Annual Recurring Revenue1 Increases
54%
Subscription Gross Profit Margin Expands to
85.5%
Digimarc Corporation (NASDAQ: DMRC) reported financial results
for the third quarter ended September 30, 2023.
"Q3 was another strong quarter for Digimarc. We delivered a 54%
year-over-year increase in our ending Annual Recurring Revenue
(ARR) while driving a 1,000-basis point year-over-year increase in
subscription gross profit margin," said Digimarc CEO Riley
McCormack. "Our focus on being easy to begin doing business with
and excellent at guiding customers along their product digitization
journey is paying off, and our recent expansion of Digimarc
Validate to the digital domain provides an additional accelerant as
it significantly increases our Total Addressable Market (TAM) and
meaningfully strengthens our moats -- across all areas of our
business. It is becoming clear to many stakeholders that our legacy
as the pioneer and widely recognized leader of digital
watermarking, coupled with our history of building massive,
multinational, multistakeholder, and mission critical systems on
top of our technology, has ideally positioned us to provide the
foundational layer of a safe, fair, trusted, and authentic
internet, something that was needed before the rise of generative
artificial intelligence, but is absolutely required today."
Third Quarter 2023 Financial Results
Subscription revenue for the third quarter of 2023 increased to
$4.8 million compared to $4.1 million for the third quarter of
2022, primarily reflecting higher subscription revenue from new and
existing commercial contracts.
Service revenue for the third quarter of 2023 increased to $4.2
million compared to $3.7 million for the third quarter of 2022,
primarily reflecting higher service revenue from the Central
Banks.
Total revenue for the third quarter of 2023 increased to $9.0
million compared to $7.8 million for the third quarter of 2022.
Gross profit margin for the third quarter of 2023 increased to
58% compared to 53% for the third quarter of 2022. Excluding
amortization expense on acquired intangible assets, subscription
gross profit margin increased to 85% from 75% while service gross
profit margin decreased to 54% from 57% for the third quarter of
2023 compared to the third quarter of 2022.
Non-GAAP gross profit margin for the third quarter of 2023
increased to 76% compared to 72% for the third quarter of 2022.
Operating expenses for the third quarter of 2023 decreased $3.3
million, or 17%, to $16.4 million compared to $19.7 million for the
third quarter of 2022, primarily reflecting $1.4 million of lower
severance costs incurred for organizational changes, $1.1 million
of lower compensation costs due to lower headcount, partially
offset by annual compensation adjustments, and $0.6 million of
lower contractor and consulting expenses.
Non-GAAP operating expenses for the third quarter of 2023
decreased $2.3 million, or 15%, to $13.2 million compared to $15.5
million for the third quarter of 2022.
Net loss for the third quarter of 2023 was $10.7 million or
$(0.53) per share compared to $14.9 million or $(0.76) per share
for the third quarter of 2022.
Non-GAAP net loss for the third quarter of 2023 was $5.9 million
or $(0.29) per share compared to $9.3 million or $(0.47) per share
for the third quarter of 2022.
At September 30, 2023, cash, cash equivalents, and marketable
securities totaled $33.3 million compared to $34.5 million at June
30, 2023.
1 Annual Recurring Revenue (ARR) is a company performance metric
calculated as the aggregation of annualized subscription fees from
all of our commercial contracts as of the measurement date.
Conference Call
Digimarc will hold a conference call today (Monday, November 6,
2023) to discuss these financial results and to provide a business
update. CEO Riley McCormack, CFO Charles Beck, and CLO Joel Meyer
will host the call starting at 5:00 p.m. Eastern time (2:00 p.m.
Pacific time). A question-and-answer session will follow
management’s prepared remarks.
The conference call will be broadcast live and available for
replay here and in the investor section of the company's website.
The conference call script will also be posted to the company's
website shortly before the call.
For those who wish to call in via telephone to ask a question,
please dial the number below at least five minutes before the
scheduled start time:
Toll-Free Number: 877-407-0832 International Number:
201-689-8433 Conference ID: 13737195
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 the capture of product data, records events and
interactions, and supports powerful new automations. Trusted to
deter counterfeiting of global currency for more than 20 years,
Digimarc is also recognized for ensuring product authenticity,
improving plastics recycling, and more, with a commitment to
promoting a prosperous, safer, and more sustainable world. In 2023,
Digimarc was named to the Fortune 2023 Change the World list and
honored as a 2023 Fast Company World Changing Ideas finalist. See
more at digimarc.com.
Forward-Looking Statements
Except for historical information contained in this release, the
matters described in this release contain various “forward-looking
statements.” These forward-looking statements include statements
identified by terminology such as “will,” “should,” “expects,”
“estimates,” “predicts” and “continue” or other derivations of
these or other comparable terms. These forward-looking statements
are statements of management's opinion and are subject to various
assumptions, risks, uncertainties and changes in circumstances.
Actual results may vary materially from those expressed or implied
from the statements in this release as a result of changes in
economic, business and regulatory factors. More detailed
information about risk factors that may affect actual results are
outlined in the company's Form 10-K for the year ended December 31,
2022, and in subsequent periodic reports filed with the SEC.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinions
only as of the date of this release. Except as required by law,
Digimarc undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that
may arise after the date of this release.
Non-GAAP Financial Measures
This release contains the following non-GAAP financial measures:
Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP
operating expenses, Non-GAAP net loss, and Non-GAAP loss per share
(diluted). See below for a reconciliation of each non-GAAP
financial measure to the most directly comparable GAAP financial
measure. These non-GAAP financial measures are an important measure
of our operating performance because they allow management,
investors and analysts to evaluate and assess our core operating
results from period-to-period after removing non-cash and
non-recurring activities that affect comparability. Our management
uses these non-GAAP financial measures in evaluating its financial
and operational decision making and as a means to evaluate
period-to-period comparisons.
Digimarc believes that providing these non-GAAP financial
measures, together with the reconciliation to GAAP, helps
management and investors make comparisons between us and other
companies. In making any comparisons to other companies, investors
need to be aware that companies use different non-GAAP measures to
evaluate their financial performance. Investors should pay close
attention to the specific definition being used and to the
reconciliation between such measures and the corresponding GAAP
measures provided by each company under applicable SEC rules. These
non-GAAP financial measures are not measurements of financial
performance or liquidity under GAAP. In order to facilitate a clear
understanding of its consolidated historical operating results,
investors should examine Digimarc’s non-GAAP financial measures in
conjunction with its historical GAAP financial information, and
investors should not consider non-GAAP financial measures in
isolation or as substitutes for performance measures calculated in
accordance with GAAP. Non-GAAP financial measures should be viewed
as supplemental to, and should not be considered as alternatives
to, GAAP financial measures. Non-GAAP financial measures may not be
indicative of the historical operating results of the Company nor
are they intended to be predictive of potential future results.
Digimarc Corporation
Consolidated Income Statement
Information
(in thousands, except per
share amounts)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Revenue:
Subscription
$
4,811
$
4,086
$
13,374
$
11,121
Service
4,183
3,735
12,193
11,858
Total revenue
8,994
7,821
25,567
22,979
Cost of revenue:
Subscription (1)
698
1,006
2,264
2,934
Service (1)
1,938
1,602
5,621
5,177
Amortization expense on acquired
intangible assets
1,135
1,048
3,346
3,362
Total cost of revenue
3,771
3,656
11,231
11,473
Gross profit:
Subscription (1)
4,113
3,080
11,110
8,187
Service (1)
2,245
2,133
6,572
6,681
Amortization expense on acquired
intangible assets
(1,135
)
(1,048
)
(3,346
)
(3,362
)
Total gross profit
5,223
4,165
14,336
11,506
Gross profit margin:
Subscription (1)
85
%
75
%
83
%
74
%
Service (1)
54
%
57
%
54
%
56
%
Total
58
%
53
%
56
%
50
%
Operating expenses:
Sales and marketing
5,366
7,684
16,770
23,702
Research, development and engineering
6,308
7,575
20,295
19,731
General and administrative
4,433
4,132
13,412
15,027
Amortization expense on acquired
intangible assets
272
301
800
964
Impairment of lease right of use assets
and leasehold improvements
—
—
250
574
Total operating expenses
16,379
19,692
51,527
59,998
Operating loss
(11,156
)
(15,527
)
(37,191
)
(48,492
)
Other income, net
478
623
1,870
1,214
Loss before income taxes
(10,678
)
(14,904
)
(35,321
)
(47,278
)
Provision for income taxes
(45
)
(26
)
(65
)
(72
)
Net loss
$
(10,723
)
$
(14,930
)
$
(35,386
)
$
(47,350
)
Loss per share:
Loss per share — basic
$
(0.53
)
$
(0.76
)
$
(1.76
)
$
(2.51
)
Loss per share — diluted
$
(0.53
)
$
(0.76
)
$
(1.76
)
$
(2.51
)
Weighted average shares outstanding —
basic
20,217
19,721
20,158
18,877
Weighted average shares outstanding —
diluted
20,217
19,721
20,158
18,877
(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 September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
GAAP gross
profit
$
5,223
$
4,165
$
14,336
$
11,506
Amortization of acquired intangible
assets
1,135
1,048
3,346
3,362
Amortization and write-off of other
intangible assets
143
145
433
430
Stock-based compensation
310
270
866
736
Non-GAAP gross profit
$
6,811
$
5,628
$
18,981
$
16,034
Non-GAAP gross profit margin
76
%
72
%
74
%
70
%
GAAP operating
expenses
$
16,379
$
19,692
$
51,527
$
59,998
Depreciation and write-off of property and
equipment
(223
)
(316
)
(911
)
(1,036
)
Amortization of acquired intangible
assets
(272
)
(301
)
(800
)
(964
)
Amortization and write-off of other
intangible assets
(228
)
(4
)
(276
)
(63
)
Amortization of lease right of use assets
under operating leases
(94
)
(248
)
(426
)
(768
)
Stock-based compensation
(2,382
)
(3,298
)
(7,280
)
(8,574
)
Impairment of lease right of use assets
and leasehold improvements
—
—
(250
)
(574
)
Acquisition-related expenses
—
—
—
(447
)
Non-GAAP operating expenses
$
13,180
$
15,525
$
41,584
$
47,572
GAAP net
loss
$
(10,723
)
$
(14,930
)
$
(35,386
)
$
(47,350
)
Total adjustments to gross profit
1,588
1,463
4,645
4,528
Total adjustments to operating
expenses
3,199
4,167
9,943
12,426
Non-GAAP net loss
$
(5,936
)
$
(9,300
)
$
(20,798
)
$
(30,396
)
GAAP loss per share
(diluted)
$
(0.53
)
$
(0.76
)
$
(1.76
)
$
(2.51
)
Non-GAAP net loss
$
(5,936
)
$
(9,300
)
$
(20,798
)
$
(30,396
)
Non-GAAP loss per share (diluted)
$
(0.29
)
$
(0.47
)
$
(1.03
)
$
(1.61
)
Digimarc Corporation
Consolidated Balance Sheet
Information
(in thousands)
(Unaudited)
September 30,
December 31,
2023
2022
ASSETS
Current assets:
Cash and cash equivalents (1)
$
32,335
$
33,598
Marketable securities (1)
996
18,944
Trade accounts receivable, net
7,042
5,427
Other current assets
4,578
6,172
Total current assets
44,951
64,141
Property and equipment, net
1,656
2,390
Intangibles, net
28,977
33,170
Goodwill
8,323
8,229
Lease right of use assets
4,108
4,720
Other assets
827
1,127
Total assets
$
88,842
$
113,777
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable and other accrued
liabilities
$
6,207
$
5,989
Deferred revenue
7,315
4,145
Total current liabilities
13,522
10,134
Long-term lease liabilities
6,170
5,977
Other long-term liabilities
267
76
Total liabilities
19,959
16,187
Shareholders’ equity:
Preferred stock
50
50
Common stock
20
20
Additional paid-in capital
373,844
367,692
Accumulated deficit
(301,195
)
(265,809
)
Accumulated other comprehensive loss
(3,836
)
(4,363
)
Total shareholders’ equity
68,883
97,590
Total liabilities and shareholders’
equity
$
88,842
$
113,777
(1)
Aggregate cash, cash equivalents, and
marketable securities was $33,331 and $34,542 at September 30, 2023
and June 30, 2023, respectively.
Digimarc Corporation
Consolidated Cash Flow
Information
(in thousands)
(Unaudited)
Nine Months Ended September
30,
2023
2022
Cash flows from operating activities:
Net loss
$
(35,386
)
$
(47,350
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and write-off of property and
equipment
911
1,036
Amortization of acquired intangible
assets
4,146
4,326
Amortization and write-off of other
intangible assets
709
493
Amortization of lease right of use assets
under operating leases
426
768
Stock-based compensation
8,146
9,310
Impairment of lease right of use assets
and leasehold improvements
250
574
Changes in operating assets and
liabilities:
Trade accounts receivable
(1,581
)
(241
)
Other current assets
1,688
(2,233
)
Other assets
279
(611
)
Accounts payable and other accrued
liabilities
299
(2,153
)
Deferred revenue
3,298
233
Lease liability and other long-term
liabilities
136
(1,040
)
Net cash used in operating activities
(16,679
)
(36,888
)
Cash flows from investing activities:
Net cash paid for acquisition
—
(3,512
)
Purchase of property and equipment
(208
)
(783
)
Capitalized patent costs
(295
)
(404
)
Proceeds from maturities of marketable
securities
26,696
17,498
Purchases of marketable securities
(8,664
)
(5,873
)
Net cash provided by investing
activities
17,529
6,926
Cash flows from financing activities:
Issuance of common stock, net of issuance
costs
—
58,220
Purchase of common stock
(2,036
)
(1,560
)
Repayment of loans
(33
)
(32
)
Net cash (used in) provided by financing
activities
(2,069
)
56,628
Effect of exchange rate on cash
(44
)
(100
)
Net (decrease) increase in cash and cash
equivalents (2)
$
(1,263
)
$
26,566
Cash, cash equivalents and marketable
securities at beginning of period
52,542
41,618
Cash, cash equivalents and marketable
securities at end of period
33,331
56,357
(2) Net (decrease) increase in cash, cash
equivalents and marketable securities
$
(19,211
)
$
14,739
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231106290556/en/
Company Contact: Charles Beck Chief Financial Officer
Charles.Beck@digimarc.com +1 503-469-4721
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