8-K

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): May 12, 2022

DIGIMARC CORPORATION

(Exact name of registrant as specified in its charter)

Oregon	001-34108	26-2828185
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

8500 SW Creekside Place, Beaverton Oregon 97008

(Address of principal executive offices) (Zip Code)

(503) 469-4800

(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 (see General Instruction A.2. below):

☐ 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 Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value Per Share	DMRC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act (17 CFR 230.405) or Rule 12b-2 of the Exchange Act of 1934 (17 CFR 240.12b-2).

Emerging growth company☐

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.☐

Item 2.02. Results of Operations and Financial Condition

On May 12, 2022, Digimarc Corporation issued a press release announcing its financial results for the quarter-ended March 31, 2022. The full text of the press release is attached hereto as Exhibit 99.1.

Attached hereto as Exhibit 99.2 is the script from the Company’s conference call on May 12, 2022 announcing its financial results for the quarter-ended March 31, 2022, as posted on the Company’s website at https://www.digimarc.com/about/investors/earnings-releases-and-financial-history.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
99.1	Press Release issued by Digimarc Corporation, dated May 12, 2022 (furnished pursuant to Item 2.02 hereof).
99.2	Script of Digimarc Corporation conference call, dated May 12, 2022 (furnished pursuant to Item 2.02 hereof).
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:    May 12, 2022

By:	/s/ Charles Beck
	Charles Beck
	Chief Financial Officer and Treasurer

EX-99.1

Exhibit 99.1

Digimarc Reports First Quarter 2022 Financial Results

Beaverton, Ore. – May 12, 2022 – Digimarc Corporation (NASDAQ: DMRC) reported financial results for the first quarter ended March 31, 2022.

First Quarter 2022 Financial Results

Revenue for the first quarter of 2022 increased 11% to $7.4 million compared to $6.7 million in the first quarter of 2021. The increase in revenue includes $1.5 million of revenue from the EVRYTHNG acquisition, which closed on January 3, 2022. Subscription revenue increased 30% from $2.9 million to $3.8 million, with EVRYTHNG contributing $1.2 million. Excluding the impact of EVRYTHNG, subscription revenue was lower by $0.3 million due to $0.5 million of upfront revenue recognition on a two-year contract in the first quarter of 2021, partially offset by the impact of new customer contracts. Service revenue decreased 4% from $3.8 million to $3.6 million, with EVRYTHNG contributing $0.3 million. Excluding the impact of EVRYTHNG, service revenue was lower by $0.5 million reflecting the timing of program work with the Central Banks, which accounted for $0.3 million of the decrease, and less revenue from professional services work.

Gross profit for the first quarter of 2022 decreased 23% to $3.3 million compared to $4.3 million in the first quarter of 2021. The decrease in gross profit reflects $1.2 million of amortization expense recognized in the first quarter of 2022 on intangible assets acquired in the acquisition of EVRYTHNG.

Non-GAAP gross profit for the first quarter of 2022 increased 5% to $4.9 million compared to $4.7 million in the first quarter of 2021.

Operating expenses for the first quarter of 2022 increased $8.8 million to $21.4 million compared to $12.6 million in the first quarter of 2021. The increase reflects EVRYTHNG operating expenses of $4.6 million in the first quarter of 2022. The remaining increase of $4.2 million largely reflects higher compensation costs of $1.2 million due to higher headcount and annual compensation adjustments, higher legal, accounting and tax costs of $0.7 million related to the EVRYTHNG acquisition and financing activities, a $0.6 million non-cash impairment charge in the first quarter of 2022 to write-down our lease right of use assets and leasehold improvements, higher consulting costs of $0.5 million for acquisition integration and other corporate initiatives and higher travel and conference costs of $0.5 million.

Non-GAAP operating expenses for the first quarter of 2022 increased $6.8 million to $17.0 million compared to $10.2 million in the first quarter of 2021.

Net loss for the first quarter of 2022 was $17.8 million or $(1.03) loss per common share compared to $8.2 million or $(0.50) loss per common share in the first quarter of 2021.

Non-GAAP net loss for the first quarter of 2022 was $11.9 million or $(0.69) loss per common share compared to $5.6 million or $(0.34) loss per common share in the first quarter of 2021.

At March 31, 2022, cash, cash equivalents, marketable securities totaled $24.9 million compared to $41.6 million at December 31, 2021. The $16.7 million decrease included $4.0 million of cash used to pay closing costs on behalf of EVRYTHNG and another $3.0 million to pay outstanding payables owed by EVRYTHNG at the time of closing, net of the $0.5 million of cash acquired from EVRYTHNG. This compares to a $7.1 million use of cash and investments in the first quarter of 2021.

On April 7, 2022, Digimarc issued 2.25 million shares of its common stock at a price of $25.90 per share in a registered direct offering resulting in gross cash proceeds to the company of $58.3 million.

Conference call

Digimarc will hold a conference call today (Thursday, May 12, 2022) to discuss these results and provide an update on market conditions and execution of strategy. CEO Riley McCormack, CFO Charles Beck and CLO Robert Chamness 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: 866-562-9934
International Number: 706-679-0638
Conference ID: 1175210

If you have any difficulty connecting with the conference call, please contact Lara Burhenn.

Company contact:

Lara Burhenn

Director, Corporate Communications
Lara.Burhenn@digimarc.com

+1 503-469-4704

###

About Digimarc

Digimarc Corporation (NASDAQ: DMRC) is a global leader in product digitization, delivering business value across industries through unique identifiers and cloud-based solutions. A trusted partner in deterring digital counterfeiting of global currency for more than 20 years, Digimarc illuminates a product's journey to provide intelligence and promote a prosperous, safer, and more sustainable world. With Digimarc, you can finally see everything. And when you see everything, you can achieve anything. For more information, visit us 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, 2021, 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 Month Information
	March 31,			March 31,
	2022			2021
Revenue:
Service	$	3,620		$	3,784
Subscription		3,791			2,916
Total revenue		7,411			6,700
Cost of revenue:
Service (1)		1,831			1,570
Subscription (1)		1,042			791
Amortization expense on acquired intangible assets		1,194			—
Total cost of revenue		4,067			2,361
Gross profit
Service (1)		1,789			2,214
Subscription (1)		2,749			2,125
Amortization expense on acquired intangible assets		(1,194	)		—
Total gross profit		3,344			4,339
Gross profit margin:
Total		45	%		65	%
Service (1)		49	%		59	%
Subscription (1)		73	%		73	%
Operating expenses:
Sales and marketing		7,945			4,941
Research, development and engineering		6,091			4,131
General and administrative		6,408			3,493
Amortization expense on acquired intangible assets		342			—
Impairment of lease right of use assets and leasehold improvements		574			—
Total operating expenses		21,360			12,565
Operating loss		(18,016	)		(8,226	)
Other income (loss), net		(4	)		10
Loss before income taxes		(18,020	)		(8,216	)
Benefit (provision) for income taxes		239			(6	)
Net loss	$	(17,781	)	$	(8,222	)
Loss per common share:
Loss per common share — basic	$	(1.03	)	$	(0.50	)
Loss per common share — diluted	$	(1.03	)	$	(0.50	)
Weighted average common shares outstanding — basic		17,344			16,333
Weighted average common shares outstanding — diluted		17,344			16,333
(1)Cost of revenue, Gross profit and Gross profit margin for Service and Subscription 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 Month Information
	March 31,			March 31,
	2022			2021
GAAP gross profit	$	3,344		$	4,339
Amortization of acquired intangible assets		1,194			—
Amortization and write-off of other intangible assets		141			142
Stock-based compensation		201			173
Non-GAAP gross profit		4,880			4,654
Non-GAAP gross profit margin		66	%		69	%
GAAP operating expenses	$	21,360		$	12,565
Depreciation and write-off of property and equipment		(390	)		(363	)
Amortization of acquired intangible assets		(342	)		—
Amortization and write-off of other intangible assets		(30	)		(35	)
Amortization of lease right of use assets under operating leases		(271	)		(118	)
Stock-based compensation		(2,267	)		(1,837	)
Impairment of lease right of use assets and leasehold improvements		(574	)		—
Acquisition-related expenses		(444	)		—
Non-GAAP operating expenses	$	17,042		$	10,212
GAAP net loss	$	(17,781	)	$	(8,222	)
Total adjustments to gross profit		1,536			315
Total adjustments to operating expenses		4,318			2,353
Non-GAAP net loss	$	(11,927	)	$	(5,554	)
GAAP loss per common share (diluted)	$	(1.03	)	$	(0.50	)
Non-GAAP net loss	$	(11,927	)	$	(5,554	)
Non-GAAP loss per common share (diluted)	$	(0.69	)	$	(0.34	)

Digimarc Corporation

Consolidated Balance Sheet Information

(in thousands)

(Unaudited)

	March 31,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents (1)	$	3,228		$	13,789
Marketable securities (1)		15,958			19,537
Trade accounts receivable, net		5,934			6,368
Loan receivable from related party		—			2,001
Other current assets		4,489			2,316
Total current assets		29,609			44,011
Marketable securities (1)		5,709			8,292
Property and equipment, net		2,922			2,875
Intangibles, net		41,833			6,611
Goodwill		6,412			1,114
Lease right of use assets		5,746			1,300
Other assets		1,268			673
Total assets	$	93,499		$	64,876
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	10,875		$	4,727
Deferred revenue		4,315			2,989
Total current liabilities		15,190			7,716
Long-term lease liabilities		6,267			1,028
Other long-term liabilities		519			752
Total liabilities		21,976			9,496
Shareholders' equity:
Preferred stock		50			50
Common stock		18			17
Additional paid-in capital		296,364			261,324
Accumulated deficit		(223,792	)		(206,011	)
Accumulated other comprehensive loss		(1,117	)		—
Total shareholders' equity		71,523			55,380
Total liabilities and shareholders' equity	$	93,499		$	64,876
(1) Aggregate cash, cash equivalents, and marketable securities was $24,895 and $41,618 at March 31, 2022 and December 31, 2021, respectively.

Digimarc Corporation

Consolidated Cash Flow Information

(in thousands)

(Unaudited)

	Three Month Information
	March 31,			March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(17,781	)	$	(8,222	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment		390			363
Amortization of acquired intangible assets		1,536			—
Amortization and write-off of other intangible assets		171			177
Amortization of lease right of use assets under operating leases		271			118
Amortization of net premiums (discounts) on marketable securities		26			(266	)
Stock-based compensation		2,468			2,010
Impairment of lease right of use assets and leasehold improvements		574			—
Changes in operating assets and liabilities:
Trade accounts receivable		1,731			(612	)
Other current assets		(17	)		219
Other assets		(601	)		(44	)
Accounts payable and other accrued liabilities		219			501
Deferred revenue		(423	)		(55	)
Lease liability and other long-term liabilities		(420	)		(177	)
Net cash used in operating activities		(11,856	)		(5,988	)
Cash flows from investing activities:
Net cash paid for acquisition		(3,512	)		—
Purchase of property and equipment		(414	)		(317	)
Capitalized patent costs		(119	)		(159	)
Proceeds from maturities of marketable securities		5,937			17,494
Purchases of marketable securities		—			(25,151	)
Net cash provided by (used in) investing activities		1,892			(8,133	)
Cash flows from financing activities:
Purchase of common stock		(583	)		(870	)
Repayment of loan		(15	)		—
Net cash used in financing activities		(598	)		(870	)
Effect of exchange rate on cash		1			—
Net decrease in cash and cash equivalents (2)	$	(10,561	)	$	(14,991	)
Cash, cash equivalents and marketable securities at beginning of period		41,618			77,728
Cash, cash equivalents and marketable securities at end of period		24,895			70,660
(2) Net decrease in cash, cash equivalents and marketable securities	$	(16,723	)	$	(7,068	)

###

EX-99.2

Exhibit 99.2

  

Digimarc Corporation (DMRC) ConferenceCall Q1 2022 Financial Results – May 12th

Bob Chamness – Chief Legal Officer

Welcome to our Q1 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call. On the call today, we will discuss Q1 financial results and provide a business update. This will be followed by a question and answer forum. We have posted our prepared remarks in the investor relations section of our website and will archive this webcast there.

Safe Harbor Statement

Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Charles will now comment on our Q1 financial results.

Financial Results

Thank you Bob, and hello everyone.

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As a reminder, the acquisition of EVRYTHNG closed January 3, 2022.  In order to provide transparency, I will reference the impact the acquisition had on both on our revenue and expenses in Q1 2022.  

We are also starting to report non-GAAP financial measures in our Form 10-Q and Earnings Release to improve comparability between periods. These non-GAAP financial measures include non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per common share. We are introducing these non-GAAP measures given an increase in the number and magnitude of non-recurring and non-cash items that impact comparability between periods as well as muddle the underlying performance of our business. These non-GAAP measures exclude non-cash expenses like depreciation expense, amortization expense, stock-based compensation expense, and asset impairments. They also exclude non-recurring items like transaction costs associated with business acquisitions and other non-recurring items that may arise. I will reference these non-GAAP results in my prepared remarks as well as specifically highlight the relevant amounts.  While we believe these non-GAAP results provide the truest measure of the underlying performance of our business, we want to provide the information necessary for every investor to do their own analysis. We’ve included a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial figure within our earnings release, which is available in the investor relations section of our website.

First year commercial bookings were $3.8 million during the quarter, up 50% from Q1 2021. EVRYTHNG contributed $600 thousand in first year bookings during Q1 2022. We are breaking out EVRYTHNG bookings this quarter, but as we now sell combined products, it will not be practical to provide a full breakout in the future. As I mentioned on our last earnings call, we also decided to sunset our Piracy Intelligence business, which resulted in $200 thousand less bookings in Q1 2022 than Q1 2021. Excluding EVRYTHNG and the Piracy Intelligence business, first year commercial bookings increased $900 thousand or 42% from Q1 last year. We

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remind investors that first year commercial bookings are the best leading indicator of future revenue growth.  

Revenue for the first quarter was $7.4 million, up 11% from $6.7 million in Q1 last year. EVRYTHNG contributed $1.5 million of total revenue to first quarter 2022 financial results. Please note that similar to bookings, it will not be practical to provide a full breakout of EVRYTHNG revenue in future periods, although we will try to provide color where possible.

Subscription revenue increased 30% from $2.9 million to $3.8 million, with EVRYTHNG contributing $1.2 million. Excluding the impact of EVRYTHNG, subscription revenue was lower by $300 thousand due to $500 thousand of upfront revenue recognition on a two-year contract in Q1 2021, partially offset by the impact of new customer contracts. The revenue impact of sunsetting the Piracy Intelligence business was marginal to Q1 2022 revenue but the impact will increase through the year as contracts expire, starting in a meaningful way in the second quarter.

Service revenue decreased 4% from $3.8 million to $3.6 million, with EVRYTHNG contributing $300 thousand. Excluding the impact of EVRYTHNG, service revenue was lower by $500 thousand reflecting the timing of program work with the Central Banks, which accounted for $300 thousand, and less revenue from professional services work. The recycling contract that we referenced on the last earnings call had no revenue impact in Q1 due to timing of the project, but we anticipate it will have a significant impact on Q2 service revenue as the project is now underway.

Gross profit margin for the first quarter was 45% compared to 65% in Q1 last year. The decrease in margin reflects $1.2 million of amortization expense recorded on acquired intangible assets recognized in the acquisition accounting for EVRYTHNG. These assets are required to be recognized under US GAAP and amortized over their useful life. Excluding amortization expense, subscription gross

3

 

profit margins were 73% and service gross profit margins were 49% for Q1 2022 versus 73% and 59% in Q1 2021. Service margins were negatively impacted this quarter as we incurred additional professional services hours above the hours that were billable on one of our service contracts. We expect service margins to improve to more normalized levels next quarter.

Non-GAAP gross profit margin for Q1 2022 was 66% compared to 69% in Q1 2021.

Operating expenses for the quarter were $21.4 million, up $8.8 million from Q1 last year. EVRYTHNG added $4.6 million of operating expenses in the first quarter. The remaining increase of $4.2 million largely reflects $1.2 million of higher compensation costs due to higher headcount and annual compensation adjustments, higher legal, accounting and tax costs of $700 thousand related to the EVRYTHNG acquisition and financing activities, a $600 thousand non-cash impairment charge to write-down our lease right of use assets from our prior corporate headquarters, higher consulting costs of $500 thousand related to acquisition integration and other corporate initiatives and $500 thousand higher travel and conference costs. The majority of these costs are not recurring costs with the exception of the compensation costs and some of the consulting and travel costs.

Non-GAAP operating expenses for the quarter were $17.0 million, up $6.8 million from Q1 last year. EVRYTHNG added $4.0 million of non-GAAP operating expenses in the first quarter. The remaining increase of $2.8 million reflects higher headcount and annual compensation adjustments, higher legal and accounting costs related to financing activities, higher consulting costs and higher travel and conference costs. Again, the majority of these costs outside of compensation costs and some consulting and travel costs are non-recurring.

Net loss per common share for the quarter was a dollar and 3 cents versus 50

4

 

cents in Q1 last year. EVRYTHNG incurred a net loss of $4.6 million in the first quarter, which included $1.5 million of amortization expense on acquired intangible assets. Excluding EVRYTHNG, net loss per common share would have been 76 cents.

Non-GAAP net loss per common share for the quarter was 69 cents versus 34 cents in Q1 last year.

We ended the quarter with $24.9 million in cash and investments. In early April, we raised $58.3 million of capital through a registered direct offering whereby we sold 2.25 million new shares of common stock at a price of $25.90. Adding these gross cash proceeds to our quarter-end cash and investment balance would have resulted in $83.2 million of cash and investments.

We used $16.7 million of cash and investments during the quarter, which included $4 million of cash to pay closing costs on behalf of EVRYTHNG and another $3 million to pay outstanding payables owed by EVRYTHNG, net of $500 thousand of cash acquired. Excluding these non-recurring items, we used $10.2 million of cash and investments during the quarter compared to $7.1 million in the first quarter of 2021.

For further discussion of our financial results, and risks and prospects for our business, please see our Form 10-Q that will be filed with the SEC.

Riley will now provide a business update.

Business Update

First off, I want to recognize and thank Bob for his years of service and wish him much happiness on his new journey.  Bob, you’re leaving behind a wonderful legacy.  We promise you we “got it” from here.

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From beginning to end, Q1 was an eventful quarter.  The quarter began with the January 3rd closing of our acquisition of EVRYTHNG.  The quarter ended with the March 30th release of Holy Grail Phase Two results.  In between these two milestones, we posted organic first year commercial bookings growth of 28% vs the prior period a year ago, a number which jumps to 42% backing out Piracy Intelligence bookings from both periods.  The quarter also saw us finishing up the foundational work of our transformation, work that culminated with the early Q2 launch of our first two integrated products, Digimarc Recycle and Digimarc Brand Integrity.

I want to use these prepared remarks to talk about where we stand with recycling in light of the Phase 2 results, in part because I know that is an area of heavy investor focus, and in part because of what I think these results will mean for our business, as well as the planet.

But before I get to that, I want to go back to our Q1 2021 call a year ago, my first as CEO, where we laid out the transformation upon which we were about to embark.  We talked about the need to -- and benefits of -- becoming a product-led company.  We mentioned the gap we were looking to fill in data.  We talked about having the discipline to say “no” or “no more” to short-term distractions that aren’t obvious accelerants to where we are going, and we mentioned that we were more focused on the pots of gold at the end of the rainbow instead of trying to pick up every gold coin along the way.  We talked about the fact we were questioning every assumption and being patient to come up with the right answer, and we mentioned how 2022 and beyond would be better if we took the time to do things right, acting with the freedom to plan, not react.  

I won’t list all the actions taken since that year ago call but for those interested, we do list some of them in the “Our Strategy” section of the recently released proxy.

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I fully understand transformations don’t make for very interesting conference calls.  Transformations aren’t measurable, at least real time on a quarterly basis.  And they sure aren’t tangible, at least by themselves; only the results they ultimately produce are.  

On the Q1 call last year, I made the analogy that we were planning to swap out our engine mid-race and hoping to do so in a way that if we didn’t tell you we were doing so, you would have just noticed the outcome we expect this upgrade to have, which is an enduring inflection to a truly-scalable, high-margin, customer-informed and customer-driven solutions company that is changing the world in many different ways.  

And with that engine swap recently completed, I can tell you that is still exactly what we now expect to deliver.  On a personal note, it has been energizing to be spending the vast majority of my time these past few weeks on go-to-market initiatives and prospects as opposed to the more internally-focused and process-heavy work that has been necessary to affect our transformation, a feeling I know is shared by all my teammates who are similarly head’s-down focused on delivering against this goal.  

And I can also tell you that while 42% organic core first-year commercial bookings growth is objectively strong, we expect more out of our new engine, and are as excited to be in the position to be spending upcoming earnings calls talking about tangible results as I’m guessing many of you are to be seeing and hearing about them.

So while transformations might not make for very interesting conference calls while they are occurring, it is important to recognize they are the foundation upon which interesting conference calls are built.  For the rest of this call I’m going to talk about how we’re positioned with Digimarc Recycle, but before we get to that, it’s important to keep in mind that a year ago, not only did Digimarc Recycle not

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exist, it couldn’t have existed.  

A year ago, we had the ability to license watermarks, but watermarks alone wouldn’t have enabled the complete functionality that is needed for recycling adoption at scale, functionality now available to the industry in our turnkey product, Digimarc Recycle.  Moreover, even on an individual component basis, the watermarks we were in a position to license a year ago wouldn’t have enabled the valuable unlocks of full data granularity, robust data security, and easy cross-product adoption that our Secure Digital Watermarks can offer.  

Which means a year ago, neither we nor our customers would have benefited from the easy on-ramp to the dual-platform Digimarc tech stack that Digimarc Recycle now enables, and thus Digimarc Recycle wouldn’t have been able to act as the top-down driver of additional product adoption it now is positioned to be.

But even more fundamentally, a year ago, the fact (let alone the pace) of Digimarc Recycle adoption wouldn’t have been in our control, and knowing what we know now, it would have been far out in the future.  Because a year ago, we would have been reliant on others to build out the required full stack functionality that is required before we were able to sign a single deal.

The same could be said with any of the four other products we currently are in market with, namely Digimarc Brand Integrity, Digimarc Consumer Engagement, Digimarc Digital Images, and Digimarc Platform.  And the same will hold true for the other products we will launch in the months, quarters, and years ahead, including the product candidate I have mentioned recently that could act as another top-down driver of adoption, similar to Digimarc Recycle.

Thus, as we move into 2022 and begin to benefit from the amazing work the Team has been hard at work executing against these past four quarters, I want to acknowledge that while I understand transformations don’t make for interesting

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conference calls because transformations don’t equate to results, transformations doenable results.  Everything we deliver from here on out will be the result of the nebulous, tough-to-characterize-every-three-months work the Team has been hard at work doing these past twelve months.  

I want to thank all of you for your patience, and I want to thank my 300 teammates for all their amazing efforts that began a year ago, when we first started by questioning every assumption and then being patient to come up with the right answer.

For the last year we’ve been consistent in saying we expect you to do nothing but judge us on the results.  We are finally on the cusp of you being able to do just that.

OK, so now onto our performance in Holy Grail Phase 2.  

As a reminder, Phase 2 tested our technology in a semi-industrial setting, meaning a replication of real-world conditions in every regard possible without actually being “live.”  The items were crushed, dirtied, torn, and otherwise mutilated to replicate what trash looks like when it reaches a waste facility.  These items were then mixed with real-world waste and dropped on a conveyor belt running at 3 m/s.  In every regard, the input and throughput represented routine industrial operations.  

We detected at 99%.

Other tests were performed alongside the validation tests, to stress test worse than routine real-world settings.  Items were crushed, soiled and otherwise mutilated to an even greater extent than in the validation tests and the belt speed was increased to 4.5 m/s.  To help you visualize how extreme this last condition is, imagine the impact just the laws of aerodynamics have on an empty chip bag or

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cylindrical bottle dropped on a treadmill belt running at over 10 MPH.  

And even in these extreme conditions, there was no loss of performance.

In fact, based on the planning and rigor of phase 2, it might be these are the most accurate and precise measurements we will have of how our technology performs in a real-world setting -- at least until post mass adoption -- as the closed-loop nature of phase two increases the ability to accurately measure results to a level that will be extremely hard to replicate in the real-world.

Thus, as a result of Holy Grail, Digimarc Recycle enjoys a level of testing and measurement few multi-stakeholder system technologies will ever have pre-launch.  Our technology has been tested against an ever-increasing degree of difficulty, surpassing damage likely to be encountered in the real word, by an ever-increasing number of participants representing multiple industries, all the while with the whole world watching.  And it’s shined at every step along the way.

Having had the benefit of observing the individual tests, we have been vocal recently in saying this technology works and there is no longer any reason to delay moving to adoption.  Importantly, with this data out, aggregated and validated, the chorus is getting louder from more and more stakeholders.  

Behind the scenes, as we have been waiting for these results to be published and the world to realize why we are so confident in our technology’s performance, we have been working to proactively address other potential barriers to adoption so that when it becomes incontrovertible the technology works, like it is now, we are in the position to start signing contracts.  Informing this work, we know we must not only highlight all the benefits Digimarc Recycle unlocks, but also incent those visionary companies that are willing to adopt first.  

As I mentioned we would be on our last call, we are now officially in market with

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Digimarc Recycle.  There are three paths we are taking to get the flywheel of adoption going, and it is key to note, our belief is that it will indeed be a flywheel.  Also key to note, the below three paths are “and,” not “or,” roads to rapid adoption.

First, we are meeting with companies on a one-on-one basis.  Our initial conversations are going well, and prospects are beginning to understand that the benefits to their business go beyond “just” increasing the quality and quantity of recyclate to include, among others: access to a unique and highly valuable data set that provides benefits across the organization, better alignment with – and direct connection to – end consumers, actionable ESG insights, progress towards sustainability commitments, the potential to avoid harm from – and instead benefit from – regulatory actions, and of course, an onramp to product digitization and all the additional unlocks that come from traveling that road.

Second, without losing focus on the opportunity directly ahead of us, we are also engaging with other geographies beyond Europe as well as other substrates beyond plastic.  Digimarc Recycle’s value proposition isn’t limited to a region or a substrate, and the results from Phase 2, proven in harsh conditions on arguably the toughest substrate, have encouraged engagement from others in search of a solution to an ever-growing, front-of-mind, and global problem.

And then finally, in addition to knocking down barriers on a micro-level, prospect by prospect, we are also working on ways to speed up time to broad adoption by knocking down barriers en masse, because we know we have a solution that can make a real impact on a global crisis.  

One of the best parts of working on a complex project like this is meeting and spending time with people who truly want to make an impact.  Visionaries and doers who don’t give up when faced with the inevitable inertia that comes with complexity, but instead double down.  

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On this last front, I am excited by the potential that exists to really speed the pace of adoption by knocking down barriers en masse, and thankful for all that are of a similar mind, and more importantly, a similar will.  Stay tuned.

Operator, we’re now ready for the Q&A session.

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XML

Document and Entity Information	May 12, 2022
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	May 12, 2022
Entity Registrant Name	DIGIMARC CORP
Entity Central Index Key	0001438231
Entity Emerging Growth Company	false
Entity File Number	001-34108
Entity Incorporation State Country Code	OR
Entity Tax Identification Number	26-2828185
Entity Address, Address Line One	8500 SW Creekside Place
Entity Address, City or Town	Beaverton
Entity Address, State or Province	OR
Entity Address, Postal Zip Code	97008
City Area Code	503
Local Phone Number	469-4800
Written Communications	false
Soliciting Material	false
Pre Commencement Tender Offer	false
Pre Commencement Issuer Tender Offer	false
Security 12b Title	Common Stock, $0.001 Par Value Per Share
Trading Symbol	DMRC
Security Exchange Name	NASDAQ