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): August 3, 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 August 3, 2022, Digimarc Corporation issued a press release announcing its financial results for the quarter-ended June 30, 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 August 3, 2022 announcing its financial results for the quarter-ended June 30, 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 August 3, 2022 (furnished pursuant to Item 2.02 hereof).
99.2	Script of Digimarc Corporation conference call, dated August 3, 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:    August 3, 2022

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

EX-99.1

Exhibit 99.1

Digimarc Reports Second Quarter 2022 Financial Results

Beaverton, Ore. – August 3, 2022 – Digimarc Corporation (NASDAQ: DMRC) reported financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Results

Revenue for the second quarter of 2022 increased 23% to $7.7 million compared to $6.3 million in the second quarter of 2021. The increase in revenue primarily reflects the contribution of subscription and service revenue post acquisition from the EVRYTHNG Product Cloud and $0.6 million of higher service revenue from HolyGrail 2.0 recycling projects, partially offset by $0.3 million less subscription revenue as a result of sunsetting our Piracy Intelligence product. Changes in foreign currency exchange rates also negatively impacted revenue for the three month period ended June 30, 2022.

Gross profit for the second quarter of 2022 decreased 5% to $4.0 million compared to $4.2 million in the second quarter of 2021. The decrease in gross profit was primarily due to $1.1 million of amortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG acquisition, partially offset by higher subscription and service revenue.

Non-GAAP gross profit for the second quarter of 2022 increased 21% to $5.5 million compared to $4.6 million in the second quarter of 2021.

Operating expenses for the second quarter of 2022 decreased 4% to $18.9 million compared to $19.7 million in the second quarter of 2021. The decrease primarily reflects $7.5 million of costs recognized in the second quarter of 2021 associated with the Separation Agreement we entered into with our former chief executive officer in April 2021 and severance costs incurred with organizational changes we made in June 2021, partially offset by $4.2 million of EVRYTHNG operating expenses post acquisition and $2.5 million of higher compensation costs due to higher headcount and annual compensation adjustments.

Non-GAAP operating expenses for the second quarter of 2022 increased $2.4 million to $15.0 million compared to $12.6 million in the second quarter of 2021.

Net loss for the second quarter of 2022 was $14.6 million or $(0.75) loss per common share compared to $15.4 million or $(0.94) loss per common share in the second quarter of 2021.

Non-GAAP net loss for the second quarter of 2022 was $9.2 million or $(0.47) loss per common share compared to $8.0 million or $(0.49) loss per common share in the second quarter of 2021.

At June 30, 2022, cash, cash equivalents, marketable securities totaled $68.4 million compared to $41.6 million at December 31, 2021.

Conference call

Digimarc will hold a conference call today (Wednesday, August 3, 2022) to discuss these results and provide an update on market conditions and 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: 877-407-0832
International Number: +1 201-689-8433
Conference ID: 13731423

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						Six Month Information
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
Revenue:
Service	$	4,503		$	3,791		$	8,123		$	7,575
Subscription		3,244			2,487			7,035			5,403
Total revenue		7,747			6,278			15,158			12,978
Cost of revenue:
Service (1)		1,744			1,515			3,575			3,085
Subscription (1)		886			534			1,928			1,325
Amortization expense on acquired intangible assets		1,120			—			2,314			—
Total cost of revenue		3,750			2,049			7,817			4,410
Gross profit
Service (1)		2,759			2,276			4,548			4,490
Subscription (1)		2,358			1,953			5,107			4,078
Amortization expense on acquired intangible assets		(1,120	)		—			(2,314	)		—
Total gross profit		3,997			4,229			7,341			8,568
Gross profit margin:
Total		52	%		67	%		48	%		66	%
Service (1)		61	%		60	%		56	%		59	%
Subscription (1)		73	%		79	%		73	%		75	%
Operating expenses:
Sales and marketing		8,073			6,277			16,018			11,218
Research, development and engineering		6,065			4,213			12,156			8,344
General and administrative		4,487			9,175			10,895			12,668
Amortization expense on acquired intangible assets		321			—			663			—
Impairment of lease right of use assets and leasehold improvements		—			—			574			—
Total operating expenses		18,946			19,665			40,306			32,230
Operating loss		(14,949	)		(15,436	)		(32,965	)		(23,662	)
Other income, net		93			18			89			28
Loss before income taxes		(14,856	)		(15,418	)		(32,876	)		(23,634	)
Benefit (provision) for income taxes		217			(4	)		456			(10	)
Net loss	$	(14,639	)	$	(15,422	)	$	(32,420	)	$	(23,644	)
Loss per common share:
Loss per common share — basic	$	(0.75	)	$	(0.94	)	$	(1.76	)	$	(1.44	)
Loss per common share — diluted	$	(0.75	)	$	(0.94	)	$	(1.76	)	$	(1.44	)
Weighted average common shares outstanding — basic		19,539			16,430			18,448			16,382
Weighted average common shares outstanding — diluted		19,539			16,430			18,448			16,382
(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						Six Month Information
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
GAAP gross profit	$	3,997		$	4,229		$	7,341		$	8,568
Amortization of acquired intangible assets		1,120			—			2,314			—
Amortization and write-off of other intangible assets		144			144			285			286
Stock-based compensation		265			178			466			351
Non-GAAP gross profit	$	5,526		$	4,551		$	10,406		$	9,205
Non-GAAP gross profit margin		71	%		72	%		69	%		71	%
GAAP operating expenses	$	18,946		$	19,665		$	40,306		$	32,230
Depreciation and write-off of property and equipment		(330	)		(354	)		(720	)		(717	)
Amortization of acquired intangible assets		(321	)		—			(663	)		—
Amortization and write-off of other intangible assets		(29	)		(24	)		(59	)		(59	)
Amortization of lease right of use assets under operating leases		(249	)		(122	)		(520	)		(240	)
Stock-based compensation		(3,009	)		(6,559	)		(5,276	)		(8,396	)
Impairment of lease right of use assets and leasehold improvements		—			—			(574	)		—
Acquisition-related expenses		(3	)		—			(447	)		—
Non-GAAP operating expenses	$	15,005		$	12,606		$	32,047		$	22,818
GAAP net loss	$	(14,639	)	$	(15,422	)	$	(32,420	)	$	(23,644	)
Total adjustments to gross profit		1,529			322			3,065			637
Total adjustments to operating expenses		3,941			7,059			8,259			9,412
Non-GAAP net loss	$	(9,169	)	$	(8,041	)	$	(21,096	)	$	(13,595	)
GAAP loss per common share (diluted)	$	(0.75	)	$	(0.94	)	$	(1.76	)	$	(1.44	)
Non-GAAP net loss	$	(9,169	)	$	(8,041	)	$	(21,096	)	$	(13,595	)
Non-GAAP loss per common share (diluted)	$	(0.47	)	$	(0.49	)	$	(1.14	)	$	(0.83	)

Digimarc Corporation

Consolidated Balance Sheet Information

(in thousands)

(Unaudited)

	June 30,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents (1)	$	47,051		$	13,789
Marketable securities (1)		21,339			19,537
Trade accounts receivable, net		5,870			6,368
Loan receivable from related party		—			2,001
Other current assets		4,655			2,316
Total current assets		78,915			44,011
Marketable securities (1)		—			8,292
Property and equipment, net		2,882			2,875
Intangibles, net		37,984			6,611
Goodwill		6,325			1,114
Lease right of use assets		5,476			1,300
Other assets		1,172			673
Total assets	$	132,754		$	64,876
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	7,549		$	4,727
Deferred revenue		3,581			2,989
Total current liabilities		11,130			7,716
Long-term lease liabilities		6,120			1,028
Other long-term liabilities		225			752
Total liabilities		17,475			9,496
Shareholders' equity:
Preferred stock		50			50
Common stock		20			17
Additional paid-in capital		357,509			261,324
Accumulated deficit		(238,431	)		(206,011	)
Accumulated other comprehensive loss		(3,869	)		—
Total shareholders' equity		115,279			55,380
Total liabilities and shareholders' equity	$	132,754		$	64,876
(1) Aggregate cash, cash equivalents, and marketable securities was $68,390 and $41,618 at June 30, 2022 and December 31, 2021, respectively.

Digimarc Corporation

Consolidated Cash Flow Information

(in thousands)

(Unaudited)

	Six Month Information
	June 30,			June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(32,420	)	$	(23,644	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment		720			717
Amortization of acquired intangible assets		2,977			—
Amortization and write-off of other intangible assets		344			345
Amortization of lease right of use assets under operating leases		520			240
Amortization of net premiums (discounts) on marketable securities		—			(498	)
Stock-based compensation		5,742			8,747
Impairment of lease right of use assets and leasehold improvements		574			—
Changes in operating assets and liabilities:
Trade accounts receivable		1,776			(950	)
Other current assets		(600	)		392
Other assets		(568	)		(19	)
Accounts payable and other accrued liabilities		(2,881	)		1,859
Deferred revenue		(1,043	)		(331	)
Lease liability and other long-term liabilities		(808	)		656
Net cash used in operating activities		(25,667	)		(12,486	)
Cash flows from investing activities:
Net cash paid for acquisition		(3,512	)		—
Purchase of property and equipment		(716	)		(569	)
Capitalized patent costs		(271	)		(290	)
Proceeds from maturities of marketable securities		11,148			49,722
Purchases of marketable securities		(4,908	)		(30,941	)
Net cash provided by investing activities		1,741			17,922
Cash flows from financing activities:
Issuance of common stock, net of issuance costs		58,220			—
Purchase of common stock		(974	)		(3,774	)
Loan repayment		(17	)		—
Net cash provided by (used in) financing activities		57,229			(3,774	)
Effect of exchange rate on cash		(41	)		—
Net increase in cash and cash equivalents (2)	$	33,262		$	1,662
Cash, cash equivalents and marketable securities at beginning of period		41,618			77,728
Cash, cash equivalents and marketable securities at end of period		68,390			61,107
(2) Net increase (decrease) in cash, cash equivalents and marketable securities	$	26,772		$	(16,621	)

###

EX-99.2

Exhibit 99.2

  

Digimarc Corporation (DMRC) ConferenceCall Q2 2022 Financial Results – August 3rd

Joel Meyer – Chief Legal Officer

Welcome to our Q2 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call. On the call today, we will discuss Q2 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 Q2 financial results.

Financial Results

Thank you Joel, and hello everyone.

1

 

First year commercial bookings were $2.2 million during the quarter compared to $2.3 million in Q2 2021. Bookings in Q2 last year included $800 thousand from our Piracy Intelligence product that we are nearly complete in winding down. We are not signing any new Piracy Intelligence deals and we have now effectively exited most of our legacy customer contracts. Excluding Piracy Intelligence, our first year commercial bookings increased $700 thousand or 44%. As a reminder, we are now selling a combined solution of Digimarc watermarks and the EVRYTHNG Product Cloud, which makes it impractical to provide a breakout of bookings and revenue for each.

Revenue for the second quarter was $7.7 million, up 23% from $6.3 million in Q2 last year, reflecting growth in both subscription and service revenue.

Subscription revenue grew 30% in the quarter from $2.5 million to $3.2 million. Keep in mind there are two offsetting factors impacting our year over year growth, the addition of subscription revenue from EVRYTHNG, offset by the decline in subscription revenue from sunsetting our Piracy Intelligence product. As we previewed last quarter, the sunsetting of the Piracy Intelligence product was going to have a meaningful impact on subscription revenue starting in Q2, which it did. The product was generating $600 thousand of revenue per quarter before we started exiting and now that we are more than halfway thru that process, our revenue was only $300 thousand in the second quarter. We expect this revenue to be insignificant going forward as we finalize the wind-down process. These offsetting factors, as well as the vagaries of revenue recognition rules that have an impact on reported revenue at this stage in our growth, is why we believe first year bookings is the best leading indicator of growth of our business.  As a reminder, first year bookings are committed first year contract amounts, and will typically flow into revenue in the 12 months after contract signing.

Service revenue grew 19% in the quarter from $3.8 million to $4.5 million. The

2

 

increase largely reflects higher service revenue from HolyGrail 2.0 recycling projects, the majority of which relates to the recycling contract we referenced on the last earnings call. We are nearly complete with that contract so we do not anticipate significant revenues in Q3 from this contract, and thus this services revenue should revert to more normalized levels.

Gross profit margin for the second quarter was 52% compared to 67% in Q2 last year. The decrease in margin reflects $1.1 million of amortization expense recorded on acquired intangible assets recognized in the acquisition accounting for EVRYTHNG.

Non-GAAP gross profit margin, which excludes amortization expense and stock-based compensation expense, was 71% in Q2 2022 compared to 72% in Q2 2021.

Operating expenses for the quarter were $18.9 million, down $700 thousand from Q2 last year. Last year, we incurred $6.2 million of expense related to the separation agreement we entered into with our previous CEO and $1.3 million of severance costs related to organizational changes we made in Q2 2021. Excluding these costs, operating expenses increased $6.8 million reflecting the operating expenses of EVRYTHNG and higher compensation costs due to higher headcount and annual compensation adjustments.

Non-GAAP operating expenses for the quarter were $15 million, up $2.4 million from Q2 last year. EVRYTHNG added $3.3 million of non-GAAP operating expenses in the second quarter. Excluding EVRYTHNG, Non-GAAP operating expenses decreased $900 thousand reflecting the cash costs associated with the separation agreement we entered into with our previous CEO and cash severance costs related to organizational changes we made in Q2 2021, which totaled $2.5 million, partially offset by higher cash compensation costs due to higher headcount and annual compensation adjustments.

3

 

Net loss per common share for the quarter was 75 cents versus 94 cents in Q2 last year. Non-GAAP net loss per common share for the quarter was 47 cents versus 49 cents in Q2 last year.

We ended the quarter with $68.4 million in cash and investments.

We used $14.7 million of cash and investments during the second quarter if you exclude the impact of the $58.2 million of capital we raised in April. The $14.7 million included roughly $3 million of cash to pay larger than usual outstanding payables at March 31^st. We incurred several large expenses in March related to the acquisition, financing and other activities that were not paid until April due to timing of receiving the invoices and processing the payments. Excluding the impact of paying off these higher payables, we used $11.7 million of cash and investments during the quarter compared to $9.6 million in the second quarter of 2021.

The last two quarters cash flows have been higher than our expected normalized rate going forward due to some non-recurring items. Internally, we look at non-GAAP loss, which excludes non-cash expenses, and layer on cash used for capital expenditures and share repurchases to estimate our normalized level of cash flows. We expect cash flows each quarter may fluctuate from this metric due to timing of customer receipts and vendor payments, but it provides a good indicator of normalized cash flow at existing revenue levels.

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

4

 

A quarter into our re-launch, I’m pleased with where we are as well as our direction of travel.  I want to use today’s call to share where we stand, where we’re going, and importantly, provide some examples of progress between those two points. 

I’ve mentioned in the past why we made the move from selling tools to selling products; I won’t reiterate that here.  But driving this journey is our internal mantra that we must be easy to begin doing business with and excellent at guiding customers along their Digimarc journey.  Our goal is simple:  We want to digitize the world’s products, and in doing so allow our customers to complete their digital transformation journey, a journey many are pursuing but can’t complete if their products remain stuck solely in the analog world. 

In deciding what products to build, we are focusing on those that address large and growing problems (and hence allow us to participate in large and growing markets).  We are prioritizing our efforts by applying the lens of whether our platform, upon which all our products are built, provides significant technological differentiation.  We are being purposeful in making sure our products are accretive to each other, which means that the value a customer unlocks from any single Digimarc product is greater the more Digimarc products to which they subscribe.  And we are fortunate because, based on the almost unlimited applicability of our platform, we believe we will be productizing new functionality for years, and in many cases, the spark of those new products will be prospect-led demand.  

But we also realize we will never have a monopoly on all the good ideas, or the best avenue with which to address all potential customers’ problems.  While we will constantly add new products to our product suite, we also realize there’s value to selectively metering out access to our platform so that others can build their own products, because not only will metering out that access generate compounding revenue, it will further our goal of digitizing the world’s products using our technology,

5

 

allowing those digitized products to benefit from our Digimarc-built solutions at some point down the road.

So that’s the strategy in a nutshell.  Build an ever-expanding product suite of “wide moat” products, a luxury afforded to us by the unique and synergistic nature of our platform.  Make sure those products address large, fast-growing markets where not only do we enjoy the moats provided to us by our platform but whose existence is often initially brought to our attention by prospects who are anxious for us to solve their problems.  Use the accretive nature of our products to add ever more value to our customers by cross-selling them additional Digimarc-built products.  And at the same time, smartly meter out access to our platform so others can build upon it, which is a very profitable way to digitize the world’s products using our technology and allows us a luxury rare among platform-based technology companies: done this way, not only will we avoid channel conflict, we and our channel will provide each other compounding value, which ensures we will always have a large and robust ecosystem surrounding our platform.   

Q2 brought demonstrable progress across all those fronts. 

Starting with Brand Integrity, we did indeed close the second division of the large CPG company I referenced in our March call.  Moreover, we are in talks to further expand our Brand Integrity offering with the first division of that company, are in conversations with additional divisions at this CPG, all while discussing what a Brand Integrity enterprise deal might look like, at least for a part of the company.  Beyond this single company, we are in active discussions with others in the same industry who also want to benefit from our Brand Integrity product, and we are anxious to begin this same land and expand strategy with them and expect to make progress on that front starting this quarter.  In other words, we seem to have found product/market fit, and are hard at work analyzing how we can use those learnings to get even better.   

This virtuous cycle from minimally viable product to finding product/market fit to being intentional about creating a feedback loop so we can take those learnings and build

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even better product is made possible by having a product focus.  The multi-tiered opportunities from this single, early success present great stand-alone potential, but the process that now surrounds it should give rise to a forest, not just a single tree, starting this quarter.  

Moving to Consumer Engagement, we are applying the same discipline.  We are being intentional about learning what we can from customers that came to us in the EVRYTHNG deal so that our Consumer Engagement product is always getting stronger.  As a result, our Consumer Engagement pipeline is growing and, more importantly, we expect to begin closing on that pipeline this quarter.  Included in that pipeline are new customers as well as expansion opportunities with existing Consumer Engagement customers. 

Moreover, the fact that our products are accretive, meaning the more products you adopt the more value they each create, is resonating - not just in slide decks, but in customer interest.  We have one company that came to us for Consumer Engagement and is now also exploring Brand Integrity for these same items as part of the first contract.  I don’t know if the realization of accretive value will be done most often after adoption of the first product or while the customer is still a prospect, but having a clear product focus and benefitting from the learnings this focus allows will enable us to be prescriptive in helping our customers in their Digimarc journey.  Does the expansion of the first conversation slow down the time to value realization or does it speed it up?  If there is a delay, are there specific actions we can take to eliminate them?  If it speeds up the time to value realization, how do we improve that time to value even more while amplifying that message to other prospects?  Does the answer vary by prospect or product type?  This is all data we are now positioned to capture.  And this data will inform us in our quest to always get/be/do better.   

Digimarc Recycle is an example of a Digimarc product that incorporates the base functionality of another Digimarc product, in this case Consumer Engagement, into its core functionality, making the initial accretive value immediate.  Importantly, this

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embedded base functionality is resonating. The conversations we mentioned in the last call that would begin in Q2 are helping raise awareness that beyond just providing a higher quality and quantity of recyclate, and in addition to the novel, unmined dataset that will come from having, for the first time ever, actual (versus survey) post-purchase data, Digimarc Recycle adoption provides for a content-creation-free means of engaging consumers on a topic about which they (and regulators) care.  And the easy upgrade path to full Consumer Engagement from the embedded base functionality found in Digimarc Recycle should provide a win to all three stakeholders: our Digimarc Recycle customers, their customers, and us.  

These conversations are happening against the backdrop of the June 30^th announcement of the TOMRA phase 2 results, which provided even more evidence Digimarc Recycle can make a real impact on this ever-increasing global problem.  These results, coupled with the March 30^th release of the Pellenc phase 2 results, provides clear validation to our simple message:  Two independent, third party tests have shown almost the exact same, incredible results in real world conditions.  Results that can save this planet.  The time to adopt is now. 

We are currently active on two continents with Digimarc Recycle.  In Europe, there are two upcoming document releases that we believe will add to the chorus that now is the time to adopt.  And, as was announced in June, the global nature of our solve gained momentum with the announcement of our partnership with Circular Plastics Taskforce here in North America.  Conversations to expand into other geographies are also taking place.  Underlying these newer conversations is the fact there is nothing left to be learned by running trials.  As I described in our last call, there is unlikely to be as accurate or precise measurements of how our technology performs in a real-world setting as the two Holy Grail Phase 2 tests.  And at the risk of being repetitive, those results left no doubt as to the real, step-change value we provide. 

Also announced in June was our partnership with Sealed Air.  Sealed Air, as many of you know, is a tech-forward, innovative company with an incredible array of packaging

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solutions as well as a large and loyal customer base.  Sealed Air chose to combine their new digital printing and packaging solution, prismiq^TM, with our product digitization platform as a means to add intelligence to their widely-adopted packaging solutions.  This is the most public example of our metering out access to our platform, and we stand-by eager to help our wonderful partner advance their own customers in their digital transformation journeys.

In terms of the almost unlimited applicability of our platform and how prospects can spark the exploration of potential product candidates, one of the deals we closed in Q2 was for an application of our platform we believe might have a bright future as a new Digimarc product.  Reinforcing that view is another deal in the pipeline, of significantly larger size, that we expect to close in the back half of this year.  The Product team is hard at work researching the opportunity to productize this solution as a potential addition to our product suite.   

Nearer term, the product candidate we’ve discussed in the past that could act as a top-down driver of product digitization and thus provide a huge boost in our goal of digitizing the world’s products continues to move forward, and we expect to be able to share more on this in the near future.  Stay tuned. 

As I said, a quarter in, I am pleased with where we are as well as our direction of travel.  There’s no doubt in my mind that we’re on the right path and the fruits of this transformation, already beginning to show, will only get more obvious in the months ahead.  A quarter in, we’re taking early wins and learning from them…having a product focus allows for these wins to not only be repeatable, but improved upon.  I am thankful for all the hard work of my teammates over this past quarter, as we begin to see the fruits of our year-long transformation.   

Operator, we will now open the call up for questions.

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XML

Document and Entity Information	Aug. 03, 2022
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Aug. 03, 2022
Entity Registrant Name	DIGIMARC CORP
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Entity Emerging Growth Company	false
Entity File Number	001-34108
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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