Subscription Revenue Increases 59% on
Current Products
Subscription Gross Profit Margin Reaches
84%
Digimarc Corporation (NASDAQ: DMRC) reported financial results
for the second quarter ended June 30, 2023.
"Q2 was a strong quarter on many fronts, a testament to our
focus on being easy to begin doing business with and excellent at
guiding customers along their product digitization journey," said
Digimarc CEO Riley McCormack. "A combination of our adding new
customers as well as expanding our relationships with existing
customers drove a 59% year-over-year increase in subscription
revenue from current products, and that, along with our continuing
platform unification work, drove a 1,100 basis point year-over-year
increase in subscription gross profit margin to 84%. The results of
our transformation are beginning to become obvious, and we are
excited and energized by what's ahead."
Second Quarter 2023 Financial Results
Subscription revenue for the second quarter of 2023 increased
44% to $4.7 million compared to $3.2 million in the second quarter
of 2022, primarily reflecting higher subscription revenue from new
commercial contracts, partially offset by $0.3 million of lower
subscription revenue as a result of sunsetting our Piracy
Intelligence product last year.
Service revenue for the second quarter of 2023 decreased 10% to
$4.1 million compared to $4.5 million in the second quarter of
2022, primarily reflecting $0.7 million of lower service revenue
from HolyGrail recycling projects, partially offset by $0.3 million
of higher service revenue from the Central Banks.
Total revenue for the second quarter of 2023 increased 13% to
$8.7 million compared to $7.7 million in the second quarter of
2022.
Gross profit margin for the second quarter of 2023 increased to
56% compared to 52% in the second quarter of 2022. Excluding
amortization expense on acquired intangible assets, subscription
gross profit margin improved to 84% from 73% while service gross
profit margin decreased to 51% from 61% in the second quarter of
2023 compared to the second quarter of 2022.
Non-GAAP gross profit margin for the second quarter of 2023
increased to 74% compared to 71% in the second quarter of 2022.
Operating expenses for the second quarter of 2023 decreased $2.8
million, or 15%, to $16.1 million compared to $18.9 million in the
second quarter of 2022, primarily reflecting $2.3 million of lower
compensation costs due to lower headcount, partially offset by
annual compensation adjustments, and $0.5 million of lower
contractor and consulting expenses.
Non-GAAP operating expenses for the second quarter of 2023
decreased $2.1 million, or 14%, to $12.9 million compared to $15.0
million in the second quarter of 2022.
Net loss for the second quarter of 2023 was $10.6 million or
$(0.53) per share compared to $14.6 million or $(0.75) per share in
the second quarter of 2022.
Non-GAAP net loss for the second quarter of 2023 was $5.8
million or $(0.29) per share compared to $9.2 million or $(0.47)
per share in the second quarter of 2022.
At June 30, 2023, cash, cash equivalents and marketable
securities totaled $34.5 million compared to $52.5 million at
December 31, 2022.
Conference Call
Digimarc will hold a conference call today (Wednesday, August 2,
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: 13737194
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
captures product data, records events and interactions, and enables
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. 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 June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Revenue:
Subscription
$
4,678
$
3,244
$
8,563
$
7,035
Service
4,052
4,503
8,010
8,123
Total revenue
8,730
7,747
16,573
15,158
Cost of revenue:
Subscription (1)
771
886
1,566
1,928
Service (1)
1,968
1,744
3,683
3,575
Amortization expense on acquired
intangible assets
1,122
1,120
2,211
2,314
Total cost of revenue
3,861
3,750
7,460
7,817
Gross profit:
Subscription (1)
3,907
2,358
6,997
5,107
Service (1)
2,084
2,759
4,327
4,548
Amortization expense on acquired
intangible assets
(1,122
)
(1,120
)
(2,211
)
(2,314
)
Total gross profit
4,869
3,997
9,113
7,341
Gross profit margin:
Subscription (1)
84
%
73
%
82
%
73
%
Service (1)
51
%
61
%
54
%
56
%
Total gross profit margin
56
%
52
%
55
%
48
%
Operating expenses:
Sales and marketing
5,106
8,073
11,404
16,018
Research, development and engineering
6,161
6,065
13,987
12,156
General and administrative
4,352
4,487
8,979
10,895
Amortization expense on acquired
intangible assets
268
321
528
663
Impairment of lease right of use assets
and leasehold improvements
250
-
250
574
Total operating expenses
16,137
18,946
35,148
40,306
Operating loss
(11,268
)
(14,949
)
(26,035
)
(32,965
)
Other income, net
647
93
1,392
89
Loss before income taxes
(10,621
)
(14,856
)
(24,643
)
(32,876
)
(Provision) benefit for income taxes
(2
)
217
(20
)
456
Net loss
$
(10,623
)
$
(14,639
)
$
(24,663
)
$
(32,420
)
Loss per share:
Loss per share — basic
$
(0.53
)
$
(0.75
)
$
(1.23
)
$
(1.76
)
Loss per share — diluted
$
(0.53
)
$
(0.75
)
$
(1.23
)
$
(1.76
)
Weighted average shares outstanding —
basic
20,162
19,539
20,128
18,448
Weighted average shares outstanding —
diluted
20,162
19,539
20,128
18,448
(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 June
30,
Six Months Ended June
30,
2023
2022
2023
2022
GAAP gross
profit
$
4,869
$
3,997
$
9,113
$
7,341
Amortization of acquired intangible
assets
1,122
1,120
2,211
2,314
Amortization and write-off of other
intangible assets
146
144
290
285
Stock-based compensation
318
265
556
466
Non-GAAP gross profit
$
6,455
$
5,526
$
12,170
$
10,406
Non-GAAP gross profit margin
74
%
71
%
73
%
69
%
GAAP operating
expenses
$
16,137
$
18,946
$
35,148
$
40,306
Depreciation and write-off of property and
equipment
(260
)
(330
)
(688
)
(720
)
Amortization of acquired intangible
assets
(268
)
(321
)
(528
)
(663
)
Amortization and write-off of other
intangible assets
(9
)
(29
)
(48
)
(59
)
Amortization of lease right of use assets
under operating leases
(166
)
(249
)
(332
)
(520
)
Stock-based compensation
(2,260
)
(3,009
)
(4,898
)
(5,276
)
Impairment of lease right of use assets
and leasehold improvements
(250
)
—
(250
)
(574
)
Acquisition-related expenses
—
(3
)
—
(447
)
Non-GAAP operating expenses
$
12,924
$
15,005
$
28,404
$
32,047
GAAP net
loss
$
(10,623
)
$
(14,639
)
$
(24,663
)
$
(32,420
)
Total adjustments to gross profit
1,586
1,529
3,057
3,065
Total adjustments to operating
expenses
3,213
3,941
6,744
8,259
Non-GAAP net loss
$
(5,824
)
$
(9,169
)
$
(14,862
)
$
(21,096
)
GAAP loss per share
(diluted)
$
(0.53
)
$
(0.75
)
$
(1.23
)
$
(1.76
)
Non-GAAP net loss
$
(5,824
)
$
(9,169
)
$
(14,862
)
$
(21,096
)
Non-GAAP loss per share (diluted)
$
(0.29
)
$
(0.47
)
$
(0.74
)
$
(1.14
)
Digimarc Corporation
Consolidated Balance Sheet
Information
(in thousands)
(Unaudited)
June 30,
December 31,
2023
2022
ASSETS
Current assets:
Cash and cash equivalents (1)
$
26,825
$
33,598
Marketable securities (1)
7,717
18,944
Trade accounts receivable, net
11,981
5,427
Other current assets
4,445
6,172
Total current assets
50,968
64,141
Property and equipment, net
1,775
2,390
Intangibles, net
31,421
33,170
Goodwill
8,568
8,229
Lease right of use assets
4,202
4,720
Other assets
1,388
1,127
Total assets
$
98,322
$
113,777
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable and other accrued
liabilities
$
5,162
$
5,989
Deferred revenue
8,101
4,145
Total current liabilities
13,263
10,134
Long-term lease liabilities
6,066
5,977
Other long-term liabilities
355
76
Total liabilities
19,684
16,187
Shareholders’ equity:
Preferred stock
50
50
Common stock
20
20
Additional paid-in capital
371,893
367,692
Accumulated deficit
(290,472
)
(265,809
)
Accumulated other comprehensive loss
(2,853
)
(4,363
)
Total shareholders’ equity
78,638
97,590
Total liabilities and shareholders’
equity
$
98,322
$
113,777
(1)
Aggregate cash, cash equivalents, and
marketable securities was $34,542 and $52,542 at June 30, 2023 and
December 31, 2022, respectively.
Digimarc Corporation
Consolidated Cash Flow
Information
(in thousands)
(Unaudited)
Six Months Ended June
30,
2023
2022
Cash flows from operating activities:
Net loss
$
(24,663
)
$
(32,420
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and write-off of property and
equipment
688
720
Amortization of acquired intangible
assets
2,739
2,977
Amortization and write-off of other
intangible assets
338
344
Amortization of lease right of use assets
under operating leases
332
520
Stock-based compensation
5,454
5,742
Impairment of lease right of use assets
and leasehold improvements
250
574
Changes in operating assets and
liabilities:
Trade accounts receivable
(6,492
)
1,776
Other current assets
1,827
(600
)
Other assets
(268
)
(568
)
Accounts payable and other accrued
liabilities
(839
)
(2,881
)
Deferred revenue
4,106
(1,043
)
Lease liability and other long-term
liabilities
38
(808
)
Net cash used in operating activities
(16,490
)
(25,667
)
Cash flows from investing activities:
Net cash paid for acquisition
—
(3,512
)
Purchase of property and equipment
(121
)
(716
)
Capitalized patent costs
(198
)
(271
)
Proceeds from maturities of marketable
securities
19,984
11,148
Purchases of marketable securities
(8,664
)
(4,908
)
Net cash provided by investing
activities
11,001
1,741
Cash flows from financing activities:
Issuance of common stock, net of issuance
costs
—
58,220
Purchase of common stock
(1,280
)
(974
)
Repayment of loans
(16
)
(17
)
Net cash (used in) provided by financing
activities
(1,296
)
57,229
Effect of exchange rate on cash
12
(41
)
Net (decrease) increase in cash and cash
equivalents (2)
$
(6,773
)
$
33,262
Cash, cash equivalents and marketable
securities at beginning of period
52,542
41,618
Cash, cash equivalents and marketable
securities at end of period
34,542
68,390
(2) Net (decrease) increase in cash, cash
equivalents and marketable securities
$
(18,000
)
$
26,772
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802322019/en/
Charles Beck Chief Financial Officer Charles.Beck@digimarc.com
+1 503-469-4721
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