Digimarc Reports Third Quarter 2020 Financial Results

BEAVERTON, Ore., Oct. 28, 2020 /PRNewswire/ -- Digimarc Corporation (NASDAQ: DMRC), creator of the Digimarc Platform for digital identification and detection, reported financial results for the third quarter ended September 30, 2020.

Third quarter 2020 financial results
Revenue for the third quarter of 2020 was $5.8 million, even with the third quarter of 2019. Service revenue increased six percent, reflecting growth in services to Government customers. Subscription revenue decreased ten percent, reflecting the impact of a renegotiated contract with a Retail supplier partner in the first quarter of 2020.

Operating expenses for the third quarter of 2020 increased two percent to $12.2 million compared to $11.9 million in the same quarter a year ago. The increased costs resulted from $0.8 million of non-recurring severance costs related to our restructuring plan implemented in July 2020, partially offset by lower travel, consulting and other costs. Excluding the severance costs, operating expenses would have been down five percent.

Operating loss for the third quarter of 2020 increased four percent to $8.4 million compared to $8.0 million in the third quarter of 2019, due to the non-recurring severance costs noted above.

Net loss for the third quarter of 2020 increased eight percent to $8.4 million or $(0.68) per diluted share compared to a net loss of $7.8 million or $(0.65) per diluted share in the same quarter a year ago. The non-recurring severance costs of $0.8 million incurred during the third quarter of 2020 accounted for $(0.07) per diluted share of the net loss.

TCM|Strategic Partners entered into an agreement in September to invest $53.5 million in Digimarc. $36.5 million of cash proceeds were received prior to quarter end from the issuance and sale of common stock pursuant to the investment. At quarter-end, cash, cash equivalents and marketable securities totaled $62.7 million compared to $36.8 million at December 31, 2019. The remaining $17.0 million of cash proceeds was received on October 1, 2020, when the convertible preferred stock was issued. For more details regarding the investment, see https://www.digimarc.com/about/news-events/press-releases/2020/09/29/tcm-strategic-partners-invests-$53.5-million-in-digimarc

Conference call
Digimarc will hold a conference call today (Wednesday, October 28, 2020) to discuss these results and provide an update on market conditions and execution of strategy. Chairman and CEO Bruce Davis, CFO Charles Beck and EVP Bob 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, 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: 4997586

If you have any difficulty connecting with the conference call, please contact Digimarc investor relations at +1 503-469-4762.

About Digimarc
Digimarc Corporation (NASDAQ: DMRC) is a pioneer in the automatic identification of media, including packaging, other commercial print, digital images, audio and video. The Digimarc Platform provides innovative and comprehensive automatic identification software and services to simplify search and transform information discovery through unparalleled reliability, efficiency and security. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others. Digimarc is based in Beaverton, Oregon, with a growing supplier network around the world. Visit digimarc.com and follow us @digimarc to learn more about The Barcode of Everything®.

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, 2019, 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.

            Digimarc Corporation

            Consolidated Income Statement Information

            (in thousands, except per share amounts)


     Three Month Information                                      
       Nine Month Information

              September 30,                                    
              September 30,           
     September 30,            
     September 30,

                                                                                          2020                                                             2019                         2020                          2019


     Service                                                                           $3,352                                                           $3,160                      $10,982                       $10,549

     Subscription                                                                       2,399                                                            2,668                        7,455                         7,119

     Total revenue                                                                      5,751                                                            5,828                       18,437                        17,668

              Cost of revenue:

     Service                                                                            1,406                                                            1,409                        4,691                         4,730

     Subscription                                                                         522                                                              509                        1,548                         1,507

     Total cost of revenue                                                              1,928                                                            1,918                        6,239                         6,237

              Gross profit:

     Service                                                                            1,946                                                            1,751                        6,291                         5,819

     Subscription                                                                       1,877                                                            2,159                        5,907                         5,612

     Total gross profit                                                                 3,823                                                            3,910                       12,198                        11,431

              Gross margin:

     Service                                                                              58%                                                             55%                         57%                          55%

     Subscription                                                                         78%                                                             81%                         79%                          79%

     Percentage of gross profit to total revenue                                          66%                                                             67%                         66%                          65%

              Operating expenses:

     Sales and marketing                                                                4,538                                                            4,839                       14,417                        14,876

     Research, development and engineering                                              4,662                                                            4,105                       13,303                        12,124

     General and administrative                                                         3,009                                                            2,998                        9,457                         9,287

     Total operating expenses                                                          12,209                                                           11,942                       37,177                        36,287

              Operating loss                                                        (8,386)                                                         (8,032)                    (24,979)                     (24,856)

              Other income, net                                                          36                                                              259                          257                           727

              Loss before income taxes                                              (8,350)                                                         (7,773)                    (24,722)                     (24,129)

              Benefit (provision) for income taxes                                      (2)                                                              12                            1                          (28)

              Net loss                                                             $(8,352)                                                        $(7,761)                   $(24,721)                    $(24,157)

              Earnings (loss) per common share:

              Loss per common share - basic                                         $(0.68)                                                         $(0.65)                     $(2.04)                      $(2.07)

              Loss per common share - diluted                                       $(0.68)                                                         $(0.65)                     $(2.04)                      $(2.07)

     Weighted average common shares outstanding - basic                                12,241                                                           11,924                       12,129                        11,693

     Weighted average common shares outstanding - diluted                              12,241                                                           11,924                       12,129                        11,693

              Digimarc Corporation

              Consolidated Balance Sheet Information

              (in thousands)


         September 30,       
     December 31,

                                                                                                                                                              2020                     2019


                Current assets:

              Cash and cash equivalents(1)                                                                                                                $45,461                  $11,213

              Marketable securities(1)                                                                                                                     17,194                   25,604

              Trade accounts receivable, net                                                                                                                3,022                    4,021

              Other current assets                                                                                                                          2,396                    2,456

                Total current assets                                                                                                            68,073                   43,294

              Property and equipment, net                                                                                                                   3,361                    3,650

              Intangibles, net                                                                                                                              6,604                    6,670

              Goodwill                                                                                                                                      1,114                    1,114

              Other assets                                                                                                                                  2,353                    2,660

                Total assets                                                                                                                   $81,505                  $57,388

                Liabilities and Shareholders' Equity

                Current liabilities:

              Accounts payable and other accrued liabilities                                                                                               $2,469                   $2,272

              Note payable, current                                                                                                                         3,096

              Deferred revenue                                                                                                                              2,098                    3,172

                Total current liabilities                                                                                                        7,663                    5,444

              Lease liability and other long-term liabilities                                                                                               2,712                    2,494

              Note payable, long-term                                                                                                                       1,957

                Total liabilities                                                                                                               12,332                    7,938

              Commitments and contingencies

              Shareholders' equity:

              Preferred stock                                                                                                                                  50                       50

              Common stock                                                                                                                                     15                       12

              Additional paid-in capital                                                                                                                  232,544                  188,103

              Accumulated deficit                                                                                                                       (163,436)               (138,715)

                Total shareholders' equity                                                                                                      69,173                   49,450

                Total liabilities and shareholders' equity                                                                                     $81,505                  $57,388

              (1) Aggregate cash, cash equivalents and marketable securities was $62,655 and $36,817 at
    September 30, 2020 and December 31, 2019, respectively.

             Digimarc Corporation

        Consolidated Cash Flow Information

              (in thousands)


       Nine Month Information

                September 30,       
     September 30,

                                                                                                                                                              2020                     2019

     Cash flows from operating activities:

     Net loss                                                                                                                                            (24,721)               $(24,157)

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

     Depreciation, amortization and write-off of property and equipment                                                                                     1,112                    1,098

     Amortization and write-off of intangibles                                                                                                                612                      533

     Stock-based compensation                                                                                                                               7,149                    6,094

     Changes in operating assets and liabilities:

     Trade accounts receivable                                                                                                                                999                      318

     Other current assets                                                                                                                                      60                    (782)

     Other assets                                                                                                                                             307                      263

     Accounts payable and other accrued liabilities                                                                                                           146                    1,086

     Deferred revenue                                                                                                                                     (1,092)                   (735)

     Lease liability and other long-term liabilities                                                                                                          236                    (481)

     Net cash used in operating activities                                                                                                               (15,192)                (16,763)

     Cash flows from investing activities:

     Purchase of property and equipment                                                                                                                     (694)                   (692)

     Capitalized patent costs                                                                                                                               (478)                   (524)

     Maturity of marketable securities                                                                                                                     30,598                   27,997

     Purchase of marketable securities                                                                                                                   (22,188)                (38,037)

     Net cash provided by (used in) investing activities                                                                                                    7,238                 (11,256)

     Cash flows from financing activities:

     Issuance of common stock, net of issuance costs                                                                                                       38,603                   19,615

     Proceeds from note payable                                                                                                                             5,032

     Exercise of stock options                                                                                                                                135                      293

     Purchase of common stock                                                                                                                             (1,568)                 (2,753)

     Net cash provided by financing activities                                                                                                             42,202                   17,155

     Net increase (decrease) in cash and cash equivalents(2)                                                                                              $34,248                $(10,864)

     Cash, cash equivalents and marketable securities at beginning of period                                                                               36,817                   43,656

     Cash, cash equivalents and marketable securities at end of period                                                                                     62,655                   42,832

     (2) Net increase (decrease) in cash, cash equivalents and marketable securities                                                                      $25,838                   $(824)

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SOURCE Digimarc Corporation