and write-off of other intangible assets

 

(39

)

 

(30

)

Amortization of lease right of use assets under operating leases

 

(166

)

 

(271

)

Stock-based compensation

 

(2,638

)

 

(2,267

)

Impairment of lease right of use assets and leasehold improvements

 

 

 

(574

)

Acquisition-related expenses

 

 

 

(444

)

Non-GAAP operating expenses

$

15,480

 

$

17,042

 

 

 

 

 

 

 

 

GAAP net loss

$

(14,040

)

$

(17,781

)

Total adjustments to gross profit

 

1,471

 

 

1,536

 

Total adjustments to operating expenses

 

3,531

 

 

4,318

 

Non-GAAP net loss

$

(9,038

)

$

(11,927

)

 

 

 

 

 

 

 

GAAP loss per common share (diluted)

$

(0.70

)

$

(1.03

)

Non-GAAP net loss

$

(9,038

)

$

(11,927

)

Non-GAAP loss per common share (diluted)

$

(0.45

)

$

(0.69

)

Digimarc Corporation

Consolidated Balance Sheet Information

(in thousands)

(Unaudited)

 

 

March 31,

December 31,

 

2023

2022

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents (1)

$

32,301

 

$

33,598

 

Marketable securities (1)

 

10,724

 

 

18,944

 

Trade accounts receivable, net

 

4,826

 

 

5,427

 

Other current assets

 

4,457

 

 

6,172

 

Total current assets

 

52,308

 

 

64,141

 

Property and equipment, net

 

2,024

 

 

2,390

 

Intangibles, net

 

32,396

 

 

33,170

 

Goodwill

 

8,435

 

 

8,229

 

Lease right of use assets

 

4,554

 

 

4,720

 

Other assets

 

1,309

 

 

1,127

 

Total assets

$

101,026

 

$

113,777

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and other accrued liabilities

$

5,059

 

$

5,989

 

Deferred revenue

 

3,264

 

 

4,145

 

Total current liabilities

 

8,323

 

 

10,134

 

Long-term lease liabilities

 

5,901

 

 

5,977

 

Other long-term liabilities

 

143

 

 

76

 

Total liabilities

 

14,367

 

 

16,187

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock

 

50

 

 

50

 

Common stock

 

20

 

 

20

 

Additional paid-in capital

 

369,925

 

 

367,692

 

Accumulated deficit

 

(279,849

)

 

(265,809

)

Accumulated other comprehensive loss

 

(3,487

)

 

(4,363

)

Total shareholders’ equity

 

86,659

 

 

97,590

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

$

101,026

 

$

113,777

 

________

(1) Aggregate cash, cash equivalents, and marketable securities was $43,025 and $52,542 at March 31, 2023 and December 31, 2022, respectively.

Digimarc Corporation

Consolidated Cash Flow Information

(in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

2023

2022

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

$

(14,040

)

$

(17,781

)

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

 

 

 

 

 

 

Depreciation and write-off of property and equipment

 

428

 

 

390

 

Amortization of acquired intangible assets

 

1,349

 

 

1,536

 

Amortization and write-off of other intangible assets

 

183

 

 

171

 

Amortization of lease right of use assets under operating leases

 

166

 

 

271

 

Amortization of net premiums on marketable securities

 

 

 

26

 

Stock-based compensation

 

2,876

 

 

2,468

 

Impairment of lease right of use assets and leasehold improvements

 

 

 

574

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

631

 

 

1,731

 

Other current assets

 

1,766

 

 

(17

)

Other assets

 

(191

)

 

(601

)

Accounts payable and other accrued liabilities

 

(910

)

 

219

 

Deferred revenue

 

(925

)

 

(423

)

Lease liability and other long-term liabilities

 

(77

)

 

(420

)

Net cash used in operating activities

 

(8,744

)

 

(11,856

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Net cash paid for acquisition

 

 

 

(3,512

)

Purchase of property and equipment

 

(51

)

 

(414

)

Capitalized patent costs

 

(112

)

 

(119

)

Proceeds from maturities of marketable securities

 

10,247

 

 

5,937

 

Purchases of marketable securities

 

(1,975

)

 

 

Net cash provided by investing activities

 

8,109

 

 

1,892

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Purchase of common stock

 

(656

)

 

(583

)

Repayment of loans

 

(26

)

 

(15

)

Net cash used in financing activities

 

(682

)

 

(598

)

Effect of exchange rate on cash

 

20

 

 

1

 

Net decrease in cash and cash equivalents (2)

$

(1,297

)

$

(10,561

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities at beginning of period

 

52,542

 

 

41,618

 

Cash, cash equivalents and marketable securities at end of period

 

43,025

 

 

24,895

 

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

$

(9,517

)

$

(16,723

)

 

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